Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10‑K(Mark One) ☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended January 1, 2016.Or☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Transition Period from to .Commission File Number 001‑33076WILLDAN GROUP, INC.(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction ofincorporation or organization)14‑1951112(I.R.S. EmployerIdentification No.)2401 East Katella Avenue, Suite 300, Anaheim, California 92806(Address of principal executive offices) (Zip Code)(800) 424‑9144(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:Common Stock, $0.01 par valueNASDAQ Global Market(Title of class)(Name of exchange)Securities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No ☒Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past90 days. Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S‑T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files). Yes ☒ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company. See definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.Large accelerated filer ☐Accelerated filer ☒Non‑accelerated filer ☐(Do not check if asmaller reporting company)Smaller reporting company ☐ The aggregate market value of the voting and non‑voting common equity held by non‑affiliates computed by reference to the price at which the common equity waslast sold, as reported on the NASDAQ Global Market, as of the last business day of the registrant’s most recently completed second fiscal quarter was $80.1 million.Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒On March 15, 2016, there were 8,173,402 shares of the registrant’s common stock issued and outstanding.DOCUMENTS INCORPORATED BY REFERENCE Part III of this Form 10‑K incorporates information by reference from the registrant’s definitive proxy statement for the 2016 Annual Meeting to be filed on or priorto 120 days after the end of our fiscal year. Table of Contents TABLE OF CONTENTS Page PART I ITEM 1. BUSINESS1 ITEM 1A. RISK FACTORS15 ITEM 1B. UNRESOLVED STAFF COMMENTS30 ITEM 2. PROPERTIES30 ITEM 3. LEGAL PROCEEDINGS30 ITEM 4. MINE SAFETY DISCLOSURES31 PART II ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES32 ITEM 6. SELECTED FINANCIAL DATA33 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS35 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK49 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA49 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE50 ITEM 9A. CONTROLS AND PROCEDURES50 ITEM 9B. OTHER INFORMATION51 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT52 ITEM 11. EXECUTIVE COMPENSATION52 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED SHAREHOLDER MATTERS52 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS52 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES52 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES53 i Table of ContentsPART I ITEM 1. BUSINESSOverviewWe are a provider of professional technical and consulting services to utilities, private industry, and public agenciesat all levels of government. Nationwide, we enable our clients to realize cost and energy savings by providing a wide rangeof specialized services. We assist our clients with a broad range of complementary services relating to:·Energy Efficiency and Sustainability;·Engineering and Planning;·Economic and Financial Consulting; and·National Preparedness and Interoperability.We operate our business through a network of offices located primarily in California and New York. We also haveoperations in Arizona, Colorado, Florida, Illinois, Kansas, Oregon, Texas, Washington and Washington, DC. As of January 1,2016, we had a staff of 688, which includes licensed engineers and other professionals.We seek to establish close working relationships with our clients and expand the breadth and depth of the serviceswe provide to them over time. Our business with public and private utilities is concentrated primarily in California and NewYork, but we also have business with utilities in Texas, Illinois, Ohio and Washington State. We currently serve 17 majorutility customers across the country. Our business with public agencies is concentrated in California and Arizona. Weprovide services to many of the cities and counties in California. We also serve special districts, school districts, a range ofpublic agencies and private industry.We were founded in 1964 and Willdan Group, Inc., a Delaware corporation, was formed in 2006 to serve as ourholding company. Historically, our clients have been public agencies in communities with populations ranging from 10,000to 300,000 people. We believe communities of this size are underserved by large outsourcing companies that tend to focuson securing large federal and state projects, and projects for the private sector. We consist of a family of wholly‑ownedcompanies that operate within the following segments for financial reporting purposes:Energy Efficiency Services. Our Energy Efficiency Services segment consists of the business of our subsidiary,Willdan Energy Solutions, which offers energy efficiency and sustainability consulting services to utilities, public agenciesand private industry. This segment is currently our largest segment based on contract revenue, representing approximately55% and 49% of our consolidated contract revenue for fiscal years 2015 and 2014, respectively.Engineering Services. Our Engineering Services segment includes the operations of our subsidiaries, WilldanEngineering, Willdan Infrastructure and Public Agency Resources (“PARs”). Willdan Engineering provides civilengineering‑related and city planning services, geotechnical and other engineering consulting services to our clients.Willdan Infrastructure, which was launched in fiscal year 2013, provides engineering services to larger rail, port, water,mining and other civil engineering projects. PARs primarily provides staffing to Willdan Engineering. Contract revenue forthe Engineering Services segment represented approximately 34% and 38% of our overall consolidated contract revenue forfiscal years 2015 and 2014, respectively.Public Finance Services. Our Public Finance Services segment consists of the business of our subsidiary, WilldanFinancial Services, which offers economic and financial consulting services to public agencies. Contract revenue for thePublic Finance Services segment represented approximately 9% and 10% of our consolidated contract revenue for fiscalyears 2015 and 2014, respectively.Homeland Security Services. Our Homeland Security Services segment consists of the business of our subsidiary,Willdan Homeland Solutions, which offers national preparedness and interoperability services and1 Table of Contentscommunications and technology solutions. Contract revenue for our Homeland Security Services segment representedapproximately 2% and 3% of our consolidated contract revenue for fiscal years 2015 and 2014, respectively.Our MarketsWe provide energy efficiency, engineering and planning, economic and financial consulting and nationalpreparedness and interoperability services primarily to public agencies and utilities, as well as private utilities and firms. Webelieve the market for these privatized governmental services is, and will be, driven by a number of factors, including:·Increased demand for services and solutions that provide energy efficiency, sustainability, water conservationand renewable energy in the public and private sectors;·Population growth, which leads to a need for increased capacity in government services and infrastructure;·The creation of new municipalities and the growth of smaller communities, which creates the need to obtainhighly specialized services without incurring the costs of hiring permanent staffing and the associated supportstructure;·Demand by constituents for a wider variety of services;·The deterioration of local infrastructures, especially in aging areas; and·Government funding programs, such as federal homeland security grants and various state legislation, thatprovide funds for local communities to provide services to their constituents.Energy Efficiency and Sustainability ServicesIn response to an increased awareness of global warming and climate change issues, private industry and publicagencies are increasingly seeking out cost‑effective, turnkey solutions that provide innovative energy efficiency, renewableenergy, water conservation and sustainability services. State and local governments are frequently turning to specializedresource conservation firms to strike the balance between environmental responsibility and economic competitiveness.Consultants have the expertise to develop efficient and cost effective solutions. The use of energy efficiency services,including audits, program design, benchmark analysis, metering and partnerships provides government agencies, utilitiesand private firms with the ability to realize long‑term savings.Engineering and Planning ServicesEngineering and planning services encompass a variety of disciplines associated with the design and constructionof public infrastructure improvements. We expect continued population growth in California and other western states toplace a significant strain on the infrastructure in those areas, driving the need for both new infrastructure and therehabilitation of aging structures. Federal, state and local governments have responded to this need by proposing an increasein their funding of infrastructure related activities. Economic and Financial ConsultingPublic agencies must raise the necessary funding to build, improve and maintain infrastructure and to provideservices to their local communities. While tax revenue is the primary source of public agency funding, certain states,including California, impose property tax and spending limits that curtail the generation of such funds. Alternatives includethe issuance of tax‑exempt securities; the formation of special financing districts to assess property owners on a parcel basisfor infrastructure and public improvements, such as assessment districts and community facilities districts (known asMello‑Roos districts in California); the implementation of development impact fee programs that require developers to bearthe cost of the impact of development on local infrastructure; user fee programs that pass costs along to the actual users ofservices; optimization of utility rates; and special taxes enacted by voters for specific purposes.2 Table of ContentsPublic agencies frequently contract with private consultants to provide advance studies, manage the processes andprovide the administration necessary to support these methods. Consultants have the expertise necessary to form the specialfinancing districts and produce an impact fee study used to develop a schedule of developer fees. Privatized services are alsoutilized to implement the programs or revised rate schedules, and in the case of special financing districts, administer thedistricts through the life of the bonds. Consultants also frequently provide the services necessary to comply with federalrequirements for tax‑exempt debt, such as arbitrage rebate calculations and continuing disclosure reports. Use of suchservices allows public agencies to capitalize on innovative public finance techniques without incurring the cost ofdeveloping in‑house expertise.Homeland Security, National Preparedness and Interoperability ServicesAfter September 11, 2001, the need to protect civil infrastructure and implement additional security measuresbecame a priority at all levels of government. In addition to the threat of terrorism, Hurricanes Katrina and Rita andSuperstorm Sandy highlighted the vulnerability of our country’s infrastructure to natural disasters, and the DeepwaterHorizon oil spill along the Louisiana Gulf Coast emphasized the need for disaster preparedness. Such events place anincreased burden on local and regional public agencies to be prepared to respond. In addition to fire and safety personnel,agencies responsible for the physical safety of infrastructure elements, such as water and wastewater systems, ports andairports, roads and highways, bridges and dams, are under increased pressure to prepare for natural and man‑made disasters.Accordingly, the federal government now considers public works staff members to be “first responders” to such incidents andwe believe that agencies are allocating resources accordingly.Our ServicesWe specialize in providing professional technical and consulting services to utilities, private industry and publicagencies at all levels of government. Our core client base is composed of public and private utilities, commercial andindustrial firms, cities, counties, special districts, other local and state agencies and tribal governments.We are organized to profitably manage numerous small to mid‑size contracts at the same time. Our contracts canrange from $1,000 to over $5,000,000 in contract revenue. Our contracts typically have a duration of between two and thirty-six months, although we have city services contracts that have been in effect for over 30 years. At January 1, 2016, we hadapproximately 1,977 open projects.We offer services in four segments: Energy Efficiency Services, Engineering Services, Public Finance Services, andHomeland Security Services. The interfaces and synergies among these segments are key elements of our strategy.Management established these segments based upon the services provided, the different marketing strategies associated withthese services and the specialized needs of their respective clients. The following table presents, for the years indicated, theapproximate percentage of our consolidated contract revenue attributable to each segment: Fiscal Year 2015 2014 2013 Energy Efficiency Services 55% 49% 42%Engineering Services 34% 38% 41%Public Finance Services 9% 10% 12%Homeland Security Services 2% 3% 5%See Note 13—“Segment Information” for additional segment information.Energy Efficiency ServicesIn fiscal year 2008, we acquired our subsidiary, Willdan Energy Solutions (“WES”), formerly known as Intergy.WES is an energy efficiency consulting firm that provides specialized, innovative, comprehensive energy solutionsnationwide to businesses, utilities, state agencies, municipalities, and non‑profit organizations. Our experienced engineersand staff help our clients realize cost and energy savings by tailoring efficient and cost‑effective solutions to assist them inmaximizing their energy spend. WES’s energy efficiency services include comprehensive surveys,3 Table of Contentsprogram design, master planning, benchmarking analysis, installation, alternative financing, and measurement andverification services.Our range of energy efficiency services are described below:Energy Efficiency. We provide complete energy efficiency consulting and engineering services, including: programdesign, management and administration; marketing, customer outreach, and project origination; energy audits and feasibilityanalyses; retro‑commissioning; implementation, training and management; data management and reporting;retro‑commissioning services; and measurement and verification services.Program Design and Implementation. We assist utilities and governmental clients with the design, developmentand implementation of energy efficiency plans and programs. These plans include energy efficiency design, outreachimplementation, water conservation, renewable, and Green House Gas (“GHG”) reduction strategies.Direct Customer Support. We assist clients (including utilities, schools and private companies) in developing andmanaging facilities and infrastructures through a holistic, practical approach to facility management. Our services coveraudits, local compliance, operations and maintenance review, renewable energy planning, master plans, infrastructureanalysis, Leadership in Energy and Environmental Design (LEED) certification for buildings, and energy spend and GHGreduction strategies. Turnkey Facility and Infrastructure Projects. We provide turnkey/design-build facility and infrastructureimprovement projects to a wide array of public and private clients including municipalities, county governments, public andprivate K-12 schools, and higher education institutions. Our services cover preliminary planning, project design,construction management, commissioning and post-project support and measurement and verification services. Representative Projects. The following are examples of typical ongoing projects in the Energy Efficiency Servicessegment:·Consolidated Edison Company of New York. We serve as Consolidated Edison’s program manager andimplementer for its Small Business Direct Install (“SBDI”) Program in New York City. The Program helps smallbusinesses achieve energy efficiency and financial savings, offering both free and cost shared energy efficiencyretrofits, including installation of high efficiency lighting and refrigeration energy conservation measures. Asthe program implementer, we are responsible for moving a high volume of projects from survey to retrofit;tracking, analyzing, and reporting on project status and program data; and completing installation throughself-performance or in cooperation with a small group of contractors. In August 2014, we engaged in asignificant effort to reduce a load pocket (an area of intensive power use) in Brooklyn and Queens with a goal ofachieving an electric demand reduction of 9 million watts. At the end of 2015, we had delivered over 14megawatts (“MW”) of electric demand reduction in the load pocket and over 223 million kilowatt hours(“kWh”) of energy savings across the SBDI Program.·New York Prize Project Feasibility Study. In 2015, we were awarded eight community microgrid feasibilitystudies throughout New York State. Under these contracts, we will determine the feasibility of developingcommunity microgrids, which are local energy systems that operate independently of the electricity grid in theevent of bulk power supply outage. These studies are supported by NYSERDA as a part of New York GovernorCuomo's NY Prize competition, a $40 million competition designed to help communities across New York Statereduce costs, promote clean energy, and build reliability and resiliency into the electric grid. As part of eachfeasibility study, we are working with the local electric and gas distribution utilities, municipal and citygovernments and other community stakeholders to ensure the sustained operation of crucial public services,such as police and fire stations, schools, hospitals, first responders, and water treatment facilities. The microgridswill be designed to increase power reliability, enhance safety, lower energy costs, resolve existing systemconstraints, and reduce dependency on bulk power providers. Each study will also analyze integratingdistributed energy resources, such as energy storage, combined heat and power, energy efficiency and demandresponse, and renewable power (e.g., solar, wind).4 Table of Contents·Southern California Edison (“SCE”)—Data Center Energy Efficiency Program (“DCEEP”). We are theprogram implementer for SCE’s DCEEP, which primarily coordinates the retrofit components of the overalldemand reduction strategy. The primary deliverables for DCEEP include initial outreach and targeting of datacenter and IT-related facilities, comprehensive whole building/system technical audits, and energy efficiencyretrofit program element implementation. The retrofit component consists of deemed measures, calculatedmeasures, and emerging technologies. In 2015, the program delivered 4.5 million kWh and 896 kilowatts(“kW”) in peak demand reduction.·Pacific Gas & Electric (“PG&E”), SCE, and SDG&E—Hospital Energy Efficiency Program (“HEEP”). As theprogram implementer for HEEP, we offer energy-efficiency services for hospitals and healthcare relatedbuildings (such as medical office buildings, long-term care facilities, etc.) in PG&E, SCE, and SDG&Eterritories. In 2015, these programs delivered total approximate energy savings of 11.5 million kWh, 1800 kWof peak demand reduction, and 144,000 therms of natural gas savings.·City of Hillsboro, Oregon, Shute Park Aquatic & Recreation Center. The Shute Park Aquatic and RecreationCenter is a one story athletic club and natatorium which consists of indoor and outdoor swimming pools, lockerrooms, aerobics room, cardio/weight room, cycling rooms, child care area, lobby, staff offices, restrooms, andmechanical rooms. The facility was originally constructed in 1981 and was significantly remodeled in 2006. Itis 43,480 square feet, and averages about 100 occupants during typical usage. We were hired to implement anumber of energy efficiency measures, including optimizing heating, ventilating, and air conditioning(“HVAC”), upgrading the pool lighting; installing a spa blanket; and utilizing the existing condensing boilersto provide domestic hot water. ·City of Vancouver, Washington, Mill Plain Elementary School. Mill Plain Elementary School is comprised offour main buildings and three portable buildings. The original buildings on this campus were constructedduring or before 1952. We were hired to replace classroom fan coil units and improve air distribution andeconomizer function; replace heating pumps and make heating piping system improvements; replace the chillerand chilled water pump; replace HVAC units; improve access into the gym mechanical mezzanine; upgrade thedirect digital control system including replacing existing pneumatic controls; and ceiling repairs asrequired. The work also includes balancing and commissioning of all HVAC systems. Engineering ServicesWe provide a broad range of engineering‑related services to the public sector and limited services to the privatesector. In general, contracts for engineering services (as opposed to construction contracts) are awarded by public agenciesbased primarily upon the qualifications of the engineering professional, rather than the proposed fees. We have longstandingrelationships with many of these agencies and are recognized as an engineering consultant with relevant expertise andcustomer focused services. A substantial percentage of our engineering‑related work is for existing clients that we haveserved for many years.Our engineering‑related services are described individually below:Building and Safety. Our building and safety services range from managing and staffing an entire municipalbuilding department to providing specific outsourced services, such as plan review and field inspections. Other relatedservices that we offer under this umbrella include performing accessibility compliance and providing disaster recovery teams,energy compliance evaluations, permit processing and issuance, seismic retrofitting programs, and structural plan review.Many of our building and safety services engagements are with municipalities and counties where we supplement thecapacity of in‑house staff.City Engineering. We specialize in providing engineering services tailored to the unique needs of municipalities.City engineering services range from staffing an entire engineering department to carrying out specific projects within amunicipality, such as developing a pavement management program or reviewing engineering plans on behalf of a city. Thisservice is the core of our original business and was the first service offered when we were founded.5 Table of ContentsCode Enforcement. We assist municipalities with the development and implementation of neighborhoodpreservation programs and the staffing of code enforcement personnel. Our code enforcement and neighborhood preservationservices include reviewing, studying and analyzing existing programs, developing and implementing communityeducational programs, developing ordinances and writing grant proposals, and providing project managers and/orsupervisors.Development Review. We offer development plan review and inspection services including Americans withDisabilities Act (“ADA”) compliance, preliminary and final plats (maps), grading and drainage, complete infrastructureimprovements for residential site plans, commercial site plans, industrial developments, subdivision, and major masterplanned developments. Previously, we have reviewed grading plans, street lighting and traffic signal plans, erosion controlplans, storm drain plans, street improvement plans, and sewer water and utility plans.Disaster Recovery. We provide disaster recovery services to cities, counties and local government. Our experiencein disaster recovery includes assisting communities in the disaster recovery process following earthquakes, firestorms,mudslides and other natural disasters. We typically organize and staff several local disaster recovery centers which functionas “one‑stop permit centers” that guarantee turn‑around performance for fast‑track plan checking and inspection services.Additionally, we have performed street and storm drain clean‑up, replacement or repair of damaged storm drains, streets, andbridges, debris management and preparation and implementation of a near‑term erosion and sediment control program.Environmental Engineering. We provide environmental consulting and remediation services to cities, counties, andlocal governments. Our environmental services encompass many technical disciplines and programs, includingenvironmental assessments and audits, environmental characterization and assessment, soil and groundwater investigations,and information technology services.Geotechnical. Our geotechnical and earthquake engineering services include soil engineering, earthquake andseismic hazard studies, geology and hydrogeology engineering, and construction inspection. We operate a licensed,full‑service geotechnical laboratory at our headquarters in Anaheim, California, which offers an array of testing services,including construction materials testing and inspection.Landscape Architecture. We assist public agencies in the design and planning of parks and recreationdevelopments, as well as redevelopment and community‑wide beautification plans. Our services in the area of landscapearchitecture include design, landscape management, urban forestry and planning. Specific projects include park design andmaster planning, bidding and construction documents, water conservation plans, urban beautification programs, landscapemaintenance management, site planning, and assessment district management.Planning. We assist communities with a full range of planning services, from the preparation of long‑range policyplans to assistance with the day-to-day operations of a planning department. For several cities, we provide contract staffsupport. We provide environmental documentation services (including National Environmental Policy Act, CaliforniaEnvironmental Quality Act, and Environmental Impact Report compliance and document preparation), mitigationmonitoring programs, and third party environmental review. We also provide urban planning and design services focused oninvestigation of specific planning and design issues and the formulation of plans, policies, and strategies for communities asa whole or for specific study areas. Typical assignments include land use studies, development of specific plans or generalplan elements, design guidelines, and zoning ordinances. Our urban planning services include assisting communities withthe implementation of general plans, land use enforcement, capital improvement planning, community development andredevelopment programs, and economic development strategies.Program and Construction Management. We provide comprehensive program and construction managementservices to our public‑sector clients. These services include construction administration, inspection, observation, laborcompliance, and community relations, depending on the client’s needs and the scope of the specific project. Our constructionmanagement experience encompasses projects such as streets, bridges, sewers and storm drains, water systems, parks, pools,public buildings, and utilities.6 Table of ContentsContract Staff Support Services. We provide cities and counties with both interim and long‑term contract staffsupport services, including capital improvement planning, contract administration, and code enforcement management.Public agencies have contracted with us when it is not cost‑effective to have a full‑time engineer on staff, to relieve peakworkload situations, or to fill vacant positions during a job search. We have also provided small cities with the functions ofentire departments, such as building and safety, engineering, planning, or public works. In other instances, public agencieshave retained our personnel to serve as city engineers, building officials, case planners, public works directors, or projectmanagers for large or unusually complex projects.Structures. Our structural engineering services include bridge design, bridge evaluation and inspection, highwayand railroad bridge planning and design, highway interchange design, railroad grade separation design, bridge seismicretrofitting, building design and retrofit, sound wall and retaining wall design, and planning and design for bridgerehabilitation and replacement.Survey. Our surveying and mapping services include major construction layout, design survey, topographic survey,aerial mapping, Geographic Information Systems, and right‑of‑way engineering.Traffic. We specialize in providing traffic engineering and planning services to governmental agencies. Ourservices range from responding to citizen complaints to designing and managing multimillion dollar capital improvementprojects. Traffic engineering services include serving as the contract city traffic engineer in communities, as well asperforming design and traffic planning projects for our clients. These services and projects include parking managementstudies, intersection analyses and improvements, traffic impact reports, and traffic signal and control systems. We developgeometric design and channelization, traffic signal and street lighting plans, parking lot designs, and traffic control plans forconstruction.Transportation. Our engineers design streets and highways, airport and transit facilities, freeway interchanges,high‑occupancy vehicle lanes, pavement reconstruction, and other elements of city, county, and state infrastructure. Ourtransportation engineering services cover a full spectrum of support functions, including right of way, utility relocation,landscape, survey and mapping, geographic information systems, public outreach, and interagency coordination. Theseservices are typically provided to local public works agencies, planning and redevelopment agencies, regional and statetransportation agencies and commissions, transit districts, ports, railroads, and airports.Water Resources. We assist clients in addressing the many facets of water development, treatment, distribution andconservation, including energy savings, technical, financial, legal, political, and regulatory requirements. Our corecompetencies include hydraulic modeling, master planning, rate studies and design and construction services. Our designexperience includes reservoirs, pressure reducing stations, pump and lift stations, and pipeline alignment studies, as well aswater/wastewater collection, distribution, and treatment facilities. We also provide a complete analysis and projection ofstorm flows for use in drainage master plans and for individual storm drain systems to reduce flooding in streets and adjacentproperties. We design open and closed storm drain systems and detention basin facilities, for cities, counties and the ArmyCorp of Engineers.Representative Projects. The following are examples of typical projects we have in the Engineering Servicessegment:·Cadiz, Inc., Cadiz Valley Water Conservation, Recovery, and Storage Project. We are providing publicoutreach and support for the Cadiz Valley Water Conservation, Recovery, and Storage project that is designedto actively manage the groundwater basin underlying a portion of the Cadiz and Fenner Valleys in California’sEastern Mojave Desert. The project will conserve renewable native groundwater and provide future waterstorage. Currently, we supplement public and governmental affairs support, perform outreach to stakeholderagencies and businesses, and work to secure project approvals at the local, state and federal levels. The projecthas completed all of its environmental clearance, and once project approvals are in place, we will assist with thelater phases of work.·California High Speed Rail Authority and Parsons, Utility Relocation and Traffic Engineering Services. Weare providing telephone utility relocation design services in connection with the California High Speed7 Table of ContentsRail Phase 1 project in Madera and Fresno counties. The work includes both horizontal and vertical relocationof telephone ducts and vaults within the utility corridor right-of-way crossing the railroad alignment and withinassociated local roadway, where overcrossings are to be constructed. We are also providing traffic engineeringservices.·City of Rancho Mirage, California, Building and Safety Services. We are providing building and safetyservices to Rancho Mirage, a city with a population of 18,000. We are currently serving as the interim BuildingOfficial and providing as-needed plan check services. In addition, we are providing building and safetyinspection services to Rancho Mirage’s mobile home parks.·City of Hughson, California, Engineering Services and Fox Road Improvements. We are providing contract cityengineering services and acting as an extension of City staff. The services we provide include developing andimplementing the City’s Capital Improvement Program; planning and reviewing construction, operation andmaintenance of the City’s streets, parks, municipal buildings, and water and sewer facilities; planning andreviewing all public works engineering activities, including design, surveying, and inspection; and reviewingplans, engineering reports, budget estimates, and proposed ordinances submitted by department staff andconsulting engineers.·City of Rialto, California, On-Call Construction Management Services. We are providing constructionmanagement services for numerous projects throughout the City. Typical projects include roadway, parking lot,pavement, ADA compliance, underground infrastructure (sewers, storm drains, and trenches), annual overlay,and building facility (warehouse and fire station) improvements. Services include resident engineering,construction management, construction inspection, utility coordination, preparation of funding submittals,labor compliance, geotechnical and material testing, and public outreach. Public Finance ServicesSince 1999, our subsidiary Willdan Financial Services, a public finance consulting business, has supplemented theengineering services that we offer our clients. In general, we supply expertise and support for the various financingtechniques employed by public agencies to finance their operations and infrastructure. We also support the mandatedreporting and other requirements associated with these financings. We do not provide underwriting or financial advisoryservices for municipal securities.Unlike our Engineering Services business, we often compete for business, at least initially, through a competitivebid process. Agencies competitively bid out services on a regular basis. The new contract terms are generally one, three orfive years per contract.Our services in this segment include the following:District Administration. We administer special districts on behalf of public agencies. The types of special districtsadministered include community facilities districts (in California, Mello‑Roos districts), assessment districts, landscape andlighting districts, school facilities improvement districts, benefit assessment districts, fire suppression districts, and businessimprovement districts. Our administration services include calculating the annual levy for each parcel in the district; billingcharges directly or through a county tax roll; preparing the annual Engineer’s Report, budget and resolutions; reporting oncollections and payment status; calculating prepayment quotes; and providing financial analyses, modeling and budgetforecasting.The key to our District Administration services is our proprietary software package, MuniMagic: MunicipalAdministration & Government Information Coordinator, which we developed internally to redefine the way we administerspecial districts. MuniMagic is a database management program that maintains parcel data; calculates special taxes,assessments, fees and charges; manages payment tracking; maintains bond‑related information in a single, central location;and provides reporting, financial modeling and analysis at multiple levels of detail. MuniMagic offers a significantcompetitive advantage in an industry driven by the ability to accurately process large quantities of data.8 SM Table of ContentsFinancial Consulting. We perform economic analyses and financial projects for public agencies, including:·Fee and rate studies, such as cost allocation studies and user fee analysis;·Utility rate analysis for water, wastewater and storm water;·Utility system appraisals and acquisitions;·Fiscal and economic impact analysis;·Strategic economic development and redevelopment plans;·Real estate and market analysis associated with planning efforts, and development fee studies;·Proposition 218 studies, assessment balloting, and re‑engineering;·Special district formation, which involves the feasibility determinations, design, development and initiation ofcommunity facilities districts, school facilities improvement districts, tax increment financing districts,assessment districts, landscape and lighting districts, benefit assessment districts, business improvementdistricts, and fire suppression assessments;·Other special projects, including facility financing plans, formation of new public entities, annexations andincorporations; reassessment engineering and financial analysis for bond offerings or refundings; developmentand financial projections; and nexus studies between public and private enterprises, including public‑privatepartnerships and the benefits of economic development to municipalities and to state, provincial, regional andnational governments.Federal Compliance. We offer federal compliance services to issuers of municipal securities, which can be cities,towns, school districts, housing authorities, and other entities that are eligible to issue tax‑exempt securities. Specifically, weprovide arbitrage rebate calculations and municipal disclosure services that help issuers remain in compliance with federalregulations. We provide these reports, together with related compliance services such as bond elections, temporary periodyield restriction, escrow fund monitoring, rebate payments, and refund requests. In terms of continuing disclosure services,we both produce the required annual reports and disseminate those reports on behalf of the issuers. We provide federalcompliance services to approximately 750 issuers in 42 states and the District of Columbia on more than 2,500 bond issuestotaling over $60 billion in municipal debt.Representative Projects. Examples of typical projects we have in the Public Finance Services segment include:·City of Miramar, Florida, Economic Development Action Plan. We were hired by the City of Miramar toprepare an Economic Development Action Plan. The objective of this project is to assist the City andcommunity stakeholders in guiding the strategies and goals executed by the Economic DevelopmentDepartment over the next three to ten years. The final deliverables will provide the City with research, analysis,economic benchmarking, and an implementation plan which includes monitoring and reporting tools based onindustry methodologies, structured for easy use by City staff. These deliverables will be used to implement thestudy’s priorities and recommendations after the contract period. ·Town of Queen Creek, Arizona, Transportation Development Impact Fee Study. The Town of Queen Creek is arapidly growing community in the Valley Area surrounding Phoenix. The Town hired us to provide aTransportation Development Impact Fee Study for the City’s roadway system·City of Laguna Hills, California, Comprehensive Fee Study and Cost Allocation Plan Update. The City ofLaguna Hills hired us to conduct a Comprehensive Fee Study and Cost Allocation Plan Update to determine theproper allocation of expenditures and on-going full cost of services provided by the City.·City of Plano, Texas, Rate Methodology Assessment. We were retained by the City of Plano, Texas, and othermember cities of the North Texas Municipal Water District, to complete an assessment of the rate9 Table of Contentsmethodology used to charge member and customer cities. The District consists of 13 member cities and 33customer cities from the North Dallas area, serving 1.6 million consumers. The project consists of evaluating thecurrent rate methodology and recommending alternatives to more equitably allocate costs amongst membercities and to customer cities. In order to achieve this objective, and have a platform to best communicate results,we developed an interactive model to simulate changes in rate methodology.Homeland Security ServicesIn fiscal year 2004, we formed our subsidiary Willdan Homeland Solutions (“WHS”), formerly known as AmericanHomeland Solutions. WHS provides emergency preparedness planning, emergency preparedness training, emergencypreparedness exercises, communications and technology, and water security services that focus on integrating local resourcesand assets within state and federal systems to cities, counties and related municipal service agencies, such as utility and watercompanies, as well as school districts, port and transportation authorities, tribal governments and large business enterpriseswith a need for homeland security related services. We staff our projects in this area with former high‑level local and regionalpublic safety officers and focus on solutions tailored for local agencies and their personnel. Our services include thefollowing:Emergency Preparedness Planning. We design, develop, implement, review, and evaluate public and privateagencies’ emergency operations and hazard mitigation plans, including compliance and consistency with federal, state andlocal laws and policies. Plans are tailored to respond to terrorism, intentional acts of sabotage, and natural disasters. We alsoprovide command and control and emergency response training for all types of unusual occurrences. We have developedemergency operations, hazard mitigation, continuity of operations and business continuity and recovery plans for municipalgovernments, special districts, school districts, and private‑industry clients.Emergency Preparedness Training. We design customized training courses for all aspects of disaster, unusualoccurrence and emergency responses. In this regard, we have developed and own several training courses that meet or exceedthe requirements for the federal National Incident Management System (“NIMS”) training. These courses assist clients inmeeting their obligations to prepare their staff to utilize the NIMS.Emergency Preparedness Exercises. We conduct planning sessions and exercises, including those relating toweapons of mass destruction, large events, mass casualty transportation disasters, terrorism incident response, natural disasterresponse and recovery, and civil disorder events. We design these exercises for multi‑agency involvement so they are fullycompliant with the federal government’s Homeland Security Exercise and Evaluation Program, the State EmergencyManagement System for California, and the National Response Framework. Exercises are designed to evaluate and test “firstresponders” and support personnel, as well as elected officials and agency management.Communications and Technology. We provide homeland security, public safety, and emergency responsecapabilities for government and corporate clients that focus on integrating local resources and assets within federal, state, andlocal systems. Core competencies include requirements development, integration, life cycle analysis, system design,procurement and selection, deployment, interoperability, project management, quality management, assessments, conceptualand final design and gap analysis in the public safety radio land mobile communications and corporate market includingbroadband networks, commercial cellular test plans, data networks, microwave network planning and related engineeringdesign.Water Security. We offer NIMS and Incident Command System courses specific to water and wastewater agencies.Our instructors and course facilitators have significant experience in water and wastewater security, emergency preparedness,and business continuity. All courses are DHS‑certified. Eligible agencies may use DHS Transit Security Grant Program fundsfor this approved training. The program is one in a number of comprehensive measures authorized by congress to directlysupport transportation infrastructure security activities.Representative Projects. Examples of typical Homeland Security Services projects include:·National Railroad Passenger Corporation, Amtrak Security Exercise Program. The National RailroadPassenger Corporation, (“Amtrak”) selected us, as part of the project team under the direction of the principlecontractor, Obsidian Analysis, Inc., to support their 2013-2015 security exercise program. For10 Table of Contentsthis program, we established a corporate multi-year training and exercise program that included workshops,tabletops, drills, functional, and full-scale exercises. These exercises, along with the planning process, involvedfrontline employees and managers, such as conductors, road foremen, station, and onboard services personnel,management and corporate leadership, and integrated these groups with national and local partners andstakeholders, including local emergency response and management entities, transit agencies and other railroads,regulatory agencies, and private-sector partners.We provided key support to the program by facilitating all exercise events, engaging local agencies forparticipation, and developing and conducting exercises in Los Angeles and Oakland, California; Seattle,Washington; San Antonio, Texas, and New Orleans, Louisiana. We facilitated breakout discussion groupsduring the tabletop exercises that afforded Amtrak personnel with an opportunity to explore their roles andresponsibilities during a variety of scenarios that included an active shooter incident, suspicious package in astation, and an improvised explosive device detonation aboard a moving train. ·County of Los Angeles, California, Department of Public Health – Medical Countermeasures (“MCM”)Exercise Series. The County of Los Angeles, Department of Public Health selected us to support thedevelopment and delivery of the November 2015 Los Angeles County Operational Area (“OA”), MCM Full-Scale Exercise (“FSE”). The FSE, conducted over a two-day period in November, 2015, was designed tochallenge all OA emergency management system participants in response to a simulated public healthemergency.Specifically, we were tasked with developing and delivering a two-day FSE which exercised and assessed MCMDistribution (including the receipt, storage, and staging of MCMs from state and federal providers at theCounty designated Warehouse) and exercised and assessed the management and coordination of MCMDispensing activities at county designated Points of Dispensing (“POD”) sites, which are established locationsthroughout Los Angeles County.We supported all aspects of FSE development and delivery, including the development of exercise player tools& materials (including comprehensive communications plans and directories); development of acomprehensive, region-wide Master Scenario Events List, covering two-days of exercise play; the design anddevelopment of all exercise evaluation materials; specific guidance and tools for the various levels of exercisecontrollers, who had the responsibility to control exercise activities at a wide variety of exercise venues (such asPOD Sites, Emergency Operations Centers, & Incident Command Posts); and the facilitation and coordinationof planning and exercise activity across the region. Competitive StrengthsWe provide a wide range of privatized services to the public sector, private firms and utilities. We have developedthe experience base, professional staff and support technology and software necessary to quickly and effectively respond tothe needs of our clients. We believe we have developed a reputation within our industry as problem solvers across a broadrange of client issues. Some of our competitive strengths include:Quality of service. We pride ourselves on the quality of service that we provide to our clients. The work for whichwe compete is awarded primarily based on the company’s qualifications, rather than the fees proposed. We believe that ourservice levels, experience and expertise satisfy even the most rigorous qualification standards. We have developed a strongreputation for quality, based upon our depth of experience, ability to attract quality professionals, customized technologyand software that support our services, local knowledge and the expertise we possess across multiple disciplines. We believewe are well‑positioned to serve public sector clients due to our knowledge of the unique reporting processes and operatingprocedures of public agencies, which differ substantially from the private sector. We believe our high quality of service is asignificant reason we currently provide services to approximately 85% of the cities and approximately 91% of the countiesin California.Broad range of services. Our focus on customer service has led us to continually broaden the scope of the serviceswe provide. At different stages in our history, as the needs of our clients have evolved, we have developed11 Table of Contentsservice capabilities complementary to our core engineering business, including building and safety services, financial andeconomic services, planning services, geotechnical services, code enforcement services, disaster planning and homelandsecurity services, and most recently, energy efficiency and sustainability. Further, because we recognize that local publicsector projects and issues often cross departmental lines, we have developed the ability to deliver multiple services in acohesive manner to better serve our client communities as a whole.Strategic locations in key markets. Local agencies want professionals who understand their local needs. Therefore,we deliver our services through a network of offices dispersed throughout the western United States, Kansas, Florida, Illinois,Washington, D.C., and New York. Each of our offices is staffed with quality professionals, including former managementlevel public sector employees, such as planners, engineers, inspectors, and police and fire department personnel. Theseprofessionals understand the local and regional markets in which they work.Strong, long‑term client relationships. We have developed strong relationships with our public agency clients,some of whom we have worked with for over 41 years. The value of these long‑term relationships is reflected in the recurringaward of new projects, ongoing staffing assignments, and long‑term projects that require high‑level supervision. We also seekto maintain close personal relationships with public agency decision‑makers to strengthen our relationships with them andthe agencies with which they work. We frequently develop new client relationships as our public agency contacts arepromoted or move to other agencies. Our strong culture of community involvement and leadership in key public agencyorganizations underscores our customer focus and helps us cultivate and expand our client base.Experienced, talented and motivated employees. Our staff consists of seasoned professionals with a broad array ofspecialties, and a strong customer service orientation. Our corporate culture places a high priority on investing in our people,including providing opportunities for stock ownership to attract, motivate and retain top professionals. Our executiveofficers have an average of more than 37 years of experience in the engineering and consulting industry, and an average of9 years with our company.ClientsOur clients primarily consist of public and governmental agencies including cities, counties, redevelopmentagencies, water districts, school districts and universities, state agencies, federal agencies, a variety of other special districtsand agencies, tribal governments and public utilities. We also provide services to private utilities and private industry. Ourprimary clients are public agencies serving communities of 10,000 to 300,000 people and public and private utilities. Infiscal year 2015, we served over 888 distinct clients. For fiscal year 2015, we had two clients, the Consolidated EdisonCompany of New York and the City of Elk Grove that accounted for 25% and 11%, respectively, of our consolidated contractrevenue. None of our other clients accounted for over 10% of our consolidated contract revenue. Our clients are primarilybased in California and New York, as well as Arizona, Colorado, Florida, Illinois, Kansas, Oregon, Texas, Washington andWashington, DC. In fiscal year 2015, services provided to clients in California accounted for approximately 47% of ourcontract revenue and services provided to clients in New York accounted for approximately 28% of our contract revenue.Consolidated Edison SBDI Program. In July 2012, Willdan Energy Solutions entered into an Agreement for a SmallBusiness Direct Install Program with Consolidated Edison Company of New York. The agreement continues our partnershipwith Consolidated Edison to develop Consolidated Edison’s Small Business Direct Install Program, which began in 2009.The initial term of this agreement extends through December 2016. Contract StructureWe provide our services under contracts, purchase orders or retainer letters. The contracts we enter into with ourclients contain three principal types of pricing provisions:·Time and materials provisions provide for reimbursement of costs and overhead plus a fee for labor based on thetime expended on a project multiplied by a negotiated hourly billing rate. The profitability achievable on atime and materials basis is driven by billable headcount and cost control.12 Table of Contents·Unit based provisions require the delivery of specific units of work, such as arbitrage rebate calculations,dissemination of municipal securities continuing disclosure reports, or building plan checks, at an agreed priceper unit, with the total payment under the contract determined by the actual number of units performed.·Fixed price provisions require all work under a contract to be performed for a specified lump sum, which may besubject to adjustment if the scope of the project changes. Contracts with fixed price provisions carry certaininherent risks, including risks of losses from underestimating costs, delays in project completion, problems withnew technologies, price increases for materials, and economic and other changes that may occur over thecontract period. Consequently, the profitability, if any, of fixed price contracts can vary substantially.We also receive monthly retainers from a limited number of our clients. The following table presents, for the periodsindicated, the approximate percentage of our contract revenue subject to each type of pricing provision: Fiscal Year 2015 2014 Time and materials 31% 14%Unit based 34% 43%Fixed price 35% 42%Monthly retainer —% 1%Total 100% 100%For time and materials and fixed price contracts, we bill our clients periodically in accordance with the contractterms based on costs incurred, on either an hourly fee basis or on a percentage of completion basis, as the project progresses.For unit based and retainer based contracts, we bill our clients upon delivery of the contracted item or service, and in somecases, in advance of delivery.Our contracts come up for renewal periodically and at the time of renewal may be subject to renegotiation, whichcould impact the profitability on that contract. In addition, during the term of a contract, public agencies may requestadditional or revised services which may impact the economics of the transaction. Most of our contracts permit our clients,with prior notice, to terminate the contracts at any time without cause. While we have a large volume of transactions andgenerally low customer concentration, the renewal, termination or modification of a contract may have a material adverseeffect on our consolidated operations.CompetitionThe market for our services is highly fragmented. We often compete with many other firms ranging from small localfirms to large national firms. Contract awards are based primarily on qualifications, relevant experience, staffing capabilities,geographic presence, stability and price.Doing business with governmental agencies is complex and requires the ability to comply with intricate regulationsand satisfy periodic audits. We have been serving cities, counties, special districts and other public agencies for over50 years. We believe that the ability to understand these requirements and to successfully conduct business withgovernmental entities and agencies is a barrier to entry for potential competitors.Our competition varies by type of client, type of service and geography. The range of competitors for any oneproject can vary depending upon technical specialties, the relative value of the project, geographic location, financial terms,risks associated with the work, and any client imposed restrictions. Unlike most of our competitors, we focus our services onpublic sector clients. Public sector clients generally choose among competing firms by weighing the quality, experience,innovation and timeliness of the firm’s services. When selecting consultants for engineering projects, many governmentagencies are required to, and others choose to, employ Qualifications Based Selection, or QBS. QBS requires the selection ofthe most technically qualified firms for a project, while the financial and legal terms of the engagement are generallysecondary. QBS applies primarily to work done by our Engineering Services segment.13 Table of ContentsContracts in our Energy Efficiency Services segment, the Public Finance Services and Homeland Security Services areastypically are not subject to mandatory QBS standards, and often are awarded through a competitive bid process.Our competition varies geographically. Although we provide services in several states, we may be stronger in certainservice lines in some geographical areas than in other regions. Similarly, some of our larger competitors are stronger in someservice lines in certain localities but are not as competitive in others. Our smaller competitors generally are limited bothgeographically as well as in the services they are able to provide.We believe that our Energy Efficiency Services segment competes primarily with Lockheed‑Martin, EnerPath,KEMA (a division of the DNV Group), Clear Result, Franklin Energy, ICF International, Inc., and Nexant, Inc. We believethat the primary competitors for our Engineering Services segment include Charles Abbott & Associates, Inc., Harris &Associates, RBF Consulting, Tetra Tech, Inc., Stantec, Inc., Michael Baker Corporation, TRC Companies, Inc., AECOMTechnology Corporation, CH2M Hill and Jacobs Engineering Group, Inc. Our chief competitors in our Public FinanceServices segment include David Taussig & Associates, Harris & Associates, BLX Group, Arbitrage Compliance Specialists,Raftelis Financial Consultants, Inc., FCS Group and the NBS Government Finance Group. We believe the Homeland SecurityServices segment competes primarily with Leidos (formerly Science Applications International Corporation or SAIC) andIEM, Inc.InsuranceWe currently maintain the following insurance coverage: commercial general liability with limits of $1.0 millionper occurrence and $2.0 million general aggregate; automobile liability insurance with limits of $1.0 million per occurrence;employer’s liability with limits of $1.0 million per occurrence. We also carry professional liability insurance with limits of$7.5 million per claim and $15.0 million annual aggregate, excess liability insurance with a limit of $10.0 million, anumbrella/excess liability insurance of $25.0 million per occurrence and aggregate, and workers’ compensation insurance of$1.0 million. We are liable to pay these claims from our assets if and when the aggregate settlement or judgment amountexceeds our policy limits.EmployeesAt January 1, 2016, we had approximately 490 full‑time employees and 198 part‑time employees. All PublicAgency Resources’ employees are classified as part‑time. Our employees include, among others, licensed electrical,mechanical, structural and civil engineers, land surveyors, certified building officials, licensed geotechnical engineers andengineering geologists, certified inspectors and plans examiners, licensed architects and landscape architects, certifiedplanners, and information technology specialists. We believe that we attract and retain highly skilled personnel withsignificant industry experience and strong client relationships by offering them challenging assignments in a stable workenvironment. We believe that our employee relations are good.The following table sets forth the number of our employees in each of our business segments and our holdingcompany: As of Fiscal Year End 2015 2014 2013 Engineering Services 352 326 294 Energy Efficiency Services 224 204 142 Public Finance Services 62 58 53 Homeland Security Services 9 10 10 Holding Company Employees (Willdan Group, Inc.) 41 39 35 Total 688 637 534 At January 1, 2016, we contracted with approximately 100 former and current public safety officers to conducthomeland security services training courses. These instructors are classified as subcontractors and not employees.14 Table of ContentsIntellectual PropertyThe Willdan, Willdan Group, Inc., Willdan Engineering, Willdan Infrastructure, Willdan Financial Services, WilldanEnergy Solutions and Willdan Homeland Services names are service marks of ours, and we have obtained a service mark forthe Willdan logo. We have also obtained federal servicemark registration with the United States Patent and Trademark Officefor the “Willdan” name and the “extending your reach” tagline. We believe we have strong name recognition in the westernUnited States and New York, and that this provides us a competitive advantage in obtaining new business. Consequently, webelieve it is important to protect our brand identity through trademark registrations. The name and logo of our proprietarysoftware, MuniMagic, are registered servicemarks of Willdan Financial Services, and we have registered a federal copyrightfor the source code for the MuniMagic software.Available InformationOur website is www.willdan.com and our investor relations page is under the caption “Investors” on our website. Wemake available on this website under “SEC Filings,” free of charge, our annual reports on Form 10‑K, quarterly reports onForm 10‑Q, current reports on Form 8‑K, and amendments to those reports as soon as reasonably practicable after weelectronically file or furnish such materials to the U.S. Securities and Exchange Commission, or SEC. We also make availableon this website our prior earnings calls under the heading “Investors—Investor Relations” and our Code of Ethical Conductunder the heading “Investors—Corporate Governance.” The information on our website is not a part of or incorporated byreference into this filing. Further, a copy of this annual report on Form 10‑K is located at the SEC’s Public Reference Room at100 F Street, NE, Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room can beobtained by calling the SEC at 1‑800‑SEC‑0330. The SEC maintains an Internet site that contains reports, proxy andinformation statements and other information regarding our filings at http://www.sec.gov. ITEM 1A. RISK FACTORSRisks Relating to Our Business and IndustryWe operate in a changing environment that involves numerous known and unknown risks and uncertainties thatcould materially adversely affect our operations. Set forth below are descriptions of risks and uncertainties that couldcause our actual results to differ materially from the results and expectations contained in this report. Additional risks wedo not yet know of or that we currently think are immaterial may also affect our business operations. If any of the events orcircumstances described in the following risks actually occurs, our business, financial condition or results of operationscould be materially adversely affected.If we fail to complete a project in a timely manner, miss a required performance standard, or otherwise fail to adequatelyperform on a project, then we may incur a loss on that project, which may reduce or eliminate our overall profitability.Our engagements often involve large‑scale, complex projects. The quality of our performance on such projectsdepends in large part upon our ability to manage the relationship with our clients and our ability to effectively manage theproject and deploy appropriate resources, including third‑party contractors and our own personnel, in a timely manner. Wemay commit to a client that we will complete a project by a scheduled date or that, when completed, a project will achievespecified performance standards. If the project is not completed by the scheduled date or fails to meet required performancestandards, we may either incur significant additional costs or be held responsible for the costs incurred by the client to rectifydamages due to late completion or failure to achieve the required performance standards. The uncertainty of the timing of aproject can present difficulties in planning the amount of personnel needed for the project. If the project is delayed orcanceled, we may bear the cost of an underutilized workforce that was dedicated to fulfilling the project. In addition,performance of projects can be affected by a number of factors beyond our control, including unavoidable delays fromgovernment inaction, public opposition, inability to obtain financing, weather conditions, unavailability of vendormaterials, changes in the project scope of services requested by our clients, industrial accidents, environmental hazards, andlabor disruptions. To the extent these events occur, the total costs of the project could exceed our estimates, and we couldexperience reduced profits or, in some cases, incur a loss on a project, which15 ®® Table of Contentsmay reduce or eliminate our overall profitability. Further, any defects or errors, or