EXHIBIT 2.2
AGREEMENT FOR THE ACQUISITION
OF ALL OUTSTANDING STOCK OF
ESI, ENGINEERING SERVICES, INC.
BY THE KEITH COMPANIES, INC.
TABLE OF CONTENTS
RECITALS................................................ 1-3
I. INCORPORATION BY REFERENCE.............................. 3
II. PURCHASE AND SALE....................................... 3
A. Purchase and Sale of ESI Stock.................... 3
B. Assets and Liabilities Included in Transaction.... 4
C. Closing........................................... 4
D. Possible Adjustment in Consideration Paid by Keith 4
E. Consideration to be Paid by Keith................. 5
F. Additional Documentation.......................... 9
G. ESI's Current Employees; Seniority................ 9
H. Protection of ESI's Business Operations........... 9
I. Insurance; Risk of Loss........................... 9
III. REPRESENTATIONS AND WARRANTIES OF SELLER................ 10
A. No Pending Litigation............................. 10
B. Authority to Perform.............................. 10
C. No consent Required............................... 10
D. No Notices........................................ 10
E. Enforceability.................................... 10
F. No Prohibition.................................... 10
G. No Attachments.................................... 11
H. No Other Agreements............................... 11
I. Notification...................................... 11
J. Employee Relations................................ 11
K. No Breach of Existing Agreement................... 11
L. Warranties Effective at Time of Closing........... 11
M. Tax and Other Liabilities......................... 11
IV. REPRESENTATIONS OF BUYER................................ 12
A. Authority to Perform.............................. 12
B. No Consent Required............................... 12
C. No Prohibition.................................... 12
V. CONDITIONS PRECEDENT TO OBLIGATIONS OF KEITH............ 12
VI. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS.......... 14
VII. RIGHTS AND REMEDIES IN CASE OF DEFAULT.............. 15
A. Buyer's Remedies............................... 15
B. Seller's Remedies.............................. 15
VIII. INDEMNIFICATION..................................... 16
IX. MISCELLANEOUS PROVISIONS............................ 16
A. Extension of Time and Waiver of Performance.... 16
B. Amendments..................................... 16
C. Notices........................................ 16
D. Counterparts................................... 17
E. Governing Law.................................. 17
F. Successors..................................... 18
G. Severability................................... 17
H. Entire Agreement............................... 17
I. Further Assurances............................. 18
J. Time of Essence................................ 18
K. Computation of Time............................ 18
L. Terminology.................................... 18
M. Survival....................................... 18
N. Attorney's Fees................................ 18
O. Authority...................................... 19
P. No Third Party Beneficiary..................... 19
TABLE OF EXHIBITS
A. ESI, Engineering Services, Inc., Consolidated Statement of Income, Year
Ended June 30, 1997; June 30, 1996; and June 30, 1995.
B. ESI, Engineering Services, Inc., Jobs in Process, 8/31/97
C. ESI, Engineering Services, Inc., Balance Sheet, 6/30/97
D. Current Clients of ESI, Engineering Services, Inc.
E. Keith's Incentive Stock Option Plan and typical Option Agreement
F. Employment Contract of current owners of ESI, Engineering Services, Inc.
AGREEMENT FOR THE ACQUISITION OF
ALL OUTSTANDING STOCK OF ESI, ENGINEERING SERVICES, INC
BY THE KEITH COMPANIES, INC
This Agreement (the "Agreement") is entered into as of the 22nd day of
September, 1997 between The Keith Companies, Inc., a Corporation organized in
the State of California on November 20, 1986 under its then name of "The Keith
Companies - Inland Empire, Inc." (hereinafter referred to as "Keith" or
"Buyer"), and Lynn C. Cannady, Glenn I. Chase and Stephen J. Lane, (collectively
"Sellers" or "Seller") who together own all of the issued and outstanding
capital stock of ESI, Engineering Services, Inc., a Corporation organized in the
State of California (hereinafter referred to as "ESI") as of the date of this
Agreement. ESI owns all of the outstanding capital stock of ESII, Engineered
Systems Integration, Inc. ("ESII").
The above described Buyer and Seller desire to and hereby do enter into this
Agreement whereby Buyer will acquire from Sellers the consulting engineering
businesses currently operated by ESI and its wholly owned subsidiary, ESII, both
located at 370 Wiget Lane, Suite 210, Walnut Creek, California, and will acquire
all of ESI's and ESII's assets and will assume certain liabilities, upon the
terms and conditions as set forth in this Agreement.
RECITALS
A. Seller has been in the business of providing consulting engineering services
to various manufacturers and operators of environmental waste disposal
systems since 1979. Professional services include, amongst others, process
engineering design, chemical engineering, electrical engineering,
environmental waste processing system design, petrochemical system design and
related professional services. All references to ESI in this Agreement
include its wholly owned subsidiary, ESII, unless the context clearly
indicates otherwise. Sellers, in addition to owning ESI, are the owners of
Design Services ("DSI"), which provides the temporary placement of
professional employees. Sellers intend to, and will utilize their best, good
faith, efforts to dispose of their ownership interest in DSI at the earliest
practicable time. No portion of the assets, liabilities, operations or
activities of DSI are included in the within Agreement. Despite their
ownership of DSI, Sellers agree to devote substantially full time efforts to
the business of ESI and ESII.
B. Sellers have delivered to Keith a statement of income of ESI for the year
ended June 30, 1997, and will provide financial statements for the years
ended June 30, 1995, and 1996, to be attached as Exhibit A to this Agreement.
Said financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout each period involved and in accordance with accounting practices
used by ESI with respect to its prior financial statements. Sellers
represent that the financial statements present fairly the results of
operations of ESI on a consolidated basis for the three year period
represented by the three financial statements referenced in this paragraph.
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C. ESI operates from its offices in Walnut Creek, California in suite 210 of a
building at 370 Wiget Lane at the current monthly rental of $21,374.45, of
which ESI's share currently is $14,687. The lease expires February 29, 2004.
