<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
*******************************************************
FORM 8-K
Current Report Pursuant to section 13 or 15(d) of
The Security Exchange Act of 1934
Date of Report (Date of earliest event reported) May 15, 1997
---------------------
SMITH TECHNOLOGY CORPORATION
----------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-14992 38-2294876
(State of other jurisdiction of (Commission File (IRS Employer
incorporated organization) Number) identification No.)
Bayview Corporate Center
3501 Jamboree Road, South Tower
Suite 304
Newport Beach, CA 92660
(address of principal executive offices)
Registrant's telephone number, including area code: (714) 737-7900
---------------------
<PAGE> 2
Item 2. Acquisition or Disposition of Assets
On August 20, 1997, the Company and its subsidiaries BCM Engineers Inc., a
Delaware corporation, BCM Engineers Inc., a Pennsylvania corporation, BCM
Engineers Inc., an Alabama corporation, BCM Engineers Inc., a West Virginia
corporation, as Sellers, completed the sale of certain assets used by the
Company in the conduct of the Engineering Division to ATC Group Services Inc.,
a Delaware corporation ("ATC"). Consideration for the transaction consisted of
$5,425,539 cash, a promissory note in the amount of $2,750,000 payable 6 months
after closing, a second promissory note in the amount of $200,000 payable 30
days after closing, and the assumption by ATC of liabilities not to exceed
$4,301,000. The consideration represented by the promissory notes and the
assumed liabilities is subject to reduction through offset due to uncollectible
receivables, work in process, and rights of indemnification as set forth in the
Asset Purchase Agreement. The cash and proceeds of the promissory notes (which
have been assigned to the Company's Senior Lenders) will be used to reduce the
Company's obligation to its Senior Lenders.
Item 5. Other Events
On May 15, 1997, the Company and its Senior Lenders executed the Sixth
Amendment to the Loan and Security agreement dated as of October 18, 1995
("Sixth Amendment"). The Sixth Amendment amended the financial covenants by
modifying the definition of Consolidated Net Income or Loss and extended to
June 15, 1997, the required issuance to the Senior Lenders of detachable
warrants provided for in the Fifth Amendment and also extended to June 15,
1997, the delivery of audited financial statements as required in the Fifth
Amendment.
Item 7. Exhibits and Reports on Form 8-K
(a) Exhibits
10.37 Sixth Amendment, as of May 15, 1997, by and among the
Registrant, BCM Engineers Inc. (a Pennsylvania
corporation), BCM Engineers Inc. (an Alabama corporation),
Riedel Environmental Service, Inc. and The Chase Manhattan
Bank (formerly known as Chemical Bank), as agent for the
lenders.
10.38 Agreement for Sale and Purchase of Business Assets
dated the 18th day of August, 1997, by and between ATC
Group services Inc., a Delaware corporation, as Purchaser
and Smith Technology Corporation, a Delaware corporation,
BCM Engineers Inc., a Delaware corporation, BCM Engineers
Inc., a Pennsylvania corporation, BCM Engineers Inc., an
Alabama corporation, and BCM Engineers Inc., a West
Virginia
<PAGE> 3
corporation, collectively as Sellers. (Copies of
schedules and exhibits are on file with the Securities
and Exchange Commission).
10.39 Conditional Promissory Note for $2,750,000 dated the
19th day of August, 1997, subject to the
Maker's right of set-off, by and between ATC Group
Services, Inc., a Delaware corporation, as the Maker and
Smith Technology Corporation, a Delaware corporation.
10.40 Conditional promissory Note for $200,000 dated the 19th
day of August, 1997, subject to the Maker's right of
set-off, by and between ATC Group Services, Inc., a
Delaware corporation, as the Maker and Smith Technology
Corporation, a Delaware corporation.
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SMITH TECHNOLOGY CORPORATION
By: /s/ William T. Campbell
--------------------------
William T. Campbell
Vice President-Finance
<PAGE> 1
EXHIBIT 10.37
EXECUTION COPY
SIXTH AMENDMENT dated as of May 15, 1997 (the "Agreement")
among SMITH TECHNOLOGY CORPORATION (formerly known as Smith Environmental
Technologies Corporation), BCM ENGINEERS INC., a Pennsylvania corporation, BCM
ENGINEERS INC., an Alabama corporation, RIEDEL ENVIRONMENTAL SERVICES INC., each
of the Lenders which are parties to the Loan Agreement, as hereinafter defined,
and THE CHASE MANHATTAN BANK (formerly known as Chemical Bank), as Agent for the
Lenders. This Agreement is entered into in connection with a certain Loan and
Security Agreement dated as of October 18, 1995 (as amended through the date
hereof, the "Loan Agreement") among the parties to this Agreement. Terms which
are capitalized herein and not otherwise defined shall have the meanings
ascribed to them in the Loan Agreement.
WHEREAS, the Lenders, the Agent and the Borrowers entered into
the Fifth Amendment, Waiver and Consent to the Loan Agreement, dated as of April
21, 1997 (the "Fifth Amendment"), pursuant to which, among other things, the
financial covenants contained in the Loan Agreement were revised; and
WHEREAS, the Borrowers have requested the Agent and the
Lenders to consider making additional modifications to certain of such financial
covenants and modifying certain events of default under the Fifth Amendment and
the Agent and the Lenders have so agreed, upon the terms and subject to the
conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the foregoing, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENT TO LOAN AGREEMENT. The Loan Agreement is hereby amended by
deleting clause (i) of paragraph 14(o) in its entirety and by substituting the
following in lieu thereof:
"(i) Consolidated Net Income or Loss. Smith
Technology and its Subsidiaries, on a consolidated basis,
shall not have, as of the end of (A)(1) the fiscal quarter
ending in December 1996, a Net Loss of greater than $800,000,
(2) the fiscal quarter ending in March, 1997, a Net Loss of
greater than $2,100,000, (3) the fiscal quarter ending in
June, 1997, a Net Loss of greater than $1,000,000 and (4) the
fiscal quarter ending in September, 1997, a Net Loss of
greater than $500,000 and (B) the fiscal month of October,
1997 and each fiscal month thereafter, a Net Loss of greater
than $100,000, provided, however, that solely for purposes of
determining compliance with this covenant only, the
calculation of the Net Loss of Smith Technology and its
Subsidiaries, on a consolidated basis, as of the end of any
period of determination, shall
<PAGE> 2
exclude the aggregate amount of ESOP Dividends paid in
accordance with Section 14(1) during such period;"
SECTION 2. AMENDMENT TO FIFTH AMENDMENT. The Fifth Amendment is hereby amended
by deleting clauses (iv) and (v) of Section 8(a) thereof in their entirety, and
by substituting the following in lieu thereof:
"(iv) The Lenders shall have failed to receive on or
before June 15, 1997 the financial statements of Smith
Technology and its Subsidiaries, on a consolidated basis, for
the fiscal year ending September 30, 1996, certified without
qualification;
(v) The Lenders shall have failed to receive on or
before June 15, 1997 detachable warrants, in form and
substance, and containing such terms and conditions,
satisfactory to them, to acquire on a pro rata basis, at a
nominal exercise price, that number of shares of the common
voting stock of Smith Technology equal to 7.5%, on a fully
diluted basis, of such stock; or"
SECTION 3. REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders and
the Agent to enter into this Agreement, Smith Technology and each other Borrower
makes the following representations and warranties in favor of each of the
Lenders and the Agent (which representations and warranties shall survive the
execution and delivery of this Agreement) as of the date hereof.
(a) Smith Technology and each other Borrower has the corporate
power, authority and legal right to execute, deliver and perform this Agreement,
and the instruments, agreements, documents and transactions contemplated hereby,
and has taken all actions necessary to authorize the execution, delivery and
performance of this Agreement, and the instruments, agreements, documents and
transactions contemplated hereby.
(b) No consent of any Person (including, without limitation,
shareholders or creditors of Smith Technology, as the case may be) other than
the Lenders, and no consent, permit, approval or authorization of, exemption by,
notice or report to, or registration, filing or declaration with, any
governmental authority, is required in connection with the execution, delivery,
performance, validity or enforceability of this Agreement, and the instruments,
agreements, documents and transactions contemplated hereby.
(c) This Agreement has been duly executed and delivered on
behalf of Smith Technology and each other Borrower by its duly authorized
officer, and constitutes the legal, valid and binding obligation of Smith
Technology and each such Borrower, enforceable in accordance with its terms.
(d) Except for the failure of the Borrowers to (i) pay their
trade accounts payable and subcontractors when due, (ii) make timely payment of
their rental obligations under
2
<PAGE> 3
lease agreements and (iii) make timely payment of their obligations under the
Gould Settlement Agreement, the Winstead Settlement Agreement and the Mutual
Pharmaceutical Settlement Agreement, neither Smith Technology nor any other
Borrower is in default under any indenture, mortgage, deed of trust, agreement
or other instrument to which it is a party or by which it may be bound. Neither
the execution and delivery of this Agreement, nor the consummation of the
transactions herein contemplated, nor compliance with the provisions hereof or
thereof will (i) violate any law or regulation, (ii) result in or cause a
violation by Smith Technology or by any other Borrower of any order or decree of
any court or government instrumentality, (iii) conflict with, or result in the
breach of, or constitute a default under, any indenture, mortgage, deed of
trust, agreement or other instrument to which Smith Technology or any other
Borrower is a party or by which it may be bound, (iv) result in the creation or
imposition of any lien, charge, or encumbrance upon any of the property of Smith
Technology or of any other Borrower, except in favor of the Agent for the
benefit of the Lenders, to secure the Liabilities, or (v) violate any provision
of the Articles or Certificate of Incorporation, By-Laws or any capital stock
provisions of Smith Technology or of any other Borrower.
(e) No Default or Event of Default has occurred and is
continuing.
(f) Since the date of the Agent's receipt of Smith
Technology's consolidated financial statements for the period ended March 31,
1997, no change or event has occurred which has had or is reasonably likely to
have a Material Adverse Effect.
(g) The recitals contained in this Agreement are true and
correct in all respects.
SECTION 4. GENERAL PROVISIONS.
(a) Except as expressly amended on the terms set forth in this
Agreement, the Loan Agreement and all other agreements, documents, instruments
and certificates executed in connection therewith, are ratified and confirmed in
all respects and shall remain in full force and effect in accordance with their
respective terms.
(b) All references in the Other Agreements to the Loan
Agreement shall mean the Loan Agreement as waived and amended as of the
effective date hereof, as amended hereby and as hereafter amended, supplemented
or modified from time to time. From and after the date hereof, all references in
the Loan Agreement to "this Agreement," "hereof," "herein," or similar terms,
shall mean and refer to the Loan Agreement as waived and amended by this
Agreement.
(c) This Agreement may be executed by the parties hereto
individually or in combination, in one or more counterparts, each of which shall
be an original and all of which shall constitute one and the same agreement.
(d) This Agreement shall be governed and controlled by the
laws of the State of New York without reference to its choice of law principles.
3
<PAGE> 4
(e) This Agreement shall not be effective unless and until the
Agent and each of the Lenders shall have received a fully executed counterpart
or original hereof.
(Signature Page Follows)
4
<PAGE> 5
IN WITNESS WHEREOF, each of the Borrowers, BCM-Alabama, the
Lenders and the Agent have caused this Agreement to be duly executed by their
respective officers thereunto duly authorized as of the day and year first above
written.
<TABLE>
<S> <C>
SMITH TECHNOLOGY CORPORATION, RIEDEL ENVIRONMENTAL SERVICES
INC., formerly known as
Smith Environmental
Technologies Corporation By: /s/ William T. Campbell
-------------------------------
(Title) Vice President
By: /s/ Thomas F. Herlihy
-------------------------------
(Title) President
BCM ENGINEERS INC., THE CHASE MANHATTAN BANK, as a
a Pennsylvania corporation Lender and as Agent, formerly
known as Chemical Bank
By: /s/ William T. Campbell By: /s/ E. J. Hess
-------------------------------- ---------------------------------
(Title) Vice President (Title) V.P.
BCM ENGINEERS INC., BTM CAPITAL CORPORATION,
an Alabama corporation formerly known as
BOT Financial Corporation
By: /s/ William T. Campbell By: /s/ William R. Zork, Jr.
-------------------------------- ---------------------------------
(Title) V.P. (Title) Sr. V.P.
</TABLE>
5
<PAGE> 1
EXHIBIT 10.38
AGREEMENT
FOR SALE AND PURCHASE
OF BUSINESS ASSETS
This AGREEMENT (the "Agreement"), dated the 18th day of August , 1997,
is entered into by and among ATC GROUP SERVICES INC., a Delaware corporation
with its principal office at 104 East 25th Street, New York, New York 10010 (the
"Purchaser"); SMITH TECHNOLOGY CORPORATION, a Delaware corporation with its
principal office at 3501 Jamboree Road, Suite 304, Newport Beach, CA 92660
("Smith"); BCM ENGINEERS INC., a Delaware corporation with its principal office
at One Plymouth Meeting, Plymouth Meeting, PA 19462 ("BCMD"); BCM ENGINEERS
INC., a Pennsylvania corporation with its principal office at One Plymouth
Meeting, Plymouth Meeting, PA 19462 ("BCMP"); BCM ENGINEERS INC., an Alabama
corporation with its principal office at 63 South Royal Street, Suite 200,
Mobile, AL 36633 ("BCMA"); BCM ENGINEERS INC., a West Virginia corporation with
its principal office at One Plymouth Meeting, Plymouth Meeting, PA 19462
("BCMWV"); (Smith, BCMD, BCMP, BCMA, and BCMWV are collectively referred to as
the "Sellers").
The Purchaser desires to purchase certain business assets of Sellers in
exchange for cash and other consideration as hereinafter provided, and Sellers
desire to effect such asset purchase through sale in accordance with the
covenants and terms of this Agreement.
I. SALE AND PURCHASE OF ASSETS
Section 1.01 Basic Terms of Sale and Purchase of Assets
On the basis of the representations, warranties, covenants, and
agreements in this Agreement and subject to the terms and conditions of this
Agreement:
(a) At Closing, Sellers agree to sell, convey, assign, deliver and transfer to
Purchaser, and Purchaser agrees to acquire, accept and purchase from Sellers,
all of the properties and assets of Sellers, tangible and intangible, personal,
real and mixed, known or unknown, vested or contingent, which constitute
Sellers' Engineering Division (the "Engineering Division"), which includes all
of the assets of Sellers based in or out of Sellers' Burlington, New Jersey,
Dallas, Texas, Fairhope, Alabama, Fort Walton, Florida, Gulfport, Mississippi,
Jackson, Mississippi, Meridian, Mississippi, Mobile, Alabama, Modesto,
California, Norristown, Pennsylvania, Panama City, Florida, Pascagoula,
Mississippi, Pittsburgh, Pennsylvania, Pleasanton, California,
<PAGE> 2
Pocono Summit, Pennsylvania, Sandia Laboratories, New Mexico, and Washington,
D.C., offices and Sellers' assets used primarily by or associated primarily with
the Engineering Division at Sellers' Plymouth Meeting, Pennsylvania, Livonia,
Michigan, and Mt. Prospect, Illinois offices. The Engineering Division consists
of the operations of Sellers engaged in the functions of (i) testing, (ii)
consulting, (iii) engineering, (iv) design, (v) project management and (vi)
training. For purposes of defining what assets are to be conveyed as assets of
the Engineering Division under this Section 1.01(a), the Engineering Division
does not include the operations and assets, regardless of function or service
fields, of Sellers' Denver, Colorado and Porter, Indiana offices. The assets to
be sold and purchased under this Agreement are all of the Engineering Division
assets of all of the Sellers, (the Engineering Division assets to be purchased
by Purchaser from Sellers, whether or not itemized below, are collectively
referred to as the "Purchased Assets"). The Purchased Assets do not include
those assets of Sellers excluded by Section 1.01(d). The Purchased Assets
include, but are not necessarily limited to:
(1) All of the Engineering Division's supply inventory, including but
not limited to field supplies, laboratory supplies, office supplies,
processing supplies, labeling supplies, packaging and shipping
materials and selling and promotional materials.
