EXHIBIT 2-1
STOCK PURCHASE AGREEMENT
among
EMCON
a California corporation
("Buyer"),
ORGANIC WASTE TECHNOLOGIES, INC.
a Delaware corporation
(the "Company"),
and
CERTAIN STOCKHOLDERS OF THE COMPANY
("Sellers")
Dated January 30, 1996
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TABLE OF CONTENTS
Page
1. Definitions......................................................... 1
"Advisors".......................................................... 1
"Agent"............................................................. 1
"Agreement"......................................................... 1
"Audited Financial Statements"...................................... 1
"Best Efforts"...................................................... 1
"Breach"............................................................ 2
"Buyer"............................................................. 2
"Buyer's Indemnified Persons"....................................... 2
"CERCLA"........................................................... 2
"Closing"........................................................... 2
"Closing Date"...................................................... 2
"Code".............................................................. 2
"Common Shares"...................................................... 2
"Company"............................................................ 2
"Company Disclosure Schedule"........................................ 2
"Company Financial Statements"....................................... 2
"Company Subsidiaries"............................................... 2
"Consent"............................................................ 2
"Contemplated Transactions".......................................... 3
"Damages"............................................................ 3
"Deposit"............................................................ 3
"Employee Plans"..................................................... 3
"Employment Agreement"............................................... 3
"ERISA".............................................................. 3
"Escrow Agreement".................................................. 3
"Escrow Agent"...................................................... 3
"Exchange Act"...................................................... 3
"Expenses".......................................................... 3
"Facilities"........................................................ 3
"Family" ........................................................... 3
"GAAP".............................................................. 4
"Governmental Authorization"........................................ 4
"Governmental Body"................................................. 4
"Hazardous Substances".............................................. 4
"IRS" .............................................................. 4
"Knowledge"......................................................... 4
"Knowledge of the Company".......................................... 4
"Legal Requirement"................................................. 5
"Management Stakeholders"........................................... 5
"Material Contracts"................................................ 5
7
"Material Interest"................................................. 5
"Notes"............................................................. 5
"Options"........................................................... 5
"Order"............................................................. 5
"Ordinary Course of Business"....................................... 5
"Pending Claims".................................................... 5
"Person"............................................................ 5
"Preferred Shares".................................................. 5
"Proceeding"........................................................ 5
"Purchase Price".................................................... 5
"Related Person".................................................... 5
"Representative".................................................... 6
"Securities Act".................................................... 6
"Sellers"........................................................... 6
"Sellers' Indemnified Persons"...................................... 7
"Selling Stakeholders".............................................. 7
"Shares"............................................................ 7
"Subsidiaries"...................................................... 7
"Technair".......................................................... 7
"Technair Agreement"................................................ 7
"Unaudited Financial Statements".................................... 7
2. Sale, Transfer and Exchange of Shares and Options; Closing........... 7
2.1 Sale and Exchange........................................... 7
2.2 Purchase Price.............................................. 7
2.3 Deposit..................................................... 8
2.4 Closing..................................................... 8
2.5 Closing Obligations......................................... 8
2.6 Employment Agreement........................................ 10
3. Representations and Warranties of the Company........................ 10
3.1 Corporation Organization.................................... 10
3.2 Capitalization.............................................. 11
3.3 Corporate Authority......................................... 11
3.4 Dissolution; Forfeiture..................................... 12
3.5 The Company Financial Statements............................ 12
3.6 Absence of Unaccrued or Undisclosed Liabilities............. 12
3.7 Absence of Certain Changes.................................. 13
3.8 Taxes....................................................... 13
3.9 Title to Properties; Accounts Receivable.................... 14
3.10 Proprietary Rights.......................................... 15
3.11 Customer Lists.............................................. 16
3.12 Benefit Plans and Arrangements.............................. 16
3.13 Compliance with Laws; Legal Proceedings..................... 17
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3.14 Contracts and Obligations................................... 18
3.15 Employee Relations.......................................... 19
3.16 Insurance................................................... 19
3.17 Environmental Compliance.................................... 19
3.18 Advances; Related Party Transactions........................ 20
3.19 Powers of Attorney.......................................... 21
3.20 No Brokers.................................................. 21
3.21 Other Agreements to Sell the Company........................ 21
3.22 Banking Relationships....................................... 21
3.23 Information Supplied........................................ 21
3.24 Execution and Performance of Agreement...................... 21
4. Representations and Warranties of Sellers............................ 22
4.1 Ownership of Shares and Options............................. 22
4.2 Execution, Delivery and Enforceability of Agreement;
No Violation................................................ 22
4.3 Information Supplied........................................ 23
4.4 Residence and Domicile...................................... 23
4.5 Brokers or Finders.......................................... 23
5. Representations and Warranties of Buyer.............................. 23
5.1 Organization and Good Standing.............................. 23
5.2 Execution, Delivery and Enforceability of Agreement;
No Violation................................................ 23
5.3 Investment Intent........................................... 24
5.4 Certain Proceedings......................................... 24
5.5 Brokers or Finders.......................................... 24
5.6 Information Supplied........................................ 24
5.7 No Material Change.......................................... 24
6. Covenants of the Company and Sellers Prior to Closing Date........... 24
6.1 Conduct of Business Pending Closing......................... 24
6.2 Advice of Changes........................................... 26
6.3 Access and Information...................................... 26
6.4 Reasonable Efforts.......................................... 27
6.5 Supplements to Company Disclosure Schedule.................. 27
7. Covenants of Buyer Prior to Closing Date............................. 27
7.1 Access to Information....................................... 27
7.2 Approvals of Governmental Bodies............................ 27
7.3 Supplements to Schedules.................................... 28
7.4 Best Efforts................................................ 28
7.5 Advice of Changes........................................... 28
7.6 Discussions with Technair................................... 28
8. Conditions Precedent to Buyer's Obligation to Close.................. 28
8.1 Accuracy of Representations................................. 28
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8.2 Conversion; Exchange........................................ 29
8.3 Material Changes............................................ 29
8.4 Sellers' and the Company's Performance...................... 29
8.5 Consents.................................................... 29
8.6 Additional Documents........................................ 29
8.7 Termination of Stockholders' Agreement...................... 30
8.8 No Proceedings.............................................. 30
8.9 Approval of this Agreement by Company Board of Directors.... 30
8.10 Company Disclosure Schedule................................. 30
8.11 Execution by Sellers........................................ 30
8.12 Employment Agreement........................................ 30
8.13 Resignations of Directors................................... 30
8.14 Notes....................................................... 30
8.15 Note Agreement.............................................. 30
9. Conditions Precedent to Sellers' Obligation to Close................. 30
9.1 Accuracy of Representations................................. 31
9.2 Approval of this Agreement by Board of Directors............ 31
9.3 Buyer's Performance......................................... 31
9.4 Consents.................................................... 31
9.5 Note Agreement.............................................. 31
9.7 No Material Adverse Change.................................. 31
9.8 Buyer's Disclosure Schedule................................. 31
9.9 Additional Documents........................................ 31
9.10 No Proceedings.............................................. 32
9.11 Execution................................................... 32
9.12 Employment Agreement........................................ 32
10. Covenants After the Closing Date..................................... 32
10.1 Litigation Support.......................................... 32
10.2 Employment Incentives....................................... 32
11. Termination.......................................................... 33
11.1 Automatic Termination Events................................ 33
11.2 Other Termination Events.................................... 33
11.3 Effect of Termination....................................... 34
12. Indemnification; Remedies............................................ 35
12.1 Survival.................................................... 35
12.2 Indemnification and Reimbursement by Sellers................ 35
12.3 Indemnification and Reimbursement by Buyer.................. 36
12.4 Procedure for Indemnification of Third Party Claims......... 37
12.5 Benefits.................................................... 38
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12.6 Insurance Proceeds.......................................... 38
12.7 Procedure for Indemnification - Other Claims................ 38
12.8 Agents of Indemnifying Sellers for Purposes of
Indemnification, Contribution Obligation of All Sellers..... 38
13. General Provisions................................................... 39
13.1 Expenses.................................................... 39
13.2 Public Announcements........................................ 39
13.3 Confidentiality............................................. 39
13.4 Notices..................................................... 40
13.5 Binding Arbitration; Service of Process..................... 41
13.6 Further Assurances.......................................... 42
13.7 Waiver...................................................... 42
13.8 Entire Agreement and Modification........................... 42
13.9 Company Disclosure Schedule................................. 43
13.10 Assignments, Successors, and No Third Party Rights.......... 43
13.11 Severability................................................ 43
13.12 Section Headings, Construction.............................. 43
13.14 Time of Essence............................................. 44
13.15 Governing Law............................................... 44
13.16 Counterparts................................................ 44
Exhibit No. Document
---------- -----------
A List of Selling Stakeholders
B List of Management Stakeholders
C Escrow Agreement
D Note Agreement, with Loan Note as exhibit thereto
E-1 Note from the Company to ▇▇▇▇ ▇. ▇▇▇▇▇▇
E-2 Note from the Company to Management Stakeholders other than
▇▇▇▇ ▇. ▇▇▇▇▇▇
F Employment Agreement
G List of Indemnifying Sellers
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of January
30, 1996 among EMCON, a California corporation ("Buyer"); ORGANIC WASTE
TECHNOLOGIES, INC., a Delaware corporation (the "Company"), the undersigned
holders of the Company's Common Shares, Preferred Shares and/or Options listed
on Exhibit A hereto (the "Selling Stakeholders"), and the undersigned holders of
the Company's Common Shares and/or Options listed on Exhibit B hereto (the
"Management Stakeholders") (the Selling Stakeholders and the Management
Stakeholders being sometimes collectively referred to herein as the "Sellers").
RECITALS
A. The Management Stakeholders and the Company desire to exchange the
Common Shares and/or Options held by the Management Stakeholders for convertible
notes of the Company in the principal amounts set forth opposite each Management
Stakeholder's named on Exhibit B hereto (the "Notes").
B. The Selling Stakeholders desire to sell and Buyer desires to buy the
Common Shares, the Preferred Shares and/or the Options held by each Selling
Stakeholder set forth opposite each Selling Stakeholder's name on Exhibit A
hereto for the consideration and on the terms set forth in this Agreement.
C. In several instances, the same individual is executing this
Agreement in two places, as both a Management Stakeholder and as a Selling
Stakeholder. In such events, the respective interests of these individuals as
Management Stakeholders and Selling Stakeholders are set forth on Exhibits A and
B, respectively.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. Definitions. For the purposes of this Agreement, the
following terms have the meanings specified or referred to in this Section 1:
"Advisors" -- ▇▇▇▇▇▇, Halter & ▇▇▇▇▇▇▇▇, counsel to the Company and the
Sellers and ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Associates, Inc., financial advisors to the Company
and the Sellers.
"Agent"" -- as defined in Section 12.9.
"Agreement" -- as defined in the first paragraph hereof.
"Audited Financial Statements" -- as defined in Section 3.5.
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"Best Efforts" -- the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to maximize to the extent
reasonably practicable the prospects that a result will occur; provided,
however, that an obligation to use Best Efforts under this Agreement does not
require that the Person subject to such obligation take such actions that would
result in a material adverse change to the benefits to such Person of this
Agreement and the Contemplated Transactions.
"Breach" -- a "Breach" of a representation, warranty, covenant,
obligation or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been any material inaccuracy in or breach of, or any material failure to perform
or comply with, such representation, warranty, covenant or obligation, and the
term "Breach" means any such inaccuracy, breach or failure.
"Buyer" -- as defined in the first paragraph hereof.
"Buyer's Disclosure Schedule" -- the disclosure letter delivered by
the Buyer to the Company prior to the Closing, as the same may be supplemented
from time to time, containing the information required by Section 5.
"Buyer's Indemnified Persons" -- as defined in Section 11.2.
"CERCLA" -- as defined in Section 3.17.
"Closing" -- as defined in Section 2.4.
"Closing Date" -- the date and time as of which the Closing actually
takes place.
"Code" -- the Internal Revenue Code of 1986, as amended, or any
successor law, and regulations issued by the IRS pursuant to the Internal
Revenue Code or any successor law.
"Common Shares" -- the issued or issuable shares of the Company's
common stock.
"Company" -- as defined in the first paragraph hereof.
"Company Disclosure Schedule" -- the disclosure letter delivered by
the Company to Buyer prior to the Closing, as the same may be supplemented from
time to time, containing the information required by Section 3.
"Company Financial Statements" -- as defined in Section 3.5.
"Company Subsidiaries" -- as defined in Section 3.1.
"Consent" -- any approval, consent, ratification, waiver or other
authorization (including any Governmental Authorization).
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"Contemplated Transactions" -- all of the transactions contemplated by
this Agreement, including:
(a) the sale to Buyers of the Shares and Options held by the Selling
Stakeholders by Sellers;
(b) the execution, delivery and performance of the Employment
Agreement, the Escrow Agreement, the Note Agreement and the Notes;
(c) the performance by Buyer, the Company and Sellers of their
respective covenants and obligations under this Agreement; and
(d) the exchange of Shares and Options held by the Management
Stakeholders for the Notes.
"Damages" -- as defined in Section 12.2.
"Date of the Deposit" -- the date on which the Buyer pays the Deposit
to the Escrow Agent.
"Deposit" -- as defined in Section 2.3.
"Employee Plans" -- as defined in Section 3.12.
"Employment Agreement" -- as defined in Section 2.5.
"ERISA" -- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Escrow Agreement" -- as defined in Section 2.3.
"Escrow Agent" -- as defined in Section 2.3.
"Exchange Act"-- the Securities Exchange Act of 1934 or any successor
law, and the regulations or rules issued pursuant to such Act or any successor
law.
"Expenses" -- the aggregate amount of all fees and expenses incurred
in connection with the retention of ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Associates, Inc. and ▇▇▇▇▇▇,
Halter & ▇▇▇▇▇▇▇▇ with respect to the Contemplated Transactions. Such amount
shall equal the full amount of such fees and expenses less the amount agreed to
be paid by the Company pursuant to Section 13.1.
"Facilities" -- as defined in Section 3.9.
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"Family" -- as defined in the definition of "Related Person."
"GAAP" -- generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the financial statements
referred to in Section 3.5 were prepared.
"Governmental Authorization" -- any approval, consent, license,
permit, waiver or other authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"Governmental Body" -- any
(a) nation, state, county, city, town, village, district or other
governmental jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory or taxing authority or
power of any nature.
"Hazardous Substances" -- as defined in Section 3.17.
"Indemnifying Sellers" -- as defined in Section 12.2(a).
"IRS" -- the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"Knowledge" -- a Person will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact in carrying out such individual's duties for the
Company.
"Knowledge of the Company""Knowledge of the Company" -- shall mean
Knowledge of any officer or director of the Company about the affairs of the
Company; provided, however, that a director's Knowledge shall not be construed
to require a director to make any special investigation of facts and shall be
15
limited to such knowledge as a director may gain from receiving normal and
customary reports from executive officers.
"Legal Requirement" -- any federal, state, local, municipal, foreign,
international, multinational or other constitution, law, ordinance, principle of
common law, regulation, statute or treaty.
"Management Stakeholders" -- as defined in the first paragraph hereof.
"Material Contracts" -- as defined in Section 3.14.
"Material Interest" -- as defined in the definition of "Related
Person."
"Note Agreement" -- as defined in Section 2.5.
"Notes" -- as defined in Section 2.3.
"Options" -- the issued and outstanding options to purchase Common
Shares of the Company.
"Order" -- any award, decision, injunction, judgment, order,
directive, ruling, decree, subpoena or verdict entered, issued, made or rendered
by any court, administrative agency, or other Governmental Body or by any
arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if such
action is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person.
"Pending Claims" -- as defined in Section 2.5.
"Person" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization or other entity or
Governmental Body.
"Preferred Shares" -- the issued or issuable shares of the Company's
Preferred Stock including but not limited to the shares of Series A, Series B
and Series C Preferred Stock referenced in Section 3.2 below.
