<PAGE>
As Filed with the Securities and Exchange Commission on April 28, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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THE KEITH COMPANIES, INC.
(Exact name of registrant as specified in charter)
California 8711 33-0203193
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
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2955 Red Hill Avenue
Costa Mesa, California 92626
(714) 540-0800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Aram H. Keith
Chief Executive Officer
The Keith Companies, Inc.
2955 Red Hill Avenue
Costa Mesa, California 92626
(714) 540-0800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
JAMES S. WEISZ, ESQ. JEREMY D. GLASER, ESQ.
NATALIE DUNDAS, ESQ. COOLEY GODWARD LLP
NATASHA LAKAMP, ESQ. 4365 Executive Drive, Suite 1100
RUTAN & TUCKER, LLP San Diego, California 92121
611 Anton Boulevard, 14th Floor (619) 550-6000
Costa Mesa, California 92626
(714) 641-5100
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act of 1933 registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Proposed
Amount Maximum Maximum
Title of Each Class of to be Offering Price Aggregate Amount of
Securities to be Registered Registered(1) Per Share(2) Offering Price(1)(2) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, no par
value................. 2,012,500 shares $10.00 $20,125,000 $5,595.00
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</TABLE>
(1) Includes 262,500 shares of common stock issuable upon exercise of the
underwriters' over-allotment option.
(2) Estimated using the proposed maximum offering price per share solely for
the purpose of calculating the registration fee under Rule 457.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, April 28, 1999
1,750,000 Shares
[LOGO OF TKCI TO APPEAR HERE]
Common Stock
Of the shares of common stock offered, all 1,750,000 shares are being sold by
The Keith Companies, Inc.
We propose to list the shares on the Nasdaq National Market under the symbol
"TKCI." This is our initial public offering and no public market currently
exists for our shares. We currently estimate that the initial public offering
price of our common stock will be between $8.00 and $10.00 per share. We have
granted the underwriters an option, exercisable for 45 days from the date of
this prospectus, to purchase a maximum of 262,500 additional shares to cover
over-allotments of shares. See "Underwriting" for information related to the
factors to be considered in determining the initial public offering price.
This investment involves risk. See "Risks Factors" beginning on page 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
<TABLE>
<CAPTION>
Underwriting
Price Discounts and Proceeds to
to Public Commissions TKCI
<S> <C> <C> <C>
Per Share................................ $ $ $
Total.................................... $ $ $
</TABLE>
FIRST SECURITY VAN KASPER E*OFFERING Corp.
, 1999
<PAGE>
[COLLAGE OF TYPICAL PROJECTS WITH PHOTOGRAPHS
AND BRIEF DESCRIPTIONS OF EACH PHOTOGRAPH]
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from the
information contained in this prospectus. We are offering to sell, and seeking
offers to buy, shares of common stock only in jurisdictions in which offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of our common stock.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY....................................................... 4
RISK FACTORS............................................................. 8
USE OF PROCEEDS.......................................................... 17
DIVIDEND POLICY.......................................................... 17
PRIOR S CORPORATION STATUS............................................... 18
ACQUISITION.............................................................. 18
CAPITALIZATION........................................................... 19
DILUTION................................................................. 20
SELECTED FINANCIAL DATA.................................................. 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.......................................................... 24
BUSINESS................................................................. 35
MANAGEMENT............................................................... 51
CERTAIN TRANSACTIONS..................................................... 57
PRINCIPAL SHAREHOLDERS................................................... 60
DESCRIPTION OF CAPITAL STOCK............................................. 61
SHARES ELIGIBLE FOR FUTURE SALE.......................................... 62
UNDERWRITING............................................................. 64
LEGAL MATTERS............................................................ 66
EXPERTS.................................................................. 66
WHERE YOU CAN FIND MORE INFORMATION...................................... 67
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.................... P-1
INDEX TO FINANCIAL STATEMENTS............................................ F-1
</TABLE>
All trademarks or trade names referred to in this prospectus are the property
of their respective owners.
3
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of the more detailed information and financial
statements appearing elsewhere in this prospectus. This summary is not complete
and may not contain all of the information that is important to you. To
understand this offering fully, you should read the entire prospectus
carefully, including the risk factors and financial statements.
We are one of the leading engineering, consulting and technical services firms
in the western United States. We specialize in:
. planning, engineering, designing, permitting and other services for a
wide range of residential, commercial and recreational real estate
development and public works projects and for wireless
telecommunications networks
. mechanical, electrical, chemical and other industrial engineering
services to design and improve the efficiency and reliability of
automated and manufacturing processes, production lines and fire
protection systems
We believe that our success is due to a number of factors, including:
. our well-established reputation for providing timely and high quality
services to our clients
. our experienced professional staff
. our ability to provide our clients with a full range of services, which
many of our competitors are unable to provide, resulting in both cost
and time savings to our clients as they no longer need to manage
multiple providers
. our ability to provide the increased scope of services that may arise
beyond the original contract, often resulting in the fees paid to us
significantly exceeding the original contract
The geographic regions we serve in the western United States are undergoing
economic expansion. Historical and projected growth in population, personal
income and employment are all combining to provide a robust economic
environment in which our services are necessary. As an example, we believe that
southern California residential real estate development is in the beginning of
the third year of what we believe has historically been a seven to ten year
upturn for new home building.
Our business strategy includes the following:
. Maintain the high quality of our services
. Continue to recruit and retain highly qualified personnel
. Expand the geographic scope of our operations in the western United
States
. Expand our service offerings and the industries we serve
. Continue to acquire and effectively integrate new business operations
4
<PAGE>
We have provided engineering, consulting and technical services for over 16
years. Since late 1997, we have made three acquisitions that enabled us to
expand our service offerings to include process engineering design, mechanical,
chemical and electrical engineering, environmental waste processing systems
design, petrochemical design, services relating to flood control and expanded
water resources engineering, environmental permitting, and biological surveys
and studies. In addition, we have expanded geographically into central and
northern California and Utah, and we intend to continue to expand throughout
the western United States to better service our clients.
We employ 461 professionals in our eight offices located in three states. Our
clients include major national and regional real estate development firms such
as The Irvine Company, Kaufman & Broad Home Corporation and Pulte Home
Corporation. We also serve architects, water districts, federal, state and
local governments, including Orange County Transportation Authority,
Metropolitan Water District of Southern California and Central Utah Water
Conservation District. In addition, we serve cellular telephone service
providers, universities and manufacturers of a wide variety of products,
including Dow Chemical Company, Toyota Motor Company and Enron Energy Services.
Our principal executive offices are located at 2955 Red Hill Avenue, Costa
Mesa, California 92626, and our telephone number is (714) 540-0800. Our
Internet address is http://www.keithco.com. Information contained on our web
site should not be considered to be part of this prospectus.
5
<PAGE>
The Offering
Common stock offered ....... 1,750,000 shares
Common stock to be
outstanding after the
offering(/1/)............... 5,309,708 shares
Use of proceeds............. We intend to use the estimated net cash proceeds
of $14.2 million that we will receive from this
offering to partially finance the acquisition of
substantially all of the assets and certain of
the liabilities of Thompson-Hysell, to repay
existing indebtedness and for general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National
Market symbol............... TKCI
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(1) Excludes outstanding options, warrants and other rights to acquire TKCI
common stock. See "Capitalization."
Simultaneously with the consummation of this offering, TKCI will acquire
substantially all of the assets and assume certain liabilities of Thompson-
Hysell Inc. As used in this prospectus, except where the context clearly
requires otherwise, references made to "TKCI," "we," "our," or "us" mean The
Keith Companies, Inc. and its subsidiaries (including substantially all of the
assets and certain liabilities of Thompson-Hysell). Unless otherwise indicated,
the information in this prospectus, including share and per share data:
. assumes no exercise of the underwriters' over-allotment option
. assumes no exercise of any other outstanding options, warrants or other
rights to acquire shares of TKCI common stock
. gives effect to the acquisition of substantially all of the assets and
the assumption of certain of the liabilities of Thompson-Hysell
. reflects a 2.70-for-1 reverse split of our common stock to be effected
prior to the consummation of this offering
6
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Summary Financial Information
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
------------------------------ -------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Historical Statements of
Operations Data(/2/):
Net revenue................ $ 12,966 $ 18,592 $ 29,182 $ 5,962 $ 8,969
Gross profit............... 3,737 6,721 9,895 1,882 3,055
Income (loss) from
operations................ (1,223) 2,236 4,037 412 1,159
Interest expense........... 720 852 967 221 260
Income (loss) before
provision (benefit) for
income taxes and
extraordinary gain........ (1,948) 1,301 3,004 184 918
Extraordinary gain on
forgiveness of
liability(/1/)............ 2,686 -- -- -- --
Net income................. $ 735 $ 2,698 $ 1,654 $ 68 $ 529
--------- --------- --------- --------- ---------
Pro Forma Supplemental
Data(/3/):
Net income................. $ 428 $ 755 $ 1,742 $ 107 $ 532
--------- --------- --------- --------- ---------
Net income per
share--diluted............ $ 0.14 $ 0.24 $ 0.47 $ 0.03 $ 0.14
========= ========= ========= ========= =========
Weighted average shares
outstanding--diluted...... 2,962,963 3,104,994 3,728,729 3,559,708 3,866,479
========= ========= ========= ========= =========
Pro Forma Statements of
Income Data(/3/)(/4/):
Net revenue................ $ 37,971 $ 11,271
Gross profit............... 14,077 4,163
Income from operations..... 5,729 1,718
Interest expense........... 421 120
Income before provision for
income taxes.............. 5,243 1,623
Provision for income
taxes..................... 2,202 682
Net income................. $ 3,041 $ 941
========= =========
Net income per share--
diluted................... $ 0.55 $ 0.17
========= =========
Weighted average shares
outstanding--diluted...... 5,568,957 5,611,360
========= =========
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 1999
------------------------
Actual As Adjusted(/5/)
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(in thousands)
<S> <C> <C>
Balance Sheet Data:
Working capital.................. $ 567 $ 9,199
Total assets..................... 15,689 23,969
Total debt....................... 9,674 3,835
Total stockholders' equity....... 658 14,641
</TABLE>
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(1) In 1996, amounts owed through December 31, 1995, relating to excessive
lease space in one of our facilities, were forgiven, resulting in an
extraordinary gain on the forgiveness of the liability and accrued but
unpaid rent of $2.7 million. See note 17 to the TKCI consolidated financial
statements.
(2) Prior to August 1, 1998, Keith Engineering, Inc., which is included in
TKCI's consolidated financial statements, elected to be taxed as an
S corporation. See "Prior S Corporation Status."
(3) Amounts reflect pro forma adjustments for provision for federal and state
income taxes at an assumed effective income tax rate of 42%. Net income per
share--diluted reflects a 2.70-for-1 reverse split of TKCI's common stock
to be effected prior to the consummation of this offering.
(4) Amounts reflect pro forma adjustments for our initial public offering of
1,750,000 shares of common stock at an assumed initial public offering
price of $9.00 per share, the acquisition and the application of the
estimated net proceeds from this offering as if the transactions had
occurred on January 1, 1998. See "Pro Forma Condensed Consolidated
Financial Statements."
(5) Amounts reflect pro forma adjustments for our initial public offering of
1,750,000 shares of common stock at an assumed initial public offering
price of $9.00 per share, the acquisition and the application of the
estimated net proceeds from this offering as if the transactions had
occurred on March 31, 1999. See "Pro Forma Condensed Consolidated Financial
Statements."
7
<PAGE>
RISK FACTORS
You should consider carefully the following risks before you decide to buy our
common stock. The risks and uncertainties described below are not the only ones
facing our company. Additional risks and uncertainties may also adversely
impact our business operations. If any of the following risks actually occur,
our business, financial condition or results of operations would likely suffer.
In such case, the trading price of our common stock could decline, and you may
lose all or part of the money you paid to buy our common stock.
A substantial portion of our business is dependent on the real estate market
We estimate that during 1998 at least 85% of our services were rendered in
connection with commercial and residential real estate development projects.
Real estate activity is highly cyclical in nature and is highly sensitive to
the rate of growth in employment within a geographic area, and as a result, our
revenue base can be adversely affected during periods of negative job growth.
From 1991 to 1996, our operations and financial condition were materially
adversely impacted during the real estate market downturn in southern
California, and we experienced cash flow difficulties and substantial operating
losses.
Our business, financial condition and results of operations may also be
adversely affected by conditions that impact the real estate market in general,
including, among other things:
. changes in national economic conditions, changes in local market
conditions due to changes in general or local economic conditions and
neighborhood characteristics
. changes in interest rates and in the availability, cost and terms of
financing
. the impact of present or future environmental legislation and
compliance with environmental laws and other regulatory requirements
. changes in real estate tax rates and assessments and other operating
expenses
. adverse changes in governmental rules and fiscal policies
. adverse changes in zoning and other land use laws
. earthquakes and other natural disasters (which may result in uninsured
losses) and other factors which are beyond our control
A substantial portion of our business is conducted in southern California
We estimate that during 1998 at least 50% of our revenues were derived from
services rendered in connection with commercial and residential real estate
developments in southern California. Consequently, we are disproportionately
exposed to adverse economic and other conditions affecting the southern
California real estate market or local economy, any of which could have a
material adverse effect on our business, financial condition and results of
operations. From 1991 to 1996, concurrent with the economic recession in
southern California, we experienced cash flow difficulties and substantial
operating losses.
8
<PAGE>
Our ability to attract and retain employees is critical to our business
We derive our revenues almost exclusively from services performed by our
professionals. Our future performance will continue to depend in large part
upon our ability to attract and retain highly skilled professionals. Qualified
professionals are in great demand and are likely to remain a limited resource
for the foreseeable future. There is significant competition for employees with
the requisite skills from major and boutique consulting, engineering, research
and other professional service firms. We may not be able to attract and retain
a substantial majority of our existing or future professionals for the long
term. The loss of the services of, or the failure to recruit, a significant
number of professionals could adversely affect our ability to secure and
complete engagements and could have an adverse effect on our business,
financial condition and results of operations. In addition, former employees
might compete with us with respect to ongoing or potential future projects.
We may face challenges managing our growth
We have grown rapidly and intend to pursue further growth as part of our
business strategy. Our rapid growth has presented and will continue to present
numerous operational challenges, such as the management of an expanding array
of engineering, consulting and technical services, the assimilation of
financial reporting systems, increased pressure on our senior management and
increased demand on our systems and internal controls. We may not be able to
maintain or accelerate our current growth, effectively manage our expanding
operations or achieve planned growth on a timely or profitable basis. Our
inability to manage growth effectively and efficiently could materially and
adversely affect our business, financial condition and results of operations.
We may fail to successfully integrate our acquisitions
A significant part of our growth strategy is to acquire other companies that
complement or expand the scope of our services and/or broaden our geographic
presence. Acquisitions involve certain risks that could cause our actual growth
or operating results to differ from our expectations or the expectations of
security analysts. For example:
. We may not be able to identify suitable acquisition candidates or to
acquire additional companies on favorable terms.
. We compete with others to acquire companies. We believe that this
competition will increase and may result in decreased availability or
increased prices for suitable acquisition candidates.
. We may not be able to obtain the necessary financing, on favorable
terms or at all, to finance any of our potential acquisitions.
. We may ultimately fail to consummate an acquisition even if we
announce that we plan to acquire a company.
. We may fail to integrate successfully or manage any acquired company
due to differences in business backgrounds or corporate cultures.
9
<PAGE>
. An acquired company may not perform as we expect.
. We may choose to acquire a company that is less profitable than us or
has lower profit margins than ours.
. We may find it difficult to provide a consistent quality of service
across our geographically diverse operations.
. If we fail to integrate successfully any acquired company, our
reputation could be damaged, potentially making it more difficult to
market our services or to acquire additional companies in the future.
. Our acquisition strategy may divert management's attention away from
our primary service offerings, result in the loss of key clients
and/or personnel and expose us to unanticipated liabilities.
Since December 1997, we have acquired three companies in two separate
transactions. At the present time, however, with the exception of our
acquisition of substantially all of the assets and certain of the liabilities
of Thompson-Hysell concurrent with this offering, we have no understandings or
agreements relating to any additional acquisitions. We expect to continue to
acquire companies as an element of our growth strategy in the future.
We may need to sell additional shares of common stock and/or incur additional
debt to finance future acquisitions
Our business strategy is to expand into new markets and enhance our position in
existing markets through the acquisition of complementary businesses. In order
to successfully complete targeted acquisitions, it may be necessary for us to
issue additional equity securities that could dilute your stock ownership. We
may also incur additional debt and amortize expenses related to goodwill and
other tangible assets if we acquire another company, and this could negatively
impact our business, financial condition and results of operations.
We rely on a relatively limited number of clients
We derive a significant portion of our revenues and profits from a relatively
limited number of clients. For example, net revenue from our five most
significant clients accounted for approximately 21% of our total net revenues
for the year ended December 31, 1998. There can be no assurance that any of our
most significant clients will continue to engage us for additional projects or
will do so at the same revenue levels. If we lose any significant client, our
business, financial condition and results of operations could be materially
adversely affected. In addition, the level of our services required by a
significant client may diminish over the life of its relationship with us, and
we may not be successful in establishing relationships with new clients as this
occurs.
We compete with other consulting firms
The market for services in the engineering, consulting and technical services
industries is highly competitive and is based primarily on quality of service,
relative experience, staffing
10
<PAGE>
capabilities, reputation, geographic presence, stability and price. Such
competition is likely to increase in the future. Many of our competitors have
more personnel and greater financial, technical and marketing resources than
us. Such competitors include many larger consulting firms such as TetraTech
Inc. and URS Corporation. We can offer no assurance that we will be able to
compete successfully in the future with these or other competitors.
We depend on key personnel
Our success is highly dependent upon the efforts, abilities, business
generation capabilities and project execution of our officers, especially those
of Aram H. Keith, our President and Chief Executive Officer. We do not have an
employment agreement with, or maintain key man life insurance on, Mr. Keith. If
we lose his services or the services of other officers for any reason, our
business, operating results and financial condition, including our ability to
secure and complete engagements and retain some of our employees, could be
materially adversely affected.
There are risks associated with our contracts
Our services are provided primarily through three types of contracts: fixed-
price, time-and-materials and time-and-materials with "not to exceed"
provisions. Under fixed price contracts, we perform services under a contract
at a stipulated price. Under time-and-materials contracts, we are reimbursed
for the number of labor hours expended at an established hourly rate negotiated
in the contract, plus the cost of materials incurred. Under time-and-materials
with "not to exceed" provisions contracts, we are reimbursed similar to time-
and-materials contracts; however, there is a stated maximum dollar amount for
the services to be provided under the contract.
Fixed-price contracts and time-and-materials contracts with "not to exceed"
provisions protect clients but expose us to a greater number of risks than time
and materials contracts. These risks include:
. underestimation of costs
. problems with new technologies
. unforeseen costs or difficulties
. delays beyond our control
. economic and other changes that may occur during the contract period
If any of these events occur, a loss on the contract could be incurred and
could result in a material adverse effect on our business, financial condition
and results of operations.
In fiscal 1998, approximately 54%, 17% and 29% of our net revenue was derived
from fixed-price, time-and-materials and time-and-materials with "not to
exceed" provisions contracts, respectively.
11
<PAGE>
Our services may expose us to liability
Our services involve significant risks of professional and other liabilities
which may substantially exceed the fees we derive from our services. Our
business activities could expose us to potential liability under various
environmental laws, such as the Comprehensive Environmental Response,
Compensation and Liability Act of 1980. In addition, from time to time, we
contractually assume liability under indemnification agreements. We cannot
predict the magnitude of such potential liabilities.
We currently maintain comprehensive general liability, umbrella and
professional liability insurance policies. These policies are "claims made"
policies. Thus, only claims made during the term of the policy are covered. If
we terminate our policies and do not obtain retroactive coverage, we would be
uninsured for claims made after termination even if these claims are based on
events or acts that occurred during the term of the policy. Our insurance may
not protect us against liability because our policies typically have various
exclusions and retentions. In addition, if we expand into new markets, we may
not be able to obtain insurance coverage for such activities or, if insurance
is obtained, the dollar amount of any liabilities incurred could exceed our
insurance coverage. A partially or completely uninsured claim, if successful
and of significant magnitude, could have a material adverse effect on our
business, financial condition and results of operations.
We rely on subcontractors
Under some of our contracts, we rely on the efforts and skills of
subcontractors for the performance of certain tasks. In 1998, subcontractor
costs comprised approximately 14% of our gross revenue. The absence of
qualified subcontractors with whom we have a satisfactory relationship could
adversely affect the quality of our service and our ability to perform under
some of our contracts.
Our quarterly results may fluctuate
Variations in our revenues and operating results can occur from quarter to
quarter as a result of a number of factors, including:
. client engagements commenced and completed during a quarter
. seasonality
. the number of business days in a quarter
. the number of work days lost as a result of adverse weather conditions
or delays caused by third parties
. employee hiring, billing and utilization rates
. the consummation of acquisitions
. the length of the sales cycle on new business
. the ability of clients to terminate engagements without penalty
12
<PAGE>
. our ability to efficiently shift our employees from project to project
. the size and scope of assignments
. general economic conditions
Our business is subject to seasonal and quarterly variations due primarily to
climactic conditions. Due primarily to this variable, typically, the first and
fourth quarters of our fiscal year have lower revenues and operating results
than the second and third quarters.
In addition, because a portion of our expenses are relatively fixed,
significant variations in revenues or the number of days in a quarter can cause
fluctuations in operating results from quarter to quarter and could result in
losses.
Our existing shareholders will retain significant control over TKCI following
this offering
Upon completion of this offering, our directors and executive officers and
their respective affiliates will beneficially own 2,959,629 shares of common
stock, or approximately 55.39% of our outstanding common stock. Of these
shares, 1,533,704 shares, or approximately 28.7% of our outstanding common
stock, will be owned by Aram H. Keith, and as a result, he will have the
ability to control the election of directors and the results of other matters
submitted to a vote of shareholders. In addition, Floyd S. Reid, who co-founded
TKCI with Mr. Keith, will own 509,444 shares or approximately 9.53% of our
outstanding common stock; and Walter W. Cruttenden, III, one of our directors,
will own 418,137 shares or approximately 7.83% of our outstanding common stock.
Such concentration of ownership may have the effect of delaying or preventing a
change in control of us and may adversely affect the voting or other rights of
other holders of our common stock.
The book value of your common stock will be substantially diluted in this
offering and may be diluted in the future
The offering price for the shares of common stock in this offering is
substantially higher than the book value per share of our common stock.
Consequently, if you purchase shares of our common stock in this offering you
will incur immediate and substantial dilution. In addition, we may sell shares
in the future which may cause further dilution.
If we issue shares of preferred stock, the rights of holders of common stock
will be subject to the rights of holders of preferred stock
Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any vote or
action by the shareholders. The rights of the holders of our common stock will
be subject to, and may be adversely affected by, the rights of the holders of
any preferred stock that may be issued in the future. The issuance of the
preferred stock could have the effect of making it more difficult for a third
party to acquire a majority of our outstanding voting stock.
13
<PAGE>
There has been no prior public market for our common stock and our stock price
will likely be subject to significant volatility
Prior to this offering, there has been no public market for our common stock,
and there can be no assurance that an active public market for our common stock
will develop or be sustained after the offering. The initial public offering
price will be determined by negotiations between us and the representatives of
the underwriters and may bear no relationship to our book value, earnings
history or other established criteria of value or to the price at which the
common stock will trade after the offering.
In addition, in recent years the stock market has experienced extreme price and
volume fluctuations that have affected the market price of many service-based
companies and which have, at times, been unrelated to the operating performance
of the specific companies whose stocks were affected. Such fluctuations could
adversely affect the market price of our common stock. We believe that in
addition to the other factors discussed in this "Risk Factors" section, the
following factors could also cause the market price of our common stock to
fluctuate, perhaps substantially:
. quarterly fluctuations in our operating results
. loss of key personnel
. general conditions in the financial markets, the real estate market,
the engineering, consulting and technical services market and the
worldwide economy
. fluctuations in interest rates
. announcement and market acceptance of acquisitions
. our failure to meet securities analysts' expectations
. changes in accounting principles
. sales of common stock by existing shareholders or holders of options
or warrants
. adverse circumstances affecting the introduction or market acceptance
of new services offered by us
. announcements of key developments by competitors
The large number of shares available for future sale could adversely affect the
price of our publicly traded stock
After this offering, the possibility that substantial amounts of our common
stock may be sold in the public market will likely have a material adverse
effect on prevailing market prices of our common stock and could impair our
ability to raise capital through the sale of equity securities. Upon completion
of this offering, 5,309,708 shares of our common stock will be outstanding. As
of March 31, 1999, we have also granted options to employees to acquire an
aggregate of 485,074 shares of common stock subject to certain vesting
requirements pursuant to our Amended and Restated 1994 Stock Incentive Plan.
Prior to the
14
<PAGE>
consummation of the offering, we will also grant options to purchase an
aggregate of 14,815 shares to outside directors under this plan. We intend to
register on a registration statement on Form S-8, shortly after the closing of
this offering, all 499,889 shares of common stock underlying the options then
outstanding or issuable under such plan. We may also issue 148,148 shares of
common stock in 2000 (which may be adjusted upward or downward depending on
certain conditions), will reserve 37,037 shares of our common stock under our
Amended and Restated 1994 Stock Incentive Plan and will issue a warrant to
acquire 66,667 shares of TKCI common stock in relation to the acquisition of
substantially all of the assets and the assumption of certain of the
liabilities of Thompson-Hysell. We have also issued warrants to acquire 83,333
shares of TKCI common stock in connection with earlier acquisitions. The
1,750,000 shares sold in this offering (other than shares that may be purchased
by our affiliates) will be freely tradeable. All of the remaining 5,309,708
shares held by existing shareholders will be "restricted securities" as defined
in Rule 144 of the Securities Act of 1933, of which 492,037 shares will be
eligible for sale in the public market on the date of this prospectus in
reliance on Rule 144(k). The remainder of the restricted shares will be
eligible for sale from time to time thereafter upon expiration of one-year
holding periods and subject to the requirements of Rule 144. In addition, the
shares held by all of our shareholders and persons with rights to acquire our
shares, except certain non-management employees, are subject to agreements
restricting the sale of their shares in favor of the representatives of the
underwriters. The shares of common stock that may be issued in connection with
our acquisition of Thompson-Hysell will be restricted securities but will
include the right to have such shares registered for resale under the
Securities Act of 1933.
Year 2000 issues could affect our business
Many existing computer programs use only two digits to identify the year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. As a result, any computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in system failure or
miscalculations, causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
We are heavily dependent upon the proper functioning of our own computer and
data-dependent systems. This includes, but is not limited to, our
support/administrative and operational/production systems. Any failure or
malfunctioning on the part of these or other systems could harm our business in
ways that we currently do not know and cannot discern, quantify or otherwise
anticipate. In addition, if our key vendors experience Year 2000 compliance
issues, then our business could be harmed.
We may be unable to implement the upgrades necessary to resolve any significant
problems we discover in our testing efforts. Even if we do make these upgrades,
they may not be effective in addressing the problems identified. If required
upgrades are not completed in a timely manner or are not successful, our
business could be harmed.
15
<PAGE>
There are risks associated with forward-looking statements made by us and
actual results may differ
This prospectus contains certain forward-looking statements, including, among
others:
. the anticipated growth in the engineering, consulting and technical
services industries
. anticipated trends in our financial condition and results of
operations
. our ability to finance our working capital requirements
. our business strategy for expanding our presence in the engineering,
consulting and technical services industry
. our ability to distinguish ourselves from our current and future
competitors
When used in this prospectus, the words "anticipate," "believe," "estimate,"
"expect," "intend," "plan" and similar expressions as they relate to us are
intended to identify such forward-looking statements. These forward-looking
statements are based on our current expectations and are subject to a number of
risks and uncertainties. In addition to the risks described elsewhere in this
"Risk Factors" discussion, important factors to consider in evaluating such
forward-looking statements include:
. the shortage of reliable market data regarding the engineering,
consulting and technical services industry
. changes in external competitive market factors or in our internal
budgeting process that might impact trends in our results of
operations
. unanticipated working capital or other cash requirements
. changes in our business strategy or an inability to execute our
strategy due to unanticipated changes in the engineering, consulting
and technical services industry
. various other factors that may prevent us from competing successfully
in the marketplace
In light of these risks and uncertainties, many of which are described in
greater detail elsewhere in this "Risk Factors" discussion, our actual results
may differ materially from any forward-looking statements contained in this
prospectus.
16
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net cash proceeds of $14,179,000 from the sale
of 1,750,000 shares of common stock offered hereby, assuming an initial public
offering price of $9.00 per share and after deducting estimated underwriting
discounts and unpaid offering expenses. We currently intend to use the net
proceeds of this offering to acquire substantially all of the assets and
certain of the liabilities of Thompson-Hysell, to repay, in whole or in part,
debt, capital lease obligations and notes payable to related parties, including
accrued interest thereon, and for general corporate purposes.
As of March 31, 1999, the debt, capital lease obligations and notes payable to
related parties, including accrued interest thereon, expected to be repaid is
as follows:
<TABLE>
<CAPTION>
Type Amount Interest Rate Maturity
- ---- ------ ------------- --------
(in thousands)
<S> <C> <C> <C>
Bank line of credit........... $4,180 10.50% March 2000
Bank line of credit........... 95 9.25% May 2000
Notes payable*................ 460 8.00% to 13.22% Offering date
to December 2003
Capital lease obligations*.... 740 4.80% to 17.18% February 2000
to November 2002
Notes payable to related
parties (including accrued
interest)................... 2,602 10.00% July to
October 2000
</TABLE>
- ------------------
*Used for capital expenditures.
We intend to acquire substantially all of the assets of Thompson-Hysell for
cash of $3,333,333, a note payable of $1,333,333 and may issue 148,148 shares
of TKCI common stock in 2000 if certain conditions are met (assuming an initial
public offering price of $9.00 per share). We may also be required to pay an
additional $500,000 if specified financial targets are met and approximately
$400,000 for certain income tax effects. If the underwriters exercise all or a
portion of their overallotment option, we will use the net proceeds for general
corporate purposes.
We intend to invest the remainder of the net proceeds in short-term, investment
grade, interest-bearing cash equivalents until they are used.
DIVIDEND POLICY
TKCI has not declared or paid any cash dividends on TKCI's capital stock in
either of the past two fiscal years and does not anticipate paying cash
dividends on its common stock in the foreseeable future. The payment of any
future dividends will be at the discretion of TKCI's board of directors and
will depend upon, among other things, future earnings, capital requirements and
the general financial condition of its business.
TKCI's credit agreement with Imperial Bank restricts the payment of dividends
without the bank's consent. We intend to repay most of our bank debt with the
proceeds of the offering and then to attempt to negotiate a new credit
agreement, although we anticipate that any new credit agreement will similarly
restrict our ability to pay dividends.
17
<PAGE>
PRIOR S CORPORATION STATUS
From 1983 until 1998, Keith Engineering (a corporation originally affiliated
with TKCI which then became a wholly-owned subsidiary and was merged into TKCI)
was treated as an S corporation for purposes of federal and state income taxes.
Accordingly, Keith Engineering had not been subject to regular federal income
tax and was subject to California income tax at a rate of 1.5% of its taxable
income. Each of the shareholders of Keith Engineering was required to include
his portion of the Keith Engineering taxable income or loss in his individual
income for state and federal income tax purposes. Effective August 1, 1998,
Keith Engineering became a wholly-owned subsidiary, and its S corporation
status terminated. As a result, it began being taxed as a C corporation and
became subject to regular federal and state income taxes. Keith Engineering was
merged into TKCI on November 30, 1998.
ACQUISITION
On April 9, 1999, TKCI entered into an Asset Purchase Agreement with Thompson-
Hysell and its shareholders. Thompson-Hysell provides real estate services
similar to TKCI in central and northern California and Utah. The founding
shareholders of Thompson-Hysell, who will be employed by us after the
acquisition, have been providing engineering, consulting and technical services
for 17 years.
Under the Asset Purchase Agreement, TKCI will acquire substantially all of the
assets of Thompson-Hysell, including the right to use its name, and assume
certain of its liabilities. TKCI will pay a purchase price of: (a) cash in the
amount of $3,333,333; (b) a promissory note in the amount of $1,333,333 payable
in 2001; and (c) shares of common stock with a value equal to $1,333,334 which
may be issuable in 2000 if certain conditions are met. The purchase price is
subject to adjustment upward or downward depending upon (a) certain financial
targets being met related to the assets acquired and liabilities assumed; (b)
earnings for the years ended December 31, 1999 and 2000; and (c) an adjustment
for income tax effects. For purposes of this prospectus, including the pro
forma information, we have assumed that an additional $500,000 will be payable
pursuant to financial targets being met (which is the maximum additional amount
payable for that purpose) and $400,000 will be payable for certain income tax
effects. We have excluded the effect of the 1999 earnings target on our
contingent obligation to issue shares of our common stock. We expect to close
this acquisition concurrently with this offering. TKCI has also agreed to
reserve 37,037 shares of its common stock for issuance under stock options to
be granted to those employees of Thompson-Hysell who become employees of TKCI
upon the consummation of this offering. All of the shareholders of Thompson-
Hysell will enter into five year non-competition agreements with TKCI.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 and as
adjusted to reflect our sale of 1,750,000 shares of common stock (assuming an
initial public offering price of $9.00 per share) and application of the
estimated net proceeds.
<TABLE>
<CAPTION>
March 31, 1999
-------------------
Actual As Adjusted
------ -----------
(in thousands,
except share data)
<S> <C> <C>
Short term debt:
Short term borrowings, including current portion of
long term debt and capital lease obligations......... $6,325 $ 1,635
====== =======
Long term debt:
Long term debt and capital lease obligations, less
current portion...................................... $ 948 $ 2,200
Notes payable to related parties....................... 2,401 --
Stockholders' equity:
Preferred Stock, no par value, 20,000,000 shares
authorized; no shares issued and outstanding actual;
and no shares issued and outstanding, as adjusted.... -- --
Common stock, no par value, 100,000,000 shares
authorized; 3,559,708 shares issued and outstanding
actual; and 5,309,708 shares issued and outstanding,
as adjusted.......................................... 1,085 15,068
Accumulated deficit.................................... (427) (427)
------ -------
Total stockholders' equity............................. 658 14,641
------ -------
Total capitalization.................................... $4,007 $16,841
====== =======
</TABLE>
- ------------------
The shares listed above exclude:
(1) 1,111,111 shares of common stock reserved for issuance under our Amended
and Restated 1994 Stock Incentive Plan, of which 499,889 shares are
issuable pursuant to outstanding options or will be issuable pursuant to
options to be granted prior to or upon the consummation of this offering.
(2) 83,333 shares of common stock issuable upon the exercise of warrants
granted in connection with the acquisitions of ESI, Engineering Services
Incorporated and John M. Tettemer & Associates, Ltd.
(3) up to 37,037 shares of common stock issuable if certain earnings, targets
and other conditions are met by ESI.
(4) that number of shares of common stock with a value of $1,333,334 (subject
to adjustment upward or downward) which we may be required to issue to the
shareholders of Thompson-Hysell in 2000 if certain conditions are met.
(5) a warrant to purchase 66,667 shares of common stock which will be granted
in connection with the acquisition of substantially all of the assets and
the assumption of certain of the liabilities of Thompson-Hysell.
19
<PAGE>
DILUTION
At March 31, 1999, TKCI had a net tangible book value of $(2,000) or $0.00 per
share of common stock. Net tangible book value per share represents tangible
book value (total tangible assets less our total liabilities) divided by the
total number of shares of common stock outstanding. Without taking into account
any changes in net tangible book value after March 31, 1999 other than to give
effect to our sale of 1,750,000 shares of common stock (at an assumed initial
public offering price of $9.00 per share), our net tangible book value at March
31, 1999 would have been $13,831,000 or $2.60 per share. This represents an
immediate decrease in the net tangible book value of $6.40 per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $9.00
Net tangible book value per share before the offering........... $0.00
Increase in net tangible book value per share attributable to
new investors................................................. $2.60
-----
Net tangible book value per share after the offering.............. $2.60
-----
Dilution per share to new investors............................... $6.40
=====
</TABLE>
The following table sets forth on a pro forma basis, as of March 31, 1999, the
total number of shares of common stock purchased from us, after giving effect
to our sale of 1,750,000 shares at an assumed initial public offering price of
$9.00 per share, that total consideration paid and the average price per share
paid by the existing shareholders and by new investors:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------- ---------------------- Average Price
Number Percent Amount Percent Per Share
--------- ------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.. 3,559,708 67% 658,000 4% $0.18
New investors.......... 1,750,000 33% 15,750,000 96% $9.00
--------- --- ------------- ------
Total................ 5,309,708 100% 16,408,000 100%
========= === ============= ======
</TABLE>
- ------------------
The above information assumes no exercise of the over-allotment option or any
other outstanding options, warrants or other rights to acquire shares. If all
of such options and warrants are exercised in full, there would be further
dilution to new investors. See "Management--Stock Options," "Description of
Capital Stock" and "Certain Transactions."
20
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The selected financial data includes consolidated financial statement data for
certain periods presented and combined financial statement data for certain
periods presented. All financial statement data is referred to as consolidated.
See Note 1 to the Consolidated Financial Statements of TKCI included elsewhere
in this prospectus for a description of which periods reflect consolidated or
combined financial statements.
The Historical Statements of Operations Data for the years ended December 31,
1996, 1997 and 1998, and the Historical Balance Sheet Data as of December 31,
1997 and 1998, have been derived from the historical consolidated financial
statements of TKCI audited by KPMG LLP, independent auditors, which
consolidated financial statements and independent auditors' report are included
elsewhere in this prospectus. The Historical Statements of Operations Data for
the three months ended March 31, 1998 and 1999 and the Historical Balance Sheet
Data as of March 31, 1999 have been derived from the unaudited consolidated
financial statements of TKCI included elsewhere in this prospectus. The
Historical Statements of Operations Data for the year ended December 31, 1995,
and the Historical Balance Sheet Data as of December 31, 1996, have been
derived from the audited historical consolidated financial statements of TKCI
which are not included herein. The Historical Statements of Operations Data for
the year ended December 31, 1994 and the Historical Balance Sheet Data as of
December 31, 1994 and 1995, have been derived from the unaudited consolidated
financial statements of TKCI which are not included herein and which, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations and financial position as of the dates and for the period presented.
The Pro Forma Statements of Income Data for the year ended December 31, 1998
and the three months ended March 31, 1999, is unaudited and assumes an
effective income tax rate of 42% and that the initial public offering of
1,750,000 shares of common stock at an assumed initial public offering price of
$9.00 per share, the acquisition of substantially all of the assets and the
assumption of certain of the liabilities of Thompson-Hysell, and the repayment
of debt, capital lease obligations and notes payable to related parties with
the net proceeds of this offering had all occurred on January 1, 1998.
The Pro Forma Balance Sheet Data as of March 31, 1999 is unaudited and assumes
that the initial public offering of 1,750,000 shares of common stock at an
assumed initial public offering price of $9.00 per share, the acquisition of
substantially all of the assets and the assumption of certain of the
liabilities of Thompson-Hysell, and the repayment of short-term obligations,
long-term debt, capital lease obligations and notes payable to related parties
with the net proceeds of this offering had all occurred on March 31, 1999.
21
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The following information should be read in conjunction with the consolidated
financial statements of TKCI and the notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
------------------------------------------------- ----------------
1994 (/1/) 1995 1996 (/1/) 1997 1998 1998 1999
---------- ------- ---------- ------- --------- ------ ---------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Statements of
Operations Data(/2/):
Gross revenue.......... $22,071 $15,152 $14,344 $22,585 $ 34,021 $7,121 $ 9,999
------- ------- ------- ------- --------- ------ ---------
Net revenue............ 19,979 14,039 12,966 18,592 29,182 5,962 8,969
Costs of revenue....... 14,837 10,212 9,229 11,871 19,287 4,080 5,914
------- ------- ------- ------- --------- ------ ---------
Gross profit........... 5,142 3,827 3,737 6,721 9,895 1,882 3,055
Selling, general and
administrative
expenses.............. 7,850 4,808 4,960 4,485 5,858 1,470 1,896
------- ------- ------- ------- --------- ------ ---------
Income (loss) from
operations............ (2,708) (981) (1,223) 2,236 4,037 412 1,159
Interest expense....... 583 568 720 852 967 221 260
Other expenses
(income), net......... 3 68 5 83 66 7 (19)
------- ------- ------- ------- --------- ------ ---------
Income (loss) before
provision (benefit)
for income taxes and
extraordinary gain.... (3,294) (1,617) (1,948) 1,301 3,004 184 918
Provision (benefit) for
income taxes(/2/)..... (16) 18 3 (1,397) 1,350 116 389
------- ------- ------- ------- --------- ------ ---------
Income (loss) before
extraordinary gain.... (3,278) (1,635) (1,951) 2,698 1,654 68 529
Extraordinary gain on
forgiveness of
liability(/1/)........ -- -- 2,686 -- -- -- --
------- ------- ------- ------- --------- ------ ---------
Net income (loss)...... $(3,278) $(1,635) $ 735 $ 2,698 $ 1,654 $ 68 $ 529
======= ======= ======= ======= ========= ====== =========
Pro Forma Statements of
Income Data(/3/)(/4/):
Gross revenue.......... $ 43,133 $ 12,377
--------- ---------
Net revenue............ 37,971 11,271
Costs of revenue....... 23,894 7,108
--------- ---------
Gross profit........... 14,077 4,163
Selling, general and
administrative
expenses.............. 8,348 2,445
--------- ---------
Income from
operations............ 5,729 1,718
Interest expense....... 421 120
Other expenses
(income), net......... 65 (25)
--------- ---------
Income before income
taxes................. 5,243 1,623
Provision for income
taxes................. 2,202 682
--------- ---------
Net income............. $ 3,041 $ 941
========= =========
Net income per share--
diluted............... $ 0.55 $ 0.17
========= =========
Weighted average shares
outstanding--diluted.. 5,568,957 5,611,360
========= =========
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
As of December 31, As of March 31, 1999
------------------------------------------- ----------------------
As
1994 1995 1996 1997 1998 Actual Adjusted (/5/)
------- ------- ------- ------- ------- ------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital
(deficit)............. $(3,671) $(4,395) $(3,548) $ 2,016 $ 5,180 $ 567 $ 9,199
Total assets........... 7,931 5,384 4,677 11,733 14,530 15,689 23,969
Total debt............. 5,069 5,302 6,597 8,087 9,667 9,674 3,835
Total stockholders'
equity (deficit)...... (4,328) (5,962) (5,227) (1,525) 129 658 14,641
</TABLE>
- ------------------
(1) In 1994, we accrued $2.0 million relating to excessive lease space in one
of our facilities. In 1996, amounts owed under the lease through December
31, 1995 were forgiven, resulting in an extraordinary gain on the
forgiveness of the liability and accrued but unpaid rent of $2.7 million.
See Note 17 to the TKCI consolidated financial statements.
(2) Prior to August 1, 1998, Keith Engineering, which is included in TKCI's
consolidated financial statements, elected to be taxed as an S corporation.
See "Prior S Corporation Status."
(3) Amounts reflect pro forma adjustments for provision for federal and state
income taxes at an assumed effective income tax rate of 42%. Net income per
share--dilutive reflects a 2.70-for-1 reverse split of TKCI's common stock
to be effected prior to the consummation of this offering.
(4) Amounts reflect pro forma adjustments for our initial public offering of
1,750,000 shares of common stock at an assumed initial offering price of
$9.00 per share, the acquisition and the application of the estimated net
proceeds from this offering as if the transactions had occurred on January
1, 1998. See "Pro Forma Condensed Consolidated Financial Statements."
(5) Amounts reflect pro forma adjustments for our initial public offering of
1,750,000 shares of common stock at an assumed initial offering price of
$9.00 per share, the acquisition and the application of the estimated net
proceeds from this offering as if the transactions had occurred on March
31, 1999. See "Pro Forma Condensed Consolidated Financial Statements."
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements of TKCI and its subsidiaries and the related notes and the
other financial information included elsewhere in this prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of any number of
factors, including those set forth under "Risk Factors" and elsewhere in this
prospectus.
Overview
The following discussion should be read in conjunction with "Selected Financial
Data" and our consolidated financial statements and the related notes, included
elsewhere in this prospectus, and includes the operations of TKCI and our
wholly-owned subsidiaries, including Keith Engineering. TKCI and Keith
Engineering have been under common management and ownership since the inception
of TKCI in 1986. On August 1, 1998, TKCI was reorganized, such that Keith
Engineering became a wholly-owned subsidiary of TKCI. This reorganization was
accounted for as a combination of affiliated entities under common control in a
manner similar to a pooling-of-interests. Under this method, the assets,
liabilities and equity were carried over at their historical book values and
the operations of TKCI and Keith Engineering have been recorded on a combined
historical basis. The combination did not require any material adjustments to
conform the accounting policies of the separate entities. On November 30, 1998
Keith Engineering was merged with and into TKCI. In this Management's
Discussion and Analysis of Financial Condition and Results of Operations,
references to "TKCI," "we," "our" and "us" mean TKCI and its subsidiaries
without giving effect to the acquisition of Thompson-Hysell.
In December 1997, TKCI purchased ESI and its wholly-owned subsidiary ESII,
Engineered Systems Integration, Inc., which was subsequently merged into ESI.
ESI provides consulting services related to process engineering design,
chemical engineering, electrical engineering, environmental waste processing
system design and petrochemical systems design. In August 1998, TKCI purchased
John M. Tettemer and Associates, which provides services relating to flood
control and drainage engineering, environmental permitting, and biological
surveys and studies. In April 1999, TKCI entered into an asset purchase
agreement with Thompson-Hysell, under which TKCI would acquire substantially
all of the assets and assume certain liabilities of Thompson-Hysell. With the
exception of the services provided by ESI, Thompson-Hysell provides services
similar to ours in central and northern California and Utah. This acquisition
will close concurrently with this offering and is expected to increase our
revenue, and, based upon Thompson-Hysell's historical results, we anticipate
that our gross margins after the acquisition will be positively impacted.
We derive most of our revenue from professional service activities. The
majority of these activities are billed under various types of contracts with
our clients, including fixed fee and time and material contracts. Most of our
time and material contracts have not-to-exceed provisions. Revenue is
recognized on the percentage of completion method of accounting
24
<PAGE>
based on the proportion of actual direct contract costs incurred to total
estimated direct contract costs. We believe that costs incurred are the best
available measure of progress towards completion on the contracts. In the
course of providing services, we sometimes subcontract for various services.
These costs are included in billings to clients and, in accordance with
industry practice, are included in our gross revenue. Because subcontractor
services can change significantly from project to project, changes in gross
revenue may not be indicative of business trends. Accordingly, we also report
net revenue, which is gross revenue less subcontractor costs. Our revenues are
generated from a large number of relatively small contracts.
In 1998, at least 85% of our revenues were derived from services rendered in
connection with commercial and residential real estate development projects.
The real estate market has historically experienced pronounced business cycles.
Our consolidated results of operations can be adversely impacted by downturns
in the real estate market. Based upon the number of building permits issued,
the last peak of the business cycle in the southern California real estate
market was in 1989 and the last trough was in 1996. At least 50% of our
revenues are derived from services rendered in southern California.
Consequently, adverse economic conditions affecting the southern California
economy could also have an adverse effect on our consolidated results of
operations. We anticipate that as we consummate acquisitions in the future, the
concentration of revenue from both real estate development and southern
California will decline.
Costs of revenue include labor, non-reimbursable subcontract costs, materials
and certain direct and indirect overhead costs such as rent, utilities and
depreciation. Direct labor employees work predominantly at our offices, or in
some cases at the clients job site. The number of direct labor employees
assigned to a contract will vary according to the size, complexity, duration
and demands of the project. Contract terminations, completions and scheduling
delays may result in periods when direct labor employees are not fully
utilized. As we continue to grow, we anticipate that we will continue to add
professional and administrative staff to support our growth. Such professionals
are in great demand and are likely to remain a limited resource for the
foreseeable future. The significant competition for employees with the required
skills creates wage pressures on professional compensation. We attempt to
increase our billing rates to customers to compensate for wage increases,
however, there can be a lag before wage increases can be incorporated into our
existing contracts. Certain expenses, primarily long term leases, are fixed and
cannot be adjusted in reaction to an economic downturn.
Selling, general, and administrative expenses consist primarily of corporate
costs related to finance and accounting, information technology, contract
proposal, executive salaries, provisions for doubtful accounts and other
indirect overhead costs.
25
<PAGE>
Results of Operations
The following table sets forth historical and unaudited pro forma supplemental
consolidated operating results for each of the periods presented as a
percentage of net revenue. Pro forma amounts for these periods reflect
adjustments for provisions for federal and state income taxes as if we had been
taxed as a C corporation, at an assumed effective income tax rate of
approximately 42%. On August 1, 1998, in connection with our reorganization,
Keith Engineering converted from an S corporation to a C corporation.
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
----------------- ---------------
1996 1997 1998 1998 1999
---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Gross revenue.............................. 111% 121% 117% 119% 111%
Subcontractor costs........................ 11% 21% 17% 19% 11%
--- --- --- ----- -----
Net revenue.............................. 100% 100% 100% 100% 100%
Costs of revenue........................... 71% 64% 66% 68% 66%
--- --- --- ----- -----
Gross profit............................. 29% 36% 34% 32% 34%
Selling, general and administrative
expenses................................. 38% 24% 20% 25% 21%
--- --- --- ----- -----
Income (loss) from operations............ (9%) 12% 14% 7% 13%
Interest expense........................... 6% 5% 3% 4% 3%
--- --- --- ----- -----
Income (loss) before pro forma provision
(benefit) for income taxes and
extraordinary gain..................... (15%) 7% 11% 3% 10%
Pro forma provision (benefit) for income
taxes.................................... (6%) 3% 5% 1% 4%
--- --- --- ----- -----
Pro forma income (loss) before
extraordinary gain..................... (9%) 4% 6% 2% 6%
Extraordinary gain on forgiveness of
liability, net of pro forma income
taxes.................................... 12% -- -- -- --
--- --- --- ----- -----
Pro forma net income..................... 3% 4% 6% 2% 6%
=== === === ===== =====
</TABLE>
Three Months Ended March 31, 1999 and March 31, 1998
Revenue. Net revenue for the three months ended March 31, 1999 was $9.0 million
compared to $6.0 million for the three months ended March 31, 1998, an increase
of $3 million, or 50%. Net revenue growth resulted primarily from the continued
strengthening of the California and Nevada housing markets; growth in our
employee base and base of projects, which resulted in additional services and
follow-up contracts being awarded in the first three months of 1999 relating to
projects undertaken prior to 1999; improved weather conditions for field survey
crews for the first three months of 1999; and additional revenue as a result of
the acquisition of John M. Tettemer & Associates in August 1998. Excluding the
revenue from the acquisition of John M. Tettemer & Associates, our net revenue
for the three months ended 1999 grew $2.5 million, or 42%, compared to the
three months ended March 31, 1998. Subcontractor costs, as a percentage of net
revenue declined to 11% for the three months ended March 31, 1999 as compared
to 19% for the three months ended March 31, 1998, resulting primarily from a
decrease in services for our primary wireless telecommunications contract,
which was substantially completed by the end of 1998.
Gross Profit. Gross profit for the three months ended March 31, 1999 was $3.1
million compared to $1.9 million for the three months ended March 31, 1998, an
increase of
26
<PAGE>
$1.2 million, or 62%. Gross profit growth is attributable to both our internal
revenue increases as well as the acquisition of John M. Tettemer & Associates.
As a percentage of net revenue, gross profit increased slightly to 34% for the
three months ended March 31, 1999 compared to 32% for the three months ended
March 31, 1998, resulting primarily from increased utilization of employees and
a reduction in facility costs as a percentage of net revenue. Costs of revenue
for the three months ended March 31, 1999 were $5.9 million compared to $4.1
million for the three months ended March 31, 1998, an increase of $1.8 million,
or 45%. Costs of revenue increases resulted primarily from growth in our
employee base from 271 as of March 31, 1998 to 372 as of March 31, 1999, an
increase of 101, or 37%. Excluding the acquisition of John M. Tettemer &
Associates in 1998, the number of employees increased by 83, or 31%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended March 31, 1999 were $1.9
million as compared to $1.5 million for the three months ended March 31, 1998,
an increase of $426,000, or 29%. As a percentage of net revenue, selling,
general and administrative expenses decreased to 21% for the three months ended
March 31, 1999 from 25% for the three months ended March 31, 1998. The
percentage decrease resulted primarily from holding the growth in our corporate
labor costs and legal and accounting costs below our internal revenue
increases.
Years Ended December 31, 1998 and December 31, 1997
Revenue. Net revenue for 1998 was $29.2 million compared to $18.6 million for
1997, an increase of $10.6 million, or 57%. Net revenue growth resulted
primarily from the continued strengthening of the California and Nevada housing
markets, partially offset by a decline in our wireless telecommunications
business; growth in our employee base and base of projects, which resulted in
additional services and follow-up contracts being awarded in 1998 relating to
projects undertaken prior to 1998; and additional revenue as a result of the
acquisition of ESI in December 1997 and John M. Tettemer & Associates in August
1998. Excluding the revenue from the acquisitions of ESI and John M. Tettemer &
Associates, our 1998 net revenue grew $6.0 million, or 32%, compared to 1997.
Subcontractor costs, as a percentage of net revenue, declined to 17% for 1998
compared to 21% for 1997, resulting largely from our primary wireless
telecommunication contract coming to substantial completion in 1998.
Gross Profit. Gross profit for 1998 was $9.9 million compared to $6.7 million
for 1997, an increase of $3.2 million, or 47%. Gross profit growth is
attributable to both our internal revenue increases as well as the acquisitions
of ESI and John M. Tettemer & Associates. As a percentage of net revenue, gross
profit decreased slightly to 34% for 1998 compared to 36% for 1997. Costs of
revenue for 1998 was $19.3 million compared to $11.9 million in 1997, an
increase of $7.4 million, or 63%. Costs of revenue increases resulted primarily
from growth in our employee base from 260 in 1997 to 356 in 1998, an increase
of 96, or 37%, and wage pressures on professional compensation, which
represents the largest component of cost of revenue. Excluding the John M.
Tettemer & Associates acquisition in 1998, the number of employees increased by
78, or 30%.
27
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1998 were $5.9 million compared to $4.5 million for
1997, an increase of $1.4 million, or 31%. As a percentage of net revenue,
selling, general and administrative expenses decreased to 20% for 1998 from 24%
for 1997. The percentage decrease resulted primarily from the collection of
approximately $390,000 of accounts receivable written off in prior years and
holding the growth in our corporate labor costs below our internal revenue
increases.
Interest Expense. Interest expense for 1998 was $967,000 compared to $852,000
for 1997, an increase of $115,000, or 14%. As a percentage of net revenue,
interest expense was 3% for 1998 compared to 5% for 1997. The percentage
decrease resulted primarily from our increased revenue base and the refinancing
of our line of credit at a lower interest rate in February 1998.
Years Ended December 31, 1997 and December 31, 1996
Revenue. Net revenue for 1997 was $18.6 million compared to $13.0 million for
1996, an increase of $5.6 million, or 43%. Net revenue growth was driven
primarily by improvement in the California and Nevada housing market; growth in
our employee base and base of projects, which resulted in additional services
and follow-up contracts being awarded in 1997 relating to projects undertaken
prior to 1997; and our award of a significant contract with a wireless
telecommunications client at the end of 1996. Subcontractor costs, as a
percentage of net revenue, grew to 21% for 1997 compared to 11% for 1996,
resulting primarily from the significant wireless telecommunications contract
awarded at the end of 1996.
Gross Profit. Gross profit for 1997 was $6.7 million compared to $3.7 million
for 1996, an increase of $3.0 million, or 80%. As a percentage of net revenue,
gross profit increased to 36% in 1997 compared to 29% in 1996 reflecting our
ability to expand our revenue through increased utilization of employees and a
reduction in facility and professional insurance costs as a percentage of net
revenue. In addition, the gross profit percentage increased due to improvements
in the overall economy in 1997 resulting in favorable pricing adjustments.
Costs of revenue was $11.9 million for 1997 compared to $9.2 million for 1996,
an increase of $2.7 million, or 29%. Costs of revenue increases resulted
primarily from growth in our employee base from 181 in 1996 to 260 in 1997, an
increase of 79, or 44%. Excluding the acquisition of ESI in 1997, the number of
employees increased by 45, or 25%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $4.5 million for 1997 compared to $5.0 million for
1996, a decrease of $475,000, or 10%. Selling, general and administrative
expenses as a percentage of net revenue decreased to 24% for 1997 from 38% for
1996. The percentage decrease was primarily related to an approximate $822,000
reduction in the provision for doubtful accounts in 1997 compared to 1996.
Concurrently with the prolonged southern California economic recession, in
1996, we reached the conclusion that a significant receivable was uncollectible
and increased our provision for doubtful accounts by $710,000. The increase in
selling, general and administrative expenses, as a percentage of revenue was
impacted by holding the growth in our corporate labor and legal and accounting
costs below our internal revenue increases.
28
<PAGE>
Extraordinary Gain. Our 1996 results of operations were impacted by a one time
gain on the forgiveness of a lease liability of $2.7 million. In August 1996,
we entered into an agreement, whereby all amounts owed and accrued under a
lease through December 31, 1995 were forgiven.
Quarterly Results
The following table sets forth unaudited historical and supplemental pro forma
selected quarterly consolidated financial information. Pro forma amounts
reflect adjustments for provisions for federal and state income taxes as if we
had been taxed as a C corporation, at an assumed effective income tax rate of
approximately 42%. On August 1, 1998, Keith Engineering was converted from an S
corporation to a C corporation. This information has been derived from
unaudited consolidated financial statements which, in the opinion of
management, include all adjustments (consisting of normal recurring entries)
necessary for a fair presentation of such information. Consolidated results of
operations for any one or more quarters are not necessarily indicative of
results for an entire year or the results to be expected for any future period.
<TABLE>
<CAPTION>
Quarterly Results
----------------------------------------------------------------------------------
Three Months Ended
----------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- --------- -------- -------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Income Data:
Gross revenue........... $4,423 $5,401 $6,060 $6,701 $7,121 $8,399 $9,192 $9,309 $9,999
------ ------ ------ ------ ------ ------ ------ ------ ------
Net revenue............. 3,978 4,486 5,116 5,012 5,962 7,051 7,900 8,269 8,969
Costs of revenue........ 2,574 2,804 3,235 3,258 4,080 4,613 5,077 5,517 5,914
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit........... 1,404 1,682 1,881 1,754 1,882 2,438 2,823 2,752 3,055
Selling, general and
administrative
expense................ 968 1,210 1,085 1,222 1,470 1,131 1,626 1,631 1,896
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
operations............ 436 472 796 532 412 1,307 1,197 1,121 1,159
Interest expense........ 167 212 229 244 221 244 249 253 260
Other expenses (income),
net.................... 42 9 6 26 7 (18) 18 59 (19)
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before pro forma
provision for income
taxes................. 227 251 561 262 184 1,081 930 809 918
Pro forma provision for
income taxes........... 95 105 236 110 77 454 391 340 386
------ ------ ------ ------ ------ ------ ------ ------ ------
Pro forma net income... $ 132 $ 146 $ 325 $ 152 $ 107 $ 627 $ 539 $ 469 $ 532
====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
As a Percentage of Net Revenue
----------------------------------------------------------------------------------
Three Months Ended
----------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Income Data:
Gross revenue........... 111% 120% 118% 134% 119% 119% 116% 113% 111%
------ ------ ------ ------ ------ ------ ------ ------ ------
Net revenue............. 100% 100% 100% 100% 100% 100% 100% 100% 100%
Costs of revenue........ 65% 63% 63% 65% 68% 65% 64% 67% 66%
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit........... 35% 37% 37% 35% 32% 35% 36% 33% 34%
Selling, general and
administrative
expense................ 24% 27% 21% 24% 25% 16% 21% 19% 21%
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
operations............ 11% 10% 16% 11% 7% 19% 15% 14% 13%
Interest expense........ 4% 5% 5% 5% 4% 3% 3% 3% 3%
Other expenses (income),
net.................... 1% -- -- 1% -- -- -- 1% --
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before pro forma
provision for income
taxes................. 6% 5% 11% 5% 3% 16% 12% 10% 10%
Pro forma provision for
income taxes........... 2% 2% 5% 2% 1% 7% 5% 4% 4%
------ ------ ------ ------ ------ ------ ------ ------ ------
Pro forma net income... 4% 3% 6% 3% 2% 9% 7% 6% 6%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
29
<PAGE>
Our quarterly revenue and operating results fluctuate primarily as a result of:
. client engagements commenced and completed during a quarter
. seasonality
. the number of business days in a quarter
. the number of work days lost as a result of adverse weather conditions
or delays caused by third parties
. employee hiring, billing and utilization rates
. the consummation of acquisitions
. the length of the sales cycle on new business
. the ability of clients to terminate engagements without penalty
. our ability to efficiently shift our employees from project to project
. the size and scope of assignments
. general economic conditions
The treatment of $172,000 as compensation expense, resulting from an option
granted in April 1997, and the collection of an account receivable in the
amount of $390,000, previously written off affected selling, general and
administrative expense in the quarters ended June 30, 1997 and 1998,
respectively.
Liquidity and Capital Resources
We have financed our working capital needs and capital expenditure requirements
through a combination of internally generated funds, bank and related party
borrowings, leases and the sale of our common stock.
Working capital for 1998 was $5.2 million compared to $2.0 million in 1997, an
increase of $3.2 million, or 157%, resulting primarily from growth in accounts
receivable and costs and estimated earnings in excess of billings, due to
higher revenue levels. Cash generated from operating activities increased
$310,000, or 82%, to $686,000 in 1998 compared to $376,000 in 1997, reflecting
our increase in income from operations. The growth in cash generated from
operating activities was used primarily to fund capital expenditures of
$835,000 in 1998 compared to $276,000 in 1997 and to partially finance the
acquisition of John M. Tettemer & Associates. Capital expenditures consisted
primarily of computer equipment, upgrades to our information systems, and
equipment and vehicles used in our survey services.
We maintain a line of credit agreement with a bank, which as of March 31, 1999,
allowed us to borrow up to $5.5 million, not to exceed 80% of our eligible
accounts receivable, as defined in the agreement. On March 5, 1999, the bank
amended the agreement to, among other things, amend certain financial related
covenants effective December 31, 1998, adjust the interest rate to the bank's
prime rate plus a variable margin tied to certain financial
30
<PAGE>
covenants (10.5% at March 31, 1999) and extend the maturity on the line to
March 1, 2000. Cash of $1.8 million drawn on our line of credit was used
primarily for working capital purposes, to repay debt assumed in acquisitions
and to repay existing debt. At December 31, 1998, we owed $4.5 million on this
line of credit. We expect to repay approximately $4.2 million of the line of
credit with a portion of the net proceeds from this offering. We must meet or
exceed certain financial covenants to the bank under the line of credit. If we
have not received the net proceeds from the offering by June 30, 1999, we may
need additional equity or subordinated debt to satisfy these covenants. We
expect certain of our shareholders to be able to provide additional equity or
subordinated debt to us if necessary.
Net cash received from related party borrowings decreased to $156,000 in 1998
from $919,000 in 1997. In addition, in 1997, we received $598,000 from a
related party in exchange for shares of TKCI common stock. The reduction in
cash received from related parties resulted primarily from our increase in cash
generated from operating activities and availability under our line of credit.
On April 9, 1999, TKCI entered into an Asset Purchase Agreement with Thompson-
Hysell and its shareholders. Thompson-Hysell provides real estate services
similar to TKCI in central and northern California and Utah. Under the Asset
Purchase Agreement, TKCI will acquire substantially all of the assets of
Thompson-Hysell, including the right to use its name, and assume certain of its
liabilities. TKCI will pay a purchase price of: (a) cash in the amount of
$3,333,333; (b) a promissory note in the amount of $1,333,333 payable in 2001;
and (c) shares of common stock with a value equal to $1,333,334 which may be
issuable in 2000 if certain conditions are met. The purchase price is subject
to adjustment upward or downward depending upon (a) certain financial targets
being met related to the assets acquired and liabilities assumed; (b) earnings
for the years ended December 31, 1999 and 2000; and (c) an adjustment for
income tax effects. We expect to close this acquisition concurrently with this
offering. We expect the operations acquired to increase our revenues, and if
the Thompson-Hysell operations perform as they have historically, to increase
our gross margins.
We believe existing cash balances, internally generated funds, and availability
under credit facilities together with the proceeds of this offering will be
sufficient to fund our anticipated internal operating needs for the next twelve
months.
Inflation
Although our operations can be influenced by general economic trends, we do not
believe that inflation had a significant impact on our results of operations
for the periods presented.
31
<PAGE>
Due to the short-term nature of most of our contracts, if costs of revenue
increase, we attempt to pass these increases to our clients.
Year 2000
We are currently in the final phase of identifying and evaluating the potential
impacts of the Year 2000 on information systems and embedded systems. A Year
2000 Mitigation Committee comprised of senior management and functional
managers is evaluating the following issues:
. State of readiness
. Costs to address Year 2000 issues
. Risk assessment
. Contingency plan
The following is a description of the process we have established and which we
intend to follow to minimize our Year 2000 risk exposure:
State of readiness. Our information technology and non-information technology
systems can be divided into support/administrative and operational/production
systems. We have surveyed all significant systems used to perform our
support/administrative functions and received written assurance from our system
suppliers either that these systems are currently Year 2000 compliant or that a
Year 2000 compliance update will be available by the end of the third quarter
of 1999. We intend to perform internal tests on all mission critical systems to
validate the supplier statements by the end of the third quarter of 1999. We
use several major software programs to perform our daily operations and we are
in the final stage of assessing these systems. We have received letters
assuring us of Year 2000 compliance on almost all of these systems and have
requested similar assurances relating to the remaining systems. We intend to
perform in-house testing to validate the Year 2000 compliance of our
operational production systems and expect to have such testing completed by the
end of the third quarter of 1999. In May 1999, we intend to ask the vendors of
embedded systems to provide us with written assurance of Year 2000 compliance.
Cost to address Year 2000 issues. We have determined that the primary computer
systems which we use are Year 2000 compliant and therefore we do not anticipate
that costs related to the Year 2000 date change will be material to our
business, financial condition or results of operations.
Risk assessment. Based on the findings of our Mitigation Committee, we believe
that the impact of Year 2000 issues on our internal operations will be minimal.
In order to minimize any adverse effect caused by the Year 2000 date change,
our operational personnel transfer their work to back-up tapes on a daily basis
and store such tapes in an offsite facility.
We have had difficulty estimating the impact of Year 2000 non-compliance by
outside parties with whom we transact business. While we have received
assurances from many of these third parties as to their Year 2000 compliance,
we have not yet completed our survey. As a result, we are not in a position at
this time to accurately ascertain the degree of
32
<PAGE>
compliance by vendors and subconsultants with whom we conduct business.
Although not all of the vendors and subconsultants from whom we have received
responses are Year 2000 compliant at this time, we have received some
assurances that these third parties will be prepared for the Year 2000 date
change by the end of 1999. During May 1999, we intend to survey our vendors and
subconsultants to ascertain their Year 2000 readiness.
We are currently having discussions with other significant third parties such
as our bank and payroll service and expect to receive assurances regarding Year
2000 compliance from such service providers by the end of the second quarter of
1999. Although our client base is diverse and no one client accounts for more
than 10% of our gross revenue, we have had discussions with our major clients
regarding their readiness for the Year 2000 date change and those who have not
given us written assurance, we expect to receive it by the end of third quarter
of 1999.
Contingency plan. Because we have not completed our testing and assessment
procedures, we have not developed any plans for likely scenarios involving Year
2000 failures. If, when testing and assessment is complete, it appears
reasonably likely that such a failure may occur, management intends to develop
appropriate plans to deal with such contingencies. If we are unsuccessful in
developing or implementing a plan to correct possible Year 2000 failures, or if
we fail properly to anticipate a Year 2000 failure either in our information
technology (software) or non-information technology (microcontrollers in
equipment), we may experience disruptions in operations. Our projection of the
most serious disruptions which could occur include:
. the loss of approximately two months' revenues if our accounting
systems fail and we are unable to utilize backup information. We
would, however, expect eventually to be able to recover a significant
portion of this revenue by recreating time and cost entries from hard
copies of such data.
. the loss of engineering and project data if we are unable to utilize
backup information, resulting in the need to re-input printed data.
This effort could increase operating costs and reduce margins in the
first two quarters of 2000 and might cause the loss of some projects
if we are unable to fulfill our time commitments.
. the loss of the services of subcontractors who are experiencing
disruptions due to Year 2000 risks, resulting in the loss of contracts
because of failure to meet deadlines
. the loss of revenues if any of the accounting systems of our clients
experience a Year 2000 failure
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to interest rate changes primarily as a result of our line of
credit, long-term debt, capital leases and notes payable to related parties,
which are used to maintain liquidity and to fund capital expenditures and our
expansion. Our interest rate risk management
33
<PAGE>
objectives are to limit the impact of interest rate changes on earnings and
cash flows and to lower our overall borrowing costs. To achieve our objectives,
we have borrowed at fixed rates and may enter into derivative financial
instruments to mitigate our interest rate risk on variable rate debt. We do not
enter into derivative or interest rate transactions for speculative purposes.
The table below presents the principal amounts, weighted average interest
rates, fair values and other items required by year of expected maturity to
evaluate the expected cash flows and sensitivity to interest rate changes
(dollars in thousands).
<TABLE>
<CAPTION>
Fair
1999 2000 2001 2002 2003 Total Value(/1/)
----- ------ ----- ----- ----- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt(/2/)........... $ 519 $2,458 $ 61 $ 66 $ 47 $3,151 $3,151
Average interest rate.......... 8.00% 10.00% 8.00% 8.00% 8.00% 9.57% 9.57%
Variable rate debt............. -- $4,527 -- -- -- $4,527 $4,527
Average interest rate.......... -- 9.25% -- -- -- 9.25% 9.25%
</TABLE>
- ------------------
(1) The fair value of fixed rate debt and variable rate debt was determined
based on current rates offered for debt instruments with similar risks and
maturities.
(2) Fixed rate debt excludes notes payable with an aggregate principal amount
of $576,000 as there is no established market for these notes.
As the table incorporates only those exposures that existed as of December 31,
1998, it does not consider those exposures or positions which could arise after
that date. Moreover, because firm commitments are not presented in the table
above, the information presented therein has limited predictive value. As a
result, our ultimate realized gain or loss with respect to interest rate
fluctuations will depend on the exposure that arises during the period and
interest rates.
34
<PAGE>
BUSINESS
General
We began operating in 1983 as Keith Engineering, which was incorporated on
March 1, 1983. We formed TKCI in November 1986, under the name The Keith
Companies-Inland Empire, Inc., and merged the two companies in November 1998
with TKCI as the survivor. We provide engineering, consulting and technical
services to clients operating in a variety of environments.
Industries Served
The industries we serve are real estate development, public works and wireless
telecommunications and industrial engineering.
Real Estate Development, Public Works and Wireless Telecommunications
Real Estate Development
Residential, commercial and golf and other recreational developers use
technical consultants to provide planning and environmental services to create
land use plans, write the supporting planning and environmental documents and
process entitlements and permits through governmental authorities. Technical
consultants also assist clients in gaining approvals and permits from federal,
state and local agencies. After projects are approved by governmental agencies,
developers need surveying, mapping and civil engineering services to survey
development sites, create accurate boundary/base maps and provide engineering
designs for mass grading, streets, sewer pipelines and facilities, water
pipelines and facilities, utilities and drainage facilities. Upon completion of
the design phase, survey crews provide construction staking services to
identify the precise locations of streets, utilities, pipelines and other
facilities. In culturally sensitive projects or areas, developers may also
require environmental and archaeological services for the planning and
environmental approvals and construction and post-construction phase monitoring
services.
The U.S. real estate industry is commonly segmented into four geographic
regions: northeast, south, mid-west and west. We operate in the west region,
primarily in California and in Nevada and Utah. During the last economic upturn
in the real estate industry in southern California, which we believe lasted
eight years from 1983-1990, our gross revenue and number of employees grew.
During the following downturn in southern California, through 1996, we
experienced a reduction in revenue and employees. We believe that the southern
California real estate market is in the third year of an economic upturn. In
1998, at least 80% of our revenue from residential real estate related
development was in California.
Residential. The residential development industry consists of large scale
communities, seniors/retirement communities, single family homes and multi-
family homes such as condominiums and apartments. The issuance of building
permits is an important economic indicator in forecasting housing starts. The
following table from Regional Financial
35
<PAGE>
Associates, Inc., shows the actual building permits issued for 1996-1997 and
the building permits expected to be issued for 1998-2000 in California, Nevada,
Utah and nationally.
Residential Building Permits (Issued Annually)
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
California 92,060 109,589 131,673 170,321 182,474
Nevada 37,242 34,811 36,092 28,000 25,973
Utah 23,481 19,263 20,005 18,885 18,267
National (million) 1.48 1.62 1.52 1.34 1.37
</TABLE>
According to a report released by the U.S. Bureau of the Census in 1997,
California, Nevada and Utah are projected to be among the top seven fastest
growing states in population growth during the thirty year period from 1995 to
2025. In March 1999, the U.S. Bureau of the Census also reported that of the
nation's 3,142 counties, four southern California counties (Los Angeles,
Orange, San Diego and Riverside) and one Nevada county (Clark) were among the
top seven in population gains between 1997 and 1998. In December 1998, a report
prepared by Regional Financial Associates, Inc. showed that since 1991, the
west region has outpaced the nation in population growth. Regional Financial
Associates, Inc. forecasted that the region's population would continue to
outpace the nation at least through the year 2002.
The following three tables from Regional Financial Associates, Inc., show
historical demographic data for 1996-1997 and projected demographic data for
1998-2000 for population, employment and personal income.
Population
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
California (000's) 31,858 32,268 32,756 33,271 33,740
Nevada (000's) 1,601 1,677 1,733 1,787 1,835
Utah (000's) 2,018 2,059 2,097 2,130 2,164
National (million) 267.7 270.3 272.6 274.9 277.2
Employment
<CAPTION>
1996 1997 1998 1999 2000
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
California (000's) 12,743 13,169 13,577 13,827 14,104
Nevada (000's) 843 890 929 961 995
Utah (000's) 954 995 1,024 1,043 1,076
National (million) 122.7 125.8 127.8 129.0 131.1
Personal Income Growth (% Change)
<CAPTION>
1996 1997 1998 1999 2000
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
California 5.8 6.0 6.5 5.7 6.1
Nevada 10.4 7.5 6.7 6.9 7.5
Utah 8.2 7.4 5.8 6.2 6.6
National 5.6 5.0 4.6 4.9 5.6
</TABLE>
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Commercial. The commercial development industry includes the construction of
retail, office and industrial facilities. Important economic indicators in
forecasting commercial development include, among others, growth in employment
and personal income. According to research conducted in 1998 by Regional
Financial Associates, Inc., employment and income in the west region are
projected to grow by an annual average of 2.0% and 6.1%, respectively, from
1999 to 2000. Colliers International reported in a 1999 market study that
retail development in Las Vegas continues to grow, with approximately 4 million
square feet of new retail in the planning phase and 1.4 million square feet
under construction. This constitutes a 26% increase over the existing 21
million square feet. Colliers also forecasts that with residential growth
continuing to fuel retail growth in the Nevada marketplace, the construction of
neighborhood and community centers lead commercial development growth with a
25% planned growth rate.
During 1997, the United States' economy generated 730,000 new office jobs,
according to the U.S. Bureau of Labor Statistics. In the same year, national
office vacancy rates dropped below what is considered the market's equilibrium,
lease rates continued to remain steady and construction for 1998 jumped from 49
million square feet at year end 1997 to 90 million square feet at year end 1998
according to 1998 and 1999 Grubb and Ellis commercial industry reports. The
U.S. Commerce Department stated that through November 1998, office building
construction was running at an annual rate of $41.5 billion, a 21% increase
over 1997. The F.W. Dodge division of the McGraw-Hill Companies forecasts
office building construction to increase by 9% in 1999.
Golf and Other Recreational Facilities. Recreational projects include golf
courses, hotels and resorts. The most significant proportion of our revenue
from golf and other recreational projects is derived from golf related
projects. According to the 1998 edition of Golf Participation in the United
States and Trends in the Golf Industry, the United States currently has 26.5
million golfers over age 12, a 33% increase from 1986. Likewise, the National
Golf Foundation published a report in March 1999 stating that the number of new
courses in 1998 was 448 as compared with 10 years ago when the industry was
averaging less than 175 courses per year. In addition, the National Golf
Foundation states that the number of courses in planning and construction
increased from 1,652 on January 1, 1998 to 1,777 on January 1, 1999, a 7.6%
increase. Lastly, as of December 31, 1998, according to the National Golf
Foundation, California is ranked among the top three states for total number of
existing courses, new course openings, courses under construction and courses
related to real estate development.
Public Works
Transportation, water resources, and other public works projects may provide
ongoing, reliable sources of revenue for engineering firms and consultants when
private development activities decline during unfavorable economic periods.
These public projects are often long-term and ongoing, and have historically
provided more determinable and consistent revenue streams.
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Transportation. Highway and interchange projects require engineering designs
for roadways, interchanges, the placement or relocation of sewer lines, water
pipelines and utility lines and rainfall run-off management. In a recent
publication, The American Society of Civil Engineers reported that as much as
$1.3 trillion of capital investment is currently necessary to repair and renew
our infrastructure to meet our growing needs. In 1998, the U.S. Congress
authorized funding of $175 billion under the Transportation Equity Act for
highway projects over the next six years, a 44% increase over the previous
funding program according to the F.W. Dodge division of the McGraw Hill
Companies. According to Dodge, western states will be the earliest recipient of
funds from the program with non-building construction expected to increase 14%
in 1999 over 1998.
According to the California Department of Transportation, Governor Gray Davis
has proposed more than $7.9 billion to fund Caltrans during the 1999-2000
fiscal year, which is $1.6 billion more than the 1998-1999 fiscal year. The
largest portion of this budget is $3.9 billion for capital outlay projects
(ongoing and new highway construction projects), according to the California
Department of Transportation.
Water Resources. Public water resource projects include the installation,
rehabilitation or replacement of facilities or infrastructure for:
. protection of water sources
. storage (i.e., dams or reservoirs)
. water treatment
. water pipelines
. collection of wastewater
. sewer lines
. treatment of wastewater
In 1998, the American Society of Civil Engineers published the 1998 Report Card
for America's Infrastructure. This report states that the total infrastructure
needs for drinking water remain large, $138.4 billion, more than $76.8 billion
of that is needed right now to protect public health. This organization also
stated that America needs to invest roughly $140 billion over the next 20 years
in its wastewater treatment systems and that an additional 2,000 plants may be
necessary by the year 2016 to meet expanded treatment goals.
Wireless Telecommunications
With the emergence and growth of personal communication services and the
conversion from analog to digital technology, the demand for the development
and construction of new wireless transmission base stations, switching centers
and microwave link networks has increased. For the development of most wireless
telecommunications networks, wireless service providers hire outside experts in
site acquisition/lease arrangement, land planning, permitting, civil
engineering, equipment procurement and/or construction management. The
development costs for a typical base station in southern California are
approximately $350,000 to $700,000, of which engineering, consulting and
technical services may account for approximately $50,000.
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Wireless subscriber growth is the main driver in demand for new tower sites,
according to a 1998 business model by Morgan Stanley Dean Witter Equity
Research. In 1998, the Cellular Telecommunications Industry Association
predicted that the number of United States wireless customers would grow from
an estimated 124 million in 1998 to an estimated 209 million in 2003 and
expected the compounded average growth rate from 1998 to 2003 to be 11%. The
Personal Communications Industry Association estimated that 12,000 to 20,000
new towers are needed by 2003 to accommodate the growth of wireless services.
In 1998, the Cellular Telecommunications Industry Association stated that the
total number of communication sites would grow from 38,650 at the end of 1997
to approximately 100,000 by the year 2000.
Industrial Engineering
Modern machines, assembly lines, factories and refineries require industrial
engineering services to enable utilization of new processes and to improve
efficiency and reliability. Comprehensive industrial engineering services
include the design or redesign of electrical systems and HVAC systems,
mechanical equipment design and procurement, instrumentation and control
systems integration, chemical process engineering, energy usage consulting,
fire protection engineering, material handling and process flow planning,
automation and robotics design, construction management and installation
supervision, project management and computer programming.
Industrial engineering projects which utilize engineering, consulting and
technical services include:
. High Tech Facilities: biotechnology, pharmaceutical, and laboratory
facilities, computer centers, control rooms, research and development
facilities
. Consumer Product Facilities: automotive assembly, household products
and packaging facilities
. Food and Beverage Facilities: bottling/packaging facilities, material
handling facilities, process controls, robotics, food and beverage
manufacturing facilities
. Educational Facilities: schools and universities
. Public Facilities/Utilities/Energy/Power: power plants, natural gas,
electric
There is a continued trend in the manufacturing and assembly industry toward
automation and increased efficiency. As these industries grow, so does their
need for design and engineering services to automate and increase efficiency of
new and existing facilities. According to a 1998 Standard & Poors survey of the
manufacturing and assembly industries in the United States, the biotechnology
industry is expected to grow annually in the 20-25% range in 1999 and 2000, the
packaged food and beverage industry is expected to grow by 10% in 1999, and the
non-alcoholic beverage sector is expected to grow by 12% in 1999. We expect
these industries to increase their use of automation to make their facilities
more efficient.
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The TKCI Advantage
The engineering, consulting and technical services industries are highly
fragmented, ranging from a large number of relatively small local firms to
large, multi-national firms. We estimate that there are over 500 firms
providing the engineering, consulting and technical services to the industries
we serve in our principal operating areas. We believe that we have successfully
penetrated the regional residential real estate industry to capture a
significant share of the market and establish ourselves as a leader in the
market. In California, Nevada and Utah, residential building permits projected
for issuance in 1999 through 2002 represented 908,172 residential units. In
these locations, we are serving projects with over 100,000 estimated
residential units. These projects range in duration from less than one year to
more than five years. We believe that we can further enhance our leading
position in the western United States in the industries we serve for the
following reasons:
Reputation
Our reputation for providing high quality services has been a source of
numerous project assignments. We believe our reputation is strengthened due to
the personal relationships developed between our staff and representatives of
clients and agencies. We have been awarded many projects either due to our
expertise in working with an agency or project type or because a particular
client desires to work with, and can count on, specific project managers. In
addition, we have received numerous awards for technical excellence including
the Project of the Year Award of Excellence in the award category of
Engineering Land Development for the "Dana Point Townhomes" from the California
Council of Civil Engineers and Land Surveyors; a Certificate of Recognition for
the design of the "Grand Avenue-Chino Hills Parkway" from the County of San
Bernardino, California Board of Supervisors; and a Letter of Appreciation from
the State of California for streamlining the "Telecommunications Leasing
Program" and for our assistance in formulating telecommunications real estate
objectives and strategies.
Industry and Professional Experience
We recognize that our employees are our most valuable resource for providing
ongoing quality service and for obtaining new work. Of our staff of over 450,
we have over 100 individuals with professional registrations. During employee
selection and as part of our acquisition criteria we require that the people
added to our team have significant experience in the industries they serve. We
supplement this industry experience by providing in-house continuing education
seminars, design forums and training programs.
Full Service Approach
We provide civil engineering, surveying and mapping, planning, environmental,
archaeological, construction management, site acquisition, water resource
engineering, instrumentation and control systems engineering, fire protection
engineering, electrical engineering, mechanical engineering and chemical
process engineering services. Since most engineering, consulting and technical
services firms specialize in only one or a few services,
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a project owner may often be required to engage several engineering and/or
consulting firms during the various phases of a project (i.e., from identifying
and evaluating whether to acquire a parcel of land to designing, engineering
and managing the construction of the finished project). We believe that clients
realize significant cost and time savings and maintain consistent quality by
utilizing a single firm for all services.
Cross-Marketing
Due to our reputation and industry and technical expertise, we have frequently
increased the number and scope of services provided to a client from an initial
engagement, such as land planning, to include other services, such as mapping
and surveying. When we expand into new geographic regions, we have successfully
cross-sold and intend to continue to cross-sell services offered by one office
to clients in another office.
Because our professionals provide many of the preliminary services on projects
such as planning, civil engineering and surveying and mapping, we are
frequently asked to bid on additional services on a project as it progresses.
In performing the preliminary services in the initial phases of a project, we
obtain background information and data relating to the project that may be
inefficient and costly for another firm to compile. Consequently, we are often
more knowledgeable about a project, and, as a result, we are often engaged to
perform the additional engineering and consulting services that the client
requires as the project progresses.
Effective Organizational Structure
We believe that our organizational structure allows us to compete effectively
with small and mid-size local firms and with large regional and national firms.
Our organizational structure combines the efficiencies associated with
centralization and the flexibility of decentralization. Our administrative
functions are centralized in our corporate headquarters in Costa Mesa,
California allowing us to eliminate duplicative functions and personnel at our
divisional offices. We believe this centralization allows the management at our
divisional offices the freedom to focus on identifying new business
opportunities and overseeing the technical services provided in that office,
and allows the flexibility for those managers to maintain focus on being
responsive to client needs. The centralization of administrative functions also
allows us to effectively and efficiently integrate acquired companies.
Business Strategy
Our objective is to strengthen our position as a leading provider of
engineering, consulting and technical services while growing our geographic
presence and expanding the services we offer. To achieve this objective, we
have developed a strategy with the following key elements:
. Maintain High Quality of Service. To maintain high quality service,
we focus on being responsive to customers and working diligently and
responsibly to maintain schedules and budgets. As a result of our
focus on quality and timeliness of service, we believe that we have
established an excellent reputation
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in the markets we serve. We intend to continue providing high quality
service as we expand our geographic presence and service offerings.
. Continue to Recruit and Retain Highly Qualified Personnel. We believe
that recruiting and retaining skilled professionals is crucial to our
success and our growth. As a result, we intend to continue to recruit
experienced and talented individuals who can provide quality services
and innovative solutions for our clients' projects. We believe that
our employee benefits package provides incentives that enable us to
continue to attract the most qualified candidates.
. Expand Geographically. To diminish the impact of regional economic
cycles, we intend to continue to expand our geographic presence by
making acquisitions, opening additional divisional offices and
marketing our services to clients with national and international
needs. Our geographic growth will provide us with broader access to
employee pools, work sharing between regions and new business
opportunities. We believe the acquisition of Thompson-Hysell will
enable us to more effectively sell additional services in both
central and northern California and Utah. We intend to continue to
increase our service offerings outside of California, Nevada and
Utah.
. Expand Scope of Services. We intend to build upon our reputation as a
quality provider of real estate related engineering, consulting and
technical services as we diversify our services to meet new demands
of clients and the demands of new markets. As part of our effort to
continue diversifying our scope of services, we intend to pursue
strategic partnering relationships and acquisitions.
. Continue to Effectively Integrate Acquired Operations. We intend to
continue to pursue acquisitions that expand our range of services
and/or our geographic presence and that result in an increase in our
operating efficiencies. We believe that strategic acquisitions will
enable us to more efficiently and quickly serve the diverse technical
and geographic needs of, and secure additional business from, our
national and international clients.
We have implemented our strategy, by (a) providing services to the wireless
telecommunications industry; (b) obtaining a subcontract to assist Marconi
Integrated Systems, Inc. in a global mapping project for the National Imagery
and Mapping Agency; and (c) acquiring ESI, John M. Tettemer & Associates and
Thompson-Hysell. This diversification of our services has broadened our
geographic presence, expanded the number of industries we serve and added our
capability to provide water resources, environmental, mechanical, electrical,
chemical process, and fire protection and other industrial engineering
services.
Services Provided
We provide a broad range of services, including civil engineering, surveying
and mapping, planning, environmental, archaeological, construction management,
site acquisition, water resources engineering and other industrial engineering
services (instrumentation and control
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systems engineering, fire protection engineering, electrical engineering,
mechanical engineering and chemical process engineering).
Civil Engineering Services
General civil engineering is often referred to as "design from the ground down"
because it is part of all construction design work on the ground and below.
Civil engineering services include:
. project feasibility and due diligence analysis
. development cost projections
. access and circulation analysis
. infrastructure design and analysis
. pro forma cost studies
. project management
. construction documents
. tentative mapping
. flood plain studies
. sewer, water and drainage design
. street and highway design
. site/subdivision design
. grading design
As an example of how our civil engineering services are utilized, our engineers
were the master engineers for the Newport Coast development in southern
California. This development consists of over 9,600 acres that has been planned
for more than 2,400 residential units, three destination resorts, two
championship golf courses (both part of the Pelican Hill Golf Club) and over
7,300 acres of dedicated open space. We were responsible for the preparation of
a majority of the preliminary and final civil engineering designs, and provided
the project with land surveying, mapping, water resources and archaeological
services. In addition, as the infrastructure engineer for this project, we
completed the master drainage plan, designed the master water and sewer
facilities and designed many of the primary roadways.
Surveying and Mapping Services
From establishing boundaries for preliminary engineering through construction
layout and as-built surveys, it is common for our surveying and mapping teams
to be "the first in and the last out" on a construction project. We provide
surveying and mapping services through our teams of skilled professionals that
utilize the latest technology, including global positioning systems, geographic
information systems, and field-to-office digital and electronic data capture,
to produce information that will serve as the foundation for a variety of
planning and engineering design and analysis endeavors. Our surveying and
mapping services also include the identification of topography and boundary
features that directly affect a project's design. We were among the first
engineering and surveying consultants to support geographic information systems
technology and to utilize global positioning systems to conduct precise and
more efficient surveys and to establish accurate ground surveys.
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We utilized our expertise in the use of ground and global positioning systems
surveys to plot the aftermath of the Mt. Pinatubo eruption in the Philippines
for a long-term lava flow management project. For Cox Communications (formerly
Sprint), we provided site topographic and boundary surveys for approximately
500 proposed cellular telecommunication sites. Using these surveys, we designed
and generated construction documents and developed legal descriptions that were
used in lease contract documents. Government agencies and landowners have also
utilized our surveying and mapping services to develop the basic elements
(control, parcel, topographic and planimetric) of successful geographic
information systems databases.
Planning Services
Planning services include both physical planning and policy planning. Physical
planning is graphical and includes conception and layout of communities, land
uses and residential and commercial neighborhoods. The resulting plan often
becomes the basis for the preparation of engineering plans. To complement a
physical plan, policy planning entails the preparation of supporting text and
documents that establish procedures, requirements, aesthetic guidelines and
legal mitigation requirements under which the physical plan may be implemented.
Our planning services are designed to assist clients in maximizing the
potential uses of real estate and other limited resources. We provide plans
that take into account government regulations, effective and creative use of
land assets, and the expectations and needs of the community.
An example of our planning services was our involvement in the design of a
major flood control dam on a 10,000 acre project in Los Angeles County that
controlled yearly flooding of Palmdale, California, a downstream municipality,
saving millions of dollars in flood control facilities. Our solution allowed
plans for concrete channelization of the waterway to be abandoned, thus
resolving the concerns of the local water agencies (concerned with groundwater
recharge and replenishment) and local environmentalists. It also provided the
inducement for the city to annex and entitle that project. Other projects for
which we have provided planning services include Hanalei Garden Farm Estates in
Hawaii, Jian Zhuan Lake Resort in China, a Jack Nicklaus Golf Course at Lake
Las Vegas and Hurricane Iniki Emergency Permitting in Hawaii.
Environmental Services
Our environmental services include biology, permit processing, document
preparation and mitigation monitoring. We assist clients with the complex
federal, state and local permitting process enabling them to successfully
implement private and public projects.
As an example of our environmental services, we prepared design plans and
analyses for the creation of a constructed wetlands project in southern
California. This facility uses natural processes for extensive nitrate removal
from water that flows from upstream dairy farms. The water is stored for
groundwater recharging and used to supplement the drinking water supply.
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Archaeological Services
Many environmental impact analyses require protection of significant
archaeological resources which may exist on a property, such as native peoples'
community settings, artifacts and burial sites. We perform studies which range
from site review and records analysis to a discussion of measures to protect
sensitive or valuable archaeological resources. Further, we conduct field
sampling and testing to establish or verify site review and records information
and determine both the quantity and quality of archaeological materials on a
given site.
An example of the use of our archaeological services is when, after performing
civil engineering services on a project for a client, the client asked us to
provide archeological services on a different project in southern California.
For this project, our archaeological staff mobilized, organized and supervised
a team of 25 people in the excavation of one of the largest fossil whale beds
in the continental United States. In the course of this excavation, we found
rare samples of Baleen whales, which were subsequently donated for further
academic study.
Construction Management Services
Construction management services are an efficient "bundling" of some of the
other services which we provide. We direct development and construction tasks,
including the preparation of cost projections, entitlement and feasibility
analysis, professional consultant selection and supervision, contractor
bidding, and construction supervision. We provide these services in discrete
components or as a comprehensive package for private development, public works
and wireless telecommunications clients.
An example of our construction management services is a master planned
community in Chino Hills, California, where a developer retained us to manage,
plan, design, permit, stake and subcontract a 620 acre community, consisting of
1,410 residential units and associated park and community facilities.
Site Acquisition Services
We provide site acquisition services to assist our clients in obtaining the
most appropriate real estate for their particular needs. For example, a
property intended for the development of multi-family housing will have
characteristics which vary greatly from that of a property intended for the
siting of a heavy industrial use. We provided site acquisition services for
over 700 wireless communications sites in Riverside, San Bernardino, Ventura,
Los Angeles and San Diego counties for Cox Communications (formerly Sprint), a
national wireless services provider.
Water Resources Engineering Services
Our water resources engineers frequently assist clients in financial planning,
feasibility studies, demand forecasting, and hydraulic analysis to develop
system master plans in addition to designing conventional systems of pipes and
other conveyance systems.
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Examples of the water resources engineering services that we have provided
include the performance of a hydrological study of a 23 square-mile watershed
in Riverside County, California and the development of a concept report and
preliminary design for a 2,000 acre-feet (652 million gallon) water quality
detention basin, including the relocation of 6,200 feet of roadway incidental
to the construction of the basin and related structures.
Industrial Engineering Services
In addition to the engineering, consulting and technical services described
above, we also provide the following industrial engineering services:
Instrumentation & Control Systems Integration Engineering Services. Our
professionals integrate equipment selection, maintenance requirements and spare
parts inventory by designing, selecting and reviewing mechanical, piping and
electrical layouts, and operating maintenance, training, start-up and emergency
procedures during the design of contemporary processes or the automation of
outdated manufacturing processes. These services are essential to creating an
efficient and safe operating facility.
Fire Protection Engineering Services. We provide fire protection engineering
services in connection with both new construction and the
renovation/modification of existing facilities to assist our clients in
defining and providing an acceptable level of fire safety in a cost-effective
manner.
Electrical Engineering Services. These services include design of electrical
power systems for buildings, manufacturing plants, and miscellaneous
facilities, design of lighting systems, and selection of other equipment which
delivers or uses electrical power.
Mechanical Engineering Services. These services are required to design energy
systems, HVAC systems, plumbing systems, water distribution systems and fire
protection systems for facilities and buildings.
Chemical Process Engineering Services. Our chemical and process engineers
design systems for chemical reactions, distillations, polymerizations,
filtration and centrifugation, thermal processes, blending and mixing, material
handling, ultra filtration and reverse osmosis, and absorption and stripping.
These services are necessary for the design of chemical processing operations
in industries such as food and beverage, pharmaceutical, chemical and
petroleum.
Sales and Marketing
Our Client Services Department is dedicated to business development and
marketing activities. We employ a variety of strategic business development and
marketing techniques to obtain contracts with new clients and repeat business
with existing clients and to maintain our positive reputation. With our
expansion of services in the past several years, cross-selling our services has
become a large component of our active promotional efforts. Our marketing
advantage in selling additional services is enhanced when we have already
provided initial services on the project. For example, when we have provided
planning and
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civil engineering on a project, we have an advantage over our competitors in
successfully cross-selling our other services, such as mechanical and
electrical engineering. Our Client Services Department identifies and pursues
these opportunities. A large portion of revenue is generated from ongoing work
opportunities on long-term, large scale projects.
In addition, our Client Services Department assists our in-house management and
clients to assure quality performance and client satisfaction. To accomplish
this effort, we provide clients with referrals to project partners and
financing sources, assistance in legislative matters, monitoring of in-house
performance and many other nontechnical support functions.
Our Client Services Department also identifies projects and clients in each of
the markets in which we are active. This is achieved through the use of many
resources such as: geographic information systems maps and aerial maps,
project/contact databases, the Internet, and leads publications, which track
most public works and public agency projects. Our Client Services Department
pursues those companies, agencies, projects and markets that have financial
strength, long term growth potential and reputation.
One of our most effective methods of winning new contracts has been the
Executive Land Search program. We have developed map rooms containing a variety
of maps such as computerized geographic information systems maps, aerial maps,
and city and county maps. These cover most of the geographic regions in which
we are active and identify a number of available properties which are of
interest to our clients. We meet with existing and prospective clients and
refer available projects to them in the hope of being selected to provide
services to such clients if they successfully acquire the project. For example,
upon referring a large undeveloped parcel of land in southern California to a
land development company that was not an existing client, we were awarded
multiple contracts to provide planning, civil engineering, mapping and
surveying services which, by December 31, 1998, had resulted in over $700,000
in contract value.
Clients
We serve clients in the real estate development, public works and wireless
telecommunications and industrial engineering industries. Our primary private
clients consist of real estate developers, builders, wireless
telecommunications providers, and major manufacturers. Our public clients
include water and school districts, cities, and other local, state and federal
government agencies.
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The following are some of the clients to whom we have provided services:
Real Estate Public Works
Del Webb California Corporation City of Newport Beach
The Irvine Company Clark County, Nevada
Kaufman & Broad Home Corporation Metropolitan Water District of
Lake Las Vegas Resorts Southern California
Security Capital Industrial Trust Central Utah Water Conservation
Pulte Home Corporation District
Shea Homes Federal Emergency Management Agency
Starwood Development Orange County Transportation
Thomas & Mack Co. Authority
Toll Brothers, Inc. Moulton Niguel Water District
Industrial Engineering Wireless Telecommunications
ARCO Products Company Bechtel Corporation
California Energy Commission L.A. Cellular
Dow Chemical Company Pacific Bell Mobile Services
Enron Energy Services Sprint PCS/Cox Communications
Ernest & Julio Gallo Winery
Kellogg U.S.A. Inc.
Toyota Motor Company
In 1997, The Irvine Company accounted for 11% of our net revenue. No individual
client accounted for more than 10% of our net revenue in 1998.
Backlog
Our backlog represents (a) an estimate of the remaining future gross revenues
from existing signed contracts and (b) contracts which have been awarded, with
a defined scope of work and contract value and on which we have begun work with
verbal client approval. The backlog estimates do not include projected revenues
from those projects for which we have provided services and anticipate
additional services to be requested.
Because our professionals provide much of the preliminary services on projects
such as planning, civil engineering and surveying and mapping, we are
frequently called upon to expand the scope of our work on a project as it
progresses. In performing the preliminary services in the initial phases of a
project, we obtain background information and data relating to the project that
may be inefficient and costly for another firm to compile. As a result of this
knowledge about the project, we are often chosen to perform the additional
engineering and consulting services that such clients require as the project
progresses.
At March 31, 1999, our backlog was approximately $22 million, of which
approximately $20 million is expected to be completed in 1999. Our engagements
are terminable at will, and no assurance can be given that we will receive any
of the revenues associated with the backlog described above.
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Competition
We believe that our principal competitors of our size or larger are: Robert
Bein William Frost & Associates, Hunsaker & Associates, Inc., Psomas and Nolte
& Associates, in the real estate development market; Tetra Tech, URS
Corporation, and Black & Veatch Corporation, in the public works market; The
Planning Center, in the wireless telecommunications market; and The Bentley
Companies, Eichleay Engineers and Jacobs Engineering Group, in the industrial
engineering market. In any market there are also several smaller firms with
which we compete.
We believe that the principal factors in the engineering, consulting and
technical services selection criteria include, in order of importance:
. quality of service
. relative experience
. staffing capabilities
. reputation
. geographic presence
. stability
. price
Employees
We have 461 employees, of which over 400 are technicians and technical
professionals. Believing that our success depends significantly upon attracting
and retaining talented, innovative and experienced professionals, we are
comprised of highly skilled personnel with significant industry experience and
strong client relationships. We employ licensed civil engineers, mechanical
engineers, electrical engineers, land surveyors, landscape architects,
certified planners, information technology specialists, biologists, doctoral
archaeologists and geodesists.
Our field survey employees in our southern California offices are covered by a
Master Labor Agreement between the International Union of Operating Engineers
and the Southern California Association of Civil Engineers and Land Surveyors.
The agreement applies to civil engineering and land surveying work, including
global positioning system surveys, and covers our employees in Imperial, Inyo,
Kern, Los Angeles, Mono, Orange, Riverside, San Bernardino, San Diego, San Luis
Obispo, Santa Barbara and Ventura counties. Our field survey employees in our
Northern California offices are covered by a Master Agreement between the Bay
Counties Civil and Land Surveyors Association and Operating Engineers Local
Union No. 3. Our other employees are not represented by any labor union and we
have never experienced a work stoppage from union actions. We believe that our
relationship with our employees is good.
Facilities
We occupy offices and facilities in various locations in California, Nevada
and, with the acquisition of Thompson-Hysell in Utah. Our corporate
headquarters are located in Costa
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Mesa, California and consist of approximately 49,000 square feet of space. Our
monthly rent for this space consists of a base rent, including common area
maintenance of approximately $71,200, with periodic adjustments. Our lease
extends until August 1, 1999. We also maintain offices at another location in
Costa Mesa and have additional offices in the California cities of Walnut
Creek, Moreno Valley, Modesto, Palm Desert, and Salinas (projected opening
1999); one office in Las Vegas, Nevada; and one office in Taylorsville, Utah.
Legal Proceedings
From time to time, we have been involved in routine litigation incidental to
the conduct of our business. There are currently no material pending litigation
proceedings to which we are a party.
50
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of TKCI and their ages and positions as of
April 28, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
Aram H. Keith........... 54 President, Chief Executive Officer and Director
Jerry M. Brickman....... 52 Chief Operating Officer
Gary C. Campanaro....... 38 Chief Financial Officer, Secretary and Director
Eric C. Nielsen......... 39 President, Costa Mesa division(/1/)
Walter W. Cruttenden,
III................... 48 Director(/2/)(/3/)
George Deukmejian....... 70 Director(/4/)
Christine M. Diemer..... 46 Director(/2/)(/3/)(/4/)
</TABLE>
- ------------------
(1) Upon the consummation of this offering, Mr. Nielsen will become the
President (and an executive officer) of TKCI.
(2) Appointed as a member of the audit committee effective immediately prior to
the consummation of this offering.
(3) Appointed as a member of the compensation committee effective immediately
prior to the consummation of this offering.
(4) has been elected to our board of directors effective immediately prior to
the consummation of this offering.
All directors hold office until the next annual meeting of shareholders or the
election and qualification of their successors. Officers are elected annually
by the board of directors and serve at its discretion.
Aram H. Keith co-founded TKCI in March 1983 and has served as our President,
Chief Executive Officer and Chairman of the Board since that time. In addition,
Mr. Keith is the President, Chief Executive Officer and Chairman of the Board
of Directors of John M. Tettemer & Associates and the President and a director
of ESI, each a wholly-owned subsidiary of TKCI. Mr. Keith has been a California
licensed civil engineer since 1972. He also holds civil engineering licenses in
the states of Arizona, Colorado, Nevada and Texas. Mr. Keith received a B.S. in
Civil Engineering from California State University at Fresno.
Jerry M. Brickman joined TKCI in March, 1988 and has served as our Chief
Operating Officer since October 1993. Prior to his appointment to such office,
Mr. Brickman held the positions of Senior Vice President and Contracts
Administrator with TKCI. Additionally, Mr. Brickman is a director of ESI.
Before joining TKCI, Mr. Brickman served 22 years in the United States Air
Force, retiring at the rank of Major in February 1988. He received a B.S. in
Business Administration from the University of Arizona and an M.S. in Logistics
Management from the Air Force Institute of Technology.
51
<PAGE>
Gary C. Campanaro has served as our Chief Financial Officer since January 1998
and as a director since July 1998. In addition, Mr. Campanaro is the Chief
Financial Officer, Secretary, Treasurer and a director of ESI and the Chief
Financial Officer of John M. Tettemer & Associates. Mr. Campanaro joined CB
Commercial Real Estate Group, Inc. (now CB Richard Ellis), a commercial real
estate brokerage firm, in November 1992 as a Vice President of the Financial
Consulting Group and became Senior Vice President, Managing Officer of the
Financial Consulting Group in February 1995 and also began serving on CB
Commercial Real Estate Group Inc.'s operation management board. Mr. Campanaro
served in those positions until he joined TKCI. From July 1988 to November
1992, he held various accounting, finance and real estate positions with CKE
Restaurants, Inc., an owner and operator of a restaurant chain. Mr. Campanaro
began his professional career with KPMG LLP and is licensed by the State of
California as a Certified Public Accountant, and as a Real Estate Broker. He is
a member of the American Institute of Certified Public Accountants. Mr.
Campanaro received a B.S. in Accounting from the University of Utah.
Eric C. Nielsen became the President of our Costa Mesa division in November
1994. Mr. Nielsen joined TKCI in November 1985 as Senior Designer and became a
Vice President, Engineering and Mapping in July 1990. Upon the consummation of
this offering, Mr. Nielsen will replace Mr. Keith as the President of TKCI. Mr.
Nielsen received a B.S. in Civil Engineering from California Polytechnic State
University and is a registered engineer in the states of California, Colorado
and Hawaii.
Walter W. Cruttenden, III was elected to our board of directors in July 1997.
Mr. Cruttenden serves as Chairman of the Board of Directors and Chief Executive
Officer of E*OFFERING Corp., the co-underwriter in this offering. In 1986, he
founded Cruttenden Roth Incorporated and served as the Chairman of the Board of
Directors and Chief Executive Officer until 1998. E*OFFERING Corp. and
Cruttenden Roth Incorporated are both investment banking institutions.
George Deukmejian has been elected to our board of directors to become
effective immediately prior to the consummation of the offering. Mr. Deukmejian
is the former Governor of the State of California, serving in such office from
January 1983 until January 1991. Following his departure from the Governor's
office, he joined the law firm of Sidley & Austin in its Los Angeles office
where he currently practices as a partner. Prior to his election as Governor,
Mr. Deukmejian served from 1979 to 1982 as the Attorney General of the State of
California and from 1963 to 1978, served in the California State Legislature.
Mr. Deukmejian currently serves on the boards of directors of Burlington
Northern Santa Fe Corp., Foundation Health Systems, Inc. and the Whittaker
Corporation. He also serves as a Deputy Trustee of the Golden Eagle Insurance
Trust in Liquidation and on the Senior Advisory Council of the Industrial Bank
of Japan's Los Angeles office. Mr. Deukmejian received a B.A. in Sociology from
Siena College and a J.D. from St. Johns University Law School.
52
<PAGE>
Christine M. Diemer has been elected to our board of directors to become
effective immediately prior to the consummation of the offering. Ms. Diemer is
the current Chief Executive Officer of the Building Industry Association of
Southern California, Orange County chapter which she joined in July 1981. Prior
to joining that organization, she was an appellate lawyer for the Attorney
General of the State of California from 1981 to 1983, and served as the
Director of the California Department of Housing and Community Development from
1983 to 1989. Ms. Diemer is a former board member of the Federal National
Mortgage Association (Fannie Mae) and the California Housing Finance Agency
(CHFA). Ms. Diemer received a B.A. in English from California State University
at San Diego and a J.D. from Western State School of Law.
Director Compensation
Our non-employee directors will receive $1,500 for each board or committee
meeting which they attend and are reimbursed for out-of-pocket expenses
incurred in connection with attendance at board and committee meetings.
Board Committees; Compensation Committee Interlocks and Insider Participation
The board of directors has established an audit committee and a compensation
committee.
The audit committee, which will consist of Mr. Cruttenden and Ms. Diemer, will
review the adequacy of TKCI's internal controls and the results and scope of
the audit and other services provided by our independent auditors. The audit
committee will meet periodically with management and our independent auditors.
The compensation committee, which will consist of Mr. Cruttenden and Ms. Diemer
will establish salaries and other forms of compensation for officers and other
employees of TKCI and will administer our option plans.
No executive officer of TKCI has served as a director or member of the
compensation committee of any other entity whose executive officers served as a
director or member of the compensation committee. Mr. Cruttenden owns
approximately 11.64% of TKCI's common stock. In addition, in April 1997, Mr.
Cruttenden loaned the company $700,000. Mr. Cruttenden was also a party in
interest to a right of first refusal to have Cruttenden Roth serve as the
managing underwriter in the offering, which he subsequently waived pursuant to
a written waiver dated July 1998.
53
<PAGE>
Executive Compensation
The following table sets forth certain summary information concerning
compensation paid or accrued for services rendered to TKCI in all capacities
during the year ended December 31, 1998 to our Chief Executive Officer and to
each of our other three most highly compensated executive officers whose total
compensation in 1998 exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
-------------------------- -------------
Securities
Name and Fiscal All Other Underlying
Principal Position Year Salary Bonus Compensation Stock Options
- ------------------------- ------ -------- ----- ------------ -------------
<S> <C> <C> <C> <C> <C>
Aram H. Keith............ 1998 $373,419(/1/) -- $6,832(/4/) --
President and Chief
Executive Officer
Jerry M. Brickman........ 1998 $130,403 -- $5,186(/5/) 9,259
Chief Operating Officer
Gary C. Campanaro........ 1998 $115,016(/2/) -- $5,171(/6/) 31,481
Chief Financial Officer
Floyd S. Reid(/7/)....... 1998 $111,369(/3/) -- $4,119(/8/) --
</TABLE>
- ------------------
(1) Consists of $371,562 in salary and $1,857 in matching contributions made by
TKCI pursuant to our 401(k) plan.
(2) Consists of $114,423 in salary and $593 in matching contributions made by
TKCI pursuant to our 401(k) plan.
(3) Consists of $110,816 in salary and $553 in matching contributions made by
TKCI pursuant to our 401(k) plan.
(4) Consists of a $1,500 auto allowance, $5,146 in membership dues paid on
behalf of Mr. Keith by TKCI and $186 in premiums on a life insurance policy
of which Mr. Keith is the beneficiary.
(5) Consists of a $5,000 auto allowance and $186 in premiums paid on a life
insurance policy of which Mr. Brickman is the beneficiary.
(6) Consists of a $5,000 auto allowance and $171 in premiums paid on a life
insurance policy of which Mr. Campanaro is the beneficiary.
(7) Mr. Reid resigned as the Treasurer and Secretary of TKCI on April 12, 1999
and is no longer an executive officer.
(8) Consists of a $500 auto allowance, $3,433 in membership dues paid on behalf
of Mr. Reid by TKCI and $186 in premiums on a life insurance policy of
which Mr. Reid is the beneficiary.
54
<PAGE>
Option Grants in the Last Fiscal Year
The following table sets forth certain information regarding options granted to
the executive officers named in the Summary Compensation Table above during the
fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
Potential
Realizable
Value
at Assumed
Annual Rates
% of Total of Stock Price
Number of Options Appreciation
Securities Granted to for Option
Underlying Employees in Exercise Term(/3/)
Options Fiscal Price Expiration ----------------
Name Granted(/1/) Year(/2/) ($/Share) Date 5% 10%
- ---- ------------ ------------ --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Aram H. Keith........... -- -- -- -- $ -- $ --
Jerry M. Brickman....... 9,259 6.8% $8.10 2008 $47,200 $119,500
Gary C. Campanaro....... 27,778 20.0% $2.70 2008 $47,200 $119,500
3,704 2.7% $8.10 2008 $18,900 $ 47,800
Floyd S. Reid........... -- -- -- -- $ -- $ --
</TABLE>
Option Grants During Year Ended December 31, 1998
- ------------------
(/1/)Options vest 20% annually over five years.
(/2/Based)on options to purchase 369,700 shares granted to employees during the
fiscal year ended December 31, 1998, including Named Executive Officers.
(/3/)Calculated using the potential realizable value of each grant.
Stock Option Plans
We have adopted an Amended and Restated 1994 Stock Incentive Plan effective as
of March 31, 1999. The plan is administered by the Compensation Committee of
the board of directors, which has discretion and authority, consistent with the
provisions of the plan, to determine which eligible participants will receive
options, the time when options will be granted, the terms of options granted
and the number of shares which will be subject to options.
Our plan provides for the granting of "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended,
nonqualified options and rights to purchase shares of common stock. Under the
plan, options and purchase rights covering an aggregate of 1,111,111 shares of
TKCI's common stock may be granted, in each case to officers, directors, key
employees and consultants of TKCI and its subsidiaries, except that incentive
stock options may not be granted to nonemployee directors or nonemployee
consultants. The exercise price of incentive stock options must not be less
than the fair market value of a share of common stock on the date the option is
granted (110% with respect to optionees who own at least 10% of the outstanding
common stock). Our Compensation Committee has the authority to determine the
time or times at which options granted under the plan become exercisable,
provided that options expire no later than ten years from the date of grant
(five years with respect to incentive stock options held by
55
<PAGE>
optionees who own at least 10% of the outstanding common stock). Options are
nontransferable, other than by will and the laws of descent and distribution,
and generally may be exercised only by an employee while employed by TKCI. The
plan terminates in July 2004. As of March 31, 1999, options to purchase 485,074
shares of common stock were outstanding under the plan.
Indemnification of Directors and Officers
The articles of incorporation of TKCI as amended, provide that the liability of
our directors for monetary damages shall be eliminated to the fullest extent
permissible under California law. This is intended to eliminate the personal
liability of a director for monetary damages in an action brought by or in the
right of TKCI for breach of a director's duties to TKCI or our shareholders
except for liability: (a) for acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law; (b) for acts or
omissions that a director believes to be contrary to the best interests of TKCI
or our shareholders or that involve the absence of good faith on the part of
the director; (c) for any transaction for which a director derived an improper
personal benefit; (d) for acts or omission that show a reckless disregard for
the director's duty to our shareholders in circumstances in which the director
was aware, or should have been aware, in the ordinary course of performing a
director's duties, of a risk of serious injury to TKCI or our shareholders; (e)
for acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to TKCI or our shareholders;
(f) with respect to certain transactions, or the approval of transactions in
which a director has a material financial interest; and (g) expressly imposed
by statute, for approval of certain improper distributions to shareholders or
certain loans or guarantees.
Our articles of incorporation also provide that we are authorized to provide
indemnification to our officers and directors in excess of the indemnification
otherwise permitted by Section 317 of the California Corporations Code. Our
bylaws provide for indemnification of our officers, directors, employees, and
other agents to the extent and under the circumstances permitted by California
law.
We have entered into agreements to indemnify our directors and executive
officers in addition to the indemnification provided for in our articles of
incorporation and bylaws. Among other things, these agreements provide that we
will indemnify, subject to certain requirements, each of our directors and
executive officers for certain expenses (including attorneys' fees), judgments,
fines and settlement amounts incurred by such person in any action or
proceeding, including any action by or in the right of TKCI, on account of
services by such person as a director or executive officer of us, or as a
director or executive officer of any other company or enterprise to which the
person provides services at our request.
56
<PAGE>
CERTAIN TRANSACTIONS
In November 1998, we entered into Indemnification Agreements with all of our
directors and executive officers providing for indemnification rights in
certain circumstances. See "Management--Indemnification of Directors and
Officers."
In August 1998, the holders of all of the outstanding shares of Keith
Engineering common stock contributed their shares to TKCI as a contribution to
capital. In consideration of this contribution, we issued to the contributing
shareholders one share of TKCI common stock for each share of Keith Engineering
stock contributed. Pursuant to this transaction, Aram H. Keith, through the
Aram H. Keith and Margie R. Keith Trust, acquired 738,889 shares of TKCI common
stock. Floyd S. Reid, as trustee of the Floyd S. Reid and Ruth L. Reid Family
Trust dated March 30, 1990, acquired 351,852 shares of TKCI common stock. Mr.
Keith is our President, Chief Executive Officer and the Chairman of our board
of our directors, and Mr. Reid is a former director and executive officer of
our company and remains a principal shareholder.
On December 31, 1997, we borrowed $910,177 and $127,815 from Aram H. Keith and
Floyd S. Reid, respectively, under promissory notes. On June 3, 1998, we
borrowed an additional $300,000 from Mr. Keith. We have borrowed funds from Mr.
Keith from time to time as cash flow was needed. In February 1998, as a
condition to our credit agreement with Imperial Bank, subordination agreements
were executed by Messrs. Keith and Reid subordinating our payment obligations
to them under the notes to our obligations to Imperial Bank under our credit
agreement. The notes to Messrs. Keith and Reid were subsequently amended and
restated to include language which referenced these agreements and the two
separate notes to Mr. Keith were consolidated into a single note in the
principal amount of $1,210,177. Each of these notes provides for an interest
rate of 10% per annum and is due and payable in full on July 1, 2000. As of
March 31, 1999, we were indebted to Messrs. Keith and Reid under such notes in
the respective amounts of $1,371,697 and $161,048.
In October 1997, we borrowed an aggregate of $213,782 from the Erica Keith
Educational Trust and the Susan E. Reid Housing Trust under two separate
promissory notes in the amounts of $129,205 and $84,577, respectively. The
obligees on these notes are trusts established for the benefit of the children
of Messrs. Reid and Keith. In February 1998, as a condition to our credit
agreement with Imperial Bank, subordination agreements were executed on behalf
of these trusts subordinating our payment obligations to the trusts under the
notes to our obligations to Imperial Bank under our credit agreement. Amended
and restated notes were executed in February 1999 to include accrued and unpaid
interest in the principal amounts, to extend the maturation dates and to
include language on the face of the notes to reference the subordination to our
obligations to Imperial Bank. The amended and restated notes to the Erica Keith
Educational Trust and the Susan E. Reid Housing Trust were in the amounts of
$132,000 and $86,000, respectively. These notes replaced the October 1997
notes. Each of these notes provides for an interest rate of 10% per annum and
is due and payable in full on October 30, 2000. As of March 31, 1999, we were
indebted to the obligees of these notes in the amounts of $134,134 and $87,390.
57
<PAGE>
In April 1997, we entered into an Agreement for Advisory Services with Walter
W. Cruttenden, III, which provided that Mr. Cruttenden would provide us with
advice regarding strategic acquisitions and that Mr. Cruttenden, or a designee,
would serve on our board of directors. Mr. Cruttenden currently serves as a
director on our board of directors. In exchange for these services, we agreed
to pay Mr. Cruttenden $2,500 per quarter. In addition, for $10,000, we granted
Mr. Cruttenden options to purchase 10% of our outstanding common stock upon the
payment of additional consideration of $88,000. In July 1997, upon his exercise
of this option, we issued 325,926 shares of our common stock to Mr. Cruttenden.
The agreement also provides for indemnification by us and Mr. Keith in certain
circumstances. Further, the agreement provides Mr. Cruttenden with a right of
first refusal to have Cruttenden Roth serve as the managing underwriter in our
initial public offering, which he waived pursuant to a written waiver in July
1998. The agreement terminated on April 10, 1999.
In December 1997, Mr. Cruttenden and members of his family purchased 196,745
shares of TKCI common stock for an aggregate purchase price of $500,000.
In April 1997, we borrowed $700,000 from Mr. Cruttenden under a Secured
Promissory Note Line of Credit. This note provides for an interest rate of 10%
per annum and becomes fully due and payable on July 1, 2000. As of March 31,
1999, our obligations under the note were $700,000. In conjunction with the
note, we entered into a Security Agreement with Mr. Cruttenden, Keith
Engineering and Mr. Keith, granting to Mr. Cruttenden a security interest in
all of our assets to secure the repayment of the amounts due under the note.
Mr. Keith personally guaranteed our obligations under the note. The note also
provides that our indebtedness to Mr. Keith and Mr. Reid under their December
31, 1997 notes (discussed above) are subordinate to our obligations under the
note. In February 1999, the note to Mr. Cruttenden was amended and restated to
provide for its subordination to our obligations to Imperial Bank.
In February 1997, Keith International borrowed $100,000 from Douglas Travato
under a promissory note. In February 1998 pursuant to a written agreement, Mr.
Keith assumed the Travato note and fully paid all amounts due under the note by
transferring 55,556 shares of Mr. Keith's TKCI common stock to the Travato
Family Trust. We entered into a promissory note dated February 10, 1998 in
favor of Mr. Keith in the principal amount of $150,000, of which $100,000
reflected our obligation to Mr. Keith in connection with his assumption of the
Travato note. In October 1998, we made a $150,000 cash payment to Mr. Keith in
full satisfaction of our obligations under our note to him. Keith International
was a corporation owned by Messrs. Keith and Reid that was dissolved in
November 1998.
On February 26, 1996, Keith Engineering borrowed $50,000 from the Wyckoff
Company Money Purchase Pension Plan. In February 1997, the parties reduced this
loan to writing under a promissory note. The original maturity date of the loan
was August 26, 1996, which was successively extended to become fully due and
payable on February 26, 1998. In February 1998, Mr. Keith assumed the Wyckoff
note and fully paid all amounts due under the note by transferring to the
Wyckoff Company Profit Sharing Plan 18,519 shares of
58
<PAGE>
Mr. Keith's TKCI common stock. In connection with this transaction, we entered
into a promissory note in favor of Mr. Keith in the principal amount of
$150,000 (discussed above), of which $50,000 reflected our obligation to Mr.
Keith pursuant to his assumption of the Wyckoff note. In October 1998, we made
a $150,000 cash payment to Mr. Keith in full satisfaction under our note to
him.
In February 1998, Mr. Keith personally guaranteed the repayment of our
obligations under our credit agreement with Imperial Bank.
59
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of March 31, 1999 and as adjusted
to reflect the sale of common stock offered hereby, by (a) each person known by
us to beneficially own more than 5% of the outstanding shares of common stock,
(b) each of our directors, (c) each of the executive officers listed in the
Summary Compensation Table, and (d) all of our directors and executive officers
as a group. Except as otherwise indicated, we believe that the beneficial
owners of the common stock listed below, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Owned After
Offering Offering
Name of Beneficial Owner --------------------------------------------
or Identity of Group(/1/)(/2/) Number Percent Number Percent
------------------------------ ----------- --------------------- ----------
<S> <C> <C> <C> <C>
Aram H. Keith...................... 1,533,704 42.68% 1,533,704 28.70%
Floyd S. Reid(/3/)................. 509,444 14.18% 509,444 9.53%
Gary C. Campanaro(/4/)............. 5,556 * 5,556 *
Jerry M. Brickman(/4/)............. 13,333 * 13,333 *
Walter W. Cruttenden, III.......... 418,137 11.64% 418,137 7.83%
George Deukmejian(/5/)............. 7,407 * 7,407 *
Christine M. Diemer(/5/)........... 7,407 * 7,407 *
All directors and executive
officers as a group (6 persons)..
</TABLE>
- ------------------
* Less than 1%
(1) The address of each person listed is c/o The Keith Companies, Inc., 2955
Red Hill Avenue, Costa Mesa, California 92626.
(2) Mr. Keith is the President, Chief Executive Officer and Chairman of the
Board of TKCI; Mr. Campanaro is Secretary and Chief Financial Officer of
TKCI; and Mr. Brickman is Chief Operating Officer of TKCI.
(3) Mr. Reid resigned as the Treasurer and Secretary of TKCI on April 12, 1999
and is no longer an executive officer.
(4) Consists solely of shares issuable under options presently exercisable or
which will become exercisable within 60 days.
(5) Consists solely of shares issuable under options which will be granted
immediately prior to the offering and which will be immediately exercisable
upon grant.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common stock, no
par value, and 5,000,000 shares of preferred stock, no par value. The following
description of our capital stock is qualified in all respects by reference to
our amended and restated articles of incorporation, which has been filed as an
exhibit to the registration statement incorporating this prospectus. As of
March 31, 1999, there were 41 holders of TKCI's common stock.
Common Stock
The holders of outstanding shares of our common stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the board of directors may, from time to time, determine, subject to
any preferences which may be granted to the holders of preferred stock and to
certain restrictions on the payment of dividends contained in our credit
agreement with Imperial Bank. Holders of common stock are entitled to one vote
per share on all matters on which the holders of common stock are entitled to
vote. The common stock is not entitled to preemptive rights and is not subject
to redemption or conversion. Upon liquidation, dissolution or winding-up of
TKCI, the assets (if any) legally available for distribution to shareholders
are distributable ratably among the holders of the common stock after payment
of all of our debts and liabilities and the liquidation preference of any
outstanding class or series of preferred stock. All outstanding shares of
common stock are, and the shares of common stock to be issued pursuant to this
offering will be, when issued and delivered, validly issued, fully paid and
nonassessable. The rights, preferences and privileges of holders of common
stock are subject to any series of preferred stock that we may issue in the
future.
