SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
February 29, 1996
------------------
(Date of Report; Date of Earliest Event Reported)
EMCON
---------
(Exact name of registrant as specified in its charter)
California
----------
(State or other jurisdiction of incorporation)
0-16225 94-1738964
(Commission File Number) (IRS Employer Identification No.)
400 South El Camino Real, San Mateo, California 94402
- ----------------------------------------------- ------
(Address of principal executive offices) (Zip Code)
(415) 375-1522
-
(Registrant's telephone number, including area code)
Page 1 of 151 pages
Exhibit Index appears on Page 5
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INFORMATION TO BE INCLUDED IN THE REPORT
Item 2. Acquisition or Disposition of Assets.
EMCON (the "Company" or "EMCON") has completed a transaction with Organic
Waste Technologies, Inc. ("OWT"), the holders of OWT's common and preferred
stock ("OWT Stock") and the holders of options to acquire common stock of OWT
(the "OWT Options"; collectively, the OWT Stock and the OWT Options being
referred to herein as the "OWT Securities" and the holders thereof, the
"Sellers"). There were 34 Sellers in the Acquisition. As a result of the
transaction (the "Acquisition"), OWT has become a wholly-owned subsidiary of
EMCON.
The Acquisition, which was announced on January 30, 1996, was consummated
on February 29, 1996. To complete the Acquisition, OWT issued notes to certain
Sellers who are part of OWT's management, in an aggregate amount of $1,824,649
(the "OWT Notes"), in exchange for such Sellers' OWT Securities; EMCON paid an
aggregate of $13,754,351 in cash to the other Sellers in exchange for such
Sellers' OWT Securities; and EMCON paid certain fees and expenses incurred by
OWT and the Sellers with respect to the transaction (the pro rata share of which
was deducted from the consideration received by each Seller for his, her or its
OWT Securities). The OWT Notes are convertible into common stock of OWT upon an
underwritten public offering of OWT's common stock in an amount in excess of $10
million. In the event that the OWT Notes have not been converted into shares of
OWT common stock they may, at the election of the holder, instead be converted
into shares of EMCON common stock for a period of ninety days after November 30,
2000 at a conversion price of $6.50 per share. The OWT Securities acquired by
OWT and the OWT Options acquired have been canceled.
The amount of consideration was determined based upon OWT' projected
earnings and as a result of a competitive bidding process and arm's length
negotiations between management teams of both companies with input from their
respective boards of directors.
The only material relationship between (a) EMCON, its affiliates, its
directors and officers or any associate of its directors or officers and (b) the
Sellers, is that John Pacey, a director of EMCON is a Seller and was, prior to
the Acquisition, a director of OWT. Mr. Pacey will remain a director of OWT
after the Acquisition.
The Acquisition was partially financed through a $10 million term loan from
The Bank of California, N.A., with the remainder financed from the Company's
working capital.
A copy of the press release announcing the consummation of the Acquisition
is attached as Exhibit 99.1, and is incorporated herein by reference.
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Item 7. Financial Statements and Exhibits.
(a) Financial Statements of business acquired:
It is impracticable to provide the required OWT financial
statements at this time. Such financial statements will be filed within 60 days
of the date this Form 8-K is filed.
(b) Pro forma financial information:
It is impracticable to provide the required pro forma
financial information relative to the Acquisition at this time. Such financial
information will be filed within 60 days of the date this Form 8-K is filed.
(c) Exhibits:
Exhibit No. Description
2.1 Stock Purchase Agreement dated January 30,
1996, among EMCON, OWT and the Sellers (the
"Stock Purchase Agreement").
10.1 Note Agreement dated February 29, 1996 among
EMCON, OWT and certain Sellers.
10.2 Credit Agreement dated February 29, 1996
between EMCON and the Bank of California, N.A.
(the "Bank").
10.3 Security Agreement dated February 29, 1996 by
EMCON in favor of the Bank.
10.4 Pledge Agreement dated February 29, 1996 by
EMCON in favor of the Bank.
10.5 Eurodollar Rate Option Agreement dated February
29, 1996 between EMCON and the Bank.
10.6 Fixed Rate Amortizing Option Agreement dated
February 29, 1996 between EMCON and the Bank.
99.1 Press Release dated February 29, 1996
announcing the consummation of the Acquisition.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EMCON
Date: March 12, 1996 By: /s/ R. Michael Momboisse
------------------------------
R. Michael Momboisse
Chief Financial Officer and
Vice President - Legal
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EXHIBIT INDEX
Sequentially Numbered
Exhibit No. Description Page
----------- ------------------------ ---------------------
2.1 Stock Purchase Agreement 6
dated January 30, 1996,
among EMCON, OWT and the
Sellers (the "Stock
Purchase Agreement").
10.1 Note Agreement dated 77
February 29, 1996
among EMCON, OWT and
certain Sellers.
10.2 Credit Agreement dated 89
February 29, 1996
between EMCON and the
Bank of California, N.A.
(the "Bank").
10.3 Security Agreement dated 116
February 29, 1996
by EMCON in favor of the Bank.
10.4 Pledge Agreement dated 131
February 29, 1996 by EMCON
in favor of the Bank.
10.5 Eurodollar Rate Option Agreement 139
dated February 29, 1996 between
EMCON and the Bank.
10.6 Fixed Rate Amortizing Option 145
Agreement dated February 29, 1996
between EMCON and the Bank.
99.1 Press Release dated February 29, 151
1996 announcing the consummation
of the Acquisition.
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EXHIBIT 2-1
STOCK PURCHASE AGREEMENT
among
EMCON
a California corporation
("Buyer"),
ORGANIC WASTE TECHNOLOGIES, INC.
a Delaware corporation
(the "Company"),
and
CERTAIN STOCKHOLDERS OF THE COMPANY
("Sellers")
Dated January 30, 1996
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TABLE OF CONTENTS
Page
1. Definitions......................................................... 1
"Advisors".......................................................... 1
"Agent"............................................................. 1
"Agreement"......................................................... 1
"Audited Financial Statements"...................................... 1
"Best Efforts"...................................................... 1
"Breach"............................................................ 2
"Buyer"............................................................. 2
"Buyer's Indemnified Persons"....................................... 2
"CERCLA"........................................................... 2
"Closing"........................................................... 2
"Closing Date"...................................................... 2
"Code".............................................................. 2
"Common Shares"...................................................... 2
"Company"............................................................ 2
"Company Disclosure Schedule"........................................ 2
"Company Financial Statements"....................................... 2
"Company Subsidiaries"............................................... 2
"Consent"............................................................ 2
"Contemplated Transactions".......................................... 3
"Damages"............................................................ 3
"Deposit"............................................................ 3
"Employee Plans"..................................................... 3
"Employment Agreement"............................................... 3
"ERISA".............................................................. 3
"Escrow Agreement".................................................. 3
"Escrow Agent"...................................................... 3
"Exchange Act"...................................................... 3
"Expenses".......................................................... 3
"Facilities"........................................................ 3
"Family" ........................................................... 3
"GAAP".............................................................. 4
"Governmental Authorization"........................................ 4
"Governmental Body"................................................. 4
"Hazardous Substances".............................................. 4
"IRS" .............................................................. 4
"Knowledge"......................................................... 4
"Knowledge of the Company".......................................... 4
"Legal Requirement"................................................. 5
"Management Stakeholders"........................................... 5
"Material Contracts"................................................ 5
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"Material Interest"................................................. 5
"Notes"............................................................. 5
"Options"........................................................... 5
"Order"............................................................. 5
"Ordinary Course of Business"....................................... 5
"Pending Claims".................................................... 5
"Person"............................................................ 5
"Preferred Shares".................................................. 5
"Proceeding"........................................................ 5
"Purchase Price".................................................... 5
"Related Person".................................................... 5
"Representative".................................................... 6
"Securities Act".................................................... 6
"Sellers"........................................................... 6
"Sellers' Indemnified Persons"...................................... 7
"Selling Stakeholders".............................................. 7
"Shares"............................................................ 7
"Subsidiaries"...................................................... 7
"Technair".......................................................... 7
"Technair Agreement"................................................ 7
"Unaudited Financial Statements".................................... 7
2. Sale, Transfer and Exchange of Shares and Options; Closing........... 7
2.1 Sale and Exchange........................................... 7
2.2 Purchase Price.............................................. 7
2.3 Deposit..................................................... 8
2.4 Closing..................................................... 8
2.5 Closing Obligations......................................... 8
2.6 Employment Agreement........................................ 10
3. Representations and Warranties of the Company........................ 10
3.1 Corporation Organization.................................... 10
3.2 Capitalization.............................................. 11
3.3 Corporate Authority......................................... 11
3.4 Dissolution; Forfeiture..................................... 12
3.5 The Company Financial Statements............................ 12
3.6 Absence of Unaccrued or Undisclosed Liabilities............. 12
3.7 Absence of Certain Changes.................................. 13
3.8 Taxes....................................................... 13
3.9 Title to Properties; Accounts Receivable.................... 14
3.10 Proprietary Rights.......................................... 15
3.11 Customer Lists.............................................. 16
3.12 Benefit Plans and Arrangements.............................. 16
3.13 Compliance with Laws; Legal Proceedings..................... 17
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3.14 Contracts and Obligations................................... 18
3.15 Employee Relations.......................................... 19
3.16 Insurance................................................... 19
3.17 Environmental Compliance.................................... 19
3.18 Advances; Related Party Transactions........................ 20
3.19 Powers of Attorney.......................................... 21
3.20 No Brokers.................................................. 21
3.21 Other Agreements to Sell the Company........................ 21
3.22 Banking Relationships....................................... 21
3.23 Information Supplied........................................ 21
3.24 Execution and Performance of Agreement...................... 21
4. Representations and Warranties of Sellers............................ 22
4.1 Ownership of Shares and Options............................. 22
4.2 Execution, Delivery and Enforceability of Agreement;
No Violation................................................ 22
4.3 Information Supplied........................................ 23
4.4 Residence and Domicile...................................... 23
4.5 Brokers or Finders.......................................... 23
5. Representations and Warranties of Buyer.............................. 23
5.1 Organization and Good Standing.............................. 23
5.2 Execution, Delivery and Enforceability of Agreement;
No Violation................................................ 23
5.3 Investment Intent........................................... 24
5.4 Certain Proceedings......................................... 24
5.5 Brokers or Finders.......................................... 24
5.6 Information Supplied........................................ 24
5.7 No Material Change.......................................... 24
6. Covenants of the Company and Sellers Prior to Closing Date........... 24
6.1 Conduct of Business Pending Closing......................... 24
6.2 Advice of Changes........................................... 26
6.3 Access and Information...................................... 26
6.4 Reasonable Efforts.......................................... 27
6.5 Supplements to Company Disclosure Schedule.................. 27
7. Covenants of Buyer Prior to Closing Date............................. 27
7.1 Access to Information....................................... 27
7.2 Approvals of Governmental Bodies............................ 27
7.3 Supplements to Schedules.................................... 28
7.4 Best Efforts................................................ 28
7.5 Advice of Changes........................................... 28
7.6 Discussions with Technair................................... 28
8. Conditions Precedent to Buyer's Obligation to Close.................. 28
8.1 Accuracy of Representations................................. 28
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8.2 Conversion; Exchange........................................ 29
8.3 Material Changes............................................ 29
8.4 Sellers' and the Company's Performance...................... 29
8.5 Consents.................................................... 29
8.6 Additional Documents........................................ 29
8.7 Termination of Stockholders' Agreement...................... 30
8.8 No Proceedings.............................................. 30
8.9 Approval of this Agreement by Company Board of Directors.... 30
8.10 Company Disclosure Schedule................................. 30
8.11 Execution by Sellers........................................ 30
8.12 Employment Agreement........................................ 30
8.13 Resignations of Directors................................... 30
8.14 Notes....................................................... 30
8.15 Note Agreement.............................................. 30
9. Conditions Precedent to Sellers' Obligation to Close................. 30
9.1 Accuracy of Representations................................. 31
9.2 Approval of this Agreement by Board of Directors............ 31
9.3 Buyer's Performance......................................... 31
9.4 Consents.................................................... 31
9.5 Note Agreement.............................................. 31
9.7 No Material Adverse Change.................................. 31
9.8 Buyer's Disclosure Schedule................................. 31
9.9 Additional Documents........................................ 31
9.10 No Proceedings.............................................. 32
9.11 Execution................................................... 32
9.12 Employment Agreement........................................ 32
10. Covenants After the Closing Date..................................... 32
10.1 Litigation Support.......................................... 32
10.2 Employment Incentives....................................... 32
11. Termination.......................................................... 33
11.1 Automatic Termination Events................................ 33
11.2 Other Termination Events.................................... 33
11.3 Effect of Termination....................................... 34
12. Indemnification; Remedies............................................ 35
12.1 Survival.................................................... 35
12.2 Indemnification and Reimbursement by Sellers................ 35
12.3 Indemnification and Reimbursement by Buyer.................. 36
12.4 Procedure for Indemnification of Third Party Claims......... 37
12.5 Benefits.................................................... 38
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12.6 Insurance Proceeds.......................................... 38
12.7 Procedure for Indemnification - Other Claims................ 38
12.8 Agents of Indemnifying Sellers for Purposes of
Indemnification, Contribution Obligation of All Sellers..... 38
13. General Provisions................................................... 39
13.1 Expenses.................................................... 39
13.2 Public Announcements........................................ 39
13.3 Confidentiality............................................. 39
13.4 Notices..................................................... 40
13.5 Binding Arbitration; Service of Process..................... 41
13.6 Further Assurances.......................................... 42
13.7 Waiver...................................................... 42
13.8 Entire Agreement and Modification........................... 42
13.9 Company Disclosure Schedule................................. 43
13.10 Assignments, Successors, and No Third Party Rights.......... 43
13.11 Severability................................................ 43
13.12 Section Headings, Construction.............................. 43
13.14 Time of Essence............................................. 44
13.15 Governing Law............................................... 44
13.16 Counterparts................................................ 44
Exhibit No. Document
- ---------- -----------
A List of Selling Stakeholders
B List of Management Stakeholders
C Escrow Agreement
D Note Agreement, with Loan Note as exhibit thereto
E-1 Note from the Company to Mark H. Shipps
E-2 Note from the Company to Management Stakeholders other than
Mark H. Shipps
F Employment Agreement
G List of Indemnifying Sellers
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of January
30, 1996 among EMCON, a California corporation ("Buyer"); ORGANIC WASTE
TECHNOLOGIES, INC., a Delaware corporation (the "Company"), the undersigned
holders of the Company's Common Shares, Preferred Shares and/or Options listed
on Exhibit A hereto (the "Selling Stakeholders"), and the undersigned holders of
the Company's Common Shares and/or Options listed on Exhibit B hereto (the
"Management Stakeholders") (the Selling Stakeholders and the Management
Stakeholders being sometimes collectively referred to herein as the "Sellers").
RECITALS
A. The Management Stakeholders and the Company desire to exchange the
Common Shares and/or Options held by the Management Stakeholders for convertible
notes of the Company in the principal amounts set forth opposite each Management
Stakeholder's named on Exhibit B hereto (the "Notes").
B. The Selling Stakeholders desire to sell and Buyer desires to buy the
Common Shares, the Preferred Shares and/or the Options held by each Selling
Stakeholder set forth opposite each Selling Stakeholder's name on Exhibit A
hereto for the consideration and on the terms set forth in this Agreement.
C. In several instances, the same individual is executing this
Agreement in two places, as both a Management Stakeholder and as a Selling
Stakeholder. In such events, the respective interests of these individuals as
Management Stakeholders and Selling Stakeholders are set forth on Exhibits A and
B, respectively.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. Definitions. For the purposes of this Agreement, the
following terms have the meanings specified or referred to in this Section 1:
"Advisors" -- Calfee, Halter & Griswold, counsel to the Company and the
Sellers and Raymond James & Associates, Inc., financial advisors to the Company
and the Sellers.
"Agent"" -- as defined in Section 12.9.
"Agreement" -- as defined in the first paragraph hereof.
"Audited Financial Statements" -- as defined in Section 3.5.
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"Best Efforts" -- the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to maximize to the extent
reasonably practicable the prospects that a result will occur; provided,
however, that an obligation to use Best Efforts under this Agreement does not
require that the Person subject to such obligation take such actions that would
result in a material adverse change to the benefits to such Person of this
Agreement and the Contemplated Transactions.
"Breach" -- a "Breach" of a representation, warranty, covenant,
obligation or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been any material inaccuracy in or breach of, or any material failure to perform
or comply with, such representation, warranty, covenant or obligation, and the
term "Breach" means any such inaccuracy, breach or failure.
"Buyer" -- as defined in the first paragraph hereof.
"Buyer's Disclosure Schedule" -- the disclosure letter delivered by
the Buyer to the Company prior to the Closing, as the same may be supplemented
from time to time, containing the information required by Section 5.
"Buyer's Indemnified Persons" -- as defined in Section 11.2.
"CERCLA" -- as defined in Section 3.17.
"Closing" -- as defined in Section 2.4.
"Closing Date" -- the date and time as of which the Closing actually
takes place.
"Code" -- the Internal Revenue Code of 1986, as amended, or any
successor law, and regulations issued by the IRS pursuant to the Internal
Revenue Code or any successor law.
"Common Shares" -- the issued or issuable shares of the Company's
common stock.
"Company" -- as defined in the first paragraph hereof.
"Company Disclosure Schedule" -- the disclosure letter delivered by
the Company to Buyer prior to the Closing, as the same may be supplemented from
time to time, containing the information required by Section 3.
"Company Financial Statements" -- as defined in Section 3.5.
"Company Subsidiaries" -- as defined in Section 3.1.
"Consent" -- any approval, consent, ratification, waiver or other
authorization (including any Governmental Authorization).
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"Contemplated Transactions" -- all of the transactions contemplated by
this Agreement, including:
(a) the sale to Buyers of the Shares and Options held by the Selling
Stakeholders by Sellers;
(b) the execution, delivery and performance of the Employment
Agreement, the Escrow Agreement, the Note Agreement and the Notes;
(c) the performance by Buyer, the Company and Sellers of their
respective covenants and obligations under this Agreement; and
(d) the exchange of Shares and Options held by the Management
Stakeholders for the Notes.
"Damages" -- as defined in Section 12.2.
"Date of the Deposit" -- the date on which the Buyer pays the Deposit
to the Escrow Agent.
"Deposit" -- as defined in Section 2.3.
"Employee Plans" -- as defined in Section 3.12.
"Employment Agreement" -- as defined in Section 2.5.
"ERISA" -- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Escrow Agreement" -- as defined in Section 2.3.
"Escrow Agent" -- as defined in Section 2.3.
"Exchange Act"-- the Securities Exchange Act of 1934 or any successor
law, and the regulations or rules issued pursuant to such Act or any successor
law.
"Expenses" -- the aggregate amount of all fees and expenses incurred
in connection with the retention of Raymond James & Associates, Inc. and Calfee,
Halter & Griswold with respect to the Contemplated Transactions. Such amount
shall equal the full amount of such fees and expenses less the amount agreed to
be paid by the Company pursuant to Section 13.1.
"Facilities" -- as defined in Section 3.9.
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"Family" -- as defined in the definition of "Related Person."
"GAAP" -- generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the financial statements
referred to in Section 3.5 were prepared.
"Governmental Authorization" -- any approval, consent, license,
permit, waiver or other authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" -- any
(a) nation, state, county, city, town, village, district or other
governmental jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory or taxing authority or
power of any nature.
"Hazardous Substances" -- as defined in Section 3.17.
"Indemnifying Sellers" -- as defined in Section 12.2(a).
"IRS" -- the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge" -- a Person will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact in carrying out such individual's duties for the
Company.
"Knowledge of the Company""Knowledge of the Company" -- shall mean
Knowledge of any officer or director of the Company about the affairs of the
Company; provided, however, that a director's Knowledge shall not be construed
to require a director to make any special investigation of facts and shall be
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limited to such knowledge as a director may gain from receiving normal and
customary reports from executive officers.
"Legal Requirement" -- any federal, state, local, municipal, foreign,
international, multinational or other constitution, law, ordinance, principle of
common law, regulation, statute or treaty.
"Management Stakeholders" -- as defined in the first paragraph hereof.
"Material Contracts" -- as defined in Section 3.14.
"Material Interest" -- as defined in the definition of "Related
Person."
"Note Agreement" -- as defined in Section 2.5.
"Notes" -- as defined in Section 2.3.
"Options" -- the issued and outstanding options to purchase Common
Shares of the Company.
"Order" -- any award, decision, injunction, judgment, order,
directive, ruling, decree, subpoena or verdict entered, issued, made or rendered
by any court, administrative agency, or other Governmental Body or by any
arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person.
"Pending Claims" -- as defined in Section 2.5.
"Person" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization or other entity or
Governmental Body.
"Preferred Shares" -- the issued or issuable shares of the Company's
Preferred Stock including but not limited to the shares of Series A, Series B
and Series C Preferred Stock referenced in Section 3.2 below.
"Proceeding" -- any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted or heard by or before,
or otherwise involving, any Governmental Body or arbitrator.
"Purchase Price" -- as defined in Section 2.2(a).
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"Related Person" -- with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by any one or
more members of such individual's Family;
(c) any Person in which members of such individual's Family hold
(individually or in the aggregate) a Material Interest; and
(d) any Person with respect to which one or more members of such
Individual's Family serves as a director, officer, partner, executor or trustee
(or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest; and
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse, (iii) any other natural person who
is related to the individual or the individual's spouse within the first degree
and (iv) any other natural person who resides with such individual, and (b)
"Material Interest" means direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities or
other voting interests representing at least ten percent (10%) of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least ten percent (10%) of the outstanding equity
securities or equity interests in a Person.
"Representative" -- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Securities Act" -- the Securities Act of 1933 or any successor law,
and regulations and rules issued pursuant to that Act or any successor law.
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"Sellers" -- as defined in the first paragraph hereof.
"Sellers' Indemnified Persons" -- as defined in Section 12.3.
"Selling Stakeholders" -- as defined in the first paragraph hereof.
"Shares" -- collectively, the Common Shares and Preferred Shares.
"Subsidiaries" -- with respect to any Person (the "Owner"), any
corporations or other Persons of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries;
when used without reference to a particular Person, "Subsidiary" means a
Subsidiary of the Company.
"Technair" -- as defined in Section 3.24.
"Technair Agreement" -- as defined in Section 3.24.
"Unaudited Financial Statements" -- as defined in Section 3.5.
2. Sale, Transfer and Exchange of Shares and Options; Closing
2.1 Sale and Exchange.
(a) The Selling Stakeholders shall sell and transfer to Buyer and
Buyer shall purchase from the Selling Stakeholders, the Shares and/or Options
held by such Selling Stakeholders and set forth opposite their names on Exhibit
A hereto for the consideration set forth on such Exhibit.
(b) The Management Stakeholders and the Company shall exchange the
Shares and Options held by the Management Stakeholders and set forth opposite
their names on Exhibit B hereto for Notes issued by the Company in the principal
amounts set forth opposite the names of the Management Stakeholders on such
Exhibit.
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2.2 Purchase Price.
(a) The amount to be paid to the Selling Stakeholders for the Shares
and the Options to be purchased from the Selling Stakeholders shall be, in the
aggregate, $13,757,072.67 (the "Purchase Price") ($13,544,143.11 of which shall
be for the Shares purchased from the Selling Stakeholders and $212,929.55 of
which shall be for the Options purchased from the Selling Stakeholders), less
the pro rata share of the Expenses to be paid by such Selling Stakeholders.
(b) The aggregate principal amount of the Notes to be issued in the
exchange of the Shares and Options held by the Management Stakeholders shall be
$1,817,927.33 ($287,285.06 of which shall be for the Shares held by the
Management Stakeholders and $1,530,642.27 of which shall be for the Options held
by the Management Stakeholders), less the pro rata share of the Expenses to be
paid by such Management Stakeholders.
(c) In consideration for the Company's efforts and cooperation with
respect to the Contemplated Transactions, the Buyer shall pay to the Company the
sum of One Hundred Seventy-Five Thousand Dollars ($175,000), which the Company
shall use to purchase the minority interests in certain of the Company
Subsidiaries.
2.3 Deposit2. On or prior to February 12, 1996, the Buyer may, in its
sole discretion, pay a portion of the Purchase Price, in the amount of Two
Million Dollars ($2,000,000) (the "Deposit"), by depositing the same with the
Bank of California, N.A. as escrow agent (the "Escrow Agent") pursuant to an
escrow agreement substantially in the form attached hereto as Exhibit C (the
"Escrow Agreement") .
2.4 Closing. The closing of the purchase, sale and exchange (the
"Closing") provided for in this Agreement will take place at the offices of Gray
Cary Ware & Freidenrich, 400 Hamilton Avenue, Palo Alto, California, at 10:00
a.m. local time on March 8, 1996, or upon such date as may be approved in
writing by the Buyer and the Company.
2.5 Closing Obligations. At the Closing:
(a) The Company or the Selling Stakeholders, as the case may be, will
deliver to Buyer:
(i) certificates representing the Shares held by the Selling
Stakeholders, duly endorsed (or accompanied by duly executed stock powers), for
transfer to Buyer;
(ii) the Options held by the Selling Stakeholders, accompanied by an
assignment thereof to Buyer;
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(iii) a certificate executed by the Company and each of the Selling
Stakeholders representing and warranting to Buyer that each of the
representations and warranties by him, her or it in this Agreement was accurate
in all material respects as of the Date of the Deposit and is accurate in all
material respects as of the Closing Date as if made on the Closing Date (giving
full effect to any supplements to the Company Disclosure Schedule that were
delivered by the Company to Buyer prior to the Closing Date in accordance with
Section 6.5); and
(iv) such other documents as are required to be provided pursuant to
Section 8; and
(b) Buyer will deliver:
(i) to each Selling Stakeholder, the amount, as set forth in Exhibit A
to be paid to such Selling Stakeholder at the Closing, less such Selling
Stakeholder's pro rata share of the Expenses. Such amounts shall be paid by bank
cashier's check if the amount to be paid to such Selling Stakeholder is less
than Five Hundred Thousand Dollars ($500,000) and by wire transfer to accounts
specified by the Selling Stakeholder if the amount to be paid to such Selling
Stakeholder is greater than Five Hundred Thousand Dollars ($500,000);
(ii) to the Company, the amount set forth in Section 2.2(c), by
cashier's check;
(iii) to Sellers, a certificate executed by Buyer representing and
warranting to Buyer that each of Buyer's representations and warranties in this
Agreement was accurate in all material respects as of the date of this Agreement
and is accurate in all material respects as of the Closing Date as if made on
the Closing Date (giving full effect to any supplements to any schedules that
were delivered, pursuant to this Agreement, by the Buyer to the Company prior to
the Closing Date in accordance with Section 7.3);
(iv) to Sellers, such other documents as are required to be provided
pursuant to Section 9;
(v) to the Advisors, the amounts set forth in invoices to be delivered
to Buyer not less than three (3) days prior to Closing; and
(vi) to each Management Stakeholder, a Note Agreement, in the form
attached hereto as Exhibit D (the "Note Agreement") and a Note issued by the
Company and executed by the Buyer as a guarantor, in the form attached hereto as
Exhibit E-1 with respect to Mark H. Shipps and as Exhibit E-2 with respect to
the other Management Stakeholders
(c) the Company will deliver to each Management Stakeholder, a note in
exchange for the Options and/or Common Shares held by him or her (the "Note") in
the form attached hereto as Exhibit E-1 with respect to Mark H. Shipps and as
Exhibit E-2 with respect to the other Management Stakeholders, in the principal
amount set forth opposite his or her name on Exhibit B hereto less such
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Management Stakeholder's pro rata share of the Expenses;
(d) the Management Stakeholders shall deliver to the Company:
(i) certificates representing the Shares held by the Management
Stakeholders, duly endorsed (or accompanied by duly executed stock powers) for
transfer to the Company;
(ii) the Options held by the Management Stakeholders, accompanied by
an assignment thereof, to the Company;
(iii) a certificate executed by the Management Stakeholders
representing and warranting to the Company that each of the representations and
warranties made by him or her in this Agreement was accurate in all material
respects as of the Date of the Deposit and is accurate in all material respects
as of the Closing Date as if made on the Closing Date (giving full effect to any
supplements to the Company Disclosure Schedule that were delivered by the
Company to the Buyer prior to the Closing Date in accordance with Section 6.5);
and
(iv) such other documents as are required to be provided pursuant to
Section 8.
2.6 Employment Agreement. Concurrently herewith, Mark H. Shipps shall
execute and deliver an employment agreement with Buyer in the form attached
hereto as Exhibit F (the "Employment Agreement").
3. Representations and Warranties of the Company. The Company
represents and warrants, as of the Date of the Deposit, to Buyer that, except as
set forth on the Company Disclosure Schedule:
3.1 Corporation Organization.
(a) The Company is a corporation, duly incorporated, validly existing
and in good standing under the laws of the State of Delaware. The Company has
all requisite corporate power to own, operate and lease its properties and to
conduct its business as now being conducted. The Company is duly qualified or
licensed to do business, and is in good standing as a foreign corporation, in
each state or other jurisdiction in which it owns or leases properties or where
the nature of its business or operations requires such qualification or
licensing, unless the failure to do so would not have a material adverse effect
on the Company's assets, business, operations or financial condition. To the
knowledge of the Company, the Company has obtained all approvals,
authorizations, consents, licenses, clearances and orders of, and has currently
effective all registrations with, all governmental and regulatory authorities
that are necessary to the conduct of its business or operations as now being
conducted, except where the failure to do so would not have a material adverse
effect on the Company.
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(b) The only Subsidiaries of the Company are: Omni Gen Technologies,
Inc., an Ohio corporation ("Omni Gen"); Keystone Recovery, Inc., an Ohio
corporation ("Keystone"); LFG Specialties, Inc., an Ohio corporation ("LFG");
O.W.T. Construction Company, an Ohio corporation ("OWT"); and American Landfill
Supply Co., an Iowa corporation ("ALS") (collectively, Omni Gen, Keystone, LFG,
OWT and ALS, the "Company Subsidiaries"). (Except where otherwise indicated or,
given the context otherwise appropriate, references herein to the "Company"
shall also include the Company Subsidiaries.) Except for a five percent (5%)
minority interest in Keystone, as of the Closing Date, the Company will own all
of the issued and outstanding capital stock of each of the Company Subsidiaries.
Each of the Company Subsidiaries is duly incorporated, validly existing and in
good standing in the state of its incorporation. Each of the Company
Subsidiaries has all requisite corporate power to own, operate and lease its
properties and to conduct its business as now being conducted. Each of the
Company Subsidiaries is duly qualified or licensed to do business, and is in
good standing as a foreign corporation in each state or other jurisdiction in
which it owns or leases properties or where the nature of its business or
operations requires such qualification or licensing, unless the failure to do so
would not have a material adverse effect on its assets, business, operations or
financial condition. To the knowledge of the Company, each of the Company
Subsidiaries has obtained all approvals, authorizations, consents, licenses,
clearances and orders of, and has currently effective all registrations with,
all governmental and regulatory authorities which are necessary to the conduct
of its business or operations as now being conducted, except where the failure
to do so would not have a material adverse effect on the Company.
3.2 Capitalization3.2Capitalization.
(a) The authorized capital stock of the Company consists solely of
7,500,000 shares of common stock, $0.01 par value, and 2,841,481 shares of
preferred stock, $0.01 par value, 1,360,000 of which are designated Series A
Preferred Stock, 740,740 of which are designated Series B Preferred Stock and
740,741 of which are designated Series C Preferred Stock. There are currently
issued and outstanding 712,000 shares of common stock, 1,360,000 shares of
Series A Preferred Stock, 740,740 shares of Series B Preferred Stock and 740,741
shares of Series C Preferred Stock. The Company Disclosure Schedule sets forth a
true and complete description of the authorized, issued and outstanding shares
of the capital stock of the Company and each of the Company Subsidiaries showing
all stockholders of the Company and each of the Company Subsidiaries as of the
date of this Agreement. All of the issued and outstanding shares of the Company
and the Company Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable except where failure to be so would not have a material adverse
effect on the business, financial position or operating results of the Company.
All such shares have been issued in accordance with federal and applicable state
securities laws concerning the issuance of securities. The Company Disclosure
Schedule accurately lists all holders of the Company's capital stock and each
such person's actual ownership interest. The rights, preferences and privileges
of the Company's capital stock are as stated in the Company's Certificate of
Incorporation, as heretofore amended.
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(b) Except for the Options and as otherwise set forth in the Company
Disclosure Schedule, no options, warrants, conversion privileges, preemptive
rights, rights to first refusal or other rights, agreements or commitments
(written or otherwise by the Company or to the knowledge of the Company by any
Seller are currently outstanding to purchase or otherwise receive any of the
capital stock of the Company or the Company Subsidiaries.
(c) The Company has delivered to the Buyer complete and accurate
copies of the Certificates of Incorporation and Bylaws (including all amendments
thereto) of the Company and each of the Company Subsidiaries. Not less than
twenty (20) days before the Closing Date the Company will make available to the
Buyer the minute books of the Company and the Company Subsidiaries containing
minutes for all meetings of, and written consents issued by the Company and
executed by, each such corporation's stockholders, Board of Directors and all
committees of such Board since the date of organization of such corporation.
3.3 Corporate Authority. The Company has all requisite corporate
authority and power to execute and deliver this Agreement and the other
agreements referenced herein and to perform all of its obligations with respect
to the Contemplated Transactions. The execution, delivery and performance of
this Agreement and the other agreements referenced herein and the consummation
of the transactions contemplated hereby and thereby have been duly authorized,
or prior to the Closing will be duly authorized, by the Company's Board of
Directors and, if required, by its stockholders.
3.4 Dissolution; Forfeiture. No action at law or in equity and to the
Knowledge of the Company no investigation or proceeding, whatsoever is now
pending or threatened to: (a) liquidate, dissolve or disincorporate the Company
or any of the Company Subsidiaries, (b) declare any of the corporate rights,
powers or privileges of the Company or any of the Company Subsidiaries, to be
null and void or otherwise than in full force and effect, (c) declare that the
Company or any of the Company Subsidiaries, or their respective Boards of
Directors or any of their respective officers, agents or employees has exceeded
or violated any of their respective corporate rights, powers or privileges, or
(d) obtain any decree, order, judgment or other judicial determination or
administrative or other ruling that would or might impede or detract from any of
the corporate rights, powers or privileges now vested in or claimed by the
Company or any of the Company Subsidiaries.
