<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
___________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 10, 1997
ENVIROGEN, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-20404 22-2899415
- ------------------------------ ------------- ------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4100 Quakerbridge Road
Lawrenceville, New Jersey 08648
- ---------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 936-9300
--------------
Not Applicable
------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. Acquisition or Disposition of Assets.
------------------------------------
Acquisition of Fluid Management, Inc.
- -------------------------------------
On April 10, 1997, Envirogen, Inc. ("Envirogen") acquired Fluid Management,
Inc., a Wisconsin corporation ("FMI"), in accordance with an Agreement and Plan
of Merger dated January 14, 1997 among Envirogen, FMI and the stockholders of
FMI (the "Merger Agreement"). Pursuant to the Merger Agreement, FMI was merged
with and into Envirogen, with Envirogen being the surviving corporation (the
"Merger"). Immediately prior to the Merger, FMI operated as a full-service
environmental consulting and engineering firm with offices in Wisconsin and
Illinois. The merger consideration received by the stockholders of FMI
consisted of, in the aggregate, (i) 4,190,477 shares of Envirogen's Common Stock
(the "FMI Shares"), of which 419,048 shares were placed in escrow to satisfy
potential claims for indemnification by Envirogen against the FMI stockholders,
and (ii) approximately $11 million in cash, subject to adjustment pursuant to
the Merger Agreement, approximately $4.5 million of which was used to repay
certain outstanding indebtedness of FMI and $900,000 of which was deposited in
escrow. Envirogen also repaid approximately $1.4 million of additional
outstanding indebtedness of FMI. The cash portion of the merger consideration
paid by Envirogen was financed by the issuance and sale of Envirogen Common
Stock to Warburg, Pincus Ventures, L.P. as described in Item 5 below.
ITEM 5. Other Events.
-------------
On April 10, 1997, Envirogen issued 6,095,238 shares of Common Stock (the
"Warburg Shares") to Warburg, Pincus Ventures, L.P., a Delaware limited
partnership ("Warburg"), pursuant to a Securities Purchase Agreement dated as of
January 14, 1997 between Envirogen and Warburg (the "Purchase Agreement"), for
an aggregate cash purchase price of $16 million. The net proceeds from the
issuance of the Warburg Shares were used to finance the cash portion of the
merger consideration in connection with the Merger and to provide additional
working capital for Envirogen.
In connection with the transactions contemplated by the Merger Agreement
and the Purchase Agreement, on April 10, 1997, Envirogen entered into a
Registration Rights Agreement with Warburg and the former stockholders of FMI
(the "Registration Rights Agreement"), pursuant to which Envirogen agreed to
file, as soon as practicable, a Registration Statement with the Securities and
Exchange Commission to register the sale of the FMI Shares and the Warburg
Shares to the public. However, the Registration Rights Agreement provides that
Warburg and the former stockholders of FMI will not sell, transfer or otherwise
dispose of the Warburg Shares or the FMI Shares, respectively, prior to April
10, 1998 without the prior consent of Envirogen.
* * *
Envirogen and Stone & Webster, Incorporated ("Stone & Webster") entered
into a collaborative marketing agreement in 1994 to provide treatment
technologies and services to various sectors of the hazardous waste market. On
April 16, 1997, Envirogen announced that it is part of a team assembled by Stone
& Webster that was awarded a Remedial Action Contract ("RAC") worth $50 million
over five years by the New England Division of the U.S. Army Corps of Engineers.
The indefinite delivery/indefinite quantity contract is for cleanup of hazardous
waste at military and EPA Superfund sites within the New England states and
supports a successful Corps of Engineers/EPA partnership to clean up hazardous
waste sites throughout the region. As part of the Stone & Webster team under
the newly-awarded RAC contract, Envirogen will provide products and services in
the areas of in situ bioremediation, biofiltration and soil vapor extraction.
Envirogen's share of the contract could potentially be $3 million.
-2-
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
-------------------------------------------------------------------
<TABLE>
<CAPTION>
(a) Financial Statements of Business Acquired. Page
------------------------------------------ ----
<S> <C>
Report of Independent Public Accountants F-1
Balance Sheets of Fluid Management, Inc.
as of December 31, 1996 and 1995 F-2
Statements of Operations and Retained
Earnings (Deficit) of Fluid Management,
Inc. for the years ended December 31, 1996,
1995 and 1994 F-3
Statements of Cash Flows of Fluid
Management, Inc. for the years ended
December 31, 1996, 1995 and 1994 F-4
Notes to Financial Statements of Fluid
Management, Inc. F-5
(b) Pro Forma Financial Information.
-------------------------------
Pro Forma Condensed Consolidated
Financial Information F-13
Pro Forma Condensed Consolidated
Statement of Operations for the year
ended December 31, 1996 (Unaudited) F-14
Pro Forma Condensed Consolidated Balance
Sheet as of December 31, 1996 (Unaudited) F-15
Notes to Pro Forma Condensed Consolidated
Pro Forma Financial Information (Unaudited) F-16
</TABLE>
-3-
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
Fluid Management, Inc.
We have audited the accompanying balance sheets of Fluid Management, Inc.
(the "Company") as of December 31, 1996 and 1995 and the related statements of
operations and retained earnings (deficit) and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fluid Management, Inc. as of
December 31, 1996 and 1995 and the results of its operations and cash flows for
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Milwaukee, Wisconsin
February 21, 1997
F-1
<PAGE>
FLUID MANAGEMENT, INC.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 368,656 $ 1,799,829
Accounts receivable and unbilled
revenues, less reserve for doubtful
accounts of $120,000 in
December 31, 1996 and 1995 7,047,105 6,333,482
Prepaid expenses 303,926 140,400
----------- -----------
Total current assets 7,719,687 8,273,711
Property and equipment, net 965,664 770,644
Investment in joint venture 73,790 63,706
----------- -----------
Total assets $ 8,759,141 $ 9,108,061
=========== ===========
LIABILITIES
Current liabilities:
Current portion of note payable $ 1,000,000 $ 1,000,000
Accounts payable 2,957,331 2,773,465
Accrued expenses 846,789 739,397
Reserve for PECFA claim adjustments 3,049,092 2,270,744
Dividends payable 813,000 816,000
----------- -----------
Total current liabilities 8,666,212 7,599,606
Note payable, less current portion 1,500,000 2,000,000
Commitments and contingencies (Note 6)
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, $.10 par value,
560,000 shares authorized,
40,000 shares issued and outstanding 4,000 4,000
Additional paid-in capital 36,000 36,000
Retained earnings (deficit) (1,447,071) (531,545)
----------- -----------
Total shareholders' equity (deficit) (1,407,071) (491,545)
----------- -----------
Total liabilities and
shareholders' equity (deficit) $ 8,759,141 $ 9,108,061
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-2
<PAGE>
FLUID MANAGEMENT, INC.
