EXHIBIT 4.2
STOCK PURCHASE AGREEMENT
DATED MAY 25, 2006
BY AND BETWEEN
MICHAEL H. LEE
Sole Stockholder of
WRC CORPORATION,
a Colorado Corporation
AS SELLER,
AND
ENGLOBAL CORPORATION,
a Nevada Corporation
AS PURCHASER
TABLE OF CONTENTS
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1. Purchase and Sale of Shares; Closing and Manner of Payment..................1
1.1 Agreement to Purchase and Sell Shares..................................1
1.2 Purchase Price.........................................................1
1.3 Manner of Payment of Purchase Price....................................1
1.4 Adjustments to the Purchase Price.....................................10
1.5 Manner of Delivery of Shares...........................................2
1.6 Time and Place of Closing..............................................2
2. Representations and Warranties..............................................2
2.1 General Statement......................................................2
2.2 Representations and Warranties of Purchaser............................2
2.3 Representations and Warranties of Seller as to Corporate Matters.......4
2.4 Representations and Warranties of Seller as to Financial Matters.......5
2.5 Representations and Warranties of Seller as to Conduct of Business....10
2.6 Representations and Warranties of Seller as to Contracts..............12
2.7 Representations and Warranties of Seller as to Employees..............15
2.8 Representations and Warranties of Seller as to Litigation and Claims..18
2.9 Representations and Warranties of Seller as to Environmental Matters..19
2.10 Representations and Warranties of Seller as to Real Estate...........20
2.11 Representations and Warranties of Seller as to Other Assets..........21
2.12 Representations and Warranties as to General Matters.................22
2.13 Individual Representations and Warranties of Seller..................23
3. Closing....................................................................24
3.1 Form of Documents.....................................................24
3.2 Purchaser's Deliveries................................................24
3.3 Seller's Deliveries...................................................25
4. Post-Closing Agreements....................................................26
4.1 Use of Trademarks.....................................................26
4.2 Back-Up...............................................................26
4.3 Payments of Accounts Receivable.......................................26
4.4 Third Party Claims....................................................26
4.5 Covenant Not to Compete...............................................26
4.6 Injunctive Relief and Termination.....................................27
4.7 Lock-Up Agreement.....................................................28
4.8 Registration of Shares................................................28
4.9 Further Assurances....................................................30
4.10 Changes in Company...................................................30
4.11 Insurance............................................................30
4.12 First Right of Refusal...............................................30
4.13 Release From Guarantee...............................................31
5. Indemnification............................................................31
5.1 General...............................................................31
5.2 Certain Definitions...................................................31
5.3 Seller's Indemnification Obligations..................................32
5.4 Purchaser's Indemnification Covenants.................................33
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5.5 Cooperation...........................................................34
5.6 Subrogation...........................................................34
5.7 Third Party Claims Other Than Taxes...................................34
5.8 Claims Involving Taxes................................................35
5.9 Characterization of Indemnity Payments................................36
5.10 Limitations on Indemnification Obligations...........................36
5.11 Exclusive Remedy/Set-Off.............................................36
5.12 Survival of Representations and Warranties...........................37
6. Miscellaneous..............................................................37
6.1 Publicity.............................................................37
6.2 Notices...............................................................37
6.3 Expenses; Transfer Taxes..............................................38
6.4 Entire Agreement......................................................39
6.5 Non-Waiver............................................................39
6.6 Counterparts..........................................................39
6.7 Severability..........................................................39
6.8 Applicable Law........................................................39
6.9 Binding Effect; Benefit...............................................39
6.10 Assignability........................................................40
6.11 Definitions..........................................................40
6.12 Construction.........................................................41
6.13 Amendments...........................................................42
6.14 Attorneys' Fees......................................................42
6.15 Venue and Jurisdiction...............................................42
Exhibit A Promissory Note
Exhibit B Escrow Agreement
Exhibit C Form of Employment Agreement
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STOCK PURCHASE AGREEMENT
------------------------
This Stock Purchase Agreement ("Agreement") is made as of May 25, 2006 (the
"Effective Date") between Michael H. Lee, the sole stockholder of WRC
Corporation, a Colorado corporation ("Seller"), and ENGlobal Corporation, a
Nevada corporation ("Purchaser").
RECITALS
--------
A. Seller owns all of the outstanding shares of capital stock ("Shares") of
WRC Corporation, a Colorado corporation (the "Company"). The Company is in the
business of providing integrated land, engineering and other services.
B. Purchaser desires to purchase all of the outstanding Shares from Seller
and Seller desires to sell such Shares to Purchaser, on the terms and subject to
the conditions in this Agreement.
C. Capitalized terms used in this Agreement are defined in the sections
noted in Section 6.11.
AGREEMENT
---------
The parties agree as follows:
1. Purchase and Sale of Shares; Closing and Manner of Payment
1.1 Agreement to Purchase and Sell Shares. On the terms and subject to the
conditions contained in this Agreement, Purchaser shall purchase from Seller,
and Seller shall sell to Purchaser, all of the outstanding Shares, free and
clear of all options, proxies, voting trusts, voting agreements, judgments,
pledges, charges, escrows, rights of first refusal or first offer, mortgages,
indentures, claims, transfer restrictions, liens, equities, security interests
and other encumbrances of every kind and nature whatsoever, whether arising by
agreement, operation of law or otherwise (collectively, "Claims").
1.2 Purchase Price. The aggregate purchase price of the Shares shall be
equal to $5,800,000 (the "Purchase Price"). In addition, at the Closing,
Purchaser shall pay in full the debt described in Section 3.2(c).
1.3 Manner of Payment of Purchase Price. The Purchase Price shall be paid
or satisfied as follows:
(a) by issuance, within 15 days of the Closing, of 175,000 shares of
common stock of Purchaser, par value $.001 per share (the "Common Stock");
(b) by payment of $2,000,000 in immediately available funds to the
bank account designated by written notice delivered from Seller to Purchaser not
later than five business days prior to the Closing; and
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(c) by delivery of a promissory note in the original principal amount
of $2,400,000 in the form attached as Exhibit A (the "Promissory Note").
1.4 Manner of Delivery of Shares. At the Closing, Seller shall deliver to
Purchaser certificates evidencing the Shares (together with all rights then or
thereafter attaching to the Shares) duly endorsed, or accompanied by valid stock
powers duly executed, in proper form for transfer.
1.5 Time and Place of Closing. The transactions contemplated by this
Agreement shall be consummated (the "Closing"), either (a) by fax or email/PDF
exchange of signature pages and other documents, followed by same day deposit of
all such signature pages and documents in overnight mail; or (b) in person, at
the offices of Minor & Brown, P.C., 650 South Cherry Street, Suite 1100, Denver,
CO 80246, in either case on or before May 25, 2006, at 9:00 a.m. as mutually
agreed upon by Seller and Purchaser. The date on which the Closing occurs, in
accordance with the preceding sentence, is referred to in this Agreement as the
"Closing Date."
2. Representations and Warranties
2.1 General Statement. The parties make the representations and warranties
to each other which are set forth in this Section 2. All such representations
and warranties and all representations and warranties set forth elsewhere in
this Agreement and in any financial statement, exhibit or document delivered by
one party to the other pursuant to this Agreement shall, subject to Section
5.12, survive the Closing (and none shall merge into any instrument of
conveyance), regardless of any investigation or lack of investigation by any
party. No specific representation or warranty shall limit the generality or
applicability of a more general representation or warranty. Representations and
warranties of the parties are made as of the Closing Date. All representations
and warranties of Seller are made subject to the exceptions noted in the
schedule delivered by Seller to Purchaser concurrently with this Agreement and
identified as the "Disclosure Schedule." To the extent a representation and
warranty is qualified by "knowledge" (i) with respect to an individual
"knowledge" means that individual's actual conscious knowledge without any duty
of investigation, and (ii) with respect to the Company "knowledge" means the
actual conscious knowledge of Michael H. Lee, Paul Cohen, and Rick Lawler
without any duty of investigation. Each exception noted in the Disclosure
Schedule and all information otherwise provided in the Disclosure Schedule shall
be numbered to correspond to the applicable section of this Agreement to which
such exception refers.
2.2 Representations and Warranties of Purchaser. Purchaser represents and
warrants to Seller as follows:
(a) Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada.
(b) Purchaser has full corporate power and corporate authority to
enter into and perform this Agreement. The execution and delivery by Purchaser
of this Agreement and the performance by Purchaser of its obligations under this
Agreement have been duly authorized and approved by all requisite corporate
action. This Agreement has been duly executed and delivered by a duly authorized
officer of Purchaser, and constitutes a valid and legally binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms (except to
the extent that enforcement may be affected by laws relating to bankruptcy,
reorganization, insolvency and creditors' rights and by the availability of
injunctive relief, specific performance and other equitable remedies).
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(c) No consent, authorization, order or approval of, or filing or
registration with, any governmental authority or other person is required for
the execution and delivery by Purchaser of this Agreement and the consummation
by Purchaser of the transactions contemplated by this Agreement.
(d) Neither the execution and delivery of this Agreement by Purchaser
nor the consummation by Purchaser of the transactions contemplated by this
Agreement, will conflict with or result in a breach of any of the terms,
conditions or provisions of (i) its Articles of Incorporation, bylaws or other
corporate documents; (ii) any statute or administrative regulation; (iii) any
order, writ, injunction, judgment or decree of any court or governmental
authority or of any arbitration award; or (iv) any oral or written contract or
agreement to which Purchaser or any of its Affiliates is a party.
(e) Except for the fee to Hunt, Patton and Brazeal, for which
Purchaser shall be responsible, neither Purchaser nor any of its respective
Affiliates has engaged or contracted with any other person, firm or corporation
who is or may be entitled to a broker's commission, finder's fee, investment
banker's fee or similar payment from Purchaser, the Company, the Subsidiary or
Seller for arranging the transactions contemplated by this Agreement or
introducing the parties to each other.
(f) No representation or warranty by Purchaser contained in this
Agreement or in any certification required to be delivered by Purchaser to
Seller at Closing pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact in
existence as of the date of this Agreement (other than a material fact that is a
matter of public record or a material fact that effects businesses generally,
whether or not in the Company's industry) necessary to make the statements
contained herein or therein not false or misleading.
(g) Purchaser is acquiring the Shares for investment purposes and not
with a view towards distribution. Purchaser acknowledges that the Shares have
not been registered under the 1933 Act, or under any state securities laws and,
therefore, cannot be sold, transferred, offered for sale, pledged, hypothecated
or otherwise disposed of unless registered under the 1933 Act and applicable
state securities laws or unless an exemption from registration is available and,
as a result, Purchaser must bear the risk of an investment in the Shares for an
indefinite period of time. Purchaser has (i) such knowledge and experience in
financial and business matters that it is capable of independently evaluating
the risks and merits of acquiring the Shares; (ii) independently evaluated the
risks and merits of acquiring the Shares and has independently determined that
the Shares are a suitable investment for it; (iii) made an investigation of the
Company and its business and have had made available to it all information with
respect to the Company and its business that it needs to make an informed
decision to execute this Agreement, (iv) had to its satisfaction the opportunity
to examine the books and records of the Company, to ask questions of the
management of the Company and to judge the profitability of the Company's
business, and (v) sufficient financial resources to bear the loss of its entire
investment in the Shares. However, nothing in this Section 2.2(g) shall in any
way impact or alleviate Seller's or the Company's liability for any breach of
any representation, warranty, covenant or obligation under this Agreement or
under any agreement or document delivered pursuant to this Agreement.
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2.3 Representations and Warranties of Seller as to Corporate Matters.
Seller represents and warrants to Purchaser that, except as set forth in Section
2.3 of the Disclosure Schedule:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Colorado. The Company has one
wholly owned subsidiary, WRC Canada, Ltd. (the "Subsidiary"), which is a
Canadian corporation duly organized, validly existing and in good standing under
the laws of Canada, and registered extra-provincially in the Provinces of
Alberta, Ontario, Nova Scotia and New Brunswick.
(b) The Company and Subsidiary have qualified as foreign entities, and
are in good standing, under the laws of all jurisdictions where the nature of
their business or the nature or location of their assets requires such
qualification, except where failure to do so would not have a material adverse
affect on the business or financial condition of the Company. All jurisdictions
in which the Company and the Subsidiary are qualified as foreign entities are
set forth in Section 2.3(b) of the Disclosure Schedule.
(c) The Company and the Subsidiary have full corporate power and
corporate authority to carry on their respective businesses as such business is
now being conducted.
(d) No consent, authorization, order or approval of, or filing or
registration with, any governmental authority or other person is required for or
in connection with the execution and delivery by Seller of this Agreement and
the consummation by Seller of the transactions contemplated by this Agreement.
(e) Neither the execution and delivery of this Agreement by Seller,
nor the consummation by Seller of the transactions contemplated by this
Agreement, will conflict with or result in a breach of any of (i) the terms,
conditions or provisions of the Company's Articles of Incorporation, bylaws, or
other corporate documents or the Subsidiary's Constituent Documents; (ii) any
statute or administrative regulation; (iii) any order, writ, injunction,
judgment or decree of any court or governmental authority, or any arbitration
award to which the Company, the Subsidiary, or Seller is a party or by which the
Company, the Subsidiary or Seller is bound; or (iv) any oral or written contract
or other agreement to which Seller, the Subsidiary or the Company is a party.
