-----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, AbLrR5KPufqQnkx6dKs1KmcdVukZuAg+VUsTugSURmgOnMih5U/eFgCnHvNsp4b3 srEOGgX6HNhcGRl6zZm0Ww== 0000950109-97-005376.txt : 19970814 0000950109-97-005376.hdr.sgml : 19970814 ACCESSION NUMBER: 0000950109-97-005376 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENVIROGEN INC CENTRAL INDEX KEY: 0000863815 STANDARD INDUSTRIAL CLASSIFICATION: HAZARDOUS WASTE MANAGEMENT [4955] IRS NUMBER: 222899415 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20404 FILM NUMBER: 97658156 BUSINESS ADDRESS: STREET 1: 4100 QUAKERBRIDGE RD STREET 2: PRINCETON RESEARCH CENTER CITY: LAWRENCEVILLE STATE: NJ ZIP: 08648 BUSINESS PHONE: 6099369300 MAIL ADDRESS: STREET 1: PRINCETON RESEARCH CENTER STREET 2: 4100 QUAKERBRIDGE RD CITY: LAWRENCEVILLE STATE: NJ ZIP: 08648 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 - -------------------------------------------------------------------------------- For Quarter Ended June 30, 1997 Commission File Number 0-20404 ENVIROGEN, INC. --------------- (Exact name of registrant as specified in its charter) Delaware 22-2899415 -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 4100 Quakerbridge Road Princeton Research Center Lawrenceville, NJ 08648 ----------------------- (Address of principal executive offices) (609) 936-9300 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the Registrant's Common Stock, $.01 par value, as of June 30, 1997 was 23,161,635. - -------------------------------------------------------------------------------- ENVIROGEN, INC. TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE ---- ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets at June 30, 1997 and December 31, 1996 (Unaudited) 3 Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1997 and 1996 (Unaudited) 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General 8 Results of Operations 9 Liquidity and Capital Resources 10 Other Matters 11 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13 SIGNATURE PAGE 14
2 PART I - FINANCIAL INFORMATION - ------------------------------ ITEM 1. FINANCIAL STATEMENTS ENVIROGEN, INC. CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31, 1997 1996 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $4,653,627 $4,614,062 Accounts receivable-trade, net 6,420,478 3,100,447 Unbilled revenue 4,318,647 1,776,004 Inventory 55,027 55,027 Prepaid expenses and other current assets 697,484 175,941 ------------ ------------ Total current assets 16,145,263 9,721,481 Property and equipment, net 1,712,514 922,320 Restricted cash 309,300 309,300 Investment in and advances to joint venture 411,873 228,934 Intangible assets, net 24,506,464 1,348,677 Other assets 302,349 185,912 ------------ ------------ Total assets $43,387,763 $12,716,624 ============ ============ LIABILITIES Current liabilities: Accounts payable $2,543,781 $1,335,954 Accrued expenses and other liabilities 1,413,047 955,886 Reserve for PECFA claim adjustments 2,610,004 Deferred revenue 429,088 312,784 Current portion of note payable 1,988 4,287 Current portion of capital lease obligations 18,707 18,304 ------------ ------------ Total current liabilities 7,016,615 2,627,215 Deferred rent 12,222 Capital lease obligations, net of current portion 19,616 29,954 ------------ ------------ Total liabilities 7,036,231 2,669,391 ------------ ------------ Commitments and contingencies STOCKHOLDERS' EQUITY Common stock 232,211 129,319 Additional paid-in capital 58,549,361 31,925,861 Accumulated deficit (22,424,090) (22,001,997) Less: Treasury stock (5,950) (5,950) ------------ ------------ Total stockholders' equity 36,351,532 10,047,233 ------------ ------------ Total liabilities and stockholders' equity $43,387,763 $12,716,624 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 3 ENVIROGEN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, -------------------------------- -------------------------------- 1997 1996 1997 1996 ------------- ------------- ------------- ------------- Revenues: Commercial operations $6,942,247 $2,794,263 $8,707,219 $5,017,518 Research and development services 698,040 399,267 1,387,778 850,536 ------------- ------------- ------------- ------------- Total revenues 7,640,287 3,193,530 10,094,997 5,868,054 ------------- ------------- ------------- ------------- Cost of commercial operations 4,376,398 2,569,548 5,946,019 4,684,707 Provision for contract claim 362,053 400,000 Research and development costs 695,656 553,379 1,337,473 1,153,319 Marketing, general and administrative expenses 2,364,430 708,833 3,223,378 1,368,929 ------------- ------------- ------------- ------------- Total costs and expenses 7,436,484 4,193,813 10,506,870 7,606,955 ------------- ------------- ------------- ------------- Other income (expense): Interest income 69,374 24,125 125,763 60,352 Interest expense (10,690) (6,765) (14,007) (12,844) Equity in (loss) income of joint venture (82,710) (12,844) (147,673) 78,787 Other, net 25,697 25,697 ------------- ------------- ------------- ------------- Other income (expense), net 1,671 4,516 (10,220) 126,295 ------------- ------------- ------------- ------------- Net income (loss) 205,474 (995,767) (422,093) (1,612,606) Preferred stock dividends (14,583) (36,458) ------------- ------------- ------------- ------------- Net income (loss) applicable to Common Stock $205,474 ($1,010,350) ($422,093) ($1,649,064) ============= ============= ============= ============= Net income (loss) per share applicable to Common Stock $0.01 ($0.09) ($0.02) ($0.16) ============= ============= ============= ============= Weighted average number of shares of Common Stock outstanding 20,877,022 10,805,890 17,282,292 10,093,463 ============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 4 ENVIROGEN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, --------------------------------------- 1997 1996 ----------------- ------------------ Cash flows from operating activities: Net loss ($422,093) ($1,612,606) Adjustments to reconcile net loss to cash used by operating activities: Depreciation and amortization 704,994 455,099 Provisions for PECFA claim adjustments and doubtful accounts 228,156 41,400 Equity in (income) loss of joint venture 147,673 (78,787) Other (552) 549 Changes in assets and liabilities: (Increase) decrease in accounts receivable 893,494 (485,382) (Increase) decrease in unbilled revenue (802,176) 111,132 (Increase) in prepaid expenses and other current assets (252,227) (19,086) Decrease in inventory 1,031 (Increase) in restricted cash (89,782) (Increase) decrease in other assets (116,437) 5,385 (Decrease) in accounts payable (1,821,487) (27,737) Increase (decrease) in accrued expenses and other liabilities (275,320) 52,701 (Decrease) in reserve for PECFA claim adjustments (47,702) Increase (decrease) in deferred revenue 116,304 (62,821) ------------------ -------------- Net cash used by operating activities (1,647,373) (1,708,904) ------------------ -------------- Cash flows from investing activities: Capital expenditures (243,614) (139,975) Investment in and advances to joint venture (254,694) (100,000) Purchase of FMI (13,550,410) Purchase of MWR, Inc. (1,319,018) Proceeds from sale of equipment 21,500 1,600 ------------------ -------------- Net cash used in investing activities (14,027,218) (1,557,393) ------------------ -------------- Cash flows from financing activities: Debt repayment (2,299) (2,123) Capital lease principal repayments (9,935) (84,322) Net proceeds from exercise of stock options 3,265 14,355 Net proceeds from issuance of Common Stock 15,723,125 4,656,376 Cash dividends paid on Redeemable Cumulative Convertible Preferred Stock (51,041) ------------------ -------------- Net cash provided by financing activities 15,714,156 4,533,245 ------------------ -------------- Net increase in cash and cash equivalents 39,565 1,266,948 Cash and cash equivalents at beginning of period 4,614,062 3,748,197 ------------------ -------------- Cash and cash equivalents at end of period $4,653,627 $5,015,145 ================== ============== Supplemental disclosures of cash flow information: - -------------------------------------------------- Cash paid for interest $9,403 $10,361 ================== ============== Cash paid for income taxes $7,954 $1,250 ================== ============== Supplemental disclosures of non-cash investing and financing activities: - ------------------------------------------------------------------------ - -The Company entered into capital lease obligations amounting to $22,350 for the six months ended June 30, 1996. - -In April 1997, the Company acquired FMI for $12,163,744 in cash and 4,190,477 shares of Common Stock valued at $11,000,002. In connection with the acquisition, the Company also paid $1,386,666 of FMI's outstanding debt. - -In February 1996, the Company purchased MWR, Inc. for $1,319,018 in cash and 456,500 shares of Common Stock valued at $1,511,015.
The accompanying notes are an integral part of these consolidated financial statements. 5 ENVIROGEN, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION --------------------- The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The financial information presented reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods. The results for the interim periods are not necessarily indicative of the results to be expected for the entire year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K for the fiscal year ended December 31, 1996. Certain reclassifications have been made to conform prior year's presentation with the 1997 financial statement presentation. 2. ACQUISITION OF FLUID MANAGEMENT, INC. ------------------------------------ On April 10, 1997, the Company acquired Fluid Management, Inc. (FMI) of Pewaukee, Wisconsin for approximately $12.2 million in cash and 4,190,477 shares of the Company's common stock valued at $11,000,002. In connection with the acquisition, the Company also paid approximately $1.4 million of FMI's outstanding debt. A portion of the purchase price is being held in escrow to satisfy the sellers' indemnification obligations under the Merger Agreement. FMI is a full-service environmental consulting and engineering firm with offices in Pewaukee, La Crosse, Ashwaubenon and Mosinee, Wisconsin and Geneva, Illinois. FMI was merged into the Company and the acquisition has been accounted for under the purchase method of accounting. The excess of the aggregate purchase price over the fair market value of net assets acquired resulted in goodwill of $23,530,200 and is being amortized over 20 years. The operating results of the acquisition are included in the Company's consolidated results of operations from the date of acquisition. 6 The following pro forma financial information assumes the acquisition occurred at the beginning of the period presented and does not purport to be indicative of what would have occurred had the acquisition been made as of that date or of results which may occur in the future.
Six Months Ended Six Months Ended June 30, 1997 June 30, 1996 ---------------- ---------------- Net revenues $16,444,822 $14,513,007 Net loss ($325,043) ($285,173) Net loss per share applicable to Common Stock ($0.01) ($0.01) Weighted average number of shares of Common Stock outstanding 23,159,844 20,379,178
3. PRIVATE PLACEMENT OF COMMON STOCK --------------------------------- On April 10, 1997, the Company issued 6,095,238 shares of common stock to Warburg, Pincus Ventures, L.P. ("Warburg Pincus") resulting in net proceeds of $15,723,125. The net proceeds from the financing were used to fund the cash portion of the FMI acquisition and will also supplement the working capital of the combined enterprise. An officer of Warburg Pincus was elected to the Company's Board of Directors at its 1997 annual meeting. 4. EARNINGS PER SHARE ------------------ In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 establishes standards for computing and presenting earnings per share ("EPS") and supersedes APB Opinion No. 15, "Earnings Per Share" ("Opinion 15"). SFAS 128 replaces the presentation of primary EPS with a presentation of basic EPS which excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. This statement also requires dual presentation of basic EPS and diluted EPS on the face of the income statement for all periods presented. Diluted EPS is computed similarly to fully diluted EPS pursuant to Opinion 15, with some modifications. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. Early adoption is not permitted and the statement requires restatement of all prior- period EPS data presented after the effective date. The Company will adopt SFAS 128 effective with its 1997 year-end. If SFAS 128 had been adopted at June 30, 1997, there would have been no significant change in the EPS as reflected in the accompanying financial statements for the periods ended June 30, 1997 and 1996. 5. SUBSEQUENT EVENT ---------------- On August 8, 1997, the Company issued 100,000 shares of common stock to N.V. VAM ("VAM") in exchange for the transfer by VAM to the Company of (i) VAM's 50% ownership interest in CVT America L.L.C. (a joint venture between the Company and VAM) and (ii) certain patents and proprietary technology related to the biological treatment of chemical contaminants in air streams. CVT America was dissolved upon the closing of the transaction. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the Company's unaudited consolidated financial statements and notes thereto included in this Quarterly Report, the consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Form 10-K for the fiscal year ended December 31, 1996 and the Proxy Statement for the April 9, 1997 Annual Meeting of Stockholders. General - ------- The source of the Company's revenues to date includes (i) remediation services, including both in situ and ex situ bioremediation, (ii) commercial sales of the Company's biological degradation systems, and (iii) funds received from third parties and government agencies to conduct specific research and development programs. While the Company has realized significant commercial revenues for several years from remediation services, it has only recently seen the first substantial revenues from sales of full-scale biological degradation systems for the treatment of contaminated air and water streams. Although great strides have been made in the commercialization of these systems, significant expenditures will be required for continued research and development, additional marketing activities and ultimately the development of manufacturing capabilities for the further commercialization of the Company's biodegradation systems. The amount and timing of such expenditures will vary depending on several factors, including the progress of development and testing, funding from third parties, the level of enforcement of environmental regulations by federal and state agencies, technological advances, changing competitive conditions and determinations with respect to the commercial potential of the Company's systems. The amount and timing of such expenditures cannot be predicted. On April 10, 1997 the Company acquired FMI, a full-service environmental consulting and engineering firm that is now operated as the Company's FMI Operations Group. Remediation services are FMI's core business and generate the greatest portion of FMI's revenues. The majority of FMI's work is eligible for reimbursement to its clients (or their lending banks) under the Wisconsin Petroleum Environmental Cleanup Fund Act ("PECFA"). Review of the PECFA claims by the Wisconsin Department of Commerce ("DCOM") and determination of any ineligible costs typically is not completed until one to three years after the expense has been incurred and paid by FMI's client (or its bank). This exposes the client to the risk that remediation expenses it incurs and pays ultimately may be disallowed for PECFA reimbursement by DCOM. While not contractually obligated to do so, FMI has established an unwritten policy of repaying to its clients (or their lending banks) remediation costs for services provided by FMI which ultimately are determined by DCOM to be ineligible for reimbursement under PECFA. A reserve is maintained against such PECFA ineligible costs. Through June 30, 1997, FMI has recorded approximately $42 million in PECFA reimbursable revenues which DCOM had not yet reviewed. The reserve balance for PECFA ineligible reimbursements as of June 30, 1997 was approximately $2.6 million. As a result of the acquisition of FMI in April 1997, the results of operations of the Company during the 1996 and 1997 periods presented may not be directly comparable. 8 Results of Operations - --------------------- Six Months Ended June 30, 1997 Compared to - ------------------------------------------ Six Months Ended June 30, 1996 - ------------------------------ For the six months ended June 30, 1997, the Company reported total revenues of $10,094,997, an increase of 72% from the same period in 1996. The net loss in the period decreased 74% to $422,093 from $1,649,064 in the same period in 1996, while the net loss per share was $0.02 compared to $0.16 in the same period in 1996. The decrease in net loss per share is due to improved performance related to the FMI acquisition as well as an increase in the number of shares outstanding resulting from issuances in connection with the FMI acquisition and a related private placement. Commercial revenues increased 74% to $8,707,219 from $5,017,518 in the same period in 1996, while revenues from corporate and government research and development contracts increased 63% to $1,387,778 from $850,536 in the same period in 1996. The increased commercial revenues are due primarily to revenues from the Company's FMI Operations Group, which more than offset decreased revenues from the Company's pollution control business. The Company recognized significant revenues from the ABTco biofilter project during 1996, when the project was completed. Revenues from remediation activities accounted for essentially all of the Company's commercial revenues in the six-month period ended June 30, 1997. Revenues from corporate and government research and development contracts increased primarily due to the increased volume of Phase II government projects that the Company is actively working on. In the six-month period ended June 30, 1997, the Company recorded initial revenues under a Phase I grant from the National Science Foundation, a Phase II grant from the National Science Foundation, two Phase I SBIR grants and one Phase II grant from the Department of Defense, as well as two other grants from the Department of Defense. Total costs and expenses increased 38% to $10,506,870 in the first half of 1997 from $7,606,955 in the same period in 1996. The cost of commercial operations increased 27% to $5,946,019 primarily due to the increased revenue levels. Research and development expenses increased 16% to $1,337,473 due to an increase in work under corporate and government research and development contracts. Marketing, general and administrative expenses increased 135% to $3,223,378 due primarily to expenses of the FMI Operations Group, amortization of goodwill associated with the FMI acquisition and increased marketing expenses associated with the Company's arrangement with Rhone-Poulenc. In the first half of 1996 the Company set aside a provision for contract claim of $400,000 to cover the cost of repairing the biofiltration system the Company built for the Nylonge Corporation. The repairs to the system were completed and the system restarted in late 1996. The Company has incurred no costs in 1997 for the repair of this system. Interest income increased 108% to $125,763 due primarily to the increased level of cash available for investment as a result of the Company's private placement of common stock to Warburg Pincus in April 1997. Equity in loss of joint venture amounted to $147,673 in the first half of 1997 compared to income of $78,787 in the same period last year due primarily to the Company's participation in the losses of the CVT America joint venture. 