EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
AMONG
THOMPSON-HYSELL, INC.
AND
THE KEITH COMPANIES, INC.
April 9, 1999
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1 PURCHASE AND SALE OF ASSETS.................................. 1
1.1 Assets to be Transferred..................................... 1
1.2 Excluded Assets.............................................. 3
(a) Consideration.......................................... 3
(b) Corporate Franchise.................................... 3
(c) Tax Matters............................................ 3
(d) Agreement.............................................. 3
(e) Other Rights........................................... 3
ARTICLE 2 LIABILITIES.................................................. 4
2.1 Excluded Liabilities......................................... 4
2.2 Assumed Liabilities.......................................... 4
2.3 No Assignment Causing Breach................................. 5
ARTICLE 3 PURCHASE PRICE............................................... 5
3.1 Purchase Price............................................... 5
3.2 Book Value Adjustment........................................ 5
3.3 Purchase Price Adjustment.................................... 6
3.4 Terms of Promissory Note..................................... 7
3.5 Additional Payment........................................... 7
3.6 Payment of Purchase Price.................................... 8
3.7 Allocation of Purchase Price................................. 8
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER AND THE
SHAREHOLDERS................................................. 9
4.1 Corporate.................................................... 9
(a) Organization........................................... 9
(b) Corporate Power........................................ 9
(c) Qualification.......................................... 9
(d) Subsidiaries........................................... 9
(e) Corporate Documents, etc............................... 9
(f) Capitalization of the Seller........................... 10
4.2 Authorization; Validity...................................... 10
4.3 No Violation................................................. 11
4.4 Financial Statements......................................... 11
4.5 Tax Matters.................................................. 11
4.6 Accounts Receivable and Costs in Excess of Billings.......... 12
4.7 Work-in-Process.............................................. 12
4.8 Absence of Certain Changes................................... 12
(a) No Adverse Change...................................... 12
(b) No Damage.............................................. 13
(c) No Increase in Compensation............................ 13
(d) No Labor Disputes...................................... 13
(e) No Commitments......................................... 13
(f) No Dividends........................................... 13
(g) No Disposition of Property............................. 13
(h) No Indebtedness........................................ 13
(i) No Liens............................................... 13
(j) No Amendment of Contracts.............................. 13
(k) Loans and Advances..................................... 13
-i-
(l) Credit................................................. 14
(m) No Unusual Events...................................... 14
4.9 Absence of Undisclosed Liabilities........................... 14
4.10 No Litigation................................................ 14
4.11 Compliance With Laws......................................... 15
(a) Compliance............................................. 15
(b) Licenses and Permits................................... 15
4.12 Title to and Condition of Properties......................... 15
(a) Marketable Title....................................... 15
(b) Condition.............................................. 16
(c) Real Property.......................................... 16
(d) No Condemnation or Expropriation....................... 17
4.13 Insurance.................................................... 17
4.14 Contracts and Commitments.................................... 18
(a) Real Property Leases................................... 18
(b) Personal Property Leases............................... 18
(c) Purchase Commitments................................... 18
(d) Sales Commitments...................................... 18
(e) Contracts With Affiliates and Certain Others........... 18
(f) Powers of Attorney..................................... 18
(g) Collective Bargaining Agreements....................... 18
(h) Loan Agreements........................................ 18
(i) Guarantees............................................. 19
(j) Burdensome or Restrictive Agreements................... 19
(k) Other Material Contracts............................... 19
(l) No Default............................................. 19
4.15 Labor Matters................................................ 19
4.16 Employee Benefit Plans....................................... 20
(a) Disclosure............................................. 20
(b) Terminations, Proceedings, Penalties, etc.............. 20
(c) Prohibited Transactions, etc........................... 21
(d) Full Funding........................................... 22
(e) Controlled Group; Affiliated Service Group;
Leased Employees....................................... 22
(f) Payments and Compliance................................ 22
(g) Post-Retirement Benefits............................... 23
(h) No Triggering of Obligations........................... 23
(i) Delivery of Documents.................................. 23
(j) Future Commitments..................................... 24
4.17 Employment Compensation...................................... 24
4.18 Trade Rights................................................. 24
4.19 Major Customers and Suppliers................................ 25
(a) Major Customers........................................ 25
(b) Major Suppliers........................................ 25
4.20 Warranty and Product Liability............................... 25
4.21 Bank Accounts................................................ 26
4.22 Affiliates, Relationships to Seller.......................... 26
(a) Contracts With Affiliates.............................. 26
(b) No Adverse Interests................................... 26
(c) Obligations............................................ 26
4.23 No Brokers or Finders........................................ 26
4.24 Disclosure................................................... 26
-ii-
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER.................. 26
5.1 Corporate.................................................... 26
5.2 Authority.................................................... 27
5.3 Consents, Approvals and Authorizations....................... 27
5.4 Violations................................................... 27
5.5 No Brokers or Finders........................................ 27
5.6 Shares Issued as Additional Payment.......................... 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
(a) No Changes............................................. 28
(b) Maintain Organization.................................. 28
(c) No Breach.............................................. 29
(d) No Material Contracts.................................. 29
(e) Material Transactions.................................. 29
(f) No Corporate Changes................................... 30
(g) Maintenance of Insurance............................... 30
(h) Maintenance of Property................................ 30
(i) Interim Financials.. .................................. 30
6.3 No Negotiations.............................................. 31
6.4 Consents..................................................... 31
6.5 Other Action................................................. 31
6.6 Disclosure Schedule.......................................... 31
6.7 Confidentiality.............................................. 31
(a) Covenant............................................... 31
(b) Employees.............................................. 32