D. ESI currently has approximately 32 full time ESI employees, including the
three Sellers and approximately six contract employees who are employed by
DSI. Certain administrative employees of DSI are currently on ESI's payroll,
and will remain on ESI's payroll until the end of 1997, unless DSI is sold
prior to year end. ESI also provides accounting and computer services for
DSI. ESI will be fairly compensated for such services and will be reimbursed
for payroll and fringe payroll costs of DSI employees.
E. ESI has a number of contracts with its clients, which will not be completed
by the Closing Date of this Agreement. On or before October 9, 1997, Sellers
will cause to be attached hereto as Exhibit B, a listing of all jobs not yet
completed by ESI as of August 31, 1997 with the balance yet to be billed
indicated as of said date. In addition, for those jobs which indicate a
balance yet to be billed of $10,000 or more, Sellers will have made a good
faith estimate of the cost to complete the scope of services provided for in
the contract between Seller and its client. Buyer and Sellers acknowledge
that estimating the cost to complete each job is not an exact science, and
thus Sellers make no representations or warranties as to the correctness of
its good faith estimate. In the event that any job is indicated with an
estimate of cost to complete which is in excess of the remaining fees to be
billed, the excess, along with a ten percent profit margin on the remaining
work, shall be accrued as a liability of ESI for purposes of this Agreement.
F. Buyer has been informed that some of ESI's contracts with its clients may
contain a clause which restricts or prevents any change in ownership of ESI
without the prior written consent of the client. Accordingly, it is possible
that one or more clients may claim a default by ESI and seek to exercise its
unilateral right to cancel the remaining work encompassed by such contract.
In such an event, the client may have the right to seek monetary damages from
ESI should it terminate its contract with ESI, and engage another
professional engineering firm to complete the work remaining on the contract
at a cost which is greater than the remaining balance to be billed under the
contract. As an alternative, a client may attempt to exert its right of
offset by reducing the outstanding balance of any previously billed work by
the monetary damages which it claims to have sustained by reason of engaging
a new consulting engineering firm.
G. Keith, its subsidiaries and affiliates (the "Keith Group") have been engaged
in the business of civil engineering in Southern California since March 1,
1983. The Keith Group currently employs about 230 people, and operates
offices in the California cities of Costa Mesa, Moreno Valley, San Diego,
Thousand Oaks and Palm Desert, and in Las Vegas, Nevada.
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H. Buyer desires to employ Lynn C. Cannady, Glenn I. Chase and Stephen J. Lane,
as well as the other current employees of ESI on a full time basis and
operate the ESI business as a part of the Keith Group of Companies. Sellers
desire to sell their stock in ESI to Buyer and to no longer engage in the
business of consulting engineering, except as a part of the Keith Group and
as employees of ESI.
I. Keith's shareholders include Walter W. Cruttenden III, who became a ten
percent shareholder in Keith during July 1997. Accordingly, as of August 31,
1997, an aggregate of 8,880,000 shares of Buyer have been issued and are
outstanding, and an additional 1,000,000 shares have been reserved for
issuance pursuant to Keith's Incentive Stock Option Plan
J. Buyer and Sellers have reduced to writing in this Agreement their full and
complete understanding and accord with respect to all matters relating to
said purchase and sale of assets, so as to enable the same to be consummated
in an expeditious and orderly manner.
NOW THEREFORE, in consideration of the mutual covenants and agreements,
representations and warranties hereinafter set forth, the parties agree as
follows:
AGREEMENT
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I. INCORPORATION BY REFERENCE:
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Each of the Recitals, A through J, is hereby incorporated into this Agreement
and made an integral part hereof, as if those recitals were again set forth in
full herein. Each Seller and Buyer hereby acknowledges and confirms to each
other the truth and correctness or each such recital.
II. PURCHASE AND SALE OF ESI STOCK, CLOSING, CONSIDERATION:
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A. PURCHASE AND SALE OF ESI STOCK: On the basis of the representations and
warranties, and subject to all of the terms and conditions set forth in this
Agreement, Sellers agree to sell and convey to Keith, and Buyer agrees to
purchase and acquire from Sellers, for the total purchase consideration as
hereinafter provided, all of the issued and outstanding capital stock of
ESI, which represents the ownership rights to all of the business
operations, fixed assets, good will and other intangible assets of ESI, of
every nature, kind and description, wheresoever located and whether or not
carried or reflected on ESI's books and records, as the same shall exist at
the time of Closing, including, but not by way of limitation:
1. All accounts and notes receivable incurred in the ordinary course of
business for work performed to the time of Closing, whether or not
actually billed to clients;
2. All prepaid expenses and deposits of ESI relating to its business and
operations;
3. Cash on hand and in banks;
4. All fixed assets, including those comprising real property, personal
property and of mixed nature, together with all computer equipment,
office equipment, machinery, tools, parts, findings, attachments,
accessories, fixtures, trade fixtures,
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leasehold improvements, office furniture, supplies and sundries,
equipment, motor vehicles, mechanical devices, patents, copyrights,
trademarks, trade names, good will, leasehold interests and estates,
customer files and records of prior work, billings and collection
activity, supplier lists and pricing schedules, trade information and
trade secrets, employee files, union, labor and other collective
bargaining agreements, all of which properties have been used or
connected directly or indirectly with the business and operations of ESI
(whether or not such properties are encumbered, pledged or otherwise
hypothecated to secure the payment of any debt or other obligation owed
or incurred by ESI); and
5. The trade names of ESII, Engineered Systems Integration, Inc.; ESI,
Engineering Services, Inc.; or any variation thereof, and any non-
copyrighted variation thereof not previously copywrited by any third
party.
B. ASSETS AND LIABILITIES INCLUDED IN TRANSACTION: Said assets shall be
acquired by Keith, subject only to the lien and charge of those certain
specifically enumerated debts, claims, liabilities, obligations and security
interests, if any, set forth in and disclosed by the June 30, 1997, Balance
Sheet of ESI, and to be assumed by Keith as set forth in this Agreement.