Preferred Stock
Preferred stock may be issued from time to time in one or more series, and our
board of directors, without action by the holders of common stock, may fix or
alter the voting rights, redemption provisions (including sinking fund
provisions), dividend rights, dividend rates, liquidation preferences,
conversion rights and any other rights, preferences, privileges and
restrictions of any wholly unissued series of preferred stock. The board of
directors, without shareholder approval, can issue shares of preferred stock
with rights that could adversely affect the rights of the holders of common
stock. No shares of preferred stock presently are outstanding, and we have no
present plans to issue any such shares. The issuance of shares of preferred
stock could adversely affect the voting power of the holders of common stock
and could have the effect of making it more difficult for a third party to
acquire, or could discourage or delay a third party from acquiring, a majority
of our outstanding stock.
Registration Rights
Following this offering, the shareholders of Thompson-Hysell will be entitled
to certain registration rights with respect to the shares they may receive in
2000. No other persons have registration rights.
61
<PAGE>
Transfer Agent and Registrar
The stock transfer agent and registrar for TKCI common stock is U.S. Stock
Transfer Corporation.
SHARES ELIGIBLE FOR FUTURE SALE
As of March 31, 1999, TKCI had outstanding 3,559,708 shares of common stock.
The 1,750,000 shares sold pursuant to this offering (assuming the overallotment
option is not exercised) will be freely tradeable without restriction or
further registration under the Securities Act of 1933, unless held by an
"affiliate" of TKCI within the meaning of Rule 144 adopted under the Securities
Act of 1933. Any such affiliate would be subject to the resale limitations of
Rule 144.
The remaining shares of outstanding common stock are "restricted securities"
within the meaning of Rule 144 under the Securities Act of 1933 and may not be
sold in the absence of a registration under the Securities Act of 1933 unless
an exemption from registration is available, including an exemption contained
in Rule 144. In general, under Rule 144 as currently in effect, any person (or
persons whose shares are aggregated for purposes of Rule 144) who has
beneficially owned restricted securities, as that term is defined in Rule 144,
for at least one year (including, in the case of a nonaffiliate holder, any
period of ownership of preceding nonaffiliate holders) is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of (a) 1% of the then outstanding shares of our common stock, or (b)
the average weekly trading volume in our common stock during the four calendar
weeks preceding such sale, provided that certain public information about us,
as required by Rule 144, is then available and the seller complies with the
manner of sale and notification requirements of the rule. A person who is not
an affiliate and has not been an affiliate within three months prior to the
sale and has, together with any previous owners who were not affiliates,
beneficially owned restricted securities for at least two years is entitled to
sell such shares under Rule 144(k) without regard to any of the volume
limitations described above. As of March 31, 1999, 492,037 restricted shares
were eligible for sale under Rule 144(k). The remainder of the restricted
shares will be eligible for sale from time to time thereafter upon expiration
of one-year holding periods and subject to the requirements of Rule 144. In
addition, the shares held by all of our shareholders and persons with rights to
acquire our shares, except certain non-management employees, are subject to
agreements restricting the sale of their shares in favor of the representatives
of the underwriters.
Upon the consummation of this offering, we will have outstanding options to
purchase 499,889 shares of our common stock held by certain employees and
directors pursuant to our Amended and Restated 1994 Stock Incentive Plan. We
intend to register on a registration statement on Form S-8, on or shortly after
the date of this prospectus, all 499,889 shares of common stock underlying the
options that are then outstanding or issuable pursuant to the Amended and
Restated 1994 Stock Incentive Plan.
TKCI also has outstanding four warrants to purchase an aggregate of 83,333
shares of common stock granted in connection with the acquisitions of ESI and
John M. Tettemer &
62
<PAGE>
Associates. The shares issued upon exercise of such warrants will be restricted
securities. In connection with the acquisition of ESI, if certain earnings
targets and other conditions are met, TKCI has also agreed to issue (a) up to
37,037 shares of TKCI common stock and (b) options to purchase an additional
37,037 shares of common stock to employees of ESI. In connection with the
acquisition of Thompson-Hysell, TKCI will grant a warrant to purchase 66,667
shares of common stock to a finder and has agreed to (a) issue that number of
shares with a value of $1,333,334 (subject to adjustment upward or downward) to
the shareholders of Thompson-Hysell if certain conditions are met; and (b)
reserve options to purchase 37,037 shares of common stock for granting to those
employees of Thompson-Hysell who become employees of TKCI following this
offering. Such shares, if issued, will be restricted securities but will
include the right to have the shares registered for resale under the Securities
Act of 1933.
No predictions can be made of the effect, if any, that future sales of shares
of our common stock, and grants of options and warrants to acquire shares of
our common stock, or the availability of shares for future sale, will have on
the market price of the common stock prevailing from time to time. Sales of
substantial amounts of common stock in the public market, or the perception
that such sales could occur, could adversely affect the prevailing market
prices of the common stock. See "Principal Shareholders," "Description of
Capital Stock" and "Underwriting.
63
<PAGE>
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below for whom First Security Van Kasper and E*OFFERING Corp. are serving as
representatives, have severally agreed to purchase from us and we have agreed
to sell to each of the underwriters, an aggregate of 1,750,000 shares of common
stock. The number of shares of common stock that each underwriter has agreed to
purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
Underwriters Number of Shares
- ------------ ----------------
<S> <C>
First Security Van Kasper......................................
E*OFFERING Corp................................................
---
Total........................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase shares of common stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of the
shares of common stock are purchased by the underwriters pursuant to the
underwriting agreement, all of the shares of common stock (other than the
shares of common stock covered by the underwriters' over-allotment option
described below) must be so purchased.
Prior to this offering, there has been no established trading market for our
common stock. The initial price to the public for our common stock offered
hereby will be determined by negotiation between the representatives and us.
The factors to be considered in determining the initial price to the public
include the history of and the prospects for the industry in which we compete,
the performance and ability of our management, our past and present operations,
our historical results of operations, our prospects for future earnings, the
general condition of the securities markets at the time of this offering and
the recent market prices of securities of generally comparable companies. The
estimated initial public offering price range set forth on the cover page of
this prospectus is subject to change as a result of market conditions and other
factors.
The underwriters propose to offer the shares of common stock in part directly
to the public at the offering price set forth on the cover page of this
prospectus, and to certain dealers (including the underwriters) at such price
less a concession not in excess of $ per share. Any dealers or agents that
participate in the distribution of the common stock may be deemed to be
underwriters within the meaning of the Securities Act of 1933, and any
discounts, commission or concessions received by them and any provided pursuant
to the sale of the shares by them might be deemed to be underwriting discounts
and commissions
64
<PAGE>
under the Securities Act of 1933. TKCI has agreed to pay the representatives a
non-accountable expense allowance of 1% of the proceeds of this offering. After
the public offering of the shares, the offering price and other selling terms
may be changed by the underwriters.
A prospectus in electronic format is being made available on an Internet
website maintained by E*OFFERING Corp. at http://[email protected]. Except for
this prospectus, nothing on E*OFFERING Corp.'s web site shall be deemed to be a
part of this prospectus.
We have agreed to indemnify the underwriters against certain civil liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments that the underwriters may be required to make in respect thereof.
TKCI, and each of its directors, executive officers, shareholders and certain
of its option,warrant and rights holders have agreed not to offer, sell
contract to sell or otherwise dispose of any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock, or
in any manner transfer all or a portion of the economic consequences associated
with the ownership of such common stock, or to cause a registration statement
covering any shares of common stock to be filed, for 180 days after the date of
the underwriting agreement without the prior written consent of the
representatives, subject to certain limited exceptions, and provided that we
may grant options pursuant to, and issue shares of common stock upon the
exercise of options under our Amended and Restated 1994 Stock Incentive Plan.
See "Shares Eligible for Future Sale."
TKCI has granted to the underwriters an option to purchase up to an aggregate
of additional shares of our common stock, at the initial public offering
price less underwriting discounts and commissions, solely to cover over-
allotments. Such option may be exercised in whole or in part from time to time
during the 45-day period after the date of this prospectus. To the extent that
the underwriters exercise such option, each of the underwriters will be
committed, subject to certain conditions, to purchase from us a number of
option shares proportionate to such underwriters' initial commitment as
indicated in the preceding table.
The following table shows the underwriting fees to be paid to the underwriters
by us in connection with this offering. These amounts are shown assuming both
no exercise and full exercise of the underwriters' option to purchase
additional shares of common stock.
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share............................................. $ $
---- ----
Total............................................... $ $
==== ====
</TABLE>
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $ .
In the event our common stock does not constitute an excepted security under
the provisions of Regulation M promulgated by the Securities and Exchange
Commission, the underwriters and dealers may engage in passive market making
transactions in accordance with Rule 103. In general, a passive market maker
may not bid for or purchase shares of common stock at a
65
<PAGE>
price that exceeds the highest independent bid. In addition, the net daily
purchase made by any passive market maker generally may not exceed 30% of its
average daily trading volume in the common stock during a specified two-month
prior period, or 2000 shares, whichever is greater. A passive market maker must
identify passive market making bids as such on the Nasdaq electronic later-
dealer reporting system. Passive market making may stabilize or maintain the
market price of the common stock above independent market levels. Underwriters
and dealers are not required to engage in passive market making and may end
passive market making activities at any time.
In connection with this offering, certain underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may over-allot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of our common stock in the open market to cover syndicate
short positions or to stabilize the price of our common stock. These activities
may stabilize or maintain the market price of our common stock above
independent market levels. The underwriters are not required to engage in these
activities and may end any of these activities at any time.
We have applied for the listing of our common stock on the Nasdaq National
Market under the symbol "TKCI."
The representatives have informed us that the underwriters do not intend to
confirm sales to accounts over which they exercise discretionary authority.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for us by Rutan & Tucker, LLP, Costa Mesa, California. Certain legal matters in
connection with the offering will be passed upon for the underwriters by Cooley
Godward LLP, San Diego, California.
EXPERTS
The consolidated financial statements of The Keith Companies, Inc. and
subsidiaries as of December 31, 1997 and 1998, and for each of the years in the
three-year period ended December 31, 1998, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The financial statements of Thompson-Hysell, Inc. as of December 31, 1997 and
1998, and for the years then ended, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
66
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act of 1933,
and the rules and regulations promulgated thereunder, with respect to the
common stock offered hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in
the registration statement and the exhibits and schedules thereto. Statements
contained in this prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and in each instance
reference is made to the full text of such contract or other document which is
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference. For further information regarding
us and the common stock offered hereby, reference is made to such registration
statement and the exhibits and schedules thereto. The registration statement,
including the exhibits and schedules thereto, may be inspected without charge
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and at
Citicorp Center, 50 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such documents may be obtained from the Commission at its principal
office in Washington, D.C. upon the payment of the charges prescribed by the
Commission.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The Commission's address on the World Wide
Web is http://www.sec.gov.
All trademarks or trade names referred to in this prospectus are the property
of their respective owners.
67
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The TKCI unaudited pro forma condensed consolidated balance sheet as of March
31, 1999 is presented as if the initial public offering of 1,750,000 shares of
common stock, at an assumed initial public offering price of $9.00 per share;
the acquisition of substantially all of the assets and the assumption of
certain of the liabilities of Thompson-Hysell; and the repayment of debt,
capital lease obligations and notes payable to related parties with the net
proceeds of the offering had all occurred on March 31, 1999. The TKCI unaudited
pro forma condensed consolidated statements of income for the year ended
December 31, 1998 and the three months ended March 31, 1999 are presented as if
the initial public offering of 1,750,000 shares of common stock, at an assumed
initial public offering price of $9.00 per share; the acquisition of
substantially all of the assets and the assumption of certain of the
liabilities of Thompson-Hysell; and the repayment of debt, capital lease
obligations and notes payable to related parties with the net proceeds of the
offering had all occurred on January 1, 1998.
The pro forma adjustments are based upon currently available information and
upon certain assumptions that we believe are reasonable. There can be no
assurances that the actual effect will not differ significantly from the pro
forma adjustments reflected in the pro forma condensed consolidated financial
statements.
The pro forma condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements of TKCI and its
subsidiaries, and the notes thereto, and the financial statements of Thompson-
Hysell, and the notes thereto, included elsewhere in this prospectus. The pro
forma condensed consolidated financial statements do not purport to represent
our financial position as of March 31, 1999 or the results of operations for
the year ended December 31, 1998 or the three months ended March 31, 1999 that
would actually have occurred had the initial public offering of 1,750,000
shares of common stock, at an assumed initial public offering price of $9.00
per share; the acquisition of substantially all of the assets and the
assumption of certain of the liabilities of Thompson-Hysell; and the repayment
of debt, capital lease obligations and notes payable to related parties with
the net proceeds of the offering had all occurred on March 31, 1999 or on
January 1, 1998, or to project our financial position or results of operations
as of any future date or for any future period.
P-1
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
------------------ ------------------------------
Thompson- Acquisition of Initial Public
TKCI Hysell Thompson-Hysell Offering Pro Forma
------- --------- --------------- -------------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents.......... $ 144 $ 264 $(4,728)(a) $14,179 (b) $ 1,782
(8,077)(c)
Contracts and trade
receivables, net..... 6,124 2,456 -- -- 8,580
Costs and estimated
earnings in excess of
billings............. 4,748 265 -- -- 5,013
Deferred offering
costs................ 346 -- -- (346)(b) --
Other current assets.. 525 65 -- -- 590
------- ------ ------- ------- -------
Total current
assets............. 11,887 3,050 (4,728) 5,756 15,965
Equipment and
improvements, net.... 2,974 1,097 -- -- 4,071
Goodwill, net......... 556 -- 3,205 (a) -- 3,761
Other assets.......... 272 247 (347)(a) -- 172
------- ------ ------- ------- -------
Total assets........ $15,689 $4,394 $(1,870) $ 5,756 $23,969
======= ====== ======= ======= =======
Liabilities and
Stockholders' Equity
Current liabilities:
Short-term
borrowings........... $ 4,881 $ -- $ 95 (a) $(4,275)(c) $ 701
Current portion of
long-term debt and
capital lease
obligations.......... 1,444 231 -- (741)(c) 934
Trade accounts
payable.............. 1,280 103 -- -- 1,383
Accrued liabilities... 2,955 234 -- -- 3,189
Accrued liabilities to
related parties...... 201 23 (23)(a) (201)(c) --
Billings in excess of
costs and estimated
earnings............. 559 -- -- -- 559
------- ------ ------- ------- -------
Total current
liabilities........ 11,320 591 72 (5,217) 6,766
Long-term debt and
capital lease
obligations, less
current portion....... 948 378 1,333 (a) (459)(c) 2,200
Notes payable to
related parties, less
current portion....... 2,401 579 (579)(a) (2,401)(c) --
Other liabilities...... 362 -- -- -- 362
------- ------ ------- ------- -------
Total liabilities... 15,031 1,548 826 (8,077) 9,328
------- ------ ------- ------- -------
Stockholders' equity:
Common stock.......... 1,085 1 149 (a) 13,833 (b) 15,068
Retained earnings
(accumulated
deficit)............. (427) 2,822 (2,822)(a) -- (427)
Accumulated other
comprehensive
income............... -- 23 (23)(a) -- --
------- ------ ------- ------- -------
Total stockholders'
equity............. 658 2,846 (2,696) 13,833 14,641
------- ------ ------- ------- -------
Total liabilities
and stockholders'
equity............. $15,689 $4,394 $(1,870) $ 5,756 $23,969
======= ====== ======= ======= =======
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements
P-2
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statement of Income
Year Ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
----------------- ------------------------------
Thompson- Acquisition of Initial Public
TKCI Hysell Thompson-Hysell Offering Pro Forma
------- --------- --------------- -------------- ---------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Gross revenue........... $34,021 $9,112 $ -- $ -- $ 43,133
Subcontractor costs..... 4,839 323 -- -- 5,162
------- ------ ------ ------ ---------
Net revenue......... 29,182 8,789 -- -- 37,971
Costs of revenue........ 19,287 4,607 -- -- 23,894
------- ------ ------ ------ ---------
Gross profit........ 9,895 4,182 -- -- 14,077
Selling, general and
administrative
expenses............... 5,858 2,187 128 (d) 175 (e) 8,348
------- ------ ------ ------ ---------
Income from
operations......... 4,037 1,995 (128) (175) 5,729
Interest expense........ 967 80 133 (d) (759)(f) 421
Other expenses (income),
net.................... 66 (32) 31 (d) -- 65
------- ------ ------ ------ ---------
Income before
provision for
income taxes....... 3,004 1,947 (292) 584 5,243
Provision for income
taxes.................. 1,350 6 -- 846 (g) 2,202
------- ------ ------ ------ ---------
Net income.......... $ 1,654 $1,941 $ (292) $ (262) $ 3,041
======= ====== ====== ====== =========
Net income per share:
Basic................. $ 0.57
=========
Diluted............... $ 0.55
=========
Weighted average shares
used in computing net
income per share
amounts:
Basic................. 5,309,708
=========
Diluted............... 5,568,957 (h)
=========
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements
P-3
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Pro Forma Condensed Consolidated Statement Of Income
Three Months Ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
----------------- ------------------------------
Thompson- Acquisition of Initial Public
TKCI Hysell Thompson-Hysell Offering Pro Forma
------ --------- --------------- -------------- ---------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Gross revenue........... $9,999 $2,378 $-- $ -- $ 12,377
Subcontractor costs..... 1,030 76 -- -- 1,106
------ ------ ---- ----- ---------
Net revenue......... 8,969 2,302 -- -- 11,271
Costs of revenue........ 5,914 1,194 -- -- 7,108
------ ------ ---- ----- ---------
Gross profit........ 3,055 1,108 -- -- 4,163
Selling, general and
administrative
expenses............... 1,896 473 32 (d) 44 (e) 2,445
------ ------ ---- ----- ---------
Income from operations.. 1,159 635 (32) (44) 1,718
Interest expense........ 260 32 33 (d) (190)(f) 120
(15)(d)
Other expenses (income),
net.................... (19) (18) 12 (d) -- (25)
------ ------ ---- ----- ---------
Income before
provision for
income taxes....... 918 621 (62) 146 1,623
Provision for income
taxes.................. 389 -- -- 293 (g) 682
------ ------ ---- ----- ---------
Net income............ $ 529 $ 621 $(62) $(147) $ 941
====== ====== ==== ===== =========
Net income per share:
Basic................. $ 0.18
=========
Diluted............... $ 0.17
=========
Weighted average shares
used in computing net
income per share
amounts:
Basic................. 5,309,708
=========
Diluted............... 5,611,360 (h)
=========
</TABLE>
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements
P-4
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Pro forma Condensed Consolidated Financial Statements (continued)
(Unaudited)
Adjustments to the Pro Forma Condensed Consolidated Balance Sheet
The pro forma adjustments to the Pro Forma Condensed Consolidated Balance Sheet
as of March 31, 1999 are as follows:
(a) Acquisition of substantially all of the assets and certain of the
liabilities of Thompson-Hysell (accounted for using purchase accounting;
the purchase price is allocated based upon estimated fair value of assets
and liabilities acquired, which approximates book value):
(in thousands)
<TABLE>
<S> <C>
Cash............................................................. $(4,233)
Goodwill......................................................... 2,720
Issuance of note payable (interest at 10%)....................... 1,333
Common stock..................................................... (1)
Retained earnings................................................ (2,822)
Accumulated other comprehensive income........................... (23)
Costs associated with the acquisition:
Cash............................................................. $ (231)
Goodwill......................................................... 485
Other assets..................................................... (104)
Common stock (issuance of warrants as finders fee)............... 150
Assets and liabilities which will not be acquired or assumed, and a line
of credit balance to be drawn on by Thompson-Hysell to repay certain
liabilities not assumed by TKCI (in thousands):
Cash............................................................. $ (264)
Other assets..................................................... (243)
Line of credit to be assumed..................................... 95
Accrued liabilities to related parties........................... (23)
Notes payable to related parties................................. (579)
</TABLE>
The acquisition of substantially all of the assets and certain of the
liabilities of Thompson-Hysell results in a purchase price of $3,333,333
in cash, $1,333,333 in a note payable and $1,333,334 in common stock. In
addition, TKCI is obligated to pay cash of $500,000 and $400,000 related
to financial targets and certain income tax effects to the sellers,
respectively. The note payable will be issued at closing, but is subject
to adjustment based on an earnings target in 2000. The common stock may or
may not be issued subject to an earnings target in 1999. Due to the
financial targets assumed to be met and assumed income tax effects to the
sellers, TKCI made a pro forma adjustment for the payment of cash of
$500,000 and $400,000, respectively. Due to the assumed issuance of the
note payable, TKCI made a pro forma adjustment for the debt issued. Due to
the uncertainty surrounding the 1999 earnings target, TKCI excluded the
contingent issuance of common stock.
P-5
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Pro forma Condensed Consolidated Financial Statements (continued)
(Unaudited)
(in thousands, except share and per share data)
(b) Sale of 1,750,000 shares of common stock at an assumed initial public
offering price of $9.00 per share pursuant the offering:
<TABLE>
<S> <C>
Proceeds from the offering, net of underwriting discount........ $14,648
Cash paid relating to offering costs............................ (469)
-------
Net cash proceeds from offering................................. 14,179
Deferred offering costs......................................... (346)
-------
Common stock.................................................... $13,833
=======
(c) Repayment of short-term borrowings, long-term debt, capital lease
obligations and notes payable to related parties (including accrued
interest) with the net proceeds from the offering:
Short-term borrowings:
Line of credit (interest at 10.5%)............................ $ 4,180
Line of credit (interest at 9.25%)............................ 95
-------
$ 4,275
=======
Long-term debt and capital lease obligations:
Note payable (interest at 11.5%).............................. $ 82
Notes payable (interest at 8%)................................ 250
Notes payable (interest ranging from 8.65% to 13.22%)......... 128
Capital lease obligations (interest ranging from 4.80% to
17.18%)...................................................... 740
-------
1,200
Less current portion.......................................... (741)
-------
$ 459
=======
Notes payable to related parties (interest at 10%).............. $ 2,401
=======
Accrued interest to related parties............................. $ 201
=======
Cash expended................................................... $ 8,077
=======
</TABLE>
P-6
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Pro forma Condensed Consolidated Financial Statements (continued)
(Unaudited)
(in thousands, except share and per share data)
Adjustments to the Pro Forma Condensed Consolidated Statements of Income
The pro forma adjustments to the Pro Forma Condensed Consolidated Statements of
Income for the year ended December 31, 1998 and the three months ended March
31, 1999 are as follows:
<TABLE>
<CAPTION>
Three months
Year ended ended
December 31, 1998 March 31, 1999
----------------- --------------
<S> <C> <C>
(d) Acquisition of substantially all of the
assets and the assumption of certain of
the liabilities of Thompson-Hysell
(accounted for using purchase accounting):
Amortization of goodwill...................... $ 128 $ 32
Interest expense related to long-term
debt (interest rate of 10%).................. $ 133 $ 33
Decrease in interest expense related to
excluded notes payable to related
parties...................................... $ -- $ (15)
Decrease in other income related to
excluded interest and investment
income....................................... $ 31 $ 12
(e) Increase in selling, general and
administrative expenses for the
incremental costs of operating as a
public company (accounting, legal,
printing, reporting and directors and
officers' insurance).............................. $ 175 $ 44
(f) Decrease in interest expense resulting
from the repayment of short-term
borrowings, long-term debt, capital lease
obligations and notes payable to related
parties with the net proceeds from the
offering (see note c):
Short-term borrowings (interest at
10.5%)....................................... $(387) $ (97)
Long-term debt and capital lease
obligations (interest ranging from 4.80%
to 17.18%)................................... (132) (33)
Notes payable to related parties
(interest at 10%)............................ (240) (60)
----- -----
$(759) $(190)
===== =====
(g) Income tax effect assuming a 42% effective
income tax rate................................... $ 846 $ 293
===== =====
(h) Weighted average shares--diluted used in
computing net income per share amounts
assumes a fair value of $9.00 per share
for the periods presented.
</TABLE>
P-7
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Consolidated Financial Statements of The Keith Companies, Inc. and
subsidiaries
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and March 31,
1999 (unaudited)........................................................ F-3
Consolidated Statements of Income for the years ended December 31, 1996,
1997 and 1998 and the three months ended March 31, 1998 and 1999
(unaudited)............................................................. F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1996, 1997 and 1998 and the three months ended March
31, 1999 (unaudited).................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and the three months ended March 31, 1998 and 1999
(unaudited)............................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
Financial Statements of Thompson-Hysell, Inc.
Independent Auditors' Report.............................................. F-30
Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999
(unaudited)............................................................. F-31
Statements of Income for the years ended December 31, 1997 and 1998 and
the three months ended March 31, 1998 and 1999 (unaudited).............. F-32
Statements of Stockholders' Equity for the years ended December 31, 1997
and 1998 and the three months ended March 31, 1999 (unaudited).......... F-33
Statements of Cash Flows for the years ended December 31, 1997 and 1998
and the three months ended March 31, 1998 and 1999 (unaudited).......... F-34
Notes to Financial Statements............................................. F-35
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
The Keith Companies, Inc.:
We have audited the accompanying consolidated balance sheets of The Keith
Companies, Inc. and subsidiaries (note 1) as of December 31, 1997 and 1998, and
the related consolidated statements of income, stockholders' equity (deficit),
and cash flows for each of the years in the three-year period ended December
31, 1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Keith
Companies, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
Orange County, California
February 12, 1999, except as to the fifth paragraph
of Note 5, which is as of March 5, 1999,
and to Note 18, which is as of April 9, 1999
F-2
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Note 1)
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1997 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Assets (Note 5)
Current assets:
Cash................................... $ 587,000 $ 457,000 $ 144,000
Contracts and trade receivables (net of
allowance for doubtful accounts of
$348,000, $364,000 and $376,000 at
December 31, 1997, 1998 and March 31,
1999, respectively)................... 3,701,000 5,582,000 6,124,000
Other receivables...................... 148,000 282,000 238,000
Costs and estimated earnings in excess
of billings........................... 3,161,000 3,783,000 4,748,000
Prepaid expenses....................... 502,000 252,000 287,000
Deferred offering costs................ 169,000 291,000 346,000
Deferred tax assets.................... -- 270,000 --
----------- ----------- -----------
Total current assets................ 8,268,000 10,917,000 11,887,000
Equipment and improvements, net......... 1,839,000 2,862,000 2,974,000
Deferred tax assets..................... 1,494,000 -- --
Goodwill, net of accumulated
amortization of $10,000 and $15,000 at
December 31, 1998 and March 31, 1999,
respectively........................... -- 621,000 556,000
Other assets............................ 132,000 130,000 272,000
----------- ----------- -----------
Total assets........................ $11,733,000 $14,530,000 $15,689,000
=========== =========== ===========
Liabilities and Stockholders' Equity
(Deficit)
Current liabilities:
Short-term borrowings.................. $ 310,000 $ -- $ 4,881,000
Current portion of long-term debt and
capital lease obligations............. 900,000 1,488,000 1,444,000
Trade accounts payable................. 2,871,000 1,221,000 1,280,000
Accrued employee compensation.......... 1,055,000 1,720,000 2,342,000
Accrued liabilities to related
parties............................... 116,000 185,000 201,000
Other accrued liabilities.............. 378,000 688,000 613,000
Billings in excess of costs and
estimated earnings.................... 622,000 435,000 559,000
----------- ----------- -----------
Total current liabilities........... 6,252,000 5,737,000 11,320,000
Long-term debt and capital lease
obligations, less current portion...... 4,632,000 5,778,000 948,000
Notes payable to related parties........ 2,245,000 2,401,000 2,401,000
Deferred tax liabilities................ -- 348,000 225,000
Accrued rent............................ 129,000 137,000 137,000
----------- ----------- -----------
Total liabilities................... 13,258,000 14,401,000 15,031,000
----------- ----------- -----------
Stockholders' equity (deficit):
Preferred stock, no par value.
Authorized 20,000,000 shares; no
shares issued or outstanding.......... -- -- --
Common stock, no par value. Authorized
105,000,000 shares in 1997 and
100,000,000 shares in 1998 and 1999;
issued and outstanding 9,611,211
shares in 1997, 1998 and 1999......... 1,085,000 1,085,000 1,085,000
Accumulated deficit.................... (2,610,000) (956,000) (427,000)
----------- ----------- -----------
Total stockholders' equity
(deficit).......................... (1,525,000) 129,000 658,000
----------- ----------- -----------
Commitments and contingencies (Notes 3,
5, 7, 9, 10 and 12)....................
Total liabilities and stockholders'
equity (deficit)................... $11,733,000 $14,530,000 $15,689,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Note 1)
<TABLE>
<CAPTION>
Three months
Years ended December 31, ended March 31,
-------------------------------------- ---------------------
1996 1997 1998 1998 1999
------------ ----------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Gross revenue........... $ 14,344,000 $22,585,000 $34,021,000 $7,121,000 $9,999,000
Subcontractor costs..... 1,378,000 3,993,000 4,839,000 1,159,000 1,030,000
------------ ----------- ----------- ---------- ----------
Net revenue........... 12,966,000 18,592,000 29,182,000 5,962,000 8,969,000
Costs of revenue........ 9,229,000 11,871,000 19,287,000 4,080,000 5,914,000
------------ ----------- ----------- ---------- ----------
Gross profit.......... 3,737,000 6,721,000 9,895,000 1,882,000 3,055,000
Selling, general and
administrative
expenses............... 4,960,000 4,485,000 5,858,000 1,470,000 1,896,000
------------ ----------- ----------- ---------- ----------
Income (loss) from
operations........... (1,223,000) 2,236,000 4,037,000 412,000 1,159,000
Interest expense........ 720,000 852,000 967,000 221,000 260,000
Other expenses (income),
net.................... 5,000 83,000 66,000 7,000 (19,000)
------------ ----------- ----------- ---------- ----------
Income (loss) before
provision (benefit)
for income taxes and
extraordinary gain... (1,948,000) 1,301,000 3,004,000 184,000 918,000
Provision (benefit) for
income taxes........... 3,000 (1,397,000) 1,350,000 116,000 389,000
------------ ----------- ----------- ---------- ----------
Income (loss) before
extraordinary gain... (1,951,000) 2,698,000 1,654,000 68,000 529,000
Extraordinary gain on
forgiveness of
liability, net of
income taxes........... 2,686,000 -- -- -- --
------------ ----------- ----------- ---------- ----------
Net income.......... $ 735,000 $ 2,698,000 $ 1,654,000 $ 68,000 $ 529,000
============ =========== =========== ========== ==========
Per share data:
Basic................. $ 0.06
==========
Diluted............... $ 0.05
==========
Weighted average number
of shares outstanding:
Basic................. 9,611,211
==========
Diluted............... 10,439,493
==========
Pro Forma Supplemental
Data (unaudited):
Historical income (loss)
before provision
(benefit) for income
taxes and extraordinary
gain................... $ (1,948,000) $ 1,301,000 $ 3,004,000 $ 184,000 $ 918,000
Pro forma provision
(benefit) for income
taxes.................. (818,000) 546,000 1,262,000 77,000 386,000
------------ ----------- ----------- ---------- ----------
Pro forma income
(loss) before
extraordinary gain... (1,130,000) 755,000 1,742,000 107,000 532,000
Extraordinary gain on
forgiveness of
liability, net of
income taxes........... 1,558,000 -- -- -- --
------------ ----------- ----------- ---------- ----------
Pro forma net income.. $ 428,000 $ 755,000 $ 1,742,000 $ 107,000 $ 532,000
============ =========== =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit) (Note 1)
<TABLE>
<CAPTION>
Shares Common Accumulated
Outstanding Stock Deficit Total
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31,
1995........................ 8,000,000 $ 80,000 $(6,043,000) $(5,963,000)
Net income................... -- -- 735,000 735,000
--------- ---------- ----------- -----------
Balance at December 31,
1996........................ 8,000,000 80,000 (5,308,000) (5,228,000)
Issuance of common stock..... 1,611,211 1,005,000 -- 1,005,000
Net income................... -- -- 2,698,000 2,698,000
--------- ---------- ----------- -----------
Balance at December 31,
1997........................ 9,611,211 1,085,000 (2,610,000) (1,525,000)
Net income................... -- -- 1,654,000 1,654,000
--------- ---------- ----------- -----------
Balance at December 31,
1998........................ 9,611,211 1,085,000 (956,000) 129,000
Net income (unaudited)....... -- -- 529,000 529,000
--------- ---------- ----------- -----------
Balance at March 31, 1999
(unaudited)................. 9,611,211 $1,085,000 $ (427,000) $ 658,000
========= ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Note 1)
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
------------------------------------- ----------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income.............. $ 735,000 $ 2,698,000 $ 1,654,000 $ 68,000 $ 529,000
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and
amortization......... 294,000 371,000 595,000 112,000 191,000
Gain on sale of
equipment............ (11,000) -- (29,000) -- --
Stock compensation
expense.............. -- 206,000 -- -- --
Extraordinary gain on
forgiveness of
liability, net of
income taxes......... (2,686,000) -- -- -- --
Changes in operating
assets and
liabilities, net of
effects from
acquisitions:
Contracts and trade
receivables......... 633,000 516,000 (1,597,000) (1,814,000) (542,000)
Other receivables.... 12,000 53,000 (134,000) (35,000) 44,000
Costs and estimated
earnings in excess
of billings......... 18,000 (3,158,000) (423,000) 2,538,000 (965,000)
Billings in excess of
costs and estimated
earnings............ 15,000 (323,000) (187,000) (418,000) 124,000
Prepaid expenses..... 6,000 (41,000) 250,000 104,000 (35,000)
Deferred tax assets.. -- (1,494,000) 1,224,000 79,000 270,000
Other long-term
assets.............. (1,000) 5,000 32,000 1,000 (142,000)
Trade accounts
payable and accrued
liabilities......... 438,000 1,590,000 (1,116,000) (1,064,000) 607,000
Accrued liabilities
to related parties.. 71,000 (47,000) 69,000 (79,000) 15,000
Deferred tax
liabilities......... -- -- 348,000 97,000 (123,000)
----------- ----------- ----------- ----------- ---------
Net cash provided by
(used in) operating
activities......... (476,000) 376,000 686,000 (411,000) (27,000)
----------- ----------- ----------- ----------- ---------
Cash flows from
investing activities:
Net cash (expended
for) acquired in
connection with
acquisitions......... -- 12,000 (77,000) -- --
Additions to equipment
and improvements..... (214,000) (276,000) (835,000) (90,000) (298,000)
Proceeds from sales of
equipment............ 33,000 -- 126,000 -- --
----------- ----------- ----------- ----------- ---------
Net cash used in
investing
activities......... (181,000) (264,000) (786,000) (90,000) (298,000)
----------- ----------- ----------- ----------- ---------
Cash flows from
financing activities:
Net payments under
short-term
borrowings........... -- -- (310,000) (310,000) --
Proceeds (payments)
from line of credit,
net.................. (202,000) (393,000) 1,844,000 624,000 354,000
Principal payments on
long-term debt and
capital lease
obligations,
including current
portion.............. (271,000) (598,000) (1,598,000) (261,000) (287,000)
Proceeds from issuance
of debt.............. 557,000 100,000 -- -- --
Borrowings on notes
payable to related
parties.............. 588,000 919,000 300,000 -- --
Payments on notes
payable to related
parties.............. -- -- (144,000) -- --
Payment of deferred
offering costs....... -- (169,000) (122,000) -- (55,000)
Proceeds from issuance
of common stock...... -- 598,000 -- -- --
----------- ----------- ----------- ----------- ---------
Net cash provided by
(used in) financing
activities........... 672,000 457,000 (30,000) 53,000 12,000
----------- ----------- ----------- ----------- ---------
Net increase
(decrease) in cash... 15,000 569,000 (130,000) (448,000) (313,000)
Cash, beginning of
period............... 3,000 18,000 587,000 587,000 457,000
----------- ----------- ----------- ----------- ---------
Cash, end of period... $ 18,000 $ 587,000 $ 457,000 $ 139,000 $ 144,000
=========== =========== =========== =========== =========
</TABLE>
See supplemental cash flow information at Note 15.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended December 31, 1996, 1997 and 1998
and Three Months Ended March 31, 1998 and 1999 (Unaudited)
(1) Organization and Basis of Presentation
The Keith Companies, Inc. (formerly The Keith Companies--Inland Empire, Inc.)
("TKCI") was incorporated in the State of California in November 1986. Keith
Engineering, Inc. ("KEI") was incorporated in the State of California in March
1983. The Keith Companies--Hawaii, Inc. ("TKCH"), a wholly-owned subsidiary of
TKCI, was incorporated in the state of Hawaii on January 4, 1989. TKCH no
longer maintains an office in Hawaii and had minimal operations in 1996, 1997,
1998 and 1999. In December 1997, TKCI acquired Engineering Services
Incorporated, and its wholly-owned subsidiary Engineered Systems Integrated,
Inc. (which was merged with Engineering Services Incorporated on August 1,
1998) (collectively, "ESI"). In addition, in August 1998, TKCI acquired John M.
Tettemer and Associates, Inc. ("JMTA").
TKCI and KEI have been under common management and ownership since inception.
On August 1, 1998, TKCI acquired all of the outstanding common stock of KEI
(the "Reorganization"), and on November 30, 1998, KEI was merged with and into
TKCI. The Reorganization was accounted for as a combination of affiliated
entities under common control in a manner similar to a pooling-of-interests.
Under this method, the assets, liabilities and equity were carried over at
their historical book values and their operations have been recorded on a
combined historical basis. The combination did not require any material
adjustments to conform the accounting policies of the separate entities.
TKCI and its wholly-owned subsidiaries (the "Company") is a leading provider of
engineering, consulting and technical services. The Company primarily serves
clients in the real estate development, public works and wireless
telecommunications and industrial engineering industries, pursuant to short and
long-term construction type contracts principally in California and Nevada. The
Company specializes in the planning, engineering, permitting and other services
essential to create and build infrastructure for a wide range of real estate
development and public works projects and provides site acquisition and
construction management services for the wireless telecommunications industry.
In addition, the Company provides a complete array of industrial engineering
services required to design and test automated processes, manufacturing
production lines and fire protection systems.
Services offered by the Company include civil engineering, surveying and
mapping, planning, environmental, archaeological, construction management, site
acquisition, water resource engineering, instrumentation and control systems
engineering, fire protection engineering, electrical engineering, mechanical
engineering and chemical process engineering. The Company's clients include
real estate developers, residential and commercial builders, architects,
cities, counties, water districts, local and federal agencies, universities,
retailers, cellular phone service providers and manufacturers of a variety of
products.
F-7
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(2) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
TKCI, KEI, ESI, JMTA and TKCH (see Note 1). All material intercompany
transactions and balances have been eliminated in consolidation.
Revenue and Cost Recognition on Engineering Contracts
The Company enters into fixed fee contracts and contracts that provide for fees
on a time and materials basis, most of which have not to exceed provisions.
Contracts typically vary in length between six months and three years. However,
certain contracts are for small increments of work, which can be completed in
less than six months. Revenue is recognized on the percentage of completion
method of accounting based on the proportion of actual contract costs incurred
to total estimated contract costs. Management considers costs incurred to be
the best available measure of progress on the contracts.
In the course of providing its services, the Company sometimes subcontracts for
various services such as landscape architecture, architecture, geotechnical
engineering, structural engineering, traffic engineering, and aerial
photography. These costs are included in the billings to the clients and, in
accordance with industry practice, are included in the Company's gross revenue.
Because subcontractor services can change significantly from project to
project, changes in gross revenue may not be indicative of business trends.
Accordingly, the Company also reports net revenue, which is gross revenue less
subcontractor costs.
Costs of revenue include labor, nonreimbursable subcontract costs, materials
and certain direct and indirect overhead costs such as rent, utilities and
depreciation. General and administrative costs are charged to expense as
incurred. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job performance, job
conditions and estimated profitability, including final contract settlements,
may result in revisions to costs and income and are recognized in the period in
which the revisions are determined. Additional revenue resulting from requests
for additional work due to changes in the scope of engineering services to be
rendered, are included in revenues when realization is probable and can be
estimated with reasonable certainty.
Costs and estimated earnings in excess of billings represents revenue
recognized in excess of amounts billed on the respective uncompleted
engineering contracts. Billings in excess of costs and estimated earnings
represents amounts billed in excess of revenue recognized on the respective
uncompleted contracts.
F-8
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(2) Summary of Significant Accounting Policies (continued)
At December 31, 1997, 1998 and March 31, 1999 (unaudited), the Company had no
significant amounts included in contracts and trade receivables or trade
accounts payable representing amounts retained pending contract or subcontract
completion.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost or, in the case of
leased assets, the lesser of the present value of future minimum lease payments
or fair value. Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets, or, in the case of capital leased assets,
over the lease term if shorter, as follows:
<TABLE>
<S> <C>
Equipment................................................. 5 to 10 years
Leasehold Improvements.................................... 1 to 10 years
</TABLE>
When assets are sold or otherwise retired, the related cost and accumulated
depreciation are removed from the accounts and the resulting gain or loss is
included in other expenses (income), net in the accompanying consolidated
statements of income.
Income Taxes and Pro Forma Supplemental Data
Prior to August 1, 1998, KEI, with the consent of its stockholders, elected to
be taxed as an S corporation under certain sections of the Internal Revenue
Code of 1986, as amended. As an S corporation, corporate income or loss flows
through to the stockholders who are responsible for including the income,
deductions, losses and credits in their individual income tax returns.
Accordingly, prior to August 1, 1998, no provision for federal or state income
taxes for KEI is included in the accompanying consolidated financial
statements, except for California income taxes at the greater of $800 or the S
corporation rate of 1.5% of taxable income. As a result of the Reorganization,
KEI no longer qualified to be taxed as an S corporation and effective August 1,
1998, its operations were included in the consolidated C corporation tax return
of the Company.
TKCI, ESI, JMTA and TKCH are C corporations and account for income taxes, under
the asset and liability method, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-9
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(2) Summary of Significant Accounting Policies (continued)
Historical pro forma supplemental data are unaudited and are presented as if
the Company had been taxed as a C corporation for the periods presented. The
pro forma tax provision has been calculated assuming a 42% combined effective
tax rate.
Goodwill
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally 25 years. The Company assesses the
recoverability of goodwill by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through undiscounted
future operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of
funds. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved. Amortization expense
related to goodwill totaled $10,000 and $5,000 (unaudited) for the year ended
December 31, 1998 and the three months ended March 31, 1999, respectively.
Stock Options
The Company accounts for its stock options in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price of
the underlying stock exceeds the exercise price. SFAS No. 123, "Accounting for
Stock Based Compensation," permits entities to recognize the fair value of all
stock-based awards on the date of grant as expense over the vesting period.
Alternatively, SFAS No. 123 allows entities to continue to apply the provisions
of APB Opinion No. 25 and provide pro forma net income disclosures for employee
stock option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123.
Deferred Offering Costs
The Company expects to complete an initial public offering during 1999. Certain
related costs incurred have been deferred and included in the accompanying
1997, 1998 and 1999 consolidated balance sheets as deferred offering costs.
Should the Company decide not to consummate the offering, these costs would
then be expensed.
F-10
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(2) Summary of Significant Accounting Policies (continued)
Per Share Data
Disclosure of per share data for the years ended December 31, 1996, 1997 and
1998 has been omitted, as a result of KEI's S corporation status prior to the
Reorganization.
Basic EPS is computed by dividing earnings available to common stockholders
during the period by the weighted average number of common shares outstanding
during each period. Diluted EPS is computed by dividing earnings available to
common stockholders during the period by the weighted average number of shares
that would have been outstanding assuming the issuance of common shares for all
dilutive potential common shares outstanding during the reporting period, net
of shares assumed to be repurchased using the treasury stock method.
The following is a reconciliation of the denominator for the basic EPS
computation to the denominator of the diluted EPS computation (all net income
is available to common stockholders for the period presented):
<TABLE>
<CAPTION>
Three months ended
March 31, 1999
(unaudited)
------------------
<S> <C>
Weighted average shares used for the basic EPS computation
(deemed outstanding the entire period) 9,611,211
Incremental shares from the assumed exercise of dilutive
stock options and stock warrants 828,282
----------
Weighted average shares used for the diluted EPS
computation 10,439,493
==========
</TABLE>
There were no anti-dilutive shares excluded from the above calculation.
Interim Financial Statements
The accompanying consolidated balance sheet as of March 31, 1999 and the
statements of income and cash flows for the three months ended March 31, 1998
and 1999, and the statement of stockholders' equity for the three months ended
March 31, 1999 are unaudited and have been prepared on the same basis as the
audited consolidated financial statements included herein. In the opinion of
management, such unaudited consolidated financial statements include all
adjustments necessary to present fairly the information set forth therein,
which consist solely of normal recurring adjustments. The results of operations
for such interim periods are not necessarily indicative of results for the full
year.
F-11
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(2) Summary of Significant Accounting Policies (continued)
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of these consolidated financial statements, in conformity with
generally accepted accounting principles, requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the amounts of revenue and expenses reported during
the periods. Actual results may differ from the estimates and assumptions used
in preparing these consolidated financial statements.
Reclassifications
Certain 1996 and 1997 balances have been reclassified to conform to the
presentation used in 1998.
(3) Acquisitions
John M. Tettemer & Associates, Inc.
On August 1, 1998, TKCI acquired all of the outstanding common stock of JMTA,
in exchange for cash of $150,000; $300,000 in amortizing notes bearing interest
at 8% payable in 60 monthly payments; $250,000 in interest only notes bearing
interest at 8% payable quarterly; due the sooner of the first anniversary date
of the purchase agreement or the date the Company closes its anticipated
initial public offering and warrants to purchase 150,000 shares of TKCI common
stock, exercisable immediately at a purchase price of $1.75 per share, expiring
July 31, 2003. The amortizing and interest only notes include the principal
stockholder of TKCI as co-maker. The amortizing notes are subject to an
adjustment based on a calculation tied to the JMTA book value at August 1,
1998. The acquisition was accounted for using the purchase method of accounting
and, accordingly, the consolidated financial statements include the assets and
liabilities and results of operations of JMTA as of and subsequent to August 1,
1998. The excess purchase price over the fair value of the net identified
assets acquired of $631,000, has been recorded as goodwill in the accompanying
December 31, 1998 consolidated balance sheet.
During 1999, the purchase price allocation was revised to reflect an adjustment
to the JMTA book value at August 1, 1998. The purchase price allocation
revision resulted in a $60,000 (unaudited) adjustment to decrease goodwill and
long-term debt in the accompanying March 31, 1999 consolidated balance sheet.
F-12
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(3) Acquisitions (continued)
ESI, Engineering Services Incorporated
On December 30, 1997, TKCI acquired all of the outstanding common stock of ESI,
Engineering Services Incorporated, and its wholly-owned subsidiary Engineered
Systems Integrated, Inc., in exchange for 200,000 shares of TKCI common stock
valued at $1.00 per share. The acquisition was accounted for using the purchase
method of accounting and accordingly, the consolidated financial statements
include the assets and liabilities and results of operations of ESI as of and
subsequent to December 30, 1997.
The purchase agreement contains a provision whereby TKCI, under certain
conditions, must, at the sole discretion of the seller, repurchase any or all
of the seller's portion of the 200,000 shares issued for a price of $2.50 per
share, if the Company does not complete an initial public offering by October
31, 1999. This right of the seller expires November 15, 1999. Both dates are
automatically extended under certain conditions. The Company must also
repurchase stock options granted under certain conditions (see note 9). TKCI's
officers and/or shareholders have agreed, with ESI's former shareholders, to
subordinate repayment of debt owed to them up to such amount as, when netted
with the book value of TKCI's equity, equals $750,000. Further, an additional
100,000 shares of TKCI common stock may be issued to the prior ESI owners
subject to attainment of certain performance criteria related to the fiscal
years ended 1998, 1999 and 2000. As of March 31, 1999, none of the 100,000
shares have been issued.
In addition, the ESI purchase agreement provides for an anti-dilution provision
whereby TKCI may not issue additional shares of stock without the sellers'
consent; except as may be required to comply with the terms of the ESI
agreement, to issue shares in connection with future acquisitions, to provide
additional shares for Incentive Stock Option Plans, or for the contemplated
initial public offering by TKCI.
The following unaudited pro forma data presents information as if the
acquisition of ESI had occurred at the beginning of the period presented. The
pro forma information is provided for information purposes only. It is based on
historical information and does not necessarily reflect the actual results of
operations that would have occurred had ESI and the Company comprised a single
entity during such period, nor is it necessarily indicative of future results
of operations of the Company.
<TABLE>
<CAPTION>
Pro forma for the year ended
December 31, 1997
(unaudited)
----------------------------
<S> <C>
Net revenue................................. $22,983,000
Net income.................................. $ 2,782,000
</TABLE>
F-13
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(4) Equipment and Improvements
Equipment and leasehold improvements at December 31, 1997 and 1998 consist of
the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Equipment $ 4,465,000 $ 5,949,000
Leasehold improvements 78,000 91,000
Accumulated depreciation and amortization (2,704,000) (3,178,000)
----------- -----------
Net equipment and improvements $ 1,839,000 $ 2,862,000
=========== ===========
</TABLE>
At December 31, 1997 and 1998, the cost of computer equipment, vehicles and
office furniture and fixtures recorded under capital leases, net of the related
accumulated amortization, were $1,181,000 and $1,634,000, respectively.
(5) Indebtedness
The Company's short-term borrowings and long-term debt, some of which prohibit
payment of dividends, are substantially all guaranteed by the principal
stockholder of TKCI.
Short-Term Borrowings
The Company had a consolidated and restated credit agreement, as amended in
December 1996 and September 1997, which allowed the Company to borrow up to
$10,500,000 at the bank's prime rate plus 3.25%, with all unpaid principal and
interest due on March 1, 1998. The bank's prime rate at December 31, 1997 was
8.5%. The credit agreement was collateralized by accounts receivable and UCC-1
filing on tangible assets and was guaranteed by TKCI's principal stockholder.
As of December 31, 1997, the Company owed $2,683,000 and $27,000 in principal
and accrued interest, respectively, under this line of credit.
On February 9, 1998, the Company obtained a new line of credit from a bank and
used the proceeds to repay all amounts due under its previous consolidated and
restated credit agreement. This new line of credit agreement, which was to
expire on April 30, 1999, contained positive and negative covenants of both a
financial and nonfinancial nature, as amended. As a result of the Company's
demonstrated ability and intent to refinance the short-term obligation on a
long-term basis, borrowings under the previous line of credit at December 31,
1997 were classified as long-term in the accompanying consolidated balance
sheet.
F-14
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(5) Indebtedness (continued)
The new line of credit permitted the Company to borrow up to $5,000,000, but
not in excess of 75% of eligible accounts receivable as defined in the
agreement. The interest rate is at the bank's prime rate plus 1.5% (9.25% at
December 31, 1998), payable monthly, with the principal maturing one year from
the date of the agreement. The line of credit is collateralized by a first-
priority perfected security interest in all assets of the Company and is
guaranteed by TKCI's principal stockholder.
The new line of credit agreement was amended in March 1998, June 1998 and
October 1998 to, among other things, add ESI and JMTA as co-borrowers on the
agreement, increase the percentage of eligible receivables to 80%, increase the
amount available to borrow to $5,500,000, extend the maturity on the line to
April 30, 1999 and amend certain financial related covenants. As of September
30, 1998, the Company was in default of certain financial related covenants. On
March 5, 1999, the bank waived compliance related to these covenants as of
September 30, 1998. In addition, the bank further amended the agreement to,
among other things, amend certain financial related covenants as of December
31, 1998, adjust the interest rate to the bank's prime rate plus a variable
margin tied to certain financial covenants (10.5% at March 5, 1999) and extend
the maturity on the line to March 1, 2000. As a result of the Company's
demonstrated ability and intent to refinance the short-term obligation on a
long-term basis, the outstanding borrowings under the line of credit of
$4,527,000 as of December 31, 1998 are classified as long-term in the
accompanying consolidated balance sheet. The outstanding borrowings under the
line of credit of $4,881,000 (unaudited) as of March 31, 1999 are classified as
short-term borrowings in the accompanying consolidated balance sheet.
On December 30, 1997, the Company acquired ESI, which had a line of credit with
a commercial bank in the amount of $1,250,000, bearing interest at the bank's
reference rate plus 1.25% (9.75% at December 31, 1997), subject to periodic
adjustment. As of December 31, 1997, the Company had an outstanding balance of
$310,000 on this line of credit. On January 6, 1998, the outstanding balance
was paid off and the line of credit was terminated.
F-15
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(5) Indebtedness (continued)
Long-Term Debt and Capital Lease Obligations
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
---------- -----------
<S> <C> <C>
Short-term borrowings refinanced as long-term debt $2,683,000 $ 4,527,000
Note payable; no stated interest rate; interest im-
puted at an annual rate of 10.75%; payable in
monthly installments of $12,000 including interest;
final payment due November 2002 (see (a)) 564,000 460,000
Unsecured note payable to landlord; interest at
11.5%; payable in monthly installments of $10,000
including interest; all unpaid principal and inter-
est was due May 1998. On February 4, 1998, this note
was amended to provide for its repayment in 24
monthly installments of principal and interest in
the initial amount of $9,000 209,000 116,000
Note payable; interest at the lender's prime rate
plus 1.5% (10% at December 31, 1997). In June 1998,
the loan was paid off and the agreement was termi-
nated 600,000 --
Notes payable; interest at 7.75%; payable in monthly
installments of $23,000, including interest, through
August 1999 351,000 216,000
Notes payable; bearing interest at 8%; interest only
payable quarterly; principal and unpaid interest are
due the sooner of August 3, 1999 or the date TKCI
closes an initial public offering -- 250,000
Notes payable; bearing interest at 8%; payable in
monthly installments of $6,000 including interest;
final payment due August 2003 -- 284,000
Capital lease obligations; interest ranging from 4.8%
to 17.18%; monthly principal and interest payments
ranging from $1,000 to $5,000 through 2002 1,125,000 1,413,000
---------- -----------
5,532,000 7,266,000
Less current portion (900,000) (1,488,000)
---------- -----------
$4,632,000 $ 5,778,000
========== ===========
</TABLE>
F-16
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(5) Indebtedness (continued)
(a) TKCI and certain of its affiliates, as specified in the agreement, and
KEI's majority stockholder entered into a settlement agreement and mutual
release on November 14, 1995 related to the default by KEI on payment of rent
and other amounts due under a lease. The Company agreed to pay the sum of
$1,490,000, of which $140,000 was paid upon execution of the agreement and
$1,350,000 was payable under the terms of a promissory note. The obligations
under the promissory note are collateralized by a judgment of $1,800,000, less
any amounts previously paid under the agreement, not to be executed unless and
until an event of default has occurred, as defined. The promissory note, as
amended, required a $300,000 payment in November 1996 and monthly payments of
$12,000, until paid in full. The $300,000 payment due in November 1996 was
renegotiated and paid in three $100,000 payments in November 1996, March 1997
and June 1997. The monthly payments for a particular calendar quarter are to be
increased, in the event that consolidated sales of TKCI and certain of its
affiliates, as specified in the agreement, exceed $5,000,000 in the previous
calendar quarter. Such increase is proportional to the percentage by which
quarterly sales exceed $5,000,000. In 1998, the Company made additional
principal payments of $47,000 related to this provision.
Future annual principal maturities of long-term debt (including short-term
borrowings refinanced as long-term-debt) as of December 31, 1998 are as
follows:
<TABLE>
<S> <C>
Years ending December 31,
1999....................................................... $1,488,000
2000....................................................... 5,364,000
2001....................................................... 299,000
2002....................................................... 68,000
2003....................................................... 47,000
----------
$7,266,000
==========
</TABLE>
(6) Notes Payable to Related Parties
Notes payable to related parties consist of unsecured borrowings for operating
purposes from the principal stockholders and parties related to the Company's
stockholders. Interest only payments at 10% per annum are due quarterly on each
January 1, April 1, July 1, and October 1, commencing on April 1, 1998. Accrued
interest at December 31, 1997 and 1998 related to these notes was $116,000 and
$185,000, respectively. These notes mature on July 1, 2000, with all the
outstanding principal and unpaid interest then due, and are subordinate to the
line of credit obtained from the Company's primary bank in February 1998 (see
note 5).
F-17
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(6) Notes Payable to Related Parties (continued)
In February 1996 and 1997, $50,000 and $100,000, respectively, were loaned to
the Company by two related parties in exchange for promissory notes bearing
interest at 10%. These notes were subsequently amended to extend the due dates
to February 1998. In February 1998, agreements were entered into whereby the
notes were assigned to the principal stockholder of TKCI in exchange for shares
of TKCI common stock, which the principal stockholder owns personally. The old
notes were subsequently cancelled and a new note was created for $150,000, with
a maturity date of January 15, 2000 and bearing interest at 10% payable
quarterly. As a result of the Company's demonstrated ability and intent to
refinance the short-term obligations on a long-term basis, the Company has
recorded the above loans in the amounts of $50,000 and $100,000, respectively,
as long-term notes payable to related parties in the December 31, 1997
consolidated balance sheet. This note was paid in full along with all accrued
interest in October 1998.
In April 1997, the Company entered into a collateralized promissory note
agreement, which was amended in December 1997, for working capital purposes
with a related party in the principal amount of $700,000. Interest on the note
accrues at a rate of 10% per annum and is payable on each of January 1, April
1, July 1 and October 1, commencing April 1, 1998. The note matures on July 1,
2000 with all the outstanding principal and unpaid interest then due. The note
is collateralized by all property of the Company, as defined in the agreement,
and is subordinate to the line of credit obtained from the Company's primary
bank in February 1998. This related party also received an option to purchase
common stock in the Company (see note 8).
Principal payments due to related parties of $2,401,000 are due in 2000.
(7) Leases
The Company leases equipment and vehicles under capital lease agreements that
expire at various dates through 2002.
The Company also has several noncancelable operating leases, primarily for
office facilities, that expire through 2004. These leases generally contain
renewal options for periods ranging from one to five years and require the
Company to pay costs such as common area maintenance and insurance charges.
Rental expense for operating leases during 1996, 1997 and 1998 totaled
$1,190,000, $1,183,000 and $1,671,000, respectively.
F-18
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(7) Leases (continued)
Certain facilities have been sublet under month-to-month subleases that provide
for reimbursement of various common area maintenance charges. Rental expense
has been reduced for sublease income of $92,000, $81,000 and $64,000 for the
years ended December 31, 1996, 1997 and 1998, respectively. Future minimum
lease payments as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Operating Capital
leases leases
---------- ----------
<S> <C> <C>
Years ending December 31:
1999................................................ $2,009,000 $ 789,000
2000................................................ 1,391,000 570,000
2001................................................ 738,000 199,000
2002................................................ 259,000 2,000
2003................................................ 221,000 --
Thereafter.......................................... 37,000 --
---------- ----------
Total future minimum lease payments................... $4,655,000 $1,560,000
==========
Less amounts representing interest.................... (147,000)
----------
Total obligations under capital leases................ 1,413,000
Less current portion.................................. (662,000)
----------
Long-term capital lease obligations................... $ 751,000
==========
</TABLE>
(8) Common Stock
All issued and outstanding shares of KEI prior to the Reorganization were
exchanged into an equivalent number of shares of TKCI and all of the shares of
KEI were subsequently cancelled. The outstanding shares of TKCI prior to the
Reorganization remained outstanding and were not affected by the
Reorganization.
In April 1997, an option to purchase 10% of the Company's outstanding common
stock (calculated after the option purchase) was granted to a related party for
$10,000. The option was exercised in July 1997, for $88,000, resulting in the
issuance of 880,000 shares. On December 31, 1997, an additional 531,211 shares
of the Company's stock were purchased by this related party for $500,000. In
connection with the grant of options and sale of stock to this related party, a
total of $206,000 was recorded as common stock and stock compensation expense,
representing the difference between the exercise price at which the options
were granted and the price at which the stock was sold, and the estimated fair
value of the Company's stock at the date of grant and sale, respectively. The
related party was also granted a position on the Company's board of directors.
In April 1997, the Company also entered into a collateralized promissory note
agreement with this related party for $700,000 (see note 6).
F-19
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(9) Stock Plans
The following options and warrants are authorized for issuance at December 31,
1998:
<TABLE>
<S> <C>
Stock options.................................................. 1,500,000
Stock warrants related to acquisitions......................... 225,000
---------
1,725,000
=========
</TABLE>
Stock Option Plans
In 1994, KEI and TKCI each adopted stock option plans (the "Plans"). Under the
terms of the Plans, the Boards of Directors of KEI and TKCI were able to grant
stock options to officers and key employees. The Plans, as amended in 1997,
authorize grants of options to purchase a total 1,500,000 shares of authorized
but unissued common stock in TKCI and KEI. Stock options are granted with an
exercise price equal to or greater than the stock's estimated fair market value
at the date of grant. All stock options issued in connection with the Plans
have ten-year terms and vest and become exercisable ratably each year for the
first five years from the grant date.
In connection with the Reorganization, the KEI plan was terminated and options
to purchase shares of common stock of KEI outstanding at August 1, 1998 were
automatically converted into options to purchase a like number of shares of
TKCI common stock, with the same exercise price, expiration date and other
terms as prior to the Reorganization (the "Plan").
At December 31, 1998, there were options to acquire 189,000 shares available
for grant under the Plan. The following represents the estimated fair value of
options granted, as determined using the Black-Scholes option pricing model and
the assumptions used for calculation:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Weighted average estimated fair value per
option at grant date....................... $ 1.00 $ 1.00 $ 1.26
Average exercise price per option granted... $ 1.00 $ 1.00 $ 1.26
Risk-free interest rate..................... 6.0% 6.0% 5.0%
Option term (years)......................... 10 10 10
Stock dividend yield........................ 0.0% 0.0% 0.0%
</TABLE>
F-20
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(9) Stock Plans (continued)
In accounting for its Plans, the Company elected the pro forma disclosure
option under SFAS No. 123. Accordingly, no compensation cost has been
recognized for its stock options in the consolidated financial statements. Had
the Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, the Company's net income would
have been adjusted to the pro forma amount indicated below:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1996 1997 1998
-------- ---------- ----------
<S> <C> <C> <C>
Net income:
As reported................................. $735,000 $2,698,000 $1,654,000
Pro forma................................... $735,000 $2,675,000 $1,601,000
</TABLE>
Pro forma net income reflects only options granted after January 1, 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options'
vesting period of five years and compensation cost for options granted prior to
January 1, 1995 is not considered.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Number of shares Weighted-average
underlying options exercise price
------------------ ----------------
<S> <C> <C>
Balance at December 31, 1995............. 502,000
Granted................................ 75,000 $1.00
Forfeited.............................. (100,000) $1.00
---------
Balance at December 31, 1996............. 477,000
Granted................................ 487,000 $1.00
Forfeited.............................. (35,000) $1.00
---------
Balance at December 31, 1997............. 929,000 $1.00
Granted................................ 385,000 $1.90
Forfeited.............................. (3,000) $1.00
---------
Balance at December 31, 1998............. 1,311,000 $1.26
=========
</TABLE>
At December 31, 1998, options outstanding had an exercise price ranging from
$1.00 to $3.00 and a weighted average remaining contractual life of 7.92 years.
At December 31, 1996, 1997 and 1998, the number of shares of common stock
subject to exercisable options were 161,000, 235,000 and 429,000, respectively,
and the weighted-average exercise price of those options was $1 for each year.
F-21
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(9) Stock Plans (continued)
In 1997 and 1998, in connection with acquisitions, TKCI reserved for grant
options to purchase 350,000 shares of its common stock to employees of the
acquired companies under the Plan. Of the shares reserved for grant, 120,000
have provisions such that in the event that the underlying shares do not have a
fair market value of at least $3.00 per share at some time during the period
between October 1, 1999 and October 1, 2002, the holders are entitled to
receive $2.00 in cash for each share of common stock subject to the exercise of
any tendered unexercised vested stock options. In addition, under the same
provisions, the holders of the options to acquire 120,000 shares of common
stock have the right, to be exercised only during October 2002, to sell any
shares acquired by exercise of options to the Company for $3.00 per share.
Further, included in the options reserved for grant, TKCI is required to
provide options for no less than 100,000 shares of common stock as of January
1, 2000, subject to certain earnings goals being obtained by the acquired
company (see note 3). As of December 31, 1998, the options to purchase 213,000
shares of common stock reserved for grant have been granted subject to the
Plan.
Stock Warrants
The Company has issued stock warrants to purchase common stock in connection
with the acquisitions of ESI and JMTA. The terms of stock warrants to acquire
shares of common stock are as follows at December 31, 1998:
<TABLE>
<CAPTION>
Exercise
Warrants Grant Date Price Expiration Date
-------- ------------------ -------- ------------------
<S> <C> <C> <C>
150,000 August 3, 1998 $1.75 July 31, 2003
75,000 September 15, 1998 $2.50 September 18, 2001
--------
225,000
========
</TABLE>
Warrants are granted with an exercise price equal to or greater than the
stock's estimated fair market value at the date of grant, vest immediately and
may be exercised at any time until the expiration date.
(10) Employee Benefit Plans
The Company has two defined contribution 401(k) plans, which commenced in 1980
and 1988, covering a majority of its employees. These plans are designed to be
tax deferred in accordance with the provisions of Section 401(k) of the
Internal Revenue Code. Employees may contribute from 1% to 20% of compensation
(subject to certain limitations) on a tax-deferred basis through a "salary
reduction" arrangement. In 1998, the Company implemented an employer matching
contribution program, with a five year vesting schedule,
F-22
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(10) Employee Benefit Plans (continued)
whereby the Company matches 50% of the first 1% of employee contributions for
the year. No employer contributions were made during 1996 and 1997. During
1998, the Company contributed $55,000 to its 401(k) plans. Effective January 1,
1999, the Company increased the employer contribution percentage to 50% of the
first 6% of employee contributions, not to exceed $1,500 per employee per year.
(11) Income Taxes
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1996 1997 1998
------ ----------- ----------
<S> <C> <C> <C>
Current:
Federal.................................... $ -- $ -- $ (29,000)
State...................................... 3,000 3,000 (99,000)
------ ----------- ----------
Subtotal................................. 3,000 3,000 (128,000)
------ ----------- ----------
Deferred:
Federal.................................... -- (1,299,000) 1,262,000
State...................................... -- (101,000) 216,000
------ ----------- ----------
Subtotal................................. -- (1,400,000) 1,478,000
------ ----------- ----------
Total.................................... $3,000 $(1,397,000) $1,350,000
====== =========== ==========
</TABLE>
A reconciliation of income tax expense (benefit) at the federal statutory rate
of 34% to the Company's provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1996 1997 1998
---------- ----------- ----------
<S> <C> <C> <C>
Computed "expected" federal income tax
expense (benefit)..................... $ (662,000) $ 443,000 $1,021,000
State income tax expense (benefit), net
of federal income tax benefit......... 2,000 (64,000) 77,000
Tax effect of (earnings) losses not
subject to federal income tax due to S
corporation election.................. 1,023,000 (223,000) (513,000)
Tax effect of S to C corporation
conversion............................ -- -- 595,000
Change in federal deferred tax
valuation allowance................... (565,000) (1,585,000) 35,000
Other.................................. 205,000 32,000 135,000
---------- ----------- ----------
$ 3,000 $(1,397,000) $1,350,000
========== =========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities are as follows:
F-23
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(11) Income Taxes (continued)
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Trade accounts payable............................ $ 823,000 $ --
Intercompany/related party payables............... 259,000 76,000
Accrued liabilities and employee compensation..... 159,000 383,000
Billings in excess of costs and earnings.......... 39,000 180,000
Allowance for doubtful accounts................... -- 117,000
Settlement obligations............................ -- 188,000
Other............................................. 36,000 174,000
Net operating loss carryforwards.................. 1,233,000 1,304,000
Less valuation allowance.......................... (31,000) (62,000)
---------- ----------
Total deferred tax assets....................... 2,518,000 2,360,000
---------- ----------
Deferred tax liabilities:
Trade receivable, net............................. 885,000 --
Section 481, change from cash to accrual.......... -- 818,000
Costs and earnings in excess of billings.......... 168,000 1,541,000
Other............................................. 12,000 79,000
---------- ----------
Total deferred tax liabilities.................. 1,065,000 2,438,000
---------- ----------
Net deferred tax assets (liabilities)........... $1,453,000 $ (78,000)
========== ==========
</TABLE>
The net change in the valuation allowance for the years ended December 31,
1996, 1997 and 1998 was a decrease of $663,000 and $1,761,000, and an increase
of $31,000, respectively. The Company considers recording a valuation allowance
in accordance with the provisions of SFAS No. 109 to reflect the estimated
amount of deferred tax assets, which may not be realized. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not, that some portion or all of the deferred tax assets will not
be realized. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income and tax
planning strategies in making this assessment, and believes it is more likely
than not the Company will realize the benefits of its deferred tax assets, net
of the existing valuation allowance at December 31, 1998. The amount of the
deferred tax asset considered realizable, however, could be reduced in the near
term if estimates of future taxable income during the carryforward period are
reduced.
As of December 31, 1998, the Company had approximately $3,500,000 and
$1,400,000 in federal and state net operating loss carryforwards, respectively,
available to offset future taxable income, if any. The federal carryforwards
expire from the years 2007 to 2018. The state carryforwards expire from the
years 1999 to 2003.
F-24
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(12) Commitments and Contingencies
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management and the Company's
legal counsel, the ultimate disposition of these matters will not have a
material adverse effect on the Company's consolidated financial statements
taken as a whole.
(13) Segment and Related Information
The Company evaluates performance and makes resource allocation decisions based
on the overall type of services provided to customers. For financial reporting
purposes, we have grouped our operations into two primary reportable segments.
The Real Estate Development, Public Works and Wireless Telecommunications
("REPWWT") segment includes engineering, consulting and technical services for
the development of both private projects, such as residential communities,
commercial and industrial properties and recreational projects; public works
projects, such as transportation and water/sewage facilities; and site
acquisition and construction management services for wireless
telecommunications. The Industrial Engineering ("IE") segment, which consists
of ESI, provides the technical expertise and management required to design and
test manufacturing facilities and processes. The accounting policies of the
segments are the same as those described in note 2.
The following tables set forth certain information regarding the Company's
operating segments as of and for the years ended December 31, 1996, 1997, 1998
and the three months ended March 31, 1998 and 1999 (unaudited):
<TABLE>
<CAPTION>
Year ended December 31, 1996
-----------------------------------------------
Corporate
REPWWT IE Costs Consolidated
----------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenue............... $12,966,000 $ -- $ -- $ 12,966,000
Income (loss) from opera-
tions.................... $ 216,000 $ -- $(1,439,000) $ (1,223,000)
Identifiable assets....... $ 4,677,000 $ -- $ -- $ 4,677,000
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1997
------------------------------------------------
Corporate
REPWWT IE Costs Consolidated
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenue............... $18,592,000 $ -- $ -- $18,592,000
Income (loss) from opera-
tions.................... $ 4,180,000 $ -- $(1,944,000) $ 2,236,000
Identifiable assets....... $10,485,000 $1,248,000 $ -- $11,733,000
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1998
------------------------------------------------
Corporate
REPWWT IE Costs Consolidated
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenue............... $25,330,000 $3,852,000 $ -- $29,182,000
Income (loss) from opera-
tions.................... $ 5,761,000 $ 244,000 $(1,968,000) $ 4,037,000
Identifiable assets....... $13,068,000 $1,462,000 $ -- $14,530,000
</TABLE>
F-25
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(13) Segment and Related Information (continued)
<TABLE>
<CAPTION>
Three months ended March 31, 1998
(unaudited)
---------------------------------------------
Corporate
REPWWT IE Costs Consolidated
---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Net revenue.................. $5,074,000 $ 888,000 $ -- $ 5,962,000
Income (loss) from
operations.................. $ 886,000 $ 20,000 $(494,000) $ 412,000
Identifiable assets.......... $9,386,000 $1,570,000 $ -- $10,956,000
</TABLE>
<TABLE>
<CAPTION>
Three months ended March 31, 1999
(unaudited)
----------------------------------------------
Corporate
REPWWT IE Costs Consolidated
----------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Net revenue................. $ 7,993,000 $ 976,000 $ -- $ 8,969,000
Income (loss) from opera-
tions...................... $ 1,764,000 $ 32,000 $(637,000) $ 1,159,000
Identifiable assets......... $14,167,000 $1,522,000 $ -- $15,689,000
</TABLE>
Business Concentrations
In 1996 and 1998, the Company had no customers which represented greater than
10% of consolidated net revenue. In 1997, the Company had one customer which
represented 11% of net revenue. In addition, in 1997 the Company had one
customer representing greater than 10% of net contract and trade receivables.
Receivables from this customer totaled $1,283,000 at December 31, 1997. No
customers represented greater than 10% of net contract and trade receivables at
December 31, 1998.
(14) Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments reported in the
accompanying consolidated balance sheets for cash, contracts and trade
receivables, other receivables, short-term borrowings, trade accounts payable,
accrued employee compensation, accrued liabilities to related parties, and
other accrued liabilities approximate fair values due to the short maturity of
these instruments.
At December 31, 1998, long-term debt, excluding capital lease obligations,
consisted of the Company's line of credit payable, notes payable and notes
payable to related parties. The carrying value of the Company's line of credit
payable approximates its fair value, based upon the borrowing rate currently
available to the Company for loans with similar terms. It was not practicable
to estimate the fair value of two notes payable with a combined carrying value
of $576,000, as there is no established market for these notes. The carrying
value of the remaining long-term debt and notes payable to related parties was
$3,151,000, which approximates fair value, determined using estimates for
similar debt instruments (see notes 5 and 6).
F-26
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(15) Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- ---------- ---------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosure
of cash flow
information:
Cash paid during the
period for interest..... $587,000 $ 725,000 $1,024,000 $ 439,000 $ 240,000
======== ========== ========== ========= =========
Cash paid during the
period for income
taxes................... $ 3,000 $ 28,000 $ 144,000 $ 2,000 $ 2,000
======== ========== ========== ========= =========
Noncash financing and
investing activities:
Capital lease obligations
recorded in connection
with equipment
acquisitions............ $ 50,000 $1,120,000 $ 788,000 $ 105,000 $ --
======== ========== ========== ========= =========
Purchase price
adjustment.............. $ -- $ -- $ 26,000 $ -- $ 60,000
======== ========== ========== ========= =========
Issuance of common
stock................... $ -- $ 206,000 $ -- $ -- $ --
======== ========== ========== ========= =========
Insurance financing...... $ -- $ 311,000 $ 202,000 $ -- $ --
======== ========== ========== ========= =========
</TABLE>
The acquisition of ESI and JMTA on December 30, 1997 and August 1, 1998,
respectively, resulted in the following:
Increases in:
<TABLE>
<CAPTION>
ESI JMTA
December 30, 1997 August 1, 1998
----------------- --------------
<S> <C> <C>
Contracts and trade receivables........... $(541,000) $(309,000)
Costs and estimated earnings in excess of
billings................................. (131,000) (201,000)
Other receivables......................... (63,000) --
Goodwill.................................. -- (631,000)
Equipment and improvements................ -- (56,000)
Other assets.............................. (127,000) (29,000)
Short-term borrowings..................... 310,000 --
Long-term debt, including current por-
tion..................................... -- 700,000
Accounts payable, accrued expenses and
other liabilities........................ 364,000 449,000
Common stock.............................. 200,000 --
--------- ---------
Cash acquired in (expended for) acquisi-
tions.................................... $ 12,000 $ (77,000)
========= =========
</TABLE>
F-27
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(16) Valuation and Qualifying Accounts
For the years ending in December 1996, 1997 and 1998, certain supplementary
information regarding valuation and qualifying accounts follows:
<TABLE>
<CAPTION>
Provisions
Balance at for
beginning of doubtful Balance at end
period accounts Deductions of period
------------ ---------- ---------- --------------
<S> <C> <C> <C> <C>
Allowance for doubtful ac-
counts:
1996...................... $918,000 $1,146,000 $1,477,000 $587,000
1997...................... $587,000 $ 324,000 $ 563,000 $348,000
1998...................... $348,000 $ 300,000 $ 284,000 $364,000
</TABLE>
(17) Extraordinary Gain
In 1990, the Company entered into a facility lease in Moreno Valley, California
anticipating growth in operations. By December 31, 1994, concurrent with the
recession in the southern California real estate industry, the Company's
operations from this location had diminished significantly resulting in
excessive lease space. Accordingly, the Company accrued a loss of $2,028,000,
based on its obligation for the excess space through the lease expiration date,
as the excess space had no substantive future use or benefit to the Company. In
addition, the Company was in default under the lease and had accrued unpaid
rent totaling $658,000 through December 31, 1995. During 1995, the landlord
issued a deed-in-lieu of foreclosure to the mortgage holder who subsequently
sold the building. The Company entered into an agreement with the new landlord
in August 1996, whereby all amounts owing under the previous lease through
December 31, 1995 were forgiven and a new lease was negotiated effective
January 1, 1996. Therefore, the Company recorded an extraordinary gain on the
forgiveness of $2,686,000 in 1996.
In connection with the original lease, a partnership owned by the two major
stockholders of TKCI, held a 25% ownership interest in the building and a small
interest in the overall project. As a result of the Company's default on the
lease, the partnership's ownership interest in the project was forfeited.
F-28
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements--(Continued)
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(18) Subsequent Event
Thompson-Hysell, Inc.
On April 9, 1999, TKCI entered into an Asset Purchase Agreement with Thompson-
Hysell, Inc. ("Thompson-Hysell") and its shareholders (the "Acquisition
Agreement"). Under the terms of the Acquisition Agreement, TKCI is to acquire
substantially all of the assets of and assume certain of the liabilities of
Thompson-Hysell. Based on the terms of the Acquisition Agreement, TKCI is
obligated to pay cash in the amount of $3,333,333 and execute a promissory note
in the original principal amount of $1,333,333. TKCI may also be obligated to
issue shares of common stock with a value equal to $1,333,334. The purchase
price is subject to adjustment upward or downward depending upon certain
financial targets related to the assets acquired and liabilities assumed,
earnings for the years ended December 31, 1999 and 2000 and the effect on the
net proceeds to Thompson-Hysell and its shareholders of certain income tax
attributed to the assets acquired and liabilities assumed. It is anticipated
this transaction is to close concurrent with the Company's planned initial
public offering. As of March 31, 1999, the Company has incurred approximately
$104,000 (unaudited), consisting primarily of legal and accounting costs,
related to the acquisition of Thompson-Hysell. These acquisition costs have
been deferred and included in the March 31, 1999 accompanying consolidated
balance sheet in other assets. Should the Company decide not to consummate the
Thompson-Hysell acquisition, these costs would then be expensed.
F-29
<PAGE>
Independent Auditors' Report
The Stockholders
Thompson-Hysell, Inc.:
We have audited the accompanying balance sheets of Thompson-Hysell, Inc. as of
December 31, 1997 and 1998, and the related statements of income, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Thompson-Hysell, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
KPMG LLP
Sacramento, California
February 26, 1999, except as to
Note 13, which is
as of April 9, 1999
F-30
<PAGE>
THOMPSON-HYSELL, INC.
Balance Sheets
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998 March 31, 1999
---------- ---------- --------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............. $ 118,000 $ 366,000 $ 264,000
Accounts receivable (net of allowance
for doubtful accounts of $68,000,
$102,000 and $113,000 at December 31,
1997, 1998 and March 31, 1999,
respectively)........................ 1,408,000 2,118,000 2,456,000
Costs and estimated earnings in excess
of billings.......................... 64,000 271,000 265,000
Prepaid expenses...................... -- 15,000 65,000
---------- ---------- ----------
Total current assets................ 1,590,000 2,770,000 3,050,000
Equipment and improvements, net......... 380,000 987,000 1,097,000
Marketable investment securities........ 215,000 232,000 243,000
Deposits................................ 4,000 4,000 4,000
---------- ---------- ----------
Total assets........................ $2,189,000 $3,993,000 $4,394,000
========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable...................... $ 154,000 $ 57,000 $ 103,000
Accrued liabilities................... 173,000 278,000 234,000
Dividends payable..................... -- 100,000 --
Related party payables................ 669,000 200,000 23,000
Line of credit payable................ 427,000 -- --
Current portion of notes payable and
capital lease obligations............ 124,000 209,000 231,000
Billings in excess of costs and
estimated earnings................... -- 3,000 --
---------- ---------- ----------
Total current liabilities........... 1,547,000 847,000 591,000
Notes payable and capital lease
obligations, net of current portion.... 254,000 344,000 378,000
Related party payables, net of current
portion................................ -- 587,000 579,000
---------- ---------- ----------
Total liabilities................... 1,801,000 1,778,000 1,548,000
---------- ---------- ----------
Stockholders' equity:
Common stock, $1 par value, 10,000
shares authorized, 1,000 shares
issued and outstanding............... 1,000 1,000 1,000
Notes receivable--stockholders........ (1,000) (1,000) --
Retained earnings..................... 360,000 2,201,000 2,822,000
Accumulated other comprehensive
income............................... 28,000 14,000 23,000
---------- ---------- ----------
Total stockholders' equity.......... 388,000 2,215,000 2,846,000
---------- ---------- ----------
Commitments and contingencies (notes
7, 11, 12, and 13)...................
Total liabilities and stockholders'
equity............................. $2,189,000 $3,993,000 $4,394,000
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
THOMPSON-HYSELL, INC.
Statements of Income
<TABLE>
<CAPTION>
Years ended December 31, Three months ended March 31,
-------------------------- ------------------------------
1997 1998 1998 1999
------------ ------------ -------------- --------------
(unaudited)
<S> <C> <C> <C> <C>
Gross revenue........... $ 4,567,000 $ 9,112,000 $ 1,660,000 $ 2,378,000
Subcontractor costs..... 238,000 323,000 88,000 76,000
------------ ----------- -------------- --------------
Net revenue........... 4,329,000 8,789,000 1,572,000 2,302,000
Costs of revenue........ 2,695,000 4,607,000 799,000 1,194,000
------------ ----------- -------------- --------------
Gross profit.......... 1,634,000 4,182,000 773,000 1,108,000
Selling, general and
administrative
expenses............... 1,264,000 2,187,000 321,000 473,000
------------ ----------- -------------- --------------
Income from
operations........... 370,000 1,995,000 452,000 635,000
Interest expense........ 52,000 80,000 20,000 32,000
Other income, net....... (43,000) (32,000) (28,000) (18,000)
------------ ----------- -------------- --------------
Income before
provision for income
taxes................ 361,000 1,947,000 460,000 621,000
Provision for income
taxes.................. 1,000 6,000 1,000 --
------------ ----------- -------------- --------------
Net income............ $ 360,000 $ 1,941,000 $ 459,000 $ 621,000
============ =========== ============== ==============
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
THOMPSON-HYSELL, INC.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated
Notes Other
Shares Common Receivable-- Retained Comprehensive
Outstanding Stock Stockholders Earnings Income Total
----------- ------ ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996....... 1,000 $1,000 $(1,000) $ -- $ -- $ --
Comprehensive income:
Net income............ -- -- -- 360,000 -- 360,000
Other comprehensive
income--unrealized
holding gains arising
during the period.... -- -- -- -- 28,000 28,000
----- ------ ------- ---------- ------- ----------
Balance at December 31,
1997................... 1,000 1,000 (1,000) 360,000 28,000 388,000
----- ------ ------- ---------- ------- ----------
Comprehensive income
(loss):
Net income............ -- -- -- 1,941,000 -- 1,941,000
Other comprehensive
income--unrealized
holding losses
arising during the
period............... -- -- -- -- (12,000) (12,000)
Less reclassification
adjustment for gain
included in net
income............... -- -- -- -- (2,000) (2,000)
----- ------ ------- ---------- ------- ----------
Total comprehensive
income (loss)......... -- -- -- 1,941,000 (14,000) 1,927,000
Dividends declared .... -- -- -- (100,000) -- (100,000)
----- ------ ------- ---------- ------- ----------
Balance at December 31,
1998................... 1,000 1,000 (1,000) 2,201,000 14,000 2,215,000
----- ------ ------- ---------- ------- ----------
Comprehensive income:
Net income............ -- -- -- 621,000 -- 621,000
Other comprehensive
income--unrealized
holding gains arising
during the period.... -- -- -- -- 9,000 9,000
----- ------ ------- ---------- ------- ----------
Total comprehensive
income................ -- -- -- 621,000 9,000 630,000
Collection of notes
receivable--
stockholders. -- -- 1,000 -- -- 1,000
----- ------ ------- ---------- ------- ----------
Balance at March 31,
1999 (unaudited)...... 1,000 $1,000 $ -- $2,822,000 $23,000 $2,846,000
===== ====== ======= ========== ======= ==========
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
THOMPSON-HYSELL, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended Three Months ended
December 31, March 31,
----------------------- --------------------
1997 1998 1998 1999
----------- ---------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 360,000 $1,941,000 $ 459,000 $ 621,000
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation and amortization............ 47,000 138,000 20,000 20,000
Bad debt expense (recoveries)............ 68,000 34,000 3,000 (16,000)
Gain on sale of marketable investment
securities.............................. (23,000) (6,000) -- --
Changes in operating assets and
liabilities:
Accounts receivable...................... (1,476,000) (744,000) (107,000) (322,000)
Costs and estimated earnings in excess of
billings................................ (64,000) (207,000) (1,000) 6,000
Prepaid expenses......................... -- (15,000) (61,000) (50,000)
Deposits................................. (4,000) -- -- --
Accounts payable......................... 28,000 (97,000) 98,000 46,000
Accrued liabilities...................... 139,000 105,000 (28,000) (44,000)
Billings in excess of costs and estimated
earnings................................ -- 3,000 -- (3,000)
----------- ---------- --------- ---------
Net cash (used in) provided by operating
activities.............................. $ (925,000) $1,152,000 $ 383,000 $ 258,000
----------- ---------- --------- ---------
Cash flows from investing activities:
Acquisition of equipment and improvements.. (80,000) (346,000) (54,000) (33,000)
Purchase of marketable investment
securities................................ (5,000) (99,000) (8,000) (2,000)
Proceeds from sale of marketable investment
securities................................ 80,000 74,000 -- --
----------- ---------- --------- ---------
Net cash used in investing activities.... $ (5,000) $ (371,000) $ (62,000) $ (35,000)
----------- ---------- --------- ---------
Cash flows from financing activities:
Net change in related party payables....... 869,000 (207,000) (123,000) (184,000)
Net change in line of credit payable....... 172,000 (427,000) (172,000) --
Payments on notes payable and capital lease
obligations............................... (64,000) (164,000) (24,000) (63,000)
Proceeds from notes payable................ 71,000 265,000 42,000 22,000
Distributions to stockholders.............. -- -- -- (100,000)
----------- ---------- --------- ---------
Net cash provided by (used in) financing
activities.............................. $ 1,048,000 $ (533,000) $(277,000) $(325,000)
----------- ---------- --------- ---------
Cash and cash equivalents.................... 118,000 248,000 44,000 (102,000)
Cash and cash equivalents, beginning of
period...................................... -- 118,000 118,000 366,000
----------- ---------- --------- ---------
Cash and cash equivalents, end of period..... $ 118,000 $ 366,000 $ 162,000 $ 264,000
=========== ========== ========= =========
</TABLE>
See supplemental cash flow information at Note 9
See accompanying notes to financial statements.
F-34
<PAGE>
THOMPSON-HYSELL, INC.
Notes to Financial Statements
Years Ended December 31, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(1) Organization and Summary of Significant Accounting Policies
Company's Activities and Operating Cycle
Thompson-Hysell, Inc. (the "Company") was incorporated as an S Corporation on
December 20, 1996 in California, with significant operations commencing on May
1, 1997. The Company provides civil engineering for private land development
and large development projects, and provides project planning and heavy
construction surveying/staking along with construction management, primarily in
central California and Utah. The work is performed under fixed price and time
and material contracts, some of which have not to exceed provisions. The length
of the Company's contracts varies but are typically from one to three years. In
accordance with normal practice in the civil engineering industry, the Company
includes asset and liability accounts relating to engineering contracts in
current assets and liabilities even when such amounts are realizable or payable
over a period in excess of one year.
Interim Financial Statements
The accompanying balance sheet as of March 31, 1999 and the statements of
income and cash flows for the three months ended March 31, 1998 and 1999, and
the statement of stockholders' equity for the three months ended March 31, 1999
are unaudited and have been prepared on the same basis as the audited financial
statements included herein. In the opinion of management, such unaudited
financial statements include all adjustments necessary to present fairly the
information set forth therein, which consist solely of normal recurring
adjustments. The results of operations for such interim periods are not
necessarily indicative of results for the full year.
Engineering Contract Income Recognition
For financial reporting purposes, profits on engineering contracts are recorded
using the percentage-of-completion method of accounting, determined by the
ratio of costs incurred to date to management's estimates of total anticipated
costs. Such amounts necessarily are based on estimates, and the uncertainty
inherent in the estimates initially is reduced progressively as work on the
contract nears completion.
Costs of revenue include all direct material, labor, subcontractor costs and
those indirect costs related to contract performance, such as indirect labor,
supplies, tools, equipment costs, and depreciation and amortization applicable
to autos and trucks under capital leases. Selling, general and administrative
costs are expensed as incurred. If estimated total costs for a
F-35
<PAGE>
THOMPSON-HYSELL, INC.
Notes to Financial Statements--(Continued)
Years Ended December 31, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
contract indicate a loss, the Company provides currently for the total
anticipated loss on the contract. Changes in job performance, job conditions,
and estimated profitability may result in revisions to revenue and costs, which
are recognized in the period in which the revisions are determined.
Costs and estimated earnings in excess of billings represents revenue
recognized in excess of amounts billed. Billings in excess of costs and
estimated earnings represents billings in excess of revenue recognized.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all cash accounts
that are not subject to withdrawal restrictions or penalties with maturities at
date of purchase of three months or less, to be cash or cash equivalents.
Equipment and Improvements
Equipment and improvements are recorded at cost. Depreciation is provided on
the straight-line method over the estimated useful lives of the assets. Autos
and trucks held under capital leases (stated at the present value of the future
minimum lease payments) and leasehold improvements are amortized on the
straight-line method over the shorter of the lease term or the estimated useful
life of the asset. Expenditures for maintenance and repairs are charged against
income in the year in which they are incurred and betterments are capitalized.
When depreciable assets are sold or disposed of, the cost and accumulated
depreciation accounts are reduced by the applicable amounts, and any profit or
loss is credited or charged to income.
F-36
<PAGE>
THOMPSON-HYSELL, INC.
Notes to Financial Statements--(Continued)
Years Ended December 31, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
Equipment and improvements consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
March 31,
1997 1998 1999
-------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
Equipment................................ $ 99,000 $ 627,000 $ 627,000
Leasehold improvements................... -- 313,000 316,000
Office furniture and fixtures............ 1,000 226,000 234,000
Autos and trucks......................... 13,000 195,000 217,000
Autos and trucks under capital leases.... 339,000 413,000 510,000
-------- ---------- ----------
452,000 1,774,000 1,904,000
Accumulated depreciation and amortiza-
tion.................................... (72,000) (787,000) (807,000)
-------- ---------- ----------
$380,000 $ 987,000 $1,097,000
======== ========== ==========
</TABLE>
Depreciation and amortization are based on the following estimated useful
lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Leasehold improvements................................ 15
Equipment, autos and trucks........................... 5
Office furniture and fixtures......................... 3--7
</TABLE>
Depreciation expense for the years ended December 31, 1997 and 1998, totaled
$11,000 and $65,000, respectively. Amortization expense for autos and trucks
under capital leases for the years ended December 31, 1997 and 1998, totaled
$36,000 and $73,000, respectively.
Marketable Investment Securities
Marketable investment securities at December 31, 1997 and 1998 and March 31,
1999, consist of equity securities and mutual funds. The Company has classified
its investments as available-for-sale, and has recorded them at fair market
value with any unrealized gains or losses reflected as a component of
stockholders' equity.
Income Taxes
The Company, with the consent of its stockholders, elected, under the Internal
Revenue Code, to be an S Corporation effective December 20, 1996. Under the S
election, the Company's income or loss is passed on to the individual
stockholders for federal and state income tax purposes. Therefore, there is no
federal tax liability at the corporate level and thus, no provision for federal
income taxes has been included in these financial statements. However, a tax is
assessed on income apportioned to California equal to the greater of $800 or
1.5% of income apportioned to California for franchise tax purposes.
F-37
<PAGE>
THOMPSON-HYSELL, INC.
Notes to Financial Statements--(Continued)
Years Ended December 31, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
Fair Value of Financial Instruments
The carrying amount reported in the balance sheet of the assets and liabilities
that are considered to be financial instruments (such as cash and cash
equivalents, accounts receivable, deposits, accounts payable, accrued
liabilities, dividends payable, related party payables and line of credit
payable) approximate their fair value based upon their short-term nature. The
carrying amount of notes payable approximates fair value since their terms and
conditions are similar to those currently available to the Company.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period.
Accordingly, actual results could differ from those estimates.
(2) Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable is composed of amounts due from clients, which vary from
private individuals to large construction companies. Consequently, the
Company's ability to collect the amounts due is affected by fluctuations in the
economy of the local community. The Company provides an allowance for
uncollectible accounts based upon prior experience and management's assessment
of the collectibility of existing specific accounts.
F-38
<PAGE>
THOMPSON-HYSELL, INC.
Notes to Financial Statements--(Continued)
Years Ended December 31, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(3) Marketable Investment Securities
The Company has invested in stocks and mutual funds through AG Edwards & Sons,
Inc. Securities classified as available-for-sale as of December 31, 1997,
consisted of the following:
<TABLE>
<CAPTION>
Gross Gross Current
Cost Unrealized Unrealized Market
Shares Basis Gains Losses Value
------ -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Putnam--CA Tax Exempt......... 600 $ 5,000 $ -- $ -- $ 5,000
Putnam--Hi Yield.............. 3,700 47,000 2,000 -- 49,000
Putnam--Growth Fund........... 3,000 37,000 21,000 -- 58,000
Alliance Growth Fund.......... 400 10,000 6,000 -- 16,000
Silicon....................... 400 5,000 -- 3,000 2,000
AT&T.......................... 300 15,000 6,000 -- 21,000
E. I. Dupont De Nemours....... 300 16,000 -- 1,000 15,000
Eastman Kodak................. 200 15,000 -- -- 15,000
Philip Morris................. 400 15,000 1,000 -- 16,000
Somatogen, Inc................ 1,000 7,000 -- 2,000 5,000
Union Carbide Corp............ 300 15,000 -- 2,000 13,000
-------- ------- ------ --------
Totals...................... $187,000 $36,000 $8,000 $215,000
======== ======= ====== ========
</TABLE>
During 1997, the Company sold securities classified as available-for-sale for
total proceeds of approximately $80,000 resulting in gross realized gains of
$23,000.
Securities classified as available-for-sale as of December 31, 1998, consisted
of the following:
<TABLE>
<CAPTION>
Gross Gross Current
Cost Unrealized Unrealized Market
Shares Basis Gains Losses Value
------ -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Putnam--CA Tax Exempt........ 600 $ 5,000 $ -- $ -- $ 5,000
Putnam--Hi Yield............. 4,000 53,000 14,000 -- 67,000
Putnam--Growth Fund.......... 3,000 50,000 -- 5,000 45,000
Alliance Growth Fund......... 400 11,000 9,000 -- 20,000
Silicon...................... 400 5,000 -- 4,000 1,000
E. I. Dupont De Nemours...... 300 16,000 -- 2,000 14,000
International Paper Co....... 300 17,000 -- 2,000 15,000
BankAmerica Corporation...... 200 13,000 -- 1,000 12,000
Preferred Network Inc........ 2,600 5,000 -- 4,000 1,000
Caterpillar Inc.............. 300 15,000 1,000 -- 16,000
General Motors............... 300 14,000 7,000 -- 21,000
Good Year Tire and Rubber.... 300 14,000 1,000 -- 15,000
-------- ------- ------- --------
Totals..................... $218,000 $32,000 $18,000 $232,000
======== ======= ======= ========
</TABLE>
F-39
<PAGE>
THOMPSON-HYSELL, INC.
Notes to Financial Statements--(Continued)
Years Ended December 31, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
During 1998, the Company sold securities classified as available-for-sale for
total proceeds of approximately $74,000 resulting in gross realized gains of
$6,000.
(4) Line of Credit Payable
The Company has a line of credit which allows the Company, at its discretion,
to borrow up to $500,000 at prime plus 1.5%, with all unpaid principal and
interest due on May 10, 2000. As of December 31, 1997, the effective interest
rate was 9.75% and the outstanding balance was $427,000. There was no
outstanding balance at December 31, 1998 and March 31, 1999 (unaudited).
(5) Notes Payable
Notes payable is comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
Notes payable to various third parties secured by
equipment, payable in monthly installments ranging from
$70 to $700, including principal and interest at rates
ranging from 8.65% to 13.22%, maturing between 2000 and
2003................................................... $ 95,000 $285,000
Less current portion.................................... (26,000) (93,000)
-------- --------
$ 69,000 $192,000
======== ========
</TABLE>
Maturities of notes payable as of December 31, 1998 are:
<TABLE>
<CAPTION>
Years Ending
December 31:
------------
<S> <C>
1999.......................................................... $ 93,000
2000.......................................................... 97,000
2001.......................................................... 59,000
2002.......................................................... 23,000
2003.......................................................... 13,000
--------
$285,000
========
</TABLE>
F-40
<PAGE>
THOMPSON-HYSELL, INC.
Notes to Financial Statements--(Continued)
Years Ended December 31, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(6) Autos and Trucks Under Capital Leases
The Company leases various vehicles under capital lease agreements that expire
at various dates over the next four years.
Future minimum payments on capitalized leases as of December 31, 1998 are:
<TABLE>
<CAPTION>
Years ending
December 31:
------------
<S> <C>
1999...................................................... $ 146,000
2000...................................................... 125,000
2001...................................................... 20,000
2002...................................................... 26,000
---------
317,000
Amount representing interest (at rates ranging from approxi-
mately 5% to 16%).......................................... (48,000)
---------
Present value of future minimum capital lease payments...... 269,000
Less current portion........................................ (116,000)
---------
Long-term capital lease portion............................. $ 153,000
=========
</TABLE>
(7) Operating Leases
The Company has several noncancelable operating leases, primarily for office
facilities and equipment used in its operations, that expire over the next 15
years. The facility leases require the Company to pay such costs as common area
maintenance and insurance.
During the years ended December 31, 1997 and 1998, rentals under long-term
lease obligations were $156,000 and $268,000, respectively. Future minimum
lease payments on these leases at December 31, 1998 are:
<TABLE>
<CAPTION>
Years ending Third Related
December 31: Parties Parties
------------ -------- ----------
<S> <C> <C>
1999............................................... $116,000 $ 144,000
2000............................................... 113,000 144,000
2001............................................... 74,000 144,000
2002............................................... 10,000 144,000
2003............................................... -- 144,000
Thereafter......................................... -- 684,000
-------- ----------
$313,000 $1,404,000
======== ==========
</TABLE>
F-41
<PAGE>
THOMPSON-HYSELL, INC.
Notes to Financial Statements--(Continued)
Years Ended December 31, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
The Company leases a building from shareholders of the Company. The lease is
for an initial fifteen year term expiring in 2008 and has been classified as an
operating lease. Total rent expense associated with this lease for the years
ended December 31, 1997 and 1998, was $96,000 and $158,000, respectively, and
$36,000 for each of the three months ended March 31, 1998 and 1999.
(8) Transactions with Related Parties
In addition to related party leasing transactions as noted in footnote 7,
amounts due from (to) related parties are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Notes receivable--stockholders..................... $ 1,000 $ 1,000
========= =========
Related party payables:
Notes payable.................................... -- 608,000
Other............................................ $ 669,000 $ 179,000
--------- ---------
669,000 787,000
Less current portion of related party payables..... (669,000) (200,000)
--------- ---------
Related party payables, net of current portion.... $ -- $ 587,000
========= =========
</TABLE>
Notes receivable--stockholders--The stockholders were issued 1,000 shares of
Company stock ($1 par value) in exchange for $1,000 in notes receivable. The
notes are secured by the underlying shares of Company stock.
Notes payable--related party--Balance represents the amounts due to a former
stockholder of a related party for buyout of his stock in the related party,
severance package upon termination of his employment/ownership with the related
party, and amounts owed to a former stockholder of the related party in return
for a covenant not to compete with related party and/or the Company. The notes
have a remaining life of 14 years, have been discounted at 9%. The current
portion of the notes payable-related party, was $0 and $200,000, as of December
31, 1997 and 1998, respectively.
Other related party payables--Balance represents the net position of payments
for expenses made by a related party on behalf of the Company and collections
of receivables made by the Company on behalf of a related party. The balance
due to the related party was paid in full as of March 31, 1999 (unaudited).
F-42
<PAGE>
THOMPSON-HYSELL, INC.
Notes to Financial Statements--(Continued)
Years Ended December 31, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(9) Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Year ended Three months
December 31, ended
----------------- March 31,
1997 1998 1999
-------- -------- ------------
(unaudited)
<S> <C> <C> <C>
Cash paid for:
Interest................................... $ 47,000 $ 82,000 $32,000
Taxes...................................... $ -- $ 2,000 $ --
Noncash transactions:
Equipment acquired through
financing/leasing......................... $339,000 $ 73,000 $97,000
Dividends declared, but unpaid as of Decem-
ber 31, 1998.............................. $ -- $100,000 $ --
</TABLE>
On May 1, 1997 and December 31, 1998, certain assets and liabilities were
transferred from Thompson-Hysell Engineers, Inc. (a related party) of the
Company. The assets and liabilities were transferred at book value as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Cash................................................. $ 2,000 $ --
Prepaid expenses..................................... 62,000 --
Leasehold improvements............................... -- 313,000
Equipment............................................ 20,000 301,000
Office furniture and fixtures........................ -- 216,000
Autos and trucks..................................... 13,000 72,000
Accumulated depreciation and amortization............ (25,000) (576,000)
Marketable investment securities..................... 182,000 --
Security deposits.................................... 2,000 --
Accounts payable..................................... (126,000) --
Accrued liabilities.................................. (34,000) (26,000)
Related party receivable (recorded as a reduction in
related party payable).............................. 192,000 308,000
Line of credit payable............................... (255,000) --
Notes payable........................................ (33,000) --
Notes payable, former stockholder of a related par-
ty.................................................. -- (608,000)
</TABLE>
F-43
<PAGE>
THOMPSON-HYSELL, INC.
Notes to Financial Statements--(Continued)
Years Ended December 31, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999 (Unaudited)
(10) 401(k) Profit Sharing Plan
The Company provides a 401(k) Profit Sharing Plan to their employees. Employees
are eligible to participate immediately; however, the Company does not match
until after one full year of service. After one year, the Company matches 50%
of what each employee puts into the plan, up to 5% of their gross annual salary
subject to limitations imposed by the Internal Revenue Code. Matching
contributions to the plan for the years ended December 31, 1997 and 1998, were
$27,000 and $54,000, respectively.
(11) Business and Credit Concentrations
The Company's primary operations are located in central California, and the
Salt Lake City, Utah areas. Thus, the Company is susceptible to economic
conditions in those geographical areas.
The Company maintains its cash balances at Wells Fargo Bank. Combined accounts
at the institution are insured by the Federal Deposit Insurance Corporation up
to $100,000. At December 31, 1998 and March 31, 1999, the Company's uninsured
cash balances totaled $266,000 and $164,000, respectively.
(12) Purchase of Stock
The Company has a shareholder agreement for the purchase of a retiring
shareholder's stock in the Company. Included in the agreement is term life
insurance on some of the shareholders. By board action, it is understood that
when a shareholder's stock is purchased, the term life insurance will be
transferred to the shareholder.
(13) Subsequent Event
On April 9, 1999, the Company entered into an Asset Purchase Agreement with an
unrelated third party to sell substantially all of the assets and certain of
the liabilities of the Company for cash, a promissory note and common stock of
the Company with an aggregate value of $6,000,000. The purchase price is
subject to change based on certain financial targets. The transaction is
anticipated to be consummated concurrent with the unrelated third party's
initial public offering.
F-44
<PAGE>
[TKCI GRAPHICS]
Until , 1999 (25 days after the date of this Prospectus) all dealers
that buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table itemizes the estimated expenses incurred in connection with
the offering described in this Registration Statement.
<TABLE>
<S> <C>
Registration fee.......................................................... $
NASD filing fee........................................................... $
Printing and engraving expenses........................................... *
Nasdaq application fee.................................................... *
Blue sky qualification fees and expenses.................................. *
Legal fees and expenses................................................... *
Accountants' fees and expenses............................................ *
Transfer agent and registrar fees......................................... *
Miscellaneous............................................................. *
----
Total................................................................ $ *
====
</TABLE>
- ------------------
* To be supplied by amendment
Item 14. Indemnification of Directors and Officers
The underwriting agreement (Exhibit 1.1 hereto) provides for indemnification by
the underwriters of the Registrant and its officers and directors, and by the
Registrant of the underwriters for certain liabilities arising under the
Securities Act of 1933 or otherwise.
Our articles of incorporation provide that the liability of our directors for
monetary damages shall be eliminated to the fullest extent permissible under
California law. This is intended to eliminate the personal liability of a
director for monetary damages in an action brought by or in the right of TKCI
for breach of a director's duties to TKCI or our shareholders except for
liability: (a) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law; (b) for acts or omissions that a
director believes to be contrary to the best interests of TKCI or our
shareholders or that involve the absence of good faith on the part of the
director; (c) for any transaction for which a director derived an improper
personal benefit; (d) for acts or omission that show a reckless disregard for
the director's duty to TKCI or our shareholders in circumstances in which the
director was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of serious injury to TKCI or our
shareholders; (e) for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to TKCI or our
shareholders; (f) with respect to certain transactions, or the approval of
transactions in which a director has a material financial interest; and (g)
expressly imposed by statute, for approval of certain improper distributions to
shareholders or certain loans or guarantees.
II-1
<PAGE>
Our articles also provide that we are authorized to provide indemnification to
our officers and directors in excess of the indemnification otherwise permitted
by Section 317 of the California Corporations Code. Our bylaws provide for
indemnification of our officers, directors, employees, and other agents to the
extent and under the circumstances permitted by California law.
We have entered into agreements to indemnify our directors and executive
officers in addition to the indemnification provided for in the articles of
incorporation and bylaws. Among other things, these agreements provide that we
will indemnify, subject to certain requirements, each of our directors for
certain expenses (including attorneys' fees), judgments, fines and settlement
amounts incurred by such person in any action or proceeding, including any
action by or in the right of TKCI, on account of services by such person as a
director or officer of TKCI, or as a director or officer of any other company
or enterprise to which the person provides services at our request. We have
also purchased directors and officers liability insurance, which provides
coverage against certain liabilities including liabilities under the Securities
Act.
The inclusion of the above provisions in our articles of incorporation and
bylaws, the existence of the indemnification agreements and directors and
officers insurance may have the effect of reducing the likelihood of derivative
litigation against directors and may discourage or deter shareholders or
management from bringing a lawsuit against directors for breach of their duty
of care, even though such an action, if successful, might otherwise have
benefitted the Registrant and its shareholders. At present, there is no
litigation or proceeding pending involving a director of the Registrant as to
which indemnification is being sought, nor is the Registrant aware of any
threatened litigation that may result in claims for indemnification by any
director.
Item 15. Recent Sales of Unregistered Securities.
In April 1997, we entered into an agreement for advisory services with Walter
W. Cruttenden, III, pursuant to which, among other things, for $10,000 we
provided Mr. Cruttenden with an option to purchase 10% of our outstanding
common stock upon the payment of additional consideration of $88,000. In July
1997, upon his exercise of this option, we issued 325,926 shares of our common
stock to Mr. Cruttenden.
In December 1997, Mr. Cruttenden and members of his family purchased an
additional 196,745 shares of common stock for an aggregate purchase price of
$500,000. The securities issued to Mr. Cruttenden and his family members were
issued in private transactions pursuant to Section 4(2) of the Securities Act
of 1933.
In December 1997, in connection with our acquisition of all of the outstanding
common stock of ESI, we issued an aggregate of 74,074 shares of our common
stock to the three selling shareholders in partial consideration of the ESI
common stock. These securities were issued in a private transaction pursuant to
Section 4(2) of the Securities Act of 1933.
II-2
<PAGE>
In August 1998, the holders of all of the outstanding shares of Keith
Engineering contributed their shares to TKCI as a contribution to capital. In
consideration of this contribution, we issued to the contributing shareholders
one share of TKCI common stock for each share of Keith Engineering stock
contributed. We issued an aggregate of 1,222,222 shares of our common stock
pursuant to Section 4(2) of the Securities Act of 1933.
We have granted options to purchase an aggregate of 485,074 shares of our
common stock pursuant to our Amended and Restated 1994 Stock Incentive Plan to
certain employees, officers and directors. The issuance of these securities was
exempt from registration pursuant to Rule 701 of the Securities Act of 1933.
In connection with our acquisitions of ESI and John M. Tettemer & Associates in
December, 1997, we issued four warrants to purchase an aggregate of 83,333
shares of common stock. These warrants were exercisable for a period of five
years at exercise prices ranging from $1.75 to $2.50 per share. These
securities were issued in private transactions under Section 4(2) of the
Securities Act of 1933.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
2.1 Asset Purchase Agreement dated April 9, 1999 between the Registrant
and Thompson-Hysell, Inc.
2.2 Agreement for the Acquisition of All Outstanding Stock of ESI,
Engineering Services Incorporated by the Registrant dated September
22, 1997.
2.3 Stock Purchase Agreement dated July 10, 1998 by and among the
Registrant; John M. Tettemer & Associates, Inc.; 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.
3.1 Amended and Restated Articles of Incorporation filed on August 19,
1994 and Certificate of Amendment of Articles of Incorporation filed
on April 26, 1999.
3.2 Amended and Restated Bylaws of the Registrant.
4.1 Specimen Stock Certificate.*
5.1 Opinion of Rutan & Tucker, LLP.*
10.1 Amended and Restated 1994 Stock Incentive Plan, together with form of
Nonqualified Stock Option Agreement and form of Incentive Stock Option
Agreement.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.2 Form of Indemnification Agreement.
10.3 Security and Loan Agreement dated February 9, 1998 between the
Registrant, Keith Engineering, Inc. and Imperial Bank and Addendum to
Security and Loan Agreement dated February 9, 1998.
10.4 First Amendment to Security and Loan Agreement dated March 23, 1998
between the Registrant, Keith Engineering, Inc. and Imperial Bank.
10.5 Second Amendment to Security and Loan Agreement dated June 22, 1998
between the Registrant; Keith Engineering, Inc.; ESI, Engineering
Services Incorporated and Imperial Bank.
10.6 Third Amendment to Security and Loan Agreement dated October 7, 1998
between the Registrant; Keith Engineering, Inc.; ESI, Engineering
Services Incorporated and Imperial Bank.
10.7 Fourth Amendment to Security and Loan Agreement dated March 5, 1999
between the Registrant; Keith Engineering, Inc.; ESI, Engineering
Services Incorporated; John M. Tettemer & Associates, LTD and Imperial
Bank.
10.8 General Security Agreement dated February 9, 1998 between ESI,
Engineering Services Incorporated and Imperial Bank and General
Security Agreement dated February 9, 1998 between the Registrant,
Keith Engineering, Inc. and Imperial Bank.
10.9 Commercial Security Agreement dated October 7, 1998 between the
Registrant; Keith Engineering, Inc.; ESI, Engineering Services
Incorporated; John M. Tettemer & Associates, LTD and Imperial Bank.
10.10 Waiver dated July 1998 executed by Walter W. Cruttenden, III.
10.11 Lease dated August 16, 1989 between Keith Engineering, Inc. and
Scripps Center Associates, Work Letter Agreement dated August 16,
1989, Tenant Estoppel Certificate dated August 16, 1989 and Addendum
to Lease, as amended by Lease Amendment No. 1 dated November 30, 1989,
as amended by Lease Amendment No. 2 dated August 31, 1990, as amended
by Lease Amendment No. 3 dated October 24, 1991, as amended by Lease
Amendment No. 3 (sic) dated April 15 1993, as amended by Lease
Amendment No. 4 dated October 1, 1993, as amended by Fifth Amendment
to Lease dated May 1998.
10.12 Lease dated January 1, 1996 between Moreno Corporate Center, L.L.C.
and the Registrant, as amended by First Amendment to Lease dated
December 1, 1997.
10.13 Agreement Regarding Lease and Assignment of Leases and Release dated
January 1, 1996 between Moreno Corporate Center, L.L.C. and the
Registrant.
10.14 Agreement for Advisory Services dated April 10, 1997 between the
Registrant; Keith Engineering, Inc.; Keith International, Inc.; Aram
Keith and Walter W. Cruttenden, III.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.15 Security Agreement dated April 10, 1997 between the Registrant; Keith
International, Inc.; Keith Engineering, Inc. and Walter W. Cruttenden,
III.
10.16 Promissory Note dated August 1, 1996 between the Registrant; Keith
International, Inc.; The Keith Companies--North Counties, Inc.; Keith
Engineering, Inc.; The Keith Companies--Hawaii, Inc.; Aram H. Keith
and Moreno Corporate Center, L.L.C. in the principal amount of
$273,893.
10.17 Amendment to Promissory Note dated April 29, 1997 between the
Registrant; Keith International, Inc.; The Keith Companies--North
Counties, Inc.; Keith Engineering, Inc.; The Keith Companies--Hawaii,
Inc.; Aram H. Keith and Moreno Corporate Center, L.L.C.
10.18 Second Amendment to Promissory Note dated February 4, 1998 between the
Registrant; Keith International, Inc.; The Keith Companies--North
Counties, Inc.; Keith Engineering, Inc.; The Keith Companies--Hawaii,
Inc.; Aram H. Keith, and Moreno Corporate Center, L.L.C.
10.19 Unsecured Promissory Note dated October 31, 1998 by the Registrant in
favor of Ruth Ann Fallon as trustee for the Erica Keith Educational
Trust in the principal amount of $132,000, and Imperial Bank--
Subordination Agreement dated February 9, 1998.
10.20 Unsecured Promissory Note dated October 31, 1998 by the Registrant in
favor of Ruth Ann Fallon as trustee for the Kimberly Keith Educational
Trust in the principal amount of $33,000, and Imperial Bank--
Subordination Agreement dated February 9, 1998.
10.21 Unsecured Promissory Note dated October 31, 1998 by the Registrant in
favor of Ruth Ann Fallon as trustee for the Ryan Keith Educational
Trust in the principal amount of $11,000, and Imperial Bank--
Subordination Agreement dated February 9, 1998.
10.22 Unsecured Promissory Note dated October 31, 1998 by the Registrant in
favor of Aram H. Keith as trustee for the Susan Reid Housing Trust in
the principal amount of $86,000, and Imperial Bank--Subordination
Agreement dated February 9, 1998.
10.23 Unsecured Promissory Note dated October 31, 1998 by the Registrant in
favor of Aram H. Keith as trustee for the Ruth Reid Housing Trust in
the principal amount of $53,000, and Imperial Bank--Subordination
Agreement dated February 9, 1998.
10.24 Unsecured Promissory Note dated October 31, 1998 by the Registrant in
favor of Aram H. Keith as trustee for the William Scott Reid Housing
Trust in the principal amount of $48,000, and Imperial Bank--
Subordination Agreement dated February 9, 1998.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.25 Amended and Restated Promissory Note dated February 25, 1999 by the
Registrant in favor of Walter W. Cruttenden, III in the principal
amount of $700,000 and Imperial Bank--Subordination Agreement dated
February 9, 1998.
10.26 Amended and Restated Promissory Note dated February 25, 1999 by the
Registrant in favor of Aram H. Keith in the principal amount of
$1,210,177 and Imperial Bank--Subordination Agreement dated February
9, 1998.
10.27 Restated and Amended Promissory Note dated February 25, 1999 by the
Registrant in favor of Floyd S. Reid in the principal amount of
$127,815 and Imperial Bank--Subordination Agreement dated February 9,
1998.
10.28 Employment Agreement dated October 1, 1997 between ESI, Engineering
Services Incorporated and Lynn C. Cannady.
10.29 Employment Agreement dated October 1, 1997 between ESI, Engineering
Services Incorporated and Glenn I. Chase.
10.30 Employment Agreement dated October 1, 1997 between ESI, Engineering
Services Incorporated and Stephen J. Lane.
10.31 Promissory Note dated February 21, 1997 by Keith International, Inc.
in favor of Doug Travato in the principle amount of $100,000.
10.32 Promissory Note dated February 26, 1997 by Keith Engineering, Inc. in
favor of the Wyckoff Company Money Purchase Pension Plan in the
principle amount of $50,000.
10.33 Promissory Note dated February 10, 1998 by Keith Engineering, Inc. in
favor of Aram H. Keith in the principle amount of $150,000.
23.1 Consent of Independent Auditors.
23.2 Consent of Rutan & Tucker, LLP (included in the opinion filed herewith
as Exhibit 5.1).*
24 Power of Attorney (included on signature page hereof).
27 Financial Data Schedule.
</TABLE>
- ------------------
* To be filed by amendment.
II-6
<PAGE>
(b) Financial Statement Schedules.
None.
Item 17. Undertakings
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14 hereof, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newport Beach, State of
California, on April 28, 1999.
The Keith Companies, Inc.
/s/ Aram H. Keith
By:_________________________________
Aram H. Keith
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Messrs. Aram
H. Keith and Gary C. Campanaro his or her true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, at any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, or any Registration Statement for
the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith or in connection
with the registration of the Common Stock under the Securities Exchange Act of
1934, as amended, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary in connection with such
matters and hereby ratifying and confirming that each of said attorneys-in-fact
and agents, acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Aram H. Keith Chief Executive Officer, April 28, 1999
______________________________________ President and Director
Aram H. Keith (Principal Executive
Officer)
/s/ Gary C. Campanaro Chief Financial Officer April 28, 1999
______________________________________ and Director (Principal
Gary C. Campanaro Financial and Accounting
Officer)
/s/ Walter W. Cruttenden, III Director April 28, 1999
______________________________________
Walter W. Cruttenden, III
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
2.1 Asset Purchase Agreement dated April 9, 1999 between the Registrant
and Thompson-Hysell, Inc.
2.2 Agreement for the Acquisition of All Outstanding Stock of ESI,
Engineering Services Incorporated by the Registrant dated September
22, 1997.
2.3 Stock Purchase Agreement dated July 10, 1998 by and among the
Registrant; John M. Tettemer & Associates, Inc.; 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.
3.1 Amended and Restated Articles of Incorporation filed on August 19,
1994 and Certificate of Amendment of Articles of Incorporation filed
on April 26, 1999.
3.2 Amended and Restated Bylaws of the Registrant.
4.1 Specimen Stock Certificate.*
5.1 Opinion of Rutan & Tucker, LLP.*
10.1 Amended and Restated 1994 Stock Incentive Plan, together with form of
Nonqualified Stock Option Agreement and form of Incentive Stock Option
Agreement.*
10.2 Form of Indemnification Agreement.
10.3 Security and Loan Agreement dated February 9, 1998 between the
Registrant, Keith Engineering, Inc. and Imperial Bank and Addendum to
Security and Loan Agreement dated February 9, 1998.
10.4 First Amendment to Security and Loan Agreement dated March 23, 1998
between the Registrant, Keith Engineering, Inc. and Imperial Bank.
10.5 Second Amendment to Security and Loan Agreement dated June 22, 1998
between the Registrant; Keith Engineering, Inc.; ESI, Engineering
Services Incorporated and Imperial Bank.
10.6 Third Amendment to Security and Loan Agreement dated October 7, 1998
between the Registrant; Keith Engineering, Inc.; ESI, Engineering
Services Incorporated and Imperial Bank.
10.7 Fourth Amendment to Security and Loan Agreement dated March 5, 1999
between the Registrant; Keith Engineering, Inc.; ESI, Engineering
Services Incorporated; John M. Tettemer & Associates, LTD and Imperial
Bank.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.8 General Security Agreement dated February 9, 1998 between ESI,
Engineering Services Incorporated and Imperial Bank and General
Security Agreement dated February 9, 1998 between the Registrant,
Keith Engineering, Inc. and Imperial Bank.
10.9 Commercial Security Agreement dated October 7, 1998 between the
Registrant; Keith Engineering, Inc.; ESI, Engineering Services
Incorporated; John M. Tettemer & Associates, LTD and Imperial Bank.
10.10 Waiver dated July 1998 executed by Walter W. Cruttenden, III.
10.11 Lease dated August 16, 1989 between Keith Engineering, Inc. and
Scripps Center Associates. Work Letter Agreement dated August 16,
1989, Tenant Estoppel Certificate dated August 16, 1989 and Addendum
to Lease, as amended by Lease Amendment No. 1 dated November 30, 1989,
as amended by Lease Amendment No. 2 dated August 31, 1990, as amended
by Lease Amendment No. 3 dated October 24, 1991, as amended by Lease
Amendment No. 3 (sic) dated April 15 1993, as amended by Lease
Amendment No. 4 dated October 1, 1993, as amended by Fifth Amendment
to Lease dated May 1998.
10.12 Lease dated January 1, 1996 between Moreno Corporate Center, L.L.C.
and the Registrant, as amended by First Amendment to Lease dated
December 1, 1997.
10.13 Agreement Regarding Lease and Assignment of Leases and Release dated
January 1, 1996 between Moreno Corporate Center, L.L.C. and the
Registrant.
10.14 Agreement for Advisory Services dated April 10, 1997 between the
Registrant; Keith Engineering, Inc.; Keith International, Inc.; Aram
Keith and Walter W. Cruttenden, III.
10.15 Security Agreement dated April 10, 1997 between the Registrant; Keith
International, Inc.; Keith Engineering, Inc. and Walter W. Cruttenden,
III.
10.16 Promissory Note dated August 1, 1996 between the Registrant; Keith
International, Inc.; The Keith Companies--North Counties, Inc.; Keith
Engineering, Inc.; The Keith Companies--Hawaii, Inc.; Aram H. Keith
and Moreno Corporate Center, L.L.C. in the principal amount of
$273,893.
10.17 Amendment to Promissory Note dated April 29, 1997 between the
Registrant; Keith International, Inc.; The Keith Companies--North
Counties, Inc.; Keith Engineering, Inc.; The Keith Companies--Hawaii,
Inc.; Aram H. Keith and Moreno Corporate Center, L.L.C.
10.18 Second Amendment to Promissory Note dated February 4, 1998 between the
Registrant; Keith International, Inc.; The Keith Companies--North
Counties, Inc.; Keith Engineering, Inc.; The Keith Companies--Hawaii,
Inc.; Aram H. Keith and Moreno Corporate Center, L.L.C.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.19 Unsecured Promissory Note dated October 31, 1998 by the Registrant in
favor of Ruth Ann Fallon as trustee for the Erica Keith Educational
Trust in the principal amount of $132,000, and Imperial Bank--
Subordination Agreement dated February 9, 1998.
10.20 Unsecured Promissory Note dated October 31, 1998 by the Registrant in
favor of Ruth Ann Fallon as trustee for the Kimberly Keith Educational
Trust in the principal amount of $33,000, and Imperial Bank--
Subordination Agreement dated February 9, 1998.
10.21 Unsecured Promissory Note dated October 31, 1998 by the Registrant in
favor of Ruth Ann Fallon as trustee for the Ryan Keith Educational
Trust in the principal amount of $11,000, and Imperial Bank--
Subordination Agreement dated February 9, 1998.
10.22 Unsecured Promissory Note dated October 31, 1998 by the Registrant in
favor of Aram H. Keith as trustee for the Susan Reid Housing Trust in
the principal amount of $86,000, and Imperial Bank--Subordination
Agreement dated February 9, 1998.
10.23 Unsecured Promissory Note dated October 31, 1998 by the Registrant in
favor of Aram H. Keith as trustee for the Ruth Reid Housing Trust in
the principal amount of $53,000, and Imperial Bank--Subordination
Agreement dated February 9, 1998.
10.24 Unsecured Promissory Note dated October 31, 1998 by the Registrant in
favor of Aram H. Keith as trustee for the William Scott Reid Housing
Trust in the principal amount of $48,000, and Imperial Bank--
Subordination Agreement dated February 9, 1998.
10.25 Amended and Restated Promissory Note dated February 25, 1999 by the
Registrant in favor of Walter W. Cruttenden, III in the principal
amount of $700,000 and Imperial Bank--Subordination Agreement dated
February 9, 1998.
10.26 Amended and Restated Promissory Note dated February 25, 1999 by the
Registrant in favor of Aram H. Keith in the principal amount of
$1,210,177 and Imperial Bank--Subordination Agreement dated February
9, 1998.
10.27 Restated and Amended Promissory Note dated February 25, 1999 by the
Registrant in favor of Floyd S. Reid in the principal amount of
$127,815 and Imperial Bank--Subordination Agreement dated February 9,
1998.
10.28 Employment Agreement dated October 1, 1997 between ESI, Engineering
Services Incorporated and Lynn C. Cannady.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.29 Employment Agreement dated October 1, 1997 between ESI, Engineering
Services Incorporated and Glenn I. Chase.
10.30 Employment Agreement dated October 1, 1997 between ESI, Engineering
Services Incorporated and Stephen J. Lane.
10.31 Promissory Note dated February 21, 1997 by Keith International, Inc.
in favor of Doug Travato in the principle amount of $100,000.
10.32 Promissory Note dated February 26, 1997 by Keith Engineering, Inc. in
favor of the Wyckoff Company Money Purchase Pension Plan in the
principle amount of $50,000.
10.33 Promissory Note dated February 10, 1998 by Keith Engineering, Inc. in
favor of Aram H. Keith in the principle amount of $150,000.
