UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-16225
EMCON
(Exact name of Registrant as specified in its charter)
California 94-1738964
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.
400 South El Camino Real
Suite 1200
San Mateo, California 94402
(Address, of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 375-1522
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
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 ____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock of the Registrant held by
non-affiliates of the Registrant, based on the closing price of the Registrant's
Common Stock as quoted by the National Association of Securities Dealers'
Automated Quotation System on February 28, 1997, was $16,410,000 Shares of
Common Stock held by each officer and director and by each person who owns 5% or
more of the outstanding Common Stock have been excluded in that such persons may
be deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of shares of the Registrant's Common Stock outstanding as of February
28, 1997, was 8,543,012.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Registrant's definitive proxy statement to be filed with the
Commission within 120 days of the end of Registrant's fiscal year ended December
31, 1996 are incorporated by reference in Part III of this Form 10-K.
The Index to Exhibits appears on pages 41 of this Report. This Report, including
all exhibits and attachments, contains 127 pages.
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TABLE OF CONTENTS
PART I PAGE
Item 1: Business................................................. 4
Item 2: Properties............................................... 10
Item 3: Legal Proceedings........................................ 10
Item 4: Submission of Matters to a Vote of Security Holders...... 10
PART II
Item 5: Market for the Registrant's Common Equity and Related
Stockholder Matters..................................... 11
Item 6: Selected Financial Data.................................. 12
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 12
Item 8: Financial Statements and Supplementary Data.............. 18
Item 9: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................... 37
PART III
Item 10: Directors and Executive Officers of the Registrant....... 37
Item 11: Executive Compensation................................... 37
Item 12: Security Ownership of Certain Beneficial Owners and
Management............................................. 37
Item 13: Certain Relationships and Related Transactions........... 37
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports
on Form 8-K............................................ 38
Signatures............................................... 39
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PART I
Item 1. BUSINESS
EMCON (referred to herein as "EMCON" and the "Company") provides comprehensive
environmental engineering, design, construction, operations and maintenance, and
equipment fabrication services to a variety of public and private clients. EMCON
is a leader in the design, construction and remediation of solid and hazardous
waste transfer, storage and disposal facilities, having participated in the
design, construction and remediation of several hundred such facilities in the
United States, as well as Argentina, Canada, Hong Kong, Mexico, Peru and
Venezuela. EMCON's waste facility services include site selection and
evaluation, facility design, development of preprocessing and operating plans,
assistance in regulatory compliance and permitting, final closure, end-use
planning and design, construction, and operations and maintenance. The Company's
services also include the development of programs dealing with environmental
assessments and remediation of contaminated sites, as well as services related
to applied sciences such as fuel spill damage assessment, marine fate-and-effect
studies and natural resource damage assessment. The Company's professional staff
includes chemical, civil, geotechnical, mechanical, electrical and environmental
engineers; marine and terrestrial biologists; oceanographers; plant ecologists;
chemists; geologists; hydrogeologists; hydrologists and toxicologists.
References to the Company and EMCON in this report include the Company's
subsidiaries, unless the context indicates otherwise.
On February 29, 1996, EMCON acquired all the outstanding capital stock of
Organic Waste Technologies, Inc. ("OWT"), a Cleveland-based construction,
equipment and operations and maintenance company with significant expertise in
solid waste management. OWT was subsequently integrated into and is now a
significant component of the Company's Operation and Construction Division. The
Company purchased OWT for $13,859,000 in cash plus the issuance of convertible
notes and other contractual obligations to pay certain senior OWT management in
the aggregate principal amount of $1,747,000. The notes and other contractual
obligations to pay bear interest payable at the rate of 8% per annum with all
principal due and payable in full on March 1, 2001. The above obligations may be
converted into shares of OWT common stock upon an underwritten public offering
of OWT's common stock in an amount in excess of $10,000,000. In the event the
notes have not been converted into OWT shares they may instead be converted into
shares of EMCON common stock for a period of ninety days after November 30,
2001, at a conversion price of $6.50 per share.
The Company, through its wholly owned subsidiary, Columbia Analytical Services,
Inc. ("CAS"), also operates a full-service, integrated network of analytical
laboratories in Alaska, Arizona, California, Florida, New York and Washington.
On December 31, 1996, the Company signed a Letter of Intent to sell CAS to the
CAS employees for cash, notes and other consideration valued, in total, at
approximately $7.5 million. The sale is expected to close prior to the end of
the first quarter of 1997. In anticipation of the sale, the Company recognized
an impairment in its investment in CAS of $3,327,000; including, a write-down in
the carrying value of goodwill associated with previous laboratory acquisitions
of $1,426,000.
On December 31, 1996, the Company completed the sale of its Yolo landfill
gas-to-energy project in return for a one-time cash payment in January, 1997 of
$800,000. The Company incurred a loss in 1996 of $88,000 on the sale.
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On March 6, 1997, the Company completed the sale of its Marina landfill
gas-to-energy project for a net up front cash payment of $800,000. The Company
is eligible to receive an additional $200,000 prior to December 31, 1997 subject
to certain post-closing contingencies - specifically, that no material adverse
changes are made to the provisions of Section 29 of the Internal Revenue Code of
1986, as amended, pertaining to the availability of unconventional fuel credits.
Services
Following the sale of CAS, the Company will be comprised of two distinct
operating divisions: the Professional Services Division (formerly known as the
Consulting Division); and the Operations and Construction Division.
Solid Waste Services
The Company's Professional Services Division and Operations and Construction
Division offer a full range of services to operators of solid and hazardous
waste transfer, storage, recycling, and disposal facilities; from the design,
permitting and construction of the facility, to the provision of necessary
equipment and components, to post-closure, operations and maintenance services
and end-use planning. Customers may utilize the full range or a portion of the
Company's services.
Through its extensive experience in disposal site design, the Company has
developed expertise in three critical areas of waste disposal technology - liner
systems, leachate treatment, and gas control/recovery systems. To protect
surrounding soil and water, natural and synthetic liners are used to collect and
contain potentially hazardous liquids percolating through the waste that have
been deposited at the site ("leachate"). Leachate is then collected on the
surface of the liner, withdrawn from the landfill and treated using physical,
chemical, evaporative and/or biological methods. Gas control and recovery
systems, which may be installed on active or closed landfills, are used to
control the methane gas produced by decomposing organic refuse. Where
economical, recovery systems are designed to extract methane to generate heat
and/or electricity, or in some cases to evaporate leachate using the Company's
patented leachate evaporation system. Federal regulation now requires that all
new land disposal facilities utilize liners and methane control systems, and
that these systems be required to meet increasingly stringent design standards.
EMCON's services to its clients often begin with the evaluation of potential
disposal facility sites. The hydrogeological and geotechnical staff of the
Professional Services Division evaluate soils, groundwater occurrence and
quality, seismic stability and potential flooding at possible locations, while
other professionals analyze operational considerations, such as proximity of a
site to water sources, visibility to the public and estimated operating
expenses. Once desirable sites are identified, the Company assists in obtaining
regulatory approvals by drafting environmental impact reports and permit
applications, appearing at hearings and negotiating with government agencies.
EMCON performs detailed cost/benefit analyses of design alternatives, using, if
possible, natural features of the site to reduce cost. EMCON engineers design
the waste disposal facility, considering such factors as the volume and types of
material to be disposed at the site, land use and public policy, physical
characteristics of the site and regulatory requirements. EMCON identifies the
type of natural or synthetic liners which are appropriate or required for the
site and designs the monitoring systems, landfill gas control systems and
leachate recovery and treatment systems. EMCON also monitors statutory and
regulatory developments, and assists operators in implementing required design
or operating changes and preparing additional permit applications and
environmental reports.
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Throughout the construction process, the Professional Services Division performs
services such as preparing detailed construction documents, assisting in
contractor selection, scheduling and monitoring work in progress, performing
construction quality assurance review, review of contractor requests for payment
and assisting with regulatory compliance and permitting. The Company also trains
disposal facility personnel, performs environmental monitoring services, and
designs site maintenance programs and operating plans.
Where appropriate, the Operations and Construction Division can perform a broad
range of related services, including construction of landfill cells, landfill
remediation and collection systems, landfill gas flares and control systems, and
leachate evaporation systems, as well as the capping, closure, development of
landfill gas recovery projects, and long-term operation and maintenance of old
landfills.
The Operations and Construction Division is complimented by ET Environmental
Corporation ("ET"), a 50/50 joint venture between EMCON and The Turner
Construction Company ("Turner"). ET's charter is to provide primarily
above-ground environmental, remedial and construction services on a national
basis, utilizing the regional resources of EMCON and Turner. ET is a leader in
the development and construction of solid waste transfer stations and materials
recovery facilities on a design build basis.
Site Restoration Services
EMCON's environmental expertise incorporates analytical and risk-assessment
capabilities enabling remediation specialists to design site-specific solutions
to environmental compliance and contamination problems. The Company is often
called upon to design and monitor remediation plans when corrective action is
required at solid or hazardous waste storage or disposal facilities and at
commercial or industrial plant sites. Problems which may require remediation
include leaching of hazardous chemicals or wastes into groundwater, ground
instability or erosion, flooding and migration of landfill gas. Work generally
entails site reconnaissance, drilling exploratory borings, and soil and
groundwater sampling as part of the assessment program. Using data collected in
the assessment phase of a project, the Company then defines the nature and
extent of the problem, develops a remediation program and monitors its
implementation.
The Company generally approaches such projects by consulting with the client on
the nature and scope of the problem. Historical information about the site, if
available, is reviewed to determine the most likely sources and locations of
contamination. Information about the local geology and hydrogeology is also
reviewed to determine potential migration pathways. A detailed work plan is then
prepared that describes the field investigation program to be conducted,
including the number and location of samples to be collected and the specific
chemical analyses to be performed. Trained personnel then conduct the field
investigation program, which may include drilling soil borings, installing
groundwater monitoring wells, and collecting samples of soil, groundwater,
surface water and/or industrial discharges.
Following laboratory analysis of the various samples collected, the results are
evaluated by Company engineers and scientists to determine the nature and extent
of contamination at the site. Depending on the complexity of the site, this may
require more than one round of sampling. Site cleanup levels are then determined
based on the media that have been impacted, the contaminants of concern, the
intended use of the property, and state and federal regulations. In consultation
with the client, various remediation alternatives are then identified and
evaluated for implementability, effectiveness, permanence and cost. Remedial
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alternatives at a site may include the excavation and removal of the sources of
contamination and contaminated soil, the removal and treatment of groundwater
using physical and chemical treatment systems, or the installation of surface
caps and vertical hydraulic barriers. EMCON also applies in-situ technologies,
such as vapor extraction or bioremediation as appropriate, to remediate
contaminated soils and ground-water as a means to reduce cost and minimize
disturbance. To assure continued compliance during and after remediation, EMCON
designs and provides operations and maintenance programs for affected
facilities.
Through its ET joint venture with Turner, the Company is also able to provide a
complete turnkey package to clients, combining planning and implementation of
facility/plant decommissioning; remediation of soil and groundwater
contamination, and lead based paint and asbestos abatement.
In-Plant Services
In the last several years the market has seen a significant trend among many of
the larger industrial clients to outsourcing many of their environmental and
health and safety compliance requirements. EMCON offers responsive assistance to
the regulated community in a broad range of areas including air quality
regulatory compliance through provision of air quality assessment and
engineering services. Company personnel have direct experience in air quality
permitting under the New Source Review (NSR), Prevention of Significant
Deterioration (PSD) and added requirements under the Clean Air Act Amendments of
1990, preparing emission inventories (for criteria and toxic air pollutants),
performing risk assessment to evaluate potential human and ecological risk,
evaluating emission control technologies (BACT/RACT/LAER/MACT), dispersion
modeling, ambient air quality and meteorological measurements, pollution
prevention and waste minimization, indoor air, litigation support and expert
testimony, and compliance audits. EMCON's air quality staff are fully integrated
with staff in other environmental disciplines to provide cost effective
evaluations and compliance solutions to situations which involve multiple media
contamination. In addition, EMCON provides OSHA required environmental health
and safety training to its clients and other EMCON subsidiaries.
Analytical Laboratory Services
Columbia Analytical Services, Inc. (CAS), EMCON's wholly-owned laboratory
subsidiary, provides a broad spectrum of analytical services for its clients in
industry and government. Industrial accounts include aerospace, defense,
electronics, petroleum, pulp and paper, and waste disposal. CAS is comprised of
a network of analytical laboratories headquartered in Kelso, Washington, with
branches in Anchorage, Alaska; Phoenix, Arizona; Canoga Park and San Jose,
California; Jacksonville, Florida; Tuxedo, New York, and Bothell, Washington.
CAS also operates a number of mobile laboratories. With a highly qualified
staff, a rigorous quality assurance program, and state-of-the-art analytical
testing equipment, CAS implements a rigorous quality assurance program, which
with its state-of-the-art equipment, permits the provision of timely
cost-effective services tailored to the individual needs of its clients.
Approximately 25% of CAS revenues have been generated from within EMCON's
Professional Services Division.
In addition to participation in the US EPA Water Pollution and Water Supply
programs, CAS performs work for the Department of Defense under programs
sponsored by the U.S. Army Corps of Engineers and the U.S. Navy. CAS currently
holds or has pending certifications/accreditations in a number of states
including Alaska, Arizona, California, Florida, Idaho, Massachusetts, New York,
Oregon, Utah and Washington. Other accreditations include the American
Association of Laboratory Accreditations (A2LA) and the American Industrial
Hygiene Associations (AIHA).
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On December 31, 1996, the Company signed a Letter of Intent to sell CAS to the
CAS employees for cash, notes and other consideration valued, in total, at
approximately $7.5 million. The sale is expected to close prior to the end of
the first quarter of 1997. In anticipation of the sale, the Company recognized
an impairment in its investment in CAS of $3,327,000; including a write-down in
the carrying value of goodwill associated with previous laboratory acquisitions
of $1,426,000.
Clients and Marketing
EMCON's principal clients are industrial concerns, predominantly in the waste
disposal, petroleum, wood products, chemicals and manufacturing industries. The
Company also provides services to utilities, non-regulatory government entities,
and financial institutions. No single client accounts for 10% or more of the
Company's net revenue. The Company often enters into master service agreements
with major clients, which set forth the general terms and conditions under which
EMCON will perform services and which facilitate repeated use of the Company's
services.
EMCON focuses significant efforts on providing high quality services in a timely
manner and developing long-term relationships with its clients. EMCON assigns an
experienced project manager to each project to coordinate work undertaken by the
numerous professionals from different disciplines within the Company. This
approach reduces the time and cost required to complete a project and relieves
the client of the responsibility of coordinating the efforts of independent
consultants. Because the Company provides a broad range of services, work
performed for a client in one technical area often leads to work in other
technical areas.
In the last several years, an increasing amount of work has been done on a
competitive bid basis in response to client requests for proposals. This has
required the dedication of significantly greater resources to proposal writing
and general business development, and the implementation of a more formal
marketing program to share leads and coordinate resources nationwide.
To further promote its services, the Company takes an active role in industry
trade associations to enhance its national reputation for technical expertise.
Similarly, EMCON provides services to a wide variety of local, state and federal
government agencies and contractors. Participation in such contracts allows
EMCON to remain on the leading edge of new technological developments and to
publicize its expertise.
Regulation
Public concern over health, safety and preservation of the environment has
resulted in the enactment of a broad range of environmental laws and regulations
by local, state and federal lawmakers and agencies. These laws and the
implementing regulations affect nearly every industry, as well as the agencies
of federal, state and local governments charged with their enforcement.
Recently, the level of enforcement has waned given governmental budget
constraints and a number of environmental laws set for renewal have been allowed
to lapse. Nonetheless, those laws and regulations still in force will continue
to stimulate demand for the kinds of services offered by EMCON. They also
subject the Company to stringent regulation in the conduct of its operations.
Potential Liability and Insurance
The Company's work involves assisting clients in handling, storing and disposing
of hazardous materials, toxic wastes and other pollutants, as well as the
remediation of existing contamination. The Company therefore is exposed to a
significant risk of professional liability for environmental damage and personal
injury.
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EMCON maintains health and safety and quality assurance/quality control programs
to reduce the risk of potential damage to persons and property and the
associated potential liability. In addition, EMCON currently maintains
professional liability insurance (covering damages resulting from negligent
acts, errors, mistakes or omissions in rendering or failing to render its
professional services) as well as commercial general liability insurance
(covering bodily injury and property damage).
EMCON endeavors contractually to limit its potential liability to the amount and
terms of its insurance policies, and to be indemnified by its clients from
potential liability to third parties. However, the Company is not always able to
obtain such limitations on liability or indemnification, and such provisions,
when obtained, may not adequately shelter the Company from liability.
Consequently, a partially or completely uninsured claim, if successful and of
sufficient magnitude, could have a material adverse effect on the Company and
its financial condition and results of operations.
