EXHIBIT 2.3
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") dated as of July 10, 1998, by
and among THE KEITH COMPANIES, LTD., a California corporation ("Buyer"), JOHN M.
TETTEMER & ASSOCIATES, INC., a California corporation ("Company"), and MURDOCH
V. AND NADINE R. HEIDEMAN, TRUSTEES OF THE MURDOCH V. HEIDEMAN AND NADINE R.
HEIDEMAN LIVING TRUST U/D/T DATED OCTOBER 16, 1992, and JIMMIE E. AND JOLENE M.
DYSERT, TRUSTEES OF THE JIMMIE E. DYSERT AND JOLENE M. DYSERT LIVING TRUST U/D/T
DATED FEBRUARY 20, 1993 (individually "Shareholder" and together the
"Shareholders").
R E C I T A L S:
A. Company is engaged in the water engineering consulting business (the
"Business"). Shareholders own all of the issued and outstanding shares (the
"Shares") of capital stock of Company through their ownership of the common
stock, no par value ("Common Shares").
B. Company's facilities consist of executive and field offices located
in California (the "Facilities").
C. Buyer desires to purchase the Shares from Shareholders and
Shareholders desire to sell the Shares to Buyer, upon the terms and conditions
herein set forth.
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, and intending to be legally bound hereby, the parties hereto agree as
follows.
1. PURCHASE AND SALE OF SHARES.
Subject to the terms and conditions of this Agreement, on the Closing Date
(as hereinafter defined) Shareholders shall sell to Buyer and Buyer shall
purchase from Shareholders all the Shares.
2. PURCHASE PRICE - PAYMENT.
2.1 Purchase Price. The purchase price (the "Purchase Price") payable
for the Shares shall be:
(a) $150,000, payable on the Closing Date; provided, however, that if
Buyer has paid to Shareholders the payment contemplated by Section 5.13,
then such amount shall be reduced to $100,000.
(b) On the Closing date, a note payable (the "Amortizing Note") to
the Shareholders in the original
principal amount of $300,000 adding or subtracting (as described below) the
"Book Value Adjustment" (defined below), bearing interest at 8% per annum,
simple interest, payable in 60 fully amortizing monthly payments, and
otherwise substantially in the form as attached hereto as Exhibit A-1. Aram
H. Keith shall be a co-maker of the Amortizing Note. The "Book Value
Adjustment" shall mean an adjustment reducing or increasing the principal
amount due under the Amortizing Note in an amount equal to $1.00 multiplied
by the difference between, on the one hand, $400,000, and the other hand
the amount obtained by taking (x) the total assets of the Company,
excluding intangible assets and fixed assets (less the applicable
accumulated depreciation) minus (y) the total liabilities of the Company on
the balance sheet of the Company dated July 31, 1998 (the "Closing Balance
Sheet"), calculated in accordance with Generally Accepted Accounting
Principles as consistently applied using the same methodology as the Recent
GAAP Financial Statements (defined below), particularly with regard to
revenue recognition as set forth on Schedule 2.1(b) ("GAAP"), except that
total liabilities shall not include (i) obligations payable to Shareholders
up to $150,000, (ii) any amount to be reimbursed by Buyer pursuant to
Section 5.6 and (iii) the amount of income taxes payable reduced by $46,468
and then divided by two (2); provided, however that in no event shall the
amount excluded from total liabilities pursuant to this clause (iii) shall
not be greater than $40,000; and further provided, however, that if the
difference is a negative amount, the Book Value Adjustment shall not exceed
$50,000 and shall be added to the Amortizing Note, and if the difference is
a positive amount, the Book Value Adjustment shall be subtracted from the
Amortizing Note without limitation. In the event that Buyer and
Shareholders are unable to agree upon the Closing Balance Sheet within 30
days of receipt of the Closing Balance Sheet, then Buyer's independent
accounting firm shall select a firm of regionally recognized certified
public accountants to resolve any disputed items on the Closing Balance
Sheet which resolution shall be conclusive upon all parties. Said firm
shall be required to apply "GAAP" as defined herein. Buyer and Shareholders
shall each pay one half of the expense of such firm of regionally
recognized certified public accountants.
(c) On the Closing Date, a note payable (the "Interest Only Note") to
the Shareholders in the original principal amount of $250,000, bearing
interest at 8% per annum, simple interest, payable interest only quarterly,
with all principal and accrued but unpaid interest due and payable on the
first to occur of (i) first anniversary of the Closing Date or (ii) that
date upon which Buyer closes an initial public offering of its securities
pursuant to a registration statement of Form S-1. The Interest Only Note
shall otherwise be substantially in the form as attached hereto as Exhibit
A-2. Aram H. Keith shall be a co-maker of the Interest Only Note.
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(d) On the Closing Date, Buyer shall issue to Shareholders a warrant
to purchase up to 150,000 shares of Buyer's common stock at an exercise
price of $1.75 per share, and otherwise substantially in the form as
attached hereto as Exhibit A-3.
2.2 Payment. All payments under this Section 2 shall be made in the form of
Buyer's check payable to the order of the recipient. All payments of the
Purchase Price are to be made to the Shareholders for pro rata allocation among
the Shareholders in accordance with their respective holdings of Common Shares.
At Shareholders' election, the payment required by Section 2.1(a) shall be made
by wire transfer pursuant to instructions from Shareholders.
3. JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.
Shareholders, jointly and severally, make the following representations and
warranties to Buyer, each of which is true and correct on the date hereof, shall
remain true and correct to and including the Closing Date, and shall survive the
Closing of the transactions provided for herein as set forth in Section 8.5.
3.1 Corporate.
(a) Organization. Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California.
(b) Corporate Power. Company has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its
business as and where such is now being conducted.
(c) Qualification. Company is duly licensed or qualified to do
business as a foreign corporation, and is in good standing, in each
jurisdiction wherein the character of the properties owned or leased by it,
or the nature of its business, makes such licensing or qualification
necessary. The states in which Company is licensed or qualified to do
business are listed in Schedule 3.1(c).
(d) Subsidiaries. Company does not own any interest in any
corporation, partnership or other entity.
(e) Corporate Documents, etc. The copies of the Articles of
Incorporation and Bylaws of the Company, including any amendments thereto,
which have been delivered by Shareholders to Buyer are true, correct and
complete copies of such instruments as presently in effect. The corporate
minute book and stock records of the Company which have been furnished to
Buyer for inspection are true, correct and
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complete and accurately reflect all material corporate action taken by the
Company. The directors and officers of the Company are listed in Schedule
3.1(e).
(f) Capitalization of the Company. The authorized capital stock of
the Company consists entirely of 25,000 shares of common stock, no par
value. No shares of such capital stock are issued or outstanding except for
shares of common stock of the Company which are owned of record and
beneficially by Shareholders in the respective numbers set forth in
Schedule 3.1(f). All such shares of capital stock of the Company are
validly issued, fully paid and nonassessable. Except as set forth on
Schedule 3.1(f), there are no (a) securities convertible into or
exchangeable for any of the Company's capital stock or other securities,
(b) options, warrants or other rights to purchase or subscribe to capital
stock or other securities of the Company or securities which are
convertible into or exchangeable for capital stock or other securities of
the Company, or (c) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance, sale or transfer of any
capital stock or other equity securities of the Company, any such
convertible or exchangeable securities or any such options, warrants or
other rights.
3.2 Shareholders.
(a) Power. Each Shareholder has full power, legal right and authority
to enter into, execute and deliver this Agreement and the other agreements,
instruments and documents contemplated hereby (such other documents
sometimes referred to herein as "Ancillary Instruments"), and to carry out
the transactions contemplated hereby.
(b) Validity. This Agreement has been duly and validly executed and
delivered by each Shareholder and is, and when executed and delivered each
Ancillary Instrument will be, the legal, valid and binding obligation of
such Shareholder, enforceable in accordance with its terms, except as such
may be limited by bankruptcy, insolvency, reorganization or other laws
affecting creditors' rights generally, and by general equitable principles.
(c) Title. Each Shareholder has, and at Closing Buyer will receive,
good and marketable title to the Shares to be sold by such Shareholder
hereunder, free and clear of all liens, security interests, pledges,
assessments, levies, restrictions, options, voting trusts or agreements,
proxies, encumbrances, marital or community property interests or other
claims or charges of any nature whatsoever.
3.3 No Violation. Except as set forth on Schedule 3.3, neither the
execution and delivery of this Agreement or the Ancillary Instruments nor the
consummation by Company and
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Shareholders of the transactions contemplated hereby and thereby (a) will
violate any statute or law or any rule, regulation, order, writ, injunction or
decree of any court or governmental authority, (b) will require any
authorization, consent, approval, exemption or other action by or notice to any
court, administrative or governmental agency, instrumentality, commission,
authority, board or body (including, without limitation, under any "plant-
closing" or similar law), or (c) subject to obtaining the consents referred to
in Schedule 3.3, will violate or conflict with, or constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, or will result in the termination of, or accelerate the performance
required by, or result in the creation of any Lien (as defined in Section 3.12)
upon any of the assets of Company (or the Shares) under, any term or provision
of the Articles of Incorporation or Bylaws of Company or of any contract,
commitment, understanding, arrangement, agreement or restriction of any kind or
character to which Company or any Shareholder is a party or by which Company or
any Shareholder or any of its or their assets or properties may be bound or
affected.
3.4 Financial Statements. Included as Schedule 3.4 are true and complete
copies of (i) the financial statements of Company identified on Schedule 3.4,
(ii) a balance sheet of Company as of April 30, 1998, and the related statements
of income and cash flows for the months then ended and for the corresponding
period of the prior year (including the notes and schedules contained therein or
annexed thereto) (the "Recent GAAP Financial Statements"), and, (iii) a balance
sheet of Company as of December 31, 1997, and related statements of income and
cash flows for the year then ended (including the notes contained therein or
annexed thereto) (the "GAAP Financial Statements"). The Recent GAAP Financial
Statements have been prepared (or restated) in conformity with GAAP. The Recent
GAAP Recent Statements and the GAAP Financial Statements have been prepared in
accordance with the books and records of Company, and fairly present, the
assets, liabilities and financial position, the results of operations and cash
flows of the Company as of the date indicated and for the periods indicated. All
of such financial statements (including all notes and schedules contained
therein or annexed thereto) are true, complete and accurate.
