<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
- -------------------------------------------------------------------------------
For Quarter Ended September 30, 1996 Commission File Number 0-20404
ENVIROGEN, INC.
---------------
(Exact name of registrant as specified in its charter)
Delaware 22-2899415
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4100 Quakerbridge Road
Princeton Research Center
Lawrenceville, NJ 08648
-----------------------
(Address of principal executive offices)
(609) 936-9300
--------------
(Registrant's telephone number, including area code)
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 [_]
The number of shares outstanding of the Registrant's Common Stock, $.01 par
value, as of September 30, 1996 was 12,869,640.
- -------------------------------------------------------------------------------
<PAGE>
ENVIROGEN, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at September 30, 1996 and
December 31, 1995 (Unaudited) 3
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1996 and 1995 (Unaudited) 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1996 and 1995 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General 8
Results of Operations 8
Liquidity and Capital Resources 10
Other Matters 11
PART II OTHER INFORMATION
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURE PAGE 13
2
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
ENVIROGEN, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $4,722,318 $3,748,197
Accounts receivable-trade, net 2,591,583 1,575,664
Unbilled revenue 1,742,181 1,338,232
Inventory 55,972
Prepaid expenses and other current assets 175,698 160,481
--------------- --------------
Total current assets 9,287,752 6,822,574
Property and equipment, net 1,243,785 1,119,090
Restricted cash 399,082 309,300
Investment in and advances to joint venture 310,731 181,563
Intangible assets, net 1,392,124 26,099
Long term accounts receivable 306,768
Other, principally deposits 118,371 126,607
--------------- --------------
Total assets $13,058,613 $8,585,233
=============== ==============
LIABILITIES
Current liabilities:
Accounts payable $877,748 $772,089
Accrued expenses and other liabilities 1,183,170 613,691
Deferred revenue 416,363 424,588
Current portion of note payable 4,600 4,333
Current portion of capital lease obligations 39,081 103,020
Preferred Stock dividends payable 14,583
--------------- --------------
Total current liabilities 2,520,962 1,932,304
Deferred rent 21,389 48,890
Note payable, net of current portion 803 4,287
Capital lease obligations, net of current portion 34,955 7,774
--------------- --------------
Total liabilities 2,578,109 1,993,255
--------------- --------------
Redeemable Cumulative Convertible
Preferred Stock 1,728,621
STOCKHOLDERS' EQUITY
Common stock 129,291 90,495
Additional paid-in capital 31,937,112 24,100,394
Accumulated deficit (21,579,949) (19,321,582)
Less: Treasury stock (5,950) (5,950)
--------------- --------------
Total stockholders' equity 10,480,504 4,863,357
--------------- --------------
Total liabilities, redeemable cumulative convertible
preferred stock and stockholders' equity $13,058,613 $8,585,233
=============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
ENVIROGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ -----------------------------
1996 1995 1996 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Commercial operations $2,604,163 $1,734,026 $7,621,681 $4,237,170
Research and development services 436,620 492,566 1,287,156 1,330,910
------------- ------------ ------------ ------------
Total revenues 3,040,783 2,226,592 8,908,837 5,568,080
------------- ------------ ------------ ------------
Cost of commercial operations 2,283,010 1,505,506 6,967,717 3,726,982
Provision for contract claim 150,000 550,000
Research and development costs 539,646 631,465 1,692,965 1,772,393
General and administrative expenses 470,444 403,009 1,380,361 1,204,983
Marketing expenses 221,550 265,827 680,562 841,384
------------- ------------ ------------ ------------
Total costs and expenses 3,664,650 2,805,807 11,271,605 7,545,742
------------- ------------ ------------ ------------
Other income (expense):
Interest income 70,659 60,378 131,011 147,737
Interest expense (6,476) (7,909) (19,320) (23,808)
Equity in gain (loss) of joint venture (49,619) (36,123) 29,168 (49,210)
Other, net 13,961
------------- ------------ ------------ ------------
Other income, net 14,564 16,346 140,859 88,680
------------- ------------ ------------ ------------
Net loss (609,303) (562,869) (2,221,909) (1,888,982)
Preferred stock dividends (43,750) (36,458) (72,917)
------------- ------------ ------------ ------------
Net loss applicable to Common Stock ($609,303) ($606,619) ($2,258,367) ($1,961,899)
============= ============ ============ ============
Net loss per share applicable to Common Stock ($0.05) ($0.08) ($0.21) ($0.26)
============= ============ ============ ============
Weighted average number of shares of
Common Stock outstanding 12,869,165 7,578,760 10,926,226 7,541,266
============= ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
ENVIROGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------------
1996 1995
--------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,221,909) ($1,888,982)
Adjustments to reconcile net loss to cash
used by operating activities:
Depreciation and amortization 724,552 428,247
Provision for doubtful accounts 63,100 45,000
Equity in (earnings) loss of joint venture (29,168) 49,210
Other 549
Changes in assets and liabilities:
(Increase) in accounts receivable (319,982) (259,121)
(Increase) decrease in unbilled revenue 141,036 (744,464)
(Increase) decrease in prepaid expenses and other assets 33,709 (59,919)
Decrease in inventory 3,231
(Increase) in restricted cash (89,782)
Increase (decrease) in accounts payable (275,264) 179,306
Increase in accrued expenses and other liabilities 55,296 126,230
Increase (decrease) in deferred revenue (8,225) 84,025
--------------- --------------
Net cash used by operating activities (1,922,857) (2,040,468)
--------------- --------------
Cash flows from investing activities:
Capital expenditures (168,798) (68,327)
Investment in and advances to joint venture (100,000) (76,750)
Purchase of MWR, Inc. (1,319,018)
Proceeds from sale of property and equipment 1,600
--------------- --------------
Net cash used in investing activities (1,586,216) (145,077)
--------------- --------------
Cash flows from financing activities:
Debt repayment (3,217) (2,971)
Capital lease principal repayments (98,426) (98,114)
Net proceeds from issuance of Common Stock 4,620,186
Net proceeds from issuance of Redeemable
Cumulative Convertible Preferred Stock 3,457,242
Net proceeds from exercise of stock options 15,692 11,792
Cash dividends paid on Redeemable Cumulative
Convertible Preferred Stock (51,041) (43,750)
--------------- --------------
Net cash used in financing activities 4,483,194 3,324,199
--------------- --------------
Net increase in cash and cash equivalents 974,121 1,138,654
Cash and cash equivalents at beginning of period 3,748,197 2,465,387
--------------- --------------
Cash and cash equivalents at end of period $4,722,318 $3,604,041
=============== ==============
Supplemental disclosures of cash flow information:
- -------------------------------------------------
Cash paid for interest $19,014 $23,759
=============== ==============
Cash paid for income taxes $1,250 $0
=============== ==============
</TABLE>
Supplemental disclosures of non-cash investing and financing activities:
- -----------------------------------------------------------------------
- -The Company entered into capital lease obligations amounting to $49,116 and
$42,924 for the nine months ended September 30, 1996 and 1995, respectively.
- -In February 1996, the Company purchased MWR, Inc. for $1,319,018 in cash and
456,500 shares of Common Stock valued at $1,511,015.
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ENVIROGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations.
The financial information presented reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods. The results for the interim periods are not necessarily
indicative of the results to be expected for the entire year.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the fiscal year ended December 31, 1995.
2. ACQUISITION OF MWR, INC.
-----------------------
On February 9, 1996, the Company purchased all of the outstanding capital stock
of MWR, Inc. for approximately $2,830,000. The purchase price included 456,500
shares of Company Common Stock valued at approximately $1,511,000. MWR is a
provider of in situ remediation services with particular expertise in soil vapor
extraction. The acquisition has been accounted for by the purchase method of
accounting. The excess of the aggregate purchase price over the fair market
value of net assets acquired of approximately $1,283,000 resulted in goodwill of
$1,051,000 and a covenant not to compete of $232,000. These are being amortized
over 10 and 5 years, respectively.
The operating results of the acquisition are included in the Company's
consolidated results of operations from the date of acquisition. The following
pro forma financial information assumes the acquisition occurred at the
beginning of the periods presented and does not purport to be indicative of what
would have occurred had the acquisition been made as of those dates or of
results which may occur in the future.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, 1995 September 30, 1996
------------------- ------------------
<S> <C> <C>
Net revenues $12,740,698 $ 9,187,604
Net loss ($ 2,745,200) ($ 2,255,684)
Net loss per share applicable to
Common Stock ($ 0.34) ($ 0.21)
</TABLE>
6
<PAGE>
3. PRIVATE PLACEMENT OF COMMON STOCK
---------------------------------
On May 24, 1996, the Company successfully completed the private placement of
2,000,000 shares of Common Stock resulting in net proceeds of $4,620,186. Allen
& Company Incorporated ("Allen & Company"), a principal stockholder of the
Company, acted as the placement agent. Allen & Company received a placement fee
of $300,000 and was reimbursed for certain legal fees and other expenses. In
connection therewith, the Company issued seven-year warrants to purchase 200,000
shares of the Company's Common Stock at $2.50 per share. An officer of Allen &
Company is a director of the Company.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the Company's
unaudited consolidated financial statements and notes thereto included in this
Quarterly Report and the consolidated financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Form 10-K for the fiscal year ended December 31,
1995.
General
- -------
The source of the Company's revenues to date includes (i) commercial sales of
the Company's biological degradation systems, (ii) remediation services,
including both in situ and ex situ bioremediation, and (iii) funds received from
third parties and government agencies to conduct specific research and
development programs. While the Company has realized significant commercial
revenues for several years from remediation services, it has only recently seen
the first substantial revenues from sales of full-scale biological degradation
systems for the treatment of contaminated air and water streams. Although great
strides have been made in the commercialization of these systems, significant
expenditures will be required for continued research and development, additional
marketing activities and ultimately the development of manufacturing
capabilities for the further commercialization of the Company's biodegradation
systems. The amount and timing of such expenditures will vary depending on
several factors, including the progress of development and testing, funding from
third parties, the level of enforcement of environmental regulations by federal
and state agencies, technological advances, changing competitive conditions and
determinations with respect to the commercial potential of the Company's
systems. The amount of timing of such expenditures can not be predicted.
