<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 June 30, 1997 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 June 30, 1997 was 23,161,635.
- --------------------------------------------------------------------------------
<PAGE>
ENVIROGEN, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets at June 30, 1997 and
December 31, 1996 (Unaudited) 3
Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 1997 and 1996 (Unaudited) 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1997 and 1996 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
<CAPTION>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<S> <C>
General 8
Results of Operations 9
Liquidity and Capital Resources 10
Other Matters 11
<CAPTION>
PART II OTHER INFORMATION
<S> <C>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURE PAGE 14
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
ENVIROGEN, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $4,653,627 $4,614,062
Accounts receivable-trade, net 6,420,478 3,100,447
Unbilled revenue 4,318,647 1,776,004
Inventory 55,027 55,027
Prepaid expenses and other current assets 697,484 175,941
------------ ------------
Total current assets 16,145,263 9,721,481
Property and equipment, net 1,712,514 922,320
Restricted cash 309,300 309,300
Investment in and advances to joint venture 411,873 228,934
Intangible assets, net 24,506,464 1,348,677
Other assets 302,349 185,912
------------ ------------
Total assets $43,387,763 $12,716,624
============ ============
LIABILITIES
Current liabilities:
Accounts payable $2,543,781 $1,335,954
Accrued expenses and other liabilities 1,413,047 955,886
Reserve for PECFA claim adjustments 2,610,004
Deferred revenue 429,088 312,784
Current portion of note payable 1,988 4,287
Current portion of capital lease obligations 18,707 18,304
------------ ------------
Total current liabilities 7,016,615 2,627,215
Deferred rent 12,222
Capital lease obligations, net of current portion 19,616 29,954
------------ ------------
Total liabilities 7,036,231 2,669,391
------------ ------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock 232,211 129,319
Additional paid-in capital 58,549,361 31,925,861
Accumulated deficit (22,424,090) (22,001,997)
Less: Treasury stock (5,950) (5,950)
------------ ------------
Total stockholders' equity 36,351,532 10,047,233
------------ ------------
Total liabilities and stockholders' equity $43,387,763 $12,716,624
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ENVIROGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Commercial operations $6,942,247 $2,794,263 $8,707,219 $5,017,518
Research and development services 698,040 399,267 1,387,778 850,536
------------- ------------- ------------- -------------
Total revenues 7,640,287 3,193,530 10,094,997 5,868,054
------------- ------------- ------------- -------------
Cost of commercial operations 4,376,398 2,569,548 5,946,019 4,684,707
Provision for contract claim 362,053 400,000
Research and development costs 695,656 553,379 1,337,473 1,153,319
Marketing, general and administrative expenses 2,364,430 708,833 3,223,378 1,368,929
------------- ------------- ------------- -------------
Total costs and expenses 7,436,484 4,193,813 10,506,870 7,606,955
------------- ------------- ------------- -------------
Other income (expense):
Interest income 69,374 24,125 125,763 60,352
Interest expense (10,690) (6,765) (14,007) (12,844)
Equity in (loss) income of joint venture (82,710) (12,844) (147,673) 78,787
Other, net 25,697 25,697
------------- ------------- ------------- -------------
Other income (expense), net 1,671 4,516 (10,220) 126,295
------------- ------------- ------------- -------------
Net income (loss) 205,474 (995,767) (422,093) (1,612,606)
Preferred stock dividends (14,583) (36,458)
------------- ------------- ------------- -------------
Net income (loss) applicable to Common Stock $205,474 ($1,010,350) ($422,093) ($1,649,064)
============= ============= ============= =============
Net income (loss) per share
applicable to Common Stock $0.01 ($0.09) ($0.02) ($0.16)
============= ============= ============= =============
Weighted average number of shares of
Common Stock outstanding 20,877,022 10,805,890 17,282,292 10,093,463
============= ============= ============= =============
</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>
Six Months Ended
June 30,
---------------------------------------
1997 1996
----------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($422,093) ($1,612,606)
Adjustments to reconcile net loss to cash used by operating activities:
Depreciation and amortization 704,994 455,099
Provisions for PECFA claim adjustments and doubtful accounts 228,156 41,400
Equity in (income) loss of joint venture 147,673 (78,787)
Other (552) 549
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 893,494 (485,382)
(Increase) decrease in unbilled revenue (802,176) 111,132
(Increase) in prepaid expenses and other current assets (252,227) (19,086)
Decrease in inventory 1,031
(Increase) in restricted cash (89,782)
(Increase) decrease in other assets (116,437) 5,385
(Decrease) in accounts payable (1,821,487) (27,737)
Increase (decrease) in accrued expenses and other liabilities (275,320) 52,701
(Decrease) in reserve for PECFA claim adjustments (47,702)
Increase (decrease) in deferred revenue 116,304 (62,821)
------------------ --------------
Net cash used by operating activities (1,647,373) (1,708,904)
------------------ --------------
Cash flows from investing activities:
Capital expenditures (243,614) (139,975)
Investment in and advances to joint venture (254,694) (100,000)
Purchase of FMI (13,550,410)
Purchase of MWR, Inc. (1,319,018)
Proceeds from sale of equipment 21,500 1,600
------------------ --------------
Net cash used in investing activities (14,027,218) (1,557,393)
------------------ --------------
Cash flows from financing activities:
Debt repayment (2,299) (2,123)
Capital lease principal repayments (9,935) (84,322)
Net proceeds from exercise of stock options 3,265 14,355
Net proceeds from issuance of Common Stock 15,723,125 4,656,376
Cash dividends paid on Redeemable Cumulative
Convertible Preferred Stock (51,041)
------------------ --------------
Net cash provided by financing activities 15,714,156 4,533,245
------------------ --------------
Net increase in cash and cash equivalents 39,565 1,266,948
Cash and cash equivalents at beginning of period 4,614,062 3,748,197
------------------ --------------
Cash and cash equivalents at end of period $4,653,627 $5,015,145
================== ==============
Supplemental disclosures of cash flow information:
- --------------------------------------------------
Cash paid for interest $9,403 $10,361
================== ==============
Cash paid for income taxes $7,954 $1,250
================== ==============
Supplemental disclosures of non-cash investing and financing activities:
- ------------------------------------------------------------------------
- -The Company entered into capital lease obligations amounting to $22,350 for the
six months ended June 30, 1996.
- -In April 1997, the Company acquired FMI for $12,163,744 in cash and 4,190,477
shares of Common Stock valued at $11,000,002. In connection with the
acquisition, the Company also paid $1,386,666 of FMI's outstanding debt.
- -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.
</TABLE>
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, 1996. Certain
reclassifications have been made to conform prior year's presentation with the
1997 financial statement presentation.
2. ACQUISITION OF FLUID MANAGEMENT, INC.
------------------------------------
On April 10, 1997, the Company acquired Fluid Management, Inc. (FMI) of
Pewaukee, Wisconsin for approximately $12.2 million in cash and 4,190,477
shares of the Company's common stock valued at $11,000,002. In connection with
the acquisition, the Company also paid approximately $1.4 million of FMI's
outstanding debt. A portion of the purchase price is being held in escrow to
satisfy the sellers' indemnification obligations under the Merger Agreement.
FMI is a full-service environmental consulting and engineering firm with offices
in Pewaukee, La Crosse, Ashwaubenon and Mosinee, Wisconsin and Geneva,
Illinois. FMI was merged into the Company and the acquisition has been
accounted for under the purchase method of accounting. The excess of the
aggregate purchase price over the fair market value of net assets acquired
resulted in goodwill of $23,530,200 and is being amortized over 20 years. The
operating results of the acquisition are included in the Company's consolidated
results of operations from the date of acquisition.
6
<PAGE>
The following pro forma financial information assumes the acquisition occurred
at the beginning of the period presented and does not purport to be indicative
of what would have occurred had the acquisition been made as of that date or of
results which may occur in the future.
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
Net revenues $16,444,822 $14,513,007
Net loss ($325,043) ($285,173)
Net loss per share applicable to
Common Stock ($0.01) ($0.01)
Weighted average number of shares
of Common Stock outstanding 23,159,844 20,379,178
</TABLE>
3. PRIVATE PLACEMENT OF COMMON STOCK
---------------------------------
On April 10, 1997, the Company issued 6,095,238 shares of common stock to
Warburg, Pincus Ventures, L.P. ("Warburg Pincus") resulting in net proceeds of
$15,723,125. The net proceeds from the financing were used to fund the cash
portion of the FMI acquisition and will also supplement the working capital of
the combined enterprise. An officer of Warburg Pincus was elected to the
Company's Board of Directors at its 1997 annual meeting.
4. EARNINGS PER SHARE
------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 establishes standards for computing and presenting earnings per share
("EPS") and supersedes APB Opinion No. 15, "Earnings Per Share" ("Opinion 15").
SFAS 128 replaces the presentation of primary EPS with a presentation of basic
EPS which excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
during the period. This statement also requires dual presentation of basic EPS
and diluted EPS on the face of the income statement for all periods presented.
Diluted EPS is computed similarly to fully diluted EPS pursuant to Opinion 15,
with some modifications. SFAS 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods. Early
adoption is not permitted and the statement requires restatement of all prior-
period EPS data presented after the effective date.
The Company will adopt SFAS 128 effective with its 1997 year-end. If SFAS 128
had been adopted at June 30, 1997, there would have been no significant change
in the EPS as reflected in the accompanying financial statements for the periods
ended June 30, 1997 and 1996.
5. SUBSEQUENT EVENT
----------------
On August 8, 1997, the Company issued 100,000 shares of common stock to N.V. VAM
("VAM") in exchange for the transfer by VAM to the Company of (i) VAM's 50%
ownership interest in CVT America L.L.C. (a joint venture between the Company
and VAM) and (ii) certain patents and proprietary technology related to the
biological treatment of chemical contaminants in air streams. CVT America was
dissolved upon the closing of the transaction.
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, 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, 1996
and the Proxy Statement for the April 9, 1997 Annual Meeting of Stockholders.
General
- -------
The source of the Company's revenues to date includes (i) remediation services,
including both in situ and ex situ bioremediation, (ii) commercial sales of the
Company's biological degradation systems, 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 and timing of such expenditures cannot be
predicted.
On April 10, 1997 the Company acquired FMI, a full-service environmental
consulting and engineering firm that is now operated as the Company's FMI
Operations Group. Remediation services are FMI's core business and generate the
greatest portion of FMI's revenues. The majority of FMI's work is eligible for
reimbursement to its clients (or their lending banks) under the Wisconsin
Petroleum Environmental Cleanup Fund Act ("PECFA"). Review of the PECFA claims
by the Wisconsin Department of Commerce ("DCOM") and determination of any
ineligible costs typically is not completed until one to three years after the
expense has been incurred and paid by FMI's client (or its bank). This exposes
the client to the risk that remediation expenses it incurs and pays ultimately
may be disallowed for PECFA reimbursement by DCOM. While not contractually
obligated to do so, FMI has established an unwritten policy of repaying to its
clients (or their lending banks) remediation costs for services provided by FMI
which ultimately are determined by DCOM to be ineligible for reimbursement under
PECFA. A reserve is maintained against such PECFA ineligible costs. Through
June 30, 1997, FMI has recorded approximately $42 million in PECFA reimbursable
revenues which DCOM had not yet reviewed. The reserve balance for PECFA
ineligible reimbursements as of June 30, 1997 was approximately $2.6 million.
As a result of the acquisition of FMI in April 1997, the results of operations
of the Company during the 1996 and 1997 periods presented may not be directly
comparable.
8
<PAGE>
Results of Operations
- ---------------------
Six Months Ended June 30, 1997 Compared to
- ------------------------------------------
Six Months Ended June 30, 1996
- ------------------------------
For the six months ended June 30, 1997, the Company reported total revenues of
$10,094,997, an increase of 72% from the same period in 1996. The net loss in
the period decreased 74% to $422,093 from $1,649,064 in the same period in 1996,
while the net loss per share was $0.02 compared to $0.16 in the same period in
1996. The decrease in net loss per share is due to improved performance related
to the FMI acquisition as well as an increase in the number of shares
outstanding resulting from issuances in connection with the FMI acquisition and
a related private placement.
Commercial revenues increased 74% to $8,707,219 from $5,017,518 in the same
period in 1996, while revenues from corporate and government research and
development contracts increased 63% to $1,387,778 from $850,536 in the same
period in 1996. The increased commercial revenues are due primarily to revenues
from the Company's FMI Operations Group, which more than offset decreased
revenues from the Company's pollution control business. The Company recognized
significant revenues from the ABTco biofilter project during 1996, when the
project was completed. Revenues from remediation activities accounted for
essentially all of the Company's commercial revenues in the six-month period
ended June 30, 1997.
Revenues from corporate and government research and development contracts
increased primarily due to the increased volume of Phase II government projects
that the Company is actively working on. In the six-month period ended June 30,
1997, the Company recorded initial revenues under a Phase I grant from the
National Science Foundation, a Phase II grant from the National Science
Foundation, two Phase I SBIR grants and one Phase II grant from the Department
of Defense, as well as two other grants from the Department of Defense.
Total costs and expenses increased 38% to $10,506,870 in the first half of 1997
from $7,606,955 in the same period in 1996. The cost of commercial operations
increased 27% to $5,946,019 primarily due to the increased revenue levels.
Research and development expenses increased 16% to $1,337,473 due to an increase
in work under corporate and government research and development contracts.
Marketing, general and administrative expenses increased 135% to $3,223,378 due
primarily to expenses of the FMI Operations Group, amortization of goodwill
associated with the FMI acquisition and increased marketing expenses associated
with the Company's arrangement with Rhone-Poulenc. In the first half of 1996
the Company set aside a provision for contract claim of $400,000 to cover the
cost of repairing the biofiltration system the Company built for the Nylonge
Corporation. The repairs to the system were completed and the system restarted
in late 1996. The Company has incurred no costs in 1997 for the repair of this
system.
Interest income increased 108% to $125,763 due primarily to the increased level
of cash available for investment as a result of the Company's private placement
of common stock to Warburg Pincus in April 1997. Equity in loss of joint
venture amounted to $147,673 in the first half of 1997 compared to income of
$78,787 in the same period last year due primarily to the Company's
participation in the losses of the CVT America joint venture.
9
<PAGE>
Three Months Ended June 30, 1997 Compared to
- --------------------------------------------
Three Months Ended June 30, 1996
- --------------------------------
For the three months ended June 30, 1997, the Company reported total revenues of
$7,640,287, an increase of 139% from the same period in 1996. The Company
reported net income of $205,474 in the period versus a loss of $1,010,350 in the
same period of 1996. Net income per share was $0.01 compared to a loss of $0.09
in the same period in 1996. The change in per share amounts is due to improved
performance related to the FMI acquisition as well as an increase in the number
of shares outstanding resulting from issuances in connection with the FMI
acquisition and a related private placement.
Commercial revenues increased 148% to $6,942,247 from $2,794,263 in the same
period in 1996, while revenues from corporate research and development contracts
increased 75% to $698,040 from $399,267 in the same period in 1996. The
increased commercial revenues are due primarily to revenues from the Company's
FMI Operations Group, which more than offset decreased revenues from the
Company's pollution control business. The Company recognized significant
revenues from the ABTco biofilter project during 1996, when the project was
completed. Revenues from remediation activities accounted for essentially all
of the Company's commercial revenues in the three-month period ended June 30,
1997.
Revenues from corporate and government research and development contracts
increased primarily due to the greater volume of Phase II government projects
that the Company is actively working on. In the three month period ended June
30, 1997, the Company recorded initial revenues under two Phase I SBIR's from
the Department of Defense and two other grants from the Department of Defense.
Total costs and expenses increased 77% to $7,436,484 in the second quarter of
1997 from $4,193,813 in the same period in 1996. The cost of commercial
operations increased 70% to $4,376,398 due to the increased revenue levels.
Research and development expenses increased 26% to $695,656 due to an increase
in work under corporate and government research and development contracts.
