HomeMy WebLinkAboutArthur Anderson, L.L.P. - 1996-10-07CITY OF HUNTINGTON BEACH
2000 MAIN STREET
OFFICE OF THE CITY CLERK
CONNIE BROCKWAY
CITY CLERK
October 22, 1996
Mark Merriman
c/o Arthur Andersen, L.L.P.
18500 Von Karman Avenue, Suite 1100
Irvine, California 92715-0527
Dear Sirs:
CALIFORNIA 92648
The City Council of the City of Huntington Beach at the meeting held
October 7, 1996, approved execution of the enclosed Professional Services
Contract between the city and Arthur Andersen, L.L.P., For Consulting Services
Regarding the Transfer of City's Franchised Solid Waste Operator Through An
Employee Stock Ownership Plan.
Enclosed is a duly executed copy of the agreement for your records.
Sincerely,
Connie Brockway
City Clerk
CB:jc
Enclosure: Agreement
CC: Tim Keithahn
G:followup:agrmtltr/Arthur Andersen/jc
(Telephone: 714.536.5227 )
Council/Agency Meeting Held: /o
Deferred/Continued to:
Approve ❑Conditionally Approved ❑ Denied
KMl% )c/ r tTil %1
City Clerk's Signa
Council Meeting Date: October 7, 1996
Department ID Number: 96-24
CITY OF HUNTINGTON BEACH
REQUEST FOR COUNCIL ACTION
SUBMITTED TO: HONORABLE MAYOR AND CITY COUNCIL MEMBERS
SUBMITTED BY: GAIL HUTTON, City Attorney
PREPARED BY: $-&L HUTTON, City Attorney
SUBJECT: Contract with Arthur Andersen to review transfer of Solid Waste Franchise
Statement of Issue, Funding Source, Recommended Action, Alternative Action(s), Analysis, Environmental Status, Atta ent(s)
Statement of Issue: Rainbow Disposal has entered into an employee stock ownership plan
("ESOP") to purchase the interest of Mr. Phil Hohnstein in Rainbow, and obtain a financing package
from Chase Manhattan that will fund the ESOP. The City Council selected Arthur Andersen to conduct
a due diligence review of the transaction as per Section 19 of the Rainbow Franchise Agreement.
Arthur Andersen has requested certain modifications to the City's standard Professional Services
Contract.
Funding Source: Reimbursement agreement with Rainbow.
Recommended Action:
1. Approve Professional Services Contract with Arthur Andersen to perform a "due
diligence" review of the ESOP to purchase Mr. Phil Hohnstein's interest in Rainbow and
to review the Chase Manhattan loan package to finance the ESOP.
2. Authorize the execution of the Contract by the. Mayor and City Clerk for. Professional
Services to the above named consultant.
Alternative Action(s):
1. Do not approve the Contract, in which case Andersen will withdraw its due diligence report.
RAUEST FOR COUNCIL ACTI09
MEETING DATE: October 7, 1996
Analysis:
DEPARTMENT ID NUMBER: 96-24
In 1990, the City and Rainbow Disposal Company, Inc., and Rainbow Transfer and Recycling, Inc.,
(jointly referred to as "Rainbow"), entered into Franchise Agreement to provide for collection and
disposal services of solid waste (the "Franchise"). Section 19 of the Franchise limits Rainbow's
ability to transfer the Franchise. It provides that Rainbow "shall not sell, sign or transfer this
agreement or any interest therein, or permit same to be transferred by operation of the law,
without first obtaining the consent of City."
On September 5, 1996, the City received a letter from Rainbow requesting the City's consent to
an ESOP to purchase the interest of Mr. Phil Hohnstein in Rainbow. Hohnstein owns in excess of
50% of Rainbow directly and through various trusts and family partnerships. The purchase of Mr.
Hohnstein's shares would be financed through a loan from Chase Manhattan Bank. (The ESOP
and loan package will hereinafter be referred to as the "Transaction".)
The City Council selected Arthur Andersen to complete the necessary "due diligence" review of the
Transaction at its September 16, 1996, meeting. At that time, the Contract with Arthur Andersen,
particularly the terms of insurance coverage and indemnification, were unsettled. It is Andersen's
policy to only defend and indemnify the City against third parties who might seek to challenge the
reliability of their review to the extent that Andersen's conduct was grossly negligent,, and then, to
cap the damages to the amount of the contract. Their position is not unreasonable. Accounting
reports on companies are frequently "relied upon" by third parties who may invest in the company,
and then sue the accountant when the investment goes bad. (E.g., the Orange County bankruptcy.)
Given the small amount of this contract, Andersen wants to avoid a huge potential liability. Given the
fact that Staff had limited time to complete this project and the City selected Andersen without
negotiating these issues in advance, we recommend approval of the requested changes. Since the
insurance and indemnity clauses are different than the standard Professional Services Contract
previously approved by the City Council, this Contract must be specifically approved by the Council.
Environmental Status: Not applicable.
Attachment(s): List attachment(s) below.
No.
Consulting contract
Description
96-24 -2- 10/02/96 12:39 PM
PROFESSIONAL SERVICES CONTRACT BETWEEN
THE CITY OF HUNTINGTON BEACH AND
ARTHUR ANDERSEN, L.L.P.,
FOR CONSULTING SERVICES REGARDING THE
TRANSFER OF CITY'S FRANCHISED SOLID WASTE OPERATOR
THROUGH EMPLOYEE STOCK OWNERSHIP PLAN
Table of Contents
SECTION........................................................................................................... PAGE
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WorkStatement...................................................................................................
1
CityStaff Assistance.............................................................................................
2
Time of Performance............................................................................................
2
Compensation.......................................................................................................
2
ExtraWork..........................................................................................................
2
Methodof Payment..........................................................................:...................
2
Indemnification and Hold Harmless.......................................................................
3
Workers' Compensation........................................................................................
5
Insurance..............................................................................................................
5
Certificates of Insurance.......................................................................................
6
Independent Contractor.......................................................................................
7
Termination of Agreement...................................................................................
7
Assignment and Subcontracting.........................................................................:.
8
City Employees and Officials...............................................................................
8
Notices.................................................................................................................
8
Immigration.........................................................................................................
8
Legal Services Subcontracting Prohibited............................................................
9
AttorneyFees......................................................................................................
9
Entirety...............................................................................................................
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PROFESSIONAL SERVICES CONTRACT BETWEEN
THE CITY OF HUNTINGTON BEACH AND
ARTHUR ANDERSEN, L.L.P.,
FOR CONSULTING SERVICES REGARDING THE
TRANSFER OF CITY' S FRANCHISED SOLID WASTE OPERATOR
THROUGH AN EMPLOYEE STOCK OWNERSHIP PLAN
THIS AGREEMENT, made and entered into this 10- day of
26.�6Q . •bc / , 1996, by' and between the City of Huntington. Beach, a municipal
corporation of the State of California, hereinafter referred to as "CITY", and Arthur Andersen,
L.L.P., an Illinois partnership, hereinafter referred to as "CONSULTANT."
WHEREAS, CITY desires to engage the services of a consultant for services regarding
transfer of CITY's franchised solid waste operator through an Employee Stock Ownership Plan;
and
Pursuant to documentation on file in the office of the City Clerk, the provisions of HBMC
Chapter 3.03 relating to procurement of professional service contracts has been complied with;
and
NOW, THEREFORE, it is agreed by CITY and CONSULTANT as follows:
WORK STATEMENT
CONSULTANT shall provide consulting services to evaluate on behalf of the
CITY the transfer of effective control of CITY's franchised solid waste operator through an
r
Employee Stock Ownership Plan and an associated financing package.. Said services are more
specifically described in Exhibit A, attached hereto, and shall hereinafter be referred to as
"PROJECT."
CONSULTANT hereby designates Mark Merriman and Tim Keithahn, who shall
represent it and be its sole contact and agent in all consultations with CITY during the
performance of this Agreement.
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2. CITY STAFF ASSISTANCE
CITY shall assign a staff coordinator to work directly with CONSULTANT in the
performance of this Agreement.
3. TIME OF PERFORMANCE
Time is of the essence of this Agreement. The services of the CONSULTANT are
to commence as soon as practicable after the execution of this Agreement.
4. COMPENSATION
In consideration of the performance of the services described herein, CITY agrees
to pay CONSULTANT a fee of Twenty Thousand Dollars ($20,000.00).
5. EXTRA WORK
In the event CITY requires additional services not included in the PROJECT,
CONSULTANT will undertake such work after receiving written authorization from CITY.
Additional compensation for such extra work shall be allowed only if the prior written approval of
CITY is obtained. Such additional compensation shall not exceed Five Thousand Dollars
($5,000.00).
