-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gt5ydmH9bIyZLBZHbsWWCozHp6VhtghhZIiiYJqCEye85jYoqq21GjXYzNTjel4B KiI7GKNdSkvVtltMb/IlEA== 0000819977-96-000006.txt : 19960318 0000819977-96-000006.hdr.sgml : 19960318 ACCESSION NUMBER: 0000819977-96-000006 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19960229 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960315 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMCON CENTRAL INDEX KEY: 0000819977 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 941738964 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16225 FILM NUMBER: 96535383 BUSINESS ADDRESS: STREET 1: 400 S EL CAMINO REAL STE 1200 CITY: SAN MATEO STATE: CA ZIP: 94402 BUSINESS PHONE: 4153751522 MAIL ADDRESS: STREET 1: P O BOX 349014 CITY: SACRAMENTO STATE: CA ZIP: 95834-9014 FORMER COMPANY: FORMER CONFORMED NAME: EMCON ASSOCIATES /CA/ DATE OF NAME CHANGE: 19910611 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 February 29, 1996 ------------------ (Date of Report; Date of Earliest Event Reported) EMCON --------- (Exact name of registrant as specified in its charter) California ---------- (State or other jurisdiction of incorporation) 0-16225 94-1738964 (Commission File Number) (IRS Employer Identification No.) 400 South El Camino Real, San Mateo, California 94402 - ----------------------------------------------- ------ (Address of principal executive offices) (Zip Code) (415) 375-1522 - (Registrant's telephone number, including area code) Page 1 of 151 pages Exhibit Index appears on Page 5 1 INFORMATION TO BE INCLUDED IN THE REPORT Item 2. Acquisition or Disposition of Assets. EMCON (the "Company" or "EMCON") has completed a transaction with Organic Waste Technologies, Inc. ("OWT"), the holders of OWT's common and preferred stock ("OWT Stock") and the holders of options to acquire common stock of OWT (the "OWT Options"; collectively, the OWT Stock and the OWT Options being referred to herein as the "OWT Securities" and the holders thereof, the "Sellers"). There were 34 Sellers in the Acquisition. As a result of the transaction (the "Acquisition"), OWT has become a wholly-owned subsidiary of EMCON. The Acquisition, which was announced on January 30, 1996, was consummated on February 29, 1996. To complete the Acquisition, OWT issued notes to certain Sellers who are part of OWT's management, in an aggregate amount of $1,824,649 (the "OWT Notes"), in exchange for such Sellers' OWT Securities; EMCON paid an aggregate of $13,754,351 in cash to the other Sellers in exchange for such Sellers' OWT Securities; and EMCON paid certain fees and expenses incurred by OWT and the Sellers with respect to the transaction (the pro rata share of which was deducted from the consideration received by each Seller for his, her or its OWT Securities). The OWT Notes are convertible into common stock of OWT upon an underwritten public offering of OWT's common stock in an amount in excess of $10 million. In the event that the OWT Notes have not been converted into shares of OWT common stock they may, at the election of the holder, instead be converted into shares of EMCON common stock for a period of ninety days after November 30, 2000 at a conversion price of $6.50 per share. The OWT Securities acquired by OWT and the OWT Options acquired have been canceled. The amount of consideration was determined based upon OWT' projected earnings and as a result of a competitive bidding process and arm's length negotiations between management teams of both companies with input from their respective boards of directors. The only material relationship between (a) EMCON, its affiliates, its directors and officers or any associate of its directors or officers and (b) the Sellers, is that John Pacey, a director of EMCON is a Seller and was, prior to the Acquisition, a director of OWT. Mr. Pacey will remain a director of OWT after the Acquisition. The Acquisition was partially financed through a $10 million term loan from The Bank of California, N.A., with the remainder financed from the Company's working capital. A copy of the press release announcing the consummation of the Acquisition is attached as Exhibit 99.1, and is incorporated herein by reference. 2 Item 7. Financial Statements and Exhibits. (a) Financial Statements of business acquired: It is impracticable to provide the required OWT financial statements at this time. Such financial statements will be filed within 60 days of the date this Form 8-K is filed. (b) Pro forma financial information: It is impracticable to provide the required pro forma financial information relative to the Acquisition at this time. Such financial information will be filed within 60 days of the date this Form 8-K is filed. (c) Exhibits: Exhibit No. Description 2.1 Stock Purchase Agreement dated January 30, 1996, among EMCON, OWT and the Sellers (the "Stock Purchase Agreement"). 10.1 Note Agreement dated February 29, 1996 among EMCON, OWT and certain Sellers. 10.2 Credit Agreement dated February 29, 1996 between EMCON and the Bank of California, N.A. (the "Bank"). 10.3 Security Agreement dated February 29, 1996 by EMCON in favor of the Bank. 10.4 Pledge Agreement dated February 29, 1996 by EMCON in favor of the Bank. 10.5 Eurodollar Rate Option Agreement dated February 29, 1996 between EMCON and the Bank. 10.6 Fixed Rate Amortizing Option Agreement dated February 29, 1996 between EMCON and the Bank. 99.1 Press Release dated February 29, 1996 announcing the consummation of the Acquisition. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. EMCON Date: March 12, 1996 By: /s/ R. Michael Momboisse ------------------------------ R. Michael Momboisse Chief Financial Officer and Vice President - Legal 4 EXHIBIT INDEX Sequentially Numbered Exhibit No. Description Page ----------- ------------------------ --------------------- 2.1 Stock Purchase Agreement 6 dated January 30, 1996, among EMCON, OWT and the Sellers (the "Stock Purchase Agreement"). 10.1 Note Agreement dated 77 February 29, 1996 among EMCON, OWT and certain Sellers. 10.2 Credit Agreement dated 89 February 29, 1996 between EMCON and the Bank of California, N.A. (the "Bank"). 10.3 Security Agreement dated 116 February 29, 1996 by EMCON in favor of the Bank. 10.4 Pledge Agreement dated 131 February 29, 1996 by EMCON in favor of the Bank. 10.5 Eurodollar Rate Option Agreement 139 dated February 29, 1996 between EMCON and the Bank. 10.6 Fixed Rate Amortizing Option 145 Agreement dated February 29, 1996 between EMCON and the Bank. 99.1 Press Release dated February 29, 151 1996 announcing the consummation of the Acquisition. 5 EX-2.1 2 STOCK PURCHASE AGREEMENT 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 6 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 8 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 9 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 10 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 Mark H. Shipps E-2 Note from the Company to Management Stakeholders other than Mark H. Shipps F Employment Agreement G List of Indemnifying Sellers 11 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" -- Calfee, Halter & Griswold, counsel to the Company and the Sellers and Raymond James & 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. 12 "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). 13 "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 Raymond James & Associates, Inc. and Calfee, Halter & Griswold 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. 14 "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. 18 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 Gray Cary Ware & Freidenrich, 400 Hamilton Avenue, Palo Alto, California, 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; 19 (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 Mark H. Shipps 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 Mark H. Shipps 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, Mark H. Shipps 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 Raymond James & 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 Mark H. Shipps 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 Mark H. Shipps, 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 Kevin Mohan (representing Summit Investors, L.P., Summit Ventures, L.P., Summit Ventures II, L.P. and SV Eurofund C.V.), Charles Hamilton (representing Environmental Venture Fund) and Mark Shipps (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 Calfee, Halter & Griswold 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. 7550 Lucerne Drive, Suite 110 Cleveland, Ohio 44130 Attn: Mark H. Shipps, President Fax No.: (216) 891-8288 with a copy to: Dale C. LaPorte, Esq. Calfee, Halter & Griswold 1400 McDonald Investment Center 800 Superior Avenue Cleveland, Ohio 44114-2688 Fax No.: (216) 241-0816 Buyer: EMCON 400 S. El Camino Real, Suite 1200 San Mateo, California 94402 Attention: R. Michael Momboisse, Esq. Fax No.: (415) 375-0763 with a copy to: Gray Cary Ware & Freidenrich 400 Hamilton Avenue Palo Alto, California 94301 Attention: Eric J. Lapp, Esq. Fax No.: (415) 327-3699 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/ Eugene M. Herson --------------------------- Its: President & Chief Financial Officer THE COMPANY ORGANIC WASTE TECHNOLOGIES, INC, a Delaware corporation By: /s/ Mark. Shipps ------------------- 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: ------------------- McDONALD & COMPANY SECURITIES, INC. By: /s/ ------------------ Its: ------------------ ENVIRONMENTAL VENTURE FUND By: /s/ ------------------ Its: ------------------ 56 /s/ ----------------- M. B. LINGAFELTER SEELEY, SAVIDGE & AUSSEM By: /s/ ------------------ Its: ------------------ /s/ ------------------- G. ROEBUCK /s/ ------------------ JOHN PACEY /s/ ------------------ GENE OSTROW /s/ ------------------ BARRY ROGERS /s/ ------------------ ALAN GREEN /s/ ------------------ GORDON NEUFELD /s/ ------------------ DONALD HERSHMAN /s/ ---------------- DONALD JOHNSON /s/ ----------------- DENNIS HINDERER /s/ /s/ ---------------- MICHAEL ROGOZINSKI 57 /s/ ------------------- RANDALL W. CHAPMAN /s/ ------------------- HARRY ZERNECHEL /s/ ------------------- LOUIS KALANI /s/ ------------------- RANDY MASUKAWA /s/ ------------------- STEVAN J. INGWERSEN /s/ ------------------- MICHAEL C. MAURER /s/ ---------------------- ELIZABETH L. WILLIAMS MANAGEMENT STAKEHOLDERS /s/ --------------------- MARK H. SHIPPS /s/ --------------------- ANTHONY A. ALEXANDER 57 /s/ --------------------- JAMES HELMICK /s/ ----------------------- RAYMOND J. NARDELLI /s/ ----------------------- STEPHEN LINGAFELTER 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 - ---------- --------- ------ -------- ---------- ---------- -------- ------- ------- Mark H. Shipps Ohio 10,000 -- -- Anthony A. Alexander Ohio -- -- -- James Helmick Ohio -- 3,190 -- Raymond J. Nardelli Ohio -- -- -- Elizabeth L. Williams Ohio -- -- -- Michael C. Maurer Ohio -- -- -- Stevan J. Ingwersen Iowa -- -- -- Randy Masukawa California -- -- -- Louis Kalani Ohio -- -- -- Stephen Lingafelter Ohio -- -- -- Harry Zernechel Ohio -- -- -- Randall W. Chapman Ohio -- -- 3,190 Michael Rogozinski Ohio -- -- -- Dennis Hinderer Ohio -- -- -- Don Johnson Ohio -- -- -- Don Hershman Pennsylvania -- -- -- Gordon Neufeld Ohio -- -- -- Aman Green Ohio -- -- -- Barry Rogers New York -- -- -- DIRECTORS John Pacey California -- -- -- -- -- -- -- Gene Ostrow 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. Lingafelter Ohio 42,000 -- -- -- -- -- -- Seeley, Savidge & Aussem Ohio 27,000 -- -- -- -- -- -- G. Roebuck 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 - ---------- --------- --------- ------- ----- --------------- Mark H. Shipps Ohio $0.00 $0.00 $0.00 $0.00 Anthony A. Alexander Ohio - - - - James Helmick Ohio - - - - Raymond J. Nardelli Ohio - - - - Elizabeth L. Williams Ohio - - - - Michael C. Maurer Ohio - - - - Stevan J. Ingwersen Iowa - - - - Randy Masukawa California - - - - Louis Kalani Ohio - - - - Stephen Lingafelter Ohio - - - - Harry Zernechel Ohio - - - - Randall W. Chapman Ohio - - - - Michael Rogozinski Ohio - - - - Dennis Hinderer Ohio - - - - Don Johnson Ohio - - - - Don Hershman Pennsylvania - - - - Gordon Neufeld Ohio - - - - Aman Green Ohio - - - - Barry Rogers New York - - - - $0.00 $0.00 $0.00 $0.00 DIRECTORS John Pacey California $0.00 $0.00 $0.00 $0.00 Gene Ostrow 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. Lingafelter Ohio $0.00 $0.00 $0.00 $0.00 Seeley, Savidge & Aussem Ohio - - - - G. Roebuck 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 - ---------- --------- ------ ---------- ------- ------- ----- -------- Mark H. Shipps Ohio - - - $0.00 $0.00 $0.00 $0.00 Anthony A. Alexander Ohio 20,000 - - - - - - James Helmick Ohio - (3,190) - - - - - Raymond J. Nardelli Ohio 28,000 - - - - - - Elizabeth L. Williams Ohio - - - - - - - Michael C. Maurer Ohio - - - - - - - Stevan J. Ingwersen Iowa - - - - - - - Randy Masukawa California - - - - - - - Louis Kalani Ohio - - - - - - - Stephen Lingafelter Ohio 39,000 - - - - - - Harry Zernechel Ohio - - - - - - - Randall W. Chapman Ohio - - (3,190) - - - - Michael Rogozinski Ohio - - - - - - - Dennis Hinderer Ohio - - - - - - - Don Johnson Ohio - - - - - - - Don Hershman Pennsylvania - - - - - - - Gordon Neufeld Ohio - - - - - - - Aman Green Ohio - - - - - - - Barry Rogers New York - - - - - - - $0.00 $0.00 $0.00 $0.00 DIRECTORS John Pacey California - - - - $0.00 $0.00 $0.00 $0.00 Gene Ostrow 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. Lingafelter Ohio - - - - $0.00 $0.00 $0.00 $0.00 Seeley, Savidge & Aussem Ohio - - - - - - - - G. Roebuck 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 Mark H. Shipps, 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 Mark H. Shipps, (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 Mark H. Shipps 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 Mark H. Shipps, 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. 7550 Lucerne Drive, Suite 110 Cleveland, Ohio 44130 Attn: President Fax: (216) 891-8288 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: Mark Shipps ---------------------- 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: Eugene M. Herson Title: President & Chief Executive Officer Date: February 29, 1996 69 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 Mark H. Shipps, (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. 70 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; 72 (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 Mark H. Shipps 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 Mark H. Shipps, 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): 74 Holder: -------------------------- -------------------------- -------------------------- -------------------------- -------------------------- Borrower: Organic Waste Technologies, Inc. 7550 Lucerne Drive, Suite 110 Cleveland, Ohio 44130 Attn: President Fax: (216) 891-8288 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: Mark Shipps Title: President 75 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: Eugene M. Herson Title: President & Chief Executive Officer Date: February 29, 1996 76 EX-10.1 3 NOTE AGREEMENT EXHIBIT 10.1 NOTE AGREEMENT THIS AGREEMENT is made as of the 29th day of February, 1996, by and among EMCON, a California corporation ("EMCON"), Organic Waste Technologies, Inc., a Delaware corporation, ("OWT"), and the undersigned holders of common stock ("Common Shares") of OWT and holders of options to purchase the common stock of OWT ("Options") listed on the signature pages hereto (collectively, the holders thereof being the "Management Stakeholders"). WHEREAS, the Management Stakeholders are parties to that certain Stock Purchase Agreement dated January 30, 1996, among the Management Stakeholders, EMCON, OWT and certain other holders of common and preferred stock of OWT and of options to purchase common stock of OWT (the "Stock Purchase Agreement"); WHEREAS, pursuant to the Stock Purchase Agreement each Management Stakeholder has agreed to exchange the Common Shares and/or Options held by him at the closing of the sale and purchase contemplated by the Stock Purchase Agreement (the "Closing") for a convertible note made by OWT (collectively, the "Notes"); WHEREAS, in connection therewith, the parties hereto desire to enter into additional agreements regarding the Notes; WHEREAS, EMCON desires to lend each Management Stakeholder an amount equal to the additional federal, state and local income taxes (the "Tax Liability") required to be paid by him as a result of the exchange of the Options and Common Shares owned by him for a Note (the "Loan Amount"). NOW, THEREFORE, in consideration of the foregoing and the agreements set forth below, the parties agree with each other as follows: 1. Loan. Upon the date on which amounts are withheld by OWT or EMCON for each Management Stakeholder's Tax Liability or paid directly by such Management Stakeholder to the appropriate taxing authority, EMCON shall pay to such Management Stakeholder an amount equal to such withholding or Tax Liability, by cashier's check or wire transfer, and such Management Stakeholder shall execute a note in the principal amount of the Loan Amount, in the form of Exhibit A hereto (the "Loan Note"). 2. (a) Exchange Right. In the event that the Note has not been converted into OWT Common Stock in accordance with its terms prior to the fifth anniversary of the date hereof, each Management Stakeholder shall have the right, for a period of ninety (90) days prior to the fifth anniversary of the date hereof, to exchange the Note payable to him for fully paid and nonassessable shares of Common Stock, no par value, of EMCON as such stock exists on the date of issuance of the Note payable to him, or any shares of 77 capital stock of EMCON into which such stock shall hereafter be changed or reclassified (the "EMCON Common Stock") at the exchange price determined as provided herein (the "EMCON Exchange Price"). Upon the surrender of the Note, accompanied by a Notice of Exchange of Convertible Note in the form attached hereto as Exhibit B, properly completed and duly executed by the Management Stakeholder (an "Exchange Notice"), EMCON shall issue and deliver to or upon the order of the Management Stakeholder that number of shares of EMCON Common Stock for which the Principal (as defined in the Note) shall be exchanged, as determined in accordance herewith. Upon such exchange, any accrued but unpaid interest on the Notes shall be immediately due and payable. The number of shares of EMCON Common Stock to be issued upon exchange of each Note shall be determined by dividing the Principal thereof by the EMCON Exchange Price in effect on the date the Exchange Notice is delivered to EMCON by the Management Stakeholder. (b) Exchange Price. The EMCON Exchange Price shall initially be $6.50. (i) Subdivisions. In case EMCON shall at any time subdivide the outstanding shares of EMCON Common Stock, the EMCON Exchange Price in effect immediately prior to such subdivision shall be proportionately decreased, and in case the Company shall at any time combine the outstanding shares of EMCON Common Stock, the Exchange 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. (ii) Stock Dividends. In case EMCON shall at any time pay a dividend with respect to EMCON Common Stock payable in EMCON Common Stock, then the EMCON Exchange Price in effect immediately prior to the record date for distribution of such dividend shall be adjusted to that price determined by multiplying the EMCON Exchange 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 Common Stock outstanding immediately prior to such dividend and (ii) the denominator of which shall be the total number of shares of EMCON Common Stock outstanding immediately after such dividend. (iii) Reclassification or Merger. In case of any reclassification, change or conversion of the EMCON Common Stock (other than as a result of a subdivision or combination described above and other than upon any Acceleration Event, as defined below), each Management Stakeholder shall have the right to receive, upon exchange of the Note owned by him the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change or conversion by a holder of the number of shares of EMCON Common Stock into which his Note could then be exchanged. The provisions of this subparagraph (iii) shall similarly apply to successive reclassifications, changes, and conversions. 78 (c) Authorized Shares. EMCON covenants that during the period the exchange right set forth in this Section 2 exists, EMCON will reserve from the authorized and unissued EMCON Common Stock a sufficient number of shares to provide for the issuance of EMCON Common Stock upon the full exchange of the Notes. EMCON represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. (d) Method of Exchange. Except as otherwise provided in the Note or agreed by the Management Stakeholder, the Note held by him may be exchanged by the Management Stakeholder in whole by (i) submitting to EMCON an Exchange Notice and (ii) surrendering the Note held by him at the principal office of EMCON. (e) Restrictions Concerning the Shares. The shares of EMCON Common Stock to be held by Management Stakeholders pursuant to the exercise of the exchange rights set forth in Section 2 may not be sold or transferred unless either (i) such shares first shall have been registered under the Securities Act of 1933 (the "Act") and applicable state securities laws or (ii) EMCON shall have been furnished with an opinion of legal counsel to the effect that such sale or transfer is exempt from the registration requirements of the Act and all applicable state securities laws. Each certificate for shares of EMCON Common Stock to be held by the Management Stakeholders that have not been so registered and that have not been sold pursuant to an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT. Upon the request a Management Stakeholder, EMCON shall remove the foregoing legend from the certificate representing the EMCON Common Stock held by such Management Stakeholder upon exercise of the exchange rights pursuant to Section 2 or issue to such Management Stakeholder a new certificate therefor free of any transfer legend, if, with such request, EMCON shall have received either (i) an opinion of counsel to the effect that any such legend may be removed from such certificate, or (ii) if the present paragraph (k) of Rule 144 or a substantially similar successor rule remains in force and effect, satisfactory representations from the Management Stakeholder that such Management Stakeholder is not then, and has not been during the preceding three (3) months, an affiliate of EMCON, and that a period of at least three (3) years has elapsed since the later of the date the securities were acquired (as determined under Rule 144) from EMCON or an affiliate of EMCON. (f) Acceleration of Exchange Rights. Notwithstanding anything to the contrary herein, in the event that any of the following events set forth 79 in paragraphs (i) through (v) of this Section 2(f) (each, an "Acceleration Event") shall occur, then the exchange rights set forth in Section 2(a) shall, at the option of each Management Stakeholder, be immediately exercisable: (i) by any Management Stakeholder 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; (ii) by any Management Stakeholder after the Closing, upon a change in ownership of Fifty Percent (50%) or more, in a single transaction, of the stock of OWT, other than to an affiliate or affiliates of EMCON which does not materially alter EMCON's direct or indirect ownership of OWT; (iii) by any Management Stakeholder, upon a change in ownership of Fifty Percent (50%) or more, in a series of two (2) or more transactions occurring after the Closing, of the outstanding stock of OWT, other than to an affiliate or affiliates of OWT and a substantial diminution in the responsibilities of Mark H. Shipps with respect to OWT in his capacity as an employee of EMCON; (iv) (A) 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 (B) upon a change in ownership of Fifty Percent (50%) or more, in a single transaction, of the stock of EMCON; (v) by any Management Stakeholder, upon the liquidation, dissolution or winding up of OWT or the consolidation or merger of OWT with and into another corporation (other than a merger in which OWT is the surviving corporation); (vi) by any Management Stakeholder, upon the occurrence of any transaction, without the consent of Mark H. Shipps, in which Twenty Percent (20%) or more of the outstanding common stock of OWT becomes owned by persons other than EMCON or an affiliate or affiliates of EMCON; (vii) by any Management Stakeholder upon his death or the termination of his employment by OWT other than a Termination for Cause, the "Termination for Cause" is intended to embrace intentionally or grossly negligent conduct on the part of the Maker which is materially detrimental to the operations and/or reputation of OWT or the Holder. By way of illustration such actions would include (but would not be limited to) a material breach of Maker's obligations under any employment agreement between the Maker and OWT and/or the Holder, 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 Maker's ability to perform the Maker's employment obligations; or 80 (viii) by any Management Stakeholder 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. 