-----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, BeUsQccxKLFDWk2OHzna6EuvnqdWSiTMKTjaaJtIfaRn0AnpZaoNQULCAPVIpuLE BuT6AlzKiPnl/mwSdONnaw== 0000819977-98-000005.txt : 19980513 0000819977-98-000005.hdr.sgml : 19980513 ACCESSION NUMBER: 0000819977-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980512 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-16225 FILM NUMBER: 98616373 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 10-Q 1 FIRST QUARTER, 1998 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-16225 EMCON (Exact name of Registrant as specified in its charter) California 94-1738964 ---------------------------------- ---------------------- (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 400 South El Camino Real, Suite 1200 San Mateo, California 94402 - ---------------------------------------------- ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (650) 375-1522 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] 8,715,464 shares of Common Stock Issued and Outstanding as of May 8, 1998. 1 EMCON INDEX REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 Page Number FACING SHEET......................................................... 1 TABLE OF CONTENTS.................................................... 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1998 and December 31, 1997............... 3 Consolidated Statements of Income - Three months ended March 31, 1998 and 1997......... 4 Consolidated Statements of Cash Flows - Three months ended March 31, 1998 and 1997......... 5 Notes to Consolidated Financial Statements......... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...... 11 PART II. OTHER INFORMATION......................................... 13 Signatures........................................................... 14 Index to Exhibits.................................................... 15 2
EMCON CONSOLIDATED BALANCE SHEETS ------------------------------------------------------------------------------------- -------------- ---------------- March 31, December 31, 1998 1997 (In thousands, except share amounts) (Unaudited) (Audited) ------------------------------------------------------------------------------------- -------------- ---------------- ASSETS Current Assets: Cash and cash equivalents $ 7,356 $ 6,106 Accounts Receivable: Billed accounts receivable, net of allowance for doubtful accounts of $689 and $634 at March 31, 1998 and December 31, 1997 respectively 24,808 31,413 Unbilled accounts receivable, net of allowance for doubtful accounts of $283 and $295 at March 31, 1998 and December 31, 1997, respectively 6,659 5,310 Costs and estimated earnings in excess of billings on uncompleted contracts 2,201 678 Prepaid expenses and other current assets 3,149 3,401 Inventory 2,703 2,238 Deferred taxes, current portion 4,235 4,235 ------- ------- Total Current Assets 51,111 53,381 Net property and equipment, at cost 15,521 16,182 Notes receivable 2,426 2,811 Cash surrender value of insurance policies 2,366 2,346 Other assets 2,783 2,597 Deferred tax assets 1,028 1,028 Goodwill, net of amortization 13,778 13,916 Other intangible assets, net of amortization 841 814 -------- --------- Total Assets $89,854 $93,075 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 5,218 $ 8,391 Accrued payroll and related benefits 4,662 4,356 Other accrued liabilities 3,266 2,969 Billings in excess of costs and estimated earnings on uncompleted contracts 2,785 2,732 Long-term obligations due within one year 2,269 2,350 -------- -------- Total Current Liabilities 18,200 20,798 Long-term debt 10,816 11,441 Other noncurrent obligations 2,714 2,736 Commitments and contingencies -- -- Shareholders' Equity: Preferred stock, no par value, 5,000,000 shares authorized; no shares issued or outstanding -- -- Common stock, no par value, 15,000,000 shares authorized; 8,577,262 and 8,571,764 shares issued and outstanding at March 31, 1998 and December 31, 1997, respectively 42,193 42,184 Retained earnings 15,931 15,916 ------ ------- Total Shareholders' Equity 58,124 58,100 ------ ------- Total Liabilities and Shareholders' Equity $89,854 $93,075 ======= ======= See accompanying notes.
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EMCON CONSOLIDATED STATEMENTS OF INCOME - --------------------------------------------------------------------------------- --------------------------------- Three months ended March 31, (Unaudited) --------------------------------- (In thousands, except per share amounts) 1998 1997 - --------------------------------------------------------------------------------- ----------------- --------------- Gross revenue $28,779 $31,363 Outside services at cost 2,957 3,782 --------- --------- Net revenue 25,822 27,581 Costs and expenses: Direct expenses 13,822 12,606 Indirect expenses 11,857 14,226 Restructuring/other charges -- (75) Loss on disposition of laboratory -- 333 Gain on sale of assets -- (826) ---------- --------- Income from operations 143 1,317 Interest income (168) (94) Interest expense 293 331 Equity in income of affiliates (15) (18) Minority interest (income) expense (22) 35 ----------- -------- Income before provision for income taxes 55 1,063 Provision for income taxes 35 372 --------- --------- Net income $ 20 $ 691 ========== ========== Basic earnings per share $ 0.00 $ 0.08 ========== =========== Diluted earnings per share $ 0.00 $ 0.08 ========== =========== Shares used in computing basic earnings per share 8,573 8,535 ========= ========== Shares used in computing diluted earnings per share 8,827 8,540 ========= ==========
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EMCON CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------- ------------------------------- Three months ended March 31, (Unaudited) ------------------------------- Increase (decrease) in cash and cash equivalents (in thousands) 1998 1997 - -------------------------------------------------------------------------- ---------------- -------------- Cash flow from operating activities: Net income $ 20 $ 691 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation 967 893 Amortization 153 151 Bad debt expense 73 501 Gain on sale/disposal of property and equipment (257) (142) Loss on disposition of laboratory -- 333 Gain on disposition of assets -- (826) Increase in salary continuation plan 40 17 Changes in operating assets and liabilities: Accounts receivable 5,183 (2,256) Costs and estimated earnings in excess of billings on uncompleted (1,523) (346) contracts Inventory (465) (489) Prepaid expenses and other assets 252 385 Notes receivable 385 116 Cash surrender value, insurance policies (20) (185) Other assets (268) (78) Accounts payable (3,173) (416) Accrued payroll and related benefits 306 (1,247) Billings in excess of costs and estimated earnings on uncompleted 53 1,189 projects Other accrued liabilities 275 604 - -------------------------------------------------------------------------- ---------------- -------------- Net cash provided by (used for) operating activities 2,001 (1,105) - -------------------------------------------------------------------------- ---------------- -------------- Cash flow from investing activities: Additions to property and equipment (395) (1,157) Net cash on disposition of laboratory -- 3,794 Net cash from dispositions of assets -- 840 Proceeds from sale of property and equipment 346 512 - -------------------------------------------------------------------------- ---------------- -------------- Net cash (used for) provided by investing activities (49) 3,989 - -------------------------------------------------------------------------- ---------------- -------------- Cash flow from financing activities: Proceeds of new debt obligation -- 250 Payments of current and long term portion of debt (706) (619) Issuance of common stock for cash, net of cancellations 9 76 Dividend payments (5) (21) - -------------------------------------------------------------------------- ---------------- -------------- Net cash used for financing activities (702) (314) - -------------------------------------------------------------------------- ---------------- -------------- Increase in cash and cash equivalents 1,250 2,570 Cash and cash equivalents, beginning of year 6,106 5,331 - -------------------------------------------------------------------------- ---------------- -------------- Cash and cash equivalents, end of year $7,356 $7,901 - -------------------------------------------------------------------------- ---------------- -------------- See accompanying notes.
5 EMCON NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all significant intercompany accounts and transactions. While the financial information is unaudited, the statements in this report reflect all adjustments, which are normal and recurring, that are necessary for a fair presentation of the results of operations for the interim periods covered and of the financial condition of the Company at the dates of the consolidated balance sheets. The operating results for the interim periods presented are not necessarily indicative of performance for the entire year. These consolidated financial statements and notes should be read in conjunction with the Company's consolidated financial statements for the fiscal year ended December 31, 1997. 2. Restructuring Charges In the fourth quarter of 1996, senior management reviewed the Company's operational and administrative functions for the purpose of further improving the Company's competitiveness and overall profitability. Based on this review, the Company's Board of Directors approved a strategic restructuring plan to reposition the Company to fully exploit its core strengths in engineering, design, construction, operations and maintenance. The plan included closure or downsizing of underperforming offices, write-off of employment contracts for former employees no longer participating in the Company's affairs and employee severance. During the quarter ended March 31, 1998, $18,000 relating to the restructuring were incurred and charged against the established reserve. At March 31, 1998, $346,000 of accrued restructuring costs have been incurred and $300,000 remains in other accrued liabilities. 3. Acquisition Effective May 1, 1997, Organic Waste Technology, Inc. ("OWT"), a wholly owned subsidiary of EMCON, acquired all of the equity interest in National Earth Products, Inc. ("NEP"), a Lancaster, Pennsylvania-based company with significant expertise in landfill civil construction and related soils processing. NEP was acquired for $933,000 in cash and $800,000 in notes payable. The transaction was accounted for as a purchase. Specifically identifiable intangible assets and goodwill of approximately $1,476,000 resulting from this acquisition are included in goodwill and are being amortized over twenty-five years using the straight line method. Accumulated amortization as of March 31, 1998, was approximately $54,000. Additional consideration may be paid for the purchase of NEP subject to the achievement of certain earnout goals over the next two years. This acquisition would not have had a material effect on net revenue, net income, or income per share, had it been effective at January 1, 1997. 6 4. Credit Agreement In conjunction with the acquisition of OWT, the Company entered into a $20,000,000 secured credit agreement with its existing commercial bank, replacing its previous $10,000,000 unsecured line of credit. Under the new agreement, the Company borrowed $10,000,000 on a long term basis with interest at a variable rate, generally not to exceed the prime rate. Principal is to be amortized over seven years, but with any unpaid amount finally due and payable on June 30, 2001. In April, 1997, following the infusion of cash upon the first quarter sale of the Company's laboratory operations, the Company prepaid, on an accelerated basis, $3,000,000 of the then outstanding principal balance of the term loan. The remaining $10,000,000 under the credit agreement is available on a line of credit basis for working capital purposes (with up to $5,000,000 of this amount available for non-working capital purposes). The line of credit component of the credit agreement expires on May 31, 1998. 5. Litigation As a professional services firm engaged in environmental-related matters, the Company encounters potential liability, including claims for significant environmental damage in the normal course of business. The Company is party to lawsuits and is aware of potential exposure related to certain claims, but in the opinion of management the resolution of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.
6. Earnings Per Share ------------------------------------------------------------------------------------------------------------- Three months ended March 31, ------------------- (In thousands, except for earnings per share) 1998 1997 ------------------------------------------------------------------------------------------------------------- Numerator: Net income $ 20 $ 691 ------ ------- Numerator for basic earnings per share - income available to common stockholders 20 691 Effect of dilutive securities: 8% convertible debentures N/A(1) N/A(1) ------ ------- Numerator for diluted earnings per share - income available to common stockholders after assumed conversions 20 691 ====== ======= Denominator: Denominator for basic earnings per share - weighted-average shares 8,573 8,535 Effect of dilutive securities: Employee stock options 254 5 8% convertible debentures N/A(1) N/A(1) Dilutive potential common shares Denominator for diluted earnings per share - adjusted weighted average shares and assumed 8,827 8,540 ====== ====== conversions Basic earnings per share $ 0.00 $ 0.08 ====== ====== Diluted earnings per share $ 0.00 $ 0.08 ====== ====== ------------------------------------------------------------------------------------------------------------- (1)Excluded from the above reconciliations were approximately 269,000 shares of common stock that may be issued at $6.50 per share to convert $1,747,000 of indebtedness to certain senior management of OWT because they were antidilutive at March 31, 1998. Conversion of debt, if it occurs, would be within ninety days after November 30, 2001. Also excluded from the above reconciliations were approximately 123,000 shares of common stock that may be issued at $6.50 per share to convert $800,000 of indebtedness to certain senior management of NEP because they were antidilutive at March 31, 1998. Conversion of debt, if it occurs, would be 50% at May 1, 2000, and 50% at May 1, 2002.
7 7. Other In 1994, the Company converted to a fifty-two/fifty-three week fiscal year which will result in a fifty-two week year in 1998. The Company's year end falls on the Friday closest to the last day of the calendar year. The Company also follows a five-four-four week quarterly cycle. For convenience, the accompanying financial statements have been shown as ending on the last day of the calendar period. 8. Adoption of Statement 131 Effective January 1, 1998, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting standards No. 131, Disclosure about Segments of an Enterprise and Related Information, ("Statement 131"). Statement 131 superseded FASB Statement 14, Financial Reporting for Segments of a Business Enterprise. Statement 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. The adoption of Statement 131 did not affect results of operations or financial position, but did affect the disclosure of segment information. See note 9. 9. Segment Reporting Description of the types of services from which each reportable segment derives its revenues. EMCON provides comprehensive environmental engineering, design, construction, operations and maintenance, and equipment fabrication services to a variety of public and private industrial and solid waste clients. The Company is comprised of two reportable segments -- the Operations and Construction Division (EOC) and the Professional Services Division (PSD) -- and services three key service lines: Solid Waste, Site Restoration and Facility Services. In the first quarter of 1997, the Company had, in addition to the two reportable segments listed above, a third reportable segment which was its laboratory operations known as Columbia Analytical Services, Inc. (CAS). During the first quarter of 1997, the Company completed the sale of CAS. Measurement of segment profit or loss and segment assets. The Company evaluates performance of its reportable segments, EOC and PSD, based on operating income or loss before and after corporate overhead allocations, but before interest income, interest expense, equity in income of affliates and minority interest income (loss). Corporate overhead expenses are substantially allocated to the reporting segments based on revenue and/or headcount when an item cannot be specifically identifiable to a reporting segment. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies as disclosed in EMCON's Form 10K as of December 31, 1997. Intersegment sales consist primarily of labor and are marked up to provide the supplying reportable segment a measure of profit. The receiving reportable segment records the transfer as an "Outside Service" and may or may not further mark up the labor cost prior to passing 8 the cost through to its customer. If the cost is not passed through to the customer, the receiving reportable segment records the transaction as an indirect cost. All intersegment accounts are eliminated in consolidation. Factors management used to identify the enterprise's reportable segments. EMCON's reportable segments are divisional units that offer different services. The reportable segments are each managed separately. The PSD reportable segment concentrates on professional engineering, design and consulting services in solid waste, site restoration and facilities services. The PSD reportable segment has regional operations situated in the North, South, Northwest and Southwest, each overseen by an Area Operations Manager. These regional operations have the same operating parameters (services offered and required operating margins), may serve the same national customers and often share personnel. For reportable segment reporting, these regional operations are aggregated. The EOC reportable segment concentrates on construction, equipment fabrication and operations and maintenance services, primarily to our solid waste clients. In 1997, there was a third reportable segment, Columbia Analytical Services, Inc. (CAS), a laboratory division that was subsequently sold during the first quarter of 1997.
Segment Information ---------------------------------------------------------------------------------------------------------------- (Three months ended March 31, 1998) PSD EOC CAS Other Total ---------------------------------------------------------------------------------------------------------------- Gross revenues from: External customers $18,047 $10,732 N/A $ -- $28,779 Intersegment revenues 197 524 N/A -- 721 Outside services from: External subcontractors 2,872 85 N/A -- 2,957 Intersegment services 572 151 N/A -- 723 Net revenues 14,800 11,020 N/A 2 25,822 Depreciation expense 553 343 N/A 71 967 Amortization expense -- 15 N/A 138 153 Segment operating profit (loss) before allocations 721 881 N/A -- 1,602 Segment operating profit (loss) after allocations (230) 382 N/A (9) 143 Segment assets(1) Accounts receivable, net $21,215 $10,252 N/A $ -- $31,467 ---------------------------------------------------------------------------------------------------------------- (Three months ended March 31, 1997) ---------------------------------------------------------------------------------------------------------------- Gross revenues from: External customers $20,916 $5,988 $ 4,453 $ 6 $31,363 Intersegment revenues 331 580 734 -- 1,645 Outside services from: External subcontractors 3,507 -- 275 -- 3,782 Intersegment services 1,479 132 8 -- 1,619 Net revenues 16,261 6,436 4,904 (20) 27,581 Depreciation expense 424 292 462 177 1,355 Amortization expense -- -- -- 151 151 Restructuring/other charges -- -- -- (75) (75) Loss on disposition of laboratory -- -- -- 333 333 Gain on sale of assets -- 826 -- -- 826 Segment operating profit (loss) before allocations 1,520 1,076 108 -- 2,704 Segment operating profit (loss) after allocations 880 703 (59) (207) 1,317 Segment assets(1) Accounts receivable, net $26,807 $7,808 $ -- $ -- $34,615 ---------------------------------------------------------------------------------------------------------------- (1)The Company reviews its consolidated balance sheet and reviews only accounts receivable on a segment basis.