Statements of Operations and Retained Earnings (Deficit)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 21,577,171 $ 21,306,444 $ 18,698,662
Provisions for PECFA claims adjustments
and doubtful accounts 1,063,919 1,061,417 966,978
------------ ------------ ------------
Net revenues 20,513,252 20,245,027 17,731,684
Expenses:
Cost of commercial service 13,904,208 13,973,144 12,958,206
General and administrative 2,071,645 1,511,664 1,113,890
------------ ------------ ------------
Total costs and expenses 15,975,853 15,484,808 14,072,096
------------ ------------ ------------
Other income (expense):
Interest income 18,658 24,520 8,467
Interest expense (224,667) (159,633) (195,542)
Equity in earnings of joint venture 10,084 17,060 34,146
------------ ------------ ------------
Other expense, net (195,925) (118,053) (152,929)
------------ ------------ ------------
Net income 4,341,474 4,642,166 3,506,659
Retained earnings (deficit):
Beginning of year (531,545) 692,489 (661,900)
Dividends declared 5,257,000 5,866,200 2,152,270
------------ ------------ ------------
End of year $ (1,447,071) $ (531,545) $ 692,489
============ ============ ============
Net income per share $ 109 $ 116 $ 88
============ ============ ============
Weighted average number of
shares outstanding 40,000 40,000 40,000
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-3
<PAGE>
FLUID MANAGEMENT, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,341,474 $ 4,642,166 $ 3,506,659
Adjustments to reconcile net income to
net cash provided by operating activities:
Provisions for PECFA claim adjustments
and doubtful accounts 1,063,919 1,061,417 966,978
Depreciation 250,982 193,284 115,785
(Gain) loss on sale of property and
equipment 1,627 6,889 (1,855)
Equity in earnings of joint venture (10,084) (17,060) (34,146)
----------- ----------- -----------
5,647,918 5,886,696 4,553,421
Changes in assets and liabilities:
Accounts receivable and unbilled revenues (713,623) 1,644,362 (2,668,731)
Prepaid expenses (163,526) (39,052) (20,553)
Accounts payable 152,922 (818,388) 1,507,748
Accrued liabilities 107,392 206,290 117,761
Reserve for PECFA claim adjustments (285,571) (311,973) (212,388)
----------- ----------- -----------
Net cash provided by operating activities 4,745,512 6,567,935 3,277,258
Cash flows from investing activities:
Purchase of property and equipment (416,685) (399,985) (480,733)
Proceeds from sale of property and equipment 17,100 6,814
Investment in joint venture (12,500)
----------- ----------- -----------
Net cash used in investing activities (416,685) (382,885) (486,419)
Cash flows from financing activities:
Dividends paid (5,260,000) (5,894,470) (1,691,000)
Payments on notes payable (3,250,000) (2,200,000) (800,000)
Proceeds on notes payable 2,750,000 3,000,000
----------- ----------- -----------
Net cash used in financing activities (5,760,000) (5,094,470) (2,491,000)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (1,431,173) 1,090,580 299,839
Cash and cash equivalents:
Beginning of year 1,799,829 709,249 409,410
----------- ----------- -----------
End of year $ 368,656 $ 1,799,829 $ 709,249
=========== =========== ===========
Supplemental cash flow information:
Interest paid $ 227,589 $ 156,091 $ 196,209
=========== =========== ===========
Dividends declared but not paid $ 813,000 $ 745,000 $ 702,270
=========== =========== ===========
Property and equipment purchased
but not paid for $ 30,944 $ - $ 95,736
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
F-4
<PAGE>
FLUID MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Fluid Management, Inc. (the Company) is a consulting engineering firm
providing comprehensive environmental science services to customers
located primarily in Wisconsin. Such services include: soil and
groundwater remediation, compliance management, air sciences and
engineering, solid waste and landfill management, wastewater and
stormwater management, storage tank management and solid waste management,
planning, permitting, engineering and construction supervision services.
Storage tank removal and remediation totaled approximately 88%, 85% and
87% of the Company's revenues for the years ended December 31, 1996, 1995
and 1994, respectively. The majority of such work is eligible to be
reimbursed to the Company's customers under the State of Wisconsin
Petroleum Environmental Cleanup Fund Act (PECFA). Such reimbursement is
not made until certain remediation milestones have been reached and all
work costs have been approved by the State of Wisconsin Department of
Commerce (DCOM), the state's administrator of the PECFA program.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures of
contingent assets and liabilities at the dates of the financial
statements. Estimates also affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
The Company's most significant estimates relate to accounts receivable
valuation reserves and PECFA reserves.
REVENUE RECOGNITION
Revenue is recognized as services are provided and costs are incurred.
Cost of commercial services include all direct materials, labor and
subcontracting costs related to work performed.
RESERVES FOR PECFA CLAIM ADJUSTMENTS
The Company provides for an estimate of potential amounts it will repay to
customers related to remediation costs which are determined by DCOM to be
ineligible for reimbursement by PECFA.
F-5
<PAGE>
FLUID MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Claims for customer reimbursement are submitted to PECFA upon completion
of certain remediation milestones. Final review of the PECFA claims by
DCOM and determination of any ineligible costs is typically not completed
until one to three years after the related revenues have been recognized
and collected by the Company. Total revenues recognized in 1996 and prior
years for which claims are yet to be approved by DCOM were approximately
$45,500,000 at December 31, 1996.