Although the liabilities arising out of environmental laws are more directly
applicable to the Company's clients, such laws could, under certain factual
circumstances, apply to some of the activities pursued by the Company in the
course of business, including failure to properly design a cleanup, removal or
remedial action plan or failure to achieve required cleanup standards in
compliance with such laws and standards. Such liabilities can be joint and
several where other parties are involved. Because much of the Company's business
is generated either directly or indirectly as a result of federal and state
governmental programs and regulations, changes in governmental policies
affecting such programs, or regulations or administrative actions affecting the
funding or sponsorship of such programs, could have a material adverse effect on
the Company's business. See Item 3 - Legal Proceedings.
Competition
EMCON competes directly with a wide variety of national and local engineering,
consulting, construction, equipment, and operations and maintenance companies
which offer services similar to those provided by the Company. However, many of
these competitors are only engaged in certain segments of the industry and do
not provide the broad range of services provided by the Company. In addition,
the Company competes indirectly with remediation companies which offer
environmental consulting and engineering services, as well as transportation,
storage or disposal capabilities generally not provided by EMCON. The Company
believes that the principal competitive factors in its industry are price,
reputation, technical proficiency, management experience and breadth of services
offered. The industry has also experienced a significant amount of consolidation
activity. Management anticipates that these trends will continue for the
foreseeable future.
Employees
As of December 31, 1996, the Company had a total of 1,057 employees, including:
454 professionals; 279 technical personnel; and 324 administrative and support
personnel. The Company's professional staff includes chemical, civil,
geotechnical, mechanical, electrical and environmental engineers; marine and
terrestrial biologists; oceanographers; plant ecologists; chemists; geologists;
hydrogeologists; hydrologists and toxicologists. The Company's ability to
attract and retain qualified engineers, scientists and other professionals is an
important factor in determining its future success. EMCON's employees have never
been represented by a union, and the Company believes its relations with its
employees are good.
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Backlog
The Company estimates that at December 31, 1996, the backlog of future net
revenue from contracts in existence and orders believed to be firm (excluding
CAS) was in excess of $80 million, all of which is expected to be received
within the next twelve months, compared to $55 million backlog at December 31,
1995. However, there can be no assurance that this work will not be postponed or
canceled. Furthermore, a substantial portion of the Company's work is performed
pursuant to agreements by which the Company is compensated for time and expenses
devoted to projects with indefinite lives.
Item 2. PROPERTIES
The Company's corporate office, located in San Mateo, California, occupies
approximately 3,000 square feet and is leased through July, 2001. The Company's
accounting center, located in Sacramento, California, occupies approximately
4,000 square feet and is leased through December 31, 1997.
The Company owns a 25,000 square-foot building in Kelso, Washington. The
facility includes office and warehouse space and currently houses the CAS
corporate operations.
The Company leases office, warehouse and laboratory space in a total of 72
facilities located in Alaska, Arizona, California, Connecticut, Florida,
Georgia, Illinois, Iowa, Maine, Massachusetts, Michigan, Nevada, New Jersey, New
York, Ohio, Oregon, Pennsylvania, Puerto Rico, Texas, Vermont, Virginia and
Washington under leases expiring at various times through December 2002. These
facilities have a combined area of approximately 482,000 square feet.
Item 3. LEGAL PROCEEDINGS
As a firm engaged in environmental-related matters, the Company encounters
potential liability, including claims for significant environmental damage, in
the normal course of business. The Company is party to lawsuits and is aware of
potential exposure related to certain claims. In the fourth quarter of 1996 the
Company agreed to settlement terms on a number of outstanding legal matters. At
the same time the Company assessed the potential exposure relative to all other
known pending matters. Based on the foregoing, the Company increased its legal
reserve by an additional $1,553,000. In the opinion of management the resolution
of all known lawsuits/claims at amounts in excess of established reserves will
not have a material adverse affect on the Company's financial position, results
of operations or cash flows.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during the
fourth quarter of the fiscal year ended December 31, 1996.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the NASDAQ National Market System under
the symbol MCON. The following table sets forth the quarterly range of high and
low bid quotations per quarter for 1996 and 1995:
- -------------------------------------------------------------------------------
High Low
- -------------------------------------------------------------------------------
January 1 - March 31, 1995 $4.50 $3.00
April 1 - June 30, 1995 5.13 3.75
July 1 - September 30, 1995 6.50 4.00
October 1 - December 31, 1995 5.00 3.38
January 1 - March 31, 1996 4.88 4.00
April 1 - June 30, 1996 5.13 4.13
July 1 - September 30, 1996 4.13 3.19
October 1 - December 31, 1996 4.25 3.50
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On February 28, 1997, there were 579 shareholders of record of the Company's
common stock.
Although the Company does make annual distributions to a minority shareholder of
one of the OWT subsidiaries, the Company did not pay cash dividends to EMCON
shareholders in 1996 or 1995 and does not plan to pay cash dividends to its
shareholders in the near future. Furthermore, the payment of cash dividends is
restricted by the Company's bank line of credit arrangement. The Company
presently intends to retain earnings for further development of its business.
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Item 6. SELECTED FINANCIAL DATA
Five Year Financial Highlights
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
---------------------------------------------------------------------------
(In thousands, except per share amounts) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA (a)
Gross revenue ........................................ $ 137,626 $ 122,542 $ 115,638 $ 98,612 $ 93,438
Net revenue .......................................... 117,705 103,409 95,926 83,062 79,636
Direct expenses ...................................... 52,608 39,473 37,307 32,201 29,411
Indirect expenses .................................... 65,844 61,498 59,302 47,528 46,676
Restructuring/other charges .......................... 8,197 (17) 1,958 -- --
Impairment of assets held for sale ................... 3,327 -- -- -- --
Income (loss) from operations ........................ (12,271) 2,455 (2,641) 3,333 3,549
Interest income ...................................... 317 369 348 313 588
Interest expense ..................................... 1,112 181 66 57 40
Equity in income/(loss) of affiliates ................ 39 (74) (58) -- --
Income (loss) before provision (benefit) for
income taxes ...................................... (13,027) 2,569 (2,417) 3,589 4,097
Provision (benefit) for income taxes ................. (2,936) 783 (500) 1,165 1,098
Net income (loss) .................................... (10,091) 1,786 (1,917) 2,424 2,999
- ------------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (a)
Income (loss) per share .............................. $ (1.19) $ 0.22 $ (0.24) $ 0.33 $ 0.40
Shares used in computing income (loss) per
share ............................................. 8,485 8,961 7,919 7,720 7,506
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BALANCE SHEET DATA (a)
Total assets ......................................... $ 90,912 $ 78,636 $ 80,989 $ 68,852 $ 66,247
Working capital ...................................... 34,601 36,313 32,582 36,200 35,491
Noncurrent obligations and deferred income
taxes ............................................. 16,799 1,700 1,348 882 1,773
Shareholders' equity ................................. 55,812 65,306 63,059 58,997 56,591
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</TABLE>
(a) The Company was involved in several acquisitions and mergers during the
five year period presented. See Note 5 to the Company's consolidated
financial statements.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth (i) certain items in the Company's Consolidated
Statements of Operations as a percentage of net revenue and (ii) the percentage
increase (decrease) in the dollar amount of those items for the period
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indicated. Net revenue is determined by subtracting the costs of outside
subcontractor services, largely drilling contractors and specialized consultant
services, from gross revenue. Since EMCON's use of subcontractors can vary from
period to period and the costs of these services are passed directly to the
Company's clients, the Company believes that net revenue is a more accurate
measure of the value of its services.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Percentage of Percentage
Net Revenue Increase (Decrease)
-------------------------------------- ------------------
1996 1995
vs. vs.
Years Ended December 31, 1996 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Revenue .............................................. 100.0% 100.0% 100.0% 13.8% 7.8%
Direct Expenses .......................................... 44.7% 38.2% 38.9% 33.3% 5.8%
Indirect Expenses ........................................ 55.9% 59.4% 61.8% 7.1% 3.7%
Restructuring/Other Charges .............................. 7.0% -- 2.0% -- --
Impairment of Assets held for sale ....................... 2.8% -- -- -- --
Income (Loss) from Operations ............................ (10.4%) 2.4% (2.7%) (599.8%) --
Interest Income (Expense), Net ........................... (0.7%) 0.2% 0.3% (522.9%) (33.3%)
Equity in Income/(Loss) of Affiliates .................... -- (0.1%) (0.1%) -- (27.6%)
Income (Loss) before Provision (Benefit) for
Income Taxes .......................................... (11.1%) 2.5% (2.5%) (607.1%) --
Provision (Benefit) for Income
Taxes .................................................. (2.5%) 0.8% (0.5%) 475.0% --
Net Income (Loss) ........................................ (8.6%) 1.7% (2.0%) (665.0%) --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net Revenue:
Net revenue for 1996 increased by 13.8% to $117,705,000 from $103,409,000 in
1995. Excluding net revenue of $20,596,000 contributed by Organic Waste
Technologies, Inc. ("OWT"), following its acquisition on February 29, 1996, net
revenue in 1996 totaled $97,109,000, a 6.1% decrease from 1995. The decrease was
primarily attributable to significant underperformance of the Company's
Professional Services Division (formerly known as the Consulting Division) in
the Alaska, Washington and Southeast markets, combined with a general decrease
in revenue following recent reductions in work force throughout the Professional
Services Division. The decrease was, to a lesser extent, also attributable to
particularly difficult weather conditions in the Northeast and Northwest areas
during the first quarter.
Net revenue for 1995 increased by 7.8% over net revenue of $95,926,000 in 1994.
The increase in net revenue in 1995 was partly attributable to significant
improvements in the Company's consulting division in its West and Southeast
areas. The increase was also due in part to the inclusion of Wehran Envirotech,
Inc. ("Wehran") for all of 1995 as compared to all but the first quarter of
1994, following its acquisition in April of 1994. Although Wehran contributed
net revenue of $5,472,000 in the quarter ended March 31, 1995, due to the
underperformance of their Northeast and Midwest operations, Wehran only
contributed an additional $3,730,000 in net revenue in 1995 over 1994. Net
revenue was also positively impacted by the expansion of the laboratory
division's operations in Florida and Southern California.
13
<PAGE>
Direct Expenses:
Direct expenses in 1996 were $52,608,000, a 33.3% increase over $39,473,000 in
direct expenses in 1995. Excluding direct expenses of $14,744,000 incurred by
OWT, direct expenses in 1996 totaled $37,864,000, a 4.1% decrease from 1995.
Direct expense includes compensation for billable hours for technical and
professional staff and other project related expenses, as well as direct labor
and materials for in-house laboratory testing and construction activities.
Excluding OWT, direct expenses, as a percent of net revenue in 1996, increased
to 39.0% from 38.2% in 1995; due largely to relative increases in the cost of
labor and materials within the laboratory division.
Direct expenses in 1995 were up 5.8% over direct expenses of $37,307,000 in
1994. The increase was due in part to higher overall salary costs, increased
utilization of technical and professional staff, and the inclusion of Wehran for
all of 1995 versus only the last three quarters of 1994 (Wehran incurred direct
expenses of $7,739,000 and $6,524,000 in 1995 and 1994, respectively). The ratio
of direct expenses to net revenue in 1995 decreased to 38.2% from 38.9% in 1994.
Indirect Expenses:
Indirect expenses totaled $65,844,000 in 1996, an increase of 7.1% over 1995
indirect expenses of $61,498,000. Excluding indirect expenses of $3,173,000
incurred by OWT, indirect expenses in 1996 totaled $62,671,000, a 1.9% increase
over 1995. Indirect expenses include salary compensation for nonbillable hours
for professional and technical staff, and general and administrative expenses
such as facility rent, bonuses, benefits, insurance, depreciation, and
legal/settlement expenses. Excluding OWT, indirect expenses as a percent of net
revenue in 1996 increased to 64.5% from 59.4% in 1995; due in part to the above
noted decrease in net revenue, combined with the effect of significant severance
costs and expenses related to the closing of several small offices during the
first nine months of 1996. In addition, during the fourth quarter of 1996 the
Company increased reserves relating to pending litigation matters by an
additional $1,553,000.
Indirect expenses in 1995 increased by 3.7% over 1994 indirect expenses of
$59,302,000. The ratio of indirect expenses to net revenue decreased from 61.8%
in 1994 to 59.4% in 1995, due to improved utilization of technical and
professional staff as well as selective reductions in force and other cost
containment and restructuring measures put in place during the fourth quarter of
1994 and throughout 1995.
Restructuring/Other Charges:
In the fourth quarter of 1996, senior management reviewed the Company's
operational and administrative functions for the purpose of further improving
the Company's competitiveness and overall profitability. Based on this review,
the Company's Board of Directors approved a strategic restructuring plan in
December, 1996 to reposition the Company to fully exploit its core strengths in
engineering, design, construction, operations and maintenance. As a result of
these actions, the Company recognized pre-tax restructuring and other charges of
$1,237,000 and $6,960,000, respectively. Included in the restructuring charge
were $604,000 relating to the closure or downsizing of several underperforming
offices, $628,000 related to employee severance and the write-off of employment
contracts for former employees no longer actively participating in the Company's
affairs, and a $5,000 adjustment to the 1994 restructuring plan. Included in
14
<PAGE>
other charges were $4,768,000 related to the write-down in the carrying value of
goodwill associated with the Company's continuing operating units in accordance
with the Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", $1,529,000 related to the write-off of idle or disposed of assets, $368,000
related to the write-down of the Company's landfill gas production rights and
related fixed assets, and $156,000 related to the buyout and cancellation of
outstanding stock options to purchase approximately 743,000 shares of the
Company's common stock held by employees of the Company. Also, included in other
charges were $139,000 for various other operational costs.
Anticipated savings in 1997 from the restructuring charge alone are estimated to
exceed $1,500,000. As of December 31, 1996, $119,000 of the 1996 restructuring
adjustment has been incurred and $1,113,000 remains in other accrued
liabilities. All remaining actions are expected to be substantially completed by
the third quarter of 1997.
In October 1994, the Board of Directors appointed Eugene M. Herson to serve as
the Company's new President and Chief Executive Officer. Shortly thereafter, in
December, 1994, the Company's Board of Directors approved senior management's
recommendation to implement a restructuring plan designed to improve operational
efficiencies. Under the plan, the Company eliminated substantially all of its
regional consulting subsidiaries in favor of a divisional structure. In
addition, the Company consolidated and streamlined all unnecessary and/or
redundant administrative functions. As a result of the actions taken, the
Company recognized a pre-tax restructuring charge in the fourth quarter of 1994
of $1,181,000. Of this amount, $611,000 related to the write-off of employment
contracts for former employees no longer actively participating in the Company's
affairs, $287,000 related to employee severance, and $263,000 related to costs
associated with excess facilities and equipment. Anticipated savings from the
1994 restructuring plan were estimated to exceed $1,000,000 per year. To date,
$1,142,000 of restructuring costs have been incurred and adjustments of $5,000
and ($17,000) were made to increase/(reduce) the reserve in 1996 and 1995,
respectively, to the required remaining balances. At December 31, 1996, $27,000
of accrued restructuring costs for write-off of employment contracts in 1994
were included in accrued liabilities in the accompanying consolidated balance
sheet. All remaining actions are expected to be completed by the first quarter
of 1997.
During the fourth quarter of 1994, the Company also incurred nonrecurring
charges of $777,000 related to the write-down of the carrying value of certain
of the Company's landfill gas production rights and of certain related fixed
assets due to the reevaluation of future cash flows expected to be generated
from the related projects.
Impairment of Assets Held for Sale:
In December 1996, the Company executed a letter of intent to sell its laboratory
division, Columbia Analytical Services, Inc. ("CAS"), to the employees of CAS
for cash, notes and other consideration valued in total at approximately
$7,500,000. The transaction is expected to be completed by the first quarter of
1997. In anticipation of the sale, the Company recognized an impairment in its
investment in CAS of $3,327,000; including a write-down in the carrying value of
goodwill associated with previous laboratory acquisitions of $1,426,000.
For the year ended December 31, 1996, CAS had a loss before taxes of $142,000.
Interest Income:
The Company recorded interest income of $317,000 in 1996 compared to $369,000 in
1995 and $348,000 in 1994.
15
<PAGE>
Interest Expense:
The Company incurred interest expense of $1,112,000 in 1996 compared to $181,000
in 1995. The increase in interest expense in 1996 over 1995 was due primarily to
increases in long-term debt of $11,747,000 incurred for purposes of financing
the acquisition of OWT in February of 1996 and $5,000,000 for purposes of
financing the subsequent expansion of OWT's landfill gas-to-energy project.
The increase in interest expense in 1995 over 1994 was primarily due to an
imposition of interest on a one-time state tax assessment with respect to prior
years.