3.5 Tax Matters.
(a) Provision For Taxes. The provision made for taxes on the Recent
GAAP Financial Statements is sufficient for the current and deferred
payment of all federal, state, foreign, county, local and other income, ad
valorem, excise, profits, franchise, occupation, property, payroll, sales,
use, gross receipts and other taxes (and any interest and penalties) and
assessments, whether or not disputed, at the date of the Recent GAAP
Financial Statements and for all years and periods prior thereto. Since the
date of the Recent GAAP Financial Statements, Company has not incurred any
taxes other than
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taxes incurred in the ordinary course of business consistent in type and
amount with past practices of Company.
(b) Tax Returns Filed. Except as set forth on Schedule 3.5(b), all
federal, state, foreign, county, local and other tax returns required to be
filed by or on behalf of Company have been timely filed and when filed were
true and correct in all material respects, and the taxes shown as due
thereon were paid or adequately accrued. True and complete copies of all
tax returns or reports filed by Company for each of its three (3) most
recent fiscal years have been delivered to Buyer. Company has duly withheld
and paid all taxes which it is required to withhold and pay relating to
salaries and other compensation heretofore paid to the employees of
Company.
(c) Tax Audits. The federal and state income tax returns of Company
have been audited by the Internal Revenue Service and appropriate state
taxing authorities for the periods and to the extent set forth in Schedule
3.5(c), and Company has not received from the Internal Revenue Service or
from the tax authorities of any state, county, local or other jurisdiction
any notice of underpayment of taxes or other deficiency which has not been
paid nor any objection to any return or report filed by Company. There are
outstanding no agreements or waivers extending the statutory period of
limitations applicable to any tax return or report.
(d) Consolidated Group. Company is not and has never been a member of
an affiliated group of corporations that filed a consolidated tax return.
(e) Other. Except as set forth in Schedule 3.5(e), within the last
five (5) years, Company has not (i) filed any consent or agreement under
Section 341(f) of the Internal Revenue Code of 1986, as amended (the
"Code"), (ii) applied for any tax ruling, (iii) entered into a closing
agreement with any taxing authority, (iv) filed an election under Section
338(g) or Section 338(h)(10) of the Code (nor has a deemed election under
Section 338(e) of the Code occurred), (v) made any payments, or been a
party to an agreement (including this Agreement) that under any
circumstances could obligate it to make payments that will not be
deductible because of Section 28OG of the Code, or (vi) been a party to any
tax allocation or tax sharing agreement.
3.6 Accounts Receivable. Except as disclosed in Schedule 3.6, all
accounts receivable of Company reflected on the Closing Balance Sheet, and as
incurred in the normal course of business since the date thereof, represent
arm's length sales actually made in the ordinary course of business; are
collectible (net of the reserve shown on the Closing Balance Sheet for doubtful
accounts) in the ordinary course of business without the necessity of commencing
legal proceedings; are subject to no counterclaim or
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setoff; and are not in dispute. Schedule 3.6 contains an aged schedule of
accounts receivable included in the Closing Balance Sheet.
3.7 Work-in-Process. Except as disclosed in Schedule 3.7, (i) all work-in-
process and contracts underway ("Work-In-Process") constitute work performed
pursuant to contracts or sales orders taken in the ordinary course of business,
from regular customers of Company with no recent history of credit problems with
respect to Company; (ii) neither Company nor any such customer is in material
breach of the terms of any obligation to the other, and no valid grounds exist
for any set-off of amounts billable to such customers on the completion of
orders to which Work-In-Process relates; (iii) all Work-In-Process is of a
quality ordinarily produced in accordance with the requirements of the orders to
which such Work-In-Process is identified, and will require no rework with
respect to services performed prior to Closing; (iv) all Work-In-Process is
being conducted pursuant to contracts, orders and change orders issued within
the terms of the relationship pursuant to which such Work-In-Process is being
conducted; and (v) all Work-In-Process set forth on Schedule 3.7 (which as of
the date hereof reflects Work-In-Process as of April 30, 1998 and, subsequent to
the Closing Date, shall be updated to include the schedules supporting the
Closing Balance Sheet) are estimates only and could be completed if managed
consistently with the past practices of the Company without adversely effecting,
in the aggregate when complete, the profitability of the Company compared to
previous periods; provided, however, that the Shareholders make no
representations and warranties concerning whether any customer will cancel any
contract otherwise in accordance with its terms.
3.8 Absence of Certain Changes. Except as and to the extent set forth in
Schedule 3.8, since the date of the Recent GAAP Financial Statements there has
not been:
(a) No Adverse Change. Any adverse change in the financial condition,
assets, liabilities, business, prospects or operations of Company;
(b) No Damage. Any loss, damage or destruction, whether covered by
insurance or not, affecting Company's business or properties;
(c) No Increase in Compensation. Any increase in the compensation,
salaries or wages payable or to become payable to any employee or agent of
Company (including, without limitation, any increase or change pursuant to
any bonus, pension, profit sharing, retirement or other plan or
commitment), or any bonus or other employee benefit granted, made or
accrued;
(d) No Labor Disputes. Any labor dispute, disturbance or organizing
activity, other than routine individual
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grievances which are not material to the business, financial condition or
results of operations of Company;
(e) No Commitments. Any commitment or transaction by Company
(including, without limitation, any borrowing or capital expenditure) other
than in the ordinary course of business consistent with past practice;
(f) No Dividends. Any declaration, setting aside, or payment of any
dividend or any other distribution in respect of Company's capital stock;
any redemption, purchase or other acquisition by Company of any capital
stock of Company, or any security relating thereto; or any other payment to
any shareholder of Company as such a shareholder;
(g) No Disposition of Property. Any sale, lease or other transfer or
disposition of any properties or assets of Company, except for the sale of
inventory items in the ordinary course of business;
(h) No Indebtedness. Any indebtedness for borrowed money incurred,
assumed or guaranteed by Company;
(i) No Liens. Any mortgage, pledge, lien or encumbrance made on any
of the properties or assets of Company;
(j) No Amendment of Contracts. Any entering into, amendment or
termination by Company of any contract, or any waiver of material rights
thereunder, other than in the ordinary course of business;
(k) Loans and Advances. Any loan or advance (other than advances to
employees in the ordinary course of business for travel and entertainment
in accordance with past practice) to or from any person including, but not
limited to, any Affiliate (for purposes of this Agreement, the term
"Affiliate" shall mean and include all Shareholders, directors and officers
of Company; the spouse of any such person; any person who would be the heir
or descendant of any such person if he or she were not living; and any
entity in which any of the foregoing has a direct or indirect interest,
except through ownership of less than 5% of the outstanding shares of any
entity whose securities are listed on a national securities exchange or
traded in the national over-the-counter market);
(l) Credit. Any grant of credit to any customer or distributor on
terms or in amounts more favorable than those which have been extended to
such customer or distributor in the past, any other change in the terms of
any credit heretofore extended, or any other change of Company's policies
or practices with respect to the granting of credit; or
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(m) No Unusual Events. Any other event or condition not in the
ordinary course of business of Company.
3.9 Absence of Undisclosed Liabilities. Except as and to the extent
specifically disclosed in the Recent GAAP Financial Statements, or in Schedule
3.9, the Shareholders have no actual knowledge that the Company has any
liabilities, commitments or obligations (secured or unsecured, and whether
accrued, absolute, contingent, direct, indirect or otherwise), other than
commercial liabilities and obligations incurred since the date of the Recent
GAAP Financial Statements in the ordinary course of business and consistent with
past practice and none of which has or will have a material adverse effect on
the business, financial condition or results of operations of Company. Except as
and to the extent described in the Recent GAAP Financial Statements or in
Schedule 3.9, neither Company nor any Shareholder has actual knowledge of any
basis for the assertion against Company of any liability or of any
circumstances, conditions, happenings, events or arrangements, contractual or
otherwise, which may give rise to liabilities, except commercial liabilities and
obligations incurred in the ordinary course of Company's business and consistent
with past practice.
3.10 No Litigation. Except as set forth in Schedule 3.10 there is no
action, suit, arbitration proceeding, investigation or inquiry pending or
threatened against Company, its directors (in such capacity), its business or
any of its assets, nor does Company or any Shareholder know, or have grounds to
know, of any basis for any such proceedings, investigations or inquiries.
Schedule 3.10 also identifies all such actions, suits, proceedings,
investigations and inquiries to which company or any of its directors have been
parties within the last three (3) years. Except as set forth in Schedule 3.10,
neither Company nor its business or assets is subject to any judgment, order,
writ or injunction of any court, arbitrator or federal, state, foreign,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality.
3.11 Compliance With Laws.
(a) Compliance. Except as set forth in Schedule 3.11(a), the
Shareholders have no actual knowledge that the Company (including each and
all of its operations, practices, properties and assets) is not in
compliance with all applicable federal, state, local and foreign laws,
ordinances, orders, rules and regulations (collectively, "Laws"), including
without limitation, those applicable to discrimination in employment,
occupational safety and health, trade practices, competition and pricing,
product warranties, zoning, building and sanitation, employment, retirement
and labor relations, product advertising and laws relating to pollution or
protection of the environment, including Laws relating to emissions,
discharges, generation, storage, releases or threatened releases of
pollutants, contaminants,
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chemicals or industrial, toxic, hazardous or petroleum or petroleum-based
substances or wastes into the environment. Except as set forth in Schedule
3.11(a), Company has not received notice of any violation or alleged
violation of, and is subject to no liability (whether accrued, absolute,
contingent, direct or indirect) for past or continuing violation of, any
Laws. The Shareholders have no actual knowledge of any reports and returns
(i) required to be filed by Company with any governmental authority not
having been filed, and (ii) being other than accurate and complete when
filed.
(b) Licenses and Permits. Company has all licenses, permits,
approvals, authorizations and consents of all governmental and regulatory
authorities and all certification organizations required for the conduct of
the business (as presently conducted and as proposed to be conducted) and
operation of the Facilities. All such licenses, permits, approvals,
authorizations and consents are described in Schedule 3.11(b), are in full
force and effect and will not be affected or made subject to loss,
limitation or any obligation to reapply as a result of the transactions
contemplated hereby. Except as set forth in Schedule 3.11(b), Company
(including its operations, properties and assets) is and has been in
compliance with all such permits and licenses, approvals, authorizations
and consents.