3.5 The Company Financial Statements. The consolidated financial
statements of the Company for the fiscal years ended December 31, 1993 and
December 31, 1994 have been prepared and audited in accordance with GAAP (the
"Audited Financial Statements") and the consolidated financial statements of the
Company for year ended December 31, 1995 (the "Unaudited Financial Statements")
(collectively, the Audited Financial Statements and the Unaudited Financial
Statements being referred to as the "Company Financial Statements") have been
prepared in accordance with GAAP and fairly present the financial position of
the Company in accordance with GAAP as at the dates thereof; provided, however,
that the Unaudited Financial Statements do not contain the footnote disclosures
required by GAAP.
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3.6 Absence of Unaccrued or Undisclosed Liabilities. Except for
claims, liabilities or obligations:
(a) which were properly reflected or adequately reserved against in
the balance sheet included as part of the Unaudited Financial Statements;
(b) which were incurred in the Ordinary Course of Business since
December 31, 1995;
(c) which are listed on the Company Disclosure Schedule;
(d) which are less than $25,000 in any single case; or
(e) which result from any failure to properly account for any of the
Company's estimated project costs and/or project revenue recognized in the
Audited Financial Statements or Unaudited Financial Statements and which, taken
in the aggregate with all other accrued project and related costs and/or revenue
recognized as of December 31, 1995, do not result in a net reduction in the
aggregate profit recognized by the Company on all projects subsequent to
December 31, 1995, the Company does not have any material liabilities whether
absolute, accrued, unaccrued, contingent or otherwise whether due or to become
due.
Except as set forth in paragraphs (a) through (e) of this Section 3.6,
the Company does not have Knowledge of and has no reasonable grounds to know of
any basis for any assertion against the Company of any material claims,
liabilities or obligations of any nature required by GAAP to be reflected in a
corporate balance sheet which have not been fully reflected or reserved against
in the December 31, 1995 balance sheet included as part of the Unaudited
Financial Statements, provided, however, that no limitation set forth in this
Section 3.6 shall in any way affect any other representation or warranty
contained in this Agreement.
3.7 Absence of Certain Changes. Since December 31, 1995 there has not
been any: (a) material adverse change in the business, financial condition or
operations of the Company and the Company Subsidiaries taken as a whole, (b)
recapitalization, amendment to the Certificate of Incorporation or Bylaws or any
change in, authorization, creation, issuance or agreement for issuance of, the
capital stock or any securities convertible into, or options, warrants or other
rights to subscribe to any shares of capital stock of the Company or the Company
Subsidiaries, or any declaration setting aside or payment of any dividend or
distribution (whether in cash, securities or property) with respect thereto,
except as contemplated hereby, (c) increase in the compensation, direct or
indirect, payable to any of the officers or employees of the Company or the
Company Subsidiaries, including adoption of or increase in any bonus, insurance,
pension or other employee benefit plan, payment or arrangement, or any other
agreement or arrangement with its officers, employees or stockholders, except as
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contemplated hereby, (d) unwaived default in respect of any Material Contracts
(as defined in Section 3.14), except for such defaults, if any, which do not
have a material adverse effect on the financial position, business or operating
results of the Company, (e) material change in the methods and procedures
employed in keeping the books and records of the Company or the Company
Subsidiaries or (f) strike or material labor dispute.
3.8 Taxes. All tax returns of the Company required by law (including,
without limitation, all income, unemployment compensation, worker's
compensation, Social Security, excise, privilege and franchise tax laws of the
United States or any state or municipal subdivision thereof) to be filed through
the Closing Date (true and complete copies of which have been made available to
the Buyer) have been or will be duly and timely filed, and all taxes,
assessments, contributions, fees and governmental charges or impositions shown
on said returns or reports (other than those not yet due and payable or payable
without penalty or interest) have been paid, except where any failure to so file
or pay would, individually or in the aggregate, have a material adverse effect
on the Company and the Company subsidiaries, taken as a whole. The Company has
not received any notice of assessment of any federal, state, municipal or other
tax upon or measured by its income and, to the Company's knowledge, there is no
basis for an additional assessment of any such tax, except for those for which
the Company has established adequate reserves. The Company has not knowingly
waived any law or regulation fixing, or consented to the extension of, any
period of time for the assessment of any tax or other governmental imposition,
or become committed so to do. There are no audits of the Company pending and
there are no matters under discussion with any federal, state, local or foreign
authorities with regard to the payment of any taxes by the Company. There are no
issues that have been raised by the IRS or other taxing authority in connection
with an examination or otherwise which by application of similar principles
could reasonably be expected to result in a proposed deficiency for any period
not examined.
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3.9 Title to Properties; Accounts Receivable.
(a) Except for property and assets that the Company has disposed of in
the Ordinary Course of Business, the Company has, and will have at the Closing
Date, good and marketable title to all properties and assets shown or
represented on the balance sheet included as part of the Unaudited Financial
Statements or acquired since December 31, 1995, free and clear of all mortgages,
pledges, liens, defects in title, conditional sale agreements and other
encumbrances, except for liens, encumbrances and defects in title in respect of
property or assets of the Company which: (i) are incidental to the conduct of
the Company's business; (ii) have arisen in the Company's Ordinary Course of
Business; (iii) were not incurred in connection with the borrowing of money or
the obtaining of advances or credit (other than credit arrangements related to
purchase money liens); and (iv) do not in the aggregate materially detract from
the property and assets of the Company. The Company has performed all the
obligations required to be performed by it with respect to all assets leased by
it through the date hereof, except where the failure to perform would not have a
material adverse effect on the business or financial condition of the Company.
The Company enjoys peaceful and undisturbed possession of all of its offices,
warehouses, buildings and all other real property and related facilities,
whether owned, leased or operated (collectively, the "Facilities"), and such
Facilities are not subject to any claims, liens, pledges, options, charges,
easements, security interests, rights-of-way, encumbrances or other rights, or
any encroachments, building or use restrictions, exceptions, reservations or
limitations which in any material respect interfere with or impair the present
and continued use thereof in the usual and normal conduct of its business. There
are no pending or threatened condemnation proceedings relating to any of the
Facilities. The Facilities and the real property improvements (including
leasehold improvements), equipment and other tangible assets owned or used by
the Company at the Facilities are insured in amounts believed by the Company to
be adequate and, to the Knowledge of the Company, are structurally sound with no
material defects. Said items are not subject to any commitment or other
arrangement for their sale by the Company or use by third parties other than
commitments or arrangements entered into in the Ordinary Course of Business. The
assets are valued at or below the lower of fair market value or actual cost less
an adequate and proper depreciation charge. For tax purposes, the Company has
not depreciated any of the assets in any manner inconsistent with applicable IRS
guidelines, if any.
(b) All tangible property, real and personal, owned or leased by the
Company is in good operating condition and repair, except for ordinary wear and
tear and any defects the cost of repairing which, singly or in the aggregate,
would not be material or are accrued for on the Company Financial Statements. To
the knowledge of the Company, such property is in conformity with all applicable
laws, ordinances, orders, regulations, rules and other requirements (including
applicable zoning, environmental, motor vehicle safety or standards,
occupational safety and health laws and regulations) currently in effect and
relating thereto, except where the failure to conform would not have a material
adverse effect on the business, operations or financial condition of the
Company.
(c) All accounts receivable of the Company shown on the Company
Financial Statements are valid, genuine and subsisting, arose in the Ordinary
Course of Business, and the aggregate amount thereof less the reserve for
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doubtful accounts with respect thereto set forth in the Company Financial
Statements, are, to the best knowledge of the Company after due inquiry, current
and collectible within customary payment terms.
3.10 Proprietary Rights.
(a) The Company owns the rights to use all trademarks, trade secrets,
trade names, copyrights, processes, designs, formulas, know-how, inventions,
licenses and intellectual property rights used in connection with its business
and the same are believed by the Company to be sufficient to conduct such
business as it is now or heretofore has been conducted with no known or asserted
conflict with or infringement of the asserted or actual rights of others. The
Company has no Knowledge of any infringement by any third party in connection
with any of the foregoing and the Company has not taken or omitted to take any
action which would have the effect of waiving any of its rights thereunder, in
each case except where such infringement or waiver would not have a material
adverse effect on the business, prospects, condition (financial or otherwise) or
results of operations of the Company. To the Knowledge of the Company, no third
party has filed or been issued or granted any applications for patents,
trademarks, trade names or registered copyrights relating to the Company's
assets.
(b) The Company Disclosure Schedule lists all patents, patent
applications, trademarks, trade names and registered copyrights owned by the
Company. Except as set forth in the Company Disclosure Schedule, the Company is
not required to pay any royalty, license fee or similar type of compensation in
connection with the conduct of its business as it is now or heretofore has been
conducted.
(c) The Company has obtained written agreements from all required
parties and entities assigning to the Company any material proprietary rights
relating to the Company's assets. Such agreements are currently valid and in
full force and effect and except as set forth in the Company Disclosure
Schedule, do not contain any provisions or restrictions with regard to the
rights granted to the Buyer under this Agreement. Except as set forth on the
Company Disclosure Schedule, each of the Company's employees and any other
Person who, either alone or in concert with others, developed, invented,
discovered, derived, programmed, or designed any trade secrets of the Company,
or who have knowledge of or access to information related to them, have entered
into appropriate confidentiality agreements, copies of which will, at least
twenty (20) days prior to the Closing Date, have been provided to the Buyer. All
material trade secrets of the Company are currently protectable and are not part
of the public knowledge or literature, nor have they been used, divulged, or
appropriated for the benefit of any past or present employees or other persons,
or to the detriment of, the Company.
3.11 Customer Lists. The Company has provided the Buyer access to a
complete and accurate list of each of the material customers of the Company. The
relationships between the Company and its active customers and suppliers are, in
the aggregate, in good standing, and since December 31, 1994, no material
customer or supplier has canceled or terminated, or, to the Knowledge of the
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Company, threatened to cancel, terminate or change its relationship
with the Company in any manner adverse to the Company.
3.12 Benefit Plans and Arrangements.
(a) Except as set forth in the Company Disclosure Schedule, or as
otherwise contemplated by this Agreement, the consummation of the Contemplated
Transactions will not result in any payment (whether of severance pay or
otherwise) becoming due from the Company to any employee, consultant or other
third party.
(b) The Company Disclosure Schedule lists all pension, retirement,
stock purchase, stock option, stock bonus, savings or profit sharing plan,
individual employment agreement, bonus or incentive compensation programs,
deferred compensation agreements, severance pay plans, consultant, bonus, or
group insurance contracts, or any other material incentive, welfare or employee
benefit plan, or similar arrangement, understanding or course of dealing,
including all employee benefit plans and employee pension benefit plans as
defined in Section 3(3) of ERISA (the "Employee Plans").
(c) With respect to the Employee Plans, the Company will, at least
twenty (20) days prior to the Closing Date, have delivered or made available to
the Buyer copies of any: (1) plans and related trust documents and amendments
thereto; (ii) the most recent summary plan descriptions and the most recent
annual report; (iii) annual reports on Form 5500 which were filed in each of the
most recent three (3) plan years, including, without limitation, all schedules
thereto and all financial statements with attached opinions of independent
accountants; (iv) Form PBGC-1 which was filed in each of the most recent three
(3) plan years; (v) the most recent actuarial valuation; and (vi) the most
recent determination letter received from the IRS. Such financial statements
fairly present the financial condition of each Employee Plan in accordance with
United States generally accepted accounting principles applied on a consistent
basis. All Employee Plans have been administered in substantial compliance with
their terms, ERISA to the extent applicable, and, where applicable, Section 401
of the Code.
(d) No event of the type set forth in Section 4043(b) of ERISA has
occurred and is continuing with respect to Employee Plans except insofar as such
an event may arise as a result of the consummation of the Contemplated
Transactions or would not have a material adverse effect upon the Company's
business, financial position or operating results. There exists no material
violation of ERISA with respect to the filing of reports, documents, and notices
regarding the Employee Plan participants or beneficiaries. No action, suit, or
proceeding is pending, nor, to the Knowledge of the Company, is any threatened
or imminent, with respect to the assets of any of the trusts under any Employee
Plan. All amendments required to bring an Employee Plan into conformity, in all
applicable and material respects, with ERISA have been made. Any bonding with
respect to an Employee Plan required under ERISA is in full force and effect. To
the Knowledge of the Company, the Company has not incurred any liability,
pursuant to Subtitle A of Title IV of ERISA, to the Pension Benefit Guaranty
Corporation.
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(e) No breach of fiduciary responsibility has occurred with respect to
any of the Employee Plans other than such breach, if any, which would not have a
material adverse effect on the Company's business, financial position or
operating results. There is no suit, litigation or claim (other than routine
benefit claims) pending or, to the Knowledge of the Company, threatened against
the Company or any fiduciary of any Employee Plan involving any Employee Plan or
against any such plan or its assets by any employee or former employee (or
beneficiary thereof) of the Company which individually or in the aggregate would
adversely affect the financial condition of any such Employee Plan.
3.13 Compliance with Laws; Legal Proceedings.
(a) The Company is not in violation of, or in default with respect to,
any term or provision of (i) its Certificate of Incorporation or Bylaws, or (ii)
any judgment, writ, order, injunction, or decree of any court or of any federal,
state, or municipal agency or authority in any case or proceeding expressly
naming the Company.
(b) To the Knowledge of the Company, the Company and its operations
are in compliance with applicable statutes, ordinances, regulations,
requirements and orders of the federal government and of all states,
municipalities, and agencies thereof, and of all other authorities having
jurisdiction in respect of any of its assets or operations (including any
applicable foreign government or agency or subdivision thereof), except where
the failure to do so would not have a material adverse effect on the Company.
(c) The Company has not been threatened with, nor is it a party to,
directly or indirectly, nor, to the Knowledge of the Company, is there any set
of facts that is likely to give rise to, any material legal action, governmental
investigation, or other proceeding (governmental or private), including
investigations, inquiries, citations, complaints, orders or stipulations by any
federal, state or local agency or governmental unit, and there are no judgments,
orders, restrictions or decrees of a continuing nature outstanding against the
Company. The Company has not been threatened with, nor, to the Knowledge of the
Company is there any set of facts that is likely to give rise to, a charge of
any material violation of any provision of any federal, state, local or other
law (including common law), or administrative regulations in respect of its
business or property.
3.14 Contracts and Obligations. The Company Disclosure Schedule sets
forth a true and complete list of the following agreements and instruments to
which the Company is a party: (a) all executory contracts, agreements and
instruments having a total contract price in excess of $50,000; (b) all
contracts, agreements or instruments which are in the nature of teaming
agreements, joint venture agreements, non-compete agreements, franchise
agreements, exclusive license agreements or other similar agreements restricting
access to any business opportunity of the Company; (c) all loan or debt
agreements, guarantees, indemnities and bonding commitments; (d) all license or
technology transfer agreements; (e) all leases, subleases and equipment leases,
having a total contract price in excess of $50,000; (f) all agreements between
the Company, on the one hand, and any of the officers, directors or
stockholders; (g) all material agreements between the Company, on the one hand,
and any other employees of the Company on the other hand; (h) all material
licenses or permits issued by any government agency or authority for the benefit
of the Company and/or one or more of the Company Subsidiaries; (i) any
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management or consultation agreement not terminable at will without liability;
(j) any contracts or agreements requiring the payment of fees or commissions in
connection with any sale of all or substantially all of the Company's stock or
assets or any sale of a substantial interest in the Company; and (k) any other
agreement which materially affects the Company's business, financial position or
operating results or which was entered into other than in the Ordinary Course of
Business (collectively, the "Material Contracts"). The Company has delivered to
the Buyer true and complete copies of each of the Material Contracts. The
Company is not in material violation of, or in default with respect to, any
Material Contract and the Material Contracts are valid, binding and enforceable,
subject only to applicable bankruptcy, insolvency and similar laws affecting
creditors rights generally and subject, as to enforceability, to general
principles of equity. To the Knowledge of the Company, the relationships between
the Company and the other parties to each of the Material Contacts are in good
standing, and no such other contract party has canceled or terminated, or
threatened to cancel, terminate or change in any manner adverse to the Company
such relationship or the terms of any Material Contract.
3.15 Employee Relations.
(a) The Company has no union or collective bargaining agreement, any
contract or other agreement with any labor organization or with any employee or
consultant which is not terminable at will by the Company, without liability,
and no such contract or agreement is under discussion by management of the
Company with any employee or consultant. There are no pending or threatened (i)
strikes, work stoppages, slowdowns or picketing respecting employees of the
Company, (ii) unfair labor practice complaints against the Company, or (iii)
statutes, contracts or agreements, domestic or foreign, which will obligate the
Company to make any severance payments as a consequence of the execution of this
Agreement or the consummation of the Contemplated Transactions.
(b) The Company has not received notice that there is any key employee
who intends to leave the Company's employ as a result of, or at the conclusion
of, the Contemplated Transactions. The Company's relationship with its employees
is good.
3.16 Insurance3.16 Insurance3.16 Insurance. The properties and risks
of the Company are covered by valid and currently effective insurance policies
issued in favor of the Company, which policies are set forth on the Company
Disclosure Schedule, and the Company is included as an insured party under such
policies, with full rights as loss payee. The Company Disclosure Schedule
contains a list and brief description of each insurance policy (copies of which
have been previously provided to the Buyer) maintained with respect to the
Company (or such corporation's assets or operations), which provides continuing
coverage as of the date hereof. The Company Disclosure Schedule also includes a
list and brief description of individual claims in excess of $10,000 now pending
or made during the 36-month period immediately preceding the date of this
Agreement, by or on behalf of the Company under any insurance policies.
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3.17 Environmental Compliance.
(a) The Company has all material permits, licenses and other
authorizations required under applicable laws and regulations relating to
pollution control and protection of the environment necessary for the operation
of its Facilities. The Company is not in material violation of any of the terms
or conditions of any such permits, licenses, leases, or authorizations. To the
Knowledge of the Company, the Company has not acted or failed to act in
violation of any law or regulation, order or other requirement of governmental
authorities with respect to the pollution or the atmosphere, surface water,
groundwater and noise, the handling of toxic or hazardous waste material or
other matters related to the environment. There are no pending or, to the
Knowledge of the Company, threatened civil or criminal actions, notices of
violations or administrative proceedings relating to pollution control or
protection of the environment that would have a material adverse effect on the
business or financial condition of the Company.
(b) To the Knowledge of the Company, there are no material conditions,
circumstances, activities, practices, incidents, actions or plans which would be
reasonably likely to interfere with or prevent compliance or continued
compliance by the Company with any environmental laws currently in force or with
any existing regulation, code, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder, or which may
give rise to any common law or other legal liability, including without
limitation, liability under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or similar state, foreign or local
laws, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, notice of violation, study or investigation of or against
the Company, based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling, or the emission,
discharge, release or threatened release into the workplace or the environment,
of any pollutant, contaminant, chemical, or industrial, toxic or hazardous
material, substance or waste on any properties owned or leased by, or under the
direct control of, the Company. Without in any way limiting the foregoing, no
release, emission or discharge to the environment of any hazardous substance (as
that term is currently defined under CERCLA or under any applicable analogous
state law ("Hazardous Substance")) has occurred or is currently occurring in
connection with any action or failure to act on any properties owned or leased
by, or under the direct control of, the Company which has or could give rise to
any liability of the Company.
3.18 Advances; Related Party Transactions.
(a) There are no receivables of the Company owing by any directors,
officers, employees or consultants of the Company or to any affiliate of any
such Company person or entity, other than advances by the Company in the
ordinary course of business to officers and employees for reimbursable business
expenses.
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(b) No stockholder, officer, director or employee of the Company, nor
any member of the Family of any such stockholder, officer, director or employee
owns, or since December 31, 1993, has owned, directly or indirectly, any
interest exceeding five percent (5%) in (a) any business, corporate or other,
which is material party to any material business arrangement with the Company or
(b) any material property or rights, tangible or intangible, used in the
business of the Company. No stockholder, officer, or director of the Company,
owns, directly or indirectly, any interest in, or is an officer or director of,
any business, corporate or other (other than as a stockholder of a public
company), which competes with the Company.
3.19 Powers of Attorney. The Company Disclosure Schedule contains a
complete list of all powers of attorney (or similar instruments or
authorizations) granted by the Company to any person or entity. All such powers
of attorney (or similar instruments or authorizations) are subject to
termination or revocation by the Company at any time, without notice to any
other person or entity and without penalty.
3.20 No Brokers. The Company has not entered into and will not enter
into any contract, agreement or understanding with any Person, except for
Raymond James & Associates, Inc. (a copy of which contract has been provided to
Buyer), which may result in the obligation of the Company or the Buyer to pay
any finder's fee, brokerage commission or similar payment in connection with the
Contemplated Transactions
3.21 Other Agreements to Sell the Company. Except as set forth herein,
the Company has no legal obligation, absolute or contingent, to any person or
firm to sell any capital stock of the Company or to effect any merger,
consolidation or other reorganization, or disposition of all or substantially
all the assets, of the Company.
3.22 Banking Relationships. The Company Disclosure Schedule correctly
and completely lists all banks and accounts in such banks, with which the
Company has deposits, indicating the names of those authorized to sign documents
with respect to such accounts as of the date of the most recently approved
banking resolution with respect to each.
3.23 Information Supplied. Neither this Agreement, the Company
Financial Statements, the Company Disclosure Schedule, the Exhibits attached to
this Agreement, nor any other certificate, statement or document furnished or to
be furnished by the Company or the Sellers pursuant to the terms of this
Agreement, contains or will contain any untrue statement of a material fact
known to the Company or the Sellers, respectively, or omits or will omit to
state a material fact known by the Company or the Sellers respectively necessary
to make the statements contained in such information not misleading in light of
the circumstances under which such statements were made.
3.24 Execution and Performance of Agreement. Except as set forth on
the Company Disclosure Schedule, the signing and performance by the Company of
this Agreement, including all other agreements and instruments specifically
referred to herein, and the consummation of the Contemplated Transactions, will
not violate any provision of, or result in the breach of or constitute a default
under any law, order, writ, injunction or decree of any court, governmental
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agency or arbitration tribunal or of any contract, agreement, or instrument to
which the Company is bound, except where the failure to do so will not have a
material adverse effect on the Company. Except for those required by that
certain Agreement between the Company and Technair SRL ("Technair") dated as of
July 26, 1995 (the "Technair Agreement"), all material consents, licenses,
authorizations or permissions necessary to the performance of this Agreement,
the other agreements and instruments referred to herein, and the Contemplated
Transactions have been obtained or will be obtained prior to the Closing Date.
This Agreement and each other agreement executed and delivered by the Company
and the Sellers pursuant to the terms of this Agreement, have been or by the
Closing will be duly executed and delivered by the Company and the Sellers and
upon such execution constitute legal, valid and binding obligations of the
Company and the Sellers, enforceable in accordance with their respective terms
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting enforcement of creditors
rights, rules or laws concerning equitable remedies.
4. Representations and Warranties of Sellers. Each Seller, as to
himself, herself or itself only, represents and warrants, as of the Date of the
Deposit, and except as set forth on the Company Disclosure Schedule, to the
Company and Buyer as follows:
4.1 Ownership of Shares and Options. Except as set forth in the
Company Disclosure Schedule, the Seller owns of record and beneficially the
number of Common Shares, Preferred Shares and Options, indicated opposite such
Seller's name in Exhibit A or Exhibit B hereto, as applicable, with full right
and authority to sell or exchange, as applicable, such securities hereunder, and
upon delivery of such Shares and/or Options hereunder, the Buyer or the Company
as the case may be, will receive good title thereto, free and clear of all
mortgages, pledges or security interests and not subject to any agreements or
understandings among any Persons with respect to the voting or transfer of such
securities other than those arising under agreements to which Buyer is a party
4.2 Execution, Delivery and Enforceability of Agreement; No Violation.
This Agreement has been duly executed and delivered by or on behalf of the
Seller, and at the Closing any other documents required hereunder to be executed
and delivered by or on behalf of the Seller will have been duly executed and
delivered. This Agreement constitutes the legal, valid and binding obligation of
the Seller, enforceable against such Seller in accordance with its terms, except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws affecting
creditor's rights generally. Any other agreements or documents required
hereunder to be executed and delivered by the Seller at Closing will constitute
the legal, valid and binding agreements of the Seller executing the same,
enforceable against such Seller in accordance with their respective terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws affecting
creditor's rights generally. Neither the execution of this Agreement nor the
consummation of the Contemplated Transactions by the Seller will violate, or
constitute a default under, or permit the acceleration of maturity of, except to
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the extent waived, any indentures, mortgages, promissory notes, contracts or
agreements to which such Seller is a party or by which such Seller or such
Seller's properties are bound.
4.3 Information Supplied. To the Knowledge of such Seller, neither
this Agreement, the Company Financial Statements, the Company Disclosure
Schedule, the Exhibits attached to this Agreement, nor any other certificate or
document furnished or to be furnished by the Company or the Sellers pursuant to
the terms of this Agreement, contains or will contain any untrue statement of a
material fact known to the Seller or the Company, respectively, or omits or will
omit to state a material fact necessary to make the statements contained in such
information not misleading in light of the circumstances under which such
statements were made.
4.4 Residence and Domicile. The Seller is a resident of, and domiciled
in, the State indicated on Exhibit A or Exhibit B hereto, as applicable, as
being the residence of such Seller.
4.5 Brokers or Finders. Except as set forth in Section 3.20 above,
neither the Seller or any of such Seller's agents have incurred any obligation
or liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement or the
Contemplated Transactions.
5. Representations and Warranties of Buyer. Buyer represents and
warrants to Sellers and the Company, as of the date hereof and except as set
forth in the Buyer's Disclosure Schedule, as follows:
5.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
California.
5.2 Execution, Delivery and Enforceability of Agreement; No Violation.
This Agreement has been duly executed and delivered by or on behalf of the
Buyer, and at the Closing any other documents required hereunder to be executed
and delivered by or on behalf of the Buyer will have been duly executed and
delivered. This Agreement constitutes the legal, valid and binding obligation of
the Buyer, enforceable against Buyer in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws affecting creditor's rights
generally. Any other agreements required hereunder to be executed and delivered
by the Buyer at Closing will constitute the legal, valid and binding agreements
of the Buyer, enforceable against the Buyer in accordance with its respective
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws
affecting creditor's rights generally. Neither the execution of this Agreement
nor the consummation of the transactions provided for herein by the Buyer will
violate, or constitute a default under, or permit the acceleration of maturity
of, except to the extent waived, any indentures, mortgages, promissory notes,
contracts or agreements to which the Buyer is a party or by which the Buyer or
its properties are bound. Except as set forth in the Buyer's Disclosure
Schedule, Buyer is not and will not be required to obtain any Consent from any
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Person in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions.
5.3 Investment Intent. Buyer is acquiring the Shares and Options from
the Selling Stakeholders for its own account and not with a view to their
distribution within the meaning of Section 2.11 of the Securities Act. Buyer is
a sophisticated business entity, experienced in the business of the Company and
is able to evaluate the merits and risks of acquiring the Shares and Options.
5.4 Certain Proceedings. There is no pending Proceeding that has been
commenced against Buyer that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions. To Buyer's Knowledge, no such Proceeding has been threatened.
5.5 Brokers or Finders. Buyer and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement.
5.6 Information Supplied. Neither the Buyer's Annual Report on Form
10-K for the fiscal year ending December 31, 1994, nor Quarterly Reports on Form
10-Q for the quarters ending March 31, 1995, June 30, 1995 or September 30, 1995
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein not misleading in light
of the circumstances under which such statements were made.
5.7 No Material Change. Since September 30, 1995, there has been no
material adverse change in the Buyer's business, financial position or
operations.
6. Covenants of the Company and Sellers Prior to Closing Date.
6.1 Conduct of Business Pending Closing. Except as contemplated by
this Agreement or otherwise agreed to by the Buyer in writing, prior to Closing,
the Company hereby covenants and agrees as follows:
(a) The Company will carry on its business in the Ordinary Course of
Business and, without limiting the generality of the foregoing, (i) not sell,
assign, lease, pledge, mortgage, encumber or otherwise dispose of or grant any
preferential rights in any of its assets, or incur or become obligated to pay,
any liabilities, except in the Ordinary Course of Business, (ii) not pay or
prepay any obligation or liability (fixed, contingent or otherwise), or
discharge or satisfy any lien or encumbrance, or settle any liability, claim,
dispute, proceeding, suit or appeal, pending or threatened against it or any of
its assets or properties, except for current liabilities included in the Company
Financial Statements and current liabilities incurred since December 31, 1995 in
the Ordinary Course of Business or current non-material liabilities, (iii)
except for individual expenditures and commitments made in the Ordinary Course
of Business and involving amounts not exceeding $100,000, not make any
expenditure or commitment for the purchase, acquisition, construction or
improvement of a capital asset, (iv) use its Best Efforts to continue in effect
all existing policies of insurance (or comparable insurance) of or relating to
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the Company, (v) make such advances to, and investments in, each of the Company
Subsidiaries as are reasonably necessary for the proper operation of the Company
and each such Company Subsidiary, (vi) keep proper books of record and account
necessary to prepare financial statements in accordance with GAAP and (vii) not
amend or terminate any Material Contract in a manner that would have a material
adverse effect on the business, financial position or operating results of the
Company or amend any contract, agreement or license to which it is a party,
which amendment would make it a Material Contract, unless such amendment would
not have a material adverse effect on the business, financial condition or
operating results of the Company and would not extend the term of such contract,
agreement or license by more than one year.
(b) Except as required by Section 8.2, no change will be made in the
authorized or issued and outstanding capital stock of the Company, and the
Company shall not issue or commit to issue any option, warrant, note, bond or
other security convertible into shares of the Company's capital stock.
(c) Except as set forth in the Company Disclosure Schedule, no
increase will be made in the compensation payable or to become payable by the
Company to any of its directors, officers, employees, agents, consultants or
stockholders, including any stock options, bonus payments or other benefits.
(d) The Company will not effect or agree to effect any amendment or
supplement to, or extension of, any Employee Plan.
(e) Except as required to make the representations and warranties in
Section 3.1(b) accurate, the Company will not acquire any equity securities or
similar interest in any other corporation, association, joint venture,
partnership, business trust or other business entity, or acquire the assets or
liabilities of any of the foregoing, or merge, consolidate or otherwise combine
with any other corporation or other business entity, or enter into any agreement
providing for any of the foregoing.
(f) The Company will not enter into or agree to enter into any other
contracts, licenses or other transactions other than in the Ordinary Course of
Business and, without limiting the generality of the foregoing, not enter into
or agree to enter into any contracts, agreements or instruments which are in the
nature of joint venture agreements, non-compete agreements, franchise
agreements, exclusive license agreements, or other similar agreements.
(g) Except as required by currently existing agreements, the Company
will not declare or pay any dividend on the outstanding shares of the Company's
capital stock in cash, stock or property or redeem, repurchase or otherwise
acquire any shares of the Company's capital stock or enter into any agreement
providing for any of the foregoing.
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(h) The Company and the Sellers will not solicit or initiate proposals
or offers from any person relating to any acquisition or purchase of all or
substantially all of the assets of, or any equity interest in, the Company or
any of the Company Subsidiaries, or any merger, consolidation, business
combination or similar transaction with the Company or any of the Company
Subsidiaries, or participate in any negotiations regarding, or furnish to any
other person any confidential information with respect to, or otherwise
cooperate in any way with, or participate in, facilitate or encourage, any
effort or attempt by any other person to do or seek any of the foregoing. The
Company shall promptly notify the Buyer if any such proposal or offer, or any
inquiry or contact with any person with respect thereto, is made.
(i) No change will be made with respect to the banking or safe deposit
arrangements of the Company:
(j) The Company will use its Best Efforts to keep intact the
organization of the Company; to keep available the services of the Company's
present employees; and to preserve the goodwill of its suppliers, customers and
others having business relations with the Company; and
(k) The Company will timely file all required material tax returns and
promptly pay all federal, state and local tax assessments and governmental
charges lawfully levied or assessed upon it or upon its properties, or upon any
part thereof, which have become due and payable, and the Company will withhold
from its employee's wages and pay over all federal and state taxes required to
be withheld and paid over.
6.2 Advice of Changes. Prior to the Closing Date, the Company will
promptly advise the Buyer in writing of (i) any known event occurring subsequent
to the date of this Agreement which would render any representation or warranty
of the Company contained in this Agreement, if made on and as of the date of
such event or the Closing Date, untrue or inaccurate in any material respect
(other than an event so affecting a representation or warranty which is
expressly limited to a state of facts existing at a time prior to the occurrence
of such event), and (ii) any material adverse change in the business, financial
position or operating results of the Company occurring subsequent to the date of
this Agreement.
6.3 Access and Information. The Company will, at all reasonable times
prior to the Closing Date and upon reasonable notice from Buyer, open its
offices, books, accounts and records, including policies, claims of creditors,
and obligations of the Company, and will, upon reasonable notice from Buyer,
provide free access to the Company's management to discuss the Company's
business operations, assets, liabilities, actual or potential litigation and
claims, properties and prospects, to working papers, files and records of its
accountants, each for full and unrestricted examination and inspection by the
Buyer, its officers, attorneys or accountants. Without in any way limiting the
foregoing, the Company shall, upon the reasonable request of the Buyer, allow
the Buyer and its representatives access to any property owned or leased by the
Company or the Company Subsidiaries for the performance of an environmental
audit (the "Environmental Audit"). No such examination or inspection shall in
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any way affect, diminish or terminate any of the representations or warranties
of the Company or the Sellers hereunder or the right of the Buyer to rely
thereon.
6.4 Reasonable Efforts. Subject to the terms and conditions herein
provided, the Company and each Seller shall use his, her or its Best Efforts to
(a) cause to be fulfilled and satisfied all of the conditions to the Closing to
be fulfilled and satisfied by him, her or it and (b) cause to be performed all
of the matters required of him, her or it at the Closing.
6.5 Supplements to Company Disclosure Schedule. Sellers and the
Company shall have the right, from time to time, on or prior to the Closing, to
supplement the material set forth in the Company Disclosure Schedule initially
delivered by the Company to Buyer. Any references to the Company Disclosure
Schedule in this Agreement or in any other document entered into in connection
with this Agreement shall mean the Company Disclosure Schedule as fully amended
and supplemented on or prior to the Closing Date.
7. Covenants of Buyer Prior to Closing Date.
7.1 Access to Information. Between the date of this Agreement and the
Closing Date, Buyer will afford Sellers and their Representatives full and free
access, upon the request of Sellers, to copies of Buyer's public filings under
the Securities Act, the Exchange Act, and other information as Sellers and their
Representatives shall reasonably request.