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---------------------------------------------------------------------------------------------------------------- Three months ended March 31, 1998 1997 ---------------------------------------------------------------------------------------------------------------- Revenues Total external revenues for reportable segments $28,779 $31,357 Intersegment revenues for reportable segments 721 1,645 Other revenues -- 6 Elimination of intersegment revenues (721) (1,645) ------- ------- Total gross consolidated revenues 28,779 31,363 Less outside services 2,957 3,782 ------- ------- Total net revenue $25,822 $27,581 ---------------------------------------------------------------------------------------------------------------- Profit or Loss Total operating profit for reportable segments before allocations $ 1,602 $ 2,704 Overhead allocations expense (1,450) (1,180) Unallocated overhead (9) (207) ------- ------- Total operating profit after allocations 143 1,317 Interest income 168 94 Interest expense (293) (331) Equity earnings 15 18 Minority interest 22 (35) -------- ------- Income before income taxes $ 55 $ 1,063 ---------------------------------------------------------------------------------------------------------------- March 31, 1998 1997 ---------------------------------------------------------------------------------------------------------------- Assets Accounts receivable for reportable segments $31,467 $34,615 Other current assets 19,644 14,116 Net property and equipment at cost 15,521 14,552 Goodwill, net of amortization 13,778 13,501 Other assets 9,444 12,629 ------- ------- Total consolidated assets $89,854 $89,413 ----------------------------------------------------------------------------------------------------------------
10 EMCON ITEM 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations. RESULTS OF OPERATIONS Net Revenue. Net revenue for the first quarter of 1998 totaled $25,822,000, a 6.4% decrease from $27,581,000 for the first quarter of 1997. The decrease in net revenue was, in part, attributable to the divestiture of Columbia Analytical Services, Inc. (CAS), a reportable segment, at the end of the first quarter of 1997 (CAS contributed $4,904,000 to net revenue in the first quarter of 1997). Excluding net revenue contributed by CAS in the first quarter of 1997, net revenue increased 13.9% in the first quarter of 1998 from $22,677,000 in the same period in 1997. The increase in net revenue (excluding CAS) was primarily due to a 71.2% increase in net revenue from EMCON's Operations and Construction (EOC) reportable segment as the demand for its services continues to expand. This was offset by a 9.0% decrease in net revenue from the Professional Services reportable segment (PSD) due to unanticipated project delays, unusually severe weather conditions and the anticipated impact from the contraction of the PSD's operations throughout the course of 1997. Direct Expenses. Direct expenses include compensation for billable hours for technical and professional staff and other project related expenses, as well as direct labor and materials for in-house testing and construction activities. Direct expenses for the first quarter of 1998 totaled $13,822,000, a 9.6% increase from $12,606,000 during the first quarter of 1997. Excluding the impact of CAS (which incurred direct expenses of $2,267,000 in the first quarter of 1997) direct expenses increased 33.7% from $10,339,000 in the first quarter of 1997. As a percentage of net revenue, direct expenses as reported increased from 45.7% in the first quarter of 1997 (45.6% if the impact of CAS is excluded) to 53.5% in the first quarter of 1998. The increase was due in large part to a shift in business mix resulting from the divestiture of CAS, the contraction of the PSD reportable segment and the continued expansion of the EOC reportable segment. Indirect Expenses. Indirect expenses include salary compensation for non-billable hours for professional, technical and administrative staff and general administrative expenses such as rent, bonuses, benefits, insurance, legal, depreciation and amortization. Indirect expenses for the first quarter of 1998 totaled $11,857,000, a 16.7% decrease from indirect expenses of $14,226,000 during the first quarter of 1997. Excluding the impact of CAS (which incurred indirect expenses of $2,529,000 in the first quarter of 1997) indirect expenses during the quarter increased 1.4% from $11,697,000 during the first quarter of 1997. As a percentage of net revenue, indirect expense decreased from 51.6% (both on a reported basis and excluding the impact of CAS) in the first quarter of 1997 to 45.9% in the first quarter of 1998. The decrease was due in part to the above-noted shift in business mix, the expansion of the EOC reportable segment, the contraction of the Professional Services reportable segment and the continued positive impact of cost containment measures. Adjustment of Restructuring Accrual. During the first quarter of 1997, the Company reversed an accrual of $75,000 made as part of the restructuring actions taken in the fourth quarter of 1996. The 1996 year end accrual was revised to reflect lower than anticipated costs associated with the abandonment and subsequent sublease of certain office space. 11 Loss on Disposition of Laboratory. During the first quarter of 1997, the Company completed the sale of CAS to the employees of CAS for $4,000,000 in cash, CAS' promissory notes for $3,219,000 ("CAS Notes") and a continuing preferred stock interest in CAS valued at $500,000. The Company paid to CAS $206,000 in cash for retired employee contracts and for accelerated vesting of stock options and other non-vested stock rights. In anticipation of completing the sale, the Company recognized impairment in the value of its investment in CAS of $3,327,000 at the end of 1996. As a result of several pre closing adjustments, the Company recognized an additional loss on disposition of CAS in the first quarter of 1997, of $333,000. Gain on Sale of Assets. During the first quarter of 1997, the Company completed the sale of one of its landfill gas-to-energy projects, including the related leasehold production rights and associated machinery and equipment. The Company recognized a gain on disposition of the project in the first quarter of 1997, of $826,000. Income From Operations. Income from operations for the first quarter of 1998 was $143,000 compared to $1,317,000 during the comparable period last year. Interest Income. The Company recorded interest income of $168,000 in the first quarter of 1998 compared to $94,000 in the first quarter of 1997. The increase in interest income in the first quarter of 1998 compared to the first quarter of 1997 was primarily due to the recognition of interest income on the CAS Notes. Interest Expense. The Company incurred interest expense of $293,000 in the first quarter of 1998 compared to $331,000 in the first quarter of 1997. LIQUIDITY AND CAPITAL RESOURCES During the first quarter of 1998, the Company's uses of cash for non-operating activities primarily consisted of repayment of debt in the amount of $706,000 and additions to property and equipment in the amount of $395,000; mainly computers and field equipment. This was offset by net cash provided by operating activities during the period of $2,001,000. In conjunction with the acquisition of OWT, the Company entered into a $20,000,000 secured credit agreement with its existing commercial bank, replacing its previous $10,000,000 unsecured line of credit. Under the new agreement, the Company borrowed $10,000,000 on a term loan basis with interest at a managed rate not to exceed the prime rate. Principal is to be amortized over seven years, but with any unpaid amount finally due and payable on June 30, 2001. In April 1997, following the infusion of cash upon the sale of CAS, the Company prepaid, on an accelerated basis, $3,000,000 of the then outstanding principal balance of the term loan. The remaining $10,000,000 under the Credit Agreement is available for working capital purposes (with up to $5,000,000 also being available for non-working capital purposes). The line of credit component of the Credit Agreement expires on May 31, 1998. The Company expects to renew the line of credit component of the Credit Agreement prior to its expiration. The Credit Agreement contains provisions with respect to the payment of dividends and the level of capital expenditures and requires the maintenance of specific levels of working capital, tangible net worth and continued quarterly profitability. The Company believes that its cash on hand and cash generated from operations, together with its available bank financing will be sufficient to meet the Company's capital needs for at least the next twelve months. 12 EMCON PART II OTHER INFORMATION Items 1. - 4. Not applicable. Item 5. Other Information On April 3, 1998, the Company acquired all of the outstanding equity of Advanced Analytical Solutions, Inc. (A2S) for cash of $600,000 and the issuance of 123,077 shares of EMCON common stock. The former shareholders of A2S are also eligible to receive up to two additional earn out payments of $150,000 (payable in cash and additional shares of EMCON common stock) in each of the two twelve month periods immediately following the acquisition; which earn out payments will be treated as additional purchase consideration and will be tied to the future financial performance of A2S. The Company also extended a three year full recourse secured loan to one of the former A2S shareholders in the principal amount of $225,000. A2S is a nationally recognized provider of alternative dispute resolution, cost allocation, cost recovery and litigation support services around Superfund projects with offices in Denver, Colorado and Philadelphia, Pennsylvania. Item 6. Exhibits and Reports (a) Exhibits - See Index to Exhibits on Page 15 (b) Reports on Form 8-K - No reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended March 31, 1998. 13 EMCON SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 8, 1998 EMCON \o\ R. Michael Momboisse ------------------------------------- R. MICHAEL MOMBOISSE Chief Financial Officer, Vice President - Legal, and Secretary (Duly authorized and principal financial and accounting officer) 14 INDEX TO EXHIBITS Sequentially Exhibit Numbered Number Page - -------------- ---------------- 2.1 Stock Purchase Agreement dated January 30, 1996, * among Organic Waste Technologies, Inc. ("OWT"), Registrant and the selling shareholders and option holders of OWT, incorporated by reference from Exhibit 2.1 of the Current Report on Form 8-K dated March 14, 1996,(the "March 1996 8-K"). 2.2 Asset Purchase Agreement between Yolo Energy * Partners, Inc., Yolo Landfill Gas Corporation, EMCON, Yolo Neo LLC, and Minnesota Methane LLC dated December 31, 1996, incorporated by reference from Exhibit 10.20 of the Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the "1996 10-K"). 2.3 Acquisition Agreement between EMCON and its wholly * owned subsidiary, Monterey Landfill Gas Corporation, and Biomass Energy Partners V, L.P., dated March 6, 1997, incorporated by reference from Exhibit 10.22 of the 1996 10-K. 2.4 Stock Purchase Agreement dated April 4, 1997 among * Registrant, Columbia Analytical Services, Inc. (`CAS"), Northwest Trust as trustee of the CAS Employee Stock Ownership Trust and certain senior management employees of CAS,incorporated by reference from Exhibit 2.4 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997 (the "March 1997 10-Q"). 2.5 Stock Purchase Agreement dated April 30, 1997 * among Registrant, OWT, National Earth Products, Inc.("NEP") and the selling stockholders of NEP, incorporated by reference from Exhibit 2.5 of the March 1997 10-Q. 2.6 Agreement and Plan of Reorganization among 19 Registrant, Advanced Analytical Solutions, Inc. ("A2S") and certain other parties dated April 3, 1998. 3.1 Articles of Incorporation, as amended, * incorporated by reference from Exhibit 3.1 of the Registrant's Registration Statement on Form S-1 (File No. 33-16337) effective September 16, 1987 (the "Form S-1 Registration Statement"). 3.2 Certificate of Amendment of Restated Articles of * Incorporation as filed on May 24, 1988, incorporated by reference from Exhibit 3.2 of the Annual Report on Form 10-K for the fiscal year ended December 31, 1988 (the "1988 10-K"). 3.3 Certificate of Amendment of Restated Articles of * Incorporation as filed on June 4, 1991, incorporated by reference from Exhibit 4.1 of the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1991 (the "June 1991 10-Q"). 15 Sequentially Exhibit Numbered Number INDEX TO EXHIBITS (Continued) Page - -------------- ---------------- 3.4 Bylaws, as amended, incorporated by reference from * Exhibit 4.2 of the June 1991 10-Q. 10.1 EMCON 1986 Incentive Stock Option Plan and *(1) Amendment, incorporated by reference from Exhibit 10.15 of the Form S-1 Registration Statement. 10.2 Form of Agreement pursuant to Salary Continuation *(1) Plan, incorporated by reference from Exhibit 10.17 of the Form S-1 Registration Statement. 10.3 Schedule identifying Agreements pursuant to Salary *(1) Continuation Plan between Registrant and certain employees, incorporated by reference from Exhibit 10.3 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "1997 10-K"). 10.4 Form of Indemnity Agreement between the Registrant * and each of the Registrant's officers and directors, incorporated by reference from Exhibit 10.20 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 (the "1988 10-K"). 10.5 EMCON 1988 Stock Option Plan, amended by *(1) shareholder approval on May 25,1994, including form of Nonqualified Stock Option Agreement (Outside Directors), incorporated by reference from Exhibit 10.9 of Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1994 (the "June 30, 1994 10-Q"). 10.6 EMCON Employee Stock Purchase Plan incorporated by *(1) reference from Exhibit 10.10 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995. 10.7 EMCON Restricted Stock Plan incorporated by *(1) reference from Exhibit 10.15 of the Annual Report on Form 10-K for the fiscal year ended December 31, 1990. 10.8 EMCON Deferred Compensation Plan effective January *(1) 1, 1994, incorporated by reference from Exhibit 10.12 of the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 (the "1993 10-K"). 10.9 Trust Agreement for the EMCON Deferred *(1) Compensation Plan and Salary Continuation Plan Trust dated February 19, 1994, between Registrant and Wells Fargo Bank, N.A. incorporated by reference from Exhibit 10.13 of the 1993 10-K. 10.10 Agreement between Eugene M. Herson and Registrant *(1) dated November 30, 1995, incorporated by reference from Exhibit 10.21 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the "1995 10-K"). 16 Sequentially Exhibit Numbered Number INDEX TO EXHIBITS (Continued) Page - -------------- ------------- 10.12 Credit Agreement between The Bank of California, * N.A. and Registrant dated February 29, 1996, incorporated by reference from Exhibit 10.2 of the March 1996 8-K. 10.13 Security Agreement between The Bank of California, * N.A. and Registrant dated February 29, 1996, incorporated by reference from Exhibit 10.3 of the March 1996 8-K. 10.14 Pledge Agreement between The Bank of California, * N.A. and Registrant dated February 29, 1996, incorporated by reference from Exhibit 10.4 of the March 1996 8-K. 10.15 Eurodollar Rate Option Agreement between The Bank * of California, N.A. and Registrant dated February 29, 1996, incorporated by reference from Exhibit 10.5 of the March 1996 8-K. 10.16 Fixed Rate Amortization Option Agreement between * The Bank of California, N.A and Registrant dated February 29, 1996, incorporated by reference from Exhibit 10.6 of the March 1996 8-K. 10.17 Note Agreement among the Registrant, OWT, and * certain employees of OWT, incorporated by reference from Exhibit 10.1 of the March 1996 8-K. 10.18 Rescission and Reformation Agreement dated * effective November 1, 1996 among EMCON, OWT, and certain employees of OWT, incorporated by reference from Exhibit 10.18 of the 1996 10-K. 10.19 New Note Agreement dated effective November 1, * 1996 among EMCON, OWT and certain employees of OWT, incorporated by reference from Exhibit 10.19 of the 1996 10-K. 10.20 Second Amendment to Credit Agreement dated * effective January 27, 1997 among EMCON and Union Bank of California, N.A. (formerly known as The Bank of California, N.A.), incorporated by reference from Exhibit 10.21 of the 1996 10-K. 10.21 Third Amendment to Credit Agreement dated * effective March 27, 1997 among EMCON and Union Bank of California, N.A. (formerly known as The Bank of California, N.A.), incorporated by reference from Exhibit 10.23 of the 1996 10-K. 10.22 Convertible Notes dated April 30, 1997 issued by * EMCON to Dennis Grimm and Charles Gearhart in the principal amounts of $400,798.40 and $399,201.60, respectively, incorporated by reference from Exhibit 10.22 of the March 1997 10-Q. 17 Sequentially Exhibit Numbered Number INDEX TO EXHIBITS (Continued) Page - -------------- -------------- 10.23 Lease Agreement dated April 4, 1997, between EMCON * and Columbia Analytical Services, Inc., incorporated by reference from Exhibit 10.23 of the March 1997 10-Q. 10.24 Amendment 1997-I to EMCON Deferred Compensation *(1) Plan dated effective February 22, 1997, incorporated by reference from Exhibit 10.24 of the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1997 (the "June 30, 1997 10-Q"). 10.25 Fourth Amendment to Credit Agreement dated * effective June 24, 1997 among EMCON and Union Bank of California, N.A., incorporated by reference from Exhibit 10.25 of the June 30, 1997 10-Q. 10.26 Amended and Restated Agreement between Eugene M. *(1) Herson and Registrant dated November 3, 1997, incorporated by reference from Exhibit 10.26 of the 1997 10-K. 10.27 Amended and Restated Agreement between R. Michael *(1) Momboisse and Registrant dated November 3, 1997, incorporated by reference from Exhibit 10.27 of the 1997 10-K. 10.28 Deferred Compensation Plan, Amended and Restated *(1) effective January 1, 1998, incorporated by reference from Exhibit 10.28 of the 1997 10-K. 10.29 Registration Rights Agreement among Registrant, 55 and the former shareholders of A2S dated April 3, 1998. 10.30 Secured Promissory Note by Timothy M. Keaten dated 63 April 3, 1998 in the principal amount of $225,000. 27 Financial Data Schedule, included herein. 69 * Incorporated by reference (1) Management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to Item 14(c) of the instructions to Form 10-K. 18 EX-2.6 2 AGREEMENT & PLAN OF REORGANIZATION EXHIBIT 2.6 AGREEMENT AND PLAN OF REORGANIZATION AMONG EMCON (a California corporation); ADVANCED ANALYTICAL SOLUTIONS DELAWARE, INC. (a Delaware corporation); ADVANCED ANALYTICAL SOLUTIONS INCORPORATED (a Colorado corporation); AND THE SHAREHOLDERS OF ADVANCED ANALYTICAL SOLUTIONS INCORPORATED (the Colorado Corporation) April 3, 1998 19 AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and entered into as of April 3, 1998 by and among EMCON, a California corporation ("EMCON"), Advanced Analytical Solutions Delaware, Inc., a Delaware corporation and wholly-owned subsidiary of EMCON ("Sub"), Advanced Analytical Solutions Incorporated, a Colorado corporation ("A2S") and the Shareholders of A2S (collectively, the "A2S Shareholders"). RECITALS A. Pursuant to a statutory merger of A2S with and into Sub, with Sub being the surviving corporation (the "Merger"), among other things, the outstanding shares of A2S Common Stock ("A2S Common Stock") shall be converted into the right to receive the Merger Consideration (as defined in Section 1.6) upon the terms and subject to the conditions set forth herein. B. A2S, EMCON and the A2S Shareholders desire to make certain representations and warranties and other agreements in connection with the Merger. C. The parties intend, by executing this Agreement, to adopt a plan of reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code"), and to cause the Merger to qualify as a forward triangular reorganization under the provisions of Section 368(a)(2)(d) of the Code. NOW, THEREFORE, in consideration of the covenants and representations set forth herein, and for other good and valuable consideration, the parties agree as follows: 1. The Merger. 1.1. The Merger. At the Effective Time (as defined in Section 1.2) and subject to and upon the terms and conditions of this Agreement, the Certificate of Merger attached hereto as Exhibit A (the "Certificate of Merger") and the applicable provisions of the Delaware General Corporation Law ("Delaware Law" or "DGL") and the law of the State of Colorado ("Colorado Law"), A2S shall be merged with and into Sub, the separate corporate existence of A2S shall cease and Sub shall continue as the surviving corporation. Sub as the surviving corporation after the Merger is hereinafter sometimes referred to as the "Surviving Corporation." 1.2. Closing; Effective Time. The closing of the transactions contemplated hereby (the "Closing") shall take place on April 3, 1998 (the "Closing Date"). The Closing shall take place at the offices of Schlueter & Associates, P.C., 1050 17th Street, Suite 1700, Denver, Colorado 80265, or at such other location as the parties hereto agree. In connection with the Closing, the parties hereto shall cause the Merger to be consummated by filing the Certificate of Merger, together with the required officers' certificates, with the Secretary of State of each of the states of Delaware and Colorado, in accordance with the relevant provisions of Delaware Law and Colorado Law (the time of such filing being the "Effective Time"). 20 1.3. Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Certificate of Merger and the applicable provisions of Delaware Law and Colorado Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the property, rights, privileges, powers and franchises of A2S shall vest in the Surviving Corporation, and all debts, liabilities and duties of A2S shall become the debts, liabilities and duties of the Surviving Corporation. 1.4. Certificate of Incorporation; Bylaws. (a) At the Effective Time, the Certificate of Incorporation of Sub, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by Delaware Law and such Certificate of Incorporation. (b) At the Effective Time, the Bylaws of Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended. 1.5. Directors and Officers. At the Effective Time, the directors and officers of Sub immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, until their respective successors are duly elected or appointed and qualified. 1.6. Merger Consideration. By virtue of the Merger, EMCON shall deliver the following consideration (the "Merger Consideration") to the A2S Shareholders: (a) Cash Consideration. At the Closing, EMCON shall deliver to the A2S Shareholders an aggregate of Six Hundred Thousand Dollars ($600,000) (the "Cash Consideration") as set forth in Schedule 1.7 hereto. (b) EMCON Common Stock. At the Closing, EMCON shall deliver to the holders of A2S Common Stock (the "A2S Capital Stock") an aggregate of 123,077 shares of EMCON Common Stock as set forth in Section 1.7 hereof . (c) Earnout Payments. During the first two years following the Closing, the A2S Shareholders shall be eligible to earn Earnout Payments (as defined in Section 6.1(b) hereof) up to an aggregate of $300,000, subject to the terms and conditions of Section 6.1 hereof. 1.7. Effect on Capital Stock At the Effective Time, by virtue of the Merger and without any action on the part of EMCON, A2S or the holders of any of the following securities: (a) Conversion of A2S Common Stock. Each share of A2S Common Stock issued and outstanding immediately prior to the Effective Time shall be converted and exchanged, without any action on the part of the holders thereof, into the right to receive 1.8648 shares of EMCON Common Stock and $9.0909 in Cash Consideration (the "Exchange Ratio"), as set forth in Schedule 1.7 hereto. 21 (b) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into EMCON Common Stock or A2S Common Stock), reorganization, recapitalization or other like change with respect to EMCON Common Stock or A2S Common Stock occurring after the date hereof and prior to the Effective Time. (c) Fractional Shares. No fraction of a share of EMCON Common Stock will be issued, but in lieu thereof each holder of shares of A2S Common Stock who would otherwise be entitled to a fraction of a share of EMCON Common Stock (after aggregating all fractional shares of EMCON Common Stock to be received by such holder) shall receive from EMCON an amount of cash (rounded to the nearest whole cent) equal to the product of (i) such fraction, multiplied by (ii) the Fair Market Value of EMCON Common Stock. The term "Fair Market Value" shall mean the closing price of EMCON Common Stock on the Closing Date, as reported on the Nasdaq National Market (the "Fair Market Value"). The fractional share interests of each A2S shareholder shall be aggregated, so that no A2S shareholder shall receive cash in respect of fractional share interests in an amount greater than the value of one full share of EMCON Common Stock. (d) Certificate Legends. The shares of EMCON Common Stock to be issued pursuant to this Section 1 shall not have been registered and shall be characterized as "restricted securities" under the federal securities laws, and under such laws such shares may be resold without registration under the Securities Act or 1933, as amended (the "Securities Act"), only in certain limited circumstances. Each certificate evidencing shares of EMCON Common Stock to be issued pursuant to this Section 1 shall bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." and any legends required by state securities laws. 1.8. Surrender of Certificates. (a) EMCON to Provide Common Stock and Cash. At the Closing, EMCON shall deliver to the A2S Shareholders certificates evidencing the shares of EMCON Common Stock issuable pursuant to Section 1.7(a) in exchange for shares of A2S Common Stock outstanding immediately prior to the Effective Time, and (ii) cash in an amount sufficient to permit payment of cash in lieu of fractional shares. (b) Transfers of Ownership. At the Effective Time, the stock transfer books of the A2S shall be closed and there shall be no further registration of transfers of A2S Common Stock thereafter on the records of the A2S. If any certificate for shares of EMCON Common Stock is to be issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the Certificate 22 so surrendered will be properly endorsed and otherwise in proper form for transfer and that the person requesting such exchange will have paid to EMCON or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for shares of EMCON Common Stock in any name other than that of the registered holder of the Certificate surrendered, or established to the satisfaction of EMCON or any agent designated by it that such tax has been paid or is not payable. 1.9. No Further Ownership Rights in A2S Capital Stock. The Merger Consideration delivered upon the surrender for exchange of shares of A2S Capital Stock in accordance with the terms hereof (including any dividends, distributions or cash paid in lieu of fractional shares) shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of A2S Capital Stock, and there shall be no further registration of transfers on the records of the Surviving Corporation of shares of A2S Capital Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Section 1. 1.10. Taking of Necessary Action; Further Action. Each of EMCON and A2S will take all such reasonable and lawful action as may be necessary or desirable in order to effectuate the Merger in accordance with this Agreement as promptly as possible. If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of A2S, the officers and directors of EMCON are fully authorized in the name of their corporation or otherwise to take, and will take, all such lawful and necessary action, so long as such action is not inconsistent with this Agreement. 2. Conditions to the Merger. 2.1. Conditions to Obligations of Each Party to Effect the Merger. The respective obligations of each party to this Agreement to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, by agreement of all the parties hereto: (a) Shareholder Approval. This Agreement and the Merger shall be approved and adopted by all of the shareholders of the A2S. (b) Board Approval. This Agreement and the Merger shall be approved and adopted by the Board of Directors of EMCON and A2S. (c) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Merger shall be and remain in effect, nor shall any proceeding brought by an administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending, which would have a Material Adverse Effect on either EMCON or on EMCON combined with the Surviving Corporation after the Effective Time, nor shall there be any action taken, or any statute, rule, regulation or order enacted, entered, enforced 23 or deemed applicable to the Merger, which makes the consummation of the Merger illegal. In the event an injunction or other order shall have been issued, each party agrees to use its reasonable diligent efforts to have such injunction or other order lifted. (d) Governmental Approval. EMCON and A2S and their respective subsidiaries shall have timely obtained from each Governmental Entity (as defined below) all approvals, waivers and consents, if any, necessary for consummation of or in connection with the Merger and the several transactions contemplated hereby, including such approvals, waivers and consents as may be required under the Securities Act, under state Blue Sky laws, and under HSR other than filings and approvals relating to the Merger or affecting EMCON's ownership of A2S or any of its properties if failure to obtain such approval, waiver or consent would not have a Material Adverse Effect on EMCON or on EMCON combined with the Surviving Corporation after the Effective Time. 2.2. Additional Conditions to Obligations of A2S. The obligations of A2S to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, by A2S: (a) Representations, Warranties and Covenants. The representations and warranties of EMCON in this Agreement shall be true and correct in all material respects (except for such representations and warranties that are qualified by their terms by a reference to materiality which representations and warranties as so qualified shall be true in all respects) on and as of the Effective Time as though such representations and warranties were made on and as of such time and EMCON shall have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed and complied with by it as of the Effective Time. (b) Certificate of EMCON. A2S shall have been provided with a certificate executed on behalf of EMCON by its President and its Chief Financial Officer to the effect that, as of the Effective Time: (i) all representations and warranties made by EMCON under this Agreement are true and complete in all material respects (except for such representations and warranties that are qualified by their terms by a reference to materiality which representations and warranties as so qualified shall be true in all respects); and (ii) all covenants, obligations and conditions of this Agreement to be performed by EMCON on or before such date have been so performed in all material respects. (c) No Material Adverse Changes. Since the Balance Sheet Date, there shall not have occurred any material adverse change in the financial condition, properties, assets (including intangible assets), liabilities, business, operations or results of operations of EMCON and its subsidiaries, taken as a whole. (d) Third Party Consents. A2S shall have been furnished with evidence satisfactory to it of the consent or approval of those persons whose consent or approval is required in connection with the Merger. 24 (e) Injunctions or Restraints on Conduct of Business. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint provision limiting or restricting EMCON's conduct or operation of the business of EMCON and its subsidiaries, following the Merger shall be in effect, nor shall any proceeding brought by an administrative agency or commission or other Governmental Entity, domestic or foreign, seeking the foregoing be pending. (f) Legal Opinion. A2S shall have received a legal opinion from EMCON's in house legal counsel in substantially the form of Exhibit B-1. 2.3 Additional Conditions to the Obligations of EMCON. The obligation of EMCON to consummate and effect this Agreement and the transactions contemplated hereby shall be subject to the satisfaction at or prior to the Effective Time of each of the following conditions, any of which may be waived, in writing, by EMCON: (a) Representations, Warranties and Covenants. The representations and warranties of A2S in this Agreement shall be true and correct in all material respects (except for such representations and warranties that are qualified by their terms by a reference to materiality which representations and warranties as so qualified shall be true in all respects) on and as of the Effective Time as though such representations and warranties were made on and as of such time and A2S shall have performed and complied in all material respects with all covenants, obligations and conditions of this Agreement required to be performed and complied with by it as of the Effective Time. (b) Certificate of A2S. EMCON shall have been provided with a certificate executed on behalf of A2S by its President and Treasurer to the effect that, as of the Effective Time: (i) all representations and warranties made by A2S under this Agreement are true and complete in all material respects (except for such representations and warranties that are qualified by their terms by a reference to materiality, which representations and warranties as so qualified shall be true in all respects); and (ii) all covenants, obligations and conditions of this Agreement to be performed by A2S on or before such date have been so performed in all material respects. (c) Third Party Consents. EMCON shall have been furnished with evidence satisfactory to it of the consent or approval of those persons whose consent or approval is required in connection with the Merger. (d) Injunctions or Restraints on Conduct of Business. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint provision limiting or restricting EMCON's conduct or operation of the business of A2S and its subsidiaries, following the Merger shall be in effect, nor shall any proceeding brought by an administrative agency or commission or other Governmental Entity, domestic or foreign, seeking the foregoing be pending. 25 (e) Legal Opinion. EMCON shall have received a legal opinion from A2S's legal counsel in substantially the form of Exhibit B-2. (f) No Material Adverse Changes in Business. Since the Balance Sheet Date, there shall not have occurred any material adverse change in the financial condition, properties, assets (including intangible assets), liabilities, business, operations or results of operations of A2S, taken as a whole. (g) Employment and Non-Competition Agreements. Each of William J. Hengemihle and Christopher M. Wittenbrink (the "Key Employees") shall have accepted employment with Sub pursuant to the terms of an Employment and Non-Competition Agreement substantially in the form attached as Exhibit C. (h) Consulting Agreement. Timothy M. Keaten shall have entered a short-term consulting agreement with the Surviving Corporation in the form attached hereto as Exhibit D and a non-competition agreement with terms substantially the same as those entered into by the Key Employees. (i) No Material Adverse Changes. Except for the funds borrowed from Wells Fargo Bank, N.A. under the A2S line of credit to purchase the promissory note issued by Marty Cuerdon to Bonnie Cuerdon dated February 20, 1993 (the "Cuerdon Promissory Note") (which was disclosed to and consented to by EMCON), there shall not have occurred any material adverse change (including, but not limited to, cash distributions or decreases in net assets) in the A2S Balance Sheet (as defined in Section 0 hereof) since February 28, 1998, other than in the ordinary course of business and consistent with past practice. (j) Release of Security Interests. Except for the security interests that exist under the credit arrangements between A2S and Well Fargo Bank, N.A., and leases or purchase money security interests in certain equipment of A2S, the A2S Shareholders shall have delivered to EMCON written evidence legally sufficient to terminate any and all security interests, liens or other encumbrances on the outstanding shares of A2S Common Stock or the assets of A2S. 3. Representations and Warranties of the A2S Shareholders. Except as disclosed in a document of even date herewith and delivered by the A2S Shareholders to EMCON prior to the execution and delivery of this Agreement and referring to the representations and warranties in this Agreement (the "A2S Disclosure Schedule"), each A2S Shareholder, as to himself, represents and warrants to EMCON as follows (any representation or warranty of A2S herein shall be deemed to be a representation and warranty of each A2S Shareholder): 3.1. Organization, Standing and Power. A2S is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. A2S has the corporate power to own its properties and to carry on its business as now being conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified and in good standing would have a Material Adverse Effect on A2S. A2S has delivered a true and correct copy of the Articles of Incorporation and Bylaws or other charter documents, as applicable, of A2S each as amended to date, to EMCON. A2S is not in violation of any of the provisions of its Articles of Incorporation or Bylaws or equivalent organizational documents. A2S does not directly or indirectly own any equity or similar interest in, or any interest convertible or exchangeable or exercisable for, any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity. 26 3.2. Authority. As of the Closing Date, A2S will have all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. As of the Closing Date, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will have been duly authorized by all necessary corporate action on the part of A2S. The affirmative vote of the holders of a majority of the shares of A2S Common Stock outstanding on the record date for the written consent of shareholders relating to this Agreement is the only vote of the holders of any of A2S's Capital Stock necessary under Colorado Law to approve this Agreement and the transactions contemplated hereby. As of the Closing Date, the Board of Directors of A2S shall have (i) unanimously approved this Agreement and the Merger, (ii) determined that in its opinion the Merger is in the best interests of the shareholders of A2S and is on terms that are fair to such shareholders and (iii) recommended that the shareholders of A2S approve this Agreement and the Merger. This Agreement has been duly executed and delivered by A2S and constitutes the valid and binding obligation of A2S enforceable against A2S in accordance with its terms, except that such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to creditors' rights generally, and is subject to general principles of equity. The execution and delivery of this Agreement by A2S does not, and the consummation of the transactions contemplated hereby will not conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any material obligation or loss of any material benefit under (i) any provision of the Articles of Incorporation or Bylaws of A2S, as amended, or (ii) any material mortgage, indenture, lease, contract or other agreement or instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to A2S or any of its properties or assets. No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality ("Governmental Entity") is required by or with respect to A2S in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Certificate of Merger, together with the required officers' certificates, as provided in Section 0, (ii) filings required under Regulation D of the Securities Act of 1933, (iii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable state securities laws and the securities laws of any foreign country; (iv) such filings as may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR"); and (v) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not have a Material Adverse Effect on A2S and would not prevent, or materially alter or delay any of the transactions contemplated by this Agreement. 3.3. Governmental Authorization. A2S has obtained each federal, state, county, local or foreign governmental consent, license, permit, grant, or other authorization of a Governmental Entity (i) pursuant to which A2S currently operates or holds any interest in any of its properties or (ii) that is required for the operation of A2S's business or the holding of any such interest and all of such authorizations are in full force and effect except where the failure to obtain or have any such authorizations could not reasonably be expected to have a Material Adverse Effect on A2S. 3.4. Title to Property. A2S has good and marketable title to all of its properties, interests in properties and assets, real and personal, reflected in the A2S Balance Sheet or acquired after the A2S Balance Sheet Date (except properties, interests in properties and assets 27 sold or otherwise disposed of since the A2S Balance Sheet Date in the ordinary course of business), and with respect to leased properties and assets, valid leasehold interests therein, free and clear of all mortgages, liens, pledges, charges or encumbrances of any kind or character, except (i) the lien of current taxes not yet due and payable, (ii) such imperfections of title, liens and easements as do not and will not materially detract from or interfere with the use of the properties subject thereto or affected thereby, or otherwise materially impair business operations involving such properties and (iii) liens securing debt which is reflected on the A2S Balance Sheet. The property and equipment of A2S that are used in the operations of its businesses are in all material respects in good operating condition and repair, subject to normal wear and tear. All material properties used in the operations of A2S are reflected in the A2S Balance Sheet to the extent generally accepted accounting principles require the same to be reflected. All leases to which A2S is a party are in full force and effect and are valid, binding and enforceable in accordance with their respective terms, except as such enforceability may be limited by (i) bankruptcy laws and other similar laws affecting creditors' rights generally and (ii) general principles of equity, regardless of whether asserted in a proceeding in equity or at law. True and correct copies of all such leases have been provided to EMCON. A2S owns no real property. True and correct copies of all such real property leases have been provided to EMCON. 