Income Taxes Provision (Benefit):
The provision (benefit) for income taxes in 1996 was ($2,936,000) compared to
$783,000 for 1995 and ($500,000) for 1994. The effective tax rate for 1996 was
(22.5%) versus 30.5% in 1995 and (20.7%) for 1994. The 1996 tax benefit is
primarily due to the alternative minimum tax credits generated from the
Company's landfill gas-to-energy project and from temporary timing differences
consisting of the restructuring charges, impairment of assets held for sale and
the legal reserve.
Included in the Company's balance sheet at December 31, 1996 are total current
and long-term net deferred tax assets of $6,455,000. The full utilization of
such assets is dependent upon a number of factors including the Company's
ability to generate future profits, the successful implementation of the
Company's restructuring plan and the anticipated reduction in the level of new
tax credits generated from the Company's existing landfill gas-to-energy
projects. Based on these factors, the Company believes that it is more likely
than not that the full benefit of the net deferred tax assets will be realized
by the Company in due course.
SUBSEQUENT MATTERS
On March 6, 1997, the Company completed the sale of its Marina landfill
gas-to-energy project for a net up front cash payment of $800,000. The Company
is eligible to receive an additional $200,000 prior to December 31, 1997 subject
to certain post-closing contingencies - specifically, that no material adverse
changes are made to the provisions of Section 29 of the Internal Revenue Code of
1986, as amended, pertaining to the availability of unconventional fuel credits.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital:
Cash provided by operating activities for fiscal 1996, 1995 and 1994 was
$1,583,000, $5,232,000, and $4,875,000, respectively. The changes in cash
provided by operating activities in 1996, 1995 and 1994 were primarily
attributed to changes in the Company's net income (loss), accounts receivable
and accounts payable and in 1996 and 1995, depreciation and amortization. Cash,
cash equivalents, and marketable securities decreased to $5,331,000 in 1996 from
$9,952,000 in 1995.
In conjunction with the acquisition of OWT, the Company entered into a
$20,000,000 secured credit agreement with its existing commercial bank,
replacing its previous $10,000,000 unsecured line of credit. Under the new
agreement, the Company borrowed $10,000,000 on a term loan basis with an
interest at a managed rate not to exceed the prime rate. Principal is to be
16
<PAGE>
amortized over seven years, but with any unpaid amount finally due and payable
on June 30, 2001. The remaining $10,000,000 under the Credit Agreement is
available for working capital purposes (with up to $5,000,000 also being
available for non-working capital purposes). The line of credit component of the
Credit Agreement expires on May 31, 1997. The Company expects to renew the line
of credit component of the Credit Agreement following its expiration. The Credit
Agreement contains provisions with respect to the payment of dividends and the
level of capital expenditures and requires the maintenance of specific levels of
working capital, tangible net worth and continued quarterly profitability. As a
result of the fourth quarter loss in 1996, the impact of the related
restructuring actions and the payment of certain profit distributions to a
minority shareholder in one of OWT's subsidiaries, the Company was not in
compliance with these covenants at year-end. However, the Company obtained a
waiver from the bank for its non compliance and agreed to related amendments of
the Credit Agreement reducing the tangible net worth requirement and permitting
distribution to the minority shareholder in OWT's subsidiary.
Capital Expenditures:
The Company invested $2,484,000 in 1996 in additions to property and equipment;
mainly computers, field and laboratory equipment. The Company believes that its
cash on hand and cash generated from operations, together with its available
bank financing will be sufficient to meet the Company's capital needs for at
least the next twelve months.
17
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
-----------
Consolidated Statements of Operations for each of
the three years ended December 31, 1996, 1995, and 1994....... 19
Consolidated Balance Sheets as of December 31, 1996 and 1995..... 20
Consolidated Statements of Shareholders' Equity for each of
the three years ended December 31, 1996, 1995, and 1994....... 21
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 1996, 1995, and 1994................. 22
Notes to Consolidated Financial Statements....................... 23
Report of Ernst & Young LLP, Independent Auditors................ 36
18
<PAGE>
EMCON
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
---------------------------------------------------
(In thousands, except per share amounts) 1996 1995 1994
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenue ....................................................... $ 137,626 $ 122,542 $ 115,638
Outside services at cost ............................................ 19,921 19,133 19,712
--------- --------- ---------
Net revenue ................................................ 117,705 103,409 95,926
Costs and expenses:
Direct expenses ................................................ 52,608 39,473 37,307
Indirect expenses .............................................. 65,844 61,498 59,302
Restructuring/other charges .................................... 8,197 (17) 1,958
Impairment of assets held for sale ............................. 3,327 -- --
--------- --------- ---------
Income (loss) from operations .............................. (12,271) 2,455 (2,641)
Interest income ..................................................... 317 369 348
Interest expense .................................................... (1,112) (181) (66)
Equity in income (loss) of affiliate ................................ 39 (74) (58)
--------- --------- ---------
Income (loss) before provision (benefit) for
income taxes ..................................................... (13,027) 2,569 (2,417)
Provision (benefit) for income taxes ................................ (2,936) 783 (500)
--------- --------- ---------
Net income (loss) ................................................... $ (10,091) $ 1,786 $ (1,917)
--------- --------- ---------
Income (loss) per share ............................................. $ (1.19) $ 0.22 $ (0.24)
--------- --------- ---------
Shares used in computing income (loss) per share .................... 8,485 8,961 7,919
========= ========= =========
</TABLE>
See accompanying notes.
19
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------------------
December 31,
----------------------------
(In thousands, except share amounts) 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .................................................................. $ 5,331 $ 9,451
Marketable securities ...................................................................... -- 501
Accounts receivable, net of allowance for doubtful accounts of $951
and $1,052 at December 31, 1996 and 1995, respectively ................................. 32,860 34,925
Costs and estimated earnings in excess of billings on
uncompleted contracts ................................................................. 904 --
Prepaid expenses and other current assets .................................................. 4,425 3,066
Assets held for sale ....................................................................... 9,382 --
------- -------
Total Current Assets ................................................................... 52,902 47,943
Net property and equipment, at cost ........................................................ 14,722 16,690
Other assets ............................................................................... 4,800 3,579
Deferred tax assets ........................................................................ 4,818 1,677
Goodwill, net of amortization .............................................................. 12,716 7,609
Other intangible assets, net of amortization ............................................... 954 1,138
-------- --------
Total Assets ........................................................................... $ 90,912 $ 78,636
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ........................................................................... $ 5,483 $ 4,174
Accrued payroll and related benefits ....................................................... 6,020 4,975
Other accrued liabilities .................................................................. 4,454 2,109
Billings in excess of costs and estimated earnings
on uncompleted contracts .............................................................. 94 --
Long-term obligations due within one year .................................................. 2,250 372
-------- --------
Total Current Liabilities .............................................................. 18,301 11,630
Long-term debt ............................................................................. 14,667 431
Other noncurrent obligations ............................................................... 2,132 1,269
Commitments and contingencies .............................................................. -- --
Shareholders' Equity:
Preferred stock, no par value, 5,000,000 shares authorized;
no shares issued or outstanding ........................................................ -- --
Common stock, no par value, 15,000,000 shares authorized;
8,512,688 and 8,329,343 shares issued and outstanding at
December 31, 1996 and 1995, respectively ............................................... 42,001 41,401
Retained earnings .......................................................................... 13,811 23,918
Unrealized losses on marketable securities ................................................. -- (13)
-------- --------
Total Shareholders' Equity ............................................................. 55,812 65,306
-------- --------
Total Liabilities and Shareholders' Equity ............................................. $ 90,912 $ 78,636
======== ========
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------------------------------------
Unrealized
Gain (Loss)
on Total
Common Stock Retained Marketable Shareholders'
(In thousands) Shares Amount Earnings Securities Equity
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 ................................. 7,279 $ 34,948 $ 24,049 $ 58,997
Issuance of common stock upon exercise of
options, net of redemptions ................................ 55 243 -- 243
Income tax benefits of employee stock option
exercises .................................................. -- 103 -- 103
Issuance of common stock under purchase of
Wehran Envirotech, Inc. .................................... 915 6,029 -- 6,029
Issuance of common stock under the Employee
Stock Purchase Plan ........................................ 69 439 -- 439
Issuance of restricted stock, net of cancellation ............ 1 8 -- 8
Repurchase of common stock ................................... (133) (812) -- (812)
Unrealized losses on marketable securities ................... -- -- -- (31) (31)
Net loss ..................................................... -- -- (1,917) (1,917)
-----------------------------------------------------------------
Balance at December 31, 1994 ................................. 8,186 40,958 22,132 (31) 63,059
Issuance of common stock upon exercise of
options, net of redemptions ................................ 30 35 -- 35
Income tax benefits of employee stock option
exercises .................................................. -- 50 -- 50
Issuance of common stock under the Employee
Stock Purchase Plan ........................................ 114 369 -- 369
Issuance of restricted stock, net of cancellation ............ (1) (11) -- (11)
Net change in unrealized losses on marketable
securities ................................................. -- -- -- 18 18
Net income ................................................... -- -- 1,786 1,786
----------------------------------------------------------------
Balance at December 31, 1995 ................................. 8,329 41,401 23,918 (13) 65,306
Issuance of common stock upon exercise of
options, net of redemptions ................................ 5 15 -- 15
Issuance of common stock under the Employee
Stock Purchase Plan ........................................ 88 258 -- 258
Issuance of restricted stock, net of cancellation ............ 91 327 -- 327
Net change in unrealized losses on marketable
securities ................................................. -- -- -- 13 13
Dividends paid ............................................... -- -- (16) (16)
Net loss ..................................................... -- -- (10,091) (10,091)
----------------------------------------------------------------
Balance at December 31, 1996 ................................. 8,513 $ 42,001 $ 13,811 $ 0 $ 55,812
----------------------------------------------------------------
</TABLE>
See accompanying notes.
21
<PAGE>
<TABLE>
<CAPTION>
EMCON
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
Increase (decrease) in cash and cash equivalents (in thousands) 1996 1995 1994
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) ..................................................................... $(10,091) $ 1,786 $ (1,917)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation ....................................................................... 7,330 4,487 3,710
Amortization ....................................................................... 1,034 613 654
Loss on sale/disposal of property and equipment .................................... 474 129 416
Write-down of gas production rights ................................................ 247 -- 655
Impairment of goodwill ............................................................. 6,194 -- --
Increase in salary continuation plan ............................................... 133 62 93
Changes in operating assets and liabilities:
Accounts receivable ............................................................ 1,226 3,398 (1,290)
Prepaid expenses and other current assets ...................................... (1,527) 187 1,056
Other assets ................................................................... (2,275) (786) 642
Deferred tax assets ............................................................ (2,995) 382 (1,469)
Accounts payable ............................................................... (351) (4,672) 2,300
Accrued payroll and related benefits ........................................... 661 (605) 1,173
Other accrued liabilities ...................................................... 1,523 251 (1,148)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ................................... 1,583 5,232 4,875
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flow from investing activities:
Additions to property and equipment ................................................ (2,484) (4,082) (7,050)
Purchase of available for sale securities .......................................... -- -- (5,967)
Maturities of available for sale securities ........................................ 514 1,953 8,800
Cash portion of assets held for sale ............................................... (593) -- --
Acquisitions, net of cash acquired ................................................. (13,827) -- 258
Proceeds from sale of property and equipment ....................................... 508 327 442
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities ...................................... (15,882) (1,802) (3,517)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Proceeds of new debt obligation .................................................... 17,526 476 (6,662)
Payments of current and noncurrent obligations ..................................... (7,931) -- --
Issuance of common stock for cash .................................................. 600 393 690
Repurchase of common stock ......................................................... -- -- (812)
Dividend payments .................................................................. (16) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities ........................ 10,179 869 (6,784)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents ...................................... (4,120) 4,299 (5,426)
Cash and cash equivalents, beginning of year .......................................... 9,451 5,152 10,578
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year ................................................ $ 5,331 $ 9,451 $ 5,152
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries after elimination of all significant
intercompany accounts and transactions. Certain amounts in the 1995 and 1994
financial statements have been reclassified to conform to the 1996 presentation.
In 1994, the Company converted to a fifty-two/fifty-three week fiscal year,
resulting in a fifty-three week year in 1996 and a fifty-two week year in 1995.
The Company's year end falls on the Friday closest to the last day of the
calendar quarter. The Company also follows a five-four-four week quarterly
cycle. While the actual period ends for the fiscal years 1996 and 1995 were
January 3, 1997 and December 29, 1995, respectively, for convenience, the date
shown on accompanying financial statements is December 31, the last day of the
calendar periods.
Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements, in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue Recognition and Expenses:
Revenue from engineering service contracts is recognized as services are
provided and revenue from construction projects is recognized on a percentage of
completion basis. The Company routinely subcontracts for outside services, such
as drilling and specialized laboratory services. These costs are generally
passed through to the Company's customers. The Company believes net revenue is a
more accurate measure of the value of its services than gross revenue. Direct
costs include compensation for billable hours for professional and technical
staff and other project expenses reimbursed by clients. Indirect costs include
compensation for non-billable professional and technical staff hours, all
employee fringe benefits, marketing, and general and administrative expenses
such as rent, insurance and depreciation.
Cash and Cash Equivalents and Marketable Securities:
The Company considers all investment instruments and marketable securities with
an original maturity date of 90 days or less at the date of purchase to be cash
equivalents. Management determines the appropriate classifications of debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Investments consisting primarily of high grade U.S.
government and corporate marketable debt securities are classified as
available-for-sale, and are carried at fair value, based on quoted market
prices, with the unrealized gains and losses, net of tax, reported in a separate
component of shareholders' equity. The cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity, which is
23
<PAGE>
included in interest income. Realized gains and losses and declines in value
judged to be other-than-temporary, as well as any interest on these securities,
are included in interest income. The cost of securities sold is based on the
specific identification method. There were no available-for-sale securities as
of December 31, 1996.
The following is a summary of available-for-sale securities as of December 31,
1995:
- -------------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
(In thousands) Cost Gains Loss Fair Value
- --------------------------------------------------------------------------------
U.S. Treasury Bills/Notes $514,000 $ - $13,000 $501,000
- -------------------------------------------------------------------------------
All marketable securities held by the Company as of December 31, 1995 were
available for the Company's current working capital requirements and matured in
less than one year. Accordingly, all such amounts were classified as current
assets in the accompanying consolidated balance sheets.
Supplemental Cash Flow Information:
Cash paid for income taxes was approximately $659,000, $58,000 and $469,000 for
the years ended December 31, 1996, 1995 and 1994, respectively. Cash paid for
interest was approximately $951,000, $181,000 and $66,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
In 1995, the Company sold certain land and buildings in exchange for $1,100,000
in marketable trade credits which will be used to reduce cash payments of future
recurring corporate expenses. No significant gain or loss was incurred on the
transaction. The trade credits expire in eight years, and the Company expects to
utilize such credits prior to expiration. The Company has agreements for the
utilization of $625,000 of the trade credits. $225,000 and $400,000 of these
credits are included on the December 31, 1996 consolidated balance sheet in
other current assets and other assets, respectively. To-date, $55,000 of the
trade credits have been applied to payments. The remaining balance of $420,000
is included on the December 31, 1996 consolidated balance sheet in other assets.
Property and Equipment:
Property and equipment, net of assets held for sale, consists of (in thousands):
- -------------------------------------------------------------------------------
Years Ended December 31, 1996 1995
- -------------------------------------------------------------------------------
Land and buildings $ 2,808 $ 2,723
Machinery and equipment 18,886 23,723
Furniture and fixtures 4,130 5,915
Vehicles 2,871 3,638
Leasehold improvements 1,328 2,324
- -------------------------------------------------------------------------------
Total 30,023 38,323
Less accumulated depreciation and amortization 15,301 21,633
- --------------------------------------------------------------------------------
Net property and equipment $14,722 $16,690
- -------------------------------------------------------------------------------
Property and equipment are stated at cost. Depreciation and amortization are
provided on the straight-line basis over the lesser of the estimated useful
lives of the assets or the term of the lease (lives range from 3-31 years).
Amortization of property and equipment acquired under capital leases is included
with depreciation expense.
Approximately $7,058,000 of fixed assets net of accumulated depreciation of
$6,236,000 were sold or disposed of in 1996.
24
<PAGE>
Income (Loss) per Share:
Primary and fully diluted earnings per share are substantially the same. Loss
per share in 1996 and 1994 were based on the weighted average number of common
shares outstanding. Income per share in 1995 was based on the weighted average
number of common and dilutive common equivalent shares outstanding using the
modified treasury stock method. Common equivalent shares are comprised of shares
issuable under the Company's stock option plans.
Business Segment and Concentration of Credit Risk:
The Company operates within one business segment, which provides comprehensive
environmental engineering, consulting, construction, facilities operations and
maintenance, and laboratory services to industrial, private and governmental
concerns, predominantly in the waste disposal, petroleum, wood products,
chemical and manufacturing industries; as well as to utilities, non-regulatory
government entities, financial institutions and real estate developers. There
are no significant operations or revenues generated from non United States
locations. Ongoing credit evaluations of its customers' financial condition are
performed by the Company, generally requiring no collateral.