9 Three Months Ended June 30, 1997 Compared to - -------------------------------------------- Three Months Ended June 30, 1996 - -------------------------------- For the three months ended June 30, 1997, the Company reported total revenues of $7,640,287, an increase of 139% from the same period in 1996. The Company reported net income of $205,474 in the period versus a loss of $1,010,350 in the same period of 1996. Net income per share was $0.01 compared to a loss of $0.09 in the same period in 1996. The change in per share amounts is due to improved performance related to the FMI acquisition as well as an increase in the number of shares outstanding resulting from issuances in connection with the FMI acquisition and a related private placement. Commercial revenues increased 148% to $6,942,247 from $2,794,263 in the same period in 1996, while revenues from corporate research and development contracts increased 75% to $698,040 from $399,267 in the same period in 1996. The increased commercial revenues are due primarily to revenues from the Company's FMI Operations Group, which more than offset decreased revenues from the Company's pollution control business. The Company recognized significant revenues from the ABTco biofilter project during 1996, when the project was completed. Revenues from remediation activities accounted for essentially all of the Company's commercial revenues in the three-month period ended June 30, 1997. Revenues from corporate and government research and development contracts increased primarily due to the greater volume of Phase II government projects that the Company is actively working on. In the three month period ended June 30, 1997, the Company recorded initial revenues under two Phase I SBIR's from the Department of Defense and two other grants from the Department of Defense. Total costs and expenses increased 77% to $7,436,484 in the second quarter of 1997 from $4,193,813 in the same period in 1996. The cost of commercial operations increased 70% to $4,376,398 due to the increased revenue levels. Research and development expenses increased 26% to $695,656 due to an increase in work under corporate and government research and development contracts. Marketing, general and administrative expenses increased 234% to $2,364,430 due primarily to expenses of the FMI Operations Group, amortization of goodwill associated with the FMI acquisition and increased marketing expenses associated with the Company's arrangement with Rhone-Poulenc. In the same period last year the Company set aside a provision for contract claim of $362,053 to cover the cost of repairing the biofiltration system the Company built for the Nylonge Corporation. The repairs to the system were completed and the system restarted in late 1996. The Company has incurred no costs in 1997 for the repair of this system. Interest income increased 188% to $69,374 due primarily to the increased level of cash available for investment as a result of the Company's private placement of common stock to Warburg Pincus. Equity in loss of joint venture increased to $82,710 for the second quarter of 1997 from $12,844 in the same period last year due primarily to the Company's participation in the CVT America joint venture. Liquidity and Capital Resources - ------------------------------- The Company has funded its operations to date primarily through public offerings and private placements of equity securities, research and development agreements with major industrial companies, research grants from government agencies and revenues from commercial services and sales of biological degradation systems. At June 30, 1997 the Company had cash and cash equivalents of $4,653,627 and working capital of $9,128,648. Additionally, the Company restricted cash of $309,300 10 that was being used to collateralize a bond for a large commercial project. Cash and cash equivalents increased $39,565 from December 31, 1996 to June 30, 1997 as proceeds from the issuance of common stock of $15,723,125 more than offset costs associated with the acquisition of FMI of $13,550,410, cash used by operations of $1,647,373 (including $1,322,785 to pay FMI accounts payable that were assumed by the Company as part of the FMI acquisition), cash invested in and advanced to CVT America of $254,694 and capital expenditures of $243,614. The Company expects to incur additional capital expenditures in connection with the continued development and commercialization of its technologies. The timing and amount of such expenditures will fluctuate depending on the timing of field tests, systems development activity, the rapidity with which the Company's biodegradation systems can be further commercialized and the availability of capital. Furthermore, future projects may require the Company to set aside additional capital to collateralize performance bonds. Revenue from certain of the Company's contracts is recognized as services are provided and costs are incurred. For fixed-price contracts, revenue is recognized on the percentage-of-completion method, measured by the percentage relationship of costs incurred from contract inception to date to the estimated total costs for each contract. The asset "Unbilled revenue" represents revenues recognized in excess of amounts billed. Correspondingly, the liability "Deferred revenue" represents billings in excess of costs and estimated earnings. The balance in these accounts will fluctuate depending on a number of factors, including the number and size of fixed-price contracts, contract terms and other timing and cost issues. At June 30, 1997, unbilled revenue was $2,542,643 higher than at December 31, 1996 due primarily to the increased revenue levels resulting from the FMI acquisition. Accounts receivable increased by $3,320,031 and prepaid expenses increased by $521,543 from December 31, 1996 to June 30, 1997 primarily due to the acquisition of FMI. Accounts payable increased by $1,207,827 and accrued expenses and other liabilities increased by $457,161 in the same period due to the acquisition of FMI. On June 30, 1997 the Company had $2,610,004 in reserve for PECFA claim adjustments with respect to approximately $42 million in PECFA reimbursable revenues which DCOM had not reviewed. It is anticipated that the Company's currently available cash and cash expected to be generated from the newly-combined operations will provide sufficient operating capital for the foreseeable future. Other Matters - ------------- As of December 31, 1996, the Company had a net operating loss carryforward of approximately $19,300,000 for federal income tax reporting purposes available to offset future taxable income, if any, through 2011. The timing and manner in which these losses may be utilized are limited under Section 382 of the Internal Revenue Code of 1986 to approximately $1,700,000 per year based on preliminary calculations of certain ownership changes to date and may be further limited in the event of additional ownership changes, if any, as a result of future equity issuances. 11 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders was held on April 9, 1997, and in connection therewith proxies were solicited by management pursuant to Regulation 14 under the Securities Exchange Act of 1934. The total number of outstanding shares of Common Stock entitled to vote at the meeting was 12,873,340. At the meeting the following matters (not including ordinary procedural matters) were submitted to a vote to the stockholders, with the results indicated below: 1. Approval to adopt the Agreement and Plan of Merger between the Company, ----------------------------------------------------------------------- Fluid Management, Inc. ("FMI") and the FMI stockholders. The Agreement and -------------------------------------------------------- Plan of Merger was approved allowing FMI to be merged with and into the Company, with the Company being the surviving corporation for 4,190,477 shares of Common Stock and $11,000,000 of cash, subject to adjustment pursuant to the Merger Agreement. The tabulation of votes was as follows: For Against Abstentions --- ------- ----------- 6,937,693 135,500 3,800 2. Approval to adopt the Securities Purchase Agreement between Warburg, Pincus --------------------------------------------------------------------------- Ventures, L.P. ("Warburg Pincus") and the Company. The Securities Purchase ------------------------------------------------- Agreement was approved allowing the Company to issue and sell to Warburg Pincus 6,095,238 shares of Common Stock for an aggregate cash purchase price of $16,000,000. The tabulation of votes was as follows: For Against Abstentions --- ------- ----------- 6,886,553 179,200 11,240 3. Approval to adopt and amend the Company's Amended and Restated Certificate -------------------------------------------------------------------------- of Incorporation. The Company's Amended and Restated Certificate of ----------------- Incorporation was further amended to increase the number of authorized shares of Common Stock from 20,000,000 shares to 50,000,000 shares. The tabulation of votes was as follows: For Against Abstentions --- ------- ----------- 7,441,380 143,000 135,090 4. Approval to adopt the Company's amended and restated 1990 Incentive Stock ------------------------------------------------------------------------- Option and Non-Qualified Stock Option Plan. The Plan was amended to ------------------------------------------- increase the aggregate maximum number of shares which may be issued under the Plan from 2,000,000 to 3,500,000. The tabulation of votes was as follows: For Against Abstentions --- ------- ----------- 6,694,635 511,363 17,965 12 5. Election of directors to serve until the 1998 Annual Meeting. The ------------------------------------------------------------- following persons, all of whom were management's nominees, were elected. Robert L. Hillas and William C. Smith are new directors. Seymour L. Meisel did not stand for reelection. There was no solicitation in opposition to such nominees. The tabulation of votes was as follows:
Nominee For Withheld ------- --- -------- Harcharan S. Gill 9,294,988 204,850 Robert F. Hendrickson 9,294,988 204,850 Robert S. Hillas 9,294,988 204,850 Robert F. Johnston 9,294,988 204,850 Robert C. Miller 9,294,938 204,900 Peter J. Neff 9,294,988 204,850 William C. Smith 9,294,988 204,850
6. Ratification of independent auditors. The appointment of Coopers & Lybrand ------------------------------------- L.L.P. as the Company's independent auditors was ratified. The tabulation of votes was as follows: For Against Abstentions --- ------- ----------- 9,454,798 39,200 5,840 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit No. Description ----------- ----------- 10.1 Employment Agreement dated April 10, 1997 between the Company and William C. Smith. 10.2 Employment Agreement dated April 10, 1997 between the Company and Douglas W. Jacobson. 10.3 Employment Agreement dated April 10, 1997 between the Company and Gary W. Hawk. 10.4 Employment Agreement dated April 10, 1997 between the Company and Richard W. Schowengerdt. 11 Statement re Computation of Per Share Earnings 27 Financial Data Schedule
(b) Reports on Form 8-K On April 10, 1997 the Company filed a Report on Form 8-K reporting the acquisition of Fluid Management, Inc., the issuance of Common Stock to Warburg, Pincus Ventures, L.P. and certain other matters. Such report on Form 8-K included the audited financial statements of FMI as of December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996 and certain unaudited pro forma financial information as of December 31, 1996 and for the year then ended. 13 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENVIROGEN, INC. (Registrant) Date: August 13, 1997 By: /s/ Harcharan S. Gill --------------------- Harcharan S. Gill President and Chief Executive Officer /s/ William C. Smith -------------------- William C. Smith Acting Chief Financial Officer 14 EX-10.1 2 EMPLOYMENT AGREEMENT Exhibit 10.1 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT is made as of this 10th day of April, 1997, between Envirogen, Inc., a Delaware corporation ("Envirogen"), and William C. Smith (the "Executive"). WHEREAS, Envirogen, Fluid Management, Inc., a Wisconsin corporation ("FMI"), and all of the stockholders of FMI, including Executive, have entered into an Agreement and Plan of Merger dated as of January 14, 1997 pursuant to which FMI will merge with and into Envirogen and Envirogen will be the surviving corporation (the "Merger"); WHEREAS, Executive has been employed by FMI as a senior executive officer pursuant to an Employment and Non-Compete Agreement dated June 5, 1995 (the "Previous Employment Agreement"); WHEREAS, an important factor in Envirogen's decision to acquire FMI and to effectuate the Merger is the assurance that, for a sufficient period following the Merger, Envirogen will have available the continued services of Executive and Executive will enter into certain confidentiality and non-competition agreements with Envirogen, all on the terms and conditions set forth herein, and that Executive will waive any and all rights to which he would otherwise have been entitled under Section 3(a) of the Previous Employment Agreement in connection with the Merger; and WHEREAS, as an inducement to Envirogen to consummate the Merger, Executive and Envirogen are entering into this Agreement, which supersedes in its entirety the Previous Employment Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. EMPLOYMENT A. Agreement. Envirogen hereby agrees to employ the Executive, and the --------- Executive hereby agrees to serve Envirogen, all on the terms and conditions set forth herein. B. Expiration Date. The employment of the Executive by Envirogen shall be --------------- for the period commencing on the date hereof and expiring on December 31, 1998 (the "Expiration Date"), unless such employment shall have been extended or sooner terminated as hereinafter set forth. On the Expiration Date, the Agreement shall be renewed automatically for successive terms of one year each unless either party hereto shall have given notice to the other party at least three months prior to the end of the then current Expiration Date that the Agreement shall not be renewed. Upon each such automatic renewal, the Expiration Date shall become the first anniversary of the last Expiration Date then in effect. As used herein, the term "Contract Year" means the twelve-month period beginning April 10 of each year this Agreement is in effect. 2. POSITION AND DUTIES. The Executive shall serve in the capacity or capacities and have the duties of Chairman of the Board of Directors of Envirogen, and President and Chief Executive Officer of the FMI Division of Envirogen, and shall report to, be accountable to and subject to the supervision of, and shall also have such other powers, duties and responsibilities as may from time to time be prescribed by, the Board of Directors of Envirogen, provided that such other duties and responsibilities are not inconsistent with the Executive's position and those duties set forth herein and in the bylaws of Envirogen. The Executive shall perform and discharge, faithfully, diligently and to the best of his ability, such duties and responsibilities. The Executive shall not, without the prior consent of the Board of Directors of Envirogen, accept a position on the Board of Directors of any company other than (i) Envirogen or a subsidiary thereof, (ii) HJS of Wisconsin, Inc. or (iii) any charitable or similar organization. The Executive shall devote substantially all his working time and efforts to the business and affairs of Envirogen and its subsidiaries and affiliates. The Executive represents to Envirogen that on the date hereof he is not party to any agreement which conflicts with his obligations hereunder and that he will not become party to any such agreement; should this representation prove false at any time, then Envirogen shall have no further obligations hereunder. 3. COMPENSATION A. Salary. During the term of his employment hereunder, the Executive ------ shall receive a Base Salary at the initial annual rate of $180,000. Such initial Base Salary shall be subject to increase, but not decrease, by the Board of Directors of Envirogen upon prior recommendation of the Executive Compensation and Stock Option Committee thereof. Base Salary shall be payable in substantially equal bi-weekly installments, less any amounts required to be withheld under applicable law. In the event that, during the term hereof, Envirogen shall determine to make salary payments to its executives at intervals other than bi-weekly, Envirogen may adjust the intervals at which it makes payments of Base Salary hereunder to such intervals as are consistent with the intervals at which other executives of Envirogen are then compensated. Except as otherwise provided in this Agreement, the Base Salary shall be pro-rated for any period of service less than a full Contract Year. B. Bonuses; Stock Options. The Executive will be eligible to receive an ---------------------- annual incentive bonus for each fiscal year of Envirogen this agreement is in effect based upon the obtainment of corporate and individual performance goals fixed by the Board of Directors of Envirogen upon the prior recommendation of the Executive Compensation and Stock Option Committee thereof. The Executive will also be eligible to receive grants of stock options under such stock option plans of Envirogen as are in effect from time to time in such amounts, and on such terms, as the committee or committees administering such plans may fix and determine. C. Expenses. During the term of his employment hereunder, the Executive -------- shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by him on behalf of Envirogen (in accordance with the policies and procedures established by the Board of Directors of Envirogen from time to time for Envirogen's senior executive officers) in performing services hereunder, provided that the Executive properly accounts therefor in accordance with requirements for federal income tax deductibility and Envirogen's policies and procedures. -2- D. Fringe Benefits. During the term of his employment hereunder, the --------------- Executive shall be entitled to participate in or receive such benefits as other executives and key employees of Envirogen are entitled to receive from time to time, including but not limited to life insurance, health and accident plans, retirement programs or other arrangements made generally available by Envirogen to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Nothing herein shall preclude Envirogen, during the term hereof, from amending, modifying or eliminating any such benefits so long as any such changes apply consistently to all executives and key employees of Envirogen. E. Vacations. During the term of his employment hereunder, the Executive --------- shall be entitled to twenty (20) paid vacation days in each calendar year (less, in 1997, those vacation days taken by the Executive in 1997 prior to the date hereof under the Previous Employment Agreement and, in any other year, prorated for any partial calendar year this Agreement is in effect), and shall also be entitled to all paid holidays given by Envirogen to its employees generally. Vacation days allotted in any calendar year and not used in such year shall expire if not used by March 31 of the immediately following calendar year. 4. RESTRICTIVE COVENANTS A. Non-competition. Executive covenants that he will not directly or --------------- indirectly own, manage, operate or control, nor be a director, officer or employee of, or consultant to, any business or enterprise competing with Envirogen or any affiliate of Envirogen, anywhere in (i) the 50 states of the United States, (ii) all of the provinces of Canada, and (iii) any other jurisdiction in which Envirogen derived in excess of $250,000 in revenues during the period this Agreement was in effect. For purposes hereof, a business competing with Envirogen shall mean any business (i) which does research with respect to, designs, develops, produces or manufactures any products which are the same as or substantially similar to or are intended for uses similar to those with respect to which Envirogen or any affiliate does research or which Envirogen or any affiliate designs, develops, produces or manufactures; or (ii) which furnishes services similar to those furnished by Envirogen or any affiliate. The provisions of this paragraph, however, shall not prohibit Executive from investing in the securities of any such business or enterprise which are traded publicly and constitute less than one percent (1%) of the particular class of such business's or enterprises's securities outstanding from time to time. The foregoing covenant