3. Request for Registration. (a) Upon the receipt by EMCON of Exchange Notices from Management Stakeholders holding Notes, the aggregate Principal of which may be exchanged for EMCON Common Stock with an aggregate value, based on the closing price of the EMCON Common Stock on the principal market on which such stock is traded on the date of such Exchange Notices, $1,000,000 or more, EMCON will: (i) promptly file a registration statement with the Securities and Exchange Commission (the "Commission") and effect all such registrations, qualifications and compliances (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualifications under the applicable blue sky or other state securities laws and appropriate compliance with exemptive regulations issued under the Securities Act of 1933, as amended (the "Securities Act"), and any other governmental requirements or regulations) as would permit or facilitate the sale and distribution of all of the EMCON Common Stock issuable upon the full exchange of the Notes by the Management Stakeholders (the "Management Shares"); provided, however, that EMCON shall not be obligated to effect such registration, qualification or compliance pursuant to this Section 3(a)(i)(A) in any particular jurisdiction in which EMCON would be required to execute a general consent to service of process unless EMCON is already subject to service in such jurisdiction and except as required by the Securities Act and (B) after EMCON has already effected one such registration, qualification or compliance; (ii) promptly give notice to all Management Stakeholders of the expected registration of the Management Shares; (iii) use its best efforts to cause such registration to be declared effective by the Commission; (iv) keep such registration statement effective for a period of one year or until the Management Stakeholders have completed the distribution described in the registration statement, whichever first occurs; (v) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities offered by such registration statement; (vi) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Management Stakeholder from time to time may reasonably request; 81 (vii) notify each Management Stakeholder selling EMCON Common Stock covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and at the request of any such Management Stakeholder, prepare and furnish to such Management Stakeholder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing; (viii) cause all such EMCON Common Stock registered pursuant hereunder to be listed on each securities exchange, if any, on which similar securities issued by EMCON are then listed; (ix) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission; and (x) in connection with any underwritten offering pursuant to a registration statement filed pursuant to this Section, enter into an underwriting agreement reasonably necessary to effect the offer and sale of EMCON Common Stock, provided such underwriting agreement contains customary underwriting provisions and provided further that if the underwriter so requests the underwriting agreement will contain customary contribution provisions. (b) During the period that EMCON's registration statement is effective pursuant to this Section 3, the Management Stakeholders shall comply with all applicable EMCON policies regarding trading of securities by insiders and members of management, including the observance of "window period" and other restrictions. 4. EMCON Registration. (a) If, at any time after the registration statement described in Section 3 is no longer effective, EMCON shall determine to register any of its securities either for its own account or the account of a security holder or holders, other than a registration relating solely to employee benefit plans, or a registration relating solely to a Rule 145 transaction, or a registration on any registration form that does not permit secondary sales, EMCON will: (i) promptly give to each Management Stakeholder written notice thereof; (ii) use its best efforts to include in such registration (and any related qualification under blue sky laws or other 82 compliance), except as set forth in Section 4(b) below, and in any underwriting involved therein, all the Management Shares specified in a written request or requests, made by any Management Stakeholder and received by EMCON within twenty (20) days after the written notice from EMCON described in clause (i) above is mailed or delivered by EMCON. Such written request may specify all or a part of a Management Stakeholder's Management Shares; (iii) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Management Stakeholder from time to time may reasonably request; (iv) cause all such EMCON Common Stock registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by EMCON are then listed; and (v) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission. (b) If the registration of which EMCON gives notice is for a registered public offering involving an underwriting, EMCON shall so advise the Management Stakeholders as a part of the written notice given pursuant to Section 4(a)(i). In such event, the right of any Management Stakeholder to registration pursuant to this Section 4 shall be conditioned upon such Management Stakeholder's participation in such underwriting and the inclusion of such Management Stakeholder's Management Shares in the underwriting to the extent provided herein. All Management Stakeholders proposing to distribute their securities through such underwriting shall (together with EMCON and the other holders of securities of EMCON with registration rights to participate therein distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by EMCON. (c) Notwithstanding any other provision of this Section 4, if the representative of the underwriters advises EMCON in writing that marketing factors require a limitation on the number of shares to be underwritten, the representative may (subject to the limitations set forth below) exclude all the Management Stakeholders from, or limit the number of the Management Shares to be included in, the registration and underwriting. EMCON shall so advise the Management Stakeholders and all other holders of EMCON securities (the "Other Shares") requesting registration and the number of Management Shares and Other Shares that may be included shall be allocated among the Management Stakeholders and other selling stockholders requesting inclusion of shares pro rata on the basis of the number of Management Shares and Other Shares that are requested to be registered. (d) EMCON's obligations pursuant to this Section 4 shall expire as to each Management Stakeholder at such time as such Management Stakeholder may sell all shares of EMCON Common Stock issued upon exchange for such Management Stakeholder's Note during any successive two quarter period pursuant to Rule 144 under the Securities Act. 83 5. Expenses of Registration. All Registration Expenses (as hereinafter defined) incurred in connection with any registration, qualification or compliance pursuant to Section 3 and 4 hereof shall be borne by EMCON. All Selling Expenses (as hereinafter defined) relating to securities so registered shall be borne by the Management Stakeholders who own such Management Shares pro rata on the basis of the number of Management Shares so registered on their behalf. For purposes of this Section 5, Registration Expenses shall mean all expenses incurred in effecting any registration pursuant to this Agreement, including, without limitation, all registration, qualification, and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for EMCON, blue sky fees and expenses, and expenses of any regular or special audits incident to or required by any such registration, but shall not include Selling Expenses and fees and disbursements of counsel for the Management Stakeholders. For purposes of this Section 5. Selling Expenses shall mean all underwriting discounts and selling commissions applicable to the sale of the Management Shares and fees and disbursements of counsel for any Management Stakeholder (other than the fees and disbursements of counsel included in Registration Expenses). 6. Indemnification. (a) EMCON will indemnify each Management Stakeholder with respect to which registration, qualification, or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls within the meaning of Section 15 of the Securities Act, any underwriter, against all expenses, claims, losses, damages, and liabilities (or actions, proceedings, or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus offering circular, or other document (including any related registration statement, notification, or the like) incident to any such registration, qualification, or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by EMCON of the Securities Act or any rule or regulation thereunder applicable to EMCON and relating to action or inaction required of EMCON in connection with any such registration, qualification, or compliance, and will reimburse each such Management Stakeholder, each such underwriter, and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action, provided that EMCON will not be liable in any such case to the extent that any such claim, loss, damage, liability, or expense arises out of or is based on any untrue statement or omission based upon written information furnished to EMCON by such Management Stakeholder or underwriter and stated to be specifically for use therein. It is agreed that the indemnity agreement contained in this Section 6 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of EMCON (which consent has not been unreasonably withheld). (b) Each Management Stakeholder will, if Management Shares held by him or her are included in the securities as to which such registration, qualification, or compliance is being effected, indemnify EMCON, each of its directors, officers, partners, legal counsel, and accountants and each underwriter, if any, of EMCON's securities covered by such a registration statement, each person who controls EMCON or such underwriter within the meaning 84 of Section 15 of the Securities Act, and each other Management Stakeholder against all claims, losses, damages any liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular, or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse EMCON and such Management Stakeholders, directors, officers, partners, legal counsel, and accountants, persons, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to EMCON by such Management Stakeholder and stated to be specifically for use therein provided, however, that the obligations of such Management Stakeholder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages, or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Management Stakeholder (which consent shall not be unreasonably withheld). (c) Each party entitled to indemnification under this Section 6 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, to the extent such failure is not prejudicial. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability with respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. (d) If the Indemnification provided for in this Section 6 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expenses as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the 85 Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provision in the underwriting agreement shall control. 7. Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission that may permit the sale of restricted securities to the public without registration, EMCON agrees to use its best efforts to: (a) Make and keep public information regarding EMCON available as those terms are understood and defined in Rule 144 under the Securities Act; (b) File with the Commission in a timely manner all reports and other documents required of EMCON under the Securities Act and the Securities Exchange Act of 1934, as amended; and (c) So long as a Management Stakeholder owns any restricted securities, furnish to the Management Stakeholder forthwith upon written request a written statement by EMCON as to its compliance with the reporting requirements of Rule 144; and of the Securities Act and the Exchange Act. 8. OWT'S Registration Rights Obligations. In the event that OWT shall be required to register shares of its stock pursuant to Section 2.3 of the Notes, then the provisions of Sections 4 to 7 hereof shall apply with respect to such registration. 9. Miscellaneous. (a) 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): Management Stakeholders: To each Management Stakeholder at the address set forth on Schedule 1 86 EMCON: EMCON 400 S. El Camino Real, Suite 1200 San Mateo, California 94402 Attention: R. Michael Momboisse, Esq. (b) Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to the matters contemplated herein. This Agreement supersedes any and all prior understandings as to the subject matter of this Agreement. (c) Amendments, Waivers and Consents. Any provision in this Agreement to the contrary notwithstanding, changes in or additions to this Agreement may be made, and compliance with any covenant or provision herein set forth may be omitted or waived, if agreed to by EMCON and Management Stakeholders holding Notes representing in aggregate in excess of Fifty Percent (50%) of the aggregate amount due under all of the Notes. (d) Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the personal representatives and successors of the respective parties hereto, except that no Management Stakeholder shall have the right to assign its rights hereunder or any interest herein without obtaining the prior written consent of EMCON. Notwithstanding the foregoing, each Management Stakeholder may assign his rights hereunder (i) to his spouse, parents, grandparents, children or grandchildren or other family members (including relatives by marriage), or to a custodian, trustee or other fiduciary for his account or the account of a member of his family, or (ii) by way of bequest or inheritance upon death. (e) General. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. In this Agreement the singular includes the plural, the plural the singular. (f) Severability. If any provision of this Agreement shall be found by any court of competent jurisdiction to be invalid or unenforceable, the parties hereby waive such provision to the extent that it is found to be invalid or unenforceable. Such provision shall, to the maximum extent allowable by law, be modified by such court so that it becomes enforceable, and, as modified, shall be enforced as any other provision hereof, all the other provisions hereof continuing in full force and effect. (g) Counterparts. This Agreement may be execute in counterparts, all of which together shall constitute one and the same instrument. (h) Governing Law. This Agreement shall be governed by the internal laws of the State of Delaware without regard to the principles of conflict of laws. 87 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. EMCON By: /S/ Eugene M. Herson ----------------------- Title: President & Chief Executive Officer ORGANIC WASTE TECHNOLOGIES, INC. By: /s/ Mark Shipps ---------------- Title: President MANAGEMENT STAKEHOLDERS /s/ ---------------- MARK H. SHIPPS /s/ ------------------ ANTHONY A. ALEXANDER /s/ ------------------ JAMES HELMICK /s/ ------------------ RAYMOND J. NARDELLI /s/ ------------------ STEPHEN LINGAFELTER /s/ ------------------ RANDALL W. CHAPMAN 88 EX-10.2 4 CREDIT AGREEMENT EXHIBIT 10.2 CREDIT AGREEMENT THIS AGREEMENT is made as of February 29, 1996 between EMCON, a California corporation ("Borrower"), and THE BANK OF CALIFORNIA, N.A. ("Bank"). ARTICLE ONE - DEFINITIONS The definitions appearing in this Agreement or any supplement or addendum to this Agreement, shall be applicable to both the singular and plural forms of the defined terms: "Advance" means an extension of credit under this Agreement or any supplement to this Agreement. "Affiliate" means any Person which directly or indirectly controls, is controlled by, or is under common control with, Borrower. "Control," "controlled by" and "under common control with" means direct or indirect possession of the power to direct or cause the direction of management or policies (whether through ownership of voting securities, by contract or otherwise); provided that control shall be conclusively presumed when any Person or affiliated group directly or indirectly owns five percent or more of the securities having ordinary voting power for the election of directors of a corporation. "Alaska" means EMCON Alaska, Inc., an Alaska corporation, one of Borrower's Subsidiaries. "Agreement" means this Credit Agreement as it may be amended or supplemented from time to time. "CAS" means Columbia Analytical Services, Inc., a Washington corporation, one of Borrower's Subsidiaries. "Closing Date" means the date of this Agreement. "Consolidated", "consolidating", "on a consolidated basis" and terms and phrases of like import mean, when describing financial statements, information or covenants, those of Borrower and its Subsidiaries. "Consolidated financial statements" means financial statements that disregard the distinction between separate legal entities and treat a parent and its subsidiary(ies) as a single economic entity for financial presentation purposes. 89 "Consolidating financial statements" means financial statements that show the accounting for each related legal entity side-by-side, then set forth current inter-company transactions, and finally, consolidated figures. "Credit Limit" means the limitation on all credit extensions defined in Section 2.1.1 of this Agreement. "Effective Net Worth" means, on a consolidated basis, the net book value of (a) all Borrower's assets, exclusive of intangibles, and loans to and notes and receivables from Related Persons, plus all Subordinated Debt, minus (b) all Borrower's liabilities determined in accordance with GAAP, excluding Subordinated Debt. "Event of Default" means any event described in Article 7. "Facility" means the credit accommodations being provided Borrower under the terms and conditions of this Agreement or any supplement to this Agreement, which credit accommodations are the Line of Credit and the Term Loan as more fully described in Article 2 or any supplement to this Agreement. "Fixed Rate Option Letter" means the Eurodollar Rate Option Letter agreement and/or the Amortizing Term Loan Fixed Rate Option Letter agreement of even date with this Agreement between Bank and Borrower. "GAAP" means generally accepted accounting principles and practices consistent with those principles and practices promulgated or adopted by the Financial Accounting Standards Board and the Board of the American Institute of Certified Public Accountants, their respective predecessors and successors. Each accounting term used but not otherwise expressly defined herein shall have the meaning given it by GAAP. "Letters of Credit" means all standby letters of credit issued pursuant to Section 2.1.1(b) of this Agreement. "Lien" means any voluntary or involuntary security interest, mortgage, pledge, claim, charge, encumbrance, title retention agreement, or other third party encumbrance, covering all or any part of the property of Borrower or any other Person. "Loan Documents" means, individually and collectively, this Agreement, any supplement to this Agreement, the Notes, any rate option agreements, guaranties, security or pledge agreements, and all other contracts, instruments, addenda and documents executed in connection with this Agreement or the extensions of credit which are the subject of this Agreement. 