(2) All of Seller's right, title and interest in the telephone and fax
numbers set forth on Schedule 1.01(a)(2). Purchaser shall have the
exclusive right to apply for changes in such numbers or in their
location.
(3) All of the Engineering Division's fixed assets, including all
furniture, fixtures, vehicles, office, field and production equipment,
including computer equipment, and inventory (Schedule 1.01(a)(3) sets
forth a substantially complete list of all fixed assets of the
Engineering Division).
(4) All of Sellers' interest in real property leases which are assumed
as Assumed Liabilities (as defined in Section 1.02) ("Assumed Premises
Leases") and all rights to pre-payments, deposits and leasehold
improvements pertaining to the Assumed Premises Leases. The Assumed
Premises Leases are listed on Schedule 1.02. Sellers' real property
leases other than Assumed Premises Leases are referred to as
"Non-Assumed Premises Leases."
(5) All right, title and interest in and to all of the Engineering
Division's customer contracts and agreements, whether written or oral
("Customer Contracts") and customer business arrangements and
relationships. At Closing, Sellers shall deliver all of the Customer
Contracts by surrendering
- 2 of 49 -
<PAGE> 3
possession of them to Purchaser at Closing at their then current
location.
(6) All right, title and interest in (i) all subcontracts of the
Engineering Division (the "Subcontracts"); and (ii) all contracts of
the Engineering Division other than Customer Contracts or Subcontracts
which are assumed by Purchaser as Assumed Liabilities by inclusion on
Schedule 1.02 ("Assumed Contracts").
(7) All of Sellers' right, title, and interest in the names "BCM
Engineers Inc.," "BCM," and any other names or any customarily utilized
portion or abbreviation thereof, either alone or in conjunction with
other words, utilized as business names by Sellers primarily in
connection with the Engineering Division's operations; and all right,
title and interest in any trademarks, logos, service marks, the
goodwill associated therewith and all registrations and applications in
connection with such names. As set forth with particularity in Section
4.09(d), Smith also grants Purchaser a one (1) year limited license to
use the names "Smith Technology Corporation," "Reidel Environmental
Services Inc.," and "Canonie Environmental Services Corp." on a
transitional basis to enable Purchaser to use, obtain the benefits
from, including payment, and effect the transfer of, the Purchased
Assets. Purchaser agrees to indemnify Smith pursuant Section 1.03 for
Third Party Claims against Sellers arising from Purchaser's use of such
names or for any breach by Purchaser of the limitations on use
contained in Section 4.09(d).
(8) At Sellers' election, either originals or copies of the business
records of the Engineering Division, including all such business
records of Sellers pertaining to the Purchased Assets or the Assumed
Liabilities as Purchaser reasonably determines are necessary to enable
Purchaser to obtain possession of and title to the Purchased Assets, to
realize the value of and benefits from the Purchased Assets, to carry
out its obligations under the Assumed Liabilities and to conduct the
business associated with the Purchased Assets and Assumed Liabilities
("Records"). The Records include (but are not necessarily limited to)
documents of title, accounting records, job files, invoices,
correspondence, sales records, technical records, customer records and
other data and records relating to sales, customers, the Purchased
Assets and the Assumed Liabilities, and include those which exist on
paper, on film, tape, videotape or other storage media and on any and
all electronic media such as computer hard drives, diskettes or
magnetic tape. The Records do not include any of the financial records
of Sellers or records not primarily related to the Engineering
Division, but Purchaser shall have access to such records under Section
4.06. Sellers shall deliver the Records located at premises which are
Assumed Premises Leases
- 3 of 49 -
<PAGE> 4
at Closing (as defined in Section 6.01) at their then current location
and the Records located at Sellers' other offices or premises promptly
at such times, from time to time, after Closing and at Purchaser's sole
expense, as records in Sellers' possession are reasonably determined by
Purchaser to constitute Records as defined in this section. In
conjunction with the delivery of the Closing ED Financial Statements,
Sellers shall deliver to Purchaser a copy of the job and financial
accounting computer systems back-up tapes for the Engineering Division
as of the Effective Time.
(9) All of Sellers' right, title, interest or proprietary interest
claims in and to any patents or unpatented proprietary technology or
processes primarily used by or sold or licensed to third parties by the
Engineering Division (listed on Schedule 1.01(a)(9)).
(10) All of Sellers' right, title, interest or proprietary interest
claims in and to all copyrights used primarily by or sold or licensed
to third parties by the Engineering Division (listed on Schedule
1.01(a)(10)) and all reports, forms, archives, data bases, studies,
methods, research, technical and other books, manuals, videos, scripts,
recordings, training materials, journals, handbooks, and all other
intellectual property in whatever form primarily used by the
Engineering Division, whether or not copyrighted or proprietary to
Sellers.
(11) All of Sellers' right, title, interest or proprietary interest
claims in and to any and all business or technical computer software
associated primarily with, primarily used by or sold by the Engineering
Division and all system manuals and supporting materials related to
such software (each such software system is listed on Schedule
1.01(a)(11)); provided that any such software for which any Seller is
obligated to pay royalties, lease payments or license fees or which
contains assignability restrictions shall be acquired by Purchaser only
to the extent assumed as an Assumed Liability.
(12) Sellers' complete Engineering Division customer list(s), prospect
contact list(s) or log(s), order backlog and proposals outstanding and
under development. At Closing, Sellers shall deliver their list(s) or
data base(s) of all known past (within previous three years) and
current Engineering Division customers or clients and the Engineering
Division's sales prospect contact list(s), data base(s) or log(s), to
the extent that such lists, data bases or logs are presently stored and
available on Sellers' current data management systems, whether manual
or electronic. At Closing, Sellers will also provide as Schedule
1.01(a)(12) a detail of its order backlog. This schedule will include
the customer's
- 4 of 49 -
<PAGE> 5
name, project name, order amount, amount billed to date and backlog
amount.
(13) Sellers' vendor list applicable to the Engineering Division and
all of Sellers' right, title and interest in contracts with vendors
which are assumed by Purchaser as Assumed Liabilities.
(14) All accounts receivable and all unbilled work in process (whether
or not such work in process has been booked as revenue or included on
any schedule) attributable to services performed by or contracts of the
Engineering Division, including associated retainages. The aging report
of accounts receivable recorded on the Interim ED Balance Sheet (see
Section 2.03) shall be provided at Closing as Schedule 1.01(a)(14)(i).
An aging report of the work in process recorded on the Interim ED
Balance Sheet shall be provided at Closing as Schedule 1.01(a)(14)(ii).
Final aging reports of both accounts receivable and work in process,
current to the Effective Time and including all accounts receivable and
work in process recorded on the Closing ED Balance Sheet, shall be
delivered in connection with the Closing ED Financial Statements (see
Sections 1.01(b)(4) and 2.03).
(15) All deposits, bonds, bond collateral, proceeds, refunds, and
prepaid expenses (including any refunds thereof) associated with the
Purchased Assets, the Assumed Premises Leases, the Assumed Equipment
Leases or the Assumed Liabilities (listed on Schedule 1.01(a)(15)).
(16) All of Sellers' right, title and interest in those specific
personal property leases assumed as Assumed Liabilities ("Assumed
Equipment Leases").
(17) To the extent assignable, all licenses, permits, accreditations,
registrations, approvals and the like of governmental agencies and
other licensing or accrediting entities used exclusively or primarily
by the Engineering Division.
(18) The real estate set forth on Schedule 1.01(a)(18) to the extent
that Purchaser accepts the conveyance thereof following its
environmental due diligence with respect thereto (the "Purchased Real
Estate"). Upon Purchaser's request after Closing, Sellers will deliver
a recordable special warranty deed for each parcel of Purchased Real
Estate.
(19) All right to the Sellers' lock box no. 35053 maintained with Chase
Manhattan Bank of New York for receipt and deposit of the Engineering
Division's collections, proceeds and other cash receipts.
- 5 of 49 -
<PAGE> 6
(20) The Marion Bank claim.
Sellers agree to use their best efforts to provide complete information on the
schedules provided for in this Section 1.01(a) on the date provided. However,
the omission of any item shall not operate to exclude the omitted item from the
sale, delivery and assignment thereof (except in those cases where the asset is
to be acquired only to the extent a coupled liability is to be assumed as an
Assumed Liability in which case it will be deemed included only if the liability
is specifically assumed as an Assumed Liability), and the omission of any item
shall abridge neither Sellers' obligation to deliver possession and title
thereto nor Purchaser's obligation to pay the purchase price provided Purchaser
acquires actual possession and beneficial ownership of the omitted item.
(b) As consideration for the Purchased Assets and the other promises,
agreements, warranties, and covenants hereof, the Purchaser shall:
(1) Pay to Smith at Closing the sum of Five Million Four Hundred
Twenty-Five Thousand Five Hundred Thirty-Nine Dollars ($5,425,539).
Such payment shall be paid by wire transfer of immediately available
funds to the accounts in the amounts specified by Sellers in Schedule
1.01(b)(1).
(2) At closing, deliver to Smith a six (6) month conditional,
non-negotiable promissory note in the form of Exhibit 1.01(b)(2) (the
"Note") evidencing Purchaser's obligation to pay to Smith the sum of
Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000), with no
interest thereon, payable on the date seven (7) days after the date six
(6) months after the Closing Date (the seven day delay is to enable the
parties to settle the accounts receivable and work in process
collection adjustment set forth below). The Note shall be subject to
the condition that Purchaser shall have available to it the right of
set-off against payments to be made under the Note in accordance with
the provisions of Section 1.04, including specifically the right of
set-off for uncollected accounts receivable and work in process (see
Sections 2.06 and 4.01) and for any other purpose for which the right
of set off may be exercised under Section 1.04, but not including any
right of set off for any overstatement of Adjusted Equity Value on the
Interim ED Balance Sheet (including any reduction in Adjusted Equity
Value which occurs between the Interim ED Balance Sheet and the Closing
ED Balance Sheet) which shall be adjusted in accordance with Sections
1.01(b)(3), (4) and (5). Purchaser acknowledges that the Note will be
assigned to Sellers' senior lender, The Chase Manhattan Bank, pursuant
to a collateral assignment of even date herewith, subject to
Purchaser's set-off rights in Section 1.04 hereof.
- 6 of 49 -
<PAGE> 7
(3) Conditionally assume at Closing those Closing ED Balance Sheet
liabilities of the Sellers related to the Engineering Division, in an
aggregate amount not to exceed Four Million Three Hundred One Thousand
Dollars ($4,301,000), which are set forth on Schedule 1.01(b)(3) (the
"Assumed Balance Sheet Liabilities"). The aggregate amount of, and the
specific liabilities included in, the Assumed Balance Sheet Liabilities
shall be adjusted, and Schedule 1.01(b)(3) shall be revised
accordingly, to reflect the difference between the Adjusted Equity
Value of the Engineering Division on the Interim and Closing ED Balance
Sheets in accordance with Section 1.01(b)(4).
(4) Within ten (10) days following the Closing Date, Sellers shall
provide to Purchaser the Closing ED Financial Statements (as defined in
Section 2.03). Any disagreements between Purchaser and Sellers
concerning the Engineering Division's final Adjusted Equity Value as
shown on the Closing ED Balance Sheet shall be resolved in accordance
with Section 2.03(c) during the twenty (20) day period thereafter. At
such time as the Closing ED Balance Sheet has been finally determined
between the parties within thirty (30) days after Closing, a final
adjustment to the amount of Assumed Balance Sheet Liabilities to be
assumed under Section 1.01(b)(3) shall be made and Schedule 1.01(b)(3)
shall be amended to reflect such adjustment, equal to the amount, if
any, by which the Engineering Division's Adjusted Equity Value as of
the Effective Time as set forth on the finally determined Closing ED
Balance Sheet exceeds or is less than the warranted Adjusted Equity
Value set forth on the Interim ED Financial Statements, net of any
set-off for such purpose taken by Purchaser against the Short Term Note
under Section 1.01(b)(5). If the Engineering Division's Adjusted Equity
Value as of the Effective Time is less than the Interim ED Balance
Sheet value, the aggregate amount of Assumed Balance Sheet Liabilities
assumed by Purchaser shall be reduced by such difference less any
amount which Purchaser has elected to take as a set-off for such
purpose against the Short Term Note as provided in Section
1.01(b)(5)(B). If the Adjusted Equity Value is greater than the Interim
ED Balance Sheet value, the aggregate amount of Assumed Balance Sheet
Liabilities assumed by Purchaser shall be increased by such difference.
Purchaser shall have the right to select which Closing ED Balance Sheet
liabilities are added to or deleted from Schedule 1.01(b)(3) to reflect
the adjustment effected by this paragraph. Purchaser shall be given
credit for any Assumed Balance Sheet Liabilities which it discharges
prior to the amendment of Schedule 1.01(b)(3).
(5) At Closing, deliver to Smith a thirty (30) day conditional,
non-negotiable promissory note in the form of Exhibit 1.01(b)(5) (the
"Short Term Note") evidencing Purchaser's obligation to pay to Smith
the sum of Two Hundred Thousand Dollars ($200,000), with interest
thereon at the
- 7 of 49 -
<PAGE> 8
Chase Manhattan Bank prime rate as of the Closing Date, payable on the
date thirty (30) days after the Closing Date. The Short Term Note shall
be subject to the condition that Purchaser shall have available to it
the right of set-off against payments to be made under the Short Term
Note for:
(A) Any payment which Purchaser elects to make on behalf of
Sellers of any liability of the Engineering Division: (i)
which is not set forth as an account payable of the
Engineering Division on Schedule 1.01(b)(5) (Schedule
1.01(b)(5) is the ledger of trade accounts payable included as
liabilities of the Engineering Division recorded on the
Interim ED Balance Sheet); (ii) which is not an Assumed
Liability; and (iii) which Sellers do not pay within seven (7)
days after being requested by Purchaser in writing to do so in
accordance with Section 4.14; or
(B) The amount, if any, by which the Engineering Division's
Adjusted Equity Value as of the Effective Time as set forth on
the finally determined Closing ED Balance Sheet is less than
the Interim ED Balance Sheet value, determined in accordance
with Section 1.01(b)(4), to the extent that Purchaser elects
to take such adjustment as a set-off against the Short Term
Note instead of a reduction in Assumed Balance Sheet
Liabilities.
Purchaser acknowledges that the Short Term Note will be assigned to Sellers'
senior lender, The Chase Manhattan Bank, pursuant to a collateral assignment of
even date herewith, subject to Purchaser's set-off rights in this Section
1.01(b)(5).
(c) The purchase price shall be allocated to the Purchased Assets by agreement
of the parties as set forth on Schedule 1.01(c), with final adjustments to
conform to the Closing ED Balance Sheet made by agreement between the parties
within 45 days after Closing.
(d) The Purchased Assets will not include the following (collectively, the
"Excluded Assets"):
(1) All cash bank accounts or cash equivalents of Sellers on hand on
the Closing Date, except as provided in Section 1.01(a)(15).
(2) All insurance policies of the Sellers, in respect of the Purchased
Assets or otherwise.
(3) Sellers' interest in that certain Technical Services Agreement
dated May 1, 1993, between Schlumberger Technology Corporation and
Canonie Environmental Services Corp., including the right of any
proceeds, accounts receivable,
- 8 of 49 -
<PAGE> 9
claims for payment or other rights arising from or related to such
agreement.
(4) All rights of Sellers arising from or related to the lawsuit filed
in the Superior Court of California, County of Alemeda, Case No.
V-013711-1 against Locus Technologies, Neno Duplancic and other
unidentified defendants.
