UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-16225
EMCON
(Exact name of Registrant as specified in its charter)
California 94-1738964
---------------------------------- ----------------------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1200
San Mateo, California 94402
- --------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 375-1522
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
8,535,372 shares of Common Stock Issued and Outstanding as of May 13, 1997.
1
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EMCON
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
Page
Number
FACING SHEET.......................................................... 1
TABLE OF CONTENTS..................................................... 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996................. 3
Consolidated Statements of Income -
Three months ended March 31, 1997 and 1996........... 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and 1996........... 5
Notes to Consolidated Financial Statements........... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 9
PART II. OTHER INFORMATION.......................................... 12
Signatures............................................................ 13
Index to Exhibits..................................................... 14
2
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<TABLE>
<CAPTION>
EMCON
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1997 1996
(In thousands, except share amounts) (Unaudited) (Audited)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .................................................................... $ 7,901 $ 5,331
Accounts receivable, net of allowance for doubtful accounts of $1,226
and $951 at March 31, 1997 and December 31, 1996, respectively .......................... 34,615 32,860
Costs and estimated earnings in excess of billings on
uncompleted contracts ................................................................... 1,250 904
Prepaid expenses and other current assets .................................................... 4,965 4,425
Assets held for sale ......................................................................... -- 9,382
------- -------
Total Current Assets ..................................................................... 48,731 52,902
Net property and equipment, at cost .......................................................... 14,552 14,722
Other assets ................................................................................. 7,811 4,800
Deferred tax assets .......................................................................... 4,818 4,818
Goodwill, net of amortization ................................................................ 12,596 12,716
Other intangible assets, net of amortization ................................................. 905 954
------- -------
Total Assets ............................................................................. $89,413 $90,912
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................................................. $ 4,527 $ 5,483
Accrued payroll and related benefits ......................................................... 3,671 6,020
Other accrued liabilities .................................................................... 5,333 4,454
Billings in excess of costs and estimated earnings
on uncompleted contracts ................................................................ 1,283 94
Long-term obligations due within one year .................................................... 2,226 2,250
------- -------
Total Current Liabilities ................................................................ 17,040 18,301
Long-term debt ............................................................................... 14,023 14,667
Other noncurrent obligations ................................................................ 1,810 2,132
Commitments and contingencies ................................................................ -- --
Shareholders' Equity:
Preferred stock, no par value, 5,000,000 shares authorized;
no shares issued or outstanding ......................................................... -- --
Common stock, no par value, 15,000,000 shares authorized;
8,535,372 and 8,512,688 shares issued and outstanding at
March 31, 1997 and December 31, 1996, respectively ....................................... 42,059 42,001
Retained earnings ............................................................................ 14,481 13,811
------- -------
Total Shareholders' Equity ............................................................... 56,540 55,812
------- -------
Total Liabilities and Shareholders' Equity ............................................... $89,413 $90,912
======= =======
</TABLE>
See accompanying notes
3
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EMCON
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Three months ended
March 31,
------------------
(In thousands, except per share amounts) 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Gross revenue .................................... $ 31,363 $ 28,564
Outside services, at cost ........................ 3,782 3,957
-------- --------
Net revenue ................................... 27,581 24,607
Costs and expenses:
Direct expenses ............................... 12,606 9,689
Indirect expenses ............................. 14,226 14,799
Restructuring ................................. (75) --
Loss on disposition of laboratory ............. 333 --
Gain on sale of assets ........................ (826) --
-------- --------
Income from operations ........................ 1,317 119
Interest income (expense), net ................... (237) (22)
Equity in gain (loss) of affiliates .............. 18 (22)
Minority interest ................................ (35) (22)
-------- --------
Income before provision for income taxes ......... 1,063 53
Provision for income taxes ....................... 372 19
-------- --------
Net income ....................................... $ 691 $ 34
======== ========
Income per share ................................. $ 0.08 $ 0.01
======== ========
</TABLE>
See accompanying notes
4
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EMCON
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Three months ended
March 31,
-------------------
Increase (decrease) in cash and cash equivalents (in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flow from operating activities:
Net income ...................................................................................... $ 691 $ 34
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization ................................................................. 1,044 1,463
Gain (loss) on sale/disposal of property and equipment ........................................ (142) 29
Loss on disposition of laboratories ........................................................... 333 --
Gain on disposition of assets ................................................................. (826) --
Increase in salary continuation plan .......................................................... 17 11
Changes in operating assets and liabilities:
Accounts receivable ......................................................................... (1,755) (8)
Prepaid expenses and other current assets ................................................... (450) (902)
Other assets ................................................................................ (147) (384)
Accounts payable ............................................................................ (416) (472)
Accrued payroll and related benefits ........................................................ (1,247) (241)
Other accrued liabilities ................................................................... 1,793 272
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used for operating activities .......................................................... (1,105) (198)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flow from investing activities:
Additions to property and equipment ............................................................. (1,157) (621)
Maturities of available for sale securities ..................................................... -- 514
Acquisitions, net of cash acquired ............................................................. -- (4,007)
Net cash on disposition of laboratory ........................................................... 3,794 --
Net cash from disposition of assets ............................................................. 840 --
Proceeds from sale of property and equipment .................................................... 512 6
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities ............................................ 3,989 (4,108)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Dividend payments ............................................................................... (21) --
Payment of current and noncurrent obligations ................................................... (619) (152)
Issuance of common stock for cash ............................................................... 76 527
Proceeds of new debt obligation ................................................................. 250 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities ............................................ (314) 375
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents ................................................... 2,570 (3,931)
Cash and cash equivalents, beginning of year ....................................................... 5,331 9,451
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period ........................................................... $ 7,901 $ 5,520
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
5
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EMCON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries after elimination of all
significant intercompany accounts and transactions.
While the financial information is unaudited, the statements in this report
reflect all adjustments, which are normal and recurring, that are necessary
for a fair presentation of the results of operations for the interim
periods covered and of the financial condition of the Company at the dates
of the balance sheets. The operating results for the interim periods
presented are not necessarily indicative of performance for the entire
year.
These financial statements and notes should be read in conjunction with the
Company's consolidated financial statements for the fiscal year ended
December 31, 1996.
2. Restructuring Charges
In the fourth quarter of 1996, senior management reviewed the Company's
operational and administrative functions for the purpose of further
improving the Company's competitiveness and overall profitability. Based on
this review, the Company's Board of Directors approved a strategic
restructuring plan to reposition the Company to fully exploit its core
strengths in engineering, design, construction, operations and maintenance.
The plan included closure or downsizing of underperforming offices,
write-off of employment contracts for former employees no longer
participating in the Company's affairs and employee severance. During the
quarter ended March 31, 1997, $98,000 relating to the restructuring were
incurred and charged against the established reserve. At March 31, 1997,
$940,000 of accrued restructuring costs, net of a $75,000 reduction due to
earlier than anticipated subleasing of abandonded office space, remained
and were included in other accrued liabilities. To-date, $217,000 of
restructuring costs related to these actions have been incurred.
In December 1994, as a result of changes in senior management, the Company's
Board of Directors approved a corporate restructuring plan which included
the write off of employment contracts with no current or future value,
termination of personnel, and the elimination or abandonment of excess and
underperforming assets and facilities. During the quarter ended March 31,
1997, $27,000 of cash charges related to the 1994 restructuring were
incurred and charged against the established reserve, bringing the reserve
to a zero balance. To-date, $1,169,000 of restructuring costs related to
these actions have been incurred.
6
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3. Acquisition
On February 29, 1996, EMCON acquired all of the outstanding capital stock
of Organic Waste Technologies, Inc. ("OWT"), a Cleveland based
construction, equipment and operations and maintenance company with
significant expertise in solid waste management.
The following summarizes the unaudited pro forma net revenue, net income
(loss) and net income (loss) per share for the combined company for the
three month periods ended March 31, 1997 and 1996 had the acquisition
occurred at the beginning of each period presented.
(unaudited)
Three months ended March 31,
----------------------------
(in thousands) 1997 1996
----------------------------------------------------------------------
Net revenue $27,581 $27,506
Net income (loss) 691 (282)
Income (loss) per share $ 0.08 $ (0.03)
-------------------------------------------------------------------
4. Credit Agreement
In conjunction with the acquisition of OWT, the Company entered into a
$20,000,000 secured credit agreement with its existing commercial bank,
replacing its previous $10,000,000 unsecured line of credit. Under the new
agreement, the Company borrowed $10,000,000 on a long term basis with an
interest rate not to exceed the prime rate. Principal is to be amortized
over seven years, but with any unpaid amount finally due and payable on
June 30, 2001. The remaining $10,000,000 under the credit agreement is
available on a line of credit basis for working capital purposes (with up
to $5,000,000 available for non-working capital purposes). The line of
credit component of the credit agreement expires on May 31, 1997.
5. Litigation
As a professional services firm engaged in environmental-related matters,
the Company encounters potential liability, including claims for significant
environmental damage in the normal course of business. The Company is party
to lawsuits and is aware of potential exposure related to certain claims,
but in the opinion of management the resolution of these matters will not
have a material adverse effect on the Company's financial position, results
of operations or cash flows.
6. Income Per Share
Income per share for the three months ended March 31, 1997 is based on the
weighted common and dilutive common equivalent shares outstanding using the
treasury stock method. Common equivalent shares include shares issuable
under the Company's stock option plans. Primary and fully diluted earnings
per share are substantially the same.
7
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Income per share for the three months ended March 31, 1996 is based on the
weighted average number of common and dilutive common equivalent shares
outstanding using the modified treasury stock method.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact is
expected to result in no change to the primary earnings per share for the
first quarter ended March 31, 1997 and a $0.01 decrease to the primary
earnings per share for the first quarter ended March 31, 1996. The impact of
Statement 128 on the calculation of fully diluted earnings per share for
these quarters is not expected to be material.
7. Other
In 1994, the Company converted to a fifty-two/fifty-three week fiscal year
which will result in a fifty-two week year in 1997. The Company's year end
falls on the Friday closest to the last day of the calendar year. The
Company also follows a five-four-four week quarterly cycle. For convenience,
the accompanying financial statements have been shown as ending on the last
day of the calendar period.
8
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EMCON
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results Of Operations.
RESULTS OF OPERATIONS
NET REVENUE. Net revenue for the first quarter of 1997 totalled $27,581,000, a
12.1% increase from $24,607,000 for the first quarter of 1996. The increase in
net revenue is due in part to the inclusion of OWT for all of the first quarter
of 1997, as compared to only one month of the first quarter of 1996 following
its acquisition on February 29, 1996. Excluding the net revenue contribution of
OWT ($6,417,000 and $1,675,000 in the quarters ended March 31, 1997 and 1996,
respectively), net revenue for the quarter totalled $21,164,000; a 7.7% decrease
from net revenue of $22,932,000 in the first quarter of 1996. The decrease in
net revenue is primarily attributable to lower demand for the Company's
professional services in the Company's South and Southwest areas combined with
the planned reduction in headcount companywide throughout 1996, offset in part
by stronger demand for such services in the Company's North and Northwest areas.
DIRECT EXPENSES. Direct expenses include compensation for billable hours for
technical and professional staff and other project related expenses as well as
direct labor and materials for in-house laboratory testing and construction
activities. Direct expenses for the first quarter of 1997 totalled $12,606,000,
a 30.1% increase from the $9,689,000 for the same period in 1996. Excluding the
impact of OWT, direct expenses for the quarter totalled $8,105,000, a 5.1%
decrease compared to direct expenses of $8,544,000 in the first quarter of 1996.
Excluding the impact of OWT, direct expenses as a percent of net revenue
increased to 38.3% in the first quarter of 1997 compared to 37.3% in the first
quarter of 1996.
INDIRECT EXPENSES. Indirect expenses include salary compensation for nonbillable
hours for professional, technical and administrative staff, and general
administrative expenses such as rent, bonuses, benefits, insurance, legal and
depreciation. Indirect expenses for the first quarter of 1997 totalled
$14,226,000, a 3.9% decrease from indirect expenses of $14,799,000 in the first
quarter of 1996. Excluding the impact of OWT, indirect expenses for the quarter
totalled $12,648,000, a 12.5% decrease compared to indirect expenses of
$14,459,000 in the first quarter of 1996.
Excluding the impact of OWT, indirect expenses as a percent of net revenue
decreased to 59.7% in the first quarter of 1997 compared to 63.1% in the first
quarter of 1996. The decrease was attributable to improved utilization of
technical and professional staff as well as the positive impact of cost
containment and restructuring measures put in place at the end of 1996.
ADJUSTMENT OF RESTRUCTURING ACCRUAL. During the first quarter of 1997, the
Company reversed an accrual of $75,000 made as part of the restructuring actions
taken in the fourth quarter of 1996. The year end accrual was revised to reflect
lower than anticipated costs associated with the abandonment and subsequent
sublease of certain office space.
9
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LOSS ON DISPOSITION OF LABORATORY. During the first quarter of 1997, the Company
completed the sale of its laboratory subsidiary, Columbia Analytical Services,
Inc. ("CAS"), to the employees of CAS for $4,000,000 in cash, CAS promissory
notes for $3,219,000 and a continuing preferred stock interest in CAS valued at
$500,000. The Company paid to CAS $206,000 in cash for retired employee
contracts and for accelerated vesting of stock options and other non vested
stock rights. In anticipation of completing the sale, the Company recognized
impairment in the value of its investment in CAS of $3,327,000 at the end of
1996. As a result of several pre closing adjustments, the Company recognized an
additional loss on disposition of CAS in the first quarter of $333,000.
GAIN ON SALE OF ASSETS. During the quarter ended March 31, 1997, the Company
completed the sale of one of its landfill gas-to-energy projects, including the
related leasehold production rights and associated machinery and equipment. The
Company recognized a gain on disposition of the project of $826,000.
INCOME FROM OPERATIONS. Income from operations for the first quarter of 1997 was
$1,317,000 compared to $119,000 during the comparable period last year.
INTEREST INCOME (EXPENSES) NET. The Company recorded interest expense, net of
interest income of $237,000 in the first quarter of 1997 compared to $22,000 in
the comparable quarter last year. The increase was due primarily to increases in
long term debt incurred for purposes of financing the acquisition of OWT in
February of 1996 and the subsequent expansion of one of OWT's landfill
gas-to-energy projects.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1997, the Company financed its operations
principally from cash and marketable securities on hand, cash generated from the
disposition of assets, and from the return on investment on its cash, cash
equivalents and marketable securities. Net cash used for operating activities
during the first quarter of 1997 was $1,105,000. At March 31, 1997, the Company
had cash and cash equivalents of $7,901,000.
In conjunction with the acquisition of OWT, the Company entered into a
$20,000,000 secured credit agreement with its existing commercial bank,
replacing its previous $10,000,000 unsecured line of credit. Under the new
agreement, the Company borrowed $10,000,000 on a term loan basis with interest
at a managed rate not to exceed the prime rate. Principal is to be amortized
over seven years, but with any unpaid amount finally due and payable on June 30,
2001. In April 1997, following the infusion of cash upon the sale of CAS, the
Company prepaid, on an accelerated basis, $3,000,000 of the then outstanding
principal balance of the term loan. The remaining $10,000,000 under the Credit
Agreement is available for working capital purposes (with up to $5,000,000 also
being available for non-working capital purposes). The line of credit component
10
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of the Credit Agreement expires on May 31, 1997. The Company expects to renew
the line of credit component of the Credit Agreement prior to its expiration.
The Credit Agreement contains provisions with respect to the payment of
dividends and the level of capital expenditures and requires the maintenance of
specific levels of working capital, tangible net worth and continued quarterly
profitability.
The Company invested $1,157,000 in the first quarter of 1997 in additions to
property and equipment; mainly computers, field equipment and the expansion of
its equipment fabrication facilities.
The Company believes that its cash on hand and cash generated from operations,
together with its available bank financing will be sufficient to meet the
Company's capital needs for at least the next twelve months.
11
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EMCON
PART II OTHER INFORMATION
Items 1. - 4. Not applicable.
Item 5. Other Information
On April 30, 1997, EMCON acquired all of the outstanding equity of
National Earth Products, Inc. ("NEP") for cash of $860,780 and the
issuance of EMCON's convertible promissory notes in the aggregate
principal amount of $800,000. Approximately 50% of the convertible notes
are due on May 1, 2000 with the balance due on May 1, 2002. The
indebtedness bears interest at the rate of 8% per annum and is
convertible into EMCON Common Stock at a conversion price of $6.50 per
share. The former shareholders of NEP are also eligible to receive
additional earn out payments in each of the three twelve month periods
immediately following the acquisition; which earn out payments are tied
to the financial performance of NEP. NEP is a Pennsylvania-based solid
waste construction company with specialized expertise in securing and
processing natural landfill cover and liner materials, such as dirt and
clay.
Item 6. Exhibits and Reports
(a) Exhibits - See Index to Exhibits on Page 14
(b) Reports on Form 8-K - No reports on Form 8-K were filed with the
Securities and Exchange Commission during the quarter ended March 31,
1997.
12
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EMCON
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 thereunto duly authorized.
Date: May 14, 1997 EMCON
R. Michael Momboisse
-------------------------------------
R. MICHAEL MOMBOISSE
Chief Financial Officer,
Vice President - Legal, and Secretary
(Duly authorized and principal
financial and accounting officer)
13
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Sequentially
Exhibit Numbered
Number INDEX TO EXHIBITS Page
- --------- ---------------------------- ------
2.1 Stock Purchase Agreement dated January 30, 1996, *
among Organic Waste Technologies, Inc. ("OWT"),
Registrant and the selling shareholders and option
holders of OWT, incorporated by reference from
Exhibit 2.1 of the Current Report on Form 8-K
dated March 14, 1996, (the "March 1996 8-K").
2.2 Asset Purchase Agreement between Yolo Energy *
Partners, Inc., Yolo Landfill Gas Corporation,
EMCON, Yolo Neo LLC, and Minnesota Methane LLC
dated December 31, 1996, incorporated by reference
from Exhibit 10.20 of the Annual Report on Form
10-K for the fiscal year ended December 31, 1996
(the "1996 10-K").
2.3 Acquisition Agreement between EMCON and its wholly *
owned subsidiary, Monterey Landfill Gas
Corporation, and Biomass Energy Partners V, L.P.,
dated March 6, 1997, incorporated by reference
from Exhibit 10.22 of the 1996 10-K.
2.4 Stock Purchase Agreement dated April 4, 1997 among 18
Registrant, Columbia Analytical Services, Inc.
(`CAS"), Northwest Trust as trustee of the CAS
Employee Stock Ownership Trust and certain senior
management employees of CAS.
2.5 Stock Purchase Agreement dated April 30, 1997 43
among Registrant, OWT, National Earth Products,
Inc. ("NEP") and the selling stockholders of NEP.
3.1 Articles of Incorporation, as amended, *
incorporated by referenc from Exhibit 3.1 of the
Registrant's Registration Statement on Form S-1
(File No. 33-16337) effective September 16, 1987
(the "Form S-1 Registration Statement").
3.2 Certificate of Amendment of Restated Articles of *
Incorporation as filed on May 24, 1988,
incorporated by reference from Exhibit 3.2 of the
Annual Report on Form 10-K for the fiscal year
ended December 31, 1988 (the "1988 10-K").
3.3 Certificate of Amendment of Restated Articles of *
Incorporation as filed on June 4, 1991,
incorporated by reference from Exhibit 4.1 of the
Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1991 (the "June 1991
10-Q").
3.4 Bylaws, as amended, incorporated by reference from *
Exhibit 4.2 of the June 1991 10-Q.
14
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Sequentially
Exhibit Numbered
Number INDEX TO EXHIBITS (Continued) Page
- --------- -------------------------------------------- ------
10.1 EMCON 1986 Incentive Stock Option Plan and *(1)
Amendment, incorporated by reference from Exhibit
10.15 of the Form S-1 Registration Statement.
10.2 Form of Agreement pursuant to Salary Continuation *(1)
Plan, incorporated by reference from Exhibit 10.17
of the Form S-1 Registration Statement.
10.3 Schedule identifying Agreements pursuant to Salary 81(1)
Continuation Plan between Registrant and certain
employees.
10.4 Form of Indemnity Agreement between the Registrant *
and each of the Registrant's officers and
directors, incorporated by reference from Exhibit
10.20 of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1988
(the "1988 10-K").
10.5 EMCON 1988 Stock Option Plan, amended by *(1)
shareholder approval on May 25,1994, including
form of Nonqualified Stock Option Agreement
(Outside Directors), incorporated by reference
from Exhibit 10.9 of Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30,
1994 (the "June 30, 1994 10-Q").
10.6 EMCON Employee Stock Purchase Plan incorporated by *(1)
reference from Exhibit 10.10 of the Registrant's
Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1995.
10.7 EMCON Restricted Stock Plan incorporated by *(1)
reference from Exhibit 10.15 of the Annual Report
on Form 10-K for the fiscal year ended December
31, 1990.
10.8 EMCON Deferred Compensation Plan effective January *(1)
1, 1994, incorporated by reference from Exhibit
10.12 of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1993
(the "1993 10-K").
10.9 Trust Agreement for the EMCON Deferred *(1)
Compensation Plan and Salary Continuation Plan
Trust dated February 19, 1994, between Registrant
and Wells Fargo Bank, N.A. incorporated by
reference from Exhibit 10.13 of the 1993 10-K.
10.10 Agreement between Eugene M. Herson and Registrant *(1)
dated November 30, 1995, incorporated by reference
from Exhibit 10.21 of Registrant's Annual Report
on Form 10-K for the fiscal year ended December
31, 1995 (the "1995 10-K").
14
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Sequentially
Exhibit Numbered
Number INDEX TO EXHIBITS (Continued) Page
- ------ -------------------------------- ------
10.12 Credit Agreement between The Bank of California, *
N.A. and Registrant dated February 29, 1996,
incorporated by reference from Exhibit 10.2 of the
March 1996 8-K.
10.13 Security Agreement between The Bank of California, *
N.A. and Registrant dated February 29, 1996,
incorporated by reference from Exhibit 10.3 of the
March 1996 8-K.
10.14 Pledge Agreement between The Bank of California, *
N.A. and Registrant dated February 29, 1996,
incorporated by reference from Exhibit 10.4 of the
March 1996 8-K.
10.15 Eurodollar Rate Option Agreement between The Bank *
of California, N.A. and Registrant dated February
29, 1996, incorporated by reference from Exhibit
10.5 of the March 1996 8-K.
10.16 Fixed Rate Amortization Option Agreement between *
The Bank of California, N.A. and Registrant dated
February 29, 1996, incorporated by reference from
Exhibit 10.6 of the March 1996 8-K.
10.17 Note Agreement among the Registrant, OWT, and *
certain employees of OWT , incorporated by
reference from Exhibit 10.1 of the March 1996 8-K.
10.18 Rescission and Reformation Agreement dated *
effective November 1, 1996 among EMCON, OWT, and
certain employees of OWT, incorporated by
reference from Exhibit 10.18 of the 1996 10-K.
10.19 New Note Agreement dated effective November 1, *
1996 among EMCON, OWT and certain employees of
OWT, incorporated by reference from Exhibit 10.19
of the 1996 10-K.*
10.20 Second Amendment to Credit Agreement dated *
effective January 27, 1997 among EMCON and Union
Bank of California, N.A. (formerly known as The
Bank of California, N.A.), incorporated by
reference from Exhibit 10.21 of the 1996 10-K.
10.21 Third Amendment to Credit Agreement dated *
effective March 27, 1997 among EMCON and Union
Bank of California, N.A. (formerly known as The
Bank of California, N.A.), incorporated by
reference from Exhibit 10.23 of the 1996 10-K.
10.22 Convertible Notes dated April 30, 1997 issued by 82
EMCON to Dennis Grimm and Charles Gearhart in the
principal amounts of $400,798.40 and $399,201.60,
respectively.
15
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Sequentially
Exhibit Numbered
Number INDEX TO EXHIBITS (Continued) Page
- --------- -------------------------------------------- ------
10.23 Lease Agreement dated April 4, 1997, between EMCON 96
and Columbia Analytical Services, Inc.
11.1 Computation of Income (Loss) Per Share. 127
27 Financial Data Schedule, included herein. 128
* Incorporated by reference
(1) Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of the instructions to
Form 10-K.
16
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EXHIBIT 2.4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") dated April 4, 1997,
1997, among EMCON, a California corporation ("Seller" or "EMCON"), COLUMBIA
ANALYTICAL SERVICES, INC., a Washington corporation ("CAS"), the members of the
senior management employee group of CAS listed on the signature page hereto
("Management Purchasers") and NORTHWESTERN TRUST, as the trustee (the "Trustee")
of the COLUMBIA ANALYTICAL SERVICES, INC., EMPLOYEE STOCK OWNERSHIP TRUST ("ESOT
Purchaser").
R E C I T A L S:
Pursuant to a Plan of Recapitalization ("Recapitalization") under
Section 368(a)(1)(E) of the Internal Revenue Code of 1986, as amended ("Code"),
a copy of which is attached hereto as Exhibit A, the Seller owns the following
shares of stock in CAS: 1,250,000 shares of Class A Common Stock ("Common
Stock"), 4,000,000 shares of Class A Super Common Stock ("Super Common Stock"),
and 500,000 shares of Class A Preferred Stock ("Preferred Stock"). The Seller
desires to sell to ESOT Purchaser and CAS certain of these shares in accordance
with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereby agree as follows:
ARTICLE 1.
Purchase and Sale of Stock
1.1 Purchase by ESOT Purchaser. Subject to the terms and conditions of this
Agreement, at the Closing, the Seller shall sell to the ESOT Purchaser, and the
ESOT Purchaser shall purchase from the Seller, 4,000,000 shares of Super Common
Stock ("Super Common Shares") for a total purchase price of $5,000,000.
1.2 Purchase by CAS. Subject to the terms and conditions of this Agreement,
at the Closing, the Seller shall sell to CAS, and CAS shall purchase from the
Seller, 1,250,000 shares of Common Stock ("Common Shares") for a total purchase
price of $500,000.
1.3 Stock Retained by Seller. Seller shall retain the 500,000 shares of
Preferred Stock.
1.4 Sale of Stock By CAS. Subject to the terms and conditions of this
Agreement, within five (5) business days following Closing, CAS shall sell to
the Management Purchasers, and the Management Purchasers shall purchase from CAS
a total of 461,538 shares of Common Stock for a total purchase price of
$300,000. The shares of Common Stock shall be distributed among the Management
Purchasers as shown on Schedule 1.4.
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1.5 Options to Management Purchasers. At Closing, CAS shall grant options
to the Management Purchasers to purchase the number of shares of Common Stock
shown on Schedule 1.5 hereof. The Stock Option shall be in the form attached
hereto as Exhibit 1.5.
ARTICLE 2.