90 "Note" means the promissory notes in form and substance satisfactory to Bank executed by Borrower to evidence the Line of Credit and the Term Loan. Each Note shall be named for the Facility it represents. "OWT" means Organic Waste Technologies, Inc. "OWT Acquisition" means Borrower's purchase of a majority of the issued and outstanding shares of capital stock and securities convertible into or exercisable for such stock from certain stakeholders of OWT pursuant to that certain Stock Purchase Agreement dated January 30, 1996. "OWT Convertible Notes" means those certain promissory notes issued by OWT and guaranteed by Borrower to certain shareholders of OWT in connection with Borrower's OWT Acquisition. "Person" means any individual or entity, including, without limitation, Bank where the context so permits and in Bank's sole discretion. "Permitted Liens" means: (i) Liens for taxes, assessments, governmental charges or levies not yet due or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Borrower or the appropriate Subsidiary, as the case may be, in accordance with GAAP; (ii) statutory Liens of landlords and carriers' vendors', warehousemen's, mechanics', materialmen's, repairmen's, or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith and by appropriate proceedings in a manner which will not jeopardize or diminish the interest of Bank in any of the collateral that is subject to the Loan Documents or interfere with the ordinary conduct of the business of the Borrower or any Subsidiary; (iii) pledges or deposits and Liens (other than any Liens imposed by ERISA) under bonds required in connection with worker's compensation, unemployment insurance and other social security legislation; (iv) Liens (other than any Lien imposed by ERISA or by environmental laws) incurred on deposits to secure the performance of tenders, bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance and return-of-money bonds and other obligations of a like nature incurred in the ordinary course of business; (v) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which do not 91 substantially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any Subsidiary; and (vi) Liens in existence on the date hereof listed on Schedule 6.2, provided that no such Lien is extended to cover any additional property after the date hereof and that the amount of debt secured thereby is not increased. "Related Person" means, with respect to any Person, any Affiliate of such Person, or any officer, employee, director or shareholder of such Person or any Affiliate, or a relative of any of them. "Sublimit" or "Sublimits" means, individually and collectively, the separate limitations on credit extensions defined in the subsection(s) of Section 2.1.1 of this Agreement. "Subordinated Debt" means any indebtedness of Borrower that has been fully subordinated in right of payment to Borrower's obligations to Bank pursuant to a written agreement in form and substance satisfactory to Bank. "Subsidiary" means, with respect to Borrower, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are directly or indirectly owned by Borrower. "Subsidiary" includes, without limitation, each of the Persons listed on Schedule 3.8 to this Agreement, as the same may be amended or supplemented from time to time. "Tangible Net Worth" means, on a consolidated basis, the net book value of (a) all Borrower's assets, exclusive of intangibles and loans to and notes and receivables from Related Persons, plus Subordinated Debt, minus (b) all Borrower's liabilities, determined in accordance with GAAP, but excluding Subordinated Debt. "Termination Date" means the earlier of (a) the date Bank may terminate making Advances or extending credit pursuant to the rights of Bank under Article 7; or (b) May 31, 1997 for the Line of Credit; or (c) June 30, 2001 for the Term Loan. "UCC" means the Uniform Commercial Code as enacted in the applicable jurisdiction, in effect on the Closing Date and as amended from time to time. ARTICLE TWO - THE FACILITIES AND RELATED TERMS AND CONDITIONS Subject to the terms and conditions of this Agreement, the following Facilities shall be available to Borrower: 92 2.1 The Facilities. 2.1.1 Line of Credit. Subject to the terms and conditions of this Agreement, from time to time prior to the Termination Date, upon request by Borrower, Bank will provide extensions of credit ("Line of Credit") to Borrower in the form of Advances, Letters of Credit and advances on account of business credit cards that, in the aggregate, shall not exceed at any time Ten Million Dollars ($10,000,000.00) (the "Credit Limit"), in the following manner: (a) Advances. Provide up to $10,000,000.00 of the Credit Limit in aggregate outstanding principal amounts ("Advance Sublimit") in Advances to Borrower. Each Advance shall be payable no later than the Termination Date. Borrower may borrow, repay and reborrow under the Advance Sublimit, as Borrower may elect, in minimum amounts of $10,000.00 or integral multiples thereof. Advances shall be used by Borrower for the purpose of working capital for its own operations and those of its Subsidiaries other than OWT; provided, that up to $5,000,000 of Advances outstanding at any time may be used by Borrower or its Subsidiaries (other than OWT) for purposes other than working capital; and further provided, that Borrower may reloan Advances to OWT, so long as (i) the aggregate Advances reloaned do not exceed $1,000,000.00 at any time outstanding, and (ii) no Advances are relent to OWT while OWT is in default under any agreement involving the borrowing of money or the advance of credit where such default gives the holder of such indebtedness the right to accelerate the same. (b) Standby Letters of Credit. Provide up to $200,000.00 of the Credit Limit in aggregate outstanding unpaid face amounts ("Standby Letter of Credit Sublimit") for the purpose of issuing irrevocable, standby Letters of Credit, in form and substance satisfactory to Bank, for the account of Borrower in United States Dollars. No standby Letter of Credit will expire later than thirty (30) days after the Termination Date. For each standby Letter of Credit, Borrower shall execute, deliver and perform in accordance with Bank's standard form Standby Letter of Credit Application & Agreement (or any successor standard agreement executed by Borrower), all terms of which are incorporated herein by this reference. (c) Business Credit Cards. The amount of the Credit Limit available for the making of Advances and issuance of Letters of Credit under the Line of Credit shall be reduced by the amount of Bank's commitment to Borrower in effect from time to time under a business credit card facility for travel and entertainment business expenses. As of the Closing Date, the amount committed under such separate facility is $55,000.00. (d) Credit Limits. If at any time any Sublimit, or the Credit Limit, as a whole, has been exceeded, Borrower shall, within five (5) days after demand by Bank, repay such excess, or, as Bank might specify, cash secure such excess. 93 2.1.2 Term Loan. A term loan in the original principal amount of Ten Million Dollars ($10,000,000) ("Term Loan"), the proceeds of which shall be used by Borrower to finance Borrower's acquisition of 100% of the outstanding capital stock and options exercisable for stock of OWT. The Term Loan shall be evidenced by the Term Loan Note and shall be amortized and fully repaid in accordance with the terms thereof by the Termination Date. 2.2 Requests for Advances and Method of Advancing. (a) Requests for Advances. Advances may be requested in writing, by telephone, telex or otherwise on behalf of Borrower. Borrower recognizes and agrees that Bank cannot effectively determine whether a specific request purportedly made by or on behalf of Borrower is actually authorized or authentic. As it is in Borrower's best interest that Bank advance funds in response to these forms of request, Borrower assumes all risks regarding the validity, authenticity and due authorization of any request purporting to be made by or on behalf of Borrower. Borrower promises to repay any sums, with interest, that are advanced by Bank pursuant to any request which Bank in good faith believes to be authorized, or when the proceeds of any Advance are deposited to the account of Borrower with Bank, regardless of whether any Person other than Borrower may have authority to draw against such account. (b) Automatic Deposit. Each Advance shall be made by a deposit to Borrower's account No. 027-007753 at Bank's San Mateo Regional Office ("Deposit Account"), unless Borrower shall otherwise direct Bank in writing by an authorized signatory. (c) Wire Transfer of Funds. The obligation of Bank to make any Advance to Borrower, the proceeds of which are, at Borrower's request, to be wire transferred to Borrower or any other Person, shall be subject to all applicable laws and regulations, and the policy of the Board of Governors of the Federal Reserve System on Reduction of Payments System Risk in effect from time to time ("Applicable Law and Policy"). Borrower acknowledges that, as a result of Applicable Law and Policy, the transmission of the proceeds of any Advance which Borrower has requested to be wire-transferred may be significantly delayed. 2.3 Interest On The Facilities. 2.3.1 Line of Credit. Except as otherwise provided in any Fixed Rate Option Letter in effect from time to time, interest on the outstanding principal balance of Advances under the Line of Credit shall accrue daily from the date of the first Advance until the Termination Date at the Prime Rate (defined below), and shall be payable as set forth in the Line of Credit Note. 2.3.2 Term Loan. Except as otherwise provided in any Fixed Rate Option Letter in effect from time to time, the outstanding principal balance of the 94 Term Loan shall bear interest from the date of disbursement until the Termination Date at the Prime Rate (defined below). Interest shall be payable as set forth in the Term Loan Note. 2.4 Interest Rate Related Terms & Provisions. (a) Definition of "Prime Rate". The term "Prime Rate" means a fluctuating rate per annum that Bank announces to be in effect from time to time as its prime rate. The Prime Rate is set by Bank based upon various factors including general economic and market conditions, and is used as a reference point for pricing certain loans. Bank may price its loans at, above or below the Prime Rate. (b) Interest Rate Calculation. Interest tied to the Prime Rate, charges and fees under this Agreement and any Loan Document, shall be calculated for actual days elapsed on the basis of a 360-day year, which results in higher interest, charge or fee payments than if a 365-day year were used. Each change in the rate of interest, charges or fees based on the Prime Rate shall become effective on the date each Prime Rate change is announced within the Bank. In no event shall Borrower be obligated to pay interest, charges or fees at a rate in excess of the highest rate permitted by applicable law from time to time in effect. (c) Prepayment. (i) General. Unless otherwise agreed by Bank, all principal prepayments shall be applied on the most remote principal installment(s) then unpaid on the Facility on which the prepayment is being made. If such Facility bears interest at a fixed rate and Bank, for any reason, including acceleration or foreclosure, receives all or any portion of principal prior to its scheduled payment date, then, in consideration thereof, Borrower shall pay to Bank on demand a prepayment fee as liquidated damages as described in the Note evidencing such Facility or any Fixed Rate Option Letter, since such prepayment may result in Bank incurring additional costs, expenses or liabilities. (ii) Mandatory Prepayments of Term Loan. (A) Commencing with Borrower's financial reporting year ending December 31, 1996 and for each year thereafter, if Borrower's consolidated actual net income before taxes ("ANIT") for such year as reflected on Borrower's annual financial statements required under Section 5.4(b) exceeds more than one hundred twenty-five percent (125%) of the amount of consolidated net income before taxes projected for such financial reporting year ("PNIT") in the annual projections previously delivered to Bank under Section 5.4(d), then Borrower shall prepay principal of the Term Loan in an 96 amount equal to twenty-five percent (25%) of the amount by which ANIT exceeded 125% of PNIT. (B) Such prepayment shall be due and payable within ten (10) days after delivery by Borrower of the annual financial statements under Section 5.4(b), but not later than one-hundred thirty (130) days after the end of the financial reporting year with respect to which such excess net income was earned. There shall be no prepayment premium, penalty or other charge on such prepayment except to the extent required to be paid under the applicable provisions of any Fixed Rate Option Letter in effect with respect to principal amounts prepaid. Subject to the first sentence of Section 2.4(c)(i), Bank agrees to apply each such prepayment first to principal amounts of the Term Loan bearing interest at the Prime Rate, and then to principal amounts bearing interest at a fixed rate; in lieu of the foregoing, so long as no Event of Default has occurred and is continuing, Borrower may request that Bank hold all or a portion of any prepayment (such amount being referred to herein as "Cash Collateral") in a segregated and blocked deposit account at Bank, rather than immediately applying such amount to payment of the Term Loan, until the earliest succeeding date(s) on which fixed rate interest periods expire and the Cash Collateral amounts can be applied to the Term Loan without Borrower incurring any premium or charge therefor. Interest earned on Cash Collateral shall be for Borrower's account and paid to Borrower promptly after application of the Cash Collateral to the Term Loan. (C) For purposes of determining the excess, if any, of ANIT over PNIT under this Section 2.4(c)(ii), Borrower shall calculate ANIT derived from operations of the businesses of Borrower and its Subsidiaries on a comparable basis to those businesses assumed to be in operation under the projections, business plan and forecasts on which PNIT was based; by way of example and not of limitation, any items of actual income or expense associated with an acquisition of stock, assets or a new line of business during the financial reporting year which was not assumed in deriving PNIT shall be separately identified and excluded from ANIT for purposes of this Section; provided, that any gains or losses from any sale, lease, transfer or other disposition of assets by Borrower or any Subsidiary outside of the ordinary course of its business shall not be excluded in determining ANIT. Bank shall have the right to review and approve, in its sole but reasonable judgment, Borrower's calculation of ANIT and the amount of any prepayment required under this Section 2.4(c)(ii), and Bank's acceptance of Borrower's tender of such prepayment shall not, by itself, be deemed a waiver of such right. (d) Default Interest. Any unpaid payments of principal or interest shall bear interest from their respective maturities, whether scheduled 97 or accelerated, at a fluctuating rate per annum at all times equal to the Prime Rate plus 5%, until paid in full, whether before or after judgment. Borrower shall pay such interest on demand. (e) Fixed Rate Options. In addition to an interest rate tied to the Prime Rate, at Borrower's option, portions of the outstanding principal balance of (i) the Line of Credit Facility may bear interest tied to the Eurodollar Rate from time to time offered by Bank, and (ii) the Term Loan may bear interest tied to the Eurodollar Rate or the Amortizing Term Loan Fixed Rate from time to time offered by Bank. The fixed rates are more fully explained in the Fixed Rate Option Letters executed in connection with this Agreement, all terms of which are incorporated by this reference. 2.5 Bank's Records/Payment Applications/Automatic Debit. (a) Bank's Records. Principal, interest, and all other sums owed Bank under any Loan Document shall be evidenced by entries in records maintained by Bank for such purpose. Each payment on and any other credits with respect to principal, interest and all other sums outstanding under any Loan Document shall be evidenced by entries in such records. Bank's records shall be conclusive evidence thereof. (b) Payment Applications. Notwithstanding the rights given to Borrower pursuant to California Civil Code sections 1479 and 2822 or equivalent provisions in the laws of the state specified in the governing law clause of this document (and any amendments or successors thereto), to designate how payments will be applied, Borrower hereby waives such rights and Bank shall have the right in its sole discretion to determine the order and method of the application of payments to this and/or any other credit facilities that may be provided by Bank to Borrower and to revise such application prospectively or retroactively at its discretion. Notwithstanding the foregoing, and subject to the first sentence of Section 2.4(c)(i), so long as no Event of Default has occurred and is continuing, Bank agrees to apply payments first to outstanding amounts under the Facilities bearing interest at the Prime Rate, and then to amounts bearing interest at a fixed rate. (c) Payments by Automatic Debit. Borrower hereby expressly authorizes Bank to debit the Deposit Account for the amount of each payment of principal and interest and all other sums owed Bank under any Loan Document. Borrower shall have sufficient collected balances in said account in order that each such payment shall be available when due. 2.6 Fees On The Facilities. 2.6.1 Line of Credit. Borrower shall pay to Bank no later than the Closing Date a non-refundable fee of Fifteen Thousand Dollars ($15,000) for the Line of Credit. 98 2.6.2 Letters of Credit. Without limiting Borrower's obligations for any Letter of Credit, as such obligations are contained in any specific Loan Document applicable thereto, Borrower shall pay fees, charges, and expense reimbursement and recovery as determined by Bank for the issuance, amendment, continuance, and handling of Letters of Credit, requests, claims and communications thereunder, and negotiation of drafts presented thereunder. 2.6.3 Term Loan. Borrower shall pay to Bank no later than the Closing Date a non-refundable fee of Fifty Thousand Dollars ($50,000) for the Term Loan. 2.7 Security. As security for all Facilities, Borrower will (a) grant to Bank or ensure that Bank is granted a perfected security interest of first priority in substantially all of Borrower's now owned and hereafter arising personal property assets, including, without limitation, accounts, inventory, equipment, and all of Borrower's shares of capital stock of OWT, Alaska and CAS; and (b) cause CAS and Alaska to grant or ensure that Bank is granted a perfected security in all personal property assets of such Subsidiaries. Such security interests shall be evidenced by pledge agreements and other security agreements, as appropriate, in form and substance satisfactory to Bank. ARTICLE THREE - REPRESENTATIONS AND WARRANTIES Borrower represents and warrants that as of the Closing Date and the date of each Advance or extension of credit under any of the Facilities: 3.1 Due Organization. Each of Borrower and each Subsidiary is duly organized and validly existing in good standing under the laws of the jurisdiction of its organization, and is duly qualified to conduct business in each jurisdiction in which its business is conducted, except where the failure to be so qualified would not have a material adverse affect on the financial condition or business of Borrower or such Subsidiary. 3.2 Authorization, Validity and Enforceability. The execution, delivery and performance by Borrower and each Subsidiary of each Loan Document executed by it are within Borrower's and such Subsidiary's powers, have been duly authorized, and are not in conflict with its articles of incorporation or by-laws, or the terms of any charter or other organizational document of Borrower or such Subsidiary, as applicable; and all such Loan Documents constitute valid and binding obligations of Borrower or such Subsidiary, as applicable, enforceable in accordance with their terms. 3.3 Compliance with Applicable Laws. Borrower and each Subsidiary has complied with all licensing, permit and fictitious name requirements necessary to 99 lawfully conduct the business in which it is engaged and with all laws and regulations applicable to any sales, leases or the furnishing of services by Borrower and each Subsidiary, including without limitation those requiring consumer or other disclosures, except where the failure to so comply would not have a material adverse effect on Borrower's financial condition, business or operations. 3.4 Licenses, Trademarks. Borrower and each Subsidiary has all patents, licenses, trademarks, trademark rights, trade names, trade name rights, copyrights, permits and franchises required in order for Borrower and each Subsidiary to conduct its business and operate its properties as now or proposed to be conducted without conflict with the rights of others. 3.5 No Conflict. The execution, delivery, and performance by Borrower and each Subsidiary of all Loan Documents to which it is a signatory are not in conflict with any law, rule, regulation, order or directive, or any indenture, agreement, or undertaking to which Borrower or such Subsidiary is a party or by which it may be bound or affected. 3.6 No Litigation, Claims or Proceedings. There is no litigation, tax claim or proceeding pending, or, to the knowledge of Borrower, threatened against or affecting Borrower or any Subsidiary or its respective property, except a disclosed in writing to Bank prior to the Closing Date. 3.7 Correctness of Financial Statements. Borrower's preliminary, unaudited financial statements as of December 31, 1995 which have been delivered to Bank fairly and accurately reflect Borrower's financial condition as of such date; and, since that date, there has been no material adverse change in Borrower's financial condition or business. 3.8 No Subsidiaries. Borrower is not a majority owner of or in a control relationship with any other business entity, except the Persons specifically identified as Subsidiaries on Schedule 3.8 to this Agreement. Except as shown on Schedule 3.8, Borrower owns directly or indirectly through one or more Subsidiaries, all of the shares of all Subsidiaries outstanding as of the Closing Date, and will continue to own all such shares (other than shares permitted to be issued to employees under Section 6.4); and all such shares owned by Borrower are validly issued, fully paid and non-assessable free and clear of all Liens except in favor of Bank. 3.9 No Event of Default. No Event of Default has occurred and is continuing. ARTICLE FOUR - CONDITIONS PRECEDENT 4.1 Conditions to Initial Advance. The obligation of Bank to make its first Advance or extend credit under either of the Facilities hereunder is, in addition to the conditions precedent specified in Section 4.2, subject to the fulfillment of the following conditions and to the receipt by Bank of the documents described below, duly executed and in form and substance satisfactory to Bank and its counsel: 100 (a) Resolutions. A certified copy of the resolutions of the Board of Directors of Borrower, authorizing the execution, delivery and performance of such Loan Documents to which it is a party. (b) Incumbency and Signatures. Certificate of the Secretary of Borrower, certifying the names of the corporate officer or officers authorized to sign the Loan Documents, together with a sample of the true signature of each such officer. (c) Opinion of Counsel. The opinion of Gray Cary Ware & Freidenrich, counsel for Borrower, as to the existence and good standing of Borrower, and the due authorization, execution and delivery by it of the Loan Documents to which it is signatory, and such other matters as Bank or its legal counsel may reasonably request. (d) Articles and By-Laws. Certified copies of the Articles of Incorporation and By-Laws of Borrower, as amended through the Closing Date. (e) Credit Agreement and Notes. A counterpart of this Agreement with all schedules completed and attached thereto, and the Notes. (f) Security Agreements. A Security Agreement executed by Borrower, together with filing copies of such Uniform Commercial Code financing statements, collateral assignments and termination statements, with respect to the Collateral (as defined in such Security Agreement) as Bank shall request. (g) Pledge Agreement. A Pledge Agreement executed by Borrower with respect to its shares of capital stock in OWT, CAS and Alaska. 