Results of Operations
- ---------------------
Nine Months Ended September 30, 1996 Compared to
- ------------------------------------------------
Nine Months Ended September 30, 1995
- ------------------------------------
For the nine months ended September 30, 1996, the Company reported revenues of
$8,908,837, an increase of 60% from the same period in 1995. The net loss in
the period increased 15% to $2,258,367 from $1,961,899 in the same period in
1995, while the net loss per share was $0.21 compared to $0.26 in the same
period in 1995. The decrease in net loss per share is due to a greater number of
shares outstanding resulting from a private placement of common stock in the
second quarter of 1996.
Commercial revenues increased 80% to $7,621,681 from $4,237,170 in the same
period in 1995, while revenues from corporate and government research and
development contracts decreased 3% to $1,287,156 from $1,330,910 in the same
period in 1995. The increase in commercial revenues is due primarily to
increased systems sales by the Company's Commercial Air Group related to the
ABTCo biofilter project combined with revenues from the Company's MWR subsidiary
which was acquired in February 1996. Revenues from remediation activities
accounted for 74% of the Company's commercial revenues in the nine-month period
ended September 30, 1996.
Revenues from corporate and government research and development contracts
decreased slightly from 1995 as revenues from numerous new projects partially
offset the loss of revenues due to the conclusion in December 1995 of PCB work
the Company performed for the Texas Eastern Company. In late 1995, the Company
began work under a Phase II Department of Energy Small Business Innovative
Research
8
<PAGE>
Grant (SBIR), Phase II Department of Defense SBIR and Phase II National Science
Foundation SBIR, which contributed significantly to 1996 results. The Company
also recorded initial revenues during the first nine months of 1996 under a new
Phase I grant from the Department of Energy and a new Phase I grant from the
National Science Foundation.
Total costs and expenses increased 49% to $11,271,605 in the first nine months
of 1996 from $7,545,742 in the same period in 1995, due primarily to the
increased cost of commercial services and products associated with the higher
revenue levels. The cost of commercial operations increased 87% to $6,967,717
due to higher revenue levels, a greater proportion of which were attributable
to lower margin systems sales. Research and development expenses decreased 4% to
$1,692,965. General and administrative expenses increased 15% to $1,380,361 due
largely to the increased amortization of intangible assets associated with the
acquisition of MWR in February 1996. The $550,000 provision for contract claim
is the estimated cost to repair and restart the previously disclosed Nylonge
biofilter system. While the ultimate responsibility for these expenses has not
yet been determined, the Company is actively pursuing reimbursement of these
expenses from third parties. However, there can be no assurance that any such
recoveries will be attained. Marketing expenses decreased 19% due primarily to
reduced personnel related costs combined with other cost reduction efforts.
Interest income decreased by 11% to $131,011 due to the decreased average cash
available for investment resulting from the Company's continuing loss position
combined with the cash required for the Company's acquisition of MWR, Inc.
Equity in gain of joint venture increased to $29,168 for the nine-month period
ended September 30, 1996 from a loss of $49,210 due to the Company's
participation in the CVT America joint venture. Prior to its conversion in May
1996, the Company paid dividends of $36,458 in 1996 on the Company's outstanding
convertible preferred stock.
Three Months Ended September 30, 1996 Compared to
- -------------------------------------------------
Three Months Ended September 30, 1995
- -------------------------------------
For the three months ended September 30, 1996, the Company reported revenues of
$3,040,783, an increase of 37% from the same period in 1995. The net loss in the
period of $609,303 remained relatively flat versus the same period in 1995,
while the net loss per share was $0.05 compared to $0.08 in the same period in
1995. The decrease in net loss per share is due to a greater number of shares
outstanding resulting from a private placement of common stock in the second
quarter of 1996.
Commercial revenues increased 50% to $2,604,163 from $1,734,026 in the same
period in 1995, while revenues from corporate and government research and
development contracts decreased 11% to $436,620 from $492,566 in the same period
in 1995. The increase in commercial revenues is due primarily to revenues from
the Company's MWR subsidiary which was acquired in February 1996. Revenues from
remediation activities accounted for 84% of the Company's commercial revenues in
the three-month period ended September 30, 1996.
Revenues from corporate and government research and development contracts
decreased due to the conclusion in December 1995 of PCB work the Company
performed for the Texas Eastern Company.
Total costs and expenses increased 31% to $3,664,650 in the third quarter of
1996 from $2,805,807 in the same period in 1995. The cost of commercial
operations increased 52% to $2,283,010 due to higher revenue levels. Research
and development expenses decreased 15% to $539,646 due primarily to the
decreased revenues from corporate and government research and development
contracts. General and
9
<PAGE>
administrative expenses increased 17% to $470,444 due primarily to the increased
amortization of intangible assets associated with the acquisition of MWR in
February 1996. Of the $550,000 estimated cost to repair and restart the
previously disclosed Nylonge biofilter system, $150,000 was recognized in the
third quarter of 1996. While the final responsibility for these expenses has not
yet been determined, the Company is actively pursuing reimbursement of these
expenses from third parties. However there can be no assurance that any such
recoveries will be attained. Marketing costs decreased 17% to $221,550 due
primarily to reduced personnel related costs combined with other cost
reduction efforts.
Interest income increased 17% to $70,659 due to the increased level of cash
available for investment as a result of the Company's May 1996 private placement
of common stock. Equity in loss of joint venture of $49,619 is due to the
Company's participation in the CVT America joint venture.
Liquidity and Capital Resources
- -------------------------------
The Company has funded its operations to date primarily through public offerings
and private placements of equity securities, research and development agreements
with major industrial companies, research grants from government agencies and
revenues from commercial services and sales of biological degradation systems.
At September 30, 1996 the Company had cash and cash equivalents of $4,722,318
and working capital of $6,766,790. Additionally, the Company had restricted cash
of $399,082 that was being used to collateralize bonds for large commercial
projects. Cash and cash equivalents increased by $974,121 from December 31, 1995
to September 30, 1996 due to the net proceeds of $4,620,186 from the May 1996
private placement of Common Stock which offset the cash payment of $1,319,018
for the purchase of MWR, Inc. in February 1996, cash used by operations of
$1,922,857, capital expenditures of $168,798, an advance to affiliate of
$100,000, capital lease principal repayments of $98,426 and cash dividends on
preferred stock of $51,041. The Company expects to incur additional capital
expenditures in connection with the continued development and commercialization
of its technologies. The timing and amount of such expenditures will fluctuate
depending on the timing of field tests, systems development activity, the
rapidity with which the Company's biodegradation systems can be further
commercialized and the availability of capital. Furthermore, future projects may
require the Company to set aside additional capital to collateralize performance
bonds.
Revenue from certain of the Company's contracts is recognized as services are
provided and costs are incurred. For fixed-price contracts, revenue is
recognized on the percentage-of-completion method, measured by the percentage
relationship of costs incurred from contract inception to date to the estimated
total costs for each contract. The asset "Unbilled revenue" represents revenues
recognized in excess of amounts billed. Correspondingly, the liability "Deferred
revenue" represents billings in excess of costs and estimated earnings. The
balance in these accounts will fluctuate depending on a number of factors,
including the number and size of fixed-price contracts, contract terms and
other timing and cost issues. At September 30, 1996, unbilled revenue was
$403,949 greater than at December 31, 1995 due primarily to the acquisition of
MWR.
Accounts receivable increased by $1,015,919 from December 31, 1995 to September
30, 1996 primarily due to the acquisition of MWR and the timing of billings for
the ABTCo project. Accounts payable increased by $105,659 and accrued expenses
and other liabilities increased by $569,479 in the same period due primarily to
the acquisition of MWR.
10
<PAGE>
The Company will continue to incur operating losses during the period of
development and commercialization of its technologies relating to the treatment
of hazardous wastes and industrial pollutants. Although it is unable to predict
with certainty, the Company believes it will have sufficient capital to meet its
operating requirements at least through the intermediate term. If the Company is
unable to obtain continued funding for the development of these technologies
through research and development agreements and increased commercial revenues,
it will be necessary to obtain funding from other sources. There can be no
assurance that the Company will be able to obtain additional funds to meet its
capital requirements or, if successful, the terms of such financing may not be
advantageous to the Company.
Other Matters
- -------------
As of December 31, 1995, the Company had a net operating loss carryfoward of
approximately $17,600,000 for federal income tax reporting purposes available to
offset future taxable income, if any, through 2010. The timing and manner in
which these losses may be utilized are limited under Section 382 of the Internal
Revenue Code of 1986, as amended, as a result of certain ownership changes with
respect to the Company to date, and may be further limited in the event of
additional ownership changes.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation" ("SFAS
123"). In October 1995, SFAS 123 established financial and reporting standards
for stock based compensation plans. The Company will adopt the disclosure only
provision of this standard during 1996.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On November 6, 1996, the Company announced that it had entered into a letter of
intent with Fluid Management, Inc. (FMI) of Milwaukee, Wisconsin to acquire FMI
for approximately $11 million in cash and approximately 4.2 million shares of
common stock. The acquisition is subject to customary conditions of closing,
including the satisfactory results of due diligence investigations, satisfactory
operating results of FMI and the Company prior to closing, receipt of necessary
approvals, and the obtaining of financing from E.M. Warburg, Pincus & Company,
Inc. which has expressed an interest in providing the capital to the Company
necessary to finance the acquisition and supplement the working capital of the
combined enterprise. Such capital would take the form of a direct purchase by
Warburg, Pincus of approximately $16 million of common stock at a price of
$2.625 per share. The shares issued in connection with the acquisition and the
private placement would have the benefit of certain registration rights, but
would be restricted from public resale for a period of one year from the date of
closing. FMI is a full service environmental consulting and engineering firm
with offices in Wisconsin, Illinois and Michigan. In 1995 FMI reported gross
sales of $21.4 million and pre-tax income of $4.6 million.