2. CONTRACTS IN PROGRESS
Information related to contracts in progress (in thousands):
- --------------------------------------------------------------------------------
Years Ended December 31, 1996 1995
- --------------------------------------------------------------------------------
Costs incurred on uncompleted contracts $4,181 $ --
Estimated earnings on uncompleted contracts 940 --
-------
5,121
Less billings to date on uncompleted contracts 4,311 --
- -------------------------------------------------------------------------------
Total $ 810 $ --
- --------------------------------------------------------------------------------
Included in the accompanying consolidated balance sheets on an individual
contract basis are (in thousands):
- --------------------------------------------------------------------------------
Years Ended December 31, 1996 1995
- --------------------------------------------------------------------------------
Costs and estimated earnings in excess of billings
on uncompleted contracts. $ 904 $ --
Billings in excess of costs and estimated earnings
on uncompleted contracts (94) --
- --------------------------------------------------------------------------------
Total $ 810 $ --
- --------------------------------------------------------------------------------
3. RESTRUCTURING/OTHER CHARGES
In the fourth quarter of 1996, senior management reviewed the Company's
operational and administrative functions for the purpose of further improving
the Company's competitiveness and overall profitability. Based on this review,
the Company's Board of Directors approved a strategic restructuring plan in
December, 1996 to reposition the Company to fully exploit its core strengths in
engineering, design, construction, operations and maintenance. As a result of
these actions, the Company recognized pre-tax restructuring and other charges of
$1,237,000 and $6,960,000, respectively. Included in the restructuring charge
were $604,000 related to the closure or downsizing of several underperforming
offices, $628,000 related to employee severance and the write-off of employment
contracts for former employees no longer actively participating in the Company's
affairs, and a $5,000 adjustment to the 1994 restructuring plan. Included in
25
<PAGE>
other charges were $4,768,000 related to the write-down in the carrying value of
goodwill associated with the Company's continuing operating units in accordance
with the Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", $1,529,000 related to the write-off of idle or disposed of assets, $368,000
related to the write-down of the Company's landfill gas production rights and
related fixed assets, and $156,000 related to the buyout and cancellation of
outstanding stock options to purchase approximately 743,000 shares of the
Company's common stock held by employees of the Company. Also, included in other
charges were $139,000 for various other operational costs. Fair value of the
goodwill associated with the Company's continuing operating units was based on
each operating unit's expected future discounted cash flows.
As of December 31, 1996, $119,000 of the 1996 restructuring adjustment has been
incurred and $1,113,000 remains in other accrued liabilities. All remaining
actions are expected to be substantially completed by the third quarter of 1997.
In October 1994, the Board of Directors appointed Eugene M. Herson to serve as
the Company's new President and Chief Executive Officer. Shortly thereafter, in
December, 1994, the Company's Board of Directors approved senior management's
recommendation to implement a restructuring plan designed to improve operational
efficiencies. Under the plan, the Company eliminated substantially all of its
regional consulting subsidiaries in favor of a divisional structure. In
addition, the Company consolidated and streamlined all unnecessary and/or
redundant administrative functions. As a result of the actions taken, the
Company recognized a pre-tax restructuring charge in the fourth quarter of 1994
of $1,181,000. Of this amount, $611,000 related to the write-off of employment
contracts for former employees no longer actively participating in the Company's
affairs, $287,000 related to employee severance, and $263,000 related to costs
associated with excess facilities and equipment. Anticipated savings from the
1994 restructuring plan were estimated to exceed $1,000,000 per year. To date,
$1,142,000 of restructuring costs have been incurred and adjustments of $5,000
and ($17,000) were made to increase/(reduce) the reserve in 1996 and 1995,
respectively, to the required remaining balances. At December 31, 1996, $27,000
of accrued restructuring costs for write-off of employment contracts in 1994
were included in accrued liabilities in the accompanying consolidated balance
sheet. All remaining actions are expected to be completed by the first quarter
of 1997.
During the fourth quarter of 1994, the Company also incurred nonrecurring
charges of $777,000 related to the write-down of the carrying value of certain
of the Company's landfill gas production rights and of certain related fixed
assets due to the reevaluation of future cash flows expected to be generated
from the related projects.
4. IMPAIRMENT OF ASSETS HELD FOR SALE
In December 1996, the Company executed a Letter of Intent to sell its laboratory
division, Columbia Analytical Services, Inc. ("CAS"), to the employees of CAS
for cash, notes and other consideration valued in total at approximately
$7,500,000. The transaction is expected to be completed the first quarter of
1997. In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", the Company recognized an impairment in its investment in CAS
of $3,327,000; including a write-down in the carrying value of goodwill
associated with previous laboratory acquisitions of $1,426,000. For the year
ended December 31, 1996, CAS had a loss before taxes of $142,000. The estimated
fair value of CAS is reflected in the accompanying consolidated balance sheets
as assets held for sale as of December 31, 1996.
26
<PAGE>
5. ACQUISITIONS
Goodwill
On February 29, 1996, EMCON acquired all the outstanding capital stock of
Organic Waste Technologies, Inc. ("OWT"), a Cleveland based construction,
equipment and operations and maintenance company with significant expertise in
solid waste management. The Company purchased OWT for $13,859,000 in cash plus
the issuance of convertible notes and other contractual indebtedness held by
certain senior OWT management in the principal amount of $1,747,000. The
transaction was accounted for as a purchase. The indebtedness bears interest at
the rate of 8% per annum with all principal due and payable in full on March 1,
2001. The indebtedness may be converted into shares of OWT common stock upon an
underwritten public offering of OWT's common stock in an amount in excess of
$10,000,000. In the event the indebtedness has not been converted into OWT
shares, it may instead be converted into shares of EMCON common stock for a
period of ninety days after November 30, 2001 at a conversion price of $6.50 per
share. Goodwill of approximately $11,129,000 resulting from this acquisition is
being amortized over thirty years using the straight line method. Related
accumulated amortization at December 31, 1996, was approximately $310,000.
The following summarizes the unaudited pro forma net revenue, net income (loss),
and income (loss) per share of the combined company for the unaudited twelve
months ended December 31, 1996 compared to unaudited twelve months ended
December 31, 1995 (in thousands):
- -------------------------------------------------------------------------------
Pro Forma Pro Forma
1996 1995
Twelve months ended December 31, (unaudited) (unaudited)
- -------------------------------------------------------------------------------
Net revenue $120,738 $120,928
Net income (loss) (10,407) 1,606
Income (loss) per share ($1.23) $ 0.20
- -------------------------------------------------------------------------------
The above pro forma results of operations do not purport to reflect the actual
results of operations had the Company actually acquired OWT as of the beginning
of 1996.
Effective April 1, 1994, the Company acquired all of the capital stock of Wehran
Envirotech, Inc. ("Wehran"), an environmental consulting company headquartered
in Middletown, New York, in exchange for 410,000 shares of the Company's common
stock valued at $2,818,000 and $439,000 in direct acquisition costs. The
transaction was accounted for as a purchase. An additional 80,000 shares, valued
at $290,000, were issued to Wehran shareholders in December, 1994 as a result of
their attaining certain predetermined operating performance goals. Goodwill of
approximately $1,896,000 resulting from this acquisition is being amortized over
twenty years using the straight line method. Accumulated amortization as of
December 31, 1996, was approximately $253,000. Subsequent to the purchase of
Wehran, the Company issued an additional 425,000 shares of its common stock to
retire approximately $5,000,000 of Wehran's convertible subordinated notes. In
addition, the Company also paid approximately $6,100,000 in cash to satisfy
amounts borrowed against Wehran's revolving credit line ($5,000,000) and
obligations due to settlement of certain litigation ($1,100,000).
On May 31, 1996, EMCON acquired the operations of Cascade Pacific Engineering,
Inc. ("Cascade"). The transaction was structured as an asset acquisition with
EMCON acquiring substantially all the assets of Cascade for $546,000 in cash
plus the assumption of substantially all of Cascade's liabilities. The tangible
net assets were valued at $80,000. The $466,000 excess of cost over the fair
27
<PAGE>
value of net assets acquired, net of accumulated amortization at December 31,
1996, of $93,000 was subsequently written-off in 1996 due to an evaluation based
on a discounted cash flow analysis.
Acquisitions made in the Southeast and Alaska between 1990 and 1993 were
evaluated based on a discounted cash flow basis and resulted in a write-down of
goodwill of $4,394,000. Remaining goodwill and accumulated amortization at
December 31, 1996 were approximately $1,734,000 and $1,480,000, respectively.
Other Intangible Assets:
Intangible assets include $879,000 and $2,476,000 at December 31, 1996 and 1995,
respectively, representing gross costs incurred to obtain landfill gas
production rights. Amortization of these gas production rights is recognized as
the greater of either the straight-line or units-of-production method over a
term not exceeding the period of the gas production leases. The expected
amortization periods range from one to ten years. The related accumulated
amortization was approximately $798,000 and $1,338,000 at December 31, 1996 and
1995, respectively. In December, 1996 the Company reduced the value of these
landfill gas production rights by $247,000 to their estimated fair value.
Other intangible assets at December 31, 1996 also include $888,000, representing
the gross cost to reacquire certain patent rights associated with the Company's
proprietary leachate evaporation system technology. Accumulated amortization at
December 31, 1996 was approximately $15,000 and the patent is being amortized
over the 15 year life of such patents.
6. OTHER NONCURRENT OBLIGATIONS
Certain employees participate in a salary continuation plan which will provide
the employees with a 10-year benefit from the Company. Monthly benefits range
from $600 to $4,500, and the employees vest in varying amounts from the fifth to
the tenth anniversary date of their contracts. Such amounts will be paid in
addition to those payments due specifically as consideration for the employees
meeting the non-competition provisions of their contracts.
Included in other noncurrent obligations are the Company's liabilities under
salary continuation agreements and capital leases. Liabilities under salary
continuation agreements were $939,000 and $802,000 at December 31, 1996 and
1995, respectively. Capital lease obligations are collateralized by equipment
included in property and equipment with a cost and accumulated depreciation of
$324,000 and $80,000, respectively, at December 31, 1996, and $1,020,000 and
$863,000, respectively, at December 31, 1995.
7. RETIREMENT PLAN
The Company sponsors a qualified retirement plan, generally available to all
employees, which is based on Section 401(k) of the Internal Revenue. Employees
may elect to contribute up to 15% of their annual compensation to the plan up to
the Internal Revenue Service annual contribution limit $9,500 for 1996. The
Company voluntarily matched the employee's contribution to a maximum of 3% of
annual compensation. The Company's contributions to the retirement plan were
$1,146,000, $1,177,000 and $674,000 for the years ended December 31, 1996, 1995
and 1994, respectively.
28
<PAGE>
8. COMMITMENTS
The Company leases its office facilities, as well as office and computer
equipment, under operating leases in various locations. Until 1995, certain
office facilities were leased from partnerships in which certain officers and
shareholders of the Company had controlling interests. Lease arrangements with
the partnerships were terminated in 1995. The annual rents under leases from
partnerships were approximately $473,000 and $516,000 for 1995 and 1994,
respectively. The Company's minimum annual lease commitments under all operating
leases are approximately (in thousands):
- -------------------------------------------------------------------------------
Years Ending December 31,
- --------------------------------------------------------------------------------
1997 $5,385
1998 4,044
1999 3,313
2000 2,155
2001 and thereafter 2,657
- --------------------------------------------------------------------------------
Rent expense was approximately $5,263,000, $4,429,000 and $3,964,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
Certain employees have signed non-competition agreements which will provide them
with monthly payments from $400 to $3,000 for a period of up to ten years,
commencing on the tenth anniversary date of the agreements. (See note 6.)
9. LITIGATION
As a firm engaged in environmental-related matters, the Company encounters
potential liability, including claims for significant environmental damage, in
the normal course of business. The Company is party to lawsuits and is aware of
potential exposure related to certain claims. In the fourth quarter of 1996 the
Company agreed to settlement terms on a number of outstanding legal matters. At
the same time the Company assessed the potential exposure relative to all other
known pending matters. Based on the foregoing, the Company increased its legal
reserve by an additional $1,553,000. In the opinion of management the resolution
of all known lawsuits/claims at amounts in excess of established reserves will
not have a material adverse affect on the Company's financial position, results
of operations or cash flows.
29
<PAGE>
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following (in thousands):
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Variable-rate note payable to bank ................................................................. $ 9,286 --
(effective rate at 12/31/96 was 7.35%). Payable in quarterly
installments of $357 with a final payment of $3,214 in 2001.
Collateralized by the assets of EMCON.
8% unsecured notes payable to OWT shareholders. Payable on......................................... 1,747 --
termination date in 20001
7.99% note payable to bank in monthly installments through 2006..................................... 4,661 --
Collateralized by the assets of OWT with a net book value of $6,186
8.49% note payable to bank in monthly installments through 2001..................................... 374 --
Collateralized by equipment of OWT with a net book value of $458
8.99% note payable to bank in monthly installments through 2000..................................... 296 --
Collateralized by the assets of OWT with a net book value of $6,186
Other indebtedness, interest rates vary from 5.3% to 15.9% payable.................................. 553 803
in installments through 2000. (Primarily lease obligations)
------- -------
Total Long-term Debt ............................................................................... $16,917 $ 803
------- -------
Less current portion ............................................................................... $ 2,250 $ 372
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term Debt, net of current portion ............................................................. $14,667 $ 431
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest paid on all outstanding debt amounted to $951,000 in 1996 and $58,000
in 1995. Carrying value of the debt approximates fair value.
Aggregate principal payments for the next five years for years ending December
31,
- -------------------------------------------------------------------------------
1997 $ 2,250
1998 2,172
1999 2,039
2000 2,030
2001 and thereafter 8,426
- -------------------------------------------------------------------------------
In conjunction with the acquisition of OWT, the Company entered into a
$20,000,000 secured Credit Agreement with its existing commercial bank,
replacing its previous $10,000,000 unsecured line of credit. Under the new
agreement, the Company borrowed $10,000,000 on a term loan basis with interest
at a managed rate not to exceed the prime rate. Principal is to be amortized
over seven years, but with any unpaid amount finally due and payable on June 30,
2001. The remaining $10,000,000 under the Credit Agreement is available for
working capital purposes (with up to $5,000,000 also being available for
non-working capital purposes). The line of credit component of the Credit
Agreement expires on May 31, 1997. The Company expects to renew the line of
credit component of the Credit Agreement following its expiration. The Credit
30
<PAGE>
Agreement contains provisions with respect to the payment of dividends and the
level of capital expenditures and requires the maintenance of specific levels of
working capital, tangible net worth and continued quarterly profitability. As a
result of the fourth quarter loss in 1996, the impact of the related
restructuring actions and the payment of certain profit distributions to a
minority shareholder in one of OWT's subsidiaries, the Company was not in
compliance with these covenants at year-end. However, the Company obtained a
waiver from the bank for its non compliance and agreed to related amendments of
the Credit Agreement reducing the tangible net worth requirement and permitting
distributions to the minority shareholders in OWT's subsidiary.
11. SHAREHOLDERS' EQUITY
Preferred Stock:
The Board of Directors of the Company has the authority to determine the rights,
preferences, privileges and restrictions of the authorized preferred stock.
Stock Option Plan:
The Company has issued options to purchase shares of common stock pursuant to
its 1986 Incentive Stock Option Plan (now expired) and its 1988 Stock Option
Plan (the "Plans"). These options are granted with option exercise prices which
are equal to 100%, 105% or 110% of fair market value on the date of grant, and
expire over terms ranging from five to ten years. Options generally vest ratably
over a two year or four year period. A summary of activity of the Plans follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Options Outstanding
--------------------------------------------------
Available Number Price Aggregate
for Grant of Shares Per Share Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at
December 31, 1993 ........ 383,482 1,985,745 $ 1.15 - $11.25 $ 16,034,340
Options authorized .......... 750,000 -- -- --
Options granted ............. (448,900) 448,900 $ 5.00 - $ 8.37 2,984,999
Options canceled ............ 153,702 (153,702) $ 3.33 - $11.25 (1,322,592)
Options exercised ........... -- (54,606) $ 1.15 - $ 7.67 (250,724)
- -------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1994 ........ 838,284 2,226,337 $ 1.15 - $11.25 17,446,023
Options granted ............. (386,650) 386,650 $ 3.50 - $ 4.88 1,545,537
Options canceled ............ 72,629 (72,629) $ 3.33 - $10.00 (591,701)
Options exercised ........... -- (30,000) $ 1.15 (34,666)
- -------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 ........ 524,263 2,510,358 $ 3.33 - $11.25 18,365,193
Options granted ............. (192,448) 192,448 $ 3.25 - $ 4.88 728,144
Options canceled ............ 1,518,674 (1,518,674) $ 3.33 - $11.25 (12,357,381)
Options exercised ........... -- (4,700) $ 3.33 - $ 3.50 (15,698)
- -------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 ........ 1,850,489 1,179,432 $ 3.25 - $11.25 $ 6,720,258
- -------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
Restricted Stock Plan:
The Company's Restricted Stock Plan was approved by its shareholders in May,
1991. A total of 225,000 shares of the Company's Common Stock were reserved for
issuance under the Restricted Stock Plan. Shares granted to employees under the
Restricted Stock Plan generally vest in equal annual installments over periods
ranging from three to four years. At December 31, 1996, 99,191 shares were
available for issuance.