4.2 Conditions to All Loans. The obligation of Bank to make its initial Advance and extension of credit hereunder and each subsequent Advance or extension of credit is subject to the following further conditions precedent that: (a) No Default. No Event of Default or event which with the giving of notice, passage of time or both would constitute an Event of Default has occurred and is continuing or will result from the making of any such Advance or extension of credit, and the representations and warranties of Borrower contained in Article 3 of this Agreement are true and correct as of the date of such extension of credit. (b) No Adverse Material Change. No material adverse change in Borrower's financial condition or business shall have occurred since the date of the most recent financial statements submitted to Bank. 101 4.3 Conditions Subsequent. (a) Pledged Shares. As soon as available, but not later than thirty (30) days after the Closing Date, Borrower shall have delivered to Bank, all share certificates evidencing shares of capital stock owned by Borrower in OWT, CAS and Alaska, together with stock powers therefor executed in blank and undated with signature guaranties. (b) Resolutions. As soon as available, but not later than thirty (30) days after the Closing Date, certified copies of the resolutions of the Boards of Directors of CAS and Alaska, authorizing the execution, delivery and performance of such Loan Documents to which they are a party. (c) Incumbency and Signatures. As soon as available, but not later than thirty (30) days after the Closing Date, certificates of the Secretaries of CAS and Alaska, certifying the names of the corporate officer or officers authorized to sign the Loan Documents, together with a sample of the true signature of each such officer. (d) Opinion of Counsel. As soon as available, but not later than thirty (30) days after the Closing Date, an opinion of Gray Cary Ware & Freidenrich, counsel for CAS and Alaska, as to the existence and good standing of CAS and Alaska, and the due authorization, execution and delivery by them of the Loan Documents to which they are signatory, and such other matters as Bank or its legal counsel may reasonably request. (e) Security Agreements. As soon as available, but not later than thirty (30) days after the Closing Date, a Security Agreement executed by each of CAS and Alaska, together with filing copies of such Uniform Commercial Code financing statements, collateral assignments and termination statements, with respect to the Collateral (as defined in such Security Agreements) as Bank shall request. (f) Lien Searches. As soon as available, but not later than sixty (60) days after the Closing Date, certified Uniform Commercial Code lien, judgment, bankruptcy and tax lien searches of Borrower, CAS and Alaska from each of the offices where the financing statements referred to in Sections 4.1(f) and 4.3(e) have been filed, reflecting the filing of such statements and no prior Liens of record other than herein permitted under Section 6.2. ARTICLE FIVE - AFFIRMATIVE COVENANTS During the term of this Agreement and until its performance of all obligations to Bank under this Agreement and the other Loan Documents , Borrower will, unless Bank otherwise consents in writing: 102 5.1 Use of Proceeds. Use the proceeds of the Facilities only as set forth in Article 2 of this Agreement; and not directly or indirectly to purchase or carry any margin stock, as defined from time to time by the Board of Governors of the Federal Reserve System in Federal Regulation U. 5.2 Financial Covenants. Maintain as of the end of each financial reporting period on a consolidated basis: (a) Working Capital. Current assets in an amount not less than Twenty-five Million Dollars ($25,000,000.00) in excess of current liabilities. (b) Tangible Net Worth/Debt To Worth. A Tangible Net Worth of not less than Forty-One Million Dollars ($41,000,000); and not permit Borrower's total indebtedness (exclusive of Subordinated Debt) to exceed one (1) times Borrower's Tangible Net Worth. (c) Profitability. Profitable operations on a quarterly basis. (d) Cash Flow Coverage Ratio. A ratio of (i) cash flow (net income before deduction of interest expense, taxes,depreciation and amortization, extraordinary items and other non-cash charges) for the twelve (12) month period then ended, to (ii) interest expense during such 12-month period, plus the current portion of long term debt determined as of the end of such period, of at least 1.6 to 1.0. 5.3 Notice to Bank. Promptly give written notice to Bank of: (a) Any litigation or administrative or regulatory proceeding (each a "Proceeding" and collectively, the "Proceedings") affecting Borrower or any Subsidiary where the amount claimed against Borrower and/or any Subsidiary (i) in any Proceeding is $500,000.00 or more or (ii) in all such Proceedings is $2,000,000.00 or more, or where the granting of the relief requested would have a material adverse effect on Borrower's financial condition or business; together with a semi-annual litigation report prepared by Borrower's general counsel or outside counsel, summarizing pending or threatened Proceedings against Borrower and such counsel's assessment as to the likely outcome of such Proceedings. (b) Any substantial dispute which may exist between Borrower and any governmental or regulatory authority. (c) Any Event of Default. (d) Any change in the location of any of Borrower's principal places of business or of the establishment of any new, or the discontinuance of any existing, principal place of business. 103 (e) Any other matter which has resulted or might result in a material adverse change in Borrower's or any Subsidiary's financial condition or business. 5.4 Financial Statements. Deliver to Bank or cause to be delivered to Bank, in form and detail reasonably satisfactory to Bank, the following financial information, which Borrower warrants shall be accurate and complete in all material respects: (a) Interim Financial Statements. As soon as available but no later than twenty-five (25) days after the end of each month, Borrower's consolidated and consolidating balance sheet as of the end of such period, and Borrower's consolidated and consolidating income statement for such period and for that portion of Borrower's financial reporting year ending with such period, prepared and attested by a responsible financial officer of Borrower as being complete and correct and fairly presenting Borrower's financial condition and the results of Borrower's operations. (b) Year-End Financial Statements. As soon as available but no later than one hundred twenty (120) days after and as of the end of each financial reporting year, a complete copy of Borrower's consolidated and consolidating audit report, which shall include balance sheet, income statement, statement of changes in equity and statement of cash flows for such year, prepared and certified by an independent certified public accountant selected by Borrower and satisfactory to Bank (the "Accountant"). The Accountant's certification shall not be qualified or limited due to a restricted or limited examination by the Accountant of any material portion of Borrower's records or otherwise. The certification shall include, or be accompanied by, (i) a statement from the Accountant that during the examination there was observed no Event of Default, or a statement of the Event of Default, if any is found, and (ii) a letter from the Accountant detailing the Accountant's conclusions regarding Borrower's accounting policies and procedures, internal controls, operating policies, together with an evaluation of Borrower's present accounting system, citing problem areas, if any, and recommendations for improvement, if any. Borrower shall not change its financial reporting year end from the current December 31st without Bank's prior written consent. (c) Quarterly Compliance Certificates. On a quarter-annual basis, simultaneously with the delivery of the financial statements for the months ending March 31, June 30, September 30 and December 31 referred to in clause (a) above, and for the fiscal year end referred to in clause (b) above, a certificate of the chief financial officer of Borrower (i) setting forth in reasonable detail any calculations required to establish whether Borrower was in compliance with the requirements of Sections 5.2, 6.1(f), 6.4, 6.6 and 6.8 on the date of such financial statements; (ii) stating whether any Event of Default exists on the date of such certificate and if any Event of Default exists, setting forth the details thereof and the action which Borrower is taking or proposes to take with respect thereto; and (iii) in the case of year-end financial statements under clause (b), a comparison of 104 ANIT for such year-ended and PNIT for same year as required under Section 2.4(c)(ii) of this Agreement. (d) Government Required Reports. Promptly after sending, making available, or filing, copies of all reports, proxy statements, and financial statements that Borrower sends or makes available to its stockholders and all registration statements and reports that Borrower files with the Securities and Exchange Commission, or any other governmental or regulatory authority, including Borrower's reports on forms 10-K and 10-Q. (e) Financial Projections. As soon as available, but no later than December 31 of the prior year, a complete copy of Borrower's annual, company-prepared projections for the ensuing fiscal year, which shall include a balance sheet, and statements of income and cash flow. (f) Accounts Receivable Agings. No later than twenty-five (25) days after the end of each month, statements showing aging and reconciliation of Accounts and collections, and if requested by Bank, whenever collections on Accounts are delivered to Bank, a schedule of the amounts so collected and delivered as of the last day of such month. (g) Other Information. Such other statements, lists of property and accounts, budgets, forecasts, reports, or other information required by any Addendum to this Agreement or as Bank may from time to time reasonably request. 5.5 Existence. Maintain and preserve Borrower's and each Subsidiary's existence, present form of business, and all rights, privileges and franchises necessary or desirable in the normal course of its business; except that Borrower may dissolve or merge into itself or another Subsidiary any Subsidiary that does not have significant assets or operations as of the Closing Date; and keep all Borrower's and each Subsidiary's property in good working order and condition, ordinary wear and tear excepted. 5.6 Insurance. Maintain and keep in force insurance with companies acceptable to Bank and in such amounts and types as is usual in the businesses carried on by Borrower and each Subsidiary, or as Bank may reasonably request. Such insurance policies must be in form and substance satisfactory to Bank. 5.7 Accounting Records. Maintain adequate books, accounts and records, and prepare all financial statements in accordance with GAAP, and in compliance with the regulations of any governmental or regulatory authority having jurisdiction over Borrower or its Subsidiaries or their respective businesses; and permit employees or agents of Bank at such reasonable times as Bank may request to inspect Borrower's and any Subsidiary's properties, and to examine, audit, and make copies and memoranda of Borrower's books, accounts and records. 105 5.8 Compliance With Laws. Comply, and cause each Subsidiary to comply, with all laws, rules, regulations, orders and directives of any governmental or regulatory authority having jurisdiction over Borrower or Subsidiary or their respective businesses, and with all material agreements to which Borrower or such Subsidiary is a party. 5.9 Taxes and Other Liabilities. Pay or cause to be paid all obligations of Borrower and each Subsidiary when due; pay all taxes and other governmental or regulatory assessments before delinquency or before any penalty attaches thereto, except as may be contested in good faith by the appropriate procedures and for which Borrower shall maintain or cause to be maintained appropriate reserves; and timely file all required tax returns. ARTICLE SIX - NEGATIVE COVENANTS During the term of this Agreement and until the performance of all obligations to Bank, Borrower will not, and will not permit any Subsidiary to, without Bank's prior written consent: 6.1 Indebtedness. Be indebted for borrowed money, the deferred purchase price of property, or leases which would be capitalized in accordance with GAAP; or become liable as a surety, guarantor, accommodation party or otherwise for or upon the obligation of any other Person, except: (a) The acquisition of supplies or inventory on normal trade credit, and equipment acquired in compliance with Section 6.8; (b) The endorsement of negotiable instruments for deposit or collection in the ordinary course of Borrower's business; (c) The indebtedness of Borrower under this Agreement; (d) Any indebtedness of Borrower and/or any Subsidiary (including OWT) approved in writing by Bank prior to the Closing Date; (e) Any indebtedness of entities permitted to be acquired under Section 6.6; and (f) Guaranties not to exceed Five Million Dollars ($5,000,000) in aggregate guaranteed amount of indebtedness of OWT for borrowed money or capitalized lease obligations. 6.2 Liens. Create, incur, assume or permit to exist any Lien, or grant any other Person a negative pledge, on any of Borrower's or any Subsidiary's property, except: 106 (a) Involuntary Liens which, in the aggregate, would not have a material adverse effect on Borrower's or any Subsidiary's financial condition or business; (b) Liens in favor of Bank; (c) Liens on entities or properties permitted to be acquired under Section 6.6; (d) Purchase money security interests on any property held or acquired by Borrower or any Subsidiary in the ordinary course of its business securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such property; provided, that such Lien attaches solely to the property acquired with such Indebtedness concurrently with or within 90 days after the acquisition thereof, and that the aggregate principal amount of such Indebtedness does not exceed the amount permitted under Section 6.8; and (e) Permitted Liens. Borrower and Bank agree that this covenant is not intended to constitute a lien, deed of trust, equitable mortgage, or security interest of any kind on any of Borrower's or any Subsidiary's real property, and this Agreement shall not be recorded or recordable. Notwithstanding the foregoing, however, violation of this covenant by Borrower shall constitute an Event of Default. 6.3 Borrower Dividends; Subsidiary Dividends. Pay any dividends except those payable solely in Borrower's capital stock; redeem, purchase, retire or otherwise acquire any shares of any class of capital stock of Borrower for a price in excess of One Million Dollars ($1,000,000) in aggregate;otherwise make any other distribution with respect to any of Borrower's capital stock; provided that so long as no Event of Default has occurred and is continuing or would result therefrom, Borrower may repurchase equity securities of Borrower from an employee upon termination of employment if permitted under an agreement between such employee and Borrower. Borrower will not, and will not permit any Subsidiary to, directly or indirectly, create or suffer to exist any encumbrance or restriction on the ability of any such Subsidiary to pay dividends or make any other distributions to Borrower on its capital stock or any other interest or participation in its profits owned by Borrower, or pay any debt owed to Borrower, except for encumbrances or restrictions existing under or by reason of applicable law, this Agreement or any other Loan Documents. 6.4 Changes/Mergers. Change its name without giving at least 30 days' prior notice to Bank; liquidate or dissolve, or enter into any consolidation, merger (other than a merger effected for the sole purpose of reincorporating Borrower in another jurisdiction), partnership, joint venture or other combination; reorganize, reclassify or recapitalize its capital stock; prepay any 107 subordinated debt, debt for borrowed money, or debt secured by any permitted Lien, or enter into or modify any agreement as a result of which the terms of payment of any such debt are modified in excess of Five Hundred Thousand Dollars ($500,000) in aggregate. Borrower will not permit any Subsidiary to issue any shares of its capital stock to any Person other than Borrower, except any Subsidiary may issue shares of capital stock or options exercisable for such stock in an aggregate amount not to exceed ten percent (10%) of such Subsidiary's outstanding capital stock (on a fully diluted basis) to directors and/or employees under one or more incentive stock option or deferred compensation plans that may be in effect from time to time. 6.5 Sales of Assets. Sell, transfer, lease or otherwise dispose of any of its assets except for fair consideration and in the ordinary course of its business, and except for dispositions of equipment that has become obsolete; or enter into any sale or leaseback agreement covering any of its fixed or capital assets except to the extent permitted under Section 6.8; provided, however, that the assets of Yolo Landfill Gas Corporation (consisting primarily of leasehold rights and inground pipelines) may be sold under a proposal in existence of the Closing Date for consideration of not less than $800,000.00. 6.6 Acquisitions. Acquire or purchase all or substantially all the assets of any other Person; or enter into any partnership, joint venture or other combination; or acquire or purchase securities (each an "Acquisition" and collectively the "Acquisitions"), except: (a) Those permitted under Section 6.7; (b) The OWT Acquisition; (c) Any single Acquisition in any amount not to exceed the sum of $3,000,000.00 in cash; or (d) Acquisitions not to exceed in the aggregate the sum of $5,000,000.00 in cash, and/or securities or otherwise, during any financial reporting year of Borrower. 6.7 Loans/Investments. Make or suffer to exist any loans, advances, or investments, except: (a) Bank accounts in the ordinary course of its business; (b) Accounts receivable in the ordinary course of its business; (c) (i) Investments in domestic certificates of deposit issued by, and other domestic deposit investments with, financial institutions organized under the laws of the United States or a state thereof, maintaining capital of at least $100 million and a rating of at least Aa by Moody's or any successor rating agency; 108 (ii) banker's acceptances created by, and commercial paper issued by, in each case, domestic or foreign commercial banks maintaining capital of at least $100 million and carrying a rating of at least A1 or P1 by Moody's, Standard & Poor's or any successor rating agency; (d) Investments in short term marketable obligations of the United States of America and in open market commercial paper given the highest credit rating by a national credit agency and maturing not more than one year from the creation thereof; (e) Securities of the United States Government; (f) Bonds issued by any domestic governmental agency or instrumentality and bearing the highest bond rating category of Moody's, Standard & Poor's or any successor rating agency; (g) Demand notes, money market preferred shares and adjustable rate preferred shares of any entity whose debt obligations are rated in the highest bond rating category of Moody's, Standard & Poor's or any successor rating agency; (h) Loans to Management Stakeholders (as defined in the OWT Acquisition documents) not to exceed $800,000.00 in aggregate principal amount for the sole purpose of financing such persons' payment of federal, state and local income tax liabilities arising from Borrower's acquisition of such persons' equity interests in OWT in exchange for OWT Convertible Notes; and (i) Temporary advances to cover incidental expenses to be incurred in the ordinary course of business. 6.8 Limitation on Capital Expenditures/Leases. Expend or be committed to expend, on a consolidated basis, Six Million Dollars ($6,000,000) or more in the aggregate for the acquisition,lease or rental of gross fixed or capital assets during any financial reporting year. 6.9 Transactions With Related Persons. Directly or indirectly enter into any transaction with or for the benefit of a Related Person on terms more favorable to the Related Person than would have been obtainable in an "arms' length" dealing. 6.10 Other Business. Conduct any business other than the businesses conducted by Borrower and Subsidiaries as of the Closing Date, unless the revenues and/or expenses of such business would not constitute a material portion of the consolidated revenues or expenses of Borrower and all Subsidiaries. 109 6.11 Termination of Key Personnel. Permit any individual who is the head of any major division of Borrower or any material Subsidiary to terminate his or her employment on a substantially full-time basis; provided, however, that if such event is anticipated or occurs, Borrower shall promptly notify Bank of such event, and provide a reasonably detailed analysis of the anticipated effect of the departure of such person on the consolidated operations and financial condition of Borrower, and the steps, if any, being taken, or proposed to be taken, by Borrower in response to such departure. So long as the departure of such employee is not likely to have a material adverse effect on Borrower's financial condition or ability to repay the Facilities, and Borrower continues to diligently prosecute any action proposed to be taken, then the departure of such individual shall not be deemed a violation of this Section 6.11. ARTICLE SEVEN - EVENTS OF DEFAULT 7.1 Events of Default. The occurrence of any of the following shall (1) terminate any obligation of Bank to make or continue the Facilities; and shall, at Bank's option, (2) make all sums of interest, principal and any other amounts owing under any Loan Documents immediately due and payable (with Bank also having immediate right to full cash prepayment for the unpaid amounts of all outstanding Letters of Credit) without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor or any other notices or demands; and (3) give Bank the right to exercise any other right or remedy provided by contract or applicable law: (a) Borrower shall fail to make any payment of principal or interest when due under this Agreement or to pay any fees or other charges when due. (b) Borrower shall fail to perform or observe any covenant contained in Sections 5.1, 5.2, 5.4(a)-(c), 5.7 or Article 6, inclusive. (c) Borrower or any other Person shall fail to perform or observe any covenant or agreement contained in this Agreement or in any other Loan Document (other than those covered by clause (a) or (b) above) and such failure continues for thirty (30) or more days. (d) Any representation or warranty made, or financial statement, certificate or other document provided, by Borrower or any Subsidiary shall prove to have been materially false or misleading when made (or deemed made). (e) Borrower or any Subsidiary shall fail to pay its debts generally as they become due or shall file any petition or action for relief under any bankruptcy, insolvency, reorganization, moratorium, creditor composition law, or any other law for the relief of or relating to debtors; an involuntary petition shall be filed under any bankruptcy law against Borrower or any Subsidiary, or a custodian, receiver, 110 trustee, assignee for the benefit of creditors, or other similar official, shall be appointed to take possession, custody or control of the properties of Borrower or any Subsidiary. (f) Borrower or any Subsidiary shall fail to perform under any other agreement involving the borrowing of money, the purchase of property, the advance of credit or any other monetary liability of any kind to Bank or to any Person where the failure would permit such Person to accelerate such obligation or indebtedness. (g) Any governmental or regulatory authority shall take any action, any defined benefit pension plan maintained by Borrower or any Subsidiary shall have any unfunded liabilities, or any other event shall occur, any of which, in the judgment of Bank, might have a material adverse effect on the financial condition or business of Borrower or any Subsidiary. (h) Any sale, transfer or other disposition of all or a substantial or material part of the assets of Borrower or any Subsidiary, including without limitation to any trust or similar entity, shall occur. (i) Any Person shall fail to perform its obligations under the terms of any material promissory note, contract or other obligation that is held by Bank as collateral for the obligations evidenced by the Loan Documents; or Bank shall not have a perfected security interest in any collateral being held for the obligations evidenced by the Loan Documents. (j) Any judgment(s) shall be entered against Borrower or any Subsidiary, or any involuntary lien(s) of any kind or character shall attach to any assets or property of Borrower or any Subsidiary, any of which, in the judgment of Bank, might have a material adverse effect on the financial condition or business of Borrower or any Subsidiary. ARTICLE EIGHT - GENERAL PROVISIONS 8.1 Notices. Any notice given by any party under any Loan Document shall be in writing and personally delivered, sent by United States mail, postage prepaid, or sent by facsimile or other authenticated message, charges prepaid and addressed as follows: 111 To Borrower: To Bank: EMCON The Bank of California, N.A. 400 South El Camino Real San Mateo Regional Office Suite 1200 491 South El Camino Real San Mateo, CA 94402 San Mateo, CA 94402 Attn: R. Michael Momboisse, CFO Attn: Marie T. Wiseman, V.P. FAX No.: 415/375-0763 FAX No.: 415/548-1998 Notices shall be deemed given three days after deposit in U.S. mail, on the next business day if sent by overnight courier, and on the date of dispatch if sent by facsimile or hand delivery. Each party may change the address to which notices, requests and other communications are to be sent by giving written notice of such change to each other party. 