U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) June 30, 1998
FTI CONSULTING, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Maryland 0000887936 52-1261113
(State of other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation)
</TABLE>
2021 Research Drive, Annapolis, Maryland 21401
(Address of principal executive offices, including Zip Code)
(410) 224-8770
(Registrant's telephone number, including area code)
<PAGE>
FTI CONSULTING, INC.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 30, 1998, FTI Consulting, Inc. (the "Company"), Klick, Kent &
Allen, Inc. ("KK&A"), and John C. Klick, Christopher D. Kent, Evan J. Allen, and
Michael R. Baranowski (each a "Stockholder" and collectively, the
"Stockholders") entered into a Stock Purchase Agreement whereby all of the
issued and outstanding shares of the capital stock of KK&A was purchased by the
Company for the purchase price of Ten Million Dollars ($10,000,000), as
evidenced by promissory notes. Six Million Dollars ($6,000,000) was paid to the
Stockholders on July 1, 1998. The balance will be paid in two equal installments
on the first and second anniversaries of the first installment. Additionally,
the Stockholders will be paid an earn-out as additional purchase price equal to
fifty percent (50%) of the aggregate pre-tax profits of KK&A for the three years
ended June 30, 2001. The purchase price was based upon the Company's evaluation
of the financial condition, business operations and prospects of KK&A and was
negotiated in an arms length transaction among unrelated and unaffiliated (as
defined under Rule 144 promulgated by the Securities and Exchange Commission)
parties. KK&A is in the business of providing strategic and economic consulting
to various regulated businesses, advising on such matters as industry
deregulation, mergers and acquisitions, rate and costs structures, economic and
financial modeling and litigation and litigation risk analysis
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements. Audited financial statements of KK&A, for the
years ended December 31, 1997 and 1996 and unaudited financial statements of
KK&A, for the three months ended March 31, 1998 and 1997.
(b) Pro Forma Financial Information. Pro Forma Balance Sheet and Pro Forma
Statement of Income, combining the Company and KK&A for the year ended December
31, 1997, and the three months ended March 31, 1998.
(c) Exhibits
2.1 Stock Purchase Agreement dated June 30, 1998 by and among
the Company, KK&A, and the Stockholders.
23.1 Consent of Kearney & Company
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
FTI CONSULTING, INC.
(Registrant)
By: /s/ Gary Sindler
-----------------------------------------
Gary Sindler
Executive Vice President and Chief
Financial Officer, Secretary and Treasurer
DATED: July 15, 1998
<PAGE>
KLICK, KENT & ALLEN, INC.
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE>
KLICK, KENT & ALLEN, INC.
YEARS ENDED DECEMBER 31, 1997 AND 1996
TABLE OF CONTENTS
Page
----
Independent Auditor's Report ........................................... 1
Financial statements:
Balance sheets ....................................................... 2-3
Statements of operations.............................................. 4
Statements of stockholders' equity.................................... 5
Statements of cash flows ............................................. 6
Notes to financial statements ........................................ 7-9
Independent Auditor's Report on Additional
Information .......................................................... 10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Klick, Kent & Allen, Inc.
Alexandria, Virginia
We have audited the accompanying balance sheets of Klick, Kent & Allen, Inc. as
of December 31, 1997 and 1996, and the related statements of operations and
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Klick, Kent & Allen, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Kearney & Company
- ---------------------
Annandale, VA
February 4, 1998
<PAGE>
KLICK, KENT & ALLEN, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 63,086 $ 1,237
Accounts receivable 1,090,432 658,265
Prepaid expenses and deposits 69,029 35,373
---------- ----------
Total current assets 1,222,547 694,875
---------- ----------
Property and equipment:
Furniture and equipment 390,370 311,297
Software 19,573 13,635
Leasehold improvements 11,470 25,485
---------- ----------
421,413 350,417
Less: accumulated depreciation and amortization 331,220 293,306
---------- ----------
Net property and equipment 90,193 57,111
---------- ----------
Total assets $1,312,740 $ 751,986
========== ==========
</TABLE>
See notes to financial statements.
2
<PAGE>
KLICK, KENT & ALLEN, INC.
BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
---- ----
Current liabilities:
<S> <C> <C>
Accounts payable $ 49,633 $ 37,287
Cash overdraft 0 3,436
Retirement plan contribution payable 133,035 100,107
Note payable, credit line 450,000 250,000
Notes payable, stockholders 66,971 74,030
Security deposit, sub-tenant 11,489 0
---------- ----------
Total current liabilities 711,128 464,860
---------- ----------
Commitments
Stockholders' equity:
Common stock, $1 par, 1,000 shares authorized,
650 shares outstanding 650 650
Additional paid-in capital 89,960 89,960
Retained earnings 511,002 196,516
---------- ----------
Total stockholders' equity 601,612 287,126
Total liabilities and stockholders' equity $1,312,740 $ 751,986
========== ==========
</TABLE>
See notes to financial statements.
3
<PAGE>
KLICK, KENT & ALLEN, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Revenues $5,489,863 $2,877,194
Direct costs, except owners' compensation 2,039,803 816,795
---------- ----------
Gross profit before owners' compensation 3,450,060 2,060,399
Operating expenses, except owners' compensation 732,090 554,165
---------- ----------
Income before owners' compensation 2,717,970 1,506,234
Owners' compensation 2,463,897 1,457,669
---------- ----------
Income from operations 254,073 48,565
---------- ----------
Other income:
Interest 25,854 9,471
Miscellaneous 36 1,751
Rental 34,523 0
---------- ---------
Total other income 60,413 11,222
---------- ----------
Net income $ 314,486 $ 59,787
========== ==========
</TABLE>
See notes to financial statements.
4
<PAGE>
KLICK, KENT & ALLEN, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Capital Retained Earnings
------------ --------------- -----------------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 $ 700 $ 90,010 $ 200,159
Purchase of 50 shares (50) (50) (63,430)
Net income 59,787
-------- --------- ---------
Balance, December 31, 1996 650 89,960 196,516
Net income 314,486
-------- --------- ---------
Balance, December 31, 1997 $ 650 $ 89,960 $ 511,002
========= ========= =========
</TABLE>
See notes to financial statements.
5
<PAGE>
KLICK, KENT & ALLEN, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 314,486 $ 59,787
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation expense 50,444 37,624
Net loss from disposal of property 0 672
(Increase) in accounts receivable (432,167) (288,378)
(Increase) in prepaid expenses (33,656) (7,490)
Increase in accounts payable and
accrued expense 22,471 1,709
Increase in retirement plan contribution
payable 34,298 39,622
--------- ---------
Net cash used by operating activities (44,124) (156,454)
--------- ---------
Cash flows from investing activities:
Proceeds from disposition of leasehold
Improvements 24,559 0
Acquisition of property and equipment (108,086) (56,713)
--------- --------
Net cash (used) by investing activities (83,527) (56,713)
--------- ---------
Cash flows from financing activities:
Payments on notes payable, line of credit (300,000) (75,000)
Payments on notes payable, stockholders (10,500) (23,771)
Proceeds from notes payable, line of credit 500,000 225,000
Proceeds from notes payable, stockholders 0 23,549
--------- ---------
Net cash provided by financing activities 189,500 149,778
--------- ---------
Net increase (decrease) in cash 61,849 (63,389)
Cash balance, beginning 1,237 64,626
--------- ---------
Cash balance, ending $ 63,086 $ 1,237
========= =========
Supplemental disclosures of cash flow information:
Interest paid $ 19,800 $ 11,759
========= =========
</TABLE>
See notes to financial statements.
6
<PAGE>
KLICK, KENT & ALLEN , INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED CECEMBER 31, 1997 AND 1996
1. Organization and description of business:
The Company, which provides financial analysis and economic consulting
services primarily to network industries, including transportation,
telecommunication and pipeline companies, was incorporated in Virginia in
November 1987. Most of the Company's customers are Fortune 100 companies
located throughout the United States.
2. Summary of significant accounting policies:
Basis of accounting:
The Company prepares its books on the accrual basis of accounting. Income
is recognized when earned and expenses are realized when incurred.
Cash and cash equivalents:
The Company considers all highly liquid debt instruments purchased with
maturities of 90 days or less to be cash equivalents.
Property and equipment:
Property and equipment are recorded at cost. The assets are depreciated
using accelerated and straight line methods over the estimated useful lives
ranging from 1 to 40 years.
Income taxes:
The Company, with the consent of its stockholders, has elected to be an "S"
corporation under the Internal Revenue Code and similar state law. Instead
of paying corporate income taxes, the stockholders are taxed individually
on the Company's taxable income. Therefore, no provision or liability for
federal or state income taxes has been made.
7
<PAGE>
KLICK, KENT & ALLEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
3. Notes payable:
<TABLE>
<CAPTION>
Balance at Balance at
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C> <C>
Line of credit, with NationsBank
Interest is payable monthly at 9.5% $450,000 $250,000
Note payable Harry W. Bues dated
December 28, 1994 in the amount of
$10,000; interest accrues at 7.22%
per annum; principal plus interest
are due January 2, 1997 0 10,500
Note payable Harry W. Bues, dated
November 30, 1996 in the amount of
$63,530, simple interest at 5.00%
per annum; principal plus interest
are due upon termination of his
employment 66,971 63,530
-------- --------
Total notes payable 516,971 324,030
Less current portion 516,971 324,030
-------- --------
Long-term debt net of current portion $ 0 $ 0
======== ========
</TABLE>
Substantially all of the Company's net assets are pledged as collateral for the
NationsBank loan. The NationsBank loan is subject to a covenant regarding
maintenance of a minimum debt to equity ratio. At December 31, 1997, the Company
was in compliance with that covenant.
8
<PAGE>
KLICK, KENT & ALLEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
4. Commitments:
The Company entered into a new lease on June 14, 1997 for its office
facilities and parking spaces pursuant to an agreement which expires June
14, 2004, with an option to extend it until June 13, 2009. The lease
includes a provision for annual escalations which are computed based on
changes in the consumer price index commencing on the first day of January
1998 and every January 1st thereafter. For the year ended December 31, 1997
and 1996, rental expense accrued pursuant to this lease was $196,778 and
$131,195, respectively. The Company also leases office equipment under
various operating leases. Rent expense under these leases was $17,848 and
$4,935 for the years ended December 31, 1997 and 1996, respectively.
Future minimum annual lease payments under all operating leases with
initial terms in excess of one year are as follows:
Year ended December 31,
1998 $ 273,247
1999 278,411
2000 274,983
2001 273,955
2002 279,434
Thereafter 418,271
------------
$1,798,301
===========
Common stock is subject to a stock repurchase agreement whereby the Company
has the option to purchase any stock offered for sale by a stockholder not
purchased by the other stockholders. Upon death of a stockholder, the
Company is obligated to purchase all of the deceased stockholder's shares.
The price per share is determined periodically by the Board of Directors.
5. Retirement plan:
Employees of the Company may participate in a 401(k) savings plan, whereby
the Employees may elect to make contributions pursuant to a salary
reduction agreement upon meeting age and length-of-service requirements.
The Company can elect to match the contribution of electing employees'
deferrals. Matching contributions to the plan were approximately $105,422
and $69,000 for the years ended December 31, 1997 and 1996, respectively.
9
<PAGE>
KLICK, KENT & ALLEN, INC.
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<PAGE>
KLICK, KENT & ALLEN, INC.
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
TABLE OF CONTENTS
Page
----
Financial statements:
Balance sheets................................................ 1-2
Statements of income and retained earnings.................... 3
Statements of cash flows...................................... 4
Notes to financial statements.................................. 5
<PAGE>
KLICK, KENT& ALLEN, INC.
BALANCE SHEETS
MARCH 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
---- ----
Current assets:
<S> <C> <C>
Cash $ 441,105 $ 278,412
Accounts receivable 930,433 990,189
Prepaid expenses and deposits 76,652 44,003
---------- ----------
Total current assets 1,448,190 1,312,604
---------- ----------
Property and equipment:
Furniture and equipment 393,669 341,049
Software 21,212 13,635
Leasehold improvements 11,768 25,485
---------- ----------
426,649 380,169
Less: accumulated depreciation 344,878 316,086
---------- ----------
Net property and equipment 81,771 64,083
---------- ----------
Total assets $ 1,529,961 $ 1,376,687
========== ==========
</TABLE>
See notes to financial statements.
1
<PAGE>
KLICK, KENT & ALLEN, INC.
BALANCE SHEETS (CONTINUED)
MARCH 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current liabilities:
Accounts payable $ 43,399 $ 67,646
Retirement plan contribution payable 30,002 140,965
Notes payable, credit line 300,000 250,000
Note payable, stockholders 67,765 63,530
Security deposit, sub-tenant 11,489 0
---------- ----------
Total current liabilities 452,655 522,141
---------- ----------
Stockholders' equity:
Common stock, $1 par value; 1,000 shares authorized,
650 shares outstanding 650 650
Additional paid-in capital 89,960 89,960
Retained earnings 986,696 763,936
---------- ----------
Total stockholders' equity 1,077,306 854,546
---------- ----------
Total liabilities and stockholders' equity $1,529,961 $1,376,687
========== ==========
</TABLE>
2
<PAGE>
KLICK, KENT & ALLEN, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenues $1,375,863 $1,375,982
Direct costs, except owners' compensation 479,539 429,002
---------- ----------
Gross profit before owners' compensation 896,324 946,980
Operating expenses, except owners' compensation 208,761 171,064
---------- ----------
Income before owners' compensation 687,563 775,916
Owners' compensation 211,869 208,496
---------- ----------
Net income 475,694 567,420
Retained earnings, January 1 511,002 196,516
---------- ----------
Retained earnings, March 31 $ 986,696 $ 763,936
========== ==========
</TABLE>
See notes to financial statements.
3
<PAGE>
KLICK, KENT & ALLEN, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 475,694 $ 567,420
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation expense 13,658 22,780
(Increase) decrease in accounts receivable 159,999 (331,924)
Increase in prepaid expenses (7,623) (8,630)
Increase (decrease) in accounts payable
and accrued expenses (6,234) 26,923
Increase (decrease) in pension contribution payable (103,033) 40,858
--------- --------
Net cash provided by operating activities 532,461 317,427
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (5,236) (29,752)
--------- ---------
Net cash used by investing activities (5,236) (29,752)
--------- ---------
Cash flows from financing activities:
Payments on/increase in notes payable, stockholders 794 (10,500)
Repayment of notes payable, line of credit (150,000) 0
--------- ---------
Net cash used by financing activities (149,206) (10,500)
--------- ---------
Net increase in cash 378,019 277,175
Cash, January 1 63,086 1,237
--------- ---------
Cash, March 31 $ 441,105 $ 278,412
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 11,482 $ 6,264
========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
KLICK, KENT & ALLEN, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
1. ORGANIZATION AND DESCRIPTION OF BUSINESS:
The Company, which provides financial analysis and economic consulting
services primarily to the network industries, including transportation,
telecommunications and pipeline companies, was incorporated in Virginia in
November 1987. Most of the Company's customers are Fortune 100 companies
located throughout the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of accounting:
The Company prepares its books on the accrual basis of accounting. Income
is recognized when earned and expenses are realized when incurred.
Cash and cash equivalents:
The Company considers all highly liquid debt instruments purchased with
maturities of 90 days or less to be cash equivalents.
Property and equipment:
Property and equipment are recorded at cost. The assets are depreciated
using accelerated and straight line methods over the estimated useful lives
ranging from 1 to 39.5 years.
Income taxes:
The Company, with the consent of its stockholders, has elected to be an "S"
corporation under the Internal Revenue Code and similar state law. Instead
of paying corporate income taxes, the stockholders are taxed individually
on the Company's taxable income. Therefore, no provision or liability for
Federal or state income taxes has been made.