3.5. Capital Structure. The authorized capital stock of A2S consists of 200,000 shares of A2S Common Stock and 100,000 shares of A2S Preferred Stock. As of the Closing Date, there will be issued and outstanding 66,000 shares of A2S Common Stock and no shares of A2S Preferred Stock. All outstanding shares of A2S Common Stock are duly authorized, validly issued, fully paid and non-assessable and are free of any liens or encumbrances other than any liens or encumbrances created by or imposed upon the holders thereof, and are not subject to preemptive rights or rights of first refusal created by statute, the Articles of Incorporation or Bylaws of A2S or any agreement to which A2S is a party or by which it is bound. Except for the rights created pursuant to this Agreement, there are no other options, warrants, calls, rights, commitments or agreements of any character to which A2S is a party or by which it is bound obligating A2S to issue, deliver, sell, repurchase or redeem or cause to be issued, delivered, sold, repurchased or redeemed, any shares of A2S Capital Stock or obligating A2S to grant, extend, accelerate the vesting of, change the price of, or otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. There are no other contracts, commitments or agreements relating to voting, purchase or sale of A2S's capital stock (i) between or among A2S and any of its shareholders and (ii) to A2S's knowledge, between or among any of A2S's shareholders. All shares of outstanding A2S Common Stock were issued in compliance with all applicable federal and state securities laws. 3.6. Financial Statements. A2S has delivered to EMCON its unaudited financial statements for each of the fiscal years ended December 31, 1997 and December 31, 1996, respectively, and interim financial statements for the two month period ended February 28, 1998 (collectively, the "Financial Statements"). The Financial Statements are complete and correct in all material respects and have been prepared in accordance with generally accepted accounting principles (except that the Financial Statements do not have notes thereto) applied on a consistent basis throughout the periods indicated and with each other. The Financial Statements fairly present the financial condition and operating results of A2S as of the dates, and for the periods, indicated therein, subject to normal end of period adjustments. A2S maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles. 28 3.7. Absence of Certain Changes. Since February 28, 1998 (the "A2S Balance Sheet Date"), A2S has conducted its business in the ordinary course consistent with past practice and there has not occurred: (i) any change, event or condition (whether or not covered by insurance) that has resulted in, or might reasonably be expected to result in, a Material Adverse Effect to A2S; (ii) any acquisition, sale or transfer of any material asset of A2S other than in the ordinary course of business and consistent with past practice; (iii) any change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by A2S or any revaluation by A2S of any of its assets; (iv) any declaration, setting aside, or payment of a dividend or other distribution with respect to the shares of A2S or any direct or indirect redemption, purchase or other acquisition by A2S of any of its shares of capital stock; (v) any material contract entered into by A2S, other than in the ordinary course of business and as provided to EMCON, or any material amendment or termination of, or default under, any material contract to which A2S is a party or by which it is bound; (vi) any amendment or change to the Articles of Incorporation or Bylaws of A2S; (vii) any increase in or modification of the compensation or benefits payable or to become payable by A2S to any of its directors or employees; or (viii) any negotiation or agreement by A2S to do any of the things described in the preceding clauses (i) through (vii) (other than negotiations with EMCON and its representatives regarding the transactions contemplated by this Agreement). At the Effective Time, there will be no accrued but unpaid dividends on shares of A2S's capital stock. 3.8. Absence of Undisclosed Liabilities. A2S has no material obligations or liabilities of any nature (matured or unmatured, fixed or contingent) other than (i) those set forth or adequately provided for in the Balance Sheet for the period ended February 28, 1998 (the "A2S Balance Sheet"), (ii) those incurred in the ordinary course of business and not required to be set forth in the A2S Balance Sheet under generally accepted accounting principles, (iii) those incurred in the ordinary course of business since the A2S Balance Sheet Date and consistent with past practice; and (iv) those incurred in connection with the execution of this Agreement. 3.9. Litigation. There is no private or governmental action, suit, proceeding, claim, arbitration or investigation pending before any agency, court or tribunal, foreign or domestic, or, to the knowledge of A2S, threatened against A2S or any of their respective properties or any of their respective officers or directors (in their capacities as such) that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on A2S. There is no judgment, decree or order against A2S, or, to the knowledge of A2S, any of their respective directors or officers (in their capacities as such), that could prevent, enjoin, or materially alter or delay any of the transactions contemplated by this Agreement, or that could reasonably be expected to have a Material Adverse Effect on A2S. All litigation to which A2S is a party (or, to the knowledge of A2S, threatened to become a party) is disclosed in the A2S Disclosure Schedule. 3.10. Restrictions on Business Activities. There is no agreement, judgment, injunction, order or decree binding upon A2S which has or could reasonably be expected to have the effect of prohibiting or materially impairing any current or future business practice of A2S, any acquisition of property by A2S or the conduct of business by A2S as currently conducted or as proposed to be conducted by A2S. 3.11. Intellectual Property. (a) A2S owns and has good and marketable title to, or is licensed or otherwise possesses legally enforceable rights to use, all patents, patent applications, trademarks, 29 trade names, service marks, copyrights (whether registered or unregistered), and any applications therefor, maskworks, maskwork applications, net lists, schematics, technology, know-how, trade secrets, inventory, ideas, algorithms, processes, computer software programs and applications (in both source code and object code form), client lists and tangible or intangible proprietary information and material ("Intellectual Property") that are used or currently proposed to be used in the business of A2S as currently conducted or as proposed to be conducted by A2S, except to the extent that the failure to have such rights has not had and would not reasonably be expected to have a Material Adverse Effect on A2S. A2S is the exclusive owner of all Intellectual Property. A2S has not licensed any of the Intellectual Property on an exclusive basis. (b) All patents, registered trademarks, service marks and copyrights held by A2S are valid and subsisting. A2S is not infringing, misappropriating or making unlawful use of, and has not received any notice or other communication (in writing or otherwise) of any actual, alleged, possible or potential infringement, misappropriation or unlawful use of any proprietary asset owned or used by any third party. A2S (i) has not been sued in any suit, action or proceeding which involves a claim of infringement of any patents, trademarks, service marks, copyrights or violation of any trade secret or other proprietary right of any third party; and (ii) has not brought any action, suit or proceeding for infringement of Intellectual Property or breach of any license or agreement involving Intellectual Property against any third party. (c) All current and former officers, employees and consultants of A2S have executed and delivered to A2S an agreement (containing no exceptions or exclusions from the scope of its coverage) regarding the protection of proprietary information and the assignment to A2S of any Intellectual Property arising from services performed for A2S by such persons, the form of which has been supplied to EMCON. 3.12. Interested Party Transactions. A2S is not indebted to any director, officer, employee or agent of A2S (except for amounts due as normal salaries and bonuses and in reimbursement of ordinary expenses), and no such person is indebted to A2S. 3.13. Minute Books. The minute books of A2S made available to EMCON contain a complete and accurate summary of all meetings of directors and shareholders or actions by written consent since the time of incorporation of A2S through the date of this Agreement, and reflect all transactions referred to in such minutes accurately in all material respects. 3.14. Complete Copies of Materials. A2S has delivered or made available true and complete copies of each document which has been requested by EMCON or its counsel in connection with their legal and accounting review of A2S. 3.15. Material Contracts. All the material contracts and agreements to which A2S is a party are listed in Schedule 3.15 hereto. With respect to each agreement so listed: (i) the agreement is legal, valid, binding and enforceable and in full force and effect with respect to A2S, and to A2S's knowledge is legal, valid, binding, enforceable and in full force and effect with respect to each other party thereto, in either case subject to the effect of bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors' rights generally and except as the availability of equitable remedies may be limited by general principles of equity; (ii) the agreement will continue to be legal, valid, binding and enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect prior to the Closing, subject to the effect of bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors' rights generally and except as the availability of equitable 30 remedies may be limited by general principles of equity; and (iii) neither the A2S nor, to A2S's knowledge, any other party, is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach of default by A2S or, to A2S's knowledge, by any such other party, or permit termination, modification or acceleration, under the agreement. A2S is not a party to any material oral contract, agreement or other arrangement other than as may be disclosed in Schedule 3.15 hereto. 3.16. Accounts Receivable. Subject to any reserves set forth in the Financial Statements, the accounts receivable shown on the Financial Statements represent and will represent bona fide claims against debtors for sales and other charges, are collectible in accordance with their terms at their recorded amounts and are not subject to discount except for normal cash and immaterial trade discounts. The amount carried for doubtful accounts and allowances disclosed in the Financial Statements is sufficient to provide for any losses which may be sustained on revaluation of the receivables. 3.17 Customers and Suppliers. As of the date hereof, no customer which individually accounted for more than 5% of A2S's gross revenues during the 12 month period preceding the date hereof and no supplier of A2S, has canceled or otherwise terminated, or made any written threat to A2S to cancel or otherwise terminate its relationship with A2S or has at any time on or after February 28, 1998 decreased materially its services or supplies to A2S in the case of any such supplier, or its usage of the services or products of A2S in the case of such customer, and to A2S's knowledge, no such supplier or customer has indicated either orally or in writing that it will cancel or otherwise terminate its relationship with A2S or to decrease materially its services or supplies to A2S or its usage of the services or products of A2S, as the case may be. A2S has not knowingly breached, so as to provide a benefit to A2S that was not intended by the parties, any agreement with, or engaged in any fraudulent conduct with respect to, any customer or supplier of A2S. 3.18. Employees and Consultants. The A2S Disclosure Schedule or a letter delivered to EMCON by A2S contains a list of the names of all employees and consultants of A2S, their respective salaries or wages, other compensation and dates of employment and positions. 3.19. Environmental Matters (a) The following terms shall be defined as follows: (i) "Environmental Laws" shall mean any federal, state or local laws, ordinances, codes, regulations, rules, policies and orders that are intended to assure the protection of the environment, or that classify, regulate, call for the remediation of, require reporting with respect to, or list or define air, water, groundwater, solid waste, hazardous or toxic substances, materials, wastes, pollutants or contaminants, or which are intended to assure the safety of employees, workers or other persons, including the public. (ii) "Hazardous Materials" shall mean any toxic or hazardous substance, material or waste or any pollutant or contaminant, or infectious or radioactive substance or material, including without limitation, those substances, materials and wastes defined in or regulated under any Environmental Laws. (b) A2S is not and has not been in violation of any Environmental Law relating to the properties or facilities of A2S at which any part of A2S's business is or has been 31 conducted. A2S has not used, generated, manufactured or stored on or under any part of its properties or facilities at which any part of A2S's business is or has been conducted, or transported to or from any part thereof, any Hazardous Materials in violation of any applicable Environmental Laws. There has not been any presence, disposal, or release of any Hazardous Materials on, from or under any part of A2S's properties or facilities at which any part of A2S's business is or has been conducted. No civil, criminal or administrative action, proceeding or investigation is pending against A2S, or to A2S's knowledge, threatened against A2S, and A2S is not aware of any facts or circumstances which could form the basis for assertion of a claim or liability, regarding non-compliance with Environmental Laws relating to A2S's business. 3.20. Taxes. As used in this Agreement, the terms "Tax" and, collectively, "Taxes" mean any and all federal, state and local taxes of any country, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity. (a) A2S has prepared and timely filed all returns, estimates, information statements and reports required to be filed with any taxing authority ("Returns") relating to any and all Taxes concerning or attributable to A2S or its operations with respect to Taxes for any period ending on or before the Closing Date and such Returns are true and correct in all material respects and have been completed in all material respects in accordance with applicable law or an adequate reserve has been made for such Taxes on the A2S Balance Sheet. (b) A2S, as of the Closing Date: (i) will have paid all Taxes shown to be payable on such Returns covered by Section 3.20 (a) and (ii) will have withheld with respect to its employees all Taxes required to be withheld. (c) There is no Tax deficiency outstanding or assessed or, to the best of A2S's knowledge, proposed against A2S that is not reflected as a liability on the A2S Balance Sheet nor has A2S executed any agreements or waivers extending any statute of limitations on or extending the period for the assessment or collection of any Tax. (d) A2S has no material liabilities for unpaid Taxes that have not been accrued for or reserved on the A2S Balance Sheet, whether asserted or unasserted, contingent or otherwise. (e) A2S is not a party to any tax-sharing agreement or similar arrangement with any other party, or any contractual obligation to pay any Tax obligations of, or with respect to any transaction relating to, any other person or to indemnify any other person with respect to any Tax. (f) A2S's Returns have never been audited by a government or taxing authority, nor is any such audit in process or pending, and A2S has not been notified of any request for such an audit or other examination. (g) A2S has never been a member of an affiliated group of corporations filing a consolidated federal income tax return. 32 (h) A2S is not aware of any plan or intention on the part of its shareholders to engage in any sale or sales of EMCON Common Stock to be received pursuant to the Merger. For purposes of this Section 3.20 (h), the term "sale" shall include any sale, exchange, transfer, distribution, redemption or reduction in any way of the risk of ownership (by short sale or otherwise), or other disposition, whether direct or indirect. (i) A2S has made available to EMCON copies of all Returns filed for all periods since its inception. (j) A2S has not filed any consent agreement under Section 341(f) of the Code or agreed to have Section 341(f)(4) apply to any disposition of assets owned by A2S. (k) A2S has not been at any time a United States Real Property Holding Corporation within the meaning of Section 897(c)(2) of the Code. (l) A2S is not a party to any contract, agreement, plan or arrangement, including but not limited to the provisions of this Agreement, covering any employee or former employee of A2S that, individually or collectively, could give rise to the payment of any amount that would not be deductible by A2S as an expense under applicable law. (m) A2S does not currently and has never met the criteria of a Qualified Personal Service Corporation as defined in the Internal Revenue Code Section 448(d)(2)and Treasury Regulations Section 1.448-1T(e)(3). 3.21. Employee Benefit Plans. (a) Schedule 3.21 lists, with respect to A2S and any trade or business (whether or not incorporated) which is treated as a single employer with A2S (an "ERISA Affiliate") within the meaning of Section 414(b), (c),(m) or (o) of the Code, (i) all material employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), (ii) each loan to a non-officer employee in excess of $10,000, loans to officers and directors and any stock option, stock purchase, phantom stock, stock appreciation right, supplemental retirement, severance, sabbatical, medical, dental, vision care, disability, employee relocation, cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life insurance or accident insurance plans, programs or arrangements, (iii) all bonus, pension, profit sharing, savings, deferred compensation or incentive plans, programs or arrangements, (iv) other fringe or employee benefit plans, programs or arrangements that apply to senior management of A2S and that do not generally apply to all employees, and (v) any current or former employment or executive compensation or severance agreements, written or otherwise, as to which unsatisfied obligations of A2S of greater than $10,000 remain for the benefit of or relating to, any present or former employee, consultant or director of A2S (together, the "A2S Employee Plans"). (b) A2S has furnished to EMCON a copy of each of the A2S Employee Plans and related plan documents (including trust documents, insurance policies or contracts, employee booklets, summary plan descriptions and other authorizing documents, and, to the extent still in its possession, any material employee communications relating thereto) and has, with respect to each A2S Employee Plan which is subject to ERISA reporting requirements, provided copies of the Form 5500 reports filed for the last three plan years. Any A2S Employee Plan 33 intended to be qualified under Section 401(a) of the Code has either obtained from the Internal Revenue Service a favorable determination letter as to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has applied to the Internal Revenue Service for such a determination letter prior to the expiration of the requisite period under applicable Treasury Regulations or Internal Revenue Service pronouncements in which to apply for such determination letter and to make any amendments necessary to obtain a favorable determination, or has been established under a standardized prototype plan for which an Internal Revenue Service opinion letter has been obtained by the plan sponsor and is valid as to the adopting employer. A2S has also furnished EMCON with the most recent Internal Revenue Service determination or opinion letter issued with respect to each such A2S Employee Plan, and nothing has occurred since the issuance of each such letter which could reasonably be expected to cause the loss of the tax-qualified status of any A2S Employee Plan subject to Code Section 401(a). (c) (i) None of the A2S Employee Plans promises or provides retiree medical or other retiree welfare benefits to any person; (ii) there has been no "prohibited transaction," as such term is defined in Section 406 of ERISA and Section 4975 of the Code, with respect to any A2S Employee Plan, which could reasonably be expected to have, in the aggregate, a Material Adverse Effect; (iii) each A2S Employee Plan has been administered in accordance with its terms and in compliance with the requirements prescribed by any and all statutes, rules and regulations (including ERISA and the Code), except as would not have, in the aggregate, a Material Adverse Effect, and A2S and each subsidiary or ERISA Affiliate have performed all material obligations required to be performed by them under, are not in any material respect in default under or violation of and have no knowledge of any material default or violation by any other party to, any of the A2S Employee Plans; (iv) neither A2S or ERISA Affiliate is subject to any liability or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any of the A2S Employee Plans; (v) all material contributions required to be made by A2S or ERISA Affiliate to any A2S Employee Plan have been made on or before their due dates and a reasonable amount has been accrued for contributions to each A2S Employee Plan for the current plan years; (vi) with respect to each A2S Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA (excluding any such event for which the thirty (30) day notice requirement has been waived under the regulations to Section 4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 or ERISA has occurred; and (vii) no A2S Employee Plan is covered by, and neither A2S or ERISA Affiliate has incurred or expects to incur any liability under Title IV of ERISA or Section 412 of the Code. With respect to each A2S Employee Plan subject to ERISA as either an employee pension plan within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan within the meaning of Section 3(l) of ERISA, A2S has prepared in good faith and timely filed all requisite governmental reports (which were true and correct as of the date filed) and has properly and timely filed and distributed or posted all notices and reports to employees required to be filed, distributed or posted with respect to each such A2S Employee Plan. No suit, administrative proceeding, action or other litigation has been brought, or to the knowledge of A2S is threatened, against or with respect to any such A2S Employee Plan, including any audit or inquiry by the IRS or United States Department of Labor. Neither A2S or other ERISA Affiliate is a party to, or has made any contribution to or otherwise incurred any obligation under, any "multiemployer plan" as defined in Section 3(37) of ERISA. (d) With respect to each A2S Employee Plan, A2S and each of its United States subsidiaries have complied with (i) the applicable health care continuation and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"). 