(c) Equitable Relief for Violations........................ 32
6.8 Insurance.................................................... 32
6.9 Use of Seller's Names........................................ 34
6.10 Sales Tax.................................................... 34
6.11 Employee Matters............................................. 34
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.................................................... 35
7.3 Insurance.................................................... 35
7.4 Reservation of Stock Options................................. 35
7.5 Maintain Records............................................. 35
7.6 Personal Guaranties.......................................... 35
7.7 Separate Accounting.......................................... 35
7.8 Equivalent Compensation...................................... 36
ARTICLE 8 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS.............. 36
8.1 Representations and Warranties True as of the
Closing Date................................................. 36
8.2 Compliance With Agreement.................................... 36
8.3 Absence of Suit.............................................. 36
8.4 Consents and Approvals....................................... 37
8.5 Section 1445 Affidavit....................................... 37
-iii-
8.6 Lease........................................................ 37
8.7 Insurance.................................................... 37
8.8 Initial Public Offering of Purchaser......................... 37
ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND
THE SHAREHOLDERS............................................. 37
9.1 Representations and Warranties True on the Closing Date...... 37
9.2 Compliance With Agreement.................................... 37
9.3 Absence of Suit.............................................. 37
9.4 Initial Public Offering of Purchaser......................... 38
9.5 Leases....................................................... 38
ARTICLE 10 SURVIVAL AND EFFECT OF WARRANTIES, REPRESENTATIONS
AND COVENANTS................................................ 38
10.1 Integration.................................................. 38
ARTICLE 11 INDEMNIFICATION.............................................. 38
11.1 By Seller and the Shareholders............................... 38
11.2 By Purchaser................................................. 39
11.3 Indemnification of Third-Party Claims........................ 39
(a) Notice and Defense..................................... 39
(b) Failure to Defend...................................... 39
(c) Indemnified Party's Rights............................. 40
11.4 Payment...................................................... 40
11.5 Limitations on Indemnification............................... 40
11.6 No Waiver.................................................... 41
11.7 Exclusivity.................................................. 41
ARTICLE 12 CLOSING...................................................... 42
12.1 Closing...................................................... 42
12.2 Documents to be Delivered by Seller.......................... 42
(a) Bills of Sale.......................................... 42
(b) Compliance Certificates................................ 42
(c) Certified Resolutions.................................. 42
(d) Shareholder Releases................................... 43
(e) Other Documents........................................ 43
12.3 Documents to be Delivered by Purchaser....................... 43
(a) Purchase Note.......................................... 43
(b) Assumption of Liabilities.............................. 43
(c) Compliance Certificate................................. 43
(d) Certified Resolutions.................................. 43
(e) Other Documents........................................ 43
ARTICLE 13 TERMINATION.................................................. 44
13.1 Termination.................................................. 44
13.2 Effect of Termination........................................ 44
ARTICLE 14 MISCELLANEOUS................................................ 44
14.1 Further Assurance............................................ 44
14.2 Parties in Interest.......................................... 45
14.3 Law Governing Agreement...................................... 45
14.4 Notice....................................................... 45
-iv-
14.5 Amendment and Modification................................... 46
14.6 Announcements................................................ 46
14.7 Expenses..................................................... 46
(a) Brokerage.............................................. 46
(b) Transfer Taxes......................................... 47
(c) Expenses............................................... 47
(d) Costs of Litigation.................................... 47
14.8 Entire Agreement............................................. 47
14.9 Counterparts................................................. 47
14.10 Headings..................................................... 47
14.11 Further Documents............................................ 47
14.12 Severability................................................. 47
14.13 No Third Party Beneficiaries................................. 48
14.14 Cumulative Effect of Representations......................... 48
14.15 Risk of Loss................................................. 48
-v-
ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT ("Agreement") dated as of April 9, 1999 by
---------
and among THE KEITH COMPANIES, INC., a California corporation ("Purchaser") and
---------
THOMPSON-HYSELL, INC., a California corporation ("Seller"), and the shareholders
------
identified on the signature page below (collectively, the "Shareholders").
------------
Seller is in the business of providing engineering, surveying, mapping and
Construction Management Services (the "Business") from its facilities located at
--------
1016 12th Street, Modesto, California 95354 and 2496 West 4700 South,
Taylorsville, Utah 84118 (collectively, the "Facilities").
----------
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. Accordingly, Seller and
Purchaser hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
---------------------------
1.1 Assets to be Transferred. Except as hereinafter provided, on the
------------------------
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
- -----------------
those items in the following categories useful in the Business, but shall not
include the Excluded Assets:
(a) all inventories, accounts and notes receivable, costs in excess
of billings, deferred charges (excluding prepaid income taxes, if any),
deposits, advance payments and prepaid items;
(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;
(c) all contracts, including purchase orders and sales contracts, and
all backlog and work in progress, leases and
-1-
agreements, including those listed on Exhibit 1.1(c) attached hereto;
--------------
(d) all licenses, easements, rights of entry and similar rights of
Seller, including those listed in Exhibit 1.1(d) attached hereto;
--------------
(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 1.1(e) attached
--------------
hereto;
(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 "Thompson-Hysell," "Thompson-
Hysell Engineering," "Thompson-Hysell, Inc.," "Thompson-Hysell
Enterprises," and any other names as have been 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 insurance policies relating to the Purchased Assets;
(i) all governmental and business permits, licenses, authorizations
and manufacturing association certifications
-2-
owned or held by Seller, including those set forth in Exhibit 1.1(f)
--------------
attached hereto;
(j) Originals or copies of all books and records (other than
personnel records and other than those referred to in Section 1.2(b)) 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; and
(k) all claims or rights of Seller to receive refunds 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 treated as assets
on the balance sheet included in the Recent GAAP Financial Statements (as
hereinafter defined).