5
<PAGE>
KLICK, KENT & ALLEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998 AND 1997
3. NOTES PAYABLE:
Balance at March 31,
1998 1997
---- ----
Line of credit with NationsBank; interest is
payable monthly at 9.5% $300,000 $250,000
Note payable stockholder, Harry W
Bues, dated November 30, 1996 in the
amount of $63,530, simple interest at
5.00% per annum; principal plus
interest are due upon termination of his
employment 67,765 63,530
-------- --------
Total notes payable 367,765 313,530
Less current portion 367,765 313,530
-------- --------
Long-term debt net of current portion $ 0 $ 0
======== ========
Substantially, all of the Company's assets are pledged as collateral for the
NationsBank loan. The NationsBank loan is subject to a covenant regarding
maintenance of a minimum debt to equity ratio. At March 31, 1998, according to
management, the Company was in compliance of that covenant.
6
<PAGE>
KLICK, KENT & ALLEN, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31 1998 AND 1997
4. COMMITMENTS:
The Company entered into a new lease on June 14, 1997 for its office
facilities and parking spaces pursuant to an agreement which expires June
14, 2004. The lease includes a provision for annual escalations which are
computed based on changes in the consumer price index commencing on the
first day of January 1998 and every January 1st thereafter. For the three
months ended March 31, 1998 and 1997, rental expense accrued pursuant to
this lease was $64,538 and $35,083, respectively. The Company also leases
office equipment under various operating leases. Rent expense under these
leases was $4,276 and $1,164 for the three months ended March 31, 1998 and
1997, respectively. Future minimum annual lease payments under all
operating leases with initial terms in excess of one year are as follows:
Year ended December 31,
1998 $ 273,247
1999 278,411
2000 274,983
2001 273,955
2002 279,434
Thereafter 418,271
------------
$1,798,301
============
Common stock is subject to a stock repurchase agreement, whereby the
Company has the option to purchase any stock offered for sale by a
stockholder not purchased by the other stockholders. Upon death of a
stockholder, the Company is obligated to purchase all of the deceased
stockholder's shares. The price per share is determined periodically by the
Board of Directors. To provide the funds for such purchases, the Company
has purchased life insurance on the lives of the stockholders.
5. RETIREMENT PLAN:
Employees of the Company may participate in a 401(k) savings plan, whereby
the Employees may elect to make contributions pursuant to a salary
reduction agreement upon meeting age and length-of-service requirements.
The Company can elect to match the contribution of electing employees'
deferrals. Matching contributions to the plan were $26,698 and $20,628 for
the three months ended March 31, 1998 and 1997, respectively.
7
<PAGE>
FTI CONSULTING, INC.
<TABLE>
<CAPTION>
BALANCE SHEETS
PRO FORMA FTI/KK&A
MARCH 31, 1998 PRO FORMA PRO FORMA
FTI KK&A ADJUSTMENTS COMBINED
--------------- -------------- --------------- -----------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,663,165 $441,105 $3,104,270
Accounts receivable, net 11,465,555 930,433 12,395,988
Unbilled receivables, net 3,702,827 3,702,827
Deferred income taxes 160,065 160,065
Prepaid expenses 1,165,139 76,652 1,241,791
--------------- -------------- --------------- -----------------
TOTAL CURRENT ASSETS 19,156,750 1,448,190 - 20,604,940
PROPERTY AND EQUIPMENT:
Buildings 411,241 411,241
Furniture and equipment 12,315,450 414,881 12,730,331
Leasehold improvements 1,526,219 11,768 1,537,987
--------------- -------------- --------------- -----------------
14,252,911 426,649 - 14,679,560
Accumulated depreciation and (7,863,293) (344,878) (8,208,171)
amortization --------------- -------------- --------------- -----------------
PROPERTY - NET 6,389,618 81,771 - 6,471,389
Goodwill 5,222,214 9,682,461 (1) 15,029,675
125,000 (2)
Accumulated amortization (143,627) (143,627)
--------------- --------------- -----------------
5,078,586 9,807,461 14,886,047
Other assets 60,136 60,136
--------------- -------------- --------------- -----------------
TOTAL ASSETS 30,685,090 1,529,961 9,807,461 $42,022,512
=============== ============== =============== =================
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payble 1,963,252 43,399 125,000 (2) 2,131,651
Current note payable 1,200,000 300,000 8,000,000 (1) 9,500,000
Accrued compensation expense 1,674,193 30,002 1,704,195
Incomes tax payable 689,836 689,836
Advances from clients 401,828 401,828
Other current liabilities 117,238 79,254 196,492
--------------- -------------- --------------- -----------------
TOTAL CURRENT LIABILITIES 6,046,347 452,655 8,125,000 14,624,002
Long-term debt, less current 729,920 2,000,000 (1) 2,729,920
portion
Other long-term liabilities 223,592 223,592
Deferred income taxes 168,578 168,578
Commitment and contingent - -
liabilities
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value: 47,332 650 (650) (1) 47,332
Additional paid-in capital 15,916,972 89,960 (89,960) (1) 15,916,972
Retained earnings 7,552,349 986,696 (226,929) (1) 8,312,116
--------------- -------------- --------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 23,516,653 1,077,306 (317,539) 24,276,420
--------------- -------------- --------------- -----------------
TOTAL LIABILITIES AND $30,685,090 $1,529,961 $9,807,461 $42,022,512
STOCKHOLDERS' =============== ============== =============== =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FTI CONSULTING, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997 PRO FORMA PRO FORMA
FTI KK&A ADJUSTMENTS COMBINED
--------------- -------------- --------------- ---------------
<S> <C> <C> <C>
Revenues $44,175,343 $5,489,863 $49,665,206
Direct cost of revenues 23,564,284 4,010,921 (1,291,118) (5) 26,284,087
Selling,general and administrative Expenses 15,240,802 1,205,069 (322,779) (5) 17,333,465
720,000 (3)
490,373 (4)
--------------- -------------- --------------- ---------------
Total costs and expenses 38,805,086 5,215,990 (403,524) 43,617,552
--------------- -------------- --------------- ---------------
Income from operations 5,370,257 273,873 403,524 6,047,654
Other income (expense):
Interest and other income 343,000 60,413 403,413
Interest expense (170,000) (19,800) (189,800)
--------------- -------------- --------------- ---------------
173,000 40,613 0 213,613
--------------- -------------- --------------- ---------------
Income from continuing operations before
income taxes 5,543,257 314,486 403,524 6,261,267
Income taxes 2,249,982 287,204 (7) 2,537,186
--------------- -------------- --------------- ---------------
---------------
Net income 3,293,275 314,486 116,320 3,724,081
=============== ============== =============== ===============
Income available to common stock holders $3,293,275 $314,486 $116,320 $ 3,724,081
=============== ============== =============== ===============
Earnings Per Common Share:
Net income per common share $0.73 $0.82
=============== ===============
Earnings Per Common Share - Assuming
Dilution:
Net income per common share- assuming
dilution $0.70 $0.79
=============== ===============
Weighted avereage shares used in the
calculation of basic and diluted earnings
per commons share:
Basic 4,528,627 4,528,627 (6)
=============== ===============
Diluted 4,697,517 4,697,517 (6)
=============== ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FTI CONSULTING, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 PRO FORMA PRO FORMA
FTI KK&A ADJUSTMENTS COMBINED
--------------- --------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues $14,109,375 $1,375,863 $15,485,238
Direct cost of revenues 7,579,505 649,034 8,228,539
Selling,general and administrative
Expenses 4,662,088 239,653 180,000 (3) 5,204,334
122,593 (4)
--------------- --------------- ----------------- -----------------
Total costs and expenses 12,241,593 888,687 302,593 13,432,873
--------------- --------------- ----------------- -----------------
Income from operations 1,867,782 487,176 (302,593) 2,052,365
Other income (expense):
Interest and other income 55,581 55,581
Interest expense (58,644) (11,482) (70,126)
--------------- --------------- ----------------- -----------------
(3,063) (11,482) 0 (14,545)
--------------- --------------- ----------------- -----------------
Income from continuing operations
before income taxes 1,864,719 475,694 (302,593) 2,037,820
Income taxes 759,535 69,240 (7) 828,775
--------------- --------------- ----------------- -----------------
Net income 1,105,184 475,694 (371,833) 1,209,045
Preferred stock dividends 0 0
=============== =============== ================= =================
Income available to common stock
holders $1,105,184 $475,694 ($371,833) $1,209,045
=============== =============== ================= =================
Earnings Per Common Share:
=============== =================
Net income per common share $0.24 $0.26
=============== =================
Earnings Per Common Share -
Assuming Dilution:
=============== =================
Net income per common share-
assuming dilution $0.22 $0.24
=============== =================
Weighted avereage shares used in
the calculation of basic and diluted
earnings per commons share:
Basic 4,598,130 4,598,130 (6)
=============== =================
Diluted 5,071,994 5,071,994 (6)
=============== =================
</TABLE>
<PAGE>
FTI CONSULTING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma financial statements give retroactive effect to the
acquisition of Klick, Kent & Allen, Inc. (KK&A) by the Company effective June 1,
1998 (the date that control of KK&A was transferred to the Company). The
acquisition of KK&A was accounted for by the Company as a purchase.
Pro forma adjustments to the pro forma combined balance sheet assume that the
transaction was consummated on March 31, 1998. Pro forma adjustments to the pro
forma combined statement of operations assume that the transaction was
consummated on January 1, 1997, and are based on the allocated purchase price as
reported in the pro forma combined balance sheet at March 31, 1998. These
adjustments are described below.
The purchase price for the acquisition of KK&A of $10,000,000, plus estimated
expenses of $125,000 was allocated as follows:
<TABLE>
<CAPTION>
Assets acquired: (in thousands)
<S> <C>
Cash ..................................................$ 90
Accounts receivable ................................... 895
Prepaid expenses ...................................... 73
Property and equipment ................................ 88
Goodwill............................................... 9,808
-----
Total assets ...................................... 10,954
Liabilities assumed:
Accounts payable and accrued expenses ................. 90
Current portion of long-term debt and capital
lease obligations ................................. 414
Current deferred tax liability ........................ 81
Long-term deferred tax liability ...................... 244
-----
829
-----
Total purchase price . . . . . . . . . . . . . . 10,125
=====
</TABLE>
The value of goodwill will be amortized over a twenty-year period, and will be
reviewed if the facts and circumstances suggest that the value of the goodwill
is impaired, based on an analysis of future cash flows from the KK&A business.
If this review indicates that the goodwill will not be recoverable, the
Company's carrying value of the goodwill will be reduced accordingly.
These unaudited pro forma combined financial statements may not be indicative of
the results that may be obtained in the future. The unaudited pro forma combined
financial statements, including the notes thereto, should be read in conjunction
with the historical financial statements of the Company and KK&A.
<PAGE>
FTI CONSULTING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS - (Concluded)
(1) Adjustment to reflect the issuance of $10 million of promissory notes to
the KK&A stockholders and to record purchase accounting adjustments.
(2) Adjustment to reflect the acquisition expenses incurred relating to the
purchase of KK&A.
(3) Adjustment to reflect interest expense on the promissory notes issued in
connection with the acquisition. Six million in promissory notes were
issued at a 7.0% rate of interest. Four million in promissory notes were
issued at a 7.5% rate of interest.
(4) Adjustment to reflect the Hadditional amortization of acquired goodwill
which will be amortized over a 20-year period.
(5) In connection with the acquisition, the Company entered into employment
agreements with the four stockholders and executive officers of KK&A. The
future amount of compensation to be paid to these officers, who will have
substantially the same duties and responsibilities, will be less than the
amounts paid in periods prior to the acquisition, with the exception of the
three months ended March 31, 1998. The pro forma adjustment assumes that
the officers had received the reduced amount of compensation for the year
ended December 31, 1997.
(6) Weighted average shares used in calculating basic and diluted earnings per
share are the same as reported in the Company's consolidated financial
statements.
(7) Adjustment to reflect income tax expense of operations at a 40% income tax
rate.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. EXHIBIT
- ------- -------
2.1 Stock Purchase Agreement dated June 30, 1998 by and among the
Company, KK&A, and the Stockholders.
23.1 Consent of Kearney & Company
STOCK PURCHASE AGREEMENT
BY AND AMONG
FTI CONSULTING, INC.,
KLICK, KENT & ALLEN, INC.
AND
JOHN C. KLICK,
CHRISTOPHER D. KENT,
EVAN J. ALLEN, AND
MICHAEL R. BARANOWSKI
DATED AS OF JUNE 30, 1998 AND
MADE EFFECTIVE AS OF JUNE 1, 1998
TABLE OF CONTENTS
-----------------
<PAGE>
1. STOCK PURCHASE AND RELATED MATTERS .................................1
1.1 TRANSFER OF STOCK. ........................................1
1.2 PURCHASE PRICE. .......................................... 1
1.3 ACCOUNTING TERMS. .........................................2
1.4 EFFECTIVE DATE ........................................... 2
1.5 EARN-OUT. .................................................2
2. CLOSING ............................................................4
2.1 LOCATION AND DATE. ........................................4
2.2 DELIVERIES. ...............................................5
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
AND THE COMPANY ...................................................5
3.1 DUE ORGANIZATION. .........................................5
3.2 AUTHORIZATION; VALIDITY. ..................................5
3.3 NO CONFLICTS. .............................................6
3.4 CAPITAL STOCK OF THE COMPANY. .............................6
3.5 TRANSACTIONS IN CAPITAL STOCK. ............................6
3.6 ABSENCE OF CLAIMS AGAINST COMPANY. ........................7
3.7 SUBSIDIARIES AND STOCK. ...................................7
3.8 COMPLETE COPIES OF MATERIALS. .............................7
3.9 COMPANY FINANCIAL CONDITIONS. .............................7
3.10 FINANCIAL STATEMENTS. ....................................7
3.11 LIABILITIES AND OBLIGATIONS. ..............................8
3.12 BOOKS AND RECORDS. ........................................8
3.13 BANK ACCOUNTS; POWERS OF ATTORNEY. ........................8
3.14 ACCOUNTS AND NOTES RECEIVABLE. ............................9
3.15 PERMITS. ..................................................9
3.16 REAL PROPERTY. ............................................9
3.17 PERSONAL PROPERTY. .......................................11
3.18 INTELLECTUAL PROPERTY. ...................................12
3.19 MATERIAL CONTRACTS AND COMMITMENTS. ......................13
3.20 GOVERNMENT CONTRACTS. ....................................14
3.21 INVENTORY. ...............................................14
3.22 INSURANCE. ...............................................14
3.23 ENVIRONMENTAL MATTERS. ...................................15
3.24 LABOR AND EMPLOYMENT MATTERS. ............................16
3.25 EMPLOYEE BENEFIT PLANS ...................................16
3.26 TAXES. ...................................................21
3.27 CONFORMITY WITH LAW; LITIGATION. .........................24
3.28 RELATIONS WITH GOVERNMENTS. ..............................24
3.29 ABSENCE OF CHANGES. ......................................24
3.30 DISCLOSURE. ..............................................26
<PAGE>
4. REPRESENTATIONS OF BUYER ..........................................26
4.1 DUE ORGANIZATION. ........................................26
4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS. ..................27
4.3 NO CONFLICTS .............................................27
4.4 SEC DOCUMENTS. ...........................................27
4.5 FINANCIAL STATEMENTS. ....................................28
4.6 LITIGATION. ..............................................28
5. COVENANTS .........................................................28
5.1 FIRPTA COMPLIANCE. .......................................28
5.2 UNPAID TAXES. ............................................28
5.3 CERTAIN TAX MATTERS. .....................................28
5.4 ACCOUNTS RECEIVABLE. .....................................30
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER ......................31
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
OBLIGATIONS .............................................31
6.2 NO LITIGATION ............................................31
6.3 OPINION OF COUNSEL. ......................................31
6.4 CONSENTS AND APPROVALS. ..................................31
6.5 CHARTER DOCUMENTS ........................................31
6.6 EMPLOYMENT AGREEMENTS ....................................32
6.7 DUE DILIGENCE. ...........................................32
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE
COMPANY ...........................................................32
7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
OBLIGATIONS .............................................32
7.2 NO LITIGATION. ...........................................32
7.3 CONSENTS AND APPROVALS ...................................33
8. INDEMNIFICATION ...................................................33
8.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS ..............33
8.2 LIMITATION AND EXPIRATION. ...............................34
8.3 INDEMNIFICATION PROCEDURES. ..............................35
8.4 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS .....37
8.5 REMEDIES CUMULATIVE. .....................................37
8.6 GENERAL INDEMNIFICATION BY BUYER. ........................37
9. NONCOMPETITION AND CONFIDENTIALITY ................................38
9.1 EMPLOYMENT AGREEMENTS. ...................................38
10. GENERAL ...........................................................38
10.1 SUCCESSORS AND ASSIGNS. ..................................38
10.2 ENTIRE AGREEMENT .........................................39
10.3 COUNTERPARTS. ............................................39
ii
<PAGE>
10.4 BROKERS AND AGENTS .......................................39
10.5 EXPENSES .................................................39
10.6 SPECIFIC PERFORMANCE; REMEDIES ...........................39
10.7 NOTICES. .................................................39
10.8 GOVERNING LAW. ...........................................41
10.9 SEVERABILITY .............................................41
10.10 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS ................41
10.11 AMENDMENT; WAIVER. .......................................41
iii
<PAGE>
Exhibits
A Promissory Note to John C. Klick
B Promissory Note to Christopher D. Kent
C Promissory Note to Evan J. Allen
D Promissory Note to Michael R. Baranowski
E Employment Agreement with John C. Klick
F Employment Agreement with Christopher D. Kent
G Employment Agreement with Evan J. Allen
H Employment Agreement with Michael R. Baranowski
Schedules:
3.1(a) Jurisdictions Authorized or Qualified to do Business in
3.1(b) List of Directors and Officers
3.4 Stockholders' Interests
3.10 Financial Statements
3.13 Bank Accounts; Powers of Attorney
3.16(b) Real Property
3.16(c) Real Property Supplement
3.17(a) Personal Property
3.18(a) Registered and Unregistered Marks
3.18(b)(i) Patents
3.18(b)(ii) Copyright Registrations
3.18(c) Other Rights
3.18(d) Intellectual Property
3.19(a) Significant Customers and Significant Suppliers
3.19(b) Material Contracts
3.19(c) Canceled Contracts
3.19(d) Third Party Consents
3.20 Government Contracts
3.22 Insurance
3.23(a) Hazardous Materials
3.23(d) Environmental Permits
3.25(b) Company Plans and Company Benefit Arrangements
3.25(c) Amendments to Company Benefit Plans
3.25(d) Worker's Compensation Claims
3.25(e) Key Employees
3.26(c) Assets
3.27(b) Conformity with Law; Litigation
3.29 Absence of Changes
iv
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into
this 30th day of June, 1998, by and among FTI Consulting, Inc., a Maryland
corporation ("Buyer"), Klick, Kent & Allen, Inc., a Virginia corporation (the
"Company"), and John C. Klick, Christopher D. Kent, Evan J. Allen, and Michael
R. Baranowski (each a "Stockholder" and collectively, the "Stockholders").
RECITALS
A. The Stockholders are the owners of all of the issued and outstanding
shares (the "Shares") of the capital stock of the Company.
B. The Stockholders desire to sell to Buyer and Buyer desires to purchase
from the Stockholders the Shares pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, agree as follows:
1. STOCK PURCHASE AND RELATED MATTERS
1.1 TRANSFER OF STOCK. Upon the terms and subject to the conditions hereof,
at the Closing (as defined in Section 2.1), Buyer will purchase from the
Stockholders, and the Stockholders will sell, transfer and deliver to Buyer, all
of the Shares free and clear of all Liens (defined below) in consideration of
payment of the Purchase Price specified in Section 1.2. For the purposes of this
Agreement, "Lien" means any security interest, pledge, encumbrance, lien
(statutory or otherwise), charge, security agreement, option, right of first
refusal, preemptive right, restriction on transfer or preferential arrangement
of any kind or nature whatsoever.
1.2 PURCHASE PRICE.
(a) Payments. For purposes of this Agreement, the "Purchase Price"
shall be Ten Million Dollars ($10,000,000). On the Closing Date (as defined in
Section 2.1), the Buyer shall deliver to the Stockholders promissory notes (each
a "Note" and, collectively, the "Notes") in the form attached hereto as Exhibits
A, B, C and D evidencing the Buyer's obligation to deliver the Purchase Price to
the Stockholders according to the following schedule: Six Million Dollars
($6,000,000) on July 1, 1998 (the "First Payment"); Two Million Dollars
($2,000,000) on July 1, 1999 (the "Second Payment"); Two Million Dollars
($2,000,000) on July 1, 2000 (the "Final Payment"). The Notes shall provide for
payment of interest at the rate of seven and one-half percent (7.5%) per annum
from and after the Closing Date on the unpaid principal amounts of the Notes and
shall provide for payments to Seller of all accrued but unpaid interest in
quarterly installments commencing on September 30,1998, and each quarter
thereafter on December 31, March 30, June
<PAGE>
30 and September 30, except that Buyer shall pay all accrued and unpaid interest
with the Final Payment on July 1, 2000 ("Interest Payments").
1.3 ACCOUNTING TERMS. Except as otherwise expressly provided herein or in
the Schedules, all accounting terms used in this Agreement shall be interpreted,
and all financial statements, Schedules, certificates and reports as to
financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP, consistently applied.
1.4 EFFECTIVE DATE . This Agreement shall be effective as of June 1, 1998
and Buyer shall be deemed to own all profits and losses of the Company as of the
Effective Date. The representations and warranties shall be effective as of the
Closing Date unless they specifically refer to an earlier date.
1.5 EARN-OUT. In addition to the Purchase Price, the Stockholders will be
entitled to receive the following earn-out payments (the "Earn-Out Payments") as
additional purchase price:
(a) The Buyer shall pay the Stockholders the amount, if any, (the
"Earn-Out") equal to fifty percent (50%) of the amount of the Company's
aggregate earnings before interest, taxes, goodwill amortization and incentive
compensation under the Employment Agreements (as defined hereafter) (excluding
any corporate allocations by Buyer, except for direct services Buyer provides to
the Company consistent with the Company's past practices) ("Pretax Profits") for
the three year period beginning July 1, 1998, and ending June 30, 2001
(collectively, the "Earn-Out Period"). All Earn-Out Payments shall be payable to
each Stockholder, pro rata in accordance with each Stockholder's ownership of
the Shares as set forth in Schedule 3.4 hereto.
(b) As provided in Section 1.5(f), following July 1, 1999, the Buyer
shall pay the Stockholders an amount (the "1999 Earn-Out Payment") equal to
one-half (1/2) of fifty percent (50%) of the Pretax Profits of the Company from
July 1, 1998 to June 30, 1999.
(c) As provided in Section 1.5(f), following July 1, 2000, the Buyer
shall pay the Stockholders an amount (the "2000 Earn-Out Payment") equal to
one-half (1/2) of fifty percent (50%) of the Pretax Profits of the Company from
July 1, 1999 to June 30, 2000.
(d) As provided in Section 1.5(f), following July 1, 2001, the Buyer
shall pay the Stockholders an amount (the "Final Earn-Out Payment") equal to
fifty percent (50%) of the Pretax Profits of the Company from July 1, 1998 to
June 30, 2001, less the 1999 Earn-Out Payment and less the 2000 Earn-Out
Payment. If the Final Earn-Out Payment is less than the aggregate of the 1999
Earn-Out Payment plus the 2000 Earn-Out Payment, then the Stockholders shall pay
to the Buyer the difference between the Final Earn-Out Payment and the aggregate
of the 1999 Earn-Out Payment plus the 2000 Earn-Out Payment, but in no event
shall the Stockholders be required to pay Buyer more than the aggregate of the
1999 Earn-Out Payment plus the 2000 Earn-Out Payment.
-2-
<PAGE>
(e) Calculation of Annual Pretax Profit.
(i) Within forty-five (45) days after each July 1 during the
Earn-Out Period (except for 1998), but in no event later than sixty (60) days
following such date, Buyer shall prepare and deliver to the Stockholders
unaudited statements of income and cash flow of the Company for the year of the
Earn-Out Period just ended (the "Current Year") showing in reasonable detail the
calculation of the Pretax Profit for such Current Year and the Earn-Out Payment
payable to the Stockholders for the Current Year, if any, determined pursuant to
the provisions of this Section 1.5 (hereinafter the "Proposed Annual Pretax
Profit Statement") and the "Proposed Earn-Out Payment."
(ii) The Proposed Annual Pretax Profit Statement shall be subject
to verification and examination by the Stockholders, and, in order to facilitate
such verification and examination, Buyer shall, at such reasonable times and
places as may be requested by the Stockholders, deliver copies of all supporting
documents to the Stockholders and their representatives and provide to the
Stockholders and their representatives the right to examine or take copies of
any work papers used by Buyer in the preparation of the Proposed Annual Pretax
Profit Statement.
(iii) The Stockholders shall have a period of thirty (30) days
after delivery of each Proposed Annual Pretax Profit Statement to the
Stockholders to present in writing to Buyer any objections the Stockholders may
have to the accuracy of the Proposed Annual Pretax Profit Statement and/or the
Earn-Out Payment which objections shall be set forth in reasonable detail. If no
objections are raised within such thirty (30) day period, the Proposed Annual
Pretax Profit Statement shall be deemed to be accepted and approved by the
Stockholders, and the Pretax Profit for the Current Year and the Earn-Out
Payment for the Current Year as contained in the Proposed Annual Pretax Profit
Statement shall be deemed to be final and binding upon the parties.
(iv) If the Stockholders shall disagree as to the accuracy of the
Pretax Profit for the Current Year or the Annual Earn-Out Amount for the Current
Year as contained in the Proposed Annual Pretax Profit Statement, the
Stockholders shall present to Buyer written notice within the thirty (30) day
period described in Section 1.5(e)(iii) specifying such disagreement. Following
receipt of such notice by Buyer, the Stockholders and Buyer shall use their best
efforts to promptly resolve the matter or matters in disagreement. If the
Stockholders and Buyer resolve the matter or matters in disagreement, the
Stockholders and Buyer shall either confirm or revise the original Proposed
Annual Pretax Profit Statement and/or Earn-Out Payment whereupon the statement
of the Pretax Profit for the Current Year and Earn-Out Payment as contained in
the confirmed or revised Proposed Annual Pretax Profit Statement shall be deemed
final and binding upon the parties.
(v) If the Stockholders and Buyer are unable to resolve the
matter or matters in disagreement within twenty (20) days following Buyer's
receipt of written notice from the Stockholders of the Stockholders'
disagreement with the accuracy of the Proposed Annual
-3-
<PAGE>
Pretax Profit Statement and/or Earn-Out Payment, then such disagreements or
disagreements shall be referred for resolution to the an independent accountant
mutually agreeable to the parties (the "Independent Accountants"). The
Independent Accountants shall be directed to furnish written notice to the
Stockholders and Buyer of their resolution of any such disagreements referred to
them as soon as practicable but in no event later than twenty (20) days
following the referral of such dispute to the Independent Accountants. The
Pretax Profit Statement and the Earn-Out Payment as determined by the
Independent Accountants shall be final and binding upon the parties.
(vi) During and with respect to the audit and reviews referred to
in this Section 1.5(e), the Stockholders and Buyer shall: (i) fully cooperate
with all reasonable requests of the Stockholders, Buyer and the Independent
Accountants, as the case may be; (ii) upon reasonable request make available to
the Stockholders, Buyer and the Independent Accountants, all work papers,
supporting schedules, documents and other information (including access to all
appropriate knowledgeable personnel of Buyer and its affiliates, upon which the
Proposed Annual Pretax Profit Statement is prepared and the Earn-Out Payment is
determined; and (iii) promptly provide the Independent Accountants with such
management representation letters (in customary form) executed by the
Stockholders and appropriate personnel of Buyer as applicable, as may reasonably
be requested with respect to the calculation of the preparation of the Pretax
Profit Statement and the Proposed Earn-Out Payment.
(vii) With the exception of the fees, expenses and disbursements
of the Independent Accountants, all fees, expenses and disbursements of the
Stockholders relating to the matters described in this Section 1.5(e) shall be
borne by the Stockholders and all fees, expenses and disbursements of Buyer
relating to the matters described in this Section 1.5(e) shall be borne by
Buyer. The fees, expenses and disbursements of the Independent Accountants shall
be borne by the party whose determination of the Earn-Out Payment for the
periods in dispute is furthest from the determination of the Earn-Out Payment
for such periods by the Independent Accountants.
(f) The Earn-Out Payments required to be paid pursuant to this
Section 1.5 shall be paid by Buyer to the Stockholders in cash or immediately
available funds promptly, but in no event later than ten (10) business days
following the determination of the Earn-Out Payment, by delivery to such
accounts as Stockholders shall specify in writing.
2. CLOSING
2.1 LOCATION AND DATE. The consummation of the transactions contemplated by
this Agreement (the "Closing") shall take place simultaneously with the
execution of this Agreement at 10:00 a.m. at the offices of Wilmer, Cutler &
Pickering, 2445 M Street, N.W., Washington, D.C. 20037, on June 30, 1998,
providing that all conditions to Closing shall have been satisfied or waived, or
at such other time and date as Buyer, the Company and the Stockholders may
mutually agree, which date shall be referred to as the "Closing Date."
-4-
<PAGE>
2.2 DELIVERIES. The Stockholders shall deliver to Buyer the following at
the Closing: (a) stock certificates representing the Shares, accompanied by
stock powers duly executed in blank or duly executed instruments of transfer and
any other documents that are necessary to transfer to Buyer good and marketable
title to the Shares free and clear of all Liens; (b) resignations of directors
of the Company as Buyer may request; and (c) all other documents, certificates,
instruments or writings required to be delivered by the Stockholders or the
Company at or prior to the Closing pursuant to this Agreement or otherwise
required in connection herewith. Against delivery of the Shares, Buyer shall
deliver to the Stockholders at the Closing in immediately available funds the
Closing Payment and all other documents, certificates, instruments or writings
required to be delivered by Buyer at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith. Upon condition that the
Closing shall have occurred, Buyer shall deliver to the Stockholders the First
Payment, Second Payment, Final Payment and all Interest Payments upon the dates
provided in Section1.2 in immediately available funds according to such
instructions as the Stockholders shall deliver to Buyer in writing no later than
five (5) days prior to the date of the payment.
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS AND THE COMPANY
To induce Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, each of the Stockholders and the Company,
jointly and severally, represent and warrant to Buyer as follows (for purposes
of this Agreement, the phrases "knowledge of the Company" or the "Company's
knowledge," or words of similar import, mean the knowledge of the Stockholders
and the other directors and officers of the Company, including facts of which
the directors and officers, in the reasonably prudent exercise of their duties,
should be aware):
3.1 DUE ORGANIZATION. The Company is a corporation duly organized, validly
existing and is in good standing under the laws of the jurisdiction of its
incorporation and is duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
own, operate and lease its properties and to carry on its business in the places
and in the manner as now conducted. Schedule 3.l(a) hereto contains a list of
all jurisdictions in which the Company is authorized or qualified to do
business. The Company is in good standing as a foreign corporation in each
jurisdiction in which it does business. The Company has delivered to Buyer true,
complete and correct copies of the Articles of Incorporation and Bylaws of the
Company. Such Articles of Incorporation and Bylaws are collectively referred to
as the "Charter Documents." The Company is not in violation of any Charter
Documents. The minute books of the Company have been made available to Buyer
(and have been delivered, along with the Company's original stock ledger and
corporate seal, to Buyer) and are correct and complete in all material respects.