CASH AND CASH EQUIVALENTS
The Company considers checking accounts and money market accounts to be
cash and cash equivalents. Substantially all the Company's cash and cash
equivalents are maintained at two banks in southwestern Wisconsin and one
bank in northeastern Illinois and balances will normally exceed federally
insured limits.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and consists primarily of
vehicles, office and field equipment, and leasehold improvements.
Leasehold improvements are amortized over the shorter of the terms of the
related leases or the estimated useful lives of the assets. Depreciation
and amortization is calculated on the straight-line method over the
estimated useful lives of the assets which range from three to seven
years. Gains and losses on disposals are recognized in the year of
disposal. Repair and maintenance expenditures are expenses as incurred;
significant renewals and betterments are capitalized.
INVESTMENT IN JOINT VENTURE
The Company has a 50% ownership in Miller Environmental Technologies LLC
(MET). Such ownership investment is accounted for under the equity
method. Summarized unaudited financial information for MET as of and for
the years ended December 31, 1996, 1995 and 1994 is set forth below:
1996 1995 1994
-------- --------- ---------
Current assets $ 208,000 $ 181,000 $ 186,000
Current liabilities 61,000 54,000 93,000
Members capital 147,000 127,000 93,000
Revenues 124,000 194,000 218,000
Net income 20,000 34,000 68,000
F-6
<PAGE>
FLUID MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The Company provides consulting and engineering services to MET under a
subcontracting arrangement. Billings for such services amounted to
$67,000, $106,000 and $82,000 for the years ended December 31, 1996, 1995
and 1994, respectively. The Company is paid a monthly fee of $1,000 by MET
to provide office and recordkeeping functions. Such fees totaled $12,000,
$12,000 and $3,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. The Company is also reimbursed for any expenses incurred
related to MET matters. The Company had accounts receivable from MET of
$51,000 and $33,000 at December 31, 1996 and 1995.
INCOME TAXES
By unanimous consent of its shareholders, the Company elected S
Corporation status under the provisions of the Internal Revenue Code.
Under those provisions and most state laws, the Company generally does not
pay federal or state income taxes on its taxable income. As an S
Corporation, any taxable income or loss of the Company is includable in
the individual income tax returns of the shareholders.
It is the intent of the shareholders to withdraw amounts as distributions
at least equivalent to the income taxes that will be payable by them on S
Corporation earnings. As of December 31, 1996, the amount of accumulated
earnings taxed to the shareholders but not distributed was approximately
$2,850,000 (before payment of any dividends payable).
EARNINGS PER SHARE
Earnings per share calculations are based on the weighted average shares
outstanding during the period.
F-7
<PAGE>
FLUID MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 1995 and 1994
amounts to conform them to the December 31, 1996 presentation.
2. PROPERTY AND EQUIPMENT:
Property and equipment, net consisted of the following:
DECEMBER 31,
-------------------------
1996 1995
-------------------------
Vehicles $ 135,883 $ 135,883
Field equipment 365,076 329,535
Furniture and office equipment 1,020,791 634,152
Leasehold improvements 61,282 47,131
---------- ----------
1,583,032 1,146,701
Less: accumulated depreciation 617,368 376,057
---------- ----------
Property and equipment, net $ 965,664 $ 770,644
========== ==========
3. ACCRUED EXPENSES:
Accrued expenses consisted of the following:
DECEMBER 31,
-------------------------
1996 1995
---------- ----------
Bonuses $ 800,375 $ 695,547
Commissions 6,229 13,607
Other 40,185 30,243
----------- ----------
$ 846,789 $ 739,397
=========== ==========
F-8
<PAGE>
FLUID MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LINE OF CREDIT:
The Company has a demand line of credit which allows borrowings up to the
lesser of $500,000 ($1,200,000 effective January 1997) or a defined
borrowing base. Borrowings bear interest at prime and are secured by
substantially all of the assets of the Company. There was no balance
outstanding at December 31, 1996 or 1995.
5. NOTE PAYABLE:
The Company has a $2,500,000 bank note payable at December 31, 1996. The
note is due in monthly principal installments of $83,333 plus interest at
8.5% and is collateralized by substantially all assets of the Company.
The related loan agreement contains certain covenant restrictions. The
most restrictive of which is the maintenance of a debt service coverage
ratio (as defined) of 1.5 to 1.0. The fair value of the note payable
approximates the carrying value.
Scheduled annual principal payments as of December 31, 1996 are set forth
below:
1997 $ 1,000,000
1998 1,000,000
1999 500,000
------------
$ 2,500,000
============
At December 31, 1995, the Company had a $3,000,000 bank note payable.
During 1996, $1,250,000 was refinanced (representing the balance of the
loan at the time of refinancing) as part of the bank note payable
discussed above.
F-9
<PAGE>
FLUID MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases office and warehouse facilities and office equipment
under operating leases. Rent expense was $529,000, $255,000, and $205,000
for the years ended December 31, 1996, 1995 and 1994, respectively. Under
the terms of the leases, the lessee is responsible for substantially all
operating expenses. Minimum future annual rental payments are set forth
below:
1997 $ 759,000
1998 589,000
1999 491,000
2000 303,000
2001 7,000
EMPLOYMENT AGREEMENTS
The Company has employment agreements with the four shareholders of the
Company. These agreements terminate in June 1998 and provide for annual
salaries of $85,000 per shareholder. The agreements also provide for
increased salaries upon change in control of the Company.
The Company has an employment contract with an employee which provides for
an annual salary of $125,000 per year and a bonus based on certain pre-tax
profits. This agreement can be canceled upon written notice by the
Company.
BONUS PLAN
The Company has a bonus plan for substantially all employees which
provides for 10% of Company pre-tax profits to be distributed to
employees.
F-10
<PAGE>
FLUID MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SELF-INSURED HEALTH BENEFITS:
The Company self-insures health benefits for its employees and has
obtained an insurance policy that limits its exposure to the first $10,000
per employee/family per year with an aggregate monthly limit. Health
insurance costs, including claims, stop-loss premiums and administration
fees, were $220,000, $187,000, and $120,000 for the years ended December
31, 1996, 1995 and 1994, respectively.