23.1 Consent of Independent Auditors.
23.2 Consent of Rutan & Tucker, LLP (included in the opinion filed herewith
as Exhibit 5.1).*
24 Power of Attorney (included on signature page hereof).
27 Financial Data Schedule.
</TABLE>
- ------------------
* To be filed by amendment.
4
<PAGE>
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
AMONG
THOMPSON-HYSELL, INC.
AND
THE KEITH COMPANIES, INC.
April 9, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 PURCHASE AND SALE OF ASSETS.................................. 1
1.1 Assets to be Transferred..................................... 1
1.2 Excluded Assets.............................................. 3
(a) Consideration.......................................... 3
(b) Corporate Franchise.................................... 3
(c) Tax Matters............................................ 3
(d) Agreement.............................................. 3
(e) Other Rights........................................... 3
ARTICLE 2 LIABILITIES.................................................. 4
2.1 Excluded Liabilities......................................... 4
2.2 Assumed Liabilities.......................................... 4
2.3 No Assignment Causing Breach................................. 5
ARTICLE 3 PURCHASE PRICE............................................... 5
3.1 Purchase Price............................................... 5
3.2 Book Value Adjustment........................................ 5
3.3 Purchase Price Adjustment.................................... 6
3.4 Terms of Promissory Note..................................... 7
3.5 Additional Payment........................................... 7
3.6 Payment of Purchase Price.................................... 8
3.7 Allocation of Purchase Price................................. 8
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER AND THE
SHAREHOLDERS................................................. 9
4.1 Corporate.................................................... 9
(a) Organization........................................... 9
(b) Corporate Power........................................ 9
(c) Qualification.......................................... 9
(d) Subsidiaries........................................... 9
(e) Corporate Documents, etc............................... 9
(f) Capitalization of the Seller........................... 10
4.2 Authorization; Validity...................................... 10
4.3 No Violation................................................. 11
4.4 Financial Statements......................................... 11
4.5 Tax Matters.................................................. 11
4.6 Accounts Receivable and Costs in Excess of Billings.......... 12
4.7 Work-in-Process.............................................. 12
4.8 Absence of Certain Changes................................... 12
(a) No Adverse Change...................................... 12
(b) No Damage.............................................. 13
(c) No Increase in Compensation............................ 13
(d) No Labor Disputes...................................... 13
(e) No Commitments......................................... 13
(f) No Dividends........................................... 13
(g) No Disposition of Property............................. 13
(h) No Indebtedness........................................ 13
(i) No Liens............................................... 13
(j) No Amendment of Contracts.............................. 13
(k) Loans and Advances..................................... 13
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
(l) Credit................................................. 14
(m) No Unusual Events...................................... 14
4.9 Absence of Undisclosed Liabilities........................... 14
4.10 No Litigation................................................ 14
4.11 Compliance With Laws......................................... 15
(a) Compliance............................................. 15
(b) Licenses and Permits................................... 15
4.12 Title to and Condition of Properties......................... 15
(a) Marketable Title....................................... 15
(b) Condition.............................................. 16
(c) Real Property.......................................... 16
(d) No Condemnation or Expropriation....................... 17
4.13 Insurance.................................................... 17
4.14 Contracts and Commitments.................................... 18
(a) Real Property Leases................................... 18
(b) Personal Property Leases............................... 18
(c) Purchase Commitments................................... 18
(d) Sales Commitments...................................... 18
(e) Contracts With Affiliates and Certain Others........... 18
(f) Powers of Attorney..................................... 18
(g) Collective Bargaining Agreements....................... 18
(h) Loan Agreements........................................ 18
(i) Guarantees............................................. 19
(j) Burdensome or Restrictive Agreements................... 19
(k) Other Material Contracts............................... 19
(l) No Default............................................. 19
4.15 Labor Matters................................................ 19
4.16 Employee Benefit Plans....................................... 20
(a) Disclosure............................................. 20
(b) Terminations, Proceedings, Penalties, etc.............. 20
(c) Prohibited Transactions, etc........................... 21
(d) Full Funding........................................... 22
(e) Controlled Group; Affiliated Service Group;
Leased Employees....................................... 22
(f) Payments and Compliance................................ 22
(g) Post-Retirement Benefits............................... 23
(h) No Triggering of Obligations........................... 23
(i) Delivery of Documents.................................. 23
(j) Future Commitments..................................... 24
4.17 Employment Compensation...................................... 24
4.18 Trade Rights................................................. 24
4.19 Major Customers and Suppliers................................ 25
(a) Major Customers........................................ 25
(b) Major Suppliers........................................ 25
4.20 Warranty and Product Liability............................... 25
4.21 Bank Accounts................................................ 26
4.22 Affiliates, Relationships to Seller.......................... 26
(a) Contracts With Affiliates.............................. 26
(b) No Adverse Interests................................... 26
(c) Obligations............................................ 26
4.23 No Brokers or Finders........................................ 26
4.24 Disclosure................................................... 26
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER.................. 26
5.1 Corporate.................................................... 26
5.2 Authority.................................................... 27
5.3 Consents, Approvals and Authorizations....................... 27
5.4 Violations................................................... 27
5.5 No Brokers or Finders........................................ 27
5.6 Shares Issued as Additional Payment.......................... 27
ARTICLE 6 COVENANTS OF SELLER AND THE SHAREHOLDERS..................... 28
6.1 Access to Information and Records............................ 28
6.2 Conduct of Business Pending the Closing...................... 28
(a) No Changes............................................. 28
(b) Maintain Organization.................................. 28
(c) No Breach.............................................. 29
(d) No Material Contracts.................................. 29
(e) Material Transactions.................................. 29
(f) No Corporate Changes................................... 30
(g) Maintenance of Insurance............................... 30
(h) Maintenance of Property................................ 30
(i) Interim Financials.. .................................. 30
6.3 No Negotiations.............................................. 31
6.4 Consents..................................................... 31
6.5 Other Action................................................. 31
6.6 Disclosure Schedule.......................................... 31
6.7 Confidentiality.............................................. 31
(a) Covenant............................................... 31
(b) Employees.............................................. 32
(c) Equitable Relief for Violations........................ 32
6.8 Insurance.................................................... 32
6.9 Use of Seller's Names........................................ 34
6.10 Sales Tax.................................................... 34
6.11 Employee Matters............................................. 34
6.12 Unemployment Compensation.................................... 34
6.13 Expenses..................................................... 34
6.14 Noncompetition Agreements.................................... 34
ARTICLE 7 COVENANTS OF PURCHASER....................................... 34
7.1 Conditions................................................... 34
7.2 Employees.................................................... 35
7.3 Insurance.................................................... 35
7.4 Reservation of Stock Options................................. 35
7.5 Maintain Records............................................. 35
7.6 Personal Guaranties.......................................... 35
7.7 Separate Accounting.......................................... 35
7.8 Equivalent Compensation...................................... 36
ARTICLE 8 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS.............. 36
8.1 Representations and Warranties True as of the
Closing Date................................................. 36
8.2 Compliance With Agreement.................................... 36
8.3 Absence of Suit.............................................. 36
8.4 Consents and Approvals....................................... 37
8.5 Section 1445 Affidavit....................................... 37
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C> <C>
8.6 Lease........................................................ 37
8.7 Insurance.................................................... 37
8.8 Initial Public Offering of Purchaser......................... 37
ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND
THE SHAREHOLDERS............................................. 37
9.1 Representations and Warranties True on the Closing Date...... 37
9.2 Compliance With Agreement.................................... 37
9.3 Absence of Suit.............................................. 37
9.4 Initial Public Offering of Purchaser......................... 38
9.5 Leases....................................................... 38
ARTICLE 10 SURVIVAL AND EFFECT OF WARRANTIES, REPRESENTATIONS
AND COVENANTS................................................ 38
10.1 Integration.................................................. 38
ARTICLE 11 INDEMNIFICATION.............................................. 38
11.1 By Seller and the Shareholders............................... 38
11.2 By Purchaser................................................. 39
11.3 Indemnification of Third-Party Claims........................ 39
(a) Notice and Defense..................................... 39
(b) Failure to Defend...................................... 39
(c) Indemnified Party's Rights............................. 40
11.4 Payment...................................................... 40
11.5 Limitations on Indemnification............................... 40
11.6 No Waiver.................................................... 41
11.7 Exclusivity.................................................. 41
ARTICLE 12 CLOSING...................................................... 42
12.1 Closing...................................................... 42
12.2 Documents to be Delivered by Seller.......................... 42
(a) Bills of Sale.......................................... 42
(b) Compliance Certificates................................ 42
(c) Certified Resolutions.................................. 42
(d) Shareholder Releases................................... 43
(e) Other Documents........................................ 43
12.3 Documents to be Delivered by Purchaser....................... 43
(a) Purchase Note.......................................... 43
(b) Assumption of Liabilities.............................. 43
(c) Compliance Certificate................................. 43
(d) Certified Resolutions.................................. 43
(e) Other Documents........................................ 43
ARTICLE 13 TERMINATION.................................................. 44
13.1 Termination.................................................. 44
13.2 Effect of Termination........................................ 44
ARTICLE 14 MISCELLANEOUS................................................ 44
14.1 Further Assurance............................................ 44
14.2 Parties in Interest.......................................... 45
14.3 Law Governing Agreement...................................... 45
14.4 Notice....................................................... 45
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C> <C>
14.5 Amendment and Modification................................... 46
14.6 Announcements................................................ 46
14.7 Expenses..................................................... 46
(a) Brokerage.............................................. 46
(b) Transfer Taxes......................................... 47
(c) Expenses............................................... 47
(d) Costs of Litigation.................................... 47
14.8 Entire Agreement............................................. 47
14.9 Counterparts................................................. 47
14.10 Headings..................................................... 47
14.11 Further Documents............................................ 47
14.12 Severability................................................. 47
14.13 No Third Party Beneficiaries................................. 48
14.14 Cumulative Effect of Representations......................... 48
14.15 Risk of Loss................................................. 48
</TABLE>
-v-
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This ASSET PURCHASE AGREEMENT ("Agreement") dated as of April 9, 1999 by
---------
and among THE KEITH COMPANIES, INC., a California corporation ("Purchaser") and
---------
THOMPSON-HYSELL, INC., a California corporation ("Seller"), and the shareholders
------
identified on the signature page below (collectively, the "Shareholders").
------------
Seller is in the business of providing engineering, surveying, mapping and
Construction Management Services (the "Business") from its facilities located at
--------
1016 12th Street, Modesto, California 95354 and 2496 West 4700 South,
Taylorsville, Utah 84118 (collectively, the "Facilities").
----------
Seller desires to sell to Purchaser, and Purchaser desires to purchase from
Seller, the Business and substantially all the assets of Seller upon the terms
and subject to the conditions set forth herein. Accordingly, Seller and
Purchaser hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
---------------------------
1.1 Assets to be Transferred. Except as hereinafter provided, on the
------------------------
Closing Date (as hereinafter defined), Seller will sell, transfer and deliver to
Purchaser, and Purchaser will purchase and accept from Seller, all the Seller's
right, title and interest in and to the properties, assets and rights of every
kind and description whatsoever, whether personal, tangible, intangible or
mixed, whether accrued, contingent or otherwise useful for or otherwise used in
connection with the Business (other than the Excluded Assets (as defined
below)), including all assets and rights that may have been acquired by Seller
for use in the Business between the date hereof and the Closing Date, and
including those assets useful for or otherwise used by the Business that are
owned or in the possession of some person other than Seller (collectively, the
"Purchased Assets"). The Purchased Assets include, without limitation, all of
- -----------------
those items in the following categories useful in the Business, but shall not
include the Excluded Assets:
(a) all inventories, accounts and notes receivable, costs in excess
of billings, deferred charges (excluding prepaid income taxes, if any),
deposits, advance payments and prepaid items;
(b) all tangible property, real and personal, equipment and leasehold
improvements owned or leased by Seller, which are used or intended for use
in connection with the Business, including that listed on Exhibit 1.1(b)
--------------
attached hereto;
(c) all contracts, including purchase orders and sales contracts, and
all backlog and work in progress, leases and
-1-
<PAGE>
agreements, including those listed on Exhibit 1.1(c) attached hereto;
--------------
(d) all licenses, easements, rights of entry and similar rights of
Seller, including those listed in Exhibit 1.1(d) attached hereto;
--------------
(e) all patents, trademarks, trade names, inventions, copyrights,
trade secrets and other proprietary rights and items of intellectual
property of Seller relating to the Business or operations and all pending
applications therefor, including those listed Exhibit 1.1(e) attached
--------------
hereto;
(f) All United States, state and foreign trademark rights, trademark
registrations and applications, trade names, service marks and brand names,
including all claims for infringement, and all registrations therefor and
all goodwill associated with the foregoing accruing from the dates of first
use thereof, of Seller; all United States and foreign copyrights, copyright
registrations and copyright applications, including all claims for
infringement, and all other rights associated with the foregoing and the
underlying works of authorship, of Seller; all United States and foreign
patents and patent applications, including all claims for infringement and
all international proprietary rights associated therewith, of Seller; all
contracts or agreements granting Seller any right, title, license or
privilege under the intellectual property rights or any third party; all
inventions, mask work and mark work registrations, know-how and related
show-how discoveries, improvements, blueprints, specifications, drawings,
designs, trade secrets, shop and royalty rights, processes, employee
covenants and agreements respecting intellectual property and
noncompetition and all other types of intellectual property of Seller; all
rights and interest of Seller in the names "Thompson-Hysell," "Thompson-
Hysell Engineering," "Thompson-Hysell, Inc.," "Thompson-Hysell
Enterprises," and any other names as have been as used in connection with
the Business, and any names and logos associated with any such names;
(g) all known and unknown, liquidated or unliquidated, contingent or
fixed, claims, rights or causes of action which Seller has or may have
against any third party and all such rights which Seller has or may have in
or to any asset or property other than such claims, rights or causes of
action to the extent that they arise out of or directly relate to any asset
not purchased by, or any liability, obligation or claim specifically not
assumed by Purchaser pursuant to this Agreement;
(h) all insurance policies relating to the Purchased Assets;
(i) all governmental and business permits, licenses, authorizations
and manufacturing association certifications
-2-
<PAGE>
owned or held by Seller, including those set forth in Exhibit 1.1(f)
--------------
attached hereto;
(j) Originals or copies of all books and records (other than
personnel records and other than those referred to in Section 1.2(b)) and
--------------
all files, including without limitation, documents, papers, agreements,
drawings, designs, plans, methods, engineering and manufacturing
specifications, formulas, procedures, computer programs and customer lists
which are useful in the Business, but excluding those related exclusively
to the Excluded Assets; and
(k) all claims or rights of Seller to receive refunds or credits with
respect to federal, state, local and foreign franchise taxes and taxes
based on income for the current or prior years which were treated as assets
on the balance sheet included in the Recent GAAP Financial Statements (as
hereinafter defined).
1.2 Excluded Assets. The following shall be retained by Seller and
---------------
excluded from the Purchased Assets (the "Excluded Assets"):
---------------
(a) Consideration. The consideration delivered by Purchaser to
-------------
Seller pursuant to this Agreement;
(b) Corporate Franchise. Seller's franchise to be a corporation
-------------------
(except its continued use of the names described in Section 1.1(f) above),
--------------
its article of incorporation, corporate seal, stock books, minutes books
and other corporate records having exclusively to do with the corporate
organization and capitalization of Seller;
(c) Tax Matters. All claims or rights of Seller to receive funds or
-----------
credits with respect to federal, state, local and foreign franchise taxes
and taxes based on income for the current or prior years which were not
treated as assets on the balance sheet included in the Recent GAAP
Financial Statements;
(d) Agreement. Rights and/or claims of Seller arising out of this
---------
Agreement and any other agreement with Purchaser; and
(e) Other Rights. All contracts, leases and agreements listed on
------------
Exhibit 1.2(e) attached hereto.
--------------
ARTICLE 2
LIABILITIES
-----------
2.1 Excluded Liabilities. Except as set forth in Section 2.2, in
-------------------- -----------
Schedule 4.9, or (except as indicated on Schedule 2.1) as accrued on the Recent
- ------------ ------------
GAAP Financial Statements (as defined in Section 4.4), Purchaser does not
-----------
assume, agree to
-3-
<PAGE>
perform or discharge or otherwise have any liability or obligation with respect
to any of the following liabilities, debts, contracts or obligations of Seller,
and Seller shall remain solely responsible for satisfying, discharging or
performing all of the following liabilities, debts, contracts and obligations on
a timely basis in accordance with their respective terms (the following
liabilities, debts, contracts and obligations of Seller are hereinafter referred
to as the "Excluded Liabilities") any of Seller's or its officers', directors',
--------------------
or shareholders' liabilities or obligations for any breach or failure to perform
any of their duties (including fiduciary duties such as the duty of loyalty and
the duty of good faith and fair dealing), covenants, obligations and agreements
(i) contained in, or made pursuant to, this Agreement or (ii) resulting from
claims made by anyone with respect to the consideration payable by Purchaser to
Seller and the Shareholders or the transactions contemplated by this Agreement.
2.2 Assumed Liabilities. At the Closing, and without limiting
-------------------
Purchaser's right to indemnification pursuant to Article 11, and except as
----------
indicated on Schedule 2.1, Purchaser shall assume only the following specific
------------
liabilities and obligations of Seller to the extent they are unpaid, undelivered
or unperformed on the Closing Date (collectively, the "Assumed Liabilities"):
-------------------
(a) Except as indicated on Schedule 2.1, all liabilities of Seller of
------------
the nature reflected or reserved against on the Recent GAAP Financial
Statement, but not in excess of (i) the amount of such liabilities set
forth on the Recent GAAP Financial Statements (ii) as reduced by
liabilities paid or discharged after the Balance Sheet Date (as hereinafter
defined) and (iii) as increased by liabilities incurred after the Balance
Sheet Date in the ordinary course of business and in compliance with the
representations, warranties and covenants contained in this Agreement,
including, without limitation: (A) trade accounts payable; and (B) accrued
expenses, salaries and wages, vacation pay, payroll taxes, insurance, real
estate taxes, personal property taxes, sales and excise taxes, and other
expenses;
(b) Seller's obligations to perform after the Closing under all
contracts, contractual rights, purchase orders, sales orders, leases, loan
agreements and promissory notes ("Contracts").
---------
(c) Any and all tax liabilities of Seller arising prior to the
Closing or arising subsequent thereto as a result of events or conditions
which existed prior to the Closing; and
(d) Any and all liabilities of any kind whatsoever, whether disclosed
or undisclosed, contingent or accrued.
2.3 No Assignment Causing Breach. The consummation of the transactions
----------------------------
contemplated by this Agreement shall not constitute an assignment of any lease,
contract, agreement or license or any
-4-
<PAGE>
claim or right or any benefit arising thereunder or resulting therefrom if an
attempted assignment thereof without the consent of any party thereto (other
than Seller, or the shareholders) would constitute a breach thereof or in any
way adversely affect the rights to be assigned. Until such consent is obtained,
or if an attempted assignment thereof would be ineffective or would affect the
rights of Seller, as the case may be, thereunder so that Purchaser would not in
fact receive all such rights, Seller as the case may be, and Purchaser will
cooperate with each other to provide for Purchaser the benefits of, and (so long
as Purchaser receives such benefits) to permit Purchaser to assume all
liabilities under, any such claim, contract, license, lease, commitment, sales
order or purchase order, including enforcement at the request and expense of
Purchaser, and Purchaser and for the benefit of Purchaser, of any and all rights
of Seller, as the case may be, against a third party thereto arising out of the
breach or cancellation thereof by such third party or otherwise; and, any
transfer or assignment to Purchaser by Seller, as the case may be, of any
property or property rights or any lease, license, contract or agreement which
shall require the consent or approval of any third party shall be subject to
such consent or approval being obtained.
ARTICLE 3
PURCHASE PRICE
--------------
3.1 Purchase Price. The aggregate purchase price for the Purchased
--------------
Assets of Seller (the "Purchase Price") shall be the sum of the following: (a)
--------------
Three Million Three Hundred Thirty Three Thousand Three Hundred and Thirty Three
Dollars ($3,333,333) (the "Seller Cash Amount"), (b) the Book Value Adjustment
------------------
(defined below) as described in Section 3.2 below, (c) a Promissory Note with
-----------
the original principal amount of One Million Three Hundred Thirty-Three Thousand
Three Hundred and Thirty-Three Dollars ($1,333,333), subject to adjustment as
provided in Section 3.4 below (the "Purchase Note"), (d) the assumption of the
----------- -------------
Assumed Liabilities of Seller, (e) the Additional Payment under the
circumstances provided in Section 3.5 hereof, and (f) the payment described in
-----------
Section 3.3.
- -----------
3.2 Book Value Adjustment. Purchaser shall pay to Seller an amount, if
---------------------
any (the "Closing Balance Sheet Payment"), equal to the Book Value Adjustment
-----------------------------
(defined below). The "Book Value Adjustment" shall mean an amount equal to
---------------------
$1.00 multiplied by the difference between, on the one hand, $1,000,000, and on
the other hand, the Net Book Value indicated on a balance sheet (the "Closing
-------
Balance Sheet") prepared and delivered by Purchaser to Seller within one hundred
- -------------
and thirty five (135) days following the Closing Date (or the soonest
practicable date thereafter if the delay results from inadequacies in Seller's
records or accounting systems) by recording the Purchased Assets (excluding
intangible assets) and the Assumed Liabilities, and otherwise in accordance with
Generally Accepted Accounting Principles as consistently applied using the same
methodology as the Recent GAAP Financial Statements (defined
-5-
<PAGE>
below), including the standards expressed in Statement of Position 81-1 (all of
the foregoing are collectively referred to herein as "GAAP"); provided, however
----
that in no event shall the amount of the Book Value Adjustment exceed $500,000.
If Purchaser does not deliver the Closing Balance Sheet within the time frame
set forth above, the Book Value Adjustment shall be deemed to be $500,000. If
the Book Value adjustment is negative, then it shall reduce the principal amount
of the Purchase Note effective as of the date of issuance thereof. If the Book
Value Adjustment is positive, Purchaser shall pay it in accordance with Section
-------
3.6(c). If Seller and the Shareholders do not agree upon the Closing Balance
- ------
Sheet within five (5) business days of receipt of the Closing Balance Sheet from
Purchaser and so notify Purchaser, then Purchaser'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. If Seller and the Shareholders do not object to
the Closing Balance Sheet within such five (5) business day period, then it
shall be deemed accepted. Said firm shall be required to apply "GAAP" as defined
herein. Purchaser and Seller shall each pay one half of the expense of such firm
of regionally recognized certified public accountants.
3.3 Purchase Price Adjustment. Purchaser shall pay to Seller an amount
-------------------------
equal to the difference between an estimate of the net proceeds after income tax
to the Seller and the Shareholders resulting from the transactions contemplated
hereby and an estimate of the net proceeds after income tax to the Sellers and
the Shareholders if Purchaser had instead purchased all of the outstanding
common stock of Seller, including, without limitation, all of Seller's
California state income tax liability for the period from January 1, 1999
through the Closing. Such difference shall be calculated without regard to any
income tax liability attributable to Internal Revenue Code Section 1374 (built
in gains), and shall otherwise be calculated pursuant to the formula attached as
Exhibit 3.3, which formula shall be applied (i) regardless of the actual income
- -----------
tax liability of Seller and the Shareholders as a result of the transactions
contemplated hereby, (ii) giving effect to the impact of the 1.5% California
income tax on the taxable net income of S corporations as affected by the
adjustments, if any, to the Purchase Price as a result of 1999 EBIT or 2000 EBIT
(as defined below), (iii) based solely upon the Closing Balance Sheet (except to
the extent that a final determination of the allocation of the Purchase Price
results in the assessment of a greater income tax to Seller and the
Shareholders). The parties shall use all commercially reasonable efforts to
support the allocation set forth in Section 3.7 and to mitigate the income tax
-----------
liability with respect to the transactions contemplated hereby. This Purchase
Price Adjustment shall be payable by Purchaser pursuant to Section 3.6(c).
--------------
3.4 Terms of Promissory Note. The Purchase Note shall bear interest at
------------------------
the rate of ten percent (10%) per annum, simple interest payable January 1,
April 1, July 1, and November 1 and shall be subject to adjustment as provided
below. The principal
-6-
<PAGE>
amount of the Purchase Note shall be increased or reduced $67.00 for every
$100.00 by which 2000 EBIT (as defined below) exceeds or is less than,
respectively, $2,160,000. For purposes of this Agreement, "EBIT" shall mean the
----
earnings of the Business calculated in accordance with GAAP, before subtracting
interest expense or income tax expense and shall not include an amount for
General and Administrative Expenses (or an allocation related thereto) greater
than the amount indicated on the Recent GAAP Financial Statements adjusted
annually for any increases in the Consumer Price Index most closely associated
with the San Francisco metropolitan area. "2000 EBIT" shall mean the EBIT for
---------
the year ended December 31, 2000, adjusted as follows: If the EBIT for the year
ended December 31, 2000 is less than $2,160,000, then the amount of EBIT for the
year ended December 31, 1998 in excess of $1,500,000 shall be added to the EBIT
for the year ended December 31, 2000; provided however, that such excess amount
so added cannot either (i) exceed $500,000 or (ii) exceed an amount which will
cause the sum of the actual EBIT for the year ended December 31, 2000 and the
amount so added to exceed $2,160,000. All accrued but unpaid interest and all
principal (as adjusted hereby) shall be paid within ten (10) days of the date
Purchaser's Form 10-K for the year ended December 31, 2000 must be filed with
the United States Securities and Exchange Commission (or would have had to have
been filed, in the event Purchaser is not a registrant pursuant to the
Securities Exchange Act of 1934). If the principal amount of the Purchase Note
is decreased because the Book Value Adjustment is a negative number or because
of the adjustment specified in the second sentence of this Section 3.4, the
-----------
interest otherwise payable on the Purchase Note shall be reduced as though such
principal amount were reduced as of the issuance of the Purchase Note and all
interest paid in excess of what would have otherwise been required shall reduce
the amount of principal payable at the maturity of the Purchase Note.
3.5 Additional Payment. Within ten (10) days of the date Purchaser's
------------------
Form 10-K for the year ended December 31, 1999 must be filed with the United
States Securities and Exchange Commission (or would have had to have been filed,
in the event Purchaser is not a registrant pursuant to the Securities Exchange
Act of 1934), Purchaser shall transfer that number of shares (rounded to the
nearest whole share) of Purchaser's common stock (the "Additional Payment")
------------------
equal to the Earnout Amount (as defined below) divided by the price at which
such stock was sold to the public upon the Purchaser's initial public offering.
The "Earnout Amount" shall mean $1,333,334 increased or reduced $67.00 for every
--------------
$100.00 by which 1999 EBIT (as defined below) exceeds or is less than,
respectively, $1,800,000. "1999 EBIT" shall mean EBIT for the year ended
---------
December 31, 1999. The Additional Payment shall have certain rights and
restrictions, which such rights and restrictions shall be set forth in detail in
that certain Registration Rights Agreement, substantially in the form of Exhibit
-------
3.5 attached hereto.
- ---
3.6 Payment of Purchase Price. Purchaser will pay Seller the Purchase
-------------------------
Price as follows:
-7-
<PAGE>
(a) At the Closing, Purchaser shall deliver to Seller such documents
and instruments as are reasonably required to evidence the assumption of
the Assumed Liabilities of Seller;
(b) At the Closing, Purchaser shall deliver the Seller Cash Amount to
Seller by certified or bank cashier's check payable to Seller, or, at
Purchaser's option, a wire transfer of immediately available funds to an
account designated by Seller not less than 48 hours prior to Closing.
(c) Within ten (10) business days of the date upon which the Closing
Balance Sheet is final, Purchaser shall deliver the amount specified in
Section 3.3 and the Book Value Adjustment, if any, to Seller by certified
-----------
or bank cashier's check payable to Seller, or, at Purchaser's option, a
wire transfer of immediately available funds to an account designated by
Seller not less than 48 hours prior to the time for payment thereof;
(d) At the Closing, the Purchase Note; and
(e) At the time indicated in Section 3.5, the Additional Payment.
-----------
3.7 Allocation of Purchase Price. The Purchase Price and Assumed
----------------------------
Liabilities shall be allocated:
(a) To the Purchased Assets at the amount at which such assets are
recorded on the Closing Balance Sheet;
(b) To goodwill, the remainder of the Purchase Price and Assumed
Liabilities.
The parties will follow and use such allocation in all income, sales,
registration and other tax returns, filings or other related reports made by
them to any governmental agencies. To the extent that disclosures of this
allocation are required to be made by the parties to the Internal Revenue
Service ("IRS") under the provisions of Section 1060 of the Internal Revenue
---
Code of 1986, as amended (the "Code"), or any regulations thereunder, Seller and
----
Purchaser shall disclose such reports to the other prior to filing with the IRS.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
- ------------------------------
OF SELLER AND THE SHAREHOLDERS
- ------------------------------
Seller, and the Shareholders, jointly and severally, make the following
representations and warranties to Purchaser, each of which is true and correct
on the date hereof and shall be unaffected by any investigation heretofore or
hereafter made by Purchaser or any knowledge of Purchaser other than as set
forth in the Disclosure Schedule referred to below. The representations and
warranties of Seller and Shareholders are subject to, and qualified
-8-
<PAGE>
by, any fact or facts disclosed in the relevant section of the attached
Disclosure Schedule prepared and executed by Seller and Shareholders and
delivered to Purchaser on the date of this Agreement (the "Disclosure
----------
Schedule"), provided that each representation and warranty is subject to and
- --------
qualified by only such matters as are (i) set forth in that section of the
Disclosure Schedule that corresponds to the representation and warranty or (ii)
otherwise set forth in the Disclosure Schedule in a manner such that their
relationship to any representation or warranty is readily apparent. An item
contained in the Disclosure Schedule, or any part thereof, shall be specifically
referenced to the section or sections of this Article to which such item
relates. The Disclosure Schedule shall not vary, change or alter the language of
the representations and warranties contained in this Agreement.
4.1 Corporate.
---------
(a) Organization. Seller is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of California.
(b) Corporate Power. Seller 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. Seller 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 except where the cumulative effect of all failures to be so
qualified would not have a material adverse effect on the Business. The
states in which Seller is licensed or qualified to do business are listed
in Schedule 4.1(c).
---------------
(d) Subsidiaries. Seller 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 Seller, including any amendments thereto,
which have been delivered by Shareholders to Purchaser are true, correct
and complete copies of such instruments as presently in effect. The
corporate minute book and stock records of the Seller which have been
furnished to Purchaser for inspection are true, correct and complete and
accurately reflect all material corporate action taken by the Seller. The
directors and officers of the Seller are listed in Schedule 4.1(e).
---------------
(f) Capitalization of the Seller. The authorized capital stock of
----------------------------
the Seller is as set forth on Schedule 4.1(f). No shares of such capital
---------------
stock are issued or outstanding except for shares of common stock of the
Seller which are owned of record and beneficially by Shareholders in
-9-
<PAGE>
the respective numbers set forth in Schedule 4.1(f). All such shares of
---------------
capital stock of the Seller are validly issued, fully paid and
nonassessable. Except as set forth on Schedule 4.1(f), there are no (a)
---------------
securities convertible into or exchangeable for any of the Seller's capital
stock or other securities, (b) options, warrants or other rights to
purchase or subscribe to capital stock or other securities of the Seller or
securities which are convertible into or exchangeable for capital stock or
other securities of the Seller, 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 Seller,
any such convertible or exchangeable securities or any such options,
warrants or other rights.
4.2 Authorization; Validity.
-----------------------
(a) The execution and delivery of this Agreement and the other
agreements, documents and instruments to be executed and delivered by
Seller and the Shareholders pursuant hereto (the "Ancillary Instruments")
---------------------
and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by the board of directors of Seller, and by every
shareholder of Seller. No other or further corporate act or proceeding on
the part of Seller is necessary to authorize this Agreement or the
Ancillary Instruments to be executed and delivered by Seller or the
Shareholders pursuant hereto or the consummation of the transactions
contemplated hereby and thereby.
(b) Each of Seller and all of the Shareholders has full power, legal
right and authority to enter into, execute and deliver this Agreement and
the Ancillary Instruments contemplated hereby and to carry out the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of Seller and all of the Shareholders and
is, and when executed and delivered each of the Ancillary Instruments to be
executed and delivered by any or all of them pursuant hereto will be, the
legal, valid and binding obligation of each of them enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, moratorium, reorganization and other laws of general
application affecting the enforcement of creditors rights and to the
availability of equitable remedies.
4.3 No Violation. Except as set forth on Schedule 4.3, neither the
------------ ------------
execution and delivery of this Agreement or the Ancillary Instruments nor the
consummation by Seller and 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
-10-
<PAGE>
or body (including, without limitation, under any "plant-closing" or similar
-------------
law), or (c) subject to obtaining the consents referred to in Schedule 4.3, 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 4.12) upon any of the
------------
assets of Seller under any term or provision of the Articles of Incorporation or
Bylaws of Seller or of any contract, commitment, understanding, arrangement,
agreement or restriction of any kind or character to which Seller or any
Shareholder is a party or by which Seller or any Shareholder or any of its or
their assets or properties may be bound or affected except where the cumulative
effect of any such violations, lack of consents or creation of Liens would not
have a material adverse effect on the Business.
4.4 Financial Statements. Included as Schedule 4.4 are true and complete
-------------------- ------------
copies of (i) the financial statements of Seller identified on Schedule 4.4, and
------------
(ii) a balance sheet (the "Recent Balance Sheet") of Seller as of December 31,
--------------------
1998 (the "Balance Sheet Date") 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"). The Recent GAAP Recent Statements
--------------------------------
have been prepared in accordance with the books and records of Seller, and
fairly present, the assets, liabilities and financial position, the results of
operations and cash flows of the Seller 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.
4.5 Tax Matters. Seller does not have liability, fixed or contingent,
-----------
for any unpaid federal, state or local taxes or other governmental or regulatory
charges whatsoever (including without limitation withholding and payroll taxes),
other than for taxes not yet due and payable, which could result in a lien on
the Purchased Assets or the Business after conveyance thereof to Purchaser or in
any other form of transferee liability to Purchaser.
4.6 Accounts Receivable and Costs in Excess of Billings. Except as
---------------------------------------------------
disclosed in Schedule 4.6, all accounts receivable of Seller reflected on the
------------
Recent 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 Recent Balance
Sheet for doubtful accounts) in the ordinary course of business without the
necessity of commencing legal proceedings; are subject to no counterclaim or
setoff; and are not in dispute. Schedule 4.6 contains an aged schedule of
------------
accounts receivable included in the Recent Balance Sheet. The entire amount
shown on the Recent Balance Sheet as "Costs in Excess of Billings" represents
costs incurred by Seller which is, or will become billable, and when billed,
will be collectible in the ordinary course of business without the necessity of
commencing legal
-11-
<PAGE>
proceedings; is subject to no counterclaim or setoff; and is not in dispute.
4.7 Work-in-Process. Except as disclosed in Schedule 4.7, (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 Seller with no recent history of credit problems with
respect to Seller; (ii) neither Seller nor, to the knowledge of the Seller and
the Shareholders, any such customer is in material breach of the terms of any
obligation to the other, and, to the knowledge of the Seller and the
Shareholders, 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
--------
4.7 (which as of the date hereof reflects Work-In-Process as of the Balance
- ---
Sheet Date and, subsequent to the Closing Date, shall be updated to include the
schedules supporting the Recent GAAP Financial Statements) are estimates only
and could be completed if managed consistently with the past practices of the
Seller without adversely effecting, in the aggregate when complete, the
profitability of the Seller compared to previous periods; provided, however,
that the Seller and the Shareholders make no representations and warranties
concerning whether any customer will cancel any contract otherwise in accordance
with its terms.
4.8 Absence of Certain Changes. Except as and to the extent set forth in
--------------------------
Schedule 4.8, 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
Seller;
(b) No Damage. Any material loss, damage or destruction, whether
---------
covered by insurance or not, affecting Seller's business or properties;
(c) No Increase in Compensation. Any material increase in the
---------------------------
compensation, salaries or wages payable or to become payable to any
employee or agent of Seller (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 other than in the ordinary course of business;
(d) No Labor Disputes. Any labor dispute, disturbance or organizing
-----------------
activity, other than routine individual
-12-
<PAGE>
grievances which are not material to the business, financial condition or
results of operations of Seller;
(e) No Commitments. Any commitment or transaction by Seller
--------------
(including, without limitation, any borrowing or capital expenditure) other
than in the ordinary course of business consistent with past practice;
(f) No Dividends. Except to the extent necessary to enable the
------------
Shareholders to pay income taxes attributable to them from Seller for 1998
and the period beginning January 1, 1999 through the Closing, any
declaration, setting aside, or payment of any dividend or any other
distribution in respect of Seller's capital stock; any redemption, purchase
or other acquisition by Seller of any capital stock of Seller, or any
security relating thereto; or any other payment to any shareholder of
Seller as such a shareholder;
(g) No Disposition of Property. Any sale, lease or other transfer
--------------------------
or disposition of any properties or assets of Seller, 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 Seller;
(i) No Liens. Any mortgage, pledge, lien or encumbrance made on any
--------
of the properties or assets of Seller;
(j) No Amendment of Contracts. Any entering into, amendment or
-------------------------
termination by Seller 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 Seller; 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 Seller's policies or
practices with respect to the granting of credit; or
-13-
<PAGE>
(m) No Unusual Events. Any other event or condition not in the
-----------------
ordinary course of business of Seller.
4.9 Absence of Undisclosed Liabilities. Except as and to the extent
----------------------------------
specifically disclosed in the Recent GAAP Financial Statements, in Schedule 4.9,
------------
or otherwise not required to be disclosed pursuant to the terms of this
Agreement, the Shareholders have no actual knowledge that the Seller 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 Seller. Except as
and to the extent described in the Recent GAAP Financial Statements or in
Schedule 4.9, neither Seller nor any Shareholder has actual knowledge of any
- ------------
basis for the assertion against Seller 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 Seller's business and consistent with past
practice.
4.10 No Litigation. Except as set forth in Schedule 4.10 there is no
------------- -------------
action, suit, arbitration proceeding, investigation or inquiry pending or
threatened against Seller, its directors (in such capacity), the Business or any
of its assets, nor does Seller or any Shareholder know, or have grounds to know,
of any basis for any such proceedings, investigations or inquiries. Schedule
--------
4.10 also identifies all such actions, suits, proceedings, investigations and
- ----
inquiries to which Seller or any of its directors have been parties within the
last three (3) years. Except as set forth in Schedule 4.10, neither Seller 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.
4.11 Compliance With Laws.
--------------------
(a) Compliance. Except as set forth in Schedule 4.11(a), or where
---------- ----------------
the cumulative effect of failures to be in compliance would not have a
material adverse effect on the Business, the Shareholders have no actual
knowledge that the Seller (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
-14-
<PAGE>
relating to emissions, discharges, generation, storage, releases or
threatened releases of pollutants, contaminants, chemicals or industrial,
toxic, hazardous or petroleum or petroleum-based substances or wastes into
the environment ("Environmental Laws"). Except as set forth in Schedule
------------------ --------
4.11(a), Seller 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 Seller with any governmental authority not
having been filed, and (ii) being other than accurate and complete when
filed.
(b) Licenses and Permits. Seller 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 4.11(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 4.11(b), Seller
----------------
(including its operations, properties and assets) is and has been in
material compliance with all such permits and licenses, approvals,
authorizations and consents.
4.12 Title to and Condition of Properties.
------------------------------------
(a) Marketable Title. Seller has good and marketable title to all
----------------
of the 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 4.12(a). None
----- ----------------
of the assets, business or properties necessary or useful in conducting the
Business are subject to any restrictions with respect to the
transferability thereof.
(b) Condition. All property and assets owned or utilized by Seller
---------
in conducting the Business 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 Seller), have been
-15-
<PAGE>
maintained consistent with the standards generally followed in the industry
and are sufficient to carry on the business of Seller as conducted during
the preceding twelve (12) months.
(c) Real Property. Schedule 4.12(c) sets forth all real property
------------- ----------------
owned, used or occupied by Seller (the "Real Property"), including a
-------------
description of all land, and all plants, buildings or other structures
located thereon. Schedule 4.12(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 Seller 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. Shareholders have no actual knowledge of any fact or
condition exists which would prohibit or adversely affect the ordinary
rights of use by the Seller of the Real Property. Neither Seller 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 Seller 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 Seller's and Shareholders'
knowledge has any such condemnation, expropriation or taking been proposed.
4.13 Insurance. Set forth in Schedule 4.13 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 Seller, true and correct copies
of which have heretofore been delivered to Purchaser. Schedule 4.13 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
-16-
<PAGE>
premiums have been paid with respect to each such policy, and any claims made
within the last five (5) years. All such policies are valid, outstanding and
enforceable policies and provide insurance coverage for the properties, assets
and operations of Seller, 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 4.13 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
Seller nor any Shareholder has knowledge of any act or omission of Seller which
could result in cancellation of any such policy prior to its scheduled
expiration date. To the knowledge of Seller and the Shareholders, Seller 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. Seller has duly and
timely made all claims it has been entitled to make under each policy of
insurance. There is no claim by Seller pending under any such policies as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies, and neither Seller nor any of the Shareholders knows of any basis
for denial of any claim under any such policy. Seller 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 Seller with all requirements of law and
with the requirements of all material contracts to which Seller is a party.
4.14 Contracts and Commitments.
-------------------------
(a) Real Property Leases. Except as set forth in Schedule 4.12(c),
-------------------- ----------------
Seller has no leases of real property.
(b) Personal Property Leases. Except as set forth in Schedule
------------------------ --------
4.14(b), Seller has no leases of personal property.
-------
(c) Purchase Commitments. Seller 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 4.14(d),
----------------- ----------------
Seller has no sales contracts or commitments
-17-
<PAGE>
to customers or distributors which aggregate in excess of $25,000 to any
one customer or distributor (or group of affiliated customers or
distributors). Seller 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
profit margin to Seller less than that reported on the Recent GAAP
Financial Statements.
(e) Contracts With Affiliates and Certain Others. Seller 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 Seller on notice of not longer than
thirty (30) days without liability, penalty or premium of any nature or
kind whatsoever.
(f) Powers of Attorney. Except as set forth in Schedule 4.14(f),
------------------ ----------------
the Seller 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. Except as provided in
--------------------------------
Schedule 4.14(g), Seller 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 4.14(h),
--------------- ----------------
Seller 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 4.14(i), Seller 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 to be contingently or secondarily liable for the
obligations of any person.
(j) Burdensome or Restrictive Agreements. Seller 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 the
Business. Without limiting the generality of the foregoing, Seller is not
a party to nor is it bound by any agreement requiring Seller to assign any
interest in any trade secret or proprietary information, or prohibiting or
restricting Seller from competing in any business or geographical area or
soliciting customers or otherwise restricting it from carrying on its
business anywhere in the world.
(k) Other Material Contracts. Seller has no lease, contract or
------------------------
commitment of any nature involving consideration
-18-
<PAGE>
or other expenditure in excess of $5,000 for the life of the contract, or
involving performance over a period of more than twelve (12) months, or
which is otherwise individually material to the Business, except as
explicitly described in Schedule 4.14(1) or in any other Schedule.
----------------
(l) No Default. Seller 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 Seller's obligations
or result in the creation of any Lien on any of the assets owned, used or
occupied by Seller. No third party is in default under any lease, contract
or commitment to which Seller 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.
4.15 Labor Matters. Except as set forth in Schedule 4.15, within the last
------------- -------------
five (5) years Seller 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 4.15, (a) Seller is in
-------------
material 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 Seller pending, or to the knowledge of
Seller or the Shareholders, threatened; (c) there is no labor strike, dispute,
request for representation, slowdown or stoppage actually pending, or to the
knowledge of Seller or the Shareholders, threatened against or affecting Seller
nor any secondary boycott with respect to products of Seller; (d) no question
concerning representation has been raised or is threatened respecting the
employees of Seller; (e) no grievance which might have a material adverse effect
on Seller, nor any arbitration proceeding arising out of or under collective
bargaining agreements, is pending and, to the knowledge of Seller or the
Shareholders, no such claim therefor exists; and (f) there are no administrative
charges or court complaints against Seller 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.
4.16 Employee Benefit Plans.
----------------------
(a) Disclosure. Schedule 4.16(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
-19-
<PAGE>
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 ("Seller Employees") employed by Seller. 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. No Employee Plan/Agreement is a "multiemployer plan"
------------------
(as defined in Section 4001 of ERISA), and Seller 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 Seller or any of its assets may, directly or
indirectly, be subject to any liability, contingent or otherwise, or the
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 Seller 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 Seller 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 Seller would be subject, directly or
indirectly, to any liability,
-20-
<PAGE>
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 Seller 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, statute, rule of law or regulation pursuant to or
under which Seller 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 Seller's actuaries in connection with the funding of such Employee
Plan/Agreement).
(e) Controlled Group; Affiliated Service Group; Leased Employees.
------------------------------------------------------------
Seller 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. Seller 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 Seller, 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 Seller to
-21-
<PAGE>
date have been made and all amounts properly accrued to date as liabilities
of Seller which have not been paid have been properly recorded on the books
of Seller and are reflected in the Recent GAAP Financial Statements; (ii)
Seller 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 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 Seller 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
Seller (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 Seller 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.
-22-
<PAGE>
(i) Delivery of Documents. There has been delivered to Purchaser,
---------------------
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
Seller 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 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 Purchaser pursuant to clause (i) of this
Section 4.16(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. Seller 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.
4.17 Employment Compensation. Schedule 4.17 contains a true and correct
----------------------- -------------
list of all employees to whom Seller is paying compensation and the compensation
paid thereto during the twelve (12) 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.
4.18 Trade Rights. Schedule 4.18 lists all Trade Rights (as defined
------------ -------------
below) in which Seller now has any interest, specifying whether such Trade
Rights are owned, controlled, used or held (under license or otherwise) by
Seller, and also indicating which of such Trade Rights are registered. All
Trade Rights shown as registered in Schedule 4.18 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
-23-
<PAGE>
Business, as such is currently being conducted or proposed to be conducted,
Seller does not require any Trade Rights that it does not already have. Seller
is not infringing and has not infringed any Trade Rights of another in the
operation of the business of Seller, nor is any other person infringing the
Trade Rights of Seller. Seller has not granted any license or made any
assignment of any Trade Right listed on Schedule 4.18, nor does Seller 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 Seller's right, title and interest with
respect to its continued use and right to preclude others from using any Trade
Rights of Seller. All Trade Rights of Seller are valid, enforceable and in good
standing, and there are no equitable defenses to enforcement based on any act or
omission of Seller. The consummation of the transactions contemplated hereby
will not alter or impair any Trade Rights owned or used by Seller. 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 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.
4.19 Major Customers and Suppliers.
-----------------------------
(a) Major Customers. Schedule 4.19(a) contains a list of the 10
--------------- ----------------
largest customers of Seller 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 Seller nor any Shareholder has any knowledge or
information of any facts indicating, nor any other reason to believe, (i)
that the Seller's relationship with any of the customers listed on Schedule
--------
4.19(a) is other than that which is likely to give rise to a positive
-------
recommendation by such customer of the Seller to others, or (ii) that to
the extent any Customer listed on Schedule 4.19(a) would have recurring
----------------
projects, that such Customer would be other than likely to retain the
Seller to perform such project.
(b) Major Suppliers. Schedule 4.19(b) contains a list of the 5
--------------- ----------------
largest suppliers to Seller 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
-24-
<PAGE>
purchases from each such supplier during each such year. Neither Seller 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 4.19(b) will not continue to be suppliers to the business of
----------------
Seller after the Closing and will not continue to supply the business with
substantially the same quantity and quality of goods at competitive prices.
4.20 Warranty and Product Liability. Schedule 4.20 contains a true,
------------------------------ -------------
correct and complete copy of Seller's standard warranty or warranties and,
except as stated therein, there are no warranties, commitments or obligations
with respect to the Seller's services. Schedule 4.20 sets forth the estimated
-------------
aggregate annual cost to Seller 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 4.20 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 Seller's or any
Shareholder's knowledge are threatened, or which have been asserted or commenced
against Seller within the last five (5) years, in which a party thereto either
requests injunctive relief or alleges damages (whether or not covered by
insurance).
4.21 Bank Accounts. Schedule 4.21 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.
4.22 Affiliates, Relationships to Seller.
-----------------------------------
(a) Contracts With Affiliates. All leases, contracts, agreements or
-------------------------
other arrangements between Seller and any Affiliate are described on
Schedule 4.22(a).
----------------
(b) No Adverse Interests. No Affiliate has any direct or indirect
--------------------
interest in (i) any entity which does business with Seller or is
competitive with Seller's business, or (ii) any property, asset or right
which is used by Seller in the conduct of its business.
(c) Obligations. All obligations of any Affiliate to Seller, and
-----------
all obligations of Seller to any Affiliate, are listed on Schedule 4.22(c).
----------------
4.23 No Brokers or Finders. Except as set forth in Schedule 4.23, neither
--------------------- -------------
Seller nor any of its directors, officers, employees, Shareholders or agents
have retained, employed or used
-25-
<PAGE>
any broker or finder in connection with the transaction provided for herein or
in connection with the negotiation thereof.
4.24 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 Seller or any of the
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.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser makes the following representations and warranties to Seller and
the Shareholders, each of which is true and correct on the date hereof and shall
be unaffected by any investigation heretofore or hereafter made by Seller or the
Shareholders or any notice to any of them.
5.1 Corporate. Purchaser is a corporation duly organized, validly
---------
existing and in good standing under the laws of the State of California.
Purchaser has all requisite corporate power to enter into this Agreement and the
other documents and instruments to be executed and delivered by Purchaser and to
carry out the transactions contemplated hereby and thereby.
5.2 Authority. The execution and delivery of this Agreement and the
---------
other documents and instruments to be executed and delivered by Purchaser
pursuant hereto and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of Purchaser. No
other corporate act or proceeding on the part of Purchaser or its shareholders
is necessary to authorize this Agreement or the other documents and instruments
to be executed and delivered by Purchaser 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 Purchaser pursuant hereto will constitute, valid and
binding agreements of Purchaser, enforceable in accordance with their respective
terms, subject, as to enforcement, to bankruptcy, insolvency, moratorium,
reorganization and other laws of general application affecting the enforcement
of creditors' rights, and to the availability of equitable remedies.
5.3 Consents, Approvals and Authorizations. No consent, approval or
-------------------------------------
authorization of, or filing or registration with, any governmental authority or
other person is required by Purchaser in connection with Purchaser's execution,
delivery and performance of this Agreement and consummation of the transactions
contemplated hereby.
-26-
<PAGE>
5.4 Violations. The execution, delivery and performance of this
----------
Agreement do not and will not (i) contravene the Articles of Incorporation or
Bylaws of Purchaser; (ii) with or without the giving of notice or the passage of
time or both, constitute a default under, result in a breach of, result in the
termination of, result in the acceleration of performance of, require any
consent under, or result in the imposition of any encumbrance upon any material
assets of Purchaser under any material agreement or instrument to which
Purchaser is a party or by which any of the assets of Purchaser are bound the
occurrence of which would have a material adverse impact upon the financial
condition of Purchaser, or (iii) violate any law, statute or regulation or any
judgment, order, ruling or other decision of any governmental authority, court
or arbitrator.
5.5 No Brokers or Finders. Other than J. Gregory & Company, neither
---------------------
Purchaser 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.
5.6 Shares Issued as Additional Payment. All of the shares of the
-----------------------------------
Purchaser's common stock, if any, issued as the Additional Payment contemplated
by Section 3.5, shall be, when issued, validly issued, fully paid and
-----------
nonassessable.
ARTICLE 6
COVENANTS OF SELLER AND THE SHAREHOLDERS
----------------------------------------
Seller and all of the Shareholders covenant and agree as follows:
6.1 Access to Information and Records. During the period prior to the
---------------------------------
Closing, Seller shall give Purchaser, its counsel, accountants and other
representatives access during normal business hours to all of the properties,
books, records, contracts and documents of Seller and available work papers of
Seller's independent accountants ("Seller's Accountants") and representatives of
--------------------
Seller's Accountants, which access is necessary to review the Recent GAAP
Financial Statements and the GAAP Financial Statements, and Seller shall furnish
or cause to be furnished to Purchaser and its representatives all information
with respect to the business and affairs of Seller as Purchaser may request.
During the period prior to the Closing, Seller shall give Purchaser, its
counsel, accountants and other representatives access to employees, agents and
representatives for the purposes of such meetings and communications as
Purchaser reasonably desires, and with the prior consent of Seller in each
instance (which consent shall not be unreasonably withheld), access to customers
and suppliers of Seller. Following the Closing, Seller shall (i) maintain the
books, records, contracts and documents of Seller, as the case may be, among the
Excluded Assets for not less than five (5) years (and longer if required by law)
and (ii) give Purchaser, its counsel, accountants and other representatives
access during
-27-
<PAGE>
normal business hours to all such books, records, contracts and documents of
Seller among the Excluded Assets as Purchaser shall reasonably request.
6.2 Conduct of Business Pending the Closing. From the date hereof until
---------------------------------------
the Closing, except as otherwise approved in writing by Purchaser (which
approval shall not be unreasonably or arbitrarily withheld or delayed), Seller
will each comply with the following:
(a) No Changes. Seller 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 (other than the
change in accounting procedure resulting from the timing of the preparation
of the Balance Sheets) or operation.
(b) Maintain Organization. Seller will take such action as may be
---------------------
necessary to maintain, preserve, renew and keep in favor and effect the
existence, rights and franchises of the Seller and will use its best
efforts to preserve the business organization of the Seller intact, to keep
available to Purchaser the present officers and employees of the Seller,
and to preserve for Purchaser its present relationships with suppliers and
customers and others having business relationships with the Seller.
(c) No Breach. The Seller 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 Seller or any of the Shareholders.
(d) No Material Contracts. No contract or commitment will be
---------------------
entered into, and no purchase of raw materials or supplies and no sale of
assets (real, personal, or mixed, tangible or intangible) will be made, by
or on behalf of the Seller except (i) contracts or commitments for the
purchase of, and purchases of, raw materials and supplies made in the
ordinary course of business and consistent with past practice, (ii)
contracts or commitments for the sale of, and sales of, services or
inventory in the ordinary course of business and consistent with past
practice, and (iii) other contracts, commitments, purchases or sales in the
ordinary course of business and consistent with past practice which are not
material to the Seller and which, had they been in existence on the date of
this Agreement, would not have been required to be disclosed in the
Disclosure Schedule.
(e) Material Transactions. Except as otherwise expressly provided
---------------------
in this Agreement, the Seller will not:
(i) Enter into any employment or consulting contract or
arrangement with any person which is not terminable at will, without
penalty or continuing
-28-
<PAGE>
obligation other than in the ordinary course of business;
(ii) Sell, transfer, lease or otherwise dispose of any asset,
except in the ordinary course of business and consistent with past
practice;
(iii) Incur, create, or assume any mortgage, pledge, lien,
restriction, encumbrance, tenancy, license, encroachment, covenant,
condition, right-of-way, easement, claim, security interest, charge or
other matter affecting title on any of its assets or other property
other than in the ordinary course of business;
(iv) Fail to pay all taxes, assessments, governmental charges or
levies imposed upon it or its income, profits or assets or otherwise
required to be paid by it, or fail to pay when due any liability or
charge, except for taxes the Seller is protesting in good faith if the
Seller promptly gives notice to Purchaser of any such protest;
(v) Increase or otherwise change the compensation payable or to
become payable to any officer, employee or agent, except normal merit
increases made in the ordinary course of business and consistent with
past practice;
(vi) Make or authorize the making of any capital expenditure
other than capital expenditures in the ordinary course of business and
not exceeding $5,000 individually or $50,000 in the aggregate;
(vii) Incur any debt or other obligation for money borrowed
except open account trade payables incurred in the ordinary course of
business;
(viii) Incur any other obligation or liability, absolute or
contingent, except in the ordinary course of business and consistent
with past practice;
(ix) Waive or permit the loss of any substantial right; or
(x) Deliver any cash or property to any of (A) the Shareholders,
(B) any other shareholders of Seller or (C) any Affiliate of the
Seller or of any such other person, whether as compensation for goods
or services or payments under existing commitments or obligations
(other than payments of wages and other compensation in amounts not
greater than that of the Recent GAAP Financial Statement to the
Shareholders), or incur any obligation to do so, except that Seller
may make any lease payments it is obligated to make under the lease
pursuant to which it occupies the Facilities.
-29-
<PAGE>
(f) No Corporate Changes. The Seller shall not amend its articles
--------------------
of incorporation or bylaws or make any changes in authorized or issued
capital stock.
(g) Maintenance of Insurance. The Seller 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 Purchaser at Purchaser's
expense.
(h) Maintenance of Property. The Seller shall use, operate,
-----------------------
maintain and repair all property used in its business in a normal business
manner.
(i) Interim Financials. The Seller will provide Purchaser with
------------------
interim monthly financial statements and other management reports on a
timely basis, and quarterly financial statements in accordance with GAAP by
such time as necessary to facilitate filings with the Securities and
Exchange Commission as and when they are available.
6.3 No Negotiations. From the date hereof until the Closing or the
---------------
termination of this Agreement, neither Seller nor either of the Shareholders
will directly or indirectly (through a representative, Affiliate 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 Seller or the assets or
the Business or any part thereof of Seller (an "acquisition proposal"), and
--------------------
Seller shall immediately advise Purchaser of the receipt of any acquisition
proposal.
6.4 Consents.
--------
(a) Prior to Closing, Seller will take all steps necessary to obtain,
and will obtain, all consents necessary for the consummation of the
transactions contemplated hereby.
(b) Seller will use its best efforts prior to Closing to obtain all
other consents necessary for the consummation of the transactions
contemplated hereby including without limitation under government
contracts, and contracts expressly assumed pursuant to Section 2.2(b).
--------------
(c) All such consents shall be in writing and executed counterparts
thereof shall be delivered to Purchaser promptly after Seller's receipt
thereof but in no event later than immediately prior to the Closing.
6.5 Other Action. Seller and the Shareholders shall use their best
------------
efforts to cause the fulfillment at the earliest practicable date of all of the
conditions to the obligations of Seller and the Shareholders.
6.6 Disclosure Schedule. Seller shall have a continuing obligation to
-------------------
promptly notify Purchaser in writing with respect to
-30-
<PAGE>
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; provided, however, that no such disclosure shall cure
any breach of any representation or warranty which was inaccurate on the date of
this Agreement, and that the acceptance of any one or more of such amendments by
Purchaser shall not affect the condition to the obligation of Purchaser to
consummate the transactions contemplated hereby contained in Section 8.1 but if
-----------
Purchaser does consummate the transactions contemplated hereby, such disclosure
shall be deemed to have cured any such breach of a representation or warranty;
any and all adverse changes contained in any such amendments shall be considered
in the determination of whether the condition under Section 8.1 has been
-----------
satisfied.
6.7 Confidentiality.
---------------
(a) Covenant. Without limiting the extent of any other provisions
--------
of this Agreement and except as may be necessary to prepare reports and
returns to governmental agencies for financial record keeping purposes or
for other proper business reasons, neither Seller nor any of the
Shareholders shall subsequent to the Closing (i) retain copies of any
customer lists, any information regarding customers which is not available
to the public or any trade secrets or other books, records, contracts and
documents of Seller among the Purchased Assets, except that Seller may
retain the information included in this Agreement or in the Disclosure
Schedule; or (ii) disclose any of the foregoing to any person. Subsequent
to the Closing, Purchaser shall afford Seller reasonable access to, and
allow Seller to make copies for a reasonable purpose of, the foregoing
information for the purposes specified in the preceding sentence during
normal business hours and upon reasonable notice to Purchaser.
(b) Employees. For a period of two (2) years from the Closing Date,
---------
neither Seller, none of the Shareholders nor any Affiliate of either shall
offer employment to any employee of Seller on the date hereof without the
prior written consent of Purchaser, except that the foregoing restriction
shall not apply to any such employee who is not hired, or is hired but
subsequently terminated, by Purchaser following the Closing.
(c) Equitable Relief for Violations. Seller agree that the
-------------------------------
provisions and restrictions contained in this Section 6.7 are necessary to
-----------
protect the legitimate continuing interests of Purchaser in acquiring the
Business through the purchase of the Purchased Assets, and that any
violation or breach of these provisions will result in irreparable injury
to Purchaser for which a remedy at law would be inadequate and that, in
addition to any relief at law which may be available to Purchaser for such
violation or breach, Purchaser shall be entitled to injunctive and other
equitable relief as a court may grant after considering the intent of this
Section 6.7.
------------
-31-
<PAGE>
6.8 Insurance.
---------
(a) As soon as practicable after the date hereof and prior to the
Closing, Seller and the Shareholders shall use their best efforts (which
shall not be construed to require the payment of cash) to cause the
following to occur prior to the Closing with respect to all policies of
fire, liability, product liability, workers compensation, health and other
forms of insurance of which Seller is the owner, insured or beneficiary, or
covering any of the Purchased Assets:
(i) upon the reasonable request of Purchaser, cause each insurer
under any such policy to consent to the transfer of such insurance to
Purchaser at the Closing as contemplated by this Agreement;
(ii) deliver to Purchaser evidence reasonably satisfactory to
Purchaser that Purchaser will not be liable to any insurer under any
policy that provides for or is subject to any 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 Closing for any such rate or premium adjustment, loss
sharing arrangement or other actual or contingent liability;
(iii) ensure that Purchaser will receive the benefit of
prepayments for insurance reflected on the Recent GAAP Financial
Statements or the GAAP Financial Statements;
(iv) upon the request and at the expense of Purchaser, obtain
discontinued products liability coverage that names Purchaser as named
insureds; and
(v) at the reasonable request of Purchaser, cause Purchaser to
be named as an additional insured under each of its occurrence-type
policies of insurance insuring against general liability claims,
claims for personal injury and property damage arising out of or
resulting from any products sold by Seller prior to the Closing Date
and workers compensation claims, to the extent an insurer does not
allow the transfer to Purchaser of any such policies.
(b) Following the Closing, Seller will, to the extent that coverage
under its insurance policies extends to include Purchaser in accordance
with the foregoing, (i) take no action to eliminate or reduce such
coverage, other than normal elimination or reduction of coverage as they
occur by virtue of the filing of claims in the ordinary course under such
insurance policies, (ii) pay when due any premiums under such policies for
periods through the Closing Date, including retroactive premium
adjustments, and (iii) use its best efforts to assist in filing and
processing claims under, and
-32-
<PAGE>
otherwise cooperate with Purchaser to allow it, in its own name, or on
behalf of Seller, as the case may be, to obtain all coverage benefits under
such insurance policies, including without limitation the execution of
assignments or powers of attorney for the benefit of Purchaser. Any
proceeds of insurance paid by an insurer to Seller for claims of Purchaser
made in accordance with this Section shall be promptly paid to Purchaser.
(c) At the Closing, Seller shall deliver to Purchaser one or more
certificates of insurance evidencing that the insurance retained or
obtained by it pursuant to this Section is in effect and providing for
notification to Purchaser at least ten (10) days prior to the effective
date of any termination or cancellation of such insurance.
6.9 Use of Seller's Names. Concurrently with the Closing, Seller shall
---------------------
change its corporate name to a new name bearing no resemblance to its present
name so as to permit the use of its present name by Purchaser. Following the
Closing, neither Seller, nor any Shareholder nor any Affiliate of either shall,
without the prior written consent of Purchaser which consent shall not be
unreasonably withheld, make any use, in a commercial context, of the name
"Thompson" or "Hysell" or "Thompson-Hysell" or any other name confusingly
similar thereto, except as may be necessary for Seller to pay its liabilities,
prepare tax returns and other reports, and to otherwise wind up and conclude its
business.
6.10 Sales Tax. Notwithstanding Purchaser's obligations with respect to
---------
Section 14.7(b), Seller will not take any action that would or may reasonably be
- ---------------
expected to jeopardize any exemption from sales tax that would otherwise be
available to Purchaser, and Seller will take all commercially reasonable actions
to allow Purchaser to avail itself of such exemptions.
6.11 Employee Matters. Nothing in this Agreement, express or implied, is
-----------------
intended to confer upon any of Seller's employees, former employees, collective
bargaining representatives, job applicants, any association or group of such
persons or any employees of Seller who are employed by Purchaser immediately
after the Closing any rights or remedies of any nature or kind whatsoever under
or by reason of this Agreement, including, without limitation, any rights of
employment.
6.12 Unemployment Compensation. To the extent allowable under applicable
-------------------------
law, Seller will, at the request of Purchaser, use its best efforts to assign to
Purchaser unemployment compensation contribution rates and account balances of
Seller, respectively.
6.13 Expenses. Except as otherwise expressly provided herein, Seller
--------
shall bear Seller's expenses, the expenses of its counsel and other agents and
any other out-of-pocket expenses in connection with the transactions
contemplated hereby (including without limitation the costs to comply with
Section 6.4), and/or
- -----------
-33-
<PAGE>
Seller shall ensure that such expenses are paid out of the cash consideration to
be delivered to Seller at the Closing.
6.14 Noncompetition Agreements. At the Closing, each of the Shareholders
-------------------------
shall execute and deliver to Purchaser a Noncompetition Agreement in the form
attached hereto as Exhibit 6.14.
-------------
ARTICLE 7
COVENANTS OF PURCHASER
----------------------
7.1 Conditions. Purchaser shall use its best efforts to cause the
----------
fulfillment at the earliest practicable date of all of the conditions to
Purchaser's obligations to consummate the transactions contemplated by this
Agreement that are within the control of Purchaser.
7.2 Employees. Immediately following the Closing, Purchaser shall offer
---------
employment, as of the Closing Date, to all then current employees of Seller
identified on Schedule 4.17 on substantially the same terms and conditions as
-------------
immediately before the Closing; provided, however, that Purchaser assumes no
obligation to continue such employment or the terms and conditions therefor for
any particular time after the Closing Date.
7.3 Insurance. Following the Closing, Purchaser agrees that, to the
---------
extent that coverage under insurance policies included in the Purchased Assets
extends to include either Seller in respect of claims or occurrences concerning
Seller prior to the Closing that are among the Excluded Liabilities, Purchaser
will use its reasonable efforts to assist in filing and processing claims under,
and otherwise cooperate with Seller to allow them, in their own names, or on
behalf of Purchaser, to obtain all coverage benefits applicable to Purchaser or
Seller under such insurance policies, including without limitation the execution
of assignments or powers of attorney for the benefit of Seller. Any proceeds of
insurance paid by an insurer to Purchaser for claims of Seller and/or Purchaser
made in accordance with this Section shall be promptly paid to Seller, as the
case may be.
7.4 Reservation of Stock Options. Purchaser shall reserve 100,000
----------------------------
options to purchase Purchaser's common stock under Purchaser's existing stock
option plans for grants, as determined by Purchaser and Shareholders, to
employees of Seller who are employed by Purchaser or who may be hired by
Purchaser in the future.
7.5 Maintain Records. Following the Closing, Purchaser shall maintain
----------------
and provide Seller and the Shareholders access to the books, records, contracts
and documents of Seller among the purchased Assets for not less than five (5)
years (and longer if required by law).
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<PAGE>
7.6 Personal Guaranties. To the extent Purchaser is unable to cause any
-------------------
and all of the Shareholders' personal guaranties for the Assumed Liabilities to
be released on or prior to the Closing, Purchaser shall indemnify, defend and
hold harmless the Shareholders from any losses or damages (including attorneys'
fees and costs) they may suffer upon enforcement of such guaranties by the
holders thereof.
7.7 Separate Accounting. Purchaser covenants that for purposes of
-------------------
calculating 1999 EBIT and 2000 EBIT, Purchaser shall separately monitor and
account for the operations of the Business so as not to impair Seller's or the
Shareholders' ability to determine 1999 EBIT or 2000 EBIT as set forth in
Sections 3.4 and 3.5. Purchaser shall not take actions which unreasonably
- --------------------
prevent the Shareholders from managing the Business to maximize 1999 EBIT and
2000 EBIT.
7.8 Equivalent Compensation. Purchaser, upon hiring persons employed by
-----------------------
Seller as of the Closing, shall endeavor to insure that the overall compensation
package for such employees meets or exceeds the compensation package provided to
such employees by Seller. The compensation package may include such benefits as
401(k) contributions and salary and wages. The parties shall cooperate in
analyzing the equivalency of the foregoing and presenting any adjustments to
employees.
ARTICLE 8
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
-----------------------------------------------
Each and every obligation of Purchaser 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:
8.1 Representations and Warranties True as of the Closing Date. Each of
----------------------------------------------------------
the representations and warranties made by Seller and the Shareholders in this
Agreement, and the statements contained in the Disclosure Schedule or in any
instrument, list, certificate or writing delivered by Seller pursuant to this
Agreement, shall be true and correct in all respects when made and shall be true
and correct in all material respects (except that such qualification as to
materiality shall not apply to any representation or warranty that expressly
includes a qualification as to materiality) 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 Purchaser.
8.2 Compliance With Agreement. Seller shall have performed and complied
-------------------------
in all material respects with each of their respective 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 12.2.
------------
-35-
<PAGE>
8.3 Absence of Suit. No demand, action, suit or proceeding have been
---------------
made, commenced or threatened, and no investigation by any governmental or
regulating authority shall have been commenced, against Seller, the Shareholders
Purchaser or any of the Affiliates, officers or directors of any of them,
seeking to restrain, prevent or change the transactions contemplated hereby, or
questioning the validity or legality of any such transactions, or seeking
damages in connection with, or imposing any condition on, any such transactions.
8.4 Consents and Approvals. All approvals, consents and waivers
----------------------
(including without limitation novations relating to government contracts) that
are required to effect the transactions contemplated hereby shall have been
received, and executed counterparts thereof shall have been delivered to
Purchaser.
8.5 Section 1445 Affidavit. Seller shall have delivered to Purchaser an
----------------------
affidavit, in form satisfactory to Purchaser, to the effect that Seller is not a
"foreign person" under Section 1445 of the Code.
8.6 Lease. Purchaser and Seller shall have agreed upon a form of lease
-----
or assignment of lease, as applicable, with respect to each of the Facilities.
8.7 Insurance. Seller shall have taken the actions contemplated by
---------
Section 6.10 to be taken prior to the Closing and the results of such actions
- ------------
shall be reasonably satisfactory to Purchaser.
8.8 Initial Public Offering of Purchaser. The Purchaser shall have
------------------------------------
received the proceeds from an initial public offering of Purchaser's common
stock pursuant to a registration statement on Form S-1 declared effective by the
United States Securities and Exchange Commission.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS
-----------------------------------
OF SELLER AND THE SHAREHOLDERS
------------------------------
Each and every obligation of Seller and the Shareholders to be performed on
the Closing Date shall be subject to the satisfaction prior to or at the Closing
of the following conditions:
9.1 Representations and Warranties True on the Closing Date. Each of the
-------------------------------------------------------
representations and warranties made by Purchaser in this Agreement shall be true
and correct in all 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.
9.2 Compliance With Agreement. Purchaser shall have in all material
-------------------------
respects performed and complied with each of Purchaser's agreements and
obligations under this Agreement which are to be
-36-
<PAGE>
performed or complied with by Purchaser prior to or on the Closing Date,
including the delivery of the closing documents specified in Section 12.3.
-------------
9.3 Absence of Suit. No demand, action, suit or proceeding have been
---------------
made, commenced or threatened, and no investigation by any governmental or
regulating authority shall have been commenced, against Seller, the Shareholders
Purchaser or any of the Affiliates, officers or directors of any of them,
seeking to restrain, prevent or change the transactions contemplated hereby, or
questioning the validity or legality of any such transactions, or seeking
damages in connection with, or imposing any condition on, any such transactions.
9.4 Initial Public Offering of Purchaser. The Purchaser shall have
------------------------------------
received the proceeds from an initial public offering of Purchaser's common
stock pursuant to a registration statement on Form S-1 declared effective by the
United States Securities and Exchange Commission.
9.5 Leases. Purchaser and Seller shall have agreed upon a form of lease
------
or assignment of lease, as applicable, with respect to each of the Facilities.
ARTICLE 10
SURVIVAL AND EFFECT OF WARRANTIES,
- ----------------------------------
REPRESENTATIONS AND COVENANTS
- -----------------------------
10.1 Integration. All statements and information contained in any
-----------
certificate, instrument or document delivered by or on behalf of the parties
pursuant to this Agreement and the transactions contemplated hereby shall be
deemed representations and warranties by the parties making such delivery.
ARTICLE 11
INDEMNIFICATION
---------------
11.1 By Seller and the Shareholders. Subject to the terms and conditions
------------------------------
of this Section 11, Seller and each Shareholder, jointly and severally, hereby
----------
agree to indemnify, defend and hold harmless Purchaser, its directors, officers,
employees and controlled and controlling persons (hereinafter "Purchaser's
-----------
Affiliates") from and against all Claims asserted against, resulting to, imposed
- ----------
upon, or incurred by Purchaser or Purchaser's Affiliates, directly or
indirectly, by reason of, arising out of, resulting from or not otherwise
disclosed as a result of (a) the excluded Liabilities, (b) the inaccuracy or
breach of any representation or warranty of the Seller or any Shareholder
contained in or made pursuant to this Agreement, or (c) the breach of any
covenant of the Seller or any Shareholder contained in this Agreement provided,
however, that, except with respect to any Claims pursuant to the Excluded
Liabilities, Section 4.1, Section 4.2, Section 4.6, Section 4.7 and Section
--------------------------------------------------------------
4.12, Seller and the
- ----
-37-
<PAGE>
Shareholders shall have no liability hereunder until the total liability
hereunder for all Claims considered together exceeds $150,000 (and then only to
the excess), and shall have no liability hereunder in excess of one half of the
Purchase Price, provided, however, that the exception to the limit on
indemnification for a breach of Section 4.6 shall apply only to the extent that
-----------
the amount of the Accounts Receivable and Costs in Excess of Billings reflected
on the Closing Balance Sheet which are in breach of Section 4.6 did not cause
-----------
the Book Value Adjustment to exceed $500,000. As used in this Section 11, 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.
11.2 By Purchaser. Subject to the terms and conditions of this Section
------------ -------
11, Purchaser hereby agrees to indemnify, defend and hold harmless Seller and
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 Purchaser contained in or made pursuant to this Agreement, or (b)
the breach of any covenant of Purchaser contained in this Agreement, including
any claim accruing after the Closing Date and for which the Seller or the
Shareholders are not otherwise liable hereunder.
11.3 Indemnification of Third-Party Claims. The obligations and
-------------------------------------
liabilities of any party to indemnify any other under this Section 11 with
----------
respect to Claims relating to third parties shall be subject to the following
terms and conditions:
(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 11, 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.
-38-
<PAGE>
(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 11.3 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.
11.4 Payment. The Indemnifying Party shall promptly pay the Indemnified
-------
Party any amount due under this Section 11, 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 11 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 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 Purchase 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.
-39-
<PAGE>
11.5 Limitations on Indemnification. Except as provided below, no claim
------------------------------
or action shall be brought under this Section 11 for breach of a representation
----------
or warranty after the lapse of eighteen (18) months following the Closing:
(i) The time limitation on claims on actions brought for breach
of any representation or warranty made by the Seller or the
Shareholders in or pursuant to Sections 4.1 and 4.2 shall be the
--------------------
applicable statutory limitation periods with respect thereto as
finally determined in any proceeding in which such defense is raised.
(ii) Any claim or action brought for breach of any
representation or warranty made by the Seller or the Shareholders in
or pursuant to Section 4.5 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 the Seller or the Shareholders in
or pursuant to Section 4.11 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 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.
11.6 No Waiver. Except as specifically provided herein, 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.
-40-
<PAGE>
11.7 Exclusivity. From and after the Closing, the provisions of this
-----------
Article 11 shall be the exclusive basis for the assertion of claims by or
- ----------
imposition of liability on the parties hereto arising under or as a result of a
breach of any representation or warranty contained in or made pursuant to this
Agreement; provided, however, nothing herein shall preclude any party hereto
from asserting a claim (i) for monetary damages on a basis other than the breach
of a representation or warranty or (ii) for nonmonetary remedies.
ARTICLE 12
CLOSING
-------
12.1 Closing. The closing of the transactions contemplated hereby shall
-------
occur in two phases: Phase I of the closing ("Phase I") shall consist of the
-------
execution of all documents at such time as all of the conditions to Closing have
been satisfied except the condition specified in Sections 8.8 and 9.4 (the "IPO
-------------------- ---
Condition"), and the delivery of same to counsel for the Purchaser under
- ---------
instructions not to deliver such documents to the parties until the IPO
Condition has been satisfied. Phase I shall occur no later than two (2) days
before the anticipated execution by the Purchaser of a definitive underwriting
agreement between the Purchaser and the underwriter of its common stock. The
closing of the transactions contemplated hereby (the "Closing") shall take place
-------
at the offices of Rutan & Tucker, LLP, 611 Anton Boulevard, 14th Floor, Costa
Mesa, California 92626, at the same time the IPO Condition is satisfied. Such
date is referred to in this Agreement as the "Closing Date."
------------
12.2 Documents to be Delivered by Seller. At Phase I, Seller or each of
-----------------------------------
the Shareholders, as the case may be, shall execute and deliver to counsel for
Purchaser the following documents, in each case duly executed or otherwise in
proper form:
(a) Bills of Sale. Bills of sale and such other instruments of
-------------
assignment, transfer, conveyance and endorsement as will be sufficient in
the opinion of Purchaser and its counsel to transfer, assign, convey and
deliver to Purchaser the Purchased Assets.
(b) Compliance Certificates. A certificate signed by the chief
-----------------------
executive officer of Seller and each of the Shareholders that each of the
representations and warranties made by Seller and each of the 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 Purchaser), and that Seller and each of the Shareholders have
performed and complied with each of their respective obligations under this
Agreement which are to be performed or complied with on or prior to the
Closing Date.
-41-
<PAGE>
(c) Certified Resolutions. Certified copies of the resolutions of
---------------------
the Board of Directors of Seller and the shareholders of Seller authorizing
and approving this Agreement and the consummation of the transactions
contemplated by this Agreement.
(d) Shareholder Releases. Releases executed by each of the direct
--------------------
and indirect shareholders of Seller in the form of Exhibit 12.2(d) hereto.
---------------
(e) Other Documents. All other documents, instruments or writings
---------------
required to be delivered to Purchaser at or prior to the Closing pursuant
to this Agreement and such other certificates of authority and documents as
Purchaser may reasonably request.
12.3 Documents to be Delivered by Purchaser. At Phase I, Purchaser shall
--------------------------------------
execute and deliver to its counsel the following documents, in each case duly
executed or otherwise in proper form:
(a) Purchase Note. The Purchase Note, substantially in the form of
-------------
Exhibit 12.3(a) hereto.
---------------
(b) Assumption of Liabilities. Such undertakings and instruments of
-------------------------
assumption as will be reasonably sufficient in the opinion of Seller and
Seller's counsel to evidence the assumption of the Assumed Liabilities as
provided for in Article 2.
----------
(c) Compliance Certificate. A certificate signed by the chief
----------------------
executive officer of Purchaser that the representations and warranties made
by Purchaser 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 Seller), and that the Purchaser has performed and complied with
all of Purchaser's obligations under this Agreement which are to be
performed or complied with on or prior to the Closing Date.
(d) Certified Resolutions. A certified copy of the resolutions of
---------------------
the board of directors of Purchaser authorizing and approving this
Agreement and the consummation of the transactions contemplated by this
Agreement.
(e) Other Documents. All other documents, instruments or writings
---------------
required to be delivered to Seller at or prior to the Closing pursuant to
this Agreement and such other certificates of authority and documents as
Seller may reasonably request.
-42-
<PAGE>
ARTICLE 13
TERMINATION
-----------
13.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing:
(a) by mutual agreement of Seller and each of the Shareholders, on
the one hand, and Purchaser, on the other hand;
(b) by Purchaser, if there has been a material violation or breach by
Seller or any of the Shareholders of any of the agreements, representations
or warranties of Seller or any of the Shareholders contained in this
Agreement which has not been waived in writing or if there has been a
failure of satisfaction of a condition to the obligations of Purchaser
which has not been waived in writing;
(c) by Seller, if there has been a material violation or breach by
Purchaser of any of the agreements, representations or warranties of
Purchaser contained in this Agreement which has not been waived in writing
or if there has been a material failure of satisfaction of a condition to
the obligations of Seller hereunder which has not been waived in writing;
(d) by Seller, at or before Phase I, if Phase I has not occurred by
November 15, 1999, and if so terminated by Seller, Purchaser shall
reimburse Seller for one half of its legal fees incurred as a result of the
transactions contemplated by this Agreement, up to $50,000; provided,
however, that Seller and the Shareholders will negotiate in good faith with
Purchaser to agree not to so terminate this Agreement if the satisfaction
of the IPO Condition is imminent; and
(e) by either party, in each party's sole discretion, within twenty
one (21) days of the date hereof, if the Exhibits and Schedules to be
attached hereto are not agreed to by the party to whom such Exhibit or
Schedule was delivered.
13.2 Effect of Termination. Notwithstanding the foregoing, termination of
---------------------
this Agreement pursuant to this Article 13 shall not in any way limit or
----------
restrict the rights and remedies of any party hereto against any other party
hereto which has violated or breached any of the representations, warranties,
agreements or other provisions of this Agreement prior to termination hereof.
ARTICLE 14
MISCELLANEOUS
-------------
14.1 Further Assurance. From time to time, at Purchaser's request and
-----------------
without further consideration, Seller will execute and deliver to Purchaser such
documents and take such other action as Purchaser may reasonably request in
order to consummate more effectively the transactions contemplated hereby and to
vest in
-43-
<PAGE>
Purchaser good, valid and marketable title to the Purchased Assets being
transferred hereunder.
14.2 Parties in Interest.
-------------------
(a) This Agreement shall not be assigned by a party hereto without
the prior written consent of the other parties hereto, except that (i) at
the direction of the Shareholders, all components of the Purchase Price
other than the Seller Cash Amount shall be payable to, or issued in the
name of, the individual Shareholders; and (ii) that Purchaser may freely
assign, in whole or in part, its rights and obligations under this
Agreement to one or more Acquisition Subsidiaries (as hereinafter defined)
or to any other corporation or entity affiliated with Purchaser. Subject
to the foregoing, this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by the respective successors and assigns of
the parties hereto. Notwithstanding the foregoing, no such assignment
shall relieve Purchaser of its obligations hereunder.
(b) Purchaser may cause any wholly-owned subsidiary designated by it
("Acquisition Subsidiary") to carry out all or part of the transactions
----------------------
contemplated by this Agreement. If Purchaser notifies Seller in writing of
its election to cause an Acquisition Subsidiary to purchase all or part of
the Purchased Assets of Seller, Seller shall sell such Purchased Assets to
such Acquisition Subsidiary and such Acquisition Subsidiary shall assume
the corresponding Assumed Liabilities on the terms and conditions contained
herein, and such Acquisition Subsidiary shall otherwise acquire all of
Purchaser's right, title and interest hereunder with respect thereto.
Notwithstanding the foregoing, no such assignment shall relieve Purchaser
of its obligations hereunder.
14.3 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.
14.4 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 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:
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<PAGE>
(a) If to Purchaser, 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 Purchaser shall furnish to Seller and each
of the Shareholders in writing.
(b) If to Seller or any of the Shareholders, to the addresses set
forth below the signature of each Shareholder below;
with a copy to:
Donald R. Share, Esq.
Greene Radovsky Maloney & Share LLP
Four Embarcadero Center, Suite 4000
San Francisco, California 94111-4108
Facsimile: (415) 777-4961
or to such other person or address as the Seller or any of the Shareholders
shall designate in accordance with this Agreement.
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. Any party to this Agreement may change its
address for the purposes of this Agreement by giving notice thereof in
accordance with this section.
14.5 Amendment and Modification. The parties hereto may amend, modify and
--------------------------
supplement this Agreement in such manner as may be agreed upon in writing
between them in writing.
14.6 Announcements. Announcements concerning the transactions provided
-------------
for in this Agreement by either Seller, on the one hand, or Purchaser, on the
other hand, shall be subject to the approval of the other in all essential
respects.
14.7 Expenses.
--------
(a) Brokerage. Seller and Purchaser each represent and warrant to
---------
each other that (other than J. Gregory & Company acting on behalf of
Purchaser), there is no broker involved or in any way connected with the
transfer provided for herein and
-45-
<PAGE>
each agrees to hold the other harmless from and against all other claims
for brokerage commissions or finder's fees in connection with the execution
of this Agreement or the transactions provided for herein.
(b) Transfer Taxes. Any sales, use, excise, transfer or other
--------------
similar tax imposed with respect to the transactions provided for in this
Agreement, and interest or penalties related thereto, shall be borne by
Purchaser.
(c) Expenses. 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.
(d) Costs of Litigation. The parties agree that the prevailing
-------------------
party in any action brought with respect to or to enforce 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.
14.8 Entire Agreement. Except for the Ancillary Instruments, 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.
14.9 Counterparts. This Agreement may be executed simultaneously 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.
14.10 Headings. The headings in this Agreement are inserted for
--------
convenience only and shall not constitute a part hereof.
14.11 Further Documents. Purchaser, Seller and each of the Shareholders
-----------------
agree to execute all other documents and to take such other action or corporate
proceedings as may be necessary or desirable to carry out the terms hereof.
14.12 Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
-46-
<PAGE>
transactions contemplated hereby are fulfilled to the extent possible.
14.13 No Third Party Beneficiaries. This Agreement is not intended to
----------------------------
confer upon any person other than the parties hereto any rights or remedies
hereunder.
14.14 Cumulative Effect of Representations. The representations and
------------------------------------
warranties set forth in Articles 4 and 5 are considered to be cumulative, and
----------------
any limitation or qualification set forth in any representation and warranty
therein shall not limit or qualify any other representation and warranty therein
unless otherwise explicitly provided therein.
14.15 Risk of Loss. Until completion of the Closing, all Purchased Assets
------------
shall remain at the risk of Seller and the Assumed Liabilities shall remain the
sole responsibility of Seller. If prior to completion of the Closing any
Purchased Asset is damaged, destroyed or lost, Purchaser, at its option, may (i)
complete the purchase without reduction of the appropriate Purchase Price and
take an assignment of all insurance proceeds and other payments to Seller as a
result of such damage, destruction or loss or (ii) if the Purchased Assets are
damaged, destroyed or lost to the extent that Purchaser is of the opinion that
immediately after the Closing it will be unable to conduct the Business or
operate the Facilities on substantially a full-time basis and deliver services
in a manner consistent with the practices of the Seller immediately prior to
such loss, in each case without material expense to Purchaser, Purchaser may
terminate this Agreement without liability to it by delivering written notice of
termination to Seller.
-47-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
PURCHASER: THE KEITH COMPANIES, INC.,
a California corporation
By: /s/ Gary C. Campanaro
---------------------
Its: CFO
------------------
SELLER: THOMPSON-HYSELL, INC.,
a California corporation
By:/s/ H. Stanley Thompson
-----------------------
Its: V.P.
-------------------
SHAREHOLDERS: /s/ H. Stanley Thompson
-----------------------
H. STANLEY THOMPSON
Address:
--------
(Illegible)
-----------------------
-----------------------
-----------------------
/s/ William B. Hysell
----------------------
WILLIAM B. HYSELL
Address:
--------
1713 River Road
-----------------------
Modesto, CA 95351
----------------------
----------------------
/s/ Thomas A. Holstrom
----------------------
THOMAS A. HOLSTROM
Address:
-------
(Illegible)
----------------------
----------------------
----------------------
/s/ Brian D. Jones
---------------------
BRIAN D. JONES
Address:
-------
(Illegible)
----------------------
----------------------
----------------------
(Signatures continued on following page)
-48-
<PAGE>
/s/ Michael T. Persak
---------------------
MICHAEL T. PERSAK
Address:
-------
209 Charlemagne Way
----------------------
Modesto, CA 95350
----------------------
----------------------
/s/ Kent Hysell
-------------------------
KENT HYSELL
Address:
-------
31277 E. Lone Tree Road
-------------------------
Oakdale, CA 95361
-------------------------
-------------------------
-49-
<PAGE>
EXHIBIT 2.2
AGREEMENT FOR THE ACQUISITION
OF ALL OUTSTANDING STOCK OF
ESI, ENGINEERING SERVICES, INC.
BY THE KEITH COMPANIES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS................................................ 1-3
I. INCORPORATION BY REFERENCE.............................. 3
II. PURCHASE AND SALE....................................... 3
A. Purchase and Sale of ESI Stock.................... 3
B. Assets and Liabilities Included in Transaction.... 4
C. Closing........................................... 4
D. Possible Adjustment in Consideration Paid by Keith 4
E. Consideration to be Paid by Keith................. 5
F. Additional Documentation.......................... 9
G. ESI's Current Employees; Seniority................ 9
H. Protection of ESI's Business Operations........... 9
I. Insurance; Risk of Loss........................... 9
III. REPRESENTATIONS AND WARRANTIES OF SELLER................ 10
A. No Pending Litigation............................. 10
B. Authority to Perform.............................. 10
C. No consent Required............................... 10
D. No Notices........................................ 10
E. Enforceability.................................... 10
F. No Prohibition.................................... 10
G. No Attachments.................................... 11
H. No Other Agreements............................... 11
I. Notification...................................... 11
J. Employee Relations................................ 11
K. No Breach of Existing Agreement................... 11
L. Warranties Effective at Time of Closing........... 11
M. Tax and Other Liabilities......................... 11
IV. REPRESENTATIONS OF BUYER................................ 12
A. Authority to Perform.............................. 12
B. No Consent Required............................... 12
C. No Prohibition.................................... 12
V. CONDITIONS PRECEDENT TO OBLIGATIONS OF KEITH............ 12
VI. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS.......... 14
</TABLE>
<PAGE>
<TABLE>
<S> <C>
VII. RIGHTS AND REMEDIES IN CASE OF DEFAULT.............. 15
A. Buyer's Remedies............................... 15
B. Seller's Remedies.............................. 15
VIII. INDEMNIFICATION..................................... 16
IX. MISCELLANEOUS PROVISIONS............................ 16
A. Extension of Time and Waiver of Performance.... 16
B. Amendments..................................... 16
C. Notices........................................ 16
D. Counterparts................................... 17
E. Governing Law.................................. 17
F. Successors..................................... 18
G. Severability................................... 17
H. Entire Agreement............................... 17
I. Further Assurances............................. 18
J. Time of Essence................................ 18
K. Computation of Time............................ 18
L. Terminology.................................... 18
M. Survival....................................... 18
N. Attorney's Fees................................ 18
O. Authority...................................... 19
P. No Third Party Beneficiary..................... 19
</TABLE>
<PAGE>
TABLE OF EXHIBITS
A. ESI, Engineering Services, Inc., Consolidated Statement of Income, Year
Ended June 30, 1997; June 30, 1996; and June 30, 1995.
B. ESI, Engineering Services, Inc., Jobs in Process, 8/31/97
C. ESI, Engineering Services, Inc., Balance Sheet, 6/30/97
D. Current Clients of ESI, Engineering Services, Inc.
E. Keith's Incentive Stock Option Plan and typical Option Agreement
F. Employment Contract of current owners of ESI, Engineering Services, Inc.
<PAGE>
AGREEMENT FOR THE ACQUISITION OF
ALL OUTSTANDING STOCK OF ESI, ENGINEERING SERVICES, INC
BY THE KEITH COMPANIES, INC
This Agreement (the "Agreement") is entered into as of the 22nd day of
September, 1997 between The Keith Companies, Inc., a Corporation organized in
the State of California on November 20, 1986 under its then name of "The Keith
Companies - Inland Empire, Inc." (hereinafter referred to as "Keith" or
"Buyer"), and Lynn C. Cannady, Glenn I. Chase and Stephen J. Lane, (collectively
"Sellers" or "Seller") who together own all of the issued and outstanding
capital stock of ESI, Engineering Services, Inc., a Corporation organized in the
State of California (hereinafter referred to as "ESI") as of the date of this
Agreement. ESI owns all of the outstanding capital stock of ESII, Engineered
Systems Integration, Inc. ("ESII").
The above described Buyer and Seller desire to and hereby do enter into this
Agreement whereby Buyer will acquire from Sellers the consulting engineering
businesses currently operated by ESI and its wholly owned subsidiary, ESII, both
located at 370 Wiget Lane, Suite 210, Walnut Creek, California, and will acquire
all of ESI's and ESII's assets and will assume certain liabilities, upon the
terms and conditions as set forth in this Agreement.
RECITALS
A. Seller has been in the business of providing consulting engineering services
to various manufacturers and operators of environmental waste disposal
systems since 1979. Professional services include, amongst others, process
engineering design, chemical engineering, electrical engineering,
environmental waste processing system design, petrochemical system design and
related professional services. All references to ESI in this Agreement
include its wholly owned subsidiary, ESII, unless the context clearly
indicates otherwise. Sellers, in addition to owning ESI, are the owners of
Design Services ("DSI"), which provides the temporary placement of
professional employees. Sellers intend to, and will utilize their best, good
faith, efforts to dispose of their ownership interest in DSI at the earliest
practicable time. No portion of the assets, liabilities, operations or
activities of DSI are included in the within Agreement. Despite their
ownership of DSI, Sellers agree to devote substantially full time efforts to
the business of ESI and ESII.
B. Sellers have delivered to Keith a statement of income of ESI for the year
ended June 30, 1997, and will provide financial statements for the years
ended June 30, 1995, and 1996, to be attached as Exhibit A to this Agreement.
Said financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis
throughout each period involved and in accordance with accounting practices
used by ESI with respect to its prior financial statements. Sellers
represent that the financial statements present fairly the results of
operations of ESI on a consolidated basis for the three year period
represented by the three financial statements referenced in this paragraph.
1
<PAGE>
C. ESI operates from its offices in Walnut Creek, California in suite 210 of a
building at 370 Wiget Lane at the current monthly rental of $21,374.45, of
which ESI's share currently is $14,687. The lease expires February 29, 2004.
D. ESI currently has approximately 32 full time ESI employees, including the
three Sellers and approximately six contract employees who are employed by
DSI. Certain administrative employees of DSI are currently on ESI's payroll,
and will remain on ESI's payroll until the end of 1997, unless DSI is sold
prior to year end. ESI also provides accounting and computer services for
DSI. ESI will be fairly compensated for such services and will be reimbursed
for payroll and fringe payroll costs of DSI employees.
E. ESI has a number of contracts with its clients, which will not be completed
by the Closing Date of this Agreement. On or before October 9, 1997, Sellers
will cause to be attached hereto as Exhibit B, a listing of all jobs not yet
completed by ESI as of August 31, 1997 with the balance yet to be billed
indicated as of said date. In addition, for those jobs which indicate a
balance yet to be billed of $10,000 or more, Sellers will have made a good
faith estimate of the cost to complete the scope of services provided for in
the contract between Seller and its client. Buyer and Sellers acknowledge
that estimating the cost to complete each job is not an exact science, and
thus Sellers make no representations or warranties as to the correctness of
its good faith estimate. In the event that any job is indicated with an
estimate of cost to complete which is in excess of the remaining fees to be
billed, the excess, along with a ten percent profit margin on the remaining
work, shall be accrued as a liability of ESI for purposes of this Agreement.
F. Buyer has been informed that some of ESI's contracts with its clients may
contain a clause which restricts or prevents any change in ownership of ESI
without the prior written consent of the client. Accordingly, it is possible
that one or more clients may claim a default by ESI and seek to exercise its
unilateral right to cancel the remaining work encompassed by such contract.
In such an event, the client may have the right to seek monetary damages from
ESI should it terminate its contract with ESI, and engage another
professional engineering firm to complete the work remaining on the contract
at a cost which is greater than the remaining balance to be billed under the
contract. As an alternative, a client may attempt to exert its right of
offset by reducing the outstanding balance of any previously billed work by
the monetary damages which it claims to have sustained by reason of engaging
a new consulting engineering firm.
G. Keith, its subsidiaries and affiliates (the "Keith Group") have been engaged
in the business of civil engineering in Southern California since March 1,
1983. The Keith Group currently employs about 230 people, and operates
offices in the California cities of Costa Mesa, Moreno Valley, San Diego,
Thousand Oaks and Palm Desert, and in Las Vegas, Nevada.
2
<PAGE>
H. Buyer desires to employ Lynn C. Cannady, Glenn I. Chase and Stephen J. Lane,
as well as the other current employees of ESI on a full time basis and
operate the ESI business as a part of the Keith Group of Companies. Sellers
desire to sell their stock in ESI to Buyer and to no longer engage in the
business of consulting engineering, except as a part of the Keith Group and
as employees of ESI.
I. Keith's shareholders include Walter W. Cruttenden III, who became a ten
percent shareholder in Keith during July 1997. Accordingly, as of August 31,
1997, an aggregate of 8,880,000 shares of Buyer have been issued and are
outstanding, and an additional 1,000,000 shares have been reserved for
issuance pursuant to Keith's Incentive Stock Option Plan
J. Buyer and Sellers have reduced to writing in this Agreement their full and
complete understanding and accord with respect to all matters relating to
said purchase and sale of assets, so as to enable the same to be consummated
in an expeditious and orderly manner.
NOW THEREFORE, in consideration of the mutual covenants and agreements,
representations and warranties hereinafter set forth, the parties agree as
follows:
AGREEMENT
---------
I. INCORPORATION BY REFERENCE:
--------------------------
Each of the Recitals, A through J, is hereby incorporated into this Agreement
and made an integral part hereof, as if those recitals were again set forth in
full herein. Each Seller and Buyer hereby acknowledges and confirms to each
other the truth and correctness or each such recital.
II. PURCHASE AND SALE OF ESI STOCK, CLOSING, CONSIDERATION:
-------------------------------------------------------
A. PURCHASE AND SALE OF ESI STOCK: On the basis of the representations and
warranties, and subject to all of the terms and conditions set forth in this
Agreement, Sellers agree to sell and convey to Keith, and Buyer agrees to
purchase and acquire from Sellers, for the total purchase consideration as
hereinafter provided, all of the issued and outstanding capital stock of
ESI, which represents the ownership rights to all of the business
operations, fixed assets, good will and other intangible assets of ESI, of
every nature, kind and description, wheresoever located and whether or not
carried or reflected on ESI's books and records, as the same shall exist at
the time of Closing, including, but not by way of limitation:
1. All accounts and notes receivable incurred in the ordinary course of
business for work performed to the time of Closing, whether or not
actually billed to clients;
2. All prepaid expenses and deposits of ESI relating to its business and
operations;
3. Cash on hand and in banks;
4. All fixed assets, including those comprising real property, personal
property and of mixed nature, together with all computer equipment,
office equipment, machinery, tools, parts, findings, attachments,
accessories, fixtures, trade fixtures,
3
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leasehold improvements, office furniture, supplies and sundries,
equipment, motor vehicles, mechanical devices, patents, copyrights,
trademarks, trade names, good will, leasehold interests and estates,
customer files and records of prior work, billings and collection
activity, supplier lists and pricing schedules, trade information and
trade secrets, employee files, union, labor and other collective
bargaining agreements, all of which properties have been used or
connected directly or indirectly with the business and operations of ESI
(whether or not such properties are encumbered, pledged or otherwise
hypothecated to secure the payment of any debt or other obligation owed
or incurred by ESI); and
5. The trade names of ESII, Engineered Systems Integration, Inc.; ESI,
Engineering Services, Inc.; or any variation thereof, and any non-
copyrighted variation thereof not previously copywrited by any third
party.
B. ASSETS AND LIABILITIES INCLUDED IN TRANSACTION: Said assets shall be
acquired by Keith, subject only to the lien and charge of those certain
specifically enumerated debts, claims, liabilities, obligations and security
interests, if any, set forth in and disclosed by the June 30, 1997, Balance
Sheet of ESI, and to be assumed by Keith as set forth in this Agreement.
Other than liabilities disclosed on the June 30, 1997, balance sheet of ESI
and liabilities incurred in the normal course of operations between said date
and the Closing date or otherwise specifically provided in this Agreement,
Keith will not assume and will not be liable for the payment or other
discharge of any other liabilities or obligations of ESI existing at the
Closing Date, whatsoever. ESI shall cause its June 30, 1997, Balance sheet
to be attached as Exhibit C to this Agreement. Keith will be responsible for
and shall assume all liabilities incurred by ESI from June 30, 1997, until
the Closing Date in the ordinary course of its business and all liabilities
incurred thereafter, including, but not by way of limitation, accounts
payable, salaries and wages, and accrued employee expenses.
C. CLOSING: Except as herein otherwise provided, the closing under this
Agreement will take place at 10:00 AM, prevailing California time on October
30, 1997, or at such other time and date as the parties hereto may in writing
agree upon, such time and date being herein referred to as the "Closing" or
"Closing Date", at the office of Keith at 2955 Redhill Avenue, Costa Mesa,
California (or at such other place as the parties may in writing agree upon).
Irrespective of the foregoing sentence, the closing will be delayed until
Buyer is prepared to pay off the ESI loan from Union Bank and to replace
ESI's portion of a Letter of Credit issued by Union Bank to secure certain
leasehold improvements. In no event shall the closing be delayed past
December 31, 1997. In the event that Buyer in unable to pay off the ESI loan
from Union Bank (including replacing the ESI Letter of Credit to Union Bank,
and Buyer does not conclude the purchase of ESI stock contemplated by this
Agreement, then Buyer shall pay the greater of fifty thousand dollars
($50,000) to Sellers as liquidated damages or the amount of actual monetary
damages sustained by Sellers. For this purpose only, the parties agree to
submit the determination of such actual monetary damages to binding
arbitration conducted pursuant to the rules of the American Arbitration
Association, with Buyer and Seller each paying their own costs of the
arbitration, and each paying one half of the fees and costs charged by the
arbitrator.
4
<PAGE>
D. POSSIBLE ADJUSTMENT IN CONSIDERATION PAID BY KEITH: The total consideration
to be paid by Keith for all of the outstanding capital stock of ESI to be
acquired by Keith shall be subject to adjustment, based upon the
determination of the book value of ESI, which will not exceed the value of
all tangible assets as valued below as of June 30, 1997, less liabilities
assumed by Buyer.
The following procedures shall be utilized in establishing the Net Book Value
of ESI's assets acquired by Keith as of June 30, 1997 and as of the Closing
including liabilities of ESI assumed by Buyer:
1. Work in process shall be valued at zero, except that in the event there
exists any fixed price contracts or work with milestone billings (where
the milestone has not been attained), the amounts billed or otherwise
accrued as revenues through the valuation date shall not exceed an amount
which will permit the remaining portion of the contract to be completed at
profit margins of no less than ten percent (10%). To correct any such
over-accrual of revenues at each valuation date, the stated accounts
receivable book value shall be reduced in an appropriate amount to
accomplish the adjustment as set forth in the preceding sentence.
2. Prepaid expenses and deposits shall be recorded at their unamortized cash
value.
3. Fixed assets shall be valued at the original cost of each item, less
accumulated depreciation claimed for Federal Income Tax purposes, but
shall not exceed the total estimated current fair market value of the
total fixed assets. Fair market value of computer equipment and software
(which is subject to technical obsolescence) shall be determined by
reference to its current replacement value. Fair market value of any
vehicle shall be determined by reference to the Kelly Blue Book wholesale
value, reasonably adjusted for mileage and the physical condition of each
vehicle.
4. Other tangible assets of ESI and all of its liabilities shall be valued
pursuant to generally accepted accounting principles consistently applied.
A current listing of ESI's major clients as of August 31, 1997, is
attached as Exhibit D.
5. Sellers guarantee that at June 30, 1997, and at the time of Closing, the
value of ESI's tangible assets as determined above, less its liabilities
shall not be less than $350,000. In the event that such net book value is
under $350,000 and to the extent that it is less than $350,000, the number
of Keith shares to be issued to Sellers at Closing shall be reduced by one
share for each one dollar seventy five cents ($1.75) that the actual net
book value of ESI is below $350,000. However, at Seller's exclusive
option, they may contribute cash to ESI during October, 1997, and in such
an amount as is necessary to bring the net book value to $350,000 in lieu
of reducing the number of Keith shares to be issued to Sellers.
5
<PAGE>
E. CONSIDERATION TO BE PAID BY KEITH: The consideration to be given to
Sellers by Keith in exchange for Sellers' stock in ESI shall be as follows:
1. ESI's shareholders will exchange all of ESI's outstanding shares of
common stock with Buyer in exchange for 200,000 shares of Buyer's Common
Stock and such other shares as set forth herein. Unless otherwise
provided in this Agreement, all shares issued to Sellers will be issued
one-third to each Seller, with any odd, fractional share issued to
Sellers in alphabetical order of their last names.
a. Buyer agrees, at the sole discretion of any Seller, to repurchase any
or all of that Seller's portion of the 200,000 shares issued at the
Closing at the price of $2.50 per share provided that an Initial
Public Offering of the Buyer's Common Stock has not been effected by
October 31, 1999. This election shall be made individually by any of
the Sellers during the time period of November 1, 1999 to November
15, 1999 (the "Notice Period") by delivery of written notice thereof
to Buyer. After November 15, 1999, this right shall expire.
b. Irrespective of the above, in the event that the Dow Jones Average is
below 7,000 at any time from April 1, 1999 to September 30, 1999, the
Notice Period shall be extended until the expiration of nine months
after the Dow again exceeds 7,000 on a consistent basis; and the
expiration date of the time for giving notice shall be extended for a
similar period. In no event shall the extension period be extended
past December 31, 2001.
c. In the event that any Seller exercises this right to cause Buyer to
repurchase his stock, such Seller shall also convey all other shares
of Keith stock which may have been issued to such Seller, whether
acquired by exercise of Stock Options, Incentive Shares, or
otherwise, and all additional stock options then outstanding issued
to such Seller shall forthwith be canceled and shares acquired by
exercise of stock options shall be acquired by Keith at their per
share purchase price.
d. Keith's financial statements reflect a deficit in the shareholders'
equity portion of its balance sheet ("Keith Equity") as of July 31,
1997. Keith's officers and/or shareholders will subordinate repayment
of such amount of the principal portion of debt owed to shareholders
to such amount as, when netted with the net book value of Keith's
Equity, equals $750,000.
2. As of the Closing Date, Buyer will issue incentive stock options
aggregating 200,000 shares of the Buyer's Common Stock. (A copy of
Keith's Incentive Stock Option Plan and a copy of a typical Stock Option
Agreement are attached as Exhibit E hereto). Of these options, 40,000
options shall be issued to each of the three Sellers. Of the remaining
optioned shares, approximately 60,000 options would be allocated among
ESI's second tier technical and management personnel (Surinder, Mike,
Terry, Tony, Ralph, etc.); and approximately 20,000 of
6
<PAGE>
such options will be issued to other key personnel (Linda, Jim, etc.).
Sellers will have substantial discretion in the allocation of the 80,000
options offered to ESI's employees with the primary objective being to
motivate not only the three current owners of ESI, but also the next tier
of management, primarily those employees and prospective employees with
superior future potential, and others deemed important to the future
success of ESI. The Stock Options will have a $1.00 exercise price.
Buyer expects that its shares, which are subject to the above described
options, shall have a value substantially greater than the exercise price
in future years. Accordingly, in the event that such shares do not have a
fair market value of at least three dollars per share at some time during
the time period between October 1, 1999, and October 1, 2002, Sellers, at
each of their exclusive options, may exchange and cancel any unexercised,
vested stock options and receive two dollars in cash from Keith for each
such option share which such Seller tenders to Keith for cancellation. In
addition, each Seller shall have the right, to be exercised only during
October, 2002, to sell any shares in Keith which he acquired by exercise
of his stock options to Keith for three dollars per share, subject to the
same condition as to fair market value of Keith shares as is applicable to
unexercised, vested options during the period of October, 1999 to 2002.
3. Buyer will provide no less than an additional 100,000 of incentive stock
options ("Additional Options") as of January 1, 2000, to be granted to ESI
employees subject to the condition precedent that certain earnings goals
have been attained by ESI as set forth in the following paragraph. The
current three owners of ESI shall be eligible to be awarded a portion of
such Additional Options. The Additional Options will have an exercise
price of the fair market value of the shares at the time of the grant of
each option, which exercise price is required pursuant to IRS regulations
which allow the employee the ability to defer recognition of taxable
income until the shares are sold and the ability to be taxed at capital
gains rates where the holding period requirements are met.
4. Buyer will issue up to an additional 100,000 shares of its common stock
("Incentive Stock"), to be issued to Sellers and shared equally by the
three Sellers, subject to attainment of the following performance
criteria:
a) Maximum number of shares to be issued:
--------------------------------------
During the period from June 30, 1997 through and including the year
ended November 30, 2000, for each $3.00 of Net Income per year in
excess in the required minimum net income as described in 4.b., after
provision for Federal and California Taxes on Income ("Net Income"), as
computed on a quarterly basis pursuant to GAAP earned by ESI, Buyer
will issue one share of the Buyer's Common Stock, not to exceed an
aggregate of 100,000 shares to be issued pursuant to this provision.
b) Required minimum Net Income:
---------------------------
7
<PAGE>
ESI shall be required to earn a minimum amount of Net Income based on
the number of shares ("Base Shares") which Buyer has both previously
issued to ESI's current shareholders and its employees, and the number
of granted, but unexercised employee stock options issued to ESI's
current shareholders and its present and future employees. (Initially
the number of shares to be utilized in making this calculation is
400,000 shares). The minimum Net Income to be earned by ESI before the
issuance of any Incentive Stock shall be $.80 per share for the fiscal
years of 1997 and 1998; $1.00 for 1999; and $1.25 for the year 2000.
For these purposes, the year 1997 shall end 11/30/97, 1998 shall end
11/30/98, etc. Accordingly, a base amount of Net Income of $320,000
would be required for the year ended November 30, 1998; and Net Income
above that level would be eligible for the issuance of Incentive Stock.
c) Determination of number of Base Shares:
--------------------------------------
The number of Base Shares to be utilized in calculating the minimum Net
Income requirements of ESI in order to qualify for the issuance of
Incentive Stock shall be determined by averaging the Base Shares at the
beginning of each quarter during the year. For example, if the
applicable number of shares were 400,000 at December 1st, 425,000
shares at March 1st; 440,000 shares at June 1st , and 450,000 shares at
September 1st, then the average shares for the year would be 428,750
(1,715,000/4 = 428,750).
d) Accounting procedures and policies to be employed:
-------------------------------------------------
For the purpose of this Agreement, Net Income shall be determined based
upon ESI's cost and overhead structure and applying GAAP to ESI's
financial statements. Expenses of Buyer's corporate overhead shall be
reasonably allocated among all of the business units owned or
controlled by Buyer from time to time. Buyer allocates approximately
75% of its corporate overhead among Buyer's business units based upon
employee head count at each business unit as of the beginning of each
month, and approximately 25% is allocated based upon revenues earned
(Calculated on the accrual basis of accounting, as measured by the
"value added" by each business unit) during the trailing calendar
quarter. For example, net revenues earned and employee head count
statistics for the first quarter of 1998 would be used to calculate
corporate fees for the third quarter of 1998.
5. Anti dilution provision:
-----------------------
It is agreed that no additional shares of stock in Buyer will be issued
without Sellers' prior written consent, except as may be required from
time to time to comply with the terms of this Agreement and the terms of
any future acquisitions by Buyer or to provide additional shares for the
Incentive Stock Option Plan necessitated by the growth of Buyer's and
ESI's professional and management staffs, or for the contemplated Initial
Public Offering of Buyer, currently anticipated to occur in late 1998.
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<PAGE>
6. Additional Consideration - Employment and Non-Competition Agreements:
---------------------------------------------------------------------
Lynn C. Cannady, Glenn I. Chase and Stephen J. Lane shall each be offered
a five year employment agreement in the form of Exhibit F attached hereto.
Each employment agreement provides that for a period of 24 months after
termination of employment, employee shall not disclose proprietary
information of employer and that, for a period of 12 months after
termination of employment, employee shall not compete with ESI or The
Keith Companies by operating within 30 miles of any then ESI or TKC
office.
F. ADDITIONAL DOCUMENTATION: For a reasonable time and from time to time after
the Time of Closing, upon reasonable request of Buyer, Seller will duly
execute, acknowledge and deliver all such further assignments, conveyances
and other instruments of transfer and other assurances and documents and will
take such other action consistent with the terms of the Agreement as
reasonably may be requested by Buyer for the purpose of better assigning,
transferring and conveying to Buyer or reducing to its possession any or all
of the business assets being sold and conveyed to Buyer hereunder, providing
that the costs of preparation of all thereof shall be paid by Buyer.
G. ESI'S CURRENT EMPLOYEES; SENIORITY: Buyer intends to offer employment to
all current, full time employees of ESI as of the Time of Closing and will
execute an employment contract with each of the three Sellers in the form
attached as Exhibit F. Keith will grant one year of service credit towards
its seniority calculations (for vacation pay and length of service awards)
for each two years of full time employment with ESI, up to a maximum of seven
years of credit towards Keith service awards and Keith benefits.
H. PROTECTION OF ESI'S BUSINESS OPERATIONS: Seller will use its best, good
faith efforts until and following the date of this Agreement to preserve and
maintain its business organization intact and to keep available to Buyer its
favorable relationships with employees, suppliers, customers and others, all
to the end that the going business of Seller will be unimpaired at the Time
of Closing. Seller shall not change compensation rates of its employees
prior to close without Buyer's consent.
I. INSURANCE; RISK OF LOSS: Seller will continue in force at ESI's expense
until the Closing Date of this Agreement its existing professional errors and
omissions, liability and property damage, fire and other casualty insurance.
ESI's current policy is to provide errors and omissions insurance on specific
assignments or projects when such coverage is requested by the client, thus,
it has no E&O coverage for much of its prior work. Prior to the Closing
Date, the risk of loss to the assets subject to purchase and sale hereunder
shall be borne entirely by Seller. Buyer agrees to assume each officer's
personal liability for professional errors and omissions of any officers of
Seller who become employees of Buyer as of the effective date.
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III. REPRESENTATIONS AND WARRANTIES OF SELLER: Seller represents and warrants
-----------------------------------------
to Buyer, as of the date hereof and as of Closing, as follows:
A. NO PENDING LITIGATION: To Seller's actual knowledge, there is no
---------------------
litigation pending or threatened against or affecting any of Seller's
assets which would limit Seller's ability to perform his obligation
hereunder, including professional errors or omissions, bankruptcies or
receiverships, which might adversely affect the assets of the business. ESI
is plaintiff on several lawsuits in which it seeks to recover amounts
billed to clients which have not been paid to date. One such legal action
against Power Generation, Inc. is scheduled for a mediation conference on
September 15, 1997, and Power Generation has counter sued. In addition, ESI
is considering litigation to collect certain amounts from Nimbus, Inc. If
the matter is collected without litigation, ESI may be required to reduce
its claim by as much as $10,000. ESI warrants that if a full recovery is
not made of its receivables, it will nevertheless meet the net worth
requirements of $350,000 at closing.
B. AUTHORITY TO PERFORM: Sellers have full power and authority to execute,
--------------------
deliver and perform this Agreement and all other documents and certificates
contemplated hereby, and the execution, delivery and performance thereof
has been duly authorized by Sellers. No other action is required to be
taken by Sellers to permit the execution, delivery and performance of this
Agreement, the transaction contemplated hereby, and all other documents and
certificates contemplated hereby, and no consent or approval of any third
party is required in connection with the execution of this Agreement or to
consummate the transaction contemplated hereby.
C. NO CONSENT REQUIRED: The execution of this Agreement by Sellers, the
-------------------
performance by Sellers of Sellers' obligations hereunder and the sale,
transfer and conveyance of Sellers' stock in ESI do not require the consent
of any third party, other than possibly the Secretary of State of the State
of California.
D. NO NOTICES: Sellers have not received and have no knowledge of any
----------
notification from any city, county, state, or Federal or other authority or
any governmental or quasi-governmental authority which would inhibit the
continued operation of ESI.
E. ENFORCEABILITY: ESI owns good, clear and marketable title to the assets
--------------
reflected on its June 30, 1997, Balance Sheet (Exhibit C), and upon
execution of this Agreement by the signatory parties hereto all of the
covenants, conditions and promises to be performed by Sellers under this
Agreement shall be binding upon and enforceable against each Seller in
accordance with the terms hereof. In addition, all assignments entered into
by Sellers in favor of Buyer shall effectively transfer all of Sellers'
rights to Buyer as to each document assigned by Sellers to Buyer.
F. NO PROHIBITION: No Seller is prohibited from consummating the transactions
--------------
contemplated herein by any law or regulation, agreement, instrument,
restriction, order or judgment.
10
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G. NO ATTACHMENTS: There are no attachments, executions, assignments for the
--------------
benefit of creditors, receiverships, conservatorships or voluntary or
involuntary proceedings in bankruptcy or pursuant to any other debtor relief
law contemplated or filed by ESI or pending against ESI or ESI's assets.
H. NO OTHER AGREEMENTS: No Seller is a party to any contract or other
-------------------
agreement, nor does any Seller have any knowledge of the existence of any
such agreement which would be binding upon Buyer, other than contracts
entered into by ESI in the ordinary course of its business.
I. NOTIFICATION: Each Seller shall promptly notify Buyer of any change in any
------------
condition with respect to ESI's assets or of any event or circumstance
actually known to such Seller that makes any representation or warranty of
any Seller contained in this Agreement untrue or materially misleading.
J. EMPLOYEE RELATIONS: There is no pending or threatened dispute between
------------------
Sellers, ESI and any of its employees which might materially and adversely
affect the continuance of ESI's business. There is no claim, suit,
proceeding, arbitration or investigation or other legal or administrative
proceeding pending or, to the knowledge of Sellers or any of its officers,
directors, employees or shareholders threatened against Seller or against any
officer, director, employee, or shareholder which might result in any
material adverse change in the financial condition or business of ESI or
which would question the validity or propriety of this Agreement or of any
action taken or to be taken in accordance with or in connection with this
Agreement or in any other way directly or indirectly affecting the stock in
ESI which is subject to purchase and sale hereunder.
K. NO BREACH OF EXISTING AGREEMENT: The execution and performance of this
-------------------------------
Agreement will not result in a breach of, or constitute a default under:
1. Any charter, by-law, agreement or other document to or by which ESI or any
shareholder of ESI is a party or is bound; or
2. Any decree, order or rule of any court or governmental authority which is
binding on ESI or any shareholder of ESI or on any of ESI's properties; or
3. Any agreement, indenture or understanding to which ESI or any one or more
of its shareholders is a party.
L. WARRANTIES EFFECTIVE AT TIME OF CLOSING: If the purchase and sale of
---------------------------------------
Sellers' stock in ESI, as provided for in this Agreement, is consummated at
the Time of Closing, all of the representations and warranties hereinbefore
contained in this Paragraph will be true and correct at and as of the Time of
Closing, except for immaterial and non-adverse changes contemplated or
permitted by this Agreement.
M. TAX AND OTHER LIABILITIES
-------------------------
ESI has no tax liabilities or other liabilities not disclosed on its
financial statements.
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IV. REPRESENTATIONS OF BUYER: Buyer represents and warrants to Seller, as of
------------------------
the date hereof and as of the closing, as follows:
A. AUTHORITY TO PERFORM: Buyer has full power and authority to execute,
--------------------
deliver and perform this Agreement, and all other documents and
certificates contemplated hereby, and the execution, delivery and
performance thereof have been duly authorized by Buyer. No other action is
required to be taken by Buyer to permit the execution, delivery and
performance of this Agreement, the transaction contemplated hereby, and all
other documents and certificates contemplated hereby, and no consent or
approval of any third party is required in connection with the execution of
this Agreement, or to consummate the transaction contemplated hereby.
B. NO CONSENT REQUIRED: The execution of this Agreement by Buyer, the
-------------------
performance by Buyer of Buyer's obligations hereunder and the sale,
transfer and conveyance of ESI's stock to Keith do not require the consent
of any third party, other than possibly the Secretary of State of the State
of California.
C. NO PROHIBITION: Buyer is not prohibited from consummating the transactions
--------------
contemplated herein by any law or regulation, agreement, instrument,
restriction, order or judgment.
V. CONDITIONS PRECEDENT TO OBLIGATIONS OF KEITH:
--------------------------------------------
A. The obligation of Keith to purchase all of the outstanding shares of ESI
pursuant to the terms of this Agreement shall be subject to the fulfillment
at or prior to the Time of Closing of each of the following precedent
conditions:
1. All representations and warranties of Sellers contained in this
Agreement shall be true and correct at and as of the Closing, with the
same force and effect as though made at and as of the Closing, except
for changes contemplated or permitted by this Agreement.
2. Sellers shall have fully performed and complied with all of the
obligations and conditions required by this Agreement to be performed or
complied with by it at or prior to the Closing.
3. Upon demand, ESI, its officers, directors and shareholders shall each
have delivered to Buyer their respective certificate, dated the day of
the Closing, as to the fulfillment of the conditions set forth in the
two preceding sub-paragraphs.
4. Upon its demand, Buyer shall have received a favorable opinion from
legal counsel for Sellers, dated the day of Closing, in form and
substance satisfactory to counsel for Buyer, to the effect that (based
upon review by Seller's counsel of corporate records and documents
necessary to enable Seller's counsel to render said opinion):
12
<PAGE>
a. ESI is a corporation duly organized and legally existing in good
standing under the laws of the State of California, has full corporate
power to own its properties and conduct its business as now being
conducted; and the business carried on by ESI is not such as to require
that it be qualified to transact business as a foreign corporation in
any jurisdiction other than in the State of California, wherein it is
duly qualified as of the Closing;
b. To the best knowledge and belief of said counsel, this Agreement has
been duly and legally executed and delivered by Sellers and is the
valid and binding agreement of Sellers which is fully enforceable in
accordance with all of its terms and conditions; this Agreement has
been duly authorized by resolutions of ESI's shareholders, which
resolutions were validly adopted by unanimous written consent of the
Shareholders at which no less than seventy-five percent of all
shareholders voted to adopt and approve of the execution of this
Agreement by such shareholders, and the full performance of all of
Seller's obligations and undertakings hereunder;
c. Said counsel does not know, and has no reason to believe that any suit,
proceeding or investigation is pending, threatened against ESI or any
shareholder of ESI, or questions the validity or propriety of this
Agreement or of any action taken or to be taken pursuant to or in
connection with this Agreement.
d. Said counsel does not know or have any reason to know or believe that
the execution and performance of this Agreement will result in a breach
of or constitute a default under any charter or by-law provision which
is binding on ESI; or that any shareholder of ESI is a party or is
bound or any decree, order or rule of a court or other governmental
authority which is binding on ESI or any shareholder of ESI; and
e. Such opinion shall cover such related matters as Buyer may reasonably
require. If ESI and its shareholders are represented by different
counsel, each such counsel shall render its separate opinion.
f. It is Buyer's present intention to waive the attorney representation
letter provided that Sellers individually each make said
representations.
5. The ongoing business of ESI and its business organization, personnel and
relations with suppliers, customers, dealers and distributors and other
shall have been preserved intact and shall not have been impaired at the
Closing.
6. Sellers shall not have incurred any material breach of any warranty or
representation contained in this Agreement nor any material adverse change
in the financial position or results of ESI's operations, as shown by the
financial statements and warranties referred to herein.
13
<PAGE>
7. Buyer has not disapproved of any documents or information submitted to
it for its review and approval in accordance with the requirements of
this Agreement.
8. Sellers shall have executed and delivered to buyer appropriate Stock
Certificates, either signed or accompanied by signed stock powers, and
all other agreements, documents and instruments deemed necessary by
Buyer and its counsel to sell and transfer ESI's stock to Buyer as
contemplated by this Agreement. All such instruments and documents shall
be in form and substance reasonably satisfactory to Buyer and its
counsel.
9. No action or proceeding shall have been commenced or threatened by any
client, person or governmental agency by reason of this transaction, the
result of which might render it impossible or inadvisable in Buyer's
opinion for Buyer to close this transaction.
10. There shall have been no material adverse change in the financial
condition of ESI.
11. Buyer shall have completed its "Due Diligence" examination of the
business operations of ESI, including review of the financial statements
of ESI; access to job contracts and records; employee files; billing
files; vendors and vendor files; subconsultants and subconsultant files;
insurance files; legal counsel and legal files; and any additional
information which Buyer, in good faith, believes is relevant to ESI's
financial condition and future operations. Buyer agrees to use its good
faith best efforts to conclude its remaining due diligence work on or
before September 18, 1997.
12. Sellers shall have satisfied and complied with all other conditions,
obligations and undertakings hereunder required to be done by them prior
to or at the closing.
13. Sellers shall provide Keith with Certificates of Good Standing for ESI
and ESII.
B. If any of the above conditions precedent is not met or fulfilled or is
violated, Buyer shall not be under any obligation to consummate this
Agreement and may terminate this Agreement without liability to it or, at
its exclusive option, may postpone the Closing, as hereinbefore provided,
until the conditions have been met.
VI. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS:
----------------------------------------------
The obligations of Sellers to sell and transfer its stock in ESI to Buyer in
exchange for the consideration specified in this Agreement shall be subject to
the fulfillment at or prior to the Closing of each of the following precedent
conditions:
A. All representations and warranties of Buyer contained in this Agreement
shall be true and correct at and as of the Closing, except for changes
contemplated or permitted by this Agreement.