3.12 Title to and Condition of Properties.
(a) Marketable Title. Company has good and marketable title to all
of Company's assets, business and properties necessary or useful in
conducting the Business, including, without limitation, all such properties
(tangible and intangible) reflected in the Recent GAAP Financial Statements
and all assets which are fully depreciated or used under license, including
but not limited to, software, databases, reference materials and other
intellectual property, in all cases free and clear of all mortgages, liens,
(statutory or otherwise) security interests, claims, pledges, licenses,
equities, options, conditional sales contracts, assessments, levies,
easements, covenants, reservations, restrictions, rights-of-way,
exceptions, limitations, charges or encumbrances of any nature whatsoever
(collectively, "Liens") except those described in Schedule 3.12(a). None of
Company's assets, business or properties are subject to any restrictions
with respect to the transferability thereof; and the Company's title
thereto will not be affected in any way by the transactions contemplated
hereby.
(b) Condition. All property and assets owned or utilized by Company
are in good operating condition and repair, free from any defects (except
such minor defects as do not interfere with the use thereof in the conduct
of the normal operations of Company), have been maintained consistent
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with the standards generally followed in the industry and are sufficient to
carry on the business of Company as conducted during the preceding twelve
(12) months.
(c) Real Property. Schedule 3.12(c) sets forth all real property
owned, used or occupied by Company (the "Real Property"), including a
description of all land, and all encumbrances, easements or rights of way
of record (or, if not of record, of which Company has notice or knowledge)
granted on or appurtenant to or otherwise affecting such Real Property, the
zoning classification thereof, and all plants, buildings or other
structures located thereon. Schedule 3.12(c) also sets forth, with respect
to each parcel of Real Property which is leased, the material terms of such
lease. To the best of the Shareholders' actual knowledge, all buildings,
plants and other structures owned or otherwise utilized by Company are in
good condition and repair and have no structural defects or defects
affecting the plumbing, electrical, sewerage, or heating, ventilating or
air conditioning systems. There are now in full force and effect duly
issued certificates of occupancy permitting the Real Property and
improvements located thereon to be legally used and occupied as the same
are now constituted. Shareholders have no actual knowledge of any fact or
condition exists which would prohibit or adversely affect the ordinary
rights of use by the Company of the Real Property. Neither Company nor any
Shareholder has notice or knowledge of any (i) planned or proposed increase
in assessed valuations of any Real Property, (ii) governmental agency or
court order requiring repair, alteration, or correction of any existing
condition affecting any Real Property or the systems or improvements
thereat, (iii) condition or defect which could give rise to an order of the
sort referred to in "(ii)" above, (iv) underground storage tanks, or any
structural, mechanical, or other defects of material significance affecting
any Real Property or the systems or improvements thereat (including, but
not limited to, inadequacy for normal use of mechanical systems or disposal
or water systems at or serving the Real Property), or (v) work that has
been done or labor or materials that has or have been furnished to any Real
Property during the period of six (6) months immediately preceding the date
of this Agreement for which liens could be filed against any of the Real
Property.
(d) No Condemnation or Expropriation. Neither the whole nor any
portion of the property or any other assets of Company is subject to any
governmental decree or order to be sold or is being condemned, expropriated
or otherwise taken by any public authority with or without payment of
compensation therefor, nor to the best of Company's and Shareholders'
knowledge has any such condemnation, expropriation or taking been proposed.
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3.13 Insurance. Set forth in Schedule 3.13 is a complete and accurate list
and description of all policies of fire, liability, errors and omissions,
workers compensation, health and other forms of insurance presently in effect
with respect to the business and properties of Company, true and correct copies
of which have heretofore been delivered to Buyer. Schedule 3.13 includes,
without limitation, the carrier, the description of coverage, the limits of
coverage, retention or deductible amounts, amount of annual premiums, date of
expiration and the date through which premiums have been paid with respect to
each such policy, and any pending claims in excess of $25,000. All such policies
are valid, outstanding and enforceable policies and provide insurance coverage
for the properties, assets and operations of Company, of the kinds, in the
amounts and against the risks customarily maintained by organizations similarly
situated; and no such policy (nor any previous policy) provides for or is
subject to any currently enforceable retroactive rate or premium adjustment,
loss sharing arrangement or other actual or contingent liability arising wholly
or partially out of events arising prior to the date hereof. Schedule 3.13
indicates each policy as to which (a) the coverage limit has been reached or (b)
the total incurred losses to date equal 50% or more of the coverage limit. No
notice of cancellation or termination has been received with respect to any such
policy, and neither Company nor any Shareholder has knowledge of any act or
omission of Company which could result in cancellation of any such policy prior
to its scheduled expiration date. Company has not been refused any insurance
with respect to any aspect of the operations of the business nor has its
coverage been limited by any insurance carrier (other than the initial policy
limit) to which it has applied for insurance or with which it has carried
insurance during the last three (3) years. Company has duly and timely made all
claims it has been entitled to make under each policy of insurance. At all times
during the last three (3) years, all errors and omissions and general liability
policies maintained by or for the benefit of Company have been "occurrence"
policies and not "claims made" policies. There is no claim by Company pending
under any such policies as to which coverage has been questioned, denied or
disputed by the underwriters of such policies, and neither Company nor any of
the Shareholders knows of any basis for denial of any claim under any such
policy. Company has not received any written notice from or on behalf of any
insurance carrier issuing any such policy that insurance rates therefor will
hereafter be substantially increased (except to the extent that insurance rates
may be increased for all similarly situated risks) or that there will hereafter
be a cancellation or an increase in a deductible (or an increase in premiums in
order to maintain an existing deductible) or nonrenewal of any such policy. Such
policies are sufficient in all material respects for compliance by Company with
all requirements of law and with the requirements of all material contracts to
which Company is a party.
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3.14 Contracts and Commitments.
(a) Real Property Leases. Except as set forth in Schedule 3.12(c),
Company has no leases of real property.
(b) Personal Property Leases. Except as set forth in Schedule
3.14(b), Company has no leases of personal property involving consideration
or other expenditure in excess of $5,000 or involving performance over a
period of more than twelve (12) months.
(c) Purchase Commitments. Company has no purchase commitments for
inventory items or supplies that, together with amounts on hand, constitute
in excess of two (2) months normal usage.
(d) Sales Commitments. Except as set forth on Schedule 3.14(d),
Company has no sales contracts or commitments to customers or distributors
which aggregate in excess of $25,000 to any one customer or distributor (or
group of affiliated customers or distributors). Company has no sales
contracts or commitments except those made in the ordinary course of
business, at arm's length, and no such contracts or commitments are for a
sales price which would result in a loss to the Company.
(e) Contracts With Affiliates and Certain Others. Company has no
agreement, understanding, contract or commitment (written or oral) with any
Affiliate or any employee, agent, consultant, distributor, dealer or
franchisee that is not cancelable by Company on notice of not longer than
thirty (30) days without liability, penalty or premium of any nature or
kind whatsoever.
(f) Powers of Attorney. The Company has not given a power of
attorney, which is currently in effect, to any person, firm or corporation
for any purpose whatsoever.
(g) Collective Bargaining Agreements. Company is not a party to or
in negotiations concerning any collective bargaining agreements with any
unions, guilds, shop committees or other collective bargaining groups.
(h) Loan Agreements. Except as set forth in Schedule 3.14(h),
Company is not obligated under any loan agreement, promissory note, letter
of credit, or other evidence of indebtedness as a signatory, guarantor or
otherwise.
(i) Guarantees. Except as disclosed on Schedule 3.14(i), Company has
not guaranteed the payment or performance of any person, firm or
corporation, agreed to indemnify any person or act as a surety, or
otherwise agreed
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to be contingently or secondarily liable for the obligations of any person.
(j) Contracts Subject to Renegotiation. Company is not a party to
any contract with any governmental body which is subject to renegotiation.
(k) Burdensome or Restrictive Agreements. Company is not a party to
nor is it bound by any agreement, deed, lease or other instrument which is
so burdensome as to materially affect or impair the operation of Company.
Without limiting the generality of the foregoing, Company is not a party to
nor is it bound by any agreement requiring Company to assign any interest
in any trade secret or proprietary information, or prohibiting or
restricting Company from competing in any business or geographical area or
soliciting customers or otherwise restricting it from carrying on its
business anywhere in the world.
(l) Other Material Contracts. Company has no lease, contract or
commitment of any nature involving consideration or other expenditure in
excess of $25,000, or involving performance over a period of more than
twelve (12) months, or which is otherwise individually material to the
operations of Company, except as explicitly described in Schedule 3.14(1)
or in any other Schedule.
(m) No Default. Company is not in default under any lease, contract
or commitment, nor has any event or omission occurred which through the
passage of time or the giving of notice, or both, would constitute a
default thereunder or cause the acceleration of any of Company's
obligations or result in the creation of any Lien on any of the assets
owned, used or occupied by Company. No third party is in default under any
lease, contract or commitment to which Company is a party, nor has any
event or omission occurred which, through the passage of time or the giving
of notice, or both, would constitute a default thereunder or give rise to
an automatic termination, or the right of discretionary termination,
thereof.
3.15 Labor Matters. Except as set forth in Schedule 3.15, within the last
five (5) years Company has not experienced any labor disputes, union
organization attempts or any work stoppage due to labor disagreements in
connection with its business. Except to the extent set forth in Schedule 3.15,
(a) Company is in compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and is not engaged in any unfair labor practice; (b) there is no unfair labor
practice charge or complaint against Company pending or threatened; (c) there is
no labor strike, dispute, request for representation, slowdown or stoppage
actually pending or threatened against or affecting Company nor any secondary
boycott with respect to products of Company; (d) no
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question concerning representation has been raised or is threatened respecting
the employees of Company; (e) no grievance which might have a material adverse
effect on Company, nor any arbitration proceeding arising out of or under
collective bargaining agreements, is pending and no such claim therefor exists;
and (f) there are no administrative charges or court complaints against Company
concerning alleged employment discrimination or other employment related matters
pending or threatened before the U.S. Equal Employment Opportunity commission or
any state or federal court or agency.