failures to meet our clients’ expectations,could result in claims for damages against us. Failure to meet performance standards or complete performance on a timelybasis could also adversely affect our reputation.A downturn in public and private sector construction activity in the regions we serve, or other conditions that impact theconstruction industry, may have a material adverse effect on our business, financial condition and results of operations.A downturn in construction activity in our geographic service areas may affect demand for our services, which couldhave a material adverse effect on our results of operations and our financial condition. During fiscal year 2015, a portion ofour contract revenue was generated by services rendered to public agencies in connection with private and public sectorconstruction projects.In the recent past, general economic conditions declined due to a number of factors including slower economicactivity, a lack of available credit, decreased consumer confidence and reduced corporate profits and capital spending,leading to a slowdown in construction, particularly residential housing construction, in the western United States. As a resultof this slowdown, both our engineering services segment and public finance services segment suffered declines in revenueand operating margin compression and we made several reductions in workforce and facility leases. While economicconditions have improved from fiscal year 2010 through fiscal year 2015, the recovery has been slow with regard to ourtraditional engineering and public finance services segments. If the economy declines again, we will need to evaluatewhether reductions in headcount and facilities in geographic areas that are underperforming are again needed.Our business, financial condition and results of operations may also be adversely affected by conditions that impactthe construction sector in general, including, among other things:·Changes in national and local market conditions due to changes in general or local economic conditions andneighborhood characteristics;·Slow‑growth or no‑growth initiatives or legislation;·Adverse changes in local and regional governmental policies on investment in infrastructure;·Adverse changes in federal and state policies regarding the allocation of funds to local and regional agencies;·The impact of present or future environmental legislation and compliance with environmental laws and otherregulatory requirements;·Changes in real estate tax rates and assessments;·Increases in interest rates and changes in the availability, cost and terms of financing;·Adverse changes in other governmental rules and fiscal policies; and·Earthquakes and other natural disasters, which can cause uninsured losses, and other factors which are beyondour control.Any of these factors could adversely affect the demand for our services, which could have a material adverse effecton our business, results of operations and financial condition.16 Table of ContentsChanges in the local and regional economies of California and New York could have a material adverse effect on ourbusiness, financial condition and results of operations.Adverse economic and other conditions affecting the local and regional economies of California and New York mayreduce the demand for our services, which could have a material adverse effect on our business, financial condition andresults of operations. During fiscal year 2015, approximately 47% and 28% of our contract revenue was derived fromservices rendered to public agencies, utilities, and private industry in California and New York, respectively. California andNew York each experienced an economic downturn in fiscal year 2009, which negatively impacted our revenue andprofitability. Any future downturns could have similar significant adverse impacts on our results of operations.We depend on a limited number of clients for a significant portion of our business.Our largest client, Consolidated Edison Company of New York, accounted for approximately 25% of ourconsolidated contract revenue in fiscal year 2015 and 25% in fiscal year 2014. Prior to July 2012, this revenue primarilyrelated to a contract we entered into in fiscal year 2009 with Consolidated Edison, which has terminated. We entered into anew contract with Consolidated Edison in July 2012, but this contract is for fewer services than the 2009 contract withConsolidated Edison. Our top five customers collectively accounted for approximately 46% of our revenue in fiscal year2015. The loss of, or reduction in orders from, these clients could have a material adverse effect on our business, financialcondition and results of operationsReductions in state and local government budgets could negatively impact their capital spending and adversely affect ourbusiness, financial condition and results of operations.Several of our state and local government clients are currently facing budget deficits, resulting in smaller budgetsand reduced capital spending, which has negatively impacted our revenue and profitability. Our state and local governmentclients may continue to face budget deficits that prohibit them from funding new or existing projects. In addition, existingand potential clients may either postpone entering into new contracts or request price concessions. If we are not able toreduce our costs quickly enough to respond to the revenue decline from these clients that may occur, our operating resultswould be adversely affected. Accordingly, these factors affect our ability to accurately forecast our future revenue andearnings from business areas that may be adversely impacted by market conditions.Because we primarily provide services to municipalities, public utilities and other public agencies, we are more susceptibleto the unique risks associated with government contracts.We primarily work for municipalities, public utilities and other public agencies. Consequently, we are exposed tocertain risks associated with government contracting, any one of which can have a material adverse effect on our business,financial condition or results of operations. These risks include:·The ability of the public agency to terminate the contract with 30 days’ prior notice or less;·Changes in government spending and fiscal policies which can have an adverse effect on demand for ourservices;·Contracts that are subject to government budget cycles, and often are subject to renewal on an annual basis;·The often wide variation of the types and pricing terms of contracts from agency to agency;·The difficulty of obtaining change orders and additions to contracts; and·The requirement to perform periodic audits as a condition of certain contract arrangements.17 Table of ContentsEach year, client funding for some of our government contracts may rely on government appropriations orpublic‑supported financing. If adequate public funding is delayed or is not available, then our profits and revenue coulddecline.Each year, client funding for some of our government contracts may directly or indirectly rely on governmentappropriations or public‑supported financing. Legislatures may appropriate funds for a given project on a year‑by‑year basis,even though the project may take more than one year to perform. In addition, public‑supported financing such as state andlocal municipal bonds may be only partially raised to support existing projects. Similarly, the impact of the economicdownturn on state and local governments may make it more difficult for them to fund projects. In addition to the state of theeconomy and competing political priorities, public funds and the timing of payment of these funds may be influenced by,among other things, curtailments in the use of government contracting firms, increases in raw material costs, delaysassociated with insufficient numbers of government staff to oversee contracts, budget constraints, the timing and amount oftax receipts, and the overall level of government expenditures. If adequate public funding is not available or is delayed, thenour profits and revenue could decline.We have made and expect to continue to make acquisitions that could disrupt our operations and adversely impact ourbusiness and operating results, including our recent acquisition of substantially all of the assets of Genesys EngineeringP.C. (“Genesys”). Our failure to conduct due diligence effectively, or our inability to successfully integrate acquisitions,could impede us from realizing all of the benefits of the acquisitions, which could weaken our results of operations.A key part of our growth strategy, as shown by our recent acquisition of Genesys and our January 2015 acquisitionsof Abacus Resource Management Company (“Abacus”) and 360 Energy Engineers, LLC (“360 Energy”), is to acquire othercompanies that complement our lines of business or that broaden our technical capabilities and geographic presence. Wemay continue to acquire companies as an element of our growth strategy; however, our ability to make acquisitions isrestricted under our amended credit agreement. Acquisitions involve certain known and unknown risks that could cause ouractual growth or operating results to differ from our expectations or the expectations of securities analysts. For example:·we may not be able to identify suitable acquisition candidates or to acquire additional companies on acceptableterms;·we compete with others to acquire companies, which may result in decreased availability of, or increased pricefor, suitable acquisition candidates;·we may not be able to obtain the necessary financing, on favorable terms or at all, to finance any of ourpotential acquisitions;·we may ultimately fail to consummate an acquisition even if we announce that we plan to acquire a company;and·acquired companies may not perform as we expect, and we may fail to realize anticipated revenue and profits.Our acquisition strategy may divert management’s attention away from our existing businesses, resulting in the lossof key clients or key employees, and expose us to unanticipated problems or legal liabilities, including responsibility as asuccessor‑in‑interest for undisclosed or contingent liabilities of acquired businesses or assets.If we fail to conduct due diligence on our potential targets effectively, we may, for example, not identify problems attarget companies, or fail to recognize incompatibilities or other obstacles to successful integration. Our inability tosuccessfully integrate future acquisitions could impede us from realizing all of the benefits of those acquisitions and couldseverely weaken our business operations. The integration process may disrupt our business and, if implemented ineffectively,may preclude realization of the full benefits expected by us and could harm our results of operations. In addition, the overallintegration of the combining companies may result in unanticipated problems,18 Table of Contentsexpenses, liabilities, and competitive responses, and may cause our stock price to decline. The difficulties of integrating anacquisition include, among others:·issues in integrating information, communications, and other systems;·incompatibility of logistics, marketing, and administration methods;·maintaining employee morale and retaining key employees;·integrating the business cultures of both companies;·preserving important strategic client relationships;·consolidating corporate and administrative infrastructures, and eliminating duplicative operations; and·coordinating and integrating geographically separate organizations.Even if the operations of an acquisition are integrated successfully, we may not realize the full benefits of theacquisition, including the synergies, cost savings or growth opportunities that we expect. These benefits may not beachieved within the anticipated time frame, or at all.Further, acquisitions may cause us to:·issue common stock that would dilute our current stockholders’ ownership percentage;·use a substantial portion of our cash resources;·increase our interest expense, leverage, and debt service requirements (if we incur additional debt to pay for anacquisition);·assume liabilities, including environmental liabilities, for which we do not have indemnification from theformer owners. Further, indemnification obligations may be subject to dispute or concerns regarding thecreditworthiness of the former owners;·record goodwill and non‑amortizable intangible assets that are subject to impairment testing and potentialimpairment charges;·experience volatility in earnings due to changes in contingent consideration related to acquisition earn‑outliability estimates;·incur amortization expenses related to certain intangible assets;·lose existing or potential contracts as a result of conflict of interest issues;·incur large and immediate write‑offs; or·become subject to litigation.19 Table of ContentsIf we are not able to successfully manage our growth strategy, our business and results of operations may be adverselyaffected.Our expected future growth presents numerous managerial, administrative, operational, and other challenges. Ourability to manage the growth of our operations will require us to continue to improve our management information systemsand our other internal systems and controls. In addition, our growth will increase our need to attract, develop, motivate, andretain both our management and professional employees. The inability to effectively manage our growth or the inability ofour employees to achieve anticipated performance could have a material adverse effect on our business.We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders,which may impact our ability to execute on our current or future business strategies.We anticipate that our current cash, cash equivalents, cash provided by operating activities and borrowing abilityunder our revolving line of credit will be sufficient to meet our current and anticipated needs for general corporate purposesduring the next 12 months. It is possible, however, that we may not generate sufficient cash flow from operations or otherwisehave the capital resources to meet our future capital needs.If we do not generate sufficient cash flow from operations or otherwise, we may need additional financing to executeon our current or future business strategies, including hiring additional personnel, developing new or enhancing existingservice lines, expanding our business geographically, enhancing our operating infrastructure, acquiring complementarybusinesses, or otherwise responding to competitive pressures. We cannot assure you that additional financing will beavailable to us on favorable terms, or at all. Furthermore, if we raise additional funds through the issuance of convertible debtor equity securities, the percentage ownership of our stockholders could be significantly diluted, and these newly issuedsecurities may have rights, preferences or privileges senior to those of existing stockholders. If adequate funds are notavailable or are not available on acceptable terms, if and when needed, our ability to fund our operations, meet obligations inthe normal course of business, take advantage of strategic opportunities, or otherwise respond to competitive pressures wouldbe significantly limited.Restrictive covenants in our credit agreement may restrict our ability to pursue certain business strategies. Our credit agreement limits or restricts our ability to, among other things: ·incur additional indebtedness; ·create liens securing debt or other encumbrances on our assets; ·make loans or advances; ·pay dividends or make distributions to our stockholders;·purchase or redeem our stock; ·repay indebtedness that is junior to indebtedness under our credit agreement; ·acquire the assets of, or merge or consolidate with, other companies; and ·sell, lease, or otherwise dispose of assets.Our credit agreement also requires that we maintain certain financial ratios, which we may not be able to achieve. The covenants may impair our ability to finance future operations or capital needs or to engage in other favorable businessactivities.20 Table of ContentsOur failure to win new contracts and renew existing contracts with private and public sector clients could adversely affectour profitability.Our business depends on our ability to win new contracts and renew existing contracts with private and public sector clients.Contract proposals and negotiations are complex and frequently involve a lengthy bidding and selection process, which isaffected by a number of factors. These factors include market conditions, financing arrangements, and required governmentalapprovals. For example, a client may require us to provide a bond or letter of credit to protect the client should we fail toperform under the terms of the contract. If negative market conditions arise, or if we fail to secure adequate financialarrangements or the required government approval, we may not be able to pursue particular projects, which could adverselyaffect our profitability.Our actual business and financial results could differ from the estimates and assumptions that we use to prepare ourfinancial statements, which may significantly reduce or eliminate our profits.To prepare financial statements in conformity with generally accepted accounting principles in the United States ofAmerica (“GAAP”), management is required to make estimates and assumptions as of the date of the financial statements.These estimates and assumptions affect the reported values of assets, liabilities, revenue and expenses, as well as disclosuresof contingent assets and liabilities. For example, we typically recognize revenue of our fixed price contracts over the life of acontract based on the proportion of costs incurred to date compared to the total costs estimated to be incurred for the entireproject. Areas requiring significant estimates by our management include:·the application of the percentage‑of‑completion method of accounting and revenue recognition on contracts,change orders, and contract claims, including related unbilled accounts receivable;·unbilled accounts receivable, including amounts related to requests for equitable adjustment to contracts thatprovide for price redetermination, primarily with the U.S. federal government. These amounts are recorded onlywhen they can be reliably estimated and realization is probable;·provisions for uncollectible receivables, client claims, and recoveries of costs from subcontractors, vendors, andothers;·provisions for income taxes, valuation allowances, and unrecognized tax benefits;·value of goodwill and recoverability of other intangible assets;·valuations of assets acquired and liabilities assumed in connection with business combinations;·valuation of contingent earn‑out liabilities recorded in connection with business combinations;·valuation of stock‑based compensation expense; and·accruals for estimated liabilities, including litigation and insurance reserves.Our actual business and financial results could differ from those estimates, which may significantly reduce or eliminate ourprofits.Our profitability could suffer if we are not able to maintain adequate utilization of our workforce.The cost of providing our services, including the extent to which we utilize our workforce, affects our profitability.The rate at which we utilize our workforce is affected by a number of factors, including:·our ability to transition employees from completed projects to new assignments and to hire and assimilate newemployees;21 Table of Contents·our ability to forecast demand for our services and thereby maintain an appropriate headcount in each of ourgeographies and workforces;·our ability to manage attrition;·our need to devote time and resources to training, business development, professional development, and othernon‑chargeable activities; and·our ability to match the skill sets of our employees to the needs of the marketplace.If we over‑utilize our workforce, our employees may become disengaged, which could impact employee attrition. Ifwe under‑utilize our workforce, our profit margin and profitability could suffer.Legislation may be enacted that limits the ability of state, regional or local agencies to contract for our privatized services.Such legislation would affect our ability to obtain new contracts and may decrease the demand for our services.Legislation is proposed periodically, particularly in the state of California, that attempts to limit the ability ofgovernmental agencies to contract with private consultants to provide services. Should such legislation pass and be upheld,demand for our services may be materially adversely affected. During fiscal year 2015, approximately 57% of our contractrevenue was derived from services rendered to public agencies, including public utilities, in California. While attempts atsuch legislation have failed in the past, such measures could be adopted in the future.Changes in resource management, environmental, or infrastructure industry laws, regulations, and programs could directlyor indirectly reduce the demand for our services, which could in turn negatively impact our revenue.Some of our services are directly or indirectly impacted by changes in U.S. federal, state, local or foreign laws andregulations pertaining to the resource management, environmental, and infrastructure industries. Accordingly, a relaxationor repeal of these laws and regulations, or changes in governmental policies regarding the funding, implementation orenforcement of these programs, could result in a decline in demand for our services, which could in turn negatively impactour revenue. State and other public employee unions may bring litigation that seeks to limit the ability of public agencies to contractwith private firms to perform government employee functions in the area of public improvements. Judicial determinationsin favor of these unions could affect our ability to compete for contracts and may have an adverse effect on our revenue andprofitability.For more than 20 years, state and other public employee unions have challenged the validity of propositions,legislation, charters and other government regulations that allow public agencies to contract with private firms to provideservices in the fields of engineering, design and construction of public improvements that might otherwise be provided bypublic employees. These challenges could have the effect of eliminating, or severely restricting, the ability of municipalitiesto hire private firms for the purpose of designing and constructing public improvements, and otherwise require them to useunion employees to perform the services.For example, the Professional Engineers in California Government, or PECG, a union representing state civil serviceemployees, began challenging Caltrans’ hiring of private firms in 1986, and in 2002 began a judicial challenge of Caltrans’hiring practices based on Caltrans’ interpretation of the effect of Proposition 35 (Professional Engineers in CaliforniaGovernment, et al. v. Kempton). The California Supreme Court ruled in favor of Caltrans, concluding that Caltrans may hireprivate contractors to perform architectural and engineering services on public works. Although Caltrans was successful inthis litigation, similar claims may be brought in the future and we cannot predict their outcome. If a state or other publicemployee union is successful in its challenge and as a result the ability of state agencies to hire private firms is severelylimited, such a decision would likely lead to additional litigation challenging the ability of the state, counties,municipalities and other public agencies to hire private engineering, architectural and other22 Table of Contentsfirms, the outcome of which could affect our ability to compete for contracts and may have an adverse effect on our revenueand profitability.Changes in elected or appointed officials could have a material adverse effect on our ability to retain an existing contractwith or obtain additional contracts from a public agency.Since the decision to retain our services is made by individuals, such as city managers, city councils and otherelected or appointed officials, our business and financial results or condition could be adversely affected by the results oflocal and regional elections. A change in the individuals responsible for selecting consultants for and awarding contracts onbehalf of a public agency due to an election could adversely affect our ability to retain an existing contract with or obtainadditional contracts from such public agency.Fixed price contracts under which we perform some of our services impose risks to our ability to maintain or grow ourprofitability.In fiscal year 2015, approximately 35% of our contract revenue was derived from fixed price contracts. Under fixedprice contracts, we perform services under a contract at a stipulated price which protects clients but exposes us to a greaternumber of risks than time‑and‑materials and unit‑based contracts. These risks include:·Underestimation of costs;·Ambiguities in specifications;·Problems with new technologies;·Unforeseen costs or difficulties;·Failures of subcontractors;·Delays beyond our control; and·Economic and other changes that may occur during the contract period.The occurrence of any such risk could have a material adverse effect on our results of operations or financialcondition.Our use of the percentage‑of‑completion method of revenue recognition on our fixed price contracts could result in areduction or reversal of previously recorded revenue and profits.We account for our fixed price contracts on the percentage‑of‑completion method of revenue recognition. Generally,our use of this method results in recognition of revenue and profit ratably over the life of the contract, based on theproportion of costs incurred to date to total costs expected to be incurred for the entire project. The effects of revisions torevenue and estimated costs, including the achievement of award fees and the impact of change orders and claims, arerecorded when the amounts are known and can be reasonably estimated. Such revisions could occur in any period and theireffects could be material. Although we have historically made reasonably reliable estimates of the progress towardscompletion of long‑term contracts, the uncertainties inherent in the estimating process make it possible for actual costs tovary materially from estimates, including reductions or reversals of previously recorded revenue and profit.23 Table of ContentsIf our goodwill or other intangible assets become impaired, then our profits may be significantly reduced.Because we have historically acquired a significant number of companies, goodwill and other intangible assetsrepresent a substantial portion of our assets. As of January 1, 2016, our goodwill was $16.1 million and other intangibleassets were $1.5 million. We are required to perform a goodwill impairment test for potential impairment at least on anannual basis. We also assess the recoverability of the unamortized balance of our intangible assets when indications ofimpairment are present based on expected future profitability and undiscounted expected cash flows and their contributionto our overall operations. The goodwill impairment test requires us to determine the fair value of our reporting units, whichare the components one level below our reportable segments. In determining fair value, we make significant judgments andestimates, including assumptions about our strategic plans with regard to our operations. We also analyze current economicindicators and market valuations to help determine fair value. To the extent economic conditions that would impact thefuture operations of our reporting units change, our goodwill may be deemed to be impaired, and we would be required torecord a non-cash charge that could result in a material adverse effect on our financial position or results of operations.Changes in the perceived risk of acts of terrorism or natural disasters could have a material adverse effect on our ability togrow our Homeland Security Services business.If there is a significant decrease in the perceived risk of the likelihood that one or more acts of terrorism will beconducted in the United States, or a significant decrease in the perceived risk of the occurrence of natural disasters, ourability to grow and generate revenue through our Homeland Security Services segment, could be negatively affected. OurHomeland Security Services segment provides training and consulting services to local and regional agencies related topreparing for and responding to incidents of terrorism and natural disaster. Should the perceived risk of such incidencedecline, federal and state funding for homeland security and emergency preparedness could be reduced, which mightdecrease demand for our services and have a material adverse effect on our business, financial condition and results ofoperations.The loss of key personnel or our inability to attract and retain qualified personnel could impair our ability to provideservices to our clients and otherwise conduct our business effectively.As primarily a professional and technical services company, we are labor‑intensive and, therefore, our ability toattract, retain, and expand our senior management and our professional and technical staff is an important factor indetermining our future success. The market for qualified engineers is competitive and, from time to time, it may be difficult toattract and retain qualified individuals with the required expertise within the timeframe demanded by our clients. In addition,we rely heavily upon the expertise and leadership of our senior management. If we are unable to retain executives and otherkey personnel, the roles and responsibilities of those employees will need to be filled, which may require that we devote timeand resources to identify, hire, and integrate new employees. The loss of the services of any of these key personnel couldadversely affect our business. We do not maintain key‑man life insurance policies on any of our executive officers or seniormanagers. Our failure to attract and retain key individuals could impair our ability to provide services to our clients andconduct our business effectively.We operate in a highly fragmented industry, and we may not be able to compete effectively with our larger competitors.The market for energy efficiency, engineering and planning, economic and financial consulting and nationalpreparedness and interoperability services is competitive and highly fragmented. Contract awards are based primarily onquality of service, relevant experience, staffing capabilities, reputation, geographic presence, stability and price. Some of ourcompetitors in certain service areas have more personnel and greater financial, technical and marketing resources than us. Inparticular, our energy efficiency and sustainability consulting services, which represented approximately 55% and 49% ofour contract revenue for fiscal years 2015 and 2014, respectively, competes with larger energy efficiency consulting firmssuch as Lockheed‑Martin, EnerPath, KEMA (a division of the DNV Group) Clear Result, Franklin Energy, ICF International,Inc., and Nexant, Inc. Our competitors for engineering related services, which represented approximately 34% and 38% of ourcontract revenue for fiscal years 2015 and 2014, respectively, include many larger consulting firms such as Charles Abbott &Associates, Inc., Harris & Associates, RBF Consulting, Tetra Tech, Inc.,24 Table of ContentsStantec, Inc., Michael Baker Corporation, TRC Companies, Inc., AECOM Technology Corporation, CH2M Hill and JacobsEngineering Group, Inc. In certain public finance consulting services, we may compete with large accounting firms. We canoffer no assurance that we will be able to compete successfully in the future with these or other competitors.Our services may expose us to liability in excess of our current insurance coverage, which may have a material adverseeffect on our liquidity.Our services involve significant risks of professional and other liabilities, which may substantially exceed the feeswe derive from our services. In addition, from time to time, we assume liabilities as a result of indemnification provisionscontained in our service contracts. We cannot predict the magnitude of these potential liabilities.We currently maintain the following insurance coverage: commercial general liability with limits of $1.0 millionper occurrence and $2.0 million general aggregate; automobile liability insurance with limits of $1.0 million per occurrence;employer’s liability with limits of $1.0 million per occurrence. We also carry professional liability insurance with adeductible of $250,000 and limits of $7.5 million per claim and $15.0 million annual aggregate, excess liability insurancewith a limit of $10.0 million, an umbrella/excess liability insurance of $25.0 million per occurrence and aggregate, andworkers’ compensation insurance of $1.0 million. We are liable to pay these claims from our assets if and when the aggregatesettlement or judgment amount exceeds our policy limits. We are liable to pay claims from our assets if and when theaggregate settlement or judgment amount exceeds our policy limits. Our professional liability policy is a “claims made”policy. Thus, only claims made during the term of the policy are covered. If we terminate our professional liability policy anddo not obtain retroactive coverage, we would be uninsured for claims made after termination even if these claims are basedon events or acts that occurred during the term of the policy. Further, our insurance may not protect us against liabilitybecause our policies typically have various exceptions to the claims covered and also require us to assume some costs of theclaim even though a portion of the claim may be covered. In addition, if we expand into new markets, we may not be able toobtain insurance coverage for these new activities or, if insurance is obtained, the dollar amount of any liabilities incurredcould exceed our insurance coverage. A partially or completely uninsured claim, if successful and of significant magnitude,could have a material adverse effect on our liquidity.Unavailability or cancellation of third-party insurance coverage would increase our overall risk exposure as well asdisrupt the management of our business operations.We maintain insurance coverage from third-party insurers as part of our overall risk management strategy andbecause some of our contracts require us to maintain specific insurance coverage limits. If any of our third-party insurers fail,suddenly cancel our coverage, or otherwise are unable to provide us with adequate insurance coverage, then our overall riskexposure and our operational expenses would increase and the management of our business operations would be disrupted. In addition, there can be no assurance that any of our existing insurance coverage will be renewable upon the expiration ofthe coverage period or that future coverage will be affordable at the required limits.If our business partners fail to perform their contractual obligations on a project, we could be exposed to legal liability,loss of reputation and profit reduction or loss on the project.We routinely enter into subcontracts and, occasionally, joint ventures, teaming arrangements, and other contractualarrangements so that we can jointly bid and perform on a particular project. Success under these arrangements depends inlarge part on whether our business partners fulfill their contractual obligations satisfactorily. In addition, when we operatethrough a joint venture in which we are a minority holder, we have limited control over many project decisions, includingdecisions related to the joint venture’s internal controls, which may not be subject to the same internal control proceduresthat we employ. If these unaffiliated third parties do not fulfill their contract obligations, the partnerships or joint venturesmay be unable to adequately perform and deliver their contracted services. Under these circumstances, we may be obligatedto pay financial penalties, provide additional services to ensure the adequate performance and delivery of the contractedservices, and may be jointly and severally liable for the other’s actions or contract performance. These additional obligationscould result in reduced profits and revenues or, in25 Table of Contentssome cases, significant losses for us with respect to the joint venture, which could also affect our reputation in the industrieswe serve.We often rely on subcontractors. The quality of our service and our ability to perform under some of our contracts would beadversely affected if qualified subcontractors are unavailable for us to engage.Under some of our contracts, we rely on the efforts and skills of subcontractors for the performance of some of thetasks. Subcontractor services and other direct costs comprised approximately 37% and 33% of our contract revenue in fiscalyears 2015 and 2014, respectively. Our use of subcontractors has increased in recent years primarily because of ouracquisitions of Abacus and 360 Energy in our energy efficiency services business. Our subsidiary Willdan Energy Solutionsgenerally utilizes a higher percentage of subcontractors than our other subsidiaries. The absence of qualified subcontractorswith whom we have a satisfactory relationship could adversely affect the quality of our service offerings and therefore ourfinancial results. Additionally, we may have disputes with our subcontractors arising from, among other things, the qualityand timeliness of work performed by the subcontractor or client concerns about the subcontractor.If our contractors and subcontractors fail to satisfy their obligations to us or other parties, or if we are unable to maintainthese relationships, our revenue, profitability, and growth prospects could be adversely affected.We depend on contractors and subcontractors in conducting our business. There is a risk that we may have disputeswith our subcontractors arising from, among other things, the quality and timeliness of work performed by the subcontractor,client concerns about the subcontractor, or our failure to extend existing task orders or issue new task orders under asubcontract. In addition, if a subcontractor fails to deliver on a timely basis the agreed‑upon supplies, fails to perform theagreed‑upon services, or goes out of business, then we may be required to purchase the services or supplies from anothersource at a higher price, and our ability to fulfill our obligations as a prime contractor may be jeopardized. This may reducethe profit to be realized or result in a loss on a project for which the services or supplies are needed.We also rely on relationships with other contractors when we act as their subcontractor or joint venture partner. Theabsence of qualified subcontractors with which we have a satisfactory relationship could adversely affect the quality of ourservice and our ability to perform under some of our contracts. Our future revenue and growth prospects could be adverselyaffected if other contractors eliminate or reduce their subcontracts or teaming arrangement relationships with us, or if agovernment agency terminates or reduces these other contractors’ programs, does not award them new contracts, or refuses topay under a contract.If our reports and opinions are not in compliance with professional standards and other regulations, we could be subject tomonetary damages and penalties.We issue reports and opinions to clients based on our professional engineering expertise, as well as our otherprofessional credentials. Our reports and opinions may need to comply with professional standards, licensing requirements,securities regulations, and other laws and rules governing the performance of professional services in the jurisdiction inwhich the services are performed. In addition, we could be liable to third parties who use or rely upon our reports or opinionseven if we are not contractually bound to those third parties. For example, if we deliver an inaccurate report or one that is notin compliance with the relevant standards, and that report is made available to a third party, we could be subject tothird‑party liability, resulting in monetary damages and penalties.We may be required to pay liquidated damages if we fail to meet milestone requirements in our contracts.We may be required to pay liquidated damages if we fail to meet milestone requirements in our contracts. Failure tomeet any of the milestone requirements could result in additional costs, and the amount of such additional costs couldexceed the projected profits on the project. These additional costs include liquidated damages paid under contractualpenalty provisions, which can be substantial and can accrue on a regular basis.26 Table of ContentsWe have incurred, and will continue to incur, significant costs as a public company.As a public company, we incur significant legal, accounting and other expenses that we would not incur as a privatecompany such as more costly director and officer liability insurance and legal and financial compliance costs. If new rulesand regulations for public companies are put in place, our compliance costs may increase further and make some activitiesmore time‑consuming and costly.Changes in resource management, environmental, or infrastructure industry laws, regulations, and programs could directlyor indirectly reduce the demand for our services, which could in turn negatively impact our revenue.Some of our services are directly or indirectly impacted by changes in U.S. federal, state, local or foreign laws andregulations pertaining to the resource management, environmental, and infrastructure industries. Accordingly, a relaxation orrepeal of these laws and regulations, or changes in governmental policies regarding the funding, implementation orenforcement of these programs, could result in a decline in demand for our services, which could in turn negatively impactour revenue.Force majeure events, including natural disasters and terrorist actions, could negatively impact the economies in which weoperate or disrupt our operations, which may affect our financial condition, results of operations, or cash flows.Force majeure or extraordinary events beyond the control of the contracting parties, such as natural and man‑madedisasters, as well as terrorist actions, could negatively impact the economies in which we operate by causing the closure ofoffices, interrupting projects, and forcing the relocation of employees. We typically remain obligated to perform our servicesafter a terrorist action or natural disaster unless the contract contains a force majeure clause that relieves us of our contractualobligations in such an extraordinary event. If we are not able to react quickly to force majeure, our operations may beaffected significantly, which would have a negative impact on our financial condition, results of operations, or cash flows.We have only a limited ability to protect our intellectual property rights, and our failure to protect our intellectualproperty rights could adversely affect our competitive position.Our success depends, in part, upon our ability to protect our proprietary information and other intellectual property.We rely principally on trade secrets to protect much of our intellectual property where we do not believe that patent orcopyright protection is appropriate or obtainable. However, trade secrets are difficult to protect. Although our employees aresubject to confidentiality obligations, this protection may be inadequate to deter or prevent misappropriation of ourconfidential information. In addition, we may be unable to detect unauthorized use of our intellectual property or otherwisetake appropriate steps to enforce our rights. Failure to obtain or maintain trade secret protection could adversely affect ourcompetitive business position. In addition, if we are unable to prevent third parties from infringing or misappropriating ourtrademarks or other proprietary information, our competitive position could be adversely affected.Employee, agent, or partner misconduct, or our failure to comply with anti-bribery and other laws or regulations, couldharm our reputation, reduce our revenue and profits, and subject us to criminal and civil enforcement actions.Misconduct, fraud, non-compliance with applicable laws and regulations, or other improper activities by one of ouremployees, agents, or partners could have a significant negative impact on our business and reputation. Such misconductcould include the failure to comply with government procurement regulations, regulations regarding the protection ofclassified information, regulations prohibiting bribery and other foreign corrupt practices, regulations regarding the pricingof labor and other costs in government contracts, regulations on lobbying or similar activities, regulations pertaining to theinternal controls over financial reporting, environmental laws, and any other applicable laws or regulations. Our policiesmandate compliance with these regulations and laws, and we take precautions to prevent and detect misconduct. However,since our internal controls are subject to inherent limitations, including human error, it is possible that these controls couldbe intentionally circumvented or become inadequate because of changed conditions. As a result, we cannot assure that ourcontrols will protect us from reckless or criminal acts committed by27 Table of Contentsour employees or agents. Our failure to comply with applicable laws or regulations, or acts of misconduct could subject us tofines and penalties, loss of security clearances, and suspension or debarment from contracting, any or all of which could harmour reputation, reduce our revenue and profits, and subject us to criminal and civil enforcement actions.Our failure to implement and comply with our safety program could adversely affect our operating results or financialcondition.Our safety program is a fundamental element of our overall approach to risk management, and the implementation ofthe safety program is a significant issue in our dealings with our clients. We maintain an enterprise-wide group of health andsafety professionals to help ensure that the services we provide are delivered safely and in accordance with standard workprocesses. Unsafe job sites and office environments have the potential to increase employee turnover, increase the cost of aproject to our clients, expose us to types and levels of risk that are fundamentally unacceptable, and raise our operatingcosts. The implementation of our safety processes and procedures are monitored by various agencies and rating bureaus, andmay be evaluated by certain clients in cases in which safety requirements have been established in our contracts. Our failureto meet these requirements or our failure to properly implement and comply with our safety program could result in reducedprofitability or the loss of projects or clients, and could have a material adverse effect on our business, operating results, orfinancial condition.We may be subject to liabilities under environmental laws and regulations.Our services are subject to numerous U.S. and international environmental protection laws and regulations that arecomplex and stringent. For example, we must comply with a number of U.S. federal government laws that strictly regulatethe handling, removal, treatment, transportation, and disposal of toxic and hazardous substances. Under the ComprehensiveEnvironmental Response Compensation and Liability Act of 1980, as amended (“CERCLA”), and comparable state laws, wemay be required to investigate and remediate regulated hazardous materials. CERCLA and comparable state laws typicallyimpose strict, joint and several liabilities without regard to whether a company knew of or caused the release of hazardoussubstances. The liability for the entire cost of clean-up could be imposed upon any responsible party. Other principal U.S.federal environmental, health, and safety laws affecting us include, but are not limited to, the Resource Conversation andRecovery Act, National Environmental Policy Act, the Clean Air Act, the Occupational Safety and Health Act, the FederalMine Safety and Health Act of 1977 (the “Mine Act”), the Toxic Substances Control Act, and the Superfund Amendmentsand Reauthorization Act. Our business operations may also be subject to similar state and international laws relating toenvironmental protection. Further, past business practices at companies that we have acquired may also expose us to futureunknown environmental liabilities. Liabilities related to environmental contamination or human exposure to hazardoussubstances, or a failure to comply with applicable regulations, could result in substantial costs to us, including clean-upcosts, fines, civil or criminal sanctions, and third-party claims for property damage or personal injury or cessation ofremediation activities. Our continuing work in the areas governed by these laws and regulations exposes us to the risk ofsubstantial liability.Delaware law and our charter documents may impede or discourage a merger, takeover, or other business combinationeven if the business combination would have been in the best interests of our stockholders. We are a Delaware corporation and the anti-takeover provisions of Delaware law impose various impediments to theability of a third party to acquire control of us, even if a change in control would be beneficial to our stockholders. Inaddition, our Board of Directors has the power, without stockholder approval, to designate the terms of one or more series ofpreferred stock and issue shares of preferred stock, which could be used defensively if a takeover is threatened. Ourincorporation under Delaware law, the ability of our Board of Directors to create and issue a new series of preferred stock, andprovisions in our certificate of incorporation and bylaws, such as those relating to advance notice of certain stockholderproposals and nominations, could impede a merger, takeover, or other business combination involving us, or discourage apotential acquirer from making a tender offer for our common stock, even if the business combination would have been in thebest interests of our current stockholders.28 Table of ContentsSystems and information technology interruption could adversely impact our ability to operate.We rely heavily on computer, information, and communications technology and systems to operate. From time totime, we experience system interruptions and delays. If we are unable to effectively deploy software and hardware, upgradeour systems and network infrastructure, and take steps to improve and protect our systems, systems operations could beinterrupted or delayed.Our computer and communications systems and operations could be damaged or interrupted by natural disasters,telecommunications failures, acts of war or terrorism, and similar events or disruptions. In addition, we face the threat ofunauthorized system access, computer hackers, computer viruses, malicious code, organized cyber‑attacks, and other securitybreaches and system disruptions. We devote significant resources to the security of our computer systems, but they may stillbe vulnerable to threats. Anyone who circumvents security measures could misappropriate proprietary information or causeinterruptions or malfunctions in system operations. As a result, we may be required to expend significant resources to protectagainst the threat of system disruptions and security breaches, or to alleviate problems caused by disruptions and breaches.Any of these or other events could cause system interruption, delays, and loss of critical data that could delay orprevent operations, and could have a material adverse effect on our business, financial condition, results of operations, andcash flows, and could negatively impact our clients.The price of our common stock has fluctuated significantly in the past year and may continue to be volatile, which maymake it difficult for you to resell your common stock when you want or at prices you find attractive.The price of our common stock is volatile and may fluctuate significantly. For example, during our fiscal year endedJanuary 1, 2016, the closing price of our stock ranged from a high of $16.17 per share to a low of $8.06 per share. We cannotassure you as to the prices at which our common stock will trade or that an active trading market in our common stock will besustained in the future. In addition to the matters discussed in other risk factors included herein, some of the reasons forfluctuations in our stock price could include:·our operating and financial performance and prospects;·the depth and liquidity of the market for our common stock;·investor perception of us and the industry in which we operate;·the level, or lack thereof, of research coverage of our common stock;·general financial, domestic, international, economic and other market conditions;·proposed acquisitions by us or our competitors;·the hiring or departure of key personnel; and·adverse judgments or settlements obligating us to pay damages.In addition, public stock markets have experienced, and may in the future experience, extreme price and tradingvolume volatility. This volatility has significantly affected the market prices of securities of many companies, including ourpeer companies. These broad market fluctuations may adversely affect the market price of our common stock.Cautionary Statement Regarding Forward‑Looking InformationIn addition to current and historical information, this report contains forward‑looking statements within the meaningof the Private Securities Litigation Reform Act of 1995. These statements relate to our future operations,29 Table of Contentsprospects, potential products, services, developments and business strategies. These statements can, in some cases, beidentified by the use of words like “may,” “will,” “should,” “could,” “would,” “intend,” “expect,” “plan,” “anticipate,”“believe,” “estimate,” “predict,” “project,” “potential,” or “continue” or the negative of such terms or other comparableterminology. This report includes, among others, forward‑looking statements regarding our:·Ability to achieve energy savings goals on our contracts;·Expectations about future customers;·Expectations regarding the industries and geographies that we primarily serve, including the impact ofeconomic conditions in those industries and geographies;·Ability to successfully integrate our recent acquisitions;·Expectations about our service offerings;·Expectations about our ability to cross‑sell additional services to existing clients;·Expectations about our intended geographical expansion;·Expectations about our ability to attract and retain executive officers and key employees;·Expectations about the impact of legislation on our business and that of our customers;·Evaluation of the materiality of our current legal proceedings; and·Expectations about positive cash flow generation and existing cash and cash equivalents being sufficient tomeet normal operating requirements.These statements involve certain known and unknown risks and uncertainties that could cause our actual results todiffer materially from those expressed or implied in our forward‑looking statements. Such risks and uncertainties include,among others, those listed in this section. We do not intend, and undertake no obligation, to update any of ourforward‑looking statements after the date of this report to reflect actual results or future events or circumstances. ITEM 1B. UNRESOLVED STAFF COMMENTSNone. ITEM 2. PROPERTIESOur corporate headquarters are located in approximately 18,000 square feet of office space that we lease at 2401East Katella Avenue, Anaheim, California. In addition, we lease office space in 37 other locations nationwide, principally inCalifornia and New York. In total, our facilities contain approximately 138,000 square feet of office space and are subject toleases that expire through February 2023. We rent a small portion of this space on a month‑to‑month basis. We believe thatour existing facilities are adequate to meet current requirements and that suitable additional or substitute space will beavailable as needed to accommodate any expansion of operations and for additional offices. ITEM 3. LEGAL PROCEEDINGSWe are subject to claims and lawsuits from time to time, including those alleging professional errors or omissionsthat arise in the ordinary course of business against firms, like ours, that operate in the engineering and consultingprofessions. We carry professional liability insurance, subject to certain deductibles and policy limits, for such claims as theyarise and may from time to time establish reserves for litigation that is considered probable of a loss.30 Table of ContentsIn accordance with accounting standards regarding loss contingencies, we accrue an undiscounted liability for thosecontingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and we disclose theamount accrued and an estimate of any reasonably possible loss in excess of the amount accrued, if such disclosure isnecessary for our financial statements not to be misleading. We do not accrue liabilities when the likelihood that the liabilityhas been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be onlyreasonably possible or remote.Because litigation outcomes are inherently unpredictable, our evaluation of legal proceedings often involves aseries of complex assessments by management about future events and can rely heavily on estimates and assumptions. If theassessments indicate that loss contingencies that could be material to any one of our financial statements are not probable,but are reasonably possible, or are probable, but cannot be estimated, then we disclose the nature of the loss contingencies,together with an estimate of the possible loss or a statement that such loss is not reasonably estimable. While theconsequences of certain unresolved proceedings are not presently determinable, and a reasonable estimate of the probableand reasonably possible loss or range of loss in excess of amounts accrued for such proceedings cannot be made, an adverseoutcome from such proceedings could have a material adverse effect on our earnings in any given reporting period. However,in the opinion of our management, after consulting with legal counsel, and taking into account insurance coverage, theultimate liability related to current outstanding claims and lawsuits is not expected to have a material adverse effect on ourfinancial statements.City of Glendale v. Willdan Financial Services, Superior Court of California, Los Angeles CountyA complaint was filed against us on July 16, 2014 relating to a project performed by Willdan Financial Services toprepare a Cost of Services Analysis (a “COSA”) for the Department of Water and Power of the City of Glendale, California(the “City of Glendale”). The purpose of the COSA was to assist the City of Glendale in setting water rates for propertyowners. The lawsuit alleges that the City of Glendale suffered damages due to mistakes in the COSA, as follows: the City ofGlendale received less revenue than anticipated in an amount exceeding $9,000,000; the City of Glendale was required toretain another consultant to prepare a new COSA at the cost of $130,000; and the City of Glendale incurred costs associatedwith noticing and conducting public hearings at a cost of $83,052. We deny the allegations asserted in the lawsuit and willvigorously defend against the claims. Additionally, this matter is covered under our professional liability insurance policywhich has limits of $5,000,000 per claim and $10,000,000 annual aggregate. ITEM 4. MINE SAFETY DISCLOSURESNot applicable.31 Table of ContentsPART II ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK, RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIESMarket Information for Common StockSince November 21, 2006, the common stock of Willdan Group, Inc. has been listed and traded on the NASDAQGlobal Market under the symbol “WLDN”. The following table sets out the high and low daily closing sale prices as reportedon the NASDAQ Global Market for fiscal years 2015 and 2014. These reported prices reflect inter‑dealer prices withoutadjustments for retail markups, markdowns, or commissions. 2015 2014 High Low High Low 1st Quarter $15.84 $11.71 $5.31 $4.44 2 Quarter $16.17 $10.66 $8.31 $4.45 3 Quarter $11.50 $8.22 $13.82 $7.34 4 Quarter $11.98 $8.06 $18.42 $10.80 On March 15, 2016, the closing sales price per share of our common stock, as reported on the NASDAQ GlobalMarket, was $8.93.StockholdersAs of March 15, 2016, there were 155 stockholders of record of our common stock.DividendsWe did not declare or pay cash dividends on our common stock in fiscal years 2015 and 2014. Our revolving creditagreement prohibits the payment of any dividend or distribution on our common stock either in cash, stock or any otherproperty without the lender’s consent.Recent Sales of Unregistered SecuritiesOn January 15, 2015, in connection with our acquisition of Abacus, we issued 75,758 shares of common stock (the“Abacus Stock Issuance”) to the selling shareholders of Abacus with an agreed upon value of $0.9 million (based on thevolume‑weighted average price of shares of common stock for the ten trading days immediately prior to, but not including,January 15, 2015). Specifically, we issued 37,879 shares of common stock to Mr. Kinzer and 37,879 shares of common stockto Mr. Rubbert.On January 15, 2015, in connection with our acquisition of 360 Energy, we issued 47,348 shares of common stock(the “360 Energy Stock Issuance”) to 360 Energy with an agreed upon value of $0.6 million (based on the volume‑weightedaverage price of shares of common stock for the ten trading days immediately prior to, but not including, January 15, 2015).On March 4, 2016, in connection with our acquisition of Genesys, we issued 255,808 shares of common stock (the“Genesys Stock Issuance”) to the selling shareholders of Genesys with an agreed upon value of $2 million (based on thevolume-weighted average price of shares of common stock for the ten trading days immediately prior to, but not includingFebruary 26, 2016). Specifically, we issued 127,904 shares of common stock to Mr. Mineo and 127,904 shares of commonstock to Mr. Braun.The issuances of common stock in the Abacus Stock Issuance, the 360 Energy Stock Issuance, and the GenesysStock Issuance were not registered under the Securities Act of 1933, as amended (the “Securities Act”). Such shares32 ndrdth Table of Contentswere issued in private placements exempt from the registration requirements of the Securities Act, in reliance on theexemptions set forth in Section 4(a)(2) of the Securities Act.Issuer Purchases of Equity SecuritiesNone. ITEM 6. SELECTED FINANCIAL DATAThe financial data set forth below should be read in conjunction with our corresponding consolidated financialstatements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operationsincluded elsewhere in this annual report. Fiscal Year 2015 2014 2013 2012 2011 (in thousands except per share amounts) Consolidated Statement of Operations Data: Contract revenue $135,103 $108,080 $85,510 $93,443 $107,165 Direct costs of contract revenue (exclusive ofdepreciation and amortization shown separately below): Salaries and wages 31,880 28,207 24,098 23,218 25,714 Subcontractor services and other direct costs 50,200 35,611 24,831 35,741 39,013 Total direct costs of contract revenue 82,080 63,818 48,929 58,959 64,727 General and administrative expenses: Salaries and wages, payroll taxes, employee benefits 25,741 21,394 20,555 22,421 22,594 Facilities and facility related 4,246 4,371 4,654 4,871 4,875 Stock‑based compensation 777 258 150 227 201 Depreciation and amortization 2,072 459 517 671 877 Lease abandonment (recovery), net — 9 30 26 2 Impairment of goodwill — — — 15,208 — Other 12,657 9,462 8,067 10,315 10,488 Total general and administrative expenses 45,493 35,953 33,973 53,739 39,037 Income (loss) from operations 7,530 8,309 2,608 (19,255) 3,401 Other income (expense): Interest income — 8 10 6 5 Interest expense (207) (16) (94) (106) (77) Other, net 18 125 238 (28) 1 Total other (expense) income, net (189) 117 154 (128) (71) Income (loss) before income tax expense 7,341 8,426 2,762 (19,383) 3,330 Income tax expense (benefit) 3,082 (990) 132 (2,083) 1,500 Net income (loss) $4,259 $9,416 $2,630 $(17,300) $1,830 Earnings (loss) per common share: Basic $0.54 $1.26 $0.36 $(2.37) $0.25 Diluted $0.52 $1.22 $0.35 $(2.37) $0.24 Weighted average common shares outstanding: Basic 7,834 7,488 7,355 7,310 7,262 Diluted 8,113 7,739 7,495 7,310 7,485 Other Operating Data (unaudited): Adjusted EBITDA(1) $10,167 $8,893 $3,431 $(3,338) $4,346 Employee headcount at period end(2) 688 637 534 534 562 33 Table of Contents Fiscal Year Ended January1, January2, December27, December28, December 30, 2016 2015 2013 2012 2011 Consolidated Balance Sheet Data: Cash and cash equivalents $16,487 $18,173 $8,134 $10,006 $3,001 Working capital 22,499 27,537 15,706 13,099 13,083 Total assets 72,345 49,330 38,237 41,977 64,311 Total indebtedness(3) 5,823 985 731 3,904 1,232 Total stockholders’ equity 37,616 30,413 20,213 17,351 34,293 (1)Adjusted EBITDA is a supplemental measure used by our management to measure our operating performance. Wedefine Adjusted EBITDA as net income (loss) plus interest expense (income), income tax expense (benefit),goodwill impairment, interest accretion and depreciation and amortization. Adjusted EBITDA is not a measure ofnet income (loss) determined in accordance with U.S. generally accepted accounting principles, or GAAP. Webelieve Adjusted EBITDA is useful because it allows our management to evaluate our operating performance andcompare the results of our operations from period to period and against our peers without regard to our financingmethods, capital structure and non-operating expenses. We use Adjusted EBITDA to evaluate our performance for,among other things, budgeting, forecasting and incentive compensation purposes. Adjusted EBITDA has limitationsas an analytical tool and should not be considered as an alternative to, or more meaningful than, net income (loss) asdetermined in accordance with GAAP. Certain items excluded from Adjusted EBITDA are significant components inunderstanding and assessing a company’s financial performance, such as a company’s costs of capital, as well as thehistorical costs of depreciable assets. Our definition of Adjusted EBITDA may also differ from those of manycompanies reporting similarly named measures.The following is a reconciliation of net income (loss) to Adjusted EBITDA (in thousands): Fiscal Year 2015 2014 2013 2012 2011 Net income (loss) $4,259 $9,416 $2,630 $(17,300) $1,830 Interest income — (8) (10) (6) (5) Interest expense 207 16 94 106 77 Income tax (benefit) expense 3,082 (990) 132 (2,083) 1,500 Impairment of goodwill — — — 15,208 — Interest accretion 547 — — — — Depreciation and amortization 2,072 459 585 737 944 Adjusted EBITDA $10,167 $8,893 $3,431 $(3,338) $4,346 (2)Includes full‑time and part‑time employees.