Schedule 3.1(b) contains a complete and accurate list of the directors and
officers of the Company.
3.2 AUTHORIZATION; VALIDITY. The Company has all requisite corporate power
and authority to enter into and perform its obligations pursuant to the terms of
this Agreement. The Company has the full legal right, corporate power and
authority to enter into this Agreement and the
-5-
<PAGE>
transactions contemplated hereby. The Stockholders have the full legal right and
authority to enter into this Agreement and the transactions contemplated hereby.
The execution and delivery of this Agreement by the Company and the performance
by the Company of the transactions contemplated herein have been duly and
validly authorized by the Board of Directors of the Company and this Agreement
has been duly and validly authorized by all necessary corporate action on behalf
of the Company. This Agreement is a legal, valid and binding obligation of each
of the Stockholders and the Company, enforceable against each of them in
accordance with its terms.
3.3 NO CONFLICTS. The execution, delivery and performance of this
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of, any of the
Charter Documents;
(b) conflict with, or result in a default (or would constitute a
default but for any requirement of notice or lapse of time or both) under, any
document, agreement or other instrument to which the Company or the Stockholders
is a party or by which the Company or the Stockholders is bound, or result in
the creation or imposition of any lien, charge or encumbrance on any of the
Company's properties pursuant to (i) any law or regulation to which the Company
or the Stockholders or any of their respective property is subject, or (ii) any
judgment, order or decree to which the Company or the Stockholders is bound or
any of their respective property is subject;
(c) result in termination or any impairment of any permit, license,
franchise, contractual right or other authorization of the Company; or
(d) violate any law, order, judgment, rule, regulation, decree or
ordinance to which the Company or the Stockholders is subject or by which the
Company or the Stockholders is bound.
3.4 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company consists of One Thousand (1,000) shares of common stock, $1.00 par
value, of which 400 shares are issued and outstanding, and no shares of
preferred stock. All of the Shares have been duly authorized and validly issued,
are fully paid and nonassessable and are owned of record and beneficially by the
Stockholders free and clear of all Liens. All of the Shares were offered,
issued, sold and delivered by the Company in compliance with all applicable
state and federal laws concerning the issuance of securities. Further, none of
the Shares was issued in violation of any preemptive rights. There are no voting
agreements or voting trusts with respect to any of the Shares. The number of
Shares owned by each of the Stockholders and the percentage interest in the
Company represented by such Shares is stated on Schedule 3.4 hereto
3.5 TRANSACTIONS IN CAPITAL STOCK. No option, warrant, call, subscription
right, conversion right or other contract or commitment of any kind exists of
any character, written or oral,
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which may obligate the Company to issue, sell or otherwise become outstanding
any shares of capital stock. The Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. As a result of the transactions contemplated by this Agreement,
Buyer will be the record and beneficial owner of all outstanding capital stock
of the Company and rights to acquire capital stock of the Company.
3.6 ABSENCE OF CLAIMS AGAINST COMPANY. None of the Stockholders has any
claims of any kind against the Company.
3.7 SUBSIDIARIES AND STOCK. The Company has no subsidiaries. The Company
does not presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership or other noncorporate entity, except that the Company owns forty-one
(41) shares of The Equitable Companies Incorporated which shares shall remain
the property of the Company after Closing.
3.8 COMPLETE COPIES OF MATERIALS. The Company has delivered to Buyer true
and complete copies of each agreement, contract, commitment or other document
(or summaries thereof) that is referred to in the Schedules and has delivered
true and complete copies of its federal S Corporation election to Buyer, which
election is recognized by the Commonwealth of Virginia without additional state
level filings.
3.9 COMPANY FINANCIAL CONDITIONS. The Company's earnings before taxes for
the five-month period ended May 31, 1998 were in excess of $225,000.
3.10 FINANCIAL STATEMENTS. Schedule 3.10 includes (a) true, complete and
correct copies of the Company's audited balance sheets as of December 31, 1996
and 1997 (the end of its most recent completed fiscal year), and statements of
operations and statements of Stockholders' equity for the years ended December
31, 1996 and 1997 (collectively, the "Audited Financials") and (b) true,
complete and correct copies of the Company's unaudited balance sheet (the
"Interim Balance Sheet") as of May 31, 1998 (the "Balance Sheet Date") and
statement of operations and statement of Stockholders' equity, for the
five-month period then ended (collectively, the "Interim Financials," and
together with the Audited Financials, the "Company Financial Statements"). The
Company Financial Statements have been prepared in accordance with GAAP
consistently applied. Each unaudited balance sheet included in the Company
Financial Statements presents fairly the financial condition of the Company and
its subsidiaries as of the date indicated thereon, and each of the statements of
operations and statements of Stockholders' equity included in the Company
Financial Statements presents fairly the results of its operations for the
periods indicated thereon. Since the dates of the Company Financial Statements,
there have been no material changes in the Company's accounting policies.
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3.11 LIABILITIES AND OBLIGATIONS.
(e) To the Company's knowledge, the Company is not liable for nor
subject to any liabilities except for:
(i) those liabilities reflected on the Interim Balance Sheet and
not previously paid or discharged;
(ii) those liabilities arising in the ordinary course of its
business consistent with past practice under any contract, commitment or
agreement specifically disclosed on any Schedule to this Agreement or not
required to be disclosed thereon because of the term or amount involved or
otherwise; and
(iii) those liabilities incurred since the Balance Sheet Date
in the ordinary course of business consistent with past practice, which
liabilities are not, individually or in the aggregate, material.
(f) For purposes of this Section 3.11, the term "liabilities" shall
include without limitation any direct or indirect liability, indebtedness,
guaranty, endorsement, claim, loss, damage, deficiency, cost, expense,
obligation or responsibility, either accrued, absolute, contingent, mature,
unmature or otherwise and whether known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured.
3.12 BOOKS AND RECORDS. The Company has made and kept books and records and
accounts, which, in reasonable detail, accurately and fairly reflect its
activities. The Company has not engaged in any transaction, maintained any bank
account, or used any corporate funds except for transactions, bank accounts, and
funds which have been and are reflected in its normally maintained books and
records.
3.13 BANK ACCOUNTS; POWERS OF ATTORNEY. Schedule 3.13 sets forth a complete and
accurate list as of the date of this Agreement, of:
(a) the name of each financial institution in which the Company has
any account or safe deposit box;
(b) the names in which the accounts or boxes are held;
(c) the type of account;
(d) the name of each person authorized to draw thereon or have access
thereto; and
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(e) the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms of such power.
3.14 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to Buyer a
complete and accurate list, as of a date not more than two (2) business days
prior to the date hereof, of the accounts and notes receivable of the Company
(including without limitation receivables from and advances to employees and the
Stockholders), which includes an aging of all accounts and notes receivable
showing amounts due in 30-day aging categories (collectively, the "Accounts
Receivable"). All Accounts Receivable represent valid obligations arising from
sales actually made or services actually performed in the ordinary course of
business. The Accounts Receivable are current and collectible net of any
respective reserves shown on the Company's books and records (which reserves are
adequate and calculated consistent with past practice). Subject to such
reserves, each of the Accounts Receivable will be collected in full, without any
set-off, within one hundred twenty (120) days after the day on which it first
became due and payable. There is no contest, claim, or right of set-off under
any contract with any obligor of an Account Receivable relating to the amount or
validity of such Account Receivable.
3.15 PERMITS. The Company owns or holds all licenses, franchises, permits
and other governmental authorizations, including without limitation permits,
titles, licenses and franchises necessary for the continued operation of its
business as it is currently being conducted (the "Permits"). The Permits are
valid, and the Company has not received any notice that any governmental
authority intends to modify, cancel, terminate or fail to renew any Permit. No
present or former stockholder, officer, manager, member or employee of the
Company or any affiliate thereof, or any other person, firm, corporation or
other entity, owns or has any proprietary, financial or other interest (direct
or indirect) in any Permits. The Company has not conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the Permits and other applicable orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing. The
transactions contemplated by this Agreement will not result in a default under,
or a breach or violation of, or adversely affect the rights and benefits
afforded to the Company, by any Permit.
3.16 REAL PROPERTY.
(a) For purposes of this Agreement, "Real Property" means all
interests in real property including, without limitation, fee estates,
leaseholds and subleaseholds, purchase options, easements, licenses, rights to
access, and rights of way, and all buildings and other improvements thereon,
owned or used by the Company, together with any additions thereto or
replacements thereof. "Owned Real Property" means all Real Property owned by the
Stockholders or any other person, persons or business entities owned or
controlled by the Stockholders that is used in the conduct of the business and
operations of the Company. The Company does not own any Real Property.
(b) Schedule 3.16(b) contains a complete and accurate description of
all Real Property and Owned Real Property (including street address, owner,
landlord and Company's use
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thereof). Schedule 3.16(b) indicates whether the Real Property is owned or
leased. The Real Property listed on Schedule 3.16(b) includes all interests in
real property necessary to conduct the business and operations of the Company.
(c) Except as set forth in Schedule 3.16(c):
(i) To the Company's knowledge, the Company has good and valid
rights of ingress and egress to and from all Real Property from and to the
public street systems for all usual street, road and utility purposes.
(ii) To the Company's knowledge, all structures and all
structural, mechanical and other physical systems thereof that constitute part
of the Real Property, including but not limited to the walls, roofs and
structural elements thereof and the heating, ventilation, air conditioning,
plumbing, electrical, mechanical, sewer, waste water, storm water, paving and
parking equipment, systems and facility included therein, and other material
items at the Real Property (collectively, the "Tangible Assets"), are free of
defects and in good operating condition and repair. For purposes of this
Section, a defect shall mean a condition relating to the structures or any
structural, mechanical or physical system which requires an expenditure of more
than $1,000 to correct.
(iii) To the Company's knowledge, all water, sewer, gas,
electric, telephone and drainage facilities, and all other utilities required by
any applicable law or by the use and operation of the Real Property in the
conduct of the Company's business are installed to the property lines of the
Real Property, are connected pursuant to valid permits to municipal or public
utility services or proper drainage facilities, are fully operable and are
adequate to service the Real Property in the operation of the Company's business
and to permit full compliance with the requirements of all laws in the operation
of such business.
(iv) The Real Property and all present uses and operations of
the Real Property by the Company comply with all applicable statutes, rules,
regulations, ordinances, orders, writs, injunctions, judgments, decrees, awards
or restrictions of any government entity having jurisdiction over any portion of
the Real Property (including, without limitation, applicable statutes, rules,
regulations, orders and restrictions relating to zoning, land use, safety,
health, employment and employment practices and access by the handicapped)
(collectively, "Laws"), covenants, conditions, restrictions, easements,
disposition agreements and similar matters affecting the Real Property. The
Company has obtained all approvals of governmental authorities (including
certificates of use and occupancy, licenses and permits) required in connection
with the use, occupation and operation of the Real Property.
(v) To the Company's knowledge, there are no pending or
threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any
portion of the Real Property or any other matters which do or may adversely
effect the current use, occupancy or value thereof, nor has the Company received
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notice of any pending or threatened special assessment proceedings affecting any
portion of the Real Property.
(vi) There are no parties other than the Company in possession
of any of the Real Property or any portion thereof, and there are no leases,
subleases, licenses, concessions or other agreements, written or oral, granting
to any party or parties the right of use or occupancy of any portion of the Real
Property or any portion thereof.
(vii) All real property taxes and assessments that are due and
payable by the Company with respect to the Real Property have been paid or will
be paid at or prior to Closing.
(viii) All oral or written leases, subleases, licenses,
concession agreements or other use or occupancy agreements pursuant to which the
Company leases from any other party any real property, including all amendments,
renewals, extensions, modifications or supplements to any of the foregoing or
substitutions for any of the foregoing (collectively, the "Leases") are valid
and in full force and effect. The Company has provided Buyer with true and
complete copies of all of the Leases, all amendments, renewals, extensions,
modifications or supplements thereto, and all material correspondence related
thereto, including all correspondence pursuant to which any party to any of the
Leases declared a default thereunder or provided notice of the exercise of any
operation granted to such party under such Lease. The Leases and the Company's
interests thereunder are free of all Liens.
(ix) None of the Leases requires the consent or approval of any
party thereto in connection with the consummation of the transactions
contemplated hereby.
3.17 PERSONAL PROPERTY.
(a) Schedule 3.17(a) sets forth a complete and accurate list
of all personal property included on the Interim Balance Sheet and all other
personal property owned or leased by the Company with a current book value in
excess of $5,000 both (i) as of the Balance Sheet Date and (ii) acquired since
the Balance Sheet Date, including in each case true, complete and correct copies
of leases for material equipment and an indication as to which assets are
currently owned, or were formerly owned, by the Stockholders or the Company.
(b) The Company currently owns or leases all personal
property necessary to conduct the business and operations of the Company as they
are currently being conducted.
(c) All of the material, machinery and equipment of the
Company, including those listed on Schedule 3.17(a), are in good working order
and condition, ordinary wear and tear excepted. All leases set forth on Schedule
3.17(a) are in full force and effect and constitute valid and binding agreements
of the Company, and the Company is not in breach of any of their terms. All
fixed assets used by the Company that are material to the operation of its
business are either owned by the Company or leased under an agreement listed on
Schedule 3.17(a).
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3.18 INTELLECTUAL PROPERTY.
(a) The Company is the true and lawful owner of, or is licensed
or otherwise possesses legally enforceable rights to use, the registered and
unregistered Marks listed on Schedule 3.18(a). Such schedule lists (i) all of
the Marks registered in the United States Patent and Trademark Office ("PTO") or
the equivalent thereof in any state of the United States or in any foreign
country, and (ii) all of the unregistered Marks that the Company now owns or
uses in connection with its business. For purposes of this Section 3.18, the
term "Mark" shall mean all right, title and interest in and to any United States
or foreign trademarks, service marks and trade names now held by the Company,
including any registration or application for registration of any trademarks and
services marks in the PTO or the equivalent thereof in any state of the United
States or in any foreign country, as well as any unregistered marks used by the
Company, and any trade dress (including logos, designs, company names, business
names, fictitious names and other business identifiers) used by the Company in
the United States or any foreign country.
(b) The Company is the true and lawful owner of, or is
licensed or otherwise possesses legally enforceable rights to use, all rights in
the Patents listed on Schedule 3.18(b)(i) and in the Copyright registrations
listed on Schedule 3.18(b)(ii). Such Patents and Copyrights constitute all of
the Patents and Copyrights that the Company now owns or is licensed to use. The
Company owns or is licensed to practice under all patents and copyright
registrations that the Company now owns or uses in connection with its business.
For purposes of this Section 3.18, the term "Patent" shall mean any United
States or foreign patent to which the Company has title as of the date of this
Agreement, as well as any application for a United States or foreign patent made
by the Company; the term "Copyright" shall mean any United States or foreign
copyright owned by the Company or the Subsidiary as of the date of this
Agreement, including any registration of copyrights, in the United States
Copyright Office or the equivalent thereof in any foreign county, as well as any
application for a United States or foreign copyright registration made by the
Company.
(c) The Company owns or is licensed to practice under all
trade secrets, franchises or similar rights (collectively, "Other Rights") that
it owns, uses or practices under as listed on Schedule 3.18(c).