Marketing, general and administrative expenses increased 234% to $2,364,430 due
primarily to expenses of the FMI Operations Group, amortization of goodwill
associated with the FMI acquisition and increased marketing expenses associated
with the Company's arrangement with Rhone-Poulenc. In the same period last
year the Company set aside a provision for contract claim of $362,053 to cover
the cost of repairing the biofiltration system the Company built for the Nylonge
Corporation. The repairs to the system were completed and the system restarted
in late 1996. The Company has incurred no costs in 1997 for the repair of this
system.
Interest income increased 188% to $69,374 due primarily to the increased level
of cash available for investment as a result of the Company's private placement
of common stock to Warburg Pincus. Equity in loss of joint venture increased to
$82,710 for the second quarter of 1997 from $12,844 in the same period last year
due primarily 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 June 30, 1997 the Company had cash and cash equivalents of $4,653,627 and
working capital of $9,128,648. Additionally, the Company restricted cash of
$309,300
10
<PAGE>
that was being used to collateralize a bond for a large commercial project.
Cash and cash equivalents increased $39,565 from December 31, 1996 to June 30,
1997 as proceeds from the issuance of common stock of $15,723,125 more than
offset costs associated with the acquisition of FMI of $13,550,410, cash used by
operations of $1,647,373 (including $1,322,785 to pay FMI accounts payable that
were assumed by the Company as part of the FMI acquisition), cash invested in
and advanced to CVT America of $254,694 and capital expenditures of $243,614.
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 June 30, 1997, unbilled revenue was $2,542,643 higher
than at December 31, 1996 due primarily to the increased revenue levels
resulting from the FMI acquisition.
Accounts receivable increased by $3,320,031 and prepaid expenses increased by
$521,543 from December 31, 1996 to June 30, 1997 primarily due to the
acquisition of FMI. Accounts payable increased by $1,207,827 and accrued
expenses and other liabilities increased by $457,161 in the same period due to
the acquisition of FMI. On June 30, 1997 the Company had $2,610,004 in reserve
for PECFA claim adjustments with respect to approximately $42 million in PECFA
reimbursable revenues which DCOM had not reviewed.
It is anticipated that the Company's currently available cash and cash expected
to be generated from the newly-combined operations will provide sufficient
operating capital for the foreseeable future.
Other Matters
- -------------
As of December 31, 1996, the Company had a net operating loss carryforward of
approximately $19,300,000 for federal income tax reporting purposes available to
offset future taxable income, if any, through 2011. The timing and manner in
which these losses may be utilized are limited under Section 382 of the Internal
Revenue Code of 1986 to approximately $1,700,000 per year based on preliminary
calculations of certain ownership changes to date and may be further limited in
the event of additional ownership changes, if any, as a result of future equity
issuances.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on April 9, 1997, and in
connection therewith proxies were solicited by management pursuant to Regulation
14 under the Securities Exchange Act of 1934. The total number of outstanding
shares of Common Stock entitled to vote at the meeting was 12,873,340. At the
meeting the following matters (not including ordinary procedural matters) were
submitted to a vote to the stockholders, with the results indicated below:
1. Approval to adopt the Agreement and Plan of Merger between the Company,
-----------------------------------------------------------------------
Fluid Management, Inc. ("FMI") and the FMI stockholders. The Agreement and
--------------------------------------------------------
Plan of Merger was approved allowing FMI to be merged with and into the
Company, with the Company being the surviving corporation for 4,190,477
shares of Common Stock and $11,000,000 of cash, subject to adjustment
pursuant to the Merger Agreement. The tabulation of votes was as follows:
For Against Abstentions
--- ------- -----------
6,937,693 135,500 3,800
2. Approval to adopt the Securities Purchase Agreement between Warburg, Pincus
---------------------------------------------------------------------------
Ventures, L.P. ("Warburg Pincus") and the Company. The Securities Purchase
-------------------------------------------------
Agreement was approved allowing the Company to issue and sell to Warburg
Pincus 6,095,238 shares of Common Stock for an aggregate cash purchase
price of $16,000,000. The tabulation of votes was as follows:
For Against Abstentions
--- ------- -----------
6,886,553 179,200 11,240
3. Approval to adopt and amend the Company's Amended and Restated Certificate
--------------------------------------------------------------------------
of Incorporation. The Company's Amended and Restated Certificate of
-----------------
Incorporation was further amended to increase the number of authorized
shares of Common Stock from 20,000,000 shares to 50,000,000 shares. The
tabulation of votes was as follows:
For Against Abstentions
--- ------- -----------
7,441,380 143,000 135,090
4. Approval to adopt the Company's amended and restated 1990 Incentive Stock
-------------------------------------------------------------------------
Option and Non-Qualified Stock Option Plan. The Plan was amended to
-------------------------------------------
increase the aggregate maximum number of shares which may be issued under
the Plan from 2,000,000 to 3,500,000. The tabulation of votes was as
follows:
For Against Abstentions
--- ------- -----------
6,694,635 511,363 17,965
12
<PAGE>
5. Election of directors to serve until the 1998 Annual Meeting. The
-------------------------------------------------------------
following persons, all of whom were management's nominees, were elected.
Robert L. Hillas and William C. Smith are new directors. Seymour L. Meisel
did not stand for reelection. There was no solicitation in opposition to
such nominees. The tabulation of votes was as follows:
<TABLE>
<CAPTION>
Nominee For Withheld
------- --- --------
<S> <C> <C>
Harcharan S. Gill 9,294,988 204,850
Robert F. Hendrickson 9,294,988 204,850
Robert S. Hillas 9,294,988 204,850
Robert F. Johnston 9,294,988 204,850
Robert C. Miller 9,294,938 204,900
Peter J. Neff 9,294,988 204,850
William C. Smith 9,294,988 204,850
</TABLE>
6. Ratification of independent auditors. The appointment of Coopers & Lybrand
-------------------------------------
L.L.P. as the Company's independent auditors was ratified. The tabulation
of votes was as follows:
For Against Abstentions
--- ------- -----------
9,454,798 39,200 5,840
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1 Employment Agreement dated April 10, 1997
between the Company and William C. Smith.
10.2 Employment Agreement dated April 10, 1997
between the Company and Douglas W. Jacobson.
10.3 Employment Agreement dated April 10, 1997
between the Company and Gary W. Hawk.
10.4 Employment Agreement dated April 10, 1997
between the Company and Richard W. Schowengerdt.
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
On April 10, 1997 the Company filed a Report on Form 8-K reporting the
acquisition of Fluid Management, Inc., the issuance of Common Stock to Warburg,
Pincus Ventures, L.P. and certain other matters. Such report on Form 8-K
included the audited financial statements of FMI as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996 and
certain unaudited pro forma financial information as of December 31, 1996 and
for the year then ended.
13
<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: August 13, 1997 By: /s/ Harcharan S. Gill
---------------------
Harcharan S. Gill
President and Chief Executive Officer
/s/ William C. Smith
--------------------
William C. Smith
Acting Chief Financial Officer
14
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made as of this 10th day of April, 1997,
between Envirogen, Inc., a Delaware corporation ("Envirogen"), and William C.
Smith (the "Executive").
WHEREAS, Envirogen, Fluid Management, Inc., a Wisconsin corporation
("FMI"), and all of the stockholders of FMI, including Executive, have entered
into an Agreement and Plan of Merger dated as of January 14, 1997 pursuant to
which FMI will merge with and into Envirogen and Envirogen will be the surviving
corporation (the "Merger");
WHEREAS, Executive has been employed by FMI as a senior executive officer
pursuant to an Employment and Non-Compete Agreement dated June 5, 1995 (the
"Previous Employment Agreement");
WHEREAS, an important factor in Envirogen's decision to acquire FMI and to
effectuate the Merger is the assurance that, for a sufficient period following
the Merger, Envirogen will have available the continued services of Executive
and Executive will enter into certain confidentiality and non-competition
agreements with Envirogen, all on the terms and conditions set forth herein, and
that Executive will waive any and all rights to which he would otherwise have
been entitled under Section 3(a) of the Previous Employment Agreement in
connection with the Merger; and
WHEREAS, as an inducement to Envirogen to consummate the Merger, Executive
and Envirogen are entering into this Agreement, which supersedes in its entirety
the Previous Employment Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
1. EMPLOYMENT
A. Agreement. Envirogen hereby agrees to employ the Executive, and the
---------
Executive hereby agrees to serve Envirogen, all on the terms and conditions set
forth herein.
B. Expiration Date. The employment of the Executive by Envirogen shall be
---------------
for the period commencing on the date hereof and expiring on December 31, 1998
(the "Expiration Date"), unless such employment shall have been extended or
sooner terminated as hereinafter set forth. On the Expiration Date, the
Agreement shall be renewed automatically for successive terms of one year each
unless either party hereto shall have given notice to the other party at least
three months prior to the end of the then current Expiration Date that the
Agreement shall not be renewed. Upon each such automatic renewal, the
Expiration Date shall become the first anniversary of the last Expiration Date
then in effect. As used herein, the term "Contract Year" means the twelve-month
period beginning April 10 of each year this Agreement is in effect.
<PAGE>
2. POSITION AND DUTIES. The Executive shall serve in the capacity or
capacities and have the duties of Chairman of the Board of Directors of
Envirogen, and President and Chief Executive Officer of the FMI Division of
Envirogen, and shall report to, be accountable to and subject to the supervision
of, and shall also have such other powers, duties and responsibilities as may
from time to time be prescribed by, the Board of Directors of Envirogen,
provided that such other duties and responsibilities are not inconsistent with
the Executive's position and those duties set forth herein and in the bylaws of
Envirogen.
The Executive shall perform and discharge, faithfully, diligently and to
the best of his ability, such duties and responsibilities. The Executive shall
not, without the prior consent of the Board of Directors of Envirogen, accept a
position on the Board of Directors of any company other than (i) Envirogen or a
subsidiary thereof, (ii) HJS of Wisconsin, Inc. or (iii) any charitable or
similar organization. The Executive shall devote substantially all his working
time and efforts to the business and affairs of Envirogen and its subsidiaries
and affiliates.
The Executive represents to Envirogen that on the date hereof he is not
party to any agreement which conflicts with his obligations hereunder and that
he will not become party to any such agreement; should this representation prove
false at any time, then Envirogen shall have no further obligations hereunder.
3. COMPENSATION
A. Salary. During the term of his employment hereunder, the Executive
------
shall receive a Base Salary at the initial annual rate of $180,000. Such
initial Base Salary shall be subject to increase, but not decrease, by the Board
of Directors of Envirogen upon prior recommendation of the Executive
Compensation and Stock Option Committee thereof. Base Salary shall be payable
in substantially equal bi-weekly installments, less any amounts required to be
withheld under applicable law. In the event that, during the term hereof,
Envirogen shall determine to make salary payments to its executives at intervals
other than bi-weekly, Envirogen may adjust the intervals at which it makes
payments of Base Salary hereunder to such intervals as are consistent with the
intervals at which other executives of Envirogen are then compensated. Except
as otherwise provided in this Agreement, the Base Salary shall be pro-rated for
any period of service less than a full Contract Year.
B. Bonuses; Stock Options. The Executive will be eligible to receive an
----------------------
annual incentive bonus for each fiscal year of Envirogen this agreement is in
effect based upon the obtainment of corporate and individual performance goals
fixed by the Board of Directors of Envirogen upon the prior recommendation of
the Executive Compensation and Stock Option Committee thereof. The Executive
will also be eligible to receive grants of stock options under such stock option
plans of Envirogen as are in effect from time to time in such amounts, and on
such terms, as the committee or committees administering such plans may fix and
determine.
C. Expenses. During the term of his employment hereunder, the Executive
--------
shall be entitled to receive prompt reimbursement for all reasonable business
expenses incurred by him on behalf of Envirogen (in accordance with the policies
and procedures established by the Board of Directors of Envirogen from time to
time for Envirogen's senior executive officers) in performing services
hereunder, provided that the Executive properly accounts therefor in accordance
with requirements for federal income tax deductibility and Envirogen's policies
and procedures.
-2-
<PAGE>
D. Fringe Benefits. During the term of his employment hereunder, the
---------------
Executive shall be entitled to participate in or receive such benefits as other
executives and key employees of Envirogen are entitled to receive from time to
time, including but not limited to life insurance, health and accident plans,
retirement programs or other arrangements made generally available by Envirogen
to its executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Nothing herein shall preclude Envirogen, during the term
hereof, from amending, modifying or eliminating any such benefits so long as any
such changes apply consistently to all executives and key employees of
Envirogen.
E. Vacations. During the term of his employment hereunder, the Executive
---------
shall be entitled to twenty (20) paid vacation days in each calendar year (less,
in 1997, those vacation days taken by the Executive in 1997 prior to the date
hereof under the Previous Employment Agreement and, in any other year, prorated
for any partial calendar year this Agreement is in effect), and shall also be
entitled to all paid holidays given by Envirogen to its employees generally.
Vacation days allotted in any calendar year and not used in such year shall
expire if not used by March 31 of the immediately following calendar year.
4. RESTRICTIVE COVENANTS
A. Non-competition. Executive covenants that he will not directly or
---------------
indirectly own, manage, operate or control, nor be a director, officer or
employee of, or consultant to, any business or enterprise competing with
Envirogen or any affiliate of Envirogen, anywhere in (i) the 50 states of the
United States, (ii) all of the provinces of Canada, and (iii) any other
jurisdiction in which Envirogen derived in excess of $250,000 in revenues during
the period this Agreement was in effect. For purposes hereof, a business
competing with Envirogen shall mean any business (i) which does research with
respect to, designs, develops, produces or manufactures any products which are
the same as or substantially similar to or are intended for uses similar to
those with respect to which Envirogen or any affiliate does research or which
Envirogen or any affiliate designs, develops, produces or manufactures; or (ii)
which furnishes services similar to those furnished by Envirogen or any
affiliate. The provisions of this paragraph, however, shall not prohibit
Executive from investing in the securities of any such business or enterprise
which are traded publicly and constitute less than one percent (1%) of the
particular class of such business's or enterprises's securities outstanding from
time to time. The foregoing covenant shall be binding on Executive during his
employment hereunder and for a period of two (2) years after termination of his
employment hereunder.
Furthermore, Executive agrees not to engage or participate in any effort or
act to induce any of the associates, consultants, customers, officers or
employees of Envirogen or any affiliate to take any action which might be
disadvantageous to Envirogen or any affiliate.
B. Disclosure and Assignment of Inventions; Patents.
-----------------------------------------------
(a) Executive shall communicate to Envirogen promptly and fully, and hereby
assigns, sells and transfers to Envirogen Executive's entire right, title and
interest in and to, all inventions, whether or not patentable, made or conceived
by Executive (alone or jointly with others and whether or not made or conceived
during regular business hours) from the time of entering the employ of Envirogen
or any affiliate until the termination thereof which (i) are related in any
manner, directly or indirectly, to the business, products, research or
development of Envirogen or any affiliate or (ii) result from or are suggested
by any work which Executive may do for or on behalf of Envirogen or
-3-
<PAGE>
any affiliate. For purposes of this Agreement, the term "invention" shall
include, without limitation, any new, useful or original art, machine, process,
method, product, apparatus, compound, formula, shape, lifeform, composition of
matter or configuration of any kind.
(b) Executive agrees to assist Envirogen and its nominees during and
subsequent to his employment with Envirogen or any affiliate in every proper way
(entirely at its or their expense) to obtain for its or their own benefit
patents for such inventions in any and all countries, said inventions to be and
remain the sole and exclusive property of Envirogen or its nominees, whether
patented or not.
(c) Executive agrees to make and maintain adequate and current written
records of all such inventions, in the form of notes, sketches, drawings, or
reports relating thereto, which records shall be and remain the property of and
available to Envirogen at all times.
(d) Executive agrees to notify Envirogen in writing before Executive makes
any disclosure or performs or causes to be performed any work for or on behalf
of Envirogen or any affiliate, which appears to threaten or conflict with (i)
rights Executive claims in any invention or idea conceived by Executive or
others prior to the Executive's employment with Envirogen or any affiliate or
outside the scope of this Agreement, or (ii) rights of others arising out of
obligations incurred by Executive prior to his employment with or outside the
scope of this Agreement. In the event of the Executive's failure to give notice
under the circumstances specified, Envirogen may assume that no such conflicting
invention or idea exists and Executive agrees not to make any claim against
Envirogen or any affiliate with respect to the use of any such invention or idea
in any work which Executive performs or causes to be performed for or on behalf
of Envirogen or any affiliate.
