MERGERS AND ACQUISITIONS§12.202
June 1994 12-1191
APPENDIX A
STOCK EXCHANGE AGREEMENT
dated as of
August 20, 1992
(as amended October 21, 1992)
by and among
SJW CORP.,
ROSCOE MOSS COMPANY, ROSCOE MOSS, JR.,GEORGE E. MOSS and
THE OTHER SHAREHOLDERS OF ROSCOE MOSS COMPANY
§12.202PROXY STATEMENTS: STRATEGY & FORMS
© 1994 Jefren Publishing Company, Inc. 12-1192
TABLE OF CONTENTS
Page
ARTICLE I THE EXCHANGE...............................................................................................A-11.01 The Exchange ......................................................................................................A-1
1.02 Exchange Factors .................................................................................................A-3
1.03 Post-Closing Audit ..............................................................................................A-4
1.04 Holdback Shares; Claims Against the Holdback Escrow ....................................A-4
1.05 Custody of RMC Shares; Power of Attorney ......................................................A-6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF RMC AND THE RMC SHAREHOLDERS .................................................................A-6
2.01 Corporate Existence and Power ...........................................................................A-7
2.02 Corporate Authorization ......................................................................................A-7
2.03 Governmental Authorization ...............................................................................A-7
2.04 Non-Contravention ..............................................................................................A-7
2.05 Capitalization .......................................................................................................A-8
2.06 Subsidiaries ..........................................................................................................A-8
2.07 Financial Statements ............................................................................................A-9
2.08 Inventory ..............................................................................................................A-9
2.09 Receivables ..........................................................................................................A-9
2.10 Compliance with Law ..........................................................................................A-9
2.11 No Defaults .........................................................................................................A-10
2.12 Litigation .............................................................................................................A-10
2.13 Absence of Certain Changes ...............................................................................A-10
2.14 Certain Agreements .............................................................................................A-11
2.15 Employee Benefits ..............................................................................................A-11
2.16 Major Contracts...................................................................................................A-12
2.17 Taxes ...................................................................................................................A-13
2.18 Interests of Officers, Directors and Other Affiliates ...........................................A-14
2.19 Intellectual Property ............................................................................................A-14
2.20 Restrictions on Business Activities .....................................................................A-14
2.21 Title to Properties; Absence of Liens and Encumbrances; Condition of Equipment ......................................................................................A-14
2.22 Governmental Authorizations and Licenses .......................................................A-15
2.23 Environmental Matters ........................................................................................A-15
2.24 Insurance .............................................................................................................A-16
2.25 Labor Matters ......................................................................................................A-16
2.26 Employees ...........................................................................................................A-16
2.27 Customers............................................................................................................A-16
2.28 Information Supplied ..........................................................................................A-16
2.29 Finders' Fees ........................................................................................................A-17
2.30 CW Common Stock ............................................................................................A-17
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Page
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SJW................................A-17
3.01 Corporate Existence and Power ......................................................................A-173.02 Corporate Authorization .................................................................................A-17
3.03 Governmental Consents and Approvals .........................................................A-17
3.04 Non-Contravention .........................................................................................A-18
3.05 Capitalization of SJW .....................................................................................A-18
3.06 SEC Filings .....................................................................................................A-18
3.07 Financial Statements .......................................................................................A-19
3.08 Absence of Certain Changes...........................................................................A-19
3.09 Compliance with Law .....................................................................................A-19
3.10 Finders' Fees ...................................................................................................A-19
3.11 No Intention to Dispose of Western Precision or CW Common Stock..........A-19
ARTICLE IV COVENANTS OF RMC AND THE RMC SHAREHOLDERS ...................A-19
4.01 Conduct of RMC.............................................................................................A-194.02 Access to Information .....................................................................................A-20
4.03 Other Offers ....................................................................................................A-20
4.04 Maintenance of Business ................................................................................A-21
4.05 Compliance with Obligations .........................................................................A-21
4.06 Notices of Certain Events ...............................................................................A-21
4.07 Support of Exchange by RMC Shareholders ..................................................A-21
4.08 Western Precision Guarantee by Principal Shareholders ...............................A-21
4.09 Certain Protections on CW Common Stock and Western Precision ..............A-22
ARTICLE V COVENANTS OF SJW .................................................................................A-23
5.01 Issuance and Registration of Securities ..........................................................A-23
5.02 Access to Information .....................................................................................A-23
ARTICLE VI COVENANTS OF ALL PARTIES ................................................................A-23 6.01 Advice of Changes..........................................................................................A-23
6.02 Regulatory Approvals .....................................................................................A-24
6.03 Necessary Consents ........................................................................................A-24
6.04 Actions Contrary to Stated Intent ...................................................................A-24
6.05 Certain Filings ................................................................................................A-24
6.06 Public Announcements ...................................................................................A-24
6.07 Satisfaction of Conditions Precedent ..............................................................A-24
6.08 Affiliates Agreements .....................................................................................A-24
6.09 Prospective Benefits Arrangements................................................................A-25
ARTICLE VII CONDITIONS TO THE EXCHANGE ..........................................................A-25 7.01 Conditions to Obligations of SJW ..................................................................A-25
7.02 Conditions to Obligations of RMC and the RMC Shareholders ....................A-26
7.03 Conditions to Obligations of Each Party ........................................................A-27
ARTICLE VIII TERMINATION OF AGREEMENT .............................................................A-28 8.01 Termination Prior to the Closing Date............................................................A-28
8.02 Termination.....................................................................................................A-28
8.03 Effect of Termination .....................................................................................A-28
§12.202PROXY STATEMENTS: STRATEGY & FORMS
© 1994 Jefren Publishing Company, Inc. 12-1194
Page
ARTICLE IX MISCELLANEOUS ...........................................................................................A-28
9.01 Definitions ..........................................................................................................A-289.02 Further Assurances .............................................................................................A-30
9.03 Fees and Expenses ..............................................................................................A-30
9.04 Survival of Representations and Warranties; Indemnity ....................................A-30
9.05 Notices ................................................................................................................A-32
9.06 Governing Laws..................................................................................................A-33
9.07 Binding upon Successors and Assigns................................................................A-33
9.08 Severability .........................................................................................................A-33
9.09 Entire Agreement ................................................................................................A-33
9.10 Other Remedies...................................................................................................A-33
9.11 Amendment and Waivers....................................................................................A-34
9.12 Construction of Agreement; Knowledge ............................................................A-34
9.13 Absence of Third Party Beneficiary Rights ........................................................A-34
9.14 Mutual Drafting ..................................................................................................A-34
9.15 Counterparts ................ .......................................................................................A-34
EXHIBITS Exhibit 1.04 Form of Holdback Escrow Agreement ..........................................................A-37
Exhibit 6.08 Form of Affiliates Agreements ......................................................................A-43
Exhibit 7.03(m) Form of Asset and Liability Allocation Agreement ......................................A-49
Exhibit 7.03(n) Form of Registration Rights Agreement ........................................................A-60
MERGERS AND ACQUISITIONS§12.202
June 1994 12-1195
STOCK EXCHANGE AGREEMENT
(as amended October 21, 1992)
THIS STOCK EXCHANGE AGREEMENT (this "Agreement") is entered into as of this 20th day of August,
1992, by and among SJW CORP., a California corporation ("SJW"), ROSCOE MOSS COMPANY, a California
corporation ("RMC"), ROSCOE MOSS, JR., GEORGE E. MOSS (Roscoe Moss, Jr. and George E. Moss being
referred to collectively as the "Principal Shareholders") and all of the other sharehol ders of RMC, whose names are
set forth on the signature pages of this Agreement (together with the Principal Shareholders, be ing referred to
collectively as the "RMC Shareholders").