(d) The Marks, Patents, Copyrights, and Other Rights listed
on Schedules 3.18(a), 3.18(b)(i), 3.18(b)(ii), and 3.18(c) are referred to
collectively herein as the "Intellectual Property." The Intellectual Property
owned by the Company is referred to herein collectively as the "Company
Intellectual Property." All other Intellectual Property is referred to herein
collectively as the "Third Party Intellectual Property." Except as indicated on
Schedule 3.18(d), the Company has no obligations to compensate any person for
the use of any Intellectual Property nor has the Company granted to any person
any license, option or other rights to use in any manner any Intellectual
Property, whether requiring the payment of royalties or not.
(e) The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any Third Party
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Intellectual Property license, sublicense or agreement described in Schedule
3.18(a), (b), or (c). No claims with respect to the Company Intellectual
Property or Third Party Intellectual Property are currently pending or, to the
knowledge of the Company, are threatened by any person, nor, to the Company's
knowledge, do any grounds for any claims exist: (i) to the effect that the
manufacture, sale, licensing or use of any product as now used, sold or licensed
or proposed for use, sale or license by the Company infringes on any copyright,
patent, trademark, service mark or trade secret; (ii) against the use by the
Company of any trademarks, trade names, trade secrets, copyrights, patents,
technology, know-how or computer software programs and applications used in the
Company's business as currently conducted by the Company; (iii) challenging the
ownership, validity or effectiveness of any of the Company Intellectual Property
or other trade secret material to the Company; or (iv) challenging the Company's
license or legally enforceable right to use of the Third Party Intellectual
Property. To the Company's knowledge, there is no unauthorized use, infringement
or misappropriation of any of the Company Intellectual Property by any third
party. The Company has (x) not been sued or charged in writing as a defendant in
any claim, suit, action or proceeding which involves a claim or infringement of
trade secrets, any patents, trademarks, service marks, or copyrights and which
has not been finally terminated or been informed or notified by any third party
that the Company may be engaged in such infringement or (y) no knowledge of any
infringement liability with respect to, or infringement by, the Company of any
trade secret, patent, trademark, service mark, or copyright of another.
3.19 MATERIAL CONTRACTS AND COMMITMENTS.
(a) Schedule 3.19(a) sets forth a complete and accurate list
of all Significant Customers and Significant Suppliers. For purposes of this
Agreement, "Significant Customers" are the customers that have effected the most
purchases, in dollar terms, from the Company during each of the past four (4)
fiscal quarters, and "Significant Suppliers" are the suppliers who supplied the
largest amount by dollar volume of products or services to the Company during
the twelve (12) months ending on the Balance Sheet Date.
(b) Schedule 3.19(b) contains a complete and accurate list
of all contracts, commitments, leases, instruments, agreements, licenses or
permits, written or oral, to which the Company is a party or by which it or its
properties are bound (including without limitation contracts with customers,
joint venture or partnership agreements, contracts with any labor organizations,
employment agreements, consulting agreements, loan agreements, indemnity or
guaranty agreements, bonds, mortgages, options to purchase land, liens, pledges
or other security agreements) (i) to which the Company and the Stockholders or
any affiliate of the Company, the Stockholders or any officer or director of the
Company are parties ("Related Party Agreements"); (ii) that may give rise to
obligations or liabilities exceeding, during the current term thereof, $10,000,
or (iii) that may generate revenues or income exceeding, during the current term
thereof, $10,000 (collectively with the Related Party Agreements, the "Material
Contracts"). The Company has delivered to Buyer true, complete and correct
copies of the Material Contracts.
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(c) Except to the extent set forth on Schedule 3.19(c), (i)
none of the Company's Significant Customers has canceled or substantially
reduced or, to the knowledge of the Company, is currently attempting or
threatening to cancel or substantially reduce, any purchases from the Company,
(ii) none of the Company's Significant Suppliers has canceled or substantially
reduced or, to the knowledge of the Company, is currently attempting to cancel
or substantially reduce, the supply of products or services to the Company,
(iii) the Company has complied with all of its commitments and obligations and
is not in default under any of the Material Contracts, and no notice of default
has been received with respect to any thereof, and (iv) there are no Material
Contracts that were not negotiated at arm's length. The Company has not received
any material customer complaints concerning its products and/or services.
(d) Each Material Contract is valid and binding on the
Company and is in full force and effect and is not subject to any default
thereunder by any party obligated to the Company pursuant thereto. The Company
has obtained all necessary consents, waivers and approvals of parties to any
Material Contracts that are required in connection with any of the transactions
contemplated hereby, or are required by any governmental agency or other third
party or are advisable in order that any such Material Contract remain in effect
without modification after the Closing and without giving rise to any right to
termination, cancellation or acceleration or loss of any right or benefit
("Third Party Consents"). All Third Party Consents are listed on Schedule
3.19(d).
3.20 GOVERNMENT CONTRACTS.
(a) Except as set forth on Schedule 3.20, the Company is not
a party to any government contracts.
(b) The Company has not been suspended or debarred from bidding
on contracts or subcontracts for any agency or instrumentality of the United
States Government or any state or local government, nor, to the knowledge of the
Company, has any suspension or debarment action been threatened or commenced.
3.21 INVENTORY. The inventory of the Company consists of raw
materials and supplies, manufactured and purchased parts, goods in process and
finished goods, all of which is merchantable and fit for the purposes for which
it was procured or manufactured, and none of which is slow-moving, obsolete,
damaged, or defective, subject to a GAAP reserve for inventory set forth on the
face of the Interim Balance Sheet (rather than in any notes thereto) as adjusted
for the passage of time through the Closing Date in accordance with the past
custom and practice of the Company.
3.22 INSURANCE. Schedule 3.22 sets forth a complete and accurate
list, as of the Balance Sheet Date, of all insurance policies carried by the
Company and all insurance loss runs or workmen's compensation claims received
for the past two (2) policy years. The Company has made available to Buyer true,
complete and correct copies of all current insurance policies, all of which are
in full force and effect. All premiums payable under all such policies have been
paid and the Company is otherwise in full compliance with the terms of such
policies. Such policies of insurance
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are of the type and in amounts customarily carried by persons conducting
businesses similar to that of the Company. To the knowledge of the Company,
there have been no threatened terminations of, or material premium increases
with respect to, any of such policies.
3.23 ENVIRONMENTAL MATTERS.
(a) Hazardous Material. Other than as set forth on Schedule
3.23(a), the Company has no knowledge of any underground storage tanks nor of
any amount of any substance that has been designated by any governmental entity
or by applicable federal, state, local or other applicable law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, but excluding office and janitorial supplies
properly and safely maintained (a "Hazardous Material"), being present in, on or
under any property, including the land and the improvements, ground water and
surface water thereof, that the Company has at any time owned, operated,
occupied or leased. Schedule 3.23(a) identifies all known, underground and
aboveground storage tanks (if any), and the capacity, age, and contents of such
tanks, located on Real Property leased by the Company.
(b) Hazardous Materials Activities. The Company has not
transported, stored, used, manufactured, disposed of or released, or exposed its
employees or others to, Hazardous Materials in violation of any law in effect on
or before the Closing Date, nor has the Company disposed of, transported, sold,
or manufactured any product containing a Hazardous Material (collectively,
"Company Hazardous Materials Activities") in violation of any rule, regulation,
treaty or statute promulgated by any governmental entity in effect prior to or
as of the date hereof to prohibit, regulate or control Hazardous Materials or
any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental
approvals, permits, licenses, clearances and consents (the "Environmental
Permits") necessary for the conduct of the Company's Hazardous Material
Activities and other business of the Company as such activities and business are
currently being conducted. All Environmental Permits are in full force and
effect. The Company (A) is in compliance in all material respects with all terms
and conditions of the Environmental Permits and (B) is in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in the laws of all governmental entities relating to pollution or
protection of the environment or contained in any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder. To the Company's knowledge, there are no circumstances that
may prevent or interfere with such compliance in the future. Schedule 3.23(d)
includes a listing and description of all Environmental Permits currently held
by the Company.
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(d) Environmental Liabilities. No action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the knowledge of the Company, threatened concerning any
Environmental Permit, Hazardous Material or any Company Hazardous Materials
Activity. There are no past or present actions, activities, circumstances,
conditions, events, or incidents that involve, or are reasonably likely to
involve, the Company (or any person or entity whose liability the Company has
retained or assumed, either by contract or operation of law) in any
environmental litigation, or impose upon the Company (or any person or entity
whose liability the Company has retained or assumed, either by contract or
operation of law) any environmental liability including, without limitation,
common law tort liability.
3.24 LABOR AND EMPLOYMENT MATTERS. With respect to employees of and
service providers to the Company.
(a) The Company is and has been in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including without limitation any
such laws respecting employment discrimination, workers' compensation, family
and medical leave, the Immigration Reform and Control Act, and occupational
safety and health requirements, and has not and is not engaged in any unfair
labor practice;
(b) there is not now, nor has there ever been a collective
bargaining agreement relating to the Company nor has any union attempted to
organize the Company's employees; there is not now, nor within the past three
(3) years has there been, any unfair labor practice complaint against the
Company pending or, to the Company's knowledge, threatened, before the National
Labor Relations Board or any other comparable authority;
(c) all employees of the Company are at-will; all persons
classified by the Company as independent contractors do satisfy and have
satisfied the requirements of law to be so classified, and the Company has fully
and accurately reported their compensation on IRS Forms 1099 when required to do
so.
3.25 EMPLOYEE BENEFIT PLANS.
(a) Definitions.
(i) "Benefit Arrangement" means any benefit arrangement,
obligation, custom, or practice, whether or not legally enforceable, to provide
benefits, other than simply as salary, as compensation for services rendered, to
present or former directors, employees, agents, or independent contractors,
other than any obligation, arrangement, custom or practice that is an Employee
Benefit Plan, including, without limitation, employment agreements, severance
agreements, executive compensation arrangements, incentive programs or
arrangements, sick leave, vacation pay, severance pay policies, plant closing
benefits, salary continuation for disability, consulting, or other compensation
arrangements, workers' compensation, retirement, deferred
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compensation, bonus, stock option or purchase, hospitalization, medical
insurance, life insurance, tuition reimbursement or scholarship programs, any
plans subject to Section 125 of the Code, and any plans providing benefits or
payments in the event of a change of control, change in ownership, or sale of a
substantial portion (including all or substantially all) of the assets of any
business or portion thereof, in each case with respect to any present or former
employees, directors, or agents.
(ii) "Company Benefit Arrangement" means any Benefit
Arrangement sponsored or maintained by the Company or with respect to which the
Company has or may have any liability (whether actual, contingent, with respect
to any of its assets or otherwise), in each case with respect to any present or
former directors, employees, or agents of the Company.
(iii) "Company Plan" means any Employee Benefit Plan for
which the Company is the "plan sponsor" (as defined in Section 3(16)(B) of
ERISA) or any Employee Benefit Plan maintained by the Company or to which the
Company is or might be obligated to make payments, in each case with respect to
any present or former employees of the Company. Company Plan includes any
Qualified Plans that covered employees of the Company and that were terminated
on or after January 1, 1989.
(iv) "Employee Benefit Plan" has the meaning given in
Section 3(3) of ERISA.
(v) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended, and all regulations and rules issued thereunder, or any
successor law.
(vi) "ERISA Affiliate" means any person that, together
with the Company, would be or was at any time treated as a single employer under
Section 414 of the Code or Section 4001 of ERISA and any general partnership of
which the Company is or has been a general partner.
(vii) "Multiemployer Plan" means any Employee Benefit Plan
described in Section 3(37) of ERISA.
(viii) "Qualified Plan" means any Employee Benefit Plan that
meets, purports to meet, or is intended to meet the requirements of Section
401(a) of the Code.
(ix) "Welfare Plan" means any Employee Benefit Plan
described in Section 3(1) of ERISA.
(b) Schedule 3.25(b) contains a complete and accurate list of all
Company Plans and Company Benefit Arrangements. Schedule 3.25(b) specifically
identifies all Company Plans (if any) that are Qualified Plans.
(c) With respect, as applicable, to Employee Benefit Plans and
Benefit Arrangements, copies of which are attached hereto as Schedule 3.25(c):
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(i) true, correct, and complete copies of all the
following documents with respect to each Company Plan and Company Benefit
Arrangement, to the extent applicable, have been delivered to Buyer: (A) all
documents constituting the Company Plans and Company Benefit Arrangements,
including but not limited to, trust agreements, insurance policies, service
agreements, and formal and informal amendments thereto; (B) the most recent
Forms 5500 or 5500C/R and any financial statements attached thereto and those
for the prior two (2) years; (C) the last Internal Revenue Service determination
letter, the last IRS determination letter that covered the qualification of the
entire plan (if different), and the materials submitted by the Company to obtain
those letters; (D) the most recent summary plan description; all summaries of
material modifications thereto, and the most recent actuarial reports and
Statement of Financial Accounting Standards Nos. 87, 106, and 112 reports; (E)
the most recent written descriptions of all non-written agreements relating to
any such plan or arrangement; (F) all reports and test results received within
the four (4) years preceding the date of this Agreement by third-party
administrators, actuaries, investment managers, consultants, or other
independent contractors (other than individual account records) or prepared by
employees of the Company or its ERISA Affiliates; (G) all notices that were
given within the three (3) years preceding the date of this Agreement by the
IRS, Department of Labor, or any other governmental agency or entity with
respect to any plan or arrangement; and (H) employee manuals or handbooks
containing personnel or employee relations policies;
(ii) the Klick, Kent & Allen, Inc. 401(k) Plan (the
"Company 401(k) Plan") is the only Qualified Plan. The Company has not
maintained or contributed to another Qualified Plan. The Company 401(k) Plan
qualifies under Section 401(a) of the Code, and any trusts maintained pursuant
thereto are exempt from federal income taxation under Section 501 of the Code,
and nothing has occurred with respect to the design or operation of any
Qualified Plans that could cause the loss of such qualification or exemption or
the imposition of any liability, lien, penalty, or tax under ERISA or the Code;
(iii) the Company has not sponsored or maintained, had any
obligation to sponsor or maintain, or had any liability (whether actual or
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan subject to Section 302 of ERISA or Section 412 of the Code
or Title IV of ERISA (including any Multiemployer Plan), and neither the Company
nor any ERISA Affiliate has, since January 1, 1989, terminated or withdrawn from
or sought a funding waiver with respect to any plan subject to Title IV of
ERISA, and no facts exist that could reasonably be expected to cause such
actions in the future; no accumulated funding deficiency (as defined in Code
Section 412), whether or not waived, exists with respect to any such plan; no
reportable event (as defined in ERISA Section 4043) has occurred with respect to
any such plan (other than events for which reporting is waived); all costs of
any such plans have been provided for on the basis of consistent methods in
accordance with sound actuarial assumptions and practices, and the assets of
each such plan, as of its last valuation date, exceeded its "Benefit
Liabilities" (as defined in ERISA Section 4001(a)(16)); and, since the last
valuation date for each such plan, no such plan has been amended or changed to
increase the amounts of benefits thereunder and, to the Company's knowledge,
there has been no event that would reduce the excess of assets over benefit
liabilities;
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(iv) each Company Plan and each Company Benefit
Arrangement has been maintained in accordance with its constituent documents and
with all applicable provisions of the Code, ERISA and other laws, including
federal and state securities laws;
(v) there are no pending claims or lawsuits by, against,
or relating to any Employee Benefit Plans or Benefit Arrangements that are not
Company Plans or Company Benefit Arrangements that would, if successful, result
in liability of the Company or the Stockholders, and no claims or lawsuits have
been asserted, instituted or, to the knowledge of the Company, threatened by,
against, or relating to any Company Plan or Company Benefit Arrangement, against
the assets of any trust or other funding arrangement under any such Company
Plan, by or against the Company with respect to any Company Plan or Company
Benefit Arrangement, or by or against the plan administrator or any fiduciary of
any Company Plan or Company Benefit Arrangement, and the Company does not have
knowledge of any fact that could form the basis for any such claim or lawsuit.