(5) Any permits, licenses, agreements, leases, instruments, contracts
and contract rights which would be Purchased Assets but for this
Section 1.01(d)(5), but which require the consent, approval, novation
or waiver of a third person if the transfer of such would constitute a
breach of such contract or a violation of any law and if such consent,
approval, novation or waiver is not obtained, provided, however, that
the benefits of any such agreement, lease, instrument, contract or
contract right, including the right to payment arising therefrom, shall
nevertheless constitute Purchased Assets to the extent that such
benefits can be afforded to Purchaser by means of the covenants set
forth in Sections 4.09, 6.02(l) and 7.02 or any other covenant of this
Agreement whose purpose is to assure to Purchaser the benefits of the
Purchased Assets for which Purchaser is paying the consideration
provided for in this Agreement.
(6) All of Seller's assets of every type and description which are not
primarily used by or related to the Engineering Division.
(7) All real estate owned or leased by Sellers except for any: (i)
owned real estate expressly itemized on Schedule 1.01(a)(18) as a
Purchased Asset; or (ii) interests in leased real estate which are
Assumed Premises Leases.
(8) All claims of Sellers, including those related to the Engineering
Division, arising prior to the Effective Time, except for the Marion
Bank claim (the "Retained Claims").
(9) All rights in former accounts receivable of the Engineering
Division which were charged off prior to the Effective Time.
(10) Deposits, pre-payments, fixtures, and tenant improvements
associated with Non-Assumed Leases.
(11) Records related to Sellers' pending or threatened litigation,
proceedings, investigations or claims.
(12) All of Sellers' recorded goodwill.
- 9 of 49 -
<PAGE> 10
(13) Sellers' computer network equipment and licensed network software,
including those components used by the Engineering Division prior to
Closing.
(14) All of Sellers' leased real and personal properties other than
those assumed by Purchaser as Assumed Premises or Assumed Equipment
Leases.
Section 1.02 Liabilities of Seller and Purchaser
(a) Purchaser has not, and shall not be construed to have, assumed, adopted or
taken over any obligations, debts, liabilities or responsibilities of Sellers
whatsoever, including (but not limited to) liabilities for local, state or
federal taxes, except for: (i) the liabilities itemized on Schedule 1.02; (ii)
the Assumed Balance Sheet Liabilities set forth on Schedule 1.01(b)(3) as
adjusted; and (iii) such future (i.e. post-Effective Time) performance as is
obligated under the terms and conditions of those Customer Contracts or
Subcontracts which constitute Purchased Assets (collectively the "Assumed
Liabilities"). Purchaser shall use its diligent efforts to secure the assignment
to Purchaser or novation of contracts which are Assumed Liabilities. Purchaser
shall be free to seek the amendment or renegotiation of terms of Customer
Contracts, Subcontracts or Assumed Liabilities in its sole discretion provided
that Purchaser shall indemnify Sellers from any adverse effect on Sellers
arising from such actions. Purchaser shall cooperate with Sellers in attempting
to obtain the release and waiver or settlement of claims of parties under the
Customer Contracts in favor of Sellers for any damages or losses alleged to have
been incurred by such parties arising from performance prior to the Effective
Time. Notwithstanding Purchaser's acceptance of a Customer Contract and the
obligation of future performance, Sellers, as their interests are defined by
such contracts or by law (which shall not be altered or enlarged with respect to
third parties by virtue of this Agreement), shall retain responsibility and
liability, except as such are expressly assumed as Assumed Liabilities, for all
obligations, performance and liability due, occurring or accruing under all
Customer Contracts or Subcontracts prior to the Effective Time, with Purchaser
assuming all responsibility and liability for obligations and performance due
and performed after the Effective Time and all liabilities arising out of such
post-Effective Time performance.
(b) Except for the Assumed Liabilities, Sellers agree, jointly and severally, to
retain or assume full liability and responsibility for satisfaction of all of
Sellers' debts or liabilities of any kind, whether known or unknown, fixed or
contingent, including any and all liability for trade payables and other
accounts payable, federal, state or local taxes, employment taxes, tort or
contract claims, and employee compensation, benefits or claims.
- 10 of 49 -
<PAGE> 11
(c) The disclosure by Sellers of any liability or any item or matter that
creates a liability in the future on the schedules to this Agreement or
otherwise shall not result in an assumption by, or shifting to, Purchaser of
liability with respect to such matter except to the extent that Purchaser has
expressly agreed to the assumption of such liability as an Assumed Liability.
Section 1.03 Indemnity Against Liabilities, etc.
(a) Sellers, jointly and severally, agree to indemnify and hold harmless the
Purchaser, its subsidiaries, their employees and their successors against and in
respect of any and all:
(1) Claims, suits, actions, proceedings (formal or informal),
governmental investigations, judgments, deficiencies, set-offs,
damages, settlements, liabilities, and reasonable legal and other
expenses (including reasonable attorneys' fees) as and when incurred
arising out of or based upon any breach of any representation,
warranty, covenant, or agreement of Sellers or any person other than
Purchaser contained in this Agreement or any of the Related Agreements;
(2) Debts or liabilities of any kind and claims, liens, set-offs,
suits, actions, and proceedings (formal and informal) of persons or
entities and related judgments, deficiencies, damages, settlements,
set-offs, liens, liabilities, and legal and other expenses (including
reasonable attorneys' fees) as and when incurred arising (i) out of the
Purchased Assets or the business associated therewith prior to the
Effective Time except to the extent expressly assumed by Purchaser as
Assumed Liabilities or (ii) out of or based upon the acts, omissions,
contractual performance or conduct of the business of Sellers whether
before or after the Effective Time, except to the extent expressly
assumed by Purchaser as Assumed Liabilities; and
(3) Any loss, damage or cost for which Sellers or any of them have
agreed to indemnify Purchaser under any provision of this Agreement or
any Related Agreement.
(b) Purchaser agrees to indemnify and hold harmless Sellers, their affiliated
corporations, their employees and their successors, against and in respect of
any and all:
(1) Claims, suits, actions, proceedings (formal or informal),
governmental investigations, judgments, deficiencies, set-offs,
damages, settlements, liabilities, and reasonable legal and other
expenses (including reasonable attorneys' fees) as and when incurred
arising out of or based upon any breach of any representation,
warranty, covenant, or agreement of Purchaser contained in this
Agreement or any of the Related Agreements;
- 11 of 49 -
<PAGE> 12
(2) Debts or liabilities of any kind and claims, liens, set- offs,
suits, actions, and proceedings (formal and informal) of persons or
entities and related judgments, deficiencies, damages, settlements,
set-offs, liens, liabilities, and reasonable legal and other expenses
(including reasonable attorneys' fees) as and when incurred arising (i)
out of the Purchased Assets or the business associated therewith after
the Effective Time, except for Sellers' debts or liabilities not
expressly assumed by Purchaser as Assumed Liabilities; (ii) out of or
based upon the acts, omissions, contractual performance or conduct of
the business of Purchaser whether before or after the Effective Time;
or (iii) out of the Assumed Liabilities after the Effective Time; and
(3) Any loss, damage or cost for which Purchaser has agreed to
indemnify Sellers or any of them under any provision of this Agreement
or any Related Agreement.
(c) If any party to be indemnified hereunder (the "indemnitee") receives notice
of the assertion of any claim or of the commencement of any action or proceeding
by any entity who is not a party to this Agreement or an affiliate of such party
(a "Third Party Claim") against such indemnitee, against which any person or
entity that may be required to provide indemnification therefor under this
Agreement (the "indemnitor"), the indemnitee will give such indemnitor
reasonably prompt written notice thereof after receipt of such notice of such
Third Party Claim in reasonable detail, and will indicate the estimated amount,
if reasonably practicable, of the loss that has been or may be sustained by the
indemnitee. The indemnitor will have the right to participate in or, by written
notice to the indemnitee no later than thirty (30) calendar days after receipt
of the above-described notice of such Third Party Claim, to elect to assume the
defense of such Third Party Claim at such indemnitor's own expense and by such
indemnitor's own counsel, and the indemnitee will cooperate in good faith in
such defense. If within the 30 calendar days set forth in this paragraph, an
indemnitee receives written notice from an indemnitor that such indemnitor has
elected to assume the defense of any Third Party Claim, the indemnitor will not
be liable for any legal expenses subsequently incurred by the indemnitee in
connection with the defense thereof (except as provided in this paragraph or
paragraphs (d) or (f) below). The indemnitee will, however, have the right to
participate in the defense of any Third Party Claim assisted by counsel of its
own choosing at its own expense. If the indemnitee has not received written
notice within such thirty (30) calendar day period that the indemnitor has
elected to assume the defense of such Third Party Claim, the indemnitee may, at
its option, elect to settle, subject to paragraphs (e) and (f), or assume such
defense, assisted by counsel of its own choosing, the cost of which shall
constitute an indemnified loss.
- 12 of 49 -
<PAGE> 13
(d) An indemnitor shall not be entitled to control, and the indemnitee shall be
entitled to have sole control over, the defense or settlement of any claim
against such indemnitee to the extent that (i) such claim seeks an order,
injunction or other equitable relief against the indemnitee which if successful,
could reasonably be expected to materially interfere with the business,
operations, assets or condition (financial or otherwise) of the indemnitee or
(ii) such claim arises out of a Customer Contract and seeks recovery against
both Sellers and Purchaser under circumstances subjecting the claim to liability
and indemnity apportionment under paragraph (j)(1) of this section, in which
event indemnitor and indemnitee shall have control over their respective
defenses.
(e) Without the prior written consent of the other, indemnitor will not enter
into any settlement of any Third Party Claim or cease to defend against such
claim, if pursuant to or as a result of such settlement or cessation: (i)
injunctive or other equitable relief would be imposed against the indemnitee; or
(ii) such settlement or cessation would lead to liability or create any
financial or other obligation on the part of the indemnitee for which it is not
entitled to or is unlikely to receive full indemnification hereunder (exclusive
of the Indemnity Deductible, or any portion thereof). Indemnitor shall not
consent to the entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to each indemnitee of a release from all liability in respect of such claim.
(f) If a firm offer is made to settle a Third Party Claim and either indemnitor
or indemnitee desires to accept and agree to such offer, such party will give
written notice to the other to that effect. If the other party fails to consent
to such firm offer within 30 calendar days after its receipt of notice, the
party desiring to so settle may continue to contest or defend such Third Party
Claim and, in such event: (i) if the party desiring to settle is the indemnitor,
the maximum liability of the indemnitor as to such Third Party Claim will not
exceed the amount of such settlement offer, plus costs and expenses paid or
incurred by the indemnitee through the end of such 30-day period to the extent
otherwise indemnifiable hereunder; or (ii) if the party desiring to settle is
the indemnitee, the indemnitee is participating in the defense of such Third
Party Claim at its cost and the final judgment or settlement is equal to or
greater than the firm offer, the indemnitee's costs and expenses incurred after
such 30-day period shall constitute an indemnified loss.
(g) Any claim by an indemnitee for indemnification other than indemnification
against a Third Party Claim (a "Direct Claim") will be asserted by giving the
indemnitor reasonably prompt written notice thereof, and the indemnitor will
have a period of 15 calendar days within which to respond in writing to such
Direct Claim. If the indemnitor does not so respond within such 15
- 13 of 49 -
<PAGE> 14
calendar day period, the indemnitor will be deemed to have rejected such claim,
in which event the indemnitee will be free to pursue such remedies as may be
available to the indemnitee under this Agreement.
(h) With regard to claims for which indemnification is payable hereunder, such
indemnification shall be paid by the indemnitor promptly upon (i) the entry of a
judgment against the indemnitee and the expiration of any applicable appeal
period; (ii) the entry of an unappealable judgment of final appellate decision
against the indemnitee; or (iii) a settlement permitted under Section 1.03. In
the event that the indemnitee has taken a provisional set-off against amounts
due to the indemnitor for the indemnified claim pursuant to Section 1.04(c) and
the amount finally determined to be payable as provided in this paragraph is
less than the amount so set-off, the excess shall thereupon be payable to the
indemnitor together with interest on such excess at the Chase Bank prime rate
quoted for the date on which the payment against which the set-off was taken
would have otherwise been due. This provision shall not apply to Purchaser's set
off rights against the Note for uncollected accounts receivable and work in
process and against the Short Term Note for Purchaser's payment of unscheduled
accounts payable under Section 1.01(b)(5) which shall be governed by Sections
1.04 and 1.01(b)(5), respectively, and shall be finally determined in accordance
with the procedure set forth for resolution of accounting issues in Section
2.03.
(i) If the Purchaser is the indemnitee, payment of an indemnification claim
shall first be made by a set-off against the principal amount of the Note
remaining unpaid, subject to paragraphs (j)(3) and (5) of this section.
(j) The parties' respective indemnity obligations hereunder shall be further
subject to the following:
(1) In the event any contracting party of a Customer Contract (other
than Purchaser) asserts any claim for damages, failure or inadequacy of
performance, breach of warranty or breach of contract relating to the
Customer Contract and such claim is founded on allegations of breach of
contract, negligence or other legal fault of both a Seller and
Purchaser, then, and in that event, Purchaser and Sellers
indemnification obligations contained herein shall apply only to the
extent of their respective actual comparative negligence or other legal
fault as determined by the dispute resolution procedures set forth in
this Agreement, by a court or by agreement of the parties. A
determination of liability on the part of Purchaser based upon the
assignment or novation to, or undertaking of performance by, Purchaser
of any Customer Contract or based upon successor liability or similar
theory shall not constitute legal fault of the Purchaser, it being the
intention of this section to apportion liability to the party
- 14 of 49 -
<PAGE> 15
whose act or omission was actually responsible for creating the
liability.
(2) Except with respect to claims arising from performance under
Customer Contracts prior to Closing or claims of breach of any contract
by any Seller prior to Closing, rights to indemnification pursuant to
Section 1.03(a) hereof shall survive Closing for a period of thirty
(30) months. Rights to indemnification for claims arising from any
Seller's performance under any Customer Contract or breach of contract
by any Seller prior to Closing shall survive for a period of six (6)
years after the date of the making of the contract. All such
non-excepted claims for indemnification hereunder shall be forever
barred unless made by notifying the Sellers in writing of such claim
within the time period set forth in this paragraph.
(3) The Sellers' and Purchaser's respective indemnity obligations
hereunder shall be limited to: (i) individual losses, claims, etc.
having a value of $2,500.00 or more (an "Indemnified Claim"); and (ii)
losses, claims, etc. after the first $100,000.00, in the aggregate, of
Indemnified Claims (the "Indemnity Deductible"), in which event only
the aggregate amount of Indemnified Claim(s) in excess of the Indemnity
Deductible shall be subject to indemnification hereunder. Sellers shall
not be responsible for any loss or claim to the extent that a reserve
exists therefore on the Closing ED Balance Sheet and remains available.
The following are not subject to either the Indemnified Claim threshold
or the Indemnity Deductible and are covered from the first dollar over
the reserved amount: (iii) Sellers' warranty that accounts receivable
and recorded work in process recorded on the Closing ED Balance Sheet,
net of reserves, will be collected as specified in Section 2.06(a);
(iv) Sellers' warranty that there are no unearned billings or receipts
net of reserves for such purpose as set forth in Sections 2.06(a) and
2.07(b); (iv) Sellers' warranty that both the Interim and Closing
Balance Sheets correctly stated tangible net equity for the Engineering
Division as of the Effective Time; (v) Sellers' warranty that Hazardous
Materials have been removed from the Assumed Premises Leases and
Purchased Real Estate prior to Closing; (vi) Sellers' covenants to pay
unrecorded accounts payable of the Engineering Division under Section
4.14 and to pay insurance premiums under Section 4.12; and (viii)
Purchaser's covenant to make payments required in the ordinary course
under Assumed Balance Sheet Liabilities or leases assumed as Assumed
Liabilities.