Other than liabilities disclosed on the June 30, 1997, balance sheet of ESI
and liabilities incurred in the normal course of operations between said date
and the Closing date or otherwise specifically provided in this Agreement,
Keith will not assume and will not be liable for the payment or other
discharge of any other liabilities or obligations of ESI existing at the
Closing Date, whatsoever. ESI shall cause its June 30, 1997, Balance sheet
to be attached as Exhibit C to this Agreement. Keith will be responsible for
and shall assume all liabilities incurred by ESI from June 30, 1997, until
the Closing Date in the ordinary course of its business and all liabilities
incurred thereafter, including, but not by way of limitation, accounts
payable, salaries and wages, and accrued employee expenses.
C. CLOSING: Except as herein otherwise provided, the closing under this
Agreement will take place at 10:00 AM, prevailing California time on October
30, 1997, or at such other time and date as the parties hereto may in writing
agree upon, such time and date being herein referred to as the "Closing" or
"Closing Date", at the office of Keith at 2955 Redhill Avenue, Costa Mesa,
California (or at such other place as the parties may in writing agree upon).
Irrespective of the foregoing sentence, the closing will be delayed until
Buyer is prepared to pay off the ESI loan from Union Bank and to replace
ESI's portion of a Letter of Credit issued by Union Bank to secure certain
leasehold improvements. In no event shall the closing be delayed past
December 31, 1997. In the event that Buyer in unable to pay off the ESI loan
from Union Bank (including replacing the ESI Letter of Credit to Union Bank,
and Buyer does not conclude the purchase of ESI stock contemplated by this
Agreement, then Buyer shall pay the greater of fifty thousand dollars
($50,000) to Sellers as liquidated damages or the amount of actual monetary
damages sustained by Sellers. For this purpose only, the parties agree to
submit the determination of such actual monetary damages to binding
arbitration conducted pursuant to the rules of the American Arbitration
Association, with Buyer and Seller each paying their own costs of the
arbitration, and each paying one half of the fees and costs charged by the
arbitrator.
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D. POSSIBLE ADJUSTMENT IN CONSIDERATION PAID BY KEITH: The total consideration
to be paid by Keith for all of the outstanding capital stock of ESI to be
acquired by Keith shall be subject to adjustment, based upon the
determination of the book value of ESI, which will not exceed the value of
all tangible assets as valued below as of June 30, 1997, less liabilities
assumed by Buyer.
The following procedures shall be utilized in establishing the Net Book Value
of ESI's assets acquired by Keith as of June 30, 1997 and as of the Closing
including liabilities of ESI assumed by Buyer:
1. Work in process shall be valued at zero, except that in the event there
exists any fixed price contracts or work with milestone billings (where
the milestone has not been attained), the amounts billed or otherwise
accrued as revenues through the valuation date shall not exceed an amount
which will permit the remaining portion of the contract to be completed at
profit margins of no less than ten percent (10%). To correct any such
over-accrual of revenues at each valuation date, the stated accounts
receivable book value shall be reduced in an appropriate amount to
accomplish the adjustment as set forth in the preceding sentence.
2. Prepaid expenses and deposits shall be recorded at their unamortized cash
value.
3. Fixed assets shall be valued at the original cost of each item, less
accumulated depreciation claimed for Federal Income Tax purposes, but
shall not exceed the total estimated current fair market value of the
total fixed assets. Fair market value of computer equipment and software
(which is subject to technical obsolescence) shall be determined by
reference to its current replacement value. Fair market value of any
vehicle shall be determined by reference to the Kelly Blue Book wholesale
value, reasonably adjusted for mileage and the physical condition of each
vehicle.
4. Other tangible assets of ESI and all of its liabilities shall be valued
pursuant to generally accepted accounting principles consistently applied.
A current listing of ESI's major clients as of August 31, 1997, is
attached as Exhibit D.
5. Sellers guarantee that at June 30, 1997, and at the time of Closing, the
value of ESI's tangible assets as determined above, less its liabilities
shall not be less than $350,000. In the event that such net book value is
under $350,000 and to the extent that it is less than $350,000, the number
of Keith shares to be issued to Sellers at Closing shall be reduced by one
share for each one dollar seventy five cents ($1.75) that the actual net
book value of ESI is below $350,000. However, at Seller's exclusive
option, they may contribute cash to ESI during October, 1997, and in such
an amount as is necessary to bring the net book value to $350,000 in lieu
of reducing the number of Keith shares to be issued to Sellers.
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E. CONSIDERATION TO BE PAID BY KEITH: The consideration to be given to
Sellers by Keith in exchange for Sellers' stock in ESI shall be as follows:
1. ESI's shareholders will exchange all of ESI's outstanding shares of
common stock with Buyer in exchange for 200,000 shares of Buyer's Common
Stock and such other shares as set forth herein. Unless otherwise
provided in this Agreement, all shares issued to Sellers will be issued
one-third to each Seller, with any odd, fractional share issued to
Sellers in alphabetical order of their last names.
a. Buyer agrees, at the sole discretion of any Seller, to repurchase any
or all of that Seller's portion of the 200,000 shares issued at the
Closing at the price of $2.50 per share provided that an Initial
Public Offering of the Buyer's Common Stock has not been effected by
October 31, 1999. This election shall be made individually by any of
the Sellers during the time period of November 1, 1999 to November
15, 1999 (the "Notice Period") by delivery of written notice thereof
to Buyer. After November 15, 1999, this right shall expire.
b. Irrespective of the above, in the event that the Dow Jones Average is
below 7,000 at any time from April 1, 1999 to September 30, 1999, the
Notice Period shall be extended until the expiration of nine months
after the Dow again exceeds 7,000 on a consistent basis; and the
expiration date of the time for giving notice shall be extended for a
similar period. In no event shall the extension period be extended
past December 31, 2001.
c. In the event that any Seller exercises this right to cause Buyer to
repurchase his stock, such Seller shall also convey all other shares
of Keith stock which may have been issued to such Seller, whether
acquired by exercise of Stock Options, Incentive Shares, or
otherwise, and all additional stock options then outstanding issued
to such Seller shall forthwith be canceled and shares acquired by
exercise of stock options shall be acquired by Keith at their per
share purchase price.
d. Keith's financial statements reflect a deficit in the shareholders'
equity portion of its balance sheet ("Keith Equity") as of July 31,
1997. Keith's officers and/or shareholders will subordinate repayment
of such amount of the principal portion of debt owed to shareholders
to such amount as, when netted with the net book value of Keith's
Equity, equals $750,000.