(3)Total indebtedness includes notes payable outstanding under our delayed draw term loan facility and notes payablethat we issued to the sellers of Abacus and 360 Energy in connection with our acquisition of each in January2015. We had no amounts outstanding under our revolving line of credit as of January 1, 2016. Total indebtednessdoes not include the earn-out payments owed in connection with our acquisitions of 360 Energy, Abacus andEconomist LLC.34 Table of ContentsITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONSOverviewWe are a provider of professional technical and consulting services to utilities, private industry, and public agenciesat all levels of government. Nationwide, we enable our clients to realize cost and energy savings by providing a wide rangeof specialized services. We assist our clients with a broad range of complementary services relating to:·Energy Efficiency and Sustainability;·Engineering and Planning;·Economic and Financial Consulting; and·National Preparedness and Interoperability.We operate our business through a network of offices located primarily in California and New York. We also haveoperations in Arizona, Colorado, Florida, Illinois, Kansas, Oregon, Texas, Washington and Washington, DC. As of January 1,2016 we had a staff of 688, which includes licensed engineers and other professionals.We seek to establish close working relationships with our clients and expand the breadth and depth of the serviceswe provide to them over time. Our business with public and private utilities is concentrated primarily in California and NewYork, but we also have business with utilities in Texas, Illinois, Ohio and Washington State. We currently serve 17 majorutility customers across the country. Our business with public agencies is concentrated in California and Arizona. Weprovide services to many of the cities and counties in California. We also serve special districts, school districts, a range ofpublic agencies and private industry.We were founded in 1964 and Willdan Group, Inc., a Delaware corporation, was formed in 2006 to serve as ourholding company. Historically, our clients have been public agencies in communities with populations ranging from 10,000to 300,000 people. We believe communities of this size are underserved by large outsourcing companies that tend to focuson securing large federal and state projects, and projects for the private sector. We consist of a family of wholly ownedcompanies that operate within the following segments for financial reporting purposes:·Energy Efficiency Services. Our Energy Efficiency Services segment consists of the business of oursubsidiary, Willdan Energy Solutions, which offers energy efficiency and sustainability consulting services toutilities, public agencies and private industry. This segment is currently our largest segment based on contractrevenue, representing approximately 55% and 49% of our consolidated contract revenue for fiscal years 2015and 2014, respectively.·Engineering Services. Our Engineering Services segment includes the operations of our subsidiaries,Willdan Engineering, Willdan Infrastructure and Public Agency Resources (“PARs”). Willdan Engineeringprovides civil engineering‑related and city planning services, geotechnical and other engineering consultingservices to our clients. Willdan Infrastructure, which was launched in fiscal year 2013, provides engineeringservices to larger rail, port, water, mining and other civil engineering projects. PARs primarily providesstaffing to Willdan Engineering. Contract revenue for the Engineering Services segment representedapproximately 34% and 38% of our overall consolidated contract revenue for fiscal years 2015 and 2014,respectively.·Public Finance Services. Our Public Finance Services segment consists of the business of our subsidiary,Willdan Financial Services, which offers economic and financial consulting services to public agencies.Contract revenue for the Public Finance Services segment represented approximately 9% and 10% of ourconsolidated contract revenue for fiscal years 2015 and 2014, respectively.·Homeland Security Services. Our Homeland Security Services segment consists of the business of oursubsidiary, Willdan Homeland Solutions, which offers national preparedness and interoperability services andcommunications and technology solutions. Contract revenue for our Homeland Security Services35 Table of Contentssegment represented approximately 2% and 3% of our consolidated contract revenue for fiscal years 2015 and2014, respectively.Recent DevelopmentsAcquisition of Genesys Engineering P.C. On March 4, 2016, following our acquisitions in January 2015 of AbacusResource Management and 360 Energy Engineers, LLC, we and our wholly-owned subsidiary, Willdan Energy Solutions(“WES”) acquired substantially all of the assets of Genesys Engineering P.C. (“Genesys”) and assumed certain specifiedliabilities of Genesys (collectively, the “Purchase”) pursuant to an Asset Purchase and Merger Agreement, dated as ofFebruary 26, 2016 (the “Agreement”), by and among us, WES, WESGEN (as defined below), Genesys and Ronald W. Mineo(“Mineo”) and Robert J. Braun (“Braun” and, together with Mineo, the “Genesys Shareholders”). On March 5, 2016, pursuantto the terms of the Agreement, WESGEN, Inc., a non-affiliated corporation (“WESGEN”), merged (the “Merger” and, togetherwith the Purchase, the “Acquisition”) with Genesys, with Genesys remaining as the surviving corporation.Pursuant to the terms of the Agreement, WES or WESGEN, as applicable, paid the Genesys Shareholders anaggregate purchase price (the “Purchase Price”) of approximately $12.6 million, subject to post closing working capital andtax adjustments. The Purchase Price consists of (i) $6.0 million in cash, payable at closing, (ii) 255,808 shares of CommonStock, par value $0.01 per share, of us (the “Common Stock”), equaling $2.0 million based on the volume-weighted averageprice of shares of the Common Stock for the ten trading days immediately prior to, but not including, February 26, 2016, and(iii) $4.6 million in cash, payable in twenty-four (24) equal monthly installments beginning on March 26, 2016 (the“Installment Payments”). Until the third anniversary of the Closing Date (the “Closing Date”), the Genesys Shareholders willbe prohibited from transferring or disposing of any Common Stock received in connection with the Acquisition.The Agreement contains customary representations and warranties regarding us, WES, WESGEN, Genesys and theGenesys Shareholders, indemnification provisions and other provisions customary for transactions of this nature. Pursuant tothe terms of the Agreement, we and WES also provided guarantees to the Genesys Shareholders which guarantee certain ofWESGEN’s and Genesys’ obligations under the Agreement, including the Installment Payments.We used cash on hand to pay the $6.0 million initial purchase price.Genesys continues to be a professional corporation organized under the laws of the State of New York, wholly-owned by one or more licensed engineers. Pursuant to New York law, we do not own capital stock of Genesys. We haveentered into an agreement with the post-Closing Date owners of Genesys pursuant to which such owners will be prohibitedfrom selling, transferring or encumbering their ownership interest in Genesys without our consent. Notwithstanding our rightsregarding the transfer of Genesys’ stock, we do not have control over the professional decision making of Genesys. We haveentered into an administrative services agreement with Genesys pursuant to which WES will provide Genesys with ongoingadministrative, operational and other non-professional support services.Amendment to Credit Facility. On February 26, 2016, we and our subsidiaries, as guarantors, entered into the ThirdAmendment (the “Third Amendment”) to the Credit Agreement and Consent (as amended, the “BMO Credit Agreement”),dated as of March 24, 2014, by and between us, the guarantors listed therein, and BMO Harris Bank National Association(“BMO Harris”). The BMO Credit Agreement governs our credit facility that includes a revolving line of credit and a delayeddraw term loan facility.The Third Amendment revised the BMO Credit Agreement to, among other things, extend the maturity date of theBMO Credit Agreement from March 24, 2016 to March 24, 2017, to permit the Acquisition and the Installment Payments andto add Genesys as a guarantor under the BMO Credit Agreement upon the closing of the Merger.The Third Amendment also permits us to repurchase up to $7.0 million of shares of Common Stock under certainconditions, including that, at the time of any such repurchase, (a) we have at least $7.0 million of unrestricted cash (orundrawn availability under our revolving credit facility), (b) the aggregate amount of all repurchases to the date36 Table of Contentsof such repurchase be less than $7.0 million and (c) no default exists or would arise under the BMO Credit Agreement aftergiving effect to such repurchase.The Third Amendment also revised certain covenants in the BMO Credit Agreement. As a result of the ThirdAmendment, we must maintain a minimum tangible net worth (as defined in the Third Amendment) of at least the sum of (a)our tangible net worth as of December 31, 2015, plus (b) 50% of net income (only if positive) for each fiscal quarter endingafter the effectiveness of the Third Amendment, plus (c) the aggregate proceeds received by us from the issuance or sale ofequity interests in us, minus (d) the aggregate dollar amount of stock repurchases after the effectiveness of the ThirdAmendment, plus or minus, as applicable, (e) 80% of any adjustments to tangible net worth of us arising as a result of theconsummation of the Acquisition or certain other acquisitions identified to BMO Harris. Pursuant to the terms of the ThirdAmendment, our ability to incur permitted indebtedness was also (i) decreased for notes to sellers of acquired businesses from$4.25 million to $4.15 million and (ii) increased for cash earn out, performance payments or similar obligations relating toacquisitions permitted by the BMO Credit Agreement from $7.9 million to $10.5 million. The Third Amendment also allowsus to incur permitted indebtedness relating to the Installment Payments up to a maximum of $4.6 million and subject to otherconditions.As of March 15, 2016, there are no outstanding borrowings under the revolving line of credit and all $7.5 millionremain available for borrowing.For further information on our revolving credit facility, see “—Liquidity and Capital Resources—OutstandingIndebtedness” elsewhere in this report.Components of Revenue and ExpenseContract RevenueWe provide our services under contracts, purchase orders or retainer letters. The contracts we enter into with ourclients contain three principal types of pricing provisions: time and materials, unit based, and fixed price. Revenue on ourtime and materials and unit based contracts are recognized as the work is performed in accordance with specific terms of thecontract. Approximately 31% of our contracts are based on contractual rates per hour plus costs incurred. Some of thesecontracts include maximum contract prices, but the majority of these contracts are not expected to exceed the maximum.Contract revenue on our fixed price contracts is determined on the percentage of completion method based generally on theratio of direct costs incurred to date to estimated total direct costs at completion. Many of our fixed price contracts arerelatively short in duration, thereby lowering the risks of not properly estimating the percent complete.Adjustments to contract cost estimates are made in the periods in which the facts requiring such revisions becomeknown. When the revised estimate indicates a loss, such loss is recognized currently in its entirety. Claims revenue isrecognized only upon resolution of the claim. Change orders in dispute are evaluated as claims. Costs related to un‑pricedchange orders are expensed when incurred and recognition of the related contract revenue is based on an evaluation of theprobability of recovery of the costs. Estimated profit is recognized for un‑priced change orders if realization of the expectedprice of the change order is probable.Our contracts come up for renewal periodically and at the time of renewal may be subject to renegotiation, whichcould impact the profitability on that contract. In addition, during the term of a contract, public agencies may requestadditional or revised services which may impact the economics of the transaction. Most of our contracts permit our clients,with prior notice, to terminate the contracts at any time without cause. While we have a large volume of transactions, therenewal, termination or modification of a contract, in particular our contract with Consolidated Edison, may have a materialadverse effect on our consolidated operations.Direct Costs of Contract RevenueDirect costs of contract revenue consist primarily of that portion of technical and nontechnical salaries and wagesthat have been incurred in connection with revenue producing projects. Direct costs of contract revenue also37 Table of Contentsinclude production expenses, subcontractor services, and other expenses that are incurred in connection with revenueproducing projects. Direct costs of contract revenue exclude that portion of technical and nontechnical salaries and wagesrelated to marketing efforts, vacations, holidays and other time not spent directly generating revenue under existingcontracts. Such costs are included in general and administrative expenses. Additionally, payroll taxes, bonuses and employeebenefit costs for all of our personnel are included in general and administrative expenses since no allocation of these costs ismade to direct costs of contract revenue. No allocation of facilities costs is made to direct costs of contract revenue.Other companies may classify as direct costs of contract revenue some of the costs that we classify as general andadministrative costs. We expense direct costs of contract revenue when incurred.General and Administrative ExpensesGeneral and administrative expenses include the costs of the marketing and support staffs, other marketingexpenses, management and administrative personnel costs, payroll taxes, bonuses and employee benefits for all of ouremployees and the portion of salaries and wages not allocated to direct costs of contract revenue for those employees whoprovide our services. General and administrative expenses also include facility costs, depreciation and amortization,professional services, legal and accounting fees and administrative operating costs. Within general and administrativeexpenses, “Other” includes expenses such as provision for billed or unbilled receivables, professional services, legal andaccounting, computer costs, travel and entertainment, marketing costs and acquisition costs. We expense general andadministrative costs when incurred.Critical Accounting PoliciesThis discussion and analysis of financial condition and results of operations is based upon our consolidatedfinancial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S., orGAAP. To prepare these financial statements in conformity with GAAP, we must make estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenue andexpenses in the reporting period. Our actual results may differ from these estimates. We have provided a summary of oursignificant accounting policies in Note 2 to our consolidated financial statements included elsewhere in this report. Wedescribe below those accounting policies that require material subjective or complex judgments and that have the mostsignificant impact on our financial condition and results of operations. Our management evaluates these estimates on anongoing basis, based upon information currently available and on various assumptions management believes are reasonableas of the date of this report.Contract AccountingWe enter into contracts with our clients that contain various types of pricing provisions, including fixed price, time-and-materials, unit-based, and service related provisions. The following table reflects our four reportable segments and thetypes of contracts that each most commonly enters into for revenue generating activities. Types of ContractSegment(Revenue Recognition Method)Energy Efficiency ServicesUnit-based and time-and-materials (percentage-of-completion method)Engineering ServicesTime-and-materials, unit-based andfixed price (percentage-of-completionmethod)Public Finance ServicesService relatedcontracts (proportionalperformance method)Homeland Security ServicesService relatedcontracts (proportionalperformance method) 38 Table of ContentsRevenue on fixed price contracts is recognized on the percentage-of-completion method based generally on theratio of direct costs (primarily exclusive of depreciation and amortization costs) incurred to date to estimated total directcosts at completion. Revenue on time-and-materials and unit-based contracts is recognized as the work is performed inaccordance with the specific terms of the contract. We recognize revenues for time-and-material contracts based upon theactual hours incurred during a reporting period at contractually agreed upon rates per hour and also include in revenue allreimbursable costs incurred during a reporting period for which we have risk or on which the fee was based at the time of bidor negotiation. Certain of our time-and-material contracts are subject to maximum contract values and, accordingly, revenueunder these contracts is generally recognized under the percentage-of-completion method, consistent with fixed pricedcontracts. Revenue on contracts that are not subject to maximum contract values is recognized based on the actual number ofhours we spend on the projects plus any actual out-of-pocket costs of materials and other direct incidental expenditures thatwe incur on the projects. In addition, revenue from overhead percentage recoveries and earned fees are included in revenue.Revenue is recognized as the related costs are incurred. For unit-based contracts, we recognize the contract price of units of abasic production product as revenue when the production product is delivered during a period. Revenue for amounts thathave been billed but not earned is deferred and such deferred revenue is referred to as billings in excess of costs andestimated earnings on uncompleted contracts in the accompanying consolidated balance sheets.Adjustments to contract cost estimates are made in the periods in which the facts requiring such revisions becomeknown. When the revised estimate, for contracts that are recognized under the percentage-of-completion method, indicates aloss, such loss is provided for currently in its entirety. Claims revenue is recognized only upon resolution of the claim.Change orders in dispute are evaluated as claims. Costs related to un-priced change orders are expensed when incurred andrecognition of the related contract revenue is based on an evaluation of the probability of recovery of the costs. Estimatedprofit is recognized for un-priced change orders if realization of the expected price of the change order is probable.We consider whether our contracts require combining for revenue recognition purposes. If certain criteria are met,revenues for related contracts may be recognized on a combined basis. With respect to our contracts, it is rare that suchcriteria are present. We may enter into certain contracts which include separate phases or elements. If each phase or element isnegotiated separately based on the technical resources required and/or the supply and demand for the services beingprovided, we evaluate if the contracts should be segmented. If certain criteria are met, the contracts would be segmentedwhich could result in revenues being assigned to the different elements or phases with different rates of profitability based onthe relative value of each element or phase to the estimated total contract revenue.Applying the percentage-of-completion method of recognizing revenue requires us to estimate the outcome of ourlong-term contracts. We forecast such outcomes to the best of our knowledge and belief of current and expected conditionsand our expected course of action. Differences between our estimates and actual results often occur resulting in changes toreported revenue and earnings. Such changes could have a material effect on future consolidated financial statements. We didnot have material revisions in estimates for contracts recognized using the percentage-of-completion method for any of theperiods presented in the accompanying condensed consolidated financial statements.Service-related contracts, including operations and maintenance services and a variety of technical assistanceservices, are accounted for over the period of performance, in proportion to the costs of performance. Award and incentivefees are recorded when they are fixed and determinable and consider customer contract terms.Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based uponour review of all outstanding amounts on a monthly basis. We determine the allowance for doubtful accounts by identifyingtroubled accounts and by using historical experience applied to an aging of accounts. Our credit risk is minimal withgovernmental entities. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivablepreviously written off are recorded when received. For further information on the types of contracts under which we performour services, see “Business—Contract Structure” elsewhere in this report.39 Table of ContentsGoodwillWe test our goodwill at least annually for possible impairment. We complete our annual testing of goodwill as of thelast day of the first month of our fourth fiscal quarter each year to determine whether there is impairment. In addition to ourannual test, we regularly evaluate whether events and circumstances have occurred that may indicate a potential impairmentof goodwill. We did not recognize any goodwill impairment charges in fiscal years 2015, 2014, or 2013. We had goodwill ofapproximately $16.1 million as of January 1, 2016, as the result of two acquisitions in January and one in April 2015.We test our goodwill for impairment at the level of our reporting units, which are components of our operatingsegments. In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards UpdateNo. 2011‑08 (“ASU 2011‑08”), Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. Thisaccounting guidance allows companies to perform a qualitative assessment on goodwill impairment to determine whether aquantitative assessment is necessary. The guidance is for goodwill impairment tests performed in interim and annual periodsfor fiscal years beginning after December 15, 2011. The process of testing goodwill for impairment, pursuant to ASU2011‑08, now involves an optional qualitative assessment on goodwill impairment of our reporting units to determinewhether a quantitative assessment is necessary. If a quantitative assessment is warranted, we then determine the fair value ofthe applicable reporting units. To estimate the fair value of our reporting units, we use both an income approach based onmanagement’s estimates of future cash flows and other market data and a market approach based upon multiples of EBITDAearned by similar public companies.Once the fair value is determined, we then compare the fair value of the reporting unit to its carrying value,including goodwill. If the fair value of the reporting unit is determined to be less than the carrying value, we perform anadditional assessment to determine the extent of the impairment based on the implied fair value of goodwill compared withthe carrying amount of the goodwill. In the event that the current implied fair value of the goodwill is less than the carryingvalue, an impairment charge is recognized.Inherent in such fair value determinations are significant judgments and estimates, including but not limited toassumptions about our future revenue, profitability and cash flows, our operational plans and our interpretation of currenteconomic indicators and market valuations. To the extent these assumptions are incorrect or economic conditions that wouldimpact the future operations of our reporting units change, any goodwill may be deemed to be impaired, and an impairmentcharge could result in a material adverse effect on our financial position or results of operation. All of our goodwill iscontained in our Energy Efficiency Services and Public Finance Service Segments. At our measurement date, the estimatedfair value of our Energy Solutions reporting unit exceeded the carrying value. A reduction in estimated fair value of ourWilldan Energy Solutions reporting unit could result in an impairment charge in future periods.Accounting for Claims Against the CompanyWe accrue an undiscounted liability related to claims against us for which the incurrence of a loss is probable andthe amount can be reasonably estimated. We disclose the amount accrued and an estimate of any reasonably possible loss inexcess of the amount accrued, if such disclosure is necessary for our financial statements not to be misleading. We do notaccrue liabilities related to claims when the likelihood that a loss has been incurred is probable but the amount cannot bereasonably estimated, or when the liability is believed to be only reasonably possible or remote. Losses related to recordedclaims are included in general and administrative expenses.Determining probability and estimating claim amounts is highly judgmental. Initial accruals and any subsequentchanges in our estimates could have a material effect on our consolidated financial statements.Business CombinationsThe acquisition method of accounting for business combinations requires us to use significant estimates andassumptions, including fair value estimates, as of the business combination date and to refine those estimates as necessaryduring the measurement period (defined as the period, not to exceed one year, in which we may adjust the provisionalamounts recognized for a business combination) based upon new information about facts that existed on the businesscombination date.40 Table of ContentsUnder the acquisition method of accounting, we recognize separately from goodwill the identifiable assets acquired,the liabilities assumed, and any noncontrolling interests in an acquiree, at the acquisition date fair value. We measuregoodwill as of the acquisition date as the excess of consideration transferred over the net of the acquisition date amounts ofthe identifiable assets acquired and liabilities assumed. Costs that we incur to complete the business combination such asinvestment banking, legal and other professional fees are not considered part of consideration. We charge these acquisitioncosts to Other general and administrative expense as they are incurred.Should the initial accounting for a business combination be incomplete by the end of a reporting period that fallswithin the measurement period, we report provisional amounts in our financial statements. During the measurement period,we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts andcircumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amountsrecognized as of that date and we record those adjustments to our financial statements. We apply those measurement periodadjustments that we determine to be significant prospectively to comparative information in our financial statements,including adjustments to depreciation and amortization expense.On January 15, 2015, we and our wholly-owned subsidiary, WES, completed two separate acquisitions. We acquiredall of the outstanding shares of Abacus, an Oregon-based energy engineering company. In addition, we also acquiredsubstantially all of the assets of 360 Energy, a Kansas-based energy engineering company. On April 3, 2015, our wholly-owned subsidiary, Willdan Financial Services, acquired substantially all of the assetsof Economists LLC, a Texas-based economic analysis and financial solutions firm serving the municipal and publicsectors. For further discussion of our acquisitions, see Note 3 “—Business Combinations” of notes to our consolidatedfinancial statements.Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities arerecognized for the future tax consequences of temporary differences between the financial reporting basis and tax basis of ourassets and liabilities, subject to a judgmental assessment of the recoverability of deferred tax assets. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates isrecognized in income in the period that includes the enactment date. A valuation allowance is recorded when it is morelikely than not that some of the deferred tax assets may not be realized. Significant judgment is applied when assessing theneed for valuation allowances. Areas of estimation include our consideration of future taxable income and ongoing prudentand feasible tax planning strategies. Should a change in circumstances lead to a change in judgment about the utilization ofdeferred tax assets in future years, we would adjust the related valuation allowances in the period that the change incircumstances occurs, along with a corresponding increase or charge to income.During fiscal year 2015, we assessed the available positive and negative evidence to estimate if sufficient futuretaxable income will be generated to utilize the existing deferred tax assets. We have ultimately determined that it is notmore-likely-than-not that the entire California net operating loss will be utilized prior to expiration. Significant pieces ofobjective evidence evaluated included our history of utilization of California net operating losses in prior years for each ofour subsidiaries, as well as our forecasted amount of net operating loss utilization for certain members of the combinedgroup. Based on this evaluation, as of January 1, 2016, we recorded a valuation allowance in the amount of $73,000 relatedto California net operating losses.During the year ended January 2, 2015, management assessed the available positive and negative evidence toestimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. Based on thisevaluation, as of January 2, 2015, the Company reversed the $4.6 million valuation allowance on its deferred tax assets.For acquired business entities, if we identify changes to acquired deferred tax asset valuation allowances orliabilities related to uncertain tax positions during the measurement period and they relate to new information obtainedabout facts and circumstances that existed as of the acquisition date, those changes are considered a measurement period41 Table of Contentsadjustment and we record the offset to goodwill. We record all other changes to deferred tax asset valuation allowances andliabilities related to uncertain tax positions in current period income tax expense.We recognize the tax benefit from uncertain tax positions if it is more likely than not that the tax positions will besustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measuredbased on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We recognizeinterest and penalties related to unrecognized tax benefits in income tax expense.Results of OperationsThe following table sets forth, for the periods indicated, certain information derived from our consolidatedstatements of operations expressed as a percentage of contract revenue. Amounts may not add to the totals due to rounding. Fiscal Year 2015 2014 2013 Statement of Operations Data: Contract revenue 100% 100% 100%Direct costs of contract revenue (exclusive of depreciation and amortization shown separatelybelow): Salaries and wages 23.6 26.1 28.2 Subcontractor services and other direct costs 37.2 32.9 29.0 Total direct costs of contract revenue 60.8 59.0 57.2 General and administrative expenses: Salaries and wages, payroll taxes and employee benefits 19.1 19.8 24.0 Facilities and facility related 3.1 4.1 5.4 Stock-based compensation 0.6 0.2 0.2 Depreciation and amortization 1.5 0.4 0.6 Other 9.4 8.8 9.5 Total general and administrative expenses 33.7 33.3 39.7 Income from operations 5.5 7.7 3.1 Other (expense) income: Interest income — — — Interest expense (0.2) — (0.1) Other, net — 0.1 0.3 Total other (expense) income, net (0.2) 0.1 0.2 Income before income taxes 5.3 7.8 3.3 Income tax expense (benefit) 2.3 (0.9) 0.2 Net income 3.0% 8.7% 3.1%Fiscal Year 2015 Compared to Fiscal Year 2014Contract revenue. Our contract revenue was $135.1 million for fiscal year 2015, with $74.1 million attributable tothe Energy Efficiency Services segment, $46.0 million attributable to the Engineering Services segment, $11.9 millionattributable to the Public Finance Services segment, and $3.1 million attributable to the Homeland Security Servicessegment. Consolidated contract revenue increased $27.0 million, or 25.0%, to $135.1 million for fiscal year 2015 from$108.1 million for fiscal year 2014. This was primarily the result of increases of $21.2 million, or 40.0%, and $5.2 million, or12.8%, in contract revenue from our Energy Efficiency Services and Engineering Services segments, respectively. Contractrevenue for our Public Finance Services increased $1.2 million, or 11.5% to $11.9 million for fiscal year 2015 from$10.6 million for fiscal year 2014. Contract revenue for our Homeland Security Services segment decreased by $0.6 million,or 16.1%, to $3.1 million for fiscal year 2015 from $3.7 million for fiscal year 2014. Contract revenue for the EnergyEfficiency Services segment increased primarily because of incremental contract revenue of $23.1 million from acquisitionsof Abacus and 360 Energy. Contract revenue for the Energy Efficiency Services segment decreased by $1.9 million,excluding revenue from Abacus and 360 Energy, primarily as a result of42 Table of Contentsunderperformance on certain programs in the third and fourth quarters of 2015. Contract revenue for the EngineeringServices segment increased primarily due to greater demand for our city engineering services in northern California, ourbuilding and safety services, and our construction management services. Revenue in the Homeland Security Servicessegment decreased due to slightly lower levels of activity in the traditional planning, training and exercise consultingservices business.Direct costs of contract revenue. Direct costs of contract revenue were $82.1 million for fiscal year 2015, with$49.6 million attributable to the Energy Efficiency Services segment, $25.9 million attributable to the Engineering Servicessegment, $4.8 million attributable to the Public Finance Services segment, and $1.8 million attributable to the HomelandSecurity Services segment. Overall, direct costs increased by $18.3 million, or 28.7%, to $82.1 million for fiscal year 2015from $63.8 million for fiscal 2014. Of this $18.3 million increase, $16.3 million were attributable to incremental costs ofAbacus and 360 Energy. The additional $2.0 million of increase in direct costs resulted primarily due to salaries and wages,as a result of increased headcount required for the increase in work. In addition, subcontractor expense increased due to theElk Grove project. The increase in direct costs was primarily attributable to an increase in direct costs within our EnergyEfficiency Services segment of $14.7 million, or 42.3% for fiscal year 2015. Direct costs of contract revenue also increasedwithin our Engineering Services and Public Finance segments by $3.5 million, or 15.4%, and $0.5 million, or 12.6%,respectively. Direct costs of contract revenue in our Homeland Security Services segment decreased by $0.5 million, or21.1% to $1.8 million for fiscal year 2015 from $2.2 million for fiscal year 2014.Direct costs increased as a result of increases in subcontractor services and other direct costs of $14.6 million and anincrease in salaries and wages of $3.7 million. Within direct costs of contract revenue, salaries and wages decreased to 23.6%of contract revenue for fiscal year 2015 as compared to 26.1% for fiscal 2014. Subcontractor services and other direct costsincreased to 37.2% of contract revenue for fiscal 2015 from 32.9% of contract revenue for fiscal year 2014. Subcontractorservices increased primarily because of our acquisition of Abacus and 360 Energy and the resulting increase in energyefficiency, sustainability and renewable energy services of our subsidiary Willdan Energy Solutions, which generally utilizesa higher percentage of subcontractors than our other subsidiaries.General and administrative expenses. General and administrative expenses increased by $9.5 million, or 26.5%, to$45.5 million for fiscal year 2015 from $36.0 million for fiscal year 2014. This reflected increases of $8.9 million,$0.9 million and $0.1 million in general and administrative expenses of the Energy Efficiency Services, the EngineeringServices and Public Finance segments, respectively. These increases were offset by a decrease of $0.4 million in theHomeland Security Services segment. General and administrative expenses increased by $2.7 million as a result of theacquisitions of Abacus and 360 Energy. General and administrative expenses for our Homeland Security Services segmentsdecreased by $0.1 million. Our unallocated corporate expenses decreased by $0.3 million. General and administrativeexpenses as a percentage of contract revenue remained relatively stable 33.7% for fiscal year 2015 as compared to 33.3% forthe fiscal year 2014. We were partially able to do this because we were able to more fully utilize some of our employees,which resulted in those salaries and wages being allocated to direct costs. As discussed above under “—Components ofRevenue and Expense—Direct Costs of Contract Revenue,” we do not allocate that portion of salaries and wages not relatedto time spent directly generating revenue to direct costs of contract revenue and instead accrue it under general andadministrative expenses. Of the $9.5 million increase in general and administrative expenses, approximately $3.2 million resulted from anincrease in other general and administrative expenses, which includes the imputed interest related to the contingentconsideration recorded as part of the acquisitions of Abacus and 360 Energy of $0.5 million. Salaries and wages, payrolltaxes and employee benefits and stock‑based compensation increased by $4.2 million and $0.5 million, respectively. Theseincreases were partially offset by decreases in facility and facilities related expenses and depreciation of $0.1 million. Anincrease of $1.6 million in depreciation and amortization was due to increased amortization expense related to the intangibleassets acquired in the acquisitions of Abacus and 360 Energy.Income from operations. As a result of the above factors, our operating income was $7.5 million for fiscal year 2015as compared to $8.3 million for fiscal year 2014. Income from operations, as a percentage of contract revenue, was 5.5% forfiscal year 2015, as compared to 7.7% for fiscal year 2014.Other (expense) income. The increase in other expense is due to an increase in interest expense of $0.2 million in fiscal2015 as compared to fiscal 2014.43 Table of Contents Income tax expense (benefit). We recorded an income tax expense of $3.1 million for fiscal year 2015, as comparedto an income tax benefit of $1.0 million for fiscal year 2014. The income tax benefit in 2014 was attributable to a reversal ofa valuation allowance that occurred during 2014. The effect of the reversal resulted in a total decrease to tax expense of$4.6 million. For further discussion of our income tax provision, see Note 12 “—Income Taxes” of notes to our consolidatedfinancial statements.Net income. As a result of the above factors, our net income was $4.3 million for fiscal year 2015, as compared tonet income of $9.4 million for fiscal year 2014.Fiscal Year 2014 Compared to Fiscal Year 2013Contract revenue. Our contract revenue was $108.1 million for fiscal year 2014, with $52.9 million attributable tothe Energy Efficiency Services segment, $40.8 million attributable to the Engineering Services segment, $10.6 millionattributable to the Public Finance Services segment, and $3.7 million attributable to the Homeland Security Servicessegment. Consolidated contract revenue increased $22.6 million, or 26.4%, to $108.1 million for fiscal year 2014 from$85.5 million for fiscal year 2013. This was primarily the result of increases of $16.9 million, or 46.9%, and $5.6 million, or15.8%, in contract revenue from our Energy Efficiency Services and Engineering Services segments, respectively. Contractrevenue for our Public Finance Services increased $0.8 million, or 8.0% to $10.6 million for fiscal year 2014 from$9.8 million for fiscal year 2013. Contract revenue for our Homeland Security Services segment decreased by $0.7 million, or15.5%, to $3.7 million for fiscal year 2014 from $4.4 million for fiscal year 2013. Contract revenue for the Energy EfficiencyServices segment increased primarily because of increased demand for energy efficiency services in the states of New Yorkand California, largely due to a contract modification that expanded an existing SBDI contract with Consolidated Edison.Contract revenue for the Engineering Services segment increased primarily due to greater demand for our city engineeringservices in northern California, our building and safety services, and our construction management services. Revenue in theHomeland Security Services segment decreased due to slightly lower levels of activity in the traditional planning, trainingand exercise consulting services business.Direct costs of contract revenue. Direct costs of contract revenue were $63.8 million for fiscal year 2014, with$34.9 million attributable to the Energy Efficiency Services segment, $22.4 million attributable to the Engineering Servicessegment, $4.3 million attributable to the Public Finance Services segment, and $2.2 million attributable to the HomelandSecurity Services segment. Overall, direct costs increased by $14.9 million, or 30.4%, to $63.8 million for fiscal year 2014from $48.9 million for fiscal 2013. The increase in direct costs was primarily attributable to an increase in direct costs withinour Energy Efficiency Services segment of $11.8 million, or 51.2% for fiscal year 2014. Direct costs of contract revenue alsoincreased within our Engineering Services and Public Finance segments by $3.4 million, or 17.7%, and $0.3 million, or6.2%, respectively. Direct costs of contract revenue in our Homeland Security Services segment decreased by $0.4 million, or19.1% to $2.2 million for fiscal year 2014 from $2.8 million for fiscal year 2013.Direct costs increased as a result of increases in subcontractor services and other direct costs of $10.8 million and anincrease in salaries and wages of $4.1 million. Within direct costs of contract revenue, salaries and wages decreased to 26.1%of contract revenue for fiscal year 2014 as compared to 28.2% for fiscal 2013. Subcontractor services and other direct costsincreased to 32.9% of contract revenue for fiscal 2014 from 29.0% of contract revenue for fiscal year 2013. Subcontractorservices increased primarily because of increased demand for the energy efficiency, sustainability and renewable energyservices of our subsidiary Willdan Energy Solutions, which generally utilizes a higher percentage of subcontractors than ourother subsidiaries.General and administrative expenses. General and administrative expenses increased by $2.0 million, or 5.8%, to$36.0 million for fiscal year 2014 from $34.0 million for fiscal year 2013. This reflected increases of $0.6 million and$0.4 million in general and administrative expenses of the Energy Efficiency Services and the Public Finance Servicessegments, respectively. General and administrative expenses for our Engineering Services and Homeland Security Servicessegments decreased by $0.4 million and $0.2 million, respectively. Our unallocated corporate expenses increased by$1.5 million. General and administrative expenses as a percentage of contract revenue was 33.3% for fiscal year 2014 ascompared to 39.7% for the fiscal year 2013. We were able to keep our overall general and administrative expenses relativelystable while our revenues increased by 26.4% during this same period. We were partially able to do44 Table of Contentsthis because we were able to more fully utilize some of our employees, which resulted in those salaries and wages beingallocated to direct costs. As discussed above under “—Components of Revenue and Expense—Direct Costs of ContractRevenue,” we do not allocate that portion of salaries and wages not related to time spent directly generating revenue to directcosts of contract revenue and instead accrue it under general and administrative expenses.Of the $2.0 million increase in general and administrative expenses, approximately $1.4 million resulted from anincrease in other general and administrative expenses. Salaries and wages, payroll taxes and employee benefits andstock‑based compensation increased by $0.8 million and $0.1 million, respectively. These increases were partially offset bydecreases in facility and facilities related expenses and depreciation and amortization expenses of $0.3 million and$0.1 million, respectively.Income from operations. As a result of the above factors, our operating income was $8.3 million for fiscal year 2014as compared to $2.6 million for fiscal year 2013. Income from operations, as a percentage of contract revenue, was 7.7% forfiscal year 2014, as compared to 3.1% for fiscal year 2013.Other income. Other income was $117,000 for fiscal year 2014 as compared to $154,000 for fiscal year 2013. Thedecrease is primarily the result of lower interest expense due to decreased borrowings under the Wells Fargo line of credit.Income tax expense (benefit). We recorded an income tax benefit of $990,000 for fiscal year 2014, as compared toan income tax expense of $132,000 for fiscal year 2013. The income tax benefit is attributable to a reversal of a valuationallowance that occurred during the third quarter. The effect of the release resulted in a total decrease to tax expense of$4.6 million. For further discussion of our income tax provision, see Note 12 “—Income Taxes” of notes to our consolidatedfinancial statements.Net income. As a result of the above factors, our net income was $9.4 million for fiscal year 2014, as compared tonet income of $2.6 million for fiscal year 2013.Liquidity and Capital ResourcesAs of January 1, 2016, we had $16.5 million of cash and cash equivalents. Our primary source of liquidity is cashgenerated from operations. We also have a revolving line of credit with BMO Harris Bank, N.A., which matures on March 24,2017. We believe that our cash and cash equivalents on hand, cash generated by operating activities and availableborrowings under our revolving line of credit will be sufficient to finance our operating activities for at least the next12 months.Cash Flows from Operating ActivitiesCash flows provided by operating activities were $8.1 million for fiscal year 2015, as compared to cash flowsprovided by operating activities of $11.9 million and $1.2 million for fiscal years 2014 and 2013, respectively. Our cashflows provided by operating activities for fiscal year 2015 were due primarily to an increase in depreciation andamortization, a decrease in deferred taxes, and increases in accounts payable and billings in excess of costs and estimatedearnings on uncompleted contracts, partially offset by a lower net income, increases in accounts receivable and costs andestimated earnings in excess of billings on uncompleted contracts. Our cash flows provided by operating activities for fiscalyear 2014 resulted from a higher net income, increases in accounts payable, accrued liabilities and billings in excess of costsand estimated earnings on uncompleted contracts, partially offset by increases in deferred income taxes, accounts receivableand costs and estimated earnings in excess of billings on uncompleted contracts and decreases in accounts payable. Our cashflows provided by operating activities for fiscal year 2013 were due primarily to a decrease in accounts payable and anincrease in costs and estimated earnings in excess of billing on uncompleted contracts, partially offset by a decrease inaccounts receivable and an increase in accrued liabilities.45 Table of ContentsCash Flows from Investing ActivitiesCash flows used in investing activities were $10.6 million for fiscal year 2015 and $0.5 million and $0.3 million forfiscal years 2014 and 2013, respectively. The significant increase in cash used in investing activities during 2015 primarilyrelates to cash paid in the acquisitions of Abacus and 360 Energy. Cash Flows from Financing ActivitiesCash flows provided by financing activities were $0.8 million and $0.1 million for fiscal year 2015 and 2014,respectively, as compared to cash flows used in financing activities of $3.1 million for fiscal year 2013. Cash flows providedby financing activities for fiscal year 2015 increased by $0.7 million from fiscal year 2014 primarily due to proceedsreceived in connection with the $2.0 million borrowed under our delayed draw term loan facility, stock option exercise andsales of common stock under employee stock purchase plan, partially offset by repayments on outstanding debt andpayments on capital leases during fiscal year 2015. The net cash flows provided by financing activities for fiscal year 2014increased by $3.2 million from fiscal year 2013 primarily due to a decrease in repayments on our line of credit during fiscalyear 2014.Outstanding IndebtednessBMO Credit Facility. On March 24, 2014, we and our subsidiaries, as guarantors, entered into a credit agreement (asamended, the “BMO Credit Agreement”) with BMO Harris Bank, N.A., or BMO, that provides for a revolving line of credit ofup to $7.5 million, subject to a borrowing base calculation, and a delayed draw term loan facility of up to $3.0 million. The$7.5 million revolving credit facility includes a $5.0 million standby letter of credit sub-facility. As of January 1, 2016, therewere no outstanding borrowings under the revolving line of credit and approximately $1.85 million in loans outstandingunder the term loan facility and, after considering the BMO Credit Agreement’s borrowing base calculation and debtcovenants (each as described below), $7.5 million under the revolving line of credit and $1.15 million under the delayeddraw term loan facility were available for borrowing.The term loan bears interest, at our option, at (a) the base rate plus an applicable margin ranging between 1.25% and1.75%, or (b) the LIBOR rate plus an applicable margin ranging between 2.25% and 2.75%. Borrowings under the revolvingline of credit bear interest, at our option, at (a) the base rate plus an applicable margin ranging between 0.75% and 1.25%, or(b) the LIBOR rate plus an applicable margin ranging between 1.75% and 2.25%. The applicable margin is determined basedon our total leverage ratio. Interest on the term loan is payable quarterly, beginning April 13, 2015 and was 3.1% as ofJanuary 1, 2016. Principal on the term loan is payable on the last day of each March, June, September, and December in eachyear, with the amount of each such principal installment equal to: (i) $50,000 on the last day of March, June, September andDecember 2016, and (ii) all of the remaining outstanding principal amount on March 24, 2017. The term loan is governed bythe terms of the BMO Credit Agreement. All borrowings under the revolving line of credit are limited to a borrowing base equal to roughly 75% of theeligible accounts receivable plus 50% of the lower of cost or market value of our eligible inventory, each term as defined inthe BMO Credit Agreement. Under the BMO Credit Agreement, as of January 1, 2016, no cash amounts are restricted. Therevolving line of credit matures on March 24, 2017 and term loans can be requested at any time prior to February 22, 2017,which would mature March 24, 2017.Borrowings under the delayed draw term loan facility bear Borrowings under the term loan facility and therevolving line of credit are guaranteed by all of our subsidiaries (the “Guarantors”) and secured by all of our and theGuarantors’ accounts receivable and other rights to payment, general intangibles, inventory and equipment. Pursuant to theBMO Credit Agreement, we also must pay a fee of up to 0.3% on unused commitments and customary fees on any letters ofcredit drawn under the facility. The BMO Credit Agreement contains customary representations and affirmative covenants, including financialcovenants that require us to maintain (i) a maximum total leverage ratio, measured as total funded debt (measured as the sumof all obligations for borrowed money, including subordinated debt, plus all capital lease obligations) plus capital leasesplus financial letters of credit divided by a trailing twelve month EBITDA (as defined in the BMO Credit46 Table of ContentsAgreement) measured on a rolling basis of not more than 2.25 for the first four fiscal quarters after January 2015, and notmore than 2.0 thereafter; (ii) a minimum fixed charge coverage ratio (measured as the sum of EBITDA plus rent expense lessunfinanced capital expenditures divided by the sum of rent expense plus principal payments plus cash taxes plus cashinterest plus restricted payments plus distributions) of not less than 1.25; and (iii) a minimum tangible net worth of at leastthe sum of (a) our tangible net worth as of December 31, 2015, plus (b) 50% of net income (only if positive) for each fiscalquarter ending after February 29, 2016, plus (c) the aggregate proceeds received by us from the issuance or sale of equityinterests in us after February 29, 2016, minus (d) the aggregate dollar amount of stock repurchases after February 29, 2016,plus or minus, as applicable, (e) 80% of any adjustments to tangible net worth of us arising as a result of certain acquisitionsidentified to BMO Harris.The BMO Credit Agreement also includes customary negative covenants, including (i) restrictions on the incurrenceof additional indebtedness by us or the Guarantors other than indebtedness existing on the date of the BMO CreditAgreement, (ii) restrictions on the total consideration for all permitted acquisitions (including potential future earn-outobligations) shall not exceed $1.5 million during the term of the agreement and the total consideration for any individualpermitted acquisition shall not exceed $750,000 without BMO’s consent, and (iii) limitations on asset sales, mergers andacquisitions. In addition, the credit agreement includes customary events of default. Upon the occurrence of an event ofdefault, the interest rate may be increased by 2.0%, BMO has the option to make any loans then outstanding under the BMOCredit Agreement immediately due and payable, and BMO is no longer obligated to extend further credit to us under theBMO Credit Agreement. As of March 15, 2016, we were in compliance with the covenants under the BMO Credit Agreement.Insurance Premiums We have also financed, from time to time, insurance premiums by entering into unsecured notes payable withinsurance companies. During our annual insurance renewals in the fourth quarter of our fiscal year ended January 1, 2016, weelected to finance our insurance premiums for the upcoming fiscal year.Contractual ObligationsWe have certain cash obligations and other commitments which will impact our short‑ and long‑term liquidity. At January 1,2016, such obligations and commitments consisted of long‑term debt, operating leases and capital leases. The followingtable sets forth our contractual obligations as of January 1, 2016: Less than More than Contractual Obligations Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years Long term debt(1)(2) $5,124,000 $4,039,000 $1,085,000 $— $— Interest payments on debt outstanding(3) 140,231 117,807 22,424 — — Operating leases 8,303,000 2,300,000 3,263,000 1,593,000 1,147,000 Capital leases 717,000 456,000 261,000 — — Total contractual cash obligations $5,234,000 $2,214,000 $1,975,000 $996,000 $— (1)Long‑term debt includes notes payable outstanding under our delayed draw term loan facility and notes payablethat we issued to the sellers of Abacus and 360 Energy in connection with our acquisition of each in January2015. We had no amounts outstanding under our revolving line of credit as of January 1, 2016.(2)The table above does not include $4.6 million of deferred purchase price that we will pay in 24 equal monthlyinstallments beginning on March 26, 2016 as part of the purchase price for substantially all of the assets ofGenesys. We also paid $6.0 million in cash upon closing of the acquisition on March 4, 2016.(3)Future interest payments on floating rate debt are estimated using floating rates in effect as of January 1, 2016.The table above does not include the earn‑out payments owed in connection with our acquisitions of 360 Energy,Abacus and Economists LLC. In addition, we are obligated to pay (i) up to $6.5 million in cash, payable in installments, ifcertain financial targets of our division made up of the assets acquired from, and former employees of,47 Table of Contents360 Energy are met during fiscal years 2015, 2016 and 2017 (ii) up to $1.4 million in cash, payable in installments, if certainfinancial targets of Abacus are met during fiscal years 2015 and 2016, and (iii) up to $0.6 million in cash, payable ininstallments, if certain financial targets of our division made up of the assets acquired from, and former employees of,Economists LLC are met during fiscal years 2016 and 2017.Off‑Balance Sheet ArrangementsOther than operating lease commitments, we do not have any off‑balance sheet financing arrangements or liabilities.In addition, our policy is not to enter into derivative instruments, futures or forward contracts. Finally, we do not have anymajority‑owned subsidiaries or any interests in, or relationships with, any special‑purpose entities that are not included in theconsolidated financial statements.Recent Accounting PronouncementsIn May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts withCustomers (“ASU 2014-09”), which clarifies existing accounting literature relating to how and when revenue is recognizedby an entity. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services orenters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605,Revenue Recognition, and most industry-specific guidance. ASU 2014-09 requires an entity to recognize revenue when ittransfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects tobe entitled in exchange for those goods or services. In doing so, an entity will need to exercise a greater degree of judgmentand make more estimates than under the current guidance. These may include identifying performance obligations in thecontract, estimating the amount of variable consideration to include in the transaction price, and allocating the transactionprice to each separate performance obligation. ASU 2014-09 also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. In August 2015, the FASB issued Update2015-14, which defers the implementation of ASU 2014-09 for one year from the initial effective date. ASU 2014-09 iseffective for public companies for interim and annual reporting periods beginning after December 15, 2017, and is to beapplied either retrospectively or using the cumulative effect transition method, with early adoption not permitted. TheCompany has not yet selected a transition method, and is currently evaluating the impact the adoption of ASU 2014-09 willhave on its consolidated financial statements and related disclosures. In February 2015, the FASB issued Update 2015-02, which amends the consolidation requirements in AccountingStandards Codification 810 and changes the consolidation analysis required under GAAP. The standard is effective for fiscalyears, and interim periods within those years, beginning after December 15, 2015, with early adoption permitted. TheCompany determined that the impact of the new standard on its consolidated financial statements will not be material.In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. To simplifypresentation of debt issuance costs, this new guidance requires that debt issuance costs related to a recognized debt liabilitybe presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debtdiscounts. This guidance will become effective for financial statements issued for fiscal years beginning after December 15,2015 and interim periods within those fiscal years. The Company has determined the potential impacts of the new standardon its existing debt issuance costs are not material. In September 2015, the FASB issued Update 2015-16, which requires that an acquirer recognize adjustments toprovisional amounts that are identified during the measurement period in the reporting period in which the adjustmentamounts are determined. The acquirer must record, in the same period’s financial statements, the effect on earnings ofchanges in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts,calculated as if the accounting had been completed at the acquisition date. Update 2015-16 further requires an entity topresent separately on the face of the income statement or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisionalamounts had been recognized as of the acquisition date. The standard is effective for fiscal years, and interim periods withinthose years, beginning after December 15, 2015, with early adoption permitted. We48 Table of Contentshave elected early adoption of this standard in fiscal 2015. In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes to simplify thepresentation of deferred income taxes. The amendments in this update require that deferred tax liabilities and assets beclassified as noncurrent in a classified statement of financial position. The Company has elected to early adopt ASU 2015-17as of January 1, 2016 and retrospectively applied ASU 2015-17 to all periods presented. As of January 2, 2015 the Companyreclassified $3.1 million of deferred tax liabilities from "Other current liabilities" to "Other non-current assets" on theConsolidated Balance Sheets.In February 2016, the FASB issued ASU No. 2016-02, “Leases” (topic 842). The FASB issued this update to increasetransparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheetand disclosing key information about leasing arrangements. The updated guidance is effective for annual periods beginningafter December 15, 2018, including interim periods within those fiscal years. Early adoption of the update is permitted. TheCompany is evaluating the impact of the adoption of this update on our consolidated financial statements and relateddisclosures.A variety of proposed or otherwise potential accounting standards are currently being studied by standard-settingorganizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards,we have not yet determined the effect, if any, that the implementation of such proposed standards would have on ourconsolidated financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKMarket risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes inthe price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates,exchange rates, commodity prices, equity prices and other market changes. Market risk is attributed to all market risksensitive financial instruments, including long‑term debt.We had cash and cash equivalents of $16.5 million as of January 1, 2016. This amount represents cash on hand inbusiness checking accounts with BMO Harris Bank.We do not engage in trading activities and do not participate in foreign currency transactions or utilize derivativefinancial instruments. As of January 1, 2016, we had no outstanding debt under the BMO Harris Bank revolving creditfacility. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe financial statements and related financial information, as listed under Item 15, appear in a separate section ofthis annual report beginning on page F‑1.Index to Consolidated Financial Statements PageReport of Independent Registered Public Accounting Firm F-1Consolidated Balance Sheets as of January 1, 2016 and January 2, 2015 F-4Consolidated Statements of Operations for each of the fiscal years in the three‑year period ended January 1,2016 F-5Consolidated Statements of Stockholders’ Equity for each of the fiscal years in the three‑year periodended January 1, 2016 F-6Consolidated Statements of Cash Flows for each of the fiscal years in the three‑year period ended January 1,2016 F-7Notes to Consolidated Financial Statements F-849 Table of ContentsITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSUREThere were no changes in and/or disagreements with accountants on accounting and financial disclosure during theyear ended January 1, 2016. ITEM 9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresWe maintain disclosure controls and procedures defined in Rule 13a‑15(e) under the Exchange Act, as controls andother procedures that are designed to ensure that information required to be disclosed by the issuer in the reports that it filesor submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in theSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed toensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act isaccumulated and communicated to our management, including our President and Chief Executive Officer, Thomas Brisbin,and our Chief Financial Officer, Stacy McLaughlin, as appropriate to allow timely decisions regarding required disclosure.In connection with the preparation of this Annual Report, an evaluation was performed under the supervision andwith the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of theeffectiveness of our disclosure controls and procedures as of January 1, 2016. Based on that evaluation, our Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, at a reasonableassurance level, as of January 1, 2016. No change in our internal control over financial reporting occurred during the periodcovered by this report that has materially affected, or is reasonably likely to materially affect, our internal control overfinancial reporting.Management’s Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate control over financial reporting (asdefined in Rule 13a‑15(f) under the Securities Exchange Act of 1934, as amended). Internal control over financial reportingis a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes inaccordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internalcontrol over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statementswould be prevented or detected. Our management, with the participation of our Chief Executive Officer and Chief FinancialOfficer, assessed the effectiveness of our internal control over financial reporting as of January 1, 2016. In making thisassessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO) in Internal Control—Integrated Framework (2013 Framework). Our management has concluded that, asof January 1, 2016, our internal control over financial reporting was effective based on these criteria.Report of Independent Registered Public Accounting FirmKPMG LLP, the independent registered public accounting firm that audited the fiscal 2015 consolidated financialstatements included in this Annual Report on Form 10‑K, has issued an audit report on the effectiveness of our internalcontrol over financial reporting as of January 1, 2016, which is included herein.Changes in Internal ControlsBased on our evaluation carried out in accordance with SEC Rule 15d‑15(b) under the supervision and with theparticipation of our management, including our President and Chief Executive Officer and our Chief Financial Officer, weconcluded that there were no changes during the fourth fiscal quarter of 2015 of our internal controls over financial reportingthat have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.50 Table of ContentsITEM 9B. OTHER INFORMATIONNone.51 Table of ContentsPART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTThe information required by this item is incorporated by reference to Willdan Group, Inc.’s Proxy Statement for its2016 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the Company’s 2015 fiscalyear.We have posted our Code of Ethical Conduct on our website, www.willdan.com, under the heading “Investors—Corporate Governance.” The Code of Ethical Conduct applies to our Chief Executive Officer and Chief Financial Officer.Upon request and free of charge, we will provide any person with a copy of the Code of Ethical Conduct. See “Item 1.Business—Available Information.” ITEM 11. EXECUTIVE COMPENSATIONThe information required by this item is incorporated by reference to Willdan Group, Inc.’s Proxy Statement for its2016 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the Company’s 2015 fiscalyear. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSHAREHOLDER MATTERSThe information required by this item is incorporated by reference to Willdan Group, Inc.’s Proxy Statement for its2016 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the Company’s 2015 fiscalyear. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSThe information required by this item is incorporated by reference to Willdan Group, Inc.’s Proxy Statement for its2016 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the Company’s 2015 fiscalyear. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by this item is incorporated by reference to Willdan Group, Inc.’s Proxy Statement for its2016 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the Company’s 2015 fiscalyear. 52 Table of ContentsPART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a) The following documents are filed as part of this report:1.Financial StatementsThe following financial statements of Willdan Group, Inc. and report of independent auditors are included in Item 8of this annual report and submitted in a separate section beginning on page F‑1: PageReport of Independent Registered Public Accounting Firm F‑1Consolidated Balance Sheets as of January 1, 2016 and January 2, 2015 F‑4Consolidated Statements of Operations for each of the fiscal years in the three‑year period ended January 1, 2016 F‑5Consolidated Statements of Stockholders’ Equity for each of the fiscal years in the three‑year period ended January1, 2016 F‑6Consolidated Statements of Cash Flows for each of the fiscal years in the three‑year period ended January 1, 2016 F‑7Notes to Consolidated Financial Statements F‑82.Financial Statements SchedulesAll required schedules are omitted because they are not applicable or the required information is shown in thefinancial statements or the accompanying notes.3.ExhibitsThe exhibits filed as part of this annual report are listed in Item 15(b).(b) Exhibits.The following exhibits are filed as a part of this report:ExhibitNumber Exhibit Description2.1 Stock Purchase Agreement, by and among Willdan Energy Solutions, Abacus Resource Management Company,Willdan Group, Inc. and the shareholders of Abacus Resource Management Company, dated as of January 15,2015.(1)2.2 Asset Purchase Agreement, by and among Willdan Energy Solutions, Willdan Group, Inc. and 360 EnergyEngineers, LLC, dated as of January 15, 2015.(1)2.3 *Asset Purchase and Merger Agreement, by and among Willdan Group, Inc., Willdan Energy Solutions, WESGEN,Inc., Genesys Engineering P.C., Ronald W. Mineo and Robert J. Braun, dated as of February 26, 2016.3.1 Articles of Incorporation of Willdan Group, Inc., including amendments thereto(2)3.2 Amended and Restated Bylaws of Willdan Group, Inc.(3)4.1 Specimen Stock Certificate for shares of the Registrant’s Common Stock(2)53 Table of ContentsExhibit Number Exhibit Description4.2 The Company agrees to furnish to the Securities and Exchange Commission upon request a copy of eachinstrument with respect to issues of long‑term debt of Willdan Group, Inc. and its subsidiaries, the authorizedprincipal amount of which does not exceed 10% of the consolidated assets of Willdan Group, Inc. and itssubsidiaries.10.1 Credit Agreement, dated March 24, 2014, between Willdan Group, Inc. and BMO Harris Bank, NationalAssociation(4)10.2 First Amendment to the Credit Agreement, dated as of June 3, 2014, between Willdan Group, Inc., BMO HarrisBank, National Association and the parties thereto.(5)10.3 Second Amendment to the Credit Agreement, dated as of January 14, 2015, by and between Willdan Group, Inc.and BMO Harris Bank National Association.(6)10.4 Third Amendment to the Credit Agreement and Consent, dated as of February 26, 2016, by and between WilldanGroup, Inc. and BMO Harris Bank National Association(7)10.5 Form of Delayed Draw Term Note for $2,500,000, dated as of March 24, 2014, by Willdan Group, Inc. in favor ofBMO Harris Bank, N.A.(4)10.6 Revolving Line of Credit Note for $7,500,000, dated as of March 24, 2014, by Willdan Group, Inc. in favor ofBMO Harris Bank, National Association(4)10.7 Security Agreement, dated as of March 24, 2014, between Willdan Group, Inc. and BMO Harris Bank, NationalAssociation (portions of this exhibit have been omitted pursuant to a request for confidential treatment)(4)10.8† Willdan Group, Inc. 2006 Stock Incentive Plan(2)10.9† Form of Incentive Stock Option Agreement(2)10.10† Form of Non‑Qualified Stock Option Agreement(2)10.11† Amended and Restated Willdan Group, Inc. 2006 Employee Stock Purchase Plan(8)10.12† Form of Indemnification Agreement between Willdan Group, Inc. and its Directors and Officers(2)10.13† Offer Letter from Willdan Group, Inc. to Daniel Chow dated October 29, 2008 and accepted November 9,2008(9)10.14† Employment Agreement, dated as of May 3, 2011 by and between Willdan Group, Inc. and Thomas D.Brisbin(10)10.15† Employment Agreement, dated as of May 3, 2011 by and between Willdan Group, Inc. and Marc Tipermas(10)10.16† Willdan Group, Inc. 2008 Performance Incentive Plan(11)10.17 Agreement for Small Business Direct Install Program, dated July 2, 2012, between Consolidated EdisonCompany of New York, Inc. and Willdan Energy Solutions (portions of this exhibit have been omitted pursuantto a request for confidential treatment)(12)10.18 First Amendment, dated September 23, 2014, to Agreement for Small Business Direct Install Program, datedJuly 2, 2012, between Consolidated Edison Company of New York, Inc. and Willdan Energy Solutions (portionsof this exhibit have been omitted pursuant to a request for confidential treatment)(13)10.19† Employment Agreement, by and between Willdan Group, Inc. and Mike Bieber, dated as of December 17, 2014.(5)14.1 Code of Ethical Conduct of Willdan Group, Inc.(8)21.1* Subsidiaries of Willdan Group, Inc.54 Table of ContentsExhibit Number Exhibit Description23.1* Consent of Independent Registered Public Accounting Firm23.2* Consent of Independent Registered Public Accounting Firm24.1* Power of Attorney (included on signature page hereto)31.1* Certification of Chief Executive Officer pursuant to Rule 13a‑14(a) and 15d‑14(a) under the Securities ExchangeAct of 1934, as adopted pursuant to § 302 of the Sarbanes‑Oxley Act of 200231.2* Certification of Chief Financial Officer pursuant to Rule 13a‑14(a) or 15d‑14(a) under the Securities ExchangeAct of 1934, as adopted pursuant to § 302 of the Sarbanes‑Oxley Act of 200232.1* Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adoptedpursuant to § 906 of the Sarbanes‑Oxley Act of 2002101 Interactive data files pursuant to Rule 405 of Regulation S‑T: (i) the Consolidated Balance Sheets as of January1, 2016 and January 2, 2015; (ii) the Consolidated Statements of Operations for each of the fiscal years in thethree‑year period ended January 1, 2016; (iii) the Consolidated Statements of Stockholders’ Equity for each ofthe fiscal years in the three‑year period ended January 1, 2016; (iv) the Consolidated Statement of Cash Flows foreach of the fiscal years in the three‑year period ended January 1, 2016; and (v) the Notes to the ConsolidatedFinancial Statements.ExhibitNumber Exhibit Description*Filed herewith.†Indicates a management contract or compensating plan or arrangement.(1)Incorporated by reference to Willdan Group, Inc.’s Current Report on Form 8‑K, filed with the Securities andExchange Commission on January 21, 2015.(2)Incorporated by reference to Willdan Group, Inc.’s Registration Statement on Form S‑1, filed with the Securitiesand Exchange Commission on August 9, 2006, as amended (File No. 333‑136444).(3)Incorporated by reference to Willdan Group, Inc.’s Quarterly Report on Form 10‑Q, filed with the Securities andExchange Commission on August 13, 2009.(4)Incorporated by reference to Willdan Group, Inc.’s Annual Report on Form 10-K, filed with the Securities andExchange Commission on March 25, 2014.(5)Incorporated by reference to Willdan Group, Inc.’s Quarterly Report on Form 10‑Q, filed with the Securities andExchange Commission on August 7, 2014.(6)Incorporated by reference to Willdan Group, Inc.’s Current Report on Form 8‑K, filed with the Securities andExchange Commission on January 7, 2015.(7)Incorporated by reference to Willdan Group, Inc.’s Current Report on Form 8‑K, filed with the Securities andExchange Commission on March 3, 2016.(8)Incorporated by reference to Willdan Group, Inc.’s Annual Report on Form 10‑K, filed with the Securities andExchange Commission on March 27, 2007.(9)Incorporated by reference to Willdan Group, Inc.’s Current Report on Form 8‑K, filed with the Securities andExchange Commission on December 17, 2008.55 Table of Contents(10)Incorporated by reference to Willdan Group, Inc.’s Current Report on Form 8‑K, filed with the Securities andExchange Commission on May 4, 2011.(11)Incorporated by reference to Willdan Group, Inc.’s Proxy Statement for its 2012 Annual Meeting of Stockholders,filed with the Securities and Exchange Commission on April 18, 2012.(12)Incorporated by reference to Willdan Group, Inc.’s Quarterly Report on Form 10‑Q, filed with the Securities andExchange Commission on November 8, 2011.(13)Incorporated by reference to Willdan Group, Inc.’s Quarterly Report on Form 10‑Q, filed with the Securities andExchange Commission on November 6, 2014.56 Table of ContentsSIGNATURES AND CERTIFICATIONSPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has dulycaused this report on Form 10‑K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City ofAnaheim, State of California, on March 15, 2016. WILLDAN GROUP, INC. /s/ Stacy B. McLaughlin Stacy B. McLaughlin Chief Financial Officer and Vice President Date: March 15, 2016 KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes andappoints Stacy McLaughlin his/her attorney‑in‑fact, with the power of substitution, for him/her in any and all capacities, tosign any amendments to this Report on Form 10‑K and to file the same, with Exhibits thereto and other documents inconnection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that saidattorney‑in‑fact, or substitute or substitutes may do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the followingpersons on behalf of the Registrant and in the capacities and on the dates indicated.Signature Title Date /s/ Thomas D. Brisbin Director, President and Chief Executive Officer (chiefexecutive officer) March 15, 2016Thomas D. Brisbin /s/ Stacy B. McLaughlin Chief Financial Officer and Vice President (chieffinancial officer and chief accounting officer) March 15, 2016Stacy B. McLaughlin /s/ Win Westfall Director March 15, 2016Win Westfall /s/ Keith W. Renken Director March 15, 2016Keith W. Renken /s/ John M. Toups Director March 15, 2016John M. Toups /s/ Raymond W. Holdsworth Director March 15, 2016Raymond W. Holdsworth /s/ Douglas J. McEachern Director March 15, 2016Douglas J. McEachern /s/ Steven A. Cohen Director March 15, 2016Steven A. Cohen /s/ Mohammad Shahidehpour Director March 15, 2016Mohammad Shahidehpour 57 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and StockholdersWilldan Group, Inc.:We have audited the accompanying consolidated balance sheet of Willdan Group, Inc.and subsidiaries as of January 1, 2016, and the related consolidated statements of operations, stockholders’equity, and cash flows for the year ended January 1, 2016. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audit.We conducted our audit in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall financial statement presentation. We believe that our auditprovides a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all materialrespects, the financial position of Willdan Group, Inc. and subsidiaries as of January 1, 2016, and the resultsof their operations and their cash flows for the year ended January 1, 2016, in conformity withU.S. generally accepted accounting principles.As discussed in Note 12 to the consolidated financial statements, the Company has adopted on aretrospective basis FASB Accounting Standards Update No. 2015-17, Balance Sheet Classification ofDeferred Taxes classifying all deferred tax assets, liabilities and associated valuation allowances as non-current.We also have audited, in accordance with the standards of the Public Company AccountingOversight Board (United States), Willdan Group Inc.’s internal control over financial reporting as of January1, 2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March15, 2016 expressed an unqualified opinion on the effectiveness of Willdan Group, Inc.’s internal controlover financial reporting./s/ KPMG LLPIrvine, CaliforniaMarch 15, 2016F-1 Table of ContentsReport of Independent Registered Public Accounting FirmThe Board of Directors and StockholdersWilldan Group, Inc.:We have audited Willdan Group, Inc.’s internal control over financial reporting as of January 1,2016, based on criteria established in Internal Control – Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO). Willdan Group, Inc.’smanagement is responsible for maintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control over Financial Reporting. Our responsibility is to express anopinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, and testing and evaluating the design and operatingeffectiveness of internal control based on the assessed risk. Our audit also included performing such otherprocedures as we considered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles. A company’s internalcontrol over financial reporting includes those policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assetsof the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and thatreceipts and expenditures of the company are being made only in accordance with authorizations ofmanagement and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to therisk that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.In our opinion, Willdan Group, Inc. maintained, in all material respects, effective internal controlover financial reporting as of January 1, 2016, based on criteria established in Internal Control – IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO).We also have audited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the consolidated balance sheet of Willdan Group, Inc. and subsidiaries asof January 1, 2016, and the related consolidated statements of operations, stockholders’ equity, and cashflows for the year ended January 1, 2016, and our report dated March 15, 2016 expressed an unqualifiedopinion on those consolidated financial statements./s/ KPMG LLPIrvine, CaliforniaMarch 15, 2016F-2 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and StockholdersWilldan Group, Inc. We have audited the accompanying consolidated balance sheet of Willdan Group, Inc. andsubsidiaries (the ‘‘Company’’) as of January 2, 2015, and the related consolidated statements of operations,stockholders’ equity, and cash flows for each of the two years in the period ended January 2, 2015. Thesefinancial statements are the responsibility of the Company’s management. Our responsibility is to expressan opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement. We were notengaged to perform an audit of the Company’s internal control over financial reporting. Our audits includedconsideration of internal control over financial reporting as a basis for designing audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness ofthe Company’s internal control over financial reporting. Accordingly we express no such opinion. An auditalso includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that our audits provide a reasonable basisfor our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, theconsolidated financial position of Willdan Group, Inc. and subsidiaries as of January 2, 2015, and theconsolidated results of their operations and their cash flows for each of the two years in the period endedJanuary 2, 2015, in conformity with U.S. generally accepted accounting principles.As discussed in Note 12 to the consolidated financial statements, the Company changed its methodof classifying all deferred tax assets, liabilities and associated valuation allowances as non-current as a resultof the adoption on a retrospective basis FASB Accounting Standards Codification resulting fromAccounting Standards Update No. 2015-17, “Balance Sheet Classification of Deferred Taxes.” Our opinionis not modified with respect to this matter./s/ Ernst & Young LLPLos Angeles, CaliforniaMarch 31, 2015,except for Note 12, as to which the date isMarch 15, 2016F-3 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS January 1, January 2, 2016 2015 Assets Current assets: Cash and cash equivalents $16,487,000 $18,173,000 Accounts receivable, net of allowance for doubtful accounts of $760,000 and$662,000 at January 1, 2016 and January 2, 2015, respectively 17,929,000 13,189,000 Costs and estimated earnings in excess of billings on uncompleted contracts 13,840,000 12,170,000 Other receivables 177,000 208,000 Prepaid expenses and other current assets 2,082,000 2,244,000 Total current assets 50,515,000 45,984,000 Equipment and leasehold improvements, net 3,684,000 1,384,000 Goodwill 16,097,000 — Other intangible assets, net 1,545,000 — Other assets 504,000 535,000 Deferred income taxes, net — 1,427,000 Total assets $72,345,000 $49,330,000 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $5,561,000 $3,237,000 Accrued liabilities 10,334,000 10,668,000 Contingent consideration payable 1,420,000 — Billings in excess of costs and estimated earnings on uncompleted contracts 6,218,000 3,863,000 Notes payable 4,039,000 355,000 Capital lease obligations 444,000 324,000 Total current liabilities 28,016,000 18,447,000 Contingent consideration payable 4,305,000 — Notes payable 1,085,000 — Capital lease obligations, less current portion 255,000 306,000 Deferred lease obligations 737,000 164,000 Deferred income taxes, net 331,000 — Total liabilities 34,729,000 18,917,000 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued andoutstanding — — Common stock, $0.01 par value, 40,000,000 shares authorized; 7,904,000 and7,635,000 shares issued and outstanding at January 1, 2016 and January 2, 2015,respectively 79,000 76,000 Additional paid-in capital 38,377,000 35,436,000 Accumulated deficit (840,000) (5,099,000) Total stockholders’ equity 37,616,000 30,413,000 Total liabilities and stockholders’ equity $72,345,000 $49,330,000 See accompanying notes to consolidated financial statements.F-4 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Year 2015 2014 2013 Contract revenue $135,103,000 $108,080,000 $85,510,000 Direct costs of contract revenue (exclusive of depreciation andamortization shown separately below): Salaries and wages 31,880,000 28,207,000 24,098,000 Subcontractor services and other direct costs 50,200,000 35,611,000 24,831,000 Total direct costs of contract revenue 82,080,000 63,818,000 48,929,000 General and administrative expenses: Salaries and wages, payroll taxes and employee benefits 25,741,000 21,394,000 20,555,000 Facilities and facility related 4,246,000 4,371,000 4,654,000 Stock-based compensation 777,000 258,000 150,000 Depreciation and amortization 2,072,000 459,000 517,000 Lease abandonment, net — 9,000 30,000 Other 12,657,000 9,462,000 8,067,000 Total general and administrative expenses 45,493,000 35,953,000 33,973,000 Income from operations 7,530,000 8,309,000 2,608,000 Other (expense) income: Interest income — 8,000 10,000 Interest expense (207,000) (16,000) (94,000) Other, net 18,000 125,000 238,000 Total other (expense) income, net (189,000) 117,000 154,000 Income before income taxes 7,341,000 8,426,000 2,762,000 Income tax expense (benefit) 3,082,000 (990,000) 132,000 Net income $4,259,000 $9,416,000 $2,630,000 Earnings per share: Basic $0.54 $1.26 $0.36 Diluted $0.52 $1.22 $0.35 Weighted-average shares outstanding: Basic 7,834,000 7,488,000 7,355,000 Diluted 8,113,000 7,739,000 7,495,000 See accompanying notes to consolidated financial statements.F-5 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Additional Common Stock Paid-in Accumulated Shares Amount Capital Deficit Total Balances at December 28, 2012 7,335,000 73,000 34,423,000 (17,145,000) 17,351,000 Shares of common stock issued in connectionwith employee stock purchase plan 31,000 1,000 72,000 — 73,000 Shares of common stock issued in connectionwith employee stock option exercise 9,000 — 9,000 — 9,000 Stock-based compensation — — 150,000 — 150,000 Net income — — — 2,630,000 2,630,000 Balances at December 27, 2013 7,375,000 74,000 34,654,000 (14,515,000) 20,213,000 Shares of common stock issued in connectionwith employee stock purchase plan 12,000 — 76,000 — 76,000 Shares of common stock issued in connectionwith employee stock plans 248,000 2,000 448,000 — 450,000 Stock-based compensation — — 258,000 — 258,000 Net income — — — 9,416,000 9,416,000 Balance at January 2, 2015 7,635,000 76,000 35,436,000 (5,099,000) 30,413,000 Shares of common stock issued in connectionwith employee stock purchase plan 15,000 — 170,000 — 170,000 Shares of common stock issued in connectionwith employee stock plans 131,000 1,000 511,000 — 512,000 Stock issued to acquire businesses 123,000 2,000 1,483,000 — 1,485,000 Stock-based compensation — — 777,000 — 777,000 Net income — — — 4,259,000 4,259,000 Balance at January 1, 2016 7,904,000 $79,000 $38,377,000 $(840,000) $37,616,000 See accompanying notes to consolidated financial statements.F-6 Table of ContentsWILLDAN GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Year 2015 2014 2013 Cash flows from operating activities: Net income $4,259,000 $9,416,000 $2,630,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,072,000 460,000 585,000 Deferred income taxes 1,758,000 (1,427,000) — Lease abandonment expense (recovery), net (44,000) 9,000 30,000 (Gain) loss on sale of equipment (37,000) 11,000 (6,000) Provision for doubtful accounts 659,000 510,000 101,000 Stock-based compensation 777,000 258,000 150,000 Accretion of contingent consideration 547,000 — — Changes in operating assets and liabilities, net of effects from business acquisitions: Accounts receivable (4,354,000) (532,000) 2,216,000 Costs and estimated earnings in excess of billings on uncompleted contracts (1,180,000) (2,535,000) 225,000 Other receivables 31,000 4,000 (117,000) Prepaid expenses and other current assets 203,000 133,000 (595,000) Other assets 31,000 (202,000) (26,000) Accounts payable 1,842,000 (720,000) (3,026,000) Accrued liabilities (1,320,000) 4,860,000 502,000 Billings in excess of costs and estimated earnings on uncompleted contracts 2,285,000 1,616,000 (1,172,000) Deferred lease obligations 573,000 35,000 (284,000) Net cash provided by operating activities 8,102,000 11,896,000 1,213,000 Cash flows from investing activities: Purchase of equipment and leasehold improvements (2,475,000) (492,000) (306,000) Proceeds from sale of equipment 7,000 5,000 27,000 Cash paid for acquisitions, net of cash acquired (8,168,000) — — Net cash used in investing activities (10,636,000) (487,000) (279,000) Cash flows from financing activities: Payments on notes payable (2,090,000) (162,000) (621,000) Proceeds from notes payable 2,606,000 — 510,000 Repayments of line of credit — — (3,000,000) Principal payments on capital lease obligations (350,000) (261,000) (62,000) Proceeds from stock option exercise 512,000 450,000 9,000 Proceeds from sales of common stock under employee stock purchase plan 170,000 76,000 73,000 Net cash provided by (used in) financing activities 848,000 103,000 (3,091,000) Net (decrease) increase in cash and cash equivalents (1,686,000) 11,512,000 (2,157,000) Cash and cash equivalents at beginning of year 18,173,000 6,661,000 8,818,000 Cash and cash equivalents at end of year $16,487,000 $18,173,000 $6,661,000 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $203,000 $16,000 $100,000 Income taxes 949,000 134,000 324,000 Supplemental disclosures of noncash investing and financing activities: Issuance of notes payable related to business acquisitions $4,250,000 $ — $ — Issuance of common stock related to business acquisitions 1,485,000 — — Contingent consideration related to business acquisitions 5,178,000 — — Equipment acquired under capital leases 420,000 677,000 87,000 See accompanying notes to consolidated financial statements. F-7 WILLDAN GROUP, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSFiscal Years 2015, 2014 and 2013 1. ORGANIZATION AND OPERATIONS OF THE COMPANYNature of BusinessWilldan Group, Inc. and subsidiaries (“Willdan Group” or the “Company”) is a provider of professional technicaland consulting services, including comprehensive energy efficiency solutions, for utilities, private industry, and publicagencies at all levels of government, primarily in California and New York. The Company also has operations in Arizona,Colorado, Florida, Illinois, Kansas, Oregon, Texas, Washington and Washington, D.C. The Company enables these entitiesto provide a wide range of specialized services without having to incur and maintain the overhead necessary to developstaffing in-house. The Company provides a broad range of complementary services including energy efficiency, engineeringand planning, economic and financial consulting, and national preparedness and interoperability. The Company’s clientsprimarily consist of public and governmental agencies, including cities, counties, public utilities, redevelopment agencies,water districts, school districts and universities, state agencies, federal agencies, a variety of other special districts andagencies, private utilities and industry and tribal governments.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESPrinciples of ConsolidationThe consolidated financial statements include the accounts of Willdan Group, Inc. and its wholly ownedsubsidiaries, Willdan Energy Solutions, Willdan Engineering, Public Agency Resources, Willdan Financial Services andWilldan Homeland Solutions. All significant intercompany balances and transactions have been eliminated in consolidation.Fiscal YearsThe Company operates and reports its annual financial results based on 52 or 53-week periods ending on the Fridayclosest to December 31, with consideration of business days. The Company operates and reports its quarterly financial resultsbased on the 13-week period ending on the Friday closest to March 31, June 30 and September 30 and the 13 or 14-weekperiod ending on the Friday closest to December 31, as applicable, with consideration of business days. Fiscal years2015 and 2013 contained 52 weeks. Fiscal year 2014 contained 53 weeks. All references to years in the notes to consolidatedfinancial statements represent fiscal years.Cash, Cash Equivalents and Liquid InvestmentsAll highly liquid investments purchased with a remaining maturity of three months or less are considered to be cashequivalents. Cash and cash equivalents consisted of the following: January 1, January 2, 2016 2015 BMO Harris Bank Master Control Operating Account $16,438,000 $18,119,000 Cash on hand in business checking accounts 49,000 54,000 $16,487,000 $18,173,000 The Company from time to time may be exposed to credit risk with its bank deposits in excess of the FDIC insurancelimits and with uninsured money market investments. The Company has not experienced any losses in such accounts andbelieves it is not exposed to any significant credit risk on cash and cash equivalents.F-8 Fair Value of Financial InstrumentsAs of January 1, 2016 and January 2, 2015, the carrying amounts of the Company's cash and cash equivalents,accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts, other receivables, prepaidexpenses and other current assets, excess of outstanding checks over bank balance, accounts payable, accrued liabilities andbillings in excess of costs and estimated earnings on uncompleted contracts, approximate their fair values because of therelatively short period of time between the origination of these instruments and their expected realization or payment. Thecarrying amounts of debt obligations approximate their fair values since the terms are comparable to terms currently offeredby local lending institutions for loans of similar terms to companies with comparable credit risk.Segment InformationWilldan Group, Inc. (“WGI”) is a holding company with six wholly owned subsidiaries. The Company presentssegment information externally consistent with the manner in which the Company’s chief operating decision maker reviewsinformation to assess performance and allocate resources. WGI performs administrative functions on behalf of its subsidiaries,such as treasury, legal, accounting, information systems, human resources and certain business development activities, andearns revenue that is only incidental to the activities of the enterprise. As a result, WGI does not meet the definition of anoperating segment. Three of the six WGI subsidiaries are aggregated into one reportable segment as they have similareconomic characteristics including the nature of services, the methods used to provide services and the type of customers.The remaining three subsidiaries each comprise separate reporting segments. See Note 13.Off‑Balance Sheet ArrangementsOther than operating lease commitments, the Company does not have any off‑balance sheet financing arrangementsor liabilities. In addition, the Company’s policy is not to enter into derivative instruments, futures or forward contracts.Finally, the Company does not have any majority‑owned subsidiaries or any interests in, or relationships with, anyspecial‑purpose entities that are not included in the consolidated financial statements.Accounting for ContractsThe Company enters into contracts with its clients that contain various types of pricing provisions, including fixedprice, time-and-materials, unit-based and service related provisions. The following table reflects the Company’s fourreportable segments and the types of contracts that each most commonly enters into for revenue generating activities. Types of ContractSegment(Revenue Recognition Method)Energy Efficiency ServicesUnit-based and time-and-materials (percentage-of-completion method)Engineering ServicesTime-and-materials, unit-based andfixed price (percentage-of-completionmethod)Public Finance ServicesService relatedcontracts (proportionalperformance method)Homeland Security ServicesService relatedcontracts (proportionalperformance method)Revenue on fixed price contracts is recognized on the percentage-of-completion method based generally on theratio of direct costs (primarily exclusive of depreciation and amortization costs) incurred to date to estimated total directcosts at completion. Revenue on time-and-materials and unit-based contracts is recognized as the work is performed inaccordance with the specific terms of the contract. The Company recognizes revenues for time-and-material contracts basedupon the actual hours incurred during a reporting period at contractually agreed upon rates per hour and also includes inrevenue all reimbursable costs incurred during a reporting period for which the Company has risk or onF-9 which the fee was based at the time of bid or negotiation. Certain of the Company’s time-and-material contracts are subject tomaximum contract values and, accordingly, revenue under these contracts is generally recognized under the percentage-of-completion method, consistent with fixed priced contracts. Revenue on contracts that are not subject to maximum contractvalues is recognized based on the actual number of hours the Company spends on the projects plus any actual out-of-pocketcosts of materials and other direct incidental expenditures that the Company incurs on the projects. In addition, revenue fromoverhead percentage recoveries and earned fees are included in revenue. Revenue is recognized as the related costs areincurred. For unit-based contracts, the Company recognizes the contract price of units of a basic production product asrevenue when the production product is delivered during a period. Revenue for amounts that have been billed but not earnedis deferred and such deferred revenue is referred to as billings in excess of costs and estimated earnings on uncompletedcontracts in the accompanying consolidated balance sheets.Adjustments to contract cost estimates are made in the periods in which the facts requiring such revisions becomeknown. When the revised estimate, for contracts that are recognized under the percentage-of-completion method, indicates aloss, such loss is provided for currently in its entirety. Claims revenue is recognized only upon resolution of the claim.Change orders in dispute are evaluated as claims. Costs related to un-priced change orders are expensed when incurred andrecognition of the related contract revenue is based on an evaluation of the probability of recovery of the costs. Estimatedprofit is recognized for un-priced change orders if realization of the expected price of the change order is probable.The Company considers whether its contracts require combining for revenue recognition purposes. If certain criteriaare met, revenues for related contracts may be recognized on a combined basis. With respect to the Company’s contracts, it israre that such criteria are present. The Company may enter into certain contracts which include separate phases or elements. Ifeach phase or element is negotiated separately based on the technical resources required and/or the supply and demand forthe services being provided, the Company evaluates if the contracts should be segmented. If certain criteria are met, thecontracts would be segmented which could result in revenues being assigned to the different elements or phases withdifferent rates of profitability based on the relative value of each element or phase to the estimated total contract revenue.Applying the percentage-of-completion method of recognizing revenue requires the Company to estimate theoutcome of its long-term contracts. The Company forecasts such outcomes to the best of its knowledge and belief of currentand expected conditions and its expected course of action. Differences between the Company's estimates and actual resultsoften occur resulting in changes to reported revenue and earnings. Such changes could have a material effect on futureconsolidated financial statements. The Company did not have material revisions in estimates for contracts recognized usingthe percentage-of-completion method for any of the periods presented in the accompanying condensed consolidatedfinancial statements.Service-related contracts, including operations and maintenance services and a variety of technical assistanceservices, are accounted for over the period of performance, in proportion to the costs of performance. Award and incentivefees are recorded when they are fixed and determinable and consider customer contract terms.Direct costs of contract revenue consist primarily of that portion of technical and nontechnical salaries and wagesthat has been incurred in connection with revenue producing projects. Direct costs of contract revenue also includeproduction expenses, subcontractor services and other expenses that are incurred in connection with revenue producingprojects.Direct costs of contract revenue exclude that portion of technical and nontechnical salaries and wages related tomarketing efforts, vacations, holidays and other time not spent directly generating revenue under existing contracts. Suchcosts are included in general and administrative expenses. Additionally, payroll taxes, bonuses and employee benefit costsfor all Company personnel are included in general and administrative expenses in the accompanying consolidatedstatements of operations since no allocation of these costs is made to direct costs of contract revenue. No allocation offacilities costs is made to direct costs of contract revenue. Other companies may classify as direct costs of contract revenuesome of the costs that the Company classifies as general and administrative costs. The Company expenses direct costs ofcontract revenue when incurred.F-10 Included in revenue and costs are all reimbursable costs for which the Company has the risk or on which the fee wasbased at the time of bid or negotiation. No revenue or cost is recorded for costs in which the Company acts solely in thecapacity of an agent and has no risks associated with such costs.Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts based upon areview of all outstanding amounts on a quarterly basis. Management determines the allowance for doubtful accounts byidentifying troubled accounts and by using historical experience applied to an aging of accounts. Credit risk is generallyminimal with governmental entities, but disputes may arise related to these receivable amounts. Accounts receivables arewritten off when deemed uncollectible. Recoveries of accounts receivables previously written off are recorded when received.Retainage is included in accounts receivable in the accompanying consolidated financial statements. Retainagerepresents the billed amount that is retained by the customer, in accordance with the terms of the contract, generally untilperformance is substantially complete. At January 1, 2016 and January 2, 2015, the Company had retained accountsreceivable of approximately $748,000 and $700,000, respectively.General and Administrative ExpensesGeneral and administrative expenses include the costs of the marketing and support staffs, other marketingexpenses, management and administrative personnel costs, payroll taxes, bonuses and employee benefits for all of theCompany’s employees and the portion of salaries and wages not allocated to direct costs of contract revenue for thoseemployees who provide the Company’s services. General and administrative expenses also include facility costs,depreciation and amortization, professional services, legal and accounting fees and administrative operating costs. Withingeneral and administrative expenses, “Other” includes expenses such as provision for billed or unbilled receivables,professional services, legal and accounting, computer costs, travel and entertainment, marketing costs and acquisition costs.The Company expenses general and administrative costs when incurred.LeasesAll of the Company’s office leases are classified as operating leases and rent expense is included in facilitiesexpense in the accompanying consolidated statements of operations. Some of the lease terms include rent concessions andrent escalation clauses, all of which are taken into account in computing minimum lease payments. Minimum lease paymentsare recognized on a straight‑line basis over the minimum lease term. The excess of rent expense recognized over the amountscontractually due pursuant to the underlying leases is reflected as a liability in the accompanying consolidated balancesheets. The cost of improvements that the Company makes to the leased office space is capitalized as leaseholdimprovements. The Company is subject to non‑cancellable leases for offices or portions of offices for which use has ceased.For each of these abandoned leases, the present value of the future lease payments, net of estimated sublease payments, alongwith any unamortized tenant improvement costs, are recognized as lease abandonment expense in the Company’sconsolidated statements of operations with a corresponding liability in the Company’s consolidated balance sheets.Equipment and Leasehold ImprovementsEquipment and leasehold improvements are stated at cost less accumulated depreciation and amortization.Equipment under capital leases is stated at the present value of the minimum lease payments as of the acquisition date.Depreciation and amortization on equipment are calculated using the straight‑line method over estimated useful lives of twoto five years. Leasehold improvements and assets under capital leases are amortized using the straight‑line method over theshorter of estimated useful lives or the term of the related lease.F-11 Following are the estimated useful lives used to calculate depreciation and amortization:Category Estimated Useful Life Furniture and fixtures 5years Computer hardware 2years Computer software 3years Automobiles and trucks 3years Field equipment 5 years Long-lived assetsLong-lived assets, such as equipment, leasehold improvements and purchased intangible assets subject toamortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount ofan asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carryingamount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amountof an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carryingamount of the asset exceeds the fair value of the asset.GoodwillGoodwill represents the excess of costs over fair value of the assets acquired. We complete our annual testing ofgoodwill as of the last day of the first month of our fourth fiscal quarter each year to determine whether there is impairment.Goodwill, which has an indefinite useful life, is not amortized, but instead tested for impairment at least annually or morefrequently if events and circumstances indicate that the asset might be impaired. Impairment losses for reporting units arerecognized to the extent that a reporting unit’s carrying amount exceeds its fair value.Accounting for Claims Against the CompanyThe Company accrues an undiscounted liability related to claims against it for which the incurrence of a loss isprobable and the amount can be reasonably estimated. The Company discloses the amount accrued and an estimate of anyreasonably possible loss in excess of the amount accrued, if such disclosure is necessary for its financial statements not to bemisleading. The Company does not accrue liabilities related to claims when the likelihood that a loss has been incurred isprobable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible orremote. Losses related to recorded claims are included in general and administrative expenses.Determining probability and estimating claim amounts is highly judgmental. Initial accruals and any subsequentchanges in the Company’s estimates could have a material effect on its consolidated financial statements.Stock OptionsThe Company accounts for stock options under the fair value recognition provisions of the accounting standardentitled “Compensation—Stock Compensation.” This standard requires the measurement of compensation cost at the grantdate, based upon the estimated fair value of the award, and requires amortization of the related expense over the employee’srequisite service period.Business CombinationsThe acquisition method of accounting for business combinations requires the Company to use significant estimatesand assumptions, including fair value estimates, as of the business combination date and to refine those estimates asnecessary during the measurement period (defined as the period, not to exceed one year, in which the Company may adjustthe provisional amounts recognized for a business combination based on new information relating to facts and circumstancesthat existed as of the acquisition date).F-12 Under the acquisition method of accounting, the Company recognizes separately from goodwill the identifiableassets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree, generally at the acquisition date fairvalue. The Company measures goodwill as of the acquisition date as the excess of consideration transferred, which it alsomeasures at fair value, over the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed.Costs that the Company incurs to complete the business combination such as investment banking, legal and otherprofessional fees are not considered part of consideration and the Company charges them to other expense as they areincurred.Income TaxesIncome taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities arerecognized for the future tax consequences of temporary differences between the financial reporting basis and tax basis of theCompany’s assets and liabilities, subject to judgmental assessment of the recoverability of deferred tax assets. Deferred taxassets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which thosetemporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change intax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when it ismore likely than not that all or a portion of the deferred tax assets may not be realized. Significant judgment is applied whenassessing the need for valuation allowances. Areas of estimation include the Company’s consideration of future taxableincome and ongoing prudent and feasible tax planning strategies. Should a change in circumstances lead to a change injudgment about the utilization of deferred tax assets in future years, the Company would adjust the related valuationallowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.During fiscal year 2015, the Company assessed the available positive and negative evidence to estimate if sufficientfuture taxable income will be generated to utilize the existing deferred tax assets. The Company has ultimately determinedthat it is not more-likely-than-not that the entire California net operating loss will be utilized prior to expiration. Significantpieces of objective evidence evaluated included our history of utilization of California net operating losses in prior years foreach of our subsidiaries, as well as our forecasted amount of net operating loss utilization for certain members of thecombined group. Based on this evaluation, as of January 1, 2016, the Company recorded a valuation allowance in theamount of $73,000 related to California net operating losses. During the year ended January 2, 2015, management assessed the available positive and negative evidence toestimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. Based on thisevaluation, as of January 2, 2015, the Company reversed the $4.6 million valuation allowance on its deferred tax assets.For acquired business entities, if the Company identifies changes to acquired deferred tax asset valuationallowances or liabilities related to uncertain tax positions during the measurement period and they relate to new informationobtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurementperiod adjustment and the Company records the offset to goodwill. The Company records all other changes to deferred taxasset valuation allowances and liabilities related to uncertain tax positions in current period income tax expense.The Company recognizes the tax benefit from uncertain tax positions if it is more likely than not that the taxpositions will be sustained on examination by the tax authorities, based on the technical merits of the position. The taxbenefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimatesettlement. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.Operating CycleIn accordance with industry practice, amounts realizable and payable under contracts that extend beyond one yearare included in current assets and liabilities.F-13 Use of EstimatesThe preparation of consolidated financial statements in conformity with generally accepted accounting principles inthe U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates also affect thereported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.ReclassificationsCertain prior year amounts have been reclassified for consistency with the current period presentation. Thesereclassifications had no effect on the reported results of operations.New Accounting PronouncementsIn May 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts withCustomers (“ASU 2014-09”), which clarifies existing accounting literature relating to how and when revenue is recognizedby an entity. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services orenters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605,Revenue Recognition, and most industry-specific guidance. ASU 2014-09 requires an entity to recognize revenue when ittransfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects tobe entitled in exchange for those goods or services. In doing so, an entity will need to exercise a greater degree of judgmentand make more estimates than under the current guidance. These may include identifying performance obligations in thecontract, estimating the amount of variable consideration to include in the transaction price, and allocating the transactionprice to each separate performance obligation. ASU 2014-09 also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. In August 2015, the FASB issued Update2015-14, which defers the implementation of ASU 2014-09 for one year from the initial effective date. ASU 2014-09 iseffective for public companies for interim and annual reporting periods beginning after December 15, 2017, and is to beapplied either retrospectively or using the cumulative effect transition method, with early adoption not permitted. TheCompany has not yet selected a transition method, and is currently evaluating the impact the adoption of ASU 2014-09 willhave on its consolidated financial statements and related disclosures. In February 2015, the FASB issued Update 2015-02, which amends the consolidation requirements in AccountingStandards Codification 810 and changes the consolidation analysis required under GAAP. The standard is effective for fiscalyears, and interim periods within those years, beginning after December 15, 2015, with early adoption permitted. TheCompany determined that the impact of the new standard on its consolidated financial statements will not be material.In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. To simplifypresentation of debt issuance costs, this new guidance requires that debt issuance costs related to a recognized debt liabilitybe presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debtdiscounts. This guidance will become effective for financial statements issued for fiscal years beginning after December 15,2015 and interim periods within those fiscal years. The Company has determined the potential impacts of the new standardon its existing debt issuance costs are not material. In September 2015, the FASB issued Update 2015-16, which requires that an acquirer recognize adjustments toprovisional amounts that are identified during the measurement period in the reporting period in which the adjustmentamounts are determined. The acquirer must record, in the same period’s financial statements, the effect on earnings ofchanges in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts,calculated as if the accounting had been completed at the acquisition date. Update 2015-16 further requires an entity topresent separately on the face of the income statement or disclose in the notes, the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisionalamounts had been recognized as of the acquisition date. The standard is effective for fiscal years, and interim periods withinthose years, beginning after December 15, 2015, with early adoption permitted. The Company has elected early adoption ofthis standard in fiscal 2015.F-14 In February 2016, the FASB issued ASU No. 2016-02, “Leases” (topic 842). The FASB issued this update to increasetransparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheetand disclosing key information about leasing arrangements. The updated guidance is effective for annual periods beginningafter December 15, 2018, including interim periods within those fiscal years. Early adoption of the update is permitted. TheCompany is evaluating the impact of the adoption of this update on our consolidated financial statements and relateddisclosures.A variety of proposed or otherwise potential accounting standards are currently being studied by standard-settingorganizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards,we have not yet determined the effect, if any, that the implementation of such proposed standards would have on ourconsolidated financial statements.3. BUSINESS COMBINATIONSOn January 15, 2015, the Company and its wholly-owned subsidiary, Willdan Energy Solutions (“WES”) completedtwo separate acquisitions. The Company and WES acquired all of the outstanding shares of Abacus Resource ManagementCompany (“Abacus”), an Oregon-based energy engineering company. In addition, the Company and WES also separatelyacquired substantially all of the assets of 360 Energy Engineers, LLC (“360 Energy”), a Kansas-based energy andengineering energy management consulting company.Pursuant to the terms of the Stock Purchase Agreement, dated as of January 15, 2015, by and between the Company,WES, Abacus and the selling shareholders of Abacus (the “Abacus Shareholders”), WES will pay the Abacus Shareholders amaximum purchase price of $6.1 million, consisting of (i) $2.5 million in cash which was paid at closing, with the balance of$0.6 million paid after closing, (ii) 75,758 shares of Common Stock, par value $0.01 per share, of the Company (“CommonStock”) with a fair value of $0.9 million which were issued at closing, (iii) $1.25 million aggregate principal amount ofpromissory notes issued to the Abacus Shareholders at closing and (iv) up to $0.8 million in cash, based on the achievementof certain financial targets by Abacus at the end of the Company’s 2015 and 2016 fiscal years. Pursuant to the terms of the Asset Purchase Agreement, dated January 15, 2015, by and between the Company, WESand 360 Energy, WES will pay 360 Energy a maximum purchase price of $15.0 million, consisting of (i) $4.9 million in cashwhich was paid at closing, (ii) 47,348 shares of Common Stock with a fair value of $0.6 million which were issued at closing,(iii) $3.0 million aggregate principal amount of promissory note issued to 360 Energy at closing and (iv) up to $6.5 millionin cash, based on the achievement of certain financial targets by WES’s division made up of the assets acquired from, and theformer employees of 360 Energy at the end of the Company’s 2015, 2016 and 2017 fiscal years. The Company also provideda guaranty to 360 Energy which guarantees WES’s obligations under the promissory note issued to 360 Energy. The fair value of the 75,758 and 47,348 shares of common stock issued as part of the consideration paid for Abacus($0.9 million) and 360 Energy ($0.6 million) respectively, was determined on the basis of the price of the Company’scommon shares on the acquisition date. To finance the acquisitions of Abacus and 360 Energy, the Company borrowed $2.0 million under its delayed drawterm loan facility. The Company used cash on hand to pay the remaining $5.4 million due at closing.On April 3, 2015, the Company’s wholly-owned subsidiary, Willdan Financial Services (“WFS”) acquiredsubstantially all of the assets of Economists.com, LLC ("Economists LLC"), a Texas-based economic analysis and financialsolutions firm serving the municipal and public sectors. Pursuant to the terms of the Asset Purchase Agreement, dated April 3,2015, by and between WFS and Economists LLC, WFS will pay Economists LLC a maximum purchase price of $1.1 million,consisting of (i) $0.5 million in cash which was paid at closing and (ii) up to $0.6 million in cash, based on the achievementof certain financial targets by the WFS division made up of the assets acquired from, and the former employees of EconomistsLLC at the end of the Company’s 2015, 2016 and 2017 fiscal years. The Company used cash on hand to pay the $0.5million due at closing.F-15 The acquisitions were accounted for as business combinations in accordance with ASC 805. Under ASC 805, theCompany recorded the acquired assets and assumed liabilities at their estimated fair value with the excess allocated togoodwill. Goodwill represents the value the Company expects to achieve through the operational synergies and theexpansion of the Company into new markets. The Company estimates that the entire $16.5 million of goodwill resultingfrom the acquisitions will be tax deductible. Consideration for the acquisitions includes the following: 360 Energy Abacus Economists,LLC Total Cash paid $4,875,000 $3,136,000 $490,000 $8,501,000 Issuance of common stock 571,000 913,000 — 1,484,000 Issuance of notes payable 3,000,000 1,250,000 — 4,250,000 Contingent consideration 4,221,000 589,000 368,000 5,178,000 Total consideration $12,667,000 $5,888,000 $858,000 $19,413,000 The following table summarizes the amounts for the acquired assets and liabilities recorded at their estimated fairvalue as of the acquisition date: 360 Energy Abacus Economists,LLC Total Cash acquired $ — $332,000 $ — $332,000 Property, plant and equipment 166,000 78,000 — 244,000 Liabilities — (512,000) — (512,000) License to bid — 308,000 — 308,000 Backlog 158,000 161,000 29,000 348,000 Tradename 669,000 323,000 57,000 1,049,000 Non-compete agreements 860,000 128,000 23,000 1,011,000 Other assets, net 41,000 495,000 — 536,000 Goodwill 10,773,000 4,575,000 749,000 16,097,000 Net assets acquired $12,667,000 $5,888,000 $858,000 $19,413,000 The acquisition date fair value of the intangible asset relating to tradenames was estimated using discounted cashflows based on the relief from royalty method. The liabilities assumed were measured based on the estimated costs related tothe remediation of an environmental liability associated with one of the construction projects that was acquired on the dateof acquisition in accordance with ASC 450. These assets are deemed to have a finite life. As of January 1, 2016, theCompany has contingent consideration payable of $5.7 million related to these acquisitions, which includes $0.5 million ofaccretion related to the contingent consideration. Contingent consideration is subject to change for each reporting periodthrough settlement. The Company measures the contingent earn-out liabilities at fair value on the date of acquisition and ona recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. The Companyuses a probability-weighted discounted income approach as a valuation technique to convert future estimated cash flows to asingle present value amount. The significant unobservable inputs used in the fair value measurements are operating incomeprojections over the earn-out period, and the probability outcome percentages assigned to each scenario. Significantincreases or decreases to either of these inputs in isolation would result in a significantly higher or lower liability, with ahigher liability capped by the contractual maximum of the contingent earn-out obligation. Ultimately, the liability will beequivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded inearnings. As of January 1, 2016 the amount recognized for the contingent consideration arrangements was $5.7 millionwhich reflects a change in the estimated timing of the payments. There were no changes to the ranges of estimated paymentsor discount rates. During the fourth quarter of fiscal 2015, the Company obtained further information on the valuation of acquiredassets and liabilities assumed and, in accordance with the authoritative guidance for business combinations, recordedpurchase price adjustments as of the acquisition date to increase the fair values of intangible assets by $0.4 million andincreased accrued liabilities by $0.5 million. Purchase price adjustments were also recorded to reduce the fair value ofcontingent consideration payable by $0.9 million. These adjustments to the provisional purchase price allocations decreasedgoodwill by $0.8 million.F-16 The Company also adjusted its fourth quarter consolidated results of operations and cash flows for the impacts of theadjustments to the provisional purchase price allocations. As a result of the adjustments, net income for the year endedJanuary 1, 2016 increased by $0.2 million and equity as of January 1, 2016 increased by the same amount. Acquisition related costs of $0.2 million and $0.3 million are included in other general and administrative expensein the consolidated statements of operations for the years ending January 1, 2016 and January 2, 2015, respectively.The following unaudited pro forma financial information for the twelve months ended January 1, 2016 and January2, 2015 assumes the acquisitions of Abacus and 360 Energy occurred on December 28, 2013 as follows: Year Ended January 1, January 2, In thousands (except per share data) 2016 2015 Pro forma revenue $135,576 $130,181 Pro forma income from operations 8,204 12,162 Pro forma net income $4,759 $12,162 Earnings per share: Basic $0.61 $1.62 Diluted $0.59 $1.57 Weighted average shares outstanding: Basic 7,834 7,488 Diluted 8,113 7,739 This pro forma supplemental information does not purport to be indicative of what the Company’s operating resultswould have been had these transactions occurred on December 28, 2013 and may not be indicative of future operatingresults.During the fiscal year ended January 1, 2016, the acquisitions of Abacus, 360 Energy and Economist contributed$23.8 million in revenue and $1.3 million of income from operations.4. GOODWILL AND OTHER INTANGIBLE ASSETSAs of January 1, 2016, the Company had $16.1 million of goodwill, which primarily relates to the Energy EfficiencyServices reporting segment and the acquisitions of Abacus and 360 Energy. The Company had no goodwill outstanding as ofJanuary 2, 2015. The changes in the carrying value of goodwill by reporting unit for the twelve months ended January 1,2016 were as follows: Additional Final January 2, Purchase Fair Value January 1, 2015 Cost Adjustment Impairment 2016 Reporting Unit: Energy Efficiency Solutions $ — $15,348,000 $ — $ — $15,348,000Public Finance Services — 749,000 — — 749,000 $ — $16,097,000 $ — $ — $16,097,000F-17 The gross amounts and accumulated amortization of the Company’s acquired identifiable intangible assets withfinite useful lives as of January 1, 2016 and January 2, 2015, included in intangible assets, net in the accompanyingconsolidated balance sheets, were as follows: January 1, 2016 January 2, 2015 Gross Accumulated Gross Accumulated Amortization Amount Amortization Amount Amortization Period (yrs) Backlog $348,000 $340,000 $ — $ — 1 Tradename 1,049,000 329,000 — — 2.5 - 3.5 Non-compete agreements 1,011,000 194,000 — — 4 - 5 License to bid 308,000 308,000 — — 1 $2,716,000 $1,171,000 $ — $ — The Company’s amortization expense for acquired identifiable intangible assets with finite useful lives was$1.2 million for the year ended January 1, 2016, and $0 for the years ended January 2, 2015, and December 27, 2013respectively. Estimated amortization expense for acquired identifiable intangible assets for fiscal 2016 and the succeedingyears is as follows:Fiscal year: 2016 $553,000 2017 475,000 2018 306,000 2019 202,000 2020 9,000 $1,545,000 At the time of acquisition, the Company estimates the fair value of the acquired identifiable intangible assets basedupon the facts and circumstances related to the particular intangible asset. Inherent in such estimates are judgments andestimates of future revenue, profitability, cash flows and appropriate discount rates for any present value calculations. TheCompany preliminarily estimates the value of the acquired identifiable intangible assets and then finalizes the estimated fairvalues during the purchase allocation period, which does not extend beyond 12 months from the date of acquisition.The Company tests its goodwill at least annually for possible impairment. The Company completes its annualtesting of goodwill as of the last day of the first month of its fourth fiscal quarter each year to determine whether there isimpairment. In addition to the Company’s annual test, it regularly evaluates whether events and circumstances have occurredthat may indicate a potential impairment of goodwill. No impairment was recorded during the years ended January 1, 2016,January 2, 2015 or December 27, 2013. 