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Stock Purchase And Investment Agreement

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STERLING CONSTRUCTION COMPANY


STOCK PURCHASE AND INVESTMENT AGREEMENT


DATED AS OF JANUARY 19, 1999


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TABLE OF CONTENTS


PAGE
---- 1. PURCHASES AND SALES......................................................................................1
1.1. First Tranche of Purchased Stock................................................................1
1.2. Second Tranche of Purchased Stock...............................................................2
1.3. Escrow Agreement................................................................................2
1.4. Note Purchase Agreements........................................................................2
1.5. Closing.........................................................................................3
1.6. Closing Deliveries of Parent, Subsidiary and Selling Stockholders...............................3
1.7. Closing Deliveries of Purchasers................................................................4
1.8. Merger..........................................................................................5
1.9. Determination of December 31, 1998 Stockholders' Equity Amount and November 30, 1998
Pre-Tax Profit Amount...........................................................................5
1.10. Assurance of December 31, 1998 Stockholders' Equity Amount......................................7
1.11. Possible Adjustment for November 30, 1998 Pre-Tax Profit Amount.................................7
1.12. Final S Corporation Distribution; Subordinated Stockholder Notes................................8


2. DETERMINATIONS, NOTICES AND PROCEDURES FOR PURCHASE AND SALE OF SECOND TRANCHE OF PURCHASED STOCK........9
2.1. Trigger Event Notice and Option Exercise Notice.................................................9
2.2. Purchase and Sale of Second Tranche of Purchased Stock After Trigger Option Exercise
Notice.........................................................................................10
2.3. Conditions to Purchasers Obligation After Trigger Option Exercise Notice by Selling
Stockholders...................................................................................11
2.4. Purchase and Sale of Second Tranche of Purchased Stock After Pre-Trigger Option
Exercise Notice................................................................................12


3. REPRESENTATIONS AND WARRANTIES OF SELLING STOCKHOLDERS..................................................12
3.1. Due Organization...............................................................................12
3.2. Authorization..................................................................................13
3.3. No Conflicts; Approvals........................................................................13
3.4. Capital Stock of the Company...................................................................14
3.5. Subsidiaries...................................................................................14
3.6. Transactions in Company Stock..................................................................14
3.7. Predecessors...................................................................................15
3.8. Financial Statements...........................................................................15
3.9. Balance Sheet Liabilities and Obligations......................................................16
3.10. Accounts and Notes Receivable..................................................................16
3.11. Permits........................................................................................16
3.12. Real and Personal Property.....................................................................16
3.13. Material Contracts and Commitments.............................................................18
3.14. Labor..........................................................................................19
3.15. Title to Owned Real Property...................................................................19
3.16. Insurance......................................................................................20


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3.17. Compensation...................................................................................20
3.18. Employee Benefit Plans.........................................................................20
3.19. No Multiemployer Plans.........................................................................22
3.20. Conformity with Law; Governmental Claims.......................................................22
3.21. Taxes and Tax Returns..........................................................................22
3.22. Intellectual Property..........................................................................23
3.23. Governmental Contracts.........................................................................24
3.24. Absence of Changes.............................................................................24
3.25. Powers of Attorney.............................................................................25
3.26. Brokers and Finders............................................................................25
3.27. Environmental Matters..........................................................................25
3.28. No Underground Storage Tanks...................................................................26
3.29. Relations with Government......................................................................26
3.30. Accounting Records.............................................................................26
3.31. Litigation and Claims..........................................................................26
3.32. Related Party Transactions.....................................................................27
3.33. Management Incentive Plans.....................................................................27


4. REPRESENTATIONS AND WARRANTEES OF PURCHASERS............................................................27
4.1. Due Organization...............................................................................27
4.2. Authorization..................................................................................28
4.3. No Conflicts; Approvals........................................................................28
4.4. Brokers and Finders............................................................................28
4.5. Investment Representations.....................................................................28


5. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING STOCKHOLDERS AND THE COMPANY.........................29
5.1. Representations and Warranties; Performance of Obligations.....................................29
5.2. No Litigation..................................................................................30
5.3. Closing Documents..............................................................................30
5.4. Opinion of Counsel.............................................................................30


6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASERS.......................................................31
6.1. Representations and Warranties.................................................................31
6.2. No Litigation..................................................................................31
6.3. Closing Documents..............................................................................31
6.4. Opinion of Counsel.............................................................................31
6.5. Good Standing Certificates.....................................................................32
6.6. Employee Notes.................................................................................33