3.16 Employee Benefit Plans
(a) Disclosure. Schedule 3.16(a) sets forth all pension, thrift,
savings, profit sharing, retirement, incentive bonus or other bonus,
medical, dental, life, accident insurance, benefit, employee welfare,
disability, group insurance, stock purchase, stock option, stock
appreciation, stock bonus, executive or deferred compensation,
hospitalization and other similar fringe or employee benefit plans,
programs and arrangements, and any employment or consulting contracts,
"golden parachutes," collective bargaining agreements, severance agreements
or plans, vacation and sick leave plans, programs, arrangements and
policies, including, without limitation, all "employee benefit plans" (as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")), all employee manuals, and all written or
binding oral statements of policies, practices or understandings relating
to employment, which are provided to, for the benefit of, or relate to, any
persons ("Company Employees") employed by Company. The items described in
the foregoing sentence are hereinafter sometimes referred to collectively
as "Employee Plans/Agreements," and each individually as an "Employee
Plan/Agreement." True and correct copies of all the Employee
Plans/Agreements, including all amendments thereto, have heretofore been
provided to Buyer. Each of the Employee Plans/Agreements is identified on
Schedule 3.16(a), to the extent applicable, as one or more of the
following: an "employee pension benefit plan" (as defined in Section 3(2)
of ERISA), a "defined benefit plan" (as defined in Section 414 of the
Code), an "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA), and/or as a plan intended to be qualified under Section 401 of the
Code. No Employee Plan/Agreement is a "multiemployer plan" (as defined in
Section 4001 of ERISA), and Company has never contributed nor been
obligated to contribute to any such multiemployer plan.
(b) Terminations, Proceedings, Penalties, etc. With respect to each
employee benefit plan (including, without limitation, the Employee
Plans/Agreements) that is subject to the provisions of Title IV of ERISA
and with respect to which the Company or any of its assets may, directly or
indirectly, be subject to any liability, contingent or otherwise, or the
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imposition of any lien (whether by reason of the complete or partial
termination of any such plan, the funded status of any such plan, any
"complete withdrawal" (as defined in Section 4203 of ERISA) or "partial
withdrawal" (as defined in Section 4205 of ERISA) by any person from any
such plan, or otherwise):
(i) no such plan has been terminated so as to subject,
directly or indirectly, any assets of Company to any liability,
contingent or otherwise, or the imposition of any lien under Title IV
of ERISA;
(ii) no proceeding has been initiated or threatened by any
person (including the Pension Benefit Guaranty Corporation ("PBGC") to
terminate any such plan;
(iii) no condition or event currently exists or currently is
expected to occur that could subject, directly or indirectly, any
assets of Company to any liability, contingent or otherwise, or the
imposition of any lien under Title IV of ERISA, whether to the PBGC or
to any other person or otherwise on account of the termination of any
such plan;
(iv) if any such plan were to be terminated as of or prior to
the Closing Date, no assets of Company would be subject, directly or
indirectly, to any liability, contingent or otherwise, or the
imposition of any lien under Title IV of ERISA;
(v) no "reportable event" (as defined in Section 4043 of
ERISA) has occurred with respect to any such plan;
(vi) no such plan which is subject to Section 302 of ERISA or
Section 412 of the Code has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA and Section 412 of the
Code, respectively), whether or not waived; and
(vii) no such plan is a multiemployer plan or a plan described
in Section 4064 of ERISA.
(c) Prohibited Transactions, etc. There have been no "prohibited
transactions" within the meaning of Section 406 or 407 of ERISA or Section
4975 of the Code for which a statutory or administrative exemption does not
exist with respect to any Employee Plan/Agreement, and no event or omission
has occurred in connection with which the Company or any of its assets or
any Employee Plan/Agreement, directly or indirectly, could be subject to
any liability under ERISA, the Code or any other law, regulation or
governmental order applicable to any Employee Plan/Agreement, or under any
agreement, instrument,
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statute, rule of law or regulation pursuant to or under which Company has
agreed to indemnify or is required to indemnify any person against
liability incurred under, or for a violation or failure to satisfy the
requirements of, any such statute, regulation or order.
(d) Full Funding. The funds available under each Employee
Plan/Agreement which is intended to be a funded plan exceed the amounts
required to be paid, or which would be required to be paid if such Employee
Plan/Agreement were terminated, on account of rights vested or accrued as
of the Closing Date (using the actuarial methods and assumptions then used
by Company's actuaries in connection with the funding of such Employee
Plan/Agreement).
(e) Controlled Group; Affiliated Service Group; Leased Employees.
Company is not and never has been a member of a controlled group of
corporations as defined in Section 414(b) of the Code or in common control
with any unincorporated trade or business as determined under Section
414(c) of the Code. Company is not and never has been a member of an
"affiliated service group" within the meaning of Section 414(m) of the
Code. There are not and never have been any leased employees within the
meaning of Section 414(n) of the Code who perform services for Company, and
no individuals are expected to become leased employees with the passage of
time.
(f) Payments and Compliance. With respect to each Employee
Plan/Agreement, (i) all payments due from Company to date have been made
and all amounts properly accrued to date as liabilities of Company which
have not been paid have been properly recorded on the books of Company and
are reflected in the Recent GAAP Financial Statements; (ii) Company has
complied with, and each such Employee Plan/Agreement conforms in form and
operation to, all applicable laws and regulations, including but not
limited to ERISA and the Code, in all respects and all reports and
information relating to such Employee Plan/Agreement required to be filed
with any governmental entity have been timely filed; (iii) all reports and
information relating to each such Employee Plan/Agreement required to be
disclosed or provided to participants or their beneficiaries have been
timely disclosed or provided; (iv) each such Employee Plan/Agreement which
is intended to qualify under Section 401 of the Code has received a
favorable determination letter from the Internal Revenue Service with
respect to such qualification, its related trust has been determined to be
exempt from taxation under Section 501(a) of the Code, and nothing has
occurred since the date of such letter that has or is likely to adversely
affect such qualification or exemption; (iv) there are no actions, suits or
claims pending (other than routine claims for benefits) or threatened with
respect to such Employee Plan/Agreement or against the assets of such
Employee Plan/Agreement; and (v) no Employee Plan/Agreement is a plan which
is established and
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maintained outside the United States primarily for the benefit of
individuals substantially all of whom are nonresident aliens.
(g) Post-Retirement Benefits. No Employee Plan/Agreement provides
benefits, including, without limitation, death or medical benefits (whether
or not insured) with respect to current or former Company employees beyond
their retirement or other termination of service other than (i) coverage
mandated by applicable law, (ii) death or retirement benefits under any
Employee Plan/Agreement that is an employee pension benefit plan, (iii)
deferred compensation benefits accrued as liabilities on the books of
Company (including the Recent GAAP Financial Statements), (iv) disability
benefits under any Employee Plan/ Agreement that is an employee welfare
benefit plan and which have been fully provided for by insurance or
otherwise or (v) benefits in the nature of severance pay.
(h) No Triggering of Obligations. The consummation of the
transactions contemplated by this Agreement will not (i) entitle any
current or former employee of Company to severance pay, unemployment
compensation or any other payment, except as expressly provided in this
Agreement, (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due to any such employee or former employee or (iii)
result in any prohibited transaction described in Section 406 of ERISA or
Section 4975 of the Code for which an exemption is not available.
(i) Delivery of Documents. There has been delivered to Buyer, with
respect to each Employee Plan/Agreement:
(i) a copy of the annual report, if required under ERISA,
with respect to each such Employee Plan/Agreement for the last two (2)
years;
(ii) a copy of the summary plan description, together with
each summary of material modifications, required under ERISA with
respect to such Employee Plan/Agreement, all material employee
communications relating to such Employee Plan/Agreement, and, unless
the Employee Plan/Agreement is embodied entirely in an insurance
policy to which Company is a party, a true and complete copy of such
Employee Plan/Agreement;
(iii) if the Employee Plan/Agreement is funded through a trust
or any third party funding vehicle (other than an insurance policy), a
copy of the trust or other funding agreement and the latest financial
statements thereof; and
(iv) the most recent determination letter received from the
Internal Revenue Service with respect to each
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Employee Plan/Agreement that is intended to be a "qualified plan"
under Section 401 of the Code.
With respect to each Employee Plan/Agreement for which an annual report has
been filed and delivered to Buyer pursuant to clause (i) of this Section
3.16(i), no material adverse change has occurred with respect to the
matters covered by the latest such annual report since the date thereof.
(j) Future Commitments. Company has no announced plan or legally
binding commitment to create any additional Employee Plans/Agreements or to
amend or modify any existing Employee Plan/Agreement.
3.17 Employment Compensation. Schedule 3.17 contains a true and correct
list of all employees to whom Company is paying compensation and the
compensation paid thereto during the twelve month period ending as of the date
of the Recent GAAP Financial Statements, including bonuses and incentives, and
listing the current annual rate of compensation for each employee.
3.18 Trade Rights. Schedule 3.18 lists all Trade Rights (as defined below)
in which Company now has any interest, specifying whether such Trade Rights are
owned, controlled, used or held (under license or otherwise) by Company, and
also indicating which of such Trade Rights are registered. All Trade Rights
shown as registered in Schedule 3.18 have been properly registered, all pending
registrations and applications have been properly made and filed and all
maintenance, renewal and other fees relating to registrations or applications
are current. In order to conduct the business of Company, as such is currently
being conducted or proposed to be conducted, Company does not require any Trade
Rights that it does not already have. Company is not infringing and has not
infringed any Trade Rights of another in the operation of the business of
Company, nor is any other person infringing the Trade Rights of Company. Company
has not granted any license or made any assignment of any Trade Right listed on
Schedule 3.18, nor does Company pay any royalties or other consideration for the
right to use any Trade Rights of others. There are no inquiries, investigations
or claims or litigation challenging or threatening to challenge Company's right,
title and interest with respect to its continued use and right to preclude
others from using any Trade Rights of Company. All Trade Rights of Company are
valid, enforceable and in good standing, and there are no equitable defenses to
enforcement based on any act or omission of Company. The consummation of the
transactions contemplated hereby will not alter or impair any Trade Rights owned
or used by Company. As used herein, the term "Trade Rights" shall mean and
include: i) all trademark rights, business identifiers, trade dress, service
marks, trade names and brand names, all registrations thereof and applications
therefor and all goodwill associated with the foregoing; (ii) all copyrights,
copyright registrations and copyright applications, and all other rights
associated with the foregoing and the underlying works of authorship; (iii) all
patents
-19-
and patent applications, and all international proprietary rights associated
therewith; (iv) all contracts or agreements granting any right, title, license
or privilege under the intellectual property rights of any third party; (v) all
inventions, mask works and mask work registrations, know-how, discoveries,
improvements, designs, trade secrets, shop and royalty rights, employee
covenants and agreements respecting intellectual property and non-competition
and all other types of intellectual property; and (vi) all claims for
infringement or breach of any of the foregoing.