C. Copyrights. Executive understands and acknowledges that Executive may
----------
from time to time during the term of Executive's employment with Envirogen
create or contribute to, either alone or with others, the creation of a
copyrightable subject matter relating to the business, products, research or
development of Envirogen or its affiliates and it is understood and agreed that
such creative effort on the part of Executive shall be "work for hire", and all
right, title and interest in such subject matter shall be the sole and exclusive
property of Envirogen or its nominees, including the right to copyright such
subject matter in the name of Envirogen.
D. Confidentiality. Executive acknowledges and agrees that in the course
---------------
of, or incident to, Executive's employment hereunder, Envirogen and/or its
affiliates has provided and may in the future provide to Executive, or Executive
has been and may otherwise become in the future exposed to, Confidential
Information. For purposes of this Agreement, the term "Confidential
Information" shall mean all information concerning the business or affairs of
Envirogen and/or its affiliates and all information received from third parties
and held in confidence by Envirogen and/or its affiliates including, without
limitation, all information relating to existing and potential customers,
suppliers, markets, contracts, prices, programs, requirements, strategies,
products, technology, know-how, information, data, processes, inventions,
developments, formulations, applications and methods of manufacture, except such
information that, as of the date of disclosure to or development by Executive,
is shown to have been voluntarily disclosed to the public by Envirogen, to have
been independently developed and disclosed by third parties, or to have been
disclosed in published literature or which has otherwise entered the public
domain by lawful means, all of which Confidential Information is acknowledged to
be the property of Envirogen. Executive acknowledges that his obtaining the
Confidential Information is intended to, and necessary to, enable Executive to
-4-
<PAGE>
perform his duties for Envirogen and/or its affiliates. Executive recognizes
and agrees that the confidentiality of the Confidential Information is necessary
to the ability of Envirogen and/or its affiliates to compete effectively with
their competitors. Executive recognizes and acknowledges that, in many
instances, Envirogen and/or its affiliates are bound by contractual or other
obligations to hold and use Confidential Information received from third parties
in confidence, and that Executive's failure to do so may constitute a breach of
such obligations. Executive therefore acknowledges and agrees that Executive's
undertakings in this Section 4.D with respect to the use and dissemination of
such third party Confidential Information are made and intended for the benefit
not only of Envirogen and its affiliates but also of all parties that provide
Envirogen with Confidential Information. In light of the foregoing, Executive
agrees that:
(a) during the term of Executive's employment with Envirogen and/or any
affiliates and at all times thereafter, Executive will hold the Confidential
Information in the strictest confidence and will not retain in writing,
duplicate, use, divulge, furnish or make accessible to anyone (which terms, as
used in this Agreement, shall include, without limitation, any individual, firm,
corporation, association or group) such Confidential Information, except as
required in the performance of Executive's duties for Envirogen and/or any
affiliate;
(b) upon and subsequent to the termination of Executive's employment with
Envirogen and/or any affiliate for any reason whatever Executive will not, at
any time, retain in writing, duplicate, use, divulge, furnish or make accessible
to anyone or make any use whatever of the Confidential Information or any
portion thereof, either on Executive's own behalf or in conjunction with or on
behalf of any other person or entity; and
(c) upon termination of Executive's employment with Envirogen and/or any
affiliate for any reason whatever, Executive will immediately return to
Envirogen or such affiliate all documents or other tangible records, and any and
all copies thereof, within Executive's possession, custody or control,
containing or reflecting any Confidential Information.
E. Return of Materials Upon Termination. Upon termination of Executive's
------------------------------------
employment by either party for any reason, Executive hereby agrees to return to
Envirogen as a condition to receiving Executive's final salary check, any and
all books, records, reports, notes, and materials of any nature or kind
whatsoever furnished to or developed by Executive, or developed by any third
party for Envirogen, which Executive may have obtained during the term of
employment relating directly or indirectly to the property or business of
Envirogen or any affiliate.
5. TERMINATION
A. Death. The Executive's employment hereunder shall terminate upon his
-----
death.
B. Incapacity. If in the reasonable judgment of the Board of Directors of
----------
Envirogen, as a result of the Executive's incapacity due to physical or mental
illness or otherwise, the Executive shall for three consecutive months during
the term of this Agreement have been unable to perform satisfactorily all of his
duties hereunder on a full-time basis after taking into account such
accommodation for any physical or mental illness as may be required by law,
Envirogen may terminate the Executive's employment hereunder by notice to the
Executive.
-5-
<PAGE>
C. Cause. Envirogen may terminate the Executive's employment hereunder
-----
for Cause. For the purposes of this Agreement, Envirogen shall have "Cause" to
terminate the Executive's employment hereunder upon the Executive's (i) material
failure, refusal or neglect to perform and discharge his duties and
responsibilities hereunder, or willful action that is materially inconsistent
with the terms hereof, or material breach of his fiduciary duties as an officer
or as a director of Envirogen, or (ii) gross misconduct that is injurious to
Envirogen, or (iii) unethical business conduct, or (iv) conviction of a felony.
Notwithstanding any other provision of this Agreement, Envirogen shall provide
written notice to the Executive of its intent to terminate for Cause and of the
specific Cause for termination. Upon the Executive's receipt of such written
notice, he shall have ten (10) business days in which to cure, correct or remedy
any stated act or omission constituting Cause. If the Executive cures, corrects
or remedies such act or omission within such ten (10) business day period to the
full satisfaction of the Board of Directors of Envirogen, there shall be no
termination for the stated Cause, and this Agreement shall continue in full
force and effect according to its terms.
D. Termination by the Executive. The Executive may terminate his
----------------------------
employment hereunder for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean (A) any removal of the Executive from the position indicated
in Section 2 hereof, except in connection with termination of the Executive's
employment for incapacity or Cause, or (B) a reduction in the Executive's Base
Salary below that set forth in Section 3.A. hereof, or (C) any other action by
Envirogen that is in material breach of the terms of this Agreement or (D) a
decision made in good faith by the Executive within six (6) months following a
"Change in Control" that he has been assigned, without his prior written
consent, duties or responsibilities inconsistent with his positions, duties,
responsibilities and status immediately prior to the Change in Control. As used
herein, the term "Change in Control" shall have the meaning set forth in
Appendix I hereto.
E. Date of Termination; Term of Employment. The term "Date of
---------------------------------------
Termination" shall mean the earlier of (i) the Expiration Date or (ii) if the
Executive's employment is terminated (a) by his death, the date of his death, or
(b) for any other reason whether or not specified in this Section 5 or for no
reason, the date on which such termination is to be effective pursuant to the
notice of termination given by the party terminating the employment
relationship. For all purposes of this Agreement, references to the "term" of
the Executive's employment hereunder shall mean the period commencing on the
date hereof and ending on the Date of Termination.
6. COMPENSATION UPON TERMINATION
A. Death or Incapacity. Notwithstanding any other provision of this
-------------------
Agreement, if the Executive's employment shall be terminated by reason of his
death or incapacity, Envirogen shall pay or cause to be paid all sums accrued
and unpaid to the Date of Termination under Sections 3.A, 3.C, 3.D and 3.E (in
respect of accrued and unused vacation). In the event of the Executive's death,
unexpired stock options held at his death shall remain exercisable for such
period or periods as are set forth in the plan or plans under which they were
granted. In the event of termination by reason of incapacity, Envirogen shall
continue to pay the Executive the Base Salary as then in effect for the twelve-
month period following the Date of Termination and shall, during such same
twelve-month period, continue in effect all medical and life insurance which was
maintained by Envirogen for the benefit of the Executive on the Date of
Termination.
-6-
<PAGE>
B. Cause or Executive's Termination other than for Good Reason.
-----------------------------------------------------------
Notwithstanding any other provision of this Agreement, if Envirogen shall
terminate the Executive's Employment for Cause, or if this Agreement shall
terminate by reason of the Executive's determination not to renew or by reason
of the Executive's termination of this Agreement other than for Good Reason,
Envirogen shall pay Executive all sums accrued and unpaid to the Date of
Termination under Sections 3.A, 3.C, 3.D and 3.E (in respect of accrued and
unused vacation) and shall permit the Executive to exercise any stock options
vested to the Date of Termination to the extent permitted by the terms of such
options. Envirogen shall thereafter have no further obligations to the Executive
under this Agreement.
C. Good Reason or Other Termination. If Envirogen shall determine not to
--------------------------------
renew this Agreement on any Expiration Date or shall terminate the Executive's
employment other than pursuant to paragraphs A, B or C of Section 5 hereof or if
the Executive shall terminate his employment for Good Reason, then Envirogen
shall pay to the Executive all sums accrued under Sections 3.A, 3.C, 3.D and 3.E
hereof through the Date of Termination. In addition, Envirogen shall pay
severance pay to Executive, bi-weekly, at a rate equal to Executive's Base
Salary as in effect on the Date of Termination, (A) in the case of termination
arising from Envirogen's notice of election not to renew, for a period of twelve
months following the Expiration Date; (B) in the case of any other termination
by Envirogen other than by reason of paragraphs A, B, or C of Section 5 hereof,
for a period of twelve months following the Date of Termination; and (C) in the
case of termination by the Executive by reason of paragraph D of Section 5
hereof, for a period of twelve months following the Date of Termination. In
addition, if this Agreement is terminated by reason of clause (A), (B) or (C) of
the preceding sentence, (X) Envirogen shall continue all medical and life
insurance benefits maintained by it for the benefit of the Executive on the Date
of Termination for a period of twelve months following the Date of Termination,
and (Y) all options held by the Executive which would vest in the twelve-month
period following the Date of Termination shall become exercisable on the Date of
Termination. In addition, if this Agreement is terminated by the Executive by
reason of clause (D) of paragraph D of Section 5, then, subject to the next
sentence, during the period commencing twelve months following the Date of
Termination and ending twenty-four months following the Date of Termination,
Envirogen shall continue to pay, on a bi-weekly basis, the amounts described in
the second preceding sentence and provide the benefits provided in clause (X) of
the immediately preceding sentence for so long as, during such period, the
Executive is unable to obtain satisfactory full-time employment during such
period, provided he continuously and diligently seeks the same. Anything in
this paragraph C of this Section 6 to the contrary notwithstanding, in the event
this Agreement is terminated by the Executive by reason of clause (D) of
paragraph D of Section 5 and the sum of the aggregate of the salary continuation
payments and the value of the accelerated options which would be payable under
this paragraph C of this Section 6 would result in the inability of Envirogen to
deduct any such amounts so paid from its taxable income for federal income tax
purposes by reason of the provisions of Section 280G of the Internal Revenue
Code of 1986, as amended, or under any provision successor thereto, and the
regulations of the Internal Revenue Service thereunder, then the aggregate of
such salary continuation payments and other payments or benefits in the nature
of compensation (including the value of accelerated options) shall be reduced by
the minimum amount as may be necessary so that all such amounts shall be
eligible for deduction by Envirogen from its taxable income for federal income
tax purposes. The payments provided for in this paragraph under the
circumstances set forth in this paragraph shall constitute the sole obligation
of Envirogen to the Executive for any termination of Employment referred to in
this paragraph.
-7-
<PAGE>
7. BINDING AGREEMENT. This Agreement and all rights of the Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. This Agreement shall inure to the benefit
of Envirogen and its corporate successors and permitted assigns; provided that
Envirogen may not assign its rights or obligations hereunder without the prior
consent of the Executive. This Agreement and the provisions of Appendix I
hereto represent the sole agreements between Envirogen and the Executive
relating to the Executive's employment by Envirogen and supersede all prior
agreements and communications, oral and written to the extent that they relate
to any terms and conditions of the Executive's proposed employment with
Envirogen. Executive and Envirogen agree that the Previous Employment Agreement
is hereby terminated and of no further force or effect, and Executive hereby
waives any and all rights to which he otherwise would have been entitled under
Section 3(a) of the Previous Employment Agreement in connection with the Merger.
No provision of this Agreement may be modified, waived, or discharged unless
such waiver, modification or discharge is approved by the Board of Directors and
agreed to in writing signed by the Executive and such officer as may be
specifically authorized by the Board of Directors. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
8. EFFECTIVE DATE AND EFFECTIVENESS. This Agreement shall take effect as of
the date hereof.
9. NOTICES. For all purposes of this Agreement, notices and all other
communications to either party hereunder provided for in this Agreement shall be
in writing and shall be deemed to have been duly given when delivered or mailed
by United States certified or registered mail, return receipt requested, postage
prepaid, addressed, in the case of Envirogen, to the President of Envirogen at
the principal place of business of Envirogen, or in the case of the Executive,
to the Executive at his principal residence address as on file with Envirogen at
the time such notice is given; or to such other address as either party shall
designate by giving like notice of such change to the other party.
10. ARBITRATION; INJUNCTION. Subject to the provisions of the last sentence of
this Section 10, any disputes or controversies arising with respect to the
provisions or operation of this Agreement shall be settled by binding
arbitration by a single arbitrator in Philadelphia, Pennsylvania, under the
commercial arbitration rules of the American Arbitration Association then in
effect. Judgment on the award may be entered in any court of competent
jurisdiction. Anything in the foregoing to the contrary notwithstanding, the
Executive acknowledges and agrees that, because Envirogen's legal remedies would
be inadequate in the event of a breach of, or other failure to perform, any of
the covenants and agreements set forth in Section 4 hereof by the Executive,
Envirogen may, in addition to obtaining any other remedy or relief available to
it under this Section 10 (including without limitation damages at law), enforce
the provisions of said Section 4 by injunction and other equitable relief in any
court of competent jurisdiction.
11. INDEMNIFICATION; INSURANCE. Envirogen shall indemnify the Executive to the
extent set forth in the By-Laws of Envirogen as in effect from time to time.
Envirogen shall use its best efforts to maintain a level of directors and
officers liability insurance equivalent to that in effect on the date hereof.
-8-
<PAGE>
12. MISCELLANEOUS. Executive acknowledges that amounts which become payable
hereunder will be subject to withholding to the extent provided in the Internal
Revenue Code of 1986 and analogous provisions of state and local law. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the domestic substantive laws of the State of New Jersey without
giving effect to any choice or conflict of laws provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction.
13. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect, and in the event that any provision hereof shall be determined to be
invalid or unenforceable for any reason, such provision shall be construed by
limiting it so as to be valid and enforceable to the fullest extent compatible
with and possible under applicable law.
14. COUNTERPARTS. This Agreement may be executed in any one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands, as of
the date first above written.
ENVIROGEN, INC.
By: /s/ HARCHARAN S. GILL
-----------------------------
Harcharan S. Gill
President
/s/ WILLIAM C. SMITH
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William C. Smith
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<PAGE>
APPENDIX I
"Change in Control" shall mean:
(A) The acquisition by any person, entity or "group" required to file a
Schedule 13D or Schedule 14D-1 promulgated under the Securities Exchange Act of
1934 (the "Exchange Act") (excluding, for this purpose, Envirogen, its
subsidiaries, or any employee benefit plan of Envirogen or its subsidiaries
which acquires beneficial ownership of voting securities of Envirogen) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 51% or more of either the then-outstanding shares of common
stock or the combined voting power of Envirogen's then-outstanding voting
securities entitled to vote generally in the election of directors; or
(B) The election or appointment to the Board of Directors, or resignation
of or removal from the Board of Directors, of directors by virtue of which the
individuals who as of the date hereof constituted the Board of Directors (the
"Incumbent Board") no longer constitute at least a majority of the Board,
provided that any person who becomes a director subsequent to the date hereof
whose appointment, election, or nomination for election by Envirogen's
stockholders, was nominated by or approved by a vote of at least a majority of
the Incumbent Board (other than an appointment, election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of
Envirogen, as such terms are used in Rule 14a-1 promulgated under the Exchange
Act) shall be, for purposes of this Agreement, considered as though such person
were a member of the Incumbent Board; or
(C) Approval by the stockholders of Envirogen of: (i) a reorganization,
merger or consolidation by reason of which persons who were the stockholders of
Envirogen immediately prior to such reorganization, merger or consolidation do
not, immediately thereafter, own more than 51% of the combined voting power of
the reorganized, merged or consolidated company's then outstanding voting
securities entitled to vote generally in the election of directors, or (ii) a
liquidation or dissolution of Envirogen or the sale, transfer, lease or other
disposition of all or substantially all of the assets of Envirogen (whether such
assets are held directly or indirectly).