On November 7, 1996, the Company announced that it had entered into a water
treatment technology agreement with Rhone-Poulenc Inc. to develop comprehensive
biological water treatment technologies and systems for the industrial waste
water treatment market. For a period of 18 months the companies will develop,
test market and install water treatment systems to targeted sectors of the waste
water treatment industry. If the results of these activities are satisfactory to
both parties, the companies plan to form a joint venture that will fully exploit
these synergistic applications. The Company is contributing its expertise in the
biological treatment of waste water with particular emphasis on its high-
performance bioreactors, such as the membrane and fluidized bed bioreactors.
Rhone-Poulenc is supplying marketing, project and engineering support as well as
membrane systems to the project. The Company and Rhone-Poulenc are currently
working on projects that integrate their respective technologies.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Letter agreement dated November 6, 1996 between Envirogen,
Inc. and Fluid Management, Inc., as confirmed by
E.M. Warburg, Pincus & Co., Inc.
10.2 Development agreement dated November 7, 1996 between
Envirogen, Inc. and Rhone-Poulenc Inc.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K - None.
12
<PAGE>
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.
ENVIROGEN, INC.
(Registrant)
Date: November 12, 1996 By: /s/ Harcharan S. Gill
---------------------------------------
Harcharan S. Gill
President and Chief Executive Officer
/s/ Patricia A. McQueary
---------------------------------------
Patricia A. McQueary
Controller
13
<PAGE>
Exhibit 10.1
Envirogen, Inc.
Princeton Research Center
4100 Quakerbridge Road
Lawrenceville, New Jersey 08648
November 6, 1996
CONFIDENTIAL
- ------------
Fluid Management, Inc.
2831 N. Grandview Blvd.
Pewaukee, Wisconsin 53072
ATTN: Mr. William C. Smith, P.E.
Chairman, President & CEO
Dear Mr. Smith:
You have discussed with Envirogen, Inc. ("Envirogen") the business and
operations of, and prospects for, Fluid Management, Inc. ("FMI") and your
interest in combining such operations with those of Envirogen. Based upon our
review of the information received to date, and assuming that business,
accounting and legal due diligence supports our preliminary valuation, we would
be interested in pursuing the acquisition of FMI by Envirogen or a subsidiary of
Envirogen (the "Acquisition"). The purchase price (the "Purchase Price") in the
acquisition would be: (a) cash in an amount equal to $11,000,000, plus all
"nonoperating" cash of FMI as of the Closing Date (the parties will agree on the
amount of "operating" cash and "nonoperating" cash of FMI, but FMI believes that
the amount of "operating" cash of FMI is minimal), minus the principal amount of
all indebtedness of FMI for borrowed money on the Closing Date, provided that
there shall be excluded as indebtedness (the "Excluded Debt") for such purposes:
(i) any indebtedness of FMI incurred to pay out to FMI shareholders the balance
of the so called "tax dividends" based on FMI's 1996 earnings, which balance of
such dividends is currently estimated to be approximately $1,000,000; and (ii)
the amount necessary to prepay the PAC bonuses to FMI employees prior to the
Closing, which bonuses are currently estimated to be approximately $800,000; and
(b) 4,190,477 shares of the common stock of Envirogen. The Acquisition will be
structured to accommodate the business, financial, legal, tax and accounting
needs of the parties, provided that the shareholders of FMI will be subject to
only one level of capital gains tax on the cash portion of the Purchase Price
and that the receipt by FMI shareholders of the portion of the Purchase Price
payable in shares of common stock of Envirogen will be tax free, provided that
the parties understand that future sales of Envirogen common stock by FMI's
shareholders may be taxable.
<PAGE>
Fluid Management, Inc.
November 6, 1996
Page 2
The Purchase Price is premised on, among other things, an approximate minimum
net worth of FMI of $2 million on the Closing Date, provided that, in such
calculation, the Excluded Debt shall not be counted and FMI's reserve for
unrealized sales shall be added back to the net worth. The shares of Envirogen
Common Stock issued in connection with the Acquisition would be registered by
Envirogen as soon as practicable after the Closing but in any event within 9
months after the Closing Date, but the holders of such shares would agree not to
sell or transfer any such shares for a period of 12 months after the Closing
Date.
Envirogen understands that FMI's current management and key staff members intend
to remain with the combined enterprise and that, at Closing of the Acquisition,
FMI's arrangements regarding continued employment with such persons will be
reaffirmed or established, as the case may be, including the availability of an
option pool of 600,000 shares of Common Stock of Envirogen at an exercise price
to be agreed to in the definitive documents describing the Acquisition. In
addition, the Envirogen Board of Directors will be reconstituted upon Closing
with William C. Smith and Robert S. Hillas replacing two current Envirogen
directors.
The consummation of the Acquisition and the transactions contemplated hereby are
subject to (a) our satisfaction with the results of a "due diligence"
investigation of FMI of the type that would customarily be carried out in an
acquisition of this nature, (b) satisfactory operating results of FMI during the
period from the date hereof to the Acquisition's Closing, (c) authorization of
the Acquisition and the transactions contemplated hereby by the Board of
Directors and stockholders of Envirogen, and (d) our obtaining satisfactory
financing from E.M. Warburg, Pincus & Co., Inc. ("Warburg"), which has expressed
an interest in providing the capital to Envirogen necessary to finance the
acquisition and supplement the working capital of the combined enterprise. Such
capital would take the form of a direct investment by Warburg of approximately
$16 million in Envirogen's Common Stock at a purchase price of $2.625 per share.
Such shares would carry the same registration rights and would be subject to the
same resale restrictions as the shares issued to the former FMI stockholders.
The consummation of the Acquisition and the transactions contemplated hereby are
also subject to (a) FMI's satisfaction with the results of a "due diligence"
investigation of Envirogen of the type that would customarily be carried out in
a transaction of this nature, (b) satisfactory operating results of Envirogen
during the period from the date hereof to the Acquisition's Closing, (c)
authorization of the Acquisition and the transactions contemplated hereby by the
Board of Directors and stockholders of Envirogen, and
<PAGE>
Fluid Management, Inc.
November 6, 1996
Page 3
(d) Warburg making the investment described above evidenced by documents
reasonably satisfactory to Warburg, Envirogen and FMI.
The foregoing represents only a statement of the present intent of the parties
with respect to the proposed transaction and does not constitute a commitment or
obligation on the part of any of the parties for the purchase or sale of FMI or
the investment by Warburg in Envirogen. Any such commitment or obligation will
result only from the execution of definitive agreements, which will contain
representations, warranties, covenants and conditions customary for transactions
of this nature, including covenants concerning the operation of the businesses
of FMI and Envirogen only in the ordinary course of business, consistent with
past practice, between the date of this letter and the Closing Date, mutually
agreeable maximum amounts of Transaction Costs (as defined below) and other
typical provisions. Furthermore, the foregoing summary does not refer to all
matters upon which agreement must be reached, and for which approvals may be
required, in order for the proposed transactions to be consummated.
Notwithstanding the foregoing, it is acknowledged that Envirogen will incur
substantial legal, accounting and other expenses in order to complete our
evaluation of the business of FMI and to structure and finance the proposed
transaction. Accordingly, you hereby agree that, commencing upon your signing of
this letter and until the termination of this Letter of Intent, you shall not,
and shall cause your management, stockholders and representatives not to,
solicit, initiate, encourage or actively consider any discussion, proposal or
negotiation for the purchase or sale of FMI, or any part thereof, by means of
merger, stock or asset sale or otherwise, with any person or entity other than
Envirogen and Warburg.
This Letter of Intent shall terminate on December 31, 1996 unless a definitive
agreement is executed by Envirogen and FMI on or before December 31, 1996,
provided, however, that this Letter of Intent may be terminated by FMI at any
time prior to execution of the definitive Agreement in the event that Envirogen
requests a reduction the Purchase Price or requests a material adverse change
in any other material term or condition of the transaction described in this
letter of intent.
If the transactions described in this letter of intent are not completed, each
of the parties shall pay all fees and expenses incurred by it, including the
fees of its counsel, accountants, investment bankers and others incident to the
negotiation and preparation of this letter of intent (the "Transaction Costs").
If the transactions described in this letter of intent are completed,
<PAGE>
Fluid Management, Inc.
November 6, 1996
Page 4
Envirogen shall pay all Transaction Costs of the parties subject to mutually
agreeable maximum amounts of Transaction Costs to be agreed to in the definitive
agreement referred to above.
The parties agree that they will not make public statements regarding the
transactions contemplated by this letter of intent without first consulting with
the other party in order that such public statements shall be jointly issued by
the parties, except to the extent required by law or any securities exchange.
If you desire to proceed with this proposal, kindly so indicate by signing and
returning a duplicate copy of this letter, where upon each of the parties shall
proceed diligently and in good faith to fulfill the conditions referred to
above.
Very truly yours,
ENVIROGEN, INC.
By: /s/ Harch S. Gill
-----------------------------
Harch S. Gill, Ph.D.
President & CEO
Accepted and Agreed:
FLUID MANAGEMENT, INC.
By: /s/ William C. Smith
-----------------------------
William C. Smith, P.E.
Chairman, President & CEO
Confirmed:
E.M. WARBURG, PINCUS & CO., INC.
By: /s/ Robert S. Hillas
-----------------------------
Robert S. Hillas
Managing Director
<PAGE>
Exhibit 10.2
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT is made, entered into and effective this the 31st day
of October, 1996, by and between RHONE-POULENC INC., a New York corporation,
with offices at One Corporate Drive, Box 881, Shelton, Connecticut 06484
(hereinafter called "RP"), and ENVIROGEN, INC., a Delaware corporation, with
offices at Princeton Research Center, 4100 Quakerbridge Road, Lawrenceville, New
Jersey 08648 (hereinafter called "Envirogen").