Employee Stock Purchase Plan:
The Employee Stock Purchase Plan (ESPP) provides that substantially all
employees may purchase the Company's common stock at a price equal to 85% of its
fair value on certain specified dates via a payroll deduction plan. At December
31, 1996, 248,338 shares were available for issuance. The Company discontinued
the ESPP effective February 1, 1997.
Stock-Based Compensation:
As permitted under FASB Statement No. 123, "Accounting for Stock-Based
Compensation" (FASB 123), the Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) in accounting for stock-based awards to employees. Under APB 25, the Company
generally recognizes no compensation expense with respect to such awards.
Pro Forma information regarding net income (loss) and earnings (loss) per share
is required by FASB 123 for awards granted after December 31, 1994, as if the
Company had accounted for its stock-based awards to employees under the fair
value method of FASB 123. For these purposes, the fair value of the Company's
stock-based awards to employees was estimated using a Black-Scholes option
valuation model. The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, the Black-Scholes model
requires the input of highly subjective assumptions including the expected stock
price volatility. Because the Company's stock-based awards to employees have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
stock-based awards to employees. The fair value of the Company's stock-based
awards to employees was estimated assuming no expected dividends and the
following weighted-average assumptions.
- -------------------------------------------------------------------------------
Options ESPP
------- ----
1996 1995 1996 1995
- -------------------------------------------------------------------------------
Expected life (years) 6.6 7.0 0.5 0.5
Expected volatility .49 .49 .32 .42
Risk-free interest rate 6.1% 6.3% 5.5% 6.1%
- -------------------------------------------------------------------------------
32
<PAGE>
For pro forma purposes, the estimated fair value of the Company's stock-based
awards to employees is amortized over the options' vesting period (for options)
and the six-month purchase period (for stock purchases under the ESPP). The
Company's pro forma information follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
In thousands except for earnings (loss) per share information 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss)
As reported ............................................................... $ (10,091) $ 1,786
Pro forma ................................................................. $ (10,393) $ 1,688
Primary (loss) earnings per share
As reported ............................................................... $ (1.19) $ 0.22
Pro forma ................................................................. $ (1.27) $ 0.20
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Because FASB 123 is applicable only to awards granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until approximately 1999.
The weighted average fair value of options granted during 1996 and 1995 was
$2.14 and $2.30 per share, respectively.
The following summarizes information about fixed stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
Weighted Weighted
Number Weighted Average Average Average
Range of Exercise Outstanding at Remaining Exercise Number Exercise
Prices 12/31/96 Contractual Life Price Exercisable Price
- -------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 9.25 - $11.25 239,125 5.6 $ 9.34 238,450 $ 9.34
$ 6.50 - $ 8.83 227,694 4.0 $ 7.43 198,644 $ 7.50
$ 5.00 - $ 6.00 36,015 4.2 $ 5.59 28,265 $ 5.69
$ 3.25 - $ 4.88 676,598 7.9 $ 3.83 208,041 $ 3.80
- -------------------------------------------------------------------------------------------------------------
$ 3.25 - $11.25 1,179,432 6.5 $ 5.70 673,400 $ 6.93
- ------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, 1,562,833 shares were exercisable at an average exercise
price of $8.10 per share.
In December, 1996 employees (other than officers and directors) with options
having exercise prices of $5.00 per share or greater were given the right to
either sell back their options to the Company, to exchange their options for new
options, to retain their original options or elect a combination of the three.
The rates at which the outstanding options could be exchanged or sold back to
the Company varied depending on the original option exercise price. Participants
could exchange their outstanding stock options for newly granted options at
rates ranging from one new share for every three old option shares to one new
share for every five old option shares. Alternatively, participants could sell
back their options at prices ranging from $0.10 to $0.40 per option share. This
resulted in options for 743,319 shares being canceled for a cash settlement of
approximately $156,000, and an additional 203,727 shares canceled in exchange
for the grant of new options covering 47,247 shares with an option exercise
price of $3.68 per share.
33
<PAGE>
12. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
- -------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------
Federal:
Current $607 $438 $(112)
Deferred (3,358) 61 (378)
- -------------------------------------------------------------------------------
Total Federal (2,751) 499 (490)
- -------------------------------------------------------------------------------
State:
Current 73 78 200
Deferred (258) 206 (210)
- -------------------------------------------------------------------------------
Total State (185) 284 (10)
- -------------------------------------------------------------------------------
Total Federal and State $(2,936) $783 $(500)
- -------------------------------------------------------------------------------
A reconciliation between the Company's effective tax rate of (22.5%) in 1996,
30.5% in 1995 and (20.7%) in 1994 and the U.S. statutory rate is as follows (in
thousands):
- -------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------
Tax at U.S. statutory rate $(4,559) $899 $(846)
State taxes, net of federal benefit (280) 149 (7)
Tax exempt income -- -- (38)
Fuel tax credits (454) (515) --
Goodwill amortization 2,306 150 135
Meals and entertainment 94 105 101
Other individually immaterial items (43) (5) 155
- -------------------------------------------------------------------------------
Total Federal and State $(2,936) $783 $(500)
- -------------------------------------------------------------------------------
As of December 31, 1996, the Company has federal alternative minimum tax credit
carryforwards of approximately $2,327,000 which have no expiration date.
34
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities consisted of the following at
(in thousands):
- -------------------------------------------------------------------------
Years Ended December 31, 1996 1995
- -------------------------------------------------------------------------
Deferred tax assets:
Alternative minimum tax credit carryforwards $2,327 $1,744
Deferred compensation 340 306
Allowance for doubtful accounts 403 421
Vacation accruals 636 595
Restructuring accruals 3,145 --
Unrecognized loss on property -- --
Other individually immaterial items 424 454
- --------------------------------------------------------------------------
Total deferred tax assets $7,275 $3,520
- --------------------------------------------------------------------------
Deferred tax liabilities:
Tax over book depreciation $ 532 $ 352
Tax accounting method changes 70 102
Payment liabilities deducted 108 116
Supplies 110 110
- --------------------------------------------------------------------------
Total deferred tax liabilities $ 820 $ 680
- --------------------------------------------------------------------------
Total net deferred tax assets $6,455 $2,840
- --------------------------------------------------------------------------
13. QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
(In thousands First Second Third Fourth
except per share amounts) Quarter Quarter Quarter Quarter
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Gross revenue ......................................................... $ 30,369 $ 31,116 $ 32,106 $ 28,951
Net revenue ........................................................... 26,276 26,453 26,636 24,044
Income from operations ................................................ 528 985 816 126
Net income ............................................................ 397 711 650 28
Income per share ...................................................... $ 0.05 $ 0.09 $ 0.08 $ 0.01
- ------------------------------------------------------------------------------------------------------------------------------------
1996
Gross revenue ......................................................... $ 28,564 $ 35,881 $ 36,416 $ 36,765
Net revenue ........................................................... 24,607 30,542 31,560 30,996
Income (loss) from operations ......................................... 119 790 582 (13,762)
Net income (loss) ..................................................... 34 365 259 (10,749)
Income (loss) per share ............................................... $ 0.01 $ 0.05 $ 0.03 $ (1.26)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Historically, the Company's net revenue is adversely affected in the first
quarter of each year, primarily as a result of restricted field work due to
weather conditions.
35
<PAGE>
The Board of Directors and Shareholders
EMCON
We have audited the accompanying consolidated balance sheets of EMCON as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of EMCON at December
31, 1996 and 1995, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
Ernst & Young LLP
San Francisco, California
February 6, 1997
36
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this Item is incorporated by reference
from the Registrant's definitive proxy statement for the Registrant's 1997
Annual Meeting of Shareholders to be filed with the Commission within 120 days
of the end of Registrant's fiscal year ended December 31, 1996.
Item 11. EXECUTIVE COMPENSATION
The information required under this Item is incorporated by reference
from the Registrant's definitive proxy statement for the Registrant's 1997
Annual Meeting of Shareholders to be filed with the Commission within 120 days
of the end of Registrant's fiscal year ended December 31, 1996.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this Item is incorporated by reference
from the Registrant's definitive proxy statement for the Registrant's 1997
Annual Meeting of Shareholders to be filed with the Commission within 120 days
of the end of Registrant's fiscal year ended December 31, 1996.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this Item is incorporated by reference
from the Registrant's definitive proxy statement for the Registrant's 1997
Annual Meeting of Shareholders to be filed with the Commission within 120 days
of the end of Registrant's fiscal year ended December 31, 1996.
37
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K Page
(a)(1) Financial Statements 18
(a)(2) Schedule II - Valuation and Qualifying Accounts 40
(b) Reports on Form 8-K --
No reports on Form 8-K were filed during
the quarter ended December 31, 1996.
(c) Index to Exhibits 41
Exhibits filed herewith and attached
hereto under separate cover or
incorporated by reference herein will be
furnished to security holders of the
Registrant upon written request and
payment of a fee of $.30 per page which
fee covers only the Registrant's
reasonable expenses in furnishing such
exhibits.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
EMCON
Dated: 3/28/97 By /s/ Eugene M. Herson
--------- --------------------
Eugene M. Herson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Dougals P. Crane Chairman of the Board and Director March 28, 1997
- --------------------
Douglas P. Crane
/s/Eugene M. Herson President, Chief Executive Officer March 28, 1997
- -------------------- and Director (Principal Executive
Eugene M. Herson Officer)
/s/R. Michael Momboisse Chief Financial Officer, March 28, 1997
- ----------------------- Vice President - Legal and
R. Michael Momboisse Secretary (Principal Financial
and Accounting Officer)
/s/Donald R. Andres Vice President and Director March28, 1997
- --------------------
Donald R. Andres
/s/Richard A. Peluso Vice President and Director March 28, 1997
- ---------------------
Richard A. Peluso
Director March __, 1997
- -----------------------
Donald R. Kerstetter
/s/Jack M. Marzluft Director March 28, 1997
- --------------------
Jack M. Marzluft
/s/Peter Vardy Director March 28 1997
- ---------------
Peter Vardy
39
<PAGE>
SCHEDULE II
EMCON
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Additions
Balance Charged to Balance
at Beginning Costs and at End
of Period Expenses Write-offs of Period
------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for
Doubtful Accounts:
Year Ended
December 31, 1994 ......... $ 480 $ 2,889 $(2,394) $ 975
Year Ended
December 31, 1995 ......... $ 975 $ 765 $ (688) $ 1,052
Year Ended
December 31, 1996 ......... $ 1,052 $ 1,985 $(2,086) $ 951
</TABLE>
40
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Page
- ----- -----------
2.1 Stock Purchase Agreement dated January 30, 1996, among Organic *
Waste Technologies, Inc. ("OWT"), Registrant and the selling
shareholders and optionholders of OWT, incorporated by
reference from Exhibit 2.1 of the Current Report on Form 8-K
dated March 14, 1996, (the "March 1996 8-K").
3.1 Articles of Incorporation, as amended, incorporated by *
reference from Exhibit 3.1 of the Registrant's Registration
Statement on Form S-1 (File No. 33-16337) effective September
16, 1987 (the "Form S-1 Registration Statement").
3.2 Certificate of Amendment of Restated Articles of Incorporation *
as filed on May 24, 1988, incorporated by reference from
Exhibit 3.2 of the Annual Report on Form 10-K for the fiscal
year ended December 31, 1988 (the "1988 10-K").
3.3 Certificate of Amendment of Restated Articles of Incorporation *
as filed on June 4, 1991, incorporated by reference from
Exhibit 4.1 of the Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1991 (the "June 1991 10-Q").
3.4 Bylaws, as amended, incorporated by reference from Exhibit 4.2 *
of the June 1991 10-Q.
10.1 EMCON 1986 Incentive Stock Option Plan and Amendment, *(1)
incorporated by reference *(1) from Exhibit 10.15 of the Form
S-1 Registration Statement.
10.2 Form of Agreement pursuant to Salary Continuation Plan, *(1)
incorporated by *(1) reference from Exhibit 10.17 of the Form
S-1 Registration Statement.
10.3 Schedule identifying Agreements pursuant to Salary Continuation 44(1)
Plan between
10.4 Form of Indemnity Agreement between the Registrant and each of *
the Registrant's officers and directors, incorporated by
reference from Exhibit 10.20 of the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1988 (the
"1988 10-K").
10.5 EMCON 1988 Stock Option Plan, amended by shareholder approval *(1)
on May 25,1994, *(1) including form of Nonqualified Stock
Option Agreement (Outside Directors), incorporated by reference
from Exhibit 10.9 of Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1994 (the "June 30, 1994
10-Q").
10.6 EMCON Employee Stock Purchase Plan incorporated by reference *(1)
from Exhibit 10.10 of the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1995.
41
<PAGE>
Sequentially
Exhibit Numbered
Number INDEX TO EXHIBITS (Continued) Page
- ----- -----------
10.7 EMCON Restricted Stock Plan incorporated by reference from *(1)
Exhibit 10.15 of the Annual Report on Form 10-K for the fiscal
year ended December 31, 1990.
10.8 EMCON Deferred Compensation Plan effective January 1, 1994, *(1)
incorporated by reference from Exhibit 10.12 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 (the "1993 10-K").
10.9 Trust Agreement for the EMCON Deferred Compensation Plan and *(1)
Salary Continuation Plan Trust dated February 19, 1994, between
Registrant and Wells Fargo Bank, N.A. incorporated by reference
from Exhibit 10.13 of the 1993 10-K.
10.10 Agreement between Eugene M. Herson and Registrant dated *(1)
November 30, 1995, incorporated by reference from Exhibit 10.21
of Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 (the "1995 10-K").
10.11 Agreement between R. Michael Momboisse and Registrant dated *(1)
November 10, 1995, incorporated by reference from Exhibit 10.22
of the 1995 10-K..
10.12 Credit Agreement between The Bank of California, N.A. and *
Registrant dated February 29, 1996, incorporated by reference
from Exhibit 10.2 of the March 1996 8-K.
10.13 Security Agreement between The Bank of California, N.A. and *
Registrant dated February 29, 1996, incorporated by reference
from Exhibit 10.3 of the March 1996 8-K.
10.14 Pledge Agreement between The Bank of California, N.A. and *
Registrant dated February 29, 1996, incorporated by reference
from Exhibit 10.4 of the March 1996 8-K.
10.15 Eurodollar Rate Option Agreement between The Bank of *
California, N.A. and Registrant dated February 29, 1996,
incorporated by reference from Exhibit 10.5 of the March 1996
8-K.
10.16 Fixed Rate Amortization Option Agreement between The Bank of *
California, N.A. and Registrant dated February 29, 1996,
incorporated by reference from Exhibit 10.6 of the March 1996
8-K.
10.17 Note Agreement among the Registrant, OWT, and certain employees *
of OWT , * incorporated by reference from Exhibit 10.1 of the
March 1996 8-K.
10.18 Rescission and Reformation Agreement dated effective November 45
1, 1996 among EMCON, OWT, and certain employees of OWT.
10.19 New Note Agreement dated effective November 1, 1996 among 66
EMCON, OWT and certain employees of OWT.
42
<PAGE>
Sequentially
Exhibit Numbered
Number INDEX TO EXHIBITS (Continued) Page
- -------------- -----------
10.20 Asset Purchase Agreement between Yolo Energy Partners, Inc., 78
Yolo Landfill Gas Corporation, EMCON, Yolo Neo LLC, and
Minnesota Methane LLC dated December 31, 1996.
10.21 Second Amendment to Credit Agreement dated effective January 111
27, 1997 among EMCON and Union Bank of California, N.A.
(formerly known as The Bank of California, N.A.)
10.22 Acquisition Agreement between EMCON and its wholly owned 112
subsidiary, Monterey Landfill Gas Corporation and Biomass
Energy Partners V, L.P., dated March 6, 1997
10.23 Third Amendment to Credit Agreement dated effective March 27, 123
1997 among EMCON and Union Bank of California, N.A. (formerly
known as The Bank of California, N.A.)
11.1 Computation of Income (Loss) Per Share. 124
21.1 Significant Subsidiaries of Registrant. 125
23.1 Consent of Ernst & Young, LLP, Independent Auditors. 126
27 Financial Data Schedule, included herein. 127
* Incorporated by reference
(1) Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of the instructions to
Form 10-K.