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made as of this 10th day of April, 1997,
between Envirogen, Inc., a Delaware corporation ("Envirogen"), and Douglas W.
Jacobson (the "Executive").
WHEREAS, Envirogen, Fluid Management, Inc., a Wisconsin corporation
("FMI"), and all of the stockholders of FMI, including Executive, have entered
into an Agreement and Plan of Merger dated as of January 14, 1997 pursuant to
which FMI will merge with and into Envirogen and Envirogen will be the surviving
corporation (the "Merger");
WHEREAS, Executive has been employed by FMI as a senior executive officer
pursuant to an Employment and Non-Compete Agreement dated June 5, 1995 (the
"Previous Employment Agreement");
WHEREAS, an important factor in Envirogen's decision to acquire FMI and to
effectuate the Merger is the assurance that, for a sufficient period following
the Merger, Envirogen will have available the continued services of Executive
and Executive will enter into certain confidentiality and non-competition
agreements with Envirogen, all on the terms and conditions set forth herein, and
that Executive will waive any and all rights to which he would otherwise have
been entitled under Section 3(a) of the Previous Employment Agreement in
connection with the Merger; and
WHEREAS, as an inducement to Envirogen to consummate the Merger, Executive
and Envirogen are entering into this Agreement, which supercedes in its entirety
the Previous Employment Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
1. EMPLOYMENT
A. Agreement. Envirogen hereby agrees to employ the Executive, and the
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Executive hereby agrees to serve Envirogen, all on the terms and conditions set
forth herein.
B. Expiration Date. The employment of the Executive by Envirogen shall be
---------------
for the period commencing on the date hereof and expiring on December 31, 1998
(the "Expiration Date"), unless such employment shall have been extended or
sooner terminated as hereinafter set forth. On the Expiration Date, the
Agreement shall be renewed automatically for successive terms of one year each
unless either party hereto shall have given notice to the other party at least
three months prior to the end of the then current Expiration Date that the
Agreement shall not be renewed. Upon each such automatic renewal, the
Expiration Date shall become the first anniversary of the last Expiration Date
then in effect. As used herein, the term "Contract Year" means the twelve-month
period beginning April 10 of each year this Agreement is in effect.
<PAGE>
2. POSITION AND DUTIES. The Executive shall serve in the capacity or
capacities and have the duties of Senior Vice President of Marketing of
Envirogen, and Vice President of the FMI Division of Envirogen, and shall report
to, be accountable to and subject to the supervision of, and shall also have
such other powers, duties and responsibilities as may from time to time be
prescribed by, the Board of Directors of Envirogen, provided that such other
duties and responsibilities are not inconsistent with the Executive's position
and those duties set forth herein and in the bylaws of Envirogen.
The Executive shall perform and discharge, faithfully, diligently and to
the best of his ability, such duties and responsibilities. The Executive shall
not, without the prior consent of the Board of Directors of Envirogen, accept a
position on the Board of Directors of any company other than (i) Envirogen or a
subsidiary thereof, (ii) HJS of Wisconsin, Inc. or (iii) any charitable or
similar organization. The Executive shall devote substantially all his working
time and efforts to the business and affairs of Envirogen and its subsidiaries
and affiliates.
The Executive represents to Envirogen that on the date hereof he is not
party to any agreement which conflicts with his obligations hereunder and that
he will not become party to any such agreement; should this representation prove
false at any time, then Envirogen shall have no further obligations hereunder.
3. COMPENSATION
A. Salary. During the term of his employment hereunder, the Executive
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shall receive a Base Salary at the initial annual rate of $140,000. Such
initial Base Salary shall be subject to increase, but not decrease, by the Board
of Directors of Envirogen upon prior recommendation of the Executive
Compensation and Stock Option Committee thereof. Base Salary shall be payable
in substantially equal bi-weekly installments, less any amounts required to be
withheld under applicable law. In the event that, during the term hereof,
Envirogen shall determine to make salary payments to its executives at intervals
other than bi-weekly, Envirogen may adjust the intervals at which it makes
payments of Base Salary hereunder to such intervals as are consistent with the
intervals at which other executives of Envirogen are then compensated. Except
as otherwise provided in this Agreement, the Base Salary shall be pro-rated for
any period of service less than a full Contract Year.
B. Bonuses; Stock Options. The Executive will be eligible to receive an
----------------------
annual incentive bonus for each fiscal year of Envirogen this agreement is in
effect based upon the obtainment of corporate and individual performance goals
fixed by the Board of Directors of Envirogen upon the prior recommendation of
the Executive Compensation and Stock Option Committee thereof. The Executive
will also be eligible to receive grants of stock options under such stock option
plans of Envirogen as are in effect from time to time in such amounts, and on
such terms, as the committee or committees administering such plans may fix and
determine.
C. Expenses. During the term of his employment hereunder, the Executive
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shall be entitled to receive prompt reimbursement for all reasonable business
expenses incurred by him on behalf of Envirogen (in accordance with the policies
and procedures established by the Board of Directors of Envirogen from time to
time for Envirogen's senior executive officers) in performing services
hereunder, provided that the Executive properly accounts therefor in accordance
with requirements for federal income tax deductibility and Envirogen's policies
and procedures.
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D. Fringe Benefits. During the term of his employment hereunder, the
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Executive shall be entitled to participate in or receive such benefits as other
executives and key employees of Envirogen are entitled to receive from time to
time, including but not limited to life insurance, health and accident plans,
retirement programs or other arrangements made generally available by Envirogen
to its executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Nothing herein shall preclude Envirogen, during the term
hereof, from amending, modifying or eliminating any such benefits so long as any
such changes apply consistently to all executives and key employees of
Envirogen.
E. Vacations. During the term of his employment hereunder, the Executive
---------
shall be entitled to twenty (20) paid vacation days in each calendar year (less,
in 1997, those vacation days taken by the Executive in 1997 prior to the date
hereof under the Previous Employment Agreement and, in any other year, prorated
for any partial calendar year this Agreement is in effect), and shall also be
entitled to all paid holidays given by Envirogen to its employees generally.
Vacation days allotted in any calendar year and not used in such year shall
expire if not used by March 31 of the immediately following calendar year.
4. RESTRICTIVE COVENANTS
A. Non-competition. Executive covenants that he will not directly or
---------------
indirectly own, manage, operate or control, nor be a director, officer or
employee of, or consultant to, any business or enterprise competing with
Envirogen or any affiliate of Envirogen, anywhere in (i) the 50 states of the
United States, (ii) all of the provinces of Canada, and (iii) any other
jurisdiction in which Envirogen derived in excess of $250,000 in revenues during
the period this Agreement was in effect. For purposes hereof, a business
competing with Envirogen shall mean any business (i) which does research with
respect to, designs, develops, produces or manufactures any products which are
the same as or substantially similar to or are intended for uses similar to
those with respect to which Envirogen or any affiliate does research or which
Envirogen or any affiliate designs, develops, produces or manufactures; or (ii)
which furnishes services similar to those furnished by Envirogen or any
affiliate. The provisions of this paragraph, however, shall not prohibit
Executive from investing in the securities of any such business or enterprise
which are traded publicly and constitute less than one percent (1%) of the
particular class of such business's or enterprises's securities outstanding from
time to time. The foregoing covenant shall be binding on Executive during his
employment hereunder and for a period of two (2) years after termination of his
employment hereunder.
Furthermore, Executive agrees not to engage or participate in any effort or
act to induce any of the associates, consultants, customers, officers or
employees of Envirogen or any affiliate to take any action which might be
disadvantageous to Envirogen or any affiliate.
B. Disclosure and Assignment of Inventions;Patents.
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(a) Executive shall communicate to Envirogen promptly and fully, and hereby
assigns, sells and transfers to Envirogen Executive's entire right, title and
interest in and to, all inventions, whether or not patentable, made or conceived
by Executive (alone or jointly with others and whether or not made or conceived
during regular business hours) from the time of entering the employ of Envirogen
or any affiliate until the termination thereof which (i) are related in any
manner, directly or indirectly, to the business, products, research or
development of Envirogen or any affiliate or (ii) result from or are suggested
by any work which Executive may do for or on behalf of Envirogen or
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<PAGE>
any affiliate. For purposes of this Agreement, the term "invention" shall
include, without limitation, any new, useful or original art, machine, process,
method, product, apparatus, compound, formula, shape, lifeform, composition of
matter or configuration of any kind.
(b) Executive agrees to assist Envirogen and its nominees during and
subsequent to his employment with Envirogen or any affiliate in every proper way
(entirely at its or their expense) to obtain for its or their own benefit
patents for such inventions in any and all countries, said inventions to be and
remain the sole and exclusive property of Envirogen or its nominees, whether
patented or not.
(c) Executive agrees to make and maintain adequate and current written
records of all such inventions, in the form of notes, sketches, drawings, or
reports relating thereto, which records shall be and remain the property of and
available to Envirogen at all times.
(d) Executive agrees to notify Envirogen in writing before Executive makes
any disclosure or performs or causes to be performed any work for or on behalf
of Envirogen or any affiliate, which appears to threaten or conflict with (i)
rights Executive claims in any invention or idea conceived by Executive or
others prior to the Executive's employment with Envirogen or any affiliate or
outside the scope of this Agreement, or (ii) rights of others arising out of
obligations incurred by Executive prior to his employment with or outside the
scope of this Agreement. In the event of the Executive's failure to give notice
under the circumstances specified, Envirogen may assume that no such conflicting
invention or idea exists and Executive agrees not to make any claim against
Envirogen or any affiliate with respect to the use of any such invention or idea
in any work which Executive performs or causes to be performed for or on behalf
of Envirogen or any affiliate.
C. Copyrights. Executive understands and acknowledges that Executive may
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from time to time during the term of Executive's employment with Envirogen
create or contribute to, either alone or with others, the creation of a
copyrightable subject matter relating to the business, products, research or
development of Envirogen or its affiliates and it is understood and agreed that
such creative effort on the part of Executive shall be "work for hire", and all
right, title and interest in such subject matter shall be the sole and exclusive
property of Envirogen or its nominees, including the right to copyright such
subject matter in the name of Envirogen.
D. Confidentiality. Executive acknowledges and agrees that in the course
---------------
of, or incident to, Executive's employment hereunder, Envirogen and/or its
affiliates has provided and may in the future provide to Executive, or Executive
has been and may otherwise become in the future exposed to, Confidential
Information. For purposes of this Agreement, the term "Confidential
Information" shall mean all information concerning the business or affairs of
Envirogen and/or its affiliates and all information received from third parties
and held in confidence by Envirogen and/or its affiliates including, without
limitation, all information relating to existing and potential customers,
suppliers, markets, contracts, prices, programs, requirements, strategies,
products, technology, know-how, information, data, processes, inventions,
developments, formulations, applications and methods of manufacture, except such
information that, as of the date of disclosure to or development by Executive,
is shown to have been voluntarily disclosed to the public by Envirogen, to have
been independently developed and disclosed by third parties, or to have been
disclosed in published literature or which has otherwise entered the public
domain by lawful means, all of which Confidential Information is acknowledged to
be the property of Envirogen. Executive acknowledges that his obtaining the
Confidential Information is intended to, and necessary to, enable Executive to
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<PAGE>
perform his duties for Envirogen and/or its affiliates. Executive recognizes
and agrees that the confidentiality of the Confidential Information is necessary
to the ability of Envirogen and/or its affiliates to compete effectively with
their competitors. Executive recognizes and acknowledges that, in many
instances, Envirogen and/or its affiliates are bound by contractual or other
obligations to hold and use Confidential Information received from third parties
in confidence, and that Executive's failure to do so may constitute a breach of
such obligations. Executive therefore acknowledges and agrees that Executive's
undertakings in this Section 4.D with respect to the use and dissemination of
such third party Confidential Information are made and intended for the benefit
not only of Envirogen and its affiliates but also of all parties that provide
Envirogen with Confidential Information. In light of the foregoing, Executive
agrees that:
(a) during the term of Executive's employment with Envirogen and/or any
affiliates and at all times thereafter, Executive will hold the Confidential
Information in the strictest confidence and will not retain in writing,
duplicate, use, divulge, furnish or make accessible to anyone (which terms, as
used in this Agreement, shall include, without limitation, any individual, firm,
corporation, association or group) such Confidential Information, except as
required in the performance of Executive's duties for Envirogen and/or any
affiliate;
(b) upon and subsequent to the termination of Executive's employment with
Envirogen and/or any affiliate for any reason whatever Executive will not, at
any time, retain in writing, duplicate, use, divulge, furnish or make accessible
to anyone or make any use whatever of the Confidential Information or any
portion thereof, either on Executive's own behalf or in conjunction with or on
behalf of any other person or entity; and
(c) upon termination of Executive's employment with Envirogen and/or any
affiliate for any reason whatever, Executive will immediately return to
Envirogen or such affiliate all documents or other tangible records, and any and
all copies thereof, within Executive's possession, custody or control,
containing or reflecting any Confidential Information.
E. Return of Materials Upon Termination. Upon termination of Executive's
------------------------------------
employment by either party for any reason, Executive hereby agrees to return to
Envirogen as a condition to receiving Executive's final salary check, any and
all books, records, reports, notes, and materials of any nature or kind
whatsoever furnished to or developed by Executive, or developed by any third
party for Envirogen, which Executive may have obtained during the term of
employment relating directly or indirectly to the property or business of
Envirogen or any affiliate.
5. TERMINATION
A. Death. The Executive's employment hereunder shall terminate upon his
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death.
B. Incapacity. If in the reasonable judgment of the Board of Directors of
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Envirogen, as a result of the Executive's incapacity due to physical or mental
illness or otherwise, the Executive shall for three consecutive months during
the term of this Agreement have been unable to perform satisfactorily all of his
duties hereunder on a full-time basis after taking into account such
accommodation for any physical or mental illness as may be required by law,
Envirogen may terminate the Executive's employment hereunder by notice to the
Executive.
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<PAGE>
C. Cause. Envirogen may terminate the Executive's employment hereunder
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for Cause. For the purposes of this Agreement, Envirogen shall have "Cause" to
terminate the Executive's employment hereunder upon the Executive's (i) material
failure, refusal or neglect to perform and discharge his duties and
responsibilities hereunder, or willful action that is materially inconsistent
with the terms hereof, or material breach of his fiduciary duties as an officer
or as a director of Envirogen, or (ii) gross misconduct that is injurious to
Envirogen, or (iii) unethical business conduct, or (iv) conviction of a felony.
Notwithstanding any other provision of this Agreement, Envirogen shall provide
written notice to the Executive of its intent to terminate for Cause and of the
specific Cause for termination. Upon the Executive's receipt of such written
notice, he shall have ten (10) business days in which to cure, correct or remedy
any stated act or omission constituting Cause. If the Executive cures, corrects
or remedies such act or omission within such ten (10) business day period to the
full satisfaction of the Board of Directors of Envirogen, there shall be no
termination for the stated Cause, and this Agreement shall continue in full
force and effect according to its terms.
D. Termination by the Executive. The Executive may terminate his
----------------------------
employment hereunder for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean (A) any removal of the Executive from the position indicated
in Section 2 hereof, except in connection with termination of the Executive's
employment for incapacity or Cause, or (B) a reduction in the Executive's Base
Salary below that set forth in Section 3.A. hereof, or (C) any other action by
Envirogen that is in material breach of the terms of this Agreement or (D) a
decision made in good faith by the Executive within six (6) months following a
"Change in Control" that he has been assigned, without his prior written
consent, duties or responsibilities inconsistent with his positions, duties,
responsibilities and status immediately prior to the Change in Control. As used
herein, the term "Change in Control" shall have the meaning set forth in
Appendix I hereto.