8. SALARY DEFERRAL PLAN:
The Company has a 401(k) plan which provides for employee salary deferral
contributions as allowed by the Internal Revenue Code. Substantially all
employees are eligible to participate in this Plan. No Company
contributions have been made to this plan.
9. STOCK PURCHASE AGREEMENTS:
The Company is a party to stock purchase agreements with each
shareholder, whereby, upon the death of a shareholder or at the option of
a totally disabled shareholder, the Company is required to purchase the
shares of common stock owned by the shareholder at fair market value, as
determined by the agreement. The Company owns term life insurance on each
of the shareholders to partially fund potential obligations related to a
shareholder's death.
10. OTHER RELATED PARTY TRANSACTIONS:
The Company provides technical and administrative services to a Company
with common ownership. Amounts billed by the Company for such services
amounted to $53,400, $26,600, and $16,600, for the years ended December
31, 1996, 1995 and 1994. Accounts receivable, which related to these
services, amounted to $13,200 at December 31, 1996.
F-11
<PAGE>
FLUID MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. PROPOSED MERGER:
In January 1997, the Company entered into a Merger Agreement to merge with
and into Envirogen, Inc. The merger is subject to Envirogen, Inc.
obtaining satisfactory capital to finance the merger and the approval of
the merger by the stockholders of Envirogen.
12. SUBSEQUENT EVENTS (unaudited):
In April 1997, an action was filed against the Company claiming
infringement in the hiring of certain employees made by the Company. Also
in April 1997, a settlement agreement was reached with the plaintiff. All
claims related to this litigation have been settled and payment of
$500,000, as settlement, has been made by the Company to the plaintiff.
On April 10, 1997, the Company consummated the merger with Envirogen, Inc.
as discussed in note 11.
F-12
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Balance Sheet as
of December 31, 1996 and the unaudited Pro Forma Condensed Consolidated
Statements of Operations for the year ended December 31, 1996 are based on the
historical financial statements of Envirogen, Inc. ("Envirogen") and Fluid
Management, Inc. ("FMI"), as adjusted to give effect to the merger (the
"Merger") of FMI into Envirogen and the issuance and sale by Envirogen to
Warburg, Pincus Ventures, L.P. ("Warburg") of 6,095,238 shares of Envirogen
Common Stock (the "Warburg Transaction"). The Pro Forma Condensed Consolidated
Statements of Operations have also been adjusted for the acquisition of MWR,
Inc. ("MWR") by Envirogen that closed on February 9, 1996.
The Pro Forma Condensed Consolidated Balance Sheet has been prepared
assuming that the Merger and the Warburg Transaction occurred on December 31,
1996, and the Pro Forma Condensed Consolidated Statements of Operations have
been prepared assuming the Merger, the Warburg Transaction and the acquisition
of MWR occurred on January 1, 1996. The related adjustments are described in
the notes thereto.
The Pro Forma Condensed Consolidated Financial Statements are based on
certain assumptions and preliminary estimates which are subject to change. The
Pro Forma Condensed Consolidated Financial Statements are not necessarily
indicative of operating results or financial position that would have been
achieved had the Merger, the Warburg Transaction and the acquisition of MWR been
consummated on the respective dates indicated and should not be construed as
representative of future operating results or financial position. In addition,
the Pro Forma Condensed Consolidated Financial Statements do not give effect to
any matters other than as described in the notes thereto.
F-13
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Envirogen, Historical Fluid Pro Forma Pro Forma
Inc. MWR, Inc. Mgmt., Inc. Adjustments As Adjusted
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Commercial operations $10,892,871 $278,767 $21,577,171 $32,748,809
Research and development services 2,026,723 2,026,723
Provisions for PECFA claim adjustments
and doubtful accounts (1,063,919) (1,063,919)
----------- ----------- ----------- ------------
Net revenues 12,919,594 278,767 20,513,252 33,711,613
----------- ----------- ----------- ------------
Cost of commercial operations 9,676,960 82,230 13,904,208 23,663,398
Provision for contract claim 650,000 650,000
Research and development costs 2,403,566 2,403,566
Selling, general and administrative expenses 2,958,780 174,585 2,071,645 $ 260,000 (3) 6,705,074
1,220,964 (4)
19,100 (6)
----------- ----------- ----------- ---------- ------------
Total costs and expenses 15,689,306 256,815 15,975,853 1,500,064 33,422,038
----------- ----------- ----------- ---------- ------------
Other income (expense):
Interest income 193,776 18,658 212,434
Interest expense (22,993) (606) (224,667) (248,266)
Equity in gain (loss) of joint venture (52,629) 10,084 (42,545)
Other, net 7,601 7,601
----------- ----------- ----------- ---------- ------------
Other income (expense), net 125,755 (606) (195,925) (70,776)
----------- ----------- ----------- ---------- ------------
Net income (loss) before income taxes (2,643,957) 21,346 4,341,474 (1,500,064) 218,799
Income tax provision 547,777 (5) 547,777
----------- ----------- ----------- ---------- ------------
Net income (loss) (2,643,957) 21,346 4,341,474 (2,047,841) (328,978)
Preferred stock dividends (36,458) (36,458)
----------- ----------- ----------- ---------- ------------
Net income (loss) applicable to Common Stock ($2,680,415) $21,346 $4,341,474 ($2,047,841) ($365,436)
=========== =========== =========== =========== ============
Net income (loss) per share applicable
to Common Stock ($0.24) $108.54 $(0.02)
=========== =========== ============
Weighted average number of shares of
Common Stock outstanding 11,374,922 40,000 11,802,733(1,2) 23,217,655
=========== =========== ============== ============
</TABLE>
The Notes are an integral part of these Pro Forma Consolidated Financial
Statements
F-14
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
At December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Historical
----------------------------
Fluid Pro Forma Pro Forma