RECITALS
A. SJW, the RMC Shareholders and RMC have each determined to engage in the transact ions contemplated
hereby, pursuant to which the RMC Shareholders will cause RMC to distribute all of the ca pital stock of its wholly-
owned Roscoe Moss Manufacturing Company subsidiary, a California corporation ("RMM"), to the existing
shareholders of RMC (the "Spin-off") and, after the occurrence of such Spin-off, the RMC Shareholders will
exchange (the "Exchange") all of their shares of RMC Common Stock, par value $100.00 per share ("R MC Common
Stock"), for shares of SJW's Common Stock, par value $3.125 per share ("SJW Common Stock"), upon the terms and
subject to the conditions set forth herein. Prior to the occurrence of the Exchange, each share of RMC Preferred
Stock, par value $100.00 per share ("RMC Preferred Stock"), will be converted into RMC Common Stock in
accordance with RMC's Articles of Incorporation, as amended (the "Articles of Incorporati on"). Shares of RMC
Common Stock and RMC Preferred Stock are sometimes collectively referred to herein as "Shares."
B. It is the intention of the RMC Shareholders and RMC that prior to the Exchange, Western Precision, Inc.,
a California corporation and a wholly owned subsidiary of RMC ("Western Precision"), will be liquidated and
become a division of RMC.
C. The RMC Shareholders have unanimously approved the Spin-off, the Exchange and this Agreement.
D. The Board of Directors of SJW has approved, and has resolved to recommend that the shareholders of
SJW approve, the Exchange and this Agreement.
E. The Principal Shareholders are the principal shareholders of RMC and are hereby making certain
representations, warranties, covenants and agreements in support of the transactions contemplated by this Agreement.
F. The parties intend for the Spin-off to qualify as a tax free distribution in accordanc e with the provisions of
Section 355 of the Internal Revenue Code of 1986, as amended (the "Code"), and for the Exchange to qualify as a
plan of reorganization in accordance with the provisions of Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants
and agreements set forth herein, the parties agree as follows:
ARTICLE I
THE EXCHANGE
Section 1.01 The Exchange.
(a) Subject to the terms and conditions of this Agreement, on the Closing Date (as defi ned in subsection (b)
below), the RMC Shareholders agree to exchange, assign, transfer and deliver all of the ir shares of RMC stock for
shares of SJW Common Stock and SJW agrees to exchange therefor and assign, transfer and deliver t hat number of
shares of SJW Common Stock as calculated in accordance with the provisions of this Agreem ent. In furtherance of
the undertaking of each RMC Shareholder in the preceding sentence and subject to the t erms and conditions of this
Agreement, each RMC Shareholder agrees to exchange that number Of shares of RMC Common St ock set forth
opposite the name of such RMC Shareholder on the signature pages hereof (which number of shares incl udes the
shares of RMC Common Stock issuable on conversion of RMC Preferred Stock in accordance with Sec tion 7.01 (j)
hereof). The shares of RMC Common Stock and RMC Preferred Stock owned beneficially or of record held by each
RMC Shareholder shall be delivered to the Principal Shareholders, as custodial agents a nd attorneys-in-fact as
provided in Section 1.05 hereof. Upon the satisfaction of those terms and conditions of this Agreem ent required to
§12.202PROXY STATEMENTS: STRATEGY & FORMS
© 1994 Jefren Publishing Company, Inc. 12-1196
permit the Exchange on the Closing Date, the Principal Shareholders, or either of them shall be, and they hereby are,
authorized by the RMC Shareholders to release the shares of RMC Common Stock from custody and exchange,
assign, transfer and deliver such shares to SJW.
(b) The closing of the Exchange (the "Closing") will take place as soon as practicable after the parties hereto
are in a position to satisfy or waive the conditions set forth in Article VII. The Closing shall take place at a date and
time to be mutually agreed upon by the parties (but not earlier than the divi dend payment dates occurring during the
fourth quarter of 1992 of both the SJW Common Stock and the common stock of California Water Servi ce Company,
a California corporation ("CW")) at the offices of Brobeck, Phleger & Harrison, One Market Pl aza, Spear Street
Tower, San Francisco, California 94105, unless a different place is agreed to in writing by the parties hereto. Each
party shall notify each other party when the party believes that the Closing could t ake place as soon as fifteen (15)
days later. When the last party has given such notice, a tentative Closing date shall be scheduled at least fifteen (15)
days in advance (the "Tentative Closing Date"), provided that the establishment of the Tentative Closing Date shall
not modify the requirements of this Section 1.01(b) or prevent the Closing from occurring earl ier than the Tentative
Closing Date. The actual date of the occurrence of the Closing in accordance wi th this Section 1.01(b) shall be
referred to as the "Closing Date."