E. Date of Termination; Term of Employment. The term "Date of
---------------------------------------
Termination" shall mean the earlier of (i) the Expiration Date or (ii) if the
Executive's employment is terminated (a) by his death, the date of his death, or
(b) for any other reason whether or not specified in this Section 5 or for no
reason, the date on which such termination is to be effective pursuant to the
notice of termination given by the party terminating the employment
relationship. For all purposes of this Agreement, references to the "term" of
the Executive's employment hereunder shall mean the period commencing on the
date hereof and ending on the Date of Termination.
6. COMPENSATION UPON TERMINATION
A. Death or Incapacity. Notwithstanding any other provision of this
-------------------
Agreement, if the Executive's employment shall be terminated by reason of his
death or incapacity, Envirogen shall pay or cause to be paid all sums accrued
and unpaid to the Date of Termination under Sections 3.A, 3.C, 3.D and 3.E (in
respect of accrued and unused vacation). In the event of the Executive's death,
unexpired stock options held at his death shall remain exercisable for such
period or periods as are set forth in the plan or plans under which they were
granted. In the event of termination by reason of incapacity, Envirogen shall
continue to pay the Executive the Base Salary as then in effect for the twelve-
month period following the Date of Termination and shall, during such same
twelve-month period, continue in effect all medical and life insurance which was
maintained by Envirogen for the benefit of the Executive on the Date of
Termination.
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B. Cause or Executive's Termination other than for Good Reason.
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Notwithstanding any other provision of this Agreement, if Envirogen shall
terminate the Executive's Employment for Cause, or if this Agreement shall
terminate by reason of the Executive's determination not to renew or by reason
of the Executive's termination of this Agreement other than for Good Reason,
Envirogen shall pay Executive all sums accrued and unpaid to the Date of
Termination under Sections 3.A, 3.C, 3.D and 3.E (in respect of accrued and
unused vacation) and shall permit the Executive to exercise any stock options
vested to the Date of Termination to the extent permitted by the terms of such
options. Envirogen shall thereafter have no further obligations to the Executive
under this Agreement.
C. Good Reason or Other Termination. If Envirogen shall determine not to
--------------------------------
renew this Agreement on any Expiration Date or shall terminate the Executive's
employment other than pursuant to paragraphs A, B or C of Section 5 hereof or if
the Executive shall terminate his employment for Good Reason, then Envirogen
shall pay to the Executive all sums accrued under Sections 3.A, 3.C, 3.D and 3.E
hereof through the Date of Termination. In addition, Envirogen shall pay
severance pay to Executive, bi-weekly, at a rate equal to Executive's Base
Salary as in effect on the Date of Termination, (A) in the case of termination
arising from Envirogen's notice of election not to renew, for a period of twelve
months following the Expiration Date; (B) in the case of any other termination
by Envirogen other than by reason of paragraphs A, B, or C of Section 5 hereof,
for a period of twelve months following the Date of Termination; and (C) in the
case of termination by the Executive by reason of paragraph D of Section 5
hereof, for a period of twelve months following the Date of Termination. In
addition, if this Agreement is terminated by reason of clause (A), (B) or (C) of
the preceding sentence, (X) Envirogen shall continue all medical and life
insurance benefits maintained by it for the benefit of the Executive on the Date
of Termination for a period of twelve months following the Date of Termination,
and (Y) all options held by the Executive which would vest in the twelve-month
period following the Date of Termination shall become exercisable on the Date of
Termination. In addition, if this Agreement is terminated by the Executive by
reason of clause (D) of paragraph D of Section 5, then, subject to the next
sentence, during the period commencing twelve months following the Date of
Termination and ending twenty-four months following the Date of Termination,
Envirogen shall continue to pay, on a bi-weekly basis, the amounts described in
the second preceding sentence and provide the benefits provided in clause (X) of
the immediately preceding sentence for so long as, during such period, the
Executive is unable to obtain satisfactory full-time employment during such
period, provided he continuously and diligently seeks the same. Anything in
this paragraph C of this Section 6 to the contrary notwithstanding, in the event
this Agreement is terminated by the Executive by reason of clause (D) of
paragraph D of Section 5 and the sum of the aggregate of the salary continuation
payments and the value of the accelerated options which would be payable under
this paragraph C of this Section 6 would result in the inability of Envirogen to
deduct any such amounts so paid from its taxable income for federal income tax
purposes by reason of the provisions of Section 280G of the Internal Revenue
Code of 1986, as amended, or under any provision successor thereto, and the
regulations of the Internal Revenue Service thereunder, then the aggregate of
such salary continuation payments and other payments or benefits in the nature
of compensation (including the value of accelerated options) shall be reduced by
the minimum amount as may be necessary so that all such amounts shall be
eligible for deduction by Envirogen from its taxable income for federal income
tax purposes. The payments provided for in this paragraph under the
circumstances set forth in this paragraph shall constitute the sole obligation
of Envirogen to the Executive for any termination of Employment referred to in
this paragraph.
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7. BINDING AGREEMENT. This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. This Agreement shall inure to the benefit
of Envirogen and its corporate successors and permitted assigns; provided that
Envirogen may not assign its rights or obligations hereunder without the prior
consent of the Executive. This Agreement and the provisions of Appendix I
hereto represent the sole agreements between Envirogen and the Executive
relating to the Executive's employment by Envirogen and supersede all prior
agreements and communications, oral and written to the extent that they relate
to any terms and conditions of the Executive's proposed employment with
Envirogen. Executive and Envirogen agree that the Previous Employment Agreement
is hereby terminated and of no further force or effect, and Executive hereby
waives any and all rights to which he otherwise would have been entitled under
Section 3(a) of the Previous Employment Agreement in connection with the Merger.
No provision of this Agreement may be modified, waived, or discharged unless
such waiver, modification or discharge is approved by the Board of Directors and
agreed to in writing signed by the Executive and such officer as may be
specifically authorized by the Board of Directors. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
8. EFFECTIVE DATE AND EFFECTIVENESS. This Agreement shall take effect as of
the date hereof.
9. NOTICES. For all purposes of this Agreement, notices and all other
communications to either party hereunder provided for in this Agreement shall be
in writing and shall be deemed to have been duly given when delivered or mailed
by United States certified or registered mail, return receipt requested, postage
prepaid, addressed, in the case of Envirogen, to the President of Envirogen at
the principal place of business of Envirogen, or in the case of the Executive,
to the Executive at his principal residence address as on file with Envirogen at
the time such notice is given; or to such other address as either party shall
designate by giving like notice of such change to the other party.
10. ARBITRATION; INJUNCTION. Subject to the provisions of the last sentence of
this Section 10, any disputes or controversies arising with respect to the
provisions or operation of this Agreement shall be settled by binding
arbitration by a single arbitrator in Philadelphia, Pennsylvania, under the
commercial arbitration rules of the American Arbitration Association then in
effect. Judgment on the award may be entered in any court of competent
jurisdiction. Anything in the foregoing to the contrary notwithstanding, the
Executive acknowledges and agrees that, because Envirogen's legal remedies would
be inadequate in the event of a breach of, or other failure to perform, any of
the covenants and agreements set forth in Section 4 hereof by the Executive,
Envirogen may, in addition to obtaining any other remedy or relief available to
it under this Section 10 (including without limitation damages at law), enforce
the provisions of said Section 4 by injunction and other equitable relief in any
court of competent jurisdiction.
11. INDEMNIFICATION; INSURANCE. Envirogen shall indemnify the Executive to the
extent set forth in the By-Laws of Envirogen as in effect from time to time.
Envirogen shall use its best efforts to maintain a level of directors and
officers liability insurance equivalent to that in effect on the date hereof.
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12. MISCELLANEOUS. Executive acknowledges that amounts which become payable
hereunder will be subject to withholding to the extent provided in the Internal
Revenue Code of 1986 and analogous provisions of state and local law. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the domestic substantive laws of the State of New Jersey without
giving effect to any choice or conflict of laws provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction.
13. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect, and in the event that any provision hereof shall be determined to be
invalid or unenforceable for any reason, such provision shall be construed by
limiting it so as to be valid and enforceable to the fullest extent compatible
with and possible under applicable law.
14. COUNTERPARTS. This Agreement may be executed in any one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands, as of
the date first above written.
ENVIROGEN, INC.
By: /s/ HARCHARAN S. GILL
----------------------------
Harcharan S. Gill
President
/s/ DOUGLAS W. JACOBSON
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Douglas W. Jacobson
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APPENDIX I
"Change in Control" shall mean:
(A) The acquisition by any person, entity or "group" required to file a
Schedule 13D or Schedule 14D-1 promulgated under the Securities Exchange Act of
1934 (the "Exchange Act") (excluding, for this purpose, Envirogen, its
subsidiaries, or any employee benefit plan of Envirogen or its subsidiaries
which acquires beneficial ownership of voting securities of Envirogen) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 51% or more of either the then-outstanding shares of common
stock or the combined voting power of Envirogen's then-outstanding voting
securities entitled to vote generally in the election of directors; or
(B) The election or appointment to the Board of Directors, or resignation
of or removal from the Board of Directors, of directors by virtue of which the
individuals who as of the date hereof constituted the Board of Directors (the
"Incumbent Board") no longer constitute at least a majority of the Board,
provided that any person who becomes a director subsequent to the date hereof
whose appointment, election, or nomination for election by Envirogen's
stockholders, was nominated by or approved by a vote of at least a majority of
the Incumbent Board (other than an appointment, election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of
Envirogen, as such terms are used in Rule 14a-1 promulgated under the Exchange
Act) shall be, for purposes of this Agreement, considered as though such person
were a member of the Incumbent Board; or
(C) Approval by the stockholders of Envirogen of: (i) a reorganization,
merger or consolidation by reason of which persons who were the stockholders of
Envirogen immediately prior to such reorganization, merger or consolidation do
not, immediately thereafter, own more than 51% of the combined voting power of
the reorganized, merged or consolidated company's then outstanding voting
securities entitled to vote generally in the election of directors, or (ii) a
liquidation or dissolution of Envirogen or the sale, transfer, lease or other
disposition of all or substantially all of the assets of Envirogen (whether such
assets are held directly or indirectly).
<PAGE>
Exhibit 10.3
------------
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made as of this 10th day of April, 1997,
between Envirogen, Inc., a Delaware corporation ("Envirogen"), and Gary W. Hawk
(the "Executive").
WHEREAS, Envirogen, Fluid Management, Inc., a Wisconsin corporation
("FMI"), and all of the stockholders of FMI, including Executive, have entered
into an Agreement and Plan of Merger dated as of January 14, 1997 pursuant to
which FMI will merge with and into Envirogen and Envirogen will be the surviving
corporation (the "Merger");
WHEREAS, Executive has been employed by FMI as a senior executive officer
pursuant to an Employment and Non-Compete Agreement dated June 5, 1995 (the
"Previous Employment Agreement");
WHEREAS, an important factor in Envirogen's decision to acquire FMI and to
effectuate the Merger is the assurance that, for a sufficient period following
the Merger, Envirogen will have available the continued services of Executive
and Executive will enter into certain confidentiality and non-competition
agreements with Envirogen, all on the terms and conditions set forth herein, and
that Executive will waive any and all rights to which he would otherwise have
been entitled under Section 3(a) of the Previous Employment Agreement in
connection with the Merger; and
WHEREAS, as an inducement to Envirogen to consummate the Merger, Executive
and Envirogen are entering into this Agreement, which supercedes in its entirety
the Previous Employment Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
1. EMPLOYMENT
A. Agreement. Envirogen hereby agrees to employ the Executive, and the
---------
Executive hereby agrees to serve Envirogen, all on the terms and conditions set
forth herein.
B. Expiration Date. The employment of the Executive by Envirogen shall be
---------------
for the period commencing on the date hereof and expiring on December 31, 1998
(the "Expiration Date"), unless such employment shall have been extended or
sooner terminated as hereinafter set forth. On the Expiration Date, the
Agreement shall be renewed automatically for successive terms of one year each
unless either party hereto shall have given notice to the other party at least
three months prior to the end of the then current Expiration Date that the
Agreement shall not be renewed. Upon each such automatic renewal, the
Expiration Date shall become the first anniversary of the last Expiration Date
then in effect. As used herein, the term "Contract Year" means the twelve-month
period beginning April 10 of each year this Agreement is in effect.
<PAGE>
2. POSITION AND DUTIES. The Executive shall serve in the capacity or
capacities and have the duties of Vice President and General Manager of the FMI
Division of Envirogen, and shall report to, be accountable to and subject to the
supervision of, and shall also have such other powers, duties and
responsibilities as may from time to time be prescribed by, the Board of
Directors of Envirogen, provided that such other duties and responsibilities are
not inconsistent with the Executive's position and those duties set forth herein
and in the bylaws of Envirogen.
The Executive shall perform and discharge, faithfully, diligently and to
the best of his ability, such duties and responsibilities. The Executive shall
not, without the prior consent of the Board of Directors of Envirogen, accept a
position on the Board of Directors of any company other than (i) Envirogen or a
subsidiary thereof, (ii) HJS of Wisconsin, Inc. or (iii) any charitable or
similar organization. The Executive shall devote substantially all his working
time and efforts to the business and affairs of Envirogen and its subsidiaries
and affiliates.
The Executive represents to Envirogen that on the date hereof he is not
party to any agreement which conflicts with his obligations hereunder and that
he will not become party to any such agreement; should this representation prove
false at any time, then Envirogen shall have no further obligations hereunder.
3. COMPENSATION
A. Salary. During the term of his employment hereunder, the Executive
------
shall receive a Base Salary at the initial annual rate of $140,000. Such
initial Base Salary shall be subject to increase, but not decrease, by the Board
of Directors of Envirogen upon prior recommendation of the Executive
Compensation and Stock Option Committee thereof. Base Salary shall be payable
in substantially equal bi-weekly installments, less any amounts required to be
withheld under applicable law. In the event that, during the term hereof,
Envirogen shall determine to make salary payments to its executives at intervals
other than bi-weekly, Envirogen may adjust the intervals at which it makes
payments of Base Salary hereunder to such intervals as are consistent with the
intervals at which other executives of Envirogen are then compensated. Except
as otherwise provided in this Agreement, the Base Salary shall be pro-rated for
any period of service less than a full Contract Year.
B. Bonuses; Stock Options. The Executive will be eligible to receive an
----------------------
annual incentive bonus for each fiscal year of Envirogen this agreement is in
effect based upon the obtainment of corporate and individual performance goals
fixed by the Board of Directors of Envirogen upon the prior recommendation of
the Executive Compensation and Stock Option Committee thereof. The Executive
will also be eligible to receive grants of stock options under such stock option
plans of Envirogen as are in effect from time to time in such amounts, and on
such terms, as the committee or committees administering such plans may fix and
determine.
C. Expenses. During the term of his employment hereunder, the Executive
--------
shall be entitled to receive prompt reimbursement for all reasonable business
expenses incurred by him on behalf of Envirogen (in accordance with the policies
and procedures established by the Board of Directors of Envirogen from time to
time for Envirogen's senior executive officers) in performing services
hereunder, provided that the Executive properly accounts therefor in accordance
with requirements for federal income tax deductibility and Envirogen's policies
and procedures.
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<PAGE>
D. Fringe Benefits. During the term of his employment hereunder, the
---------------
Executive shall be entitled to participate in or receive such benefits as other
executives and key employees of Envirogen are entitled to receive from time to
time, including but not limited to life insurance, health and accident plans,
retirement programs or other arrangements made generally available by Envirogen
to its executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Nothing herein shall preclude Envirogen, during the term
hereof, from amending, modifying or eliminating any such benefits so long as any
such changes apply consistently to all executives and key employees of
Envirogen.
E. Vacations. During the term of his employment hereunder, the Executive
---------
shall be entitled to twenty (20) paid vacation days in each calendar year (less,
in 1997, those vacation days taken by the Executive in 1997 prior to the date
hereof under the Previous Employment Agreement and, in any other year, prorated
for any partial calendar year this Agreement is in effect), and shall also be
entitled to all paid holidays given by Envirogen to its employees generally.
Vacation days allotted in any calendar year and not used in such year shall
expire if not used by March 31 of the immediately following calendar year.