5. EARNINGS PER SHARE (“EPS”)Basic EPS is computed by dividing net income available to common stockholders by the weighted‑average numberof common shares outstanding. Diluted EPS is computed by dividing net income by the weighted‑average number ofcommon shares outstanding and dilutive potential common shares for the period. Potential common shares include theweighted‑average dilutive effects of outstanding stock options using the treasury stock method.F-18 The following table sets forth the number of weighted‑average shares used to compute basic and diluted EPS: Fiscal Year 2015 2014 2013 Net income $4,259,000 $9,416,000 $2,630,000 Weighted-average common shares outstanding 7,834,000 7,488,000 7,355,000 Effect of dilutive stock options and restricted stock awards 279,000 251,000 140,000 Weighted-average common stock outstanding-diluted 8,113,000 7,739,000 7,495,000 Earnings per share: Basic $0.54 $1.26 $0.36 Diluted $0.52 $1.22 $0.35 For the fiscal year ended January 1, 2016, 314,500 options were excluded from the calculation of dilutive potentialcommon shares, compared to 251,000 and 459,000 options, for fiscal 2014 and fiscal 2013, respectively. These options werenot included in the computation of dilutive potential common shares because the assumed proceeds per share exceeded theaverage market price per share for the respective periods. Accordingly, the inclusion of these options would have beenanti‑dilutive. For periods in which the Company incurs net losses, dilutive potential common shares are excluded as theywould be anti‑dilutive.6. ACCOUNTS RECEIVABLEAccounts receivable consisted of the following at January 1, 2016 and January 2, 2015: January 1, January 2, 2016 2015 Billed $17,941,000 $13,151,000 Unbilled 13,840,000 12,170,000 Contract retentions 748,000 700,000 32,529,000 26,021,000 Allowance for doubtful accounts (760,000) (662,000) $31,769,000 $25,359,000 The movements in the allowance for doubtful accounts consisted of the following for fiscal years 2015, 2014 and2013: Fiscal Year 2015 2014 2013 Balance as of the beginning of the year $662,000 $385,000 $303,000 Provision for doubtful accounts 586,000 486,000 189,000 Write-offs of uncollectible accounts (488,000) (209,000) (107,000) Recoveries of accounts written off — — — Balance as of the end of the year $760,000 $662,000 $385,000 Billed accounts receivable represent amounts billed to clients that have yet to be collected. Unbilled accountsreceivable represent revenue recognized but not yet billed pursuant to contract terms or accounts billed after the period end.Substantially all unbilled receivables as of January 1, 2016 and January 2, 2015 are or were expected to be billed andcollected within twelve months of such date. Contract retentions represent amounts invoiced to clients where payments havebeen withheld pending the completion of certain milestones, other contractual conditions or upon the completion of theproject. These retention agreements vary from project to project and could be outstanding for several months.F-19 Allowances for doubtful accounts have been determined through specific identification of amounts considered to beuncollectible and potential write‑offs, plus a non‑specific allowance for other amounts for which some potential loss has beendetermined to be probable based on current and past experience.As of January 1, 2016, one client accounted for 15% of outstanding receivables, as compared to 17% of theCompany’s outstanding receivables as of January 2, 2015.7. EQUIPMENT AND LEASEHOLD IMPROVEMENTSEquipment and leasehold improvements consisted of the following at January 1, 2016 and January 2, 2015: January 1, January 2, 2016 2015 Furniture and fixtures $2,270,000 $2,994,000 Computer hardware and software 6,496,000 5,667,000 Leasehold improvements 1,072,000 785,000 Equipment under capital leases 1,266,000 919,000 Automobiles, trucks, and field equipment 984,000 677,000 12,088,000 11,042,000 Accumulated depreciation and amortization (8,404,000) (9,658,000) Equipment and leasehold improvements, net $3,684,000 $1,384,000 Included in accumulated depreciation and amortization is $259,000 and $176,000 of amortization expense relatedto equipment held under capital leases in fiscal years 2015 and 2014, respectively.8. ACCRUED LIABILITIESAccrued liabilities consisted of the following at January 1, 2016 and January 2, 2015: January 1, January 2, 2016 2015 Accrued bonuses $922,000 $1,450,000 Accrued interest 4,000 — Paid leave bank 1,710,000 1,404,000 Compensation and payroll taxes 1,494,000 1,371,000 Accrued legal 523,000 556,000 Accrued workers’ compensation insurance 268,000 192,000 Accrued rent 169,000 149,000 Employee withholdings 942,000 637,000 Client deposits 106,000 79,000 Unvouchered accounts payable 3,061,000 4,462,000 Other 1,135,000 368,000 Total accrued liabilities $10,334,000 $10,668,000 9. EQUITY PLANSAs of January 1, 2016, the Company had two share‑based compensation plans, which are described below. TheCompany may no longer grant awards under the 2006 Stock Incentive Plan. The compensation expense that has beenrecognized for stock options issued under these plans was $777,000, $258,000 and $150,000 for fiscal years 2015, 2014and 2013, respectively.F-20 2006 STOCK INCENTIVE PLANIn June 2006, the Company’s board of directors adopted the 2006 Stock Incentive Plan (“2006 Plan”) and itreceived stockholder approval. The Company re‑submitted the 2006 Plan to its stockholders for post‑IPO approval at the2007 annual meeting of the stockholders and it was approved. The 2006 Plan will terminate in June 2016 and no additionalawards were or will be granted under the 2006 Plan after the Company’s shareholders approved the 2008 Plan (as definedbelow) in June 2008. The 2006 Plan had 300,000 shares of common stock reserved for issuance to the Company’s directors,executives, officers, employees, consultants and advisors and currently has 168,500 shares of common stock reserved forissuance. Approximately 70,333 shares that were available for award grant purposes under the 2006 Plan have becomeavailable for grant under the 2008 Plan following shareholder approval of the 2008 Plan. Options granted under the 2006Plan could be “non‑statutory stock options” which expire no more than ten years from the date of grant or “incentive stockoptions” as defined in Section 422 of the Internal Revenue Code of 1986, as amended. Upon exercise of non‑statutory stockoptions, the Company is generally entitled to a tax deduction on the exercise of the option for an amount equal to the excessover the exercise price of the fair market value of the shares at the date of exercise. The Company is generally not entitled toany tax deduction on the exercise of an incentive stock option. Through January 1, 2016, options granted, net of forfeituresand expirations, under the 2006 Plan consisted of 154,000 shares and 6,000 shares for incentive stock options andnon‑statutory stock options, respectively.2008 PERFORMANCE INCENTIVE PLANIn March 2008, the Company’s board of directors adopted the 2008 Performance Incentive Plan (“2008 Plan”), andit received stockholder approval at the 2008 annual meeting of the stockholders in June 2008. The 2008 Plan will terminateten years after the board of directors approved it. The 2008 Plan initially had 450,000 shares of common stock reserved forissuance (not counting any shares originally available under the 2006 Plan that “poured over.”) At the 2010 and 2012 annualmeetings of the stockholders, the stockholders approved 350,000 and 500,000 share increases, respectively, to the 2008 Plan.The maximum number of shares of the Company’s common stock that may be issued or transferred pursuant to awards underthe 2008 Plan can also be increased by any shares subject to stock options granted under the 2006 Plan and outstanding as ofJune 9, 2008 which expire, or for any reason are cancelled or terminated, after June 9, 2008 without being exercised. The2008 Plan currently has 239,000 shares of common stock reserved for issuance. Awards authorized by the 2008 Plan includestock options, stock appreciation rights, restricted stock, stock bonuses, stock units, performance stock, and other share‑basedawards. No participant may be granted an option to purchase more than 100,000 shares in any fiscal year. Options generallymay not be granted with exercise prices less than fair market value at the date of grant, with vesting provisions andcontractual terms determined by the compensation committee of the board of directors on a grant‑by‑grant basis. Optionsgranted under the 2008 Plan may be “nonqualified stock options” or “incentive stock options” as defined in Section 422 ofthe Internal Revenue Code of 1986, as amended. The maximum term of each option shall be 10 years. Upon exercise ofnonqualified stock options, the Company is generally entitled to a tax deduction on the exercise of the option for an amountequal to the excess over the exercise price of the fair market value of the shares at the date of exercise. The Company isgenerally not entitled to any tax deduction on the exercise of an incentive stock option. For awards other than stock options,the Company is generally entitled to a tax deduction at the time the award holder recognizes income with respect to theaward equal to the amount of compensation income recognized by the award holder. Option and other awards provide foraccelerated vesting if there is a change in control (as defined in the 2008 Plan) and the outstanding awards are not substitutedor assumed in connection with the transaction. Through January 1, 2016, awards granted, net of forfeitures and exercises,under the 2008 Plan consisted of 629,000 shares, 176,000 shares and 38,000 shares for incentive stock options, non‑statutorystock options and restricted stock grants, respectively.F-21 The fair value of each option is calculated using the Black‑Scholes option valuation model that uses theassumptions noted in the following table. Expected volatility is based upon historical volatility of “guideline companies”since the length of time the Company’s shares have been publicly traded is shorter than the expected or contractual term ofthe options. The expected term of the option, taking into account both the contractual term of the option and the effects ofemployees’ expected exercise and expected post‑vesting termination behavior is estimated based upon the simplifiedmethod. Under this approach, the expected term is presumed to be the mid‑point between the vesting date and the end of thecontractual term. The risk‑free rate for periods within the contractual life of the option is based on the U.S. Treasury yieldcurve in effect at the time of grant. The assumptions are as follows: 2015 2014 2013 Expected volatility 38% -42% 38% -40% 40%Expected dividends 0% 0% 0%Expected term (in years) 6 6 -6 Risk-free rate 1.33% -1.75% 1.63% -1.73% 1.31%% -1.36%The Company’s restricted stock awards are valued on the closing price of the Company’s common stock on the dateof grant and typically vest over a two year period.Summary of Stock Option ActivityA summary of option activity under the 2006 Plan and 2008 Plan as of January 1, 2016 and changes during thefiscal years ended January 1, 2016, January 2, 2015 and December 27, 2013 is presented below. The intrinsic value of thefully‑vested options is $2,291,000, based on the Company’s closing stock price of $8.38 on January 1, 2016. Weighted- Weighted- Average Average Remaining Exercise Contractual Options Price Term (Years) Outstanding at January 2, 2015 926,000 $5.84 6.44 Granted 165,000 12.33 — Exercised (103,000) 3.72 — Forfeited or expired (24,000) 3.94 — Outstanding at January 1, 2016 964,000 $7.22 6.04 Vested at January 1, 2016 624,000 $5.24 4.53 Exercisable at January 1, 2016 624,000 $5.24 4.53 Weighted- Weighted- Average Average Remaining Exercise Contractual Options Price Term(Years) Outstanding at December 27, 2013 978,000 $3.95 3.35 Granted 235,000 10.23 — Exercised (198,000) 2.24 — Forfeited or expired (89,000) 2.57 — Outstanding at January 2, 2015 926,000 $5.84 6.44 Vested at January 2, 2015 595,000 $4.47 4.92 Exercisable at January 2, 2015 595,000 $4.47 4.92 F-22 Weighted- Weighted- Average Average Remaining Exercise Contractual Options Price Term (Years) Outstanding at December 28, 2012 992,000 $3.86 6.95 Granted 100,000 3.62 — Exercised (9,000) 1.65 — Forfeited or expired (105,000) — — Outstanding at December 27, 2013 978,000 $3.95 3.35 Vested at December 27, 2013 796,000 $4.04 7.90 Exercisable at December 27, 2013 796,000 $4.04 7.90 A summary of the status of the Company’s nonvested options and changes in nonvested options during the fiscalyears ended January 1, 2016, January 2, 2015 and December 27, 2013, is presented below: Weighted- Average Grant-Date Options Fair Value Nonvested at January 2, 2015 331,000 $3.37 Granted 165,000 4.92 Vested (132,000) 3.67 Forfeited (24,000) 3.94 Nonvested at January 1, 2016 340,000 3.77 Weighted- Average Grant-Date Options Fair Value Nonvested at December 27, 2013 207,000 $3.55 Granted 235,000 4.15 Vested (108,000) 3.41 Forfeited (3,000) 3.85 Nonvested at January 2, 2015 331,000 3.37 Weighted- Average Grant-Date Options Fair Value Nonvested at December 28, 2012 293,000 $1.28 Granted 100,000 3.62 Vested (143,000) 3.17 Forfeited (43,000) 3.33 Nonvested at December 27, 2013 207,000 3.55 F-23 Summary of Restricted Stock ActivityA summary of restricted stock activity under the 2008 Plan as of January 1, 2016 and changes during the fiscal yearsended January 1, 2016 and January 2, 2015, is presented below. The intrinsic value of the fully-vested restricted stock is$354,000 and $144,000, based on the Company’s average grant date price of $13.91 and $7.13 for fiscal 2015 and 2014,respectively. Weighted- Average Restricted Stock Grant DateFair Value Outstanding at January 2, 2015 38,000 $5.74 Awarded 25,000 13.91 Vested (25,000) 5.05 Forfeited — — Outstanding at January 1, 2016 38,000 $11.66 Outstanding at December 27, 2013 25,000 2.96 Awarded 25,000 7.13 Vested (12,000) 2.96 Forfeited — — Outstanding at January 2, 2015 38,000 $5.74 The total unrecognized compensation expense related to non-vested stock options and restricted stock grants was$1,280,000 and $322,000, and $422,000 and $142,000 as of January 1, 2016 and January 2, 2015, respectively. Thatexpense is expected to be recognized over a weighted-average period of 2.18 years. There were no options granted that wereimmediately vested during the fiscal years ended January 1, 2016, January 2, 2015 and December 27, 2013.AMENDED AND RESTATED 2006 EMPLOYEE STOCK PURCHASE PLANThe Company adopted its Amended and Restated 2006 Employee Stock Purchase Plan to allow eligible employeesthe right to purchase shares of common stock, at semi‑annual intervals, with their accumulated payroll deductions. The planreceived stockholder approval in June 2006. The Company re‑submitted the plan to its stockholders for post‑IPO approval atthe 2007 annual stockholders’ meeting where approval was obtained. A total of 300,000 shares of the Company’s commonstock have been reserved for issuance under the plan, with no more than 100,000 shares being issuable in any one calendaryear.The plan has semi‑annual periods beginning on each January 1 and ending on each June 30 and beginning on eachJuly 1 and ending on each December 31. The first offering period commenced on February 10, 2007 and ended on June 30,2007.Participants make contributions under the plan only by means of payroll deductions each payroll period. Theaccumulated contributions are applied to the purchase of shares. Shares are purchased under the plan on or as soon aspracticable after, the last day of the offering period. The purchase price per share equals 95% of the fair market value of ashare on the last day of such offering period.The Company’s Amended and Restated 2006 Employee Stock Purchase Plan is a non‑compensatory plan. As aresult, stock‑based compensation expense is not recognized in relation to this plan. As of January 1, 2016, there were 66,483shares available for issuance under the plan.F-24 10. DEBT OBLIGATIONSDebt obligations, excluding obligations under capital leases (note 11), consist of the following: 2016 2015 Outstanding borrowings on delayed draw term loan $1,850,000 $ — Notes payable for 360 Energy Engineers, LLC, 35 month term, bearing interest at 4%, payablein monthly principal and interest installments of $88,752 through November 2017. 2,033,000 — Notes payable for Abacus, 24 month term, bearing interest at 4%, payable in monthlyprincipal and interest installments of $54,281 through January 2017. 690,000 — Notes payable for insurance, 11 month term, bearing interest at 2.773%, payable in monthlyprincipal and interest installments of $55,868 through October 2016. 551,000 352,000 Other — 3,000 5,124,000 355,000 Less current portion 4,039,000 355,000 Debt obligations, less current portion $1,085,000 $ — To finance the acquisitions of Abacus and 360 Energy, the Company borrowed $2.0 million under its delayed drawterm loan facility pursuant to the BMO Credit Agreement described below. The term loan bears interest at the LIBOR rateplus an applicable margin ranging between 2.25% and 2.75%, set at the LIBOR rate plus 2.50% as of January 1, 2016, andmatures on March 24, 2017. Interest on the term loan is payable quarterly, beginning April 13, 2015. Principal on the termloan is payable on the last day of each March, June, September and December in each year, with the amount of each suchprincipal installment equal to: (i) $50,000 on the last day of each March, June, September and December 2016 and (ii) all ofthe remaining outstanding principal amount on March 24, 2017. The term loan is governed by the terms of the BMO CreditAgreement.On January 15, 2015, in connection with the completion of the acquisition of Abacus, WES issued promissory notesto Mark Kinzer (the “Kinzer Note”) and Steve Rubbert (the “Rubbert Note” and, together with the Kinzer Note, the “AbacusNotes”). The initial outstanding principal amounts of the Kinzer Note and the Rubbert Note were $625,000 and $625,000,respectively. The Abacus Notes provide for a fixed interest rate of 4% per annum. The Abacus Notes are fully amortizing andpayable in equal monthly installments between January 15, 2015 and their January 15, 2017 maturity date. The AbacusNotes contain events of default provisions customary for documents of this nature. Mr. Kinzer and Mr. Rubbert have enteredinto a Subordination Agreement, dated as of January 15, 2015, in favor of BMO Harris, pursuant to which any indebtednessunder the Abacus Notes is subordinated to any indebtedness under the BMO Credit Agreement. Through January 1, 2016 theCompany had made payments of approximately $280,000 on each of the Abacus Notes and as of January 1, 2016, theoutstanding balance was $345,000 on each of the Abacus Notes.On January 15, 2015, in connection with the completion of the acquisition of 360 Energy, WES issued a promissorynote to 360 Energy (the “360 Energy Note”). The initial outstanding principal amount of the 360 Energy Note was$3,000,000. The 360 Energy Note provides for a fixed interest rate of 4% per annum. The 360 Energy Note is fullyamortizing and payable in equal monthly installments between January 15, 2015 and its January 15, 2018 maturity date. The360 Energy Note contains events of default provisions customary for documents of this nature. 360 Energy has entered into aSubordination Agreement, dated as of January 15, 2015, in favor of BMO Harris, pursuant to which any indebtedness underthe 360 Energy Note is subordinated to any indebtedness under the BMO Credit Agreement. Through January 1, 2016 theCompany had made payments of approximately $967,000 on the 360 Energy Note and the outstanding balance was$2,033,000 as of January 1, 2016.BMO Credit Facility. On March 24, 2014, the Company and its subsidiaries, as guarantors, entered into a creditagreement (as amended, the “BMO Credit Agreement”) with BMO Harris Bank, N.A., or BMO, that provides for a revolvingline of credit of up to $7.5 million, subject to a borrowing base calculation, and a delayed draw term loan facility of up to$3.0 million. The $7.5 million revolving credit facility includes a $5.0 million standby letter of credit sub-facility. As ofJanuary 1, 2016, there were no outstanding borrowings under the revolving line of credit and approximately $1.85 million inloans outstanding under the term loan facility and, after considering the BMO Credit Agreement’s borrowing basecalculation and debt covenants (each as described below), $7.5 million under the revolving line of credit and $1.15 millionunder the delayed draw term loan facility were available for borrowing.F-25 The term loan bears interest, at the Company’s option, at (a) the base rate plus an applicable margin ranging between1.25% and 1.75%, or (b) the LIBOR rate plus an applicable margin ranging between 2.25% and 2.75%. Borrowings under therevolving line of credit bear interest, at the Company’s option, at (a) the base rate plus an applicable margin ranging between0.75% and 1.25%, or (b) the LIBOR rate plus an applicable margin ranging between 1.75% and 2.25%. The applicablemargin is determined based on the Company’s total leverage ratio. Interest on the term loan is payable quarterly, beginningApril 13, 2015 and was 3.1% as of January 1, 2016. Principal on the term loan is payable on the last day of each March, June,September, and December in each year, with the amount of each such principal installment equal to: (i) $50,000 on the lastday of March, June, September and December 2016, and (ii) all of the remaining outstanding principal amount on March 24,2017. The term loan is governed by the terms of the BMO Credit Agreement. All borrowings under the revolving line of credit are limited to a borrowing base equal to roughly 75% of theeligible accounts receivable plus 50% of the lower of cost or market value of the Company’s eligible inventory, each term asdefined in the BMO Credit Agreement. Under the BMO Credit Agreement, as of January 1, 2016, no cash amounts arerestricted. The revolving line of credit matures on March 24, 2017 and term loans can be requested at any time prior toFebruary 22, 2017, which would mature March 24, 2017. Borrowings under the delayed draw term loan facility bear Borrowings under the term loan facility and therevolving line of credit are guaranteed by all of the Company’s subsidiaries (the “Guarantors”) and secured by all of theCompany’s and the Guarantors’ accounts receivable and other rights to payment, general intangibles, inventory andequipment. Pursuant to the BMO Credit Agreement, the Company also must pay a fee of up to 0.3% on unused commitmentsand customary fees on any letters of credit drawn under the facility. The BMO Credit Agreement contains customary representations and affirmative covenants, including financialcovenants that require the Company to maintain (i) a maximum total leverage ratio, measured as total funded debt (measuredas the sum of all obligations for borrowed money, including subordinated debt, plus all capital lease obligations) plus capitalleases plus financial letters of credit divided by a trailing twelve month EBITDA (as defined in the BMO Credit Agreement)measured on a rolling basis of not more than 2.25 for the first four fiscal quarters after January 2015, and not more than 2.0thereafter; (ii) a minimum fixed charge coverage ratio (measured as the sum of EBITDA plus rent expense less unfinancedcapital expenditures divided by the sum of rent expense plus principal payments plus cash taxes plus cash interest plusrestricted payments plus distributions) of not less than 1.25; and (iii) a minimum tangible net worth of at least the sum of (a)the Company’s tangible net worth as of December 31, 2015, plus (b) 50% of net income (only if positive) for each fiscalquarter ending after February 29, 2016, plus (c) the aggregate proceeds received by the Company from the issuance or sale ofequity interests in the Company after February 29, 2016, minus (d) the aggregate dollar amount of stock repurchases afterFebruary 29, 2016, plus or minus, as applicable, (e) 80% of any adjustments to tangible net worth of the Company arising asa result of certain acquisitions identified to BMO Harris.The BMO Credit Agreement also includes customary negative covenants, including (i) restrictions on the incurrenceof additional indebtedness by the Company or the Guarantors other than indebtedness existing on the date of the BMOCredit Agreement, (ii) restrictions on the total consideration for all permitted acquisitions (including potential future earn-out obligations) shall not exceed $1.5 million during the term of the agreement and the total consideration for any individualpermitted acquisition shall not exceed $750,000 without BMO’s consent, and (iii) limitations on asset sales, mergers andacquisitions. In addition, the credit agreement includes customary events of default. Upon the occurrence of an event ofdefault, the interest rate may be increased by 2.0%, BMO has the option to make any loans then outstanding under the BMOCredit Agreement immediately due and payable, and BMO is no longer obligated to extend further credit to us under theBMO Credit Agreement. As of March 15, 2016, the Company was in compliance with the covenants under the BMO CreditAgreement.Insurance Premiums. The Company has also financed, from time to time, insurance premiums by entering intounsecured notes payable with insurance companies. During the Company’s annual insurance renewals in the fourth quarter ofits fiscal year ended January 1, 2016, the Company elected to finance its insurance premiums for the upcoming fiscal year. The unpaid balance of the financed premiums totaled $551,000 and $352,000 for fiscal 2015 and 2014, respectively. F-26 11. COMMITMENTSLeasesThe Company is obligated under capital leases for certain furniture and office equipment that expire at various datesthrough the year 2018.The Company also leases certain office facilities under non‑cancelable operating leases that expire at various datesthrough the year 2023.Future minimum rental payments under capital and non‑cancelable operating leases are summarized as follows: Capital Operating Fiscal year: 2016 $456,000 2,300,000 2017 190,000 1,925,000 2018 71,000 1,338,000 2019 — 1,035,000 2020 — 558,000 Thereafter — 1,147,000 Total future minimum lease payments 717,000 $8,303,000 Amount representing interest (at rates ranging from 3.25% to 3.75%) (18,000) Present value of net minimum lease payments under capital leases 699,000 Less current portion 444,000 $255,000 During the fiscal year ended January 2, 2015, the Company moved certain offices to new locations and closedcertain virtual offices. As a result of the office closures and relocations, the Company recorded lease abandonment expense,net, of $9,000. This expense includes future rental obligations and other costs associated with the leased space net of the fairvalue of subleases.Rent expense and related charges for common area maintenance for all facility operating leases for fiscal years 2015, 2014 and 2013 was approximately $2,842,000, $3,004,000 and $3,405,000, respectively.The following is a reconciliation of the liability for lease abandonment expense for fiscal years 2015 and 2014 Fiscal 2015 Fiscal 2014 Liability for abandoned leases as of beginning of year $44,000 $122,000 Lease abandonment expense, net — 9,000 Lease payments on abandoned leases, net of sublease payments (11,000) (153,000) Other (33,000) 66,000 Liability for abandoned leases as of the end of the year $ — $44,000 Employee Benefit PlansThe Company has a qualified profit sharing plan (the Plan) pursuant to Code Section 401(a) and qualified cash ordeferred arrangement pursuant to Code Section 401(k) covering substantially all employees. Employees may elect tocontribute up to 50% of compensation limited to the amount allowed by tax laws. Company contributions are made solely atthe discretion of the Company’s board of directors. The Company made matching contributions of approximately $777,000, $624,000 and $507,000 during fiscal years 2015, 2014 and 2013, respectively.F-27 The Company has a discretionary bonus plan for regional managers, division managers and others as determined bythe Company president. Bonuses are awarded if certain financial goals are achieved. The financial goals are not stated in theplan; rather they are judgmentally determined each year. In addition, the board of directors may declare discretionarybonuses to key employees and all employees are eligible for what the Company refers to as the “hot hand” bonus program,which pays awards for outstanding performance. The Company’s compensation committee of the board of directorsdetermines the compensation of the president and chief executive officer. Bonus expense for fiscal years 2015, 2014 and2013 totaled approximately $1,268,000, $1,500,000 and $262,000, respectively, of which approximately $922,000 and$1,450,000 is included in accrued liabilities at January 1, 2016 and January 2, 2015, respectively.Post employment health benefitsIn May 2006, the Company’s board of directors approved providing lifetime health insurance coverage for WinWestfall, the Company’s former chief executive officer and current chairman of the board of directors, and his spouse and forLinda Heil, the widow of the Company’s former chief executive officer, Dan Heil. These benefits relate to past servicesprovided to the Company. Accordingly, there is no unamortized compensation cost for the benefits.Included in accrued liabilities in the accompanying consolidated balance sheets related to this obligation is thepresent value of expected payments for health insurance coverage, $126,000 as of January 1, 2016 and $139,000 as ofJanuary 2, 2015.12. INCOME TAXESThe provision (benefit) for income taxes is comprised of: Fiscal Year 2015 2014 2013 Current federal taxes $983,000 $274,000 $88,000 Current state taxes 340,000 164,000 44,000 Deferred federal taxes (benefit) 1,295,000 (782,000) — Deferred state taxes (benefit) 464,000 (646,000) — $3,082,000 $(990,000) $132,000 The provision (benefit) for income taxes reconciles to the amounts computed by applying the statutory federal taxrate of 34% to our income (loss) before income taxes. The sources and tax effects of the differences for fiscal years 2015, 2014and 2013 are as follows: 2015 2014 2013 Computed “expected” federal income tax expense (benefit) $2,496,000 $2,864,000 $940,000 Permanent differences 90,000 139,000 93,000 Incentive stock options 205,000 — — Energy efficient commercial building deduction (281,000) — — Current and deferred state income tax expense (benefit), net of federal benefit 482,000 586,000 (19,000) Change in valuation allowances on deferred tax assets 73,000 (4,576,000) (897,000) Other 17,000 (3,000) 15,000 $3,082,000 $(990,000) $132,000 F-28 Differences between the Company’s effective income tax rate and what would be expected if the federal statutoryrate was applied to income before income tax from continuing operations are primarily due to permanent tax adjustmentssuch as incentive stock options which are not deductible for federal or state income tax purposes, energy efficientcommercial building deduction, and a valuation allowance adjustment related to state net operating losses not expected tobe utilized.The tax effects of temporary differences that give rise to significant portions of the net deferred tax assets andliabilities are as follows: January 1, January 2, December 27, 2016 2015 2013 Deferred tax assets: Accounts receivable allowance $303,000 $265,000 $156,000 Other accrued liabilities 1,618,000 1,482,000 764,000 Federal and state net operating losses 156,000 244,000 3,157,000 Intangible assets 3,891,000 4,016,000 4,571,000 Other 224,000 409,000 64,000 6,192,000 6,416,000 8,712,000 Valuation allowance (73,000) — (4,576,000) Net deferred tax assets 6,119,000 6,416,000 4,136,000 Deferred tax liabilities: Deferred revenue (5,510,000) (4,878,000) (4,125,000) Fixed assets (696,000) (111,000) (11,000) Other (244,000) — — (6,450,000) (4,989,000) (4,136,000) Net deferred tax (liability) asset $(331,000) $1,427,000 $ — At January 1, 2016, the Company had state operating loss carryovers of $2.8 million. The carryovers expire through2035. During 2015 management assessed the available positive and negative evidence to estimate if sufficient futuretaxable income will be generated to utilize the existing deferred tax assets. Management has ultimately determined that it isnot more-likely-than-not that the entire California net operating loss will be utilized prior to expiration. Significant pieces ofobjective evidence evaluated included the Company’s utilization of California net operating losses in prior years for each ofits subsidiaries. Based on this evaluation, as of January 1, 2016, the Company recorded a valuation allowance in the amountof $73,000 related to California net operating losses. With the exception of the valuation allowance on the California netoperating loss carryforward, management believes that it is more likely than not that the deferred tax assets at January 1,2016 will be realized.In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes to simplify thepresentation of deferred income taxes. The amendments in this update require that deferred tax liabilities and assets beclassified as noncurrent in a classified statement of financial position. The Company has elected to early adopt ASU 2015-17as of January 1, 2016 and retrospectively applied ASU 2015-17 to all periods presented. As of January 2, 2015 the Companyreclassified $3.1 million of deferred tax liabilities from "Current liabilities" to "Non-current assets" on the ConsolidatedBalance Sheets.During the year ended January 2, 2015 management assessed the available positive and negative evidence toestimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. Significant pieces ofobjective positive evidence evaluated were the cumulative earnings generated over the three-year period ended January 2,2015 and the Company's strong future earnings projections. Based on this evaluation, as of January 2, 2015, the Companyreversed $4.6 million of its valuation allowance.F-29 Management believes that there are no material uncertain tax positions that would impact the accompanyingconsolidated financial statements. The Company's policy is to recognize interest and penalties related to unrecognized taxbenefits in income tax expense. As of January 1, 2016 and January 2, 2015, there was no unrecognized tax benefit. TheCompany may be subject to examination by the Internal Revenue Service for calendar years 2012 through 2015. TheCompany may also be subject to examination on certain state and local jurisdictions for the years 2011 through 2015.13. SEGMENT INFORMATIONThe Company has four reporting segments: Energy Efficiency Services, Engineering Services, Public FinanceServices and Homeland Security Services. The Engineering Services segment consists of Willdan Engineering and PublicAgency Resources. The Energy Efficiency Services segment, which consists of Willdan Energy Solutions, provides energyefficiency consulting services to utilities, state agencies, municipalities, private industry and non-profit organizations. TheEngineering Services segment offers a broad range of engineering and planning services to our public and private sectorclients. The Public Finance Services segment, which consists of Willdan Financial Services, provides expertise and supportfor the various financing techniques employed by public agencies to finance their operations and infrastructure along withthe mandated reporting and other requirements associated with these financings. The Homeland Security Services segment,which consists of Willdan Homeland Solutions, provides national preparedness, homeland security consulting, public safetyand emergency response services to cities, related municipal service agencies and other entities.The accounting policies applied to determine the segment information are the same as those described in thesummary of significant accounting policies. There were no intersegment sales in any of the three fiscal years ended January 1,2016. Management evaluates the performance of each segment based upon income or loss from operations before incometaxes. Certain segment asset information including expenditures for long‑lived assets has not been presented as it is notreported to or reviewed by the chief operating decision maker. In addition, enterprise‑wide service line contract revenue isnot included as it is impracticable to report this information for each group of similar services.Financial information with respect to the reportable segments and reconciliation to the amounts reported in theCompany’s consolidated financial statements follows: Energy Public Homeland Engineering Efficiency Finance Security Unallocated Consolidated Services Services Services Services Corporate Intersegment Total Fiscal Year 2015 Contract revenue $45,997,000 $74,123,000 $11,857,000 $3,126,000 $ — $ — $135,103,000 Depreciation and amortization 359,000 1,525,000 159,000 29,000 — — 2,072,000 Interest (expense) income (10,000) (194,000) (2,000) (1,000) — — (207,000) Segment profit (loss) before income tax expense 4,666,000 2,499,000 1,148,000 418,000 (1,390,000) — 7,341,000 Income tax (benefit) expense 1,959,000 1,049,000 482,000 176,000 (584,000) — 3,082,000 Net income (loss) 2,707,000 1,450,000 666,000 242,000 (806,000) — 4,259,000 Segment assets(1) 13,641,000 34,686,000 5,377,000 894,000 40,877,000 (23,130,000) 72,345,000 Fiscal Year 2014 Contract revenue $40,783,000 $52,941,000 $10,630,000 $3,726,000 $ — $ — $108,080,000 Depreciation and amortization 191,000 212,000 39,000 18,000 — 459,000 Interest (expense) income 17,000 (33,000) 2,000 (2,000) — (16,000) Segment profit (loss) before income tax expense 4,008,000 4,814,000 661,000 443,000 (1,500,000) — 8,426,000 Income tax (benefit) expense (454,000) (599,000) (64,000) (49,000) 176,000 — (990,000) Net income (loss) 4,462,000 5,413,000 725,000 492,000 (1,676,000) — 9,416,000 Segment assets(1) 11,166,000 11,769,000 3,944,000 708,000 44,873,000 (23,130,000) 49,330,000 Fiscal Year 2013 Contract revenue $35,217,000 $36,041,000 $9,845,000 $4,407,000 $ — $ — $85,510,000 Depreciation and amortization 214,000 223,000 41,000 39,000 — — 517,000 Interest (expense) income (68,000) (25,000) (3,000) 2,000 — — (94,000) Segment profit before income tax expense 1,125,000 710,000 535,000 392,000 — — 2,762,000 Income tax expense (benefit) 53,000 45,000 17,000 17,000 — — 132,000 Net income 1,072,000 665,000 518,000 375,000 — — 2,630,000 Segment assets(1) 10,436,000 10,305,000 3,528,000 1,406,000 35,692,000 (23,130,000) 38,237,000 (1)Segment assets are presented net of intercompany receivables.(2)F-30 The following sets forth the assets that are included in Unallocated Corporate as of January 1, 2016, January 2, 2015 andDecember 27, 2013. 2015 2014 2013 Assets: Cash and cash equivalents $14,385,000 $20,371,000 $7,341,000 Prepaid expenses 758,000 1,404,000 1,206,000 Intercompany receivables 82,845,000 85,259,000 114,800,000 Other receivables 49,000 19,000 73,000 Equipment and leasehold improvements,net 2,231,000 440,000 177,000 Investments in subsidiaries 23,130,000 23,130,000 23,130,000 Other 53,000 4,640,000 3,765,000 $123,451,000 $135,263,000 $150,492,000 14. CONTINGENCIESClaims and LawsuitsThe Company is subject to claims and lawsuits from time to time, including those alleging professional errors oromissions that arise in the ordinary course of business against firms that operate in the engineering and consultingprofessions. The Company carries professional liability insurance, subject to certain deductibles and policy limits, for suchclaims as they arise and may from time to time establish reserves for litigation that is considered probable of a loss.In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscountedliability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, anddiscloses the amount accrued and an estimate of any reasonably possible loss in excess of the amount accrued, if suchdisclosure is necessary for the Company’s financial statements not to be misleading. The Company does not accrue liabilitieswhen the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or whenthe liability is believed to be only reasonably possible or remote.Because litigation outcomes are inherently unpredictable, the Company’s evaluation of legal proceedings ofteninvolves a series of complex assessments by management about future events and can rely heavily on estimates andassumptions. If the assessments indicate that loss contingencies that could be material to any one of the Company’s financialstatements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then the Company willdisclose the nature of the loss contingencies, together with an estimate of the possible loss or a statement that such loss is notreasonably estimable. While the consequences of certain unresolved proceedings are not presently determinable, and areasonable estimate of the probable and reasonably possible loss or range of loss in excess of amounts accrued for suchproceedings cannot be made, an adverse outcome from such proceedings could have a material adverse effect on theCompany’s earnings in any given reporting period. However, in the opinion of the Company’s management, after consultingwith legal counsel, and taking into account insurance coverage, the ultimate liability related to current outstanding claimsand lawsuits is not expected to have a material adverse effect on the Company’s financial statements.City of Glendale v. Willdan Financial Services, Superior Court of California, Los Angeles CountyA complaint was filed against the Company on July 16, 2014 relating to a project performed by Willdan FinancialServices to prepare a Cost of Services Analysis (a “COSA”) for the Department of Water and Power of the City of Glendale,California (the “City of Glendale”). The purpose of the COSA was to assist the City of Glendale in setting water rates forproperty owners. The lawsuit alleges that the City of Glendale suffered damages due to mistakes in the COSA, as follows: theCity of Glendale received less revenue than anticipated in an amount exceeding $9,000,000; the City of Glendale wasrequired to retain another consultant to prepare a new COSA at the cost of $130,000; and the City of Glendale incurred costsassociated with noticing and conducting public hearings at a cost of $83,052. The Company denies the allegations assertedin the lawsuit and will vigorously defend against the claims. Additionally, this matter is covered under the Company’sprofessional liability insurance policy which has limits of $5,000,000 per claim and $10,000,000 annual aggregate.F-31 15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)The tables below reflect selected quarterly information for the fiscal years ended January 1, 2016 and January 2,2015. Fiscal Three Months Ended April 3, July 3, October 2, January 1, 2015 2015 2015 2016 (in thousands except per share amounts) Contract revenue $33,297 $36,773 $33,511 $31,522 Income from operations 2,629 2,804 1,641 456 Income tax expense 1,138 1,108 626 210 Net income 1,495 1,602 782 380 Earnings per share: Basic $0.19 $0.20 $0.10 $0.05 Diluted $0.18 $0.20 $0.10 $0.05 Weighted-average shares outstanding: Basic 7,765 7,824 7,862 7,888 Diluted 8,103 8,136 8,102 8,132 Fiscal Three Months Ended March 28, June 27, September26, January 2, 2014 2014 2014 2015 (in thousands except per share amounts) Contract revenue $22,686 $26,970 $28,187 $30,237 Income from operations 1,312 1,941 2,651 2,405 Income tax expense (benefit) 44 64 (1,464) 366 Net income 1,315 1,893 4,161 2,047 Earnings per share: Basic $0.18 $0.26 $0.55 $0.27 Diluted $0.17 $0.25 $0.53 $0.26 Weighted-average shares outstanding: Basic 7,397 7,405 7,507 7,618 Diluted 7,609 7,661 7,855 7,986 In the fourth quarter of fiscal 2015, the Company recorded measurement period adjustments for changes in itsacquisition accounting (see Note 3). Included in these adjustments is a decrease in direct costs of contract revenue related tothe identification of a pre-existing liability as of the acquisition date of $512,000 that should have been recorded in thesecond quarter. 16. SUBSEQUENT EVENTSAcquisition of Genesys Engineering P.C. On March 4, 2016, following the Company’s acquisitions in January 2015of Abacus Resource Management and 360 Energy Engineers, LLC, the Company and the Company’s wholly-ownedsubsidiary, Willdan Energy Solutions (“WES”) acquired substantially all of the assets of Genesys Engineering P.C.(“Genesys”) and assumed certain specified liabilities of Genesys (collectively, the “Purchase”) pursuant to an Asset Purchaseand Merger Agreement, dated as of February 26, 2016 (the “Agreement”), by and among the Company, WES, WESGEN (asdefined below), Genesys and Ronald W. Mineo (“Mineo”) and Robert J. Braun (“Braun” and, together with Mineo, the“Genesys Shareholders”). On March 5, 2016, pursuant to the terms of the Agreement, WESGEN, Inc., a non-affiliatedcorporation (“WESGEN”), merged (the “Merger” and, together with the Purchase, the “Acquisition”) with Genesys, withGenesys remaining as the surviving corporation. F-32 Pursuant to the terms of the Agreement, WES or WESGEN, as applicable, paid the Genesys Shareholders anaggregate purchase price (the “Purchase Price”) of approximately $12.6 million, subject to post closing working capital andtax adjustments. The Purchase Price consists of (i) $6.0 million in cash, payable at closing, (ii) 255,808 shares of CommonStock, par value $0.01 per share, of the Company (the “Common Stock”), equaling $2.0 million based on the volume-weighted average price of shares of the Common Stock for the ten trading days immediately prior to, but not including,February 26, 2016, and (iii) $4.6 million in cash, payable in twenty-four (24) equal monthly installments beginning onMarch 26, 2016 (the “Installment Payments”). Until the third anniversary of the Closing Date (the “Closing Date”), theGenesys Shareholders will be prohibited from transferring or disposing of any Common Stock received in connection withthe Acquisition. The Agreement contains customary representations and warranties regarding the Company, WES, WESGEN,Genesys and the Genesys Shareholders, indemnification provisions and other provisions customary for transactions of thisnature. Pursuant to the terms of the Agreement, the Company and WES also provided guarantees to the Genesys Shareholderswhich guarantee certain of WESGEN’s and Genesys’ obligations under the Agreement, including the Installment Payments.The Company used cash on hand to pay the $6.0 million initial purchase price.Genesys continues to be a professional corporation organized under the laws of the State of New York, wholly-owned by one or more licensed engineers. Pursuant to New York law, the Company does not own capital stock of Genesys.The Company has entered into an agreement with the post-Closing Date owners of Genesys pursuant to which such ownerswill be prohibited from selling, transferring or encumbering their ownership interest in Genesys without the Company’sconsent. Notwithstanding the Company’s rights regarding the transfer of Genesys’ stock, the Company does not have controlover the professional decision making of Genesys. The Company has entered into an administrative services agreement withGenesys pursuant to which WES will provide Genesys with ongoing administrative, operational and other non-professionalsupport services.Amendment to Credit Facility. On February 26, 2016, the Company and the Company’s subsidiaries, as guarantors,entered into the Third Amendment (the “Third Amendment”) to the Credit Agreement and Consent (as amended, the “BMOCredit Agreement”), dated as of March 24, 2014, by and between the Company, the guarantors listed therein, and BMOHarris Bank National Association (“BMO Harris”). The BMO Credit Agreement governs the Company’s credit facility thatincludes a revolving line of credit and a delayed draw term loan facility.The Third Amendment revised the BMO Credit Agreement to, among other things, extend the maturity date of theBMO Credit Agreement from March 24, 2016 to March 24, 2017, to permit the Acquisition and the Installment Payments andto add Genesys as a guarantor under the BMO Credit Agreement upon the closing of the Merger.The Third Amendment also permits the Company to repurchase up to $7.0 million of shares of Common Stock undercertain conditions, including that, at the time of any such repurchase, (a) the Company has at least $7.0 million ofunrestricted cash (or undrawn availability under the Company’s revolving credit facility), (b) the aggregate amount of allrepurchases to the date of such repurchase be less than $7.0 million and (c) no default exists or would arise under the BMOCredit Agreement after giving effect to such repurchase. The Third Amendment also revised certain covenants in the BMO Credit Agreement. As a result of the ThirdAmendment, the Company must maintain a minimum tangible net worth (as defined in the Third Amendment) of at least thesum of (a) the Company’s tangible net worth as of December 31, 2015, plus (b) 50% of net income (only if positive) for eachfiscal quarter ending after the effectiveness of the Third Amendment, plus (c) the aggregate proceeds received by theCompany from the issuance or sale of equity interests in the Company, minus (d) the aggregate dollar amount of stockrepurchases after the effectiveness of the Third Amendment, plus or minus, as applicable, (e) 80% of any adjustments totangible net worth of the Company arising as a result of the consummation of the Acquisition or certain other acquisitionsidentified to BMO Harris. Pursuant to the terms of the Third Amendment, the Company’s ability to incur permittedindebtedness was also (i) decreased for notes to sellers of acquired businesses from $4.25 million to $4.15 million and (ii)increased for cash earn out, performance payments or similar obligations relating to acquisitions permitted by the BMOCredit Agreement from $7.9 million to $10.5 million. The Third Amendment also allows the Company to incur permittedindebtedness relating to the Installment Payments up to a maximum of $4.6 million and subject to other conditions.As of March 15, 2016, there are no outstanding borrowings under the revolving line of credit and all $7.5 millionremain available for borrowing.F-33 Exhibit 2.3 ASSET PURCHASE AND MERGER AGREEMENT BY AND AMONG WILLDAN GROUP, INC., WILLDAN ENERGY SOLUTIONS, WESGEN, INC., GENESYS ENGINEERING P.C., RONALD W. MINEO AND ROBERT J. BRAUN FEBRUARY 26, 2016 TABLE OF CONTENTS Page ARTICLE I PURCHASE OF CERTAIN ASSETS1 Section 1.1Purchase of Assets1 Section 1.2Excluded Assets2 Section 1.3Assumed Liabilities3 Section 1.4Excluded Liabilities3 Section 1.5Asset Purchase Consideration; Allocation4 Section 1.6Closing of Asset Purchase4 Section 1.7Delivery of Asset Purchase Consideration4 Section 1.8Further Assurances5 ARTICLE II THE MERGER6 Section 2.1The Merger6 Section 2.2The Merger Closing6 Section 2.3Effective Time of the Merger6 Section 2.4Effect of the Merger6 Section 2.5Conversion of Capital Stock7 Section 2.6Surrender of Certificates7 ARTICLE III TRANSACTION CONSIDERATION8 Section 3.1Transaction Consideration8 Section 3.2Payment Schedule8 Section 3.3Closing Date Net Working Capital8 Section 3.4Calculation of Final Adjustments9 Section 3.5Installment Payments11 Section 3.6Asset Purchaser and Parent Guaranty11 Section 3.7Shareholders’ Representative11 Section 3.8Shareholder Dilution12 ARTICLE IV REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY12 Section 4.1Organization, Standing and Power12 Section 4.2Subsidiaries12 Section 4.3Capitalization12 Section 4.4Authority13 Section 4.5Required Consents; No Conflicts14 Section 4.6Financial Statements14 Section 4.7Absence of Certain Changes14 Section 4.8Absence of Undisclosed Liabilities14 Section 4.9Litigation15 Section 4.10Restrictions on Business Activities15 Section 4.11Governmental Authorization15 Section 4.12Title to Property16 Section 4.13Accounts Receivable16 Section 4.14Intellectual Property16 Section 4.15Environmental Matters17 Section 4.16Taxes17 Section 4.17Employee Benefit Plans18 Section 4.18Employee Matters20 Section 4.19Interested Party Transactions21 Section 4.20Leased Property22 Section 4.21Compliance with Laws22 Section 4.22Books and Records23 Section 4.23Brokers’ and Finders’ Fees23 Section 4.24Material Contracts23 Section 4.25Bank Accounts25 Section 4.26Insurance25 Section 4.27Customers; Distributors; Suppliers25 Section 4.28Foreign Corrupt Practices Act; Absence of Certain Business Practices26 Section 4.29Availability of Documents27 Section 4.30Solvency27 Section 4.31Full Disclosure27 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS28 Section 5.1No Registration28 Section 5.2Investment Intent28 Section 5.3Speculative Nature of Investment28 Section 5.4Accredited Investor29 Section 5.5Restrictions on Transfer29 Section 5.6Rule 144 and Rule 14529 Section 5.7Legend29 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PARENT, THE ASSET PURCHASERAND WESGEN30 Section 6.1Organization, Standing and Power30 Section 6.2Authority30 Section 6.3Adequacy of Funds30 Section 6.4Investigation30 ARTICLE VII PRE-CLOSING AND POST-CLOSING COVENANTS OF THE COMPANY AND THESHAREHOLDERS30 Section 7.1Conduct of the Business Prior to Closing30 Section 7.2Restrictions on the Company’s Conduct of the Business Prior to Closing30 Section 7.3No Solicitation32 Section 7.4Certain Notifications33 Section 7.5Updating Disclosure Schedules33 Section 7.6Access to Information33 Section 7.7Best Efforts; Cooperation34 Section 7.8Employment Matters34 Section 7.9Tax Matters34 Section 7.10Public Disclosure36 Section 7.11Shareholder Noncompetition.36 Section 7.12Shareholder Lock-Up.37 Section 7.13Company Benefit Plans37 ARTICLE VIII CONDITIONS TO CLOSING37 Section 8.1Conditions to Obligations of Each Party37 Section 8.2Conditions to the Obligations of the Parent, the Asset Purchaser and WESGEN38 Section 8.3Conditions to the Obligations of the Company and the Shareholders40 Section 8.4Frustration of Conditions41 ii ARTICLE IX TERMINATION, AMENDMENT AND WAIVER41 Section 9.1Termination41 Section 9.2Effect of Termination42 Section 9.3Expenses42 Section 9.4Amendment42 Section 9.5Extension; Waiver42 ARTICLE X INDEMNIFICATION42 Section 10.1Survival42 Section 10.2Indemnification43 Section 10.3Installment Payments; Satisfaction of Damages44 Section 10.4Procedure for Indemnification44 Section 10.5Third-Party Claims45 Section 10.6No Right of Contribution45 Section 10.7Right to Set off45 Section 10.8Cumulative Remedies46 ARTICLE XI GENERAL PROVISIONS46 Section 11.1Notices46 Section 11.2Interpretation47 Section 11.3Counterparts48 Section 11.4Assignment48 Section 11.5Severability48 Section 11.6Governing Law; Jurisdiction; Venue; Dispute Resolution48 Section 11.7Waiver of Jury Trial49 Section 11.8Rules of Construction49 Section 11.9Specific Performance; Injunctive Relief49 Section 11.10Descriptive Headings50 Section 11.11Force Majeure50 Section 11.12Costs and Fees50 Section 11.13Entire Agreement50 APPENDIX ADefinitions APPENDIX BRestricted Geographies APPENDIX CSurviving Corporation Officers EXHIBITS Exhibit AForm of Certificate of Merger Exhibit BForm of Letter of Transmittal Exhibit CExample Calculation of Transaction Consideration Exhibit DForm of Shareholders’ Employment Agreements Exhibit EForm of FIRPTA Notification Letter Exhibit FForm of General Assignment and Bill of Sale Exhibit GForm of Assignment and Assumption Exhibit HForm of General Release SCHEDULES Asset SchedulesCompany Disclosure Schedules iii ASSET PURCHASE AND MERGER AGREEMENT This ASSET PURCHASE AND MERGER AGREEMENT (this “Agreement”) is made and entered into asof February 26, 2016, by and among Willdan Group, Inc., a Delaware corporation (the “Parent”), Willdan EnergySolutions, a California corporation and wholly-owned subsidiary of the Parent (the “Asset Purchaser”), WESGEN,INC., a New York corporation (“WESGEN”) and Affiliate of the Parent and the Asset Purchaser (Parent, AssetPurchaser, and WESGEN shall be collectively referred to as the “Purchasing Parties”), Genesys Engineering P.C., aNew York professional service corporation (the “Company”), and Ronald W. Mineo and Robert J. Braun (collectivelythe “Shareholders.” Capitalized terms used but not otherwise defined herein shall have the meanings set forth inAppendix A attached hereto. RECITALS WHEREAS, the Asset Purchaser and WESGEN desire to acquire the Company and its assets through atransaction in which, first, the Asset Purchaser will purchase from the Company certain of the Company’s assets, andimmediately thereafter, WESGEN will be merged with and into the Company, with the Company surviving, all on theterms and conditions set forth in this Agreement; and WHEREAS, the respective boards of directors of each of the Parent, the Asset Purchaser, WESGEN andthe Company deems it advisable and in the best interests of its respective shareholders to consummate the Transactionand has approved this Agreement and the Transaction. NOW, THEREFORE, in consideration of the mutual representations, warranties and agreementscontained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which arehereby acknowledged, the Parties agree as follows: ARTICLE I PURCHASE OF CERTAIN ASSETS Section 1.1Purchase of Assets. Subject to the terms and conditions of this Agreement, at thePurchase Closing, the Company shall sell, transfer, convey, assign and deliver to the Asset Purchaser, andthe Asset Purchaser shall purchase from the Company, all of the Company’s right, title and interest in, toand under the assets, properties, goodwill and rights of the Company of every nature, kind and description,tangible and intangible, wherever located, whether or not carried on the books of the Company (other thanthe Excluded Assets) (collectively, the “Purchased Assets”), including the following: (a)Leased Real Property. All rights in, to and under the real estate leases listed on Section1.1(a) of the Asset Schedules (the “Leased Real Property”), together with all of the Company’s right, title and interestin and to all land, buildings, structures, easements, appurtenances, improvements (including construction in progress)and fixtures located thereon, subject to the provisions of said leases. (b)Personal Property. All personal property, office furnishings and furniture, display racks,shelves, decorations, supplies and all other tangible personal property (collectively, the “Personal Property”), includingthe Personal Property listed on Section 1.1(b) of the Asset Schedules. (c)Vehicles. All automobiles, trucks, automotive equipment, and other vehicles owned or used by the Company (collectively, the “Vehicles”), including, but not limited to, those Vehicleslisted on Section 1.1(c) of the Asset Schedules, segregated by whether such Vehicles are owned or leased. (d)Prepaid Expenses. All right, title, and interest of the Company in and to any prepaidexpenses and deposits (collectively, the “Prepaid Expenses”), set forth on Section 1.1(d) of the Asset Schedules. (e)Assumed Contracts. All right, title, and interest of the Company under all contracts andagreements other than the Excluded Contracts (collectively, the “Assumed Contracts”), including, but not limited to,those contracts set forth on Section 1.1(e) of the Asset Schedules and the exclusive right and obligation to service andfulfill all the Assumed Contracts in effect at the time of the Purchase Closing. For the purpose of clarification only,Assumed Contracts means all contracts of Genesys other than professional engineering services contracts. (f)Records. All of the Company’s books, records, files, and papers pertaining to thePurchased Assets which are maintained in the ordinary course of business and are required, necessary, or advisable inorder for the Asset Purchaser to use and operate the Purchased Assets and Assumed Liabilities from and after thePurchase Closing in substantially the same manner in which they are being used and operated by the Companyimmediately prior to the Purchase Closing, including but not limited to, accounting and financial records, personnelrecords, environmental records, and reports, contract forms, technical data, graphic materials, pricing and informationmanuals, drawings, patterns, fixtures, designs, sales literature, or other sales aids, customer files, customer credithistories and other data related or pertaining to the Purchased Assets (collectively, the “Transferred Records”). AssetPurchaser shall maintain such records for seven (7) years after the Closing. (g)Claims and Benefits. All of the Company’s rights, claims, or causes of action againstthird parties relating to the Purchased Assets arising out of transactions occurring prior to the Closing Date and allinsurance benefits (to the extent assignable), including rights and proceeds, relating to the Purchased Assets and theAssumed Liabilities arising out of transactions occurring prior to the Closing Date unless such rights, claims or causesof action or such insurance benefits arise out of transactions that relate to Excluded Assets or Excluded Liabilities. (h)Intangibles and Goodwill. All Company Intellectual Property and the Company’s otherintangible rights, assets and property, including customer relationships, going concern value and goodwill, and allrights that the Company may have to institute or maintain any action for infringement or to protect the same andrecover damages for any misappropriation or misuse thereof. (i)Accounts Receivable. All of the Company’s accounts and notes receivable fromcustomers and others, including all trade accounts receivable and all rights to payment for goods sold or leased orservices provided (collectively, the “Accounts Receivable”). (j)Cash. All of the Company’s cash and cash equivalents as of the Closing Date. Section 1.2Excluded Assets. Notwithstanding Section 1.1, the following assets of the Companyshall remain with the Company and shall not be included in the Purchased Assets (collectively, the“Excluded Assets”): (a)Excluded Professional Services Contracts. All right, title, and interest of the Companyunder all contracts and agreements for the performance of professional engineering services set forth on Section 1.2(a)of the Asset Schedules (collectively, the “Excluded Contracts”). It is the 2 intention of the parties that all prime contracts for professional services between the Company and its clients, allsubcontracts between the Company and its subcontractors relating to such services and all related expenses shall remainwith the Company through the merger described in Article II. (b)Excluded Accounts Receivable. Any excluded accounts receivable identified on Section1.2(b) of the Asset Schedules (collectively, the “Excluded Accounts Receivable”) be assigned prior to the Closing tothe Shareholders and shall not be assigned to the Asset Purchaser nor retained by the Company. (c)Corporate Documents. Corporate seals, the Company’s Organizational Documents,minute books, stock transfer records, or other records related to the corporate organization of the Company. (d)Employee Benefit Contracts. Company Employee Plans and contracts of insurance foremployee group medical, dental and life insurance plans and will be terminated in accordance with business practices. (e)Insurance Policies. All insurance policies except key man life insurance policies. TheCompany shall transfer existing key man life insurance policies to the Shareholders prior to the Closing. (f)Bank Accounts. All bank accounts of the Company. (g)Other. All such other rights, assets or property of the Company required to be retainedby a professional engineering services corporation pursuant to applicable Law. Section 1.3Assumed Liabilities. Subject to the terms and conditions of this Agreement, at thePurchase Closing, the Company shall assign, and the Asset Purchaser shall assume, only the AssumedLiabilities and Asset Purchaser shall use reasonable efforts to enter into novation agreements transferring allrights, obligations, and liabilities of the Assume Contracts to Asset Purchaser. Thereafter, the AssetPurchaser shall pay and discharge all such Assumed Liabilities as and when such Assumed Liabilitiesbecome due and owing. For the purposes of this Agreement, the “Assumed Liabilities” shall mean theCompany’s Liabilities under the Assumed Contracts. It is the understanding of the Parties that the AssumedContracts shall not include contracts between Company and its clients and between Company itssubcontractors/subconsultants that can only be performed under the supervision of professional engineersunder the laws of the State of New York, it being the intent that those contracts shall remain with Genesysthrough the Merger. Section 1.4Excluded Liabilities. Except for the Assumed Liabilities, the Asset Purchaser shall notassume and shall not be liable or responsible for any Liability of the Company, any direct or indirectsubsidiary of the Company or any Affiliate of the Company (collectively, the “Excluded Liabilities”). Except to the extent covered by Purchasing Parties’ insurance policies, and as required herein, Company’sLiabilities incurred prior to the Purchase Closing relating to Taxes or relating to violations of environmental,labor, business or other Laws by the Company prior to the Closing, if any, shall be assumed by theShareholders effective upon the Purchase Closing and shall not be assumed by the Asset Purchaser norretained by the Company. Purchasing Parties, individually and collectively, shall indemnify and defendexisting Shareholders from and against any claims made by Company employees related to such employee'sre-employment by Asset Purchaser or in any way related to the Transaction contemplated herein. 