(f) True and complete copies of the Articles of Incorporation and all
amendments thereto, the bylaws as amended and currently in force, all stock
records, and all corporate minute books and records of the Company, and all
applicable governance documents of the Subsidiary (the "Constituent Documents")
have been furnished for inspection by Purchaser. The stock records accurately
reflect all Share transactions and the current stock ownership of the Company
and the Subsidiary. The corporate minute books and records of the Company and
the Subsidiary each contain true and complete copies of all minutes of meetings
of the stockholders, the board of directors and any committee of the board of
directors, all resolutions adopted by the stockholders, the board of directors,
and any committee of the board of directors, and any other action formally taken
by them, respectively, as such.
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(g) Other than the Subsidiary, the Company has no subsidiaries, and
does not own any direct or indirect interest in any corporation, joint venture,
partnership, association or other entity. Within the two-year period immediately
preceding Closing, the Company has not disposed of the capital stock or assets
of any ongoing business (or portion of an ongoing business), or (ii) purchased
the business of another person, firm or corporation (whether by purchase of
stock, assets, merger or otherwise).
(h) The authorized capital stock of the Company consists of a single
class of 500,000 shares of common stock, no par value, of which 107,991 are
issued and outstanding. There are no shares of capital stock of the Company of
any other class authorized, issued or outstanding. All of the issued and
outstanding Shares have been validly issued, are fully paid and nonassessable,
and are owned beneficially and of record by Seller. There are no outstanding
subscriptions, options, warrants, rights (including preemptive rights), calls,
convertible securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of the
Company obligating the Company to issue any securities of any kind. There are no
restrictions on the transfer of the Shares.
(i) The Subsidiary is authorized to issue an unlimited number of
shares. Other than common shares, there are no other shares of any other class
issued or outstanding. All of the issued and outstanding shares have been
validly issued and are owned beneficially and of record by the Company. There
are no outstanding subscriptions, options, warrants, rights (including
preemptive rights), calls, convertible securities or other agreements or
commitments of any character relating to the issued or unissued shares of the
Subsidiary obligating the Subsidiary to issue any securities of any kind.
2.4 Representations and Warranties of Seller as to Financial Matters.
Seller represents and warrants to Purchaser that, except as set forth in Section
2.4 of the Disclosure Schedule:
(a) The Company's financial records are, and have been, maintained in
the Company's usual, regular and ordinary manner, in accordance with generally
accepted accounting principles, and all transactions to which the Company or the
Subsidiary is or has been a party are properly reflected in its financial
records.
(b) The Disclosure Schedule contains complete and accurate copies of
the balance sheets, statements of income and retained earnings, statements of
cash flows and notes to financial statements (together with any supplementary
information thereto) of each of the Company and the Subsidiary as of and for the
fiscal years ended September 30, 2002, September 30, 2003, September 30, 2004
and September 30, 2005, as reviewed by Ehrhardt Keffe Steiner & Hottman PC
(collectively, the "Financial Statements"). The Disclosure Schedule also
contains complete and accurate copies of the unaudited balance sheet and
statement of income and retained earnings and unaudited statement of cash flows
of each of the Company and of the Subsidiary as of and for the six-month period
ended March 31, 2006. The financial statements described in the preceding
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sentence are referred to as the "Interim Financial Statements." The Financial
Statements and the Interim Financial Statements, subject to ordinary course
year-end adjustments, present fairly, in all material respects, the financial
position of the Company and of the Subsidiary as of the dates thereof and the
results of operations and cash flows of the Company and of the Subsidiary for
the periods that they cover, in accordance with generally accepted accounting
principles ("GAAP") consistently applied. Seller has provided Purchaser with
complete and correct copies of all attorneys' responses to inquiry letters and
all management letters from the Company's and the Subsidiary's independent
certified public accountants for the Company's last five fiscal years, and for
the years during which the Subsidiary was in existence, each of which is
included on Section 2.4(b) of the Disclosure Schedule.
(c) None of the trade receivables and notes receivable reflected in
the Financial Statements or the Interim Financial Statements or that arose
subsequent to the date of the Interim Financial Statements is or was subject to
any counterclaim or set off. All of the trade receivables arose out of bona
fide, arms-length transactions for the performance of services, and all such
trade receivables and notes receivable are good and collectible (or have been
collected) in the ordinary course of business using normal collection practices
at their aggregate recorded amounts, less the amount of applicable reserves for
doubtful accounts and for allowances and discounts. All such reserves,
allowances and discounts, were and are adequate and consistent in extent with
reserves, allowances and discounts previously maintained by each of the Company
and the Subsidiary in the ordinary course of its business. Since March 31, 2006,
there has not been a material change in the aggregate amount of either of the
Company's or of the Subsidiary's trade receivables or a material adverse change
in the aging of its trade receivables.
(d) Neither the Company nor the Subsidiary has any obligation or
liability of any nature whatsoever (direct or indirect, matured or unmatured,
absolute, accrued, contingent or otherwise), whether or not required by GAAP to
be provided or reserved against on a balance sheet (collectively, the
"Liabilities") except for:
(i) Liabilities provided for or reserved against in the Financial
Statements or the Interim Financial Statements;
(ii) Liabilities that have been incurred by the Company or the
Subsidiary as applicable, subsequent to March 31, 2006, in the ordinary course
of the Company's or the Subsidiary's business and consistent with past practice;
(iii) Liabilities under the executory portion of any written
purchase order, sales order, service agreement, lease, or other agreement or
commitment of any kind by which either of the Company or the Subsidiary is bound
and which was entered into in the ordinary course of the Company's or the
Subsidiary's business and consistent with past practice; and
(iv) Liabilities under the executory portion of Permits,
Environmental Permits, licenses and governmental directives and agreements
issued to, or entered into by, the Company in the ordinary course of business.
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Except as set forth in Section 2.4(d) of the Disclosure Schedule, none of the
Liabilities described in this Section 2.4(d) relates to or has arisen out of a
breach of contract, breach of warranty, tort or infringement by or against the
Company or the Subsidiary or any claim or lawsuit involving the Company or the
Subsidiary. Section 2.4(d) of the Disclosure Schedule contains a list of all of
the long-term Liabilities of the Company and of the Subsidiary.
(e) The Company and the Subsidiary each has good and marketable title
to their respective assets, free and clear of any liens, claims, encumbrances
and security interests, except for the following liens ("Permitted Liens"): (i)
statutory liens for Taxes not yet due, (ii) liens incurred or deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security and (iii) liens to be
cleared, at Closing, to Purchaser's satisfaction, of Seller's indebtedness to
Beefit Corp., James O. Wilbanks and First National Bank of Colorado. No other
security agreement, financing statement or other instrument encumbering any of
the Company's assets has been granted, recorded, filed, executed or delivered.
(f) The Disclosure Schedule contains a true and correct list and
description (including coverages, deductibles and expiration dates) of all
insurance policies which are owned by the Company or by the Subsidiary or which
name the Company or the Subsidiary as an insured (or loss payee), including
without limitation those which pertain to the Company's or the Subsidiary's
assets, employees or operations. All insurance policies are in full force and
effect and neither the Company nor the Subsidiary has received notice of
cancellation of any such insurance policies. In the three-year period ending on
the Effective Date, the Company has not received any written notice from, or on
behalf of, any insurance carrier relating to or involving an increase in
insurance rates (except to the extent that insurance risks may be increased for
all similarly situated risks) or non-renewal of a policy, or requiring or
suggesting material alteration of any of the Company's assets, purchase of
additional Equipment, or material modification of any of the Company's methods
of doing business.
(g) Section 2.4(g) of the Disclosure Schedule contains a list showing:
(i) the name of each bank, safe deposit company or other
financial institution in which the Company or the Subsidiary has an account,
lock box or safe deposit box;
(ii) the names of all persons authorized to draw thereon or to
have access thereto and the names of all persons and entities, if any, holding
powers of attorney from the Company or the Subsidiary; and
(iii) all instruments or agreements to which the Company or the
Subsidiary is a party as an endorser, surety or guarantor, other than checks
endorsed for collection or deposit in the ordinary course of business.
(h) Section 2.4(h) of the Disclosure Schedule describes each:
(i) business relationship (excluding employee compensation and
other ordinary incidents of employment) existing on the Effective Date between
the Company or the Subsidiary, and any present or former officer, director,
stockholder or Affiliate of the Company or the Subsidiary, any present or former
spouse, or known ancestor or descendant of any of those persons or any trust or
other similar entity for the benefit of any of those persons (all such persons
and trusts encompassed by this clause are collectively referred to as the
"Related Parties");
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(ii) transaction occurring since January 1, 2002 between the
Company or the Subsidiary and any Related Party; and
(iii) amount owing by or to any of the Related Parties to or from
the Company or the Subsidiary as of the Effective Date. No property or interest
in any property (including, without limitation, designs and drawings concerning
provision of services) which relates to and is or will be necessary or useful in
the present or currently contemplated future operation of the Company's business
or the Subsidiary's business, is presently owned by or leased or licensed by or
to any Related Party. Prior to the Closing Date, all amounts due and owing to or
from the Company or the Subsidiary by or to any of the Related Parties
(excluding employee compensation and other ordinary incidents of employment)
shall be paid in full. Neither the Company, the Subsidiary, nor any Related
Party has an interest, directly or indirectly, in any business, corporate or
otherwise, which is in competition with the Company's business or the
Subsidiary's business.
(i) As used in this Agreement, the following terms shall have the
following meanings:
(A) "Taxes" means all federal, state, local, foreign and
other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
windfall profits, customs, duties or other taxes, fees, assessments or charges
of any kind, together with any interest and any penalties, additions to tax or
additional amounts with respect thereto, and the term "Tax" means any one of the
Taxes;
(B) "Returns" means all returns, declarations, reports,
statements and other documents required to be filed in respect of Taxes, and
"Return" means any one of the foregoing Returns; and
(C) "Code" means the Internal Revenue Code of 1986, as
amended. All citations to the Code or to the Treasury Regulations promulgated
under the Code, shall include any amendments or any substitute or successor
provisions.
(i) All Returns required to be filed by the Company or the
Subsidiary have been properly completed and filed on a timely basis and in
correct form. As of the time of filing, the Returns correctly reflected the
facts regarding the income, business, assets, operations, activities, status or
other matters of the Company and the Subsidiary or any other information
required to be shown thereon. Any extension of time within which to file any
Return that was not timely filed has been granted.
(ii) With respect to all amounts in respect of Taxes imposed upon
the Company or the Subsidiary, or for which the Company or the Subsidiary is
liable, whether to taxing authorities (as, for example, under law) or to other
persons or entities (as, for example, under tax allocation agreements), with
respect to all taxable periods or portions of periods ended on or before the
Closing Date, all applicable Tax laws and agreements have been fully complied
with, and all amounts required to be paid by the Company or the Subsidiary to
taxing authorities or others, on or before the Effective Date have been paid.
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(iii) No issues have been raised and are currently pending by any
taxing authority in connection with any of the Returns, and neither Seller nor
the Company or the Subsidiary have received notice from any taxing authority of
an audit of any Return or request to examine any of the books and records of
Company or the Subsidiary. No waivers of statutes of limitation with respect to
the Returns have been given by or requested from the Company or the Subsidiary.
The Disclosure Schedule sets forth the taxable years for which examinations have
been completed, those years for which examinations are presently being
conducted, those years for which examinations have not been initiated but a
request has been made to examine such years, and those years for which required
Returns have not yet been filed. All deficiencies asserted or assessments made
as a result of any examinations have been fully paid, or are fully reflected as
a liability in the Financial Statements and the Interim Financial Statements, or
are being contested, and an adequate reserve therefor has been established and
is fully reflected as a liability in the Financial Statements and the Interim
Financial Statements.
(iv) Neither the Company nor the Subsidiary is a party to or
bound by (nor will the Company or the Subsidiary become a party to or bound by
prior to the Closing) any tax indemnity, tax sharing or tax allocation
agreement.
(v) Neither the Company nor the Subsidiary has ever been a member
of an affiliated group of corporations, within the meaning of section 1504 of
the Code, any member of which has failed to file all returns and pay all taxes
as required by law.
(vi) All material elections with respect to Taxes affecting the
Company or the Subsidiary are set forth in the Disclosure Schedule.
(vii) Neither the Company nor the Subsidiary has agreed to make,
nor is it required to make, any adjustment under section 481(a) of the Code by
reason of a change in accounting method or otherwise.
(viii) Neither the Company nor the Subsidiary is a party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of section 280G of the Code.
(ix) Neither the Company nor the Subsidiary has disclosed on its
Returns any positions that could reasonably give rise to a substantial
understatement of Tax within the meaning of section 6662 of the Code (or any
corresponding provision of state, local or foreign Tax law).
(x) None of the assets of the Company or the Subsidiary is
property that the Company is required to treat as being owned by any other
person pursuant to the "safe harbor lease" provisions of former section
168(f)(8) of the Code.
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(xi) Neither the Company nor the Subsidiary has had a permanent
establishment in any foreign country, as defined in any applicable Tax treaty or
convention between the United States and such foreign country.
(xii) The unpaid Taxes of the Company and of the Subsidiary do
not exceed the reserve for Tax liability (excluding any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) set
forth or included in the Interim Financial Statements, as adjusted for the
passage of time through the Closing Date, in accordance with the past practices
of the Company.