7.2 Approvals of Governmental Bodies. As promptly as practicable after
the date of this Agreement, Buyer will, and will cause each of its Related
Persons to, make all filings required by Legal Requirements to be made by them
to consummate the Contemplated Transactions. Between the date of this Agreement
and the Closing Date, Buyer will, and will cause each Related Person to (a)
cooperate with Sellers with respect to all filings that Sellers are required by
Legal Requirements to make in connection with the Contemplated Transactions, and
(b) cooperate with Sellers in obtaining all consents identified in Part 3.2 of
the Company Disclosure Schedule.
7.3 Supplements to Schedules. Buyer shall have the right, from time to
time, on or prior to the Closing, to supplement the material set forth in any
schedule initially delivered to the Company or the Sellers pursuant to this
Agreement. Any references to the Buyer Disclosure Schedule in this Agreement or
in any other document entered into in connection with this Agreement shall mean
such schedules as fully amended and supplemented on or prior to the Closing
Date.
7.4 Best Efforts. Subject to the terms and conditions herein provided,
the Buyer shall use its Best Efforts to (a) cause to be fulfilled and satisfied
by it all of the conditions to the Closing to be fulfilled or satisfied by it
and (b) cause to be performed all of the matters required of it at Closing.
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7.5 Advice of Changes. Prior to the Closing Date, the Buyer will
promptly advise all of the other parties hereto in writing of (i) any event
occurring subsequent to the date of this Agreement which would render any
representation or warranty of the Buyer contained in this Agreement, if made on
and as of the date of such event or the Closing Date, untrue or inaccurate in
any material respect (other than an event so affecting a representation or
warranty which is expressly limited to a state of facts existing at a time prior
to the occurrence of such event), and (ii) any material adverse change in the
business affairs of the Buyer occurring subsequent to the date of this
Agreement.
7.6 Discussions with Technair. Buyer shall give Mark H. Shipps the
right to participate in all meetings or discussions which include Technair and
Buyer following the execution of this Agreement. Buyer shall use its Best
Efforts to facilitate cooperative and productive discussions among Technair, the
Company, Buyer and Wheelabrator EOS, Inc. and, if necessary, shall reasonably
cooperate to transition Technair to a new distributor if Technair and the
Company agree that the Company's exclusive rights to distribute Technair's
products in the U.S. shall be modified or terminated.
8. Conditions Precedent to Buyer's Obligation to Close. Buyer's
obligation to purchase the Shares and the Options from the Selling Stakeholders
and to take the other actions required to be taken by Buyer at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Buyer, in whole or in part):
8.1 Accuracy of Representations. Each of the representations and
warranties in Sections 3 and 4 of this Agreement (considered collectively), and
each of these representations and warranties (considered individually), must
have been accurate in all material respects as of the Date of the Deposit, and
must be accurate in all material respects as of the Closing Date as if made on
the Closing Date.
8.2 Conversion; Exchange.
(a) The Selling Stakeholders shall have converted their Preferred
Shares into Common Shares which conversion may be contingent upon, and effective
as of the time of, the Closing. Upon the consummation of the Contemplated
Transactions, (i) Buyer will own all of the outstanding stock of the Company,
which shall consist of 2,921,481 Common Shares, and (ii) all of the Options
shall be cancelled at the Closing.
(b) The Management Stakeholders shall have exchanged their Common
Shares and their Options into the Notes, as contemplated by this Agreement.
8.3 Material Changes. There shall be no material adverse changes to
the business, financial condition or operating results of the Company since the
Date of the Deposit.
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8.4 Sellers' and the Company's Performance.
(a) All of the covenants and obligations that the Sellers and the
Company are required to perform or to comply with pursuant to this Agreement at
or prior to the Closing (considered collectively), and each of these covenants
and obligations (considered individually), must have been duly performed and
complied with in all material respects.
(b) Each Seller or the Company, as the case may be, must have
delivered each of the documents required to be delivered by such Seller pursuant
hereto and each of the other covenants and obligations in required to be
performed by Seller or the Company must have been performed and complied with in
all material respects.
8.5 Consents. Each of the Consents required to be obtained pursuant to
Section 3.24 hereof to consummate the Contemplated Transactions must have been
obtained and must be in full force and effect.
8.6 Additional Documents. Sellers must have caused the following
documents to be delivered to Buyer:
(a) resolution of the Board of Directors of the Company authorizing
the Contemplated Transactions, certified by the Secretary of the Company;
(b) certificates of good standing from their respective states of
incorporation for the Company and each of the Company Subsidiaries as of a date
no more than ten (10) days prior to the Closing Date.
8.7 Termination of Stockholders' Agreement8.7 Termination of
Stockholders' Agreement8.7 Termination of Stockholders' Agreement. The
Stockholders' Agreement, dated as of June 12, 1990, by and among the Company and
certain of its stockholders (including any subsequent amendments thereto) shall
have been terminated.
8.8 No Proceedings8.8No Proceedings8.8 No Proceedings. Except for
matters arising out of the Technair Agreement, since the date of this Agreement,
there must not have been commenced or threatened in writing against Buyer or the
Company, or against any Person affiliated with Buyer or the Company, any
Proceeding (a) involving any material challenge to, or seeking material damages
or injunctive relief in connection with, any of the Contemplated Transactions,
or (b) that may have the effect of preventing, delaying, making illegal, or
otherwise interfering with any of the Contemplated Transactions; provided
however that this Section 8.7 may not be relied upon by Buyer and this condition
will be deemed to have been waived by Buyer if Sellers agree to proceed to close
hereunder and to indemnify Buyer in full against any damages that may be
incurred by reason of any claim described in this Section 8.8 without regard to
the limitations on indemnification set forth in Section 12.2 below.
8.9 Approval of this Agreement by Company Board of Directors. This
Agreement and the agreements referenced herein must be approved by the Board of
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Directors of the Company and the stockholders of the Company, if required by
applicable law or the Company's Certificate of Incorporation or Bylaws.
8.10 Company Disclosure Schedule. The Company shall have provided
Buyer full and complete and final copies of the Company Disclosure Schedule
which shall reflect no material adverse changes in the Company's business or
financial condition from the Date of the Deposit.
8.11 Execution by Sellers. All of the Sellers listed on Exhibit A and
Exhibit B hereto shall have executed this Agreement.
8.12 Employment Agreementnt. The Employment Agreement required by
Section 2.6 hereof shall be in full force and effect.
8.13 Resignations of Directors. All directors of the Company, with the
exception of Mark H. Shipps, shall have resigned effective as of the Closing
Date.
8.14 Notes. The Notes shall have been executed and delivered by the
Company to the Management Stakeholders.
8.15 Note Agreement. A Note Agreement shall have been executed by each
of the Management Stakeholders.
9. Conditions Precedent to Sellers' Obligation to Close. Sellers'
obligations to sell or exchange the Shares and/or Options, as the case may be,
and to take the other actions required to be taken by Sellers at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Sellers holding a majority
of the Shares, in whole or in part):
9.1 Accuracy of Representations. All of Buyer's representations and
warranties in Section 5 (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
9.2 Approval of this Agreement by Board of Directors. This Agreement
and the agreements referenced herein must be approved by the Board of Directors
of the Company.
9.3 Buyer's Performance.
(a) All of the covenants and obligations that Buyer is required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with in all
material respects.
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(b) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 2.4 and must have made the cash payments
required to be made by Buyer pursuant to Section 2.
9.4 Consents. Each of the Consents required to be obtained pursuant to
Section 3.24 hereof to consummate the Contemplated Transactions must have been
obtained and must be in full force and effect.
9.5 Note Agreement. The Buyer shall have executed and delivered the
Note Agreement in the form attached hereto as Exhibit D.
9.6 Cancellation of the Options. At the Closing, each of the Buyer and
the Company shall cancel all of the Options acquired by it pursuant to this
Agreement.
9.7 No Material Adverse Change. There shall have been no material
adverse change in Buyer's business, financial condition or operating results
from the date of this Agreement.
9.8 Buyer's Disclosure Schedule. The Buyer shall have provided the
Company full and complete copies of Buyer's Disclosure Schedule which shall
reflect no material adverse changes in Buyer's business, financial condition or
operating results from the date of this Agreement.
9.9 Additional Documents. Buyer must have caused to be delivered to
Sellers:
(a) resolution of the Board of Directors of the Buyer authorizing the
Contemplated Transactions, certified by the Secretary of Buyer; and
(b) Certificates of good standing for the Buyer as of a date no more
than ten (10) days prior to the Closing Date.
9.10 No Proceedings. Except for matters arising out of the Technair
Agreement, since the date of this Agreement, there must not have been commenced
or threatened in writing against the Company or any Seller, or against any
Person affiliated with the Company or any Seller, any Proceeding (a) involving
any material challenge to, or seeking material damages or injunctive relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions; provided however that this Section 9.9 may
not be relied upon by the Company or Sellers and this condition will be deemed
to have been waived by the Sellers and the Company if Buyer agrees to proceed to
close hereunder and to indemnify the Company and Sellers in full against any
damages that may be incurred by reason of any claim described in this Section.
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9.11 Execution. The Sellers listed on Exhibit A and Exhibit B shall
have executed this Agreement.
9.12 Employment Agreement. The Employment Agreement required by
Section 2.6 hereof shall be in full force and effect.
10. Covenants After the Closing Date.
10.1 Litigation Support. In the event and for so long as any party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with:
(a) any of the Contemplated Transactions; or
(b) any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act or
transaction on or prior to the Closing Date involving any of the Company or the
Company Subsidiaries, then the other party shall cooperate with it and its
counsel in the defense or contest, make available its personnel and provide such
testimony and access to its books and records as shall be necessary in
connection with the defense or contest, all at the sole cost and expense of the
contesting or defending party (unless the contesting or defending party is
entitled to indemnification under Section 12 hereof).
10.2 Employment Incentives1. For a period of at least three (3) years
following the Closing, employees of the Company shall continue to receive
performance-based compensation generally consistent with the practice of the
Company in the years prior to the Closing.
11. Termination11.
11.1 Automatic Termination Events. This Agreement will terminate, as
of 5:00 p.m. Pacific time, on February 12, 1996, without any further action by
any party hereto, if the Deposit is not received by the Escrow Agent on or
before such date and time.
11.2 Other Termination Events. This Agreement may also be terminated
after the Date of the Deposit:
(a) by written notice delivered to the other parties hereto at or
prior to the Closing
(i) by (A) Buyer if a Breach of any provision of this Agreement has
been committed by any Seller or by the Company or (B) the Company if a Breach of
any provision of this Agreement has been committed by the Buyer, and such Breach
set forth in (A) or (B) has not been waived, or cured within ten (10) days after
receipt of written notice of such Breach by the party against whom such Breach
is alleged; provided, however, that the Buyer shall not be permitted to
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terminate this Agreement based on any Breach by the Company or Seller which
relates in any manner to Technair unless Buyer can demonstrate that such Breach
resulted primarily from actions of the Company and/or Sellers unrelated to this
Agreement, the Contemplated Transactions or Buyer's discussions with Technair;
or
(ii) by the Buyer if the supplements to the Company Disclosure
Schedule, made pursuant to Section 6.5, disclose a material adverse change in
the business, financial position or operating results of the Company, from that
set forth on the Company Disclosure Schedule as delivered to the Buyer on the
date hereof and supplemented on or before the Date of the Deposit;
(b) by written notice delivered to the other parties hereto at or
prior to the Closing
(i) by Buyer if any of the conditions in Section 8 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or
(ii) by Sellers owning a majority of the Shares or the Company, if any
of the conditions in Section 9 has not been satisfied as of the Closing Date or
if satisfaction of such a condition is or becomes impossible (other than through
the failure of Sellers or the Company to comply with their obligations under
this Agreement) and Sellers and the Company have not waived such condition on or
before the Closing Date;
(c) by mutual consent of Buyer and the Company; or
(d) by written notice delivered to the other parties hereto at any
time after March 15, 1996 by the Buyer, the Company or Sellers holding a
majority of the Shares, if the Closing has not occurred (other than through the
failure of any party seeking to terminate this Agreement to comply fully with
its obligations under this Agreement) on or before March 15, 1996 or such later
date as the parties may agree upon.
11.3 Effect of Termination.
(a) In the event of the termination of this Agreement pursuant to
Section 11.1, no party shall have any liability to any other party hereunder;
provided, however, that the obligations in Sections 13.1, 13.2 and 13.3 shall
survive.
(b) Each party's right of termination under Section 11.2 after the
Date of the Deposit is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant to Section
11.2, all further obligations of the parties under this Agreement will
terminate, except as follows:
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(i) The obligations in Sections 13.1, 13.2 and 13.3 will survive;
(ii) The obligations of Buyer pursuant to Section 12.3(a) will survive
if Buyer has paid the Deposit and either this Agreement has been terminated due
to a Breach by Buyer or this Agreement has been terminated by Buyer for any
reason other than a Breach by the Company or any Seller;
(iii) If this Agreement is terminated by a party because of the Breach
of the Agreement by another party the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
(c) In the event that this Agreement is terminated pursuant to Section
11.2, the Escrow Agent shall take the following actions with respect to the
Deposit:
(i) If Buyer has terminated the Agreement because of a Breach of the
Agreement by the Company or by the Sellers, the Escrow Agent shall pay the
Deposit to the Buyer;
(ii) If Buyer and the Company mutually agree to terminate the
agreement, the Escrow Agent shall pay the Deposit to the Buyer;
(iii) If the Company or the Sellers have terminated the Agreement
because of a Breach of the Agreement by Buyer, the Escrow Agent shall pay the
Deposit to the Company; and
(iv) If the Company or the Sellers have terminated the Agreement for
any reason other than a Breach of the Agreement by Buyer, the Escrow Agent shall
pay the Deposit to the Buyer.
12. Indemnification; Remedies.
12.1 Survival. Notwithstanding any investigation conducted before or
after the Closing Date, the parties hereto will be entitled to rely upon the
representations and warranties of the other parties hereto set forth in this
Agreement (as modified by each party's Disclosure Schedule attached as an
Exhibit to this Agreement). All representations and warranties in this Agreement
or in any instrument delivered pursuant to this Agreement will survive until the
date one (1) year after the Closing Date, at which time the representations and
warranties set forth in this Agreement and all liability of the parties hereto
with respect to those representations and warranties will terminate; provided,
however, that thereafter a party hereto will remain liable with respect to any
claim of Breach of a representation or warranty provided such claim has been
asserted in writing (specifying in reasonable detail the basis and amount of
such claim) on or before the date one (1) year after the Closing Date until such
time as said claim has been finally decided, settled, or adjudicated.
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12.2 Indemnification and Reimbursement by Sellers.
(a) In the event the Company or any of the Sellers commits a Breach of
any of his, her or its representations or warranties or commits a Breach of any
of his, her or its covenants or obligations contained in this Agreement and
provided that Buyer makes a written claim for indemnification against the
Sellers within one (1) year after the Closing Date then, subject to the
limitations set forth in Section 12.2(b), each of the Sellers set forth on
Exhibit G (the "Indemnifying Sellers"), severally in the percentages and up to
the amounts set forth on Exhibit G, agrees to indemnify and hold harmless Buyer,
the Company and their respective Representatives, stockholders, controlling
persons and affiliates (collectively, the "Buyer's Indemnified Persons"), and
will reimburse the Buyer's Indemnified Persons for any loss, liability, claim,
damage, and expense (including costs of investigation and defense and reasonable
attorneys' fees) whether or not involving a third party claim (collectively,
"Damages"), which the Buyer's Indemnified Persons may suffer through and after
the date of the claim for indemnification, arising from or in connection with
any Breach of any representation or warranty, or covenant made by the Company or
the Sellers in this Agreement. Subject to the foregoing and the limitations set
forth in Section 12.2(b), each Seller shall be solely responsible for a Breach
of such Seller's representations and warranties under Section 4 hereof and no
other Seller shall have any liability therefor.
(b) The obligation of the Indemnifying Sellers to indemnify the
Buyer's Indemnified Persons pursuant to Section 12.2(a) shall be subject to the
conditions and limitations of this Agreement including, without limitation, the
following:
(i) The Buyer's Indemnified Persons shall not be entitled to
indemnification hereunder unless the aggregate Damages exceed $150,000 and then
such indemnification obligation shall extend only to the amount of such excess;
provided, however, that if a single Breach of any representation or warranty has
resulted in Damages exceeding $150,000, then the indemnification obligation of
the Indemnifying Sellers pursuant to Section 12.2(a) shall not be limited by
this Section 12.2(b)(i);
(ii) The indemnification obligation of any Management Stakeholder
shall be payable in cash or at such Management Stakeholder's option, through a
setoff reduction in the principal amount of the Note held by such Management
Stakeholder;
(iii) In no event shall the Indemnifying Sellers be required to
indemnify the Buyer's Indemnified Persons for any Damages after the Indemnifying
Sellers have, in the aggregate, paid indemnification obligations (whether in the
form of cash or a setoff of the Notes) aggregating $1,500,000;
(iv) Indemnifying Sellers shall not be required to indemnify the
Buyer's Indemnified Persons for any Breach which relates in any manner to
Technair unless Buyer can demonstrate that such Breach resulted primarily from
actions of the Company and/or the Sellers unrelated to this Agreement, the
Contemplated Transactions or Buyer's discussions with Technair;
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(v) The indemnification provided by the Sellers in this Section 12 to
the Buyer's Indemnified Persons shall be the sole remedy of the Buyer's
Indemnified Persons for any claims relating to the Contemplated Transactions
except in the event of fraud by the Sellers or the Company.
12.3 Indemnification and Reimbursement by Buyer.
(a) In the event that the Company, any of the Sellers or any of the
directors of the Company are subject to any damages arising out of the Technair
Agreement as a result of this Agreement or the Contemplated Transactions,
("Technair Damages") then the Buyer agrees to indemnify and hold harmless such
Sellers and directors of the Company and each of them, and their respective
heirs, representatives, fiduciaries, controlling persons and affiliates
(collectively, the "Sellers' Indemnified Persons"), and will reimburse the
Sellers' Indemnified Persons from any Technair Damages which the Sellers'
Indemnified Persons may suffer through and after the date of the claim for
indemnification.
(b) In the event the Buyer commits a Breach of any of its
representations and warranties or commits a Breach of any of its covenants or
obligations contained in this Agreement and provided that the Sellers make a
written claim for indemnification against the Buyer within one (1) year after
the Closing Date, the Buyer agrees to indemnify and hold harmless the Sellers
Indemnified Persons and will reimburse the Sellers' Indemnified Persons for
Damages, which the Sellers' Indemnified Persons may suffer through and after the
date of the claim for indemnification, arising from and in connection with any
Breach of any representation or warranty or covenant made by Buyer in this
Agreement.
12.4 Procedure for Indemnification of Third Party Claims.
(a) Promptly after receipt by an indemnified party under Section 12.2
or Section 12.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any indemnified
party, except to the extent that the indemnifying party demonstrates that the
indemnifying party is prejudiced by the indemnified party's failure to give such
notice, and then only to the extent of such prejudice.
(b) If any Proceeding referred to in Section 12.4(a) is brought
against an indemnified party and such indemnified party gives notice to the
indemnifying party of the commencement of such Proceeding, the indemnifying
party will be entitled to actively participate in such Proceeding and, to the
extent that the indemnifying party wishes (unless the indemnifying party fails
to provide reasonable assurance to the indemnified party of its financial
capacity to defend such Proceeding and provide indemnification with respect to
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such Proceeding), to assume the defense of such Proceeding with counsel
reasonably satisfactory to the indemnified party and, from and after notice from
the indemnifying party to the indemnified party of the indemnifying party's
election to assume the defense of such Proceeding, the indemnifying party will
not, as long as the indemnifying party diligently conducts such defense, be
liable to the indemnified party under this Section 12 for any fees of counsel
(other than that selected by the indemnifying party) or any other expenses with
respect to the defense of such Proceeding, in each case incurred by the
indemnified party subsequent to such notice of election from the indemnifying
party in connection with the defense of such Proceeding, other than reasonable
costs of investigation. If the indemnifying party assumes the defense of a
Proceeding, (i) no compromise or settlement of such claims may be effected by
the indemnifying party without the indemnified party's consent, which shall not
be unreasonably withheld, unless (A) there is no finding or admission of any
violation of Legal Requirements or any material violation of the rights of any
Person and no material effect on any claims than may be made against the
indemnified party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (ii) the indemnifying party will
have no liability with respect to any compromise or settlement of such claims
effected without its consent, which shall not be unreasonably withheld. If
notice is given to an indemnifying party of the commencement of any Proceeding
and the indemnifying party does not, within twenty (20) days after the
indemnified party's notice is given, give notice to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying party will
be bound by any determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) Sellers and Buyer hereby consent to the non-exclusive jurisdiction
of any court in which a Proceeding is brought against any indemnified person for
purposes of any claim that an indemnified person may have under this Agreement
with respect to such Proceeding or the matters alleged therein, and agree that
process may be served on Sellers or Buyer with respect to such a claim anywhere
in the world. Nothing in this Section 12.4(d) shall be construed as in any way
affecting the terms of Section 13.5 hereof.
12.5 Benefits. The amount of any Damages payable by either party
hereunder shall be reduced by any net tax benefit or other benefit received by
the indemnified party as a result of such claim or proceeding which gave rise to
the Damage obligation of the indemnifying party. The indemnified party shall
have the obligation to reasonably mitigate the losses to the indemnifying party
from any claim for Damages.
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12.6 Insurance Proceeds. In determining the amount of any Damages or
expenses for which any party is entitled to indemnification under this Section
12, the gross amount thereof will be reduced by any insurance proceeds realized
or to be realized by such party.
12.7 Procedure for Indemnification - Other Claims. A claim for
indemnification for any matter not involving a third party claim may be asserted
by notice to the party from whom indemnification is sought.
12.8 Agents of Indemnifying Sellers for Purposes of Indemnification;
Contribution Obligation of All Sellers.
(a) Each of the Indemnifying Sellers hereby appoints Kevin Mohan
(representing Summit Investors, L.P., Summit Ventures, L.P., Summit Ventures II,
L.P. and SV Eurofund C.V.), Charles Hamilton (representing Environmental Venture
Fund) and Mark Shipps (representing Management Stakeholders) as his, her or its
agents (the "Agents") for purposes of handling all indemnification claims
hereunder. If any one of the foregoing is unable or unwilling to serve, then the
remaining individuals shall collectively serve as Agents for purposes of this
Section 12 until a replacement is designated pursuant to Section 12.8(e). Each
Indemnifying Seller agrees that the Agents, acting by vote of a majority in
interest (as described on Exhibit G) of the Indemnifying Sellers, shall have
authority to act on such Indemnifying Seller's behalf, to arrange for and handle
all matters related to a defense of any indemnification action required of the
Indemnifying Sellers hereunder, to compromise any claim, to settle any amount,
and otherwise to take any action as the Agents shall deem necessary or advisable
in connection with the Sellers' indemnification obligations under this Section
12.
(b) All Sellers will be bound by the decisions of the Agents and each
Seller shall reimburse and contribute to the Indemnifying Sellers his, her or
its pro rata share (in accordance with the percentages set forth on Exhibits A
and B) of any indemnification obligations of the Indemnifying Sellers resulting
under this Section 12 based upon the decisions of the Agents so long as such
decisions are made by the Agents in good faith, acting reasonably.
(c) Upon the resignation or inability to serve of any of the Agents,
the resulting vacancy shall be filled by the Indemnifying Seller or Sellers
represented by the individual who has resigned or otherwise is unable to serve.
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13. General Provisionsal.
13.1 Expenses. Except as otherwise expressly provided in this
Agreement, each party to the Agreement will bear his, her or its respective
expenses incurred in connection with the preparation, execution, and performance
of this Agreement and the Contemplated Transactions, including all fees and
expenses of agents, representatives, counsel, and accountants; provided,
however, that upon the Closing of the Contemplated Transactions, the fees and
expenses of Calfee, Halter & Griswold shall be divided equally between the
Company and the Sellers up to a maximum obligation of $50,000 for the Company.
13.2 Public Announcements. No party shall issue any press release or
make any public announcement related to the subject matter of this Agreement
prior to the Closing without the prior written approval of the Company and the
Buyer; provided, however, that any party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning the publicly-traded securities of such party (in which case
the disclosing party will use its reasonable best efforts to advise the other
party prior to making the disclosure and consult with the other party regarding
the content thereof). The Company and Buyer will consult with each other
concerning the means by which the Company's employees, customers and suppliers
and others having dealings with the Company will be informed of the Contemplated
Transactions.
13.3 Confidentiality. Between the date of this Agreement and five (5)
years after the date hereof, Buyer and Sellers will maintain in confidence, and
will cause the directors, officers, employees, agents, and advisors of Buyer and
the Company to maintain in confidence, and not use to the detriment of another
party or the Company any written, oral, or other information obtained in
confidence from another party or the Company in connection with this Agreement
or the Contemplated Transactions, expressly including the reports of all
consultants retained pursuant to the terms of this Agreement, unless (a) such
information becomes publicly available through no fault of such party, (b) the
use of such information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the consummation of the
Contemplated Transactions, or (c) the furnishing or use of such information is
required by legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the party providing
such information may reasonably request.
13.4 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed within three (3) business days by registered mail, return receipt
requested, (c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), or (d) three (3)
business days after being sent by registered or certified mail, return receipt
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requested, in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties):
Sellers: To each Seller at the address set forth on
Exhibits A or B
The Company: Organic Waste Technologies, Inc.
7550 Lucerne Drive, Suite 110
Cleveland, Ohio 44130
Attn: Mark H. Shipps, President
Fax No.: (216) 891-8288
with a copy to: Dale C. LaPorte, Esq.
Calfee, Halter & Griswold
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2688
Fax No.: (216) 241-0816
Buyer: EMCON
400 S. El Camino Real, Suite 1200
San Mateo, California 94402
Attention: R. Michael Momboisse, Esq.
Fax No.: (415) 375-0763
with a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Attention: Eric J. Lapp, Esq.
Fax No.: (415) 327-3699
13.5 Binding Arbitration; Service of Process. In the event of a
dispute between the parties related to or arising out of this Agreement, the
Agents and representatives of the Buyer and the Company will meet promptly in an
effort to resolve the dispute amicably. If such parties cannot agree upon a
resolution within thirty (30) days of any such party requesting a meeting for
resolution of a dispute, then the matter will promptly be submitted to binding
arbitration in accordance with this Section 13.5.
(a) Arbitration will be held in San Francisco, California, in
accordance with the rules and regulations of the American Arbitration
Association. The number of arbitrators will be one and will be selected in
accordance with the rules and regulations of the American Arbitration
Association. The determination of the arbitrator will be conclusive and binding
upon the parties, and any determination by the arbitrator of an award may be
filed with the clerk of a court of competent jurisdiction as a final
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adjudication of the claim involved, or application may be made to such court for
judicial acceptance of the award and an order of enforcement, as the case may
be. Except to the extent otherwise directed by the arbitrator, each party will
bear its own expenses, including legal and accounting fees, if any, with respect
to the arbitration, and one-half of the costs of the arbitrator and of the fees
imposed by the American Arbitration Association.
(b) In any arbitration hereunder, the demand for arbitration shall
specifically delineate the claims asserted and the material issues with respect
thereto. Within thirty (30) days after filing a demand for arbitration, claimant
shall provide to respondent a list of all fact witnesses known to claimant, the
names and curriculum vitae of each expert witness anticipated to be called by
claimant, and a copy of relevant documents. Within thirty (30) days after
receipt of the foregoing information, respondent shall provide to claimant a
list of all fact witnesses known to respondent, the names and curriculum vitae
of each expert witness anticipated to be called by respondent, and a copy of
relevant documents known to respondent. Within ten (10) days after discovery has
been closed by the arbitrator (but in no event later than sixty (60) days prior
to the arbitration hearing), claimant shall present to respondent a list of all
fact and expert witnesses anticipated to be called by claimant, a summary of the
substance of each such witness' testimony, and a list of all documents
anticipated to be introduced by claimant (and a copy of such documents if not
previously provided to respondent). Within thirty (30) days after receipt of the
foregoing information, respondent shall present to claimant a list of all fact
and expert witnesses anticipated to be called by respondent, a summary of the
substance of each such witness' testimony, and a list of all documents
anticipated to be introduced by respondent (and a copy of such documents if not
previously provided to claimant). Any award by the arbitrator shall be subject
to all dollar and other limitations set forth in this Agreement.
(c) A demand for arbitration may be served on Buyer or Sellers by
certified U.S. Mail, postage prepaid, or reliable overnight delivery service, to
the address set forth in Section 13.4 hereof.
13.6 Further Assurances. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
13.7 Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
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is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
13.8 Entire Agreement and Modification. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
13.9 Company Disclosure Schedule.sclosure Schedule.
(a) The disclosures in the Company Disclosure Schedule, and those in
any Supplement thereto, must relate only to the representations and warranties
in the Section of the Agreement to which they expressly relate and not to any
other representation or warranty in this Agreement, unless it is obvious, from
the disclosure, in light of the circumstances under which such disclosure is
made, that other representations and warranties are affected thereby.
(b) In the event of any inconsistency between the statements in the
body of this Agreement and those in the Company Disclosure Schedule (other than
an exception expressly set forth as such in the Company Disclosure Schedule with
respect to a specifically identified representation or warranty), the statements
in the body of this Agreement will control.
13.10 Assignments, Successors, and No Third Party Rights. Neither
party may assign any of its rights under this Agreement without the prior
consent of the other parties, which will not be unreasonably withheld, except
that Buyer may assign any of its rights under this Agreement to any Subsidiary
of Buyer but Buyer will not be relieved of its obligations hereunder as a result
of such assignment. Subject to the preceding sentence, this Agreement will apply
to, be binding in all respects upon, and inure to the benefit of the successors
and permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their successors and assigns.
13.11 Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
13.12 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Sections" refer to the corresponding
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<PAGE>
Sections of this Agreement. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
13.13 Interpretation of Agreement. This Agreement has been submitted
to the scrutiny of all parties hereto and their respective counsel and shall be
given a fair and reasonable interpretation without consideration being given to
its having been drafted by either party or its counsel.
13.14 Time of Essence. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
13.15 Governing Law. This Agreement will be governed by and construed
under the laws of the State of Delaware without regard to conflicts of laws
principles.
13.16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE BUYER
EMCON, a California corporation
By: /s/ Eugene M. Herson
---------------------------
Its: President & Chief Financial Officer
THE COMPANY
ORGANIC WASTE TECHNOLOGIES, INC, a Delaware
corporation
By: /s/ Mark. Shipps
-------------------
Its: President
55
<PAGE>
SELLING STAKEHOLDERS
SUMMIT INVESTORS, L.P.
By: /s/
---------------------
Its: ---------------------
SUMMIT VENTURES, L.P.
By: /s/
---------------------
Its: ---------------------
SUMMIT VENTURES II, L.P.
By: /s/
--------------------
Its: --------------------
SV EUROFUND C.V.
By: /s/
-------------------
Its: -------------------
McDONALD & COMPANY
SECURITIES, INC.
By: /s/
------------------
Its: ------------------
ENVIRONMENTAL VENTURE FUND
By: /s/
------------------
Its: ------------------
56
<PAGE>
/s/
-----------------
M. B. LINGAFELTER
SEELEY, SAVIDGE & AUSSEM
By: /s/
------------------
Its: ------------------
/s/
-------------------
G. ROEBUCK
/s/
------------------
JOHN PACEY
/s/
------------------
GENE OSTROW
/s/
------------------
BARRY ROGERS
/s/
------------------
ALAN GREEN
/s/
------------------
GORDON NEUFELD
/s/
------------------
DONALD HERSHMAN
/s/
----------------
DONALD JOHNSON
/s/
-----------------
DENNIS HINDERER
/s/
/s/
----------------
MICHAEL ROGOZINSKI
57
<PAGE>
/s/
-------------------
RANDALL W. CHAPMAN
/s/
-------------------
HARRY ZERNECHEL
/s/
-------------------
LOUIS KALANI
/s/
-------------------
RANDY MASUKAWA
/s/
-------------------
STEVAN J. INGWERSEN
/s/
-------------------
MICHAEL C. MAURER
/s/
----------------------
ELIZABETH L. WILLIAMS
MANAGEMENT STAKEHOLDERS
/s/
---------------------
MARK H. SHIPPS
/s/
---------------------
ANTHONY A. ALEXANDER
57
<PAGE>
/s/
---------------------
JAMES HELMICK
/s/
-----------------------
RAYMOND J. NARDELLI
/s/
-----------------------
STEPHEN LINGAFELTER
58
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A.