2. As of the Closing Date, Buyer will issue incentive stock options
aggregating 200,000 shares of the Buyer's Common Stock. (A copy of
Keith's Incentive Stock Option Plan and a copy of a typical Stock Option
Agreement are attached as Exhibit E hereto). Of these options, 40,000
options shall be issued to each of the three Sellers. Of the remaining
optioned shares, approximately 60,000 options would be allocated among
ESI's second tier technical and management personnel (Surinder, Mike,
Terry, Tony, Ralph, etc.); and approximately 20,000 of
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such options will be issued to other key personnel (Linda, Jim, etc.).
Sellers will have substantial discretion in the allocation of the 80,000
options offered to ESI's employees with the primary objective being to
motivate not only the three current owners of ESI, but also the next tier
of management, primarily those employees and prospective employees with
superior future potential, and others deemed important to the future
success of ESI. The Stock Options will have a $1.00 exercise price.
Buyer expects that its shares, which are subject to the above described
options, shall have a value substantially greater than the exercise price
in future years. Accordingly, in the event that such shares do not have a
fair market value of at least three dollars per share at some time during
the time period between October 1, 1999, and October 1, 2002, Sellers, at
each of their exclusive options, may exchange and cancel any unexercised,
vested stock options and receive two dollars in cash from Keith for each
such option share which such Seller tenders to Keith for cancellation. In
addition, each Seller shall have the right, to be exercised only during
October, 2002, to sell any shares in Keith which he acquired by exercise
of his stock options to Keith for three dollars per share, subject to the
same condition as to fair market value of Keith shares as is applicable to
unexercised, vested options during the period of October, 1999 to 2002.
3. Buyer will provide no less than an additional 100,000 of incentive stock
options ("Additional Options") as of January 1, 2000, to be granted to ESI
employees subject to the condition precedent that certain earnings goals
have been attained by ESI as set forth in the following paragraph. The
current three owners of ESI shall be eligible to be awarded a portion of
such Additional Options. The Additional Options will have an exercise
price of the fair market value of the shares at the time of the grant of
each option, which exercise price is required pursuant to IRS regulations
which allow the employee the ability to defer recognition of taxable
income until the shares are sold and the ability to be taxed at capital
gains rates where the holding period requirements are met.
4. Buyer will issue up to an additional 100,000 shares of its common stock
("Incentive Stock"), to be issued to Sellers and shared equally by the
three Sellers, subject to attainment of the following performance
criteria:
a) Maximum number of shares to be issued:
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During the period from June 30, 1997 through and including the year
ended November 30, 2000, for each $3.00 of Net Income per year in
excess in the required minimum net income as described in 4.b., after
provision for Federal and California Taxes on Income ("Net Income"), as
computed on a quarterly basis pursuant to GAAP earned by ESI, Buyer
will issue one share of the Buyer's Common Stock, not to exceed an
aggregate of 100,000 shares to be issued pursuant to this provision.
b) Required minimum Net Income:
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ESI shall be required to earn a minimum amount of Net Income based on
the number of shares ("Base Shares") which Buyer has both previously
issued to ESI's current shareholders and its employees, and the number
of granted, but unexercised employee stock options issued to ESI's
current shareholders and its present and future employees. (Initially
the number of shares to be utilized in making this calculation is
400,000 shares). The minimum Net Income to be earned by ESI before the
issuance of any Incentive Stock shall be $.80 per share for the fiscal
years of 1997 and 1998; $1.00 for 1999; and $1.25 for the year 2000.
For these purposes, the year 1997 shall end 11/30/97, 1998 shall end
11/30/98, etc. Accordingly, a base amount of Net Income of $320,000
would be required for the year ended November 30, 1998; and Net Income
above that level would be eligible for the issuance of Incentive Stock.
c) Determination of number of Base Shares:
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The number of Base Shares to be utilized in calculating the minimum Net
Income requirements of ESI in order to qualify for the issuance of
Incentive Stock shall be determined by averaging the Base Shares at the
beginning of each quarter during the year. For example, if the
applicable number of shares were 400,000 at December 1st, 425,000
shares at March 1st; 440,000 shares at June 1st , and 450,000 shares at
September 1st, then the average shares for the year would be 428,750
(1,715,000/4 = 428,750).
d) Accounting procedures and policies to be employed:
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For the purpose of this Agreement, Net Income shall be determined based
upon ESI's cost and overhead structure and applying GAAP to ESI's
financial statements. Expenses of Buyer's corporate overhead shall be
reasonably allocated among all of the business units owned or
controlled by Buyer from time to time. Buyer allocates approximately
75% of its corporate overhead among Buyer's business units based upon
employee head count at each business unit as of the beginning of each
month, and approximately 25% is allocated based upon revenues earned
(Calculated on the accrual basis of accounting, as measured by the
"value added" by each business unit) during the trailing calendar
quarter. For example, net revenues earned and employee head count
statistics for the first quarter of 1998 would be used to calculate
corporate fees for the third quarter of 1998.
5. Anti dilution provision:
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It is agreed that no additional shares of stock in Buyer will be issued
without Sellers' prior written consent, except as may be required from
time to time to comply with the terms of this Agreement and the terms of
any future acquisitions by Buyer or to provide additional shares for the
Incentive Stock Option Plan necessitated by the growth of Buyer's and
ESI's professional and management staffs, or for the contemplated Initial
Public Offering of Buyer, currently anticipated to occur in late 1998.