14
<PAGE>
B. Buyer shall have performed and complied with all of the obligations and
conditions required by this Agreement to be performed or complied with by
it at or prior to the Closing.
C. Upon demand of Seller, Buyer shall deliver to Seller its certificate,
dated the day of the Closing, executed on its behalf by an officer of
Buyer, as to the fulfillment of the conditions set forth in the two
preceding subparagraphs.
D. Upon demand, Seller shall have received a favorable opinion from Buyer's
legal counsel, dated the day of the Closing, in form and substance
satisfactory to counsel for Sellers (which approval shall not be
unreasonably withheld), to the effect that:
1. Buyer is a corporation duly organized and legally existing in good
standing under the laws of the State of California;
2. This Agreement has been duly and legally authorized by all necessary
corporate action on the part of Buyer, has been duly and legally
executed and delivered by Buyer and is the valid and binding Agreement
of Buyer, enforceable in accordance with its terms;
3. The execution and performance of this Agreement by Buyer shall have
been duly and legally authorized in accordance with applicable law, and
Buyer shall have furnished to counsel for Sellers certified copies of
resolutions adopted by Buyer's Board of Directors and no less than 75%
of its shareholders authorizing and approving the execution and
delivery of this Agreement.
VII. RIGHTS AND REMEDIES IN CASE OF DEFAULT
--------------------------------------
A. BUYER'S REMEDIES: If any Seller defaults in the performance of his
----------------
obligations pursuant to this Agreement, Buyer shall have the right to
demand specific performance by such Seller and such other remedies as are
accorded by relevant law.
B. SELLER'S REMEDIES: In the event of the failure of the Buyer to comply with
-----------------
the terms and conditions of this Agreement, each Seller shall be released
from all obligations in law or equity to transfer and convey its stock
certificates representing ESI shares or any part thereof pursuant to this
Agreement; and the Buyer shall relinquish all rights under this Agreement.
In the event that Seller has exchanged his stock in ESI for Keith shares
at the time of Buyer's breach of this Agreement, Seller shall have the
right to demand specific performance by Keith and such other remedies as
are accorded by relevant law.
VIII. INDEMNIFICATION:
---------------
Sellers on the one part and Buyer on the other part each hereby agree to
indemnify and hold the other harmless at all times of, from and against any and
all losses, costs, expenses liabilities or other damages, including without
limitation reasonable legal fees and
15
<PAGE>
expenses, resulting from or arising out of, or by reason of its default under
any of the warranties, representations, covenants or agreements made by such
party in this Agreement, or breach of or default under any condition required to
be performed hereunder by such party. In addition to the foregoing and not by
way of limitation thereof, Sellers hereby agree to indemnify and hold Buyer safe
and harmless of, from and against and in respect of each of the following:
A. Any and all loss, liability or damage resulting from any untrue
representation, breach of warranty or non-fulfillment of any covenant by any
Seller contained herein or in any certificate, document or instrument
delivered to Buyer hereunder;
B. Any and all liabilities of Seller not specifically disclosed on ESI's
consolidated balance sheet or recorded in ESI's books of account as of June
30, 1997, or which arose between said date and the Closing other than in the
normal course of business; and
C. Any and all actions, suits, proceedings, claims, demands, assessments,
judgments, costs and expenses, including, without limitation, legal fees and
expenses, including without limitation, legal fees and expenses, incident to
any of the foregoing or incurred in investigating or attempting to avoid the
same or to oppose the imposition thereof, or in enforcing this indemnity.
IX. MISCELLANEOUS PROVISIONS:
-------------------------
A. EXTENSION OF TIME AND WAIVER OF PERFORMANCE: Either Sellers or Buyer may,
-------------------------------------------
if not then in breach of this Agreement, extend the time for or waive the
performance of any of the obligations of the other, waive any inaccuracies
in the representations or warranties by the other, or waive compliance by
the other with any of the covenants or conditions contained in this
Agreement. Any such extension or waiver shall be in writing and signed by
Sellers or Buyer, as the case may be.
B. AMENDMENTS: This Agreement may be amended at any time and from time to
---------
time, but any amendment must be in writing and signed by an authorized
representative of Buyer and by each Seller.
C. NOTICES: Any written notice to any of the parties required or permitted
-------
under this Agreement shall be deemed to have been duly given on the date of
service if served personally on the party to whom notice is to be given, or
on the second business day after mailing if mailed to the party to whom
notice is to be given, first class postage prepaid, return receipt
requested, and addressed to the addressee at the address stated opposite his
or her name below, or at the most recent address specified by written notice
given to the sender by addressee under this provision.
16
<PAGE>
Notices to Sellers shall be to each of the following, individually:
Lynn C. Cannady
30 Valley Drive
Orinda, CA 94563
Glenn I. Chase
11 Stugun Court
Pleasant Hill, CA 94523
Stephen J. Lane
38 Leeds Court
Danville, CA 94526
With a copy of each to the following:
Lynn C. Cannady, Glenn I Chase, and
Stephen J. Lane, all at
370 Wiget Lane, Suite 210
Walnut Creek, CA 94598
Notices to Buyer shall be in duplicate with a copy each to:
THE KEITH COMPANIES, INC.
Attn: Aram H. Keith, President
2955 Redhill Avenue, Suite 201
Costa Mesa, CA 92626
And
THE KEITH COMPANIES, INC.
Attn: Corporate Secretary
2955 Redhill Avenue, Suite 201
Costa Mesa, CA 92626
D. COUNTERPARTS: The parties may execute this Agreement in two or more
------------
counterparts, which shall, in the aggregate, be signed by all the parties.
Each counterpart shall be deemed an original instrument as against any party
who has signed it.
E. GOVERNING LAW: This Agreement is executed in and intended to be performed in
-------------
the State of California, and the laws of that state (other than as to choice
of laws) shall govern its interpretation and effect. The Superior Courts of
Orange County, California shall be the appropriate Court in which either
party may seek to enforce its rights hereunder.
F. SUCCESSORS: This Agreement shall be binding upon and inure to the benefit of
----------
the respective successors, assigns, and personal representatives of the
parties, except to the extent of any contrary provision in this Agreement.
17
<PAGE>
G. SEVERABILITY: If any term, provision, covenant, or condition of this
------------
Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the rest of the Agreement shall remain in full force and
effect and shall in no way be affected, impaired, or invalidated.
H. ENTIRE AGREEMENT: This instrument contains the entire Agreement of the
----------------
parties relating to the rights granted and obligations assumed in this
instrument. Any oral representations or modifications concerning this
instrument shall be of no force or effect unless contained in a subsequent
written modification signed by the party to be charged.
I. FURTHER ASSURANCES: Each party agrees to execute such other and further
------------------
instruments and documents as may be necessary or proper in order to complete
the transactions contemplated by this Agreement.
J. TIME OF ESSENCE: Time is hereby expressly made of the essence with respect
---------------
to the performance by the parties of their respective obligations under this
agreement.
K. COMPUTATION OF TIME: If any period of time specified in this Agreement would
-------------------
otherwise end on a Saturday, Sunday or legal holiday, it shall be deemed
extended to end on the next day following which is not a Saturday, Sunday or
legal holiday.
L. TERMINOLOGY: All personal pronouns used in this Agreement, whether used in
-----------
the masculine, feminine, or neuter gender, shall include all other genders;
the singular shall include the plural, and vice versa. Titles of articles,
sections and sub-sections are for convenience only and neither limit nor
amplify the provisions of the Agreement itself, and all references herein to
articles, sections or sub-sections shall refer to the corresponding article,
section or sub-section of this Agreement, unless specific reference is made
to such article, section or sub-section of another document or instrument.
The use of the term "section" in this Agreement shall be deemed to refer to
"sub-sections," whenever the context so requires, and vice versa. In
interpreting this Agreement, it shall be presumed that each party contributed
equally to its construction.
M. SURVIVAL: All of the respective representations, warranties and
--------
indemnifications of the parties to this Agreement shall survive the
consummation of the transactions contemplated by this Agreement.
N. ATTORNEY'S FEES: In the event of the bringing of any action or suit by a
---------------
party hereto against another party hereunder by reason of any breach of any
of the covenants, agreements or provisions on the part of the other party
arising out of this Agreement, then in that event the prevailing party shall
be entitled to have and recover of and from the other party all costs and
expenses of the action of suit, including reasonable attorney, accounting and
engineering fees, any other professional fees resulting therefrom and for
reasonable travel and living costs incurred during any trial.
18
<PAGE>
O. AUTHORITY: Each individual signing for each of the parties hereunder
---------
warrants and represents that he is an authorized agent of such party, on
whose benefit he is executing this Agreement, and is authorized to execute
the same.
P. NO THIRD PARTY BENEFICIARY: No provision of this Agreement is intended to
---------------------------
create any third party beneficiaries.
19
<PAGE>
In witness whereof, the parties have executed this Agreement as of the day and
date first above written.
SELLERS
- ------
/s/ LYNN C. CANNADY
_________________________________
Lynn C. Cannady, Shareholder of ESI
/s/ GLENN I. CHASE
_________________________________
Glenn I. Chase, Shareholder of ESI
/s/ STEPHEN J. LANE
_________________________________
Stephen J. Lane, Shareholder of ESI
BUYER
- -----
THE KEITH COMPANIES, INC.
2955 Redhill Avenue, Suite 201
Costa Mesa, CA 92626
/s/ ARAM H. KEITH
By: __________________________________
Aram H. Keith, President
/s/ FLOYD S. REID
By: __________________________________
Floyd S. Reid, Secretary
20
<PAGE>
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
<PAGE>
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.
-2-
<PAGE>
(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
-3-
<PAGE>
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
-4-
<PAGE>
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
-5-
<PAGE>
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
-6-
<PAGE>
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
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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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<PAGE>
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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<PAGE>
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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<PAGE>
(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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<PAGE>
(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
-36-
<PAGE>
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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<PAGE>
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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<PAGE>
(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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<PAGE>
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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<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
THE KEITH COMPANIES-INLAND EMPIRE, INC.,
a California corporation
The undersigned, Aram H. Keith and Floyd S. Reid, hereby certify as follows:
1. They are the duly elected and acting President and Secretary,
respectively, of THE KEITH COMPANIES-INLAND EMPIRE, INC., a California
corporation (the "Corporation").
2. The Articles of Incorporation of this Corporation are hereby amended
and restated to read in full as follows:
"I. NAME
The name of this Corporation is THE KEITH COMPANIES, INC.
II. PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which a Corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business,
or the practice of a profession permitted to be incorporated by the California
Corporations Code.
III. STOCK
This Corporation is authorized to issue only one class of shares of
stock, which shall be designated "common shares". The total number of shares
which this Corporation is authorized to issue is Twenty Million (20,000,000)
shares.
IV. LIMITATION OF LIABILITY
The liability of the directors of this Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
<PAGE>
V. INDEMNIFICATION
This Corporation is authorized to indemnify the directors and officers of
this Corporation to the fullest extent permissible under California law and in
excess of that otherwise permitted under Section 317 of the California
Corporations Code."
3. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the Board of Directors of this
Corporation.
4. The foregoing amendment and restatement of the Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Sections 902 and 903 of the Corporations Code. The Corporation
has one class of stock outstanding. The total number of outstanding shares of
Common Stock of this Corporation is 4,200,000. The number of shares voting in
favor of the amendment and restatement exceeded the vote required, such required
vote being a majority of the outstanding shares of Common Stock.
The undersigned further declare under penalty of perjury that the matters
set forth in this certificate are true and correct of their own knowledge.
Executed at Costa Mesa, California, on July 25, 1994.
/s/ Aram H. Keith
--------------------------------
Aram H. Keith, President
/s/ Floyd S. Reid
--------------------------------
Floyd S. Reid, Secretary
2
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
THE KEITH COMPANIES, INC.
Aram H. Keith and Gary C. Campanaro hereby certify that:
1. They are the President and Secretary, respectively, of The Keith
Companies, Inc., a California corporation.
2. Article III of the Articles of Incorporation of this corporation is
amended to read as follows:
III
A. Classes of Stock. Upon the amendment of this Article III to read
----------------
as set forth below, each 2.7 shares of common stock outstanding shall be
converted into 1 share of common stock. Following the reverse stock split
and after aggregating all shares held by each holder, any fractional shares
resulting from the conversion of the outstanding shares shall be rounded to
the nearest whole number (with one-half being rounded upward). Upon the
effectiveness of this amendment, this Corporation shall be authorized to
issue two classes of stock to be designated, respectively, as "Common
Stock" and "Preferred Stock." The total number of shares which the
Corporation is authorized to issue is One Hundred and Five Million
(105,000,000) shares. One Hundred Million (100,000,000) shares shall be
Common Stock, no par value and Five Million (5,000,000) shares shall be
Preferred Stock, no par value.
B. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock may be issued from time to time in one or more series. The
Board of Directors is hereby authorized to fix or alter the dividend
rights, dividend rate, conversion rights, voting rights, rights and terms
of redemption (including sinking fund provisions), redemption price or
prices, and the liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and
the designation thereof, or any of them; and to increase or decrease the
number of shares of any series subsequent to the issuance of that series,
but
<PAGE>
not below the number of shares of such series then outstanding. In case the
number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
3. The foregoing Amendment of Articles of Incorporation set forth
herein has been duly approved by unanimous written consent of a majority of the
shareholders of the Corporation in accordance with the California Corporations
Code and the Bylaws of the Corporation. The total number of shares entitled to
vote on or consent to this Amendment is 9,611,211 and the number of shares
voting in favor of this amendment was 9,611,211.
<PAGE>
The undersigned further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this Amendment to Articles
of Incorporation are true and correct of his own knowledge.
Date: April 23, 1999
/s/ Aram H. Keith
----------------------------------
Aram H. Keith, President
/s/ Gary C. Campanaro
----------------------------------
Gary C. Campanaro, Chief Financial
Officer and Secretary
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
THE KEITH COMPANIES, INC.,
a California corporation
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I OFFICES............................................................................. 1
Section 1. Principal Executive Office..................................................... 1
Section 2. Other Offices.................................................................. 1
ARTICLE II SHAREHOLDERS........................................................................ 1
Section 1. Place of Meetings.............................................................. 1
Section 2. Annual Meetings................................................................ 1
Section 3. Special Meetings............................................................... 1
Section 4. Notice of Annual or Special Meeting............................................ 2
Section 5. Quorum......................................................................... 2
Section 6. Adjourned Meeting and Notice Thereof........................................... 2
Section 7. Voting......................................................................... 3
Section 8. Record Date.................................................................... 5
Section 9. Consent of Absentees........................................................... 5
Section 10. Action Without Meeting......................................................... 6
Section 11. Proxies........................................................................ 6
Section 12. Inspectors of Election......................................................... 6
ARTICLE III DIRECTORS........................................................................... 7
Section 1. Powers......................................................................... 7
Section 2. Number of Directors............................................................ 8
Section 3. Election and Term of Office.................................................... 8
Section 4. Vacancies...................................................................... 8
Section 5. Place of Meeting............................................................... 9
Section 6. Regular Meetings............................................................... 9
Section 7. Special Meetings............................................................... 9
Section 8. Quorum......................................................................... 10
Section 9. Participation in Meetings by Conference Telephone.............................. 10
Section 10. Waiver of Notice............................................................... 10
Section 11. Adjournment.................................................................... 10
Section 12. Fees and Compensation.......................................................... 10
Section 13. Action Without Meeting......................................................... 10
Section 14. Rights and Inspection.......................................................... 10
Section 15. Committees..................................................................... 11
ARTICLE IV OFFICERS............................................................................ 11
Section 1. Officers....................................................................... 11
Section 2. Election....................................................................... 12
Section 3. Subordinate Officers........................................................... 12
Section 4. Removal and Resignation........................................................ 12
Section 5. Vacancies...................................................................... 12
Section 6. Chairman of the Board.......................................................... 12
Section 7. President...................................................................... 12
Section 8. Vice President................................................................. 13
Section 9. Secretary...................................................................... 13
Section 10. Chief Financial Officer........................................................ 13
ARTICLE V OTHER PROVISIONS.................................................................... 14
Section 1. Inspection of Corporate Records................................................ 14
</TABLE>
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<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 2. Inspection of Bylaws........................................................... 15
Section 3. Endorsement of Documents; Contracts............................................ 15
Section 4. Certificates of Stock.......................................................... 15
Section 5. Representation of Shares of other Corporations................................. 16
Section 6. Stock Purchase Plans........................................................... 16
Section 7. Annual Report to Shareholders.................................................. 16
Section 8. Construction and Definitions................................................... 16
ARTICLE VI INDEMNIFICATION..................................................................... 17
Section 1. Definitions.................................................................... 17
Section 2. Indemnification in Actions by Third Parties.................................... 17
Section 3. Indemnification in Actions by or in the Right of the Corporation............... 17
Section 4. Mandatory Indemnification Against Expenses..................................... 18
Section 5. Required Determinations........................................................ 18
Section 6. Advance of Expenses............................................................ 18
Section 7. Other Indemnification.......................................................... 18
Section 8. Circumstances Where Indemnification Not Permitted.............................. 19
Section 9. Insurance...................................................................... 19
Section 10. Nonapplicability to Fiduciaries of Employee Benefit Plans...................... 19
ARTICLE VII AMENDMENTS.......................................................................... 19
</TABLE>
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<PAGE>
AMENDED AND RESTATED BYLAWS
Bylaws for the regulation, except as
otherwise provided by statute or its
Articles of Incorporation
of
THE KEITH COMPANIES, INC.,
a California corporation
ARTICLE I
OFFICES
-------
Section 1. Principal Executive Office. The principal executive office of
--------- --------------------------
the Corporation shall be located at 2955 Red Hill Avenue, Costa Mesa, CA 92626.
The Board of Directors (herein called the "Board") is granted full power and
authority to change said principal executive office from one location to
another.
Section 2. Other Offices. Branch or subordinate offices may be
--------- -------------
established at any time by the Board at any place or places.
ARTICLE II
SHAREHOLDERS
------------
Section 1. Place of Meetings. Meetings of shareholders shall be held
--------- -----------------
either at the principal executive office of the Corporation or at any other
place within or without the State of California which may be designated either
by the Board or by the written consent of all persons entitled to vote thereat,
given either before or after the meeting and filed with the Secretary.
Section 2. Annual Meetings. The annual meetings of the shareholders
--------- ---------------
shall be held on such date and at such time as may be fixed by the Board. At
such meetings, directors shall be elected and any other proper business may be
transacted.
Section 3. Special Meetings. Special meetings of the shareholders may
--------- ----------------
be called at any time by the Board, the Chairman of the Board, the President, or
by the holders of shares entitled to cast not less than ten percent (10%) of the
votes at such meeting. Upon request in writing to the Chairman of the Board, the
President, any Vice President or the Secretary by any person (other than the
Board) entitled to call a special meeting of shareholders, the officer forthwith
shall cause notice to be given to the shareholders entitled to vote that a
meeting will be held at a time requested by the person or persons calling the
meeting, not less than thirty-five nor more than sixty days after the receipt of
the request. If the notice is not given within twenty days after receipt of the
request, the persons entitled to call the meeting may give the notice.
-1-
<PAGE>
Section 4. Notice of Annual or Special Meeting. Written notice of each
--------- -----------------------------------
annual or special meeting of shareholders shall be given not less than ten nor
more than sixty days before the date of the meeting to each shareholder entitled
to vote thereat. Such notice shall state the place, date and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted, and no other business may be transacted, or (ii) in
the case of the annual meeting, those matters which the Board, at the time of
the mailing of the notice, intends to present for action by the shareholders,
but, subject to the provisions of applicable law, any proper matter may be
presented at the meeting for such action. The notice of any meeting at which
directors are to be elected shall include the names of nominees intended at the
time of the notice to be presented by management for election.
Notice of a shareholders' meeting shall be given either personally or by
mail or by other means of written communication, addressed to the shareholder at
the address of such shareholder appearing on the books of the Corporation or
given by the shareholder to the Corporation for the purpose of notice; or, if no
such address appears or is given, at the place where the principal executive
office of the Corporation is located or by publication at least once in a
newspaper of general circulation in the county in which the principal executive
office is located. Notice by mail shall be deemed to have been given at the
time a written notice is deposited in the United States mails, postage prepaid.
Any other written notice shall be deemed to have been given at the time it is
personally delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person given the notice by
electronic means, to the recipient.
Section 5. Quorum. A majority of the shares entitled to vote,
--------- ------
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. The shareholders present at a duly called or held meeting at
which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to have less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum.
Section 6. Adjourned Meeting and Notice Thereof. Any shareholders'
--------- ------------------------------------
meeting, whether or not a quorum is present, may be adjourned from time to time
by the vote of a majority of the shares, the holders of which are either present
in person or represented by proxy thereat, but in the absence of a quorum
(except as provided in Section 5 of this Article) no other business may be
---------
transacted at such meeting.
It shall not be necessary to give any notice of the time and place of the
adjourned meeting or of the business to be transacted thereat, other than by
announcement at the meeting at which such adjournment is taken; provided,
however, when any shareholders' meeting is adjourned for more than 45 days or,
if after adjournment a new record date is fixed for the adjourned meeting,
notice of the
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<PAGE>
adjourned meeting shall be given as in the case of an original meeting.
Section 7. Voting. The shareholders entitled to notice of any meeting or
--------- ------
to vote at any such meeting shall be only persons in whose name shares stand on
the stock records of the Corporation on the record date determined in accordance
with Section 8 of this Article.
---------
Voting shall in all cases be subject to the provisions of Chapter 7 of the
California General Corporation Law, and to the following provisions:
(a) Subject to clause (g), shares held by an administrator,
executor, guardian, conservator or custodian may be voted by such holder
either in person or by proxy, without a transfer of such shares into the
holder's name; and shares standing in the name of a trustee may be voted by
the trustee, either in person or by proxy, but no trustee shall be entitled
to vote shares held by such trustee without a transfer of such shares into
the trustee's name.
(b) Shares standing in the name of a receiver may be voted by such
receiver; and shares held by or under the control of a receiver may be
voted by such receiver without the transfer thereof into the receiver's
name if authority to do so is contained in the order of the court by which
such receiver was appointed.
(c) Subject to the provisions of Section 705 of the California
General Corporation Law and except where otherwise agreed in writing
between the parties, a shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have been transferred into
the name of the pledgee, and thereafter the pledgee shall be entitled to
vote the shares so transferred.
(d) Shares standing in the name of a minor may be voted and the
Corporation may treat all rights incident thereto as exercisable by the
minor, in person or by proxy, whether or not the Corporation has notice,
actual or constructive, of the nonage, unless a guardian of the minor's
property has been appointed and written notice of such appointment given to
the Corporation.
(e) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxyholder as the bylaws
of such other corporation may prescribe or, in the absence of such
provision, as the Board of Directors of such other corporation may
determine or, in the absence of such determination, by the chairman of the
board, president or any vice president of such other corporation. Shares
which are purported to be voted or any proxy purported to be executed in
the name of a
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<PAGE>
corporation (whether or not any title of the person signing is indicated)
shall be presumed to be voted or the proxy executed in accordance with the
provisions of this subdivision, unless the contrary is shown.
(f) Shares of the Corporation owned by any subsidiary shall not be
entitled to vote on any matter.
(g) Shares held by the Corporation in a fiduciary capacity, and
shares of the issuing corporation held in a fiduciary capacity by any
subsidiary, shall not be entitled to vote on any matter, except to the
extent that the settlor or beneficial owner possesses and exercises a right
to vote or to give the Corporation binding instructions as to how to vote
such shares.
(h) If shares stand of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a shareholder voting
agreement or otherwise, or if two or more persons (including proxyholders)
have the same fiduciary relationship respecting the same shares, unless the
secretary of the Corporation is given written notice to the contrary and is
furnished with a copy of the instrument or order appointing them or
creating the relationship wherein it is so provided, their acts with
respect to voting shall have the following effect:
(i) If only one votes, such act binds all;
(ii) If more than one vote, the act of the majority so
voting binds all;
(iii) If more than one vote, but the vote is evenly split on
any particular matter, each faction may vote the securities in
question proportionately.
If the instrument so filed or the registration of the shares shows that any
such tenancy is held in unequal interests, a majority or even split for the
purpose of this section shall be a majority or even split in interest.
Subject to the following sentence and to the provisions of Section 708 of
the California General Corporation Law, every shareholder entitled to vote at
any election of directors may cumulate such shareholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which the shareholder's shares are normally
entitled, or distribute the shareholder's votes on the same principle among as
many candidates as the shareholder thinks fit. No shareholder shall be entitled
to cumulate votes for any candidate or candidates pursuant to the preceding
sentence unless such candidate or candidates' names have been placed in
nomination
-4-
<PAGE>
prior to the voting and the shareholder has given notice at a meeting prior to
the voting of the shareholder's intention to cumulate the shareholder's votes.
If any one shareholder has given such notice, all shareholders may cumulate
their votes for candidates in nomination. At the time the Corporation becomes a
listed corporation within the meaning of Section 301.5 of the California General
Corporation Law, the provisions of this paragraph shall be of no further force
and effect and no shareholder shall be entitled to cumulate such shareholder's
votes at any election of directors.
Elections need not be by ballot; provided, however, that all elections for
directors must be by ballot upon demand made by a shareholder at the meeting and
before the voting begins.
In any election of directors, the candidates receiving the highest number
of votes of the shares entitled to be voted for them up to the number of
directors to be elected by such shares are elected.
Section 8. Record Date. The Board may fix, in advance, a record date for
--------- -----------
the determination of the shareholders entitled to notice of any meeting to vote
or entitled to receive payment of any dividend or other distribution, or any
allotment of rights, or to exercise rights in respect of any other lawful
action. The record date so fixed shall be not more than 60 days nor less than
10 days prior to the date of the meeting nor more than 60 days prior to any
other action. When a record date is so fixed, only shareholders of record on
that date are entitled to notice of and to vote at the meeting or to receive the
dividend, distribution, or allotment of rights, or to the exercise of the
rights, as the case may be, notwithstanding any transfer of shares on the books
of the Corporation after the record date. A determination of shareholders of
record entitled to notice of or to vote at a meeting of shareholders shall apply
to any adjournment of the meeting unless the Board fixes a new record date for
the adjourned meeting. The Board shall fix a new record date if the meeting is
adjourned for more than 45 days.
If no record date is fixed by the Board, the record date for determining
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the business day next preceding the day on which
notice is given or, if notice is waived, at the close of business on the next
business day next preceding the day on which the meeting is held. The record
date for determining shareholders for any purpose other than set forth in this
Section 8 or Section 10 of this Article shall be at the close of business on the
- --------- ----------
day on which the Board adopts the resolution relating thereto, or the sixtieth
day prior to the date of such other action, whichever is later.
Section 9. Consent of Absentees. The transactions of any meeting of
--------- --------------------
shareholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after
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regular call and notice, if a quorum is present either in person or by proxy,
and if, either before or after the meeting, each of the persons entitled to
vote, not present in person or by proxy, signs a written waiver of notice, or a
consent to the holding of the meeting or an approval of the minutes thereof. All
such waivers, consents or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting. Neither the business to be transacted
at nor the purpose of any regular or special meeting of shareholders need be
specified in any written waiver of notice, except as provided in Section 601(f)
of the California General Corporation Law.
Section 10. Action Without Meeting. Subject to Section 603 of the
---------- ----------------------
California General Corporation Law, any action which, under any provision of the
California General Corporation Law, may be taken at any annual or special
meeting of shareholders, may be taken without a meeting and without prior notice
if a consent in writing, setting forth the action so taken, shall be signed by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Unless a
record date for voting purposes be fixed as provided in Section 8 of this
---------
Article, the record date for determining shareholders entitled to give consent
shall be the day on which the first written consent is given.
Section 11. Proxies. Every person entitled to vote shares has the right
---------- -------
to do so either in person or by one or more persons authorized by a written
proxy executed by such shareholder and filed with the Secretary. Every proxy
duly executed shall continue in full force and effect until revoked by the
person executing it prior to the vote pursuant thereto effected by a writing
delivered to the Corporation stating that the proxy is revoked or by a
subsequent proxy executed by the person executing the prior proxy and presented
to the meeting, or by attendance at the meeting and voting in person by the
person executing the proxy; provided, however, that no proxy shall be valid
after the expiration of eleven months from the date of its execution unless
otherwise provided in the proxy.
Section 12. Inspectors of Election. In advance of any meeting of
---------- ----------------------
shareholders, the Board may appoint any persons, other than nominees for office
inspectors of election to act at such meeting and any adjournment thereof. If
inspectors of election are not so appointed, or if any persons so appointed fail
to appear or refuse to act, the chairman of any such meeting may, and on the
request of any shareholder or shareholder's proxy shall, make such appointment
at the meeting. The number of inspectors shall be either one or three. If
appointed at a meeting on the request of one or more shareholders or proxies,
the majority of shares present shall determine whether one or three inspectors
are to be appointed.
-6-
<PAGE>
The duties of such inspectors shall be as prescribed by Section 707(b) of
the California General Corporation Law and shall include: determining the
number of shares outstanding and the voting power of each; the shares
represented at the meeting; the existence of a quorum; the authenticity,
validity and effect of proxies; receiving votes, ballots or consents; hearing
and determining all challenges and questions in any way arising in connection
with the right to vote; counting and tabulating all votes or consents;
determining when the polls shall close; determining the result; and doing such
acts as may be proper to conduct the election or vote with fairness to all
shareholders. If there are three inspectors of election, the decision, act or
certificate of a majority is effective in all respects as the decision, act or
certificate of all.
ARTICLE III
DIRECTORS
---------
Section 1. Powers. Subject to limitations of the Articles of
--------- ------
Incorporation, of these Bylaws and of the California General Corporation Law
relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the Corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board. The Board may delegate the management of the day-to-day operation of the
business of the Corporation to a management company or other person provided
that the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the Board.
Without prejudice to such general powers, but subject to the same limitations,
it is hereby expressly declared that the Board shall have the following powers
in addition to the other powers enumerated in these Bylaws:
(a) To select and remove all the other officers, agents and
employees of the Corporation, prescribe the powers and duties for them as
may not be inconsistent with applicable law, with the Articles of the
Corporation or these Bylaws, fix their compensation and require from them
security for faithful service.
(b) To conduct, manage and control the affairs and business of the
Corporation and to make such rules and regulations therefor not
inconsistent with applicable law, or with the Articles of the Corporation
or these Bylaws, as they may deem best.
(c) To adopt, make and use a corporate seal, and to prescribe the
forms of certificates of stock, and to alter the form of such seal and of
such certificates from time to time as in their judgment they may deem
best.
-7-
<PAGE>
(d) To authorize the issuance of shares of stock of the Corporation
from time to time, upon such terms and for such consideration as may be
lawful.
(e) To borrow money and incur indebtedness for the purposes of the
Corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecation or other evidences of debt and securities
thereof.
Section 2. Number of Directors. The authorized number of directors shall
--------- -------------------
be, until changed by amendment of the Articles or by a Bylaw duly adopted by the
shareholders, such number as may from time to time be authorized by resolution
of the Board of Directors or the shareholders, provided that such number shall
not be less than three (3) nor more than five (5).
Section 3. Election and Term of Office. The directors shall be elected
--------- ---------------------------
at each annual meeting of the shareholders, but if any such annual meeting is
not held or the directors are not elected thereat, the directors may be elected
at any special meeting of shareholders held for that purpose. Each director
shall hold office until the next annual meeting and until a successor has been
elected and qualified.
Section 4. Vacancies. Any director may resign effective upon giving
--------- ---------
written notice to the Chairman of the Board, the President, Secretary or the
Board, unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to take office when the resignation becomes effective.
Vacancies in the Board, except those existing as a result of a removal of a
director, may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director, and each director so elected
shall hold office until the next annual meeting and until such director's
successor has been elected and qualified.
A vacancy or vacancies in the Board shall be deemed to exist in the case of
the death, resignation or removal of any director, or if the authorized number
of directors be increased, or if the shareholders fail, at any annual or special
meeting of shareholders at which any director or directors are elected, to elect
the full authorized number of directors to be voted for at that meeting.
The Board may declare vacant the office of a director who has been declared
of unsound mind by an order of court or convicted of a felony.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. Any such election by written
consent other than to fill a vacancy
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<PAGE>
created by removal requires the consent of a majority of the outstanding shares
entitled to vote. If the Board accepts the resignation of a director tendered to
take effect at a future time, the Board or the shareholders shall have power to
elect a successor to take office when the resignation is to become effective.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of the director's term of office.
Section 5. Place of Meeting. Regular or special meetings of the Board
--------- ----------------
shall be held at any place within or without the State of California which has
been designated from time to time by the Board. In the absence of such
designation, regular meetings shall be held at the principal executive office of
the Corporation.
Section 6. Regular Meetings. Immediately following each annual meeting
--------- ----------------
of shareholders, the Board shall hold a regular meeting for the purpose of
organization, election of officers and the transaction of other business. Call
and notice of all such regular meetings of the Board of Directors is hereby
dispensed with. Other regular meetings of the Board shall be held without call
on such dates and at such times as may be fixed by the Board, and shall be
subject to the notice requirements set forth in Section 7 hereof.
---------
Section 7. Special Meetings. Special meetings of the Board for any
--------- ----------------
purpose or purposes may be called at any time by the Chairman of the Board, the
President or the Secretary or by any two directors.
Special meetings of the Board shall be held upon four days' written notice
or 48 hours' notice given personally or by telephone, telegraph, telecopier,
telex or other similar means of communication. Any such notice shall be
addressed or delivered to each director at such director's address as it is
shown upon the records of the Corporation or as may have been given to the
Corporation by the director for purposes of notice or, if such address is not
shown on such records or is not readily ascertainable, at the place in which the
meetings of the directors are regularly held.
Notice by mail shall be deemed to have been given at the time a written
notice is deposited in the United States mails, postage prepaid. Any other
written notice shall be deemed to have been given at the time it is personally
delivered to the recipient or is delivered to a common carrier for transmission,
or actually transmitted by the person giving the notice by electronic means, to
the recipient. Oral notice shall be deemed to have been given at the time it is
communicated in person or by telephone or wireless, to the recipient or to a
person at the office or residence of the recipient who the person giving the
notice has reason to believe will promptly communicate it to the recipient.
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<PAGE>
Section 8. Quorum. One third of the authorized number of directors or
--------- ------
two directors, whichever is larger, constitutes a quorum of the Board for the
transaction of business, except to adjourn as hereinafter provided. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the
Board, unless a greater number be required by law or by the Articles. A meeting
at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for such meeting.
Section 9. Participation in Meetings by Conference Telephone. Members of
--------- -------------------------------------------------
the Board may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another.
Section 10. Waiver of Notice. The transactions of any meeting of the
---------- ----------------
Board, however called and noticed or wherever held, are as valid as though had
at a meeting duly held after regular call and notice if a quorum be present and
if, either before or after the meeting, each of the directors not present signs
a written waiver of notice, a consent to holding such a meeting or an approval
of the minutes thereof. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Section 11. Adjournment. A majority of the directors present, whether
---------- -----------
or not a quorum is present, may adjourn any directors' meeting to another time
and place. Notice of the time and place of holding an adjourned meeting need
not be given to absent directors if the time and place be fixed at the meeting
adjourned. If the meeting is adjourned for more than 24 hours, notice of any
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the time of the
adjournment.
Section 12. Fees and Compensation. Directors and members of committees
---------- ---------------------
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by the Board.
Section 13. Action Without Meeting. Any action required or permitted to
---------- ----------------------
be taken by the Board may be taken without a meeting if all members of the Board
shall individually or collectively consent in writing to such action. Such
consent or consents shall have the same effect as a unanimous vote of the Board
and shall be filed with minutes of the proceedings of the Board.
Section 14. Rights and Inspection. Every director shall have the
---------- ---------------------
absolute right at any reasonable time to inspect and copy all books, records and
documents of every kind and to inspect the physical properties of the
Corporation and also of its subsidiary
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<PAGE>
corporations, domestic or foreign. Such inspection by a director may be made in
person or by agent or attorney and includes the right to copy and obtain
extracts.
Section 15. Committees. The Board may appoint one or more committees,
---------- ----------
each consisting of two or more directors, and delegate to such committees any of
the authority of the Board except with respect to:
(i) The approval of any action for which the California
General Corporation Law also requires shareholders' approval of the
outstanding shares.
(ii) The filling of vacancies on the Board or in any
committee;
(iii) The fixing of compensation of the directors for serving
on the Board or on any committee;
(iv) The amendment or repeal of Bylaws or the adoption of
new Bylaws;
(v) The amendment or repeal of any resolution of the Board
which by its express terms is not so amendable or repealable;
(vi) A distribution to the shareholders of the Corporation
except at a rate or in a periodic amount or within a price range
determined by the Board; or
(vii) The appointment of other committees of the Board or the
members thereof.
Any such committee must be appointed by resolution adopted by a majority of
the authorized number of directors and may be designated an Executive Committee
or by such other name as the Board shall specify. The Board shall have the
power to prescribe the manner in which proceedings of any such committee shall
be conducted. In the absence of any such prescription, such committee shall
have the power to prescribe the manner in which its proceedings shall be
conducted. Unless the Board or such committee shall otherwise provide, the
regular and special meetings and other actions of any such committee shall be
governed by the provisions of this Article applicable to meetings and actions of
the Board. Minutes shall be kept of each meeting of each committee.
ARTICLE IV
OFFICERS
--------
Section 1. Officers. The officers of the Corporation shall be a
--------- --------
President, a Secretary and a Chief Financial Officer. The Corporation may also
have, at the discretion of the Board, a Chairman of the Board, one or more Vice
Presidents, one or more Assistant Secretaries, one or more
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<PAGE>
Assistant Financial Officers and such other officers as may be elected or
appointed in accordance with the provisions of Section 3 of this Article.
---------
Section 2. Election. The officers of the Corporation, except such
--------- --------
officers as may be elected or appointed in accordance with the provisions of
Section 3 or Section 5 of this Article, shall be chosen annually by, and shall
- --------- ---------
serve at the pleasure of the Board, and shall hold their respective offices
until their resignation, removal or other disqualification from service, or
until their respective successors shall be elected.
Section 3. Subordinate Officers. The Board may elect, and may empower
--------- --------------------
the President to appoint such other officers as the business of the Corporation
may require, each of whom shall hold office for such period, have such authority
and perform such duties as are provided in these Bylaws or as the Board may from
time to time determine.
Section 4. Removal and Resignation. Any officer may be removed, either
--------- -----------------------
with or without cause, by the Board of Directors at any time or, except in the
case of an officer chosen by the Board, by any officer upon whom such power of
removal may be conferred by the Board. Any such removal shall be without
prejudice to the rights, if any, of the officer under any contract of
employment.
Any officer may resign at any time by giving written notice to the
Corporation, but without prejudice to the rights, if any, of the Corporation
under any contract to which the officer is a party. Any such resignation
shall take effect at the date of the receipt of such notice or at any later time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 5. Vacancies. A vacancy in any office because of death,
--------- ---------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular election or appointment to such
office.
Section 6. Chairman of the Board. The Chairman of the Board, if there
--------- ---------------------
shall be such an officer, shall, if present, preside at all meetings of the
Board and exercise and perform such other powers and duties as may be from time
to time assigned by the Board.
Section 7. President. Subject to such powers, if any, as may be given by
--------- ---------
the Board to the Chairman of the Board, if there be such an officer, the
President is the general manager and chief executive officer of the Corporation
and has, subject to the control of the Board, general supervision, direction and
control of the business and officers of the Corporation. The President shall
preside at all meetings of the shareholders and in the absence of the Chairman
of the Board, or if there be none, at all meetings of the Board. The President
has the general powers and duties of
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<PAGE>
management usually vested in the office of president and general manager of a
corporation and such other powers and duties as may be prescribed by the Board.
Section 8. Vice President. In the absence or disability of the
--------- --------------
President, the Vice Presidents in order of their rank as fixed by the Board or,
if not ranked, the Vice President designated by the Board, shall perform all the
duties of the President and, when so acting, shall have all the powers of, and
be subject to all the restrictions upon, the President. The Vice Presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board.
Section 9. Secretary. The Secretary shall keep or cause to be kept, at
--------- ---------
the principal executive office and such other place as the Board may order, a
book of minutes of all meetings of shareholders, the Board and its committees,
with the time and place of holding, whether regular or special, and if special,
how authorized, the notice thereof given, the names of those present at Board
and committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof. The Secretary shall keep,
or cause to be kept, a copy of the Bylaws of the Corporation at the principal
executive offices or business office in accordance with Section 213 of the
California General Corporation Law.
The Secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the Corporation's transfer agent or registrar, if one
be appointed, a share register, or a duplicate share register, showing the names
of the shareholders and their addresses, the number and classes of shares held
by each, the number and date of certificates issued for the same and the number
and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the shareholders of the Board and of any committees thereof required by these
Bylaws or by law to be given, shall keep the seal of the Corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board.
Section 10. Chief Financial Officer. The Chief Financial Officer is the
---------- -----------------------
chief financial officer of the Corporation and shall keep and maintain, or cause
to be kept and maintained, adequate and correct accounts of the properties and
business transactions of the Corporation, and shall send or cause to be sent to
the shareholders of the Corporation such financial statements and reports as are
by law or these Bylaws required to be sent to them. The books of account shall
at all times be open to inspection by any director.
The Chief Financial Officer shall deposit all monies and other valuables in
the name and to the credit of the Corporation with such depositories as may be
designated by the Board. The Chief
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<PAGE>
Financial Officer shall disburse the funds of the Corporation as may be ordered
by the Board, shall render to the President and directors, whenever they request
it, an account of all transactions entered into as Chief Financial Officer and
of the financial condition of the Corporation, and shall have such other powers
and perform such other duties as may be prescribed by the Board.
ARTICLE V
OTHER PROVISIONS
----------------
Section 1. Inspection of Corporate Records.
--------- -------------------------------
(a) A shareholder or shareholders holding at least five percent
(5%) in the aggregate of the outstanding voting shares of the Corporation
shall have an absolute right to do either or both of the following:
(i) Inspect and copy the record of shareholders' names and
addresses and shareholdings during usual business hours upon five
business days' prior written demand upon the Corporation; or
(ii) Obtain from the transfer agent, if any, for the
Corporation, upon five business days' prior written demand and upon
the tender of its usual charges for such a list (the amount of which
charges shall be stated to the shareholder by the transfer agent upon
request), a list of the shareholders' names and addresses who are
entitled to vote for the election of directors and their shareholdings
as of the most recent record date for which it has been compiled or as
of a date specified by the shareholder subsequent to the date of
demand.
(b) The record of shareholders shall also be open to inspection and
copying by any shareholder or holder of a voting trust certificate at any
time during usual business hours upon written demand on the Corporation,
for a purpose reasonably related to such holder's interest as a shareholder
or holder of a voting trust certificate.
(c) The accounting books and records and minutes of proceedings of
the shareholders and the Board and committees of the Board shall be open to
inspection upon written demand on the Corporation of any shareholder or
holder of a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests
as a shareholder or as a holder of such voting trust certificate.
(d) Any inspection and copying under this Article may be made in
person or by agent or attorney.
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<PAGE>
Section 2. Inspection of Bylaws. The Corporation shall keep in its
--------- --------------------
principal executive office the original or a copy of these Bylaws as amended to
date, which shall be open to inspection by shareholders at all reasonable times,
during office hours. If the principal executive office of the Corporation is
located outside the State of California and the Corporation has no principal
business office in such state, it shall upon the written notice of any
shareholder furnish to such shareholder a copy of these Bylaws as amended to
date.
Section 3. Endorsement of Documents; Contracts. Subject to the
--------- -----------------------------------
provisions of applicable law, any note, mortgage, evidence of indebtedness,
contract, share certificate, conveyance or other instrument in writing and any
assignment or endorsements thereof executed or entered into between the
Corporation and any other person, when signed by the Chairman of the Board, the
President or any Vice President and the Secretary, any Assistant Secretary, the
Chief Financial Officer or any Assistant Financial Officer of the Corporation
shall be valid and binding on the Corporation in the absence of actual knowledge
on the part of the other person that the signing officers had no authority to
execute the same. Any such instruments may be signed by another person or
persons and in such manner as from time to time shall be determined by the
Board, and, unless so authorized by the Board, no officer, agent or employee
shall have any power or authority to bind the Corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or
amount.
Section 4. Certificates of Stock. Every holder of shares of the
--------- ---------------------
Corporation shall be entitled to have a certificate signed in the name of the
Corporation by the Chairman of the Board, the President or a Vice President and
by the Chief Financial Officer or an Assistant Financial Officer or the
Secretary or an Assistant Secretary, certifying the number of shares and the
class or series of shares owned by the shareholder. Any or all of the
signatures on the certificate may be facsimile. If any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were an officer, transfer agent or registrar at
the date of issue.
Certificates for shares may be issued prior to full payment under such
restrictions and for such purposes as the Board may provide; provided, however,
that on any certificate issued to represent any partly paid shares, the total
amount of the consideration to be paid therefor and the amount paid thereon
shall be stated.
Except as provided in this section, no new certificate for shares shall be
issued in lieu of an old one unless the latter is surrendered and cancelled at
the same time. The Board may, however, if any certificate for shares is alleged
to have been
-15-
<PAGE>
lost, stolen or destroyed, authorize the issuance of a new certificate in lieu
thereof, and the Corporation may require that the Corporation be given a bond or
other adequate security sufficient to indemnify it against any claim that may be
made against it (including expense or liability) on account of the alleged loss,
theft or destruction of such certificate or the issuance of such new
certificate.
Section 5. Representation of Shares of other Corporations. The President
--------- ----------------------------------------------
or any other officer or officers authorized by the Board or the President are
each authorized to vote, represent and exercise on behalf of the Corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of the Corporation. The authority herein granted may be
exercised either by any such officer in person or by any other person authorized
so to do by proxy or power of attorney duly executed by said officer.
Section 6. Stock Purchase Plans. The Corporation may adopt and carry out
--------- --------------------
a stock purchase plan or agreement or stock option plan or agreement providing
for the issue and sale for such consideration as may be fixed of its unissued
shares, or of issued shares acquired or to be acquired, to one or more of the
employees or directors of the Corporation or of a subsidiary or to a trustee on
their behalf and for the payment for such shares in installments or at one time,
and may provide for aiding any such persons in paying for such shares by
compensation for services rendered, promissory notes or otherwise.
Any such stock purchase plan or agreement or stock option plan or agreement
may include, among other features, the fixing of eligibility for participation
therein, the class and price of shares to be issued or sold under the plan or
agreement, the number of shares which may be subscribed for, the method of
payment therefor, the reservation of title until full payment therefor, the
effect of the termination of employment and option or obligation on the part of
the Corporation to repurchase the shares upon termination of employment,
restrictions upon transfer of the shares, the time limits of and termination of
the plan, and any other matters, not in violation of applicable law, as may be
included in the plan as approved or authorized by the Board or any committee of
the Board.
Section 7. Annual Report to Shareholders. The annual report to
--------- -----------------------------
shareholders referred to in Section 1501 of the California General Corporation
Law is expressly waived, but nothing herein shall be interpreted as prohibiting
the Board from issuing annual or other periodic reports to shareholders.
Section 8. Construction and Definitions. Unless the context otherwise
--------- ----------------------------
requires, the general provisions, rules of construction and definitions
contained in the General Provisions of the California Corporations Code and in
the California General Corporation Law shall govern the construction of these
Bylaws.
-16-
<PAGE>
ARTICLE VI
INDEMNIFICATION
---------------
Section 1. Definitions. For the purposes of this Article, "agent" means
--------- -----------
any person who is or was a director, officer, employee or other agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or was a director,
officer, employee or agent of a foreign or domestic corporation which was a
predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation. "Proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative and "expenses" includes without limitation
attorneys' fees and any expenses of establishing a right to indemnification
under Sections 4 or 5(d).
------------------
Section 2. Indemnification in Actions by Third Parties. The Corporation
--------- -------------------------------------------
shall have power to indemnify any person who was or is a party or is threatened
to be made a party to any proceeding (other than an action by or in the right of
the Corporation to procure a judgment in its favor) by reason of the fact that
such person is or was an agent of the Corporation, against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with such proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in the best interests of the
Corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe the conduct of such person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which the person reasonably
believed to be in the best interests of the Corporation or that the person had
reasonable cause to believe that the person's conduct was unlawful.
Section 3. Indemnification in Actions by or in the Right of the
--------- ----------------------------------------------------
Corporation. The Corporation shall have the power to indemnify any person who
- -----------
was or is a party or is threatened to be made a party to any threatened, pending
or completed action by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that such person is or was an agent of the
Corporation, against expenses actually and reasonably incurred by such person in
connection with the defense or settlement of such action, provided that no such
person shall be indemnified for acts, omissions or transactions for which
California Corporations Code Section 204(a)(10) disallows eliminating or
limiting the personal liability of a director. No indemnification shall be made
under this Section 3 for any of the following:
---------
(a) In respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the Corporation in the
performance of such person's duty to the
-17-
<PAGE>
Corporation and its shareholders, unless and only to the extent that the
court in which such proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for expenses and then only
to the extent that the court shall determine;
(b) Of amounts paid in settling or otherwise disposing of a pending
action without court approval; or
(c) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
Section 4. Mandatory Indemnification Against Expenses. To the extent
--------- ------------------------------------------
that an agent of the Corporation has been successful on the merits in defense of
any proceeding referred to in Sections 2 or 3 or in defense of any claim, issue
---------------
or matter therein, the agent shall be indemnified against expenses actually and
reasonably incurred by the agent in connection therewith.
Section 5. Required Determinations. Except as provided in Section 4, any
--------- ----------------------- ---------
indemnification under this Article shall be made by the Corporation only if
authorized in the specific case, upon a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3, by any of the
---------------
following:
(a) A majority vote of a quorum consisting of directors who are not
parties to such proceeding;
(b) If a quorum of directors is not obtainable, by independent
legal counsel in a written opinion;
(c) Approval of the shareholders, with the shares owned by the
person to be indemnified not being entitled to vote thereon; or
(d) The court in which such proceeding is or was pending upon
application made by the Corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not
such application by the agent, attorney or other person is opposed by the
Corporation.
Section 6. Advance of Expenses. Expenses incurred in defending any
--------- -------------------
proceeding may be advanced by the Corporation prior to the final disposition of
such proceeding upon receipt of an undertaking by or on behalf of the agent to
repay such amount if it shall be determined ultimately that the agent is not
entitled to be indemnified as authorized in this Article.
Section 7. Other Indemnification. The indemnification provided by this
--------- ---------------------
section shall not be deemed exclusive of any other
-18-
<PAGE>
rights to which those seeking indemnification may be entitled under any
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in an official capacity and as to action in another capacity while
holding such office, to the extent such additional rights to indemnification are
authorized in the Articles of this corporation. The rights to indemnity
hereunder shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of the person. Nothing contained in this Article
shall affect any right to indemnification to which persons other than such
directors and officers may be entitled by contract or otherwise.
Section 8. Circumstances Where Indemnification Not Permitted. No
--------- -------------------------------------------------
indemnification or advance shall be made under this Article, except as provided
in Sections 4 or 5(d), in any circumstance where it appears:
------------------
(a) That it would be inconsistent with a provision of the Articles,
a resolution of the shareholders or an agreement in effect at the time of
the occurrence of the alleged cause of action asserted in the proceeding in
which the expenses were incurred or other amounts were paid, which
prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 9. Insurance. The Corporation shall have power to purchase and
--------- ---------
maintain insurance on behalf of any agent of the Corporation against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such whether or not the Corporation would have the
power to indemnify the agent against such liability under the provisions of this
Article.
Section 10. Nonapplicability to Fiduciaries of Employee Benefit Plans.
---------- ---------------------------------------------------------
This Article does not apply to a proceeding against any trustee, investment
manager or other fiduciary of an employee benefit plan in such person's capacity
as such, even though such person may also be an agent as defined in Section 1 of
---------
the employer Corporation. The Corporation shall have power to indemnify such a
trustee, investment manager or other fiduciary to the extent permitted by
subdivision (f) of Section 207 of the California General Corporation Law.
ARTICLE VII
AMENDMENTS
----------
These Bylaws may be amended or repealed either by approval of the
outstanding shares or by the approval of the Board; provided, however, that
after the issuance of shares, a Bylaw specifying or changing a fixed number of
directors or the maximum or minimum number or changing from a fixed to a
variable Board or vice versa may only be adopted by approval of the outstanding
shares.
-19-
<PAGE>
EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made as of this ___ day
---------
of ____________, 1998, by and among THE KEITH COMPANIES, INC., a California
corporation ("TKC"), KEITH ENGINEERING, INC., a California corporation ("KEI"),
--- ---
THE KEITH COMPANIES-NORTH COUNTIES, INC., a California corporation ("TKC-NC"),
------
ESI, ENGINEERING SERVICES, INC., a California corporation ("ESI"), ESII,
---
ENGINEERED SYSTEMS INTEGRATION, INC., a California corporation ("ESII"), JOHN M.
----
TETTEMER & ASSOCIATES, LTD., a California corporation ("JTMA") and ____________
----
("Indemnitee"). KEI, TKC-NC, ESI, ESII and JTMA are affiliated entities and
----------
together with any other entity which is presently or is in the future controlled
by, under common control with, or controlling TKC (an "Affiliate") shall
---------
together with TKC, be collectively referred to herein as the "Company."
-------
R E C I T A L S
- - - - - - - -
A. The Company and Indemnitee recognize the increasing difficulty in
obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting officers and directors to
expensive litigation risks at the same time as the availability and coverage of
liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers and directors of
the Company and to indemnify its officers and directors so as to provide them
with the maximum protection permitted by law.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, The Company and Indemnitee hereby agree as follows:
<PAGE>
1. Agreement to Indemnify.
----------------------
The Company hereby agrees to indemnify Indemnitee and hold Indemnitee
harmless to the full extent authorized or permitted by the provisions of the
General Corporation Law of California, or by any amendment thereof or other
statutory provision requiring, authorizing or permitting such indemnification
which may be adopted after the date hereof; provided, however, that any such
amendment or other statutory provision which further limits the availability of
or further restricts the Company's ability to provide such indemnification shall
operate prospectively only, to the extent permitted by law. This Agreement
shall be effective as of the date Indemnitee was first appointed as an officer
or director of the Company and/or any affiliate and Company's indemnification
obligations to Indemnitee hereunder shall terminate on the date Indemnitee
ceases to be an officer or director of the Company except (i) as provided in
Section 3 below, and (ii) the Company shall continue to be obligated to
- ---------
indemnify Indemnitee hereunder, after Indemnitee ceases to be an officer or
director, with respect to all claims arising out of events that occurred on or
prior to the date that Indemnitee ceased to be an officer or director.
2. Agreement to Serve.
------------------
In consideration of the protection afforded by this Agreement, Indemnitee
agrees to continue to serve as an officer and/or director of the Company at the
will of the Company (or under separate agreement, if such agreement exists) so
long as Indemnitee is duly appointed or elected and qualified in accordance with
the applicable provisions of the Bylaws of the Company or until such time as
Indemnitee tenders Indemnitee's resignation in writing. Nothing contained in
this Agreement is intended to create in Indemnitee any right to continued
employment.
3. Indemnification of Indemnitee as Employee.
-----------------------------------------
If, by mutual written consent of the Company and Indemnitee, Indemnitee
shall cease to serve as an officer or director of the Company but remains in the
employ of the Company, the Company's indemnification obligations created by this
Agreement shall terminate except as provided in Section 1 above. The Company
---------
shall, however, continue to be subject to the indemnification provisions of
Labor Code Section 2802 which provides that:
"An employer shall indemnify his employee for all that the employee
necessarily expends or loses in direct consequence of the discharge of his
duties as such, or of his obedience to the directions of the employer, even
though unlawful, unless the employee, at the time of obeying such
directions, believed them to be unlawful."
-2-
<PAGE>
4. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding for which
Indemnitee is entitled to be indemnified hereunder, until the final disposition
of such action, suit or proceeding. Indemnitee hereby undertakes to repay such
amounts advanced only if, and to the extent that, it shall ultimately be
determined that the Indemnitee is not entitled to be indemnified by the Company
as authorized hereby. The advances to be made hereunder shall be paid by the
Company to the Indemnitee as soon as possible following delivery of a written
request therefor by Indemnitee to the Company, but in no event more than twenty
(20) days after such request.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall give the Company
--------------------------------
notice in writing as soon as practicable of any claim made against Indemnitee
for which indemnification will or could be sought under this Agreement. Notice
to the Company shall be given and deemed received as provided in Section 12(d)
-------------
below. Indemnitee's omission to so notify the Company under this Section 4(b)
------------
shall not relieve the Company from any liability which it may have to Indemnitee
under this Agreement (provided that the Company shall retain the right to
reimbursement from the Indemnitee for any damages it may have suffered as a
result of the failure so to notify). In addition, Indemnitee shall give the
Company such information and cooperation as it may reasonably require and as
shall be within Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in Section 1
--------- ---------
and this Section 4 shall be made no later than twenty (20) days after receipt by
---------
the Company of the written request of Indemnitee. If a claim under this
Agreement, under any statute, or under any provision of the Company's Articles
of Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within twenty (20) days after a written request for payment thereof
has first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 12(c) of this Agreement, Indemnitee shall
-------------
also be entitled to be paid for the expenses (including attorneys' fees) of
bringing such action together with interest at the rate applicable to judgments.
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in connection with any action, suit or
proceeding in advance of its final disposition) that Indemnitee has not met the
standards of conduct which make it permissible under applicable law for the
Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Section 4(a) unless and until
------------
such defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the
Company contests Indemnitee's right to indemnification, the
-3-
<PAGE>
question of Indemnitee's right to indemnification shall be for the court to
decide, and neither the failure of the Company (including its Board of
Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its shareholders) to have made a determination that
indemnification of Indemnitee is proper in the circumstances because Indemnitee
has met the applicable standard of conduct required by applicable law, nor an
actual determination by the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its shareholders) that Indemnitee has not met such applicable standard of
conduct, shall create a presumption that Indemnitee has or has not met the
applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of a
------------------
claim pursuant to Section 4(b) hereof, the Company has director and officer
------------
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
under Section 4(a) hereof to pay the expenses of any proceeding against
------------
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel reasonably acceptable to the Indemnitee, upon
the delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ Indemnitee's counsel in any such proceeding at
Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of Indemnitee's counsel shall be at the
expense of the Company.
5. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Articles of
Incorporation, the Company's Bylaws or by statute. In the event of any change,
after the date of this Agreement, in any applicable law, statute or rule which
expands the right of a California
-4-
<PAGE>
corporation to indemnify a member of its Board of Directors or an officer, such
changes shall be, ipso facto, within the purview of Indemnitee's rights and
---- -----
Company's obligations, under this Agreement. In the event of any change in any
applicable law, statute or rule which narrows the right of a California
corporation to indemnify a member of its Board of Directors or an officer, such
changes, to the extent not otherwise required by such law, statute or rule to be
applied to this Agreement shall have no effect on this Agreement or the parties'
rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement shall
--------------
not be deemed exclusive of any rights to which Indemnitee may be entitled under
the Company's Articles of Incorporation, its Bylaws, any agreement, any vote of
shareholders or disinterested Directors, the California General Corporation Law,
or otherwise, both as to action in Indemnitee's official capacity and as to
action in another capacity while holding such office (an "Indemnified
Capacity"). The indemnification provided under this Agreement shall continue as
to Indemnitee for any action taken or not taken while serving in an Indemnified
Capacity even though Indemnitee may have ceased to serve in an Indemnified
Capacity at the time of any action, suit or other covered proceeding.
6. Partial Indemnification.
-----------------------
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the expenses, judgments,
fines or penalties actually or reasonably incurred by Indemnitee in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit or proceeding, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.
7. Enforcement.
-----------
(a) Public Policy. Both the Company and Indemnitee acknowledge that in
-------------
certain instances, federal law or public policy may override applicable state
law and prohibit the Company from indemnifying its directors and officers under
this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
-5-
<PAGE>
(b) Inducement. The Company expressly confirms and agrees that it has
----------
entered into this Agreement and assumed the obligations imposed on the Company
hereby in order to induce Indemnitee to continue to serve as a director or
officer of the Company and acknowledges that Indemnitee is relying upon this
Agreement in continuing in such capacity.
8. Officer and Director Liability Insurance.
----------------------------------------
The Company shall, from time to time, make the good faith determination, in
its sole and absolute discretion, whether it is practicable for the Company to
maintain a policy or policies of insurance with reputable insurance companies
providing the officers and directors of the Company with coverage for losses
from wrongful acts, or to ensure the Company's performance of its
indemnification obligations under this Agreement. Among other considerations,
the Company will weigh the costs of obtaining such insurance coverage against
the protection afforded by such coverage. In all policies of director and
officer liability insurance, Indemnitee shall be named as an insured in such a
manner as to provide Indemnitee the same rights and benefits as are accorded to
the most favorably insured of the Company's directors, if Indemnitee is a
director; or to the Company's officers, if Indemnitee is not a director of the
Company but is an officer; or to the Company's key employees, if Indemnitee is
not an officer or director but is a key employee. Notwithstanding the foregoing,
the Company shall have no obligation to obtain or maintain such insurance if the
Company, in its sole and absolute discretion, determines that such insurance is
not reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by insurance which would be duplicative.
9. Severability.
------------
Nothing in this Agreement is intended to require or shall be construed as
requiring the Company to do or fail to do any act in violation of applicable
law, and to the extent this Agreement requires any act or omission to act which
would be in violation of applicable law, such requirement shall be ipso facto
---- -----
eliminated herefrom. The Company's inability, pursuant to court order, to
perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 9. If this Agreement or any portion hereof shall be invalidated
---------
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
-6-
<PAGE>
10. Exceptions.
----------
Any other provision herein to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses to
------------------------------
Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
applicable law, but such indemnification or advancement of expenses may be
provided by the Company in specific cases if the Board of Directors finds it to
be appropriate; or
(b) Insured Claims. To indemnify Indemnitee for expenses or liabilities of
--------------
any type whatsoever (including, but not limited to, judgments, fines, ERISA
excise taxes or penalties, and amounts paid in settlement) which have been
actually paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company, without
further liability to the Indemnitee for reimbursement of any such amounts; or
(c) Claims Under Section 16(b). To indemnify Indemnitee for expenses or
--------------------------
the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar or successor statute (including any similar state
statute), if applicable, unless Indemnitee has otherwise complied with
applicable Company policy concerning purchases or sales of securities by
Indemnitee.
11. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, (i) any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that if Indemnitee is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, Indemnitee
shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as Indemnitee would have with
respect to such constituent corporation if its separate existence had continued,
and (ii) all past, present or future Affiliates.
-7-
<PAGE>
(b) For purposes of this Agreement, references to "other enterprise" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on Indemnitee with respect to an employee benefit plan; and
references to "serving at the request of the Company" shall include any service
as a director, officer, employee or agent of the Company which imposes duties
on, or involves services by, such director, officer, employee or agent with
respect to any employee benefit plan, its participants or beneficiaries.
12. Miscellaneous.
-------------
(a) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
(b) Successors and Assigns. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
(c) Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
(d) Notice. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by certified or registered mail with postage prepaid,
on the third business day after the date postmarked. Addresses for notice to
either party are as shown on the signature page of this Agreement, or as
subsequently modified by written notice.
(e) Consent to Jurisdiction. The Company and the Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California.
-8-
<PAGE>
(f) Choice of Law. This Agreement shall be governed by and its provisions
-------------
construed in accordance with the laws of the State of California, as applied to
contracts between California residents entered into and to be performed entirely
within California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE KEITH COMPANIES, INC.
By:__________________________________
Its:______________________________
Address: 2955 Red Hill Avenue
Costa Mesa, California 92626
KEITH ENGINEERING, INC.
By:__________________________________
Its:______________________________
Address: 2955 Red Hill Avenue
Costa Mesa, California 92626
-9-
<PAGE>
THE KEITH COMPANIES-NORTH
COUNTIES, INC.
By:__________________________________
Its:______________________________
Address: 2955 Red Hill Avenue
Costa Mesa, California 92626
ESI, ENGINEERING SERVICES, INC.
By:__________________________________
Its:______________________________
Address: 2955 Red Hill Avenue
Costa Mesa, California 92626
ESII, ENGINEERED SYSTEMS
INTEGRATION, INC.
By:__________________________________
Its:______________________________
Address: 2955 Red Hill Avenue
Costa Mesa, California 92626
-10-
<PAGE>
JOHN M. TETTEMER & ASSOCIATES, LTD.
By:_________________________________
Its:___________________________
Address: 2955 Red Hill Avenue
Costa Mesa, California 92626
AGREED TO AND ACCEPTED:
INDEMNITEE:
________________________________
(Address)
c/o The Keith Companies, Inc.
2955 Red Hill Avenue
Costa Mesa, CA 92626
-11-
<PAGE>
EXHIBIT 10.3
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE)
This Agreement is entered into between THE KEITH COMPANIES, INC. AND KEITH
ENGINEERING, INC.
doing business as California corporations
(herein called "Borrower") and IMPERIAL BANK (herein called "BANK").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts as may
be determined by Bank up to, but not exceeding in the aggregate unpaid
principal balance, the following Borrowing Base:
75.000% of Eligible Accounts
and in no event more than $ 5,000,000.00
2. The amount of each loan made by Bank to Borrower hereunder shall be debited
to the loan ledger account of Borrower maintained by Bank (herein called
"Loan Account") and Bank shall credit the Loan Account with all loan
repayments made by Borrower. Borrower promises to pay Bank (a) the unpaid
balance of Borrower's Loan Account on demand and (b) on or before the tenth
day of each month, interest on the average daily unpaid balance of the Loan
Account during the immediately preceding month at the rate of one and one
half percent (1.500%) per annum in excess of the rate of interest which Bank
has announced as its prime lending rate ("Prime Rate") which shall vary
concurrently with any change in such Prime Rate. Interest shall be computed
at the above rate on the basis of the actual number of days during which the
principal balance of the loan account is outstanding divided by 360, which
shall for interest computation purposes be considered one year. Bank at its
option may demand payment of any or all of the amount due under the Loan
Account including accrued but unpaid interest at any time. Such notice may
be given verbally or in writing and should be effective upon receipt by
Borrower. The amount of interest payable each month by Borrower shall not be
less than a minimum monthly charge of $ 250.00. Bank is hereby authorized to
charge Borrower's deposit account(s) with Bank for all sums due Bank under
this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by Borrower in
a form satisfactory to bank and shall contain a certification setting forth
the matters referred to in Section 1, which shall disclose that Borrower is
entitled to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
A. "Accounts" means any right to payment for goods sold or leased, or to be
sold or to be leased, or for services rendered or to be rendered no matter
how evidenced, including accounts receivable, contract rights, chattel
paper, instruments, purchase orders, notes, drafts, acceptances, general
intangibles and other forms of obligations and receivables.
B. "Collateral" means any and all personal property of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank now
has or hereafter acquires a security interest.
C. "Eligible Accounts" means all of Borrower's Accounts excluding, however,
(1) all Accounts under which payment is not received within 90 days from
any invoice date, (2) all Accounts against which the account debtor or any
other person obligated to make payment thereon asserts any defense,
offset, counterclaim or other right to avoid or reduce the liability
represented by the Account and (3) any Accounts if the account debtor or
any other person liable in connection therewith is insolvent, subject to
bankruptcy or receivership proceedings or has made an assignment for the
benefit of creditors or whose credit standing is unacceptable to Bank and
Bank has so notified Borrower. Eligible Accounts shall only include such
accounts as Bank in its sole discretion shall determine are eligible from
time to time.
5. Borrower hereby assigns to Bank all Borrower's present and future Accounts,
including all proceeds due thereunder, all guaranties and security therefor,
and hereby grants to Bank a continuing security interest in all moneys in the
Collateral Account referred to in Section 6 hereof, as security for any and
all obligations of Borrower to Bank, whether now owing or hereafter incurred
and whether direct, indirect, absolute or contingent. So long as Borrower is
indebted to Bank or Bank is committed to extend credit to Borrower, Borrower
will execute and deliver to Bank such assignments, including Bank's standard
forms of Specific or General Assignment covering individual Accounts,
notices, financing statements, and other documents and papers as Bank may
require in order to affirm, effectuate or further assure the assignment to
Bank of the Collateral or to give any third party, including the account
debtors obligated on the Accounts, notice of Bank's interest in the
Collateral.
6. Until Bank exercises its rights to collect the Accounts pursuant to paragraph
10, Borrower will collect with diligence all Borrower's Accounts, provided
that no legal action shall be maintained thereon or in connection therewith
without Bank's prior written consent. Any collection of Accounts by
Borrower, whether in the form of cash, checks, notes, or other instruments
for the payment of money (properly endorsed or assigned where required to
enable Bank to collect same), shall be in trust for Bank, and Borrower shall
keep all such collections separate and apart from all other funds and
property so as to be capable of identification as the property of Bank and
deliver said collections daily to Bank in the identical form received. The
proceeds of such collections when received by Bank may be applied by Bank
directly to the payment of Borrower's Loan Account or any other obligation
secured hereby. Any credit given by Bank upon receipt of said proceeds shall
be conditional credit subject to collection. Returned items at Bank's option
may be charged to Borrower's general account. All collections of the
Accounts shall be set forth on an itemized schedule, showing the name of the
account debtor, the amount of each payment and such other information as Bank
may request.
7. Until Bank exercises its rights to collect the Accounts pursuant to paragraph
10, Borrower may continue its present policies with respect to returned
merchandise and adjustments. However, Borrower shall immediately notify Bank
of all cases involving returns, repossessions, and loss or damage of or to
merchandise represented by the Accounts and of any credits, adjustments or
disputes arising in connection with the goods or services represented by the
Accounts and, in any of such events, Borrower will immediately pay to Bank
from its own funds (and not from the proceeds of Accounts or Inventory) for
application to Borrower's Loan Account or any other obligation secured hereby
the amount of any credit for such returned or repossessed merchandise and
adjustments made to any of the Accounts.
8. Borrower represents and warrants to Bank: (i) If Borrower is a corporation,
that Borrower is duly organized and existing in the State of its
incorporation and the execution, delivery and performance hereof are within
Borrower's corporate powers, have been duly authorized and are not in
conflict with law or the terms of any charter, by-law or other incorporation
papers, or of any indenture, agreement or undertaking to which Borrower is a
party by which Borrower is found or affected; (ii) Borrower is, or at the
time the collateral becomes subject to Bank's security interest will be, the
true and lawful owner of and has, or at the time the Collateral becomes
subject to Bank's security interest will have, good and clear title to the
Collateral, subject only to Bank's rights herein; (iii) Each Account is, or
at the time the Account comes into existence will be, a true and correct
statement of a bona fide indebtedness incurred by the debtor named therein in
the amount of the Account for either merchandise sold or delivered (or being
held subject to Borrower's delivery instructions) to, or services rendered,
performed and accepted by, the account debtor; (iv) That there are or will be
no defenses, counterclaims, or setoffs which may be asserted against the
Accounts; and (v) any and all financial information, including information
relating to the Collateral, submitted by Borrower to Bank, whether previously
or in the future, is or will be true and correct.
Page 1 of 2
<PAGE>
9. Borrower will: (i) Furnish Bank from time to time such financial statements
and information as Bank may reasonably request and inform Bank immediately
upon the occurrence of a material adverse change therein; (ii) Furnish Bank
periodically, in such form and detail and such times as Bank may require,
statements showing aging and reconciliation of the Accounts and collections
thereon; (iii) Permit representatives of Bank to inspect the Borrower's
books and records relating to the Collateral and make extracts therefrom at
any reasonable time and to arrange for verification of the Accounts, under
reasonable procedures, acceptable to Bank, directly with the account debtors
or otherwise at Borrower's expense; (iv) Promptly notify Bank of any
attachment or other legal process levied against any of the Collateral and
any information received by Borrower relative to the Collateral, including
the Accounts, the account debtors or other persons obligated in connection
therewith, which may in any way affect the value of the Collateral or the
rights and remedies of Bank in respect thereto; (v) Reimburse Bank upon
demand for any and all legal costs, including reasonable attorneys' fees,
and other expense incurred in collecting any sums payable by Borrower under
Borrower's Loan Account or any other obligation secured hereby, enforcing
any term or provision of this Security Agreement or otherwise on the
checking, handling and collection of the Collateral and the preparation and
enforcement of any agreement relating thereto; (vi) Notify Bank of each
location and of each office of Borrower at which records of Borrower
relating to the Accounts are kept; (vii) Provide, maintain and deliver to
Bank policies insuring the Collateral against loss or damage by such risks
and in such amounts, forms and companies as Bank may require and with loss
payable solely to Bank, and, in the event Bank takes possession of the
Collateral, the insurance policy or policies and any unearned or returned
premium thereon shall at the option of Bank become the sole property of
Bank, such policies and the proceeds of any other insurance covering or in
any way relating to the Collateral, whether now in existence or hereafter
obtained, being hereby assigned to Bank; (viii) In the event the unpaid
balance of Borrower's Loan Account shall exceed the maximum amount of
outstanding loans to which Borrower is entitled under Section 1 hereof,
Borrower shall immediately pay to Bank, from its own funds and not from the
proceeds of Collateral, for credit to Borrower' Loan Account the amount of
such excess.
10. Bank may at any time, without prior notice to Borrower, collect the Accounts
and may give notice of assignment to any and all account debtors, and
Borrower does hereby make, constitute and appoint Bank its irrevocable, true
and lawful attorney with power to receive, open and dispose of all mail
addressed to Borrower, to endorse the name of Borrower upon any checks or
other evidences of payment that may come into the possession of Bank upon
the Accounts to endorse the name of the undersigned upon any document or
instrument relating to the Collateral; in its name or otherwise, to demand,
sue for, collect and give acquittances for any and all moneys due or to
become due upon the Accounts; to compromise, prosecute or defend any action,
claim or proceeding with respect thereto; and to do any and all things
necessary and proper to carry out the purpose herein contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby shall
have been repaid in full, Borrower shall not sell, dispose of or grant a
security interest in any of the Collateral other than to Bank, or execute
any financing statements covering the Collateral in favor of any secured
party or person other than Bank.
12. Should: (i) Default be made in the payment of any obligation, or breach be
made in any warranty, statement, promise, term or condition, contained
herein or hereby secured; (ii) Any statement or representation made for the
purpose of obtaining credit hereunder prove false; (iii) Bank deem the
Collateral inadequate or unsafe or in danger of misuse; (iv) Borrower become
insolvent or make an assignment for the benefit of creditors; or (v) Any
proceeding be commenced by or against Borrower under any bankruptcy,
reorganization, arrangement, readjustment of debt of moratorium law or
statute; then in any such event, Bank may, at its option and without demand
first made and without notice to Borrower, do any one or more of the
following: (a) Terminate its obligation to make loans to Borrower as
provided in Section 1 hereof; (b) Declare all sums secured hereby
immediately due and payable; (c) Immediately take possession of the
Collateral wherever it may be found, using all necessary force so to do, or
require Borrower to assemble the Collateral and make it available to Bank at
a place designated by Bank which is reasonably convenient to Borrower and
Bank, and Borrower waives all claims for damages due to or arising from or
connected with any such taking; (d) Proceed in the foreclosure of Bank's
security interest and sale of the Collateral in any manner permitted by law,
or provided for herein; (e) Sell, lease or otherwise dispose of the
Collateral at public or private sale, with or without having the Collateral
at the place of sale, and upon terms and in such manner as Bank may
determine, and Bank may purchase same at any such sale; (f) Retain the
Collateral in full satisfaction of the obligations secured thereby; (g)
Exercise any remedies of a secured party under the Uniform Commercial Code.
Prior to any such disposition, Bank may, at as [sic] option, cause any of
the Collateral to be repaired or reconditioned in such manner and to such
extent as Bank may deem advisable, and any sums expended therefor by Bank
shall be repaid by Borrower and secured hereby. Bank shall have the right
to enforce one or more remedies hereunder successively or concurrently, and
any such action shall not estop or prevent Bank from pursuing any further
remedy which it may have hereunder or by law. If a sufficient sum is not
realized from any such disposition of Collateral to pay all obligations
secured by this Security Agreement, Borrower hereby promises and agrees to
pay Bank any deficiency.
13. If any writ of attachment, garnishment, execution or other legal process be
issued against any property of Borrower, or if any assessment for taxes
against Borrower, other than real property, is made by the Federal or State
government or any department thereof, the obligation of Bank to make loans
to Borrower as provided in Section 1 hereof shall immediately terminate and
the unpaid balance of the Loan Account, all other obligations secured hereby
and all other sums due hereunder shall immediately become due and payable
without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts, reports
and other types of documents and records submitted to Bank in connection
with the transactions contemplated herein at any time subsequent to four
months from the time such items are delivered to Bank.
16. Additional Provisions: SUBJECT TO THE CONDITIONS, RESTRICTIONS AND
LIMITATIONS CONTAINED IN THE ADDENDUM TO THE SECURITY AND LOAN AGREEMENT,
EXHIBIT "A" DATED FEBRUARY 9, 1998 AND ALL AMENDMENTS THERETO AND
REPLACEMENTS THEREFOR. (Initialed by Aram H. Keith)
Executed this 9th day of February, 1998
THE KEITH COMPANIES, INC.
--------------------------------------------
(Name of Borrower)
IMPERIAL BANK By: /s/ ARAM H. KEITH, PRESIDENT
-----------------------------------------
(Authorized Signature and Title)
By: /s/ DENISE PARDUE By: /s/ ARAM H. KEITH, PRESIDENT
----------------------------- -----------------------------------------
Denise Pardue, Vice President (Authorized Signature and Title)
*if none, insert "None"
Page 2 of 2
<PAGE>
"EXHIBIT A"
ADDENDUM TO SECURITY AND LOAN AGREEMENT BETWEEN THE KEITH COMPANIES, INC. AND
KEITH ENGINEERING, INC. AS CO-BORROWERS AND
IMPERIAL BANK
DATED FEBRUARY 9, 1998
This Addendum is made and entered into as of February 9, 1998, between THE
KEITH COMPANIES, INC. AND KEITH ENGINEERING, INC. ("Co-Borrowers") and IMPERIAL
BANK ("Bank"). This Addendum amends and supplements the Security and Loan
Agreement. In the event of any inconsistency between the terms herein and the
terms of the Security and Loan Agreement, the terms herein shall in all cases
govern and control. All capitalized terms herein, unless otherwise defined
herein, shall have the meaning set forth in the Security and Loan Agreement.
1. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts shall expire on FEBRUARY
8, 1999, subject to Bank's right to renew said commitment in its sole
discretion. Any such renewal of the commitment shall not be binding upon Bank
unless it is in writing and signed by an officer of the Bank.
2. Borrowers represent and warrant that:
a. LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrowers, and Borrowers are not in default
with respect to any order, writ, injunction, decree or demand of any court or
other governmental or regulatory authority.
b. FINANCIAL CONDITION. The consolidated balance sheet of Borrowers of
NOVEMBER 30, 1997, and the related profit and loss statement on that date, a
copy of which has heretofore been delivered to Bank by Borrowers, and all other
statements and data submitted in writing by Borrowers to Bank in connection
with this request for credit are true and correct, and said consolidated
balance sheet and profit and loss statement truly present the financial
condition of Borrowers as of the date thereof and the results of the operations
of Borrowers for the period covered thereby, and have been prepared in
accordance with generally accepted accounting principles on a basis
consistently maintained. Since such date, there have been no materially
adverse changes in the financial condition or business of Borrowers. Borrowers
have no knowledge of any liabilities, contingent or otherwise, at such date not
reflected in said consolidated balance sheet, and Borrowers have not entered
into any special commitments or substantial contracts which are not reflected
in said consolidated balance sheet, other than in the ordinary and normal
course of their businesses, which may have a materially adverse effect upon
their financial condition, operations or businesses as now conducted.
c. TRADEMARKS, PATENTS. Borrowers, as of the date hereof, possess all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct their business as now operated, without any known conflict
with valid trademarks, trade names, copyrights, patents and license rights of
others.
<PAGE>
EXHIBIT A
PAGE 2
-
d. TAX STATUS. Borrowers have no liability for any delinquent state,
local or federal taxes, and, if Borrowers have contracted with any government
agency, Borrowers have no liability for renegotiation of profits.
3. Borrowers agree that so long as they are indebted to Bank, they WILL NOT,
without Bank's WRITTEN CONSENT
a. TYPE OF BUSINESS. MANAGEMENT Make any substantial change in the
character of their businesses; or make any change in their executive
management.
b. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys other than loans from Bank except obligations
now existing as shown in consolidated financial statement dated NOVEMBER 30,
1997, including those being refinanced by Bank; or sell or transfer, either
with or without recourse, any accounts or notes receivable or any moneys due to
become due.
c. LIENS AND ENCUMBRANCES. Create, incur, assume any mortgage, pledge,
encumbrance, lien or charge of any kind (including the charge upon property at
any time purchased or acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired by them, other than
liens for taxes not delinquent, and liens in Bank's favor, and other than liens
permitted under Section 3. h .
d. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances
to any person or other entity other than in the ordinary and normal course of
their businesses as now conducted or make any investment in the securities of
any person or other entity other than the United States Government; or
guarantee or otherwise become liable upon the obligation of any person or other
entity, except by endorsement of negotiable instruments for deposit or
collection in the ordinary and normal course of their businesses.
e. ACQUISITION OR SALE OF BUSINESS; Merger or Consolidation. Purchase or
otherwise acquire the assets or business of any person or other entity; or
liquidate, dissolve, merge or consolidate, or commence any proceedings
therefore; or sell any assets except in the ordinary and normal course of their
businesses as now conducted; or sell, lease, assign, or transfer any
substantial part of their businesses or fixed assets, or any property or other
assets necessary for the continuance of their businesses as now conducted,
including without limitation the selling of any property or other asset
accompanied by the leasing back of the same.
f. DIVIDENDS, STOCK PAYMENTS. Declare or pay any dividend (other than
dividends payable in common stocks of Borrowers) or make any other distribution
on any of their capital stock now outstanding or hereafter issued, or purchase,
redeem or retire any of such stock.
g. CAPITAL EXPENDITURES. Make or incur obligations for capital
expenditures in excess of $1,500,000 in any one fiscal year.
<PAGE>
EXHIBIT A
PAGE 3
-
h. LEASE LIABILITY. Make or incur liability for payments of rent under
existing operating and capital leases of real property in excess of $1,660,000
in any one fiscal year or incur obligations for payment under new operating and
capital lease obligations in excess of $750,000 in any one fiscal year.
4. Should there be a default under the Security and Loan Agreement, the
General Security Agreement, or under the Note, all obligations, loans and
liabilities of Borrowers to Bank, due or to become due, whether now existing or
hereafter arising, shall, at the option of Bank, (i) in the case of any
financial covenant default, payment default or voluntary or involuntary
bankruptcy of the Borrowers become immediately due and payable without notice or
demand, and (ii) in the case of any other breach after 10 days and notice from
the Bank will become due and payable, and Bank shall thereupon have the right to
exercise all of its default rights and remedies. The default rate of interest
shall be five percent per year in excess of the rate otherwise charged.
5. As a condition precedent to Bank's obligation to make any advances to
Borrowers, Borrower shall, among other things: cause a guarantee to be executed
by ARAM H. KEITH in the amount of $5,000,000 in form and substance satisfactory
to Bank.
6. In addition to the provisions in the Security and Loan Agreement, Eligible
Accounts shall only include such accounts as Bank in its sole discretion shall
determine are eligible from time to time. "Eligible Accounts" shall also NOT
include any of the following:
a. Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrowers.
b. Accounts with respect to which 25% or more of the account debtor's
total accounts or obligations outstanding to Borrowers are more than 90 days
from invoice date.
c. Salesmen's accounts for promotional purposes.
d. For accounts representing more than 20% of total accounts receivable,
the balance in excess of the 20%. However, the Bank may deem, at its sole
discretion, the entire amount, or any portion thereof, eligible. With respect
to COX COMMUNICATIONS, INC. the balance in excess of 25% of the total accounts
receivable will be ineligible, unless the Bank deems the entire amount eligible
in its sole discretion.
<PAGE>
EXHIBIT A
PAGE 4
-
e. Accounts with respect to international transactions unless insured by
an insurance company acceptable to the Bank or covered by letters of credit
issued or confirmed by a bank acceptable to the Bank.
f. Credit balances greater than 90 days from invoice date.
g. U.S. Government receivables, unless formally assigned to the Bank.
h. Accounts over 90 days from invoice date.
i. Accounts where the account debtor is a seller to Borrowers, whereby a
potential offset exists.
j. Consignment or guaranteed sales.
k. Contract receivables; bill and hold accounts.
l. Equipment and rental offsets; collection accounts (aged up to 90 days
from invoice date).
7. All financial covenants and financial information referenced herein shall
be interpreted and prepared in accordance with generally accepted accounting
principles applied on a basis consistent with previous years. Compliance with
financial covenants shall be calculated and monitored on a quarterly basis,
commencing December 31, 1997.
8. Borrowers affirmatively covenant that so long as any loans, obligations or
liabilities remain outstanding or unpaid to Bank, they WILL:
a. Have and maintain a Minimum Tangible Net Worth (meaning the excess of
all assets, excluding any value for goodwill, trademarks, patents, copyrights,
organization expense and other similar intangible items, over its liabilities,
less subordinated debt) of not less than $1,500,000 from 12/31/97 increasing to
$1,750,000 from 03/31/98; increasing to $2,250,000 from 06/30/98; increasing to
$2,500,000 from 09/30/98 and increasing to $2,750,000 at FYE 12/31/98;
increasing by $250,000 on a quarterly basis thereafter.
b. Have and maintain a ratio of total liabilities to Tangible Net Worth
of not greater than 6.25 to 1.0 from 12/31/97; decreasing to 5.50 to 1.0 from
03/31/98; decreasing to 4.50 to 1.0 from 06/30/98; decreasing to 4.0 to 1.0 from
09/30/98; decreasing to 3.25 to 1.0 from FYE 12/31/98 and decreasing to 3.0 to
1.0 thereafter.
c. Have and maintain a Current Ratio of not less than .90 to 1.0 from
12/31/97; increasing to 1.10 to 1.0 from 03/31/98; increasing to 1.15 to 1.0
from 06/30/98;
<PAGE>
EXHIBIT A
Page 5
-
increasing to 1.20 to 1.0 from 09/30/98; increasing to 1.25 to 1.0 from FYE
12/31/98 and thereafter. Current Ratio shall mean Current Assets divided by
Current Liabilities.
d. Have and maintain a minimum Coverage Ratio [EBITDA less non-financed
CAPEX less cash taxes paid, divided by interest expense, plus CPLTD plus Current
Portion of Notes Payable plus Capital Leases] of not less than 1.25 to 1.0.
EBITDA is defined as earnings before interest expense, taxes, depreciation and
amortization for the prior 12 month period. CAPEX is defined as amounts paid,
or indebtedness incurred by the Borrowers, in connection with the purchase or
lease by the Borrowers of fixed assets with useful lives of greater than one
year. As used in the Coverage Ratio, CAPEX will exclude those purchases or
leases financed by outside creditors as permitted under this agreement. CPLTD
is defined as those current maturities of long term debt and capital leases
which are due within the succeeding 12 month period.
e. Maintain profitable operations both quarterly and at fiscal year end.
f. Maintain all significant bank deposit accounts and banking relationship
with Bank.
g. Within 10 days from each month-end, deliver to Bank accounts receivable
agings reconciled to the general ledgers of Borrowers, detailed accounts
payable agings reconciled to the Borrowers' general ledgers and setting forth
the amount of any book overdrafts or the amount of checks issued but not sent.
All the foregoing will be in a form and with such detail as Bank may request
from time to time.
h. Within 30 days after the end of each month, deliver to Bank a profit
and loss statement and a balance sheet in form satisfactory to Bank all
certified by an officer of Borrowers, and 30 days after the end of each quarter
a letter certifying compliance with all loan covenants signed by the Chief
Financial Officers of Borrowers.
i. Within 120 days after the end of Borrowers' fiscal year, deliver to
Bank the same financial statements as otherwise provided monthly together with
Changes in Financial Position Statement, prepared on an audited basis by an
independent certified public accountant selected by Borrowers, but acceptable to
Bank.
j. On a quarterly basis, provide Bank with an alphabetized list of
customers including addresses.
k. By April 30, 1998, deliver to Bank the CPA audited FYE 1995 and FYE
1996 financial statements, prepared by a nationally recognized independent
certified public accountant selected by Borrowers but acceptable to Bank.
l. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of their businesses; maintain their
properties, equipment and facilities in good order and repair; conduct their
businesses in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve their existence.
<PAGE>
EXHIBIT A
Page 6
-
m. INSURANCE. Maintain public liability, property damage and workers
compensation insurance and insurance on all their insurable property against
fire and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses. Borrowers shall provide evidence of property
insurance in amounts and types acceptable to the Bank and Bank shall be named as
Loss Payee in a Lender's Loss Payable Endorsement form 438BFU or equivalent.
n. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same become
delinquent and before penalties accrue thereon, all taxes, assessments and
governmental charges upon or against them or any of their properties, and any of
their other liabilities at any time existing, except to the extent and so long
as:
(a) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
effect upon their financial condition or the loss of any right of
redemption from any sale thereunder; and
(b) They shall have set aside on their books reserves (segregated to the
extent required by generally accepted accounting practice) deemed by
them adequate with respect thereto.
o. RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit Bank's representatives to have access to,
and to examine their properties, books and records at all reasonable times.
P. SUBORDINATION. Cause the following dollar amounts due to the named
note holder(s) to be subordinated to Bank's line of credit by subordination
agreement(s) acceptable to Bank:
<TABLE>
<S> <C>
Erica Keith Educational Trust $ 129,205
Ryan Keith Educational Trust $ 11,066
Kimberly Keith Educational Trust $ 32,956
William Scott Larkins Reid Housing Trust $ 47,676
Susan Elizabeth Reid Housing Trust $ 84,576
Ruth Ann Reid Housing Trust $ 51,843
----------
$ 357,322
Aram H. Keith $ 910,177
Floyd S. Reid $ 129,815
Walter W. Cruttenden III $ 700,000
----------
$1,737,992
TOTAL $2,095,314
</TABLE>
<PAGE>
EXHIBIT A
Page 7
-
9. The extensions of credit under the Security and Loan Agreement shall be
available as follows: Up to $5,000,000 in direct advances.
10. FEES AND INTEREST:
The rate of interest applicable to the Line of Credit Loan Account shall be
1.50% in excess of the rate of interest which Bank has announced as its prime
lending rate ("Prime Rate") which shall vary concurrently with any change in
such Prime Rate. A documentation fee of $250 shall be due upon execution of
documents as will a commitment fee of $50,000 also be due.
Interest shall be computed at the above rate on the basis of the actual number
of days during which the principal balance of the loan account is outstanding
divided by 360, which shall for interest computation purposes be considered one
year. The default rate shall be five percent per year in excess of the rate
otherwise applicable.
If any installment payment, interest payment, principal payment or principal
balance payment due hereunder is delinquent twenty or more days, Borrower
agrees to pay Bank a late charge in the amount of 5% of the payment so due and
unpaid, in addition to the payment; but nothing in this paragraph is to be
construed as any obligation on the part of Bank to accept payment of any
payment past due or less than the total unpaid principal balance after
maturity. All payments shall be applied first to any late charges owing, then
to interest and the remainder, if any, to principal.
11. MISCELLANEOUS PROVISIONS. Failure or Indulgence Not Waiver. No failure or
delay on the part of your Bank or any holder or Notes Issued hereunder, in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof or of any other
right, power or privilege. All rights and remedies existing under this
agreement or any not issued in connection with a loan that your Bank may make
hereunder, are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
12. NOTICE OF DEFAULT. Borrower shall promptly notify Bank in writing of the
occurrence of any event of default hereunder or any event which upon notice and
lapse of time would be an event of default.
13. REFERENCE PROVISION. The terms of the attached Reference Provisions are
incorporated herein.
This addendum is executed by and on behalf of the parties as of the date
first above written.
(signatures on the following page)
<PAGE>
EXHIBIT A
Page 8
-
THE KEITH COMPANIES, INC. AND KEITH ENGINEERING, INC.
"CO-BORROWERS"
BY: /s/ ARAM H. KEITH BY: /s/ ARAM H. KEITH
- ----------------------------- -----------------------------
KEITH COMPANIES, INC. KEITH ENGINEERING, INC.
President President
- --------- ---------
Title Title
IMPERIAL BANK, "BANK"
BY: /s/ DENISE PARDUE
- ------------------------------
Vice President
- --------------
Title
<PAGE>
REFERENCE PROVISION
-------------------
1. Other than (i) non-judicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii)
the appointment of a receiver, or the exercise of other provisional remedies
(any and all of which may be initiated pursuant to applicable law), each
controversy, dispute or claim between the parties arising out of or relating to
this Note ("Agreement"), which controversy, dispute or claim is not settled in
writing within thirty (30) days after the "Claim Date" (defined as the date on
which a party subject to the Agreement gives written notice to all other
parties that a controversy, dispute or claim exists), will be settled by a
reference proceeding in California in accordance with the provisions of Section
638 et seq. of the California Code of Civil Procedure ("CCP"), or their
------
successor, section which shall constitute the exclusive remedy for the
settlement of any controversy, dispute or claim concerning this Agreement,
including whether such controversy, dispute or claim is subject to the
reference proceeding and except as set forth above, the parties waive their
rights to initiate any legal proceedings against each other in any court or
jurisdiction other than the Superior Court in the County where the Real
Property, if any, is located or Los Angeles County if none (the "Court"). The
referee shall be a retired Judge of the Court selected by mutual agreement of
the parties, and if they cannot so agree within forty-five (45) days after the
Claim Date, the referee shall be promptly selected by the Presiding Judge of
the Court (or his representative). The referee shall be appointed to sit as a
temporary judge, with all of the powers of a temporary judge, as authorized by
law, and upon selection should take and subscribe to the oath of office as
provided for in Rule 244 of the California Rules of Court (or any subsequently
enacted Rule). Each party shall have one peremptory challenge pursuant to CCP
(S)170.6. The referee shall (a) be requested to set the matter for hearing
within sixty (60) days after the Claim Date and (b) try any and all issues of
law or fact and report a statement of decision upon them, if possible, within
ninety (90) days of the Claim Date. Any decision rendered by the referee will
be final, binding and conclusive and judgment shall be entered pursuant to CCP
(S)644 in any court in the State of California having jurisdiction. Any party
may apply for a reference proceeding at any time after thirty (30) days
following the notice to any other party of the nature of the controversy,
dispute or claim, by filing a petition for a hearing and/or trial. All
discovery permitted by this Agreement shall be completed no later than fifteen
(15) days before the first hearing date established by the referee. The
referee may extend such period in the event of a party's refusal to provide
requested discovery for any reason whatsoever, including, without limitation,
legal objections raised to such discovery or unavailability of a witness due to
absence or illness. No party shall be entitled to "priority" in conducting
discovery. Depositions may be taken by either party upon seven (7) days
written notice, and request for production or inspection of documents shall be
responded to within ten (10) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties. Pending
<PAGE>
appointment of the referee as provided herein, the Court is empowered to issue
temporary and/or provisional remedies, as appropriate.
2. Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter, except that when any
party so requests, a court reporter will be used at any hearing conducted
before the referee. The party making such a request shall have the obligation
to arrange for and pay for the court reporter. The costs of the court reporter
at the trial shall be borne equally by the parties.
3. The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The rules
of evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to
enter equitable as well as legal relief, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding upon
the parties. The referee shall issue a single judgment at the close of the
reference proceeding which shall dispose of all of the claims of the parties
that are the subject of the reference. The parties hereto expressly reserve
the right to contest or appeal from the final judgment or any appealable order
or appealable judgment entered by the referee. The parties hereto expressly
reserve the right to findings of fact, conclusions of law, a written statement
of decision, and the right to move for a new trial or a different judgment,
which new trial, if granted, is also to be a reference proceeding under this
provision.
4. In the event that the enabling legislation which provides for appointment
of a referee is repealed (and no successor statute is enacted), any dispute
between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, (S)1280 through (S)1294.2 of the CCP as
amended from time to time. The limitations with respect to discovery as set
forth hereinabove shall apply to any such arbitration proceeding.
<PAGE>
EXHIBIT 10.4
First Amendment to Security and Loan Agreement
(Accounts Receivable)
This First Amendment ("Amendment") amends that certain Security and Loan
Agreement (Accounts Receivable) ("Security and Loan Agreement") with the
attached Addendum ("Addendum") both dated February 9 , 1998 (such Security and
Loan Agreement and Addendum herein referred to as "Agreement") by and between
Imperial Bank ("Bank") The Keith Companies, Inc. and Keith Engineering, Inc.
("Co-Borrowers") as follows-.
1. The first paragraph of the Security and Loan Agreement is hereby amended to
read in full as follows:
"This Agreement is entered into between The Keith Companies ("Companies"),
Keith Engineering ("Engineering"), ESI, Engineering Services, Inc. ("ESI")
("Companies, Engineering and ESI each a co-borrower hereunder and jointly and
severally herein called "Borrower") and IMPERIAL BANK (herein called "Bank")"
2. ESI is hereby added as a Borrower to the Agreement, and wherever the term
"Borrower" "Borrowers", "Co-Borrower" or "Co-Borrowers" is used in the Agreement
it shall mean each Borrower jointly and severally.
3. Paragraph 1. of the Agreement is amended by deleting the term "75.000% of
Eligible Accounts" therefrom and substituting the following therefore:
"75.000% of the Eligible Accounts of Companies and Engineering, and 80.000%
of the Eligible Accounts of ESI"
4. Paragraph 1. of the Addendum is hereby amended in full to read as follows:
"1. a. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts shall expire on FEBRUARY
8, 1999, subject to Bank's right to renew said commitment at its sole
discretion. Any renewal of the commitment shall not be binding upon the Bank
unless it is in writing and signed by an officer of the Bank.
b. The extensions of credit under the Security and Loan Agreement
shall be available as follows:
(i). Up to $5,000,000 in direct advances.
(ii). Up to $ 150,000 for the issuance of a standby letter of credit with
a termination date of no later than January 31, 1999.
<PAGE>
(iii) The aggregate amount of all (a) direct advances to ESI and (b) all
letters of credit issued by the Bank for the Account of ESI cannot exceed
$750,000 at any one time.
(iv). The combined outstandings of (i) and (ii) shall not exceed
$5,000,000.
5. The following is added as sub-paragraph m to Paragraph 6 of the Addendum:
"m Any account receivable of any Borrower shall be ineligible until such
time that Bank has perfected a first priority security interest in any such
account."
6. The following is added as Paragraph l4 of the Addendum:.
" 14. a . Each of the Borrowers is accepting joint and several liability
hereunder in consideration of the financial accommodations to be provided by the
Bank, for, the mutual benefit, directly and indirectly, of each of the Borrowers
and in consideration of the undertakings of each of the Borrowers to accept
joint and several liability for the obligations of each of them.
b. Each of the Borrowers, jointly and severally, hereby irrevocable and
unconditionally accept, not merely as a surety but also as a co-debtor, joint
and several liability with each of the other Borrowers, with respect to the
payment and performance of all of the obligations of each Borrower to Bank
hereunder, it being the intention of the parties hereto that all the obligations
of any Borrower to Bank be joint and several obligations of all of the Borrowers
without preferences or distinction among them.
c. If and to the extent that any of the Borrowers shall fail to make any
payment with respect of any of the obligations hereunder when due, or to perform
any of such obligations in accordance with the terms thereof, then in each such
event each of the other Borrowers will make such payment with respect to, or
perform such obligation.
d. The obligations of each Borrower under the provisions of this Section 14
constitute the absolute and unconditional obligations of such Borrower
enforceable against it to the full extent permitted under the terms hereof,
irrespective of the validity, regularity or enforceability of this Agreement or
any other circumstances whatsoever.
e. Each Borrower waives (i) any notice of acceptance of its joint and several
liability, or any right to require the Bank to proceed against any other
Borrower or any other person, firm or corporation or to proceed against or
exhaust any security held by it at any time or to pursue any other remedy in its
power, (ii) any defense that may arise by reason of the incapacity, lack of
authority, death or disability of, or revocation hereof by any other Borrower or
others or the failure of the Bank to file or enforce a claim against the estate
(either in administration, bankruptcy or other proceeding) of any other Borrower
or any others, (iii) demand, protest and notice of any kind including, without
limiting the generality of the foregoing, notice of the existence, creation or
incurring of new or additional indebtedness or of any action or non-action
<PAGE>
on the part of any Borrower, the Bank, any endorser, creditor of any Borrower
under this or any other instrument, or any other person whomsoever, in
connection with any obligation or evidence of indebtedness of the Borrowers;
(iv) any defense based upon an election of remedies by the Bank, including,
without limitation, an election to proceed by nonjudicial rather than judicial
foreclosure, which election destroys or otherwise impairs subrogation rights of
any Borrower or the right of a Borrower to proceed against any other Borrower
for reimbursement, or both, and (v) any defense or right based upon the
acceptance by the Bank or an affiliate of the Bank of a deed in lieu of
foreclosure, without extinguishing the indebtedness, even if such acceptance
destroys, alters or otherwise impairs subrogation rights of any Borrower or the
right of any Borrower to proceed against any other Borrower for reimbursement,
or both."
7. Except as provided above, the Agreement remains unchanged.
8. This Amendment is effective as of March 23, 1998, and the parties hereby
confirm that the Agreement as amended is in full force and effect.
THE KEITH COMPANIES, INC.
By: /s/ ARAM H. KEITH
Name: Aram H. Keith
Title:
Signatures continued on next page.
<PAGE>
KEITH ENGINEERING, INC
By: /s/ ARAM H. KEITH
Name: Aram H. Keith
Title:
ESI, ENGINEERING SERVICES, INC.
By: /s/ ARAM H. KEITH
Name: Aram H. Keith
Title:
IMPERIAL BANK
By: /s/ DENISE PARDUE
Name: Denise Pardue
Title: V.P.
<PAGE>
EXHIBIT 10.5
Second Amendment to Security and Loan Agreement
(Accounts Receivable)
This Second Amendment ("Amendment") amends that certain Security and Loan
Agreement (Accounts Receivable) ("Security and Loan Agreement") with the
attached Addendum ("Addendum") both dated February 9 , 1998, as amended (such
Security and Loan Agreement and Addendum herein referred to as "Agreement") by
and between Imperial Bank ("Bank"), The Keith Companies, Inc., Keith
Engineering, Inc., and ESI, Engineering Services, Inc. ("Co-Borrowers") as
follows:
1. Paragraph 8.b of the Addendum is hereby amended in full to read as
follows:
"b. Have and maintain a ratio of total liabilities to Tangible Net Worth of
not greater than 6.25 to 1.0 from 12/31/97 through 3/30/98; decreasing to 5.50
to 1.0 from 3/31/98 through 6/29/98, decreasing to 4.75 to 1.0 from 6/30/98
through 9/29/98; decreasing to 4.00 to 1.0 from 9/30/98 through 12/30/98;
decreasing to 3.25 to 1.0 from 12/31/98 and thereafter."
2. Paragraph 8.c of the Addendum is hereby amended in full to read as follows:
"c. Have and maintain a Current Ratio of not less than .90:1 to 1.0 from
12/31/97 through 3/30/98; increasing to 1.10 to 1.0 from 3/31/98 through 6/29/98
; decreasing to .90 to 1.0 from 6/30/98 through 9/29/98; increasing to .95 to
1.0 from 9/30/98 through 12/30/98; increasing to 1.00 to 1.0 from 12/31/98 and
thereafter. Current Ratio shall mean Current Assets divided by Current
Liabilities."
3 Except as provided above, the Agreement remains unchanged.
4 This Amendment is effective as of June 22, 1998, and the parties hereby
confirm that the Agreement as amended is in full force and effect.
THE KEITH COMPANIES, INC.
By: /s/ ARAM H. KEITH
Name: Aram H. Keith
Title: President
SIGNATURES CONTINUED ON NEXT PAGE
<PAGE>
KEITH ENGINEERING, INC.
By: /s/ ARAM H. KEITH
Name: Aram H. Keith
Title: President
ESI, ENGINEERING SERVICES, INC.
By: /s/ ARAM H. KEITH
Name: Aram H. Keith
Title: President
IMPERIAL BANK
By: /s/ DENISE PARDUE
Name: Denise Pardue
Title: VP
<PAGE>
EXHIBIT 10.6
Third Amendment to Security and Loan Agreement
(Accounts Receivable)
This Third Amendment ("Amendment") amends that certain Security and Loan
Agreement (Accounts Receivable) ("Security and Loan Agreement") with the
attached Addendum ("Addendum") both dated February 9, 1998, as amended (such
Security and Loan Agreement and Addendum herein referred to as "Agreement") by
and between Imperial Bank ("Bank") The Keith Companies, Inc., Keith Engineering,
Inc., and ESI, Engineering Services, Inc. ("Co-Borrowers") as follows:
1. The first paragraph of the Security and Loan Agreement is hereby amended to
read in full as follows:
"This Agreement is entered into between The Keith Companies ("Companies"),
Keith Engineering ("Engineering"), ESI, Engineering Services, Inc. ("ESI"), John
M. Tettemer & Associates, Ltd. ("Tettemer") ("Companies, Engineering, ESI and
Tettemer each a co-borrower hereunder and jointly and severally herein called
"Borrower") and IMPERIAL BANK (herein called "Bank")"
2. Tettemer is hereby added as a Borrower to the Agreement, and wherever the
term "Borrower" "Borrowers", "Co-Borrower" or "Co-Borrowers" is used in the
Agreement it shall mean each Borrower jointly and severally.
3. Paragraph 1. of the Agreement is amended by deleting the term "75.000% of
Eligible Accounts of Companies and Engineering, and 80% of Eligible Accounts of
ESI and in no event more than $5,000,000" therefrom and substituting the
following therefore "80.000% of Eligible Accounts and in no event more than
$5,500,000".
4. Paragraph 1. of the Addendum is hereby amended in full to read as follows:
"1.a. Any commitment of Bank, pursuant to the terms of the Security and
Loan Agreement, to make advances against Eligible Accounts shall expire on
APRIL 30, 1999, subject to Bank's right to renew said commitment at its
sole discretion. Any renewal of the commitment shall not be binding upon
the Bank unless it is in writing and signed by an officer of the Bank.
b. The extensions of credit under the Security and Loan Agreement shall
be available as follows:
(i). Up to $5,500,000 in direct advances.
(ii). Up to $ 150,000 for the issuance of a standby letter of credit
with a termination date of no later than January 31, 1999.
<PAGE>
(iii) The aggregate amount of all (a) direct advances to ESI and (b) all
letters of credit issued by the Bank for the Account of ESI cannot exceed
$750,000 at any one time.
(iv) The aggregate amount of all direct advances to Tettemer cannot exceed
$450,000 at any one time.
(iv). The combined outstandings of (i) and (ii) shall not exceed
$5,500,000.
5. The following is hereby added to Paragraph 2 of the Addendum:
"e. YEAR 2000 COMPLIANCE. Borrower and its subsidiaries, as applicable,
have reviewed the areas within their operations and business which could be
adversely affected by, and have developed or are developing a program to
address on a timely basis, the Year 2000 Problem and have made related
appropriate inquiry of material suppliers and vendors, and based on such
review and program, the Year 2000 Problem will not have a material adverse
effect upon their financial condition, operations or business as now
conducted. "Year 2000 Problem" means the possibility that any computer
applications or equipment used by Borrower may be unable to recognize and
properly perform date sensitive functions involving certain dates prior to
and any dates on or after December 31, 1999."
6. Paragraph 5 of the Addendum is amended in full to read:
"As a condition precedent to Bank's obligation to make any advances to
Borrowers, Borrowers shall, among other things: cause a guarantee to be
executed by ARAM H. KEITH in the amount of $5,500,000 in form and substance
satisfactory to Bank."
7. The following is hereby add to paragraph 8 of the Addendum:
"q. YEAR 2000 COMPLIANCE. Perform all acts reasonably necessary to ensure
that (a) Borrower and any business in which Borrower holds a substantial
interest, and (b) all customers, suppliers and vendors that are material to
Borrower's business, become Year 2000 Compliant in a timely manner. Such
acts shall include, without limitation, performing a comprehensive review
and assessment of all Borrower's systems and adopting a detailed plan, with
itemized budget, for the remediation, monitoring and testing of such
systems. As used in this paragraph, "Year 2000 Compliant" shall mean, in
regard to any entity, that all software, hardware, firmware, equipment,
goods or systems utilized by or material to the business operations or
financial condition of such entity, will properly perform date sensitive
functions before, during and after the year 2000. Borrower shall,
immediately upon request, provide to Bank such certifications or other
evidence of Borrower's compliance with the terms of this paragraph as Bank
may from time to time require."
8. Paragraph 9 of the Addendum is amended in full to read:
<PAGE>
"The extensions of credit under the Security and Loan Agreement shall be
available as follows: Up to a) $5,500,000 in direct advances and b) $150,000 in
standby letters of credit, provided that the combined outstandings of a) and b)
do not exceed $5,500,000.
9. Paragraph 10 of the Addendum is amended by adding the following to the end
of the first paragraph: "A fee of .50% p.a. on the unused portion of the
commitment shall be due quarterly in arrears, commencing with the quarter
beginning October 1, 1998 and ending December 31, 1998, on the last $500,000.00
of the commitment."
10. Except as provided above, the Agreement remains unchanged.
11. This Amendment is effective as of October 7, 1998, and the parties hereby
confirm that the Agreement as amended is in full force and effect.
THE KEITH COMPANIES, INC.
By: /s/ ARAM H. KEITH
Name: Aram H. Keith
Title: President
Signatures continued on next page.
<PAGE>
KEITH ENGINEERING, INC.
By: /s/ ARAM H. KEITH
Name: Aram H. Keith
Title: President
ESI, ENGINEERING SERVICES, INC.
By: /s/ ARAM H. KEITH
Name: Aram H. Keith
Title: President
JOHN M. TETTEMER & ASSOCIATES, LTD.
By: /s/ ARAM H. KEITH
Name: Aram H. Keith
Title: President
IMPERIAL BANK
By: /s/ DENISE PARDUE
Name: Denise Pardue
Title: Vice President
<PAGE>
EXHIBIT 10.7
Fourth Amendment to Security and Loan Agreement
(Accounts Receivable)
This Fourth Amendment ("Amendment") amends that certain Security and Loan
Agreement (Accounts Receivable) ("Security and Loan Agreement") with the
attached Addendum ("Addendum") both dated February 9, 1998, as amended (such
Security and Loan Agreement and Addendum and amendments herein referred to as
"Agreement"), by and between Imperial Bank ("Bank"), The Keith Companies, Inc.,
Keith Engineering, Inc., ESI, Engineering Services, Inc., and John M. Tettemer &
Associates, LTD ("Co-Borrowers" and jointly and severally herein called
"Borrower"), and contains certain waivers by the Bank of the Borrower complying
with certain provisions of the Agreement as follows:
1. Events of Default: The following Events of Defaults have occurred in the
Agreement:
A. Pursuant to Section 8.a of the Addendum the Borrower is required to maintain
a Tangible Net Worth of at least $2,500,000 at 9/30/98. The Borrower did not
meet this covenant.
B. Pursuant to Section 8.b of the Addendum the Borrower is required to maintain
a ratio of total liabilities to Tangible Net Worth of not greater than 4.00 to
1.00 at 9/30/98. The Borrower did not meet this covenant.
2. Waivers
A. The Borrower has asked the Bank to waive compliance by the Borrower of the
above covenants for the above period. The Bank hereby waives compliance with the
above covenants for the period mentioned above.
B. The above waivers are specific as to contents and times, and other than the
waivers mentioned above this letter is not a waiver of any other rights or
remedies that the Bank may have pursuant to any agreement or law as a result of
any other violations past, present, or future of any agreement between the
Borrower and the Bank, and the Bank reserves all rights, powers and remedies
available to it.
3. The introductory paragraph of the Security and Loan Agreement is hereby
amended to read in full as follows:
"The Agreement is entered into between The Keith Companies, Inc. ("Companies"),
ESI, Engineering Services, Inc. ("ESI"), and John M. Tettemer & Associates, LTD
("Tettemer") (Companies, ESI and Tettemer each a co-borrower hereunder and
jointly and severally herein called "Borrower"), each a California corporation,
and Imperial Bank ("Bank").
4. The heading to the Addendum is hereby amended in its entirety to read as
follows:
"ADDENDUM TO SECURITY AND LOAN AGREEMENT
BETWEEN THE KEITH COMPANIES, INC., ESI, Engineering Services, Inc., and John M.
Tettemer & Associates, LTD AS CO-BORROWERS, and IMPERIAL BANK
5. The introductory paragraph of the Addendum is hereby amended in its entirety
to read as follows:
"This Addendum is made and entered into as of February 9, 1998, between THE
KEITH COMPANIES, INC. ("Companies"), ESI, Engineering Services, Inc. ("ESI"),
and John M. Tettemer & Associates, LTD ("Tettemer") (Companies, ESI, and
Tettemer each a co-borrower hereunder and jointly and severally herein called
"Borrower") and IMPERIAL BANK ("Bank"). This Addendum amends and supplements the
Security and Loan Agreement. In the event of any inconsistency between the terms
herein and the terms of the Security and Loan Agreement, the terms herein shall
in all cases govern and control. All capitalized terms herein, unless otherwise
defined herein, shall have the meaning set forth in the Security and Loan
Agreement."
6. Paragraph 1 of the Addendum is hereby amended in its entirety to read as
follows:
<PAGE>
1. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts shall expire on March
1, 2000, subject to Bank's right to renew said commitment in its sole
discretion. Any such renewal of the commitment shall not be binding upon
Bank unless it is in writing and signed by an officer of the Bank.
7. Paragraph 3.g of the Addendum is hereby amended effective 12/31/98 in its
entirety to read as follows:
9. Capital Expenditures. Make or incur obligations for capital expenditures
in excess of $1,650,000 in any one fiscal year.
8. Paragraph 3.h of the Addendum is hereby amended effective 12/31/98 in its
entirety to read as follows:
h. Lease Liability. Make or incur liability for payments of rent under
existing operating and capital leases of real property in excess of $2,150,000
in any one fiscal year or incur obligations for payment under new operating and
capital lease obligations in excess of $260,000 in any one fiscal year.
9. Paragraph 8.a of the Addendum is hereby amended effective 12/31/98 in its
entirety to read as follows:
a. Have and maintain a Minimum Tangible Net Worth (meaning the excess of all
assets, excluding any value for goodwill, trademarks, patents,
copyrights, organization expense and other similar intangible items, over
its liabilities, less subordinated debt) of not less than $2,400,000 from
FYE 12/31/98; increasing to no less than $2,600,000 from 3/31/99;
increasing to no less than $3,775,000 from 6/30/99; increasing to no less
than $4,900,000 from 9/30/99; increasing to $5,900,000 from 12/31/99 and
thereafter.
10. Paragraph 8.b of the Addendum is hereby amended effective 12/31/98 in its
entirety to read as follows:
b. Have and maintain a ratio of total liabilities to Tangible Net Worth
("Leverage Ratio") of not greater than 4.65 to 1.0 from FYE 12/31/98;
decreasing to 4.50 to 1.0 from 3/31/99; decreasing to 3.25 to 1.0 from
6/30/99; decreasing to 2.50 to 1.0 from 9/30/99; decreasing to 2.00 to
1.0 from FYE 12/31/99 and thereafter.
11. Paragraph 8.c of the Addendum is hereby amended in its entirety to read as
follows:
b. Have and maintain a Current Ratio of not less than 1.00 to 1.0 from FYE
12/31/98; increasing to no less than 1.10 to 1.0 from 6/30/99; increasing
to no less than 1.20 to 1.0 from 9/30/99 and thereafter. Current Ratio
shall mean Current Assets divided by Current Liabilities.
12. Paragraph 8.p of the Addendum is hereby amended in its entirety to read as
follows:
p. Subordination. Cause the following dollar amounts due to the named note
holder(s) to be subordinated to Bank's line of credit by subordination
agreement(s) acceptable to Bank:
Erica Keith Educational Trust $ 132,000
Ryan Keith Educational Trust $ 11,000
Kimberly Keith Educational Trust $ 33,000
William Scott Larkins Reid
Housing Trust $ 48,000
Susan Elizabeth Reid Housing Trust $ 86,000
Ruth Ann. Reid Housing Trust $ 53,000
----------
Sub-total $ 363,000
Aram H. Keith $1,210,177
<PAGE>
Floyd S. Reid $ 127,815
Walter W. Cruttenden III $ 700,000
----------
Sub-total $2,037,992
Heideman notes $ 266,752
Dysert notes $ 266,752
----------
Sub-total $ 533,504
Aram Keith note
for interest payable $ 131,680
----------
Total Subordinated Debt $3,066,176
13. A new Paragraph 8.q is hereby added, to read in its entirety as follows:
8.q. If by June 30, 1999 the Borrower's planned initial public offering
("IPO") has not occurred and funded, with minimum net proceeds of
$12,000,000, then Borrower is to obtain new equity or subordinated debt by
July 31, 1999 in an amount sufficient, after giving effect for the new
equity or subordinated debt, to achieve a minimum Tangible Net Worth of
$3,775,000, and a Leverage Ratio of no greater than 3.25 to 1.00,
retroactive to June 30, 1999.
14. Paragraph 10 of the Addendum is hereby amended in its entirety to read as
follows:
10. Fees and Interest: The Line of Credit Loan Account shall bear interest
at the rate which Bank has announced as its prime lending rate ("Prime Rate")
which shall vary concurrently with any change in such Prime Rate, plus the
Applicable Prime Rate Margin. The Applicable Prime Rate Margin (as set forth
below) will be determined by the Bank after review of the Leverage Ratio of the
Borrower as follows:
Leverage Ratio Applicable Prime Rate Margin
- ----------------------------------------------------
4.65:1 to 3.75:1 P + 2.75%
3.74:1 to 3.00:1 P + 2.50%
2.25:1 to 2.99:1 P + 2.00%
1.50:1 to 2.24:1 P + 1.00%
1.49:1 and under P + .50%
Bank will determine the Applicable Prime Rate Margin for each fiscal quarter on
the forty-fifth (45 th ) day following the last day of each quarter of the
immediately preceding fiscal quarter by reference to the compliance certificate
delivered to the Bank pursuant to Paragraph 8.h. with respect to the immediately
preceding fiscal quarter, beginning with the quarter ending 12/31/98,
A loan fee of $22,750 is due, payable $15,000 upon execution of the Fourth
Amendment to this Agreement, and payable $7,750 on September 30, 1999. A
documentation fee of $250 shall be due upon execution of documents. A fee of
.50% p.a. on the unused portion of the commitment shall be due quarterly in
arrears, commencing with the quarter beginning January 1, 1999 and ending March
31, 1999 on the last $500,000 of the commitment.
Interest shall be computed at the above rate on the basis of the actual number
of days during which the principal balance of the loan account is outstanding
divided by 360, which shall for interest computation purposes be considered one
year. The default rate shall be five percent per year in excess of the rate
otherwise applicable.
If any installment payment, interest payment, principal payment or principal
balance payment due hereunder is delinquent twenty or more days, Borrower agrees
to pay Bank a late charge in the amount of 5% of the payment so due and unpaid,
in addition to the payment; but nothing in this paragraph is to be construed as
any obligation on the part of Bank to accept payment of any payment past due or
less than the total unpaid principal balance after maturity. All payments shall
be applied first to any late charges owing, then to interest
<PAGE>
and the remainder, if any, to principal.
15. Companies hereby acknowledges and agrees that Keith Engineering, Inc.
("Engineering") has merged into Companies, and Companies has assumed all
obligations of Engineering under the Agreement and all other loan documents
executed by Engineering in favor of Bank.
16. Except as provided above, the Agreement remains unchanged.
17. This addendum is executed by and on behalf of the parties as of March 5,
1999.
THE KEITH COMPANIES, INC.
BY: /s/ Aram H. Keith
- ---------------------------
Aram Keith, President
Title
ESI, Engineering Services, Inc. JOHN M. TETTEMER &
ASSOCIATES, LTD.
By: /s/ Aram H. Keith BY: /s/ Aram H. Keith
----------------------- -----------------------
Aram Keith, President Aram Keith, President
Title Title
IMPERIAL BANK, "BANK"
BY: /s/ Denise Pardue
-----------------------
Title, Vice President
<PAGE>
EXHIBIT 10.8
IMPERIAL BANK
GENERAL SECURITY AGREEMENT
(Tangible and Intangible Personal Property)
This agreement is executed on February 9, 1998 by
ESI ENGINEERING SERVICES, INC.
(hereinafter called "Obligor")
In consideration of financial accommodations given, to be given or continued,
the Obligor grants to IMPERIAL BANK (hereinafter called "Bank") a security
interest in (a) all property (i) delivered to Bank by Obligor, (ii) which shall
be in Bank's possession of control in any matter or for any purpose, (iii)
described below, (iv) now owned or hereafter acquired by Obligor of the type of
class described below and/or in any supplementary schedule hereto of in any
financing statement filed by Bank and executed by or on behalf of Obligor; (b)
all deposits accounts of Obligor at Bank and (c) the proceeds, increase and
products of such property, all accessions thereto, and all property which
Obligor may receive on account of such collateral which Obligor will immediately
deliver to Bank (collectively referred to as "Collateral") to secure payment and
performance of all of Obligor's present or future debts or obligations to Bank,
whether absolute or contingent (hereafter referred to as "Debt"). Unless
otherwise defined, words used herein have the meanings given them in the
California Uniform Commercial Code.
Collateral:
A. VEHICLE, VESSEL, AIRCRAFT:
________________________________________________________________________________
Identification License or New or
Year Make/Manufacturer Model and Serial No. Registration No. Used
________________________________________________________________________________
________________________________________________________________________________
Engine or other equipment:______________________________________________________
(For aircraft original ink signature on copy to FAA)
B. DEPOSIT ACCOUNTS:
Type _____________________ Accounts Number________________ Amount $ __________
In name of ___________________________ Depository ____________________________
AND ALL EXTENSIONS OR RENEWALS THEREOF.
C. ACCOUNTS, INTANGIBLES AND OTHER: (Describe)
All personal property, whether presently existing or hereafter Created or
acquired, including but not limited to:
All accounts, chattel paper, documents, instruments, money, deposit
accounts and general intangibles including returns, repossessions, books
and records relating thereto, and equipment containing said books and
records. All Investment property including securities and securities
entitlements. All goods including equipment and inventory. All proceeds
including, without limitation, insurance proceeds. All guarantees and other
security therefor.
The collateral not in Bank's possession will be located at: 370 N. Wiget Lane,
Suite 210, Walnut Creek, CA 94596
(if checked, the Obligor is executing this Agreement as an Accommodation Debtor
only and the Obligor's liability is limited to the security interest granted in
file Collateral described herein. The party being accommodated is The Keith
Companies, Inc., and Keith Engineering, Inc. All the terms and provisions on
page 2 hereof are incorporated herein as though set forth, and constitute a part
of this Agreement.
Name Signature Address
(indicate title, if applicable)
ESI, ENGINEERING By: /s/ Aram H. Keith 370 N Wiget Lane, Suite 210
SERVICES, INC. Aram H. Keith, President Walnut Creek, CA 94596
<PAGE>
SECURITY AGREEMENT (CONTINUED)
Obligor represents, warrants and agrees:
1. Obligor will immediately pay (a) any Debt when due, (b) Bank's costs of
collecting the Debt, of protecting, insuring or realizing Collateral, and any
expenditure of Bank pursuant hereto including attorneys' fees and expenses, with
interest at the rate of 24% per year, or the rate applicable to the Debt,
whichever is less, from the date of expenditure, and (c) any deficiency after
realization of Collateral.
2. Obligor will use the proceeds of any loan that becomes Debt hereunder for
the purpose indicated on the application therefore, and will promptly contract
to purchase and pay the purchase price of any property which becomes Collateral
hereunder from the proceed of any loan made for that purpose.
3. As to all Collateral in Obligator's possession (unless specifically
otherwise agreed to by Bank in writing), Obligor will:
(a) Have, or has, possession of the Collateral at location disclosed to
Bank and will not remove the Collateral from the location.
(b) Keep the Collateral separate and identifiable.
(c) Maintain the Collateral in good and saleable condition, repair it if
necessary, clean, feed, shelter, water, Medicate, fertilize, cultivate,
irrigate, prune and otherwise deal with the Collateral in all ways as are
consideration good practice by Owners of like property, use it lawfully and only
as permitted by insurance policies, and permit Batik to inspect the Collateral
at any reasonable time.
(d) Not sell, contract to sell, lease, encumber or transfer the Collateral
(other than inventory Collateral) until the Debt has been paid, even though Bank
has a security interest in proceeds of such Collateral.
4. As to Collateral which is inventory and accounts. Obligor:
(a) May, until notice from the bank, sell, lease of otherwise dispose of
inventory Collateral in the ordinary course, and collect the cash
proceeds thereof.
(b) Will, upon notice from the Bank, deposit all cash proceeds as received
in a demand deposit account with Bank, containing only such proceeds
and deliver statements identifying units of inventory disposed of,
accounts which gave rise to proceeds, and all acquisitions and returns
of inventory as required by Bank.
(c) Will receive in trust, schedule on forms satisfactory to the Bank and
deliver to Bank all non-cash proceeds other than inventory received in
trade.