43
<PAGE>
EXHIBIT 10.3
EMCON
SALARY CONTINUATION PLAN PARTICIPANTS
Monthly Payments
--------------------------------------
Salary Date Payments
Participant Continuation Non-compete Commence
- --------------------------------------------------------------------------------
Thorley D. Briggs .............. $1,800 $1,200 January 1993
$1,200 $ 800 July 1993
John G. Pacey .................. -0- $1,080 January 1993
Donald R. Andres ............... $1,800 $1,200 January 1993
Richard J. Leach ............... -0- $ 819 January 1993
Fred W. Cope ................... $ 600 $ 400 January 1994
Robert E. Van Heuit ............ -0- $ 400 January 1994
H. Randolph Sweet .............. $1,350 $ 900 April 1997
Eugene M. Herson ............... $1,800 $1,200 November 2000
$2,700 $1,800 November 2004
R. Michael Momboisse ........... $ 600 $ 400 January 2003
$1,200 $ 800 November 2004
$ 600 $ 400 November 2006
Gary O. McEntee ................ $ 600 $ 400 November 2004
Mark H. Shipps ................. $1,800 $1,200 March 2006
Alan Ortiz ..................... $1,200 $ 800 October 2006
44
EXHIBIT 10.18
RESCISSION AND REFORMATION AGREEMENT
This Rescission and Reformation Agreement is entered into
effective as of November 1, 1996 (the "Effective Date") by and among
EMCON, a California corporation ("EMCON"); Organic Waste Technologies,
Inc., a Delaware corporation (the "Company"); and the undersigned
former holders of the Company's common stock and options to acquire
the Company's common stock (individually a "Management Stakeholder,"
and collectively the "Management Stakeholders").
RECITALS
A. Pursuant to a Stock Purchase Agreement entered into as of
January 30, 1996 (the "Stock Purchase Agreement"), the Company
purchased (the "Purchase") from the Management Stakeholders some or
all of the shares of the Company's common stock (the "Shares at
Issue") and options to purchase shares of the Company's common stock
(the "Options at Issue") held by each such Management Stakeholder as
set forth opposite such Management Stakeholder's name on Exhibit A in
exchange for a convertible promissory note executed by the Company, a
copy of which is set forth on Exhibit B (individually a "Note" and
collectively the "Notes").
B. EMCON guaranteed payment of the Notes and entered into a
note agreement in the form set forth as Exhibit C (the "Note
Agreement"), pursuant to which, among other obligations, EMCON agreed
to (i) exchange each Note for shares of EMCON common stock if the Note
had not been converted into the Company's common stock in accordance
with the terms of the Note prior to the fifth anniversary of the date
of the Note Agreement and (ii) loan each Management Stakeholder,
pursuant to the terms of a loan agreement set forth as Exhibit A to
the Note Agreement (the "Loan Agreement"), an amount equal to any
federal, state and local income taxes required to be paid by each
Management Stakeholder as a result of the Purchase. None of the
obligations set forth in the Note Agreement has arisen and EMCON has
not executed any Loan Agreement.
C. The purchase of the Options at Issue by the Company
resulted in cancellation of the Options at Issue. The parties intended
that the portion of the principal amount of the Notes representing
payment for the Options at Issue, plus interest related thereto
(collectively the "Option Payment Amounts"), be a mere unfunded,
unsecured promise of the Company, guaranteed by EMCON, to pay the
Option Payment Amounts in the future, when due.
D. The parties desire to rescind the Purchase ab initio so
that the Management Stakeholders shall own the Shares at Issue and
Options at Issue held by each of them immediately prior to
consummation of the Purchase.
E. The Management Stakeholders desire to sell their Shares at
Issue and the Company desires to acquire the Shares at Issue in
exchange for new promissory notes (the "New Notes") in the same form
set forth in the Notes, but in the amounts set forth in Exhibit D. The
Management Stakeholders desire to have their Options at Issue
canceled, and the Company desires to cancel such Options at Issue,
pursuant to the terms of this Agreement.
45
<PAGE>
F. Capitalized terms not defined herein have the same meaning as set
forth in the Stock Purchase Agreement.
AGREEMENT
1. RESCISSION. EMCON, the Company and Management Stakeholders hereby
rescind the Purchase ab initio, and thereby undo such Purchase so as to place
the parties for all purposes with respect to the Shares at Issue and the Options
at Issue in the same position as of the Effective Date in which they would have
been had such Purchase never occurred. To effect such rescission, the parties
agree that:
(a) STOCK PURCHASE AGREEMENT. With respect to the Purchase, the
Stock Purchase Agreement is of no force and effect, except as otherwise set
forth herein. All of the parties to the Stock Purchase Agreement remain bound by
the Stock Purchase Agreement for all other purposes, including, by way of
example but not by way of limitation, (i) all representations, warranties,
covenants, agreements, objections and rights other than with respect to the
Purchase, and (ii) all representations, warranties, covenants, agreements,
obligations, rights and actions of any person who is a Management Stakeholder in
any capacity other than as a Management Stakeholder. In addition, Sections 12.1
to 12.8 of the Stock Purchase Agreement apply with full force and effect to the
transactions contemplated by this Agreement.
(b) OPTIONS AT ISSUE AND SHARES AT ISSUe. Pursuant to this Section
1, the Management Stakeholders own the Shares at Issue and Options at Issue as
of the Effective Date, and the assignment of the Options at Issue executed by
each of the Management Stakeholders pursuant to the Stock Purchase Agreement and
the cancellation thereof is null and void.
(c) NOTES. The Management Stakeholders have marked the Notes
canceled and have returned the original, executed Notes to the Company.
(d) NOTE AGREEMENT. The Note Agreement is null and void.
2. SALE OF SHARES AT ISSUE. The Management Stakeholders hereby sell
their Shares at Issue to the Company and the Company hereby buys the Shares at
Issue of each of the Management Stakeholders in exchange for a New Note in the
amount and form set forth as Exhibit D. The parties hereto agree that as a
result of the sale pursuant to this Agreement, it shall not be necessary for the
Company to reissue certificates for the Shares at Issue to effect the rescission
set forth in Section 1.
3. CANCELLATION OF OPTIONS AT ISSUE. The Options at Issue are hereby
canceled in exchange for the Company's unfunded, unsecured promise to pay to
Management Stakeholders the amounts set forth on Exhibit D (the "Option
Cancellation Amounts"), on the dates set forth on Exhibit D. The Company shall
have no right to prepay the Option Cancellation Amounts.
(a) ISSUANCE OF COMPANY STOCK. If the Company consummates a sale of
the Company's common stock (the "OWT Common Stock") to the public pursuant to a
firm commitment underwritten public offering in an amount of at least Ten
Million Dollars ($10,000,000) or any lesser amount as may be approved in writing
by Mark H. Shipps, (the "Initial Public Offering") at any time prior to the
expiration of the term hereof, upon the consummation of the Initial Public
46
<PAGE>
Offering, the Option Base Amount as set forth on Exhibit D shall be
automatically converted (the "Conversion") into shares of OWT Common Stock,
pursuant to the terms of this Section 3. In such event, a pro-rata portion of
the unpaid Option Cancellation Amounts for each of the first through fifth
periods set forth on Exhibit D shall be immediately due and payable by the
Company to the Management Stakeholders, based on the Option Cancellation Amount
for each such period multiplied by the ratio of (i) the number of days within
such period which have elapsed prior to the Conversion divided by (ii) the total
number of days in such period (the "Period Ratio"); provided, however, that if
the Option Cancellation Amount for the first period has not been paid in full,
the amount paid shall include the First Period Acceleration Penalty plus the
product of (x) the Remainder set forth on Exhibit D, multiplied by (y) the
Period Ratio for the first period.
(1) CONVERSION PRICE. The number of shares of OWT Common Stock
into which the Option Base Amount shall be converted shall be the amount of the
Option Base Amount, divided by the OWT Conversion Price. The OWT Conversion
Price shall initially be Four Dollars and Eighty Cents ($4.80), and shall be
adjusted as set forth in Section 3(a)(2) hereof.
(2) ADJUSTMENTS TO OWT CONVERSION PRICE. The OWT Conversion
Price shall be adjusted as set forth in this section 3(a)(2):
(i) SUBDIVISIONS. If the Company shall at any time
subdivide the outstanding shares of OWT Common Stock, the OWT Conversion Price
in effect immediately prior to such subdivision shall be proportionately
decreased, and in case the Company shall at any time combine the outstanding
shares of OWT Common Stock, the OWT Conversion Price in effect immediately prior
to such combination shall be proportionately increased, effective at the close
of business on the date of such subdivision or combination, as the case may be.
(ii) STOCK DIVIDENDS. If the Company shall at any time pay
a dividend with respect to OWT Common Stock payable in OWT Common Stock, then
the OWT Conversion Price in effect immediately prior to the record date for
distribution of such dividend shall be adjusted to that price determined by
multiplying the OWT Conversion Price in effect immediately prior to such record
date by a fraction (i) the numerator of which shall be the total number of
shares of OWT Common Stock outstanding immediately prior to such dividend and
(ii) the denominator of which shall be the total number of shares of OWT Common
Stock outstanding immediately after such dividend.
(iii) RECLASSIFICATION OR MERGER. If any reclassification,
change or conversion of the OWT Common Stock occurs (other than as a result of a
subdivision or combination described above and other than upon any Acceleration
Event, as defined below), the Management Stakeholders shall have the right to
receive, the kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification, change or conversion by a holder
of the number of shares of OWT Common Stock into which the Option Base Amount
could then be exchanged in the event that an Initial Public Offering had
occurred. The provisions of this subparagraph (iii) shall similarly apply to
successive reclassifications, changes, and conversions.
(iv) ANTI-DILUTION PROTECTion. If the Company issues and
sells shares of OWT Common Stock to EMCON or affiliated companies of EMCON, at a
price per share that is less than the OWT Conversion Price then in effect, then
the OWT Conversion Price shall be adjusted to equal such per share price.
47
<PAGE>
(3) Participation in Initial Public Offering. If the Company
undertakes an Initial Public Offering or any other public registered
underwritten offering pursuant to the Securities Act of 1933, as amended (the
"Act"), each Management Stakeholder may, at his option, sell the shares of OWT
Common Stock into which the Option Base Amount may be converted pursuant to
Section 3 hereof on a pro rata basis with EMCON and the other holders of OWT
Common Stock participating in such offering, subject to the approval of the
managing underwriters for such offering. This right shall expire at such time as
Management Stakeholder may sell all shares of OWT Common Stock into which the
Option Base Amount may be converted in any three month period pursuant to Rule
144 under the Act. The procedures and terms of such registration rights shall be
as set forth in Sections 4 to 7 of the Agreement Note (as defined below).
(b) OFFSET.
(1) The Option Cancellation Amounts due hereunder may be
reduced by any amounts due from the Management Stakeholder to EMCON pursuant to
Section 12.2 of the Stock Purchase Agreement, which section remains in full
force and effect.
(2) In addition, the Option Cancellation Amounts may be reduced
by any amount outstanding from the Management Stakeholders under the Loan Note
(as defined in the Note Agreement) which the Management Stakeholders then owes
to OWT or EMCON.
(c) ACCELERATION.
(1) Notwithstanding anything to the contrary herein, if any of
the events set forth in paragraphs (a) through (h) of this Section 3(c) (each,
an "Acceleration Event") shall occur at any time after the date hereof, then, at
the option of the Management Stakeholders, the Option Base Amount, plus a
pro-rata portion of the unpaid Option Cancellation Amounts for each of the first
through fifth periods set forth on Exhibit D shall be immediately due and
payable by the Company to the Management Stakeholders. The pro-rata portion of
the unpaid Option Cancellation Amounts for each period shall be based on the
Option Cancellation Amount for each such period multiplied by the Period Ratio;
provided, however, that if the Option Cancellation Amount for the first period
has not been paid in full, the amount paid shall include the First Period
Acceleration Penalty plus the product of (x) the Remainder set forth on Exhibit
D, multiplied by (y) the Period Ratio for the first period. An Acceleration
Event includes the following:
(i) upon a consolidation or merger of EMCON with or into
any other corporation or corporations (other than a wholly-owned subsidiary of
EMCON and other than a merger in which EMCON is the surviving corporation), or
the sale, transfer or other disposition of all or substantially all of the
assets of EMCON;
(ii) upon a change in ownership of Fifty Percent (50%) or
more, in a single transaction, of the stock of the Company, other than to an
affiliate or affiliates of EMCON which does not materially alter EMCON's direct
or indirect ownership of the Company;
(iii) upon a change in ownership of Fifty Percent (50%) or
more, in a series of two (2) or more transactions, of the outstanding stock of
the Company, other than to an affiliate or affiliates of the Company and a
substantial diminution in the responsibilities of Mark H. Shipps with respect to
the Company in his capacity as an employee of EMCON;
48
<PAGE>
(iv) upon a change in ownership of Thirty-Five Percent
(35%) or more of the stock of EMCON to a single buyer or an affiliated group of
buyers, resulting in a change in the majority of the board of directors of EMCON
from the board of directors as it existed immediately prior to such change in
ownership, or upon a change in ownership of Fifty Percent (50%) or more, in a
single transaction, of the stock of EMCON;
(v) upon the liquidation, dissolution or winding up of the
Company or the consolidation or merger of the Company with and into another
corporation (other than a merger in which the Company is the surviving
corporation);Error! Bookmark not defined.
(vi) upon the occurrence of any transaction, without the
consent of Mark H. Shipps, in which Twenty Percent (20%) or more of the
outstanding stock of the Company becomes owned by persons other than EMCON or an
affiliate or affiliates of EMCON;
(vii) upon the death of the Management Stakeholders or
termination of the Management Stakeholders' employment by the Company, other
than a Termination for Cause. "Termination for Cause" is intended to embrace
intentionally or grossly negligent conduct on the part of the Management
Stakeholders which is materially detrimental to the operations and/or reputation
of the Company or EMCON. By way of illustration such actions would include (but
would not be limited to) a material breach of the Management Stakeholders'
obligations under any employment agreement between the Management Stakeholders
and OWT and/or conviction of a crime (other than minor infractions such as
parking or similar traffic violations), moral turpitude and revocation by the
applicable licensing authority of professional licenses (if any) material to the
Management Stakeholders' ability to perform the Management Stakeholders'
employment obligations;
(viii) upon a fundamental change in EMCON's current
strategy of focussing a material amount of EMCON's resources on services
relating to the design, construction, ownership, operation and maintenance of
infrastructure; provided, however, that upon any Acceleration Event, no amount
shall be due and payable hereunder in the event that the Management Stakeholder
has exchanged this Note for common stock of EMCON, pursuant to the Note
Agreement.
4. NOTE AGREEMENT. The parties hereto shall enter into a note agreement
substantially in the form attached hereto as Exhibit E.
5. CONSISTENT TREATMENT. Each party shall treat the Purchase as
rescinded for all purposes and shall take no action inconsistent with such
treatment.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants, as of the Date of the Deposit, to EMCON that, except as
set forth on the Company Disclosure Schedule and without giving effect to the
Contemplated Transactions:
(a) CORPORATION ORGANIZATION.
(1) The Company is a corporation, duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. The
Company has all requisite corporate power to own, operate and lease its
properties and to conduct its business as now being conducted. The Company is
duly qualified or licensed to do business, and is in good standing as a foreign
corporation, in each state or other jurisdiction in which it owns or leases
49
<PAGE>
properties or where the nature of its business or operations requires such
qualification or licensing, unless the failure to do so would not have a
material adverse effect on the Company's assets, business, operations or
financial condition. To the knowledge of the Company, the Company has obtained
all approvals, authorizations, consents, licenses, clearances and orders of, and
has currently effective all registrations with, all governmental and regulatory
authorities that are necessary to the conduct of its business or operations as
now being conducted, except where the failure to do so would not have a material
adverse effect on the Company.
(2) The only Subsidiaries of the Company are: Omni Gen
Technologies, Inc., an Ohio corporation ("Omni Gen"); Keystone Recovery, Inc.,
an Ohio corporation ("Keystone"); LFG Specialties, Inc., an Ohio corporation
("LFG"); O.W.T. Construction Company, an Ohio corporation ("OWT"); and American
Landfill Supply Co., an Iowa corporation ("ALS") (collectively, Omni Gen,
Keystone, LFG, OWT and ALS, the "Company Subsidiaries"). (Except where otherwise
indicated or, given the context otherwise appropriate, references herein to the
"Company" shall also include the Company Subsidiaries.) Except for a five
percent (5%) minority interest in Keystone, as of the Closing Date, the Company
will own all of the issued and outstanding capital stock of each of the Company
Subsidiaries. Each of the Company Subsidiaries is duly incorporated, validly
existing and in good standing in the state of its incorporation. Each of the
Company Subsidiaries has all requisite corporate power to own, operate and lease
its properties and to conduct its business as now being conducted. Each of the
Company Subsidiaries is duly qualified or licensed to do business, and is in
good standing as a foreign corporation in each state or other jurisdiction in
which it owns or leases properties or where the nature of its business or
operations requires such qualification or licensing, unless the failure to do so
would not have a material adverse effect on its assets, business, operations or
financial condition. To the knowledge of the Company, each of the Company
Subsidiaries has obtained all approvals, authorizations, consents, licenses,
clearances and orders of, and has currently effective all registrations with,
all governmental and regulatory authorities which are necessary to the conduct
of its business or operations as now being conducted, except where the failure
to do so would not have a material adverse effect on the Company.