6. METHOD OF PAYMENT
A. Delivery of work product: A copy of every technical memo and report
prepared by CONSULTANT shall be submitted to the CITY to demonstrate progress toward
completion of tasks. In the event CITY rejects or has comments on any such product, CITY shall
identify specific requirements for satisfactory completion. Any such product which has not been
formally accepted or rejected by CITY shall be deemed accepted.
B. The CONSULTANT shall submit to the CITY an invoice for each progress
payment due. Such invoice shall:
1) Reference this Agreement;
2) Describe the services performed;
3) Show the total amount of the payment due;
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4). Include a certification by a principal member of the
CONSULTANT's firm that the work has been performed in accordance with the
provisions of this Agreement; and
completed.
5) For all payments include an estimate of the percentage of work
Upon submission of any such invoice, if CITY is satisfied that
CONSULTANT is making satisfactory progress toward completion of tasks in accordance with
this Agreement, CITY shall promptly approve the invoice, in which event payment shall be made
within thirty (30) days of receipt of the invoice by CITY. Such approval shall not be
unreasonably withheld. If the CITY does not approve an invoice, CITY shall notify
CONSULTANT in writing of the reasons for non -approval, within seven (7) calendar days of
receipt of the invoice, and the PROJECT shall be suspended until the parties agree that past
performance by CONSULTANT is in, or has been brought into compliance, or until this
Agreement is terminated as provided herein.
C. Any billings for extra work or additional services authorized by CITY shall
be invoiced separately to the CITY. Such invoice shall contain all of the information required
above, and in addition shall list the hours expended and hourly rate charged for such time. Such
invoices shall be approved by CITY if the work performed is in accordance with the extra work
or additional services requested, and if CITY is satisfied that the statement of hours worked and
costs incurred is accurate. Such approval shall not be unreasonably withheld. Any dispute
between the parties concerning payment of such an invoice shall be treated as separate and apart
from the ongoing performance of the remainder of this Agreement.
7. INDEMNIFICATION AND HOLD HARMLESS
CONSULTANT hereby agrees to protect, defend, indemnify, and hold and save
harmless CITY, its officers, and employees against any and all liability, claims, judgments, costs
and demands, however caused, relating to bodily injury or death of any person or damage to real
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and for tangible property, arising out of the acts or omissions of CONSULTANT, including those
arising from the passive concurrent negligence of CITY, but save and except those which arise
out of the active concurrent negligence, sold negligence, or the sole willful misconduct of CITY.
CONSULTANT will conduct all defense at its sole cost and expense. CITY shall be reimbursed
by CONSULTANT for all costs or attorney's fees incurred by CITY in enforcing this obligation.
CITY shall indemnify and hold harmless CONSULTANT and its partners and
employees from and against any loss, claim, damage or liabilities (or actions in respect thereof that.
may be asserted by any third party) that may result from any third party claims arising out of or
relating to CONSULTANT's services or any use by the CITY of any deliverable item and will
reimburse CONSULTANT for all expenses (including counsel fees) as incurred by
CONSULTANT in connection with any such action or claim, except to the extent any such claim
(i) is finally determined to have resulted from gross negligence or willful misconduct of
CONSULTANT or (ii) is covered by the preceding indemnities.
To receive the foregoing indemnities, the party seeking indemnification must notify
the other in writing of a claim or suit promptly and provide reasonable cooperation (at the
indemnifying party's expense) and full authority to defend or settle the claim or suit. Neither
party shall have any obligation to indemnify the other under any settlement made without its
written consent.
The limit of CONSULTANT's liability (whether in contract, tort, negligence, strict
liability in tort or by statute or otherwise) to CITY or to any third party concerning performance
or non-performance by CONSULTANT, or in any manner related to this Agreement, for any and
all claims, excepting any and all liability, claims, judgments, costs and demands, however caused,
relating to bodily injury or death of any person or damage to real and for tangible property, shall
not in the aggregate exceed the fees and expenses paid by CITY to. CONSULTANT hereunder
with respect to the work involved.
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8. WORKERS COMPENSATION
CONSULTANT shall comply with all of the provisions of the Workers
Compensation Insurance and Safety Acts of the State of California, the applicable provisions of
the California Labor Code and all amendments thereto; and all similar state or federal acts or laws
applicable; and shall indemnify, defend and hold harmless CITY from and against all claims,
demands, payments, suits, actions, proceedings and judgments of every nature and description,
including attorney fees and costs presented, brought or recovered against CITY, for or on
.account of any liability under any of said acts which may be incurred by reason of any work to be
performed by CONSULTANT under this Agreement.
CONSULTANT shall obtain and furnish evidence to CITY of maintenance of
statutory workers compensation insurance and employers liability in an amount of not less than
$100,000 bodily injury by accident, each occurrence, $100,000 bodily injury by disease, each
employee, and $250,000 bodily injury by disease, policy limit.
9. INSURANCE
In addition to the workers compensation insurance and CONSULTANT's
covenant to indemnify CITY, CONSULTANT shall obtain and furnish to CITY evidence of
coverage in the form of certificates of insurance of the following insurance policies covering the
PROJECT:
A. General Liability Insurance
A policy of general public liability insurance, including motor vehicle coverage.
Said policy shall indemnify CONSULTANT, its officers, agents and employees, while acting
within the scope of their duties, against any and all,claims of arising out of or in connection with
the PROJECT, and shall provide coverage in not less than the following amount: combined single
limit bodily injury and property damage, including products/completed operations liability and
blanket contractual liability, of $1,000,000 per occurrence. If coverage is provided under a form
which includes a designated general aggregate limit, the aggregate limit must be no less than
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$1,000,000. Said policy shall name CITY, its officers, and employees as Additional Insureds, and
shall specifically provide.that any other insurance coverage which may be applicable.to the
PROJECT shall be deemed excess coverage and that CONSULTANT's insurance shall be
primary.
B. Professional Liability Insurance.
CONSULTANT shall acquire a professional liability insurance policy covering the
work performed by it hereunder. Said policy shall provide coverage for CONSULTANT's
professional liability in an amount not less than $500,000 per claim. A claims made policy shall be
acceptable. `
C. Deductible.
Under no circumstances shall said abovementioned insurance policies contain a
self -insured retention, or a "deductible" or any other similar form of limitation on the required
coverage in excess of One Million Dollars ($1,000,000.00).
10. CERTIFICATES OF INSURANCE; ADDITIONAL INSURED
ENDORSEMENTS
Prior to commencing performance of the work hereunder, CONSULTANT shall
furnish to CITY certificates of insurance subject to approval of the City Attorney evidencing the
foregoing general liability and auto liability insurance coverages as required by this Agreement;
said certificates shall:
provide the name and policy number of each carrier and policy;
2. shall state that the policy is currently in force; and
shall promise to provide that such policies will not be canceled or modified
without thirty (30) days prior written notice of CITY.
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CONSULTANT shall maintain the foregoing insurance coverages in force until the
work under this Agreement is fully completed and accepted by CITY.
The requirement for carrying the foregoing insurance coverages shall not derogate
from the provisions for indemnification of CITY by CONSULTANT under the Agreement.
CITY or its representative shall at all times have the right to demand the original or a copy of all
said policies of insurance, provided that such request shall not be made unreasonably.
CONSULTANT shall pay, in a prompt and timely manner, the premiums on all insurance
hereinabove required.
A separate copy of the additional insured endorsement to CONSULTANT's
general liability and automobile policies, naming the CITY, its officers and employees as
Additional Insureds shall be provided to the City Attorney for approval prior to any payment
hereunder.
11. INDEPENDENT CONTRACTOR
CONSULTANT is, and shall be, acting at all times in the performance of this
Agreement as an independent contractor. CONSULTANT shall secure at its expense, and be
responsible for any and all payment of all taxes, social security, state disability insurance
compensation, unemployment compensation and other payroll deductions for CONSULTANT
and its officers, agents and employees and all business licenses, if any, in connection with the
services to be performed hereunder.
12. TERMINATION OF AGREEMENT
All work required hereunder shall be performed in a good and workmanlike
manner. CITY may terminate CONSULTANT's services hereunder at any time with or without
cause, and whether or not PROJECT is fully complete. Any termination of this Agreement by
CITY shall be made in writing, notice of which shall be delivered to CONSULTANT as provided
herein.
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13. ASSIGNMENT AND SUBCONTRACTING
This Agreement is a personal service contract and the supervisory work hereunder
shall not be delegated by CONSULTANT to any other person or entity without the consent of
CITY.
14. CITY EMPLOYEES AND OFFICIALS
CONSULTANT shall employ no CITY official nor any regular CITY employee in
the work performed pursuant to this Agreement. No officer or employee of CITY shall have any
financial interest in this Agreement in violation of the applicable provisions of the California
Government Code.