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6. Additional Consideration - Employment and Non-Competition Agreements:
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Lynn C. Cannady, Glenn I. Chase and Stephen J. Lane shall each be offered
a five year employment agreement in the form of Exhibit F attached hereto.
Each employment agreement provides that for a period of 24 months after
termination of employment, employee shall not disclose proprietary
information of employer and that, for a period of 12 months after
termination of employment, employee shall not compete with ESI or The
Keith Companies by operating within 30 miles of any then ESI or TKC
office.
F. ADDITIONAL DOCUMENTATION: For a reasonable time and from time to time after
the Time of Closing, upon reasonable request of Buyer, Seller will duly
execute, acknowledge and deliver all such further assignments, conveyances
and other instruments of transfer and other assurances and documents and will
take such other action consistent with the terms of the Agreement as
reasonably may be requested by Buyer for the purpose of better assigning,
transferring and conveying to Buyer or reducing to its possession any or all
of the business assets being sold and conveyed to Buyer hereunder, providing
that the costs of preparation of all thereof shall be paid by Buyer.
G. ESI'S CURRENT EMPLOYEES; SENIORITY: Buyer intends to offer employment to
all current, full time employees of ESI as of the Time of Closing and will
execute an employment contract with each of the three Sellers in the form
attached as Exhibit F. Keith will grant one year of service credit towards
its seniority calculations (for vacation pay and length of service awards)
for each two years of full time employment with ESI, up to a maximum of seven
years of credit towards Keith service awards and Keith benefits.
H. PROTECTION OF ESI'S BUSINESS OPERATIONS: Seller will use its best, good
faith efforts until and following the date of this Agreement to preserve and
maintain its business organization intact and to keep available to Buyer its
favorable relationships with employees, suppliers, customers and others, all
to the end that the going business of Seller will be unimpaired at the Time
of Closing. Seller shall not change compensation rates of its employees
prior to close without Buyer's consent.
I. INSURANCE; RISK OF LOSS: Seller will continue in force at ESI's expense
until the Closing Date of this Agreement its existing professional errors and
omissions, liability and property damage, fire and other casualty insurance.
ESI's current policy is to provide errors and omissions insurance on specific
assignments or projects when such coverage is requested by the client, thus,
it has no E&O coverage for much of its prior work. Prior to the Closing
Date, the risk of loss to the assets subject to purchase and sale hereunder
shall be borne entirely by Seller. Buyer agrees to assume each officer's
personal liability for professional errors and omissions of any officers of
Seller who become employees of Buyer as of the effective date.
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III. REPRESENTATIONS AND WARRANTIES OF SELLER: Seller represents and warrants
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to Buyer, as of the date hereof and as of Closing, as follows:
A. NO PENDING LITIGATION: To Seller's actual knowledge, there is no
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litigation pending or threatened against or affecting any of Seller's
assets which would limit Seller's ability to perform his obligation
hereunder, including professional errors or omissions, bankruptcies or
receiverships, which might adversely affect the assets of the business. ESI
is plaintiff on several lawsuits in which it seeks to recover amounts
billed to clients which have not been paid to date. One such legal action
against Power Generation, Inc. is scheduled for a mediation conference on
September 15, 1997, and Power Generation has counter sued. In addition, ESI
is considering litigation to collect certain amounts from Nimbus, Inc. If
the matter is collected without litigation, ESI may be required to reduce
its claim by as much as $10,000. ESI warrants that if a full recovery is
not made of its receivables, it will nevertheless meet the net worth
requirements of $350,000 at closing.
B. AUTHORITY TO PERFORM: Sellers have full power and authority to execute,
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deliver and perform this Agreement and all other documents and certificates
contemplated hereby, and the execution, delivery and performance thereof
has been duly authorized by Sellers. No other action is required to be
taken by Sellers to permit the execution, delivery and performance of this
Agreement, the transaction contemplated hereby, and all other documents and
certificates contemplated hereby, and no consent or approval of any third
party is required in connection with the execution of this Agreement or to
consummate the transaction contemplated hereby.
C. NO CONSENT REQUIRED: The execution of this Agreement by Sellers, the
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performance by Sellers of Sellers' obligations hereunder and the sale,
transfer and conveyance of Sellers' stock in ESI do not require the consent
of any third party, other than possibly the Secretary of State of the State
of California.
D. NO NOTICES: Sellers have not received and have no knowledge of any
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notification from any city, county, state, or Federal or other authority or
any governmental or quasi-governmental authority which would inhibit the
continued operation of ESI.
E. ENFORCEABILITY: ESI owns good, clear and marketable title to the assets
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reflected on its June 30, 1997, Balance Sheet (Exhibit C), and upon
execution of this Agreement by the signatory parties hereto all of the
covenants, conditions and promises to be performed by Sellers under this
Agreement shall be binding upon and enforceable against each Seller in
accordance with the terms hereof. In addition, all assignments entered into
by Sellers in favor of Buyer shall effectively transfer all of Sellers'
rights to Buyer as to each document assigned by Sellers to Buyer.
F. NO PROHIBITION: No Seller is prohibited from consummating the transactions
--------------
contemplated herein by any law or regulation, agreement, instrument,
restriction, order or judgment.
10
G. NO ATTACHMENTS: There are no attachments, executions, assignments for the
--------------
benefit of creditors, receiverships, conservatorships or voluntary or
involuntary proceedings in bankruptcy or pursuant to any other debtor relief
law contemplated or filed by ESI or pending against ESI or ESI's assets.
H. NO OTHER AGREEMENTS: No Seller is a party to any contract or other
-------------------
agreement, nor does any Seller have any knowledge of the existence of any
such agreement which would be binding upon Buyer, other than contracts
entered into by ESI in the ordinary course of its business.