(j) Prior to the Closing, the Company has (i) paid to certain
employees of the Company bonuses totaling $110,000; (ii) written off and
assigned to Seller all amounts due under the promissory note relating to the
Parris Landing Condominium Unit, located at 42 South Eighth Street, Unit 5512,
Charleston, MA 02129, in the original principal amount of $123,958.86, dated
December 6, 2004, payable to the Company by Maritimes Old Ironsides, LLC, as
Maker (the "Condo Note"); and (iii) written off and assigned to Seller all
amounts due under the promissory note payable by Convena LLC, a wholly owned
subsidiary of Morningstar LLC, as Maker, to the Company in the original
principal amount of $579,000 (the "Morningstar Note").
(k) As of Closing, the Company has current assets in excess of current
liabilities equal to at least $1,100,000 ("Working Capital Target"), determined
in accordance with GAAP.
2.5 Representations and Warranties of Seller as to Conduct of Business.
Seller represents and warrants to Purchaser that, except as set forth in Section
2.5 of the Disclosure Schedule:
(a) Since September 30, 2005, neither the Company nor the Subsidiary
has:
(i) amended its Articles of Incorporation, bylaws, or other
corporate documents or its Constituent Documents;
(ii) issued or made any change in its authorized capital stock;
issued, redeemed or purchased any shares of stock of any class; issued or become
a party to any subscriptions, warrants, rights, options, convertible securities
or other agreements or commitments of any character relating to its issued or
unissued capital stock; granted any stock appreciation or similar rights; or
paid, declared, accrued or set aside any dividends or other distributions,
whether in cash, property or otherwise, on its securities of any class;
(iii) made any payment or distributions to its employees,
officers or directors except such amounts that constitute currently effective
compensation for services rendered or reimbursement for reasonable ordinary and
necessary out-of-pocket business expenses, and except for payments, in May 2006,
of an aggregate of $110,000 in employee bonuses;
(iv) hired any new employee who has, or terminated the employment
of any employee who had, an annual salary in excess of $120,000;
10
(v) adopted or amended any Plan, Welfare Plan or Employee Benefit
Plan;
(vi) entered into any employment agreement with, modified any
existing employment agreement, or increased or modified the compensation payable
to any employee, except for raises and bonuses that are planned as of the
Effective Date and are consistent with past practice;
(vii) prepaid any of its material obligations or discharged any
liability except in the ordinary course of business, consistent with past
practice;
(viii) incurred, assumed or guaranteed any material long-term or
short-term indebtedness, including issuance of any debt securities;
(ix) directly or indirectly, entered into or assumed any material
contract, agreement, obligation, lease, license or commitment other than in the
usual and ordinary course of business in accordance with past practice; or paid
or incurred any material management or consulting expenses;
(x) modified, amended, terminated or given notice of termination
with respect to any existing material agreement to which the Company or the
Subsidiary is a party or released or waived any of the Company's material rights
whether under any existing agreement or arising out of the conduct of the
business of the Company or the Subsidiary;
(xi) failed to perform all of the Company's and the Subsidiary's
material obligations under any agreement or understanding to which it is a party
or by which it is bound;
(xii) incurred or committed to incur any capital expenditures not
set forth in the Disclosure Schedule in excess of $100,000 in the aggregate;
(xiii) sold, assigned, leased, exchanged, transferred or
otherwise disposed of any of its assets or property, except for cash applied in
the payment of their respective liabilities, in the usual and ordinary course of
business in accordance with their past practice;
(xiv) written off any material asset as unusable or obsolete or
for any other reason;
(xv) entered into any transaction (including, without limitation,
the purchase, sale, lease or exchange of any property or rendering of services),
directly or indirectly, with, or make any payment to, or incur any liability to,
any Affiliate or Related Party;
(xvi) made any election with respect to Taxes;
(xvii) made any change in accounting methods or principles;
11
(xviii) experienced any casualty, damage, destruction or loss, or
interruption in use, of any asset or property (whether or not covered by
insurance), on account of fire, flood, riot, terrorism, natural disaster, strike
or other hazard;
(xix) failed to maintain the insurance policies required to be
listed in Section 2.4(f) of the Disclosure Schedule in full force and effect,
or, if any policies expire, used its best efforts to renew or replace the same
prior to its expiration with policies from a reputable insurance carrier with a
"Best's Rating" equal to or better than that of the existing carrier, containing
insurance coverage in the same or greater amount than the existing policies in
substantially the same form and substance as the existing policies; or
(xx) entered into any transaction except in the ordinary course
of its business or made or experienced any material change in the conduct or
nature of any aspect of its business, whether or not made in the ordinary course
of business, and whether or not the change has a material adverse effect on the
Company or the Subsidiary.
(b) Neither the Company, Seller nor the Subsidiary has had or has been
threatened with (and neither the Company nor the Subsidiary has knowledge of any
facts which may cause or result in) any material adverse change in the business,
operations, assets, liabilities, financial condition or prospects of the Company
or the Subsidiary, including, without limitation, any material adverse change
in, or loss of, any relationship between the Company or the Subsidiary and any
of its key employees.
(c) Neither the Company, the Subsidiary, nor Seller has any knowledge
of any intention by a Significant Customer that it intends to terminate its
business relationship with the Company or the Subsidiary or to limit or alter
its business relationship with the Company or the Subsidiary in any material
respect. Neither the Company, the Subsidiary, nor Seller has any knowledge of
any intention by a Significant Supplier to terminate its business relationship
with the Company or the Subsidiary or to limit or alter its business
relationship with the Company or the Subsidiary in any material respect.
"Significant Customer" means any of the ten largest customers of the Company or
the Subsidiary, measured in terms of revenue recognized or backlog for the
fiscal year ended September 30, 2005. "Significant Supplier" means any supplier
of the Company or the Subsidiary from whom the Company or the Subsidiary have
purchased $100,000 or more of goods or services during either of fiscal years
ended September 30, 2004 or 2005 for use in the Company's or the Subsidiary's
business.
(d) The Company and the Subsidiary do business only in the United
States and Canada.
2.6 Representations and Warranties of Seller as to Contracts. Seller
represents and warrants to Purchaser that, except as set forth in Section 2.6 of
the Disclosure Schedule:
(a) Neither the Company nor the Subsidiary is a party to, bound by, or
beneficiary of, any material undischarged written or oral:
(i) agreement for or relating to the employment, or restricting
the employment, of any employee of the Company or the Subsidiary;
12
(ii) consulting agreement;
(iii) agreement for the payment of severance by the Company or
the Subsidiary to any of their respective employees;
(iv) plan or contract or arrangement providing for bonuses,
options, deferred compensation, retirement payments, profit sharing, medical and
dental benefits or the like covering employees of the Company or the Subsidiary;
(v) single agreement or order, or series of related agreements or
orders, for the purchase of Equipment or other assets having a price in excess
of $100,000;
(vi) agreement for the sale of any Equipment or other assets;
(vii) agreement restricting in any manner the Company's or the
Subsidiary's right to compete with any other person or entity, the Company's or
the Subsidiary's right to sell to or purchase from any other person or entity,
the right of any other person or entity to compete with the Company or the
Subsidiary, or the ability of a person or entity to employ any of the Company's
or the Subsidiary's employees;
(viii) non-disclosure or confidentiality agreement;
(ix) agency or representation agreements that cannot be cancelled
by the Company or the Subsidiary without payment or penalty upon notice of 30
days or less;
(x) except for agreements entered into in the ordinary course of
business, any service agreement affecting any of the Company's or the
Subsidiary's assets where the annual service charge to the Company or the
Subsidiary is more than $100,000 or has an unexpired term as of the Closing Date
of more than 30 days;
(xi) agreement or order for the performance of services by the
Company or the Subsidiary which, if performed in accordance with its terms,
could only be performed with a gross profit of 20% or less, or which could not
be performed within the time limits or on the other terms in the agreement or
order provided or, when actually performed, would result in an obligation
(contractual or otherwise) to pay damages or penalties;
(xii) guaranty, performance, bid or completion bond, or surety or
indemnification agreement;
(xiii) loan or credit agreement, pledge agreement, note, security
agreement, mortgage, debenture, indenture, factoring agreement or letter of
credit;
(xiv) lease or sublease, either as lessee or sublessee, lessor or
sublessor, of real or personal property or intangibles, where the lease or
sublease provides for an annual rent in excess of $25,000 and has an unexpired
term as of the Closing Date in excess of 30 days;
13
(xv) agreement for the purchase, sale or removal (as the case may
be) by or on behalf of the Company or the Subsidiary of electricity, gas, water,
telephone, coal, sewage, or other utility service;
(xvi) governmental order or directive;
(xvii) agreement for the treatment or disposal of Hazardous
Materials;
(xviii) industrial security clearance;
(xix) partnership or joint venture agreement;
(xx) agreement or arrangement not specifically enumerated in this
Section 2.6(a), concerning or which provides for the receipt or expenditure of
more than $100,000, except agreements for rendering services entered into by the
Company or the Subsidiary in the ordinary course of business; or
(xxi) loan to any officer or director of the Company.
(xxii) employment agreement that provides for payment of over two
weeks salary on termination, other than the employment agreement with Rick
Lawler and Will Thomas.
All agreements referred to in this Section 2.6(a), and all other material
agreements to which the Company or the Subsidiary is a party or by which it is
bound, are in full force and binding upon the parties thereto. Neither the
Company, the Subsidiary nor any of the other parties to those agreements are in
default and no event, occurrence or condition exists which, with the lapse of
time, the giving of notice, or both, or the happening of any further event or
condition, would become a default by the Company or the Subsidiary or the other
contracting party. Neither the Company nor the Subsidiary has released or waived
any of its rights under those agreements. For purpose of this Section 2.6 an
agreement, contract, license or other arrangement shall be "material" if it
involves amounts over $25,000 or cannot be terminated on 30 days notice.
(b) Neither the Company, the Subsidiary nor Seller is a party to, or
bound by, any unexpired, undischarged or unsatisfied written or oral agreement
under the terms of which performance by the Company, the Subsidiary or Seller,
according to the terms of this Agreement, will be a default or an event of
acceleration, or grounds for termination, or whereby timely performance by
Seller, the Company or the Subsidiary according to the terms of this Agreement
may be prohibited, prevented or delayed.
(c) Seller has provided Purchaser with a true and correct copy of
every license, permit, registration, governmental approval and consent applied
for, pending by, issued or given to each of the Company and the Subsidiary, and
every agreement with governmental authorities (federal, state, local or foreign)
entered into by either of the Company or the Subsidiary, which is in effect or
has been applied for or is pending (collectively, the "Permits"), exclusive of
Environmental Permits, and each of the foregoing is listed in Section 2.6(c) of
the Disclosure Schedule. The Permits constitute all licenses, permits,
registrations, approvals, agreements and consents (other than Environmental
Permits) which are required in order for the Company and the Subsidiary to
conduct its business as presently conducted, and no Permit will lapse or
otherwise be unavailable to Purchaser as a result of the transactions
contemplated by this Agreement.
14
(d) Neither the Company nor the Subsidiary is subject to any legal
obligation to renegotiate, nor does the Company or the Subsidiary have knowledge
of a claim for a legal right to renegotiate, any contract, loan, agreement,
lease, sublease or instrument to which it is now or has been a party.
(e) Neither the Company nor the Subsidiary has any unsatisfied
community or charitable pledges, contributions or commitments.
(f) Neither the Company nor the Subsidiary is subject to any
liability, or claim therefor, for or with respect to price adjustment under any
contract with the U.S. government, the government of Canada or any of its
provinces, or any other governmental entity or agency thereof, including any
liability for defective pricing.
2.7 Representations and Warranties of Seller as to Employees. Seller
represents and warrants to Purchaser that, except as provided in Section 2.7 of
the Disclosure Schedule:
(a) (i) Neither the Company nor any Affiliate of the Company as
determined under Code sections 414(b), (c), (m) or (o) ("ERISA Affiliate")
maintains, administers or contributes to, nor do the employees of the Company or
any ERISA Affiliate receive or expect to receive as a condition of employment,
benefits pursuant to:
(A) any employee pension benefit plan ("Plan") (as defined
in Section 3(2) of the Employment Retirement Income Security Act of 1974, as
amended ("ERISA"), including, without limitation, any multiemployer plan as
defined in Section 3(37) of ERISA ("Multiemployer Plan");
(B) any employee welfare benefit plan (as defined in Section
3(l) of ERISA) ("Welfare Plan"); or
(C) any bonus, deferred compensation, stock purchase, stock
option, stock appreciation, severance, salary continuation, vacation, sick
leave, fringe benefit, incentive, insurance, welfare or similar plan or
arrangement ("Employee Benefit Plan");
other than those Plans, Welfare Plans and Employee Benefit Plans described in
the Disclosure Schedule. Except as required by section 4980B of the Code,
neither the Company nor any ERISA Affiliate has promised any former employee or
other individual not employed by the Company or any ERISA Affiliate medical or
other benefit coverage and neither the Company nor any ERISA Affiliate maintains
or contributes to any plan or arrangement providing medical benefits to former
employees, their spouses or dependents or any other individual not employed by
the Company or any ERISA Affiliate.