15. NOTICES
Any notice or special instructions required to be given in writing under this
Agreement shall be given either by personal delivery to CONSULTANT's agent (as designated in
Section 1 hereinabove) or to the City Attorney of as the situation shall warrant, or by enclosing
the same in a sealed envelope, postage prepaid, and depositing the same in the United States
Postal Service, addressed as follows:
TO CITY:
CITY of Huntington Beach
2000 Main Street
Huntington Beach, CA 92648
Attn: City Attorney
16. IMIVIIGRATION
TO CONSULTANT:
Mark Merriman
Tim Keithalm
c/o Arthur Andersen; LLP
18500 Von Karman Avenue, Ste 1100
Irvine, CA 92715-0527
CONSULTANT shall be responsible for full compliance with the immigration and
naturalization laws of the United States and shall; in particular, comply with the provisions of the
United States Code regarding employment verification.
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17. LEGAL SERVICES SUBCONTRACTING PROHIBITED
CONSULTANT and CITY agree that CITY is not liable for payment of any
subcontractor work involving legal services, and that such legal services are expressly outside the
scope of services contemplated hereunder. CONSULTANT understands that pursuant to
Huntington Beach City Charter Section 309, the City Attorney is the exclusive legal counsel for
CITY; and CITY shall not be liable for payment of any legal services expenses incurred by
CONSULTANT.
18. ATTORNEY' S FEES
In the event suit is brought by either party to enforce the terms and provisions of
this agreement or to secure the performance hereof, each party shall bear its own attorney's fees.
BALANCE OF PAGE INTENTIONALLY LEFT BLANK
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19. ENTIRETY
The foregoing sets forth the entire Agreement between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by and through their authorized offices the day, month and year first above written.
ARTHUR ANDERSON, L.L.P., CITY OF HUNTINGTON BEACH,
CONSULTANT a municipal corporation of the
State of California
By: � 0--'A ��
tgMk- mr6 WIM744-)
(print name)
Its: Partner
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Mayor
.ATTEST:
City Clerk"
APPROVED AS TO FORM:
City Attorney
INITIATED AND APPROVED:
/ City Attorney
•
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Exhibit A
CITY OF HUNTINGTON BEACH
RAINBOW FRANCHISE AGREEMENT
TRANSACTION APPROVAL DUE DILIGENCE WORK PROGRAM
1. Obtain and read the following:
A: Franchise agreements entered into by Rainbow with Huntington Beach and
Fountain Valley
B. Unaudited Financial statements for Rainbow for last three years
C. Projections for Rainbow, including assumptions
D. Rainbow's ESOP agreement
E. ESOP loan agreement with Chase Manhattan Bank
2. Perform the following regarding Rainbow's projections: -
A. Compare projected revenues to actual revenues included in audited financial
statements and pricing provisions in the franchise agreement(s).
B. Read assumptions for reasonableness and obtain support, as deemed appropriate.
Discuss assumptions with Rainbow management.
C. Ensure terms of new financing have been properly considered.
3. Perform the following regarding the franchise agreement for the City of Huntington
Beach:
A. Assess impact of projected income (reviewed in 2 above) on provisions of
franchise agreement, particularly rate setting provisions and levels of service.
B. Determine other potential areas of impact from the transaction, including financial
withdrawal of franchisee.
4. Perform background checks on Rainbow and new officers of Rainbow. The background
. investigation will consist of on-line data base research * and will include the following:
A. Verification of Rainbow's existence as a legal entity
B. Confirmation of the identity and positions of key members of management
C. Review of local, national and international sources of business information that
include newspapers, trade journals and business magazines.
D. Review of governmental/public filings (criminal records, liens, judgments,
lawsuits, bankruptcies, SEC violations, etc.)
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5. Draft report to City of Huntington Beach, including:
A. Procedures performed
B. Matters arising from procedures performed
C. Address specific questions in the City Attorney's letter dated September 10, 1996.
Said report will set forth the procedures performed and its findings. The report will
acknowledge. that (1) the sufficiency of the procedures performed is the sole responsibility
of the City and that Consultant makes no representation regarding the sufficiency of the
procedures for City's purposes, (2) the procedures do not constitute an audit (or
examination in accordance with professional standards) and had Consultant been engaged
to perform additional procedures or an audit (or examination) in accordance with
professional standards, matters might have come to its attention that would have been
reported and (3) it is restricted to the parties named therein and may not be used or
referred to for any other purpose.
In addition, Consultant's report will also state that its procedures and findings do not
constitute a legal determination of the City's compliance with specified requirements.
Consultant's report will further state that it makes no representations regarding questions
of legal interpretation or provide any assurance as to any matters relating to Rainbow's
solvency, adequacy of capital or ability to pay its debts.
Should circumstances arise during the course of Consultant's work that prevents it from
completing the agreed -upon procedures, Consultant will so notify City so that alternative
arrangements can be made. Consultant is not presently aware of such circumstances, and
any that do arise during the course of its work will be discussed with City so that City will
have an opportunity to consider these matters including whether City wishes Consultant to
perform additional procedures in response to the identified conditions.
In connection with Consultant's engagement, it will require a representation letter from
the City concerning matters relating to the completeness and accuracy of the information
Consultant reviews.
7. Assist the City in negotiating any amendments to the Franchise Agreement necessary to
address the areas of impact identified in 3 above.
It is expressly understood that these procedures are sufficient for purposes of the City Attorney.
* There are practical limitations on the effectiveness of on-line data base searches. These include:
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• Public records such as lawsuits, cases, judgments, liens, UCC filings, etc. are
available on-line for only a limited number of states and jurisdictions
• Criminal records are not available on-line on commercial databases with the
exception of California
• Historical archives for certain periodicals and public records are limited. Where
such data limitations significantly impact the comprehensives of a particular search,
we will notify the City Attorney on a timely basis so that extended procedures can
be timely considered.
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j EACH QCGURF{ENCE
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saa;000
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' ! 1E .E'XPENSE(AnyoneperSOD);
A
AUTOMOBILE
LIABILITY
83C3E06S916
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I 83CSED59917 (T X;
01/01/96 41/01/97 LIMIT 5 1,000,000
AL,LOWNEOAUTQ$
83MCPD59926
01/01/96 011D1l97 OaDILYINJURY
—
SCHEDULED AUTDS
(Per I7Br.4o3l) —
HIREPAUTOS
BODILY INJURY S
NON -OWNED AUTOS
GARAGE LIA9IL ITY
j j PROPERTY DAMAGE 5
EXCESS
LIABILITY -
- EACH OCCURRENCE 5
UMBRELLA FORM
i I AGGREGATE $
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WORKER'S COMPENSATION
83WN055G13
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j 0 /01/96 01/01/97 X STATUTORYLIMITS
0P101196 01/0tl97 FJ�GHAGGIDENT 3. 500000
AND
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EMPLOYERS' LIASILIIY
��--
DISEASE. -EACH EMPLOYEE ; 5 500,000
_
—
I OTHER
i
I
APPRO�ED AS TO FORM
DESCRIPTION OF OPERATIONS/LOCATIONSIVEHICLES/5PECIAL ITEMS (LIMITS MAYBE SUBJECT TQ RETENTIONS) GAILi -
RE: ARTHUR ANDERSEN'S PROPOSAL FOR CERTIFICATE HOLDBR
By- Deputy City Attorney
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hxh: 0p 7i :•:kC :4%: ax^w%� r3%:x:t:dx.0 o%,..�., x4�.. .. ...:.v.,,a ..
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:x.r::.x.r:,.•'i,..: ..,. ,.s•xv:vn;t.
SHOULD ANY OF THE ABOVE DESCRIBED POLICIES'BE CANCELLED BEFORE THE
=XRRATION DATE THEREOF,. THE ISSUING COMPANY WILL W&KA0000W.
CITY OF HUNTINGTON BEACH
NAMED TO THE.
ATTN' CITY ATTORNEY
MAIL 30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER
LEFT,
2000 MAIN STREET
(14
HUNTINGTON BEACH CA 92648
;" AUTHoRIZEDREPRESENTATIVE
^,a
th, STEVEN R
.....,Nnvn ...;.,.:^.^ ..,...:•..v.,.n.r%h%.x.;':,...;.....:..:rr,%:.^:::':r�-::�-.,:r%.r.}.ir>i: � 4�:t: fix :%..,..,.,.2., xa .. .., rti�.%�x.x,.xi.. �%r. xx.,:r:.:.. .t,.,..,.,.%.:..:.:.,.:.....� h:%t,•::in:t.%�.<,.:}
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rt': t:��yS,,%.xv%s x Y.saux•RG '
-
ARTHUR
AKDERSEN
CERTIFICATE
The undersigned, being the duly designated and acting Assistant Secretary of Arthur Andersen
LLP, an Illinois partnership, hereby certifies that:
1. Professional indemnity insurance coverage is presently in effect for Arthur
Andersen LLP provided by mutual insurance companies owned by certain Member
Firms of Andersen Worldwide or jointly with other international professional
services firms.