ESOT Purchaser Financing
The obligation of the ESOT Purchaser to purchase the shares of Seller
as provided in Section 1.1 is conditioned upon ESOT Purchaser obtaining the
necessary financing. ESOT Purchaser intends such financing to be as follows:
2.1 Bank Financing. CAS will undertake to obtain a $3,500,000 loan from a
financial institution. Upon receipt of the proceeds of that loan, CAS will then
loan $3,500,000 to ESOT Purchaser upon the same terms and conditions as the loan
from the financial institution and which shall be in the form of the ESOT Loan
and Pledge Agreement attached as Exhibit 2.1. The ESOT Purchaser shall use the
loan proceeds to pay part of the purchase price referred to in Section 1.1.
2.2 Seller Financing. Seller agrees to loan to CAS the sum of $1,500,000
upon the terms and conditions of the Subordinated Promissory Note attached
hereto as Exhibit 2.2. CAS agrees to loan to the ESOT the sum of $1,500,000
which shall be in the form of the ESOT Loan and Pledge Agreement attached as
Exhibit 2.1. The ESOT Purchaser shall use the loan proceeds to pay part of the
purchase price referred to in Section 1.1.
2.3 Contributions. CAS shall make cash contributions to the ESOT Purchaser
in such amounts and at such times which, together with any cash dividends that
may be declared by CAS with respect to the Class A Super Common Shares, will
enable the ESOT Purchaser to pay when due all amounts owing by the ESOT
Purchaser under the Notes to CAS described in Section 2.1 and 2.2, whether for
principal or interest. A contribution or dividend by the CAS to the ESOT
Purchaser to enable the ESOT Purchaser to make any given payment shall be made
sufficiently prior to the date such payment is due to provide for timely
payment.
ARTICLE 3.
Closing
3.1 Time and Place. The exchange of items described in Section 3.2 below
("the Closing") shall be held at the offices of CAS, located at 1317 South 13th
Avenue, Kelso, Washington, at 10 a.m., local time, on April 4, 1997, or at such
other time and place as shall be mutually agreed upon by the parties. The date
of the Closing is sometimes referred to herein as the "Closing Date."
3.2 Deliveries. On the Closing Date (a) CAS and the ESOT Purchaser shall
execute and exchange counterparts of the ESOT Loan and Pledge Agreement in the
form attached hereto as Exhibit 2.1; (b) the ESOT Purchaser and CAS shall
deliver to the Seller payment by federal wire transfer or cashier's checks
representing the purchase price in accordance with Section 1.1 and 1.2 above;
(c) the Seller shall deliver to the ESOT Purchaser and CAS certificates
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representing the Super Common Shares and Common Shares, respectively, duly
endorsed to the ESOT Purchaser and CAS or accompanied by duly executed stock
powers, in transferable form with all requisite stock transfer stamps attached;
and (d) the parties shall deliver all other documents or agreements required by
this Agreement.
ARTICLE 4.
Other Transactions at Closing
4.1 Subordinated Promissory Note. CAS and Seller acknowledge that CAS
currently owes to Seller the sum of $1,718,615.64. As a condition to the
purchase of the shares by the ESOT Purchaser, Seller has agreed that this debt
shall be represented by a Subordinated Promissory Note from CAS in the form
attached hereto as Exhibit 4.1.
4.2 Terms of Subordination. The two Subordinated Promissory Notes referred
to in Section 2.2 and 4.1 ("EMCON Notes") shall be subordinated to the bank
financing referred to in Section 2.1 and an operating line of credit for CAS not
to exceed $1,200,000. The operating line of credit may increase, with the
approval of Seller, in its sole discretion, at the rate of $1.00 for every $2.00
in principal reduction under the EMCON Notes.
4.3 Security for EMCON Notes. The obligations of CAS under the EMCON Notes
shall be secured by an assignment by CAS of the Stock Pledge Agreement between
CAS and the ESOT. The form of assignment is attached hereto as Exhibit 4.3.
4.4 Purchase of Seller's Shares. At Closing, Seller will pay to CAS, via
wire transfer, a total of Two Hundred Six Thousand Four Hundred Fifty-six
Dollars and Forty-three cents ($206,456.43). Four Hundred Eighty-seven Dollars
and Forty-three cents ($487.43) of such sum represents reimbursement of the cost
incurred by CAS pursuant to Section 4.6 below for the policy of title insurance
on the property. CAS will promptly distribute the balance of such monies (net of
applicable withholding) to those persons and in the amounts listed on Schedule
4.4 in final satisfaction of Seller's agreements to (a) cancel its Salary
Continuation Agreements with Steve Vincent; (b) buy back shares of EMCON
restricted stock held by CAS employees; and (c) cash out options to purchase
EMCON common stock held by CAS employees. Following the Closing, CAS shall be
responsible for the payment of all income tax, withholding, and other
payroll-related taxes on all the payments described in this Section 4.4.
4.5 State/Federal Taxes. The following amounts shall be treated as
additional contributions to capital to CAS by Seller: (a) All intercompany
payable amounts owed by Seller to Purchaser for past years accrued local, state,
and/or federal income taxes up through April 4, 1997; and (b) all debt owed by
CAS to Seller relating to Columbia Aquatics. Seller agrees to be solely
responsible for the payment of these liabilities.
4.6 Kelso Property. The land and real property improvements for the Kelso,
Washington, real estate legally described on Schedule 4.6 hereof ("Property")
shall be distributed to Seller by CAS as a dividend. At the Closing, CAS shall
convey to Seller by warranty deed ("Deed") the fee title to the Property. The
form of the Deed shall be subject to the reasonable approval of Seller and CAS.
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The Property shall be conveyed to Seller subject only to non-delinquent real
property taxes and assessments and those certain exceptions to title set forth
in that certain preliminary report issued as order No. 111643 by Cowlitz County
Title Company (the "Title Company") and dated March 3, 1997 (collectively, the
"Approved Exceptions to Title"). At the Closing, the Title Company shall issue a
standard ALTA Owner's Policy of Title Insurance to EMCON in the amount of
$300,000, subject only to the Approved Exceptions to Title. At the Closing, CAS
and Seller shall also execute a Lease Agreement in the form attached hereto as
Exhibit 4.6 (the "Lease Agreement"), pursuant to which CAS shall lease the
Property from Seller for a period of ten (10) years. Subject to reimbursement by
Seller pursuant to Section 4.4 above, CAS shall pay for the policy of title
insurance issued in connection with the foregoing. CAS shall pay for all
transfer taxes, escrow fees, and other closing charges in connection therewith.
Prior to Closing, CAS will deposit the duly executed and notarized Deed
into escrow for recordation at the Closing upon telephone confirmation by both
parties that the Closing has occurred with respect to the transfer of the Super
Common Shares and the Common Shares. Both parties shall deposit with the Title
Company their respective portions of the closing costs hereunder, escrow
instructions sufficient to close escrow and cause issuance of the Title Policy
at the Closing, and such other documents as may be reasonably necessary to close
the escrow.
ARTICLE 5.
Seller's Representations and Warranties
Subject to the limitations set forth in Article 10, the Seller represents
and warrants to the ESOT Purchaser, as follows, and, subject to the limitations
set forth in Article 10 hereof, Seller represents and warrants to CAS the
statements set forth in Sections 5.1, 5.2, 5.3, 5.5, 5.6, 5.7, 5.8, 5.9, and
5.10:
5.1 Title to Stock. The Seller is the record and beneficial owners of the
Shares, which, as of closing, shall be free and clear of any security interest,
claim, lien, pledge, option, encumbrance or restriction (on transferability or
otherwise) whatsoever in law or in equity. The delivery to CAS and the ESOT
Purchaser on the Closing Date of certificates for the Common Shares and Super
Common Shares will convey to CAS and the ESOT Purchaser respectively lawful and
valid title thereto, free and clear of any security interest, claim, lien,
pledge, option, encumbrance or restriction whatsoever, except those created by
the ESOT Loan Agreement and the EMCON Notes.
5.2 Necessary Authority; Enforceability. The Seller has the legal
competence and full power to enter into, deliver and perform this Agreement and
to consummate the transactions contemplated herein. This Agreement has been duly
executed and delivered by the Seller, and constitutes the legal, valid and
binding obligations of the Seller enforceable against the Seller in accordance
with its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally now or hereafter in effect, and subject to the availability of
equitable remedies.
5.3 No Conflicts. Except for the consents listed on Schedule 5.3, all of
which consents have been or are being delivered concurrently herewith, the
execution, delivery and performance of this Agreement by the Seller and the
Seller's consummation of the transactions contemplated hereby, do not and will
not (i) require the consent, approval, authorization, order, filing,
registration or qualification of or with any court, governmental authority or
third person, (ii) conflict with or result in any material violation of or
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default under any provision of any mortgage, indenture, lease, agreement or
other instrument, permit, concession, grant, franchise or license to which the
Seller is party or by which it may be bound, (iii) conflict with or result in
any violation of or default under any provision of the Articles of Incorporation
or the By-Laws of the Seller, (iv) violate any law, ordinance, rule, regulation,
judgment, order or decree applicable to the Seller, or (v) result in the
creation of any security interest, claim, lien, charge or encumbrance upon any
of the Common Shares and Super Common Shares except as set forth in the ESOT
Loan Agreement and the EMCON Notes.
5.4 Authorized and Outstanding Stock
(a) Prior to implementation of the Recapitalization, the authorized
stock of CAS consisted of 100,000 shares of common stock, of which 10,000 shares
were issued and outstanding in the name of Seller. After the Recapitalization,
the capitalization of CAS is as follows: 3,500,000 authorized shares of Class A
Common Stock, of which 1,250,000 shares are issued and outstanding; 10,000,000
authorized shares of Class A Super Common Stock, of which 4,000,000 shares are
issued and outstanding; and 500,000 authorized shares of Class A Preferred
Stock, of which 500,000 shares are issued and outstanding. All of the foregoing
outstanding shares are owned by Seller. To Seller's knowledge, all outstanding
shares have been duly authorized and are validly issued, fully paid,
nonassessable and issued in full compliance with the preemptive rights of any
existing shareholders and in full compliance with all applicable federal and
state securities laws. Except as set forth in Schedule 5.4, to Seller's
knowledge, no shares of the capital stock of CAS have been reserved for issuance
for any purposes, and there are no outstanding rights, subscriptions, warrants,
options, conversion rights, commitments or agreements of any kind outstanding to
purchase or otherwise acquire from CAS, or to cause CAS to issue or sell any
shares of its authorized stock or securities or obligations of any kind
convertible into, exchangeable for or evidencing the right to acquire any shares
of its authorized stock.
(b) To Seller's actual knowledge, there are no other shares or classes
of shares of authorized or outstanding capital stock of CAS. Notwithstanding the
fact that Stephen Vincent or any other executive officer of CAS may have been
deemed to be an executive officer of Seller under the Securities Exchange Act of
1934 or any other law or regulation. Seller shall not be deemed to have
possessed knowledge of any facts or circumstances solely by virtue of Mr.
Vincent's or such other executive officer's knowledge of such facts or
circumstances for the purposes of the representation set forth in this Section
5.4(b).
5.5 Taxes. Seller has duly filed all consolidated federal, state, local and
foreign income tax returns necessary to be filed by it (all such returns being
true and correct in all material respects) and Seller has duly paid or made
provisions for the payment of all taxes (including any interest or penalties)
which are due or payable pursuant to such returns or pursuant to any assessment
with respect to federal, state, and local income taxes, whether or not in
conjunction with such returns, through the date of Closing.
Except as set forth on Schedule 5.5 attached hereto, to Seller's knowledge,
there are no pending or threatened examinations or audits of the returns and
reports of Seller for CAS's operations or any claims asserted for taxes or
assessments of Seller for CAS operations nor are there outstanding agreements or
waivers extending the statutory period of limitations applicable to any
consolidated income tax return of Seller for any period. Seller has not prepared
and filed a consolidated income tax return for the year ending December 31,
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1996. Taxes will be due on account of the filing of said returns. Seller has and
will have obligations to pay all local, state and federal income taxes for CAS
operations with respect to periods up to April 4, 1997.
5.6 Undisclosed Liabilities. Except as set forth on Schedule 5.6 attached
hereto, Seller has not obligated CAS nor caused CAS to incur any liabilities,
whether absolute, accrued, contingent or otherwise, whether due or to become due
other than such liabilities Seller shall continue to be solely responsible for.
5.7 Benefit Plan. Except as set forth on Schedule 5.7, Seller has no plans
of the following types which may result in any liability to CAS or its officers
or directors: pension, profit-sharing, stock bonus, or other plan which is
"qualified," or is intended to be "qualified" under Section 401(a) of the Code,
or any bonus, deferred compensation, hospitalization or other medical stock
purchase, life or other insurance, golden parachute agreements or other employee
benefit plan or arrangement.
5.8 Financial Statements. Attached hereto as Schedule 5.8 are true and
complete copies of Seller's auditors workpapers showing the balance sheets of
CAS at December 31, 1994, December 31, 1995, and the related statements of
income, stockholders' equity and cash flows for the fiscal years then ended
(collectively, the "Annual Financial Statements"), and an audited balance sheet
and related statement of income of EMCON for the year ended December 31, 1996
(collectively, the Balance Sheet and the Statements may hereinafter be referred
to as the "Financial Statements").
(a) To Seller's knowledge, the Annual Financial Statements (including
the notes thereto) present fairly the financial condition and results of
operations of CAS at and for the periods indicated, and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis.
(b) To Seller's knowledge, CAS has no liabilities, commitments or
obligations of any nature, whether absolute, accrued, contingent, known or
unknown, due or to become due or otherwise, which, in accordance with generally
accepted accounting principles are required to be set forth on a balance sheet,
except (i) as reflected in its December 31, 1996, balance sheet included as part
of the Financial Statements and not heretofore discharged, (ii) as incurred as a
result of the normal and ordinary course of its business since the date of such
balance sheet, none of which is materially adverse.
5.9 No Liens and Encumbrances. Except as set forth on Schedule 5.9, or as
otherwise contemplated by this Agreement, Seller has not placed or caused to be
placed any lien, security interest, or other encumbrance upon the personal
property of CAS.
5.10 Representations Complete. None of the representations and warranties
made by the Seller herein, nor any statement made in any Schedule, Exhibit or
certificate furnished pursuant to this Agreement, contains or will contain any
untrue statement of a material fact, or omit to state any material fact required
to be stated therein, or necessary in order to make the statements made, not
misleading.
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ARTICLE 6.
Sellers' and Management Purchasers' Representations and Warranties
The Management Purchasers jointly and severally represent and warrant to
the ESOT Purchaser as follows, and, subject to the limitations set forth in
Article 10 hereof, the Seller represents and warrants to the ESOT Purchaser, to
Seller's knowledge, as follows:
6.1 Subsidiaries. Schedule 6.1 attached hereto lists all subsidiaries,
partnerships and other entities which CAS has organized or in which it has owned
an interest (other than publicly traded corporations or entities in which it has
held a de minimis interest for investment purposes) and the status of CAS's
ownership in such entitles on the date hereof. Except as disclosed in Schedule
6.1, immediately after the Closing, there will be no corporation which is a
member of the same "controlled group of corporations" as CAS, as determined
under Section 1563(a) of the Code.
6.2 Litigation and Contracts. Schedule 6.2 attached hereto contains a true
and complete list of all actions, suits, proceedings, arbitrations or
investigations pending or threatened against CAS (or any of its respective
officers or directors in connection with the business or affairs of CAS or the
transactions contemplated hereby), before any court or governmental body, United
States or foreign ("Proceeding" or "Proceedings"). The status of each Proceeding
is set forth on Schedule 6.2. As of the date hereof, except as described in
Schedule 6.2, the claims which are the subject of each Proceeding and the
defense thereof is covered by insurance as described on Schedule 6.2 or a
sufficient cash reserve has been set aside by CAS with the result that the
Proceedings, in the aggregate, will not require any currently unfunded material
payments by CAS or any other commitments, other than the time expended by
officers and employees in connection with testimony or other participation in
the defense of the Proceedings. CAS is not in default in any material respect on
any of its contracts, agreements or evidences of indebtedness, and no party to
any contract or agreement with CAS which is material to the conduct of CAS's
business, is in default in any material respect under any such contract or
agreement.
ARTICLE 7.
CAS and Management Purchasers Representations and Warranties
CAS and the Management Purchasers jointly and severally represent and
warrant to Seller and the ESOT Purchaser as follows:
7.1 Necessary Power and Authority; Enforceability. CAS has all requisite
power and authority to enter into, deliver and perform this Agreement and to
consummate the transactions contemplated herein. The execution, delivery and
performance of the Agreement and the consummation of the transactions
contemplated herein, have been duly authorized by all necessary action on the
part of CAS's Board of Directors and shareholders. This Agreement has been duly
executed and delivered on behalf of CAS by the authorized corporate officers and
constitutes CAS's valid and legally binding obligation, enforceable against CAS
in accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors'
rights generally now or hereafter in effect, and subject to the availability of
equitable remedies.
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7.2 No Conflicts. Except for the consents listed on Schedule 7.2, all of
which consents have been or are being delivered concurrently herewith, the
execution, delivery and performance of this Agreement by CAS and CAS's
consummation of the transactions contemplated hereby, do not and will not (i)
require the consent, approval, authorization, order, filing, registration or
qualification of or with any court, governmental authority or third person, (ii)
conflict with or result in any violation of or default under any provision of
any mortgage, indenture, lease, agreement or other instrument, permit,
concession, grant, franchise or license to which CAS is party or by which any of
its outstanding Shares are or may be bound, (iii) conflict with or result in any
violation of or default under any provision of the Articles of Incorporation or
the By-Laws of CAS, (iv) violate any law, ordinance, rule, regulation, judgment,
order or decree applicable to CAS, or (v) result in the creation of any security
interest, claim, lien, charge or encumbrance upon any of the outstanding Shares
of CAS, except as set forth in the ESOT Loan Agreement and EMCON Notes.
Authorized and Outstanding Stock. Prior to implementation of the
Recapitalization, the authorized stock of CAS consisted of 100,000 shares of
common stock, of which 10,000 shares were issued and outstanding in the name of
Seller. After the Recapitalization, the capitalization of CAS is as follows:
3,500,000 authorized shares of Class A Common Stock, of which 1,250,000 shares
are issued and outstanding; 10,000,000 authorized shares of Class A Super Common
Stock, of which 4,000,000 shares are issued and outstanding; and 500,000
authorized shares of Class A Preferred Stock of CAS, of which 500,000 shares are
issued and outstanding. All of the foregoing outstanding shares are owned by
Seller. There are no other shares or classes of shares of authorized or
outstanding capital stock of CAS. All outstanding shares have been duly
authorized and are validly issued, fully paid, nonassessable and issued in full
compliance with the preemptive rights of any existing shareholders and in full
compliance with all applicable federal and state securities laws.
Except as set forth in Schedule 7.3, no shares of the capital stock of
CAS have been reserved for issuance for any purposes, and there are no
outstanding rights, subscriptions, warrants, options, conversion rights,
commitments or agreements of any kind outstanding to purchase or otherwise
acquire from CAS, or to cause CAS to issue or purchase, any shares of its
authorized stock or securities or obligations of any kind convertible into,
exchangeable for or evidencing the right to acquire any shares of authorized
stock.
7.4 Litigation and Contracts. Schedule 7.4 attached hereto contains a true
and complete list of all actions, suits, proceedings, arbitrations or
investigations pending or threatened against CAS (or any of its respective
officers or directors in connection with the business or affairs of CAS or the
transactions contemplated herewith), before any court or governmental body,
United States or foreign ("Proceeding" or "Proceedings"). The status of each
Proceeding is set forth on Schedule 7.4. As of the date hereof, except as
described in Schedule 7.4, the claims which are the subject of each Proceeding
and the defense thereof is covered by insurance as described on Schedule 7.4 or
a sufficient cash reserve has been set aside by CAS with the result that the
Proceedings, in the aggregate, will not require any currently unfunded material
payments by CAS or any other commitments, other than the time expended by
officers and employees in connection with testimony or other participation in
the defense of the Proceedings. CAS is not in default in any material respect on
any of its contracts, agreements or evidences of indebtedness, and no party to
any contract or agreement with CAS which is material to the conduct of CAS's
business, is in default in any material respect under any such contract or
agreement.
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7.5 Corporate Organization and Good Standing of CAS. CAS is a corporation
duly incorporated and organized, validly existing and in good standing under the
laws of the State of Washington and has all requisite power and authority
(corporate and other) to own, operate and lease its properties and to carry on
its business as such business is now being conducted. CAS is duly qualified or
licensed to transact business as a foreign corporation and is in good standing
in all jurisdictions where its present activities require it to be so qualified,
licensed or in good standing. Schedule 7.5 attached hereto contains a list of
all jurisdictions in which CAS is qualified or licensed to transact business as
a foreign corporation. CAS has not received any written notice or assertion
within the last three years from the Secretary of State or comparable official
of any jurisdiction to the effect that CAS is required to be qualified or
otherwise authorized to do business therein, in which CAS has not qualified or
obtained such authorization.
7.6 Employee Benefit Plans. Except as set forth on Schedule 7.6 attached
hereto, CAS maintains no pension, profit-sharing, stock bonus or other plan
which is "qualified," or is intended to be "qualified" under Section 401(a) of
the Code. Schedule 7.6 contains an accurate and complete list of each bonus,
deferred compensation, hospitalization or other medical, stock purchase, life or
other insurance, and each other employee benefit plan or arrangement of CAS
(collectively, the "Plans"). CAS has heretofore delivered to the ESOT Purchaser
true and complete copies of the documents governing all such Plans as in effect
on the date hereof. Each of the Plans has been administered in material
compliance with its terms and all filing, reporting, disclosure and other
requirements of the Employee Retirement Income Security Act of 1974, as amended
"ERISA"). CAS has no plan or commitment, whether formal or informal and whether
legally binding or not, to create any additional such Plan or modify or change
any existing plan or arrangement. The trustee has been duly appointed.
7.7 Personnel.
(a) Schedule 7.7 attached hereto lists the names and current salaries of
all directors and officers of CAS and the amount of all bonuses accrued and to
be paid by CAS to all directors and officers of CAS for services rendered to CAS
through December 31, 1996.
(b) Except as contained on Schedule 7.7 attached hereto, CAS is not, or
will not be, by reason of anything done hereafter in connection with the
execution of this Agreement or the consummation of the transactions contemplated
hereby, liable to any employees of CAS for any amount of severance pay or for
any other similar payments.
(c) There is no unfair labor practice pending against CAS before the
National Labor Relations Board. There is no labor strike, slowdown or stoppage,
or any union organizing campaign, actually pending or to the knowledge of CAS of
the Management Purchasers, threatened against or involving CAS. No collective
bargaining agreement is currently being negotiated by CAS.
(d) Except as set forth on Schedule 7.7, CAS has not entered into any
employment agreements or similar arrangements related to the compensation of its
officers.
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7.8 Sales and Use Taxes. CAS has duly filed all sales and use tax returns
necessary to be filed by it, and CAS has duly paid or made provisions for the
payment of all such taxes, (including any interest or penalties) which are due
and payable to such returns or pursuant to any assessments with respect to all
such taxes, whether or not in conjunction with such returns, through the date of
closing.
Except as set forth on Schedule 7.8 attached hereto, there are no
pending or threatened examinations or audits of the returns or reports of CAS,
or claims asserted for sales or use taxes or assessments (other than as listed
by CAS on Schedule 7.8 attached hereto) for CAS operations, nor are there
outstanding waivers or agreements extending the statutory period of limitations
applicable to any tax return or report for any period.
7.9 Corporate Documents. Complete and correct copies of the Articles of
Incorporation of CAS ("Articles") and all amendments thereto, certified by the
Secretary of State of Washington, and of the By-Laws of CAS, as amended,
certified by the Secretary of CAS, have been furnished to the ESOT Purchaser and
no amendments to the Articles or the By-Laws have been adopted subsequent to
said furnishing. CAS is not in default in the performance, observation or
fulfillment of its Articles or By-Laws.
7.10 Liabilities. There are no material transactions in which CAS has been
involved or in which CAS has participated in the last five years or which
represents a current or contingent commitment or liability which are not
reflected on Schedule 7.10 attached hereto, in the Annual Financial Statements
(defined in Section 6.8) or in resolutions, or minutes, certified copies of
which have been delivered to all parties.
7.11 Environmental Matters. Except as set forth on Schedule 7.11 attached
hereto, to the best of Management Purchasers' knowledge, no condition exists at
any facility of, or real property owned by, CAS with respect to the storage or
discharge into the earth or its atmosphere of effluents, waste or other
materials, solid, liquid or gaseous, nor has any waste been disposed of in any
way or manner, in violation of law. CAS has not received any notice from any
governmental body claiming any material violation of any zoning, building,
health or safety law or ordinance, or requiring any material work, repairs,
construction, alterations, noise reduction, cleanup or installation which has
not been fully complied with.
7.12 No Violation. Except as disclosed on Schedule 7.12 attached hereto,
CAS is not in violation of, or is under investigation with respect to, or has
been charged with or given notice of any violation of, any applicable law,
statute, order, rule, regulation, policy or guideline promulgated, or judgment
entered, by any federal, state, local or foreign court or governmental authority
relating to or affecting CAS, or any of its properties, where such violation
could have a material adverse effect on CAS. Neither CAS nor any director,
officer, agent, employee or other person associated with or acting on behalf of
any of them in connection with the business of CAS, has (i) used any corporate
funds for unlawful contributions, payments, gifts or entertainment or made any
unlawful expenditures relating to political activity, or made any direct or
indirect unlawful payments to government officials or others, or (ii) accepted
or received any unlawful contributions, payments, gifts or expenditures.
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7.13 Licenses, Patents, Trademarks. Schedule 7.13 attached hereto contains
a list and rief description of all domestic and foreign letters patent, patents,
patent applications, patent and know-how licenses, trade names, trademark
registrations and applications, common law trademarks, and copyright
registrations and applications (collectively, the "Intangibles"), owned by CAS.
The business of CAS is being carried on without conflict with registered
patents, licenses, trademarks, copyrights, and trade names or other proprietary
rights of others. CAS has not received notice that it infringed or is infringing
on any Intangible, invention, technology, process, design, computer program,
know-how or formulae of another. Except as described in Schedule 7.13, CAS has
not assigned any rights in, or granted any security interest in, any of its
trade secrets, trademarks or copyrights and no current or previous key employees
or consultants of CAS have any rights in any inventions, software programs or
designs or other proprietary concepts, whether or not patentable or
copyrightable, which relate in any material respect to the business of CAS.
7.14 Title to and Condition of Assets. Schedule 7.14 attached hereto
contains a list and brief description of each parcel of real property owned by
CAS or under which CAS is a lessee, true copies of any applicable leases
(including all amendments thereof and modifications thereto) having been
delivered to the ESOT Purchaser prior to the date hereof.