4. RESTRICTIVE COVENANTS
A. Non-competition. Executive covenants that he will not directly or
---------------
indirectly own, manage, operate or control, nor be a director, officer or
employee of, or consultant to, any business or enterprise competing with
Envirogen or any affiliate of Envirogen, anywhere in (i) the 50 states of the
United States, (ii) all of the provinces of Canada, and (iii) any other
jurisdiction in which Envirogen derived in excess of $250,000 in revenues during
the period this Agreement was in effect. For purposes hereof, a business
competing with Envirogen shall mean any business (i) which does research with
respect to, designs, develops, produces or manufactures any products which are
the same as or substantially similar to or are intended for uses similar to
those with respect to which Envirogen or any affiliate does research or which
Envirogen or any affiliate designs, develops, produces or manufactures; or (ii)
which furnishes services similar to those furnished by Envirogen or any
affiliate. The provisions of this paragraph, however, shall not prohibit
Executive from investing in the securities of any such business or enterprise
which are traded publicly and constitute less than one percent (1%) of the
particular class of such business's or enterprises's securities outstanding from
time to time. The foregoing covenant shall be binding on Executive during his
employment hereunder and for a period of two (2) years after termination of his
employment hereunder.
Furthermore, Executive agrees not to engage or participate in any effort or
act to induce any of the associates, consultants, customers, officers or
employees of Envirogen or any affiliate to take any action which might be
disadvantageous to Envirogen or any affiliate.
B. Disclosure and Assignment of Inventions; Patents.
------------------------------------------------
(a) Executive shall communicate to Envirogen promptly and fully, and hereby
assigns, sells and transfers to Envirogen Executive's entire right, title and
interest in and to, all inventions, whether or not patentable, made or conceived
by Executive (alone or jointly with others and whether or not made or conceived
during regular business hours) from the time of entering the employ of Envirogen
or any affiliate until the termination thereof which (i) are related in any
manner, directly or indirectly, to the business, products, research or
development of Envirogen or any affiliate or (ii) result from or are suggested
by any work which Executive may do for or on behalf of Envirogen or
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<PAGE>
any affiliate. For purposes of this Agreement, the term "invention" shall
include, without limitation, any new, useful or original art, machine, process,
method, product, apparatus, compound, formula, shape, lifeform, composition of
matter or configuration of any kind.
(b) Executive agrees to assist Envirogen and its nominees during and
subsequent to his employment with Envirogen or any affiliate in every proper way
(entirely at its or their expense) to obtain for its or their own benefit
patents for such inventions in any and all countries, said inventions to be and
remain the sole and exclusive property of Envirogen or its nominees, whether
patented or not.
(c) Executive agrees to make and maintain adequate and current written
records of all such inventions, in the form of notes, sketches, drawings, or
reports relating thereto, which records shall be and remain the property of and
available to Envirogen at all times.
(d) Executive agrees to notify Envirogen in writing before Executive makes
any disclosure or performs or causes to be performed any work for or on behalf
of Envirogen or any affiliate, which appears to threaten or conflict with (i)
rights Executive claims in any invention or idea conceived by Executive or
others prior to the Executive's employment with Envirogen or any affiliate or
outside the scope of this Agreement, or (ii) rights of others arising out of
obligations incurred by Executive prior to his employment with or outside the
scope of this Agreement. In the event of the Executive's failure to give notice
under the circumstances specified, Envirogen may assume that no such conflicting
invention or idea exists and Executive agrees not to make any claim against
Envirogen or any affiliate with respect to the use of any such invention or idea
in any work which Executive performs or causes to be performed for or on behalf
of Envirogen or any affiliate.
C. Copyrights. Executive understands and acknowledges that Executive may
----------
from time to time during the term of Executive's employment with Envirogen
create or contribute to, either alone or with others, the creation of a
copyrightable subject matter relating to the business, products, research or
development of Envirogen or its affiliates and it is understood and agreed that
such creative effort on the part of Executive shall be "work for hire", and all
right, title and interest in such subject matter shall be the sole and exclusive
property of Envirogen or its nominees, including the right to copyright such
subject matter in the name of Envirogen.
D. Confidentiality. Executive acknowledges and agrees that in the course
---------------
of, or incident to, Executive's employment hereunder, Envirogen and/or its
affiliates has provided and may in the future provide to Executive, or Executive
has been and may otherwise become in the future exposed to, Confidential
Information. For purposes of this Agreement, the term "Confidential
Information" shall mean all information concerning the business or affairs of
Envirogen and/or its affiliates and all information received from third parties
and held in confidence by Envirogen and/or its affiliates including, without
limitation, all information relating to existing and potential customers,
suppliers, markets, contracts, prices, programs, requirements, strategies,
products, technology, know-how, information, data, processes, inventions,
developments, formulations, applications and methods of manufacture, except such
information that, as of the date of disclosure to or development by Executive,
is shown to have been voluntarily disclosed to the public by Envirogen, to have
been independently developed and disclosed by third parties, or to have been
disclosed in published literature or which has otherwise entered the public
domain by lawful means, all of which Confidential Information is acknowledged to
be the property of Envirogen. Executive acknowledges that his obtaining the
Confidential Information is intended to, and necessary to, enable Executive to
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<PAGE>
perform his duties for Envirogen and/or its affiliates. Executive recognizes
and agrees that the confidentiality of the Confidential Information is necessary
to the ability of Envirogen and/or its affiliates to compete effectively with
their competitors. Executive recognizes and acknowledges that, in many
instances, Envirogen and/or its affiliates are bound by contractual or other
obligations to hold and use Confidential Information received from third parties
in confidence, and that Executive's failure to do so may constitute a breach of
such obligations. Executive therefore acknowledges and agrees that Executive's
undertakings in this Section 4.D with respect to the use and dissemination of
such third party Confidential Information are made and intended for the benefit
not only of Envirogen and its affiliates but also of all parties that provide
Envirogen with Confidential Information. In light of the foregoing, Executive
agrees that:
(a) during the term of Executive's employment with Envirogen and/or any
affiliates and at all times thereafter, Executive will hold the Confidential
Information in the strictest confidence and will not retain in writing,
duplicate, use, divulge, furnish or make accessible to anyone (which terms, as
used in this Agreement, shall include, without limitation, any individual, firm,
corporation, association or group) such Confidential Information, except as
required in the performance of Executive's duties for Envirogen and/or any
affiliate;
(b) upon and subsequent to the termination of Executive's employment with
Envirogen and/or any affiliate for any reason whatever Executive will not, at
any time, retain in writing, duplicate, use, divulge, furnish or make accessible
to anyone or make any use whatever of the Confidential Information or any
portion thereof, either on Executive's own behalf or in conjunction with or on
behalf of any other person or entity; and
(c) upon termination of Executive's employment with Envirogen and/or any
affiliate for any reason whatever, Executive will immediately return to
Envirogen or such affiliate all documents or other tangible records, and any and
all copies thereof, within Executive's possession, custody or control,
containing or reflecting any Confidential Information.
E. Return of Materials Upon Termination. Upon termination of Executive's
------------------------------------
employment by either party for any reason, Executive hereby agrees to return to
Envirogen as a condition to receiving Executive's final salary check, any and
all books, records, reports, notes, and materials of any nature or kind
whatsoever furnished to or developed by Executive, or developed by any third
party for Envirogen, which Executive may have obtained during the term of
employment relating directly or indirectly to the property or business of
Envirogen or any affiliate.
5. TERMINATION
A. Death. The Executive's employment hereunder shall terminate upon
-----
his death.
B. Incapacity. If in the reasonable judgment of the Board of Directors of
----------
Envirogen, as a result of the Executive's incapacity due to physical or mental
illness or otherwise, the Executive shall for three consecutive months during
the term of this Agreement have been unable to perform satisfactorily all of his
duties hereunder on a full-time basis after taking into account such
accommodation for any physical or mental illness as may be required by law,
Envirogen may terminate the Executive's employment hereunder by notice to the
Executive.
-5-
<PAGE>
C. Cause. Envirogen may terminate the Executive's employment hereunder
-----
for Cause. For the purposes of this Agreement, Envirogen shall have "Cause" to
terminate the Executive's employment hereunder upon the Executive's (i) material
failure, refusal or neglect to perform and discharge his duties and
responsibilities hereunder, or willful action that is materially inconsistent
with the terms hereof, or material breach of his fiduciary duties as an officer
or as a director of Envirogen, or (ii) gross misconduct that is injurious to
Envirogen, or (iii) unethical business conduct, or (iv) conviction of a felony.
Notwithstanding any other provision of this Agreement, Envirogen shall provide
written notice to the Executive of its intent to terminate for Cause and of the
specific Cause for termination. Upon the Executive's receipt of such written
notice, he shall have ten (10) business days in which to cure, correct or remedy
any stated act or omission constituting Cause. If the Executive cures, corrects
or remedies such act or omission within such ten (10) business day period to the
full satisfaction of the Board of Directors of Envirogen, there shall be no
termination for the stated Cause, and this Agreement shall continue in full
force and effect according to its terms.
D. Termination by the Executive. The Executive may terminate his
----------------------------
employment hereunder for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean (A) any removal of the Executive from the position indicated
in Section 2 hereof, except in connection with termination of the Executive's
employment for incapacity or Cause, or (B) a reduction in the Executive's Base
Salary below that set forth in Section 3.A. hereof, or (C) any other action by
Envirogen that is in material breach of the terms of this Agreement or (D) a
decision made in good faith by the Executive within six (6) months following a
"Change in Control" that he has been assigned, without his prior written
consent, duties or responsibilities inconsistent with his positions, duties,
responsibilities and status immediately prior to the Change in Control. As used
herein, the term "Change in Control" shall have the meaning set forth in
Appendix I hereto.
E. Date of Termination; Term of Employment. The term "Date of
---------------------------------------
Termination" shall mean the earlier of (i) the Expiration Date or (ii) if the
Executive's employment is terminated (a) by his death, the date of his death, or
(b) for any other reason whether or not specified in this Section 5 or for no
reason, the date on which such termination is to be effective pursuant to the
notice of termination given by the party terminating the employment
relationship. For all purposes of this Agreement, references to the "term" of
the Executive's employment hereunder shall mean the period commencing on the
date hereof and ending on the Date of Termination.
6. COMPENSATION UPON TERMINATION
A. Death or Incapacity. Notwithstanding any other provision of this
-------------------
Agreement, if the Executive's employment shall be terminated by reason of his
death or incapacity, Envirogen shall pay or cause to be paid all sums accrued
and unpaid to the Date of Termination under Sections 3.A, 3.C, 3.D and 3.E (in
respect of accrued and unused vacation). In the event of the Executive's death,
unexpired stock options held at his death shall remain exercisable for such
period or periods as are set forth in the plan or plans under which they were
granted. In the event of termination by reason of incapacity, Envirogen shall
continue to pay the Executive the Base Salary as then in effect for the twelve-
month period following the Date of Termination and shall, during such same
twelve-month period, continue in effect all medical and life insurance which was
maintained by Envirogen for the benefit of the Executive on the Date of
Termination.
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<PAGE>
B. Cause or Executive's Termination other than for Good Reason.
-----------------------------------------------------------
Notwithstanding any other provision of this Agreement, if Envirogen shall
terminate the Executive's Employment for Cause, or if this Agreement shall
terminate by reason of the Executive's determination not to renew or by reason
of the Executive's termination of this Agreement other than for Good Reason,
Envirogen shall pay Executive all sums accrued and unpaid to the Date of
Termination under Sections 3.A, 3.C, 3.D and 3.E (in respect of accrued and
unused vacation) and shall permit the Executive to exercise any stock options
vested to the Date of Termination to the extent permitted by the terms of such
options. Envirogen shall thereafter have no further obligations to the Executive
under this Agreement.
C. Good Reason or Other Termination. If Envirogen shall determine not to
--------------------------------
renew this Agreement on any Expiration Date or shall terminate the Executive's
employment other than pursuant to paragraphs A, B or C of Section 5 hereof or if
the Executive shall terminate his employment for Good Reason, then Envirogen
shall pay to the Executive all sums accrued under Sections 3.A, 3.C, 3.D and 3.E
hereof through the Date of Termination. In addition, Envirogen shall pay
severance pay to Executive, bi-weekly, at a rate equal to Executive's Base
Salary as in effect on the Date of Termination, (A) in the case of termination
arising from Envirogen's notice of election not to renew, for a period of twelve
months following the Expiration Date; (B) in the case of any other termination
by Envirogen other than by reason of paragraphs A, B, or C of Section 5 hereof,
for a period of twelve months following the Date of Termination; and (C) in the
case of termination by the Executive by reason of paragraph D of Section 5
hereof, for a period of twelve months following the Date of Termination. In
addition, if this Agreement is terminated by reason of clause (A), (B) or (C) of
the preceding sentence, (X) Envirogen shall continue all medical and life
insurance benefits maintained by it for the benefit of the Executive on the Date
of Termination for a period of twelve months following the Date of Termination,
and (Y) all options held by the Executive which would vest in the twelve-month
period following the Date of Termination shall become exercisable on the Date of
Termination. In addition, if this Agreement is terminated by the Executive by
reason of clause (D) of paragraph D of Section 5, then, subject to the next
sentence, during the period commencing twelve months following the Date of
Termination and ending twenty-four months following the Date of Termination,
Envirogen shall continue to pay, on a bi-weekly basis, the amounts described in
the second preceding sentence and provide the benefits provided in clause (X) of
the immediately preceding sentence for so long as, during such period, the
Executive is unable to obtain satisfactory full-time employment during such
period, provided he continuously and diligently seeks the same. Anything in
this paragraph C of this Section 6 to the contrary notwithstanding, in the event
this Agreement is terminated by the Executive by reason of clause (D) of
paragraph D of Section 5 and the sum of the aggregate of the salary continuation
payments and the value of the accelerated options which would be payable under
this paragraph C of this Section 6 would result in the inability of Envirogen to
deduct any such amounts so paid from its taxable income for federal income tax
purposes by reason of the provisions of Section 280G of the Internal Revenue
Code of 1986, as amended, or under any provision successor thereto, and the
regulations of the Internal Revenue Service thereunder, then the aggregate of
such salary continuation payments and other payments or benefits in the nature
of compensation (including the value of accelerated options) shall be reduced by
the minimum amount as may be necessary so that all such amounts shall be
eligible for deduction by Envirogen from its taxable income for federal income
tax purposes. The payments provided for in this paragraph under the
circumstances set forth in this paragraph shall constitute the sole obligation
of Envirogen to the Executive for any termination of Employment referred to in
this paragraph.
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<PAGE>
7. BINDING AGREEMENT. This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. This Agreement shall inure to the benefit
of Envirogen and its corporate successors and permitted assigns; provided that
Envirogen may not assign its rights or obligations hereunder without the prior
consent of the Executive. This Agreement and the provisions of Appendix I
hereto represent the sole agreements between Envirogen and the Executive
relating to the Executive's employment by Envirogen and supersede all prior
agreements and communications, oral and written to the extent that they relate
to any terms and conditions of the Executive's proposed employment with
Envirogen. Executive and Envirogen agree that the Previous Employment Agreement
is hereby terminated and of no further force or effect, and Executive hereby
waives any and all rights to which he otherwise would have been entitled under
Section 3(a) of the Previous Employment Agreement in connection with the Merger.
No provision of this Agreement may be modified, waived, or discharged unless
such waiver, modification or discharge is approved by the Board of Directors and
agreed to in writing signed by the Executive and such officer as may be
specifically authorized by the Board of Directors. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
8. EFFECTIVE DATE AND EFFECTIVENESS. This Agreement shall take effect as of
the date hereof.
9. NOTICES. For all purposes of this Agreement, notices and all other
communications to either party hereunder provided for in this Agreement shall be
in writing and shall be deemed to have been duly given when delivered or mailed
by United States certified or registered mail, return receipt requested, postage
prepaid, addressed, in the case of Envirogen, to the President of Envirogen at
the principal place of business of Envirogen, or in the case of the Executive,
to the Executive at his principal residence address as on file with Envirogen at
the time such notice is given; or to such other address as either party shall
designate by giving like notice of such change to the other party.