Schedule of Selling Stakeholders Receiving Cash
Preferred Stock
------------------------------------------------
State of Options Options
MANAGEMENT Residence Common Series A Series B-1 Series B-2 Series C $ 0.50 $ 0.75
- ---------- --------- ------ -------- ---------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mark H. Shipps Ohio 10,000 -- --
Anthony A. Alexander Ohio -- -- --
James Helmick Ohio -- 3,190 --
Raymond J. Nardelli Ohio -- -- --
Elizabeth L. Williams Ohio -- -- --
Michael C. Maurer Ohio -- -- --
Stevan J. Ingwersen Iowa -- -- --
Randy Masukawa California -- -- --
Louis Kalani Ohio -- -- --
Stephen Lingafelter Ohio -- -- --
Harry Zernechel Ohio -- -- --
Randall W. Chapman Ohio -- -- 3,190
Michael Rogozinski Ohio -- -- --
Dennis Hinderer Ohio -- -- --
Don Johnson Ohio -- -- --
Don Hershman Pennsylvania -- -- --
Gordon Neufeld Ohio -- -- --
Aman Green Ohio -- -- --
Barry Rogers New York -- -- --
DIRECTORS
John Pacey California -- -- -- -- -- -- --
Gene Ostrow Massachusetts -- -- -- -- -- -- --
INVESTMENT FUNDS
Summit Ventures II, L.P. Massachusetts . -- 364,507 99,267 99,267 210,151 -- --
Summit Ventures, L.P. Massachusetts -- 364,507 99,267 99,267 210,151 -- --
Environmental Venture
Fund Illinois -- 302,225 82,304 82,304 174,296 -- --
SV Eurofund C.V Massachusetts -- 243,005 66,179 66 ,179 139,912 -- --
McDonald & Co. Ohio -- 75,556 20,576 20,576 -- -- --
Summit Investors, L.P. Massachusetts 10,200 2,777 2,777 6,231 -- --
INVESTORS
M.B. Lingafelter Ohio 42,000 -- -- -- -- -- --
Seeley, Savidge & Aussem Ohio 27,000 -- -- -- -- -- --
G. Roebuck Ohio 1,000 -- -- -- -- -- --
TOTAL 80,000 1,360,000 370,370 370,370 740,741 3,190 3,190
====== ========= ======= ======= ======= ===== =====
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A. (cont'd)
Schedule of Selling Stakeholders Receiving Cash
Gross Proceeds Total Compensation
by Security Type in Cash
---------------------------- ---------------------------
State of Common or
MANAGEMENT Residence Preferred Options Gross Net of Expenses
- ---------- --------- --------- ------- ----- ---------------
<S> <C> <C> <C> <C> <C>
Mark H. Shipps Ohio $0.00 $0.00 $0.00 $0.00
Anthony A. Alexander Ohio - - - -
James Helmick Ohio - - - -
Raymond J. Nardelli Ohio - - - -
Elizabeth L. Williams Ohio - - - -
Michael C. Maurer Ohio - - - -
Stevan J. Ingwersen Iowa - - - -
Randy Masukawa California - - - -
Louis Kalani Ohio - - - -
Stephen Lingafelter Ohio - - - -
Harry Zernechel Ohio - - - -
Randall W. Chapman Ohio - - - -
Michael Rogozinski Ohio - - - -
Dennis Hinderer Ohio - - - -
Don Johnson Ohio - - - -
Don Hershman Pennsylvania - - - -
Gordon Neufeld Ohio - - - -
Aman Green Ohio - - - -
Barry Rogers New York - - - -
$0.00 $0.00 $0.00 $0.00
DIRECTORS
John Pacey California $0.00 $0.00 $0.00 $0.00
Gene Ostrow Massachusetts - - - -
$0.00 $0.00 $0.00 $0.00
INVESTMENT FUNDS
Summit Ventures II, L.P. Massachusetts $0.00 $0.00 $0.00 $0.00
Summit Ventures, L.P. Massachusetts - - - -
Environmental Venture
Fund Illinois - - - -
SV Eurofund C.V. Massachusetts - - - -
McDonald & Co. Ohio - - - -
Summit Investors, L.P. Massachusetts - - - -
$0.00 $0.00 $0.00 $0.00
INVESTORS
M.B. Lingafelter Ohio $0.00 $0.00 $0.00 $0.00
Seeley, Savidge & Aussem Ohio - - - -
G. Roebuck Ohio - - - -
$0.00 $0.00 $0.00 $0.00
TOTAL $0.00 $0.00 $0.00 $0.00
===== ===== ===== =====
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT B.
Schedule of Management Stakeholders Receiving Note
Gross Proceeds Total Compensation
by Security Type in Note
------------------- -------------------
Preferred
State of Stock Options Options Net of
MANAGEMENT Residence Common All Series $ $0.75 Common Options Gross Expenses
- ---------- --------- ------ ---------- ------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mark H. Shipps Ohio - - - $0.00 $0.00 $0.00 $0.00
Anthony A. Alexander Ohio 20,000 - - - - - -
James Helmick Ohio - (3,190) - - - - -
Raymond J. Nardelli Ohio 28,000 - - - - - -
Elizabeth L. Williams Ohio - - - - - - -
Michael C. Maurer Ohio - - - - - - -
Stevan J. Ingwersen Iowa - - - - - - -
Randy Masukawa California - - - - - - -
Louis Kalani Ohio - - - - - - -
Stephen Lingafelter Ohio 39,000 - - - - - -
Harry Zernechel Ohio - - - - - - -
Randall W. Chapman Ohio - - (3,190) - - - -
Michael Rogozinski Ohio - - - - - - -
Dennis Hinderer Ohio - - - - - - -
Don Johnson Ohio - - - - - - -
Don Hershman Pennsylvania - - - - - - -
Gordon Neufeld Ohio - - - - - - -
Aman Green Ohio - - - - - - -
Barry Rogers New York - - - - - - -
$0.00 $0.00 $0.00 $0.00
DIRECTORS
John Pacey California - - - - $0.00 $0.00 $0.00 $0.00
Gene Ostrow Massachusetts - - - - - - - -
$0.00 $0.00 $0.00 $0.00
INVESTMENT FUNDS
Summit Ventures II, L.P. Massachusetts - - - - $0.00 $0.00 $0.00 $0.00
Summit Ventures, L.P. Massachusetts - - - - - - - -
Environmental Venture
Fund Illinois - - - - - - - -
SV Eurofund C.V. Massachusetts - - - - - - - -
McDonald & Co. Ohio - - - - - - - -
Summit Investors, L.P. Massachusetts - - - - - - -
$0.00 $0.00 $0.00 $0.00
INVESTORS
M.B. Lingafelter Ohio - - - - $0.00 $0.00 $0.00 $0.00
Seeley, Savidge & Aussem Ohio - - - - - - - -
G. Roebuck Ohio - - - - - - - -
$0.00 $0.00 $0.00 $0.00
TOTAL 87,000 (3,190) (3,190) $0.00 $0.00 $0.00 $0.00
====== ===== ======= ====== ===== ===== ===== =====
</TABLE>
61
<PAGE>
EXHIBIT E-1 to Stock Purchase Agreement
CONVERTIBLE NOTE
Cleveland, Ohio $1,022,047.75
February 29, 1996
FOR VALUE RECEIVED, Organic Waste Technologies, Inc., a Delaware
corporation (hereinafter called the "Borrower"), hereby promises to pay to Mark
H. Shipps, or his respective registered assigns (the "Holder") or order, the sum
of One Million Twenty-Two Thousand Forty-Seven Dollars and Seventy-Five Cents
($1,022,047.75) (the "Principal"), on March 1, 2001, and to pay interest on the
unpaid principal balance hereof at the rate of eight percent (8%) per annum from
the date hereof until the same becomes due and payable. Interest shall commence
accruing on the date hereof and shall be payable annually on each anniversary of
the date hereof, beginning on the first anniversary hereof, with all interest
remaining unpaid at maturity due at such time. All payments of Principal and
interest shall be made in lawful money of the United States of America. All
payments shall be made at the address of the Holder, as set forth in Section 6.2
hereof or as the Holder shall hereafter give to the Borrower by written notice
made in accordance with the provisions of this Note.
The following terms shall apply to this Note:
ARTICLE I
PROHIBITION AGAINST PREPAYMENT
1.1 Borrower shall have no right to prepay this Note at any time.
ARTICLE II
CONVERSION INTO BORROWER'S STOCK
In the event that Borrower consummates a sale of Borrower's common
stock (the "OWT Common Stock") to the public pursuant to a firm commitment
underwritten public offering in an amount of at least Ten Million Dollars
($10,000,000) or any lesser amount as may be approved in writing by Mark H.
Shipps, (the "Initial Public Offering") at any time prior to the expiration of
the term hereof, upon the consummation of the Initial Public Offering, the
Principal shall be automatically converted into shares of OWT Common Stock,
pursuant to the terms of this Article II. In such event, any accrued but unpaid
interest shall be immediately due and payable.
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<PAGE>
2.1 Conversion Price. The number of shares of OWT Common Stock into
which the Principal shall be converted shall be the amount of the Principal,
divided by the OWT Conversion Price. The OWT Conversion Price shall initially be
Four Dollars and Eighty Cents ($4.80), and shall be adjusted as set forth in
Section 2.2 hereof.
2.2 Adjustments to OWT Conversion Price. The OWT Conversion
Price shall be adjusted as set forth in this section 2.2.
(a) Subdivisions. In case Borrower shall at any time subdivide
the outstanding shares of OWT Common Stock, the OWT Conversion Price in effect
immediately prior to such subdivision shall be proportionately decreased, and in
case the Company shall at any time combine the outstanding shares of OWT Common
Stock, the OWT Conversion Price in effect immediately prior to such combination
shall be proportionately increased, effective at the close of business on the
date of such subdivision or combination, as the case may be.
(b) Stock Dividends. In case Borrower shall at any time pay a
dividend with respect to OWT Common Stock payable in OWT Common Stock, then the
OWT Conversion Price in effect immediately prior to the record date for
distribution of such dividend shall be adjusted to that price determined by
multiplying the OWT Conversion Price in effect immediately prior to such record
date by a fraction (i) the numerator of which shall be the total number of
shares of OWT Common Stock outstanding immediately prior to such dividend and
(ii) the denominator of which shall be the total number of shares of OWT Common
Stock outstanding immediately after such dividend.
(c) Reclassification or Merger. In case of any
reclassification, change or conversion of the OWT Common Stock (other than as a
result of a subdivision or combination described above and other than upon any
Acceleration Event, as defined below), Borrower shall have the right to receive,
upon exchange of this Note (which may occur at the option of the Holder only)
the kind and amount of shares of stock, other securities, money and property
receivable upon such reclassification, change or conversion by a holder of the
number of shares of OWT Common Stock into which this Note could then be
exchanged in the event that an Initial Public Offering had occurred. The
provisions of this subparagraph (iii) shall similarly apply to successive
reclassifications, changes, and conversions.
(d) Anti-Dilution Protection. In the event that Borrower
issues and sells shares of OWT Common Stock to EMCON or affiliated companies of
EMCON, at a price per share that is less than the OWT Conversion Price then in
effect, then the OWT Conversion Price shall be adjusted to equal such per share
price.
2.3 Participation in Initial Public Offering. In the event that
Borrower undertakes an Initial Public Offering or any other public registered
underwritten offering pursuant to the Securities Act of 1933, as amended (the
"Act"), Holder may, at his option, sell the shares of OWT Common Stock into
which this Note may be converted pursuant to Article II hereof on a pro rata
basis with EMCON and the other holders of OWT Common Stock participating in such
offering, subject to the approval of the managing underwriters for such
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<PAGE>
offering. This right shall expire at such time as Holder may sell all shares of
OWT Common Stock into which this Note may be converted in any three month period
pursuant to Rule 144 under the Act. The procedures and terms of such
registration rights shall be as set forth in Sections 4 to 7 of the Note
Agreement (as defined below).
ARTICLE III
OFFSET
3.1 Offset.
(a) The Holder acknowledges that this Note is being made by
the Borrower pursuant to that certain Stock Purchase Agreement, dated as of
January ____, 1996, by and among the Borrower, EMCON, a California corporation
("EMCON"), and the holders of the outstanding capital stock of the Borrower and
outstanding options to purchase OWT Common Stock ("OWT Options") and that
certain Note Agreement, dated as of the date hereof, by and among Borrower,
EMCON and certain holders of OWT Common Stock and OWT Options (the "Note
Agreement"). The Holder further acknowledges that he or she is bound by the
Stock Purchase Agreement and the Note Agreement, and that the Principal due
hereunder may be reduced by any amounts due from the Holder to EMCON pursuant to
Section 12.2 of the Stock Purchase Agreement.
(b) In addition, the Principal and interest hereunder may be
reduced by any amount outstanding from the Holder under the Loan Note (as
defined in the Note Agreement) which the Holder then owes to OWT or EMCON at
such time as this Note becomes due and payable.
ARTICLE IV
ACCELERATION
4.1 Notwithstanding anything to the contrary herein, in the event that
any of the events set forth in paragraphs (a) through (h) of this Section 4.1
(each, an "Acceleration Event") shall occur at any time after the date hereof,
then, subject to the qualification set forth in paragraph (g) below, the
Principal and all interest thereon shall, at the option of the Holder, be
immediately due and payable
(a) upon a consolidation or merger of EMCON with or into any
other corporation or corporations (other than a wholly-owned subsidiary of EMCON
and other than a merger in which EMCON is the surviving corporation), or the
sale, transfer or other disposition of all or substantially all of the assets of
EMCON;
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<PAGE>
(b) upon a change in ownership of Fifty Percent (50%) or more,
in a single transaction, of the stock of the Borrower, other than to an
affiliate or affiliates of EMCON which does not materially alter EMCON's direct
or indirect ownership of Borrower;
(c) upon a change in ownership of Fifty Percent (50%) or more,
in a series of two (2) or more transactions, of the outstanding stock of the
Borrower, other than to an affiliate or affiliates of the Borrower and a
substantial diminution in the responsibilities of Mark H. Shipps with respect to
the Borrower in his capacity as an employee of EMCON;
(d) (i) upon a change in ownership of Thirty-Five Percent
(35%) or more of the stock of EMCON to a single buyer or an affiliated group of
buyers, resulting in a change in the majority of the board of directors of EMCON
from the board of directors as it existed immediately prior to such change in
ownership, or (ii) upon a change in ownership of Fifty Percent (50%) or more, in
a single transaction, of the stock of EMCON;
(e) upon the liquidation, dissolution or winding up of the
Borrower or the consolidation or merger of the Borrower with and into another
corporation (other than a merger in which the Borrower is the surviving
corporation);
(f) upon the occurrence of any transaction, without the
consent of Mark H. Shipps, in which Twenty Percent (20%) or more of the
outstanding stock of the Borrower becomes owned by persons other than EMCON or
an affiliate or affiliates of EMCON;
(g) upon the death of Holder or termination of the Holder's
employment by Borrower, other than a Termination for Cause. "Termination for
Cause" is intended to embrace intentionally or grossly negligent conduct on the
part of the Holder which is materially detrimental to the operations and/or
reputation of the Borrower or EMCON. By way of illustration such actions would
include (but would not be limited to) a material breach of the Holder's
obligations under any employment agreement between the Holder and OWT and/or
conviction of a crime (other than minor infractions such as parking or similar
traffic violations), moral turpitude and revocation by the applicable licensing
authority of professional licenses (if any) material to the Holder's ability to
perform the Holder's employment obligations. Notwithstanding any obligation of
Borrower to repay all outstanding Principal and interest thereon upon an
65
<PAGE>
Acceleration Event, in the event of death of the Holder or termination of
Holder's employment by Borrower other than a Termination for Cause, Borrower
may, at its option, repay one half of all amounts due hereunder upon such event
and the remaining one half of such amounts six (6) months after the occurrence
of such event (together with interest on such deferred portion computed at the
rate of 8% per annum); or
(h) upon a fundamental change in EMCON's current strategy of
focussing a material amount of EMCON's resources on services relating to the
design, construction, ownership, operation and maintenance of infrastructure;
66
<PAGE>
provided, however, that upon any Acceleration Event, no amount shall be due and
payable hereunder in the event that the Holder has exchanged this Note for
common stock of EMCON, pursuant to the Note Agreement.
ARTICLE V
EVENTS OF DEFAULT
If of any of the following events of default (each, an "Event of
Default") shall occur:
5.1 Failure to Pay Principal or Interest. The Borrower or EMCON
fails to pay the Principal or interest when due;
5.2 Receiver or Trustee. The Borrower or EMCON shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business, or such a receiver or trustee shall otherwise be appointed;
5.3 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for relief of debtors shall be instituted by or against the Borrower
or EMCON;
then upon the occurrence and during the continuation of any Event of Default,
then, at the option of the Holder, the Principal and all interest due thereon
shall be immediately due and payable, and the Borrower shall have all other
remedies available at law or equity.
ARTICLE VI
MISCELLANEOUS
6.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges.
6.2 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed within three (3) business days by registered mail, return receipt
requested, (c) when received by the addressee, if sent by a
67
<PAGE>
nationally recognized overnight delivery service (receipt requested), or (d)
three (3) business days after being sent by registered or certified mail, return
receipt requested, in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Holder:
------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
Borrower: Organic Waste Technologies, Inc.
7550 Lucerne Drive, Suite 110
Cleveland, Ohio 44130
Attn: President
Fax: (216) 891-8288
6.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
6.4 Governing Law. This Note shall be governed by the internal
laws of the State of Delaware, without regard to the principles of conflict of
laws.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its duly authorized officer as of the ______day of____________ , 1996.
ORGANIC WASTE TECHNOLOGIES, INC.
By: /s/
----------------------
Name: Mark Shipps
----------------------
Title: President
---------------------
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<PAGE>
Borrower is a wholly-owned subsidiary of EMCON, a California
corporation ("EMCON"). To induce the Holder to give and continue to give credit
to Borrower and in consideration of the extension of such credit, EMCON hereby
absolutely and unconditionally guarantees prompt payment when due of the amounts
due from Borrower under this Note. EMCON further absolutely and unconditionally
guarantees the prompt performance when due of all the obligations of Borrower
under the Note. The undersigned undertakes this continuing, absolute, and
unconditional guaranty of the aforementioned payment and performance by Borrower
notwithstanding that any portion of the amount due under the Note shall be void
or voidable as between the Borrower and any of its creditors, including, without
limitation, any bankruptcy trustee of the Borrower. This absolute, continuing,
unconditional, and unrestricted guaranty is a guaranty of payment and not a
guaranty of collection. Upon Borrower's failure to pay the Note promptly when
due, the Holder, at his sole option, may proceed against EMCON to collect the
amount due, with or without proceeding against the Borrower. EMCON waives all
defenses to this guaranty.
EMCON
By: /s/
--------------------------------
Name: Eugene M. Herson
Title: President & Chief Executive Officer
Date: February 29, 1996
69
<PAGE>
EXHIBIT E-2 to Stock Purchase Agreement
CONVERTIBLE NOTE
Cleveland, Ohio $__________
February 29, 1996
FOR VALUE RECEIVED, Organic Waste Technologies, Inc., a Delaware
corporation (hereinafter called the "Borrower"), hereby promises to pay to name,
or his or her respective registered assigns (the "Holder") or order, the sum of
number Dollars ($amount) (the "Principal"), on March 1, 2001, and to pay
interest on the unpaid principal balance hereof at the rate of eight percent
(8%) per annum from the date hereof until the same becomes due and payable.
Interest shall commence accruing on the date hereof and shall be payable
annually on each anniversary of the date hereof, beginning on the first
anniversary hereof, with all interest remaining unpaid at maturity due at such
time. All payments of Principal and interest shall be made in lawful money of
the United States of America. All payments shall be made at the address of the
Holder, as set forth in Section 6.2 hereof or as the Holder shall hereafter give
to the Borrower by written notice made in accordance with the provisions of this
Note.
The following terms shall apply to this Note:
ARTICLE I
PROHIBITION AGAINST PREPAYMENT
1.1 Borrower shall have no right to prepay this Note at any time.
ARTICLE II
CONVERSION INTO BORROWER'S STOCK
In the event that Borrower consummates a sale of Borrower's common
stock (the "OWT Common Stock") to the public pursuant to a firm commitment
underwritten public offering in an amount of at least Ten Million Dollars
($10,000,000) or any lesser amount as may be approved in writing by Mark H.
Shipps, (the "Initial Public Offering") at any time prior to the expiration of
the term hereof, upon the consummation of the Initial Public Offering, the
Principal shall be automatically converted into shares of OWT Common Stock,
pursuant to the terms of this Article II. In such event, any accrued but unpaid
interest shall be immediately due and payable.
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<PAGE>
2.1 Conversion Price. The number of shares of OWT Common Stock into
which the Principal shall be converted shall be the amount of the Principal,
divided by the OWT Conversion Price. The OWT Conversion Price shall initially be
Four Dollars and Eighty Cents ($4.80), and shall be adjusted as set forth in
Section 2.2 hereof.
2.2 Adjustments to OWT Conversion Price. The OWT Conversion Price
shall be adjusted as set forth in this section 2.2.
(a) Subdivisions. In case Borrower shall at any time subdivide
the outstanding shares of OWT Common Stock, the OWT Conversion Price in effect
immediately prior to such subdivision shall be proportionately decreased, and in
case the Company shall at any time combine the outstanding shares of OWT Common
Stock, the OWT Conversion Price in effect immediately prior to such combination
shall be proportionately increased, effective at the close of business on the
date of such subdivision or combination, as the case may be.
(b) Stock Dividends. In case Borrower shall at any time pay a
dividend with respect to OWT Common Stock payable in OWT Common Stock, then the
OWT Conversion Price in effect immediately prior to the record date for
distribution of such dividend shall be adjusted to that price determined by
multiplying the OWT Conversion Price in effect immediately prior to such record
date by a fraction (i) the numerator of which shall be the total number of
shares of OWT Common Stock outstanding immediately prior to such dividend and
(ii) the denominator of which shall be the total number of shares of OWT Common
Stock outstanding immediately after such dividend.
(c) Reclassification or Merger. In case of any
reclassification, change or conversion of the OWT Common Stock (other than as a
result of a subdivision or combination described above and other than upon any
Acceleration Event, as defined below), Borrower shall have the right to receive,
upon exchange of this Note (which may occur at the option of the Holder only)
the kind and amount of shares of stock, other securities, money and property
receivable upon such reclassification, change or conversion by a holder of the
number of shares of OWT Common Stock into which this Note could then be
exchanged in the event that an Initial Public Offering had occurred. The
provisions of this subparagraph (iii) shall similarly apply to successive
reclassifications, changes, and conversions.
(d) Anti-Dilution Protection. In the event that Borrower
issues and sells shares of OWT Common Stock to EMCON or affiliated companies of
EMCON, at a price per share that is less than the OWT Conversion Price then in
effect, then the OWT Conversion Price shall be adjusted to equal such per share
price.
2.3 Participation in Initial Public Offering. In the event that
Borrower undertakes an Initial Public Offering or any other public registered
underwritten offering pursuant to the Securities Act of 1933, as amended (the
"Act"), Holder may, at his option, sell the shares of OWT Common Stock into
which this Note may be converted pursuant to Article II hereof on a pro rata
basis with EMCON and the other holders of OWT Common Stock participating in such
offering, subject to the approval of the managing underwriters for such
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offering. This right shall expire at such time as Holder may sell all shares of
OWT Common Stock into which this Note may be converted in any three month period
pursuant to Rule 144 under the Act. The procedures and terms of such
registration rights shall be as set forth in Sections 4 to 7 of the Note
Agreement (as defined below).
ARTICLE III
OFFSET
3.1 Offset.
(a) The Holder acknowledges that this Note is being made by
the Borrower pursuant to that certain Stock Purchase Agreement, dated as of
January , 1996, by and among the Borrower, EMCON, a California corporation
("EMCON"), and the holders of the outstanding capital stock of the Borrower and
outstanding options to purchase OWT Common Stock ("OWT Options") and that
certain Note Agreement, dated as of the date hereof, by and among Borrower,
EMCON and certain holders of OWT Common Stock and OWT Options (the "Note
Agreement"). The Holder further acknowledges that he or she is bound by the
Stock Purchase Agreement and the Note Agreement, and that the Principal due
hereunder may be reduced by any amounts due from the Holder to EMCON pursuant to
Section 12.2 of the Stock Purchase Agreement.
(b) In addition, the Principal and interest hereunder may be
reduced by any amount outstanding from the Holder under the Loan Note (as
defined in the Note Agreement) which the Holder then owes to OWT or EMCON at
such time as this Note becomes due and payable.
ARTICLE IV
ACCELERATION
4.1 Notwithstanding anything to the contrary herein, in the event that
any of the events set forth in paragraphs (a) through (h) of this Section 4.1
(each, an "Acceleration Event") shall occur at any time after the date hereof,
then the Principal and all interest thereon shall, at the option of the Holder,
be immediately due and payable
(a) upon a consolidation or merger of EMCON with or into any
other corporation or corporations (other than a wholly-owned subsidiary of EMCON
and other than a merger in which EMCON is the surviving corporation), or the
sale, transfer or other disposition of all or substantially all of the assets of
EMCON;
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(b) upon a change in ownership of Fifty Percent (50%) or more,
in a single transaction, of the stock of the Borrower, other than to an
affiliate or affiliates of EMCON which does not materially alter EMCON's direct
or indirect ownership of Borrower;
(c) upon a change in ownership of Fifty Percent (50%) or more,
in a series of two (2) or more transactions, of the outstanding stock of the
Borrower, other than to an affiliate or affiliates of the Borrower and a
substantial diminution in the responsibilities of Mark H. Shipps with respect to
the Borrower in his capacity as an employee of EMCON;
(d) (i) upon a change in ownership of Thirty-Five Percent
(35%) or more of the stock of EMCON to a single buyer or an affiliated group of
buyers, resulting in a change in the majority of the board of directors of EMCON
from the board of directors as it existed immediately prior to such change in
ownership, or (ii) upon a change in ownership of Fifty Percent (50%) or more, in
a single transaction, of the stock of EMCON;
(e) upon the liquidation, dissolution or winding up of the
Borrower or the consolidation or merger of the Borrower with and into another
corporation (other than a merger in which the Borrower is the surviving
corporation);
(f) upon the occurrence of any transaction, without the
consent of Mark H. Shipps, in which Twenty Percent (20%) or more of the
outstanding stock of the Borrower becomes owned by persons other than EMCON or
an affiliate or affiliates of EMCON;
(g) upon the death of the Holder or termination of the
Holder's employment by Borrower, other than a Termination for Cause.
"Termination for Cause" is intended to embrace intentionally or grossly
negligent conduct on the part of the Holder which is materially detrimental to
the operations and/or reputation of the Borrower or EMCON. By way of
illustration such actions would include (but would not be limited to) a material
breach of the Holder's obligations under any employment agreement between the
Holder and OWT and/or conviction of a crime (other than minor infractions such
as parking or similar traffic violations), moral turpitude and revocation by the
applicable licensing authority of professional licenses (if any) material to the
Holder's ability to perform the Holder's employment obligations; or
(h) upon a fundamental change in EMCON's current strategy of
focussing a material amount of EMCON's resources on services relating to the
design, construction, ownership, operation and maintenance of infrastructure;
provided, however, that upon any Acceleration Event, no amount shall be due and
payable hereunder in the event that the Holder has exchanged this Note for
common stock of EMCON, pursuant to the Note Agreement.
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ARTICLE V
EVENTS OF DEFAULT
If of any of the following events of default (each, an "Event of
Default") shall occur:
5.1 Failure to Pay Principal or Interest. The Borrower or EMCON fails
to pay the Principal or interest when due;
5.2 Receiver or Trustee. The Borrower or EMCON shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business, or such a receiver or trustee shall otherwise be appointed;
5.3 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for relief of debtors shall be instituted by or against the Borrower or EMCON;
then upon the occurrence and during the continuation of any Event of
Default, then, at the option of the Holder, the Principal and all interest due
thereon shall be immediately due and payable, and the Borrower shall have all
other remedies available at law or equity.
ARTICLE VI
MISCELLANEOUS
6.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges.
6.2 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed within three (3) business days by registered mail, return receipt
requested, (c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), or (d) three (3)
business days after being sent by registered or certified mail, return receipt
requested, in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties):
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Holder:
--------------------------
--------------------------
--------------------------
--------------------------
--------------------------
Borrower: Organic Waste Technologies, Inc.
7550 Lucerne Drive, Suite 110
Cleveland, Ohio 44130
Attn: President
Fax: (216) 891-8288
6.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
6.4 Governing Law. This Note shall be governed by the internal laws of
the State of Delaware, without regard to the principles of conflict of laws.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its duly authorized officer as of the 29th day of February, 1996.
ORGANIC WASTE TECHNOLOGIES, INC.
By: /s/
------------------------------------------
Name: Mark Shipps
Title: President
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Borrower is a wholly-owned subsidiary of EMCON, a California
corporation ("EMCON"). To induce the Holder to give and continue to give credit
to Borrower and in consideration of the extension of such credit, EMCON hereby
absolutely and unconditionally guarantees prompt payment when due of the amounts
due from Borrower under this Note. EMCON further absolutely and unconditionally
guarantees the prompt performance when due of all the obligations of Borrower
under the Note. The undersigned undertakes this continuing, absolute, and
unconditional guaranty of the aforementioned payment and performance by Borrower
notwithstanding that any portion of the amount due under the Note shall be void
or voidable as between the Borrower and any of its creditors, including, without
limitation, any bankruptcy trustee of the Borrower. This absolute, continuing,
unconditional, and unrestricted guaranty is a guaranty of payment and not a
guaranty of collection. Upon Borrower's failure to pay the Note promptly when
due, the Holder, at his sole option, may proceed against EMCON to collect the
amount due, with or without proceeding against the Borrower. EMCON waives all
defenses to this guaranty.
EMCON
By: /s/
------------------------
Name: Eugene M. Herson
Title: President & Chief Executive Officer
Date: February 29, 1996
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EXHIBIT 10.1
NOTE AGREEMENT
THIS AGREEMENT is made as of the 29th day of February, 1996, by and
among EMCON, a California corporation ("EMCON"), Organic Waste Technologies,
Inc., a Delaware corporation, ("OWT"), and the undersigned holders of common
stock ("Common Shares") of OWT and holders of options to purchase the common
stock of OWT ("Options") listed on the signature pages hereto (collectively, the
holders thereof being the "Management Stakeholders").
WHEREAS, the Management Stakeholders are parties to that certain Stock
Purchase Agreement dated January 30, 1996, among the Management Stakeholders,
EMCON, OWT and certain other holders of common and preferred stock of OWT and of
options to purchase common stock of OWT (the "Stock Purchase Agreement");
WHEREAS, pursuant to the Stock Purchase Agreement each Management
Stakeholder has agreed to exchange the Common Shares and/or Options held by him
at the closing of the sale and purchase contemplated by the Stock Purchase
Agreement (the "Closing") for a convertible note made by OWT (collectively, the
"Notes");
WHEREAS, in connection therewith, the parties hereto desire to enter
into additional agreements regarding the Notes;
WHEREAS, EMCON desires to lend each Management Stakeholder an amount
equal to the additional federal, state and local income taxes (the "Tax
Liability") required to be paid by him as a result of the exchange of the
Options and Common Shares owned by him for a Note (the "Loan Amount").
NOW, THEREFORE, in consideration of the foregoing and the agreements
set forth below, the parties agree with each other as follows:
1. Loan. Upon the date on which amounts are withheld by OWT or EMCON
for each Management Stakeholder's Tax Liability or paid directly by such
Management Stakeholder to the appropriate taxing authority, EMCON shall pay to
such Management Stakeholder an amount equal to such withholding or Tax
Liability, by cashier's check or wire transfer, and such Management Stakeholder
shall execute a note in the principal amount of the Loan Amount, in the form of
Exhibit A hereto (the "Loan Note").
2. (a) Exchange Right. In the event that the Note has not been
converted into OWT Common Stock in accordance with its terms prior to the fifth
anniversary of the date hereof, each Management Stakeholder shall have the
right, for a period of ninety (90) days prior to the fifth anniversary of the
date hereof, to exchange the Note payable to him for fully paid and
nonassessable shares of Common Stock, no par value, of EMCON as such stock
exists on the date of issuance of the Note payable to him, or any shares of
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capital stock of EMCON into which such stock shall hereafter be changed or
reclassified (the "EMCON Common Stock") at the exchange price determined as
provided herein (the "EMCON Exchange Price"). Upon the surrender of the Note,
accompanied by a Notice of Exchange of Convertible Note in the form attached
hereto as Exhibit B, properly completed and duly executed by the Management
Stakeholder (an "Exchange Notice"), EMCON shall issue and deliver to or upon the
order of the Management Stakeholder that number of shares of EMCON Common Stock
for which the Principal (as defined in the Note) shall be exchanged, as
determined in accordance herewith. Upon such exchange, any accrued but unpaid
interest on the Notes shall be immediately due and payable.
The number of shares of EMCON Common Stock to be issued upon exchange
of each Note shall be determined by dividing the Principal thereof by the EMCON
Exchange Price in effect on the date the Exchange Notice is delivered to EMCON
by the Management Stakeholder.
(b) Exchange Price. The EMCON Exchange Price shall
initially be $6.50.
(i) Subdivisions. In case EMCON shall at any
time subdivide the outstanding shares of EMCON Common Stock, the EMCON Exchange
Price in effect immediately prior to such subdivision shall be proportionately
decreased, and in case the Company shall at any time combine the outstanding
shares of EMCON Common Stock, the Exchange Price in effect immediately prior to
such combination shall be proportionately increased, effective at the close of
business on the date of such subdivision or combination, as the case may be.
(ii) Stock Dividends. In case EMCON shall at
any time pay a dividend with respect to EMCON Common Stock payable in EMCON
Common Stock, then the EMCON Exchange Price in effect immediately prior to the
record date for distribution of such dividend shall be adjusted to that price
determined by multiplying the EMCON Exchange Price in effect immediately prior
to such record date by a fraction (i) the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to such dividend
and (ii) the denominator of which shall be the total number of shares of EMCON
Common Stock outstanding immediately after such dividend.
(iii) Reclassification or Merger. In case of any
reclassification, change or conversion of the EMCON Common Stock (other than as
a result of a subdivision or combination described above and other than upon any
Acceleration Event, as defined below), each Management Stakeholder shall have
the right to receive, upon exchange of the Note owned by him the kind and amount
of shares of stock, other securities, money and property receivable upon such
reclassification, change or conversion by a holder of the number of shares of
EMCON Common Stock into which his Note could then be exchanged. The provisions
of this subparagraph (iii) shall similarly apply to successive
reclassifications, changes, and conversions.
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(c) Authorized Shares. EMCON covenants that during the period
the exchange right set forth in this Section 2 exists, EMCON will reserve from
the authorized and unissued EMCON Common Stock a sufficient number of shares to
provide for the issuance of EMCON Common Stock upon the full exchange of the
Notes. EMCON represents that upon issuance, such shares will be duly and validly
issued, fully paid and non-assessable.
(d) Method of Exchange. Except as otherwise provided in the
Note or agreed by the Management Stakeholder, the Note held by him may be
exchanged by the Management Stakeholder in whole by (i) submitting to EMCON an
Exchange Notice and (ii) surrendering the Note held by him at the principal
office of EMCON.
(e) Restrictions Concerning the Shares. The shares of EMCON
Common Stock to be held by Management Stakeholders pursuant to the exercise of
the exchange rights set forth in Section 2 may not be sold or transferred unless
either (i) such shares first shall have been registered under the Securities Act
of 1933 (the "Act") and applicable state securities laws or (ii) EMCON shall
have been furnished with an opinion of legal counsel to the effect that such
sale or transfer is exempt from the registration requirements of the Act and all
applicable state securities laws. Each certificate for shares of EMCON Common
Stock to be held by the Management Stakeholders that have not been so registered
and that have not been sold pursuant to an exemption that permits removal of the
legend, shall bear a legend substantially in the following form, as appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR AN OPINION OF COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
Upon the request a Management Stakeholder, EMCON shall remove the foregoing
legend from the certificate representing the EMCON Common Stock held by such
Management Stakeholder upon exercise of the exchange rights pursuant to Section
2 or issue to such Management Stakeholder a new certificate therefor free of any
transfer legend, if, with such request, EMCON shall have received either (i) an
opinion of counsel to the effect that any such legend may be removed from such
certificate, or (ii) if the present paragraph (k) of Rule 144 or a substantially
similar successor rule remains in force and effect, satisfactory representations
from the Management Stakeholder that such Management Stakeholder is not then,
and has not been during the preceding three (3) months, an affiliate of EMCON,
and that a period of at least three (3) years has elapsed since the later of the
date the securities were acquired (as determined under Rule 144) from EMCON or
an affiliate of EMCON.