(c) On the Closing Date, the Principal Shareholders, acting on behalf of the RMC Shareholders, sha ll deliver
to SJW the certificates representing all of the outstanding shares of RMC Common Stoc k, and, if any, the
outstanding shares of RMC Preferred Stock, and SJW shall deliver to the Principal Shareholders for exchange in
accordance with this Section 1.01 certificates evidencing the Initial Shares of SJW Common Stock in exchange for
outstanding shares of RMC Common Stock, less, in the case of the Principal Shareholders, an aggre gate of 10% of
the Initial Shares of SJW Common Stock constituting the Holdback Shares corresponding to the Initial Shares, duly
registered in the names of the RMC Shareholders entitled thereto. Promptly after t he occurrence of the Post-Closing
Audit, SJW shall deliver to the Principal Shareholders certificates evidencing the Post -Audit Shares of SJW
Common Stock, less, in the case of the Principal Shareholders an aggregate of 10% of the total Post-Audit Shares of
SJW Common Stock, duly registered in the names of the RMC Shareholders entitled there to. In the event that the
Post-Audit Shares equal a negative number, the former holders of record of the shares of RMC Com mon Stock and
the Holdback Escrow Agent shall be obligated to promptly surrender to SJW an aggregate num ber of Initial Shares
equal to the negative number of Post-Audit Shares, such surrender to be made in the same proportions as such
shareholders were entitled to receive Initial Shares and with the number of shares in the Holdback Escrow being
reduced to 10% of the remaining Initial Shares.
(d) Notwithstanding any other provision of this Agreement, no fractional shares of SJW Common Stock sha ll
be issued in connection with the Exchange. In lieu of any such fractional shares, eac h holder of shares of RMC
Common Stock who would otherwise have been entitled to receive a fraction of a share of SJW Common Stock upon
surrender of Certificates for exchange pursuant to this Section 1.01 (either as Initial Sha res or as Post-Audit Shares)
shall be entitled to receive from SJW a cash payment equal to such fraction mul tiplied by the last reported sale price
on the American Stock Exchange or, if different, the principal exchange or market on which such shares are traded
on the Closing Date.
(e) Notwithstanding any other provision of this Agreement to the contrary, no more than 1,600,000 shares of
SJW Common Stock shall be issued in the Exchange to the RMC Shareholders subject to t he effect of any shares of
SJW Common Stock having been changed into a different number of shares or a different class by rea son of any
stock dividend, subdivision, reclassification, recapitalization, split-up, combination, exchange of shares or the like.
MERGERS AND ACQUISITIONS§12.202
June 1994 12-1199
Section 1.02Exchange Factors.
(a) On the Closing Date: (i) each share of RMC Common Stock outstanding immediately prior to the Closing Date shall, except
as otherwise provided in Section 1.01 (d) hereof, be exchanged for that number of shares of SJW Common
Stock equal to the Initial Exchange Factor (as defined in subsection (b) below) and the fight to receive that
number of shares represented by the Post-Audit Exchange Factor (as defined in subsection (b) below); and
(ii) each share of RMC Preferred Stock, if any, outstanding immediately prior to the Closing Date shall,
except as otherwise provided in Section 1.01 (d) hereof, be exchanged for that number of shares of SJW
Common Stock equal to the number of shares of SJW Common Stock which will be received for each of the
shares of RMC Common Stock into which such shares of RMC Preferred Stock are convertible.
(b) For purposes of this Agreement, the following terms shall have the following meanings:
(i) The "Aggregate Number of SJW Initial Common Stock" shall be a number of shares of SJW
Common Stock equal to the sum of (A) the number of shares of SJW Common Stock owned by RMC on the
Closing Date, plus (B) 0.76 of a share of SJW Common Stock for each share of Common Stock of CW owned
by RMC on the Closing Date.
(ii) The "Aggregate Number of SJW Post-Audit Common Stock" shall be the number of shares of SJW
Common Stock determined by dividing (A) the amount of the net investment in Western Prec ision as recorded
on the books of RMC on the Closing Date (assets net of liabilities) minus all intangible assets and good will of
Western Precision on the Closing Date (the "Western Precision Closing Date Tangible Book Value"), plus the
amount of the investment in any other assets of RMC on the Closing Date (other than t hose set forth in Section
(b)(i) above), minus the recorded amounts of any other good will and intangibles of RMC on the Closing Date,
and minus all other liabilities of RMC on the Closing Date which are liabilities required to be stated in or
reserved on a balance sheet under GAAP ("GAAP", with respect to any entity or person, means ge nerally
accepted accounting principles applied on a basis consistent with the past practic e of such person or entity
except when there has been a change in generally accepted accounting practice s promulgated by the American
Institute of Certified Public Accountants or any successor or organization thereto), the value s in this Section
1.02(b)(ii) to be determined by the Post-Closing Audit (as defined in Section 1.03), by (B) the net book va lue
per share of SJW Common Stock as of the fiscal quarter end immediately prior to the Closing Date (without
giving any effect to the Exchange).
(iii) The "Initial Exchange Factor" shall equal the quotient of (A) the Aggregate Numbe r of SJW Initial
Common Stock, divided by (B) the number of shares of RMC Common Stock outstanding immediately prior to
the Closing Date, assuming conversion of all RMC Preferred Stock.
(iv) The "Post-Audit Exchange Factor" shall equal the quotient of (A) the Aggregate Number of SJW
Post-Audit Common Stock, divided by (B) the number of shares of RMC Common Stock outstanding
immediately prior to the Closing Date, assuming conversion of all RMC Preferred Stock.
(v) "Initial Shares" shall mean shares of SJW Common Stock issuable in the Exchange in exc hange for
shares of RMC Common Stock or RMC Preferred Stock based upon the Initial Exchange Factor.
(vi) "Post-Audit Shares" shall mean shares of SJW Common Stock issuable in the Exchange in exc hange
for shares of RMC Common Stock or RMC Preferred Stock based upon the Post-Audit Exchange Factor.