(4) The terms "loss" or "cost" as used in Section 1.03(a) include
corrective services performed by Purchaser (including its
subcontractors) to remedy a deficiency in Sellers' performance under
any contract for the performance of services by a Seller
- 15 of 49 -
<PAGE> 16
to the extent that Purchaser reasonably determines: (i) that such
corrective services are in fact necessary to remedy a defective
performance by a Seller; and (ii) that Purchaser must perform such
corrective services in order to preserve its relationship with (x) any
customer under a Customer Contract or other engagement for services
having remaining billings of $20,000 or more in excess of the cost of
such corrective services, (y) any pre-existing customer from which
Purchaser accrued revenue in excess of $30,000 within the previous year
or (z) any customer from which the Engineering Division accrued more
than $50,000 in revenue in either of the two years prior to Closing.
Corrective services performed by Purchaser at the request of Sellers
shall not be subject to any threshold.
(5) The maximum aggregate liability of the Sellers for indemnification
under this Agreement and set-offs under Section 1.04 and 1.01(b)(5),
exclusive of liability covered by Sellers' insurance coverage for any
indemnified claim, shall be equal to Two Million Seven Hundred Fifty
Thousand Dollars ($2,750,000) (the "Maximum Aggregate Indemnity
Amount"), and the obligations of the Sellers for indemnification
hereunder will terminate when the Maximum Aggregate Liability Amount
has been paid or set-off, except that if Purchaser exercises set-off
rights against the Note and the Short Term Note in excess of $1,250,000
in the aggregate for uncollected accounts receivable and work in
process and for payments of unrecorded accounts payable, the maximum
aggregate liability of the Sellers for indemnification shall
nevertheless be equal to $1,500,000 for other indemnified matters
regardless of the amount set-off for the foregoing purposes.
(6) To the extent that an indemnitee actually receives proceeds of
insurance or any other recovery of amounts claimed as an indemnified
loss or cost hereunder, the indemnification obligation of the
indemnifying party shall be reduced to the extent of the net insurance
proceeds or other recovery received by the indemnitee. If the amount of
any indemnifiable loss at any time subsequent to the making of a
payment in respect thereof (an "Indemnity Payment") is reduced by
recovery, settlement or otherwise under or pursuant to any insurance
coverage, or pursuant to any claim, recovery, settlement or payment,
the amount so received will be promptly repaid by the indemnitee to the
indemnitor, together with interest thereon from the date of payment
thereof at a rate equal to the then current prime rate.
(7) Upon making any Indemnity Payment, the indemnitor will, to the
extent of such Indemnity Payment, be subrogated to all rights of the
indemnitee against any third party that is not an affiliate of the
indemnitee in respect of the loss to which the Indemnity Payment
relates. Without limiting the
- 16 of 49 -
<PAGE> 17
generality or effect of any other provision hereof, each such
indemnitee and indemnitor will duly execute upon request all
instruments which fairly reflect, and are reasonably necessary to
evidence and perfect, the above-described rights.
(8) Sellers and Purchaser, or any indemnitee claiming under them, shall
each give the other prompt notice as provided in this section of any
allegedly indemnified item incurred, asserted or threatened on the
basis of which an indemnitee intends to seek indemnification from an
indemnitor as provided herein; provided, however, that the obligation
of an indemnitor shall be reduced for the failure to give notice at any
particular time only to the extent that the indemnitor has been
actually prejudiced thereby.
(9) The indemnity agreements contained in this Agreement shall inure
only to the benefit of Purchaser and Sellers, respectively, (and their
respective subsidiaries, affiliates, employees and successors to the
extent they are indemnitees), and shall not be for the benefit of any
other person or entity. These indemnity provisions shall not be
construed to abrogate the corporate liability shield as provided by
law, to extend a right of action to any third party not otherwise
available, or to enlarge the underlying liability of any indemnitor or
indemnitee to any third party.
(k) Notwithstanding any other provision contained in this Agreement to the
contrary, neither Sellers nor Purchaser shall have any liability to the other or
to any other indemnitee under this Agreement, or under any Related Agreement,
document or instrument delivered pursuant to this Agreement, or in connection
with the transactions contemplated hereby or thereby, for any indirect,
consequential or incidental damages of any kind or nature. The following shall
not constitute indirect, consequential or incidental damages: (i) amounts that
an indemnitee is required to pay to a Third Party even if such amounts are for
indirect, incidental or consequential damages sustained by such Third Party; or
(ii) attorneys fees and defense costs and expenses for which a right to
indemnification is provided in this Section 1.03.
(l) The indemnification obligation of an indemnitor shall be adjusted so as to
give credit to the indemnitor for any tax benefits available to the indemnitee
by virtue of or as a result of the matter for which the indemnitee is being
indemnified (net of tax detriments resulting to the indemnitee by virtue of such
indemnification).
(m) Purchaser and Sellers each agree that the remedies provided to each party in
this Section 1.03 shall be the sole and exclusive remedies of such party (or any
person claiming by or through such party) for breach, misrepresentation or
default by the other party under or with respect to this Agreement or any
Related Agreement except for
- 17 of 49 -
<PAGE> 18
the following: (i) the parties shall be entitled to equitable remedies with
respect to matters where an equitable remedy is provided in this Agreement or
where such relief is available under principles of equity generally; and (ii)
the parties shall not be limited as to remedy under circumstances constituting
fraud in the inducement.
Section 1.04 Rights of Set Off
(a) Without limiting such other rights as it may have at law or equity or by
agreement, the Purchaser shall have the right, subject to the procedures of this
Section 1.04, to set off against, and withhold from, any payment otherwise due
to Sellers under the Note: (i) the amount of any account receivable or work in
process which is a Purchased Asset and is determined to be uncollected pursuant
to Sections 2.06(a) and 4.01; (ii) any amount for which Purchaser is entitled to
an indemnification payment as provided in Section 1.03 (subject to the
limitations of Sections 1.03(j)(3) and 1.03(j)(5)); and (iii) as provided in
paragraph (c) below. In-kind goods or services provided by Purchaser for which
Purchaser would be entitled to set-off if paid by Purchaser in money shall be
valued at Standard Rates (as defined in Section 4.11).
(b) Without limiting such other rights as they may have at law or equity or by
agreement, Sellers shall have the right, subject to the procedures of this
Section 1.04, to set off against, and withhold from, any payment otherwise due
to Purchaser under this Agreement or under any Related Agreement any amount for
which Sellers are entitled to an indemnification payment under Section 1.03
(subject to the limitations of Sections 1.03(j)(3) and 1.03(j)(5)); and (iii) as
provided in paragraph (c) below. In-kind goods or services provided by a Seller
for which Sellers would be entitled to set-off if paid by Sellers in money shall
be valued at Standard Rates (as defined in Section 4.11).
(c) Subject to the procedures set forth below, but only with respect to Third
Party Claims, it shall not be necessary that a Third Party Claim or a threatened
Third Party Claim has resulted in actual damage to a party having set-off rights
under this section for the party to exercise its set-off rights under this
section, but rather such party shall have the right to provisionally withhold
payment to cover the future effects of any Third Party Claim or threatened Third
Party Claim pending actual conclusion of the matter, provided that the party
asserting the right of set-off for a threatened Third Party Claim shall have
produced sufficient objective evidence of facts and sufficient supporting legal
authority for a competent, experienced attorney to conclude that:
(1) A written notice of the claim or threatened claim has been received
by the party seeking to withhold;
- 18 of 49 -
<PAGE> 19
(2) Either the loss-threatening event has occurred or there is a
substantial probability that it will occur;
(3) There is a substantial probability that the occurrence or probable
occurrence will cause a loss;
(4) An action to hold the party liable for the loss could withstand a
motion to dismiss or a motion for summary judgment;
(5) There is a substantial probability that the loss, including
associated attorney fees and costs of defense, will be as great as the
amount asserted for set-off;
(6) Either there is a substantial issue as to whether an available
insurance policy provides coverage for the claim or there is a
substantial potential that the insurance coverage available will not be
adequate in amount to pay the portion of the loss asserted as a
set-off; and
(7) If the set-off is not asserted at the present time, insufficient
funds will remain subject to set-off following the next payment to
enable the asserting party to protect its interests.
If (i) any of the above findings becomes no longer true, (ii) a formal
proceeding has not been commenced with respect to such Third Party Claim within
one (1) year after the notice of intent to set-off, (iii) settlement
negotiations are not actively in progress to resolve such Third Party Claim
after one (1) year from the notice of intent to set-off, or (iv) such loss or
damage does not in fact occur, then upon the earlier to occur of such events
such party shall then pay the withheld amount to the other party together with
interest on such amount from the payment due date at the Chemical Bank prime
rate in effect on the due date for such payment.
(d) Purchaser may not set off any amounts under this section except to the
extent that any reserve recorded on the Closing Balance Sheet for such liability
or class of liabilities is not available or is inadequate to cover the asserted
amount.
(e) If the parties have a dispute involving the exercise of set-off rights,
including any issue as to insurance coverage or liability exposure, then within
ten (10) days, Sellers and Purchaser shall confer in good faith in an effort to
resolve the dispute. If the parties are unable to agree within thirty (30) days
after the issue is first asserted, then such issue shall be submitted to
non-binding mediation as provided in Section 7.15. Pending agreement or
determination of a charge against available reserves and/or a set-off, the
amount asserted for set-off may be withheld by the asserting party (subject to
the provisions of paragraph (c) above) and shall not constitute a breach or
default under this
- 19 of 49 -
<PAGE> 20
Agreement, provided that the withholding is reasonable as to amount and is
undertaken in good faith with a reasonable belief as to the entitlement to the
set-off.
II. REPRESENTATIONS AND WARRANTIES OF SELLER
As a material inducement to Purchaser to enter into this Agreement,
Sellers represent and warrant to Purchaser as follows:
Section 2.01 Organization and Qualification
(a) Sellers are each corporations which are validly existing under the laws of
their state of incorporation with the full corporate power and authority to
enter into contracts, to sell their assets and to perform the other agreements
and covenants as provided in this agreement. Sellers are authorized to do
business and are in good standing in each jurisdiction in which the Engineering
Division maintains an office or is required to be qualified except where the
failure to be so qualified could not reasonably be expected to have a material
adverse effect on the Engineering Division. Schedule 2.01(a) lists each such
jurisdiction in which the Engineering Division maintains an office and Sellers
are authorized to do business. Sellers will not be, as a result of executing and
performing this Agreement and related agreements, in violation or breach of, or
in default with respect to, any term of their respective certificates of
incorporation, by-laws or other charter documents.
(b) Sellers have no subsidiary or affiliated corporations or
entities other than those listed on Schedule 2.01(b).
Section 2.02 Capitalization and Shareholder Action
Except as set forth on Schedule 2.02, the stock or equity interests of
Sellers are not encumbered or restricted in any way or subject to any agreement
that will interfere with this transaction, affect Purchaser's title to or
beneficial use of the Purchased Assets or subject Purchaser to liability to any
stockholder. Stockholder approval of this sale of assets either has been duly
obtained prior to Closing or is not required by law or under Sellers' respective
certificates or articles of incorporation or by-laws.
Section 2.03 Financial Condition
(a) Sellers have delivered to the Purchaser and attached hereto as Schedule 2.03
true and correct copies of the following: (i) audited balance sheets, statements
of income, statements of retained earnings, and statements of cash flow of Smith
or its predecessors for the fiscal year ended February 28, 1995, and the seven
months ended September 30, 1995; (ii) unaudited balance
- 20 of 49 -
<PAGE> 21
sheet, statement of income, statement of retained earnings and statement of cash
flow of Smith for the fiscal year ended September 30, 1996; (iii) unaudited
selected balance sheet accounts and statements of income for the Engineering
Division for the twelve (12) months ended September 30, 1996; (iv) unaudited
selected balance sheet accounts and statements of income for the Engineering
Division for the ten (10) months ended July 31, 1997 (the "Interim ED Financial
Statements"). Within ten (10) days following the Closing Date, Sellers shall
provide (v) final unaudited selected balance sheet accounts ("Closing Balance
Sheet") and statements of income, retained earnings and cash flows of Sellers
for the period beginning October 1, 1996, and ending on the Effective Time (the
"Closing Financial Statements"); and (vi) final unaudited balance sheet
("Closing ED Balance Sheet") and statements of income, retained earnings and
cash flows of the Engineering Division for the period beginning October 1, 1996,
and ending on the Effective Time (the "Closing ED Financial Statements").
(b) The Smith financial statements referred to in Section 2.03 have been
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied throughout the periods involved. The balance sheet and
financial statements of the Engineering Division have been prepared consistent
with the accounting principles used in preparing the financial statements of
Smith for contemporaneous periods and are representative of stand-alone
financial statements except as follows: corporate costs were not allocated;
there were no footnote disclosures; intercompany accounts were excluded; common
area maintenance was excluded; cash was excluded; shut down expenses for
Norristown laboratory facility was excluded; $542,000 of accounts payable was
excluded in exchange for the addition of a $542,000 employment agreement
liability; legal expenses were excluded. Purchaser and Sellers have agreed to
the value for fixed assets on the Interim ED Balance Sheet, and there shall be
no post-Closing adjustment for fixed assets.
(c) Purchaser's in-house and independent accountants shall be afforded free and
full access to the non-proprietary working papers and records used by Sellers'
independent accountants and the working papers and records used by Sellers'
in-house accountants in conducting their audits and in preparing their audited
financial statements and unaudited Interim and Closing Financial Statements. If
there is a difference of opinion between the two accounting firms as to the
general acceptability of any of the accounting principles followed in connection
with preparing or reviewing the unaudited Interim or Closing ED Financial
Statements, the respective accountants shall immediately confer in an effort to
resolve such differences. If the firms are unable to resolve a difference
involving Closing Financial Statements delivered after Closing, the difference
shall be resolved by submitting the dispute to a third firm of accountants who
shall summarily decide the issue following a conference between the three firms
at which the parties' respective accounting firms shall each be afforded the
- 21 of 49 -
<PAGE> 22
opportunity to present its position and the evidence supporting such position.
Section 2.04 Tax and Other Liabilities
(a) Sellers have filed all payroll and other federal, state, local and foreign
tax returns required to be filed by them and have duly paid the trust portion of
all employee-related taxes and have duly paid or established adequate reserves
for the proper payment of all taxes and other governmental charges which may in
any way result in a Lien on or claim against the Purchased Assets or on
Purchaser's other assets or a liability or claim of liability against Purchaser
for such taxes. Except for any specifically Assumed Liabilities for taxes,
Purchaser shall incur no liability, cost or expense in connection with Sellers'
federal, state, local or employee-related taxes, including any cost or expense
arising from investigations, audits, proceedings or actions taken by taxing
authorities.
(b) Sellers have paid or will pay all Sellers' expenses, taxes (except sales
taxes), and other liabilities, resulting from the preparation of, or the
transactions contemplated by, this Agreement. These costs will not be assumed by
Purchaser except to the extent they are included on the Closing ED Balance Sheet
and expressly assumed as Assumed Balance Sheet Liabilities.
(c) Except for the Assumed Liabilities, Sellers retain and Purchaser will incur
no liability as a result of environmental conditions associated with any acts,
omissions, or real property ownership, leasing or use by Sellers prior to the
Effective Time.
Section 2.05 Litigation and Claims
(a) Except as set forth on Schedule 2.05: (i) there is no material litigation,
arbitration, claim, governmental or other proceeding (formal or informal), or
investigation pending or, to the knowledge of Sellers, threatened (or any basis
therefore known to Sellers) which, if adversely determined, could reasonably be
expected to have a material adverse effect on the Engineering Division or the
Purchased Assets; (ii) within the last two years, the Engineering Division has
not been subject to any union activity or organized labor dispute; (iii) Sellers
are not in violation of, or in default with respect to, any law, rule,
regulation, order, judgment, or decree, including any environmental laws or
regulations which could reasonably be expected to have a material adverse effect
on the Engineering Division taken as a whole. Schedule 2.05 shall set forth,
among other matters, all past (previous three years) and current material
citations, violations, fines, judgments, decrees, orders, consent decrees or
orders, and pending proceedings of any type arising out of the alleged violation
of any federal, state or local criminal, bidding or procurement, environmental,
health and safety, licensing or labor law or regulation or out of alleged
deficiencies, negligence,
- 22 of 49 -
<PAGE> 23
intentionally wrongful act or breach of contract in the performance of services
known to Sellers.