WHEREAS, RP and Envirogen wish to work together to promote the joint
development, marketing and commercialization of Systems in the Field of Use
embodying and/or utilizing certain Envirogen technology and RP technology, and
improvements thereto;
WHEREAS, During the Development Period (as defined herein), the parties will
work together to develop the Systems for commercial use and seek to install
Systems for test marketing purposes in the Territory; and
WHEREAS, If, at the end of the Development Period, the parties determine that
the Systems are commercially and economically viable, the parties will proceed
to market and commercialize the Systems in the Field of Use throughout the
Commercialization Period (as defined herein).
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
promises set forth in this Agreement, RP and Envirogen hereby agree as follows.
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the following
respective meanings:
<PAGE>
Business Plan: The business plan to be prepared and agreed upon by the parties
- -------------
for the Commercialization Period as more fully described in Section 2.2(f).
Commercialization Agreement: The written agreement to be negotiated by the
- ---------------------------
parties in good faith setting forth the terms and conditions of the ownership,
financing, management and operation of the Joint Venture and each party's rights
in, and obligations to, the Joint Venture during the Commercialization Period.
Commercialization Period: The period during which the parties will form and
- ------------------------
operate the Joint Venture to market and commercialize the Systems in the Field
of Use pursuant to the Commercialization Agreement upon completion of the
Development Period and the parties' mutual agreement to proceed with
commercialization of the Systems.
Development Period: The period beginning with the date of this Agreement and
- ------------------
extending for a period of no longer than eighteen (18) months, during which the
parties will work together to develop for commercial use and determine the
commercial and economic viability of the Systems in the Field of Use.
Development Plan: The development plan and schedules to be prepared and agreed
- ----------------
upon by the parties for the Development Period as more fully described in
Section 2.2(e).
Envirogen Jointly Developed Technology: Jointly Developed Technology
- --------------------------------------
applicable or relating to Envirogen Technology, Envirogen Know-How and
Envirogen's improvements thereto relating to Envirogen's biological cultures,
which Jointly Developed Technology will be owned by Envirogen.
Envirogen Know-How: Envirogen's biological process engineering expertise,
- ------------------
reactor engineering expertise, microbial library, existing reactor designs,
laboratory and other expertise and know-how relevant to the Envirogen Technology
presently owned, developed or acquired by Envirogen during the Term, as defined
herein, of this Agreement and/or the term of the Commercialization Agreement.
2
<PAGE>
Envirogen RP Improvements: Any ideas, developments, trade secrets and know how
- --------------------------
conceived and/or reduced to practice by Envirogen in the course and as a result
of working on the Project under this Agreement and/or under the
Commercialization Agreement, which constitute improvements or modifications to
the RP Technology or the RP Affiliate Technology which improvements or
modifications cannot be used by Envirogen or others without infringing the
rights (patent, proprietary or otherwise) of RP in the RP Technology or of RP's
Affiliates in the RP Affiliate Technology.
Envirogen Technology: Envirogen's technology presently owned, conceived or
- ---------------------
reduced to practice or acquired by Envirogen during the Term of this Agreement
and/or the term of the Commercialization Agreement that is covered by Envirogen
patents, trade secrets and/or related Envirogen Know-How, relating to
Envirogen's biological cultures and biological processes known as the membrane
bio-reactor ("MBR") and the fluidized bed bio-reactor ("FBR").
Exclusive Envirogen Technology: That portion of the Envirogen Technology
- -------------------------------
relevant to Envirogen's membrane bio-reactor process ("MBR"), together with the
Envirogen Know-How related thereto, to be utilized exclusively in Systems in the
Field of Use by Envirogen and RP pursuant to this Agreement and, if any, the
Commercialization Agreement.
Field of Use: Biological treatment (a) of process waste water streams, (b) of
- -------------
ground water streams, and/or (c) in the production of commercial products
through bio-conversion, using the Envirogen Technology, the RP Technology and
any improvements thereto.
Jointly Developed Technology: New technology, creative ideas, developments,
- -----------------------------
trade secrets and know-how conceived and/or reduced to practice jointly by an
employee or employees of one party with an employee or employees of the other
party, during the Term of this Agreement, and/or the term of the
Commercialization Agreement. All Jointly Developed Technology which is not
Envirogen Jointly Developed Technology or RP Jointly Developed Technology will
be owned jointly by Envirogen and RP.
3
<PAGE>
Joint Venture: The entity to be formed by Envirogen and RP upon a mutual
- -------------
decision to proceed with the Commercialization Period to jointly market and
commercialize the Systems in the Field of Use.
Non-Exclusive Envirogen Technology: That portion of the Envirogen Technology
- ----------------------------------
relevant to Envirogen's fluidized bed bio-reactor process ("FBR"), together with
the Envirogen Know-How related thereto, to be utilized on a non-exclusive basis
in Systems in the Field of Use by Envirogen and RP pursuant to this Agreement
and, if any, pursuant to the Commercialization Agreement.
Project: The steps, actions and plans to be taken and implemented by the parties
- -------
pursuant to this Agreement throughout the Development Period and, if any,
pursuant to the Commercialization Agreement throughout the Commercialization
Period.
RP Affiliate: Any entity which, directly or indirectly, owns or is owned by, or
- ------------
is under common ownership or control with, RP, irrespective of the amount or
percentage of any such ownership. RP Affiliate shall include, but not be limited
to, Rhone-Poulenc S.A. and Rhone-Poulenc Chimie.
RP Affiliate Technology: Technology presently owned, developed and/or acquired
- -----------------------
by any RP Affiliate (but not by RP) at any time before, during and after the
Development Period and/or the Commercialization Period, patented or unpatented,
covered by the proprietary trade secrets and/or know-how of the RP
Affiliate, including, but not limited to, the ceramic and other membrane
technology of the RP Affiliate.
RP Envirogen Improvement: Any ideas, developments, trade secrets and related
- ------------------------ -----------------------
know how conceived and/or reduced to practice by RP in the course and as a
result of working on the Project under this Agreement and/or under the
Commercialization Agreement, which constitute improvements or modifications to
the Envirogen Technology and Envirogen Know-How relating to Envirogen's
biological cultures, which improvements or modifications cannot be used by RP or
others without infringing the rights (patent,
4
<PAGE>
proprietary or otherwise) of Envirogen in that portion of the Envirogen
Technology and Envirogen Know-How relating to Envirogen's biological cultures
technology.
RP Jointly Developed Technology: Jointly Developed Technology applicable or
- --------------------------------
relating to RP Technology, RP Affiliate Technology, Systems (other than any
embodiments of Envirogen Technology, Envirogen Know-How and Envirogen's
improvements thereto relating to Envirogen's biological cultures) and RP Systems
Improvements, which Jointly Developed Technology will be owned by RP.
RP Systems Improvements: Any ideas, developments, trade secrets and know-how
- ------------------------
conceived and/or reduced to practice by RP in the course and as a result of
working on the Project under this Agreement and/or under the Commercialization
Agreement, which constitute improvements or modifications to the Systems, or any
parts thereof, and which are physically embodied in Systems used commercially
for or by customers of the Project or the Joint Venture upon termination of
this Agreement or, if any, the Commercialization Agreement, excluding, however,
those parts or portions of the Systems which embody Envirogen Technology
relating to biological cultures and/or Envirogen Know-How relating to biological
cultures. RP Systems Improvements may include RP Technology to the extent any
such RP Technology is physically embodied in Systems as described herein.
RP Technology: RP's technology presently owned, developed and/or acquired by RP
- --------------
during the Term of this Agreement and/or the term of the Commercialization
Agreement that is covered by or related to RP patents, trade secrets and/or
know-how and that does not constitute RP Envirogen Improvements or RP Affiliate
Technology. RP Technology for purposes of this Agreement shall include, but not
be limited to, RP's project management and chemical handling technology and
expertise, engineering and mechanical technology and expertise, sales and
marketing expertise, and market and trade name and trademark recognition.
Systems: The physical and mechanical processes, plant, equipment, products and
- --------
systems which facilitate the use and application of, and/or embody, the
Envirogen Technology, Envirogen Know-How and/or, if any, any RP Envirogen
Improvements, Envirogen RP
5
<PAGE>
Improvements, RP Systems Improvements, Envirogen Jointly Developed
Technology, RP Jointly Developed Technology and/or Jointly Developed
Technology, to be designed, engineered, constructed, installed and started-
up by the parties hereunder in furtherance of the Project.
Term: The period beginning on the date of this Agreement and ending on the
-----
date of the earliest to occur of (a) termination of this Agreement by
mutual consent of the parties; (b) termination or expiration of the
Development Period pursuant to this Agreement or (c) termination of this
--------------------------
Agreement pursuant to Section 8.2.
Territory: The territory consisting of the United States, Canada and Mexico
----------
and their respective territories and possessions.
ARTICLE II
DEVELOPMENT PERIOD
------------------
2.1 Development Period. The Development Period and this Agreement may be
-------------------
terminated or extended by mutual agreement of the parties. During the
Development Period, the parties will work together to develop the Systems for
commercial marketing and use in the Territory and will seek to install Systems
at third party locations in the Territory for test and marketing purposes.