10. ARBITRATION; INJUNCTION. Subject to the provisions of the last sentence of
this Section 10, any disputes or controversies arising with respect to the
provisions or operation of this Agreement shall be settled by binding
arbitration by a single arbitrator in Philadelphia, Pennsylvania, under the
commercial arbitration rules of the American Arbitration Association then in
effect. Judgment on the award may be entered in any court of competent
jurisdiction. Anything in the foregoing to the contrary notwithstanding, the
Executive acknowledges and agrees that, because Envirogen's legal remedies would
be inadequate in the event of a breach of, or other failure to perform, any of
the covenants and agreements set forth in Section 4 hereof by the Executive,
Envirogen may, in addition to obtaining any other remedy or relief available to
it under this Section 10 (including without limitation damages at law), enforce
the provisions of said Section 4 by injunction and other equitable relief in any
court of competent jurisdiction.
11. INDEMNIFICATION; INSURANCE. Envirogen shall indemnify the Executive to the
extent set forth in the By-Laws of Envirogen as in effect from time to time.
Envirogen shall use its best efforts to maintain a level of directors and
officers liability insurance equivalent to that in effect on the date hereof.
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<PAGE>
12. MISCELLANEOUS. Executive acknowledges that amounts which become payable
hereunder will be subject to withholding to the extent provided in the Internal
Revenue Code of 1986 and analogous provisions of state and local law. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the domestic substantive laws of the State of New Jersey without
giving effect to any choice or conflict of laws provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction.
13. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect, and in the event that any provision hereof shall be determined to be
invalid or unenforceable for any reason, such provision shall be construed by
limiting it so as to be valid and enforceable to the fullest extent compatible
with and possible under applicable law.
14. COUNTERPARTS. This Agreement may be executed in any one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands, as of
the date first above written.
ENVIROGEN, INC.,
By: /s/: HARCHARAN S. GILL
----------------------------
Harcharan S. Gill
President
/S/: GARY W. HAWK
-------------------------------
Gary W. Hawk
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APPENDIX I
"Change in Control" shall mean:
(A) The acquisition by any person, entity or "group" required to file
a Schedule 13D or Schedule 14D-1 promulgated under the Securities Exchange Act
of 1934 (the "Exchange Act") (excluding, for this purpose, Envirogen, its
subsidiaries, or any employee benefit plan of Envirogen or its subsidiaries
which acquires beneficial ownership of voting securities of Envirogen) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 51% or more of either the then-outstanding shares of common
stock or the combined voting power of Envirogen's then-outstanding voting
securities entitled to vote generally in the election of directors; or
(B) The election or appointment to the Board of Directors, or
resignation of or removal from the Board of Directors, of directors by virtue of
which the individuals who as of the date hereof constituted the Board of
Directors (the "Incumbent Board") no longer constitute at least a majority of
the Board, provided that any person who becomes a director subsequent to the
date hereof whose appointment, election, or nomination for election by
Envirogen's stockholders, was nominated by or approved by a vote of at least a
majority of the Incumbent Board (other than an appointment, election or
nomination of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
directors of Envirogen, as such terms are used in Rule 14a-1 promulgated under
the Exchange Act) shall be, for purposes of this Agreement, considered as though
such person were a member of the Incumbent Board; or
(C) Approval by the stockholders of Envirogen of: (i) a
reorganization, merger or consolidation by reason of which persons who were the
stockholders of Envirogen immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than 51% of the combined
voting power of the reorganized, merged or consolidated company's then
outstanding voting securities entitled to vote generally in the election of
directors, or (ii) a liquidation or dissolution of Envirogen or the sale,
transfer, lease or other disposition of all or substantially all of the assets
of Envirogen (whether such assets are held directly or indirectly).
<PAGE>
Exhibit 10.4
------------
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made as of this 10th day of April, 1997,
between Envirogen, Inc., a Delaware corporation ("Envirogen"), and Richard W.
Schowengerdt (the "Executive").
WHEREAS, Envirogen, Fluid Management, Inc., a Wisconsin corporation
("FMI"), and all of the stockholders of FMI, including Executive, have entered
into an Agreement and Plan of Merger dated as of January 14, 1997 pursuant to
which FMI will merge with and into Envirogen and Envirogen will be the surviving
corporation (the "Merger");
WHEREAS, Executive has been employed by FMI as a senior executive
officer pursuant to an Employment and Non-Compete Agreement dated June 5, 1995
(the "Previous Employment Agreement");
WHEREAS, an important factor in Envirogen's decision to acquire FMI
and to effectuate the Merger is the assurance that, for a sufficient period
following the Merger, Envirogen will have available the continued services of
Executive and Executive will enter into certain confidentiality and non-
competition agreements with Envirogen, all on the terms and conditions set forth
herein, and that Executive will waive any and all rights to which he would
otherwise have been entitled under Section 3(a) of the Previous Employment
Agreement in connection with the Merger; and
WHEREAS, as an inducement to Envirogen to consummate the Merger,
Executive and Envirogen are entering into this Agreement, which supercedes in
its entirety the Previous Employment Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, and intending to be legally
bound hereby, the parties hereto hereby agree as follows:
1. EMPLOYMENT
A. Agreement. Envirogen hereby agrees to employ the Executive, and
---------
the Executive hereby agrees to serve Envirogen, all on the terms and conditions
set forth herein.
B. Expiration Date. The employment of the Executive by Envirogen
---------------
shall be for the period commencing on the date hereof and expiring on December
31, 1998 (the "Expiration Date"), unless such employment shall have been
extended or sooner terminated as hereinafter set forth. On the Expiration Date,
the Agreement shall be renewed automatically for successive terms of one year
each unless either party hereto shall have given notice to the other party at
least three months prior to the end of the then current Expiration Date that the
Agreement shall not be renewed. Upon each such automatic renewal, the Expiration
Date shall become the first anniversary of the last Expiration Date then in
effect. As used herein, the term "Contract Year" means the twelve-month period
beginning April 10 of each year this Agreement is in effect.
<PAGE>
2. POSITION AND DUTIES. The Executive shall serve in the capacity or
capacities and have the duties of Vice President of Technical Development of the
FMI Division of Envirogen, and shall report to, be accountable to and subject to
the supervision of, and shall also have such other powers, duties and
responsibilities as may from time to time be prescribed by, the Board of
Directors of Envirogen, provided that such other duties and responsibilities are
not inconsistent with the Executive's position and those duties set forth herein
and in the bylaws of Envirogen.
The Executive shall perform and discharge, faithfully, diligently and
to the best of his ability, such duties and responsibilities. The Executive
shall not, without the prior consent of the Board of Directors of Envirogen,
accept a position on the Board of Directors of any company other than (i)
Envirogen or a subsidiary thereof, (ii) HJS of Wisconsin, Inc. or (iii) any
charitable or similar organization. The Executive shall devote substantially
all his working time and efforts to the business and affairs of Envirogen and
its subsidiaries and affiliates.
The Executive represents to Envirogen that on the date hereof he is
not party to any agreement which conflicts with his obligations hereunder and
that he will not become party to any such agreement; should this representation
prove false at any time, then Envirogen shall have no further obligations
hereunder.
3. COMPENSATION
A. Salary. During the term of his employment hereunder, the
------
Executive shall receive a Base Salary at the initial annual rate of $140,000.
Such initial Base Salary shall be subject to increase, but not decrease, by the
Board of Directors of Envirogen upon prior recommendation of the Executive
Compensation and Stock Option Committee thereof. Base Salary shall be payable
in substantially equal bi-weekly installments, less any amounts required to be
withheld under applicable law. In the event that, during the term hereof,
Envirogen shall determine to make salary payments to its executives at intervals
other than bi-weekly, Envirogen may adjust the intervals at which it makes
payments of Base Salary hereunder to such intervals as are consistent with the
intervals at which other executives of Envirogen are then compensated. Except
as otherwise provided in this Agreement, the Base Salary shall be pro-rated for
any period of service less than a full Contract Year.
B. Bonuses; Stock Options. The Executive will be eligible to receive
----------------------
an annual incentive bonus for each fiscal year of Envirogen this agreement is in
effect based upon the obtainment of corporate and individual performance goals
fixed by the Board of Directors of Envirogen upon the prior recommendation of
the Executive Compensation and Stock Option Committee thereof. The Executive
will also be eligible to receive grants of stock options under such stock option
plans of Envirogen as are in effect from time to time in such amounts, and on
such terms, as the committee or committees administering such plans may fix and
determine.
C. Expenses. During the term of his employment hereunder, the
--------
Executive shall be entitled to receive prompt reimbursement for all reasonable
business expenses incurred by him on behalf of Envirogen (in accordance with the
policies and procedures established by the Board of Directors of Envirogen from
time to time for Envirogen's senior executive officers) in performing services
hereunder, provided that the Executive properly accounts therefor in accordance
with requirements for federal income tax deductibility and Envirogen's policies
and procedures.
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<PAGE>
D. Fringe Benefits. During the term of his employment hereunder, the
---------------
Executive shall be entitled to participate in or receive such benefits as other
executives and key employees of Envirogen are entitled to receive from time to
time, including but not limited to life insurance, health and accident plans,
retirement programs or other arrangements made generally available by Envirogen
to its executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Nothing herein shall preclude Envirogen, during the term
hereof, from amending, modifying or eliminating any such benefits so long as any
such changes apply consistently to all executives and key employees of
Envirogen.
E. Vacations. During the term of his employment hereunder, the
---------
Executive shall be entitled to twenty (20) paid vacation days in each calendar
year (less, in 1997, those vacation days taken by the Executive in 1997 prior to
the date hereof under the Previous Employment Agreement and, in any other year,
prorated for any partial calendar year this Agreement is in effect), and shall
also be entitled to all paid holidays given by Envirogen to its employees
generally. Vacation days allotted in any calendar year and not used in such
year shall expire if not used by March 31 of the immediately following calendar
year.
4. RESTRICTIVE COVENANTS
A. Non-competition. Executive covenants that he will not directly or
---------------
indirectly own, manage, operate or control, nor be a director, officer or
employee of, or consultant to, any business or enterprise competing with
Envirogen or any affiliate of Envirogen, anywhere in (i) the 50 states of the
United States, (ii) all of the provinces of Canada, and (iii) any other
jurisdiction in which Envirogen derived in excess of $250,000 in revenues during
the period this Agreement was in effect. For purposes hereof, a business
competing with Envirogen shall mean any business (i) which does research with
respect to, designs, develops, produces or manufactures any products which are
the same as or substantially similar to or are intended for uses similar to
those with respect to which Envirogen or any affiliate does research or which
Envirogen or any affiliate designs, develops, produces or manufactures; or (ii)
which furnishes services similar to those furnished by Envirogen or any
affiliate. The provisions of this paragraph, however, shall not prohibit
Executive from investing in the securities of any such business or enterprise
which are traded publicly and constitute less than one percent (1%) of the
particular class of such business's or enterprises's securities outstanding from
time to time. The foregoing covenant shall be binding on Executive during his
employment hereunder and for a period of two (2) years after termination of his
employment hereunder.
Furthermore, Executive agrees not to engage or participate in any
effort or act to induce any of the associates, consultants, customers, officers
or employees of Envirogen or any affiliate to take any action which might be
disadvantageous to Envirogen or any affiliate.
B. Disclosure and Assignment of Inventions; Patents.
------------------------------------------------
(a) Executive shall communicate to Envirogen promptly and fully, and
hereby assigns, sells and transfers to Envirogen Executive's entire right, title
and interest in and to, all inventions, whether or not patentable, made or
conceived by Executive (alone or jointly with others and whether or not made or
conceived during regular business hours) from the time of entering the employ of
Envirogen or any affiliate until the termination thereof which (i) are related
in any manner, directly or indirectly, to the business, products, research or
development of Envirogen or any affiliate or (ii) result from or are suggested
by any work which Executive may do for or on behalf of Envirogen or
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<PAGE>
any affiliate. For purposes of this Agreement, the term "invention" shall
include, without limitation, any new, useful or original art, machine, process,
method, product, apparatus, compound, formula, shape, lifeform, composition of
matter or configuration of any kind.
(b) Executive agrees to assist Envirogen and its nominees during and
subsequent to his employment with Envirogen or any affiliate in every proper way
(entirely at its or their expense) to obtain for its or their own benefit
patents for such inventions in any and all countries, said inventions to be and
remain the sole and exclusive property of Envirogen or its nominees, whether
patented or not.
(c) Executive agrees to make and maintain adequate and current written
records of all such inventions, in the form of notes, sketches, drawings, or
reports relating thereto, which records shall be and remain the property of and
available to Envirogen at all times.
(d) Executive agrees to notify Envirogen in writing before Executive
makes any disclosure or performs or causes to be performed any work for or on
behalf of Envirogen or any affiliate, which appears to threaten or conflict with
(i) rights Executive claims in any invention or idea conceived by Executive or
others prior to the Executive's employment with Envirogen or any affiliate or
outside the scope of this Agreement, or (ii) rights of others arising out of
obligations incurred by Executive prior to his employment with or outside the
scope of this Agreement. In the event of the Executive's failure to give notice
under the circumstances specified, Envirogen may assume that no such conflicting
invention or idea exists and Executive agrees not to make any claim against
Envirogen or any affiliate with respect to the use of any such invention or idea
in any work which Executive performs or causes to be performed for or on behalf
of Envirogen or any affiliate.
C. Copyrights. Executive understands and acknowledges that Executive
----------
may from time to time during the term of Executive's employment with Envirogen
create or contribute to, either alone or with others, the creation of a
copyrightable subject matter relating to the business, products, research or
development of Envirogen or its affiliates and it is understood and agreed that
such creative effort on the part of Executive shall be "work for hire", and all
right, title and interest in such subject matter shall be the sole and exclusive
property of Envirogen or its nominees, including the right to copyright such
subject matter in the name of Envirogen.
D. Confidentiality. Executive acknowledges and agrees that in the
---------------
course of, or incident to, Executive's employment hereunder, Envirogen and/or
its affiliates has provided and may in the future provide to Executive, or
Executive has been and may otherwise become in the future exposed to,
Confidential Information. For purposes of this Agreement, the term
"Confidential Information" shall mean all information concerning the business or
affairs of Envirogen and/or its affiliates and all information received from
third parties and held in confidence by Envirogen and/or its affiliates
including, without limitation, all information relating to existing and
potential customers, suppliers, markets, contracts, prices, programs,
requirements, strategies, products, technology, know-how, information, data,
processes, inventions, developments, formulations, applications and methods of
manufacture, except such information that, as of the date of disclosure to or
development by Executive, is shown to have been voluntarily disclosed to the
public by Envirogen, to have been independently developed and disclosed by third
parties, or to have been disclosed in published literature or which has
otherwise entered the public domain by lawful means, all of which Confidential
Information is acknowledged to be the property of Envirogen. Executive
acknowledges that his obtaining the Confidential Information is intended to, and
necessary to, enable Executive to
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<PAGE>
perform his duties for Envirogen and/or its affiliates. Executive recognizes
and agrees that the confidentiality of the Confidential Information is necessary
to the ability of Envirogen and/or its affiliates to compete effectively with
their competitors. Executive recognizes and acknowledges that, in many
instances, Envirogen and/or its affiliates are bound by contractual or other
obligations to hold and use Confidential Information received from third parties
in confidence, and that Executive's failure to do so may constitute a breach of
such obligations. Executive therefore acknowledges and agrees that Executive's
undertakings in this Section 4.D with respect to the use and dissemination of
such third party Confidential Information are made and intended for the benefit
not only of Envirogen and its affiliates but also of all parties that provide
Envirogen with Confidential Information. In light of the foregoing, Executive
agrees that:
(a) during the term of Executive's employment with Envirogen and/or
any affiliates and at all times thereafter, Executive will hold the Confidential
Information in the strictest confidence and will not retain in writing,
duplicate, use, divulge, furnish or make accessible to anyone (which terms, as
used in this Agreement, shall include, without limitation, any individual, firm,
corporation, association or group) such Confidential Information, except as
required in the performance of Executive's duties for Envirogen and/or any
affiliate;
(b) upon and subsequent to the termination of Executive's employment
with Envirogen and/or any affiliate for any reason whatever Executive will not,
at any time, retain in writing, duplicate, use, divulge, furnish or make
accessible to anyone or make any use whatever of the Confidential Information or
any portion thereof, either on Executive's own behalf or in conjunction with or
on behalf of any other person or entity; and
(c) upon termination of Executive's employment with Envirogen and/or
any affiliate for any reason whatever, Executive will immediately return to
Envirogen or such affiliate all documents or other tangible records, and any and
all copies thereof, within Executive's possession, custody or control,
containing or reflecting any Confidential Information.