(b) Purchaser will incur no liability, loss or cost as a result of claims,
proceedings or litigation arising from Sellers' alleged acts or omissions.
Section 2.06 Accounts Receivable and Properties
(a) All accounts receivable and work in process of the Engineering Division
recorded on the Closing Balance Sheet are set forth on the agings delivered in
connection with the Closing Financial Statements, will have arisen from valid
transactions in the ordinary course of Sellers' business and will be collected
by Purchaser, net of reserves for uncollectible accounts, within six (6) months
of the Closing Date utilizing reasonable and customary collection procedures
(i.e. measures such as legal action, referral to outside collection agency or
mechanics lien shall not be required of Purchaser to conform to this standard).
All accounts receivable and work in process of the Engineering Division recorded
on the Closing ED Balance Sheet were fully earned as of the Effective Time, net
of the reserve for billings in excess (no account receivable or work in process
entry represents a prebilling except to the extent an allowance is reserved for
it). Section 4.01 sets forth certain covenants of the parties with respect to
the collection of accounts receivable.
(b) Except as disclosed on Schedule 2.06(b), each physical asset whose value is
recorded on the Closing ED Balance Sheet will be in fully operational condition
as of the Effective Time (except for normal wear and tear which is not such as
to affect their operability).
(c) Except as noted on Schedule 2.06(c), no parcel of the Purchased Real Estate
nor any property covered by any Assumed Premises Lease is encumbered by any
liability arising from the presence of Hazardous Materials or pollutants on such
property. Purchaser will incur no liability as a result of environmental
conditions associated with any Purchased Real Estate, Assumed Premises Lease, or
real property ownership, leasing or use by Sellers prior to the Effective Time.
Section 2.07 Contracts and Other Instruments
(a) The Customer Contracts delivered at Closing pursuant to Section 1.01(a)(5)
are all of the Customer Contracts of the Engineering Division. Schedule 2.07(a)
or the other schedules to this Agreement set forth a true and correct listing of
all material contracts, other than Customer Contracts and contracts with
subcontractors, to which any Seller is a party for the use or
- 23 of 49 -
<PAGE> 24
benefit of the Engineering Division, including material leases and licenses and
all supply, distribution, agency, financing or other arrangements and
understandings. Any of the foregoing not disclosed on the other schedules to
this Agreement are listed on Schedule 2.07(a). For purposes of this Section
2.07(a) only, "material contract" means a contract, including Customer
Contracts, which provides for the provision or purchase of goods or services in
excess of $20,000 per annum or requires performance by Seller for a period of
more than twelve months. With respect to Customer Contracts, "material
arrangement or understanding" includes any relationship between Seller and any
customer or group of related customers, whether formalized by binding written
contract or not, from which Sellers derived more than $50,000 in the twelve
months preceding the Closing Date. Neither Sellers nor, to Sellers' knowledge,
any other party to any material contract, agreement, instrument, lease, or
license is now or is expected by Sellers as of Closing to be in the future in
violation or breach of, or in default with respect to complying with, any
material provision thereof, and to Sellers' knowledge, each such material
contract, agreement, instrument, lease, or license is in full force and is the
legal, valid, and binding obligation of the parties thereto and is enforceable
as to them in accordance with its terms, except as disclosed on Schedule
2.07(a). Neither any Seller nor, to Sellers' knowledge, any other party to any
material contract, arrangement or understanding has given notice of termination
or taken any action inconsistent with the continuance of such material contract,
arrangement or understanding.
(b) Except for situations disclosed on Schedule 2.07(b) and for the cost of
correction of which an adequate reserve is or will be recorded on the Closing ED
Balance Sheet as a liability: all services rendered and products supplied by the
Engineering Division prior to the Effective Time have been in conformity with
the scope of performance defined by the contract or arrangement, and to the
reasonable satisfaction of the customer; no curative or corrective work,
replacements or payments are necessary to render such performance legally or
contractually sufficient; and all costs for performance completed prior to
Closing shall have been duly recorded as liabilities on the Closing ED Balance
Sheet. Billings by Sellers on each Customer Contract to be acquired by Purchaser
as a Purchased Asset shall not, as of the Effective Time, have constituted a
greater percentage of total allowable billings under such contract than the
percentage of work performed prior to the Effective Time shall have constituted
of total work to be performed under such contract.
(c) Sellers enjoy peaceful and undisturbed possession under all Assumed Premises
Leases and licenses under which the Engineering Division is operating. No Seller
is a party to or bound by any contract, agreement, instrument, lease, license,
arrangement, or understanding, or subject to any charter or other restriction,
which, to the knowledge of Sellers, could reasonably be expected to
- 24 of 49 -
<PAGE> 25
have a material and adverse affect on the Purchased Assets or the operations or
business of the Engineering Division. Sellers have no contract, agreement,
lease, license, arrangement, or understanding related to, or which could
reasonably expected to have a material adverse effect upon, the Purchased Assets
or Purchaser's title thereto or the operations of the Engineering Division with,
any shareholder, any director, officer, or employee of any Seller, or any other
corporation or enterprise in which any Seller, or any shareholder, any director,
officer, or employee of any Seller, has a five percent (5%) or greater equity or
voting or other substantial interest, other than such contracts and agreements
as so listed and specified on Schedule 2.07(c). There exists no contract,
agreement, right or understanding material to the business of the Engineering
Division which is in the name of any principal, officer, director, shareholder
or any other person or entity other than a Seller except as disclosed and so
identified on Schedule 2.07(c).
(d) The backlog schedule provided as Schedule 1.01(a)(12) is correct to Sellers'
knowledge as of the Effective Time, and, to Sellers' knowledge, the backlog
items listed on such schedule all represent actual commitments by customers for
the performance of services by the Engineering Division which are either actual
contractual commitments or actual written or verbal communications of commitment
received by a Seller from the customers to hire a Seller for the performance of
such services in such amounts as are shown on the schedule.
Section 2.08 Employees and Employee Liabilities
Except for the Assumed Liabilities and as provided in Section 4.04
hereof, Purchaser will not incur any liability to any governmental authority, to
any third person (including employee benefit plans of Sellers or to or on behalf
of Sellers' employees, any of which arise out of the employees employment with
Sellers, out of the employees' participation in any employee benefit plans of
Sellers or out of Sellers' acts or omissions (as distinguished from Purchaser's
acts or omissions, including without limitation its decision to hire or not hire
any particular employee of Sellers), including (but not limited to) any
liability: under ERISA or the Internal Revenue Code; for obligations to, or
arrangements with employees for wages, salary, bonuses, incentive compensation,
vacation pay, severance pay, insurance, or other benefits; for employee-related
taxes; for personal injury or property damage; or for discrimination,
harassment, or wrongful discharge under federal, state or local laws.
Section 2.09 Patents, Trademarks, Copyrights, etc.
Sellers neither own, nor have pending or are licensed under any patent,
patent application, trademark, trademark application, trade name, service mark,
copyright, franchise, or other intangible
- 25 of 49 -
<PAGE> 26
property or asset used by or sold or licensed to others by the Engineering
Division and material to the Engineering Division's operations ("Intangibles"),
other than as described in the Schedules to Section 1.01(a) or on Schedule 2.09,
all of which are in good standing and uncontested. Except as disclosed on such
schedules, no person other than Sellers own any interest in any such Intangible.
Section 2.10 Questionable Payments and Activities
Except to the extent assumed as an Assumed Liability, Purchaser will
not be subject to any action, proceeding or liability or any debarment or other
limitation on bidding or contracting and will not incur any costs in connection
with ethics or contractor integrity rehabilitation programs as a result of any
investigation or proceeding by a governmental agency based upon any bribe,
ethics violation, or improper conduct by Sellers or persons for whose acts or
omissions Sellers are responsible.
Section 2.11 Authority to Sell
Sellers have all requisite corporate power and authority to execute,
deliver, and perform this Agreement. All necessary corporate proceedings of
Sellers, including all shareholder notice and approvals required by law or the
certificates or articles of incorporation or by-laws of Sellers, have been or as
of the Closing Date will have been duly taken to authorize the execution,
delivery, and performance of this Agreement by Sellers. This Agreement has been
duly authorized, executed, and delivered by Sellers, constitutes the legal,
valid, and binding obligation of Sellers, and is enforceable as to them in
accordance with its terms, except as enforceability may be limited by applicable
equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws affecting the enforcement of creditor's rights generally. No
consent, authorization, approval, order, license, certificate, or permit of or
from, or declaration or filing with, any governmental authority, court or other
tribunal or entity or individual is required by Sellers for the execution,
delivery, or performance of this Agreement by them. The execution, delivery, and
performance of this Agreement will not materially violate or result in a breach
of any term of the certificate of incorporation, by-laws or other charter
document of any Seller or violate, result in a breach of, or conflict with any
law, rule, regulation, order, judgment, or decree binding on any Seller or to
which any of their operations, business, properties, or assets are subject.
Section 2.12 Fictitious Names
Schedule 2.12 sets forth each fictitious name utilized by Sellers
within the past two years.
- 26 of 49 -
<PAGE> 27
Section 2.13 Absence of Undisclosed Liabilities
Except as set forth in the schedules to this Agreement or the Closing
ED Balance Sheet, Sellers have no obligations or liabilities of any kind, fixed,
accrued or contingent which would materially affect the value of the Purchased
Assets or Purchaser's title to the Purchased Assets or the business associated
therewith.
Section 2.14 Assets Free and Clear of Liens
Except as set forth on Schedule 2.14, Sellers have, prior to Closing,
good title to all of the Purchased Assets, free and clear of all liens,
mortgages, security interests, pledges, charges, encumbrances, shareholders'
agreements, or claims (collectively, "Liens"). Except for the Assumed
Liabilities or as set forth on Schedule 2.14, at Closing the Purchased Assets
will be free and clear of all Liens, and Sellers will have procured and
delivered at or prior to the Closing proof of release and satisfaction of each
and every Lien which is not assumed as an Assumed Liability or, but only to the
extent that Purchaser consents in writing thereto at or prior to Closing,
Sellers will have procured the written agreement of the holder of any such Lien
to so release its Lien(s) as soon as the preparation and filing of the release
can be completed, not to exceed ten (10) days after the Closing. Upon the
Closing, Purchaser will have good title to the Purchased Assets, free and clear
of all Liens except those expressly assumed as Assumed Liabilities.
Section 2.15 Hazardous Materials - Lab and Field Samples
Prior to the Effective Time, Sellers have disposed of or moved to
locations which are not Assumed Premises Leases or Purchased Real Estate: (i)
all hazardous substances, pollutants or contaminants (as those terms are defined
in 42 U.S.C Section 9601 or under any similar, applicable state or local law);
(ii) all petroleum wastes; (iii) all asbestos-containing materials, except for
those incorporated in building materials in premises; (iv) all obsolete,
discarded or off-specification laboratory or other commercially packaged
chemicals or nuclear source materials (but not unconsumed laboratory chemicals,
nuclear source materials which are components of equipment or other commercially
packaged supplies conveyed as Purchased Assets and currently used in the
Engineering Division's business); and (v) all laboratory or field samples upon
which work has been completed prior to Closing (collectively "Hazardous
Materials"). The foregoing warranty applies to all Hazardous Materials which, if
not so disposed of or moved (vi) would be located in or on the Purchased Real
Estate or in premises to be assumed by Purchaser under the Assumed Premises
Leases or (vii) would be in the possession of the Engineering Division; or for
which (viii) the Engineering Division could be held responsible for the care,
custody or disposal.
- 27 of 49 -
<PAGE> 28
III. REPRESENTATIONS AND WARRANTIES OF PURCHASER
As a material inducement to Sellers to enter into this Agreement,
Purchaser represents and warrants as follows:
Section 3.01 Organization and Good Standing
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and duly qualified to engage
in business in the state of Pennsylvania, with full power and authority to enter
into and perform each of the transactions contemplated by this Agreement.
Section 3.02 Execution and Performance Authorized
This Agreement and all other documents and agreements contemplated
hereunder have been duly executed and delivered by the Purchaser, such execution
and delivery and the consummation by Purchaser of the transactions contemplated
hereunder have been duly authorized by all necessary corporate action, and no
further action is required by law, its corporate charter, bylaws or otherwise to
authorize all action to be taken by Purchaser with respect to this Agreement and
the consummation of the transactions contemplated hereunder. The Agreement and
the other documents contemplated hereunder are binding and are enforceable
against Purchaser in accordance with their terms, except as enforceability may
be limited by applicable equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditor's rights generally.
Section 3.03 Absence of Litigation
Except as set forth on Schedule 3.03, there is no action, lawsuit,
proceeding or investigation of any kind or nature pending or threatened against
Purchaser before any court, tribunal or administrative agency or board which
might, individually or in the aggregate, materially and adversely (i) affect
Purchaser's solvency or its ability to perform hereunder, or (ii) render any one
or more of the transactions contemplated hereunder void or voidable.
Section 3.04 No Other Default
The execution and delivery of this Agreement by Purchaser and the
consummation of the transactions contemplated hereunder will not conflict with
or violate or require any consent under and will not result in any breach or
termination of Purchaser's corporate articles, bylaws or minutes or any
agreement to which Purchaser is a party or by which any of its property is
subject or by which it is bound, except for the agreements set forth on Schedule
3.04 for which Purchaser has obtained such waivers or consents as are required
by such agreements.
- 28 of 49 -
<PAGE> 29
Section 3.05 Permits and Filings
There is no requirement applicable to Purchaser to make any filing
with, or to obtain any permit, authorization, consent or approval of any third
party or any governmental or other regulatory authority as a condition of the
lawful consummation of the transactions contemplated under this Agreement.
Section 3.06 Absence of Lien
Except for the conditions specified elsewhere in this Agreement, the
monies to be paid by Purchaser under Section 1.01 shall be paid by Purchaser and
received by Sellers free and clear of any lien, charge or encumbrance arising
out of any agreement or instrument to which Purchaser is subject or by which
their properties are bound.
Section 3.07 Solvency
At the Closing and after payment of the purchase price as required
under Section 1.01, Purchaser will be and will remain solvent under all
applicable federal and state laws and regulations. Purchaser also agrees that it
will not intentionally cause its business to be conducted in a manner that
results in its becoming insolvent; provided, however, that consistent with the
foregoing, this covenant shall not restrict the future business decisions of
Purchaser which relate to the Purchased Assets or the business associated
therewith.
Section 3.08 Corporate Documents
Purchaser has furnished to Sellers its certificate of incorporation and
a certificate of good standing in Delaware and a good standing certificate
evidencing Purchaser's qualification as a foreign corporation in good standing
in Pennsylvania, each dated within thirty (30) days of the Closing.
Section 3.09 Disclosure of Discovered Facts
Prior to Closing, Purchaser shall have disclosed to Sellers the
existence of any facts discovered by Purchaser in the course of its due
diligence which would render any of Sellers' representations or warranties
materially untrue as of Closing.
IV. COVENANTS
In addition to the other covenants of this Agreement, Sellers and
Purchaser agree as follows:
- 29 of 49 -
<PAGE> 30
Section 4.01 Collection of Accounts Receivable
(a) In event that any account receivable or work in process which is a Purchased
Asset and subject to Section 2.06(a) has not been collected by Purchaser within
six (6) months, Purchaser may deem such account receivable or work in process to
be uncollectible and transfer such account receivable or work in process to
Sellers by written notice within seven (7) days after the end on such six (6)
month period. Accounts or work in process may also be deemed uncollectible by
agreement of the parties as provided in Section 4.01(c) and shall thereupon be
transferred to Sellers. Purchaser may recover from the Sellers the amount of any
such uncollected accounts and work in process, net of the reserve for such
purpose on the Closing ED Balance Sheet, by set-off against the Note under
Section 1.04.