2.2 Responsibilities. During the Development Period, the following provisions
-----------------
will apply and the parties will work together to perform the following tasks in
the Territory.
a) Envirogen Technology. Envirogen will make available to the Project in
---------------------
the Field of Use in the Territory for use by Envirogen and RP in furtherance of
the Project (i) the Exclusive Envirogen Technology, relevant Envirogen Know-How,
Envirogen RP Improvements, relevant Envirogen Jointly Developed Technology and
any improvements and modifications thereto, on an exclusive, royalty-free basis
and (ii) the Non-Exclusive Envirogen Technology, relevant Envirogen Know-How,
Envirogen RP Improvements, relevant Envirogen Jointly Developed Technology and
any improvements and
6
<PAGE>
modifications thereto, on a non-exclusive, royalty-free basis during the
term of this Agreement.
b) RP Technology. RP will make available to the Project in the Field of Use in
-------------
the Territory for use by Envirogen and RP in furtherance of the Project, the
RP Technology, RP Systems Improvements, RP Envirogen Improvements and
relevant RP Jointly Developed Technology, and any improvements and
modifications thereto, on an exclusive, royalty-free basis, during the term
of this Agreement.
c) RP Affiliate Technology. The parties acknowledge and agree that at no time
-----------------------
during the Development Period and/or the Commercialization Period will the
RP Affiliate Technology be disclosed to or utilized by the Project or
Envirogen or otherwise become subject to this Agreement or the
Commercialization Agreement, except pursuant to and in accordance with the
RP Affiliate's prior written agreement. RP will use its reasonable efforts
to obtain and provide to the Project the RP Affiliate's membrane products
and such information deemed by RP, in its sole discretion, necessary or
appropriate for proper commercial utilization of such membrane products in
furtherance of the Project.
d) Jointly Developed Technology. The parties will make available to the Project
----------------------------
in the Field of Use in the Territory any (jointly owned) Jointly Developed
Technology deemed by either or both parties necessary or appropriate in
furtherance of the Project, on an exclusive, royalty-free basis during the
term of this Agreement.
e) Development Plan. Prepare and agree upon the Development Plan on or before
----------------
December 1, 1996. The Development Plan will include the definition of the
costs and expenses to be shared by the parties, and the billing rates and
charges to be made to the Project based on the applicable party's actual
direct internal cost to provide its services, facilities and materials to
the Project as further provided in Section 2.3 hereof; provided, however, no
charges will be made for the use of either party's technology or know-how as
provided elsewhere in this Agreement.
7
<PAGE>
f) Business Plan. Prepare and agree upon the Business Plan for the
-------------
Commercialization Period on or before February 1, 1997. The Business Plan
will include the capital requirements and financial proposals for the Joint
Venture, the definition of the costs and expenses to be shared by the
parties, the billing rates and charges to be made to the Joint Venture based
on the applicable party's actual internal cost to provide engineering,
technical, marketing, sales and other services, facilities and materials,
and reimbursement procedures. After completion, the Business Plan shall be,
except as otherwise agreed between the parties, mutually reviewed and
adjusted, modified and/or revised, as needed, every six (6) months, pursuant
to agreement between the parties.
g) UNOCAL Project. Share equally, on a 50/50 basis, the direct, out-of-pocket
--------------
costs needed to complete the design, engineering, construction, installation
and start-up of a System pending as of the date of this Agreement for
UNOCAL, estimated to total $300,000 in costs. In the event the total costs
for the UNOCAL System are estimated to exceed $500,000, either party may
elect, in its discretion, to terminate its participation in the UNOCAL
project.
h) Installation of Systems. Promote the installation of at least four (4)
-----------------------
Systems on a test basis, at locations in the Territory to be agreed upon by
the parties, in the first twelve (12) months of the Development Period.
Either the Envirogen MBR Technology or the Envirogen FBR Technology will be
used in each individual System as the parties shall mutually determine to be
necessary or appropriate.
i) Periodic Reviews. RP and Envirogen will review, from time to time, and
----------------
adjust or revise as deemed necessary or appropriate, the Development Plan,
the activities undertaken and the progress being made during the Development
Period.
j) Envirogen as Contractor. Envirogen shall act as the primary contractor in
-----------------------
the design, engineering, construction, installation and start-up of the
Systems during the Development Period.
8
<PAGE>
k) Outline of Commercialization Agreement. Within six (6) months after
--------------------------------------
the date of this Agreement, the parties will negotiate in good faith
and mutually agree upon an outline of the principal terms and
conditions of the Commercialization Agreement. The outline shall set
forth the principal terms and conditions which shall govern the
ownership, financing, management and operation of the Joint Venture
as well as each party's rights in, and obligations to, the Joint
Venture. Until the effective date of the Commercialization
Agreement, the terms of this Agreement and, where appropriate, the
Business Plan will apply to the Commercialization Period and the
Joint Venture. If any term or condition in this Agreement is
inconsistent, at variance or in conflict with the Commercialization
Agreement with respect to any period after commencement of the
Commercialization Period, then the term or condition in the
Commercialization Agreement shall govern and control.
2.3 Sharing of Income, Costs and Expenses. All income, revenues, capital
-------------------------------------
requirements, costs and expenses of the Project during the Development Period
will be shared equally between the parties, on a 50/50 basis, as further
described hereinafter. Costs and expenses will include only direct,
out-of-pocket costs incurred by a party in furtherance of the Project or
specific Systems, such as the direct costs incurred to design, engineer,
construct, install and start up a System. Costs and expenses shall not include
indirect, overhead, sales and administration and similar costs, except as
otherwise agreed in writing between the parties. The parties shall mutually
agree on the handling of cash received from revenues and paid out against
invoices from third parties. Each party will maintain separate books, records
and/or "accounts by Project" to record the revenues and the costs and expenses
of the Project. Each party may at any time review, audit and copy the other
party's books and records to assure compliance with this Agreement. During the
Development Period, distribution of net income from the Project will be subject
to agreement by RP and Envirogen; provided, however, that no less than eighty
percent (80%) of the positive cash flow from the Project, subject to reserves
for working capital needs as agreed to by the parties, shall be distributed to
Rp and Envirogen equally on a quarterly basis.
2.4 Contributions of the Parties during the Development Period. It is
----------------------------------------------------------
understood and agreed that, during the Development Period, each party will make
available to the Project its technology and know-how at no cost to the other
party or the Project as further described in Sections 2.2(a) through
9
<PAGE>
(d) above. If Envirogen and RP participate together in a project outside the
Territory pursuant to Article VII, then the technology and know-how of each
party made available to the Project will be made available to the project
outside the Territory at no cost to the other party, the Project or the specific
project outside the Territory. Nothing in the foregoing shall prohibit or
restrict the reimbursement, as provided for elsewhere in this Agreement, to
either party for the direct costs and expenses actually incurred by each party
in performing functions for the Project in the Territory (or any project outside
the Territory in which RP participates), utilizing such technology and know-how,
and/or providing such technology and know-how to the Project as described in
this Agreement, the Development Plan, the Commercialization Agreement and/or the
Business Plan.
ARTICLE III
COMMERCIALIZATION PERIOD
------------------------
3.1. Decision to Proceed with Commercialization Period. Upon completion of
-------------------------------------------------
the Development Period, but commencing no later than May 1, 1998, RP and
Envirogen will determine in good faith whether the Project is commercially and
economically viable. Factors relevant to this determination will include the
technical, financial and commercial viability and prospects for the Envirogen
Technology and the Systems in the Field of Use in the Territory, the technical
and financial viability of Envirogen, the strength of the claims in the relevant
patents and patent applications, the resolution of any technical, regulatory and
business issues identified during the Development Period and the projected
future revenue stream and financial returns. If RP and Envirogen determine to
continue their participation in the Project, the parties will work together to
commercialize and market the Systems in the Field of Use in the Territory and,
pursuant to Article VII, outside the Territory, pursuant to the
Commercialization Agreement and the Business Plan.
3.2. Decision Not to Proceed. In the event that the parties do not mutually
----------------------
agree to proceed with the Commercialization period, the following provisions
will apply.
a) Installed Systems. The parties will continue to operate any
-----------------
Systems installed during the Development Period until the
earliest to occur of the expiration of (a) the term of the lease
or contract for the System, or (b) three (3) years from the date
of
10
<PAGE>
termination of the Development Period. During such period the
costs, expenses and revenues will be shared as provided in
Sections 2.3 and 2.4 hereof.
b) Purchase of One Party's Interest. During such period, the parties
--------------------------------
may agree to have one party purchase the other party's interest in
the installed Systems based on a discounted cash flow basis. If
one party wishes to purchase the other party's interest, the
parties agree to negotiate in good faith the terms and conditions
of such purchase.
c) Liquidation of Physical Assets. If neither party wishes to
------------------------------
purchase the other party's interest, then any physical assets that
are jointly owned will be liquidated and the proceeds will be
distributed equally between RP and Envirogen.
d) Article V Restrictions. The provisions of Section 5.1 shall apply
----------------------
to both parties with respect to each party's right and/or license
to use the other party's technology. If Envirogen determines,
other than in good faith or for no reason or for any reason other
than a valid business reason as described in Section 3.1, not to
proceed with the Commercialization Period, then the restrictions
in Sections 5.1(c)(iii) and 5.2 shall apply to Envirogen.
3.3 Decision to Proceed. In the event that the parties mutually agree to
-------------------
proceed with the Commercialization Period, the following provisions will apply.
a) Commercialization Agreement. The parties will negotiate in good
---------------------------
faith and execute the definitive Commercialization Agreement
within two (2) months after the date a firm decision is made to
proceed with the Commercialization Period. The outline of the
Commercialization Agreement agreed to during the Development
Period will serve as the basis for the definitive
Commercialization Agreement.
b) Joint Venture Entity. A Joint Venture entity (partnership,
--------------------
corporation or limited liability partnership or company) will be
formed to operate the business of the Project and commercialize
and market the Systems in the Field of Use in the
11
<PAGE>
Territory and, as provided in Article VII, outside the Territory.
Each party will own a fifty percent (50%) interest in the Joint
Venture entity.
c) Financing. RP will assist in securing for the Joint Venture a line or
---------
lines of credit from third parties to finance the leasing of Systems
to customers.
d) Envirogen Technology. Envirogen will (i) assign or transfer to the
--------------------
Joint Venture the Exclusive Envirogen Technology and the Envirogen
Know-How, Envirogen RP Improvements, and Envirogen Jointly Developed
Technology related thereto, and (ii) grant a nonexclusive, royalty-
free license to the Joint Venture for the use of the Non-Exclusive
Envirogen Technology and the Envirogen Know-How, Envirogen RP
Improvements and Envirogen Jointly Developed Technology related
thereto, in the Field of Use in the Territory and, as provided in
Article VII, outside the Territory, at no cost to the Project or the
other party.
e) RP Technology. RP will (i) assign or transfer to the Joint Venture
-------------
the RP Envirogen Improvements and (ii) will grant an exclusive,
royalty-free license to the Joint Venture for the use of the RP
Technology, RP Systems Improvements and RP Jointly Developed
Technology applicable or relating to Systems, RP Technology and RP
Systems Improvements, in the Field of Use in the Territory and, as
provided in Article VII, outside the Territory, at no cost to the
Project or the other party.
f) Furnishing of Services, Materials and Facilities. Each party will
------------------------------------------------
continue to provide the services, materials and facilities described
herein to the Joint Venture. Such services, materials and facilities
will be provided at the billing rates and charges based on the
applicable party's actual internal cost to provide such services,
facilities and materials to be established in the Commercialization
Agreement. Any services provided by outside contractors will be
billed to Joint Venture at actual cost.
g) Membrane Supply. RP and Envirogen will negotiate in good faith for a
---------------
contract pursuant to which RP will supply the Joint Venture with
membranes for the
12
<PAGE>
Systems manufactured by the RP Affiliate on competitive terms.