3.19 Major Customers and Suppliers.
(a) Major Customers. Schedule 3.19(a) contains a list of the 10
largest customers of Company for each of the two (2) most recent fiscal
years (determined on the basis of the total dollar amount of net sales)
showing the total dollar amount of net sales to each such customer during
each such year. Neither Company nor any Shareholder has any knowledge or
information of any facts indicating, nor any other reason to believe, (i)
that the Company's relationship with any of the customers listed on
Schedule 3.19(a) is other than that which is likely to give rise to a
positive recommendation by such customer of the Company to others, or (ii)
that to the extent any Customer listed on Schedule 3.19(a) would have
recurring projects, that such Customer would be other than likely to retain
the Company to perform such project.
(b) Major Suppliers. Schedule 3.19(b) contains a list of the 5
largest suppliers to Company for each of the two (2) most recent fiscal
years (determined on the basis of the total dollar amount of purchases)
showing the total dollar amount of purchases from each such supplier during
each such year. Neither Company nor any Shareholder has any knowledge or
information of any facts indicating, nor any other reason to believe, that
any of the suppliers listed on Schedule 3.19(b) will not continue to be
suppliers to the business of Company after the Closing and will not
continue to supply the business with substantially the same quantity and
quality of goods at competitive prices.
3.20 Warranty and Product Liability. Schedule 3.20 contains a true,
correct and complete copy of Company's standard warranty or warranties and,
except as stated therein, there are no warranties, commitments or obligations
with respect to the Company's services. Schedule 3.20 sets forth the estimated
aggregate annual cost to Company of performing warranty obligations for
customers for each of the five (5) preceding fiscal years and the current fiscal
year to the date of the Recent GAAP Financial Statements. Schedule 3.20 contains
a description of all product liability claims and/or errors and omission claims
and similar claims, actions, litigation and other proceedings relating to
services rendered, which are presently pending or which to Company's or any
Shareholder's knowledge are threatened, or which have been asserted or commenced
against Company within the last five (5) years, in which a party
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thereto either requests injunctive relief or alleges damages (whether or not
covered by insurance).
3.21 Bank Accounts. Schedule 3.21 sets forth the names and locations of
all banks, trust companies, savings and loan associations and other financial
institutions at which the company maintains a safe deposit box, lock box or
checking, savings, custodial or other account of any nature, the type and number
of each such account and the signatories therefore, a description of any
compensating balance arrangements, and the names of all persons authorized to
draw thereon, make withdrawals therefrom or have access thereto.
3.22 Affiliates, Relationships to Company.
(a) Contracts With Affiliates. All leases, contracts, agreements or
other arrangements between Company and any Affiliate are described on
Schedule 3.22(a).
(b) No Adverse Interests. No Affiliate has any direct or indirect
interest in (i) any entity which does business with Company or is
competitive with Company's business, or (ii) any property, asset or right
which is used by Company in the conduct of its business.
(c) Obligations. All obligations of any Affiliate to Company, and
all obligations of Company to any Affiliate, are listed on Schedule
3.22(c).
3.23 No Brokers or Finders. Except as set forth in Schedule 3.24, neither
Company nor any of its directors, officers, employees, Shareholders or agents
have retained, employed or used any broker or finder in connection with the
transaction provided for herein or in connection with the negotiation thereof.
3.24 Disclosure. No representation or warranty by the Shareholders in this
Agreement, nor any statement, certificate, schedule, document or exhibit hereto
furnished or to be furnished by or on behalf of Shareholders pursuant to this
Agreement or in connection with transactions contemplated hereby, contains or
shall contain any untrue statement of material fact or omits or shall omit a
material fact necessary to make the statements contained therein not misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer makes the following representations and warranties to the
Shareholders, each of which is true and correct on the date hereof, shall remain
true and correct to and including the Closing Date, shall be unaffected by any
investigation heretofore or hereafter made by Shareholders or any notice to
Shareholders, and shall survive the Closing of the transactions provided for
herein.
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4.1 Corporate.
(a) Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of California.
(b) Corporate Power. Buyer has all requisite corporate power to
enter into this Agreement and the other documents and instruments to be
executed and delivered by Buyer and to carry out the transactions
contemplated hereby and thereby.
4.2 Authority. The execution and delivery of this Agreement and the other
documents and instruments to be executed and delivered by Buyer pursuant hereto
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by the Board of Directors of Buyer. No other corporate act
or proceeding on the part of Buyer or its shareholders is necessary to authorize
this Agreement or the other documents and instruments to be executed and
delivered by Buyer pursuant hereto or the consummation of the transactions
contemplated hereby and thereby. This Agreement constitutes, and when executed
and delivered, the other documents and instruments to be executed and delivered
by Buyer pursuant hereto will constitute, valid and binding agreements of Buyer,
enforceable in accordance with their respective terms, except as such may be
limited by bankruptcy, insolvency, reorganization or other laws affecting
creditors' rights generally, and by general equitable principles.
4.3 No Brokers or Finders. Except as set forth on Schedule 4.3, neither
Buyer nor any of its directors, officers, employees or agents have retained,
employed or used any broker or finder in connection with the transaction
provided for herein or in connection with the negotiation thereof.
4.4 Disclosure. No representation or warranty by Buyer in this Agreement,
nor any statement, certificate, schedule, document or exhibit hereto furnished
or to be furnished by or on behalf of Buyer pursuant to this Agreement or in
connection with transactions contemplated hereby, contains or shall contain any
untrue statement of material fact or omits or shall omit a material fact
necessary to make the statements contained therein not misleading.
4.5 Investment Intent. The Shares are being acquired by Buyer for
investment only and not with the view to resale or other distribution.
5. COVENANTS.
5.1 Referral of Clients. Buyer and the Company shall use commercially
reasonable efforts to refer potential clients and projects to the other to the
extent that such clients or projects require services that are within the scope
of each of their respective core expertise.
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5.2 Employee Options. Buyer shall reserve up to 50,000 options to
purchase its common stock for grant to employees of the Company other than the
Shareholders, subject to the approval of Buyer, which such approval shall not be
unreasonably withheld.
5.3 Noncompetition. Subject to the Closing, and as an inducement to Buyer
to execute this Agreement and complete the transactions contemplated hereby, and
in order to preserve the goodwill associated with the business of Company being
acquired pursuant to this Agreement, Murdoch Heideman and Jimmie E. Dysert
hereby covenant and agree that for a period of five (5) years from the Closing
Date, Murdoch Heideman and Jimmie E. Dysert will not directly or indirectly:
(a) engage in, continue in or carry on any business which competes
with the Business or is substantially similar thereto, including owning or
controlling any financial interest in any corporation, partnership, firm or
other form of business organization which is so engaged;
(b) consult with, advise or assist in any way, whether or not for
consideration, any corporation, partnership, firm or other business
organization which is now or becomes a competitor of company or Buyer in
any aspect with respect to the Business, including, but not limited to,
advertising or otherwise endorsing the products of any such competitor;
soliciting customers or otherwise serving as an intermediary for any such
competitor; loaning money or rendering any other form of financial
assistance to or engaging in any form of business transaction on other than
an arm's length basis with any such competitor;
(c) offer employment to an employee of Company, without the prior
written consent of Buyer; or
(d) engage in any practice the purpose of which is to evade the
provisions of this covenant not to compete or to commit any act which
adversely affects the Business;
provided, however, that the foregoing shall not prohibit the ownership of
securities of corporations which are listed on a national securities
exchange or traded in the national over-the-counter market in an amount
which shall not exceed 5% of the outstanding shares of any such
corporation. The parties agree that the geographic scope of this covenant
not to compete shall extend to the United States, Mexico and Canada. The
parties agree that Buyer may sell, assign or otherwise transfer this
covenant not to compete, in whole or in part, to any person, corporation,
firm or entity that purchases all or part of the business of the Company.
In the event a court of competent jurisdiction determines that the
provisions of this covenant not to compete are excessively broad as to
duration, geographical scope or activity, it is expressly agreed that this
covenant not to compete shall be construed so that the
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remaining provisions shall not be affected, but shall remain in full force
and effect, and any such over broad provisions shall be deemed, without
further action on the part of any person, to be modified, amended and/or
limited, but only to the extent necessary to render the same valid and
enforceable in such jurisdiction.
(e) Notwithstanding anything else herein to the contrary,
Shareholders shall have the right to engage in mechanical and chemical
engineering for the treatment of water.
5.4 Confidentiality. Subject to the Closing, and as an inducement to
Buyer to execute this Agreement and complete the transactions contemplated
hereby, and in order to preserve the goodwill associated with the business of
the Company, each Shareholder hereby covenants and agrees as follows:
(a) Covenant of Confidentiality. No Shareholder shall at any time
subsequent to the Closing, except as explicitly requested by Buyer, (i) use
for any purpose, (ii) disclose to any person, or (iii) keep or make copies
of documents, tapes, discs or programs containing, any confidential
information concerning Company. For purposes hereof, "confidential
information" shall mean and include, without limitation, all Trade Rights
in which Company has an interest, all customer lists and customer
information, and all other information concerning Company's processes,
apparatus, equipment, packaging, products, marketing and distribution
methods, not previously disclosed to the public directly by Company.
(b) Equitable Relief for Violations. Each Shareholder agrees that
the provisions and restrictions contained in Section 5.3 and this Section
5.4 are necessary to protect the legitimate continuing interests of Buyer
in acquiring the Shares, and that any violation or breach of these
provisions will result in irreparable injury to Buyer for which a remedy at
law would be inadequate and that, in addition to any relief at law which
may be available to Buyer for such violation or breach and regardless of
any other provision contained in this Agreement, Buyer shall be entitled to
injunctive and other equitable relief as a court may grant after
considering the intent of Section 5.3 and this Section 5.4.
5.5 General Releases. At the Closing, each Shareholder shall deliver,
general releases to Buyer, in form and substance satisfactory to Buyer and its
counsel, releasing Company and the directors, officers, agents and employees of
Company from all claims to the Closing Date, except (i) as may be described in
written contracts disclosed in the Disclosure Schedule and expressly described
and excepted from such releases, and (ii) in the case of persons who are
employees of the Company, compensation for current periods expressly described
and excepted from such releases.
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5.6 Books and Records Request. The Company, at its own expense, shall
cause its books and records to conform to GAAP for the engineering/construction
industry prior to the review by Buyer described in Section 5.7. Upon the
Closing, Buyer shall reimburse the Company for its out-of-pocket costs up to
$5,000 for such conforming of its books and records. Shareholders shall
cooperate with Buyer in completing the Company's state and federal income tax
returns for the fiscal year ended July 31, 1998. Buyer shall pay up to $4,000
for the cost of such preparation.