"Proceeding" -- any action, arbitration, audit, hearing,
investigation, litigation or suit (whether civil, criminal, administrative,
investigative or informal) commenced, brought, conducted or heard by or before,
or otherwise involving, any Governmental Body or arbitrator.
"Purchase Price" -- as defined in Section 2.2(a).
16
"Related Person" -- with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by any one or
more members of such individual's Family;
(c) any Person in which members of such individual's Family hold
(individually or in the aggregate) a Material Interest; and
(d) any Person with respect to which one or more members of such
Individual's Family serves as a director, officer, partner, executor or trustee
(or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest; and
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse, (iii) any other natural person who
is related to the individual or the individual's spouse within the first degree
and (iv) any other natural person who resides with such individual, and (b)
"Material Interest" means direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities or
other voting interests representing at least ten percent (10%) of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least ten percent (10%) of the outstanding equity
securities or equity interests in a Person.
"Representative" -- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"Securities Act" -- the Securities Act of 1933 or any successor law,
and regulations and rules issued pursuant to that Act or any successor law.
17
"Sellers" -- as defined in the first paragraph hereof.
"Sellers' Indemnified Persons" -- as defined in Section 12.3.
"Selling Stakeholders" -- as defined in the first paragraph hereof.
"Shares" -- collectively, the Common Shares and Preferred Shares.
"Subsidiaries" -- with respect to any Person (the "Owner"), any
corporations or other Persons of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries;
when used without reference to a particular Person, "Subsidiary" means a
Subsidiary of the Company.
"Technair" -- as defined in Section 3.24.
"Technair Agreement" -- as defined in Section 3.24.
"Unaudited Financial Statements" -- as defined in Section 3.5.
2. Sale, Transfer and Exchange of Shares and Options; Closing
2.1 Sale and Exchange.
(a) The Selling Stakeholders shall sell and transfer to Buyer and
Buyer shall purchase from the Selling Stakeholders, the Shares and/or Options
held by such Selling Stakeholders and set forth opposite their names on Exhibit
A hereto for the consideration set forth on such Exhibit.
(b) The Management Stakeholders and the Company shall exchange the
Shares and Options held by the Management Stakeholders and set forth opposite
their names on Exhibit B hereto for Notes issued by the Company in the principal
amounts set forth opposite the names of the Management Stakeholders on such
Exhibit.
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2.2 Purchase Price.
(a) The amount to be paid to the Selling Stakeholders for the Shares
and the Options to be purchased from the Selling Stakeholders shall be, in the
aggregate, $13,757,072.67 (the "Purchase Price") ($13,544,143.11 of which shall
be for the Shares purchased from the Selling Stakeholders and $212,929.55 of
which shall be for the Options purchased from the Selling Stakeholders), less
the pro rata share of the Expenses to be paid by such Selling Stakeholders.
(b) The aggregate principal amount of the Notes to be issued in the
exchange of the Shares and Options held by the Management Stakeholders shall be
$1,817,927.33 ($287,285.06 of which shall be for the Shares held by the
Management Stakeholders and $1,530,642.27 of which shall be for the Options held
by the Management Stakeholders), less the pro rata share of the Expenses to be
paid by such Management Stakeholders.
(c) In consideration for the Company's efforts and cooperation with
respect to the Contemplated Transactions, the Buyer shall pay to the Company the
sum of One Hundred Seventy-Five Thousand Dollars ($175,000), which the Company
shall use to purchase the minority interests in certain of the Company
Subsidiaries.
2.3 Deposit2. On or prior to February 12, 1996, the Buyer may, in its
sole discretion, pay a portion of the Purchase Price, in the amount of Two
Million Dollars ($2,000,000) (the "Deposit"), by depositing the same with the
Bank of California, N.A. as escrow agent (the "Escrow Agent") pursuant to an
escrow agreement substantially in the form attached hereto as Exhibit C (the
"Escrow Agreement") .
2.4 Closing. The closing of the purchase, sale and exchange (the
"Closing") provided for in this Agreement will take place at the offices of ▇▇▇▇
▇▇▇▇ ▇▇▇▇ & Freidenrich, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, at 10:00
a.m. local time on March 8, 1996, or upon such date as may be approved in
writing by the Buyer and the Company.
2.5 Closing Obligations. At the Closing:
(a) The Company or the Selling Stakeholders, as the case may be, will
deliver to Buyer:
(i) certificates representing the Shares held by the Selling
Stakeholders, duly endorsed (or accompanied by duly executed stock powers), for
transfer to Buyer;
(ii) the Options held by the Selling Stakeholders, accompanied by an
assignment thereof to Buyer;
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(iii) a certificate executed by the Company and each of the Selling
Stakeholders representing and warranting to Buyer that each of the
representations and warranties by him, her or it in this Agreement was accurate
in all material respects as of the Date of the Deposit and is accurate in all
material respects as of the Closing Date as if made on the Closing Date (giving
full effect to any supplements to the Company Disclosure Schedule that were
delivered by the Company to Buyer prior to the Closing Date in accordance with
Section 6.5); and
(iv) such other documents as are required to be provided pursuant to
Section 8; and
(b) Buyer will deliver:
(i) to each Selling Stakeholder, the amount, as set forth in Exhibit A
to be paid to such Selling Stakeholder at the Closing, less such Selling
Stakeholder's pro rata share of the Expenses. Such amounts shall be paid by bank
cashier's check if the amount to be paid to such Selling Stakeholder is less
than Five Hundred Thousand Dollars ($500,000) and by wire transfer to accounts
specified by the Selling Stakeholder if the amount to be paid to such Selling
Stakeholder is greater than Five Hundred Thousand Dollars ($500,000);
(ii) to the Company, the amount set forth in Section 2.2(c), by
cashier's check;
(iii) to Sellers, a certificate executed by Buyer representing and
warranting to Buyer that each of Buyer's representations and warranties in this
Agreement was accurate in all material respects as of the date of this Agreement
and is accurate in all material respects as of the Closing Date as if made on
the Closing Date (giving full effect to any supplements to any schedules that
were delivered, pursuant to this Agreement, by the Buyer to the Company prior to
the Closing Date in accordance with Section 7.3);
(iv) to Sellers, such other documents as are required to be provided
pursuant to Section 9;
(v) to the Advisors, the amounts set forth in invoices to be delivered
to Buyer not less than three (3) days prior to Closing; and
(vi) to each Management Stakeholder, a Note Agreement, in the form
attached hereto as Exhibit D (the "Note Agreement") and a Note issued by the
Company and executed by the Buyer as a guarantor, in the form attached hereto as
Exhibit E-1 with respect to ▇▇▇▇ ▇. ▇▇▇▇▇▇ and as Exhibit E-2 with respect to
the other Management Stakeholders
(c) the Company will deliver to each Management Stakeholder, a note in
exchange for the Options and/or Common Shares held by him or her (the "Note") in
the form attached hereto as Exhibit E-1 with respect to ▇▇▇▇ ▇. ▇▇▇▇▇▇ and as
Exhibit E-2 with respect to the other Management Stakeholders, in the principal
amount set forth opposite his or her name on Exhibit B hereto less such
20
Management Stakeholder's pro rata share of the Expenses;
(d) the Management Stakeholders shall deliver to the Company:
(i) certificates representing the Shares held by the Management
Stakeholders, duly endorsed (or accompanied by duly executed stock powers) for
transfer to the Company;
(ii) the Options held by the Management Stakeholders, accompanied by
an assignment thereof, to the Company;
(iii) a certificate executed by the Management Stakeholders
representing and warranting to the Company that each of the representations and
warranties made by him or her in this Agreement was accurate in all material
respects as of the Date of the Deposit and is accurate in all material respects
as of the Closing Date as if made on the Closing Date (giving full effect to any
supplements to the Company Disclosure Schedule that were delivered by the
Company to the Buyer prior to the Closing Date in accordance with Section 6.5);
and
(iv) such other documents as are required to be provided pursuant to
Section 8.
2.6 Employment Agreement. Concurrently herewith, ▇▇▇▇ ▇. ▇▇▇▇▇▇ shall
execute and deliver an employment agreement with Buyer in the form attached
hereto as Exhibit F (the "Employment Agreement").
3. Representations and Warranties of the Company. The Company
represents and warrants, as of the Date of the Deposit, to Buyer that, except as
set forth on the Company Disclosure Schedule:
3.1 Corporation Organization.
(a) The Company is a corporation, duly incorporated, validly existing
and in good standing under the laws of the State of Delaware. The Company has
all requisite corporate power to own, operate and lease its properties and to
conduct its business as now being conducted. The Company is duly qualified or
licensed to do business, and is in good standing as a foreign corporation, in
each state or other jurisdiction in which it owns or leases properties or where
the nature of its business or operations requires such qualification or
licensing, unless the failure to do so would not have a material adverse effect
on the Company's assets, business, operations or financial condition. To the
knowledge of the Company, the Company has obtained all approvals,
authorizations, consents, licenses, clearances and orders of, and has currently
effective all registrations with, all governmental and regulatory authorities
that are necessary to the conduct of its business or operations as now being
conducted, except where the failure to do so would not have a material adverse
effect on the Company.
21
(b) The only Subsidiaries of the Company are: Omni Gen Technologies,
Inc., an Ohio corporation ("Omni Gen"); Keystone Recovery, Inc., an Ohio
corporation ("Keystone"); LFG Specialties, Inc., an Ohio corporation ("LFG");
O.W.T. Construction Company, an Ohio corporation ("OWT"); and American Landfill
Supply Co., an Iowa corporation ("ALS") (collectively, Omni Gen, Keystone, LFG,
OWT and ALS, the "Company Subsidiaries"). (Except where otherwise indicated or,
given the context otherwise appropriate, references herein to the "Company"
shall also include the Company Subsidiaries.) Except for a five percent (5%)
minority interest in Keystone, as of the Closing Date, the Company will own all
of the issued and outstanding capital stock of each of the Company Subsidiaries.
Each of the Company Subsidiaries is duly incorporated, validly existing and in
good standing in the state of its incorporation. Each of the Company
Subsidiaries has all requisite corporate power to own, operate and lease its
properties and to conduct its business as now being conducted. Each of the
Company Subsidiaries is duly qualified or licensed to do business, and is in
good standing as a foreign corporation in each state or other jurisdiction in
which it owns or leases properties or where the nature of its business or
operations requires such qualification or licensing, unless the failure to do so
would not have a material adverse effect on its assets, business, operations or
financial condition. To the knowledge of the Company, each of the Company
Subsidiaries has obtained all approvals, authorizations, consents, licenses,
clearances and orders of, and has currently effective all registrations with,
all governmental and regulatory authorities which are necessary to the conduct
of its business or operations as now being conducted, except where the failure
to do so would not have a material adverse effect on the Company.
3.2 Capitalization3.2Capitalization.
(a) The authorized capital stock of the Company consists solely of
7,500,000 shares of common stock, $0.01 par value, and 2,841,481 shares of
preferred stock, $0.01 par value, 1,360,000 of which are designated Series A
Preferred Stock, 740,740 of which are designated Series B Preferred Stock and
740,741 of which are designated Series C Preferred Stock. There are currently
issued and outstanding 712,000 shares of common stock, 1,360,000 shares of
Series A Preferred Stock, 740,740 shares of Series B Preferred Stock and 740,741
shares of Series C Preferred Stock. The Company Disclosure Schedule sets forth a
true and complete description of the authorized, issued and outstanding shares
of the capital stock of the Company and each of the Company Subsidiaries showing
all stockholders of the Company and each of the Company Subsidiaries as of the
date of this Agreement. All of the issued and outstanding shares of the Company
and the Company Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable except where failure to be so would not have a material adverse
effect on the business, financial position or operating results of the Company.
All such shares have been issued in accordance with federal and applicable state
securities laws concerning the issuance of securities. The Company Disclosure
Schedule accurately lists all holders of the Company's capital stock and each
such person's actual ownership interest. The rights, preferences and privileges
of the Company's capital stock are as stated in the Company's Certificate of
Incorporation, as heretofore amended.
22
(b) Except for the Options and as otherwise set forth in the Company
Disclosure Schedule, no options, warrants, conversion privileges, preemptive
rights, rights to first refusal or other rights, agreements or commitments
(written or otherwise by the Company or to the knowledge of the Company by any
Seller are currently outstanding to purchase or otherwise receive any of the
capital stock of the Company or the Company Subsidiaries.
(c) The Company has delivered to the Buyer complete and accurate
copies of the Certificates of Incorporation and Bylaws (including all amendments
thereto) of the Company and each of the Company Subsidiaries. Not less than
twenty (20) days before the Closing Date the Company will make available to the
Buyer the minute books of the Company and the Company Subsidiaries containing
minutes for all meetings of, and written consents issued by the Company and
executed by, each such corporation's stockholders, Board of Directors and all
committees of such Board since the date of organization of such corporation.
3.3 Corporate Authority. The Company has all requisite corporate
authority and power to execute and deliver this Agreement and the other
agreements referenced herein and to perform all of its obligations with respect
to the Contemplated Transactions. The execution, delivery and performance of
this Agreement and the other agreements referenced herein and the consummation
of the transactions contemplated hereby and thereby have been duly authorized,
or prior to the Closing will be duly authorized, by the Company's Board of
Directors and, if required, by its stockholders.
3.4 Dissolution; Forfeiture. No action at law or in equity and to the
Knowledge of the Company no investigation or proceeding, whatsoever is now
pending or threatened to: (a) liquidate, dissolve or disincorporate the Company
or any of the Company Subsidiaries, (b) declare any of the corporate rights,
powers or privileges of the Company or any of the Company Subsidiaries, to be
null and void or otherwise than in full force and effect, (c) declare that the
Company or any of the Company Subsidiaries, or their respective Boards of
Directors or any of their respective officers, agents or employees has exceeded
or violated any of their respective corporate rights, powers or privileges, or
(d) obtain any decree, order, judgment or other judicial determination or
administrative or other ruling that would or might impede or detract from any of
the corporate rights, powers or privileges now vested in or claimed by the
Company or any of the Company Subsidiaries.
3.5 The Company Financial Statements. The consolidated financial
statements of the Company for the fiscal years ended December 31, 1993 and
December 31, 1994 have been prepared and audited in accordance with GAAP (the
"Audited Financial Statements") and the consolidated financial statements of the
Company for year ended December 31, 1995 (the "Unaudited Financial Statements")
(collectively, the Audited Financial Statements and the Unaudited Financial
Statements being referred to as the "Company Financial Statements") have been
prepared in accordance with GAAP and fairly present the financial position of
the Company in accordance with GAAP as at the dates thereof; provided, however,
that the Unaudited Financial Statements do not contain the footnote disclosures
required by GAAP.
23
3.6 Absence of Unaccrued or Undisclosed Liabilities. Except for
claims, liabilities or obligations:
(a) which were properly reflected or adequately reserved against in
the balance sheet included as part of the Unaudited Financial Statements;
(b) which were incurred in the Ordinary Course of Business since
December 31, 1995;
(c) which are listed on the Company Disclosure Schedule;
(d) which are less than $25,000 in any single case; or
(e) which result from any failure to properly account for any of the
Company's estimated project costs and/or project revenue recognized in the
Audited Financial Statements or Unaudited Financial Statements and which, taken
in the aggregate with all other accrued project and related costs and/or revenue
recognized as of December 31, 1995, do not result in a net reduction in the
aggregate profit recognized by the Company on all projects subsequent to
December 31, 1995, the Company does not have any material liabilities whether
absolute, accrued, unaccrued, contingent or otherwise whether due or to become
due.
Except as set forth in paragraphs (a) through (e) of this Section 3.6,
the Company does not have Knowledge of and has no reasonable grounds to know of
any basis for any assertion against the Company of any material claims,
liabilities or obligations of any nature required by GAAP to be reflected in a
corporate balance sheet which have not been fully reflected or reserved against
in the December 31, 1995 balance sheet included as part of the Unaudited
Financial Statements, provided, however, that no limitation set forth in this
Section 3.6 shall in any way affect any other representation or warranty
contained in this Agreement.