Any such contract will be subject to the RP Affiliate's
willingness to supply such membranes and to agree to such terms
and conditions. RP will use its reasonable best efforts to
obtain membranes on such terms for purchase by the Joint
Venture, together with such information deemed by RP, in its
sole discretion, necessary or appropriate for proper commercial
utilization of the membrane products in furtherance of the
Project.
3.4 Sharing of Income, Costs and Expenses. All income, revenues, capital
-------------------------------------
requirements, costs and expenses of the Project during the Commercialization
Period, will be shared on substantially similar terms as those set forth in
Section 2.3 and 2.4 during the Development Period, subject to adjustment based
on the parties' experience during the Development and/or Commercialization
Period pursuant to mutual agreement of the parties. The Commercialization
Agreement shall contain the provisions agreed upon between the parties in this
respect. During the Commercialization Period, distribution of net income from
the Project or the Joint Venture will be subject to agreement by RP and
Envirogen; provided, however, that no less than eighty percent (80%) of the
positive cash flow from the Project, subject to reserves for working capital
needs as agreed to by the parties, shall be distributed to RP and Envirogen
equally on a quarterly basis.
3.5 Contributions of the Parties during the Commercialization Period. It is
----------------------------------------------------------------
understood and agreed that, during the Commercialization Period, each party will
contribute or license to the Joint Venture its technology and know-how at no
cost to the other party or the Joint Venture as described in Sections 3.3(d)
and (e) above. If Envirogen and RP participate together in a project outside
the Territory pursuant to Article VII, then the technology and know-how of the
Joint Venture will be made available to the project at no cost to the other
party, the Joint Venture or the specific project outside the Territory. Nothing
in the foregoing shall prohibit or restrict the reimbursement, as provided for
elsewhere in this Agreement, to either party for the direct costs and expenses
actually incurred by each party in performing functions for the Joint Venture in
the Territory (or any project of the Joint Venture outside the Territory in
which RP participates), utilizing such technology and know-how, and/or providing
such technology and know-how to the Project as described in this Agreement, the
Development Plan, the Commercialization Agreement and/or the Business Plan.
13
<PAGE>
ARTICLE IV
PROVISIONS APPLICABLE TO DEVELOPMENT PERIOD AND
-----------------------------------------------
COMMERCIALIZATION PERIOD
------------------------
4.1 Project Administration. All decisions relating to the Project, the
----------------------
Development Period and the Commercialization Period shall be made jointly by
Envirogen and RP.
4.2 Articles V, VI and VII. The provisions of Articles V, VI and VII will
---------------------
apply during the Commercialization Period, as well as during the Development
Period.
ARTICLE V
OWNERSHIP, USE AND LIMITATIONS ON USE OF THE TECHNOLOGY
-------------------------------------------------------
5.1 Ownership and Use of the Technology. The following provisions shall apply
----------------------------------
to each party's technology, respectively, during and after the terms of this
Agreement and the Commercialization Agreement.
a) Ownership. Subject to the rights of the Project and the parties hereto
---------
pursuant to this Agreement and, if any, the Commercialization Agreement,
each party shall have exclusive ownership of all technology presently
owned or conceived and/or reduced to practice solely by such party.
Envirogen shall have exclusive ownership of the Envirogen Technology,
Envirogen Know-How, Envirogen RP Improvements and Envirogen Jointly
Developed Technology. RP shall have exclusive ownership of the RP
Technology, RP Systems Improvements, RP Envirogen Improvements and RP
Jointly Developed Technology, except to the extent assigned or transferred
to the Joint Venture pursuant to the Commercialization Agreement. The RP
Affiliate shall have exclusive ownership of the RP Affiliate Technology.
All Jointly Developed Technology that does not constitute Envirogen or RP
Jointly Developed Technology shall be owned jointly by Envirogen and RP.
b) Use in the Project. Except for the RP Affiliate Technology, and subject to
------------------
this Agreement and, if any, the Commercialization Agreement, each party
will have the right to use the other party's technology referred to in
subparagraph (a) above to the extent necessary or
14
<PAGE>
appropriate solely in furtherance of the Project, in the Field of Use in the
Territory and, pursuant to Article VII, outside the Territory. To the extent
agreed upon in writing by the RP Affiliate, RP will make available to the
Project such information deemed by RP, in its sole discretion, necessary or
appropriate in furtherance of the Project for the proper commercial
utilization of membrane products manufactured by the RP Affiliate and
supplied to the Project. RP will use its reasonable best efforts to obtain
the necessary agreement from the RP Affiliate.
c) Licenses After termination. Except as otherwise provided in this Agreement,
--------------------------
upon termination or expiration of the later of this Agreement or the
Commercialization Agreement, each party shall have the following licenses to
the other party's technology.
(i) Envirogen RP Improvements. RP shall have a non-exclusive,
-------------------------
perpetual, royalty-free license to use the Envirogen RP
Improvements.
(ii) RP Envirogen Improvements, RP Systems Improvements and RP Jointly
-----------------------------------------------------------------
Developed Technology. Subject to subparagraph (iii) below,
--------------------
Envirogen shall have a non-exclusive, perpetual, royalty-free
license to use only in the Field of Use the RP Envirogen
Improvements, RP Systems Improvements and those portions of the RP
Jointly Developed Technology physically embodied in Systems used
commercially for or by customer of the Project or the Joint Venture
upon termination or expiration of the applicable Agreement, without
the right to sublicense to another party, except with RP's prior
written consent, in RP's sole discretion.
(iii) Termination of Envirogen's Right to the RP License. Envirogen will
--------------------------------------------------
not receive any right or license to the RP Envirogen Improvements,
RP Systems Improvements or RP Jointly Developed Technology, in the
event (A) Envirogen determines to terminate the Project, this
Agreement, the Commercialization Agreement or the Joint Venture (i)
without the consent or agreement of RP, or (ii) not as a result of
a material breach by RP pursuant to which Envirogen terminates this
Agreement or the Commmercialization Agreement in accordance with
Section 8.2, or (iii) not as a
15
<PAGE>
result of RP's decision to discontinue its participation in the
Project or the Joint Venture; or (B) Envirogen determines, other
than in good faith or for no reason or for any reason other than
a valid business reason as described in Section 3.1, not to
proceed with the Commercialization Period.
(iv) Jointly Developed Technology. If one party wishes a nonexclusive
----------------------------
license to use the Jointly Developed Technology owned by the
other party, and such other party is, in its sole discretion,
willing to grant such license, the parties will negotiate in good
faith the terms and conditions of such license.
(v) No Other Rights or Licenses. Except as expressly set forth in
---------------------------
this Section 5.1(c) or in the Commercialization Agreement,
neither party shall have any right or license to use the other
party's technology or know-how after termination or expiration of
this Agreement or, if any, the Commercialization Agreement.
d) Restrictions on Transfer. Except as otherwise provided in this
------------------------
Agreement, the Commercialization Agreement and/or a written agreement
between the parties, during and after the term of this Agreement or the
Commercialization Agreement, each party agrees that it will not use,
assign, transfer or license to a third party any of the technology
referred to in subparagraph (a) above that it may own or have rights to,
to the extent, but only to the extent, any use of such technology would
infringe the technology rights of the other party.
e) Envirogen technology and Know-How. Except as otherwise provided in this
---------------------------------
Agreement and, if any, in the Commercialization Agreement, RP will have
no right or license to use the Envirogen Technology, Envirogen Know-How
and Envirogen Jointly Developed Technology.
5.2. Envirogen Commitment re the Exclusive Envirogen Technology. Envirogen
----------------------------------------------------------
represents and agrees, with respect to the Exclusive Envirogen Technology in and
outside the Territory, that (A) for so long as the Project, this Agreement, the
Commercialization Agreement or the Joint Venture remains in effect, and (B),
except as otherwise provided in Section 5.3, for a period of two (2) years after
termination of the Project, this Agreement, the Commercialization Agreement or
the
16
<PAGE>
Joint Venture, whichever is the last to occur, (the"Two-Year Nonexploitation
Period"), where such termination (i) occurs without the consent or agreement of
RP, or (ii) is not as a result of a material breach by RP of this Agreement or
the Commercialization Agreement pursuant to which this Agreement or the
Commercialization Agreement, as applicable, is terminated by Envirogen in
accordance with Section 8.2, or (iii) is not as a result of RP's decision to
discontinue its participation in the Project or the Joint Venture, or (iv) is as
a result of Envirogen's determination, other than in good faith or for any
reason other than a valid business reason as described in Section 3.1, not to
proceed with the Commercialization Period:
a) Envirogen will not seek, discuss, promote or enter into any arrangement
or transaction involving the development and/or exploitation of the
Exclusive Envirogen Technology in the Field of Use with any third party
(including any entity related to or affiliated with Envirogen);
b) Envirogen will not transfer, license, assign or grant any right to or
interest in the Exclusive Envirogen Technology in the Field of Use to
any third party (including any entity related to or affiliated with
Envirogen); and
c) Envirogen will not use the Exclusive Envirogen Technology for Systems
in the Field of Use except in connection with the Project or as
otherwise provided in this Agreement and/or the Commercialization
Agreement.