(d) If not in default, may obtain release of Bank's interest in individual
units of inventory upon request, therefore, payment to Bank of the
release price of such units shown on any collateral schedule
supplementary hereto, and compliance herewith as to proceeds thereof.
5. As to Collateral which are accounts, chattel paper, general intangibles and
proceeds described in 4(c) above, Obligor warrants, represents and agrees:
(a) All such Collateral is genuine enforceable in accordance with its
terms free from default, prepayment, defense and conditions precedent
(except as disclosed to and accepted by Bank in writing), and is
supported by consecutively numbered invoices to, or rights against,
the debtors thereon. Obligor will supply Bank with duplicate invoices
or other evidence of Obligor's rights on Bank's request;
(b) All persons appearing to be obligated on such Collateral have
authority and capacity to contract;
(c) All chattel paper is in compliance with law as to form, content and
manner of preparation and execution and has been properly registered,
recorded, and/or filed to protect Obligor's interest thereunder;
(d) If an account debtor shall also be indebted to Obligor on another
obligation, any payment made by him not specifically designated to be
applied on any particular obligation shall be considered to be a
payment on the account in which Bank has a security interest. Should
any remittance include a payment not on an account, it shall be
delivered to Bank and, if no event of default has occurred, Bank shall
pay Obligor the amount of such payment;
(e) Obligor agrees not to compromise, settle or adjust any account or
renew or extend the time of payment thereof without Bank's prior
written consent.
6. Obligor owns all Collateral absolutely, and no other person has or claims
any interest in any Collateral, except as disclosed to and accepted by Bank in
writing. Obligor will defend any proceeding which may affect title to or Bank's
security interest in any Collateral, and will indemnify and hold Bank free and
harmless from all costs and expenses of Bank's defense.
7. Obligor Will pay when due all existing or future charges, liens or
encumbrances on any all taxes and assessments now or hereafter imposed on or
affecting the Collateral and, if the Collateral is in Obligor's possession, the
realty on which the Collateral is located.
8. Obligor will insure the Collateral with Bank as loss payee in form and
amounts with companies, and against risks and liability satisfactory to Bank,
and hereby assigns such policies to Bank, agrees to deliver them to Bank at
Bank's request, and authorizes Bank to make any claim thereunder, to cancel the
insurance on Obligor's default, and to receive payment of and endorse any
instrument in payment of any loss or return premium. If Obligor should fail to
deliver the required policy or policies to the Bank, Bank may, at Obligor's cost
and expense, without any duty to do so, get and pay for insurance naming as the
insured, at Bank's option, either both Obligor and Bank, or only Bank, and the
cost thereof shall be secured by this Security Agreement, and shall be repayable
as provided in Paragraph I above.
9. Obligor will give bank any information it requires. All information at any
time supplied to bank by Obligor (including, but not limited to, the value and
condition of Collateral, financial statements, financing statements, and
statements made in documentary Collateral) is correct and complete, and Obligor
will notify Bank of any adverse change in such information. Obligor will
promptly notify Bank of any change of Obligor's residence, chief executive
office or mailing address.
10. Bank is irrevocably appointed Obligor's attorney-in-fact to do any act
which Obligor is obligated hereby to do, to exercise such rights as Obligor may
exercise, to use such equipment as Obligor might use, to enter Obligor's
premises to give notice of Bank's Security interest and to collect Collateral
and proceeds and to execute and file in Obligor's name any financing statements
and amendments thereto required to perfect Bank's security interest hereunder,
all to protect and preserve the Collateral and Bank's rights hereunder. Bank
may:
(a) Endorse, collect and receive delivery or payment of instruments and
documents constituting Collateral;
(b) Make extension agreements with respect to or affecting Collateral,
exchange it for other Collateral, release persons liable thereon or
take security for the payment thereof, and compromise disputes in
connection therewith;
(c) Use or operate Collateral for the purpose of preserving Collateral or
its value and for preserving or liquidating Collateral.
11. If more than one Obligor signs this Agreement their liability is joint and
several. Any Obligor who is married agrees that recourse may be had against
separate property for the Debt. Discharge of any Obligor except to full payment,
or any extension, forbearance, change of rate of interest, or acceptance,
release or substitution of Collateral or any impairment or suspension of Bank's
rights against an Obligor, or any transfer of an Obligor's interest to another
shall not affect the liability of any other Obligor. Until the Debt shall have
been paid or performed in full, Bank's rights shall continue even if the Debt is
outlawed. All Obligors waive: (a) any right to require Bank to proceed against
any Obligor before any other, or to pursue any other remedy; (b) presentment,
protest and notice of protest, demand and notice of nonpayment, demand or
performance, notice of sale, and advertisement of sale; (c) any right to the
benefit of or to direct the application of any Collateral until tile Debt shall
have been paid; (d) and any right of subrogation to Bank until Debt shall have
been paid or performed in full.
12. Upon default at Bank's option, without demand of notice, all or any part of
the Debt shall immediately become due. Bank shall have all rights given by law,
and may sell, in one or more sales, Collateral in any county where Bank has an
office. Bank may purchase at such sale. Sales for cash or on credit to a
wholesaler, retailer of user of the Collateral, or at public or private auction,
are all to be considered commercially reasonable. Bank may require Obligor to
assemble the Collateral and make it available to Bank at the entrance to the
location of the Collateral, or a place designated by Bank.
Defaults shall include:
(a) Obligor's failure to pay or perform this or any agreement with Bank or
breach of any warranty herein, or Borrower's failure to pay or perform any
agreement with Bank.
(b) Any change in Obligor's or Borrower's financial condition which in Bank's
judgment impairs the prospect of Borrower's payment or performance.
(c) Any actual of reasonably anticipated deterioration of the Collateral or in
the market price thereof which causes it, in Bank's judgment, to become
unsatisfactory as security.
(d) Any levy or seizure against Borrower of any of the Collateral.
(e) Death, termination of business, assignment for creditors, insolvency,
appointment of receiver, or the filing of any petition under bankruptcy or
debtor's relief laws of, by or against Obligor of Borrower or any
guarantor of the Debt.
(f) Any warranty of representation which is false or is believed in good faith
by Bank to be false.
13. Bank's acceptance of partial of delinquent payments or the failure of Bank
to exercise any right or remedy shall not waive any obligation of Obligor or
Borrower or right of Bank to modify this Agreement, or waive any other similar
default.
14. On transfer of all or any part of the Debt, Bank may transfer all or any
part of the Collateral/ Bank may deliver all or any part of the Collateral to
and Obligor at any time. Any such transfer or delivery shall discharge Bank from
all liability and responsibility with respect to such Collateral transferred or
delivered. This Agreement benefits Bank's successors and assigns and binds
Obligor's heirs, legatees, personal representatives, successors and assigns.
Obligor agrees not to assert against any assignee of Bank any claim or defense
that may exist against Bank. Time is of the
<PAGE>
essence. This Agreement and supplementary schedules hereto contain the entire
security Agreement between Bank and Obligor. Obligor will execute any additional
agreements. Assignments or documents reasonably required by Bank to carry this
Agreement into effect.
15. This agreement shall be governed by and construed in accordance with the
laws of the State of California, to the jurisdiction of whose courts the Obligor
hereby agrees to submit. Obligor agrees that service of process may be
accomplished by any means authorized by California law. All words used herein
in the singular shall be considered to have been used in the plural where the
context and construction so require.
16. To the extent that Obligor acquires any trademarks, service marks, trade
names and service names and/or the goodwill associated therewith, copyrights,
patents and/or patent applications (collectively "Intellectual Property"),
Obligor shall give prompt notice thereof to Bank and shall take any and all
actions requested from time to time by Bank to perfect Obligor's interest in
such Intellectual Property and to perfect Bank's first priority interest
therein. Without limiting the generality of the foregoing, the Obligor agrees
as follows: upon Obligor creating, writing, producing or acquiring any software,
computer source codes or other computer programs (collectively, the "Software"),
Obligor shall promptly register such Software with the U.S. Copyright Office and
to the extent Obligor's rights therein are acquired from any third party,
Obligor shall promptly upon such acquisition file with the U.S. Copyright Office
any and all documents necessary to perfect Obligor's rights therein. Upon
Obligor creating, writing, producing or otherwise acquiring any Software,
Obligor shall give prompt notice thereof to Bank. Obligor shall execute and
deliver to Bank any and all copyright mortgages, UCC financing statements and
other documents and instruments which Bank may request in connection with the
Bank perfecting its first priority security interest in such software.
<PAGE>
IMPERIAL BANK
GENERAL SECURITY AGREEMENT
(Tangible and Intangible Personal Property)
This agreement is executed on February 9, 1998 by
The Keith Companies, Inc. anD Keith Engineering, INC.
(hereinafter called "Obligor")
In consideration of financial accommodations given, to be given or continued,
the Obligor grants to IMPERIAL BANK (hereinafter called "Bank") a security
interest in (a) all property (i) delivered to Bank by Obligor, (ii) which shall
be in Bank's possession of control in any matter or for any purpose, (iii)
described below, (iv) now owned or hereafter acquired by Obligor of the type of
class described below and/or in any supplementary schedule hereto of in any
financing statement filed by Bank and executed by or on behalf of Obligor; (b)
all deposits accounts of Obligor at Bank and (c) the proceeds, increase and
products of such property, all accessions thereto, and all property which
Obligor may receive on account of such collateral which Obligor will
immediately deliver to Bank (collectively referred to as "Collateral") to secure
payment and performance of all of Obligor's present or future debts or
obligations to Bank, whether absolute or contingent (hereafter referred to as
"Debt"). Unless otherwise defined, words used herein have the meanings given
them in the California Uniform Commercial Code.
Collateral:
C. VEHICLE, VESSEL, AIRCRAFT:
________________________________________________________________________________
Identification License or New or
Year Make/Manufacturer Model and Serial No. Registration No. Used
________________________________________________________________________________
________________________________________________________________________________
Engine or other equipment:______________________________________________________
(For aircraft original ink signature on copy to FAA)
D. DEPOSIT ACCOUNTS:
Type ____________________ Accounts Number ______________ Amount $ ____________
In name of ____________________ Depository ___________________________________
AND ALL EXTENSIONS OR RENEWALS THEREOF.
C. ACCOUNTS, INTANGIBLES AND OTHER: (Describe)
All personal property, whether presently existing or hereafter Created or
acquired, including but not limited to:
All accounts, chattel paper, documents, instruments, money, deposit
accounts and general intangibles including returns, repossessions, books
and records relating thereto, and equipment containing said books and
records. All Investment property including securities and securities
entitlements. All goods including equipment and inventory. All proceeds
including, without limitation, insurance proceeds. All guarantees and other
security therefor.
The collateral not in Bank's possession will be located at: 2955 Redhill Avenue,
Costa Mesa, CA 92626
if checked, the Obligor is executing this Agreement as an Accommodation Debtor
only and the Obligor's liability is limited to the security interest granted in
file Collateral described herein. The party being accommodated is
All the terms and provisions on page 2 hereof are incorporated herein as though
set forth, and constitute a part of this Agreement.
Name Signature Address
(indicate title,
if applicable)
The Keith Companies, Inc. and By: /s/ Aram H. Keith 2955 Redhill Avenue
Keith Engineering, Inc. Aram H. Keith, President Costa Mesa, CA 92626
<PAGE>
SECURITY AGREEMENT (CONTINUED)
Obligor represents, warrants and agrees:
1. Obligor will immediately pay (a) any Debt when due, (b) Bank's costs of
collecting the Debt, of protecting, insuring or realizing Collateral, and any
expenditure of Bank pursuant hereto including attorneys' fees and expenses, with
interest at the rate of 24% per year, or the rate applicable to the Debt,
whichever is less, from the date of expenditure, and (c) any deficiency after
realization of Collateral.
2. Obligor will use the proceeds of any loan that becomes Debt hereunder for
the purpose indicated on the application therefore, and will promptly contract
to purchase and pay the purchase price of any property which becomes Collateral
hereunder from the proceed of any loan made for that purpose.
3. As to all Collateral in Obligator's possession (unless specifically
otherwise agreed to by Bank in writing), Obligor will:
(c) Have, or has, possession of the Collateral at location disclosed to
Bank and will not remove the Collateral from the location.
(d) Keep the Collateral separate and identifiable.
(c) Maintain the Collateral in good and saleable condition, repair it if
necessary, clean, feed, shelter, water, Medicate, fertilize, cultivate,
irrigate, prune and otherwise deal with the Collateral in all ways as are
consideration good practice by Owners of like property, use it lawfully and only
as permitted by insurance policies, and permit Batik to inspect the Collateral
at any reasonable time.
(d) Not sell, contract to sell, lease, encumber or transfer the Collateral
(other than inventory Collateral) until the Debt has been paid, even though Bank
has a security interest in proceeds of such Collateral.
4. As to Collateral which is inventory and accounts. Obligor:
(a) May, until notice from the bank, sell, lease of otherwise dispose of
inventory Collateral in the ordinary course, and collect the cash proceeds
thereof.
(b) Will, upon notice from the Bank, deposit all cash proceeds as received in
a demand deposit account with Bank, containing only such proceeds and
deliver statements identifying units of inventory disposed of, accounts
which gave rise to proceeds, and all acquisitions and returns of inventory
as required by Bank.
(c) Will receive in trust, schedule on forms satisfactory to the Bank and
deliver to Bank all non-cash proceeds other than inventory received in
trade.
(d) If not in default, may obtain release of Bank's interest in individual
units of inventory upon request, therefore, payment to Bank of the release
price of such units shown on any collateral schedule supplementary hereto,
and compliance herewith as to proceeds thereof.
5. As to Collateral which are accounts, chattel paper, general intangibles and
proceeds described in 4(c) above, Obligor warrants, represents and agrees:
(f) All such Collateral is genuine enforceable in accordance with its terms
free from default, prepayment, defense and conditions precedent (except as
disclosed to and accepted by Bank in writing), and is supported by
consecutively numbered invoices to, or rights against, the debtors thereon.
Obligor will supply Bank with duplicate invoices or other evidence of
Obligor's rights on Bank's request;
(g) All persons appearing to be obligated on such Collateral have authority and
capacity to contract;
(h) All chattel paper is in compliance with law as to form, content and manner
of preparation and execution and has been properly registered, recorded,
and/or filed to protect Obligor's interest thereunder;
(i) If an account debtor shall also be indebted to Obligor on another
obligation, any payment made by him not specifically designated to be
applied on any particular obligation shall be considered to be a payment on
the account in which Bank has a security interest. Should any remittance
include a payment not on an account, it shall be delivered to Bank and, if
no event of default has occurred, Bank shall pay Obligor the amount of such
payment;
(j) Obligor agrees not to compromise, settle or adjust any account or renew or
extend the time of payment thereof without Bank's prior written consent.
6. Obligor owns all Collateral absolutely, and no other person has or claims
any interest in any Collateral, except as disclosed to and accepted by Bank in
writing. Obligor will defend any proceeding which may affect title to or Bank's
security interest in any Collateral, and will indemnify and hold Bank free and
harmless from all costs and expenses of Bank's defense.
7. Obligor Will pay when due all existing or future charges, liens or
encumbrances on any all taxes and assessments now or hereafter imposed on or
affecting the Collateral and, if the Collateral is in Obligor's possession, the
realty on which the Collateral is located.
8. Obligor will insure the Collateral with Bank as loss payee in form and
amounts with companies, and against risks and liability satisfactory to Bank,
and hereby assigns such policies to Bank, agrees to deliver them to Bank at
Bank's request, and authorizes Bank to make any claim thereunder, to cancel the
insurance on Obligor's default, and to receive payment of and endorse any
instrument in payment of any loss or return premium. If Obligor should fail to
deliver the required policy or policies to the Bank, Bank may, at Obligor's cost
and expense, without any duty to do so, get and pay for insurance naming as the
insured, at Bank's option, either both Obligor and Bank, or only Bank, and the
cost thereof shall be secured by this Security Agreement, and shall be repayable
as provided in Paragraph I above.
9. Obligor will give bank any information it requires. All information at any
time supplied to bank by Obligor (including, but not limited to, the value and
condition of Collateral, financial statements, financing statements, and
statements made in documentary Collateral) is correct and complete, and Obligor
will notify Bank of any adverse change in such information. Obligor will
promptly notify Bank of any change of Obligor's residence, chief executive
office or mailing address.
11. Bank is irrevocably appointed Obligor's attorney-in-fact to do any act
which Obligor is obligated hereby to do, to exercise such rights as Obligor may
exercise, to use such equipment as Obligor might use, to enter Obligor's
premises to give notice of Bank's Security interest and to collect Collateral
and proceeds and to execute and file in Obligor's name any financing statements
and amendments thereto required to perfect Bank's security interest hereunder,
all to protect and preserve the Collateral and Bank's rights hereunder. Bank
may:
(d) Endorse, collect and receive delivery or payment of instruments and
documents constituting Collateral;
(e) Make extension agreements with respect to or affecting Collateral,
exchange it for other Collateral, release persons liable thereon or
take security for the payment thereof, and compromise disputes in
connection therewith;
(f) Use or operate Collateral for the purpose of preserving Collateral or
its value and for preserving or liquidating Collateral.
11. If more than one Obligor signs this Agreement their liability is joint and
several. Any Obligor who is married agrees that recourse may be had against
separate property for the Debt. Discharge of any Obligor except to full
payment, or any extension, forbearance, change of rate of interest, or
acceptance, release or substitution of Collateral or any impairment or
suspension of Bank's rights against an Obligor, or any transfer of an Obligor's
interest to another shall not affect the liability of any other Obligor. Until
the Debt shall have been paid or performed in full, Bank's rights shall continue
even if the Debt is outlawed. All Obligors waive: (a) any right to require Bank
to proceed against any Obligor before any other, or to pursue any other remedy;
(b) presentment, protest and notice of protest, demand and notice of nonpayment,
demand or performance, notice of sale, and advertisement of sale; (c) any right
to the benefit of or to direct the application of any Collateral until tile Debt
shall have been paid; (d) and any right of subrogation to Bank until Debt shall
have been paid or performed in full.
12, Upon default at Bank's option, without demand of notice, all or any part of
the Debt shall immediately become due. Bank shall have all rights given by law,
and may sell, in one or more sales, Collateral in any county where Bank has an
office. Bank may purchase at such sale. Sales for cash or on credit to a
wholesaler, retailer of user of the Collateral, or at public or private auction,
are all to be considered commercially reasonable. Bank may require Obligor to
assemble the Collateral and make it available to Bank at the entrance to the
location of the Collateral, or a place designated by Bank.
Defaults shall include:
(a) Obligor's failure to pay or perform this or any agreement with Bank or
breach of any warranty herein, or Borrower's failure to pay or perform any
agreement with Bank.
(c) Any change in Obligor's or Borrower's financial condition which in Bank's
judgment impairs the prospect of Borrower's payment or performance.
(c) Any actual of reasonably anticipated deterioration of the Collateral or in
the market price thereof which causes it, in Bank's judgment, to become
unsatisfactory as security.
(d) Any levy or seizure against Borrower of any of the Collateral.
(e) Death, termination of business, assignment for creditors, insolvency,
appointment of receiver, or the filing of any petition under bankruptcy or
debtor's relief laws of, by or against Obligor of Borrower or any
guarantor of the Debt.
(f) Any warranty of representation which is false or is believed in good faith
by Bank to be false.
15. Bank's acceptance of partial of delinquent payments or the failure of Bank
to exercise any right or remedy shall not waive any obligation of Obligor or
Borrower or right of Bank to modify this Agreement, or waive any other similar
default.
16. On transfer of all or any part of the Debt, Bank may transfer all or any
part of the Collateral/ Bank may deliver all or any part of the Collateral to
and Obligor at any time. Any such transfer or delivery shall discharge Bank
from all liability and responsibility with respect to such Collateral
transferred or delivered. This agreement benefits Bank's successors and assigns
and binds Obligor's heirs, legatees, personal representatives, successors and
assigns. Obligor agrees not to assert against any assignee of Bank any claim or
defense that may exist against Bank. Time is of the
<PAGE>
essence. This Agreement and supplementary schedules hereto contain the entire
security agreement between Bank and Obligor. Obligor will execute any additional
agreements. Assignments or documents reasonably required by Bank to carry this
Agreement into effect.
15. This agreement shall be governed by and construed in accordance with the
laws of the State of California, to the jurisdiction of whose courts the Obligor
hereby agrees to submit. Obligor agrees that service of process may be
accomplished by any means authorized by California law. All words used herein
in the singular shall be considered to have been used in the plural where the
context and construction so require.
16. To the extent that Obligor acquires any trademarks, service marks, trade
names and service names and/or the goodwill associated therewith, copyrights,
patents and/or patent applications (collectively "Intellectual Property"),
Obligor shall give prompt notice thereof to Bank and shall take any and all
actions requested from time to time by Bank to perfect Obligor's interest in
such Intellectual Property and to perfect Bank's first priority interest
therein. Without limiting the generality of the foregoing, the Obligor agrees
as follows: upon Obligor creating, writing, producing or acquiring any software,
computer source codes or other computer programs (collectively, the "Software"),
Obligor shall promptly register such Software with the U.S. Copyright Office and
to the extent Obligor's rights therein are acquired from any third party,
Obligor shall promptly upon such acquisition file with the U.S. Copyright Office
any and all documents necessary to perfect Obligor's rights therein. Upon
Obligor creating, writing, producing or otherwise acquiring any Software,
Obligor shall give prompt notice thereof to Bank. Obligor shall execute and
deliver to Bank any and all copyright mortgages, UCC financing statements and
other documents and instruments which Bank may request in connection with the
Bank perfecting its first priority security interest in such Software.
<PAGE>
EXHIBIT 10.9
COMMERCIAL SECURITY AGREEMENT
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$5,500,000.00 10-07-1998 04-30-1999 0070854442 07-0854442 202
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any
particular loan or item.
- ---------------------------------------------------------------------------------------------------------------------------
Borrower: THE KEITH COMPANIES, INC.; ET. AL. LENDER: IMPERIAL BANK
2955 REDHILL AVENUE ORANGE COUNTY REGIONAL OFFICE
COSTA MESA, CA 92626 695 TOWN CENTER DRIVE, SUITE 100
MESA, CA 92626-1924
GRANTOR: THE KEITH COMPANIES, INC., KEITH ENGINEERING, INC., ESI, ENGINEERING SERVICES, INC. AND JOHN M. TETTEMER &
ASSOCIATES, LTD.
===========================================================================================================================
</TABLE>
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO AMONG THE KEITH COMPANIES,
INC. KEITH ENGINEERING, INC., ESI, ENGINEERING SERVICES, INC. AND JOHN M.
TETTEMER & ASSOCIATES, LTD. (REFERRED TO BELOW INDIVIDUALLY AND COLLECTIVELY AS
"BORROWER"); THE KEITH COMPANIES, INC., KEITH ENGINEERING, INC., ESI,
ENGINEERING SERVICES, INC. AND JOHN M. TETTEMER & ASSOCIATES, LTD. (REFERRED TO
BELOW INDIVIDUALLY AND COLLECTIVELY AS "GRANTOR"); AND IMPERIAL BANK (REFERRED
TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A
SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT
LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE
COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement, as
this Commercial Security Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Commercial
Security Agreement from time to time.
BORROWER. The word "Borrower" means each and every person or entity signing
the Note, including without limitation THE KEITH COMPANIES, INC., KEITH
ENGINEERING, INC., ESI, ENGINEERING SERVICES, INC. and JOHN M. TETTEMER &
ASSOCIATES, LTD.
COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
ALL PERSONAL PROPERTY, WHETHER PRESENTLY EXISTING OR HEREAFTER CREATED OR
ACQUIRED, INCLUDING BUT NOT LIMITED TO: ALL ACCOUNTS, CHATTEL PAPER,
DOCUMENTS, INSTRUMENTS, MONEY, DEPOSIT ACCOUNTS AND GENERAL INTANGIBLES
INCLUDING RETURNS, REPOSSESSIONS, BOOKS AND RECORDS RELATING THERETO, AND
EQUIPMENT CONTAINING SAID BOOKS AND RECORDS. ALL INVESTMENT PROPERTY
INCLUDING SECURITIES AND SECURITIES ENTITLEMENTS. ALL GOODS INCLUDING
EQUIPMENT AND INVENTORY. ALL PROCEEDS INCLUDING, WITHOUT LIMITATION,
INSURANCE PROCEEDS. ALL GUARANTEES AND OTHER SECURITY THEREFOR.
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions for
any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property described
in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of Grantor's
right, title, and interest in and to all computer software required to
utilize, create, maintain, and process any such records or data on
electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section titled
"Events of Default."
GRANTOR. The word "Grantor" means THE KEITH COMPANIES, INC., KEITH
ENGINEERING, INC., ESI, ENGINEERING SERVICES, INC. and JOHN M. TETTEMER &
ASSOCIATES, LTD.. Any Grantor who signs this Agreement, but does not sign the
Note, is signing this Agreement only to grant a security interest in
Grantor's interest in the Collateral to, Lender and is not personally liable
under the Note except as otherwise provided by contract or law (e.g.,
personal liability under a guaranty or as a surety).
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in connection
with the indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor or Borrower is
responsible under this Agreement or under any of the Related Documents. In
addition, the word "Indebtedness" includes all other obligations, debts and
liabilities, plus interest thereon of Borrower, or any one or more of them,
to Lender, as well as all claims by Lender against Borrower, or any one or
more of them, whether existing now or later; whether they are voluntary or
involuntary, due or not due, direct or indirect, absolute or contingent,
liquidated or unliquidated; whether Borrower may be liable individually or
jointly with others; whether Borrower may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such indebtedness may
be or hereafter may become barred by any statute of limitations; and whether
such indebtedness may be or hereafter may become otherwise unenforceable.
(AHK) INITIALS
LENDER. The word "Lender" means Imperial Bank, its successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated October 7,
1998, in the principal amount of $5,500,000.00 from Borrower to Lender,
together with all renewals of, extensions of, modifications of, refinancings
of, consolidations of and substitutions for the note or credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under
this Agreement or by applicable law, (a) Borrower agrees that Lender need not
tell Borrower about any action or inaction Lender takes in connection with this
Agreement; (b) Borrower assumes the responsibility for being and keeping
informed about the Collateral; and (c) Borrower waives any defenses that may
arise because of any action or inaction of Lender, including without limitation
any failure of Lender to realize upon the Collateral or any delay by Lender in
realizing upon the Collateral; and Borrower agrees to remain liable under the
Note no matter what action Lender takes or fails to take under this Agreement.
GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) this
Agreement is executed at Borrower's request and not at the request of Lender;
(b) Grantor has the full right, power and authority to enter into this
Agreement and to pledge the Collateral to Lender; (c) Grantor has established
adequate means of obtaining from Borrower on a continuing basis information
about Borrower's financial condition; and (d) Lender has made no representation
to Grantor about Borrower or Borrower's creditworthiness.
GRANTOR'S WAIVERS. Except as prohibited by applicable law, Grantor waives any
right to require Lender to (a) make any presentment, protest, demand, or notice
of any kind, including notice of change of any terms of repayment of the
Indebtedness, default by Borrower or any other guarantor or surety, any action
or nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, or the creation of new or additional Indebtedness;
<PAGE>
03/04/99 COMMERCIAL SECURITY AGREEMENT PAGE 2
(CONTINUED)
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(b) proceed against any person, including Borrower before proceeding against
Grantor; (c) proceed against any collateral for the Indebtedness, including
borrower's collateral, before proceeding against Grantor; (d) apply any
payments or proceeds received against the Indebtedness in any order; (e) give
notice of the terms, time, and place of any sale of any collateral pursuant to
the Uniform Commercial Code or any other law governing such sale; (f) disclose
any information about the Indebtedness, the Borrower, any collateral, or any
other guarantor or surety, or about any action or nonaction of Lender; or (g)
pursue any remedy or course of action in Lender's power whatsoever.
Grantor also waives any and all rights or defenses arising by reason of (h) any
disability or other defense of Borrower, any other guarantor or surety or any
other person; (i) the cessation from any cause whatsoever, other than payment
in full, of the Indebtedness; (j) the application of proceeds of the
Indebtedness by Borrower for purposes other than the purposes understood and
intended by Grantor and Lender; (k) any act of omission or commission by Lender
which directly or indirectly results in or contributes to the discharge of
Borrower or any other guarantor or surety, or the Indebtedness, or the loss or
release of any collateral by operation of law or otherwise; (l) any statute of
limitations in any action under this Agreement or on the Indebtedness; or (m)
any modification or change in terms of the Indebtedness, whatsoever, including
without limitation, the renewal, extension, acceleration, or other change in
the time payment of the Indebtedness is due and any change in the interest
rate.
Grantor waives all rights and defenses arising out of an election of remedies
by Lender, even though that election of remedies, such as nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Grantor's rights of subrogation and reimbursement against Borrower by the
operation of Section 580d of the California Code of Civil Procedure, or
otherwise.
This waiver includes, without limitation, any loss of rights Grantor may suffer
by reason of any rights or protections of Borrower in connection with any anti-
deficiency laws, or other laws limiting or discharging the Indebtedness or
Borrower's obligations (including, without limitation, Section 726, 580a, 580b,
and 580d of the California Code of Civil Procedure). Grantor waives all rights
and protections of any kind which Grantor may have for any reason, which would
affect or limit the amount of any recovery by Lender from Grantor following a
nonjudicial sale or judicial foreclosure of any real or personal property
security for the Indebtedness including, but not limited to, the right to any
fair market value hearing pursuant to California Code of Civil Procedure
Section 580a.
Grantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Grantor might otherwise be entitled
under state and federal law. The rights and defenses waived include, without
limitation, those provided by California laws of suretyship and guaranty, anti-
deficiency laws, and the Uniform Commercial Code. Grantor acknowledges that
Grantor has provided these waivers of rights and defenses with the intention
that they be fully relied upon by Lender. Until all Indebtedness is paid in
full, Grantor waives any right to enforce any remedy Lender may have against
Borrower or any other guarantor, surety, or other person, and further, Grantor
waives any right to participate in any collateral for the Indebtedness now or
hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
Indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Grantor hereby forever waives and relinquishes in favor of
Lender and Borrower, and their respective successors, any claim or right to
payment Grantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Grantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security interest
in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for
which the grant of a security interest would be prohibited by law. Grantor
authorizes Lender, to the extent permitted by applicable law, to charge or
setoff all Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California
State of California.
AUTHORIZATION. The execution, delivery, and performance of this Agreement by
Grantor have been duly authorized by all necessary action by Grantor and do
not conflict with, result in a violation of, or constitute a default under
(a) any provision of any articles or agreements relating to entity
incorporation, organization or existence, any agreement or other instrument
binding upon Grantor or (b) any law, governmental regulation, court decree,
or order applicable to Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue the security interest granted in this Agreement.
Lender may at any time, and without further authorization from Grantor, file
a carbon, photographic or other reproduction of any financing statement or of
this Agreement for use as a financing statement. Grantor will reimburse
Lender for all expenses for the perfection and the continuation of the
perfection of Lender's security interest in the Collateral. Grantor promptly
will notify Lender before any change in Grantor's name including any change
to the assumed business names of Grantor. THIS IS A CONTINUING SECURITY
AGREEMENT AND WILL CONTINUE IN EFFECT EVEN THOUGH ALL OR ANY PART OF THE
INDEBTEDNESS IS PAID IN FULL AND EVEN THOUGH FOR A PERIOD OF TIME BORROWER
MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its articles or agreements relating to entity incorporation, organization or
existence do not prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver to
Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor; and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral from
its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the records
concerning the Collateral) at Grantor's address shown above, or at such other
locations as are acceptable to Lender. Except in the ordinary course of its
business, including the sales of inventory, Grantor shall not remove the
Collateral from its existing locations without the prior written consent of
Lender. To the extent that the Collateral consists of vehicles, or other
titled property, Grantor shall not take or permit any action which would
require application for certificates of title for the vehicles outside the
State of California, without the prior written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to buyers
who qualify as a buyer in the ordinary course of business. A sale in the
ordinary course of Grantor's business does not include a transfer in partial
or total satisfaction of a debt or any bulk sale. Grantor shall not pledge,
mortgage, encumber or otherwise permit the Collateral to be subject to any
lien, security interest, encumbrance, or charge, other than the security
interest provided for in this Agreement, without the prior written consent of
Lender. This includes security interests even if junior in right to the
security interests granted under this Agreement. Unless waived by Lender,
all proceeds from any disposition of the Collateral (for whatever reason)
shall be held in trust for Lender and shall not be commingled with any other
funds; provided however, this requirement shall not constitute consent by
Lender to any sale or other disposition. Upon receipt, Grantor shall
immediately deliver any such proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect
<PAGE>
03/04/99 COMMERCIAL SECURITY AGREEMENT PAGE 3
(CONTINUED)
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the security interest created by this Agreement or to which Lender has
specifically consented. Grantor shall defend Lender's rights in the
Collateral against the claims and demands of all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. Insofar as the Collateral consists of
inventory, Grantor shall deliver to Lender, as often as Lender shall require,
such lists, descriptions, and designations of such Collateral as Lender may
require to identify the nature, extent, and location of such Collateral.
Such information shall be submitted for Grantor and each of its subsidiaries
or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit or
permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or to
any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount of
the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the indebtedness, or
upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and so
long as Lender's interest in the Collateral is not jeopardized in Lender's
sole opinion. If the Collateral is subjected to a lien which is not
discharged within fifteen (15) days, Grantor shall deposit with Lender cash,
a sufficient corporate surety bond or other security satisfactory to Lender
in an amount adequate to provide for the discharge of the lien plus any
interest, costs, attorneys' fees or other charges that could accrue as a
result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien on
the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended,
42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5
through 7.7 of Division 20 of the California Health and Safety Code, Section
25100, et seq., or other applicable state or Federal laws, rules, or
regulations adopted pursuant to any of the foregoing. The terms "hazardous
waste" and "hazardous substance" shall also include, without limitation,
petroleum and petroleum by-products or any fraction thereof and asbestos.
The representations and warranties contained herein are based on Grantor's
due diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims against
Lender for indemnity or contribution in the event Grantor becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify and
hold harmless Lender against any and all claims and losses resulting from a
breach of this provision of this Agreement. This obligation to indemnify
shall survive the payment of the Indebtedness and the satisfaction of this
Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least thirty (30) days' prior written
notice to Lender and not including any disclaimer of the insurer's liability
for failure to give such a notice. Each insurance policy also shall include
an endorsement providing that coverage in favor of Lender will not be
impaired in any way by any act, omission or default of Grantor or any other
person. In connection with all policies covering assets in which Lender
holds or is offered a security interest, Grantor will provide Lender with
such loss payable or other endorsements as Lender may require. In no event
shall the insurance be in an amount less than the amount agreed upon in the
Agreement to Provide Insurance. If Grantor at any time fails to obtain or
maintain any insurance as required under this Agreement, Lender may (but
shall not be obligated to) obtain such insurance as Lender deems appropriate,
including if it so chooses "single interest insurance," which will cover only
Lender's interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral, Lender
shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are insufficient,
Grantor shall upon demand pay any deficiency to Lender. The reserve funds
shall be held by Lender as a general deposit and shall constitute a non-
interest-bearing account which Lender may satisfy by payment of the insurance
premiums required to be paid by Grantor as they become due. Lender does not
hold the reserve funds in trust for Grantor, and Lender is not the agent of
Grantor for payment of the insurance premiums required to be paid by Grantor.
The responsibility for the payment of premiums shall remain Grantor's sole
responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (0) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which insurance
has been obtained and the manner of determining that value; and (f) the
expiration date of the policy. In addition, Grantor shall upon request by
Lender (however not more often than annually) have an independent appraiser
satisfactory to Lender determine, as applicable, the cash value or
replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of
the tangible personal property and beneficial use of all the Collateral and may
use it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due on
the Indebtedness.
<PAGE>
03/04/99 COMMERCIAL SECURITY AGREEMENT PAGE 4
(CONTINUED)
- --------------------------------------------------------------------------------
OTHER DEFAULTS. Failure of Grantor or Borrower to comply with or to perform
any other term, obligation, covenant or condition contained in this Agreement
or in any of the Related Documents or failure of Borrower to comply with or to
perform any term, obligation, covenant or condition contained in any other
agreement between Lender and Borrower.
FALSE STATEMENTS. Any warranty, representation or statement made or furnished
to Lender by or on behalf of Grantor or Borrower under this Agreement, the
Note or the Related Documents is false or misleading in any material respect,
either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor or Borrower's existence
as a going business, the insolvency of Grantor or Borrower, the appointment of
a receiver for any part of Grantor or Borrower's property, any assignment for
the benefit of creditors, any type of creditor workout, or the Commencement of
any proceeding under any bankruptcy or insolvency laws by or against Grantor
or Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Grantor or Borrower or by any governmental
agency against the Collateral or any other collateral securing the
Indebtedness. This includes a garnishment of any of Grantor or Borrower's
deposit accounts with Lender. However, this Event of Default shall not apply
if there is a good faith dispute by Grantor or Borrower as to the validity or
reasonableness of the claim which is the basis of the creditor or forfeiture
proceeding and if Grantor or Borrower gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a surety
bond for the creditor or forfeiture proceeding, in an amount determined by
Lender, in its sole discretion, as being an adequate reserve or bond for the
dispute.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to
any Guarantor of any of the indebtedness or such Guarantor dies or becomes
incompetent. Lender, at its option, may, but shall not be required to, permit
the Guarantor's estate to assume unconditionally the obligations arising under
the guaranty in a manner satisfactory to Lender, and, in doing so, cure the
Event of Default.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Grantor or Borrower has not been given a prior notice of a
breach of the same provision of this Agreement, it may be cured (and no Event
of Default will have occurred) if Grantor or Borrower, after Lender sends
written notice demanding cure of such default, (a) cures the default within
ten (10) days; or (b), if the cure requires more than ten (10) days,
immediately initiates steps which Lender deems in Lender's sole discretion to
be sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness, including
any prepayment penalty which Borrower would be required to pay, immediately
due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and other
documents relating to the Collateral. Lender may require Grantor to assemble
the Collateral and make it available to Lender at a place to be designated by
Lender. Lender also shall have full power to enter upon the property of
Grantor to take possession of and remove the Collateral. If the Collateral
contains other goods not covered by this Agreement at the time of
repossession, Grantor agrees Lender may take such other goods, provided that
Lender makes reasonable efforts to return them to Grantor after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer, or
otherwise deal with the Collateral or proceeds thereof in its own name or that
of Grantor. Lender may sell the Collateral at public auction or private sale.
Unless the Collateral threatens to decline speedily in value or is of a type
customarily sold on a recognized market, Lender will give Grantor reasonable
notice of the time after which any private sale or any other intended
disposition of the Collateral is to be made. The requirements of reasonable
notice shall be met if such notice is given at least ten (10) days, or such
lesser time as required by state law, before the time of the sale or
disposition. All expenses relating to the disposition of the Collateral,
including without limitation the expenses of retaking, holding, insuring,
preparing for sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall have
the following rights and remedies regarding the appointment of a receiver: (a)
Lender may have a receiver appointed as a matter of right, (b) the receiver
may be an employee of Lender and may serve without bond, and (c) all fees of
the receiver and his or her attorney shall become part of the Indebtedness
secured by this Agreement and shall be payable on demand, with interest at the
Note rate from date of expenditure until repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a receiver,
may collect the payments, rents, income, and revenues from the Collateral.
Lender may at any time in its discretion transfer any Collateral into its own
name or that of its nominee and receive the payments, rents, income, and
revenues therefrom and hold the same as security for the Indebtedness or apply
it to payment of the Indebtedness in such order of preference as Lender may
determine. Insofar as the Collateral consists of accounts, general
intangibles, insurance policies, instruments, chattel paper, choses in action,
or similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender
may determine, whether or not Indebtedness or Collateral is then due. For
these purposes, Lender may, on behalf of and in the name of Grantor, receive,
open and dispose of mail addressed to Grantor; change any address to which
mail and payments are to be sent; and endorse notes, checks, drafts, money
orders, documents of title, instruments and items pertaining to payment,
shipment, or storage of any Collateral. To facilitate collection, Lender may
notify account debtors and obligors on any Collateral to make payments
directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Borrower for any deficiency remaining on
the Indebtedness due to Lender after application of all amounts received from
the exercise of the rights provided in this Agreement. Borrower shall be
liable for a deficiency even if the transaction described in this subsection
is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of a
secured creditor under the provisions of the Uniform Commercial Code, as may
be amended from time to time. In addition, Lender shall have and may exercise
any or all other rights and remedies it may have available at law, in equity,
or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced by
this Agreement or the Related Documents or by any other writing, shall be
cumulative and may be exercised singularly or concurrently. Election by Lender
to pursue any remedy shall not exclude pursuit of any other remedy, and an
election to make expenditures or to take action to perform an obligation of
Grantor or Borrower under this Agreement, after Grantor or Borrowers failure
to perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement shall
be effective unless given in writing and signed by the party or parties sought
to be charged or bound by the alteration or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Grantor and Borrower
agree upon Lender's request to submit to the jurisdiction of the courts of Los
Angeles County, the State of California. Lender, Grantor and Borrower hereby
waive the right to any jury trial in any action, proceeding, or counterclaim
brought by either Lender, Grantor or Borrower against the other. (AHK
initialed). This Agreement shall be governed by and construed in accordance
with the laws of the State of California.
<PAGE>
03/04/99 COMMERCIAL SECURITY AGREEMENT PAGE 5
(CONTINUED)
- --------------------------------------------------------------------------------
ATTORNEYS' FEES; EXPENSES. Grantor and Borrower agree to pay upon demand all
of Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor and
Borrower shall pay the costs and expenses of such enforcement. Costs and
expenses include Lender's attorneys' fees and legal expenses whether or not
there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (and including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. Grantor and Borrower also shall pay all court costs and
such additional fees as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor and Borrower
under this Agreement shall be joint and several, and all references to
Borrower shall mean each and every Borrower, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons signing
below is responsible for all obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall be given
in writing, may be sent by telefacsimile (unless otherwise required by law),
and shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the United States
mail, first class, postage prepaid, addressed to the party to whom the notice
is to be given at the address shown above. Any party may change its address
for notices under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more than one
Grantor or Borrower, notice to any Grantor or Borrower will constitute notice
to all Grantor and Borrowers. For notice purposes, Grantor and Borrower will
keep Lender informed at all times of Grantor and Borrower's current
address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover all
sums of money or other property which may now or hereafter become due, owing
or payable from the Collateral; (b) to execute, sign and endorse any and all
claims, instruments, receipts, checks, drafts or warrants issued in payment
for the Collateral; (c) to settle or compromise any and all claims arising
under the Collateral, and, in the place and stead OF Grantor, to execute and
deliver its release and settlement for the claim; and (d) to file any claim or
claims or to take any action or institute or take part in any proceedings,
either in its own name or in the name of Grantor, or otherwise, which in the
discretion of Lender may seem to be necessary or advisable. This power is
given as security for the Indebtedness, and the authority hereby conferred is
and shall be irrevocable and shall remain in full force and effect until
renounced by Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted preference
claim in Borrower's bankruptcy will become a part of the Indebtedness and, at
Lender's option, shall be payable by Borrower as provided above in the
"EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any provision of this
Agreement to be invalid or unenforceable as to any person or circumstance,
such finding shall not render that provision invalid or unenforceable as to
any other persons or circumstances. If feasible, any such offending provision
shall be deemed to be modified to be within the limits of enforceability or
validity; however, if the offending provision cannot be so modified, it shall
be stricken and all other provisions of this Agreement in all other respects
shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer of
the Collateral this Agreement shall be binding upon and inure to the benefit
of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate
as a waiver of such right or any other right. A waiver by Lender of a
provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of any
of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender Is required under this Agreement,
the granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is required and
in all cases such consent may be granted or withheld in the sole discretion of
Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for the
Indebtedness, Borrower irrevocably waives, disclaims and relinquishes all
claims against such other person which Borrower has or would otherwise have by
virtue of payment of the Indebtedness or any part thereof, specifically
including but not limited to all rights of indemnity, contribution or
exoneration.
BORROWER AND GRANTOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS
COMMERCIAL SECURITY AGREEMENT, AND BORROWER AND GRANTOR AGREE TO ITS TERMS.
THIS AGREEMENT IS DATED OCTOBER 7,1998.
BORROWER:
THE KEITH COMPANIES, INC.
BY: /s/ ARAM H. KEITH, PRESIDENT
KEITH ENGINEERING, INC., CO-BORROWER
BY: /s/ ARAM H. KEITH, PRESIDENT
ESI, ENGINEERING SERVICES, INC., CO-BORROWER
BY: /s/ ARAM H. KEITH, PRESIDENT
JOHN M. TETTEMER & ASSOCIATES, LTD., CO-BORROWER
BY: /s/ ARAM H. KEITH, PRESIDENT
GRANTOR:
THE KEITH COMPANIES, INC.
BY: /s/ ARAM H. KEITH, PRESIDENT
KEITH ENGINEERING, INC., CO-BORROWER
BY: /s/ ARAM H. KEITH, PRESIDENT
ESI, ENGINEERING SERVICES, INC., CO-BORROWER
BY: /s/ ARAM H. KEITH, PRESIDENT
JOHN M. TETTEMER & ASSOCIATES, LTD., CO-BORROWER
BY: /s/ ARAM H. KEITH, PRESIDENT
<PAGE>
EXHIBIT 10.10
Waiver
------
The undersigned hereby waives the right of first refusal granted to
Cruttenden Roth pursuant to the provisions of Section 9 of that certain
Agreement for Advisory Services dated April 10, 1997 by and among Walter W.
Cruttenden, III, The Keith Companies, Inc., Keith International, Inc. and Keith
Engineering, Inc.
IN WITNESS WHEREOF, the undersigned has executed this Waiver this
-----
day of July, 1998
/s/ Walter W. Cruttenden
--------------------------
Walter W. Cruttenden, III
<PAGE>
EXHIBIT 10.11
LEASE BETWEEN
Keith Engineering, Inc.
-----------------------
TENANT
AND
Scripps Center Associates
-------------------------
LANDLORD
FOR SPACE AT
Scripps Center
--------------
2995 Red Hill Avenue
--------------------
Costa Mesa, CA
--------------
August 16, 1989
---------------
DATE
1
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C>
1.1 Definitions
1.2 Schedules and Addenda
2.1 Lease of Premises
2.2 Prior Occupancy
3.1 Rent
3.2 Base Rent Adjustment
3.3 Deposit; Prepaid Rent
3.4 Operating Costs
3.5 Taxes
4.1 Construction Conditions
4.2 Commencement of Possession
5.1 Project Services
5.2 Interruption of Services
6.1 Use of Leased Premises
6.2 Insurance
6.3 Repairs
6.4 Assignment and Subletting
6.5 Estoppel Certificate
6.6 Brokerage Commissions
7.1 Substitute Premises
7.2 Additional Rights Reserved to Landlord
8.1 Casualty and Untenantability
9.1 Condemnation
10.1 Waiver of Certain Claims
10.2 Waiver of Subrogation
10.3 Limitation of Landlord's Liability
11.1 Tenant's Default
11.2 Remedies of Landlord
12.1 Surrender of Leased Premises
12.2 Hold Over Tenancy
13.1 Quiet Enjoyment
13.2 Accord and Satisfaction
13.3 Severability
13.4 Subordination and Attornment
13.5 Applicable Law
13.6 Binding Effect; Gender
13.7 Time
13.8 Entire Agreement
13.9 Notices
Execution
</TABLE>
2
<PAGE>
LIST OF SCHEDULES
-----------------
1. Description of Premises and Floor Plan
2. Rules and Regulations
3. Utility Services
4. Maintenance Services
5. Parking
6. Work Letter
7. Certificate of Acceptance
8. Boma Standards
9. Sign Program
3
<PAGE>
LEASE
This Lease made August 16, 1989 between Scripps Center Associates, A California
---------- ---------------------------------------
General Partnership ("Landlord") and Keith Engineering, Inc. DBA The Keith
- -------------------------------- -------------------------------------
Companies ("Tenant").
- ---------
ARTICLE ONE
DEFINITIONS, SCHEDULES AND ADDENDA
1.1 DEFINITIONS:
a. LEASED PREMISES shall mean 2995 RED HILL AVENUE as described in SCHEDULE 1.
--------------------
b. BUILDING shall mean a 2 STORY BUILDING located at 2995 RED HILL AVENUE,
---------------- ---------------------
COSTA MESA, CALIFORNIA, SOMETIMES REFERRED TO AS BUILDING C.
- ------------------------------------------------------------
c. PROJECT shall mean SCRIPPS CENTER located at THE SOUTHWEST CORNER OF KALMUS
-------------- ------------------------------
AND RED HILL AVENUE, COSTA MESA, CALIFORNIA, consisting of 3 buildings.
- --------------------------------------------
d. TENANT'S SQUARE FOOTAGE shall mean 70,000 rentable square feet; TOTAL
------
SQUARE FOOTAGE of the Building shall mean 87,722 rentable square feet, and TOTAL
------
SQUARE FOOTAGE of the Project shall mean 230,196 rentable square feet, which may
-------
be adjusted pursuant to paragraph 7.2 (iii) below, subject to adherence to BOMA
standard as attached hereto in Schedule 8.
e. LEASE COMMENCEMENT DATE shall mean 02/01/90, which may be adjusted
---------
pursuant to the provisions of this Lease; LEASE EXPIRATION DATE shall mean
O1/31/2000; LEASE TERM shall mean the period between Lease Commencement Date and
- -----------
Lease Expiration Date.
f. BASE RENT shall mean those amounts pursuant to Article 14.1 of the Addendum
------------ --------
payable in monthly installments plus applicable sales tax, if any; the total
Base Rent payable over the entire Lease Term is $8,736,000.00.
-------------
g. TENANT'S PRO RATA SHARE OF BUILDING OPERATING COSTS shall mean 79.8%, which
-----
may be adjusted pursuant to paragraph 7.2 (iii) below. TENANT'S PRO RATA SHARE
OF PROJECT OPERATING COSTS shall mean 30.41%, which may be adjusted pursuant to
------
paragraph 7.2 (iii) below. Tenant's Pro Rata Share of Project Operating Costs
for the first year of the Lease Term is estimated to be $118,300.00 ($1.69 per
---------- ----
square foot of Tenant's Square Footage) payable in monthly installments of $
-
9,858.33 subject to adjustment pursuant to Article 3.4 b and c below.
- --------
h. DEPOSIT shall mean $45,500; PREPAID RENT shall mean $49,000.00, of which
-------- ----------
$49,000.00 represents the first monthly installment of Base Rent, and $0
- ---------- --
represents the estimated last monthly installment(s) of Base Rent.
i. PERMITTED PURPOSE shall mean GENERAL OFFICE USE.
-------------------
4
<PAGE>
j. AUTHORIZED NUMBER OF PARKING SPACES shall mean 280 spaces at a rate of $0.
--- --
Which is a ratio of four spaces per 1000 rentable square feet.
k. MANAGING AGENT shall mean COLDWELL BANKER MANAGEMENT SERVICES whose address
-----------------------------------
is 4040 MACARTHUR BOULEVARD, NEWPORT BEACH, CALIFORNIA 92660.
---------------------------------------------------------
l. BROKER OF RECORD shall mean COLDWELL BANKER COMMERCIAL REAL ESTATE
--------------------------------------
SERVICES.
m. LANDLORD'S MAILING ADDRESS: SCRIPPS CENTER ASSOCIATES C/O ALLSTATE
--------------------------------------
INSURANCE COMPANY, ALLSTATE PLAZA, BUILDING E-4, NORTHBROOK, ILLINOIS 60062
- ---------------------------------------------------------------------------
ATTEN: REAL ESTATE INVESTMENT DIVISION.
- --------------------------------------
n. TENANT'S MAILING ADDRESS: PRIOR TO COMMENCEMENT DATE, 200 BAKER STREET,
---------------------------------------------
COSTA MESA CALIFORNIA, 92626. AFTER LEASE COMMENCEMENT DATE 2995 RED HILL
- --------------------------------------------------------------------------
AVENUE, COSTA MESA CALIFORNIA, 92626.
- ------------------------------------
1.2 SCHEDULES AND ADDENDA: The schedules and addenda listed below are
incorporated into this lease by reference unless lined out. The terms of
schedules, exhibits and typewritten addenda, if any, attached or added hereto
shall control over any inconsistent provisions in the paragraphs of this Lease.
a. Schedule 1: Description of Premises and Floor Plan
b. Schedule 2: Rules and Regulations
c. Schedule 3: Utility Services
d. Schedule 4: Maintenance Services
e. Schedule 5: Parking
f. Schedule 6: Work Letter
g. Schedule 7: Certificate of Acceptance
ARTICLE TWO
PREMISES
2.1 LEASE OF PREMISES: In consideration of the Rent and the provisions of
this Lease, Landlord leases to Tenant and Tenant accepts from Landlord the
Leased Premises. Tenant's Square Footage is an amount based on The BOMA
standards as attached hereto in Schedule 8.
2.2 PRIOR OCCUPANCY: Tenant shall not occupy the Leased Premises prior to
Lease Commencement Date except with the express prior written consent of
Landlord. If with Landlord's consent Tenant occupies the Leased Premises,
Tenant shall pay Landlord for the period from the first day of such occupancy
rent in the amount specified in Article 1.1 to be payable on the first day of
such occupancy and thereafter on the first day of every calendar month until the
first day of the Lease Term. A prorated monthly installment shall be paid for
the fraction of the month if Tenant's occupancy of the Leased Premises commences
on any day other than the first day of the month. If Tenant shall occupy the
Leased Premises prior to Lease Commencement Date, all covenants
5
<PAGE>
and conditions of this Lease shall be binding on the parties commencing at such
prior occupancy.
ARTICLE THREE
PAYMENT OF RENT AND OPERATING COSTS
3.1 RENT: Tenant shall pay each monthly installment of Base Rent in advance
on the first calendar day of each month, together with each monthly installment
of Tenant's Pro Rata Share of Project Operating Costs. Monthly installments for
any fractional calendar month, at the beginning or and of the Lease Term, shall
be prorated based on the number of days in such month. Base Rent, Tenant's Pro
Rata Share of Building Operating Costs and Tenant's Pro Rata Share of Project
Operating Costs, together with all other amounts payable by Tenant to Landlord
under this Lease, including, without limitation, any late charges and interest
due Landlord for Rent not paid when due, shall be sometimes referred to
collectively as "Rent". Tenant shall pay all Rent, without deduction or set-off,
to Landlord or Managing Agent at a place specified by Landlord. Rent not paid
when due shall bear interest until paid, at the rate of 2% per month from the
date when due. Tenant shall also pay a late charge of $50 with each late payment
of rent, if rent is not paid within ten days of the due date.
3.3 (Sic.) DEPOSIT; PREPAID RENT: Tenant has paid to Landlord the Deposit
and Prepaid Rent as security for performance of Tenant's obligations under this
Lease. In the event Tenant fully complies with all the terms and conditions of
this Lease, the Deposit shall be refunded to Tenant, without interest unless
otherwise required by law, upon expiration of this Lease. Landlord may, but is
not obligated to, apply a portion of the Deposit to cure any default hereunder
and Tenant shall pay on demand the amount necessary to restore the Deposit in
full within 10 days after notice by Landlord.
3.4 OPERATING COSTS: Tenant shall pay Tenant's Pro Rata Share of Building
Operating Costs and Project Operating Costs as follows:
a. "Building Operating Costs" shall mean all expenses relating to the
Leased Premises or the Building not for the exclusive use of the Tenant or
for the exclusive use of any other tenant, which are shared in common with
other tenants in the Building, including but not limited to: utilities not
separately metered to individual tenants; insurance premiums and (to the
extent used) deductibles; maintenance, repairs and replacements;
refurbishing and repainting; cleaning, janitorial and other services;
equipment, tools, materials and supplies; air conditioning, heating and
elevator service; security; employees and contractors; resurfacing and
restripping of walks, drives and parking areas; signs, directories and
markers; landscaping; and snow and rubbish removal. Building Operating
Costs shall not include expenses for legal services, real estate brokerage
and leasing commissions, Landlord's income taxes, income tax accounting,
interest, depreciation, general corporate overhead, or capital improvements
to the Building except for capital
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improvements installed for the purpose of reducing or controlling expenses,
or required by any governmental or other authority having or asserting
jurisdiction over the Building. If any expense, though paid in one year,
relates to more than one calendar year such expenses shall be
proportionately allocated among such related calendar years.
b. "Project Operating Costs" shall mean all expenses relating to the
Project which are shared in common with the Building and other buildings in
the Project not for the exclusive use of the Building and not exclusively
attributable to the Building or any other building in the Project,
including but not limited to: real estate taxes and assessments; gross
rents, sales, use, business, corporation, or other taxes (except income
taxes); utilities not separately paid by tenants; insurance premiums and
(to the extent used) deductibles; maintenance, repairs and replacements;
refurbishing and repainting; cleaning, janitorial and other service not
exclusively performed for other buildings; equipment, tools, materials and
supplies; property management including management fees comparable to those
being paid at similar buildings in the Costa Mesa area; security; employees
and contractors; resurfacing and restripping of walks, drives and parking
areas; signs, directories and markers; landscaping; and snow and rubbish
removal. Project Operating Costs shall not include expenses for legal
services, real estate brokerage and leasing commissions, Landlord's income
taxes, income tax accounting, interest, the depreciation, general corporate
overhead, or capital improvements to the Project except for capital
improvements installed for the purpose of reducing or controlling expenses,
or required by any governmental or other authority having or asserting
jurisdiction over the Project. If any expense, though paid in one year,
relates to more than one calendar year such expenses shall be
proportionately allocated among such related calendar years.
c. Tenant shall pay, in equal monthly installments, Tenant's Pro Rata
Share of Building Operating Costs and Project Operating Costs pursuant to
paragraph 1.1g above for each calendar year which falls (in whole or in
part) during the Lease Term (prorated for any partial calendar year at the
beginning or end of the Lease Term). Annually, or from time to time, based
on actual and good faith projections of Project Operating Cost data,
Landlord may adjust its estimate of Operating Costs upward or downward. All
monthly installments are due 15 days after notice to Tenant of a revised
estimate of Building Operating Costs and Project Operating Costs and shall
be in equal monthly amounts sufficient to result in the unpaid balance of
Tenant's Pro Rata Share of Building Operating Costs and Project Operating
Costs being paid in full by the end of the calendar year in which such
adjustment is made, and thereafter shall be in equal amounts sufficient to
result in Tenant's Pro Rata Share of Building Operating Costs and Project
Operating Costs being paid in full by the end of each succeeding calendar
year. In the event that the Project is not
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fully leased during any calendar year, Landlord may make appropriate
adjustments to the Building Operating Costs and Project Operating Costs to
adjust such expenses to a 95% leased basis, and such adjusted expenses
shall be used for purposes of this paragraph 3.4.
d. As soon as possible, each year Landlord shall compute the actual
Building Operating Costs and Project Operating Costs for the prior calendar
year, and shall give notice thereof to Tenant. Within 30 days after receipt
of such notice, Tenant shall pay any deficiency in Tenant's Pro Rata Share
of Building Operating Costs and Project Operating Costs for the prior
calendar year (prorated for any partial calendar year at the beginning or
end of the Lease Term. In the event of overpayment by Tenant, Landlord
shall apply the excess to the next payment of Rent when due, until such
excess is exhausted or until no further payments of Rent are due, in which
case, Landlord shall pay to Tenant the balance of such excess within 30
days thereafter.
3.5 TAXES: In addition to the Base Rent and other sums to be paid by
Tenant hereunder, tenant shall reimburse Landlord, as additional Rent, upon
demand, any and all taxes payable by Landlord, (a) upon, measured by or
reasonably attributable to the cost or value of Tenant's equipment, fixtures and
other personal property located in the Leased Premises or by the cost or value
of any leasehold improvements made in or to the Leased Premises by Tenant,
regardless of whether title to such improvements are in Tenant or Landlord; (b)
upon or measured by the monthly rental payable hereunder, including, without
limitation, any gross receipts tax or excise tax; (c) upon or with respect to
the possession, leasing, operation, management, maintenance, alteration, repair,
use or occupancy by Tenant of the Leased Premises or any portion thereof except
for income taxes; (d) upon this transaction or any document to which Tenant is a
party creating or transferring an interest or an estate in the Leased Premises.
ARTICLE FOUR
IMPROVEMENTS BY LANDLORD
4.1 CONSTRUCTION CONDITIONS: Landlord shall construct the improvements
described in the work letter attached hereto as SCHEDULE 6 (the "Improvements").
The expenses to be incurred as between Landlord and Tenant for construction of
the Improvements are specified in SCHEDULE 6. If any act, omission or change
requested or caused by Tenant increases the cost of work or materials or the
time required for completion of construction, Tenant shall reimburse Landlord or
such increase in cost at the time the increased cost is incurred and shall
reimburse Landlord for any loss in Rent at the time the Rent would have become
due.
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4.2 COMMENCEMENT OF POSSESSION: If the Leased Premises are not
substantially complete by the scheduled Lease Commencement Date, subject only to
items which do not materially affect the use thereof, then the Lease business
Commencement Date shall be extended to the date 5 business days after Landlord
shall notify Tenant that the Leased Premises are ready for occupancy. In such an
event the Lease Expiration Date shall remain the same. If Landlord fails to
cause the Leased Premises to be ready for occupancy at the time of the scheduled
Lease Commencement Date, (i)neither Landlord nor Landlord's agents, officers,
employees, or contractors shall be liable for any damage, loss, liability or
expense caused thereby, (ii) nor shall this Lease become void or voidable unless
such failure continues for more than 180 days, in which case Tenant may
terminate this Lease upon 20 days written notice to Landlord. Prior to occupying
the Leased Premises, Tenant shall execute and deliver to Landlord a letter in
the form attached as SCHEDULE 7, acknowledging the Lease Commencement Date and
certifying that the Improvements have been substantially completed and that
Tenant has examined and accepted the Leased Premises. Tenant hereby authorizes
any agent or employee who receives the keys to the Leased Premises on behalf of
Tenant to execute and deliver such letter in Tenant's name. If Tenant fails to
deliver such letter, Tenant shall conclusively be deemed to have made such
acknowledgment and certification by occupying the Leased Premises.
ARTICLE FIVE
PROJECT SERVICES
5.1 PROJECT SERVICES: Landlord shall furnish (unless other arrangements
are agreed to):
a. Utility Services: The utility services listed on SCHEDULE 3 ("Utility
Services"). Should Tenant, in Landlord's sole judgment, use additional,
unusual or excessive Utility Services, Landlord reserves the right to
charge for such services as determined either by a separate submeter,
installed at Tenant's expense, or by methods specified by an engineer
selected by Landlord.
b. Maintenance Services: Maintenance of all interior and exterior areas
including lighting, landscaping, cleaning, painting, maintenance and repair
of the exterior of the Building and its structural portions and roof,
including all of the services listed on SCHEDULE 4 ("Maintenance
Services").
c. Parking: Parking under the terms and conditions described in SCHEDULE 5
("Parking")
Utility Services, Maintenance Services and Parking described above
shall be collectively referred to as "Project Services". The cost of
Project Services shall be either billed to and paid for directly by Tenant
or shall be part of Building Operating Costs or Project Operating Costs.
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5.2 INTERRUPTION OF SERVICES: Landlord does not warrant that any of the
Project Services will be free from interruption. Any Project Service may be
suspended by reason of accident or of necessary repairs, alterations or
improvements, or by strikes or lockouts, or by reason of operation of law, or
causes beyond the reasonable control of Landlord. Subject to possible rent
abatement as may be provided pursuant to the conditions described in Article 8,
any such interruption or discontinuance of such Project Services shall never be
deemed a disturbance of Tenant's use and possession of the Leased Premises, or
render Landlord liable to Tenant for damages by abatement of rent or otherwise,
or relieve Tenant from performance of Tenant's obligations under this Lease.
However, Landlord shall use its best efforts to cause the Project Services
furnished by or through Landlord to be restored promptly.
ARTICLE SIX
TENANT'S COVENANTS
6.1 USE OF LEASED PREMISES: Tenant agrees to:
a. Permitted Usage: Continuously use the Leased Premises for the Permitted
Purpose only and for no other purpose.
b. Compliance with Laws: Comply with the provisions of all recorded
covenants, conditions and restrictions and all building, zoning, fire and
other governmental laws, ordinances, regulations or rules applicable to the
Leased Premises and all reasonable requirements of the carriers of
insurance covering the Project.
c. Nuisances or Waste: Not do or permit anything to be done in or about
the Leased Premises, or bring or keep anything in the Leased Premises that
may unreasonably increase Landlord's fire and extended coverage insurance
premium, damage the Building or the Project, constitute waste, constitute
an immoral purpose, or be a nuisance, public or private, or menace or other
disturbance to tenants of adjoining premises or anyone else, or use or
store any toxic chemicals, except for copier toners and developers, and
blueprint machine ammonia, wastes, elements or substances in the Leased
Premises.
d. Alterations and Improvements: Make no alterations or improvements to
the Leased Premises without the prior written approval of Landlord and
Landlord's mortgagee, if any. Any such alterations or improvements by
Tenant shall be done in a good and workmanlike manner, at Tenant's expense,
by a licensed contractor approved by Landlord in conformity with plans and
specifications approved by Landlord. If requested by Landlord, Tenant will
post a bond or other security reasonably satisfactory to Landlord to
protect Landlord against liens arising from work performed for Tenant. If
alterations or improvements are less than $5,000 Tenant, will not be
required to post a bond or other security.
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e. Liens: Keep the Leased Premises, the Building and the Project free from
liens arising but of any work performed, materials furnished or obligations
incurred by or for Tenant. If, at any time, a lien or encumbrance is filed
against the Leased Premises, the Building or the Project as a result of
Tenant's work, materials or obligations*, Tenant shall promptly discharge
such lien or encumbrance. If such lien or encumbrance has not been removed
within 30 days from the date it is filed, Tenant agrees to deposit with
Landlord at Landlord's request cash or a bond in an amount equal to 125% of
the amount of the lien, to be held by Landlord as security for the lien
being discharged.
* (except for those Improvements defined in Schedule 6 of the Lease for
initial Tenant Improvements).
f. Rules and Regulations: Observe, perform and abide by all the rules and
regulations reasonably promulgated by Landlord from time to time. SCHEDULE
2 sets forth Landlord's rules and regulations in effect on the date hereof.
g. Signage: **Obtain the prior approval of the Landlord and Landlord's
mortgagee, if any, before placing any sign or symbol in doors or windows or
elsewhere in or about the Leased Premises, or upon any other part of the
Building, or Project including building directories. Any signs or symbols
which have been placed without Landlord's approval may be removed by
Landlord. Upon expiration or termination of this Lease, all signs
installed by Tenant shall be removed and any damage resulting therefrom
shall be promptly repaired, or such removal and repair may be done by
Landlord and the cost charged to Tenant as Rent.
**Tenant shall have the right to display its name on the exterior of the
building in accordance with the sign ordinance for the Project an approved
by the City of Costa Mesa attached hereto as schedule 9.
6.2 INSURANCE: Tenant shall, at its own expense, procure and maintain
during the Lease Term comprehensive general liability insurance with respect to
the Leased Premises and Tenant's activities in the Leased Premises and in the
Building and the Project, providing bodily injury, broad form property damage
with a maximum $1,000 deductible, as follows:
a. $1,000,000, with respect to bodily injury or death to any one person;
b. $3,000,000, with respect to bodily injury or death arising out of any
one occurrence;
c. $1,000,000 with respect to property damage or other loss arising out of
any one occurrence;
d. fire and extended casualty insurance covering Tenant's trade fixtures,
merchandise and other personal property in a reasonable amount; and
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e. worker's compensation insurance in at least the statutory amounts.
Nothing in this paragraph 6.2 shall prevent Tenant from obtaining insurance
of the kind and in the amounts provided for under this paragraph under a blanket
insurance policy covering other properties as well as the Leased Premises,
provided, however, that any such policy of blanket insurance (i) shall specify
the amounts of the total insurance allocated to the Leased Premises, which
amounts shall not be less than the amounts required by sections a. through c.
hereof, and (ii) such amounts so specified shall be sufficient to prevent any
one of the assureds from becoming a co-insurer within the terms of the
applicable policy, and (iii) shall, as to the Leased Premises, otherwise comply
as to endorsements and coverage with the provisions of this paragraph.
Tenant's insurance shall be with a Best's Insurance Reports A+ rated
company (or A rated, if Class XIII or larger or with Design Professional
Insurance Company, or its successor). Landlord and Landlord's mortgagee, if
any, shall be named as "additional insureds" under Tenant's insurance, and such
Tenant's insurance shall be primary and non-contributing with Landlord's
insurance. Tenant's insurance policies shall contain endorsements requiring 30
days notice to Landlord and Landlord's mortgagee, if any, prior to any
cancellation, lapse or nonrenewal or any reduction in amount of coverage.
Tenant shall deliver to Landlord as a condition precedent to its taking
occupancy of the Leased Premises a certificate or certificates evidencing such
insurance.
6.3 REPAIRS: Tenant, at its sole expense, agrees to maintain the interior
of the Leased Premises in a neat, clean and sanitary condition. If Tenant fails
to maintain or keep the Leased Premises in good repair and such failure
continues for 10 days after written notice from Landlord or if such failure
results in a nuisance or health or safety risk, Landlord may perform any such
required maintenance and repairs and the cost thereof shall be payable by Tenant
as Rent within 10 days of receipt of an invoice from Landlord. Tenant shall
also pay to Landlord the costs of any repair ordinary wear and tear excepted to
the Building or Project necessitated by any act or neglect of Tenant. Tenant
waives the provisions of Sections 1941 of the Civil Code of the State of
California and any other statutes or laws permitting repairs by a tenant at the
expense of a landlord or to terminate a lease by reason of the condition of the
Leased Premises.
6.4 ASSIGNMENT AND SUBLETTING: Tenant shall not assign, mortgage, pledge
or encumber this Lease, or permit all or any part of the Leased Premises to be
subleased to another, without the prior written consent of Landlord and
Landlord's mortgagee, if any. Any transfer of this Lease by merger,
consolidation, reorganization or liquidation of Tenant, or by operation of law,
or change in ownership of or power to vote the majority of the outstanding
voting stock of a
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corporate Tenant, or by change in ownership of a controlling partnership
interest in a partnership Tenant, shall constitute an assignment for the
purposes of this paragraph. Tenant may sublet or assign, without Landlord's
approval, but with notice to Landlord to any entity in which it holds, or its
shareholders hold, at least a 33% interest.
Landlord agrees that it will not unreasonably withhold its consent to
Tenant's assigning this Lease or subletting the Leased Premises. In addition to
other reasonable bases, Tenant hereby agrees that Landlord shall be deemed to be
reasonable in withholding its consent, if (a) (Sic.) or (c) to any party who is
then a tenant of the Building or the Project if Landlord has comparable area; or
(d) Tenant is in default under any of the terms, covenants, conditions,
provisions and agreements of this Lease past any period of cure provided for
herein at the time of request for consent or on the effective date of such
subletting or assigning; or (e) (Sic.) or (f) the proposed subtenant or assignee
is, in Landlord's good faith judgment, incompatible with other tenants in the
Building, or seeks to use any portion of the Leased Premises for a use not
consistent with other uses in the Building, or is financially incapable of
assuming the obligations of this Lease. Tenant shall submit to Landlord the
name of a proposed assignee or subtenant, the terms of the proposed assignment
or subletting, the nature of the proposed subtenant's business and such
information as to the assignee's or subtenant's financial responsibility and
general reputation as Landlord may reasonably require.
No subletting or assignment, even with the consent of Landlord, shall
relieve Tenant of its primary obligation to pay the Rent and to perform all of
the other obligations to be performed by Tenant hereunder. The acceptance of
rent by Landlord from any other person shall not be deemed to be waiver by
Landlord of any provision of this Lease or to be a consent to any assignment,
subletting or other transfer. Consent to one assignment, subletting or other
transfer shall not be deemed to constitute consent to any subsequent assignment,
subletting or other transfer.
6.5 ESTOPPEL CERTIFICATE: From time to time and within 10 days after
request by Landlord, Tenant shall execute and deliver a certificate to any
proposed lender or purchaser, or to Landlord, together with a true and correct
copy of this Lease, certifying with any appropriate exceptions, (i) that this
Lease is in full force and effect without modification, (ii) the amount, if any,
of Prepaid Rent and Deposit paid by Tenant to Landlord, (iii) the nature and
kind of concessions, rental or otherwise, if any, which Tenant has received or
is entitled to receive, (iv) that Landlord has performed all of its obligations
due to be performed under this Lease and that there are no defenses,
counterclaims, deductions or offsets outstanding or other excuses for Tenant's
performance under this Lease, and (v) any other fact reasonably requested by
Landlord or such proposed lender or purchaser.
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6.6 BROKERAGE COMMISSIONS: Tenant represents to the Landlord that no
broker or agent was instrumental in procuring or negotiating or consummating
this Lease other than Broker of Record, and Tenant agrees to defend and
indemnify Landlord against any loss, expense or liability incurred by Landlord
as a result of a claim by any other broker or finder in connection with this
Lease or its negotiation.
ARTICLE SEVEN
LANDLORDS RESERVED RIGHTS
7.2 (Sic.) ADDITIONAL RIGHTS RESERVED TO LANDLORD: Without notice and
without liability to Tenant or without effecting an eviction or disturbance of
Tenant's use or possession, Landlord shall have the right to (i) grant utility
easements or other easements in, or replat, subdivide or make other changes in
the legal status of the land underlying the Building or the Project as Landlord
shall deem appropriate in its sole discretion, provided such changes do not
substantially interfere with Tenant's use of the Leased Premises for the
Permitted Purpose; (ii) enter the Leased Premises at reasonable times and at any
time in the event of an emergency to inspect, alter or repair the Leased
Premises or the Building and to perform any acts related to the safety,
protection, reletting, sale or improvement of the Leased Premises or the
Building; (iii) (Sic.) (iv) change the name or street address of the Building or
the Project; (v) install and maintain signs on and in the Building and the
Project; and (vi) make such reasonable rules and regulations as, in the sole
judgment of Landlord, may be needed from time to time for the safety of the
tenants, the care and cleanliness of the Leased Premises, the Building and the
Project and the preservation of good order therein.
ARTICLE EIGHT
CASUALTY AND UNTENANTABILITY
8.1 CASUALTY AND UNTENANTABILITY: If the Building is made substantially
untenantable or if Tenant's use and occupancy of the Leased Premises are
substantially interfered with due to damage to the common areas of the Building
or the Leased Premises are made wholly or partially untenantable by fire or
other casualty, Landlord may, by notice to Tenant within 60 days after the
damage, terminate this Lease. Such termination shall become effective as of the
date of such casualty. If at any time during the last six months of the term of
this Lease, there is damage, which the Leased Premises are made partially
untenantable, Landlord may at Landlord's option cancel and terminate this Lease
as of the date of occurrence of such damage by giving written notice to Tenant
of Landlord's election to do so within 30 days after the date of occurrence of
such damage. In the event that Tenant has an option to renew this Lease, and the
time within which said option may be exercised has not yet expired, Tenant shall
exercise such option, if it is to be exercised at all, no later than 20 days
after the occurrence of said damage during the last six months of the term of
this Lease. If Tenant duly exercises such option during said 20 day period,
Landlord shall repair such damage as
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soon as reasonably possible and this Lease shall continue in full force and
effect. If Tenant fails to exercise such option during said 20 day period, then
Landlord may, at Landlord's option, terminate and cancel this Lease as of the
expiration of said 20 day period by giving written notice to Tenant of
Landlord's election to do so.
If the Leased Premises are made partially or wholly untenantable by fire or
other casualty and this Lease is not terminated as provided above, Landlord
shall restore the Leased Premises to the condition specified in the work letter
described in SCHEDULE 6. Tenant waives the provisions of Section 1932 of the
Civil Code of the State of California and any other statute or law permitting
Tenant to terminate this lease in the event of casualty to the Leased Premises.
If the Landlord does not terminate this Lease as provided above, and
Landlord fails within 180 days from the date of such casualty to restore the
damaged common areas thereby eliminating substantial interference with Tenant's
use and occupancy of the Leased Premises, or fails to restore the Leased
Premises to the condition specified in the work letter described in SCHEDULE 6,
Tenant may terminate this Lease as of the end of such 180 day period.
In the event of termination of this Lease pursuant to this article 8, Rent
shall be prorated on a per diem basis and paid to the date of the casualty,
unless the Leased Premises shall be tenantable, in which case Rent shall be
payable to the date of the lease termination. If the Leased Premises are
untenantable and this Lease is not terminated, Rent shall abate on a per diem
basis from the date of the casualty until the Leased Premises are ready for
occupancy by Tenant. If part of the Leased Premises are untenantable, Rent
shall be prorated on a per diem basis and apportioned in accordance with the
part of the Leased Premises which is usable by Tenant until the damaged part is
ready for Tenant's occupancy. Notwithstanding the foregoing, if any damage was
proximately caused by an act or omission of Tenant, its employees, agents,
contractors, licensees or invitees, then, in such event, Tenant agrees that Rent
shall not abate or be diminished during the term of this Lease.
ARTICLE NINE
CONDEMNATION
9.1 CONDEMNATION: If all or any part of the Leased Premises shall be taken
under power of eminent domain or sold under imminent threat to any public
authority or private entity having such power, this Lease shall terminate as to
the part of the Leased Premises so taken or sold, effective as of the date
possession is required to be delivered to such authority. In such event, Base
Rent and Tenant's Pro Rata Share of Building Operating Costs or Project
Operating Costs shall abate in the ratio that the portion of Tenant's Square
Footage taken or sold bears to Tenant's Square Footage. If a partial taking or
sale of the Leased Premises, the Building or the Project (i) substantially
reduces Tenant's Square Footage resulting in a
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substantial inability of Tenant to use the Leased Premises for the Permitted
Purpose, or (ii) renders the Building or the Project commercially unviable to
Landlord in Landlord's sole opinion, either Tenant in the case of (i), or
Landlord in the case of (ii), may terminate this Lease by notice to the other
party within 30 days after the terminating party receives written notice of the
portion to be taken or sold. Such termination shall be effective 180 days after
notice thereof, or when the portion is taken or sold, whichever is sooner. All
condemnation awards and similar payments shall be paid and belong to Landlord,
except any amounts awarded or paid specifically to Tenant for removal and
reinstallation of Tenant's trade fixtures, personal property or Tenant's moving
costs.
ARTICLE TEN
WAIVER OF CERTAIN CLAIMS
10.1 WAIVER OF CERTAIN CLAIMS: * Tenant, to the extent permitted by law,
waives all claims it may have against Landlord, and against Landlord's agents
and employees for any damages sustained by Tenant or by any occupant of the
Leased Premises, or by any other person, resulting from any cause arising at any
time.* Tenant agrees to hold Landlord harmless and indemnified against claims
and liability for injuries to all persons and for damage to or loss of property
occurring in or about the Leased Premises, due to any act of negligence or
default under this Lease by Tenant, its contractors, agents, employees,
licensees and invitees.
*Except for those claims arising from the areas negligence or willful misconduct
of Landlord.
10.2 WAIVER OF SUBROGATION: Tenant and Landlord release each other and
waive any right of recovery against each other for loss or damage to the waiving
party or its respective property, which occurs in or about the Leased Premises,
whether due to the negligence of either party, their agents, employees,
officers, contractors, licensees, invitees or otherwise, to the extent that such
loss or damage is insurable against under the terms of standard fire and
extended coverage insurance policies. Tenant and Landlord agree that all
policies of insurance obtained by either of them in connection with the Leased
Premises shall contain appropriate waiver of subrogation clauses.
10.3 LIMITATION OF LANDLORD'S LIABILITY: The obligations of Landlord under
this Lease do not constitute personal obligations of the individual partners,
shareholders, directors, officers, employees or agents of Landlord, and Tenant
shall look solely to Landlord's interest in the Leased Premises and to no other
assets of Landlord for satisfaction of any liability in respect of this Lease.
Tenant will not seek recourse against the individual partners, shareholders,
directors, officers, employees or agents of Landlord or any of their personal
assets for such satisfaction. Notwithstanding any other
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provisions contained herein, Landlord shall not be liable to Tenant, its
contractors, agents or employees for any consequential damages or damages for
loss of profits.
ARTICLE ELEVEN
TENANTS DEFAULT AND LANDLORD'S REMEDIES
11.1 TENANT'S DEFAULT: It shall be an "Event of Default" if Tenant shall
(i) fail to pay any monthly installment of Base Rent or of Tenant's Pro Rata
Share of Building Operating Costs or Project Operating Costs, or any other sum
payable hereunder within 10 days after such payment is due and payable; (ii)
violate or fail to perform any of the other conditions, covenants or agreements
herein made by Tenant, and such violation or failure shall continue for 15 days
after written notice thereof to Tenant by Landlord; (iii) make a general
assignment for the benefit of its creditors or file a petition for bankruptcy or
other reorganization, liquidation, dissolution or similar relief; (iv) have a
proceeding filed against Tenant seeking any relief mentioned in (iii) above; (v)
have a trustee, receiver or liquidator appointed for Tenant or a substantial
part of its property; (vi) abandon or vacate the Leased Premises; (vii) default
under any other lease, if any, within the Building or the Project; or (viii) if
Tenant is a partnership, if any partner of the partnership is involved in any
of the acts or events described in subparagraphs (i) through (vii) above.
11.2 REMEDIES OF LANDLORD: If an Event of Default occurs, Landlord, at any
time thereafter and without waiving any other rights available to Landlord, at
law or in equity, may: (i) If Landlord does not terminate this Lease or Tenant's
right to possession of the Leased Premises, and whether or not Tenant has
vacated or abandoned the Leased Premises, and provided that Landlord promptly
notifies Tenant in writing that Tenant's right to possession has not been
terminated and that Tenant may assign its interest in this lease with the
consent of Landlord, which consent shall not unreasonably be withheld (it being
understood that Landlord's acts of maintenance or preservation of the Leased
Premises or efforts to relet the same, or the appointment of a receiver upon the
initiative of Landlord to protect Landlord's interest under this lease shall not
constitute a termination of Tenant's right to possession), enforce all of
Landlord's rights and remedies under this lease, including the right to recover
rent as it becomes due under this lease; or (ii) declare the term hereof ended,
peaceably reenter the Leased Premises, upon three days prior notice, and remove
all persons therefrom. In this event, Landlord may exercise any of the remedies
set forth in California Civil Code Section 1951.2, including, without limitation
thereto, the right of Landlord to recover from Tenant an amount equal to the
"worth at the time of the award," as such term is defined in such Section, of
the then unpaid rent for the balance of the term of this Lease to the extent
that it exceeds the amount of any rental loss that Tenant proves could be
reasonably avoided.
17
<PAGE>
The remedies granted to Landlord herein in an Event of Default by Tenant
are nonexclusive of any other legal remedies or rights available in law or
equity to Landlord. No act of Landlord shall be deemed an act terminating this
lease or declaring the lease term ended unless a written notice is served upon
Tenant by Landlord expressly setting forth therein that Landlord elects to
terminate this lease or to declare the term ended.
ARTICLE TWELVE
TERMINATION
12.1 SURRENDER OF LEASED PREMISES: On expiration of this Lease, if no Event
of Default exists, Tenant shall surrender the Leased Premises in the same
condition as when the Lease Term commenced, ordinary wear and tear excepted.
Except for furnishings, trade fixtures and other personal property installed at
Tenant's expense, all alterations, additions or improvements, whether temporary
or permanent in character, made in or upon the Leased Premises, either by
Landlord or Tenant, shall be Landlord's property and at the expiration or
earlier termination of the term shall remain on the Leased Premises without
compensation to Tenant, except if requested by Landlord, Tenant, at its expense
and without delay, shall remove any alterations, additions or improvements made
to the Leased Premises by Tenant designated by Landlord to be removed, and
repair any damage to the Leased Premises or the Building caused by such removal.
If Tenant fails to repair the Leased Premises, Landlord may complete such
repairs and Tenant shall reimburse Landlord for such repair and restoration.
Landlord shall have the option to require Tenant to remove all its property. If
Tenant fails to remove such property as required under this Lease, Landlord may
dispose of such property in its sole discretion without any liability to Tenant,
and further may charge the cost of any such disposition to Tenant.
12.2 HOLD OVER TENANCY: If Tenant shall hold over after the Lease
Expiration Date, Tenant may be deemed, at Landlord's option, to occupy the
Leased Premises as a tenant from month to month, which tenancy may be terminated
by one month's written notice. During such tenancy, Tenant agrees to pay to
Landlord, monthly in advance, an amount equal to 125% of all Rent which would
become due (based on Base Rent and Tenant's Pro Rata Share of Building Operating
Costs and Project Operating Costs payable for the last month of the Lease Term,
together with all other amounts payable by Tenant to Landlord under this Lease),
and to be bound by all of the terms, covenants and conditions herein specified.
If Landlord relets the Leased Premises or any portion thereof to a new tenant
and the term of such new lease commences during the period for which Tenant
holds over, Landlord shall be entitled to recover from Tenant all costs and
expenses, attorneys fees, damages or loss of profits incurred by Landlord as a
result of Tenant's failure to deliver possession of the Leased Premises to
Landlord when required under this Lease.
ARTICLE THIRTEEN
MISCELLANEOUS
18
<PAGE>
13.1 QUIET ENJOYMENT: If and so long as Tenant pays all Rent and keeps and
performs each and every term, covenant and condition herein contained on the
part of Tenant to be kept and performed, Tenant shall quietly enjoy the Leased
Premises without hindrance by Landlord.
13.2 ACCORD AND SATISFACTION: No receipt and retention by Landlord of any
payment tendered by Tenant in connection with this Lease shall constitute an
accord and satisfaction, or a compromise or other settlement, notwithstanding
any accompanying statement, instruction or other assertion to the contrary
unless Landlord expressly agrees to an accord and satisfaction, or a compromise
or other settlement, in a separate writing duly executed by Landlord. Landlord
will be entitled to treat any such payments as being received on account of any
item or items of Rent, interest, expense or damage due in connection herewith,
in such amounts and in such order as Landlord may determine at its sole option.
13.3 SEVERABILITY: The parties intend this Lease to be legally valid and
enforceable in accordance with all of its terms to the fullest extent permitted
by law. If any term hereof shall be invalid or unenforceable, the parties agree
that such term shall be stricken from this Lease to the extent unenforceable,
the same as if it never had been contained herein. Such invalidity or
unenforceability shall not extend to any other term of this Lease, and the
remaining terms hereof shall continue in effect to the fullest extent permitted
by law, the same as if such stricken term never had been contained herein.
13.4 SUBORDINATION AND ATTORNMENT: The rights of Tenant under this Lease
are and shall be subordinate to the lien of any first mortgage or first deed of
trust, now or hereafter in force against the Building or the Project, and to all
advances made or hereafter to be made thereunder ("Superior Instruments"). If
requested in writing by Landlord or any first mortgagee or ground lessor of
Landlord, Tenant agrees to execute a subordination agreement required to further
effect the provisions of this paragraph.
In the event of any transfer in lieu of foreclosure or termination of a
lease in which Landlord is lessee or the foreclosure of any Superior Instrument,
or sale of the Property pursuant to any Superior Instrument, Tenant shall attorn
to such purchaser, transferee or lessor and recognize such party as landlord
under this Lease, provided such party acquires and accepts the Leased Premises
subject to this Lease. The agreement of Tenant to attorn contained in the
immediately preceding sentence shall survive any such foreclosure sale or
transfer.
13.5 APPLICABLE LAW: This Lease shall be construed according to the laws of
the state in which the Leased Premises are located.
13.6 BINDING EFFECT; GENDER: This Lease shall be binding upon and inure to
the benefit of the parties and their successors and assigns.
19
<PAGE>
It is understood and agreed that the terms "Landlord" and "Tenant" and verbs and
pronouns in the singular number are uniformly used throughout this Lease
regardless of gender, number or fact of incorporation of the parties hereto.
13.7 TIME: Time is of the essence of this Lease.
13.8 ENTIRE AGREEMENT: This Lease and the schedules and addenda attached
set forth all the covenants, promises, agreements, representations, conditions,
statements and understandings between Landlord and Tenant concerning the Leased
Premises and the Building and the Project, and there are no representations,
either oral or written between them other than those in this Lease. This Lease
shall not be amended or modified except in writing signed by both parties.
Failure to exercise any right in one or more instances shall not be construed as
a waiver of the right to strict performance or as an amendment to this Lease.
13.9 NOTICES: All notices pursuant to this Lease shall be in writing and
shall be effective when received having been mailed or delivered (i) to Landlord
or Tenant at the addresses designated in Article 1.1 with a copy to the Managing
Agent, or (ii) to such other addresses as may hereafter be designated by either
party by written notice.
SUBMISSION OF THIS INSTRUMENT FOR EXAMINATION OR SIGNATURE BY TENANT DOES
NOT CONSTITUTE A RESERVATION OF OR OPTION FOR LEASE, AND IT IS NOT
EFFECTIVE AS A LEASE OR OTHERWISE UNTIL EXECUTION AND DELIVERY BY BOTH
LANDLORD AND TENANT. PROVIDED THE LANDLORD DELIVERS A SIGNED COPY OF THE
LEASE WITHIN THIRTY DAYS OF THE RECEIPT BY LANDLORD OF A COPY OF THE LEASE
SIGNED BY TENANT.
This Lease is executed as of the date first written above.
WITNESS: LANDLORD: SCRIPPS CENTER ASSOCIATES
A California General Partnership
/s/ William Bowman
- ------------------
/s/ Steven M. Case BY: ALLSTATE INSURANCE COMPANY
- ------------------
an Illinois Corporation
-----------------------
General Partner,
BY: /s/ M.J.Resnick
-------------------
BY: Signed (illegible)
And BY: ALLSTATE LIFE INSURANCE COMPANY
BY: ALLSTATE INSURANCE COMPANY
an Illinois Corporation
-----------------------
General Partner,
BY: /s/ M.J.Resnick
-------------------
BY: Signed (illegible)
20
<PAGE>
WITNESS: TENANT:
Keith Engineering, Inc.
/s/ William Bowman By: /s/ Aram Keith
- ------------------ -----------------------
Its President (signed)
----------------------
/s/ Steven M. Case
- -------------------
By: /s/ Floyd Reid
-----------------------
Its Secretary (signed)
-----------------------
GUARANTOR:
By _______________________
By _______________________
21
<PAGE>
SCHEDULE 1
DESCRIPTION OF THE LEASED PREMISES AND FLOOR PLAN
-------------------------------------------------
22
<PAGE>
SCHEDULE 2
RULES AND REGULATIONS
---------------------
1. The sidewalks, entrances, halls, corridors, elevators and stairways of the
Building and Project shall not be obstructed or used as a waiting or lounging
place by tenant, its agents, servants, employees, invitees, licensees and
visitors. All entrance doors leading from any Leased Premises to the hallways
are to be kept closed at all times.
2. In case of invasion, riot, public excitement or other commotion, Landlord
also reserves the right to prevent access to the Building during the continuance
of same. Landlord shall in no case be liable for damages for the admission or
exclusion of any person to or from the Building.
3. Landlord will furnish tenant with two keys to each door lock on the Leased
Premises, and Landlord may make a reasonable charge for any additional keys and
access cards requested by tenant. Tenant shall not alter any lock, or install
new or additional locks or bolts, on any door without the prior written approval
of Landlord. In the event of such alteration for installation approval by
Landlord, tenant shall supply Landlord with a key for any such additional or
altered lock or bolt. Tenant, upon the expiration or termination of its
tenancy, shall deliver to Landlord all keys and access cards in tenant's
possession for all locks and bolts in the Building.
4. Tenant shall not cause any unnecessary labor by reason of tenant's
carelessness or indifference in the preservation of good order and cleanliness
of the Leased Premises. Tenant will see that (i) the windows are closed, (ii)
the doors securely locked, and (iii) all water faucets and other utilities are
shut off (so as to prevent waste or damage) each day before leaving the Leased
Premises. In the event tenant must dispose of crates, boxes, etc. which will
not fit into office waste paper baskets, it will be the responsibility of tenant
to dispose of same. In no event shall tenant set such items in the public
hallways or other areas of the Building or garage facility, excepting tenant's
owned Leased Premises, for disposal.
5. Landlord and Tenant shall mutually agree to prescribe the date, time, method
and conditions that any personal property, equipment, trade fixtures,
merchandise and other similar items shall be delivered to or removed from the
Building for Tenant's initial move in only. No iron safe or other heavy or bulky
object shall be delivered to or removed from the Building, except by experienced
safe men, movers or riggers approved in writing by Landlord. All damage done to
the Building by the delivery or removal of such items, or by reason of their
presence in the Building, shall be paid to Landlord, immediately upon demand, by
the tenant by, through, or under whom such damage was done. There shall not be
used in any space, or in the public halls of the Building, either by tenant or
by jobbers or others, in the
23
<PAGE>
delivery or receipt of merchandise, any hand trucks, except those equipped with
rubber tires.
6. The walls, partitions, skylights, windows, doors and transoms that reflect
or admit light into passageways or into any other part of the Building shall not
be covered or obstructed by tenant.
7. The toilet rooms, toilets, urinals, wash bowls and water apparatus shall not
be used for any purpose other than for those for which they were constructed or
installed, and no sweepings, rubbish, chemicals, or other unsuitable substances
shall be thrown or placed therein. The expense of any breakage, stoppage or
damage resulting from violation(s) of this rule shall be borne by tenant, or by
its agents, employees, invitees, licensees or visitors, such breakage, stoppage
or damage shall have been caused.
8. No sign, name, placard, advertisement or notice visible from the exterior of
any Leased Premises, shall be inscribed, painted or affixed by tenant on any
part of the Building or Project without the prior written approval of Landlord.
All signs or letterings on doors, or otherwise, approved by Landlord shall be
inscribed, painted or affixed at the sole cost and expense of the tenant, by a
person approved by Landlord. A directory containing the names of all tenants in
the Building shall be provided by Landlord at an appropriate place. Tenant
shall have the right to display its name on the exterior of the building in
accordance with the sign ordinance for the Project as provided by the City of
Costa Mesa pursuant to paragraph 6.1G.
9. No signalling, telegraphic or telephonic instruments or devices, or other
wires, instruments or devices, shall be installed In connection with any Leased
Premises without the prior written approval of Landlord. Such installations,
and the boring or cutting for wires, shall be made at the sole cost and expense
of the tenant and under control and direction of Landlord. Landlord retains, in
all cases, the right to require (i) the installation and use of such electrical
protecting devices that prevent the transmission of excessive currents of
electricity into or through the Building, (ii) the changing of wires and of
their installation and arrangement underground or otherwise as Landlord may
direct, and (iii) compliance on the part of all using or seeking access to such
wires with such rules as Landlord may establish relating thereto. All such
wires used by tenant must be clearly tagged at the distribution boards and
junction boxes and elsewhere in the Building, with (i) the number of the Leased
Premises to which said wires lead, (ii) the purpose for which said wires are
used, and (iii) the name of the company operating same.
10. Tenant, their agents, servants or employees, shall not (a) go on the roof
of the Building, (b) use any additional method of heating or air conditioning
the Leased Premises, (c) sweep or throw any dirt or other substance from the
Leased Premises into any of the halls, corridors, elevators, or stairways of the
Building, (d) bring in or keep in or about the Leased Premises any vehicles
except for company vehicles of Tenant brought into the warehouse area for minor
repairs
24
<PAGE>
or maintenance, or animals of any kind, (e) install any radio or television
antennae or any other device or item on the roof, exterior walls, windows or
windowsills of the Building, (f) place objects against glass partitions, doors
or windows which would be unsightly from the interior or exterior of the
Building, (g) use any Leased Premises (i) for lodging or sleeping, (ii) for
cooking (except that the use by tenant of Underwriter's Laboratory equipment for
brewing coffee, tea and similar beverages or a cafeteria for Tenant's own
employees shall be permitted, provided that such use is in compliance with law),
(h) cause or permit unusual or objectionable odor to be produced or permeate
from the Leased Premises, (including, without limitation, duplicating or
printing equipment fumes except for copier and blueprint machines, and (i)
(Sic.) Tenant, its agents, servants and employees, invitees, licensees, or
visitors shall not permit the operation of any musical or sound producing
instruments or device which may be heard outside Leased Premises, Building or
garage facility, or which may emit electrical waves which will impair radio or
television broadcast or reception from or into the Building and Project.
11. Tenant shall not store or use in any Leased Premises any (a) ether, naptha,
phosphorous, benzol, gasoline, benzine, petroleum, crude or refined earth or
coal oils, flashlight powder, kerosene or camphene, (b) any other flammable,
combustible, explosive or illuminating fluid, gas or material of any kind, and
(c) any other fluid, gas or material of any kind having an offensive odor,
without the prior written consent of Landlord.
12. No canvassing, soliciting, distribution of hand bills or other written
material, or peddling shall be permitted in the Building or the Project, and
tenant shall cooperate with Landlord in prevention and elimination of same.
13. Tenant shall give Landlord prompt notice of all accidents to or defects in
air conditioning equipment, plumbing, electrical facilities or any part or
appurtenances of Leased Premises.
14. If any Leased Premises becomes infested with vermin, tenant, at its sole
cost and expense, shall cause its premises to be exterminated from time to time
to the satisfaction of the Landlord and shall employ such exterminators as shall
be approved by Landlord.
15. No curtains, blinds, shades, screens, awnings or other coverings or
projections of any nature shall be attached to or hung in, or used in connection
with any door, window or wall of the premises of the building without the prior
written consent of Landlord. Landlord will not unreasonably withhold consent.
16. Landlord shall have the right to prohibit any advertising by tenant which,
in Landlord's opinion, tends to impair the reputation of Landlord or of the
Building, or its desirability as an office building for existing or prospective
tenant who require the highest standards
25
<PAGE>
of integrity and respectability, and upon written notice from Landlord, tenant
shall refrain from or discontinue such advertising.
17. Wherever the word "tenant" occurs, it is understood and agreed that it
shall also mean tenant's associates, employees, agents and any other person
entering the Building or the Leased Premises under the express or implied
invitation of tenant. Tenant shall cooperate with Landlord to assure compliance
by all such parties with rules and regulations.
18. Landlord reserves the right to make reasonable amendments, modifications
and additions to the rules and regulations heretofore set forth, and to make
additional reasonable rules and regulations, as in Landlord's sole judgment may
from time to time be needed for the safety, care, cleanliness and preservation
of good order of the Building and Project.
26
<PAGE>
SCHEDULE 3
UTILITY SERVICES
----------------
The Landlord shall provide, the following services as part of Operating Costs,
except as otherwise provided:
(1) Air Conditioning and heat for normal purposes at all times. Tenant agrees
not to use any apparatus or device, in or upon or about the Leased Premises, and
Tenant further agrees not to connect any apparatus or device with the conduits
or pipes, or other means by which such services are supplied, for the purpose of
using additional or unusual amounts of such services, without written consent of
Landlord. Should Tenant use such services under this provision to excess,
Landlord reserves the right to charge for such services. The charge shall be
payable as additional Rent. Should Tenant refuse to make payment upon demand of
Landlord, such excess charge constitutes a breach of the obligation to pay Rent
under this Lease and shall entitle Landlord to the rights hereinafter granted
for such breach.
(2) Electric power for lighting and operating of office machines, air
conditioning and heating as may be required for comfortable occupancy of the
premises. Electric power furnished by Landlord is intended to be that consumed
in normal office use for the lighting, heating, ventilating, air conditioning
and small office machines. Landlord reserves the right if consumption of
electricity exceeds that required for normal office use as specified, to include
a charge to be based upon the average cost per unit of electricity for this
Building applied to the excess use as determined by a submeter to be furnished
and installed at the option of the Tenant and at its expense. If the Tenant
refuses to pay upon demand of Landlord such excess charge, such refusal shall
constitute a breach of the obligation to pay rent under this Lease and shall
entitle Landlord to the rights hereinafter granted for such breach.
(3) Water for drinking, lavatory and toilet purposes from the regular Building
supply (at the prevailing temperature) through fixtures installed by Landlord,
(or by Tenant with Landlord's written consent).
27
<PAGE>
SCHEDULE 4
MAINTENANCE SERVICES
--------------------
(1) Subject to the terms of this Lease, Landlord shall supply exterior lamp
replacement, exterior window washing with reasonable frequency, and janitorial
services to the common areas and Leased Premises during the time and in the
manner that such janitorial services are customarily furnished in general office
buildings in the area.
(2) Landlord agrees to reasonably maintain the exterior and interior of the
Leased Premises to include lawn and shrub care, snow removal, maintenance of the
structure, roof, mechanical and electrical equipment, architectural finish, and
so on, excluding only those items specifically excepted elsewhere in this Lease.
28
<PAGE>
SCHEDULE 5
PARKING
-------
Landlord hereby grants to Tenant a license to the use during the term of this
Lease the spaces described in Article 1.1j. Said parking spaces shall be made
available to Tenant on an allocated basis and Tenant agrees to comply with such
reasonable rules and regulations as may be made by Landlord from time to time in
order to insure the proper operation of the parking facilities. Tenant agrees
not to overburden the parking facilities and agrees to cooperate with Landlord
and other tenants in the use of parking facilities. Landlord reserves the right
in its sole discretion to determine whether parking facilities are becoming
crowded, and in such event, to allocate specific parking spaces among Tenant and
other tenants or to take such other steps necessary to correct such condition,
including but not limited to policing and towing, and if Tenant, its agents,
officers, employees, contractors, licensees or invitees are deemed by Landlord
to be contributing to such condition, to charge to Tenant as Rent that portion
of the cost thereof which Landlord reasonably determines to be caused thereby.
Landlord may, in its sole discretion, change the location and nature of the
parking spaces available to Tenant, provided that after such change, there shall
be available to Tenant approximately the same number of spaces as available
before such change. Tenant shall have nine (9) reserved parking spaces. The
location of the reserved parking spaces are shown in Parking Exhibit 1.
29
<PAGE>
SCHEDULE 6
Scripps Center Office Building
--------------
Costa Mesa, California City, State
----------------------
Date__________________
WORK LETTER AGREEMENT
---------------------
Keith Engineering, Inc.
- -----------------------
200 Baker Street
- ----------------
Costa Mesa, California 92626
- ----------------------------
Re: Suite Building C,
Scripps Center Office Building
--------------
Gentlemen:
You (referred to as "Tenant"), and we (referred to as "Landlord,) are executing,
simultaneously with this work letter agreement, a written lease (the "Lease")
pertaining to the space referred to above (the "Leased Premises"). This work
letter agreement is attached to the Lease as Schedule 6 and made a part thereof.
To induce Tenant and Landlord, each, to enter into the Lease (which is hereby
incorporated by reference to the extent that the provisions of this work letter
agreement may apply thereto) and in consideration of the mutual covenants
hereinafter contained, Landlord and Tenant mutually agree as follows:
1. Definitions The terms defined in this paragraph, for purposes of this work
-----------
letter agreement, shall have the meanings specified herein, and, in addition to
the terms defined herein, terms defined in the Lease shall, for purposes of this
work letter agreement, have the meanings specified therein.
1.01 "Base Tenant Improvements" means the Building Standard items which
----
are supplied, installed and finished by Landlord, according to Building
Standard specifications and which shall be paid for by Landlord (subject to
the Allowance) as provided for in paragraph 2.03 below.
1.02 "Building Standard" means the quantity and quality of materials,
----
finishing and workmanship specified by Landlord for the Building, as set
forth on Exhibit I attached hereto and made a part hereof.
1.03 "Construction Documents" means the construction drawings, plans and
----
specifications referred to in paragraphs 2.02 and 2.03 below to be attached
hereto and made a part hereof.
1.04 "Extraordinary Tenant Improvements" means any work Tenant requests
----
Landlord to do in connection with the Leased Premises,
30
<PAGE>
other than Base Tenant Improvements and which exceed the $25.00 per square
foot allowance.
1.05 "Leasehold Improvements" means the aggregate of Base Tenant
----
Improvements and Extraordinary Tenant Improvements, as contemplated by the
Construction Documents.
1.06 "Substantial Completion" means that the Leasehold Improvements have
----
been substantially completed according to the Construction Documents,
except for items which will not materially affect the use of the Leased
Premises or which customarily are deemed to be "punchlist work".
2. Construction Documents; Payments
--------------------------------
2.01 The parties have approved a preliminary floor plan for the Leased
----
Premises, a copy of which is attached to the Lease as Schedule 1 (the
"Preliminary Plan"). The estimated cost of completing the Leasehold
Improvements according to the Preliminary Plan (the "Estimate") is
$________. The Estimate represents Landlord's good faith estimate of the
cost of completing the Leasehold Improvements. Landlord shall have no
liability if the Final Cost (defined in paragraph 2.03 below) is greater
than the Estimate.
2.02 Tenant, within 60 days hereof, shall as a part of the allowance for
---- ----
improvement cause the Consultants (defined below) to prepare and submit to
Landlord for approval or disapproval all drawings, plans and specifications
necessary to construct the Leasehold Improvements. The following companies
shall prepare the drawings, plans and specifications which are to comprise
the Construction Documents:
Architectural ____________________:
Mechanical _______________________:
Electrical _______________________:
Plumbing _________________________:
(collectively, the "Consultants"). The fees and expenses of the
Consultants for preparing the initial drawings, plans and specifications
which are to comprise the Construction Documents shall be included in the
Final Cost (defined in paragraph 2.03 below) and allocated accordingly
between Base Tenant Improvements and Extraordinary Tenant Improvements.
Tenant shall receive an appropriate credit for any advance payments made to
the Consultants.
2.03 Upon Landlord's approval of the final form of the drawings, plans and
----
specifications, which when submitted by Tenant and approved by Landlord
shall constitute the Construction Documents,
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<PAGE>
Landlord shall prepare a good faith analysis in its sole judgement of the
cost of constructing the Leasehold Improvements according to the
Construction Documents (the "Final Cost") and submit such analysis to
Tenant for its approval. The Final Cost shall be allocated between the
costs attributable to the construction of the Base Tenant Improvements and
to be paid for by Landlord (subject to the Allowance, the "Landlord's
Share") and the costs or to be otherwise paid for by Tenant (the "Tenant's
Share") within 7 days of receipt, Tenant shall approve the Final Cost
-
(including the allocation thereof). If Tenant does not approve the Final
Cost, it shall promptly notify Landlord thereof; in which case Tenant and
Landlord shall use their best efforts to amend the Construction Documents
in a manner reasonably satisfactory to each. If they are unable to do so
within 10 days after Tenant notifies Landlord as provided in the preceding
--
sentence, either party may thereafter terminate the Lease by delivering
written notice to the other. Tenant acknowledges that Landlord's sole
obligation is to pay the costs attributable to the construction of the Base
Tenant Improvements, up to an aggregate maximum limit of $ 25.00 per square
-------
foot of Tenant's Square Footage (the "Allowance"), and Tenant shall pay all
other costs of the construction of the Leasehold Improvements as the
Tenant's Share. If the construction Documents require the construction or
installation of additional improvements beyond those regularly provided by
Landlord in the $ 25.00 per square foot allowance for the core of the
Building in which the Leased Premises are located (including, without
limitation, extra sprinklers, fire hose cabinets and other safety
devices.), Tenant agrees to pay all costs and expenses arising from the
construction and installation of such additional improvements. All costs
attributable to changes and variations from the Construction Documents
resulting from acts or omissions of Tenant (including, without limitation,
any fees and expenses of the Consultants and any increased costs of
construction) shall be paid by Tenant, if they exceed the $25.00 per square
foot allowance.
3. Leasehold Improvements
----------------------
3.01 The following provisions shall apply to the construction of the
----
Leasehold Improvements:
(a) All work involved in the completion of the Leasehold Improvements
shall be carried out by Landlord and its agents and contractors under
the sole direction of Landlord. Tenant shall cooperate with Landlord
and its agents and contractors to promote the efficient and
expeditious completion of the Leasehold Improvements; and Landlord
shall be permitted a reasonable reimbursement for supervision and
overhead, but no profit.
(b) Landlord agrees to construct the Leasehold Improvements in
accordance with the Construction Documents,
32
<PAGE>
provided Tenant has complied with all the applicable provisions of
this work letter agreement and the Lease.
3.02 If there are any changes in the Leasehold Improvements requested by,
----
or on behalf of, Tenant from the work as reflected in the Construction
Documents, each such change must receive the prior written approval of
Landlord, and Tenant shall bear the cost of all such changes, if these
costs cause the Leasehold Improvements to exceed the Allowance.
3.03 Landlord shall have no obligation to commence construction of any in
----
the Leased Premises until (a) Tenant has submitted and Landlord has
approved the Construction Documents and Tenant shall have approved the
Final Cost for the construction of the Leasehold Improvements as required
by the provisions hereof, and (b) Landlord shall have received Tenant's
advance payment in an amount equal to the Tenant's Share.
4. Lease Commencement Date
-----------------------
4.01 Landlord shall notify Tenant when Substantial Completion has been
----
achieved, and thereafter the Lease Commencement Date shall be established
as set forth in the Lease. Not withstanding anything to the contrary
contained in the Lease or this work letter agreement, the Lease
Commencement Date shall not be extended for any delay in Substantial
Completion to the extent that such delay is caused by any act or omission
attributable to Tenant, including without limitation:
(a) Tenant's request for any Extraordinary Tenant Improvements;
(b) Tenant's failure to furnish promptly information concerning
Tenant's requirements pertaining to construction of the Leasehold
improvements or any other information requested by the Consultants as
necessary or useful to prepare the initial drawings, plans and
specifications which are to comprise the Construction Documents;
(c) Tenant's failure to submit promptly the initial drawings, plans
and specifications which are to comprise the Construction Documents;
(d) Tenant's failure to approve promptly the Final Cost; and
(e) Tenant's request for any changes in the Leasehold Improvements
from the work as reflected in the Construction Documents 1
4.02 In any event, Rent payable under the Lease shall not abate by reason
----
of any unreasonable delay, expense or other burden arising out of or
incurred in connection with the design or
33
<PAGE>
construction of the Leasehold Improvements to the extent that such delay,
expense or other burden is caused by any act or omission attributable to
Tenant (including, without limitation, the acts and omissions referred to
in subparagraphs (a) through (e) of paragraph 4.01 above).
5. Tenant's Access To Leased Premises
----------------------------------
5.01 Landlord, in its sole discretion, may permit Tenant and Tenant's
----
agents or independent contractors to enter the Leased Premises prior to the
scheduled Lease Commencement Date in order that Tenant may do Other work as
may be required by Tenant to make the Leased Premises ready for Tenant's
use and occupancy. Such permission must be in writing prior to entry. If
Landlord permits such prior entry, then such license shall be subject to
the condition that Tenant and Tenant's agents, contractors, workmen,
mechanics, suppliers, and invitees shall work in harmony and not interfere
with Landlord and its agents and contractors in doing its work in the
Leased Premises or the Building or with other tenants and occupants of the
Building or the Project. If at any time such entry shall cause or threaten
to cause disharmony or interference, Landlord, in its sole, discretion,
shall have the right to withdraw and cancel such license upon notice to
Tenant. Tenant agrees that any such entry into the Leased Premises shall
be deemed to be under all of the terms, covenants, conditions and
provisions of the Lease, except as to the covenant to pay periodic Rent.
Tenant further agrees that, to the extent permitted by law, Landlord and
its principals shall not be liable in any way for any injury or death to
any person or persons, loss or damage to any of the Leasehold Improvements
or installations made in the Leased Premises or loss or damage to property
placed therein or there about, the same being at Tenant's sole risk.
5.02 In addition to any other conditions or limitations on such license to
----
enter the Leased Premises prior to the Lease Commencement Date, Tenant
expressly agrees that none of its agents, contractors, workmen, mechanics,
suppliers or invitees shall enter the Leased Premises prior to the Lease
Commencement Date unless and until each of them shall furnish Landlord with
satisfactory evidence of insurance coverage, financial responsibility and
appropriate written releases of mechanics' or materialmen's lien claims.
6. Miscellaneous Provisions Landlord and Tenant further agree as follows:
------------------------
6.01 Except as herein expressly set forth with respect to the Leasehold
----
improvements in paragraph 3.01 of schedule 6, Landlord has no agreement
with Tenant and has no obligation to do any work with respect to the Leased
Premises. Any other work in the Leased Premises which may be permitted by
Landlord pursuant to the terms and conditions of the Lease, including any
alterations
34
<PAGE>
or improvements as contemplated by paragraph 6.1d of the Lease, shall be
done at Tenant's sole cost and expense and in accordance with the terms and
conditions of the Lease.
6.02 This work letter agreement shall not be deemed applicable to: any
----
additional space added to the original Leased Premises at any time, whether
by the exercise of any options under the Lease or otherwise, or (b) any
portion of the original Leased Premises or any additions thereto in the
event of a renewal or extension of the original Lease Term, whether by the
exercise of any options under the Lease or any amendment or supplement
thereto. The construction of any additions or improvements to the Leased
Premises not contemplated by this work letter agreement shall be effected
pursuant to a separate work letter agreement, in the form then being used
by Landlord and specifically addressed to the allocation of costs relating
to such construction.
6.03 Any person signing this work letter agreement on behalf of Tenant
----
warrants and represents he has authority to do so.
6.04 This work letter agreement shall be binding upon and inure to the
----
benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
6.05 Anything in the Lease to the contrary notwithstanding, notices and
----
other items to be delivered pursuant to this work letter agreement shall be
effective upon receipt of same by the party to whom such notice or item is
directed.
6.06 Tenant shall have the right to install modular furniture partitions
----
in said Leased Premises. Landlord shall pay for the modular furniture
partitions provided that Tenant does not exceed the allowance in paragraph
2.03 herein. The modular furniture partitions purchased by Landlord shall
remain in the Building and become property of the Landlord upon termination
of the Lease. If Tenant does not use the $25.00 per square foot Allowance,
the unused Allowance shall be credited against rent in the first month or
months that rent is due.
If the foregoing correctly sets forth our understanding, kindly acknowledge your
approval in the space provided below for that purpose and return to us two
signed counterparts of this work letter agreement.
Very truly yours,
LANDLORD: SCRIPPS CENTER ASSOCIATES
A California General Partnership
By: ALLSTATE INSURANCE COMPANY
--------------------------
an Illinois Corporation
-----------------------
General Partner
35
<PAGE>
By: /s/ M.J. Resnick
--------------------------
By: signature illegible
--------------------------
Authorized Signatory
And by: ALLSTATE LIFE INSURANCE COMPANY
-------------------------------
an Illinois Corporation
---------------------------
General Partner
By: /s/ M.J. Resnick
-----------------------------
By: signature illegible
-------------------
Authorized Signatory
AGREED TO AND ACCEPTED this 16th day of August, 1989
---- ------ --
Keith Engineering, Inc.
- -----------------------
A California Corporation
- -------------
By: /s/ Aram H. Keith (signed)
--------------------------
Its President
---------
36
<PAGE>
EXHIBIT 1 TO WORK LETTER AGREEMENT
BUILDING STANDARD WORK
HEATING, VENTILATING AND
AIR CONDITIONING: Supply and install building standard condenser
water piping distribution system, heat pump supply
unit, ductwork & supply diffusers.
ELECTRICAL LIGHT FIXTURES: Supply and install building 2 ft. x 4 ft.
fluorescent lay in fixtures containing three tubes
and acrylic lenses, based on an allocation of one
per 85 square feet of usable area on each floor.
CEILING, TO INCLUDE GRID
AND LAY-IN TILE: Supply and install building standard 2 ft. x 2 ft.
exposed white grid and acoustical tile lay-in
ceiling throughout the Leased Premises. Ceiling
height shall be approximately 8 ft. 6 in. Cost to
drop tile in place will be charged to the
allowance.
WINDOW COVERINGS: Supply and install building standard Levelor
blinds.
FIRE PROTECTION: Supply and install the building standard sprinkler
protection system based on the sprinkler design
depicted on the original or most recent fire
protection document. Relocation or additional
heads required for approval by insurance and
jurisdictional bodies due to Tenant's partition
layout will be charged as an extra to Tenant.
37
<PAGE>
TENANT ESTOPPEL CERTIFICATE
---------------------------
BY LEASE DATED August 16, 1989, as amended by the documents listed in paragraph
7 below ("Lease") between Keith Engineering, Inc., dba: The Keith Companies
("Tenant"), or its predecessor, and Scripps Center Associates ("Landlord"), or
its predecessor, Landlord has leased to Tenant 49,413 rentable square feet, as
more particularly described in the Lease "Leased Premises"), in the building
located at 2955 Redhill Avenue, Suite 200, Costa Mesa, California ("Property").
Landlord, as owner, intends to sell the said Property to ASP Acquisitions,
L.L.C. and/or its affiliates or assigns ("Buyer") who, as a condition to the
purchase of the Property, has required this Tenant Estoppel Certificate. In
consideration of Buyer" (Sic.) agreement to purchase the Property, Tenant
agrees and certifies to Landlord and to Buyer as follows:
1. The Lease Premises and possessions thereof are accepted. The Lease is in
full force and effect.
2. The Lease term begins on June 1, 1993 and ends on April 20, 2000.
3. All work to be performed for Tenant under the Lease has been performed as
required under the Lease and has been accepted by Tenant, except n/a ,
---------
and all allowances to be paid to Tenant, including allowances for tenant
improvements, moving expenses or other items, have been paid.
4. Tenant claims no present charge, lien or claim of offset against rent.
5. Rent is paid for the current month, but is not paid, and will not be paid,
more than one month in advance. Base Rent is $53,067.86 per month and is due on
the first of each month. Additional rent and any other amounts due under the
lease are $18,095.00 per month. A security deposit has been paid to Landlord in
the amount of $78,023.20. Tenant's share of Operating Costs, including real
estate taxes, are based on one of the following:
---
_____Base Year of 19 ; OR
_____Operating Cost Stop of $ ____ per square foot; OR
_____No pass-through of Operating Costs; OR
X Other NNN pro rata share
----- -----------------------
6. There are no existing defaults by reason of any act or omission of the
Landlord except as follows: to the knowledge of tenant as of the date of
--------------------------------------------
this certificate there are none.
-------------------------------
7. The Lease has not been modified, except in accordance with the documents
dated as follows:
Amendment dated November 30, 1989
Amendment dated August 31, 1990
Amendment dated April 15, 1993
Special Limited Guarantee dated June 1, 1993
Amendment dated October 1, 1993
Amendment dated May 28, 1998
8. The Tenant has no rights or options to purchase the property.
<PAGE>
This certificate may be relied upon by Buyer, its lender from time to time, and
their respective successors, assigns, and affiliates.
Tenant: KEITH ENGINEERING, INC.
dba The Keith Companies
By: /s/ Aram H. Keith
-----------------
Title: CEO
-----------
Date: 7/7/98
-----------
<PAGE>
ADDENDUM TO LEASE
DATED _______ , 1989
BETWEEN
SCRIPPS CENTER ASSOCIATES (LANDLORD) AND
KEITH ENGINEERING, INC. (TENANT)
14.1 Base Rent: The Base Rent shall be as follows:
----------
<TABLE>
<CAPTION>
Monthly Base Rent Per
Months Payment Square Foot Per Year
------ ------- ---------------------
<S> <C> <C>
01-12 $49,000.00 $ 8.40
13-24 $54,600.00 $ 9.36
25-36 $60,200.00 $10.32
37-48 $66,500.00 $11.40
49-60 $73,500.00 $12.60
61-72 $77,000.00 $13.20
73-84 $80,500.00 $13.80
85-96 $84,700.00 $14.52
97-108 $88,900.00 $15.24
109-120 $93,100.00 $15.96
</TABLE>
14.2 Right of Refusal: Provided Tenant is not in default under the Lease, at any
-----------------
time during the Lease Term and the terms of any renewal option periods,
Tenant shall have the following rights:
- A right of first refusal to lease additional space in Building C ("First
Right - C").
- A right of first refusal for space in Building A only in the event that
no rights of first refusal are granted to any current or future tenant
leasing space in Building A ("First Right - A").
- A right of second refusal for space in Building A which shall be subject
to any rights of first refusal granted to any current or future tenant in
Building A ("Second Right - A").
The Above First Right - C, First Right - A and Second Right - A shall sometimes
be individually or collectively referred to as "Right" or "Rights".
Landlord shall give Tenant written notice that a third party is interested in
leasing all or any portion of the space in either Building A or C governed by
the Rights. Tenant shall have five (5) working days after receiving notice from
Landlord to respond in writing of its intention to exercise any Right. If any
Right is exercised during years 1 through 7 of the Lease Term, it shall be at
the same terms and conditions as this Lease with base rent being the same amount
per rentable square foot as that being paid by Tenant for the Leased Premises
under this Lease as of the date any of the Rights are exercised. If any Right
is exercised during years 8 through 10 of the Lease Term, it shall be at the
same terms and conditions as this Lease except for base rent and lease term
which shall be the same as those offered by Landlord to the third party.
<PAGE>
14.3 Rental Abatement: The Base Rent for months one (1) through five (5) of the
-----------------
Lease Term shall be free. Tenant shall pay its Pro Rata Share of the
Project Operating Costs and Building Operating Costs, as defined in
paragraph 1.lG., during the free rent period.
14.4 Cancellation Provision: Tenant shall have the right to cancel the Lease for
-----------------------
up to 50% of Tenant's square footage anytime after the first year of the
Lease Term. The maximum space that Tenant may cancel, however, is 35,000
rentable square feet. Tenant shall have the option to cancel space in
amounts not less than 10,000 rentable square feet or larger. The location
of the space that Tenant can cancel is outlined in Exhibit ___ attached
hereto. Tenant shall provide Landlord six (6) months written notice of its
intent to cancel the Lease for a portion of the Leased Premises. Tenant
shall reimburse Landlord within 30 days of notice from Landlord for the
space cancelled based upon the following schedule:
<TABLE>
<CAPTION>
If Cancelled Cancellation Cost
In Year Per Rentable Square Foot Returned
------- ---------------------------------
<S> <C>
1 Not cancellable
2 $5.00
3 $4.00
4 $3.00
5 $2.00
6 $1.50
7 $1.50
8 $1.15
9 $ .77
10 $ .38
</TABLE>
14.5 Option to Renew: Provided Tenant is not in default, Landlord hereby grants
----------------
Tenant two (2) five (5) year options to renew the term of this Lease. The
base rent for the first renewal term shall be 105% of the Base Rent Tenant
is paying during the last year of the initial Lease Term. This base rent
shall be increased by 5% per year through the first five (5) year option to
renew. The second five (5) year option shall be at the fair market rate.
Tenant shall give Landlord six (6) months written notice of Tenant's intent
to exercise said option to renew.
14.6 Option to Purchase: Provided Tenant is not In default under the Lease, and
-------------------
further provided Tenant has not elected to reduce its Leased Premises by
more than 10% pursuant to Article 14.4 of this Lease, Tenant shall have the
option to purchase the Project on the last business day of the second year
of the initial Lease Term. Tenant shall give Landlord six months prior
written notice of its Intent to exercise this option. The purchase price
for the Project shall be $25,500,000 plus the cost of all tenant
improvements installed between the Lease Commencement Date and the end of
the second year of the initial Lease Term in the 149,018 square feet of
unleased space in the Project (which includes Tenant's Square Footage),
less the cost (not including interest) of any amounts paid to Landlord by
tenants for such tenant improvements.
<PAGE>
LEASE AMENDMENT NO. 1
This Amendment is made this 30 day of November 1989 by and between Scripps
--
Center Associates, a California general partnership ("Landlord") and Keith
Engineering, Inc., d/b/a The Keith Companies ("Tenant").
Whereas, by written Lease dated August 16, 1989 ("Lease"), Landlord did lease
70,000 rentable square feet at Scripps Center (more specifically described in
Article l.lb and c of said Lease) to Tenant for a term commencing May 1, 1990
and terminating April 30, 2000.
Now, therefore in consideration of the premises and the respective covenants and
agreements, herein set forth, the parties hereto agree as follows:
1. Article l.ld shall be changed to read as follows:
Tenant's Square Footage shall mean 88,006 rentable square feet; Total
square footage of the Building shall mean 88,006 rentable square feet, and
total Square Footage of the Project shall mean 229,226 rentable square
feet, which may be adjusted pursuant paragraph 7.2 (iii) below, subject to
adherence to BOMA standards as attached hereto in Schedule B.
2. The second phrase of Article 1.1f shall be changed to read as follows:
The total Base Rent payable over the entire Lease Term is $10,613,523.60.
3. Article 1.1g shall be changed to read as follows:
Tenant's Pro Rata Share of Building Operating Costs shall mean 100%, which
may be adjusted pursuant to paragraph 7.2 (iii) below. Tenant's Pro Rata
Share of Project Operating Costs shall mean 38.39%, which may be adjusted
pursuant to paragraph 7.2 (iii) below. Tenant's Pro Rata Share of Project
Operating Costs for the first year of the Lease Term is estimated to be
$148,730.14 ($1.69 per square foot of Tenant's Square Footage) payable in
monthly installments of $12,394.17 subject to adjustment pursuant to
Article 3.4b and c below.
4. Article 1.lh shall be changed to read as follows:
Deposit shall mean $61,604.20; Prepaid Rent shall mean $61,604.20, of which
$61,604.20 represents the first monthly installment of Base Rent.
1
<PAGE>
5. Article 1.1j shall be changed to read as follows:
Authorized Number of Parking Spaces shall mean 352 spaces at the rate of
$0, which is a ratio of four spaces per 1,000 rentable square feet.