2. The coverage presently in effect expires June 1,1997.
3. The limits of coverage are in excess of $1,000,000 inclusive of costs and expenses.
The assured firm bears an each and every loss retention which is in excess of
$1,000,000.
4. The policy indemnifies the assured firm against any claims made against it during
the policy period by reason of any act, error or omission whether of acts, facts, law
or otherwise or breach of contract or libel or slander corzunitted in or about the
conduct of any professional business of the assured firm. The term "professional
business" applies to advice given or services performed of whatsoever nature for
which Arthur Andersen LLP may be legally responsible.
JON lip. EKDAHL
Assist t Secretary
State of Illinois)
) S.S.
County of C O O K )
1, Julie R. Alston, a NOTARY PUBLIC in and for the said County and State, do hereby certify that
JON N. EKDAHL, personally known to me to be the Assistant Secretary of Arthur Andersen LLP,
appeared before me this day in person and acknowledged that he executed the said instrument
freely and voluntarily as an act of the said firm.
GIVEN under my hand and seal this 3rd day of October,1996.
FtN,�OTARY
OFFICIAL SEAL"
JULIE R. ALSTON
PUBLIC, STATE OF ILLINOISY COMMISSION EXPIRES 6/5/99
NOTARY PUBLIC
APPROVED AS TO FORM
GAIL HUTTON, City Attorney
By- Deputy City Attorney
6G /`u'-�
kendatlMd«\c-bfr\insunM\ asstrec\ma%b"s%doe
rx TOTAL PAGE.002 x+
t; Northwestern Atrium
500 W. Madison Street
Chicago, Illinois 60661-2
312 648 4200
]OHNSON
IGGINSEstablished 1845
October a. 1996
Scott Field
Deputy City Attorney
City of Huntington Beach
2000 Main Street
Huntington Beach, CA 92648
Re: Arthur Andersen's insurances
Dear Scott.
Andersen Worldwide carries deductibles and self insured retentions on many of its
firmwide insurances. These deductibles are conservative for a firm the size of Andersen.
The per occurrence deductible is less than $500,000 on tl-.e general and auto liability
insurance provided by Hartford Insurance Cornpany.
Coverage for additional insureds is provided automaticaLy for clients which Andersen is
obligated contractually to name on its general and autom)bile liability insurance in the
United States. Hartford accents certificates issued by Jol: nson & Higgins adding
additional insureds. The certificates are used as if the po icies had been endorsed.
We issued on Sept. 19 a certificate to the City of Huntinjt ton Beach evidencing coverage
for Andersen. You can expect to receive a revised certif: ;:ate from us when Andersen
directs Us to reissue the certificate, showing the City as A:t additional insured on
Andersen's general and auto liability policies.
Sincerely,
Anne Roberts
Vice President
312 648 3118 APPROVED AS TO FORM
GAN N_1TT01', Cite Attorney
CC John Perkins- AW GRN, 4&I B7.6oputY City Attorney
Amv Daniels- AW GRNI&I ram_ l�
Kirk McInerney- AW
•SOWN
TaE GLOBAL TEAM
s
JTO CITY OF HUNTINGTON BEACH
COUNCIL - ADMINISTRATOR COMMUNICATION
HUF,MNGTON BEACH
TO: HONORABLE MAYOR AND CITY COUNCIL
VIA: MICHAEL T. UBERUAGA, CITY ADMINISTRATOR ..
FROM: RAY SILVER, ASSISTANT CITY ADMINISTRATOR QWJ
DATE: SEPTEMBER 16,1996
SUBJECT: LATE COMMUNICATION REGARDING E-18, SOLID WASTE
FRANCHISE DUE DILIGENCE
In the Request for Council Action, listed as E-18 for the September 16,1996 Agenda, staff
indicated under Recommended Action lb that the specific firm to be recommended would
be provided to Council as a Late Communication.
On Friday, September 13, 1996, City staff received and reviewed proposals submitted for
a Professional Services contract to perform a "due diligence" review of the Rainbow
Disposal Inc. ESOP and the Chase Manhattan loan package to fund the ESOP.
The City received three proposals from: Arthur Andersen L.L.P., Diehl, Evans and
Associates, and Hilton, Farnkoph and Hobson, LLC. Staff recommends that Arthur
Andersen, LLP be hired to perform the needed professional services. Arthur Andersen's
proposal is within a $20,000 range as and can best meet the City's time constraints and
provides the best overall proposal.
The anticipated timetable for City review of Rainbow's request for "Consent to Transfer"
is as follows:
Timeline
Task Item
Date
1. City Council approval to hire
9/16/96
2.
Firm notification / start work
9/17/96
3.
Rainbow to deliver required data
9/17/96
4.
Arthur Andersen performs studies
9/30/96
5.
Staff review of draft report
10/02/96
6.
Report revisions if applicable)
10/03/96
7. Final report complete and delivered to .
Council with Staff recommendation(s)
10/04/96
•
8. Council Action 10/07/96
Staff is optimistically and tentatively scheduling consideration of Rainbow's request for
"Consent to Transfer" for the October 7, 1996 City Council meeting. However, the
review may take longer than the proposed two week delivery should additional
information be required of Rainbow. Specifically, Rainbow has indicated that it can only
provide an unaudited financial statement. The time frame for the studies were based on
receiving audited financial information. Additional time may be needed to achieve a .
reasonable assurance of the accuracy of the provided information. Further, should the
consultant make any recommendations for adjustments in the Rainbow Franchise, time
needed to review those recommendations may delay this item coming before the City
Council.
Therefore, staff recommends that the City Council move to:
1. "Award a Professional Services Contract to Arthur Andersen, LLP to perform a "due
diligence" review of the ESOP and to review the Chase Manhattan loan package to
finance the ESOP",
2. "Approve the attached Professional Services Contract, in the substantial form
presented, with Arthur Andersen; LLP and authorize the Mayor and City Clerk to execute
the final contract in the amount of $20,000 for the base contract and no more than $5,000
available as a contingency fund for work order changes",
3. "Approve the Reimbursement Agreement with Rainbow Disposal Company Inc., to
pay for the cost of the Professional Services Contract of $25,000 and authorize the Mayor
and City Clerk to execute the contract.
ATTACHMENTS:
1) Revised Professional Services Contract with Arthur Andersen, L.L.P.
2) City Attorney Letter to Stan Tkaczyk of September 11, 1996
3) Arthur Andersen L.L.P. Proposal of September 13, 1996
•
PROFESSIONAL SERVICES CONTRACT BETWEEN
THE CITY OF HUNTINGTON BEACH AND
ARTHUR ANDERSEN, L.L.P.,
FOR CONSULTING SERVICES REGARDING THE
TRANSFER OF CITY'S FRANCHISED SOLID WASTE OPERATOR
THROUGH AN EMPLOYEE STOCK OWNERSHIP PLAN
THIS AGREEMENT, made and entered into this . day of
1996, by and between the City of Huntington Beach, a municipal
corporation of the State of California, hereinafter referred to as "CITY", and Arthur Andersen,
L.L.P., a California corporation, hereinafter referred to as "CONSULTANT."
WHEREAS, CITY desires to engage the services of a consultant for services regarding
transfer of City's franchised solid waste operator through an Employee Stock Ownership Plan;
and
Pursuant to documentation on file in the office of the City Clerk, -the provisions of HBMC
Chapter 3.03 relating to procurement of professional service contracts has been complied with;
and
NOW, THEREFORE, it is agreed by CITY and CONSULTANT as follows:
WORK STATEMENT
CONSULTANT shall provide consulting services to evaluate on behalf of the City
the transfer of effective control of City's franchised solid waste operator through an Employee
Stock Ownership Plan and an associated financing package.. Said services are more specifically
described in Exhibit A, attached hereto, and shall hereinafter be referred to as "PROJECT."
CONSULTANT hereby designates Mark Merriman and Tim Keithahn, who shall
represent it and be its sole contact and agent in all consultations with CITY during the
performance of this Agreement.
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2. CITY STAFF ASSISTANCE
CITY shall assign a staff coordinator to work directly with CONSULTANT in the
performance of this Agreement.
3. THE OF PERFORMANCE
Time is of the essence of this Agreement. The services of the CONSULTANT are
to commence as soon as practicable after the execution of this Agreement.
4. ' COMPENSATION
In consideration of the performance of the services described herein, CITY agrees
to pay CONSULTANT a fee of Twenty Thousand Dollars ($20,000.00).