(a) Except as set forth on Schedule 7.14, CAS has good and valid title
to all of its personal property and leasehold interests, including but not
limited to the property and assets reflected on its balance sheet as of December
31, 1996, included in the Financial Statements (other than property and assets
disposed of in the ordinary course of business since such date) free and clear
of all material title defects and all liens, pledges, claims, charges, security
interests, and other encumbrances. Except as set forth in Schedule 7.14, CAS has
not received notice of any existing claims adverse or challenges to the title or
ownership of any personal property of CAS.
(b) All personal property material to the condition (financial or
otherwise), operations, business or prospects of CAS, and all buildings,
structures and fixtures used by CAS in the conduct of its business are,
considering their ages and uses, in satisfactory operating condition (subject to
normal maintenance and repair). CAS has not received notice of any violation
(which has not been cured) of any building, zoning or other law, ordinance or
regulation in respect of any notice that it has failed to comply in any respect
with such obligations.
7.15 No Material Change. Since December 31, 1996, except as disclosed in
Schedule 7.15 attached hereto, there has not been: (i) any materially adverse
change (whether or not in the ordinary and usual course of business) in the
financial condition, net worth, assets, liabilities, personnel, business, or
results of operations of CAS, (ii) any damage, destruction or loss (whether or
not covered by insurance) materially affecting the business of CAS, (iii) any
material increase in the compensation payable or to become payable by CAS to its
officers or key employees, pursuant to any agreement, bonus, insurance, pension
or other beneficial plan or arrangement made to or for the benefit of any such
officers or key employees, other than in a manner consistent with historical
practice, (iv) any loans to or borrowing by CAS, any mortgage or pledge with
respect to any of their properties or assets or any assumption, guarantee,
endorsement or other agreement to become liable (directly, contingently or
otherwise) for any loans to any other person or entity, (v) any sale or
disposition (or agreement to sell or dispose) of any assets, tangible or
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intangible, of CAS, except in the ordinary course of business, (vi) any
cancellation (or agreement to cancel) of more than $10,000 in the aggregate of
any debts owed to or claims of CAS, except in the ordinary course of business or
(vii) any amendment or termination of any material contract, agreement or
license to which CAS is a party, (viii) any amendment to the Articles or By-Laws
of, or any merger or consolidation of, CAS.
7.16 Accounts Receivable. Schedule 7.16 attached hereto sets forth an
accurate, correct and complete aging of all outstanding accounts and notes
receivable as of December 31, 1996. All outstanding accounts and notes
receivable reflected on the Financial Statements delivered to the ESOT Purchaser
are due and valid claims against account debtors for goods or services delivered
or rendered. All receivables arose in the ordinary course of business. No
receivables are subject to prior assignment, claim, lien or security interest.
7.17 Contracts. Schedule 7.17 attached hereto sets forth a complete and
accurate list of all outstanding contracts to which CAS is a party, other than
purchase orders and any contract which involves an aggregate expenditure after
the date of this Agreement of not more than $10,000 and which is not already
reflected in the Annual or Interim Financial Statements. Schedule 7.17
identifies all contracts of CAS with its officers, directors, shareholders or
any other person, firm or corporation affiliated with such persons.
7.18 Insurance. Schedule 7.18 attached hereto sets forth an accurate,
correct and complete list and summary description (including the name of the
insurer, coverage, premium and expiration date) of all binders, policies of
insurance, sell insurance programs or fidelity bonds ("Insurance") maintained by
CAS or in which CAS is a named insured. Except as set forth on Schedule 7.18,
since December 31, 1996, there have been no claims or events which could form
the basis of a claim against any Insurance as to which any insurer has denied
liability, and there are no claims filed after December 31, 1996, under any
Insurance that have been disallowed or improperly filed. No notice of
cancellation or non-renewal with respect to any insurance has been received by
CAS.
ARTICLE 8.
Representations and Warranties Concerning the Property
In connection with the conveyance of the Property to Seller, CAS represents
and warrants to Seller as follows:
8.1 Compliance. To the best of CAS's actual knowledge, and except as
otherwise disclosed to Seller by CAS, CAS has not received any written notice
that the current use and operation of the Property is not in compliance with
actual building codes, local, state, and federal laws and regulations.
8.2 Procedures. CAS has not received any notice of any condemnation,
environmental, zoning, or any other land use regulations or proceedings either
instituted or, to CAS's actual knowledge, threatened or planned to be instituted
which would materially affect the use and operation of the Property.
8.3 Litigation. There is no litigation pending, or, to CAS's actual
knowledge, threatened against CAS arising out of the ownership or use of the
Property.
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8.4 Ownership. CAS is the sole owner of the Property and has the full
right, power, and authority to convey the Property to Seller.
8.5 Hazardous Materials. To CAS's knowledge, except to the extent set forth
in this Agreement, CAS has not received any written notice from any governmental
agency and has no actual knowledge that there exists any hazardous materials in
or under the Property in violation of applicable laws, rules, regulations,
ordinances, or orders.
For purposes of this Section 8.5, the term "hazardous material" shall
include any substance, chemical, compound, or mixture which is (or which
contains any substance, chemical compound, or mixture which is:
(a) a "Hazardous Substance," "Hazardous Material," "Hazardous Waste," or
"Toxic Substance" under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. ss. 9601, et seq., the Hazardous Material
Transportation Act, 49 U.S.C. ss. 1801, et seq., or the Resource Conservation
and Recovery Act, 42 U.S.C. ss. 6901, et seq.;
(b) an "Extremely Hazardous Waste," a "Hazardous Waste," or a
"Restricted Hazardous Waste," under Section 25115, 25117, or 25112.7 of the
California Health and Safety Code, or is listed pursuant to Section 25140 of the
California Health and Safety Code;
(c) a "Hazardous Material," "Hazardous Substance," or "Hazardous Waste"
under Section 25281, 25316, or 25501 of the California Health and Safety Code;
(d) "Oil" or a "Hazardous Substance" under Section 311 of the Federal
Water Pollution Control Act, 33 U.S.C. ss. 1321 as well as any other
hydrocarbonic substance or by-product.
(e) listed under any law, rules, or regulations of the State of
Washington as hazardous or toxic;
(f) a material which, due to its characteristics or interaction with one
or more other substances, chemical compounds, or mixtures, damages or threatens
to damage health, safety, or the environment, or is required by any law or
public agency to be remediated, including remediation which such law or public
agency requires in order for the property to be put to any lawful purpose; or
(g) any material the presence of which would require remediation
pursuant to the guidelines set forth in the State of California Leaking
Underground Fuel Tank Field Manual, whether or not the presence of such material
resulted from a leaking underground fuel tank.
8.6 No Encumbrances. The Property is free and clear of liens and
encumbrances other than as described or referenced in Section 4.6 hereof.
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8.7 Condition of Structures. To CAS's knowledge, (i) no building on the
Property is in need of repairs to any structural components, including but not
limited to the foundation, floor slabs, load-bearing walls, roof structure, and
roof membrane; and (ii) the parking areas and related paved areas within the
Property are in good condition and are not in need of repair or repaving.
ARTICLE 9.
Representations and Warranties of the ESOT Purchaser
The Trustee, in its capacity as such and on behalf of the ESOT
Purchaser, represents and warrants to the Seller and the CAS as follows:
9.1 Necessary Authority. The Trustee has full power and authority under the
ESOT to execute and deliver this Agreement on behalf of the ESOT Purchaser and
to consummate the transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by the Trustee on behalf of the ESOT
Purchaser and constitutes the legal, valid and binding obligation of the ESOT
Purchaser, enforceable against the ESOT Purchaser in accordance with its terms,
except as the same may be limited by ERISA, bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally now or hereafter in effect, and subject to the availability of
equitable remedies.
9.2 No Conflicts. The execution, delivery and performance of this Agreement
by the Trustee, in its capacity as such and on behalf of the ESOT Purchaser and
the consummation of the transactions contemplated herein do not (a) require the
consent or approval of, or filing with, any person or public authority; (b)
constitute or result in the breach of any provision of, or constitute a default
under, the Columbia Analytical Services, Inc., Employee Stock Ownership Plan
("ESOP"), the ESOT Loan and Pledge Agreement, or any agreement, indenture or
other instrument known to the Trustee to which the Trustee, in its capacity as
such, or the ESOT Purchaser is a party or by which it or its assets may be
bound; or (c) violate any law, regulation, judgment or order binding upon the
Trustee, in its capacity as such, or the ESOT Purchaser or give rise to any
liability to the ESOT Purchaser under Title I of ERISA or Section 4975 of the
Code.
9.3 Qualification. The ESOP is, in form, an "employee stock ownership plan"
within the meaning of Section 4975(e)(7) of the Code and, in form, qualifies
under Section 401(a) of the Code. The ESOT Purchaser has been duly constituted
in accordance with valid and binding trust instruments, is validly existing and,
in form, qualifies under Section 501(a) of the Code.
ARTICLE 10.
Seller and Management Purchasers Obligations to Indemnify
10.1 Seller. Subject to Section 10.10, Seller shall indemnify and hold
harmless CAS, Management Purchasers, the ESOT Purchaser, and the ESOT
Purchaser's authorized agents and representatives, against any and all costs,
losses, claims (including claims by third parties), liabilities, fines,
penalties, damages, and expenses (including interest which may be imposed in
connection therewith, court costs and reasonable fees and disbursements of
counsel) suffered by any of them in connection with: (a) any inaccuracy in or
breach of any representations or warranties of the Seller made in Articles 5 and
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6 hereof or in any document, certificate, or exhibit delivered by the Seller in
accordance with the provisions of this Agreement; (b) any breach by the Seller
of this Agreement; or (c) all past and present liabilities relative to Seller's
operations, excluding any operations related to the operations of CAS and for
all of Seller's other operations, including any such operations no longer in
existence.
10.2 Management Purchasers. Subject to Section 10.10, Management
Purchasers, jointly and severally, shall indemnify and hold harmless CAS, the
ESOT Purchaser and the ESOT Purchaser's authorized agents and representatives,
against any and all costs, losses, claims (including claims by third parties),
liabilities, fines, penalties, damages and expenses (including interest which
may be imposed in connection therewith, court costs and reasonable fees and
disbursements of counsel) suffered by any of them in connection with any
inaccuracy in or breach of any representations or warranties of the Management
Purchasers set forth in Article 6 hereof.
10.3 CAS and Management Purchasers. CAS and the Management Purchasers,
jointly and severally, shall indemnify and hold harmless Seller, the ESOT
Purchaser and the ESOT Purchaser's authorized agents and representatives,
against any and all costs, losses, claims (including claims by third parties),
liabilities, fines, penalties, damages and expenses (including interest which
may be imposed in connection therewith, court costs and reasonable fees and
disbursements of counsel) suffered by any of them in connection with any
inaccuracy in or breach of any representations or warranties of CAS and
Management Purchasers set forth in Article 7 hereof.
10.4 CAS. CAS will indemnify and hold harmless Seller from and against any
and all costs, losses, claims (including claims by third parties), liabilities,
fines, penalties, damages and expenses (including interest which may be imposed
in connection therewith, court costs, and reasonable fees and disbursements of
counsel) suffered by Seller in connection with (a) any inaccuracy in or breach
of any representation or warranties of CAS herein or in any document,
certificate, or exhibit delivered by CAS or any officer of CAS pursuant to this
Agreement; and (b) relative to CAS's past, present, and future operations.
10.5 Environmental Indemnity. From and after the Closing, CAS agrees to
indemnify, defend, and hold Seller harmless from and against any and all
Environmental Claims (as defined below) that may arise in connection with or in
any way related to the handling, storage, existence, or release of Hazardous
Materials (as defined in Section 8.5 hereof) at, beneath, to, from, or above (a)
the Property, (b) in connection with any CAS operations conducted at the
Bothell, Washington facility occupied by CAS ("Bothell Facility") during CAS's
occupation of such facility, or (c) in connection with CAS's operations
conducted at the laboratory facility on Ringwood Avenue in San Jose, California
during CAS's occupation of such facility. CAS shall defend Seller in connection
with the foregoing indemnity obligations with legal counsel reasonably
acceptable to Seller. As used herein, the term "Environmental Claims" means any
and all actual, threatened, or potential claims, proceedings, suits, actions,
causes of actions, demands, losses, obligations, orders, requirements,
restrictions, or directives of any governmental agency or entity, liens,
penalties, fines, charges, deaths, damages, costs, and expenses of every kind
and nature whether now known or unknown, whether foreseeable or unforeseeable,
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whether under any foreign, federal, or state or local law (both statutory and
nonstatutory) and whether asserted or demanded by a third party against Seller
or incurred directly or indirectly by Seller. The provisions of this indemnity
shall survive the Closing and recordation of the warranty deed and shall run to
the benefit of Seller's successors and assigns.
10.6 Limitation of Seller's Liability; Offset of Notes.
(a) Seller's liability under Section 10.1 shall be limited to the
aggregate amount of Six Million Dollars ($6,000,000.00).
(b) Should Seller become obligated to indemnify CAS or the ESOT
Purchaser prior to such time as the Notes have been repaid in full, Seller shall
be entitled to offset any portion of its liability against the amounts owed to
Seller under the Notes, regardless whether such amounts have become due and
payable.
10.7 Survival. All representations, warranties, indemnities, covenants, and
agreements made by the Seller, Management Purchasers, and CAS herein or in any
other document executed by Seller, Management Purchasers, or CAS in connection
herewith shall survive the Closing.
10.8 Limitations. Notwithstanding the foregoing or anything else in this
Agreement to the contrary, an indemnitee shall not be entitled to
indemnification for losses arising out of matters referred to in this Article
10, unless each such entity shall have given written notice to the indemnitor
and, each other, setting forth its claim for indemnification in reasonable
detail.
10.9 Defense. Indemnitee shall promptly give written notice to the
indemnitor and each other after such entity has knowledge that any legal
proceeding has been brought or any claim has been asserted in respect of which
indemnification may be sought under the provisions of this Article 10. If the
indemnitor, within 10 days after such notice has been given (or within such
shorter period of time as an answer or other responsive motion may be required),
shall have acknowledged in writing the indemnitor's obligation to indemnify,
then the indemnitor shall have the right to control the defense of such claim or
proceeding, and the indemnitee shall not settle or compromise such claim or
proceeding without the written consent of the indemnitor, which consent shall
not unreasonably be withheld or delayed. The indemnitee may in any event
participate in any such defense with its own counsel and at its own expense.
10.10 Seller's Reliance on CAS Management
(a) The Management Purchasers, CAS and the ESOT Purchaser acknowledge
that, in making the representations and warranties set forth in paragraph (a) of
Section 5.4, paragraphs (a) and (b) of Section 5.8, and Article 6 hereof, Seller
has relied exclusively upon (i) the truthfulness of statements made by
management of CAS from time to time and the statements set forth in a
certificate of Stephen W. Vincent in the form attached hereto as Exhibit "10.10"
(the "CAS Officer's Certificate"); (ii) the opinion letter of Alan L. Engstrom
delivered at the Closing pursuant to Section 11.3(f) hereof (the "Opinion
Letter"); and (iii) the assumption that, during such time as CAS has been a
subsidiary of Seller, CAS's Board of Directors and management have at all times
acted in the best interests of CAS and Seller. Seller has made no independent
investigation of the matters discussed in such representations and warranties.
Seller shall have no liability to the Management Purchasers, CAS or the ESOT
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Purchaser in connection with any breach of such representations and warranties
to the extend such breach is related to any of the following facts or
circumstances, unless such facts or circumstances were known to Seller prior to
the Closing:
(1) any facts or circumstances that are inaccurately or incompletely
described in the CAS Officer's Certificate;
(2) any inaccurate legal opinion contained in the Opinion Letter, or
any inaccurate statement of fact upon which the Opinion Letter has relied;
(3) a breach by CAS's Board of Directors, or any of its officers of
his/her or its fiduciary duties to CAS or Seller; and
(4) a failure of CAS's Board of Directors to follow the instructions
of Seller, or the failure of CAS's management to follow the instructions of
Seller or the Board of Directors of CAS.
(b) Notwithstanding the fact that Stephen Vincent or any other executive
officer of CAS may have been deemed to be an executive officer of Seller under
the Securities Exchange Act of 1934 or any other law or regulation, Seller shall
not be deemed to have possessed knowledge of any facts or circumstances solely
by virtue of Mr. Vincent's or such other executive officer's knowledge of such
facts or circumstances.
ARTICLE 11.
Conditions to Closing
11.1 Conditions to Each Party's Obligations at the Closing. The respective
obligations of each party to this Agreement to effect the purchase and sale of
the Common Shares and the Super Common Shares shall be subject to the
satisfaction at or prior to the Closing of the following conditions:
(a) At the time of the Closing, the purchase of the Common Shares
hereunder by CAS, the purchase of the Super Common Shares hereunder by the ESOT
Purchaser, and the purchase of the shares of Common Stock by the Management
Purchasers from CAS shall be legally permitted by all laws and regulations to
which CAS and the Seller are subject.
(b) All third party consents required in connection with the purchase
and sale of the Common Shares and the Super Common Shares hereunder and the
conveyance of the Property shall have been obtained.
(c) No temporary restraining order, preliminary or permanent injunction,
or other order issued by any court of competent jurisdiction or other legal or
regulatory restraint of prohibition preventing the consummation of the purchase
and sale of the Common Shares or the Super Common Shares or the conveyance of
Property shall have been issued, nor shall any proceeding brought by any
governmental agency seeking any of the foregoing be pending; nor shall there, by
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any action taken, or any statute, rule, regulation, or order enacted, entered,
enforced, or deemed applicable to the purchase and sale of the Common Shares or
the Super Common Shares or the conveyance of the Property which makes the
consummation of any of such transactions illegal.
(d) The Recapitalization shall have been completed.
11.2 Additional Conditions to Obligations of CAS and the ESOT Purchaser.
In addition to the conditions set forth in Section 11.1, the obligations of CAS
and the ESOT Purchaser to purchase the Common Shares and Super Common Shares,
respectively, and to convey the Property to Seller shall be subject to the
satisfaction at or prior to the Closing of the following conditions:
(a) All of the representations and warranties made by Seller herein
shall be true and correct in all material respects as of the Closing Date with
the same force and effect as if such representations and warranties had been
made as of the Closing Date, except as expressly contemplated herein and CAS and
the ESOT Purchaser shall have received a certificate to such effect signed on
behalf of Seller by the Chief Executive Officer or Chief Financial Officer of
Seller.
(b) Seller shall have performed in all material respects all obligations
required to be performed by it under this Agreement on or prior to the Closing
Date and CAS and the ESOT Purchaser shall have received a certificate to such
effect signed on behalf of Seller by the Chief Executive Officer or Chief
Financial Officer of Seller.
(c) CAS shall have obtained financing for the ESOT Loan from a qualified
financial institution and shall have loaned such amount to ESOT Purchaser.
(d) The ESOT Purchaser shall have received a fairness opinion from its
financial advisor to the effect that the portion of the Purchase Price payable
by the ESOT does not exceed the fair market value of the Super Common Shares and
that the purchase of the Super Common Shares is fair to the ESOT from a
financial point of view.
(e) Seller shall have executed and delivered a Master Services Agreement
in substantially the form attached as Exhibit 11.2(e) hereto (the "MSA").
(f) Seller shall have executed and delivered the Lease Agreement and a
sublease for the Bothell Facility in the form of Exhibit 11.2(f) attached hereto
(the "Sublease").
(g) EMCON shall have executed and delivered a Right of First Refusal and
Stock Option Agreement in the form attached hereto as Exhibit 11.2(g);
(h) The ESOT Purchaser and CAS shall have received a legal opinion from
R. Michael Momboisse, Chief Financial Officer and Vice-President-Legal of
Seller, in substantially the form of Exhibit 11.2(h) attached hereto.
(i) The ESOT Purchaser shall have received a legal opinion from Alan
Engstrom, counsel to CAS, in substantially the form of Exhibit 11.2(i) attached
hereto.
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(j) All other agreements and documents required to be executed or
delivered by Seller or Management Purchasers shall have been executed and
delivered by them as contemplated hereby.
11.3 Additional Conditions to Seller's Obligations. In addition to the
conditions set forth in Section 11.1, Seller's obligations to sell the Common
Shares and the Super Common Shares to CAS and the ESOT Purchaser, respectively,
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) All of the representations and warranties made by the ESOT
Purchaser, Management Purchasers, and CAS herein shall be true and correct in
all material respects as of the Closing Date with the same force and effect as
if such representations and warranties had been made as of the Closing Date,
except as expressly contemplated herein, and Seller shall have received
certificates to such effect signed by the Trustee on behalf of the ESOT
Purchaser and signed by Stephen W. Vincent, as Chief Executive Officer of CAS
and on behalf of the Management Purchasers, each of whom hereby appoints Mr.
Vincent to act as his or her representative for such purpose.
(b) The ESOT Purchasers, CAS, and Management Purchaser shall have
performed in all material respects all obligations required to be performed by
them under this Agreement on or prior to the Closing Date, and Seller shall have
received certificates to such effect signed by the Trustee on behalf of the ESOT
Purchaser and signed by Stephen W. Vincent, as Chief Executive Officer of CAS
and on behalf of the Management Purchasers, each of whom hereby appoints Mr.
Vincent to act as his or her representative for such purpose.
(c) CAS shall have executed and delivered the EMCON Notes and Assignment
of Stock Pledge Agreement.
(d) CAS shall have executed and delivered the MSA.
(e) CAS shall have executed and delivered the Lease Agreement and the
Sublease.
(f) Seller shall have received a legal opinion from Alan Engstrom,
counsel to CAS, in substantially the form of Exhibit 11.3(f) attached hereto.
(g) Seller shall have received a legal opinion from McDermott, Will &
Emery, counsel to the ESOT, in substantially the form of Exhibit 11.3(g)
attached hereto.
(h) The CAS Officer's Certificate shall be executed and delivered to
Seller.
(i) Seller shall have received a letter from Houlihan, Lokey, Howard,
and Zukin ("Houlihan") stating in substance that, in its opinion, the approach
taken by Williamette Management Associates, Inc. with respect to the evaluation
of CAS, and its conclusion regarding the purchase price paid by the ESOT
Purchaser for the Super Common Shares are reasonable based on the information
reviewed by Houlihan in connection with its engagement by Seller.
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(j) All other agreements or documents required to be executed or
delivered by CAS, the ESOT Purchaser, or Management Purchaser shall have been
executed and delivered by them as contemplated hereby.
11.4 Additional Conditions to Obligations of Management Purchasers. In
addition to the conditions set forth in Section 11.1, the Management Purchasers'
obligations to purchase the shares of Common Stock from CAS shall be subject to
the satisfaction of all the conditions set forth in Sections 11.2 and the
additional condition that CAS shall have executed and delivered employment
agreements with members of senior management listed on Schedule 11.4 hereto in
the form attached hereto as Exhibit 11.4
ARTICLE 12.
Pre-Closing and Post-Closing Covenants of the Parties
12.1 Plan Operation. CAS shall submit the Columbia Analytical Services,
Inc., Employee Stock Ownership Plan ("ESOP") to the Internal Revenue Service
("IRS") for a favorable determination letter within the remedial amendment
period set forth in Section 401(b) of the Code and shall make such changes to
the ESOP as the IRS requires as a condition to the issuance of such
determination letter. Further, CAS shall cause the ESOP to be operated and
administered as a qualified plan under Sections 401(a) and 4975(e)(7) of the
Code and in material compliance with all applicable requirements of ERISA and
regulations thereunder as from time to time in effect and applicable to the
ESOP.
12.2 401(k) Plan Rollover. Seller shall provide pre- and post-closing
assistance to CAS in the transfer of CAS Employees' 401(k) Plan accounts,
including converting 401(k) loan assets to a new 401(k) plan administrator. All
CAS employees participating in the Seller's 401(k) Plan shall be deemed fully
vested in such plan as of Closing and entitled to rollover of their vested and
unvested account balances conditioned upon satisfaction of all remaining ERISA
requirements.
12.3 Purchase of Stock by Management Purchasers. Following Closing, the
Management Purchasers shall purchase the stock from CAS as contemplated by
Section 1.4.
12.4 Reimbursement of Long Distance. Seller currently has a contract with
MCI for long distance service. Seller and CAS agree that CAS will continue to
use MCI under the terms of this contract until such time as the parties mutually
agree otherwise. Seller shall invoice CAS monthly for its actual charges under
the MCI contract and CAS shall timely pay such invoice as is customary in the
industry.
12.5 Expenses. CAS shall pay its expenses and the expenses of the ESOT
Purchaser, incurred in connection with the authorization, preparation, execution
and performance of this Agreement.
12.6 Further Assurance. Consistent with the terms and conditions hereof,
each party hereto shall execute and deliver such instruments and take such other
action as the other parties hereto may reasonably require in order to carry out
this Agreement and the transactions contemplated hereby.
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12.7 Confidentiality. All written and unwritten information made available
to the ESOT Purchaser and its representatives and all copies, excerpts and
summaries thereof shall be treated and held by them in confidence, excepting
only that such data may be disclosed in confidence to advisors and agents of the
ESOT Purchaser and potential lenders for the sole purpose of carrying out the
terms of this Agreement.
12.8 Cooperation in Financial Reporting and Tax. After the Closing CAS and
the Management Purchasers agree to cooperate, and to cause CAS's accountants to
cooperate, with Seller and its accountants in:
(a) the preparation or auditing of any consolidated financial statements
of Seller and any reports required to be filed by Seller with the Securities and
Exchange Commission;
(b) the preparation of any tax return or compliance with any tax audit;
or
(c) any matter of a similar nature; with respect to any period during
which CAS was a subsidiary of Seller.
12.9 Continued Coverage Under Seller Group Plans. From the Closing Date
through April 30, 1997, Seller agrees to maintain coverage under its standard
life, accidental death and dismemberment, long-term disability, and supplemental
life insurance plans for the benefit of each person who was an employee of CAS
on the Closing Date to the same extent as any such employee would have been
eligible for coverage under such plans were CAS to remain a wholly-owned
subsidiary of Seller. CAS agrees to reimburse Seller for all premiums paid by
Seller on behalf of such employees for coverage on or after the Closing Date, as
well as any additional costs incurred by Seller in connection with such
coverage.
12.10 Issuances of Additional Equity Security. After the date hereof, until
such time as the ESOT Notes have been repaid in full, CAS shall not issue any
equity securities (including instruments or securities exercisable for or
convertible into equity securities) without the written consent of EMCON and the
ESOT Purchaser, other than:
(i) the shares of Common Stock to be purchased by the Management
Purchasers pursuant to Section 1.4 hereof; and
(ii) the options granted to the Management Purchasers pursuant to
Section 1.5 hereof and up to 1,516,666 shares of Common Stock issued upon
exercise of such options.