The Company Plans and Company Benefit Arrangements are not presently under audit
or examination (nor has notice been received of a potential audit or
examination) by the IRS, the Department of Labor, or any other governmental
agency or entity, and no matters are pending with respect to the Company 401(k)
Plan under the IRS's Employee Plans Compliance Resolution System or any
predecessor programs;
(vi) no Company Plan or Company Benefit Arrangement
contains any provision or is subject to any law that would prohibit the
transactions contemplated by this Agreement or that would give rise to any
vesting of benefits, severance, termination, or other payments or liabilities as
a result of the transactions contemplated by this Agreement;
(vii) with respect to each Company Plan, there has
occurred no non-exempt "prohibited transaction" (within the meaning of Section
4975 of the Code) or transaction prohibited by Section 406 of ERISA or breach of
any fiduciary duty described in Section 404 of ERISA that would, if successfully
challenged, result in any liability for the Company or any Stockholder, officer,
director, or employee of the Company;
(viii) all reporting, disclosure, and notice requirements of
ERISA and the Code have been fully and completely satisfied with respect to each
Company Plan and each Company Benefit Arrangement;
(ix) all amendments and actions required to bring the
Company Benefit Plans into conformity with the applicable provisions of ERISA,
the Code, and other applicable laws have been made or taken except to the extent
such amendments or actions (A) are not required by law to be made or taken until
after the Effective Date and (B) are disclosed on Schedule 3.25(c);
(x) payment has been made of all amounts that the Company
is required to pay as contributions to the Company Benefit Plans as of the last
day of the most recent fiscal year of each of the plans ended before the date of
this Agreement; all benefits accrued under any unfunded Company Plan or Company
Benefit Arrangement will have been paid, accrued, or
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otherwise adequately reserved in accordance with GAAP as of the Balance Sheet
Date; and all monies withheld from employee paychecks with respect to Company
Plans have been transferred to the appropriate plan within the period required
by applicable regulations;
(xi) the Company has not prepaid or prefunded any Welfare
Plan through a trust, reserve, premium stabilization, or similar account, nor
does it provide benefits through a voluntary employee beneficiary association as
defined in Section 501(c)(9) of the Code;
(xii) no statement, either written or oral, has been made
by the Company to any person with regard to any Company Plan or Company Benefit
Arrangement that was not in accordance with the Company Plan or Company Benefit
Arrangement and that could have an adverse economic consequence to the Company;
(xiii) the Company has no liability (whether actual,
contingent, with respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan or Benefit Arrangement that is not a Company Plan or
Company Benefit Arrangement or with respect to any Employee Benefit Plan
sponsored or maintained (or that has been or should have been sponsored or
maintained) by any ERISA Affiliate;
(xiv) all group health plans of the Company and its
affiliates have been operated in material compliance with the requirements of
Sections 4980B (and its predecessor) and 5000 of the Code, and the Company has
provided, or will have provided before the Closing Date, to individuals entitled
thereto all required notices and coverage pursuant to Section 4980B with respect
to any "qualifying event" (as defined therein) occurring before or on the
Closing Date;
(xv) no employee or former employee of the Company or
beneficiary of any such employee or former employee is, by reason of such
employee's or former employee's employment, entitled to receive any benefits,
including, without limitation, death or medical benefits (whether or not
insured) beyond retirement or other termination of employment as described in
Statement of Financial Accounting Standards No. 106, other than (i) death or
retirement benefits under a Qualified Plan, or (ii) continuation coverage
mandated under Section 4980B of the Code or other applicable law.
(d) Schedule 3.25(d) hereto contains the most recent quarterly
listing of workers' compensation claims and a schedule of workers' compensation
claims of the Company for the last three (3) fiscal years.
(e) Schedule 3.25(e) hereto sets forth an accurate list, as of
the date hereof, of all employees of the Company who may earn more than $75,000
in 1998, all officers and all directors, and lists all employment agreements
with such employees, officers and directors and the rate of compensation (and
the portions thereof attributable to salary, bonus, and other compensation
respectively) of each such person as of (a) the Balance Sheet Date and (b) the
date hereof.
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(f) The Company has not declared or paid any bonus or other
incentive compensation in contemplation of the transactions contemplated by this
Agreement.
3.26 TAXES.
(a) For purposes of this Agreement:
(i) "Tax"(including with correlative meaning the terms
"Taxes" and "Taxable") means (a) all foreign, federal, state, local and other
income, gross receipts, sales, use, ad valorem, value-added, intangible,
unitary, transfer, franchise, license, payroll, employment, estimated, excise,
environmental, stamp, occupation, premium, property, prohibited transactions,
windfall or excess profits, customs, duties or other taxes, levies, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts with respect thereto, (b)
any liability for payment of amounts described in clause (a) as a result of
transferee liability, of being a member of an affiliated, consolidated, combined
or unitary group for any period, or otherwise through operation of law, and (c)
any liability for payment of amounts described in clause (a) or (b) as a result
of any tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other person for Taxes.
(ii) The term "Tax Return" shall mean any return (including
any information return), report, statement, schedule, notice, form, estimate, or
declaration of estimated tax relating to or required to be filed with any
governmental authority in connection with the determination, assessment,
collection or payment of any Tax.
(b) (i) All Tax Returns required to be filed on or before the
date hereof by or on behalf of the Company have been filed, and such Tax Returns
are true, correct, and complete in all respects.
(ii) The Company has paid in full on a timely basis all
Taxes owed by it, whether or not shown on any Tax Return.
(iii) The amount of the Company's liability for unpaid Taxes
as of the Balance Sheet Date did not exceed the amount of the current liability
accruals for Taxes (excluding reserves for deferred Taxes) shown on the Interim
Balance Sheet, and the amount of the Company's liability for unpaid Taxes for
all periods or portions thereof ending on or before the Closing Date will not
exceed the amount of the current liability accruals for Taxes (excluding
reserves for deferred Taxes) as such accruals are reflected on the books and
records of the Company on the Closing Date.
(iv) There is no action, suit, proceeding, investigation,
audit or claim now proposed or pending against or with respect to the Company in
respect of any Tax.
(v) The Company has a taxable year ending on December 31, in
each year commencing 1987.
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(vi) The Company has not agreed to, and is not and will not
be required to, make any adjustments under Code Section 481(a) as a result of a
change in accounting methods.
(vii) The Company has withheld and paid over to the proper
governmental authorities all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid to any employee, independent contractor, creditor, or other
third party.
(viii) The Company has not requested an extension of time
within which to file any Tax Return or granted any extension or waiver of the
statute of limitations period applicable to any Tax Return, and all Tax Returns
of Company for the preceding three years have been made available to and
delivered to Buyer.
(ix) There are (and as of immediately following the Closing
there will be) no Liens on the assets of the Company relating or attributable to
Taxes, other than liens for Taxes not yet due and payable.
(x) There is no basis for the assertion of any claim
relating or attributable to Taxes which, if adversely determined, would result
in any Lien on the assets of the Company or otherwise have an adverse effect on
the Company or its business.
(xi) None of the Company's assets are treated as "tax exempt
use property" within the meaning of Section 168(h) of the Code.
(xii) There are no contracts, agreements, plans or
arrangements covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount (or
portion thereof) that would not be deductible pursuant to Sections 280G, 404 or
162 of the Code.
(xiii) Neither the Company nor any direct or indirect
shareholder of the Company has filed a consent under Section 341(f) of the Code
or agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as defined in Section 341(f)(4) of the Code) owned by the
Company.
(xiv) The Company is not, and has not been at any time, a
"United States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xv) The Company is not, nor has it ever been, a party to a
tax sharing, tax indemnity or tax allocation agreement, and the Company has not
assumed the tax liability of any other person under contract.
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(xvi) The Company is not, nor has it ever been a member of
an affiliated group filing a consolidated federal income Tax Return. The Company
does not and will not have up to an including the Closing Date any interest in
any other corporation with respect to which the Company owns a majority of the
common stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
(xvii) The Company does not have any liability for the Taxes
of any individual or entity other than the Company under section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local, or foreign law),
as a transferee or successor, by contract, or otherwise.
(xviii) The Company is not a party to any joint venture,
partnership or other arrangement that is treated as a partnership for federal
income tax purposes.
(xix) The Company (and any predecessor of Company) has been
a validly electing S corporation within the meaning of Code ss.ss.1361 and 1362
at all times since January 1, 1988, and the Company will be an S corporation up
to and including the Closing Date except as the Company's S corporation status
is affected by the consummation of the transactions contemplated herein.
(xx) The Company will not be liable for any Tax under Code
ss.1374 in connection with the deemed sale of Company's assets (including the
assets of any qualified subchapter S subsidiary) caused by the Section
338(h)(10) Election. Neither Company nor any qualified subchapter S subsidiary
of Company has, in the past 10 years, (A) acquired assets from another
corporation in a transaction in which Company's Tax basis for the acquired
assets was determined, in whole or in part, by reference to the Tax basis of the
acquired assets (or any other property) in the hands of the transferor or (B)
acquired the stock of any corporation which is a qualified subchapter S
subsidiary.
(c) Schedule 3.26(c) contains accurate and complete descriptions
of (i) the Company's basis in its material assets (which for purposes of this
Section 3.26(c) means assets in having a book basis in excess of Five Hundred
Dollars ($500)); (ii) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, or excess charitable
contribution allocable to the Company; (iii) the amount of any deferred gain or
loss allocable to the Company arising out of any deferred intercompany
transaction; and (iv) tax elections affecting the Company. The Company has no
net operating losses or other tax attributes presently subject to limitation
under Code sections 382, 383, or 384, or the federal consolidated return
regulations.
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3.27 CONFORMITY WITH LAW; LITIGATION.
(a) The Company has not violated any law or regulation or
any order of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it.
(b) Except as set forth on Schedule 3.27(b), there are no
claims, actions, suits or proceedings, pending or, to the knowledge of the
Company, threatened against or affecting the Company at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over it
and no notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received. There are no judgments, orders, injunctions,
decrees, stipulations or awards (whether rendered by a court or administrative
agency or by arbitration) against the Company or against any of its properties
or business.
3.28 RELATIONS WITH GOVERNMENTS.The Company has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
3.29 ABSENCE OF CHANGES. Since December 31, 1997, the Company has
conducted its business in the ordinary course and, except as contemplated herein
or as set forth on Schedule 3.29, there has not been:
(a) any change, by itself or together with other changes, that
has affected adversely, or is likely to affect adversely, the business,
operations, affairs, prospects, properties, assets, profits or condition
(financial or otherwise) of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the properties or business of the Company;
(c) any change in the authorized capital of the Company or in
its outstanding securities or any change in their ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(d) any declaration or payment of any dividend or distribution
in respect of the capital stock, or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation, bonus, sales
commissions or fee arrangements payable or to become payable by the Company to
any of its officers, directors, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice, nor has the Company entered into, amended or
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terminated any Company Benefit Arrangement, Company Plan, employment, severance
or other agreement relating to compensation or fringe benefits;
(f) any work interruptions, labor grievances or claims filed,
or any similar event or condition of any character, materially adversely
affecting the business or future prospects of the Company;
(g)any sale or transfer, or any agreement to sell or transfer,
any material assets property or rights of the Company to any person, including
without limitation the Stockholders or their affiliates;
(h)Any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to the Company, including without limitation any
indebtedness or obligation of the Stockholders and their affiliates;
(i)any plan, agreement or arrangement granting any
preferential rights to purchase or acquire any interest in any of the assets,
property or rights of the Company or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(j)any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of business of the Company;
(k) any waiver of any material rights or claims of the
Company;
(l) any breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the Company is a
party;
(m) any transaction by the Company outside the ordinary course
of business;
(n) any capital commitment by the Company, either individually
or in the aggregate, exceeding $10,000;
(o) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by the Company or
the revaluation by the Company of any of its assets;
(p) any creation or assumption by the Company of any mortgage,
pledge, security interest or lien or other encumbrance on any asset (other than
liens arising under existing lease financing arrangements which are not material
and liens for Taxes not yet due and payable);
(q) any entry into, amendment of, relinquishment, termination
or non- renewal by the Company of any contract, lease transaction, commitment or
other right or obligation requiring aggregate payments by the Company in excess
of $20,000;
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<PAGE>
(r) any loan by the Company to any person or entity, incurring
by the Company, of any indebtedness, guaranteeing by the Company of any
indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others;
(s) the commencement or notice or, to the knowledge of the
Company, threat of commencement, of any lawsuit or proceeding against, or
investigation of, the Company or any of its affairs; or
(t) negotiation or agreement by the Company or any officer or
employee thereof to do any of the things described in the preceding clauses (a)
through (s) (other than negotiations with Buyer and their representatives
regarding the transactions contemplated by this Agreement).
3.30 DISCLOSURE. All written agreements, lists, schedules,
instruments, exhibits, documents, certificates, reports, statements and other
writings furnished to Buyer pursuant hereto or in connection with this Agreement
or the transactions contemplated hereby, are and will be complete and accurate
in all material respects as of the Closing Date; except that agreements, lists
schedules, instruments, exhibits, documents, certificates, reports, statements
and other writings furnished to Buyer pursuant hereto and dated as of a date
other than the Closing Date are and will be complete and accurate in all
material respects as of the date when made. No representation or warranty by the
Stockholders or the Company contained in this Agreement, in the Schedules
attached hereto or in any certificate furnished or to be furnished by the
Stockholders or the Company to Buyer in connection herewith or pursuant hereto
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary in order to make any statement
contained herein or therein not misleading. There is no fact known to the
Stockholders or the Company that has specific application to the Company (other
than general economic or industry conditions) and that materially adversely
affects or, as can be reasonably foreseen, materially threatens, the assets,
business, prospects, financial condition, or results of operations of the
Company that has not been set forth in this Agreement or any Schedule hereto.
4. REPRESENTATIONS OF BUYER
To induce the Stockholders and the Company to enter into this
Agreement and consummate the transactions contemplated hereby, Buyer represents
and warrants to the Stockholders and the Company as follows:
4.1 DUE ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
respective businesses in the places and in the manner as now conducted except
for where the failure to be so authorized or qualified would not have a material
adverse effect on the business, operations, affairs, prospects, properties,
assets, profits, or condition (financial or otherwise) of Buyer.
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4.2 AUTHORIZATION; VALIDITY OF OBLIGATIONS. The representatives of
Buyer executing this Agreement have all requisite corporate power and authority
to enter into and bind Buyer to the terms of this Agreement. Buyer has the full
legal right, power and corporate authority to enter into this Agreement and the
transactions contemplated hereby. The execution and delivery of this Agreement
by Buyer and the performance by Buyer of the transactions contemplated herein
have been duly and validly authorized by the Board of Directors of Buyer, and
this Agreement has been duly and validly authorized by all necessary corporate
action. This Agreement is a legal, valid and binding obligation of Buyer
enforceable in accordance with its terms.
4.3 NO CONFLICTS . he execution, delivery and performance of this
Agreement, the consummation of the transactions herein contemplated hereby and
the fulfillment of the terms hereof will not:
(a) conflict with, or result in a breach or violation of the
Articles of Incorporation or Bylaws of Buyer;
(b) conflict with, or result in a default (or would constitute
a default but for and requirement of notice or lapse of time or both) under any
document, agreement or other instrument to which Buyer is a party, or result in
the creation or imposition of any lien, charge or encumbrance on any of Buyer's
properties pursuant to (i) any law or regulation to which Buyer or any of its
property is subject, or (ii) any judgment, order or decree to which Buyer is
bound or any of its property is subject;
(c) result in termination or any impairment of any material
permit, license, franchise, contractual right or other authorization of Buyer;
or
(d) violate any law, order, judgment, rule, regulation, decree
or ordinance to which Buyer is subject, or by which Buyer is bound.