5.7 Access to Information and Records. During the period prior to the
Closing, Shareholders shall cause Company to give Buyer, its counsel,
accountants and other representatives (i) access during normal business hours to
all of the properties, books, records, contracts and documents of Company for
the purpose of such inspection, investigation and testing as Buyer deems
appropriate (and Company shall furnish or cause to be furnished to Buyer and its
representatives all information with respect to the business and affairs of
Company as Buyer may request); (ii) access to employees, agents and
representatives for the purposes of such meetings and communications as Buyer
reasonably desires; and (iii) with the prior consent of Company in each instance
(which consent shall not be unreasonably withheld), access to vendors,
customers, manufacturers of its machinery and equipment, and others having
business dealings with Company.
5.8 Conduct of Business Pending the Closing. From the date hereof until
the Closing, except as otherwise approved in writing by the Buyer, Company
covenants as follows, and Shareholders shall cause each of the following to
occur:
(a) No Changes. Company will carry on its business diligently and
in the same manner as heretofore and will not make or institute any changes
in its methods of purchase, sale, management, accounting or operation.
(b) Maintain Organization. Company will take such action as may be
necessary to maintain, preserve, renew and keep in favor and effect the
existence, rights and franchises of Company and will use its best efforts
to preserve the business organization of Company intact, to keep available
to Company the present officers and employees, and to preserve for Company
its present relationships with suppliers and customers and others having
business relationships with Company.
(c) No Breach. Company and Shareholders will not do or omit any
act, or permit any omission to act, which may cause a breach of any
material contract, commitment or obligation, or any breach of any
representation, warranty, covenant or agreement made by the Shareholders
herein, or which would have required disclosure on Schedule 3.8 had it
occurred after the date of the Recent GAAP Financial Statements and prior
to the date of this Agreement.
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(d) No Material Contracts. Without the prior written consent of
Buyer, no contract or commitment will be entered into, and no purchase of
supplies and no sale of goods or services (real, personal, or mixed,
tangible or intangible) will be made, by or on behalf of Company, except
contracts, commitments, purchases or sales which are in the ordinary course
of business and consistent with past practice, are not material to the
Company (individually or in the aggregate) and would not have been required
to be disclosed in the Disclosure Schedule had they been in existence on
the date of this Agreement.
(e) No Corporate Changes. Company shall not amend its Articles of
Incorporation or Bylaws or make any changes in authorized or issued capital
stock.
(f) Maintenance of Insurance. Company shall maintain all of the
insurance in effect as of the date hereof and shall procure such additional
insurance as shall be reasonably requested by Buyer.
(g) Maintenance of Property. Company shall use, operate, maintain
and repair all property of Company in a normal business manner.
(h) Interim Financials. Company will provide Buyer with interim
monthly financial statements and other management reports as and when they
are available.
(i) No Negotiations. Neither Company nor any Shareholder will
directly or indirectly (through a representative or otherwise) solicit or
furnish any information to any prospective buyer, commence, or conduct
presently ongoing, negotiations with any other party or enter into any
agreement with any other party concerning the sale of Company, Company's
assets or business or any part thereof or any equity securities of Company
(an "acquisition proposal"), and Company and Shareholders shall immediately
advise Buyer of the receipt of any acquisition proposal.
(j) No Transfer of Shares. No Shareholder shall transfer or attempt
to transfer any of the Shares except to Buyer pursuant hereto; and Company
shall refuse to accept any certificates for Shares to be transferred or
otherwise to allow such transfers to occur upon its books.
5.9 Consents. Company and Shareholders will use their best efforts prior
to Closing to obtain all consents necessary for the consummation of the
transactions contemplated hereby.
5.10 Other Action. Company and Shareholders shall use their best efforts
to cause the fulfillment at the earliest practicable date of all of the
conditions to the parties' obligations to consummate the transactions
contemplated in this Agreement.
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5.11 Disclosure Schedule. Shareholders and Company shall have a
continuing obligation to promptly notify Buyer in writing with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in the
Disclosure Schedule, but no such disclosure shall cure any breach of any
representation or warranty which is inaccurate.
5.12 No Solicitation. In the event that the Closing does not occur,
neither Buyer, Shareholders nor the Company shall actively solicit any existing
employees of the Company or the Buyer for a one year period, commencing the date
of this Agreement. This does not preclude either party for having discussions
with and hiring employees of the Company or the Buyer, if those employees
initiate the process. If Buyer, Shareholders or the Company does initiate the
solicitation of the other party's employees, that party shall be liable to pay
the other for liquidated damages therefore, an amount equal to the annual salary
of the employee with whom such party initiated discussions.
5.13 Nonrefundable Deposit. Unless Buyer has terminated this Agreement in
writing pursuant to its determination that the conditions in Section 6 cannot be
satisfied to its satisfaction, Buyer shall pay to Shareholders no later than
4:00 p.m. PDT July 20, 1998, $50,000, which such payment shall thereupon become
nonrefundable to Buyer.
6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of each of the
following conditions:
6.1 Representations and Warranties True as of the Closing Date. Each of
the representations and warranties made by Shareholders in this Agreement, and
the statements contained in the Disclosure Schedule or in any instrument, list,
certificate or writing delivered by Shareholders or Company pursuant to this
Agreement, shall be true and correct in all material respects when made and
shall be true and correct in all material respects at and as of the Closing Date
as though such representations and warranties were made or given on and as of
the Closing Date, except for any changes permitted by the terms of this
Agreement or consented to in writing by Buyer.
6.2 Compliance With Agreement. Shareholders and Company shall have in
all material respects performed and complied with all of their agreements and
obligations under this Agreement which are to be performed or complied with by
them prior to or on the Closing Date, including the delivery of the closing
documents specified in Section 9.1.
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6.3 Absence of Suit. No action, suit or proceeding before any court or
any governmental authority shall have been commenced or threatened, and no
investigation by any governmental or regulating authority shall have been
commenced, against Buyer, Company or any of the affiliates, officers or
directors of any of them, with respect to the transactions contemplated hereby.
6.4 Consents and Approvals. All approvals, consents and waivers that are
required to effect the transactions contemplated hereby shall have been
received, and executed counterparts thereof shall have been delivered to Buyer
not less than two (2) business days prior to the Closing.
6.5 Third Party Consents. Company shall have delivered to Buyer on or
prior to the Closing Date, consents from landlords under each lease of Real
Property to the transactions contemplated by this Agreement.
6.6 Section 1445 Affidavit. Company shall have delivered to Buyer an
affidavit, in form satisfactory to Buyer, to the effect that Company is not a
"foreign person," "foreign corporation," "foreign partnership," "foreign trust,"
or "foreign estate" under Section 1445 of the Code, and containing all such
other information as is required to comply with the requirements of such
section.
6.7 Not Used.
6.8 Tettemer Liabilities. Shareholders (i) shall have caused the Company
not to be liable to John M. Tettemer ("Tettemer"), or shall have executed, in a
form satisfactory to Buyer, an instrument of assumption of liability of the
Company's obligations to Tettemer for any obligation whatsoever, now or in the
future (other than obligations that are expressly created by Buyer), including,
but not limited to, obligations pursuant to that certain Sale Agreement by and
among Tettemer and the Shareholders dated as of December 31, 1997 and that
certain Severance Agreement by and among the Company, Tettemer, the
Shareholders, and Autry Properties, a California general partnership dated as of
January 1, 1998, (ii) shall have caused Tettemer to confirm that the agreement
not to compete with the Company pursuant to such Severance Agreement will remain
in full force and effect after the Closing according to its terms, and (iii)
shall have obtained Tettemer's consent, in writing, to the use of the name "John
M. Tettemer" in connection with the Company.
6.9 Termination of Qualified Plans. The Board of Directors of the Company
shall have executed a unanimous written consent substantially in the form of
Exhibit B-1 hereto terminating its 401(k) plan sufficiently prior to the Closing
to cause, to the reasonable satisfaction of Buyer and its counsel, Buyer's
qualified plans not to be deemed to be successor plans, and the Company shall
amend its 401(k) plan by adopting the amendment substantially in the form of
Exhibit B-2 hereto.
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6.10 Imperial Bank Approval. Imperial Bank shall have authorized the
Buyer to proceed with the Closing.
6.11 Alan Swanson. The clarification in writing that any obligation to
grant an option to purchase the common stock of Buyer to Alan Swanson shall be
provided by Shareholders out of options or warrants otherwise owned by
Shareholders, and not by the Buyer.
6.12 Union Bank of California Lien. The credit line from and lien in
favor of the Union Bank of California shall have been terminated.
6.13 Mansour Vahid. The Company's employment relationship with Mansour
Vahid shall be demonstrated to the satisfaction of Buyer to be "terminable at
will."
6.14 Satisfactory Due Diligence and Disclosure. Buyer shall have been
provided with all reasonably requested due diligence materials and the schedules
attached hereto and shall have completed, to its satisfaction, a "due diligence"
review of the assets, liabilities, operations, financial condition, and
proprietary rights of the Company.
6.15 Satisfactory Evidence of Authority to Execute. Shareholders shall
have provided such documents or instruments as are necessary, in the reasonable
judgment of buyer's counsel, to establish the authority of the person or persons
executing this Agreement on behalf of the Shareholders.
7. CONDITIONS PRECEDENT TO SHAREHOLDERS' OBLIGATIONS.
Each and every obligation of Shareholders to be performed on the Closing
Date shall be subject to the satisfaction prior to or at the Closing of the
following conditions:
7.1 Representations and Warranties True on the Closing Date. Each of the
representations and warranties made by Buyer in this Agreement shall be true and
correct in all material respects when made and shall be true and correct in all
material respects at and as of the Closing Date as though such representations
and warranties were made or given on and as of the Closing Date.
7.2 Compliance With Agreement. Buyer shall have in all material respects
performed and complied with all of Buyer's agreements and obligations under this
Agreement which are to be performed or complied with by Buyer prior to or on the
Closing Date, including the delivery of the closing documents specified in
Section 9.2.
7.3 Absence of Suit. No action, suit or proceeding before any court or
any governmental authority shall have been commenced or threatened, and no
investigation by any governmental or regulating authority shall have been
commenced, against Buyer,
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Company or any of the affiliates, officers or directors of any of them, with
respect to the transactions contemplated hereby.