3.7 Absence of Certain Changes. Since December 31, 1995 there has not
been any: (a) material adverse change in the business, financial condition or
operations of the Company and the Company Subsidiaries taken as a whole, (b)
recapitalization, amendment to the Certificate of Incorporation or Bylaws or any
change in, authorization, creation, issuance or agreement for issuance of, the
capital stock or any securities convertible into, or options, warrants or other
rights to subscribe to any shares of capital stock of the Company or the Company
Subsidiaries, or any declaration setting aside or payment of any dividend or
distribution (whether in cash, securities or property) with respect thereto,
except as contemplated hereby, (c) increase in the compensation, direct or
indirect, payable to any of the officers or employees of the Company or the
Company Subsidiaries, including adoption of or increase in any bonus, insurance,
pension or other employee benefit plan, payment or arrangement, or any other
agreement or arrangement with its officers, employees or stockholders, except as
24
contemplated hereby, (d) unwaived default in respect of any Material Contracts
(as defined in Section 3.14), except for such defaults, if any, which do not
have a material adverse effect on the financial position, business or operating
results of the Company, (e) material change in the methods and procedures
employed in keeping the books and records of the Company or the Company
Subsidiaries or (f) strike or material labor dispute.
3.8 Taxes. All tax returns of the Company required by law (including,
without limitation, all income, unemployment compensation, worker's
compensation, Social Security, excise, privilege and franchise tax laws of the
United States or any state or municipal subdivision thereof) to be filed through
the Closing Date (true and complete copies of which have been made available to
the Buyer) have been or will be duly and timely filed, and all taxes,
assessments, contributions, fees and governmental charges or impositions shown
on said returns or reports (other than those not yet due and payable or payable
without penalty or interest) have been paid, except where any failure to so file
or pay would, individually or in the aggregate, have a material adverse effect
on the Company and the Company subsidiaries, taken as a whole. The Company has
not received any notice of assessment of any federal, state, municipal or other
tax upon or measured by its income and, to the Company's knowledge, there is no
basis for an additional assessment of any such tax, except for those for which
the Company has established adequate reserves. The Company has not knowingly
waived any law or regulation fixing, or consented to the extension of, any
period of time for the assessment of any tax or other governmental imposition,
or become committed so to do. There are no audits of the Company pending and
there are no matters under discussion with any federal, state, local or foreign
authorities with regard to the payment of any taxes by the Company. There are no
issues that have been raised by the IRS or other taxing authority in connection
with an examination or otherwise which by application of similar principles
could reasonably be expected to result in a proposed deficiency for any period
not examined.
25
3.9 Title to Properties; Accounts Receivable.
(a) Except for property and assets that the Company has disposed of in
the Ordinary Course of Business, the Company has, and will have at the Closing
Date, good and marketable title to all properties and assets shown or
represented on the balance sheet included as part of the Unaudited Financial
Statements or acquired since December 31, 1995, free and clear of all mortgages,
pledges, liens, defects in title, conditional sale agreements and other
encumbrances, except for liens, encumbrances and defects in title in respect of
property or assets of the Company which: (i) are incidental to the conduct of
the Company's business; (ii) have arisen in the Company's Ordinary Course of
Business; (iii) were not incurred in connection with the borrowing of money or
the obtaining of advances or credit (other than credit arrangements related to
purchase money liens); and (iv) do not in the aggregate materially detract from
the property and assets of the Company. The Company has performed all the
obligations required to be performed by it with respect to all assets leased by
it through the date hereof, except where the failure to perform would not have a
material adverse effect on the business or financial condition of the Company.
The Company enjoys peaceful and undisturbed possession of all of its offices,
warehouses, buildings and all other real property and related facilities,
whether owned, leased or operated (collectively, the "Facilities"), and such
Facilities are not subject to any claims, liens, pledges, options, charges,
easements, security interests, rights-of-way, encumbrances or other rights, or
any encroachments, building or use restrictions, exceptions, reservations or
limitations which in any material respect interfere with or impair the present
and continued use thereof in the usual and normal conduct of its business. There
are no pending or threatened condemnation proceedings relating to any of the
Facilities. The Facilities and the real property improvements (including
leasehold improvements), equipment and other tangible assets owned or used by
the Company at the Facilities are insured in amounts believed by the Company to
be adequate and, to the Knowledge of the Company, are structurally sound with no
material defects. Said items are not subject to any commitment or other
arrangement for their sale by the Company or use by third parties other than
commitments or arrangements entered into in the Ordinary Course of Business. The
assets are valued at or below the lower of fair market value or actual cost less
an adequate and proper depreciation charge. For tax purposes, the Company has
not depreciated any of the assets in any manner inconsistent with applicable IRS
guidelines, if any.
(b) All tangible property, real and personal, owned or leased by the
Company is in good operating condition and repair, except for ordinary wear and
tear and any defects the cost of repairing which, singly or in the aggregate,
would not be material or are accrued for on the Company Financial Statements. To
the knowledge of the Company, such property is in conformity with all applicable
laws, ordinances, orders, regulations, rules and other requirements (including
applicable zoning, environmental, motor vehicle safety or standards,
occupational safety and health laws and regulations) currently in effect and
relating thereto, except where the failure to conform would not have a material
adverse effect on the business, operations or financial condition of the
Company.
(c) All accounts receivable of the Company shown on the Company
Financial Statements are valid, genuine and subsisting, arose in the Ordinary
Course of Business, and the aggregate amount thereof less the reserve for
26
doubtful accounts with respect thereto set forth in the Company Financial
Statements, are, to the best knowledge of the Company after due inquiry, current
and collectible within customary payment terms.
3.10 Proprietary Rights.
(a) The Company owns the rights to use all trademarks, trade secrets,
trade names, copyrights, processes, designs, formulas, know-how, inventions,
licenses and intellectual property rights used in connection with its business
and the same are believed by the Company to be sufficient to conduct such
business as it is now or heretofore has been conducted with no known or asserted
conflict with or infringement of the asserted or actual rights of others. The
Company has no Knowledge of any infringement by any third party in connection
with any of the foregoing and the Company has not taken or omitted to take any
action which would have the effect of waiving any of its rights thereunder, in
each case except where such infringement or waiver would not have a material
adverse effect on the business, prospects, condition (financial or otherwise) or
results of operations of the Company. To the Knowledge of the Company, no third
party has filed or been issued or granted any applications for patents,
trademarks, trade names or registered copyrights relating to the Company's
assets.
(b) The Company Disclosure Schedule lists all patents, patent
applications, trademarks, trade names and registered copyrights owned by the
Company. Except as set forth in the Company Disclosure Schedule, the Company is
not required to pay any royalty, license fee or similar type of compensation in
connection with the conduct of its business as it is now or heretofore has been
conducted.
(c) The Company has obtained written agreements from all required
parties and entities assigning to the Company any material proprietary rights
relating to the Company's assets. Such agreements are currently valid and in
full force and effect and except as set forth in the Company Disclosure
Schedule, do not contain any provisions or restrictions with regard to the
rights granted to the Buyer under this Agreement. Except as set forth on the
Company Disclosure Schedule, each of the Company's employees and any other
Person who, either alone or in concert with others, developed, invented,
discovered, derived, programmed, or designed any trade secrets of the Company,
or who have knowledge of or access to information related to them, have entered
into appropriate confidentiality agreements, copies of which will, at least
twenty (20) days prior to the Closing Date, have been provided to the Buyer. All
material trade secrets of the Company are currently protectable and are not part
of the public knowledge or literature, nor have they been used, divulged, or
appropriated for the benefit of any past or present employees or other persons,
or to the detriment of, the Company.
3.11 Customer Lists. The Company has provided the Buyer access to a
complete and accurate list of each of the material customers of the Company. The
relationships between the Company and its active customers and suppliers are, in
the aggregate, in good standing, and since December 31, 1994, no material
customer or supplier has canceled or terminated, or, to the Knowledge of the
27
Company, threatened to cancel, terminate or change its relationship
with the Company in any manner adverse to the Company.
3.12 Benefit Plans and Arrangements.
(a) Except as set forth in the Company Disclosure Schedule, or as
otherwise contemplated by this Agreement, the consummation of the Contemplated
Transactions will not result in any payment (whether of severance pay or
otherwise) becoming due from the Company to any employee, consultant or other
third party.
(b) The Company Disclosure Schedule lists all pension, retirement,
stock purchase, stock option, stock bonus, savings or profit sharing plan,
individual employment agreement, bonus or incentive compensation programs,
deferred compensation agreements, severance pay plans, consultant, bonus, or
group insurance contracts, or any other material incentive, welfare or employee
benefit plan, or similar arrangement, understanding or course of dealing,
including all employee benefit plans and employee pension benefit plans as
defined in Section 3(3) of ERISA (the "Employee Plans").
(c) With respect to the Employee Plans, the Company will, at least
twenty (20) days prior to the Closing Date, have delivered or made available to
the Buyer copies of any: (1) plans and related trust documents and amendments
thereto; (ii) the most recent summary plan descriptions and the most recent
annual report; (iii) annual reports on Form 5500 which were filed in each of the
most recent three (3) plan years, including, without limitation, all schedules
thereto and all financial statements with attached opinions of independent
accountants; (iv) Form PBGC-1 which was filed in each of the most recent three
(3) plan years; (v) the most recent actuarial valuation; and (vi) the most
recent determination letter received from the IRS. Such financial statements
fairly present the financial condition of each Employee Plan in accordance with
United States generally accepted accounting principles applied on a consistent
basis. All Employee Plans have been administered in substantial compliance with
their terms, ERISA to the extent applicable, and, where applicable, Section 401
of the Code.
(d) No event of the type set forth in Section 4043(b) of ERISA has
occurred and is continuing with respect to Employee Plans except insofar as such
an event may arise as a result of the consummation of the Contemplated
Transactions or would not have a material adverse effect upon the Company's
business, financial position or operating results. There exists no material
violation of ERISA with respect to the filing of reports, documents, and notices
regarding the Employee Plan participants or beneficiaries. No action, suit, or
proceeding is pending, nor, to the Knowledge of the Company, is any threatened
or imminent, with respect to the assets of any of the trusts under any Employee
Plan. All amendments required to bring an Employee Plan into conformity, in all
applicable and material respects, with ERISA have been made. Any bonding with
respect to an Employee Plan required under ERISA is in full force and effect. To
the Knowledge of the Company, the Company has not incurred any liability,
pursuant to Subtitle A of Title IV of ERISA, to the Pension Benefit Guaranty
Corporation.
28
(e) No breach of fiduciary responsibility has occurred with respect to
any of the Employee Plans other than such breach, if any, which would not have a
material adverse effect on the Company's business, financial position or
operating results. There is no suit, litigation or claim (other than routine
benefit claims) pending or, to the Knowledge of the Company, threatened against
the Company or any fiduciary of any Employee Plan involving any Employee Plan or
against any such plan or its assets by any employee or former employee (or
beneficiary thereof) of the Company which individually or in the aggregate would
adversely affect the financial condition of any such Employee Plan.
3.13 Compliance with Laws; Legal Proceedings.
(a) The Company is not in violation of, or in default with respect to,
any term or provision of (i) its Certificate of Incorporation or Bylaws, or (ii)
any judgment, writ, order, injunction, or decree of any court or of any federal,
state, or municipal agency or authority in any case or proceeding expressly
naming the Company.
(b) To the Knowledge of the Company, the Company and its operations
are in compliance with applicable statutes, ordinances, regulations,
requirements and orders of the federal government and of all states,
municipalities, and agencies thereof, and of all other authorities having
jurisdiction in respect of any of its assets or operations (including any
applicable foreign government or agency or subdivision thereof), except where
the failure to do so would not have a material adverse effect on the Company.
(c) The Company has not been threatened with, nor is it a party to,
directly or indirectly, nor, to the Knowledge of the Company, is there any set
of facts that is likely to give rise to, any material legal action, governmental
investigation, or other proceeding (governmental or private), including
investigations, inquiries, citations, complaints, orders or stipulations by any
federal, state or local agency or governmental unit, and there are no judgments,
orders, restrictions or decrees of a continuing nature outstanding against the
Company. The Company has not been threatened with, nor, to the Knowledge of the
Company is there any set of facts that is likely to give rise to, a charge of
any material violation of any provision of any federal, state, local or other
law (including common law), or administrative regulations in respect of its
business or property.
3.14 Contracts and Obligations. The Company Disclosure Schedule sets
forth a true and complete list of the following agreements and instruments to
which the Company is a party: (a) all executory contracts, agreements and
instruments having a total contract price in excess of $50,000; (b) all
contracts, agreements or instruments which are in the nature of teaming
agreements, joint venture agreements, non-compete agreements, franchise
agreements, exclusive license agreements or other similar agreements restricting
access to any business opportunity of the Company; (c) all loan or debt
agreements, guarantees, indemnities and bonding commitments; (d) all license or
technology transfer agreements; (e) all leases, subleases and equipment leases,
having a total contract price in excess of $50,000; (f) all agreements between
the Company, on the one hand, and any of the officers, directors or
stockholders; (g) all material agreements between the Company, on the one hand,
and any other employees of the Company on the other hand; (h) all material
licenses or permits issued by any government agency or authority for the benefit
of the Company and/or one or more of the Company Subsidiaries; (i) any
29
management or consultation agreement not terminable at will without liability;
(j) any contracts or agreements requiring the payment of fees or commissions in
connection with any sale of all or substantially all of the Company's stock or
assets or any sale of a substantial interest in the Company; and (k) any other
agreement which materially affects the Company's business, financial position or
operating results or which was entered into other than in the Ordinary Course of
Business (collectively, the "Material Contracts"). The Company has delivered to
the Buyer true and complete copies of each of the Material Contracts. The
Company is not in material violation of, or in default with respect to, any
Material Contract and the Material Contracts are valid, binding and enforceable,
subject only to applicable bankruptcy, insolvency and similar laws affecting
creditors rights generally and subject, as to enforceability, to general
principles of equity. To the Knowledge of the Company, the relationships between
the Company and the other parties to each of the Material Contacts are in good
standing, and no such other contract party has canceled or terminated, or
threatened to cancel, terminate or change in any manner adverse to the Company
such relationship or the terms of any Material Contract.
3.15 Employee Relations.
(a) The Company has no union or collective bargaining agreement, any
contract or other agreement with any labor organization or with any employee or
consultant which is not terminable at will by the Company, without liability,
and no such contract or agreement is under discussion by management of the
Company with any employee or consultant. There are no pending or threatened (i)
strikes, work stoppages, slowdowns or picketing respecting employees of the
Company, (ii) unfair labor practice complaints against the Company, or (iii)
statutes, contracts or agreements, domestic or foreign, which will obligate the
Company to make any severance payments as a consequence of the execution of this
Agreement or the consummation of the Contemplated Transactions.
(b) The Company has not received notice that there is any key employee
who intends to leave the Company's employ as a result of, or at the conclusion
of, the Contemplated Transactions. The Company's relationship with its employees
is good.
3.16 Insurance3.16 Insurance3.16 Insurance. The properties and risks
of the Company are covered by valid and currently effective insurance policies
issued in favor of the Company, which policies are set forth on the Company
Disclosure Schedule, and the Company is included as an insured party under such
policies, with full rights as loss payee. The Company Disclosure Schedule
contains a list and brief description of each insurance policy (copies of which
have been previously provided to the Buyer) maintained with respect to the
Company (or such corporation's assets or operations), which provides continuing
coverage as of the date hereof. The Company Disclosure Schedule also includes a
list and brief description of individual claims in excess of $10,000 now pending
or made during the 36-month period immediately preceding the date of this
Agreement, by or on behalf of the Company under any insurance policies.
30
3.17 Environmental Compliance.
(a) The Company has all material permits, licenses and other
authorizations required under applicable laws and regulations relating to
pollution control and protection of the environment necessary for the operation
of its Facilities. The Company is not in material violation of any of the terms
or conditions of any such permits, licenses, leases, or authorizations. To the
Knowledge of the Company, the Company has not acted or failed to act in
violation of any law or regulation, order or other requirement of governmental
authorities with respect to the pollution or the atmosphere, surface water,
groundwater and noise, the handling of toxic or hazardous waste material or
other matters related to the environment. There are no pending or, to the
Knowledge of the Company, threatened civil or criminal actions, notices of
violations or administrative proceedings relating to pollution control or
protection of the environment that would have a material adverse effect on the
business or financial condition of the Company.