(b) CAPITALIZATION.
(1) The authorized capital stock of the Company consists solely
of 7,500,000 shares of common stock, $0.01 par value, and 2,841,481 shares of
preferred stock, $0.01 par value, 1,360,000 of which are designated Series A
Preferred Stock, 740,740 of which are designated Series B Preferred Stock and
740,741 of which are designated Series C Preferred Stock. There are currently
issued and outstanding 712,000 shares of common stock, 1,360,000 shares of
Series A Preferred Stock, 740,740 shares of Series B Preferred Stock and 740,741
shares of Series C Preferred Stock. The Company Disclosure Schedule sets forth a
true and complete description of the authorized, issued and outstanding shares
of the capital stock of the Company and each of the Company Subsidiaries showing
all stockholders of the Company and each of the Company Subsidiaries as of the
date of this Agreement. All of the issued and outstanding shares of the Company
and the Company Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable except where failure to be so would not have a material adverse
effect on the business, financial position or operating results of the Company.
All such shares have been issued in accordance with federal and applicable state
securities laws concerning the issuance of securities. The Company Disclosure
Schedule accurately lists all holders of the Company's capital stock and each
such person's actual ownership interest. The rights, preferences and privileges
of the Company's capital stock are as stated in the Company's Certificate of
Incorporation, as heretofore amended.
50
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(2) Except for the Options and as otherwise set forth in the
Company Disclosure Schedule, no options, warrants, conversion privileges,
preemptive rights, rights to first refusal or other rights, agreements or
commitments written or otherwise by the Company or to the knowledge of the
Company by any Management Stakeholder are currently outstanding to purchase or
otherwise receive any of the capital stock of the Company or the Company
Subsidiaries.
(3) The Company has delivered to the Buyer complete and
accurate copies of the Certificates of Incorporation and Bylaws (including all
amendments thereto) of the Company and each of the Company Subsidiaries. Not
less than twenty (20) days before the Closing Date the Company will make
available to the Buyer the minute books of the Company and the Company
Subsidiaries containing minutes for all meetings of, and written consents issued
by the Company and executed by, each such corporation's stockholders, Board of
Directors and all committees of such Board since the date of organization of
such corporation.
(c) CORPORATE AUTHORITY. The Company has all requisite corporate
authority and power to execute and deliver this Agreement and the other
agreements referenced herein and to perform all of its obligations with respect
to the Contemplated Transactions. The execution, delivery and performance of
this Agreement and the other agreements referenced herein and the consummation
of the transactions contemplated hereby and thereby have been duly authorized,
or prior to the Closing will be duly authorized, by the Company's Board of
Directors and, if required, by its stockholders.
(d) DISSOLUTION; FORFEITURE. No action at law or in equity and to
the Knowledge of the Company no investigation or proceeding, whatsoever is now
pending or threatened to: (a) liquidate, dissolve or disincorporate the Company
or any of the Company Subsidiaries, (b) declare any of the corporate rights,
powers or privileges of the Company or any of the Company Subsidiaries, to be
null and void or otherwise than in full force and effect, (c) declare that the
Company or any of the Company Subsidiaries, or their respective Boards of
Directors or any of their respective officers, agents or employees has exceeded
or violated any of their respective corporate rights, powers or privileges, or
(d) obtain any decree, order, judgment or other judicial determination or
administrative or other ruling that would or might impede or detract from any of
the corporate rights, powers or privileges now vested in or claimed by the
Company or any of the Company Subsidiaries.
(e) THE COMPANY FINANCIAL STATEMENTS. The consolidated financial
statements of the Company for the fiscal years ended December 31, 1993 and
December 31, 1994 have been prepared and audited in accordance with GAAP (the
"Audited Financial Statements") and the consolidated financial statements of the
Company for year ended December 31, 1995 (the "Unaudited Financial Statements")
(collectively, the Audited Financial Statements and the Unaudited Financial
Statements being referred to as the "Company Financial Statements") have been
prepared in accordance with GAAP and fairly present the financial position of
the Company in accordance with GAAP as at the dates thereof; provided, however,
that the Unaudited Financial Statements do not contain the footnote disclosures
required by GAAP.
(f) Absence of Unaccrued or Undisclosed Liabilities. Except for
claims, liabilities or obligations:
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(1) which were properly reflected or adequately reserved
against in the balance sheet included as part of the Unaudited Financial
Statements;
(2) which were incurred in the Ordinary Course of Business
since December 31, 1995;
(3) which are listed on the Company Disclosure Schedule;
(4) which are less than $25,000 in any single case; or
(5) which result from any failure to properly account for any
of the Company's estimated project costs and/or project revenue recognized in
the Audited Financial Statements or Unaudited Financial Statements and which,
taken in the aggregate with all other accrued project and related costs and/or
revenue recognized as of December 31, 1995, do not result in a net reduction in
the aggregate profit recognized by the Company on all projects subsequent to
December 31, 1995,the Company does not have any material liabilities whether
absolute, accrued, unaccrued, contingent or otherwise whether due or to become
due.
Except as set forth in paragraphs (1) through (5) of this
Section 6(f), the Company does not have knowledge of and has no reasonable
grounds to know of any basis for any assertion against the Company of any
material claims, liabilities or obligations of any nature required by GAAP to be
reflected in a corporate balance sheet which have not been fully reflected or
reserved against in the December 31, 1995 balance sheet included as part of the
Unaudited Financial Statements, provided, however, that no limitation set forth
in this Section 6(f) shall in any way affect any other representation or
warranty contained in this Agreement.
(g) ABSENCE OF CERTAIN CHANGES. Since December 31, 1995 there
has not been any: (1) material adverse change in the business, financial
condition or operations of the Company and the Company Subsidiaries taken as a
whole, (2) recapitalization, amendment to the Certificate of Incorporation or
Bylaws or any change in, authorization, creation, issuance or agreement for
issuance of, the capital stock or any securities convertible into, or options,
warrants or other rights to subscribe to any shares of capital stock of the
Company or the Company Subsidiaries, or any declaration setting aside or payment
of any dividend or distribution (whether in cash, securities or property) with
respect thereto, except as contemplated hereby, (3) increase in the
compensation, direct or indirect, payable to any of the officers or employees of
the Company or the Company Subsidiaries, including adoption of or increase in
any bonus, insurance, pension or other employee benefit plan, payment or
arrangement, or any other agreement or arrangement with its officers, employees
or stockholders, except as contemplated hereby, (4) unwaived default in respect
of any Material Contracts (as defined in Section 6(n), except for such defaults,
if any, which do not have a material adverse effect on the financial position,
business or operating results of the Company, (5) material change in the methods
and procedures employed in keeping the books and records of the Company or the
Company Subsidiaries or (6) strike or material labor dispute.
(h) TAXES. All tax returns of the Company required by law
(including, without limitation, all income, unemployment compensation, worker's
compensation, Social Security, excise, privilege and franchise tax laws of the
United States or any state or municipal subdivision thereof) to be filed through
the Closing Date (true and complete copies of which have been made available to
the Buyer) have been or will be duly and timely filed, and all taxes,
assessments, contributions, fees and governmental charges or impositions shown
on said returns or reports (other than those not yet due and payable or payable
without penalty or interest) have been paid, except where any failure to so file
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or pay would, individually or in the aggregate, have a material adverse effect
on the Company and the Company subsidiaries, taken as a whole. The Company has
not received any notice of assessment of any federal, state, municipal or other
tax upon or measured by its income and, to the Company's knowledge, there is no
basis for an additional assessment of any such tax, except for those for which
the Company has established adequate reserves. The Company has not knowingly
waived any law or regulation fixing, or consented to the extension of, any
period of time for the assessment of any tax or other governmental imposition,
or become committed so to do. There are no audits of the Company pending and
there are no matters under discussion with any federal, state, local or foreign
authorities with regard to the payment of any taxes by the Company. There are no
issues that have been raised by the IRS or other taxing authority in connection
with an examination or otherwise which by application of similar principles
could reasonably be expected to result in a proposed deficiency for any period
not examined.
(i) TITLE TO PROPERTIES; ACCOUNTS RECEIVABLE
(1) Except for property and assets that the Company has
disposed of in the Ordinary Course of Business, the Company has, and will have
at the Closing Date, good and marketable title to all properties and assets
shown or represented on the balance sheet included as part of the Unaudited
Financial Statements or acquired since December 31, 1995, free and clear of all
mortgages, pledges, liens, defects in title, conditional sale agreements and
other encumbrances, except for liens, encumbrances and defects in title in
respect of property or assets of the Company which: (i) are incidental to the
conduct of the Company's business; (ii) have arisen in the Company's Ordinary
Course of Business; (iii) were not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than credit arrangements
related to purchase money liens); and (iv) do not in the aggregate materially
detract from the property and assets of the Company. The Company has performed
all the obligations required to be performed by it with respect to all assets
leased by it through the date hereof, except where the failure to perform would
not have a material adverse effect on the business or financial condition of the
Company. The Company enjoys peaceful and undisturbed possession of all of its
offices, warehouses, buildings and all other real property and related
facilities, whether owned, leased or operated (collectively, the "Facilities"),
and such Facilities are not subject to any claims, liens, pledges, options,
charges, easements, security interests, rights-of-way, encumbrances or other
rights, or any encroachments, building or use restrictions, exceptions,
reservations or limitations which in any material respect interfere with or
impair the present and continued use thereof in the usual and normal conduct of
its business. There are no pending or threatened condemnation proceedings
relating to any of the Facilities. The Facilities and the real property
improvements (including leasehold improvements), equipment and other tangible
assets owned or used by the Company at the Facilities are insured in amounts
believed by the Company to be adequate and, to the Knowledge of the Company, are
structurally sound with no material defects. Said items are not subject to any
commitment or other arrangement for their sale by the Company or use by third
parties other than commitments or arrangements entered into in the Ordinary
Course of Business. The assets are valued at or below the lower of fair market
value or actual cost less an adequate and proper depreciation charge. For tax
purposes, the Company has not depreciated any of the assets in any manner
inconsistent with applicable IRS guidelines, if any.
(2) All tangible property, real and personal, owned or
leased by the Company is in good operating condition and repair, except for
ordinary wear and tear and any defects the cost of repairing which, singly or in
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the aggregate, would not be material or are accrued for on the Company Financial
Statements. To the knowledge of the Company, such property is in conformity with
all applicable laws, ordinances, orders, regulations, rules and other
requirements (including applicable zoning, environmental, motor vehicle safety
or standards, occupational safety and health laws and regulations) currently in
effect and relating thereto, except where the failure to conform would not have
a material adverse effect on the business, operations or financial condition of
the Company.
(3) All accounts receivable of the Company shown on the
Company Financial Statements are valid, genuine and subsisting, arose in the
Ordinary Course of Business, and the aggregate amount thereof less the reserve
for doubtful accounts with respect thereto set forth in the Company Financial
Statements, are, to the best knowledge of the Company after due inquiry, current
and collectible within customary payment terms.
(j) Proprietary Rights.
(1) The Company owns the rights to use all trademarks,
trade secrets, trade names, copyrights, processes, designs, formulas, know-how,
inventions, licenses and intellectual property rights used in connection with
its business and the same are believed by the Company to be sufficient to
conduct such business as it is now or heretofore has been conducted with no
known or asserted conflict with or infringement of the asserted or actual rights
of others. The Company has no Knowledge of any infringement by any third party
in connection with any of the foregoing and the Company has not taken or omitted
to take any action which would have the effect of waiving any of its rights
thereunder, in each case except where such infringement or waiver would not have
a material adverse effect on the business, prospects, condition (financial or
otherwise) or results of operations of the Company. To the Knowledge of the
Company, no third party has filed or been issued or granted any applications for
patents, trademarks, trade names or registered copyrights relating to the
Company's assets.
(2) The Company Disclosure Schedule lists all patents,
patent applications, trademarks, trade names and registered copyrights owned by
the Company. Except as set forth in the Company Disclosure Schedule, the Company
is not required to pay any royalty, license fee or similar type of compensation
in connection with the conduct of its business as it is now or heretofore has
been conducted.
(3) The Company has obtained written agreements from all
required parties and entities assigning to the Company any material proprietary
rights relating to the Company's assets. Such agreements are currently valid and
in full force and effect and except as set forth in the Company Disclosure
Schedule, do not contain any provisions or restrictions with regard to the
rights granted to the Buyer under this Agreement. Except as set forth on the
Company Disclosure Schedule, each of the Company's employees and any other
Person who, either alone or in concert with others, developed, invented,
discovered, derived, programmed, or designed any trade secrets of the Company,
or who have knowledge of or access to information related to them, have entered
into appropriate confidentiality agreements, copies of which will, at least
twenty (20) days prior to the Closing Date, have been provided to the Buyer. All
material trade secrets of the Company are currently protectable and are not part
of the public knowledge or literature, nor have they been used, divulged, or
appropriated for the benefit of any past or present employees or other persons,
or to the detriment of, the Company.
(k) CUSTOMER LISTS. The Company has provided the Buyer access
to a complete and accurate list of each of the material customers of the
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Company. The relationships between the Company and its active customers and
suppliers are, in the aggregate, in good standing, and since December 31, 1994,
no material customer or supplier has canceled or terminated, or, to the
Knowledge of the Company, threatened to cancel, terminate or change its
relationship with the Company in any manner adverse to the Company.
(l) BENEFIT PLANS AND ARRANGEMENTS.
(1) Except as set forth in the Company Disclosure
Schedule, or as otherwise contemplated by this Agreement, the consummation of
the Contemplated Transactions will not result in any payment (whether of
severance pay or otherwise) becoming due from the Company to any employee,
consultant or other third party.
(2) The Company Disclosure Schedule lists all pension,
retirement, stock purchase, stock option, stock bonus, savings or profit sharing
plan, individual employment agreement, bonus or incentive compensation programs,
deferred compensation agreements, severance pay plans, consultant, bonus, or
group insurance contracts, or any other material incentive, welfare or employee
benefit plan, or similar arrangement, understanding or course of dealing,
including all employee benefit plans and employee pension benefit plans as
defined in Section 3(3) of ERISA (the "Employee Plans").
(3) With respect to the Employee Plans, the Company will,
at least twenty (20) days prior to the Closing Date, have delivered or made
available to the Buyer copies of any: (1) plans and related trust documents and
amendments thereto; (ii) the most recent summary plan descriptions and the most
recent annual report; (iii) annual reports on Form 5500 which were filed in each
of the most recent three (3) plan years, including, without limitation, all
schedules thereto and all financial statements with attached opinions of
independent accountants; (iv) Form PBGC-1 which was filed in each of the most
recent three (3) plan years; (v) the most recent actuarial valuation; and (vi)
the most recent determination letter received from the IRS. Such financial
statements fairly present the financial condition of each Employee Plan in
accordance with United States generally accepted accounting principles applied
on a consistent basis. All Employee Plans have been administered in substantial
compliance with their terms, ERISA to the extent applicable, and, where
applicable, Section 401 of the Code.
(4) No event of the type set forth in Section 4043(b) of
ERISA has occurred and is continuing with respect to Employee Plans except
insofar as such an event may arise as a result of the consummation of the
Contemplated Transactions or would not have a material adverse effect upon the
Company's business, financial position or operating results. There exists no
material violation of ERISA with respect to the filing of reports, documents,
and notices regarding the Employee Plan participants or beneficiaries. No
action, suit, or proceeding is pending, nor, to the Knowledge of the Company, is
any threatened or imminent, with respect to the assets of any of the trusts
under any Employee Plan. All amendments required to bring an Employee Plan into
conformity, in all applicable and material respects, with ERISA have been made.
Any bonding with respect to an Employee Plan required under ERISA is in full
force and effect. To the Knowledge of the Company, the Company has not incurred
any liability, pursuant to Subtitle A of Title IV of ERISA, to the Pension
Benefit Guaranty Corporation.
(5) No breach of fiduciary responsibility has occurred
with respect to any of the Employee Plans other than such breach, if any, which
would not have a material adverse effect on the Company's business, financial
position or operating results. There is no suit, litigation or claim (other than
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routine benefit claims) pending or, to the Knowledge of the Company, threatened
against the Company or any fiduciary of any Employee Plan involving any Employee
Plan or against any such plan or its assets by any employee or former employee
(or beneficiary thereof) of the Company which individually or in the aggregate
would adversely affect the financial condition of any such Employee Plan.