(ii) All Plans, Welfare Plans and Employee Benefit Plans and any
related trust agreements or annuity contracts (or any related trust instruments)
comply with and are and have been operated in accordance with each applicable
provision of ERISA, the Code (including, without limitation, the requirements of
15
Code section 401(a) to the extent any Plan is intended to conform to that
section), other federal statutes, state law (including, without limitation,
state insurance law) and the regulations and rules promulgated pursuant thereto
or in connection therewith. The Company has filed or caused to be filed all
Forms 5500 required to be filed with respect to the Plan(s). Neither the Company
nor any ERISA Affiliate has any notice or knowledge, and Seller has no
knowledge, of any violation of any of the foregoing by any Plan, Welfare Plan,
or Employee Benefit Plan. All delinquent deposits with respect to the Plan(s)
have actually been deposited to the Plan's trust and there are no current
delinquent deposits, or any delinquent deposits from prior periods that have not
been made. Each Welfare Plan which is a group health plan (within the meaning of
section 5000(b)(1) of the Code) complies with and has been maintained and
operated in accordance with each of the requirements of section 162(k) of the
Code as in effect for years beginning prior to 1989, section 4980B of the Code
for years beginning after December 31, 1988, Part 6 of Subtitle B of Title I of
ERISA, and the Health Insurance Portability & Accountability Act of 1996, as
amended. A favorable determination as to the qualification under the Code of
each of the Plans and each amendment thereto has been made by the Internal
Revenue Service ("IRS"), each trust funding Welfare Plans or Plans is and has
been tax-exempt and each Plan and related trust agreements remain qualified
under the Code. Future compliance with the requirements of ERISA and the Code as
in effect on the Closing Date or any collective bargaining agreements to which
the Company or any ERISA Affiliate is subject or bound will not result in any
increase in benefits under any Plan or any Welfare Plan.
(iii) Neither any Plan or Welfare Plan fiduciary nor any Plan or
Welfare Plan has engaged in any transaction in violation of Section 406 of ERISA
or any "prohibited transaction" (as defined in section 4975(c)(1) of the Code)
and there has been no "reportable event" (as defined in Section 4043(b) of
ERISA) with respect to any Plan. No amendment to any Plan has been adopted for
which security is required under section 401(a)(29) of the Code. Neither the
Company nor any ERISA Affiliate has incurred or caused to exist any "accumulated
funding deficiency" (as defined in Section 302 of ERISA) whether or not waived
by the IRS, involving any Plan subject to section 412 of the Code or Part 3 of
Title I(B) of ERISA. Neither the Company nor any ERISA Affiliate has failed to
make any contributions or to pay any amounts due and owing as required by the
terms of any Plan, Welfare Plan or Employee Benefit Plan, or collective
bargaining agreement or ERISA or any other applicable law. No withdrawals have
occurred so as to cause any Plan to become subject to the provisions of Section
4063 of ERISA, nor has the Company or any ERISA Affiliate ceased making
contributions to any Employee Benefit Plan subject to Section 4064(a) of ERISA
to which either the Company or any ERISA Affiliate made contributions during the
six years prior to the Effective Date. Full payment has been made of all amounts
which the Company or any ERISA Affiliate is required or committed to pay to the
Plans as of September 30, 2005.
(iv) True and complete copies of each Plan, Welfare Plan and
Employee Benefit Plan, and related trust agreements, annuity contracts,
determination letters, summary plan descriptions, all communications to
employees regarding any Plan, Welfare Plan, or Employee Benefit Plan, annual
reports on Form 5500, Form 990 and actuarial reports for the most recent five
Plan years, and each plan, agreement, instrument and commitment referred to in
this Agreement, have been furnished to Purchaser and are listed in Section
2.7(a)(iv) of the Disclosure Schedule; all of the foregoing are legally valid,
16
binding, in full force and effect, and there are no defaults thereunder; and
none of the rights of the Company thereunder will be impaired by this Agreement
or the consummation of the transactions contemplated by this Agreement. The
annual reports on Form 5500 and Form 990 and actuarial statements furnished to
Purchaser fully and accurately set forth the financial and actuarial condition
of each Plan and each trust funding any Welfare Plan. With respect to each Plan,
Welfare Plan and Employee Benefit Plan, the Disclosure Schedule sets forth the
name and address of the administrator and trustees and the policy number and
insurer under all insurance policies.
(v) The aggregate present value of all accrued benefits pursuant
to each Plan subject to Title IV of ERISA, determined on the basis of current
participation and projected compensation for active participants, and including
the maximum value of all subsidized benefits, and earnings, mortality and other
actuarial assumptions set forth in the 2005 actuarial report for the Plan, does
not exceed the current fair market value of the Plan's assets.
(vi) Neither the Company nor any ERISA Affiliate has incurred any
liability to the Pension Benefit Guaranty Corporation ("PBGC") as a result of
the voluntary or involuntary termination of any Plan which is subject to Title
IV of ERISA. There is currently no active filing by the Company or any ERISA
Affiliate with the PBGC (and no proceeding has been commenced by the PBGC) to
terminate any Plan which is subject to Title IV of ERISA and which has been
maintained or funded, in whole or in part, by the Company or any ERISA
Affiliate.
(vii) There are no pending or, to Seller's or the Company's
knowledge, threatened claims by or on behalf of any of the Plans, Welfare Plans,
or Employee Benefit Plans by any employee or beneficiary covered under any
Plans, Welfare Plans or Employee Benefit Plans or otherwise involving any Plan,
Welfare Plan or Employee Benefit Plan (other than routine claims for benefits).
(viii) With respect to each Plan which is a Multiemployer Plan
covering employees of the Company or any ERISA Affiliate: (A) neither the
Company nor such ERISA Affiliate would incur any withdrawal liability (as
defined in Section 3(37) of ERISA) on a complete withdrawal from each such Plan
as of the Closing Date, under applicable laws and conditions of each such Plan
and the applicable provisions of law without regard to any limitation, reduction
or adjustment of liability under Title IV of ERISA or any Plan provision based
on Title IV of ERISA; (B) neither the Company nor any ERISA Affiliate has made
or suffered a "complete withdrawal" or a "partial withdrawal," as such terms are
respectively defined in Sections 4203 and 4205 of ERISA; (C) no event has
occurred which presents a material risk of a "partial withdrawal" under Section
4205(a)(1) of ERISA; (D) neither the Company nor any ERISA Affiliate has any
contingent liability under Section 4204 of ERISA; and (E) no such Plan is in
reorganization as defined in Section 4241 of ERISA and no circumstances exist
which present a material risk of any such Plan's going into reorganization.
(b) With respect to employees of the Company:
(i) the Company is and has been in compliance with all applicable
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours, including, without limitation, any such laws
respecting employment discrimination, occupational safety and health, and unfair
labor practices;
17
(ii) the Company has not experienced any material work stoppage
in the last 18 months;
(iii) the Company is not delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed by them prior to the Closing Date or
amounts required to be reimbursed to such employees;
(iv) upon termination of the employment of any of the employees
of the Company after the Closing Date, the Company will not be liable to any of
its employees for severance pay;
(v) based on the Company's employment practices through the
Closing Date, the employment of each of the Company's employees is terminable at
will without cost to the Company except for payments required under the Plans,
Welfare Plans and Employee Benefit Plans and payment of accrued salaries or
wages and vacation pay. No employee or former employee has any right to be
rehired by the Company prior to the Company's hiring a person not previously
employed by the Company. No employee of the Company is entitled to severance
compensation, other than Rick Lawler, who is entitled to three months' severance
compensation.
(vi) the Disclosure Schedule contains a true and complete list of
all executive and management level employees who are employed by the Company as
of March 31, 2006, and the list correctly reflects their salaries, wages, other
compensation (other than benefits under the Plans, Welfare Plans and Employee
Benefit Plans), dates of employment and positions. The Company does not owe any
past or present employees any sum in excess of $2,000 individually and $25,000
in the aggregate other than for accrued wages or salaries for the current
payroll period, client reimbursable expenses, and amounts payable under Plans,
Welfare Plans or Employee Benefit Plans. No employee owes any sum to the Company
in excess of $1,000, and all employees together do not owe the Company in excess
of $10,000.
(c) Neither the Company nor Seller has any knowledge of any intention
of a Significant Employee that such Significant Employee has terminated or
intends to terminate his employment with the Company. "Significant Employee"
means the Chief Executive Officer, the Chief Financial Officer, the Chief
Operating Officer, the President, any Vice President, the Treasurer, the General
Counsel or any other executive officer of the Company.
(d) The Subsidiary has no employees and has no benefit plans covering
any persons.
2.8 Representations and Warranties of Seller as to Litigation and Claims.
Seller represents and warrants to Purchaser that, except as set forth in Section
2.8 of the Disclosure Schedule:
(a) There is no litigation or proceeding and there are no proceedings
or to Seller's knowledge governmental investigations before any commission or
other administrative authority, pending or, to the Company's and Seller's
knowledge, threatened against the Company, the Subsidiary, or any of the
Company's or the Subsidiary's respective officers, directors or Affiliates, or
any litigation or proceedings against the Company, the Subsidiary or Seller
related to the consummation of the transactions contemplated by this Agreement.
18
(b) There are no facts which, if known by a potential claimant or
governmental authority, could reasonably be expected to give rise to a claim or
proceeding that, if asserted or conducted with results unfavorable to the
Company or the Subsidiary, would have a material adverse effect on the business,
financial condition or prospects of the Company or the Subsidiary, or the
consummation of the transactions contemplated by this Agreement.
(c) Neither the Company nor the Subsidiary has made any oral or
written warranties with respect to the quality of services it has performed
which are in force as of the Effective Date, except for those which are
described in the Disclosure Schedule. There are no material claims pending,
anticipated or against the Company with respect to the quality of the services
provided by the Company. The Disclosure Schedule sets forth in all material
respects the nature of any express warranties that the Company has given with
respect to all services. Neither the Company, the Subsidiary nor Seller has any
knowledge or reason to believe that the percentage of services performed by the
Company or the Subsidiary for which warranties are presently in effect and for
which warranty adjustments can be expected during unexpired warranty periods
which extend beyond the Closing Date will be higher than the percentage of
services that the Company has performed for which warranty adjustments have been
required in the past. The Company has not paid or been required to pay direct,
incidental, or consequential damages to any person in connection with any of its
services at any time during the four-year period preceding the Effective Date.
(d) The Company is not a party to, or bound by, any decree, order or
arbitration award (or agreement entered into in any administrative, judicial or
arbitration proceeding with any governmental authority) with respect to or
affecting the properties, assets, personnel or business activities of the
Company.
(e) The Company is not in violation of, or delinquent in respect to,
any decree, order or arbitration award or law, statute, or regulation of or
agreement with, or any Permit from, any federal, state or local governmental
authority to which the property, assets, personnel or business activities to
which the Company is subject, including, without limitation, laws, statutes and
regulations relating to equal employment opportunities, fair employment
practices, occupational health and safety, wages and hours, and discrimination.
2.9 Representations and Warranties of Seller as to Environmental Matters.
Seller represents and warrants to Purchaser that, except as set forth in Section
2.9 of the Disclosure Schedule:
(a) Both the Company and its assets and business are in compliance
with all Environmental Laws and Environmental Permits. A list of all notices,
citations, inquiries or complaints which the Company has received in the past
three years of any alleged violation of any Environmental Law or Environmental
Permit is contained in the Disclosure Schedule, and all violations alleged in
said notices have been corrected. The Company possesses all Environmental
Permits which are required for the operation of its business, and is in
compliance with the provisions of all such Environmental Permits. A list of all
Environmental Permits issued to the Company is contained in the Disclosure
Schedule.
19
(b) There has been no storage, treatment, generation, transportation
or Release of any Hazardous Materials by the Company or its predecessors in
interest, or by any other person or entity for which the Company is or may be
held responsible, in violation of, or which could give rise to any obligation
under, Environmental Laws.
(c) For the purposes of this Agreement:
(i) "Environmental Laws" means all federal, state and local
statutes, regulations, ordinances, rules, regulations and policies, all court
orders and decrees and arbitration awards, and the common law, which pertain to
environmental matters, health and safety of employees and other persons, or
contamination of any type whatsoever, whether promulgated by the United States
government, the Canadian government, or any agency or other governmental entity
of any nature whatsoever in the United States or in Canada.
(ii) "Environmental Permits" means licenses, permits,
registrations, governmental approvals, agreements and consents which are
required under or are issued pursuant to Environmental Laws.
(iii) "Hazardous Materials" means pollutants, contaminants,
pesticides, petroleum and petroleum products, radioactive substances, solid
wastes or hazardous or extremely hazardous, special, dangerous or toxic wastes,
substances, mold, asbestos, chemicals or materials within the meaning of any
Environmental Law, including without limitation any (i) "hazardous substance" as
defined in the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ss. 9601, et. seq., as amended and reauthorized ("CERCLA"), and
(ii) any "hazardous waste" as defined in the Resource Conservation and Recovery
Act, 42 U.S.C., ss. 6902, et. seq., as amended and reauthorized ("RCRA").
(iv) "Release" means any spill, discharge, leak, emission,
escape, injection, dumping, or other release or threatened release of any
Hazardous Materials into the environment, whether or not notification or
reporting to any governmental agency was or is required, including without
limitation any Release which is subject to CERCLA.
2.10 Representations and Warranties of Seller as to Real Estate. Seller
represents and warrants to Purchaser that, except as set forth in Section 2.10
of the Disclosure Schedule:
(a) Neither the Company nor the Subsidiary owns any real estate.