8.2 Dispute Resolution. (a) Mandatory Mediation/Arbitration. Any controversy or claim between or among the parties, their agents, employees and affiliates, including but not limited to those arising out of or relating to this Agreement or any related agreements or instruments ("Subject Documents"), including without limitation any claim based on or arising from an alleged tort, shall, at the option of any party, and at that party's expense, be submitted to mediation, using either the American Arbitration Association ("AAA") or Judicial Arbitration and Mediation Services, Inc. ("JAMS"). If mediation is not used, or if it is used and it fails to resolve the dispute within 30 days from the date AAA or JAMS is engaged, then the dispute shall be determined by arbitration in accordance with the rules of either JAMS or AAA (at the option of the party initiating the arbitration) and Title 9 of the U. S. Code, notwithstanding any other choice of law provision in the Subject Documents. All statutes of limitations or any waivers contained herein which would otherwise be applicable shall apply to any arbitration proceeding under this subparagraph (a). The parties agree that related arbitration proceedings may be consolidated. The arbitrator shall prepare written reasons for the award. Judgment upon the award rendered may be entered in any court having jurisdiction. This subparagraph (a) shall apply only if, at the time of the proposed submission to AAA or JAMS, none of the obligations to Bank described in or covered by any of the Subject Documents are secured by real property collateral or, if so secured, all parties consent to such submission. (b) Jury Waiver/Judicial Reference. If the controversy or claim is not submitted to arbitration as provided and limited in subparagraph (a), but becomes the subject of a judicial action, each party hereby waives its respective right to trial by jury of the controversy or claim. In addition, any party may elect to have all decisions of fact and law 112 determined by a referee appointed by the court in accordance with applicable state reference procedures. The party requesting the reference procedure shall ask AAA or JAMS to provide a panel of retired judges and the court shall select the referee from the designated panel. The referee shall prepare written findings of fact and conclusions of law. Judgment upon the award rendered shall be entered in the court in which such proceeding was commenced. (c) Provisional Remedies, Self Help, and Foreclosure. No provision of, or the exercise of any rights under, subparagraph (a) shall limit the right of any party to exercise self help remedies such as setoff, to foreclose against any real or personal property collateral, or to obtain provisional or ancillary remedies such as injunctive relief or the appointment of a receiver from a court having jurisdiction before, during or after the pendency of any mediation or arbitration. At Bank's option, foreclosure under a deed of trust or mortgage may be accomplished either by exercise of power of sale under the deed of trust or mortgage, or by judicial foreclosure. The institution and maintenance of an action for judicial relief or pursuit of provisional or ancillary remedies or exercise of self help remedies shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to mediation or arbitration. To the extent any provision of the dispute resolution clause is different than the terms of this Agreement, the terms of this dispute resolution clause shall prevail. 8.3 Binding Effect. The Loan Documents shall be binding upon and inure to the benefit of Borrower and Bank and their successors and assigns; provided, however, that Borrower may not assign or transfer Borrower's rights or obligations under any Loan Document without Bank's prior written consent. Bank reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Bank's rights and obligations under the Loan Documents; provided, that Bank will not knowingly do so to a Person that is a non-bank lender that is directly or indirectly in competition with the business of, or a customer of, Borrower. In that connection, Bank may disclose all documents and information which Bank now or hereafter may have relating to the Facilities, Borrower, or any Subsidiary or their business; provided, that any such assignee or transferee has executed a confidentiality agreement reasonably satisfactory to Borrower. 8.4 No Waiver. Any waiver, consent or approval by Bank of any Event of Default or breach of any provision, condition, or covenant of any Loan Document must be in writing and shall be effective only to the extent set forth in writing. No waiver of any breach or default shall be deemed a waiver of any later breach or default of the same or any other provision of any Loan Document. No failure or delay on the part of Bank in exercising any power, right, or privilege under any Loan Document shall operate as a waiver thereof, and no single or partial exercise of any such power, right, or privilege shall preclude any further exercise thereof or the exercise of any other power, right or privilege. Bank has the right at its sole option to continue to accept interest and/or principal 113 payments due under the Loan Documents after default, and such acceptance shall not constitute a waiver of said default or an extension of the Termination Date unless Bank agrees otherwise in writing. 8.5 Rights Cumulative. All rights and remedies existing under the Loan Documents are cumulative to, and not exclusive of, any other rights or remedies available under contract or applicable law. 8.6 Unenforceable Provisions. Any provision of any Loan Document executed by Borrower which is prohibited or unenforceable in any jurisdiction, shall be so only as to such jurisdiction and only to the extent of such prohibition or unenforceability, but all the remaining provisions of any such Loan Document shall remain valid and enforceable. 8.7 Governing Law. Except as may be otherwise expressly stated therein, the Loan Documents shall be governed by and construed in accordance with, the laws of the State of California. 8.8 Accounting Terms. Except as otherwise provided in this Agreement, accounting terms and financial covenants and information shall be determined and prepared in accordance with GAAP as in effect on the date of this Agreement. 8.9 Indemnification. Borrower shall pay and protect, defend and indemnify Bank and Bank's employees, officers, directors, shareholders, affiliates, correspondents, agents and representatives (other than Bank, collectively "Agents") against, and hold Bank and each such Agent harmless from, all claims, actions, proceedings, liabilities, damages, losses, and related expenses (including, without limitation, reasonable attorneys' fees and costs) and other amounts incurred by Bank and each such Agent, arising from (i) the matters contemplated by this Agreement, any Loan Document or any Letter of Credit or (ii) any contention that Borrower has failed to comply with any law, rule, regulation, order or directive applicable to Borrower's sales, leases or performance of services to Borrower's customers, including without limitation those sales, leases and services requiring consumer or other disclosures; provided, however, that this indemnification shall not apply to any of the foregoing incurred solely as the result of Bank's or any Agent's gross negligence or willful misconduct. This indemnification shall survive the payment and satisfaction of all of Borrower's obligations and liabilities to Bank. 8.10 Reimbursement. Borrower shall reimburse Bank for all costs and expenses, including without limitation reasonable attorneys' fees and disbursements (and fees and disbursements of Bank's in-house counsel) expended or incurred by Bank in any arbitration, mediation, judicial reference, legal action or otherwise in connection with (a) the negotiation, preparation, amendment, interpretation and enforcement of the Loan Documents, including without limitation during any workout, attempted workout, and/or in connection with the rendering of legal advice as to Bank's rights, remedies and obligations under the Loan Documents, (b) collecting any sum which becomes due Bank under any Loan Document, (c) any 114 proceeding for declaratory relief, any counterclaim to any proceeding, or any appeal, or (d) the protection, preservation or enforcement of any rights of Bank. For the purposes of this section, attorneys' fees shall include, without limitation, fees incurred in connection with the following: (1) contempt proceedings; (2) discovery; (3) any motion, proceeding or other activity of any kind in connection with a bankruptcy proceeding or case arising out of or relating to any petition under Title 11 of the United States Code, as the same shall be in effect from time to time, or any similar law; (4) garnishment, levy, and debtor and third party examinations; and (5) postjudgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment. 8.11 Execution in Counterparts. This Agreement may be executed in any number of counterparts which, when taken together, shall constitute but one agreement. 8.12 Entire Agreement. The Loan Documents are intended by the parties as the final expression of their agreement and therefore contain the entire agreement between the parties and supersede all prior understandings or agreements concerning the subject matter hereof. This Agreement may be amended only in a writing signed by Borrower and Bank. IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement as of the date set forth in the preamble. EMCON, a California corporation THE BANK OF CALIFORNIA, N.A. By: /s/ By: /s/ ---------------------- ------------------- Name: R. Michael Momboisse Name: Marie T. Wiseman Title: CFO and V.P. - Legal Title: Vice President 115 EX-10.3 5 SECURITY AGREEMENT EXHIBIT 10.3 SECURITY AGREEMENT This Agreement is made as of February 29, 1996 by EMCON, a California corporation ("Debtor"), in favor of THE BANK OF CALIFORNIA, N.A. ("Bank"). Recitals Debtor and Bank have executed a Credit Agreement of even dated herewith (as the same may be amended or supplemented from time to time, the "Credit Agreement"), pursuant to which Bank has agreed to extend certain credit facilities to Borrower on the condition, among others, that Borrower grant to Bank a continuing security interest in certain now owned and after-acquired personal property of Borrower as security for Borrower's obligations under the Credit Agreement. All capitalized terms used in this Agreement that are not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement. ARTICLE 1 - DEFINITIONS The following definitions shall be applicable to both the singular and plural forms of the defined terms: "Account" means a right to payment for goods sold or leased by Debtor or for services rendered by Debtor, which right is not evidenced by an instrument or chattel paper, whether or not earned by performance. "Agreement" means this Security Agreement, as it may be amended from time to time. "Collateral" means all Debtor's Accounts, Deposit Accounts, Equipment, Fixtures, General Intangibles, Goods, Inventory and Rights to Payment now owned or hereafter acquired, wherever located, and whether held by Debtor or any third party, and all royalties, proceeds and products thereof, including all insurance and condemnation proceeds ("Proceeds"), and all Records. "Collateral" shall include the separate property of any married individual who signs this Agreement if such property is otherwise covered by this definition. "Deposit Accounts" means all Debtor's demand, time, savings, passbook or similar accounts maintained with a financial institution or credit union, other than accounts evidenced by a negotiable certificate of deposit. "Equipment" means all of Debtor's equipment now owned or hereafter acquired, including but not limited to machinery, machine parts, furniture, furnishings and all tangible personal property used in the business 116 of Debtor and all such property which is or is to become fixtures on real property, and all improvements, replacements, accessions and additions thereto, wherever located, and all proceeds thereof arising from the sale, lease, rental or other use or disposition of any such property, including all rights to payment with respect to insurance or condemnation, returned premiums, or any cause of action relating to any of the foregoing. "Event of Default" means an event described in Article 6. "Fixtures" means all items of personal property of Debtor that are so related to the real property upon which they are located that an interest in them arises under real property law, and improvements, replacements, parts, accessions and additions thereto, and substitutions therefor. "General Intangibles" means all personal property of Debtor, other than Goods, not otherwise defined as Collateral, including without limitation all interests or claims in insurance policies; literary property; tradenames, tradename rights; trademarks, trademark rights, copyrights, patents, and all applications therefor; licenses, permits, franchises and like privileges or rights issued by any governmental or regulatory authority; income tax refunds; customer lists; claims and causes of action and all guaranty claims, co-op memberships, leasehold interests in personal property, security interests or other security held by or guaranteed to the Debtor to secure the payment by an account debtor of any of the Accounts. "Goods" means all money and other personal property of Debtor, other than General Intangibles, not otherwise defined as Collateral. "Indebtedness" means all debts, obligations and liabilities of Debtor to Bank currently existing or now or hereafter made, incurred or created, whether voluntary or involuntary and however arising or evidenced, whether direct or acquired by Bank by assignment or succession, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Debtor may be liable individually or jointly, or whether recovery upon such debt may be or become barred by any statute of limitations or otherwise unenforceable; and all renewals, extensions and modifications thereof; and all attorneys' fees and costs incurred by Bank in connection with the collection and enforcement thereof. "Inventory" means all Debtor's raw materials, work in process, finished goods and goods held for sale or lease or furnished under contracts of service, and all returned and repossessed goods, and all goods covered by documents of title, including warehouse receipts, bills of lading and all other documents of every type covering all or any part of the Collateral. "Lien" means any voluntary or involuntary security interest, mortgage, pledge, claim, charge, encumbrance, title retention agreement, or third party interest covering all or any part of the property of Debtor or any other Person. 117 "Loan Documents" means this Agreement, any evidence of Indebtedness, any guaranty, security or pledge agreement, deed of trust, and all other contracts, instruments, addenda and documents executed in connection therewith. "Person" means any individual or entity, including without limitation Bank where the context so permits and in Bank's sole discretion. "Records" means all Debtor's computer programs, software, hardware, source codes and data processing information, all written documents, books, invoices, ledger sheets, financial information and statements, and all other writings concerning Debtor's business. "Rights to Payment" means all Debtor's accounts, instruments, contract rights, documents, chattel paper and all other rights to payment, including without limitation the Accounts, all negotiable certificates of deposit and all rights to payment under any commercial or standby letter of credit. "Uniform Commercial Code" means the Uniform Commercial Code of the State referred to in Article Eight, as amended from time to time. Terms not specifically defined in this Agreement have the meanings proscribed in the Uniform Commercial Code. ARTICLE 2 - GRANT OF SECURITY INTEREST To secure the timely payment of the Indebtedness and performance of all obligations of Debtor to Bank, Debtor grants to Bank a security interest in the Collateral. ARTICLE 3 - REPRESENTATIONS AND WARRANTIES Debtor represents and warrants that, at all times during the term of this Agreement: 3.1 Authorization, Validity and Enforceability. The execution, delivery and performance of this Agreement are within Debtor's powers, have been duly authorized, and are not in conflict with Debtor's articles of incorporation or by-laws, or the terms of any charter or other organizational document of Debtor; and this Agreement constitutes a valid and binding obligation of Debtor, enforceable in accordance with its terms, and creates a security interest which is enforceable against the Collateral. 3.2 No Conflict. The execution, delivery, and performance by Debtor of this Agreement are not in conflict with any law, rule, regulation, order or directive, or any indenture, agreement, or undertaking to which Debtor is a party or by which Debtor may be bound or affected and will not result in 118 the creation or imposition of any Lien pursuant to the terms of any such indenture, agreement, or undertaking. 3.3 Governmental Actions. Debtor has obtained all consents and actions of, and has performed all filings with, any governmental or regulatory authority that are required to authorize the execution, delivery or performance of this Agreement or the granting or perfecting of Bank's security interest in the Collateral. 3.4 Title. Except as permitted under Section 6.2 of the Credit Agreement, Debtor is and will be the unconditional legal and beneficial owner of the Collateral, and the Collateral is genuine and subject to no Liens, rights or defenses of others. Except for Inventory under documents duly negotiated to Bank or showing Bank as secured party, no bill of lading, warehouse receipt or other document of title is outstanding with respect to any of the Collateral. 3.5 Rights to Payment. The names of the obligors, amount owing to Debtor, due dates and all other information with respect to the Rights to Payment are and will be correctly stated in all Records relating to the Rights to Payment. Debtor further represents and warrants that each Person appearing to be obligated on a Right to Payment has authority and capacity to contract and is bound as it appears to be; and that all chattel paper is in compliance with law as to form, content and manner of preparation and execution and all property subject to chattel paper has been properly registered and filed to perfect Debtor's interest. 3.6 Retail Merchant. Bank's security interest in any Collateral consisting of Inventory is not restricted by Uniform Commercial Code Section 9102 in effect from time to time. 3.7 No Misrepresentation. No representation, warranty or statement by Debtor contained in this Agreement, in any Record or certificate or other writing furnished by Debtor to Bank (including without limitation any made or given concerning the genuineness, value and condition of the Collateral, financial statements and statements made in documentary Collateral) at any time contains any untrue statement of material fact, or omits to state a material fact. 3.8 Chief Executive Office. Debtor's chief executive office is located at: Address City County State Zip -------- ---- ------ ----- --- 400 South El Camino Real Suite 1200 San Mateo San Mateo CA 94402 119 3.9 Inventory Location. Other than as set forth in Section 3.8, Inventory is located at: Address City County State Zip -------- ---- ------ ----- --- See Schedule 3.9 attached hereto. 3.10 Records Location. Other than as set forth in Section 3.8, Records are maintained at: Address City County State Zip -------- ---- ------ ----- --- See Schedule 3.9 attached hereto. 3.11 Equipment or Fixtures Location. Other than as set forth in Section 3.8, Equipment or Fixtures are located at: Address City County State Zip -------- ---- ------ ----- --- See Schedule 3.9 attached hereto. 3.12 Other Places of Business. In addition to the locations set forth in Sections 3.8 through 3.11, Debtor maintains the following place(s) of business: Address City County State Zip -------- ---- ------ ----- --- See Schedule 3.9 attached hereto. 