ARTICLE 13.
General
13.1 Execution of Counterparts. For the convenience of the parties, this
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
document.
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13.2 Notices. All notices which are required or may be given pursuant to
the terms of this Agreement shall be in writing and shall be sufficient in all
respects if delivered personally, by registered or certified mail, postage
prepaid, overnight courier, or by facsimile, as follows:
If to the Seller:
EMCON
Attention: R. Michael Momboisse, CFO
400 South El Camino Real, Suite 1200
San Mateo, CA 94402-1708
Facsimile: (415) 375-0763
If to the Management Purchasers:
Columbia Analytical Services, Inc.
Attention: Stephen W. Vincent
1317 S. 13th Ave.
P.O. Box 479
Kelso, WA 98626
Facsimile: (360) 425-9096
If to the ESOT Purchaser:
CAS Employee Stock Ownership Trust.
c/o Columbia Analytical Services, Inc.
1317 S. 13th Ave.
P.O. Box 479
Kelso, WA 98626
Facsimile: (360) 425-9096
If to CAS to:
Columbia Analytical Services, Inc.
Attention: Stephen W. Vincent, President
1317 S. 13th Ave.
P.O. Box 479
Kelso, WA 98626
Facsimile: (360) 425-9096
or to such other address or facsimile number as shall be furnished in like
manner by any party to the others. Any such notice shall be deemed to have been
given, received and become effective for all purposes at the time it shall have
been (a) delivered to the addressee as indicated by the return receipt (if
transmitted by mail) or the affidavit of the messenger (if transmitted by
personal delivery) or the confirmation of receipt (if transmitted via
facsimile); or (b) presented for delivery to the addressee as so indicated
during normal business hours, if such delivery shall have been refused for any
reason.
13.3 Assignment, Successors and. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. No party shall assign any of its rights or obligations hereunder
39
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without the prior written consent of the other parties other than to a party
that acquired substantially all of the transferor's assets through a merger or
asset purchase.
13.4 Governing Law. This Agreement shall be governed by, and interpreted in
accordance with, the substantive laws of the State of Washington, except as
preempted by ERISA or required by the Code. Venue and jurisdiction for any suit
or proceeding with respect to the interpretation or enforcement of any provision
hereof shall be in the County of Cowlitz, State of Washington.
13.5 Entire Agreement. This Agreement, together with the schedules and
exhibits attached hereto, constitutes the entire agreement among the parties
hereto, and no party hereto shall be bound by any communications between them on
the subject matter hereof unless such communications are in writing and bear a
date contemporaneous with or subsequent to the date hereof. Any prior written
agreements or letters of intent among the parties shall, upon the execution of
this Agreement, be null and void.
13.6 Headings. The headings in the sections of this Agreement are inserted
for convenience only and shall not constitute a part hereof or affect the
meaning or interpretation hereof.
13.7 Representations as to Compliance with Law. Whenever a representation
or warranty is made herein with respect to compliance with any law, that
representation means the applicable subject matter is in compliance with
applicable statutes, regulations and ordinances as in existence on the date
hereof and on the Closing Date and does not extend to any amendments or
revisions of such laws adopted subsequent to such dates.
13.8 Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision hereunder.
13.9 Facsimile Signatures. Delivery of an executed counterpart of a
signature page to this Agreement by facsimile shall be effective as delivery of
a manually executed counterpart of this Agreement.
13.10 ERISA Construction. Whenever possible, each provision of this
Agreement shall be construed and interpreted in such manner as to be effective
and valid under ERISA and the Code, and regulations issued thereunder, but if
any provision of this Agreement shall be prohibited by, or invalid or
unenforceable under, such statutes or regulations, such provision shall be
ineffective and unenforceable to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Agreement.
13.11 Waiver, Discharge, etc. This Agreement may not be released,
discharged or modified except by an instrument in writing signed on behalf of
each of the parties hereto. The failure of a party to enforce any provision of
this Agreement shall not be deemed a waiver by such party of any other provision
or subsequent breach of the same or any other obligation hereunder.
13.12 Action Taken as Trustee. This document was executed by the Trustee,
not in its individual or corporate capacity, but solely as Trustee of the Trust.
The performance of this Agreement by the Trustee and any and all duties,
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obligations and liabilities of the Trustee hereunder shall be effected by it
only as Trustee. The Trustee does not undertake nor shall it have any individual
or corporate liability or obligation of any nature whatsoever by virtue of the
execution and delivery of this Agreement, or the representations, covenants or
warranties contained herein.
13.13 Consents or Waivers by Management Purchasers. The holders of a
majority of the shares of Common Stock sold to the Management Purchasers
pursuant to paragraph 1.4 hereof shall have the power and authority to execute
any waiver, consent, or amendment of or pursuant to this Agreement on behalf of
all of the Management Purchasers; provided, however, that any such instrument
that materially and adversely affects the rights of any Management Purchaser
relative to the rights of the other Management Purchasers shall not be effective
against such Management Purchaser unless signed by him/her.
IN WITNESS WHEREOF, the parties have signed this Agreement the day and year
first above written.
EMCON, a California corporation __/s/________________________________
STEPHEN W VINCENT
By /s/R. Michael Momboisse _/s/_________________________________
------------------------------------ GENE BENNETT
Its CFO & VP Legal
--------------------------
"Seller"
COLUMBIA ANALYTICAL SERVICES, INC.,
a Washington corporation ____/s/______________________________
DAVID L. EDELMAN, JR.
By /s/Stephen W. Vincent
------------------------------------
Its President _______/s/___________________________
-------------------------- JEFF CHRISTIAN
"CAS"
NORTHWESTERN TRUST, Trustee of the
COLUMBIA ANALYTICAL SERVICES, INC.,
EMPLOYEE STOCK OWNERSHIP TRUST _____/s/_____________________________
JUDIE A. SCHOLES
By /s/Stephen W. Vincent
-----------------------------------
Its President
-------------------------------
"ESOT Purchaser" ___/s/_______________________________
JOHN S. TAI
___/s/_______________________________
ERIC H. GRINDELAND
By____/s/____________________________
STEPHEN W. VINCENT, Attorney-in-Fact
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_____/s/_____________________________
MICHAEL SHELTON
By_______/s/_________________________
STEPHEN W. VINCENT, Attorney-in-Fact
"Management Purchasers"
42
EXHIBIT 2.5
STOCK PURCHASE AGREEMENT
among
EMCON,
a California corporation
("EMCON"),
Organic Waste Technologies, Inc.
a Delaware corporation
("Buyer"),
NATIONAL EARTH PRODUCTS, INC.
a Pennsylvania corporation
(the "Company"),
and
CERTAIN STOCKHOLDERS OF THE COMPANY
("Sellers")
Dated April 30, 1997
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TABLE OF CONTENTS
Page
1. Definitions........................................................ 1
"Agreement"........................................................ 1
"Best Efforts"..................................................... 1
"Breach"........................................................... 2
"Buyer"............................................................ 2
"Buyer's Disclosure Statement" .................................... 2
"CERCLA"........................................................... 2
"Closing".......................................................... 2
"Closing Date"..................................................... 2
"Code"............................................................ 2
"Common Shares".................................................... 2
"Company".......................................................... 2
"Company Financial Statements"..................................... 2
"Consent".......................................................... 2
"Contemplated Transactions"........................................ 3
"Damages".......................................................... 3
"Employee Plans"................................................... 3
"Employment Agreements"............................................ 3
"ERISA"............................................................ 3
"Exchange Act"..................................................... 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
"Material Contracts"............................................... 5
"Material Interest................................................. 5
"Notes"............................................................ 5
"Order"............................................................ 5
"Ordinary Course of Business"...................................... 5
"Person"........................................................... 5
"Proceeding"....................................................... 5
"Purchase Price"................................................... 5
"Related Person"................................................... 5
"Representative"................................................... 6
"Securities Act"................................................... 6
"Sellers".......................................................... 6
"Sellers' Disclosure Schedule"..................................... 7
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2. Sale, Transfer and Exchange of Shares and Options; Closing....... 7
2.1 Sale and Exchange....................................... 7
2.2 Purchase Price.......................................... 7
2.3 Closing................................................. 8
2.4 Closing Obligations..................................... 8
2.5 Employment Agreement.................................... 10
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
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 Ownership of Shares and Options......................... 22
3.24 Execution, Delivery and Enforceability of Agreement;
No Violation............................................ 22
3.25 Information Supplied.................................... 23
3.26 Residence and Domicile.................................. 23
4. [Reserved]
5. Representations and Warranties of Buyer and EMCON................ 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
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5.7 No Material Change..................................... 24
6. Covenants of the 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
8. Conditions Precedent to Buyer's Obligation to Close............. 28
8.1 Accuracy of Representations............................ 28
8.2 Material Changes....................................... 29
8.3 Sellers' and the Company's Performance................. 29
8.4 Consents............................................... 29
8.5 Additional Documents................................... 29
8.6 No Proceedings......................................... 30
8.7 Sellers Disclosure Schedule............................ 30
8.8 Execution by Sellers................................... 30
8.9 Employment Agreement................................... 30
8.10 Notes.................................................. 30
8.11 Release of Suretyship 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 No Material Adverse Change................................ 31
9.6 Buyer's Disclosure Schedule............................... 31
9.7 Additional Documents...................................... 31
9.8 No Proceedings............................................ 32
9.9 Execution................................................. 32
9.10 Employment Agreements..................................... 32
9.11 Indebtedness of the Company............................... 32
10. Covenants After the Closing Date................................... 32
10.1 Litigation Support........................................ 32
10.2 NEP Sand & Gravel Receivable.............................. 32
10.3 Mining License............................................ 32
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10.4 S Corporation Matters................................... 32
11. Termination...................................................... 33
11.1 Termination Events...................................... 33
11.2 Effect of Termination................................... 34
12. Survival Remedies................................................ 35
12.1 Survival................................................ 35
12.2 Limitation of Liability..................................35
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 Sellers' Disclosure Schedule............................ 43
13.10 Assignments, Successors, and No Third Party Rights...... 43
13.11 Severability............................................ 43
13.12 Section Headings, Construction.......................... 43
13.13 Interpretation of Agreement..............................43
13.14 Time of Essence......................................... 44
13.15 Governing Law........................................... 44
13.16 Counterparts............................................ 44
Exhibit No. Document
A List of Management Stakeholders
B-1 Convertible Promissory Note to Dennis Grimm
B-2 Convertible Promissory Note to Charles Gearhart
C-1 Employment Agreement of Dennis Grimm
C-2 Employment Agreement of Charles Gearhart
D Certain Pre-Closing Employee Bonuses
47
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of April 30,
1997 among EMCON, a California corporation ("EMCON"), ORGANIC WASTE
TECHNOLOGIES, INC., a Delaware corporation ("Buyer"), and a wholly-owned
subsidiary of EMCON; NATIONAL EARTH PRODUCTS, INC., a Pennsylvania corporation
(the "Company"), and the undersigned selling shareholders of the Company (the
"Sellers").
RECITALS
A. The Sellers desire to sell and Buyer desires to buy all of the Common
Shares of the Company, held by the Sellers and set forth on Exhibit A hereto
(such Common Shares representing all of the equity interest in the Company) for
the consideration and on the terms set forth in this Agreement.
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:
"Agreement" -- as defined in the first paragraph hereof.
"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 schedule
delivered by the Buyer to the Company prior to the Closing and attached hereto
and made a part hereof, as required by Section 5, below.
"CERCLA" -- as defined in Section 3.17.
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"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 Financial Statements" -- as defined in Section 3.5.
"Consent" -- any approval, consent, ratification, waiver or
other authorization (including any Governmental Authorization).
"Contemplated Transactions" -- all of the transactions contemplated by this
Agreement, including:
(a) the sale to Buyers of the Common Shares held by the Sellers;
(b) the execution, delivery and performance of the Employment Agreements,
the Escrow Agreement, the Note Agreement and the Notes; and
(c) the performance by Buyer, the Company and Sellers of their respective
covenants and obligations under this Agreement.
"Damages" -- as defined in Section 12.2.
"Employee Plans" -- as defined in Section 3.12.
"Employment Agreements" -- as defined in Sections 2.5 and 2.6.
"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.
"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.
"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.
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"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.
"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" -- shall mean Knowledge of any officer or
director of the Company about the affairs of the Company.
"Legal Requirement" -- any federal, state, local, municipal, foreign,
international, multinational or other constitution, law, ordinance, principle of
common law, regulation, statute or treaty.
"Material Contracts" -- as defined in Section 3.14.
"Material Interest" -- as defined in the definition of "Related Person."
"Notes" -- as defined in Section 2.2(b).
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"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.
"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.
"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.
"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
51
<PAGE>
(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.
"Sellers" -- as defined in the first paragraph hereof.
"Sellers Disclosure Schedule" -- the disclosure schedule
delivered by the Sellers to Buyer prior to the Closing and attached hereto and
made a part hereof as required by Section 3 below.
2. Sale, Transfer and Exchange of Shares; Closing.
2.1 Sale and Exchange.
(a) At the Closing, the Sellers shall sell and transfer to Buyer and Buyer
shall purchase from the Sellers, the Common Shares held by such Sellers and set
forth opposite their names on Exhibit A hereto.
2.2 Purchase Price. The purchase price for the Common Shares being
purchased shall be paid as follows:
(a) At the Closing, Buyer shall pay the Sellers cash in the aggregate
amount of $860,789.81 by wire transfer ($431,253.98 to Dennis M. Grimm and
$429,535.83 to Charels H. Gearhart).
(b) At the Closing, Buyer shall deliver to Sellers EMCON's promissory notes
in the forms attached hereto as Exhibit B-1 and B-2 in the aggregate principal
amount of $800,000 (the "EMCON Notes"). The EMCON Notes shall bear interest at
the rate of 8% per annum, simple interest, payable quarterly, with all principal
and any unpaid interest due and payable in full at maturity (May 1, 2000 with
respect to the EMCON Note held by Dennis Grimm and May 1, 2002 with respect to
the EMCON Note held by Charles Gearhart). The principal balance of the EMCON
Notes shall be convertible, in part or in full, into EMCON Common Stock at the
election of the holders at a conversion rate of $6.50 per share.
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(c) The Sellers shall be entitled to receive an earn out from Buyer tied to
the financial performance of the Company in each of the three twelve month
periods immediately following the Closing (the "Annual Earn Out") as follows:
The aggregate Annual Earn out shall equal 50% of Company's pre-tax profit earned
above the following base amounts for each twelve month period from May 1, 1997
through April 30, 2000:
Twelve Month Period Pre-Tax Profit
05/01/97 - 04/30/98 $500,000
05/01/98 - 04/30/99 $550,000
05/01/99 - 04/30/00 $600,000
(i) Calculation of the Company's pre-tax profits for purposes of
calculating the Annual Earn Out shall be based on the application of Generally
Accepted Accounting Principles, consistently applied, including the use of
accrual accounting. Until April 30, 2000, without the consent of the Sellers:
(A) neither EMCON nor OWT shall allocate any portion of their respective
corporate overhead to the Company for purposes of the above earnout calculation.
(that notwithstanding, to the extent either EMCON or OWT incurs expenses (e.g.
insurance, outside legal, etc.) directly for the benefit of the Company, such
amounts shall be charged to the Company for purposes of such calculation), (B)
EMCON and Buyer shall operate the Company in the ordinary course of business,
consistent with the Company's past practices, (C) EMCON and Buyer shall not
cause or permit the Company to engage in any fundamental transaction, such as
merger, consolidation, sale of substantially all of the Company's assets, or
sale of stock, (D) for purposes of the earnout calculation, EMCON and Buyer
shall not allocate any acquisition costs or expenses related to the transactions
contemplated by this Agreement to the Company (including without limitation
interest expense on funds used to acquire the Common Shares), (E) for purposes
of the earnout calculation, EMCON and Buyer shall not allocate any goodwill
amortization, where such goodwill arose pursuant to the transactions
contemplated by this Agreement, (F) for purposes of the earnout calculation, any
tax-sharing payments made by the Company to EMCON, Buyer or a Related Person of
EMCON and Buyer shall be considered tax payments (and not deducted from pre-tax
profits) even though such payments are made to EMCON, Buyer or a Related Person
of EMCON and Buyer and (G) for purposes of the earnout calculation, the interest
cost of any funds loaned to NEP by EMCON and/or OWT for any purpose, including
but not limited to paying off the existing NEP bank lines, shall be included as
an expense of NEP.
2.3 Closing. The closing of the purchase, sale and exchange (the "Closing")
provided for in this Agreement will take place at the offices of Kegel, Chesters
& Miller, LLP, 24 North Lime Street, Lancaster, Pennsylvania effective the close
of business on April 30, 1997, or at such other date and time as may be approved
in writing by the parties hereto.
2.4 Closing Obligations. At the Closing:
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(a) The Sellers, will deliver to Buyer:
(i) certificates representing the Common Shares held by the Sellers , duly
endorsed (or accompanied by duly executed stock powers), for transfer to Buyer;
(ii) a certificate executed by each of the Sellers representing and
warranting to Buyer that each of the representations and warranties by him, or
it in this Agreement was accurate in all material respects as of the date of
this Agreements 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
Sellers' Disclosure Schedule that were delivered by the Company to Buyer prior
to the Closing Date in accordance with Section 6.5); and
(iii) such other documents as are required to be provided pursuant to
Section 8; and
(b) Buyer will deliver to each Seller:
(i) the amount to be paid to each Sellers at the Closing as determined
pursuant to Section 2.2 above. Such amounts shall be paid by bank cashier's
check payable to each Seller.
(ii) a certificate executed by Buyer representing and warranting to each
Seller 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 Sellers or the
Company prior to the Closing Date in accordance with Section 7.3);
(iii) such other documents as are required to be provided pursuant to
Section 9;
2.5 Grimm Employment Agreement. Concurrently herewith, Dennis Grimm shall
execute and deliver an employment agreement with the Company and EMCON in the
form attached hereto as Exhibit C-1 (the "Grimm Employment Agreement"),
including the commitment of EMCON to grant an incentive stock option to purchase
10,000 shares of EMCON Common Stock at an exercise price per share equal to the
closing sales price of EMCON's Common Stock on the Closing Date.
2.6 Gearhart Employment Agreement. Concurrently herewith, Charles Gearhart
shall execute and deliver an employment agreement with the Company and EMCON in
the form attached hereto as Exhibit C-2. (the "Gearhart Employment Agreement")
"), including the commitment of EMCON to grant an incentive stock option to
purchase 10,000 shares of EMCON Common Stock at an exercise price per share
equal to the closing sales price of EMCON's Common Stock on the Closing Date.
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3. Representations and Warranties of the Sellers. The Sellers each, jointly
and severally represent and warrant to Buyer, as of the Closing Date, that
except as set forth on the Sellers' 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 Pennsylvania. 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. 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.
3.2 Capitalization.
(a) The authorized capital stock of the Company consists solely of 10,000
shares of common stock, no par value. There are currently issued and outstanding
501 shares of common stock; all of which are held by the Sellers and listed
beside their names on Exhibit A attached hereto. All of the issued and
outstanding shares of the Company 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
rights, preferences and privileges of the Company's capital stock are as stated
in the Company's Articles of Incorporation and Bylaws as heretofore amended.
(b) Except as otherwise set forth in the Sellers' 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 are currently outstanding to purchase or otherwise receive any of the
capital stock of the Company.
(c) The Sellers have delivered to the Buyer complete and accurate copies of
the Articles of Incorporation and Bylaws (including all amendments thereto) of
the Company. The Company has delivered to the Buyer copies of the minute books
of the Company containing minutes for all meetings of, and written consents
issued by the Company and executed by, the Company's stockholders, Board of
Directors and all committees of such Board since the date of organization of the
Company.
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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 Sellers, no investigation or proceeding, whatsoever is now
pending or threatened to: (a) liquidate, dissolve or disincorporate the Company,
(b) declare any of the corporate rights, powers or privileges of the Company, to
be null and void or otherwise than in full force and effect, (c) declare that
the Company, or the 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.
3.5 The Company Financial Statements. The consolidated financial statements
of the Company for the fiscal years ended September 30, 1995 and September 30,
1996 and the six (6) month period ended March 31, 1997 (the "Company Financial
Statements") have been prepared in accordance with GAAP and fairly present, in
all material respects, the financial position of the Company in accordance with
GAAP as at the dates thereof.
3.6 Absence of Unaccrued or Undisclosed Liabilities. Except for claims,
liabilities or obligations as provided for in the following, the Company does
not have any material liabilities whether absolute, accrued, unaccrued,
contingent or otherwise whether due or to become due:
(a) which were properly reflected or adequately reserved against in the
balance sheet included as part of the Financial Statements;
(b) which were incurred in the Ordinary Course of Business since March
31, 1997;
(c) which are listed on the Sellers' Disclosure Schedule; or
(d) which are less than $10,000 in any single case;
Except as set forth in paragraphs (a) through (d) of this Section 3.6, the
Sellers do not have Knowledge of and have 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
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.
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3.7 Absence of Certain Changes. Since March 31, 1997 there has not been
any: (a) material adverse change in the business, financial condition or
operations of the Company, (b) recapitalization, amendment to the Articles 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 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, 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 contemplated hereby, (d)
unwaived default in respect of any Material Contracts, 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 (f)
strike or 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 delivered 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, 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 Sellers' 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.
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 Company Financial Statements or
acquired since March 31, 1997, free and clear of all mortgages, pledges, liens,
defects in title, conditional sale agreements and other encumbrances, except for
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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, except as otherwise set forth in the
Sellers' Disclosure Schedule, 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 to Sellers'
Knowledge 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 Sellers to be adequate
and, 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 reasonable 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. The Company has operated such property 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 doubtful
accounts with respect thereto set forth in the Company Financial Statements,
are, to the Knowledge of the Sellers, current and collectible within customary
payment terms.
(d) The Company did not perform a title search or purchase title insurance
on the three properties on which it has license agreements, namely, the Moll,
Hinton and Baker Refractories properties. As a consequence, Sellers take
exception for title defects in the respective owner's title to such properties
for those title defects of record or visible on the property; provided that,
Sellers represent that they have no actual knowledge, without independent
investigation, of any such defects which have adversely affected, or could
adversely affect, the Company's operations on such properties.
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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 Sellers 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 Sellers have no
Knowledge of any infringement by any third party in connection with any of the
foregoing and neither the Sellers nor the Company has taken or omitted to take
any action which would have the effect of waiving any of the Company's 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
Sellers, 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 Sellers' Disclosure Schedule lists all patents, patent
applications, trademarks, trade names and registered copyrights owned by the
Company. Except as set forth in the Sellers' 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 Sellers' Disclosure Schedule, do not
contain any provisions or restrictions with regard to the rights granted to the
Buyer under this Agreement 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 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 March 31, 1997, no material customer
or supplier has canceled or terminated, or, to the Knowledge of the Sellers,,
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 Sellers' 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.
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(b) The Sellers' 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 has 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. The Company has
not incurred any liability, pursuant to Subtitle A of Title IV of ERISA, to the
Pension Benefit Guaranty Corporation.
(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 Sellers, 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.
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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 Articles 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) 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 Sellers, 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
Sellers 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 Sellers' 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 $25,000; (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 $25,000; (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; (i)
any 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
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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. 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, on
the whole, is consistent within industry norms.
3.16 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 Sellers' Disclosure Schedule, and the
Company is included as an insured party under such policies, with full rights as
loss payee. The Sellers' 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 Sellers' 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.
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. 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 of 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 Sellers, 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.
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(b) 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 by the Company, or to the Company's Knowledge, by
any other third party, 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") by the Company, or to
the Company's Knowledge, by any other third party 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.
(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 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 Sellers' 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.
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3.20 No Brokers. Neither the Company nor the Sellers has entered into or
will enter into any contract, agreement or understanding with any Person, 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 Sellers' 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 Ownership of Shares and Options. Except as set forth in the Sellers'
Disclosure Schedule, the Sellers own of record and beneficially the number of
Common Shares indicated opposite each such Seller's name in Exhibit A hereto, as
applicable, with full right and authority to sell or exchange, as applicable,
such securities hereunder, and upon delivery of such Common Shares hereunder,
the Buyer 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
3.24 Execution, Delivery and Enforceability of Agreement; No Violation.
This Agreement has been duly executed and delivered by or on behalf of the
Company and each Seller, and at the Closing any other documents required
hereunder to be executed and delivered by or on behalf of the Company and each
Seller will have been duly executed and delivered. This Agreement constitutes
the legal, valid and binding obligation of the Company and each Seller,
enforceable against the Company and each 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 Company and each Seller at Closing
will constitute the legal, valid and binding agreements of the Company and each
Seller executing the same, enforceable against the Company and each 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 Company and each Seller 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 Company and each Seller is a party or by which the Company and Seller
or the Company and each Seller's properties are bound.
3.25 Information Supplied. To the Knowledge of the Sellers, neither this
Agreement, the Company Financial Statements, the Sellers' 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 Sellers 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.
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3.26 Residence and Domicile. The Sellers are residents of, and domiciled
in, the States indicated on Exhibit A hereto, as applicable, as being the
residence of each such Seller.
4. [Reserved]
5. Representations and Warranties of Buyer and EMCON. Buyer
and EMCON jointly and severally represent and warrant 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 and EMCON are corporations duly
organized, validly existing, and in good standing under the laws of the States
of Delaware and California, respectfully.
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
EMCON, and at the Closing any other documents required hereunder to be executed
and delivered by or on behalf of the Buyer and EMCON will have been duly
executed and delivered. This Agreement constitutes the legal, valid and binding
obligation of the Buyer and EMCON, enforceable against Buyer and EMCON 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 and EMCON at Closing will
constitute the legal, valid and binding agreements of the Buyer and EMCON,
enforceable against the Buyer and EMCON 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 and EMCON 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 such respective party is a party or by which
such respective party or its properties are bound. Except as set forth in the
Buyer's Disclosure Schedule, Buyer and EMCON are not and will not be required to
obtain any Consent from any 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 Common Shares from the
Sellers 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 Common Shares.
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5.4 Certain Proceedings. There is no pending Proceeding that has been
commenced against Buyer or EMCON 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. The EMCON Annual Report on Form 10-K for the
fiscal year ending December 31, 1996, does not contain 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 December 31, 1996, there has been no material
adverse change in the business, financial position or operations or Buyer or
EMCON.
6. Covenants of the 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
Sellers hereby covenant and agree 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 the pay off of all long term debt owed to
William Holbrook in the approximate amount of $79,000 and current liabilities
included in the Company Financial Statements and current liabilities incurred
since March 31, 1997 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 $10,000, 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 the Company, (v) keep proper books of record and account necessary
to prepare financial statements in accordance with GAAP and (vi) 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.