(c) If prior to the Closing Date the outstanding shares of RMC Common Stock, CW Common Stock or SJW
Common Stock shall have been changed into a different number of shares or a different class, by reason of any stock
dividend, subdivision, reclassification, recapitalization, split-up, combination, exchange of shares
§12.202PROXY STATEMENTS: STRATEGY & FORMS
© 1994 Jefren Publishing Company, Inc. 12-1200
or the like, the Initial Exchange Factor and the Post-Audit Conversion Factor shall be correspondingly adjusted.
Section 1.03 Post-Closing Audit.
(a) Within 90 days after the Closing Date (but in any event on or prior to the comple tion of the first annual
audit of SJW that includes RMC), SJW shall cause to be prepared and delivered, at i ts expense, to the Principal
Shareholders, for the benefit of all RMC Shareholders, a balance sheet of RMC as of the Cl osing Date (the "RMC
Audited Balance Sheet"), audited and certified by KPMG Peat Marwick (the "Post-Closing Audit") as having been
prepared in accordance with GAAP. SJW agrees that the accounting principles and methods t o be employed in the
Post-Closing Audit will be the accounting principles and methods set forth in the RMC Disclosure Schedule and,
with respect to those items not expressly referred to in the RMC Disclosure Schedule, will be the accounting
principles and methods employed by RMC in connection with the audit conducted of RMC's September 30, 1991
financial statements. At SJW's option and expense, a physical inventory may be conducte d as part of the Post-
Closing Audit.
(b) The RMC Shareholders shall have 10 days after receipt of the RMC Audited Balance Sheet to object to
such RMC Audited Balance Sheet in writing and shall specify the basis of such objec tion. SJW and the
RMC Shareholders shall have 10 days upon receipt of such written objection by SJW to mutually resolve
the disputes with respect to the RMC Audited Balance Sheet. If no resolution is rea ched within such
period, SJW and the RMC Shareholders shall have five days to mutually agree upon an acti ve or retired
independent certified public accountant not affiliated or formerly affiliated with J. Arthur Greenfield &
Co. or KPMG Peat Marwick to resolve the dispute pursuant to arbitration. In the event that SJW and the
RMC Shareholders are unable to agree upon such an accountant within the specified period, they will
each appoint one such accountant and such two accountants shall jointly select a thi rd accountant meeting
the requirements set forth above. The parties shall have 30 days after the select ion of the third
independent certified public accountant (the "CPA") to present their cases to the C PA. The CPA's sole
authority shall be to resolve the disputes with respect to the RMC Audited Balance Sheet specified by the
parties. The CPA shall have no power or authority to award any amount for the purposes of imposing a
penalty upon any party. Presentation of evidence to the CPA shall be in accordance wit h Section 1282.2
of the California Code of Civil Procedure. With the exception of the presentation of wit ness lists and lists
of evidence, the parties shall not be entitled to conduct further discovery unless the pa rties mutually agree
or such discovery is necessary for the preservation of evidence. The presentation of evidence t o the CPA
shall occur in San Jose, California. The CPA shall render its decision within 30 days foll owing the date
that the parties shall have presented their cases. The CPA shall render its de cision with respect to the
disputes in writing and such decision shall be final and binding upon the parties. The RMC Audit ed
Balance Sheet shall be revised based upon the CPA's determination and the RMC Audite d Balance Sheet
as revised shall be used to calculate the Post-Audit Exchange Factor. SJW and the RMC Shareholders
shall bear their own expenses with respect to matters set forth in this Section 1.03(b), including expenses
of the accountants, if any, selected by them in order to select the CPA; provided, t hat SJW and the RMC
Shareholders shall equally bear the expenses of the CPA.
(c)
Section 1.04 Holdback Shares; Claims Against the Holdback Escrow.
(a) Ten percent (10%) of the total number of the Initial Shares and of the Post-Audit Shares St ock issuable in
the Exchange pursuant to Section 1.02 (the "Holdback Shares") shall be deposited in escrow with the Bank of
America NT&SA, as Escrow Agent (the "Holdback Escrow Agent"), to be held and administered i n accordance with
the terms and conditions of a Holdback Escrow Agreement, in substantially the form a ttached hereto as Exhibit 1.04
(the "Holdback Escrow Agreement"), which is to be entered into among SJW, RMC, the Principal Sha reholders and
the Holdback Escrow Agent on or prior to the Closing Date. One-half of the Holdback Shares shall be deducted from
the Initial Shares and the Post-Audit Shares of SJW Common Stock issuable in the Exchange t o each Principal
Shareholder. The Holdback shares shall be registered in the name of the Principal Sharehol ders and shall be
accompanied by stock powers endorsed in blank. SJW shall be entitled to recover from the Hol dback Shares any
Damages (as defined below) in excess of $50,000 that may be suffered by SJW by reason of (i) any
MERGERS AND ACQUISITIONS§12.202
June 1994 12-1201
misrepresentation or breach of warranty made by RMC or the Principal Shareholders in Article II or (ii) any breach
by RMC or the Principal Shareholders of any covenant or agreement on their respective parts contained in this
Agreement. Such recovery shall be effected as follows: SJW shall give a written instruct ion (an "Instruction") within
one year from the Closing Date to the Holdback Esow Agent to deliver to SJW the number of Holdback Shares, as
shall be required to make up such Damages (SJW shall include in the Instruction to the Holdback Escrow Agent any
claim for Damages arising from clauses (i) or (ii) above together with reasonable det ails with respect thereto). The
Escrow Agent shall promptly forward a copy of all Instructions received to the Principal Share holders. "Damages"
means any provable loss, liability, damage, cost and expense (including reasonable costs of inve stigation, defense
and prosecution of litigation and attorneys' fees) incurred by SJW, net of any tax benefits and insurance recoveries
received by SJW with respect thereto, after reasonable efforts to mitigate such loss, liability, damages, cost and
expense. Notwithstanding the escrow of such Holdback Shares, dividends on such Holdback Shares shall continue to
be paid by SJW to the Principal Shareholders. Any shares of SJW Common Stock received by the Escrow Agent
upon a stock split or a stock dividend made in respect of any Holdback Shares held by the E scrow Agent in escrow
shall be held by the Escrow Agent as, and shall be included within the definition of, Hol dback Shares. For purposes
of this Section 1.04, Holdback Shares shall be valued at their last reported sale price on the American Stock
Exchange, or if different, the principal exchange last sale price on the American St ock Exchange or, if different, the
principal exchange or market on which such shares are traded on the Closing Date or, i f there was no trading on such
date, on the first date preceding such date on which trading occurred.