I. NOTIFICATION: Each Seller shall promptly notify Buyer of any change in any
------------
condition with respect to ESI's assets or of any event or circumstance
actually known to such Seller that makes any representation or warranty of
any Seller contained in this Agreement untrue or materially misleading.
J. EMPLOYEE RELATIONS: There is no pending or threatened dispute between
------------------
Sellers, ESI and any of its employees which might materially and adversely
affect the continuance of ESI's business. There is no claim, suit,
proceeding, arbitration or investigation or other legal or administrative
proceeding pending or, to the knowledge of Sellers or any of its officers,
directors, employees or shareholders threatened against Seller or against any
officer, director, employee, or shareholder which might result in any
material adverse change in the financial condition or business of ESI or
which would question the validity or propriety of this Agreement or of any
action taken or to be taken in accordance with or in connection with this
Agreement or in any other way directly or indirectly affecting the stock in
ESI which is subject to purchase and sale hereunder.
K. NO BREACH OF EXISTING AGREEMENT: The execution and performance of this
-------------------------------
Agreement will not result in a breach of, or constitute a default under:
1. Any charter, by-law, agreement or other document to or by which ESI or any
shareholder of ESI is a party or is bound; or
2. Any decree, order or rule of any court or governmental authority which is
binding on ESI or any shareholder of ESI or on any of ESI's properties; or
3. Any agreement, indenture or understanding to which ESI or any one or more
of its shareholders is a party.
L. WARRANTIES EFFECTIVE AT TIME OF CLOSING: If the purchase and sale of
---------------------------------------
Sellers' stock in ESI, as provided for in this Agreement, is consummated at
the Time of Closing, all of the representations and warranties hereinbefore
contained in this Paragraph will be true and correct at and as of the Time of
Closing, except for immaterial and non-adverse changes contemplated or
permitted by this Agreement.
M. TAX AND OTHER LIABILITIES
-------------------------
ESI has no tax liabilities or other liabilities not disclosed on its
financial statements.
11
IV. REPRESENTATIONS OF BUYER: Buyer represents and warrants to Seller, as of
------------------------
the date hereof and as of the closing, as follows:
A. AUTHORITY TO PERFORM: Buyer has full power and authority to execute,
--------------------
deliver and perform this Agreement, and all other documents and
certificates contemplated hereby, and the execution, delivery and
performance thereof have been duly authorized by Buyer. No other action is
required to be taken by Buyer to permit the execution, delivery and
performance of this Agreement, the transaction contemplated hereby, and all
other documents and certificates contemplated hereby, and no consent or
approval of any third party is required in connection with the execution of
this Agreement, or to consummate the transaction contemplated hereby.
B. NO CONSENT REQUIRED: The execution of this Agreement by Buyer, the
-------------------
performance by Buyer of Buyer's obligations hereunder and the sale,
transfer and conveyance of ESI's stock to Keith do not require the consent
of any third party, other than possibly the Secretary of State of the State
of California.
C. NO PROHIBITION: Buyer is not prohibited from consummating the transactions
--------------
contemplated herein by any law or regulation, agreement, instrument,
restriction, order or judgment.
V. CONDITIONS PRECEDENT TO OBLIGATIONS OF KEITH:
--------------------------------------------
A. The obligation of Keith to purchase all of the outstanding shares of ESI
pursuant to the terms of this Agreement shall be subject to the fulfillment
at or prior to the Time of Closing of each of the following precedent
conditions:
1. All representations and warranties of Sellers contained in this
Agreement shall be true and correct at and as of the Closing, with the
same force and effect as though made at and as of the Closing, except
for changes contemplated or permitted by this Agreement.
2. Sellers shall have fully performed and complied with all of the
obligations and conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing.
3. Upon demand, ESI, its officers, directors and shareholders shall each
have delivered to Buyer their respective certificate, dated the day of
the Closing, as to the fulfillment of the conditions set forth in the
two preceding sub-paragraphs.
4. Upon its demand, Buyer shall have received a favorable opinion from
legal counsel for Sellers, dated the day of Closing, in form and
substance satisfactory to counsel for Buyer, to the effect that (based
upon review by Seller's counsel of corporate records and documents
necessary to enable Seller's counsel to render said opinion):
12
a. ESI is a corporation duly organized and legally existing in good
standing under the laws of the State of California, has full corporate
power to own its properties and conduct its business as now being
conducted; and the business carried on by ESI is not such as to require
that it be qualified to transact business as a foreign corporation in
any jurisdiction other than in the State of California, wherein it is
duly qualified as of the Closing;
b. To the best knowledge and belief of said counsel, this Agreement has
been duly and legally executed and delivered by Sellers and is the
valid and binding agreement of Sellers which is fully enforceable in
accordance with all of its terms and conditions; this Agreement has
been duly authorized by resolutions of ESI's shareholders, which
resolutions were validly adopted by unanimous written consent of the
Shareholders at which no less than seventy-five percent of all
shareholders voted to adopt and approve of the execution of this
Agreement by such shareholders, and the full performance of all of
Seller's obligations and undertakings hereunder;
c. Said counsel does not know, and has no reason to believe that any suit,
proceeding or investigation is pending, threatened against ESI or any
shareholder of ESI, or questions the validity or propriety of this
Agreement or of any action taken or to be taken pursuant to or in
connection with this Agreement.
d. Said counsel does not know or have any reason to know or believe that
the execution and performance of this Agreement will result in a breach
of or constitute a default under any charter or by-law provision which
is binding on ESI; or that any shareholder of ESI is a party or is
bound or any decree, order or rule of a court or other governmental
authority which is binding on ESI or any shareholder of ESI; and
e. Such opinion shall cover such related matters as Buyer may reasonably
require. If ESI and its shareholders are represented by different
counsel, each such counsel shall render its separate opinion.
f. It is Buyer's present intention to waive the attorney representation
letter provided that Sellers individually each make said
representations.
5. The ongoing business of ESI and its business organization, personnel and
relations with suppliers, customers, dealers and distributors and other
shall have been preserved intact and shall not have been impaired at the
Closing.