1.2 Excluded Assets. The following shall be retained by Seller and
---------------
excluded from the Purchased Assets (the "Excluded Assets"):
---------------
(a) Consideration. The consideration delivered by Purchaser to
-------------
Seller pursuant to this Agreement;
(b) Corporate Franchise. Seller's franchise to be a corporation
-------------------
(except its continued use of the names described in Section 1.1(f) above),
--------------
its article 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 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 not
treated as assets on the balance sheet included in the Recent GAAP
Financial Statements;
(d) Agreement. Rights and/or claims of Seller arising out of this
---------
Agreement and any other agreement with Purchaser; and
(e) Other Rights. All contracts, leases and agreements listed on
------------
Exhibit 1.2(e) attached hereto.
--------------
ARTICLE 2
LIABILITIES
-----------
2.1 Excluded Liabilities. Except as set forth in Section 2.2, in
-------------------- -----------
Schedule 4.9, or (except as indicated on Schedule 2.1) as accrued on the Recent
- ------------ ------------
GAAP Financial Statements (as defined in Section 4.4), Purchaser does not
-----------
assume, agree to
-3-
perform or discharge or otherwise have any liability or obligation with respect
to any of the following liabilities, debts, contracts or obligations of Seller,
and Seller shall remain solely responsible for satisfying, discharging or
performing all of the following liabilities, debts, contracts and obligations on
a timely basis in accordance with their respective terms (the following
liabilities, debts, contracts and obligations of Seller are hereinafter referred
to as the "Excluded Liabilities") any of Seller's or its officers', directors',
--------------------
or shareholders' liabilities or obligations for any breach or failure to perform
any of their duties (including fiduciary duties such as the duty of loyalty and
the duty of good faith and fair dealing), covenants, obligations and agreements
(i) contained in, or made pursuant to, this Agreement or (ii) resulting from
claims made by anyone with respect to the consideration payable by Purchaser to
Seller and the Shareholders or the transactions contemplated by this Agreement.
2.2 Assumed Liabilities. At the Closing, and without limiting
-------------------
Purchaser's right to indemnification pursuant to Article 11, and except as
----------
indicated on Schedule 2.1, Purchaser shall assume only the following specific
------------
liabilities and obligations of Seller to the extent they are unpaid, undelivered
or unperformed on the Closing Date (collectively, the "Assumed Liabilities"):
-------------------
(a) Except as indicated on Schedule 2.1, all liabilities of Seller of
------------
the nature reflected or reserved against on the Recent GAAP Financial
Statement, but not in excess of (i) the amount of such liabilities set
forth on the Recent GAAP Financial Statements (ii) as reduced by
liabilities paid or discharged after the Balance Sheet Date (as hereinafter
defined) and (iii) as increased by liabilities incurred after the Balance
Sheet Date in the ordinary course of business and in compliance with the
representations, warranties and covenants contained in this Agreement,
including, without limitation: (A) trade accounts payable; and (B) accrued
expenses, salaries and wages, vacation pay, payroll taxes, insurance, real
estate taxes, personal property taxes, sales and excise taxes, and other
expenses;
(b) Seller's obligations to perform after the Closing under all
contracts, contractual rights, purchase orders, sales orders, leases, loan
agreements and promissory notes ("Contracts").
---------
(c) Any and all tax liabilities of Seller arising prior to the
Closing or arising subsequent thereto as a result of events or conditions
which existed prior to the Closing; and
(d) Any and all liabilities of any kind whatsoever, whether disclosed
or undisclosed, contingent or accrued.
2.3 No Assignment Causing Breach. The consummation of the transactions
----------------------------
contemplated by this Agreement shall not constitute an assignment of any lease,
contract, agreement or license or any
-4-
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 as the case may be, 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 and expense of
Purchaser, and Purchaser and for the benefit of Purchaser, of any and all rights
of Seller, as the case may be, 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, as the case may be, 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
--------------
3.1 Purchase Price. The aggregate purchase price for the Purchased
--------------
Assets of Seller (the "Purchase Price") shall be the sum of the following: (a)
--------------
Three Million Three Hundred Thirty Three Thousand Three Hundred and Thirty Three
Dollars ($3,333,333) (the "Seller Cash Amount"), (b) the Book Value Adjustment
------------------
(defined below) as described in Section 3.2 below, (c) a Promissory Note with
-----------
the original principal amount of One Million Three Hundred Thirty-Three Thousand
Three Hundred and Thirty-Three Dollars ($1,333,333), subject to adjustment as
provided in Section 3.4 below (the "Purchase Note"), (d) the assumption of the
----------- -------------
Assumed Liabilities of Seller, (e) the Additional Payment under the
circumstances provided in Section 3.5 hereof, and (f) the payment described in
-----------
Section 3.3.