(b) Neither the Company nor the Subsidiary leases any real estate
other than the premises identified in the Disclosure Schedule (the "Leased
Premises"). The Leased Premises are leased to the Company pursuant to written
leases, true and correct copies of which have been provided to Purchaser. None
of the improvements caused to be constructed at the Leased Premises, or the
businesses conducted by the Company or the Subsidiary thereon, are in violation
of any building line or use or occupancy restriction, limitation, condition or
covenant of record or any zoning or building law, code or ordinance or public
20
utility or other easements. No material expenditures are required to be made for
the repair or maintenance of any improvements on the Leased Premises. Neither
the Company nor the Subsidiary is in default under any agreement relating to the
Leased Premises nor is any other party thereto in default thereunder. All
options in favor of the Company or of the Subsidiary to purchase any of the
Leased Premises, if any, are in full force and effect.
(c) There are no challenges or appeals pending regarding the amount of
the Taxes on, or the assessed valuation of the Leased Premises, and no special
arrangements or agreements exist with any governmental authority with respect to
the Leased Premises.
(d) There are no condemnation proceedings pending or, to Seller's or
the Company's knowledge, threatened with respect to any portion of the Leased
Premises.
(e) There is no Tax assessment (in addition to the normal, annual
general real estate Tax assessment) pending or, to Seller's and the Company's
knowledge, threatened with respect to any portion of the Leased Premises to the
extent the Company or the Subsidiary is liable for payment therefor.
(f) The buildings and other facilities located on the Leased Premises
are free of any latent structural or engineering defects known to the Company,
the Subsidiary or Seller, or any patent structural or engineering defects.
2.11 Representations and Warranties of Seller as to Other Assets. Seller
represents and warrants to Purchaser that, except as set forth in Section 2.11
of the Disclosure Schedule:
(a) The furniture, fixtures and other tangible assets owned, leased or
licensed by the Company and those owned, leased or licensed by the Subsidiary
and used in their respective operations (collectively, the "Equipment") together
with the other assets listed in Section 2.11(a) of the Disclosure Schedules
constitute all tangible and intangible assets Seller reasonably deems necessary
in order for the Company and the Subsidiary to conduct their respective
businesses as presently conducted and as have been conducted in the past. All
material Equipment is in serviceable operating condition and repair (ordinary
wear and tear excepted). The Disclosure Schedule contains a complete list of all
material assets owned, leased, or licensed by the Company or the Subsidiary, as
shown upon the records of the Company kept in the ordinary course of business,
which books and records Seller and the Company believe to be accurate in all
material respects.
(b) The Disclosure Schedule identifies all of the following which are
used in the Company's business or the Subsidiary's business and in which the
Company or the Subsidiary claim any ownership rights: (i) all trademarks,
service marks, slogans, trade names, trade dress and the like registered with
the Patent and Trademark Office or any applicable state agency (collectively
with the associated goodwill of each, "Trademarks"), together with information
regarding all registrations and pending applications to register any such
rights; (ii) all common law trademarks, trade names and service marks; (iii) all
proprietary formulations, manufacturing methods, know-how and trade secrets
which are material to the Company's business or the Subsidiary's business; (iv)
all patents on and pending applications to patent any technology or design; (v)
all registrations of and applications to register copyrights; and (vi) all
licenses of rights in computer software, Trademarks, patents, copyrights,
unpatented formulations, manufacturing methods and other know-how, whether to or
by the Company or the Subsidiary (collectively, the "Intellectual Property").
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(c) (i) Each of the Company and the Subsidiary is the owner of or duly
licensed to use each of their respective Trademarks and its associated goodwill
and each copy of computer software in its possession; (ii) each Trademark
registration exists and has been maintained in good standing; (iii) each patent
and application included in the Intellectual Property exists, is owned by or
licensed to the Company or the Subsidiary, and has been maintained in good
standing; (iv) each copyright registration exists and is owned by the Company or
the Subsidiary; (v) no other firm, corporation, association or person claims the
right to use in connection with similar or closely related services and in the
same geographic area, any trademarks, service marks, slogans, trade names, trade
dress and the like that is identical or confusingly similar to any of the
Trademarks; (vi) neither the Company, the Subsidiary nor Seller has any
knowledge of any claim that any third party asserts ownership rights in any of
the Intellectual Property; (vii) neither the Company, the Subsidiary nor Seller
has any knowledge of any claim or any reason to believe that the Company's or
the Subsidiary's use of any Intellectual Property infringes any right of any
third party; and (viii) neither the Company, the Subsidiary nor Seller has any
knowledge or any reason to believe that any third party is infringing any of the
Company's or the Subsidiary's rights in any of the Intellectual Property.
2.12 Representations and Warranties as to General Matters. Seller
represents and warrants to Purchaser that, except as set forth in Section 2.12
of the Disclosure Schedule:
(a) Neither the Company nor the Subsidiary or any of their respective
former or current officers, directors, employees, agents or representatives has
made, directly or indirectly, with respect to the Company, the Subsidiary or
their respective business activities, any bribes or kickbacks, illegal political
contributions, payments from corporate funds not recorded on the books and
records of the Company or the Subsidiary, payments from corporate funds to
governmental officials, in their individual capacities, for the purpose of
affecting their action or the action of the government they represent, to obtain
favorable treatment in securing business or licenses or to obtain special
concessions, or illegal payments from corporate funds to obtain or retain
business. Without limiting the generality of the foregoing, neither the Company
nor the Subsidiary has directly or indirectly made or agreed to make (whether or
not said payment is lawful) any payment to obtain, or with respect to, sales
other than usual and regular compensation to its employees and sales
representatives with respect to such sales.
(b) Neither the Company, the Subsidiary, nor Seller has taken any
actions which were calculated to dissuade, or had the effect of dissuading, any
present employee, representative or agent of the Company or the Subsidiary from
continuing an association with the Company or the Subsidiary after the Closing.
(c) The representations and warranties of Seller in this Agreement,
and all representations, warranties and statements of Seller contained in any
schedule, financial statement, exhibit, list or document delivered pursuant to
this Agreement or in connection with this Agreement, do not omit to state a
material fact in existence as of the date of this Agreement (other than a
material fact that is a matter of public record or a material fact that effects
businesses generally, whether or not in the Company's industry), which material
fact is necessary in order to make the representations, warranties or statements
contained herein or therein not misleading.
22
(d) The copies of all documents furnished to Purchaser by Seller or
the Company as a delivery or attachment to the Disclosure Schedules in
connection with this Agreement are complete and accurate. Seller has delivered
to Purchaser complete and accurate copies of all documents referred to in the
Disclosure Schedule. The information contained in the Disclosure Schedule is a
complete and accurate reflection of the matters therein.
(e) Neither Seller, the Company nor the Subsidiary, or any of their
respective Affiliates has engaged or contracted with any person, firm or
corporation who is or may be entitled to a broker's commission, finder's fee,
investment banker's fee or similar payment from Seller, the Company, the
Subsidiary or Purchaser for arranging the transactions contemplated by this
Agreement or introducing the parties to each other.
(f) Except as expressly set forth in this Section 2, Seller makes no
other representations or warranties, express or implied, at law or in equity, in
respect to the Company or the Subsidiary or any of the Company's or the
Subsidiary's assets, liabilities or operations.
2.13 Individual Representations and Warranties of Seller. Seller represents
and warrants to Purchaser as follows:
(a) Seller has full power and authority to execute and perform this
Agreement.
(b) This Agreement has been duly executed and delivered by Seller, and
constitutes a valid and legally binding obligation of Seller, enforceable
against Seller in accordance with its terms (except to the extent that
enforcement may be affected by laws relating to bankruptcy, reorganization,
insolvency and creditors' rights and by the availability of injunctive relief,
specific performance and other equitable remedies).
(c) Seller is acquiring the Common Stock for investment purposes and
not with a view towards distribution. Seller acknowledges that the Common Stock
has not been registered under the 1933 Act, or under any state securities laws
and, therefore, cannot be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of unless registered under the 1933 Act and
applicable state securities laws or unless an exemption from registration is
available. As a result, subject to Seller's rights under Section 4.8, Seller
must bear the risk of an investment in the Common Stock for an indefinite period
of time. Seller has (i) such knowledge and experience in financial and business
matters that he is capable of independently evaluating the risks and merits of
acquiring the Common Stock; (ii) independently evaluated the risks and merits of
acquiring the Common Stock, has retained and relied on appropriate professional
advice, and has independently determined that the Common Stock is a suitable
investment for him; (iii) made an investigation of Purchaser and its business;
and (v) has sufficient financial resources to bear the loss of his entire
investment in the Common Stock. Seller has carefully read and considered the
matters set forth in the public filings of Purchaser, including the section
entitled "Risk Factors" in Purchaser's Annual Report on Form 10-K, and has taken
full cognizance of and understands all of the risks related to the acquisition
of the Common Stock. However, nothing in this Section 2.13(c) shall in any way
impact or alleviate Seller's or the Company's liability for any breach of any
representation, warranty, covenant or obligation under this Agreement or under
any Closing Document (as defined in Section 5.3(a)).
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3. Closing
3.1 Form of Documents. At the Closing, the parties shall deliver the
documents, and shall perform the acts, which are set forth in this Section 3.
All documents that Seller shall deliver shall be in form and substance
reasonably satisfactory to Purchaser and Purchaser's counsel. All documents that
Purchaser shall deliver shall be in form and substance reasonably satisfactory
to Seller and Seller's counsel.
3.2 Purchaser's Deliveries. Purchaser shall execute and deliver to Seller
at the Closing all of the following:
(a) the Purchase Price to be paid at Closing as provided in Section
1.2, including the Promissory Note; provided however, the certificate
representing the Common Stock (subject to Seller's obligation to deposit the
stock certificate with the Escrow Agent pursuant to the terms of the Escrow
Agreement shall be delivered within 15 days of Closing);
(b) evidence that Seller has been released from his guaranty
obligations described in Section 3.2(b) of the Disclosure Schedule;
(c) evidence that the obligations described in Section 3.2(c) of the
Disclosure Schedule have been paid in full;
(d) an incumbency certificate with respect to the officers of
Purchaser executing this Agreement, and any other document delivered under this
Agreement, on behalf of Purchaser;
(e) a certified copy of resolutions of Purchaser's board of directors,
authorizing the execution, delivery and performance of this Agreement, and any
other document delivered by Purchaser hereunder;
(f) a closing certificate executed by a duly authorized officer of
Purchaser, on behalf of Purchaser, pursuant to which Purchaser represents and
warrants to Seller that Purchaser's representations and warranties to Seller are
true and correct as of the Closing Date as if then originally made (or, if any
such representation or warranty is untrue in any respect, specifying the respect
in which the same is untrue), that all covenants required by the terms of this
Agreement to be performed by Purchaser on or before the Closing Date, to the
extent not waived by Seller in writing, have been so performed (or, if any such
covenant has not been so performed, indicating that such covenant has not been
performed), and that all documents to be executed and delivered by Purchaser at
the Closing have been executed by duly authorized officers of Purchaser;
(g) the Escrow Agreement, signed by Purchaser;
(h) an employment agreement between Seller and Purchaser or an
Affiliate of Purchaser, in the form of the Employment Agreement attached as
Exhibit C; and
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(i) employment agreements, including non-competition provisions with
the other employees of the Company listed on Section 3.2(i) of the Disclosure
Schedule.
3.3 Seller's Deliveries. Seller shall execute or deliver to Purchaser all
of the following:
(a) the certificate representing the Shares, or an Affidavit of Lost
Certificate, together with a stock power transferring the Shares to Purchaser,
which Shares shall be free and clear of all liens, claims, security agreements,
or other encumbrances of any nature whatsoever;
(b) the Escrow Agreement, signed by Seller;
(c) an employment agreement between Seller and Purchaser, or an
Affiliate of Purchaser designated by Purchaser, in the form of the Employment
Agreement attached as Exhibit C;
(d) employment agreements, including non-competition provisions, with
other employees of the Company as Purchaser may designate prior to the Closing,
signed by those employees;
(e) evidence that the Company has assigned the Condo Note and the
Morningstar Note to Seller;
(f) all governmental consents and approvals required in connection
with the consummation of the transactions contemplated by this Agreement;
(g) a certified copy of the Company's Articles of Incorporation and
bylaws;
(h) certificates of good standing of the Company issued not earlier
than 30 days prior to the Closing Date by the Secretaries of State of Colorado
and California;
(i) an incumbency certificate with respect to the officers of the
Company executing any document delivered by the Company under this Agreement or
in connection with the transactions contemplated by this Agreement, on behalf of
the Company;
(j) a closing certificate duly executed by Seller, pursuant to which
Seller represents and warrants to Purchaser that Seller's representations and
warranties to Purchaser are true and correct as of the Closing Date as if then
originally made (or if any such representation or warranty is untrue in any
respect, specifying the respect in which the same is untrue), that all covenants
required by the terms of this Agreement to be performed by Seller on or before
the Closing Date, to the extent not waived by Purchaser in writing, have been so
performed (or if any such covenant has not been so performed, indicating that
such covenant has not been performed), and that all documents to be executed and
delivered by the Company at the Closing have been executed by duly authorized
officers of the Company;
(k) physical possession of all records, tangible assets, licenses,
policies, contracts, plans, leases or other instruments owned by or pertaining
to the Company, which are in the possession of Seller;
25
(l) all consents to the consummation of the transactions contemplated
by this Agreement under or with respect to any contract, lease, agreement,
purchase order, sales order or other instrument, Permit or Environmental
Permits, all of which Seller has listed in Section 3.3(l) of the Disclosure
Schedule. If the Permits and Environmental Permits listed in Section 3.3(l) of
the Disclosure Schedule held by the Company would terminate upon a change of
control of the Company, Seller shall deliver either licenses and permits on
substantially the same terms as such Permits and Environmental Permits, or shall
deliver binding commitments from the applicable governmental authorities to
issue such licenses and permits to the Company following the Closing;
(m) the minute books and stock records of the Company;
(n) UCC-1, UCC-2, federal and state tax lien searches with respect to
the Company, for the States of Colorado, California, Massachusetts, and Texas
and the counties of those states in which a portion of the business of the
Company is conducted, all prepared by search companies reasonably satisfactory
to Purchaser, and dated not earlier than 30 days prior to the Closing Date;
(o) evidence acceptable to the Company that all loans listed on
Section 3.2(c) of the Disclosure Schedule have been paid in full, and all liens
on the assets of the Company or on the Shares that secure those loans have been
released.