6. Article 14.1 shall be changed to read as follows:
Base Rent: The Base Rent shall be as follows:
<TABLE>
<CAPTION>
Monthly Base Rent Per
Month Payment Square Foot Per Year
----- ------- --------------------
<S> <C> <C>
1-6 $ -0- $ -0-
7-12 61,604.20 8.40
13-24 68,644.68 9.36
25-36 75,685.16 10.32
37-48 83,605.70 11.40
49-60 92,406.30 12.60
61-72 96,806.60 13.20
73-84 101,206.90 13.80
85-96 106,487.26 14.52
97-108 111,767.62 15.24
109-120 117,047.98 15.96
</TABLE>
7. Article 14.3 shall be deleted in its entirety.
8. The first two sentences of Article 14.4 shall be changed as follows:
Cancellation Provision: Tenant shall have the right to cancel the Lease for
up to 35,000 rentable square feet anytime after the first year of the Lease
Term.
9. Schedule 4 Paragraph 1 of the lease dated August 16, 1989 shall be deleted
and replaced by "subject to the terms of this lease, Landlord shall supply
exterior lamp replacement, exterior window washing with reasonable
frequency, and janitorial services to the common area".
10. The following paragraph shall be added to Schedule 4:
Tenant shall be obligated to maintain all HVAC mechanical equipment
servicing the Leased Premises in a manner consistent with comparable office
buildings in Orange County. If Tenant fails to maintain or keep in good
repair and such failure continues for 15 days after written notice from
Landlord, or if such failure results in a nuisance or health or safety
risk, Landlord may perform any such required maintenance and repairs
2
<PAGE>
and the cost thereof shall be payable by Tenant as Rent within 30 days of
receipt of an invoice from Landlord.
Except as amended herein, all of the terms and conditions in the above defined
Lease shall remain in full force and effect.
In witness hereof, Landlord and Tenant have cause their respective names to be
affixed by their respective officers or duly authorized signatories.
WITNESS: LANDLORD:
SCRIPPS CENTER ASSOCIATES,
/s/ Marie Viceie a California general partnership
- ----------------------------
/s/ June Garby
- ----------------------------
By: ALLSTATE INSURANCE COMPANY
an Illinois corporation
General Partner
By: /s/ M.J. Resnick
------------------------------------
By: /s/ H.H. J
------------------------------------
Its Authorized Signatories
By: ALLSTATE INSURANCE COMPANY
an Illinois corporation
General Partner
By: /s/ M.J. Resnick
------------------------------------
By: /s/ H.H.J.
------------------------------------
Its Authorized Signatories
WITNESS:
/s/ William Bowman TENANT:
- ----------------------------
KEITH ENGINEERING, INC. d/b/a THE KEITH
/s/ Steve M. Case COMPANIES
- ----------------------------
By: /s/ Aram H. Keith
------------------------------------
Its President
By: /s/ Floyd S. Reid
------------------------------------
Its Secretary
3
<PAGE>
LEASE AMENDMENT NO. 2
THIS LEASE AMENDMENT NO. 2 is made and entered into as of August 31 1990,
--
by and between SCRIPPS CENTER ASSOCIATES, a California general partnership
("Landlord") and KEITH ENGINEERING, INC., d/b/a THE KEITH COMPANIES ("Tenant.")
WHEREAS, Landlord and Tenant entered into a lease dated August 16, 1989,
whereby Tenant leased approximately 70,000 square feet of space in an office
building known as Building C of Scripps Center located at 2995 Red Hill Avenue,
Costa Mesa, California.
WHEREAS, the lease was amended by a Lease Amendment No. 1 dated November
30, 1989, whereby among other things, Tenant's Square Footage was increased to
88,006 rentable square feet. The lease, together with Lease Amendment No. 1 are
herein collectively referred to as the "Lease."
NOW, THEREFORE, in consideration or the foregoing premises and the
respective covenants and agreements herein set forth, the parties hereto agree
as follows:
1. The final calculation of Tenant's Share (as defined in Schedule 6 of
the Lease) of the cost of completing the Leasehold Improvements is $577,878.34.
The amount of $544,811.53 is hereby defined as "Amortizable Costs". The amount
of $33,066.81 is hereby defined as "Unamortizable Costs" and shall be paid by
Tenant to Landlord within 30 days after receipt of invoices from Landlord.
The Amortizable Costs shall be paid to Landlord as follows: Tenant shall
pay Landlord the Amortizable Costs, plus interest at the rate of ten per cent
(10%) per year, in 60 amortized equal monthly installments of $11,575.63.
Commencing on the first day of the month following the month in which the actual
Lease Commencement Date falls, each monthly installment shall be paid in advance
on the first day of each month, together with each monthly installment of Base
Rent and Tenant's Pro Rata Share of Excess Operating Costs. The Unamortizable
Costs and the Amortizable Costs are hereby deemed to be included within the
definition of Rent.
By way of clarification and for purposes of calculating the purchase price
under paragraph 14.6 of the Lease, (i) the Unamortizable Costs and monthly
installments of the Amortized Costs may be deducted from the purchase price only
to the extent such payments are actually made by Tenant and received by Landlord
with good funds, and (ii) the amortization schedule attached hereto as Exhibit A
---------
shall be used to determine the principal and interest portions of monthly
installments of the Amortized Costs paid to Landlord. Pursuant to paragraph 14.6
of the Lease, only the principal portions of monthly payments made by Tenant may
be deducted from the purchase price.
2. The following are hereby added to the List of Schedules on page 3 of
the Lease:
10. Landscape Improvements at Landlord's Cost
11. Landscape Improvements at Tenant's Cost
1
<PAGE>
12. Signage Proposal
13. Reserved and Visitor Parking
3. Article 1.1e of the Lease is hereby deleted in its entirety and
replaced with the following:
e. Lease Commencement Date shall mean May 7, 1990, which may be
adjusted pursuant to the provisions of this Lease; Lease Expiration
Date shall mean April 20, 2000; Lease Term shall mean the period
between Lease Commencement Date and Lease Expiration Date.
4. Article 1.1j of the Lease is hereby deleted in its entirety and
replaced with the following:
j. Authorized Number of Parking Spaces shall mean 350 spaces at the
rate of $ -O-. 350 spaces constitutes a ratio of four spaces per 1,000
rentable square feet less 2 spaces to be used to install a new
entrance to the executive entrance on the north side of the Building.
5. The following Schedules attached hereto are hereby made a part of the
Lease and added to the list of Schedules in Article 1.2 of the Lease:
h. Schedule 10: Landscape Improvements at Landlord's Cost
i. Schedule 11: Landscape Improvements at Tenant's Cost
j. Schedule 12: Signage Proposal
k. Schedule 13: Reserved and Visitor Parking
6. Article 5.lb of the Lease is hereby deleted in its entirety and
replaced with the following:
b. Maintenance Services: Maintenance of all exterior areas of the
Building including lighting, landscaping, cleaning, painting,
maintenance and repair of the exterior of the Building and its
structural portions and roof, including all of the services listed on
Schedule 4 ("Maintenance Services").
7. The insertion to Article 6.lg marked with an asterisk at the bottom of
page 11 of the Lease shall be deleted in its entirety and replaced with the
following:
**Tenant shall have the right to display its name on the exterior of
the Building in accordance with the sign ordinance for the Project, as
approved by the City of Costa Mesa, attached to the Lease as Schedule
9, as modified by the letter dated April 13, 1990 which modification
is attached hereto as Schedule 12, and as may be further modified by
the City of Costa Mesa. The Tenant and Landlord have agreed that the
Tenant may
2
<PAGE>
submit its signage request to the City of Costa Mesa in accordance
with the signage proposal detailed in Schedule 12 to this Lease
Amendment No. 2.
8. Schedule 4 of the Lease is hereby deleted in its entirety and replaced
with the following:
SCHEDULE 4
MAINTENANCE SERVICES
--------------------
(1) Subject to the terms of this Lease, Landlord shall supply exterior
lamp replacement, exterior window washing with reasonable frequency, and
janitorial services to the exterior common areas of the Building only during the
time and in the manner that such janitorial services are customarily furnished
in similar buildings in the area. Tenant shall be responsible for the
janitorial, maintenance and repairs in the interior of the Building.
(2) Landlord agrees to reasonably maintain the exterior of the Building to
include lawn and shrub care, snow removal, maintenance of the structure, roof,
architectural finish, and so on, excluding only those items specifically
excepted elsewhere in this Lease. Tenant shall be responsible for the
maintenance of the mechanical and electrical equipment within the Building.
Tenant shall be obligated to maintain all HVAC mechanical equipment
servicing the Leased Premises in a manner consistent with comparable office
buildings in Orange County. If Tenant fails to maintain or keep in good repair
and such failure continues for 15 days after written notice from Landlord, or if
such failure results in a nuisance or health or safety risk, Landlord may
perform any such required maintenance and repairs and the cost thereof shall be
payable by Tenant as Rent within 30 days or receipt of an invoice from Landlord.
9. The last 2 sentences of Schedule 5 (Parking) are hereby deleted in
their entirety and are replaced with the following:
Tenant shall have sixteen (16) reserved parking spaces and 15 visitor
parking spaces. The location of the reserved and visitor parking
spaces are shown on Schedule 13.
10. The following Article is hereby added to the Addendum to Lease as
Article 14.7:
14.7 Tenant shall cause landscaping improvements to be installed
around the Building as detailed on Schedule 10 attached hereto
("Schedule 10 Landscaping"). Within 30 days after receipt of paid
invoices, Landlord shall reimburse to Tenant the cost of all
Schedule 10 Improvements up to a total amount of $42,662.00
("Landscape Allowance"). All costs for Schedule 10 Landscaping in
excess of the Landscape Allowance shall be paid by Tenant. Tenant
may, at its option, make additional landscape and site
improvements as detailed in Schedule 11 attached hereto and
solely at Tenant's cost. All landscaping detailed in Schedules 10
and 11 shall be installed by professional landscapes acceptable
to Landlord.
3
<PAGE>
11. Except as provided in this Lease Amendment No. 2, all other terms,
covenants and conditions contained in the Lease shall remain in full force and
effect. Initially capitalized terms not otherwise defined herein shall have the
same meaning as contained in the Lease.
IN WITNESS WHEREOF, the parties have caused their respective names to be
subscribed to this LEASE AMENDMENT NO. 2 as of the date first above written, the
execution and delivery thereof having been duly authorized.
WITNESS: LANDLORD:
SCRIPPS CENTER ASSOCIATES,
/s/ JUNE GARBY a California general partnership
- ------------------------
________________________
By: ALLSTATE INSURANCE COMPANY
an Illinois corporation
General Partner
By: /s/ M.J. RESNICK
------------------------------------
By: /s/ H.H.J
------------------------------------
Its Authorized Signatories
By: ALLSTATE INSURANCE COMPANY
an Illinois corporation
General Partner
By: /s/ M.J. RESNICK
------------------------------------
By: /s/ H.H.J.
------------------------------------
Its Authorized Signatories
WITNESS:
/s/ WILLIAM BOWMAN TENANT:
- ------------------------
________________________
KEITH ENGINEERING, INC. d/b/a THE KEITH
COMPANIES
By: /s/ ARAM H. KEITH
------------------------------------
Its President
By: /s/ FLOYD S. REID
------------------------------------
Its Secretary
4
<PAGE>
LEASE AMENDMENT No. 3
This Lease Amendment No. 3 is made and entered into as of October 24, 1991 by
and between Scripps Center Associates, A California General Partnership
("Landlord") and Keith Engineering Inc., DBA THE KEITH COMPANIES ("Tenant.")
WHEREAS, Landlord and tenant entered into a lease dated August 16, 1989,
whereby tenant leased approximately 70,000 square feet of space in an office
building known as Building C of Scripps Center located at 2995 Red Hill Avenue,
Costa Mesa, California.
WHEREAS, the lease was amended by a Lease Amendment No. 1 dated November 30,
1989, whereby among other things, Tenant's Square Footage was increased to
88,006 rentable square feet.
WHEREAS, the lease was amended by Lease Amendment No. 2 dated August 31,
1990, whereby by among other things, the final calculation of tenant's share of
Leasehold Improvements was stated as well as additional schedules included in
the Lease for landscape improvements, signage and parking. The lease, together
with Lease Amendment No. 1 and Lease Amendment No. 2 are hear (Sic.) and
collectively referred to as the "Lease".
Now, therefore, in consideration of the forgoing premises and the respective
covenants and agreements herein set forth, the parties hereto agree as follows:
1. The last two sentences of Schedule 5 "Parking" of the original lease dated
August 16, 1989 which was amended by Paragraph 9 of Lease Amendment No. 2,
will be deleted and replaced with the following:
Tenant shall have 16 reserved parking spaces, 11 visitor spaces, 8 carpool
spaces and 2 delivery spaces as specified on Schedule 13 dated October 24,
1991 attached hereto.
Except as provided in this Lease Amendment No. 3, all other terms, covenants
and conditions contained in the Lease shall remain in full force and effect.
Initially capitalized terms not otherwise defined herein shall have the same
meaning as contained in the Lease.
IN WITNESS WHEREOF, the parties have caused their respective names to be
subscribed to this LEASE AMENDMENT NO. 3 as of the date first written above, the
execution and delivery thereof having been duly authorized.
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WITNESS: LANDLORD:
SCRIPPS CENTER ASSOCIATES,
________________________ a California general partnership
________________________
By: ALLSTATE INSURANCE COMPANY
an Illinois corporation
General Partner
By: /s/
---------------------------------
By:
---------------------------------
Its Authorized Signatories
By: ALLSTATE INSURANCE COMPANY
an Illinois corporation
General Partner
By: /s/
---------------------------------
By:
---------------------------------
Its Authorized Signatories
WITNESS:
________________________ TENANT:
KEITH ENGINEERING, INC. d/b/a THE KEITH
________________________ COMPANIES
By: /s/ ARAM H. KEITH
---------------------------------
Its President
By: /s/ FLOYD S. REID
---------------------------------
Its Secretary
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LEASE AMENDMENT NO. 3
THIS LEASE AMENDMENT NO. 3 ("Amendment") is made and entered into as of
April 15, 1993, by and between SCRIPPS CENTER ASSOCIATES, a California general
--
partnership ("Landlord") and KEITH ENGINEERING, INC., d/b/a THE KEITH COMPANIES
("Tenant") and shall become effective on the Lease Commencement Date as set
forth in Paragraph 3 hereof.
WHEREAS Landlord and Tenant entered into a lease dated August 16, 1989,
whereby Tenant leased approximately 70,000 square feet of space in an office
building known as Building C of Scripps Center located at 2995 Red Hill Avenue,
Costa Mesa, California (the "Old Leased Premises").
WHEREAS, the lease was amended by Lease Amendment No. 1 dated November 30,
1989 and Lease Amendment No. 2 dated August 31, 1990. The lease, together with
Lease Amendments No. 1 and 2 are herein collectively referred to as the "Lease".
WHEREAS, Landlord and Tenant now desire to amend the Lease to reflect the
relocation of Tenant.
NOW, THEREFORE, in consideration of the foregoing premises and the
respective covenants and agreements herein set forth, the parties hereto agree
as follows:
1. Paragraph 1.1(a) of the Lease shall be deleted in its entirety and
replaced with the following:
Leased Premises shall mean the second floor and a portion of the first
floor in "Building A", which has a common address of at 2955 Red Hill Avenue,
and as further described on Exhibit A attached hereto and made a part hereof.
2. Paragraph 1.1(d) of the Lease shall be deleted in its entirety and
replaced with the following:
Tenant's Square Footage shall mean approximately 30,000 rentable square
feet which shall be subject to remeasurement by Landlord in accordance with BOMA
standards (and shall specifically exclude in the calculation the center
stairwell). Tenant's Square Footage shall be calculated on a rentable basis
which includes a pro rata share of common area. Total Square Footage of the
Building shall mean 60,042 rentable square feet, and Total Square Footage of the
Project shall mean 230,196 rentable square feet, which may be adjusted pursuant
to paragraph 7.2(iii) of the Lease.
3. Paragraph 1.1(e) of the Lease shall be deleted in its entirety and
replaced with the following:
Lease Commencement Date shall mean the date that is 5 business day (Sic.)
after the date Landlord notifies Tenant that the Leasehold Improvements as set
forth in Exhibit B attached to this Lease Amendment No. 3 have been completed,
but in no event later than June 1, 1993. Lease Expiration Date shall mean April
20, 2000. Lease Term shall mean the period between Lease Commencement Date and
Lease Expiration Date. Base Rent Adjustment Date shall mean the first day of May
in each year of the Lease Term commencing 1995.
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4. Paragraph 1.1(f) of the Lease shall be deleted in its entirety and
replaced with the following:
a. Base Rent shall be payable in monthly installments plus applicable
sales tax, if any in accordance with the following schedule and adjustments:
(i) From the Lease Commencement Date through April 30, 1994, Base Rent
shall mean $342,000 ($11.40 per square foot of Tenant's Square Footage) per
year, which shall be adjusted pursuant to the remeasurement in Paragraph 2.
(ii) From May 1, 1994 through April 30, 1995, Base Rent shall mean
$378,000 ($12.60 per square foot of Tenant's Square Footage) per year, which
shall be adjusted pursuant to the remeasurement in Paragraph 2.
(iii) From May 1, 1995 through April 20, 2000, Base Rent shall be subject
to adjustment on each Base Rent Adjustment Date as follows:
b. The monthly installment of Base Rent for the month ending immediately
prior to the Base Rent Adjustment Date shall be multiplied by a fraction, the
numerator of which is the CPI (as defined below) for the month beginning on the
date four months prior to the Base Rent Adjustment Date, and the denominator of
which is the CPI for the same month one year prior thereto; however, in no
event, shall Base Rent be decreased as a result of this calculation nor shall
Base Rent be increased by more than 8% on any Base Rent Adjustment Date.
c. "CPI" shall mean the Consumer Price Index in the column for "All
Items" in the table entitled "Consumer Price Index for All Urban Consumers: Los
Angeles-Anaheim-Riverside, California, (1982-84 = 100)," published by the Bureau
of Labor Statistics of the United States Department of Labor. If the Bureau of
Labor Statistics changes the base period (now 1982-84 = 100), or the composition
of the CPI, the new index numbers shall be substituted for the old index numbers
in making the above computations. If the CPI is discontinued, the parties shall
accept comparable statistics on the purchasing power of the consumer dollar, as
published at the time of said discontinuation, by a responsible financial
periodical of recognized authority to be chosen by Landlord and reasonably
acceptable to Tenant.
d. From the Lease Commencement Date through April 30, 1995, Tenant shall
pay, as additional rent ("Adjustment Payment") $11,000 per month. Subject to
Tenant making all of the Adjustment Payments, from May 1, 1995 through May 30,
1998, Tenant shall be entitled to a credit to or reduction of rent of $6,838 per
month ("Adjustment Credit").
5. Paragraph 1.1(g) of the Lease shall be deleted in its entirety and
replaced with the following:
Tenant's Pro Rata Share of building Operating Costs shall mean 50%, which
--
shall be adjusted pursuant to the remeasurement in Paragraph 2 above and which
may be adjusted pursuant to paragraph 7.2(iii) of the Lease. Tenant's Pro Rata
Share of Project operating Costs shall mean 13%, which shall be adjusted
--
pursuant to the remeasurement in Paragraph 2 above and which may be adjusted
pursuant to paragraph 7.2(iii) of the Lease. Tenant's Pro Rata Share of Project
Operating Costs for the first calendar year of the Lease Term is estimated to be
$68,400.00 ($2.28 per square foot of Tenant's Square Footage
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payable in Monthly installments of $5,700.00, which shall be adjusted pursuant
to the remeasurement in Paragraph 2 above and which is subject to adjustment
pursuant to Article 3.4c and d of the Lease.
6. Paragraph 1.1(j) of the Lease shall be deleted in its entirety and
replaced with the following:
Authorized Number of Parking Spaces shall mean four spaces per 1,000
rentable square feet leased.
7. Paragraph 1.1(m) of the Lease shall be deleted in its entirety and
replaced with the following:
Landlord's Mailing Address: Scripps Center Associates c/o Allstate
Insurance Company, Allstate Plaza G5B, Northbrook, Illinois 60062 Attn: Real
Estate Equity Investment Division.
8. Paragraph 1.1(n) of the Lease shall be deleted in its entirety and
replaced with the following:
Tenant's Mailing Address prior to the Lease Commencement Date shall be 2995
Red Hill Avenue, Costa Mesa, California 92626. After the Lease Commencement
Date, it shall be 2955 Red Hill Avenue, Costa Mesa, California 92626.
9. Landlord shall provide up to $250,000.00 ("Relocation Fund") which
shall be used by Tenant to pay the actual cost of tenant improvements, interior
and exterior signage (as set forth in Paragraph 16 hereof), moving costs,
telephone relocation expenses and other costs (but specifically excluding costs
of disruption of Tenant's business and space planning) associated with Tenant's
relocation to the Leased Premises. In the event Tenant contracts for any goods
or services in connection with the relocation (specifically excluding costs of
disruption of Tenant's business and space planning), Tenant shall provide
Landlord with invoices and lien waivers (if appropriate) and Landlord shall
reimburse Tenant within 15 business days of receipt and approval of said
invoices and lien waivers. Should Tenant default under the Lease, the Relocation
Fund shall immediately become due and payable, less Adjustment Payments paid to
the date of default. Tenant shall have no right to collect or receive a set off
for any unpaid Adjustment Credits.
10. All tenant improvement construction for the Leased Premises shall be
directed by Landlord and paid from the Relocation Fund in accordance with
Exhibit B attached hereto and made a part hereof.
11. Landlord and Tenant acknowledge that Tenant owes Landlord an amount of
$250,854.15 for unamortized over standard tenant improvement costs ("Unamortized
TI") in the Old Leased Premises. Subject to Paragraph 13 hereof, the Unamortized
TI shall be a contingent liability of Tenant and thus can only be asserted by
Landlord in the event that either Tenant files for protection under the Federal
Bankruptcy Act during the Lease Term or if there has been an Event of Default
under the Lease and Landlord terminates the Lease by judicial process. In such
event, the Unamortized TI shall become immediately due and payable as set forth
below and said amount shall bear interest from the date of filing for protection
or Event of Default until paid at a rate of 2% per month:
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Month of Default Unamortized IT
---------------- --------------
6/1/93 -4/31/94 $ 250,854.15
5/l/94 -4/31/95 215,017.84
5/l/95 -4/31/96 179,181.54
5/l/96 -4/31/97 143,345.23
5/1/97 -4/31/98 107,508.92
5/l/98 -4/31/99 71,672.61
5/l/99 -4/20/00 35,836.31
If there is an Event of Default under the Lease and Landlord does not
terminate the Lease by judicial process, the Unamortized TI, as determined
above, shall bear interest at the rate of 2% per month from the date of the
Event of Default until the default has been cured. Said interest shall be paid
monthly with the Base Rent and failure to so pay will be deemed another Event of
Default under Paragraph 11.1 of the Lease. The interest paid under this
Paragraph shall be in addition to any Interest payable by Tenant to Landlord
under any other provision of the Lease or this Lease Amendment No. 3.
12. Landlord and Tenant acknowledge that as of May 31, 1993, Tenant owes
Landlord for delinquent rent for the Old Leased Promises in the amount of
$661,200.49 plus interest of $152,792.03 for a total of $813,992.52 (such
delinquent rent and interest collectively referred to as "Delinquent Rent").
Subject to Paragraph 13 hereof, the Delinquent Rent shall be a contingent
liability of Tenant and thus can only be asserted by Landlord in the event that
either Tenant files for protection under the Federal Bankruptcy Act during the
Lease Term or if there has been an Event of Default under the Lease and Landlord
terminates the Lease by judicial process. In such event, the Delinquent Rent
shall become immediately due and payable as set forth below and said amount
shall bear interest from the date of filing for protection or Event of Default
until paid at a rate of 2% per month:
Month of Default Delinquent Rent
---------------- ---------------
6/1/93 -4/31/94 $ 853,842.86
5/l/94 -4/31/95 731,865.31
5/l/95 -4/31/96 609,887.76
5/l/96 -4/31/97 487,910.21
5/1/97 -4/31/98 365,932.66
5/l/98 -4/31/99 243,955.11
5/l/99 -4/20/00 121,977.56
If there is an Event of Default under the Lease and Landlord does not
terminate the Lease by judicial process, the Delinquent Rent, as determined
above, shall bear interest at a rate of 2% per month from the date of the Event
of Default until the default has been cured. Said interest shall be paid monthly
with the Base Rent and failure to so pay will be deemed another Event of Default
under Paragraph 11.1 of the Lease. The interest paid under this Paragraph shall
be in addition to any interest payable by Tenant to Landlord under any other
provisions of the Lease or Lease Amendment No. 3.
13. There shall be no liability, contingent or otherwise, of Tenant to
Landlord related to the Unamortized TI and the Delinquent Rent for the Old
Leased Premises, as set forth in Paragraphs 11 and 12
hereof, at any time after the effective date of a registration statement
for a public offering of shares of stock in Tenant (or any related entity which
is a signatory to the Lease or which becomes a
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successor to Tenant) provided that at least $5,000,000 of new capital is raised
for Tenant by such registration of its securities. This waiver of liability
shall not apply to the Relocation fund. In the event less than $5,000,000 of new
capital is raised, the Unamortized TI and the Delinquent Rent for the Old Leased
Premises shall remain due and payable in accordance with the terms of this
Amendment.
14. It is the intent of Landlord to enter into a 10 year lease with Canon
Computer Systems, Inc. ("Canon Lease") for all of the Old Leased Premises which
shall include an expansion option for space in Building A. Landlord shall have
the right to terminate this Lease between the 60th and the 72nd months of the
Canon Lease term. Landlord shall provide Tenant with the commencement date of
the term of the Canon Lease when available. Landlord shall give six months prior
written notice to Tenant of its intent to terminate the Lease pursuant to this
Paragraph. In the event Landlord terminates the Lease and Tenant is not in
default of the Lease on the date the Lease terminates, the Unamortized TI and
Delinquent Rent for the old Leased Premises shall be forgiven.
15. Paragraph 6.1(g) of the Lease shall be deleted in its entirety and
replaced with the following:
Tenant shall have the non exclusive right to install, at its sole cost and
expense, or from the Relocation Fund, its name on the exterior of the Building
subject to Landlord's reasonable approval of the size, specifications and
location of such sign and in accordance with the sign ordinance for the Project,
as approved by the City of Costa Mesa, and any other applicable governmental
authorities. Tenant must obtain the prior approval of the Landlord before
placing any other sign or symbol in doors or windows or elsewhere in or about
the Leased Premises, or upon any other part of the Building, or Project
including building directories. Any Signs or symbols which have been placed
without Landlord's approval may be removed by Landlord. During the Lease Term,
the cost of maintenance and repair of all signage shall be Tenant's cost. Upon
expiration or termination of the Lease, all signs installed by Tenant shall be
removed and any damage resulting therefrom shall be promptly repaired or such
removal and repair may be done by Landlord and the cost charged to Tenant as
Rent.
16. The Addendum to Lease, which was incorporated into the original Lease
at the time of its execution, and which includes Paragraphs 14.1 Base Rent, 14.2
Right of Refusal, 14.3 Rental Abatement, 14.4 Cancellation Provision, 14.5
Option to Renew and 14.6 Option to Purchase, shall be deleted in its entirety.
17. The last sentence of paragraph (2) and the third paragraph of Schedule
4 "Maintenance Services" (as amended in Lease Amendment No. 2) shall be deleted
in their entirety.
18. The last two sentences of Schedule 5 (Parking) (as amended in Lease
Amendment No. 2) shall be deleted in their entirety and replaced with the
following:
Of the Authorized Number of Parking Spaces set forth in Paragraph 7 hereof,
Tenant shall have 9 reserved parking spaces the location of which are shown on
revised Schedule 13 attached hereto and made a part hereof.
19. Tenant agrees to vacate the Old Leased Premises on or before the Lease
Commencement Date as set forth in Paragraph 3 hereof and said vacation shall
comply with Paragraph 12.1 of the Lease. Provided Landlord has not inhibited
Tenant from occupying the Leased Premises, Tenant's failure to
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comply with said vacation shall be deemed an Event of Default under Paragraph
11.1 of the Lease; and, in addition to the obligations set forth in Paragraph 21
hereof, Tenant shall be obligated to comply with all the terms and conditions of
the Old Lease, as hereinafter defined, except that Tenant shall be deemed to be
holding over pursuant to Paragraph 12.2 of the Old Lease and shall be subject to
the accelerated Rent, until Tenant vacates and surrenders the Old Leased
Premises pursuant to the Old Lease terms. The term "Old Lease" shall mean lease
reference in the recitals of this Amendment No. 3.
20. Landlord shall have the right to declare this Lease Amendment No. 3
null and void if Landlord does not enter into the Canon Lease; provided that
Landlord reimburses Tenant for all actual reasonable costs paid by Tenant in
conjunction with moving to the Leased Premises.
21. The rights and obligations of Landlord and Tenant relating to
insurance, indemnification, removal of property, holding-over and brokers shall
continue to apply to all claims arising from the period in which Tenant occupied
the Old Leased Premises.
Except as provided in this Lease Amendment No. 3, all other terms,
covenants and conditions contained in the Lease shall remain in full force and
effect. Initially capitalized terms not otherwise defined herein shall have the
same meaning as contained in the Lease.
IN WITNESS WHEREOF, the parties have caused their respective names to be
subscribed to this Lease Amendment No. 3 as of the date first above written the
execution and delivery thereof having been duly authorized.
TENANT: LANDLORD:
KEITH ENGINEERING, INC. SCRIPPS CENTER ASSOCIATES
d/b/a THE KEITH COMPANIES a California general partnership
By: /s/ ARAM H. KEITH By: ALLSTATE INSURANCE COMPANY
-------------------
Its President an Illinois corporation
general partner
By: /s/ FLOYD S. REID
------------------- By: /s/ KS (last name unreadable)
Its Secretary -------------------------------
By: /s/ JOHN (last name unreadable)
-------------------------------
By: ALLSTATE LIFE INSURANCE COMPANY
an Illinois corporation
general partner
By: /s/ KS (last name unreadable)
-------------------------------
By: /s/ JOHN (last name unreadable)
-------------------------------
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EXHIBIT B
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1. Definitions The terms defined In this paragraph, for purposes of this
-----------
schedule, shall have the meanings specified below, and, in addition to the terms
defined below, terms defined in the Lease and
---
Lease Amendment No. 3 shall, for purposes of this Schedule have the
---------------------
meanings specified in the Lease and Lease Amendment No. 3.
--------------------------
1.01 "Leasehold Improvements" means those items which are supplied,
installed and finished by Landlord, according to and described in the
Construction documents (as hereinafter defined) and which shall be paid for by
Landlord (subject to the Allowance) as provided for in paragraph 2.03 below.
1.02 "Construction Documents" means the approved construction drawings,
plans and specifications referred to in paragraph 2.03.
1.03 "Substantial Completion" means that the Leasehold Improvements have
been substantially completed according to the Construction Documents, except for
items which will not materially affect the use of the Leased Premises or which
customarily are deemed to be "punchlist work".
2. Construction Documents: Payments
--------------------------------
2.01 The Parties have approved a preliminary floor plan for the Leased
----
Premises, a copy of which is attached hereto as Schedule I (the "Preliminary
Plan")
2.02 Tenant shall cause to be prepared and submitted to Landlord for
----
approval all drawings, plans and specifications necessary to construct the
Leasehold Improvements. The fees and expenses for preparing the drawings, plans
and specifications shall the sole responsibility of Tenant.
----------------------------------
2.03 Tenant acknowledges that Landlord's sole monetary obligation is to
----
pay the costs attributable to the construction of the Leasehold Improvements, up
to an aggregate maximum limit of $ 250,000 (the "Allowance"), and Tenant shall
-------
pay all other costs of the construction of the Leasehold Improvements ("Tenant's
Share"). In addition, all costs attributable to changes and variations from the
Construction Documents (including, without limitation, any fees and expenses of
the Consultants and any increased costs of construction) shall be paid by
Tenant.
3. Leasehold Improvements
----------------------
3.01 The following provisions shall apply to the construction of the
----
Leasehold Improvements;
(a) All work involved in the completion of the Leasehold Improvements
shall be carried out by Landlord and its agents and contractors under the sole
direction of Landlord. Tenant shall cooperate with Landlord and its agents and
contractors to promote the efficient and expeditious completion of the Leasehold
Improvements; and
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(b) Landlord agrees to construct the Leasehold Improvements in accordance
with the Construction Documents, provided Tenant has complied with all the
applicable provisions of this Schedule, the Lease and Lease Amendment No. 3.
3.02 If there are any changes in the Leasehold improvements requested by,
----
or on behalf of, Tenant from the work as reflected in the Construction
Documents, each such change must receive the prior written approval of Landlord,
and Tenant shall bear the cost of all such changes.
3.03 Landlord shall have no obligation to commence construction of any
----
work in the Leased Premises until (a) Tenant has submitted the Construction
----------
Documents for the construction of the Leasehold improvements as required by the
provisions hereof, and (b) Landlord shall have received Tenant's advance payment
in an amount equal to the Tenant's Share, if any.
4. Lease Commencement Date
-----------------------
4.01 Landlord shall notify Tenant when Substantial Completion has been
----
achieved and the Lease Commencement Date shall Completion has established as set
forth in the Lease Amendment No. 3. Notwithstanding anything to the contrary
contained in the Lease, the Lease Amendment No. 3 or this Schedule, the Lease
Commencement Date shall not be extended for any delay in Substantial Completion
to the extent that such delay is caused in whole or in part by any act or
omission attributable to Tenant, including without limitation:
(a) Tenant's request for any Leasehold Improvements which require
materials which need to be ordered and are not immediately available;
(b) Tenant's failure to furnish promptly information concerning Tenant's
requirements pertaining to construction of the Leasehold improvements or any
other information requested by the Landlord as necessary or useful to prepare
the Construction Documents;
(c) Tenant's failure to submit promptly the Construction Documents; and
------
(d) Tenant's request for any changes in the Leasehold Improvements from
the work as reflected in the Construction Documents.
4.02 In any event, Rent payable under the Lease and Lease Amendment No. 3
----
shall not abate by reason of any delay, expense or other burden arising out of
or incurred in connection with the design or construction of the Leasehold
Improvements to the extent that such delay, expense or other burden is caused in
whole or in part by any act or omission attributable to Tenant including,
without limitation, the acts and omissions referred to in subparagraphs (a)
through (d) of paragraph 4.01 above).
5. Tenant's Access to Leased Premises
----------------------------------
5.01 Landlord, in its sole discretion, may permit Tenant and Tenant's
----
agents or independent contractors to enter the Leased Premises prior to the
scheduled Lease Commencement Date in order that Tenant may do other work as may
be required by Tenant to make the Leased Premises ready for Tenant's use and
occupancy. Such permission must be in writing prior to entry. If Landlord
permits such prior entry, then such license shall be subject to the condition
that Tenant and Tenant's agents, contractors, workman, mechanics, suppliers, and
invitees shall work in harmony with and not interfere with Landlord
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and its agents and contractors in doing its work in the Leased Premises or the
Building or with other tenants and occupants of the Building or the Project. If
at any time such entry shall cause or threaten to cause disharmony or
interference, Landlord, in its sole discretion, shall have the right to withdraw
and cancel such license upon notice to Tenant. Tenant agrees that any such entry
into the Leased Promises shall be deemed to be under all of the terms,
covenants, conditions and provisions of the Lease and Lease Amendment No. 3,
except as to the covenant to pay periodic Rent. Tenant further agrees that, to
the extent permitted by law, Landlord and its principals shall not be liable in
any way for any injury or death to any person or persons, loss or damage to any
of the Leasehold Improvements or installations made in Leased Premises or loss
or damage to property placed therein or there about, the same being at Tenant's
risk.
5.02 In addition to any other conditions or limitations on such license to
----
enter the Leased Premises prior to the Lease Commencement Date, Tenant expressly
agrees that none of its agents, contractors, workmen, mechanics, suppliers or
invitees shall enter the Leased Premises prior to the Lease Commencement Date
unless and until each of them shall furnish Landlord with satisfactory evidence
of Insurance coverage, financial responsibility and appropriate written releases
of mechanics' or materialmen's lien claims.
6. Miscellaneous Provisions Landlord and Tenant further agree as
------------------------
follows:
6.01 Except as herein expressly set forth with respect to the Leasehold
----
Improvements, Landlord has no agreement with Tenant and has no obligation to do
any work with respect to the Leased Premises. Any other work in the Leased
Premises which may be permitted by Landlord pursuant to the terms and conditions
of the Lease and Lease Amendment No. 3 shall be done at Tenant's sole cost and
expense and in accordance with the terms and conditions of the Lease and Lease
Amendment No. 3.
6.02 This Schedule shall not be deemed applicable to: (a) any additional
----
space added to the original Leased Premises at any time, whether by the exercise
of any options under the Lease, Lease Amendment No. 3 or otherwise, or (b) any
portion of the original Leased Premises or any additions thereto in the event of
a renewal or extension of the original Lease Term, whether by the exercise of
any options under the Lease or any amendment or supplement thereto. The
construction of any additions or improvements to the Leased Premises not
contemplated by this Schedule shall be effected pursuant to a separate work
letter agreement or other document, in the form then being used by Landlord and
specifically addressed to the allocation of costs relating to such construction.
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LEASE AMENDMENT NO. 4
THIS LEASE AMENDMENT NO. 4 ("Amendment") is made and entered into as of
October 1, 1993, by and between SCRIPPS CENTER ASSOCIATES, a California general
- ----------
partnership ("Landlord") and KEITH ENGINEERING, INC., d/b/a THE KEITH COMPANIES
("Tenant").
WHEREAS, Landlord and Tenant entered into a lease dated August 16, 1989,
whereby Tenant leased approximately 70,000 square feet of space in an office
building known as Building C of Scripps Center located at 2995 Red Hill Avenue,
Costa Mesa, California (the "Old Leased Premises").
WHEREAS, the lease was amended by Lease Amendment No. 1 dated November 30,
1989, Lease Amendment No. 2 dated August 31, 1990 and Lease Amendment No. 3
dated April 15, 1993. The lease, together with Lease Amendments No. 1, 2 and 3
are herein collectively referred to as the "Lease".
WHEREAS, Landlord and Tenant now desire to amend the Lease to reflect
certain economic and other changes to the Lease.
NOW, THEREFORE, in consideration of the foregoing premises and the
respective covenants and agreements herein set forth, the parties hereto agree
as follows:
1. Paragraph 1.1 (d) of the Lease shall be deleted in its entirety and
replaced with the following:
Tenant's Square Footage shall mean 32,994 rentable square feet which has
been measured by Landlord in accordance with BOMA standards (and
specifically excludes in the calculation the center stairwell). Tenant's
Square Footage is calculated on a rentable basis which includes a pro rata
share of common area. Total Square Footage of the Building shall mean
60,165 rentable square feet and Total Square Footage of the Project shall
mean 229,349 rentable square feet, which may be adjusted pursuant to
paragraph 7.2(iii) of the Lease.
2. Paragraph 1.1 (e) of the Lease shall be deleted in its entirety and
replaced with the following:
Lease Commencement Date shall mean June 1, 1993; Lease Expiration Date
shall mean April 20, 2000; Lease Term shall mean the period between the
Lease Commencement Date and the Lease Expiration Date.
1
<PAGE>
3. Paragraph 1.1(f)a. of the Lease shall be deleted in its entirety and
replaced with the following:
a. Base Rent shall be payable in monthly installments Plus applicable
sales tax, if any in accordance with the following schedule and
adjustments:
(i) From the Lease Commencement Date through April 30, 1994, Base
Rent shall mean $376,131.60 ($11.40 per square foot of Tenant's Square
Footage) per year, payable in monthly installments of $31,344.30.
(ii) From May 1, 1994 through April 30, 1995, Base Rent shall mean
$415,724.40 ($12.60 per square foot of Tenant's Square Footage) per
year, payable in monthly installments of $34,643.70.
(iii) From May 1, 1995 through April 20, 2000, Base Rent shall be
subject to adjustment on each Base Rent Adjustment Date as follows:
4. The following language shall be added to the end of Paragraph 1.1(f)d
of Lease Amendment No. 3:
In lieu of Tenant paying the Adjustment Payments to Landlord, Tenant
shall guaranty the Adjustment Payments under a separate guaranty
document executed by Tenant and Landlord. In the event of default
under the Lease, the guaranty shall control.
5. Paragraph 1.1(g) of the Lease shall be deleted in its entirety and
replaced with the following:
Tenant's Pro Rata Share of Building Operating Costs shall mean 54.8%.,
which may be adjusted pursuant to paragraph 7.2 (iii) of the Lease.
Tenant's Pro Rata Share of Project Operating Costs shall mean 14.4%, which
may be adjusted pursuant to paragraph 7.2 (iii) of the Lease. Tenant's Pro
Rata Share of Project Operating Costs for the first calendar year of the
Lease Term is estimated to be $75,226.32 ($2.28 per square foot of
Tenant's Square Footage) payable in monthly installments of $6,268.86,
which is subject to adjustment pursuant to Article 3.4c and d of the
Lease. Tenant's Pro Rata Share of Building Operating Costs for the first
calendar year of the Lease Term is estimated to be $65,328.12 ($1.98 per
square foot of Tenant's Square Footage) payable in monthly installments of
$5,444.01, which is subject to adjustment pursuant to Article 3.4c and d
of the Lease.
2
<PAGE>
6. The first paragraph and the Delinquent Rent schedule in Paragraph 12
of Lease Amendment No. 3 shall be deleted in their entirety and replaced with
the following:
Landlord and Tenant acknowledge that as of May 31, 1993, Tenant owes
Landlord for delinquent rent for the Old Leased Premises in the amount of
$671,152.16 plus interest of $153,330.66 for a total of $824,482.82 (such
delinquent rent and interest collectively referred to as "Delinquent
Rent"). Subject to Paragraph 13 hereof, the Delinquent Rent shall be a
contingent liability of Tenant and thus can only be asserted by Landlord in
the event that either Tenant files for protection under the Federal
Bankruptcy Act during the Lease Term or if there has been an Event of
Default under the Lease and Landlord terminates the Lease by judicial
process. In such event, the Delinquent Rent shall become immediately due
and payable as set forth below and said amount shall bear interest from the
date of filing for protection or Event of Default until paid at a rate of
2% per month:
<TABLE>
<CAPTION>
Month of Default Delinquent Rent
---------------- ----------------
<S> <C>
6/l/93 - 4/31/94 $824,482.82
5/l/94 - 4/31/95 706,699.56
5/l/95 - 4/31/96 588,916.30
5/l/96 - 4/31/97 471,133.04
5/l/97 - 4/31/98 353,349.78
5/l/98 - 4/31/99 235,566.52
5/l/99 - 4/20/00 117,783.26
</TABLE>
7. The last two sentences of Schedule 5 (Parking) (as amended in Lease
Amendment Nos. 2 and 3) shall be deleted in their entirety and replaced with the
following:
Of the Authorized Number of Parking Spaces set forth in Paragraph 6 hereof,
Tenant shall have 12 reserved parking spaces and 8 car/van pool reserved
parking spaces, the location of which are shown on revised Schedule 13
attached hereto and made a part hereof.
8. Schedule 13 of Lease Amendment No. 3 is hereby deleted in its entirety
and replaced with Schedule 13 attached hereto and made a part hereof.
Except as provided in this Lease Amendment No. 4, all other terms,
covenants and conditions contained in the Lease shall remain in full force and
effect. Initially capitalized terms not otherwise defined herein shall have the
same meaning as contained in the Lease.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused their respective names to be
subscribed to this Lease Amendment No. 4 as of the date first above written the
execution and delivery thereof having been duly authorized.
TENANT: LANDLORD:
KEITH ENGINEERING, INC. SCRIPPS CENTER ASSOCIATES
d/b/a THE KEITH COMPANIES a California general partnership
By: /s/ Aram H. Keith By: ALLSTATE INSURANCE COMPANY AND
------------------
Its President ALLSTATE LIFE INSURANCE COMPANY
both Illinois corporations
By: /s/ Floyd S. Reid general partners
------------------
Its Secretary by: Its (2) authorized signers
(signatures illegible)
4
<PAGE>
FIFTH AMENDMENT TO LEASE
This Fifth Amendment to Lease ("Fifth Amendment") is made and entered into as of
the ____ day of May, 1998 by and between Scripps Center Associates ("Landlord")
and The Keith Companies ("Tenant").
RECITALS
A. Landlord and Tenant entered into that certain Lease dated August 16, 1989
("Lease") for premises in Scripps Center in the facility known as 2995
Redhill Avenue, Costa Mesa, California. Said Lease was modified with
Amendments # 1, 2, 3 and 4, which provided for Tenant's relocation to 2955
Redhill Avenue, Costa Mesa (the "Building"').
B. The parties wish to modify the Lease whereby Tenant shall lease an
additional 16,419 rentable square feet, on a portion of the ground floor
further identified as Suite 100, in the property known as 2955 Redhill
Avenue, Costa Mesa, California ("Additional Premises"), in addition to the
initial amended Leased Premises.
Now, therefore, in consideration of the foregoing recitals and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. LEASED PREMISES: Shall additionally include Suite 100 on a portion of the
ground floor of the Building, as of the Lease Commencement Date for the
Additional Premises, further described and shown in the attached Exhibit 1.
2. TENANT'S SQUARE FOOTAGE: Shall mean 49,41') rentable square feet for the
combined 4th Amendment defined Leased Premises and Additional Premises as
of the Lease Commencement Date for the Additional Premises.
3. LEASE COMMENCEMENT DATE: For the Additional Premises shall mean July 1,
1998.
4. LEASE TERM: Shall expire on April 20, 2000 or earlier, if cancelled by
Landlord as provided for in the current Lease.
5. BASE RENT: Shall mean for the Additional Premises only, as of the Lease
Commencement Date for the Additional Premises on a triple net basis, Sixteen
Thousand Four Hundred Nineteen and No/100 Dollars ($16,419.00) monthly for
months I - 12 of said Lease Term and Sixteen Thousand Seven Hundred Forty-
seven and 38/100 Dollars ($16,747.38) monthly for months 13 -22 of the Lease
Term. Tenant shall continue to pay the Base Rent for the Initial Premises as
prescribed in the Lease as amended unabated over the remainder of the Lease
Term.
6. EARLY OCCUPANCY: Tenant shall have the right, provided it does not interfere
with the tenant improvement process, of one (1) month early occupancy prior
to the Lease Commencement Date rent free for the purpose of installing
furniture, fixtures and equipment.
7. OPERATING EXPENSES: Tenant's Pro Rata Share of Building Operating Costs
shall mean 81.7% as of the Lease Commencement Date for the combined 4th
Amendment defined Premises and the Additional Premises. Tenant's Pro Rata
Share of Project Operating Costs shall mean 21.5% as of the Lease
Commencement Date for the combined 4th Amendment defined Premises and the
Additional Premises.
8. OPTION TO RENEW: Subject to any existing rights, Tenant shall have one (1)
------------------------------
option to renew ("Option to Renew") this Lease for five (5) years (the
"Renewal Period"). If Tenant desires to exercise its Option to Renew, Tenant
shall give Landlord written notice ("Renewal Notice") thereof on or before
January 20, 2000. During the thirty-(30) day period following Landlord's
receipt of the Renewal Notice, Landlord and Tenant shall
2
<PAGE>
use reasonable efforts to negotiate a mutually agreeable base rent ("Market
Base Rent") for the Renewal Period. The Market Base Rent shall be negotiated
in light of then current terms for reviewing tenants for comparable space,
including market rents, term of renewal and operating expense pass throughs
and the tenant improvement allowance of $5.00 per rentable square foot which
Landlord will provide Tenant as part of its renewal. Within fifteen (15)
business days of agreement by the parties on the Market Base Rent and other
terms of the renewal, Landlord shall deliver to Tenant an amendment to this
Lease extending this Lease on such terms. Such amendment shall not contain
any further option to renew. Tenant shall execute and deliver the amendment
to Landlord within ten (10) business days following receipt of such
amendment. The foregoing option and rights are subject to there having been
no Event of Default which has not been cured under this Lease, are personal
to the original Tenant executing the Lease, may not be assigned, and shall
be available to and exercisable by the Tenant only when the original Tenant
is in actual possession and physical occupancy of the entire Leased
Premises. Time is of the essence in the exercise of Tenant's Option to
Renew. Should Tenant fail to exercise such option, execute and deliver any
required documents, or perform any of its required obligations under this
section, or should the parties be unable to agree on Market Base Rent for
the Renewal Period, within the time periods set forth above, then this
Option to Renew and any other rights of Tenant under the Lease in the nature
of options, shall be null and void, and the Lease shall terminate at the end
of the Lease Term. The option to renew shall include annual rent increases
based upon the CPI, not to exceed 3% per annum compounded.
9. PARKING: As of the Lease Commencement Date for the Additional premises
only, Tenant shall have fifty-nine (59) unreserved and in common parking
spaces and five (5) reserved parking spaces in a mutually agreed upon
location.
10. SECURITY DEPOSIT: Upon execution of this 5th Amendment to Lease, Tenant
shall deposit with Landlord a security deposit equal to the first month's
rent for the Additional Premises.
11. PREPAID RENT: Upon execution of this 5th Amendment to Lease, Tenant shall
deposit with Landlord' Tenant's first full month's rent for the Additional
Premises.
12. RIGHT TO ASSIGN OR SUBLEASE: No consent shall be required for
transactions with affiliates or for corporate restructuring (mergers,
-----------------------
consolidations, etc.) provided Tenant notifies Landlord within thirty (30)
days. All profits on any sublease or assignment transaction shall be
shared 50% to Landlord and 50% to Tenant.
13. CONSTRUCTION: The terms defined in this paragraph 14, for the purposes of
constructing the improvements within the Additional Premises, shall have
the meanings specified below, and in addition to the terms below, other
terms identified in the Lease shall, for the purposes of this paragraph 14,
have the meaning specified in the Lease.
1. DEFINITIONS:
1.01 "Leasehold Improvements" means those items which are supplied,
------------------------
installed and finished by Tenant, according to and described in the
Construction Documents (as hereinafter defined) and which shall be
paid for by Tenant (subject to the Allowance) as provided for in
paragraph 2.03 below.
1.02 "Construction Documents" means the approved construction drawings,
------------------------
plans and specifications referred to in paragraph 2.03.
1.03 "Substantial Completion" means that the Leasehold Improvements have
------------------------
been substantially completed according to the Construction Documents,
except for items which will not materially affect the use of the
Leased Premises or which customarily are deemed to be "punchlist work"
3
<PAGE>
2. CONSTRUCTION DOCUMENTS; PAYMENTS
2.01 The parties have approved a preliminary- floor plan for the Leased
Premises, a copy of which is attached to the Lease as Schedule I (the
"Preliminary Plan").
2.02 Tenant shall cause to be prepared and submitted to Landlord for
approval all drawings, plans and specifications necessary to construct
the Leasehold improvements. Within five (5) business days from the
date the documents are Submitted ("Document Approval Period"),
Landlord shall approve or disapprove the documents. Said approval
shall not be unreasonably withheld or delayed. If the Landlord
disapproves the documents within the Approval Period, then the
Landlord and Tenant shall attempt to resolve the objections of
Landlord; and if a reasonable resolution cannot he reached within ten
(10) days of Landlord's notice of disapproval, then either Tenant or
Landlord shall have the right to terminate the Lease by written notice
to the other. Tenant shall have sole responsibility for ensuring that
the Leasehold Improvements comply with all applicable laws, statues,
ordinances and regulations, including without limitation the Americans
with Disabilities Act.
2.03 Upon Landlord's approval of the final form of the drawings, plans
and specifications, which shall constitute the Construction Documents,
Tenant shall prepare an analysis of the cost of constructing the
Leasehold Improvements according to the Construction Documents (the
"Final Cost") and submit such analysis to Landlord for its approval.
Within five (5) business days from the date the Final Cost has been
submitted ("Cost Approval Period") Landlord shall approve or
disapprove the Final Cost, which shall not be unreasonably withheld or
delayed. If Landlord does not approve the Final Cost, it shall
promptly notify Tenant; in which case Tenant and Landlord shall use
their best efforts to amend the Construction Documents in a manner
satisfactory to each. If they are unable to do so within five (5)
days after Landlord notifies Tenant as provided in the preceding
sentence, either party may terminate the Lease by delivering written
notice to the other. Tenant acknowledges that Landlord's sole
monetary obligation is to pay the costs attributable to the
construction of the Leasehold Improvements, up to an aggregate maximum
limit of $2.68 per rentable square foot of Tenant's Additional
Premises (the "Allowance"), and Tenant shall pay all other costs of
the construction of the Leasehold' Improvements ("Tenant's Share").
In addition, all costs attributable to changes and variations from the
Construction Documents in excess of the Final Cost (including, without
limitation, any fees and expenses of the Consultants and any increased
costs of construction) shall be paid by Tenant.
2.04 After approval of the construction Documents, Tenant shall bid the
Leasehold Improvements to at least two (2) general contractors or
product vendors applicable approved in advance by Landlord. Tenant
shall have the right to select the general contractor who will
construct the Leasehold Improvements (the "General Contractor") from
the responses to such bids and approve the Cost Estimate. The General
Contractor shall execute an industry standard American Institute of
Architect's ("AIA") Contract with the Tenant, satisfactory to Landlord
in form and substance, which shall include an indemnification of
Tenant and Landlord and their successors and assigns from and against
any and all claims, damages, losses or expenses suffered or incurred
by reason of misfeasance or malfeasance of the General Contractor or
any of its employees, agents, contractors, invitees or guests. The
contract shall provide for a retainage of not less than ten percent
(10%).
2.05 Prior to the commencement of construction, the General Contractor
shall deliver to Tenant and to Landlord:
4
<PAGE>
(a) evidence that all permits necessary for the construction of the
Leasehold Improvements have been obtained:
(b) certificates of insurance from companies acceptable to Tenant and
Landlord, naming Tenant and Landlord as additional Insureds, and
evidencing builder's risk coverage in an amount satisfactory to
Tenant and Landlord, along with such other insurance coverages as
Tenant and Landlord may reasonably require:
(c) at Landlord's request, obtain and deliver to Landlord a bond for
payment and performance, in form and amount reasonably
satisfactory to Landlord, naming Landlord and Tenant as
beneficiaries.
2.06 Payments of portions of the Allowance shall be made from time to time
during the course of the construction of the Leasehold Improvements,
but not more often than once a month. Disbursements of the requested
amounts, subject to Landlord's withholding of the retainage, shall be
made upon the Submission to Landlord of the following documents:
(a) a draw request from Tenant in form acceptable to Landlord,
together with copies of the invoices for which payment is being
requested;
(b) lien waivers (to the extent available under local law), and sworn
statements from the General Contractor, subcontractors, sub-
subcontractors, laborers and material suppliers pertaining to the
work. If lien waivers are not available for the currently
requested disbursement, Tenant shall submit lien waivers for all
sums previously advanced;
(c) a certificate from Tenant's architect that all work (labor and
materials) for which the draw request has been made has been
completed and performed in a good and workmanlike manner
substantially in accordance with the Construction Drawings and
Specifications;
(d) such evidence as Landlord may reasonably require certifying that
any work requiring inspection by Governmental authorities has
been duly inspected and approved;
(e) at Landlord's request, title insurance endorsements satisfactory
to Landlord at Tenant's expense; and
(f) satisfy such other conditions as Landlord may reasonably require
in order to establish that the work has been satisfactorily
completed and paid for.
2.07 At Landlord's option, payments may be made directly to the invoicing
party, to the General Contractor or to Tenant. Landlord shall have no
obligation to disburse any sums hereunder if Landlord has received
notice that the property is subject to a charge, liability, claim,
lien, mechanic's lien, or other encumbrance of whatsoever kind or
nature created by Tenant or by reason of the construction of the
Leasehold Improvements by the Tenant, unless any such claim or lien is
bonded over to the satisfaction of Landlord in Landlord's sole and
absolute discretion.
2.08 Landlord shall not be obligated to make the final advance of the
Allowance until the Tenant has also delivered to Landlord the
following additional items, all satisfactory to Landlord in Landlord's
sole discretion.
(a) such as-built plans and specifications as Landlord may deem
necessary to describe the work;
5
<PAGE>
(b) certificates of occupancy and such other evidence as Landlord may
reasonably require certifying that any work requiring inspection
by governmental authorities has been duly inspected and approved;
c) a certificate from Tenant's architect stating that Improvements
have been completed substantially in accordance with the
Construction Drawings (as they may have been modified from time
to time as provided by this agreement);
(d) final lien waivers from the General Contractor, subcontractors,
laborers and materials suppliers, or evidence satisfactory to
Landlord in Landlord's sole discretion that such lien shall be
delivered to Landlord immediately upon payment of the final
advance by Landlord; and
(e) at Landlord's request, title insurance endorsements satisfactory
to Landlord at Tenant's expense.
3. LEASEHOLD IMPROVEMENTS
3.01 The following provisions shall apply to the construction of the
Leasehold Improvements:
(a) All work involved in the completion of the Leasehold Improvements
shall be carried out by Tenant and its agents and contractors
under the sole direction of Tenant, except that in the event that
installation of any of the Leasehold Improvements affects,
connects to or impacts the mechanical, electrical or plumbing
systems of the Building or any space in the Building outside of
the Leased Premises, Landlord's Representative (as described
below) shall have full and absolute authority to stop or redirect
the work as s/he deems necessary. Landlord shall cooperate with
Tenant and its agents and contractors to promote the efficient
and expeditious completion of the Leasehold Improvements.
(b) Landlord shall be represented during the construction of the
Leasehold Improvements by Property Manager ("Landlord's
Representative"), who shall be given full and complete access to
the Leased Premises and the Construction Documents while the
Leasehold Improvements are being constructed. Tenant's agents
and contractors shall cooperate fully with all requests of
Landlord's representative.
(c) Tenant agrees to construct the Leasehold Improvements in
accordance with the construction Documents, and in compliance
with all applicable building and safety codes. Tenant shall
complete the construction of the Leasehold Improvements with as
little disruption or interference as possible with the other
tenants of the Building. Specifically, without limiting the
foregoing, Tenant shall not block access to the Building,
obstruct walkways or parking spaces, or tie up passenger
elevators, without first receiving Landlord's prior written
consent, nor shall Tenant cause any fire or safety hazards during
the construction.
(d) Tenant hereby indemnifies and holds Landlord and its agents
harmless from any and all damages or injury to person and
property arising out of or related to the Improvements being
performed to the Leased Premises, excluding damage or injury
caused by the acts, omissions or gross negligence on the part of
the Landlord or its agents. Tenant shall reimburse Landlord for
any expenses incurred by Landlord in making repairs to the Leased
Premises or other areas of the Project or Building
6
<PAGE>
outside the Leased Premises, arising out of or related to the
Improvements being performed hereunder.
3.02 If there are any changes in the Leasehold Improvements requested by,
or on behalf of, Tenant from the work as reflected in the Construction
Documents, each Such change must receive the prior written approval of
Landlord, and Tenant shall bear the cost of all such changes.
3.03 Tenant shall not commence construction of any work in the Leased
Premises until (a) Landlord has approved the Construction Documents
and the Final cost for the construction of the Leasehold Improvements
as required by the provisions hereof, and (b) Landlord shall have
received Tenant's advance payment in an amount equal to the Tenant's
Share, if any.
4. LEASE COMMENCEMENT DATE
4.01 Tenant shall notify Landlord when Substantial Completion has been
achieved and the Lease Commencement Date shall be established as set
forth in the Lease. Notwithstanding anything to the contrary
contained in the Lease or this Schedule, the Lease Commencement Date
shall not be extended for any delay in Substantial Completion to the
extent that such delay is caused in whole or in party by any act or
omission attributable to Tenant, including without limitation:
(a) Tenant's request for any Leasehold Improvements which require
materials which need to be ordered and are not immediately
available;
(b) Tenant's failure to furnish promptly information concerning
Tenant's requirements pertaining to construction of the Leasehold
Improvements or any other information requested by the Landlord
as necessary or useful to approve the Construction Documents,
(c) Tenant's failure to promptly prepare and submit the Construction
Documents and Final Cost; and
(d) Tenant's request for any changes in the Leasehold Improvements
from the work as reflected in the Construction Documents.
4.02 In any event, Rent payable under the Lease shall not abate by reason
of any delay, expense or other burden arising out of or incurred in
connection with the design or construction of the Leasehold
Improvements to the extent that such delay, expense or other burden is
caused in whole or in party by any act or omission attributable to
Tenant (including, without limitation, the acts and omissions referred
to in subparagraphs (a) through (d) of paragraph 4.01 above).
5. TENANT'S ACCESS TO LEASED PREMISES
5.01 Tenant and Tenant's agents or independent contractors may enter the
Leased Premises prior to the scheduled Lease Commencement Date to
perform the construction of the Leasehold Improvements and to do such
other work as may be required by Tenant to make the Leased Premises
ready for Tenant's use and occupancy. Such entry shall be subject to
the condition that Tenant and Tenant's agents, contractors, workmen,
mechanics, suppliers and invitees shall work in harmony with and not
interfere with Landlord and its agents and contractors in doing its
work in the Leased Premises or the Building or with other tenants and
occupants of the Building or the Project. If at any time such entry
shall cause or threaten to cause disharmony or interference, Landlord,
in its sole discretion, shall have the right to limit, withdraw or
cancel such license upon notice to Tenant and, if necessary, to
complete the construction of the Leasehold Improvements on Tenant's
behalf. Tenant agrees that any
7
<PAGE>
such entry into the Leased Premises shall be deemed to be under all of
the terms, covenants, conditions and provisions o (Sic.) the Lease,
except as to the covenant to pay periodic Rent. Tenant further agrees
that, to the extent permitted by law, Landlord and its principals
shall not be liable in any way for any injury or death to any person
or person, loss or damage to any of the Leasehold Improvements or
installations made in the Leased Premises or loss or damage to
property placed therein or thereabout, the same being at Tenant's sole
risk.
5.02 In addition to any other conditions or limitations on such license to
enter the Leased Premises prior to the Lease Commencement Date, Tenant
expressly agrees that none of its agents, contractors, workmen,
mechanics suppliers or invitees shall enter the Leased Premises prior
to the Lease Commencement Date unless and until each of them shall
furnish Landlord with satisfactory evidence of insurance coverage,
financial responsibility and appropriate written releases of
mechanics' or materialmens' lien claims.
6. MISCELLANEOUS PROVISIONS
6.01 Except as herein expressly set forth with respect to the Leasehold
Improvements, Landlord has no agreement with Tenant and has no
obligation to do any work with respect to the Leased Premises. Any
other work in the Leased Premises which may be permitted by Landlord
pursuant to the terms and conditions of the Lease shall be done
Tenant's sole cost and expense and in accordance with the terms and
conditions of the Lease.
6.02 This paragraph 13 shall not be deemed applicable to: (a) any
additional space added to the original Leased Premises at any time,
whether by the exercise of any options under the Lease or otherwise,
or (b) any portion of the original Leased Premises as amended or any
additions thereto in the event of a renewal or extension of the
original Lease Term, whether by the exercise of any options under the
Lease or any amendment or supplement thereto. The construction of any
additions or Improvements to the Leased Premises not contemplated by
this paragraph 13 shall be effected pursuant to a separate work letter
agreement or other document, in the form then being used by Landlord
and specifically addressed to the allocation of costs relating to such
construction.
Except as modified herein, the Lease as amended shall remain in full force and
effect. In witness whereof, the Fifth Amendment has been executed as of the day
and year first written above.
LANDLORD: TENANT:
SCRIPPS CENTER ASSOCIATES THE KEITH COMPANIES
By: Allstate Life Insurance Company By:
Its: General Partner Its:
By: /s/ B.S.B. (signature illegible) By: /s/ Jerry Brickman
-------------------------------- ----------------------
Its: Authorized Signatory Its: Authorized Signatory
By: Allstate Insurance Company
Its: General Partner
By: /s/ B.S.B. (signature illegible)
--------------------------------
Its: Authorized Signatory
8
<PAGE>
EXHIBIT 10.12
LEASE
MORENO CORPORATE CENTER, L.L.C.,
--------------------------------
a Delaware limited liability company
Landlord
and
THE KEITH COMPANIES, INC.,
--------------------------
a California corporation,
formerly known as The Keith Companies - Inland Empire, Inc.,
a California corporation
Tenant
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. TERM.................................................................................
2. BASIC ANNUAL RENT AND SECURITY DEPOSIT...............................................
3. ADDITIONAL RENT......................................................................
4. IMPROVEMENTS AND ALTERATIONS.........................................................
5. REPAIRS..............................................................................
6. USE OF PREMISES......................................................................
7. UTILITIES AND SERVICES...............................................................
8. NONLIABILITY AND INDEMNIFICATION OF LANDLORD; INSURANCE..............................
9. FIRE OR CASUALTY.....................................................................
10. EMINENT DOMAIN.......................................................................
11. ASSIGNMENT AND SUBLETTING............................................................
12. DEFAULT..............................................................................
13. ACCESS; CONSTRUCTION.................................................................
14. BANKRUPTCY...........................................................................
15. SUBSTITUTION OF PREMISES.............................................................
16. SUBORDINATION; ATTORNMENT; ESTOPPEL CERTIFICATES.....................................
17. SALE BY LANDLORD; NONRECOURSE LIABILITY..............................................
18. PARKING; COMMON FACILITIES...........................................................
19. MISCELLANEOUS........................................................................
(a) Attorneys' Fees............................................................
(b) Waiver.....................................................................
(c) Notices....................................................................
(d) Labor......................................................................
(e) Security...................................................................
(f) Storage....................................................................
(g) Holding Over...............................................................
(h) Condition of Premises......................................................
(i) Quiet Possession...........................................................
(j) Matters of Record..........................................................
(k) Project Financing..........................................................
(1) Successors and Assigns.....................................................
(m) Brokers....................................................................
(n) Name.......................................................................
(o) Examination of Lease; Confidentiality......................................
(p) Time.......................................................................
(q) Defined Terms and Marginal Headings........................................
(r) Conflict of Laws; Prior Agreements; Separability...........................
(s) Authority..................................................................
(t) Common Areas...............................................................
(u) Joint and Several Liability................................................
(v) Rental Allocation..........................................................
(w) Rules and Regulations......................................................
(x) Financial Statements.......................................................
(y) Termination................................................................
</TABLE>
<PAGE>
LEASE
THIS LEASE ("LEASE") is made and entered into as of the 1st day of
January 1, 1996, by and between Moreno Corporate Center, L.L.C., a Delaware
limited liability company ("LANDLORD"), and The Keith Companies, Inc., a
California corporation ("TENANT"), formerly known as The Keith Companies -Inland
Empire, Inc., a California corporation, with regard to the premises located at
22690 Cactus Avenue, Floors 2 and 3, Moreno Valley, California.
NOW, THEREFORE, for and in consideration of the foregoing Recitals and the
mutual covenants and agreements set forth in this Lease, Landlord and Tenant
hereby agree as follows:
BASIC LEASE PROVISIONS
The following is a summary of lease provisions ("BASIC LEASE
PROVISIONS") intended for convenient use by Landlord and Tenant. If the letters
N/A appear in the Basic Lease Provisions, they mean that the particular item in
the Basic Lease Provision is not applicable to this Lease. Unless expressly
modified in this Lease, the following terms, words and figures set forth in the
Basic Lease Provisions are part of this Lease wherever reference is made to them
in this Lease, whether capitalized or lower case:
1. Tenant: The Keith Companies, Inc., a California corporation ("TENANT")
2. Building: Moreno Valley Corporate Center
Address: 22690 Cactus Street
Moreno Valley, California
3. Description of Premises: approximately 21,015 square feet located on the
third (3rd) floor, together with approximately 6,999 square feet located on
the second (2nd) Floor, together with 721 square feet comprising a field
office and computer room located on the first (1st) floor
Rentable Area: 28,735 square feet (See Exhibit "A")
4. Tenant's Proportionate Share of the Building: 46.18 %
5. Subject to the terms of Section 2 of the Lease, Basic Annual Rent:
$572,401.12. Basic Annual Rent shall include the following increases:
a. An eight percent (8%) increase in the month following Month Twenty-
four (24) of the Term;
b. An eight percent (8%) increase in the month following Month Forty-
eight (48) of the Term; and
c. An eight percent (8%) increase every twenty-four months thereafter for
the Term of the Lease and any extensions thereof;
PROVIDED, HOWEVER, subject to the terms and conditions herein Landlord
hereby covenants and agrees to abate a portion of the Basic Annual Rent
("Abated Rent"), so that the
<PAGE>
amount of Basic Annual Rent payable under this Lease, after taking into
account such rent abatement, shall equal Four Hundred Thirty-one Thousand
Twenty-five Dollars ($431,025) so long as Tenant is not in default. Such
reduced Basic Annual Rent shall likewise be increased in accordance with
the increases set forth in Sections 5a., 5b., and 5c., of these Basic Lease
Provisions. If Tenant shall default under the terms of this Lease, Tenant
acknowledges and agrees that (i) the Basic Annual Rent shall be payable in
full without regard to any such rental abatement and (ii) Tenant shall
immediately pay to Landlord an amount equal to the Abated Rent not paid by
Tenant plus interest thereon calculated at the Default Rate from the date
each sum of Abated Rent would have been payable if not abated hereunder.
6. Initial Monthly Installment of Basic Annual Rent: $47,700 ($1.66 per square
foot of Rentable Area), unabated, and $35,918.75 ($1.25 per square foot of
Rentable Area) after deducting the Abated Rent. Concurrently upon Tenant's
execution of this Lease, Tenant shall cause the delivery to Landlord of a
promissory note in the original face amount of $273,892.96 in the form and
substance attached as Exhibit "B" to that certain Agreement Regarding Lease
entered into currently herewith by and between the parties to this Lease.
Said note is payment of rent for the first eight months of the Term. A
default under said note shall also constitute a default under this Lease.
7. Security Deposit: None, except as expressly provided in Section 2(c)
8. Base Year: 1995
9. Term: Five (5) years and nine (9) months
10. Commencement Date: January 1, 1996
11. Broker: None
12. Permitted Use: General Office
13. Number of Parking Spaces (See Paragraphs 18): Not more than 94 vehicle
parking spaces which includes Tenant's pro rata share of visitor parking
spaces for the Building.
14. Addresses for Notices:
To: Tenant To: Landlord
The Keith Companies, Inc. c/o Oaktree Capital Management, L.L.C.
2955 Red Hill Avenue 550 South Hope Street
Costa Mesa, California 92626 22nd Floor
Attention: Aram H. Keith Los Angeles, California 90071
Telephone: (714) 540-0800 Attention: W. Gregory Geiger
Telephone: (213) 614-0900
Telecopier: (213) 694-1592
<PAGE>
With a copy to:
Paul, Hastings, Janofsky & Walker
555 South Flower Street
23rd Floor
Los Angeles, California 90071
Attention: Philip N. Feder, Esq.
Telephone: (213) 683-6298
Telecopier: (213) 627-0705
15. All payments payable under this Lease shall be sent to Landlord at the
address specified in Item 14 or to such other address as Landlord may
designate.
16. Guarantors: Keith Engineering, Inc., a California corporation dba The
Keith Companies The Keith Companies - North Counties, Inc.,
a California corporation Keith International, Inc., a
California corporation The Keith Companies - Hawaii, Inc., a
Hawaii corporation
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease, consistent
with foregoing Recitals, Basic Lease Provisions, the provisions of the Standard
Lease Provisions ("STANDARD PROVISIONS") (consisting of Paragraphs 1 through 19
which follow) and Exhibits "A" through "E", inclusive, all of which are
incorporated herein by this reference. In the event of any conflict between the
provisions of the Basic Lease Provisions and the provisions of the Standard
Lease Provisions, the Standard Lease Provisions shall control.
"Landlord" "Tenant"
Moreno Corporate Center, L.L.C. The Keith Companies, Inc.
a Delaware limited liability company a California corporation
By: TCW Asset Management Company, By: /s/ A.H. Keith
a California corporation, Its: President
its manager
By: /s/ Russel S. Bernard By: /s/ Floyd S. Reid
Its: Its: Secretary
By: /s/ Wm. Gregory Geiger
Its:
<PAGE>
STANDARD LEASE PROVISIONS
Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord, subject to all of the terms and conditions set forth herein, the
Premises, more particularly described in Item 3 of the Basic Lease Provisions.
The Premises are located in that certain office building ("BUILDING"), located
on that certain land ("LAND") described on Exhibit "A" attached hereto, which is
also improved with landscaping, parking facilities and other improvements and
appurtenances. The Land, together with all such improvements and appurtenances
and the Building, are, subject to Paragraph 18, collectively referred to herein
as the "PROJECT". However, Landlord reserves the right to make such changes,
additions and/or deletions to the Land, the Building and the Project as it shall
determine from time to time.
1. TERM
(a) Unless earlier terminated in accordance with the provisions
hereof, the initial term of this Lease shall be the period shown in Item 9 of
the Basic Lease Provisions. All references to the term of this Lease shall
include any extension agreed to in writing by Landlord.
(b) This Lease shall be a binding contractual obligation effective
upon execution hereof by Landlord and Tenant.
2. BASIC ANNUAL RENT AND SECURITY DEPOSIT
(a) Tenant agrees to pay each Lease Year (defined below) of the term
of this Lease as Basic Annual Rent ("BASIC ANNUAL RENT") for the Premises the
sums shown for such periods in Item 5 of the Basic Lease Provisions. For
purposes of this Lease, a "LEASE YEAR" shall be each 12 calendar month period
commencing on (i) the Commencement Date (or anniversary thereof) if the
Commencement Date occurs on the first day of a month, or otherwise (ii) on of
the first day of the calendar month following the Commencement Date (or
anniversary thereof). Subject to Tenant's fulfilling all its obligations under
this Lease, Landlord has agreed to reduce the rent payable hereunder from $1.66
per square foot to $1.25 per square under this Lease, such difference being
referred to herein as the "ABATED RENT".
(b) Except as expressly provided to the contrary herein, Basic Annual
Rent shall be payable in equal consecutive monthly installments, in advance,
without deduction or offset, commencing on the Commencement Date and continuing
on the first day of each calendar month thereafter. The Installment payable upon
execution, described in Item 6 of the Basic Lease Provisions, and all amounts to
be paid to Landlord by Tenant as set forth in Paragraph F of the Agreement
above, shall be payable upon Tenant's execution of this Lease. If the
Commencement Date is a day other than the first day of a calendar month, then
the Rent (defined below) for the Partial Lease Month ("PARTIAL LEASE MONTH
RENT") shall be calculated on the per them basis shown therefor in Item 5 of the
Basic Lease Provisions for the number of days of such month from and including
the Commencement Date. The Partial Lease Month Rent shall be payable by Tenant
prior to the date that Tenant takes possession or commences use of the Premises
for any business purpose (including moving in). Basic Annual Rent, all forms of
additional rent payable hereunder by Tenant and all other amounts, fees,
payments or charges payable hereunder by Tenant shall (i) each constitute rent
payable hereunder (and shall sometimes collectively be referred to herein as
"RENT"), (ii) be payable to Landlord when due without any prior demand therefor
in lawful money of the
<PAGE>
United States and, except as may be expressly provided to the contrary herein,
without any offset or deduction whatsoever and (iii) be payable to Landlord at
the address of Landlord described in Item 2 of the Basic Lease Provisions or to
such other person or to such other place as Landlord may from time to time
designate in writing to Landlord. It is expressly understood and agreed that in
the event Tenant shall default hereunder the amount of the Abated Rent shall
become immediately due and payable.
(c) If Tenant shall be in default on three (3) or more occasions with
respect to any provision of this Lease, including, without limitation, the
provisions relating to the payment of Rent or the cleaning or restoration of the
Premises upon the termination of this Lease, Landlord may require that Tenant
pay to Landlord as part of Tenant's curing of such default a security deposit
("SECURITY DEPOSIT") in an amount equal to a the amount of Basic Annual Rent and
Additional Rent payable by Tenant for the three (3) month prior expiring
immediately prior to the date Landlord shall have given Tenant notice of such
default. Landlord may, but shall not be required to, use, apply or retain all or
any part of the Security Deposit (i) for the payment of any Rent or any other
sum in default, (ii) for the payment of any other amount which Landlord may
spend or become obligated to spend by reason of Tenant's default hereunder, or
(iii) to compensate Landlord for any other loss or damage which Landlord may
suffer by reason of Tenant's default hereunder, including, without limitation,
costs and attorneys' fees incurred by Landlord to recover possession of the
Premises following a default by Tenant hereunder. If any portion of the Security
Deposit is so used or applied, Tenant shall, upon demand therefor, deposit cash
with Landlord in an amount sufficient to restore the Security Deposit to the
appropriate amount, as required to be maintained by Tenant hereunder. If Tenant
shall fully perform every provision of this Lease to be performed by it, the
Security Deposit or any balance thereof shall be returned to Tenant (or, at
Landlord's option, to the last assignee of Tenant's interest hereunder) within
14 days following the expiration of the term of this Lease; provided, however,
that Landlord may retain the Security Deposit until such time as any amount due
from Tenant in accordance with Paragraph 3 below has been determined and paid to
Landlord in full.
(d) The parties agree that for all purposes hereunder the Premises
shall be stipulated to contain the number of square feet of Rentable Area
(defined in Exhibit "A") described in Item 3 of the Basic Lease Provisions. Upon
the request of Landlord, Landlord's Space Planner shall verify the exact number
of square feet of Rentable Area in the Premises. In the event there is a
variation of 3% or more from the number of square feet specified in Item 3 of
the Basic Lease Provisions, Landlord and Tenant shall execute an amendment to
this Lease for the purpose of making appropriate adjustments to the Basic Annual
Rent, the Security Deposit, Tenant's Proportionate Share (defined below) and
such other provisions hereof as shall be appropriate under the circumstances.
3. ADDITIONAL RENT
(a) Subject to the provisions of this Lease, if Operating Costs
(defined below) for the Project for any calendar year during the term of this
Lease exceed Base Operating Costs (defined below), Tenant shall pay to Landlord
as additional rent an amount equal to Tenant's Proportionate Share of such
excess.
(b) "TENANT'S PROPORTIONATE SHARE" is, subject to the provisions of
this Paragraph 3, the percentage number described in Item 4 of the Basic Lease
Provisions. Tenant's Proportionate Share represents a fraction, the numerator of
which is the number of square feet of
<PAGE>
Rentable Area in the Premises and the denominator of which is the number of
square feet of Rentable Area in the Project, as determined by Landlord pursuant
to Paragraph 2(d) above.
(c) "BASE OPERATING COSTS", during the term of this Lease equals the
product of (i) Operating Costs for the Project during Base Year referred to as
Item 8 of the Basic Lease Provisions and (ii) the number of square feet of
Rentable Area contained in the Project. Operating Costs for the Base Year during
which actual occupancy of the Project is less than 95% of the Rentable Area of
the Project shall be appropriately adjusted to reflect 95% occupancy of the
existing Rentable Area of the Project during such period.
(d) "OPERATING COSTS" means all costs, expenses and obligations
incurred or payable by Landlord in connection with the operation, ownership,
repair, management or maintenance of the Project during or allocable to the term
of this Lease, including without limitation, the following:
(i) All real property taxes, assessments, license fees, excises,
levies, charges or impositions and other similar governmental ad valorem or
other charges levied on or attributable to the Project or its ownership,
operation or transfer, and all taxes, charges, assessments or similar
impositions imposed in lieu of the same (collectively, "REAL ESTATE TAXES").
"Real Estate Taxes" shall also include all taxes, assessments, license fees,
excises, levies, charges or similar impositions imposed by any governmental
agency, district, authority or political subdivision (A) on any interest of
Landlord, any mortgagee of Landlord or any interest of Tenant in the Project,
the Premises or in this Lease, or on the occupancy or use of space in the
Project or the Premises; (B) on the gross or net rentals or income from the
Project, the Rent received hereunder, or on Landlord's "right" or "rights" to
any of the foregoing or on Landlord's business of leasing the Premises, the
Building or the Project, including, without limitation, any gross income tax or
excise tax levied by any federal, state or local governmental entity with
respect to the receipt of Rent or with respect to the possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy of the
Project or portions thereof; (C) measured by the gross square footage of the
Project, the Premises, or any portion thereof, or by the number of actual,
estimated or potential occupants of the Project, the number of vehicular trips
generated by or associated with the Project, or the number of parking spaces
contained within the Project, or for any transportation, arts, housing or
environmental plan, fund or system instituted within or for any geographic area
in which the Building is located, or any similar measure; (D) on the transfer of
or the transaction represented by this Lease or any lease of space in the
Project or on any document creating or transferring an interest in this Lease;
(E) on the construction, removal or alteration of improvements in the Project;
(F) for the provision of amenities, services or rights of use, whether or not
exclusive, public, quasi-public or otherwise made available on a shared use
basis, including amenities, services or rights of use such as fire protection,
police protection, street, sidewalk, lighting, sewer or road maintenance, refuse
removal or janitorial services or for any other service, without regard to
whether such services were formerly provided by governmental or quasi-
governmental agencies to property owners or occupants at no cost or at minimal
cost; and (G) related to any transportation plan, fund or system instituted
within the geographic area of the Project or otherwise applicable to the
Premises, the Project or any portion thereof. "Real Estate Taxes" shall not
include any income, capital stock, estate or inheritance tax imposed by the
State of California or the federal government; and
(ii) The cost of utilities (including taxes and other charges
incurred in connection therewith, but, subject to the provisions of Paragraph 7,
excluding the cost of Tenant's electrical current usage within its Premises,
which usage shall be separately metered pursuant to the provisions
<PAGE>
of Paragraph 7 below), fuel, supplies, equipment, tools, materials, service
contracts, janitorial services, waste and refuse disposal, gardening and
landscaping, insurance (including, but not limited to, public liability, fire,
property damage, flood, rental loss, rent continuation, boiler machinery,
business interruption, contractual indemnification, earthquake and All Risk
coverage insurance for up to the full replacement cost of the Project and such
other insurance as is customarily carried by operators of other first class
buildings in the County in which the Project is located) to the extent carried
by Landlord in its discretion (and the deductible portion of any insured loss
otherwise covered by such insurance), the cost of compensation, including
employment, welfare and social security taxes, paid vacation days, disability,
pension, medical and other fringe benefits of all persons (including independent
contractors) who perform services connected with the operation, maintenance or
repair of the Project, personal property taxes on and maintenance and repair of
equipment and other personal property used in connection with the operation,
maintenance or repair of the Project, such auditors' fees and legal fees as are
incurred in connection with the operation, maintenance or repair of the Project,
costs incurred for administration and management of the Project, whether by
Landlord or by an independent contractor, administrative expenses, management
fees (which shall not exceed management fees customarily charged by first class
managers of comparable properties unaffiliated with Landlord), management office
operational expenses, rental expenses for or a reasonable allowance for
depreciation of, personal property used in the operation, maintenance or repair
of the Project, license, permit and inspection fees, all costs and expenses
required by any governmental or quasigovernmental authority or by applicable
law, for any reason, including capital improvements, whether capitalized or not,
the cost of any capital improvements made to the Project by Landlord that
improve lifesafety systems or reduce operating expenses (such costs to be
amortized over such reasonable periods as Landlord shall determine with a return
on capital at such rate as would have been paid by Landlord on funds borrowed
for the purpose of constructing such capital improvements), the cost of air
conditioning heating, ventilating, plumbing, elevator maintenance and repair,
sign maintenance, and Common Area (defined in Paragraph 18) repair, resurfacing,
operation and maintenance, the cost of providing security services, if any,
deemed appropriate by Landlord, and any other cost or expense incurred or
payable by Landlord in connection with the operation, repair, management or
maintenance of the Project. Notwithstanding anything to the contrary contained
herein, Operating Costs shall not include the following: (i) all items and
services for which Tenant or any other tenant in the Building reimburses
Landlord directly and not part of Operating Costs; (ii) penalties and charges
incurred by Landlord on account of Landlord's failure to comply with applicable
law; (iii) the costs of any decorative upgrades to the Common Areas which are
not intended to repair or replace a wornout or broken Common Area item, to make
the Project and related areas safer, to make the Project more efficient or to
comply with any applicable laws; (iv) depreciation except on materials, tools,
supplies and vendor-type equipment purchased by Landlord to enable Landlord to
supply services Landlord might otherwise contract for with a third party where
such depreciation would otherwise have been included in the charge for such
third party's services; (v) leasing commissions, attorneys' fees, marketing
costs, advertising expenses, payments, credits, free rent, lease takeover
obligations, other inducements and other costs and expenses incurred in
connection with the leasing of space, or negotiations or disputes with present
or prospective tenants or other occupants of the Building concerning their
particular leased premises; (vi) costs incurred by Landlord as a result of a
breach of lease by another tenant; and (vii) expenses for any services or other
benefits which are not offered to Tenant or for which Tenant or any other tenant
is charged directly; and (viii) any repairs or replacements Landlord makes to
the premises of any other tenant which, if made to the Premises, would be the
obligation of Tenant at it's sole cost and expense under the terms of this
Lease.
(e) Operating Costs for any calendar year during which actual
occupancy of the
<PAGE>
Project is less than 95% of the Rentable Area of the Project shall be
appropriately adjusted to reflect 95% occupancy of the existing Rentable Area of
the Project during such period. In determining Operating Costs, if any services
or utilities are separately charged to tenants of the Project or others,
Operating Costs shall be adjusted by Landlord to reflect the amount of expense
which would have been incurred for such services or utilities on a full time
basis for normal Project operating hours. In the event (i) the Commencement Date
shall be a date other than January 1, (ii) the date fixed for the expiration of
the term shall be a date other than December 31, (iii) of any early termination
of this Lease, or (iv) of any increase or decrease in the size of the Premises,
then in each such event, an appropriate adjustment in the application of this
Paragraph 3 shall, subject to the provisions of this Lease, be made to reflect
such event on a basis determined by Landlord to be consistent with the
principles underlying the provisions of this Paragraph 3.
(f) Prior to the commencement of each calendar year of the term
following the Commencement Date, Landlord shall have the right to give to Tenant
a written estimate of Tenant's Proportionate Share of the projected excess, if
any, of the Operating Costs for the Project for the ensuing year over the Base
Operating Costs. Tenant shall pay such estimated amount to Landlord in equal
monthly installments, in advance on the first day of each month during such
year. Subject to the provisions of this Lease, Landlord shall endeavor to
furnish to Tenant within a reasonable period after the end of each calendar
year, a statement indicating in reasonable detail the excess of Operating Costs
over Base Operating Costs for such period and the parties shall, within 30 days
thereafter, make any payment or allowance necessary to adjust Tenant's estimated
payments to Tenant's actual share of such excess as indicated by such annual
statement. Any payment due Landlord shall be payable by Tenant on demand from
Landlord. Any amount due Tenant shall be credited against installments next
becoming due under this Paragraph 3 (f).
(g) Tenant shall pay 10 days before delinquency, all taxes and
assessments (i) levied against any personal property or trade fixtures of Tenant
in or about the Premises, (ii) based upon the gross or net Rent payable
hereunder and (iii) based upon this Lease or any document to which Tenant is a
party creating or transferring an interest in this Lease or an estate in all or
any portion of the Premises. If any such taxes or assessments are levied against
Landlord or Landlord's property or if the assessed value of the Project is
increased by the inclusion therein of a value placed upon such personal property
or trade fixtures, Tenant shall upon demand reimburse Landlord for the taxes and
assessments so levied against Landlord, or such taxes, levies and assessments
resulting from such increase in assessed value.
(h) Any delay or failure of Landlord in (i) delivering any estimate or
statement described in this Paragraph 3, or (ii) computing or billing Tenant' s
Proportionate Share of excess Operating Costs shall not constitute a waiver of
its right to require an increase in Rent, or in any way impair, the continuing
obligations of Tenant under this Paragraph 3. Without limiting the generality of
the foregoing, Landlord may at any time during the terms hereof recalculate and
correct the amount of Tenant's Proportionate Share of excess Operating Costs,
and Tenant shall pay any amount due on demand by Landlord. In the event of any
dispute as to any Rent due under this Paragraph 3, Tenant shall have the right
after reasonable notice and at reasonable times to inspect Landlord's accounting
records at the accounting office of Landlord's management company. If after such
inspection, Tenant still disputes such additional rental, upon Tenant's written
request therefor, a certification as to the proper amount of Operating Costs and
the amount due to or payable by Tenant shall be made by Landlord's independent
certified public accountant. Such certification shall be final and conclusive as
to all parties. Tenant agrees to pay the cost of such certification and the
investigation with respect thereto and no adjustments in Tenant's favor shall be
made unless it is
<PAGE>
determined that Landlord's original statement was in error in Landlord's favor
by more than 5%. Tenant waives the right to dispute any matter relating to the
calculation of Operating Costs or other forms of Rent under this Paragraph 3 if
any claim or dispute is not asserted by Tenant in writing to Landlord within one
(1) year of delivery to Tenant of the original billing statement with respect
thereto.
(i) Subject to the provisions of this Paragraph 3, the rights
and obligations of Landlord and Tenant with respect to payments to be made
hereunder in regard to excess Operating Costs incurred or allocable to periods
prior to the expiration or sooner termination of this Lease shall survive such
expiration or termination.
4. IMROVEMENTS (Sic.) AND ALTERATIONS
(a) Tenant has accepted the Premises demised under the Lease, and
Landlord has completed all construction and improvements required under the
terms of the Lease to be completed by Landlord. Tenant understands, acknowledges
and agrees that Landlord has absolutely no obligations with respect to any
improvements for the Premises, except as may be specifically set forth in this
Lease. To the best of Tenant's knowledge, Tenant does not have any claim or
demand for additional sums from Landlord in connection with the installation of
Tenant's improvements.
(b) Tenant shall not make any alterations, additions or improvements
to the Premises (collectively, "ALTERATIONS") without (i) the prior written
consent of Landlord (unless such Alterations (a) do not affect the structural
portions of the Building or the electrical, mechanical, plumping (Sic.),
telecommunications or other utility systems of the Building (b) do not affect
any other occupant in the Building, (c) are not visible from the exterior of the
Premises and (d) do not exceed $5,000 in the aggregate, and Tenant nevertheless
provides Landlord with at least ten (10) days written notice prior to the
commencement of the making such Alterations) and (ii) compliance with such
nondiscriminatory requirements concerning such Alterations as may be imposed by
Landlord from time to time. Without limiting the foregoing, Landlord may
require, at a minimum, compliance with the requirements set forth in Exhibit "C"
attached hereto. All Alterations shall be made by Tenant at Tenants sole cost
and shall be diligently prosecuted to completion. The cost of any modifications
of Project improvements outside or inside of the Premises required by any
governmental agency as a condition or the result of Tenant's Alterations shall
be borne by Tenant. Any contractor or person making such Alterations shall first
be approved in writing by Landlord. Upon the expiration or earlier termination
of this Lease, Landlord may elect to have Tenant either (i) surrender with the
Premises any or all of such Alterations as Landlord shall determine (except
trade fixtures not attached to the Premises), in which case such Alterations
shall become the property of Landlord, or (ii) promptly remove any or all of
such Alterations designated by Landlord to be removed, in which case, Tenant
shall repair and restore the Premises to its original condition as of the date
of this Lease, reasonable wear and tear excepted. Notwithstanding the foregoing,
upon the expiration or earlier termination of this Lease, Tenant may remove all
Hermann Miller panels from the Premises, provided Tenant repairs all damage to
the Premises resulting therefrom.
(c) Tenant shall keep the Premises, the Building and the Project free
from any and all liens arising out of any work performed, materials furnished,
or obligations incurred by or for Tenant. In the event that Tenant shall not,
within 10 days following the imposition of any such lien, cause the same to be
released of record by payment or posting of a bond in a form and issued by a
surety acceptable to Landlord, Landlord shall have the right, but not the
obligation, to cause such lien to be released by such means as it shall deem
proper (including payment of or defense against
<PAGE>
the claim giving rise to such
lien); in such case, Tenant shall reimburse Landlord for all amounts so paid by
Landlord in connection therewith, together with all of Landlord's costs and
expenses, with interest thereon at the Default Rate (defined below). Such rights
of Landlord shall be in addition to all other remedies provided herein or by
law.
5. REPAIRS
(a) Landlord shall use commercially reasonable efforts to keep the
Common Areas of the Building and the Project in a clean and neat condition.
Subject to subparagraph (b) below, Landlord shall make all necessary repairs,
within a reasonable period following receipt of notice of the need therefor from
Tenant, to the exterior walls, exterior doors and windows of the Building, and
to public corridors and other public areas of the Project not constituting a
portion of any tenant's premises, and shall use commercially reasonable efforts
to keep all Building standard equipment used by Tenant in common with other
tenants in good condition and repair, reasonable wear and tear excepted.
Landlord shall, however, provide janitorial services to the Premises. Except as
provided in Paragraph 9, there shall be no abatement of Rent and Landlord shall
not be liable for any injury to, or damage suffered by Tenant, including without
limitation, interference with Tenant's business arising from the making of any
repairs, alterations or improvements in or to any portion of the Premises, the
Building or the Project. Tenant waives the right to make repairs at Landlord's
expense under Sections 1941 and 1942 of the California Civil Code, and under all
other similar laws, statutes or ordinances now or hereafter in effect.
(b) Tenant, at its expense shall keep the Premises and all fixtures
contained therein in a safe, clean and neat condition, reasonable wear and tear
excepted. In that regard, Tenant shall be responsible for making at Tenant's
sole cost and expense all repairs and replacements to the Premises, except as
otherwise provided herein. In connection with any work required to be performed
at the expense of Tenant, Tenant shall use contractors selected by Landlord of
all facilities located in the Premises, including, without limitation, lavatory,
shower, toilet, wash basin and kitchen facilities, and heating and air
conditioning systems (including all plumbing connected to said facilities or
systems installed by or on behalf of tenant or existing in the Premises at the
time of Landlord's delivery of the Premises to Tenant). Tenant shall make all
repairs and replacements to the Premises using materials of equal or better
quality than that repaired or replaced. Tenant shall do all decorating,
remodeling, alteration and painting required by Tenant during the term of this
Lease.
(c) Upon the expiration or earlier termination of this Lease, Tenant
shall surrender the Premises in a safe, clean and neat condition reasonable wear
and tear excepted; in the event that Tenant defaults with respect to this
provision, in addition to any and all other remedies of Landlord, Landlord may
use, apply or retain all or any part of any Security Deposit with respect to
such default. Tenant shall remove from the Premises all trade fixtures (which
are not required to be surrendered with the Premises pursuant to the provisions
of Paragraph 4(b) hereof), furnishings and other personal property of Tenant,
shall repair all damage caused by such removal, and shall restore the Premises
to its original condition, reasonable wear and tear excepted. In addition to all
other rights Landlord may have, in the event Tenant does not so remove any such
fixtures, furnishings or personal property, Tenant shall be deemed to have
abandoned the same, in which case Landlord may store the same at Tenant's
expense, appropriate the same for itself, and/or sell the same in its
discretion.
6. USE OF PREMISES
<PAGE>
(a) Tenant shall use the Premises only for the purposes set forth in
Item 12 of the Basic Lease Provisions and shall not use the Premises or permit
the Premises to be used for any other purpose.
(b) Tenant shall not at any time use or occupy the Premises, or permit
any act or omission in or about the Premises in violation of any law, statute,
ordinance or any governmental rule, regulation or order (collectively, "LAW")
and Tenant shall, upon written notice from Landlord, discontinue any use of the
Premises which is a violation of Law. If any Law shall, by reason of the nature
of Tenant's use or occupancy of the Premises, impose any duty upon Tenant or
Landlord with respect to (i) modification, operation or other maintenance of the
Premises, the Building or the Project, or (ii) the use, alteration or occupancy
thereof, Tenant shall comply in full at its expense with such Law.
(c) Tenant shall not at any time use or occupy the Premises in
violation of the certificates of occupancy issued for the Building or the
Premises, and in the event that any department of the State of California or the
city or county in which the Project is located shall at any time contend or
declare that the Premises are used or occupied in violation of such certificate
or certificates of occupancy, any Law or any recorded covenants, conditions and
restrictions affecting the Project, Tenant shall, upon five days' notice from
Landlord or any such governmental agency, immediately discontinue such use of
the Premises (and otherwise immediately remedy such violation). The failure by
Tenant to discontinue such use shall be considered a default under this Lease
and Landlord shall have the right to exercise any and all rights and remedies
provided herein or by Law. The statement in this Lease of the nature of the
business to be conducted by Tenant in the Premises shall not be deemed or
construed to constitute a representation or guaranty by Landlord that such
business will continue to be lawful or permissible under any certificate of
occupancy issued for the Building or the Premises, or otherwise permitted by
Law.
(d) Tenant shall not do or permit to be done anything which may
invalidate or increase the cost of any All Risk, property damage, liability or
other insurance policy covering the Building, the Project and/or property
located therein and shall comply with all rules, orders, regulations and
requirements of the Pacific Fire Rating Bureau or any other organization
performing a similar function. In addition to all other remedies of Landlord,
Landlord may require Tenant, promptly upon demand, to reimburse Landlord for the
full amount of any additional premiums charged for such policy or policies by
reason of Tenant's failure to comply with the provisions of this Paragraph 6.
(e) Tenant shall not in any way interfere with the rights or quiet
enjoyment of other tenants or occupants of the Premises, the Building or the
Project. Tenant shall not use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain, or
permit any nuisance in, on or about the Premises, the Building or the Project.
Tenant shall not place a load upon any portion of the Premises exceeding the
structural floor load (per square foot of area) which such area was designated
(and is permitted by Law) to carry or otherwise use any Building system in
excess of its capacity or in any other manner which may damage such system or
the Building. Business machines and mechanical equipment shall be placed and
maintained by Tenant, at Tenant's expense, in locations and in settings
sufficient in Landlord's reasonable judgment to absorb and prevent vibration,
noise and annoyance. Tenant shall not commit or suffer to be committed any waste
in, on, upon or about the Premises, the Building or the Project.
<PAGE>
(f) As used herein, the term "HAZARDOUS MATERIAL" means any hazardous
or toxic substance, material or waste which is or becomes regulated by any local
governmental authority, the State of California or the United States Government,
including, without limitation, (i) any material or substance which is defined or
listed as a "hazardous waste," "extremely hazardous waste," "restricted
hazardous waste," "hazardous substance" or "hazardous material" under any
federal, state or local law, statute, ordinance or any governmental rule,
regulation or order governing or in any way relating to the release, use
generation, handling, leakage, dumping, discharge or disposal of any of the
above (collectively, "HAZARDOUS MATERIAL LAWS") (ii) petroleum or any petroleum
derivative, (iii) any flammable explosive or radioactive material, (iv) any
polychlorinated biphenal and (v) asbestos or any asbestos containing material or
derivative. Tenant hereby agrees that (i) Tenant and each of its Affiliates
(defined below), assignees, subtenants, and their respective agents, servants,
employees, representatives and contractors shall not bring onto the Premises or
the Project any Hazardous Material (other than customary amounts of Hazardous
Materials used for office supplies and cleaning materials brought into the
Premises by Tenant in the normal course of its tenancy and in full compliance
with all Hazardous Material Laws), (ii) Tenant shall immediately notify Landlord
in writing in the event Tenant becomes aware of or suspects that there has been
any release of any Hazardous Materials in, on or about the Premises or the
Project or that any person has stored or otherwise brought onto the Project or
any portion thereof any Hazardous Material (other than customary amounts of
office supplies and cleaning materials). Tenant agrees to indemnify, defend
(with counsel reasonably selected by Landlord), protect and hold Landlord and
each of its Affiliates harmless from and against any and all claims, actions,
administrative proceedings (including informal proceedings), judgments, damages,
punitive damages, penalties, fines, costs, liabilities, interest or losses,
including reasonable attorneys' fees and expenses, consultant fees, and expert
fees, together with all other costs and expenses of any kind or nature that
arise during or after the term of this Lease directly or indirectly from or in
connection with the presence, handling, storage, release or discharge of any
Hazardous Material in or into the air, soil, surface water or groundwater at,
on, about, under or within the Premises or the Project, or any portion thereof,
generated, released, discharged or otherwise brought onto, under, or about the
Project by Tenant or any Affiliate thereof. Each of the covenants and agreements
of Tenant set forth in this Paragraph 6(f) shall survive the expiration or
earlier termination of this Lease.
7. UTILITIES AND SERVICES
(a) Provided that Tenant is not in default hereunder, Landlord shall
furnish, or cause to be furnished to the Premises, the utility service and other
services described in Exhibit "D" attached hereto, subject to the conditions and
in accordance with the standards set forth therein and in this Lease.
(b) Tenant agrees to cooperate fully at all times with Landlord and to
comply with all regulations and requirements which Landlord may from time to
time prescribe for the use of the utilities and services described herein and in
Exhibit "D". Landlord shall not be liable to Tenant for the failure of any other
tenant, or its assignees, subtenants, employees, or their respective invitees,
licensees, agents or other representatives to comply with such regulations and
requirements; provided, however, Landlord shall non-discriminately pursue
violations of said regulations and requirements.
(c) If Tenant requires utility service or other services in quantities
greater than, at times other than or of a type or quality different than that
generally furnished by Landlord pursuant to Exhibit "D," Tenant shall pay to
Landlord, upon receipt of a written statement therefor, Landlord's
<PAGE>
charge for such additional or different utility service or services; provided,
however, if, in Landlord's judgment, such excess or different service cannot be
furnished unless additional risers, conduits, feeders, switchboards and/or other
facilities are installed in the Building, or otherwise are not then being
provided to other tenants in the Project (at the rate or level requested by
Tenant), the provision of such additional or different services shall be subject
to Landlord's nondiscriminatory requirements and conditions, provided, further
however, that in no case shall Landlord have any obligation to provide such
additional or different utility or other services if (i) the same is not
generally available in first class office buildings in the area of the Project,
(ii) in the case where additional risers, conduits, feeders, switchboards and/or
other appurtenances would be required to be installed in the Building to provide
such service, (A) the installation, maintenance or use of such facilities is not
permitted under applicable Project financing documents, Law or insurance
regulations, could result in permanent damage or injury to the Building or
Building systems, could create a dangerous or hazardous condition or disturb or
interfere with the use, occupancy or quiet enjoyment of other tenants or
otherwise adversely affect the income stream, financeability, reputation or
value of the Project, (B) Tenant shall not commit in advance to bear the cost
(and to provide security satisfactory to Landlord for performance of such
obligation) of installation, use, maintenance, repair and removal of such
facilities, or (C) Landlord determines in good faith that installation,
operation, maintenance and/or removal of such facilities is otherwise infeasible
under the circumstances. Subject to the foregoing, Landlord shall, upon
reasonable prior notice by Tenant, furnish to the Premises additional elevator,
heating, air conditioning and/or cleaning services upon such terms and
conditions as shall be reasonably determined by Landlord, including payment of
Landlord's charge therefor. In the case of any additional utilities or services
to be provided hereunder, Landlord may require a switch and metering system to
be installed so as to measure the amount of such additional utilities or
services. The cost of installation, maintenance and repair of such system shall
be paid by Tenant upon demand.
(d) Landlord shall not be liable for, and Tenant shall not be entitled
to, any damages, abatement (except as expressly provided in subparagraph (f)
below) or reduction of Rent, or other liability by reason of any failure to
furnish any services or utilities described herein or in Exhibit "D" for any
reason, including, without limitation, when caused by accident, breakage,
repairs, Alterations or other improvements to the Project, strikes, lockouts or
other labor disturbances or labor disputes of any character, governmental
regulation, moratorium or other governmental action, inability to obtain
electricity, water or fuel, or any other cause beyond Landlord's reasonable
control. Landlord shall be entitled to cooperate with the energy conservation
efforts of governmental agencies or utility suppliers. No such failure, stoppage
or interruption of any such utility or service shall be construed as an eviction
of Tenant, nor shall the same relieve Tenant from any obligation to perform any
covenant or agreement under this Lease. In the event of any failure, stoppage or
interruption thereof, Landlord shall use reasonable efforts to attempt to
restore all services promptly. No representation is made by Landlord with
respect to the adequacy or fitness of the Building's ventilating, air
conditioning or other systems to maintain temperatures as may be required for
the operation of any computer, data processing or other special equipment of
Tenant or for any other purpose.
(e) Landlord reserves the right from time to time to make reasonable
and nondiscriminatory modifications to the above standards (including, without
limitation, those described in Exhibit "D") for utilities and services.
(f) In the event that Tenant is prevented from using the Premises or
any portion thereof, as a result of any failure of Landlord to provide services
or access to the Premises for fifteen
<PAGE>
(15) consecutive days during the Lease term ("Eligibility Period"), then
Tenant's rent shall be abated or reduced, as the case may be, in the proportion
that the rentable area of the portion of the Premises that Tenant is prevented
from using bears to the total rentable area of the Premises during the period
Tenant is prevented from conducting its business from the Premises or a portion
of the Premises; provided, however, that if Tenant reoccupies and conducts its
business from any portion of the Premises during such period, or the Premises
are restored such that business may be conducted therein, the rent allocable to
such reoccupied portion, based upon the proportion which the rentable area of
such reoccupied portion of the Premises bears to the total rentable area of the
Premises, shall be payable by Tenant from the date such business operations
commence or could be commenced.
8. NONLIABILITY AND INDEMNIFICATION OF LANDLORD; INSURANCE
(a) Landlord shall not be liable to Tenant and Tenant hereby waives
all claims against Landlord, its partners, shareholders, officers, trustees,
affiliates, directors, employees, contractors, agents and representatives
(collectively, "AFFILIATES") for any injury or damage to any person or property
occurring or incurred in connection with or in any way relating to the Premises,
the Building or the Project from any cause, except damage to persons or personal
property in the Common Areas caused by the active or gross negligence of
Landlord or its agents, employees or contractors in the Common Areas unless such
damage is covered (or would be covered if Tenant obtained 100% casualty
insurance coverage) by insurance Tenant is required to have under this Lease or
otherwise has obtained. Without limiting the foregoing, except as provided in
subparagraph 7(f) above, neither Landlord nor any of its Affiliates shall be
liable for and there shall be no abatement of Rent for (i) any damage to
Tenant's property stored with or entrusted to Affiliates of Landlord, (ii) loss
of or damage to any property by theft or any other wrongful or illegal act, or
(iii) any injury or damage to persons or property resulting from fire,
explosion, falling plaster, steam, gas, electricity, water or rain which may
leak from any part of the Building or the Project or from the pipes, appliances,
appurtenances or plumbing works therein or from the roof, street or sub-surface
or from any other place or resulting from dampness or any other cause whatsoever
or from the acts or omissions of other tenants, occupants or other visitors to
the Building or the Project or from any other cause whatsoever, (iv) any
diminution or shutting off of light, air or view by any structure which may be
erected on lands adjacent to the Building, whether within or outside of the
Project, or (v) any latent or other defect in the Premises, the Building or the
Project. In addition and without limitation to the other provisions of
subparagraphs (a) and (b) of this Paragraph 8, Tenant agrees that in no case
shall Landlord ever be responsible or liable on any theory for any injury to
Tenant's business, loss of profits, loss of income or any other form of
consequential damage. Tenant shall give prompt notice to Landlord in the event
of (A) the occurrence of a fire or accident in the Premises or in the Building,
or (B) the discovery of any defect therein or in the fixtures or equipment
thereof.
(b) Tenant shall indemnify, defend (with legal counsel reasonably
selected by Landlord), protect and hold Landlord and its Affiliates (including
without limitation Oaktree Capital Management, L.L.C.) harmless from and against
any and all claims, suits, judgments, losses, costs, obligations, damages,
expenses, interest and liabilities, including, without limitation, reasonable
attorneys' fees, for any injury or damage to any person or property whatsoever
arising out of or in connection with this Lease, the Premises or Tenant' s
activities in the Project, including, without limitation, when such injury or
damage has been caused in whole or in part by the act, negligence, fault or
omission of Tenant, its agents, servants, contractors, employees,
representatives, licensees or invitees, except for injury or damage sustained to
Tenant or Tenant's agents, servants, employees, representatives, licensee or
invitees in the Common Areas by reason of the active or gross
<PAGE>
negligence of Landlord or its agents, employees or contractors in the Common
Areas, unless such damage is covered (or would be covered if Tenant obtained
100% insurance coverage) by insurance Tenant is required to have under this
Lease or otherwise has obtained. Without limiting the foregoing, Tenant shall
reimburse Landlord and its Affiliates for all expenses, damages and fines
incurred or suffered by Landlord by reason of any breach, violation or non-
performance by Tenant, its agents, servants or employees, of any covenant as
provision of this Lease, or by reason of damage to persons or property caused by
moving property of or for Tenant in or out of the Building, or by the
installation or removal of furniture or other property, or by reason of
carelessness, negligence or improper conduct of Tenant or its agents, employees
or servants in the use or occupancy of the Premises. The provisions of this
subparagraph (b) shall survive the expiration or earlier termination of this
Lease.
(c) Tenant hereby agrees to maintain in full force and effect at all
times during the term of this Lease, at its own expense, for the protection of
Tenant and Landlord, as their interests may appear, policies of insurance issued
by a responsible carrier or carriers, qualified to do business in the State of
California, with a financial class rating of not less than X and a policy holder
rating of not less than A in the most recent Best's Key Rating Guide and
otherwise acceptable to Landlord, which afford the following coverages:
(i) Comprehensive general liability insurance (or commercial
general liability insurance) or such successor comparable form of coverage
including blanket contractual liability, broad form property damage, independent
contractor's coverage, personal injury, completed operations, products
liability, cross liability and severability of interest clauses, and fire
damage, written on an "occurrence" basis with coverage of not less than
$2,000,000 combined single limit per occurrence for both bodily injury
(including death) and property damage;
(ii) All Risk Insurance, including, without limitation,
insurance covering loss or damage resulting or arising from sprinkler leakage,
in an amount sufficient to cover 90% of replacement of all improvements to the
Premises (other than Building Standard Installations) and all of Tenant's
fixtures and other personal property, and subject to commercially reasonable
deductibles. The proceeds of such insurance shall be devoted exclusively to the
replacement of the same unless this Lease shall cease and terminate pursuant to
the provisions of Paragraph 9 hereof, and
(iii) Worker's Compensation and Employer's Liability insurance
(as required by Law).
(d) Tenant may, with the prior written consent of Landlord, elect to
have reasonable deductibles (not to exceed $10,000) under the policy required
pursuant to subparagraph (c)(ii).
(e) Tenant shall deliver to Landlord at least 30 days prior to the
time such insurance is first required to be carried by Tenant, and thereafter at
least 30 days prior to expiration of each such policy, certificates of insurance
evidencing the coverage required hereunder with limits not less than those
specified above. Such policies of insurance shall be written as primary
policies, not contributing with, and not in excess of coverage which Landlord
may carry. The certificate of insurance with respect to the coverage described
in subparagraph (c) (i) above shall specifically reflect insurance of Tenant's
obligations under subparagraph (b) above. Such certificates shall name Landlord
as an additional insured and shall expressly provide that the interest of the
same therein shall not be affected by any breach by Tenant of any policy
provision for which such certificates evidence coverage. Further, all
certificates shall expressly provide that not less than 30 days' prior
<PAGE>
written notice shall be given Landlord in the event of material alteration to or
cancellation of the coverages evidenced by such certificates. If on account of
the failure of Tenant to comply with the provisions of this Paragraph 8,
Landlord is adjudged a co-insurer by its insurance carrier, then, in addition to
all other remedies available to Landlord, any loss or damage Landlord shall
sustain by reason thereof shall be borne by Tenant and shall be immediately paid
by Tenant upon receipt of a bill therefor and evidence of such loss.
(f) Upon demand, Tenant shall provide Landlord, at Tenant's expense,
with such increased amount of existing insurance and such other insurance with
such limits as Landlord may require and such other hazard insurance as the
nature and condition of the Premises may require, in the opinion of Landlord, to
afford Landlord adequate protection for such risks. However, in all cases such
adjustments shall be based upon the requirements of an institutional lender of
Landlord or otherwise reasonable and consistent with the requirements of other
first class office projects in the County in which the Project is located.
(g) Landlord makes no representation that the insurance coverage
specified to be carried by Tenant pursuant to this Paragraph 8 is adequate to
protect Tenant against Tenant's undertaking under the terms of this Lease or
otherwise, and in the event Tenant believes that any such insurance coverage
called for under this Lease is insufficient, Tenant shall provide, at its own
expense, such additional insurance as Tenant deems adequate. Tenant's
Proportionate Share of earthquake insurance (which shall, if purchased by
Landlord, be passed through to Tenant as part of Operating Costs only) shall not
exceed $5,000 annually as increased by Proportionate increases in the Consumer
Price Index, All Urban Consumers, All Items, Los Angeles - Anaheim - Riverside,
California (1982-84 equals 100), as published by the United States Department of
Labor's Bureau of Labor Statistics, or, if unavailable, such substitute index as
reasonably approximates said index.
(h) If Moreno Corporate Center, L.L.C., a Delaware limited liability
company, shall convey the Building to an unaffiliated third party landlord, such
successor Landlord (and its successors and assigns) shall agree to maintain in
full force and effect at all times during the Term, as an Operating Cost, unless
such Landlord has a tangible net worth of Five Million Dollars ($5,000,000), as
determined under generally accepted accounting principles (exclusive of
goodwill):
(i) All Risk Insurance (exclusive of damage resulting or
arising from sprinkler leakage, earthquake or floor (Sic.), unless Landlord in
its sole discretion shall elect to carry such coverage) in an amount sufficient
to cover the replacement the Building exclusive of Tenant's Alterations,
improvements and personal property; and
(ii) Comprehensive general liability insurance (or commercial
general liability insurance) or such successor comparable form of coverage with
coverage of not less than $1,000,000 combined single limit per occurrence for
both bodily injury and property damage. Notwithstanding any contribution by
Tenant to the cost of insurance premiums, Tenant acknowledges that it has no
right to receive any proceeds from any insurance policies carried by Landlord.
(i) Notwithstanding any provision of this Paragraph 8 to the contrary,
in the event that Landlord's insurance policies with respect to the Premises,
the Building or the Project permit a waiver of subrogation, Landlord hereby
waives any and all rights of recovery against Tenant for or arising out of
damage to, or destruction of, the Premises, the Building or the Project, from
causes then included under standard fire and All Risk insurance policies or
endorsements; provided,
<PAGE>
however, that such waiver of subrogation shall be limited exclusively to
insurance proceeds actually received by Landlord for such damage or destruction.
In the event that Tenant's insurance policies with respect to the Premises
permit a waiver of subrogation, Tenant waives any and all rights of recovery
against Landlord for or arising out of damage to or destruction of, any property
of Tenant, from causes then included under standard fire and All Risk insurance
policies or endorsements. Tenant represents that its present insurance policies
now in force permit such waiver. If at any time during the term of this Lease
(i) either party shall give less than five days' prior written notice to the
other party certifying that any insurance carrier which has issued any such
policy shall refuse to consent to the aforesaid waiver of subrogation, or (ii)
such insurance carrier shall consent to such waiver only upon the payment of an
additional premium (and such additional premium is not paid by the other party
hereto), or (iii) such insurance carrier shall revoke a consent previously given
or shall cancel or threaten to cancel any policy previously issued and then in
force and effect, because of such waiver of subrogation, then, in any of such
events, the waiver of subrogation contained herein shall thereupon be of no
further force or effect as to the loss, damage or destruction covered by such
policy. If, however, at any time thereafter, a consent to such waiver of
subrogation shall be obtained without an additional premium from any existing or
substitute insurance carrier, the waiver hereinabove provided for shall again
become effective.
(j) Tenant shall not keep, use, sell or offer for sale in or upon the
Premises any article which may be prohibited by any insurance policy
periodically in force covering the Premises, the Building or the Project. If any
of Landlord's insurance policies shall be cancelled or cancellation shall be
threatened or the coverage thereunder reduced or threatened to be reduced in any
way because of the use of the Premises or any part thereof by Tenant or any
assignee, subtenant, licensee or invitee of Tenant and, if Tenant fails to
remedy the condition giving rise to such cancellation, threatened cancellation,
reduction of coverage, or threatened reduction of coverage, within two (2)
business days after notice thereof, Landlord may, at its option, either
terminate this Lease or enter upon the Premises and attempt to remedy such
condition, and Tenant shall promptly pay the cost thereof to Landlord as
additional Rent. Landlord shall not be liable for any damage or injury caused to
any property of Tenant or of others located on the Premises resulting from such
entry. If Landlord is unable, or elects not to remedy such condition, then
Landlord shall have all of the remedies provided for in this Lease in the event
of a default by Tenant.
(k) Tenant shall not do or permit to be done any act or things upon or
about the Premises or the Building, which will (i) result in the assertion of
any defense by the insurer to any claim under, (ii) invalidate or (iii) be in
conflict with, the insurance policies of Landlord or Tenant covering the
Building, the Premises or fixtures and property therein, or which would increase
the rate of fire insurance applicable to the Building to an amount higher than
it otherwise would be; and Tenant shall neither do nor permit to be done any act
or thing upon or about the Premises or the Building which shall or might subject
Landlord to any liability or responsibility for injury to any person or persons
or to property; provided that nothing in this Paragraph 8(j) shall prevent
Tenant's use of the Premises for the purposes stated in Paragraph 6 hereof.
(l) If, as a result of any act or omission by or on the part of Tenant
or violation of this Lease, whether or not Landlord has consented to the same,
the rate of "All Risk" or other type of insurance maintained by Landlord on the
Building and fixtures and property therein, shall be increased to an amount
higher than it otherwise would be, Tenant shall reimburse Landlord for all
increases of Landlord's fire insurance premiums so caused; such reimbursement to
be Additional Rent payable within 5 days after demand therefor by Landlord. If,
due to abandonment of, or failure to occupy the demised premises by Tenant, any
such insurance shall be canceled by the insurance
<PAGE>
carrier, then Tenant hereby indemnifies Landlord against liability which would
have been covered by such insurance. In any action or proceeding wherein
Landlord and Tenant are parties, a schedule or "make-up" of rates for the
Building or the Premises issued by the body making fire insurance rates or
established by insurance carrier providing coverage for the Building or demised
premises shall be presumptive evidence of the facts stated therein including the
items and charges taken into consideration in fixing the "All Risk" insurance
rate then applicable to the Building or the Premises.
9. FIRE OR CASUALTY
(a) Subject to the provisions of this Paragraph 9, in the event the
Premises, or access thereto, is wholly or partially destroyed by fire or other
casualty, Landlord shall (to the extent permitted by Law and covenants,
conditions and restrictions then applicable to the Project) rebuild, repair or
restore the Premises and access thereto to substantially the same condition as
existing immediately prior to such destruction and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, (i) Landlord's obligation
to rebuild, repair or restore the Premises shall not apply to any personal
property, tenant improvements or other items installed or contained in the
Premises which are not Building Standard Installations, and (ii) Landlord shall
have no obligation whatsoever to rebuild, repair or restore the Premises with
respect to any damage or destruction occurring during the last 12 months of the
term of this Lease.
(b) Landlord may elect to terminate this Lease in any of the following
cases of damage or destruction to the Premises, the Building or the Project: (i)
where the cost of rebuilding, repairing and restoring (collectively,
"RESTORATION") the Building or the Project, would, regardless of the lack of
damage to the Premises or access thereto, in the opinion of Landlord, exceed 20%
of the then replacement cost of the Building; (ii) where, in the case of any
damage or destruction to any portion of the Building or the Project by uninsured
casualty, the cost of Restoration of the Building or the Project, in the opinion
of Landlord, exceeds $500,000; or (iii) where, in the case of any damage or
destruction to the Premises or access thereto by uninsured casualty, the cost of
Restoration of the Premises or access thereto, in the opinion of Landlord,
exceeds 20% of the replacement cost of the Premises. Any such termination shall
be made by 30 days' prior written notice to Tenant given within 60 days of the
date of such damage or destruction. If this Lease is not terminated by Landlord
and as the result of any damage or destruction, the Premises, or a portion
thereof, are rendered untenantable, the Basic Annual Rent shall abate reasonably
during the period of Restoration (based upon the extent to which such damage and
Restoration materially interfere with Tenant's business in the Premises) unless
such damage or destruction shall have resulted from the wilful misconduct, fault
or neglect of Tenant, its agents, servants, contractors, representatives,
employees, licensees or invitees. This Lease shall be considered an express
agreement governing any case of damage to or destruction of the Premises, the
Building or the Project. Tenant hereby waives the provisions of California Civil
Code Sections 1932(2) and 1933(4) and the provisions of any successor or other
law of like import.
(c) Tenant may elect to terminate this Lease if (i) the Premises have
been damaged or destroyed by a casualty not caused by Tenant or Tenant's agents,
employees or contractors and (ii) the Premises have not been substantially
repaired or restored to a condition that is commercially usable for general
office use within a period of 270 days from and after the date of such casualty,
unless Landlord has provided Tenant with other space in the Project that is
comparable in size,
<PAGE>
rent and area to the Premises for general office use. In the event of such a
casualty whereby Tenant is required to vacate the Premises, Landlord covenants
to use its good faith efforts to provide Tenant with any available vacant space
in the Building that is comparable in size and area as the Premises on terms
comparable to that then being agreed to by Landlord.
10. EMINENT DOMAIN
In the event the whole of the Premises, the Building or the Project
shall be taken under the power of eminent domain, or sold to prevent the
exercise thereof (collectively, a "TAKING"), this Lease shall automatically
terminate as of the date of such Taking. In the event of a Taking of such
portion of the Project, the Building or the Premises as shall, in the opinion of
Landlord, substantially interfere with Landlord's operation thereof, Landlord
may terminate this Lease upon 30 days' written notice to Tenant given at any
time within 60 days following the date of such Taking. For purposes of this
Lease, the date of Taking shall be the earlier of the date of transfer of title
resulting from such Taking or the date of transfer of possession resulting from
such Taking. In the event that a portion of the Premises is so taken and this
Lease is not terminated, Landlord shall, with reasonable diligence, proceed to
restore (to the extent permitted by Law and covenants, conditions and
restrictions then applicable to the Project) the Premises (other than Tenant' s
personal property and fixtures, and tenant improvements not constituting
Building Standard Installations) to a complete, functioning unit. In such case,
the Basic Annual Rent shall be reduced proportionately based on the portion of
the Premises so taken. If all or any portion of the Premises is the subject of a
temporary Taking, this Lease shall remain in full force and effect and Tenant
shall continue to perform each of its obligations under this Lease; in such
case, Tenant shall be entitled to receive the entire award allocable to the
temporary Taking of the Premises. Except as provided herein, Tenant shall not
assert any claim against Landlord or the condemning authority for, and hereby
assigns to Landlord, any compensation in connection with any such Taking, and
Landlord shall be entitled to receive the entire amount of any award therefor
without deduction for any estate or interest of Tenant. Nothing contained in
this Paragraph 10 shall be deemed to give Landlord any interest in, or prevent
Tenant from seeking any award against the condemning authority for the Taking of
personal property or fixtures of Tenant or for relocation or business
interruption expenses recoverable by Tenant from the condemning authority. This
Paragraph 10 shall be Tenant' s sole and exclusive remedy in the event of a
Taking. Each party hereby waives the provisions of Sections 1265.130 and
1265.150 of the California Code of Civil Procedure and the provisions of any
successor or other law of like import.
11. ASSIGNMENT AND SUBLETTING
(a) Tenant shall not directly or indirectly, voluntarily or
involuntarily, by operation of law or otherwise, assign, sublet, mortgage,
hypothecate or otherwise encumber all or any portion of its interest in this
Lease or in the Premises or grant any license in or suffer any person other than
Tenant or its employees to use or occupy the Premises or any part thereof
without obtaining the prior written consent of Landlord, which consent shall,
subject to subparagraphs (d), (e), (f), and (g) below, not be unreasonably
withheld. Any such attempted assignment, subletting, license, mortgage,
hypothecation, other encumbrance or other use or occupancy without the consent
of Landlord shall be null and void and of no effect. For purposes of application
of subparagraphs (b), (c), (d), (e), (f), and (g) below, any mortgage,
hypothecation or encumbrance of all or any portion of Tenant's interest in this
Lease or in the Premises and any grant of a license or sufferance of any person
other than Tenant or its employees to use or occupy the Premises or any part
thereof shall be deemed to be an "assignment" of this Lease. In addition, as
used in this Paragraph 11, the term "Tenant" shall also mean any entity that has
guaranteed Tenant's obligations under this Lease, and the restrictions
applicable to Tenant contained herein shall also be applicable to such
guarantor.
(b) No permitted assignment or subletting shall relieve Tenant of its
obligation to
<PAGE>
pay the Rent and to perform all of the other obligations to be performed by
Tenant hereunder. The acceptance of Rent by Landlord from any other person shall
not be deemed to be a waiver by Landlord of any provision of this Lease or to be
a consent to any subletting or assignment. Consent by Landlord to one subletting
or assignment shall not be deemed to constitute a consent to any other or
subsequent attempted subletting or assignment.
(c) If Tenant desires at any time to assign this Lease or to sublet
the Premises or any portion thereof, it shall first notify Landlord of its
desire to do so and shall submit in writing to Landlord (i) the name of the
proposed assignee or subtenant; (ii) the nature of the proposed assignee's or
subtenant's business to be carried on in the Premises; (iii) the terms and
provisions of the proposed assignment or sublease, which shall be expressly
subject to the provisions of this Lease; (iv) in the case of a sublease, the
portion of the Premises proposed to be sublet; and (v) such financial and other
information as Landlord may reasonably request concerning the proposed assignee
or subtenant.