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(b) 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 on Exhibit D, 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) 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.
(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 merger, consolidation, business combination or similar transaction with the
Company, 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
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(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.
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 Sellers' Disclosure Schedule. Sellers shall have the
right, from time to time, on or prior to the Closing, to supplement the material
set forth in the Sellers' Disclosure Schedule initially delivered by the Sellers
to Buyer. Any references to the Sellers' Disclosure Schedule in this Agreement
or in any other document entered into in connection with this Agreement shall
mean the Sellers' 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 EMCON's public filings under
the Securities Act, the Exchange Act, and other information as Sellers and their
Representatives shall reasonably request.
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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 the Sellers'
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 and EMCON shall use their 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.
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 and EMCON 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.
8. Conditions Precedent to Buyer's Obligation to Close. Buyer's obligation
to purchase the Common Shares from the Sellers 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 Section 3 of this Agreement, 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.
8.2 Material Changes. There shall be no material adverse changes to the
business, financial condition or operating results of the Company since the date
of this Agreement.
8.3 Sellers' and the Company's Performance.
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(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.
8.4 Consents. Each of the Consents required to be obtained to consummate
the Contemplated Transactions must have been obtained and must be in full force
and effect.
8.5 Additional Document. Sellers must have caused the following documents
to be delivered to Buyer:
(a) resolution of the Boards of Directors of the Company authorizing the
Contemplated Transactions, certified by the Secretary of the Company;
(b) certificates of good standing from the state of incorporation for the
Company as of a date no more than ten (10) days prior to the Closing Date.
8.6 No Proceedings. 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.
8.7 Sellers' Disclosure Schedule. The Sellers shall have provided Buyer
full and complete and final copies of the Sellers' Disclosure Schedule which
shall reflect no material adverse changes in the Company's business or financial
condition from the date of this Agreement.
8.8 Execution by Sellers. All of the Sellers listed on Exhibit A hereto
shall have executed this Agreement.
8.9 Employment Agreement. The Grimm Employment Agreement and the Gearhart
Employment Agreement shall be in full force and effect.
8.10 Notes. The EMCON Notes shall have been executed and delivered by the
Buyer to the Sellers.
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8.11 Release of Suretyship Agreement. The Company shall have received a
release of all further obligations of the Company relative to NEP Sand & Gravel,
Inc., under that certain Suretyship Agreement dated as of April 8, 1996.
9. Conditions Precedent to Sellers' Obligation to Close. Sellers'
obligations to sell their Common Shares, 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).
9.1 Accuracy of Representations. All of Buyer's representations and
warranties in Section 5 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 Boards of Directors of
the Buyer and EMCON.
9.3 Buyer's Performance.
(c) 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 must
have been performed and complied with in all material respects.
(d) Buyer must have delivered each of the documents (including the EMCON
Notes) required to be delivered by Buyer and EMCON 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 to consummate
the Contemplated Transactions must have been obtained and must be in full force
and effect.
9.5 No Material Adverse Change. There shall have been no material adverse
change in Buyer's or EMCON's business, financial condition or operating results
from the date of this Agreement.
9.6 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 or EMCON's business, financial condition or
operating results from the date of this Agreement.
9.7 Additional Documents. Buyer and EMCON must have caused to be delivered
to Sellers:
(a) resolution of the Boards of Directors of the Buyer and EMCON
authorizing the Contemplated Transactions, certified by the Secretary of Buyer;
and
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(b) Certificates of good standing for the Buyer and EMCON as of a date no
more than ten (10) days prior to the Closing Date.
9.8 No Proceedings. Since the date of this Agreement, there must not have
been commenced or threatened in writing against Buyer, the Company or any
Seller, or against any Person affiliated with Buyers, 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.
9.9 Execution. The Sellers listed on Exhibit A shall have executed this
Agreement.
9.10 Employment Agreements. The Grimm Employment Agreement and the Gearhart
Employment Agreement shall be in full force and effect.
9.11. Indebtedness of the Company. Buyer shall have arranged financing for
the Company such that as of the Closing Date, all corporate and personal
guarantees and suretyships of the Company's indebtedness shall be released and
discharged, including without limitation, the suretyships of the Company's
indebtedness by Sellers and NEP Sand & Gravel, Inc. Buyer shall have arranged
for the replacement of the two letters of credit issued by Dauphin Deposit Bank
and Trust Company on behalf of the Company for the benefit of the Pennsylvania
Department of Environmental Protection, in the amounts of $17,300 and $22,800.
Buyer shall have repaid indebtedness owed by the Company to William J. Holbrook,
in the amount at April 30, 1997 (after the scheduled payment on April 15, 1997)
of approximately $72,249.99.
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 the Company, 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.
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10.2 NEP Sand & Gravel Receivable. Contemporaneous with the anticipated
closing of the sale of NEP Sand & Gravel, Inc. by the Sellers, the outstanding
receivable from NEP Sand & Gravel, Inc. to the Company shall be immediately
repaid in full. In the event such amount is not repaid on or before July 31,
1997, the amounts remaining outstanding and unpaid from NEP Sand & Gravel, Inc.
shall be offset against and reduce, on a pro rata basis, the principal balance
of the EMCON Notes.
10.3 Mining License. Explore, Inc., a Pennsylvania corporation of which
Sellers own fifty-one percent of the outstanding stock, used the Company's
mining license number to apply for a mining permit to mine dimension stone at
the Clapsaddle Property. Sellers expect that a mining permit for the Clapsaddle
Property will be issued in the Company's name. For a period of one year from the
Closing Date (or earlier upon the sale or discontinuance of the Clapsaddle
project), Buyer shall cause the Company, and the Company shall, allow Explore,
Inc. to continue using the Company's mining license as previously used by
Explore, Inc. and maintain the mining permit in the Company's name. The Company
shall, and Buyer agrees to cause the Company to, cooperate with Sellers and
Explore, Inc. (and take all steps reasonably necessary or appropriate) to have
the permit issued in the Company's name at no cost to the Company. The Company
shall, and Buyer agrees to cause the Company to, transfer (and take all steps
reasonably necessary or appropriate to transfer at no cost to the Company) the
mining permit to a person selected by Sellers. Sellers represent that Explore,
Inc. will not engage in mining activity under the mining permit. Sellers
represent that Explore, Inc.'s continued use of the Company's mining license and
the issuance, maintenance and transfer of the mining permit in the Company's
name shall not result in any cost or liability to the Company. In this regard,
Sellers agree to indemnify and hold harmless the Company against any
liabilities, damages, costs or expenses, arising from Explore, Inc.'s use of the
Company's mining license and the issuance, maintenance and transfer of the
mining permit in the Company's name.
10.4 S Corporation Matters. Sellers, the Company and Buyer acknowledge that
upon the transfer of the Common Shares by Sellers to Buyer, the S corporation
election of the Company will automatically terminate because Buyer is an
ineligible shareholder for the valid continuation of S corporation status. The
Sellers, the Company and Buyer also acknowledge that because more than fifty
percent (50%) of the stock of the Company stock will change ownership in the
current tax year, under I.R.C. ss 1362(e)(6)(D), normal tax accounting
methods, and not a pro rata allocation, will apply to the short S tax year and
short C tax year resulting from termination of the S corporation elections. Upon
execution of this Agreement and continuing after the transfer, Sellers, the
Company and Buyer agree, without further consideration, to execute and deliver
promptly to the requesting party such further assignment, endorsement, and other
documents and instruments, and to take all such further actions, as Seller, the
Company or Buyer may from time to time reasonably request with respect to the
preparation and submittal of tax returns, tax notices and other documents,
including without limitation, the execution and delivery of a consent to
termination date of the S corporation election of the Company.
10.5 Mountain View Job Bonus. If the pre-tax profit on [the Mountain View
Job] exceeds $60,000, then Buyer shall cause the Company to pay a $5,000
compensation bonus to Tim Hipps. In calculating pre-tax profits on the Mountain
View Job, the Company shall use the per job profit calculation method used by
the Company prior to the Closing which would include, for example, not
allocating administrative overhead to the Job.
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11. Termination.
11.1 Termination Event. This Agreement may also be terminated prior to the
Closing:
(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 and the Sellers 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; or
(ii) by the Buyer if the supplements to the Sellers' Disclosure Schedule,
disclose a material adverse change in the business, financial position or
operating results of the Company, from that set forth on the Sellers' Disclosure
Schedule as delivered to the Buyer.
(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 Common 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; or
(c) by mutual consent of Buyer and the Sellers.
11.2 Effect of Termination. Each party's right of termination under Section
11.1 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 11.1, all further
obligations and liabilities of the parties under this Agreement will terminate,
except as follows:
(i) The obligations in Sections 13.1, 13.2 and 13.3 will survive;
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(ii) 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.
12. Survival; 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 the
Closing.
12.2 Limitation of Liability. Sellers, the Company, EMCON or Buyer shall
have no liability with respect to a breach of this Agreement, including without
limitation a breach of a representation, warranty or covenant contained in this
Agreement, until the total of all such liabilities against such party exceeds
$25,000 (provided however, that this minimum shall not apply to breaches of
Section 3.2 of this Agreement). The parties agree that each Seller's aggregate
liability with respect to his breach(es) of this Agreement shall be limited to
the purchase price received by such Seller pursuant to Section 2.2; provided,
however, that no such limitation of liability will apply to Damages incurred by
Buyer or EMCON as a result of any intentional or grossly negligent
misrepresentation, action or failure to act by Seller(s).
12.3 Survival. Notwithstanding any investigation conducted before or after
the Closing, the parties hereto will be entitled to rely upon the
representations and warranties of the other parties hereto set forth in 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, 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 until such time as said claim has
been finally decided, settled, or adjudicated.
13. General Provisions.
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.
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 Sellers and the Buyer;
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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 Sellers 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 parties 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, the Company, and Sellers will maintain in
confidence, and will cause the directors, officers, employees, agents, and
advisors of Buyer, the Company, and the Sellers to maintain in confidence, and
not use to the detriment of another party any written, oral, or other
information obtained in confidence from another party 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
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
The Company: National Earth Products, Inc.
245 Butler Avenue
Lancaster, PA 17601
Attn: Charles Gearhart
Fax No.: (717) 390-9896
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Buyer: EMCON
400 S. El Camino Real, Suite 1200
San Mateo, California 94402
Attention: R. Michael Momboisse, Esq.
Fax No.: (415) 375-0763
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 Philadelphia, Pennsylvania, 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 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.
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(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 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 Sellers' Disclosure Schedule.
(a) The disclosures in the Sellers' 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 Sellers' 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
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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 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 Pennsylvania 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.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
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BUYER: EMCON
ORGANIC WASTE TECHNOLOGIES, INC., EMCON, a California corporation
a Delaware corporation
By: /s/R. Michael Momboisse By: /s/R. Michael Momboisse
--------------------------------- --------------------------
Its: Director Its: CFO & VP - Legal
-------------------------------- -------------------------
SELLERS: COMPANY
NATIONAL EARTH PRODUCTS, INC,
a Pennsylvania corporation
/s/Dennis M. Grimm By: /s/Dennis M. Grimm
- ------------------------------------- ------------------------------
Dennis M. Grimm Dennis M. Grimm
/s/Charles H. Gearhart Its: President
- ------------------------------------ ------------------------------
Charles H. Gearhart
80
EXHIBIT 10.3
EMCON
SALARY CONTINUATION PLAN PARTICIPANTS
Monthly Payments
------------------------------
Salary Date Payments
Participant Continuation Non-compete Commence
- ------------------------------------------------------------------------------
Thorley D. Briggs $1,800 $1,200 January 1993
$1,200 $ 800 July 1993
John G. Pacey -0- $1,080 January 1993
Donald R. Andres $1,800 $1,200 January 1993
Richard J. Leach -0- $ 819 January 1993
Fred W. Cope $ 600 $ 400 January 1994
Robert E. Van Heuit -0- $ 400 January 1994
H. Randolph Sweet $1,350 $ 900 April 1997
Eugene M. Herson $1,800 $1,200 November 2000
$2,700 $1,800 November 2004
R. Michael Momboisse $ 600 $ 400 January 2003
$1,200 $ 800 November 2004
$ 600 $ 400 November 2006
Gary O. McEntee $ 600 $ 400 November 2004
81
EXHIBIT 10.22
CONVERTIBLE NOTE
San Mateo, California
April 30, 1997 $399,201.60
FOR VALUE RECEIVED, EMCON, a California corporation (hereinafter called
the "Borrower"), hereby promises to pay to Charles H. Gearhart, or his
respective registered assigns (the "Holder") or order, the sum of Three Hundred
Ninety-Nine Thousand Two Hundred One Dollars and Sixty Cents ($399,201.60) (the
"Principal"), on May 1, 2002, 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 quarterly on each July 31, October 31, January
31 and April 30 beginning on July 31, 1997, 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 6.4 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
Holder shall have the right to convert the Principal into shares of EMCON
Common Stock pursuant to the terms of this Article II. In such event, any
accrued but unpaid interest shall be immediately due and payable.
2.1 Conversion Price. The number of shares of EMCON Common Stock into which
the Principal shall be converted shall be the amount of the Principal, divided
by the EMCON Conversion Price. The EMCON Conversion Price shall initially be Six
Dollars and Fifty Cents ($6.50), and shall be adjusted as set forth in Section
2.2. hereof.
2.2 Adjustment to EMCON Conversion Price. The EMCON 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 EMCON Common Stock, the EMCON Conversion Price in
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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 EMCON 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 EMCON Common Stock payable in EMCON Common Stock, then
the EMCON 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 EMCON 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 EMCON 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.
(c) 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), 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 EMCON Common Stock into which this Note could then be
exchanged. The provisions of this subparagraph (c) shall similarly apply to
successive reclassifications, changes, and conversions.
2.3 Authorized Shares. EMCON convenants that during the period the
conversion right set forth in this Article 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 conversion of the
Principal. EMCON represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable.
2.4 Method of Exchange. Except as otherwise agreed by EMCON and the
Holder, the Principal balance of the Note may be converted in whole or in part
(provided at least $250,000 in Principal is converted) in up to two installments
by (i) submitting to EMCON a conversion notice setting forth the amount of
Principal to be converted and (ii) surrendering the Note held by the Holder at
the principle office of EMCON. In the event of a partial conversion EMCON will
thereafter reissue a new Note for the remaining unpaid Principal balance or
terms otherwise identical to those set forth herein.
2.5 Restrictions Concerning the Shares. The shares of EMCON Common
Stock to be held by the Holder pursuant to the exercise of the conversion rights
set forth herein 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 Holder 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:
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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 of the Holder, EMCON shall remove the foregoing legend from the
certificate representing the EMCON Common Stock held by the Holder upon exercise
of the conversion rights or issue to Holder 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 Holder that Holder is not then, and has not been during
the proceeding three (3) months, an affiliate of EMCON, and that a period of at
least two (2) 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.
2.6 EMCON Registration.
(a) If, 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 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 the Holder written notice thereof;
(ii) use its best efforts to include in such registration
(and any related qualification under blue sky laws or other compliance), except
as set forth in Section 2.6 (b) below, and in any underwriting involved therein,
all the shares of EMCON Common Stock issued upon conversion of this Note (the
"Holder's Shares") specified in a written request or requests made by the Holder
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 the Holder's Shares;
(iii) furnish such number of prospectuses and other
documents incident thereto, including any amendment of or supplement to the
prospectus, as the Holder 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.
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(b) If the registration of which EMCON gives notice is for a
registered public offering involving an underwriting, EMCON shall so advise the
Holder as a part of the written notice given pursuant to Section 2.6(a)(i). In
such event, the right of Holder to registration pursuant to this Section 2.6
shall be conditioned upon Holder's participation in such underwriting and the
inclusion of the Holder's Shares in the underwriting to the extent provided
herein. The Holder 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 2.6,
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 tot he limitations set forth
below) exclude all Holder's Shares from, or limit the number of the Holder's
Shares to be included in, the registration and underwriting. EMCON shall so
advise the Holder and all other holders of EMCON securities (the "Other Shares")
requesting registration and the number of Holder's Shares and Other Shares that
may be included shall be allocated amount the Holder and other selling
stockholders requesting inclusion of shares pro rata on the basis of the number
of Holder's Shares and Other Shares that are requested to be registered.
(d) EMCON's obligations pursuant to this Section 2.6 shall
expire at such time as Holder may sell all Holder's Shares during any successive
two quarter period pursuant to Rule 144 under the Act.
(e) All Registration Expenses (as hereinafter defined)
incurred in connection with any registration, qualification or compliance
pursuant to this Section 2.6 hereof shall be borne by EMCON. All Selling
Expenses (as hereinafter defined) relating to securities so registered shall be
borne by the Holder. For purposes hereof, Registration Expenses shall mean all
expenses incurred in effecting any registration pursuant to this Note,
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 Holder. Selling Expenses
shall mean all underwriting discounts and selling commissions applicable to the
sale of the Holder's Shares and fees and disbursements of counsel for Holder
(other than the fees and disbursements of counsel included in Registration
Expenses).
ARTICLE III
OFFSET
3.1 Offset. The Holder acknowledges that this Note is being made by the
Borrower pursuant to that certain Stock Purchase Agreement, dated as of April
30, 1997, by and among the Borrower, Organic Waste Technologies, Inc., a
Delaware corporation and the holders of the outstanding capital stock of
National Earth Products, Inc. (the "Stock Purchase Agreement"). The Holder
further acknowledges that he or she is bound by the Stock Purchase Agreement and
that the Principal due hereunder may be reduced by any amounts due from the
Holder to Borrower pursuant thereto.
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ARTICLE IV
ACCELERATION
4.1 Notwithstanding anything to the contrary herein, in the event that
any of the events set forth in Section 4.1 (each, an "Acceleration Event") shall
occur at any time after the date hereof, then, subject to the qualification set
forth 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;
(b) upon a change in ownership of Fifty Percent (50%) or more
of the stock of Borrower to a single buyer or an affiliated group of buyers,
resulting in a change in the majority of the Board of Directors of Borrower from
the Board of Directors as it existed immediately prior to such change in
ownership;
(c) 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);
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 any of the following events of default (each, an "Event of Default")
shall occur:
5.1. Failure to Pay Principal or Interest. The Borrower fails to pay
the Principal or interest when due;
5.2 Receiver or Trustee. The Borrower 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;
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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,
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 Late Charge. The Borrower shall pay to the Holder a late charge
equal to 1.5% per month, but not to exceed the maximum rate allowable by law, on
any amount due hereunder that is not received by the Holder within 10 days after
the date on which such amount is due. Borrower agrees that it would be extremely
difficult or impractical to determine the Holder's actual damages in the event
of such late payment, that the amount specified above is a reasonable estimate
of such damages and that such amount shall constitute liquidated damages for
such late payment. The foregoing provision shall not be construed to extend the
due date for any amount required to be paid hereunder. The Holder shall have no
obligation to accept any late payment not accompanied by such late charge.
6.2 Collection Costs and Expenses. The Borrower shall pay all costs,
fees and expenses (including court costs and reasonable attorneys fees) incurred
by the Holder in collecting or attempting to collect any amount that becomes due
hereunder or in seeking legal advice with respect to such collection or an Event
of Default.
6.3 Failure or Indulgence Note 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.
6.4 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
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: Charles H. Gearhart
1054 Hunters Path
Lancaster, PA 17601
Borrower: EMCON
400 South El Camino Real, Suite 1200
San Mateo, California 94402
Attn: Chief Financial Officer
Facsimile: 415/375-0763
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6.5 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.
6.6 Governing Law. This Note shall be governed by the internal laws of
the State of California, without regard to the principles of conflict of laws.
6.7 Confession of Judgment. THE FOLLOWING PARAGRAPH SETS FORTH A
WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST THE BORROWER. IN GRANTING THIS
WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST THE BORROWER, THE BORROWER
HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, AND, ON THE ADVICE OF SEPARATE
COUNSEL OR THE BORROWER, UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS THE BORROWER
HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE
RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE COMMONWEALTH OF
PENNSYLVANIA.
As further security for payment hereunder and upon an event of
default, Borrower authorizes and empowers any attorney of any court of record of
Pennsylvania or elsewhere to appear for and CONFESS JUDGMENT against it and
immediately execute on such judgment, without notice of such immediate
execution, for the then unpaid principal amount and interest of this Note,
together with late charges, costs of suit and reasonable attorneys' fees, with
or without declaration or stay of execution, and with release of errors, for
which this Note or a copy hereof shall serve as a sufficient warrant. This power
to CONFESS JUDGMENT against Borrower shall not be exhausted by any exercise of
the power and shall continue from time to time and at all times until full
payment of all amounts due under this Note.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its duly authorized officer as of the 30th day of April, 1997.
EMCON
By: /S/
--------------------------------
Name: R. Michael Momboisse
--------------------------------
Title: CFO & VP Legal
------------------------------
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CONVERTIBLE NOTE
San Mateo, California
April 30, 1997 $400,798.40
FOR VALUE RECEIVED, EMCON, a California corporation (hereinafter called
the "Borrower"), hereby promises to pay to Dennis M. Grimm, or his respective
registered assigns (the "Holder") or order, the sum of Four Hundred Thousand
Seven Hundred Ninety Eight Dollars and Forty Cents ($400,798.40) (the
"Principal"), on May 1, 2000, 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 quarterly on each July 31, October 31, January
31 and April 30 beginning on July 31, 1997, 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 6.4 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
Holder shall have the right to convert the Principal into shares of
EMCON Common Stock pursuant to the terms of this Article II. In such event, any
accrued but unpaid interest shall be immediately due and payable.
2.1 Conversion Price. The number of shares of EMCON Common Stock into
which the Principal shall be converted shall be the amount of the Principal,
divided by the EMCON Conversion Price. The EMCON Conversion Price shall
initially be Six Dollars and Fifty Cents ($6.50), and shall be adjusted as set
forth in Section 2.2.
hereof.
2.2 Adjustment to EMCON Conversion Price. The EMCON 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 EMCON Common Stock, the EMCON 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
EMCON Common Stock, the EMCON 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.
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(b) Stock Dividends. In case Borrower shall at any time pay a
dividend with respect to EMCON Common Stock payable in EMCON Common Stock, then
the EMCON 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 EMCON 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 EMCON 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.
(c) 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), 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 EMCON Common Stock into which this Note could then be
exchanged. The provisions of this subparagraph (c) shall similarly apply to
successive reclassifications, changes, and conversions.
2.3 Authorized Shares. EMCON convenants that during the period the
conversion right set forth in this Article 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 conversion of the
Principal. EMCON represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable.
2.4 Method of Exchange. Except as otherwise agreed by EMCON and the
Holder, the Principal balance of the Note may be converted in whole or in part
(provided at least $250,000 in Principal is converted) in up to two installments
by (i) submitting to EMCON a conversion notice setting forth the amount of
Principal to be converted and (ii) surrendering the Note held by the Holder at
the principle office of EMCON. In the event of a partial conversion EMCON will
thereafter reissue a new Note for the remaining unpaid Principal balance or
terms otherwise identical to those set forth herein.
2.5 Restrictions Concerning the Shares. The shares of EMCON Common
Stock to be held by the Holder pursuant to the exercise of the conversion rights
set forth herein 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 Holder 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:
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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 of the Holder, EMCON shall remove the foregoing legend from the
certificate representing the EMCON Common Stock held by the Holder upon exercise
of the conversion rights or issue to Holder 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 Holder that Holder is not then, and has not been during
the proceeding three (3) months, an affiliate of EMCON, and that a period of at
least two (2) 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.
2.6 EMCON Registration.
(a) If, 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 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 the Holder written notice thereof;
(ii) use its best efforts to include in such registration
(and any related qualification under blue sky laws or other compliance), except
as set forth in Section 2.6 (b) below, and in any underwriting involved therein,
all the shares of EMCON Common Stock issued upon conversion of this Note (the
"Holder's Shares") specified in a written request or requests made by the Holder
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 the Holder's Shares;
(iii) furnish such number of prospectuses and other
documents incident thereto, including any amendment of or supplement to the
prospectus, as the Holder 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.
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(b) If the registration of which EMCON gives notice is for a registered
public offering involving an underwriting, EMCON shall so advise the Holder as a
part of the written notice given pursuant to Section 2.6(a)(i). In such event,
the right of Holder to registration pursuant to this Section 2.6 shall be
conditioned upon Holder's participation in such underwriting and the inclusion
of the Holder's Shares in the underwriting to the extent provided herein. The
Holder 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 2.6, 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 tot he limitations set forth below) exclude all
Holder's Shares from, or limit the number of the Holder's Shares to be included
in, the registration and underwriting. EMCON shall so advise the Holder and all
other holders of EMCON securities (the "Other Shares") requesting registration
and the number of Holder's Shares and Other Shares that may be included shall be
allocated amount the Holder and other selling stockholders requesting inclusion
of shares pro rata on the basis of the number of Holder's Shares and Other
Shares that are requested to be registered.
(d) EMCON's obligations pursuant to this Section 2.6 shall expire at
such time as Holder may sell all Holder's Shares during any successive two
quarter period pursuant to Rule 144 under the Act.
(e) All Registration Expenses (as hereinafter defined) incurred in
connection with any registration, qualification or compliance pursuant to this
Section 2.6 hereof shall be borne by EMCON. All Selling Expenses (as hereinafter
defined) relating to securities so registered shall be borne by the Holder. For
purposes hereof, Registration Expenses shall mean all expenses incurred in
effecting any registration pursuant to this Note, 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 Holder. Selling Expenses shall mean all
underwriting discounts and selling commissions applicable to the sale of the
Holder's Shares and fees and disbursements of counsel for Holder (other than the
fees and disbursements of counsel included in Registration Expenses).
ARTICLE III
OFFSET
3.1 Offset. The Holder acknowledges that this Note is being made by the
Borrower pursuant to that certain Stock Purchase Agreement, dated as of April
30, 1997, by and among the Borrower, Organic Waste Technologies, Inc., a
Delaware corporation and the holders of the outstanding capital stock of
National Earth Products, Inc. (the "Stock Purchase Agreement"). The Holder
further acknowledges that he or she is bound by the Stock Purchase Agreement and
that the Principal due hereunder may be reduced by any amounts due from the
Holder to Borrower pursuant thereto.