34 and the proposed regulations thereunder and (ii) the applicable requirements of the Family Leave Act of 1993 and the regulations thereunder, except to the extent that such failure to comply would not in the aggregate, have a Material Adverse Effect. (e) The consummation of the transactions contemplated by this Agreement will not (i) entitle any current or former employee or other service provider of A2S or any other ERISA Affiliate to severance benefits or any other payment (including, without limitation, unemployment compensation, golden parachute or bonus), except as expressly provided in this Agreement or (ii) accelerate the time of payment or vesting of any such benefits, or increase the amount of compensation due any such employee or service provider. (f) There has been no amendment to, written interpretation or announcement (whether or not written) by A2S or other ERISA Affiliate relating to, or change in participation or coverage under, any A2S Employee Plan which would materially increase the expense of maintaining such Plan above the level of expense incurred with respect to that Plan for the most recent fiscal year included in A2S's financial statements. 3.22. Employee Matters. A2S is in compliance with all currently applicable laws and regulations respecting discrimination in employment, terms and conditions of employment, wages, hours and occupational safety and health and employment practices, except for such noncompliance as has not and would not reasonably be expected to have had a Material Adverse Effect on A2S, and is not engaged in any unfair labor practice. There are no pending claims against A2S under any workers' compensation plan or policy or for long term disability. A2S has no material obligations under COBRA with respect to any former employees or beneficiaries thereunder. There are no proceedings pending or, to the knowledge of A2S, threatened, between A2S and its employees, which proceedings have or could reasonably be expected to have a Material Adverse Effect on A2S. A2S is not a party to any collective bargaining agreement or other labor union contract nor does A2S know of any activities or proceedings of any labor union to organize its employees. There has been no claim against A2S based on actual or alleged race, age, sex, disability or other harassment or discrimination, or similar tortious conduct, nor, to A2S's knowledge, is there any basis for such claim. In addition, A2S has provided all employees with all relocation benefits, stock options, bonuses and incentives, and all other compensation earned up through the date of this Agreement. 3.23. Insurance. Schedule 3.23 lists each policy of insurance and bonds held by A2S. A2S has policies of insurance and bonds of the type and in amounts customarily carried by persons conducting businesses or owning assets similar to those of A2S. There is no material claim pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. All premiums due and payable under all such policies and bonds have been paid and A2S are otherwise in compliance with the terms of such policies and bonds. A2S has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies. 3.24. Compliance With Laws. A2S has complied with, is not in violation of and has not received any notices of violation with respect to, any federal state, local or foreign statute, law or regulation with respect to the conduct of its business, or the ownership or operation of its business, except for such violations or failures to comply as could not be reasonably expected to have a Material Adverse Effect on A2S. 35 3.25. Brokers' and Finders' Fees. A2S has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement or any transaction contemplated hereby. 3.26. Ownership of Shares and Options. Except as set forth in the A2S Disclosure Schedule, each A2S Shareholder owns of record and beneficially the number of shares of A2S Common Stock, indicated opposite such A2S Shareholder's name in Schedule 1.7 hereto, as applicable, with full right and authority to sell or exchange, as applicable, such securities hereunder, and upon delivery of such shares hereunder, EMCON 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 EMCON is a party. 3.27. Execution, Delivery and Enforceability of Agreement; No Violation. This Agreement has been duly executed and delivered by or on behalf of each A2S Shareholder, and at the Closing any other documents required hereunder to be executed and delivered by or on behalf of each A2S Shareholder will have been duly executed and delivered. This Agreement constitutes the legal, valid and binding obligation of each A2S Shareholder, enforceable against such A2S Shareholder 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 each A2S Shareholder at Closing will constitute the legal, valid and binding agreements of each A2S Shareholder executing the same, enforceable against such A2S Shareholder 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 transactions contemplated by each A2S Shareholder will violate, or constitute a default under, or permit the acceleration of maturity of, except to the extent waived, and indentures, mortgages, promissory notes, contracts or agreements to which such A2S Shareholder is a party or by which such A2S Shareholder or such A2S Shareholder's properties are bound. 3.28. Information Supplied. To the Knowledge of each A2S Shareholder, neither this Agreement, the A2S Financial Statements, the A2S Disclosure Schedule, the Exhibits attached to this Agreement, nor any other certificate or document furnished or to be furnished by A2S or the A2S Shareholders pursuant to the terms of this Agreement, contains or will contain any untrue statement of a material fact known to the A2S Shareholders or A2S, 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. 3.29. Residence and Domicile. Each A2S Shareholder is a resident of, and domiciled in, the State indicated on Schedule 1.7 hereto, as applicable, as being the residence of such A2S Shareholder. 3.30. Brokers or Finders. Neither the A2S Shareholders nor any of such A2S Shareholders' 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 transactions contemplated hereby. 36 3.31. Representations Complete. To A2S's knowledge, none of the representations or warranties made by A2S herein or in any Schedule or Exhibit hereto, including the A2S Disclosure Schedule, or certificate furnished by A2S pursuant to this Agreement or any written statement furnished to EMCON pursuant hereto or in connection with the transactions contemplated hereby, when all such documents are read together in their entirety, contain, or will contain at the Effective Time any untrue statement of a material fact, or omits or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading; provided, however, that for purposes of this representation, any document attached hereto that provides information inconsistent with or in addition to any other written statement furnished to EMCON in connection with the transaction contemplated hereby, shall be deemed to supersede any other document or written statement furnished to EMCON with respect to such inconsistent or additional information. 4. Representations and Warrantees of EMCON and Sub. Except as disclosed in a document of even date herewith and delivered by EMCON to A2S prior to the execution and delivery of this Agreement and referring to the representations and warranties in this Agreement (the "EMCON Disclosure Schedule"), each of EMCON and Sub represents and warrants to A2S as follows: 4.1.Organization, Standing and Power. Each of EMCON and Sub is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. EMCON has the corporate power to own its properties and to carry on its business as now being conducted and as proposed to be conducted and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified and in good standing would have a Material Adverse Effect on EMCON. EMCON is not in violation of any of the provisions of its Articles of Incorporation or Bylaws or equivalent organizational documents. 4.2. Authority. EMCON and Sub each has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of EMCON and Sub. This Agreement has been duly executed and delivered by EMCON and Sub and constitutes the valid and binding obligation of EMCON and Sub. The execution and delivery of this Agreement do not and the consummation of the transactions contemplated hereby will not conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any material obligation or loss of a material benefit under (i) any provision of the Articles of Incorporation or Bylaws of EMCON or any of its subsidiaries, as amended, or (ii) any material mortgage, indenture, lease, contract or other agreement or instrument permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to EMCON or any of its subsidiaries or their properties or assets. No consent approval, order or authorization of or registration, declaration or filing with, any Governmental Entity, is required by or with respect to EMCON or any of its subsidiaries in connection with the execution and delivery of this Agreement by EMCON or the consummation by EMCON of the transactions contemplated hereby, except for (i) the filing of the Certificate of Merger, together with the required officers' certificates, as provided in Section 0, (ii) the filing of a Form D with the Securities and Exchange Commission in accordance with Regulation D following the Effective Time, (iii) the filing of a Form 8-K with the Securities and Exchange Commission ("SEC") and National Association of 37 Securities Dealers ("NASD") within 15 days after the Closing Date, (iv) any filings as may be required under applicable state securities laws and the securities laws of any foreign country, (v) such filings as may be required under HSR, (vi) the filing with the Nasdaq National Market of a Notification Form for Listing of Additional Shares with respect to the shares of EMCON Common Stock issuable upon conversion of the A2S Common Stock in the Merger, and (vii) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not have a Material Adverse Effect on EMCON and would not prevent, materially alter or delay any of the transactions contemplated by this Agreement. 4.3. SEC Documents: Financial Statements. EMCON has furnished to A2S a true and complete copy of each statement, report, registration statement (with the prospectus in the form filed pursuant to Rule 424(b) of the Securities Act), definitive proxy statement, and other filing filed with the SEC by EMCON since December 31, 1997, and, prior to the Effective Time, EMCON will have furnished A2S with true and complete copies of any additional documents filed with the SEC by EMCON prior to the Effective Time (collectively, the "EMCON SEC Documents"). In addition, EMCON has made available to A2S all exhibits to the EMCON SEC Documents filed prior to the date hereof and will promptly make available to A2S all exhibits to any additional EMCON SEC Documents filed prior to the Effective Time. All documents required to be filed as exhibits to the EMCON SEC Documents have been so filed, and all material contracts so filed as exhibits are in full force and effect except those which have expired in accordance with their terms, and neither EMCON nor any of its subsidiaries is in default thereunder. As of their respective filing dates, the EMCON SEC Documents complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the Securities Act and none of the EMCON SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, except to the extent corrected by a subsequently filed EMCON SEC Document prior to the date hereof. The financial statements of EMCON, including the notes thereto, included in the EMCON SEC Documents (the "EMCON Financial Statements"), complied as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto as of their respective dates, and have been prepared in accordance with generally accepted accounting principles applied on a basis consistent throughout the periods indicated and consistent with each other (except as may be indicated in the notes thereto or, in the case of unaudited statements included in Quarterly Reports on Form 10-Qs, as permitted by Form 10-Q of the SEC). The EMCON Financial Statements fairly present the consolidated financial condition and operating results of EMCON and its subsidiaries at the dates and during the periods indicated therein (subject, in the case of unaudited statements, to normal, recurring yearend adjustments). There has been no change in EMCON accounting policies except as described in the notes to the EMCON Financial Statements. 4.4. Absence of Certain Changes. Since December 31, 1997 (the "EMCON Balance Sheet Date"), EMCON has conducted its business in the ordinary course consistent with past practice and there has not occurred: (i) any change, event or condition (whether or not covered by insurance) that has resulted in, or might reasonably be expected to result in, a Material Adverse Effect to EMCON; (ii) any acquisition, sale or transfer of any material asset of EMCON or any of its subsidiaries other than in the ordinary course of business and consistent with past practice; (iii) any change in accounting methods or practices (including any change in depreciation or amortization policies or rates) by EMCON or any revaluation by EMCON of any of its assets; (iv) any declaration, setting aside, or payment of a dividend or other distribution with respect to 38 the shares of EMCON, or any direct or indirect redemption, purchase or other acquisition by EMCON of any of its shares of capital stock; (v) any material contract entered into by EMCON, other than in the ordinary course of business and as provided to A2S or any material amendment or termination of, or default under, any material contract to which EMCON is a party or by which it is bound; (vi) any amendment or change to EMCON's Articles of Incorporation or Bylaws; or (vii) any negotiation or agreement by EMCON or any of its subsidiaries to do any of the things described in the preceding clauses (i) through (vi) (other than negotiations with A2S and its representatives regarding the transactions contemplated by this Agreement). 4.5. Absence of Undisclosed Liabilities. EMCON has no material obligations or liabilities of any nature (matured or unmatured, fixed or contingent) other than (i) those set forth or adequately provided for in the Balance Sheet included in EMCON's Annual Report on Form 10-K for the period ended December 31, 1997 (the "EMCON Balance Sheet"), (ii) those incurred in the ordinary course of business and not required to be set forth in the EMCON Balance Sheet under generally accepted accounting principles, and (iii) those incurred in the ordinary course of business since the EMCON Balance Sheet Date and consistent with past practice. 4.6. Litigation. There is no private or governmental action, suit, proceeding, claim, arbitration or investigation pending before any agency, court or tribunal, foreign or domestic, or, to the knowledge of EMCON or any of its subsidiaries, threatened against EMCON or any of its subsidiaries or any of their respective properties or any of their respective officers or directors (in their capacities as such) that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on EMCON. There is no judgment, decree or order against EMCON or any of its subsidiaries or, to the knowledge of EMCON or any of its subsidiaries, any of their respective directors or officers (in their capacities as such) that could prevent, enjoin, or materially alter or delay any of the transactions contemplated by this Agreement, or that could reasonably be expected to have a Material Adverse Effect on EMCON. 4.7. Governmental Authorization. Except where the failure to obtain or have any of such EMCON Authorizations could not reasonably be expected to have a Material Adverse Effect on EMCON, EMCON and each of its subsidiaries have obtained each federal, state, county, local or foreign governmental consent, license, permit, grant, or other authorization of a Governmental Entity (i) pursuant to which EMCON or any of its subsidiaries currently operates or holds any interest in any of its properties or (ii) that is required for the operation of EMCON's or any of its subsidiaries' business or the holding of any such interest ((i) and (ii) herein collectively called "EMCON Authorizations"), and all of such EMCON Authorizations are in full force and effect. 4.8. Broker's and Finders' Fees. EMCON has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement or any transaction contemplated hereby. 4.9. Compliance With Laws. Each of EMCON and Sub have complied with, are not in violation of and have not received any notices of violation with respect to, any federal state, local or foreign statute, law or regulation with respect to the conduct of its business, or the ownership or operation of its business, except for such violations or failures to comply as could not be reasonably expected to have a Material Adverse Effect on EMCON or SUB. 39 4.10. Brokers' and Finders' Fees. EMCON has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or investment bankers' fees or any similar charges in connection with this Agreement or any transaction contemplated hereby. 4.11. Execution, Delivery and Enforceability of Agreement; No Violation. This Agreement has been duly executed and delivered by or on behalf of each of EMCON and Sub, and at the Closing any other documents required hereunder to be executed and delivered by or on behalf of each of EMCON and Sub will have been duly executed and delivered. This Agreement constitutes the legal, valid and binding obligation of each of EMCON and Sub, enforceable against each of EMCON and Sub 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 each of EMCON and Sub at Closing will constitute the legal, valid and binding agreements of EMCON and Sub executing the same, enforceable against each of EMCON and Sub 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 transactions contemplated by each of EMCON and Sub will violate, or constitute a default under, or permit the acceleration of maturity of, except to the extent waived, and indentures, mortgages, promissory notes, contracts or agreements to which each of EMCON and Sub is a party or by which EMCON and Sub or EMCON's and Sub's properties are bound. 4.12. `Information Supplied. To the Knowledge of EMCON and Sub, neither this Agreement, the Exhibits attached to this Agreement, nor any other certificate or document furnished or to be furnished by each of EMCON and Sub pursuant to the terms of this Agreement, contains or will contain any untrue statement of a material fact known to EMCON or Sub, 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. 4.13. Representations Complete. To EMCON's knowledge, none of the representations or warranties made by EMCON herein or in any Schedule hereto, including the EMCON Disclosure Schedule, or certificate furnished by EMCON pursuant to this Agreement, or the EMCON SEC Documents, or any written statement furnished to A2S pursuant hereto or in connection with the transactions contemplated hereby, when all such documents are read together in their entirety, contains or will contain at the Effective Time any untrue statement of a material fact or omits or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading; provided, however, that for purposes of this representation, any document attached hereto that provides information inconsistent with or in addition to any other written statement furnished to A2S in connection with the transactions contemplated hereby, shall be deemed to supersede any other document or written statement furnished to A2S with respect to such inconsistent or additional information. 5. Conduct Prior To The Effective Time. 5.1. Conduct of Business of A2S and EMCON. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, each of A2S and EMCON agrees (except to the extent expressly contemplated by this Agreement or as consented to in writing by the other), to carry on its and its subsidiaries' 40 business in the usual regular and ordinary course in substantially the same manner as heretofore conducted; to pay and to cause its subsidiaries to pay debts and Taxes when due subject (i) to good faith disputes over such debts or Taxes and (ii) in the case of Taxes of A2S, to EMCON's consent to the filing of material Tax Returns if applicable; to pay or perform other obligations when due, and to use all reasonable efforts to preserve intact its present business organizations, keep available the services of its and its subsidiaries' present officers and key employees and preserve its and its subsidiaries' relationships with customers, suppliers, distributors, licensors, licensees, and others having business dealings with it or its subsidiaries, to the end that its and its subsidiaries' goodwill and ongoing businesses shall be unimpaired at the Effective Time. Each of A2S and EMCON agrees to promptly notify the other of (x) any event or occurrence not in the ordinary course of its or its subsidiaries' business, and of any event which could have a Material Adverse Effect and (y) any material change in its capitalization as set forth in Sections 3.5. Without limiting the foregoing, except as expressly contemplated by this Agreement or the A2S Disclosure Schedule or the EMCON Disclosure Schedule, neither A2S nor EMCON, respectively, shall do, cause or permit any of the following, or allow, cause or permit any of its subsidiaries to do, cause or permit any of the following, without the prior written consent of the other: (a) Charter Documents. Cause or permit any amendments to its Articles of Incorporation or Bylaws; (b) Dividends; Changes in Capital Stock. Except for (i) the purchase of the Cuerdon Promissory Note and the related release of the 10,000 shares of A2S common stock delivered as security for the Cuerdon Promissory Note, or (ii) as otherwise approved in writing by EMCON, declare or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or repurchase or otherwise acquire, directly or indirectly, any shares of its capital stock except from former employees, directors and consultants in accordance with agreements providing for the repurchase of shares in connection with any termination of service to it or its subsidiaries; (c) Other. Take, or agree in writing or otherwise to take, any of the actions described in Sections 5.1 (a) through (b) above, or any action which would cause a material breach of its representations or warranties contained in this Agreement or prevent it from materially performing or cause it not to materially perform its covenants hereunder. 5.2. Conduct of Business of A2S. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, except as expressly contemplated by this Agreement or the A2S Disclosure Schedule, A2S shall not do, cause or permit any of the following, without the prior written consent of EMCON: (a) Material Contracts. Enter into any material contract or commitment, or violate, amend or otherwise modify or waive any of the terms of any of its material contracts, other than in the ordinary course of business consistent with past practice; (b) Issuance of Securities. Issue, deliver or sell or authorize or propose the issuance, delivery or sale of, or purchase or propose the purchase of, any shares of its capital stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or 41 other agreements or commitments of any character obligating it to issue any such shares or other convertible securities; (c) Intellectual Property. Transfer to any person or entity any rights to its Intellectual Property other than in the ordinary course of business consistent with past practice; (d) Exclusive Rights. Enter into or amend any agreements pursuant to which any other party is granted exclusive marketing or other exclusive rights of any type or scope with respect to any of its products or technology; (e) Dispositions. Sell, lease, license or otherwise dispose of or encumber any of its properties or assets which are material individually or in the aggregate, to its business, except in the ordinary course of business consistent with past practice; (f) Indebtedness. Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or guarantee any debt securities of others; (g) Agreements. Enter into, terminate or amend, in a manner which will adversely affect the business of A2S (i) any agreement involving an obligation to pay or the right to receive $10,000 or more, (ii) any agreement relating to the license, transfer or other disposition or acquisition of intellectual property rights or rights to market or sell A2S products, or (iii) any other agreement which is material to the business or prospects of A2S. (h) Payment of Obligations. Pay, discharge or satisfy in an amount in excess of $10,000 in the aggregate, any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise) arising other than in the ordinary course of business, other than the payment, discharge or satisfaction of liabilities reflected or reserved against in the A2S Financial Statements; (i) Capital Expenditures. Make any capital expenditures, capital additions or capital improvements except in the ordinary course of business and consistent with past practice; (j) Insurance. Materially reduce the amount of any material insurance coverage provided by existing insurance policies; (k) Termination or Waiver. Terminate or waive any right of substantial value, other than in the ordinary course of business; (l) Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend any employee benefit or stock purchase or option plan, or hire any new employee, pay any special bonus or special remuneration (except payments made pursuant to written agreements outstanding on the date hereof), or increase the salaries or wage rates of its employees except in the ordinary course of business in accordance with its standard past practice; (m) Severance Arrangements. Grant any severance or termination pay (i) to any director or officer or (ii) to any other employee except (A) payments made pursuant to written agreements outstanding on the date hereof or (B) grants which are made in the ordinary course of business in accordance with its standard past practice; 42 (n) Lawsuits. Commence a lawsuit other than (i) for the routine collection of bills, (ii) in such cases where it in good faith determines that failure to commence suit would result in the material impairment of a valuable aspect of its business, provided that it consults with EMCON prior to the filing of such a suit, or (iii) for a breach of this Agreement; (o) Acquisitions. Acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets which are material individually or in the aggregate, to its business; (p) Taxes. Other than in the ordinary course of business, make or change any material election in respect of Taxes, adopt or change any accounting method in respect of Taxes, file any material Tax Return or any amendment to a material Tax Return, enter into any closing agreement, settle any material claim or assessment in respect of Taxes, or consent to any extension or waiver of the limitation period applicable to any material claim or assessment in respect of Taxes; (q) Revaluation. Revalue any of its assets, including without limitation writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business; or (r) Other. Take or agree in writing or otherwise to take, any of the actions described in Sections 5.2 (a) through (q) above, or any action which would cause a material breach of its representations or warranties contained in this Agreement or prevent it from materially performing or cause it not to materially perform its covenants hereunder. 6. Additional Agreements. 6.1 Payment of Additional Merger Consideration. (a) In addition to the Merger Consideration to be delivered the A2S Shareholders at the Closing pursuant to Sections 1.6 and 1.7 hereof, the A2S Shareholders will be eligible to earn as additional consideration for the Merger, an aggregate earnout amount up to Three Hundred Thousand Dollars ($300,000) in the form of cash and EMCON Common Stock (the "Additional Consideration"), subject to the Surviving Corporation achieving the milestones set forth below. The form of the aggregate Additional Consideration to be paid to the A2S Shareholders (pro rata based on the total number of shares of A2S Capital Stock held by each A2S Shareholder immediately prior to the Effective Time) will be 50% in cash and 50% in shares of unregistered EMCON Common Stock valued at the closing price of EMCON Common Stock as reported on the Nasdaq National Market on the first business day following the end of an Earnings Period (as defined below). (b) In the event that the Surviving Corporation achieves the pretax income milestones (the "Income Milestones"), subject to the conditions set forth below, during the two twelve month periods following the Effective Time (the "Earnings Period"), EMCON agrees to deliver to the A2S Shareholders the aggregate earn-out payments (the "Earnout Payments") set forth opposite each Earnings Period, all as set forth below. 43 Earnings Period Income Milestone Earnout Payments Months 1-12 $500,000 $150,000 Months 13-24 $600,000 $150,000 The calculation of the Surviving Corporation's pretax income for purposes of this Section 7.1 will be based on the application of Generally Accepted Accounting Principles, consistently applied, including the use of accrual accounting. For purposes of calculating the Income Milestones, EMCON shall not allocate any portion of its general corporate overhead to the Surviving Corporation. Notwithstanding the foregoing, to the extent EMCON incurs expenses (e.g. insurance, legal, outside accounting, etc.) directly for the benefit of the Surviving Corporation, or otherwise provides administrative services for the benefit of the Surviving Corporation, the actual cost of such items (i.e., without any markup) shall be charged to the Surviving Corporation for purposes of such calculation. 6.2 Operation and Management of the Surviving Corporation. (a) The parties to this Agreement agree that, unless subsequently changed with the approval of the Board of Directors of the Surviving Corporation, the Surviving Corporation will retain the name "Advanced Analytical Solutions, Inc." While name retention is primarily for client relation purposes, it symbolically signifies the reasonable operational autonomy of the Surviving Corporation desired by the parties. (b) Immediately following the Effective Time, William J. Hengemihle ("Hengemihle") and Christopher M. Wittenbrink ("Wittenbrink") shall be elected to the offices of President and Vice President, respectively, of the Surviving Corporation. Hengemihle will report directly to Gene Herson in his role as the President of EMCON's Professional Services Division. (c) Immediately following the Effective Time, the Board of Directors of Surviving Corporation shall consist of Hengemihle, Wittenbrink, Gary McEntee and Michael Momboisse. (d) The parties hereto agree that the Surviving Corporation will have reasonable autonomy concerning its business affairs as a manner of principle. However, the Surviving Corporation accepts and will abide by EMCON's business and personnel policies. In this regard, the Surviving Corporation agrees to at least meet the minimum standards established for all EMCON operations with respect to EMCON's policies regarding human resources, employee benefits, insurance coverage, accounting policies and procedures, contract administration and risk management. (e) EMCON will assist the Surviving Corporation in setting up its accounting systems to comply with EMCON's standards. This shall include accrual accounting, similar charts of accounts and integration with EMCON's Sacramento Accounting Center. (f) Following the Closing, EMCON may, at its sole option, pay off all outstanding long term debt of the Surviving Corporation. 44 6.3. Future Grant of Options to Purchase Common Stock of EMCON EMCON agrees to reserve options to purchase an aggregate of Fifty Thousand (50,000) shares of EMCON Common Stock (the "Options") for issuance to Hengemihle and Wittenbrink and other key managers of the Surviving Corporation Hengemihle and Wittenbrink deem appropriate, if any. The parties hereto intend that the Options will be incentive stock options granted pursuant to EMCON's new 1998 Stock Option Plan (the "Option Plan"). Such treatment however, will be conditioned upon the formal approval of the Option Plan by EMCON's shareholders at the annual meeting of shareholders to be held May 28, 1998 (the "Shareholder Meeting"). In the event the shareholders do not approve the Option Plan, the Options will be granted pursuant to a nonqualified plan and will, therefore, qualify as nonqualified stock options. In any event, the Options granted will be granted subject to the standard terms and conditions of the EMCON's existing stock option plan and agreements which provides, among other things, for a five year term and vesting in equal installments over a four year period. No Options will be granted prior to the date of the Shareholder Meeting. The exercise price of the Options will be set at the closing price of EMCON Common Stock as reported on the Nasdaq National Market on the date of such grant. 6.4. Participation in Pay-for-Performance Program. The executive officers and continuing managers of Surviving Corporation shall be eligible to participate in EMCON's Pay-for-Performance program (the "Performance Program"). For the twelve month period immediately following the Effective Time (the "First Performance Period"), the amount accrued under the Performance Program shall equal 50% of all pretax profits of the Surviving Corporation in excess of $500,000. For the twelve month period following the First Performance Period, the amount accrued under the Performance Program shall equal 50% of all pretax profits of the Surviving Corporation in excess of $600,000. Allocation of the respective bonus pools among the Surviving Corporation employees shall be at the discretion of the executive officers of the Surviving Corporation, subject only to general oversight and written consent of the Compensation Committee of the Board of Directors of EMCON. At the Closing, EMCON shall loan Timothy M. Keaten the sum of Two Hundred Twenty-Five Thousand Dollars ($225,000) pursuant to the terms of a three year full recourse promissory note (the "Note") and pledge agreement ("Pledge Agreement"), in the form attached hereto as Exhibit E, secured by the EMCON Common Stock to be issued to Mr. Keaten as an A2S Shareholder in connection with the Merger as set forth in Schedule 1.7 hereto. The Note shall be due and payable in full after three years and shall bear interest payable quarterly at the rate of 8% per annum, calculated on the basis of a 360 day year. 6.6. Access to Information. (a) A2S shall afford EMCON and its accountants, counsel and other representatives, reasonable access during normal business hours during the period prior to the Effective Time to (i) all of A2S's properties, books, contracts, commitments and records, and (ii) all other information concerning the business, properties and personnel of A2S as EMCON may reasonably request. A2S agrees to provide to EMCON and its accountants, counsel and other representatives copies of internal financial statements promptly upon request. EMCON shall afford A2S and its accountants, counsel and other representatives, reasonable access during normal business hours during the period prior to the Effective Time to (i) all of EMCON's and its subsidiaries' properties, books, contracts, commitments and records, and (ii) all other information concerning the business, properties and personnel of EMCON and its subsidiaries as A2S may 45 reasonably request. EMCON agrees to provide to A2S and its accountants, counsel and other representatives copies of internal financial statements promptly upon request. (b) Subject to compliance with applicable law, from the date hereof until the Effective Time, each of EMCON and A2S shall confer on a regular and frequent basis with one or more representatives of the other party to report operational matters of materiality and the general status of ongoing operations. (c) No information or knowledge obtained in any investigation pursuant to this Section 6.6 shall affect or be deemed to modify any representation or warranty contained herein or the conditions to the obligations of the parties to consummate the Merger. 6.7. Confidentiality. The parties acknowledge that EMCON and A2S have previously executed a non-disclosure agreement dated May 2, 1997 (the "Non-Disclosure Agreement"), which Non-Disclosure Agreement is hereby incorporated herein by reference and shall continue in full force and effect in accordance with its terms. 6.8. Public Disclosure. Unless otherwise permitted by this Agreement, EMCON and A2S shall consult with each other before issuing any press release or otherwise making any public statement or making any other public (or non-confidential) disclosure (whether or not in response to an inquiry) regarding the terms of this Agreement and the transactions contemplated hereby, and neither shall issue any such press release or make any such statement or disclosure without the prior approval of the other (which approval shall not be unreasonably withheld), except as may be required by law or by obligations pursuant to any listing agreement with any national securities exchange or with the NASD. 6.9. Consents; Cooperation. Each of EMCON and A2S shall promptly apply for or otherwise seek, and use reasonable best efforts to obtain, all consents and approvals required to be obtained by it for the consummation of the Merger, including those required under HSR, and shall use reasonable best efforts to obtain all necessary consents, waivers and approvals under any of its material contracts in connection with the Merger for the assignment thereof or otherwise. 6.10. Legal Requirements. Each of EMCON and A2S will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on them with respect to the consummation of the transactions contemplated by this Agreement and will promptly cooperate with and furnish information to any party hereto necessary in connection with any such requirements imposed upon such other party in connection with the consummation of the transactions contemplated by this Agreement and will take all reasonable actions necessary to obtain (and will cooperate with the other parties hereto in obtaining) any consent, approval, order or authorization of or any registration, declaration or filing with, any Governmental Entity or other person, required to be obtained or made in connection with the taking of any action contemplated by this Agreement. 6.11. Blue Sky Laws. EMCON shall take such steps as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable to the issuance of the EMCON Common Stock in connection with the Merger. A2S shall use its best efforts to assist EMCON as may be necessary to comply with the securities and blue sky laws of all jurisdictions which are applicable in connection with the issuance of EMCON Common Stock in connection with the Merger. 46 6.12. Nonaccredited Shareholders. Prior to the Closing, A2S shall not take any action, including the granting of employee stock options, that would cause the number of A2S shareholders who are not "accredited investors" pursuant to Regulation D promulgated under the Securities Act of 1933, as amended, to increase to more than 35 during the term of this Agreement. 6.13. Listing of Additional Shares. Following the Effective Time, EMCON shall file with the Nasdaq National Market a Notification Form for Listing of Additional Shares with respect to the shares of EMCON Common Stock issuable upon conversion of the A2S Common Stock in the Merger. 6.14. Expenses. The parties will each pay their own legal, accounting and professional expenses ("Expenses") in connection with the transactions contemplated hereby. In the event the Merger is consummated, the Expenses incurred by A2S and/or its shareholders up to an aggregate total of $20,000 shall be paid by EMCON. 6.15. Registration of Shares Issued in the Merger. At the Closing, EMCON shall grant to the A2S Shareholders certain registration rights set forth in the EMCON Registration Rights Agreement with respect to the shares of EMCON Common Stock issued in the Merger. 6.16. Personal Guarantees. From and after the Closing Date, EMCON agrees to work diligently to have each of William J. Hengemihle and Timothy M. Keaten released from his obligations and liability under the Personal Guarantees. The term "Personal Guarantee" shall mean the personal financial guarantees given by each of William J. Hengemihle and Timothy M. Keaten in connection with certain debt obligations of A2S as set forth on Schedule 6.16 hereto. 7. Termination, Amendment and Waiver 7.1. Termination. This Agreement may be terminated at any time prior to the Effective Time (with respect to Section 7.1(b) through Section 7.1(d), by written notice by the terminating party to the other party): (a) by the mutual written consent of EMCON and A2S; (b) by either EMCON or A2S if the Merger shall not have been consummated by April 11, 1998, provided, however, that the right to terminate this Agreement under this Section 7.1 (b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of or resulted in the failure of the Merger to occur on or before such date; (c) by either EMCON or A2S if a court of competent jurisdiction or other Governmental Entity shall have issued a nonappealable final order, decree or ruling or taken any other action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger, except, if the party relying on such order, decree or ruling or other action has not complied with its obligations under this Agreement; (d) by either EMCON or A2S, if there has been a breach of any representation, warranty, covenant or agreement on the part of the other party set forth in this Agreement, which breach (i) causes the conditions set forth in Section 2.2 (a) or (b) (in the case 47 of termination by EMCON) or Section 2.3 (a) or (b) (in the case of termination by A2S) not to be satisfied and (ii) shall not have been cured within ten (10) business days following receipt by the breaching party of written notice of such breach from the other party 7.2. Effect of Termination. In the event of termination of this Agreement as provided in Section 7.1, there shall be no liability or obligation on the part of EMCON, A2S or their respective officers, directors, or shareholders, except to the extent that such termination results from the willful breach by a party of any of its representations, warranties or covenants set forth in this Agreement; provided that the provisions of Section 0 shall remain in full force and effect and survive any termination of this Agreement. 