(b) Purchaser shall provide Sellers with a monthly aging report of the purchased
accounts receivable and work in process together with contact log summary of
problem accounts. If at any time Purchaser determines that measures in addition
to Purchaser's customary collection procedures (e.g. measures such as mechanics
lien, legal action or referral to collection agency) should be employed on a
specific account to obtain collection, Purchaser shall notify Sellers in writing
of the measures proposed to be taken. If Sellers agree in writing that the
proposed extraordinary measures should be taken or if Sellers themselves deem
such action to be necessary without notice from Purchaser, Sellers shall notify
Purchaser in writing of their agreement to such measures. Sellers' agreement to
the taking of extraordinary collection measures shall constitute their agreement
to having the reasonable cost of such measures actually incurred, first charged
against the reserve for uncollectible accounts and the excess, if any, set-off
under Section 1.04.
(c) At any time the parties may by mutual written agreement deem an account
uncollectible, Purchaser shall re-assign it to Sellers and charge it off of
available reserves and set off the excess, if any. Purchaser shall not
unreasonably deny such request. Such request by Sellers for re-assignment shall
constitute Sellers' agreement to a reduction in the reserve for uncollectible
accounts by such amount or, to the extent that the remaining reserve balance is
thereby exceeded, to a set-off in such excess amount, which Purchaser shall
exercise at the time of its payment on the Note.
(d) Purchaser agrees to use its best efforts to bill all work in process which
is a Purchased Asset as soon as is possible under the contract giving rise to
the work in process and within the administrative capabilities of Purchaser in
the transition after Closing. Within 30 days after Closing, Purchaser shall
deliver an opening ledger of work in process billings which documents amount
billed on each account, amounts charged off as un-billable and amounts for which
billing is not yet possible or has not yet been completed. Within 10 days after
its receipt of such ledger, Sellers shall object to any of Purchaser's
determinations that all
- 30 of 49 -
<PAGE> 31
or a portion of any work in process account is not billable or is not yet able
to be billed.
(e) The parties agree to confer in good faith to resolve any disputes concerning
the covenants set forth in Section 4.01, and if a dispute cannot be so resolved,
to follow the procedure set forth in Section 2.03(c) for resolution of disputes
involving accounting issues to determine the matter.
Section 4.02 Public Statements
Before Sellers or Purchaser shall release any information concerning
this Agreement or the transactions contemplated by this Agreement which is
intended for or may result in public dissemination thereof, they shall cooperate
with the other party hereto and shall furnish drafts of all documents or
proposed oral statements for comments, and shall not release any such
information without the written consent of the other party hereto. Nothing
contained herein shall prevent Purchaser or Sellers from making any release or
furnishing any information if required to do so by law or regulation, but even
in such case, the other party shall be given notice of the release and an
opportunity to comment on the contents.
Section 4.03 Non-Competition
(a) In consideration of the payments to be made and the Purchaser's other
covenants hereunder, Sellers agree to strictly abide by the following covenants.
Sellers agree that for a period of two (2) years after Closing, they will not:
(1) Non-Competition. Within the regulated zone, either directly or
indirectly, perform for hire services in the same fields in which the
Engineering Division has been engaged or own, or participate in, be
employed by, or serve as a consultant or other agent or contractor to
or for any business or enterprise, other than Purchaser, engaged in
such fields of services in which the Engineering Division has been
engaged, without the express written consent of Purchaser. The
"regulated zone" means all area within one hundred miles of the city
limits of an Engineering Division office as listed in Section 1.01(a)
during the year prior to Closing. The "fields in which the Engineering
Division has been engaged" means the service types and functions with
respect thereto performed by the Engineering Division within the two
(2) year period prior to Closing, including (but are not necessarily
limited to) the functions set forth in Section 1.01(a). Notwithstanding
the foregoing, Sellers shall not be precluded from performing the
following services in the regulated zone: (i) turn-key remediation
design and construction contracts; or (ii) after giving at least five
(5) days prior written notice to Purchaser, sole source contracts for
clients which were, prior
- 31 of 49 -
<PAGE> 32
to Closing, clients of the Sellers' operations other than the
Engineering Division and were not actively solicited by Sellers for
such contract in violation of (4) (i.e. the client was the initiator of
the request for Sellers to perform such services on a sole source
basis). Furthermore, in the event of an acquisition by any of the
Sellers of, the acquisition of any of the Sellers by, or a merger of
any of the Sellers with another entity providing services in the fields
in which the Engineering Division has been actively engaged
(individually or collectively "M&A Transaction"), nothing herein shall
prevent the Sellers or such entity from continuing to provide such
services in the regulated zone, provided that to the extent that the
acquired or acquiring entity does not maintain an office within the
regulated zone as of the closing of such M&A Transaction, neither the
Sellers nor any such entity shall establish an office within the
regulated zone within the two (2) year period following Closing.
(2) Non-Disclosure. Use for their benefit, or disclose, communicate or
divulge to, or use for the direct or indirect benefit of, any person,
firm, association or company other than Purchaser or its affiliates,
any information regarding the business methods, business policies,
procedures, techniques, research or development projects or results,
trade secrets, customers or clients or any other confidential
information relating to or dealing with the business operations of the
Engineering Division. The covenants in this clause (2) shall not apply
to (i) information that is generally known in the industry, (ii)
information that is in the public domain not as a result of the
violation of the Sellers' undertakings herein, or (iii) any disclosure
or use required by law or court order.
(3) Non-Solicitation - Employees. Either directly or indirectly, for
themselves or any person or entity other than Purchaser, hire, or
induce or attempt to influence to terminate his employment, any
employee or former employee of the Engineering Division to which
Purchaser extended an offer of employment conforming to Section 4.04.
An "employee" shall be considered a "former employee" for a period of
one (1) year following termination of employment with the Engineering
Division, Purchaser or Purchaser's subsidiaries or affiliates.
(4) Non-Solicitation - Customers. Directly or indirectly on behalf of
themselves or any third party, make any sales contact with, or solicit
or accept business from, any customer or prospective customer of the
Engineering Division for the purpose of securing a commitment from such
customer or prospect to purchase services in the fields in which the
Engineering Division has been engaged, unless such customers were also
customers of any entity involved in M&A Transaction with Sellers.
- 32 of 49 -
<PAGE> 33
(5) Use of Names. Except for the benefit of Purchaser or its
subsidiaries or affiliates, use the names included as Purchased Assets
by Section 1.01(a)(7).
(b) Except as otherwise defined in this section or as the context otherwise
plainly requires, terms used in this section shall have the same meaning as
elsewhere in this Agreement. Undefined terms shall have their ordinary meaning.
(1) The term "participate in" means "directly or indirectly, for their
own benefit or for, with, or through any other person or entity, own,
manage, operate, control, loan money to, give money to, or participate
in the ownership (except as a non-controlling owner of less than 5% of
the stock of a publicly-held corporation), management, operation, or
control of, or be connected as a director, officer, employee, partner,
consultant, agent, independent contractor, or otherwise with, or
acquiesce in the use of their names in."
(2) The term "customer" means any entity with whom Sellers had entered
into a contract or engagement, either written or oral, for the
performance of a service by the Engineering Division or from whom
Sellers recorded revenue for Engineering Division services, within the
two (2) year period prior to Closing.
(3) The term "customer prospect" means any person or entity who had a
potential need for services of a type provided by the Engineering
Division (i) to whom Sellers submitted a written proposal for either
specific services by the Engineering Division or for a master or
general services arrangement with the Engineering Division within the
two (2) years prior to Closing or (ii) with whom the Engineering
Division, within the two (2) years prior to Closing, developed or
maintained a business relationship or about whom Sellers acquired
knowledge of its desire to purchase Engineering Division services.
(4) The term "indirectly" includes, but is not limited to, means such
as acting through or on behalf of, assisting, arranging, encouraging,
making a loan or gift to, owning or having an ownership interest in
(except for passive investments in publicly traded securities of less
than five percent of the outstanding voting stock of) or entering into
a partnership or similar arrangement with.
(5) The term "turn-key" means a contract where the contractor is
required by the terms of the contract to undertake all of the services
of design and construction of a remediation system as a condition of
entering into the contract.
- 33 of 49 -
<PAGE> 34
(6) The term "sole source" means a contract which is awarded to Sellers
on the basis of a relationship which pre-existed the decision to award
such contract to Sellers and which was offered to Sellers alone because
of such relationship on a non-competitive basis.
(c) Sellers agree that the restrictive covenants of this Section 4.03 are
reasonable in scope and duration and are necessary to protect the bona fide
confidential business information purchased by Purchaser from Sellers and to
protect the value for Purchaser of the Purchased Assets, the associated good
will, and Purchaser's employee, customer and business relationships. Sellers
agree that the Engineering Division has either had offices or has actively and
substantially performed services throughout the entire United States and that
the regulated zone limiting the applicability of (a) hereof is therefore a
necessary and reasonable coverage area. Sellers expressly agree that the
customer list and other customer and business information purchased by Purchaser
as Purchased Assets are proprietary, and they agree that a breach of any of
these provisions will cause immediate and irreparable harm for which money
damages alone will not be an adequate remedy and that Purchaser shall have
available to it, in addition to any other remedies available by law, equitable
remedies, including the remedies of specific performance, preliminary injunction
and injunction, to compel performance of and to enjoin the breach or threatened
breach of the provisions of this section, without the necessity of proof of
immediate and irreparable harm and of providing any injunction bond.
(d) If any restrictive covenant contained in this Section 4.03 shall be deemed
by a court or arbitrator to be invalid, illegal, or unenforceable under the laws
of any jurisdiction by reason of the extent, duration, or geographical scope
thereof or otherwise, the balance of this section shall remain in effect in such
jurisdiction and the entire agreement shall remain in effect in all
jurisdictions in which such provision is lawful and enforceable. If any such
provision is unenforceable as to any circumstance, it shall nevertheless remain
applicable to all other circumstances. Sellers and Purchaser agree that the
court or arbitrator shall be authorized to reform such provision by reducing
such extent, duration, geographical scope, or other provision hereof, or
otherwise modifying or limiting such provision to the minimum extent necessary
to render such provision enforceable, and in its reformed form such restriction
shall be enforceable in the manner contemplated hereby.
Section 4.04 Hiring of Engineering Division Employees
(a) Effective as of the Closing, the Purchaser shall offer employment,
on an "at will" basis, at their then current rates of base pay and employment
status to all employees who are employed by the Sellers in the Engineering
Division listed on Schedule 4.04
- 34 of 49 -
<PAGE> 35
("Offerees"). Such Offerees who accept employment with the Purchaser shall be
referred to herein as the "Hired Employees". Purchaser shall provide the Hired
Employees the same benefits and benefit options, including health insurance
coverage, provided to the other employees of Purchaser. Purchaser's health plan
shall not impose any limitation or exclusion with respect to any preexisting
condition that affects coverage for the Hired Employees or their spouses or
dependents, and Purchaser shall make such coverage available to all of the Hired
Employees, spouses and dependents who were eligible as of the Closing Date to
receive such coverage under Sellers' plan. In addition, Purchaser shall provide
to the Hired Employees the same benefits provided to Purchaser's other
employees. Subject to the preceding two sentences, Purchaser may modify, alter
or terminate any of the terms and conditions of employment of the Hired
Employees. Nothing in this Agreement shall prevent the Purchaser from
terminating the employment of any Hired Employee at any time after the Closing
Date. Purchaser represents to Seller that it does not intend to implement a
"plant closing" or a "mass layoff", as those terms are defined in the Worker
Adjustment and Retraining Notification Act ("WARN"), in respect of the
Engineering Division within 150 days after the Closing Date. Purchaser further
agrees to assume responsibility for giving any and all notices required by WARN
and to assume liability for any alleged failure to give a WARN Notice.
(b) The Sellers agree to cause the release of the Hired Employees from
any contractual provision with the Sellers which would impair the utility of
such employees' services to Purchaser or which would impose upon such employees
any monetary or other obligation to the Sellers which otherwise would be
occasioned by the termination of such employees' employment or relationship
including, without limitation, any agreements of noncompetition or
confidentiality.
(c) At the Closing, Purchaser shall assume all liabilities of Sellers
to the extent included in the Assumed Balance Sheet Liabilities relating to the
payment of all accrued but unpaid overtime, vacation and holiday pay, sick pay
and short-term disability pay of the Hired Employees, regardless of whether such
individuals are actively at work on the Closing Date or are on a leave of
absence. For purposes of this Agreement the term "leave of absence" shall
include medical leave of absence, military leave of absence and workers'
compensation leave of absence. Effective as of the Closing Date, Purchaser shall
assume liability for all post-Closing claims (including, without limitation,
claims arising under the health care continuation coverage requirements of
Section 4980B of the Code and Sections 601 through 608 if ERISA) which are
properly payable with respect to the Hired Employees under each of Purchaser's
benefit plans, including without limitation, all life insurance, medical,
dental, accident and disability plans, programs, policies or arrangements.
- 35 of 49 -
<PAGE> 36
(d) Purchaser shall offer all Hired Employees the option to participate
from and after the Closing Date in Purchaser's 401(k) plan ("Purchaser's Plan")
on the same terms as Purchaser's other employees. Purchaser shall permit all
Hired Employees who were participants in the Smith Environmental Technologies
Corporation Profit-sharing and 401(k) Plan ("Sellers' Plan") as of the day
immediately preceding the Closing Date to roll over their shares in Sellers'
Plan into Purchaser's Plan. Purchaser's Plan shall, for purposes of vesting and
eligibility, recognize all service of Hired Employees that was recognized under
Sellers' 401(k) Plan as of the day immediately preceding the Closing Date.
(e) Following the Closing Date, the Sellers shall take such action as
may be necessary to cause the account balances of all Hired Employees in the BCM
Engineers Inc. Employee Stock Ownership and Profit Sharing Plan to be
distributed pursuant to the terms of such plan, and Purchaser shall permit Hired
Employees to rollover such distributions into Purchaser's Plan to the extent
such rollover is allowable under Purchaser's Plan.
Section 4.05 Transaction Costs and Expenses
Except as otherwise expressly agreed herein, Sellers and Purchaser
shall each bear and pay all of their respective costs, fees, expenses and taxes
incurred in connection with bringing about this transaction including, without
limitation, all legal, accounting, auditing and appraisal fees in negotiating
and preparing the documents and in consummating, closing and carrying out the
transactions contemplated hereby. Any costs to be charged to the Engineering
Division shall be included on the Closing ED Balance Sheet.
Section 4.06 Information, Books and Records
(a) Each party shall provide to the other, with reasonable promptness following
a request in writing (not to exceed ten (10) business days), such information
and data with respect to the Engineering Division business before the Effective
Time and/or the Purchased Assets as may from time to time be requested by the
other party. In the event either Purchaser or Sellers are required or desire to
prepare audited statements for any reasonable purpose including the desire to
verify any information provided to the other party relative to this Agreement or
in connection with future financings or transactions desired by either party,
the parties agree to allow the other party reasonable access to documents and
records, including the non-proprietary working papers of the other party's
accountants, subject to standard hold harmless agreements which may be required
by such accountants, and to provide reasonable cooperative assistance in the
preparation of reports, documents, etc. (including the signing of management
representation letters and the like) without charge except for reimbursement of
any actual, out-of-pocket expenses, exclusive of the cost of in-
- 36 of 49 -
<PAGE> 37
house staff time. Notwithstanding the foregoing, in the event that a party is or
anticipates becoming a party to litigation, neither this Section 4.06 nor any
other provision of this Agreement shall be construed to require such party to
provide information to the other which could prevent such party from making a
bona fide claim of attorney/client privilege or such other privileges as may be
applicable with respect to such information.