5. EXTRA WORK
In the event CITY requires additional services not included in the PROJECT,
CONSULTANT will undertake such work after receiving written authorization from CITY.
Additional compensation for such extra work shall be allowed only if the prior written approval of
CITY is obtained. Such additional compensation shall not exceed Five Thousand Dollars
($5,000.00).
6. METHOD OF PAYMENT
A. Delivery of work product: A copy of every technical memo and report
prepared by CONSULTANT shall be submitted to the CITY to demonstrate progress toward
completion of tasks. In the event CITY rejects or has comments on any such product, CITY shall
identify specific requirements for satisfactory completion. Any such product which has not been
formally accepted or rejected by CITY shall be deemed accepted.
B. The CONSULTANT shall submit to the CITY an invoice for each progress
payment due. Such invoice shall:
1) Reference this Agreement;
2) Describe the services performed;
3) Show the total amount of the payment due;
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4) Include a certification by a principal member of the Consultant's
firm that the work has been performed in accordance with the provisions of this
Agreement; and
5) For all payments include an estimate of the percentage of work
completed.
Upon submission of any such invoice, if CITY is satisfied that
CONSULTANT is making satisfactory progress toward completion of tasks in accordance with
this Agreement, CITY shall promptly approve the invoice, in which event payment shall be made
within thirty (30) days of receipt of the invoice by CITY. Such approval shall not be
unreasonably withheld. If the CITY does not approve an invoice, CITY shall notify
CONSULTANT in writing of the reasons for non -approval, within seven (7) calendar days of
receipt of the invoice, and the PROJECT shall be suspended until the parties agree that past
performance by CONSULTANT is in, or has been brought into compliance, or until this
Agreement is terminated as provided herein.
C. Any billings for extra work or additional services authorized by CITY shall
be invoiced separately to the CITY. Such invoice shall contain all of the information required
above, and in addition shall list the hours expended and hourly rate charged for such time. Such
invoices shall be approved by CITY if the work performed is in accordance with the extra work
or additional services requested, and if CITY is satisfied that the statement of hours worked and
costs incurred is accurate. Such approval shall not be unreasonably withheld. Any dispute
between the parties concerning payment of such an invoice shall be treated as separate and apart
from the ongoing performance of the remainder of this Agreement.
7. INDEMNIFICATIONAND HOLD HARMLESS
CONSULTANT hereby agrees to indemnify, defend, and hold and save harmless
CITY, its officers and employees from any and all liability, including any claim of liability and any
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and all losses or costs arising out of the negligent performance of this Agreement by
CONSULTANT, its officers or employees.
8. WORKERS COMPENSATION
CONSULTANT shall comply with all of the provisions of the. Workers
Compensation Insurance and Safety Acts of the State of California, the applicable provisions of
the California Labor Code and all amendments thereto; and all similar state or federal acts or laws
applicable; and shall indemnify, defend and hold harmless CITY from and against all claims,
demands, payments, suits, actions, proceedings and judgments of every nature and description,
including attorney fees and costs presented, brought.or recovered against CITY, for or on
account of any liability under any of said acts which may be incurred by reason of any work to be
performed by CONSULTANT under this Agreement.
CONSULTANT shall obtain and furnish evidence to CITY of maintenance. of
statutory workers compensation insurance and employers liability in an amount of not less than
$100,000 bodily injury by accident, each occurrence, $100,000 bodily injury by disease, each
employee, and $250,000 bodily injury by disease, policy limit.
9. INSURANCE
In addition to the workers compensation insurance and CONSULTANT's
covenant to indemnify CITY, CONSULTANT shall obtain and furnish to CITY the following
insurance policies covering the PROJECT:
A. General Liability Insurance
A policy of general public liability insurance, including motor vehicle coverage.
Said policy shall indemnify CONSULTANT, its officers, agents and employees, while acting
within the scope of their duties, against any and all claims of arising out of or in connection with
the PROJECT, and shall provide coverage in not less than the following amount: combined single
limit bodily injury and property damage, including products/completed operations liability and
blanket contractual liability, of $1,000,000 per occurrence. If coverage is provided under a form
4
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•
which includes a designated general aggregate limit, the aggregate limit must be no less than
$1,000,000. Said policy shall name CITY, its officers, and employees as Additional Insureds, and
shall specifically provide that any other insurance coverage which may be applicable to the -
PROJECT shall be deemed excess coverage and that CONSULTANT's insurance shall be
primary.
Under no circumstances shall said abovementioned insurance contain a self -insured
retention, or a "deductible" or any other similar form of limitation on the required coverage.
B. Professional Liability Insurance.
CONSULTANT shall acquire a professional liability insurance policy covering.the
work performed by it hereunder. Said policy shall provide coverage for CONSULTANT's
professional liability in an amount not less than $500,000 per claim. A claims made policy shall be
acceptable.
10. CERTIFICATES OF INSURANCE: ADDITIONAL INSURED
ENDORSEMENTS
Prior to commencing performance of the work hereunder, CONSULTANT shall
furnish to CITY certificates of insurance subject to approval of the City Attorney evidencing the
foregoing insurance coverages as required by this Agreement; said certificates shall:
1. provide the name and policy number of each carrier and policy;
2. shall state that the policy is currently in force;
3. shall promise to provide that such policies will not be canceled or modified
without thirty (30) days prior written notice of CITY;
4. and shall state as follows: "The above detailed coverage is not subject to
any deductible or self -insured retention, or any other form of similar type
limitation."
CONSULTANT shall maintain the foregoing insurance coverages in force until the
work under this Agreement is fully completed and accepted by CITY.
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•
•
The requirement for carrying the foregoing insurance coverages shall not derogate
from the provisions for indemnification of CITY by CONSULTANT under the Agreement.
CITY or its representative shall at all times have the right to demand the original or a copy of all
said policies of insurance. CONSULTANT shall pay, in a prompt and timely manner, the
premiums on all insurance hereinabove required.
A separate copy of the additional insured endorsement to each of
CONSULTANT's insurance policies, naming the CITY, its officers and employees as Additional
Insureds shall be provided to the City Attorney for approval prior to any payment hereunder.
11. INDEPENDENT CONTRACTOR
CONSULTANT is, and shall be, acting at all times in the performance of this
Agreement as an independent contractor. CONSULTANT shall secure at its expense, and be
responsible for any and all payment of all taxes, social security, state disability. insurance
compensation, unemployment compensation and other payroll deductions for CONSULTANT
and its officers, agents and employees and all business licenses, if any, in connection with the
services to be performed hereunder.
12. TERMINATION OF AGREEMENT
All work required hereunder shall be performed in a good and workmanlike
manner. CITY may terminate CONSULTANT's services hereunder at any time with or without
cause, and whether or not PROJECT is fully complete. Any termination of this Agreement by
CITY shall be made in writing, notice of which shall- be delivered to CONSULTANT as provided
herein.
13. ASSIGNMENT AND SUBCONTRACTING
This Agreement is a personal service contract and the supervisory work hereunder
shall not be delegated by CONSULTANT to any other person or entity without the consent of
CITY.
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14. CITY EMPLOYEES AND OFFICIALS
CONSULTANT shall employ no CITY official' nor any regular CITY employee in
the work performed pursuant to this Agreement. No officer or employee of CITY shall have any
financial interest in this Agreement in violation of the applicable provisions of the California
Government Code.
15: NOTICES
Any notice or special instructions required to be given in writing under this.
Agreement shall be given either by personal delivery to CONSULTANT's agent (as designated in
Section 1 hereinabove) or to the City Attorney of as the situation shall warrant, or by enclosing
the same in a sealed envelope, postage prepaid, and depositing the same in the United States
Postal Service, addressed as follows:
TO CITY:
City of Huntington Beach
2000 Main Street
Huntington Beach, CA 92648
Attn: City Attorney
16. IMNIIGRATION
TO CONSULTANT:
Mark Merriman
Tim Keithahn
c/o Arthur Andersen, LLP
18500 Von Karman Avenue, Ste 1100
Irvine, CA 92715-0527
CONSULTANT shall be responsible for full compliance with the immigration and
naturalization laws of the United States and shall, in particular, comply with the provisions of the .
United States Code regarding employment verification.
17. LEGAL SERVICES SUBCONTRACTING PROHIBITED
CONSULTANT and CITY agree that CITY is not liable for payment of any
subcontractor work involving legal services, and that such legal services are expressly outside the
scope of services contemplated hereunder. CONSULTANT understands that pursuant to
Huntington Beach City Charter Section 309, the City Attorney is the exclusive legal counsel for
7
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•
0
CITY; and CITY shall not be liable for payment of any legal services expenses incurred by
CONSULTANT.