(b) At the time of delivery of an Instruction to the Holdback Escrow Agent by SJW, a duplica te copy of the
Instruction shall be delivered to the Principal Shareholders. For a period of 20 days after such delivery, the Holdback
Escrow Agent shall make no delivery of Holdback Shares unless the Holdback Escrow Agent shall ha ve received
written authorization from the Principal Shareholders to make such delivery. After the e xpiration of such 20-day
period, the Holdback Escrow Agent shall make delivery of the Holdback Shares in accordance with this Section 1.04,
provided that no such payment or delivery may be made if the Principal Shareholders shall object in a written
statement to any claim made in the Instruction, and such statement shall have been delivered to the Holdback Escrow
Agent and to SJW prior to the expiration of such 20-day period.
(c) If the Principal Shareholders object in writing to any claim made in an Instructi on, the Principal
Shareholders and SJW shall attempt in good faith to agree upon the rights of the respective parties with respect to
each of such claims. If the Principal Shareholders and SJW should so agree, a memorandum se tting forth such
agreement shall be prepared and signed by both parties and shall be furnished to the Holdba ck Escrow Agent. The
Holdback Escrow Agent shall be entitled to rely on any such memorandum and distribute the Holdback Shares held
in escrow in accordance with the terms thereof.
(d) If the Principal Shareholders and SJW shall be unable to reach agreement with respec t to claims made in
an Instruction within 30 days after the date such Instruction shall have been delivered t o the Principal Shareholders,
then the dispute as to the matter of the determination of Damages shall be resol ved by submitting such dispute for
binding arbitration in San Jose, California before a single arbitrator chosen and proceeding in accordance with the
rules of the Judicial Arbitration & Mediation Services, Inc., except as specifically provided below ("Binding
Arbitration"). All evidentiary and discovery matters shall be conducted in accordance wit h and governed by the
applicable provisions of the law of the State of California as it relates to a rbitration proceedings including without
limitation Section 1282.2 of the California Code of Civil Procedure, and Section 1283.05 (Ri ght of Discovery;
Procedure and Enforcement) of the California Code of Civil Procedure shall be deemed inc orporated herein. No later
than 10 calendar days after the arbitrator is appointed, the arbitrator shall schedul e the arbitration for a hearing to
commence on a mutually convenient date. All discovery shall be completed no la ter than the commencement of the
arbitration hearing or 90 calendar days after the date that a proper demand for arbitrat ion is served, whichever occurs
earlier, unless upon a showing of good cause the arbitrator extends such period. The hearing shall c ommence no later
than 90 calendar days after the arbitrator is appointed and shall continue until comple ted. The arbitrator shall issue
his or her award in writing no later than 20 calendar days after the conclusion of the hearing. The parties to this
Agreement agree that in rendering an award, the arbitrator shall have no jurisdiction to consider evidence
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© 1994 Jefren Publishing Company, Inc. 12-1202
with respect to or render any award of judgment for punitive, exemplary or consequential damage s or any other
amount awarded for purposes of imposing a penalty. The arbitrator's decision shall be binding and c onclusive upon
the parties. The arbitrator shall not have the power to amend this Agreement in any respect. The Holdback Escrow
Agent shall be entitled to rely on such final determination or final award and dist ribute the Holdback Shares from the
escrow fund in accordance with the terms thereof.
(e) On the first anniversary of the Closing Date, 'Holdback Shares not required to reimburse SJW for a ny
claimed Damages for which an Instruction has been delivered by SJW pursuant to Section 1.04(a) shall be returned
by the Holdback Escrow Agent to the Principal Shareholders.
Section 1.05 Custody of RMC Shares; Power of Attorney.
Each RMC Shareholder shall deposit a stock certificate or certificates representi ng their shams of RMC
Common Stock and Preferred Stock in custody with the Principal Shareholders as custodial a gents and attorneys-in-
fact to be held by them in accordance with the terms and conditions of this Agreem ent. To facilitate the actions taken
by the Principal Shareholders, or either of them, as custodial agent, pursuant to Section 1.01 and the consummation
of the Exchange in accordance with the terms and conditions of this Agreement, eac h RMC Shareholder irrevocably
constitutes and appoints the Principal Shareholders, or either of them, their true and lawful attorneys-in-fact, to:
(a) hold the number of shares of RMC Common Stock set forth opposite each such RMC Shareholder's
name on the signature pages hereto in custody, as custodial agent, pending the satisfaction of the terms and
conditions of this Agreement required to permit the Exchange on the Closing Date;
(b) release from custody and exchange, assign, transfer and deliver to SJW stock certificat es
representing the number of shares of RMC Common Stock set forth opposite each such RMC Shareholder's
name on the signature pages hereto upon the satisfaction of those terms and conditions of t his Agreement
required to permit the Exchange on the Closing Date;
(c) incur any necessary or appropriate expense in connection with the custody, exchange, assign,
transfer and delivery of their RMC Common Stock;
(d) complete, execute and deliver all such stock certificates, stock powers, orders, rec eipts and other
writings and in general do all things and take all actions which they, in thei r sole discretion consider necessary
or proper in connection with the consummation of the Exchange and the other terms and condi tions of this
Agreement.