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ARTICLE IV
ACCELERATION
4.1 Notwithstanding anything to the contrary herein, in the event that
any of the events set forth in Section 4.1 (each, an "Acceleration Event") shall
occur at any time after the date hereof, then, subject to the qualification set
forth 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;
(b) upon a change in ownership of Fifty Percent (50%) or more
of the stock of Borrower to a single buyer or an affiliated group of buyers,
resulting in a change in the majority of the Board of Directors of Borrower from
the Board of Directors as it existed immediately prior to such change in
ownership;
(c) 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);
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 any of the following events of default (each, an "Event of Default")
shall occur:
5.1. Failure to Pay Principal or Interest. The Borrower fails to pay
the Principal or interest when due;
5.2 Receiver or Trustee. The Borrower 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;
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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, 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 Late Charge. The Borrower shall pay to the Holder a late charge
equal to 1.5% per month, but not to exceed the maximum rate allowable by law, on
any amount due hereunder that is not received by the Holder within 10 days after
the date on which such amount is due. Borrower agrees that it would be extremely
difficult or impractical to determine the Holder's actual damages in the event
of such late payment, that the amount specified above is a reasonable estimate
of such damages and that such amount shall constitute liquidated damages for
such late payment. The foregoing provision shall not be construed to extend the
due date for any amount required to be paid hereunder. The Holder shall have no
obligation to accept any late payment not accompanied by such late charge.
6.2 Collection Costs and Expenses. The Borrower shall pay all costs,
fees and expenses (including court costs and reasonable attorneys fees) incurred
by the Holder in collecting or attempting to collect any amount that becomes due
hereunder or in seeking legal advice with respect to such collection or an Event
of Default.
6.3 Failure or Indulgence Note 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.
6.4 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
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: Dennis M. Grimm
1035 Eshelman Mill Road
Lancaster, PA 17602
Borrower: EMCON
400 South El Camino Real, Suite 1200
San Mateo, California 94402
Attn: Chief Financial Officer
Facsimile: 415/375-0763
6.5 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.
6.6 Governing Law. This Note shall be governed by the internal laws of
the State of California, without regard to the principles of conflict of laws.
6.7 Confession of Judgment. THE FOLLOWING PARAGRAPH SETS FORTH A
WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST THE BORROWER. IN GRANTING THIS
WARRANT OF ATTORNEY TO CONFESS JUDGMENT AGAINST THE BORROWER, THE BORROWER
HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, AND, ON THE ADVICE OF SEPARATE
COUNSEL OR THE BORROWER, UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS THE BORROWER
HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER THE
RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE COMMONWEALTH OF
PENNSYLVANIA.
As further security for payment hereunder and upon an event of
default, Borrower authorizes and empowers any attorney of any court of record of
Pennsylvania or elsewhere to appear for and CONFESS JUDGMENT against it and
immediately execute on such judgment, without notice of such immediate
execution, for the then unpaid principal amount and interest of this Note,
together with late charges, costs of suit and reasonable attorneys' fees, with
or without declaration or stay of execution, and with release of errors, for
which this Note or a copy hereof shall serve as a sufficient warrant. This power
to CONFESS JUDGMENT against Borrower shall not be exhausted by any exercise of
the power and shall continue from time to time and at all times until full
payment of all amounts due under this Note.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its duly authorized officer as of the 30th day of April, 1997.
EMCON
By: /S/
--------------------------------
Name: R. Michael Momboisse
------------------------------
Title: CFO & VP Legal
------------------------------
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EXHIBIT 10.23
LEASE AGREEMENT
THIS LEASE, dated this 4th day of April, 1997 for reference purposes
only, is made and entered into by and between EMCON, a California corporation
("Landlord") and Columbia Analytical Services, Inc., a Washington corporation
("Tenant").
Landlord and Tenant agree to the terms, covenants and conditions of
this Lease, as follows:
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1. PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord those certain premises (the "Premises") described on the Lease Summary.
The term "Buildings" as used herein shall mean the entire laboratories and
administrative buildings more particularly described in Exhibit A attached
hereto. The term "Property" shall mean and include all of the area described in
Exhibit "A" attached hereto and all of the buildings, improvements, fixtures and
equipment now or hereafter situated thereon.
2. USE.
2.1 Permitted Uses. Tenant shall use the Premises solely for the purpose
stated on the Lease Summary and for no other purpose.
2.2 Compliance with Law. Tenant shall, at Tenant's sole cost, promptly
comply with all laws, ordinances, codes, rules, orders, directives and
regulations of governmental authority (collectively, "Governmental Regulations")
regulating the condition, use or occupancy of the Premises, including but not
limited to, any alterations, additions or modifications (collectively,
"Alterations") to the Premises required by Governmental Regulations.
2.3 Restriction on Use. Tenant shall not use or permit the use of the
Premises in any manner that will tend to create waste on the Premises or
constitute a nuisance to any other occupant or user of the Buildings or the
Property or any property adjacent thereto or do or keep anything that will cause
cancellation of or an increase in rates of any insurance covering the Buildings.
Tenant shall not use any apparatus, machinery or other equipment in or about the
Premises that may cause substantial noise or vibration or overload existing
electrical systems, and shall not place any loads upon the floors, walls, or
ceilings of the Premises which may jeopardize the structural integrity of the
Buildings or any part thereof. Tenant shall not make any penetrations of the
roof or exterior of the Buildings or attach any antennas or equipment thereon
without the prior written approval of Landlord which will not be unreasonably
withheld. Any penetrations of the roof allowed by Landlord shall be properly
flashed and caulked and shall be removed and the roof membrane restored upon
expiration of the Lease term. No materials or articles of any nature shall be
stored outside the Premises, unless in compliance with any applicable
Governmental Regulations.
2.4 Hazardous Materials
A. Definitions. As used herein, the term "Hazardous Material" -
shall mean any substance: (i) the presence of which requires investigation or
remediation under any federal, state or local statute, regulation, ordinance,
order, action, policy or common law; (ii) which is or becomes defined as a
"hazardous waste," "hazardous substance," pollutant or contaminant under any
federal, state or local statute, regulation, rule or ordinance or amendments
thereto including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) and/or the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.); (iii)
which is toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic, or otherwise hazardous and is or becomes regulated by
any governmental authority, department, commission, board, agency or
instrumentality of the United States, the State of Washington or any political
subdivision thereof; (iv) the presence of which on the Premises poses or
threatens to pose a known material risk to the health or safety of persons on or
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about the Premises; (v) without limitation which contains gasoline, diesel fuel
or other petroleum hydrocarbons; (vi) without limitation which contains
polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde foam insulation;
or (vii) without limitation radon gas.
B. Tenant shall not use, analyze, store, dispose, handle,
transport, release, discharge or generate any Hazardous Materials in, on, to,
under, from or about the Premises or Buildings, except in accordance with all
governmental laws, rules and regulations.
C. Tenant shall not cause or permit any Hazardous Materials used
by Tenant to be discharged into the plumbing or sewage system of the Building or
onto the land underlying the Building or anywhere on the Property. Tenant shall,
at its sole cost, comply with any and all Governmental Regulations respecting
the handling, use, storage and disposal of Hazardous Materials used by Tenant.
Tenant shall, at its sole cost, make any and all improvements to the Premises
necessary to assure legal and safe use of Tenant's Hazardous Materials. All such
improvements shall be subject to Landlord's approval in accordance with
Paragraph 10 hereof. Tenant shall remove all Hazardous Materials used by Tenant
or brought onto the Premises or the Property by Tenant prior to the expiration
of the Lease term or sooner termination thereof.
D. Tenant shall indemnify, defend and hold Landlord harmless
from and against any and all claims, judgments, liability, damage, decrees,
liens, demands, taxes, penalties, fines, expenses, costs (including but not
limited to those costs associated with investigation, removal and remedial
activities as may be sought, initiated or required in connection with any local,
state or federal governmental or private party demands or claims), fees
(including without limitation attorneys fees), obligations, orders, liabilities
or losses (including without limitation, diminution in the value of the
Property, damages for the loss or restriction on the use, marketability or any
other amenity of the Property) (all of the foregoing collectively referred to
hereinafter as "Environmental Claims"), which arise during or after the Lease
term as a result of Tenant's use, storage, disposal, transportation, release,
discharge or generation of any Hazardous Materials at, in, onto or under the
Property, or any contamination of the Property caused by Tenant. The foregoing
indemnity ("Tenant's Environmental Indemnity") shall survive the expiration or
earlier termination of this Lease. Tenant agrees to defend all Environmental
Claims on behalf of Landlord with counsel reasonably acceptable to Landlord.
E. Without limiting the foregoing, if there is a release or
discharge of any Hazardous Materials at, in, onto or under the Property or
contamination of the Property that is covered by Tenant's Environmental
Indemnity, Tenant shall promptly take all action, at its sole cost, as is
necessary to return the Property to the condition required by all applicable
laws and regulations, provided that Landlord's written approval of such action
shall first be obtained and Landlord's approval of any remediation plan shall
not be unreasonably withheld.
F. Landlord shall have the right to enter the Premises and
Property and perform such environmental investigations, remediation and
assessments of the Premises as Landlord shall in Landlord's sole discretion deem
advisable. Landlord shall provide Tenant with at least two (2) business days'
notice prior to entering the Premises hereunder, except in the case of
emergency. Landlord shall use reasonable efforts to minimize interference with
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Tenant's business, but shall not be liable for any interference caused thereby.
The cost of any such investigation, remediation or assessment shall be
reimbursed by Tenant to Landlord within thirty (30) days of receipt of written
invoices therefor only if any contamination found has been caused by Tenant.
G. If at anytime Tenant shall become aware of or have
reasonable cause to believe that any Hazardous Materials have come to be located
on or beneath the Premises or Property. Tenant shall, immediately upon
discovering such presence or suspected presence of Hazardous Materials, give
written notice of such condition to Landlord. In addition, Tenant shall
immediately notify Landlord in writing if Tenant becomes aware of (1) any
enforcement, cleanup, removal or other governmental regulatory action
instituted, completed, or threatened relating to any Hazardous Materials on or
about the Property, (2) any claim made or threatened by any person against
Tenant, Landlord or the Property relating to damage, contribution, cost
recovery, compensation, loss or injury relating from or claimed to result from
any Hazardous Materials that have come to be located on or about the Property,
and (3) any reports made to any local, state or federal environmental agency
arising out of or in connection with any Hazardous Materials on or about the
Property, including any complaints, notices, warnings or violations in
connection therewith.
H. Any default under this Paragraph 2.4 shall constitute a
material default enabling Landlord to exercise any of the remedies set forth in
this Lease.
3. TERM
3.1 Commencement Date. The Commencement Date of the term of this Lease
shall be as set forth in the Lease Summary. If the Commencement Date is other
than the first day of a calendar month, the Lease term shall be extended by the
number of days remaining in the month during which the Commencement Date occurs,
and Base Rent for such period shall be a prorated portion of the same Base Rent
set forth in the Lease Summary for the first calendar month of the Lease term.
3.2 Proration. In the event that the Lease term commences on a date
other than the first day of a calendar month, Tenant shall pay to Landlord on
the Commencement Date as rent for the period from the Commencement Date to the
first day of the next succeeding calendar month that proportion of the rent
payable hereunder which the number of days between the Commencement Date and the
first day of the next succeeding calendar month bears to thirty (30). In the
event that the Lease term for any reason ends on a date other than the last day
of a calendar month, on the first day of the last calendar month of the Lease
term, Tenant shall pay to Landlord as rent for the period from the first day of
said last calendar month to and including the last day of the term hereof that
proportion of the rent then due hereunder which the number of days between the
first day of said last calendar month and the last day of the term hereof bears
to thirty (30).
4. RENT
4.1 Base Rent. Tenant shall pay monthly base rent ("Base Rent") in the
amounts set forth on the Lease Summary to Landlord without deduction, offset,
prior notice, or demand, in advance on the first day of each calendar month of
the Lease term and in lawful money of the United States. Base Rent shall be
abated for months 1 through 24 provided Tenant is not in default of any of its
obligations under this Lease.
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4.2 Additional Rent.
A. Tenant shall pay to Landlord in addition to Base Rent during the
Lease term additional rent ("Additional Rent") equal to the sum of the
following:
1. Tenant's Share of all Real Property Taxes relating to the
Property as set forth in Paragraph 11, unless Tenant shall pay the Real Property
taxes directly to the charging authority;
2. Tenant's Share of all Operating Expenses relating to the
Buildings and the Property as set forth in Paragraph 7, except to the extent
Tenant maintains and repairs the Buildings as provided herein;
3. All other charges, costs and expenses which Tenant is required
to pay hereunder and all damages, costs and expenses which Landlord may incur by
reason of default of Tenant or failure on Tenant's part to comply with the terms
of this Lease, including attorney's fees and court costs; and
B. In the event of nonpayment by Tenant of Additional Rent, Landlord
shall have all the rights and remedies with respect thereto as Landlord has for
nonpayment of Base Rent. Tenant's Share of all expenses to be paid by it with
respect to the Buildings and Tenant's Share of all expenses to be paid by it
with respect to the Property are separately set forth in the Lease Summary.
Except as provided below, Additional Rent due hereunder shall be paid to
Landlord within thirty (30) days of written notice by Landlord. At Landlord's
option, Tenant shall pay to Landlord monthly, in advance, on the first day of
each calendar month Tenant's Share of an amount estimated by Landlord to be
Landlord's approximately monthly expenditure for such items included in
Additional Rent (the "Estimated Monthly Expense"). Actual expenses incurred by
Landlord shall be reconciled against the Estimated Monthly Expense by Landlord,
at its option, or at the end of each calendar quarter or year. Within one
hundred twenty (120) days following each calendar quarter or year, as the case
may be, Landlord shall furnish Tenant a statement of the actual expenses
incurred by Landlord for such period. If Tenant's total payments of the
Estimated Monthly Expense for such period are less than the amount of actual
expenses incurred by Landlord, Tenant shall pay to Landlord the amount of such
deficiency within thirty (30) days after receipt of such statement. If Tenant's
total payments of the Estimated Monthly Expense exceed actual expenses incurred
by Landlord for such period, Landlord shall apply the excess amount against the
next payment of Base Rent or Additional Rent due hereunder or any other sums
then due under this Lease, at Landlord's sole discretion. The Estimated Monthly
Expense may be adjusted by Landlord upon thirty (30) days' written notice to
Tenant. The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or earlier termination of the term of this Lease,
and if the term hereof shall expire or shall otherwise terminate on a day other
than the last day of a calendar year, the actual Additional Rent incurred for
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the calendar year in which the Lease term expires or otherwise terminates shall
be determined and settled on the basis of the statement of actual Additional
Rent for such calendar year and shall be prorated in the proportion which the
number of days in such calendar year preceding such expiration or termination
bears to 365.
C. Audit. Tenant shall have the right, at such time and place as
Landlord may reasonably designate, to inspect and audit Landlord's books and
records related to the operation and maintenance of the Building for the purpose
of verifying Landlord's adjusted year-end statement of Operating Expenses
payable by Tenant. Tenant may employ an independent public accounting firm to
conduct the audit. The costs of the audit shall be paid by Tenant unless the
audit shows that Landlord's adjusted statement over-charged Tenant its share of
Operating costs by more than ten percent (10%), in which case Landlord shall pay
all Tenant's costs of the audit.
4.3 Late Charge and Interest. Tenant hereby acknowledges that late
payment by Tenant to Landlord of Base Rent, Additional Rent or other sums due
hereunder (collectively, "Rent") will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Landlord by the
terms of any mortgage or deed of trust covering the Building or Property.
Accordingly, if any installment of Rent due from Tenant shall not be received by
Landlord within (10) days after such amount shall be due, then Tenant shall pay
to Landlord a late charge equal to five percent (5%) of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event constitute a waiver
of Tenant's default with respect to such overdue amount, nor prevent Landlord
from exercising any of the other rights and remedies granted hereunder. In the
event any Rent due hereunder remains delinquent for a period in excess of thirty
(30) days, Tenant shall pay to Landlord, in addition to the late payment,
interest from and after said date at the rate of twelve percent (12%) per annum
(the "Interest Rate") until paid in full. Payment of such interest shall not
excuse or cure any default by Tenant.
4.4 Place of Payment. All payments of Rent shall be paid to Landlord at
its office as shown on the Lease Summary or to such other person or to such
other place as Landlord may from time to time designate in writing.
4.5 Security Deposit. Tenant shall not be required to post a security
deposit.
5. PARKING. Tenant shall have the right to use all available parking spaces for
the Property in accordance with the local zoning rules.
6. MAINTENANCE AND REPAIRS
6.1 General. Except as otherwise specifically provided herein, Tenant
shall, at Tenant's sole cost, keep in good and safe condition, order and repair,
and replace when necessary, all non-structural portions of the Building,
including all areas of the Building and exterior portions thereof and outside
areas, including without limitation, (1) all plumbing, automatic fire
extinguishing and sewage systems, including water and drain lines, sinks,
toilets, faucets, drains, showers and water fountains, (2) all parts of the
heating, ventilation and air conditioning system ("HVAC System") serving the
Buildings, including all ducts, pipes, vents, compressors, Building fans, air
handlers, thermostats, time clocks, boilers, heaters, and supply and return
grills serving the Building, (3) all electrical and lighting facilities, and
other operating systems, appliances, and equipment serving the Building,
including all wiring, panels, conduit, outlets, lighting fixtures, lamps, bulbs,
tubes and ballasts, (4) the elevator and all components thereof, (5) all
fixtures, interior walls, interior and exterior surfaces of exterior walls, wall
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coverings, window coverings, carpets, floors, floor coverings, partitioning,
ceilings and ceiling tiles, (6) all windows (including glazing), doors,
entrances, truck doors, glass, plate glass and skylights located in the
Building, and (7) all landscaping and parking areas, including routine cleaning,
maintenance, patching, resealing, repairing and restripping.
Tenant shall maintain the HVAC system in accordance with EPA and State
of Washington DOE mandated requirements. Tenant shall have the benefit of all
warranties available to Landlord regarding the equipment in the HVAC System, the
roof membrane and other equipment or items in the Building which are Tenant's
obligation to maintain. All repairs and maintenance required to be made by
Tenant hereunder shall be made promptly by a licensed contractor with new
materials of like kind and quality. If the repair work affects the
non-structural parts of the Building and the estimated cost of any item of
repair exceeds $25,000, then Tenant shall first obtain Landlord's written
approval of the scope of work, plans therefor, materials to be used and the
contractor. Landlord's approval thereof shall not be unreasonably withheld.
Tenant hereby waives the benefit of any statute now or hereinafter in effect
which would otherwise afford Tenant the right to make repairs at Landlord's
expense or to terminate this Lease because of Landlord's failure to keep the
Premises in good condition, order and repair. Upon expiration of the Lease Term,
Tenant shall deliver the HVAC System in good working order, condition and
repair.
6.2 Certain Capital Expenditures by Landord. Landlord shall maintain,
repair and replace if, and when necessary, all structural portions of the
Building, including the roof structure, roof membrane, foundation and floor
slabs; and shall be responsible for repaving the parking areas, if and when
necessary, with the costs of any such structural repairs and replacements or
repaving to be divided over 120 months and Tenant will reimburse Landlord by
making supplemental monthly payments equal to 1/120th of such costs each month
for the remaining duration of the Lease and; such monthly supplemental payments
to be considered additional Operating Expenses for which Tenant shall be
responsible in accordance with Section 4.2.
7. OPERATING EXPENSES
7.1 Tenant's Obligation to Reimburse. Tenant shall pay Tenant's Share of
all Operating Expenses (as hereinafter defined) as may be paid or incurred by
Landlord during the term of this Lease as Additional Rent in accordance with
Paragraph 4.2 hereof. The term "Operating Expenses" shall mean the sum of the
following:
A. All costs or expenses paid or incurred by Landlord, if any, in
maintaining, operating and repairing the Buildings, excluding only those items
required to be maintained by Tenant at its sole cost, pursuant to Paragraph 6.
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B. The cost of insurance carried by Landlord in accordance with
Paragraphs 12.4 and 12.5 hereof and fairly allocable to the Building, and any
insurance deductible payable under such policies.
C. The cost of all utilities furnished to the Premises if not paid by
Tenant directly.
D. The additional monthly amounts, if any, payable by Tenant pursuant
to Paragraph 6.2 above.
7.2 Tenant's Negligence. Notwithstanding anything in Paragraphs 7.1 to
the contrary, and subject to the waiver of subrogation rights set forth in
Paragraph 12.7, Tenant shall pay for the entire uninsured cost of maintaining
and repairing the Buildings and the exterior areas thereof and any insurance
deductible if such cost or deductible is incurred as a result of the negligence
or willful misconduct of Tenant, its agents, customers, employees, contractors
or invitees.
8. ACCEPTANCE AND SURRENDER OF PREMISES. Except as otherwise expressly provided
herein, by entry hereunder, Tenant accepts the Premises as being in good and
sanitary order, condition and repair and accepts the Buildings and improvements
included in the Premises in their present condition and without representation
or warranty by Landlord as to the condition of the Buildings or as to the use or
occupancy which may be made thereof. Except as otherwise expressly provided for
herein, Landlord shall not be responsible for any tenant improvements to the
Premises of any kind or nature whatsoever. Tenant agrees on the last day of the
Lease term, or on the sooner termination of this Lease, to surrender the
Premises promptly to Landlord in good condition and repair (damages by acts of
God, fire, normal wear and tear excepted), with all interior walls painted, or
cleaned so that they appear freshly painted, and all holes in the walls
repaired, patched and repainted, all floors cleaned and waxed, all carpets
cleaned and shampooed and replaced to the extent of excessive wear through
failure to use carpet shields, all broken, damaged, stained or nonconforming
ceiling tiles replaced. The HVAC System and roof membrane shall be in good
condition and repair. Landlord shall have the right, at its expense, to retain a
qualified and licensed roof and HVAC contractor to perform an inspection thereof
and do an inventory of all components thereof which need repair or replacement.
Tenant shall perform all such repair and replacement reasonably designated by
such contractor. All plumbing, electrical and lighting systems, both interior
and exterior shall be in good repair and condition. Tenant shall remove all
monument and other signs and repair any damage caused thereby. The term "normal
wear and tear" shall be deemed to exclude items of neglected or deferred
maintenance. All alterations, additions, and improvements which may have been
made in, to, or on the Premises by Tenant (except movable trade fixtures
installed at the expense of Tenant) shall be surrendered in good condition and
repair, except that Tenant shall ascertain from Landlord within thirty (30) days
before the end of the Lease term whether Landlord desires to have the Premises
or any part or parts thereof restored to their condition and configuration
existing when the Premises were delivered to Tenant, and if Landlord shall so
desire, then Tenant shall restore said Premises or such part or parts thereof to
their condition existing before the Lease term, at Tenant's sole cost, except,
however, that Tenant's obligation to restore if elected by Landlord does not
include the removal of the Tenant Improvements outlined in Paragraph 40. On or
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before the end of the Lease term or sooner termination of this Lease, Tenant
shall remove all of Tenant's personal property and trade fixtures from the
Premises, and all property not so removed shall be deemed abandoned by Tenant
and title to same shall thereupon pass to Landlord without compensation to
Tenant. Upon termination of this Lease, Landlord may remove all moveable
furniture and equipment so abandoned by Tenant, at Tenant's sole cost, and
repair any damage caused by such removal.
9. ALTERATIONS.
9.1 Landlord's Consent. Tenant shall not make any alterations,
improvements, additions, or utility installations (collectively, the
"Alterations") in, on or about the Premises without Landlord's prior written
consent, which shall not be unreasonably withheld, except for any non-structural
alterations to the interior of the Premises which do not exceed twenty-five
thousand dollars ($25,000) in cost per project. As used herein, the term
"utility installation" means power panels, wiring, florescent fixtures, space
heaters, conduits, air conditioning and plumbing.
9.2 Plans and Permits. Any alteration that Tenant desires to make in or
about the Premises and which requires the consent of Landlord shall be presented
to Landlord in written form for Landlord's approval, with proposed detailed
plans and specifications therefor, including an original sepia at 1/8 inch
scale, prepared at Tenant's sole cost. Any consent by Landlord thereto shall be
deemed conditioned upon Tenant's acquisition of all permits required to make
such Alterations from all appropriate governmental agencies, the furnishing of
copies thereof to Landlord prior to commencement of the work, and the compliance
by Tenant with all conditions of said permits in a prompt and expeditious
manner, all at Tenant's sole cost. Landlord shall be deemed to have consented to
any alteration, improvement addition or utility installation if Landlord fails
to respond within ten (10) business days of receipt of the plans, permits and
documents referenced herein and written request for Landlord's consent. Upon
completion of any such Alterations, Tenant shall, at Tenant's sole cost,
immediately deliver to Landlord "as-built" plans and specifications therefor. No
later than January 10th each year during the Lease term, Tenant shall deliver to
Landlord bluelines and mylar plan updates showing the configuration of the floor
plan in the Building.
9.3 Construction Work Done by Tenant. Except as hereinafter provided,
all construction work required or permitted to be done by Tenant shall be
performed by a licensed contractor approved by Landlord and in a prompt,
diligent, and good and workmanlike manner. In lieu of the foregoing, Tenant
shall have the right to use its own work crews. All such construction work shall
conform in quality and design with the Premises existing as of the Commencement
Date and shall not diminish the value of the Buildings or the Property. All such
construction work shall be performed in compliance with all applicable
Governmental Regulations.
9.4 Roof Repairs. Any installation of air conditioning equipment and
duct work or antennas on the roof permitted by Landlord and requiring
penetration of the roof shall be properly flashed and caulked. Any equipment
placed by Tenant on the roof shall be elevated and supported by Tenant so as not
to create vibration or inhibit drainage or repair and maintenance of the roof.
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9.5 Title to Alterations. Unless Landlord requires the removal thereof
as set forth in this Paragraph 9, any Alterations which may be made on the
Premises by Tenant shall, upon expiration or termination of this Lease, become
the property of Landlord and shall remain upon and be surrendered with the
Premises at the expiration or sooner termination of this Lease. Without limiting
the generality of the foregoing, all heating, lighting, electrical (including
all wiring, conduits, main and subpanels), air conditioning, plumbing,
partitioning (except movable partitions), drapery, and carpet installations made
by Tenant, regardless of how affixed to the Premises, together with all other
alterations that have become an integral part of the Premises, shall be and
become the property of Landlord upon expiration or termination of this Lease and
shall not be deemed trade fixtures, and shall remain upon and be surrendered
with the Premises at the expiration or sooner termination of this Lease.
Tenant's furnishings, machinery and equipment, except that which is affixed to
the Premises so that it cannot be removed without material damage to the
Premises, shall remain the property of Tenant and may be removed by Tenant, and
Tenant shall, at Tenant's sole cost, immediately after removal repair any damage
to the Premises caused thereby. Tenant shall be solely responsible for the
maintenance and repair of any and all Alterations made by Tenant to the
Premises.
9.6 Notice. Tenant shall give Landlord notice of the date of
commencement of any work in the Premises not less than ten (10) days prior
thereto, and Landlord shall have the right to post notices of non-responsibility
or similar notices in or on the Premises in connection therewith.