(d) At any time within 30 days after Landlord's receipt of the
information specified in subparagraph (c) above, Landlord may by written notice
to Tenant elect (i) to sublease from Tenant the Premises or the portion thereof
so proposed to be subleased by Tenant, or to take an assignment of Tenants
leasehold estate hereunder, or such part thereof as shall be specified in said
notice, upon the same terms as those offered to the proposed subtenant or
assignee, as the case may be, except that the Rent payable by Landlord in the
case of a sublease to Landlord shall be the same Rent per square foot as is
payable by Tenant hereunder for the same period; or (ii) to terminate this Lease
as to the portion of the Premises so proposed to be subleased or assigned (which
may include all of the Premises), with a proportionate abatement in the Rent
payable hereunder. In the case where Landlord elects to sublease space, receive
an assignment from Tenant or terminate all or any portion of this Lease pursuant
to this subparagraph (d), Landlord may thereafter lease the space affected to
Tenant's proposed assignee or subtenant, without liability to Tenant. If
Landlord does not exercise any option set forth in this subparagraph (d) within
said 30 day period, Tenant may within 90 days thereafter enter into a valid
assignment or sublease of the Premises or portion thereof, upon the terms and
conditions set forth in the information furnished by Tenant to Landlord pursuant
to subparagraph (c) above, subject, however, in each instance, to (i) Landlord's
consent under subparagraph (a) above, and (ii) Landlord's receipt of a fully
executed counterpart of such assignment or sublease. If Landlord elects to
exercise its option to sublet or receive an assignment from Tenant (or terminate
this Lease) as to any portion of the Premises, (i) Landlord and its subtenants
shall have the right to use in common with Tenant all lavatories, corridors and
lobbies within the Premises the use of which is reasonably required for the use
of such sublet, assigned or terminated space, and (ii) Tenant shall have no
right of setoff or right to assert a default hereunder by reason of a default by
Landlord under such sublease.
(e) Tenant acknowledges that it shall be reasonable for Landlord to
withhold its consent to a proposed assignment or sublease if (i) the use to be
made of the Premises by the proposed assignee or subtenant is (A) not generally
consistent with the character and nature of other tenants in the Building or the
Project or would result in a heavier burden (in comparison to that resulting
from Tenant's use of such portion of the Premises) on the Building, the Project,
the systems, the structures or the Common Areas thereof, (B) in conflict with
any "exclusive" or similar use or signage rights of another Project tenant, or
(C) prohibited by any provision of this Lease, including, without limitation,
the rules and regulations then in effect; (ii) the character, moral stability,
reputation or financial responsibility of the proposed assignee or subtenant are
not reasonably satisfactory to Landlord; (iii) in the case of a proposed
mortgage hypothecation or other
<PAGE>
encumbrance of Tenant s leasehold estate, (A) the proposed assignee or subtenant
requests relief from any provision of this Paragraph 11 or this Lease,
including, without limitation, those provisions requiring assumption of this
Lease by each assignee or subtenant and continuous occupancy of the Premises,
(B) the proposed mortgage, hypothecation or encumbrance is of less than the
entire leasehold estate, or (C) the proposed assignee or subtenant cannot
reasonably demonstrate to Landlord that such mortgage, hypothecation or
encumbrance will not impair or adversely affect any of Landlord's rights
hereunder; (iv) in the case of a sublease, (A) the portion of the Premises
proposed to be sublet is not a single, self-contained unit of space with access
to restrooms and exits in conformance with applicable Law or otherwise cannot be
the subject of a valid certificate of occupancy or (B) the proposed transaction
is a sublease of a subleasehold interest; or (v) the proposed assignee or
subtenant is an existing tenant or subtenant in the Project.
(f) The voluntary or other surrender of this Lease by Tenant or a
mutual cancellation hereof shall not work a merger, and shall at the option of
Landlord, either terminate all or any existing subleases or subtenancies or
shall operate as an assignment to Landlord of such subleases or subtenancies. If
Tenant is a corporation which is not the issuer of any security registered under
Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934, or is an
unincorporated association, trust or partnership, the transfer, assignment or
hypothecation of any stock or interest in such corporation, association, trust
or partnership in excess of 25% in the aggregate during the term hereof of the
total stock or interest in such corporation, association, trust or partnership
shall be deemed an assignment within the meaning of this Paragraph 11; provided,
however, that Landlord shall not withhold its consent and the provisions of
subparagraphs (d) and (g) of this Paragraph 11 shall not apply to transactions
described in the foregoing sentence with a corporation (i) into or with which
Tenant is merged or consolidated, (ii) to which substantially all of Tenant's
assets are transferred, (iii) that controls, is controlled by or is under common
control with Tenant or (iv) of which Aram Keith owns and controls at least 51%,
so long as in each such case, (A) the successor of Tenant has a tangible net
worth, calculated in accordance with generally accepted accounting principles
(and evidenced by financial statements in form reasonably satisfactory to
Landlord) equal to the greater of the net worth of Tenant immediately prior to
such transaction or the net worth of the original Tenant hereunder as of the
date of this Lease, (B) all provisions of this Paragraph 11, other than
subparagraphs (d), (g) and the consent requirements of subparagraph (a), shall
apply to such transactions, and (C) Tenant shall present proof reasonably
satisfactory to Landlord that the parties to the transaction were not attempting
to avoid the application of subparagraphs (d) and (g) of this Paragraph 11. If
Tenant consists of more than one person, a purported transfer, assignment,
mortgage, hypothecation or other encumbrance, voluntary, involuntary or by
operation of law, by any one of the persons executing this Lease of all or part
of such person's interest to this Lease shall be deemed an assignment within the
meaning of this Paragraph 11. Each assignee, sublessee, licensee, mortgagee or
other transferee, other than Landlord, shall assume in a writing satisfactory to
Landlord, all obligations of Tenant under this Lease and shall be jointly and
severally liable for the performance of all of the provisions hereof.
Notwithstanding the foregoing and without prejudice to Landlord's right to
require a written assumption from each assignee, any person or entity to whom
this Lease is assigned, including, without limitation, assignees pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C.(SS) 101 et seq. (THE "BANKRUPTCY
Code"), shall automatically be deemed to have assumed all obligations of Tenant
arising under this Lease. Tenant agrees to reimburse Landlord for Landlord's
reasonable costs and attorneys' fees incurred in connection with the processing,
investigation and documentation of any requested assignment or sublease subject
to this Paragraph 11.
(g) If Landlord shall give its consent to any assignment of this Lease
or to any
<PAGE>
sublease of all or any portion of the Premises, Tenant shall pay to Landlord as
Additional Rent hereunder:
(i) In the case of an assignment, fifty percent (50%) of an
amount equal to all sums and other consideration paid to the assignor Tenant by
the assignee for, or by reason of, such assignment, in excess of Rent accruing
hereunder, but deducting from such sums and consideration all brokerage
commissions actually paid to independent brokers in connection with such
transaction and any tenant improvement allowance granted to the assignee to the
extent actually devoted exclusively to the installation of leasehold
improvements in the Premises (such commissions and allowance being referred to
herein as "TRANSACTION INDUCEMENTS"); and
(ii) In the case of a sublease, fifty percent (50%) of all sums,
rents, additional charges, key money and other consideration payable under the
sublease by the subtenant to Tenant in excess of Rent accruing during the term
of the sublease with respect to the subleased portion of the Premises (at the
rate per square foot of Rentable Area payable by Tenant). Tenant shall be
entitled to deduct all Transaction Inducements related to such sublease,
provided the same are amortized over the entire term of the sublease.
The obligation to make the payments described in this subparagraph (g)
shall be a joint and several obligation of the Tenant and the assignee or
sublessee, as the case may be. The amounts payable under subparagraph (g) (i)
shall be paid to Landlord on the effective date of the assignment, as a
condition of the effectiveness of Landlord's consent. The amounts payable under
subparagraph (g) (ii) shall be paid to Landlord as and when payable by the
sublessee to Tenant. Within 15 days after written request therefor by Landlord,
Tenant shall furnish evidence to Landlord of the amount of consideration
received or expected to be received from such assignment or sublease.
(h) Notwithstanding any provision of this Lease to the contrary, in
the event this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, any and all monies or other consideration
payable or otherwise to be delivered in connection with such assignment shall be
paid or delivered to Landlord, shall be and remain the exclusive property of
Landlord and shall not constitute the property of Tenant or Tenant' s estate
within the meaning of the Bankruptcy Code. All such money and other
consideration not paid or delivered to Landlord shall be held in trust for the
benefit of Landlord and shall be promptly paid or delivered to Landlord.
(i) Notwithstanding any provision of this Lease to the contrary,
Tenant shall have the right, without obtaining Landlord's consent, to permit a
portion of the Premises, not to exceed a total of 7,000 square feet of Rentable
Area in the aggregate, to be used for so-called "Executive Suites", provided
that Tenant shall first obtain from each occupant of such Executive Suites an
agreement that states that such occupant shall not take any action that will
violate the terms of this Lease and that such occupant shall pay all of
Landlord's costs and expenses (including reasonable attorneys' fees and costs)
that Landlord may incur as a result of any such default or such occupant's
failure to vacate its portion of the Premises when its rights of occupancy have
expired. Tenant shall be entitled to all so-called amounts paid by the occupant
of the Executive Suites to Tenant, provided Tenant is not in default under this
Lease.
12. DEFAULT
(a) The occurrence of any of the following shall constitute a default
by Tenant:
<PAGE>
(i) Any failure by Tenant to pay any installment of Basic
Annual Rent or to make any other payment required to be made by Tenant hereunder
when due, where such failures continues for 3 business days after delivery of
written notice of such failure by Landlord to Tenant; provided, however, that
any such notice shall be in lieu of, and not in addition to, any notice required
under Section 1161 et seq., of the California Code of Civil Procedure;
--------
(ii) The abandonment or vacation of the Premises by Tenant;
(iii) Any failure by Tenant to execute and deliver any statement
described in Paragraph 16 requested by Landlord, where such failure continues
for 3 business days after delivery of written notice of such failure by Landlord
to Tenant; provided, however, that any such notice shall be in lieu of, and not
in addition to, any notice required under Section 1161 et seq., of the
California Code of Civil Procedure;
(iv) Any failure by Tenant to observe and perform any other
provision of this Lease, including, without limitation, any provision of the
Exhibits attached hereto, as they may exist from time to time, to be observed or
performed by Tenant, where such failure continues for 30 days (except where a
different period of time is specified in this Lease, in which case such
different time period shall apply) after delivery of written notice of such
failure by Landlord to Tenant; provided, however, that any such notice shall be
in lieu of, and not in addition to, any notice required under Section 1161 et
seq., of the California Code of Civil Procedure. If the nature of such default
is such that the same cannot reasonably be cured within such 30 day period,
Tenant shall not be deemed to be in default if Tenant shall, within 10 days of
receipt of such notice, both deliver to Landlord its written agreement to cure
such default and commence such cure, and thereafter diligently prosecute such
cure to completion;
(v) The making or furnishing by Tenant of any warranty,
representation or statement to Landlord in connection with this Lease, or any
other agreement to which Tenant and Landlord are parties, which is false or
misleading in any material respect when made or furnished;
(vi) Any transfer of a substantial portion of the assets of
Tenant (except transfers among Tenant and any guarantor of this Lease), or the
incurrance of any material obligation of Tenant, unless such transfer or
obligation is undertaken or incurred in the ordinary course of Tenant's business
or in good faith for fair equivalent consideration, or with Landlord's consent;
(vii) Any instance whereby Tenant or any general partner of
Tenant shall cease doing business as a going concern, make an assignment for the
benefit of creditors, generally not pay its debts as they become due or admit in
writing its inability to pay its debts as they become due, file a petition
commencing a voluntary case under any chapter of the Bankruptcy Code, be
adjudicated an insolvent, file a petition seeking for itself any reorganization,
composition, readjustment, liquidation, dissolution or similar arrangement under
the Bankruptcy Code or any other present or future similar statute, law, rule or
regulation, or file an answer admitting the material allegations of a petition
filed against it in any such proceeding, consent to the filing of such a
petition or acquiesce in the appointment of a trustee, receiver, custodian or
other similar official for it or of all or any substantial part of its assets or
properties, or take any action looking to its dissolution or liquidation;
(viii) Any instance whereby a case, proceeding or other action
shall be instituted against Tenant or any general partner of Tenant seeking the
entry of an order for relief against
<PAGE>
Tenant or any general partner thereof as debtor, to adjudicate Tenant or any
general partner thereof as a bankrupt or insolvent, or seeking reorganization,
arrangement, readjustment, liquidation, dissolution or similar relief against
Tenant or any general partner thereof under the Bankruptcy Code or any other
present or future similar statute, law, rule or regulation, which case,
proceeding or other action either results in such entry, adjudication or
issuance or entry of any other order or judgment having a similar effect, or
remains undismissed for 60 days, or within 60 days after the appointment
(without Tenant's or such general partner's consent) of any trustee, receiver,
custodian or other similar official for it or such general partner, or of all or
any substantial part of its or such general partner's assets and properties,
such appointment shall not be vacated;
(ix) The appointment of a receiver, trustee or custodian to take
possession of all or any substantial portion of the assets of Tenant, or the
formation of any committee of Tenant's creditors, or any class thereof, for the
purpose of monitoring or investigating the financial affairs of Tenant or
enforcing such creditors' rights; or
(x) The default of any guarantor of Tenant's obligations
hereunder under any guaranty of this Lease, the attempted repudiation or
revocation of any such guaranty or the participation by any such guarantor in
any other event described in this subparagraph (a) (as if this subparagraph (a)
referred to such guarantor in place of Tenant).
(b) In the event of any such default by Tenant, then in
addition to any other remedies available to Landlord at law or in equity,
Landlord shall have the immediate option to terminate this Lease and all rights
of Tenant hereunder by giving written notice of such termination. In the event
that Landlord shall elect to so terminate this Lease, then Landlord may recover
from Tenant:
(i) The worth at the time of award of any unpaid Rent which had
been earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss Tenant proves reasonably could have
been avoided; plus
(iii) The worth at the time of award of the amount by which the
unpaid Rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves reasonably could be avoided;
(iv) Any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant' s failure to perform its obligations
under this Lease or which in the ordinary course would be likely to result
therefrom, and
(v) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by applicable
California Law.
(c) As used in subparagraphs (b) (i) and (b) (ii) above, the "worth at
the time of award" is computed by allowing interest at the rate specified in
subparagraph (i) below. As used in subparagraph (b) (iii) above, the "worth at
the time of award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus 1%.
<PAGE>
(d) In the event of any such default by Tenant, Landlord shall also
have the right, with or without terminating this Lease, to re-enter the Premises
and remove all persons and property from the Premises; such property may be
removed and stored in a public warehouse or elsewhere at the cost and risk of
and for the account of Tenant.
(e) In the event of the vacation or abandonment of the Premises by
Tenant or in the event that Landlord shall elect to re-enter as provided in
subparagraph (d) or shall take possession of the Premises pursuant to legal
proceedings, or pursuant to any notice provided by Law, then if Landlord does
not elect to terminate this Lease as provided in this Paragraph 12, Landlord may
from time to time, without terminating this Lease, either recover all rentals as
they become due or relet the Premises or any part thereof for such term or terms
and at such rental or rentals and upon such other terms and conditions as
Landlord in its sole and absolute discretion may deem advisable, with the right
to make alterations and repairs to the Premises.
(f) In the event that Landlord shall elect to relet, then rentals
received by Landlord from such reletting shall be applied: first, to the payment
of any indebtedness (other than Rent) due hereunder from Tenant to Landlord;
second, to the payment of any cost of such reletting (including brokerage
commissions); third, to the payment of the cost of any alterations and repairs
to the Premises; fourth, to the payment of Rent due and unpaid hereunder; and
the residue, if any, shall be held by Landlord and applied in payment of future
Rent as the same may become due and payable hereunder. Should reletting, during
any month to which such Rent is applied, result in the actual payment of rentals
at less than the Rent payable during that month by Tenant hereunder, then Tenant
shall pay such deficiency to Landlord immediately upon demand therefor by
Landlord. Such deficiency shall be calculated and paid monthly. Tenant shall
also pay to Landlord as soon as ascertained, any costs and expenses incurred by
Landlord in such reletting or in making such alterations and repairs not covered
by the rentals received from such reletting.
(g) No re-entry or taking of possession of the Premises by Landlord
pursuant to this Paragraph 12 shall be construed as an election to terminate
this Lease unless a written notice of such election shall be given to Tenant or
unless the termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any reletting without termination by Landlord, Landlord may, at
any time after such reletting, elect to terminate this Lease for any such
default. Upon the occurrence of a default by Tenant under subparagraph (a), if
the Premises or any portion thereof are sublet, Landlord in addition and without
prejudice to any other remedies herein provided or provided by Law, may, at its
option, collect directly from the sublessee all rentals becoming due to the
Tenant and apply such rentals against other sums due hereunder to Landlord.
(h) Except as otherwise specifically provided in this Lease, in
addition and without prejudice to any other right or remedy of Landlord, if
Tenant shall be in default under this Lease, Landlord may cure the same at the
expense of Tenant (i) immediately and without notice in the case (A) of
emergency, (B) where such default unreasonably interferes with any other tenant
in the Project, or (C) where such default will result in the violation of Law or
the cancellation of any insurance policy maintained by Landlord and (ii) in any
other case if such default continues for 10 days from the receipt by Tenant of
notice of such default from Landlord and Tenant is not diligently prosecuting
the cure of such default. All costs incurred by Landlord in curing such
default(s), including, without limitation, attorneys' fees, shall be
reimbursable by Tenant as additional Rent hereunder upon demand, together with
interest thereon, from the date such costs were incurred by Landlord, at the
rate specified in subparagraph (i) below.
<PAGE>
(i) The performance by Landlord of any agreement, concession or grant
for "free rent," Rent abatement, a "credit fund" to be applied against Rent
otherwise payable hereunder or any grant or payment by Landlord to or for the
benefit of Tenant of any cash or other bonus, allowance or other payment or
inducement or any assumption of obligations by Landlord to or for the benefit of
Tenant given or granted to or for the benefit of Tenant as consideration for
execution and delivery of this Lease by Tenant (all such agreements,
concessions, grants, payments and assumptions are collectively referred to
herein as "TENANT INDUCEMENTS") shall be continuously conditional upon Tenant's
full and complete performance of its obligations under this Lease, as this Lease
may be amended or extended. Effective immediately upon the occurrence of a
default (A) any provision of this Lease providing for performance of a Tenant
Inducement shall be automatically deemed terminated and of no further force or
effect and (B) any Tenant Inducement previously granted, issued, paid or given
to or for the benefit of Tenant shall be immediately due and payable by Tenant
to Landlord as Rent hereunder.
(j) Tenant acknowledges and agrees that any late payment by Tenant of
Rent or any other amount payable by Tenant hereunder will result in damage to
Landlord, the exact amount of which will be extremely difficult to ascertain.
Such damage includes, without limitation, administrative expenses, accounting
and processing costs and late charges which may be payable by Landlord on
mortgage financing or other obligations of Landlord relating to the Property. As
a result, Landlord and Tenant agree that in the event Tenant is more than 10
days late in paying any amount of Rent or any other payment due under this
Lease, then provided Tenant does not pay the outstanding Rent or other payment
within 3 business days of written notice by Landlord of the late payment, Tenant
shall pay Landlord a late charge equal to 5% of the delinquent amount. Landlord
and Tenant agree that such late charge is a fair and reasonable estimate of the
damage Landlord will incur by reason of such delinquent payment. Following the
occurrence of three instances of payment of Rent more than 10 days late in any
twelve month period, Landlord may, without prejudice to any other rights or
remedies available to it, upon written notice to Tenant, (i) require that all
remaining monthly installments of Rent shall be payable three months in advance;
and in addition or in the alternative at Landlord's election, (ii) require that
Tenant increase the amount of the Security Deposit (if any) by an amount equal
to one month's Rent. In addition, any amount due from Tenant to Landlord
hereunder which is not paid within 30 days of the date due shall bear interest
at an annual rate (the "DEFAULT RATE") equal to 4% in excess of the discount
rate being charged by the Federal Reserve Bank of San Francisco on advances to
member banks pursuant to Sections 13 and 13(a) of the Federal Reserve Act, as
amended, as of the 25th day of the month preceding the date hereof (or such
lesser amount as shall be the maximum rate then permitted by applicable Law).
The payment of such interest by Tenant shall not constitute a waiver of any
default by Tenant hereunder.
(k) Tenant hereby waives for Tenant and for all those claiming under
Tenant all right now or hereafter existing to redeem by order or judgment of any
court or by any legal process or writ, Tenant's right of occupancy of the
Premises after any termination of this Lease. Notwithstanding any provision of
this Lease to the contrary, the expiration or termination of this Lease and/or
the termination of Tenant' s rights to possession of the Premises shall not
discharge, relieve or release Tenant from any obligation or liability whatsoever
under any indemnity provision of this Lease, including without limitation the
provisions of Paragraphs 6 and 8 hereof.
13. ACCESS; CONSTRUCTION
Landlord reserves the right to use the roof and exterior walls of the Premises
and the area beneath,
<PAGE>
adjacent to and above the Premises, together with the right to install, use,
maintain, repair, replace and relocate equipment, machinery, meters, pipes,
ducts, plumbing, conduits and wiring through the Premises, which serve other
portions of the Building or the Project in a manner and in locations which do
not unreasonably interfere with Tenant's use of the Premises. In addition,
Landlord shall have free access to any and all mechanical installations of
Landlord or Tenant, including, without limitation, machine rooms, telephone
rooms and electrical closets. Tenant agrees that there shall be no construction
of partitions or other obstructions which interfere with or which threaten to
interfere with Landlord's free access thereto, or interfere with the moving of
Landlord's equipment to or from the enclosures containing said installations.
Landlord reserves and shall at any time and all times have the right to enter
the Premises to inspect the same, to supply janitorial service and any other
service to be provided by Landlord to Tenant hereunder, to exhibit the Premises
to prospective purchasers, lenders or tenants, to post notices of non-
responsibility, to alter, improve, restore, rebuild or repair the Premises or
any other portion of the Building, or to do any other act permitted or
contemplated to be done by Landlord hereunder, all without being deemed guilty
of an eviction of Tenant and without liability for abatement of Rent or
otherwise. For such purposes, Landlord may also erect scaffolding and other
necessary structures where reasonably required by the character of the work to
be performed. Landlord shall conduct all such inspections and/or improvements,
alterations and repairs so as to minimize, to the extent reasonably practical
and without additional expense to Landlord, any interruption of or interference
with the business of Tenant. Tenant hereby waives any claim for damages for any
injury or inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises, and any other loss occasioned
thereby. For each of such purposes, Landlord shall at all times have and retain
a key with which to unlock all of the doors in, upon and about the Premises
(excluding Tenant's vaults and safes, access to which shall be provided by
Tenant upon Landlord's reasonable request). Landlord shall have the right to use
any and all means which Landlord may deem proper in an emergency in order to
obtain entry to the Premises or any portion thereof. Any entry into the Premises
obtained by Landlord by any of such means shall not under any circumstances be
construed to be a forcible or unlawful entry into, or a detainer of, the
Premises, or any eviction of Tenant from the Premises or any portion thereof. No
provision of this Lease shall be construed as obligating Landlord to perform any
repairs, Alterations or decorations to the Premises or the Project except as
otherwise expressly agreed to be performed by Landlord pursuant to the
provisions of this Lease.
14. BANKRUPTCY
(a) If at any time on or before the Commencement Date there shall be
filed by or against Tenant in any court, tribunal, administrative agency or any
other forum having jurisdiction, pursuant to any applicable law, either of the
United States or of any state, a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver, trustee or conservator of
all or a portion of Tenant's property, or if Tenant makes an assignment for the
benefit of creditors, this Lease shall ipso facto be cancelled and terminated
----------
and in such event neither Tenant nor any person claiming through or under Tenant
or by virtue of any applicable law or by an order of any court, tribunal,
administrative agency or any other forum having jurisdiction, shall be entitled
to possession of the Premises and Landlord, in addition to the other rights and
remedies given by Paragraph 12 hereof or by virtue of any other provision
contained in this Lease or by virtue of any applicable law, may retain as
damages any Rent, Security Deposit or moneys received by it from Tenant or
others on behalf of Tenant.
(b) If, after the Commencement Date, or if at any time during the term
of this Lease, there shall be filed against Tenant in any court, tribunal,
administrative agency or any other
<PAGE>
forum having jurisdiction, pursuant to any applicable law, either of the United
States or of any state, a petition in bankruptcy or insolvency or for
reorganization or for the appointment of a receiver, trustee or conservator of
all or a portion of Tenant' s property, and the same is not dismissed after
sixty (60) calendar days, or if Tenant makes an assignment for the benefit of
creditors, this Lease, at the option of Landlord exercised within a reasonable
time after notice of the happening of any one or more of such events, may be
cancelled and terminated and in such event neither Tenant nor any person
claiming through or under Tenant or by virtue of any statute or of an order of
any court shall be entitled to possession or to remain in possession of the
Premises, but shall forthwith quit and surrender the Premises, and Landlord, in
addition to the other rights and remedies granted by Paragraph 12 hereof or by
virtue of any other provision contained in this Lease or by virtue of any
applicable law, may retain as damages any Rent, Security Deposit or moneys
received by it from Tenant or others on behalf of Tenant.
(c) In the event of the occurrence of any of those events specified in
this Paragraph 14, if Landlord shall not choose to exercise, or by applicable
law shall not be able to exercise, its rights hereunder to terminate this Lease
upon the occurrence of such events, then, in addition to any other rights of
Landlord hereunder or by virtue of applicable law, (i) Landlord shall not be
obligated to provide Tenant with any of the utilities or services specified in
Paragraph 7, unless Landlord has received compensation in advance for such
utilities or services, and the parties agree that Landlord's reasonable estimate
of the compensation required with respect to such services shall control, and
(ii) neither Tenant, as debtor-in-possession, nor any trustee or other person
(hereinafter collectively referred to as the "ASSUMING TENANT") shall be
entitled to assume this Lease unless on or before the date of such assumption,
the Assuming Tenant (x) cures, or provides adequate assurance that the latter
will promptly cure, any existing default under this Lease, (y) compensates, or
provides adequate assurance that the Assuming Tenant will promptly compensate
Landlord for any pecuniary loss (including, without limitation, attorneys' fees
and disbursements) resulting from such default, and (z) provides adequate
assurance of future performance under this Lease, it being covenanted and agreed
by the parties that, for such purposes, any cure or compensation shall be
effected by the immediate payment of any monetary default or any required
compensation, or the immediate correction or bonding of any nonmonetary default.
For purposes of this Lease, (i) any "adequate assurance" of such cure or
compensation shall be effected by the establishment of an escrow fund for the
amount at issue or by bonding, and (ii) "adequate assurance" of future
performance shall be effected by the establishment of an escrow fund for the
amount at issue or by bonding.
15. SUBSTITUTION OF PREMISES - INTENTIONALLY LEFT BLANK.
16. SUBORDINATION; ATTORNMENT; ESTOPPEL CERTIFICATES
(a) Tenant agrees that this Lease and the rights of Tenant hereunder
shall be subject and subordinate to any and all deeds of trust, security
interests, mortgages, master leases, ground leases or other security documents
and any and all modifications, renewals, extensions, consolidations and
replacements thereof (collectively, "SECURITY DOCUMENTS") which now or hereafter
constitute a lien upon or affect the Project, the Building or the Premises. Such
subordination shall be effective without the necessity of the execution by
Tenant of any additional document for the purpose of evidencing or effecting
such subordination. In addition, Landlord shall have the right to subordinate or
cause to be subordinated any such Security Documents to this Lease and in such
case, in the event of the termination or transfer of Landlord's estate or
interest in the Project by reason of any termination or foreclosure of any such
Security Documents, Tenant shall,
<PAGE>
notwithstanding such subordination, attorn to and become the Tenant of the
successor in interest to Landlord at the option of such successor in interest.
Furthermore, Tenant shall within five days of demand therefor execute any
instruments or other documents which may be required by Landlord or the holder
of any Security Document and specifically shall execute, acknowledge and deliver
within five days of demand therefor a subordination of lease or subordination of
deed of trust, in the form required by the holder of the Security Document
requesting the document; the failure to do so by Tenant within such time period
shall be a material default hereunder. Landlord is hereby irrevocably appointed
and authorized as agent and attorney-in-fact of Tenant to execute and deliver
all such subordination instruments in the event that Tenant fails to execute and
deliver said instruments within five days after notice from Landlord requesting
execution and delivery thereof. Notwithstanding any provision of this Lease to
the contrary, the subordination of this Lease and the rights of Tenant to any
Security Documents which are executed or entered into after the date of this
Lease (and Tenant's duty hereunder to execute any documents evidencing such
subordination) shall be subject to the holder of such Security Document agreeing
pursuant to such holder's standard form for such purpose or otherwise pursuant
to any other form in common use by institutional lenders) that Tenant's
possession and this Lease shall not be disturbed by such holder so long as no
default hereunder shall occur and Tenant shall attorn to the record owner of the
Project.
(b) If any proceeding is brought for default under any ground or
master lease to which this Lease is subject or in the event of foreclosure or
the exercise of the power of sale under any mortgage, deed of trust or other
Security Document made by Landlord covering the Premises, at the election of
such ground lessor, master lessor or purchaser at foreclosure, Tenant shall
attorn to and recognize the same as Landlord under this Lease, provided such
successor expressly agrees in writing to be bound to all future obligations by
the terms of this Lease, and if so requested, Tenant shall enter into a new
lease with that successor on the same terms and conditions as are contained in
this Lease (for the unexpired term of this Lease then remaining); provided,
however, in no case shall such ground lessor, master lessor or purchaser (i) be
liable or responsible for any acts or omissions of any predecessor owner or with
respect to events prior to its ownership, (ii) be subject to any offsets or
defenses Tenant may have against any predecessor or (iii) be bound by prepayment
of more than one month's rent.
(c) Tenant shall, upon not less than five days' prior notice by
Landlord, execute, acknowledge and deliver to Landlord a statement in writing
certifying to those facts for which certification has been requested by Landlord
or any current or prospective purchaser, holder of any Security Document, ground
lessor or master lessor, including, but without limitation, that (i) this Lease
is unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications), (ii) the dates to which the Basic Annual Rent, Rent and other
charges hereunder have been paid, if any, and (iii) whether or not to the best
knowledge of Tenant, Landlord is in default in the performance of any covenant,
agreement or condition contained in this Lease and, if so, specifying each such
default of which Tenant may have knowledge. The form of the statement attached
hereto as Exhibit "F" is hereby approved by Tenant for use pursuant to this
subparagraph (c); however, at Landlord's option, Landlord shall have the right
to use other forms for such purpose. Tenants failure to execute and deliver such
statement within 10 days shall, at the option of Landlord, constitute a material
default under this Lease and, in any event, shall be conclusive upon Tenant that
this Lease is in full force and effect without modification except as may be
represented by Landlord in any such certificate prepared by Landlord and
delivered to Tenant for execution. In addition, Landlord is hereby irrevocably
appointed and authorized as agent and attorney-in-fact of Tenant to execute and
deliver such statement in the event that Tenant fails to execute and deliver
such statement within five days after notice from Landlord
<PAGE>
requesting execution and delivery thereof Any statement delivered pursuant to
this Paragraph 16 may be relied upon by any prospective purchaser of the fee of
the Building or the Project or any mortgagee, ground lessor or other like
encumbrancer thereof or any assignee of any such encumbrance upon the Building
or the Project.
(d) In addition, and not in lieu of the foregoing, as a condition of
Landlord's obligation to deliver the Premises to Tenant hereunder, on or before
the date that Tenant takes possession or commences use of the Premises for any
business purpose (including moving in), Tenant shall execute and deliver to
Landlord a certificate substantially in the form of Exhibit "G" attached hereto,
indicating thereon any exceptions thereto which Tenant claims to exist at that
time.
17. SALE BY LANDLORD; NONRECOURSE LIABILITY
(a) In the event of a sale or conveyance by Landlord of the Building
or the Project, Landlord shall be released (i) from any and all liability
accruing thereafter, and (ii), if Tenant has been presented with an estoppel
certificate for Tenant's execution in connection with such sale or conveyance,
Landlord shall also be released from any and all liability accruing prior to
such sale or conveyance, except for any default of Landlord set forth in such
estoppel certificate signed by Tenant. If the Security Deposit has been made by
Tenant prior to such sale or conveyance, Landlord shall transfer the Security
Deposit to the purchaser, and upon delivery to Tenant of notice thereof pursuant
to the provisions of Section 1950.7 of the California Civil Code, Landlord shall
be discharged from any further liability in reference thereto.
(b) Landlord and each of its officers, directors, Affiliates,
shareholders and constituent shareholders shall in no event or at any time be
personally liable for the payment or performance of any obligation required or
permitted of the Landlord under this Lease or under any document executed in
connection herewith. In the event of any actual or alleged failure, breach or
default by Landlord under this Lease or any such document, the sole recourse of
Tenant shall be against the interest of Landlord in the Project. No attachment,
execution, writ or other process shall be sought or obtained, and no judicial
proceeding shall be initiated by or on behalf of Tenant, against Landlord (or
any of Landlord's officers, directors, Affiliates or constituent partners or
shareholders) personally or Landlord's assets (other than Landlord's interest in
the Project) as a result of any such failure, breach or default.
(c) Landlord shall not be in default of any obligation of Landlord
hereunder unless and until it has failed to perform such obligation within 30
days after receipt of written notice of such failure from Tenant, provided,
however, that if the nature of Landlord's obligation is such that more than 30
days are required for its performance, Landlord shall not be in default if
Landlord commences to cure such default within the 30 day period and thereafter
diligently prosecutes the same to completion. Tenants sole remedy for breach of
this Lease by Landlord shall be an action for damages, injunction or specific
performance; Tenant shall have no right to terminate this Lease on account of
any breach or default by Landlord. Notwithstanding any provision of this Lease,
all liability of Landlord under this Lease or otherwise with respect to any acts
or omissions of Landlord or events which occur during the term of this Lease and
which in any way relate to Tenant's tenancy hereunder or occupancy of the
Premises shall terminate two years following the expiration or sooner
termination of this Lease other than as to those claims, if any, asserted in
reasonable detail in a writing delivered by Tenant to Landlord prior to the
expiration of such two-year period.
(d) As a condition to the effectiveness of any notice of default given
by Tenant to
<PAGE>
Landlord, Tenant shall also concurrently give such notice under the provisions
of Paragraph 17(c) to each beneficiary under a deed of trust encumbering the
Project of whom Tenant has received written notice (such notice to specify the
address of the beneficiary). In the event Landlord shall fail to cure any breach
or default within the time period specified in subparagraph (c), then prior to
the pursuit of any remedy therefor by Tenant, each such beneficiary shall have
an additional 30 days within which to cure such default, or if such default
cannot reasonably be cured within such period, then each such beneficiary shall
have such additional time as shall be necessary to cure such default, provided
that within such 30 day period, such beneficiary has commenced and is diligently
pursuing the remedies available to it which are necessary to cure such default
(including, without limitation, as appropriate, commencement of foreclosure
proceedings).
18. PARKING; COMMON FACILITIES
(a) Tenant shall have the right to the nonexclusive use of the number
of parking spaces located in the parking facilities of the Project specified in
Item 13 of the Basic Lease Provisions for the parking of motor vehicles used by
Tenant, its officers, employees and invitees only. Landlord reserves the right,
at any time upon written notice to Tenant, to change the location of Tenant's
parking spaces within the parking facility originally designated for such use,
if any, as determined by Landlord in its reasonable discretion. The use of such
spaces shall be subject to the rules and regulations adopted by Landlord from
time to time for the use of such facilities. Landlord further reserves the right
to make such changes to the parking system as Landlord may deem necessary or
reasonable from time to time (i.e., Landlord may provide for one or a
combination of parking systems, including, without limitation, self-parking,
single or double stall parking spaces, and valet assist parking). Tenant agrees
that Tenant, its officers and employees shall not be entitled to park in any
reserved or specially assigned areas designated by Landlord from time to time in
the Project's parking facilities. Landlord may require execution of an agreement
with respect to the use of such parking facilities by Tenant and/or its officers
and employees in form satisfactory to Landlord as a condition of any such use by
Tenant, its officers and employees. A default by Tenant, its officers or
employees in the payment of such charges, the compliance with such rules and
regulations, or the performance of such agreement(s) shall constitute a material
default by Tenant hereunder. Tenant shall not permit or allow any vehicles that
belong to or are controlled by Tenant or Tenant's officers, employees,
suppliers, shippers, customers or invitees to be loaded, unloaded or parked in
areas other than those designated by Landlord for such activities. If Tenant
permits or allows any of the prohibited activities described in this Paragraph,
then Landlord shall have the right, without notice, in addition to such other
rights and remedies that it may have, to remove or tow away the vehicle involved
and charge the cost to Tenant, which cost shall be immediately payable upon
demand by Landlord.
(b) Subject to subparagraphs (c) and (d) below and the remaining
provisions of this Lease, Tenant shall have the nonexclusive right, in common
with others, to the use of such entrances, lobbies, restrooms, elevators, ramps,
drives, stairs, and similar access ways and service ways and other common areas
and facilities in and adjacent to the Building and the Project as are designated
from time to time by Landlord for the general nonexclusive use of Landlord,
Tenant and the other tenants of the Project and their respective employees,
agents, representatives, licensees and invitees ("COMMON AREAS"). The use of
such Common Areas shall be subject to the rules and regulations contained herein
and the provisions of any covenants, conditions and restrictions affecting the
Project. Landlord reserves the right to make such changes, alterations,
additions, deletions, improvements, repairs or replacements in or to the
Building, the Project (including the Premises) and the Common Areas as Landlord
may deem necessary or desirable, including, without
<PAGE>
limitation, constructing new buildings and making changes in the location, size,
shape and number of driveways, entrances, parking spaces, parking areas, loading
areas, landscaped areas and walkways; provided, however, that there shall be no
unreasonable permanent obstruction of access to or use of the Premises resulting
therefrom. In the event that the Building or the Project is not completed on the
date of execution of this Lease, Landlord shall have the sole judgment and
discretion to determine the architecture, design, appearance, construction,
workmanship, materials and equipment with respect to construction of the
Building and the Project. Notwithstanding any provision of this Lease to the
contrary, the Common Areas shall not in any event be deemed to be a portion of
or included within the Premises leased to Tenant and the Premises shall not be
deemed to be a portion of the Common Areas.
(c) Landlord reserves the right (i) to change the configuration, size
and dimensions of the Project and its Common Areas, (ii) to add or sever from
its ownership any portion of the Project at any time, and (iii) to exclude from
the rights of use granted to Tenant any rights of passage over or use of any
portion of the Project; provided, however, Landlord shall not unreasonably
interfere with access to or use of the Premises.
19. MISCELLANEOUS
(a) Attorneys' Fees. In the event of any legal action or proceeding
---------------
brought by either party against the other arising out of this Lease, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
costs incurred in such action. Such amounts shall be included in any judgment
rendered in any such action or proceeding.
(b) Waiver. No waiver by Landlord of any provision of this Lease or of
------
any breach by Tenant hereunder shall be deemed to be a waiver of any other
provision hereof, or of any subseqsequent breach by Tenant. Landlord's consent
to or approval of any act by Tenant requiring Landlord's consent or approval
under this Lease shall not be deemed to render unnecessary the obtaining of
Landlord's consent to or approval of any subsequent act of Tenant. No act or
thing done by Landlord or Landlord's agents during the term of this Lease shall
be deemed an acceptance of a surrender of the Premises, unless in writing signed
by Landlord. The delivery of the keys to any employee or agent of Landlord shall
not operate as a termination of the Lease or a surrender of the Premises. The
acceptance of any Rent by Landlord following a breach of this Lease by Tenant
shall not constitute a waiver by Landlord of such breach or any other breach
unless such waiver is expressly stated in a writing signed by Landlord.
(c) Notices. All notices which Landlord or Tenant may be required, or
-------
may desire, to serve on the other must be in writing and may be served by
personal service, or as an alternative to personal service, by mailing the same
by registered or certified mail, postage prepaid, addressed as set forth in Item
14 of the Basic Lease Provisions, or addressed to such other address or
addresses as either Landlord or Tenant may from time to time designate to the
other in writing. However, any notice (including a summons and complaint) which
Landlord may be required or may desire to serve on Tenant shall be deemed
sufficiently served and given if personally served or sent by registered or
certified mail, postage prepaid, to Tenant at the Premises address set forth in
Item 14 of the Basic Lease Provisions. In addition, any bill, statement, consent
or other communication which Landlord may desire or is required to give to
Tenant shall be deemed sufficiently given or rendered if in writing, hand
delivered to the Premises or sent to Tenant at the Premises by registered or
certified mail, postage prepaid.
<PAGE>
(d) Labor. Tenant shall not at any time prior to or during the term
-----
hereof, either directly or indirectly, use any contractors, labor or materials
whose use would create any difficulty with other contractors or labor engaged by
Tenant, Landlord or by others in the construction, maintenance or operation of
the Premises, the Building or the Project.
(e) Security. Landlord shall be the sole determinant of the type and
--------
amount of security services to be provided to the Project, if any. In all
events, Landlord shall not be liable to Tenant, and Tenant hereby waives any
claim against Landlord, for, and expressly assumes the risk of (i) any
unauthorized or criminal entry of third parties into the Premises, the Building
or the Project, (ii) any damage to persons, or (iii) any loss of property in and
about the Premises, the Building or the Project, by or from any unauthorized or
criminal acts of third parties, regardless of any action, inaction, failure,
breakdown, malfunction and/or insufficiency of the security services provided by
Landlord or any actual or alleged passive or active negligence of Landlord.
(f) Storage. Any storage space at any time demised to Tenant hereunder
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shall be used exclusively for storage. Notwithstanding any other provision of
this Lease to the contrary, (i) Landlord shall have no obligation to provide
heating, cleaning, water or air conditioning therefor, and (ii) Landlord shall
be obligated to provide to such storage space only such electricity as will, in
Landlord's judgment, be adequate to light said space as storage space.
(g) Holding Over. Tenant shall have no right to holdover or retain
------------
possession of any portion of the Premises after the expiration or sooner
termination of this Lease. If Tenant holds over after the expiration or earlier
termination of the term hereof, with or without the express or implied consent
of Landlord, Tenant shall become and be only a month to month tenant at a Rent
equal to the greater of (i) the then prevailing market rate as determined by
Landlord in its sole and absolute discretion (subject to adjustments as provided
in Paragraphs 2 and 3 hereof and prorated on a daily basis) or (ii) 125% of the
Basic Annual Rent payable by Tenant immediately prior to such expiration or
termination, and otherwise upon the terms, covenants and conditions herein
specified, so far as applicable. Neither any provision hereof nor acceptance by
Landlord of Rent after such expiration or earlier termination shall be deemed a
consent to a holdover hereunder or result in a renewal of this Lease or an
extension of the term. Notwithstanding any provision to the contrary contained
herein, (i) Landlord expressly reserves the right to require Tenant to surrender
possession of the Premises upon the expiration of the term of this Lease or upon
the earlier termination hereof, the right to reenter the Premises, and the right
to assert any remedy at law or in equity to evict Tenant and/or collect damages
in connection with any such holding over, and (ii) Tenant shall indemnify,
defend and hold Landlord harmless from and against any and all claims, demands,
actions, losses, damages, obligations, costs and expenses, including, without
limitation, attorneys' fees incurred or suffered by Landlord by reason of
Tenant's failure to surrender the Premises on the expiration or earlier
termination of this Lease in accordance with the provisions of this Lease.
(h) Condition of Premises. Tenant acknowledges that neither Landlord
---------------------
nor any agent of Landlord has made any representation or warranty with respect
to the Premises, the Building or the Project, or with respect to the suitability
of any part of the Project for the conduct of Tenant's business. Tenant agrees
that the Premises, the Building and the Project are in good and sanitary order,
condition and repair without defect.
(i) Quiet Possession. Upon Tenant's paying the Rent reserved hereunder
----------------
and observing and performing all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the term
<PAGE>
hereof without hindrance or ejection by any person lawfully claiming under
Landlord, subject to the provisions of this Lease and to the provisions of any
(i) covenants, conditions and restrictions, (ii) master lease, or (iii) deed of
trust to which this Lease is subordinate or may be subordinated.
(j) Matters of Record. Except as otherwise provided herein, this Lease
-----------------
and Tenant's rights hereunder are subject and subordinate to all matters
affecting Landlord's title to the Project recorded in the official records of
the County in which the Project is located prior to and subsequent to the date
hereof, including, without limitation, all covenants, conditions and
restrictions and the provisions of all loan documents relating to each loan
secured by a mortgage or deed of trust encumbering the Project. Tenant agrees
for itself and all persons in possession or holding under it that it will comply
with and not violate any such covenants, conditions and restrictions, loan
documents, or other matters of record. Landlord reserves the right, from time to
time, to grant such easements, rights and dedications as Landlord deems
necessary or desirable, and to cause the recordation of parcel maps and
covenants, conditions and restrictions affecting the Premises, the Building or
the Project, as long as such easements, rights, dedications, maps, and
covenants, conditions and restrictions do not materially interfere with the use
of the Premises by Tenant. At Landlord's request, Tenant shall join in the
execution of any of the aforementioned documents.
(k) Project Financing. Tenant acknowledges that as a material
-----------------
inducement to Landlord to execute this Lease, (i) Tenant shall timely
acknowledge and deliver to Landlord all such documents and instruments as may be
customarily required by any lender providing financing to Landlord from time to
time during the term hereof, including, without limitation, those documents and
instruments which may be required under Paragraph 16 and (ii) if any prospective
lender to Landlord shall request or require in connection with the placement of
any financing to Landlord or pursuant to the provisions of any Security Document
any modification of this Lease Tenant shall not delay or withhold its agreement
to such proposed modification provided the same shall not modify the Basic
Annual Rent payable hereunder nor materially and adversely affect the
obligations of Tenant hereunder. Tenant shall be responsible for any and all
liability, loss, cost, damage and expense, including, without limitation,
attorneys' fees, which Landlord shall incur in connection with Tenant's
failure or delay in executing, acknowledging and delivering such documents and
instruments or Tenant's breach of any other covenant or agreement embodied in
this Lease that results in the delay, impairment or cancellation of such
financing.
(l) Successors and Assigns. Except as otherwise provided in this
----------------------
Lease, all of the covenants, conditions and provisions of this Lease shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns. Tenant shall
attorn to each purchaser, successor or assignee of Landlord.
(m) Brokers. Tenant warrants that it has had no dealings with any real
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estate broker or agent in connection with the negotiation of this Lease,
excepting only the broker named in Item 11 of the Basic Lease Provisions and
that it knows of no other real estate broker or agent who is or might be
entitled to a commission in connection with this Lease. Landlord covenants and
agrees to pay all real estate commissions due in connection with this Lease to
the broker described in Item 11 of the Basic Lease Provisions.
(n) Name. Tenant shall not, without the prior written consent of
----
Landlord (which consent shall not be unreasonably withheld) use the name,
insignia or logotype of the Building or the Project for any purpose, and in no
event shall Tenant acquire any rights in or to such names. Tenant shall not use
any picture of the Building or of the Project in its advertising, stationery or
in any other
<PAGE>
manner. Landlord expressly reserves the right at any time to change
the name, number, designation or logotype of the Building or the Project or the
exterior or interior signage thereon and therein without the consent of Tenant
without in any manner being liable to Tenant therefor.
(o) Examination of Lease; Confidentiality. Submission of this
-------------------------------------
instrument for examination or signature by Tenant does not constitute a
reservation of or option for lease, and it is not effective as a lease or
otherwise until execution by and delivery to both Landlord and Tenant. Tenant
agrees that (i) the terms and provisions of this Lease are confidential and
constitute proprietary information of Landlord and (ii) it shall not disclose,
and it shall cause its partners, officers, directors, shareholders, employees,
brokers and attorneys to not disclose any term or provision of this Lease to any
other person without first obtaining the prior written consent of Landlord.
(p) Time. Time is of the essence of this Lease and each and all of
----
its provisions.
(q) Defined Terms and Marginal Headings. The words "Landlord" and
-----------------------------------
"Tenant" as used herein shall include the plural as well as the singular. If
more than one person is named as Tenant the obligations of such persons are
joint and several. The marginal headings and titles to the articles of this
Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
(r) Conflict of Laws; Prior Agreements; Separability. This Lease shall
------------------------------------------------
be governed by and construed pursuant to the laws of the State of California.
This Lease contains all of the agreements of the parties hereto with respect to
any matter covered or mentioned in this Lease. No prior agreement, understanding
or representation pertaining to any such matter shall be effective for any
purpose. No provision of this Lease may be amended or added to except by an
agreement in writing signed by the parties hereto or their respective successors
in interest. The illegality, invalidity or unenforceability of any provision of
this Lease shall in no way impair or invalidate any other provision of this
Lease, and such remaining provisions shall remain in full force and effect.
(s) Authority. If Tenant is a corporation, each individual executing
---------
this Lease on behalf of Tenant hereby covenants and warrants that Tenant is a
duly authorized and existing corporation, that Tenant has and is qualified to do
business in California, that the corporation has full right and authority to
enter into this Lease, and that each person signing on behalf of the corporation
is authorized to do so. If Tenant is a partnership or trust, each individual
executing this Lease on behalf of Tenant hereby covenants and warrants that he
is duly authorized to execute and deliver this Lease on behalf of Tenant in
accordance with the terms of such entity's partnership or trust agreement.
Tenant shall provide Landlord on demand with such evidence of such authority as
Landlord shall reasonably request, including, without limitation, resolutions,
certificates and opinions of counsel.
(t) Common Areas. The rights of Tenant hereunder in and to the Common
------------
Areas shall at all times be nonexclusive with the rights of Landlord and other
tenants of Landlord who use the same in common with Tenant, and it shall be the
duty of Tenant to keep all of the Common Areas free and clear of any
obstructions created or permitted by Tenant or resulting from Tenant's
operations, and to use the Common Areas only for normal activities, parking and
ingress and egress by Tenant and its employees, agents, representatives,
licensees and invitees to and from the Premises, the Building or the Project.
If, in the opinion of Landlord, unauthorized persons are using the Common Areas
by reason of the presence of Tenant in the Premises, Tenant, upon demand of
<PAGE>
Landlord, shall correct such situation by appropriate action or proceedings
against all such unauthorized persons. Nothing herein shall affect the rights of
Landlord at any time to remove any such unauthorized persons from said areas or
to prevent the use of any of said areas by unauthorized persons.
(u) Joint and Several Liability. If two or more individuals,
---------------------------
corporations, partnerships or other business associations (or any combination of
two or more thereof) shall sign this Lease as Tenant, the liability of each such
individual, corporation, partnership or other business association to pay Rent
and perform all other obligations hereunder shall be deemed to be joint and
several, and all notices, payments and agreements given or made by, with or to
any one of such individuals, corporations, partnerships or other business
associations shall be deemed to have been given or made by, with or to all of
them. In like manner, if Tenant shall be a partnership or other business
association, the members of which are, by virtue of statute or federal law,
subject to personal liability, then the liability of each such member shall be
joint and several.
(v) Rental Allocation. For purposes of Section 467 of the Internal
-----------------
Revenue Code of 1986, as amended from time to time, Landlord and Tenant hereby
agree to allocate all Rent to the period in which payment is due, or if later,
the period in which Rent is paid.
(w) Rules and Regulations. Tenant agrees to comply with all rules and
---------------------
regulations of the Building and the Project imposed by Landlord as set forth on
Exhibit "D" attached hereto, as the same may be changed from time to time upon
reasonable notice to Tenant. Landlord shall not be liable to Tenant for the
failure of any other tenant or any of its assignees, subtenants, or their
respective agents, employees, representatives, invitees or licensees to conform
to such rules and regulations.
(x) Financial Statements. Upon Landlord's written request, Tenant
shall promptly furnish, and cause each guarantor of this Lease to furnish,
Landlord from time to time, with financial statements compiled by a certified
public accountant in accordance with generally accepted accounting principles
(without footnotes) certified by an officer of Tenant stating that such
financial statements present fairly Tenant's then current financial condition
and contain no material misstatements or omissions.
(y) Termination. If Landlord decides to alter, demolish or close the
-----------
Project, or any portion thereof, in connection with Landlord's expansion,
reduction, removal, renovation or construction of new or existing improvements
in any portion of the Project, then Landlord may, in its sole discretion,
terminate this Lease, provided Landlord gives Tenant at least one hundred eighty
(180) days' written notice prior to the date that Tenant is required to remove
itself and all personal property from the Premises ("VACATION DATE"). The Lease
shall remain in full force and effect until the Vacation Date. Tenant shall (a)
remove itself and all personal property from the Premises prior to the Vacation
Date, (b) surrender the Premises to Landlord as required in Section 5 (c) of
this Lease, and (c) execute a quitclaim deed prepared by Landlord. If Tenant
performs such terms (a), (b) and (c) by the Vacation Date, Landlord shall pay
Tenant an amount not to exceed the sum of Five Hundred Dollars ($500) toward the
costs of Tenants expenses in connection with or resulting from the termination
of this Lease, such as change of stationary, business cards and advertising.
Landlord shall have no further obligation or responsibility to Tenant.
<PAGE>
FIRST AMENDMENT TO LEASE
------------------------
This FIRST AMENDMENT TO LEASE ("AMENDMENT") is effective as of
December 1, 1997, and is entered into by and between MORENO CORPORATE CENTER,
L.L.C., a Delaware limited liability company ("LANDLORD"), and THE KEITH
COMPANIES, INC., a California corporation ("TENANT").
R E C I T A L S
- - - - - - - -
A. Landlord and Tenant previously entered into that certain Lease
dated January 1, 1996 ("LEASE"), with regard to certain premises referred to as
"Floors 2 and 3" ("EXISTING PREMISES") located on certain property at 22690
Cactus Avenue, Moreno Valley, California and more commonly known as "Moreno
Corporate Center" ("PROPERTY"). All initially capitalized terms used herein and
not otherwise defined herein shall have the meanings ascribed to such terms in
the Lease. All references to "Lease" shall mean the Lease as amended by this
Amendment.
B. Upon the terms and conditions set forth below, Landlord and
Tenant desire to amend the Lease to add to the Premises under the Lease that
certain additional space commonly known as "Suites 117-119" ("ADDITIONAL
PREMISES") located at 14300 Elsworth Street, Moreno Valley, California. The
Additional Premises contain approximately 3,279 square feet. The Additional
Premises and the Existing Premises are sometimes collectively hereinafter
referred to as the "TOTAL PREMISES".
In consideration of the facts recited above, the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree
as follows:
1. Additional Premises. In addition to the Existing Premises,
-------------------
Landlord hereby leases to Tenant the Additional Premises as more particularly
described on Exhibit "A" attached hereto, and in accordance with the terms of
------------
this Amendment and the Lease.
2. Additional Premises Term. The Term of the Lease with respect to
------------------------
the Additional Premises shall commence on December 1, 1997 ("ADDITIONAL PREMISES
COMMENCEMENT DATE"), and shall be a periodic month-to-month tenancy ("ADDITIONAL
PREMISES TERM"). The Additional Premises Term may be terminated by Landlord or
Tenant upon thirty (30) days prior written notice to the other. Any termination
of the Additional Premises Term shall not in any way affect the term of the
Lease with respect to the Existing Premises.
3. Rent. The Base Monthly Rent for the Additional Premises shall be
----
$819.75 per month, payable pursuant to the terms and conditions set forth in the
Lease; provided, however, that any provisions in the Lease regarding Abated Rent
shall not affect the amount payable by Tenant hereunder as Base Monthly Rent for
the Additional Premises. Tenant's obligation to pay Base Monthly Rent and any
and all other amounts due under this Amendment and the Lease with respect to the
Additional Premises shall commence on the Additional Premises Commencement Date.
Such Base Monthly Rent for the initial month of the Additional Premises Term
shall be prorated as of the Additional Premises Commencement Date. In addition
to Base Monthly Rent, Tenant shall be required to pay, with respect to the
Additional Premises, any and all other sums, money or charges of whatsoever
nature required to be paid under the Lease. Notwithstanding the foregoing,
Tenant shall have no obligation to pay additional rent with respect to the
Additional Premises which is attributable to Landlord's operating expenses or
common area maintenance charges for the Property.
<PAGE>
4. Additional Security Deposit. Concurrently with the execution of
---------------------------
this Amendment by Tenant, Tenant shall deliver to Landlord the sum of $819.75 as
an additional security deposit which shall be held by Landlord in accordance
with and subject to any and all terms of the Lease relating to security
deposits.
5. Condition of Additional Premises. Tenant hereby accepts the
--------------------------------
Additional Premises in its current " AS-IS " condition. Tenant acknowledges and
agrees that Landlord shall not be obligated to make any improvements to the
Additional Premises, that Landlord has not made any representations or
warranties as to the Additional Premises and that after the Additional Premises
Commencement Date, Tenant shall make all improvements to the Additional Premises
thereafter required by applicable law.
6. Use. Item No. 12 of the Basic Lease Provisions is hereby amended
---
to provide that Tenant shall use the Additional Premises for storage and
warehouse purposes only. The use by Tenant of the Total Premises, including the
Additional Premises, shall be in accordance with Item No. 12 of the Basic Lease
Provisions, as amended above, and any and all additional use provisions
contained in the Lease.
7. Waiver and Release. Tenant hereby expressly waives, and releases
------------------
Landlord from, any and all claims, obligations, liabilities, acts, omissions,
causes of action, damages, costs, losses and expenses, whether now existing or
hereafter arising, known or unknown, which arise out of, are connected with or
relate to any acts, omissions, events, or circumstances arising prior to the
date of execution of this Amendment.
Tenant hereby agrees, represents and warrants that the matters
released herein are not limited to matters that are known or disclosed, and
Tenant hereby waives any and all rights and benefits that it now has, or in the
future may have, conferred upon it by virtue of the provisions of Section 1542
of the Civil Code of the State of California, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
Tenant hereby agrees, represents and warrants that it realizes and
acknowledges that factual matters now unknown to it may have given or may
hereafter give rise to causes of action, claims, demands, debts, controversies,
damages, costs, losses and expenses that are presently unknown, unanticipated
and unsuspected, and it further agrees, represents and warrants that the release
set forth above has been negotiated and agreed upon in light of that realization
and that it nevertheless hereby intends to release, discharge and acquit the
parties set forth hereinabove from any such unknown causes of action, claims,
damages, costs, losses and expenses that are in any way related to the matters
referred to hereinabove.
8. Effect of Amendment of Lease. Except to the extent the Lease is
----------------------------
modified by this Amendment, the terms and provisions of the Lease shall remain
unmodified and in full force and effect.
9. Construction. In the event of a conflict between the terms of
------------
the Lease and the terms of this Amendment, the terms of this Amendment shall
govern and prevail. The language of this
<PAGE>
Amendment shall not be construed against any party since all parties have
participated in the negotiation and drafting of this Amendment.
10. Governing Law. This Amendment shall be construed in accordance
-------------
with and governed by the laws of the State of California.
11. Successors and Assigns. Subject to the provisions of the Lease
----------------------
relating to assignment, mortgaging, pledging and subletting, the Lease, as
amended by this Amendment, shall bind the heirs, executors, administrators,
successors and assigns of any and all of the parties hereto.
12. Attorneys' Fees. If either party commences an action or
---------------
proceeding to enforce or interpret this Amendment, the prevailing party (as
determined by the trier of fact and confirmed on appeal, if any) shall be
entitled to collect its attorneys' fees and costs incurred in connection with
such action or proceeding (including any appeals) from the other party, and the
prevailing party's rights and the other party's obligations hereunder shall be
severable from, and shall survive and not merge into, any judgment.
13. Brokerage Commission. Tenant has incurred no liability for any
--------------------
brokerage commission or finder's fee arising from or relating to the
transactions contemplated by this Amendment or the Lease. Tenant hereby
indemnifies and agrees to protect, defend and hold harmless Landlord from and
against all liability, cost, damage or expense (including, without limitation,
attorneys' fees and costs incurred in connection therewith) on account of any
brokerage commission or finder's fee in connection with this transaction. This
indemnification is intended to be solely for the benefit of Landlord and its
successors and assigns and is not intended to benefit, nor may it be relied upon
by, any other person or entity.
14. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall be an original, but all of which shall
constitute one and the same instrument.
15. Entire Agreement. This Amendment constitutes the entire
----------------
agreement of Landlord and Tenant with respect to the specific subject matter
hereof.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of
the date and year first written above.
"LANDLORD":
MORENO CORPORATE CENTER, L.L.C.,
a Delaware limited liability company
By: TCW Asset Management Company,
a California corporation
Its Manager
By: /s/ RUSSEL S. BERNARD
Name: RUSSEL S. BERNARD
Its: AUTHORIZED SIGNATORY
By: /s/ KENNETH LIANG
Its: Authorized Signatory
"TENANT":
THE KEITH COMPANIES, INC.
a California corporation
By: /s/ Jerry Brickman
Jerry Brickman
Its: Chief Operating Officer
4
<PAGE>
EXHIBIT 10.13
AGREEMENT REGARDING LEASE
AND ASSIGNMENT OF LEASES AND RELEASE
THIS AGREEMENT REGARDING LEASE AND ASSIGNMENT OF LEASES AND RELEASE
("AGREEMENT") is made and entered into as of the 1st day of January, 1996, by
and between Moreno Corporate Center, L.L.C., a Delaware limited liability
company ("LANDLORD"), and The Keith Companies, Inc., a California corporation
("TENANT"), formerly known as The Keith Companies - Inland Empire, Inc., a
California corporation ("ORIGINAL TENANT"), with regard to the premises located
at 22690 Cactus Avenue, Floors 2 and 3, Moreno Valley, California, with respect
to that certain written lease dated April 26, 1990 ("ORIGINAL LEASE") between
Koll Moreno Partners, a California limited partnership ("ORIGINAL LANDLORD"),
and Tenant and the following facts:
RECITALS
A. Under the terms of the Original Lease, Original Landlord leased to
Original Tenant the real property located in the City of Moreno Valley, County
of Riverside, State of California more particularly described as 22690 Cactus
Avenue, a portion of floor 1 and floors 2 and 3, Moreno Valley, California
("ORIGINAL PREMISES"). The Original Lease was modified pursuant to that certain
Assignment and Assumption dated May 31, 1990, First Amendment to Lease dated
August 14, 1991, Second Amendment to Lease dated September 23, 1991, Third
Amendment to Lease executed in January, 1992, Fourth Amendment to Lease dated
June 30, 1992, Fifth Amendment to Lease dated June 25, 1993, Sixth Amendment to
Lease dated December 1, 1993, Seventh Amendment to Lease dated March 31, 1994
and Agreement dated November 9, 1994. The Original Lease, as so modified, is
hereinafter referred to as the "AMENDED LEASE."
B. Prior to the date hereof, Landlord acquired the interest of
Original Landlord in the Original Premises, including, without limitation, any
and all rights of the landlord/lessor under the Amended Lease.
C. Original Tenant and MMC - West Insurance Services, Inc., a
California corporation ("MMC"), entered into that certain sublease dated
September 22, 1994, as amended by that certain First Amendment to Sublease dated
November 23, 1994 (as amended, "MMC SUBLEASE"), wherein Original Tenant
subleased to MMC a portion of the original Premises located more particularly at
22690 Cactus Avenue, Suite 150, Moreno Valley, California ("MMC PREMISES").
Tenant now desires to reconvey its leasehold interest in the MMC Premises to
Landlord. A copy of the MMC Sublease is attached hereto as EXHIBIT "A."
D. Tenant and Associated Construction Services, Inc. dba Aggregate
Consulting Services ("ACS") entered into that certain sublease dated August 28,
1995, as may have been amended from time to time (as amended, "ACS SUBLEASE"),
wherein Tenant subleased to ACS a portion of the Original Premises located more
particularly at 22690 Cactus Avenue, Suite 155, Moreno Valley, California ("ACS
PREMISES"). Tenant now desires to reconvey its leasehold interest in the ACS
Premises to Landlord. Landlord and ACS have prior to the date of this Agreement
executed a new Lease for the ACS Premises ("ACS LEASE"). The
<PAGE>
Original Premises, less the MMC Premises and the ACS Premises, is hereinafter
referred to as the "PREMISES".
E. Tenant is in arrears and delinquent under the Amended Lease in
rent and other charges payable to Landlord.
F. The parties desire to terminate the Amended Lease, subject to
Paragraph 4A below, and assign to Landlord all Tenant's interest in the MMC
Sublease and release Aram Keith from its obligations under the Personal Guaranty
(defined below).
NOW, THEREFORE, for and in consideration of the foregoing Recitals and
the mutual covenants and agreements set forth below, Landlord and Tenant hereby
agree as follows:
1. RECONVEYANCE. Tenant hereby reconveys its leasehold interest in the MMC
Premises and the ACS Premises to Landlord. Landlord and Tenant hereby
acknowledge and agree that, as of the date of this Lease, Tenant shall have no
further rights with regard to the MMC Premises and/or the ACS Premises,
including, without limitation, any rights to possession, quiet enjoyment,
collect rents from any tenant or subtenant thereon or receive any credits with
respect to the MMC Premises or ACS Premises. In addition, Tenant hereby
quitclaims to Landlord any right, title or interest Tenant may have in any
portion of the original Premises leased by the United States of America, General
Services Administration ("DOT"), and United States of America, General Services
administration ("FHA") and their respective leases and leasehold estates.
2. ASSIGNMENT. Tenant hereby assigns, grants, transfers and conveys to
Landlord all of Tenant's right, title and interest existing or arising in and to
the MMC Sublease, and Tenant hereby gives to, confers upon and assigns to
Landlord the right to collect all income, rents, issues, profits and proceeds
from the MMC Sublease. Tenant shall remain solely liable under the MMC Sublease
arising thereunder prior to the date of this Agreement. Tenant reserves the
right of indemnification against MMC or ACS as set forth in the MMC Sublease,
the ACS Sublease or as otherwise permitted by law on account of any claims,
liabilities or losses Tenant may suffer which were caused in whole or in part by
MMC or ACS. Except as hereinafter provided, Landlord agrees to assume the
obligations of Tenant under the MMC Sublease to the extent such obligations
first arise following the date of this Agreement, and are not the result of or
any continuation of any failure of performance an the part of Tenant prior to
the date of this Assignment. Further, Landlord is not assuming, and Tenant shall
remain obligated and responsible for, any obligation of Tenant under or with
respect to the MMC Sublease to the extent the substance of Tenant's
representations below are incorrect (disregarding any limitation of such
representations being to Tenant's actual knowledge). Tenant shall at its expense
defend, indemnify, and hold Landlord harmless from and against any and all
claims arising out of or in connection with the MMC Sublease that relate to the
period prior to the date of this Assignment, or any activity, work or things
done, permitted or allowed by Tenant in or about any of the MMC Premises prior
to the date of this Assignment. Landlord shall at its expense defend, indemnify,
and hold Tenant harmless from and against any and all claims arising out of or
in connection with the MMC Sublease that relate to the period from and after the
date of this Assignment, or any activity, work or things done, permitted or
allowed by Landlord in or about any of the MMC Premises from and after the date
of this Assignment, except as provided below, and are not the result of or any
continuation of any failure of performance on the part of Tenant prior to the
date of this Assignment. Notwithstanding any of the foregoing, except to the
extent provided in
<PAGE>
Paragraph 3 below, nothing herein is requiring that Landlord or Tenant be
obligated to the other for the return of any security deposit to ACS or MMC. In
addition, the parties acknowledge that Landlord is not taking an assignment of,
nor assuming any obligation of Tenant under, the ACS Sublease (except to the
extent provided in Paragraph 3 below) because Landlord and ACS have executed the
ACS Lease with respect to the ACS Premises.
3. SECURITY DEPOSITS. Upon execution of this Agreement, Tenant shall
deliver to Landlord in immediately available federal funds the sum of (i) One
Thousand Five Hundred Seventy-four Dollars ($1,574.00) previously delivered to
Tenant from ACS as security for ACS's faithful performance of ACS's obligations
under the ACS Sublease ("ACS SECURITY DEPOSIT") and (ii) Four Thousand Seven
Hundred Twenty-two Dollars ($4,722.00) previously delivered to Tenant from ACS
as Minimum Rent (as such term is defined under the ACS Sublease) under the ACS
Sublease for the months of January, February and March, 1996. If Tenant has
delivered the ACS Security Deposit to Landlord, Landlord shall be responsible
for returning the ACS Security Deposit to ACS when due by applicable law. Tenant
represents that Tenant had previously delivered to the Original Landlord the sum
of Six Thousand Nine Hundred Eight Dollars ($6,908.00) as security for MMC's
faithful performance of MMC's obligations under the MMC Sublease.
4. REPRESENTATIONS AND WARRANTIES. Tenant hereby represents and warrants
------------------------------
to Landlord that to Tenant's actual knowledge: (a) except for the Subleases and
executive suites currently being leased by Tenant, and any leasehold transfers
made by Tenant to facilitate the leases to DOT and FHA, Tenant has not
transferred, assigned or sublet its interest in or to the Original Premises, nor
has Tenant assigned or otherwise transferred its interest in any of the
Subleases or the right to any rent, profit, income, charges, fees or
reimbursements thereunder or in any deposits; (b) the documents attached hereto
and incorporated herein by this reference represent the MMC Sublease, and there
are no further amendments, modifications or supplements to the MMC Sublease; (c)
and no rent or other charge under the MMC Sublease has been paid for more than
thirty (30) days in advance of its due date; (d) any all work required to be
performed by Tenant under the MMC Sublease has been completed; (e) there are no
defaults on the part of Tenant or MMC under the MMC Sublease; (f) MMC has no
defense to its obligations under the MMC Sublease, and there are no rights or
claims of offset, deduction or rent abatement; and (g) MMC has not delivered to
Tenant any promissory notes, letters of credit or the like in connection with
the MMC Sublease.
5. RELEASES.
A. Tenant and Landlord hereby acknowledge and agree that Tenant has
been leasing the Original Premises (subject to occupancy and rights of MMC and
ACS under their respective subleases) pursuant to the terms of the Amended
Lease, which Amended Lease is hereby terminated and of no further force or
effect. Accordingly, notwithstanding the termination of the Amended Lease and
the release of Tenant's obligations thereunder as provided in this Paragraph,
with respect to matters arising and accruing prior to January 1, 1996, except to
the extent that Landlord is proven negligent, Tenant shall indemnify, defend and
hold Landlord harmless from all claims, damages, liabilities, costs and expenses
(including reasonable attorneys' fees) arising (a) from Tenant's use of the
Original Premises or the conduct of its business or from any activity, work or
thing done, permitted or suffered by Tenant or its agents, employees,
contractors or invitees (including without limitation, any subtenants of
Tenant), in or about the Original Premises, the Building or the Common Areas, or
(b) from any breach or
<PAGE>
default in the performance of any obligation to be performed by Tenant under the
terms of the Amended Lease or arising from any act, neglect, fault or omission
of Tenant or of its agents, employees, contractors or invitees in or about the
Original Premises, the Building or the Common Areas; provided, however, that
Landlord hereby acknowledges and agrees that Tenant is released with respect to
the payment of basic rent, operating expenses or any other periodic payment
obligation of Tenant under the Amended Lease (collectively, "Rent Payments").
B. Landlord on behalf of itself and its employees, officers,
directors, shareholders, representatives, agents, servants, attorneys,
affiliates, parents, subsidiaries, successors, predecessors (to the extent
allowable by law) and assigns, and all persons, firms, corporations and
organizations in its behalf (collectively, "Releasing Parties") hereby agrees
that certain Personal Guaranty of Lease date April 26, 1990 ("Personal
Guaranty"), in favor of Koll Moreno Partners is hereby terminated, and Releasing
Parties hereby waive their rights to recover from and fully irrevocably release
(i) Aram H. Keith from its obligations arising out of the Personal Guaranty and
(ii) Tenant with respect to the Rent Payments. This release includes, without
limitation, claims of which the Releasing Parties are presently unaware or which
the Releasing Parties do not presently suspect to exist which, if known by the
Releasing Parties, would materially affect the Releasing Parties' release of
Aram H. Keith and Tenant with respect to the Rent Payments. The Releasing
Parties specifically waive the provision of California Civil Code Section 1542,
which provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED THE SETTLEMENT WITH THE
DEBTOR."
In this connection and to the extent permitted by law, each of the
Releasing Parties hereby agrees, represents and warrants that it realizes and
acknowledges that factual matters now unknown to it may have given or may
hereafter give rise to causes of action, claims, demands, debts, controversies,
damages, costs, losses and expenses which are presently unknown, unanticipated
and unsuspected, and each of the Releasing Parties further agrees, represents
and warrants that the waivers and releases herein have been negotiated and
agreed upon in light of that realization and that it nevertheless hereby intends
to release, discharge and acquit (i) Aram H. Keith from its obligations arising
out of the Personal Guaranty, and (ii) Tenant with respect to the Rent Payments,
from any such unknown causes of action, claims, demands, debts, controversies,
damages, costs, losses and expenses. Nothing herein is intended to release Aram
H. Keith from its obligations under the promissory note described below.
6. NOTE. Concurrently herewith, Tenant shall deliver to Landlord a
promissory note in the form and substance of EXHIBIT "B" attached hereto and
incorporated herein by this reference.
7. ATTORNEYS' FEES. In the event of any legal action or proceeding brought
by either party against the other arising out of this Agreement, the prevailing
party shall be entitled to recover reasonable attorneys' fees and costs incurred
in such action. Such amounts shall be included in any judgment rendered in any
such action or proceeding.
<PAGE>
8. BENEFICIARY. Only the parties hereto, and their successors and
assigns, are intended to benefit from this Agreement, and there are no third
party beneficiaries to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
"Landlord"
Moreno Corporate Center, L.,L.C.,
a Delaware limited liability company
By: TCW Asset Management Company,
a California corporation, its manager
By: /s/ RUSSEL S. BERNARD
Its:
By: (signature illegible)
Its:
"Tenant"
The Keith Companies, Inc.
a California corporation
By: /s/ ARAM H. KEITH
Its: President
By: /s/ FLOYD S. REID
Its: Secretary
<PAGE>
EXHIBIT 10.14
WALTER W. CRUTTENDEN, III
- --------------------------------------------------------------------------------
18301 Von Karman, Suite 100 Phone: (714) 757-5700
Irvine, California 92612 Fax: (714) 852-9603
- --------------------------------------------------------------------------------
April 10, 1997
The Keith Companies, Inc. Keith International, Inc.
Attn: Aram Keith Attn: Aram Keith
2955 Redhill, Suite 201 2955 Redhill, Suite 201
Costa Mesa, CA 92626 Costa Mesa, CA 92626
Keith Engineering, Inc. Aram Keith
Attn: Aram Keith 2955 Redhill, Suite 201
2955 Redhill, Suite 201 Costa Mesa, CA 92626
Costa Mesa, CA 92626
Re: Agreement for Advisory Services
Dear Aram:
I am pleased to have the opportunity to consult with The Keith Companies, Inc.,
Keith International, Inc. and Keith Engineering, Inc. (individually, a "Company"
and collectively, the "Companies") and Aram Keith ("Keith") to assist the
Companies in their strategic planning. This letter is to confirm our
understanding as to our relationship.
1.0 Services. During the term of this Agreement for Advisory Services
---------
("Agreement"), I will provide the Companies advice concerning each Company's
strategic planning and make myself available to the Companies for periodic Board
of Director or other meetings. I (or a designee selected by me, initially Jim
Gregory) will also serve as a Director of each of the Companies.
2.0 Term. The term of this Agreement shall be for a period of one (1) year
-----
commencing as of the date of this letter, which term may be extended for an
additional one (1) year at my option. I may terminate this Agreement immediately
upon the occurrence of an Event of Default as provided in that certain Secured
Promissory Note Line of Credit of even date herewith (the "Note") which is not
corrected during the cure periods set forth therein, or any breach or violation
of this Agreement which remains uncured five (5) days after delivery of written
notice by me to you at the above address.
3.0 Fees. In consideration for this Agreement, the Companies shall pay me
-----
Twenty-Five Hundred Dollars ($2,500.00) per calendar quarter or portion thereof,
due at the commencement of each such quarter (January 1, April 1, July 1,
October 1), during the term of this agreement, starting with the payment due
July 1, 1997.
<PAGE>
4.0 Stock Options.
--------------
4.1 Options. Each Company and Affiliate (as defined in Section 4.6
--------
hereof) hereby grants me an option, exercisable upon my written notice from the
date hereof until April 10, 2003, to purchase seven percent (7%) of the
Companies and Affiliate's currently outstanding common stock (calculated after
the option purchase) for total consideration of Sixty Thousand Dollars
($60,000). If the amount of the "Third Advance" under the Note is made to the
Companies, the option shall be increased to ten percent (10%) of the Companies'
and Affiliate's currently outstanding stock (calculated after the option
purchase) for an additional total consideration of $28,000. In consideration for
the option quoted in this Section 4.1, I will pay the Company Ten Thousand
Dollars ($10,000), payable on or before December 31, 1997, as option
consideration, which sum shall not be applied against the exercise price of the
options granted herein.
4.2 Equitable Adjustment. If any Company's or Affiliate's issued and
--------------------
outstanding capital stock is modified or increased due to a stock split, stock
dividend, reorganization, recapitalization, issuance of additional shares for
less than full and adequate consideration or other event (but excluding stock
issuances pursuant to the exercise of employee stock options granted to any
Company employee other than Aram Keith or Floyd Reid), the shares subject to
each option hereunder shall be equitably adjusted so as to maintain the same
ownership of the Companies and Affiliate's outstanding stock as if I had fully
exercised my options prior to any of the events listed in this Section 4.2.
4.3 Dilution; Exercise Price Adjustment. For purposes of determining the
------------------------------------
number of shares and exercise price under the option granted hereunder, all
shares of each Company's and any Affiliate's capital stock which are issuable
upon the exercise of any outstanding option, warrants or other rights in favor
of any third party or upon the conversion of any convertible indebtedness of
such entity shall be deemed to be outstanding as if such option, warrant and
right has been exercised or such indebtedness converted. However, such
adjustment shall not be made with respect to i) employee stock purchases or
stock options granted to any Company employee other than Aram Keith or Floyd
Reid, or ii) any stock issued in any acquisition by any Company or Affiliate of
other businesses if such acquisitions are undertaken in good faith and reflect
arm's-length terms. If, under applicable law, the exercise price stated in
Section 4.1 is insufficient to serve as adequate consideration for the issuance
of stock subject to the related option, the exercise price shall be deemed to be
increased to the minimum amount necessary to serve as such consideration.
4.4 Exercise Provisions. The options provided for herein as to each
--------------------
Company's and Affiliate's capital stock may be exercised independently from each
other and may be exercised in full or in part. In the event of any partial
exercise, the exercise price shall be proportionately adjusted.
4.5 S Corporations. During such period that any of the Companies or
---------------
Affiliates are an "S Corporation" for Federal or state income tax purposes, and
I am a stockholder of such entity, such entity shall distribute to its
shareholders a minimum of fifty percent (50%) of each shareholders pro rata
share of taxable income. Such distributions shall be made by April 10 of the
first year following the date hereof in which there is taxable income, and
thereafter on a quarterly basis.
4.6 Affiliates. The option shall apply to any corporation or entity which
-----------
is controlled by, or under common control of any of the Companies and which is
engaged in the business of civil engineering and related services, and/or the
operations of which were reflected in those financial projections included as an
exhibit to the Note (collectively, "Affiliate").
<PAGE>
4.7 Repurchase Rights. At any time prior to my exercise of the options,
------------------
the Companies (if then legally permitted to do so under applicable law) or Aram
Keith and Floyd Reid (in proportion to their then existing ownership of the
Companies) may repurchase the entire option from me for Six Hundred Thousand
Dollars ($600,000) cash (Eight Hundred Eighty Thousand Dollars ($880,000) if the
option increases to ten percent (10%) due to the Third Advance as provided in
Section 4.1). To exercise such rights, the Companies and/or Aram Keith and Floyd
Reid, as the case may be, shall deliver written notice to me of their intent to
repurchase the options no earlier than ten (10) business days from the date on
which notice is actually delivered to me to repurchase the options. At any time
prior to the period set forth in such written notice, I may exercise any or all
of the options upon the terms set forth herein, and upon such exercise, the
repurchase rights set forth in this Section 4.7 shall terminate and be of no
further force and effect. Further, the repurchase rights quoted herein shall
automatically expire upon any acquisition set forth in Section 4.8(ii) below.
4.8 Right of First Refusal on Exercise. If I exercise my options, I agree
-----------------------------------
that all of the shares which I purchase pursuant to said exercise shall be
subject to a right of first refusal in favor of the Companies, Aram Keith,
and/or Floyd Reid. If I wish to sell any of such shares, I shall provide you
with written notice of the proposed purchaser (whose identity you agree to keep
completely confidential), the purchase price and terms, and the closing date of
any proposed sale. You will have ten (10) business days following delivery of
this written notice to satisfy all terms and conditions of the proposed sale. If
you do not do so, any rights of first refusal with respect to the sale described
in the written notice shall automatically terminate and be of no further force
or effect, and I shall be free to complete the sale to the purchaser set forth
in the notice on the terms and conditions set forth therein. I will be entitled
to make such sale at any time within sixty (60) days of the expiration of the
ten (10) business day notice period set forth above. If I do not complete the
sale within that period, any further transaction affecting such shares must
again comply with the notice requirements set forth in this Section 4.8. The
right of first refusal shall not apply to any transfers (whether or not made for
consideration) to (i) any members of my family, or trusts for their benefit or
(ii) transfers to any entities which I control, specifically including
Cruttenden Roth. Further, this right of first refusal shall expire upon the
earlier of any public offering of the Companies' stock, upon the acquisition of
more than fifty percent (50%) of any of the Companies' or Affiliate's stock by
any unrelated third parties, whether in a single transaction or otherwise, or
upon the sale of more than fifty percent (50%) of any of the Companies' or
Affiliate's assets to any unrelated third parties, whether in a single
transaction or otherwise.
4.9 Agreement to Cooperate. Each of Company, Affiliate, Keith, and Floyd
-----------------------
Reid agree to cooperate in any action reasonably requested by me to give effect
to the options granted herein, including but not limited to documenting the
options granted hereunder in a separate document, and making any necessary
amendments to any of the Company's or Affiliate's Articles of Incorporation,
Bylaws, or any shareholders agreement (if applicable) to give effect to the
terms of this Agreement.
5.0 Limitations. This agreement shall not be deemed to obligate me to provide
------------
a certain minimum amount of time or services to the Companies, it being agreed
that the value of my service is not related to such factors.
6.0 No Guaranty. My provision of services to the Companies shall not be in any
------------
way construed to be a guaranty or commitment by myself or Cruttenden Roth as to
the accomplishment of any financial or strategic objectives or goals of any of
the Companies or the consummation of a public offering, merger, private
placement or other capital transaction involving the Companies.
7.0 Separate Engagements. The provision of services to the Companies pursuant
---------------------
to this Agreement shall be performed solely by me (except as otherwise provided
in Section 1.0 with respect to any designee to the
<PAGE>
Companies' Boards of Directors), and shall in no manner be deemed to obligate
Cruttenden Roth or any other investment bank or other financial services firm
with which I am affiliated to provide services to the Companies. Any provision
of services by Cruttenden Roth or such other firms to the Companies shall be the
subject of separate agreements between the Companies and such firms, and the
payment or other consideration for such services provided by such firms shall
not be affected in any manner by the payments or other consideration provided to
me by the Companies under this Agreement.
8.0 Indemnification. The Companies and Keith, jointly and severally, shall
----------------
indemnify, defend and hold me harmless from any and all claims, demands,
liabilities, losses, actions, suits, proceedings, costs or expenses (including,
without limitation, reasonable attorneys fees and costs) (collectively "claims")
asserted against or incurred by me or my affiliates arising out of or relating
to this Agreement, the services provided by me or any other person pursuant to
this Agreement, or the business, operations, financial condition or affairs of
the Companies, other than to the extent such claims directly arise from my
willful misconduct. The indemnification provided for in this Agreement shall be
supplemental and additional to any indemnification available to me under the
Companies' articles of organization or bylaws, other agreements (including,
without limitation, the Note), or applicable law.
9.0 Offerings/Underwritings. If any of the Companies ever elects or desires
------------------------
to undertake a private placement or public offering, it is agreed that
Cruttenden Roth shall have a right of first refusal to serve as the managing
underwriter or agent for the foregoing provided that the terms of such placement
or underwriting are comparable to those offered Companies by other investment
banks and Cruttenden Roth's compensation for such items is no greater.
10.0 Attorneys' Fees. If a lawsuit, arbitration or other proceedings are
----------------
instituted by any party to enforce any of the terms or conditions of this
Agreement against any other parties hereto, the prevailing party in such
litigation, arbitration or proceedings shall be entitled, as an additional item
of damages, to such reasonable attorneys' and other professional fees and costs
(including but not limited to witness fees), court costs, arbitrators' fees,
arbitration administrative fees, travel expenses, and other out-of-pocket
expenses or costs of such other proceedings, as may be fixed by any court of
competent jurisdiction, arbitrator or other judicial or quasi-judicial body
having jurisdiction thereof, whether or not such litigation or proceedings
proceed to a final judgment or award. For the purposes of this section, any
party receiving an arbitration award or a judgment for damages or other amounts
shall be deemed to be the prevailing party, regardless of amount of the damage
awarded or whether the award or judgment was based on all or some of such
party's claims or causes of action.
11.0 Miscellaneous. This Agreement is entered into in the City of Irvine,
--------------
State of California, and shall be governed by the laws of the State of
California. Any action or proceeding pertaining to any dispute arising out of or
relating to this Agreement shall be commenced and prosecuted solely in federal
or state courts of competent jurisdiction located in the County of Orange,
California. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the remainder of
this Agreement or any other provision of this Agreement. This Agreement embodies
the entire agreement and understanding between the parties relating to the
subject matter of this Agreement and neither this Agreement nor any provision of
this Agreement may be amended, waived or discharged, except by an instrument in
writing executed by the party against which enforcement of such amendment,
waiver or discharge is sought. This Agreement may be executed in counterparts
each of which, taken together, shall constitute a complete agreement.
<PAGE>
If the foregoing provisions reflects our agreement with respect to the provision
of my services, kindly execute a counterpart to this Letter Agreement and return
it to the undersigned.
Very truly Yours.
/s/ Walter W. Cruttenden, III
WALTER W. CRUTTENDEN, III
Accepted and agreed to this
10 day of April, 1997:
- --
THE KEITH COMPANIES, INC., a
California corporation
By: /s/ Aram H. Keith Date: /s/ April 10, 1997
Its:
KEITH INTERNATIONAL, INC., a
California corporation
By: /s/ Aram H. Keith Date: /s/ April 10, 1997
Its:
KEITH ENGINEERING, INC.,
a California corporation
By: /s/ Aram H. Keith Date: /s/ April 10, 1997
Its:
/s/ Aram H. Keith
ARAM KEITH, individually
<PAGE>
EXHIBIT 10.15
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT ("Security Agreement") is effective as of April 10,
1997 ("Effective Date"), by and among THE KEITH COMPANIES, INC., a California
corporation, KEITH INTERNATIONAL, INC., a California corporation, and KEITH
ENGINEERING, INC., a California corporation (individually referred to as a
"Debtor" and collectively referred to as "Debtors") and WALTER W. CRUTTENDEN,
III, an individual ("Secured Party"). Debtors and Secured Party are collectively
referred to as the "Parties."
1.0 RECITALS
--------
1.1 Secured Party has agreed to make loans to Debtors from time to
time in accordance with the terms and conditions of the Note.
1.2 Contemporaneous with the execution of this Security Agreement,
Debtors and Keith have executed the Note.
1.3 Debtors have agreed to grant, for the purpose of securing
payments under the Note and the other obligations described herein, a security
interest to the Secured Party in all of the property of Debtors as more fully
described below.
1.4 Secured Party would not have agreed to consider making loans to
Debtors absent the security therefor provided by this Security Agreement.
In consideration for the mutual covenants and agreements contained
herein, and for other good and valuable consideration, the receipt and adequacy
of which is hereby admitted and acknowledged, the Parties agree as follows.
2.0 DEFINITIONS. As used herein, the following capitalized terms shall
-----------
have the following meanings:
2.1 "Code" shall mean the California Commercial Code and to the
----
extent applicable, the Uniform Commercial Code of any other jurisdiction in
which the Secured Assets are located.
2.2 "Debtor" shall mean The Keith Companies, Inc., a California
-----
corporation, Keith International, Inc., a California corporation or Keith
Engineering, Inc., a California corporation. "Debtors" shall mean one or more
Debtor.
2.3 "Effective Date" shall mean April 10, 1997.
--------------
2.4 "Event of Default" shall have the meaning specified in Section
----------------
7.1 of the Note.
2.5 "Keith" shall mean Aram Keith, an individual.
-----
2.6 "Loan Documents" shall mean the Note, this Security Agreement, or
-----------------
any other
<PAGE>
loan agreement, instrument, or document now or hereafter executed by any Debtor
or Keith in favor of Secured Party, whether relating to the Note or otherwise.
2.7 "Note" means the Secured Promissory Note Revolving Line of
----
Credit, dated of even date herewith, of Debtors and Keith payable to the order
of Secured Party, in the original principal amount of up to SEVEN HUNDRED
THOUSAND DOLLARS ($700,000.00), and all extensions, modifications, amendments or
replacements thereto.
2.8 "Property" shall have the meaning set forth in Section 3.1 of
--------
this Security Agreement.
2.9 "Secured Assets" shall mean the property of Debtor more
--------------
particularly described in Section 3.0 herein.
2.10 "Secured Party'' means Walter W. Cruttenden, III, an individual,
-------------
and his legal representatives, heirs, successors and assigns.
2.11 "Security Agreement" shall mean this Security Agreement dated
------------------
as of the Effective Date.
3.0 SECURED ASSETS. The Secured Assets subject to this Security
---------------
Agreement shall include all of each Debtor's right, title, and interest in the
following property:
3.1 Assets.
-------
(a) All present and future goods, equipment and inventory, as those
terms are defined in the Code, and all other present and future personal
property of each Debtor of any kind or nature whatsoever, now or hereafter
located at, upon or about any real property owned, leased, or used by any Debtor
(the "Property"), or used or to be used in connection with or relating or
arising with respect to the Property and/or the use thereof or any improvements
thereto, including without limitation all present and future furniture,
cubicles, furnishings, fixtures, goods, machinery, plumbing and plumbing
material and supplies, concrete, lumber, hardware, electrical wiring and
electrical material and supplies, heating and air conditioning material and
supplies, roofing material and supplies, window material and supplies, doors,
paint, drywall, insulation, cabinets, ceramic material and supplies, flooring,
carpeting, appliances, fencing, landscaping and all other materials, supplies
and property of every kind and nature.
(b) All accounts, accounts receivable and all other rights of each
Debtor to the payment of money, all income, rents, issues, profits and revenues,
rentals and payments, instruments, notes, drafts, chattel paper, acceptances,
letters of credit, general intangibles, contract rights, documents, negotiable
instruments, warehouse receipts, policies and certificates of insurance,
guaranties, leases, leasehold interests, rental agreements, security or
subscription agreements and debts secured thereby or relating thereto, money,
certificates of deposit, deposits, deposit accounts, reserves, deferred
payments, refunds, all refunds and deposits returned by utility companies and
governmental agencies, cost savings, water stock, insurance proceeds, premium
refunds, condemnation or eminent domain proceeds and awards, licenses, choses
and things in action, all governmental, utility and other permits and approvals
relating to construction on or use of the Property or otherwise relating to any
Debtor, all licenses, all franchises, all subdivision maps and applications
therefor, all subdivision public reports and applications therefor, all
architectural and engineering drawings, plans and specifications, blueprints,
soil tests, feasibility studies, engineering reports, environmental, building
foundation, grading and other permits, all construction, management, franchise,
reservation, development and other contracts and agreements, all names under or
by which any Debtor or the Property, or any present or future improvements on
the
<PAGE>
Property may at any time be operated or known, and all rights to carry on
business under any such names, or any variant thereof, all trademarks, trade
names, patents and applications therefor and goodwill in any way relating to any
Debtor or the Property, and all other personal property of every nature
whatsoever, whether now owned or in existence or hereafter arising or acquired,
arising from, used or held in connection with, or otherwise relating to any
Debtor or the Property or the ownership, use, occupancy, enjoyment, operation,
management, development or improvement thereof.
(c) Without limiting the generality of the foregoing, all computers,
computer hardware, computer accessories, computer desks, disk hard drive,
monitors, keyboards, computer software, computer files, tape, backup tape,
scanners, and computer disks, and all additions, substitutions, and replacements
thereof, together with all attachments, accessories, components, parts and
equipment installed thereon or affixed thereto, as any of the same may be
defined in the Code and in each Debtor's right to acquire any of the foregoing,
whether by exercise of purchase options or otherwise, and in the proceeds of all
of the foregoing including without limitation rentals payable to any Debtor by
any lessee of any such property.
(d) All cash and noncash proceeds and products of any and all of the
foregoing, including without limitation, all monies, deposit accounts, insurance
proceeds and other tangible or intangible property received upon a sale or other
disposition of any of the foregoing, whether voluntary or involuntary.
4.0 GRANT. Each Debtor hereby grants to Secured Party, its successors
-----
and assigns, a security interest in all of the Secured Assets to secure the
indebtedness and other obligations due to Secured Party under the Note, the Loan
Documents, and any other promissory note or instrument of any Debtor or Keith
(and all extensions, modifications, amendments, or replacements thereof) now or
hereafter existing payable to Secured Party or its order. This security interest
shall be subject to the terms and conditions of this Security Agreement.
5.0 LIMITATIONS ON SECURED ASSETS AND SECURITY AGREEMENT.
-----------------------------------------------------
5.1 No Assignment. No Debtor shall sell, encumber, assign, dispose
--------------
of, grant a security interest in, hypothecate, permit or suffer any lien or
encumbrance upon, or transfer any interest in the Secured Assets, except in the
ordinary course of such Debtor's business, without the written consent of
Secured Party.
5.2 Subordination. Notwithstanding any provision herein to the
--------------
contrary, Secured Party's rights and secured interest hereunder shall be
subordinate in priority to any security interest granted by any Debtor in favor
of any bank or institutional lender prior to the Effective date or to any
security interest granted by any Debtor to a bank or institutional lender after
the Effective Date to secure any loan consented to in writing by Lender.
6.0 PERFECTION. The security interest granted herein shall be perfected
-----------
by the filing one or more financing statements with the Secretary of State of
California and any other governmental agency as Secured Party deems appropriate,
and such further assignments, filings, and actions as the Secured Party deems to
be necessary or appropriate. Each Debtor agrees to execute financing statements
or other documents and to take such further actions as Secured Party may
reasonably request in order to perfect and maintain and continue the interest of
Secured Party in the Secured Assets.
7.0 POWER OF ATTORNEY.
-----------------
7.1 General Purposes. Each Debtor does hereby constitute and
-----------------
appoint the
<PAGE>
Secured Party as its true and lawful agent and attorney-in-fact, in its name,
place and stead, and at Debtors' expense to perfect, maintain, protect and
enforce the security interest granted hereunder and the Secured Assets,
including but not limited to:
(a) Taxes. Pay taxes due on the Secured Assets;
-----
(b) Insurance. Maintain insurance coverage on the Secured
---------
Assets;
(c) Collection. Compromise, settle, collect, and endorse items
----------
of the Secured Assets such as accounts and instruments;
(d) Note. Execute, endorse, assign, all notes, instruments,
----
deeds of trust, leases, bills of sale, receipts, and other similar documents on
the Debtor's behalf;
(e) Repair. Operate, repair, and maintain the collateral; and
------
(f) Financing Statements and Amendments. Execute and file
-----------------------------------
financing statements, continuation statements, assignments, and other documents
and amendments thereto;
provided that Secured Party shall not take any action described
---------
inclauses (a) through (e) prior to the occurrence of an Event of Default.
7.2 Irrevocable. This power of attorney shall be irrevocable and is
-----------
part of the grant of security interest by Debtors to Secured Party.
7.3 Optional. The power of attorney is exercisable at the option
--------
of Secured Party, and any failure to exercise such powers shall not relieve
Debtors of their obligations under this Security Agreement or subject Secured
Party to any liability.
8.0 OTHER ENCUMBRANCES. Debtors jointly and severally, hereby
------------
represent and warrant to the Secured Party that, except as otherwise expressly
identified in this Agreement or disclosed in writing to Lender, the Secured
Assets are not encumbered with liens, pledges, encumbrances, or rights of
others.
9.0 REMEDIES.
--------
9.1 Event of Default. Should an Event of Default occur, Secured
----------------
Party shall have all rights and remedies provided by law to enforce its security
interest hereunder, including those of a secured party under the Code, in
addition to the rights and remedies provided herein or in any other agreement
executed by any Debtor or Keith, including but not limited to:
(a) Entering any Debtor's premises to assemble and take
possession of Secured Assets.
(b) Require any Debtor to assemble Secured Assets and make such
Secured Assets available to Secured Party at a placed designated by Secured
Party.
(c) Sell, lease, transfer, assign, or otherwise dispose of any
Secured Assets, or any interest therein, upon the terms and in such manner as
Secured Party may determine in compliance with the Code and applicable law, and
Secured Party may purchase the same at any sale.
<PAGE>
(d) Enter any Debtor's premises, render the Secured Assets, if
equipment, unusable and dispose of it in the manner provided by the C Commercial
Code on any Debtor's premises.
(e) Apply the proceeds received from the sale or other
disposition of the Secured Assets following an Event of Default, in addition to
the items specified in the Uniform Commercial Code or other applicable law, to
the payment of all costs of assembling, maintaining, preserving, marketing,
selling, and disposing the Secured Assets and enforcing Secured Party's rights
and remedies hereunder (including, without limitation, reasonable attorneys'
fees and expenses including outside counsel fees and the allocable costs of in-
house counsel) incurred by Secured Party as a result of Debtors' default.
(f) Exercise any and all other rights and remedies afforded
under the California Commercial Code or other applicable law.
9.2 Reasonable Notice. If notice to any Debtor of intended
-----------------
disposition of the Secured Assets is required by law, five (5) days notice shall
constitute reasonable notification.
9.3 Assumption of Leases. Subject to the consent of any third party
---------------------
lessor, if required in any lease by any Debtor of any Secured Assets, Secured
Party shall have the right, in its sole discretion, to assume the lessee's
rental and other obligations under the lease and to exercise any option or right
to purchase or acquire title to the Secured Assets covered by the lease.
9.4 Cumulative Rights. All of Secured Party's rights and remedies
------------------
shall be cumulative and none are exclusive.
10.0 LOCATION OF SECURED ASSETS. Immediately upon request therefore by
--------------------------
Secured Party, Debtors will inform Secured Party of the precise location of the
Secured Assets and every part or item thereof.
11.0 REPAIR OF SECURED ASSETS. Debtors will maintain the Secured Assets,
-------------------------
and each part or item of the Secured Assets, in good order and repair at
Debtors' own cost and expense and will never use the Secured Assets, or any part
or item of the Secured Assets, in a manner resulting, or likely to result, in
waste or unreasonable deterioration of the Secured Assets.
12.0 INSURANCE. Debtors, at Debtors' own costs and expense, will keep the
----------
Secured Assets, and all parts and items of the Secured Assets, insured for the
full replacement cost thereof against damage or loss resulting from any and all
risks to which it might foreseeably be exposed and risks designated by Secured
Party to the extent insurance coverage for such risks is commercially available.
Each such policy of insurance will be issued by an insurance company reasonably
acceptable to Secured Party and will provide for the loss payable under it being
paid to Secured Party and at least thirty (30) days prior written notice to
Secured Party of any termination or expiration of such policy. A duplicate copy
of each such policy will be delivered by Debtors to Secured Party.
13.0 TAXES AND ASSESSMENTS. Debtors will pay from their own funds, as
---------------------
they become due, all taxes and assessments levied or assessed against the
Secured Assets, or any part or item of the Secured Assets, prior to the final
termination of this Security Agreement.
14.0 INSPECTION RIGHTS. Secured Party, either in person or by agent, has
-----------------
the right at any and all reasonable times and at reasonable intervals to enter
the premises where the Secured Assets is located and inspect the Secured Assets.
<PAGE>
15.0 ASSIGNMENT BY SECURED PARTY. Secured Party may assign its rights
---------------------------
under this Security Agreement and the security interest created by this Security
Agreement. Should Secured Party assign its rights under this Security Agreement
or the security interest created by this Security Agreement, Secured Party's
assignee will be entitled, on written notice of the assignment being given by
Secured Party to Debtors, to all performance required of Debtors by this
Security Agreement and all payments and monies secured by this Security
Agreement.
16.0 NO MODIFICATIONS OR WAIVERS.
---------------------------
16. 1 MUST BE WRITTEN. Waivers or modifications of this Security
---------------
Agreement, or of any covenant, condition, or limitation contained herein, are
valid only if in writing that is separately signed or initialed by the Parties.
16.2 NO USE AS EVIDENCE. One or more waivers or modifications of any
------------------
covenant, term or condition in this Security Agreement by any Party shall not be
construed by any other Party as a waiver or modification applicable to any
subsequent breach of the same covenant, term or condition. Evidence of any such
waiver or modification may not be offered or received in evidence in any
proceeding, arbitration, or litigation between the Parties arising out of or
affecting this Security Agreement, or a Party's rights or obligations under it.
This limitation does not apply if the waiver or modification is in writing and
duly executed as provided above.
17.0 COOPERATION AND FURTHER ACTIONS. The Parties agree to perform any
--------------------------------
and all acts and to execute and deliver any and all documents necessary or
convenient to carry out the terms of this Security Agreement.
18.0 PROFESSIONAL FEES. If a lawsuit, arbitration or other proceedings
------------------
are instituted by any Party to enforce any of the terms or conditions of this
Security Agreement against any other Party, the prevailing Party in such
litigation, arbitration or proceeding shall be entitled, as an additional item
of damages, to such reasonable attorneys' and other professional fees and costs
(including but not limited to witness fees), court costs, arbitrators' fees,
arbitration administrative fees, travel expenses, and other out-of-pocket
expenses or costs of such other proceedings, as may be fixed by any court of
competent jurisdiction, arbitrator or other judicial or quasi-judicial body
having jurisdiction thereof, whether or not such litigation or proceedings
proceed to a final judgment or award. For the purposes of this Section, any
Party receiving an arbitration award or a judgment for damages or other amounts
shall be deemed to be the prevailing Party, regardless of amount of the damage
awarded or whether the award or judgment was based on all or some of such
Party's claims or causes of action.
19.0 COUNTERPARTS. This Security Agreement may be executed in several
-------------
counterparts, each of which so executed shall be deemed to be an original, but
such counterparts shall together constitute and be one and the same instrument.
20.0 SEVERABILITY. If any part, clause, or condition of this Security
------------
Agreement is held to be partially or wholly invalid, unenforceable, or
inoperative for any reason whatsoever, such shall not affect any other provision
or portion hereof, which shall continue to be effective as though such invalid,
inoperative, or unenforceable part, clause or condition had not been made.
21.0 JOINT AND SEVERAL OBLIGATIONS; BINDING UPON SUCCESSORS. The
-------------------------------------------------------
obligations of Debtors under this Security Agreement shall be joint and several.
This Security Agreement shall be binding upon and inure to the benefit of the
Parties and their respective heirs, legal representatives, successors and
assigns.
<PAGE>
22.0 GOVERNING LAW. All questions concerning this Security Agreement, its
-------------
construction, and the rights and liabilities of the Parties hereto shall be
interpreted and enforced in accordance with the laws of the State of California
as applied to contracts which are executed and performed entirely within the
state.
23.0 INTERPRETATION.
---------------
23.1 SECTION HEADINGS. The section headings of this Security
----------------
Agreement are included for purposes of convenience only, and shall not affect
the construction or interpretation of any of its provisions.
23.2 CAPITALIZED TERMS. Except as otherwise expressly provided
-----------------
herein, all capitalized terms defined in this Agreement shall have the meaning
ascribed to them herein.
23.3 GENDER AND NUMBER. Whenever required by the context, the
-----------------
singular shall include the plural, the plural shall include the singular, and
the masculine gender shall include the neuter and feminine genders and vice
versa.
24.0 NOTICES. For purposes hereof, delivery of written notice shall be
--------
deemed given and complete upon personal delivery, or three (3) business days
following mailing via United States registered or certified mail, return receipt
requested, postage prepaid. Notice may also be given by, and shall be deemed
complete upon receipt of, electronic facsimile, provided that any facsimile
notice shall only be deemed received if (a) the transmission thereof is
confirmed, and (b) facsimile notice is followed by written notice, made either
by (i) personal delivery thereof, or (ii) via deposit in registered or certified
mail, return receipt required, postage prepaid, within three (3) business days
following the facsimile notice. Notice shall be deemed given on the date it is
sent via facsimile in accordance with the foregoing provisions. Notices shall be
addressed to the Parties as follows:
Debtors: The Keith Companies, Inc.
Keith Engineering, Inc.
Keith International, Inc.
Attn: Aram Keith
2855 Redhill Avenue, Suite 201
Costa Mesa, California 92626
Telephone No. (714) 668-7001
Facsimile No. (714) 668-7026
Secured Party: Walter W. Cruttenden, III.
c/o Cruttenden Roth
18301 Von Karman, Suite 100
Irvine, California 92612
Telephone No. (714) 757-5700
Facsimile No. (714) 582-9603
With a copy to: David L. Keligian
THE BUSCH FIRM
2532 Dupont Drive
Irvine, California 92612-1254
Telephone: (714) 474-7368
Facsimile: (714) 474-7732
<PAGE>
Any Party may change the address to which to send notices by notifying the other
Party of such change of address in writing in accordance with this Section..
25.0 TIME OF ESSENCE. The Parties acknowledge and agree that time is
---------------
strictly of the essence with respect to each and every term, condition,
obligation and provision hereof. Failure to timely perform any of the terms,
conditions, obligations or provisions hereof by any Party shall constitute a
material breach of this Security Agreement by the Party so failing to perform.
26.0 RELATIONSHIP CREATED. Nothing combined herein or in any schedule,
----------------------
attachment, or exhibit hereto shall create any partnership, joint venture or
other agreement between the Parties.
The Parties have executed this Security Agreement as of the Effective Date.
THE KEITH COMPANIES, INC.,
a California corporation
By: /s/ Aram H. Keith
-----------------------------
Aram Keith
Its: President
KEITH INTERNATIONAL INC.,
A California corporation
By: /s/ Aram H. Keith
-----------------------------
Aram Keith
Its: President
KEITH ENGINEERING INC.,
a California corporation
By: /s/ Aram H. Keith
-----------------------------
Aram Keith
Its: President
"Debtors"
By: /s/ Walter W. Cruttenden, III
-----------------------------
WALTER W. CRUTTENDEN, III
"SECURED PARTY"
<PAGE>
EXHIBIT 10.16
PROMISSORY NOTE
$273,892.96 August 1, 1996
Los Angeles, California
1. FOR VALUE RECEIVED, THE KEITH COMPANIES, INC., a California
corporation, KEITH INTERNATIONAL, INC., a California corporation, THE KEITH
COMPANIES - NORTH COUNTIES, INC., a California corporation, KEITH ENGINEERING,
INC., a California corporation, THE KEITH COMPANIES HAWAII, INC., a Hawaii
corporation, and ARAM H. KEITH, an individual (collectively, jointly and
severally, "Maker"), promise to pay to MORENO CORPORATE CENTER, L.L.C., a
Delaware limited liability company, or order ("Holder") at c/o Oaktree Capital
Management L.L.C., 550 South Hope Street, 22nd Floor, Los Angeles, California
90071, Attention: Mr. Gregory Geiger, or at such other place as Holder may from
time to time designate, the principal sum of TWO HUNDRED SEVENTY-THREE THOUSAND
EIGHT HUNDRED NINETY TWO DOLLARS AND NINETY-SIX CENTS ($273,892.96) plus
interest as specified in this Note.
2. The principal sum outstanding from time to time on this Note
shall bear interest at the rate of 8.25% per annum ("Note Rate"). Interest shall
be calculated on the basis of a 360-day year and actual days elapsed, which
results in more interest than if a 365-day year were used. Interest shall be
payable on the first day of each month in arrears.
3. All principal and all accrued and unpaid interest shall be due
and payable as follows:
a. by December 31, 1996, Maker shall deliver to Holder One
Hundred Thousand Dollars ($100,000); and
b. by March 1, 1997, all principal and all accrued and unpaid
interest due under this Note shall be due and payable.
4. Maker may prepay some or all of the principal of this Note,
without any penalty or premium. All payments under this Note shall be credited
first to accrued interest then due and thereafter to unpaid principal.
5. If Maker fails to pay any amounts when due under this Note, then,
in addition to all other rights and remedies Holder shall have, Maker shall pay
additional interest on the amount due at an annual rate (the "Default Rate") of
three percent (3%) in excess of the Note Rate or the maximum rate permitted by
law, whichever is less, from the date the payment becomes due until Maker pays
in full all accrued and unpaid interest due under this Note. Such additional
interest payment shall be in addition to and not a limitation of such other
rights and remedies of Holder.
6. From and after maturity of this Note, whether by acceleration or
otherwise, all sums then due and payable under this Note, including all
principal and all accrued and unpaid interest, shall bear interest until paid in
full at the Default Rate.
7. All amounts payable under this Note are payable in lawful money
of the United States, in immediately available funds of the United States.
Checks constitute payment only when collected.
<PAGE>
8. Maker agrees to pay or reimburse Holder immediately upon demand
for all costs incurred in enforcing or collecting on this Note, including all
attorneys' fees, including without limitation attorneys' fees incurred in
connection with any action or proceeding in any appellate court or bankruptcy
proceeding.
9. If any lawsuit is commenced which arises out of, or which relates
to, this Note, the prevailing party shall be entitled to recover from each other
party such sums as the court, referee or arbitrator may adjudge to be reasonable
attorneys' fees in the action, reference or arbitration, in addition to costs
and expenses otherwise allowed by law.
10. This Note is governed by California law.
11. This Note inures to and binds the heirs, successors and assigns
of Maker and Holder. Holder may assign its rights under this Note. However,
Maker may not assign any rights under this Note without Holder's prior written
consent.
12. If Holder delays in exercising or fails to exercise any of its
rights under this Note, that delay or failure shall not constitute a waiver of
any of Holder's rights, or of any breach of this Note, or any default or failure
of condition under this Note. No waiver by Holder of any of its rights, or of
any breach of this Note, or any default or failure of condition under this Note
shall be effective, unless the waiver is expressly stated in a writing signed by
Holder. All of Holder's remedies in connection with this Note or under
applicable law shall be cumulative, and Holder's exercise of any one or more of
those remedies shall not constitute an election of remedies.
13. Maker understands that Holder may transfer this Note, or sell or
grant participations in some or all of Maker's indebtedness outstanding under
this Note. In connection with any such transaction, Holder may disclose to each
prospective and actual transferee, purchaser or participant all documents and
information relating to the Loan. If Holder so requests, Maker shall sign and
deliver a new note to be issued in exchange for this Note.
14. If more than one person or entity are signing this Note as Maker,
their obligations under this Note are joint and several between and among such
persons and entities, such that each such person or entity shall be fully
responsible for the full performance of Maker's obligations.
<PAGE>
"MAKER"
Aram H. Keith, An Individual
KEITH ENGINEERING, INC.
A California Corporation
By: Aram H. Keith, President
By: Floyd S. Reid, Secretary
THE KEITH COMPANIES, INC.
A California Corporation
By: Aram H. Keith, President
By: Floyd S. Reid, Secretary
THE KEITH COMPANIES, INC.
A California Corporation
By: Aram H. Keith, President
By: Floyd S. Reid, Secretary
KEITH INTERNATIONAL, INC.
A California Corporation
By: Aram H. Keith, President
By: Floyd S. Reid, Secretary
THE KEITH COMPANIES-NORTH COUNTIES, INC.
A California Corporation
By: Aram H. Keith, President
By: Floyd S. Reid, Secretary
THE KEITH COMPANIES-HAWAII, INC.
A California Corporation
By: Aram H. Keith, President
By: Floyd S. Reid, Secretary
<PAGE>
EXHIBIT 10.17
AMENDMENT TO PROMISSORY NOTE
This AMENDMENT TO PROMISSORY NOTE (this "Amendment") is made as of
29th day of April, 1997 (the "Effective Date") by and between THE KEITH
COMPANIES, INC., a California corporation, KEITH INTERNATIONAL, INC., a
California corporation, THE KEITH COMPANIES - NORTH COUNTIES, INC., a California
corporation, KEITH ENGINEERING, INC., a California corporation, THE KEITH
COMPANIES - HAWAII, INC., a Hawaii corporation, and ARAM H. KEITH, an individual
(collectively, jointly and severally, "Maker"), and MORENO CORPORATE CENTER,
L.L.C., a Delaware limited liability company ("Holder").
RECITALS
--------
A. Maker and Holder have entered into that certain Promissory Note
dated as of August 1, 1996 (the "Note") whereby Maker promised to pay Holder the
principal sum of Two Hundred Seventy-Three Thousand Eight Hundred Ninety-Two and
96/100 Dollars ($273,892.96) plus interest as specified in the Note.
B. Maker and Holder desire to extend the time for repayment under the
Note and further amend the Note as provided herein.
AGREEMENT
---------
NOW, THEREFORE, with respect to the foregoing facts and in
consideration of the mutual covenants hereinafter set forth, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Principal Sum. Maker currently owes Holder Two Hundred Fifty-
-------------
Three Thousand Eight Hundred Ninety-Two and 96/100 Dollars ($253,892.96) under
the Note (the "Principal Sum").
2. Interest Rate. The Principal Sum outstanding from time to time
-------------
shall bear interest on a per annum basis at the Bank of America "reference rate"
(as announced from time to time) plus three percent (3%) ("Note Rate"). Interest
shall be calculated on the basis of a 360-day year and actual days elapsed,
which results in more interest than if a 365-day year were used. As used here,
"reference rate" means the per annum rate of interest publicly announced from
time to time by Bank of America at San Francisco, California, as its "Reference
Rate." Any change in the reference rate shall take effect on the day specified
in the public announcement of such change.
<PAGE>
3. Payment of Principal and Interest. The Principal Sum and all
-----------------------------------
accrued and unpaid interest shall be due and payable as follows:
a. Commencing on May 1, 1997, and continuing on the first (lst)
day of each calendar month thereafter, through and including the payment due
April 1, 1998, Maker shall pay to Holder the amount of Ten Thousand and 00/100
Dollars ($10,000.00); and
b. by May 1, 1998, all principal and all accrued and unpaid
interest due under the Note as amended hereby shall be due and payable.
4. Prepayment. Maker may prepay some or all of the principal of
----------
the Note, as amended hereby, without any penalty or premium. All payments under
the Note, as amended hereby, shall be credited first to accrued interest then
due and thereafter to unpaid principal.
5. Confirmation of Existing Note. Except as expressly modified
-----------------------------
herein, the Note shall remain as originally stated. Maker and Holder hereby
confirm and ratify each of the provisions of the Note as amended herein.
6. Counterparts. This Amendment may be executed in one or more
-------------
counterparts, each of which shall be an original, but all of which shall
constitute one and the same instrument.
[Signatures continued on next page.]
<PAGE>
IN WITNESS WHEREOF, Maker and Holder do hereby execute this Amendment
as of the date first written above.
"MAKER"
ARAM H. KEITH, an individual KEITH INTERNATIONAL, INC.,
a California corporation
KEITH ENGINEERING, INC., a By: /s/ Aram H. Keith
California corporation Its:
By: /s/ Aram H. Keith By:
Its: Its:
By:
Its:
THE KEITH COMPANIES, INC., THE KEITH COMPANIES-HAWAII, INC.,
a California corporation a Hawaii corporation
By: /s/ Aram H. Keith By: /s/ Aram H. Keith
Its: Its:
By: By:
Its: Its:
THE KEITH COMPANIES, INC., THE KEITH COMPANIES-NORTH COUNTIES, INC.,
a California corporation a California corporation
By: /s/ Aram H. Keith By: /s/ Aram H. Keith
Its: Its:
By: By:
Its Its:
"HOLDER"
MORENO CORPORATE CENTER, L.L.C.,
a Delaware limited liability company
By:
It
<PAGE>
EXHIBIT 10.18
SECOND AMENDMENT TO PROMISSORY NOTE
This SECOND AMENDMENT TO PROMISSORY NOTE (this "Second Amendment") is made
as of the 4th day of February, 1998 (the "Effective Date") by and between THE
KEITH COMPANIES, INC., a California corporation, KEITH INTERNATIONAL, INC., a
California corporation, THE KEITH COMPANIES-NORTH COUNTIES, INC., a California
corporation, KEITH ENGINEERING, INC., a California corporation, THE KEITH
COMPANIES-HAWAII, INC., a Hawaii corporation, and ARAM H. KEITH, an individual
(collectively, jointly and severally, "Maker"), and MORENO CORPORATE CENTER,
L.L.C., a Delaware limited liability company ("Holder").
RECITALS
A. Maker and Holder have entered into that certain Promissory Note dated
as of August 1, 1996 (the "Original Note") whereby Maker promised to pay Holder
the principal sum of Two Hundred Seventy-Three Thousand Eight Hundred Ninety-Two
and 96/100 Dollars ($273,892.96) plus interest as specified in the Original
Note, and that certain First Amendment to the Original Promissory Note dated
April 29th, 1997 (the "First Amendment"). The Original Note, as amended by the
First Amendment and now amended by this Second Amendment, shall be referred to
herein as the "Note".
B. Maker and Holder desire to extend the time for repayment under the
First Amendment and further amend the First Amendment and Original Note as
provided herein.
AGREEMENT
NOW, THEREFORE, with respect to the foregoing facts and in consideration
of the mutual covenants hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Principal Sum. Due to certain accrued and unpaid interest under the
-------------
Original Note and First Amendment, Maker currently owes Holder Two Hundred
Four Thousand Three Hundred Eighty-nine and 21/100 Dollars ($204,389.21),
as of January 31, 1998, under the Note (the "Principal Sum").
2. Interest Rate. The Principal Sum outstanding from time to time shall bear
-------------
interest on a per annum basis at the Bank of America "reference rate" (as
announced from time to time) plus three percent (3%) ("Note Rate"). As
used here, "reference rate" means the per annum rate of interest publicly
announced from time to time by Bank of America at San Francisco,
California, as its "Reference Rate." See paragraph 4.a. of this Second
Amendment for additional details.
3. Term. All unpaid principal and interest shall be due under the Note by
----
February 1, 2000.
4. Payment of Principal and Interest. The Principal Sum and all accrued and
---------------------------------
unpaid interest shall be due and payable in arrears as follows:
<PAGE>
a. Commencing on March 1, 1998, and continuing on the first (1st) day of
each calendar month thereafter, through and including the payment due
February 1, 2000, Maker shall pay to Holder monthly principal and
interest payments totaling Nine Thousand Five Hundred Seventy-three and
66/100 Dollars ($9,573.66). This monthly principal and interest payment
of Nine Thousand Five Hundred Sevety-three (sic.) and 66/100 Dollars
($9,573.66) is based upon a Note Rate of Eleven and One-half Percent
(11.5%) determined in accordance with paragraph 2 of this Second
Amendment. This principal and interest amount can increase/decrease
during the term of this Note. If the Note Rate changes, a new monthly
payment of principal and interest shall be calculated by re-amortizing
the then principal amount outstanding at the new Note Rate over the
remaining term of the Note. The Note Rate can only change once a month
and the Note Rate to be utilized in determining the monthly principal
and interest payment shall be the Note Rate that exists on the First
(1st) day of the previous calendar month that a payment is due; and
b. An amortization schedule is attached as Exhibit "A", based upon the
monthly principal and interest payment of Nine Thousand Five Hundred
Seventy-three and 66/100 Dollars ($9,573.66). This amortization
schedule may change depending upon the Note Rate and is mainly intended
to serve as an example.
5. Prepayment. Maker may prepay some or all of the principal of the Note, as
----------
amended hereby, without any penalty or premium. All payments under the
Note, as amended hereby, shall be credited first to accrued interest then
due and thereafter to unpaid principal.
6. Confirmation of Existing Note. Except as expressly modified herein, the
-----------------------------
Note shall remain as originally stated. Maker and Holder hereby confirm
and ratify each of the provisions of the Note as amended herein.
7. Counterparts. This Second Amendment may be executed in one or more
------------
counterparts, each of which shall be an original, but all of which shall
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, Maker and Holder do hereby execute this Second
Amendment as of the date first written above.
"MAKER"
Aram H. Keith, an individual
KEITH ENGINEERING, INC.
a California corporation
by: /s/ Aram H. Keith
its: President
KEITH INTERNATIONAL, INC.,
a California corporation
by: /s/ Aram H. Keith
its: President
THE KEITH COMPANIES, INC.
a California corporation
by: /s/ Aram H. Keith
its: President
THE KEITH COMPANIES-NORTH COUNTIES, INC.
a California corporation
by: /s/ Aram H. Keith
its: President
THE KEITH COMPANIES-HAWAII, INC.
a Hawaii Corporation
by: /s/ Aram H. Keith
its: President
HOLDER: MORENO CORPORATE CENTER, L.L.C.;
a Delaware limited liability company
by: TCW Asset Management Company, its manager
by: /s/ Russel S. Bernard by: Marc Porosoff
its: Authorized Signatory its: Authorized Signatory
<PAGE>
EXHIBIT 10.19
UNSECURED PROMISSORY NOTE
=========================
$132,000.00 DATE: October 31, 1998_
-----------
Costa Mesa, California
- -----------------------
For value received, the undersigned promises to pay in lawful money to Ruth Ann
--------
Fallon, as trustee for the Erica Keith Educational Trust at her office at 2955
- ---------------------------------------------------------
Redhill Avenue, Costa Mesa, California 92626, the sum of ***One hundred thirty-
two thousand dollars (132,000.00), plus interest.
Interest shall be payable at the rate of ten percent (10%) per annum on the
unpaid balance of the within note. Such interest shall commence October 31,
1998. All principal and accrued interest shall be paid in full by October 30,
2000.
Notwithstanding any other provision of this note, the undersigned agrees to pay
interest on all sums of interest and principal at the rate of ten percent (10%)
per annum from the date when due (whether or not such maturity results from the
exercise of any option of the holder of this note) to date of payment.
In the event of commencement of suit to enforce payment of this note, the
undersigned agrees to pay such additional sum as attorney fees as the court may
adjudge reasonable.
The makers hereby waive extension of time payment, presentment and demand for
payment, protest and notice of demand, protest non-payment or dishonor of this
note.
Revised and executed February 1, 1999.
Restated for subordination clause, March 9, 1999.
by:
The Keith Companies, Inc.
/s/ ARAM H. KEITH
- ------------------------------
Aram H. Keith, CEO
PAYMENT OF THIS NOTE IS SUBORDINATED TO THE PAYMENT OF ALL OBLIGATIONS OF THE
MAKER HEREOF TO IMPERIAL BANK PURSUANT TO THE TERMS OF A SUBORDINATION AGREEMENT
DATED FEBRUARY 9, 1998, AND ANY AMENDMENTS THERETO AND REPLACEMENTS THEREFOR.
Accepted and Agreed:
By: /s/ RUTH ANN FALLON, Trustee / March 15, 1999
---------------------------- --------------
Ruth Ann Fallon, Trustee / Date
Page 1 of 3
<PAGE>
IMPERIAL BANK - SUBORDINATION AGREEMENT
(Payment Authorized)
To: Imperial Bank
The undersigned ("We") are interested in the financial success of The Keith
---------
Companies, Inc., ("Borrower"), and agree that financial accommodation from
- ----------------
IMPERIAL BANK ("Bank" or "You") to Borrower is necessary, and we accordingly
request that you grant to or renew for Borrower such financial accommodation as
you may deem proper, and for the purpose of inducing you to grant, renew or
extend such financial accommodation, we hereby severally agree as follows:
All claims of each of the undersigned against Borrower now or hereafter
existing, whether matured or not (subject to the maximum if specified below),
are and shall be at all times subordinate and subject to any and all claims on
your part against Borrower now or hereafter existing, whether matured or not, so
long as any such claim on your part against Borrower shall remain unpaid, in
whole or in part, and each of the undersigned agrees not to sue upon, or to
collect, or to receive payment upon, by setoff or in any other manner, any claim
or claims on his/hers or its part against Borrower now or hereafter existing,
nor to sell, assign, transfer, pledge, or give a security interest in the same
(except subject expressly to this Agreement), nor to enforce or apply any
security now or hereafter existing, nor to join in any petition in bankruptcy or
any assignment for the benefit of creditors or any creditors agreement, nor to
take any lien or security on any of Borrower's property, real or personal, nor
to incur any obligation to nor receive any loans, advances or gifts from
Borrower, so long as any such claim on your part against Borrower shall exist or
so long as you are committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
All claims on your part against borrower now or hereafter existing shall be
first paid by Borrower before any payment shall be made by Borrower to any of
the undersigned. Borrower may make regularly schedule payment(s) of interest
only on the claims so long as no default exists on its obligations to Bank.