8. INDEMNIFICATION.
8.1 By Shareholders. Subject to the terms and conditions of this Section
8, each Shareholder, jointly and severally, hereby agrees to indemnify, defend
and hold harmless Buyer, its directors, officers, employees and controlled and
controlling persons (hereinafter "Buyer's Affiliates") and the Company from and
against all Claims asserted against, resulting to, imposed upon, or incurred by
Buyer, Buyer's Affiliates or the Company, directly or indirectly, by reason of,
arising out of, resulting from or not otherwise disclosed as a result of (a) the
inaccuracy or breach of any representation or warranty of any Shareholder or
Company contained in or made pursuant to this Agreement (regardless of whether
such breach is deemed "material" if for purpose of Section 6.1), or (b) the
breach of any covenant of any Shareholder or the Company contained in this
Agreement, provided, however, that, except with respect to any Claims pursuant
to Section 3.6, Shareholders shall have no liability hereunder until the total
liability hereunder for all Claims considered together exceeds $50,000 (and then
only to the excess), and shall have no liability hereunder in excess of one-half
of the sum of (i) the cash payable pursuant to Section 2.1(a), (ii) the adjusted
principal amount of the Amortizing Note, (iii) the Interest Only Note and (iv)
$150,000. As used in this Section 8, the term "Claim" shall include (i) all
debts, liabilities and obligations; (ii) all losses, damages (including, without
limitation, consequential damages), judgments, awards, settlements, costs and
expenses (including, without limitation, interest (including prejudgment
interest in any litigated matter), penalties, court costs and attorneys fees and
expenses); and (iii) all demands, claims, suits, actions, costs of
investigation, causes of action, proceedings and assessments, whether or not
ultimately determined to be valid.
8.2 By Buyer. Subject to the terms and conditions of this Section 8,
Buyer hereby agrees to indemnify, defend and hold harmless each Shareholder from
and against all Claims asserted against, resulting to, imposed upon or incurred
by any such person, directly or indirectly, by reason of or resulting from (a)
the inaccuracy or breach of any representation or warranty of Buyer contained in
or made pursuant to this Agreement (regardless of whether such breach is deemed
"material" for purposes of Section 7.1), or (b) the breach of any covenant of
Buyer contained in this Agreement, including any claim accruing after the
Closing Date and for which the Shareholders are not otherwise liable hereunder.
8.3 Indemnification of Third-Party Claims. The obligations and
liabilities of any party to indemnify any other under this Section 8 with
respect to Claims relating to third parties shall be subject to the following
terms and conditions:
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(a) Notice and Defense. The party or parties to be indemnified
(whether one or more, the "Indemnified Party") will give the party from
whom indemnification is sought (the "Indemnifying Party") prompt written
notice of any such Claim, and the Indemnifying Party will undertake the
defense thereof by representatives chosen by it. Failure to give such
notice shall not affect the Indemnifying Party's duty or obligations under
this Section 8, except to the extent the Indemnifying Party is prejudiced
thereby. So long as the Indemnifying Party is defending any such Claim
actively and in good faith, the Indemnified Party shall not settle such
Claim. The Indemnified Party shall make available to the Indemnifying Party
or its representatives all records and other materials required by them and
in the possession or under the control of the Indemnified Party, for the
use of the Indemnifying Party and its representatives in defending any such
Claim, and shall in other respects give reasonable cooperation in such
defense.
(b) Failure to Defend. If the Indemnifying Party, within a
reasonable time after notice of any such Claim, fails to defend such Claim
actively and in good faith, the Indemnified Party (upon further notice) has
the right to undertake the defense, compromise or settlement of such Claim
or consent to the entry of a judgment with respect to such Claim, on behalf
of and for the account and risk of the Indemnifying Party, and the
Indemnifying Party shall thereafter have no right to challenge the
Indemnified Party's defense, compromise, settlement or consent to judgment
therein.
(c) Indemnified Party's Rights. Anything in this Section 8.3 to the
contrary notwithstanding, (i) if there is a reasonable probability that a
Claim may materially and adversely affect the Indemnified Party other than
as a result of money damages or other money payments, the Indemnified Party
shall have the right to defend, compromise or settle such Claim, and (ii)
the Indemnifying Party shall not, without the written consent of the
Indemnified Party, settle or compromise any Claim or consent to the entry
of any judgment which does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the Indemnified Party of a
release from all liability in respect of such Claim.
8.4 Payment. The Indemnifying Party shall promptly pay the Indemnified
Party any amount due under this Section 8, which payment may be accomplished in
whole or in part, at the option of the Indemnified Party, by the Indemnified
Party setting off any amount owed to the Indemnifying Party by the Indemnified
Party. To the extent set-off is made by an Indemnified Party in satisfaction or
partial satisfaction of an indemnity obligation under this Section 8 that is
disputed by the Indemnifying Party, upon a subsequent determination by final
judgment not subject to appeal that all or a portion of such indemnity
obligation was not owed to
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the Indemnified Party, the Indemnified Party shall pay the Indemnifying Party
the amount which was set off and not owed together with interest from the date
of set-off until the date of such payment at an annual rate equal to the annual
rate set forth in the Amortizing Note. Upon judgment, determination, settlement
or compromise of any third party Claim, the Indemnifying Party shall pay
promptly on behalf of the Indemnified Party, and/or to the Indemnified Party in
reimbursement of any amount theretofore required to be paid by it, the amount so
determined by judgment, determination, settlement or compromise and all other
Claims of the Indemnified Party with respect thereto, unless in the case of a
judgment an appeal is made from the judgment. If the Indemnifying Party desires
to appeal from an adverse judgment, then the Indemnifying Party shall post and
pay the cost of the security or bond to stay execution of the judgment pending
appeal. Upon the payment in full by the Indemnifying Party of such amounts, the
Indemnifying Party shall succeed to the rights of such Indemnified Party, to the
extent not waived in settlement, against the third party who made such third
party Claim.
8.5 Limitations on Indemnification. Except for any willful or knowing
breach or misrepresentation, as to which claims may be brought without
limitation as to time or amount:
(a) Time Limitation. Except as provided below, no claim or action
shall be brought under this Section 8 for breach of a representation or
warranty after the lapse of one (1) year following the Closing:
(i) There shall be no time limitation on claims on actions
brought for breach of any representation or warranty made by
Shareholders in or pursuant to Sections 3.1 and 3.2, and Shareholders
hereby waive all applicable statutory limitation periods with respect
thereto.
(ii) Any claim or action brought for breach of any
representation or warranty made by Shareholders in or pursuant to
Section 3.5 may be brought at any time until the underlying tax
obligation is barred by the applicable period of limitation under
federal and state laws relating thereto (as such period may be
extended by waiver).
(iii) Any claim or action brought for breach of any
representation or warranty made by Shareholders in or pursuant to
Section 3.11 may be brought at any time until the underlying claim is
barred by the applicable period of limitation under federal and state
laws relating thereto (as such period may be extended by waiver).
(iv) Any claim made by a party hereunder by filing a suit or
action in a court of competent jurisdiction or
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a court reasonably believed to be of competent jurisdiction for breach
of a representation or warranty prior to the termination of the
survival period for such claim shall be preserved despite the
subsequent termination of such survival period.
(v) If any act, omission, disclosure or failure to disclosure
shall form the basis for a claim for breach of more than one
representation or warranty, and such claims have different periods of
survival hereunder, the termination of the survival period of one
claim shall not affect a party's right to make a claim based on the
breach of representation or warranty still surviving.
8.6 No Waiver. The Closing of the transactions contemplated by this
Agreement shall not constitute a waiver by any party of its rights to
indemnification hereunder, regardless of whether the party seeking
indemnification has knowledge of the breach, violation or failure of condition
constituting the basis of the Claim at or before the Closing, and regardless of
whether such breach, violation or failure is deemed to be "material" for
purposes of Section 10.2.
9. CLOSING.
The closing of this transaction (the "Closing") shall take place at the
offices of Rutan & Tucker, 611 Anton Boulevard, Suite 1400, Costa Mesa,
California 92626, at 10:00 A.M. on August 3, 1998, or at such other time and
place as the parties hereto shall agree upon. Such date is referred to in this
Agreement as the "Closing Date."
9.1 Documents to be Delivered by Company and Shareholders. At the
Closing, Company and Shareholders shall deliver to Buyer the following
documents, in each case duly executed or otherwise in proper form:
(a) Stock Certificate(s). A stock certificate or certificates
representing the Shares, duly endorsed for transfer or with duly executed
stock powers attached.
(b) Compliance Certificate. A certificate signed by each
Shareholder that each of the representations and warranties made by
Shareholders in this Agreement is true and correct in all material respects
on and as of the Closing Date with the same effect as though such
representations and warranties had been made or given on and as of the
Closing Date (except for any changes permitted by the terms of this
Agreement or consented to in writing by Buyer), and that Company and
Shareholders have performed and complied with all of Company's and
Shareholders' obligations under this
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Agreement which are to be performed or complied with on or prior to the
Closing Date.
(c) Certified Resolutions. Certified copies of the resolutions of
the Board of Directors and the Shareholders of Company, authorizing and
approving this Agreement and the consummation of the transactions
contemplated by this Agreement.
(d) Articles of Incorporation: Bylaws. A copy of the Bylaws of
Company certified by the secretary of Company, and a copy of the Articles
of Incorporation of Company certified by the Secretary of State of the
state of incorporation of Company.
(e) Incumbency Certificate. Incumbency certificates relating to
each person executing (as a corporate officer or otherwise on behalf of
another person) any document executed and delivered to Buyer pursuant to
the terms hereof.
(f) General Releases. The General Releases referred to in Section
5.5, duly executed by the persons referred to in such section.
(g) Resignations. The resignations of Murdoch V. Heideman and
Jimmie E. Dysert as officers and directors of the Company,'effective as of
the Closing Date and in form satisfactory to Buyer's counsel.
(h) Other Documents. All other documents, instruments or writings
required to be delivered to Buyer at or prior to the Closing pursuant to
this Agreement and such other certificates of authority and documents as
Buyer may reasonably request.
9.2 Documents to be Delivered by Buyer. At the Closing, Buyer shall
deliver to Shareholders the following documents, in each case duly executed or
otherwise in proper form:
(a) Cash. To Shareholders, Buyer's check as required by Section
2.1(a) hereof.
(b) Compliance Certificate. A certificate signed by the chief
financial officer of Buyer that the representations and warranties made by
Buyer in this Agreement are true and correct on and as of the Closing Date
with the same effect as though such representations and warranties had been
made or given on and as of the Closing Date (except for any changes
permitted by the terms of this Agreement or consented to in writing by
Shareholders), and that Buyer has performed and complied with all of
Buyer's obligations under this Agreement which are to be performed or
complied with on or prior to the Closing Date.