(b) To the Knowledge of the Company, there are no material conditions,
circumstances, activities, practices, incidents, actions or plans which would be
reasonably likely to interfere with or prevent compliance or continued
compliance by the Company with any environmental laws currently in force or with
any existing regulation, code, order, decree, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder, or which may
give rise to any common law or other legal liability, including without
limitation, liability under the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") or similar state, foreign or local
laws, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, notice of violation, study or investigation of or against
the Company, based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling, or the emission,
discharge, release or threatened release into the workplace or the environment,
of any pollutant, contaminant, chemical, or industrial, toxic or hazardous
material, substance or waste on any properties owned or leased by, or under the
direct control of, the Company. Without in any way limiting the foregoing, no
release, emission or discharge to the environment of any hazardous substance (as
that term is currently defined under CERCLA or under any applicable analogous
state law ("Hazardous Substance")) has occurred or is currently occurring in
connection with any action or failure to act on any properties owned or leased
by, or under the direct control of, the Company which has or could give rise to
any liability of the Company.
3.18 Advances; Related Party Transactions.
(a) There are no receivables of the Company owing by any directors,
officers, employees or consultants of the Company or to any affiliate of any
such Company person or entity, other than advances by the Company in the
ordinary course of business to officers and employees for reimbursable business
expenses.
31
(b) No stockholder, officer, director or employee of the Company, nor
any member of the Family of any such stockholder, officer, director or employee
owns, or since December 31, 1993, has owned, directly or indirectly, any
interest exceeding five percent (5%) in (a) any business, corporate or other,
which is material party to any material business arrangement with the Company or
(b) any material property or rights, tangible or intangible, used in the
business of the Company. No stockholder, officer, or director of the Company,
owns, directly or indirectly, any interest in, or is an officer or director of,
any business, corporate or other (other than as a stockholder of a public
company), which competes with the Company.
3.19 Powers of Attorney. The Company Disclosure Schedule contains a
complete list of all powers of attorney (or similar instruments or
authorizations) granted by the Company to any person or entity. All such powers
of attorney (or similar instruments or authorizations) are subject to
termination or revocation by the Company at any time, without notice to any
other person or entity and without penalty.
3.20 No Brokers. The Company has not entered into and will not enter
into any contract, agreement or understanding with any Person, except for
▇▇▇▇▇▇▇ ▇▇▇▇▇ & Associates, Inc. (a copy of which contract has been provided to
Buyer), which may result in the obligation of the Company or the Buyer to pay
any finder's fee, brokerage commission or similar payment in connection with the
Contemplated Transactions
3.21 Other Agreements to Sell the Company. Except as set forth herein,
the Company has no legal obligation, absolute or contingent, to any person or
firm to sell any capital stock of the Company or to effect any merger,
consolidation or other reorganization, or disposition of all or substantially
all the assets, of the Company.
3.22 Banking Relationships. The Company Disclosure Schedule correctly
and completely lists all banks and accounts in such banks, with which the
Company has deposits, indicating the names of those authorized to sign documents
with respect to such accounts as of the date of the most recently approved
banking resolution with respect to each.
3.23 Information Supplied. Neither this Agreement, the Company
Financial Statements, the Company Disclosure Schedule, the Exhibits attached to
this Agreement, nor any other certificate, statement or document furnished or to
be furnished by the Company or the Sellers pursuant to the terms of this
Agreement, contains or will contain any untrue statement of a material fact
known to the Company or the Sellers, respectively, or omits or will omit to
state a material fact known by the Company or the Sellers respectively necessary
to make the statements contained in such information not misleading in light of
the circumstances under which such statements were made.
3.24 Execution and Performance of Agreement. Except as set forth on
the Company Disclosure Schedule, the signing and performance by the Company of
this Agreement, including all other agreements and instruments specifically
referred to herein, and the consummation of the Contemplated Transactions, will
not violate any provision of, or result in the breach of or constitute a default
under any law, order, writ, injunction or decree of any court, governmental
32
agency or arbitration tribunal or of any contract, agreement, or instrument to
which the Company is bound, except where the failure to do so will not have a
material adverse effect on the Company. Except for those required by that
certain Agreement between the Company and Technair SRL ("Technair") dated as of
July 26, 1995 (the "Technair Agreement"), all material consents, licenses,
authorizations or permissions necessary to the performance of this Agreement,
the other agreements and instruments referred to herein, and the Contemplated
Transactions have been obtained or will be obtained prior to the Closing Date.
This Agreement and each other agreement executed and delivered by the Company
and the Sellers pursuant to the terms of this Agreement, have been or by the
Closing will be duly executed and delivered by the Company and the Sellers and
upon such execution constitute legal, valid and binding obligations of the
Company and the Sellers, enforceable in accordance with their respective terms
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting enforcement of creditors
rights, rules or laws concerning equitable remedies.
4. Representations and Warranties of Sellers. Each Seller, as to
himself, herself or itself only, represents and warrants, as of the Date of the
Deposit, and except as set forth on the Company Disclosure Schedule, to the
Company and Buyer as follows:
4.1 Ownership of Shares and Options. Except as set forth in the
Company Disclosure Schedule, the Seller owns of record and beneficially the
number of Common Shares, Preferred Shares and Options, indicated opposite such
Seller's name in Exhibit A or Exhibit B hereto, as applicable, with full right
and authority to sell or exchange, as applicable, such securities hereunder, and
upon delivery of such Shares and/or Options hereunder, the Buyer or the Company
as the case may be, will receive good title thereto, free and clear of all
mortgages, pledges or security interests and not subject to any agreements or
understandings among any Persons with respect to the voting or transfer of such
securities other than those arising under agreements to which Buyer is a party
4.2 Execution, Delivery and Enforceability of Agreement; No Violation.
This Agreement has been duly executed and delivered by or on behalf of the
Seller, and at the Closing any other documents required hereunder to be executed
and delivered by or on behalf of the Seller will have been duly executed and
delivered. This Agreement constitutes the legal, valid and binding obligation of
the Seller, enforceable against such Seller in accordance with its terms, except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws affecting
creditor's rights generally. Any other agreements or documents required
hereunder to be executed and delivered by the Seller at Closing will constitute
the legal, valid and binding agreements of the Seller executing the same,
enforceable against such Seller in accordance with their respective terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other laws affecting
creditor's rights generally. Neither the execution of this Agreement nor the
consummation of the Contemplated Transactions by the Seller will violate, or
constitute a default under, or permit the acceleration of maturity of, except to
33
the extent waived, any indentures, mortgages, promissory notes, contracts or
agreements to which such Seller is a party or by which such Seller or such
Seller's properties are bound.
4.3 Information Supplied. To the Knowledge of such Seller, neither
this Agreement, the Company Financial Statements, the Company Disclosure
Schedule, the Exhibits attached to this Agreement, nor any other certificate or
document furnished or to be furnished by the Company or the Sellers pursuant to
the terms of this Agreement, contains or will contain any untrue statement of a
material fact known to the Seller or the Company, respectively, or omits or will
omit to state a material fact necessary to make the statements contained in such
information not misleading in light of the circumstances under which such
statements were made.
4.4 Residence and Domicile. The Seller is a resident of, and domiciled
in, the State indicated on Exhibit A or Exhibit B hereto, as applicable, as
being the residence of such Seller.
4.5 Brokers or Finders. Except as set forth in Section 3.20 above,
neither the Seller or any of such Seller's agents have incurred any obligation
or liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement or the
Contemplated Transactions.
5. Representations and Warranties of Buyer. Buyer represents and
warrants to Sellers and the Company, as of the date hereof and except as set
forth in the Buyer's Disclosure Schedule, as follows:
5.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
California.
5.2 Execution, Delivery and Enforceability of Agreement; No Violation.
This Agreement has been duly executed and delivered by or on behalf of the
Buyer, and at the Closing any other documents required hereunder to be executed
and delivered by or on behalf of the Buyer will have been duly executed and
delivered. This Agreement constitutes the legal, valid and binding obligation of
the Buyer, enforceable against Buyer in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws affecting creditor's rights
generally. Any other agreements required hereunder to be executed and delivered
by the Buyer at Closing will constitute the legal, valid and binding agreements
of the Buyer, enforceable against the Buyer in accordance with its respective
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws
affecting creditor's rights generally. Neither the execution of this Agreement
nor the consummation of the transactions provided for herein by the Buyer will
violate, or constitute a default under, or permit the acceleration of maturity
of, except to the extent waived, any indentures, mortgages, promissory notes,
contracts or agreements to which the Buyer is a party or by which the Buyer or
its properties are bound. Except as set forth in the Buyer's Disclosure
Schedule, Buyer is not and will not be required to obtain any Consent from any
34
Person in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions.
5.3 Investment Intent. Buyer is acquiring the Shares and Options from
the Selling Stakeholders for its own account and not with a view to their
distribution within the meaning of Section 2.11 of the Securities Act. Buyer is
a sophisticated business entity, experienced in the business of the Company and
is able to evaluate the merits and risks of acquiring the Shares and Options.
5.4 Certain Proceedings. There is no pending Proceeding that has been
commenced against Buyer that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions. To Buyer's Knowledge, no such Proceeding has been threatened.
5.5 Brokers or Finders. Buyer and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement.
5.6 Information Supplied. Neither the Buyer's Annual Report on Form
10-K for the fiscal year ending December 31, 1994, nor Quarterly Reports on Form
10-Q for the quarters ending March 31, 1995, June 30, 1995 or September 30, 1995
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein not misleading in light
of the circumstances under which such statements were made.
5.7 No Material Change. Since September 30, 1995, there has been no
material adverse change in the Buyer's business, financial position or
operations.
6. Covenants of the Company and Sellers Prior to Closing Date.
6.1 Conduct of Business Pending Closing. Except as contemplated by
this Agreement or otherwise agreed to by the Buyer in writing, prior to Closing,
the Company hereby covenants and agrees as follows:
(a) The Company will carry on its business in the Ordinary Course of
Business and, without limiting the generality of the foregoing, (i) not sell,
assign, lease, pledge, mortgage, encumber or otherwise dispose of or grant any
preferential rights in any of its assets, or incur or become obligated to pay,
any liabilities, except in the Ordinary Course of Business, (ii) not pay or
prepay any obligation or liability (fixed, contingent or otherwise), or
discharge or satisfy any lien or encumbrance, or settle any liability, claim,
dispute, proceeding, suit or appeal, pending or threatened against it or any of
its assets or properties, except for current liabilities included in the Company
Financial Statements and current liabilities incurred since December 31, 1995 in
the Ordinary Course of Business or current non-material liabilities, (iii)
except for individual expenditures and commitments made in the Ordinary Course
of Business and involving amounts not exceeding $100,000, not make any
expenditure or commitment for the purchase, acquisition, construction or
improvement of a capital asset, (iv) use its Best Efforts to continue in effect
all existing policies of insurance (or comparable insurance) of or relating to
35
the Company, (v) make such advances to, and investments in, each of the Company
Subsidiaries as are reasonably necessary for the proper operation of the Company
and each such Company Subsidiary, (vi) keep proper books of record and account
necessary to prepare financial statements in accordance with GAAP and (vii) not
amend or terminate any Material Contract in a manner that would have a material
adverse effect on the business, financial position or operating results of the
Company or amend any contract, agreement or license to which it is a party,
which amendment would make it a Material Contract, unless such amendment would
not have a material adverse effect on the business, financial condition or
operating results of the Company and would not extend the term of such contract,
agreement or license by more than one year.
(b) Except as required by Section 8.2, no change will be made in the
authorized or issued and outstanding capital stock of the Company, and the
Company shall not issue or commit to issue any option, warrant, note, bond or
other security convertible into shares of the Company's capital stock.
(c) Except as set forth in the Company Disclosure Schedule, no
increase will be made in the compensation payable or to become payable by the
Company to any of its directors, officers, employees, agents, consultants or
stockholders, including any stock options, bonus payments or other benefits.
(d) The Company will not effect or agree to effect any amendment or
supplement to, or extension of, any Employee Plan.
(e) Except as required to make the representations and warranties in
Section 3.1(b) accurate, the Company will not acquire any equity securities or
similar interest in any other corporation, association, joint venture,
partnership, business trust or other business entity, or acquire the assets or
liabilities of any of the foregoing, or merge, consolidate or otherwise combine
with any other corporation or other business entity, or enter into any agreement
providing for any of the foregoing.
(f) The Company will not enter into or agree to enter into any other
contracts, licenses or other transactions other than in the Ordinary Course of
Business and, without limiting the generality of the foregoing, not enter into
or agree to enter into any contracts, agreements or instruments which are in the
nature of joint venture agreements, non-compete agreements, franchise
agreements, exclusive license agreements, or other similar agreements.
(g) Except as required by currently existing agreements, the Company
will not declare or pay any dividend on the outstanding shares of the Company's
capital stock in cash, stock or property or redeem, repurchase or otherwise
acquire any shares of the Company's capital stock or enter into any agreement
providing for any of the foregoing.
36
(h) The Company and the Sellers will not solicit or initiate proposals
or offers from any person relating to any acquisition or purchase of all or
substantially all of the assets of, or any equity interest in, the Company or
any of the Company Subsidiaries, or any merger, consolidation, business
combination or similar transaction with the Company or any of the Company
Subsidiaries, or participate in any negotiations regarding, or furnish to any
other person any confidential information with respect to, or otherwise
cooperate in any way with, or participate in, facilitate or encourage, any
effort or attempt by any other person to do or seek any of the foregoing. The
Company shall promptly notify the Buyer if any such proposal or offer, or any
inquiry or contact with any person with respect thereto, is made.
(i) No change will be made with respect to the banking or safe deposit
arrangements of the Company:
(j) The Company will use its Best Efforts to keep intact the
organization of the Company; to keep available the services of the Company's
present employees; and to preserve the goodwill of its suppliers, customers and
others having business relations with the Company; and
(k) The Company will timely file all required material tax returns and
promptly pay all federal, state and local tax assessments and governmental
charges lawfully levied or assessed upon it or upon its properties, or upon any
part thereof, which have become due and payable, and the Company will withhold
from its employee's wages and pay over all federal and state taxes required to
be withheld and paid over.
6.2 Advice of Changes. Prior to the Closing Date, the Company will
promptly advise the Buyer in writing of (i) any known event occurring subsequent
to the date of this Agreement which would render any representation or warranty
of the Company contained in this Agreement, if made on and as of the date of
such event or the Closing Date, untrue or inaccurate in any material respect
(other than an event so affecting a representation or warranty which is
expressly limited to a state of facts existing at a time prior to the occurrence
of such event), and (ii) any material adverse change in the business, financial
position or operating results of the Company occurring subsequent to the date of
this Agreement.
6.3 Access and Information. The Company will, at all reasonable times
prior to the Closing Date and upon reasonable notice from Buyer, open its
offices, books, accounts and records, including policies, claims of creditors,
and obligations of the Company, and will, upon reasonable notice from Buyer,
provide free access to the Company's management to discuss the Company's
business operations, assets, liabilities, actual or potential litigation and
claims, properties and prospects, to working papers, files and records of its
accountants, each for full and unrestricted examination and inspection by the
Buyer, its officers, attorneys or accountants. Without in any way limiting the
foregoing, the Company shall, upon the reasonable request of the Buyer, allow
the Buyer and its representatives access to any property owned or leased by the
Company or the Company Subsidiaries for the performance of an environmental
audit (the "Environmental Audit"). No such examination or inspection shall in
37
any way affect, diminish or terminate any of the representations or warranties
of the Company or the Sellers hereunder or the right of the Buyer to rely
thereon.