10. UTILITIES AND SERVICES. Tenant shall pay all charges for water, gas,
electricity, telephone, refuse pickup, janitorial services, and all other
utilities and services supplied or furnished to the Buildings and the Property
during the term of this Lease, together with any taxes thereon, directly to the
charging authority. In no event shall Landlord be liable to Tenant for any
failure or interruption in utility or service unless caused by the willful
misconduct of Landlord. No failure or interruption of any such utilities or
services shall entitle Tenant to terminate this Lease or to withhold rent or
other sums due hereunder. Landlord shall not be responsible for providing
security guards or other security protection for any portion of the Premises or
the Property, and Tenant shall at its own expense provide or obtain such
security services as Tenant shall desire to ensure the safety of the Premises
and the Property.
11. TAXES.
11.1 Real Property Taxes. Tenant shall pay directly to the charging
authority Tenant's Share of all Real Property Taxes (as hereinafter defined)
which become due during the Lease term. If Landlord is required to make such
payments because Tenant fails to do so, such payments shall be reimbursed by
Tenant to Landlord promptly on demand, as Additional Rent in accordance with
Paragraph 4.2 hereof. The term "Real Property Taxes" as used herein shall mean
(1) all taxes, assessments, levies, and other charges of any kind or nature
whatsoever, general and special, foreseen and unforeseen (including all
installments of principal and interest required to pay any general or special
assessments for public improvements and any increases resulting from
reassessments caused by any change in ownership of the Property) now or
hereafter imposed by any governmental or quasi-governmental authority or special
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or community facilities district having the direct or indirect power to tax or
levy assessments, which are levied or assessed against, or with respect to (a)
the value, occupancy, ownership or use of, all or any portion of the Property
(as now constructed or as may at any time hereafter be constructed, altered, or
otherwise changed) or Landlord's interest therein; (b) any improvements located
on the Property (regardless of ownership); (c) the fixtures, equipment and other
property of Landlord, real or personal, that are an integral part of the
Property; (d) the gross receipts, income and rentals from the Property, or (e)
the use of public utilities or energy in the Buildings; (2) all charges, levies
or fees in the nature of a tax or assessment imposed by reason of environmental
regulation or other governmental control of the Property; (3) excise,
transaction, sales, privilege or other taxes now or hereafter imposed upon
Landlord as a result of this Lease; and (4) all costs and fees (including
attorneys' fees) incurred by Landlord in contesting any Real Property Taxes and
in negotiating with public authorities as to any Real Property Taxes, but only
to the extent of savings realized by Tenant as a result thereof. If at any time
during the Lease term the taxation or assessment of the Property prevailing as
of the Commencement Date shall be altered so that in lieu of or in addition to
any Real Property Taxes described above there shall be levied, assessed or
imposed (whether by reason of a change in the method of taxation or assessment,
creation of a new tax or charge, or any other cause) an alternate, substitute or
additional tax or charge (a) on the value, use or occupancy of the Property or
Landlord's interest therein; (b) on or measured by the gross receipts, income or
rentals from the Property; (c) on Landlord's business of leasing the Property;
or (d) computed in any manner with respect to the operation of the Property,
then any such tax or charge, however designated, shall be included within the
meaning of the term "Real Property Taxes". Notwithstanding the foregoing, the
term "Real Property Taxes" shall not include estate, inheritance, gift or
franchise taxes of Landlord or the federal or state net income tax imposed on
Landlord's income from all sources.
11.2 Taxes on Tenant's Property.
A. Tenant shall pay at least ten (10) days prior to delinquency all
taxes, license fees and public charges assessed or levied against all equipment,
personal property or trade fixtures placed by Tenant in or about the Premises.
If any such taxes, fees or charges are levied against Landlord or the Property
or if the assessed value of the Premises is increased by the inclusion therein
of the value placed upon such equipment, personal property or trade fixtures of
Tenant and if Landlord pays the taxes, fees or charges based on such increased
assessment, which Landlord shall have the right to do regardless of the validity
thereof, Tenant shall upon demand, repay to Landlord the taxes, fees or charges
so levied against Landlord, or the portion of such taxes resulting from such
increase in the assessment.
B. If Tenant's improvements in the Premises, whether installed,
and/or paid for by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at which standard office
improvements in other space in the Property are assessed, then the real property
taxes and assessments levied against Landlord or the Property by reason of such
excess assessed valuation shall be deemed to be taxes levied against personal
property of Tenant and shall be governed by the provisions of Paragraph 11.2A.
If the records of the County Assessor are available and sufficiently detailed to
serve as a basis for determining whether said Tenant's improvements are assessed
at a higher valuation than standard office improvements in other space on the
Property, such records shall be binding on both Landlord and Tenant. If the
records of the County Assessor are not available or sufficiently detailed to
serve as a basis for making such determination, the actual cost of construction
shall be used.
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12. INSURANCE.
12.1 Tenant's Liability Insurance. Tenant shall, at Tenant's sole cost,
keep in force during the Lease term a policy of commercial general liability
insurance covering property damage and liability for personal injury occurring
in, on or about the Premises, the Buildings and the Property, with limits in the
amount of at least $2,000,000 per occurrence for injuries to or death of persons
and $1,000,000 per occurrence for property damage, and with a contractual
liability endorsement insuring Tenant's performance of Tenant's obligation to
indemnify Landlord contained in Paragraph 13.
12.2 Tenant's Casualty Insurance. Tenant shall, at Tenant's sole cost,
maintain during the Lease term a policy or policies of fire and property damage
insurance in "all risk" form, with a sprinkler leakage and flood endorsement,
insuring the personal property, inventory; and trade fixtures, within the leased
Premises for the full replacement cost thereof. The proceeds form any of such
policies shall be used for the repair or replacement of such items so insured.
12.3 Form and Certificates. Each policy of insurance required to be
carried by Tenant pursuant to Paragraphs 12.1 and 12.2 shall be with a company
approved by Landlord and shall name Landlord and such other parties in interest
as Landlord reasonably designates as additional insured. Tenant's insurance
policy shall also be primary insurance, without right of contribution from any
policy carried by Landlord, and shall contain a cross-liability and severability
endorsement. A certificate of insurance shall be provided to Landlord prior to
the Commencement Date which indicates that the coverage required hereunder is in
effect and which provides that such policy is not subject to cancellation,
expiration or change, except upon thirty (30) days' prior written notice to
Landlord.
12.4 Landlord's Liability Insurance. Landlord shall maintain a policy or
policies of commercial general liability insurance insuring Landlord (and such
other entities as may be designated by Landlord) against liability for personal
injury, bodily injury or death and damage to property occurring or resulting
from an occurrence in, on, or about the Property with such coverage as Landlord
may from time to time determine is reasonably necessary for its protection.
12.5 Property Insurance. Landlord shall obtain and keep in force during
the term of this Lease a policy or policies of insurance for the benefit of
Landlord covering loss or damage to the Buildings, and the Property (excluding
coverage of merchandise, fixtures, equipment and leasehold improvements of
Tenant) in the amount of the full replacement value thereof, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, special extended perils (all
risk), including earthquake, flood, sprinkler leakage, boiler and machinery
coverage and an inflation endorsement. In addition, Landlord shall obtain and
keep in force, during the term of this Lease, a policy of rental loss insurance
covering a period of one year, commencing on the date of loss, with proceeds
payable to Landlord, which insurance shall also cover all Real Property Taxes,
Operating Expenses, and other sums payable by Tenant hereunder for said period.
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All proceeds under such policies of insurance shall be payable to Landlord, and
Tenant shall have no interest in or right to such proceeds. Tenant shall be
responsible for paying any deductible under the property insurance policy
carried by Landlord hereunder, not to exceed Fifty Thousand Dollars ($50,000)
per occurrence.
12.6 Payment. Tenant shall pay to Landlord during the term hereof
Tenant's Share of the premiums and deductibles for any insurance obtained by
Landlord pursuant to Paragraphs 12.4 and 12.5; provided, however, that Tenant's
responsibility to pay Landord for the premium cost of rental loss insurance
shall not exceed $500 per year and the deductible cost shall not exceed Ten
Thousand Dollars ($10,000) per occurrence. Landlord may obtain liability
insurance for the Building separately, or together with other buildings and
improvements under blanket policies of insurance. In such case Tenant shall be
liable for only such portion of the premiums for such blanket policies as are
allocable to the Premises, as reasonably determined by the insurer or Landlord.
12.7 Waiver of Subrogation. Tenant and Landlord each hereby waives any
and all rights of recovery against the other, and against the officers,
employees, agents and representatives of the other, for loss of or damage to the
property of the waiving party or the property of others under its control, to
the extent such loss or damage is covered by proceeds received under any
insurance policy carried by Landlord or Tenant and in force at the time of such
loss or damage. Tenant and Landlord shall, upon obtaining the policies of
insurance required hereunder, give notice to the insurance carrier or carriers
that the foregoing mutual waiver of subrogation is contained in this Lease.
12.8 No Limitation of Liability. Landlord makes no representation that
the limits of liability insurance specified to be carried by Tenant or Landlord
under the terms of this Lease are adequate to protect any party. If Tenant
believes that the insurance coverage required under this Lease is insufficient
to adequately protect Tenant, Tenant shall provide, at its own expense, such
additional insurance as Tenant deems adequate.
13. WAIVER AND INDEMNIFICATION. Landlord shall not be liable to Tenant and
Tenant hereby waives all claims against Landlord for any injury to or death of
any person or damage to or destruction of property in or about the Premises, the
Buildings or the Property or to Tenant's business from any cause whatsoever,
including without limitation, from theft, gas, fire, steam, oil, electricity or
leakage of any character from the roof, walls, basement or other portion of the
Premises, the Buildings or the Property, from rain, or defects in or breakage of
pipes, sprinklers, plumbing, HVAC or other sources, excluding, however, the
active gross negligence or willful misconduct of Landlord, its agents, servants,
employees, invitees, or contractors. Tenant shall indemnify, defend and hold
harmless Landlord, its agents, lenders, partners and officers from and against
any and all claims, judgments, damage, demands, losses, expenses, costs or
liability arising in connection with injury to person or property from Tenant's
use of the Premises, or from the conduct of Tenant's business or from any
activity, work or things done, permitted or suffered by Tenant in or about the
Premises or the Property by Tenant or by any of Tenant's agents, servants,
employees, invitees or contractors, or from any breach or default by Tenant in
the performance of any obligation on the part of Tenant to be performed under
the terms of this Lease (all of the foregoing collectively referred to
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hereinafter as "General Indemnity Claims"), excluding, however, the active
negligence and willful misconduct of Landlord, its agents, servants, employees,
invitees, or contractors. Tenant agrees to defend all General Indemnity Claims
on behalf of Landlord, with counsel acceptable to Landlord. The obligations of
Tenant contained in this Paragraph shall survive the expiration of the Lease
term, or sooner termination thereof.
14. LIENS. Tenant shall keep the Premises and the Property free from any liens
arising out of any work performed, materials furnished or obligation incurred by
Tenant. In the event that Tenant shall not, within ten (10) days following
notice of the imposition of any such lien, cause the same to be released of
record, Landlord shall have, in addition to all other remedies provided herein
and by law, the right, but no obligation, to cause the same to be released by
such means as Landlord shall deem proper, including payment of the claim giving
rise to such lien. All sums paid by Landlord for such purpose, and all expenses
incurred by it in connection therewith, shall be payable to Landlord by Tenant
on demand with interest at the Interest Rate.
15. ASSIGNMENT AND SUBLETTING.
15.1 Consent Required. Except as hereinafter provided, Tenant shall not
assign, transfer, encumber, grant any concession or license or hypothecate the
leasehold estate under this Lease, or any interest therein, and shall not sublet
the Premises, or any part thereof, or any right or privilege appurtenant
thereto, or suffer any other person or entity to occupy or use the Premises, or
any portion thereof without, in each case, the prior written consent of
Landlord. Collectively, all of the foregoing prohibited actions shall
hereinafter be referred to as a "Transfer" of the Lease. The following
conditions or standards shall be satisfied as a condition to Landlord's consent
to a proposed Transfer: (1) The proposed transferee shall expressly assume in
writing (or in the case of a sublessee agree to be bound by) all of the
provisions, covenants and conditions of the Lease on the part of Tenant to be
kept and performed; (2) the proposed transferee shall satisfy Landlord's then
current credit standards and in Landlord's reasonable opinion shall have the
financial strength and stability to perform all of the obligations of Tenant
under this Lease as and when due; (3) the proposed use of the Premises by the
proposed transferee shall be lawful and be consistent with the permitted use of
the Premises under this Lease and shall not violate any restriction in any other
lease with tenants occupying other portions of the Property; (4) Tenant shall
pay Landlord's actual attorneys' fees incurred in connection with the
negotiation, review and processing of all proposed Transfer documents; (5) at
the time of the proposed Transfer, Tenant shall not be in default under this
Lease; (6) the proposed transferee shall not be a governmental entity and shall
not hold any exemption from the payment of ad valorem or after taxes which would
prohibit Landlord from collecting from the transferee any amounts otherwise
payable under this Lease; and (7) except for Transfers to affiliated entities
permitted by Paragraph 15.6 hereof, the proposed Transfer shall be at fair
market rent.
15.2 Documentation. In connection with any Transfer which Tenant
desires to make, Tenant shall provide to Landlord the name and address of the
proposed transferee, and true and complete copies of all documents relating to
Tenant's prospective agreement to Transfer, and audited financial statements of
the proposed transfer for the past two (2) years, or such other financial
information as is reasonably acceptable to Landlord. Tenant shall also specify
in writing on an itemized basis all consideration to be received by Tenant for
such Transfer in the form of lump sum payments, installments of rent, or
otherwise. For purposes of this Paragraph 15, the term "consideration" shall
include, without limitation, all monies or other consideration of any kind,
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including but not limited to, bonus money, and payments (in excess of book value
thereof) for Tenant's assets, fixtures, inventory, accounts, good will,
equipment, furniture, general intangibles, and any capital stock or other equity
ownership of Tenant. Within thirty (30) days after the receipt of such
documentation and other information, Landlord shall notify Tenant in writing
that Landlord elects to terminate this Lease as to the portion of the Premises
to be Transferred or if Landlord does not elect any such termination, then
Landlord shall either (1) consent in writing to the proposed Transfer, subject
to the terms and conditions hereinafter set forth, or (2) notify Tenant in
writing that Landlord refuses such consent and stating the reasons therefor.
15.3 Additional Terms and Conditions. As a condition to Landlord's
granting its consent to any Transfer, except as to any Permitted Transfer,
Landlord may require that Tenant pay to Landlord, as and when received by Tenant
seventy-five percent (75%) of any excess of consideration to be received by
Tenant in connection with said Transfer over and above the rental amount fixed
by this Lease and payable by Tenant to Landlord, provided that Tenant shall
first be entitled to deduct Leasing commissions and advertising costs incurred
in obtaining the subtenant or assignee and any unamortized Tenant Improvements
paid by Tenant in connection with such Transfer. Each Transfer to which Landlord
has consented shall be an instrument in writing in form satisfactory to
Landlord, and shall be executed by both Tenant and the transferee, as the case
may be. Each such Transfer agreement shall recite that it is and shall be
subject and subordinate to the provisions of this Lease, that the transferee
accepts such Transfer and agrees to perform all of the obligations of Tenant
thereunder, and that the termination of this Lease shall, at Landlord's sole
election, constitute a termination of such Transfer. In the event Landlord shall
consent to a Transfer, Tenant shall nonetheless remain primarily liable for all
obligations and liabilities of Tenant under this Lease, including but not
limited to the payment of Rent. Each proposed Transfer agreement that
constitutes a sublease, license or concession shall provide that Landlord, at
its option, may require the sublessee, licensee or concessionaire to pay all
rent due under such sublease, license or concession directly to Landlord instead
of Tenant to the extent Tenant is in default of payment of any Rent due
hereunder.
15.4 Partnership. If Tenant is a partnership, a transfer, voluntary or
involuntary, of all or any part of an interest in the partnership, or the
dissolution of the partnership, shall be deemed a Transfer requiring Landlord's
prior written consent.
15.5 Corporation. If Tenant is a corporation any dissolution or other
reorganization of Tenant
shall constitute a Transfer.
15.6 Permitted Transfers. Tenant shall be entitled to Transfer
("Permitted Transfer") this Lease to any parent or subsidiary corporation or
upon merger, sale of stock or consolidation without the prior written consent of
Landlord. No permitted Transfer shall relieve Tenant of any obligations
hereunder.
15.7 Landlord's Remedies. Subject to Paragraph 15.6, any Transfer
without Landlord's prior written consent shall at Landlord's election be void,
and shall constitute a default under this Lease. The consent by Landlord to any
Transfer shall not constitute a waiver of the provisions of this Paragraph 15,
including the requirement of Landlord's prior written consent, with respect to
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any subsequent Transfer. If Tenant shall purport to assign this Lease, or
sublease all or any portion of the Premises, or permit any person or persons
other than Tenant to occupy the Premises, without Landlord's prior written
consent, Landlord may collect rent from the person or persons then or thereafter
occupying the Premises and apply the net amount collected to the Rent reserved
herein, but no such collection shall be deemed a waiver of Landlord's rights and
remedies under this Paragraph 15, or the acceptance of any such purported
assignee, sublessee or occupant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant herein contained.
16. DEFAULT BY TENANT.
16.1 Event of Default. The occurrence of any one or more of the
following events (an "Event of Default") shall constitute a default and breach
of this Lease by Tenant:
A. The failure by Tenant to make any payment of Rent or any other
payment required to be made by Tenant hereunder, as and when due, and such
failure shall not have been cured within ten (10) days after written notice
thereof from Landlord;
B. Tenant's failure to perform any other term, covenant or condition
contained in this Lease and such failure shall have continued for thirty (30)
days after written notice of such failure is given to Tenant; provided that,
where such failure cannot reasonably be cured within said thirty (30) day
period, Tenant shall not be in default if Tenant commences such cure within said
thirty (30) day period and thereafter diligently continues completion thereof;
C. Tenant's failure to continuously and uninterruptedly conduct its
business in the Premises for a period of more than ninety (90) consecutive days,
or Tenant's removal of all or substantially all of its equipment and other
possessions from the Premises, without providing security protection for the
Premises reasonably satisfactory to Landlord;
D. Tenant's assignment of its assets for the benefit of its
creditors;
E. The sequestration of, attachment of, or execution on, any
substantial part of the property of Tenant or on any property essential to the
conduct of Tenant's business on the Premises, and Tenant shall have failed to
obtain a return or release on such property within thirty (30) days thereafter,
or prior to sale pursuant to such sequestration, attachment or execution,
whichever is earlier;
F. An entry of any of the following orders by a court having
jurisdiction, and such order shall have continued for a period of thirty (30)
days: (1) an order for relief in any proceeding under Title 11 of the United
States Code, or an order adjudicating Tenant to be bankrupt or insolvent; (2) an
order appointing a receiver, trustee or assignee of Tenant's property in
bankruptcy or any other proceeding; or (3) an order directing the winding up or
liquidation of Tenant; or
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G. The filing of a petition to commence against Tenant an involuntary
proceeding under Title 11 of the United States Code, and Tenant shall fail to
cause such petition to be dismissed within thirty (30) days thereafter.
16.2 Remedies. Upon any Event of Default, Landlord shall have the
following remedies, in addition to all other rights and remedies provided by law
or equity:
A. Landlord shall be entitled to keep this Lease in full force and
effect for so long as Landlord does not terminate Tenant's right to possession
(whether or not Tenant shall have abandoned the Premises) and Landlord may
enforce all of its rights and remedies under this Lease, including the right to
recover Rent and other sums as they become due under this Lease; or
B. Landlord may terminate the Tenant's right to possession by giving
Tenant written notice of termination. Any termination under this paragraph shall
not release Tenant from the payment of any sum or performance then due Landlord
or from any claim for damages or Rent previously accrued or then accruing
against Tenant.
In the event this Lease is terminated pursuant to this Paragraph
16.2B., Landlord may recover from Tenant:
(i) the worth at the time of award of the unpaid rent which had
been earned at the time of termination; plus
(ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss for the same period that Tenant
proves could have been reasonably avoided; plus
(iii) the worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss for the same period that Tenant proves could be
reasonably avoided; plus
(iv) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease, or which in the ordinary course of things would be likely to
result therefrom, including but not limited to attorneys' fees, court costs and
remodeling expenses.
The "worth at the time of award" of the amounts referred to in
subparagraphs (i) and (ii) of this Paragraph 16.2B. shall be computed by
allowing interest at the lower of five percent (5%) per annum plus the discount
rate of the Federal Reserve Bank of San Francisco, or the maximum rate then
permitted by law. The "worth at the time of award" of the amount referred to in
subparagraph (iii) of this paragraph shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). The term "Rent" as used in this paragraph
shall include all sums required to be paid by Tenant to Landlord pursuant to the
terms of this Lease.
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C. This Lease may be terminated by a judgment specifically providing for
termination, or by Landlord's delivery to Tenant of written notice specifically
terminating this Lease. In no event shall any one or more of the following
actions by Landlord, in the absence of a written election by Landlord to
terminate this Lease, constitute a termination of the Lease or a waiver of
Landlord's right to recover damages under this Paragraph 16:
(i) appointment of a receiver in order to protect Landlord's interest
hereunder;
(ii) consent to any subletting of the Premises or assignment of this
Lease by Tenant, whether pursuant to provisions hereof concerning subletting and
assignment or otherwise; or
(iii) any other action by Landlord or Landlord's agents intended to
mitigate the adverse effects of any breach of this Lease by Tenant, including
without limitation any action taken to maintain and preserve the Premises, or
any action taken to relet the Premises or any portion thereof for the account of
Tenant and in the name of Tenant.
16.3 No Relief From Forfeiture After Default. To the fullest extent
allowed by Washington law, Tenant waives all rights of redemption or relief from
forfeiture under RCW 59.12.010 et seq., and under any other present or future
law, in the event Tenant is evicted or Landlord otherwise lawfully takes
possession of the Premises by reason of any Event of Default.
16.4 Landlord's Right to Perform Tenant's Obligations. If Tenant shall
at any time fail to make any payment or perform any other act required to be
made or performed by Tenant under this Lease, then Landlord may, but shall not
be obligated to after five (5) business days notice, except in the case of any
emergency, make such payment or perform such other act to the extent Landlord
may deem desirable, and may, in connection therewith, pay any and all expenses
incidental thereto and employ counsel. No such action by Landlord shall be
deemed a waiver by Landlord of any rights or remedies Landlord may have as a
result of such failure by Tenant, or a release of Tenant from performance of
such obligation. All sums so paid by Landlord, including without limitation all
penalties, interest and costs in connection therewith, shall be due and payable
by Tenant to Landlord on the day immediately following any such payment by
Landlord. Landlord shall have the same rights and remedies for the nonpayment of
any such sums as Landlord may be entitled to in the case of default by Tenant in
the payment of Rent.
16.5 Additional Rent. For purposes of any unlawful detainer action by
Landlord against Tenant pursuant to RCW 59.12.010, or any similar or successor
statutes, Landlord shall be entitled to recover as Rent not only such sums
specified in Paragraph 4 as Base Rent and Additional Rent as may then be
overdue, but also all such additional sums of Rent as may then be overdue.
16.6 Remedies Not Exclusive. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies herein provided or permitted at law or in equity.
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17. DEFAULT BY LANDLORD.
17.1 Cure Period. Landlord shall not be deemed to be in default in the
performance of any obligation required to be performed by it hereunder unless
and until it has failed to perform such obligation within the period of time
specifically provided herein, or if no period of time has been provided, then
within thirty (30) days after receipt of written notice by Tenant to Landlord
specifying therein the nature such obligation; provided, however, that if the
nature of Landlord's obligation is such that more than thirty (30) days are
reasonably required for its performance, then Landlord shall not be deemed to be
in default if it shall commence such performance within such thirty (30) day
period and thereafter diligently complete such obligation.
17.2 Mortgage Protection. In the event of any default on the part of
Landlord, Tenant will give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgagee of a mortgage encumbering the
Premises whose address shall have been furnished to Tenant, and before Tenant
shall have any right to terminate this Lease, Tenant shall grant such
beneficiary or mortgagee a reasonable period within which to cure the default,
if such action is necessary to effect a cure.
18. SUBORDINATION AND MORTGAGES. In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust upon the interest of
Landlord in the land and buildings in which the demised Premises are located to
secure a loan from a lender (hereinafter referred to as "Lender") to Landlord,
Tenant shall, within ten (10) business days of the request by Landlord or
Lender, execute and deliver to Landlord an agreement subordinating Tenants
rights under this Lease to the lien of such deed of trust, in form requested by
the Lender. Notwithstanding the foregoing, Tenant's possession under this Lease
shall not be disturbed if Tenant is not in default and so long as Tenant shall
pay all Rent and observe and perform all of the provisions set forth in this
Lease, and any subordination agreement shall expressly recognize Tenant's right
to continued occupancy under this Lease in accordance with the foregoing.
19. ENTRY BY LANDLORD. Landlord shall at all reasonable times and upon two (2)
business days' prior notice (except in emergencies) have the right to enter the
Premises to inspect them, to perform any services to be provided by Landlord
hereunder, to show the Premises to prospective purchasers, mortgagors or
tenants, to post notices of nonresponsibility and to alter, improve or repair
the Premises and any portion of the Property, all without abatement of rent;
provided, however, that Landlord shall use reasonable efforts to minimize
interference with Tenant's business. Landlord shall have the right to erect
scaffolding and other structures in or through the Premises when reasonably
required for by any work to be performed by Landlord. Landlord shall at all
times retain a key with which to unlock all of the doors to the Premises in an
emergency, and any entry to the Premises obtained by Landlord shall not under
any circumstances be construed or deemed to be a forcible or unlawful entry into
or a detainer of the Premises or an eviction, actual or constructive, of Tenant
from the Premises or any portion thereof.
20. VACATION OR ABANDONMENT. Tenant shall not vacate or abandon the Premises at
any time during the term of this Lease (except that Tenant may vacate for up to
thirty (30) during any twelve (12) month period so long as it pays Rent,
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provides an on-site security guard during normal business hours from Monday
through Friday, and otherwise performs its obligations hereunder), and if Tenant
shall abandon, vacate or surrender said Premises, or be dispossessed by the
process of law, or otherwise, any personal property belonging to Tenant and left
on the Premises shall be deemed to be abandoned, at the option of Landlord.