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(c) Certified Resolutions. A certified copy of the resolutions of
the Board of Directors of Buyer authorizing and approving this Agreement
and the consummation of the transactions contemplated by this Agreement.
(d) Notes. The Notes as required by Sections 2.1(b) and (c) duly
executed by Buyer and Aram H. Keith.
(e) Warrant Certificates. The Warrant Certificates as required by
Section 2.1(d).
(f) Incumbency Certificate. Incumbency certificates relating to
each person executing any document executed and delivered to Company or
Shareholders by Buyer pursuant to the terms hereof.
(g) Other Documents. All other documents, instruments or writings
required to be delivered to Company at or prior to the Closing pursuant to
this Agreement and such other certificates of authority and documents as
Company may reasonably request.
10. TERMINATION.
10.1 Right of Termination without Breach. This Agreement may be
terminated without further liability of any party at any time prior to the
Closing:
(a) by mutual written agreement of Buyer and Shareholders' Agent, or
(b) by either Buyer or Shareholders if the Closing shall not have
occurred on or before August 31, 1998, provided the terminating party has
not, through breach of a representation, warranty or covenant, prevented
the Closing from occurring on or before such date.
10.2 Termination for Breach.
(a) Termination by Buyer. If (i) there has been a material
violation or breach by any Shareholder or Company of any of the agreements,
representations or warranties contained in this Agreement which has not
been waived in writing by Buyer, or (ii) there has been a failure of
satisfaction of a condition to the obligations of Buyer which has not been
so waived, or (iii) Company, Shareholders' Agent or any Shareholder shall
have attempted to terminate this Agreement under this Section 10 or
otherwise without grounds to do so, then Buyer may, by written notice to
Shareholders' Agent at any time prior to the Closing that such violation,
breach, failure or wrongful termination attempt is continuing, terminate
this Agreement with the effect set forth in Section 10.2(c) hereof.
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(b) Termination by Shareholders. If (i) there has been a material
violation or breach by Buyer of any of the agreements, representations or
warranties contained in this Agreement which has not been waived in writing
by Shareholders, or (ii) there has been a failure of satisfaction of a
condition to the obligations of Shareholders which has not been so waived,
or (iii) Buyer shall have attempted to terminate this Agreement under this
Section 10 or otherwise without grounds to do so, then Shareholders may, by
written notice to Buyer at any time prior to the Closing that such
violation, breach, failure or wrongful termination attempt is continuing,
terminate this Agreement with the effect set forth in Section 10.2(c)
hereof.
(c) Effect of Termination. Termination of this Agreement pursuant to
this Section 10.2 shall not in any way terminate, limit or restrict the
rights and remedies of any party hereto against any other party which has
violated, breached or failed to satisfy any of the representations,
warranties, covenants, agreements, conditions or other provisions of this
Agreement prior to termination hereof. In addition to the right of any
party under common law to redress for any such breach or violation, each
party whose breach or violation has occurred prior to termination shall
jointly and severally indemnify each other party for whose benefit such
representation, warranty, covenant, agreement or other provision was made
("indemnified party") from and against all losses, damages (including,
without limitation, consequential damages), costs and expenses (including,
without limitation, interest (including prejudgment interest in any
litigated matter), penalties, court costs, and attorneys fees and expenses)
asserted against, resulting to, imposed upon, or incurred by the
indemnified party, directly or indirectly, by reason of, arising out of or
resulting from such breach or violation. Subject to the foregoing, the
parties' obligations under Section 11.8(a) of this Agreement shall survive
termination.
11. MISCELLANEOUS.
11.1 Disclosure Schedule. The Schedules have been compiled in a bound
volume (the "Disclosure Schedule"), executed by Shareholders and dated and
delivered to Buyer on the date of this Agreement. Information set forth in the
Disclosure Schedule specifically refers to the article and section of this
Agreement to which such information is responsive and such information shall not
be deemed to have been disclosed with respect to any other article or section of
this Agreement or for any other purpose. The Disclosure Schedule shall not vary,
change or alter the language of the representations and warranties contained in
this Agreement and, to the extent the language in the Disclosure Schedule does
not conform in every respect to the language of such representations
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and warranties, such language in the Disclosure Schedule shall be disregarded
and be of no force or effect.
11.2 Further Assurance. From time to time, at Buyer's request and without
further consideration, Company and Shareholders will execute and deliver to
Buyer such documents and take such other action as Buyer may reasonably request
in order to consummate more effectively the transactions contemplated hereby.
11.3 Disclosures and Announcements. Announcements concerning the
transactions provided for in this Agreement by Buyer, Company or Shareholders
shall be subject to the approval of the other parties in all essential respects,
except that approval of the Shareholders or Company shall not be required as to
any statements and other information which Buyer may submit to the Securities
and Exchange Commission or Buyer's stockholders or be required to make pursuant
to any rule or regulation of the Securities and Exchange commission, the
National Association of Securities Dealers, Inc. or the Nasdaq Stock Market,
Inc. or otherwise required by law.
11.4 Assignment; Parties in Interest.
(a) Assignment. Except as expressly provided herein, the rights and
obligations of a party hereunder may not be assigned, transferred or
encumbered without the prior written consent of the other parties.
Notwithstanding the foregoing, Buyer may, without consent of any other
party, cause one or more subsidiaries or affiliates of Buyer to carry out
all or part of the transactions contemplated hereby; provided, however,
that Buyer shall, nevertheless, remain liable for all of its obligations,
and those of any such subsidiary, to Shareholders hereunder.
(b) Parties in Interest. This Agreement shall be binding upon, inure
to the benefit of, and be enforceable by the respective successors and
permitted assigns of the parties hereto. Nothing contained herein shall be
deemed to confer upon any other person any right or remedy under or by
reason of this Agreement.
11.5 Law Governing Agreement. This Agreement may not be modified or
terminated orally, and shall be construed and interpreted according to the
internal laws of the State of California, excluding any choice of law rules that
may direct the application of the laws of another jurisdiction.
11.6 Amendment and Modification. Buyer and Shareholders may amend, modify
and supplement this Agreement in such manner as may be agreed upon in writing
between Buyer and Shareholders.
11.7 Notice. All notices, requests, demands and other communications
hereunder shall be given in writing and shall be: (a) personally delivered; (b)
sent by telecopier, facsimile transmission or other electronic means of
transmitting written
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documents if followed by certified mail; or (c) sent to the parties at their
respective addresses indicated herein by registered or certified U.S. mail,
return receipt requested and postage prepaid, or by private overnight mail
courier service. The respective addresses to be used for all such notices,
demands or requests are as follows:
(a) If to Buyer, to:
The Keith Companies, Inc.
2955 Redhill Avenue
Costa Mesa, CA 92626
Attention: Gary Campanaro
Facsimile: (714) 668-7026
or to such other person or address as Buyer shall furnish to Shareholders in
writing.
(b) If to Shareholders, to:
Murdoch V. Heideman
Jimmie E. Dysert
c/o Martin B. Jannol, Esq.
Woollacott Jannol & Woollacott
1875 Century Park East, Suite 1400
Facsimile: 310-552-7552
or to such other person or address as Shareholders shall designate in accordance
with this Agreement. In addition, any notice to Shareholders shall also be
deemed to be notice to the Company.
If personally delivered, such communication shall be deemed delivered upon
actual receipt; if electronically transmitted pursuant to this paragraph, such
communication shall be deemed delivered the next business day after
transmission; if sent by overnight courier pursuant to this paragraph, such
communication shall be deemed delivered upon receipt; and if sent by U.S. mail
pursuant to this paragraph, such communication shall be deemed delivered as of
the date of delivery indicated on the receipt issued by the relevant postal
service, or, if the addressee fails or refuses to accept delivery, as of the
date of such failure or refusal. Delivery to either Shareholder shall constitute
delivery to all Shareholders. Any party to this Agreement may change its address
for the purposes of this Agreement by giving notice thereof in accordance with
this section.
11.8 Expenses. Regardless of whether or not the transactions contemplated
hereby are consummated:
(a) Expenses to be Paid by Shareholders. Shareholders shall pay, and
shall indemnify, defend and hold Buyer and Company harmless from and
against, each of the following:
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(i) Transfer Taxes. Any sales, use, excise, transfer or other
similar tax imposed with respect to the transactions provided for in
this Agreement, and any interest or penalties related thereto.
(ii) Professional Fees. Except to the extent described in
Section 5.6, all fees and expenses of their own and Company's legal,
accounting, investment banking and other professional counsel in
connection with the transactions contemplated hereby.
(iii) Broker's and Finder's Fees. All fees and expenses of their
own and Company's brokers and finders in connection with the
transactions contemplated hereby.
(b) Other. Except as otherwise provided herein, each of the parties
shall bear its own expenses and the expenses of its counsel and other
agents in connection with the transactions contemplated hereby.
(c) Costs of Litigation. The parties agree that the prevailing party
in any action brought with respect to or to enforce or interpret any right
or remedy under this Agreement shall be entitled to recover from the other
party or parties all reasonable costs and expenses of any nature whatsoever
incurred by the prevailing party in connection with such action, including
without limitation attorneys' fees and prejudgment interest.
11.9 Entire Agreement. This instrument embodies the entire agreement
between the parties hereto with respect to the transactions contemplated herein,
and there have been and are no agreements, representations or warranties between
the parties other than those set forth or provided for herein.
11.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.11 Headings. The headings in this Agreement are inserted for convenience
only and shall not constitute a part hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
BUYER: THE KEITH COMPANIES, INC.,
a California corporation
By: /s/ Gary C. Camparano
---------------------------------
Printed Name: Gary C. Camparano
-----------------------
Title: CFO
------------------------------
COMPANY: JOHN M. TETTEMER & ASSOCIATES, LTD.,
a California corporation
By: /s/ Murdoch Heideman
---------------------------------
Printed Name: Murdoch Heideman
-----------------------
Title: President
------------------------------
SHAREHOLDERS: THE MURDOCH V. HEIDEMAN AND NADINE
R. HEIDEMAN LIVING TRUST U/D/T DATED
OCTOBER 16, 1992
/s/ Murdoch Heideman
------------------------------------
By: MURDOCH HEIDEMAN, TRUSTEE
THE JIMMIE E. DYSERT AND JOLENE M.
DYSERT LIVING TRUST U/D/T DATED
FEBRUARY 20, 1993
/s/ Jimmie E. Dysert
------------------------------------
By: JIMMIE DYSERT, TRUSTEE
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