18. ATTORNEY'S FEES
In the event suit is brought by either party to enforce the terms and provisions of
this agreement or to secure the performance hereof, each party shall bear its own attorney's fees.
19. ENTIRETY
The foregoing sets forth the entire Agreement between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by and through their authorized offices the day, month and year first above written.
CONSULTANT:. CITY OF HUNTINGTON BEACH,
a municipal corporation of the
State of California
By:
Mayor
(print name)
Its: (circle one) Chairman/President/Vice President ATTEST:
(print name)
Its: (circle one) Secretary/Chief Financial Officer/
Asst.. Secretary -Treasurer
REVIEWED AND APPROVED:
City Administrator
8
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City Clerk
APPROVED AS TO FORM:
Q_ _y,6 City Attorney
INITIATED AND APPROVED:
City Attorney
Exhibit A
CITY OF HUNTINGTON BEACH
RAINBOW FRANCHISE AGREEMENT
TRANSACTION APPROVAL DUE DILIGENCE WORK PROGRAM
l . Obtain and read the following:
A: Franchise agreements entered into by Rainbow with Huntington Beach and
Fountain Valley
B. Unaudited Financial statements for Rainbow for last three years
C. Projections for Rainbow, including assumptions
D. Rainbow's ESOP agreement
E. ESOP loan agreement with Chase Manhattan Bank
2. Perform the following regarding Rainbow's projections:
A. Compare projected revenues to actual revenues included in audited financial
statements and pricing provisions in the franchise agreement(s).
B. Read assumptions for reasonableness and obtain support, as deemed appropriate.
Discuss assumptions with Rainbow management.
C. Ensure terms of new financing have been properly considered.
3. Perform the following regarding the franchise agreement for the city of Huntington Beach:
A. Assess impact of projected income (reviewed in 2 above) on provisions of
franchise agreement, particularly rate setting provisions and levels of service.
B. Determine other potential areas of impact from the transaction, including financial
withdrawal of franchisee.
4. Perform background checks on Rainbow and new officers of Rainbow. The background
investigation will consist of on-line data base research * and will include the following:
A. Verification of Rainbow's existence as a legal entity
B. Confirmation of the identity and positions of key members of management
C. Review of local, national and international sources of business information that
include newspapers, trade journals and business magazines.
D. Review of governmental/public filings (criminal records, liens, judgements,
lawsuits, bankruptcies, SEC violations, etc.)
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0
5. Draft report to City of Huntington Beach, including:
A. Procedures performed
B. Matters arising from procedures performed
C. Address specific questions in the City Attorney's letter dated September 10, 1996.
6. Review draft report with City of Huntington Beach prior to finalization.
7. Assist the City in negotiating any amendments to the Franchise Agreement necessary to
address the areas of impact indentified in 3 above.
* There are practical limitations on the effectiveness of on-line data base searches. These include:
• Public records such as lawsuits, cases, judgements, liens, UCC filings, etc. are
available on-line for only a limited number of states and jurisdictions
• Criminal records are not available on-line on commercial databases with the
exception of California
• Historical archives for certain periodicals and public records are limited. Where
such data limitations significantly impact the comprehensives of a particular search,
we will notify the City Attorney on a timely basis so that extended procedures can
be timely considered.
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L]
•
PROFESSIONAL SERVICES CONTRACT BETWEEN
THE CITY OF HUNTINGTON BEACH AND
ARTHUR ANDERSEN, L.L.P.,
FOR CONSULTING SERVICES -REGARDING THE
TRANSFER OF CITY'S FRANCHISED SOLID WASTE OPERATOR
THROUGH EMPLOYEE STOCK OWNERSHIP PLAN
Table of Contents
SECTION...........................................................:............................................... PAGE
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
19
20
WorkStatement................................................................................................... 1
CityStaff Assistance............................................................................................. 2
Timeof Performance............................................................................................ 2
Compensation.......................................................................:............................... 2
ExtraWork.......................................................................................................... 2
Methodof Payment.............................................................................................. 2
Indemnification and Hold Harmless....................................................................... 3
Workers' Compensation.................:...................................................................... 4
Insurance............................................................................................................. 4
Certificates of Insurance..............:....................................................................... 5
IndependentContractor....................................................................................... 6
Termination of Agreement................................................................................... 6
Assignment and Subcontracting................................................................:.......... 7
City Employees and Officials............................................................................... 7
Notices................................................................................................................ 7
Immigration......................................................................................................... 7
Legal Services Subcontracting Prohibited ............................................................ 7
......................
AttorneyFees...............................................................................
Entirety ................................
•
•
�y1ING
`act_..•—••,,`4•�^
?frArrn
Gail'Hutton
City Attorney
September 11, 1996
Stan Tkaczyk .
Chief Operating Officer
Rainbow Disposal Company
P.O. Box 1026
Huntington Beach, CA 92647
OFFICE OF
CITY ATTORNEY
P.O. Box 190
2000 Main Street
Huntington Beach, California 92648
Re: Transfer of Ownership of Rainbow through ESOP
Dear Stan:
Telephone
(714) 536-5555
Fax MQ 374-I590
On September 5, 1996, Rainbow Disposal Co., Inc., requested the City of Huntington Beach to
consent to the change of control as per Section 19 of the Rainbow Franchise Agreement. On
September 16, 1996, the City Council will be considering a Request for Council Action to award
a contract for consulting services to review and evaluate the proposed employee stock -ownership
plan ("ESOP") to purchase Mr. Phil Hohnstein's interest in Rainbow disposal, and the associated
loan package from Chase Manhattan Bank that will finance the ESOP (hereinafter referred to as
the "Transaction"). The City has requested proposals from several potential consulting firms and
will receive the responses by Friday, September 13, 1996. Based upon the responses, Staff will
make a recommendation as to the preferred consultant.
It is Staffs position that Rainbow should be responsible for the costs associated with the City
evaluation of the Transaction, including the cost of the consultant. Enclosed please find a . '
reimbursement agreement requiring Rainbow to reimburse the City for the cost for the consultant.
Please review the attached agreement and provide me with your comments. Given Rainbow's_
short time frame to complete this process, it is important that we receive the fully executed
reimbursement agreement back from Rainbow by no later than the morning of September 16,
1996. Consequently, I would appreciate receiving your comments as quickly as possible.
In order to further expedite the consultant's job, please provide to the chosen consultant, by
September 17, 1996, the following documents and information:
1) ESOP Trust Agreement
2) Bank Loan Agreement(s)
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CJ
Stan Tkaczyk
September 11 1996
Page 2
3) Pre -ESOP Audited Financial Statements (three years)
4) A post -ESOP pro forma financial projection indicating anticipated revenues,
expenses, net income, cash flow, sources and uses of funds, anticipated capital
expenditures, and depreciation.
5) ' A narrative describing any changes Rainbow intends to make to the operation of
the solid waste collection, recycling and disposal system that do not require a
Franchise amendment.
6) A narrative stating whether an adverse finding has been made or an adverse final
action been taken by any court or administrative body with respect. to any officer,
director, person, firm or corporation that will own under the ESOP more than 5%
of Rainbow's voting stock in a civil, criminal or administrative proceeding, brought
under the provisions of any law or regulation related to the following:
(i) any felony;
(ii) revocation, suspension or involuntary transfer of any authorization to
provide solid waste services;
(iii) antitrust or unfair competition;
(iv) fraudulent statements to another government unit; or
(v) employment discrimination.
7) A narrative describing what effect the proposed ESOP and financing package will
have on the rate structure and operation of the Franchise, and how such
indebtedness incurred in, connection with the ESOP will be discharged.
Specifically, can Rainbow assure the City that no aspect of the proposed
Transaction will form the basis of a rate adjustment?
8) A narrative describing any amendments to the existing Franchise Rainbow intends
to request at either the time of the Transaction or during the subsequent five years.
9) Evidence that Rainbow can provide insurance policies in the amounts specified in
the Franchise.
10) Resume of prior business history of the post -ESOP principals of Rainbow,
including experience in the solid waste field. A statement identifying, by place and
date, other solid waste or franchises awarded to the principals or their parents or
subsidiaries.
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Stan Tkaczyk
September 11, 1996
Page 3
Please understand that this is not an exhaustive list. The consultant may request further
documents to complete his task.
Please don't hesitate to call me if you should have any other questions.
Sincerely,
Gail Hutton
City Attorney
Enclosures:' (1) Reimbursement Agreement
c: Ray Silver, Assistant City Administrator
Les Jones, Director of Public Works
Regina Shanney-Saborsky, Mtchell, Silberberg & Knupp
a
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100116 1: 1 1 DI
This Reimbursement Agreement i'Agreement") is entered into as of
.1996, by and between Rainbow Disposal Company, Inc., a
California corporation; and Rainbow Transfer and.Recyccling, Inc., a California
corporation 6ciatly referred to as "Rainbow', and The City of Huntington Beach, a
municipal corporation and charter city of the State of California City'), with reference
to the following facts:
RECITALS
A. In 1990, the City and Rainbow entered into a Franchise
Agreement to provide for collection and disposal services of solid waste (the
`Franchise"). Subsequently, in May 1994, a supplement to the Franchise was
entered into to provide for operation of a Materials Recovery Facility CMRF*).