(f) Acceleration of Exchange Rights. Notwithstanding anything
to the contrary herein, in the event that any of the following events set forth
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in paragraphs (i) through (v) of this Section 2(f) (each, an "Acceleration
Event") shall occur, then the exchange rights set forth in Section 2(a) shall,
at the option of each Management Stakeholder, be immediately exercisable:
(i) by any Management Stakeholder upon a
consolidation or merger of EMCON with or into any other corporation or
corporations (other than a wholly-owned subsidiary of EMCON and other than a
merger in which EMCON is the surviving corporation), or the sale, transfer or
other disposition of all or substantially all of the assets of EMCON;
(ii) by any Management Stakeholder after the
Closing, upon a change in ownership of Fifty Percent (50%) or more, in a single
transaction, of the stock of OWT, other than to an affiliate or affiliates of
EMCON which does not materially alter EMCON's direct or indirect ownership of
OWT;
(iii) by any Management Stakeholder, upon a
change in ownership of Fifty Percent (50%) or more, in a series of two (2) or
more transactions occurring after the Closing, of the outstanding stock of OWT,
other than to an affiliate or affiliates of OWT and a substantial diminution in
the responsibilities of Mark H. Shipps with respect to OWT in his capacity as an
employee of EMCON;
(iv) (A) upon a change in ownership of Thirty-
Five Percent (35%) or more of the stock of EMCON to a single buyer or an
affiliated group of buyers, resulting in a change in the majority of the board
of directors of EMCON from the board of directors as it existed immediately
prior to such change in ownership, or (B) upon a change in ownership of Fifty
Percent (50%) or more, in a single transaction, of the stock of EMCON;
(v) by any Management Stakeholder, upon the
liquidation, dissolution or winding up of OWT or the consolidation or merger of
OWT with and into another corporation (other than a merger in which OWT is the
surviving corporation);
(vi) by any Management Stakeholder, upon the
occurrence of any transaction, without the consent of Mark H. Shipps, in which
Twenty Percent (20%) or more of the outstanding common stock of OWT becomes
owned by persons other than EMCON or an affiliate or affiliates of EMCON;
(vii) by any Management Stakeholder upon his death
or the termination of his employment by OWT other than a Termination for Cause,
the "Termination for Cause" is intended to embrace intentionally or grossly
negligent conduct on the part of the Maker which is materially detrimental to
the operations and/or reputation of OWT or the Holder. By way of illustration
such actions would include (but would not be limited to) a material breach of
Maker's obligations under any employment agreement between the Maker and OWT
and/or the Holder, and/or conviction of a crime (other than minor infractions
such as parking or similar traffic violations), moral turpitude and revocation
by the applicable licensing authority of professional licenses (if any) material
to the Maker's ability to perform the Maker's employment obligations; or
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(viii) by any Management Stakeholder upon a
fundamental change in EMCON's current strategy of focussing a material amount of
EMCON's resources on services relating to the design, construction, ownership,
operation and maintenance of infrastructure.
3. Request for Registration.
(a) Upon the receipt by EMCON of Exchange Notices from
Management Stakeholders holding Notes, the aggregate Principal of which may be
exchanged for EMCON Common Stock with an aggregate value, based on the closing
price of the EMCON Common Stock on the principal market on which such stock is
traded on the date of such Exchange Notices, $1,000,000 or more, EMCON will:
(i) promptly file a registration statement with
the Securities and Exchange Commission (the "Commission") and effect all such
registrations, qualifications and compliances (including, without limitation,
the execution of an undertaking to file post-effective amendments, appropriate
qualifications under the applicable blue sky or other state securities laws and
appropriate compliance with exemptive regulations issued under the Securities
Act of 1933, as amended (the "Securities Act"), and any other governmental
requirements or regulations) as would permit or facilitate the sale and
distribution of all of the EMCON Common Stock issuable upon the full exchange of
the Notes by the Management Stakeholders (the "Management Shares"); provided,
however, that EMCON shall not be obligated to effect such registration,
qualification or compliance pursuant to this Section 3(a)(i)(A) in any
particular jurisdiction in which EMCON would be required to execute a general
consent to service of process unless EMCON is already subject to service in such
jurisdiction and except as required by the Securities Act and (B) after EMCON
has already effected one such registration, qualification or compliance;
(ii) promptly give notice to all Management
Stakeholders of the expected registration of the Management Shares;
(iii) use its best efforts to cause such
registration to be declared effective by the Commission;
(iv) keep such registration statement effective
for a period of one year or until the Management Stakeholders have completed the
distribution described in the registration statement, whichever first occurs;
(v) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition
of all securities offered by such registration statement;
(vi) furnish such number of prospectuses and
other documents incident thereto, including any amendment of or supplement to
the prospectus, as a Management Stakeholder from time to time may reasonably
request;
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(vii) notify each Management Stakeholder selling
EMCON Common Stock covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or incomplete in the
light of the circumstances then existing, and at the request of any such
Management Stakeholder, prepare and furnish to such Management Stakeholder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or incomplete
in the light of the circumstances then existing;
(viii) cause all such EMCON Common Stock
registered pursuant hereunder to be listed on each securities exchange, if any,
on which similar securities issued by EMCON are then listed;
(ix) otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission; and
(x) in connection with any underwritten
offering pursuant to a registration statement filed pursuant to this Section,
enter into an underwriting agreement reasonably necessary to effect the offer
and sale of EMCON Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions.
(b) During the period that EMCON's registration statement is
effective pursuant to this Section 3, the Management Stakeholders shall comply
with all applicable EMCON policies regarding trading of securities by insiders
and members of management, including the observance of "window period" and other
restrictions.
4. EMCON Registration.
(a) If, at any time after the registration statement described
in Section 3 is no longer effective, EMCON shall determine to register any of
its securities either for its own account or the account of a security holder or
holders, other than a registration relating solely to employee benefit plans, or
a registration relating solely to a Rule 145 transaction, or a registration on
any registration form that does not permit secondary sales, EMCON will:
(i) promptly give to each Management Stakeholder
written notice thereof;
(ii) use its best efforts to include in such
registration (and any related qualification under blue sky laws or other
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compliance), except as set forth in Section 4(b) below, and in any underwriting
involved therein, all the Management Shares specified in a written request or
requests, made by any Management Stakeholder and received by EMCON within twenty
(20) days after the written notice from EMCON described in clause (i) above is
mailed or delivered by EMCON. Such written request may specify all or a part of
a Management Stakeholder's Management Shares;
(iii) furnish such number of prospectuses and
other documents incident thereto, including any amendment of or supplement to
the prospectus, as a Management Stakeholder from time to time may reasonably
request;
(iv) cause all such EMCON Common Stock
registered pursuant hereunder to be listed on each securities exchange on which
similar securities issued by EMCON are then listed; and
(v) otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission.
(b) If the registration of which EMCON gives notice is for a
registered public offering involving an underwriting, EMCON shall so advise the
Management Stakeholders as a part of the written notice given pursuant to
Section 4(a)(i). In such event, the right of any Management Stakeholder to
registration pursuant to this Section 4 shall be conditioned upon such
Management Stakeholder's participation in such underwriting and the inclusion of
such Management Stakeholder's Management Shares in the underwriting to the
extent provided herein. All Management Stakeholders proposing to distribute
their securities through such underwriting shall (together with EMCON and the
other holders of securities of EMCON with registration rights to participate
therein distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by EMCON.
(c) Notwithstanding any other provision of this Section 4, if
the representative of the underwriters advises EMCON in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all the
Management Stakeholders from, or limit the number of the Management Shares to be
included in, the registration and underwriting. EMCON shall so advise the
Management Stakeholders and all other holders of EMCON securities (the "Other
Shares") requesting registration and the number of Management Shares and Other
Shares that may be included shall be allocated among the Management Stakeholders
and other selling stockholders requesting inclusion of shares pro rata on the
basis of the number of Management Shares and Other Shares that are requested to
be registered.
(d) EMCON's obligations pursuant to this Section 4 shall
expire as to each Management Stakeholder at such time as such Management
Stakeholder may sell all shares of EMCON Common Stock issued upon exchange for
such Management Stakeholder's Note during any successive two quarter period
pursuant to Rule 144 under the Securities Act.
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5. Expenses of Registration. All Registration Expenses (as hereinafter
defined) incurred in connection with any registration, qualification or
compliance pursuant to Section 3 and 4 hereof shall be borne by EMCON. All
Selling Expenses (as hereinafter defined) relating to securities so registered
shall be borne by the Management Stakeholders who own such Management Shares pro
rata on the basis of the number of Management Shares so registered on their
behalf. For purposes of this Section 5, Registration Expenses shall mean all
expenses incurred in effecting any registration pursuant to this Agreement,
including, without limitation, all registration, qualification, and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for EMCON,
blue sky fees and expenses, and expenses of any regular or special audits
incident to or required by any such registration, but shall not include Selling
Expenses and fees and disbursements of counsel for the Management Stakeholders.
For purposes of this Section 5. Selling Expenses shall mean all underwriting
discounts and selling commissions applicable to the sale of the Management
Shares and fees and disbursements of counsel for any Management Stakeholder
(other than the fees and disbursements of counsel included in Registration
Expenses).
6. Indemnification.
(a) EMCON will indemnify each Management Stakeholder with
respect to which registration, qualification, or compliance has been effected
pursuant to this Agreement, and each underwriter, if any, and each person who
controls within the meaning of Section 15 of the Securities Act, any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus offering circular, or other document (including any
related registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
EMCON of the Securities Act or any rule or regulation thereunder applicable to
EMCON and relating to action or inaction required of EMCON in connection with
any such registration, qualification, or compliance, and will reimburse each
such Management Stakeholder, each such underwriter, and each person who controls
any such underwriter, for any legal and any other expenses reasonably incurred
in connection with investigating and defending or settling any such claim, loss,
damage, liability or action, provided that EMCON will not be liable in any such
case to the extent that any such claim, loss, damage, liability, or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to EMCON by such Management Stakeholder or underwriter and
stated to be specifically for use therein. It is agreed that the indemnity
agreement contained in this Section 6 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of EMCON (which consent has not been
unreasonably withheld).
(b) Each Management Stakeholder will, if Management Shares
held by him or her are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify EMCON, each of its
directors, officers, partners, legal counsel, and accountants and each
underwriter, if any, of EMCON's securities covered by such a registration
statement, each person who controls EMCON or such underwriter within the meaning
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of Section 15 of the Securities Act, and each other Management Stakeholder
against all claims, losses, damages any liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular, or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
EMCON and such Management Stakeholders, directors, officers, partners, legal
counsel, and accountants, persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability, or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular, or other document in reliance upon and
in conformity with written information furnished to EMCON by such Management
Stakeholder and stated to be specifically for use therein provided, however,
that the obligations of such Management Stakeholder hereunder shall not apply to
amounts paid in settlement of any such claims, losses, damages, or liabilities
(or actions in respect thereof) if such settlement is effected without the
consent of such Management Stakeholder (which consent shall not be unreasonably
withheld).
(c) Each party entitled to indemnification under this Section
6 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability with respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
(d) If the Indemnification provided for in this Section 6 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expenses as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
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Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provision in the underwriting
agreement shall control.
7. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of
restricted securities to the public without registration, EMCON agrees to use
its best efforts to:
(a) Make and keep public information regarding EMCON
available as those terms are understood and defined in Rule 144 under the
Securities Act;
(b) File with the Commission in a timely manner all reports
and other documents required of EMCON under the Securities Act and the
Securities Exchange Act of 1934, as amended; and
(c) So long as a Management Stakeholder owns any restricted
securities, furnish to the Management Stakeholder forthwith upon written request
a written statement by EMCON as to its compliance with the reporting
requirements of Rule 144; and of the Securities Act and the Exchange Act.
8. OWT'S Registration Rights Obligations. In the event that OWT shall
be required to register shares of its stock pursuant to Section 2.3 of the
Notes, then the provisions of Sections 4 to 7 hereof shall apply with respect to
such registration.
9. Miscellaneous.
(a) Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed within three (3) business days by registered
mail, return receipt requested, (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service (receipt requested), or (d)
three (3) business days after being sent by registered or certified mail, return
receipt requested, in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Management Stakeholders: To each Management Stakeholder at the
address set forth on Schedule 1
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EMCON: EMCON
400 S. El Camino Real, Suite 1200
San Mateo, California 94402
Attention: R. Michael Momboisse, Esq.
(b) Entire Agreement. This Agreement constitutes the
entire agreement of the parties with respect to the matters contemplated herein.
This Agreement supersedes any and all prior understandings as to the subject
matter of this Agreement.
(c) Amendments, Waivers and Consents. Any provision in this
Agreement to the contrary notwithstanding, changes in or additions to this
Agreement may be made, and compliance with any covenant or provision herein set
forth may be omitted or waived, if agreed to by EMCON and Management
Stakeholders holding Notes representing in aggregate in excess of Fifty Percent
(50%) of the aggregate amount due under all of the Notes.
(d) Binding Effect; Assignment. This Agreement shall be
binding upon and inure to the benefit of the personal representatives and
successors of the respective parties hereto, except that no Management
Stakeholder shall have the right to assign its rights hereunder or any interest
herein without obtaining the prior written consent of EMCON. Notwithstanding the
foregoing, each Management Stakeholder may assign his rights hereunder
(i) to his spouse, parents, grandparents,
children or grandchildren or other family members (including relatives by
marriage), or to a custodian, trustee or other fiduciary for his account or the
account of a member of his family, or
(ii) by way of bequest or inheritance upon death.
(e) General. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. In this Agreement the singular includes the
plural, the plural the singular.
(f) Severability. If any provision of this Agreement shall be
found by any court of competent jurisdiction to be invalid or unenforceable, the
parties hereby waive such provision to the extent that it is found to be invalid
or unenforceable. Such provision shall, to the maximum extent allowable by law,
be modified by such court so that it becomes enforceable, and, as modified,
shall be enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.
(g) Counterparts. This Agreement may be execute in
counterparts, all of which together shall constitute one and the same
instrument.
(h) Governing Law. This Agreement shall be governed by
the internal laws of the State of Delaware without regard to the principles of
conflict of laws.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
EMCON
By: /S/ Eugene M. Herson
-----------------------
Title: President & Chief Executive Officer
ORGANIC WASTE TECHNOLOGIES, INC.
By: /s/ Mark Shipps
----------------
Title: President
MANAGEMENT STAKEHOLDERS
/s/
----------------
MARK H. SHIPPS
/s/
------------------
ANTHONY A. ALEXANDER
/s/
------------------
JAMES HELMICK
/s/
------------------
RAYMOND J. NARDELLI
/s/
------------------
STEPHEN LINGAFELTER
/s/
------------------
RANDALL W. CHAPMAN
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EXHIBIT 10.2
CREDIT AGREEMENT
THIS AGREEMENT is made as of February 29, 1996 between EMCON, a California
corporation ("Borrower"), and THE BANK OF CALIFORNIA, N.A. ("Bank").
ARTICLE ONE - DEFINITIONS
The definitions appearing in this Agreement or any supplement or addendum to
this Agreement, shall be applicable to both the singular and plural forms of the
defined terms:
"Advance" means an extension of credit under this Agreement or any supplement to
this Agreement.
"Affiliate" means any Person which directly or indirectly controls, is
controlled by, or is under common control with, Borrower. "Control," "controlled
by" and "under common control with" means direct or indirect possession of the
power to direct or cause the direction of management or policies (whether
through ownership of voting securities, by contract or otherwise); provided that
control shall be conclusively presumed when any Person or affiliated group
directly or indirectly owns five percent or more of the securities having
ordinary voting power for the election of directors of a corporation.
"Alaska" means EMCON Alaska, Inc., an Alaska corporation, one of Borrower's
Subsidiaries.
"Agreement" means this Credit Agreement as it may be amended or supplemented
from time to time.
"CAS" means Columbia Analytical Services, Inc., a Washington corporation, one of
Borrower's Subsidiaries.
"Closing Date" means the date of this Agreement.
"Consolidated", "consolidating", "on a consolidated basis" and terms and phrases
of like import mean, when describing financial statements, information or
covenants, those of Borrower and its Subsidiaries.
"Consolidated financial statements" means financial statements that disregard
the distinction between separate legal entities and treat a parent and its
subsidiary(ies) as a single economic entity for financial presentation purposes.
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"Consolidating financial statements" means financial statements that show the
accounting for each related legal entity side-by-side, then set forth current
inter-company transactions, and finally, consolidated figures.
"Credit Limit" means the limitation on all credit extensions defined in Section
2.1.1 of this Agreement.
"Effective Net Worth" means, on a consolidated basis, the net book value of (a)
all Borrower's assets, exclusive of intangibles, and loans to and notes and
receivables from Related Persons, plus all Subordinated Debt, minus (b) all
Borrower's liabilities determined in accordance with GAAP, excluding
Subordinated Debt.
"Event of Default" means any event described in Article 7.
"Facility" means the credit accommodations being provided Borrower under the
terms and conditions of this Agreement or any supplement to this Agreement,
which credit accommodations are the Line of Credit and the Term Loan as more
fully described in Article 2 or any supplement to this Agreement.
"Fixed Rate Option Letter" means the Eurodollar Rate Option Letter agreement
and/or the Amortizing Term Loan Fixed Rate Option Letter agreement of even date
with this Agreement between Bank and Borrower.
"GAAP" means generally accepted accounting principles and practices consistent
with those principles and practices promulgated or adopted by the Financial
Accounting Standards Board and the Board of the American Institute of Certified
Public Accountants, their respective predecessors and successors. Each
accounting term used but not otherwise expressly defined herein shall have the
meaning given it by GAAP.
"Letters of Credit" means all standby letters of credit issued pursuant to
Section 2.1.1(b) of this Agreement.
"Lien" means any voluntary or involuntary security interest, mortgage, pledge,
claim, charge, encumbrance, title retention agreement, or other third party
encumbrance, covering all or any part of the property of Borrower or any other
Person.
"Loan Documents" means, individually and collectively, this Agreement, any
supplement to this Agreement, the Notes, any rate option agreements, guaranties,
security or pledge agreements, and all other contracts, instruments, addenda and
documents executed in connection with this Agreement or the extensions of credit
which are the subject of this Agreement.
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"Note" means the promissory notes in form and substance satisfactory to Bank
executed by Borrower to evidence the Line of Credit and the Term Loan. Each Note
shall be named for the Facility it represents.
"OWT" means Organic Waste Technologies, Inc.
"OWT Acquisition" means Borrower's purchase of a majority of the issued and
outstanding shares of capital stock and securities convertible into or
exercisable for such stock from certain stakeholders of OWT pursuant to that
certain Stock Purchase Agreement dated January 30, 1996.
"OWT Convertible Notes" means those certain promissory notes issued by OWT and
guaranteed by Borrower to certain shareholders of OWT in connection with
Borrower's OWT Acquisition.
"Person" means any individual or entity, including, without limitation, Bank
where the context so permits and in Bank's sole discretion.
"Permitted Liens" means:
(i) Liens for taxes, assessments, governmental charges or levies
not yet due or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Borrower or the appropriate Subsidiary, as the case may be, in
accordance with GAAP;
(ii) statutory Liens of landlords and carriers' vendors',
warehousemen's, mechanics', materialmen's, repairmen's, or other like Liens
arising in the ordinary course of business which are not overdue for a period of
more than 60 days or which are being contested in good faith and by appropriate
proceedings in a manner which will not jeopardize or diminish the interest of
Bank in any of the collateral that is subject to the Loan Documents or interfere
with the ordinary conduct of the business of the Borrower or any Subsidiary;
(iii) pledges or deposits and Liens (other than any Liens imposed by
ERISA) under bonds required in connection with worker's compensation,
unemployment insurance and other social security legislation;
(iv) Liens (other than any Lien imposed by ERISA or by
environmental laws) incurred on deposits to secure the performance of tenders,
bids, trade contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance and return-of-money bonds and
other obligations of a like nature incurred in the ordinary course of business;
(v) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which do not
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substantially detract from the value of the property subject thereto or
interfere with the ordinary conduct of the business of the Borrower or any
Subsidiary; and
(vi) Liens in existence on the date hereof listed on Schedule 6.2,
provided that no such Lien is extended to cover any additional property after
the date hereof and that the amount of debt secured thereby is not increased.
"Related Person" means, with respect to any Person, any Affiliate of such
Person, or any officer, employee, director or shareholder of such Person or any
Affiliate, or a relative of any of them.
"Sublimit" or "Sublimits" means, individually and collectively, the separate
limitations on credit extensions defined in the subsection(s) of Section 2.1.1
of this Agreement.
"Subordinated Debt" means any indebtedness of Borrower that has been fully
subordinated in right of payment to Borrower's obligations to Bank pursuant to a
written agreement in form and substance satisfactory to Bank.
"Subsidiary" means, with respect to Borrower, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are directly or indirectly owned by Borrower. "Subsidiary" includes,
without limitation, each of the Persons listed on Schedule 3.8 to this
Agreement, as the same may be amended or supplemented from time to time.
"Tangible Net Worth" means, on a consolidated basis, the net book value of (a)
all Borrower's assets, exclusive of intangibles and loans to and notes and
receivables from Related Persons, plus Subordinated Debt, minus (b) all
Borrower's liabilities, determined in accordance with GAAP, but excluding
Subordinated Debt.
"Termination Date" means the earlier of (a) the date Bank may terminate making
Advances or extending credit pursuant to the rights of Bank under Article 7; or
(b) May 31, 1997 for the Line of Credit; or (c) June 30, 2001 for the Term Loan.
"UCC" means the Uniform Commercial Code as enacted in the applicable
jurisdiction, in effect on the Closing Date and as amended from time to time.
ARTICLE TWO - THE FACILITIES AND RELATED TERMS
AND CONDITIONS
Subject to the terms and conditions of this Agreement, the following Facilities
shall be available to Borrower:
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2.1 The Facilities.
2.1.1 Line of Credit. Subject to the terms and conditions of this
Agreement, from time to time prior to the Termination Date, upon request by
Borrower, Bank will provide extensions of credit ("Line of Credit") to Borrower
in the form of Advances, Letters of Credit and advances on account of business
credit cards that, in the aggregate, shall not exceed at any time Ten Million
Dollars ($10,000,000.00) (the "Credit Limit"), in the following manner:
(a) Advances. Provide up to $10,000,000.00 of the Credit Limit in
aggregate outstanding principal amounts ("Advance Sublimit") in
Advances to Borrower. Each Advance shall be payable no later than the
Termination Date. Borrower may borrow, repay and reborrow under the
Advance Sublimit, as Borrower may elect, in minimum amounts of
$10,000.00 or integral multiples thereof. Advances shall be used by
Borrower for the purpose of working capital for its own operations and
those of its Subsidiaries other than OWT; provided, that up to
$5,000,000 of Advances outstanding at any time may be used by Borrower
or its Subsidiaries (other than OWT) for purposes other than working
capital; and further provided, that Borrower may reloan Advances to
OWT, so long as (i) the aggregate Advances reloaned do not exceed
$1,000,000.00 at any time outstanding, and (ii) no Advances are relent
to OWT while OWT is in default under any agreement involving the
borrowing of money or the advance of credit where such default gives
the holder of such indebtedness the right to accelerate the same.
(b) Standby Letters of Credit. Provide up to $200,000.00 of the Credit
Limit in aggregate outstanding unpaid face amounts ("Standby Letter of
Credit Sublimit") for the purpose of issuing irrevocable, standby
Letters of Credit, in form and substance satisfactory to Bank, for the
account of Borrower in United States Dollars. No standby Letter of
Credit will expire later than thirty (30) days after the Termination
Date. For each standby Letter of Credit, Borrower shall execute,
deliver and perform in accordance with Bank's standard form Standby
Letter of Credit Application & Agreement (or any successor standard
agreement executed by Borrower), all terms of which are incorporated
herein by this reference.
(c) Business Credit Cards. The amount of the Credit Limit available for
the making of Advances and issuance of Letters of Credit under the Line
of Credit shall be reduced by the amount of Bank's commitment to
Borrower in effect from time to time under a business credit card
facility for travel and entertainment business expenses. As of the
Closing Date, the amount committed under such separate facility is
$55,000.00.
(d) Credit Limits. If at any time any Sublimit, or the Credit Limit, as
a whole, has been exceeded, Borrower shall, within five (5) days after
demand by Bank, repay such excess, or, as Bank might specify, cash
secure such excess.
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2.1.2 Term Loan. A term loan in the original principal amount of Ten
Million Dollars ($10,000,000) ("Term Loan"), the proceeds of which shall be used
by Borrower to finance Borrower's acquisition of 100% of the outstanding capital
stock and options exercisable for stock of OWT. The Term Loan shall be evidenced
by the Term Loan Note and shall be amortized and fully repaid in accordance with
the terms thereof by the Termination Date.
2.2 Requests for Advances and Method of Advancing.
(a) Requests for Advances. Advances may be requested in writing, by
telephone, telex or otherwise on behalf of Borrower. Borrower
recognizes and agrees that Bank cannot effectively determine whether a
specific request purportedly made by or on behalf of Borrower is
actually authorized or authentic. As it is in Borrower's best interest
that Bank advance funds in response to these forms of request, Borrower
assumes all risks regarding the validity, authenticity and due
authorization of any request purporting to be made by or on behalf of
Borrower. Borrower promises to repay any sums, with interest, that are
advanced by Bank pursuant to any request which Bank in good faith
believes to be authorized, or when the proceeds of any Advance are
deposited to the account of Borrower with Bank, regardless of whether
any Person other than Borrower may have authority to draw against such
account.
(b) Automatic Deposit. Each Advance shall be made by a deposit
to Borrower's account No. 027-007753 at Bank's San Mateo Regional
Office ("Deposit Account"), unless Borrower shall otherwise direct
Bank in writing by an authorized signatory.
(c) Wire Transfer of Funds. The obligation of Bank to make any Advance
to Borrower, the proceeds of which are, at Borrower's request, to be
wire transferred to Borrower or any other Person, shall be subject to
all applicable laws and regulations, and the policy of the Board of
Governors of the Federal Reserve System on Reduction of Payments System
Risk in effect from time to time ("Applicable Law and Policy").
Borrower acknowledges that, as a result of Applicable Law and Policy,
the transmission of the proceeds of any Advance which Borrower has
requested to be wire-transferred may be significantly delayed.
2.3 Interest On The Facilities.
2.3.1 Line of Credit. Except as otherwise provided in any Fixed Rate
Option Letter in effect from time to time, interest on the outstanding principal
balance of Advances under the Line of Credit shall accrue daily from the date of
the first Advance until the Termination Date at the Prime Rate (defined below),
and shall be payable as set forth in the Line of Credit Note.
2.3.2 Term Loan. Except as otherwise provided in any Fixed Rate Option
Letter in effect from time to time, the outstanding principal balance of the
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Term Loan shall bear interest from the date of disbursement until the
Termination Date at the Prime Rate (defined below). Interest shall be payable as
set forth in the Term Loan Note.
2.4 Interest Rate Related Terms & Provisions.
(a) Definition of "Prime Rate". The term "Prime Rate" means a
fluctuating rate per annum that Bank announces to be in effect from
time to time as its prime rate. The Prime Rate is set by Bank based
upon various factors including general economic and market conditions,
and is used as a reference point for pricing certain loans. Bank may
price its loans at, above or below the Prime Rate.
(b) Interest Rate Calculation. Interest tied to the Prime Rate, charges
and fees under this Agreement and any Loan Document, shall be
calculated for actual days elapsed on the basis of a 360-day year,
which results in higher interest, charge or fee payments than if a
365-day year were used. Each change in the rate of interest, charges or
fees based on the Prime Rate shall become effective on the date each
Prime Rate change is announced within the Bank. In no event shall
Borrower be obligated to pay interest, charges or fees at a rate in
excess of the highest rate permitted by applicable law from time to
time in effect.
(c) Prepayment.
(i) General. Unless otherwise agreed by Bank, all
principal prepayments shall be applied on the most remote
principal installment(s) then unpaid on the Facility on which
the prepayment is being made. If such Facility bears interest
at a fixed rate and Bank, for any reason, including
acceleration or foreclosure, receives all or any portion of
principal prior to its scheduled payment date, then, in
consideration thereof, Borrower shall pay to Bank on demand a
prepayment fee as liquidated damages as described in the Note
evidencing such Facility or any Fixed Rate Option Letter,
since such prepayment may result in Bank incurring additional
costs, expenses or liabilities.
(ii) Mandatory Prepayments of Term Loan.
(A) Commencing with Borrower's financial
reporting year ending December 31, 1996 and for each year
thereafter, if Borrower's consolidated actual net income
before taxes ("ANIT") for such year as reflected on Borrower's
annual financial statements required under Section 5.4(b)
exceeds more than one hundred twenty-five percent (125%) of
the amount of consolidated net income before taxes projected
for such financial reporting year ("PNIT") in the annual
projections previously delivered to Bank under Section 5.4(d),
then Borrower shall prepay principal of the Term Loan in an
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amount equal to twenty-five percent (25%) of the amount by
which ANIT exceeded 125% of PNIT.
(B) Such prepayment shall be due and payable
within ten (10) days after delivery by Borrower of the annual
financial statements under Section 5.4(b), but not later than
one-hundred thirty (130) days after the end of the financial
reporting year with respect to which such excess net income
was earned. There shall be no prepayment premium, penalty or
other charge on such prepayment except to the extent required
to be paid under the applicable provisions of any Fixed Rate
Option Letter in effect with respect to principal amounts
prepaid. Subject to the first sentence of Section 2.4(c)(i),
Bank agrees to apply each such prepayment first to principal
amounts of the Term Loan bearing interest at the Prime Rate,
and then to principal amounts bearing interest at a fixed
rate; in lieu of the foregoing, so long as no Event of Default
has occurred and is continuing, Borrower may request that Bank
hold all or a portion of any prepayment (such amount being
referred to herein as "Cash Collateral") in a segregated and
blocked deposit account at Bank, rather than immediately
applying such amount to payment of the Term Loan, until the
earliest succeeding date(s) on which fixed rate interest
periods expire and the Cash Collateral amounts can be applied
to the Term Loan without Borrower incurring any premium or
charge therefor. Interest earned on Cash Collateral shall be
for Borrower's account and paid to Borrower promptly after
application of the Cash Collateral to the Term Loan.
(C) For purposes of determining the excess,
if any, of ANIT over PNIT under this Section 2.4(c)(ii),
Borrower shall calculate ANIT derived from operations of the
businesses of Borrower and its Subsidiaries on a comparable
basis to those businesses assumed to be in operation under the
projections, business plan and forecasts on which PNIT was
based; by way of example and not of limitation, any items of
actual income or expense associated with an acquisition of
stock, assets or a new line of business during the financial
reporting year which was not assumed in deriving PNIT shall be
separately identified and excluded from ANIT for purposes of
this Section; provided, that any gains or losses from any
sale, lease, transfer or other disposition of assets by
Borrower or any Subsidiary outside of the ordinary course of
its business shall not be excluded in determining ANIT. Bank
shall have the right to review and approve, in its sole but
reasonable judgment, Borrower's calculation of ANIT and the
amount of any prepayment required under this Section
2.4(c)(ii), and Bank's acceptance of Borrower's tender of such
prepayment shall not, by itself, be deemed a waiver of such
right.
(d) Default Interest. Any unpaid payments of principal or interest
shall bear interest from their respective maturities, whether scheduled
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or accelerated, at a fluctuating rate per annum at all times equal to
the Prime Rate plus 5%, until paid in full, whether before or after
judgment. Borrower shall pay such interest on demand.
(e) Fixed Rate Options. In addition to an interest rate tied to the
Prime Rate, at Borrower's option, portions of the outstanding principal
balance of (i) the Line of Credit Facility may bear interest tied to
the Eurodollar Rate from time to time offered by Bank, and (ii) the
Term Loan may bear interest tied to the Eurodollar Rate or the
Amortizing Term Loan Fixed Rate from time to time offered by Bank. The
fixed rates are more fully explained in the Fixed Rate Option Letters
executed in connection with this Agreement, all terms of which are
incorporated by this reference.
2.5 Bank's Records/Payment Applications/Automatic Debit.
(a) Bank's Records. Principal, interest, and all other sums owed Bank
under any Loan Document shall be evidenced by entries in records
maintained by Bank for such purpose. Each payment on and any other
credits with respect to principal, interest and all other sums
outstanding under any Loan Document shall be evidenced by entries in
such records. Bank's records shall be conclusive evidence thereof.
(b) Payment Applications. Notwithstanding the rights given to Borrower
pursuant to California Civil Code sections 1479 and 2822 or equivalent
provisions in the laws of the state specified in the governing law
clause of this document (and any amendments or successors thereto), to
designate how payments will be applied, Borrower hereby waives such
rights and Bank shall have the right in its sole discretion to
determine the order and method of the application of payments to this
and/or any other credit facilities that may be provided by Bank to
Borrower and to revise such application prospectively or retroactively
at its discretion. Notwithstanding the foregoing, and subject to the
first sentence of Section 2.4(c)(i), so long as no Event of Default has
occurred and is continuing, Bank agrees to apply payments first to
outstanding amounts under the Facilities bearing interest at the Prime
Rate, and then to amounts bearing interest at a fixed rate.
(c) Payments by Automatic Debit. Borrower hereby expressly authorizes
Bank to debit the Deposit Account for the amount of each payment of
principal and interest and all other sums owed Bank under any Loan
Document. Borrower shall have sufficient collected balances in said
account in order that each such payment shall be available when due.
2.6 Fees On The Facilities.
2.6.1 Line of Credit. Borrower shall pay to Bank no later than the
Closing Date a non-refundable fee of Fifteen Thousand Dollars ($15,000) for the
Line of Credit.
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2.6.2 Letters of Credit. Without limiting Borrower's obligations for
any Letter of Credit, as such obligations are contained in any specific Loan
Document applicable thereto, Borrower shall pay fees, charges, and expense
reimbursement and recovery as determined by Bank for the issuance, amendment,
continuance, and handling of Letters of Credit, requests, claims and
communications thereunder, and negotiation of drafts presented thereunder.
2.6.3 Term Loan. Borrower shall pay to Bank no later than the Closing
Date a non-refundable fee of Fifty Thousand Dollars ($50,000) for the Term Loan.