- -----------
3.2 Book Value Adjustment. Purchaser shall pay to Seller an amount, if
---------------------
any (the "Closing Balance Sheet Payment"), equal to the Book Value Adjustment
-----------------------------
(defined below). The "Book Value Adjustment" shall mean an amount equal to
---------------------
$1.00 multiplied by the difference between, on the one hand, $1,000,000, and on
the other hand, the Net Book Value indicated on a balance sheet (the "Closing
-------
Balance Sheet") prepared and delivered by Purchaser to Seller within one hundred
- -------------
and thirty five (135) days following the Closing Date (or the soonest
practicable date thereafter if the delay results from inadequacies in Seller's
records or accounting systems) by recording the Purchased Assets (excluding
intangible assets) and the Assumed Liabilities, and otherwise in accordance with
Generally Accepted Accounting Principles as consistently applied using the same
methodology as the Recent GAAP Financial Statements (defined
-5-
below), including the standards expressed in Statement of Position 81-1 (all of
the foregoing are collectively referred to herein as "GAAP"); provided, however
----
that in no event shall the amount of the Book Value Adjustment exceed $500,000.
If Purchaser does not deliver the Closing Balance Sheet within the time frame
set forth above, the Book Value Adjustment shall be deemed to be $500,000. If
the Book Value adjustment is negative, then it shall reduce the principal amount
of the Purchase Note effective as of the date of issuance thereof. If the Book
Value Adjustment is positive, Purchaser shall pay it in accordance with Section
-------
3.6(c). If Seller and the Shareholders do not agree upon the Closing Balance
- ------
Sheet within five (5) business days of receipt of the Closing Balance Sheet from
Purchaser and so notify Purchaser, 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. If Seller and the Shareholders do not object to
the Closing Balance Sheet within such five (5) business day period, then it
shall be deemed accepted. Said firm shall be required to apply "GAAP" as defined
herein. Purchaser and Seller shall each pay one half of the expense of such firm
of regionally recognized certified public accountants.
3.3 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, including, without limitation, all of Seller's
California state income tax liability for the period from January 1, 1999
through the Closing. 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 3.3, 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) giving effect to the impact of the 1.5% California
income tax on the taxable net income of S corporations as affected by the
adjustments, if any, to the Purchase Price as a result of 1999 EBIT or 2000 EBIT
(as defined below), (iii) based solely upon the Closing Balance Sheet (except to
the extent that a final determination of the allocation of the Purchase Price
results in the assessment of a greater income tax to Seller and the
Shareholders). The parties shall use all commercially reasonable efforts to
support the allocation set forth in Section 3.7 and to mitigate the income tax
-----------
liability with respect to the transactions contemplated hereby. This Purchase
Price Adjustment shall be payable by Purchaser pursuant to Section 3.6(c).
--------------
3.4 Terms of Promissory Note. The Purchase Note shall bear interest at
------------------------
the rate of ten percent (10%) per annum, simple interest payable January 1,
April 1, July 1, and November 1 and shall be subject to adjustment as provided
below. The principal
-6-
amount of the Purchase Note shall be increased or reduced $67.00 for every
$100.00 by which 2000 EBIT (as defined below) exceeds or is less than,
respectively, $2,160,000. For purposes of this Agreement, "EBIT" shall mean the
----
earnings of the Business calculated in accordance with GAAP, before subtracting
interest expense or income tax expense and shall not include an amount for
General and Administrative Expenses (or an allocation related thereto) greater
than the amount indicated on the Recent GAAP Financial Statements adjusted
annually for any increases in the Consumer Price Index most closely associated
with the San Francisco metropolitan area. "2000 EBIT" shall mean the EBIT for
---------
the year ended December 31, 2000, adjusted as follows: If the EBIT for the year
ended December 31, 2000 is less than $2,160,000, then the amount of EBIT for the
year ended December 31, 1998 in excess of $1,500,000 shall be added to the EBIT
for the year ended December 31, 2000; provided however, that such excess amount
so added cannot either (i) exceed $500,000 or (ii) exceed an amount which will
cause the sum of the actual EBIT for the year ended December 31, 2000 and the
amount so added to exceed $2,160,000. All accrued but unpaid interest and all
principal (as adjusted hereby) shall be paid within ten (10) days of the date
Purchaser's Form 10-K for the year ended December 31, 2000 must be filed with
the United States Securities and Exchange Commission (or would have had to have
been filed, in the event Purchaser is not a registrant pursuant to the
Securities Exchange Act of 1934). If the principal amount of the Purchase Note
is decreased because the Book Value Adjustment is a negative number or because
of the adjustment specified in the second sentence of this Section 3.4, the
-----------
interest otherwise payable on the Purchase Note shall be reduced as though such
principal amount were reduced as of the issuance of the Purchase Note 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.
3.5 Additional Payment. Within ten (10) days of the date Purchaser's
------------------
Form 10-K for the year ended December 31, 1999 must be filed with the United
States Securities and Exchange Commission (or would have had to have been filed,
in the event Purchaser is not a registrant pursuant to the Securities Exchange
Act of 1934), Purchaser shall transfer that number of shares (rounded to the
nearest whole share) of Purchaser's common stock (the "Additional Payment")
------------------
equal to the Earnout Amount (as defined below) divided by the price at which
such stock was sold to the public upon the Purchaser's initial public offering.
The "Earnout Amount" shall mean $1,333,334 increased or reduced $67.00 for every
--------------
$100.00 by which 1999 EBIT (as defined below) exceeds or is less than,
respectively, $1,800,000. "1999 EBIT" shall mean EBIT for the year ended
---------
December 31, 1999. The Additional Payment shall have certain rights and
restrictions, which such rights and restrictions shall be set forth in detail in
that certain Registration Rights Agreement, substantially in the form of Exhibit
-------
3.5 attached hereto.