4. Post-Closing Agreements. From and after the Closing, the parties shall have
the respective rights and obligations which are set forth in the remainder of
this Section 4.
4.1 Use of Trademarks. Seller shall not use and shall not license or permit
any third party to use any name, slogan, logo or trademark which is similar or
deceptively similar to any of the Trademarks.
4.2 Back-Up. Seller shall, at Purchaser's request, furnish complete
detailed back-up material with respect to the Company and the Subsidiary, the
past financial statements of the Company and the Subsidiary, the Financial
Statements and the Interim Financial Statements as are in Seller's possession or
are reasonably available to Seller.
4.3 Payments of Accounts Receivable. If Seller, the Company, or the
Subsidiary receives any payment of any of the accounts receivable of the
Company, Seller or the Subsidiary, as applicable, they shall immediately deliver
such payment to Purchaser, endorsed if necessary, without recourse, in favor of
Purchaser.
4.4 Third Party Claims. The parties shall cooperate with each other with
respect to the defense of any claims or litigation made or commenced by third
parties subsequent to the Closing Date which are not subject to the
indemnification provisions contained in Section 5, if any, provided that the
party requesting cooperation shall reimburse the other party for the other
party's reasonable out-of-pocket costs and expenses of furnishing such
cooperation.
4.5 Covenant Not to Compete. As an inducement for Purchaser to enter into
this Agreement, Seller agrees that:
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(a) from and after the Closing and continuing for two years from the
Closing Date, or, if later, for two years following the termination of Seller's
employment with the Company or any of its Affiliates, neither Seller nor any of
his Affiliates shall directly or indirectly:
(i) engage or participate, in any state in the United States or
in any country other than the United States, in each case, in which the Company
or the Subsidiary has done business, as an owner, partner, shareholder,
consultant or (without limitation by the specific enumeration of the foregoing)
otherwise in any business which is competitive with the Company's or the
Subsidiary's business, or the business of their respective Affiliates as
conducted on the Closing Date or as planned to be conducted on the Closing Date;
or
(ii) solicit any customer of the Company, the Subsidiary or
Purchaser or their respective Affiliates that has been a customer of the
Company, the Subsidiary or Purchaser, or their respective Affiliates, within the
preceding five years, to purchase from any source other than the Company or the
Subsidiary any service which could be supplied by the Company or the Subsidiary;
Nothing in this Section 4.5 shall be deemed in any way to permit competition
with the business of the Company or the Subsidiary at any time during which
Seller is employed by Purchaser or any of its Affiliates.
(b) other than through general advertisement solicitation, take any
actions which are calculated to persuade any salaried, technical or professional
employees, representatives or agents of the Company to terminate their
association with the Company.
(c) in the event of any breach of Section 4.5(a), the time period of
the breached covenant shall be extended for the period of such breach. Seller
acknowledges that the territorial, time and scope limitations set forth in this
Section 4.5 are reasonable and are required for the protection of Purchaser and
if any such territorial, time or scope limitation is deemed to be unreasonable
by a court of competent jurisdiction, Purchaser and Seller agree to the
reduction of any of said territorial, time or scope limitations to such an area,
period or scope as said court shall deem reasonable under the circumstances.
4.6 Injunctive Relief and Termination. Seller specifically recognizes that
any breach of Section 4.5 will cause irreparable injury to Purchaser and that
actual damages may be difficult to ascertain, and in any event, would be
inadequate. Accordingly, and without limiting the availability of legal or
equitable, including injunctive remedies, without bond, under any other
provisions of this Agreement, Seller agrees that in the event of any such
breach, Purchaser shall be entitled to injunctive relief in addition to such
other legal and equitable remedies that may be available. Seller and Purchaser
also recognize that the absence of a time limitation in Section 4.5 is
reasonable and is properly required for the protection of Purchaser and, if the
absence of such limitation is deemed to be unreasonable by a court of competent
jurisdiction, Purchaser and Seller agree and submit to the imposition of such a
limitation as said court shall deem reasonable. If Purchaser fails to make
payment on the Promissory Note following notice and an opportunity to cure, then
Seller shall be released from his obligations in Section 4.5.
27
4.7 Lock-Up Agreement. Seller agrees that, except as provided in this
Section 4.7, he will not, without the prior written consent of Purchaser, lend,
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
securities of Purchaser or any economic interest in those securities, including,
without limitation, the Common Stock or securities convertible into or
exercisable for Common Stock. The Common Stock will be released from this
lock-up agreement as follows: 40% of the Common Stock shall be released at the
six-month anniversary of the Closing; 20% of the Common Stock shall be released
at the one-year anniversary of the Closing; 20% of the Common Stock shall be
released at the 18-month anniversary of the Closing; and all remaining Common
Stock shall be released at the two-year anniversary of the Closing. During the
period that the Common Stock is subject to the lock-up, the certificates
representing the Common Stock shall be held by Johnny Williams, as Escrow Agent,
pursuant to the terms of the Escrow Agreement attached as Exhibit B.
4.8 Registration of Shares.
(a) Seller acknowledges that he is acquiring the Common Stock for his
own account, for the purpose of investment and not with a view to any
distribution or resale within the meaning of the Securities Act of 1933 (the
"1933 Act"). Seller agrees that he will not sell, assign or transfer the Common
Stock at any time in violation of the 1933 Act and acknowledges that, in taking
unregistered securities, he must continue to bear the economic risk of his
investment for an indefinite period of time because of the fact that the Common
Stock has not been registered under the 1933 Act. Seller further acknowledges
that the Common Stock cannot be sold unless subsequently registered under the
1933 Act or an exemption from registration is available and that appropriate
legends reflecting the status of the Common Stock under the 1933 Act may be
placed on the face of the certificates for such shares at the time of their
issuance and delivery to Seller.
(b) Until the Common Stock is registered, it shall be a condition to
any transfer that the Common Stock is not subject to the lock-up provisions of
Section 4.7, and that Purchaser shall be furnished with an opinion of counsel to
the holder of the Common Stock, reasonably satisfactory to Purchaser, to the
effect that the proposed transfer would be in compliance with the 1933 Act.
(c) Within 90 days after the Closing, Purchaser shall use its
commercially reasonable best efforts to prepare and file with the Securities and
Exchange Commission (the "SEC"), a shelf registration statement on Form S-3 (or
any replacement registration statement) and any other documents necessary in the
opinion of counsel for Purchaser, and use its commercially reasonable best
efforts to have the registration statement declared effective as soon as
reasonably practicable after filing, so as to permit the registered resale of
the Common Stock following the effective date of the Registration Statement.
Seller shall cooperate in all respects, including provision of information
required to be included in the registration statement, with Purchaser's efforts
to comply with this Section 4.8.
(d) Notwithstanding the foregoing provisions of this Section 4.8,
Purchaser may voluntarily suspend the effectiveness of the registration
statement if Purchaser has been advised by its counsel that there is a
28
reasonable good faith basis to believe that the offering of any shares of Common
Stock pursuant to the registration statement would materially adversely affect,
or would be improper in view of (or improper without disclosure in a
prospectus), any transaction or occurrence relating to Purchaser. Thereafter,
Purchaser shall use its commercially reasonable best efforts to cause an amended
or replacement registration statement declared effective as soon as reasonably
practicable after filing, so as to permit the registered resale of the Common
Stock. Purchaser shall notify Seller to such effect and, upon receipt of such
notice, Seller shall immediately discontinue any sales of Common Stock pursuant
to such registration statement until he has received copies of a supplemented or
amended prospectus or until he is advised in writing by Purchaser that the then
current prospectus may be used and has received copies of any additional or
supplemental filings that are incorporated or deemed incorporated by reference
in such prospectus.
(e) If any event occurs that would cause the registration statement to
contain a material misstatement or omission or not to be effective and usable
during the period that it is required to be effective, Purchaser shall promptly
notify Seller of such event and, if requested, Seller shall immediately cease
making offers of the Common Stock and return all prospectuses to Purchaser.
Purchaser shall promptly file an amendment to the registration statement to
correct such misstatement or omission and shall use its commercially reasonable
efforts to cause the amendment to be declared effective as soon as practicable
thereafter. Purchaser shall promptly provide Seller with revised prospectuses
and, following receipt of the revised prospectuses, Seller shall be free to
resume making offers of the Common Stock.
(f) Notwithstanding any provision contained in this Agreement,
Purchaser's obligation to include, or continue to include, Common Stock in any
registration statement under this Section 4.8 shall terminate to the extent the
Common Stock is eligible for resale under Rule 144(k) promulgated under the 1933
Act.
(g) Except as provided in this Section 4.8, the expenses incurred by
Purchaser in connection with it compliance with this Section 4.8, including
without limitation, all registration and filing fees, printing and delivery
expenses, accounting fees, fees and disbursements of counsel to Purchaser,
consultant and expert fees, and fees relating to compliance with any state
securities laws, shall be paid by Purchaser. All fees and disbursements of any
counsel, experts, or consultants employed by Seller shall be borne by Seller.
Purchaser shall not be obligated in any way in connection with any registration
filed under this Section 4.8 for any selling commissions or discounts paid or
payable by Seller to any underwriter or broker.
(h) In the event of any registration of any securities under the 1933
Act pursuant to this Section 4.8, Seller agrees to indemnify and hold harmless
Purchaser, its officers, directors and any person who controls Purchaser within
the meaning of Section 15 of the 1933 Act, against all Damages to which
Purchaser, its officers, directors, or such controlling person or entity may
become subject under the 1933 Act or otherwise, insofar as such Damages arise
out of or are based upon any untrue statement of any material fact contained in
any registration statement under which such securities were registered under the
1933 Act, any preliminary prospectus or final prospectus contained therein, or
any amendment or supplement thereto, or arise out of or are based upon the
29
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent and only to the extent that the Damages arise out of or are based upon an
untrue statement or omission made in the registration statement, the preliminary
prospectus, the final prospectus, or the amendment or supplement in reliance
upon and in conformity with written information furnished to Purchaser by Seller
or any "Affiliate" (as defined in the 1933 Act) of Seller specifically for use
in the preparation thereof.
(i) Section 5 shall govern procedure to be complied with for any party
entitled to indemnification under this Section 4.8.
4.9 Further Assurances. The parties shall execute such further documents,
and perform such further acts, as may be necessary to transfer and convey the
Shares to Purchaser on the terms in this Agreement and to otherwise comply with
the terms of this Agreement.
4.10 Changes in Company. As long as there is an outstanding balance under
the Promissory Note, Purchaser shall:
(a) continue to use "WRC Corporation" as the primary name under which
the land services business is conducted if permitted by applicable law, provided
that (i) the Purchaser may use the "WRC" name through an assumed name
certificate; (ii) Purchaser may add a "tag line" indicating that the Company is
a subsidiary of ENGlobal Corporation; and (iii) two years following the Closing,
Purchaser may use ENGlobal as the primary name and WRC in the tag line.
(b) maintain the primary offices for the land services business at the
current Broomfield, Colorado location or at a substantially equivalent location
within a 50-mile radius of the current location;
(c) take such actions as may be necessary to assure Seller a seat on
the Board of Directors of the company operating the land services business;
(d) cause the Company or an Affiliate to continue to engage in the
land services business;
(e) retain the current management of the Company unless Seller
consents to a change in management, which consent shall not be unreasonably
withheld.
4.11 Insurance. Without the prior written consent of Seller, for two years
following the Closing Date, Purchaser will not cancel, or cause the Company to
cancel, any claims-made general liability, error and omissions, professional
liability or other liability insurance policies without obtaining appropriate
retroactive tail insurance coverage for the period ending no earlier than four
years following Closing.
4.12 First Right of Refusal. Until the Promissory Note is paid in full,
except for the sale of Purchaser in its entirety, if Purchaser receives and
wishes to accept a bona fide offer (the "Offer") to sell at least a controlling
interest or more in the Company to an unrelated third party or to sell
substantially all the Company's assets to an unrelated third party, Purchaser
shall give notice of the proposed sale to Seller. In the notice, Purchaser shall
offer to sell to Seller the shares or the assets proposed to be sold at the same
price and upon the same terms and conditions as contained in the Offer. If
Seller wishes to purchase the assets or the shares, as applicable, he shall give
Purchaser written notice within 30 days following his receipt of the notice. If
not so accepted, the notice shall terminate upon expiration of the time
provided.
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4.13 Post-Closing Actions.