2.7 Security.
As security for all Facilities, Borrower will (a) grant to Bank or ensure that
Bank is granted a perfected security interest of first priority in substantially
all of Borrower's now owned and hereafter arising personal property assets,
including, without limitation, accounts, inventory, equipment, and all of
Borrower's shares of capital stock of OWT, Alaska and CAS; and (b) cause CAS and
Alaska to grant or ensure that Bank is granted a perfected security in all
personal property assets of such Subsidiaries. Such security interests shall be
evidenced by pledge agreements and other security agreements, as appropriate, in
form and substance satisfactory to Bank.
ARTICLE THREE - REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that as of the Closing Date and the date of
each Advance or extension of credit under any of the Facilities:
3.1 Due Organization. Each of Borrower and each Subsidiary is duly organized and
validly existing in good standing under the laws of the jurisdiction of its
organization, and is duly qualified to conduct business in each jurisdiction in
which its business is conducted, except where the failure to be so qualified
would not have a material adverse affect on the financial condition or business
of Borrower or such Subsidiary.
3.2 Authorization, Validity and Enforceability. The execution, delivery and
performance by Borrower and each Subsidiary of each Loan Document executed by it
are within Borrower's and such Subsidiary's powers, have been duly authorized,
and are not in conflict with its articles of incorporation or by-laws, or the
terms of any charter or other organizational document of Borrower or such
Subsidiary, as applicable; and all such Loan Documents constitute valid and
binding obligations of Borrower or such Subsidiary, as applicable, enforceable
in accordance with their terms.
3.3 Compliance with Applicable Laws. Borrower and each Subsidiary has complied
with all licensing, permit and fictitious name requirements necessary to
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lawfully conduct the business in which it is engaged and with all laws and
regulations applicable to any sales, leases or the furnishing of services by
Borrower and each Subsidiary, including without limitation those requiring
consumer or other disclosures, except where the failure to so comply would not
have a material adverse effect on Borrower's financial condition, business or
operations.
3.4 Licenses, Trademarks. Borrower and each Subsidiary has all patents,
licenses, trademarks, trademark rights, trade names, trade name rights,
copyrights, permits and franchises required in order for Borrower and each
Subsidiary to conduct its business and operate its properties as now or proposed
to be conducted without conflict with the rights of others.
3.5 No Conflict. The execution, delivery, and performance by Borrower and each
Subsidiary of all Loan Documents to which it is a signatory are not in conflict
with any law, rule, regulation, order or directive, or any indenture, agreement,
or undertaking to which Borrower or such Subsidiary is a party or by which it
may be bound or affected.
3.6 No Litigation, Claims or Proceedings. There is no litigation, tax
claim or proceeding pending, or, to the knowledge of Borrower, threatened
against or affecting Borrower or any Subsidiary or its respective property,
except a disclosed in writing to Bank prior to the Closing Date.
3.7 Correctness of Financial Statements. Borrower's preliminary, unaudited
financial statements as of December 31, 1995 which have been delivered to Bank
fairly and accurately reflect Borrower's financial condition as of such date;
and, since that date, there has been no material adverse change in Borrower's
financial condition or business.
3.8 No Subsidiaries. Borrower is not a majority owner of or in a control
relationship with any other business entity, except the Persons specifically
identified as Subsidiaries on Schedule 3.8 to this Agreement. Except as shown on
Schedule 3.8, Borrower owns directly or indirectly through one or more
Subsidiaries, all of the shares of all Subsidiaries outstanding as of the
Closing Date, and will continue to own all such shares (other than shares
permitted to be issued to employees under Section 6.4); and all such shares
owned by Borrower are validly issued, fully paid and non-assessable free and
clear of all Liens except in favor of Bank.
3.9 No Event of Default. No Event of Default has occurred and is continuing.
ARTICLE FOUR - CONDITIONS PRECEDENT
4.1 Conditions to Initial Advance. The obligation of Bank to make its first
Advance or extend credit under either of the Facilities hereunder is, in
addition to the conditions precedent specified in Section 4.2, subject to the
fulfillment of the following conditions and to the receipt by Bank of the
documents described below, duly executed and in form and substance satisfactory
to Bank and its counsel:
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(a) Resolutions. A certified copy of the resolutions of the Board of
Directors of Borrower, authorizing the execution, delivery and
performance of such Loan Documents to which it is a party.
(b) Incumbency and Signatures. Certificate of the Secretary of
Borrower, certifying the names of the corporate officer or officers
authorized to sign the Loan Documents, together with a sample of the
true signature of each such officer.
(c) Opinion of Counsel. The opinion of Gray Cary Ware & Freidenrich,
counsel for Borrower, as to the existence and good standing of
Borrower, and the due authorization, execution and delivery by it of
the Loan Documents to which it is signatory, and such other matters as
Bank or its legal counsel may reasonably request.
(d) Articles and By-Laws. Certified copies of the Articles of
Incorporation and By-Laws of Borrower, as amended through the Closing
Date.
(e) Credit Agreement and Notes. A counterpart of this Agreement with
all schedules completed and attached thereto, and the Notes.
(f) Security Agreements. A Security Agreement executed by Borrower,
together with filing copies of such Uniform Commercial Code financing
statements, collateral assignments and termination statements, with
respect to the Collateral (as defined in such Security Agreement) as
Bank shall request.
(g) Pledge Agreement. A Pledge Agreement executed by Borrower
with respect to its shares of capital stock in OWT, CAS and Alaska.
4.2 Conditions to All Loans. The obligation of Bank to make its initial Advance
and extension of credit hereunder and each subsequent Advance or extension of
credit is subject to the following further conditions precedent that:
(a) No Default. No Event of Default or event which with the giving of
notice, passage of time or both would constitute an Event of Default
has occurred and is continuing or will result from the making of any
such Advance or extension of credit, and the representations and
warranties of Borrower contained in Article 3 of this Agreement are
true and correct as of the date of such extension of credit.
(b) No Adverse Material Change. No material adverse change in
Borrower's financial condition or business shall have occurred since
the date of the most recent financial statements submitted to Bank.
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4.3 Conditions Subsequent.
(a) Pledged Shares. As soon as available, but not later than thirty
(30) days after the Closing Date, Borrower shall have delivered to
Bank, all share certificates evidencing shares of capital stock owned
by Borrower in OWT, CAS and Alaska, together with stock powers therefor
executed in blank and undated with signature guaranties.
(b) Resolutions. As soon as available, but not later than thirty (30)
days after the Closing Date, certified copies of the resolutions of the
Boards of Directors of CAS and Alaska, authorizing the execution,
delivery and performance of such Loan Documents to which they are a
party.
(c) Incumbency and Signatures. As soon as available, but not later than
thirty (30) days after the Closing Date, certificates of the
Secretaries of CAS and Alaska, certifying the names of the corporate
officer or officers authorized to sign the Loan Documents, together
with a sample of the true signature of each such officer.
(d) Opinion of Counsel. As soon as available, but not later than thirty
(30) days after the Closing Date, an opinion of Gray Cary Ware &
Freidenrich, counsel for CAS and Alaska, as to the existence and good
standing of CAS and Alaska, and the due authorization, execution and
delivery by them of the Loan Documents to which they are signatory, and
such other matters as Bank or its legal counsel may reasonably request.
(e) Security Agreements. As soon as available, but not later than
thirty (30) days after the Closing Date, a Security Agreement executed
by each of CAS and Alaska, together with filing copies of such Uniform
Commercial Code financing statements, collateral assignments and
termination statements, with respect to the Collateral (as defined in
such Security Agreements) as Bank shall request.
(f) Lien Searches. As soon as available, but not later than sixty (60)
days after the Closing Date, certified Uniform Commercial Code lien,
judgment, bankruptcy and tax lien searches of Borrower, CAS and Alaska
from each of the offices where the financing statements referred to in
Sections 4.1(f) and 4.3(e) have been filed, reflecting the filing of
such statements and no prior Liens of record other than herein
permitted under Section 6.2.
ARTICLE FIVE - AFFIRMATIVE COVENANTS
During the term of this Agreement and until its performance of all obligations
to Bank under this Agreement and the other Loan Documents , Borrower will,
unless Bank otherwise consents in writing:
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5.1 Use of Proceeds. Use the proceeds of the Facilities only as set
forth in Article 2 of this Agreement; and not directly or indirectly to purchase
or carry any margin stock, as defined from time to time by the Board of
Governors of the Federal Reserve System in Federal Regulation U.
5.2 Financial Covenants. Maintain as of the end of each financial
reporting period on a consolidated basis:
(a) Working Capital. Current assets in an amount not less than
Twenty-five Million Dollars ($25,000,000.00) in excess of current
liabilities.
(b) Tangible Net Worth/Debt To Worth. A Tangible Net Worth of not less
than Forty-One Million Dollars ($41,000,000); and not permit Borrower's
total indebtedness (exclusive of Subordinated Debt) to exceed one (1)
times Borrower's Tangible Net Worth.
(c) Profitability. Profitable operations on a quarterly basis.
(d) Cash Flow Coverage Ratio. A ratio of (i) cash flow (net income
before deduction of interest expense, taxes,depreciation and
amortization, extraordinary items and other non-cash charges) for the
twelve (12) month period then ended, to (ii) interest expense during
such 12-month period, plus the current portion of long term debt
determined as of the end of such period, of at least 1.6 to 1.0.
5.3 Notice to Bank. Promptly give written notice to Bank of:
(a) Any litigation or administrative or regulatory proceeding (each a
"Proceeding" and collectively, the "Proceedings") affecting Borrower or
any Subsidiary where the amount claimed against Borrower and/or any
Subsidiary (i) in any Proceeding is $500,000.00 or more or (ii) in all
such Proceedings is $2,000,000.00 or more, or where the granting of the
relief requested would have a material adverse effect on Borrower's
financial condition or business; together with a semi-annual litigation
report prepared by Borrower's general counsel or outside counsel,
summarizing pending or threatened Proceedings against Borrower and such
counsel's assessment as to the likely outcome of such Proceedings.
(b) Any substantial dispute which may exist between Borrower and
any governmental or regulatory authority.
(c) Any Event of Default.
(d) Any change in the location of any of Borrower's principal places of
business or of the establishment of any new, or the discontinuance of
any existing, principal place of business.
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(e) Any other matter which has resulted or might result in a material
adverse change in Borrower's or any Subsidiary's financial condition or
business.
5.4 Financial Statements. Deliver to Bank or cause to be delivered to Bank, in
form and detail reasonably satisfactory to Bank, the following financial
information, which Borrower warrants shall be accurate and complete in all
material respects:
(a) Interim Financial Statements. As soon as available but no later
than twenty-five (25) days after the end of each month, Borrower's
consolidated and consolidating balance sheet as of the end of such
period, and Borrower's consolidated and consolidating income statement
for such period and for that portion of Borrower's financial reporting
year ending with such period, prepared and attested by a responsible
financial officer of Borrower as being complete and correct and fairly
presenting Borrower's financial condition and the results of Borrower's
operations.
(b) Year-End Financial Statements. As soon as available but no later
than one hundred twenty (120) days after and as of the end of each
financial reporting year, a complete copy of Borrower's consolidated
and consolidating audit report, which shall include balance sheet,
income statement, statement of changes in equity and statement of cash
flows for such year, prepared and certified by an independent certified
public accountant selected by Borrower and satisfactory to Bank (the
"Accountant"). The Accountant's certification shall not be qualified or
limited due to a restricted or limited examination by the Accountant of
any material portion of Borrower's records or otherwise. The
certification shall include, or be accompanied by, (i) a statement from
the Accountant that during the examination there was observed no Event
of Default, or a statement of the Event of Default, if any is found,
and (ii) a letter from the Accountant detailing the Accountant's
conclusions regarding Borrower's accounting policies and procedures,
internal controls, operating policies, together with an evaluation of
Borrower's present accounting system, citing problem areas, if any, and
recommendations for improvement, if any. Borrower shall not change its
financial reporting year end from the current December 31st without
Bank's prior written consent.
(c) Quarterly Compliance Certificates. On a quarter-annual basis,
simultaneously with the delivery of the financial statements for the
months ending March 31, June 30, September 30 and December 31 referred
to in clause (a) above, and for the fiscal year end referred to in
clause (b) above, a certificate of the chief financial officer of
Borrower (i) setting forth in reasonable detail any calculations
required to establish whether Borrower was in compliance with the
requirements of Sections 5.2, 6.1(f), 6.4, 6.6 and 6.8 on the date of
such financial statements; (ii) stating whether any Event of Default
exists on the date of such certificate and if any Event of Default
exists, setting forth the details thereof and the action which Borrower
is taking or proposes to take with respect thereto; and (iii) in the
case of year-end financial statements under clause (b), a comparison of
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ANIT for such year-ended and PNIT for same year as required under
Section 2.4(c)(ii) of this Agreement.
(d) Government Required Reports. Promptly after sending, making
available, or filing, copies of all reports, proxy statements, and
financial statements that Borrower sends or makes available to its
stockholders and all registration statements and reports that Borrower
files with the Securities and Exchange Commission, or any other
governmental or regulatory authority, including Borrower's reports on
forms 10-K and 10-Q.
(e) Financial Projections. As soon as available, but no later than
December 31 of the prior year, a complete copy of Borrower's annual,
company-prepared projections for the ensuing fiscal year, which shall
include a balance sheet, and statements of income and cash flow.
(f) Accounts Receivable Agings. No later than twenty-five (25) days
after the end of each month, statements showing aging and
reconciliation of Accounts and collections, and if requested by Bank,
whenever collections on Accounts are delivered to Bank, a schedule of
the amounts so collected and delivered as of the last day of such
month.
(g) Other Information. Such other statements, lists of property and
accounts, budgets, forecasts, reports, or other information required by
any Addendum to this Agreement or as Bank may from time to time
reasonably request.
5.5 Existence. Maintain and preserve Borrower's and each Subsidiary's existence,
present form of business, and all rights, privileges and franchises necessary or
desirable in the normal course of its business; except that Borrower may
dissolve or merge into itself or another Subsidiary any Subsidiary that does not
have significant assets or operations as of the Closing Date; and keep all
Borrower's and each Subsidiary's property in good working order and condition,
ordinary wear and tear excepted.
5.6 Insurance. Maintain and keep in force insurance with companies acceptable to
Bank and in such amounts and types as is usual in the businesses carried on by
Borrower and each Subsidiary, or as Bank may reasonably request. Such insurance
policies must be in form and substance satisfactory to Bank.
5.7 Accounting Records. Maintain adequate books, accounts and records, and
prepare all financial statements in accordance with GAAP, and in compliance with
the regulations of any governmental or regulatory authority having jurisdiction
over Borrower or its Subsidiaries or their respective businesses; and permit
employees or agents of Bank at such reasonable times as Bank may request to
inspect Borrower's and any Subsidiary's properties, and to examine, audit, and
make copies and memoranda of Borrower's books, accounts and records.
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5.8 Compliance With Laws. Comply, and cause each Subsidiary to comply, with all
laws, rules, regulations, orders and directives of any governmental or
regulatory authority having jurisdiction over Borrower or Subsidiary or their
respective businesses, and with all material agreements to which Borrower or
such Subsidiary is a party.
5.9 Taxes and Other Liabilities. Pay or cause to be paid all obligations of
Borrower and each Subsidiary when due; pay all taxes and other governmental or
regulatory assessments before delinquency or before any penalty attaches
thereto, except as may be contested in good faith by the appropriate procedures
and for which Borrower shall maintain or cause to be maintained appropriate
reserves; and timely file all required tax returns.
ARTICLE SIX - NEGATIVE COVENANTS
During the term of this Agreement and until the performance of all obligations
to Bank, Borrower will not, and will not permit any Subsidiary to, without
Bank's prior written consent:
6.1 Indebtedness. Be indebted for borrowed money, the deferred purchase price of
property, or leases which would be capitalized in accordance with GAAP; or
become liable as a surety, guarantor, accommodation party or otherwise for or
upon the obligation of any other Person, except:
(a) The acquisition of supplies or inventory on normal trade
credit, and equipment acquired in compliance with Section 6.8;
(b) The endorsement of negotiable instruments for deposit or
collection in the ordinary course of Borrower's business;
(c) The indebtedness of Borrower under this Agreement;
(d) Any indebtedness of Borrower and/or any Subsidiary (including
OWT) approved in writing by Bank prior to the Closing Date;
(e) Any indebtedness of entities permitted to be acquired under
Section 6.6; and
(f) Guaranties not to exceed Five Million Dollars ($5,000,000) in
aggregate guaranteed amount of indebtedness of OWT for borrowed
money or capitalized lease obligations.
6.2 Liens. Create, incur, assume or permit to exist any Lien, or grant any other
Person a negative pledge, on any of Borrower's or any Subsidiary's property,
except:
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(a) Involuntary Liens which, in the aggregate, would not have a
material adverse effect on Borrower's or any Subsidiary's financial
condition or business;
(b) Liens in favor of Bank;
(c) Liens on entities or properties permitted to be acquired
under Section 6.6;
(d) Purchase money security interests on any property held or acquired
by Borrower or any Subsidiary in the ordinary course of its business
securing Indebtedness incurred or assumed for the purpose of financing
all or any part of the cost of acquiring such property; provided, that
such Lien attaches solely to the property acquired with such
Indebtedness concurrently with or within 90 days after the acquisition
thereof, and that the aggregate principal amount of such Indebtedness
does not exceed the amount permitted under Section 6.8; and
(e) Permitted Liens.
Borrower and Bank agree that this covenant is not intended to constitute a lien,
deed of trust, equitable mortgage, or security interest of any kind on any of
Borrower's or any Subsidiary's real property, and this Agreement shall not be
recorded or recordable. Notwithstanding the foregoing, however, violation of
this covenant by Borrower shall constitute an Event of Default.
6.3 Borrower Dividends; Subsidiary Dividends. Pay any dividends except those
payable solely in Borrower's capital stock; redeem, purchase, retire or
otherwise acquire any shares of any class of capital stock of Borrower for a
price in excess of One Million Dollars ($1,000,000) in aggregate;otherwise make
any other distribution with respect to any of Borrower's capital stock; provided
that so long as no Event of Default has occurred and is continuing or would
result therefrom, Borrower may repurchase equity securities of Borrower from an
employee upon termination of employment if permitted under an agreement between
such employee and Borrower. Borrower will not, and will not permit any
Subsidiary to, directly or indirectly, create or suffer to exist any encumbrance
or restriction on the ability of any such Subsidiary to pay dividends or make
any other distributions to Borrower on its capital stock or any other interest
or participation in its profits owned by Borrower, or pay any debt owed to
Borrower, except for encumbrances or restrictions existing under or by reason of
applicable law, this Agreement or any other Loan Documents.
6.4 Changes/Mergers. Change its name without giving at least 30 days' prior
notice to Bank; liquidate or dissolve, or enter into any consolidation, merger
(other than a merger effected for the sole purpose of reincorporating Borrower
in another jurisdiction), partnership, joint venture or other combination;
reorganize, reclassify or recapitalize its capital stock; prepay any
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subordinated debt, debt for borrowed money, or debt secured by any permitted
Lien, or enter into or modify any agreement as a result of which the terms of
payment of any such debt are modified in excess of Five Hundred Thousand Dollars
($500,000) in aggregate. Borrower will not permit any Subsidiary to issue any
shares of its capital stock to any Person other than Borrower, except any
Subsidiary may issue shares of capital stock or options exercisable for such
stock in an aggregate amount not to exceed ten percent (10%) of such
Subsidiary's outstanding capital stock (on a fully diluted basis) to directors
and/or employees under one or more incentive stock option or deferred
compensation plans that may be in effect from time to time.
6.5 Sales of Assets. Sell, transfer, lease or otherwise dispose of any of its
assets except for fair consideration and in the ordinary course of its business,
and except for dispositions of equipment that has become obsolete; or enter into
any sale or leaseback agreement covering any of its fixed or capital assets
except to the extent permitted under Section 6.8; provided, however, that the
assets of Yolo Landfill Gas Corporation (consisting primarily of leasehold
rights and inground pipelines) may be sold under a proposal in existence of the
Closing Date for consideration of not less than $800,000.00.
6.6 Acquisitions. Acquire or purchase all or substantially all the assets of any
other Person; or enter into any partnership, joint venture or other combination;
or acquire or purchase securities (each an "Acquisition" and collectively the
"Acquisitions"), except:
(a) Those permitted under Section 6.7;
(b) The OWT Acquisition;
(c) Any single Acquisition in any amount not to exceed the sum of
$3,000,000.00 in cash; or
(d) Acquisitions not to exceed in the aggregate the sum of
$5,000,000.00 in cash, and/or securities or otherwise, during any
financial reporting year of Borrower.
6.7 Loans/Investments. Make or suffer to exist any loans, advances, or
investments, except:
(a) Bank accounts in the ordinary course of its business;
(b) Accounts receivable in the ordinary course of its business;
(c) (i) Investments in domestic certificates of deposit issued by, and
other domestic deposit investments with, financial institutions
organized under the laws of the United States or a state thereof,
maintaining capital of at least $100 million and a rating of at least
Aa by Moody's or any successor rating agency;
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(ii) banker's acceptances created by, and commercial paper
issued by, in each case, domestic or foreign commercial banks
maintaining capital of at least $100 million and carrying a rating of
at least A1 or P1 by Moody's, Standard & Poor's or any successor rating
agency;
(d) Investments in short term marketable obligations of the United
States of America and in open market commercial paper given the highest
credit rating by a national credit agency and maturing not more than
one year from the creation thereof;
(e) Securities of the United States Government;
(f) Bonds issued by any domestic governmental agency or instrumentality
and bearing the highest bond rating category of Moody's, Standard &
Poor's or any successor rating agency;
(g) Demand notes, money market preferred shares and adjustable rate
preferred shares of any entity whose debt obligations are rated in the
highest bond rating category of Moody's, Standard & Poor's or any
successor rating agency;
(h) Loans to Management Stakeholders (as defined in the OWT Acquisition
documents) not to exceed $800,000.00 in aggregate principal amount for
the sole purpose of financing such persons' payment of federal, state
and local income tax liabilities arising from Borrower's acquisition of
such persons' equity interests in OWT in exchange for OWT Convertible
Notes; and
(i) Temporary advances to cover incidental expenses to be incurred in
the ordinary course of business.
6.8 Limitation on Capital Expenditures/Leases. Expend or be committed to expend,
on a consolidated basis, Six Million Dollars ($6,000,000) or more in the
aggregate for the acquisition,lease or rental of gross fixed or capital assets
during any financial reporting year.
6.9 Transactions With Related Persons. Directly or indirectly enter into any
transaction with or for the benefit of a Related Person on terms more favorable
to the Related Person than would have been obtainable in an "arms' length"
dealing.
6.10 Other Business. Conduct any business other than the businesses conducted by
Borrower and Subsidiaries as of the Closing Date, unless the revenues and/or
expenses of such business would not constitute a material portion of the
consolidated revenues or expenses of Borrower and all Subsidiaries.
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6.11 Termination of Key Personnel. Permit any individual who is the head of any
major division of Borrower or any material Subsidiary to terminate his or her
employment on a substantially full-time basis; provided, however, that if such
event is anticipated or occurs, Borrower shall promptly notify Bank of such
event, and provide a reasonably detailed analysis of the anticipated effect of
the departure of such person on the consolidated operations and financial
condition of Borrower, and the steps, if any, being taken, or proposed to be
taken, by Borrower in response to such departure. So long as the departure of
such employee is not likely to have a material adverse effect on Borrower's
financial condition or ability to repay the Facilities, and Borrower continues
to diligently prosecute any action proposed to be taken, then the departure of
such individual shall not be deemed a violation of this Section 6.11.
ARTICLE SEVEN - EVENTS OF DEFAULT
7.1 Events of Default. The occurrence of any of the following shall (1)
terminate any obligation of Bank to make or continue the Facilities; and shall,
at Bank's option, (2) make all sums of interest, principal and any other amounts
owing under any Loan Documents immediately due and payable (with Bank also
having immediate right to full cash prepayment for the unpaid amounts of all
outstanding Letters of Credit) without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor or any other notices or
demands; and (3) give Bank the right to exercise any other right or remedy
provided by contract or applicable law:
(a) Borrower shall fail to make any payment of principal or interest
when due under this Agreement or to pay any fees or other charges when
due.
(b) Borrower shall fail to perform or observe any covenant contained in
Sections 5.1, 5.2, 5.4(a)-(c), 5.7 or Article 6, inclusive.
(c) Borrower or any other Person shall fail to perform or observe any
covenant or agreement contained in this Agreement or in any other Loan
Document (other than those covered by clause (a) or (b) above) and such
failure continues for thirty (30) or more days.
(d) Any representation or warranty made, or financial statement,
certificate or other document provided, by Borrower or any Subsidiary
shall prove to have been materially false or misleading when made (or
deemed made).
(e) Borrower or any Subsidiary shall fail to pay its debts generally as
they become due or shall file any petition or action for relief under
any bankruptcy, insolvency, reorganization, moratorium, creditor
composition law, or any other law for the relief of or relating to
debtors; an involuntary petition shall be filed under any bankruptcy
law against Borrower or any Subsidiary, or a custodian, receiver,
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trustee, assignee for the benefit of creditors, or other similar
official, shall be appointed to take possession, custody or control of
the properties of Borrower or any Subsidiary.
(f) Borrower or any Subsidiary shall fail to perform under any other
agreement involving the borrowing of money, the purchase of property,
the advance of credit or any other monetary liability of any kind to
Bank or to any Person where the failure would permit such Person to
accelerate such obligation or indebtedness.
(g) Any governmental or regulatory authority shall take any action, any
defined benefit pension plan maintained by Borrower or any Subsidiary
shall have any unfunded liabilities, or any other event shall occur,
any of which, in the judgment of Bank, might have a material adverse
effect on the financial condition or business of Borrower or any
Subsidiary.
(h) Any sale, transfer or other disposition of all or a substantial or
material part of the assets of Borrower or any Subsidiary, including
without limitation to any trust or similar entity, shall occur.
(i) Any Person shall fail to perform its obligations under the terms of
any material promissory note, contract or other obligation that is held
by Bank as collateral for the obligations evidenced by the Loan
Documents; or Bank shall not have a perfected security interest in any
collateral being held for the obligations evidenced by the Loan
Documents.
(j) Any judgment(s) shall be entered against Borrower or any
Subsidiary, or any involuntary lien(s) of any kind or character shall
attach to any assets or property of Borrower or any Subsidiary, any of
which, in the judgment of Bank, might have a material adverse effect on
the financial condition or business of Borrower or any Subsidiary.
ARTICLE EIGHT - GENERAL PROVISIONS
8.1 Notices. Any notice given by any party under any Loan Document shall be in
writing and personally delivered, sent by United States mail, postage prepaid,
or sent by facsimile or other authenticated message, charges prepaid and
addressed as follows:
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To Borrower: To Bank:
EMCON The Bank of California, N.A.
400 South El Camino Real San Mateo Regional Office
Suite 1200 491 South El Camino Real
San Mateo, CA 94402 San Mateo, CA 94402
Attn: R. Michael Momboisse, CFO Attn: Marie T. Wiseman, V.P.
FAX No.: 415/375-0763 FAX No.: 415/548-1998
Notices shall be deemed given three days after deposit in U.S. mail, on the next
business day if sent by overnight courier, and on the date of dispatch if sent
by facsimile or hand delivery. Each party may change the address to which
notices, requests and other communications are to be sent by giving written
notice of such change to each other party.
8.2 Dispute Resolution.
(a) Mandatory Mediation/Arbitration. Any controversy or claim between
or among the parties, their agents, employees and affiliates, including
but not limited to those arising out of or relating to this Agreement
or any related agreements or instruments ("Subject Documents"),
including without limitation any claim based on or arising from an
alleged tort, shall, at the option of any party, and at that party's
expense, be submitted to mediation, using either the American
Arbitration Association ("AAA") or Judicial Arbitration and Mediation
Services, Inc. ("JAMS"). If mediation is not used, or if it is used and
it fails to resolve the dispute within 30 days from the date AAA or
JAMS is engaged, then the dispute shall be determined by arbitration in
accordance with the rules of either JAMS or AAA (at the option of the
party initiating the arbitration) and Title 9 of the U. S. Code,
notwithstanding any other choice of law provision in the Subject
Documents. All statutes of limitations or any waivers contained herein
which would otherwise be applicable shall apply to any arbitration
proceeding under this subparagraph (a). The parties agree that related
arbitration proceedings may be consolidated. The arbitrator shall
prepare written reasons for the award. Judgment upon the award rendered
may be entered in any court having jurisdiction. This subparagraph (a)
shall apply only if, at the time of the proposed submission to AAA or
JAMS, none of the obligations to Bank described in or covered by any of
the Subject Documents are secured by real property collateral or, if so
secured, all parties consent to such submission.
(b) Jury Waiver/Judicial Reference. If the controversy or claim is not
submitted to arbitration as provided and limited in subparagraph (a),
but becomes the subject of a judicial action, each party hereby waives
its respective right to trial by jury of the controversy or claim. In
addition, any party may elect to have all decisions of fact and law
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determined by a referee appointed by the court in accordance with
applicable state reference procedures. The party requesting the
reference procedure shall ask AAA or JAMS to provide a panel of retired
judges and the court shall select the referee from the designated
panel. The referee shall prepare written findings of fact and
conclusions of law. Judgment upon the award rendered shall be entered
in the court in which such proceeding was commenced.
(c) Provisional Remedies, Self Help, and Foreclosure. No provision of,
or the exercise of any rights under, subparagraph (a) shall limit the
right of any party to exercise self help remedies such as setoff, to
foreclose against any real or personal property collateral, or to
obtain provisional or ancillary remedies such as injunctive relief or
the appointment of a receiver from a court having jurisdiction before,
during or after the pendency of any mediation or arbitration. At Bank's
option, foreclosure under a deed of trust or mortgage may be
accomplished either by exercise of power of sale under the deed of
trust or mortgage, or by judicial foreclosure. The institution and
maintenance of an action for judicial relief or pursuit of provisional
or ancillary remedies or exercise of self help remedies shall not
constitute a waiver of the right of any party, including the plaintiff,
to submit the controversy or claim to mediation or arbitration.
To the extent any provision of the dispute resolution clause is different than
the terms of this Agreement, the terms of this dispute resolution clause shall
prevail.
8.3 Binding Effect. The Loan Documents shall be binding upon and inure to the
benefit of Borrower and Bank and their successors and assigns; provided,
however, that Borrower may not assign or transfer Borrower's rights or
obligations under any Loan Document without Bank's prior written consent. Bank
reserves the right to sell, assign, transfer, negotiate or grant participations
in all or any part of, or any interest in, Bank's rights and obligations under
the Loan Documents; provided, that Bank will not knowingly do so to a Person
that is a non-bank lender that is directly or indirectly in competition with the
business of, or a customer of, Borrower. In that connection, Bank may disclose
all documents and information which Bank now or hereafter may have relating to
the Facilities, Borrower, or any Subsidiary or their business; provided, that
any such assignee or transferee has executed a confidentiality agreement
reasonably satisfactory to Borrower.
8.4 No Waiver. Any waiver, consent or approval by Bank of any Event of Default
or breach of any provision, condition, or covenant of any Loan Document must be
in writing and shall be effective only to the extent set forth in writing. No
waiver of any breach or default shall be deemed a waiver of any later breach or
default of the same or any other provision of any Loan Document. No failure or
delay on the part of Bank in exercising any power, right, or privilege under any
Loan Document shall operate as a waiver thereof, and no single or partial
exercise of any such power, right, or privilege shall preclude any further
exercise thereof or the exercise of any other power, right or privilege. Bank
has the right at its sole option to continue to accept interest and/or principal
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payments due under the Loan Documents after default, and such acceptance shall
not constitute a waiver of said default or an extension of the Termination Date
unless Bank agrees otherwise in writing.
8.5 Rights Cumulative. All rights and remedies existing under the Loan
Documents are cumulative to, and not exclusive of, any other rights or remedies
available under contract or applicable law.
8.6 Unenforceable Provisions. Any provision of any Loan Document executed by
Borrower which is prohibited or unenforceable in any jurisdiction, shall be so
only as to such jurisdiction and only to the extent of such prohibition or
unenforceability, but all the remaining provisions of any such Loan Document
shall remain valid and enforceable.
8.7 Governing Law. Except as may be otherwise expressly stated therein,
the Loan Documents shall be governed by and construed in accordance with, the
laws of the State of California.
8.8 Accounting Terms. Except as otherwise provided in this Agreement,
accounting terms and financial covenants and information shall be determined and
prepared in accordance with GAAP as in effect on the date of this Agreement.
8.9 Indemnification. Borrower shall pay and protect, defend and indemnify Bank
and Bank's employees, officers, directors, shareholders, affiliates,
correspondents, agents and representatives (other than Bank, collectively
"Agents") against, and hold Bank and each such Agent harmless from, all claims,
actions, proceedings, liabilities, damages, losses, and related expenses
(including, without limitation, reasonable attorneys' fees and costs) and other
amounts incurred by Bank and each such Agent, arising from (i) the matters
contemplated by this Agreement, any Loan Document or any Letter of Credit or
(ii) any contention that Borrower has failed to comply with any law, rule,
regulation, order or directive applicable to Borrower's sales, leases or
performance of services to Borrower's customers, including without limitation
those sales, leases and services requiring consumer or other disclosures;
provided, however, that this indemnification shall not apply to any of the
foregoing incurred solely as the result of Bank's or any Agent's gross
negligence or willful misconduct. This indemnification shall survive the payment
and satisfaction of all of Borrower's obligations and liabilities to Bank.
8.10 Reimbursement. Borrower shall reimburse Bank for all costs and expenses,
including without limitation reasonable attorneys' fees and disbursements (and
fees and disbursements of Bank's in-house counsel) expended or incurred by Bank
in any arbitration, mediation, judicial reference, legal action or otherwise in
connection with (a) the negotiation, preparation, amendment, interpretation and
enforcement of the Loan Documents, including without limitation during any
workout, attempted workout, and/or in connection with the rendering of legal
advice as to Bank's rights, remedies and obligations under the Loan Documents,
(b) collecting any sum which becomes due Bank under any Loan Document, (c) any
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proceeding for declaratory relief, any counterclaim to any proceeding, or any
appeal, or (d) the protection, preservation or enforcement of any rights of
Bank. For the purposes of this section, attorneys' fees shall include, without
limitation, fees incurred in connection with the following: (1) contempt
proceedings; (2) discovery; (3) any motion, proceeding or other activity of any
kind in connection with a bankruptcy proceeding or case arising out of or
relating to any petition under Title 11 of the United States Code, as the same
shall be in effect from time to time, or any similar law; (4) garnishment, levy,
and debtor and third party examinations; and (5) postjudgment motions and
proceedings of any kind, including without limitation any activity taken to
collect or enforce any judgment.