Envirogen, Inc. Mgmt., Inc. Adjustments As Adjusted
--------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,614,062 $ 368,656 $ 15,800,000 (1) $ 6,291,465
(11,991,253)(2)
(2,500,000)(7)
Accounts receivable, net 3,100,447 7,047,105 10,147,552
Unbilled revenue 1,776,004 1,776,004
Inventory 55,027 55,027
Prepaid expenses and other current assets 175,941 303,926 479,867
----------- ----------- ------------ -----------
Total current assets 9,721,481 7,719,687 1,308,747 18,749,915
Property and equipment, net 922,320 965,664 1,887,984
Restricted cash 309,300 309,300
Investment in and advances to joint venture 228,934 73,790 302,724
Intangible assets, net 1,348,677 24,419,279(2) 25,767,956
Other 185,912 185,912
----------- ----------- ------------ -----------
Total assets $12,716,624 $ 8,759,141 $ 25,728,026 $47,203,791
=========== =========== ============ ===========
LIABILITIES
Current liabilities:
Accounts payable $ 1,335,954 $ 2,957,331 $ 4,293,285
Accrued expenses and other liabilities 955,886 846,789 1,802,675
Income taxes payable
Deferred revenue 312,784 312,784
Current portion of note payable 4,287 1,000,000 ($1,000,000)(7) 4,287
Current portion of capital lease obligations 18,304 18,304
Reserve for PECFA claim adjustments 3,049,092 3,049,092
Dividends payable 813,000 813,000
----------- ----------- ------------ -----------
Total current liabilities 2,627,215 8,666,212 (1,000,000) 10,293,427
Deferred rent 12,222 12,222
Note payable, net of current portion 1,500,000 (1,500,000)(7)
Capital lease obligations, net of current portion 29,954 29,954
----------- ----------- ------------ -----------
Total liabilities 2,669,391 10,166,212 (2,500,000) 10,335,603
----------- ----------- ------------ -----------
STOCKHOLDERS' EQUITY
Common stock 129,319 4,000 60,952 (1) 232,176
41,905 (2)
(4,000)(2)
Additional paid-in capital 31,925,861 36,000 15,739,048 (1) 58,643,959
10,979,050 (2)
(36,000)(2)
Retained earning (deficit) (22,001,997) (1,447,071) 1,447,071 (2) (22,001,997)
Less: Treasury stock (5,950) (5,950)
----------- ----------- ------------ -----------
Total stockholders' equity 10,047,233 (1,407,071) 28,228,026 36,868,188
----------- ----------- ------------ -----------
Total liabilities and stockholders' equity $12,716,624 $ 8,759,141 $ 25,728,026 $47,203,791
=========== =========== ============ ===========
</TABLE>
The Notes are an integral part of these Pro Forma Condensed Consolidated
Financial Statements
F-15
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The unaudited Pro Forma Condensed Consolidated Financial Statements reflect
the Merger, the Warburg Transaction and the acquisition of MWR. The unaudited
Pro Forma Condensed Consolidated Financial Statements have been prepared using
the purchase method of accounting for both the Merger and the acquisition of
MWR.
NOTE 1. Represents the issuance and sale to Warburg of 6,095,238 shares of
Envirogen Common Stock at $2.625 per share for net cash proceeds of
$15.8 million, after expenses estimated at $200,000.
NOTE 2. Represents the Merger of FMI into Envirogen, including the issuance by
Envirogen of 4,190,477 shares of Envirogen Common Stock valued at
approximately $11 million and the payment by Envirogen of approximately
$10.9 million of cash and estimated transaction expenses of $1.1
million in connection therewith. The shares of Envirogen Common Stock
issued in the Merger have been valued at $2.625 per share, which
represents the value of such Common Stock during a reasonable period of
time before and after the terms of the transaction were agreed and
announced, discounted to reflect the difference between the shares
traded in the public market and the shares issued in the Merger. The
Merger has been be accounted for under the purchase method of
accounting, and it has been assumed that the fair market value of the
assets and liabilities acquired are equal to their book value. The
Merger resulted in goodwill of approximately $24.4 million which will
be amortized over 20 years.
NOTE 3. Represents increased compensation for FMI executives upon consummation
of the Merger.
NOTE 4. Represents the amortization over 20 years of costs in excess of net
assets acquired as a result of the Merger.
NOTE 5. Represents the tax impact of the conversion of FMI to a C Corporation
from an S Corporation and the merger of FMI into Envirogen. The pro
forma tax calculation assumes no reduction in Envirogen's valuation
allowance as a result of the Merger. This tax calculation includes the
impact of the utilization of Envirogen's net operating loss
carryforward to offset a portion (due to IRS section 382 limitations)
of the Pro Forma tax liability and the tax impact of Pro Forma
adjustments on the tax rate for non-deductible items.
NOTE 6. Represents the amortization of intangible assets as a result of the
acquisition of MWR.
NOTE 7. Represents the repayment in full of all indebtedness of FMI outstanding
at December 31, 1996. Pursuant to the Merger Agreement, all outstanding
indebtedness of FMI on the Closing Date was repaid in full. The amount
of outstanding indebtedness of FMI on the Closing Date was
approximately $6 million.
NOTE 8. Represents the results of operations of MWR from January 1, 1996
through February 9, 1996.
F-16
<PAGE>
(c) Exhibits.
--------
<TABLE>
<CAPTION>
Exhibit Number
(Referenced to
Item 601 of
Regulation S-K) Description of Exhibit
- --------------- ----------------------
<S> <C>
2.1 Agreement and Plan of Merger dated January 14, 1997 by
and among Fluid Management, Inc., William C. Smith,
Douglas W. Jacobson, Gary W. Hawk, Richard W.
Schowengerdt and Envirogen, Inc. (1)(Exh. 2.1)
10.1 Securities Purchase Agreement dated January 14, 1997 by
and between Warburg, Pincus Ventures, L.P. and
Envirogen, Inc. (1)(Exh. 2.2)
10.2 Registration Rights Agreement dated April 10, 1997 by
and among Envirogen, Inc., Warburg, Pincus Ventures,
L.P., William C. Smith, Douglas W. Jacobson, Gary W.
Hawk and Richard W. Schowengerdt.
23 Consent of Coopers & Lybrand L.L.P.
- ------------------------------
</TABLE>
(1) Incorporated by reference to the indicated exhibit to Envirogen's Report on
Form 8-K filed with the Commission on January 21, 1997. Certain schedules
(and similar attachments) to Exhibits 2.1 and 10.1 are not being filed.