7.3. Amendment This Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 7.4. Extension; Waiver At any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective Boards of Directors, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. 8. General Provisions. 8.1. Notices. All notices and other communications hereunder shall be in writing and shall be deemed duly delivered if delivered personally (upon receipt), or three (3) business days after being mailed by registered or certified mail, postage prepaid (return receipt requested), or one (1) business day after it is sent by reputable nationwide overnight courier service, or upon transmission, if sent via facsimile (with confirmation of receipt) to the parties at the following address (or at such other address for a party as shall be specified by like notice): (a) if to EMCON, to: EMCON 400 S. El Camino Real, Suite 1200 San Mateo, CA 94402 Attention: R. Michael Momboisse, Chief Financial Officer Fax: (650) 375-0763 with a copy to: Gray Cary Ware & Freidenrich LLP 400 Hamilton Avenue Palo Alto, CA 94301 Attention: Eric J. Lapp, Esq. Fax: (650) 328-6561 48 (b) if to A2S, to Advanced Analytical Solutions, Inc. 1331 17th Street, Suite 600 Denver, CO 80202 Attention: William J. Hengemihle, President Fax: (303) 295-2692 with a copy to: Schlueter & Associates, P.C. 1050 Seventeenth Street, Suite 1700 Denver, Colorado 80265 Attention: Henry F. Schlueter Fax: (303) 292-3883 (c) if to the A2S Shareholders: William J. Hengemihle 51 Casselberry Drive Audubon, Pennsylvania 19403 Christopher M. Wittenbrink 2715 South Pierce Street Denver, Colorado 80227 Timothy M. Keaten 3048 East Clairton Drive Highlands Ranch, Colorado 80126 Fax: (303) 703-0527 with a copy to: Schlueter & Associates, P.C. 1050 Seventeenth Street, Suite 1700 Denver, Colorado 80265 Attention: Henry F. Schlueter Fax: (303) 292-3883 8.2. Definitions. In this Agreement any reference to any event, change, condition or effect being "material" with respect to any entity or group of entities means any material event, change, condition or effect related to the financial condition, properties, assets (including intangible assets), liabilities, business, operations or results of operations of such entity or group of entities. In this Agreement any reference to a "Material Adverse Effect" with respect to any entity or group of entities means any event, change or effect that is materially adverse to the financial condition, properties, assets, liabilities, business, operations or results of operations of such entity and its subsidiaries, taken as a whole. In this Agreement any reference to a party's "knowledge" means such party's actual knowledge after reasonable inquiry of officers, directors and other employees of such party reasonably believed to have knowledge of such matters. 49 8.3. Counterparts This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 8.4. Entire Agreement; Nonassignability; Parties in Interest. This Agreement and the documents and instruments and other agreements specifically referred to herein or delivered pursuant hereto, including the Exhibits, the Schedules, including the A2S Disclosure Schedule and the EMCON Disclosure Schedule (a) constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof except for the Confidentiality Agreement, which shall continue in full force and effect, and shall survive any termination of this Agreement or the Closing, in accordance with its terms; (b) are not intended to confer upon any other person any rights or remedies hereunder, and shall not be assigned by operation of law or otherwise without the written consent of the other party. 8.5. Severability. In the event that any provision of this Agreement, or the application thereof becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision. 8.6. Remedies Cumulative. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. 8.7. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of California that might otherwise govern under applicable principles of conflicts of law. Each of the parties hereto irrevocably consents to the exclusive jurisdiction of any court located within San Mateo County, State of California, in connection with any matter based upon or arising out of this Agreement or the matters contemplated hereby and it agrees that process may be served upon it in any manner authorized by the laws of the State of California for such persons and waives and covenants not to assert or plead any objection which it might otherwise have to such jurisdiction and such process. The parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. 50 IN WITNESS WHEREOF, A2S, EMCON and the Shareholders' Agent have caused this Agreement to be executed and delivered by each of them or their respective officers thereunto duly authorized, all as of the date first written above. "EMCON" EMCON By: \o\ R. Michael Momboisse ---------------------------- Name: R. Michael Momboisse ---------------------------- Title: CFO and VP Legal ---------------------------- "SUB" ADVANCED ANALYTICAL SOLUTIONS DELAWARE , INC., a Delaware corporation By: \o\ R. Michael Momboisse ---------------------------- Name: R. Michael Momboisse ---------------------------- Title: President ---------------------------- "A2S" ADVANCED ANALYTICAL SOLUTIONS, INCORPORATED, a Colorado corporation By: \o\ William J. Hengemihle ---------------------------- Name: William J. Hengemihle ---------------------------- Title: President ---------------------------- 51 "A2S SHAREHOLDERS" \o\ William J. Hengemihle - ------------------------------ William J. Hengemihle \o\ Christopher M. Wittenbrink - ------------------------------ Christopher M. Wittenbrink \o\ Timothy M. Keaten - ------------------------------ Timothy M. Keaten 52 List of Exhibits Exhibit A - Certificate of Merger Exhibit B-1 - Legal Opinion of EMCON Exhibit B-2 - Legal Opinion A2S Exhibit C - Employment and Non-Competition Agreement Exhibit D - Consulting Agreement Exhibit E - Promissory Note and Pledge Agreement Exhibit F - Registration Rights Agreement 53
Schedule 1.7 Merger Consideration A2S SHAREHOLDER STATE OF NO. SHARES A2S CASH EMCON RESIDENCE COMMON STOCK CONSIDERATION COMMON STOCK --------------- -------- -------------- ------------- ------------ William J. Hengemihle Pennsylvania 30,000 $272,727 55,944 Timothy M. Keaten Colorado 30,000 $272,727 55,944 Christopher M. Colorado 6,000 $54,545 11,189 Wittenbrink Total 66,000 $599,999 123,077
54 EX-10.29 3 REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.29 EMCON REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT is entered into as of April 3, 1998, by and among EMCON, a California corporation ("EMCON") and the undersigned shareholders of Advanced Analytical Solutions, Inc., a Colorado corporation ("A2S") (collectively, the "Shareholders"), such Shareholders having received certain rights to register shares of EMCON common stock to be received upon the merger (the "Merger") of A2S with and into Advanced Analytical Solutions, Inc., a Delaware corporation and a wholly-owned subsidiary of EMCON ("Sub") as set forth in the Agreement and Plan of Reorganization dated April 3, 1998 (the "Merger Agreement") among EMCON, A2S, Sub and the Shareholders. RECITALS: Pursuant to the terms of the Merger Agreement, EMCON desires to provide the shareholders certain registration rights as provided for in this Agreement. AGREEMENT: In consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows: 1. Registration Rights. 1.1 Certain Definitions. As used in this Agreement, the following terms will have the following respective meanings: (a) "Commission" will mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. (b) "Exchange Act" will mean the Securities Exchange Act of 1934, as amended, or any similar federal statute and the rules and regulations thereunder, all as the same will be in effect at the time. (c) "Holder" will mean any person or persons to whom Registrable Securities were originally issued. (d) "Securities Act" will mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations thereunder, all as the same will be in effect at the time. (e) "Registrable Securities" means (i) all shares of EMCON Common Stock issued to the Shareholders in connection with the Merger, including shares of Common Stock issued in connection with the Earnout Payments (as defined in the Merger Agreement), but excluding shares of EMCON Common Stock issued to the shareholders in the Merger that have been sold or otherwise transferred by the Shareholders who initially received such shares in the 55 Merger; (ii) all shares of capital stock issued in lieu of any of the stock referred to in clause (i) in any reorganization, which have not been sold to the public; and (iii) all shares of capital stock issued in respect of any of the stock referred to in clauses (i) or (ii) as a result of any stock split, stock dividend, recapitalization or the like, which have not been sold to the public. (f) The terms "register", "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. (g) "Registration Expenses" will mean all expenses incurred by EMCON in complying with this Section 1, 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 the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of EMCON which will be paid in any event by EMCON). (h) "Selling Expenses" will mean all underwriting discounts and selling commissions applicable to the sale of the Registrable Securities and all fees and expenses of legal counsel for a Holder. 1.2 Piggyback Registration (a) If at any time or from time to time, EMCON will determine to register any of its securities, other than (i) a registration relating solely to employee benefit plans on Form S-1, S-8 or similar forms which may be promulgated in the future, or (ii) a registration on Form S-4 or similar forms which may be promulgated in the future relating solely to a Commission Rule 145 transaction, EMCON will: (A) promptly give to each Holder written notice thereof; and (B) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within twenty (20) days after receipt of such written notice from EMCON, by any Holder or Holders, except as set forth in Subsection 1.2(b). (b) Underwriting. If the registration of which EMCON gives notice is for a registered public offering involving an underwriting, EMCON will so advise the Holders as a part of the written notice given pursuant to Subsection 1.2(a)(i). In such event the right of any Holder to registration pursuant to this Section 1.2 will be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting will (together with EMCON and the other shareholders, if any, distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the Underwriter selected for such underwriting by EMCON. Notwith-standing any other provision of this Section 1.2, if the Underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the Underwriter may limit the amount of securities to be included in the registration and underwriting by EMCON's shareholders or exclude such securities entirely. The number of shares that may be included in the registration and underwriting by the Holders will be allocated among the Holders in proportion to 56 the number of Registrable Securities then held by each. If any such shareholder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to EMCON and the Underwriter. Any Registrable Securities excluded or withdrawn from such underwriting will be excluded from such registration. 1.3 Expenses of Registration. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 1.2 will be borne by EMCON. All Selling Expenses relating to securities registered by the Holders will be borne by the Holders of such securities pro rata on the basis of the number of Registrable Securities so registered. 1.4 Registration Procedures. In the case of each registration, qualification or compliance effected by EMCON pursuant to this Agreement, EMCON will, upon request, inform each Holder as to the status of each such registration, qualification and compliance. At its expense EMCON will: (a) Keep such registration, and any qualification or compliance under state securities laws which EMCON determines to obtain, effective for a period of one hundred eighty (180) days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; (b) Furnish such number of prospectuses and other documents incident thereto as a Holder from time to time may reasonably request; and (c) Use its efforts to register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that EMCON will not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 1.5 Delay of Registration. No Holder will have any right to take any action to restrain, enjoin or otherwise delay any registration pursuant to Section 1.2 hereof as a result of any controversy that may arise with respect to the interpretation or implementation of this Agreement. 1.6 Indemnification. (a) EMCON will indemnify each Holder, each of its officers, directors, employees, partners, legal counsel and accountants, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which any registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (or action in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereof, incident to any such registration, qualification or compliance, 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, or any violation by EMCON of any rule or regulation promulgated under the Securities Act, Exchange 57 Act or state securities laws 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 Holder, each of its officers, directors, employees, partners, legal counsel and accountants, and each person controlling such Holder, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action; provided, however, 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 made in reliance upon and in conformity with written information furnished to EMCON by an instrument duly executed by or on behalf of such Holder or underwriter and stated to be specifically for use therein. (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify EMCON, each of its directors, officers, employees, partners, legal counsel and accountants, 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 of Section 15 of the Securities Act, and each other such Holder, each of its officers, directors, employees, partners, legal counsel and accountants, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any 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, such Holders, such directors, officers, employees, partners, legal counsel, 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 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 an instrument duly executed by or on behalf of such Holder and stated to be specifically for use therein. Notwithstanding the foregoing, in no event will a Holder be liable for any such claims, losses, damages, or liabilities in excess of the proceeds, net of underwriting discounts and commissions, received by such Holder in the offering, except in the event of fraud by such Holder. (c) Each party entitled to indemnification under this Section 1.6 (the "Indemnified Party") will 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 will permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who will conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval will 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 will not relieve the Indemnifying Party of its obligations under this Agreement, unless such failure is prejudicial to the Indemnifying Party in defending such claim or litigation. No Indemnifying Party, in the defense of any such claim or litigation, will, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Subject to the foregoing, the Indemnifying Party will promptly 58 advance all expenses incurred by the Indemnified party in connection with the investigation and defense of any claim as to which indemnity may be sought pursuant to this Agreement after written request therefor (but no earlier than incurred) by the Indemnified Party to the Indemnifying Party. The Indemnified Party will repay such amounts advanced if and to the extent that it is ultimately determined that the Indemnified Party is not entitled to indemnification or contribution under this Agreement. (d) If the indemnification provided for in this Section 1.6 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 thereunder, will 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 which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party will be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in any underwriting agreement entered into in connection with the relevant public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement will be controlling. 1.7 Lockup Agreement. In consideration for EMCON agreeing to its obligations under this Section 1, each Holder agrees, in connection with the registration of EMCON's securities, that upon the request of EMCON or the Underwriter, such Holder will not sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in the registration) without the prior written consent of EMCON or Underwriter, as the case may be, for a period of up to 180 days after the effective date of such registration; provided, however, that such Holder will have no obligation to enter into the agreement described herein unless all executive officers and directors of EMCON are required to enter into similar agreements. 1.8 Information by Holder. As a condition to the inclusion of their Registrable Securities, the Holder or Holders of Registrable Securities included in any registration will furnish to EMCON such information regarding such Holder or Holders and the distribution proposed by such Holder or Holders as EMCON may request in writing and as will be reasonably required in connection with any registration, qualification or compliance contemplated in Section 1.2 of this Agreement. 1.9 Rule 144 Reporting. With a view to making available to the Holders the benefits of certain rules and regulations of the Commission which may permit the sale of the Registrable Securities to the public without registration, EMCON agrees to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act; 59 (b) Use its best efforts to file with the Commission in a timely manner all reports and other documents required of EMCON under the Securities Act and the Exchange Act; (c) So long as a Holder owns any unregistered Registrable Securities, furnish to such Holder upon request a written statement by EMCON as to its compliance with the reporting requirements of said Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of EMCON, and such other reports and documents of EMCON as such Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. 1.10 Termination of Registration Rights. The obligations of EMCON pursuant to this Section 1 will terminate with respect to any Holder, when all of the Registrable Securities of such Holder may be sold under Rule 144 in a three-month period. 2. Miscellaneous. 2.1 Waivers and Amendments. With the written consent of EMCON and the record holders of a majority of the outstanding Registrable Securities, any provision of this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely) or amended, and with the same consent EMCON, when authorized by its Board of Directors, may enter into a supplementary agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement. Any waiver, amendment or supplement to which such consents are obtained will be binding upon all Holders. Upon the effectuation of each such waiver, amendment or supplement, EMCON will promptly give written notice thereof to the Holders who have not previously received notice thereof or consented thereto in writing. In addition, each Holder, as to such Holder only, may consent in writing to any such waiver, amendment or supplement, which will be binding upon such Holder. No amendment, waiver or supplement to this Agreement will be effective unless agreed to in writing by the party against whom enforcement is sought or, in the case of any Holder, by such Holder or Holders of a majority of the outstanding Registrable Securities. 2.2 Governing Law. This Agreement will be governed in all respects by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within California. 2.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof will inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 2.4 Entire Agreement This Agreement, the exhibits to this Agreement and the other documents delivered pursuant hereto or incorporated by reference herein constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof and supersede all prior oral and written understandings, agreements and commitments by or between the parties hereto. 2.5 Notices, etc. All notices and other communications required or permitted hereunder will be in writing and will be mailed by certified or registered mail, postage prepaid, 60 addressed (a) if to a party other than EMCON, at the address of such party set forth on such party's signature page to this Agreement, or at such other address as such party furnishes to EMCON in writing, or (b) if to EMCON, at 400 S. El Camino Real, Suite 1200 San Mateo, CA 94402, Attention: Chief Financial Officer, or at such other address as EMCON furnishes to the other parties to this Agreement. 