(b) Neither party shall intentionally dispose of or destroy any of the Records
in its possession except in conformity with the procedures set forth in this
section. If a party wishes to dispose of or destroy any of such Records, it
shall first give thirty (30) days prior written notice to the other party of the
action it intends to take, and the other party shall have the right, at its
option and expense, upon prior written notice to the notifying party within such
30-day period, to take possession of such affected Records within 30 days after
the date of the notice of intent to take possession.
(c) Each party shall exercise reasonable care in the care, custody and
maintenance of the Records and records of Sellers pertaining to the Engineering
Division or the Purchased Assets in its possession. A party shall be responsible
for actual damage caused to the other party only as a result of its
intentionally wrongful act in maintaining the records. Neither party shall have
liability to the other party or any other person as a consequence of the
non-existence of any record or such party's inability to locate any record
unless the loss or destruction of the record is proven, by clear and convincing
affirmative evidence, to have been due to the allegedly possessing party's
intentionally wrongful act.
Section 4.07 Addresses, Mail and Deliveries
Purchaser shall have the right to receive and open for inspection any
mail or deliveries received at any of its offices, including any office that is
an Assumed Premises Lease, which is addressed to any name in which the
Engineering Division did business prior to Closing or to any person who was an
employee or former employee of the Engineering Division or which otherwise
reasonably appears to potentially contain Purchased Assets or correspondence or
documents which would customarily be received by the owner of the Purchased
Assets unless it is clear from the envelope that the contents relate to the
business of Sellers other than the Engineering Division or are personal in
nature. Purchaser and Sellers agree to cooperate in good faith to achieve the
prompt delivery to each other of mail and deliveries, to use their best efforts
to avoid opening mail or deliveries which rightfully belongs to the other and to
turn over to the other any property, including checks or money, belonging to the
other within three (3) days after determining its rightful ownership. Purchaser
shall have the exclusive right to apply for change of address, change of
telephone numbers or location of telephone numbers applicable to
- 37 of 49 -
<PAGE> 38
the purchased names or Purchased Assets. Sellers agree to execute and return to
Purchaser within three (3) days after receipt thereof such assignment or consent
forms as Purchaser requests to effect such changes of address, telephone number
location or telephone numbers.
Section 4.08 Related Agreements
Sellers and Purchaser each agree to execute and deliver at Closing the
Related Agreements to which they are a party referenced in Section 5.01.
Section 4.09 Assignment of Agreements - Benefits of Ownership to
be Provided Where Assignment or Novation Not Possible
(a) Sellers shall use their best efforts to attempt to secure (and to assist
Purchaser in securing) all consents and approvals required to effect the
assignment of the Customer Contracts and other agreements to be transferred to
Purchaser hereunder. Use of best efforts shall not require Sellers to pay funds
to third parties for their agreement to provide such a consent. Sellers agree
that, upon the written request of Purchaser, they will execute and return to
Purchaser each and every assignment, consent to assignment or novation, or other
document reasonably necessary to effect the transfer or execution of any
Customer Contract or other contract, asset or benefit to be conveyed hereunder
within two (2) business days after receipt of such document. Sellers' covenant
in this regard shall be absolute and not subject to any right of non-performance
for any reason, including breach by Purchaser, and Sellers expressly acknowledge
and agree: (i) that this covenant is of critical importance to Purchaser; (ii)
that its breach will cause Purchaser immediate and irreparable harm for which
money damages alone will be difficult of ascertainment and inadequate; and (iii)
that in the event of a breach hereof, Purchaser shall be entitled to immediate
equitable relief in the form of an emergency, preliminary injunction or decree
on a summary basis for specific performance or mandatory injunction without any
requirement for the posting of any bond or undertaking or proof of immediate and
irreparable harm.
(b) Sellers agree that, as of the Closing Date, they will appoint and authorize
one or more persons to execute after Closing assignments, novations, consents to
assignment and other documents necessary to effect the transfer of contracts,
the Purchased Assets or the benefits thereof to Purchaser in cases where such
documents, in addition to those executed and delivered at Closing, are required
by a customer, a title registration officer or other third party as a condition
of permitting the transfer or conferring the benefit. Sellers shall provide such
persons the corporate seals of Sellers to be used for the purpose of executing
transfer documents. Sellers will promptly notify Purchaser in writing of any
changes
- 38 of 49 -
<PAGE> 39
from time to time in the identity of the persons so authorized. If the persons
appointed under this section are employees of Purchaser or its affiliate,
Purchaser shall indemnify Seller pursuant to Section 1.03 for any damage caused
to Sellers as a result of such appointed persons' acts or omissions.
(c) With respect to any Customer Contract, Subcontract or Assumed Liability
which Sellers and Purchaser are not able to promptly obtain a consent to assign
or novate, which are otherwise not capable of assignment or novation or which
Purchaser is precluded from performing on a stand-alone basis because of a
transitional licensing issue, Purchaser shall nevertheless be deemed to be
entitled to all beneficial interest in such Customer Contract, Subcontract, or
Assumed Liability as against Sellers, and Sellers shall use their best efforts
to: (i) subcontract such Customer Contract or Assumed Liability to Purchaser on
the same terms and conditions as the original (except that Sellers shall retain
all pre-closing liability as provided in Section 1.02 except as assumed as an
Assumed Liability); and/or (ii) cooperate in any reasonable and lawful
arrangement to provide to the Purchaser all the benefits of such Customer
Contract or Assumed Liability, such as (but not limited to) re-hiring such of
Purchaser's employees on a part-time, temporary basis as are necessary to
perform such contractual obligations on Purchaser's behalf, provided Purchaser
pays all Sellers' direct costs and expenses associated with such re-hiring and
work and assumes and indemnifies Sellers against all direct costs and liability
associated with such re-hiring and performance of services. Similarly, Purchaser
shall cooperate with Sellers to ensure that Sellers receive the benefit of the
assumption of the Assumed Liabilities by Purchaser.
(d) Sellers hereby grant to Purchaser a one-year limited license to use the
names "Smith Technology Corporation," "Reidel Environmental Services Inc.," and
"Canonie Environmental Services Corp." on a transitional basis to enable
Purchaser to use, obtain the benefits from (including payment), and effect the
transfer of, the Purchased Assets. Sellers authorize Purchaser to endorse checks
payable to any of these names where the check is delivered in payment of amounts
due under a Customer Contract, an account receivable or work in process, any
deposit, bond, bond collateral, proceeds, refund, or prepaid expenses which are
Purchased Assets. Purchaser agrees to strictly restrict its use of such names to
the minimum extent necessary to achieve the purposes set forth in this section.
Purchaser shall not conduct any sales or marketing activities under such
licensed names. Purchaser agrees to indemnify Smith pursuant to Section 1.03 for
Third Party Claims against Sellers arising from Purchaser's use of such names or
for any breach by Purchaser of the limitations on use contained in Section
4.09(d).
- 39 of 49 -
<PAGE> 40
Section 4.10 Reserves and Allowances
To the extent such reserves or allowances are assumed as Assumed
Balance Sheet Liabilities, Purchaser shall be obligated to make payments or
reimbursements to or on behalf of Sellers for amounts recorded on the Closing ED
Balance Sheet as reserves or allowances for anticipated expenses or liabilities.
Such payments shall be paid by Purchaser up to the recorded amount of the
reserve or allowance upon presentation of vendor invoices or proof of payment
approved in writing by a person designated by Sellers in writing as authorized
to submit invoices for such purpose on Sellers' behalf. Purchaser shall have no
liability to Sellers as a result of paying any expense so approved. Purchaser's
payment or reimbursement of expenses covered by Seller's reserves or allowances
which are Assumed Balance Sheet Liabilities shall not be construed as any
indication whatsoever that Purchaser has assumed liability for Sellers' debts,
liabilities or administrative responsibility, either for the specific class
covered by such reserve or in general, beyond the amount of the recorded reserve
except as such are themselves assumed specifically as Assumed Liabilities.
Section 4.11 Standard Rates
Whenever any goods or services are provided or procured by Sellers or
Purchaser to correct or remedy the other party's breach, default, or deficiency
of performance under any representation, warranty, or covenant of this
Agreement, such goods or services shall be valued at Purchaser's or Sellers'
Standard Rates, respectively. "Standard Rates" means the rate which Purchaser or
Sellers would charge an ordinary commercial customer for the particular class of
services being performed or the retail market price for goods supplied. Such
rates shall not exceed the rates which similar firms would charge for such goods
or services in the location in which they are being delivered.
Section 4.12 Insurance after Closing
Sellers shall either: (i) for a three (3) year period after Closing,
maintain in full force and effect, and timely pay all premiums on, each policy
of insurance in effect prior to Closing which was written on a claims made basis
or procure other policies of equal coverage and financial strength covering such
three (3) year period in order to ensure coverage for a three year period of
claims or losses arising from Sellers' alleged professional or other acts,
omissions and negligence; or (ii) prior to the Closing or prior to the
expiration of any policy referred to in (i), procure an extended reporting
period under such policy which shall not expire sooner than the date three (3)
years after the Closing Date. Such insurance shall have limits of not less than
$2,000,000 per occurrence and $5,000,000 in the aggregate with a deductible not
to exceed $150,000. Purchaser shall be named as an additional
- 40 of 49 -
<PAGE> 41
insured under each such policy. At Closing and thereafter, Sellers shall deliver
certificates evidencing the continuing existence and adequacy of the insurance
required by this section and, on request by Purchaser, a copy of each such
policy.
Section 4.13 Successor Payroll Issues
Purchaser shall be the successor employer to Sellers, with respect to
the Hired Employees, for purposes of post-Closing FICA taxes and reporting, FUTA
taxes and reporting, and corresponding state payroll laws and regulations.
Purchaser agrees to perform the obligations of a successor employer for such
taxes and reporting purposes and will indemnify, defend and hold Sellers
harmless from and against any and all liabilities or obligations arising out of
Purchaser's election to be treated as a successor employer for such purposes or
its failure to perform or properly perform all of Purchaser's obligations as a
successor employer of Sellers for the purposes set forth in this section,
including but not limited to completing accurately and completely all Forms 941,
940, W-2 and W-3 related to obligations accruing after Closing required of
Purchaser in its status as successor employer. Sellers shall perform such
obligations for pre-Closing accruals. This section shall not be construed to
imply that Purchaser is liable as a successor employer or otherwise as a
successor to Sellers for any purpose except for the limited purposes set forth
in this section.
Section 4.14 Unrecorded Payables
The parties anticipate that Sellers will incur trade payables in the
ordinary course after Closing which relate to goods delivered to or services
performed for the Engineering Division prior to Closing but which were not
recorded on Schedule 1.01(b)(5) and the Interim ED Balance Sheet because of
non-receipt of invoice or delay in Sellers' internal routing and recording of
such payables. Sellers agree that prompt payment of certain of accounts payable
that are from utility services (including telephone) or from vendors,
subcontractors or suppliers of direct materials related to purchased accounts
receivable or work in process (the "Payables in Process") are of material
importance to Purchaser, and Sellers accordingly agree to either: (i) pay any
Payable in Process within seven (7) days after receipt; or (ii) provide notice
to Purchaser within seven (7) days of Sellers' receipt of such Payable in
Process and of its intention not to pay it within seven (7) days. If Purchaser
then requests Sellers to pay such Payable in Process, Sellers shall use its best
efforts to pay the same within seven (7) days. If Sellers are unable to, or
otherwise do not, so pay, Purchaser shall be authorized to pursue its rights
under Section 1.01(b)(5), and if such remedy is not available, its other rights
and remedies under this Agreement. Any dispute between the parties under this
section or Section 1.01(b)(5) shall be resolved as provided in Section 2.03(c).
- 41 of 49 -
<PAGE> 42
V. RELATED AGREEMENTS
Section 5.01 Related Agreements
The following related agreements (the "Related Agreements") shall be
executed at Closing by the applicable parties:
(a) The Smith Non-Competition Agreement between Brian Smith and Purchaser.
(b) The Joint Services Agreement providing for the joint occupancy of shared
premises and temporary access to information, data processing, computer systems
and other services which were, prior to Closing, used by both the Engineering
Division and Sellers' other operations.
(c) Audit Representation Letter Agreements of Brian Smith, Thomas Campbell and
W. D. Nelson pursuant to which Mr. Smith, Mr. Campbell and Mr. Nelson will each
agree to provide a standard representation of liabilities and contingent
liabilities letter in connection with any audit which Purchaser elects to
perform or auditor's consent which Purchaser requires.
VI. CLOSING
Section 6.01 Closing, Closing Date and Effective Time
The closing of the transactions contemplated hereunder took place at
3:00 p.m. on August 19, 1997, at the offices of Smith Technology Corporation, at
One Plymouth Meeting, Plymouth Meeting, PA. The effective time for the
consummation of the transactions contemplated in this Agreement to occur "at
Closing" or "on the Closing Date" shall be 12:00 a.m. EST on August 20, 1997
(the "Effective Time").
Section 6.02 Sellers' Obligations at Closing
At or prior to the Closing, Sellers shall deliver or cause to be
delivered to Purchaser, in form reasonably satisfactory to Purchaser, the
following:
(a) A Bill of Sale and Assignment substantially in the form set forth in Exhibit
6.02(a), sufficient to effect and evidence the transfer, conveyance and delivery
of the Purchased Assets.
(b) A fully executed assignment of each Assumed Premises Lease.
(c) The fully executed Smith Non-Competition Agreement between Purchaser and
Brian Smith and the Audit Representations Letter Agreements of Brian Smith,
Thomas Campbell and W. D. Nelson.
- 42 of 49 -
<PAGE> 43
(d) A certificate of title duly assigned and a bill of sale for each vehicle
which is a Purchased Asset.
(e) A fully executed UCC-3 in the case of security interests governed by the
Uniform Commercial Code and, in other cases, a fully executed release and
satisfaction of each security interest, lien or encumbrance against any of the
Purchased Assets except: (i) those for which Purchaser has expressly assumed in
full as an Assumed Liability either the obligation underlying such security
interest or the responsibility for obtaining the release of such interest or
(ii) as provided in Section 2.14.
(f) Certificates of insurance naming Purchaser as an additional insured
evidencing the insurance policy(ies) under Section 4.12.
(g) A resolution of Sellers' Board of Directors authorizing the execution,
delivery and performance of this Agreement and all Related Agreements by
Sellers, to the extent they are parties thereto.
(h) Fully executed appointment or appointments of one or more officers or agents
to act on behalf of Sellers to execute assignments and novations of contracts as
provided in Section 4.09(b).
(i) An opinion of counsel to Sellers, satisfactory to counsel for the Purchaser.
(j) All material approvals, consents and/or waivers that are necessary to effect
the transactions contemplated hereby.
(k) Such other documents (including certificates of officers of Sellers) as the
Purchaser may reasonably request in order to enable the Purchaser to determine
whether the conditions to their obligations under this Agreement have been met
and otherwise to carry out the provisions of this Agreement.
(l) All other schedules, certificates and other documents required by this
Agreement to be delivered on or before Closing.
(m) At any time or times on or after the Closing, Sellers shall execute,
acknowledge, and deliver any and all further assurances, documents, and
instruments reasonably requested by Purchaser in order to effectively convey the
Purchased Assets and all ownership of such assets free and clear of encumbrances
or title defects except as expressly authorized herein and shall take all other
actions consistent with the terms of this Agreement that may reasonably be
requested by Purchaser in order to effectuate the purposes and intent hereof.
- 43 of 49 -
<PAGE> 44
Section 6.03 Purchaser's Obligations at Closing
At or prior to the Closing, Purchaser shall deliver or cause to be
delivered to Sellers, in form reasonably satisfactory to Sellers, the following:
(a) The cash payable at Closing under Section 1.01(b)(1).