3 Section 1.5Asset Purchase Consideration; Allocation (a) (a)Subject to the terms and conditions of this Agreement, as full consideration for the sale,assignment, transfer and delivery of the Purchased Assets and the assumption of the Assumed Liabilities (the “AssetPurchase”), the Asset Purchaser shall deliver or cause to be delivered directly to each of the Shareholders eachShareholders’ Pro Rata Portion of the Asset Purchase Consideration, in accordance with the payment procedures ofSection 1.7 below. (b)As soon as practicable after the Purchase Closing, the Asset Purchaser shall provide tothe Company (or the Surviving Corporation) and the Shareholders an allocation of the Asset Purchase Considerationand the Assumed Liabilities among the various classes of Purchased Assets (as such classes are defined for the purposesof Section 1060 of the Code). All allocations made pursuant to this Section 1.5(b) shall be made in accordance with therequirements of Section 1060 of the Code. Neither the Company (or the Surviving Corporation) nor the Shareholdersshall take a position on any Tax Return (including IRS Form 8594), before any Tax Authority or in any judicialproceeding that is in any manner inconsistent with such allocation without the written consent of the Asset Purchaser orunless specifically required pursuant to a determination by an applicable Tax Authority. (c)The Asset Purchaser, the Company and the Shareholders hereby agree that the AssetPurchase shall be attributable to a Pre-Closing Tax Period and reflected on a Pre-Closing Return of the Company. (d)The following allocations shall apply to the Asset Purchase: (i) Tangible Net Assets - $3,988,246; (ii) Goodwill and Intangibles - $9,009,338; (iii) Covenant Not To Compete - $860,000. (e)The following allocation shall apply to the Merger: (i) Backlog and Business License - $1,700,000. Section 1.6Closing of Asset Purchase. The purchase and sale of the Purchased Assets andassumption of the Assumed Liabilities (the “Purchase Closing”) provided for in this Agreement will takeplace at the offices of Lavoie & Jarman, 2401 E. Katella Ave., Suite 310, Anaheim, CA 92806, at 1:00 p.m., local time, as soon as practical following the date of this Agreement, but no later than three BusinessDays following the date which all conditions to the obligations of the Parties set forth in Section 8.1, Section 8.2 and Section 8.3 are satisfied or waived (other than such conditions that by their nature must besatisfied simultaneously with the Purchase Closing), or at such other time and place as the Parties may agree(the “Closing Date”). On the Closing Date, the Parties shall deliver, or cause to be delivered, to theapplicable Parties the documents and instruments set forth in Section 8.2(e) and Section 8.3(c). Section 1.7Delivery of Asset Purchase Consideration. At the applicable times, the AssetPurchaser shall cause the Asset Purchase Consideration deliverable to the Company to be paid over anddelivered directly to the Shareholders on behalf of the Company pursuant to the terms of this Section 1.7(the “Asset Purchase Distribution”). The Asset Purchase Distribution shall be made as follows: (a)At the Purchase Closing, with respect to the Shareholders, (i) a cash 4 payment equal to such Shareholder’s Pro Rata Portion of the Asset Cash Consideration and (ii) a stock certificateevidencing the number of shares of Parent Common Stock equal to such Shareholder’s Pro Rata Portion of the ClosingStock Consideration, with the number of shares issuable to such Shareholder rounded down to the nearest whole share; (b)At the applicable times the amounts, if any, at the times and in accordance with Section3.4(d), Section 3.5 and Section 7.9, in each case without interest; and (c)Notwithstanding anything in this Agreement to the contrary, the Asset PurchaseConsideration shall be recorded in the Books and Records of the Company as having been delivered to the Companyon the Closing Date, and the Asset Purchase Distribution as thereafter distributed to the Shareholders on the Company’sbehalf. Section 1.8Further Assurances. If, at any time after the Purchase Closing, any further action isnecessary or desirable to carry out the purposes of this Article I and to vest the Asset Purchaser with fullright, title, ownership and possession to the Purchased Assets, the Parties hereto will take all appropriateaction and execute any documents, instruments or conveyances of any kind that may be reasonablyrequested by the Asset Purchaser to vest the Asset Purchaser with full right, title, ownership and possessionto the Purchased Assets. Section 1.9 Insurance; Indemnification. Purchasing Parties shall maintain the following insurance: (a)Workers’ Compensation with limits of not less than $1,000,000. (b)Commercial General Liability with limits of not less than $1,000,000 peroccurrence/$2,000,000 general aggregate including: (i) premises and operations coverage; (ii) independent contractor’scoverage, (iii) contractual liability; (iv) products and completed operations coverage; (v) broad form property damageliability; and (vi) personal and advertising injury liability. (c)General Automobile Liability with a minimum single limit of $1,000,000 each accidentfor bodily injury and property damage and $2,000,000 aggregate. (d)Professional Liability with a limit of not less than $7,500,000 per claim and $15,000,000annual aggregate. Should the Professional Liability policy terminate for any reason, such policy shall either bereplaced by a new policy with a retroactive date preceding this Agreement or the Purchasing Parties shall obtain tailcoverage for the benefit of Shareholders. (e)Directors and Officers Liability with limits of not less than $1,000,000. (f)Employer Practice Liability Insurance with limits of not less than $1,000,000. (g)Excess Liability Insurance (Umbrella) with limits of not less than $10,000,000. (h)The above policies shall include provisions or endorsements including Asset Purchaser,Company, the Surviving Corporation, and their parent, divisions, affiliates, subsidiary companies, officers, directors,employees, and Shareholders as insureds. The professional liability policy shall include prior acts coverage. Purchasing Parties shall be responsible for policy deductibles for claims arising from work performed by theShareholders. The obligations to provide coverage under Subsections (a), (b), (c) (e), (f) and (g) of Section 1.9 shallcontinue until Shareholders have received full payment of the Purchase Price. The obligations to maintain insurancepursuant to Section 1.9 (d) shall continue indefinitely. (i)The Shareholders’ Employment Agreements shall include a provision 5 requiring that the Surviving Corporation indemnify the Shareholders for work performed by the Shareholders on behalfof the Purchasing Parties and/or the Surviving Corporation. ARTICLE II THE MERGER Section 2.1The Merger. Subject to and upon the terms and conditions of this Agreement and theapplicable provisions of the New York Business Corporation Law (the “NYBCL”), WESGEN shall bemerged with and into the Company (the “Merger”), the separate corporate existence of WESGEN shallcease and the Company shall continue as the surviving corporation and as an Affiliate of the Parent and theAsset Purchaser. The Company, as the surviving corporation after the Merger, is sometimes referred tohereinafter as the “Surviving Corporation”. Section 2.2The Merger Closing. The closing of the Merger (the “Merger Closing”) provided forin this Agreement will take place at the offices of Lavoie & Jarman, 2401 E. Katella Ave., Suite 310,Anaheim, CA 92806, at 12:01 a.m., local time, on the calendar day immediately following the PurchaseClosing (the "Merger Closing Date"). Section 2.3Effective Time of the Merger. Upon the terms and subject to the provisions of thisAgreement, if the Merger Closing Date is on a business day, on the Merger Closing Date, the Parties shallcause the Merger to be consummated by filing the Certificate of Merger with the Secretary of State of theState of New York in accordance with the relevant provisions of the NYBCL. If the Merger Closing Date isnot on a business day, on the first business day following the Merger Closing Date, the Parties shall causethe Merger to be consummated by filing the Certificate of Merger with the Secretary of State of the State ofNew York in accordance with the relevant provisions of the NYBCL. The Merger shall become effectiveupon the filing of the Certificate of Merger, in substantially the form attached hereto as Exhibit A (the“Certificate of Merger”), with the Secretary of State of the State of New York, or such later date and timespecified in the Certificate of Merger (the effective time of the Merger being hereinafter referred to as, the“Effective Time”). The costs associated with such filing shall be paid by the Asset Purchaser. It shall bethe responsibility of the Purchasing Parties to satisfy the relevant provisions of the NYBCL to ensure thatCompany shall survive as a New York professional corporation through the Closing. Section 2.4Effect of the Merger. At the Effective Time, (a) the separate corporate existence ofWESGEN shall cease and WESGEN shall be merged with and into the Company, (b) the bylaws ofWESGEN in effect at the Effective Time shall be the bylaws of the Surviving Corporation until amended inaccordance with applicable Law, (c) the directors of WESGEN shall be the directors of the SurvivingCorporation until their respective successors are duly elected or appointed and qualified, or until the earlierof their death, resignation or removal, (d) the officers of the Surviving Corporation shall be the individualsset forth on Appendix C to this Agreement until their respective successors are duly elected or appointedand qualified, or until the earlier of their death, resignation or removal and (e) the Merger shall, from andafter the Effective Time, have all the effects provided by applicable provisions of the NYBCL. Withoutlimiting the generality of the foregoing and subject thereto, at the Effective Time all the properties, rights,privileges, powers and franchises of WESGEN shall vest in the Surviving Corporation, and all debts,obligations, liabilities and duties of WESGEN shall become the debts, obligations, liabilities and duties ofthe Surviving Corporation. All debts, obligations, liabilities and duties of the Company shall remain thedebts, obligations, liabilities and duties6 of the Surviving Corporation. Stockholders shall cooperate with the Purchasing Parties and execute suchdocuments as may reasonably be required to effect the Merger contemplated in this Transaction; providehowever, that Shareholders shall have no liability for the effectiveness of such efforts in transferring orvesting of any the rights or obligations listed above. Section 2.5Conversion of Capital Stock. At the Effective Time, by virtue of the Merger andwithout any action on the part of WESGEN, the Company or any holder of any shares of Common Stock orany shares of stock of WESGEN: (a)Capital Stock of WESGEN. Each issued and outstanding share of capital stock ofWESGEN immediately prior to the Effective Time of the Merger shall be converted into one share of validly issued,fully paid and non-assessable Common Stock of the Surviving Corporation. (b)Company Common Stock (i)All shares of Common Stock issued and outstanding immediately prior to theEffective Time of the Merger that are owned directly or indirectly by the Parent, the Asset Purchaser, WESGEN, theCompany or by any entity controlled by the Company shall be canceled and extinguished, and no consideration shallbe delivered in exchange therefor. (ii)Each share of Common Stock issued and outstanding immediately prior to theEffective Time of the Merger (other than shares of Common Stock cancelled and extinguished pursuant to Section2.5(b)(i)) shall be canceled and extinguished and be converted into and become a right to receive the Per ShareClosing Amount, without interest. Section 2.6Surrender of Certificates (a)Exchange Procedures. At the Merger Closing, each Shareholder shall surrender theCompany Stock Certificate(s) representing all shares of Common Stock held by such Shareholder, together with a dulycompleted and validly executed Letter of Transmittal, in substantially the form attached hereto as Exhibit B (the “Letterof Transmittal”), and WESGEN and the Surviving Corporation shall deliver, or cause to be delivered, in exchangetherefor by wire transfer of immediately available funds for the portion of the Closing Merger Consideration applicableto such shares that such holder shall have the right to receive as set forth in Section 2.5(b) of this Agreement withrespect to such Shareholder’s Common Stock, and the Company Stock Certificate so surrendered shall forthwith becanceled. (b)Lost, Stolen or Destroyed Certificates. In the event that any Company Stock Certificatesfor Common Stock shall have been lost, stolen or destroyed, WESGEN and the Surviving Corporation shall cause to bepaid in exchange for such lost, stolen or destroyed Company Stock Certificates, upon the making of an affidavit of thatfact by the holder thereof, which is satisfactory in form and content to WESGEN or the Surviving Corporation, asapplicable, such payment of the portion of the Closing Merger Consideration, as applicable, as may be requiredpursuant to this Section 2.6; provided, however, that WESGEN or the Surviving Corporation, as applicable may, in itssole discretion and as a condition precedent to the payment of such amounts, require the owner of such lost, stolen ordestroyed Company Stock Certificates to deliver a bond in such sum as it may reasonably direct as indemnity againstany claim that may be made against WESGEN or the Surviving Corporation with respect to the Company StockCertificates alleged to have been lost, stolen or destroyed. (c)No Liability. Notwithstanding anything to the contrary in this Section 2.6, neitherWESGEN nor the Surviving Corporation nor any Party hereto shall be liable to any Person for any 7 amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar Law. ARTICLE III TRANSACTION CONSIDERATION Section 3.1Transaction Consideration. In full consideration for the Transaction, the aggregateamount payable by the Asset Purchaser and WESGEN shall be an amount equal to the sum of (the“Purchase Price”) (a) the Closing Cash Consideration, plus (b) the Estimated Tax Gross Up, plus (c) theClosing Stock Consideration, plus (d) the amount (if any) by which the Estimated Closing Date Net WorkingCapital exceeds the Target Net Working Capital, minus (e) the amount (if any) by which the EstimatedClosing Date Net Working Capital is less than the Target Net Working Capital, plus or minus (f) the ClosingDate Net Working Capital Adjustment, plus or minus (g) adjustment to the Estimated Tax Gross Up, plus (h)the Installment Payments, payable in accordance with Section 3.5. Exhibit C (the “Calculation ofTransaction Consideration”) is attached hereto as an illustration only of the manner in which the PurchasePrice would be calculated pursuant to this Section 3.1 with the understanding that the values included inExhibit C are not intended to be represent the actual applicable to this Agreement. (See Attached ExhibitC) Section 3.2Payment Schedule. At least three Business Days prior to the Closing Date, theCompany and the Shareholders shall jointly deliver to the Asset Purchaser and WESGEN a memo (the“Closing Consideration Schedule”) that shall set forth: (i)the aggregate amount of the Asset Purchase Distribution payable to each Shareholderpursuant to Section 1.7, including each Shareholder’s Pro Rata Portion of the Asset Cash Consideration and theClosing Stock Consideration shares to be issued to each Shareholder, (ii)the wire instructions for each of the payees pursuant to Section 3.2, together withauthorization for the Asset Purchaser and/or WESGEN, as applicable, to make the payments set forth herein to be madeat the Purchase Closing, (iii)the calculation of the Per Share Closing Amount (and the calculation of eachcomponent included in such amount), (iv)the aggregate amount to be paid to each Shareholder as of the Closing Date(assuming the closing of the Transaction) and each Shareholder’s Pro Rata Portion and (v)the Estimated Closing Date Net Working Capital determined in accordance withSection 3.3. The Closing Consideration Schedule shall be updated by the Company and theShareholders on the Closing Date. Upon acceptance of the Closing Consideration Schedule by the Asset Purchaserand WESGEN, the Closing Consideration Schedule shall be determinative of the amounts to be paid under thisAgreement in connection with the Transaction at the Purchase Closing and the Merger Closing. Section 3.3Closing Date Net Working Capital. Three Business Days prior to the Closing Date,the Company will deliver to the Asset Purchaser and WESGEN a statement setting forth a good faithestimate of the aggregate amount of the Net Working Capital of the Company as of immediately prior to thePurchase Closing, but without giving effect to the Transaction (the “Closing Date Net Working Capital”),which shall be updated on the Closing8 Date. The Asset Purchaser and WESGEN will have the right to review the Company’s relevant personnel,work papers and books and records to the extent necessary for reviewing such calculation. Such estimatedClosing Date Net Working Capital is referred to herein as the “Estimated Closing Date Net WorkingCapital.” Section 3.4Calculation of Final Adjustments. The Closing Date Net Working Capital Adjustmentwill be calculated and finally determined as follows: (a)Post-Closing Calculation. No later than 120 days following the Closing Date, the AssetPurchaser and the Surviving Corporation will cause to be prepared and delivered to the Shareholders: (i) a consolidatedbalance sheet of the Company as of immediately prior to the Purchase Closing, but without giving effect to theTransaction (the “Closing Balance Sheet”); and (ii) a certificate setting forth the Asset Purchaser’s and the SurvivingCorporation’s good faith calculation of the Closing Date Net Working Capital (the Closing Balance Sheet and thecalculations of the Closing Date Net Working Capital are referred to as the “Closing Financial Data”). The ClosingFinancial Data will be prepared in accordance with GAAP using, to the extent consistent with GAAP, the sameaccounting principles, on a consistent basis, that were employed in preparing the Financial Statements and thecalculations of the Estimated Closing Date Net Working Capital. (b)Disputes. After receipt of the Closing Financial Data, the Shareholders will have 30 days(the “Review Period”) to review the Closing Financial Data, together with the books and records and work papers andassumptions used in the preparation thereof. The Shareholders may dispute items reflected in the Closing BalanceSheet or in the calculation of the Closing Financial Data on the basis that it was not prepared in accordance withhistorical practices applied on a basis consistent with the preparation of the Financial Statements or that the calculationscontain mathematical errors. Unless the Shareholders deliver written notice to the Asset Purchaser and the SurvivingCorporation on or prior to the end of the Review Period specifying in reasonable detail the amount, nature and basis ofeach disputed item, the Shareholders will be deemed to have accepted and agreed to the Closing Balance Sheet and thecalculation of the Closing Financial Data. If the Shareholders so notify the Asset Purchaser and the SurvivingCorporation of its objection to any portion of the Closing Balance Sheet or the calculation of any of the ClosingFinancial Data, the Shareholders, the Asset Purchaser and the Surviving Corporation must, for 15 days (or such longerperiod as the Shareholders, the Asset Purchaser and the Surviving Corporation may agree in writing) following suchnotice (the “Resolution Period”), attempt in good faith to resolve their differences and any resolution by them as to anydisputed amounts is final, binding and conclusive on the Parties. (c)Independent Accountants. If, at the conclusion of the Resolution Period, there are anyamounts remaining in dispute as to the Closing Balance Sheet or Closing Financial Data, then all amounts remaining indispute will be submitted to an independent regional accounting firm mutually selected by the Shareholders, on the onehand, and the Asset Purchaser and the Surviving Corporation, on the other hand, (the “Independent Accountants”)within ten days after the expiration of the Resolution Period. If the Shareholders, the Asset Purchaser and the SurvivingCorporation are unable to agree on the choice of an accounting firm, they will each select one regionally recognizedaccounting firm and those two firms will mutually select a third regionally recognized accounting firm to be theIndependent Accountants. The Asset Purchaser, the Surviving Corporation and the Shareholders will execute, ifrequested by the Independent Accountants, a reasonable engagement letter. All fees and expenses relating to the work,if any, to be performed by the Independent Accountants will be shared as between the Shareholders, on the one hand,and the Asset Purchaser and the Surviving Corporation, on the other hand, in inverse proportion as they may prevail onthe allocation of the dollar amount of the amounts remaining in dispute between the Shareholders, on the one hand, andthe Asset Purchaser and the Surviving Corporation, on the other hand, as determined by the IndependentAccountants. The Independent 9 Accountants will act as an arbitrator to determine, based solely on the provisions of this Section 3.4(c) and thepresentations by the Shareholders, the Asset Purchaser and the Surviving Corporation, and not by independent review,only those issues still in dispute and only as to whether such amounts were arrived at in accordance with thisAgreement. In resolving any disputed item, the Independent Accountants may not assign a value to any item greaterthan the greatest value for such item claimed by either Party or less than the smallest value for such item claimed byeither Party. The Independent Accountants’ determination must be made within 30 days of their selection, must be setforth in a written statement delivered to the Shareholders, the Asset Purchaser and the Surviving Corporation and will befinal, binding and conclusive on the Parties, absent fraud or error. (d)Closing Date Net Working Capital Adjustment. If the amount of the Closing Date NetWorking Capital (as finally determined pursuant to this Section 3.4) is less than the amount of the Estimated ClosingDate Net Working Capital (the “Working Capital Shortfall”), then the Shareholders, on a pro rata basis, shall pay to theAsset Purchaser and the Surviving Corporation an aggregate amount equal to such Working Capital Shortfall within thetime period set forth in the last sentence of this Section 3.4(d). If the amount of the Closing Date Net Working Capital(as finally determined pursuant to this Section 3.4) exceeds the amount of the Estimated Closing Date Net WorkingCapital, then the Asset Purchaser and the Surviving Corporation shall pay or cause to be paid to the Shareholders anamount equal to such excess (with each Shareholder entitled to its Pro Rata Portion thereof) within the time period setforth in the last sentence of this Section 3.4(d); provided, however, that the Asset Purchaser shall only be liable for anamount equal to such excess multiplied by the Asset Portion and the Surviving Corporation shall only be liable for anamount equal to such excess multiplied by the Merger Portion. The difference referred to in the first sentence of thisSection 3.4(d) or the excess referred to in the second sentence of this Section 3.4(d), as applicable, is referred to as the“Closing Date Net Working Capital Adjustment.” Any payment required by this Section 3.4(d) must be paid by wiretransfer of immediately available funds to the account or accounts specified by, in the case of payments to the AssetPurchaser or the Surviving Corporation, by the Asset Purchaser and the Surviving Corporation, or in the case ofpayments to be made to the Shareholders, by the Shareholders, in each case within ten Business Days after the amountof the Closing Date Net Working Capital Adjustment is finally determined pursuant to this Section 3.4; provided, thatany Working Capital Shortfall owed to the Asset Purchaser and the Surviving Corporation may, in the Asset Purchaser’sor the Surviving Corporation’s sole discretion, be withheld from any Installment Payments payable to the Shareholderspursuant to Section 3.5 below. Any Working Capital Shortfall shall be distributed to the Asset Purchaser and theSurviving Corporation as follows: (i) The Asset Purchaser shall be paid an amount equal to the Working CapitalShortfall multiplied by the Asset Portion, and the Surviving Corporation shall be paid an amount equal to the WorkingCapital Shortfall multiplied by the Merger Portion. Any amounts withheld from the Installment Payments in satisfactionof the portion of a Working Capital Shortfall that is owed to the Asset Purchase shall be promptly paid over by theSurviving Corporation to the Asset Purchaser. (e)Tax Gross Up. The Closing Amount includes an Estimated Tax Gross Up in the amountof $1,069,338. Concurrently with the calculation of the Closing Date Net Working Capital as described in Section3.4(d), the Asset Purchaser shall calculate the Tax Gross Up related to this Transaction. If the calculation of the TaxGross Up exceeds the Estimated Tax Gross Up, the Asset Purchaser shall pay each Shareholders their Pro Rata Portionof the difference. If the calculation of the Estimated Tax Gross Up Tax Gross Up exceeds the Tax Gross Up, each ofthe Shareholders shall pay the Asset Purchaser their Pro Rata Portion of the difference. Such payment shall be due andpayable at the same time and in the same manner as the Closing Date Net Working Capital Adjustment is payable. TheTax Gross Up shall be determined in accordance with the following formula: Tax Gross Up = Net Working Capital (19.6%) / (1 - 28.82%) 10 (f)Sales Taxes. Willdan shall be responsible to pay any sales taxes resulting from thisTransaction. Section 3.5Installment Payments. The Surviving Corporation shall pay, or cause to be paid asadditional consideration to the Shareholders, by wire transfer of immediately available funds on theapplicable date, the following aggregate amount of $4,600,000.00 (collectively, the “InstallmentPayments”) in twenty-four (24) monthly installments in the amount of $191,666.67 ($95,833.00 eachShareholder) commencing one month after the Closing date if such date is a Business Day, if not, then onthe first Business Day, and continuing thereafter until paid in full. Said Installment Payments shall includefederal interest at the rate of 0.65%. Section 3.6Asset Purchaser and Parent Guaranty. The Asset Purchaser and Parent herebyirrevocably guaranty and agree to perform promptly, and in full, all of WESGEN’s and the SurvivingCorporation’s obligations to the Shareholders under Section 3.1, Section 3.4(d) and Section 3.5, to the sameextent WESGEN and the Surviving Corporation are obligated to perform such obligations under thisAgreement to the extent WESGEN or the Surviving Corporation does not so perform them in full; provided,that the Asset Purchaser’s and Parent’s obligations under this Section 3.6 shall terminate and be of no furtherforce and effect upon full payment and satisfaction of the payment obligations under Section 3.1, Section3.4(d) and Section 3.5. Section 3.7 Shareholders’ Representative (a)Appointment. The Parties hereto agree that in the event after execution of thisAgreement either Shareholders dies or becomes sufficiently incapacitated such that he cannot perform the obligations ofa Shareholder as required by the terms of this Agreement, the other Shareholder shall become the representative of theShareholders, and the representative of their successors, heirs and assigns, and act as their attorney-in-fact (the“Shareholders’ Representative”), with full power of substitution to act on behalf of all shareholders of Company to theextent and in the manner set forth in this Agreement, including: delivering to the Asset Purchaser and WESGEN theClosing Consideration Schedule pursuant to Section 3.2; delivering to the Asset Purchaser and WESGEN the ClosingDate Net Working Capital pursuant to Section 3.3; the determination of the Closing Date Net Working Capital pursuantto Section 3.4, act on behalf of the Shareholders on Tax matters pursuant to Section 7.9, and administering claims forindemnification pursuant to Article X. All decisions, actions, consents and instructions by the Shareholders’Representative with respect to this Agreement shall be binding upon all of the shareholders of the Company, and nosuch shareholder of the Company shall have the right to object to, dissent from, protest or otherwise contest thesame. The Asset Purchaser and the Surviving Corporation shall be entitled to rely on any decision, action, consent orinstruction of the Shareholders’ Representative as being the decision, action, consent or instruction of all shareholdersof the Company, and the Asset Purchaser and the Surviving Corporation are hereby relieved from any Liability to anyPerson for acts done by them in accordance with any such decision, act, consent or instruction. By way of example andnot limitation, as the Shareholders’ Representative, the Shareholders’ Representative shall be authorized andempowered, as agent of and on behalf of all the shareholders of the Company to give and receive notices andcommunications as provided herein, to object to any claims of an Indemnified Person, to agree to, negotiate, enter intosettlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitratorswith respect to, such claims or Damages, to determine and finally resolve any disputes with respect to the ClosingFinancial Data, to waive after the Purchase Closing or Merger Closing, as applicable, any breach or default of the AssetPurchaser or the Surviving Corporation of any obligation to be performed by it under this Agreement, to receive serviceof process on behalf of all shareholders of the Company in connection with any claims against such shareholdersarising under or in connection with this 11 Agreement, any document or instrument provided for hereby or any of the transactions contemplated hereby or underany other Transaction Document, and to take all other actions that are either (i) necessary or appropriate in thejudgment of the Shareholders’ Representative for the accomplishment of the foregoing or (ii) specifically mandated bythe terms of this Agreement. Notices or communications to or from the Shareholders’ Representative shall constitutenotice to or from the shareholders. (b)Authority. The grant of authority provided for in Section 3.7(a) is coupled with aninterest and is being granted, in part, as an inducement to the Parent, the Asset Purchaser and WESGEN to enter intothis Agreement, and shall be irrevocable and survive the dissolution, liquidation or bankruptcy of the Company or thedeath, incompetency, liquidation or bankruptcy of any Shareholder, shall be binding on any successor thereto and(ii) shall survive the assignment by any Shareholder of the whole or any portion of his, her or its interest in theInstallment Payments or any other amounts payable to such Shareholder in connection with this Agreement. Section 3.8Shareholder Dilution. Should the Parent issue or repurchase its shares during theShareholder Lock-Up Period described in Section 7.12 of this Agreement, there shall be no adjustment forthe resulting dilutions or anti-dilution, except as provided to holders of Parent’s common stock holdersuniversally. ARTICLE IV REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY The Company and the Shareholders hereby represent and warrant to the Parent, the Asset Purchaser andWESGEN as of the date hereof and as of the Closing Date, subject to such exceptions as are specifically disclosed withrespect to this Article IV in the disclosure schedules and schedule of exceptions delivered to the Asset Purchaser andWESGEN on the date hereof (the “Company Disclosure Schedules”), and which are numbered with correspondingnumbered and lettered sections and subsections, as follows: Section 4.1Organization, Standing and Power. The Company is a professional servicescorporation duly organized, validly existing and in good standing under the Laws of the State of NewYork. The Company has the requisite corporate power to own its properties and to carry on its business asnow being conducted and as currently proposed to be conducted and is duly qualified to do business and isin corporate and tax good standing in the State of New York and in each other jurisdiction in which thenature of its business, the operation of its assets or the ownership or leasing of its properties requires suchqualification. The Company Disclosure Schedules sets forth each state or other jurisdiction in which theCompany is qualified to do business. The Company has delivered a true and correct copy of theCompany’s Organizational Documents, each as amended to date and as currently in effect, to the AssetPurchaser and WESGEN. The Company is not in violation of any of the provisions of the Company’sOrganizational Documents. Section 4.2Subsidiaries. The Company does not directly or indirectly own any equity or similarinterest in, or any interest convertible, exchangeable, or exercisable for any equity or similar interest in, anycorporation, association, partnership, joint venture, limited liability company, business association or otherentity. Section 4.3 Capitalization (a)The authorized capital stock of the Company consists of two hundred (200) shares ofCommon Stock, all of which are issued and outstanding. There are no authorized or outstanding shares of preferredstock and there are no outstanding options, warrants, rights (including 12 conversion or preemptive rights) or Contracts for the purchase or acquisition from the Company of, or that couldrequire the Company to issue or sell, any Common Stock or any other securities of the Company. In addition, theCompany has not reserved any additional shares of the Common Stock for issuance for any reason. (b)None of the outstanding Equity Interests are: (i) entitled or subject to any preemptiveright, right of participation, right of maintenance or any similar right; or (ii) subject to any right of first refusal or similarright in favor of the Company or any other Person. (c)There are no Contracts restricting any Person from purchasing, selling, pledging orotherwise disposing of (or granting any option or similar right with respect to), any Equity Interests. (d)The Company is not under any obligation, and is not bound by any Contract pursuant towhich it may become obligated, to repurchase, redeem or otherwise acquire any outstanding Equity Interests or anyother securities. (e)Section 4.3 of the Company Disclosure Schedules sets forth a list of each holder ofrecord of the Common Stock, the number of shares of Common Stock owned by each such holder and the currentmailing address of such holder. All of the issued and outstanding shares of the Common Stock are held, beneficiallyand of record, by the Shareholders, and there are no other Equity Interests outstanding other than the shares ofCommon Stock owned by the Shareholders. All of the issued and outstanding shares of the Common Stock have beenduly authorized, are validly issued, fully paid and non-assessable, are free of any Encumbrances, and are held of recordby the respective Shareholders set forth in Section 4.3 of the Company Disclosure Schedules. All outstanding shares ofthe Common Stock have been issued and granted in compliance with all applicable securities laws and other applicableLaws in effect as of the time of issuance. There are no declared or accrued but unpaid dividends with respect to anyshares of the Common Stock. (f)There are no outstanding or authorized stock appreciation rights, phantom stock, profitparticipation or similar rights (or otherwise entitling any Person to consideration in respect of the sale or appreciation invalue of any Common Stock) with respect to the Company. (g)There are no registration rights with respect to any Common Stock and there are noshareholder agreements, voting trusts, proxies, or other agreements or understandings with respect to the voting of anyCommon Stock. Section 4.4Authority. The execution, delivery and performance of this Agreement and theTransaction Documents to which the Company will become a party have been duly and validly authorizedby the Company by all necessary corporate action. Each of the Shareholders have the full power andauthority to execute, deliver and perform this Agreement and the Transaction Documents to which each ofthem will become a party. This Agreement and each Transaction Document to which the Company willbecome a party have been duly executed and delivered by the Company and constitute valid and bindingobligations of the Company enforceable in accordance with their terms. This Agreement and eachTransaction Document to which any of the Shareholders will become a party have been duly executed anddelivered by such Shareholder and constitutes valid and binding obligations of such Shareholderenforceable in accordance with their terms. The Company’s board of directors, by unanimous writtenconsent or at a meeting duly called and held at which a quorum was present throughout, by the requisitevote of the directors, has unanimously determined that this Agreement, the Transaction Documents and theTransaction to be advisable and fair to and in the best interest of the Company and its shareholders,approved this Agreement and the 13 Transaction Documents in accordance with the NYBCL, and no such declaration, approval, adoption orrecommendation has been changed, withdrawn or revoked. The Shareholders have unanimous approvedthis Agreement and the Merger. Section 4.5Required Consents; No Conflicts. Section 4.5 of the Company Disclosure Schedulessets forth all third party consents under any Contract and all Governmental Authorizations necessary orreasonably desirable for the consummation of the Transaction or that could, if not obtained, result in orreasonably be expected to result in a Material Adverse Effect on the conduct of the business of theCompany as it is conducted or proposed to be conducted (“Consents”). Except as set forth on Section 4.5of the Company Disclosure Schedules, the execution, delivery and performance of this Agreement and theTransaction Documents to which the Company will become a party will not (i) violate, conflict with orcontravene any provision of the Company’s Organizational Documents, (ii) to Company’s Knowledge,result in the creation of any Encumbrance upon the Company or any of the assets of the Company; (iii) toCompany’s Knowledge, require any Governmental Authorization. Section 4.6 Financial Statements (a)The Company has delivered to the Asset Purchaser and WESGEN the following financialstatements (collectively, the “Financial Statements”): (i) the audited balance sheet, and the related statement of incomeand cash flows, of the Company as of and for the fiscal year ended December 31, 2014, together with the notes, if any,thereto; and (ii) the unaudited balance sheet, and the related statement of income and cash flows, of the Company (the“Interim Balance Sheet”) as of and for the twelve months and the year ended December 31, 2015 and for the month ofJanuary, 2016 (the “Interim Balance Sheet Date”). (b)To the Knowledge of Shareholders and Company, all of the Financial Statements (i) aretrue, accurate and complete in all respects; (ii) are consistent with the Books and Records of the Company; (iii) presentfairly and accurately the financial condition of the Company as of the respective dates thereof and the results ofoperations, changes in shareholder’s equity and cash flows of the Company for the periods covered thereby; and(iv) have been applied on a consistent basis throughout the periods covered; provided, however, that the InterimBalance Sheet is subject to year-end adjustments consistent with past practice (which will not be material individually orin the aggregate) and do not contain all of the footnotes required by GAAP. The 2014 Financial Statements andClosing Balance Sheet have been prepared in accordance with GAAP. (c)The Company Disclosure Schedules set forth an accurate, correct and completebreakdown and aging of each of the Company’s accounts payable as of January 31, 2016. Section 4.7Absence of Certain Changes. Since the Interim Balance Sheet Date, (i) the Companyhas conducted its business in the ordinary course of business; (ii) no event or circumstance has occurred thatcould reasonably be expected to have a Material Adverse Effect on the Company; and (iii) the Company hasnot taken any action, agreed to take any action, or omitted to take any action that would constitute a breachof Section 7.1 or Section 7.2 if such action or omission were taken between the date of this Agreement andthe Closing Date. Section 4.8Absence of Undisclosed Liabilities. To the Best of Company’s knowledge, Companyhas no liabilities (whether accrued, absolute, contingent, unliquidated or otherwise, whether due or tobecome due, and regardless of when asserted) that would have a Material Adverse Effect on the operation ofthe Company arising out of transactions or events heretofore entered into, or any action or inaction, or anystate of facts existing, with respect to 14 or based upon transactions or events heretofore occurring, other than (i) those set forth in the InterimBalance Sheet; (ii) those incurred in the ordinary course of business and not required to be set forth in theInterim Balance Sheet under GAAP; (iii) those incurred in the ordinary course of business since the date ofthe Interim Balance Sheet; and (iv) those incurred in connection with the execution of any of theTransaction Agreements. Section 4.9Litigation. Except as identified in Section 4.9 of the Company Disclosure Schedules,there is no private or governmental action, suit, proceeding, inquiry, claim, arbitration or investigationpending before any agency, court or tribunal, foreign or domestic, or threatened against the Company, anyof its properties or any of its officers, directors or the Shareholders (in their capacities as such), or whichquestions or challenges the validity of this Agreement, any of the Transaction Documents or any of thetransactions contemplated hereby or thereby, and there is no valid basis for any such action, suit,proceeding, claim, arbitration or investigation. There is no judgment, decree or order against the Company,or any of its directors, officers or the Shareholders (in their capacities as such), that could prevent, enjoin, ormaterially alter or delay the Transaction or the Transaction Documents or otherwise affects the Company’sproperties, assets or the right of the Company to operate its business. The Company does not have anylitigation pending against any other party. The Company has delivered to the Asset Purchaser and WESGENtrue, accurate and complete copies of all pleadings, correspondence and other documents relating to anysuch private or governmental action, suit, proceeding, inquiry, claim, arbitration or investigation. Noinsurance company has asserted that any such private or governmental action, suit, proceeding, inquiry,claim, arbitration or investigation is not covered by the applicable policy related thereto. Section 4.10Restrictions on Business Activities. There is no agreement, judgment, injunction,order or decree binding upon the Company which has or could reasonably be expected to have the effect ofprohibiting or impairing any current business practice of the Company, any acquisition of property by theCompany or the conduct of business by the Company as currently conducted and as proposed to beconducted. Section 4.11Governmental Authorization. The Company has obtained each federal, state, county,local or foreign governmental consent, license, permit, grant, or other authorization of a GovernmentalEntity (a) pursuant to which the Company currently operates or holds (or currently proposes to operate orhold) any interest in any of its properties or (b) that is required for the operation of the business of theCompany or the holding of any such interest ((a) and (b) are herein collectively called, the “CompanyAuthorizations”). Each Shareholder has obtained each federal, state, county, local or foreign governmentalconsent, license, permit, grant, or other authorization of a Governmental Entity (a) to own and operate aprofessional engineering services corporation in the State of New York under applicable Law and (b) topractice professional engineering services in each federal, state and local jurisdiction in which the Companyperforms services (the “Shareholder Authorizations”). Section 4.11 of the Company Disclosure Schedulescontains an accurate, correct and complete list and summary description of each such CompanyAuthorization and Shareholder Authorization. Each such Company Authorization and ShareholderAuthorization is valid and in full force and effect, and there is not pending or threatened any private orgovernmental action, suit, proceeding, inquiry, claim, arbitration or investigation before any agency, courtor tribunal, foreign or domestic, which could result in the suspension, termination, revocation, cancellation,limitation or impairment of any such Company Authorization or Shareholder Authorization. No violationshave been recorded in respect of any Company Authorization or Shareholder Authorization, and neither theCompany nor the Shareholders know of any meritorious basis 15 therefor. No fines or penalties are due and payable in respect of any Company Authorization, ShareholderAuthorization or any violation thereof. Section 4.12Title to Property. The Company has good and marketable title to all of its properties,interests in properties and assets that it owns or purports to own (tangible and intangible), including all theproperties and assets reflected on the Interim Balance Sheet or acquired after the date of the Interim BalanceSheet free and clear of all Encumbrances. All tangible assets owned by the Company are (a) in goodoperating condition and repair, ordinary wear and tear excepted; (b) suitable and adequate for continued usein the manner in which they are presently being used; (c) adequate to meet all present and reasonablyanticipated future requirements of the Company’s business; and (d) free of defects (latent and patent). Theassets, properties and rights of the Company reflected in the Financial Statements (including the notesthereto) or acquired since the Interim Balance Sheet Date comprise all assets, properties and rights necessaryand sufficient for the conduct of its business as currently conducted and as proposed to be conducted as ofimmediately prior to the Purchase Closing. Except as disclosed on Section 4.12 of the Company DisclosureSchedule, none of the Shareholders own any assets, properties or rights (including, but not limited to, theCompany Intellectual Property, goodwill, customer lists, Contracts, or warranties) that are used in, related toor necessary for the conduct of the business of the Company. For purposes of this Section 4.12 only, theterms “property” and “assets” do not include the Company Intellectual Property. Section 4.13Accounts Receivable. To the best of the Shareholder’s knowledge, Section 4.13 ofthe Company Disclosure Schedule sets forth an accurate and complete list of all Accounts Receivableexisting as of January 31, 2016. Except as noted in Section 4.13 of the Company Disclosure Schedule, eachitem in the Accounts Receivable is (a) a valid and legally binding obligation of the account debtorenforceable in accordance with its terms, free and clear of all Encumbrances, and not subject to setoffs,adverse claims, counterclaims, assessments, defaults, prepayments, defenses, and conditions precedent;(b) a true and correct statement of the account for merchandise actually sold and delivered to, or for servicesactually performed for and accepted by, such account debtor; and (c) fully collectible and will be collectedwithin 180 days subject to trade discounts provided in the ordinary course of business and any allowancefor doubtful accounts contained in the Interim Balance Sheet. If any identified doubtful accounts arecollected more than 180 days after closing, Asset Purchaser shall pay the proceeds to Shareholders. Section 4.14Intellectual Property. Section 4.14 of the Company Disclosure Schedules is a full andcomplete listing of all Company Intellectual Property, specifying in each case whether such CompanyIntellectual Property is owned or controlled by or for, licensed to, or otherwise held by or for the benefit ofthe Company. The Company Intellectual Property constitutes all the Intellectual Property Rights used inand/or necessary to the conduct of the Company’s business as it is currently conducted, and as it is currentlyproposed to be conducted by the Company prior to the Closing. The Company owns, possesses, or canacquire on commercially reasonable terms sufficient legal rights to all Company Intellectual Propertywithout any conflict with, or infringement of, the rights of others. No product or service marketed or sold(or proposed to be marketed or sold) by the Company violates or will violate any license or infringes or willinfringe any intellectual property rights of any other party. Other than with respect to commerciallyavailable Software products under standard end-user object code license agreements, there are nooutstanding options, licenses, agreements, claims, encumbrances or shared ownership interests of any kindrelating to the Company Intellectual Property, nor is the Company bound by or a party to any options,licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names,copyrights, trade16 secrets, licenses, information, proprietary rights and processes of any other Person. The Company has notreceived any communications alleging that the Company has violated, or by conducting its business, wouldviolate any of the Intellectual Property Rights of any other Person. The Company has obtained andpossesses valid licenses to use all of the Software programs present on the computers and other Software-enabled electronic devices that it owns or leases or that it has otherwise provided to its employees for theiruse in connection with the Company’s business (the “Company Software”). To the Company’s Knowledge,it will not be necessary for the Company to use any inventions of any of its employees or consultants (orPersons it currently intends to hire) made prior to their employment by the Company. The Company has(i) taken all necessary action to maintain and protect the Company Intellectual Property, and (ii) taken allreasonable precautions to protect the secrecy, confidentiality, value and the Company’s rights in theCompany’s confidential information and Trade Secrets and its business and those provided by any Person tothe Company. Each employee and consultant has assigned to the Company all intellectual property rightshe or she owns that are related to the Company’s business as now conducted and as presently proposed tobe conducted. In each case in which the Company has acquired any Intellectual Property Rights from anyPerson, the Company has obtained a valid and enforceable written assignment sufficient to irrevocablytransfer all rights in such Intellectual Property Rights (including the right to seek past and future damageswith respect thereto) to the Company, and wherever possible to transfer such rights on a “work made forhire” basis. Section 4.15Environmental Matters. The Company has obtained all Governmental Authorizationsrelating to any applicable Environmental Law necessary for operation of the Company. All GovernmentalAuthorizations relating to any applicable Environmental Law will be valid and in full force and effect uponconsummation of the Transaction. The Company has filed all reports and notifications required to be filedunder and pursuant to any applicable Environmental Law. All sites, locations and facilities of the Company(each, a “Property”) have at all times been used and operated in compliance with all applicableEnvironmental Laws. There has not been any release of any Materials of Environmental Concern on, under,about, from or in connection with any Property, including the presence of any Materials of EnvironmentalConcern that have come to be located on or under any property from another location. Section 4.16 Taxes (a)The Company has filed all Tax Returns required to be filed by it, and all such TaxReturns were true, complete and correct in all respects. All Taxes required to be paid by the Company (whether or notshown on its Tax Returns) have been timely paid other than those being contested in good faith by appropriateproceedings and for which adequate reserves have been established in the books and records of the Company andappearing in the Financial Statements. (b)There are no Encumbrances for Taxes upon any property or assets of the Company. (c)The Company has not received a ruling from any taxing authority, signed an agreementwith respect thereto, or signed any closing agreement with respect to any Tax year. (d)The Company has complied in all respects with all applicable Laws, rules and regulationsrelating to the payment and withholding of Taxes with respect to employees, creditors, shareholders and any otherPersons (including withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or similar provisions underany foreign Laws) and has, within the time and the manner prescribed 17 by Law, withheld and paid over to the proper taxing authorities all amounts required to be so withheld and paid overunder applicable Laws. (e)No Tax Returns have been subject to an Audit, and no Audits are presently pending withregard to any Taxes or Tax Returns of the Company. No written notification has been received by the Company thatsuch an Audit is pending or threatened with respect to any Taxes due from or with respect to or attributable to theCompany or any Tax Return filed by or with respect to the Company. (f)All Tax deficiencies that have been claimed, proposed or asserted against the Companyhave been fully paid or finally settled, and no issue has been raised in any examination by any taxing authority that, byapplication of similar principles, could reasonably be expected to result in the proposal or assertion of a Tax deficiencyfor another year not so examined. (g)There are no outstanding requests, agreements, consents or waivers to extend thestatutory period of limitations applicable to the assessment of any Taxes or deficiencies against the Company. (h)No power of attorney has been granted by or with respect to the Company with respectto any matter relating to Taxes. (i)To the Company’s Knowledge, there are no unresolved questions or claims concerningTax Liability of the Company. (j)Other than any Tax Returns that have not yet been required to be filed, the Company hasdelivered to the Asset Purchaser and WESGEN true, correct and complete copies of the United States federal incomeTax Return, any state, local or foreign Tax Return for the Company for any jurisdiction in which the Company isrequired to file Tax Returns, and other records and workpapers related to Taxes, for each of the taxable periods sincethe Company’s formation. (k)The Company has not received notice of any claim made by an authority in a jurisdictionwhere the Company does not file Tax Returns, which the Company is or may be subject to taxation by that jurisdiction. (l)The Company has been an “S corporation” within the meaning of Section 1361 of theCode for all federal, state and local Tax purposes at all times since the Company’s formation. Section 4.17Employee Benefit Plans (a)Section 4.17(a) of the Disclosure Schedules, to the best of Shareholder’s Knowledge,contains a true and complete list of each pension, benefit, retirement, compensation, employment, consulting, profit-sharing, deferred compensation, incentive, bonus, performance award, phantom equity, stock or stock-based, change incontrol, retention, severance, vacation, paid time off, welfare, fringe-benefit and other similar agreement, plan, policy,program or arrangement (and any amendments thereto), in each case whether or not reduced to writing and whetherfunded or unfunded, including each “employee benefit plan” within the meaning of Section 3(3) of ERISA, whether ornot tax-qualified and whether or not subject to ERISA, which is or has been maintained, sponsored, contributed to, orrequired to be contributed to by the Company for the benefit of any current or former employee, officer, director,retiree, independent contractor or consultant of the Company’s business or any spouse or dependent of such individual,or under which the Company or any of its affiliates has or may have any Liability (as listed on Section 4.17(a) of theDisclosure Schedules, each, a “Company Employee Plan”.) With respect to all employees and former employees of theCompany and all dependents and beneficiaries 18 of such employees and former employees, (i) as of the Closing, the Company will not maintain or contribute to anynonqualified deferred compensation or retirement plans, contracts or arrangements; and (ii) the Company does notmaintain or contribute to any qualified defined benefit plans (as defined in Section 3(35) of ERISA or Section 414(j) ofthe Code). (b)To the extent required (either as a matter of law or to obtain the intended tax treatmentand tax benefits), all Company Employee Plans which the Company does maintain or to which it does contributecomply in all respects with the requirements of ERISA, the Code and all other applicable Laws. With respect to theCompany Employee Plans, (i) all required contributions which are due have been made and a proper accrual has beenmade for all contributions due in the current fiscal year; (ii) there are no actions, suits or claims pending, other thanroutine uncontested claims for benefits; and (iii) there have been no prohibited transactions (as defined in Section 406of ERISA or Section 4975 of the Code). (c)The Company has delivered to the Asset Purchaser and WESGEN a copy of each of theCompany Employee Plans and related material plan documents (including trust documents, insurance policies orContracts, employee booklets, summary plan descriptions, summary of material modifications, prospectuses and otherauthorizing documents) and has, with respect to each Company Employee Plan that is subject to ERISA reportingrequirements, made available copies of the Form 5500 reports (including all applicable schedules) filed for the last three(3) plan years. (d)With respect to each Company Employee Plan, the Company has complied with (i) theapplicable requirements of the Family Medical and Leave Act of 1993 and the regulations thereunder and (ii) theapplicable requirements of the Health Insurance Portability and Accountability Act of 1996 and the regulationsthereunder. (e)The Company does not maintain, sponsor, participate in or contribute to, nor has it evermaintained, established, sponsored, participated in, or contributed to, any pension plan (within the meaning ofSection 3(2) of ERISA) which is subject to Section 302 of ERISA, Title IV of ERISA or Section 412 of the Code. (f)The Company is not a party to, nor has it made any contribution to or otherwise incurredany obligation to contribute to, any “multi-employer plan” as defined in Section 3(37) of ERISA. (g)All contributions for all periods ending prior to the Closing Date (including periods fromthe first day of the current plan year to the Closing Date) have been made prior to the Closing Date by the Company. (h)All insurance premiums have been paid in full, subject only to normal retrospectiveadjustments in the ordinary course, with regard to the Company Employee Plans for plan years ending on or before theClosing Date. (i)With respect to each Company Employee Plan: (i)no prohibited transactions (as defined in Section 406 or 407 of ERISA orSection 4975 of the Code) have occurred for which a statutory exemption is not available; (ii)no action or claims (other than routine claims for benefits made in the ordinarycourse of the Company Employee Plan administration for which the Company Employee Plan administrative reviewprocedures have not been exhausted) are pending, threatened or imminent against or with respect to the CompanyEmployee Plan, any employer who is participating (or who has 19 participated) in any Company Employee Plan or any fiduciary (as defined in Section 3(21) of ERISA), of the CompanyEmployee Plan; (iii)neither the Company nor any fiduciary has any Knowledge of any facts that couldgive rise to any such action or claim; and (iv)it provides that it may be amended or terminated at any time and, except forbenefits protected under Section 411(d) of the Code, all benefits payable to current, terminated employees or anybeneficiary may be amended or terminated by the Company at any time without Liability. (j)The Company has no Liability and is not threatened with any Liability (whether joint orseveral) (A) for any excise tax imposed by Sections 4971, 4975, 4976, 4977 or 4979 of the Code or (B) to a fine underSection 502 of ERISA. (k)All of the Company Employee Plans, to the extent applicable, comply with thecontinuation of group health coverage provisions contained in Section 4980B of the Code and Sections 601 through608 of ERISA or other applicable Law. (l)All expenses and Liabilities related to all of the Company Employee Plan have been, andwill on the Closing Date be fully and properly accrued on the Company’s Books and Records and disclosed inaccordance with generally accepted accounting principles and in the Company Employee Plan financial statements. (m)Neither the execution of this Agreement nor the Transaction will (either alone or uponthe occurrence of any additional or subsequent events): (i) entitle any current or former director, officer, employee,independent contractor or consultant of the Company to severance pay or any other payment; (ii) accelerate the time ofpayment, funding or vesting, or increase the amount of compensation due to any such individual; (iii) increase theamount payable under or result in any other obligation pursuant to any Company Employee Plan; (iv) result in “excessparachute payments” within the meaning of Section 280G(b) of the Code; or (v) require a “gross-up” or other paymentto any “disqualified individual” within the meaning of Section 280G(c) of the Code. (n)Parent, Asset Purchaser, or the Surviving Corporation shall be solely responsible forenrolling the pre-closing employees of the Company in the employee plans of Parent, Asset Purchaser or WESGEN, asthe case may be, subsequent to the Closing. Section 4.18Employee Matters (a)Section 4.18(a) of the Company Disclosure Schedules sets forth a true and complete listidentifying all current employees of the Company, setting forth the job title and exempt/nonexempt status of, and salary(including bonuses and commissions) payable to each such Person; the date of last salary increase; service credit date;active employment or leave status; annual paid-time-off and vacation accrual and any current amount of accrued,unused paid-time-off; and remuneration. The employment of each of the Company’s employees is “at will.” Noemployee has indicated that he/she intends to leave the Company’s employment. The salary of any person listed onSection 4.18(a) of the Company Disclosure Schedules has not been increased since the date indicated on the CompanyDisclosure Schedule as the date of last salary increase. There are no employment agreements with any employees ofthe Company. The Company does not have any obligation (i) to provide any particular form or period of notice prior totermination, or (ii) except as provided in the Company’s employee manual, to pay any employees or other serviceproviders any severance in connection with their termination of employment or service with the Company. 