7. INDEMNIFICATION.........................................................................................33
7.1. Survival of Representations and Warranties.....................................................33
7.2. Indemnification by the Selling Stockholders....................................................33
7.3. Indemnification by Each Purchaser..............................................................34
7.4. Third Person Claims............................................................................34
7.5. Limitation of the Selling Stockholders' Liability..............................................35
7.6. Limitation of the Purchasers' Liability........................................................36


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7.7. Limitation on Claims...........................................................................36
7.8. Inconsistent Provisions........................................................................36
7.9. Method of Payment..............................................................................36


8. MISCELLANEOUS...........................................................................................36
8.1. Cooperation....................................................................................36
8.2. Successors and Assigns.........................................................................36
8.3. Entire Agreement...............................................................................36
8.4. Counterparts...................................................................................37
8.5. Expenses.......................................................................................37
8.6. Notices........................................................................................37
8.7. Governing Law..................................................................................39
8.8. Exercise of Rights and Remedies................................................................39
8.9. Reformation and Severability...................................................................39
8.10. Attorney's Fees................................................................................39
8.11. Interpretation; Definitions....................................................................39


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CERTAIN DEFINED TERMS


Advisory Services Agreement..............................................4
Agreement................................................................1
Audited 1998 Financial Statements........................................5
Audited Financial Statements............................................14
Auditor..................................................................5
CERCLA..................................................................24
Closing..................................................................2
Closing Date.............................................................3
Closing Date Distribution................................................8
Code....................................................................19
Company..................................................................5
Contracts...............................................................18
Controlled Group Member.................................................19
Current Year Financial Statements.......................................15
Damages.................................................................32
December 31, 1998 Income Statement.......................................6
December 31, 1998 Stockholders' Equity Amount............................6
December 31, 1998 Unaudited Financial Statements.........................6
Deficiency Amount........................................................6
EBITDA..................................................................17
EBITDA Amount...........................................................10
Employment Agreements....................................................3
Environmental Laws......................................................25
Environmental Permits...................................................25
ERISA...................................................................19
Escrow Agent.............................................................2
Escrow Agreement.........................................................2
Escrowed Funds...........................................................7
Escrowed Shares..........................................................2
Expiration Date.........................................................32
Final Number............................................................10
Final S Corporation Distribution.........................................8
First Tranche of Purchased Stock.........................................1
First Tranche Percentages................................................1
First Tranche Stock Purchase Price.......................................2
GAAP.....................................................................5
Hazardous Substances....................................................24
Indemnified Party.......................................................33
Indemnifying Party......................................................33
Insurance...............................................................19
Leased Real Property....................................................16
Liens....................................................................1
Management Incentive Plans...............................................4


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Material Adverse Effect.................................................12
Maximum Number...........................................................2
Merger...................................................................4
Merger Corp..............................................................4
Merger Documents.........................................................4
Merger Time..............................................................5
Minimum Number...........................................................2
Note Purchase Agreements.................................................2
Notes....................................................................2
November 30, 1998 Balance Sheet......................................... 6
November 30, 1998 Income Statement.......................................5
November 30, 1998 Pre-Tax Profit Amount..................................5
November 30, 1998 Unaudited Financial Statements.........................5
Owned Real Property.....................................................16
Parent...................................................................1
Parent Common Stock......................................................1
Pension Plan............................................................20
Per Share Amount........................................................10
Permits.................................................................15
Plans...................................................................19
Pre-Signing Balance Sheet...............................................14
Pre-Signing Balance Sheet Date..........................................14
Pre-Tax Profit...........................................................5
Pre-Tax Profit Amount...................................................12
Pre-Trigger Option Exercise Notice.......................................9
Proceeding..............................................................25
Purchaser................................................................1
Purchaser Percentages....................................................1
Purchasers...............................................................1
Purchasers' Indemnified Persons.........................................32
RCRA....................................................................24
Real Property Leases....................................................16
S Election..............................................................21
Second Tranche Audit....................................................10
Second Tranche of Purchased Stock.......................................2
Second Tranche Payment...................................................9
Second Tranche Payment Date.............................................11
Second Tranche Payment Notice............................................9
Second Tranche Percentages...............................................8
Securities..............................................................27
Securities Act..........................................................27
Sellers' Indemnified Persons............................................33
Selling Stockholder......................................................1
Selling Stockholder Percentage...........................................9
Selling Stockholders.....................................................1
Stockholders Agreement...................................................3