Envirogen agrees to furnish supplementally a copy of any omitted schedules
or attachments to the Commission upon request.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ENVIROGEN, INC.
Date: April 23, 1997 By: /s/ Harcharan S. Gill
----------------------------------------
Harcharan S. Gill,
President and Chief
Executive Officer
-4-
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Title
- ------------- -----
<S> <C>
2.1 Agreement and Plan of Merger dated January 14, 1997 by
and among Envirogen, Inc., Fluid Management, Inc.,
William C. Smith, Gary W. Hawk, Richard W. Schowengerdt
and Douglas W. Jacobson.(1) (Exh. 2.1)
10.1 Securities Purchase Agreement dated January 14, 1997 by
and between Envirogen, Inc. and Warburg, Pincus Ventures,
L.P.(1) (Exh. 2.2)
10.2 Registration Rights Agreement dated April 10, 1997 by and
among Envirogen, Inc., Warburg, Pincus Ventures, L.P.,
William C. Smith, Douglas W. Jacobson, Gary W. Hawk and
Richard W. Schowengerdt.
23 Consent of Coopers & Lybrand L.L.P.
- -------------------------
</TABLE>
(1) Incorporated by reference to the indicated exhibit to Envirogen's Report on
Form 8-K filed with the Commission on January 21, 1997. Certain schedules
(and similar attachments) to Exhibits 2.1 and 10.1 are not being filed.
Envirogen agrees to furnish supplementally a copy of any omitted schedules
or attachments to the Commission upon request.
-5-
<PAGE>
EXHIBIT 10.2
ENVIROGEN, INC.
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of April 10, 1997, among the
investors listed on Schedule I hereto (the "Investors") and Envirogen, Inc., a
Delaware corporation (the "Company").
R E C I T A L S
- - - - - - - -
WHEREAS, Warburg, Pincus Ventures, L.P., a Delaware limited
partnership ("Warburg"), has agreed, pursuant to the terms of the Securities
Purchase Agreement, dated as of January 14, 1997, by and between Warburg and the
Company (the "Purchase Agreement"), to purchase 6,095,238 shares of the common
stock, par value $0.01 per share, of the Company (the "Common Stock") at the
aggregate cash purchase price of $15,999,999.75; and
WHEREAS, the Company has agreed, as a condition precedent to
Warburg's obligations under the Purchase Agreement, to grant Warburg certain
registration rights; and
WHEREAS, pursuant to the Agreement and Plan of Merger, dated January
14, 1997 (the "Merger Agreement"), by and among the Company, Fluid Management,
Inc., a Wisconsin corporation ("Fluid Management"), and William C. Smith,
Douglas W. Jacobson, Gary W. Hawk and Richard W. Schowengerdt (Messrs. Smith,
Jacobson, Hawk and Schowengerdt collectively, the "Other Investors"), the Other
Investors shall receive, collectively, up to 4,190,477 shares of Common Stock in
connection with the transactions contemplated by the Merger Agreement; and
WHEREAS, the Company has agreed, as a condition precedent to Fluid
Management's and the Other Investors' obligations under the Merger Agreement, to
grant the Other Investors certain registration rights; and
WHEREAS, the Investors and the Company desire to define the
registration rights of the Investors on the terms and subject to the conditions
herein set forth.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the parties hereby agree as follows:
1
<PAGE>
1. DEFINITIONS
-----------
As used in this Agreement, the following terms have the respective
meaning set forth below:
Commission: shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act;
Exchange Act: shall mean the Securities Exchange Act of 1934, as
------------
amended;
Holder: shall mean any holder of Registrable Securities;
------
Person: shall mean an individual, partnership, joint-stock company,
------
corporation, trust or unincorporated organization, and a government or agency or
political subdivision thereof;
register, registered and registration: shall mean to a registration
-------- ---------- ------------
effected by preparing and filing a registration statement in compliance with the
Securities Act (and any post-effective amendments filed or required to be filed)
and the declaration or ordering of effectiveness of such registration statement;
Registrable Securities: shall mean (A) shares of Common Stock
----------------------
acquired by Warburg pursuant to the Purchase Agreement and shares of Common
Stock acquired by the Other Investors pursuant to the Merger Agreement, and (B)
any common stock of the Company issued as a dividend or other distribution with
respect to, or in exchange for or in replacement of, the shares of Common Stock
referred to in clause (A);
Registration Expenses: shall mean all expenses incurred by the
---------------------
Company in compliance with Section 2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, fees and expenses of one counsel for all the Holders in
an amount not to exceed $15,000 in connection with an underwritten transaction
or $5,000 in connection with a non-underwritten transaction, blue sky fees and
expenses and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company);
Security, Securities: shall have the meaning set forth in Section
--------------------
2(1) of the Securities Act;
Securities Act: shall mean the Securities Act of 1933, as amended;
--------------
and
2
<PAGE>
Selling Expenses: shall mean all underwriting discounts and selling
----------------
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for each of the Holders other than fees and expenses of
one counsel for all the Holders in an amount not to exceed $15,000 in connection
with an underwritten transaction or $5,000 in connection with a non-underwritten
transaction.
2. REGISTRATION RIGHTS
-------------------
(a) Shelf Registration.
------------------
(i) As soon as practicable after the Closing Date, but in any
event within nine (9) months after the Closing Date, the Company shall file
with the Commission and cause to be declared effective a registration
statement pursuant to Rule 415 under the Securities Act (a "Shelf
Registration Statement") relating to the offer and sale of Registrable
Securities by the Holders thereof from time to time in accordance with the
methods of distribution elected by such Holders and set forth in such Shelf
Registration Statement.
(ii) The Company shall supplement or amend, if necessary, the
Shelf Registration Statement as required by the applicable registration
form or by the Securities Act or the rules and regulations promulgated
thereunder or as reasonably requested by the Holders of a majority of the
Registrable Securities (the "Majority Holders"), and the Company shall
furnish to the holders of the Registrable Securities to which the Shelf
Registration Statement relates copies of any such supplement or amendment
prior to its being used and/or filed with the Commission.