6.4 Reasonable Efforts. Subject to the terms and conditions herein
provided, the Company and each Seller shall use his, her or its Best Efforts to
(a) cause to be fulfilled and satisfied all of the conditions to the Closing to
be fulfilled and satisfied by him, her or it and (b) cause to be performed all
of the matters required of him, her or it at the Closing.
6.5 Supplements to Company Disclosure Schedule. Sellers and the
Company shall have the right, from time to time, on or prior to the Closing, to
supplement the material set forth in the Company Disclosure Schedule initially
delivered by the Company to Buyer. Any references to the Company Disclosure
Schedule in this Agreement or in any other document entered into in connection
with this Agreement shall mean the Company Disclosure Schedule as fully amended
and supplemented on or prior to the Closing Date.
7. Covenants of Buyer Prior to Closing Date.
7.1 Access to Information. Between the date of this Agreement and the
Closing Date, Buyer will afford Sellers and their Representatives full and free
access, upon the request of Sellers, to copies of Buyer's public filings under
the Securities Act, the Exchange Act, and other information as Sellers and their
Representatives shall reasonably request.
7.2 Approvals of Governmental Bodies. As promptly as practicable after
the date of this Agreement, Buyer will, and will cause each of its Related
Persons to, make all filings required by Legal Requirements to be made by them
to consummate the Contemplated Transactions. Between the date of this Agreement
and the Closing Date, Buyer will, and will cause each Related Person to (a)
cooperate with Sellers with respect to all filings that Sellers are required by
Legal Requirements to make in connection with the Contemplated Transactions, and
(b) cooperate with Sellers in obtaining all consents identified in Part 3.2 of
the Company Disclosure Schedule.
7.3 Supplements to Schedules. Buyer shall have the right, from time to
time, on or prior to the Closing, to supplement the material set forth in any
schedule initially delivered to the Company or the Sellers pursuant to this
Agreement. Any references to the Buyer Disclosure Schedule in this Agreement or
in any other document entered into in connection with this Agreement shall mean
such schedules as fully amended and supplemented on or prior to the Closing
Date.
7.4 Best Efforts. Subject to the terms and conditions herein provided,
the Buyer shall use its Best Efforts to (a) cause to be fulfilled and satisfied
by it all of the conditions to the Closing to be fulfilled or satisfied by it
and (b) cause to be performed all of the matters required of it at Closing.
38
7.5 Advice of Changes. Prior to the Closing Date, the Buyer will
promptly advise all of the other parties hereto in writing of (i) any event
occurring subsequent to the date of this Agreement which would render any
representation or warranty of the Buyer contained in this Agreement, if made on
and as of the date of such event or the Closing Date, untrue or inaccurate in
any material respect (other than an event so affecting a representation or
warranty which is expressly limited to a state of facts existing at a time prior
to the occurrence of such event), and (ii) any material adverse change in the
business affairs of the Buyer occurring subsequent to the date of this
Agreement.
7.6 Discussions with Technair. Buyer shall give ▇▇▇▇ ▇. ▇▇▇▇▇▇ the
right to participate in all meetings or discussions which include Technair and
Buyer following the execution of this Agreement. Buyer shall use its Best
Efforts to facilitate cooperative and productive discussions among Technair, the
Company, Buyer and Wheelabrator EOS, Inc. and, if necessary, shall reasonably
cooperate to transition Technair to a new distributor if Technair and the
Company agree that the Company's exclusive rights to distribute Technair's
products in the U.S. shall be modified or terminated.
8. Conditions Precedent to Buyer's Obligation to Close. Buyer's
obligation to purchase the Shares and the Options from the Selling Stakeholders
and to take the other actions required to be taken by Buyer at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Buyer, in whole or in part):
8.1 Accuracy of Representations. Each of the representations and
warranties in Sections 3 and 4 of this Agreement (considered collectively), and
each of these representations and warranties (considered individually), must
have been accurate in all material respects as of the Date of the Deposit, and
must be accurate in all material respects as of the Closing Date as if made on
the Closing Date.
8.2 Conversion; Exchange.
(a) The Selling Stakeholders shall have converted their Preferred
Shares into Common Shares which conversion may be contingent upon, and effective
as of the time of, the Closing. Upon the consummation of the Contemplated
Transactions, (i) Buyer will own all of the outstanding stock of the Company,
which shall consist of 2,921,481 Common Shares, and (ii) all of the Options
shall be cancelled at the Closing.
(b) The Management Stakeholders shall have exchanged their Common
Shares and their Options into the Notes, as contemplated by this Agreement.
8.3 Material Changes. There shall be no material adverse changes to
the business, financial condition or operating results of the Company since the
Date of the Deposit.
39
8.4 Sellers' and the Company's Performance.
(a) All of the covenants and obligations that the Sellers and the
Company are required to perform or to comply with pursuant to this Agreement at
or prior to the Closing (considered collectively), and each of these covenants
and obligations (considered individually), must have been duly performed and
complied with in all material respects.
(b) Each Seller or the Company, as the case may be, must have
delivered each of the documents required to be delivered by such Seller pursuant
hereto and each of the other covenants and obligations in required to be
performed by Seller or the Company must have been performed and complied with in
all material respects.
8.5 Consents. Each of the Consents required to be obtained pursuant to
Section 3.24 hereof to consummate the Contemplated Transactions must have been
obtained and must be in full force and effect.
8.6 Additional Documents. Sellers must have caused the following
documents to be delivered to Buyer:
(a) resolution of the Board of Directors of the Company authorizing
the Contemplated Transactions, certified by the Secretary of the Company;
(b) certificates of good standing from their respective states of
incorporation for the Company and each of the Company Subsidiaries as of a date
no more than ten (10) days prior to the Closing Date.
8.7 Termination of Stockholders' Agreement8.7 Termination of
Stockholders' Agreement8.7 Termination of Stockholders' Agreement. The
Stockholders' Agreement, dated as of June 12, 1990, by and among the Company and
certain of its stockholders (including any subsequent amendments thereto) shall
have been terminated.
8.8 No Proceedings8.8No Proceedings8.8 No Proceedings. Except for
matters arising out of the Technair Agreement, since the date of this Agreement,
there must not have been commenced or threatened in writing against Buyer or the
Company, or against any Person affiliated with Buyer or the Company, any
Proceeding (a) involving any material challenge to, or seeking material damages
or injunctive relief in connection with, any of the Contemplated Transactions,
or (b) that may have the effect of preventing, delaying, making illegal, or
otherwise interfering with any of the Contemplated Transactions; provided
however that this Section 8.7 may not be relied upon by Buyer and this condition
will be deemed to have been waived by Buyer if Sellers agree to proceed to close
hereunder and to indemnify Buyer in full against any damages that may be
incurred by reason of any claim described in this Section 8.8 without regard to
the limitations on indemnification set forth in Section 12.2 below.
8.9 Approval of this Agreement by Company Board of Directors. This
Agreement and the agreements referenced herein must be approved by the Board of
40
Directors of the Company and the stockholders of the Company, if required by
applicable law or the Company's Certificate of Incorporation or Bylaws.
8.10 Company Disclosure Schedule. The Company shall have provided
Buyer full and complete and final copies of the Company Disclosure Schedule
which shall reflect no material adverse changes in the Company's business or
financial condition from the Date of the Deposit.
8.11 Execution by Sellers. All of the Sellers listed on Exhibit A and
Exhibit B hereto shall have executed this Agreement.
8.12 Employment Agreementnt. The Employment Agreement required by
Section 2.6 hereof shall be in full force and effect.
8.13 Resignations of Directors. All directors of the Company, with the
exception of ▇▇▇▇ ▇. ▇▇▇▇▇▇, shall have resigned effective as of the Closing
Date.
8.14 Notes. The Notes shall have been executed and delivered by the
Company to the Management Stakeholders.
8.15 Note Agreement. A Note Agreement shall have been executed by each
of the Management Stakeholders.
9. Conditions Precedent to Sellers' Obligation to Close. Sellers'
obligations to sell or exchange the Shares and/or Options, as the case may be,
and to take the other actions required to be taken by Sellers at the Closing is
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions (any of which may be waived by Sellers holding a majority
of the Shares, in whole or in part):
9.1 Accuracy of Representations. All of Buyer's representations and
warranties in Section 5 (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
9.2 Approval of this Agreement by Board of Directors. This Agreement
and the agreements referenced herein must be approved by the Board of Directors
of the Company.
9.3 Buyer's Performance.
(a) All of the covenants and obligations that Buyer is required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with in all
material respects.
41
(b) Buyer must have delivered each of the documents required to be
delivered by Buyer pursuant to Section 2.4 and must have made the cash payments
required to be made by Buyer pursuant to Section 2.
9.4 Consents. Each of the Consents required to be obtained pursuant to
Section 3.24 hereof to consummate the Contemplated Transactions must have been
obtained and must be in full force and effect.
9.5 Note Agreement. The Buyer shall have executed and delivered the
Note Agreement in the form attached hereto as Exhibit D.
9.6 Cancellation of the Options. At the Closing, each of the Buyer and
the Company shall cancel all of the Options acquired by it pursuant to this
Agreement.
9.7 No Material Adverse Change. There shall have been no material
adverse change in Buyer's business, financial condition or operating results
from the date of this Agreement.
9.8 Buyer's Disclosure Schedule. The Buyer shall have provided the
Company full and complete copies of Buyer's Disclosure Schedule which shall
reflect no material adverse changes in Buyer's business, financial condition or
operating results from the date of this Agreement.
9.9 Additional Documents. Buyer must have caused to be delivered to
Sellers:
(a) resolution of the Board of Directors of the Buyer authorizing the
Contemplated Transactions, certified by the Secretary of Buyer; and
(b) Certificates of good standing for the Buyer as of a date no more
than ten (10) days prior to the Closing Date.
9.10 No Proceedings. Except for matters arising out of the Technair
Agreement, since the date of this Agreement, there must not have been commenced
or threatened in writing against the Company or any Seller, or against any
Person affiliated with the Company or any Seller, any Proceeding (a) involving
any material challenge to, or seeking material damages or injunctive relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions; provided however that this Section 9.9 may
not be relied upon by the Company or Sellers and this condition will be deemed
to have been waived by the Sellers and the Company if Buyer agrees to proceed to
close hereunder and to indemnify the Company and Sellers in full against any
damages that may be incurred by reason of any claim described in this Section.
42
9.11 Execution. The Sellers listed on Exhibit A and Exhibit B shall
have executed this Agreement.
9.12 Employment Agreement. The Employment Agreement required by
Section 2.6 hereof shall be in full force and effect.
10. Covenants After the Closing Date.
10.1 Litigation Support. In the event and for so long as any party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with:
(a) any of the Contemplated Transactions; or
(b) any fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act or
transaction on or prior to the Closing Date involving any of the Company or the
Company Subsidiaries, then the other party shall cooperate with it and its
counsel in the defense or contest, make available its personnel and provide such
testimony and access to its books and records as shall be necessary in
connection with the defense or contest, all at the sole cost and expense of the
contesting or defending party (unless the contesting or defending party is
entitled to indemnification under Section 12 hereof).
10.2 Employment Incentives1. For a period of at least three (3) years
following the Closing, employees of the Company shall continue to receive
performance-based compensation generally consistent with the practice of the
Company in the years prior to the Closing.
11. Termination11.
11.1 Automatic Termination Events. This Agreement will terminate, as
of 5:00 p.m. Pacific time, on February 12, 1996, without any further action by
any party hereto, if the Deposit is not received by the Escrow Agent on or
before such date and time.
11.2 Other Termination Events. This Agreement may also be terminated
after the Date of the Deposit:
(a) by written notice delivered to the other parties hereto at or
prior to the Closing
(i) by (A) Buyer if a Breach of any provision of this Agreement has
been committed by any Seller or by the Company or (B) the Company if a Breach of
any provision of this Agreement has been committed by the Buyer, and such Breach
set forth in (A) or (B) has not been waived, or cured within ten (10) days after
receipt of written notice of such Breach by the party against whom such Breach
is alleged; provided, however, that the Buyer shall not be permitted to
43
terminate this Agreement based on any Breach by the Company or Seller which
relates in any manner to Technair unless Buyer can demonstrate that such Breach
resulted primarily from actions of the Company and/or Sellers unrelated to this
Agreement, the Contemplated Transactions or Buyer's discussions with Technair;
or
(ii) by the Buyer if the supplements to the Company Disclosure
Schedule, made pursuant to Section 6.5, disclose a material adverse change in
the business, financial position or operating results of the Company, from that
set forth on the Company Disclosure Schedule as delivered to the Buyer on the
date hereof and supplemented on or before the Date of the Deposit;
(b) by written notice delivered to the other parties hereto at or
prior to the Closing
(i) by Buyer if any of the conditions in Section 8 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or
(ii) by Sellers owning a majority of the Shares or the Company, if any
of the conditions in Section 9 has not been satisfied as of the Closing Date or
if satisfaction of such a condition is or becomes impossible (other than through
the failure of Sellers or the Company to comply with their obligations under
this Agreement) and Sellers and the Company have not waived such condition on or
before the Closing Date;
(c) by mutual consent of Buyer and the Company; or
(d) by written notice delivered to the other parties hereto at any
time after March 15, 1996 by the Buyer, the Company or Sellers holding a
majority of the Shares, if the Closing has not occurred (other than through the
failure of any party seeking to terminate this Agreement to comply fully with
its obligations under this Agreement) on or before March 15, 1996 or such later
date as the parties may agree upon.
11.3 Effect of Termination.
(a) In the event of the termination of this Agreement pursuant to
Section 11.1, no party shall have any liability to any other party hereunder;
provided, however, that the obligations in Sections 13.1, 13.2 and 13.3 shall
survive.
(b) Each party's right of termination under Section 11.2 after the
Date of the Deposit is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant to Section
11.2, all further obligations of the parties under this Agreement will
terminate, except as follows:
44
(i) The obligations in Sections 13.1, 13.2 and 13.3 will survive;
(ii) The obligations of Buyer pursuant to Section 12.3(a) will survive
if Buyer has paid the Deposit and either this Agreement has been terminated due
to a Breach by Buyer or this Agreement has been terminated by Buyer for any
reason other than a Breach by the Company or any Seller;
(iii) If this Agreement is terminated by a party because of the Breach
of the Agreement by another party the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
(c) In the event that this Agreement is terminated pursuant to Section
11.2, the Escrow Agent shall take the following actions with respect to the
Deposit:
(i) If Buyer has terminated the Agreement because of a Breach of the
Agreement by the Company or by the Sellers, the Escrow Agent shall pay the
Deposit to the Buyer;
(ii) If Buyer and the Company mutually agree to terminate the
agreement, the Escrow Agent shall pay the Deposit to the Buyer;
(iii) If the Company or the Sellers have terminated the Agreement
because of a Breach of the Agreement by Buyer, the Escrow Agent shall pay the
Deposit to the Company; and
(iv) If the Company or the Sellers have terminated the Agreement for
any reason other than a Breach of the Agreement by Buyer, the Escrow Agent shall
pay the Deposit to the Buyer.
12. Indemnification; Remedies.
12.1 Survival. Notwithstanding any investigation conducted before or
after the Closing Date, the parties hereto will be entitled to rely upon the
representations and warranties of the other parties hereto set forth in this
Agreement (as modified by each party's Disclosure Schedule attached as an
Exhibit to this Agreement). All representations and warranties in this Agreement
or in any instrument delivered pursuant to this Agreement will survive until the
date one (1) year after the Closing Date, at which time the representations and
warranties set forth in this Agreement and all liability of the parties hereto
with respect to those representations and warranties will terminate; provided,
however, that thereafter a party hereto will remain liable with respect to any
claim of Breach of a representation or warranty provided such claim has been
asserted in writing (specifying in reasonable detail the basis and amount of
such claim) on or before the date one (1) year after the Closing Date until such
time as said claim has been finally decided, settled, or adjudicated.