120 3.13 Business Names. Debtor has conducted business in the following names other than the name stated in the preamble to this Agreement: EMCON, Inc. EMCON Consulting, Inc. EMCON Associates EMCON Southwest, Inc. EMCON Northwest, Inc. EMCON Southeast, Inc. EMCON Baker-Shiflett, Inc. Baker-Shiflett/EMCON, Inc. Baker-Shiflett, Inc. Texas EMCON, Inc. Sweet Edwards/EMCON, Inc. Sweet Edwards, Inc. GWL Environmental, Inc. G. Warren Levy, Inc. Special Environmental Services, Inc. Chattahoochie Geotechnical Consultants, Inc. Wehran/EMCON Northeast, Inc. Wehran Envirotech, Inc. Wehran Engineering Corporation Wehran Technological Services, Inc. Wecon Services Corporation Eldredge Engineering Associates, Inc. Aquila Construction Company Resource Recovery Services Aquila Construction EMCON/United Field Services LLC Wehran-New York Inc. Wehran Puerto Rico ET Environmental Corp. Yolo Landfill Gas Corp. Monterey Landfill Gas Corporation Columbia Analytical Services Inc. Performance Analytical ET Environmental Corporation EOC Corporation 3.14 No Litigation. There is no litigation, tax claim, proceeding or dispute pending, or to the knowledge of Debtor, threatened against or affecting Debtor or its property, except as disclosed in writing to Bank prior to the date of this Agreement. 121 3.15 Financing Statements. Copies of all financing statements and all other documents publicly recorded or filed naming Debtor as debtor or obligor have been delivered to Bank prior to the date of this Agreement. 3.16 Hazardous Substances. Except in compliance with applicable laws, Debtor's property never has been, and never will be, used for the generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous substance, as those or any similar terms are defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA") any regulation promulgated thereunder, or any state or local law, rule, regulation or order. Debtor hereby agrees to indemnify and hold harmless Bank against any and all claims and losses resulting from a breach of this provision. 3.17 No Default. No Event of Default has occurred or exists. ARTICLE 4 - AFFIRMATIVE COVENANTS During the term of this Agreement and until payment of all the Indebtedness and performance of all obligations to Bank under the Loan Documents, Debtor will, unless Bank otherwise consents in writing: 4.1 Use of Proceeds. Use the proceeds of any credit extended by Bank to Debtor only in accordance with the terms of any evidence of the Indebtedness and for the purpose indicated on any application for such credit. 4.2 Delivery of Certain Items. Deliver to Bank promptly (a) upon Bank's request, duplicate invoices with respect to each Account bearing such language of assignment as Bank shall specify; (b) the originals of all commercial and standby letters of credit, instruments, documents and chattel paper constituting Collateral, endorsed and assigned as Bank shall specify; (c) after an Event of Default, all Proceeds; (d) upon Bank's request, returned property resulting from, or payment equal to such allowance or credit on, Rights to Payment; (e) such specific acknowledgments, assignments or other agreements as Bank may request relating to the Collateral; and (f) such Records and other reports in such form and detail and at such times as Bank may require relating to the Collateral, including without limitation reports of acquisition, and disposition, agings, and collection of any Collateral. If any of the Rights to Payment become evidenced by an instrument, Debtor will notify Bank thereof and, upon request by Bank promptly deliver such instrument to Bank appropriately endorsed to the order of Bank as further security for the satisfaction in full of the Indebtedness. 4.3 Maintenance of Collateral; Inspection. Do all things necessary to maintain, preserve, protect and keep all Collateral in good working 122 order and salable condition, dealing with the Collateral in all ways as are considered good practice by owners of like property, and use the Collateral lawfully and only as permitted by Debtor's insurance policies. Debtor hereby authorizes Bank's officers, employees, representatives and agents to inspect the Collateral and to discuss the Collateral and the Records relating thereto with Debtor's officers and employees, and, in the case of any Right to Payment after the occurrence of an Event of Default, with any Person which is or may be obligated thereon. 4.4 Maintenance of Records; Inspection. Maintain, or cause to be maintained, complete and accurate Records relating to the Collateral. Bank, its officers, employees, agents and representatives shall have the right, from time to time, to examine the Records and to make copies or extracts therefrom. 4.5 Insurance. Maintain and keep in force in adequate amounts such insurance on the Collateral with companies acceptable to Bank as is usual in the business carried on by Debtor, including fire and extended coverage insurance, with loss payable to Bank, as Bank may from time to time reasonably request. Furnish to Bank upon request the original of all policies, or certificates of insurance on the Collateral. Each policy shall be in form and substance satisfactory to Bank. 4.6 Taxes and Other Liabilities. Pay all Debtor's obligations when due; pay all taxes and other governmental or regulatory assessments before delinquency or before any penalty attaches thereto, except as may be contested in good faith by the appropriate procedures and for which Debtor shall maintain appropriate reserves; and timely file all required tax returns. Any taxes (excluding income taxes) payable or ruled payable by any governmental or regulatory authority arising out of or in connection with this Agreement shall be paid by Debtor, together with interest and penalties, if any. 4.7 Debtor's Duty to Give Notice. Give prompt notice to Bank of: (a) any material discount, credit, rebate or other reduction in the amount owing on a Right to Payment; (b) any material threatened or asserted dispute, setoff, claim, counterclaim or defense with respect to a Right to Payment; (c) any material decrease in the value of any Collateral and the amount of such decrease (other than depreciation calculated in the ordinary course of business under applicable tax laws and regulations and in accordance with generally accepted accounting principles); and(d) any change in the ownership of any property on which any Collateral is located. 4.8 Financing Statements and Other Actions. Execute and deliver to Bank, and file or record at Debtor's expense, all financing statements, notices and other documents from time to time requested by Bank to maintain a first perfected security interest in the Collateral in favor of Bank, all in form and substance satisfactory to Bank; perform such other acts, and execute and deliver to Bank such additional conveyances, assignments, agreements and instruments, as Bank may at any time request in connection with the administration and enforcement of this Agreement or Bank's rights, powers and remedies hereunder. 123 4.9 Agreement With Real Property Owner/Landlord. Obtain and maintain such acknowledgments, consents, waivers and agreements from the owner, lienholder, mortgagee and landlord with respect to any real property on which Collateral is located as Bank may require, all in form and substance satisfactory to Bank. ARTICLE 5 - NEGATIVE COVENANTS During the term of this Agreement and until payment of all the Indebtedness and performance of all obligations to Bank, Debtor will not, without the prior written consent of Bank: 5.1 Liens. Create, incur, assume or permit to exist any Lien or grant any other Person a negative pledge on any Collateral, except Liens permitted under Section 6.2 of the Credit Agreement. 5.2 Documents of Title. Sign or authorize the signing of any financing statement or other document naming Debtor as debtor or obligor, or acquiesce or cooperate in the issuance of any bill of lading, warehouse receipt or other document or instrument of title with respect to any Collateral, except those negotiated to Bank or those naming Bank as secured party. 5.3 Disposition of Collateral. Sell, transfer, lease or otherwise dispose of any Collateral except as permitted under Section 6.5 of the Credit Agreement. Prior to the occurrence of an Event of Default, unless otherwise agreed between Debtor and Bank, Debtor may use cash Proceeds collected in the ordinary course of business. 5.4 Change in Location, Name, Legal Structure. (a) Unless at least 30 days' prior notice shall have been given to Bank, change its name or mailing address, or maintain Records, its chief executive office, or a place of business at a location other than as specified in Article 3; or (b) change the nature of its business, or its legal structure. 5.5 Certain Agreements on Rights to Payment. Make or arrange to make any material discount, credit, rebate or other material reduction in the original amount owing on a Right to Payment or accept in satisfaction of a Right to Payment an amount materially less than the original amount thereof, except as disclosed to Bank in writing from time to time. ARTICLE 6 - EVENTS OF DEFAULT 6.1 Event of Default. The occurrence of any Event of Default under the Credit Agreement shall constitute an "Event of Default" under this Agreement. 124 6.2 Acceleration and Remedies. Upon the occurrence of an Event of Default, Bank shall be entitled to, at Bank's option, without notice or demand of any kind (a) declare all or any part of the Indebtedness immediately due and payable; (b) exercise any or all of the rights and remedies available to a secured party under the Uniform Commercial Code or any other applicable law; and (c) exercise any or all of Bank's rights and remedies provided for in this Agreement and in any other Loan Document. The obligations of Debtor under this Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any Indebtedness is rescinded or must otherwise be returned by Bank upon, on account of, or in connection with, the insolvency, bankruptcy or reorganization of Debtor or otherwise, all as though such payment had not been made. 6.3 Sale of Collateral. Bank may sell all or any part of the Collateral, at public or private sales, to itself, a wholesaler, retailer or investor, for cash, upon credit or for future delivery, and at such price or prices as Bank may deem commercially reasonable. To the extent permitted by law, Debtor hereby specifically waives all rights of redemption and any rights of stay or appraisal which it has or may have under any applicable law in effect from time to time. Any such public or private sales shall be held at such times and at such place(s) as Bank may determine. In case of the sale of all or any part of the Collateral on credit or for future delivery, the Collateral so sold may be retained by Bank until the selling price is paid by the purchaser, but Bank shall not incur any liability in case of the failure of such purchaser to pay for the Collateral and, in case of any such failure, such Collateral may be resold. Bank may, instead of exercising its power of sale, proceed to enforce its security interest in the Collateral by seeking a judgment or decree of a court of competent jurisdiction. 6.4 Debtor's Obligations Upon Default. Upon the request of Bank after the occurrence of an Event of Default, Debtor will: (a) Assemble and make available to Bank the Collateral at such place(s) as Bank shall designate, segregating all Collateral so that each item is capable of identification; and (b) Permit Bank, by Bank's officers, employees, agents and representatives, to enter any premises where any Collateral is located, to take possession of the Collateral, and to remove the Collateral, or to conduct any public or private sale of the Collateral, all without any liability of Bank for rent or other compensation for the use of Debtor's premises. ARTICLE 7 - SPECIAL COLLATERAL PROVISIONS 7.1 Cash Collateral Account. All cash Proceeds received by Bank pursuant to any provisions of this Agreement shall be deposited in a special non-interest bearing collateral account established with Bank, and will be applied in accordance with Section 7.7. This account shall be held by Bank as Collateral. 125 7.2 Notification to Certain Obligors and Possession of Proceeds. Bank may in its sole discretion at any time after the occurrence of an Event of Default or an event which with the giving of notice or the passage of time or both would constitute an Event of Default (a) notify or cause Debtor to notify the obligors on the Rights to Payment to make payment to Bank; and (b) take possession of any or all Proceeds, which Bank will apply in accordance with Section 7.7. 7.3 Compromise and Collection. Debtor and Bank recognize that setoffs, counterclaims, defenses and other claims may be asserted by obligors with respect to certain of the Rights to Payment; that certain of the Rights to Payment may be or become uncollectible in whole or in part; and that the expense and probability of success of litigating a disputed Right to Payment may exceed the amount that reasonably may be expected to be recovered with respect to such Right to Payment. Debtor hereby authorizes Bank, effective upon the occurrence of an Event of Default, to compromise with the obligor, accept in full payment of any Right to Payment such amount as Bank shall negotiate with the obligor, or abandon any Right to Payment. Any such action by Bank shall be considered commercially reasonable so long as Bank acts in good faith based on information known to it at the time it takes any such action. 7.4 Bank Performance of Debtor's Obligations. Without having any obligation to do so, Bank may perform or pay any obligation which Debtor has agreed to perform or pay under this Agreement including without limitation the payment or discharge of taxes or Liens levied or placed on or threatened against the Collateral. In so performing or paying, Bank shall determine the action to be taken and the amount necessary to discharge such obligations. Debtor shall reimburse Bank on demand for any amounts paid by Bank pursuant to this Section, which amounts shall constitute Indebtedness secured by the Collateral. 7.5 Power of Attorney. For the purpose of protecting and preserving the Collateral and Bank's rights under this Agreement, Debtor hereby irrevocably appoints Bank, with full power of substitution, as its attorney-in-fact with full power and authority to do any act which Debtor is obligated to do hereunder; to exercise such rights with respect to the Collateral as Debtor might exercise; to use such Inventory, Equipment, Fixtures or other property as Debtor might use; to enter Debtor's premises; following the occurrence of an Event of Default, to give notice of Bank's security interest in, and to collect the Collateral and the Proceeds; and to execute and file in Debtor's name any financing statements, amendments and continuation statements necessary or desirable to perfect or continue the perfection of Bank's security interests in the Collateral. Debtor hereby ratifies all that Bank shall lawfully do or cause to be done by virtue of this appointment. 126 7.6 Authorization for Bank to Take Certain Action. The power of attorney created in Section 7.5 is a power coupled with an interest and shall be irrevocable. The powers conferred on Bank hereunder are solely to protect its interests in the Collateral and shall not impose any duty upon Bank to exercise such powers. Bank shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and in no event shall Bank or any of its directors, officers, employees, agents or representatives be responsible to Debtor for any act or failure to act, except for gross negligence or willful misconduct. Bank may exercise this power of attorney without notice to or assent of Debtor, in the name of Debtor, or in Bank's own name, from time to time in Bank's sole discretion and at Debtor's expense. To further carry out the terms of this Agreement, Bank may: (a) Execute any statements or documents or take possession of, and endorse and collect and receive delivery or payment of, any checks, drafts, notes, acceptances or other instruments and documents constituting Collateral, or constituting the payment of amounts due and to become due or any performance to be rendered with respect to the Collateral. (b) Sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts; drafts, certificates and statements under any commercial or standby letter of credit; assignments, verifications and notices in connection with Accounts; or any other documents relating to the Collateral, including without limitation the Records. (c) Use or operate Collateral or any other property of Debtor for the purpose of preserving or liquidating Collateral. (d) File any claim or take any other action or proceeding in any court of law or equity or as otherwise deemed appropriate by Bank for the purpose of collecting any and all monies due or securing any performance to be rendered with respect to the Collateral. (e) Commence, prosecute or defend any suits, actions or proceedings or as otherwise deemed appropriate by Bank for the purpose of protecting or collecting the Collateral. In furtherance of this right, upon the occurrence of an Event of Default, Bank may apply for the appointment of a receiver or similar official to operate Debtor's business, and, to the fullest extent permitted by law, Debtor hereby waives any right to oppose such appointment. (f) Prepare, adjust, execute, deliver and receive payment under insurance claims, and collect and receive payment of and endorse any instrument in payment of loss or returned premiums or any other insurance refund or return, and apply such amounts at Bank's sole discretion, toward repayment of the Indebtedness or replacement of the Collateral. 127 7.7 Application of Proceeds. Any Proceeds and other monies or property received by Bank pursuant to the terms of this Agreement or any Loan Document may be applied by Bank first to the payment of expenses of collection, including without limitation reasonable attorneys' fees, and then to the payment of the Indebtedness in such order of application as Bank may elect. Notwithstanding the rights given to Debtor pursuant to California Civil Code sections 1479 and 2822 or equivalent provisions in the laws of the state specified in the governing law clause of this document (and any amendments or successors thereto), to designate how payments will be applied, Debtor hereby waives such rights and Bank shall have the right in its sole discretion to determine the order and method of the application of payments received from Debtor or from the sale or disposition of the Collateral and to revise such application prospectively or retroactively at its discretion. The provisions of this Section 7.7 are subject to the provisions of Section 2.5(b) of the Credit Agreement. 7.8 Deficiency. If the Proceeds of any disposition of the Collateral are insufficient to cover all costs and expenses of such sale and the payment in full of all the Indebtedness, plus all other sums required to be expended or distributed by Bank, then Debtor shall be liable for any such deficiency. 7.9 Bank Transfer. Upon the transfer of all or any part of the Indebtedness, Bank may transfer all or any part of the Collateral and shall be fully discharged thereafter from all liability and responsibility with respect to such Collateral so transferred, and the transferee shall be vested with all the rights and powers of Bank hereunder with respect to such Collateral so transferred, but with respect to any Collateral not so transferred, Bank shall retain all rights and powers hereby given. 7.10 Bank's Duties. (a) Bank's sole duty with respect to the Collateral in its possession shall be to use reasonable care in the custody and preservation thereof. Bank shall be deemed to have exercised reasonable care in the custody and preservation of such Collateral if such Collateral is accorded treatment substantially equal to that which Bank accords its own property, it being understood that Bank shall not have any responsibility for ascertaining or taking action with respect to calls, conversions, exchanges, maturities, declining value, tenders or other matters relative to any Collateral, regardless of whether Bank has or is deemed to have knowledge of such matters; or taking any necessary steps to preserve any rights against any Person with respect to any Collateral. Under no circumstances shall Bank be responsible for any injury or loss to the Collateral, or any part thereof, arising from any cause beyond the reasonable control of Bank. 128 (b) Bank may at any time deliver the Collateral or any part thereof to Debtor and the receipt of Debtor shall be a complete and full acquittance for the Collateral so delivered, and Bank shall thereafter be discharged from any liability or responsibility therefor. ARTICLE 8 - GENERAL PROVISIONS 8.1 Notices. Any notice given or required under this Agreement shall be given in the manner specified in the Credit Agreement. 8.2 Binding Effect. This Agreement shall be binding upon Debtor, its permitted successors, representatives and assigns, and shall inure to the benefit of Bank and its successors, and assigns; provided however that Debtor may not assign or transfer Debtor's obligations under this Agreement without the prior written consent of Bank. Bank reserves the right to sell, assign, or transfer its rights and powers under this Agreement in whole or in part without notice to Debtor. In that connection, Bank may disclose all documents and information which Bank now or hereafter may have relating to this Agreement, Debtor or Debtor's business, provided that any such assignee or transferee executed a confidentiality agreement reasonably satisfactory to Debtor. 8.3 No Waiver. Any waiver, consent or approval by Bank of any Event of Default or breach of any provision, condition or covenant of this Agreement or any Loan Document must be in writing and shall be effective only to the extent set forth in writing. No waiver of any breach or default shall be deemed a waiver of any later breach or default of the same or any other provision of this Agreement or any of the Loan Documents. Any failure or delay on the part of Bank in exercising any power, right or privilege under this Agreement or any Loan Document shall not operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude any further exercise thereof. 8.4 Rights Cumulative. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any other rights or remedies available under contract or applicable law. 8.5 Unenforceable Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall be so only as to such jurisdiction and only to the extent of such prohibition or unenforceability, but all the remaining provisions of this Agreement shall remain valid and enforceable. 8.6 Governing Law/Waiver or Notice. Except as may be otherwise provided by the Uniform Commercial Code or in any addendum hereto, this Agreement shall be governed by and construed in accordance with the laws of the 129 State of California. Debtor hereby waives presentment, demand, protest, notice of dishonor and all other notices and demands, as well as any applicable statute of limitations. 