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Stockholders' Equity.....................................................6
Stockholders' Equity Amount.............................................13
Subordinated Stockholder Notes...........................................8
Subordination Agreement..................................................8
Subsidiary...............................................................1
Subsidiary Common Stock.................................................13
Tax Returns.............................................................22
Taxes...................................................................22
Third Person............................................................33
Trigger Event Notice.....................................................8
Trigger Option Exercise Notice...........................................9


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EXHIBITS


Exhibit A Selling Stockholders, Purchasers, Stock Holdings and Note Holdings Exhibit B Escrow Agreement Exhibit C Note Purchase Agreements Exhibit D Stockholders Agreement Exhibit E Patrick Manning Employment Agreement Exhibit F Joseph Harper Employment Agreement Exhibit G James Manning Employment Agreement Exhibit H Management Incentive Plans and Related Resolutions and Agreements Exhibit I Advisory Services Agreement Exhibit J Merger Documents Exhibit K Audited 1998 Financial Statements Exhibit L Calculation of Pre-Tax Profit Amount Exhibit M Calculation of Stockholders' Equity Amount Exhibit N Form of Trigger Event Notice Exhibit O Calculation of EBITDA Amount


SCHEDULES


Schedule 3.3 Required Consents and Approvals Schedule 3.5 Subsidiaries Schedule 3.6 Transactions in Company Stock Schedule 3.9 Balance Sheet Liabilities and Obligations Schedule 3.10 Accounts and Notes Receivable Schedule 3.11 Permits Schedule 3.12 Real and Personal Property Schedule 3.13 Material Contracts and Commitments Schedule 3.15 Title to Real Property Liens Schedule 3.16 Insurance Schedule 3.17 Compensation Schedule 3.18 Employee Benefit Plans Schedule 3.21 Taxes and Tax Returns Schedule 3.22 Intellectual Property Schedule 3.24 Absence of Changes Schedule 3.26 Brokers and Finders Schedule 3.27 Environmental Matters Schedule 3.31 Litigation and Claims Schedule 3.32 Related Party Transactions


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STOCK PURCHASE AND INVESTMENT AGREEMENT


THIS STOCK PURCHASE AND INVESTMENT AGREEMENT (the "Agreement") is entered into as of the 19th day of January, 1999, by and between (a) the purchasers listed on Exhibit A hereto (each a "Purchaser" and collectively the "Purchasers"), on the one hand, and (b)(i) STERLING CONSTRUCTION COMPANY, a Delaware corporation ("Parent"), (ii) STERLING CONSTRUCTION COMPANY, a Michigan corporation doing business in Texas as Texas-Sterling Construction, Inc. and a wholly owned subsidiary of Parent ("Subsidiary") and (iii) the stockholders of Parent listed on Exhibit A hereto (each a "Selling Stockholder" and collectively the "Selling Stockholders"), on the other hand.


RECITALS


A. The Selling Stockholders are the owners of FIVE HUNDRED SIXTY-FOUR THOUSAND (564,000) shares of common stock, par value $0.01 per share ("Parent Common Stock"), of Parent, constituting approximately eighty-seven percent (87%) of the SIX HUNDRED FIFTY THOUSAND ONE HUNDRED (650,100) total issued and outstanding shares of Parent Common Stock.


B. The Purchasers desire to purchase from the Selling Stockholders and the Selling Stockholders desire to sell to the Purchasers a portion of the Parent Common Stock owned by the Selling Stockholders, and the Purchasers desire to purchase from Subsidiary and Subsidiary desires to sell to the Purchasers certain subordinated notes of Subsidiary exchangeable for shares of Parent Common Stock, all upon the terms and subject to the conditions hereinafter set forth.


NOW, THEREFORE, in consideration of the premises and of the mutual agreements, representations, warranties, provisions and covenants herein contained, the parties hereto hereby agree as follows:


1. PURCHASES AND SALES.


1.1. First Tranche of Purchased Stock. Upon the terms and subject to the conditions set forth in this Agreement, on the Closing Date (as defined in Section 1.5) the Selling Stockholders severally will sell, assign, transfer and deliver to the Purchasers, and the Purchasers will purchase and acquire severally from the Selling Stockholders an aggregate of ONE HUNDRED THIRTY THOUSAND TWENTY (130,020) shares of Parent Common Stock (the "First Tranche of Purchased Stock") free and clear of all mortgages, pledges, security interests, encumbrances, liens (statutory or other), conditional sale agreements, claims, charges, limitations or restrictions ("Liens"). The respective percentages of the shares of the First Tranche of Purchased Stock so to be sold by each of the several Selling Stockholders (the "First Tranche Percentages") and the respective percentages of the First Tranche of Purchased Stock to be purchased by each of the several Purchasers (the "Purchaser Percentages") are set forth on Exhibit A. The per share purchase price of each share of Parent Common Stock so purchased as part of the First Tranche of Purchased Stock shall be THIRTY AND 76.45/100THS DOLLARS ($30.7645), subject to possible adjustment as provided in


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Section 1.11 (such purchase price, as so adjusted if applicable, the "First Tranche Stock Purchase Price").


1.2. Second Tranche of Purchased Stock. Upon the terms and subject to the conditions set forth in Section 2 of this Agreement, subsequent to the Closing Date the Selling Stockholders severally will sell assign, transfer and deliver to the Purchasers, and the Purchasers will purchase and acquire severally from the Selling Stockholders, an aggregate number of additional shares of Parent Common Stock free and clear of all Liens, which number of shares shall be determined in accordance with Section 2 hereof and shall be not more than ONE HUNDRED THIRTY THOUSAND TWENTY (130,020) (the "Maximum Number") and not less than ONE HUNDRED ELEVEN THOUSAND ONE HUNDRED TWENTY-EIGHT (111,128) (the "Minimum Number") shares of Parent Common Stock (the actual number of additional shares of Parent Common Stock so determined and purchased, the "Second Tranche of Purchased Stock"). The respective numbers of shares of the Second Tranche of Purchased Stock so to be sold by each of the several Selling Stockholders and purchased by each of the Purchasers, and the purchase price of each share of Parent Common Stock so purchased as part of the Second Tranche of Purchased Stock, shall be determined as provided in Section 2.


1.3. Escrow Agreement. At the Closing, the Purchasers, the Selling Stockholders and Parent, as escrow agent (in such capacity, the "Escrow Agent"), will enter into an Escrow Agreement in substantially the form attached hereto as Exhibit B (the "Escrow Agreement"), and each of the Selling Stockholders will deliver to the Escrow Agent, for retention and disposition as part of the Second Tranche of Purchased Stock as provided in Section 2, certificates representing a number of shares of Parent Common Stock equal to the number of shares sold by such Selling Stockholder as part of the First Tranche of Purchased Stock. The aggregate number of shares so deposited by all Selling Stockholders with the Escrow Agent (the "Escrowed Shares") shall be equal to the Maximum Number.


1.4. Note Purchase Agreements. At the Closing, Parent, Subsidiary and the respective Purchasers will enter into Note Purchase Agreements in substantially the form attached hereto as Exhibit C (the "Note Purchase Agreements"), and the Purchasers will purchase from Subsidiary and Subsidiary will issue and sell to the Purchasers for an aggregate purchase price of FOUR MILLION DOLLARS ($4,000,000) certain subordinated notes exchangeable for shares of Parent Common Stock as provided in the Note Purchase Agreements (the "Notes"). The Notes shall be in the aggregate principal amount of FOUR MILLION DOLLARS ($4,000,000).


1.5. Closing.


(a) The consummation of the purchase and sale of the First
Tranche of Purchased Stock, the delivery of certificates representing
the Escrowed Shares to the Escrow Agent pursuant to the Escrow
Agreement, the execution and delivery of the Escrow Agreement and the
Note Purchase Agreement, the issuance, purchase and sale of the Notes,
and the other transactions that are to take place at that time as
contemplated by this Agreement and the Note Purchase Agreements (the
"Closing") shall take place at the offices of Mayor, Day, Caldwell &
Keeton, L.L.P., 700 Louisiana, 19th Floor, Houston,


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Texas, at 10:00 a.m. on January 19, 1999 or at such other time and
place as the parties may mutually agree upon. The Closing shall be
deemed to occur at the close of business on the date of the Closing,
and such date and time of the Closing is referred to as the "Closing
Date."


(b) At or prior to the Closing, provided that the conditions
set forth in Section 6 of this Agreement have been satisfied or waived,
Parent, Subsidiary and the Selling Stockholders shall tender delivery,
or cause to be tendered delivery, of each of the instruments and
documents described in Section 1.6 hereof. At or prior to the Closing,
provided that the conditions set forth in Section 7 of this Agr
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