45
12.2 Indemnification and Reimbursement by Sellers.
(a) In the event the Company or any of the Sellers commits a Breach of
any of his, her or its representations or warranties or commits a Breach of any
of his, her or its covenants or obligations contained in this Agreement and
provided that Buyer makes a written claim for indemnification against the
Sellers within one (1) year after the Closing Date then, subject to the
limitations set forth in Section 12.2(b), each of the Sellers set forth on
Exhibit G (the "Indemnifying Sellers"), severally in the percentages and up to
the amounts set forth on Exhibit G, agrees to indemnify and hold harmless Buyer,
the Company and their respective Representatives, stockholders, controlling
persons and affiliates (collectively, the "Buyer's Indemnified Persons"), and
will reimburse the Buyer's Indemnified Persons for any loss, liability, claim,
damage, and expense (including costs of investigation and defense and reasonable
attorneys' fees) whether or not involving a third party claim (collectively,
"Damages"), which the Buyer's Indemnified Persons may suffer through and after
the date of the claim for indemnification, arising from or in connection with
any Breach of any representation or warranty, or covenant made by the Company or
the Sellers in this Agreement. Subject to the foregoing and the limitations set
forth in Section 12.2(b), each Seller shall be solely responsible for a Breach
of such Seller's representations and warranties under Section 4 hereof and no
other Seller shall have any liability therefor.
(b) The obligation of the Indemnifying Sellers to indemnify the
Buyer's Indemnified Persons pursuant to Section 12.2(a) shall be subject to the
conditions and limitations of this Agreement including, without limitation, the
following:
(i) The Buyer's Indemnified Persons shall not be entitled to
indemnification hereunder unless the aggregate Damages exceed $150,000 and then
such indemnification obligation shall extend only to the amount of such excess;
provided, however, that if a single Breach of any representation or warranty has
resulted in Damages exceeding $150,000, then the indemnification obligation of
the Indemnifying Sellers pursuant to Section 12.2(a) shall not be limited by
this Section 12.2(b)(i);
(ii) The indemnification obligation of any Management Stakeholder
shall be payable in cash or at such Management Stakeholder's option, through a
setoff reduction in the principal amount of the Note held by such Management
Stakeholder;
(iii) In no event shall the Indemnifying Sellers be required to
indemnify the Buyer's Indemnified Persons for any Damages after the Indemnifying
Sellers have, in the aggregate, paid indemnification obligations (whether in the
form of cash or a setoff of the Notes) aggregating $1,500,000;
(iv) Indemnifying Sellers shall not be required to indemnify the
Buyer's Indemnified Persons for any Breach which relates in any manner to
Technair unless Buyer can demonstrate that such Breach resulted primarily from
actions of the Company and/or the Sellers unrelated to this Agreement, the
Contemplated Transactions or Buyer's discussions with Technair;
46
(v) The indemnification provided by the Sellers in this Section 12 to
the Buyer's Indemnified Persons shall be the sole remedy of the Buyer's
Indemnified Persons for any claims relating to the Contemplated Transactions
except in the event of fraud by the Sellers or the Company.
12.3 Indemnification and Reimbursement by Buyer.
(a) In the event that the Company, any of the Sellers or any of the
directors of the Company are subject to any damages arising out of the Technair
Agreement as a result of this Agreement or the Contemplated Transactions,
("Technair Damages") then the Buyer agrees to indemnify and hold harmless such
Sellers and directors of the Company and each of them, and their respective
heirs, representatives, fiduciaries, controlling persons and affiliates
(collectively, the "Sellers' Indemnified Persons"), and will reimburse the
Sellers' Indemnified Persons from any Technair Damages which the Sellers'
Indemnified Persons may suffer through and after the date of the claim for
indemnification.
(b) In the event the Buyer commits a Breach of any of its
representations and warranties or commits a Breach of any of its covenants or
obligations contained in this Agreement and provided that the Sellers make a
written claim for indemnification against the Buyer within one (1) year after
the Closing Date, the Buyer agrees to indemnify and hold harmless the Sellers
Indemnified Persons and will reimburse the Sellers' Indemnified Persons for
Damages, which the Sellers' Indemnified Persons may suffer through and after the
date of the claim for indemnification, arising from and in connection with any
Breach of any representation or warranty or covenant made by Buyer in this
Agreement.
12.4 Procedure for Indemnification of Third Party Claims.
(a) Promptly after receipt by an indemnified party under Section 12.2
or Section 12.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any indemnified
party, except to the extent that the indemnifying party demonstrates that the
indemnifying party is prejudiced by the indemnified party's failure to give such
notice, and then only to the extent of such prejudice.
(b) If any Proceeding referred to in Section 12.4(a) is brought
against an indemnified party and such indemnified party gives notice to the
indemnifying party of the commencement of such Proceeding, the indemnifying
party will be entitled to actively participate in such Proceeding and, to the
extent that the indemnifying party wishes (unless the indemnifying party fails
to provide reasonable assurance to the indemnified party of its financial
capacity to defend such Proceeding and provide indemnification with respect to
47
such Proceeding), to assume the defense of such Proceeding with counsel
reasonably satisfactory to the indemnified party and, from and after notice from
the indemnifying party to the indemnified party of the indemnifying party's
election to assume the defense of such Proceeding, the indemnifying party will
not, as long as the indemnifying party diligently conducts such defense, be
liable to the indemnified party under this Section 12 for any fees of counsel
(other than that selected by the indemnifying party) or any other expenses with
respect to the defense of such Proceeding, in each case incurred by the
indemnified party subsequent to such notice of election from the indemnifying
party in connection with the defense of such Proceeding, other than reasonable
costs of investigation. If the indemnifying party assumes the defense of a
Proceeding, (i) no compromise or settlement of such claims may be effected by
the indemnifying party without the indemnified party's consent, which shall not
be unreasonably withheld, unless (A) there is no finding or admission of any
violation of Legal Requirements or any material violation of the rights of any
Person and no material effect on any claims than may be made against the
indemnified party, and (B) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (ii) the indemnifying party will
have no liability with respect to any compromise or settlement of such claims
effected without its consent, which shall not be unreasonably withheld. If
notice is given to an indemnifying party of the commencement of any Proceeding
and the indemnifying party does not, within twenty (20) days after the
indemnified party's notice is given, give notice to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying party will
be bound by any determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) Sellers and Buyer hereby consent to the non-exclusive jurisdiction
of any court in which a Proceeding is brought against any indemnified person for
purposes of any claim that an indemnified person may have under this Agreement
with respect to such Proceeding or the matters alleged therein, and agree that
process may be served on Sellers or Buyer with respect to such a claim anywhere
in the world. Nothing in this Section 12.4(d) shall be construed as in any way
affecting the terms of Section 13.5 hereof.
12.5 Benefits. The amount of any Damages payable by either party
hereunder shall be reduced by any net tax benefit or other benefit received by
the indemnified party as a result of such claim or proceeding which gave rise to
the Damage obligation of the indemnifying party. The indemnified party shall
have the obligation to reasonably mitigate the losses to the indemnifying party
from any claim for Damages.
48
12.6 Insurance Proceeds. In determining the amount of any Damages or
expenses for which any party is entitled to indemnification under this Section
12, the gross amount thereof will be reduced by any insurance proceeds realized
or to be realized by such party.
12.7 Procedure for Indemnification - Other Claims. A claim for
indemnification for any matter not involving a third party claim may be asserted
by notice to the party from whom indemnification is sought.
12.8 Agents of Indemnifying Sellers for Purposes of Indemnification;
Contribution Obligation of All Sellers.
(a) Each of the Indemnifying Sellers hereby appoints ▇▇▇▇▇ ▇▇▇▇▇
(representing Summit Investors, L.P., Summit Ventures, L.P., Summit Ventures II,
L.P. and SV Eurofund C.V.), ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (representing Environmental Venture
Fund) and ▇▇▇▇ ▇▇▇▇▇▇ (representing Management Stakeholders) as his, her or its
agents (the "Agents") for purposes of handling all indemnification claims
hereunder. If any one of the foregoing is unable or unwilling to serve, then the
remaining individuals shall collectively serve as Agents for purposes of this
Section 12 until a replacement is designated pursuant to Section 12.8(e). Each
Indemnifying Seller agrees that the Agents, acting by vote of a majority in
interest (as described on Exhibit G) of the Indemnifying Sellers, shall have
authority to act on such Indemnifying Seller's behalf, to arrange for and handle
all matters related to a defense of any indemnification action required of the
Indemnifying Sellers hereunder, to compromise any claim, to settle any amount,
and otherwise to take any action as the Agents shall deem necessary or advisable
in connection with the Sellers' indemnification obligations under this Section
12.
(b) All Sellers will be bound by the decisions of the Agents and each
Seller shall reimburse and contribute to the Indemnifying Sellers his, her or
its pro rata share (in accordance with the percentages set forth on Exhibits A
and B) of any indemnification obligations of the Indemnifying Sellers resulting
under this Section 12 based upon the decisions of the Agents so long as such
decisions are made by the Agents in good faith, acting reasonably.
(c) Upon the resignation or inability to serve of any of the Agents,
the resulting vacancy shall be filled by the Indemnifying Seller or Sellers
represented by the individual who has resigned or otherwise is unable to serve.
49
13. General Provisionsal.
13.1 Expenses. Except as otherwise expressly provided in this
Agreement, each party to the Agreement will bear his, her or its respective
expenses incurred in connection with the preparation, execution, and performance
of this Agreement and the Contemplated Transactions, including all fees and
expenses of agents, representatives, counsel, and accountants; provided,
however, that upon the Closing of the Contemplated Transactions, the fees and
expenses of ▇▇▇▇▇▇, Halter & ▇▇▇▇▇▇▇▇ shall be divided equally between the
Company and the Sellers up to a maximum obligation of $50,000 for the Company.
13.2 Public Announcements. No party shall issue any press release or
make any public announcement related to the subject matter of this Agreement
prior to the Closing without the prior written approval of the Company and the
Buyer; provided, however, that any party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning the publicly-traded securities of such party (in which case
the disclosing party will use its reasonable best efforts to advise the other
party prior to making the disclosure and consult with the other party regarding
the content thereof). The Company and Buyer will consult with each other
concerning the means by which the Company's employees, customers and suppliers
and others having dealings with the Company will be informed of the Contemplated
Transactions.
13.3 Confidentiality. Between the date of this Agreement and five (5)
years after the date hereof, Buyer and Sellers will maintain in confidence, and
will cause the directors, officers, employees, agents, and advisors of Buyer and
the Company to maintain in confidence, and not use to the detriment of another
party or the Company any written, oral, or other information obtained in
confidence from another party or the Company in connection with this Agreement
or the Contemplated Transactions, expressly including the reports of all
consultants retained pursuant to the terms of this Agreement, unless (a) such
information becomes publicly available through no fault of such party, (b) the
use of such information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the consummation of the
Contemplated Transactions, or (c) the furnishing or use of such information is
required by legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the party providing
such information may reasonably request.
13.4 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed within three (3) business days by registered mail, return receipt
requested, (c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), or (d) three (3)
business days after being sent by registered or certified mail, return receipt
50
requested, in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties):
Sellers: To each Seller at the address set forth on
Exhibits A or B
The Company: Organic Waste Technologies, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇, President
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇, Halter & ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Buyer: EMCON
▇▇▇ ▇. ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: R. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ & Freidenrich
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇, Esq.
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
13.5 Binding Arbitration; Service of Process. In the event of a
dispute between the parties related to or arising out of this Agreement, the
Agents and representatives of the Buyer and the Company will meet promptly in an
effort to resolve the dispute amicably. If such parties cannot agree upon a
resolution within thirty (30) days of any such party requesting a meeting for
resolution of a dispute, then the matter will promptly be submitted to binding
arbitration in accordance with this Section 13.5.
(a) Arbitration will be held in San Francisco, California, in
accordance with the rules and regulations of the American Arbitration
Association. The number of arbitrators will be one and will be selected in
accordance with the rules and regulations of the American Arbitration
Association. The determination of the arbitrator will be conclusive and binding
upon the parties, and any determination by the arbitrator of an award may be
filed with the clerk of a court of competent jurisdiction as a final
51
adjudication of the claim involved, or application may be made to such court for
judicial acceptance of the award and an order of enforcement, as the case may
be. Except to the extent otherwise directed by the arbitrator, each party will
bear its own expenses, including legal and accounting fees, if any, with respect
to the arbitration, and one-half of the costs of the arbitrator and of the fees
imposed by the American Arbitration Association.
(b) In any arbitration hereunder, the demand for arbitration shall
specifically delineate the claims asserted and the material issues with respect
thereto. Within thirty (30) days after filing a demand for arbitration, claimant
shall provide to respondent a list of all fact witnesses known to claimant, the
names and curriculum vitae of each expert witness anticipated to be called by
claimant, and a copy of relevant documents. Within thirty (30) days after
receipt of the foregoing information, respondent shall provide to claimant a
list of all fact witnesses known to respondent, the names and curriculum vitae
of each expert witness anticipated to be called by respondent, and a copy of
relevant documents known to respondent. Within ten (10) days after discovery has
been closed by the arbitrator (but in no event later than sixty (60) days prior
to the arbitration hearing), claimant shall present to respondent a list of all
fact and expert witnesses anticipated to be called by claimant, a summary of the
substance of each such witness' testimony, and a list of all documents
anticipated to be introduced by claimant (and a copy of such documents if not
previously provided to respondent). Within thirty (30) days after receipt of the
foregoing information, respondent shall present to claimant a list of all fact
and expert witnesses anticipated to be called by respondent, a summary of the
substance of each such witness' testimony, and a list of all documents
anticipated to be introduced by respondent (and a copy of such documents if not
previously provided to claimant). Any award by the arbitrator shall be subject
to all dollar and other limitations set forth in this Agreement.
(c) A demand for arbitration may be served on Buyer or Sellers by
certified U.S. Mail, postage prepaid, or reliable overnight delivery service, to
the address set forth in Section 13.4 hereof.
13.6 Further Assurances. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
13.7 Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
52
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
13.8 Entire Agreement and Modification. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
13.9 Company Disclosure Schedule.sclosure Schedule.
(a) The disclosures in the Company Disclosure Schedule, and those in
any Supplement thereto, must relate only to the representations and warranties
in the Section of the Agreement to which they expressly relate and not to any
other representation or warranty in this Agreement, unless it is obvious, from
the disclosure, in light of the circumstances under which such disclosure is
made, that other representations and warranties are affected thereby.
(b) In the event of any inconsistency between the statements in the
body of this Agreement and those in the Company Disclosure Schedule (other than
an exception expressly set forth as such in the Company Disclosure Schedule with
respect to a specifically identified representation or warranty), the statements
in the body of this Agreement will control.
13.10 Assignments, Successors, and No Third Party Rights. Neither
party may assign any of its rights under this Agreement without the prior
consent of the other parties, which will not be unreasonably withheld, except
that Buyer may assign any of its rights under this Agreement to any Subsidiary
of Buyer but Buyer will not be relieved of its obligations hereunder as a result
of such assignment. Subject to the preceding sentence, this Agreement will apply
to, be binding in all respects upon, and inure to the benefit of the successors
and permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their successors and assigns.
13.11 Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
13.12 Section Headings, Construction. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Sections" refer to the corresponding
53
Sections of this Agreement. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
13.13 Interpretation of Agreement. This Agreement has been submitted
to the scrutiny of all parties hereto and their respective counsel and shall be
given a fair and reasonable interpretation without consideration being given to
its having been drafted by either party or its counsel.
13.14 Time of Essence. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
13.15 Governing Law. This Agreement will be governed by and construed
under the laws of the State of Delaware without regard to conflicts of laws
principles.
13.16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
54
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE BUYER
EMCON, a California corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------
Its: President & Chief Financial Officer
THE COMPANY
ORGANIC WASTE TECHNOLOGIES, INC, a Delaware
corporation
By: /s/ ▇▇▇▇. ▇▇▇▇▇▇
-------------------
Its: President
55
SELLING STAKEHOLDERS
SUMMIT INVESTORS, L.P.
By: /s/
---------------------
Its: ---------------------
SUMMIT VENTURES, L.P.