2.6 No Waivers. No failure on the part of any party to exercise or delay in exercising any right hereunder will be deemed a waiver thereof, nor will any such failure or delay, or any single or partial exercise of any such right, preclude any further or other exercise of such right or any other right. 2.7 Separability. If any provision of this Agreement, or the application thereof, is for any reason and to any extent determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Agreement and the application of such provision to other persons or circumstances will be interpreted so as best to reasonably effect the intent of the parties hereto. The parties agree to use their best efforts to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision which will achieve, to the extent greatest possible, the economic, business and other purposes of the void or unenforceable provision. 2.8 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 2.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which will be an original, but all of which together will constitute one instrument. 2.10 Attorneys' Fees. In the event of any action, suit or proceeding for the breach of this Agreement or misrepresentation by any party, the prevailing party will be entitled to reasonable attorneys' fees, costs and expenses incurred in such action, suit or proceeding. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 61 IN WITNESS WHEREOF, the parties hereby have executed this Agreement on the date first above written. EMCON By:\o\ R. Michael Momboisse ------------------------------ Its: CFO and VP Legal ---------------------------- SHAREHOLDERS: \o\ William J. Hengemihle --------------------------------- William J. Hengemihle 51 Casselberry Drive Audubon, Pennsylvania 19403 \o\ Christopher M. Wittenbrink --------------------------------- Christopher M. Wittenbrink 2715 South Pierce Street Denver, Colorado 80227 \o\ Timothy M. Keaten --------------------------------- Timothy M. Keaten 3048 East Clairton Drive Highlands Ranch, Colorado 80126 62 EX-10.30 4 SECURED PROMISSORY NOTE EXHIBIT 10.30 SECURED PROMISSORY NOTE $225,000 April 3, 1998 FOR VALUE RECEIVED, the undersigned, Timothy M. Keaten ("Borrower"), hereby promises to pay to EMCON, a California corporation ("Lender"), or order, the principal sum of Two Hundred Twenty-Five Thousand Dollars ($225,000), together with accrued interest as provided herein. A. Interest. Interest shall accrue with respect to the principal sum hereunder at the per annum rate equal to eight percent (8.0%). Interest payable hereunder shall be calculated on the basis of a three hundred sixty (360) day year for actual days elapsed. Interest shall be due and payable in arrears on the first day of each third calendar month, commencing with the first month after the date hereof. B. Payment. 1. Scheduled Payment. The principal indebtedness plus accrued interest thereon shall be payable in full on the third anniversary of the date hereof (the "Payment Date"). 2. Optional Prepayment. Borrower shall have the right at any time and from time to time to prepay, in whole or in part, the principal of this Note, without payment of any premium or penalty. Any principal prepayment shall be accompanied by a payment of all interest accrued on the amount prepaid through the date of such prepayment. 3. Form of Payment. Principal and interest and all other amounts due hereunder are to be paid in lawful money of the United States of America in federal or other immediately available funds. At the option of Borrower, on the Payment Due Date, Borrower may assign all right, title and interest to the Collateral (as defined herein) to Lender and Lender shall apply the Fair Market Value (as defined in this Section B(3)) of the Collateral to the Secured Obligations (as defined herein), provided that Lender's securities are listed on the Nasdaq National Market on the Payment Date. For the purposes of this Section B, the term "Fair Market Value" shall mean the average of the closing prices of Lender Common Stock for the seven trading days preceding the Payment Date, as reported on the Nasdaq National Market. If the Fair Market Value of the Collateral is insufficient to pay the full amount of the Secured Obligations, Borrower shall be liable for the deficiency as set forth above. C. Security Interest. 1. Grant of Security Interest. Borrower grants to Lender a security interest in the Collateral, as defined herein, to secure the payment of all of the indebtedness hereunder (the "Secured Obligations"). Notwithstanding the foregoing, Borrower acknowledges that this Note is a full recourse note and that the undersigned is liable for full payment of this Note without regard to the value at any time or from time to time of the Collateral. In the event of any default in the payment of this Note, the Company shall have and may exercise any and all remedies of a secured party under the California Commercial Code, and any other remedies available at law or in equity, with respect to the Collateral. 63 2. Representations and Warranties Regarding Collateral. Borrower represents and warrants to Lender that Borrower is the true and lawful owner of the Collateral, having good and marketable title thereto, free and clear of any and all Liens other than the Lien and security interest granted to Lender hereunder. Borrower shall not create or assume any such Lien on or against any of the Collateral except as created or permitted by this Note, and Borrower shall promptly notify Lender of any such other Lien against the Collateral and shall defend the Collateral against, and take all such action as may be necessary to remove or discharge, any such Lien. 3. Perfection of Security Interest. Borrower agrees to take all actions requested by Lender and reasonably necessary to perfect, to continue the perfection of, and to otherwise give notice of, the Lien granted hereunder, including, but not limited to, execution of financing statements. D. Events of Default. 1. Definition of Event of Default. The occurrence of any one or more of the following events shall constitute an "Event of Default" hereunder, provided that Borrower has been provided written notice of such Event of Default and has not cured such Event of Default with twenty (20) days of receipt of such notice: (i) Borrower's breach of the obligation to pay any amount payable hereunder on the date that it is due and payable; (ii) Borrower's institution of proceedings against it, or Borrower's filing of a petition or answer or consent seeking reorganization or release, under the federal Bankruptcy Code, or any other applicable federal or state law relating to creditor rights and remedies, or Borrower's consent to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee or other similar official of Borrower or of any substantial part of its property, or Borrower's making of an assignment for the benefit of creditors, or the taking of action in furtherance of such action; (iii) the creation (whether voluntary or involuntary) of, or any attempt to create, any Lien upon any of the Collateral, or the making or any attempt to make any levy, seizure or attachment thereof and such Lien, levy, seizure, or attachment has not been removed, discharged or rescinded within ten (10) days, provided that the Fair Market Value (as defined in Section D(2)(a) below) of the Collateral is less than 110% of the aggregate amount of the Secured Obligations; (iv) the entry of any judgment or order against Borrower which remains unsatisfied or undischarged and in effect for thirty (30) days after such entry without a stay of enforcement or execution, provided that the Fair Market Value (as defined in Section D(2)(a) below) of the Collateral is less than 110% of the aggregate amount of the Secured Obligations. (v) Borrower's breach of any representation, warranty, covenant or agreement of Borrower set forth in the Agreement and Plan of Reorganization by and among Lender, Borrower, Advanced Analytical Solutions, Inc. ("A2S"), the Shareholders of A2S and Advanced Analytical Solutions Delaware, Inc. dated April 3, 1998. 64 2. Rights and Remedies on Event of Default. (a) During the continuance of an Event of Default and prior to Lender invoking its rights set forth below, Lender agrees that upon assignment by Borrower to Lender of all of Borrower's right, title and interest to the Collateral, Lender shall apply the Fair Market Value (as defined in this Section D(2)(a)) of the Collateral to the Secured Obligations as payment for such Secured Obligations. For the purposes of this Section D, the term "Fair Market Value" shall mean shall mean the average of the closing prices of Lender Common Stock for the seven trading days preceding the initial date the Event of Default first occurred, as reported on the Nasdaq National Market. If the Fair Market Value of the Collateral is insufficient to cover the full amount of the Secured Obligations, Borrower shall be liable for the deficiency and Lender shall be entitled to fully exercise its rights set forth below. Notwithstanding the foregoing, in the event that Lender's securities are not listed on the Nasdaq National Market at the time of an Event of Default, this Section D(2)(a) shall have no effect and Lender shall be entitled to fully exercise its rights set forth below. (b) During the continuance of an Event of Default, Lender shall have the right, itself or through any of its agents, with or without notice (except as provided in Section D(1) above) to Borrower (as provided below), as to any or all of the Collateral, by any available judicial procedure, or without judicial process (provided, however, that it is in compliance with the UCC), to exercise any and all rights afforded to a secured party under the UCC or other applicable law. Without limiting the generality of the foregoing, Lender shall have the right to sell or otherwise dispose of all or any part of the Collateral, either at public or private sale, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such terms and conditions, all as Lender, in its sole discretion, may deem advisable, and it shall have the right to purchase at any such sale. Borrower agrees that a notice sent at least fifteen (15) days before the time of any intended public sale or of the time after which any private sale or other disposition of the Collateral is to be made shall be reasonable notice of such sale or other disposition. The proceeds of any such sale, or other Collateral disposition shall be applied, first to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like, and to Lender's reasonable attorneys' fees and legal expenses, and then to the Secured Obligations and to the payment of any other amounts required by applicable law, after which Lender shall account to Borrower for any surplus proceeds. If, upon the sale or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which Lender is legally entitled, Borrower shall be liable for the deficiency, together with interest thereon at the Default Rate, and the reasonable fees of any attorneys Lender employs to collect such deficiency. To the extent permitted by applicable law, Borrower waives all claims, damages and demands against Lender arising out of the retention or sale or lease of the Collateral or other exercise of Lender's rights and remedies with respect thereto. (c) To the extent permitted by law, Borrower covenants that it will not at any time insist upon or plead, or in any manner whatever claim or take any benefit or advantage of, any stay or extension law now or at any time hereafter in force, nor claim, take or insist upon any benefit or advantage of or from any law now or hereafter in force providing for the valuation or appraisal of the Collateral or any part thereof, prior to any sale or sales thereof to be made pursuant to any provision herein contained, or the decree, judgment or order of any court of competent jurisdiction; or, after such sale or sales, claim or exercise any right under any statute now or hereafter made or enacted by any state or otherwise to redeem the property so sold or any part thereof, and, to the full extent legally permitted, hereby expressly waives all benefit and advantage of any such law or laws, and covenants that it will not invoke or utilize any such law or 65 laws or otherwise hinder, delay or impede the execution of any power herein granted and delegated to Lender, but will suffer and permit the execution of every such power as though no such power, law or laws had been made or enacted. (d) Any sale, whether under any power of sale hereby given or by virtue of judicial proceedings, shall operate to divest all Borrower's right, title, interest, claim and demand whatsoever, either at law or in equity, in and to the Collateral sold, and shall be a perpetual bar, both at law and in equity, against Borrower, its successors and assigns, and against all persons and entities claiming the Collateral sold or any part thereof under, by or through Borrower, its successors or assigns. (e) Borrower appoints Lender, and any officer, employee or agent of Lender, with full power of substitution, as Borrower's true and lawful attorney-in-fact, effective as of the date hereof, with power, in its own name or in the name of Borrower, during the continuance of an Event of Default, to endorse any notes, checks, drafts, money orders, or other instruments of payment in respect of the Collateral that may come into Lender's possession, to sign and endorse any drafts against debtors, assignments, verifications and notices in connection with accounts, and other documents relating to Collateral; to pay or discharge taxes or Liens at any time levied or placed on or threatened against the Collateral; to demand, collect, issue receipt for, compromise, settle and sue for monies due in respect of the Collateral; to notify persons and entities obligated with respect to the Collateral to make payments directly to Lender; and, generally, to do, at Lender's option and at Borrower's expense, at any time, or from time to time, all acts and things which Lender deems necessary to protect, preserve and realize upon the Collateral and Lender's security interest therein to effect the intent of this Note, all as fully and effectually as Borrower might or could do; and Borrower hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable as long as any of the Secured Obligations are outstanding. (f) All of Lender's rights and remedies with respect to the Collateral, whether established hereby or by any other agreements, instruments or documents or by law shall be cumulative and may be exercised singly or concurrently. E. Other Provisions. 1. Definitions. As used herein, the following terms shall have the following meanings: "Collateral" means all of Borrower's right, title and interest in 55,944 shares of the capital stock of EMCON, a California corporation, owned beneficially and of record by borrower. "Lien" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge, claim or other encumbrance of any kind (including any conditional sale or other title retention agreement, and any agreement to give any security interest) and any agreement to give or refrain from giving a lien, mortgage, pledge, hypothecation, assignment, deposit arrangement, security interest, charge, claim or other encumbrance of any kind. "UCC" means the Uniform Commercial Code in effect from time to time in the relevant jurisdiction. 66 2. Governing Law; Venue. This Note shall be governed by the laws of the State of California, without giving effect to conflicts of law principles. Borrower and Lender agree that all actions or proceedings arising in connection with this Note shall be tried and litigated only in the state and federal courts located in the County of San Mateo, State of California or, at Lender's option, any court in which Lender determines it is necessary or appropriate to initiate legal or equitable proceedings in order to exercise, preserve, protect or defend any of its rights and remedies under this Note or otherwise or to exercise, preserve, protect or defend its Lien, and the priority thereof, against the Collateral, and which has subject matter jurisdiction over the matter in controversy. Borrower waives any right it may have to assert the doctrine of forum non conveniens or to object to such venue, and consents to any court ordered relief. Borrower waives personal service of process and agrees that a summons and complaint commencing an action or proceeding in any such court shall be promptly served and shall confer personal jurisdiction if served by registered or certified mail to Borrower. If Borrower fails to appear or answer any summons, complaint, process or papers so served within thirty (30) days after the mailing or other service thereof, it shall be deemed in default and an order of judgment may be entered against it as demanded or prayed for in such summons, complaint, process or papers. The choice of forum set forth herein shall not be deemed to preclude the enforcement of any judgment obtained in such forum, or the taking of any action under this Note to enforce the same, in any appropriate jurisdiction. 3. Notices. Any notice or communication required or desired to be served, given or delivered hereunder shall be in the form and manner specified below, and shall be addressed to the party to be notified as follows: If to Lender: EMCON 400 S. El Camino Real, Suite 200 San Mateo, California 94402 Attention: R. Michael Momboisse, Chief Financial Officer Fax: (650) 375-0763 Phone: (650) 375-1522 If to Borrower: Timothy M. Keaten 3048 East Clairton Drive Highlands Ranch, Colorado 80126 Fax: (303) 292-3883 Phone: (303) 296-8880 or to such other address as each party designates to the other by notice in the manner herein prescribed. Notice shall be deemed given hereunder if (i) delivered personally or otherwise actually received, (ii) sent by overnight delivery service, (iii) mailed by first-class United States mail, postage prepaid, registered or certified, with return receipt requested, or (iv) sent via telecopy machine with a duplicate signed copy sent on the same day as provided in clause (ii) above. Notice mailed as provided in clause (iii) above shall be effective upon the expiration of three (3) business days after its deposit in the United States mail, and notice telecopied as provided in clause (iv) above shall be effective upon receipt of such telecopy if the duplicate signed copy is sent under clause (iv) above. Notice given in any other manner described in this section shall be effective upon receipt by the addressee thereof; provided, however, that if any notice is tendered to an addressee and delivery thereof is refused by such addressee, such notice shall be effective upon such tender unless expressly set forth in such notice. 67 4. Lender's Rights; Borrower Waivers. Lender's acceptance of partial or delinquent payment from Borrower hereunder, or Lender's failure to exercise any right hereunder, shall not constitute a waiver of any obligation of Borrower hereunder, or any right of Lender hereunder, and shall not affect in any way the right to require full performance at any time thereafter. Except as otherwise specifically provided herein, Borrower waives presentment, diligence, demand of payment, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. In any action on this Note, Lender need not produce or file the original of this Note, but need only file a photocopy of this Note certified by Lender be a true and correct copy of this Note in all material respects. 5. Enforcement Costs. Borrower shall pay all costs and expenses, including, without limitation, reasonable attorneys' fees and expenses Lender expends or incurs in connection with the enforcement of this Note, the collection of any sums due hereunder, any actions for declaratory relief in any way related to this Note, or the protection or preservation of any rights of the holder hereunder. 6. Severability. Whenever possible each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision is prohibited by or invalid under applicable law, it shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of the provision or the remaining provisions of this Note. 7. Amendment Provisions. This Note may not be amended or modified, nor may any of its terms be waived, except by written instruments signed by Borrower and Lender. 8. Binding Effect. This Note shall be binding upon, and shall inure to the benefit of, Borrower and the holder hereof and their respective successors and assigns; provided, however, that Borrower's rights and obligations shall not be assigned or delegated without Lender's prior written consent, given in its sole discretion, and any purported assignment or delegation without such consent shall be void ab initio. 9. Time of Essence. Time is of the essence of each and every provision of this Note. 10. Headings. Section headings used in this Note have been set forth herein for convenience of reference only. Unless the contrary is compelled by the context, everything contained in each section hereof applies equally to this entire Note. BORROWER By_________________________________ Timothy M. Keaten 68 EX-27 5 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated balance sheets, consolidated statements of income and consolidated statements of cash flows included in the Company's Form 10-Q for the three month period ended March 31, 1997, and is qualified in its entirety by reference to such financial statements and the notes thereto. U.S. DOLLARS 3-MOS DEC-31-1998 JAN-1-1998 MAR-31-1998 1 7,356,000 0 32,439,000 972,000 2,703,000 51,111,000 31,618,000 16,097,000 89,854,000 18,200,000 0 42,193,000 0 0 0 89,854,000 25,822,000 25,822,000 13,822,000 13,822,000 11,579,000 73,000 293,000 55,000 35,000 20,000 0 0 0 20,000 0.00 0.00
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