The power of attorney granted to the Principal Shareholders, as custodial agent, in this Section 1.05 is an
agency coupled with an interest and all authority conferred hereby shall be irrevocable and shall not be terminated by
any act of any of the RMC Shareholders or by operation of law, whether by death or incapaci ty of any of the RMC
Shareholders or by the occurrence of any other event or events (including without limitation, t he termination of any
trust or estate for which any RMC Shareholder is acting as a fiduciary or the dissolution of any corporation or
partnership). Notwithstanding any of the foregoing provisions of this Section 1.05, after the date of the termination of
this Agreement pursuant to Article VIII, any of the RMC Shareholders shall have the power, upon writ ten notice to
the Principal Shareholders, as custodial agent, to terminate the power of attorney grant ed in this Section 1.05 subject,
however, to all lawful actions done or performed pursuant to this Section 1.05 prior to the rec eipt by the Principal
Shareholders of actual notice of such termination of the power of attorney. The Principal Share holders agree to
accept the terms and conditions of the power of attorney granted to them by the RMC Shareholders in this Section
1.05.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF RMC AND THE RMC SHAREHOLDERS
Except as disclosed in a document delivered by RMC to SJW prior to the execution of this Agreement and labelle d as
the RMC Disclosure Schedule, subject to amendment pursuant to Section 9.04(d) of this
MERGERS AND ACQUISITIONS§12.202
June 1994 12-1203
Agreement (as so amended, the "RMC Disclosure Schedule"), RMC and the RMC Shareholders, jointly and
severally represent and warrant to SJW as set forth below:
Section 2.01 Corporate Existence and Power. RMC is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of California, and has all corporate powers re quired to carry on its
business as now conducted. RMC is duly qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be so quali fied would not, individually or in
the aggregate, have a Material Adverse Effect on RMC. For purposes of this Agreement, the term "Material Adverse
Effect" means, with respect to any person or entity, a material adverse effect on t he condition (financial or otherwise),
business, properties, assets, liabilities (including contingent liabilities), results of ope rations or prospects of such
person or entity and its subsidiaries (including, with respect to RMC, its Subsidiaries (as defined in Section 2.06(a)
below)), taken as a whole; and the term "Material Adverse Change" means a change whi ch would have a Material
Adverse Effect. RMC has delivered to SJW true and complete copies of RMC's Articles of Incorporation and Bylaws
as currently in effect.
Section 2.02 Corporate Authorization. The execution, delivery and performance by RMC of this Agreement,
the Asset and Liability Allocation Agreement, the Affiliates Agreement and the Hol dback Escrow Agreement, and the
consummation by RMC of the transactions contemplated hereby and thereby, are within RMC's corporate powers and
have been and, to the extent not executed as of the date hereof, will be prior to execution, duly authorized by all
necessary corporate action, except for any required approval by RMC's shareholders in connection wi th the
consummation of the Spin-off and the Exchange. This Agreement, the Asset and Liability Allocation Agreement, the
Affiliates Agreement and the Holdback Escrow Agreement constitute, or upon execution will constitute, valid and
binding agreements of RMC, enforceable against RMC in accordance with their respe ctive terms. The Holdback
Escrow Agreement, the Registration Rights Agreement and the Affiliates Agreements are collectively referred to
herein at time as the "RMC Ancillary Agreements." This Agreement and the RMC Ancillary Agreements constitute,
or upon execution will constitute, valid and binding agreements of the Principal Shareholders, e nforceable against
them in accordance with their respective terms. This Agreement constitutes, or upon e xecution will constitute, a valid
and binding agreement of the RMC Shareholders, enforceable against them in accordance with its terms.
Section 2.03 Governmental Authorization. The execution, delivery and performance by RMC of this
Agreement, the Asset and Liability Allocation Agreement and the Affiliates Agreements, the consummation of the
transactions contemplated hereby and thereby by RMC and the continued operation of the busine sses of RMC and its
Subsidiaries after the Closing Date require no action by or in respect of, or filing with, any governmental body,
agency, official or authority other than:
(a) compliance with any applicable requirements of the Hart-Scott-Rodino Antitrust Improve ments Act
of 1976, as amended (the "HSR Act");
(b) compliance with any applicable requirements of the California Public Utiliti es Commission and the
rules and regulations promulgated by the California Public Utilities Commission;
(c) compliance with any applicable requirements of the Securities Act of 1933, as ame nded, and the
rules and regulations promulgated thereunder (the "Securities Act"); and
(d) compliance with any applicable state securities or "blue sky" laws.
Section 2.04 Non-Contravention. The execution, delivery and performance by RMC of this Agreement and
the RMC Ancillary Agreements to which it is a party and the consummation by RMC of the transactions
contemplated hereby and thereby do not and will not:
(a) contravene or conflict with the Articles of Incorporation or Bylaws of RMC;
§12.202PROXY STATEMENTS: STRATEGY & FORMS
© 1994 Jefren Publishing Company, Inc. 12-1204
(b) assuming compliance with the matters referred to in Section 2.03, to the best of their knowledge,
contravene or conflict with or constitute a violation of any provision of any law, regula tion, judgment,
injunction, order or decree binding upon or applicable to RMC or any of its Subsidiaries;
(c) constitute a default under or give rise to a right of termination, cancellation or acceleration or loss of
any material benefit under any agreement, contract or other instrument binding upon RMC or a ny of its
Subsidiaries or under any license, franchise, permit or other similar authorization held by RMC or any such
Subsidiary; or
(d) result in the creation or imposition of any Lien (as defined below) on any material asset of RMC or
any of its Subsidiaries.
For purposes of this Agreement, the term "Lien" means, with respect to any asset, any m ortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset.
Section 2.05 Capitalization. The authorized capital stock of RMC consists of 5,000 Shares of RMC
Common Stock and 15,000 shares of RMC Preferred Stock. As of the date hereof there were outstanding:
(a) 1,723 shares of RMC Common Stock; and
(b) 7,410 shares of RMC Preferred Stock.
All outstanding shares of capital stock of RMC have been duly authorized and validly issue d and are fully paid and
nonassessable. After conversion of all outstanding shares of RMC Preferred Stock into RMC Common Stock
pursuant to this Agreement, there will be a total of 2,217 shares of RMC Common Stock outst anding that are owned
by the RMC Shareholders (on a fully converted basis) in the amounts set forth on the signature pa ges hereof. Except
as set forth in this Section 2.05, there are outstanding (i) no shares of capital stock or other voting securities of RMC,
(ii) no securities of RMC convertible into or exchangeable for shares of capital stock or vot ing securities of RMC and
(iii) no options or other rights to acquire from RMC, and no obligation of RMC to issue, any c apital stock, voting
securities or securities convertible into or exchangeable for capital stock or other voting securities of RMC (the items
in clauses (i), (ii) and (iii) being referred to collectively as the "RMC Securi ties"). There are no outstanding
obligations of RMC or any of its Subsidiaries to repurchase, redeem or otherwise acquire any RMC Securities.
Section 2.06 Subsidiaries.