- ---
3.6 Payment of Purchase Price. Purchaser will pay Seller the Purchase
-------------------------
Price as follows:
-7-
(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.
(c) Within ten (10) business days of the date upon which the Closing
Balance Sheet is final, Purchaser shall deliver the amount specified in
Section 3.3 and the Book Value Adjustment, if any, 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 the time for payment thereof;
(d) At the Closing, the Purchase Note; and
(e) At the time indicated in Section 3.5, the Additional Payment.
-----------
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;
(b) To goodwill, the remainder of the Purchase Price and Assumed
Liabilities.
The parties 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.
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, 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
-8-
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.
4.1 Corporate.
---------
(a) Organization. Seller is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of California.
(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 except where the cumulative effect of all failures to be so
qualified would not have a material adverse effect on the Business. 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).
---------------
(f) Capitalization of the Seller. The authorized capital stock of
----------------------------
the Seller is as set forth on Schedule 4.1(f). 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
-9-
the respective numbers set forth in 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
-10-
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 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 except where the cumulative
effect of any such violations, lack of consents or creation of Liens would not
have a material adverse effect on the Business.
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, and
------------
(ii) a balance sheet (the "Recent Balance Sheet") of Seller as of December 31,
--------------------
1998 (the "Balance Sheet Date") and the related statements of income and cash
------------------
flows for the months then ended and for the corresponding period of the prior
year (including the notes and schedules contained therein or annexed thereto)
(the "Recent GAAP Financial Statements"). The Recent GAAP Recent Statements
--------------------------------
have been 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 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) are true, complete and accurate.
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, all accounts receivable of Seller reflected on the
------------
Recent Balance Sheet, and as incurred in the normal course of business since the
date thereof, 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) in the ordinary course of business without the
necessity of commencing legal proceedings; are subject to no counterclaim or
setoff; and are not in dispute. Schedule 4.6 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" represents
costs incurred by 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
-11-
proceedings; is subject to no counterclaim or setoff; and is not in dispute.
4.7 Work-in-Process. Except as disclosed in Schedule 4.7, (i) all work-
--------------- ------------
in-process and contracts underway ("Work-In-Process") constitute work performed
---------------
pursuant to 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 the knowledge of the Seller and
the Shareholders, any such customer is in material breach of the terms of any
obligation to the other, and, to the knowledge of the Seller and the
Shareholders, 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 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 Balance
- ---
Sheet Date and, subsequent to the Closing Date, shall be updated to include the
schedules supporting the Recent GAAP Financial Statements) are estimates only
and could be completed if managed consistently with the past practices of the
Seller without adversely effecting, in the aggregate when complete, the
profitability of the Seller compared to previous periods; provided, however,
that the Seller and the Shareholders make no representations and warranties
concerning whether any customer will cancel any contract otherwise in accordance
with its terms.
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 material loss, damage or destruction, whether
---------
covered by insurance or not, affecting Seller's business or properties;
(c) No Increase in Compensation. Any material 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 other than in the ordinary course of business;
(d) No Labor Disputes. Any labor dispute, disturbance or organizing
-----------------
activity, other than routine individual
-12-
grievances which are not material to the business, financial condition or
results of operations of 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. Except to the extent necessary to enable the
------------
Shareholders to pay income taxes attributable to them from Seller for 1998
and the period beginning January 1, 1999 through the Closing, 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 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 national over-the-counter 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
-13-
(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, in Schedule 4.9,
------------
or otherwise not required to be disclosed pursuant to the terms of this
Agreement, 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 Seller 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), or where
---------- ----------------
the cumulative effect of failures to be in compliance would not have a
material adverse effect on the Business, 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, 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
-14-
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 actual 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
material 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, 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.
(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
-15-
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.
(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 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.
To the best of the Shareholders' actual knowledge, 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. 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
-16-
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 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. To the knowledge of Seller and the Shareholders, 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. 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.
(d) Sales Commitments. Except as set forth on Schedule 4.14(d),
----------------- ----------------
Seller has no sales contracts or commitments
-17-
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 result in a
profit margin to Seller less than that reported on the Recent GAAP
Financial Statements.
(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 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 in 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) 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.
(k) Other Material Contracts. Seller has no lease, contract or
------------------------
commitment of any nature involving consideration
-18-
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.
----------------
(l) 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.
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
-------------
material compliance with all applicable laws respecting employment and
employment practices, 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 to the knowledge of
Seller or the Shareholders, threatened; (c) there is no labor strike, dispute,
request for representation, slowdown or stoppage actually pending, or to the
knowledge of Seller or the Shareholders, 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, to the knowledge of Seller or the
Shareholders, 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
-19-
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 Buyer. 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 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,
-20-
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.
(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
-21-
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; (iv) 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 (v) 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 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, 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.
-22-
(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.
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 (12) month period ending as of the date of the
Recent GAAP Financial Statements, including bonuses and incentives, 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 in 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
-23-
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.
(b) Major Suppliers. Schedule 4.19(b) contains a list of the 5
--------------- ----------------
largest suppliers 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
-24-
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.
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
-25-
any broker or finder in connection with the transaction provided for herein or
in connection with the negotiation thereof.
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.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser makes 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.