shall be binding on Executive during his employment hereunder and for a period of two (2) years after termination of his employment hereunder. Furthermore, Executive agrees not to engage or participate in any effort or act to induce any of the associates, consultants, customers, officers or employees of Envirogen or any affiliate to take any action which might be disadvantageous to Envirogen or any affiliate. B. Disclosure and Assignment of Inventions; Patents. ----------------------------------------------- (a) Executive shall communicate to Envirogen promptly and fully, and hereby assigns, sells and transfers to Envirogen Executive's entire right, title and interest in and to, all inventions, whether or not patentable, made or conceived by Executive (alone or jointly with others and whether or not made or conceived during regular business hours) from the time of entering the employ of Envirogen or any affiliate until the termination thereof which (i) are related in any manner, directly or indirectly, to the business, products, research or development of Envirogen or any affiliate or (ii) result from or are suggested by any work which Executive may do for or on behalf of Envirogen or -3- any affiliate. For purposes of this Agreement, the term "invention" shall include, without limitation, any new, useful or original art, machine, process, method, product, apparatus, compound, formula, shape, lifeform, composition of matter or configuration of any kind. (b) Executive agrees to assist Envirogen and its nominees during and subsequent to his employment with Envirogen or any affiliate in every proper way (entirely at its or their expense) to obtain for its or their own benefit patents for such inventions in any and all countries, said inventions to be and remain the sole and exclusive property of Envirogen or its nominees, whether patented or not. (c) Executive agrees to make and maintain adequate and current written records of all such inventions, in the form of notes, sketches, drawings, or reports relating thereto, which records shall be and remain the property of and available to Envirogen at all times. (d) Executive agrees to notify Envirogen in writing before Executive makes any disclosure or performs or causes to be performed any work for or on behalf of Envirogen or any affiliate, which appears to threaten or conflict with (i) rights Executive claims in any invention or idea conceived by Executive or others prior to the Executive's employment with Envirogen or any affiliate or outside the scope of this Agreement, or (ii) rights of others arising out of obligations incurred by Executive prior to his employment with or outside the scope of this Agreement. In the event of the Executive's failure to give notice under the circumstances specified, Envirogen may assume that no such conflicting invention or idea exists and Executive agrees not to make any claim against Envirogen or any affiliate with respect to the use of any such invention or idea in any work which Executive performs or causes to be performed for or on behalf of Envirogen or any affiliate. C. Copyrights. Executive understands and acknowledges that Executive may ---------- from time to time during the term of Executive's employment with Envirogen create or contribute to, either alone or with others, the creation of a copyrightable subject matter relating to the business, products, research or development of Envirogen or its affiliates and it is understood and agreed that such creative effort on the part of Executive shall be "work for hire", and all right, title and interest in such subject matter shall be the sole and exclusive property of Envirogen or its nominees, including the right to copyright such subject matter in the name of Envirogen. D. Confidentiality. Executive acknowledges and agrees that in the course --------------- of, or incident to, Executive's employment hereunder, Envirogen and/or its affiliates has provided and may in the future provide to Executive, or Executive has been and may otherwise become in the future exposed to, Confidential Information. For purposes of this Agreement, the term "Confidential Information" shall mean all information concerning the business or affairs of Envirogen and/or its affiliates and all information received from third parties and held in confidence by Envirogen and/or its affiliates including, without limitation, all information relating to existing and potential customers, suppliers, markets, contracts, prices, programs, requirements, strategies, products, technology, know-how, information, data, processes, inventions, developments, formulations, applications and methods of manufacture, except such information that, as of the date of disclosure to or development by Executive, is shown to have been voluntarily disclosed to the public by Envirogen, to have been independently developed and disclosed by third parties, or to have been disclosed in published literature or which has otherwise entered the public domain by lawful means, all of which Confidential Information is acknowledged to be the property of Envirogen. Executive acknowledges that his obtaining the Confidential Information is intended to, and necessary to, enable Executive to -4- perform his duties for Envirogen and/or its affiliates. Executive recognizes and agrees that the confidentiality of the Confidential Information is necessary to the ability of Envirogen and/or its affiliates to compete effectively with their competitors. Executive recognizes and acknowledges that, in many instances, Envirogen and/or its affiliates are bound by contractual or other obligations to hold and use Confidential Information received from third parties in confidence, and that Executive's failure to do so may constitute a breach of such obligations. Executive therefore acknowledges and agrees that Executive's undertakings in this Section 4.D with respect to the use and dissemination of such third party Confidential Information are made and intended for the benefit not only of Envirogen and its affiliates but also of all parties that provide Envirogen with Confidential Information. In light of the foregoing, Executive agrees that: (a) during the term of Executive's employment with Envirogen and/or any affiliates and at all times thereafter, Executive will hold the Confidential Information in the strictest confidence and will not retain in writing, duplicate, use, divulge, furnish or make accessible to anyone (which terms, as used in this Agreement, shall include, without limitation, any individual, firm, corporation, association or group) such Confidential Information, except as required in the performance of Executive's duties for Envirogen and/or any affiliate; (b) upon and subsequent to the termination of Executive's employment with Envirogen and/or any affiliate for any reason whatever Executive will not, at any time, retain in writing, duplicate, use, divulge, furnish or make accessible to anyone or make any use whatever of the Confidential Information or any portion thereof, either on Executive's own behalf or in conjunction with or on behalf of any other person or entity; and (c) upon termination of Executive's employment with Envirogen and/or any affiliate for any reason whatever, Executive will immediately return to Envirogen or such affiliate all documents or other tangible records, and any and all copies thereof, within Executive's possession, custody or control, containing or reflecting any Confidential Information. E. Return of Materials Upon Termination. Upon termination of Executive's ------------------------------------ employment by either party for any reason, Executive hereby agrees to return to Envirogen as a condition to receiving Executive's final salary check, any and all books, records, reports, notes, and materials of any nature or kind whatsoever furnished to or developed by Executive, or developed by any third party for Envirogen, which Executive may have obtained during the term of employment relating directly or indirectly to the property or business of Envirogen or any affiliate. 5. TERMINATION A. Death. The Executive's employment hereunder shall terminate upon his ----- death. B. Incapacity. If in the reasonable judgment of the Board of Directors of ---------- Envirogen, as a result of the Executive's incapacity due to physical or mental illness or otherwise, the Executive shall for three consecutive months during the term of this Agreement have been unable to perform satisfactorily all of his duties hereunder on a full-time basis after taking into account such accommodation for any physical or mental illness as may be required by law, Envirogen may terminate the Executive's employment hereunder by notice to the Executive. -5- C. Cause. Envirogen may terminate the Executive's employment hereunder ----- for Cause. For the purposes of this Agreement, Envirogen shall have "Cause" to terminate the Executive's employment hereunder upon the Executive's (i) material failure, refusal or neglect to perform and discharge his duties and responsibilities hereunder, or willful action that is materially inconsistent with the terms hereof, or material breach of his fiduciary duties as an officer or as a director of Envirogen, or (ii) gross misconduct that is injurious to Envirogen, or (iii) unethical business conduct, or (iv) conviction of a felony. Notwithstanding any other provision of this Agreement, Envirogen shall provide written notice to the Executive of its intent to terminate for Cause and of the specific Cause for termination. Upon the Executive's receipt of such written notice, he shall have ten (10) business days in which to cure, correct or remedy any stated act or omission constituting Cause. If the Executive cures, corrects or remedies such act or omission within such ten (10) business day period to the full satisfaction of the Board of Directors of Envirogen, there shall be no termination for the stated Cause, and this Agreement shall continue in full force and effect according to its terms. D. Termination by the Executive. The Executive may terminate his ---------------------------- employment hereunder for Good Reason. For purposes of this Agreement, "Good Reason" shall mean (A) any removal of the Executive from the position indicated in Section 2 hereof, except in connection with termination of the Executive's employment for incapacity or Cause, or (B) a reduction in the Executive's Base Salary below that set forth in Section 3.A. hereof, or (C) any other action by Envirogen that is in material breach of the terms of this Agreement or (D) a decision made in good faith by the Executive within six (6) months following a "Change in Control" that he has been assigned, without his prior written consent, duties or responsibilities inconsistent with his positions, duties, responsibilities and status immediately prior to the Change in Control. As used herein, the term "Change in Control" shall have the meaning set forth in Appendix I hereto. E. Date of Termination; Term of Employment. The term "Date of --------------------------------------- Termination" shall mean the earlier of (i) the Expiration Date or (ii) if the Executive's employment is terminated (a) by his death, the date of his death, or (b) for any other reason whether or not specified in this Section 5 or for no reason, the date on which such termination is to be effective pursuant to the notice of termination given by the party terminating the employment relationship. For all purposes of this Agreement, references to the "term" of the Executive's employment hereunder shall mean the period commencing on the date hereof and ending on the Date of Termination. 6. COMPENSATION UPON TERMINATION A. Death or Incapacity. Notwithstanding any other provision of this ------------------- Agreement, if the Executive's employment shall be terminated by reason of his death or incapacity, Envirogen shall pay or cause to be paid all sums accrued and unpaid to the Date of Termination under Sections 3.A, 3.C, 3.D and 3.E (in respect of accrued and unused vacation). In the event of the Executive's death, unexpired stock options held at his death shall remain exercisable for such period or periods as are set forth in the plan or plans under which they were granted. In the event of termination by reason of incapacity, Envirogen shall continue to pay the Executive the Base Salary as then in effect for the twelve- month period following the Date of Termination and shall, during such same twelve-month period, continue in effect all medical and life insurance which was maintained by Envirogen for the benefit of the Executive on the Date of Termination. -6- B. Cause or Executive's Termination other than for Good Reason. ----------------------------------------------------------- Notwithstanding any other provision of this Agreement, if Envirogen shall terminate the Executive's Employment for Cause, or if this Agreement shall terminate by reason of the Executive's determination not to renew or by reason of the Executive's termination of this Agreement other than for Good Reason, Envirogen shall pay Executive all sums accrued and unpaid to the Date of Termination under Sections 3.A, 3.C, 3.D and 3.E (in respect of accrued and unused vacation) and shall permit the Executive to exercise any stock options vested to the Date of Termination to the extent permitted by the terms of such options. Envirogen shall thereafter have no further obligations to the Executive under this Agreement. C. Good Reason or Other Termination. If Envirogen shall determine not to -------------------------------- renew this Agreement on any Expiration Date or shall terminate the Executive's employment other than pursuant to paragraphs A, B or C of Section 5 hereof or if the Executive shall terminate his employment for Good Reason, then Envirogen shall pay to the Executive all sums accrued under Sections 3.A, 3.C, 3.D and 3.E hereof through the Date of Termination. In addition, Envirogen shall pay severance pay to Executive, bi-weekly, at a rate equal to Executive's Base Salary as in effect on the Date of Termination, (A) in the case of termination arising from Envirogen's notice of election not to renew, for a period of twelve months following the Expiration Date; (B) in the case of any other termination by Envirogen other than by reason of paragraphs A, B, or C of Section 5 hereof, for a period of twelve months following the Date of Termination; and (C) in the case of termination by the Executive by reason of paragraph D of Section 5 hereof, for a period of twelve months following the Date of Termination. In addition, if this Agreement is terminated by reason of clause (A), (B) or (C) of the preceding sentence, (X) Envirogen shall continue all medical and life insurance benefits maintained by it for the benefit of the Executive on the Date of Termination for a period of twelve months following the Date of Termination, and (Y) all options held by the Executive which would vest in the twelve-month period following the Date of Termination shall become exercisable on the Date of Termination. In addition, if this Agreement is terminated by the Executive by reason of clause (D) of paragraph D of Section 5, then, subject to the next sentence, during the period commencing twelve months following the Date of Termination and ending twenty-four months following the Date of Termination, Envirogen shall continue to pay, on a bi-weekly basis, the amounts described in the second preceding sentence and provide the benefits provided in clause (X) of the immediately preceding sentence for so long as, during such period, the Executive is unable to obtain satisfactory full-time employment during such period, provided he continuously and diligently seeks the same. Anything in this paragraph C of this Section 6 to the contrary notwithstanding, in the event this Agreement is terminated by the Executive by reason of clause (D) of paragraph D of Section 5 and the sum of the aggregate of the salary continuation payments and the value of the accelerated options which would be payable under this paragraph C of this Section 6 would result in the inability of Envirogen to deduct any such amounts so paid from its taxable income for federal income tax purposes by reason of the provisions of Section 280G of the Internal Revenue Code of 1986, as amended, or under any provision successor thereto, and the regulations of the Internal Revenue Service thereunder, then the aggregate of such salary continuation payments and other payments or benefits in the nature of compensation (including the value of accelerated options) shall be reduced by the minimum amount as may be necessary so that all such amounts shall be eligible for deduction by Envirogen from its taxable income for federal income tax purposes. The payments provided for in this paragraph under the circumstances set forth in this paragraph shall constitute the sole obligation of Envirogen to the Executive for any termination of Employment referred to in this paragraph. -7- 7. BINDING AGREEMENT. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. This Agreement shall inure to the benefit of Envirogen and its corporate successors and permitted assigns; provided that Envirogen may not assign its rights or obligations hereunder without the prior consent of the Executive. This Agreement and the provisions of Appendix I hereto represent the sole agreements between Envirogen and the Executive relating to the Executive's employment by Envirogen and supersede all prior agreements and communications, oral and written to the extent that they relate to any terms and conditions of the Executive's proposed employment with Envirogen. Executive and Envirogen agree that the Previous Employment Agreement is hereby terminated and of no further force or effect, and Executive hereby waives any and all rights to which he otherwise would have been entitled under Section 3(a) of the Previous Employment Agreement in connection with the Merger. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification or discharge is approved by the Board of Directors and agreed to in writing signed by the Executive and such officer as may be specifically authorized by the Board of Directors. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 8. EFFECTIVE DATE AND EFFECTIVENESS. This Agreement shall take effect as of the date hereof. 9. NOTICES. For all purposes of this Agreement, notices and all other communications to either party hereunder provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed, in the case of Envirogen, to the President of Envirogen at the principal place of business of Envirogen, or in the case of the Executive, to the Executive at his principal residence address as on file with Envirogen at the time such notice is given; or to such other address as either party shall designate by giving like notice of such change to the other party. 10. ARBITRATION; INJUNCTION. Subject to the provisions of the last sentence of this Section 10, any disputes or controversies arising with respect to the provisions or operation of this Agreement shall be settled by binding arbitration by a single arbitrator in Philadelphia, Pennsylvania, under the commercial arbitration rules of the American Arbitration Association then in effect. Judgment on the award may be entered in any court of competent jurisdiction. Anything in the foregoing to the contrary notwithstanding, the Executive acknowledges and agrees that, because Envirogen's legal remedies would be inadequate in the event of a breach of, or other failure to perform, any of the covenants and agreements set forth in Section 4 hereof by the Executive, Envirogen may, in addition to obtaining any other remedy or relief available to it under this Section 10 (including without limitation damages at law), enforce the provisions of said Section 4 by injunction and other equitable relief in any court of competent jurisdiction. 11. INDEMNIFICATION; INSURANCE. Envirogen shall indemnify the Executive to the extent set forth in the By-Laws of Envirogen as in effect from time to time. Envirogen shall use its best efforts to maintain a level of directors and officers liability insurance equivalent to that in effect on the date hereof. -8- 12. MISCELLANEOUS. Executive acknowledges that amounts which become payable hereunder will be subject to withholding to the extent provided in the Internal Revenue Code of 1986 and analogous provisions of state and local law. The validity, interpretation, construction and performance of this Agreement shall be governed by the domestic substantive laws of the State of New Jersey without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction. 13. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect, and in the event that any provision hereof shall be determined to be invalid or unenforceable for any reason, such provision shall be construed by limiting it so as to be valid and enforceable to the fullest extent compatible with and possible under applicable law. 14. COUNTERPARTS. This Agreement may be executed in any one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands, as of the date first above written. ENVIROGEN, INC. By: /s/ HARCHARAN S. GILL ----------------------------- Harcharan S. Gill President /s/ WILLIAM C. SMITH -------------------------------- William C. Smith -9- APPENDIX I "Change in Control" shall mean: (A) The acquisition by any person, entity or "group" required to file a Schedule 13D or Schedule 14D-1 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") (excluding, for this purpose, Envirogen, its subsidiaries, or any employee benefit plan of Envirogen or its subsidiaries which acquires beneficial ownership of voting securities of Envirogen) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 51% or more of either the then-outstanding shares of common stock or the combined voting power of Envirogen's then-outstanding voting securities entitled to vote generally in the election of directors; or (B) The election or appointment to the Board of Directors, or resignation of or removal from the Board of Directors, of directors by virtue of which the individuals who as of the date hereof constituted the Board of Directors (the "Incumbent Board") no longer constitute at least a majority of the Board, provided that any person who becomes a director subsequent to the date hereof whose appointment, election, or nomination for election by Envirogen's stockholders, was nominated by or approved by a vote of at least a majority of the Incumbent Board (other than an appointment, election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of Envirogen, as such terms are used in Rule 14a-1 promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (C) Approval by the stockholders of Envirogen of: (i) a reorganization, merger or consolidation by reason of which persons who were the stockholders of Envirogen immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 51% of the combined voting power of the reorganized, merged or consolidated company's then outstanding voting securities entitled to vote generally in the election of directors, or (ii) a liquidation or dissolution of Envirogen or the sale, transfer, lease or other disposition of all or substantially all of the assets of Envirogen (whether such assets are held directly or indirectly). EX-10.2 3 EMPLOYEE AGREEMENT #2 Exhibit 10.2 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT is made as of this 10th day of April, 1997, between Envirogen, Inc., a Delaware corporation ("Envirogen"), and Douglas W. Jacobson (the "Executive"). WHEREAS, Envirogen, Fluid Management, Inc., a Wisconsin corporation ("FMI"), and all of the stockholders of FMI, including Executive, have entered into an Agreement and Plan of Merger dated as of January 14, 1997 pursuant to which FMI will merge with and into Envirogen and Envirogen will be the surviving corporation (the "Merger"); WHEREAS, Executive has been employed by FMI as a senior executive officer pursuant to an Employment and Non-Compete Agreement dated June 5, 1995 (the "Previous Employment Agreement"); WHEREAS, an important factor in Envirogen's decision to acquire FMI and to effectuate the Merger is the assurance that, for a sufficient period following the Merger, Envirogen will have available the continued services of Executive and Executive will enter into certain confidentiality and non-competition agreements with Envirogen, all on the terms and conditions set forth herein, and that Executive will waive any and all rights to which he would otherwise have been entitled under Section 3(a) of the Previous Employment Agreement in connection with the Merger; and WHEREAS, as an inducement to Envirogen to consummate the Merger, Executive and Envirogen are entering into this Agreement, which supercedes in its entirety the Previous Employment Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. EMPLOYMENT A. Agreement. Envirogen hereby agrees to employ the Executive, and the --------- Executive hereby agrees to serve Envirogen, all on the terms and conditions set forth herein. B. Expiration Date. The employment of the Executive by Envirogen shall be --------------- for the period commencing on the date hereof and expiring on December 31, 1998 (the "Expiration Date"), unless such employment shall have been extended or sooner terminated as hereinafter set forth. On the Expiration Date, the Agreement shall be renewed automatically for successive terms of one year each unless either party hereto shall have given notice to the other party at least three months prior to the end of the then current Expiration Date that the Agreement shall not be renewed. Upon each such automatic renewal, the Expiration Date shall become the first anniversary of the last Expiration Date then in effect. As used herein, the term "Contract Year" means the twelve-month period beginning April 10 of each year this Agreement is in effect. 2. POSITION AND DUTIES. The Executive shall serve in the capacity or capacities and have the duties of Senior Vice President of Marketing of Envirogen, and Vice President of the FMI Division of Envirogen, and shall report to, be accountable to and subject to the supervision of, and shall also have such other powers, duties and responsibilities as may from time to time be prescribed by, the Board of Directors of Envirogen, provided that such other duties and responsibilities are not inconsistent with the Executive's position and those duties set forth herein and in the bylaws of Envirogen. The Executive shall perform and discharge, faithfully, diligently and to the best of his ability, such duties and responsibilities. The Executive shall not, without the prior consent of the Board of Directors of Envirogen, accept a position on the Board of Directors of any company other than (i) Envirogen or a subsidiary thereof, (ii) HJS of Wisconsin, Inc. or (iii) any charitable or similar organization. The Executive shall devote substantially all his working time and efforts to the business and affairs of Envirogen and its subsidiaries and affiliates. The Executive represents to Envirogen that on the date hereof he is not party to any agreement which conflicts with his obligations hereunder and that he will not become party to any such agreement; should this representation prove false at any time, then Envirogen shall have no further obligations hereunder. 3. COMPENSATION A. Salary. During the term of his employment hereunder, the Executive ------ shall receive a Base Salary at the initial annual rate of $140,000. Such initial Base Salary shall be subject to increase, but not decrease, by the Board of Directors of Envirogen upon prior recommendation of the Executive Compensation and Stock Option Committee thereof. Base Salary shall be payable in substantially equal bi-weekly installments, less any amounts required to be withheld under applicable law. In the event that, during the term hereof, Envirogen shall determine to make salary payments to its executives at intervals other than bi-weekly, Envirogen may adjust the intervals at which it makes payments of Base Salary hereunder to such intervals as are consistent with the intervals at which other executives of Envirogen are then compensated. Except as otherwise provided in this Agreement, the Base Salary shall be pro-rated for any period of service less than a full Contract Year. B. Bonuses; Stock Options. The Executive will be eligible to receive an ---------------------- annual incentive bonus for each fiscal year of Envirogen this agreement is in effect based upon the obtainment of corporate and individual performance goals fixed by the Board of Directors of Envirogen upon the prior recommendation of the Executive Compensation and Stock Option Committee thereof. The Executive will also be eligible to receive grants of stock options under such stock option plans of Envirogen as are in effect from time to time in such amounts, and on such terms, as the committee or committees administering such plans may fix and determine. C. Expenses. During the term of his employment hereunder, the Executive -------- shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by him on behalf of Envirogen (in accordance with the policies and procedures established by the Board of Directors of Envirogen from time to time for Envirogen's senior executive officers) in performing services hereunder, provided that the Executive properly accounts therefor in accordance with requirements for federal income tax deductibility and Envirogen's policies and procedures. -2- D. Fringe Benefits. During the term of his employment hereunder, the --------------- Executive shall be entitled to participate in or receive such benefits as other executives and key employees of Envirogen are entitled to receive from time to time, including but not limited to life insurance, health and accident plans, retirement programs or other arrangements made generally available by Envirogen to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Nothing herein shall preclude Envirogen, during the term hereof, from amending, modifying or eliminating any such benefits so long as any such changes apply consistently to all executives and key employees of Envirogen. E. Vacations. During the term of his employment hereunder, the Executive --------- shall be entitled to twenty (20) paid vacation days in each calendar year (less, in 1997, those vacation days taken by the Executive in 1997 prior to the date hereof under the Previous Employment Agreement and, in any other year, prorated for any partial calendar year this Agreement is in effect), and shall also be entitled to all paid holidays given by Envirogen to its employees generally. Vacation days allotted in any calendar year and not used in such year shall expire if not used by March 31 of the immediately following calendar year. 4. RESTRICTIVE COVENANTS A. Non-competition. Executive covenants that he will not directly or --------------- indirectly own, manage, operate or control, nor be a director, officer or employee of, or consultant to, any business or enterprise competing with Envirogen or any affiliate of Envirogen, anywhere in (i) the 50 states of the United States, (ii) all of the provinces of Canada, and (iii) any other jurisdiction in which Envirogen derived in excess of $250,000 in revenues during the period this Agreement was in effect. For purposes hereof, a business competing with Envirogen shall mean any business (i) which does research with respect to, designs, develops, produces or manufactures any products which are the same as or substantially similar to or are intended for uses similar to those with respect to which Envirogen or any affiliate does research or which Envirogen or any affiliate designs, develops, produces or manufactures; or (ii) which furnishes services similar to those furnished by Envirogen or any affiliate. The provisions of this paragraph, however, shall not prohibit Executive from investing in the securities of any such business or enterprise which are traded publicly and constitute less than one percent (1%) of the particular class of such business's or enterprises's securities outstanding from time to time. The foregoing covenant shall be binding on Executive during his employment hereunder and for a period of two (2) years after termination of his employment hereunder. Furthermore, Executive agrees not to engage or participate in any effort or act to induce any of the associates, consultants, customers, officers or employees of Envirogen or any affiliate to take any action which might be disadvantageous to Envirogen or any affiliate. B. Disclosure and Assignment of Inventions;Patents. ----------------------------------------------- (a) Executive shall communicate to Envirogen promptly and fully, and hereby assigns, sells and transfers to Envirogen Executive's entire right, title and interest in and to, all inventions, whether or not patentable, made or conceived by Executive (alone or jointly with others and whether or not made or conceived during regular business hours) from the time of entering the employ of Envirogen or any affiliate until the termination thereof which (i) are related in any manner, directly or indirectly, to the business, products, research or development of Envirogen or any affiliate or (ii) result from or are suggested by any work which Executive may do for or on behalf of Envirogen or -3- any affiliate. For purposes of this Agreement, the term "invention" shall include, without limitation, any new, useful or original art, machine, process, method, product, apparatus, compound, formula, shape, lifeform, composition of matter or configuration of any kind. (b) Executive agrees to assist Envirogen and its nominees during and subsequent to his employment with Envirogen or any affiliate in every proper way (entirely at its or their expense) to obtain for its or their own benefit patents for such inventions in any and all countries, said inventions to be and remain the sole and exclusive property of Envirogen or its nominees, whether patented or not. (c) Executive agrees to make and maintain adequate and current written records of all such inventions, in the form of notes, sketches, drawings, or reports relating thereto, which records shall be and remain the property of and available to Envirogen at all times. (d) Executive agrees to notify Envirogen in writing before Executive makes any disclosure or performs or causes to be performed any work for or on behalf of Envirogen or any affiliate, which appears to threaten or conflict with (i) rights Executive claims in any invention or idea conceived by Executive or others prior to the Executive's employment with Envirogen or any affiliate or outside the scope of this Agreement, or (ii) rights of others arising out of obligations incurred by Executive prior to his employment with or outside the scope of this Agreement. In the event of the Executive's failure to give notice under the circumstances specified, Envirogen may assume that no such conflicting invention or idea exists and Executive agrees not to make any claim against Envirogen or any affiliate with respect to the use of any such invention or idea in any work which Executive performs or causes to be performed for or on behalf of Envirogen or any affiliate. C. Copyrights. Executive understands and acknowledges that Executive may ---------- from time to time during the term of Executive's employment with Envirogen create or contribute to, either alone or with others, the creation of a copyrightable subject matter relating to the business, products, research or development of Envirogen or its affiliates and it is understood and agreed that such creative effort on the part of Executive shall be "work for hire", and all right, title and interest in such subject matter shall be the sole and exclusive property of Envirogen or its nominees, including the right to copyright such subject matter in the name of Envirogen. D. Confidentiality. Executive acknowledges and agrees that in the course --------------- of, or incident to, Executive's employment hereunder, Envirogen and/or its affiliates has provided and may in the future provide to Executive, or Executive has been and may otherwise become in the future exposed to, Confidential Information. For purposes of this Agreement, the term "Confidential Information" shall mean all information concerning the business or affairs of Envirogen and/or its affiliates and all information received from third parties and held in confidence by Envirogen and/or its affiliates including, without limitation, all information relating to existing and potential customers, suppliers, markets, contracts, prices, programs, requirements, strategies, products, technology, know-how, information, data, processes, inventions, developments, formulations, applications and methods of manufacture, except such information that, as of the date of disclosure to or development by Executive, is shown to have been voluntarily disclosed to the public by Envirogen, to have been independently developed and disclosed by third parties, or to have been disclosed in published literature or which has otherwise entered the public domain by lawful means, all of which Confidential Information is acknowledged to be the property of Envirogen. Executive acknowledges that his obtaining the Confidential Information is intended to, and necessary to, enable Executive to -4- perform his duties for Envirogen and/or its affiliates. Executive recognizes and agrees that the confidentiality of the Confidential Information is necessary to the ability of Envirogen and/or its affiliates to compete effectively with their competitors. Executive recognizes and acknowledges that, in many instances, Envirogen and/or its affiliates are bound by contractual or other obligations to hold and use Confidential Information received from third parties in confidence, and that Executive's failure to do so may constitute a breach of such obligations. Executive therefore acknowledges and agrees that Executive's undertakings in this Section 4.D with respect to the use and dissemination of such third party Confidential Information are made and intended for the benefit not only of Envirogen and its affiliates but also of all parties that provide Envirogen with Confidential Information. In light of the foregoing, Executive agrees that: (a) during the term of Executive's employment with Envirogen and/or any affiliates and at all times thereafter, Executive will hold the Confidential Information in the strictest confidence and will not retain in writing, duplicate, use, divulge, furnish or make accessible to anyone (which terms, as used in this Agreement, shall include, without limitation, any individual, firm, corporation, association or group) such Confidential Information, except as required in the performance of Executive's duties for Envirogen and/or any affiliate; (b) upon and subsequent to the termination of Executive's employment with Envirogen and/or any affiliate for any reason whatever Executive will not, at any time, retain in writing, duplicate, use, divulge, furnish or make accessible to anyone or make any use whatever of the Confidential Information or any portion thereof, either on Executive's own behalf or in conjunction with or on behalf of any other person or entity; and (c) upon termination of Executive's employment with Envirogen and/or any affiliate for any reason whatever, Executive will immediately return to Envirogen or such affiliate all documents or other tangible records, and any and all copies thereof, within Executive's possession, custody or control, containing or reflecting any Confidential Information. E. Return of Materials Upon Termination. Upon termination of Executive's ------------------------------------ employment by either party for any reason, Executive hereby agrees to return to Envirogen as a condition to receiving Executive's final salary check, any and all books, records, reports, notes, and materials of any nature or kind whatsoever furnished to or developed by Executive, or developed by any third party for Envirogen, which Executive may have obtained during the term of employment relating directly or indirectly to the property or business of Envirogen or any affiliate. 