By: /s/
---------------------
Its: ---------------------
SUMMIT VENTURES II, L.P.
By: /s/
--------------------
Its: --------------------
SV EUROFUND C.V.
By: /s/
-------------------
Its: -------------------
▇▇▇▇▇▇▇▇ & COMPANY
SECURITIES, INC.
By: /s/
------------------
Its: ------------------
ENVIRONMENTAL VENTURE FUND
By: /s/
------------------
Its: ------------------
56
/s/
-----------------
M. B. ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
By: /s/
------------------
Its: ------------------
/s/
-------------------
▇. ▇▇▇▇▇▇▇
/s/
------------------
▇▇▇▇ ▇▇▇▇▇
/s/
------------------
▇▇▇▇ ▇▇▇▇▇▇
/s/
------------------
▇▇▇▇▇ ▇▇▇▇▇▇
/s/
------------------
▇▇▇▇ ▇▇▇▇▇
/s/
------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/
------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/
----------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/
-----------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/
/s/
----------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
57
/s/
-------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/
-------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/
-------------------
▇▇▇▇▇ ▇▇▇▇▇▇
/s/
-------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/
-------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
/s/
-------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/
----------------------
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
MANAGEMENT STAKEHOLDERS
/s/
---------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/
---------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
57
/s/
---------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/
-----------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/
-----------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
58
EXHIBIT A.
Schedule of Selling Stakeholders Receiving Cash
Preferred Stock
------------------------------------------------
State of Options Options
MANAGEMENT Residence Common Series A Series B-1 Series B-2 Series C $ 0.50 $ 0.75
---------- --------- ------ -------- ---------- ---------- -------- ------- -------
▇▇▇▇ ▇. ▇▇▇▇▇▇ Ohio 10,000 -- --
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Ohio -- -- --
▇▇▇▇▇ ▇▇▇▇▇▇▇ Ohio -- 3,190 --
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Ohio -- -- --
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Ohio -- -- --
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Ohio -- -- --
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Iowa -- -- --
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ California -- -- --
▇▇▇▇▇ ▇▇▇▇▇▇ Ohio -- -- --
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ Ohio -- -- --
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Ohio -- -- --
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Ohio -- -- 3,190
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Ohio -- -- --
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Ohio -- -- --
▇▇▇ ▇▇▇▇▇▇▇ Ohio -- -- --
▇▇▇ ▇▇▇▇▇▇▇▇ Pennsylvania -- -- --
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Ohio -- -- --
Aman Green Ohio -- -- --
▇▇▇▇▇ ▇▇▇▇▇▇ New York -- -- --
DIRECTORS
▇▇▇▇ ▇▇▇▇▇ California -- -- -- -- -- -- --
▇▇▇▇ ▇▇▇▇▇▇ Massachusetts -- -- -- -- -- -- --
INVESTMENT FUNDS
Summit Ventures II, L.P. Massachusetts . -- 364,507 99,267 99,267 210,151 -- --
Summit Ventures, L.P. Massachusetts -- 364,507 99,267 99,267 210,151 -- --
Environmental Venture
Fund Illinois -- 302,225 82,304 82,304 174,296 -- --
SV Eurofund C.V Massachusetts -- 243,005 66,179 66 ,179 139,912 -- --
McDonald & Co. Ohio -- 75,556 20,576 20,576 -- -- --
Summit Investors, L.P. Massachusetts 10,200 2,777 2,777 6,231 -- --
INVESTORS
M.B. ▇▇▇▇▇▇▇▇▇▇▇ Ohio 42,000 -- -- -- -- -- --
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ Ohio 27,000 -- -- -- -- -- --
▇. ▇▇▇▇▇▇▇ Ohio 1,000 -- -- -- -- -- --
TOTAL 80,000 1,360,000 370,370 370,370 740,741 3,190 3,190
====== ========= ======= ======= ======= ===== =====
59
EXHIBIT A. (cont'd)
Schedule of Selling Stakeholders Receiving Cash
Gross Proceeds Total Compensation
by Security Type in Cash
---------------------------- ---------------------------
State of Common or
MANAGEMENT Residence Preferred Options Gross Net of Expenses
---------- --------- --------- ------- ----- ---------------
▇▇▇▇ ▇. ▇▇▇▇▇▇ Ohio $0.00 $0.00 $0.00 $0.00
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Ohio - - - -
▇▇▇▇▇ ▇▇▇▇▇▇▇ Ohio - - - -
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Ohio - - - -
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Ohio - - - -
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Ohio - - - -
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Iowa - - - -
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ California - - - -
▇▇▇▇▇ ▇▇▇▇▇▇ Ohio - - - -
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ Ohio - - - -
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Ohio - - - -
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Ohio - - - -
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Ohio - - - -
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Ohio - - - -
▇▇▇ ▇▇▇▇▇▇▇ Ohio - - - -
▇▇▇ ▇▇▇▇▇▇▇▇ Pennsylvania - - - -
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Ohio - - - -
Aman Green Ohio - - - -
▇▇▇▇▇ ▇▇▇▇▇▇ New York - - - -
$0.00 $0.00 $0.00 $0.00
DIRECTORS
▇▇▇▇ ▇▇▇▇▇ California $0.00 $0.00 $0.00 $0.00
▇▇▇▇ ▇▇▇▇▇▇ Massachusetts - - - -
$0.00 $0.00 $0.00 $0.00
INVESTMENT FUNDS
Summit Ventures II, L.P. Massachusetts $0.00 $0.00 $0.00 $0.00
Summit Ventures, L.P. Massachusetts - - - -
Environmental Venture
Fund Illinois - - - -
SV Eurofund C.V. Massachusetts - - - -
McDonald & Co. Ohio - - - -
Summit Investors, L.P. Massachusetts - - - -
$0.00 $0.00 $0.00 $0.00
INVESTORS
M.B. ▇▇▇▇▇▇▇▇▇▇▇ Ohio $0.00 $0.00 $0.00 $0.00
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ Ohio - - - -
▇. ▇▇▇▇▇▇▇ Ohio - - - -
$0.00 $0.00 $0.00 $0.00
TOTAL $0.00 $0.00 $0.00 $0.00
===== ===== ===== =====
60
EXHIBIT B.
Schedule of Management Stakeholders Receiving Note
Gross Proceeds Total Compensation
by Security Type in Note
------------------- -------------------
Preferred
State of Stock Options Options Net of
MANAGEMENT Residence Common All Series $ $0.75 Common Options Gross Expenses
---------- --------- ------ ---------- ------- ------- ----- --------
▇▇▇▇ ▇. ▇▇▇▇▇▇ Ohio - - - $0.00 $0.00 $0.00 $0.00
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Ohio 20,000 - - - - - -
▇▇▇▇▇ ▇▇▇▇▇▇▇ Ohio - (3,190) - - - - -
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Ohio 28,000 - - - - - -
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Ohio - - - - - - -
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Ohio - - - - - - -
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Iowa - - - - - - -
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ California - - - - - - -
▇▇▇▇▇ ▇▇▇▇▇▇ Ohio - - - - - - -
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ Ohio 39,000 - - - - - -
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Ohio - - - - - - -
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Ohio - - (3,190) - - - -
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Ohio - - - - - - -
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Ohio - - - - - - -
▇▇▇ ▇▇▇▇▇▇▇ Ohio - - - - - - -
▇▇▇ ▇▇▇▇▇▇▇▇ Pennsylvania - - - - - - -
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Ohio - - - - - - -
Aman Green Ohio - - - - - - -
▇▇▇▇▇ ▇▇▇▇▇▇ New York - - - - - - -
$0.00 $0.00 $0.00 $0.00
DIRECTORS
▇▇▇▇ ▇▇▇▇▇ California - - - - $0.00 $0.00 $0.00 $0.00
▇▇▇▇ ▇▇▇▇▇▇ Massachusetts - - - - - - - -
$0.00 $0.00 $0.00 $0.00
INVESTMENT FUNDS
Summit Ventures II, L.P. Massachusetts - - - - $0.00 $0.00 $0.00 $0.00
Summit Ventures, L.P. Massachusetts - - - - - - - -
Environmental Venture
Fund Illinois - - - - - - - -
SV Eurofund C.V. Massachusetts - - - - - - - -
McDonald & Co. Ohio - - - - - - - -
Summit Investors, L.P. Massachusetts - - - - - - -
$0.00 $0.00 $0.00 $0.00
INVESTORS
M.B. ▇▇▇▇▇▇▇▇▇▇▇ Ohio - - - - $0.00 $0.00 $0.00 $0.00
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ Ohio - - - - - - - -
▇. ▇▇▇▇▇▇▇ Ohio - - - - - - - -
$0.00 $0.00 $0.00 $0.00
TOTAL 87,000 (3,190) (3,190) $0.00 $0.00 $0.00 $0.00
====== ===== ======= ====== ===== ===== ===== =====
61
EXHIBIT E-1 to Stock Purchase Agreement
CONVERTIBLE NOTE
Cleveland, Ohio $1,022,047.75
February 29, 1996
FOR VALUE RECEIVED, Organic Waste Technologies, Inc., a Delaware
corporation (hereinafter called the "Borrower"), hereby promises to pay to ▇▇▇▇
▇. ▇▇▇▇▇▇, or his respective registered assigns (the "Holder") or order, the sum
of One Million Twenty-Two Thousand Forty-Seven Dollars and Seventy-Five Cents
($1,022,047.75) (the "Principal"), on March 1, 2001, and to pay interest on the
unpaid principal balance hereof at the rate of eight percent (8%) per annum from
the date hereof until the same becomes due and payable. Interest shall commence
accruing on the date hereof and shall be payable annually on each anniversary of
the date hereof, beginning on the first anniversary hereof, with all interest
remaining unpaid at maturity due at such time. All payments of Principal and
interest shall be made in lawful money of the United States of America. All
payments shall be made at the address of the Holder, as set forth in Section 6.2
hereof or as the Holder shall hereafter give to the Borrower by written notice
made in accordance with the provisions of this Note.
The following terms shall apply to this Note:
ARTICLE I
PROHIBITION AGAINST PREPAYMENT
1.1 Borrower shall have no right to prepay this Note at any time.
ARTICLE II
CONVERSION INTO BORROWER'S STOCK
In the event that Borrower consummates a sale of Borrower's common
stock (the "OWT Common Stock") to the public pursuant to a firm commitment
underwritten public offering in an amount of at least Ten Million Dollars
($10,000,000) or any lesser amount as may be approved in writing by ▇▇▇▇ ▇.
▇▇▇▇▇▇, (the "Initial Public Offering") at any time prior to the expiration of
the term hereof, upon the consummation of the Initial Public Offering, the
Principal shall be automatically converted into shares of OWT Common Stock,
pursuant to the terms of this Article II. In such event, any accrued but unpaid
interest shall be immediately due and payable.
62
2.1 Conversion Price. The number of shares of OWT Common Stock into
which the Principal shall be converted shall be the amount of the Principal,
divided by the OWT Conversion Price. The OWT Conversion Price shall initially be
Four Dollars and Eighty Cents ($4.80), and shall be adjusted as set forth in
Section 2.2 hereof.
2.2 Adjustments to OWT Conversion Price. The OWT Conversion
Price shall be adjusted as set forth in this section 2.2.
(a) Subdivisions. In case Borrower shall at any time subdivide
the outstanding shares of OWT Common Stock, the OWT Conversion Price in effect
immediately prior to such subdivision shall be proportionately decreased, and in
case the Company shall at any time combine the outstanding shares of OWT Common
Stock, the OWT Conversion Price in effect immediately prior to such combination
shall be proportionately increased, effective at the close of business on the
date of such subdivision or combination, as the case may be.
(b) Stock Dividends. In case Borrower shall at any time pay a
dividend with respect to OWT Common Stock payable in OWT Common Stock, then the
OWT Conversion Price in effect immediately prior to the record date for
distribution of such dividend shall be adjusted to that price determined by
multiplying the OWT Conversion Price in effect immediately prior to such record
date by a fraction (i) the numerator of which shall be the total number of
shares of OWT Common Stock outstanding immediately prior to such dividend and
(ii) the denominator of which shall be the total number of shares of OWT Common
Stock outstanding immediately after such dividend.
(c) Reclassification or Merger. In case of any
reclassification, change or conversion of the OWT Common Stock (other than as a
result of a subdivision or combination described above and other than upon any
Acceleration Event, as defined below), Borrower shall have the right to receive,
upon exchange of this Note (which may occur at the option of the Holder only)
the kind and amount of shares of stock, other securities, money and property
receivable upon such reclassification, change or conversion by a holder of the
number of shares of OWT Common Stock into which this Note could then be
exchanged in the event that an Initial Public Offering had occurred. The
provisions of this subparagraph (iii) shall similarly apply to successive
reclassifications, changes, and conversions.
(d) Anti-Dilution Protection. In the event that Borrower
issues and sells shares of OWT Common Stock to EMCON or affiliated companies of
EMCON, at a price per share that is less than the OWT Conversion Price then in
effect, then the OWT Conversion Price shall be adjusted to equal such per share
price.
2.3 Participation in Initial Public Offering. In the event that
Borrower undertakes an Initial Public Offering or any other public registered
underwritten offering pursuant to the Securities Act of 1933, as amended (the
"Act"), Holder may, at his option, sell the shares of OWT Common Stock into
which this Note may be converted pursuant to Article II hereof on a pro rata
basis with EMCON and the other holders of OWT Common Stock participating in such
offering, subject to the approval of the managing underwriters for such
63
offering. This right shall expire at such time as Holder may sell all shares of
OWT Common Stock into which this Note may be converted in any three month period
pursuant to Rule 144 under the Act. The procedures and terms of such
registration rights shall be as set forth in Sections 4 to 7 of the Note
Agreement (as defined below).
ARTICLE III
OFFSET
3.1 Offset.
(a) The Holder acknowledges that this Note is being made by
the Borrower pursuant to that certain Stock Purchase Agreement, dated as of
January ____, 1996, by and among the Borrower, EMCON, a California corporation
("EMCON"), and the holders of the outstanding capital stock of the Borrower and
outstanding options to purchase OWT Common Stock ("OWT Options") and that
certain Note Agreement, dated as of the date hereof, by and among Borrower,
EMCON and certain holders of OWT Common Stock and OWT Options (the "Note
Agreement"). The Holder further acknowledges that he or she is bound by the
Stock Purchase Agreement and the Note Agreement, and that the Principal due
hereunder may be reduced by any amounts due from the Holder to EMCON pursuant to
Section 12.2 of the Stock Purchase Agreement.
(b) In addition, the Principal and interest hereunder may be
reduced by any amount outstanding from the Holder under the Loan Note (as
defined in the Note Agreement) which the Holder then owes to OWT or EMCON at
such time as this Note becomes due and payable.