20 (b)The Company is and has at all times been in compliance with all applicable Laws andregulations respecting employment, discrimination in employment, terms and conditions of employment, termination ofemployment, wages, hours, record keeping, postings, occupational safety and health, employee whistle-blowing,immigration, employee privacy, employment practices and classification of employees, consultants and independentcontractors, and is not and has not been engaged in any unfair labor practice, as defined in the National Labor RelationsAct or other applicable Law within the last three years. (c)The Company has withheld all amounts, and timely made all payments of such amounts,required by Law or by agreement to be withheld from the wages, salaries, and other payments to employees orconsultants and is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of theforegoing. The Company is not liable for any payment to any trust or other fund or to any governmental oradministrative authority, with respect to unemployment compensation benefits, social security or other benefits orobligations for employees (other than routine payments to be made in the normal course of business, consistent withpast practice). There are no pending claims against the Company under any workers compensation plan or policy orfor long-term disability. (d)There are no charges, complaints or controversies pending or threatened, between theCompany and any of its employees, former employees, consultants, independent contractors or applicants whichcharges, complaints or controversies have resulted or could reasonably be expected to result in an action, suit,proceeding, claim, grievance, arbitration or investigation before any Governmental Entity. The Company has notreceived notice of, nor to the Company’s Knowledge does any Governmental Entity responsible for the enforcement oflabor or employment Laws intend to conduct an investigation with respect to the Company, and to the Company’sKnowledge, no such investigation is in progress. (e)True and complete copies of all of the Company’s personnel manuals, handbooks,policies, rules or procedures applicable to employees of the Company have been delivered to the Asset Purchaser andWESGEN. (f)No employees of the Company are in violation of any term of any employment Contract,invention assignment agreement, patent disclosure agreement, non-competition agreement, non-solicitation agreement,or any restrictive covenant to a former employer relating to the right of any such employee to be employed by theCompany because of the nature of the business conducted by the Company or to the use of trade secrets or proprietaryinformation of others. (g)The Company does not have any (i) Liability for compensation to ex-employees;(ii) obligation to re-instate or re-employ any ex-officer or ex-employee of the Company; or (iii) Knowledge of groundsfor dismissal of any employee of the Company. (h)The Company is in full compliance with the Worker Readjustment and Notification Act(the “WARN Act”) (29 USC §2101), including all obligations to promptly and correctly furnish all notices required tobe given thereunder in connection with any “plant closing” or “mass layoff” to “affected employees”, “representatives”and any state dislocated worker unit and local government officials. No reduction in the notification period under theWARN Act is being relied upon by the Company. (i)The Company has no collective bargaining agreements with any of its employees. Therecurrently is no labor union organizing or election activity pending or threatened with respect to the Company and therehas not been any labor union organizing or election activity pending or threatened with respect to the Company duringthe past five (5) years. Section 4.19Interested Party Transactions. Except as set forth on Section 4.19 of 21 the Company Disclosure Schedules, the Company is not indebted to any director, officer, employee,consultant or shareholder (including the Shareholders) of the Company (except for current amounts due asnormal salaries and bonuses and in reimbursement of ordinary expenses), and no such Person is indebted tothe Company. No officer, director or shareholder of the Company (including the Shareholders) owns orholds, directly or indirectly, any interest in (excepting holdings solely for passive investment purposes ofsecurities of publicly held and traded entities constituting less than five percent (5%) of the equity of anysuch entity), or is an officer, director, employee or consultant of any Person that is, a competitor, real estatelessor or lessee, or major customer or supplier of the Company or which conducts a business similar to anybusiness conducted by the Company. No officer, director or shareholder (including the Shareholders) of theCompany (a) owns or holds, directly or indirectly, in whole or in part, any Company Intellectual Property,(b) has any claim, charge, action or cause of action against the Company, except for claims for reasonableunreimbursed travel or entertainment expenses, accrued vacation pay or accrued benefits under anyemployee benefit plan existing on the date hereof, (c) has made, on behalf of the Company, any payment orcommitment to pay any commission, fee or other amount to, or to purchase or obtain or otherwise contractto purchase or obtain any goods or services from, any other Person of which any officer, director orshareholder (including the Shareholders) of the Company (or, to the Knowledge of the Company, a relativeof any of the foregoing) is a partner or shareholder (except holdings solely for passive investment purposesof securities of publicly held and traded entities constituting less than five percent (5%) of the equity of anysuch entity) or (d) has any material interest in any property, real or personal, tangible or intangible, used inor pertaining to the business of the Company. Section 4.20Leased Property. Section 4.20 of the Company Disclosure Schedules sets forth acomplete list of the real property leased by the Company and a description of the terms of each lease (the“Lease Agreements”). Each Lease Agreement is valid, binding and enforceable in accordance with its termsand the Company has a valid and binding leasehold interest in, and enjoys peaceful possession of, the realproperty described in Section 4.20 of the Company Disclosure Schedule. The Company does not lease anyreal property other than the real property subject to the Lease Agreements. There are no disputes, oralagreements, or forbearance programs in effect as to the Lease Agreements. There are no existing defaultsby the Company under any Lease Agreement, and no event has occurred that (with the giving of notice,lapse of time or both) would constitute a default by the Company under any Lease Agreement. TheCompany has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interestin the leasehold or any of its rights under any Lease Agreement, and the leasehold estate created by eachsuch lease is free and clear of all Liens. The Company is not engaged in any negotiation for the reviewingof the rent payable under any Lease Agreement. The Company does not own, and has never owned, anyreal property. Shareholders shall assist in obtaining all consents as may be required under the LeaseAgreements to transfer the existing leases. Section 4.21Compliance with Laws. The Company has complied in a timely manner and in allrespects with all statutes, laws, codes, ordinances, regulations, rules, orders, judgments, writs, injunctions,acts, guidelines, policies, directions or decrees of any Governmental Entity, whether or not having the forceof law (“Law” or “Laws”) that affect the business, properties or assets of the Company, and no notice,charge, claim, action or assertion has been received by the Company or, to the Company’s Knowledge, hasbeen filed, commenced or threatened against the Company alleging any violation of any of theforegoing. The Company has not at any time received any notice or direction from any GovernmentalEntity challenging or questioning the legal right of the Company to design, market, offer or sell22 any of its products or services or the use of its assets in the present manner or style thereof. Section 4.22Books and Records (a)The minute books of the Company have been delivered to the Asset Purchaser. (b)The books of account and records of the Company (the “Books and Records”) arecomplete and correct and have been maintained in accordance with sound business practices. Each transaction anddisposition of assets of the Company is properly and accurately recorded on the Books and Records of the Company,and each document upon which entries in the Company’s Books and Records are based is complete and accurate in allrespects. The Company (i) records transactions as necessary to permit preparation of true and accurate financialstatements in accordance with past practice consistently applied, (ii) makes receipts and expenditures only inaccordance with general or specific authorizations of management and directors of the Company, (iii) permits access toits assets only in accordance with general or specific authorizations of management and directors of the Company,(iv) compares the reported accounting for its assets and liabilities with existing assets and liabilities at reasonableintervals, and (v) maintains a system of internal accounting controls adequate to insure that it maintains no off-the-books accounts. Section 4.23Brokers’ and Finders’ Fees. The Parties have not incurred, nor will it incur, directlyor indirectly, any Liability for brokerage or finders’ fees or agents’ commissions or investment bankers’ feesor any similar charges in connection with this Agreement or the Transaction. Section 4.24 Material Contracts (a)Except for the Contracts and agreements described in Section 4.24 of the CompanyDisclosure Schedules (the “Material Contracts”), the Company is not a party to or bound by any Contract, as follows: (i)Any employment or any other Contract providing any employee with severance orother rights to payment upon termination of employment, except as may be included in the Company’s employeehandbook; (ii)Any Contract involving the leasing of personal property; (iii)Any insurance Contracts; (iv)Contracts affecting any Company Intellectual Property or Company Software,including any Contact for the development or licensing of any of the foregoing; (v)Contracts with independent contractors or consultants, except subcontracts in theordinary course of business; (vi)Company Employee Plans; (vii)Any Contract for capital expenditures or for the purchase of goods or services inexcess of $10,000.00; (viii)To Company’s Knowledge, any Contract obligating the Company to sell or deliverany product or service at a price which does not cover the cost (including labor, materials and production overhead)plus the customary profit margin associated with such product or service; 23 (ix)Any Contract involving financing or borrowing of money, or evidencingindebtedness, any Liability for borrowed money, any obligation for the deferred purchase price of property in excessof $10,000.00 (excluding normal trade payables) or guaranteeing in any way any Contract in connection with anyPerson; (x)Any joint venture, partnership, cooperative arrangement or any other Contractinvolving a sharing of profits; (xi)Any advertising Contract not terminable without payment or penalty on 30 days (orless) notice; (xii)Any Contract affecting any right, title or interest in or to real property; (xiii)Any Contract relating to any license or royalty arrangement; (xiv)Any power of attorney, proxy or similar instrument; (xv)Any Contract among shareholders of the Company; (xvi)Any Contract for the purchase or sale of any assets other than in the ordinarycourse of business or for the option or preferential rights to purchase or sell any assets; (xvii)Other than indemnity provisions included in the Assumed Contracts, the AssetSchedule, or completed project client contracts, any Contract to indemnify any Person or to share in or contribute tothe Liability of any Person; (xviii)Any Contract applicable to any employee of or contractor with the Companycontaining covenants not to compete in any line of business or with any Person in any geographical area; (xix)Any Contract related to the acquisition of a business or the equity of any otherPerson; (xx)Any other Contract that involves future payments, performance of services ordelivery of goods or materials to or by the Company of an aggregate amount or value in excess of $10,000.00, on anannual basis, or that otherwise is material to the business or prospects of the Company; and (xxi)Any proposed arrangement of a type that, if entered into, would be a Contractdescribed in any of (i) through (xxi) above. (b)The Company has delivered to the Asset Purchaser and WESGEN accurate, correct andcomplete copies of all Material Contracts (or written summaries of the material terms thereof, if not in writing),including all amendments, supplements, modifications and waivers thereof. All Material Contracts are in writing. (c)Each Material Contract is currently valid and in full force and effect, and is enforceableby the Company in accordance with its terms. (d) (i) The Company is not in default, and no party has notified the Company that it is indefault, under any Material Contract. No event has occurred, and no circumstance or condition exists, that might (withor without notice or lapse of time) (A) result in a violation or breach of any of the provisions of any Material Contract;(B) give any Person the right to declare a default or exercise 24 any remedy under any Material Contract; (C) give any Person the right to accelerate the maturity or performance of anyMaterial Contract or to cancel, terminate or modify any Material Contract; or (D) otherwise have a Material AdverseEffect on the Company in connection with any Material Contract; (i) The Company has not waived any of its rights under any Material Contract; (ii) Each Person against which the Company has or may acquire any rights under anyMaterial Contract is (i) solvent and (ii) able to satisfy such Person’s material obligations and Liabilities to the Company;and (iii) The performance of the Material Contracts will not result in any violation of orfailure by the Company to comply with any Law. Section 4.25Bank Accounts. Section 4.25 of the Company Disclosure Schedules sets forth a trueand accurate complete list showing the name and address of each bank in which the Company has anaccount or safe deposit box, the number of any such account or any such box and the names of all Personsauthorized to draw thereon or to have access thereto. Section 4.26Insurance. The Company has policies of insurance and bonds of the type and in theamounts customarily carried by Persons conducting businesses or owning assets similar to those of theCompany. The Company has at all times had valid workers compensation insurance covering all of itsemployees. Section 4.26 of the Company Disclosure Schedules contains a complete list of the policies andContracts of insurance maintained by the Company other than the Company Employee Plans. All suchpolicies and bonds are in full force and effect, all premiums due and payable to date under all such policiesand bonds have been paid and the Company is otherwise in compliance with the terms of such policies andbonds. There is no claim pending under any such policies or bonds as to which coverage has beenquestioned, denied or disputed by the underwriters of such policies or bonds. The Company has notreceived any notice of cancellation or non-renewal of any such policies or bonds from any of its insurancecarriers, nor to the Company’s Knowledge, is the termination of any such policies or bonds threatened. TheCompany has not received any notice from any of its insurance carriers that any insurance premiums will beincreased in the future or that any insurance coverage presently provided will not be available to theCompany in the future on substantially the same terms as now in effect. Section 4.27Customers; Distributors; Suppliers (a)All Contracts with customers were entered into by or on behalf of the Company and wereentered into in the ordinary course of business for usual services and at normal prices. (b)Except as set forth on Section 4.27(b) of the Company Disclosure Schedules, theCompany has not entered into any Contract under which the Company is restricted from selling, licensing or otherwiseproviding services to any class of customers, in any geographic area, during any period of time or in any segment ofthe market. There is no purchase commitment which provides that any supplier will be the exclusive supplier of theCompany. (c)The Company has not received any notice or other communication, has not received anyother information indicating, and otherwise has no Knowledge, that any current customer, supplier or distributoridentified in the Company Disclosure Schedules may cease dealing with the Company, may otherwise materially reducethe volume of business transacted by such Person with the Company or otherwise is materially dissatisfied with theservice the Company provides such Person. The 25 Company has no reason to believe that any such Person will cease to do business with the Company after, or as a resultof, consummation of the Transaction, or that such Person is threatened with bankruptcy or insolvency. The Companyhas no Knowledge of any fact, condition or event which may, by itself or in the aggregate, adversely affect itsrelationship with any such Person. (d)Neither the Company nor any of its directors, officers or employees has directly orindirectly given or agreed to give any rebate, gift or similar benefit to any customer, supplier, distributor, broker,governmental employee or other Person, who was, is or may be in a position to help or hinder the Company (or assist inconnection with any actual or proposed transaction) which could subject the Company (or the Parent, the AssetPurchaser or the Surviving Corporation after consummation of the Transaction) to any damage or penalty in any civil,criminal or governmental litigation or proceeding or which would have, or reasonably be expected to have, a MaterialAdverse Effect on the Company (or the Parent, the Asset Purchaser or the Surviving Corporation after consummation ofthe Transaction). Section 4.28Foreign Corrupt Practices Act; Absence of Certain Business Practices (a)Neither the Company nor its Representatives is aware of or has taken any action, directlyor indirectly, that would result in a violation by such persons of the U.S. Foreign Corrupt Practices Act of 1977, asamended, and the rules and regulations thereunder (the “FCPA”), and the Company and its Representatives haveconducted their businesses in compliance with the FCPA and have instituted and maintain policies and proceduresdesigned to ensure continued compliance with the FCPA. (b)The Company and its Representatives have not, to obtain or retain business, directly orindirectly offered, paid or promised to pay, or authorized the payment of, any money or other thing of value (includingany fee, gift, sample, travel expense or entertainment with a value in excess of one hundred and 00/100 dollars($100.00) in the aggregate to any one individual in any continuous 12 month period) or any commission payment to: (i)any person who is an official, officer, agent, employee or representative of anyGovernmental Entity or of any existing or prospective customer (whether government owned or nongovernmentowned), directly or indirectly; (ii)any political party or official thereof; (iii)any candidate for political or political party office; (iv)any family member of any or (i) through (iii); or (v)any other individual or entity; while knowing or having reason to believe that all or any portion of such money or thing of value would be offered,given or promised directly or indirectly to any such official, officer, agent, employee, representative, political party,political party official., candidate, individual or any entity affiliated with such customer, political party or official orpolitical office. (c)Neither Shareholders nor Company (a) directly or indirectly, used any Shareholder orCompany funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity,made any unlawful payment to foreign or domestic government officials or employees or to foreign or domesticpolitical parties or campaigns from corporate funds, made any bribe, rebate, payoff, influence payment, kickback orother similar unlawful payment, or established or maintained any unlawful or unrecorded funds; (b) agreed to give anygift or similar benefit to any customer, supplier, governmental employee or other Person; or (c) engaged in any criminalor fraudulent act or made any 26 intentional misrepresentation to any governmental entity, which could reasonably be expected to subject the Company,Parent or Asset Purchaser to any debarment, damage or penalty in any civil, criminal or governmental action. (d)The Company has made all payments to third parties by check mailed to such thirdparties’ principal place of business or by wire transfer to a bank located in the same jurisdiction as such party’sprincipal place of business. (e)Each transaction is properly and accurately recorded on the Books and Records of theCompany, and each document upon which entries in the Company’s Books and Records are based is complete andaccurate in all respects. Section 4.29Availability of Documents. The Company has delivered to the Asset Purchaser andWESGEN correct and complete copies of the items referred to in the Company Disclosure Schedules or inthis Agreement (and in the case of any items not in written form, a written description thereof). Section 4.30Solvency. The Company is not entering into the Transaction with the intent to hinder,delay or defraud any Person to which it is, or may become, indebted. To the best of Company’sKnowledge, immediately prior to the Closing, Company’s assets, at a fair valuation, exceed its liabilities,and the Company is able to meet its debts as they mature and has sufficient capital and property remainingto conduct the business in which it will thereafter be engaged. Section 4.31 Full Disclosure (a)To the best of the Shareholder’s knowledge, neither this Agreement nor any of the otherTransaction Documents, (i) contains or will contain as of the Closing Date any untrue statement of fact or (ii) omits orwill omit to state any material fact necessary to make any of the representations, warranties or other statements orinformation contained herein or therein (in light of the circumstances under which they were made) not misleading,which may have an Adverse Material Effect on the transaction or on the Company. (b)Except as limited by the following sentence, all of the information set forth in theCompany Disclosure Schedule, and all other information regarding the Company or the Company’s properties, assets,operations, businesses, Liabilities, financial performance, net income and prospects (the “Information”) that has beenfurnished to the Asset Purchaser, WESGEN or any of their Representatives by or on behalf of the Company or any ofthe Company’s Representatives, is to the best of Stockholders’ Knowledge, accurate, correct and complete in allrespects. To the best of the Company’s Knowledge and in all material respects, the information identified in Section4.31 of the Company Disclosure Schedule is accurate, correct and complete in all respects. For information purposesonly, the index of the documents provided to the Asset Purchaser is included in Section 4.31(b) of the CompanyDisclosure Schedule. (c)Each representation and warranty set forth in this Article IV is not qualified in any waywhatsoever except as explicitly provided therein, will not merge on any Closing or by reason of the execution anddelivery of any Contract at any Closing, will remain in force on and immediately after the Closing Date, is given withthe intention that Liability is not limited to breaches discovered before any Closing, is separate and independent and isnot limited by reference to any other representation or warranty or any other provision of this Agreement, and is madeand given with the intention of inducing the Company to enter into this Agreement. 27 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS This Agreement contemplates the issuance of stock of the Parent to the Shareholders. Parent shall be solelyresponsible for compliance with the Securities Act with respect to issuing the stock and shall timely make such filings asmay be required under the Securities Act. Such stock will not be registered and will therefore include a legend asdescribed in Section 5.8 of this Agreement, which legend can be removed by the Shareholders six months after theclosing, subject to Rule 144 or Rule 145 promulgated under the Securities Act. In addition, the stock issued to theShareholders shall be subject to a Shareholder lock-up as described in Section 7.12 of this Agreement and the stock willbear a legend as described in Section 7.12(b) of this Agreement. The lock-up legend shall be removed after the thirdanniversary of the Closing. Parent will cooperate with the Shareholders to remove the legends when the periodsspecified in this Article V have elapsed. Parent may only issue its stock to the Shareholders without registration if theissuance is subject to an exemption from registration provisions of the Securities Act. Each Shareholder, severally andnot jointly, represents and warrants to the Parent as of the date hereof and as of the Closing Date, as follows: Section 5.1No Registration. Each Shareholder understands that the shares of Parent CommonStock issued pursuant to this Agreement have not been, and will not be, registered under the Securities Actby reason of a specific exemption from the registration provisions of the Securities Act, the availability ofwhich depends upon, among other things, the bona fide nature of the investment intent of the Shareholderand the accuracy of the Shareholder’s representations as expressed herein or otherwise made pursuanthereto. The Company and the Shareholders were not offered or sold shares of Parent Common Stock,directly or indirectly, by means of any form of general solicitation or general advertisement, including thefollowing: (a) any advertisement, article, notice or other communication published in any newspaper,magazine or similar medium or broadcast or radio; or (b) any seminar or meeting whose attendees had beeninvited by general solicitation or general advertising. Six months after the issuance of stock to Shareholderspursuant to this Agreement, upon request from Shareholders, Parent shall cause the removal of the legenddescribed in Section 5.7. Section 5.2Investment Intent. Each Shareholder is acquiring the shares of Parent Common Stockissued pursuant to this Agreement for investment for his own account, not as a nominee or agent, and notwith the view to, or for resale in connection with, any distribution thereof, and each Shareholder has nopresent intention of selling, granting any participation in, or otherwise distributing the same. EachShareholder further represents that he does not have any contract, undertaking, agreement or arrangementwith any Person or entity to sell, transfer or grant participation to such Person or entity or to any third Personor entity with respect to any of the shares of Parent Common Stock issued pursuant to this Agreement. Section 5.3Speculative Nature of Investment. Each Shareholder understands and acknowledgesthat investment in the Parent is highly speculative and involves substantial risks. Each Shareholder can bearthe economic risk of such Shareholder’s investment and is able, without impairing such Shareholder’sfinancial condition, to (a) hold the shares of Parent Common Stock issued pursuant to this Agreement for anindefinite period of time, and (b) suffer a complete loss of such Shareholder’s investment. Each Shareholderis aware that the Parent may issue additional securities in the future which could result in the dilution of suchShareholder’s ownership interest in the Parent. Access to Data. Each Shareholder has had an opportunity toask questions of, and receive answers from, the officers of the Parent concerning this Agreement and theTransaction, as well as the Parent’s business, management and financial28 affairs, which questions were answered to their satisfaction. Each Shareholder acknowledges that it is notrelying on any statements or representations of the Parent or its agents for legal advice with respect to thisinvestment or the Transaction. Section 5.4Accredited Investor. Each Shareholder is an “accredited investor” within the meaningof Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission under the SecuritiesAct and shall submit to the Parent such further assurances of such status as may be requested by the Parent. Section 5.5Restrictions on Transfer. Each Shareholder acknowledges that the shares of ParentCommon Stock issued pursuant to this Agreement must be held indefinitely unless subsequently registeredand qualified under the Securities Act or unless an exemption from such registration and qualification isavailable. Each Shareholder hereby covenants and agrees that he will not offer, sell or otherwise transfersuch shares of Parent Common Stock except in compliance with applicable federal and state securities laws. Section 5.6Rule 144 and Rule 145. Each Shareholder is aware of the provisions of Rule 144 andRule 145 promulgated under the Securities Act, which subject resale of shares to the satisfaction of certainconditions. Each Shareholder acknowledges and understands that the Parent may not be satisfying thecurrent applicable public information requirements at the time a Shareholder wishes to sell the shares ofParent Common Stock issued pursuant to this Agreement, and that therefore, each Shareholder may beprecluded from selling such securities. Each Shareholder acknowledges that, in the event the applicablerequirements of Rule 144 or Rule 145, as applicable, are not met, registration under the Securities Act or anexemption from registration will be required for any disposition of the shares of Parent Common Stockissued pursuant to this Agreement. Each Shareholder acknowledges that the Parent has no intention toregister the shares of Parent Common Stock issued pursuant to this Agreement and understands that suchShareholder will have a substantial burden of proof in establishing that an exemption from registration isavailable for such offers or sales and that such persons, and the brokers who participate in the transactions,do so at their own risk. Section 5.7Legend. Each Shareholder understands and agrees that the certificates evidencing theshares of Parent Common Stock issued pursuant to this Agreement shall bear the following legend insubstantially the following form (in addition to any legend required by this Agreement or under applicablestate securities laws): “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTEREDUNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, ANDMAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTILREGISTERED UNDER SUCH ACT AND/OR APPLICABLE STATE SECURITIES LAWS, OR UNLESS THECOMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLYSATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.” Six (6) months after the issuance of such stock to Shareholders, and upon request from the Shareholders, such legendshall be removed from the certificates.29 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PARENT, THE ASSET PURCHASER AND WESGEN The Parent, the Asset Purchaser and WESGEN hereby represent and warrant, severally and jointly,to the Shareholders as follows: Section 6.1Organization, Standing and Power. Each of the Parent, the Asset Purchaser andWESGEN, respectively, is duly organized, validly existing and in good standing under the Laws of itsjurisdiction of organization. Section 6.2Authority. The execution, delivery and performance of this Agreement and theTransaction Documents to which the Parent, the Asset Purchaser and WESGEN, respectively, will become aparty have been duly and validly authorized by all necessary corporate action. This Agreement and eachTransaction Document to which the Parent, the Asset Purchaser and WESGEN, respectively, will become aparty has been duly executed and delivered by the Parent, the Asset Purchaser and WESGEN, respectively,and constitutes its respective valid and binding obligation enforceable in accordance with their terms. Section 6.3Adequacy of Funds. The Parent, Asset Purchaser and WESGEN have adequatefinancial resources to satisfy its respective monetary obligations under this Agreement. Section 6.4Investigation. Parent and Asset Purchaser acknowledge receipt of the documents andinformation provided by the Shareholders and acknowledge the risks and liabilities identified in thedocuments and information provided. ARTICLE VII PRE-CLOSING AND POST-CLOSING COVENANTS OF THE COMPANY AND THE SHAREHOLDERS Section 7.1Conduct of the Business Prior to Closing. From the date of this Agreement until theClosing Date, the Company shall, and the Shareholders shall cause the Company to, (a) conduct thebusiness of the Company in the ordinary course of business, (b) pay all of its Liabilities and Taxes whendue, subject to good faith disputes over such Liabilities or Taxes, (c) maintain insurance coverage inamounts adequate to cover the reasonably anticipated risks of the Company, (d) preserve intact all rights ofthe Company’s business, (e) use reasonable efforts to retain its employees and (f) maintain goodrelationships with employees, licensors, licensees, suppliers, contractors, distributors, customers, and othershaving business dealings with the Company. Section 7.2Restrictions on the Company’s Conduct of the Business Prior to Closing. From thedate of this Agreement until the Closing Date, the Company shall not, and the Shareholders shall cause theCompany to not, without the prior written consent of the Asset Purchaser and WESGEN, which consentshall not be unreasonably withheld: (a)Enter into, create, incur or assume (i) any borrowings under capital leases or (ii) anyobligations which would have a Material Adverse Effect on the Company or WESGEN’s ability to conduct the businessof the Company in substantially the same manner and condition as currently conducted by the Company; 30 (b)Acquire by merging or consolidating with, or by purchasing any equity securities orassets (which are material, individually or in the aggregate, to the Company) of, or by any other manner, any businessor any Person; (c)Sell, transfer, lease, license or otherwise encumber any of its assets; (d)Enter into any agreements or commitments with another Person, except on commerciallyreasonable terms in the ordinary course of business; (e)Violate any Law or regulation applicable to the Company; (f)Change or announce any change to any services sold or licensed by the Company; (g)Violate, terminate or amend any Contract or Governmental Authorization; (h)Commence any action, suit, arbitration or other legal proceeding other than for (i) theroutine collection of receivables or (ii) injunctive relief on the grounds that the Company has suffered immediate andirreparable harm not compensable in money damages; (i)Declare, authorize or pay any dividends on, make any other distributions with respect to,or redeem, repurchase or otherwise acquire any of its capital stock; (j)Purchase, lease, license or otherwise acquire any assets, except for supplies acquired bythe Company in the ordinary course of business; (k)Make any capital expenditure in excess of $10,000.00, individually or in the aggregate; (l)Write off as uncollectible, or establish any extraordinary reserve with respect to, anyreceivable or other indebtedness; (m)Provide any credit, loan, advance, guaranty, endorsement, indemnity, warranty ormortgage to any Person, including any of the customers, shareholders, officers, employees or directors of the Company,other than those made in the ordinary course of business; (n)Borrow from any Person by way of a loan, advance, guaranty, endorsement, indemnity,or warranty; (o)Discharge any Encumbrance, indebtedness or other Liability in excess of $10,000.00,individually or in the aggregate, except for Liabilities reflected or reserved against in the Financial Statements andaccounts payable in the ordinary course of business; (p)Change its credit practices, accounting methods or practices or standards used tomaintain its books, accounts or business records; (q)Change the terms of its accounts or other payables or receivables or take any actiondirectly or indirectly to cause or encourage any acceleration or delay in the payment, collection or generation of itsaccounts or receivables; (r)Incur or become subject to any Liability, contingent or otherwise, except currentLiabilities in the ordinary course of business; 31 (s)Make any material change affecting the business of the Company, including (i) changesin management organization or personnel arrangements with sales brokers, advertising agencies, market researchprojects, advertising and promotion budgets or the content of advertisements or working capital levels (payables andreceivables); (ii) changes in discretionary costs, such as advertising, maintenance and repairs, and training; (iii) anycapital expenditures or deferrals of capital expenditures; (iv) deviations from operating budgets; or (v) other than in theordinary course of business, change any of its business policies, including, advertising, investments, marketing, pricing,purchasing, production, personnel or budget; (t)Amend its Organizational Documents; (u)Split, combine or reclassify any of its capital stock or issue or authorize the issuance ofany other shares of capital stock or other securities in lieu of, or in substitution for, currently outstanding shares ofcapital stock or securities; (v)Issue, sell, dispose of or encumber, or authorize the issuance, sale, disposition orencumbrance of, any shares of capital stock or grant, enter into or accept any options, warrants, convertible securities orother rights to acquire any capital stock or securities in the Company; (w)Hire any new employee, terminate any officer or key employee of the Company,increase the annual level of compensation of any existing employee, establish or adopt any Company Employee Plan,or grant any bonuses, benefits or other forms of direct or indirect compensation to any employee, officer, manager orconsultant; (x)Make any severance payments to any employee, officer or manager, except paymentsmade pursuant to written agreements outstanding as of the date of this Agreement; (y)Make or change any election in respect of Taxes, adopt or change any accountingmethod in respect of Taxes, file any amendment to a Tax Return, enter into any closing agreement, settle any claim orassessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any claim orassessment in respect of Taxes; (z)Enter into any Contract or agree, in writing or otherwise, to take any of the actionsdescribed in Section 7.2(a) through Section 7.2(y) above, or any action that would make any of its representations orwarranties contained in this Agreement untrue or incorrect in any material respect or prevent it from performing orcause it not to perform its covenants hereunder. Section 7.3No Solicitation. Until the earlier of (a) the Merger Closing and (b) the termination ofthis Agreement pursuant to its terms, the Company and the Shareholders shall not, and shall cause each oftheir respective Representatives not to, directly or indirectly, (i) initiate, solicit or encourage (including byway of furnishing information regarding the Company and its business) any inquiries, or make anystatements to third parties which may reasonably be expected to lead to any proposal concerning the sale ofthe Company (whether by way of merger, purchase of capital stock, purchase of assets or otherwise) (a“Competing Transaction”); or (ii) hold any discussions or enter into any agreements with, or provide anyinformation or respond to, any third party concerning a proposed Competing Transaction or cooperate inany way with, agree to, assist or participate in, solicit, consider, entertain, facilitate or encourage any effortor attempt by any third party to do or seek any of the foregoing. If at any time prior to the earlier of (x) theMerger Closing and (y) the termination of this Agreement pursuant to its terms, the Company, theShareholders or any of their Representatives is approached in any manner by a third party concerning aCompeting Transaction (a “Competing Party”), the Company or Shareholder, as applicable, shall promptlyinform the Asset Purchaser 32 and WESGEN regarding such contact and furnish the Asset Purchaser and WESGEN with a copy of anyinquiry or proposal, or, if not in writing, a description thereof, including the name of such Competing Party,and the Company and the Shareholders shall keep the Asset Purchaser and WESGEN informed of the statusand details of any future notices, requests, correspondence or communications related thereto. Section 7.4Certain Notifications. From the date of this Agreement until the Merger Closing, theCompany and the Shareholders shall promptly notify the Asset Purchaser and WESGEN in writing regardingany: (a)Action taken by the Company not in the ordinary course of business and anycircumstance or event that could reasonably be expected to have a Material Adverse Effect on the Company; (b)Fact, circumstance, event, or action by the Company (i) which, if known on the date ofthis Agreement, would have been required to be disclosed in or pursuant to this Agreement; or (ii) the existence,occurrence, or taking of which would result in any of the representations and warranties of the Company contained inthis Agreement or in any Transaction Document not being true and correct when made or at the applicable Closing; (c)Breach of any covenant or obligation of the Company or the Shareholders; and (d)Circumstance or event which will result in, or could reasonably be expected to result in,the failure of the Company to timely satisfy any of the closing conditions specified in Article VIII of this Agreement. Section 7.5Updating Disclosure Schedules. If any event, condition, fact or circumstance that isrequired to be disclosed pursuant to Section 7.4 would require a change to the Company DisclosureSchedules if the Company Disclosure Schedules were dated as of the date of the occurrence, existence ordiscovery of such event, condition, fact or circumstance, then the Company shall promptly deliver to theAsset Purchaser and WESGEN an update to the Company Disclosure Schedules specifying such change andshall use its best efforts to remedy the same; provided, however, that no such update shall be deemed tosupplement or amend the Company Disclosure Schedules for the purpose of (i) determining the accuracy ofany of the representations and warranties made by the Company in this Agreement or (ii) determiningwhether any of the conditions set forth in Article VIII have been satisfied. Section 7.6Access to Information. From the date of this Agreement until the Merger Closing, theCompany shall (i) permit the Asset Purchaser, WESGEN and each of their Representatives to have free andcomplete access at all reasonable times, and in a manner so as not to interfere with the normal businessoperations of the Company, to all premises, properties, personnel, Persons having business relationshipswith the Company (including suppliers, licensees, customers and distributors), books, records (includingTax records), contracts, and documents of or pertaining to the Company; (ii) furnish the Asset Purchaser,WESGEN and each of their Representatives with all financial, operating and other data and informationrelated to the business of the Company (including copies thereof), as the Asset Purchaser or WESGEN mayreasonably request; and (iii) otherwise cooperate and assist, to the extent reasonably requested by the AssetPurchaser or WESGEN, with the Asset Purchaser’s and WESGEN’s investigation of the Company and itsbusiness. No information or knowledge obtained in any investigation pursuant to this Section 7.6 shallaffect or be deemed to modify any representation or warranty contained herein or the conditions to theobligations of the parties to consummate 33 the Transaction. Section 7.7Best Efforts; Cooperation. The Company and the Shareholders shall each use theirrespective best efforts to perform each of their respective obligations hereunder and to take, or cause to betaken, and do, or cause to be done, all things necessary, proper or advisable under applicable Law to obtain,and to assist the Asset Purchaser and WESGEN in obtaining, (a) the Consents required as described onSection 4.5 of the Company Disclosure Schedules, (b) all regulatory approvals and (c) to cause theTransaction to be effected as soon as practicable following the date hereof in accordance with the termshereof. Without limiting the generality of the foregoing, the Company and the Shareholders shall, and theyshall cause their respective Representatives to, use their respective best efforts to, and shall, cooperate fullywith the Asset Purchaser, WESGEN and each of their respective Representatives in connection with any steprequired to be taken as a part of the Asset Purchaser’s, WESGEN’s or the Company’s obligations hereunderand causing the conditions specified in Section 8.2 to be satisfied as soon as possible. Section 7.8Employment Matters (a)Prior to the Closing Date, the Asset Purchaser shall identify, in its sole discretion, certainemployees, including each of the Shareholders, whose continued employment with the Asset Purchaser or the SurvivingCorporation, as applicable, shall be required following the Merger Closing (collectively, the “ContinuingEmployees”). The Company shall cooperate with the Asset Purchaser’s efforts to cause the Company to continue toemploy and retain such Continuing Employees. (b)Prior to the Closing Date, Representatives of the Asset Purchaser and WESGEN mayparticipate in meetings or set up interviews with the Continuing Employees or any other employees of the Company onor prior to the Closing Date, and the Company agrees to permit the Continuing Employees and such other identifiedemployees to participate in such meetings during normal business hours at a mutually acceptable time. The Companyshall use commercially reasonable efforts to retain its employees, including the Continuing Employees, from the date ofthis Agreement through the Closing Date. (c)Prior to the Closing Date, the Asset Purchaser or WESGEN, as applicable, shall provideall Continuing Employees with an offer letter for the continued employment at-will (each, an “Employment OfferLetter”) of all such employees with the Asset Purchaser or Surviving Corporation, as applicable (or any of theirrespective Affiliates) on terms and conditions determined by the Asset Purchaser and WESGEN and as set forth in therespective Employment Offer Letters. (d)Nothing in this Agreement shall amend or be deemed to amend any Company EmployeePlan or any benefit plan of the Asset Purchaser or any of its Affiliates or shall limit the rights of the Asset Purchaser, theSurviving Corporation or any of their respective Affiliates to amend or terminate any Company Employee Plan orbenefit plan of the Asset Purchaser or its Affiliates, including following the Merger Closing. Section 7.9Tax Matters (a)Tax Periods Ending on or before the Merger Closing. The Asset Purchaser, inconsultation with the Surviving Corporation, shall prepare or cause to be prepared and file or cause to be filed all TaxReturns for the Company for all periods ending on or prior to the Merger Closing that are filed after the Merger Closing;provided, that the Shareholders shall be responsible for all reasonable costs attributable to the preparation and filing ofall such Tax Returns including, without limitation, the Company’s final “S corporation” returns, for the taxable period(or portion thereof) ending on the Merger 34 Closing. All such Tax Returns shall be prepared in a manner consistent with the Company’s past practices, unlessotherwise required by Law. The Asset Purchaser shall permit the Shareholders to review and comment on each suchTax Return at least 30 days prior to filing and shall incorporate into such Tax Return any reasonable comments fromthe Shareholders regarding such Tax Return. The Surviving Corporation may deduct from the Installment Paymentspayable to the Shareholders an amount equal to the Taxes of the Company with respect to such Tax Returns and relatedcosts. Any refunds with respect to such Tax Returns shall be paid to the Shareholders in accordance with theirrespective Pro Rata Portion thereof, unless such refunds were (i) reflected on the Closing Balance Sheet, as finallydetermined, and taken into account in determining the Closing Date Net Working Capital, or (ii) were received as aresult of a carryback of any net operating losses or other tax attributes. (b)Straddle Periods. The Asset Purchaser, in consultation with the Surviving Corporation,shall prepare or cause to be prepared and file or cause to be filed any Tax Returns of the Company for any periodbeginning before the Merger Closing and ending after the Merger Closing (a “Straddle Period”). All such Tax Returnsshall be prepared in a manner consistent with the Company’s past practices, unless otherwise required by Law. TheAsset Purchaser shall permit the Shareholders to review and comment on each such Tax Return at least 30 days prior tofiling and shall incorporate into such Tax Return any reasonable comments from the Shareholder regarding such TaxReturn. The Surviving Corporation may deduct from the Installment Payments payable to the Shareholders an amountequal to the portion of such Taxes which relates to the portion of such Straddle Period ending on the MergerClosing. Any refunds with respect to such Tax Returns which relates to the portion of such Straddle Period ending onthe Merger Closing shall be paid to the Shareholders in accordance with their respective Pro Rata Portion thereof, unlesssuch refunds or credits (i) were reflected on the Closing Balance Sheet, as finally determined, and taken into account indetermining the Closing Date Net Working Capital, or (ii) were received as a result of a carryback of any net operatinglosses or other tax attributes. For purposes of this Section 7.9(b), the portion of any Tax that relates to the portion ofany Straddle Period ending on the Merger Closing shall (A) in the case of any Taxes other than Taxes based upon orrelated to income or receipts, be deemed to be the amount of such Tax for the entire Straddle Period multiplied by afraction (1) the numerator of which is the number of days in the Straddle Period ending on the Merger Closing and(2) the denominator of which is the number of days in the entire Straddle Period, and (B) in the case of any Tax basedupon or related to income or receipts (including, without limitation, sales and similar taxes), be deemed equal to theamount which would be payable if the relevant Straddle Period ended on the Merger Closing. (c)Cooperation on Tax Matters. The Asset Purchaser, the Surviving Corporation and theShareholders shall cooperate fully, as and to the extent reasonably requested by the other Party, in connection with thefiling of Tax Returns pursuant to this Agreement and any Tax Contest. Such cooperation shall include the retention and(upon the other Party’s request) the provision of records and information which may be reasonably relevant to any suchTax Contest and making appropriate Persons available on a mutually convenient basis to provide additional informationand explanation of any material provided hereunder. The Asset Purchaser, the Surviving Corporation and theShareholders shall (i) retain all books and records with respect to Tax matters pertinent to the Company relating to anyTaxable period beginning before the Merger Closing until the expiration of the statute of limitations (and, to the extentnotified, any extensions thereof) of the respective Taxable periods, and to abide by all record retention agreementsentered into with any Tax Authority, (ii) deliver or make available to the other Parties on the Merger Closing, originalsor accurate copies of all such books and records, and (iii) give the other Parties reasonable written notice prior totransferring, destroying or discarding any such books and records and, if the other Party so requests, the AssetPurchaser, the Surviving Corporation and the Shareholders, as the case may be, shall allow the other Party to takepossession of such books and records at such other Party’s expense. 35 (d)Contest Provisions. If, subsequent to the Merger Closing, the Asset Parent or theSurviving Corporation receives notice of any audit, other administrative proceeding or inquiry or judicial proceedinginvolving Taxes (a “Tax Contest”) with respect to any Tax Return (a “Pre-Closing Return”) for any Pre-Closing TaxPeriod with respect to which the Asset Purchaser or the Surviving Corporation claims a right to indemnification underthis Agreement, the Asset Purchaser and the Surviving Corporation shall promptly notify the Shareholders of suchnotice. If the Shareholders are expected to fully indemnify the Asset Purchaser or the Surviving Corporation pursuantto this Agreement for any losses arising from such Tax Contest, the Shareholders shall have the right to control theconduct and resolution of such Tax Contest; provided, however, that if any of the issues raised in such Tax Contestcould have an impact on Taxes or the Tax position of the Asset Purchaser, the Surviving Corporation or any of theirAffiliates for any Post-Closing Tax Period, then the Shareholders shall afford the Asset Purchaser the opportunity tocontrol jointly the conduct and resolution of the portion of such Tax Contest which could have an impact on Taxes ofthe Asset Purchaser, the Surviving Corporation or their Affiliates in such Post-Closing Tax Period. If the Shareholdersshall have the right to control the conduct and resolution of such Tax Contest but elects in writing not to do so withinten days of receiving notice of such Tax Contest, then the Asset Purchaser shall have the right to control the conductand resolution of such Tax Contest; provided, that the Asset Purchaser shall keep the Shareholders reasonably informedof all material developments on a timely basis. Each Party shall bear its own costs for participating in such TaxContest. (e)S-Corporation Election. Immediately upon Closing or as soon as practical thereafter, theCompany and the Shareholders (if legally required) shall take all actions necessary to terminate the Company’ssubchapter S election under the Code effective as of the Merger Closing (the “S-Corp Termination”). (f)Tax Consequences. Shareholders have reviewed with their own tax advisors the taxconsequences of the Transaction and are relying solely on such advisors and not on any statements or representationsof Purchasing Parties. Shareholders acknowledge that Shareholders shall be responsible for their own Tax liability thatmay arise as a result the Transactions. Section 7.10Public Disclosure. The Parent, the Asset Purchaser, WESGEN, the Company and theShareholders shall, prior to the Merger Closing, consult with each other before issuing or authorizing anypress release or any other public statement or making (or authorizing) any other disclosure to any third party(whether or not in response to an inquiry) regarding the existence or terms of this Agreement and thetransactions contemplated hereby, and, prior to the Merger Closing, neither the Parent, the Asset Purchaser,WESGEN, the Company nor the Shareholders shall issue (or permit any of their respective Representativesto issue) any such press release or make any such statement or disclosure without the prior written approvalof the Parent, the Asset Purchaser, WESGEN, the Company and the Shareholders, except as may berequired by applicable Law. Notwithstanding the foregoing, the Parent, the Asset Purchaser, WESGEN, theCompany and the Shareholders may reveal the existence and terms of this Agreement to their respectiveRepresentatives: (a) who need to know the terms of this Agreement for the purpose of evaluating theTransaction; (b) who are informed of the confidential nature of the Agreement; and (c) who agree to act inaccordance with the terms of this Section 7.10. Section 7.11Shareholder Noncompetition. As an inducement for the Asset Purchaser andWESGEN to enter into and approve this Agreement and consummate the transactions contemplated hereby,each Shareholder agrees that without the express prior written consent of the Asset Purchaser and theSurviving Corporation, shall comply with the non-competition provisions contained in the “Shareholders’Employment Agreements” in the form of Exhibit D to this Agreement. $860,000.00 of the Purchase Price isallocated to the36 covenants not to compete (the “Non-Compete Allocation”). Section 7.12 Shareholder Lock-Up. (a)Agreement. Each Shareholder agrees that until the third anniversary of the ClosingDate (which the Parent may extend in order to comply with FINRA Rule 2711(f)(4) or NYSE Rule 472(f)(4), or anysuccessor provisions or amendments thereto)(the “Shareholder Lock-Up Period”), such Shareholder shall not cause orpermit any Transfer of any shares of Parent Common Stock (or any securities received in exchange therefore) receivedpursuant to this Agreement as part of the Closing Stock Consideration. In furtherance of the foregoing, the Shareholderagrees that until the third anniversary of the Closing Date (which the Parent may extend in order to comply with FINRARule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto) (a) the Parent isauthorized to place “stop orders” on its books to prevent any transfer of Parent Common Stock held by the Shareholderin violation of this Agreement, and (ii) the Parent and any duly appointed transfer agent for the registration or transferof the securities described herein are hereby authorized to decline to make any transfer of securities if such transferwould constitute a violation or breach of this Agreement. A Shareholder shall be deemed to have effected a “Transfer”of a security if such Shareholder directly or indirectly: (i) sells, pledges, encumbers, assigns, grants an option withrespect to, transfers or disposes of such security or any interest in such security; or (ii) enters into an agreement orcommitment providing for the sale of, pledge of, encumbrance of, assignment of, grant of an option with respect to,transfer of or disposition of such security or any interest therein. (b)Legend. Each Shareholder understands and agrees that the certificates evidencing theshares of Parent Common Stock issued pursuant to this Agreement shall bear the following legend in substantially thefollowing form: “THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ONTRANSFERABILITY AND RESALE, INCLUDING A LOCK-UP PERIOD AS SET FORTH IN ANAGREEMENT AMONG THE COMPANY AND THE ORIGINAL HOLDERS OF THESE SHARES,COPIES OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY.” Section 7.13Company Benefit Plans. Unless the Asset Purchaser directs the Company otherwisein writing, no later than five Business Days prior to the Effective Time, the Board of Directors of theCompany shall adopt resolutions terminating, effective at least one day prior to the Effective Time, anyCompany Employee Plan qualified under Section 401(k) of the Code (each, a “401(k) Plan”). Prior to theEffective Time, the Company shall provide the Asset Purchaser and WESGEN with executed resolutions ofits Board of Directors authorizing such termination and amending any such 401(k) Plan in connection withits termination to the extent necessary to comply with all applicable Laws. The Company shall also takesuch other actions in furtherance of the termination of each 401(k) Plan as the Asset Purchaser mayreasonably require. ARTICLE VIII CONDITIONS TO CLOSING Section 8.1Conditions to Obligations of Each Party. The respective obligations of each Party tothis Agreement to consummate and effect the Transaction and other transactions contemplated herewithshall be subject to the satisfaction at or prior to each applicable Closing of each of the following conditions,any of which may be waived, in writing, by agreement of the Company, the Parent, the Asset Purchaser andWESGEN: 37 (a)No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary orpermanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraintor prohibition preventing the consummation of the Transaction shall be in effect, nor shall any proceeding brought byan administrative agency or commission or other Governmental Entity or instrumentality, domestic or foreign, seekingany of the foregoing be pending; nor shall there be any action taken, or any statute, rule, regulation or order enacted,entered or enforced, which makes the consummation of the Transaction illegal. In the event an injunction or otherorder shall have been issued, each Party agrees to use its reasonable efforts to have such injunction or other orderlifted. (b)Governmental Approval. The Parent, the Asset Purchaser, WESGEN and the Companyshall have timely obtained from each Governmental Entity all approvals, waivers and consents, if any, necessary forconsummation of, or in connection with, the several transactions contemplated hereby. Section 8.2Conditions to the Obligations of the Parent, the Asset Purchaser and WESGEN. Theobligations of the Parent, the Asset Purchaser and WESGEN to consummate and effect the Transaction andthe other transactions contemplated thereby shall be subject to the satisfaction at or prior to each Closing ofeach of the following conditions, any of which may be waived, in writing, by the Parent, the AssetPurchaser and WESGEN: (a)Representations, Warranties and Covenants. All of the representations and warranties ofthe Company and the Shareholders in this Agreement shall have been true and correct in all material respects(considered collectively and individually) as of the date of this Agreement and shall be true and correct in all materialrespects (considered collectively and individually) as of the Closing Date (or, to the extent such representations andwarranties speak only as of an earlier date, they shall be true and correct in all material respects as of such earlier date). (b)Performance of Obligations of the Company and the Shareholders. The Company andthe Shareholders shall have performed, in all material respects (considered collectively and individually), all covenantsand obligations in this Agreement required to be performed by it as of the Closing Date. (c)Third Party Consents. The Parent, the Asset Purchaser and WESGEN shall have beenfurnished with evidence reasonably satisfactory to each of the consent or approval of those persons whose consent orapproval shall be required for the Company and the Shareholders (i) to consummate the Transaction and the othertransactions contemplated hereby and (ii) to comply with and perform all of the Company’s and the Shareholders’obligations as contemplated hereby. The Company represents that no such consents are required. (d)No Material Adverse Effect. From the date of this Agreement, there shall not haveoccurred any Material Adverse Effect on the Company. (e)Delivery of Documents. The Company Parties shall have delivered to the Parent, theAsset Purchaser and WESGEN, as applicable, all of the following documents and other deliverables: (i)to the Asset Purchaser, the Parent and WESGEN, an executed copy of the otherTransaction Documents to which any Company Party is a party, duly executed by such Company Party; (ii)to the Parent, the Asset Purchaser and WESGEN, a certificate executed on behalf ofthe Company by its Secretary certifying (A) copies of the Organizational Documents of the38 Company, each as in effect as of the Closing Date; (B) copies of the resolutions of the board of directors of theCompany unanimously approving and adopting, among other things, this Agreement, the other TransactionDocuments and the Transaction, the S-Corp Termination, the termination of all 401(k) Plans, recommending that theShareholders approve the Transaction and this Agreement, and (C) copies of the resolutions of the Shareholdersunanimously approving this Agreement and the Transaction and the S-Corp Termination; (iii)to the Parent, the Asset Purchaser and WESGEN, a certificate as of a recent date ofthe Secretary of State of the State of New York certifying the Company has legal existence, is in good standing and haspaid all taxes, and a certificate of the Secretary of State (or similar authority) of each jurisdiction in which the Companyhas qualified to do business as a foreign corporation (or is required to be so qualified) as to such foreign qualificationand payment of taxes; (iv)to the Parent, the Asset Purchaser and WESGEN, a certificate from each of thePresident of the Company and the Shareholders certifying that the conditions to the Parent’s, the Asset Purchaser’s andWESGEN’s obligations hereunder set forth in Section 8.2(a) and Section 8.2(b) have been fulfilled; (v)to the Parent, the Asset Purchaser and WESGEN, fully executed copies of all noticesto, approvals and/or consents of third parties, including all those Consents as listed on Section 4.5 of the CompanyDisclosure Schedules; (vi)to WESGEN, a FIRPTA Notification Letter, substantially in the form attached heretoas Exhibit E (the “FIRPTA Notification Letter”), with respect to the Merger; (vii)to the Asset Purchaser, originals of all Assumed Contracts and TransferredRecords; (viii)to the Asset Purchaser, a General Assignment and Bill of Sale covering all of theapplicable Purchased Assets, substantially in the form attached hereto as Exhibit F (the “General Assignment and Billof Sale”), duly executed by the Company; (ix)to the Asset Purchaser, the Assignment and Assumption Agreement, covering all ofthe Assumed Liabilities, substantially in the form attached hereto as Exhibit G (the “Assignment and Assumption”),duly executed by the Company; (x)to WESGEN, a general release of claims, substantially in the form attached hereto asExhibit H (each, a “Release”), duly executed by each of the Shareholders; (xi)to Asset Purchaser and WESGEN, as applicable, offer letters of employment, dulyexecuted by each of the Continuing Employees (including the Shareholders) accepting the terms of their employmentas Continuing Employees; (xii)to WESGEN, the Certificate of Merger, duly executed by the Company; (xiii)to WESGEN, all original Company Stock Certificates representing all shares ofCommon Stock held by the Shareholders, together with duly completed and executed Letter of Transmittal from eachShareholder; (xiv)to Asset Purchaser and WESGEN, payoff and release letters from creditors ofPayoff Debt, together with UCC‑3 termination statements with respect to any financing39 statements filed against any assets of the Company, terminating all Encumbrances (including Tax liens) on any and allsuch assets; (xv)such other certificates, instruments or documents required pursuant to theprovisions of this Agreement or otherwise necessary or appropriate to transfer the Purchased Assets and consummatethe Transaction as may be requested by the Asset Purchaser, WESGEN or the Parent; (xvi)to WESGEN, letters of resignation as members of the board of directors of theCompany effective as of the Merger Closing; (xvii)to Asset Purchaser and WESGEN, evidence, in form satisfactory to the AssetPurchaser, that the 401(k) Plans have been terminated as required pursuant to Section 7.13; and (xviii)to the Asset Purchaser, Shareholders’ Employment Agreements in the form ofExhibit D to this Agreement executed by the Shareholders; (xix)to Asset Purchaser and WESGEN, evidence, in form satisfactory to the AssetPurchaser, that the S-Corp Termination has been effected as required pursuant to Section 7.9(d). (f)Closing Consideration Schedule. The Asset Purchaser and WESGEN shall havereceived, and accepted, the Closing Consideration Schedule. (g)Shareholder Approval. This Agreement, the consummation of the Transaction and theS-Corp Termination shall have been unanimously approved and adopted by the vote of the shareholders of theCompany in accordance with the Organizational Documents and the NYBCL. (h)Dissenters’ Rights. No Shareholders shall have exercised, or have continuing rights toexercise, rights to receives payment for shares under the §909 of the NYBCL with respect to the Transaction. (i)Continuing Employees. Both of the Shareholders both have accepted, and a SubstantialNumber of the key and other employees of the Company shall have accepted their respective offers of employment bythe Asset Purchaser, WESGEN or their Affiliates, and executed letter offers of employment with the Asset Purchaser,WESGEN or its Affiliates, pursuant to Section 7.8. For the purpose of this Section 8.2(i), the term “SubstantialNumber” shall mean that a sufficient number of the key and other employees of the Company have executed offers ofemployment so the that the business is not substantially or materially adversely impacted. Section 8.3Conditions to the Obligations of the Company and the Shareholders. The obligationsof the Company to consummate and effect the Transaction and the other transactions contemplated therebyshall be subject to the satisfaction at or prior to each Closing of each of the following conditions, any ofwhich may be waived, in writing, by the Company: (a)Representations, Warranties and Covenants. All of the representations and warranties ofthe Parent, the Asset Purchaser and WESGEN in this Agreement shall have been true and correct in all material respects(considered collectively and individually) as of the date of this Agreement and shall be true and correct in all materialrespects (considered collectively and individually) as of the Closing Date (or, to the extent such representations andwarranties speak only as of an earlier date, they shall be true and correct in all respects as of such earlier date). (b)Performance of Obligations of the Parent, the Asset Purchaser and WESGEN. TheParent, the Asset Purchaser and WESGEN shall have performed, in all material respects40 (considered collectively and individually), all covenants and obligations in this Agreement required to be performed bythem as of the Closing Date. (c)Delivery of Documents. The Parent, the Asset Purchaser and WESGEN, as applicable,shall have delivered to the Company Parties all of the following documents and other deliverables: (i)to the Company and the Shareholders, an executed copy of the other TransactionDocuments to which any of the Parent, the Asset Purchaser and WESGEN is a party, duly executed by the Parent, theAsset Purchaser and WESGEN, as applicable; (ii)to the Company, the Assignment and Assumption Agreement, duly executed by theCompany; and (iii)to each of the Shareholders, offer letters of employment pursuant to Section 7.8with respect to each as Continuing Employees. Section 8.4Frustration of Conditions. Neither the Parent, the Asset Purchaser, WESGEN, theCompany