B. • On September 5,1996, Rainbow applied to the City for consent to
an employee stock -ownership plan (EESOP") to purchase the interest in the.
Franchise of Mr. Phil Hohnstein and a loan package to finance the ESOP
(hereinafter referred to as the " riansaction' ).
C. The City desires to engage the services of a Consultant to evaluate
the and assist in negotiating any necessary and appropriate conditions to
City consent to the 15cansaction (hereinafter referred to as the "Consulting Services''.
AGREEMENT
NOW, T MREFORE, inconsideration of the covenants and agreements
contained herein and other valuable consideration, the sufficiency and receipt of which
is hereby acknowledged by the parties hereto, the parties covenant and agree as
follows:
Section 1. Consulting Services. City shall contract with
to provide the Consulting Services.
Section 2. Reimbursement of Costs for Consulting Services. City shall
be entitled to reimbursement of all costs associated with obtaining the Consulting
Services, regardless of whether the City Council approves, conditionally approves or
denies City consent to the Transaction. The reimbursement shall not exceed
$25,000.00, absent a change order. Pursuant to the terms and conditions of the
Consultant's contract with the City, City shall pay all invoices of the Consultant. The
S F/s: PCD:Agree: Rainbow
9/9/96
9/11/96 - #3
City will then invoice Rainbow for the amount paid to the Consultant, which amount
Rainbow shall pay the City within 30 days of receipt of the invoice.
Section 3. Change Orders. Rainbow shall pay 0 finvic:es in
connection with reasonable change orders. Under no condition shall City approve any
change orders without first consulting with and obtaining the approval of Rainbow.
Section 4. Entire went. This Agreement sets forth the entire
agreement of the parties with respect to the subject matter hereof and supersedes all
prior discussions, negotiations, undertakings or agreements relating thereto.
Section 5. Authori . Each signatory hereto warrants to the other
party its authority to sign on behalf of the party for whom it purports to sign.
Section 6. No Oral Modification. It is mutually understood and agreed
that no alteration or variation of this Agreement shall be valid or binding unless made
in writing and signed by the parties hereto.
Section 7. Notices. Any notices shall be in writing and shall be sent
pig prepaid, by a nationally recognized overnight courier service or by first-class or
registered or certified mail, return receipt requested, or by facsimile, addressed as
follows:
To City: City of Huntington Beach
2000 Main Street
P.O. Box 190
Huntington Beach, CA 92648
Attn: Melanie Fallon
To Rainbow: Rainbow Disposal
P.O. Box 1026
Huntington Beach, CA 92647
Attn: Ron Shenkonan
or to such other address as City or Rainbow may from time.to time designate by written
notice to the other. Notice shall be deemed given upon delivery or refusal to accept
delivery as indicated by return receipt or, in the case of a nationally recognized
overnight courier service, by such similar document, or in the case of delivery by
facsimile, upon confirmation of receipt by the stated addressee.
Section 8. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns, including, without limitation, subsequent
owners.
2
SRS MAErecRainbow
9/9/96
9/11/96 - #3
Section 9. Counterparts. This Agreement may be executed in any
number of counterparts each of which shall be -deemed an original and all of which
when executed shall constitute one and the same instrument.
Section 10. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of California.
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the date first written above.
"CITY"
CITY OF HUNTINGTON BEACH, a
municipal corporation
Mayor
ATTEST:. APPROVED AS TO FORM:
City Clerk �i .
ll!-
REVEEWED AND • E1 1 E1 AND • 1
City Administrator Director of Community Development
SIGNATURES CONTINUED ON NEXT PAGE
3
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9/9/96
9/11/96 - #3
66RAMOW
RARMW DISPOSAL COMPANY, INC.,
a California corporation .
By:
(print name)
Its: (circle one) Chairman/President/Vice President
By:
(print name)
Its: (circle one) Secretary/Chief Financial Officer/
Asst. Secretary -Treasurer
RAINBOW TRANSFER AND RECYCLING, INC.,
a California corporation
By:
(print name)
Its: (circle one) Chairman/President/Vice President
(print name)
Its: (circle one) Secretary/Chief Financial Officer/
Asst. Secretary -Treasurer
4
SRSTMAgrce:Rainbow
9/9/96
9/11/96 - #3
d
ARTHUR
ANDERSEN
September 13,1996
Office of City Attorney
City of Huntington Beach
Gail Hutton, Esq.
City Attorney
P.O. Box 190
2000 Main.Street
Huntington Beach, California 92648
Dear Ms. Hutton:
Arthur Andersen LLP
Suite 1100
18500 Von Karman Avenue
Irvine CA 92715-0527
714 757 3100
We are pleased to present our proposal to provide due diligence services to the City of
Huntington Beach (the City) related to a transaction involving the Employee Stock Ownership
Plan (ESOP) of Rainbow Disposal. Company, Inc. (Rainbow) and Rainbow's majority
shareholder.
As you consider our proposal, there are several compelling reasons why Arthur Andersen is
best qualified to provide due diligence procedures to the City. Specifically, we offer you the
following:
CONSULTING EXPERTISE
For the sixth consecutive year, Arthur Andersen has come out on top of Hudson Sawyer's Big
Six evaluations, based on an annual survey of Fortune 1000 financial executives. In addition to
overall highest honors, we received top rankings in the following categories: tax and audit
expertise, responsiveness, strategic thinking, industry expertise, MIS expertise and quality of
business advice for audit, tax, consulting and other services. This evaluation is consistent with
that of college professors and other independent evaluators.
More importantly to you, your engagement team lead by Mark Merriman and Tim Keithahn
have significant experience in evaluating proposed transactions such as outlined above. In
addition, Mark and Tim have at their disposal numerous other specialists who can provide
additional support to this engagement as deemed necessary. This breadth of experience
includes familiarity with the requirements and attributes of ESOP arrangements. We have
attached resumes of.your engagement team to this proposal for your review.
E
ARTHUR
ANDERSEN
Page 2
September 13, 1996
INDUSTRY EXPERTISE
ARTHUR ANDERSEN &CQ SC
In addition to extensive consulting experience, Arthur Andersen also has significant experience
working with disposal service companies. Below represents a partial listing of our firmwide
clients in the disposal industry:
Allied Waste Systems
All -Waste
American Ecology
Browning -Ferris Industries
Chemical Waste Management
Consolidated Waste Management
National Scavenger
ABOUT ARTHUR ANDERSEN
National Sea Corporation
Republic Waste
TransAmerican Waste
Upper Rock Island Landfill
Waste Management, Inc.
Waste Reduction Systems
Though accounting firms may appear at first glance to be very similar, the fact is that Arthur
Andersen is significantly different from other firms in structure, governance and culture.
Those differences can be pivotal in terms of the quality of service the City receives. From the
early days of our firm, we have evolved into a unique organizational culture that today unites
more than 72,000 people of the Arthur Andersen Worldwide Organization.
The Client Comes First
We train our people to put the client at the center of all they do -- not just eight hours a day but
168 hours a week -- nights, weekends or whenever a client needs our help. Nothing is more
important to us.
Think Straight/Talk Straight
This maxim was passed to our founder from his mother and from him to the generations of
Arthur Andersen people who have followed. Reduced to the basics, it simply means that we
attempt to think every issue through and communicate our views candidly. Our clients always
know where we stand and why.. .
A Unique Worldwide Organization
No other accounting firm in the world is structured like Arthur Andersen. And, no other firm
can deliver the consistency of service we provide to multinational clients, or effectively control
a worldwide engagement from the client company's headquarters location. Unlike federations
and groups of affiliates, we operate as a single worldwide organization. Our structure, along
with our culture, enables us to serve our clients with a level of quality and consistency that is
superior to our competitors. As a client of.our Southern California practice, you will be a client
of every office and have access to all of the resources of Arthur Andersen.
AARTHUR
NDERSEN
ARTHUR ANDERSEN &C0 SC
Page 3
September 13, 1996
.SCOPE OF WORK
As outlined in your letter dated September 10,1996, it is our understanding that Rainbow has
requested the City consent to a proposed transaction whereby Rainbow's ESOP would
purchase the interest of its majority shareholder, Mr. Phil Hohnstein, for the benefit of
Rainbow's employees. Such transaction would be financed .through a loan from Chase
Manhattan Bank. Under the City's existing franchise agreement with Rainbow, the City must
approve this transaction before it can be consummated.