-26-
5.4 Violations. The execution, delivery and performance of this
----------
Agreement do not and will not (i) contravene the Articles of Incorporation or
Bylaws of Purchaser; (ii) with or without the giving of notice or the passage of
time or both, constitute a default under, result in a breach of, result in the
termination of, result in the acceleration of performance of, require any
consent under, or result in the imposition of any encumbrance upon any material
assets of Purchaser under any material agreement or instrument to which
Purchaser is a party or by which any of the assets of Purchaser are bound the
occurrence of which would have a material adverse impact upon the financial
condition of Purchaser, or (iii) violate any law, statute or regulation or any
judgment, order, ruling or other decision of any governmental authority, court
or arbitrator.
5.5 No Brokers or Finders. Other than J. Gregory & Company, 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.
5.6 Shares Issued as Additional Payment. All of the shares of the
-----------------------------------
Purchaser's common stock, if any, issued as the Additional Payment contemplated
by Section 3.5, shall be, when issued, validly issued, fully paid and
-----------
nonassessable.
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 (5) years (and longer if required by law)
and (ii) give Purchaser, its counsel, accountants and other representatives
access during
-27-
normal business hours to all such books, records, contracts and documents of
Seller among the Excluded Assets as Purchaser shall reasonably request.
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 (other than the
change in accounting procedure resulting from the timing of the preparation
of the Balance Sheets) 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 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. No contract or commitment will be
---------------------
entered into, and no purchase of raw materials or supplies and no sale of
assets (real, personal, or mixed, tangible or intangible) will be made, by
or on behalf of the Seller except (i) contracts or commitments for the
purchase of, and purchases of, raw materials and supplies made in the
ordinary course of business and consistent with past practice, (ii)
contracts or commitments for the sale of, and sales of, services or
inventory in the ordinary course of business and consistent with past
practice, and (iii) other contracts, commitments, purchases or sales in the
ordinary course of business and consistent with past practice which are not
material to the Seller and which, had they been in existence on the date of
this Agreement, would not have been required to be disclosed in the
Disclosure Schedule.
(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
-28-
obligation other than in the ordinary course of business;
(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
other than in the ordinary course of business;
(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 $50,000 in the aggregate;
(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 Seller
may make any lease payments it is obligated to make under the lease
pursuant to which it occupies the Facilities.
-29-
(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 and other management reports on a
timely basis, and quarterly financial statements in accordance with GAAP by
such time as necessary to facilitate filings with the Securities and
Exchange Commission as and when they are available.
6.3 No Negotiations. From the date hereof until the Closing or the
---------------
termination of this Agreement, 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 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.
(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
-30-
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 8.1 but if
-----------
Purchaser does consummate the transactions contemplated hereby, such disclosure
shall be deemed to have cured any such breach of a representation or warranty;
any and all adverse changes contained in any such amendments shall be considered
in the determination of whether the condition under Section 8.1 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 (2) 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 date hereof 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 agree that the
-------------------------------
provisions and restrictions contained in this Section 6.7 are necessary to
-----------
protect the legitimate continuing 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.
------------
-31-
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 (which
shall not be construed to require the payment of cash) 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;
(iii) ensure that Purchaser will receive the benefit of
prepayments for insurance reflected on the Recent GAAP Financial
Statements or the GAAP Financial Statements;
(iv) upon the request and at the expense of Purchaser, obtain
discontinued products liability coverage that names Purchaser as named
insureds; and
(v) 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.
(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 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 Date, including retroactive premium
adjustments, and (iii) use its best efforts to assist in filing and
processing claims under, and
-32-
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 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 which consent shall not be
unreasonably withheld, make any use, in a commercial context, of the name
"Thompson" or "Hysell" or "Thompson-Hysell" 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. Notwithstanding Purchaser's obligations with respect to
---------
Section 14.7(b), 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 commercially reasonable actions
to allow Purchaser to avail itself of such exemptions.
6.11 Employee Matters. 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 employees of Seller who are employed by Purchaser immediately
after the Closing 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, respectively.
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
- -----------
-33-
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
-------------------------
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 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 Insurance. Following the Closing, Purchaser agrees that, to the
---------
extent that coverage under insurance policies included in the Purchased Assets
extends to include either Seller in respect of claims or occurrences concerning
Seller prior to the Closing that are among the Excluded Liabilities, Purchaser
will use its reasonable efforts to assist in filing and processing claims under,
and otherwise cooperate with Seller to allow them, in their own names, or on
behalf of Purchaser, to obtain all coverage benefits applicable to Purchaser or
Seller under such insurance policies, including without limitation the execution
of assignments or powers of attorney for the benefit of Seller. Any proceeds of
insurance paid by an insurer to Purchaser for claims of Seller and/or Purchaser
made in accordance with this Section shall be promptly paid to Seller, as the
case may be.
7.4 Reservation of Stock Options. Purchaser shall reserve 100,000
----------------------------
options to purchase Purchaser's common stock under Purchaser's existing stock
option plans for grants, as determined by Purchaser and Shareholders, to
employees of Seller who are employed by Purchaser or who may be hired by
Purchaser in the future.
7.5 Maintain Records. Following the Closing, Purchaser shall maintain
----------------
and provide Seller and the Shareholders access to the books, records, contracts
and documents of Seller among the purchased Assets for not less than five (5)
years (and longer if required by law).