(b) Expenses of Registration. All Registration Expenses
------------------------
incurred in connection with any registration, qualification or compliance
pursuant to this Section 2 shall be borne by the Company, and all Selling
Expenses shall be borne by the Holders of the securities so registered pro rata
on the basis of the number of their shares so registered.
(c) Registration Procedures. In connection with the Shelf
-----------------------
Registration Statement filed pursuant to this Section 2, the Company will keep
the Holders, as applicable, advised in writing as to the initiation of such
registration and as to the completion thereof. Subject to Section 2(g) hereof,
at its expense, the Company will, as expeditiously as possible:
(i) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities covered by
3
<PAGE>
such registration statement or as may be reasonably requested by the
Majority Holders, until such time (x) as all of such Registrable Securities
have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement or (y) as set forth in Section 2(h) hereof;
(ii) use its best efforts (x) to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of such States of
the United States of America where an exemption is not available and as the
sellers of Registrable Securities covered by such registration statement
shall reasonably request, (y) to keep such registration or qualification in
effect for so long as such registration statement remains in effect, and
(z) to take any other action which may be reasonably necessary or advisable
to enable such sellers to consummate the disposition in such jurisdictions
of the securities to be sold by such sellers, except that the Company shall
not for any such purpose be required to qualify generally to do business as
a foreign corporation in any jurisdiction wherein it would not but for the
requirements of this subdivision (ii) be obligated to be so qualified,
subject itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction;
(iii) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved by
such other federal or state governmental agencies or authorities as may be
necessary in the opinion of counsel to the Company and counsel to the
seller or sellers of Registrable Securities to enable the seller or sellers
thereof to consummate the disposition of such Registrable Securities;
(iv) promptly notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of which,
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, in the light of the circumstances under
which they were made, and at the request of any such Holder promptly
prepare and furnish to it a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
4
<PAGE>
make the statements therein not misleading in the light of the
circumstances under which they were made;
(v) furnish, on the date that such Registrable Securities are
delivered to the underwriters for sale, if such securities are being sold
through underwriters, (1) an opinion, dated as of such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the
Holders participating in such registration, addressed to the underwriters
and to the Holders participating in such registration and (2) a letter,
dated as of such date, from the independent certified public accountants of
the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the
Holders participating in such registration, addressed to the underwriters,
and if permitted by applicable accounting standards, to the Holders
participating in such registration; and
(vi) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more than
eighteen months, beginning with the first full calendar month after the
effective date of such registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 promulgated thereunder, and promptly furnish to each Holder of
Registrable Securities a copy of any amendment or supplement to such
registration statement or prospectus.
Notwithstanding the foregoing, if any such registration or comparable
statement refers to any Holder by name or otherwise as the holder of any
securities of the Company and in its sole and exclusive judgment such Holder is
or might be deemed to be a controlling person of the Company, such Holder shall
have the right to require the insertion therein of language, in form and
substance reasonably satisfactory to such Holder and the Company, to the effect
that the holding by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such Holder
will assist in meeting any future financial requirements of the Company.
(d) Indemnification.
---------------
(i) The Company will indemnify each of the Holders, as
applicable, each of its officers, directors and partners, and each person
controlling each of the Holders,
5
<PAGE>
with respect to the registration which has been effected pursuant to this
Section 2, and each underwriter, if any, and each person who controls any
underwriter, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration,
qualification or compliance, and will reimburse each of the Holders, each
of its officers, directors and partners, and each person controlling each
of the Holders, each such underwriter and each person who controls any such
underwriter, for any reasonable legal and any other expenses incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any
--------
such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by the Holders or
underwriter and stated to be specifically for use therein.
(ii) Each of the Holders severally will, if Registrable
Securities held by it are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and each underwriter, if any,
of the Company's securities covered by such registration statement, each
person who controls the Company or such underwriter and each of their
officers, directors, and partners against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in such registration statement, prospectus, offering circular or other
document made by such Holder, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements by such Holder therein not misleading, and will
reimburse the Company and such directors, officers, partners, persons,
underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
6
<PAGE>
statement, prospectus, offering circular or other document in reliance upon
and in conformity with written information furnished to the Company by such
Holder and stated to be specifically for use therein; provided, however,
-------- -------
that the obligations of each of the Holders hereunder shall be limited to
an amount equal to the net proceeds to such Holder of securities sold as
contemplated herein.
(iii) Each party entitled to indemnification under this Section
2(d) (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom; provided
--------
that counsel for the Indemnifying Party, who shall conduct the defense of
such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld) and
the Indemnified Party may participate in such defense at such party's
expense (unless the Indemnified Party shall have reasonably concluded that
there may be a conflict of interest between the Indemnifying Party and the
Indemnified Party in such action, in which case the fees and expenses of
counsel shall be at the expense of the Indemnifying Party, provided that in
such event the Indemnifying Party shall not be responsible for the fees of
more than one counsel (plus one local counsel) to the Indemnified Parties),
and provided further that the failure of any Indemnified Party to give
-------- -------
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 2 unless the Indemnifying Party is
materially prejudiced thereby. No Indemnifying Party, in the defense of
any such claim or litigation shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the
claim in question as an Indemnifying Party may reasonably request in
writing and as shall be reasonably required in connection with the defense
of such claim and litigation resulting therefrom.
(iv) If the indemnification provided for in this Section 2(d) is
held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or
expense referred to herein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
liability, claim, damage or expense in such proportion as is appropriate to
reflect the relative fault
7
<PAGE>
of the Indemnifying Party on the one hand and of the Indemnified Party on
the other in connection with the statements or omissions which resulted in
such loss, liability, claim, damage or expense, as well as any other
relevant equitable considerations. The relative fault of the Indemnifying
Party and of the Indemnified Party shall be determined by reference to,
among other things, whether the untrue (or alleged untrue) statement of a
material fact or the omission (or alleged omission) to state a material
fact relates to information supplied by the Indemnifying Party or by the
Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission.
(v) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with any underwritten
public offering contemplated by this Agreement are in conflict with the
foregoing provisions, the provisions in such underwriting agreement shall
be controlling.