nor the Shareholders may rely on the failure of any condition set forth in this Article VIII to besatisfied if such failure was caused by such Party’s failure to comply with or perform any of its covenants orobligations set forth in this Agreement. ARTICLE IX TERMINATION, AMENDMENT AND WAIVER Section 9.1Termination. This Agreement may be terminated by written notice explaining thereason for such termination (without prejudice to other remedies which may be available to the Parties underthis Agreement, at law or in equity): (a)At any time prior to the Purchase Closing by the mutual written consent of the Parent, theAsset Purchaser, WESGEN and the Company; (b)At any time prior to the Purchase Closing by any of the Parent, the Asset Purchaser, orWESGEN if (i) the Company is in material breach of any material provision of this Agreement and such breach shallnot have been cured within 30 days of receipt by the Company of written notice from the Parent, the Asset Purchaser orWESGEN, as applicable, of such breach; and (ii) none of the Parent, the Asset Purchaser or WESGEN is not, on the dateof termination, in material breach of any material provision of this Agreement; (c)At any time prior to the Purchase Closing by the Company if (i) the Parent, the AssetPurchaser or WESGEN, is in material breach of any material provision of this Agreement and such breach shall nothave been cured within 30 days of receipt by the Asset Purchaser, the Parent or WESGEN, as applicable, of writtennotice from the Company of such breach; and (ii) the Company is not, on the date of termination, in material breach ofany material provision of this Agreement; (d)by the Parent, the Asset Purchaser or WESGEN if (i) the Purchase Closing has notoccurred on or prior to March 30, 2016 (the “Outside Closing Date”) for any reason; and (ii) none of the Parent, theAsset Purchaser or WESGEN is not, on the date of termination, in material breach of any material provision of thisAgreement; 41 (e)by the Company if (i) the Purchase Closing has not occurred on or prior to the OutsideClosing Date for any reason; and (ii) the Company is not, on the date of termination, in material breach of any materialprovision of this Agreement; (f)by either the Parent, the Asset Purchaser, WESGEN or the Company if (i) satisfaction ofa closing condition of the terminating Party in Article VIII is impossible; and (ii) the terminating Party is not, on the dateof termination, in material breach of any material provision of this Agreement. Section 9.2Effect of Termination. If this Agreement is terminated in accordance with Section 9.1,all obligations of the Parties hereunder shall terminate, except for the obligations set forth in this Article IXand Article XI; provided, however, that nothing herein shall relieve any Party from Liability for the breachof any of its representations, warranties, covenants or agreements set forth in this Agreement. Section 9.3Expenses. Whether or not the Transaction is consummated, all costs and expensesarising out of, relating to or incidental to the discussion, evaluation, negotiation and documentation of thisAgreement and the transactions contemplated hereby and thereby (including, without limitation, reasonablefees and expenses of legal counsel and financial advisors and accountants, if any) (in the aggregate,“Transaction Expenses”), shall be paid by the Party incurring such expense. Section 9.4Amendment. The Parties hereto may cause this Agreement to be amended at any timeby execution of an instrument in writing signed by the Parent, the Asset Purchaser, WESGEN, the Companyand the Shareholders, except as otherwise required by Law. Section 9.5Extension; Waiver. Any Party hereto may, subject to Section 9.4 and to the extentlegally allowed, (i) extend the time for the performance of any of the obligations or other acts of the otherParties hereto, (ii) waive any inaccuracies in the representations and warranties made to such Partycontained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of theagreements or conditions for the benefit of such Party contained herein. Any such extension or waiver byany Party hereto shall not operate or be construed as a further or continuing extension or waiver. Anyagreement on the part of a Party hereto to any such extension or waiver shall be valid only if set forth in aninstrument in writing signed on behalf of such Party. ARTICLE X INDEMNIFICATION Section 10.1Survival (a)Representations and Warranties. The representations and warranties of the Parties andthe covenants, agreements and obligations required to be performed by it on or prior to the applicable Closing set forthin this Agreement or in any certificate, document or other instrument delivered by or on behalf of the Company or theShareholders pursuant to this Agreement shall survive the execution and delivery of this Agreement, any investigationby or on behalf of the Parent, the Asset Purchaser and WESGEN, and the applicable Closing and shall terminate at11:59 P.M. Pacific time eighteen months after the Closing Date; provided, however, that the representations andwarranties set forth in Section 4.1, Section 4.3, Section 4.4, Section 4.16 and Section 4.28 shall survive until 60 daysfollowing the expiration of the 42 applicable statute of limitations. Nothing herein is intended to modify the term of the covenants not to compete setforth in the Shareholder Employment Agreements. (b)Covenants. The respective covenants, agreements and obligations of the Parent, theAsset Purchaser, WESGEN, the Company and the Shareholders set forth in this Agreement or in any certificate,document or other instrument delivered pursuant to this Agreement shall survive the execution and delivery of thisAgreement, any investigation by or on behalf of any party hereto, and the applicable Closing without limitation. Section 10.2Indemnification (a)Indemnification by Shareholders. Subject to the limitations set forth in this Article X,each of the Shareholders, jointly and severally, from and after the Purchase Closing will indemnify and hold harmlessthe Parent, the Asset Purchaser, WESGEN and each of their respective Affiliates (including the Surviving Corporationfrom and after the Merger Closing) and each of their respective officers, directors, shareholders, agents and employees(hereinafter referred to individually as an “Indemnified Person” and collectively as “Indemnified Persons”), from andagainst any and all losses, damages, injuries, Liability, claim, demand, settlement, judgment, award, fine, penalty, Tax,fee (including any legal fee, accounting fee, expert fee or advisory fee), charge, cost (including any cost ofinvestigation) or expense of any nature (and in each case without offset) (collectively, “Damages”) arising out of orrelating to any of the following: (i)any material breach or inaccuracy of a representation or warranty of the Company orthe Shareholders contained in this Agreement, in any other Transaction Document or other instrument deliveredpursuant to this Agreement or the Transaction Documents; provided, however, that any such, breach or inaccuracy,and the amount of Damages attributable thereto, shall be determined giving effect to any limitation or qualification asto “materiality” or “Material Adverse Effect” set forth in such representation or warranty; (ii)any material breach or any failure by the Company or any Shareholders to fullyperform, fulfill or comply with any covenant set forth herein, in any Transaction Documents or in any certificate,document or other instrument delivered pursuant to this Agreement or the Transaction Documents; (iii)any Taxes attributable to a Pre-Closing Tax Period that are not included in theClosing Date Net Working Capital as finally determined; (iv)any unpaid Transaction Expenses of the Company and the Shareholders that are notincluded in the Closing Date Net Working Capital as finally determined with the sole remedy being the adjustment tothe Net Working Capital during the Post Closing Adjustment Calculation; and (v)any fraud, intentional misrepresentation, gross negligence, material breach or willfulmisconduct by the Company or any Shareholder. (b)Indemnification by Parent and Asset Purchaser. Parent and Asset Purchaser, jointly andseverally, from and after the Purchase Closing will indemnify and hold harmless the Shareholders, and each of them,from and against any and all Damages arising out of or relating to any of the following: (i)any material breach or inaccuracy of a representation or warranty of Parent or AssetPurchaser contained in this Agreement, in any other Transaction Document or other instrument delivered pursuant tothis Agreement or the Transaction Documents; provided, however, that 43 any such, breach or inaccuracy, and the amount of Damages attributable thereto, shall be determined giving effect toany limitation or qualification as to “materiality” or “Material Adverse Effect” set forth in such representation orwarranty; (ii)any material breach or any failure by Parent or Asset Purchaser to fully perform,fulfill or comply with any covenant set forth herein, in any Transaction Documents or in any certificate, document orother instrument delivered pursuant to this Agreement or the Transaction Documents; (iii)any fraud, intentional misrepresentation, gross negligence, material breach or willfulmisconduct by the Parent or Asset Purchaser. (c)An Indemnified Person may not assert a claim for indemnification based on a breach bya Shareholder or by Company of a representation, warranty, or covenant if the Indemnified Person had actualknowledge or should have had knowledge of such breach before the Closing. Section 10.3Installment Payments; Satisfaction of Damages. Deductions from the InstallmentPayments payable to the Shareholders after the Closing Date, shall serve as the first, but not the sole, sourceof reimbursement for any Damages suffered by the Indemnifiable Persons pursuant to this Article X. Section 10.4Procedure for Indemnification (a)In the event that an Indemnified Person seeks recovery under this Article X, suchIndemnified Person shall deliver a written claim notice (a “Claim Notice”) to the Shareholders: (i) stating that anIndemnified Person has incurred, paid, suffered or accrued Damages, or reasonably anticipates that it may have toincur, pay, suffer or accrue Damages, (ii) specifying in reasonable detail the individual items of Damages included inthe amount so stated, the date each such item was incurred, paid, suffered or accrued, or the basis for such anticipatedLiability, and the nature of the misrepresentation, breach of warranty, breach of covenant or agreement or other claimor matter to which such item is related, and (iii) indicating, if applicable, the amount that will be deducted from futureInstallment Payments in respect of such Damages, if applicable. (b)With respect to any disputed claim in a Claim Notice, the following shall apply: (i)In the event that the Shareholders object in writing to any claim or claims made inany Claim Notice within 30 days, the Shareholders and the Asset Purchaser shall attempt in good faith to agree uponthe rights of the respective Parties with respect to each of such claims. If the Shareholders and the Asset Purchasershould so agree, a memorandum setting forth such agreement shall be prepared and signed by the Asset Purchaser andthe Shareholders. (ii)If no such agreement can be reached after good faith negotiation for a period of atleast 20 calendar days (or such longer period as may be mutually agreed upon by the Shareholders and the AssetPurchaser), either the Asset Purchaser or the Shareholders may submit such disputed matter to a court of competentjurisdiction in accordance with Section 11.6 to finally resolve such disputed matter. (iii)In the event that any portion of the Installment Payments becomes due while anymatter is in dispute pursuant to this Section 10.4(b), the Surviving Corporation shall be permitted to hold back, uponinstruction from the Asset Purchaser, from such Installment Payments an amount equal 44 to the Indemnified Person’s estimated Damages in dispute until such claim has been finally resolved pursuant to thisSection 10.4(b). Section 10.5Third-Party Claims. In the event of the assertion or commencement by any Person ofany claim, suit, or legal proceeding (whether against the Company following any applicable Closing, againstthe Parent, the Asset Purchaser, the Surviving Corporation or any of their Affiliates or against any otherPerson) related to this Transaction with respect to which any Indemnified Person may be entitled to be heldharmless, indemnified, compensated or reimbursed pursuant to this Article X, (i) the Asset Purchaser shallpromptly notify the Shareholders after the Asset Purchaser receives notice of such claim, suit or legalproceeding, and (ii) the Asset Purchaser shall defend and indemnify the Shareholders from such claimsunless it can be proven that the claim is a valid claim for a material breach of this Agreement or aninaccuracy of a representation or warranty included in Section 4.1, Section 4.3, Section 4.15, Section 4.16, Section 4.17, Section 4.18 or Subsections 10.2(a)(iii) and 10.2(a)(v), and then only if the Shareholders aregiven the opportunity to participate in the defense, including a reasonable opportunity to review andapprove any settlement. If the Asset Purchaser so proceeds with the defense of any such claim, suit or legalproceeding and is entitled to be held harmless, indemnified, compensated or reimbursed pursuant to thisArticle X: (a) all reasonable expenses relating to the defense of such claim, suit or legal proceeding shall bededucted by the Surviving Corporation from the Installment Payments payable to the Shareholders; (b) theShareholders shall make available to the Asset Purchaser any documents and materials reasonably requestedby the Asset Purchaser that the Asset Purchaser determines in good faith may be necessary to the defense ofsuch claim, suit or legal proceeding; and (c) the Asset Purchaser shall have the right to settle, adjust orcompromise such claim, suit or legal proceeding, provided that the Shareholders shall have a reasonableopportunity to review and approve the settlement. Such third party claims are subject to the Deductible andthe Cap, where applicable. If the third party claim is resolved through the courts, the Shareholders maywithhold any payments until all rights of appeal are exhausted and the outcome is final. If the AssetPurchaser does not elect to proceed with the defense of any such claim, suit or legal proceeding, theShareholders shall (at the sole expense of the Shareholders) proceed with the defense of such claim, suit orlegal proceeding with counsel reasonably acceptable to the Asset Purchaser; provided, however, that theShareholders may not settle, adjust or compromise any such claim, suit or legal proceeding without the priorwritten consent of the Asset Purchaser (which consent shall not be unreasonably withheld or delayed). Section 10.6No Right of Contribution. Neither of the Shareholders shall make any claim forcontribution from the Company (or the Surviving Corporation) with respect to any indemnity claims arisingunder or in connection with this Agreement to the extent that the Company or any Indemnified Person isentitled to indemnification hereunder for such claim, and each of the Shareholders hereby waive any suchright of contribution from the Company (and the Surviving Corporation) they have or may have in thefuture. Section 10.7Right to Set off. Notwithstanding anything contained herein to the contrary, theSurviving Corporation shall have the right to set off up to one hundred percent (100%) of any amountspayable to the Shareholders pursuant to this Agreement against any amounts due to the Parent, the AssetPurchaser and the Surviving Corporation and any other Indemnified Person from the Shareholders. In theevent that the Parent, the Asset Purchaser or the Surviving Corporation reasonably believes that the amountof Damages from an unresolved claim exceeds the then remaining amounts payable under this Agreement,the Surviving Corporation may hold back all or a portion of any such amounts payable thereunder untilsuch claim has been resolved.45 Section 10.8Cumulative Remedies. The remedies provided in this Agreement shall be cumulativeand shall not preclude any Party from asserting any other right, or seeking any other remedies, against theother Party, and the right of the Parent, the Asset Purchaser and the Surviving Corporation and theirRepresentatives to obtain indemnification pursuant to Section 10.2 by deducting against the InstallmentPayments otherwise payable to the Shareholders shall be a nonexclusive remedy. Section 10.9Limitations on Indemnification. (a)Shareholders shall not have any liability to any Indemnified Party with respect toDamages arising out of any of the matters referred to in Article IV (with the exceptions of Section 4.1, Section4.4, Section 4.15, Section 4.16 , Section 4.17, Section 4.18, and Section 4.28) and Section 10.2(a) (with theexceptions of Subsections 10.2(a)(iii) and 10.2(a)(v)) until such time as the amount of all such Damages shallcollectively exceed $150,000.00 (the “Shareholders’ Deductible”) (after which point Shareholders will be obligated toindemnify the Buyer Indemnified Parties from and against Damages in excess of Shareholders’ Deductible) afterapplying any available proceeds of Shareholders’ insurance. (b)Notwithstanding anything to the contrary contained in this Agreement, the maximumaggregate amount of indemnifiable Damages that may be recovered from the Shareholders by the Indemnified Partiespursuant to Article IV (with the exceptions of Section 4.1, Section 4.4, Section 4.15, Section 4.16 and Section 4.28)and Section 10.2(a) (with the exceptions of Subsections 10.2(a)(iii) and 10.2(a)(v)) shall be $4,600,000 (the“Cap”) after applying any available proceeds of Asset Purchaser’s insurance. (c)Any entitlement of any Indemnified Person or Shareholders Indemnified Party to make aclaim under this Agreement shall be determined without duplication of recovery by reason of the state of facts givingrise to such claim constituting a breach of more than one representation, warranty or covenant. (d)The Parties shall cooperate with each other with respect to resolving any Claim, Liabilityor Loss for which indemnification may be required hereunder, including by making, or causing the applicableIndemnified Party to make, all commercially reasonable efforts to mitigate any such Claim, Liability or Loss (whichefforts may include availing itself of any defenses, limitations, rights of contribution, claims against third Persons andother rights at law or equity). The Parties shall use commercially reasonable efforts to seek full recovery under allinsurance policies covering any Loss to the same extent as they would if such Loss were not subject to indemnificationhereunder. ARTICLE XI GENERAL PROVISIONS Section 11.1Notices. All notices and other communications hereunder shall be in writing andshall be deemed received (a) on the date of delivery if delivered personally and/or by messenger service,(b) on the date of confirmation of receipt of transmission by facsimile (or, the first Business Day followingsuch receipt if (i) the date is not a Business Day or (ii) confirmation of receipt is given after 5:00 p.m.,Pacific Time) or (c) on the date of confirmation of receipt if delivered by a nationally recognized courierservice (or, the first Business Day following such receipt if (i) the date is not a Business Day or(ii) confirmation of receipt is given after 5:00 p.m., Pacific Time), to the parties at the following address (orat such other address for a party as shall be specified by like notice): 46 if to the Parent, the Asset Purchaser, WESGEN (or the Surviving Corporation on or after the MergerClosing), to: Willdan Group, Inc.2401 East Katella Avenue, Suite 300.Anaheim, CA 92806Attention: Mike Bieberwith a copy to (which shall not constitute notice) each of: Lavoie & Jarman2401 East Katella Avenue, Suite 310Anaheim, CA 92806Attention: Robert L. Lavoie, Esq. if to the Company (on or prior to the Merger Closing), to: Genesys Engineering, P.C.629 Fifth AvenueBuilding 3, Suite 111Pelham, New York 10803Attn: Ronald W. Mineo and Robert J. Braun with a copy to (which shall not constitute notice): Richard S. BedellAttorney at Law10829 Tuckahoe WayNorth Potomac, MD 20878 if to the Shareholders, to: Ronald W. MineoRobert J. Braun629 Fifth AvenueBuilding 3, Suite 111Pelham, New York 10803 with a copy to (which shall not constitute notice): Richard S. BedellAttorney at Law10829 Tuckahoe WayNorth Potomac, MD 20878 Section 11.2Interpretation. When a reference is made in this Agreement to Exhibits andAppendices, such reference shall be to an Exhibit or Appendix to this Agreement unless otherwiseindicated. The words “include,” “includes” and “including” when used herein shall be deemed in each caseto be followed by the words “without limitation.” The phrase “made available” in this Agreement meansthat the information referred to has been made available if requested by the Party to whom such informationis to be made available. The table of contents and headings contained in this Agreement are for referencepurposes only and shall 47 not affect in any way the meaning or interpretation of this Agreement. Section 11.3Counterparts. This Agreement may be executed in one or more counterparts anddelivered by facsimile or electronic PDF signature, and by the different Parties hereto in separatecounterparts, each of which when executed and delivered will be deemed to be an original but all of whichtaken together will constitute one and the same agreement. Section 11.4Assignment. This Agreement may not be assigned by any Party hereto without theprior written consent of the other Parties and any purported assignment without such consent will be void;provided, however, that the Parent and Asset Purchaser may, without the other Parties’ consent, assign thisAgreement (and the Transaction Documents) (i) to any parent, subsidiary, Affiliate or successor of theParent and Asset Purchaser, as the case may be, (ii) by operation of law, or (iii) in connection with anymerger, consolidation or sale of all or substantially all of the Parent’s or Asset Purchaser’s assets or inconnection with any similar transaction; provided, however, that no such assignment by the Parent or AssetPurchaser shall relieve the Parent, the Asset Purchaser or its successor-in-interest, as the case may be, of anyof its respective obligations under this Agreement. Section 11.5Severability. In the event that any provision of this Agreement, or the applicationthereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, theremainder of this Agreement will continue in full force and effect and the application of such provision toother persons or circumstances will be interpreted so as reasonably to effect the intent of the Partieshereto. The Parties further agree to replace such void or unenforceable provision of this Agreement with avalid and enforceable provision that will achieve, to the extent possible, the economic, business and otherpurposes of such void or unenforceable provision. Section 11.6Governing Law; Jurisdiction; Venue; Dispute Resolution. This Agreement shall begoverned by and construed in accordance with the laws of the State of Delaware, without giving effect tolaws concerning choice of law or conflicts of law. In the event of a dispute between the Parties arising outof or relating to this Agreement, as a condition precedent to any Party filing suit, the Parties shall attempt ingood faith to resolve the dispute as follows: (a) Good Faith Negotiation. The Parties shall attempt in good faith to resolve any dispute bynegotiation. Any Party may give the other Party written notice of the dispute not resolved in the normal course ofbusiness. Within 15 days after delivery of the notice, the receiving Party shall submit to the other a writtenresponse. The notice and response shall include with reasonable particularity (a) a statement of each party’s positionand a summary of arguments supporting that position, and (b) the name the executive who will represent that Party andof any other person who will accompany the executive. Within 30 days after delivery of the notice, the Parties shallmeet at a mutually acceptable time and place. If the matter is not resolved by negotiation pursuant to this paragraph,then the matter will proceed to mediation as set forth below. (b) Mediation. As a condition precedent to filing suit, any and all disputes, claims orcontroversies arising out of or relating to this Agreement shall be submitted to JAMS, or its successor, for non-bindingmediation at it New York, New York office. Either Party may commence mediation by providing to JAMS and theother Party a written request for mediation, setting forth the subject of the dispute and the relief requested. The partieswill cooperate with JAMS and with one another in selecting a mediator from the JAMS panel of neutrals and inscheduling the mediation proceedings. The Parties agree that they will participate in the mediation in good faith andthat they will share equally in its 48 costs. All offers, promises, conduct and statements, whether oral or written, made in the course of the mediation by anyof the Parties, their agents, employees, experts and attorneys, and by the mediator or any JAMS employees, areconfidential, privileged and inadmissible for any purpose, including impeachment, in any arbitration or otherproceeding involving the Parties, provided that evidence that is otherwise admissible or discoverable shall not berendered inadmissible or non-discoverable as a result of its use in the mediation. Either party may file suit with respectto the matters submitted to mediation by filing a written notice of intent to file suit at any time following the initialmediation session or at any time following 45 days from the date of filing the written request for mediation, whicheveroccurs first (“Earliest Initiation Date”). The mediation may continue after the commencement of suit if the Parties sodesire. At no time prior to the Earliest Initiation Date shall either side initiate litigation related to this Agreement exceptto pursue a provisional remedy that is authorized by law or by JAMS Rules or by agreement of the Parties. However,this limitation is inapplicable to a party if the other party refuses to comply with the requirements of this Paragraph. (c) Subject to the conditions precedent in Section11.6(a) and Section11.6(b) above, each ofthe Parties hereby expressly and irrevocably submits to the exclusive jurisdiction of the state courts of the State ofDelaware (collectively, the “Delaware Courts”), in connection with all disputes arising out of or in connection with thisAgreement and the transactions contemplated hereby or thereby and agrees not to commence any litigation relatingthereto except in such Delaware Courts or to assert that any litigation brought in such courts has been brought in aninconvenient forum. Each Party hereby waives the right to commence litigation in any other jurisdiction or venue inconnection with this Agreement or the transactions contemplated hereby or thereby to which any of them may beentitled by reason of its present or future domicile. Notwithstanding the foregoing, each Party agrees that each of theother Parties shall have the right to bring any action or proceeding for enforcement of any order or judgment entered bya Delaware Court in connection therewith in any other court having jurisdiction. Process in any proceeding referred toin this paragraph may be served on any Party hereto anywhere in the world by first class certified mail, return receiptrequested, postage prepaid, to the address at which such Party is to receive notice in accordance thisAgreement. However, the foregoing shall not limit the right of a Party to effect service of process on another Party byany other legally available method. Section 11.7Waiver of Jury Trial. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVESANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING BETWEEN THE PARTIESHERETO ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONSCONTEMPLATED BY THIS AGREEMENT. Section 11.8Rules of Construction. The parties hereto agree that they have been represented bycounsel during the negotiation, preparation and execution of this Agreement and, therefore, waive theapplication of any law, regulation, holding or rule of construction providing that ambiguities in anagreement or other document will be construed against the party drafting such agreement or document. Section 11.9Specific Performance; Injunctive Relief. The Parties hereto agree that if any of theprovisions of this Agreement were not performed in accordance with their specific terms or were otherwisebreached, irreparable damage would occur, no adequate remedy at law would exist and damages would bedifficult to determine, and that the Parties shall be entitled to specific performance of the terms hereof, andare entitled to temporary and permanent injunctive relief in a court of competent jurisdiction at any timewhen the other Party fails to comply with any of the provisions of this Agreement applicable to it. To theextent permitted by Law, each Party hereby irrevocably waives any defense that it might have based on theadequacy of a remedy at law which might be asserted as a bar to such remedy of specific 49 performance or injunctive relief. Section 11.10Descriptive Headings. The descriptive headings herein are inserted for convenienceonly and are not intended to be part of or to affect the meaning or interpretation of this Agreement. Section 11.11Force Majeure. No Party shall be deemed to fail to perform its obligations or respondto any notice on a timely basis if its failure results solely from the following causes beyond its reasonablecontrol, specifically: war, terrorism, strikes, natural disaster or acts of God. Any delay resulting directlyfrom any of said causes shall extend accordingly the time to perform or respond by the length of thedelay. For avoidance of doubt, the foregoing shall in no event relieve any Party of its obligations hereunderor permit a Party to fail to respond to notice beyond the extension described in the preceding sentence. Section 11.12Costs and Fees. Should suit be brought to enforce or interpret any part of thisAgreement, each Party shall bear its own costs and fees, including attorneys’ fees, unless otherwiserecoverable under applicable law. Section 11.13Entire Agreement. This Agreement (including all schedules, exhibits and appendicesattached hereto), the Transaction Documents constitute the entire agreement of the Parties hereto withrespect to the subject matter hereof and supersede all prior agreements and undertakings with respect to thesubject matter hereof, both written and oral. The express terms of this Agreement control and supersede anycourse of performance or usage of the trade inconsistent with any of the terms hereof. [Signature page follows] 50 IN WITNESS WHEREOF, the Company, the Parent, WESGEN, the Asset Purchaser and theShareholders have executed and delivered this Agreement or have caused this Agreement to be executed and deliveredby their respective officers thereunto duly authorized, all as of the date first written above. “Parent” WILLDAN GROUP, INC. By:/s/ Thomas D. Brisbin Name:Thomas D. Brisbin Title:President & Chief Executive Officer “Asset Purchaser” WILLDAN ENERGY SOLUTIONS By: /s/ Thomas A. Kouris Name: Thomas A. Kouris Title: President & Chief Executive Officer “WESGEN” WESGEN, INC. By: /s/ Rachel Seraspe Name: Rachel Seraspe Title: President “Company” GENESYS ENGINEERING P.C. By: /s/ Robert J. Braun Name:Robert J. Braun Title:President “Shareholders” /s/ Ronald W. Mineo Ronald W. Mineo, an individual /s/ Robert J. Braun Robert J. Braun, an individual [SIGNATURE PAGE TO ASSET PURCHASE AND MERGER AGREEMENT] APPENDIX A Definitions As used in the Agreement, the terms below shall have the following meanings. Any of such terms, unless thecontext otherwise requires, may be used in the singular or plural, depending upon the reference. “401(k) Plan” has the meaning set forth in Section 7.13. “Accounts Receivable” has the meaning set forth in Section 1.1(h). “Affiliates” means, with respect to any Person, any other Person which directly or indirectly controls, iscontrolled by or is under common control with such Person. For purposes of the immediately preceding sentence, theterm “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under commoncontrol with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct orcause the direction of the management and policies of such Person, whether through ownership of voting securities, bycontract or otherwise. For the avoidance of doubt, for the purposes of this Agreement only, WESGEN shall be deemedto be an Affiliate of the Parent and the Asset Purchaser. “Agreement” has the meaning set forth in the preamble. “Asset Cash Consideration” means an amount equal to the difference of (a) the product obtained by multiplying(i) the Closing Consideration by (ii) the Asset Portion, minus (b) the value of the Closing Stock Consideration. “Asset Portion” means 87.5% of the Purchase Price. “Asset Purchase” has the meaning set forth in Section 1.5(a). “Asset Purchase Distribution” has the meaning set forth in Section 1.7. “Asset Purchase Consideration” means (a) the Closing Stock Consideration, (b) Asset Cash Consideration and(c) the Pro Rata Portion of any amounts payable, if any, at the times and in accordance with Section 3.4(d), Section 3.5and Section 7.9, in each case without interest. “Asset Purchaser” has the meaning set forth in the preamble. “Asset Schedules” means the schedules to this Agreement setting forth the Purchased Assets listed in Section 1.1and the Excluded Assets listed in Section 1.2. “Assignment and Assumption” has the meaning set forth in Section 8.2(e)(ix). “Assumed Contracts” has the meaning set forth in Section 1.1(e). “Assumed Liabilities” has the meaning set forth in Section 1.3. “Audit” means any audit, assessment of Taxes, other examination by any Tax Authority, or any administrativeor judicial proceeding or appeal of such proceeding relating to Taxes. “Base Shares” has the meaning set forth in Section 3.8. “Books and Records” has the meaning set forth in Section 4.22(b). “Business Day” means any day that is not a Saturday, Sunday, or other day on which a significant number offederal (United States) agencies are closed. “Cap” has the meaning set forth in Section 10.9. “Cause” means a material breach of this Agreement. “Certificate of Merger” has the meaning set forth in Section 2.3. “Claim Notice” has the meaning set forth in Section 10.4(a). “Closing” means each of the Purchase Closing and the Merger Closing, as applicable and as the contextrequires. “Closing Amount” means an amount equal to $7,069,338. This amount includes the Estimated Tax Gross Up. “Closing Balance Sheet” has the meaning set forth in Section 3.4(a). “Closing Cash Consideration” means $6,000,000.00. “Closing Consideration” means an amount equal to (a) the Closing Amount, plus (b) the amount (if any) bywhich the Estimated Closing Date Net Working Capital exceeds the Target Net Working Capital, minus (c) the amount(if any) by which the Estimated Closing Date Net Working Capital is less than the Target Net Working Capital, minus(d) the amount of Payoff Debt. “Closing Consideration Schedule” has the meaning set forth in Section 3.2. “Closing Date” has the meaning set forth in Section 1.6. “Closing Date Net Working Capital” has the meaning set forth in Section 3.3. “Closing Date Net Working Capital Adjustment” has the meaning set forth in Section 3.4(d). “Closing Financial Data” has the meaning set forth in Section 3.4(a). “Closing Merger Consideration” means an amount equal to the product obtained by multiplying (i) the ClosingConsideration by (ii) the Merger Portion. “Closing Stock Consideration” means a number of shares of Parent Common Stock with a value equal to$2,000,000.00 in the aggregate, calculated at a per share price equal to the volume weighted average price of a share ofParent Common Stock for the ten trading days ending on the date that is immediately prior to the Signing Date, asquoted on the NASDAQ Capital Market. “Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgatedthereunder. “Commitment” means: (i) any option, warrant, convertible security, exchangeable security, subscription right,conversion right, exchange right, or other right, obligation or Contract that could require a Person to issue any of itscapital stock or other equity securities, or to sell any capital stock or other equity securities it owns in another Person;(ii) any other security convertible into, exchangeable or exercisable for, or representing the right to subscribe for any capital stock or other equity securities of a Person or owned by aPerson; (iii) any statutory pre-emptive right or pre-emptive right granted under a Person’s organizational documents;and (iv) any stock option, stock appreciation right, phantom stock, profit participation, or other similar right withrespect to a Person. “Common Stock” means the Company’s Common Stock, no par value per share. “Company” has the meaning set forth in the preamble. “Company Authorizations” has the meaning set forth in Section 4.11. “Company Bylaws” means the Bylaws of the Company as amended and amended and restated from time totime. “Company Certificate” means the Certificate of Incorporation of the Company filed with the Secretary of Stateof the State of New York on July 8, 2004, as amended and amended and restated from time to time. “Company Disclosure Schedules” has the meaning set forth in the first paragraph to Article IV. “Company Employee Plan” has the meaning set forth in Section 4.17(a). “Company Intellectual Property” means all Intellectual Property Rights, similar or other intellectual propertyrights, subject matter of any of the foregoing, tangible embodiments of any of the foregoing, licenses in, to and underany of the foregoing, and any and all such cases that are owned or purported to be owned or used by the Company inthe conduct of the Company’s business as now conducted and as presently proposed to be conducted. “Company Parties” means each of the Parties other than the Parent, the Asset Purchaser and WESGEN. “Company Shareholders” means the holders of Common Stock. “Company Software” has the meaning set forth in Section 4.14. “Company Stock Certificate” means a certificate or certificates representing shares of the Common Stock. “Company Transaction Expenses” means all Transaction Expenses incurred by the Company that are unpaid. “Comparison Shares” has the meaning set forth in Section 3.8. “Competing Party” has the meaning set forth in Section 7.3. “Competing Transaction” has the meaning set forth in Section 7.3. “Consents” has the meaning set forth in Section 4.5. “Continuing Employees” has the meaning set forth in Section 7.8(a). “Contract” means any written, oral or other agreement, contract, subcontract, lease, understanding, instrument,note, warranty, license, sublicense, insurance policy, benefit plan or legally binding commitment or undertaking of anynature, whether express or implied. “Copyrights” shall mean all copyrights, including in and to works of authorship and all other rightscorresponding thereto throughout the world, whether published or unpublished, registered or unregistered, includingrights to prepare, make, reproduce, perform, display and distribute copyrighted works and copies, compilations andderivative works thereof, registrations and applications therefor throughout the world, all rights therein provided byinternational treaties and conventions, all moral and common law rights thereto, and all other rights associatedtherewith. “Damages” has the meaning set forth in Section 10.2(a). “Debt” means, without duplication, all obligations or Liabilities, whether contingent or otherwise and includingall obligations for principal, interest, premiums, penalties, fees and breakage costs, of such Person or any of itssubsidiaries (i) in respect of money borrowed (whether current, short-term or long-term, secured or unsecured, andincluding all overdrafts and negative cash balances); (ii) evidenced by notes, debentures, bonds or other similarinstruments for the payment of which such Person or any of its Subsidiaries is responsible or liable; (iii) issued orassumed as the deferred purchase price of property or services; (iv) in respect of conditional sales or under any titleretention agreement (but excluding trade accounts payable and other accrued current Liabilities arising in the ordinarycourse of business), (v) under leases required to be capitalized in accordance with GAAP; (vi) secured by anEncumbrance against any of its or any of its subsidiaries’ properties or assets; (vii) for bankers’ acceptances or similarcredit transactions issued for the account of such Person or any of its Subsidiaries; (viii) under any currency or interestrate swap, hedge or similar protection device; (ix) under any letters of credit, performance bonds or surety obligations;(x) in respect of the unfunded portion of pension plans; or (xi) that would be classified as indebtedness on a balancesheet under GAAP; and (xii) in respect of all obligations of other Persons of the type referred to in clauses (i)-(xi) thepayment of which such Person or any of its subsidiaries is responsible or liable, directly or indirectly, as obligor,guarantor, surety or otherwise, including guarantees of any such obligations. “Delaware Courts” has the meaning set forth in Section 11.6. “Dollars” or “$” means the lawful currency of the United States of America. “Effective Time” has the meaning set forth in Section 2.3. “Employer” shall mean, as applicable, the Parent’s Affiliate employing the applicable Shareholder from time totime on and after the Closing Date. “Employment Offer Letter” has the meaning set forth in Section 7.8(c). “Encumbrance” means any encumbrance, hypothecation, lien, mortgage, pledge, security interest, titleretention or other security arrangement on or with respect to any property (real or personal) interest. “Environmental Laws” means all federal, state, local and foreign laws, regulations, ordinances, requirements ofgovernmental authorities, and common law relating to pollution or protection of human health or the environment(including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata, and naturalresources), including, without limitation, Laws relating to (i) emissions, discharges, releases or threatened releases of, orexposure to, Materials of Environmental Concern, (ii) the manufacture, processing, distribution, use, treatment, storage,disposal, transport or handling of Materials of Environmental concern, (iii) recordkeeping, notification, disclosure andreporting requirements regarding Materials of Environmental concern, and (iv) endangered or threatened species of fish, wildlifeand plant and the management or use of natural resources. “Estimated Closing Date Net Working Capital” has the meaning set forth in Section 3.3. “Estimated Tax Gross Up” means $$1,069,338. This is an estimated amount and is subject to adjustmentpursuant to Section 3.4(e). “Equity Interests” means any and all shares of the Company’s capital stock and any other equity ownership,participation or security in the Company, including, without limitation, all Commitments regarding the foregoing and allshares of the Common Stock. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended. “Example Calculation of Transaction Consideration has the meaning set forth in Section 3.1. “Excluded Accounts Receivable” has the meaning set forth is Section 1.2(b). “Excluded Assets” has the meaning set forth in Section 1.2. “Excluded Contracts” has the meaning set forth in Section 1.2(a). “Excluded Liabilities” has the meaning set forth in Section 1.4. “FCPA” has the meaning set forth in Section 4.28(a). “Financial Statements” has the meaning set forth in Section 4.6(a). “FIRPTA Notification Letter” has the meaning set forth in Section 8.2(e)(vi). “GAAP” means generally accepted United States accounting principles applied on a consistent basis. “General Assignment and Bill of Sale” has the meaning set forth in Section 8.2(e)(viii). “Governmental Authorization” means any approval, consent, license (including, without limitation, all licensesnecessary to practice professional engineering services in the State of New York), permit, waiver, registration or otherauthorization issued, granted, given, made available or otherwise required by any Governmental Entity or pursuant toLaw. “Governmental Entity” means any arbitrator, court, agency, commission, tribunal, nation, government, any stateor other political subdivision thereof and any entity exercising or entitled to exercise executive, legislative, judicial,regulatory, taxing or administrative power or authority of any nature whatsoever, in each case, whether foreign ordomestic. “Governmental Order” means any judgment, injunction, writ, order, ruling, award or decree by anyGovernmental Entity or arbitrator. “Indemnified Person” has the meaning set forth in Section 10.2(a). “Indemnified Persons” has the meaning set forth in Section 10.2(a). “Independent Accountants” has the meaning set forth in Section 3.4(c). “Installment Payments” has the meaning set forth in Section 3.5. “Intellectual Property Rights” shall mean any and all rights in and to intellectual property and intangibleindustrial property rights throughout the world, including, without limitation, (i) Patents, Trade Secrets, Copyrights,Trademarks, (ii) any rights similar, corresponding or equivalent to any of the foregoing anywhere in the world, (iii)Software, (iv) Rights of Privacy, (v) copies and tangible embodiments of any of the foregoing in whatever form ormedium, (vi) all rights to sue and recover damages for past, present and future infringement, misappropriation, dilution,or other violation of any of the foregoing, and (vii) Internet keywords, social media account names or identifiers, socialmedia accounts and other social networking or online identifiers. “Interim Balance Sheet” has the meaning set forth in Section 4.6(a). “Interim Balance Sheet Date” has the meaning set forth in Section 4.6(a). “IRS” means the Internal Revenue Service. “Knowledge” means, with respect to any Person that is a natural person, (i) that such Person, is actually aware ofsuch fact or other matter or (ii) (except when Knowledge is stated to be “actual Knowledge”) a prudent individual couldbe expected to discover or otherwise become aware of such fact or other matter in the course of conducting areasonably comprehensive investigation concerning the truth or existence of such fact or other matter. Notwithstandingthe foregoing, the Company shall be deemed to have “Knowledge” of a particular fact or other matter if any of itsofficers, directors, employees or the Shareholders have Knowledge of such fact or other matter after due and diligentinquiry. “Law” or “Laws” has the meaning set forth in Section 4.21. “Lease Agreements” has the meaning set forth in Section 4.20. “Leased Real Property” has the meaning set forth in Section 1.1(a). “Letter of Transmittal” has the meaning set forth in Section 2.6(a). “Liability” or “Liabilities” means any debt, obligation, duty or liability of any nature (including any unknown,undisclosed, unmatured, unaccrued, unasserted, contingent, indirect, conditional, implied, vicarious, derivative, joint,several or secondary liability), regardless of whether such debt, obligation, duty or liability would be required to bedisclosed on a balance sheet prepared in accordance with generally accepted accounting principles and regardless ofwhether such debt, obligation, duty or liability is immediately due and payable. “Material Adverse Effect” means any circumstance, change, development, event or state of facts that(considered together with all other circumstances, changes, developments, events or states of facts): (a) is, or wouldreasonably be expected to be or to become, materially adverse to the condition (financial or otherwise), business, resultsof operations, prospects, assets, Liabilities or operations of the Company; or (b) is, or would reasonably be expected toprevent or materially alter or delay any of the transactions contemplated by this Agreement. “Material Contracts” has the meaning set forth in Section 4.24. “Materials of Environmental Concern” means chemicals, pollutants, contaminants, wastes, toxic substances,hazardous substances, petroleum and petroleum products, asbestos or asbestos-containing materials or products, polychlorinated biphenyls, lead or lead-based paints or materials, radon, fungus, mold,mycotoxins or other substances that may have an adverse effect on human health or the environment. “Merger” has the meaning set forth in Section 2.1. “Merger Closing” has the meaning set forth in Section 2.2. “Merger Closing Date” has the meaning set forth in Section 2.2. “Merger Portion” means 12.5% of the Purchase Price. “Net Working Capital” means for the Company on a consolidated basis as of the close of business as of therelevant date: (i) total current tangible assets (consisting of all current tangible assets required to be set forth on abalance sheet prepared in accordance with GAAP without giving effect to the Transaction and including, withoutlimitation, cash, cash equivalents, accounts receivable and prepaid expenses) less total fixed assets, minus (ii) tangibleLiabilities (consisting of all tangible Liabilities required to be set forth on a balance sheet prepared in accordance withGAAP without giving effect to the Transaction and including, without limitation, Taxes attributable to a Pre-Closing TaxPeriod, accounts payable, Debt obligations, Company Transaction Expenses and other accrued tangible Liabilities). Forthe avoidance of doubt, the determination of Net Working Capital will include all tangible Liabilities related to the feesand expenses that have been incurred but which remain unpaid as of the Closing Date by the Company or anyShareholder (to the extent payable by the Company) as a result of the Transaction or any Transaction Document(including the fees and expenses of counsel, accountants and investment bankers) (but excluding any such fees orexpenses incurred by the Parent). The value of the Company’s total fixed assets shall be determined on the basis ofeach fixed asset’s initial purchase price depreciated over such asset’s useful life, in accordance with GAAP. “Non-Compete Allocation” has the meaning set forth in Section 7.11. “NYBCL” has the meaning set forth in Section 2.1. “Organizational Documents” means the Company Certificate and the Company Bylaws, each as currently ineffect. “Outside Closing Date” shall have the meaning set forth in Section 9.1(d). “Parent” has the meaning set forth in the preamble. “Parent Common Stock” shall mean the common stock of the Parent, par value $0.01 per share. “Party” means the Parent, the Asset Purchaser, WESGEN, the Company, a Shareholder, or the Shareholders’Representative (if applicable), as the context requires, and “Parties” means the Parent, the Asset Purchaser, WESGEN,the Company, the Shareholders and the Shareholders’ Representative (if applicable). “Patents” shall mean all United States and foreign patents and patent applications, including all reissues,divisions, re-examinations, renewals, revisions, extensions, provisionals, continuations and continuations-in-partthereof, and equivalent or similar rights anywhere in the world in inventions and discoveries (whether or not patentableor reduced to practice), all inventions disclosed therein and improvements thereto, and all rights therein provided byinternational treaties and conventions. “Payoff Debt” means the Debt which is owed by the Company or secured by any Company Common Stock inthe Company, which will be paid off on the Closing Date. “Person” means any individual that is a natural person and any corporation (including any nonprofitcorporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company(including any limited liability company or joint stock company), firm or other enterprise, association, organization orentity. “Personal Property” has the meaning set forth in Section 1.1(b). “Post-Closing Tax Period” means any Tax period beginning after the Merger Closing and that portion of anyStraddle Period beginning after the Merger Closing. “Pre-Closing Return” has the meaning set forth in Section 7.9(d). “Pre-Closing Tax Period” means any Tax period ending on or before the Merger Closing, and with respect toany Straddle Period, the portion of such period ending on the Merger Closing. “Prepaid Expenses” has the meaning set forth in Section 1.1(d). “Property” has the meaning set forth in Section 4.15. “Pro Rata Portion” means, with respect to each Shareholder, a fraction (i) the numerator of which is the numberof shares of the Common Stock held by such Shareholder immediately prior to the Closing and (ii) the denominator ofwhich is the Fully Diluted Share Number. “Purchase Closing” has the meaning set forth in Section 1.6. “Purchase Price” has the meaning set forth in Section 3.1. “Purchased Assets” has the meaning set forth in Section 1.1. “Release” has the meaning set forth in Section 8.2(e)(x). “Representatives” shall mean officers, directors, employees, attorneys, accountants, advisors, agents,distributors, licensees, shareholders, subsidiaries and lenders of a Party. In addition, all Affiliates of the Company andthe Shareholders shall be deemed to be “Representatives” of the Company. “Resolution Period” has the meaning set forth in Section 3.4(b). “Review Period” has the meaning set forth in Section 3.4(b). “Rights of Privacy” shall mean rights of privacy, publicity, and endorsement, and all other rights associatedtherewith or related thereto. “S-Corp Termination” has the meaning set forth in Section 7.9(d). “Securities Act” means the Securities Exchange Act of 1933, as amended. “Shareholders’ Deductible” has the meaning set forth in Section 10.9. “Software” shall mean computer software, programs, and databases in any form, including Internet web sites,web site content, mobile apps, member or user lists and information associated therewith, links, source code, objectcode, operating systems and specifications, software development tools, software embedded in hardware devices,firmware, logic, logic diagrams, flowcharts, algorithms, routines, sub-routines, utilities, models, file structures, codingsheets, coding, source code listings, modules, libraries, scripts, templates, frameworks, components, functional specifications, program specifications, data, databases, databasemanagement code, graphical user interfaces, menus images, icons, forms, methods of processing, software engines,platforms, and data formats, all versions, updates, bug fixes, corrections, patches, enhancements, releases andmodifications thereto, and all related documentation, developer notes, comments and annotations. “Shareholder Authorizations” has the meaning set forth in Section 4.11. “Shareholders” means each of Ronald W. Mineo, an individual resident of the State of New Jersey, and RobertJ. Braun, an individual resident of the State of New York. “Shareholders’ Employment Agreements” shall mean the written employment agreements, copies of which areattached to this Agreement as Exhibit D. “Shareholders’ Representative” has the meaning set forth in Section 3.7(a). “Signing Date” shall mean the date that this Agreement is executed by all of the Parties. “Straddle Period” has the meaning set forth in Section 7.9(b). “Surviving Corporation” has the meaning set forth in Section 2.1. “Target Net Working Capital” means Two Million One Hundred Thousand and 00/100 Dollars($2,100,000.00). “Tax” or “Taxes” means (a) all United States federal, state, local and foreign taxes, and other assessments of asimilar nature including, without limitation, taxes or other charges on or with respect to income, franchises, windfall orother profits, gross receipts, profits, sales, use, capital stock, payroll, employment, social security, workers’compensation, unemployment compensation or net worth; taxes or other charges in the nature of excise, withholding,ad valorem, stamp, transfer, value added or gains taxes; license, registration and documentation fees; and customsduties, tariffs and similar charges, in each case, whether imposed directly or through withholding, and including anyinterest, additions to tax, or penalties applicable thereto; (b) any Liability for the payment of any amounts of the typedescribed in clause (a) as a result of being a member of a consolidated, combined, unitary or aggregate group for anyTaxable period; and (c) any Liability for the payment of any amounts of the type described in clause (a) or (b) as aresult of being a transferee or successor to any person or as a result of any express or implied obligation to indemnifyany other person. “Tax Authority” means the IRS and any other national, regional, state, municipal, foreign or other governmentalor regulatory authority or administrative body responsible for the administration of any Taxes. “Tax Contest” has the meaning set forth in Section 7.9(d). “Tax Gross Up” has the meaning set forth in Section 3.4(e). “Tax Return” means all United States federal, state, local and foreign tax returns, declarations, statements,reports, schedules, forms and information returns or other documents and any amendments thereto required to be filedwith a Tax Authority. “Trademarks” shall mean any and all trademarks, service marks, trade dress, logos, trade names, corporatenames, URL addresses, Internet domain names and addresses and general-use e-mail addresses, slogans, and otherindicia of source or origin, and all goodwill associated therewith throughout the world, all common law rights thereto, registrations and applications for registration thereof throughout the world, all rightstherein provided by international treaties and conventions, and all other rights associated therewith. “Trade Secrets” shall mean all trade secrets under applicable law and other rights in know-how and confidentialand proprietary information, technical, business and other information, processing, manufacturing and productionprocesses, techniques and other information, research and development information, drawings, specifications, designs,Software source code, plans, proposals, technical data, financial, marketing and business information, pricing and costinformation, business and marketing plans, customer and supplier lists and information, including new developments,inventions, processes, ideas or other proprietary information that provide advantages over competitors who do notknow or use it and documentation thereof (including related papers, blueprints, drawings, chemical compositions,formulae, diaries, notebooks, specifications, designs, methods of manufacture and data processing software,compilations of information) and all claims and rights related thereto and all rights in any jurisdiction to limit the use ordisclosure thereof. “Transaction” means all transactions contemplated by this Agreement (including the Asset Purchase and theMerger). “Transaction Documents” means collectively, this Agreement including appendices, the Certificate of Merger(Exhibit A), the Letters of Transmittal (Exhibit B), the Example Calculation of Transaction Compensation (Exhibit C),the Shareholder Employment Agreements (Exhibit D), the FIRPTA Notification (Exhibit E), the General Assignmentand Bill of Sale (Exhibit F), the Assignment and Assumption (Exhibit G), the General Releases (Exhibit H), the AssetSchedules and the Company Disclosure Schedules. “Transaction Expenses” has the meaning set forth in Section 9.3. “Transfer” has the meaning set forth in Section 7.12(a). “Transferred Records” has the meaning set forth in Section 1.1(f). “Treasury Regulations” has the meaning set forth in Section 4.17(c). “Vehicles” has the meaning set forth in Section 1.1(c). “WARN Act” has the meaning set forth in Section 4.18(h). “Working Capital Shortfall” has the meaning set forth in Section 3.4(d). “WESGEN” has the meaning set forth in the Preamble. *** End Appendix A *** APPENDIX B RESTRICTED GEOGRAPHIES The States of New York and New Jersey. *** End Appendix B *** APPENDIX C SURVIVING CORPORATION OFFICERS President-Robert J. Braun Vice President-Ronald W. Mineo CFO-William Ellis Treasurer-Stacy McLaughlin Secretary-Kate Nguyen *** End of Appendix C *** Exhibit 21.1WILLDAN GROUP, INC.LIST OF SUBSIDIARIES(a) Name of Entity Jurisdiction ofOrganization Ownership Interest1. Willdan Engineering California 100% Willdan Group, Inc.2. Willdan Energy Solutions California 100% Willdan Group, Inc.3. Willdan Engineers and Constructors California 100% Willdan Group, Inc.4. Willdan Financial Services California 100% Willdan Group, Inc.5. Willdan Homeland Solutions California 100% Willdan Group, Inc.6. Willdan Infrastructure California 100% Willdan Group, Inc.7 Willdan Lighting & Electric, Inc. Delaware 100% Willdan Group, Inc.8. Willdan Lighting & Electric of California California 100% Willdan Group, Inc.9. Willdan Lighting & Electric of Washington, Inc. Washington 100% Willdan Group, Inc.11. Electrotech of NY Electrical Inc. New York 100% Willdan Group, Inc.12. Public Agency Resources California 100% Willdan Group, Inc.13. Abacus Resource Management Company Washington 100% Willdan Group, Inc. (a)As of January 1, 2016. Exhibit 23.1Consent of Independent Registered Public Accounting FirmThe Board of DirectorsWilldan Group, Inc.:We consent to the incorporation by reference in the registration statements (No. 333-139127, No. 333-152951, No. 333-168787 and No. 333-184823) on Form S-8 of Willdan Group, Inc. of our report datedMarch 15, 2016, with respect to the consolidated balance sheet of Willdan Group, Inc. as of January 1,2016, and the related consolidated statements of operations, stockholders’ equity, and cash flows for theyear ended January 1, 2016, and the effectiveness of internal control over financial reporting as of January1, 2016, which reports appear in the January 1, 2016 annual report on Form 10‑K of Willdan Group, Inc. Our report refers to the adoption of FASB Accounting Standards Update No. 2015-17, Balance SheetClassification of Deferred Taxes./s/ KPMG LLPIrvine, CaliforniaMarch 15, 2016 Exhibit 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the following Registration Statements: (1)Registration Statement (Form S-8 No. 333-139127) pertaining to the 2006 Stock Incentive Plan and2006 Employee Stock Incentive Plan of Willdan Group, Inc., and(2)Registration Statement (Form S-8 Nos. 333-152951, 333-168787 and 333-184823) pertaining to the2008 Performance Incentive Plan of Willdan Group, Inc.; of our report dated March 31, 2015, except for Note 12, for which the date is March 15, 2016, with respectto the consolidated financial statements of Willdan Group, Inc. and subsidiaries included in this AnnualReport (Form 10-K) of Willdan Group, Inc. for the year ended January 1, 2016./s/ Ernst & Young LLPLos Angeles, CaliforniaMarch 15, 2016 Exhibit 31.1SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICERI, Thomas D. Brisbin, certify that:1.I have reviewed this report on Form 10‑K of Willdan Group, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case ofan annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significantrole in the registrant’s internal control over financial reporting.Date: March 15, 2016 By:/s/ Thomas D. Brisbin Thomas D. Brisbin President and Chief Executive Officer Exhibit 31.2SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICERI, Stacy B. McLaughlin, certify that:1.I have reviewed this report on Form 10‑K of Willdan Group, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of,and for, the periods presented in this report;4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a‑15(e) and 15d‑15(e)) and internal control over financialreporting (as defined in Exchange Act Rules 13a‑15(f) and 15d‑15(f)) for the registrant and have:a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b)Designed such internal control over financial reporting, or caused such internal control over financialreporting to be designed under our supervision, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in thisreport our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; andd)Disclosed in this report any change in the registrant’s internal control over financial reporting thatoccurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case ofan annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’sinternal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal controlover financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent functions):a)All significant deficiencies and material weaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,summarize and report financial information; andb)Any fraud, whether or not material, that involves management or other employees who have a significantrole in the registrant’s internal control over financial reporting.Date: March 15, 2016 By:/s/ Stacy B. McLaughlin Stacy B. McLaughlin Chief Financial Officer and Vice President Exhibit 32.1Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350,as Adopted Pursuant to § 906 of the Sarbanes‑Oxley Act of 2002In connection with the Annual Report on Form 10‑K of Willdan Group, Inc. (the “Company”) for the annual periodended January 1, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Thomas D.Brisbin, as President and Chief Executive Officer of the Company, and Stacy B. McLaughlin, as Chief Financial Officer, eachhereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes‑Oxley Act of 2002, that, to thebest of his or her knowledge:(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Actof 1934; and(2)The information contained in the Report fairly presents, in all material respects, the financial conditionand results of operations of the Company. By:/s/ Thomas D. Brisbin Thomas D. Brisbin President and Chief Executive Officer March 15, 2016 By:/s/ Stacy B. McLaughlin Stacy B. McLaughlin Chief Financial Officer and Vice President March 15, 2016 This certification accompanies the Report pursuant to § 906 of the Sarbanes‑Oxley Act of 2002 and shall not, exceptto the extent required by the Sarbanes‑Oxley Act of 2002, be deemed filed by the Company for purposes of § 18 of theSecurities Exchange Act of 1934, as amended. A signed original of this written statement required by § 906 has beenprovided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission orits staff upon request.
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