8.11 Execution in Counterparts. This Agreement may be executed in any number of
counterparts which, when taken together, shall constitute but one agreement.
8.12 Entire Agreement. The Loan Documents are intended by the parties as the
final expression of their agreement and therefore contain the entire agreement
between the parties and supersede all prior understandings or agreements
concerning the subject matter hereof. This Agreement may be amended only in a
writing signed by Borrower and Bank.
IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement as of the
date set forth in the preamble.
EMCON, a California corporation THE BANK OF CALIFORNIA, N.A.
By: /s/ By: /s/
---------------------- -------------------
Name: R. Michael Momboisse Name: Marie T. Wiseman
Title: CFO and V.P. - Legal Title: Vice President
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EXHIBIT 10.3
SECURITY AGREEMENT
This Agreement is made as of February 29, 1996 by EMCON, a California
corporation ("Debtor"), in favor of THE BANK OF CALIFORNIA, N.A. ("Bank").
Recitals
Debtor and Bank have executed a Credit Agreement of even dated
herewith (as the same may be amended or supplemented from time to time, the
"Credit Agreement"), pursuant to which Bank has agreed to extend certain credit
facilities to Borrower on the condition, among others, that Borrower grant to
Bank a continuing security interest in certain now owned and after-acquired
personal property of Borrower as security for Borrower's obligations under the
Credit Agreement. All capitalized terms used in this Agreement that are not
otherwise defined herein shall have the meanings ascribed thereto in the Credit
Agreement.
ARTICLE 1 - DEFINITIONS
The following definitions shall be applicable to both the singular and
plural forms of the defined terms:
"Account" means a right to payment for goods sold or leased by
Debtor or for services rendered by Debtor, which right is not evidenced by an
instrument or chattel paper, whether or not earned by performance.
"Agreement" means this Security Agreement, as it may be amended
from time to time.
"Collateral" means all Debtor's Accounts, Deposit Accounts,
Equipment, Fixtures, General Intangibles, Goods, Inventory and Rights to Payment
now owned or hereafter acquired, wherever located, and whether held by Debtor or
any third party, and all royalties, proceeds and products thereof, including all
insurance and condemnation proceeds ("Proceeds"), and all Records. "Collateral"
shall include the separate property of any married individual who signs this
Agreement if such property is otherwise covered by this definition.
"Deposit Accounts" means all Debtor's demand, time, savings,
passbook or similar accounts maintained with a financial institution or credit
union, other than accounts evidenced by a negotiable certificate of deposit.
"Equipment" means all of Debtor's equipment now owned or
hereafter acquired, including but not limited to machinery, machine parts,
furniture, furnishings and all tangible personal property used in the business
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of Debtor and all such property which is or is to become fixtures on real
property, and all improvements, replacements, accessions and additions thereto,
wherever located, and all proceeds thereof arising from the sale, lease, rental
or other use or disposition of any such property, including all rights to
payment with respect to insurance or condemnation, returned premiums, or any
cause of action relating to any of the foregoing.
"Event of Default" means an event described in Article 6.
"Fixtures" means all items of personal property of Debtor that
are so related to the real property upon which they are located that an interest
in them arises under real property law, and improvements, replacements, parts,
accessions and additions thereto, and substitutions therefor.
"General Intangibles" means all personal property of Debtor,
other than Goods, not otherwise defined as Collateral, including without
limitation all interests or claims in insurance policies; literary property;
tradenames, tradename rights; trademarks, trademark rights, copyrights, patents,
and all applications therefor; licenses, permits, franchises and like privileges
or rights issued by any governmental or regulatory authority; income tax
refunds; customer lists; claims and causes of action and all guaranty claims,
co-op memberships, leasehold interests in personal property, security interests
or other security held by or guaranteed to the Debtor to secure the payment by
an account debtor of any of the Accounts.
"Goods" means all money and other personal property of Debtor,
other than General Intangibles, not otherwise defined as Collateral.
"Indebtedness" means all debts, obligations and liabilities of
Debtor to Bank currently existing or now or hereafter made, incurred or created,
whether voluntary or involuntary and however arising or evidenced, whether
direct or acquired by Bank by assignment or succession, whether due or not due,
absolute or contingent, liquidated or unliquidated, determined or undetermined,
and whether Debtor may be liable individually or jointly, or whether recovery
upon such debt may be or become barred by any statute of limitations or
otherwise unenforceable; and all renewals, extensions and modifications thereof;
and all attorneys' fees and costs incurred by Bank in connection with the
collection and enforcement thereof.
"Inventory" means all Debtor's raw materials, work in process,
finished goods and goods held for sale or lease or furnished under contracts of
service, and all returned and repossessed goods, and all goods covered by
documents of title, including warehouse receipts, bills of lading and all other
documents of every type covering all or any part of the Collateral.
"Lien" means any voluntary or involuntary security interest,
mortgage, pledge, claim, charge, encumbrance, title retention agreement, or
third party interest covering all or any part of the property of Debtor or any
other Person.
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"Loan Documents" means this Agreement, any evidence of
Indebtedness, any guaranty, security or pledge agreement, deed of trust, and all
other contracts, instruments, addenda and documents executed in connection
therewith.
"Person" means any individual or entity, including without
limitation Bank where the context so permits and in Bank's sole discretion.
"Records" means all Debtor's computer programs, software,
hardware, source codes and data processing information, all written documents,
books, invoices, ledger sheets, financial information and statements, and all
other writings concerning Debtor's business.
"Rights to Payment" means all Debtor's accounts, instruments,
contract rights, documents, chattel paper and all other rights to payment,
including without limitation the Accounts, all negotiable certificates of
deposit and all rights to payment under any commercial or standby letter of
credit.
"Uniform Commercial Code" means the Uniform Commercial Code of
the State referred to in Article Eight, as amended from time to time.
Terms not specifically defined in this Agreement have the meanings proscribed in
the Uniform Commercial Code.
ARTICLE 2 - GRANT OF SECURITY INTEREST
To secure the timely payment of the Indebtedness and
performance of all obligations of Debtor to Bank, Debtor grants to Bank a
security interest in the Collateral.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
Debtor represents and warrants that, at all times during the
term of this Agreement:
3.1 Authorization, Validity and Enforceability. The execution,
delivery and performance of this Agreement are within Debtor's powers, have been
duly authorized, and are not in conflict with Debtor's articles of incorporation
or by-laws, or the terms of any charter or other organizational document of
Debtor; and this Agreement constitutes a valid and binding obligation of Debtor,
enforceable in accordance with its terms, and creates a security interest which
is enforceable against the Collateral.
3.2 No Conflict. The execution, delivery, and performance by
Debtor of this Agreement are not in conflict with any law, rule, regulation,
order or directive, or any indenture, agreement, or undertaking to which Debtor
is a party or by which Debtor may be bound or affected and will not result in
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the creation or imposition of any Lien pursuant to the terms of any such
indenture, agreement, or undertaking.
3.3 Governmental Actions. Debtor has obtained all consents and
actions of, and has performed all filings with, any governmental or regulatory
authority that are required to authorize the execution, delivery or performance
of this Agreement or the granting or perfecting of Bank's security interest in
the Collateral.
3.4 Title. Except as permitted under Section 6.2 of the Credit
Agreement, Debtor is and will be the unconditional legal and beneficial owner of
the Collateral, and the Collateral is genuine and subject to no Liens, rights or
defenses of others. Except for Inventory under documents duly negotiated to Bank
or showing Bank as secured party, no bill of lading, warehouse receipt or other
document of title is outstanding with respect to any of the Collateral.
3.5 Rights to Payment. The names of the obligors, amount owing
to Debtor, due dates and all other information with respect to the Rights to
Payment are and will be correctly stated in all Records relating to the Rights
to Payment. Debtor further represents and warrants that each Person appearing to
be obligated on a Right to Payment has authority and capacity to contract and is
bound as it appears to be; and that all chattel paper is in compliance with law
as to form, content and manner of preparation and execution and all property
subject to chattel paper has been properly registered and filed to perfect
Debtor's interest.
3.6 Retail Merchant. Bank's security interest in any Collateral
consisting of Inventory is not restricted by Uniform Commercial Code Section
9102 in effect from time to time.
3.7 No Misrepresentation. No representation, warranty or
statement by Debtor contained in this Agreement, in any Record or certificate or
other writing furnished by Debtor to Bank (including without limitation any made
or given concerning the genuineness, value and condition of the Collateral,
financial statements and statements made in documentary Collateral) at any time
contains any untrue statement of material fact, or omits to state a material
fact.
3.8 Chief Executive Office. Debtor's chief executive office is
located at:
Address City County State Zip
-------- ---- ------ ----- ---
400 South El Camino Real
Suite 1200 San Mateo San Mateo CA 94402
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3.9 Inventory Location. Other than as set forth in Section 3.8,
Inventory is located at:
Address City County State Zip
-------- ---- ------ ----- ---
See Schedule 3.9 attached hereto.
3.10 Records Location. Other than as set forth in Section 3.8,
Records are maintained at:
Address City County State Zip
-------- ---- ------ ----- ---
See Schedule 3.9 attached hereto.
3.11 Equipment or Fixtures Location. Other than as set forth in
Section 3.8, Equipment or Fixtures are located at:
Address City County State Zip
-------- ---- ------ ----- ---
See Schedule 3.9 attached hereto.
3.12 Other Places of Business. In addition to the locations set
forth in Sections 3.8 through 3.11, Debtor maintains the following place(s) of
business:
Address City County State Zip
-------- ---- ------ ----- ---
See Schedule 3.9 attached hereto.
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3.13 Business Names. Debtor has conducted business in the
following names other than the name stated in the preamble to this Agreement:
EMCON, Inc.
EMCON Consulting, Inc.
EMCON Associates
EMCON Southwest, Inc.
EMCON Northwest, Inc.
EMCON Southeast, Inc.
EMCON Baker-Shiflett, Inc.
Baker-Shiflett/EMCON, Inc.
Baker-Shiflett, Inc.
Texas EMCON, Inc.
Sweet Edwards/EMCON, Inc.
Sweet Edwards, Inc.
GWL Environmental, Inc.
G. Warren Levy, Inc.
Special Environmental Services, Inc.
Chattahoochie Geotechnical Consultants, Inc.
Wehran/EMCON Northeast, Inc.
Wehran Envirotech, Inc.
Wehran Engineering Corporation
Wehran Technological Services, Inc.
Wecon Services Corporation
Eldredge Engineering Associates, Inc.
Aquila Construction Company
Resource Recovery Services
Aquila Construction
EMCON/United Field Services LLC
Wehran-New York Inc.
Wehran Puerto Rico
ET Environmental Corp.
Yolo Landfill Gas Corp.
Monterey Landfill Gas Corporation
Columbia Analytical Services Inc.
Performance Analytical
ET Environmental Corporation
EOC Corporation
3.14 No Litigation. There is no litigation, tax claim,
proceeding or dispute pending, or to the knowledge of Debtor, threatened against
or affecting Debtor or its property, except as disclosed in writing to Bank
prior to the date of this Agreement.
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3.15 Financing Statements. Copies of all financing statements
and all other documents publicly recorded or filed naming Debtor as debtor or
obligor have been delivered to Bank prior to the date of this Agreement.
3.16 Hazardous Substances. Except in compliance with applicable
laws, Debtor's property never has been, and never will be, used for the
generation, manufacture, storage, treatment, disposal, release or threatened
release of any hazardous substance, as those or any similar terms are defined in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA") any regulation
promulgated thereunder, or any state or local law, rule, regulation or order.
Debtor hereby agrees to indemnify and hold harmless Bank against any and all
claims and losses resulting from a breach of this provision.
3.17 No Default. No Event of Default has occurred or exists.
ARTICLE 4 - AFFIRMATIVE COVENANTS
During the term of this Agreement and until payment of all the
Indebtedness and performance of all obligations to Bank under the Loan
Documents, Debtor will, unless Bank otherwise consents in writing:
4.1 Use of Proceeds. Use the proceeds of any credit extended
by Bank to Debtor only in accordance with the terms of any evidence of the
Indebtedness and for the purpose indicated on any application for such credit.
4.2 Delivery of Certain Items. Deliver to Bank promptly (a)
upon Bank's request, duplicate invoices with respect to each Account bearing
such language of assignment as Bank shall specify; (b) the originals of all
commercial and standby letters of credit, instruments, documents and chattel
paper constituting Collateral, endorsed and assigned as Bank shall specify; (c)
after an Event of Default, all Proceeds; (d) upon Bank's request, returned
property resulting from, or payment equal to such allowance or credit on, Rights
to Payment; (e) such specific acknowledgments, assignments or other agreements
as Bank may request relating to the Collateral; and (f) such Records and other
reports in such form and detail and at such times as Bank may require relating
to the Collateral, including without limitation reports of acquisition, and
disposition, agings, and collection of any Collateral. If any of the Rights to
Payment become evidenced by an instrument, Debtor will notify Bank thereof and,
upon request by Bank promptly deliver such instrument to Bank appropriately
endorsed to the order of Bank as further security for the satisfaction in full
of the Indebtedness.
4.3 Maintenance of Collateral; Inspection. Do all things
necessary to maintain, preserve, protect and keep all Collateral in good working
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order and salable condition, dealing with the Collateral in all ways as are
considered good practice by owners of like property, and use the Collateral
lawfully and only as permitted by Debtor's insurance policies. Debtor hereby
authorizes Bank's officers, employees, representatives and agents to inspect the
Collateral and to discuss the Collateral and the Records relating thereto with
Debtor's officers and employees, and, in the case of any Right to Payment after
the occurrence of an Event of Default, with any Person which is or may be
obligated thereon.
4.4 Maintenance of Records; Inspection. Maintain, or cause to
be maintained, complete and accurate Records relating to the Collateral. Bank,
its officers, employees, agents and representatives shall have the right, from
time to time, to examine the Records and to make copies or extracts therefrom.
4.5 Insurance. Maintain and keep in force in adequate amounts
such insurance on the Collateral with companies acceptable to Bank as is usual
in the business carried on by Debtor, including fire and extended coverage
insurance, with loss payable to Bank, as Bank may from time to time reasonably
request. Furnish to Bank upon request the original of all policies, or
certificates of insurance on the Collateral. Each policy shall be in form and
substance satisfactory to Bank.
4.6 Taxes and Other Liabilities. Pay all Debtor's obligations
when due; pay all taxes and other governmental or regulatory assessments before
delinquency or before any penalty attaches thereto, except as may be contested
in good faith by the appropriate procedures and for which Debtor shall maintain
appropriate reserves; and timely file all required tax returns. Any taxes
(excluding income taxes) payable or ruled payable by any governmental or
regulatory authority arising out of or in connection with this Agreement shall
be paid by Debtor, together with interest and penalties, if any.
4.7 Debtor's Duty to Give Notice. Give prompt notice to Bank
of: (a) any material discount, credit, rebate or other reduction in the amount
owing on a Right to Payment; (b) any material threatened or asserted dispute,
setoff, claim, counterclaim or defense with respect to a Right to Payment; (c)
any material decrease in the value of any Collateral and the amount of such
decrease (other than depreciation calculated in the ordinary course of business
under applicable tax laws and regulations and in accordance with generally
accepted accounting principles); and(d) any change in the ownership of any
property on which any Collateral is located.
4.8 Financing Statements and Other Actions. Execute and deliver
to Bank, and file or record at Debtor's expense, all financing statements,
notices and other documents from time to time requested by Bank to maintain a
first perfected security interest in the Collateral in favor of Bank, all in
form and substance satisfactory to Bank; perform such other acts, and execute
and deliver to Bank such additional conveyances, assignments, agreements and
instruments, as Bank may at any time request in connection with the
administration and enforcement of this Agreement or Bank's rights, powers and
remedies hereunder.
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4.9 Agreement With Real Property Owner/Landlord. Obtain and
maintain such acknowledgments, consents, waivers and agreements from the owner,
lienholder, mortgagee and landlord with respect to any real property on which
Collateral is located as Bank may require, all in form and substance
satisfactory to Bank.
ARTICLE 5 - NEGATIVE COVENANTS
During the term of this Agreement and until payment of all the
Indebtedness and performance of all obligations to Bank, Debtor will not,
without the prior written consent of Bank:
5.1 Liens. Create, incur, assume or permit to exist any Lien
or grant any other Person a negative pledge on any Collateral, except Liens
permitted under Section 6.2 of the Credit Agreement.
5.2 Documents of Title. Sign or authorize the signing of any
financing statement or other document naming Debtor as debtor or obligor, or
acquiesce or cooperate in the issuance of any bill of lading, warehouse receipt
or other document or instrument of title with respect to any Collateral, except
those negotiated to Bank or those naming Bank as secured party.
5.3 Disposition of Collateral. Sell, transfer, lease or
otherwise dispose of any Collateral except as permitted under Section 6.5 of the
Credit Agreement. Prior to the occurrence of an Event of Default, unless
otherwise agreed between Debtor and Bank, Debtor may use cash Proceeds collected
in the ordinary course of business.
5.4 Change in Location, Name, Legal Structure. (a) Unless at
least 30 days' prior notice shall have been given to Bank, change its name or
mailing address, or maintain Records, its chief executive office, or a place of
business at a location other than as specified in Article 3; or (b) change the
nature of its business, or its legal structure.
5.5 Certain Agreements on Rights to Payment. Make or arrange to
make any material discount, credit, rebate or other material reduction in the
original amount owing on a Right to Payment or accept in satisfaction of a Right
to Payment an amount materially less than the original amount thereof, except as
disclosed to Bank in writing from time to time.
ARTICLE 6 - EVENTS OF DEFAULT
6.1 Event of Default. The occurrence of any Event of Default
under the Credit Agreement shall constitute an "Event of Default" under this
Agreement.
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6.2 Acceleration and Remedies. Upon the occurrence of an Event
of Default, Bank shall be entitled to, at Bank's option, without notice or
demand of any kind (a) declare all or any part of the Indebtedness immediately
due and payable; (b) exercise any or all of the rights and remedies available to
a secured party under the Uniform Commercial Code or any other applicable law;
and (c) exercise any or all of Bank's rights and remedies provided for in this
Agreement and in any other Loan Document. The obligations of Debtor under this
Agreement shall continue to be effective or be reinstated, as the case may be,
if at any time any payment of any Indebtedness is rescinded or must otherwise be
returned by Bank upon, on account of, or in connection with, the insolvency,
bankruptcy or reorganization of Debtor or otherwise, all as though such payment
had not been made.
6.3 Sale of Collateral. Bank may sell all or any part of the
Collateral, at public or private sales, to itself, a wholesaler, retailer or
investor, for cash, upon credit or for future delivery, and at such price or
prices as Bank may deem commercially reasonable. To the extent permitted by law,
Debtor hereby specifically waives all rights of redemption and any rights of
stay or appraisal which it has or may have under any applicable law in effect
from time to time. Any such public or private sales shall be held at such times
and at such place(s) as Bank may determine. In case of the sale of all or any
part of the Collateral on credit or for future delivery, the Collateral so sold
may be retained by Bank until the selling price is paid by the purchaser, but
Bank shall not incur any liability in case of the failure of such purchaser to
pay for the Collateral and, in case of any such failure, such Collateral may be
resold. Bank may, instead of exercising its power of sale, proceed to enforce
its security interest in the Collateral by seeking a judgment or decree of a
court of competent jurisdiction.
6.4 Debtor's Obligations Upon Default. Upon the request of Bank
after the occurrence of an Event of Default, Debtor will:
(a) Assemble and make available to Bank the Collateral at such
place(s) as Bank shall designate, segregating all Collateral so that each
item is capable of identification; and
(b) Permit Bank, by Bank's officers, employees, agents and
representatives, to enter any premises where any Collateral is located, to
take possession of the Collateral, and to remove the Collateral, or to
conduct any public or private sale of the Collateral, all without any
liability of Bank for rent or other compensation for the use of Debtor's
premises.
ARTICLE 7 - SPECIAL COLLATERAL PROVISIONS
7.1 Cash Collateral Account. All cash Proceeds received by Bank
pursuant to any provisions of this Agreement shall be deposited in a special
non-interest bearing collateral account established with Bank, and will be
applied in accordance with Section 7.7. This account shall be held by Bank as
Collateral.
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7.2 Notification to Certain Obligors and Possession of
Proceeds. Bank may in its sole discretion at any time after the occurrence of an
Event of Default or an event which with the giving of notice or the passage of
time or both would constitute an Event of Default (a) notify or cause Debtor to
notify the obligors on the Rights to Payment to make payment to Bank; and (b)
take possession of any or all Proceeds, which Bank will apply in accordance with
Section 7.7.
7.3 Compromise and Collection. Debtor and Bank recognize that
setoffs, counterclaims, defenses and other claims may be asserted by obligors
with respect to certain of the Rights to Payment; that certain of the Rights to
Payment may be or become uncollectible in whole or in part; and that the expense
and probability of success of litigating a disputed Right to Payment may exceed
the amount that reasonably may be expected to be recovered with respect to such
Right to Payment. Debtor hereby authorizes Bank, effective upon the occurrence
of an Event of Default, to compromise with the obligor, accept in full payment
of any Right to Payment such amount as Bank shall negotiate with the obligor, or
abandon any Right to Payment. Any such action by Bank shall be considered
commercially reasonable so long as Bank acts in good faith based on information
known to it at the time it takes any such action.
7.4 Bank Performance of Debtor's Obligations. Without having
any obligation to do so, Bank may perform or pay any obligation which Debtor has
agreed to perform or pay under this Agreement including without limitation the
payment or discharge of taxes or Liens levied or placed on or threatened against
the Collateral. In so performing or paying, Bank shall determine the action to
be taken and the amount necessary to discharge such obligations. Debtor shall
reimburse Bank on demand for any amounts paid by Bank pursuant to this Section,
which amounts shall constitute Indebtedness secured by the Collateral.
7.5 Power of Attorney. For the purpose of protecting and
preserving the Collateral and Bank's rights under this Agreement, Debtor hereby
irrevocably appoints Bank, with full power of substitution, as its
attorney-in-fact with full power and authority to do any act which Debtor is
obligated to do hereunder; to exercise such rights with respect to the
Collateral as Debtor might exercise; to use such Inventory, Equipment, Fixtures
or other property as Debtor might use; to enter Debtor's premises; following the
occurrence of an Event of Default, to give notice of Bank's security interest
in, and to collect the Collateral and the Proceeds; and to execute and file in
Debtor's name any financing statements, amendments and continuation statements
necessary or desirable to perfect or continue the perfection of Bank's security
interests in the Collateral. Debtor hereby ratifies all that Bank shall lawfully
do or cause to be done by virtue of this appointment.
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7.6 Authorization for Bank to Take Certain Action. The power of
attorney created in Section 7.5 is a power coupled with an interest and shall be
irrevocable. The powers conferred on Bank hereunder are solely to protect its
interests in the Collateral and shall not impose any duty upon Bank to exercise
such powers. Bank shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and in no event shall Bank
or any of its directors, officers, employees, agents or representatives be
responsible to Debtor for any act or failure to act, except for gross negligence
or willful misconduct. Bank may exercise this power of attorney without notice
to or assent of Debtor, in the name of Debtor, or in Bank's own name, from time
to time in Bank's sole discretion and at Debtor's expense. To further carry out
the terms of this Agreement, Bank may:
(a) Execute any statements or documents or take possession of,
and endorse and collect and receive delivery or payment of, any checks,
drafts, notes, acceptances or other instruments and documents constituting
Collateral, or constituting the payment of amounts due and to become due or
any performance to be rendered with respect to the Collateral.
(b) Sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts; drafts, certificates and
statements under any commercial or standby letter of credit; assignments,
verifications and notices in connection with Accounts; or any other
documents relating to the Collateral, including without limitation the
Records.
(c) Use or operate Collateral or any other property of Debtor
for the purpose of preserving or liquidating Collateral.
(d) File any claim or take any other action or proceeding in
any court of law or equity or as otherwise deemed appropriate by Bank for
the purpose of collecting any and all monies due or securing any
performance to be rendered with respect to the Collateral.
(e) Commence, prosecute or defend any suits, actions or
proceedings or as otherwise deemed appropriate by Bank for the purpose of
protecting or collecting the Collateral. In furtherance of this right, upon
the occurrence of an Event of Default, Bank may apply for the appointment
of a receiver or similar official to operate Debtor's business, and, to the
fullest extent permitted by law, Debtor hereby waives any right to oppose
such appointment.
(f) Prepare, adjust, execute, deliver and receive payment under
insurance claims, and collect and receive payment of and endorse any
instrument in payment of loss or returned premiums or any other insurance
refund or return, and apply such amounts at Bank's sole discretion, toward
repayment of the Indebtedness or replacement of the Collateral.
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7.7 Application of Proceeds. Any Proceeds and other monies or
property received by Bank pursuant to the terms of this Agreement or any Loan
Document may be applied by Bank first to the payment of expenses of collection,
including without limitation reasonable attorneys' fees, and then to the payment
of the Indebtedness in such order of application as Bank may elect.
Notwithstanding the rights given to Debtor pursuant to California Civil Code
sections 1479 and 2822 or equivalent provisions in the laws of the state
specified in the governing law clause of this document (and any amendments or
successors thereto), to designate how payments will be applied, Debtor hereby
waives such rights and Bank shall have the right in its sole discretion to
determine the order and method of the application of payments received from
Debtor or from the sale or disposition of the Collateral and to revise such
application prospectively or retroactively at its discretion. The provisions of
this Section 7.7 are subject to the provisions of Section 2.5(b) of the Credit
Agreement.
7.8 Deficiency. If the Proceeds of any disposition of the
Collateral are insufficient to cover all costs and expenses of such sale and the
payment in full of all the Indebtedness, plus all other sums required to be
expended or distributed by Bank, then Debtor shall be liable for any such
deficiency.
7.9 Bank Transfer. Upon the transfer of all or any part of the
Indebtedness, Bank may transfer all or any part of the Collateral and shall be
fully discharged thereafter from all liability and responsibility with respect
to such Collateral so transferred, and the transferee shall be vested with all
the rights and powers of Bank hereunder with respect to such Collateral so
transferred, but with respect to any Collateral not so transferred, Bank shall
retain all rights and powers hereby given.
7.10 Bank's Duties.
(a) Bank's sole duty with respect to the Collateral in its
possession shall be to use reasonable care in the custody and preservation
thereof. Bank shall be deemed to have exercised reasonable care in the
custody and preservation of such Collateral if such Collateral is accorded
treatment substantially equal to that which Bank accords its own property,
it being understood that Bank shall not have any responsibility for
ascertaining or taking action with respect to calls, conversions,
exchanges, maturities, declining value, tenders or other matters relative
to any Collateral, regardless of whether Bank has or is deemed to have
knowledge of such matters; or taking any necessary steps to preserve any
rights against any Person with respect to any Collateral. Under no
circumstances shall Bank be responsible for any injury or loss to the
Collateral, or any part thereof, arising from any cause beyond the
reasonable control of Bank.
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(b) Bank may at any time deliver the Collateral or any part
thereof to Debtor and the receipt of Debtor shall be a complete and full
acquittance for the Collateral so delivered, and Bank shall thereafter be
discharged from any liability or responsibility therefor.
ARTICLE 8 - GENERAL PROVISIONS
8.1 Notices. Any notice given or required under this Agreement
shall be given in the manner specified in the Credit Agreement.
8.2 Binding Effect. This Agreement shall be binding upon
Debtor, its permitted successors, representatives and assigns, and shall inure
to the benefit of Bank and its successors, and assigns; provided however that
Debtor may not assign or transfer Debtor's obligations under this Agreement
without the prior written consent of Bank. Bank reserves the right to sell,
assign, or transfer its rights and powers under this Agreement in whole or in
part without notice to Debtor. In that connection, Bank may disclose all
documents and information which Bank now or hereafter may have relating to this
Agreement, Debtor or Debtor's business, provided that any such assignee or
transferee executed a confidentiality agreement reasonably satisfactory to
Debtor.
8.3 No Waiver. Any waiver, consent or approval by Bank of any
Event of Default or breach of any provision, condition or covenant of this
Agreement or any Loan Document must be in writing and shall be effective only to
the extent set forth in writing. No waiver of any breach or default shall be
deemed a waiver of any later breach or default of the same or any other
provision of this Agreement or any of the Loan Documents. Any failure or delay
on the part of Bank in exercising any power, right or privilege under this
Agreement or any Loan Document shall not operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or privilege preclude
any further exercise thereof.
8.4 Rights Cumulative. All rights and remedies existing under
this Agreement are cumulative to, and not exclusive of, any other rights or
remedies available under contract or applicable law.
8.5 Unenforceable Provisions. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall be so only as to
such jurisdiction and only to the extent of such prohibition or
unenforceability, but all the remaining provisions of this Agreement shall
remain valid and enforceable.
8.6 Governing Law/Waiver or Notice. Except as may be otherwise
provided by the Uniform Commercial Code or in any addendum hereto, this
Agreement shall be governed by and construed in accordance with the laws of the
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State of California. Debtor hereby waives presentment, demand, protest, notice
of dishonor and all other notices and demands, as well as any applicable statute
of limitations.
8.7 Indemnification. Debtor shall pay and protect, defend and
indemnify Bank and Bank's employees, officers, directors, shareholders,
affiliates, correspondents, agents and representatives (other than Bank,
collectively "Agents") against, and hold Bank and each such Agent harmless from,
all claims, actions, proceedings, liabilities, damages, losses, and related
expenses (including, without limitation, attorneys' fees and costs) and other
amounts incurred by Bank and each such Agent, arising from the matters
contemplated by this Agreement; provided, however, that this indemnification
shall not apply to any of the foregoing incurred solely as the result of Bank's
or any Agent's gross negligence or willful misconduct. This indemnification
shall survive the payment and satisfaction of all of Debtor's obligations and
liabilities to Bank.
8.8 Reimbursement. Debtor shall reimburse Bank for all costs
and expenses, including without limitation reasonable attorneys' fees and
disbursements (and fees and disbursements of Bank's in-house counsel) expended
or incurred by Bank in any arbitration, mediation, judicial reference, legal
action or otherwise in connection with (a) the negotiation, preparation,
amendment, interpretation and enforcement of this Agreement, including without
limitation during any workout, attempted workout, and/or in connection with the
rendering of legal advice as to Bank's rights, remedies and obligations under
this Agreement, (b) collecting any sum which becomes due Bank under this
Agreement, (c) any proceeding for declaratory relief, any counterclaim to any
proceeding, or any appeal, or (d) the protection, preservation or enforcement of
any rights of Bank. For the purposes of this section, attorneys' fees shall
include, without limitation, fees incurred in connection with the following: (1)
contempt proceedings; (2) discovery; (3) any motion, proceeding or other
activity of any kind in connection with a bankruptcy proceeding or case arising
out of or relating to any petition under Title 11 of the United States Code, as
the same shall be in effect from time to time, or any similar law; (4)
garnishment, levy, and debtor and third party examinations; and (5)
post-judgment motions and proceedings of any kind, including without limitation
any activity taken to collect or enforce any judgment.
8.9 Entire Agreement. This Agreement is intended by Debtor and
Bank as the final expression of Debtor's obligations to Bank in connection with
the Collateral and supersedes all prior understandings or agreements concerning
the subject matter hereof. This Agreement may be amended only by a writing
signed by Debtor and accepted by Bank in writing.
<PAGE>
IN WITNESS WHEREOF, Debtor has executed this Agreement as of the date
set forth in the preamble.
EMCON, a California corporation
By: /s/
---------------------
Name: R. Michael Momboisse
Title: CFO & V.P. - Legal
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EXHBIT 10.4
PLEDGE AGREEMENT
This Agreement is made as of February 29, 1996 by EMCON, a California
corporation ("Debtor"), in favor of THE BANK OF CALIFORNIA, N.A. ("Bank").
Recitals
Debtor and Bank have executed a Credit Agreement of even dated
herewith (as the same may be amended or supplemented from time to time, the
"Credit Agreement"), pursuant to which Bank has agreed to extend certain credit
facilities to Borrower on the condition, among others, that Borrower pledge to
Bank and grant to Bank a continuing security interest in certain shares of stock
and other property as security for Borrower's obligations under the Credit
Agreement. All capitalized terms used in this Agreement that are not otherwise
defined herein shall have the meanings ascribed thereto in the Credit Agreement.
1. Grant of Security Interest. Debtor hereby grants to Bank a
continuing security interest in all issued and outstanding shares of capital
stock of each of Debtor's Subsidiaries identified on Schedule 1 annexed to this
Agreement (as such Schedule may be amended or supplemented from time to time),
now owned or hereafter acquired by Debtor (the "Pledged Shares"), all stock
rights, rights to subscribe, liquidating dividends, stock dividends, new
securities or other property to which Debtor is or may become entitled to
receive on account of such Pledged Shares, and all proceeds thereof
("Collateral"). Except as provided in Section 5(d)(i), in the event Debtor
receives any of the above forms of property, Debtor will promptly deliver it to
Bank to be held by Bank hereunder in the same manner as the Collateral
originally delivered hereunder.