(a) Each of RMC's Subsidiaries is a corporation or other entity duly incorporated or otherwise organized,
validly existing and in good standing (or local law equivalent) under the laws of its juri sdiction of organization, has all
corporate or other organizational powers required to carry on its business as now conducted. Each such Subsidiary is
duly qualified to do business as a corporation or partnership and is in good standing (or local l aw equivalent) in each
jurisdiction where the character of the property owned or leased by or the nature of its activities make such
qualification necessary except for those jurisdictions where the failure to be so quali fied would not, individually or in
the aggregate, have a Material Adverse Effect on such Subsidiary. For purposes of this Agreeme nt, the term
"Subsidiary" means, with respect to any entity, any corporation or other organization of which sec urities or other
ownership interests having ordinary voting power to elect a majority of the board of directors or other persons
performing similar functions are directly or indirectly owned by such entity or of which such e ntity is a partner or is,
directly or indirectly, the beneficial owner of 50% or more of any class of equity securit ies or equivalent profit
participation interest; provided, however, that the term "Subsidiary" shall not include R MM. All Subsidiaries of RMC
and their respective jurisdictions Of incorporation or organization are identified in the RMC Disclosure Schedule.
RMC has delivered to SJW true and complete copies of the articles of incorporation, bylaws, partnership agreement
and other similar organizational documents as currently in effect for each such Subsidiary.
(b) All of the outstanding capital stock of, or other ownership interests (the "RMC Subsidiary Securit ies") in,
each Subsidiary held by RMC is owned by RMC, directly or indirectly, free and clea r of any Lien and free of any
other limitation or restriction (including any restriction on the right to vote, sell or
MERGERS AND ACQUISITIONS§12.202
June 1994 12-1205
otherwise dispose of such capital stock or other ownership interests) and no person or entity has any right to purchase
or sell any of such RMC Subsidiary Securities.
(c) RMC has delivered to SJW copies of all material agreements, contracts and other documentation which
set forth the terms and conditions of RMC's ownership interest in its Subsidiaries and its a bility to acquire additional
ownership interests in such Subsidiaries or which are otherwise relevant to such ownership (the "Subsidi ary
Agreements"). Each Subsidiary Agreement is valid and binding on RMC and its Subsidiaries, and is in full force and
effect, and neither RMC nor any of its Subsidiaries, nor to the knowledge of RMC any other pa rty thereto, has
breached any provision of, or is in default under the terms of, any such Subsidiary Agreement.
(d) RMC has delivered to SJW a summary of all existing arrangements relating to its Subsidiaries pursuant
to which any person or entity has any right, whether presently in effect or inchoate, to ac quire any equity in any such
Subsidiary. Included in such summary were copies of all "compensation letters" delivered by R MC to any employee
of or consultant to any of its Subsidiaries which may have offered any equity participati on rights to such employees
or consultants. With respect to all such rights to purchase equity in any of the RMC Subsi diaries, RMC holds as of
the date hereof the unencumbered, vested fight to repurchase such equity fight at any ti me at a determinable price and
no holder of any such fight has the power to cause RMC or any such Subsidiary to repurchase such equit y fight from
such holder.
Section 2.07 Financial Statements. RMC has delivered to SJW (i) an unaudited consolidated balance sheet of
RMC dated as of June 30, 1992, and the related unaudited statement of income, shareholders equity and cash flows
for the nine month period then ended, (ii) the audited consolidated balance sheets of RMC dated as of September 30,
1991 and September 30, 1990 and the related audited statements of income, shareholders' equity and cash flows for
the fiscal years ended September 30, 1991, September 30, 1990 and September 30, 1989 together with t he notes
thereto and the reports of J. Arthur Greenfield & Co. thereon and (iii) an unaudited consolidat ed balance sheet of
RMC dated as of June 30, 1992 (the "RMC Balance Sheet Date") prepared on a pro forma basis after giving effect to
the Spin-off, and the notes thereto ("RMC Balance Sheet"). Such consolidated financial st atements of RMC present
fairly, in conformity with GAAP (except the business of RMM and certain administrative expe nses shall be shown as
a discontinued operation and except as expressly stated in the notes thereto), t he consolidated financial position of
RMC and its consolidated subsidiaries as of the dates thereof and their consolidat ed results of operations and cash
flows for the periods then ended.
Section 2.08 Inventory. The inventories (the "Inventories") of RMC and its Subsidiaries shown on the RMC
Balance Sheet were valued at cost determined on a first-in first-out basis with prope r allowance for obsolescence, in
accordance with GAAP. The Inventories consist of items which are of quality and quantity readily usable or saleable
in the normal course of business of RMC and its Subsidiaries, except such amounts as are reserved in accordance
with GAAP.
Section 2.09 Receivables. The receivables shown on the RMC Balance Sheet arose in the ordinary course of
business and have been collected or are, to the best of their knowledge, collectible in the book amounts thereof, less
an amount not in excess of the allowance for doubtful accounts provided for in such balance she et. The receivables of
RMC and its Subsidiaries arising after the date of the RMC Balance Sheet and prior to the Closing Date arose or will
arise in the ordinary course of business and have been collected or, to the best of their knowledge, are or will be
collectible in the book amounts thereof, consistent with the past practice of R MC and its Subsidiaries, less an
appropriate allowance for doubtful accounts.
Section 2.10 Compliance with Law. To the best of their knowledge, each of RMC and its Subsidiaries is in
compliance in all material respects with and has conducted its business so as to comply in all material respects with
all laws, rules and regulations, judgments, decrees or orders of any court, administrative agency, commission,
regulatory authority or other governmental authority or instrumentality, domestic or foreign (a "Governmental
Authority") applicable to its operations and with respect to which compliance is a condition of engaging in the
business thereof. There are no judgments or orders, injunctions, decrees, stipulations or awards (whether rendered by
a court or administrative agency or by arbitration), including any such actions relating to affirmative action claims or
claims of discrimination, against RMC or any Subsidiary of RMC or against
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© 1994 Jefren Publishing Company, Inc. 12-1206
any of their respective properties or businesses, which are continuing in effect and could re asonably be expected to
have a Material Adverse Effect on RMC.