It is our understanding that the issues itemized below are to assist the City Attorney of
Huntington Beach (the Citv Attorney) in the evaluation of the financial impact of the above
transaction. Specifically you have asked us to evaluate: .
a) What impact will the financing package of the ESOP, particularly the principal and
interest payments, have on Rainbow solid waste rates,
b) Can Rainbow continue to operate within the current rate structure while meeting
the new principal and interest obligations of the ESOP financing and
c) Are the principals controlling Rainbow under the ESOP qualified to operate
Rainbow.
To address the above issues, we have summarized the procedures that we would perform in
Exhibit A attached to this letter.. The procedures described in Exhibit A are based on our
understanding of the above transaction and could be modified at the request of the City
Attorney. Although such procedures, have not yet been agreed to by the City Attorney, upon
acceptance of this proposal, it will be expressly understood that these procedures are sufficient
for purposes of the City Attorney.
Upon completion of or work, we will issue a report that will set forth the procedures
performed and our findings. Our report will acknowledge that (1) the sufficiency of those
procedures is the sole responsibility of the City Attorney and that we make no representation
regarding the sufficiency of those procedures for your purposes, (2) the procedures do not
constitute an audit (or examination in accordance with professional standards) and had we
been engaged to perform additional procedures or an audit (or examination) in accordance
with professional standards, matters might have come to our attention that would have been
reported and (3) it is restricted to the parties named therein and may not be used or referred to
for any other purpose.
ART
HUR
ANDERSEN
ARTHUR ANDERSEN &CO SC
Page 4
September 13, 1996
In addition, our report will also state that our procedures and findings do not constitute a legal
determination of the City's compliance with specified requirements. Our report will further
state that we make no representations regarding questions of legal interpretation or provide
any assurance as to any matters relating to Rainbow's solvency, adequacy of capital or ability
to pay its debts.
Should circumstances arise during the course of our work that prevent us from completing the
agreed -upon procedures, we will so notify you so that alternative arrangements can be made.
We are not presently aware of such circumstances, and any that do arise during the course of
our work will be discussed with you so that you will have an opportunity to consider these
matters including whether you wish us to perform additional procedures in response to the
identified conditions.
In connection with our engagement, we will require a representation letter from the City
Attorney concerning matters relating to the completeness and accuracy of the information we
review. Because of the importance of the written representation letter to the discharge of our
responsibilities, the City agrees to release Arthur Andersen, LLP (Andersen) and its personnel
from any liability and costs relating to our services under this letter attributable to any
misrepresentations by the City or management of Rainbow. Andersen's maximum liability to
the City for any reason relating to the services under this letter shall be limited to the fees paid
to Andersen for the services or work products giving rise to liability. In addition, the City will
indemnify and hold harmless Andersen and its personnel from any claims, liabilities, costs and
expenses relating to our services under this -letter, except to the extent finally determined to
have resulted from the gross negligence or willful misconduct of Andersen.
VALUE FOR FEES
We estimate that our fees will be $17,000 if the work is to be completed within two weeks from
the date the contract is awarded and $14,500 if the. work is to be completed four weeks from the
date the contract is awarded.
This estimate assumes we will receive appropriate assistance from your staff and that of
Rainbow in providing information, responding to inquiries and other matters. Additionally,
such fee contemplates performing the procedures as outlined in Exhibit A to this proposal. For
example, the absence of projections thoroughly prepared and independently reviewed would
impact both the timing and cost of our work. Additional procedures which are deemed
necessary by the City Attorney and which we agree to perform are subject to a separate
arrangement.
ARTHUR
ANDERSEN
ARTHUR ANDERSEN &CO. SC
Page 5
September 13, 1996
We look forward to working with you and appreciate the opportunity to submit our
qualifications to you. If you have any questions or need additional information, please don't
hesitate to call Mark Merriman at (714) 757-3158 or Tim Keithahn at (714) 757-3105.
Very truly yours,
ARTHUR ANDERSEN, LLP
t
0
.•
Exhibit A
City of Huntington Beach
Rainbow Franchise Agreement
Transaction Approval Due Diligence Work Program
1. Obtain and read the following:
A. Franchise agreements entered into by Rainbow with Huntington Beach
and Fountain Valley
B: Audited financial statements for Rainbow for last three years
C. Projections for Rainbow, including assumptions
D. Rainbow's ESOP agreement
E. ESOP loan agreement with Chase Manhattan Bank
2. Perform the following regarding Rainbow's projections:
A. Compare projected revenues to actual revenues included in audited
financial statements and pricing provisions in the franchise agreement(s).
B. Read assumptions for reasonableness and obtain support, as deemed
appropriate. Discuss assumptions with Rainbow management.
C. Ensure terms of new financing have been .properly considered.
3. Perform the following regarding the franchise agreement for the City of
Huntington Beach:
A. Assess impact of projected income (reviewed in 2 above) on provisions of
franchise agreement, particularly rate setting provisions.
B. Determine other potential areas of impact from the transaction, including
financial wherewithal of franchisee.
4. Perform background checks on Rainbow and new officers of Rainbow. The
background investigation will consist of on-line data base research * and will
include the following:
A. Verification of Rainbow's existence as a legal entity
B. Confirmation of the identity and positions of key members of
management
C. Review of local, national and international sources of business
-
information that include newspapers, trade journals and business
magazines
D. Review of governmental/public filings (criminal records, liens,
judgements, lawsuits, bankruptcies, SEC violations, etc.)
4 -
5. Draft report to City of Huntington Beach, including:
A. Procedures performed
B. Matters arising from procedures performed
C. Address specific questions in the City's Attorney's letter dated
September 10, 1996..
6. Review draft report with City of Huntington Beach prior to. finalization.
---------------------------------------------------------
* There are practical limitations on the effectiveness of on-line data base searches. These
include:
• Public records such as lawsuits, cases, judgements, liens, UCC filings, etc:
are available on-line for only a limited number of states and jurisdictions
• Criminal records are not available on-line on commercial databases with the
exception of California
• Historical archives for certain periodicals and public records are limited.
Where such data limitations significantly impact the comprehensiveness of a
particular search, we will notify the City Attorney on..a timely basis so that
extended procedures can be timely considered. .
n
•
ENGAGEMENT TEAM
Exhibit B
MARK S. MERRIMAN Office: 714/757-3158
Audit and Business Advisory Partner Fax: 714/261-1362
Orange County Home: 714/888-2877
Mark is an audit partner in our Orange County office, specializing in serving our distribution
real estate and technology clients. He recently transferred from our San Jose office, where he
served for four years.
RELEVANT EXPERIENCE
• More than 16 years of experience serving clients in a wide.variety of industries, ranging
from small, closely held businesses to publicly held entities in our California and Hawaii
practices.
• Extensive experience serving public andprivate companies in handling public offerings,
mergers and acquisitions. This experience includes a wide variety of contractual and
negotiated matters.
• Instructor for various training schools.
REPRESENTATIVE CLIENTS
Orchard Supply Hardware
Hilton Hotels
Dole Foods, Inc.
Calpine Corporation
The Gibson Speno Companies
AFFILIATIONS
Certified Public Accountant, California and Hawaii
Member, American Institute of Certified Public Accountants
Member, International Association of Hospitality Accountants
EDUCATION
Mark holds an M.B.A. from the Anderson School of Management at the University of
California at Los Angeles and a B.B.A. from the University of Notre Dame.
0
TIM J. KEITHAHN Office: 714/757-3105
Audit and Business Advisory Manager Fax: 714/261-1362
Orange County Home: 714/962-6961
Tim is an audit manager in our Orange County office and a member of our Enterprise Group,
as well as our High Technology and Manufacturing industry teams.
RELEVANT EXPERIENCE
• More than five years of accounting experience serving clients in various industries,
including manufacturing, healthcare, wholesale and retail distribution, independent power
production and computer software, with extensive experience serving closely held
businesses.
• Significant expertise in SEC filings and reporting, including registration statements, initial
public offerings and year-end reporting.
• Recent client projects include:
Taking a company through an initial public offering.
Providing assistance to a bankruptcy trustee involving the oversight of client facilities
spanning 20 different states.
REPRESENTATIVE CLIENTS
ABT Global Pharmaceutical Corp.
Arbonne International, Inc.
Ashworth, Inc.
Econolite Control Products
Golden West Homes
McGaw, Inc.
Edison
Mission Energy, Inc.
Pacific Business Systems, Inc.
Personal Optics
Turners Outdoorsman
Ultra Wheel Company
White Cap Industries
AFFILIATIONS
Member, American Institute of Certified Public Accountants
EDUCATION
Tim holds a B.A. in business economics from the University of California at Santa
Barbara.