-34-
7.6 Personal Guaranties. To the extent Purchaser is unable to cause any
-------------------
and all of the Shareholders' personal guaranties for the Assumed Liabilities to
be released on or prior to the Closing, Purchaser shall indemnify, defend and
hold harmless the Shareholders from any losses or damages (including attorneys'
fees and costs) they may suffer upon enforcement of such guaranties by the
holders thereof.
7.7 Separate Accounting. Purchaser covenants that for purposes of
-------------------
calculating 1999 EBIT and 2000 EBIT, Purchaser shall separately monitor and
account for the operations of the Business so as not to impair Seller's or the
Shareholders' ability to determine 1999 EBIT or 2000 EBIT as set forth in
Sections 3.4 and 3.5. Purchaser shall not take actions which unreasonably
- --------------------
prevent the Shareholders from managing the Business to maximize 1999 EBIT and
2000 EBIT.
7.8 Equivalent Compensation. Purchaser, upon hiring persons employed by
-----------------------
Seller as of the Closing, shall endeavor to insure that the overall compensation
package for such employees meets or exceeds the compensation package provided to
such employees by Seller. The compensation package may include such benefits as
401(k) contributions and salary and wages. The parties shall cooperate in
analyzing the equivalency of the foregoing and presenting any adjustments to
employees.
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:
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.
------------
-35-
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) 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 Section 1445 Affidavit. Seller shall have delivered to Purchaser an
----------------------
affidavit, in form satisfactory to Purchaser, to the effect that Seller is not a
"foreign person" under Section 1445 of the Code.
8.6 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.
8.7 Insurance. Seller shall have taken the actions contemplated by
---------
Section 6.10 to be taken prior to the Closing and the results of such actions
- ------------
shall be reasonably satisfactory to Purchaser.
8.8 Initial Public Offering of Purchaser. The Purchaser shall have
------------------------------------
received the proceeds from an initial public offering of Purchaser's common
stock pursuant to a registration statement on Form S-1 declared effective by the
United States Securities and Exchange Commission.
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 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
-36-
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 Initial Public Offering of Purchaser. The Purchaser shall have
------------------------------------
received the proceeds from an initial public offering of Purchaser's common
stock pursuant to a registration statement on Form S-1 declared effective by the
United States Securities and Exchange Commission.
9.5 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.
ARTICLE 10
SURVIVAL AND EFFECT OF WARRANTIES,
- ----------------------------------
REPRESENTATIONS AND COVENANTS
- -----------------------------
10.1 Integration. All statements and information contained in any
-----------
certificate, 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
----------
agree to indemnify, defend and hold harmless Purchaser, its directors, officers,
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 excluded Liabilities, (b) the inaccuracy or
breach of any representation or warranty of the Seller or any Shareholder
contained in or made pursuant to this Agreement, or (c) the breach of any
covenant of the Seller or any Shareholder contained in this Agreement provided,
however, that, except with respect to any Claims pursuant to the Excluded
Liabilities, Section 4.1, Section 4.2, Section 4.6, Section 4.7 and Section
--------------------------------------------------------------
4.12, Seller and the
- ----
-37-
Shareholders shall have no liability hereunder until the total liability
hereunder for all Claims considered together exceeds $150,000 (and then only to
the excess), and shall have no liability hereunder in excess of one half of the
Purchase Price, provided, however, that the exception to the limit on
indemnification for a breach of Section 4.6 shall apply only to the extent that
-----------
the amount of the Accounts Receivable and Costs in Excess of Billings reflected
on the Closing Balance Sheet which are in breach of Section 4.6 did not cause
-----------
the Book Value Adjustment to exceed $500,000. 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.
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.
-38-
(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 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.
-39-
11.5 Limitations on Indemnification. 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 eighteen (18) months following the Closing:
(i) The time limitation on claims on actions brought for breach
of any representation or warranty made by the Seller or the
Shareholders in or pursuant to Sections 4.1 and 4.2 shall be the
--------------------
applicable statutory limitation periods with respect thereto as
finally determined in any proceeding in which such defense is raised.
(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. Except as specifically provided herein, 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.
-40-
11.7 Exclusivity. From and after the Closing, the provisions of this
-----------
Article 11 shall be the exclusive basis for the assertion of claims by or
- ----------
imposition of liability on the parties hereto arising under or as a result of a
breach of any representation or warranty contained in or made pursuant to this
Agreement; provided, however, nothing herein shall preclude any party hereto
from asserting a claim (i) for monetary damages on a basis other than the breach
of a representation or warranty or (ii) for nonmonetary remedies.
ARTICLE 12
CLOSING
-------
12.1 Closing. The closing of the transactions contemplated hereby shall
-------
occur in two phases: Phase I of the closing ("Phase I") shall consist of the
-------
execution of all documents at such time as all of the conditions to Closing have
been satisfied except the condition specified in Sections 8.8 and 9.4 (the "IPO
-------------------- ---
Condition"), and the delivery of same to counsel for the Purchaser under
- ---------
instructions not to deliver such documents to the parties until the IPO
Condition has been satisfied. Phase I shall occur no later than two (2) days
before the anticipated execution by the Purchaser of a definitive underwriting
agreement between the Purchaser and the underwriter of its common stock. 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 the same time the IPO Condition is satisfied. Such
date is referred to in this Agreement as the "Closing Date."
------------
12.2 Documents to be Delivered by Seller. At Phase I, 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.
(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 material 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.
-41-
(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) Shareholder Releases. Releases executed by each of the direct
--------------------
and indirect shareholders of Seller in the form of Exhibit 12.2(d) hereto.