(a) Within 90 days following the Closing, Seller shall:
(i) cause the Company to be released from any and all liability
under its guaranty of the mortgage relating to the Condominium in Massachusetts
("Condominium Guaranty");
(ii) provide Purchaser with certificates of good standing from
Massachusetts, New Jersey and Texas;
(iii) with respect to each of the Leased Premises, obtain
estoppel letters and landlord waivers with respect to all property of the
Company or the Subsidiary located at the Leased Premises, such waivers to be in
form and substance reasonably satisfactory to Purchaser and Purchaser's lenders;
(iv) file all documents required to be filed with respect to the
permit described in Section 2.6(c) of the Disclosure Schedule;
(v) obtain the written resignations of such of the directors and
officers of the Company and the Subsidiary, as are designated by Purchaser to
resign; and
(vi) take all steps necessary to transfer the autodesk software
lease; and
(vii) transferred signing authority on all bank accounts to
Purchaser.
(b) Within 180 days after the closing, Seller shall resolve:
(i) The State of Texas Tax Lien filed by Texas State Work Force
Commission; and
(ii) The corporate federal income tax issue relating to the tax
period ended September 30, 2000, referenced in the IRS notification letter dated
February 20, 2006.
5. Indemnification
5.1 General. From and after the Closing, the parties shall indemnify each
other as provided in this Section 5. No specifically enumerated indemnification
obligation with respect to a particular subject matter as set forth in this
Agreement shall limit or affect the applicability of a more general
indemnification obligation as set forth in this Agreement with respect to the
same subject matter.
5.2 Certain Definitions. As used in this Agreement, the following terms
shall have the indicated meanings:
31
(a) "Damages" shall mean all liabilities, demands, claims, actions or
causes of action, regulatory, legislative or judicial proceedings or
investigations, assessments, levies, losses, fines, penalties, damages, costs
and expenses, including, without limitation: (i) reasonable attorneys',
accountants', investigators', and experts' fees and expenses, sustained or
incurred in connection with the defense or investigation of any Claim; (ii)
expenses reasonably incurred to compensate employees for any costs or
ramifications associated with compliance with (or lack of compliance with) the
requirements of section 401(a) or 401(k) of the Code; and (iii) costs and
expenses reasonably incurred to bring the Company's assets and business into
compliance with Environmental Laws including, without limitation:
(i) costs and expenses associated with all filings, Environmental
Permits, court orders, awards or directives issued in connection with such
compliance;
(ii) costs and expenses incurred for the benefit of the Company,
the Company's employees, the public or the environment, and for the harm to the
Company, the Company's employees, the public, or the environment;
(iii) costs and expenses resulting from the loss of use of a
facility, including, without limitation, moving and relocation costs;
(iv) costs and expenses of additions to and modifications of the
Equipment and the Leased Premises;
(v) costs of sampling, monitoring or other testing programs and
laboratory equipment; and
(vi) all legal, engineering and consulting fees and expenses
related to any of the foregoing.
(b) "Indemnified Party" shall mean a party to this Agreement who is
entitled to indemnification from the other party to this Agreement pursuant to
this Section 5.
(c) "Indemnifying Party" shall mean a party to this Agreement who is
required to provide indemnification under this Section 5 to the other party to
this Agreement.
(d) "Third Party Claim" shall mean any claim, action, suit,
proceeding, investigation or like matter which is asserted or threatened by a
party other than the parties to this Agreement, their successors and permitted
assigns, against any Indemnified Party or to which any Indemnified Party is
subject.
5.3 Seller's Indemnification Obligations. Seller shall indemnify, save and
keep Purchaser, its Affiliates, its institutional lenders, the officers,
directors, agents and representatives of Purchaser and its Affiliates, and their
respective successors and permitted assigns (collectively the "Purchaser
Indemnitees") forever harmless against and from all Damages sustained or
incurred by any Purchaser Indemnitee, as a result of or arising out of or by
virtue of:
32
(a) any inaccuracy in or breach of any representation and warranty
made by Seller to Purchaser in this Agreement or in any closing document
delivered to Purchaser at the Closing pursuant to Section 3.3 ("Closing
Documents"), whether or not disclosed to Purchaser prior to or at the Closing;
(b) any breach by Seller of, or failure by Seller to comply with, any
of the covenants or obligations under this Agreement to be performed by Seller
(including, without limitation, the obligations under this Section 5), whether
or not disclosed to Purchaser prior to or at the Closing;
(c) without being limited by Sections 5.3(a) or 5.3(b) (and without
regard to the fact that any one or more of the items referred to in this Section
5.3(c) may be disclosed in the Disclosure Schedule or in any documents included
or referred to in the Disclosure Schedule or may be otherwise known to Purchaser
at the Effective Date or on the Closing Date), any action or failure to act, in
whole or in part, on or prior to the Closing Date with respect to any Plan,
Welfare Plan or Employee Benefit Plan which the Company or any ERISA Affiliate
has at any time maintained or administered or to which the Company or any ERISA
Affiliate has at any time contributed;
(d) without being limited by Sections 5.3(a) or 5.3(b) (and without
regard to the fact that any one or more of the items referred to in this Section
5.3(d) may be disclosed in the Disclosure Schedule or in any documents included
or referred to in the Disclosure Schedule or may be otherwise known to Purchaser
as of the Effective Date or on the Closing Date):
(i) any violation of, or delinquency in respect to, any decree,
order or arbitration award or law, statute, or regulation in effect on or prior
to the Closing Date or any agreement of the Company with, or any license or
Permit granted to the Company from, any federal, state or local governmental
authority to which the Company or its properties, assets, personnel or business
activities are subject, including, without limitation, laws, statutes and
regulations relating to occupational health and safety, building codes, zoning,
equal employment opportunities, fair employment practices and discrimination; or
(ii) any violation or alleged violation of, or obligation imposed
by, any Environmental Law as a result of activities, events, conditions or
occurrences prior to the Closing Date, regardless of when the violation or
alleged violation or obligation arises or is asserted.
5.4 Purchaser's Indemnification Covenants. Purchaser shall indemnify, save
and keep Seller and his successors, assigns, heirs and personal and legal
representatives ("Seller Indemnitees"), forever harmless against and from all
Damages sustained or incurred by Seller Indemnitees, as a result of or arising
out of or by virtue of:
(a) any inaccuracy in or breach of any representation and warranty
made by Purchaser to Seller in this Agreement or in any closing document
delivered to Seller at the Closing pursuant to Section 3.2 above, whether or not
disclosed to Seller at or prior to the Closing; or
(b) any breach by Purchaser of, or failure by Purchaser to comply
with, any of the covenants or obligations under this Agreement to be performed
by Purchaser (including without limitation, the obligations under this Section
5), whether or not disclosed to Seller at or prior to the Closing.
33
5.5 Cooperation. Subject to the provisions of Sections 5.7 and 5.8, the
Indemnifying Party shall have the right, at its own expense, to participate in
the defense of any Third Party Claim, and if said right is exercised, the
parties shall cooperate in the investigation and defense of said Third Party
Claim.
5.6 Subrogation. The Indemnifying Party shall not be entitled to require
that any action be brought against any other person before action is brought
against it under this Agreement by the Indemnified Party and shall not be
subrogated to any right of action until it has paid in full or successfully
defended against the Third Party Claim for which indemnification is sought.
5.7 Third Party Claims Other Than Taxes.
(a) Immediately following the receipt of notice of a Third Party
Claim, other than a Third Party Claim with respect to Taxes, the party receiving
the notice of the Third Party Claim shall notify the other party of its
existence, setting forth with reasonable specificity the facts and circumstances
of which such party has received notice and if the party giving such notice is
an Indemnified Party, specifying the basis under this Agreement upon which the
Indemnified Party's claim for indemnification is asserted. The Indemnified Party
may, upon reasonable notice, tender the defense of a Third Party Claim to the
Indemnifying Party. If:
(i) the defense of a Third Party Claim is delivered and within 30
days after delivery, delivery is accepted without qualification by the
Indemnifying Party; or
(ii) within 30 days after the date on which written notice of a
Third Party Claim has been given pursuant to this Section 5.7, the Indemnifying
Party shall acknowledge in writing to the Indemnified Party and without
qualification its indemnification obligations as provided in this Section 5;
then, except as hereinafter provided, the Indemnified Party shall not, and the
Indemnifying Party shall, have the right to contest, defend, litigate or settle
such Third Party Claim. The Indemnified Party shall have the right to be
represented by counsel at its own expense in any such contest, defense,
litigation or settlement conducted by the Indemnifying Party provided that the
Indemnified Party shall be entitled to reimbursement therefor if the
Indemnifying Party shall lose its right to contest, defend, litigate and settle
the Third Party Claim as provided in this Agreement. The Indemnifying Party
shall lose its right to defend and settle the Third Party Claim if it shall fail
to diligently contest the Third Party Claim. So long as the Indemnifying Party
has not lost its right and/or obligation to contest, defend, litigate and settle
as provided in this Agreement, the Indemnifying Party shall have the exclusive
right to contest, defend and litigate the Third Party Claim and shall have the
exclusive right, in its discretion exercised in good faith, and upon the advice
of counsel, to settle any such matter, either before or after the initiation of
litigation, at such time and upon such terms as it deems fair and reasonable,
provided that at least 10 days prior to any such settlement, written notice of
its intention to settle shall be given to the Indemnified Party. All expenses
34
(including without limitation attorneys' fees) incurred by the Indemnifying
Party in connection with the foregoing shall be paid by the Indemnifying Party.
Notwithstanding the foregoing, in connection with any settlement negotiated by
an Indemnifying Party, no Indemnified Party shall be required by an Indemnifying
Party to (i) enter into any settlement that does not include as an unconditional
term the delivery by the claimant or plaintiff to the Indemnified Party of a
release from all liability in respect of such claim or litigation, (ii) enter
into any settlement that attributes by its terms liability to the Indemnified
Party or (iii) consent to the entry of any judgment that does not include as a
term a full dismissal of the litigation or proceeding with prejudice. No failure
by an Indemnifying Party to acknowledge in writing its indemnification
obligations under this Section 5 shall relieve it of such obligations to the
extent they exist.
(b) If an Indemnified Party is entitled to indemnification against a
Third Party Claim, and the Indemnifying Party fails to accept a tender of, or
assume, the defense of a Third Party Claim pursuant to this Section 5.7, or if,
in accordance with the foregoing, the Indemnifying Party shall lose its right to
contest, defend, litigate and settle such a Third Party Claim, the Indemnified
Party shall have the right, without prejudice to its right of indemnification
under this Agreement, in its discretion exercised in good faith and upon the
advice of counsel, to contest, defend and litigate the Third Party Claim. In
that event, the Indemnified Party may settle the Third Party Claim either before
or after the initiation of litigation, at such time and upon such terms as the
Indemnified Party deems fair and reasonable; provided that, if the settlement
requires the Indemnifying Party to pay money, the Indemnified Party shall give
the Indemnifying Party at least 10 days prior written notice of the proposed
settlement, and, if the settlement requires monetary expenditure by the
Indemnifying Party, the settlement shall not be finalized until the Indemnifying
Party has given its consent, such consent not to be unreasonably withheld. If
pursuant to this Section 5.7, the Indemnified Party contests, defends, litigates
or settles a Third Party Claim for which it is entitled to indemnification under
this Agreement, the Indemnified Party shall be reimbursed by the Indemnifying
Party for the reasonable attorneys' fees and other expenses incurred in
defending, contesting, litigating and/or settling the Third Party Claim
immediately following the presentation to the Indemnifying Party of itemized
bills for the attorneys' fees and other expenses.
5.8 Claims Involving Taxes.
(a) In the case of any proposed or actual assessment of Tax
liabilities for which Purchaser is entitled to indemnification from Seller as
provided in this Agreement, Purchaser shall give notice to Seller, and shall
contest the proposed or actual assessment in the manner directed by Seller (in
consultation with Purchaser) through the administrative review or administrative
appeal procedures available under the relevant Tax laws and regulations.
(b) If the pursuit of such administrative remedies by Purchaser is
unsuccessful, Purchaser shall be entitled to cause Seller to pay the Tax (and
any penalties and interest) and be entitled to indemnification from Seller;
provided, however, that if within 10 days of receipt from Purchaser of notice of
its intention to do so, Seller shall notify Purchaser of his desire to contest
the proposed or assessed Tax deficiency in the courts, he shall be entitled to
do so at Seller's expense provided Seller pays (subject to his entitlement to a
refund if his efforts are successful) the deficiency and any penalties and
interest if required in order to seek judicial relief. Purchaser shall cooperate
with Seller for such purposes but shall be entitled to reimbursement for any
out-of-pocket expenses incurred by Purchaser in doing so.
35
(c) Seller acknowledges that, despite disclosure of such liabilities
in this Agreement, including in the Disclosure Schedule, Seller shall be liable
for, and shall indemnify Purchaser, subject to the limitations provided in this
Agreement, for liability, if any (i) for state taxes which relate to Seller's
operations prior to the Closing, (ii) relating to a State of Texas Tax Lien held
by Texas State Work Force Commission, and (iii) relating to a corporate federal
income tax issue for the tax period ended September 30, 2000, referenced in the
IRS notification letter dated February 20, 2006.