(b) The Note deliverable at Closing under Section 1.01(b)(2).
(c) The Short Term Note deliverable at Closing under Section 1.01(b)(5).
(d) A resolution of the Board of Directors of Purchaser authorizing its
execution, delivery and performance of this Agreement.
(e) An opinion of counsel to Purchaser, satisfactory to counsel for the Sellers.
(f) All material approvals, consents and/or waivers that are necessary to effect
the transactions contemplated hereby.
(g) Such other documents (including certificates of officers of Purchaser) as
the Sellers may reasonably request in order to enable the Sellers to determine
whether the conditions to their obligations under this Agreement have been met
and otherwise to carry out the provisions of this Agreement.
(h) At any time or times on or after the Closing, Purchaser shall execute,
acknowledge, and deliver any and all further assurances, documents, and
instruments reasonably requested by Sellers in order to effectively convey or
assure payment for the Purchased Assets and shall take any other action
consistent with the terms of this Agreement that may reasonably be requested by
Sellers in order to effectuate the purposes and intent hereof.
VII. MISCELLANEOUS
Section 7.01 Brokerage Fees
(a) Sellers acknowledge that The Environmental Financial Consulting Group, Inc.
("EFCG") acted as a broker for Sellers relative to this transaction, and Sellers
further acknowledge that they are obligated to pay EFCG a commission for such
services. Sellers agree to pay such amounts and to hold Purchaser harmless from
any liability for the obligation to pay such finders fee to EFCG.
(b) Except for such brokerage arrangement specified in (a), neither the
Purchaser nor Sellers have consented to or authorized any broker, or third party
to act on its behalf, directly or
- 44 of 49 -
<PAGE> 45
indirectly, as a broker or finder in connection with the transaction
contemplated by this Agreement. In the event any claim is made for a broker's or
finder's fee other than that described in (a) in connection with the
transactions contemplated hereunder, the party responsible for retaining or
securing said broker or finder shall be solely responsible for the payment of
any broker's or finder's fees incurred as a result thereof. Further, the
responsible party shall indemnify the other party against any loss or
liabilities by reason of such broker's or finder's fees.
Section 7.02 Further Actions
At any time and from time to time, each party agrees, at its or his
expense, to take such actions and to execute and deliver such documents as may
be reasonably necessary to effectuate the transfer of the assets hereunder and
the purposes of this Agreement.
Section 7.03 Availability of Equitable Remedies
Since a breach of the provisions of this Agreement could not adequately
be compensated by money damages and would cause immediate and irreparable harm,
either party shall be entitled, either before or after the Closing, in addition
to any other right or remedy available to it, to an injunction restraining such
breach or a threatened breach and to specific performance of any such provision
of this Agreement, and the parties hereby consent to the issuance of such an
injunction and to the ordering of specific performance to compel performance
hereof without proof of immediate and irreparable injury or uniqueness of the
assets to be conveyed or without the necessity of the posting of a bond for such
relief.
Section 7.04 Survival
Except as otherwise provided herein, the covenants, agreements,
representations, and warranties contained in, made or undertaken pursuant to
this Agreement or any Related Agreement are (i) material, (ii) have been relied
upon by the party to whom given, irrespective of any investigation made by or on
behalf of such party, (iii) shall survive the Closing and any delivery of the
purchase price by the Purchaser and Purchased Assets by Sellers, and (iv) shall
not merge in the performance of any obligation by any party to this Agreement or
any Related Agreement.
Section 7.05 Entire Agreement - Modification
The Agreement and the exhibits, schedules and Related Agreements hereto
set forth the entire understanding of the parties with respect to the subject
matter hereof, supersede all existing agreements among them concerning such
subject matter, and may be modified only by a written instrument duly executed
by each party.
- 45 of 49 -
<PAGE> 46
Section 7.06 Notices
All notices, elections, payments, reports or other correspondence
required or permitted hereunder shall be in writing and deemed to have been
properly given or delivered when personally delivered, mailed by certified mail
or delivered by a nationally recognized overnight express courier, postage or
delivery fees prepaid, to the party to whom directed at the below specified
addresses:
A. If to Sellers:
Thomas F. Herlihy
President and CEO
The Smith Technology Corporation
One Plymouth Meeting
Plymouth Meeting, PA 19462
with a copy sent in one of the prescribed manners to:
John E. Zamer, Esq.
Jones, Day, Reavis & Pogue
3500 SunTrust Plaza
303 Peach Street
Atlanta, GA 30308-3242
B. If to Purchaser:
Mr. Morry F. Rubin, President
ATC Group Services Inc.
104 East 25th Street, 10th Floor
New York, NY 10010
with a copy sent in one of the prescribed manners to:
John Smith, Esq.
ATC Group Services Inc.
1515 East 10th Street
Sioux Falls, South Dakota 57103-1721
Any such notice shall be deemed given at the time of personal delivery, three
days after deposit with the mail or one day following deposit with an overnight
express courier. The address of a party may be changed in accordance with the
notice provisions of this section.
Section 7.07 Waiver
Any waiver by any party of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of
- 46 of 49 -
<PAGE> 47
any other breach of that provision or of any breach of any other provision of
this Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement on one or more occasions will not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
Section 7.08 Binding Effect
The provisions of this Agreement shall be binding upon and inure to the
benefit of Sellers, Purchaser, and their respective successors and assigns, and
shall inure to the benefit of the indemnitees and their respective successors,
assigns, heirs, and personal representatives.
Section 7.09 No Third-Party Beneficiaries
This Agreement does not create, and shall not be construed as creating,
any rights enforceable by any person not a party to this Agreement (except as
provided in Section 7.08).
Section 7.10 Separability
If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances unless the result
thereof would result in an unjust modification of the balance of rights and
obligations hereunder.
Section 7.11 Headings
The headings of this Agreement are solely for convenience of reference
and shall be given no effect in the construction or interpretation of this
Agreement.
Section 7.12 Governing Law
To the extent permitted by law, this Agreement shall be governed by and
construed in accordance with the laws of the state of Delaware without giving
effect to conflict of laws. Each of the parties hereby consents to the
jurisdiction of the courts of the state of Delaware, agrees to submit to service
therefrom and waives any claim it may have as to forum non conveniens in
connection with any action brought in the state of Delaware.
Section 7.13 Separate Counterparts
This Agreement is being executed in several identical counterparts,
each one of which shall be considered an original and
- 47 of 49 -
<PAGE> 48
all of which when taken together shall constitute but one instrument.
Section 7.14 Incorporation of Recitals, Exhibits and Schedules
All exhibits, schedules and Related Agreements attached hereto are
incorporated herein by reference and expressly made a part of this Agreement.
Section 7.15 Mediation
Except in cases where the remedy of preliminary injunction is
reasonably sought by a party because of the irreparability and immediacy of the
harm alleged to be caused or threatened, in the event there shall arise any
dispute or claim in law or equity arising out of this Agreement or any breach
thereof or any resulting transaction between the parties under this Agreement
and if such dispute cannot be resolved through negotiation or, in the case of
those matters to be resolved under this Agreement by the procedure specified for
settlement of accounting and collection related issues in Section 2.03(c), the
parties agree that such dispute shall be submitted to non-binding mediation
under the Commercial Mediation Rules of the American Arbitration Association
before resorting to litigation. The mediation shall be held in Dover, Delaware
before a single mediator selected by the American Arbitration Association.
Section 7.16 Non-Working Dates
When any date on which payment or any other performance is due under
this agreement falls on a Saturday, Sunday or national holiday, such payment or
performance shall be due on the next business day following such date.
Section 7.17 Opportunity to Cure
All parties to this Agreement shall be afforded a period of ten (10)
days following written notice thereof to cure any alleged breach of this
Agreement unless the loss threatened by such breach is of such gravity to
require immediate action.
VIII. DEFINED WORDS AND PHRASES
Section 8.01 Convention for Definition of Terms
Words used in this Agreement shall have their ordinary meaning unless
specifically defined in this Agreement. Where a word or phrase appears in
quotation marks within parentheses (whether or not listed in Section 8.02), the
word or phrase in quotation marks shall have the meaning throughout this
Agreement (unless a more limited scope is specified or is obvious from the
context) defined by the
- 48 of 49 -
<PAGE> 49
definition immediately preceding and in apposition to the quoted word or phrase.
Most (but not all) defined words or phrases are delineated as such by the use of
capitalized first letters.
Section 8.02 Certain Definitions
(a) Unless otherwise expressly stated in a particular case, the term "including"
shall mean "including, but not limited to."
(b) Unless otherwise expressly stated in a particular case, the term "knowledge
of the Sellers" means the knowledge of an officer, director, regional manager or
branch manager of Smith or of any director, regional officer or regional or
branch manager of any Seller other than Smith.
(c) Unless otherwise expressly stated in a particular case, the term "Sellers"
means the "Sellers, jointly and severally."
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date set forth in the opening paragraph hereof.
ATC GROUP SERVICES INC. SMITH TECHNOLOGY CORPORATION
By /s/ Nicholas J. Malino By /s/ Thomas F. Herlihy
----------------------------- -----------------------------
Nicholas J. Malino Thomas F. Herlihy
Senior Vice President President and CEO
BCM ENGINEERS INC., Delaware BCM ENGINEERS INC., Alabama
By /s/ William T. Campbell By /s/ William T. Campbell
----------------------------- -----------------------------
BCM ENGINEERS INC., Penn. BCM ENGINEERS INC., West Vir.
By /s/ William T. Campbell By /s/ William T. Campbell
----------------------------- -----------------------------
- 49 of 49 -
<PAGE> 1
EXHIBIT 10.39
CONDITIONAL PROMISSORY NOTE
Non-Negotiable
$2,750,000.00 August 19, 1997
Plymouth Meeting, PA
NOTICE TO HOLDER: PAYMENT UNDER THIS NOTE IS SUBJECT TO CERTAIN CONDITIONS THE
OCCURRENCE OF WHICH CAN RESULT IN THE CANCELLATION OF THE OBLIGATION OF THE
MAKER TO MAKE PAYMENTS.
FOR VALUE RECEIVED, the undersigned, ATC GROUP SERVICES INC., a
Delaware corporation, ("Maker") promises and agrees to pay to the order of SMITH
TECHNOLOGY CORPORATION, a Delaware corporation ("Smith"), at One Plymouth
Meeting, Plymouth Meeting, PA 19462, or at such other place as the Smith may
from time to time designate in writing, on behalf of Smith and the other Sellers
under the Agreement for Sale and Purchase of Business Assets entered into by
Maker, Smith and such Sellers this date (the "Agreement"), the principal sum of
TWO MILLION SEVEN HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($2,750,000.00), on
or before February 27, 1998, (the "Due Date") without interest except in the
event of (i) default as provided below or (ii) a set-off taken against payment
due under this note which is ultimately determined not to have been allowable
under Section 1.04 of the Agreement.
SPECIAL CONDITIONS. Maker's obligation to make payment under this note
shall be subject to the Maker's right of set-off under Section 1.04 of the
Agreement. Maker's exercise of such set-off rights against the payment due
hereunder shall not constitute a default hereunder provided such exercise is in
conformity with the terms and conditions governing set-off rights in the
Agreement and Maker promptly makes payment of any amount so set-off finally
determined, as provided in the Agreement, to have been improperly set off. To
the extent that all or some portion of a set-off asserted by Purchaser under the
Agreement is ultimately determined not to have been proper, Maker shall pay
interest on the amount determined to have been improperly set off from the Due
Date until the date such payment is made at the prime rate quoted by the Chase
Bank of New York on the Due Date.
DEFAULT. Upon Maker's failure to pay the amount due hereunder on or
before the Due Date (exclusive of any amounts subject to the set-off procedures
of the Agreement), or in the event of bankruptcy, insolvency, or receivership of
the Maker, it is agreed that this note shall, at the option of Smith, become
immediately due and payable for the full unpaid balance, exclusive of any
<PAGE> 2
amounts properly subject to set-off by Maker under the Agreement. If Purchaser
defaults hereunder, after maturity, whether by acceleration or otherwise, this
note shall bear interest at the rate of ten per cent (10%) per annum. If this
note is not paid in accordance with its terms and is placed in the hands of an
attorney for collection, Maker agrees to pay, in addition to the unpaid balance
and interest, the costs of collection, including attorney's fees.
WAIVER. The Maker waives presentment, demand, protest, notice of
dishonor and diligence in collecting.
Made by:
ATC GROUP SERVICES INC., Maker
By: /s/ Nicholas J. Malino
----------------------------
Nicholas J. Malino
Senior Vice President
Terms accepted by:
SMITH TECHNOLOGY CORPORATION
By: /s/ Thomas F. Herlihy
----------------------------
2 of 2
<PAGE> 1
EXHIBIT 10.40
CONDITIONAL PROMISSORY NOTE
Non-Negotiable
$200,000.00 August 19, 1997
Plymouth Meeting, PA
NOTICE TO HOLDER: PAYMENT UNDER THIS NOTE IS SUBJECT TO CERTAIN CONDITIONS THE
OCCURRENCE OF WHICH CAN RESULT IN THE CANCELLATION OF THE OBLIGATION OF THE
MAKER TO MAKE PAYMENTS.
FOR VALUE RECEIVED, the undersigned, ATC GROUP SERVICES INC., a
Delaware corporation, ("Maker") promises and agrees to pay to the order of SMITH
TECHNOLOGY CORPORATION, a Delaware corporation ("Smith"), at One Plymouth
Meeting, Plymouth Meeting, PA 19462, or at such other place as the Smith may
from time to time designate in writing, on behalf of Smith and the other Sellers
under the Agreement for Sale and Purchase of Business Assets entered into by
Maker, Smith and such Sellers this date (the "Agreement"), the principal sum of
TWO HUNDRED THOUSAND AND NO/100 DOLLARS ($200,000.00), on or before September
19, 1997, (the "Due Date") with simple interest thereon at the prime rate quoted
by the Chase Bank of New York for this date.
SPECIAL CONDITIONS. Maker's obligation to make payment under this note
shall be subject to the Maker's rights of set-off under Sections 1.01(b)(3),
1.01(b)(4), 1.01(b)(5) and 4.14 of the Agreement. Maker's exercise of such
set-off rights against the payment due hereunder shall not constitute a default
hereunder provided such exercise is in conformity with the terms and conditions
governing set-off rights in the Agreement and Maker promptly makes payment of
any amount so set-off finally determined, as provided in the Agreement, to have
been improperly set off. To the extent that all or some portion of a set-off
asserted by Purchaser under the Agreement is ultimately determined not to have
been proper, Maker shall pay interest on the amount determined to have been
improperly set off from the Due Date until the date such payment is made at the
interest rate set forth above.
DEFAULT. Upon Maker's failure to pay the amount due hereunder on or
before the Due Date (exclusive of any amounts subject to the set-off procedures
of the Agreement as set forth above), or in the event of bankruptcy, insolvency,
or receivership of the Maker, it is agreed that this note shall, at the option
of Smith, become immediately due and payable for the full unpaid balance,
exclusive of any amounts properly subject to set-off by Maker under the
Agreement. If Purchaser defaults hereunder, after maturity,
<PAGE> 2
whether by acceleration or otherwise, this note shall bear interest at the rate
of ten per cent (10%) per annum. If this note is not paid in accordance with its
terms and is placed in the hands of an attorney for collection, Maker agrees to
pay, in addition to the unpaid balance and interest, the costs of collection,
including attorney's fees.
WAIVER. The Maker waives presentment, demand, protest, notice of
dishonor and diligence in collecting.
Made by:
ATC GROUP SERVICES INC., Maker
By: /s/ Nicholas J. Malino
-----------------------------
Nicholas J. Malino
Senior Vice President
Terms accepted by:
SMITH TECHNOLOGY CORPORATION
By: /s/ Thomas F. Herlihy
-----------------------------
2 of 2