4.4 SEC DOCUMENTS. Buyer has filed with the U.S. Securities and
Exchange Commission (the "SEC") all required reports and forms and other
documents (the "Buyer SEC Documents"). As of their respective dates, the Buyer
SEC Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Buyer SEC Documents, and none of the
Buyer SEC Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Except to the extent that information contained in any
Buyer SEC Document has been revised or superseded by a later-filed Buyer SEC
Document filed and publicly available prior to the date of this Agreement, none
of the Buyer SEC Documents contains any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
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4.5 FINANCIAL STATEMENTS. The financial statements of Buyer included
in the Buyer SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Buyer and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year- end adjustments).
4.6 LITIGATION. Except as disclosed in the Buyer SEC Documents filed
prior to the date of this Agreement, as of the date of this Agreement there is
no suit, action or proceeding pending or, to the knowledge of Buyer, threatened
against Buyer, individually or in the aggregate, would reasonably be expected to
(i) have a material adverse effect on Buyer, (ii) impair in any material respect
the ability of Buyer to perform its obligations under this Agreement, or (iii)
prevent the consummation of any of the transactions contemplated by this
Agreement, nor is there any judgment, decree, injunction, rule or order of any
governmental authority or arbitrator outstanding against Buyer or any of its
subsidiaries having, or which is reasonably likely to have, any effect referred
to in the foregoing clauses (i) through (iii).
5. COVENANTS
5.1 FIRPTA COMPLIANCE. On the Closing Date, the Stockholders shall
deliver to Buyer a properly executed statement in a form reasonably acceptable
to Buyer for purposes of satisfying Buyer's obligations under Treas. Reg. ss.
1.1445-2(c)(3).
5.2 UNPAID TAXES. The Stockholders jointly and severally covenant
and agree to reimburse Buyer for any amount that the Company's liability for
unpaid Taxes for all periods or portions thereof ending on or before the Closing
Date exceeds the amount of the current liability accruals for Taxes (excluding
reserves for deferred Taxes) as such accruals are reflected on the books and
records of the Company on the Closing Date; without limiting the foregoing and
for the avoidance of doubt, the Stockholders shall have no liability for any
Taxes of the Company that result solely from a change from the cash method of
accounting to the accrual method of accounting.
5.3 CERTAIN TAX MATTERS.
(a) Section 338(h)(10) Election. Company and each of the
Stockholders will join with Buyer in making an election under Code ss.338(h)(10)
of the Code (and any corresponding election under state, local, and foreign tax
law) with respect to the purchase and sale of the stock of Company hereunder (a
"Section 338(h)(10) Election"). Stockholders will include any income, gain,
loss, deduction, or other tax item resulting from the Section 338(h)(10)
Election on their Tax Returns to the extent permitted by applicable law.
Stockholders shall also pay any Tax imposed on Company
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or its subsidiaries attributable to the making of the Section 338(h)(10)
Election, including, but not limited to, (i) any Tax imposed under Code ss.1374,
(ii) any tax imposed under Treas. Reg. ss.1.338(h)(10)-1(e)(1), or (iii) any
state, local or foreign Tax imposed on Company's or its Subsidiaries' gain, and
Stockholders shall indemnify Buyer, Company and its Subsidiaries against any
adverse consequences (including, without limitation, liabilities, expenses,
costs, fees, Taxes, liens, proceedings and settlements) arising out of any
failure to pay any such Taxes. It is the intent of the parties that the federal
income taxes for which the Stockholders are liable pursuant to this Section
5.3(a) shall not exceed by more than $200,000 (as a result of allocation of
purchase price to ordinary income assets of the Company) the federal income tax
liability for which they would have been liable had the Stockholders sold the
Shares of the Company and no Section 338(h)(10) Election had been made (in which
case no amounts would have been allocated to ordinary income assets), and the
Buyer shall reimburse the Stockholders for any excess federal income tax
liability above such $200,000 (grossed-up to take into account any additional
federal income tax liability resulting from such reimbursement).
(b) Allocation of Purchase Price. Buyer, Company and
Stockholders agree that the Purchase Price and the liabilities of Company and
its qualified subchapter S subsidiaries (plus other relevant items) will be
allocated to the assets of Company and its qualified subchapter S subsidiaries
for all purposes (including Tax and financial accounting) as shown on Schedule
5.4(b) attached hereto. Buyer, Company, Company's Subsidiaries, and Stockholders
will file all Tax Returns (including amended returns and claims for refund) and
information reports in a manner consistent with such allocation.
(c) S Corporation Status. Company and Stockholders will not
revoke Company's election to be taxed as an S corporation within the meaning of
Code ss.ss.1361 and 1362. Company and Stockholders will not take or allow any
action, other than in accordance with the transactions contemplated herein, that
would result in the termination of Company's status as a validly electing S
corporation within the meaning of Code ss.ss.1361 and 1362.
(d) Tax Periods Ending on or before the Closing Date. Buyer
shall prepare or cause to be prepared and file or cause to be filed all Tax
Returns for the Company and its Subsidiaries for all periods ending on or prior
to the Closing Date which are filed after the Closing Date. To the extent
permitted by applicable law, Stockholders shall include any income, gain, loss,
deduction or other tax items for such periods on their Tax Returns in a manner
consistent with the Schedule K-1s furnished by Company to the Stockholders for
such periods. Stockholders shall reimburse Buyer for any Taxes of the Company
and its Subsidiaries with respect to such periods within fifteen (15) days after
payment by Buyer or the Company and its Subsidiaries of such Taxes to the extent
such Taxes are not reflected in the current liability accruals for Taxes
(excluding reserves for deferred Taxes) as such accruals are reflected on the
books and records of the Company on the Closing Date.
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(e) Cooperation on Tax Matters.
(i) Buyer, Company and its Subsidiaries and
Stockholders shall cooperate fully, as and to the extent reasonably requested by
the other party, in connection with the filing of Tax Returns pursuant to this
Section and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. Company and its Subsidiaries and
Stockholders agree (A) to retain all books and records with respect to Tax
matters pertinent to Company and its Subsidiaries relating to any taxable period
beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Buyer or Stockholders, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (B) to
give the other party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other party so requests,
Company and its Subsidiaries or Stockholders, as the case may be, shall allow
the other party to take possession of such books and records.
(ii) Buyer and Stockholders further agree, upon
request, to use their best efforts to obtain any certificate or other document
from any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
(f) Certain Taxes. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any
corporate-level gains tax triggered by the sale of Company stock, any state or
municipal transfer tax), shall be paid by Stockholders when due, and
Stockholders will, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration and other Taxes and fees, and, if required by applicable
law, Buyer will, and will cause its affiliates to, join in the execution of any
such Tax Returns and other documentation.
5.4 ACCOUNTS RECEIVABLE. In the event that all Accounts Receivable are
not collected in full (net of reserves specified in Section 3.14) within one
hundred twenty (120) days after the Closing then, at the request of Buyer, the
Stockholders shall pay Buyer an amount equal to the Accounts Receivable (net of
reserves) not so collected and upon receipt of such payment Buyer shall assign
to the Stockholders all rights with respect to the uncollected Accounts
Receivable and shall also thereafter promptly remit to the Stockholders any
excess collections received by it with respect to such assigned Accounts
Receivable. The Stockholders may retain all collections received in respect of
Accounts Receivable assigned by the Company. Following the Closing Date, the
Company shall use commercially reasonable efforts to promptly collect all
Accounts Receivable and Buyer shall cause the Company to continue, in all
material respects, its current collection practices with respect to the Accounts
Receivable.
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6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligation of Buyer to effect the transactions contemplated by
this Agreement is subject to the satisfaction or waiver, at or before the
Closing Date, of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS . All
of the representations and warranties of the Stockholders and the Company
contained in this Agreement shall be true, correct and complete on and as of the
Closing Date; all of the terms, covenants, agreements and conditions of this
Agreement to be complied with, performed or satisfied by the Company and the
Stockholders on or before the Closing Date shall have been duly complied with,
performed or satisfied; and certificates to the foregoing effects dated the
Closing Date and signed on behalf of the Stockholders and the Company shall have
been delivered to Buyer.
6.2 NO LITIGATION . No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's
conduct or operation of the business of the Company (or its own business)
following the Closing shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending.
There shall be no action, suit claim or proceeding of any nature pending or
threatened against Buyer, the Company or their respective properties or any of
their officers or directors, that could materially and adversely affect the
business, assets, liabilities, financial condition, results of operations or
prospects of the Company.
6.3 OPINION OF COUNSEL. Buyer shall have received an opinion from
counsel to the Stockholders and the Company, dated the Closing Date, in a form
reasonably satisfactory to counsel for Buyer.
6.4 CONSENTS AND APPROVALS. All necessary consents of and filings with
any governmental authority or agency or third party, relating to the
consummation by the Company and the Stockholders of the transactions
contemplated hereby shall have been obtained and made, except that the parties
hereto acknowledge that the Company will not be able to obtain a consent from
the Company's landlord prior to the Closing and, therefore, the parties agree
that the Stockholders will use reasonable efforts to obtain a consent from the
Company's landlord as soon as practicable after the Closing. The Board of
Directors of Buyer shall have issued a resolution approving the transactions
contemplated by this Agreement.
6.5 CHARTER DOCUMENTS . The Stockholders shall have delivered to Buyer
(a) copies of the Articles of Incorporation of the Company certified by an
appropriate authority in the state of its incorporation and (b) copies of the
Bylaws of the Company certified by the Secretary of the
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Company, and such documents shall be in form and substance reasonably acceptable
to Buyer and its counsel.
6.6 EMPLOYMENT AGREEMENTS . The Stockholders shall each have executed
an employment agreement with the Company in the form attached hereto as Exhibits
E, F, G, H. Each of the employment agreements referred to in this Section 6.6
shall be an "Employment Agreement" and shall collectively be the "Employment
Agreements."
6.7 DUE DILIGENCE. The Stockholders and the Company shall have made
such deliveries as are called for by this Agreement. Buyer shall be fully
satisfied in its sole discretion with the results of its review of all of the
Schedules, whether delivered before or after the execution hereof but prior to
the Closing Date, and such deliveries, and its review of, and other due
diligence investigations with respect to, the business, operations, affairs,
prospects, properties, assets, existing and potential liabilities, obligations,
profits and condition (financial and otherwise) of the Company and the Buyer's
full satisfaction in its sole discretion that there exist no legal, ethical or
other conflicts between the Company's clients and the Buyer's clients.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the Stockholders and the Company to effect the
transactions contemplated hereby are subject to the satisfaction or waiver, at
or before the Closing Date, of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS . All
of the representations and warranties of Buyer contained in this Agreement shall
be true, correct and complete on and as of the Closing Date, all of the terms,
covenants, agreements and conditions of this Agreement to be complied with,
performed or satisfied by Buyer on or before the Closing Date shall have been
duly complied with, performed or satisfied; and a certificate to the foregoing
effects dated the Closing Date and signed by the President or any Vice President
of Buyer shall have been delivered to the Stockholders.
7.2 NO LITIGATION. No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision challenging
Buyer's proposed acquisition of the Company, or limiting or restricting Buyer's
conduct or operation of the business of the Company (or its own business)
following the Closing shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending.
There shall be no action, suit, claim or proceeding of any nature pending or
threatened, against Buyer or the Company, their respective properties or any of
their officers or directors, that could materially and adversely affect the
business, assets, liabilities, financial condition, results of operations or
prospects of the Buyer and its subsidiaries taken as a whole.
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7.3 CONSENTS AND APPROVALS . All necessary consents of and filings
with any governmental authority or agency or third party relating to the
consummation by Buyer of the transactions contemplated herein shall have been
obtained and made.
7.4 EMPLOYMENTS AGREEMENTS. The Buyer shall have executed and
delivered each of the Employment Agreements.
7.5 PROMISSORY NOTES. The Buyer shall have executed and delivered
each of the Notes.
8. INDEMNIFICATION
8.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS . The Stockholders
jointly and severally covenant and agree to indemnify, defend, protect and hold
harmless Buyer and its respective officers, directors, employees, stockholders,
assigns, successors and affiliates, including without limitation, the Company
(individually, an "FTI Indemnified Party" and collectively, the "FTI Indemnified
Parties") from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive
damages, causes of action, lawsuits, administrative proceedings (including
informal proceedings), investigations, audits, demands, assessments,
adjustments, judgments, settlement payments, deficiencies, penalties, fines,
interest (including interest from the date of such damages) and costs and
expenses (including without limitation reasonable attorneys' fees and
disbursements of every kind, nature and description) (collectively, "Damages")
suffered, sustained, incurred or paid by the FTI Indemnified Parties in
connection with, resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of the
Stockholders or the Company set forth in this Agreement or any schedule or
certificate, delivered by or on behalf of any of the Stockholders or the Company
in connection herewith; or
(ii) any nonfulfillment of any covenant or agreement on
the part of the Stockholders or, prior to the Closing Date, the Company, in this
Agreement; or
(iii) the business, operations or assets of the Company
prior to the Effective Date or the actions or omissions of the Company's
directors, officers, shareholders, employees or agents prior to the Closing
Date, except as otherwise disclosed in the Company Financial Statements; or
(iv) any Liability of the Company for Taxes for any
Taxable period or portion thereof ending on or before the Closing Date; without
limiting the foregoing and for the avoidance of doubt, the Stockholders shall
have no indemnification obligation for any Taxes of the Company that result
solely from a change from the cash method of accounting to the accrual method of
accounting; or
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(v) failure of the Company to collect any of its
accounts receivable in the ordinary course of business; or
(vi) any litigation or other claims of any kind brought
against the Company after the Closing for acts or omissions of the Company or
the Stockholders prior to Closing.
(b) any and all Damages incident to any of the foregoing or to
the enforcement of this Section 8.1.
Provided the Closing occurs, the Stockholders waive any right of
contribution or other similar right against the Buyer or the Company arising out
of the Company's representations, warranties, covenants and agreements contained
herein and agree that any claims of the Buyer and its officers, directors,
employees and agents or the Company hereunder, whether for indemnification or
otherwise, may be asserted directly and fully against the Stockholders without
the need for any claim against or joinder of the Company.
8.2 LIMITATION AND EXPIRATION. Notwithstanding the above:
(a) there shall be no liability for indemnification under
Section 8.1 unless, and solely to the extent that, the aggregate amount of
Damages exceeds $50,000 (the "Indemnification Threshold"); provided, however,
that the Indemnification Threshold shall not apply to (i) Damages arising out of
any breaches of the covenants of the Stockholders set forth in this Agreement or
representations made in Sections 3.4 (capital stock of the Company), 3.5
(transactions in capital stock), 3.19 (significant customers; material contracts
and commitments), 3.23 (environmental matters), 3.25 (employee benefit plans),
3.26 (taxes), 3.27 (conformity with law; litigation), or (ii) Damages described
in Section 8.1(a)(iii) or (iv); and further provided that if the aggregate
amount of Damages exceeds the Indemnification Threshold, then the Stockholders
shall indemnify the Indemnified Parties for the entirety of all Damages and the
Indemnification Threshold shall be disregarded.