8.7 Indemnification. Debtor shall pay and protect, defend and indemnify Bank and Bank's employees, officers, directors, shareholders, affiliates, correspondents, agents and representatives (other than Bank, collectively "Agents") against, and hold Bank and each such Agent harmless from, all claims, actions, proceedings, liabilities, damages, losses, and related expenses (including, without limitation, attorneys' fees and costs) and other amounts incurred by Bank and each such Agent, arising from the matters contemplated by this Agreement; provided, however, that this indemnification shall not apply to any of the foregoing incurred solely as the result of Bank's or any Agent's gross negligence or willful misconduct. This indemnification shall survive the payment and satisfaction of all of Debtor's obligations and liabilities to Bank. 8.8 Reimbursement. Debtor shall reimburse Bank for all costs and expenses, including without limitation reasonable attorneys' fees and disbursements (and fees and disbursements of Bank's in-house counsel) expended or incurred by Bank in any arbitration, mediation, judicial reference, legal action or otherwise in connection with (a) the negotiation, preparation, amendment, interpretation and enforcement of this Agreement, including without limitation during any workout, attempted workout, and/or in connection with the rendering of legal advice as to Bank's rights, remedies and obligations under this Agreement, (b) collecting any sum which becomes due Bank under this Agreement, (c) any proceeding for declaratory relief, any counterclaim to any proceeding, or any appeal, or (d) the protection, preservation or enforcement of any rights of Bank. For the purposes of this section, attorneys' fees shall include, without limitation, fees incurred in connection with the following: (1) contempt proceedings; (2) discovery; (3) any motion, proceeding or other activity of any kind in connection with a bankruptcy proceeding or case arising out of or relating to any petition under Title 11 of the United States Code, as the same shall be in effect from time to time, or any similar law; (4) garnishment, levy, and debtor and third party examinations; and (5) post-judgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment. 8.9 Entire Agreement. This Agreement is intended by Debtor and Bank as the final expression of Debtor's obligations to Bank in connection with the Collateral and supersedes all prior understandings or agreements concerning the subject matter hereof. This Agreement may be amended only by a writing signed by Debtor and accepted by Bank in writing. IN WITNESS WHEREOF, Debtor has executed this Agreement as of the date set forth in the preamble. EMCON, a California corporation By: /s/ --------------------- Name: R. Michael Momboisse Title: CFO & V.P. - Legal 130 EX-10.4 6 PLEDGE AGREEMENT EXHBIT 10.4 PLEDGE AGREEMENT This Agreement is made as of February 29, 1996 by EMCON, a California corporation ("Debtor"), in favor of THE BANK OF CALIFORNIA, N.A. ("Bank"). Recitals Debtor and Bank have executed a Credit Agreement of even dated herewith (as the same may be amended or supplemented from time to time, the "Credit Agreement"), pursuant to which Bank has agreed to extend certain credit facilities to Borrower on the condition, among others, that Borrower pledge to Bank and grant to Bank a continuing security interest in certain shares of stock and other property as security for Borrower's obligations under the Credit Agreement. All capitalized terms used in this Agreement that are not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement. 1. Grant of Security Interest. Debtor hereby grants to Bank a continuing security interest in all issued and outstanding shares of capital stock of each of Debtor's Subsidiaries identified on Schedule 1 annexed to this Agreement (as such Schedule may be amended or supplemented from time to time), now owned or hereafter acquired by Debtor (the "Pledged Shares"), all stock rights, rights to subscribe, liquidating dividends, stock dividends, new securities or other property to which Debtor is or may become entitled to receive on account of such Pledged Shares, and all proceeds thereof ("Collateral"). Except as provided in Section 5(d)(i), in the event Debtor receives any of the above forms of property, Debtor will promptly deliver it to Bank to be held by Bank hereunder in the same manner as the Collateral originally delivered hereunder. 2. Indebtedness. Debtor agrees that the Collateral is and shall be security for the timely payment and performance of all obligations under all Indebtedness to Bank. "Indebtedness" means all debts, obligations and liabilities of Debtor to Bank currently existing or now or hereafter made, incurred or created, whether voluntary or involuntary and however arising or evidenced, whether direct or acquired by Bank by assignment or succession, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, whether under this Agreement or otherwise and whether Debtor may be liable individually or jointly, or whether recovery upon such debt may be or become barred by any statute of limitations or otherwise unenforceable; and all renewals, extensions and modifications thereof; and all attorneys' fees and costs incurred by Bank in connection with the collection and enforcement thereof. Any writing which evidences or is an agreement in respect 131 to all or any portion of the Indebtedness is a "Loan Document". 3. Debtor's Covenants. Debtor hereby represents, warrants and agrees that: (a) Debtor has acquired, or forthwith will acquire and maintain, all portions of the marketable title to the Collateral described herein and will at all times keep the Collateral free of all Liens except those permitted under Section 6.2 of the Credit Agreement; (b) Debtor will not sell, transfer, lease or otherwise dispose of any of the Collateral or any interest therein to any individual or entity, including without limitation Bank where the context so permits and in Bank's sole discretion ("Person"); (c) The Pledged Shares have been duly and validly issued and are fully paid and non-assessable. Except as may be specifically stated to Bank in writing prior to the date hereof and as provided by law, the Pledged Shares are transferable without prior notice to, or approval or consent from, any Person or governmental or regulatory authority, and there exists no condition or restriction to or affecting the transfer of the Pledged Shares; (d) Debtor will pay when due and prior to delinquency all taxes, levies, assessments or other claims which are or may become liens against the Collateral; (e) Debtor will neither make nor permit any material change in the Collateral without the prior written consent of the Bank; (f) Except as otherwise provided herein, Debtor will deliver to Bank promptly (i) all Collateral, (ii) all proceeds of the Collateral, (iii) such specific acknowledgments, assignments, or other agreements or writings as Bank may request relating to the Collateral, and (iv) such records and other reports in such form and detail and at such times as Bank may require relating to the Collateral; notwithstanding anything to the contrary herein contained, Debtor may receive and retain distributions from a Subsidiary in the form of personal property other than cash or securities in connection with a business reorganization involving Borrower and such Subsidiary; (g) Debtor will give prompt notice to Bank of any threatened or asserted dispute or claim with respect to the Collateral, any decrease in the value of any Collateral and the amount of such decrease (other than as reflected on any securities exchange or other market publication), any litigation or administrative or regulatory proceeding which may have a material adverse effect on Debtor or its 132 business, and the occurrence of any Event of Default or of any other development, financial or otherwise, which might materially adversely affect the Collateral or Debtor's ability to perform its obligations to Bank; and (h) Debtor will execute and deliver to Bank, and file or record at Debtor's expense, all notices and other documents from time to time requested by Bank to maintain a first perfected security interest in the Collateral in favor of Bank, all in form and substance satisfactory to Bank, and perform such other acts, and execute and deliver to Bank such additional assignments, agreements and instruments, as Bank may at any time request in connection with the administration and enforcement of this Agreement or Bank's rights, powers and remedies hereunder. 4. Events of Default. The occurrence of any Event of Default under the Credit Agreement shall constitute an "Event of Default" under this Agreement. 5. Rights on Default. (a) Upon the occurrence of an Event of Default, all Indebtedness shall, at the option of Bank, without demand or notice, become immediately due and payable. Bank shall have all other rights and remedies available under contract or applicable law, which include those of a secured party under the Uniform Commercial Code, at law, or in equity, and the right to take possession of the Collateral (if not then in Bank's possession), and sell and dispose of the same, or any part thereof, at public or private sale. (b) The proceeds of any sale or disposition shall be applied first to the reasonable expenses of retaking, holding, preparing for sale, discharging all liens, selling and the like, then to the attorneys' fees and legal expenses incurred by Bank, and then to the Indebtedness in such order as Bank may determine. Notwithstanding the rights given to Debtor pursuant to California Civil Code sections 1479 and 2822 or equivalent provisions in the laws of the state specified in the governing law clause of this document (and any amendments or successors thereto), to designate how payments will be applied, Debtor hereby waives such rights and Bank shall have the right in its sole discretion to determine the order and method of the application of payments received from Debtor or from the sale or disposition of the Collateral and to revise such application prospectively or retroactively at its discretion. (c) Person(s) liable for all or any portion of Indebtedness shall remain liable for the unsatisfied portion of such Indebtedness, and shall promptly pay the same to Bank immediately and without demand, with interest thereon at the rate provided in the Loan Document applicable thereto, or, if no rate is otherwise provided, at the rate of interest applicable to the unsatisfied amount of a money judgment of a court of the state whose laws govern this Agreement. Should the net proceeds resulting from any such sale or disposition exceed the amount owing to Bank, Bank shall pay such surplus to the Person(s) legally entitled thereto. 133 (d) So long as no Event of Default shall have occurred: (i) Debtor shall be entitled to receive and retain all cash dividends payable in connection with any the Pledged Shares and to exercise any and all voting or consensual rights and powers relating to or pertaining to any Pledged Shares for any purpose not inconsistent with the terms of this Agreement. (ii) Upon the occurrence and during the continuance of an Event of Default, all rights of Debtor to receive payment of cash dividends or to exercise the voting or consensual rights and powers with respect to the Collateral, shall cease, and all such rights and authority to exercise such voting or consensual rights and powers or to receive and retain such dividends shall inure to Bank. Any and all money and other property paid over to or received by Bank pursuant to the provisions of this Section may be retained by Bank as additional Collateral or in Bank's sole discretion may be applied toward the satisfaction of the Indebtedness. In such event, Bank shall have the right and power to receive, endorse and collect all checks and other orders for the payment of money made payable to Debtor representing any dividend or other distribution payable or distributable in respect of any Pledged Shares. (e) The obligations of Debtor under this Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any Indebtedness is rescinded or must otherwise be returned by Bank upon, on account of, or in connection with, the insolvency, bankruptcy or reorganization of Debtor or otherwise, all as though such payment had not been made. 6. Costs and Expenses. Debtor promises, to the extent permitted by applicable law, to reimburse Bank promptly for all costs and expenses incurred by Bank in performing any agreement of Debtor which Debtor shall fail to perform, or in taking any other action which Bank deems necessary for the maintenance or preservation of any Collateral or its interest therein, which costs and expenses shall constitute Indebtedness under this Agreement. 7. Power of Attorney. (a) Debtor hereby irrevocably appoints Bank, or any officer thereof, as Debtor's true and lawful attorney-in-fact coupled with an interest, with full power of substitution, to sign or endorse any instrument, document, or other writing necessary or desirable to transfer title or other rights to or in any of the Collateral; and to do all acts necessary or incidental to assert, protect and enforce Bank's rights in the Collateral and under this Agreement. Debtor agrees that Debtor will reimburse Bank promptly upon demand for any expenses Bank may incur while acting as Debtor's attorney-in-fact, which expenses shall constitute Indebtedness under this Agreement. (b) Following the occurrence of an Event of Default (except as otherwise provided), without notice, and at the expense of Debtor, Bank in its name or in the name of Debtor may, but shall not be obligated to (i) collect by legal proceedings or otherwise, endorse, receive and receipt for all dividends, interest, principal payments and other sums now or hereafter payable upon or on account of the Collateral; (ii) make any compromise or settlement it deems desirable or proper with reference to the Collateral; (iii) at any time, insure, process and preserve the Collateral; (iv) at any time, participate in any recapitalization, reclassification, reorganization, consolidation, redemption, stock split, merger or liquidation of any issuer of securities which constitute Collateral, and in connection therewith may deposit or surrender control of the Collateral, accept money or other property in exchange for the Collateral, and take such action as it deems proper in connection therewith, and any other money or property received in exchange for the Collateral shall be applied to the Indebtedness or held by Bank thereafter as Collateral pursuant to the 134 provisions hereof; (v) cause Collateral to be transferred to its name or to the name of its nominee; (vi) at any time, exercise as to the Collateral all the rights, powers and remedies of an owner necessary to exercise its rights, subject to Section 5(d). 8. Waivers of Debtor. Debtor waives any right to require Bank to proceed against any Person, or to exhaust any Collateral or to pursue any remedy in Bank's power whatsoever. Bank shall not be required to make presentment, demand or protest, or give any notices thereof, or take any action to preserve rights against prior parties with respect to any of the Collateral. Debtor waives the right to plead any statute of limitations or any defense to the personal liability of Debtor as a defense to Bank's exercise of any right or remedy hereunder. 9. Non-Waiver. Bank may, in the exercise of its sole discretion, waive an Event of Default, or cure an Event of Default at Debtor's expense. Any such waiver shall be subject to Section 11(c) below. 10. Bank's Duties. (a) Bank's sole duty with respect to the Collateral in its possession shall be to use reasonable care in the custody and preservation thereof. Bank shall be deemed to have exercised reasonable care in the custody and preservation of such Collateral if such Collateral is accorded treatment substantially equal to that which Bank accords its own property, it being understood that Bank shall not have any responsibility for ascertaining or taking action with respect to calls, conversions, exchanges, maturities, declining value, tenders or other matters relative to any Collateral, regardless of whether Bank has or is deemed to have knowledge of such matters; or taking any necessary 135 steps to preserve any rights against any Person with respect to any Collateral. Under no circumstances shall Bank be responsible for any injury or loss to the Collateral, or any part thereof, arising from any cause beyond the reasonable control of Bank. (b) Bank may at any time deliver the Collateral or any part thereof to Debtor and the receipt of Debtor shall be a complete and full acquittance for the Collateral so delivered, and Bank shall thereafter be discharged from any liability or responsibility therefor. 11. General Provisions. (a) Notices. Any notices given or required under this Agreement shall be given in the manner specified in the Credit Agreement. (b) Binding Effect. This Agreement shall be binding upon Debtor,its permitted successors, representatives and assigns, and shall inure to the benefit of Bank and its successors, representatives and assigns; provided however that Debtor may not assign or transfer's Debtor's obligations under this Agreement without Bank's prior written consent. Bank reserves the right to sell, assign, or transfer its rights and powers under this Agreement, in whole or in part without notice to Debtor. In that connection, Bank may disclose all documents and information which Bank now or hereafter may have relating to this Agreement, Debtor or Debtor's business, provided that any such assignee or transferee executes a confidentiality agreement reasonably satisfactory to Debtor. (c) No Waiver. Any waiver, consent or approval by Bank of any Event of Default or breach of any provision, condition or covenant of this Agreement or any Loan Document must be in writing and shall be effective only to the extent set forth in writing. No waiver of any breach or default shall be deemed a waiver of any later breach or default of the same or any other provision of this Agreement or any of the Loan Documents. No failure or delay on the part of Bank in exercising any power, right or privilege under this Agreement or any Loan Document shall operate as a waiver thereof, and no single or partial exercise of any such power, right or privilege shall preclude any further exercise thereof, or the exercise of any further power, right or privilege. (d) Rights Cumulative. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any other rights or remedies available under contract or applicable law. (e) Unenforceable Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall be so only as to such jurisdiction and only to the extent of such prohibition or unenforceability, but all the remaining provisions of this Agreement shall remain valid and enforceable. 136 (f) Governing Law/Waiver of Notice. Except as may be otherwise provided by the Uniform Commercial Code or in any addendum hereto, this Agreement shall be governed by and construed in accordance with the laws of the State of California. To the fullest extent permitted by law, Debtor hereby waives presentment, demand, protest, notice of dishonor and all other notices and demands, as well as any applicable statute of limitations. (g) Indemnification. Debtor shall pay and protect, defend and indemnify Bank and Bank's employees, officers, directors, shareholders, affiliates, correspondents, agents and representatives (other than Bank, collectively "Agents") against, and hold Bank and each such Agent harmless from, all claims, actions, proceedings, liabilities, damages, losses, and related expenses (including, without limitation, attorneys' fees and costs) and other amounts incurred by Bank and each such Agent, arising from the matters contemplated by this Agreement; provided, however, that this indemnification shall not apply to any of the foregoing incurred solely as the result of Bank's or any Agent's gross negligence or willful misconduct. This indemnification shall survive the payment and satisfaction of all of Debtor's obligations and liabilities to Bank. (h) Reimbursement. Debtor shall reimburse Bank for all costs and expenses, including without limitation reasonable attorneys' fees and disbursements (and fees and disbursements of Bank's in-house counsel) expended or incurred by Bank in any arbitration, mediation, judicial reference, legal action or otherwise in connection with (a) the negotiation, preparation, amendment, interpretation and enforcement of this Agreement, including without limitation during any workout, attempted workout, and/or in connection with the rendering of legal advice as to Bank's rights, remedies and obligations under this Agreement, (b) collecting any sum which becomes due Bank under this Agreement, (c) any proceeding for declaratory relief, any counterclaim to any proceeding, or any appeal, or (d) the protection, preservation or enforcement of any rights of Bank. For the purposes of this section, attorneys' fees shall include, without limitation, fees incurred in connection with the following: (1) contempt proceedings; (2) discovery; (3) any motion, proceeding or other activity of any kind in connection with a bankruptcy proceeding or case arising out of or relating to any petition under Title 11 of the United States Code, as the same shall be in effect from time to time, or any similar law; (4) garnishment, levy, and debtor and third party examinations; and (5) postjudgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment. (i) Entire Agreement. This Agreement is intended by Debtor and Bank as the final expression of Debtor's obligations to Bank in connection with the Collateral and supersedes all prior understandings or agreements concerning the subject matter hereof. This Agreement may be amended only by a writing signed by Debtor and accepted by Bank in writing. 137 IN WITNESS WHEREOF, Debtor has executed this Agreement as of the date of the preamble. EMCON By: /s/ --------------------- Name: R. Michael Momboisse Title: CFO & V.P. - Legal 138 EX-10.5 7 EURODOLLAR RATE OPTION AGREEMENT EXHIBIT 10.5 February 29, 1996 EMCON 400 South El Camino Real, Suite 1200 San Mateo, CA 94402 Attn: R. Michael Momboisse, CFO RE: EURODOLLAR RATE OPTION AGREEMENT Dear Mr. Momboisse: As of this date, EMCON has entered into a Credit Agreement with The Bank of California, N.A. ("Bank") pursuant to which EMCON has (i) a line of credit facility in the maximum principal amount of $10,000,000 and (ii) a $10,000,000 term loan facility (collectively, the "Credit Facility"), the terms and conditions of which are governed by the Credit Agreement, a Line of Credit Note, a Term Loan Note, and various other documents ("Loan Documents). In conjunction with your current Credit Facility, Bank is pleased to offer you a chance to participate in a special commercial pricing program. 1. AVAILABILITY AND MATURITY Bank usually extends financing based on a fluctuating rate that changes with the rate Bank announces to be in effect from time to time as its prime rate ("Prime Rate"). The Prime Rate is a rate set by Bank based on various factors, including general economic and market conditions, and is used as a reference point in pricing certain loans. Bank may price its loans at, above or below the Prime Rate. In contrast, Bank's "Eurodollar Rate" is a fixed rate (more fully defined below) Bank offers from time to time which, if you accept this proposal, will apply to all or such portion of the principal amount outstanding under the Credit Facility ("Covered Amount") and for such time periods as you and Bank shall mutually agree. Pricing tied to the Eurodollar Rate is available for periods of 1, 2, 3, 6, 9 or 12 months (each a "Period"); provided, however, that no Period shall have a maturity date subsequent to the scheduled maturity date for the Credit Facility with respect to which the Covered Amount relates. This pricing may be applied to Covered Amounts in a minimum of $1,000,000 and additional increments of $500,000 outstanding under the Credit Facility. 