Said priority of payment shall apply during the ordinary course of Borrower's
business and in case of any assignment by Borrower for the benefit of Borrower's
creditors, and in case of any bankruptcy proceedings instituted by or against
Borrower, and in case of the appointment of any receiver for Borrower or
Borrower's business or assets, and in case of any dissolution or other winding
up of the affairs of Borrower, or of Borrower's business, and in all such cases
respectively, the officers of Borrower and any assignee, trustee in bankruptcy,
receiver, and other person or persons in charge, are hereby directed to pay to
you the full amount of your claims against Borrower before making any payment to
any of the undersigned, and so far as may be necessary for that purpose, each of
the undersigned hereby transfers and assigns to you all of his/her or its rights
to any payment or distribution which might otherwise be coming to him/her or it.
You are hereby irrevocably constituted and appointed the attorney-in-fact of
each of the undersigned to file any and all proofs of claim and any other
documents and to take all other action, either in your name, or in the name of
the undersigned, or any of them, which in your opinion is necessary or desirable
to enable you to obtain all such payments.
Each of the undersigned agrees that if part or all of any claim of the
undersigned shall be evidenced by a promissory note or other instrument, the
undersigned shall cause to be placed thereon a legend stating that the payment
thereof is subordinate to the payment of all claims on your part against
Borrower pursuant to the terms of this Subordination Agreement, and each of the
undersigned agrees to mark all books of account in such manner to indicate that
payment thereof is subordinated pursuant to the terms of this Subordination
Agreement.
Page 2 of 3
<PAGE>
Each of the undersigned further agrees that in case he, she or it should
take or receive any security interest in, or lien by way of attachment,
execution, or otherwise on any of the property, real or personal, of Borrower,
or should take or join in any other measure or advantage contrary to this
Agreement, while any claim exists on your part against Borrower, you shall be
entitled to have the same vacated, dissolved and set aside by such proceedings
at law, or otherwise, as you may deem proper, and this Agreement shall be and
constitute full and sufficient ground therefor and shall entitle you to be and
become a party to any proceedings at law, or otherwise, initiated by you or by
any other party, in or by which you may deem it proper to protect your interest
hereunder; and the party so violating this Agreement shall be liable to you for
all loss and damage sustained by you by reason of such breach, including
attorney's fees in any such legal action.
If the undersigned, or any of them, shall receive any payment or property
in violation of this Agreement, such payment or property shall be received by
such undersigned in trust for you and forthwith will be delivered and
transferred to you.
No subordinations of obligations of Borrower to the undersigned have
previously been executed by the undersigned for the benefit of anyone else, and
any such subordinations hereafter executed will be, and shall be expressed to be
subject and subordinate to the effect hereof. This Agreement shall be
continuing in effect, it shall not be cancelled or otherwise rendered
ineffective by the payment or discharge at any time of all of Borrower's
obligations to you, and it shall apply to any and all financial accommodations
subsequently granted, renewed or extended by you for Borrower, unless the
undersigned shall deliver to you a written notice of revocation as to future
transactions, at a time when Borrower is no longer obligated to you in any way,
and while you are not committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
Maximum _________________________
Dated ___________________________
/s/ RUTH ANN FALLON, Trustee
By: ____________________________
Ruth Ann Fallon, Trustee of the
Erica Keith Educational Trust
- --------------------------------------------------------------------------------
ACCEPTANCE OF SUBORDINATION AGREEMENT BY BORROWER
The undersigned, being the Borrower named in the foregoing Subordination
Agreement, hereby accepts and consents thereto and agrees to be bound by all of
the provisions thereof and to recognize all priorities and other rights granted
thereby to IMPERIAL BANK, and to pay said Bank in accordance therewith.
Dated:
THE KEITH COMPANIES, INC.
/s/ ARAM H. KEITH
By: _____________________________
Aram H. Keith, CEO
Page 3 of 3
<PAGE>
EXHIBIT 10.20
UNSECURED PROMISSORY NOTE
=========================
$33,000.00 DATE: October 31, 1998_
---------
Costa Mesa, California
- -----------------------
For value received, the undersigned promises to pay in lawful money to Ruth Ann
--------
Fallon, as trustee for the Kimberly Keith Educational Trust at her office at
- ------------------------------------------------------------
2955 Redhill Avenue, Costa Mesa, California 92626, the sum of Thirty-three
thousand dollars ($33,000.00), plus interest.
Interest shall be payable at the rate of ten percent (10%) per annum on the
unpaid balance of the within note. Such interest shall commence October 31,
1998. All principal and accrued interest shall be paid in full by October 30,
2000.
Notwithstanding any other provision of this note, the undersigned agrees to pay
interest on all sums of interest and principal at the rate of ten percent (10%)
per annum from the date when due (whether or not such maturity results from the
exercise of any option of the holder of this note) to date of payment.
In the event of commencement of suit to enforce payment of this note, the
undersigned agrees to pay such additional sum as attorney fees as the court may
adjudge reasonable.
The makers hereby waive extension of time payment, presentment and demand for
payment, protest and notice of demand, protest non-payment or dishonor of this
note.
Revised and executed February 1, 1999.
Restated for subordination clause, March 9, 1999.
By:
The Keith Companies, Inc.
/s/ Aram H Keith
______________________________
Aram H. Keith, CEO
PAYMENT OF THIS NOTE IS SUBORDINATED TO THE PAYMENT OF ALL OBLIGATIONS OF THE
MAKER HEREOF TO IMPERIAL BANK PURSUANT TO THE TERMS OF A SUBORDINATION AGREEMENT
DATED FEBRUARY 9, 1998, AND ANY AMENDMENTS THERETO AND REPLACEMENTS THEREFOR.
Accepted and Agreed:
By: /s/ RUTH ANN FALLON, Trustee / March 15, 1999
---------------------------- ----------------
Ruth Ann Fallon, Trustee / Date
Page 1 of 3
<PAGE>
IMPERIAL BANK - SUBORDINATION AGREEMENT
(Payment Authorized)
- --------------------------------------------------------------------------------
To: Imperial Bank
The undersigned ("We") are interested in the financial success of The Keith
---------
Companies, Inc., ("Borrower"), and agree that financial accommodation from
- ----------------
IMPERIAL BANK ("Bank" or "You") to Borrower is necessary, and we accordingly
request that you grant to or renew for Borrower such financial accommodation as
you may deem proper, and for the purpose of inducing you to grant, renew or
extend such financial accommodation, we hereby severally agree as follows:
All claims of each of the undersigned against Borrower now or hereafter
existing, whether matured or not (subject to the maximum if specified below),
are and shall be at all times subordinate and subject to any and all claims on
your part against Borrower now or hereafter existing, whether matured or not, so
long as any such claim on your part against Borrower shall remain unpaid, in
whole or in part, and each of the undersigned agrees not to sue upon, or to
collect, or to receive payment upon, by setoff or in any other manner, any claim
or claims on his/hers or its part against Borrower now or hereafter existing,
nor to sell, assign, transfer, pledge, or give a security interest in the same
(except subject expressly to this Agreement), nor to enforce or apply any
security now or hereafter existing, nor to join in any petition in bankruptcy or
any assignment for the benefit of creditors or any creditors agreement, nor to
take any lien or security on any of Borrower's property, real or personal, nor
to incur any obligation to nor receive any loans, advances or gifts from
Borrower, so long as any such claim on your part against Borrower shall exist or
so long as you are committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
All claims on your part against borrower now or hereafter existing shall be
first paid by Borrower before any payment shall be made by Borrower to any of
the undersigned. Borrower may make regularly schedule payment(s) of interest
only on the claims so long as no default exists on its obligations to Bank.
Said priority of payment shall apply during the ordinary course of Borrower's
business and in case of any assignment by Borrower for the benefit of Borrower's
creditors, and in case of any bankruptcy proceedings instituted by or against
Borrower, and in case of the appointment of any receiver for Borrower or
Borrower's business or assets, and in case of any dissolution or other winding
up of the affairs of Borrower, or of Borrower's business, and in all such cases
respectively, the officers of Borrower and any assignee, trustee in bankruptcy,
receiver, and other person or persons in charge, are hereby directed to pay to
you the full amount of your claims against Borrower before making any payment to
any of the undersigned, and so far as may be necessary for that purpose, each of
the undersigned hereby transfers and assigns to you all of his/her or its rights
to any payment or distribution which might otherwise be coming to him/her or it.
You are hereby irrevocably constituted and appointed the attorney-in-fact of
each of the undersigned to file any and all proofs of claim and any other
documents and to take all other action, either in your name, or in the name of
the undersigned, or any of them, which in your opinion is necessary or desirable
to enable you to obtain all such payments.
Each of the undersigned agrees that if part or all of any claim of the
undersigned shall be evidenced by a promissory note or other instrument, the
undersigned shall cause to be placed thereon a legend stating that the payment
thereof is subordinate to the payment of all claims on your part against
Borrower pursuant to the terms of this Subordination Agreement, and each of the
undersigned agrees to mark all books of account in such manner to indicate that
payment thereof is subordinated pursuant to the terms of this Subordination
Agreement.
Each of the undersigned further agrees that in case he, she or it should
take or receive any security interest in, or lien by way of attachment,
execution, or otherwise on any of the property, real or personal, of Borrower,
or should take or join in any other measure or advantage contrary to this
Page 2 of 3
<PAGE>
Agreement, while any claim exists on your part against Borrower, you shall be
entitled to have the same vacated, dissolved and set aside by such proceedings
at law, or otherwise, as you may deem proper, and this Agreement shall be and
constitute full and sufficient ground therefor and shall entitle you to be and
become a party to any proceedings at law, or otherwise, initiated by you or by
any other party, in or by which you may deem it proper to protect your interest
hereunder; and the party so violating this Agreement shall be liable to you for
all loss and damage sustained by you by reason of such breach, including
attorney's fees in any such legal action.
If the undersigned, or any of them, shall receive any payment or property
in violation of this Agreement, such payment or property shall be received by
such undersigned in trust for you and forthwith will be delivered and
transferred to you.
No subordinations of obligations of Borrower to the undersigned have
previously been executed by the undersigned for the benefit of anyone else, and
any such subordinations hereafter executed will be, and shall be expressed to be
subject and subordinate to the effect hereof. This Agreement shall be
continuing in effect, it shall not be cancelled or otherwise rendered
ineffective by the payment or discharge at any time of all of Borrower's
obligations to you, and it shall apply to any and all financial accommodations
subsequently granted, renewed or extended by you for Borrower, unless the
undersigned shall deliver to you a written notice of revocation as to future
transactions, at a time when Borrower is no longer obligated to you in any way,
and while you are not committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
Maximum _________________________
Dated ___________________________
By: /s/ RUTH ANN FALLON, Trustee
------------------------------
Ruth Ann Fallon, Trustee of the
Kimberly Keith Educational Trust
- --------------------------------------------------------------------------------
ACCEPTANCE OF SUBORDINATION AGREEMENT BY BORROWER
The undersigned, being the Borrower named in the foregoing Subordination
Agreement, hereby accepts and consents thereto and agrees to be bound by all of
the provisions thereof and to recognize all priorities and other rights granted
thereby to IMPERIAL BANK, and to pay said Bank in accordance therewith.
Dated: _________
THE KEITH COMPANIES, INC.
By: /s/ ARAM H. KEITH
---------------------
Aram H. Keith, CEO
Page 3 of 3
<PAGE>
EXHIBIT 10.21
UNSECURED PROMISSORY NOTE
=========================
$11,000.00 DATE: October 31, 1998_
----------
Costa Mesa, California
- -----------------------
For value received, the undersigned promises to pay in lawful money to Ruth Ann
--------
Fallon, as trustee for the Ryan Keith Educational Trust at her office at 2955
- --------------------------------------------------------
Redhill Avenue, Costa Mesa, California 92626, the sum of Eleven thousand dollars
($11,000.00), plus interest.
Interest shall be payable at the rate of ten percent (10%) per annum on the
unpaid balance of the within note. Such interest shall commence October 31,
1998. All principal and accrued interest shall be paid in full by October 30,
2000.
Notwithstanding any other provision of this note, the undersigned agrees to pay
interest on all sums of interest and principal at the rate of ten percent (10%)
per annum from the date when due (whether or not such maturity results from the
exercise of any option of the holder of this note) to date of payment.
In the event of commencement of suit to enforce payment of this note, the
undersigned agrees to pay such additional sum as attorney fees as the court may
adjudge reasonable.
The makers hereby waive extension of time payment, presentment and demand for
payment, protest and notice of demand, protest non-payment or dishonor of this
note.
Revised and executed February 1, 1999.
Restated for subordination clause, March 9, 1999.
by:
The Keith Companies, Inc.
/s/ ARAM H. KEITH
______________________________
Aram H. Keith, CEO
PAYMENT OF THIS NOTE IS SUBORDINATED TO THE PAYMENT OF ALL OBLIGATIONS OF THE
MAKER HEREOF TO IMPERIAL BANK PURSUANT TO THE TERMS OF A SUBORDINATION AGREEMENT
DATED FEBRUARY 9, 1998, AND ANY AMENDMENTS THERETO AND REPLACEMENTS THEREFOR.
Accepted and Agreed:
By: /s/ RUTH ANN FALLON Trustee / March 15, 1999
---------------------------- --------------
Ruth Ann Fallon, Trustee / Date
Page 1 of 3
<PAGE>
IMPERIAL BANK - SUBORDINATION AGREEMENT
(Payment Authorized)
- --------------------------------------------------------------------------------
To: Imperial Bank
The undersigned ("We") are interested in the financial success of The Keith
---------
Companies, Inc., ("Borrower"), and agree that financial accommodation from
- ----------------
IMPERIAL BANK ("Bank" or "You") to Borrower is necessary, and we accordingly
request that you grant to or renew for Borrower such financial accommodation as
you may deem proper, and for the purpose of inducing you to grant, renew or
extend such financial accommodation, we hereby severally agree as follows:
All claims of each of the undersigned against Borrower now or hereafter
existing, whether matured or not (subject to the maximum if specified below),
are and shall be at all times subordinate and subject to any and all claims on
your part against Borrower now or hereafter existing, whether matured or not, so
long as any such claim on your part against Borrower shall remain unpaid, in
whole or in part, and each of the undersigned agrees not to sue upon, or to
collect, or to receive payment upon, by setoff or in any other manner, any claim
or claims on his/hers or its part against Borrower now or hereafter existing,
nor to sell, assign, transfer, pledge, or give a security interest in the same
(except subject expressly to this Agreement), nor to enforce or apply any
security now or hereafter existing, nor to join in any petition in bankruptcy or
any assignment for the benefit of creditors or any creditors agreement, nor to
take any lien or security on any of Borrower's property, real or personal, nor
to incur any obligation to nor receive any loans, advances or gifts from
Borrower, so long as any such claim on your part against Borrower shall exist or
so long as you are committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
All claims on your part against borrower now or hereafter existing shall be
first paid by Borrower before any payment shall be made by Borrower to any of
the undersigned. Borrower may make regularly schedule payment(s) on the claims
so long as no default exists on its obligations to Bank. Said priority of
payment shall apply during the ordinary course of Borrower's business and in
case of any assignment by Borrower for the benefit of Borrower's creditors, and
in case of any bankruptcy proceedings instituted by or against Borrower, and in
case of the appointment of any receiver for Borrower or Borrower's business or
assets, and in case of any dissolution or other winding up of the affairs of
Borrower, or of receiver, and other person or persons in charge, are hereby
directed to pay to you the full amount of your claims against Borrower before
making any payment to any of the undersigned, and so far as may be necessary for
that purpose, each of the undersigned hereby transfers and assigns to you all of
his/her or its rights to any payment or distribution which might otherwise be
coming to him/her or it. You are hereby irrevocably constituted and appointed
the attorney-in-fact of each of the undersigned to file any and all proofs of
claim and any other documents and to take all other action, either in your name,
or in the name of the undersigned, or any of them, which in your opinion is
necessary or desirable to enable you to obtain all such payments.
Each of the undersigned agrees that if part or all of any claim of the
undersigned shall be evidenced by a promissory note or other instrument, the
undersigned shall cause to be placed thereon a legend stating that the payment
thereof is subordinate to the payment of all claims on your part against
Borrower pursuant to the terms of this Subordination Agreement, and each of the
undersigned agrees to mark all books of account in such manner to indicate that
payment thereof is subordinated pursuant to the terms of this Subordination
Agreement.
Page 2 of 3
<PAGE>
Each of the undersigned further agrees that in case he, she or it should
take or received any security interest in, or lien by way of attachment,
execution, or otherwise on any of the property, real or personal, of Borrower,
or should take or join in any other measure or advantage contrary to this
Agreement, while any claim exists on your part against Borrower, you shall be
entitled to have the same vacated, dissolved and set aside by such proceedings
at law, or otherwise, as you may deem proper, and this Agreement shall be and
constitute full and sufficient ground therefore and shall entitle you to be and
become a party to any proceedings at law, or otherwise, initiated by you or by
any other party, in or by which you may deem it proper to protect your interest
hereunder; and the party so violating this Agreement shall be liable to you for
all loss and damage sustained by you by reason of such breach, including
attorney's fees in any such legal action.
If the undersigned, or any of them, shall receive any payment or property
in violation of this Agreement, such payment or property shall be received by
such undersigned in trust for you and forthwith will be delivered and
transferred to you.
No subordinations of obligations of Borrower to the undersigned have
previously been executed by the undersigned for the benefit of anyone else, and
any such subordinations hereafter executed will be, and shall be expressed to be
subject and subordinate to the effect hereof. This Agreement shall be
continuing in effect, it shall not be cancelled or otherwise rendered
ineffective by the payment or discharge at any time of all of Borrower's
obligations to you, and it shall apply to any and all financial accommodations
subsequently granted, renewed or extended by you for Borrower, unless the
undersigned shall deliver to you a written notice of revocation as to future
transactions, at a time when Borrower is no longer obligated to you in any way,
and while you are not committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
Maximum _________________________
Dated ___________________________
By: /s/ RUTH ANN FALLON, TRUSTEE
----------------------------
Ruth Ann Fallon, Trustee of the
Ryan D. Keith Educational Trust
ACCEPTANCE OF SUBORDINATION AGREEMENT BY BORROWER
The undersigned, being the Borrower named in the foregoing Subordination
Agreement, hereby accepts and consents thereto and agrees to be bound by all of
the provisions thereof and to recognize all priorities and other rights granted
thereby to IMPERIAL BANK, and to pay said Bank in accordance therewith.
Dated:
THE KEITH COMPANIES, INC.
By: /s/ ARAM H. KEITH
------------------
Aram H. Keith, CEO
Page 3 of 3
<PAGE>
EXHIBIT 10.22
UNSECURED PROMISSORY NOTE
=========================
$86,000.00 DATE: October 31, 1998_
----------
Costa Mesa, California
- -----------------------
For value received, the undersigned promises to pay in lawful money to Aram H.
-------
Keith, as trustee for Susan Reid Housing Trust at his office at 2955 Redhill
- ----------------------------------------------
Avenue, Costa Mesa, California 92626, the sum of Eighty-six thousand dollars
($86,000.00), plus interest.
Interest shall be payable at the rate of ten percent (10%) per annum on the
unpaid balance of the within note. Such interest shall commence October 31,
1998. All principal and accrued interest shall be paid in full by October 30,
2000.
Notwithstanding any other provision of this note, the undersigned agrees to pay
interest on all sums of interest and principal at the rate of ten percent (10%)
per annum from the date when due (whether or not such maturity results from the
exercise of any option of the holder of this note) to date of payment.
In the event of commencement of suit to enforce payment of this note, the
undersigned agrees to pay such additional sum as attorney fees as the court may
adjudge reasonable.
The makers hereby waive extension of time payment, presentment and demand for
payment, protest and notice of demand, protest non-payment or dishonor of this
note.
Revised and executed February 1, 1999.
Restated for subordination clause, March 9, 1999.
by:
The Keith Companies, Inc.
/s/ ARAM H. KEITH
______________________________
Aram H. Keith, CEO
PAYMENT OF THIS NOTE IS SUBORDINATED TO THE PAYMENT OF ALL OBLIGATIONS OF THE
MAKER HEREOF TO IMPERIAL BANK PURSUANT TO THE TERMS OF A SUBORDINATION AGREEMENT
DATED FEBRUARY 9, 1998, AND ANY AMENDMENTS THERETO AND REPLACEMENTS THEREFOR.
Accepted and Agreed:
By: /s/ ARAM H. KEITH / 3/9/99
---------------------- --------
Aram H. Keith, Trustee / Date
Page 1 of 3
<PAGE>
IMPERIAL BANK - SUBORDINATION AGREEMENT
(Payment Authorized)
- --------------------------------------------------------------------------------
To: Imperial Bank
The undersigned ("We") are interested in the financial success of The Keith
---------
Companies, Inc., ("Borrower"), and agree that financial accommodation from
- ----------------
IMPERIAL BANK ("Bank" or "You") to Borrower is necessary, and we accordingly
request that you grant to or renew for Borrower such financial accommodation as
you may deem proper, and for the purpose of inducing you to grant, renew or
extend such financial accommodation, we hereby severally agree as follows:
All claims of each of the undersigned against Borrower now or hereafter
existing, whether matured or not (subject to the maximum if specified below),
are and shall be at all times subordinate and subject to any and all claims on
your part against Borrower now or hereafter existing, whether matured or not, so
long as any such claim on your part against Borrower shall remain unpaid, in
whole or in part, and each of the undersigned agrees not to sue upon, or to
collect, or to receive payment upon, by setoff or in any other manner, any claim
or claims on his/hers or its part against Borrower now or hereafter existing,
nor to sell, assign, transfer, pledge, or give a security interest in the same
(except subject expressly to this Agreement), nor to enforce or apply any
security now or hereafter existing, nor to join in any petition in bankruptcy or
any assignment for the benefit of creditors or any creditors agreement, nor to
take any lien or security on any of Borrower's property, real or personal, nor
to incur any obligation to nor receive any loans, advances or gifts from
Borrower, so long as any such claim on your part against Borrower shall exist or
so long as you are committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
All claims on your part against borrower now or hereafter existing shall be
first paid by Borrower before any payment shall be made by Borrower to any of
the undersigned. Borrower may make regularly schedule payment(s) of interest
only on the claims so long as no default exists on its obligations to Bank.
Said priority of payment shall apply during the ordinary course of Borrower's
business and in case of any assignment by Borrower for the benefit of Borrower's
creditors, and in case of any bankruptcy proceedings instituted by or against
Borrower, and in case of the appointment of any receiver for Borrower or
Borrower's business or assets, and in case of any dissolution or other winding
up of the affairs of Borrower, or of Borrower's business, and in all such cases
respectively, the officers of Borrower and any assignee, trustee in bankruptcy,
receiver, and other person or persons in charge, are hereby directed to pay to
you the full amount of your claims against Borrower before making any payment to
any of the undersigned, and so far as may be necessary for that purpose, each of
the undersigned hereby transfers and assigns to you all of his/her or its rights
to any payment or distribution which might otherwise be coming to him/her or it.
You are hereby irrevocably constituted and appointed the attorney-in-fact of
each of the undersigned to file any and all proofs of claim and any other
documents and to take all other action, either in your name, or in the name of
the undersigned, or any of them, which in your opinion is necessary or desirable
to enable you to obtain all such payments.
Each of the undersigned agrees that if part or all of any claim of the
undersigned shall be evidenced by a promissory note or other instrument, the
undersigned shall cause to be placed thereon a legend stating that the payment
thereof is subordinate to the payment of all claims on your part against
Borrower pursuant to the terms of this Subordination Agreement, and each of the
undersigned agrees to mark all books of account in such manner to indicate that
payment thereof is subordinated pursuant to the terms of this Subordination
Agreement.
Page 2 of 3
<PAGE>
Each of the undersigned further agrees that in case he, she or it should
take or receive any security interest in, or lien by way of attachment,
execution, or otherwise on any of the property, real or personal, of Borrower,
or should take or join in any other measure or advantage contrary to this
Agreement, while any claim exists on your part against Borrower, you shall be
entitled to have the same vacated, dissolved and set aside by such proceedings
at law, or otherwise, as you may deem proper, and this Agreement shall be and
constitute full and sufficient ground therefor and shall entitle you to be and
become a party to any proceedings at law, or otherwise, initiated by you or by
any other party, in or by which you may deem it proper to protect your interest
hereunder; and the party so violating this Agreement shall be liable to you for
all loss and damage sustained by you by reason of such breach, including
attorney's fees in any such legal action.
If the undersigned, or any of them, shall receive any payment or property
in violation of this Agreement, such payment or property shall be received by
such undersigned in trust for you and forthwith will be delivered and
transferred to you.
No subordinations of obligations of Borrower to the undersigned have
previously been executed by the undersigned for the benefit of anyone else, and
any such subordinations hereafter executed will be, and shall be expressed to be
subject and subordinate to the effect hereof. This Agreement shall be
continuing in effect, it shall not be cancelled or otherwise rendered
ineffective by the payment or discharge at any time of all of Borrower's
obligations to you, and it shall apply to any and all financial accommodations
subsequently granted, renewed or extended by you for Borrower, unless the
undersigned shall deliver to you a written notice of revocation as to future
transactions, at a time when Borrower is no longer obligated to you in any way,
and while you are not committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
Maximum _________________________
Dated ___________________________
By: /s/ ARAM H. KEITH
----------------------------
Aram H. Keith, Trustee of the
Susan Elizabeth Reid Housing Trust
- --------------------------------------------------------------------------------
ACCEPTANCE OF SUBORDINATION AGREEMENT BY BORROWER
The undersigned, being the Borrower named in the foregoing Subordination
Agreement, hereby accepts and consents thereto and agrees to be bound by all of
the provisions thereof and to recognize all priorities and other rights granted
thereby to IMPERIAL BANK, and to pay said Bank in accordance therewith.
Dated:
THE KEITH COMPANIES, INC.
By: /s/ ARAM H. KEITH
---------------------
Aram H. Keith, CEO
Page 3 of 3
<PAGE>
EXHIBIT 10.23
UNSECURED PROMISSORY NOTE
=========================
$53,000.00 DATE: October 31, 1998_
----------
Costa Mesa, California
- -----------------------
For value received, the undersigned promises to pay in lawful money Aram H.
-------
Keith, as trustee for the Ruth Reid Housing Trust at his office at 2955 Redhill
- --------------------------------------------------
Avenue, Costa Mesa, California 92626, the sum of Fifty-three thousand dollars
($53,000.00), plus interest.
Interest shall be payable at the rate of ten percent (10%) per annum on the
unpaid balance of the within note. Such interest shall commence October 31,
1998. All principal and accrued interest shall be paid in full by October 30,
2000.
Notwithstanding any other provision of this note, the undersigned agrees to pay
interest on all sums of interest and principal at the rate of ten percent (10%)
per annum from the date when due (whether or not such maturity results from the
exercise of any option of the holder of this note) to date of payment.
In the event of commencement of suit to enforce payment of this note, the
undersigned agrees to pay such additional sum as attorney fees as the court may
adjudge reasonable.
The makers hereby waive extension of time payment, presentment and demand for
payment, protest and notice of demand, protest non-payment or dishonor of this
note.
Revised and executed February 1, 1999.
Restated for subordination clause, March 9, 1999.
by:
The Keith Companies, Inc.
/s/ Aram H. Keith
- ------------------------------
Aram H. Keith, CEO
PAYMENT OF THIS NOTE IS SUBORDINATED TO THE PAYMENT OF ALL OBLIGATIONS OF THE
MAKER HEREOF TO IMPERIAL BANK PURSUANT TO THE TERMS OF A SUBORDINATION AGREEMENT
DATED FEBRUARY 9, 1998, AND ANY AMENDMENTS THERETO AND REPLACEMENTS THEREFOR.
Accepted and Agreed:
By: /s/ Aram H. Keith / 3/9/99
---------------------- --------
Aram H. Keith, Trustee / Date
Page 1 of 3
<PAGE>
IMPERIAL BANK - SUBORDINATION AGREEMENT
(Payment Authorized)
- --------------------------------------------------------------------------------
To: Imperial Bank
The undersigned ("We") are interested in the financial success of The Keith
---------
Companies, Inc., ("Borrower"), and agree that financial accommodation from
- ----------------
IMPERIAL BANK ("Bank" or "You") to Borrower is necessary, and we accordingly
request that you grant to or renew for Borrower such financial accommodation as
you may deem proper, and for the purpose of inducing you to grant, renew or
extend such financial accommodation, we hereby severally agree as follows:
All claims of each of the undersigned against Borrower now or hereafter
existing, whether matured or not (subject to the maximum if specified below),
are and shall be at all times subordinate and subject to any and all claims on
your part against Borrower now or hereafter existing, whether matured or not, so
long as any such claim on your part against Borrower shall remain unpaid, in
whole or in part, and each of the undersigned agrees not to sue upon, or to
collect, or to receive payment upon, by setoff or in any other manner, any claim
or claims on his/hers or its part against Borrower now or hereafter existing,
nor to sell, assign, transfer, pledge, or give a security interest in the same
(except subject expressly to this Agreement), nor to enforce or apply any
security now or hereafter existing, nor to join in any petition in bankruptcy or
any assignment for the benefit of creditors or any creditors agreement, nor to
take any lien or security on any of Borrower's property, real or personal, nor
to incur any obligation to nor receive any loans, advances or gifts from
Borrower, so long as any such claim on your part against Borrower shall exist or
so long as you are committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
All claims on your part against borrower now or hereafter existing shall be
first paid by Borrower before any payment shall be made by Borrower to any of
the undersigned. Borrower may make regularly schedule payment(s) of interest
only on the claims so long as no default exists on its obligations to Bank.
Said priority of payment shall apply during the ordinary course of Borrower's
business and in case of any assignment by Borrower for the benefit of Borrower's
creditors, and in case of any bankruptcy proceedings instituted by or against
Borrower, and in case of the appointment of any receiver for Borrower or
Borrower's business or assets, and in case of any dissolution or other winding
up of the affairs of Borrower, or of Borrower's business, and in all such cases
respectively, the officers of Borrower and any assignee, trustee in bankruptcy,
receiver, and other person or persons in charge, are hereby directed to pay to
you the full amount of your claims against Borrower before making any payment to
any of the undersigned, and so far as may be necessary for that purpose, each of
the undersigned hereby transfers and assigns to you all of his/her or its rights
to any payment or distribution which might otherwise be coming to him/her or it.
You are hereby irrevocably constituted and appointed the attorney-in-fact of
each of the undersigned to file any and all proofs of claim and any other
documents and to take all other action, either in your name, or in the name of
the undersigned, or any of them, which in your opinion is necessary or desirable
to enable you to obtain all such payments.
Each of the undersigned agrees that if part or all of any claim of the
undersigned shall be evidenced by a promissory note or other instrument, the
undersigned shall cause to be placed thereon a legend stating that the payment
thereof is subordinate to the payment of all claims on your part against
Borrower pursuant to the terms of this Subordination Agreement, and each of the
undersigned agrees to mark all books of account in such manner to indicate that
payment thereof is subordinated pursuant to the terms of this Subordination
Agreement.
Page 2 of 3
<PAGE>
Each of the undersigned further agrees that in case he, she or it should
take or receive any security interest in, or lien by way of attachment,
execution, or otherwise on any of the property, real or personal, of Borrower,
or should take or join in any other measure or advantage contrary to this
Agreement, while any claim exists on your part against Borrower, you shall be
entitled to have the same vacated, dissolved and set aside by such proceedings
at law, or otherwise, as you may deem proper, and this Agreement shall be and
constitute full and sufficient ground therefor and shall entitle you to be and
become a party to any proceedings at law, or otherwise, initiated by you or by
any other party, in or by which you may deem it proper to protect your interest
hereunder; and the party so violating this Agreement shall be liable to you for
all loss and damage sustained by you by reason of such breach, including
attorney's fees in any such legal action.
If the undersigned, or any of them, shall receive any payment or property
in violation of this Agreement, such payment or property shall be received by
such undersigned in trust for you and forthwith will be delivered and
transferred to you.
No subordinations of obligations of Borrower to the undersigned have
previously been executed by the undersigned for the benefit of anyone else, and
any such subordinations hereafter executed will be, and shall be expressed to be
subject and subordinate to the effect hereof. This Agreement shall be
continuing in effect, it shall not be cancelled or otherwise rendered
ineffective by the payment or discharge at any time of all of Borrower's
obligations to you, and it shall apply to any and all financial accommodations
subsequently granted, renewed or extended by you for Borrower, unless the
undersigned shall deliver to you a written notice of revocation as to future
transactions, at a time when Borrower is no longer obligated to you in any way,
and while you are not committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
Maximum _________________________
Dated ___________________________
By: /s/ Aram H. Keith
----------------------------
Aram H. Keith, Trustee of the
Ruth Ann Reid (Fallon) Housing Trust
- --------------------------------------------------------------------------------
ACCEPTANCE OF SUBORDINATION AGREEMENT BY BORROWER
The undersigned, being the Borrower named in the foregoing Subordination
Agreement, hereby accepts and consents thereto and agrees to be bound by all of
the provisions thereof and to recognize all priorities and other rights granted
thereby to IMPERIAL BANK, and to pay said Bank in accordance therewith.
Dated:
THE KEITH COMPANIES, INC.
By: /s/ Aram H. Keith
----------------------------
Aram H. Keith, CEO
Page 3 of 3
<PAGE>
EXHIBIT 10.24
UNSECURED PROMISSORY NOTE
=========================
$48,000.00 DATE: October 31, 1998_
----------
Costa Mesa, California
- ----------------------
For value received, the undersigned promises to pay in lawful money to Aram H.
-------
Keith, as trustee for the Wm. Scott Reid Housing Trust at his office at 2955
- -------------------------------------------------------
Redhill Avenue, Costa Mesa, California 92626, the sum of Forty-eight thousand
dollars ($48,000.00), plus interest.
Interest shall be payable at the rate of ten percent (10%) per annum on the
unpaid balance of the within note. Such interest shall commence October 31,
1998. All principal and accrued interest shall be paid in full by October 30,
2000.
Notwithstanding any other provision of this note, the undersigned agrees to pay
interest on all sums of interest and principal at the rate of ten percent (10%)
per annum from the date when due (whether or not such maturity results from the
exercise of any option of the holder of this note) to date of payment.
In the event of commencement of suit to enforce payment of this note, the
undersigned agrees to pay such additional sum as attorney fees as the court may
adjudge reasonable.
The makers hereby waive extension of time payment, presentment and demand for
payment, protest and notice of demand, protest non-payment or dishonor of this
note.
Revised and executed February 1, 1999.
Restated for subordination clause, March 9, 1999.
by:
The Keith Companies, Inc.
/s/ Aram H. Keith
- ------------------------------
Aram H. Keith, CEO
PAYMENT OF THIS NOTE IS SUBORDINATED TO THE PAYMENT OF ALL OBLIGATIONS OF THE
MAKER HEREOF TO IMPERIAL BANK PURSUANT TO THE TERMS OF A SUBORDINATION AGREEMENT
DATED FEBRUARY 9, 1998, AND ANY AMENDMENTS THERETO AND REPLACEMENTS THEREFOR.
Accepted and Agreed:
By: /s/ Aram H. Keith / 3/9/99
---------------------- -------------
Aram H. Keith, Trustee / Date
Page 1 of 3
<PAGE>
IMPERIAL BANK - SUBORDINATION AGREEMENT
(Payment Authorized)
- --------------------------------------------------------------------------------
To: Imperial Bank
The undersigned ("We") are interested in the financial success of The Keith
---------
Companies, Inc., ("Borrower"), and agree that financial accommodation from
- ----------------
IMPERIAL BANK ("Bank" or "You") to Borrower is necessary, and we accordingly
request that you grant to or renew for Borrower such financial accommodation as
you may deem proper, and for the purpose of inducing you to grant, renew or
extend such financial accommodation, we hereby severally agree as follows:
All claims of each of the undersigned against Borrower now or hereafter
existing, whether matured or not (subject to the maximum if specified below),
are and shall be at all times subordinate and subject to any and all claims on
your part against Borrower now or hereafter existing, whether matured or not, so
long as any such claim on your part against Borrower shall remain unpaid, in
whole or in part, and each of the undersigned agrees not to sue upon, or to
collect, or to receive payment upon, by setoff or in any other manner, any claim
or claims on his/hers or its part against Borrower now or hereafter existing,
nor to sell, assign, transfer, pledge, or give a security interest in the same
(except subject expressly to this Agreement), nor to enforce or apply any
security now or hereafter existing, nor to join in any petition in bankruptcy or
any assignment for the benefit of creditors or any creditors agreement, nor to
take any lien or security on any of Borrower's property, real or personal, nor
to incur any obligation to nor receive any loans, advances or gifts from
Borrower, so long as any such claim on your part against Borrower shall exist or
so long as you are committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
All claims on your part against borrower now or hereafter existing shall be
first paid by Borrower before any payment shall be made by Borrower to any of
the undersigned. Borrower may make regularly schedule payment(s) of interest
only on the claims so long as no default exists on its obligations to Bank.
Said priority of payment shall apply during the ordinary course of Borrower's
business and in case of any assignment by Borrower for the benefit of Borrower's
creditors, and in case of any bankruptcy proceedings instituted by or against
Borrower, and in case of the appointment of any receiver for Borrower or
Borrower's business or assets, and in case of any dissolution or other winding
up of the affairs of Borrower, or of Borrower's business, and in all such cases
respectively, the officers of Borrower and any assignee, trustee in bankruptcy,
receiver, and other person or persons in charge, are hereby directed to pay to
you the full amount of your claims against Borrower before making any payment to
any of the undersigned, and so far as may be necessary for that purpose, each of
the undersigned hereby transfers and assigns to you all of his/her or its rights
to any payment or distribution which might otherwise be coming to him/her or it.
You are hereby irrevocably constituted and appointed the attorney-in-fact of
each of the undersigned to file any and all proofs of claim and any other
documents and to take all other action, either in your name, or in the name of
the undersigned, or any of them, which in your opinion is necessary or desirable
to enable you to obtain all such payments.
Each of the undersigned agrees that if part or all of any claim of the
undersigned shall be evidenced by a promissory note or other instrument, the
undersigned shall cause to be placed thereon a legend stating that the payment
thereof is subordinate to the payment of all claims on your part against
Borrower pursuant to the terms of this Subordination Agreement, and each of the
undersigned agrees to mark all books of account in such manner to indicate that
payment thereof is subordinated pursuant to the terms of this Subordination
Agreement.
Page 2 of 3
<PAGE>
Each of the undersigned further agrees that in case he, she or it should
take or receive any security interest in, or lien by way of attachment,
execution, or otherwise on any of the property, real or personal, of Borrower,
or should take or join in any other measure or advantage contrary to this
Agreement, while any claim exists on your part against Borrower, you shall be
entitled to have the same vacated, dissolved and set aside by such proceedings
at law, or otherwise, as you may deem proper, and this Agreement shall be and
constitute full and sufficient ground therefor and shall entitle you to be and
become a party to any proceedings at law, or otherwise, initiated by you or by
any other party, in or by which you may deem it proper to protect your interest
hereunder; and the party so violating this Agreement shall be liable to you for
all loss and damage sustained by you by reason of such breach, including
attorney's fees in any such legal action.
If the undersigned, or any of them, shall receive any payment or property
in violation of this Agreement, such payment or property shall be received by
such undersigned in trust for you and forthwith will be delivered and
transferred to you.
No subordinations of obligations of Borrower to the undersigned have
previously been executed by the undersigned for the benefit of anyone else, and
any such subordinations hereafter executed will be, and shall be expressed to be
subject and subordinate to the effect hereof. This Agreement shall be
continuing in effect, it shall not be cancelled or otherwise rendered
ineffective by the payment or discharge at any time of all of Borrower's
obligations to you, and it shall apply to any and all financial accommodations
subsequently granted, renewed or extended by you for Borrower, unless the
undersigned shall deliver to you a written notice of revocation as to future
transactions, at a time when Borrower is no longer obligated to you in any way,
and while you are not committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
Maximum _______________________
Dated ___________________________
By: /s/ Aram H. Keith
----------------------------
Aram H. Keith, Trustee of the
William Scott Reid Housing Trust
- --------------------------------------------------------------------------------
ACCEPTANCE OF SUBORDINATION AGREEMENT BY BORROWER
The undersigned, being the Borrower named in the foregoing Subordination
Agreement, hereby accepts and consents thereto and agrees to be bound by all of
the provisions thereof and to recognize all priorities and other rights granted
thereby to IMPERIAL BANK, and to pay said Bank in accordance therewith.
Dated:
THE KEITH COMPANIES, INC.
By: /s/ Aram H. Keith
----------------------------
Aram H. Keith, CEO
Page 3 of 3
<PAGE>
EXHIBIT 10.25
AMENDED AND RESTATED PROMISSORY NOTE
------------------------------------
$ 700,000.00 DATE: 2/25/99
- ------------
COSTA MESA, CALIFORNIA
- ----------------------
For value received, the undersigned promises to pay in lawful money to WALTER W.
CRUTTENDEN, III, at his office at Cruttenden Partners , 4600 Campus Drive,
Newport Beach, CA 92660, the sum of SEVEN HUNDRED THOUSAND DOLLARS
------------------------------
($700,000.00), plus interest. The within note arises from the renewal and
- ------------
restatement of that certain secured promissory note dated December 31, 1997,
which evidenced a $700,000 loan by the Payee hereof to the Maker.
Interest shall be payable at the rate of ten percent (10%) per annum on the
unpaid balance of the within note. Such interest shall commence January 1,
1998. All accrued interest shall be paid quarterly on each January 1, April 1,
July 1, and October 1.
The principal amount of the within note, all accrued, unpaid interest, and all
other amounts due hereunder shall be paid in full on July 1, 2000. The within
promissory note is being issued by the Maker hereof, The Keith Companies, Inc.,
concurrently with a promissory note in the amount of $910,176.96 payable to Aram
H. Keith and a promissory note in the amount of $127,814.78 payable to Floyd S.
Reid, both of whom are shareholders of the Maker. It is agreed that the within
note will be paid in full before any principal payments are made to either of
said shareholders.
Notwithstanding any other provision of this note, the undersigned agrees to pay
interest on all sums of interest and principal at the rate of ten percent (10%)
per annum from the date when due (whether or not such maturity results from the
exercise of any option of the holder of this note) to date of payment.
In the event of commencement of suit to enforce payment of this note, the
undersigned agrees to pay such additional sum as attorney fees as the court may
adjudge reasonable.
The makers hereby waive extension of time payment, presentment and demand for
payment, protest and notice of demand, protest non-payment or dishonor of this
note.
Revised and executed this 25th day of February, 1999.
MAKER: THE KEITH COMPANIES, INC.
2955 Redhill Avenue, Costa Mesa, CA 92626
By: /s/ Aram H. Keith By: /s/ Gary Campanaro
------------------------------ -----------------------------------
Aram H. Keith, President Gary Campanaro, Chief Financial Officer
PAYMENT OF THIS NOTE IS SUBORDINATED TO THE PAYMENT OF ALL OBLIGATIONS OF THE
MAKER HEREOF TO IMPERIAL BANK PURSUANT TO THE TERMS OF A SUBORDINATION AGREEMENT
DATED FEBRUARY 9, 1998, AND ANY AMENDMENTS THERETO AND REPLACEMENTS THEREFOR.
ACKNOWLEDGED AND AGREED:
By: /s/ Walter W. Cruttenden, III / Date: 3-19-99
------------------------------ -----------
Walter W. Cruttenden, III
<PAGE>
IMPERIAL BANK - SUBORDINATION AGREEMENT
(PAYMENT AUTHORIZED)
- --------------------------------------------------------------------------------
To: Imperial Bank
The undersigned ("We") are interested in the financial success of The Keith
---------
Companies, Inc., ("Borrower"), and agree that financial accommodation from
- ----------------
IMPERIAL BANK ("Bank" or "You") to Borrower is necessary, and we accordingly
request that you grant to or renew for Borrower such financial accommodation as
you may deem proper, and for the purpose of inducing you to grant, renew or
extend such financial accommodation, we hereby severally agree as follows:
All claims of each of the undersigned against Borrower now or hereafter
existing, whether matured or not (subject to the maximum if specified below),
are and shall be at all times subordinate and subject to any and all claims on
your part against Borrower now or hereafter existing, whether matured or not, so
long as any such claim on your part against Borrower shall remain unpaid, in
whole or in part, and each of the undersigned agrees not to sue upon, or to
collect, or to receive payment upon, by setoff or in any other manner, any claim
or claims on his/hers or its part against Borrower now or hereafter existing,
nor to sell, assign, transfer, pledge, or give a security interest in the same
(except subject expressly to this Agreement), nor to enforce or apply any
security now or hereafter existing, nor to join in any petition in bankruptcy or
any assignment for the benefit of creditors or any creditors agreement, nor to
take any lien or security on any of Borrower's property, real or personal, nor
to incur any obligation to nor receive any loans, advances or gifts from
Borrower, so long as any such claim on your part against Borrower shall exist or
so long as you are committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
All claims on your part against borrower now or hereafter existing shall be
first paid by Borrower before any payment shall be made by Borrower to any of
the undersigned. Borrower may make regularly schedule payment(s) of interest
only on the claims so long as no default exists on its obligations to Bank.
Said priority of payment shall apply during the ordinary course of Borrower's
business and in case of any assignment by Borrower for the benefit of Borrower's
creditors, and in case of any bankruptcy proceedings instituted by or against
Borrower, and in case of the appointment of any receiver for Borrower or
Borrower's business or assets, and in case of any dissolution or other winding
up of the affairs of Borrower, or of Borrower's business, and in all such cases
respectively, the officers of Borrower and any assignee, trustee in bankruptcy,
receiver, and other person or persons in charge, are hereby directed to pay to
you the full amount of your claims against Borrower before making any payment to
any of the undersigned, and so far as may be necessary for that purpose, each of
the undersigned hereby transfers and assigns to you all of his/her or its rights
to any payment or distribution which might otherwise be coming to him/her or it.
You are hereby irrevocably constituted and appointed the attorney-in-fact of
each of the undersigned to file any and all proofs of claim and any other
documents and to take all other action, either in your name, or in the name of
the undersigned, or any of them, which in your opinion is necessary or desirable
to enable you to obtain all such payments.
Each of the undersigned agrees that if part or all of any claim of the
undersigned shall be evidenced by a promissory note or other instrument, the
undersigned shall cause to be placed thereon a legend stating that the payment
thereof is subordinate to the payment of all claims on your part against
Borrower pursuant to the terms of this Subordination Agreement, and each of the
undersigned agrees to mark all books of account in such manner to indicate that
payment thereof is subordinated pursuant to the terms of this Subordination
Agreement.
<PAGE>
Each of the undersigned further agrees that in case he, she or it should
take or receive any security interest in, or lien by way of attachment,
execution, or otherwise on any of the property, real or personal, of Borrower,
or should take or join in any other measure or advantage contrary to this
Agreement, while any claim exists on your part against Borrower, you shall be
entitled to have the same vacated, dissolved and set aside by such proceedings
at law, or otherwise, as you may deem proper, and this Agreement shall be and
constitute full and sufficient ground therefor and shall entitle you to be and
become a party to any proceedings at law, or otherwise, initiated by you or by
any other party, in or by which you may deem it proper to protect your interest
hereunder; and the party so violating this Agreement shall be liable to you for
all loss and damage sustained by you by reason of such breach, including
attorney's fees in any such legal action.
If the undersigned, or any of them, shall receive any payment or property
in violation of this Agreement, such payment or property shall be received by
such undersigned in trust for you and forthwith will be delivered and
transferred to you.
No subordinations of obligations of Borrower to the undersigned have
previously been executed by the undersigned for the benefit of anyone else, and
any such subordinations hereafter executed will be, and shall be expressed to be
subject and subordinate to the effect hereof. This Agreement shall be
continuing in effect, it shall not be cancelled or otherwise rendered
ineffective by the payment or discharge at any time of all of Borrower's
obligations to you, and it shall apply to any and all financial accommodations
subsequently granted, renewed or extended by you for Borrower, unless the
undersigned shall deliver to you a written notice of revocation as to future
transactions, at a time when Borrower is no longer obligated to you in any way,
and while you are not committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
Maximum _______________________
Dated _________________________
By: /s/ Walter W. Cruttenden, III
-----------------------------
Walter W. Cruttenden, III
ACCEPTANCE OF SUBORDINATION AGREEMENT BY BORROWER
The undersigned, being the Borrower named in the foregoing Subordination
Agreement, hereby accepts and consents thereto and agrees to be bound by all of
the provisions thereof and to recognize all priorities and other rights granted
thereby to IMPERIAL BANK, and to pay said Bank in accordance therewith.
Dated:
THE KEITH COMPANIES, INC.
By: /s/ Aram H. Keith
-----------------------------
Aram H. Keith, CEO
<PAGE>
EXHIBIT 10.26
AMENDED AND RESTATED
PROMISSORY NOTE
===============
$ 1,210,177.00 DATE: 2/25/99
- ---------------
COSTA MESA, CALIFORNIA
- ----------------------
(location where signed)
For value received, the undersigned promises to pay in lawful money to ARAM H.
KEITH at his office at 2955 Redhill Avenue, Costa Mesa, California 92626, the
sum of ONE MILLION, TWO HUNDRED TEN THOUSAND, ONE HUNDRED SEVENTY-SEVEN AND
--------------------------------------------------------------------
00/100 DOLLARS ($1,210,177.00), plus interest. The within Note arises from the
- ------------------------------
renewal, restatement and combination of all previous promissory notes
($910,176.96 and $300,000), loans and advances by the Payee hereof to the Maker.
Interest shall be payable at the rate of ten percent (10%) per annum on the
unpaid balance of the within note. Such interest shall commence January 1,
1998. All accrued interest shall be paid quarterly on each January 1, April 1,
July 1, and October 1. The principal amount of the within note, all accrued,
unpaid interest, and all other amounts due hereunder shall be paid in full on
July 1, 2000.
Notwithstanding any other provision of this note, the undersigned agrees to pay
interest on all sums of interest and principal at the rate of ten percent (10%)
per annum from the date when due (whether or not such maturity results from the
exercise of any option of the holder of this note) to date of payment.
In the event of commencement of suit to enforce payment of this note, the
undersigned agrees to pay such additional sum as attorney fees as the court may
adjudge reasonable.
The makers hereby waive extension of time payment, presentment and demand for
payment, protest and notice of demand, protest non-payment or dishonor of this
note.
Revised and executed this 25th day of February, 1999.
MAKER:
THE KEITH COMPANIES, INC.
2955 Redhill Avenue
Costa Mesa, CA 92626
BY: /s/ Floyd S. Reid /Floyd S. Reid, Secretary
----------------------------
By: /s/ Jerry Brickman /Jerry Brickman, Chief Operating Officer
----------------------------
PAYMENT OF THIS NOTE AND THE ACCRUED INTEREST AS OF 12/31/98 OF $131,680 THEREON
IS SUBORDINATED TO THE PAYMENT OF ALL OBLIGATIONS OF THE MAKER HEREOF TO
IMPERIAL BANK PURSUANT TO THE TERMS OF A SUBORDINATION AGREEMENT DATED FEBRUARY
9, 1998, AND ANY AMENDMENTS THERETO AND REPLACEMENTS THEREFOR.
ACKNOWLEDGED AND AGREED:
By: /s/ Aram H. Keith / Date:
---------------------------- -------------
Aram H. Keith
<PAGE>
IMPERIAL BANK - SUBORDINATION AGREEMENT
(PAYMENT AUTHORIZED)
- --------------------------------------------------------------------------------
To: Imperial Bank
The undersigned ("We") are interested in the financial success of The Keith
---------
Companies, Inc., ("Borrower"), and agree that financial accommodation from
- ----------------
IMPERIAL BANK ("Bank" or "You") to Borrower is necessary, and we accordingly
request that you grant to or renew for Borrower such financial accommodation as
you may deem proper, and for the purpose of inducing you to grant, renew or
extend such financial accommodation, we hereby severally agree as follows:
All claims of each of the undersigned against Borrower now or hereafter
existing, whether matured or not (subject to the maximum if specified below),
are and shall be at all times subordinate and subject to any and all claims on
your part against Borrower now or hereafter existing, whether matured or not, so
long as any such claim on your part against Borrower shall remain unpaid, in
whole or in part, and each of the undersigned agrees not to sue upon, or to
collect, or to receive payment upon, by setoff or in any other manner, any claim
or claims on his/hers or its part against Borrower now or hereafter existing,
nor to sell, assign, transfer, pledge, or give a security interest in the same
(except subject expressly to this Agreement), nor to enforce or apply any
security now or hereafter existing, nor to join in any petition in bankruptcy or
any assignment for the benefit of creditors or any creditors agreement, nor to
take any lien or security on any of Borrower's property, real or personal, nor
to incur any obligation to nor receive any loans, advances or gifts from
Borrower, so long as any such claim on your part against Borrower shall exist or
so long as you are committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
All claims on your part against borrower now or hereafter existing shall be
first paid by Borrower before any payment shall be made by Borrower to any of
the undersigned. Borrower may make regularly schedule payment(s) of interest
only on the claims so long as no default exists on its obligations to Bank.
Said priority of payment shall apply during the ordinary course of Borrower's
business and in case of any assignment by Borrower for the benefit of Borrower's
creditors, and in case of any bankruptcy proceedings instituted by or against
Borrower, and in case of the appointment of any receiver for Borrower or
Borrower's business or assets, and in case of any dissolution or other winding
up of the affairs of Borrower, or of Borrower's business, and in all such cases
respectively, the officers of Borrower and any assignee, trustee in bankruptcy,
receiver, and other person or persons in charge, are hereby directed to pay to
you the full amount of your claims against Borrower before making any payment to
any of the undersigned, and so far as may be necessary for that purpose, each of
the undersigned hereby transfers and assigns to you all of his/her or its rights
to any payment or distribution which might otherwise be coming to him/her or it.
You are hereby irrevocably constituted and appointed the attorney-in-fact of
each of the undersigned to file any and all proofs of claim and any other
documents and to take all other action, either in your name, or in the name of
the undersigned, or any of them, which in your opinion is necessary or desirable
to enable you to obtain all such payments.
Each of the undersigned agrees that if part or all of any claim of the
undersigned shall be evidenced by a promissory note or other instrument, the
undersigned shall cause to be placed thereon a legend stating that the payment
thereof is subordinate to the payment of all claims on your part against
Borrower pursuant to the terms of this Subordination Agreement, and each of the
undersigned agrees to mark all books of account in such manner to indicate that
payment thereof is subordinated pursuant to the terms of this Subordination
Agreement.
<PAGE>
Each of the undersigned further agrees that in case he, she or it should
take or receive any security interest in, or lien by way of attachment,
execution, or otherwise on any of the property, real or personal, of Borrower,
or should take or join in any other measure or advantage contrary to this
Agreement, while any claim exists on your part against Borrower, you shall be
entitled to have the same vacated, dissolved and set aside by such proceedings
at law, or otherwise, as you may deem proper, and this Agreement shall be and
constitute full and sufficient ground therefor and shall entitle you to be and
become a party to any proceedings at law, or otherwise, initiated by you or by
any other party, in or by which you may deem it proper to protect your interest
hereunder; and the party so violating this Agreement shall be liable to you for
all loss and damage sustained by you by reason of such breach, including
attorney's fees in any such legal action.
If the undersigned, or any of them, shall receive any payment or property
in violation of this Agreement, such payment or property shall be received by
such undersigned in trust for you and forthwith will be delivered and
transferred to you.
No subordinations of obligations of Borrower to the undersigned have
previously been executed by the undersigned for the benefit of anyone else, and
any such subordinations hereafter executed will be, and shall be expressed to be
subject and subordinate to the effect hereof. This Agreement shall be
continuing in effect, it shall not be cancelled or otherwise rendered
ineffective by the payment or discharge at any time of all of Borrower's
obligations to you, and it shall apply to any and all financial accommodations
subsequently granted, renewed or extended by you for Borrower, unless the
undersigned shall deliver to you a written notice of revocation as to future
transactions, at a time when Borrower is no longer obligated to you in any way,
and while you are not committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
Maximum _________________________
Dated ___________________________
By: /s/ Aram H. Keith
----------------------------
Aram H. Keith, an individual
ACCEPTANCE OF SUBORDINATION AGREEMENT BY BORROWER
The undersigned, being the Borrower named in the foregoing Subordination
Agreement, hereby accepts and consents thereto and agrees to be bound by all of
the provisions thereof and to recognize all priorities and other rights granted
thereby to IMPERIAL BANK, and to pay said Bank in accordance therewith.
Dated:
THE KEITH COMPANIES, INC.
By: /s/ Aram H. Keith
----------------------------
Aram H. Keith, CEO
<PAGE>
EXHIBIT 10.27
RESTATED AND AMENDED
====================
PROMISSORY NOTE
===============
$ 127,814.78 DATE: 2/25/99
- ------------
COSTA MESA, CALIFORNIA
- ----------------------
(location where signed)
For value received, the undersigned promises to pay in lawful money to FLOYD S.
REID at his office at 2955 Redhill Avenue, Costa Mesa, California 92626, the sum
of ONE HUNDRED TWENTY-SEVEN THOUSAND, EIGHT HUNDRED FOURTEEN AND 78/100 DOLLARS
----------------------------------------------------------------------------
($127,814.78), plus interest. The within note arises from the renewal and
- ------------
restatement of all previous promissory notes, loans and advances by the Payee
hereof to the Maker.
Interest shall be payable at the rate of ten percent (10%) per annum on the
unpaid balance of the within note. Such interest shall commence January 1,
1998. All accrued interest shall be paid quarterly on each January 1, April 1,
July 1, and October 1. In addition to the principal amount owed, as of January
31, 1999, maker also owes $31,163 in accrued interest. The principal amount of
the within note, all accrued, unpaid interest, and all other amounts due
hereunder shall be paid in full on July 1, 2000.
Notwithstanding any other provision of this note, the undersigned agrees to pay
interest on all sums of interest and principal at the rate of ten percent (10%)
per annum from the date when due (whether or not such maturity results from the
exercise of any option of the holder of this note) to date of payment.
In the event of commencement of suit to enforce payment of this note, the
undersigned agrees to pay such additional sum as attorney fees as the court may
adjudge reasonable.
The makers hereby waive extension of time payment, presentment and demand for
payment, protest and notice of demand, protest non-payment or dishonor of this
note.
Revised and executed this 25th day of February, 1999.
MAKER: THE KEITH COMPANIES, INC.
2955 Redhill Avenue
Costa Mesa, CA 92626
By: /s/ Aram H. Keith By: /s/ Jerry Brickman
------------------------------- ----------------------------------
Aram H. Keith, President Jerry Brickman, Chief Operating Officer
PAYMENT OF THIS NOTE IS SUBORDINATED TO THE PAYMENT OF ALL OBLIGATIONS OF THE
MAKER HEREOF TO IMPERIAL BANK PURSUANT TO THE TERMS OF A SUBORDINATION AGREEMENT
DATED FEBRUARY 9, 1998, AND ANY AMENDMENTS THERETO AND REPLACEMENTS THEREFOR.
ACKNOWLEDGED AND AGREED:
By: /s/ Floyd S. Reid / Date: March 16, 1999
------------------------------ --------------
Floyd S. Reid
<PAGE>
IMPERIAL BANK - SUBORDINATION AGREEMENT
(PAYMENT AUTHORIZED)
- --------------------------------------------------------------------------------
To: Imperial Bank
The undersigned ("We") are interested in the financial success of The Keith
---------
Companies, Inc., ("Borrower"), and agree that financial accommodation from
- ----------------
IMPERIAL BANK ("Bank" or "You") to Borrower is necessary, and we accordingly
request that you grant to or renew for Borrower such financial accommodation as
you may deem proper, and for the purpose of inducing you to grant, renew or
extend such financial accommodation, we hereby severally agree as follows:
All claims of each of the undersigned against Borrower now or hereafter
existing, whether matured or not (subject to the maximum if specified below),
are and shall be at all times subordinate and subject to any and all claims on
your part against Borrower now or hereafter existing, whether matured or not, so
long as any such claim on your part against Borrower shall remain unpaid, in
whole or in part, and each of the undersigned agrees not to sue upon, or to
collect, or to receive payment upon, by setoff or in any other manner, any claim
or claims on his/hers or its part against Borrower now or hereafter existing,
nor to sell, assign, transfer, pledge, or give a security interest in the same
(except subject expressly to this Agreement), nor to enforce or apply any
security now or hereafter existing, nor to join in any petition in bankruptcy or
any assignment for the benefit of creditors or any creditors agreement, nor to
take any lien or security on any of Borrower's property, real or personal, nor
to incur any obligation to nor receive any loans, advances or gifts from
Borrower, so long as any such claim on your part against Borrower shall exist or
so long as you are committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
All claims on your part against borrower now or hereafter existing shall be
first paid by Borrower before any payment shall be made by Borrower to any of
the undersigned. Borrower may make regularly schedule payment(s) of interest
only on the claims so long as no default exists on its obligations to Bank.
Said priority of payment shall apply during the ordinary course of Borrower's
business and in case of any assignment by Borrower for the benefit of Borrower's
creditors, and in case of any bankruptcy proceedings instituted by or against
Borrower, and in case of the appointment of any receiver for Borrower or
Borrower's business or assets, and in case of any dissolution or other winding
up of the affairs of Borrower, or of Borrower's business, and in all such cases
respectively, the officers of Borrower and any assignee, trustee in bankruptcy,
receiver, and other person or persons in charge, are hereby directed to pay to
you the full amount of your claims against Borrower before making any payment to
any of the undersigned, and so far as may be necessary for that purpose, each of
the undersigned hereby transfers and assigns to you all of his/her or its rights
to any payment or distribution which might otherwise be coming to him/her or it.
You are hereby irrevocably constituted and appointed the attorney-in-fact of
each of the undersigned to file any and all proofs of claim and any other
documents and to take all other action, either in your name, or in the name of
the undersigned, or any of them, which in your opinion is necessary or desirable
to enable you to obtain all such payments.
Each of the undersigned agrees that if part or all of any claim of the
undersigned shall be evidenced by a promissory note or other instrument, the
undersigned shall cause to be placed thereon a legend stating that the payment
thereof is subordinate to the payment of all claims on your part against
Borrower pursuant to the terms of this Subordination Agreement, and each of the
undersigned agrees to mark all books of account in such manner to indicate that
payment thereof is subordinated pursuant to the terms of this Subordination
Agreement.
<PAGE>
Each of the undersigned further agrees that in case he, she or it should
take or receive any security interest in, or lien by way of attachment,
execution, or otherwise on any of the property, real or personal, of Borrower,
or should take or join in any other measure or advantage contrary to this
Agreement, while any claim exists on your part against Borrower, you shall be
entitled to have the same vacated, dissolved and set aside by such proceedings
at law, or otherwise, as you may deem proper, and this Agreement shall be and
constitute full and sufficient ground therefor and shall entitle you to be and
become a party to any proceedings at law, or otherwise, initiated by you or by
any other party, in or by which you may deem it proper to protect your interest
hereunder; and the party so violating this Agreement shall be liable to you for
all loss and damage sustained by you by reason of such breach, including
attorney's fees in any such legal action.
If the undersigned, or any of them, shall receive any payment or property
in violation of this Agreement, such payment or property shall be received by
such undersigned in trust for you and forthwith will be delivered and
transferred to you.
No subordinations of obligations of Borrower to the undersigned have
previously been executed by the undersigned for the benefit of anyone else, and
any such subordinations hereafter executed will be, and shall be expressed to be
subject and subordinate to the effect hereof. This Agreement shall be
continuing in effect, it shall not be cancelled or otherwise rendered
ineffective by the payment or discharge at any time of all of Borrower's
obligations to you, and it shall apply to any and all financial accommodations
subsequently granted, renewed or extended by you for Borrower, unless the
undersigned shall deliver to you a written notice of revocation as to future
transactions, at a time when Borrower is no longer obligated to you in any way,
and while you are not committed or otherwise obligated to make any loans to, or
grant any credit to, Borrower.
Maximum 127,814.78
-------------------------
Dated March 18, 1994
---------------------------
By: /s/ Floyd S. Reid
----------------------------
Floyd S. Reid
ACCEPTANCE OF SUBORDINATION AGREEMENT BY BORROWER
The undersigned, being the Borrower named in the foregoing Subordination
Agreement, hereby accepts and consents thereto and agrees to be bound by all of
the provisions thereof and to recognize all priorities and other rights granted
thereby to IMPERIAL BANK, and to pay said Bank in accordance therewith.
Dated:
THE KEITH COMPANIES, INC.
By: /s/ Aram H. Keith
----------------------------
Aram H. Keith, CEO
<PAGE>
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 1st day of
October, 1997, between ESI, ENGINEERING SERVICES, INC. ( a wholly owned
subsidiary of The KEITH COMPANIES, Inc. a California Corporation) ("Employer" or
"ESI") and Lynn C. Cannady ("Employee"), in contemplation of the following
facts:
A. Employer is engaged in the highly specialized business of designing,
developing, conducting, managing and implementing all of the facilities,
policies, procedures, plans and programs for the conduct of a fully
operational consulting engineering business which specializes in the design
of (1) processing systems for various manufacturers, (2) electrical
engineering, (3) instrumentation and (4) systems to dispose of contaminated
waste.
B. Employee is being employed by Employer because of his intellectual
capabilities, character and the extraordinary ability and expertise which
Employee possesses in resolving complex process and chemical engineering
challenges, and his exceptional management capabilities. Employee has been
employed by Employer for more than seventeen years, however, concurrent
with the execution of this Agreement, Employer is being acquired by The
Keith Companies, Inc. ("Keith"), and Employee is a selling shareholder.
C. Said employment is primarily of a highly confidential nature involving
duties which require Employer to confide in Employee and to entrust
Employee with the highest degree of faith, trust and confidence.
NOW, THEREFORE, in consideration of the initiation of said employment, of other
good and valuable consideration received by Employee (the receipt of which is
hereby acknowledged) and of the mutual promises and covenants herein,
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Incorporation of Recitals by Reference.
---------------------------------------
The recitals hereinbefore set forth as Paragraphs A through C, inclusive,
are hereby incorporated by this reference as part of the agreement made between
Employer and Employee, as though said recitals were again set forth at length
herein. Employer and employee hereby acknowledge and confirm to each other the
truth and correctness of each said recital.
2. Nature of Employment.
---------------------
Employer hereby employs Employee as a Senior Vice President -
Instrumentation and Controls Engineering of Employer initially with the primary
responsibility and authority for the
1
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management of ESI's Instrumentation and Controls Engineering Division. As
manager of said division, Employee's duties include, among others, supervision
of his division's staff, developing billable work for current and prospective
clients, and the day to day management of the Instrumentation and Controls
Engineering Division segment of ESI's business, and programs related thereto.
During the term of this Agreement, Employee shall undertake and discharge
in a competent and professional manner at all times and for the exclusive
benefit of Employer all of Employer's assigned work as delegated to Employee
from time to time, and shall implement such procedures and plans as are prudent
to accomplish such assignments, including without limitation all processes,
policies and procedures, and work product relating thereto or in any way
connected therewith. Employee shall during the term hereof also supervise and
discharge in a like competent and professional manner at all times and for the
exclusive benefit of Employer all managerial responsibilities and duties
relating to the maintenance, improvement and advancement on all levels of
Employer's Instrumentation and Controls Engineering division. With the
concurrence of Employee, Employer may direct that Employee's duties hereunder be
performed for any of Employer's affiliated engineering offices and Employer may
assign this Agreement in its entirety to any one or more of Employer's
divisions, subsidiaries or affiliates, as they may exist from time to time.
However, Employee shall not be required to change his place of full time
employment from the general area of Walnut Creek without Employee's voluntary
concurrence.
During the term of this Agreement, which may be extended as hereinafter
provided, Employee shall devote Employee's full time, energies and skills to the
management and conduct of Employer's business. Except for his ownership interest
in Design Services, Inc., which business is expected to be sold during 1997 or
early 1998, Employee agrees that he will not without Employer's prior written
consent either directly or indirectly, alone or as a member of a partnership or
other association, or as an officer, director or shareholder of any corporation,
be engaged in or concerned with any other duties or pursuits in a business
activity which competes in any manner whatsoever with the business and
activities of Employer. It is agreed that during some or all of the term of this
Agreement, Employee may deem it necessary or advisable to devote a small amount
of time to the management of his outside, personal investments unrelated to
Employer's business. Such time devoted to such investments shall not exceed an
average of ten hours per month.
3. Term of Employment.
------------------
Said employment shall be for an initial period of five (5) years,
commencing as of the date hereof, subject to earlier termination as hereinafter
provided. It is contemplated that the term of this Agreement may be extended in
one year supplements after the end of the initial term hereof by mutual
agreement of the parties hereto, provided that the terms and conditions of any
such extension shall be evidenced by a writing signed by each of the parties
hereto, In the event that a new agreement is not executed among the parties,
Employee shall become an employee at will of Employer.
2
<PAGE>
4. Salary.
------
Employer shall pay to Employee a salary of ONE HUNDRED SIX THOUSAND DOLLARS
($106,000.00) per twelve month period during the first twelve months of this
Agreement, payable in bi-weekly installments or on such payroll dates
established from time to time for Employer's senior management level employees.
As of each October 1, commencing October 1, 1998, Employer shall fairly consider
increases in Employee's base pay rate commensurate with his demonstrated
capabilities both technically and considering new business opportunities
developed by Employee. It is anticipated that, as a minimum, the percentage by
which Employee's base salary rate shall be increased as of each October 1st will
be reflective of increases in the Consumer Price Index or some similar measure
of inflation's impact on purchasing power in the geographic area in which
Employee resides.
In the unlikely event that ESI fails to earn Net Income After Provision for
State and Federal Taxes on Income of ten percent of the average book value of
ESI's Shareholders' Equity during any year, Employee's salary may be adjusted
downward, but in no event below Eighty Five Thousand Dollars per annum. The
average book value of Shareholders' Equity for any fiscal year shall be
determined in accordance with generally accepted accounting principals ("GAAP")
by calculating the average of the book value at the beginning of the fiscal
year, the book value at the end of each subsequent three month period during
that fiscal year, and the book value at the end of the fiscal year (the five
amounts are added together, and that result is divided by five).
In the event of a reduction in the salary of Employee due to ESI's failure
to achieve the net income levels required by the preceding paragraph, such
reduction in base salary shall not extend past the end of the fiscal quarter
which immediately follows the fiscal quarter during which the required net
income goals are once again attained.
All salary payments to Employee shall be subject to deduction therefrom of
all payroll taxes, withholdings and assessments as are required by law and by
such voluntary payroll deductions as Employee authorizes in writing, all as
established from time to time pursuant to Employer's payroll policy. Anything
set forth herein to the contrary notwithstanding, said salary shall be prorated
to the actual period of Employee's employment hereunder.
5. Incentive Stock Option Plan of Employer
---------------------------------------
During the period of Employee's employment he shall participate in
Employer's Incentive Stock Option Plan. Initially Employer shall grant Employee
options on 40,000 shares, each with an exercise price of one dollar per share.
The terms of the Incentive Stock Option Plan (this explanation is merely a
summary, thus the Plan itself should be examined for specific terms and
conditions, it is agreed that in the event of any conflict, the terms of the
Plan shall prevail) provide for vesting of 20% of the total shares granted
during each of the first five years of an employee's employment, and allow up to
ten years for an employee to exercise his vested options.
Irrespective of any provision of the Stock Option Agreement to the
contrary, in the
3
<PAGE>
event of Employee's death or permanent disability (as certified by a licensed
physician) while employed by Employer, all shares granted in Employee's stock
option described in the preceding paragraph shall vest immediately, and
Employee's estate, representative or the Employee, as the case may be, shall
have one year from the date of such event in which to exercise any or all of the
unexercised option.
6. Expenses
--------
Employer will reimburse Employee from time to time for all necessary
expenses incurred in connection with the performance of Employee's duties under
this Agreement but only upon submission to Employer of good and sufficient
supporting vouchers, receipts and the like for all such expenses for which
Employee desires to receive reimbursement from Employer, and on forms utilized
by Employer. Employee's right to reimbursement shall be subject to such policies
as Employer establishes from time to time for its management employees.
In the event that any applicable federal or state taxing authority denies
for any reason the deduction by Employer for any reimbursed expense (except the
portion of meals and entertainment expense which is not deductible under then
applicable income tax law, currently 50% is not deductible) paid to Employee
hereunder then, upon demand of Employer, Employee shall repay to Employer the
full amount of all such disallowed reimbursed expense, as the case may be.
7. Termination of Employment.
-------------------------
Anything set forth herein to the contrary notwithstanding, this Agreement
shall terminate and shall be of no further force or effect whatsoever (except
with respect to those provisions set forth in Sections 9 and 10 hereof which are
hereby expressly intended to survive the termination of this Agreement)
immediately upon the occurrence of any of the following events:
(a) The expiration of the term of employment hereunder as provided for
in Section 3 hereof;
(b) The death of Employee;
(c) At the sole option of Employer, if Employee is unable to unwilling
to perform his assigned duties for any reason, including but not limited to
sickness, accident or disability, beyond the period of Employee's accumulated
sick leave, or beyond the time of such other leave of absence as the Employer
customarily grants to its employees under similar circumstances, if any, or upon
the total disability of Employee, as the case may be.
(d) If Employee fails to carry out his duties faithfully,
conscientiously and competently and does not correct any such failure to
Employer's reasonable satisfaction within ten (10) days after written notice
from Employer to Employee thereof;
(e) At the sole option of Employer, if Employee accepts any employment
by or for any other person, firm or corporation without Employer's prior written
consent.
(f) At sole option of Employer, if Employee should do any act
offensive to decency, morality or social propriety tending to result in scandal,
hatred, proved or admitted
4
<PAGE>
allegations of sexual harassment, ridicule or contempt or if Employee should
violate or be charged with a violation of any law which subjects Employee or
Employer to any scandal, hatred, ridicule or contempt, or a judgment of a court
of competent jurisdiction of monetary damages in excess of $50,000 for sexual
harassment or job discrimination, or either pleads or is found guilty of any
felony.
(g) At the sole option of Employer, in the event that Employer ceases
for any reason to conduct its business and activities in the State of
California.
Anything set forth herein to the contrary notwithstanding, Employee
(or Employee's heirs, personal representatives, guardians or conservators, as
the case may be) shall be entitled to receive from Employer any prorated salary,
or other benefit which has accrued to Employee hereunder prior to any such
termination of Employee's employment hereunder.
8. Vacation and Fringe Benefits
----------------------------
Employee shall be entitled to paid vacations, sick leave and other benefits
as may be established by Employer from time to time as standard for comparable
employees. For purposes of seniority in connection with vacation privileges and
for length of service awards, Employee's hire date shall be considered to be
October 1, 1990. In addition, Employee shall also be entitled to participate in
such fringe benefit programs, if any, as may be provided for by Employer from
time to time for the benefit of comparable employees during the terms of this
Agreement and in which Employee is designated as a participant therein or
beneficiary thereof. All of such programs and policies are hereby expressly made
subject to adjustment, modification or cancellation by Employer from time to
time in order to conform with Employer's managerial policies.
9. Nondisclosure of Information.
-----------------------------
Employee acknowledges that during the course of his employment hereunder he
will be acquiring, making use of and adding to confidential information of
special and unique value to Employer and relating to such matters (by way of
example only and without limitation thereto) as lists of Employer's and its
affiliates' clients and their projects, Employer's pricing of client's projects
and the compensation rates and professional abilities of fellow employees.
Employee agrees that during the term of this Agreement and for the twenty
four (24) month period next following the term hereof (without the prior written
consent of the President of Keith, its successors or assigns), he will not as an
individual or as a stockholder, partner, agent, employee, servant or
representative of any person, firm corporation or association, either directly
or indirectly divulge, disclose or communicate to any person, firm, corporation
(other than Employer and its affiliates) or association in any manner whatsoever
or take advantage of for his own economic gain or for the economic gain of
others any information of any kind, nature or description concerning any matters
affecting or relating to Employer's business or affairs, including without
limitation the names
5
<PAGE>
of any of its customers, its relations with its employees, including salaries,
job classification and skill levels, its manner of operation, its copyrights,
plans, processes or other data of any kind, nature or description, or any other
information, of, about or concerning Employer's confidential business and
affairs. All of such information is hereby determined and declared to be
important, material, highly confidential, in the nature of trade secrets and
vitally important to the successful conduct of Employer's business and the
maintenance of its goodwill among its clients and employees.
As a separate and distinct covenant hereby made by Employee to Employer,
during the term hereof and within the period of twelve (12) calendar months
thereafter, Employee shall not (as an individual or as a stockholder, partner,
agent, employee or representative of any person, firm, corporation or
association) engage in or have any direct or indirect interest in any business
in competition with one or more of the businesses carried on by Employer or by
any of its affiliates (whether subsequently carried on by the same organization
or by any successors thereto) as presently conducted or as conducted at any time
during the term of this Agreement or within said twelve (12) calendar month
period thereafter in any geographical area within thirty miles of an Engineering
office then operated by ESI or by any affiliate of the Keith Group of Companies,
provided, however, that this paragraph shall not prevent Employee from acquiring
and holding not to exceed two percent (2%) of the outstanding shares of any
corporation engaged in such competitive business if such shares are available to
the general public on a national or regional securities exchange or on the over
the counter market. Employee acknowledges that concurrent with the execution of
this Agreement, Keith is acquiring all of ESI's issued and outstanding capital
stock from ESI's three owners, one of whom is Employee, and that Keith would not
acquire said stock without the agreements not to compete and not to divulge
trade secrets as set forth in this and the preceding two paragraphs.
The various restrictions set forth in this Section 9 shall be deemed
severable and the invalidity of any such restrictions shall not affect the
validity of the remaining such restrictions. In the event of any breach by
Employee of the terms and conditions hereof, Employer shall have the right,
among other rights, to sue Employee for damages sustained thereby and to seek
injunctive relief to restrain Employee from continuing with such breach.
Employee agrees that this Section 9 shall survive the termination of his
employment for any reason and Employee shall be bound by all of the terms and
conditions hereof subsequent to the termination of his employment and for so
long a period thereafter during said twelve (12) calendar month period as
Employer or its affiliates (or their respective successors in interest or
assigns, as the case may be) continue to conduct the same or substantially the
same business at some or all of the places and locations within the continental
United States where such business is or will during such period be conducted.
Nothing herein contained shall in any way be deemed to limit, derogate from,
modify or exclude any or all other rights granted by law or in equity to
Employer as against Employee in the event of Employee's breach hereunder.
6
<PAGE>
10. Possible Cash Bonus
-------------------
Employee, who has been one of ESI's executives for many years, has been
informed that ESI may have Net Operating Loss Carryforwards for Federal and/ or
California Income Tax purposes ("NOL's") as of June 30, 1997 which may be
available in future tax years to offset taxable income earned in such future
years. To the extent that the NOL's achieve savings in either Federal or
California Income Taxes that would otherwise be payable, and as reflected on the
appropriate Federal Form 1120 and California Form 100 (or successors to such
forms, if any), Employee shall be paid a cash bonus of 16.6% of said tax
benefit. The cash bonus shall be paid within sixty days of the filing of the
corporate income tax return, and it shall be subject to normal payroll tax
withholdings and deductions which are then applicable to a normal cash bonus.
11. Miscellaneous
-------------
(a) Partial Invalidity. If any term or provision of this Agreement
-------------------
or the application thereof to any person or circumstance shall, to any extent,
be invalid or unenforceable, the remainder of this Agreement, or the application
of such term or provision to persons and or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby, and
each such term and provision of this Agreement shall be valid and enforced to
the fullest extent permitted by law.
(b) Waivers. No waiver of any breach of any covenant or provision
--------
herein contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed an extension of
the time for performance of any other obligation or act.
(c) Assignment. Neither party shall assign, transfer or convey,
-----------
voluntarily or involuntarily, it's rights and obligations under this Agreement
without the prior written consent of the other property, which consent may be
withheld in such party's sole discretion.
(d) Successors and Assigns. This Agreement shall be binding upon and
-----------------------
shall inure to the benefit of the permitted successors and assigns of the
parties hereto.
(e) Professional Fees. In the event of the bringing of any action or
-------------------
suit by a party hereto against another party hereunder by reason of any breach
of any of the covenants, agreements or provisions on the part of the other party
arising out of this Agreement, then in that event the prevailing party shall be
entitled to have and recover of and from the other party all costs and expenses
of the action of suit, including actual attorneys', accounting and engineering
fees, and any other professional fees resulting therefrom.
(f) Entire Agreement. This Agreement (including all Exhibits
-----------------
attached hereto) is the final expression of, and contains the entire agreement
between the parties with
7
<PAGE>
respect to the subject matter hereof and supersedes all prior understandings
with respect thereto. This Agreement may not be modified, changed, supplemented
or terminated, nor may any obligations hereunder be waiver, except by a written
instrument signed by the party to be charged or by its agent duly authorized in
writing or as otherwise expressly permitted herein. The parties do not intend to
confer any benefit hereunder on any person, firm or corporation other than the
parties hereto.
(g) Time of Essence. The parties hereby acknowledge and agree that
----------------
time is strictly of the essence with respect to each and every term, condition,
obligation and provision hereof and that failure to timely perform any of the
terms, conditions, obligations or provisions hereof by either party shall
constitute a material breach of and a non-curable (but waivable) default under
this Agreement by the party so failing to perform.
(h) Construction. Headings at the beginning of each paragraph and
-------------
subparagraph or section are solely for the convenience of the parties and are
not a part of the Agreement. Whenever required by the context of this Agreement,
the singular shall include the plural and the masculine shall include the
feminine and vice versa. This Agreement shall not be construed as if it had been
prepared by one of the parties, but rather as if both parties had prepared the
same. Unless otherwise indicated, all references to paragraphs, sections and
subparagraphs are to this Agreement. All exhibits referred to in this Agreement
are attached and exhibits referred to in this Agreement are attached and
incorporated by this reference. In the event the last date on which any party is
required to take any action under the terms of this Agreement is not a business
day, the action may be taken on the next succeeding business day.
(i) Governing Law. The parties hereto acknowledge that this
--------------
Agreement has been negotiated and entered into in the State of California. The
parties hereto expressly agree that this Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with the laws of the
State of California, and by the Superior Courts of Orange County.
"EMPLOYER"
ESI, ENGINEERING SERVICES, INC.
A wholly owned subsidiary of THE KEITH COMPANIES, Inc.
a California Corporation
/s/ ARAM H. KEITH
by________________________
Aram H. Keith, President
/s/ FLOYD S. REID
by________________________
Floyd S. Reid, Secretary
8
<PAGE>
"EMPLOYEE"
/s/ LYNN C. CANNADY
by________________________
Lynn C. Cannady
9
<PAGE>
EXHIBIT 10.29
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 1st day of
October, 1997, between ESI, ENGINEERING SERVICES, INC. ( a wholly owned
subsidiary of The KEITH COMPANIES, Inc. a California Corporation) ("Employer")
and Glenn I. Chase ("Employee"), in contemplation of the following facts:
A. Employer is engaged in the highly specialized business of designing,
developing, conducting, managing and implementing all of the facilities,
policies, procedures, plans and programs for the conduct of a fully
operational consulting engineering business which specializes in the design
of (1) processing systems for various manufacturers, (2) electrical
engineering, (3) instrumentation and (4) systems to dispose of contaminated
waste.
B. Employee is being employed by Employer because of his intellectual
capabilities, character and the extraordinary ability and expertise which
Employee possesses in resolving complex process engineering challenges, and
his exceptional management capabilities. Employee has been employed by
Employer for more than seventeen years, however, concurrent with the
execution of this Agreement, Employer is being acquired by The Keith
Companies, Inc. ("Keith"), and Employee is a selling shareholder.
C. Said employment is primarily of a highly confidential nature involving
duties which require Employer to confide in Employee and to entrust
Employee with the highest degree of faith, trust and confidence.
NOW, THEREFORE, in consideration of the initiation of said employment, of other
good and valuable consideration received by Employee (the receipt of which is
hereby acknowledged) and of the mutual promises and covenants herein,
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Incorporation of Recitals by Reference.
---------------------------------------
The recitals hereinbefore set forth as Paragraphs A through C, inclusive,
are hereby incorporated by this reference as part of the agreement made between
Employer and Employee, as though said recitals were again set forth at length
herein. Employer and employee hereby acknowledge and confirm to each other the
truth and correctness of each said recital.
2. Nature of Employment.
---------------------
Employer hereby employs Employee as a Senior Vice President - Process
Engineering of Employer initially with the primary responsibility and authority
for the
1
<PAGE>
management of ESI's Process Engineering Division, and also as the business
manager of ESI, which duties entail, among others, the design and implementation
of the planning, business management and administrative functions of ESI and the
oversight of the Process Engineering segment of ESI's business, and programs
related thereto. In his capacity as business manager of ESI, Employee shall
report to the Chief Financial Officer of Keith.
During the term of this Agreement, Employee shall undertake and discharge
in a competent and professional manner at all times and for the exclusive
benefit of Employer all of Employer's assigned work as delegated to Employee
from time to time, and shall implement such procedures and plans as are prudent
to accomplish such assignments, including without limitation all processes,
policies and procedures, and work product relating thereto or in any way
connected therewith. Employee shall during the term hereof also supervise and
discharge in a like competent and professional manner at all times and for the
exclusive benefit of Employer all managerial responsibilities and duties
relating to the maintenance, improvement and advancement on all levels of
Employer's engineering business. With the concurrence of Employee, Employer may
direct that Employee's duties hereunder be performed for any of Employer's
affiliated engineering offices and Employer may assign this Agreement in its
entirety to any one or more of Employer's divisions, subsidiaries or affiliates,
as they may exist from time to time. However, Employee shall not be required to
change his place of full time employment from the general area of Walnut Creek
without Employee's voluntary concurrence.
During the term of this Agreement, which may be extended as hereinafter
provided, Employee shall devote Employee's full time, energies and skills to the
management and conduct of Employer's business. Except for his ownership interest
in Design Services, Inc., which business is expected to be sold during 1997 or
early 1998, Employee agrees that he will not without Employer's prior written
consent either directly or indirectly, alone or as a member of a partnership or
other association, or as an officer, director or shareholder of any corporation,
be engaged in or concerned with any other duties or pursuits in a business
activity which competes in any manner whatsoever with the business and
activities of Employer. It is agreed that during some or all of the term of this
Agreement, Employee may deem it necessary or advisable to devote a small amount
of time to the management of his outside, personal investments unrelated to
Employer's business. Such time devoted to such investments shall not exceed an
average of ten hours per month.
3. Term of Employment.
------------------
Said employment shall be for an initial period of five (5) years,
commencing as of the date hereof, subject to earlier termination as hereinafter
provided. It is contemplated that the term of this Agreement may be extended in
one year supplements after the end of the initial term hereof by mutual
agreement of the parties hereto, provided that the terms and conditions of any
such extension shall be evidenced by a writing signed by each of the parties
hereto, In the event that a new agreement is not executed among the parties,
Employee shall become an employee at will of Employer. It is further agreed,
that upon the request of Employee, after October 1, 2000, Employee may wish to
be employed as a part
2
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time consultant, available to Employer for no less than 1,500 hours per year
(including any vacation, holiday and sick pay hours available and utilized by
Employee), with an appropriate adjustment in compensation and benefits based
upon such hours, or based upon Employee's termination of full time employment
and subsequent retention as a consultant.
4. Salary.
------
Employer shall pay to Employee a salary of ONE HUNDRED SIX THOUSAND DOLLARS
($106,000.00) per twelve month period during the first twelve months of this
Agreement, payable in bi-weekly installments or on such payroll dates
established from time to time for Employer's senior management level employees.
As of each October 1, commencing October 1, 1998, Employer shall fairly consider
increases in Employee's base pay rate commensurate with his demonstrated
capabilities both technically and considering new business opportunities
developed by Employee. It is anticipated that, as a minimum, the percentage by
which Employee's base salary rate shall be increased as of each October 1st will
be reflective of increases in the Consumer Price Index or some similar measure
of inflation's impact on purchasing power in the geographic area in which
Employee resides.
In the unlikely event that ESI fails to earn Net Income After Provision for
State and Federal Taxes on Income of ten percent of the average book value of
ESI's Shareholders' Equity during any year, Employee's salary may be adjusted
downward, but in no event below Eighty Five Thousand Dollars per annum. The
average book value of Shareholders' Equity for any fiscal year shall be
determined in accordance with generally accepted accounting principals ("GAAP")
by calculating the average of the book value at the beginning of the fiscal
year, the book value at the end of each subsequent three month period during
that fiscal year, and the book value at the end of the fiscal year (the five
amounts are added together, and that result is divided by five).
In the event of a reduction in the salary of Employee due to ESI's failure
to achieve the net income levels required by the preceding paragraph, such
reduction in base salary shall not extend past the end of the fiscal quarter
which immediately follows the fiscal quarter during which the required net
income goals are once again attained.
All salary payments to Employee shall be subject to deduction therefrom of
all payroll taxes, withholdings and assessments as are required by law and by
such voluntary payroll deductions as Employee authorizes in writing, all as
established from time to time pursuant to Employer's payroll policy. Anything
set forth herein to the contrary notwithstanding, said salary shall be prorated
to the actual period of Employee's employment hereunder.
5. Incentive Stock Option Plan of Employer
---------------------------------------
During the period of Employee's employment he shall participate in
Employer's Incentive Stock Option Plan. Initially Employer shall grant Employee
options on 40,000 shares, each with an exercise price of one dollar per share.
The terms of the Incentive Stock Option Plan (this explanation is merely a
summary, thus the Plan itself should be examined
3
<PAGE>
for specific terms and conditions, it is agreed that in the event of any
conflict, the terms of the Plan shall prevail) provide for vesting of 20% of the
total shares granted during each of the first five years of an employee's
employment, and allow up to ten years for an employee to exercise his vested
options . Should Employee become a Consultant to Employer after September, 2000
as provided in Section 3 of this Agreement, Options granted prior to that date
shall continue to vest as if Employee was still a full time employee of
Employer.
Irrespective of any provision of the Stock Option Agreement to the
contrary, in the event of Employee's death or permanent disability (as certified
by a licensed physician) while employed by Employer, all shares granted in
Employee's stock option described in the preceding paragraph shall vest
immediately, and Employee's estate, representative or the Employee, as the case
may be, shall have one year from the date of such event in which to exercise any
or all of the unexercised option.
6. Expenses
--------
Employer will reimburse Employee from time to time for all necessary
expenses incurred in connection with the performance of Employee's duties under
this Agreement but only upon submission to Employer of good and sufficient
supporting vouchers, receipts and the like for all such expenses for which
Employee desires to receive reimbursement from Employer, and on forms utilized
by Employer. Employee's right to reimbursement shall be subject to such policies
as Employer establishes from time to time for its management employees.
In the event that any applicable federal or state taxing authority denies
for any reason the deduction by Employer for any reimbursed expense (except the
portion of meals and entertainment expense which is not deductible under then
applicable income tax law, currently 50% is not deductible) paid to Employee
hereunder then, upon demand of Employer, Employee shall repay to Employer the
full amount of all such disallowed reimbursed expense, as the case may be.
7. Termination of Employment.
-------------------------
Anything set forth herein to the contrary notwithstanding, this Agreement
shall terminate and shall be of no further force or effect whatsoever (except
with respect to those provisions set forth in Sections 9 and 10 hereof which
are hereby expressly intended to survive the termination of this Agreement)
immediately upon the occurrence of any of the following events:
(a) The expiration of the term of employment hereunder as provided for
in Section 3 hereof;
(b) The death of Employee;
(c) At the sole option of Employer, if Employee is unable to unwilling
to perform his assigned duties for any reason, including but not limited to
sickness, accident or disability, beyond the period of Employee's accumulated
sick leave, or beyond the time of such other leave of absence as the Employer
customarily grants to its employees under similar circumstances, if any, or upon
the total disability of Employee, as the case may be.
4
<PAGE>
(d) If Employee fails to carry out his duties faithfully,
conscientiously and competently and does not correct any such failure to
Employer's reasonable satisfaction within ten (10) days after written notice
from Employer to Employee thereof;
(e) At the sole option of Employer, if Employee accepts any employment
by or for any other person, firm or corporation without Employer's prior written
consent.
(f) At sole option of Employer, if Employee should do any act
offensive to decency, morality or social propriety tending to result in scandal,
hatred, proved or admitted allegations of sexual harassment, ridicule or
contempt or if Employee should violate or be charged with a violation of any law
which subjects Employee or Employer to any scandal, hatred, ridicule or
contempt, or a judgment of a court of competent jurisdiction of monetary damages
in excess of $50,000 for sexual harassment or job discrimination, or either
pleads or is found guilty of any felony.
(g) At the sole option of Employer, in the event that Employer ceases
for any reason to conduct its business and activities in the State of
California.
Anything set forth herein to the contrary notwithstanding, Employee
(or Employee's heirs, personal representatives, guardians or conservators, as
the case may be) shall be entitled to receive from Employer any prorated salary,
or other benefit which has accrued to Employee hereunder prior to any such
termination of Employee's employment hereunder.
8. Vacation and Fringe Benefits
----------------------------
Employee shall be entitled to paid vacations, sick leave and other benefits
as may be established by Employer from time to time as standard for comparable
employees. For purposes of seniority in connection with vacation privileges and
for length of service awards, Employee's hire date shall be considered to be
October 1, 1990. In addition, Employee shall also be entitled to participate in
such fringe benefit programs, if any, as may be provided for by Employer from
time to time for the benefit of comparable employees during the terms of this
Agreement and in which Employee is designated as a participant therein or
beneficiary thereof. All of such programs and policies are hereby expressly made
subject to adjustment, modification or cancellation by Employer from time to
time in order to conform with Employer's managerial policies.
9. Nondisclosure of Information.
-----------------------------
Employee acknowledges that during the course of his employment hereunder he
will be acquiring, making use of and adding to confidential information of
special and unique value to Employer and relating to such matters (by way of
example only and without limitation thereto) as lists of Employer's and its
affiliates' clients and their projects, Employer's pricing of client's projects
and the compensation rates and professional abilities of fellow employees.
Employee agrees that during the term of this Agreement and for the twenty
four (24) month period next following the term hereof (without the prior written
consent of the
5
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President of Keith, its successors or assigns), he will not as an individual or
as a stockholder, partner, agent, employee, servant or representative of any
person, firm corporation or association, either directly or indirectly divulge,
disclose or communicate to any person, firm, corporation (other than Employer
and its affiliates) or association in any manner whatsoever or take advantage of
for his own economic gain or for the economic gain of others any information of
any kind, nature or description concerning any matters affecting or relating to
Employer's business or affairs, including without limitation the names of any of
its customers, its relations with its employees, including salaries, job
classification and skill levels, its manner of operation, its copyrights, plans,
processes or other data of any kind, nature or description, or any other
information, of, about or concerning Employer's confidential business and
affairs. All of such information is hereby determined and declared to be
important, material, highly confidential, in the nature of trade secrets and
vitally important to the successful conduct of Employer's business and the
maintenance of its goodwill among its clients and employees.
As a separate and distinct covenant hereby made by Employee to Employer,
during the term hereof and within the period of twelve (12) calendar months
thereafter, Employee shall not (as an individual or as a stockholder, partner,
agent, employee or representative of any person, firm, corporation or
association) engage in or have any direct or indirect interest in any business
in competition with one or more of the businesses carried on by Employer or by
any of its affiliates (whether subsequently carried on by the same organization
or by any successors thereto) as presently conducted or as conducted at any time
during the term of this Agreement or within said twelve (12) calendar month
period thereafter in any geographical area within thirty miles of an Engineering
office then operated by ESI or by any affiliate of the Keith Group of Companies,
provided, however, that this paragraph shall not prevent Employee from acquiring
and holding not to exceed two percent (2%) of the outstanding shares of any
corporation engaged in such competitive business if such shares are available to
the general public on a national or regional securities exchange or on the over
the counter market. Employee acknowledges that concurrent with the execution of
this Agreement, Keith is acquiring all of ESI's issued and outstanding capital
stock from ESI's three owners, one of whom is Employee, and that Keith would not
acquire said stock without the agreements not to compete and not to divulge
trade secrets as set forth in this and the preceding two paragraphs.
The various restrictions set forth in this Section 9 shall be deemed
severable and the invalidity of any such restrictions shall not affect the
validity of the remaining such restrictions. In the event of any breach by
Employee of the terms and conditions hereof, Employer shall have the right,
among other rights, to sue Employee for damages sustained thereby and to seek
injunctive relief to restrain Employee from continuing with such breach.
Employee agrees that this Section 9 shall survive the termination of his
employment for any reason and Employee shall be bound by all of the terms and
conditions hereof subsequent to the termination of his employment and for so
long a period thereafter during said twelve (12) calendar month period as
Employer or its affiliates (or their respective successors in interest
6
<PAGE>
or assigns, as the case may be) continue to conduct the same or substantially
the same business at some or all of the places and locations within the
continental United States where such business is or will during such period be
conducted. Nothing herein contained shall in any way be deemed to limit,
derogate from, modify or exclude any or all other rights granted by law or in
equity to Employer as against Employee in the event of Employee's breach
hereunder.
10. Possible Cash Bonus
-------------------
Employee, who has been one of ESI's executives for many years, has been
informed that ESI may have Net Operating Loss Carryforwards for Federal and/ or
California Income Tax purposes ("NOL's") as of June 30, 1997 which may be
available in future tax years to offset taxable income earned in such future
years. To the extent that the NOL's achieve savings in either Federal or
California Income Taxes that would otherwise be payable, and as reflected on the
appropriate Federal Form 1120 and California Form 100 (or successors to such
forms, if any), Employee shall be paid a cash bonus of 16.6% of said tax
benefit. The cash bonus shall be paid within sixty days of the filing of the
corporate income tax return, and it shall be subject to normal payroll tax
withholdings and deductions which are then applicable to a normal cash bonus.
11. Miscellaneous
-------------
(a) Partial Invalidity. If any term or provision of this Agreement
-------------------
or the application thereof to any person or circumstance shall, to any extent,
be invalid or unenforceable, the remainder of this Agreement, or the application
of such term or provision to persons and or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby, and
each such term and provision of this Agreement shall be valid and enforced to
the fullest extent permitted by law.
(b) Waivers. No waiver of any breach of any covenant or provision
--------
herein contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed an extension of
the time for performance of any other obligation or act.
(c) Assignment. Neither party shall assign, transfer or convey,
-----------
voluntarily or involuntarily, it's rights and obligations under this Agreement
without the prior written consent of the other property, which consent may be
withheld in such party's sole discretion.
(d) Successors and Assigns. This Agreement shall be binding upon and
-----------------------
shall inure to the benefit of the permitted successors and assigns of the
parties hereto.
(e) Professional Fees. In the event of the bringing of any action or
------------------
suit by a party hereto against another party hereunder by reason of any breach
of any of the covenants, agreements or provisions on the part of the other party
arising out of this
7
<PAGE>
Agreement, then in that event the prevailing party shall be entitled to have and
recover of and from the other party all costs and expenses of the action of
suit, including actual attorneys', accounting and engineering fees, and any
other professional fees resulting therefrom.
(f) Entire Agreement. This Agreement (including all Exhibits
-----------------
attached hereto) is the final expression of, and contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior understandings with respect thereto. This Agreement may not be modified,
changed, supplemented or terminated, nor may any obligations hereunder be
waiver, except by a written instrument signed by the party to be charged or by
its agent duly authorized in writing or as otherwise expressly permitted herein.
The parties do not intend to confer any benefit hereunder on any person, firm or
corporation other than the parties hereto.
(g) Time of Essence. The parties hereby acknowledge and agree that
----------------
time is strictly of the essence with respect to each and every term, condition
obligation and provision hereof and that failure to timely perform any of the
terms, conditions, obligations or provisions hereof by either party shall
constitute a material breach of and a non-curable (but waivable) default under
this Agreement by the party so failing to perform.
(h) Construction. Headings at the beginning of each paragraph and
-------------
subparagraph or section are solely for the convenience of the parties and are
not a part of the Agreement. Whenever required by the context of this Agreement,
the singular shall include the plural and the masculine shall include the
feminine and vice versa. This Agreement shall not be construed as if it had been
prepared by one of the parties, but rather as if both parties had prepared the
same. Unless otherwise indicated, all references to paragraphs, sections and
subparagraphs are to this Agreement. All exhibits referred to in this Agreement
are attached and exhibits referred to in this Agreement are attached and
incorporated by this reference. In the event the last date on which any party is
required to take any action under the terms of this Agreement is not a business
day, the action may be taken on the next succeeding business day.
(i) Governing Law. The parties hereto acknowledge that this
--------------
Agreement has been negotiated and entered into in the State of California. The
parties hereto expressly agree that this Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with the laws of the
State of California, and by the Superior Courts of Orange County.
"EMPLOYER"
ESI, ENGINEERING SERVICES, INC.
A wholly owned subsidiary of THE KEITH COMPANIES, Inc.
8
<PAGE>
a California Corporation
by /s/ ARAM H. KEITH
------------------------
Aram H. Keith, President
by /s/ FLOYD S. REID
------------------------
Floyd S. Reid, Secretary
"EMPLOYEE"
by /s/ GLENN I. CHASE
------------------------
Glenn I. Chase
9
<PAGE>
EXHIBIT 10.30
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of the 1st day of
October, 1997, between ESI, ENGINEERING SERVICES, INC. ( a wholly owned
subsidiary of The KEITH COMPANIES, Inc. a California Corporation) ("Employer" or
"ESI") and Stephen J. Lane ("Employee"), in contemplation of the following
facts:
A. Employer is engaged in the highly specialized business of designing,
developing, conducting, managing and implementing all of the facilities,
policies, procedures, plans and programs for the conduct of a fully
operational consulting engineering business which specializes in the design
of (1) processing systems for various manufacturers, (2) electrical
engineering, (3) instrumentation and (4) systems to dispose of contaminated
waste.
B. Employee is being employed by Employer because of his intellectual
capabilities, character and the extraordinary ability and expertise which
Employee possesses in resolving complex process and chemical engineering
challenges, and his exceptional management capabilities. Employee has been
employed by Employer for more than seventeen years, however, concurrent
with the execution of this Agreement, Employer is being acquired by The
Keith Companies, Inc. ("Keith"), and Employee is a selling shareholder.
C. Said employment is primarily of a highly confidential nature involving
duties which require Employer to confide in Employee and to entrust
Employee with the highest degree of faith, trust and confidence.
NOW, THEREFORE, in consideration of the initiation of said employment, of other
good and valuable consideration received by Employee (the receipt of which is
hereby acknowledged) and of the mutual promises and covenants herein,
THE PARTIES HERETO AGREE AS FOLLOWS:
1. Incorporation of Recitals by Reference.
---------------------------------------
The recitals hereinbefore set forth as Paragraphs A through C, inclusive,
are hereby incorporated by this reference as part of the agreement made between
Employer and Employee, as though said recitals were again set forth at length
herein. Employer and employee hereby acknowledge and confirm to each other the
truth and correctness of each said recital.
2. Nature of Employment.
---------------------
Employer hereby employs Employee as a Senior Vice President - Electrical
Engineering of Employer initially with the primary responsibility and authority
for the
1
<PAGE>
management of ESI's Electrical Engineering Division, and also as the manager of
ESI's staff. In such capacities, Employee's duties entail, among others,
supervision of ESI's staff, developing billable work for current and prospective
clients, and the day to day management of the Electrical Engineering Division
segment of ESI's business, and programs related thereto. In his capacity as
manager of ESI's staff, Employee shall report to the President of Keith.
During the term of this Agreement, Employee shall undertake and discharge
in a competent and professional manner at all times and for the exclusive
benefit of Employer all of Employer's assigned work as delegated to Employee
from time to time, and shall implement such procedures and plans as are prudent
to accomplish such assignments, including without limitation all processes,
policies and procedures, and work product relating thereto or in any way
connected therewith. Employee shall during the term hereof also supervise and
discharge in a like competent and professional manner at all times and for the
exclusive benefit of Employer all managerial responsibilities and duties
relating to the maintenance, improvement and advancement on all levels of
Employer's Instrumentation and Controls Engineering division. With the
concurrence of Employee, Employer may direct that Employee's duties hereunder be
performed for any of Employer's affiliated engineering offices and Employer may
assign this Agreement in its entirety to any one or more of Employer's
divisions, subsidiaries or affiliates, as they may exist from time to time.
However, Employee shall not be required to change his place of full time
employment from the general area of Walnut Creek without Employee's voluntary
concurrence.
During the term of this Agreement, which may be extended as hereinafter
provided, Employee shall devote Employee's full time, energies and skills to the
management and conduct of Employer's business. Except for his ownership interest
in Design Services, Inc., which business is expected to be sold during 1997 or
early 1998, Employee agrees that he will not without Employer's prior written
consent either directly or indirectly, alone or as a member of a partnership or
other association, or as an officer, director or shareholder of any corporation,
be engaged in or concerned with any other duties or pursuits in a business
activity which competes in any manner whatsoever with the business and
activities of Employer. It is agreed that during some or all of the term of this
Agreement, Employee may deem it necessary or advisable to devote a small amount
of time to the management of his outside, personal investments unrelated to
Employer's business. Such time devoted to such investments shall not exceed an
average of ten hours per month.
3. Term of Employment.
------------------
Said employment shall be for an initial period of five (5) years,
commencing as of the date hereof, subject to earlier termination as hereinafter
provided. It is contemplated that the term of this Agreement may be extended in
one year supplements after the end of the initial term hereof by mutual
agreement of the parties hereto, provided that the terms and conditions of any
such extension shall be evidenced by a writing signed by each of the parties
hereto, In the event that a new agreement is not executed among the parties,
Employee shall become an employee at will of Employer.
2
<PAGE>
4. Salary.
------
Employer shall pay to Employee a salary of ONE HUNDRED SIX THOUSAND DOLLARS
($106,000.00) per twelve month period during the first twelve months of this
Agreement, payable in bi-weekly installments or on such payroll dates
established from time to time for Employer's senior management level employees.
As of each October 1, commencing October 1, 1998, Employer shall fairly consider
increases in Employee's base pay rate commensurate with his demonstrated
capabilities both technically and considering new business opportunities
developed by Employee. It is anticipated that, as a minimum, the percentage by
which Employee's base salary rate shall be increased as of each October 1st will
be reflective of increases in the Consumer Price Index or some similar measure
of inflation's impact on purchasing power in the geographic area in which
Employee resides.
In the unlikely event that ESI fails to earn Net Income After Provision for
State and Federal Taxes on Income of ten percent of the average book value of
ESI's Shareholders' Equity during any year, Employee's salary may be adjusted
downward, but in no event below Eighty Five Thousand Dollars per annum. The
average book value of Shareholders' Equity for any fiscal year shall be
determined in accordance with generally accepted accounting principals ("GAAP")
by calculating the average of the book value at the beginning of the fiscal
year, the book value at the end of each subsequent three month period during
that fiscal year, and the book value at the end of the fiscal year (the five
amounts are added together, and that result is divided by five).
In the event of a reduction in the salary of Employee due to ESI's failure
to achieve the net income levels required by the preceding paragraph, such
reduction in base salary shall not extend past the end of the fiscal quarter
which immediately follows the fiscal quarter during which the required net
income goals are once again attained.
All salary payments to Employee shall be subject to deduction therefrom of
all payroll taxes, withholdings and assessments as are required by law and by
such voluntary payroll deductions as Employee authorizes in writing, all as
established from time to time pursuant to Employer's payroll policy. Anything
set forth herein to the contrary notwithstanding, said salary shall be prorated
to the actual period of Employee's employment hereunder.
5. Incentive Stock Option Plan of Employer
---------------------------------------
During the period of Employee's employment he shall participate in
Employer's Incentive Stock Option Plan. Initially Employer shall grant Employee
options on 40,000 shares, each with an exercise price of one dollar per share.
The terms of the Incentive Stock Option Plan (this explanation is merely a
summary, thus the Plan itself should be examined for specific terms and
conditions, it is agreed that in the event of any conflict, the terms of the
Plan shall prevail) provide for vesting of 20% of the total shares granted
during each of the first five years of an employee's employment, and allow up to
ten years for an employee to exercise his vested options.
3
<PAGE>
Irrespective of any provision of the Stock Option Agreement to the
contrary, in the event of Employee's death or permanent disability (as certified
by a licensed physician) while employed by Employer, all shares granted in
Employee's stock option described in the preceding paragraph shall vest
immediately, and Employee's estate, representative or the Employee, as the case
may be, shall have one year from the date of such event in which to exercise any
or all of the unexercised option.
6. Expenses
--------
Employer will reimburse Employee from time to time for all necessary
expenses incurred in connection with the performance of Employee's duties under
this Agreement but only upon submission to Employer of good and sufficient
supporting vouchers, receipts and the like for all such expenses for which
Employee desires to receive reimbursement from Employer, and on forms utilized
by Employer. Employee's right to reimbursement shall be subject to such policies
as Employer establishes from time to time for its management employees.
In the event that any applicable federal or state taxing authority denies
for any reason the deduction by Employer for any reimbursed expense (except the
portion of meals and entertainment expense which is not deductible under then
applicable income tax law, currently 50% is not deductible) paid to Employee
hereunder then, upon demand of Employer, Employee shall repay to Employer the
full amount of all such disallowed reimbursed expense, as the case may be.
7. Termination of Employment.
-------------------------
Anything set forth herein to the contrary notwithstanding, this Agreement
shall terminate and shall be of no further force or effect whatsoever (except
with respect to those provisions set forth in Sections 9 and 10 hereof which are
hereby expressly intended to survive the termination of this Agreement)
immediately upon the occurrence of any of the following events:
(a) The expiration of the term of employment hereunder as provided for
in Section 3 hereof;
(b) The death of Employee;
(c) At the sole option of Employer, if Employee is unable to unwilling
to perform his assigned duties for any reason, including but not limited to
sickness, accident or disability, beyond the period of Employee's accumulated
sick leave, or beyond the time of such other leave of absence as the Employer
customarily grants to its employees under similar circumstances, if any, or upon
the total disability of Employee, as the case may be.
(d) If Employee fails to carry out his duties faithfully,
conscientiously and competently and does not correct any such failure to
Employer's reasonable satisfaction within ten (10) days after written notice
from Employer to Employee thereof;
(e) At the sole option of Employer, if Employee accepts any employment
by or for any other person, firm or corporation without Employer's prior written
consent.
(f) At sole option of Employer, if Employee should do any act
offensive to
4
<PAGE>
decency, morality or social propriety tending to result in scandal, hatred,
proved or admitted allegations of sexual harassment, ridicule or contempt or if
Employee should violate or be charged with a violation of any law which subjects
Employee or Employer to any scandal, hatred, ridicule or contempt, or a judgment
of a court of competent jurisdiction of monetary damages in excess of $50,000
for sexual harassment or job discrimination, or either pleads or is found guilty
of any felony.
(g) At the sole option of Employer, in the event that Employer ceases
for any reason to conduct its business and activities in the State of
California.
Anything set forth herein to the contrary notwithstanding, Employee
(or Employee's heirs, personal representatives, guardians or conservators, as
the case may be) shall be entitled to receive from Employer any prorated salary,
or other benefit which has accrued to Employee hereunder prior to any such
termination of Employee's employment hereunder.
8. Vacation and Fringe Benefits
----------------------------
Employee shall be entitled to paid vacations, sick leave and other benefits
as may be established by Employer from time to time as standard for comparable
employees. For purposes of seniority in connection with vacation privileges and
for length of service awards, Employee's hire date shall be considered to be
October 1, 1990. In addition, Employee shall also be entitled to participate in
such fringe benefit programs, if any, as may be provided for by Employer from
time to time for the benefit of comparable employees during the terms of this
Agreement and in which Employee is designated as a participant therein or
beneficiary thereof. All of such programs and policies are hereby expressly made
subject to adjustment, modification or cancellation by Employer from time to
time in order to conform with Employer's managerial policies.
9. Nondisclosure of Information.
-----------------------------
Employee acknowledges that during the course of his employment hereunder he
will be acquiring, making use of and adding to confidential information of
special and unique value to Employer and relating to such matters (by way of
example only and without limitation thereto) as lists of Employer's and its
affiliates' clients and their projects, Employer's pricing of client's projects
and the compensation rates and professional abilities of fellow employees.
Employee agrees that during the term of this Agreement and for the twenty
four (24) month period next following the term hereof (without the prior written
consent of the President of Keith, its successors or assigns), he will not as an
individual or as a stockholder, partner, agent, employee, servant or
representative of any person, firm corporation or association, either directly
or indirectly divulge, disclose or communicate to any person, firm, corporation
(other than Employer and its affiliates) or association in any manner whatsoever
or take advantage of for his own economic gain or for the economic gain of
others any information of any kind, nature or description concerning any matters
5
<PAGE>
affecting or relating to Employer's business or affairs, including without
limitation the names of any of its customers, its relations with its employees,
including salaries, job classification and skill levels, its manner of
operation, its copyrights, plans, processes or other data of any kind, nature or
description, or any other information, of, about or concerning Employer's
confidential business and affairs. All of such information is hereby determined
and declared to be important, material, highly confidential, in the nature of
trade secrets and vitally important to the successful conduct of Employer's
business and the maintenance of its goodwill among its clients and employees.
As a separate and distinct covenant hereby made by Employee to Employer,
during the term hereof and within the period of twelve (12) calendar months
thereafter, Employee shall not (as an individual or as a stockholder, partner,
agent, employee or representative of any person, firm, corporation or
association) engage in or have any direct or indirect interest in any business
in competition with one or more of the businesses carried on by Employer or by
any of its affiliates (whether subsequently carried on by the same organization
or by any successors thereto) as presently conducted or as conducted at any time
during the term of this Agreement or within said twelve (12) calendar month
period thereafter in any geographical area within thirty miles of an Engineering
office then operated by ESI or by any affiliate of the Keith Group of Companies,
provided, however, that this paragraph shall not prevent Employee from acquiring
and holding not to exceed two percent (2%) of the outstanding shares of any
corporation engaged in such competitive business if such shares are available to
the general public on a national or regional securities exchange or on the over
the counter market. Employee acknowledges that concurrent with the execution of
this Agreement, Keith is acquiring all of ESI's issued and outstanding capital
stock from ESI's three owners, one of whom is Employee, and that Keith would not
acquire said stock without the agreements not to compete and not to divulge
trade secrets as set forth in this and the preceding two paragraphs.
The various restrictions set forth in this Section 9 shall be deemed
severable and the invalidity of any such restrictions shall not affect the
validity of the remaining such restrictions. In the event of any breach by
Employee of the terms and conditions hereof, Employer shall have the right,
among other rights, to sue Employee for damages sustained thereby and to seek
injunctive relief to restrain Employee from continuing with such breach.
Employee agrees that this Section 9 shall survive the termination of his
employment for any reason and Employee shall be bound by all of the terms and
conditions hereof subsequent to the termination of his employment and for so
long a period thereafter during said twelve (12) calendar month period as
Employer or its affiliates (or their respective successors in interest or
assigns, as the case may be) continue to conduct the same or substantially the
same business at some or all of the places and locations within the continental
United States where such business is or will during such period be conducted.
Nothing herein contained shall in any way be deemed to limit, derogate from,
modify or exclude any or all other rights granted by law or in equity to
Employer as against Employee in the event of Employee's breach hereunder.
6
<PAGE>
10. Possible Cash Bonus
-------------------
Employee, who has been one of ESI's executives for many years, has been
informed that ESI may have Net Operating Loss Carryforwards for Federal and/ or
California Income Tax purposes ("NOL's") as of June 30, 1997 which may be
available in future tax years to offset taxable income earned in such future
years. To the extent that the NOL's achieve savings in either Federal or
California Income Taxes that would otherwise be payable, and as reflected on the
appropriate Federal Form 1120 and California Form 100 (or successors to such
forms, if any), Employee shall be paid a cash bonus of 16.6% of said tax
benefit. The cash bonus shall be paid within sixty days of the filing of the
corporate income tax return, and it shall be subject to normal payroll tax
withholdings and deductions which are then applicable to a normal cash bonus.
11. Miscellaneous
-------------
(a) Partial Invalidity. If any term or provision of this Agreement
-------------------
or the application thereof to any person or circumstance shall, to any extent,
be invalid or unenforceable, the remainder of this Agreement, or the application
of such term or provision to persons and or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected thereby, and
each such term and provision of this Agreement shall be valid and enforced to
the fullest extent permitted by law.
(b) Waivers. No waiver of any breach of any covenant or provision
--------
herein contained shall be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision herein contained. No extension of
time for performance of any obligation or act shall be deemed an extension
of the time for performance of any other obligation or act.
(c) Assignment. Neither party shall assign, transfer or convey,
-----------
voluntarily or involuntarily, it's rights and obligations under this Agreement
without the prior written consent of the other property, which consent may be
withheld in such party's sole discretion.
(d) Successors and Assigns. This Agreement shall be binding upon and
-----------------------
shall inure to the benefit of the permitted successors and assigns of the
parties hereto.
(e) Professional Fees. In the event of the bringing of any action
------------------
or suit by a party hereto against another party hereunder by reason of any
breach of any of the covenants, agreements or provisions on the part of the
other party arising out of this Agreement, then in that event the prevailing
party shall be entitled to have and recover of and from the other party all
costs and expenses of the action of suit, including actual attorneys',
accounting and engineering fees, and any other professional fees resulting
therefrom.
(f) Entire Agreement. This Agreement (including all Exhibits
-----------------
attached hereto)
7
<PAGE>
is the final expression of, and contains the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior
understandings with respect thereto. This Agreement may not be modified,
changed, supplemented or terminated, nor may any obligations hereunder be
waiver, except by a written instrument signed by the party to be charged or by
its agent duly authorized in writing or as otherwise expressly permitted herein.
The parties do not intend to confer any benefit hereunder on any person, firm or
corporation other than the parties hereto.
(g) Time of Essence. The parties hereby acknowledge and agree
----------------
that time is strictly of the essence with respect to each and every term,
condition, obligation and provision hereof and that failure to timely perform
any of the terms, conditions, obligations or provisions hereof by either party
shall constitute a material breach of and a non-curable (but waivable) default
under this Agreement by the party so failing to perform.
(h) Construction. Headings at the beginning of each paragraph and
-------------
subparagraph or section are solely for the convenience of the parties and are
not a part of the Agreement. Whenever required by the context of this Agreement,
the singular shall include the plural and the masculine shall include the
feminine and vice versa. This Agreement shall not be construed as if it had been
prepared by one of the parties, but rather as if both parties had prepared the
same. Unless otherwise indicated, all references to paragraphs, sections and
subparagraphs are to this Agreement. All exhibits referred to in this Agreement
are attached and exhibits referred to in this Agreement are attached and
incorporated by this reference. In the event the last date on which any party is
required to take any action under the terms of this Agreement is not a business
day, the action may be taken on the next succeeding business day.
(i) Governing Law. The parties hereto acknowledge that this
--------------
Agreement has been negotiated and entered into in the State of California. The
parties hereto expressly agree that this Agreement shall be governed by,
interpreted under, and construed and enforced in accordance with the laws of the
State of California, and by the Superior Courts of Orange County.
"EMPLOYER"
ESI, ENGINEERING SERVICES, INC.
A wholly owned subsidiary of THE KEITH COMPANIES, Inc.
a California Corporation
by /s/ Aram H. Keith
------------------------
Aram H. Keith, President
by /s/ Floyd S. Reid
------------------------
Floyd S. Reid, Secretary
8
<PAGE>
"EMPLOYEE"
by /s/ Stephen J. Lane
-------------------
Stephen J. Lane
9
<PAGE>
EXHIBIT 10.31
PROMISSORY NOTE
===============
$ 100,000.00 DATE: February 21, 1997
------------ ----------------------
Costa Mesa, California
- -----------------------
(location where signed)
For value received, the undersigned promises to pay in lawful money to Doug
Travato at his offices at 31112 Via Limon, San Juan Capistrano, CA 92675, the
sum of One hundred thousand dollars, ($100,000), plus interest.
Interest shall be payable at the rate of ten percent (10%) per annum on the
unpaid balance of the within note. Such interest shall commence February 21,
1997. All principal and accrued interest shall be paid in full by January 1,
1998.
Notwithstanding any other provision of this note, the undersigned agrees to pay
interest on all sums of interest and principal at the rate of ten percent (10%)
per annum from the date when due (whether or not such maturity results from the
exercise of any option of the holder of this note) to date of payment.
In the event of commencement of suit to enforce payment of this note, the
undersigned agrees to pay such additional sum as attorney fees as the court may
adjudge reasonable.
The makers hereby waive extension of time payment, presentment and demand for
payment, protest and notice of demand, protest non-payment or dishonor of this
note.
Executed this 6th day of March, 1997.
by:
/s/ ARAM H. KEITH
- ------------------------------------------
Aram H. Keith
for Keith International, Inc.
2955 Redhill Avenue
Costa Mesa, CA 92626
<PAGE>
EXHIBIT 10.32
PROMISSORY NOTE
$50,000 Costa Mesa, California
February 26, 1997; Extension dated 8/26/97
For Value received, the undersigned Keith Engineering, Inc., a California
Corporation, promises to pay in lawful money to Wycoff Company Money Purchase
Pension Plan at their offices at 31571 Peppertree Bend, San Juan Capistrano, CA
92675, the sum of Fifty Thousand Dollars ($50,000 ) plus interest. This amount
represents an additional six month extension of the original maturity date of a
cash advance made on February 26, 1996 to the Maker hereof. The original
maturity of the loan was August 26, 1996, which was extended to February 26,
1997, and is again extended to August 26, 1997 by the within Note, and is again
extended to February 26, 1998.
Interest at the rate of ten percent (10%) per annum on the unpaid balance of the
within note shall be payable quarterly. All principal and accrued interest
shall be paid in full by February 26, 1998.
Notwithstanding any other provision of this note, the undersigned agrees to pay
interest on all sums of interest and principal at the rate of ten percent (10%)
per annum from the date when due (whether or not such maturity results from the
exercise of any option of the holder of this note) to date of payment.
In the event of commencement of suit to enforce payment of this note, the
undersigned agrees to pay such additional sum as attorney fees as the court may
adjudge reasonable.
The maker hereby waives extension of time payment, presentment and demand for
payment, protest and notice of demand, protest non-payment or dishonor of this
note.
Executed as of this 26th day of August, 1997.
MAKER:
KEITH ENGINEERING, INC.
BY /s/ ARAM H. KEITH
-----------------------------
Aram H. Keith, President
<PAGE>
EXHIBIT 10.33
PROMISSORY NOTE
===============
$150,000.00 DATE: 2/10/98
Costa Mesa, California
For value received, the undersigned promises to pay in lawful money to Aram H.
Keith. at his office at 2955 Redhill Avenue, Costa Mesa, California 92626, the
sum of One Hundred Fifty Thousand dollars ($150,000.00), plus interest. This
note arises from the assignment, as of this date, from the following:
1. That certain Promissory Note dated February 26, 1997, extended
as of August 26, 1997, to a new maturity date of February 26,
1998, in the amount of $50,000 payable to the Wyckoff Company
Money Purchase Pension Plan and
2. That certain Promissory note in the amount of $100,000, dated
February 21, 1997 payable to Douglas and Ilene Trovato, which
evidences a cash loan of $50,000 on February 21, 1997 and an
additional cash loan of $50,000 on February 24, 1997.
The above described Promissory Notes were assigned to Aram H. Keith in
consideration for the transfer by him of certain shares of stock which he had
owned in The Keith Companies, Inc.
Interest shall be payable at the rate of ten percent (10%) per annum on the
unpaid balance of the within note. Such interest shall commence February 10,
1998.
Notwithstanding any other provision of this note, the undersigned agrees to pay
interest on all sums of interest and principal at the rate of ten percent (10%)
per annum from the date when due (whether or not such maturity results from the
exercise of any option of the holder of this note) to date of payment.
In the event of commencement of suit to enforce payment of this note, the
undersigned agrees to pay such additional sum as attorney fees as the court may
adjudge reasonable.
The makers hereby waive extension of time payment, presentment and demand for
payment, protest and notice of demand, protest non-payment or dishonor of this
note.
Executed as of the 10th day of February, 1998.
KEITH ENGINEERING, INC.
/s/ FLOYD S. REID
By: Floyd S. Reid
Secretary/Treasurer
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
The Keith Companies, Inc.
We consent to the use of our reports included herein and to the references to
our firm under the heading "Experts" in the prospectus.
KPMG LLP
Orange County, California
April 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND MARCH 31, 1999 AND THE
RELATED CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 457 144
<SECURITIES> 0 0
<RECEIVABLES> 5,946 6,500
<ALLOWANCES> (364) (376)
<INVENTORY> 0 0
<CURRENT-ASSETS> 10,917 11,887
<PP&E> 6,040 6,312
<DEPRECIATION> (3,178) (3,338)
<TOTAL-ASSETS> 14,530 15,689
<CURRENT-LIABILITIES> 5,737 11,320
<BONDS> 0 0
0 0
0 0
<COMMON> 1,085 1,085
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 14,530 15,689
<SALES> 0 0
<TOTAL-REVENUES> 29,182 8,969
<CGS> 19,287 5,914
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<OTHER-EXPENSES> 5,858 1,896
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 967 260
<INCOME-PRETAX> 3,004 918
<INCOME-TAX> 1,350 389
<INCOME-CONTINUING> 1,654 529
<DISCONTINUED> 0 0
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<NET-INCOME> 1,654 529
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