(b) the aggregate amount of the Stockholders' liability under
this Section 8 shall not exceed the Purchase Price; provided, however, that the
Stockholders' liability for Damages arising out of any breaches of the
representations made in Sections 3.4 (capital stock of the Company), 3.5
(transactions in capital stock), 3.25 (employee benefit plans), 3.26 (taxes), or
Damages described in Section 8.1(a)(iii) or (iv) shall not be subject to such
limitation;
(c) the indemnification obligations under this Section 8 or
in any certificate or writing furnished in connection herewith shall terminate
on the later of clause (i), (ii) or (iii) of this Section 8.2(c):
(i) (1)except as to representations, warranties, and
covenants specified in clause (i)(2) of this Section 8.2(b), the third
anniversary of the Closing Date, or
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(2)with respect to representations, warranties and
covenants contained in Sections 3.23 (environmental matters), 3.25 (employee
benefit plans), 3.26 (taxes), 5.1 (tax matters) and the indemnification set
forth in Section 8.1(a)(iii) or (iv), on (A) the date that is six (6) months
after the expiration of the longest applicable federal or state statute of
limitation (including extensions thereof), or (B) if there is no applicable
statute of limitation, three (3) years after the Closing Date for any other
Claim covered by clause (i)(2)(B) of this Section 8.2(c); or
(ii) the final resolution of claims or demands (a "Claim")
pending as of the relevant dates described in clause (i) of this Section 8.2(c)
(such claims referred to as "Pending Claims"); and
(iii) with respect to representations and warranties
contained in Section 3.4 (capital stock of the Company), there shall be no
limitation.
8.3 INDEMNIFICATION PROCEDURES. All Claims for indemnification under
this Section 8 shall be asserted and resolved as follows:
(a) In the event that any FTI Indemnified Party or Stockholder
Indemnified Party (as defined in Section 8.6) (the "Indemnified Party") has a
Claim against any party obligated to provide indemnification pursuant to Section
8.1 or Section 8.8 hereof (the "Indemnifying Party") which does not involve a
Claim being asserted against or sought to be collected by a third party, the
Indemnified Party shall with reasonable promptness send a Claim Notice with
respect to such Claim to the Indemnifying Party. If the Indemnifying Party does
not notify the Indemnified Party within the Notice Period that the Indemnifying
Party disputes such Claim, the amount of such Claim shall be conclusively deemed
a liability of the Indemnifying Party hereunder. In case an objection is made in
writing in accordance with this Section 8.3(a), the Indemnified Party shall have
thirty (30) days to respond in a written statement to the objection. If after
such thirty (30) day period there remains a dispute as to any Claims, the
parties shall attempt in good faith for sixty (60) days to agree upon the rights
of the respective parties with respect to each of such Claims. If the parties
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties.
(b) In the event that any Claim for which the Indemnifying Party
would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party, the Indemnified Party shall with reasonable
promptness notify the Indemnifying Party of such Claim, specifying the nature of
such claim and the amount or the estimated amount thereof to the extent then
feasible (which estimate shall not be conclusive of the final amount of such
Claim) (the "Claim Notice"). The Indemnifying Party shall have 30 days from the
receipt of the Claim Notice (the "Notice Period") to notify the Indemnified
Party (i) whether or not such party disputes the liability to the Indemnified
Party hereunder with respect to such Claim and (ii) if such party does not
dispute such liability, whether or not the Indemnifying Party desires, at the
sole cost and expense of the Indemnifying Party, to defend against such Claim,
provided that such party is hereby authorized (but not obligated) prior to and
during the Notice Period to file any motion, answer or other pleading and to
take any other action which the Indemnifying Party shall deem necessary or
appropriate to protect
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the Indemnifying Party's interests. In the event that Indemnifying Party
notifies the Indemnified Party within the Notice Period that the Indemnifying
Party does not dispute the Indemnifying Party's obligation to indemnify
hereunder and desires to defend the Indemnified Party against such Claim and
except as hereinafter provided, such party shall have the right to defend by
appropriate proceedings, which proceedings shall be promptly settled or
prosecuted by such party to a final conclusion, provided that, unless the
Indemnified Party otherwise agrees in writing, such party may not settle any
matter (in whole or in part) unless such settlement includes a complete and
unconditional release of the Indemnified Party. If the Indemnified Party desires
to participate in, but not control, any such defense or settlement the
Indemnified Party may do so at its sole cost and expense. If the Indemnifying
Party elects not to defend the Indemnified Party against such Claim, whether by
failure of such party to give the Indemnified Party timely notice as provided
above or otherwise, then the Indemnified Party, without waiving any rights
against such party, may settle or defend against any such Claim in the
Indemnified Party's sole discretion and the Indemnified Party shall be entitled
to recover from the Indemnifying Party the amount of any settlement or judgment
and, on an ongoing basis, all indemnifiable costs and expenses of the
Indemnified Party with respect thereto, including interest from the date such
costs and expenses were incurred.
(c) Notwithstanding anything to the contrary in this section
8.3, Buyer will, as to any audit, examination, claim or other administrative or
judicial proceeding relating to Taxes or Tax Returns in respect of which a
Stockholder has agreed to indemnify Buyer or Company, inform with reasonable
promptness Stockholder of, and permit the participation of Stockholder in, any
investigation, audit or other proceeding by or with the Internal Revenue Service
or any other taxing authority empowered to administer or enforce such a tax and
will not consent to the settlement or final determination in such proceeding
without the prior written consent of Stockholder (which consent will not be
unreasonably withheld); provided, however, that the failure to give such notice
shall not affect the indemnification provided hereunder except to the extent
that the failure to give such notice materially prejudices the indemnifying
party.
(d) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the Indemnifying
Party, any such Claim seeks material prospective or other relief which could
have a materially adverse effect on the assets, liabilities, financial
condition, results of operations or business prospects of any Indemnified Party
or any subsidiary, the Indemnified Party shall have the right to control or
assume (as the case may be) the defense of any such Claim and the amount of any
judgment or settlement and the reasonable costs and expenses of defense shall be
included as part of the indemnification obligations of the Indemnifying Party
hereunder. If the Indemnified Party should elect to exercise such right, the
Indemnifying Party shall have the right to participate in, but not control, the
defense of such claim or demand at the sole cost and expense of the Indemnifying
Party.
(e) Nothing herein shall be deemed to prevent the Indemnified
Party from making a claim, and an Indemnified Party may make a claim hereunder,
for potential or contingent claims or demands provided the Claim Notice sets
forth the specific basis for any such potential or
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contingent claim or demand to the extent then feasible and the Indemnified Party
has reasonable grounds to believe that such a claim or demand may be made.
(f) The Indemnified Party's failure to give reasonably prompt
notice as required by this Section 8.3 of any actual, threatened or possible
claim or demand which may give rise to a right of indemnification hereunder
shall not relieve the Indemnifying Party of any liability which the Indemnifying
Party may have to the Indemnified Party unless the failure to give such notice
materially and adversely prejudiced the Indemnifying Party.
(g) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under Section 8, provided that no Indemnifying Party
shall be obligated to seek any payment pursuant to the terms of any insurance
policy.
8.4 SURVIVAL OF REPRESENTATIONS WARRANTIES AND COVENANTS . All
representations, warranties and covenants made by the Stockholders, Buyer in or
pursuant to this Agreement or in any document delivered pursuant hereto shall be
deemed to have been made on the date of this Agreement (except as otherwise
provided herein). The representations of the Company and the Stockholders will
survive the Closing and will remain in effect until, and will expire upon, the
termination of the relevant indemnification obligation as provided in Section
8.2. The representations of Buyer will survive the Closing and will remain in
effect until, and will expire upon the third anniversary of the Closing Date.
The covenants of the parties will survive the Closing and expire in accordance
with their terms.
8.5 REMEDIES CUMULATIVE. The remedies set forth in this Section 8 are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the Indemnified Parties under any other
agreement or pursuant to statutory or common law.
8.6 GENERAL INDEMNIFICATION BY BUYER.
(a) Buyer covenants and agrees to indemnify, defend, protect and
hold harmless Stockholders and his successors and assigns (individually, a
"Stockholder Indemnified Party" and collectively, "Stockholder Indemnified
Parties") from and against all Damages suffered, sustained, incurred or paid by
the Stockholder Indemnified Parties in connection with, resulting from or
arising out of, directly or indirectly:
(i) any breach of any representation or warranty of
Buyer set forth in this Agreement or any certificate delivered by or on behalf
of Buyer in connection herewith; or
(ii) any nonfulfillment of any covenant or agreement on
the part of Buyer in this Agreement; or
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(iii) the business, operations or assets of the Buyer
and the Company after the Effective Date (including, without limiting the
foregoing and for the avoidance of doubt, Taxes of the Company that result
solely from a change from the cash method of accounting to the accrual method of
accounting, but not any Taxes resulting from the Section 338(h)(10) Election) or
the actions or omissions of the Buyer's and the Company's directors, officers,
shareholders, employees or agents after the Effective Date, except to the extent
arising out of the act or omission of the Stockholders.
(b) There shall be no liability for indemnification under this
Section 8.6 unless, and solely to the extent that, the aggregate amount of
Damages under this Section 8.6 exceeds the Indemnification Threshold, as defined
in Section 8.2(a); provided, however, that the Indemnification Threshold shall
not apply to Damages arising out of any breaches of the covenants of Buyer set
forth in this Agreement.
(c) The aggregate amount of Buyer's liability under this
Section 8.6 shall not exceed an amount equal to the Purchase Price.
(d) The indemnification obligations under this Section 8.6 or
in any certificate or writing furnished by Buyer in connection herewith shall
terminate on the later of (i) the third anniversary of the Closing, or (ii) the
final resolution of Claims pending as of the first anniversary of the Closing.
9. NONCOMPETITION AND CONFIDENTIALITY
9.1 EMPLOYMENT AGREEMENTS. The non-competition and confidentiality
provisions of each of the Employment Agreements constitute a part of the
consideration for the purchase and sale transaction contemplated by this
Agreement. The non-competition provisions of the Employment Agreement for any
Stockholder shall terminate upon the occurrence of any non-payment of (i)
principal as and when required under the Note delivered to such Stockholder
pursuant to Section 1.2 of this Agreement, or (ii) any Earn-Out Payment to any
Stockholder under Section 1.5 hereto; provided however that, no such termination
shall occur if Buyer cures such non-payment of principal under a Note or any
Earn-Out Payment by remitting such payment to the Stockholder within ten (10)
business days of the date the principal payment or Earn-Out Payment became due
and payable; and further provided that the non-competition provisions shall not
terminate for so long as such Stockholder is employed by the Company.
10. GENERAL
10.1 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the
parties hereunder may not be assigned (except by operation of law) and shall be
binding upon and shall inure to the benefit of the parties hereto, the
successors of Buyer or the Company, and the heirs, personnel representatives and
successors of the Stockholders.
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10.2 ENTIRE AGREEMENT . This Agreement (which includes the Schedules
hereto) sets forth the entire understanding of the parties hereto with respect
to the transactions contemplated hereby. It shall not be amended or modified
except by a written instrument duly executed by each of the parties hereto. Any
and all previous agreements and understandings between or among the parties
regarding the subject matter hereof, whether written or oral, are superseded by
this Agreement. Each of the Schedules to this Agreement is incorporated herein
by this reference and expressly made a part hereof.
10.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when one or more counterparts
taken together shall have been executed and delivered (which deliveries may be
by telefax) by the parties.
10.4 BROKERS AND AGENTS . Except for Brighton Associates, Inc., whose
fees and expenses shall be paid solely by the Stockholders, Buyer and the
Stockholders (for themselves and on behalf of the Company) each represents and
warrants to the other that it has not employed any broker or agent in connection
with the transactions contemplated by this Agreement and agrees to indemnify the
other against all loss, damages or expense relating to or arising out of claims
for fees or commission of any broker or agent employed or alleged to have been
employed by such indemnifying party.
10.5 EXPENSES . Buyer has and will pay the fees, expenses and
disbursements of Buyer and its agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement. The
Stockholders (and not the Company) have and will pay the fees, expenses and
disbursements of the Stockholders, the Company, and their agents,
representatives, financial advisers, accountants and counsel incurred in
connection with the subject matter of this Agreement.
10.6 SPECIFIC PERFORMANCE; REMEDIES . Each party hereto acknowledges
that the other parties will be irreparably harmed and that there will be no
adequate remedy at law for any violation by any of them of any of the covenants
or agreements contained in this Agreement, including without limitation, the
noncompetition provisions set forth in Section 9. It is accordingly agreed that,
in addition to any other remedies which may be available upon the breach of any
such covenants or agreements, each party hereto shall have the right to obtain
injunctive relief to restrain a breach or threatened breach of, or otherwise to
obtain specific performance of, the other parties, covenants and agreements
contained in this Agreement.
10.7 NOTICES. Any notice, request, claim, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given if delivered personally or sent by
telefax (with confirmation of receipt), by registered or certified mail, postage
prepaid, or by recognized courier service, as follows:
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If to Buyer to:
FTI Consulting, Inc.
2021 Research Drive
Annapolis, Maryland 21401
Attention: Jack B. Dunn, IV
President and Chief Executive Officer
Telefax: 410-224-3552
with a required copy to:
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037
Attn: George P. Stamas, Esq.
Telefax: 202-663-6363
If to the Stockholders or the Company to:
John C. Klick
3327 R Street, NW
Washington, DC 20007
Christopher D. Kent
5262 Navaho Drive
Alexandria, VA 22312
Evan J. Allen
3204 White Street
Falls Church, VA 22044
Michael R. Baranowski
5338 Ellzey Drive
Fairfax, VA 22032
Klick, Kent & Allen, Inc.
66 Canal Center Plaza
Suite 670
Alexandria, Virginia 22314
Attn: Christopher D. Kent, President
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with a required copy to:
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Attn: Thomas L. James, Esq.
Telefax: 202-457-5151
or to such other address as the person to whom notice is to be given may have
specified in a notice duly given to the sender as provided herein. Such notice,
request, claim, demand, waiver, consent, approval or other communication shall
be deemed to have been given as of the date so delivered, telefaxed, mailed or
dispatched and, if given by any other means, shall be deemed given only when
actually received by the addressees.
10.8 GOVERNING LAW. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the laws of the State of Maryland
without regard to principles of conflicts of laws.
10.9 SEVERABILITY . If any provision of this Agreement or the
application thereof to any person or circumstances is held invalid or
unenforceable in any jurisdiction, the remainder hereof, and the application of
such provision to such person or circumstances in any other jurisdiction, shall
not be affected thereby, and to this end the provisions of this Agreement shall
be severable. The preceding sentence is in addition to and not in place of the
severability provisions in Section 9.4.
10.10 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS . No provision of this
Agreement is intended, nor will be interpreted, to provide or to create any
third party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, shareholder, employee, partner of any party hereto or any
other person or entity.
10.11 AMENDMENT; WAIVER. This Agreement may be amended by the parties
hereto at any time prior to the Closing by execution of an instrument in writing
signed on behalf of each of the parties hereto. Any extension or waiver by any
party of any provision hereto shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
10.12 OPERATION OF THE COMPANY. The Stockholders recognize that Buyer,
as the owner of the Company, shall have the authority to exercise its own good
faith business judgment with regard to the operations Buyer and its subsidiaries
including, following the Closing, the Company. The Stockholders acknowledge that
such authority and control shall include, but be limited to, a determination of
appropriate charges to the Company of charges incurred by the Company, personnel
decisions, expansion decisions, the use and nature of the assets of the Company
and the nature and amount of capital of the Company.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
FTI CONSULTING, INC.
By: ___________________________________
Name:
Title:
KLICK, KENT & ALLEN, INC.
By: ___________________________________
Name:
Title:
STOCKHOLDERS:
-----------------------------------------
John C. Klick
-----------------------------------------
Christopher D. Kent
-----------------------------------------
Evan J. Allen
-----------------------------------------
Michael R. Baranowski
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-19251) pertaining to the 1992 Stock Option Plan (As Amended), in the
Registration Statement (Form S-8 No. 33-30357) pertaining to the 1997 Stock
Option Plan, and in the Registration Statement (Form S-8 No. 33-30173)
pertaining to the Employee Stock Purchase Plan, all of Forensic Technologies
International Corporation, of our report dated February 4, 1998, with respect to
the audited financial statements of Klick, Kent, & Allen, Inc. included in the
Current Report (Form 8-K) filed with the Securities Exchange Commission.
Annandale, VA
July 14, 1998