139 Bank's "Eurodollar Rate" is, for each Period, a rate comprised of (a) the rate of interest at which Dollar deposits for such period and in such amount would be offered to Bank in the Eurodollar Market at a time selected by Bank two (2) Banking Days (as defined below) prior to the commencement of the relevant Period, adjusted for the then maximum reserve, capital adequacy, deposit insurance, and similar requirements that under any circumstance could be applicable to Bank pursuant to applicable law or regulation, and other amounts associated with Bank's costs and desired return; plus (b) a margin equal to one and one-half percent (1.50%). The Eurodollar Market is the market in which the buying and selling of United States Dollar deposits booked outside the United States of America occurs among the international banking community. Bank's Eurodollar Rate is available and may be accepted only at the time quoted by Bank for the applicable Period beginning two (2) Banking Days hence. Due to changes in legal, regulatory, economic or market conditions, Bank may at any time determine that pricing based on the Eurodollar Rate is not available, and thus, may be unable to offer such a rate. 2. QUOTE, EURODOLLAR RATE, AND PAYMENTS For a quote of Bank's Eurodollar Rate which would apply to the specified Covered Amount and Period, you may call Bank's San Mateo Regional Office between 8:00 a.m. and 11:00 a.m. Pacific time on any day on which such office and Bank's San Francisco main office are open for business to the public (each a "Banking Day"). As the Eurodollar Rate is established two (2) Banking Days prior to the first day of the requested Period, you must call at least two (2) Banking Days prior to such date. If you accept the Eurodollar Rate when offered, that rate will apply to such Covered Amount for the applicable Period. Interest shall be calculated for actual days elapsed on the basis of a three hundred and sixty (360) day year. During any Period, you agree to pay interest on the Covered Amount at the Eurodollar Rate on the last day of each consecutive month, beginning the first such date after the commencement of the Period, until the last day of the Period, whether scheduled or accelerated ("Maturity Date"). During each Period, you must maintain under your Credit Facility a principal balance which is not a Covered Amount under any of your rate option agreements with Bank sufficient to cover each scheduled instalment of principal coming due during such Period under the Credit Facility. Should you have any obligation under any other Loan Document to repay any portion of the Credit Facility ("Obligation") that would conflict with your obligation under the preceding sentence ("Maintenance Obligation"), you shall nevertheless comply with the Obligation and not with the Maintenance Obligation, and you shall not be deemed in default hereunder. Nonetheless, payment of the Obligation shall be deemed to be a "Prepayment", as defined below, to the extent it repays a portion of a Covered Amount under this or any of your other rate option agreements you may have with Bank. If, prior to a Maturity Date and while the Credit Facility is still available, you and Bank have not agreed that a new rate tied to the Eurodollar Rate shall apply to a Covered Amount, then, if the term of your Credit Facility extends beyond such Maturity Date, Bank's Prime Rate plus the applicable margin, 140 if any, under the terms of your Credit Facility shall be automatically applicable to such Covered Amount. Bank's records of the date, Covered Amount, Period, Eurodollar Rate, Maturity Date, and all payments of principal and interest and all other payments and amounts due under this letter agreement shall be conclusive and binding on you, absent obvious error. 3. PREPAYMENT LIMITATION Do not sign this letter agreement before you read it. This letter agreement provides for payment of liquidated damages if you wish to repay the loan (Covered Amount) prior to the date provided for repayment under the Credit Facility. Bank establishes the Eurodollar Rate with the understanding it will apply to the Covered Amount for the entire scheduled Period. If for any reason, including, without limitation, acceleration, foreclosure or prepayment, Bank receives all or any portion of a Covered Amount (each a "Prepayment") prior to the scheduled Maturity Date, then in consideration thereof you shall pay to Bank on demand: a. The amount, if any, by which the additional interest which would have been payable on the Prepayment exceeds the interest which Bank would receive had it placed an amount equal to the Prepayment, in United States Dollars, on deposit in the Eurodollar Market (or, at Bank's sole discretion, invested such amount in a domestic certificate of deposit issued by an institution rated at least "investment grade" or "A" by Moody's or any successor rating agency) for a period equal to the period of time remaining until the maturity of the applicable Period. Should the scheduled maturity fall between two periods for which rates are quoted or available to Bank, then Bank, in its sole discretion, shall interpolate this rate; and b. Any other out of pocket costs to Bank associated with funding or maintaining the Covered Amount. Bank shall provide you a statement of the amount payable on account of each Prepayment, which statement shall be a conclusive and binding determination of the amount owed by you for such Prepayment, absent obvious error. All Prepayments, subject to this Section 3, shall be applied on the most remote instalment or instalments of principal then unpaid on the Credit Facility being prepaid. You acknowledge that any Prepayment may result in Bank incurring additional costs, expenses or liabilities. Therefore, you agree to pay the above-described liquidated damages and agree that said amount is a reasonable estimate of the costs, expenses and liabilities of Bank associated with each Prepayment. 141 4. SPECIAL FUNDING PROVISIONS If at any time Bank determines that: a. United States Dollar deposits in principal amounts similar to the Covered Amount bearing interest at the Eurodollar Rate and for periods equal to the relevant Period are not available in the Eurodollar Market; b. The Eurodollar Rate does not cover the cost to Bank of making, funding or maintaining the Covered Amount at the Eurodollar Rate during any Period; c. Any change in financial, political or economic conditions or currency exchange rates makes it impractical for Bank to make, fund or maintain the Covered Amount at the Eurodollar Rate during any Period; or d. Any change in applicable law or regulation or in the interpretation thereof (whether or not having the force of law) makes it unlawful or impractical for Bank to make, fund or maintain the Covered Amount at the Eurodollar Rate, then Bank shall promptly give notice thereof to you and as of the date stated in such notice, the Eurodollar Rate option shall terminate, and Bank's Prime Rate plus the applicable margin under the terms of your Credit Facility shall be automatically applicable to the relevant Covered Amount through the end of the relevant Period. 5. RESERVES, DEPOSIT INSURANCE, CAPITAL ADEQUACY You shall additionally compensate Bank upon demand for all costs incurred, or losses suffered, including without limitation lost profits, by reason of: a. any and all increases in reserve, deposit insurance, capital adequacy or similar requirements against (or against any class of or change in or in the amount of) the assets or liabilities of Bank, deposits with or for the account of Bank, or loans by Bank, imposed by any governmental or regulatory authority (whether or not having the force of law) in connection with a Covered Amount bearing interest at the Eurodollar Rate; or b. compliance by Bank with any direction, requirement or request from any governmental or regulatory authority (whether or not having the force of law) in connection with a Covered Amount bearing interest at the Eurodollar Rate to the extent any such costs have not been previously blended or adjusted into the Eurodollar Rate. 142 Bank shall provide you with a written statement of the amount and basis of its request for compensation under this Section, which statement shall be a conclusive and binding determination of the amount owed by you, absent obvious error. 6. TAXES a. If at any time any taxes, fees or other charges of any nature are imposed by any governmental or regulatory authority on any aspect of the transactions referred to in this letter agreement including without limitation all stamp or documentation duties (collectively, "Taxes"), you shall pay such Taxes directly, or compensate Bank for such payment, as set forth below, except for such Taxes as are imposed on Bank's net income. b. In the event you are prohibited by operation of law from making payments or reimbursements to Bank without making such deductions or paying, or causing to be paid, any and all Taxes, you shall pay to Bank upon demand such additional amounts as may be necessary in order to reimburse Bank for Taxes paid by Bank on your behalf such that the aggregate net amounts received by Bank shall equal the amounts which would have been received if such deduction or withholding had not been required. c. You shall confirm that all applicable Taxes shall have been paid to appropriate taxing authorities or agencies by sending official tax receipts or notarized copies of such receipts to Bank within thirty (30) days after payment of any Taxes. Should Bank receive notice of any such liability for Taxes, Bank will promptly so inform you. 7. GENERAL PROVISIONS a. To the extent interest rates, prepayment provisions and times for payment of interest established under this letter agreement are different than the terms of the note or notes evidencing the Credit Facility, the terms of this letter agreement shall prevail. All other provisions of the Loan Documents remain in full force and effect. b. This letter agreement shall be governed by the laws of the State of California. c. This letter agreement, and all confirmations provided hereunder, evidence the entire agreement of the parties on the matters covered herein, and supersede all prior understandings and agreements. 143 If you would like to participate in Bank's Eurodollar Rate Option program, please execute the enclosed duplicate original of this letter and return it to Bank, on or before February 29, 1996, at which time the option granted in this letter will otherwise expire. The Bank is pleased to serve you. Very truly yours, THE BANK OF CALIFORNIA, N.A. By: /s/ ------------------------- Marie T. Wiseman, V.P. ACCEPTED AND AGREED: EMCON By: /s/ --------------------- Name: R. Michael Momboisse Title: CFO & V.P. - Legal Dated: February 29, 1996 144 EX-10.6 8 FIXED RATE AMORTIZING OPTION EXHIBIT 10.6 February 29, 1996 EMCON 400 South El Camino Real Suite 1200 San Mateo, CA 94402 Attn: R. Michael Momboisse, CFO RE: FIXED RATE AMORTIZING OPTION AGREEMENT Dear Mr. Momboisse: As of this date, EMCON has entered into a Credit Agreement with The Bank of California, N. A. ("Bank") pursuant to which EMCON has a $10,000,000 term loan facility ("Term Loan"), the terms and conditions of which are governed by the Credit Agreement, a Term Loan Note, and various other documents ("Loan Documents"). In conjunction with your Term Loan, Bank is pleased to offer you a chance to participate in a special commercial pricing program. 1. AVAILABILITY AND MATURITY Bank usually extends financing based on a fluctuating rate that changes with the rate the Bank announces to be in effect from time to time as its prime rate ("Prime Rate"). The Prime Rate is a rate set by Bank based on various factors, including general economic and market conditions, and is used as a reference point in pricing certain loans. Bank may price its loans at, above or below the Prime Rate. In contrast, Bank's Amortizing Term Loan Fixed Rate ("ATLF Rate") is a fixed rate (more fully defined below) the Bank offers from time to time which, if you accept this proposal will apply to all or such portion of the principal amount outstanding under the Term Loan ("Covered Amount") and for such time periods as you and Bank shall mutually agree. Pricing tied to the ATLF Rate is available for one period of 12 to 84 months duration (the "Period"); provided, however, that the last day of the Period must coincide with the scheduled maturity date of the Term Loan. This pricing may be applied to Covered Amounts in a minimum of $1,000,000 and additional increments of $500,000 outstanding under the Term Loan. 145 Bank's ATLF Rate is a rate comprised of (a) the blended rate per annum which Bank calculates in good faith, at which funds in the amount of the Covered Amount with an amortization schedule comparable to that required by the terms of the Term Loan would be available to Bank in the ordinary course of Bank's business on the first day of the Period, adjusted for the then maximum reserve, capital adequacy, deposit insurance, and similar requirements that under any circumstance could be applicable to Bank pursuant to applicable law or regulation, and other amounts associated with Bank's costs and desired return; plus (b) a margin equal to one and one-half percent (1.50%). The ATLF Rate is available and may be accepted only at the time quoted by Bank. Due to changes in legal, regulatory, economic or market conditions, Bank may at any time determine that the ATLF Rate is not available, and thus, may be unable to offer such a rate. 2. QUOTE, THE ATLF RATE, AND PAYMENTS For a quote of the ATLF Rate which would apply to the specified Covered Amount and Period, you may call Bank's San Mateo Regional Office between 8:00 a.m. and 11:00 a.m. Pacific time on any day on which such office and Bank's San Francisco Main Office are open for business to the public. If you accept the ATLF Rate when offered, that rate will apply to such Covered Amount for the entire Period. During the Period, you agree to pay interest on the Covered Amount at the ATLF Rate on the last day of each consecutive month, beginning the first such date after the commencement of the Period, and continuing through and on the maturity date for the Term Loan, whether scheduled or accelerated ("Maturity Date"). Each regularly scheduled principal payment date under the Term Loan is a "Principal Payment Date." During each Period, you must maintain under your Term Loan a portion of the principal balance which is not a Covered Amount under any of your rate option agreements with Bank sufficient to cover each scheduled instalment of principal coming due under the Term Loan. Should you have any obligation under any other Loan Document to repay any portion of the Term Loan ("Obligation") that would conflict with your obligation under the preceding sentence ("Maintenance Obligation"), you shall nevertheless comply with the Obligation and not with the Maintenance Obligation, and you shall not be deemed in default hereunder. Nonetheless, payment of the Obligation shall be deemed to be a "Prepayment", as defined below, to the extent it repays a portion of a Covered Amount under this or any of your other rate option agreements you may have with Bank. Bank's records of the date, Covered Amount, ATLF Rate, Period, and all payments of principal and interest, and all other payments and amounts due under this letter agreement shall be conclusive and binding on you, absent obvious error. 146 3. PREPAYMENT LIMITATION Do not sign this letter agreement before you read it. This letter agreement provides for payment of liquidated damages if you wish to repay the loan (Covered Amount) prior to the date provided for repayment under the Term Loan. Bank establishes the ATLF Rate with the understanding it will apply to the Covered Amount for the entire Period. If, for any reason, including without limitation, acceleration, foreclosure or prepayment, Bank receives all or any portion of a Covered Amount (each a "Prepayment") prior to the Maturity Date (but excluding each payment of principal required under the Term Loan which is paid on its applicable Principal Payment Date), then in consideration thereof, you shall pay to Bank on demand: a. The amount ("Prepayment Liquidated Damages"), if any, by which the additional interest that would have been payable on the Prepayment exceeds the interest the Bank would receive had it placed an amount equal to the Prepayment in the types of United States Treasury securities described in the calculation below. The date the Prepayment is received by Bank in immediately available funds is the "Prepayment Effective Date". The amount of Prepayment Liquidated Damages will be calculated in accordance with the following formula, with all Prepayments applied first to the remote instalment(s) of principal then unpaid under the Term Loan: Prepayment Liquidated Damages = P x (L-T) x N Where P = the total dollar amount of the Prepayment; N = the weighted average number of years remaining to maturity from the Prepayment Effective Date for P, where each successive year ("Year") used to calculate N is measured at its midpoint (i.e, 0.5 years, 1.5 years, 2.5 years, etc.) and is weighted by the cumulative dollar amount of Prepayments applied during that Year, rounded to the next highest half-year; L = the ATLF Rate expressed in annualized decimal form ("annualized" means not modified for number of days); T = the "annualized" fixed rate for a United States Treasury security with a maturity equal to N where the rate is quoted on a bond equivalent basis (that is, the security is deemed to require semi-annual interest payments with interest calculated on an actual 365/366-day basis) in decimal form. T will be calculated by interpolating the 147 rates for Treasury constant maturities included in the H.15 statistical release published by the Federal Reserve for the latest weekly period prior to the Prepayment Effective Date. Bank may rely upon reports transmitted by the Dow Jones Telerate service, the Bloomberg Financial Markets, Commodities, and News service, or any other news service it deems reputable to timely obtain values for rates on Treasury constant maturities. If the prepayment calculation requires the rate for a maturity that is not available in the H.15 Treasury constant maturities or if the H.15 release is unavailable, Bank at its discretion may substitute market yields on United States Treasury securities that it deems to be a current issue with the appropriate maturity required to obtain the interpolated rate defined by T. In a case where market yields on current issue Treasury securities are utilized, Bank will use yield values for the business day prior to the Prepayment Effective Date and may depend upon such values reported by a financial news service Bank deems reputable. If T is greater than or equal to L at the time of calculation, no payment of any kind is required. b. Any other out of pocket costs to Bank associated with funding or maintaining the Covered Amount. Bank shall provide you a statement of the amount payable on account of each Prepayment, which statement shall be a conclusive and binding determination of the amount owed by you for such Prepayment, absent obvious error. You acknowledge that any Prepayment may result in Bank incurring additional costs, expenses or liabilities. Therefore, you agree to pay the above-described liquidated damages and agree that said amount is a reasonable estimate of the costs, expenses and liabilities of Bank associated with each Prepayment. 4. RESERVES, DEPOSIT INSURANCE, CAPITAL ADEQUACY You shall additionally compensate Bank upon demand for all costs incurred, or losses suffered, including without limitation lost profits, by reason of: a. any and all increases in reserve, deposit insurance, capital adequacy or similar requirements against (or against any class of or change in or in the amount of) the assets or liabilities of Bank, 148 deposits with or for the account of Bank, or loans by Bank, imposed by any governmental or regulatory authority (whether or not having the force of law) in connection with a Covered Amount bearing interest at the ATLF Rate; or b. compliance by Bank with any direction, requirement or request from any governmental or regulatory authority (whether or not having the force of law) in connection with a Covered Amount bearing interest at the ATLF Rate to the extent any such costs have not been previously blended or adjusted into the ATLF Rate. Bank shall provide you a written statement of the amount and basis of its request for compensation under this Section, which statement shall be a conclusive and binding determination of the amount owed by you, absent obvious error. 5. GENERAL PROVISIONS a. To the extent interest rates, prepayment provisions and times for payment of interest established under this letter agreement are different than the terms of the note evidencing the Term Loan, the terms of this letter agreement shall prevail. All other provisions of the Loan Documents remain in full force and effect. b. This letter agreement shall be governed by the laws of the State of California. c. This letter agreement, and all confirmations provided hereunder, evidence the entire agreement of the parties on the matters covered herein, and supersede all prior understandings and agreements. If you would like to participate in the Bank's ATLF Rate Option program, please execute the enclosed duplicate original of this letter and return it to Bank, on or before February 29, 1996, at which time the option granted in this letter will otherwise expire. Bank is pleased to serve you. Very truly yours, THE BANK OF CALIFORNIA, N.A. By: /S/ --------------------- Marie T. Wiseman, V.P. 149 ACCEPTED AND AGREED: EMCON By: /s/ --------------------- Name: R. Michael Momboisse Title: CFO & V.P. - Legal Dated: February 29, l996 150 EX-99.1 9 PRESS RELEASE DATED FEBRUARY 29, 1996 EXHIBIT 99.1 Contact: Kim Mortyn (415) 375-1522 EMCON COMPLETES ACQUISITION OF ORGANIC WASTE TECHNOLOGIES, INC. SAN MATEO, California, March 1, 1996 -- EMCON (NASDAQ:MCON) announced today it has completed the acquisition of Organic Waste Technologies, Inc. (OWT), a privately held landfill gas technology and services company headquartered in Cleveland, Ohio. Principals of EMCON and OWT both commented they are extremely pleased to have completed this acquisition since the synergies between the two companies significantly strengthen each firm's service areas. EMCON's engineering design capabilities and OWT's installation, operations and maintenance services complement each other, and both companies' customers should benefit as a result. Gene Herson (EMCON's President and CEO) emphasized this is the first step towards the goal of creating the "best in class" integrated environmental management services company. EMCON's acquisition is non-dilutive to existing shareholders and will be accounted for as a purchase. Under the terms of the agreement, EMCON acquires all of the capital stock of OWT in exchange for $14 million in cash. EMCON is a nationally recognized consulting firm providing services in environmental engineering, waste management, air and water quality management, occupational health and safety, and construction. Established in 197l, EMCON offers its environmental services from over 40 offices nationwide to private and public sector clients in the United States and abroad. 151 -----END PRIVACY-ENHANCED MESSAGE-----