6. Sellers shall not have incurred any material breach of any warranty or
representation contained in this Agreement nor any material adverse change
in the financial position or results of ESI's operations, as shown by the
financial statements and warranties referred to herein.
13
7. Buyer has not disapproved of any documents or information submitted to
it for its review and approval in accordance with the requirements of
this Agreement.
8. Sellers shall have executed and delivered to buyer appropriate Stock
Certificates, either signed or accompanied by signed stock powers, and
all other agreements, documents and instruments deemed necessary by
Buyer and its counsel to sell and transfer ESI's stock to Buyer as
contemplated by this Agreement. All such instruments and documents shall
be in form and substance reasonably satisfactory to Buyer and its
counsel.
9. No action or proceeding shall have been commenced or threatened by any
client, person or governmental agency by reason of this transaction, the
result of which might render it impossible or inadvisable in Buyer's
opinion for Buyer to close this transaction.
10. There shall have been no material adverse change in the financial
condition of ESI.
11. Buyer shall have completed its "Due Diligence" examination of the
business operations of ESI, including review of the financial statements
of ESI; access to job contracts and records; employee files; billing
files; vendors and vendor files; subconsultants and subconsultant files;
insurance files; legal counsel and legal files; and any additional
information which Buyer, in good faith, believes is relevant to ESI's
financial condition and future operations. Buyer agrees to use its good
faith best efforts to conclude its remaining due diligence work on or
before September 18, 1997.
12. Sellers shall have satisfied and complied with all other conditions,
obligations and undertakings hereunder required to be done by them prior
to or at the closing.
13. Sellers shall provide Keith with Certificates of Good Standing for ESI
and ESII.
B. If any of the above conditions precedent is not met or fulfilled or is
violated, Buyer shall not be under any obligation to consummate this
Agreement and may terminate this Agreement without liability to it or, at
its exclusive option, may postpone the Closing, as hereinbefore provided,
until the conditions have been met.
VI. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS:
----------------------------------------------
The obligations of Sellers to sell and transfer its stock in ESI to Buyer in
exchange for the consideration specified in this Agreement shall be subject to
the fulfillment at or prior to the Closing of each of the following precedent
conditions:
A. All representations and warranties of Buyer contained in this Agreement
shall be true and correct at and as of the Closing, except for changes
contemplated or permitted by this Agreement.
14
B. Buyer shall have performed and complied with all of the obligations and
conditions required by this Agreement to be performed or complied with by
it at or prior to the Closing.
C. Upon demand of Seller, Buyer shall deliver to Seller its certificate,
dated the day of the Closing, executed on its behalf by an officer of
Buyer, as to the fulfillment of the conditions set forth in the two
preceding subparagraphs.
D. Upon demand, Seller shall have received a favorable opinion from Buyer's
legal counsel, dated the day of the Closing, in form and substance
satisfactory to counsel for Sellers (which approval shall not be
unreasonably withheld), to the effect that:
1. Buyer is a corporation duly organized and legally existing in good
standing under the laws of the State of California;
2. This Agreement has been duly and legally authorized by all necessary
corporate action on the part of Buyer, has been duly and legally
executed and delivered by Buyer and is the valid and binding Agreement
of Buyer, enforceable in accordance with its terms;
3. The execution and performance of this Agreement by Buyer shall have
been duly and legally authorized in accordance with applicable law, and
Buyer shall have furnished to counsel for Sellers certified copies of
resolutions adopted by Buyer's Board of Directors and no less than 75%
of its shareholders authorizing and approving the execution and
delivery of this Agreement.
VII. RIGHTS AND REMEDIES IN CASE OF DEFAULT
--------------------------------------
A. BUYER'S REMEDIES: If any Seller defaults in the performance of his
----------------
obligations pursuant to this Agreement, Buyer shall have the right to
demand specific performance by such Seller and such other remedies as are
accorded by relevant law.
B. SELLER'S REMEDIES: In the event of the failure of the Buyer to comply with
-----------------
the terms and conditions of this Agreement, each Seller shall be released
from all obligations in law or equity to transfer and convey its stock
certificates representing ESI shares or any part thereof pursuant to this
Agreement; and the Buyer shall relinquish all rights under this Agreement.
In the event that Seller has exchanged his stock in ESI for Keith shares
at the time of Buyer's breach of this Agreement, Seller shall have the
right to demand specific performance by Keith and such other remedies as
are accorded by relevant law.
VIII. INDEMNIFICATION:
---------------
Sellers on the one part and Buyer on the other part each hereby agree to
indemnify and hold the other harmless at all times of, from and against any and
all losses, costs, expenses liabilities or other damages, including without
limitation reasonable legal fees and
15
expenses, resulting from or arising out of, or by reason of its default under
any of the warranties, representations, covenants or agreements made by such
party in this Agreement, or breach of or default under any condition required to
be performed hereunder by such party. In addition to the foregoing and not by
way of limitation thereof, Sellers hereby agree to indemnify and hold Buyer safe
and harmless of, from and against and in respect of each of the following:
A. Any and all loss, liability or damage resulting from any untrue
representation, breach of warranty or non-fulfillment of any covenant by any
Seller contained herein or in any certificate, document or instrument
delivered to Buyer hereunder;
B. Any and all liabilities of Seller not specifically disclosed on ESI's
consolidated balance sheet or recorded in ESI's books of account as of June
30, 1997, or which arose between said date and the Closing other than in the
normal course of business; and
C. Any and all actions, suits, proceedings, claims, demands, assessments,
judgments, costs and expenses, including, without limitation, legal fees and
expenses, including without limitation, legal fees and expenses, incident to
any of the foregoing or incurred in investigating or attempting to avoid the
same or to oppose the imposition thereof, or in enforcing this indemnity.