ARTICLE IV
ACCELERATION
4.1 Notwithstanding anything to the contrary herein, in the event that
any of the events set forth in paragraphs (a) through (h) of this Section 4.1
(each, an "Acceleration Event") shall occur at any time after the date hereof,
then, subject to the qualification set forth in paragraph (g) below, the
Principal and all interest thereon shall, at the option of the Holder, be
immediately due and payable
(a) upon a consolidation or merger of EMCON with or into any
other corporation or corporations (other than a wholly-owned subsidiary of EMCON
and other than a merger in which EMCON is the surviving corporation), or the
sale, transfer or other disposition of all or substantially all of the assets of
EMCON;
64
(b) upon a change in ownership of Fifty Percent (50%) or more,
in a single transaction, of the stock of the Borrower, other than to an
affiliate or affiliates of EMCON which does not materially alter EMCON's direct
or indirect ownership of Borrower;
(c) upon a change in ownership of Fifty Percent (50%) or more,
in a series of two (2) or more transactions, of the outstanding stock of the
Borrower, other than to an affiliate or affiliates of the Borrower and a
substantial diminution in the responsibilities of ▇▇▇▇ ▇. ▇▇▇▇▇▇ with respect to
the Borrower in his capacity as an employee of EMCON;
(d) (i) upon a change in ownership of Thirty-Five Percent
(35%) or more of the stock of EMCON to a single buyer or an affiliated group of
buyers, resulting in a change in the majority of the board of directors of EMCON
from the board of directors as it existed immediately prior to such change in
ownership, or (ii) upon a change in ownership of Fifty Percent (50%) or more, in
a single transaction, of the stock of EMCON;
(e) upon the liquidation, dissolution or winding up of the
Borrower or the consolidation or merger of the Borrower with and into another
corporation (other than a merger in which the Borrower is the surviving
corporation);
(f) upon the occurrence of any transaction, without the
consent of ▇▇▇▇ ▇. ▇▇▇▇▇▇, in which Twenty Percent (20%) or more of the
outstanding stock of the Borrower becomes owned by persons other than EMCON or
an affiliate or affiliates of EMCON;
(g) upon the death of Holder or termination of the Holder's
employment by Borrower, other than a Termination for Cause. "Termination for
Cause" is intended to embrace intentionally or grossly negligent conduct on the
part of the Holder which is materially detrimental to the operations and/or
reputation of the Borrower or EMCON. By way of illustration such actions would
include (but would not be limited to) a material breach of the Holder's
obligations under any employment agreement between the Holder and OWT and/or
conviction of a crime (other than minor infractions such as parking or similar
traffic violations), moral turpitude and revocation by the applicable licensing
authority of professional licenses (if any) material to the Holder's ability to
perform the Holder's employment obligations. Notwithstanding any obligation of
Borrower to repay all outstanding Principal and interest thereon upon an
65
Acceleration Event, in the event of death of the Holder or termination of
Holder's employment by Borrower other than a Termination for Cause, Borrower
may, at its option, repay one half of all amounts due hereunder upon such event
and the remaining one half of such amounts six (6) months after the occurrence
of such event (together with interest on such deferred portion computed at the
rate of 8% per annum); or
(h) upon a fundamental change in EMCON's current strategy of
focussing a material amount of EMCON's resources on services relating to the
design, construction, ownership, operation and maintenance of infrastructure;
66
provided, however, that upon any Acceleration Event, no amount shall be due and
payable hereunder in the event that the Holder has exchanged this Note for
common stock of EMCON, pursuant to the Note Agreement.
ARTICLE V
EVENTS OF DEFAULT
If of any of the following events of default (each, an "Event of
Default") shall occur:
5.1 Failure to Pay Principal or Interest. The Borrower or EMCON
fails to pay the Principal or interest when due;
5.2 Receiver or Trustee. The Borrower or EMCON shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business, or such a receiver or trustee shall otherwise be appointed;
5.3 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any bankruptcy law
or any law for relief of debtors shall be instituted by or against the Borrower
or EMCON;
then upon the occurrence and during the continuation of any Event of Default,
then, at the option of the Holder, the Principal and all interest due thereon
shall be immediately due and payable, and the Borrower shall have all other
remedies available at law or equity.
ARTICLE VI
MISCELLANEOUS
6.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges.
6.2 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed within three (3) business days by registered mail, return receipt
requested, (c) when received by the addressee, if sent by a
67
nationally recognized overnight delivery service (receipt requested), or (d)
three (3) business days after being sent by registered or certified mail, return
receipt requested, in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Holder:
------------------------------------
------------------------------------
------------------------------------
------------------------------------
------------------------------------
Borrower: Organic Waste Technologies, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attn: President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
6.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
6.4 Governing Law. This Note shall be governed by the internal
laws of the State of Delaware, without regard to the principles of conflict of
laws.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its duly authorized officer as of the ______day of____________ , 1996.
ORGANIC WASTE TECHNOLOGIES, INC.
By: /s/
----------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
----------------------
Title: President
---------------------
68
Borrower is a wholly-owned subsidiary of EMCON, a California
corporation ("EMCON"). To induce the Holder to give and continue to give credit
to Borrower and in consideration of the extension of such credit, EMCON hereby
absolutely and unconditionally guarantees prompt payment when due of the amounts
due from Borrower under this Note. EMCON further absolutely and unconditionally
guarantees the prompt performance when due of all the obligations of Borrower
under the Note. The undersigned undertakes this continuing, absolute, and
unconditional guaranty of the aforementioned payment and performance by Borrower
notwithstanding that any portion of the amount due under the Note shall be void
or voidable as between the Borrower and any of its creditors, including, without
limitation, any bankruptcy trustee of the Borrower. This absolute, continuing,
unconditional, and unrestricted guaranty is a guaranty of payment and not a
guaranty of collection. Upon Borrower's failure to pay the Note promptly when
due, the Holder, at his sole option, may proceed against EMCON to collect the
amount due, with or without proceeding against the Borrower. EMCON waives all
defenses to this guaranty.
EMCON
By: /s/
--------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President & Chief Executive Officer
Date: February 29, 1996
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EXHIBIT E-2 to Stock Purchase Agreement
CONVERTIBLE NOTE
Cleveland, Ohio $__________
February 29, 1996
FOR VALUE RECEIVED, Organic Waste Technologies, Inc., a Delaware
corporation (hereinafter called the "Borrower"), hereby promises to pay to name,
or his or her respective registered assigns (the "Holder") or order, the sum of
number Dollars ($amount) (the "Principal"), on March 1, 2001, and to pay
interest on the unpaid principal balance hereof at the rate of eight percent
(8%) per annum from the date hereof until the same becomes due and payable.
Interest shall commence accruing on the date hereof and shall be payable
annually on each anniversary of the date hereof, beginning on the first
anniversary hereof, with all interest remaining unpaid at maturity due at such
time. All payments of Principal and interest shall be made in lawful money of
the United States of America. All payments shall be made at the address of the
Holder, as set forth in Section 6.2 hereof or as the Holder shall hereafter give
to the Borrower by written notice made in accordance with the provisions of this
Note.
The following terms shall apply to this Note:
ARTICLE I
PROHIBITION AGAINST PREPAYMENT
1.1 Borrower shall have no right to prepay this Note at any time.
ARTICLE II
CONVERSION INTO BORROWER'S STOCK
In the event that Borrower consummates a sale of Borrower's common
stock (the "OWT Common Stock") to the public pursuant to a firm commitment
underwritten public offering in an amount of at least Ten Million Dollars
($10,000,000) or any lesser amount as may be approved in writing by ▇▇▇▇ ▇.
▇▇▇▇▇▇, (the "Initial Public Offering") at any time prior to the expiration of
the term hereof, upon the consummation of the Initial Public Offering, the
Principal shall be automatically converted into shares of OWT Common Stock,
pursuant to the terms of this Article II. In such event, any accrued but unpaid
interest shall be immediately due and payable.
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2.1 Conversion Price. The number of shares of OWT Common Stock into
which the Principal shall be converted shall be the amount of the Principal,
divided by the OWT Conversion Price. The OWT Conversion Price shall initially be
Four Dollars and Eighty Cents ($4.80), and shall be adjusted as set forth in
Section 2.2 hereof.
2.2 Adjustments to OWT Conversion Price. The OWT Conversion Price
shall be adjusted as set forth in this section 2.2.
(a) Subdivisions. In case Borrower shall at any time subdivide
the outstanding shares of OWT Common Stock, the OWT Conversion Price in effect
immediately prior to such subdivision shall be proportionately decreased, and in
case the Company shall at any time combine the outstanding shares of OWT Common
Stock, the OWT Conversion Price in effect immediately prior to such combination
shall be proportionately increased, effective at the close of business on the
date of such subdivision or combination, as the case may be.
(b) Stock Dividends. In case Borrower shall at any time pay a
dividend with respect to OWT Common Stock payable in OWT Common Stock, then the
OWT Conversion Price in effect immediately prior to the record date for
distribution of such dividend shall be adjusted to that price determined by
multiplying the OWT Conversion Price in effect immediately prior to such record
date by a fraction (i) the numerator of which shall be the total number of
shares of OWT Common Stock outstanding immediately prior to such dividend and
(ii) the denominator of which shall be the total number of shares of OWT Common
Stock outstanding immediately after such dividend.
(c) Reclassification or Merger. In case of any
reclassification, change or conversion of the OWT Common Stock (other than as a
result of a subdivision or combination described above and other than upon any
Acceleration Event, as defined below), Borrower shall have the right to receive,
upon exchange of this Note (which may occur at the option of the Holder only)
the kind and amount of shares of stock, other securities, money and property
receivable upon such reclassification, change or conversion by a holder of the
number of shares of OWT Common Stock into which this Note could then be
exchanged in the event that an Initial Public Offering had occurred. The
provisions of this subparagraph (iii) shall similarly apply to successive
reclassifications, changes, and conversions.
(d) Anti-Dilution Protection. In the event that Borrower
issues and sells shares of OWT Common Stock to EMCON or affiliated companies of
EMCON, at a price per share that is less than the OWT Conversion Price then in
effect, then the OWT Conversion Price shall be adjusted to equal such per share
price.
2.3 Participation in Initial Public Offering. In the event that
Borrower undertakes an Initial Public Offering or any other public registered
underwritten offering pursuant to the Securities Act of 1933, as amended (the
"Act"), Holder may, at his option, sell the shares of OWT Common Stock into
which this Note may be converted pursuant to Article II hereof on a pro rata
basis with EMCON and the other holders of OWT Common Stock participating in such
offering, subject to the approval of the managing underwriters for such
71
offering. This right shall expire at such time as Holder may sell all shares of
OWT Common Stock into which this Note may be converted in any three month period
pursuant to Rule 144 under the Act. The procedures and terms of such
registration rights shall be as set forth in Sections 4 to 7 of the Note
Agreement (as defined below).
ARTICLE III
OFFSET
3.1 Offset.
(a) The Holder acknowledges that this Note is being made by
the Borrower pursuant to that certain Stock Purchase Agreement, dated as of
January , 1996, by and among the Borrower, EMCON, a California corporation
("EMCON"), and the holders of the outstanding capital stock of the Borrower and
outstanding options to purchase OWT Common Stock ("OWT Options") and that
certain Note Agreement, dated as of the date hereof, by and among Borrower,
EMCON and certain holders of OWT Common Stock and OWT Options (the "Note
Agreement"). The Holder further acknowledges that he or she is bound by the
Stock Purchase Agreement and the Note Agreement, and that the Principal due
hereunder may be reduced by any amounts due from the Holder to EMCON pursuant to
Section 12.2 of the Stock Purchase Agreement.
(b) In addition, the Principal and interest hereunder may be
reduced by any amount outstanding from the Holder under the Loan Note (as
defined in the Note Agreement) which the Holder then owes to OWT or EMCON at
such time as this Note becomes due and payable.
ARTICLE IV
ACCELERATION
4.1 Notwithstanding anything to the contrary herein, in the event that
any of the events set forth in paragraphs (a) through (h) of this Section 4.1
(each, an "Acceleration Event") shall occur at any time after the date hereof,
then the Principal and all interest thereon shall, at the option of the Holder,
be immediately due and payable
(a) upon a consolidation or merger of EMCON with or into any
other corporation or corporations (other than a wholly-owned subsidiary of EMCON
and other than a merger in which EMCON is the surviving corporation), or the
sale, transfer or other disposition of all or substantially all of the assets of
EMCON;
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(b) upon a change in ownership of Fifty Percent (50%) or more,
in a single transaction, of the stock of the Borrower, other than to an
affiliate or affiliates of EMCON which does not materially alter EMCON's direct
or indirect ownership of Borrower;
(c) upon a change in ownership of Fifty Percent (50%) or more,
in a series of two (2) or more transactions, of the outstanding stock of the
Borrower, other than to an affiliate or affiliates of the Borrower and a
substantial diminution in the responsibilities of ▇▇▇▇ ▇. ▇▇▇▇▇▇ with respect to
the Borrower in his capacity as an employee of EMCON;
(d) (i) upon a change in ownership of Thirty-Five Percent
(35%) or more of the stock of EMCON to a single buyer or an affiliated group of
buyers, resulting in a change in the majority of the board of directors of EMCON
from the board of directors as it existed immediately prior to such change in
ownership, or (ii) upon a change in ownership of Fifty Percent (50%) or more, in
a single transaction, of the stock of EMCON;
(e) upon the liquidation, dissolution or winding up of the
Borrower or the consolidation or merger of the Borrower with and into another
corporation (other than a merger in which the Borrower is the surviving
corporation);
(f) upon the occurrence of any transaction, without the
consent of ▇▇▇▇ ▇. ▇▇▇▇▇▇, in which Twenty Percent (20%) or more of the
outstanding stock of the Borrower becomes owned by persons other than EMCON or
an affiliate or affiliates of EMCON;
(g) upon the death of the Holder or termination of the
Holder's employment by Borrower, other than a Termination for Cause.
"Termination for Cause" is intended to embrace intentionally or grossly
negligent conduct on the part of the Holder which is materially detrimental to
the operations and/or reputation of the Borrower or EMCON. By way of
illustration such actions would include (but would not be limited to) a material
breach of the Holder's obligations under any employment agreement between the
Holder and OWT and/or conviction of a crime (other than minor infractions such
as parking or similar traffic violations), moral turpitude and revocation by the
applicable licensing authority of professional licenses (if any) material to the
Holder's ability to perform the Holder's employment obligations; or
(h) upon a fundamental change in EMCON's current strategy of
focussing a material amount of EMCON's resources on services relating to the
design, construction, ownership, operation and maintenance of infrastructure;
provided, however, that upon any Acceleration Event, no amount shall be due and
payable hereunder in the event that the Holder has exchanged this Note for
common stock of EMCON, pursuant to the Note Agreement.
73
ARTICLE V
EVENTS OF DEFAULT
If of any of the following events of default (each, an "Event of
Default") shall occur:
5.1 Failure to Pay Principal or Interest. The Borrower or EMCON fails
to pay the Principal or interest when due;
5.2 Receiver or Trustee. The Borrower or EMCON shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business, or such a receiver or trustee shall otherwise be appointed;
5.3 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for relief of debtors shall be instituted by or against the Borrower or EMCON;
then upon the occurrence and during the continuation of any Event of
Default, then, at the option of the Holder, the Principal and all interest due
thereon shall be immediately due and payable, and the Borrower shall have all
other remedies available at law or equity.
ARTICLE VI
MISCELLANEOUS
6.1 Failure or Indulgence Not Waiver. No failure or delay on the part
of the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges.
6.2 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed within three (3) business days by registered mail, return receipt
requested, (c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), or (d) three (3)
business days after being sent by registered or certified mail, return receipt
requested, in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties):
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Holder:
--------------------------
--------------------------
--------------------------
--------------------------
--------------------------
Borrower: Organic Waste Technologies, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attn: President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
6.3 Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
6.4 Governing Law. This Note shall be governed by the internal laws of
the State of Delaware, without regard to the principles of conflict of laws.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its duly authorized officer as of the 29th day of February, 1996.
ORGANIC WASTE TECHNOLOGIES, INC.
By: /s/
------------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: President
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Borrower is a wholly-owned subsidiary of EMCON, a California
corporation ("EMCON"). To induce the Holder to give and continue to give credit
to Borrower and in consideration of the extension of such credit, EMCON hereby
absolutely and unconditionally guarantees prompt payment when due of the amounts
due from Borrower under this Note. EMCON further absolutely and unconditionally
guarantees the prompt performance when due of all the obligations of Borrower
under the Note. The undersigned undertakes this continuing, absolute, and
unconditional guaranty of the aforementioned payment and performance by Borrower
notwithstanding that any portion of the amount due under the Note shall be void
or voidable as between the Borrower and any of its creditors, including, without
limitation, any bankruptcy trustee of the Borrower. This absolute, continuing,
unconditional, and unrestricted guaranty is a guaranty of payment and not a
guaranty of collection. Upon Borrower's failure to pay the Note promptly when
due, the Holder, at his sole option, may proceed against EMCON to collect the
amount due, with or without proceeding against the Borrower. EMCON waives all
defenses to this guaranty.
EMCON
By: /s/
------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President & Chief Executive Officer
Date: February 29, 1996
76