(d) If Seller makes an indemnification payment to the Company for any
amount relating to Taxes, and the Company later receives a refund relating to
those Taxes, Seller shall be entitled to the refund. If the Company is entitled
to indemnification for any amount relating to Taxes, but the Basket has not been
reached, the amount of the Taxes that the Company is required to pay shall be
counted against the Basket; however, if the Company later receives a refund, the
Basket shall be reduced by the amount of the refund. If, rather than a refund,
the Company receives a credit against future Taxes, the provisions of this
Section 5.7(c) shall apply to such credit when, as, and if it is able to use
that credit.
5.9 Characterization of Indemnity Payments. Purchaser and Seller agree to
treat any payment made by Seller under this Agreement to Purchaser as an
adjustment to the Purchase Price.
5.10 Limitations on Indemnification Obligations. No party will have
liability for indemnification under this Agreement unless that party notifies
the other party of the claim within two years from the Closing. In addition,
other than liability relating to the Condominium Guaranty, no party shall be
entitled to indemnification under this Agreement until the aggregate Damages
with respect to all such matters exceeds $100,000 ("Basket"). After that time,
the Indemnified Party will be able to recover all damages in excess of the
Basket. Liability relating to the Condominium Guaranty shall not be subject to
the Basket. In addition, Seller's liability shall not exceed $1,400,000, and
Purchaser's liability shall not exceed $1,400,000; provided, however, there
shall be no limit on the time period in which either party must notify the other
of any claim for which it is entitled to indemnification, nor shall there be any
limit on the amount of liability either party may have against the other for any
claim related to Taxes, liabilities for breach of the representations and
warranties set forth in Section 2.9, or liabilities arising as a result of the
Indemnifying Party's gross negligence or willful misconduct. Notwithstanding
anything herein to the contrary, the Basket limitations on indemnification set
forth in this Section 5.10 shall not apply to (i) Seller's failure to release
the Company from the Condominium Guaranty, and (ii) a breach of Seller's Working
Capital Target representation set forth in Section 2.4(j).
5.11 Exclusive Remedy/Set-Off. Except for liability for failure to obtain a
release of the Condominium Guaranty and liability for breach of Seller's Working
Capital Target representation in Section 2.4(j), (i) the remedies set forth in
this Section 5 shall be the exclusive remedy of the parties for breach by either
party of any covenant, agreement representation, warranty or obligation
contained in this Agreement; (ii) purchaser's sole remedy for an indemnification
claim under this Section 5 and only right of set-off, shall be to the Common
36
Stock held in escrow; and (iii) Purchaser hereby waives its right to set-off
against the Promissory Note or any other amounts owed by Purchaser to Seller,
including without limitation, Seller's compensation under his Employment
Agreement. With respect to the guaranty of the Condo Note, Purchaser may set off
amounts due under the Promissory Note. Notwithstanding the foregoing, if as of
Closing the Company has not met its Working Capital Target and there is a breach
of the representation in Section 2.4(j), there shall be a dollar-for-dollar
reduction of the Purchase Price equal to the amount of such deficit. The parties
agree that Purchaser shall have the right to set-off and reduce the Promissory
Note by such amount.
5.12 Survival of Representations and Warranties. All of the terms and
conditions of this Agreement, together with the warranties, representations and
covenants contained herein or in any instrument or document delivered or to be
delivered pursuant to or in connection with this Agreement, shall survive the
execution of this Agreement and the Closing for a period of two years; provided,
however, that (i) the agreements set forth in Section 4 shall continue and
survive until all obligations set forth therein shall have been performed and
satisfied, and (ii) all representations and warranties in Section 2.12(a) shall
continue and survive indefinitely, and those representations as to Taxes and in
Section 2.9 shall continue and survive for the applicable statute of limitations
period.
6. Miscellaneous
6.1 Publicity. Except as otherwise required by law or applicable stock
exchange rules, press releases and other publicity concerning this transaction
shall be made only with the prior written agreement of Seller and Purchaser.
Seller and Purchaser shall consult and agree with each other with respect to the
content of any such required press release or other publicity. Except as
otherwise required by law or applicable stock exchange rules, no press release
or other publicity shall state the amount of the Purchase Price.
6.2 Notices. All notices required or permitted to be given under this
Agreement shall be in writing and may be delivered by personal delivery, by
facsimile, by nationally recognized private courier, by PDF/email, or by United
States mail. Notices delivered by mail shall be deemed given five business days
after deposit in the United States mail, postage prepaid, registered or
certified mail, return receipt requested. Notices delivered by personal
delivery, by facsimile, or by nationally recognized private courier shall be
deemed given on the first business day following receipt. However, a notice
delivered by facsimile or PDF/email shall only be effective upon electronic
confirmation of receipt. All notices shall be addressed as follows:
If to Seller:
-------------
c/o: Michael H. Lee
WRC Corporation
5964 Ballesteros Court
Ft. Collins, Colorado 80528
Fax: 303/893-1010
Email: mlee@wrccorp.com
37
with a copy to:
--------------
H. Paul Cohen
5440 E. 6th Avenue
Denver, Colorado 80220
Fax: 303/893-1010
Email: hpcohen@wrccorp.com
with a copy to:
--------------
Minor & Brown, P.C.
Attention: Tony King
650 South Cherry Street, Suite 1100
Denver, Colorado 80246
Fax: 303 320-6330
Email: aking@minorbrown.com
If to Purchaser:
----------------
ENGlobal Corporation
Attention: William A. Coskey
654 N. Sam Houston Parkway E., Suite 400
Houston, Texas 77060
Fax: (281) 878-1010
Email: bill.coskey@englobal.com
------------------------
with a copy to:
--------------
Jenkens & Gilchrist, P.C.
Attention: Kathryn K. Lindauer
401 Congress Avenue, Suite 2500
Austin, Texas 78701
Fax: (512) 499-3810
Email: klindauer@jenkens.com
and to such other addresses designated by notice given in accordance with
the provisions of this Section 6.2.
6.3 Expenses; Transfer Taxes. Purchaser shall bear all its fees and
expenses incurred in connection with, relating to or arising out of the
negotiation, preparation, execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated by this Agreement,
including, without limitation, financial advisors', attorneys', accountants' and
other professional fees and expenses, and, without limitation, Purchaser shall
pay the brokerage fees of Hunt, Patton & Brazeal. The Company shall pay 50% of
the legal and accounting fees and expenses incurred on behalf of Seller in
connection with the negotiation, preparation, execution, and delivery of this
38
Agreement, which fees are set forth on Section 6.3 of the Disclosure Schedule;
provided that the remaining 50% shall be paid by Seller, individually, and not
by the Company. In addition, the Company shall pay the cost of all sales, use,
excise, documentary, stamp and transfer Taxes which may be payable as a result
of the transactions contemplated by this Agreement.
6.4 Entire Agreement. This Agreement and the documents to be delivered by
the parties pursuant to the provisions of this Agreement constitute the entire
agreement between the parties and shall be binding upon and inure to the benefit
of the parties hereto and their respective legal representatives, successors and
permitted assigns.
6.5 Non-Waiver. The failure in any one or more instances of a party to
insist upon performance of any of the terms, covenants or conditions of this
Agreement, to exercise any right or privilege in this Agreement conferred, or
the waiver by said party of any breach of any of the terms, covenants or
conditions of this Agreement, shall not be construed as a subsequent waiver of
any such terms, covenants, conditions, rights or privileges, but the same shall
continue and remain in full force and effect as if no such forbearance or waiver
had occurred. No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party. A breach of any
representation, warranty or covenant shall not be affected by the fact that a
more general or more specific representation, warranty or covenant was not also
breached.
6.6 Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed to be an original, and all such counterparts shall
constitute but one instrument.
6.7 Severability. If any provision of this Agreement is held by final
judgment of a court of competent jurisdiction to be invalid, illegal or
unenforceable, such invalid, illegal or unenforceable provision shall be severed
from the remainder of this Agreement, and the remainder of this Agreement shall
be enforced. In addition, the invalid, illegal or unenforceable provision shall
be deemed to be automatically modified, and, as so modified, to be included in
this Agreement, such modification being made to the minimum extent necessary to
render the provision valid, legal and enforceable. Notwithstanding the
foregoing, however, if the severed or modified provision concerns all or a
portion of the essential consideration to be delivered under this Agreement by
one party to the other, the remaining provisions of this Agreement shall also be
modified to the extent necessary to equitably adjust the parties' respective
rights and obligations hereunder.
6.8 Applicable Law. This Agreement shall be governed by the laws of the
State of Texas, other than laws that direct the application of the laws of a
different state.
6.9 Binding Effect; Benefit. This Agreement shall inure to the benefit of
and be binding upon the parties and their successors and permitted assigns.
Except for the Purchaser Indemnitees and the Seller Indemnitees, there are no
third party beneficiaries to this Agreement and nothing in this Agreement,
express or implied, shall confer on any person other than the parties, and their
respective successors and permitted assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
39
6.10 Assignability. This Agreement shall not be assignable by either party
without the prior written consent of the other party. Purchaser may assign its
rights under this Agreement to its primary lender for collateral security
purposes, but may not assign its rights and delegate its duties under this
Agreement to any third party, without the prior written consent of Seller. No
assignment shall relieve Purchaser of any of its liabilities under this
Agreement.
6.11 Definitions. Capitalized terms in this Agreement have the meanings
ascribed to them in the following Sections of this Agreement:
Defined Term Where Found
- ------------ -----------
Affiliate 4.8(h)
Agreement Preamble
Basket 5.10
CERCLA 2.9(c)(iii)
Claims 1.1
Closing 1.5
Closing Date 1.5
Closing Documents 5.3(a)
Code 2.4(i)(C)
Common Stock 1.3(c)
Company Recitals
Condo Note 2.4(j)
Condominium Guaranty 4.13(a)(i)
Constituent Documents 2.3(f)
Damages 5.2(a)
Disclosure Schedule 2.1
Effective Date Preamble
Employee Benefit Plan 2.7(a)(C)
Environmental Laws 2.9(c)(i)
Environmental Permits 2.9(c)(ii)
Equipment 2.11(a)
ERISA 2.7(a)(A)
ERISA Affiliate 2.7(a)(i)
Financial Statements 2.4(b)
GAAP 2.4(b)
Hazardous Materials 2.9(c)(iii)
Indemnified Party 5.2(b)
Indemnifying Party 5.2(c)
Intellectual Property 2.11(b)
Interim Financial Statements 2.4(b)
IRS 2.7(a)(ii)
Leased Premises 2.10(b)
Liabilities 2.4(d)
Morningstar Note 2.4(j)
Multiemployer Plan 2.7(a)(A)
40
Defined Term Where Found
- ------------ -----------
PBGC 2.7(a)(vi)
Permits 2.6(c)
Permitted Liens 2.4(e)
Plan 2.7(a)(A)
Promissory Note 1.3(c)
Purchase Price 1.2
Purchaser Preamble
Purchaser Indemnitees 5.3
RCRA 2.9(c)(iii)
Related Parties 2.4(h)(i)
Release 2.9(c)(iv)
Return 2.4(i)(B)
Returns 2.4(i)(B)
SEC 4.8(c)
Seller Preamble
Seller Indemnitees 5.4
Shares Recitals
Significant Customer 2.5(c)
Significant Employee 2.7(c)
Significant Supplier 2.5(c)
Subsidiary 2.3(a)
Tax 2.4(i)(A)
Taxes 2.4(i)(A)
Third Party Claim 5.2(d)
Trademarks 2.11(b)
Welfare Plan 2.7(a)(B)
Working Capital Target 2.4(k)
1933 Act 4.8(c)
6.12 Construction. Pronouns used in this Agreement shall include the
masculine, feminine, neuter, singular or plural as the identity of the
antecedent may require. The terms "or" and "and" shall be construed
conjunctively or disjunctively as the context may make appropriate. The headings
contained in this Agreement are for convenience of reference only and shall not
affect the meaning or interpretation of this Agreement. Section references are
to sections of this Agreement unless otherwise indicated and include the entire
section referred to, as well as any subsections that are subordinate to the
referenced section. (For example, a reference to Section 2 shall include each
provision of this Agreement commencing at the beginning of Section 2 and up to
but not including Section 3. A reference to Section 2.3 shall include each
provision of this Agreement commencing at the beginning of Section 2.3 and up to
but not including Section 2.3.) Each Exhibit and schedule, including the
Disclosure Schedule, shall be incorporated into this Agreement as if set forth
in this Agreement in full. The Recitals shall be construed as part of this
Agreement.
41
6.13 Amendments. Any amendments, or alternative or supplementary
provisions, to this Agreement must be made in writing and duly executed by an
authorized representative or agent of each of the parties.
6.14 Attorneys' Fees. If any party commences an action relating to this
Agreement, the prevailing party shall be entitled to recover its attorneys' fees
from the other party; provided that no party shall be considered the prevailing
party unless it recovers more or is held liable for less, as applicable, than
any written settlement offer received from the other party.
6.15 Venue and Jurisdiction. The parties consent to the exclusive
jurisdiction of the state and federal courts located in Harris County, Texas
with respect to any controversy relating to this Agreement.
[Signature Page Follows]
42
Executed to be effective as of the Effective Date.
SELLER:
/s/ Michael H. Lee
------------------------------------
MICHAEL H. LEE,
Sole Stockholder of WRC Corporation,
a Colorado corporation
PURCHASER:
ENGLOBAL CORPORATION
a Nevada corporation
By: /s/ William A. Coskey
--------------------------------
William A. Coskey,
Chairman of the Board
43