5. TERMINATION A. Death. The Executive's employment hereunder shall terminate upon his ----- death. B. Incapacity. If in the reasonable judgment of the Board of Directors of ---------- Envirogen, as a result of the Executive's incapacity due to physical or mental illness or otherwise, the Executive shall for three consecutive months during the term of this Agreement have been unable to perform satisfactorily all of his duties hereunder on a full-time basis after taking into account such accommodation for any physical or mental illness as may be required by law, Envirogen may terminate the Executive's employment hereunder by notice to the Executive. -5- C. Cause. Envirogen may terminate the Executive's employment hereunder ----- for Cause. For the purposes of this Agreement, Envirogen shall have "Cause" to terminate the Executive's employment hereunder upon the Executive's (i) material failure, refusal or neglect to perform and discharge his duties and responsibilities hereunder, or willful action that is materially inconsistent with the terms hereof, or material breach of his fiduciary duties as an officer or as a director of Envirogen, or (ii) gross misconduct that is injurious to Envirogen, or (iii) unethical business conduct, or (iv) conviction of a felony. Notwithstanding any other provision of this Agreement, Envirogen shall provide written notice to the Executive of its intent to terminate for Cause and of the specific Cause for termination. Upon the Executive's receipt of such written notice, he shall have ten (10) business days in which to cure, correct or remedy any stated act or omission constituting Cause. If the Executive cures, corrects or remedies such act or omission within such ten (10) business day period to the full satisfaction of the Board of Directors of Envirogen, there shall be no termination for the stated Cause, and this Agreement shall continue in full force and effect according to its terms. D. Termination by the Executive. The Executive may terminate his ---------------------------- employment hereunder for Good Reason. For purposes of this Agreement, "Good Reason" shall mean (A) any removal of the Executive from the position indicated in Section 2 hereof, except in connection with termination of the Executive's employment for incapacity or Cause, or (B) a reduction in the Executive's Base Salary below that set forth in Section 3.A. hereof, or (C) any other action by Envirogen that is in material breach of the terms of this Agreement or (D) a decision made in good faith by the Executive within six (6) months following a "Change in Control" that he has been assigned, without his prior written consent, duties or responsibilities inconsistent with his positions, duties, responsibilities and status immediately prior to the Change in Control. As used herein, the term "Change in Control" shall have the meaning set forth in Appendix I hereto. E. Date of Termination; Term of Employment. The term "Date of --------------------------------------- Termination" shall mean the earlier of (i) the Expiration Date or (ii) if the Executive's employment is terminated (a) by his death, the date of his death, or (b) for any other reason whether or not specified in this Section 5 or for no reason, the date on which such termination is to be effective pursuant to the notice of termination given by the party terminating the employment relationship. For all purposes of this Agreement, references to the "term" of the Executive's employment hereunder shall mean the period commencing on the date hereof and ending on the Date of Termination. 6. COMPENSATION UPON TERMINATION A. Death or Incapacity. Notwithstanding any other provision of this ------------------- Agreement, if the Executive's employment shall be terminated by reason of his death or incapacity, Envirogen shall pay or cause to be paid all sums accrued and unpaid to the Date of Termination under Sections 3.A, 3.C, 3.D and 3.E (in respect of accrued and unused vacation). In the event of the Executive's death, unexpired stock options held at his death shall remain exercisable for such period or periods as are set forth in the plan or plans under which they were granted. In the event of termination by reason of incapacity, Envirogen shall continue to pay the Executive the Base Salary as then in effect for the twelve- month period following the Date of Termination and shall, during such same twelve-month period, continue in effect all medical and life insurance which was maintained by Envirogen for the benefit of the Executive on the Date of Termination. -6- B. Cause or Executive's Termination other than for Good Reason. ----------------------------------------------------------- Notwithstanding any other provision of this Agreement, if Envirogen shall terminate the Executive's Employment for Cause, or if this Agreement shall terminate by reason of the Executive's determination not to renew or by reason of the Executive's termination of this Agreement other than for Good Reason, Envirogen shall pay Executive all sums accrued and unpaid to the Date of Termination under Sections 3.A, 3.C, 3.D and 3.E (in respect of accrued and unused vacation) and shall permit the Executive to exercise any stock options vested to the Date of Termination to the extent permitted by the terms of such options. Envirogen shall thereafter have no further obligations to the Executive under this Agreement. C. Good Reason or Other Termination. If Envirogen shall determine not to -------------------------------- renew this Agreement on any Expiration Date or shall terminate the Executive's employment other than pursuant to paragraphs A, B or C of Section 5 hereof or if the Executive shall terminate his employment for Good Reason, then Envirogen shall pay to the Executive all sums accrued under Sections 3.A, 3.C, 3.D and 3.E hereof through the Date of Termination. In addition, Envirogen shall pay severance pay to Executive, bi-weekly, at a rate equal to Executive's Base Salary as in effect on the Date of Termination, (A) in the case of termination arising from Envirogen's notice of election not to renew, for a period of twelve months following the Expiration Date; (B) in the case of any other termination by Envirogen other than by reason of paragraphs A, B, or C of Section 5 hereof, for a period of twelve months following the Date of Termination; and (C) in the case of termination by the Executive by reason of paragraph D of Section 5 hereof, for a period of twelve months following the Date of Termination. In addition, if this Agreement is terminated by reason of clause (A), (B) or (C) of the preceding sentence, (X) Envirogen shall continue all medical and life insurance benefits maintained by it for the benefit of the Executive on the Date of Termination for a period of twelve months following the Date of Termination, and (Y) all options held by the Executive which would vest in the twelve-month period following the Date of Termination shall become exercisable on the Date of Termination. In addition, if this Agreement is terminated by the Executive by reason of clause (D) of paragraph D of Section 5, then, subject to the next sentence, during the period commencing twelve months following the Date of Termination and ending twenty-four months following the Date of Termination, Envirogen shall continue to pay, on a bi-weekly basis, the amounts described in the second preceding sentence and provide the benefits provided in clause (X) of the immediately preceding sentence for so long as, during such period, the Executive is unable to obtain satisfactory full-time employment during such period, provided he continuously and diligently seeks the same. Anything in this paragraph C of this Section 6 to the contrary notwithstanding, in the event this Agreement is terminated by the Executive by reason of clause (D) of paragraph D of Section 5 and the sum of the aggregate of the salary continuation payments and the value of the accelerated options which would be payable under this paragraph C of this Section 6 would result in the inability of Envirogen to deduct any such amounts so paid from its taxable income for federal income tax purposes by reason of the provisions of Section 280G of the Internal Revenue Code of 1986, as amended, or under any provision successor thereto, and the regulations of the Internal Revenue Service thereunder, then the aggregate of such salary continuation payments and other payments or benefits in the nature of compensation (including the value of accelerated options) shall be reduced by the minimum amount as may be necessary so that all such amounts shall be eligible for deduction by Envirogen from its taxable income for federal income tax purposes. The payments provided for in this paragraph under the circumstances set forth in this paragraph shall constitute the sole obligation of Envirogen to the Executive for any termination of Employment referred to in this paragraph. -7- 7. BINDING AGREEMENT. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. This Agreement shall inure to the benefit of Envirogen and its corporate successors and permitted assigns; provided that Envirogen may not assign its rights or obligations hereunder without the prior consent of the Executive. This Agreement and the provisions of Appendix I hereto represent the sole agreements between Envirogen and the Executive relating to the Executive's employment by Envirogen and supersede all prior agreements and communications, oral and written to the extent that they relate to any terms and conditions of the Executive's proposed employment with Envirogen. Executive and Envirogen agree that the Previous Employment Agreement is hereby terminated and of no further force or effect, and Executive hereby waives any and all rights to which he otherwise would have been entitled under Section 3(a) of the Previous Employment Agreement in connection with the Merger. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification or discharge is approved by the Board of Directors and agreed to in writing signed by the Executive and such officer as may be specifically authorized by the Board of Directors. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 8. EFFECTIVE DATE AND EFFECTIVENESS. This Agreement shall take effect as of the date hereof. 9. NOTICES. For all purposes of this Agreement, notices and all other communications to either party hereunder provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed, in the case of Envirogen, to the President of Envirogen at the principal place of business of Envirogen, or in the case of the Executive, to the Executive at his principal residence address as on file with Envirogen at the time such notice is given; or to such other address as either party shall designate by giving like notice of such change to the other party. 10. ARBITRATION; INJUNCTION. Subject to the provisions of the last sentence of this Section 10, any disputes or controversies arising with respect to the provisions or operation of this Agreement shall be settled by binding arbitration by a single arbitrator in Philadelphia, Pennsylvania, under the commercial arbitration rules of the American Arbitration Association then in effect. Judgment on the award may be entered in any court of competent jurisdiction. Anything in the foregoing to the contrary notwithstanding, the Executive acknowledges and agrees that, because Envirogen's legal remedies would be inadequate in the event of a breach of, or other failure to perform, any of the covenants and agreements set forth in Section 4 hereof by the Executive, Envirogen may, in addition to obtaining any other remedy or relief available to it under this Section 10 (including without limitation damages at law), enforce the provisions of said Section 4 by injunction and other equitable relief in any court of competent jurisdiction. 11. INDEMNIFICATION; INSURANCE. Envirogen shall indemnify the Executive to the extent set forth in the By-Laws of Envirogen as in effect from time to time. Envirogen shall use its best efforts to maintain a level of directors and officers liability insurance equivalent to that in effect on the date hereof. -8- 12. MISCELLANEOUS. Executive acknowledges that amounts which become payable hereunder will be subject to withholding to the extent provided in the Internal Revenue Code of 1986 and analogous provisions of state and local law. The validity, interpretation, construction and performance of this Agreement shall be governed by the domestic substantive laws of the State of New Jersey without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction. 13. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect, and in the event that any provision hereof shall be determined to be invalid or unenforceable for any reason, such provision shall be construed by limiting it so as to be valid and enforceable to the fullest extent compatible with and possible under applicable law. 14. COUNTERPARTS. This Agreement may be executed in any one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands, as of the date first above written. ENVIROGEN, INC. By: /s/ HARCHARAN S. GILL ---------------------------- Harcharan S. Gill President /s/ DOUGLAS W. JACOBSON ------------------------------- Douglas W. Jacobson -9- APPENDIX I "Change in Control" shall mean: (A) The acquisition by any person, entity or "group" required to file a Schedule 13D or Schedule 14D-1 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") (excluding, for this purpose, Envirogen, its subsidiaries, or any employee benefit plan of Envirogen or its subsidiaries which acquires beneficial ownership of voting securities of Envirogen) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 51% or more of either the then-outstanding shares of common stock or the combined voting power of Envirogen's then-outstanding voting securities entitled to vote generally in the election of directors; or (B) The election or appointment to the Board of Directors, or resignation of or removal from the Board of Directors, of directors by virtue of which the individuals who as of the date hereof constituted the Board of Directors (the "Incumbent Board") no longer constitute at least a majority of the Board, provided that any person who becomes a director subsequent to the date hereof whose appointment, election, or nomination for election by Envirogen's stockholders, was nominated by or approved by a vote of at least a majority of the Incumbent Board (other than an appointment, election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of Envirogen, as such terms are used in Rule 14a-1 promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (C) Approval by the stockholders of Envirogen of: (i) a reorganization, merger or consolidation by reason of which persons who were the stockholders of Envirogen immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 51% of the combined voting power of the reorganized, merged or consolidated company's then outstanding voting securities entitled to vote generally in the election of directors, or (ii) a liquidation or dissolution of Envirogen or the sale, transfer, lease or other disposition of all or substantially all of the assets of Envirogen (whether such assets are held directly or indirectly). EX-10.3 4 EMPLOYMENT AGREEMENT #3 Exhibit 10.3 ------------ EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT is made as of this 10th day of April, 1997, between Envirogen, Inc., a Delaware corporation ("Envirogen"), and Gary W. Hawk (the "Executive"). WHEREAS, Envirogen, Fluid Management, Inc., a Wisconsin corporation ("FMI"), and all of the stockholders of FMI, including Executive, have entered into an Agreement and Plan of Merger dated as of January 14, 1997 pursuant to which FMI will merge with and into Envirogen and Envirogen will be the surviving corporation (the "Merger"); WHEREAS, Executive has been employed by FMI as a senior executive officer pursuant to an Employment and Non-Compete Agreement dated June 5, 1995 (the "Previous Employment Agreement"); WHEREAS, an important factor in Envirogen's decision to acquire FMI and to effectuate the Merger is the assurance that, for a sufficient period following the Merger, Envirogen will have available the continued services of Executive and Executive will enter into certain confidentiality and non-competition agreements with Envirogen, all on the terms and conditions set forth herein, and that Executive will waive any and all rights to which he would otherwise have been entitled under Section 3(a) of the Previous Employment Agreement in connection with the Merger; and WHEREAS, as an inducement to Envirogen to consummate the Merger, Executive and Envirogen are entering into this Agreement, which supercedes in its entirety the Previous Employment Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. EMPLOYMENT A. Agreement. Envirogen hereby agrees to employ the Executive, and the --------- Executive hereby agrees to serve Envirogen, all on the terms and conditions set forth herein. B. Expiration Date. The employment of the Executive by Envirogen shall be --------------- for the period commencing on the date hereof and expiring on December 31, 1998 (the "Expiration Date"), unless such employment shall have been extended or sooner terminated as hereinafter set forth. On the Expiration Date, the Agreement shall be renewed automatically for successive terms of one year each unless either party hereto shall have given notice to the other party at least three months prior to the end of the then current Expiration Date that the Agreement shall not be renewed. Upon each such automatic renewal, the Expiration Date shall become the first anniversary of the last Expiration Date then in effect. As used herein, the term "Contract Year" means the twelve-month period beginning April 10 of each year this Agreement is in effect. 2. POSITION AND DUTIES. The Executive shall serve in the capacity or capacities and have the duties of Vice President and General Manager of the FMI Division of Envirogen, and shall report to, be accountable to and subject to the supervision of, and shall also have such other powers, duties and responsibilities as may from time to time be prescribed by, the Board of Directors of Envirogen, provided that such other duties and responsibilities are not inconsistent with the Executive's position and those duties set forth herein and in the bylaws of Envirogen. The Executive shall perform and discharge, faithfully, diligently and to the best of his ability, such duties and responsibilities. The Executive shall not, without the prior consent of the Board of Directors of Envirogen, accept a position on the Board of Directors of any company other than (i) Envirogen or a subsidiary thereof, (ii) HJS of Wisconsin, Inc. or (iii) any charitable or similar organization. The Executive shall devote substantially all his working time and efforts to the business and affairs of Envirogen and its subsidiaries and affiliates. The Executive represents to Envirogen that on the date hereof he is not party to any agreement which conflicts with his obligations hereunder and that he will not become party to any such agreement; should this representation prove false at any time, then Envirogen shall have no further obligations hereunder. 