21. DAMAGE OR DESTRUCTION.
21.1 Partial Damage-Insured. Subject to the provisions of Paragraphs
21.3 and 21.4, if the Buildings are damaged to the extent of less than fifty
percent (50%) of the then replacement cost thereof (excluding excavations and
foundations) or the Laboratory Building is damaged to the extent of less than
thirty-three and one-third percent (33 1/3%) (collectively, the "Replacement
Cost"), and such damage was caused by an act or casualty covered under an
insurance policy obtained by Landlord or Tenant pursuant to Paragraph 12.4 or
12.5, and the proceeds of such insurance received by Landlord are sufficient to
repair the damage, Landlord shall at Landlord's expense repair such damage as
soon as reasonably possible and this Lease shall continue in full force and
effect; provided that if the repair will take more than one hundred and eighty
(180) days to complete from the date of damage, as reasonably estimated by an
independent licensed contractor mutually agreeable to the parties (the "Approved
Contractor"), either party shall have the right to terminate this Lease by
delivering written notice of such election to the other party within thirty (30)
days after receiving written notice of the Approved Contractor's estimated time
to complete such repair. In such event, this Lease shall terminate effective
ninety (90) days after delivery of such written notice.
21.2 Partial Damage-Uninsured. Subject to the provisions of Paragraphs
22.3 and 22.4, if at any time during the term hereof the Buildings are damaged
and the proceeds received by Landlord are not sufficient to repair such damage,
or such damage was caused by an act or casualty not covered under an insurance
policy obtained by Landlord or Tenant pursuant to Paragraph 12.4 or 12.5,
Landlord may at Landlord's option either (1) repair such damage as soon as
reasonably possible at Landlord's expense, in which event this Lease shall
continue in full force and effect, or (2) give written notice of termination of
this Lease to Tenant within thirty (30) days after the date of the occurrence of
such damage, with the effective date of such termination to be the date of the
occurrence of such damage. Notwithstanding the foregoing, if such repair
hereunder will take more than one hundred and eighty (180) days to complete from
the date of damage, as reasonably estimated by an Approved Contractor, either
party shall have the right to terminate this Lease by delivering written notice
of such election to the other party within thirty (30) days after receiving
written notice of the Approved Contractor's estimated time to complete such
repair. In such event, this Lease shall terminate effective ninety (90) days
after delivery of such written notice.
21.3 Total Destruction. If at any time during the term hereof either the
Premises or the Buildings are destroyed to the extent of sixty-six and
two-thirds percent (66 2/3%) or more of the then Replacement Cost, from any
cause whether or not covered by the insurance obtained pursuant to Paragraph
12.4 or 12.5, this Lease shall at the option of Landlord or Tenant terminate as
of the date of such destruction. Landlord or Tenant shall exercise its right to
terminate this Lease, if at all, by delivery of notice of termination to the
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other party within thirty (30) days after the date that Tenant notifies Landlord
of the occurrence of such damage. In the event neither party elects to terminate
this Lease, Landlord shall at Landlord's expense repair such damage as soon as
reasonably possible, and this Lease shall continue in full force and effect,
subject to the provisions of Paragraph 21.5.
21.4 Damage Near End of Term. If the Premises are destroyed or damaged
in whole or in material part during the last year of the Lease term and if it
would take more than ninety (90) days to repair or restore the Premises, either
Landlord or Tenant may terminate this Lease as of the date of occurrence of such
damage by giving written notice thereof to other party of such election within
thirty (30) days after the date of occurrence of such damage.
21.5 Abatement of Rent. Notwithstanding anything to the contrary
contained in this Lease, if the Premises are partially damaged and Landlord
repairs or restores them pursuant to the provisions of this Paragraph 21, Base
Rent and Additional Rent payable hereunder for the period commencing on the
occurrence of such damage and ending upon completion of such repair or
restoration shall be abated in proportion to the extent to which Tenant's use of
the Premises is impaired during the period of repair; provided that, nothing
herein shall be construed to preclude Landlord from being entitled to collect
the full amount of any rental loss insurance proceeds. Except for such
abatement, if any, Tenant shall have no claim against Landlord for any damage
suffered by reason of any such damage, destruction, repair or restoration.
21.6 Waiver. Tenant waives the provisions of any applicable law, and any
similar or successor statutes relating to termination of leases when the thing
leased is substantially or entirely destroyed, and agrees that any such
occurrence shall instead be governed by the terms of this Lease.
21.7 Tenant's Property. Landlord's obligation to rebuild or restore
shall not include restoration of Tenant's trade fixtures, equipment,
merchandise, or any improvements, alterations or additions made by Tenant to the
Premises.
21.8 Notice of Damage. Tenant shall notify Landlord within five (5) days
after the occurrence thereof of any damage to all or any portion of the
Premises. In no event shall Landlord have any obligation to repair or restore
the Premises pursuant to this Paragraph 21 until a reasonable period of time
after Landlord's receipt of notice from Tenant of the nature and scope of any
damage to the Premises, and a reasonable period of time to collect insurance
proceeds arising from such damage (unless such damage is clearly not covered by
insurance then in effect covering the Premises).
21.9 Replacement Cost. The determination in good faith by the Approved
Contractor of the estimated cost of repair of any damage, or of the Replacement
Cost, shall be conclusive for purposes of this Paragraph 21.
22. EMINENT DOMAIN. If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
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shall be entitled to any and all payment, income, rent, award, or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business,
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant. If (i) any action or proceeding is commenced for such
taking of the Premises or any part thereof, or if Landlord is advised in writing
by any entity or body having the right or power of condemnation of its intention
to condemn the Premises or any portion thereof, or (ii) any of the foregoing
events occur with respect to the taking of any other portion of the Buildings or
Property not leased hereby, and Landlord shall decide to discontinue the use and
operation of the Buildings or Property, or decide to demolish, alter or rebuild
the Buildings or Property, then, in any of such events Landlord shall have the
right to terminate this Lease upon thirty (30) days prior written notice to
Tenant. In the event of a partial taking or conveyance of the Premises under
power of eminent domain, if the portion of the Premises taken or conveyed is so
substantial that the Tenant can no longer reasonably conduct its business
therein, Tenant shall have the right to terminate this Lease within sixty (60)
days from the date of such taking or conveyance, upon written notice to Landlord
of its intention to terminate the Lease. Upon delivery of such notice, this
Lease shall terminate on the last day of the calendar month next following the
month in which such notice is given, upon payment by Tenant of the Rent from the
date of such taking or conveyance to the date of termination. If a portion of
the Premises be taken by condemnation or conveyance in lieu thereof and neither
Landlord nor Tenant shall terminate this Lease as provided herein, this Lease
shall continue in full force and effect as to the part of the Premises not so
taken or conveyed, and the Rent herein shall be thereafter be reduced to the
extent by Tenant's use or occupancy of the Premises has been adversely affected.
The rights of Landlord and Tenant regarding any taking or conveyance under power
or threat of eminent domain shall be governed by the terms of this paragraph,
and each party waives the provisions of Washington Law allowing either party to
petition a court to terminate this Lease in the event of a partial taking of the
Premises.
23. SALE OR CONVEYANCE BY LANDLORD. In the event of a sale or conveyance of the
Property or any interest therein, by any owner of the reversion then
constituting Landlord, the transferor shall thereby be released from any further
liability upon any of the terms, covenants or conditions (express or implied)
herein contained in favor of Tenant, and in such event, insofar as such transfer
is concerned, Tenant agrees to look solely to the responsibility of the
successor in interest of such transferor in and to the Property and this Lease.
This Lease shall not be affected by any such sale or conveyance, and Tenant
agrees to attorn to the successor in interest of such transferor.
24. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale, Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to Landlord is prior and paramount to the Lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.
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25. HOLDING OVER. Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of the
term of this Lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein specified
insofar as applicable except that the monthly Base Rent shall be increased to an
amount equal to one hundred twenty-five percent (125%) of the monthly Base Rent
required during the last month of the Lease term.
26. ESTOPPEL CERTIFICATE. Tenant shall at any time upon not less than ten (10)
business days' prior written notice to Landlord execute, acknowledge and deliver
to Landlord a statement in writing (i) certifying that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the Rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults, if any, are claimed. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Premises.
Tenant's failure to deliver such statement within such time shall be conclusive
upon Tenant that this Lease is in full force and effect, without modification
except as may be represented by Landlord, that there are no uncured defaults in
Landlord's performance, and that not more than one month's rent has been paid in
advance.
27. CONSTRUCTION CHANGES. It is understood that the description of the Premises
and the location of ductwork, plumbing and other facilities therein are subject
to such minor changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises, and no such changes, or
any changes in plans for any other portions of the Property shall affect this
Lease or entitle Tenant to any reduction of Rent hereunder or result in any
liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any
drawings supplied to Tenant and verification of the accuracy of such drawings
rests with Tenant.
28. RIGHT OF LANDLORD TO PERFORM. All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of Rent. If
Tenant shall fail to pay any sum of money, or other Rent, required to be paid by
it hereunder or shall fail to perform any other term or covenant hereunder on
its part to be performed, and such failure shall continue for five (5) business
days after written notice of Landlord's intent to perform such term of
condition, Landlord, without waiving or releasing Tenant from any obligation of
Tenant hereunder, may, but shall not be obligated to, make any such payment or
perform any such other term or covenant on Tenant's part to be performed. All
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sums so paid by Landlord and all necessary costs of such performance by Landlord
together with interest thereon at the Interest Rate from the date of such
payment or performance by Landlord, shall be paid by Tenant to Landlord on
demand by Landlord, and Landlord shall have the same rights and remedies in the
event of nonpayment by Tenant as in the case of failure by Tenant in the payment
of Rent hereunder.
29. ATTORNEYS' FEES. In the event that either Landlord or Tenant should bring an
action or proceeding for the possession of the Premises, including on appeal and
petition for review for the recovery of any sum due under this Lease, or because
of the breach of any provision of this Lease, or for any other relief against
the other party hereunder, then all costs and expenses, including reasonable
attorneys' fees, incurred by the prevailing party therein shall be paid by the
other party.
30. WAIVER. The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such term,
covenant or condition with respect to any subsequent failure of the party
failing to perform or observe the same or any other such term, covenant or
condition therein contained, and no custom or practice which may develop between
the parties hereto during the term hereof shall be deemed a waiver of, or in any
way affect, the right of either party to insist upon performance and observance
by the other party in strict accordance with the terms hereof.
31. NOTICES. All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if sent by commercial
courier or by United States certified or registered mail, postage prepaid,
addressed to Tenant at the Premises. All notices, demands, requests, advices or
designations by Tenant to Landlord shall be sent by United States certified or
registered mail, postage prepaid, addressed to Landlord at its address set forth
on the Lease Summary. Each notice, request, demand, advice or designation
referred to in this paragraph shall be deemed received on the date of the
personal service or delivery thereof in the manner herein provided, as the case
may be.
32. EXAMINATION AND CONDITION OF LEASE. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of the
Premises or option for a lease, and this instrument is not effective as a lease
or otherwise until its execution and delivery by both Landlord and Tenant.
33. AUTHORITY. If Tenant is a corporation or a partnership, each individual
executing this Lease on behalf of said corporation or partnership represents and
warrants that he is duly authorized to execute and deliver this Lease on behalf
of said corporation or partnership in accordance with the by-laws of said
corporation the partnership agreement and that this Lease is binding upon said
corporation or partnership in accordance with its terms.
34. LIMITATION OF LIABILITY. Tenant and all successors and assigns covenant and
agree that, in the event of any actual or alleged failure, breach or default
hereunder by Landlord:
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(i) the sole and exclusive remedy shall be against Landlord and
Landlord's assets;
(ii) no partner or owner of Landlord shall be sued or named as a
party in any suit or action (except as may be necessary to secure jurisdiction
of the partnership);
(iii) no service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction of the partnership);
(iv) no partner or owner of Landlord shall be required to answer
or otherwise plead to any service of process;
(v) no judgment will be taken against any partner or owner of
Landlord;
(vi) any judgment taken against any partner or owner of Landlord
may be vacated and set aside at any time without hearing;
(vii) no writ of execution will ever be levied against the assets
of any partner or owner of Landlord;
(viii) these covenants and agreements are enforceable both by
Landlord and also by any partner or owner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements
shall be applicable to any covenant or agreement either expressly contained in
this Lease or imposed by statute or at common law.
35. MISCELLANEOUS AND GENERAL PROVISIONS.
A. Tenant shall not, without the written consent of Landlord, use the
name of the Buildings for any purpose other than as the address of the business
conducted by Tenant in the Premises.
B. This Lease shall in all respects be governed by and construed in
accordance with the laws of the State of Washington. If any provision of this
Lease shall be invalid, unenforceable or ineffective for any reason whatsoever,
all other provisions hereof shall be and remain in full force and effect.
C. The term "Premises" includes the space leased hereby and any
improvements now or hereafter installed therein or attached thereto. The term
"Landlord" or any pronoun used in place thereof includes the plural as well as
the singular and the successors and assigns of Landlord. The term "Tenant" or
any pronoun used in place thereof includes the plural as well as the singular
and individuals, firms, associations, partnerships and corporations, and their
and each of their respective heirs, executors, administrators, successors and
permitted assigns, according to the context hereof, and the provisions of this
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Lease shall inure to the benefit of and bind such heirs, executors,
administrators, successors and permitted assigns. The term "person" includes the
plural as well as the singular and individuals, firms, associations,
partnerships and corporations. Words used in any gender include other genders.
If there be more than one Tenant the obligations of Tenant hereunder are joint
and several. The paragraph headings of this Lease are for convenience of
reference only and shall have no effect upon the construction or interpretation
of any provision hereof.
D. Time is of the essence of this Lease and of each and all of its
provisions.
E. At the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge and deliver to Landlord, within ten (10) days after written
demand from Landlord to Tenant, any quitclaim deed or other document required by
any reputable title company, licensed to operate in the State of Washington, to
remove the cloud or encumbrance created by this Lease from the real property of
which the Premises are a part.
F. This instrument along with any exhibits and attachments hereto
constitutes the entire Agreement between Landlord and Tenant relative to the
Premises and this agreement and the exhibits and attachments may be altered,
amended or revoked only by an instrument in writing signed by both Landlord and
Tenant. Landlord and Tenant agree hereby that all prior or contemporaneous oral
agreements between and among themselves and their agents or representatives
relative to the leasing of the Premises are merged in or revoked by this
agreement.
G. Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the consent of the other.
H. Tenant further agrees to execute any amendments required Landlord in
order to obtain financing for the Property, so long as Tenant's rights hereunder
are not substantially affected.
I. All Paragraphs listed in the Lease Summary as additional paragraphs
are added hereto and are included as a part of this Lease.
J. Clauses, plats and riders, if any, signed by Landlord and Tenant and
endorsed on or affixed to this Lease are a part hereof.
K. Tenant covenants and agrees that no diminution or shutting off of
light, air or view by any structure which may be hereafter erected (whether or
not by Landlord) shall in any way affect his Lease, entitle Tenant to any
reduction of Rent hereunder or result in any liability of Landlord to Tenant.
L. The voluntary or other surrender of this Lease or the Premises by
Tenant or a mutual cancellation of this Lease shall not work as a merger and, at
the option of Landlord, shall either terminate all or any existing subleases or
subtenancies or operate as an assignment to Landlord of all or any such
subleases or subtenancies.
121
<PAGE>
M. Tenant acknowledges that Landlord may assign its interest in this
Lease to a partnership or a limited liability company upon acquisition of the
Property and that Tenant shall thereafter look solely to such partnership or
limited liability company for performance of all of Landlord's obligations
hereunder.
36. BROKERS. Tenant warrants that it had dealings with only the real estate
brokers or agents listed on the Lease Summary in connection with the negotiation
of this Lease and that it knows of no other real estate broker or agent who is
entitled to a commission in connection with this Lease.
37. SIGNS AND WINDOW COVERINGS. No sign, placard, picture, advertisement, name
or notice shall be inscribed, displayed or printed or affixed on or to any part
of the outside of the Premises or any exterior windows of the Premises except in
compliance with all Governmental Regulations. Upon expiration or other sooner
termination of this Lease, Tenant at Tenant's sole cost and expense shall both
remove such sign and repair all damage in such a manner as to restore all
aspects of the appearance of the Premises to the condition prior to the
placement of said sign.
38. ADDITIONAL PARAGRAPHS. Paragraphs 39 through 40 in the attached Addendum and
Exhibits A are added hereto and made part of this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year first above written.
LANDLORD: TENANT:
EMCON, COLUMBIA ANALYTICAL SERVICES, INC.
a California corporation a Washington corporation
By: /s/R. Michael Momboisse By: /s/Steven W. Vincent
-------------------------------- -----------------------------
Its: CFO & VP Legal Its: President
------------------------------ -----------------------------
122
<PAGE>
ADDENDUM TO LEASE
The Addendum is executed by and between EMCON, a California
corporation, as Landlord, and Columbia Analytical Services, a Washington
corporation, as Tenant, with respect to those certain Premises located at 1317
13th Street, Kelso, Washington 98626-2845. This Addendum is an integral part of
the Lease to which it is attached. The provisions of this Addendum supersede the
provisions of the Lease to the extent inconsistent therewith.
39. FIRST RIGHT OF REFUSAL TO PURCHASE PROPERTY. If Landlord receives an offer
to purchase the Property at any time during the term of this Lease and Landlord
desires to accept such offer, then Landlord shall first offer to sell the
Property to Tenant upon the same terms and conditions by delivering written
notice to Tenant of all of the terms and conditions of the third party's offer;
provided, however, that Tenant shall receive as a credit against any down
payment requirement, the then current net book value on Tenant's books of the
costs expended by Tenant with Landlord's consent after the Lease Commencement
Date for construction of additional buildings or building additions or for the
buildout of the second floor of the administration building. Such notice shall
constitute an offer to sell the Property to Tenant on the terms and conditions
contained in the notice. Tenant shall have fifteen (15) days after receipt of
said notice in which to notify Landlord in writing that Tenant accepts such
offer. Tenant shall accept such offer, if at all, only by executing the purchase
agreement attached with Landlord's notice and returning the same to Landlord
within the fifteen (15) day period. If Tenant so executes said purchase
agreement and timely returns the same to Landlord, Landlord shall execute the
purchase agreement and return a fully executed copy to Tenant. If Tenant fails
to execute the purchase agreement or to return the same to Landlord within said
fifteen (15) day period, then Landlord shall be entitled to sell the Property to
any other party on such terms as Landlord desires; provided that, the purchase
price for any purchase agreement entered into with any such third party shall be
no less than that previously offered to Tenant, unless Landlord has first again
offered the Property to Tenant for sale on the terms provided in this Paragraph
39. The right of first refusal under this paragraph is granted for Tenant's
personal benefit and may not be assigned or transferred by Tenant, except in
connection with a Permitted Transfer. Likewise, if Tenant does not exercise its
right of first refusal hereunder, and the Property is sold to a third party, the
right of first refusal set forth herein shall terminate and be of no further
force or effect. Notwithstanding the terms of any offer received by Landlord to
purchase the Property from a third party, the purchase agreement provided by
Landlord to Tenant hereunder shall provide that Tenant shall purchase the
Property "As Is,"without any representation or warranty by Landlord. Tenant
shall close the escrow on the purchase of the Property within sixty (60) days
after it notifies Landlord in writing of Tenant's acceptance of Landlord's offer
to sell the Property to Tenant hereunder.
40. OPTION TO PURCHASE PROPERTY.
A. Subject to the terms and conditions hereof and provided that the
Property has not been previously conveyed to a third party pursuant to the terms
set forth in Paragraph 40 above, Tenant shall have an option (the "Option") to
purchase the Property. The Option shall be exercised, if at all, by Tenant
delivering written notice of its exercise of the Option to Landlord prior to the
earlier of (i) the date ninety (90) months after Landlord acquires title to the
123
<PAGE>
Property, or (ii) the date of Tenant's election not to exercise its right of
first refusal under Paragraph 39 hereof if the Property is in fact sold to the
third party pursuant to the terms and conditions set forth in the right of first
refusal notice. In the event Tenant shall fail to deliver written notice
exercising the Option when required, the Option shall automatically terminate
and be of no further force or effect. Tenant may not exercise the Option during
any period of an Event of Default under this Lease. If Tenant exercises the
Option in a timely manner, Landlord shall be obligated to sell, and Tenant shall
be obligated to purchase, the Property, as hereinafter provided. The purchase
price (the "Purchase Price") for the Property shall be the greater of (i) the
Property's appraised fair market value, as determined in Paragraph 40B below
reduced by an amount equal to the total of all supplemental payments paid by
Tenant to Landlord under the provisions of Paragraph 6.2 of this Lease, or (ii)
the then current net book value of the Property as carried on the Landlord's
books.
B. If the Tenant exercises the Option, Tenant and Landlord each shall,
within ten (10) business days from the date Tenant notifies Landlord of Tenant's
exercise of the Option, appoint a real estate appraiser who shall be a member of
the American Institute of Real Estate Appraisers ("AIREA") and such appraisers
shall each determine the fair market value of the Property, including all
improvements thereon. Each such appraiser shall have no less than five (5)years'
experience appraising commercial property in Kelso, Washington and the
surrounding County. Such appraisers shall, with twenty (20) business days after
their appointment, complete their appraisals and submit their appraisal reports
to Landlord and Tenant. If the fair market value established in the two (2)
appraisals varies by five percent (5%) or less of the higher appraisal, the
average of the two shall be controlling. If said fair market value varies by
more than five percent (5%) of the higher value, said appraisers, within ten
(10) days after submission of the last appraisal, shall appoint a third
appraiser who shall be a member of the AIREA and who shall also be experienced
in the appraisal of commercial properties in the vicinity of the Property. Such
third appraiser shall, within twenty (20) business days after his appointment,
determine by appraisal the fair market value of the Property taking into account
the same factors referred to above, and submit his appraisal report to Landlord
and Tenant. The fair market value determined by the third appraiser for the
Property shall be controlling, unless it is less than that set forth in the
lower appraisal previously obtained, in which case the value set forth in said
lower appraisal shall be controlling, or unless it is greater than that set
forth in the higher appraisal previously obtained, in which case the rental set
forth in said higher appraisal shall be controlling. The appraisal shall not
take into account any costs expended by Tenant after the Lease Commencement Date
for construction of additional buildings or building additions and for the
build-out of the second floor of the administration building. If either Landlord
or Tenant fails to appoint an appraiser, or if an appraiser appointed by either
of them fails, after his appointment, to submit his appraisal within the
required period in accordance with the foregoing, the appraisal submitted by the
appraiser properly appointed and timely submitting his appraisal shall be
controlling. If the two appraisers appointed by Landlord and Tenant are unable
to agree upon a third appraiser within the required period in accordance with
the foregoing, application shall be made within twenty (20) days thereafter by
either Landlord or Tenant to the AIREA, which shall appoint a member of said
institute willing to serve as appraiser. The cost of all appraisals under this
subparagraph shall be borne equally by Landlord and Tenant.
124
<PAGE>
C. Once the Purchase Price has been determined by the parties, close of
escrow shall take place sixty (60) days thereafter. At the close of escrow,
Landlord shall convey fee title to the Property to Tenant "As Is" and without
warranty or representation. The Purchase Price shall be paid by Tenant to
Landlord in cash at the close of escrow. Seller shall pay its normal closing
costs, including title insurance premiums, real estate excise taxes, and other
transfer taxes. Purchaser shall pay its normal closing costs, including
recording of the Deed and recording of any loan documents and title insurance
for any lender that may be involved in financing the cash Purchase Price. Seller
and Purchaser shall each pay one-half of the escrow fees.
D. The Option rights set forth in this Paragraph 40 are personal to
Tenant and may not be transferred or assigned, except in connection with a
Permitted Transfer.
LANDLORD:
EMCON,
a California corporation
Date: 4/4/97 By: /s/R. Michael Momboisse
------------------------------ ------------------------------------
Its: CFO & VP Legal
-----------------------------------
TENANT:
COLUMBIA ANALYTICAL SERVICES, INC.
a Washington corporation
Date: 4/4/97 By: /s/Steven W. Vincent
----------------------------- -----------------------------------
Its: President
----------------------------------
125
<PAGE>
State of Washington On April 4th, 1997
County of Cowlitz
Before me,
personally appeared Stephen W. Vincent,
President of Columbia Analytical Services, Inc.,
personally known to me to be
the person whose name is
subscribed to the within
instrument, and acknowledged to
me that he executed the same in
his authorized capacity, and
that by his signature on the
instrument the person, or the
entity upon behalf of which the
person acted, executed the
instrument.
WITNESS my hand and official
seal.
__________________________________
Notary's Signature
State of Washington On April 4th, 1997
County of Cowlitz
Before me,
personally appeared R, Michael Momboisse,
the Chief Financial Officer and Vice President
of EMCON,
personally known to me to be
the person whose name is
subscribed to the within
instrument, and acknowledged to
me that he executed the same in
his authorized capacity, and
that by his signature on the
instrument the person, or the
entity upon behalf of which the
person acted, executed the
instrument.
WITNESS my hand and official
seal.
_____________________________________
Notary's Signature
126
EXHIBIT 11.1
EMCON
COMPUTATION OF INCOME PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Net income ............................................................................... $ 961 $ 34
Proforma interest income related to modified
treasury stock method .................................................................. N/A 48
------ ------
Adjusted net income ...................................................................... $ 961 $ 82
====== ======
Weighted average number of common shares
outstanding during the period ........................................................... 8,535 8,457
Common and common equivalent shares outstanding
for the purpose of calculating primary net income per share ............................. 8,472 N/A
Common equivalent shares from outstanding
stock options using the modified treasury
stock method ............................................................................ N/A 959
Incremental shares to reflect full dilution (1) .......................................... 0 0
------ ------
Total shares for purposes of calculating diluted
income per share (1) .................................................................... 8,472 9,416
====== ======
Primary income per share ................................................................. $ 0.08 $ 0.01
====== ======
Fully diluted income per share ........................................................... $ 0.08 $ 0.01
====== ======
</TABLE>
- -----------------------
(1) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by footnote 2 to paragraph 14 to APB
opinion No. 15, because it results in dilution of less than 3%.
127
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
This schedule contains summary financial information extracted from the
consolidated balance sheets, consolidated statements of income and consolidated
statements of cash flows included in the Company's Form 10-Q for the three month
period ended March 31, 1997, and is qualified in its entirety by reference to
such financial statements and the notes thereto.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 7,901,000
<SECURITIES> 0
<RECEIVABLES> 35,841,000
<ALLOWANCES> 1,226,000
<INVENTORY> 0
<CURRENT-ASSETS> 48,731,000
<PP&E> 29,558,000
<DEPRECIATION> 15,036,000
<TOTAL-ASSETS> 89,413,000
<CURRENT-LIABILITIES> 17,040,000
<BONDS> 0
<COMMON> 42,059,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 89,413,000
<SALES> 27,581,000
<TOTAL-REVENUES> 27,581,000
<CGS> 12,606,000
<TOTAL-COSTS> 12,606,000
<OTHER-EXPENSES> 13,080,000
<LOSS-PROVISION> 501,000
<INTEREST-EXPENSE> 331,000
<INCOME-PRETAX> 1,063,000
<INCOME-TAX> 372,000
<INCOME-CONTINUING> 691,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 691,000
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