IX. MISCELLANEOUS PROVISIONS:
-------------------------
A. EXTENSION OF TIME AND WAIVER OF PERFORMANCE: Either Sellers or Buyer may,
-------------------------------------------
if not then in breach of this Agreement, extend the time for or waive the
performance of any of the obligations of the other, waive any inaccuracies
in the representations or warranties by the other, or waive compliance by
the other with any of the covenants or conditions contained in this
Agreement. Any such extension or waiver shall be in writing and signed by
Sellers or Buyer, as the case may be.
B. AMENDMENTS: This Agreement may be amended at any time and from time to
---------
time, but any amendment must be in writing and signed by an authorized
representative of Buyer and by each Seller.
C. NOTICES: Any written notice to any of the parties required or permitted
-------
under this Agreement shall be deemed to have been duly given on the date of
service if served personally on the party to whom notice is to be given, or
on the second business day after mailing if mailed to the party to whom
notice is to be given, first class postage prepaid, return receipt
requested, and addressed to the addressee at the address stated opposite his
or her name below, or at the most recent address specified by written notice
given to the sender by addressee under this provision.
16
Notices to Sellers shall be to each of the following, individually:
Lynn C. Cannady
30 Valley Drive
Orinda, CA 94563
Glenn I. Chase
11 Stugun Court
Pleasant Hill, CA 94523
Stephen J. Lane
38 Leeds Court
Danville, CA 94526
With a copy of each to the following:
Lynn C. Cannady, Glenn I Chase, and
Stephen J. Lane, all at
370 Wiget Lane, Suite 210
Walnut Creek, CA 94598
Notices to Buyer shall be in duplicate with a copy each to:
THE KEITH COMPANIES, INC.
Attn: Aram H. Keith, President
2955 Redhill Avenue, Suite 201
Costa Mesa, CA 92626
And
THE KEITH COMPANIES, INC.
Attn: Corporate Secretary
2955 Redhill Avenue, Suite 201
Costa Mesa, CA 92626
D. COUNTERPARTS: The parties may execute this Agreement in two or more
------------
counterparts, which shall, in the aggregate, be signed by all the parties.
Each counterpart shall be deemed an original instrument as against any party
who has signed it.
E. GOVERNING LAW: This Agreement is executed in and intended to be performed in
-------------
the State of California, and the laws of that state (other than as to choice
of laws) shall govern its interpretation and effect. The Superior Courts of
Orange County, California shall be the appropriate Court in which either
party may seek to enforce its rights hereunder.
F. SUCCESSORS: This Agreement shall be binding upon and inure to the benefit of
----------
the respective successors, assigns, and personal representatives of the
parties, except to the extent of any contrary provision in this Agreement.
17
G. SEVERABILITY: If any term, provision, covenant, or condition of this
------------
Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the rest of the Agreement shall remain in full force and
effect and shall in no way be affected, impaired, or invalidated.
H. ENTIRE AGREEMENT: This instrument contains the entire Agreement of the
----------------
parties relating to the rights granted and obligations assumed in this
instrument. Any oral representations or modifications concerning this
instrument shall be of no force or effect unless contained in a subsequent
written modification signed by the party to be charged.
I. FURTHER ASSURANCES: Each party agrees to execute such other and further
------------------
instruments and documents as may be necessary or proper in order to complete
the transactions contemplated by this Agreement.
J. TIME OF ESSENCE: Time is hereby expressly made of the essence with respect
---------------
to the performance by the parties of their respective obligations under this
agreement.
K. COMPUTATION OF TIME: If any period of time specified in this Agreement would
-------------------
otherwise end on a Saturday, Sunday or legal holiday, it shall be deemed
extended to end on the next day following which is not a Saturday, Sunday or
legal holiday.
L. TERMINOLOGY: All personal pronouns used in this Agreement, whether used in
-----------
the masculine, feminine, or neuter gender, shall include all other genders;
the singular shall include the plural, and vice versa. Titles of articles,
sections and sub-sections are for convenience only and neither limit nor
amplify the provisions of the Agreement itself, and all references herein to
articles, sections or sub-sections shall refer to the corresponding article,
section or sub-section of this Agreement, unless specific reference is made
to such article, section or sub-section of another document or instrument.
The use of the term "section" in this Agreement shall be deemed to refer to
"sub-sections," whenever the context so requires, and vice versa. In
interpreting this Agreement, it shall be presumed that each party contributed
equally to its construction.
M. SURVIVAL: All of the respective representations, warranties and
--------
indemnifications of the parties to this Agreement shall survive the
consummation of the transactions contemplated by this Agreement.
N. ATTORNEY'S FEES: In the event of the bringing of any action or suit by a
---------------
party hereto against another party hereunder by reason of any breach of any
of the covenants, agreements or provisions on the part of the other party
arising out of this Agreement, then in that event the prevailing party shall
be entitled to have and recover of and from the other party all costs and
expenses of the action of suit, including reasonable attorney, accounting and
engineering fees, any other professional fees resulting therefrom and for
reasonable travel and living costs incurred during any trial.
18
O. AUTHORITY: Each individual signing for each of the parties hereunder
---------
warrants and represents that he is an authorized agent of such party, on
whose benefit he is executing this Agreement, and is authorized to execute
the same.
P. NO THIRD PARTY BENEFICIARY: No provision of this Agreement is intended to
---------------------------
create any third party beneficiaries.
19
In witness whereof, the parties have executed this Agreement as of the day and
date first above written.
SELLERS
- ------
/s/ LYNN C. CANNADY
_________________________________
Lynn C. Cannady, Shareholder of ESI
/s/ GLENN I. CHASE
_________________________________
Glenn I. Chase, Shareholder of ESI
/s/ STEPHEN J. LANE
_________________________________
Stephen J. Lane, Shareholder of ESI
BUYER
- -----
THE KEITH COMPANIES, INC.
2955 Redhill Avenue, Suite 201
Costa Mesa, CA 92626
/s/ ARAM H. KEITH
By: __________________________________
Aram H. Keith, President
/s/ FLOYD S. REID
By: __________________________________
Floyd S. Reid, Secretary
20