5.3 Alternative to Envirogen Commitment After Termination. If, pursuant to
-----------------------------------------------------
Section 5.2, Envirogen becomes subject to the Two-Year Nonexploitation Period
upon any termination described therein, Envirogen may elect to make royalty
payments to RP in accordance with this Section 5.3 in exchange for release from
its obligations under Section 5.2 during the Two-Year Nonexploitation Period. In
order to qualify for such release, such royalty payments shall be five percent
(5%) of total gross sales and total gross lease rentals (net of transportation,
insurance and customs duties to the extent stated separately on invoices issued
to customers) over a period of seven (7) years generated by Envirogen and any
third party or parties from the exploitation of the Exclusive Envirogen
Technology in Systems in the Field of Use in and outside the Territory. Royalty
payments shall be made to RP annually. If the Exclusive Envirogen Technology is
exploited and gross sales and/or
17
<PAGE>
lease rentals are generated, Envirogen will be released from its obligations
under Section 5.2 for so long as such royalty payments are made during the seven
year royalty period. If, at any time during the seven year royalty period,
Envirogen ceases making royalty payments in accordance with this Section 5.3,
the Two-Year Nonexploitation Period shall come into effect as of the date
royalty payments cease and Envirogen's obligations under Section 5.2 with
respect to such Period shall continue for a full two-year period thereafter.
Once royalty payments are made in accordance with this Section 5.3 for the full
seven year royalty period, Envirogen shall be released in full from any further
obligations under Section 5.2. The royalty payments to be made hereunder shall
be deemed to be liquidated damages intended by the parties to compensate RP for
its losses and damages and not as a penalty.
5.4 Customer Contacts. Nothing in Sections 5.2 or 5.3 is intended to
-----------------
prevent or restrict Envirogen from contacting or having discussions with
customers or potential customers within the scope of both parties' efforts to
market and sell/lease Systems as contemplated in this Agreement and/or the
Commercialization Agreement in furtherance of the Project.
5.5 Right to Audit. RP shall have the right, at any time upon reasonable
--------------
advance notice to Envirogen, to audit those books, records, supporting
documentation and other information of Envirogen and any entity in which
Envirogen has an interest, relevant to Envirogen's obligations under Sections
5.2 and 5.3 hereof, to determine Envirogen's compliance with the provisions of
Sections 5.2 and 5.3.
5.6 No Right to Use RP Envirogen or Systems Improvements. If Envirogen
----------------------------------------------------
breaches the provisions of Sections 5.2 and/or 5.3 and such breach is not cured
within fifteen (15) days after written notice from RP or Envirogen terminates
this Agreement or its participation in the Project under the circumstances
described in Section 5.1(c)(iii), Envirogen shall not have the license referred
to in Section 5.1(c)(iii) or any right to use the technology of RP.
ARTICLE VI
CONFIDENTIALITY
---------------
18
<PAGE>
6.1. Confidentiality. The terms and conditions of the Joint Confidentiality
---------------
Agreement dated July 5, 1995 between the parties (the "Joint Confidentiality
Agreement") shall remain in full force and effect during the Development Period
and, if any, the Commercialization Period. In addition, the parties hereby agree
that the Joint Confidentiality Agreement is hereby amended as follows:
a) The Envirogen Technology, Envirogen Know-How, Envirogen RP
Improvements, Envirogen Jointly Developed Technology and the
jointly owned Jointly Developed Technology are included, for all
purposes, in the definition of Envirogen's Confidential Information
in the Joint Confidentiality Agreement.
b) The RP Technology, RP Affiliate Technology, RP Envirogen
Improvements, RP Systems Improvements, RP Jointly Developed
Technology and the jointly owned Jointly Developed Technology are
included, for all purposes, in the definition of RP's Confidential
Information in the Joint Confidentiality Agreement.
c) The purpose for the disclosures to be made by each party described
in Paragraph 3. of the Joint Confidentiality Agreement is hereby
expanded to include the purposes provided for and described in this
Agreement and, if any, the Commercialization Agreement.
d) The word "or" in the last line of the first subparagraph in
Paragraph 5. of the Joint Confidentiality Agreement is hereby
corrected to read ",by".
e) Paragraph 12 of the Joint Confidentiality Agreement is hereby
amended in its entirety to read as follows:
"This Agreement shall terminate upon the termination of the
Development Agreement, the Commercialization Agreement or the
Joint Venture, whichever occurs later, except that Recipient's
obligations set forth in Paragraph 4. shall survive the
termination of this Agreement for a period of fifteen (15)
years after the termination of this Agreement."
ARTICLE VII
RP PARTICIPATION OUTSIDE THE TERRITORY
--------------------------------------
19
<PAGE>
7.1 RP Participation Outside the Territory. During the Development Period and
--------------------------------------
the Commercialization Period and for so long as the Project and/or the Joint
Venture remains in effect, RP shall have a right of first refusal to participate
in any and all opportunities to introduce and/or exploit the Exclusive Envirogen
Technology outside the Territory in the Field of Use no less than to the same
extent, on a 50/50 basis, as RP participates within the Territory hereunder or,
if the parties agree to share ownership with a local third party as set forth in
Section 7.2, to the same extent, on a 50/50 basis, that Envirogen participates,
by ownership or control, in such opportunity. Each time Envirogen determines or
proposes to introduce and/or exploit the Exclusive Envirogen Technology in an
area outside the Territory, Envirogen shall so notify RP in writing. RP shall
thereafter exercise its right of first refusal by notifying Envirogen in
writing, within two (2) months of Envirogen's written notice to RP, of RP's
intention to exercise its right to participate in such opportunity. The parties
shall thereupon negotiate in good faith for a definitive agreement on terms and
conditions no less favorable to each party than the terms and conditions
provided for each such party in this Agreement and the Commercialization
Agreement, subject to the provisions of Section 7.2 and, in accordance with the
circumstances, as the parties may otherwise agree. If RP and Envirogen are
unable to reach a definitive agreement after negotiating in good faith for a
period of three (3) months (or longer, if mutually agreed upon in writing) after
RP's notification of the exercise of its right of first refusal, the parties
shall attempt in good faith to resolve their differences by mediation, as
provided in Section 9.4.
7.2 Local Third Party Participation. RP and Envirogen understand that it may
-------------------------------
be necessary or appropriate to work with a local third party for assistance in
introducing and exploiting the Exclusive Envirogen Technology outside the
Territory and that such third party may require profit or equity participation
in any entity formed for this purpose. RP and Envirogen agree that the remainder
of any equity or profit participation not held in such entity by the local third
party shall be shared equally, on a 50/50 basis, by Envirogen and RP. RP and
Envirogen shall cooperate and work together in good faith to mutually agree on
the identification of local third parties, negotiations with such third parties,
development of business plans and the negotiation of definitive agreements
between Envirogen and RP and between the parties and the local third party.
7.3 License to RP Improvements. In the event RP does not participate with
--------------------------
Envirogen hereunder with respect to a specific opportunity outside the
Territory, Envirogen shall be free to
20
<PAGE>
exploit the Exclusive Envirogen Technology outside the Joint Venture in
connection with, but limited to, the specific opportunity offered to RP. In such
event, if Envirogen wishes to be granted a non-exclusive limited license to use
the RP Envirogen Improvements, RP Systems Improvements and applicable RP
Jointly Developed Technology in the Field of Use outside the Territory solely in
connection with the specific opportunity declined by RP, RP may, in its sole
discretion, determine whether to grant such license to Envirogen. If RP
determines to grant such license, the parties will negotiate in good faith the
terms and conditions of a license agreement which shall include reasonable
royalties to be paid to RP.
ARTICLE VIII
TERMINATION
-----------
8.1 Application of this Article. The provisions of this Article VIII shall
---------------------------
apply to the Development Period and, except as otherwise agreed by the parties
as set forth in the Commercialization Agreement, the Commercialization Period.
8.2 Termination for Cause. Either party may, at its sole option, terminate
---------------------
this Agreement and/or, if any, the Commercialization Agreement, upon written
notice to the other party, in accordance with this Section 8.2 at such time that
any one of the following occurs:
a) Breach or Default by a Party. At such time that the other party is in
----------------------------
breach or default of a material term or condition of this Agreement
(a "Breach"), the nonbreaching party may elect to give the breaching
party written notice of the Breach which notice shall include a
description of the Breach in sufficient detail to enable the
breaching party to identify and cure such Breach. Upon receipt of the
notice of Breach, the breaching party shall have thirty (30) days
from the date of receipt of such notice in which to cure or, to the
extent that the cure cannot be completed with such thirty (30) day
period using commercially reasonable efforts, to take meaningful
action to commence the cure of such Breach. If the breaching party
does not cure the Breach within said thirty (30) days, or, where the
Breach is not capable of being cured within thirty (30) days, the
breaching party does not take meaningful action to commence such cure
within the thirty (30) days and/or does not thereafter prosecute such
cure to completion, then the parties
21
<PAGE>
shall proceed to mediation in accordance with Section 8.4 in good
faith attempt to resolve any dispute or disagreement with respect to
the Breach. If the Breach is capable of being cured by both parties
working together, then both parties shall work together in good
faith for a period of no less than thirty (30) additional days to
effect a cure of the Breach within such additional thirty (30) days.
If the breaching party does not cooperate or does not in good faith
participate in mediation within the foregoing time periods, then the
nonbreaching party may, at its sole option, terminate this Agreement
upon expiration of the applicable time periods upon written notice
to the breaching party.
b) Insolvency. At such time that a party becomes insolvent or unable to
----------
pay its debts as they mature, makes an assignment for the benefit of
its creditors or a trustee or receiver of the party's business
and/or assets is appointed, the other party may elect to terminate
this Agreement immediately upon written notice to the affected
party.
c) Bona Fide Efforts. If, at any time that either party is not exerting
-----------------
a bona fide effort to advance the Project during the Development
Period or, if any, the Commercialization Period, the other party may
announce its intention to declare a Breach and invoke the provisions
of Subsection (a) of this Section 8.2 by written notice to the party
not exerting a bona fide effort (the "breaching party"). The
breaching party shall have the opportunity to explain or cure
possible delays within the thirty (30) day period as provided for in
Subsection (a). A "bona fide" effort will include, but will not be
limited to, the completion or attainment of milestones to be more
fully described in the Development Plan, Commercialization Agreement
or Business Plan.