---------------
(e) 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 Documents to be Delivered by Purchaser. At Phase I, Purchaser shall
--------------------------------------
execute and deliver to its counsel the following documents, in each case duly
executed or otherwise in proper form:
(a) Purchase Note. The Purchase Note, substantially in the form of
-------------
Exhibit 12.3(a) 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 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 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.
-42-
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, on the other hand;
(b) by Purchaser, 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
which has not been waived in writing;
(c) by Seller, if there has been a material violation or breach by
Purchaser of any of the agreements, representations or warranties of
Purchaser 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 hereunder which has not been waived in writing;
(d) by Seller, at or before Phase I, if Phase I has not occurred by
November 15, 1999, and if so terminated by Seller, Purchaser shall
reimburse Seller for one half of its legal fees incurred as a result of the
transactions contemplated by this Agreement, up to $50,000; provided,
however, that Seller and the Shareholders will negotiate in good faith with
Purchaser to agree not to so terminate this Agreement if the satisfaction
of the IPO Condition is imminent; and
(e) by either party, in each party's sole discretion, within twenty
one (21) days of the date hereof, if the Exhibits and Schedules to be
attached hereto are not agreed to by the party to whom such Exhibit or
Schedule was delivered.
13.2 Effect of Termination. Notwithstanding the foregoing, termination of
---------------------
this Agreement pursuant to this Article 13 shall not in any way limit or
----------
restrict the rights and remedies of any party hereto against any other party
hereto which has violated or breached any of the representations, warranties,
agreements or other provisions of this Agreement prior to termination hereof.
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
-43-
Purchaser good, valid and marketable title to the Purchased Assets being
transferred hereunder.
14.2 Parties in Interest.
-------------------
(a) This Agreement shall not be assigned by a party hereto without
the prior written consent of the other parties hereto, except that (i) at
the direction of the Shareholders, all components of the Purchase Price
other than the Seller Cash Amount shall be payable to, or issued in the
name of, the individual Shareholders; and (ii) 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. Notwithstanding the foregoing, no such assignment
shall relieve Purchaser of its obligations hereunder.
(b) Purchaser may cause any wholly-owned subsidiary designated by it
("Acquisition Subsidiary") to carry out all or part of the transactions
----------------------
contemplated by this Agreement. If Purchaser notifies Seller in writing of
its election to cause an Acquisition Subsidiary to purchase all or part of
the Purchased Assets of Seller, Seller shall sell such Purchased Assets to
such Acquisition Subsidiary and such Acquisition Subsidiary shall assume
the corresponding Assumed Liabilities on the terms and conditions contained
herein, and such Acquisition Subsidiary shall otherwise acquire all of
Purchaser's right, title and interest hereunder with respect thereto.
Notwithstanding the foregoing, no such assignment shall relieve Purchaser
of its obligations hereunder.
14.3 Law Governing Agreement. 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.
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
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:
-44-
(a) If to Purchaser, to:
The Keith Companies, Inc.
2955 Redhill Avenue
Costa Mesa, CA 92626
Attention: Gary Campanaro
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 the addresses set
forth below the signature of each Shareholder below;
with a copy to:
Donald R. Share, Esq.
Greene Radovsky Maloney & Share LLP
Four Embarcadero Center, Suite 4000
San Francisco, California 94111-4108
Facsimile: (415) 777-4961
or to such other person or address as the Seller or any of the Shareholders
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. 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 Announcements. Announcements concerning the transactions provided
-------------
for in this Agreement by either Seller, on the one hand, or Purchaser, on the
other hand, shall be subject to the approval of the other in all essential
respects.
14.7 Expenses.
--------
(a) Brokerage. Seller and Purchaser each represent and warrant to
---------
each other that (other than J. Gregory & Company acting on behalf of
Purchaser), there is no broker involved or in any way connected with the
transfer provided for herein and
-45-
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
Purchaser.
(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
-46-
transactions contemplated hereby are fulfilled to the extent possible.
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. 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.
-47-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
PURCHASER: THE KEITH COMPANIES, INC.,
a California corporation
By: /s/ Gary C. Campanaro
---------------------
Its: CFO
------------------
SELLER: THOMPSON-HYSELL, INC.,
a California corporation
By:/s/ H. Stanley Thompson
-----------------------
Its: V.P.
-------------------
SHAREHOLDERS: /s/ H. Stanley Thompson
-----------------------
H. STANLEY THOMPSON
Address:
--------
(Illegible)
-----------------------
-----------------------
-----------------------
/s/ William B. Hysell
----------------------
WILLIAM B. HYSELL
Address:
--------
1713 River Road
-----------------------
Modesto, CA 95351
----------------------
----------------------
/s/ Thomas A. Holstrom
----------------------
THOMAS A. HOLSTROM
Address:
-------
(Illegible)
----------------------
----------------------
----------------------
/s/ Brian D. Jones
---------------------
BRIAN D. JONES
Address:
-------
(Illegible)
----------------------
----------------------
----------------------
(Signatures continued on following page)
-48-
/s/ Michael T. Persak
---------------------
MICHAEL T. PERSAK
Address:
-------
209 Charlemagne Way
----------------------
Modesto, CA 95350
----------------------
----------------------
/s/ Kent Hysell
-------------------------
KENT HYSELL
Address:
-------
31277 E. Lone Tree Road
-------------------------
Oakdale, CA 95361
-------------------------
-------------------------
-49-