Section 2.11 No Defaults. Neither RMC nor any Subsidiary of RMC is, or has received notice that it would
be with the passage of time, (i) in violation of any provision of its articles of inc orporation or bylaws or other similar
organizational document or (ii) in default or violation of any term, condition or provision of (A) any judgment,
decree, order, injunction or stipulation applicable to RMC or any Subsidiary of RMC or (B) any m aterial agreement,
note, mortgage, indenture, contract, lease or instrument, permit, concession, franchise or li cense to which RMC or
any of its Subsidiaries is a party or by which RMC or any of its Subsidiaries or their respe ctive properties or assets
may be bound.
Section 2.12 Litigation. There is no action, suit, proceeding, claim or investigation pending or, to the best
of their knowledge, threatened, against RMC or any of its Subsidiaries which in any manne r challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions contemplated he reby or by any of the RMC Ancillary
Agreements. The RMC Disclosure Schedule sets forth with respect to each pending acti on, suit, proceeding, claim or
investigation to which RMC or any of its Subsidiaries is a party, the forum, the parties thereto, a brief description of
the subject matter thereof and the amount of damages claimed. RMC has delivere d to SJW correct and complete
copies of all audit response letters prepared by its counsel for RMC's independent public acc ountants in connection
with the last five completed audits of RMC's financial statements, including the audit conducted in connection with
the RMC Balance Sheet, and any such correspondence since the RMC Balance Sheet Date.
Section 2.13 Absence of Certain Changes. Except as expressly allowed or contemplated by this
Agreement, since the RMC Balance Sheet Date, RMC and its Subsidiaries have c onducted their respective
businesses in the ordinary course and there has not occurred:
(a) Any Material Adverse Change with respect to RMC, except as may have been cause d by the
incurrence of the RMC Expenses or by the Spin-off. "RMC Expenses" means all reasonable costs, expe nses
and related liabilities incurred by RMC in connection with preparations in connec tion with the Exchange or the
negotiation, execution and consummation of this Agreement;
(b) Any amendments or changes in the articles or certificate of incorporation or bylaws or ot her similar
organizational document of RMC or any of its Subsidiaries;
(c) Any redemption, repurchase or other acquisition of shares of capital stock of RMC or its
Subsidiaries by RMC or its Subsidiaries, or any declaration, setting aside or payment of any di vidend or other
distribution (whether in cash, stock or property) with respect to the capital stock of RMC or its Subsidiaries
other than the Spin-off;
(d) Any increase in or modification of the compensation or benefits payable or to become payable by
RMC or any of its Subsidiaries to any of their respective directors, employees or consulta nts, except in the
ordinary course of business consistent with past practice, which past practice has been pre viously disclosed to
SJW;
(e) Any acquisition or sale of a material amount of property or assets by or of RMC or any of it s
Subsidiaries except for the effect of the Spin-off;
(f) Any entry into, amendment of, relinquishment, termination or non-renewal by RMC or any of its
Subsidiaries of any material contract, lease transaction, commitment or other right or obligation other than in
the ordinary course of business;
(g) Any labor dispute, other than routine individual grievances, or, to the best of their knowledge , any
activity or proceeding by a labor union or representative thereof to organize any employe es of RMC or any of
its Subsidiaries; or
(h) To the best of their knowledge, any agreement or arrangement made by RMC or any of its
Subsidiaries to take any action after the date hereof which, if taken prior to t he date hereof, would have made
any representation or warranty set forth in this Section 2.13 untrue or incorrect as of the date when made.
MERGERS AND ACQUISITIONS§12.202
June 1994 12-1207
Section 2.14Certain Agreements. Neither the execution and delivery of this Agreement or the RMC
Ancillary Agreements nor the consummation of the transactions contemplated hereby or there by will (i) result in any
payment (including, without limitation, severance, unemployment compensation, golden parachut e, bonus or
otherwise) becoming due to any director or employee of RMC or its Subsidiaries from RMC or it s Subsidiaries,
under any RMC Employee Plan (as defined in Section 2.15 (a) below) or otherwise, (ii) ma terially increase any
benefits otherwise payable under any RMC Employee Plan, or (iii) result in the acce leration of the time of payment
or vesting of any such benefits.
Section 2.15 Employee Benefits.
(a)RMC has set forth in the RMC Disclosure Schedule a list which identifies eac h "employee benefit plan," as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as ame nded ("ERISA"), and each
employment agreement, compensation agreement, bonus, commission or similar arrangement , and fringe benefit
arrangement which is maintained, administered or contributed to by RMC or any affilia te thereof (as defined below)
and covers any employee or former employee of RMC or any affiliate or under which RMC or any affiliate has any
liability. Copies (or, if not in writing, detailed summaries) of such plans (and, if applic able, related trust agreements)
and all amendments thereto and written interpretations thereof have been furnished t o SJW together with (to the
extent existing) (x) the most recent annual report (Form 5500 including, if applicable, Sc hedule B thereto) prepared
in connection with any such plan and (y) the most recent actuarial valuation report pre pared in connection with any
such plan. Such plans are referred to collectively herein as the "RMC Employee Pl ans." For purposes of this Section
2.15 only, an "affiliate" of any person or entity means any other person or entity, which, togethe r with such person or
entity, would be treated as a single employer under Section 414 of the Code or Title IV of ERISA. The only RMC
Employee Plans which individually or collectively would constitute an "employee pensi on benefit plan" as defined in
Section 3(2) of ERISA are identified as such in the list referred to above.
(b) No RMC Employee Plan constitutes a "multiemployer plan" as defined in Section 3(37) of ERISA (a
"Multiemployer Plan"), no RMC Employee Plan is maintained in connection with any trust described in Section
501(c)(9) of the Code and no RMC Employee Plan is subject to Title IV of ERISA or Secti on 412 of the Code. If
RMC or an affiliate thereof ever maintained or was obligated to contribute t o a Multiemployer Plan or a plan subject
to Title IV of ERISA, any withdrawal or other liability under Title IV of ERISA wi th respect to such plan has been
fully satisfied. To RMC's knowledge, nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any RMC Employee Plan has or will make RMC or any of it s Subsidiaries, or any officer
or director thereof, subject to any liability under Title I of ERISA or liable for any tax pursuant to Section 4975 of the
Code.
(c)To the best knowledge of RMC and the RMC Shareholders, each RMC Employe