E. Return of Materials Upon Termination. Upon termination of
------------------------------------
Executive's employment by either party for any reason, Executive hereby agrees
to return to Envirogen as a condition to receiving Executive's final salary
check, any and all books, records, reports, notes, and materials of any nature
or kind whatsoever furnished to or developed by Executive, or developed by any
third party for Envirogen, which Executive may have obtained during the term of
employment relating directly or indirectly to the property or business of
Envirogen or any affiliate.
5. TERMINATION
A. Death. The Executive's employment hereunder shall terminate upon
-----
his death.
B. Incapacity. If in the reasonable judgment of the Board of
----------
Directors of Envirogen, as a result of the Executive's incapacity due to
physical or mental illness or otherwise, the Executive shall for three
consecutive months during the term of this Agreement have been unable to perform
satisfactorily all of his duties hereunder on a full-time basis after taking
into account such accommodation for any physical or mental illness as may be
required by law, Envirogen may terminate the Executive's employment hereunder by
notice to the Executive.
-5-
<PAGE>
C. Cause. Envirogen may terminate the Executive's employment
-----
hereunder for Cause. For the purposes of this Agreement, Envirogen shall have
"Cause" to terminate the Executive's employment hereunder upon the Executive's
(i) material failure, refusal or neglect to perform and discharge his duties and
responsibilities hereunder, or willful action that is materially inconsistent
with the terms hereof, or material breach of his fiduciary duties as an officer
or as a director of Envirogen, or (ii) gross misconduct that is injurious to
Envirogen, or (iii) unethical business conduct, or (iv) conviction of a felony.
Notwithstanding any other provision of this Agreement, Envirogen shall provide
written notice to the Executive of its intent to terminate for Cause and of the
specific Cause for termination. Upon the Executive's receipt of such written
notice, he shall have ten (10) business days in which to cure, correct or remedy
any stated act or omission constituting Cause. If the Executive cures, corrects
or remedies such act or omission within such ten (10) business day period to the
full satisfaction of the Board of Directors of Envirogen, there shall be no
termination for the stated Cause, and this Agreement shall continue in full
force and effect according to its terms.
D. Termination by the Executive. The Executive may terminate his
----------------------------
employment hereunder for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean (A) any removal of the Executive from the position indicated
in Section 2 hereof, except in connection with termination of the Executive's
employment for incapacity or Cause, or (B) a reduction in the Executive's Base
Salary below that set forth in Section 3.A. hereof, or (C) any other action by
Envirogen that is in material breach of the terms of this Agreement or (D) a
decision made in good faith by the Executive within six (6) months following a
"Change in Control" that he has been assigned, without his prior written
consent, duties or responsibilities inconsistent with his positions, duties,
responsibilities and status immediately prior to the Change in Control. As used
herein, the term "Change in Control" shall have the meaning set forth in
Appendix I hereto.
E. Date of Termination; Term of Employment. The term "Date of
---------------------------------------
Termination" shall mean the earlier of (i) the Expiration Date or (ii) if the
Executive's employment is terminated (a) by his death, the date of his death, or
(b) for any other reason whether or not specified in this Section 5 or for no
reason, the date on which such termination is to be effective pursuant to the
notice of termination given by the party terminating the employment
relationship. For all purposes of this Agreement, references to the "term" of
the Executive's employment hereunder shall mean the period commencing on the
date hereof and ending on the Date of Termination.
6. COMPENSATION UPON TERMINATION
A. Death or Incapacity. Notwithstanding any other provision of this
-------------------
Agreement, if the Executive's employment shall be terminated by reason of his
death or incapacity, Envirogen shall pay or cause to be paid all sums accrued
and unpaid to the Date of Termination under Sections 3.A, 3.C, 3.D and 3.E (in
respect of accrued and unused vacation). In the event of the Executive's death,
unexpired stock options held at his death shall remain exercisable for such
period or periods as are set forth in the plan or plans under which they were
granted. In the event of termination by reason of incapacity, Envirogen shall
continue to pay the Executive the Base Salary as then in effect for the twelve-
month period following the Date of Termination and shall, during such same
twelve-month period, continue in effect all medical and life insurance which was
maintained by Envirogen for the benefit of the Executive on the Date of
Termination.
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<PAGE>
B. Cause or Executive's Termination other than for Good Reason.
-----------------------------------------------------------
Notwithstanding any other provision of this Agreement, if Envirogen shall
terminate the Executive's Employment for Cause, or if this Agreement shall
terminate by reason of the Executive's determination not to renew or by reason
of the Executive's termination of this Agreement other than for Good Reason,
Envirogen shall pay Executive all sums accrued and unpaid to the Date of
Termination under Sections 3.A, 3.C, 3.D and 3.E (in respect of accrued and
unused vacation) and shall permit the Executive to exercise any stock options
vested to the Date of Termination to the extent permitted by the terms of such
options. Envirogen shall thereafter have no further obligations to the Executive
under this Agreement.
C. Good Reason or Other Termination. If Envirogen shall determine
--------------------------------
not to renew this Agreement on any Expiration Date or shall terminate the
Executive's employment other than pursuant to paragraphs A, B or C of Section 5
hereof or if the Executive shall terminate his employment for Good Reason, then
Envirogen shall pay to the Executive all sums accrued under Sections 3.A, 3.C,
3.D and 3.E hereof through the Date of Termination. In addition, Envirogen
shall pay severance pay to Executive, bi-weekly, at a rate equal to Executive's
Base Salary as in effect on the Date of Termination, (A) in the case of
termination arising from Envirogen's notice of election not to renew, for a
period of twelve months following the Expiration Date; (B) in the case of any
other termination by Envirogen other than by reason of paragraphs A, B, or C of
Section 5 hereof, for a period of twelve months following the Date of
Termination; and (C) in the case of termination by the Executive by reason of
paragraph D of Section 5 hereof, for a period of twelve months following the
Date of Termination. In addition, if this Agreement is terminated by reason of
clause (A), (B) or (C) of the preceding sentence, (X) Envirogen shall continue
all medical and life insurance benefits maintained by it for the benefit of the
Executive on the Date of Termination for a period of twelve months following the
Date of Termination, and (Y) all options held by the Executive which would vest
in the twelve-month period following the Date of Termination shall become
exercisable on the Date of Termination. In addition, if this Agreement is
terminated by the Executive by reason of clause (D) of paragraph D of Section 5,
then, subject to the next sentence, during the period commencing twelve months
following the Date of Termination and ending twenty-four months following the
Date of Termination, Envirogen shall continue to pay, on a bi-weekly basis, the
amounts described in the second preceding sentence and provide the benefits
provided in clause (X) of the immediately preceding sentence for so long as,
during such period, the Executive is unable to obtain satisfactory full-time
employment during such period, provided he continuously and diligently seeks the
same. Anything in this paragraph C of this Section 6 to the contrary
notwithstanding, in the event this Agreement is terminated by the Executive by
reason of clause (D) of paragraph D of Section 5 and the sum of the aggregate of
the salary continuation payments and the value of the accelerated options which
would be payable under this paragraph C of this Section 6 would result in the
inability of Envirogen to deduct any such amounts so paid from its taxable
income for federal income tax purposes by reason of the provisions of Section
280G of the Internal Revenue Code of 1986, as amended, or under any provision
successor thereto, and the regulations of the Internal Revenue Service
thereunder, then the aggregate of such salary continuation payments and other
payments or benefits in the nature of compensation (including the value of
accelerated options) shall be reduced by the minimum amount as may be necessary
so that all such amounts shall be eligible for deduction by Envirogen from its
taxable income for federal income tax purposes. The payments provided for in
this paragraph under the circumstances set forth in this paragraph shall
constitute the sole obligation of Envirogen to the Executive for any termination
of Employment referred to in this paragraph.
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<PAGE>
7. BINDING AGREEMENT. This Agreement and all rights of the Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. This Agreement shall inure to the benefit
of Envirogen and its corporate successors and permitted assigns; provided that
Envirogen may not assign its rights or obligations hereunder without the prior
consent of the Executive. This Agreement and the provisions of Appendix I
hereto represent the sole agreements between Envirogen and the Executive
relating to the Executive's employment by Envirogen and supersede all prior
agreements and communications, oral and written to the extent that they relate
to any terms and conditions of the Executive's proposed employment with
Envirogen. Executive and Envirogen agree that the Previous Employment Agreement
is hereby terminated and of no further force or effect, and Executive hereby
waives any and all rights to which he otherwise would have been entitled under
Section 3(a) of the Previous Employment Agreement in connection with the Merger.
No provision of this Agreement may be modified, waived, or discharged unless
such waiver, modification or discharge is approved by the Board of Directors and
agreed to in writing signed by the Executive and such officer as may be
specifically authorized by the Board of Directors. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
8. EFFECTIVE DATE AND EFFECTIVENESS. This Agreement shall take effect as of
the date hereof.
9. NOTICES. For all purposes of this Agreement, notices and all other
communications to either party hereunder provided for in this Agreement shall be
in writing and shall be deemed to have been duly given when delivered or mailed
by United States certified or registered mail, return receipt requested, postage
prepaid, addressed, in the case of Envirogen, to the President of Envirogen at
the principal place of business of Envirogen, or in the case of the Executive,
to the Executive at his principal residence address as on file with Envirogen at
the time such notice is given; or to such other address as either party shall
designate by giving like notice of such change to the other party.
10. ARBITRATION; INJUNCTION. Subject to the provisions of the last sentence of
this Section 10, any disputes or controversies arising with respect to the
provisions or operation of this Agreement shall be settled by binding
arbitration by a single arbitrator in Philadelphia, Pennsylvania, under the
commercial arbitration rules of the American Arbitration Association then in
effect. Judgment on the award may be entered in any court of competent
jurisdiction. Anything in the foregoing to the contrary notwithstanding, the
Executive acknowledges and agrees that, because Envirogen's legal remedies would
be inadequate in the event of a breach of, or other failure to perform, any of
the covenants and agreements set forth in Section 4 hereof by the Executive,
Envirogen may, in addition to obtaining any other remedy or relief available to
it under this Section 10 (including without limitation damages at law), enforce
the provisions of said Section 4 by injunction and other equitable relief in any
court of competent jurisdiction.
11. INDEMNIFICATION; INSURANCE. Envirogen shall indemnify the Executive to the
extent set forth in the By-Laws of Envirogen as in effect from time to time.
Envirogen shall use its best efforts to maintain a level of directors and
officers liability insurance equivalent to that in effect on the date hereof.
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<PAGE>
12. MISCELLANEOUS. Executive acknowledges that amounts which become payable
hereunder will be subject to withholding to the extent provided in the Internal
Revenue Code of 1986 and analogous provisions of state and local law. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the domestic substantive laws of the State of New Jersey without
giving effect to any choice or conflict of laws provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction.
13. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect, and in the event that any provision hereof shall be determined to be
invalid or unenforceable for any reason, such provision shall be construed by
limiting it so as to be valid and enforceable to the fullest extent compatible
with and possible under applicable law.
14. COUNTERPARTS. This Agreement may be executed in any one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands, as of
the date first above written.
ENVIROGEN, INC.
By: /s/: HARCHARAN S. GILL
------------------------------
Harcharan S. Gill
President
/s/: RICHARD W. SCHOWENGERDT
---------------------------------
Richard W. Schowengerdt
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APPENDIX I
"Change in Control" shall mean:
(A) The acquisition by any person, entity or "group" required to file
a Schedule 13D or Schedule 14D-1 promulgated under the Securities Exchange Act
of 1934 (the "Exchange Act") (excluding, for this purpose, Envirogen, its
subsidiaries, or any employee benefit plan of Envirogen or its subsidiaries
which acquires beneficial ownership of voting securities of Envirogen) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 51% or more of either the then-outstanding shares of common
stock or the combined voting power of Envirogen's then-outstanding voting
securities entitled to vote generally in the election of directors; or
(B) The election or appointment to the Board of Directors, or
resignation of or removal from the Board of Directors, of directors by virtue of
which the individuals who as of the date hereof constituted the Board of
Directors (the "Incumbent Board") no longer constitute at least a majority of
the Board, provided that any person who becomes a director subsequent to the
date hereof whose appointment, election, or nomination for election by
Envirogen's stockholders, was nominated by or approved by a vote of at least a
majority of the Incumbent Board (other than an appointment, election or
nomination of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
directors of Envirogen, as such terms are used in Rule 14a-1 promulgated under
the Exchange Act) shall be, for purposes of this Agreement, considered as though
such person were a member of the Incumbent Board; or
(C) Approval by the stockholders of Envirogen of: (i) a
reorganization, merger or consolidation by reason of which persons who were the
stockholders of Envirogen immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than 51% of the combined
voting power of the reorganized, merged or consolidated company's then
outstanding voting securities entitled to vote generally in the election of
directors, or (ii) a liquidation or dissolution of Envirogen or the sale,
transfer, lease or other disposition of all or substantially all of the assets
of Envirogen (whether such assets are held directly or indirectly).
-10-
<PAGE>
Exhibit 11
ENVIROGEN, INC.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------------------------------------------
1997 1996
------------------------------- --------------------------------
Primary Fully Diluted Primary Fully Diluted
------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Net income (loss) applicable to
Common Stock $205,474 $205,474 ($1,010,350) ($1,010,350)
============ ============== ============= ===============
Weighted average number of
common shares outstanding 20,589,356 20,589,356 10,805,890 10,805,890
Shares issuable upon exercise of
outstanding options and warrants 1,301,940 1,301,940
Shares assumed to be repurchased
under the treasury stock method (1,014,274) (987,347)
------------ -------------- ------------- ---------------
Number of common shares used in
computing per share data 20,877,022 20,903,949 10,805,890 10,805,890
============ ============== ============= ===============
Net income (loss) per share
applicable to Common Stock $0.01 $0.01 ($0.09) ($0.09)
============ ============== ============= ===============
<CAPTION>
Six Months Ended June 30,
----------------------------------------------------------------
1997 1996
-------------------------- ------------------------------------
Primary Fully Diluted Primary Fully Diluted
------------ ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net income (loss) applicable to
Common Stock ($422,093) ($422,093) ($1,649,064) ($1,649,064)
============ ============= ================= =================
Weighted average number of
common shares outstanding 17,282,292 17,282,292 10,093,463 10,093,463
Shares issuable upon exercise of
outstanding options and warrants
Shares assumed to be repurchased
under the treasury stock method
------------ ------------- ----------------- -----------------
Number of common shares used in
computing per share data 17,282,292 17,282,292 10,093,463 10,093,463
============ ============= ================= =================
Net income (loss) per share
applicable to Common Stock ($0.02) ($0.02) ($0.16) ($0.16)
============ ============= ================= =================
</TABLE>
For the three months ended June 30, 1996 and the six months ended June 30, 1997
and 1996, both primary and fully diluted earnings per common share were based
on the weighted average number of outstanding common shares. The inclusion of
additional shares assuming the exercise of stock options and warrants would have
been antidulutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM: FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,653,627
<SECURITIES> 0
<RECEIVABLES> 6,804,996
<ALLOWANCES> (384,518)
<INVENTORY> 55,027
<CURRENT-ASSETS> 16,145,263
<PP&E> 4,649,288
<DEPRECIATION> (2,936,774)
<TOTAL-ASSETS> 43,387,763
<CURRENT-LIABILITIES> 7,016,763
<BONDS> 0
0
0
<COMMON> 232,211
<OTHER-SE> 36,119,321
<TOTAL-LIABILITY-AND-EQUITY> 43,387,763
<SALES> 0
<TOTAL-REVENUES> 10,094,997
<CGS> 0
<TOTAL-COSTS> 10,506,870
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,007
<INCOME-PRETAX> (422,093)
<INCOME-TAX> 0
<INCOME-CONTINUING> (422,093)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (422,093)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