3. COMPENSATION A. Salary. During the term of his employment hereunder, the Executive ------ shall receive a Base Salary at the initial annual rate of $140,000. Such initial Base Salary shall be subject to increase, but not decrease, by the Board of Directors of Envirogen upon prior recommendation of the Executive Compensation and Stock Option Committee thereof. Base Salary shall be payable in substantially equal bi-weekly installments, less any amounts required to be withheld under applicable law. In the event that, during the term hereof, Envirogen shall determine to make salary payments to its executives at intervals other than bi-weekly, Envirogen may adjust the intervals at which it makes payments of Base Salary hereunder to such intervals as are consistent with the intervals at which other executives of Envirogen are then compensated. Except as otherwise provided in this Agreement, the Base Salary shall be pro-rated for any period of service less than a full Contract Year. B. Bonuses; Stock Options. The Executive will be eligible to receive an ---------------------- annual incentive bonus for each fiscal year of Envirogen this agreement is in effect based upon the obtainment of corporate and individual performance goals fixed by the Board of Directors of Envirogen upon the prior recommendation of the Executive Compensation and Stock Option Committee thereof. The Executive will also be eligible to receive grants of stock options under such stock option plans of Envirogen as are in effect from time to time in such amounts, and on such terms, as the committee or committees administering such plans may fix and determine. C. Expenses. During the term of his employment hereunder, the Executive -------- shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by him on behalf of Envirogen (in accordance with the policies and procedures established by the Board of Directors of Envirogen from time to time for Envirogen's senior executive officers) in performing services hereunder, provided that the Executive properly accounts therefor in accordance with requirements for federal income tax deductibility and Envirogen's policies and procedures. -2- D. Fringe Benefits. During the term of his employment hereunder, the --------------- Executive shall be entitled to participate in or receive such benefits as other executives and key employees of Envirogen are entitled to receive from time to time, including but not limited to life insurance, health and accident plans, retirement programs or other arrangements made generally available by Envirogen to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Nothing herein shall preclude Envirogen, during the term hereof, from amending, modifying or eliminating any such benefits so long as any such changes apply consistently to all executives and key employees of Envirogen. E. Vacations. During the term of his employment hereunder, the Executive --------- shall be entitled to twenty (20) paid vacation days in each calendar year (less, in 1997, those vacation days taken by the Executive in 1997 prior to the date hereof under the Previous Employment Agreement and, in any other year, prorated for any partial calendar year this Agreement is in effect), and shall also be entitled to all paid holidays given by Envirogen to its employees generally. Vacation days allotted in any calendar year and not used in such year shall expire if not used by March 31 of the immediately following calendar year. 4. RESTRICTIVE COVENANTS A. Non-competition. Executive covenants that he will not directly or --------------- indirectly own, manage, operate or control, nor be a director, officer or employee of, or consultant to, any business or enterprise competing with Envirogen or any affiliate of Envirogen, anywhere in (i) the 50 states of the United States, (ii) all of the provinces of Canada, and (iii) any other jurisdiction in which Envirogen derived in excess of $250,000 in revenues during the period this Agreement was in effect. For purposes hereof, a business competing with Envirogen shall mean any business (i) which does research with respect to, designs, develops, produces or manufactures any products which are the same as or substantially similar to or are intended for uses similar to those with respect to which Envirogen or any affiliate does research or which Envirogen or any affiliate designs, develops, produces or manufactures; or (ii) which furnishes services similar to those furnished by Envirogen or any affiliate. The provisions of this paragraph, however, shall not prohibit Executive from investing in the securities of any such business or enterprise which are traded publicly and constitute less than one percent (1%) of the particular class of such business's or enterprises's securities outstanding from time to time. The foregoing covenant shall be binding on Executive during his employment hereunder and for a period of two (2) years after termination of his employment hereunder. Furthermore, Executive agrees not to engage or participate in any effort or act to induce any of the associates, consultants, customers, officers or employees of Envirogen or any affiliate to take any action which might be disadvantageous to Envirogen or any affiliate. B. Disclosure and Assignment of Inventions; Patents. ------------------------------------------------ (a) Executive shall communicate to Envirogen promptly and fully, and hereby assigns, sells and transfers to Envirogen Executive's entire right, title and interest in and to, all inventions, whether or not patentable, made or conceived by Executive (alone or jointly with others and whether or not made or conceived during regular business hours) from the time of entering the employ of Envirogen or any affiliate until the termination thereof which (i) are related in any manner, directly or indirectly, to the business, products, research or development of Envirogen or any affiliate or (ii) result from or are suggested by any work which Executive may do for or on behalf of Envirogen or -3- any affiliate. For purposes of this Agreement, the term "invention" shall include, without limitation, any new, useful or original art, machine, process, method, product, apparatus, compound, formula, shape, lifeform, composition of matter or configuration of any kind. (b) Executive agrees to assist Envirogen and its nominees during and subsequent to his employment with Envirogen or any affiliate in every proper way (entirely at its or their expense) to obtain for its or their own benefit patents for such inventions in any and all countries, said inventions to be and remain the sole and exclusive property of Envirogen or its nominees, whether patented or not. (c) Executive agrees to make and maintain adequate and current written records of all such inventions, in the form of notes, sketches, drawings, or reports relating thereto, which records shall be and remain the property of and available to Envirogen at all times. (d) Executive agrees to notify Envirogen in writing before Executive makes any disclosure or performs or causes to be performed any work for or on behalf of Envirogen or any affiliate, which appears to threaten or conflict with (i) rights Executive claims in any invention or idea conceived by Executive or others prior to the Executive's employment with Envirogen or any affiliate or outside the scope of this Agreement, or (ii) rights of others arising out of obligations incurred by Executive prior to his employment with or outside the scope of this Agreement. In the event of the Executive's failure to give notice under the circumstances specified, Envirogen may assume that no such conflicting invention or idea exists and Executive agrees not to make any claim against Envirogen or any affiliate with respect to the use of any such invention or idea in any work which Executive performs or causes to be performed for or on behalf of Envirogen or any affiliate. C. Copyrights. Executive understands and acknowledges that Executive may ---------- from time to time during the term of Executive's employment with Envirogen create or contribute to, either alone or with others, the creation of a copyrightable subject matter relating to the business, products, research or development of Envirogen or its affiliates and it is understood and agreed that such creative effort on the part of Executive shall be "work for hire", and all right, title and interest in such subject matter shall be the sole and exclusive property of Envirogen or its nominees, including the right to copyright such subject matter in the name of Envirogen. D. Confidentiality. Executive acknowledges and agrees that in the course --------------- of, or incident to, Executive's employment hereunder, Envirogen and/or its affiliates has provided and may in the future provide to Executive, or Executive has been and may otherwise become in the future exposed to, Confidential Information. For purposes of this Agreement, the term "Confidential Information" shall mean all information concerning the business or affairs of Envirogen and/or its affiliates and all information received from third parties and held in confidence by Envirogen and/or its affiliates including, without limitation, all information relating to existing and potential customers, suppliers, markets, contracts, prices, programs, requirements, strategies, products, technology, know-how, information, data, processes, inventions, developments, formulations, applications and methods of manufacture, except such information that, as of the date of disclosure to or development by Executive, is shown to have been voluntarily disclosed to the public by Envirogen, to have been independently developed and disclosed by third parties, or to have been disclosed in published literature or which has otherwise entered the public domain by lawful means, all of which Confidential Information is acknowledged to be the property of Envirogen. Executive acknowledges that his obtaining the Confidential Information is intended to, and necessary to, enable Executive to -4- perform his duties for Envirogen and/or its affiliates. Executive recognizes and agrees that the confidentiality of the Confidential Information is necessary to the ability of Envirogen and/or its affiliates to compete effectively with their competitors. Executive recognizes and acknowledges that, in many instances, Envirogen and/or its affiliates are bound by contractual or other obligations to hold and use Confidential Information received from third parties in confidence, and that Executive's failure to do so may constitute a breach of such obligations. Executive therefore acknowledges and agrees that Executive's undertakings in this Section 4.D with respect to the use and dissemination of such third party Confidential Information are made and intended for the benefit not only of Envirogen and its affiliates but also of all parties that provide Envirogen with Confidential Information. In light of the foregoing, Executive agrees that: (a) during the term of Executive's employment with Envirogen and/or any affiliates and at all times thereafter, Executive will hold the Confidential Information in the strictest confidence and will not retain in writing, duplicate, use, divulge, furnish or make accessible to anyone (which terms, as used in this Agreement, shall include, without limitation, any individual, firm, corporation, association or group) such Confidential Information, except as required in the performance of Executive's duties for Envirogen and/or any affiliate; (b) upon and subsequent to the termination of Executive's employment with Envirogen and/or any affiliate for any reason whatever Executive will not, at any time, retain in writing, duplicate, use, divulge, furnish or make accessible to anyone or make any use whatever of the Confidential Information or any portion thereof, either on Executive's own behalf or in conjunction with or on behalf of any other person or entity; and (c) upon termination of Executive's employment with Envirogen and/or any affiliate for any reason whatever, Executive will immediately return to Envirogen or such affiliate all documents or other tangible records, and any and all copies thereof, within Executive's possession, custody or control, containing or reflecting any Confidential Information. E. Return of Materials Upon Termination. Upon termination of Executive's ------------------------------------ employment by either party for any reason, Executive hereby agrees to return to Envirogen as a condition to receiving Executive's final salary check, any and all books, records, reports, notes, and materials of any nature or kind whatsoever furnished to or developed by Executive, or developed by any third party for Envirogen, which Executive may have obtained during the term of employment relating directly or indirectly to the property or business of Envirogen or any affiliate. 5. TERMINATION A. Death. The Executive's employment hereunder shall terminate upon ----- his death. B. Incapacity. If in the reasonable judgment of the Board of Directors of ---------- Envirogen, as a result of the Executive's incapacity due to physical or mental illness or otherwise, the Executive shall for three consecutive months during the term of this Agreement have been unable to perform satisfactorily all of his duties hereunder on a full-time basis after taking into account such accommodation for any physical or mental illness as may be required by law, Envirogen may terminate the Executive's employment hereunder by notice to the Executive. -5- C. Cause. Envirogen may terminate the Executive's employment hereunder ----- for Cause. For the purposes of this Agreement, Envirogen shall have "Cause" to terminate the Executive's employment hereunder upon the Executive's (i) material failure, refusal or neglect to perform and discharge his duties and responsibilities hereunder, or willful action that is materially inconsistent with the terms hereof, or material breach of his fiduciary duties as an officer or as a director of Envirogen, or (ii) gross misconduct that is injurious to Envirogen, or (iii) unethical business conduct, or (iv) conviction of a felony. Notwithstanding any other provision of this Agreement, Envirogen shall provide written notice to the Executive of its intent to terminate for Cause and of the specific Cause for termination. Upon the Executive's receipt of such written notice, he shall have ten (10) business days in which to cure, correct or remedy any stated act or omission constituting Cause. If the Executive cures, corrects or remedies such act or omission within such ten (10) business day period to the full satisfaction of the Board of Directors of Envirogen, there shall be no termination for the stated Cause, and this Agreement shall continue in full force and effect according to its terms. D. Termination by the Executive. The Executive may terminate his ---------------------------- employment hereunder for Good Reason. For purposes of this Agreement, "Good Reason" shall mean (A) any removal of the Executive from the position indicated in Section 2 hereof, except in connection with termination of the Executive's employment for incapacity or Cause, or (B) a reduction in the Executive's Base Salary below that set forth in Section 3.A. hereof, or (C) any other action by Envirogen that is in material breach of the terms of this Agreement or (D) a decision made in good faith by the Executive within six (6) months following a "Change in Control" that he has been assigned, without his prior written consent, duties or responsibilities inconsistent with his positions, duties, responsibilities and status immediately prior to the Change in Control. As used herein, the term "Change in Control" shall have the meaning set forth in Appendix I hereto. E. Date of Termination; Term of Employment. The term "Date of --------------------------------------- Termination" shall mean the earlier of (i) the Expiration Date or (ii) if the Executive's employment is terminated (a) by his death, the date of his death, or (b) for any other reason whether or not specified in this Section 5 or for no reason, the date on which such termination is to be effective pursuant to the notice of termination given by the party terminating the employment relationship. For all purposes of this Agreement, references to the "term" of the Executive's employment hereunder shall mean the period commencing on the date hereof and ending on the Date of Termination. 6. COMPENSATION UPON TERMINATION A. Death or Incapacity. Notwithstanding any other provision of this ------------------- Agreement, if the Executive's employment shall be terminated by reason of his death or incapacity, Envirogen shall pay or cause to be paid all sums accrued and unpaid to the Date of Termination under Sections 3.A, 3.C, 3.D and 3.E (in respect of accrued and unused vacation). In the event of the Executive's death, unexpired stock options held at his death shall remain exercisable for such period or periods as are set forth in the plan or plans under which they were granted. In the event of termination by reason of incapacity, Envirogen shall continue to pay the Executive the Base Salary as then in effect for the twelve- month period following the Date of Termination and shall, during such same twelve-month period, continue in effect all medical and life insurance which was maintained by Envirogen for the benefit of the Executive on the Date of Termination. -6- B. Cause or Executive's Termination other than for Good Reason. ----------------------------------------------------------- Notwithstanding any other provision of this Agreement, if Envirogen shall terminate the Executive's Employment for Cause, or if this Agreement shall terminate by reason of the Executive's determination not to renew or by reason of the Executive's termination of this Agreement other than for Good Reason, Envirogen shall pay Executive all sums accrued and unpaid to the Date of Termination under Sections 3.A, 3.C, 3.D and 3.E (in respect of accrued and unused vacation) and shall permit the Executive to exercise any stock options vested to the Date of Termination to the extent permitted by the terms of such options. Envirogen shall thereafter have no further obligations to the Executive under this Agreement. C. Good Reason or Other Termination. If Envirogen shall determine not to -------------------------------- renew this Agreement on any Expiration Date or shall terminate the Executive's employment other than pursuant to paragraphs A, B or C of Section 5 hereof or if the Executive shall terminate his employment for Good Reason, then Envirogen shall pay to the Executive all sums accrued under Sections 3.A, 3.C, 3.D and 3.E hereof through the Date of Termination. In addition, Envirogen shall pay severance pay to Executive, bi-weekly, at a rate equal to Executive's Base Salary as in effect on the Date of Termination, (A) in the case of termination arising from Envirogen's notice of election not to renew, for a period of twelve months following the Expiration Date; (B) in the case of any other termination by Envirogen other than by reason of paragraphs A, B, or C of Section 5 hereof, for a period of twelve months following the Date of Termination; and (C) in the case of termination by the Executive by reason of paragraph D of Section 5 hereof, for a period of twelve months following the Date of Termination. In addition, if this Agreement is terminated by reason of clause (A), (B) or (C) of the preceding sentence, (X) Envirogen shall continue all medical and life insurance benefits maintained by it for the benefit of the Executive on the Date of Termination for a period of twelve months following the Date of Termination, and (Y) all options held by the Executive which would vest in the twelve-month period following the Date of Termination shall become exercisable on the Date of Termination. In addition, if this Agreement is terminated by the Executive by reason of clause (D) of paragraph D of Section 5, then, subject to the next sentence, during the period commencing twelve months following the Date of Termination and ending twenty-four months following the Date of Termination, Envirogen shall continue to pay, on a bi-weekly basis, the amounts described in the second preceding sentence and provide the benefits provided in clause (X) of the immediately preceding sentence for so long as, during such period, the Executive is unable to obtain satisfactory full-time employment during such period, provided he continuously and diligently seeks the same. Anything in this paragraph C of this Section 6 to the contrary notwithstanding, in the event this Agreement is terminated by the Executive by reason of clause (D) of paragraph D of Section 5 and the sum of the aggregate of the salary continuation payments and the value of the accelerated options which would be payable under this paragraph C of this Section 6 would result in the inability of Envirogen to deduct any such amounts so paid from its taxable income for federal income tax purposes by reason of the provisions of Section 280G of the Internal Revenue Code of 1986, as amended, or under any provision successor thereto, and the regulations of the Internal Revenue Service thereunder, then the aggregate of such salary continuation payments and other payments or benefits in the nature of compensation (including the value of accelerated options) shall be reduced by the minimum amount as may be necessary so that all such amounts shall be eligible for deduction by Envirogen from its taxable income for federal income tax purposes. The payments provided for in this paragraph under the circumstances set forth in this paragraph shall constitute the sole obligation of Envirogen to the Executive for any termination of Employment referred to in this paragraph. -7- 7. BINDING AGREEMENT. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. This Agreement shall inure to the benefit of Envirogen and its corporate successors and permitted assigns; provided that Envirogen may not assign its rights or obligations hereunder without the prior consent of the Executive. This Agreement and the provisions of Appendix I hereto represent the sole agreements between Envirogen and the Executive relating to the Executive's employment by Envirogen and supersede all prior agreements and communications, oral and written to the extent that they relate to any terms and conditions of the Executive's proposed employment with Envirogen. Executive and Envirogen agree that the Previous Employment Agreement is hereby terminated and of no further force or effect, and Executive hereby waives any and all rights to which he otherwise would have been entitled under Section 3(a) of the Previous Employment Agreement in connection with the Merger. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification or discharge is approved by the Board of Directors and agreed to in writing signed by the Executive and such officer as may be specifically authorized by the Board of Directors. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 8. EFFECTIVE DATE AND EFFECTIVENESS. This Agreement shall take effect as of the date hereof. 9. NOTICES. For all purposes of this Agreement, notices and all other communications to either party hereunder provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed, in the case of Envirogen, to the President of Envirogen at the principal place of business of Envirogen, or in the case of the Executive, to the Executive at his principal residence address as on file with Envirogen at the time such notice is given; or to such other address as either party shall designate by giving like notice of such change to the other party. 10. ARBITRATION; INJUNCTION. Subject to the provisions of the last sentence of this Section 10, any disputes or controversies arising with respect to the provisions or operation of this Agreement shall be settled by binding arbitration by a single arbitrator in Philadelphia, Pennsylvania, under the commercial arbitration rules of the American Arbitration Association then in effect. Judgment on the award may be entered in any court of competent jurisdiction. Anything in the foregoing to the contrary notwithstanding, the Executive acknowledges and agrees that, because Envirogen's legal remedies would be inadequate in the event of a breach of, or other failure to perform, any of the covenants and agreements set forth in Section 4 hereof by the Executive, Envirogen may, in addition to obtaining any other remedy or relief available to it under this Section 10 (including without limitation damages at law), enforce the provisions of said Section 4 by injunction and other equitable relief in any court of competent jurisdiction. 11. INDEMNIFICATION; INSURANCE. Envirogen shall indemnify the Executive to the extent set forth in the By-Laws of Envirogen as in effect from time to time. Envirogen shall use its best efforts to maintain a level of directors and officers liability insurance equivalent to that in effect on the date hereof. -8- 12. MISCELLANEOUS. Executive acknowledges that amounts which become payable hereunder will be subject to withholding to the extent provided in the Internal Revenue Code of 1986 and analogous provisions of state and local law. The validity, interpretation, construction and performance of this Agreement shall be governed by the domestic substantive laws of the State of New Jersey without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction. 13. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect, and in the event that any provision hereof shall be determined to be invalid or unenforceable for any reason, such provision shall be construed by limiting it so as to be valid and enforceable to the fullest extent compatible with and possible under applicable law. 14. COUNTERPARTS. This Agreement may be executed in any one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands, as of the date first above written. ENVIROGEN, INC., By: /s/: HARCHARAN S. GILL ---------------------------- Harcharan S. Gill President /S/: GARY W. HAWK ------------------------------- Gary W. Hawk -9- APPENDIX I "Change in Control" shall mean: (A) The acquisition by any person, entity or "group" required to file a Schedule 13D or Schedule 14D-1 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") (excluding, for this purpose, Envirogen, its subsidiaries, or any employee benefit plan of Envirogen or its subsidiaries which acquires beneficial ownership of voting securities of Envirogen) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 51% or more of either the then-outstanding shares of common stock or the combined voting power of Envirogen's then-outstanding voting securities entitled to vote generally in the election of directors; or (B) The election or appointment to the Board of Directors, or resignation of or removal from the Board of Directors, of directors by virtue of which the individuals who as of the date hereof constituted the Board of Directors (the "Incumbent Board") no longer constitute at least a majority of the Board, provided that any person who becomes a director subsequent to the date hereof whose appointment, election, or nomination for election by Envirogen's stockholders, was nominated by or approved by a vote of at least a majority of the Incumbent Board (other than an appointment, election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of Envirogen, as such terms are used in Rule 14a-1 promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (C) Approval by the stockholders of Envirogen of: (i) a reorganization, merger or consolidation by reason of which persons who were the stockholders of Envirogen immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 51% of the combined voting power of the reorganized, merged or consolidated company's then outstanding voting securities entitled to vote generally in the election of directors, or (ii) a liquidation or dissolution of Envirogen or the sale, transfer, lease or other disposition of all or substantially all of the assets of Envirogen (whether such assets are held directly or indirectly). EX-10.4 5 EMPLOYMENT AGREEMENT #4 Exhibit 10.4 ------------ EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT is made as of this 10th day of April, 1997, between Envirogen, Inc., a Delaware corporation ("Envirogen"), and Richard W. Schowengerdt (the "Executive"). WHEREAS, Envirogen, Fluid Management, Inc., a Wisconsin corporation ("FMI"), and all of the stockholders of FMI, including Executive, have entered into an Agreement and Plan of Merger dated as of January 14, 1997 pursuant to which FMI will merge with and into Envirogen and Envirogen will be the surviving corporation (the "Merger"); WHEREAS, Executive has been employed by FMI as a senior executive officer pursuant to an Employment and Non-Compete Agreement dated June 5, 1995 (the "Previous Employment Agreement"); WHEREAS, an important factor in Envirogen's decision to acquire FMI and to effectuate the Merger is the assurance that, for a sufficient period following the Merger, Envirogen will have available the continued services of Executive and Executive will enter into certain confidentiality and non- competition agreements with Envirogen, all on the terms and conditions set forth herein, and that Executive will waive any and all rights to which he would otherwise have been entitled under Section 3(a) of the Previous Employment Agreement in connection with the Merger; and WHEREAS, as an inducement to Envirogen to consummate the Merger, Executive and Envirogen are entering into this Agreement, which supercedes in its entirety the Previous Employment Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: 1. EMPLOYMENT A. Agreement. Envirogen hereby agrees to employ the Executive, and --------- the Executive hereby agrees to serve Envirogen, all on the terms and conditions set forth herein. B. Expiration Date. The employment of the Executive by Envirogen --------------- shall be for the period commencing on the date hereof and expiring on December 31, 1998 (the "Expiration Date"), unless such employment shall have been extended or sooner terminated as hereinafter set forth. On the Expiration Date, the Agreement shall be renewed automatically for successive terms of one year each unless either party hereto shall have given notice to the other party at least three months prior to the end of the then current Expiration Date that the Agreement shall not be renewed. Upon each such automatic renewal, the Expiration Date shall become the first anniversary of the last Expiration Date then in effect. As used herein, the term "Contract Year" means the twelve-month period beginning April 10 of each year this Agreement is in effect. 2. POSITION AND DUTIES. The Executive shall serve in the capacity or capacities and have the duties of Vice President of Technical Development of the FMI Division of Envirogen, and shall report to, be accountable to and subject to the supervision of, and shall also have such other powers, duties and responsibilities as may from time to time be prescribed by, the Board of Directors of Envirogen, provided that such other duties and responsibilities are not inconsistent with the Executive's position and those duties set forth herein and in the bylaws of Envirogen. The Executive shall perform and discharge, faithfully, diligently and to the best of his ability, such duties and responsibilities. The Executive shall not, without the prior consent of the Board of Directors of Envirogen, accept a position on the Board of Directors of any company other than (i) Envirogen or a subsidiary thereof, (ii) HJS of Wisconsin, Inc. or (iii) any charitable or similar organization. The Executive shall devote substantially all his working time and efforts to the business and affairs of Envirogen and its subsidiaries and affiliates. The Executive represents to Envirogen that on the date hereof he is not party to any agreement which conflicts with his obligations hereunder and that he will not become party to any such agreement; should this representation prove false at any time, then Envirogen shall have no further obligations hereunder. 3. COMPENSATION A. Salary. During the term of his employment hereunder, the ------ Executive shall receive a Base Salary at the initial annual rate of $140,000. Such initial Base Salary shall be subject to increase, but not decrease, by the Board of Directors of Envirogen upon prior recommendation of the Executive Compensation and Stock Option Committee thereof. Base Salary shall be payable in substantially equal bi-weekly installments, less any amounts required to be withheld under applicable law. In the event that, during the term hereof, Envirogen shall determine to make salary payments to its executives at intervals other than bi-weekly, Envirogen may adjust the intervals at which it makes payments of Base Salary hereunder to such intervals as are consistent with the intervals at which other executives of Envirogen are then compensated. Except as otherwise provided in this Agreement, the Base Salary shall be pro-rated for any period of service less than a full Contract Year. B. Bonuses; Stock Options. The Executive will be eligible to receive ---------------------- an annual incentive bonus for each fiscal year of Envirogen this agreement is in effect based upon the obtainment of corporate and individual performance goals fixed by the Board of Directors of Envirogen upon the prior recommendation of the Executive Compensation and Stock Option Committee thereof. The Executive will also be eligible to receive grants of stock options under such stock option plans of Envirogen as are in effect from time to time in such amounts, and on such terms, as the committee or committees administering such plans may fix and determine. C. Expenses. During the term of his employment hereunder, the -------- Executive shall be entitled to receive prompt reimbursement for all reasonable business expenses incurred by him on behalf of Envirogen (in accordance with the policies and procedures established by the Board of Directors of Envirogen from time to time for Envirogen's senior executive officers) in performing services hereunder, provided that the Executive properly accounts therefor in accordance with requirements for federal income tax deductibility and Envirogen's policies and procedures. -2- D. Fringe Benefits. During the term of his employment hereunder, the --------------- Executive shall be entitled to participate in or receive such benefits as other executives and key employees of Envirogen are entitled to receive from time to time, including but not limited to life insurance, health and accident plans, retirement programs or other arrangements made generally available by Envirogen to its executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements. Nothing herein shall preclude Envirogen, during the term hereof, from amending, modifying or eliminating any such benefits so long as any such changes apply consistently to all executives and key employees of Envirogen. E. Vacations. During the term of his employment hereunder, the --------- Executive shall be entitled to twenty (20) paid vacation days in each calendar year (less, in 1997, those vacation days taken by the Executive in 1997 prior to the date hereof under the Previous Employment Agreement and, in any other year, prorated for any partial calendar year this Agreement is in effect), and shall also be entitled to all paid holidays given by Envirogen to its employees generally. Vacation days allotted in any calendar year and not used in such year shall expire if not used by March 31 of the immediately following calendar year. 4. RESTRICTIVE COVENANTS A. Non-competition. Executive covenants that he will not directly or --------------- indirectly own, manage, operate or control, nor be a director, officer or employee of, or consultant to, any business or enterprise competing with Envirogen or any affiliate of Envirogen, anywhere in (i) the 50 states of the United States, (ii) all of the provinces of Canada, and (iii) any other jurisdiction in which Envirogen derived in excess of $250,000 in revenues during the period this Agreement was in effect. For purposes hereof, a business competing with Envirogen shall mean any business (i) which does research with respect to, designs, develops, produces or manufactures any products which are the same as or substantially similar to or are intended for uses similar to those with respect to which Envirogen or any affiliate does research or which Envirogen or any affiliate designs, develops, produces or manufactures; or (ii) which furnishes services similar to those furnished by Envirogen or any affiliate. The provisions of this paragraph, however, shall not prohibit Executive from investing in the securities of any such business or enterprise which are traded publicly and constitute less than one percent (1%) of the particular class of such business's or enterprises's securities outstanding from time to time. The foregoing covenant shall be binding on Executive during his employment hereunder and for a period of two (2) years after termination of his employment hereunder. Furthermore, Executive agrees not to engage or participate in any effort or act to induce any of the associates, consultants, customers, officers or employees of Envirogen or any affiliate to take any action which might be disadvantageous to Envirogen or any affiliate. B. Disclosure and Assignment of Inventions; Patents. ------------------------------------------------ (a) Executive shall communicate to Envirogen promptly and fully, and hereby assigns, sells and transfers to Envirogen Executive's entire right, title and interest in and to, all inventions, whether or not patentable, made or conceived by Executive (alone or jointly with others and whether or not made or conceived during regular business hours) from the time of entering the employ of Envirogen or any affiliate until the termination thereof which (i) are related in any manner, directly or indirectly, to the business, products, research or development of Envirogen or any affiliate or (ii) result from or are suggested by any work which Executive may do for or on behalf of Envirogen or -3- any affiliate. For purposes of this Agreement, the term "invention" shall include, without limitation, any new, useful or original art, machine, process, method, product, apparatus, compound, formula, shape, lifeform, composition of matter or configuration of any kind. (b) Executive agrees to assist Envirogen and its nominees during and subsequent to his employment with Envirogen or any affiliate in every proper way (entirely at its or their expense) to obtain for its or their own benefit patents for such inventions in any and all countries, said inventions to be and remain the sole and exclusive property of Envirogen or its nominees, whether patented or not. (c) Executive agrees to make and maintain adequate and current written records of all such inventions, in the form of notes, sketches, drawings, or reports relating thereto, which records shall be and remain the property of and available to Envirogen at all times. (d) Executive agrees to notify Envirogen in writing before Executive makes any disclosure or performs or causes to be performed any work for or on behalf of Envirogen or any affiliate, which appears to threaten or conflict with (i) rights Executive claims in any invention or idea conceived by Executive or others prior to the Executive's employment with Envirogen or any affiliate or outside the scope of this Agreement, or (ii) rights of others arising out of obligations incurred by Executive prior to his employment with or outside the scope of this Agreement. In the event of the Executive's failure to give notice under the circumstances specified, Envirogen may assume that no such conflicting invention or idea exists and Executive agrees not to make any claim against Envirogen or any affiliate with respect to the use of any such invention or idea in any work which Executive performs or causes to be performed for or on behalf of Envirogen or any affiliate. C. Copyrights. Executive understands and acknowledges that Executive ---------- may from time to time during the term of Executive's employment with Envirogen create or contribute to, either alone or with others, the creation of a copyrightable subject matter relating to the business, products, research or development of Envirogen or its affiliates and it is understood and agreed that such creative effort on the part of Executive shall be "work for hire", and all right, title and interest in such subject matter shall be the sole and exclusive property of Envirogen or its nominees, including the right to copyright such subject matter in the name of Envirogen. D. Confidentiality. Executive acknowledges and agrees that in the --------------- course of, or incident to, Executive's employment hereunder, Envirogen and/or its affiliates has provided and may in the future provide to Executive, or Executive has been and may otherwise become in the future exposed to, Confidential Information. For purposes of this Agreement, the term "Confidential Information" shall mean all information concerning the business or affairs of Envirogen and/or its affiliates and all information received from third parties and held in confidence by Envirogen and/or its affiliates including, without limitation, all information relating to existing and potential customers, suppliers, markets, contracts, prices, programs, requirements, strategies, products, technology, know-how, information, data, processes, inventions, developments, formulations, applications and methods of manufacture, except such information that, as of the date of disclosure to or development by Executive, is shown to have been voluntarily disclosed to the public by Envirogen, to have been independently developed and disclosed by third parties, or to have been disclosed in published literature or which has otherwise entered the public domain by lawful means, all of which Confidential Information is acknowledged to be the property of Envirogen. Executive acknowledges that his obtaining the Confidential Information is intended to, and necessary to, enable Executive to -4- perform his duties for Envirogen and/or its affiliates. Executive recognizes and agrees that the confidentiality of the Confidential Information is necessary to the ability of Envirogen and/or its affiliates to compete effectively with their competitors. Executive recognizes and acknowledges that, in many instances, Envirogen and/or its affiliates are bound by contractual or other obligations to hold and use Confidential Information received from third parties in confidence, and that Executive's failure to do so may constitute a breach of such obligations. Executive therefore acknowledges and agrees that Executive's undertakings in this Section 4.D with respect to the use and dissemination of such third party Confidential Information are made and intended for the benefit not only of Envirogen and its affiliates but also of all parties that provide Envirogen with Confidential Information. In light of the foregoing, Executive agrees that: (a) during the term of Executive's employment with Envirogen and/or any affiliates and at all times thereafter, Executive will hold the Confidential Information in the strictest confidence and will not retain in writing, duplicate, use, divulge, furnish or make accessible to anyone (which terms, as used in this Agreement, shall include, without limitation, any individual, firm, corporation, association or group) such Confidential Information, except as required in the performance of Executive's duties for Envirogen and/or any affiliate; (b) upon and subsequent to the termination of Executive's employment with Envirogen and/or any affiliate for any reason whatever Executive will not, at any time, retain in writing, duplicate, use, divulge, furnish or make accessible to anyone or make any use whatever of the Confidential Information or any portion thereof, either on Executive's own behalf or in conjunction with or on behalf of any other person or entity; and (c) upon termination of Executive's employment with Envirogen and/or any affiliate for any reason whatever, Executive will immediately return to Envirogen or such affiliate all documents or other tangible records, and any and all copies thereof, within Executive's possession, custody or control, containing or reflecting any Confidential Information. E. Return of Materials Upon Termination. Upon termination of ------------------------------------ Executive's employment by either party for any reason, Executive hereby agrees to return to Envirogen as a condition to receiving Executive's final salary check, any and all books, records, reports, notes, and materials of any nature or kind whatsoever furnished to or developed by Executive, or developed by any third party for Envirogen, which Executive may have obtained during the term of employment relating directly or indirectly to the property or business of Envirogen or any affiliate. 