(vi) The foregoing indemnity agreement of the Company and the
Holders is subject to the condition that, insofar as they relate to any
loss, claim, liability or damage made in a preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the
Commission at the time the registration statement in question becomes
effective or the amended prospectus filed with the Commission pursuant to
Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall not
inure to the benefit of (i) any underwriter if a copy of the Final
Prospectus was furnished to the underwriter and was not furnished to the
person asserting the loss, liability, claim or damage at or prior to the
time such action is required by the Securities Act and (ii) any Holder if
the loss, claim, liability or damage relates to a transaction pursuant to
which shares of Common Stock were not distributed pursuant to an
underwritten offering and if a copy of the Final Prospectus was furnished
to the Holder and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required
by the Securities Act.
(e) Information by the Holders. Each of the Holders holding
--------------------------
securities included in any registration shall furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 2.
8
<PAGE>
(f) Rule 144 Reporting.
------------------
With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of restricted securities
to the public without registration, the Company agrees to:
(i) make and keep public information available as those terms
are understood and defined in Rule 144 under the Securities Act ("Rule
144");
(ii) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act; and
(iii) so long as the Holder owns any Registrable Securities,
furnish to the Holder upon request, a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so
filed as the Holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing the Holder to sell any such
securities without registration.
(g) Holdback Periods. Notwithstanding anything in this
----------------
Agreement to the contrary if (i) the Company shall determine in good faith that
it would be significantly disadvantageous to the Company and its stockholders
for any such Shelf Registration Statement to be amended or supplemented, and
(ii) the need for such an amendment or supplement is not caused by a proposed
public offering of any securities of the Company by any of its securityholders
(other than an offering made pursuant to a registration on Form S-8), the
Company may defer such amending or supplementing of such Shelf Registration
Statement for not more than 60 days and in such event, upon appropriate notice
to the Holders, the Holders shall be required to discontinue disposition of any
Registrable Securities covered by such Shelf Registration Statement during such
period; provided, however, that this right may not be exercised by the Company
-------- -------
more than once in any twelve-month period.
(h) Termination. The registration rights set forth in this
-----------
Section 2 shall not be available to any Holder if, in the opinion of counsel to
the Company, all of the Registrable Securities then owned by such Holder could
be sold in any 90-day period pursuant to Rule 144 under the Securities Act
(without giving effect to the provisions of Rule 144(k)). Upon termination of
such registration rights in accordance with this Section 2(h), the obligations
of the Company to continue the effectiveness of the Shelf Registration Statement
shall terminate.
9
<PAGE>
3. MISCELLANEOUS
-------------
(a) Directly or Indirectly. Where any provision in this
----------------------
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person.
(b) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such State.
(c) Section Headings. The headings of the sections and
----------------
subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof.
(d) Notices.
-------
(i) All communications under this Agreement shall be in writing
and shall be delivered by hand or mailed by overnight courier or by
registered or certified mail, postage prepaid:
(A) if to the Company, to 4100 Quakerbridge Road,
Lawrenceville, NJ 08648, Attention: Harch S. Gill, or at such other
address as it may have furnished in writing to the Investors;
(B) if to the Investors, at the addresses listed on
Schedule I hereto, or at such other addresses as may have been
furnished to the Company in writing.
(iii) Any notice so addressed shall be deemed to be given: if
delivered by hand, on the date of such delivery; if mailed by courier, on
the first business day following the date of such mailing; and if mailed by
registered or certified mail, on the third business day after the date of
such mailing.
(e) Reproduction of Documents. This Agreement and all documents
-------------------------
relating thereto, including, without limitation, any consents, waivers and
modifications which may hereafter be executed may be reproduced by the Investor
by any photographic, photostatic, microfilm, microcard, miniature photographic
or other similar process and the Investors may destroy any original document so
reproduced. The parties hereto agree and stipulate that any such reproduction
shall be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by the Investors in the regular course
of business) and that any
10
<PAGE>
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
(f) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the
parties.
(g) Entire Agreement; Amendment and Waiver. This Agreement
--------------------------------------
constitutes the entire understanding of the parties hereto and supersedes all
prior understanding among such parties. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, with (and only with) the
written consent of the Company and the Investors holding a majority of the then
outstanding Registrable Securities.
(h) Severability. In the event that any part or parts of this
------------
Agreement shall be held illegal or unenforceable by any court or administrative
body of competent jurisdiction, such determination shall not effect the
remaining provisions of this Agreement which shall remain in full force and
effect.
(i) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first set forth above.
ENVIROGEN, INC.
By: /s/ Harcharan S. Gill
-------------------------------
Harcharan S. Gill
President
INVESTORS:
WARBURG, PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Robert S. Hillas
-------------------------------
Name: Robert S. Hillas
Title: Partner
/s/ William C. Smith
----------------------------------
WILLIAM C. SMITH
/s/ Douglas W. Jacobson
----------------------------------
DOUGLAS W. JACOBSON
/s/ Gary W. Hawk
----------------------------------
GARY W. HAWK
/s/ Richard W. Schowengerdt
---------------------------------
RICHARD W. SCHOWENGERDT
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<PAGE>
SCHEDULE I
Name and Address
of Investor
- -----------
Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, NY 10017
Attention: Robert S. Hillas
William C. Smith
S38 W33688 Highway D
Dousman, WI 53118
Douglas W. Jacobson
2518 N. 81st Street
Wauwatosa, WI 53213
Gary W. Hawk
W272 N1347 Spring Hill Drive
Pewaukee, WI 53072
Richard W. Schowengerdt
250 N. Summit Moors Drive
Oconomowoc, WI 53066
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<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration statements of
Envirogen, Inc. on Form S-8 (File No. 333-09267), Form S-8 (File No. 33-54708),
Form S-3 (File No. 333-12883), Form S-3 (File No. 333-6991), and Form S-3 (File
No. 33-78982) of our report dated February 21, 1997, on our audits of the
financial statements of Fluid Management, Inc. as of December 31, 1996 and 1995,
and the years ended December 31, 1996, 1995, and 1994, which report is included
in this Report on Form 8-K.
Princeton, New Jersey Coopers & Lybrand L.L.P.
April 23, 1997