2. Indebtedness. Debtor agrees that the Collateral is and shall be
security for the timely payment and performance of all obligations under all
Indebtedness to Bank. "Indebtedness" means all debts, obligations and
liabilities of Debtor to Bank currently existing or now or hereafter made,
incurred or created, whether voluntary or involuntary and however arising or
evidenced, whether direct or acquired by Bank by assignment or succession,
whether due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, whether under this Agreement or otherwise and
whether Debtor may be liable individually or jointly, or whether recovery upon
such debt may be or become barred by any statute of limitations or otherwise
unenforceable; and all renewals, extensions and modifications thereof; and all
attorneys' fees and costs incurred by Bank in connection with the collection and
enforcement thereof. Any writing which evidences or is an agreement in respect
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to all or any portion of the Indebtedness is a "Loan Document". 3. Debtor's
Covenants. Debtor hereby represents, warrants and agrees that:
(a) Debtor has acquired, or forthwith will acquire and maintain, all
portions of the marketable title to the Collateral described herein and
will at all times keep the Collateral free of all Liens except those
permitted under Section 6.2 of the Credit Agreement;
(b) Debtor will not sell, transfer, lease or otherwise dispose of any
of the Collateral or any interest therein to any individual or entity,
including without limitation Bank where the context so permits and in
Bank's sole discretion ("Person");
(c) The Pledged Shares have been duly and validly issued and are fully
paid and non-assessable. Except as may be specifically stated to Bank
in writing prior to the date hereof and as provided by law, the Pledged
Shares are transferable without prior notice to, or approval or consent
from, any Person or governmental or regulatory authority, and there
exists no condition or restriction to or affecting the transfer of the
Pledged Shares;
(d) Debtor will pay when due and prior to delinquency all taxes,
levies, assessments or other claims which are or may become liens
against the Collateral;
(e) Debtor will neither make nor permit any material change in the
Collateral without the prior written consent of the Bank;
(f) Except as otherwise provided herein, Debtor will deliver to Bank
promptly (i) all Collateral, (ii) all proceeds of the Collateral,
(iii) such specific acknowledgments, assignments, or other agreements
or writings as Bank may request relating to the Collateral, and (iv)
such records and other reports in such form and detail and at such
times as Bank may require relating to the Collateral; notwithstanding
anything to the contrary herein contained, Debtor may receive and
retain distributions from a Subsidiary in the form of personal
property other than cash or securities in connection with a business
reorganization involving Borrower and such Subsidiary;
(g) Debtor will give prompt notice to Bank of any threatened or
asserted dispute or claim with respect to the Collateral, any decrease
in the value of any Collateral and the amount of such decrease (other
than as reflected on any securities exchange or other market
publication), any litigation or administrative or regulatory
proceeding which may have a material adverse effect on Debtor or its
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business, and the occurrence of any Event of Default or of any other
development, financial or otherwise, which might materially adversely
affect the Collateral or Debtor's ability to perform its obligations
to Bank; and
(h) Debtor will execute and deliver to Bank, and file or record at
Debtor's expense, all notices and other documents from time to time
requested by Bank to maintain a first perfected security interest in
the Collateral in favor of Bank, all in form and substance
satisfactory to Bank, and perform such other acts, and execute and
deliver to Bank such additional assignments, agreements and
instruments, as Bank may at any time request in connection with the
administration and enforcement of this Agreement or Bank's rights,
powers and remedies hereunder.
4. Events of Default. The occurrence of any Event of Default under the
Credit Agreement shall constitute an "Event of Default" under this
Agreement.
5. Rights on Default.
(a) Upon the occurrence of an Event of Default, all Indebtedness shall,
at the option of Bank, without demand or notice, become immediately due
and payable. Bank shall have all other rights and remedies available
under contract or applicable law, which include those of a secured
party under the Uniform Commercial Code, at law, or in equity, and the
right to take possession of the Collateral (if not then in Bank's
possession), and sell and dispose of the same, or any part thereof, at
public or private sale.
(b) The proceeds of any sale or disposition shall be applied first to
the reasonable expenses of retaking, holding, preparing for sale,
discharging all liens, selling and the like, then to the attorneys'
fees and legal expenses incurred by Bank, and then to the Indebtedness
in such order as Bank may determine. Notwithstanding the rights given
to Debtor pursuant to California Civil Code sections 1479 and 2822 or
equivalent provisions in the laws of the state specified in the
governing law clause of this document (and any amendments or
successors thereto), to designate how payments will be applied, Debtor
hereby waives such rights and Bank shall have the right in its sole
discretion to determine the order and method of the application of
payments received from Debtor or from the sale or disposition of the
Collateral and to revise such application prospectively or
retroactively at its discretion.
(c) Person(s) liable for all or any portion of Indebtedness shall
remain liable for the unsatisfied portion of such Indebtedness, and
shall promptly pay the same to Bank immediately and without demand,
with interest thereon at the rate provided in the Loan Document
applicable thereto, or, if no rate is otherwise provided, at the rate
of interest applicable to the unsatisfied amount of a money judgment
of a court of the state whose laws govern this Agreement. Should the
net proceeds resulting from any such sale or disposition exceed the
amount owing to Bank, Bank shall pay such surplus to the Person(s)
legally entitled thereto.
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(d) So long as no Event of Default shall have occurred:
(i) Debtor shall be entitled to receive and retain
all cash dividends payable in connection with any the Pledged
Shares and to exercise any and all voting or consensual rights
and powers relating to or pertaining to any Pledged Shares for
any purpose not inconsistent with the terms of this Agreement.
(ii) Upon the occurrence and during the continuance
of an Event of Default, all rights of Debtor to receive
payment of cash dividends or to exercise the voting or
consensual rights and powers with respect to the Collateral,
shall cease, and all such rights and authority to exercise
such voting or consensual rights and powers or to receive and
retain such dividends shall inure to Bank. Any and all money
and other property paid over to or received by Bank pursuant
to the provisions of this Section may be retained by Bank as
additional Collateral or in Bank's sole discretion may be
applied toward the satisfaction of the Indebtedness. In such
event, Bank shall have the right and power to receive, endorse
and collect all checks and other orders for the payment of
money made payable to Debtor representing any dividend or
other distribution payable or distributable in respect of any
Pledged Shares.
(e) The obligations of Debtor under this Agreement shall continue to
be effective or be reinstated, as the case may be, if at any time any
payment of any Indebtedness is rescinded or must otherwise be returned
by Bank upon, on account of, or in connection with, the insolvency,
bankruptcy or reorganization of Debtor or otherwise, all as though
such payment had not been made.
6. Costs and Expenses. Debtor promises, to the extent permitted by
applicable law, to reimburse Bank promptly for all costs and expenses incurred
by Bank in performing any agreement of Debtor which Debtor shall fail to
perform, or in taking any other action which Bank deems necessary for the
maintenance or preservation of any Collateral or its interest therein, which
costs and expenses shall constitute Indebtedness under this Agreement.
7. Power of Attorney.
(a) Debtor hereby irrevocably appoints Bank, or any officer thereof, as
Debtor's true and lawful attorney-in-fact coupled with an interest,
with full power of substitution, to sign or endorse any instrument,
document, or other writing necessary or desirable to transfer title or
other rights to or in any of the Collateral; and to do all acts
necessary or incidental to assert, protect and enforce Bank's rights in
the Collateral and under this Agreement. Debtor agrees that Debtor will
reimburse Bank promptly upon demand for any expenses Bank may incur
while acting as Debtor's attorney-in-fact, which expenses shall
constitute Indebtedness under this Agreement.
(b) Following the occurrence of an Event of Default (except as
otherwise provided), without notice, and at the expense of Debtor, Bank
in its name or in the name of Debtor may, but shall not be obligated to
(i) collect by legal proceedings or otherwise, endorse, receive and
receipt for all dividends, interest, principal payments and other sums
now or hereafter payable upon or on account of the Collateral; (ii)
make any compromise or settlement it deems desirable or proper with
reference to the Collateral; (iii) at any time, insure, process and
preserve the Collateral; (iv) at any time, participate in any
recapitalization, reclassification, reorganization, consolidation,
redemption, stock split, merger or liquidation of any issuer of
securities which constitute Collateral, and in connection therewith may
deposit or surrender control of the Collateral, accept money or other
property in exchange for the Collateral, and take such action as it
deems proper in connection therewith, and any other money or property
received in exchange for the Collateral shall be applied to the
Indebtedness or held by Bank thereafter as Collateral pursuant to the
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provisions hereof; (v) cause Collateral to be transferred to its name
or to the name of its nominee; (vi) at any time, exercise as to the
Collateral all the rights, powers and remedies of an owner necessary to
exercise its rights, subject to Section 5(d).
8. Waivers of Debtor. Debtor waives any right to require Bank to
proceed against any Person, or to exhaust any Collateral or to pursue any remedy
in Bank's power whatsoever. Bank shall not be required to make presentment,
demand or protest, or give any notices thereof, or take any action to preserve
rights against prior parties with respect to any of the Collateral. Debtor
waives the right to plead any statute of limitations or any defense to the
personal liability of Debtor as a defense to Bank's exercise of any right or
remedy hereunder.
9. Non-Waiver. Bank may, in the exercise of its sole discretion, waive
an Event of Default, or cure an Event of Default at Debtor's expense. Any such
waiver shall be subject to Section 11(c) below.
10. Bank's Duties.
(a) Bank's sole duty with respect to the Collateral in its possession
shall be to use reasonable care in the custody and preservation
thereof. Bank shall be deemed to have exercised reasonable care in the
custody and preservation of such Collateral if such Collateral is
accorded treatment substantially equal to that which Bank accords its
own property, it being understood that Bank shall not have any
responsibility for ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, declining value, tenders or other
matters relative to any Collateral, regardless of whether Bank has or
is deemed to have knowledge of such matters; or taking any necessary
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steps to preserve any rights against any Person with respect to any
Collateral. Under no circumstances shall Bank be responsible for any
injury or loss to the Collateral, or any part thereof, arising from any
cause beyond the reasonable control of Bank.
(b) Bank may at any time deliver the Collateral or any part thereof to
Debtor and the receipt of Debtor shall be a complete and full
acquittance for the Collateral so delivered, and Bank shall thereafter
be discharged from any liability or responsibility therefor.
11. General Provisions.
(a) Notices. Any notices given or required under this Agreement shall
be given in the manner specified in the Credit Agreement.
(b) Binding Effect. This Agreement shall be binding upon Debtor,its
permitted successors, representatives and assigns, and shall inure to
the benefit of Bank and its successors, representatives and assigns;
provided however that Debtor may not assign or transfer's Debtor's
obligations under this Agreement without Bank's prior written consent.
Bank reserves the right to sell, assign, or transfer its rights and
powers under this Agreement, in whole or in part without notice to
Debtor. In that connection, Bank may disclose all documents and
information which Bank now or hereafter may have relating to this
Agreement, Debtor or Debtor's business, provided that any such
assignee or transferee executes a confidentiality agreement reasonably
satisfactory to Debtor.
(c) No Waiver. Any waiver, consent or approval by Bank of any Event of
Default or breach of any provision, condition or covenant of this
Agreement or any Loan Document must be in writing and shall be
effective only to the extent set forth in writing. No waiver of any
breach or default shall be deemed a waiver of any later breach or
default of the same or any other provision of this Agreement or any of
the Loan Documents. No failure or delay on the part of Bank in
exercising any power, right or privilege under this Agreement or any
Loan Document shall operate as a waiver thereof, and no single or
partial exercise of any such power, right or privilege shall preclude
any further exercise thereof, or the exercise of any further power,
right or privilege.
(d) Rights Cumulative. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any other rights or
remedies available under contract or applicable law.
(e) Unenforceable Provisions. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall be so only as to
such jurisdiction and only to the extent of such prohibition or
unenforceability, but all the remaining provisions of this Agreement
shall remain valid and enforceable.
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(f) Governing Law/Waiver of Notice. Except as may be otherwise
provided by the Uniform Commercial Code or in any addendum hereto,
this Agreement shall be governed by and construed in accordance with
the laws of the State of California. To the fullest extent permitted
by law, Debtor hereby waives presentment, demand, protest, notice of
dishonor and all other notices and demands, as well as any applicable
statute of limitations.
(g) Indemnification. Debtor shall pay and protect, defend and
indemnify Bank and Bank's employees, officers, directors,
shareholders, affiliates, correspondents, agents and representatives
(other than Bank, collectively "Agents") against, and hold Bank and
each such Agent harmless from, all claims, actions, proceedings,
liabilities, damages, losses, and related expenses (including, without
limitation, attorneys' fees and costs) and other amounts incurred by
Bank and each such Agent, arising from the matters contemplated by
this Agreement; provided, however, that this indemnification shall not
apply to any of the foregoing incurred solely as the result of Bank's
or any Agent's gross negligence or willful misconduct. This
indemnification shall survive the payment and satisfaction of all of
Debtor's obligations and liabilities to Bank.
(h) Reimbursement. Debtor shall reimburse Bank for all costs and
expenses, including without limitation reasonable attorneys' fees and
disbursements (and fees and disbursements of Bank's in-house counsel)
expended or incurred by Bank in any arbitration, mediation, judicial
reference, legal action or otherwise in connection with (a) the
negotiation, preparation, amendment, interpretation and enforcement of
this Agreement, including without limitation during any workout,
attempted workout, and/or in connection with the rendering of legal
advice as to Bank's rights, remedies and obligations under this
Agreement, (b) collecting any sum which becomes due Bank under this
Agreement, (c) any proceeding for declaratory relief, any counterclaim
to any proceeding, or any appeal, or (d) the protection, preservation
or enforcement of any rights of Bank. For the purposes of this
section, attorneys' fees shall include, without limitation, fees
incurred in connection with the following: (1) contempt proceedings;
(2) discovery; (3) any motion, proceeding or other activity of any
kind in connection with a bankruptcy proceeding or case arising out of
or relating to any petition under Title 11 of the United States Code,
as the same shall be in effect from time to time, or any similar law;
(4) garnishment, levy, and debtor and third party examinations; and
(5) postjudgment motions and proceedings of any kind, including
without limitation any activity taken to collect or enforce any
judgment.
(i) Entire Agreement. This Agreement is intended by Debtor and Bank as
the final expression of Debtor's obligations to Bank in connection
with the Collateral and supersedes all prior understandings or
agreements concerning the subject matter hereof. This Agreement may be
amended only by a writing signed by Debtor and accepted by Bank in
writing.
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IN WITNESS WHEREOF, Debtor has executed this Agreement as of the date
of the preamble.
EMCON
By: /s/
---------------------
Name: R. Michael Momboisse
Title: CFO & V.P. - Legal
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EXHIBIT 10.5
February 29, 1996
EMCON
400 South El Camino Real, Suite 1200
San Mateo, CA 94402
Attn: R. Michael Momboisse, CFO
RE: EURODOLLAR RATE OPTION AGREEMENT
Dear Mr. Momboisse:
As of this date, EMCON has entered into a Credit Agreement with The
Bank of California, N.A. ("Bank") pursuant to which EMCON has (i) a line of
credit facility in the maximum principal amount of $10,000,000 and (ii) a
$10,000,000 term loan facility (collectively, the "Credit Facility"), the terms
and conditions of which are governed by the Credit Agreement, a Line of Credit
Note, a Term Loan Note, and various other documents ("Loan Documents). In
conjunction with your current Credit Facility, Bank is pleased to offer you a
chance to participate in a special commercial pricing program.
1. AVAILABILITY AND MATURITY
Bank usually extends financing based on a fluctuating rate that
changes with the rate Bank announces to be in effect from time to time as its
prime rate ("Prime Rate"). The Prime Rate is a rate set by Bank based on various
factors, including general economic and market conditions, and is used as a
reference point in pricing certain loans. Bank may price its loans at, above or
below the Prime Rate.
In contrast, Bank's "Eurodollar Rate" is a fixed rate (more fully
defined below) Bank offers from time to time which, if you accept this proposal,
will apply to all or such portion of the principal amount outstanding under the
Credit Facility ("Covered Amount") and for such time periods as you and Bank
shall mutually agree. Pricing tied to the Eurodollar Rate is available for
periods of 1, 2, 3, 6, 9 or 12 months (each a "Period"); provided, however, that
no Period shall have a maturity date subsequent to the scheduled maturity date
for the Credit Facility with respect to which the Covered Amount relates. This
pricing may be applied to Covered Amounts in a minimum of $1,000,000 and
additional increments of $500,000 outstanding under the Credit Facility.
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Bank's "Eurodollar Rate" is, for each Period, a rate comprised of (a)
the rate of interest at which Dollar deposits for such period and in such amount
would be offered to Bank in the Eurodollar Market at a time selected by Bank two
(2) Banking Days (as defined below) prior to the commencement of the relevant
Period, adjusted for the then maximum reserve, capital adequacy, deposit
insurance, and similar requirements that under any circumstance could be
applicable to Bank pursuant to applicable law or regulation, and other amounts
associated with Bank's costs and desired return; plus (b) a margin equal to one
and one-half percent (1.50%). The Eurodollar Market is the market in which the
buying and selling of United States Dollar deposits booked outside the United
States of America occurs among the international banking community.
Bank's Eurodollar Rate is available and may be accepted only at the
time quoted by Bank for the applicable Period beginning two (2) Banking Days
hence. Due to changes in legal, regulatory, economic or market conditions, Bank
may at any time determine that pricing based on the Eurodollar Rate is not
available, and thus, may be unable to offer such a rate.
2. QUOTE, EURODOLLAR RATE, AND PAYMENTS
For a quote of Bank's Eurodollar Rate which would apply to the
specified Covered Amount and Period, you may call Bank's San Mateo Regional
Office between 8:00 a.m. and 11:00 a.m. Pacific time on any day on which such
office and Bank's San Francisco main office are open for business to the public
(each a "Banking Day"). As the Eurodollar Rate is established two (2) Banking
Days prior to the first day of the requested Period, you must call at least two
(2) Banking Days prior to such date. If you accept the Eurodollar Rate when
offered, that rate will apply to such Covered Amount for the applicable Period.
Interest shall be calculated for actual days elapsed on the basis of a three
hundred and sixty (360) day year.
During any Period, you agree to pay interest on the Covered Amount at
the Eurodollar Rate on the last day of each consecutive month, beginning the
first such date after the commencement of the Period, until the last day of the
Period, whether scheduled or accelerated ("Maturity Date"). During each Period,
you must maintain under your Credit Facility a principal balance which is not a
Covered Amount under any of your rate option agreements with Bank sufficient to
cover each scheduled instalment of principal coming due during such Period under
the Credit Facility. Should you have any obligation under any other Loan
Document to repay any portion of the Credit Facility ("Obligation") that would
conflict with your obligation under the preceding sentence ("Maintenance
Obligation"), you shall nevertheless comply with the Obligation and not with the
Maintenance Obligation, and you shall not be deemed in default hereunder.
Nonetheless, payment of the Obligation shall be deemed to be a "Prepayment", as
defined below, to the extent it repays a portion of a Covered Amount under this
or any of your other rate option agreements you may have with Bank.
If, prior to a Maturity Date and while the Credit Facility is still
available, you and Bank have not agreed that a new rate tied to the Eurodollar
Rate shall apply to a Covered Amount, then, if the term of your Credit Facility
extends beyond such Maturity Date, Bank's Prime Rate plus the applicable margin,
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if any, under the terms of your Credit Facility shall be automatically
applicable to such Covered Amount.
Bank's records of the date, Covered Amount, Period, Eurodollar Rate,
Maturity Date, and all payments of principal and interest and all other payments
and amounts due under this letter agreement shall be conclusive and binding on
you, absent obvious error.
3. PREPAYMENT LIMITATION
Do not sign this letter agreement before you read it. This letter
agreement provides for payment of liquidated damages if you wish to
repay the loan (Covered Amount) prior to the date provided for
repayment under the Credit Facility.
Bank establishes the Eurodollar Rate with the understanding it will
apply to the Covered Amount for the entire scheduled Period. If for any reason,
including, without limitation, acceleration, foreclosure or prepayment, Bank
receives all or any portion of a Covered Amount (each a "Prepayment") prior to
the scheduled Maturity Date, then in consideration thereof you shall pay to Bank
on demand:
a. The amount, if any, by which the additional interest which would
have been payable on the Prepayment exceeds the interest which Bank
would receive had it placed an amount equal to the Prepayment, in
United States Dollars, on deposit in the Eurodollar Market (or, at
Bank's sole discretion, invested such amount in a domestic certificate
of deposit issued by an institution rated at least "investment grade"
or "A" by Moody's or any successor rating agency) for a period equal
to the period of time remaining until the maturity of the applicable
Period. Should the scheduled maturity fall between two periods for
which rates are quoted or available to Bank, then Bank, in its sole
discretion, shall interpolate this rate; and
b. Any other out of pocket costs to Bank associated with funding or
maintaining the Covered Amount.
Bank shall provide you a statement of the amount payable on account of
each Prepayment, which statement shall be a conclusive and binding determination
of the amount owed by you for such Prepayment, absent obvious error. All
Prepayments, subject to this Section 3, shall be applied on the most remote
instalment or instalments of principal then unpaid on the Credit Facility being
prepaid.
You acknowledge that any Prepayment may result in Bank incurring
additional costs, expenses or liabilities. Therefore, you agree to pay the
above-described liquidated damages and agree that said amount is a reasonable
estimate of the costs, expenses and liabilities of Bank associated with each
Prepayment.
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4. SPECIAL FUNDING PROVISIONS
If at any time Bank determines that:
a. United States Dollar deposits in principal amounts similar to the
Covered Amount bearing interest at the Eurodollar Rate and for periods
equal to the relevant Period are not available in the Eurodollar
Market;
b. The Eurodollar Rate does not cover the cost to Bank of making,
funding or maintaining the Covered Amount at the Eurodollar Rate
during any Period;
c. Any change in financial, political or economic conditions or
currency exchange rates makes it impractical for Bank to make, fund or
maintain the Covered Amount at the Eurodollar Rate during any Period;
or
d. Any change in applicable law or regulation or in the interpretation
thereof (whether or not having the force of law) makes it unlawful or
impractical for Bank to make, fund or maintain the Covered Amount at
the Eurodollar Rate, then Bank shall promptly give notice thereof to
you and as of the date stated in such notice, the Eurodollar Rate
option shall terminate, and Bank's Prime Rate plus the applicable
margin under the terms of your Credit Facility shall be automatically
applicable to the relevant Covered Amount through the end of the
relevant Period.
5. RESERVES, DEPOSIT INSURANCE, CAPITAL ADEQUACY
You shall additionally compensate Bank upon demand for all costs
incurred, or losses suffered, including without limitation lost profits, by
reason of:
a. any and all increases in reserve, deposit insurance, capital
adequacy or similar requirements against (or against any class of or
change in or in the amount of) the assets or liabilities of Bank,
deposits with or for the account of Bank, or loans by Bank, imposed by
any governmental or regulatory authority (whether or not having the
force of law) in connection with a Covered Amount bearing interest at
the Eurodollar Rate; or
b. compliance by Bank with any direction, requirement or request from
any governmental or regulatory authority (whether or not having the
force of law) in connection with a Covered Amount bearing interest at
the Eurodollar Rate to the extent any such costs have not been
previously blended or adjusted into the Eurodollar Rate.
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Bank shall provide you with a written statement of the amount and
basis of its request for compensation under this Section, which statement shall
be a conclusive and binding determination of the amount owed by you, absent
obvious error.
6. TAXES
a. If at any time any taxes, fees or other charges of any nature are
imposed by any governmental or regulatory authority on any aspect of
the transactions referred to in this letter agreement including
without limitation all stamp or documentation duties (collectively,
"Taxes"), you shall pay such Taxes directly, or compensate Bank for
such payment, as set forth below, except for such Taxes as are imposed
on Bank's net income.
b. In the event you are prohibited by operation of law from making
payments or reimbursements to Bank without making such deductions or
paying, or causing to be paid, any and all Taxes, you shall pay to
Bank upon demand such additional amounts as may be necessary in order
to reimburse Bank for Taxes paid by Bank on your behalf such that the
aggregate net amounts received by Bank shall equal the amounts which
would have been received if such deduction or withholding had not been
required.
c. You shall confirm that all applicable Taxes shall have been paid to
appropriate taxing authorities or agencies by sending official tax
receipts or notarized copies of such receipts to Bank within thirty
(30) days after payment of any Taxes. Should Bank receive notice of
any such liability for Taxes, Bank will promptly so inform you.
7. GENERAL PROVISIONS
a. To the extent interest rates, prepayment provisions and times for
payment of interest established under this letter agreement are
different than the terms of the note or notes evidencing the Credit
Facility, the terms of this letter agreement shall prevail. All other
provisions of the Loan Documents remain in full force and effect.
b. This letter agreement shall be governed by the laws of the State of
California.
c. This letter agreement, and all confirmations provided hereunder,
evidence the entire agreement of the parties on the matters covered
herein, and supersede all prior understandings and agreements.
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If you would like to participate in Bank's Eurodollar Rate Option
program, please execute the enclosed duplicate original of this letter and
return it to Bank, on or before February 29, 1996, at which time the option
granted in this letter will otherwise expire.
The Bank is pleased to serve you.
Very truly yours,
THE BANK OF CALIFORNIA, N.A.
By: /s/
-------------------------
Marie T. Wiseman, V.P.
ACCEPTED AND AGREED:
EMCON
By: /s/
---------------------
Name: R. Michael Momboisse
Title: CFO & V.P. - Legal
Dated: February 29, 1996
144
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EXHIBIT 10.6
February 29, 1996
EMCON
400 South El Camino Real
Suite 1200
San Mateo, CA 94402
Attn: R. Michael Momboisse, CFO
RE: FIXED RATE AMORTIZING OPTION AGREEMENT
Dear Mr. Momboisse:
As of this date, EMCON has entered into a Credit Agreement with The
Bank of California, N. A. ("Bank") pursuant to which EMCON has a $10,000,000
term loan facility ("Term Loan"), the terms and conditions of which are governed
by the Credit Agreement, a Term Loan Note, and various other documents ("Loan
Documents"). In conjunction with your Term Loan, Bank is pleased to offer you a
chance to participate in a special commercial pricing program.
1. AVAILABILITY AND MATURITY
Bank usually extends financing based on a fluctuating rate that
changes with the rate the Bank announces to be in effect from time to time as
its prime rate ("Prime Rate"). The Prime Rate is a rate set by Bank based on
various factors, including general economic and market conditions, and is used
as a reference point in pricing certain loans. Bank may price its loans at,
above or below the Prime Rate.
In contrast, Bank's Amortizing Term Loan Fixed Rate ("ATLF Rate") is a
fixed rate (more fully defined below) the Bank offers from time to time which,
if you accept this proposal will apply to all or such portion of the principal
amount outstanding under the Term Loan ("Covered Amount") and for such time
periods as you and Bank shall mutually agree. Pricing tied to the ATLF Rate is
available for one period of 12 to 84 months duration (the "Period"); provided,
however, that the last day of the Period must coincide with the scheduled
maturity date of the Term Loan. This pricing may be applied to Covered Amounts
in a minimum of $1,000,000 and additional increments of $500,000 outstanding
under the Term Loan.
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Bank's ATLF Rate is a rate comprised of (a) the blended rate per annum
which Bank calculates in good faith, at which funds in the amount of the Covered
Amount with an amortization schedule comparable to that required by the terms of
the Term Loan would be available to Bank in the ordinary course of Bank's
business on the first day of the Period, adjusted for the then maximum reserve,
capital adequacy, deposit insurance, and similar requirements that under any
circumstance could be applicable to Bank pursuant to applicable law or
regulation, and other amounts associated with Bank's costs and desired return;
plus (b) a margin equal to one and one-half percent (1.50%).
The ATLF Rate is available and may be accepted only at the time quoted
by Bank. Due to changes in legal, regulatory, economic or market conditions,
Bank may at any time determine that the ATLF Rate is not available, and thus,
may be unable to offer such a rate.
2. QUOTE, THE ATLF RATE, AND PAYMENTS
For a quote of the ATLF Rate which would apply to the specified
Covered Amount and Period, you may call Bank's San Mateo Regional Office between
8:00 a.m. and 11:00 a.m. Pacific time on any day on which such office and Bank's
San Francisco Main Office are open for business to the public. If you accept the
ATLF Rate when offered, that rate will apply to such Covered Amount for the
entire Period.
During the Period, you agree to pay interest on the Covered Amount at
the ATLF Rate on the last day of each consecutive month, beginning the first
such date after the commencement of the Period, and continuing through and on
the maturity date for the Term Loan, whether scheduled or accelerated ("Maturity
Date"). Each regularly scheduled principal payment date under the Term Loan is a
"Principal Payment Date." During each Period, you must maintain under your Term
Loan a portion of the principal balance which is not a Covered Amount under any
of your rate option agreements with Bank sufficient to cover each scheduled
instalment of principal coming due under the Term Loan. Should you have any
obligation under any other Loan Document to repay any portion of the Term Loan
("Obligation") that would conflict with your obligation under the preceding
sentence ("Maintenance Obligation"), you shall nevertheless comply with the
Obligation and not with the Maintenance Obligation, and you shall not be deemed
in default hereunder. Nonetheless, payment of the Obligation shall be deemed to
be a "Prepayment", as defined below, to the extent it repays a portion of a
Covered Amount under this or any of your other rate option agreements you may
have with Bank.
Bank's records of the date, Covered Amount, ATLF Rate, Period, and all
payments of principal and interest, and all other payments and amounts due under
this letter agreement shall be conclusive and binding on you, absent obvious
error.
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3. PREPAYMENT LIMITATION
Do not sign this letter agreement before you read it. This letter
agreement provides for payment of liquidated damages if you wish to
repay the loan (Covered Amount) prior to the date provided for
repayment under the Term Loan.
Bank establishes the ATLF Rate with the understanding it will apply to
the Covered Amount for the entire Period. If, for any reason, including without
limitation, acceleration, foreclosure or prepayment, Bank receives all or any
portion of a Covered Amount (each a "Prepayment") prior to the Maturity Date
(but excluding each payment of principal required under the Term Loan which is
paid on its applicable Principal Payment Date), then in consideration thereof,
you shall pay to Bank on demand:
a. The amount ("Prepayment Liquidated Damages"), if any, by which the
additional interest that would have been payable on the Prepayment
exceeds the interest the Bank would receive had it placed an amount
equal to the Prepayment in the types of United States Treasury
securities described in the calculation below. The date the Prepayment
is received by Bank in immediately available funds is the "Prepayment
Effective Date". The amount of Prepayment Liquidated Damages will be
calculated in accordance with the following formula, with all
Prepayments applied first to the remote instalment(s) of principal
then unpaid under the Term Loan:
Prepayment Liquidated Damages = P x (L-T) x N
Where
P = the total dollar amount of the Prepayment;
N = the weighted average number of years
remaining to maturity from the Prepayment
Effective Date for P, where each successive
year ("Year") used to calculate N is
measured at its midpoint (i.e, 0.5 years,
1.5 years, 2.5 years, etc.) and is weighted
by the cumulative dollar amount of
Prepayments applied during that Year,
rounded to the next highest half-year;
L = the ATLF Rate expressed in annualized decimal
form ("annualized" means not modified for
number of days);
T = the "annualized" fixed rate for a United
States Treasury security with a maturity
equal to N where the rate is quoted on a
bond equivalent basis (that is, the security
is deemed to require semi-annual interest
payments with interest calculated on an
actual 365/366-day basis) in decimal form. T
will be calculated by interpolating the
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rates for Treasury constant maturities
included in the H.15 statistical release
published by the Federal Reserve for the
latest weekly period prior to the Prepayment
Effective Date.
Bank may rely upon reports transmitted by the Dow Jones Telerate
service, the Bloomberg Financial Markets, Commodities, and News
service, or any other news service it deems reputable to timely obtain
values for rates on Treasury constant maturities. If the prepayment
calculation requires the rate for a maturity that is not available in
the H.15 Treasury constant maturities or if the H.15 release is
unavailable, Bank at its discretion may substitute market yields on
United States Treasury securities that it deems to be a current issue
with the appropriate maturity required to obtain the interpolated rate
defined by T. In a case where market yields on current issue Treasury
securities are utilized, Bank will use yield values for the business
day prior to the Prepayment Effective Date and may depend upon such
values reported by a financial news service Bank deems reputable.
If T is greater than or equal to L at the time of calculation, no
payment of any kind is required.
b. Any other out of pocket costs to Bank associated with funding
or maintaining the Covered Amount.
Bank shall provide you a statement of the amount payable on account of
each Prepayment, which statement shall be a conclusive and binding determination
of the amount owed by you for such Prepayment, absent obvious error.
You acknowledge that any Prepayment may result in Bank incurring
additional costs, expenses or liabilities. Therefore, you agree to pay the
above-described liquidated damages and agree that said amount is a reasonable
estimate of the costs, expenses and liabilities of Bank associated with each
Prepayment.
4. RESERVES, DEPOSIT INSURANCE, CAPITAL ADEQUACY
You shall additionally compensate Bank upon demand for all costs
incurred, or losses suffered, including without limitation lost profits, by
reason of:
a. any and all increases in reserve, deposit insurance, capital
adequacy or similar requirements against (or against any class of or
change in or in the amount of) the assets or liabilities of Bank,
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deposits with or for the account of Bank, or loans by Bank, imposed by
any governmental or regulatory authority (whether or not having the
force of law) in connection with a Covered Amount bearing interest at
the ATLF Rate; or
b. compliance by Bank with any direction, requirement or request from
any governmental or regulatory authority (whether or not having the
force of law) in connection with a Covered Amount bearing interest at
the ATLF Rate to the extent any such costs have not been previously
blended or adjusted into the ATLF Rate.
Bank shall provide you a written statement of the amount and basis of
its request for compensation under this Section, which statement shall be a
conclusive and binding determination of the amount owed by you, absent obvious
error.
5. GENERAL PROVISIONS
a. To the extent interest rates, prepayment provisions and times for
payment of interest established under this letter agreement are
different than the terms of the note evidencing the Term Loan, the
terms of this letter agreement shall prevail. All other provisions of
the Loan Documents remain in full force and effect.
b. This letter agreement shall be governed by the laws of the State of
California.
c. This letter agreement, and all confirmations provided hereunder,
evidence the entire agreement of the parties on the matters covered
herein, and supersede all prior understandings and agreements.
If you would like to participate in the Bank's ATLF Rate Option
program, please execute the enclosed duplicate original of this letter and
return it to Bank, on or before February 29, 1996, at which time the option
granted in this letter will otherwise expire.
Bank is pleased to serve you.
Very truly yours,
THE BANK OF CALIFORNIA, N.A.
By: /S/
---------------------
Marie T. Wiseman, V.P.
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ACCEPTED AND AGREED:
EMCON
By: /s/
---------------------
Name: R. Michael Momboisse
Title: CFO & V.P. - Legal
Dated: February 29, l996
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EXHIBIT 99.1
Contact: Kim Mortyn
(415) 375-1522
EMCON COMPLETES ACQUISITION OF
ORGANIC WASTE TECHNOLOGIES, INC.
SAN MATEO, California, March 1, 1996 -- EMCON (NASDAQ:MCON) announced
today it has completed the acquisition of Organic Waste Technologies, Inc.
(OWT), a privately held landfill gas technology and services company
headquartered in Cleveland, Ohio.
Principals of EMCON and OWT both commented they are extremely pleased
to have completed this acquisition since the synergies between the two companies
significantly strengthen each firm's service areas. EMCON's engineering design
capabilities and OWT's installation, operations and maintenance services
complement each other, and both companies' customers should benefit as a result.
Gene Herson (EMCON's President and CEO) emphasized this is the first step
towards the goal of creating the "best in class" integrated environmental
management services company.
EMCON's acquisition is non-dilutive to existing shareholders and will
be accounted for as a purchase. Under the terms of the agreement, EMCON acquires
all of the capital stock of OWT in exchange for $14 million in cash.
EMCON is a nationally recognized consulting firm providing services in
environmental engineering, waste management, air and water quality management,
occupational health and safety, and construction. Established in 197l, EMCON
offers its environmental services from over 40 offices nationwide to private and
public sector clients in the United States and abroad.
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