8.3 Survival of Certain Provisions. Notwithstanding termination of this
------------------------------
Agreement or the Commercialization Agreement, the provisions of Sections 3.2,
5.1, 5.2, 5.3, 5.5, 5.6, 6.1, 9.4, 9.5 and 9.6 of this Agreement and the
provisions of the Joint Confidentiality Agreement shall survive any such
termination in accordance with their respective provisions, as applicable, for
the time period or periods stated therein.
22
<PAGE>
ARTICLE IX
MISCELLANEOUS
-------------
9.1 Entire Agreement. This Agreement, together with the Joint Confidentiality
----------------
Agreement, and, when agreed to or executed in writing, the Development Plan,
Business Plan and Commercialization Agreement, is the complete and entire
statement of the contract between the parties with respect to the subject matter
hereof, whether written or oral, and there are no understandings, agreements,
representations or warranties of any kind, express or implied, not expressly set
forth herein.
9.2 Amendments. No amendment, modification, addition or supplement to this
----------
Agreement shall be effective or binding on the parties unless made in writing,
dated, acknowledged as an amendment to this Agreement and signed by both parties
hereto.
9.3 No Assignments. This Agreement and the rights and obligations of each party
--------------
hereunder shall not be assigned, delegated, sold or transferred to any other
person or entity, by operation of law or otherwise, without the prior written
consent of the nonassigning party, which consent may be granted or withheld in
-----------
the sole discretion of the nonassigning party. Any attempted assignment contrary
to this Section 9.3 shall be void and of no force or effect and may be
considered by the nonassigning party a breach of a material provision of this
Agreement.
9.4 Dispute Resolution. Any dispute, controversy or claim arising under, out
------------------
of, or relating to, this Agreement or the Commercialization Agreement and any
subsequent amendments hereto or thereto, including, without limitation, its
validity, binding effect, interpretation, performance, breach or termination, as
well as non-contractual claims, shall be submitted to mediation in accordance
with the Rules of the Center for Public Resources Institute for Dispute
Resolution. The place of mediation shall be New York City, New York. Mediation
costs will be shared equally by the parties. If the dispute is not resolved by
the mediation process within sixty (60) days after commencement, either party
may initiate litigation.
23
<PAGE>
9.5. Governing Law. The terms and conditions of this Agreement and the
-------------
interpretation thereof shall be governed by the laws of the State of New York
without regard to that state's conflicts-of-laws rules or principles.
9.6 RP Affiliates. The terms and conditions of this Agreement and, if any,
-------------
the Commercialization Agreement shall not be binding upon or applicable to any
RP Affiliate without the prior written agreement of such RP Affiliate.
9.7 Press Releases. Neither party shall issue any press release referring to
--------------
the Project, the Joint Venture, the business of the Project and the Joint
Venture, any agreement between the parties or the fact of a relationship between
RP and Envirogen, without first obtaining the prior written consent of the other
party, which consent may be granted or withheld in such other party's sole
discretion. Such other party shall, in addition, have the right to edit and
make changes and deletions in any press release proposed by the releasing party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the day and year first above
written.
RHONE-POULENC INC. ENVIROGEN, INC.
By: /s/ M. S. Galuskin By: /s/ Harch S. Gill
------------------------- -------------------------
Name: Myron S. Galuskin Name: Harch S. Gill
Title: Vice President & Title: President &
General Manager Chief Executive Officer
24
<PAGE>
JOINT CONFIDENTIALITY AGREEMENT
-------------------------------
THIS JOINT CONFIDENTIALITY AGREEMENT is effective as of July 5, 1995, between
RHONE-POULENC, INC. ("RP"), having offices at One Corporate Drive, Shelton,
Connecticut 06484, and ENVIROGEN ("Envirogen"), having its principal office at
Princeton Research Center, 4100 Quakerbridge Road, Lawrenceville, New Jersey
08648.
WHEREAS, each party has and may in the future have certain information, trade
secrets, inventions, writings, ideas, formulae, processes, production
information, manufacturing, financial and business information (hereinafter
collectively referred to as the "Information");
WHEREAS, each party is willing to disclose to the other party that portion of
its Information which the disclosing party determines, in its sole discretion,
is necessary for the specific purposes(s) set forth in this Agreement; and
WHEREAS, the parties wish to set forth the conditions and obligations which will
govern the disclosure, use and evaluation of any Information which may be
disclosed by either party (hereinafter referred to as the "Discloser") to the
other party (hereinafter referred to as the "Recipient");
NOW, THEREFORE, RP and Envirogen agree as follows:
1. RP has developed, will continue to develop and owns certain Information
which it deems its proprietary, confidential Information relating to the
field of waste processing. All such Information is hereinafter referred to
as "RP"s Confidential Information" or "the Discloser's Confidential
Information".
2. Envirogen has developed, will continue to develop and owns certain
Information which it deems its proprietary, confidential Information
relating to the field of waste processing. All of such information is
hereinafter referred to as "Envirogen's Confidential Information" or "the
Discloser's Confidential Information".
3. Each party is willing to disclose to the other party that portion of its
Confidential Information which the Disclosure determines, in its sole
discretion, is necessary for the specific and sole purpose of sharing
economic and technical information relating to the field of waste processing
with the intent of forming a joint relationship.
Confidential Information shall include the existence of this Agreement,
together with any other agreement and the discussions between the parties
with respect to the subject matter hereof.
1
<PAGE>
4. Recipient shall (i) hold in strict confidence all Confidential Information
received from Discloser in writing and identified as confidential (or, if
orally transmitted, summarized and confirmed in writing within thirty (30)
days after such oral disclosure), by plant visit(s) and/or by samples
received from Discloser with a confidentiality notice affixed thereto
(hereinafter called the "Sample(s)"; (ii) use such Confidential Information
only for the specific purpose described in Paragraph 3, above and for no
other purpose whatsoever; (iii) not disclose such Confidential Information
to any third parties or to any of its employees who do not have a need to
know of the Confidential Information for the purpose set forth in Paragraph
3, above (including any subsidiary or affiliate of the Recipient); (iv) take
all reasonable and appropriate measures to safeguard the Discloser's
Confidential Information from theft, loss or disclosure to others, and (v)
limit access to Discloser's Confidential Information only to those of
Recipient's officers, directors and employees who have a need to know of the
Confidential Information for the purpose set forth in Paragraph 3, above.
5. The obligations of Paragraph 4, shall not apply with respect to any
Confidential Information (i) which is known to Recipient prior to the date
of disclosure by Discloser, or (ii) which, through no fault or action of
Recipient, is or becomes published or otherwise comes within the public
domain, or (iii) otherwise properly becomes available to Recipient from a
third party who had a lawful right to disclose it without breach of a
confidential relationship with the Discloser, or (iv) which is independently
developed by Recipient in the course of its normal activities, as
demonstrated by its records or persons who had no access to Discloser's
Confidential Information.
Specific Confidential Information shall not be deemed to be available to the
public or in the prior possession of the Recipient merely because it is
embodied in more general information available to the public or in
Recipient's prior possession.
6. The burdon of showing that any of Discloser's Confidential Information is
not subject to the obligations of Paragraph 4, shall rest with Recipient.
7. Recipient shall have confidentiality agreements with all of its employees to
whom any of Discloser's Confidential Information is disclosed which bind
them to the same extent and in the same manner as provided in this
Agreement.
8. If Recipient is required by any governmental agency, court or other quasi-
judicial or regulatory body to provide any of Discloser's Confidential
Information received under this Agreement, Recipient shall, as promptly as
possible, give notice to Discloser of the requirement to provide such
Confidential Information so that the Discloser, in its discretion, may
contest or oppose such requirement.
2
<PAGE>
9. Disclosure of Information hereunder will be in accordance with
regulations promulgated by the United States Department of Commerce to
control the export of technical data.
10. At the request of Discloser, Recipient agrees to provide Discloser with
a summary of the results of Recipient's tests upon and evaluation of any
Samples provided by Discloser.
11. It is understood and agreed that no license or right of any kind is
granted to any of Discloser's Confidential Information or to any patents
now or hereafter issued, by reason of this Agreement or any disclosure
hereunder. All Confidential Information shall remain the sole property
of Discloser.
12. This Agreement shall terminate one (1) year from the effective date of
this Agreement, except that Recipient's obligations set forth in
Paragraph 4, shall survive the termination of this Agreement for a
period of ten (10) years from the termination date of this Agreement.
13. Upon termination of this Agreement and upon Discloser's request in
writing, Recipient shall return to Discloser all tangible forms of
Discloser's Confidential Information received from Discloser or
developed by Recipient in the course of its evaluation, without making
copies of same, including all written material or Samples which contain
Discloser's Confidential Information, together with all copies or parts
thereof in Recipient's possession.
14. This Agreement shall be binding upon and inure to the benefit of each of
the parties, its successors, legal representatives and assigns. This
Agreement shall be assignable by Discloser. This Agreement may be
assignable by Recipient, with the prior written consent of Discloser, to
a successor to that portion of Recipient's business which relates to the
subject matter of this Agreement, provided such successor assumes all
of the obligations of Recipient set forth herein. Any such assignment
shall not relieve Recipient of any of the obligations set forth in this
Agreement.
15. This is the entire agreement between the parties with respect to the
subject matter hereof and there are no understandings or agreements of
any kind not expressly set forth herein. No amendment or modification of
this Agreement shall be effective or binding upon the parties unless
made in writing and signed by both parties hereto.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives effective as of the day and year first
above written.
RHONE-POULENC, INC ENVIROGEN
By: /s/ Myron Galuskin By: /s/ H.S. Gill
----------------------------- ---------------------------
Name: Myron Galuskin Name: H.S. Gill
Title: Vice President - Environmental Title: President and CEO
Services Enterprise
4
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0
0
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