5. TERMINATION A. Death. The Executive's employment hereunder shall terminate upon ----- his death. B. Incapacity. If in the reasonable judgment of the Board of ---------- Directors of Envirogen, as a result of the Executive's incapacity due to physical or mental illness or otherwise, the Executive shall for three consecutive months during the term of this Agreement have been unable to perform satisfactorily all of his duties hereunder on a full-time basis after taking into account such accommodation for any physical or mental illness as may be required by law, Envirogen may terminate the Executive's employment hereunder by notice to the Executive. -5- C. Cause. Envirogen may terminate the Executive's employment ----- hereunder for Cause. For the purposes of this Agreement, Envirogen shall have "Cause" to terminate the Executive's employment hereunder upon the Executive's (i) material failure, refusal or neglect to perform and discharge his duties and responsibilities hereunder, or willful action that is materially inconsistent with the terms hereof, or material breach of his fiduciary duties as an officer or as a director of Envirogen, or (ii) gross misconduct that is injurious to Envirogen, or (iii) unethical business conduct, or (iv) conviction of a felony. Notwithstanding any other provision of this Agreement, Envirogen shall provide written notice to the Executive of its intent to terminate for Cause and of the specific Cause for termination. Upon the Executive's receipt of such written notice, he shall have ten (10) business days in which to cure, correct or remedy any stated act or omission constituting Cause. If the Executive cures, corrects or remedies such act or omission within such ten (10) business day period to the full satisfaction of the Board of Directors of Envirogen, there shall be no termination for the stated Cause, and this Agreement shall continue in full force and effect according to its terms. D. Termination by the Executive. The Executive may terminate his ---------------------------- employment hereunder for Good Reason. For purposes of this Agreement, "Good Reason" shall mean (A) any removal of the Executive from the position indicated in Section 2 hereof, except in connection with termination of the Executive's employment for incapacity or Cause, or (B) a reduction in the Executive's Base Salary below that set forth in Section 3.A. hereof, or (C) any other action by Envirogen that is in material breach of the terms of this Agreement or (D) a decision made in good faith by the Executive within six (6) months following a "Change in Control" that he has been assigned, without his prior written consent, duties or responsibilities inconsistent with his positions, duties, responsibilities and status immediately prior to the Change in Control. As used herein, the term "Change in Control" shall have the meaning set forth in Appendix I hereto. E. Date of Termination; Term of Employment. The term "Date of --------------------------------------- Termination" shall mean the earlier of (i) the Expiration Date or (ii) if the Executive's employment is terminated (a) by his death, the date of his death, or (b) for any other reason whether or not specified in this Section 5 or for no reason, the date on which such termination is to be effective pursuant to the notice of termination given by the party terminating the employment relationship. For all purposes of this Agreement, references to the "term" of the Executive's employment hereunder shall mean the period commencing on the date hereof and ending on the Date of Termination. 6. COMPENSATION UPON TERMINATION A. Death or Incapacity. Notwithstanding any other provision of this ------------------- Agreement, if the Executive's employment shall be terminated by reason of his death or incapacity, Envirogen shall pay or cause to be paid all sums accrued and unpaid to the Date of Termination under Sections 3.A, 3.C, 3.D and 3.E (in respect of accrued and unused vacation). In the event of the Executive's death, unexpired stock options held at his death shall remain exercisable for such period or periods as are set forth in the plan or plans under which they were granted. In the event of termination by reason of incapacity, Envirogen shall continue to pay the Executive the Base Salary as then in effect for the twelve- month period following the Date of Termination and shall, during such same twelve-month period, continue in effect all medical and life insurance which was maintained by Envirogen for the benefit of the Executive on the Date of Termination. -6- B. Cause or Executive's Termination other than for Good Reason. ----------------------------------------------------------- Notwithstanding any other provision of this Agreement, if Envirogen shall terminate the Executive's Employment for Cause, or if this Agreement shall terminate by reason of the Executive's determination not to renew or by reason of the Executive's termination of this Agreement other than for Good Reason, Envirogen shall pay Executive all sums accrued and unpaid to the Date of Termination under Sections 3.A, 3.C, 3.D and 3.E (in respect of accrued and unused vacation) and shall permit the Executive to exercise any stock options vested to the Date of Termination to the extent permitted by the terms of such options. Envirogen shall thereafter have no further obligations to the Executive under this Agreement. C. Good Reason or Other Termination. If Envirogen shall determine -------------------------------- not to renew this Agreement on any Expiration Date or shall terminate the Executive's employment other than pursuant to paragraphs A, B or C of Section 5 hereof or if the Executive shall terminate his employment for Good Reason, then Envirogen shall pay to the Executive all sums accrued under Sections 3.A, 3.C, 3.D and 3.E hereof through the Date of Termination. In addition, Envirogen shall pay severance pay to Executive, bi-weekly, at a rate equal to Executive's Base Salary as in effect on the Date of Termination, (A) in the case of termination arising from Envirogen's notice of election not to renew, for a period of twelve months following the Expiration Date; (B) in the case of any other termination by Envirogen other than by reason of paragraphs A, B, or C of Section 5 hereof, for a period of twelve months following the Date of Termination; and (C) in the case of termination by the Executive by reason of paragraph D of Section 5 hereof, for a period of twelve months following the Date of Termination. In addition, if this Agreement is terminated by reason of clause (A), (B) or (C) of the preceding sentence, (X) Envirogen shall continue all medical and life insurance benefits maintained by it for the benefit of the Executive on the Date of Termination for a period of twelve months following the Date of Termination, and (Y) all options held by the Executive which would vest in the twelve-month period following the Date of Termination shall become exercisable on the Date of Termination. In addition, if this Agreement is terminated by the Executive by reason of clause (D) of paragraph D of Section 5, then, subject to the next sentence, during the period commencing twelve months following the Date of Termination and ending twenty-four months following the Date of Termination, Envirogen shall continue to pay, on a bi-weekly basis, the amounts described in the second preceding sentence and provide the benefits provided in clause (X) of the immediately preceding sentence for so long as, during such period, the Executive is unable to obtain satisfactory full-time employment during such period, provided he continuously and diligently seeks the same. Anything in this paragraph C of this Section 6 to the contrary notwithstanding, in the event this Agreement is terminated by the Executive by reason of clause (D) of paragraph D of Section 5 and the sum of the aggregate of the salary continuation payments and the value of the accelerated options which would be payable under this paragraph C of this Section 6 would result in the inability of Envirogen to deduct any such amounts so paid from its taxable income for federal income tax purposes by reason of the provisions of Section 280G of the Internal Revenue Code of 1986, as amended, or under any provision successor thereto, and the regulations of the Internal Revenue Service thereunder, then the aggregate of such salary continuation payments and other payments or benefits in the nature of compensation (including the value of accelerated options) shall be reduced by the minimum amount as may be necessary so that all such amounts shall be eligible for deduction by Envirogen from its taxable income for federal income tax purposes. The payments provided for in this paragraph under the circumstances set forth in this paragraph shall constitute the sole obligation of Envirogen to the Executive for any termination of Employment referred to in this paragraph. -7- 7. BINDING AGREEMENT. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. This Agreement shall inure to the benefit of Envirogen and its corporate successors and permitted assigns; provided that Envirogen may not assign its rights or obligations hereunder without the prior consent of the Executive. This Agreement and the provisions of Appendix I hereto represent the sole agreements between Envirogen and the Executive relating to the Executive's employment by Envirogen and supersede all prior agreements and communications, oral and written to the extent that they relate to any terms and conditions of the Executive's proposed employment with Envirogen. Executive and Envirogen agree that the Previous Employment Agreement is hereby terminated and of no further force or effect, and Executive hereby waives any and all rights to which he otherwise would have been entitled under Section 3(a) of the Previous Employment Agreement in connection with the Merger. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification or discharge is approved by the Board of Directors and agreed to in writing signed by the Executive and such officer as may be specifically authorized by the Board of Directors. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 8. EFFECTIVE DATE AND EFFECTIVENESS. This Agreement shall take effect as of the date hereof. 9. NOTICES. For all purposes of this Agreement, notices and all other communications to either party hereunder provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed, in the case of Envirogen, to the President of Envirogen at the principal place of business of Envirogen, or in the case of the Executive, to the Executive at his principal residence address as on file with Envirogen at the time such notice is given; or to such other address as either party shall designate by giving like notice of such change to the other party. 10. ARBITRATION; INJUNCTION. Subject to the provisions of the last sentence of this Section 10, any disputes or controversies arising with respect to the provisions or operation of this Agreement shall be settled by binding arbitration by a single arbitrator in Philadelphia, Pennsylvania, under the commercial arbitration rules of the American Arbitration Association then in effect. Judgment on the award may be entered in any court of competent jurisdiction. Anything in the foregoing to the contrary notwithstanding, the Executive acknowledges and agrees that, because Envirogen's legal remedies would be inadequate in the event of a breach of, or other failure to perform, any of the covenants and agreements set forth in Section 4 hereof by the Executive, Envirogen may, in addition to obtaining any other remedy or relief available to it under this Section 10 (including without limitation damages at law), enforce the provisions of said Section 4 by injunction and other equitable relief in any court of competent jurisdiction. 11. INDEMNIFICATION; INSURANCE. Envirogen shall indemnify the Executive to the extent set forth in the By-Laws of Envirogen as in effect from time to time. Envirogen shall use its best efforts to maintain a level of directors and officers liability insurance equivalent to that in effect on the date hereof. -8- 12. MISCELLANEOUS. Executive acknowledges that amounts which become payable hereunder will be subject to withholding to the extent provided in the Internal Revenue Code of 1986 and analogous provisions of state and local law. The validity, interpretation, construction and performance of this Agreement shall be governed by the domestic substantive laws of the State of New Jersey without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction. 13. VALIDITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect, and in the event that any provision hereof shall be determined to be invalid or unenforceable for any reason, such provision shall be construed by limiting it so as to be valid and enforceable to the fullest extent compatible with and possible under applicable law. 14. COUNTERPARTS. This Agreement may be executed in any one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands, as of the date first above written. ENVIROGEN, INC. By: /s/: HARCHARAN S. GILL ------------------------------ Harcharan S. Gill President /s/: RICHARD W. SCHOWENGERDT --------------------------------- Richard W. Schowengerdt -9- APPENDIX I "Change in Control" shall mean: (A) The acquisition by any person, entity or "group" required to file a Schedule 13D or Schedule 14D-1 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") (excluding, for this purpose, Envirogen, its subsidiaries, or any employee benefit plan of Envirogen or its subsidiaries which acquires beneficial ownership of voting securities of Envirogen) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 51% or more of either the then-outstanding shares of common stock or the combined voting power of Envirogen's then-outstanding voting securities entitled to vote generally in the election of directors; or (B) The election or appointment to the Board of Directors, or resignation of or removal from the Board of Directors, of directors by virtue of which the individuals who as of the date hereof constituted the Board of Directors (the "Incumbent Board") no longer constitute at least a majority of the Board, provided that any person who becomes a director subsequent to the date hereof whose appointment, election, or nomination for election by Envirogen's stockholders, was nominated by or approved by a vote of at least a majority of the Incumbent Board (other than an appointment, election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of Envirogen, as such terms are used in Rule 14a-1 promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (C) Approval by the stockholders of Envirogen of: (i) a reorganization, merger or consolidation by reason of which persons who were the stockholders of Envirogen immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 51% of the combined voting power of the reorganized, merged or consolidated company's then outstanding voting securities entitled to vote generally in the election of directors, or (ii) a liquidation or dissolution of Envirogen or the sale, transfer, lease or other disposition of all or substantially all of the assets of Envirogen (whether such assets are held directly or indirectly). -10- EX-11 6 COMPUTATION PER SHARE EARNINGS Exhibit 11 ENVIROGEN, INC. STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
Three Months Ended June 30, ---------------------------------------------------------------- 1997 1996 ------------------------------- -------------------------------- Primary Fully Diluted Primary Fully Diluted ------------ -------------- ------------- --------------- Net income (loss) applicable to Common Stock $205,474 $205,474 ($1,010,350) ($1,010,350) ============ ============== ============= =============== Weighted average number of common shares outstanding 20,589,356 20,589,356 10,805,890 10,805,890 Shares issuable upon exercise of outstanding options and warrants 1,301,940 1,301,940 Shares assumed to be repurchased under the treasury stock method (1,014,274) (987,347) ------------ -------------- ------------- --------------- Number of common shares used in computing per share data 20,877,022 20,903,949 10,805,890 10,805,890 ============ ============== ============= =============== Net income (loss) per share applicable to Common Stock $0.01 $0.01 ($0.09) ($0.09) ============ ============== ============= =============== Six Months Ended June 30, ---------------------------------------------------------------- 1997 1996 -------------------------- ------------------------------------ Primary Fully Diluted Primary Fully Diluted ------------ ------------- ----------------- ----------------- Net income (loss) applicable to Common Stock ($422,093) ($422,093) ($1,649,064) ($1,649,064) ============ ============= ================= ================= Weighted average number of common shares outstanding 17,282,292 17,282,292 10,093,463 10,093,463 Shares issuable upon exercise of outstanding options and warrants Shares assumed to be repurchased under the treasury stock method ------------ ------------- ----------------- ----------------- Number of common shares used in computing per share data 17,282,292 17,282,292 10,093,463 10,093,463 ============ ============= ================= ================= Net income (loss) per share applicable to Common Stock ($0.02) ($0.02) ($0.16) ($0.16) ============ ============= ================= =================
For the three months ended June 30, 1996 and the six months ended June 30, 1997 and 1996, both primary and fully diluted earnings per common share were based on the weighted average number of outstanding common shares. The inclusion of additional shares assuming the exercise of stock options and warrants would have been antidulutive. EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM: FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 4,653,627 0 6,804,996 (384,518) 55,027 16,145,263 4,649,288 (2,936,774) 43,387,763 7,016,763 0 0 0 232,211 36,119,321 43,387,763 0 10,094,997 0 10,506,870 0 0 14,007 (422,093) 0 (422,093) 0 0 0 (422,093) (0.02) (0.02)
-----END PRIVACY-ENHANCED MESSAGE-----