(m) Compliance with Laws; Legal Proceedings.
(1) The Company is not in violation of, or in default with
respect to, any term or provision of (i) its Certificate of Incorporation or
Bylaws, or (ii) any judgment, writ, order, injunction, or decree of any court or
of any federal, state, or municipal agency or authority in any case or
proceeding expressly naming the Company.
(2) To the Knowledge of the Company, the Company and its
operations are in compliance with applicable statutes, ordinances, regulations,
requirements and orders of the federal government and of all states,
municipalities, and agencies thereof, and of all other authorities having
jurisdiction in respect of any of its assets or operations (including any
applicable foreign government or agency or subdivision thereof), except where
the failure to do so would not have a material adverse effect on the Company.
(3) The Company has not been threatened with, nor is it a
party to, directly or indirectly, nor, to the Knowledge of the Company, is there
any set of facts that is likely to give rise to, any material legal action,
governmental investigation, or other proceeding (governmental or private),
including investigations, inquiries, citations, complaints, orders or
stipulations by any federal, state or local agency or governmental unit, and
there are no judgments, orders, restrictions or decrees of a continuing nature
outstanding against the Company. The Company has not been threatened with, nor,
to the Knowledge of the Company is there any set of facts that is likely to give
rise to, a charge of any material violation of any provision of any federal,
state, local or other law (including common law), or administrative regulations
in respect of its business or property.
(n) Contracts and Obligations. The Company Disclosure Schedule
sets forth a true and complete list of the following agreements and instruments
to which the Company is a party: (a) all executory contracts, agreements and
instruments having a total contract price in excess of $50,000; (b) all
contracts, agreements or instruments which are in the nature of teaming
agreements, joint venture agreements, non-compete agreements, franchise
agreements, exclusive license agreements or other similar agreements restricting
access to any business opportunity of the Company; (c) all loan or debt
agreements, guarantees, indemnities and bonding commitments; (d) all license or
technology transfer agreements; (e) all leases, subleases and equipment leases,
having a total contract price in excess of $50,000; (f) all agreements between
the Company, on the one hand, and any of the officers, directors or
stockholders; (g) all material agreements between the Company, on the one hand,
and any other employees of the Company on the other hand; (h) all material
licenses or permits issued by any government agency or authority for the benefit
of the Company and/or one or more of the Company Subsidiaries; (i) any
management or consultation agreement not terminable at will without liability;
(j) any contracts or agreements requiring the payment of fees or commissions in
connection with any sale of all or substantially all of the Company's stock or
assets or any sale of a substantial interest in the Company; and (k) any other
agreement which materially affects the Company's business, financial position or
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operating results or which was entered into other than in the Ordinary Course of
Business (collectively, the "Material Contracts"). The Company has delivered to
the Buyer true and complete copies of each of the Material Contracts. The
Company is not in material violation of, or in default with respect to, any
Material Contract and the Material Contracts are valid, binding and enforceable,
subject only to applicable bankruptcy, insolvency and similar laws affecting
creditors rights generally and subject, as to enforceability, to general
principles of equity. To the Knowledge of the Company, the relationships between
the Company and the other parties to each of the Material Contacts are in good
standing, and no such other contract party has canceled or terminated, or
threatened to cancel, terminate or change in any manner adverse to the Company
such relationship or the terms of any Material Contract.
(o) EMPLOYEE RELATIONS.
(1) The Company has no union or collective bargaining
agreement, any contract or other agreement with any labor organization or with
any employee or consultant which is not terminable at will by the Company,
without liability, and no such contract or agreement is under discussion by
management of the Company with any employee or consultant. There are no pending
or threatened (i) strikes, work stoppages, slowdowns or picketing respecting
employees of the Company, (ii) unfair labor practice complaints against the
Company, or (iii) statutes, contracts or agreements, domestic or foreign, which
will obligate the Company to make any severance payments as a consequence of the
execution of this Agreement or the consummation of the Contemplated
Transactions.
(2) The Company has not received notice that there is any
key employee who intends to leave the Company's employ as a result of, or at the
conclusion of, the Contemplated Transactions. The Company's relationship with
its employees is good.
(p) INSURANCE. The properties and risks of the Company are
covered by valid and currently effective insurance policies issued in favor of
the Company, which policies are set forth on the Company Disclosure Schedule,
and the Company is included as an insured party under such policies, with full
rights as loss payee. The Company Disclosure Schedule contains a list and brief
description of each insurance policy (copies of which have been previously
provided to the Buyer) maintained with respect to the Company (or such
corporation's assets or operations), which provides continuing coverage as of
the date hereof. The Company Disclosure Schedule also includes a list and brief
description of individual claims in excess of $10,000 now pending or made during
the 36-month period immediately preceding the date of this Agreement, by or on
behalf of the Company under any insurance policies.
(q) ENVIRONMENTAL COMPLIANCE.
(1) The Company has all material permits, licenses and
other authorizations required under applicable laws and regulations relating to
pollution control and protection of the environment necessary for the operation
of its Facilities. The Company is not in material violation of any of the terms
or conditions of any such permits, licenses, leases, or authorizations. To the
Knowledge of the Company, the Company has not acted or failed to act in
violation of any law or regulation, order or other requirement of governmental
authorities with respect to the pollution or the atmosphere, surface water,
groundwater and noise, the handling of toxic or hazardous waste material or
other matters related to the environment. There are no pending or, to the
Knowledge of the Company, threatened civil or criminal actions, notices of
violations or administrative proceedings relating to pollution control or
protection of the environment that would have a material adverse effect on the
business or financial condition of the Company.
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(2) To the Knowledge of the Company, there are no material
conditions, circumstances, activities, practices, incidents, actions or plans
which would be reasonably likely to interfere with or prevent compliance or
continued compliance by the Company with any environmental laws currently in
force or with any existing regulation, code, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder, or which may give rise to any common law or other legal liability,
including without limitation, liability under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") or similar state, foreign or
local laws, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, notice of violation, study or investigation of or against
the Company, based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling, or the emission,
discharge, release or threatened release into the workplace or the environment,
of any pollutant, contaminant, chemical, or industrial, toxic or hazardous
material, substance or waste on any properties owned or leased by, or under the
direct control of, the Company. Without in any way limiting the foregoing, no
release, emission or discharge to the environment of any hazardous substance (as
that term is currently defined under CERCLA or under any applicable analogous
state law ("Hazardous Substance")) has occurred or is currently occurring in
connection with any action or failure to act on any properties owned or leased
by, or under the direct control of, the Company which has or could give rise to
any liability of the Company.
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(r) ADVANCES; RELATED PARTY TRANSACTIONS
(1) There are no receivables of the Company owing by any
directors, officers, employees or consultants of the Company or to any affiliate
of any such Company person or entity, other than advances by the Company in the
ordinary course of business to officers and employees for reimbursable business
expenses.
(2) No stockholder, officer, director or employee of the
Company, nor any member of the Family of any such stockholder, officer, director
or employee owns, or since December 31, 1993, has owned, directly or indirectly,
any interest exceeding five percent (5%) in (a) any business, corporate or
other, which is material party to any material business arrangement with the
Company or (b) any material property or rights, tangible or intangible, used in
the business of the Company. No stockholder, officer, or director of the
Company, owns, directly or indirectly, any interest in, or is an officer or
director of, any business, corporate or other (other than as a stockholder of a
public company), which competes with the Company.
(s) POWERS OF ATTORNEY. The Company Disclosure Schedule
contains a complete list of all powers of attorney (or similar instruments or
authorizations) granted by the Company to any person or entity. All such powers
of attorney (or similar instruments or authorizations) are subject to
termination or revocation by the Company at any time, without notice to any
other person or entity and without penalty.
(t) NO BROKERS. The Company has not entered into and will not
enter into any contract, agreement or understanding with any Person, except for
Raymond James & Associates, Inc. (a copy of which contract has been provided to
Buyer), which may result in the obligation of the Company or the Buyer to pay
any finder's fee, brokerage commission or similar payment in connection with the
Contemplated Transactions.
(u) OTHER AGREEMENTS TO SELL THE COMPANY. Except as set forth
herein, the Company has no legal obligation, absolute or contingent, to any
person or firm to sell any capital stock of the Company or to effect any merger,
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consolidation or other reorganization, or disposition of all or substantially
all the assets, of the Company.
(v) BANKING RELATIONSHIPS. The Company Disclosure Schedule
correctly and completely lists all banks and accounts in such banks, with which
the Company has deposits, indicating the names of those authorized to sign
documents with respect to such accounts as of the date of the most recently
approved banking resolution with respect to each.
(w) INFORMATION SUPPLIED. Neither this Agreement, the Company
Financial Statements, the Company Disclosure Schedule, the Exhibits attached to
this Agreement, nor any other certificate, statement or document furnished or to
be furnished by the Company or the Sellers pursuant to the terms of this
Agreement, contains or will contain any untrue statement of a material fact
known to the Company or the Sellers, respectively, or omits or will omit to
state a material fact known by the Company or the Sellers respectively necessary
to make the statements contained in such information not misleading in light of
the circumstances under which such statements were made.
7. REPRESENTATIONS AND WARRANTIES OF MANAGEMENT STAKEHOLDERS. Each
Management Stakeholder, as to himself, herself or itself only, represents and
warrants, as of the Date of the Deposit, and except as set forth on the Company
Disclosure Schedule, to the Company and EMCON as follows:
(a) OWNERSHIP OF SHARES AT ISSUE AND OPTIONS AT ISSUE. Except as
set forth in the Company Disclosure Schedule, after giving effect to the
rescission provided for in Section 1 hereof, the Management Stakeholder owns of
record and beneficially the number of Shares at Issue and Options at Issue,
indicated opposite such Management Stakeholder's name in Exhibit B to the Stock
Purchase Agreement, with full right and authority to exchange such Shares at
Issue hereunder and to assign such Options at Issue hereunder, and upon delivery
of such Shares at Issue and/or Options at Issue hereunder, the Company will
receive good title thereto, free and clear of all mortgages, pledges or security
interests and not subject to any agreements or understandings among any Persons
with respect to the voting or transfer of such securities other than those
arising under agreements to which Buyer is a party.
(b) EXECUTION, DELIVERY AND ENFORCEABILITY OF AGREEMENT; NO
VIOLATION. This Agreement has been duly executed and delivered by or on behalf
of the Management Stakeholder and any other documents required hereunder to be
executed and delivered by or on behalf of the Management Stakeholders will have
been duly executed and delivered. This Agreement constitutes the legal, valid
and binding obligation of the Management Stakeholder, enforceable against such
Management Stakeholder in accordance with its terms, except as enforcement may
be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting creditor's rights generally. Any
other agreements or documents required hereunder to be executed and delivered by
the Management Stakeholder hereunder constitute the legal, valid and binding
agreements of the Management Stakeholder executing the same, enforceable against
such Management Stakeholder in accordance with their respective terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other laws affecting creditor's rights
generally. Neither the execution of this Agreement nor the consummation of the
transactions contemplated hereby by the Management Stakeholder will violate, or
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constitute a default under, or permit the acceleration of maturity of, except to
the extent waived, any indentures, mortgages, promissory notes, contracts or
agreements to which such Management Stakeholder is a party or by which such
Management Stakeholder or such Management Stakeholder's properties are bound.
(c) INFORMATION SUPPLIED. To the Knowledge of such Management
Stakeholder, neither this Agreement, the Stock Purchase Agreement, the Company
Financial Statements, the Company Disclosure Schedule, the Exhibits attached to
this Agreement, or the Stock Purchase Agreement, nor any other certificate or
document furnished or to be furnished by the Company or the Management
Stakeholders pursuant to the terms of this Agreement or the Stock Purchase
Agreement contains or will contain any untrue statement of a material fact known
to the Management Stakeholder or the Company, respectively, or omits or will
omit to state a material fact necessary to make the statements contained in such
information not misleading in light of the circumstances under which such
statements were made.
(d) RESIDENCE AND DOMICILE. The Management Stakeholder is a
resident of, and domiciled in, the State indicated on Exhibit B to the Stock
Purchase Agreement as being the residence of such Management Stakeholder.
(e) BROKERS OR FINDERS. Except as set forth in Section 3.20 of the
Stock Purchase Agreement, neither the Management Stakeholder or any of such
Management Stakeholder's agents have incurred any obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement or the transactions
contemplated hereby.
8. REPRESENTATIONS AND WARRANTIES OF EMCON. EMCON represents and
warrants to Management Stakeholders and the Company, as of the date hereof and
except as set forth in the Buyer Disclosure Schedule, as follows:
(a) ORGANIZATION AND GOOD STANDING. EMCON is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
California.
(b) EXECUTION, DELIVERY AND ENFORCEABILITY OF AGREEMENT; NO
VIOLATION. This Agreement has been duly executed and delivered by or on behalf
of EMCON, and any other documents required hereunder to be executed and
delivered by or on behalf of EMCON will have been duly executed and delivered.
This Agreement constitutes the legal, valid and binding obligation of EMCON,
enforceable against EMCON in accordance with its terms, except as enforcement
may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting creditor's rights generally. Any
other agreements required hereunder to be executed and delivered by EMCON
constitute the legal, valid and binding agreements of EMCON, enforceable against
EMCON in accordance with its respective terms, except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other laws affecting creditor's rights generally.
Neither the execution of this Agreement nor the consummation of the transactions
provided for herein by EMCON will violate, or constitute a default under, or
permit the acceleration of maturity of, except to the extent waived, any
indentures, mortgages, promissory notes, contracts or agreements to which EMCON
is a party or by which EMCON or its properties are bound. Except as set forth in
the Buyer Disclosure Schedule, EMCON is not and will not be required to obtain
any Consent from any Person in connection with the execution and delivery of
this Agreement or the consummation or performance of any of the transactions
contemplated hereby.
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(c) CERTAIN PROCEEDINGS. There is no pending Proceeding that has
been commenced against EMCON that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
transactions contemplated hereby. To EMCON's Knowledge, no such Proceeding has
been threatened.
(d) BROKERS OR FINDERS. EMCON and its officers and agents have
incurred no obligation or liability, contingent or otherwise, for brokerage or
finders' fees or agents' commissions or other similar payment in connection with
this Agreement.
(e) INFORMATION SUPPLIED. Neither EMCON's Annual Report on Form
10-K for the fiscal year ending December 31, 1994, nor Quarterly Reports on Form
10-Q for the quarters ending March 31, 1995, June 30, 1995 or September 30, 1995
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained therein not misleading in light
of the circumstances under which such statements were made.
(f) NO MATERIAL CHANGE. Since September 30, 1995, there has been no
material adverse change in EMCON's business, financial position or operations.
9. GENERAL PROVISIONS.
(a) EXPENSES. Except as otherwise expressly provided in this
Agreement, each party to the Agreement will bear his, her or its respective
expenses incurred in connection with the preparation, execution, and performance
of this Agreement, the transactions contemplated hereby and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants.
(b) CONFIDENTIALITY. Between the date of this Agreement and January
30, 2001, EMCON and Management Stakeholders will maintain in confidence, and
will cause the directors, officers, employees, agents, and advisors of EMCON and
the Company to maintain in confidence, and not use to the detriment of another
party or the Company any written, oral, or other information obtained in
confidence from another party or the Company in connection with this Agreement,
the transactions contemplated hereby, or the Contemplated Transactions,
expressly including the reports of all consultants retained pursuant to the
terms of this Agreement and the Stock Purchase Agreement, unless (a) such
information becomes publicly available through no fault of such party, (b) the
use of such information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the consummation of the
transactions contemplated hereby or the Contemplated Transactions, or (c) the
furnishing or use of such information is required by legal proceedings.
(c) NOTICES All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed within three (3) business days by registered
mail, return receipt requested, (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service (receipt requested), or (d)
three (3) business days after being sent by registered or certified mail, return
receipt requested, in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
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Management Stakeholders: To each Management Stakeholder at the
address set forth on Exhibit B to the
Stock Purchase Agreement.
The Company: Organic Waste Technologies, Inc.
7550 Lucerne Drive, Suite 110
Cleveland, Ohio 44130
Attn: Mark H. Shipps, President
Fax No.: (216) 891-8288
with a copy to: Dale C. LaPorte, Esq.
Calfee, Halter & Griswold
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2688
Fax No.: (216) 241-0816
EMCON: EMCON
400 S. El Camino Real, Suite 1200
San Mateo, California 94402
Attention: R. Michael Momboisse, Esq.
Fax No.: (415) 375-0763
with a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Attention: Eric J. Lapp, Esq.
Fax No.: (415) 327-3699
(d) BINDING ARBITRATION; SERVICE OF PROCESS. In the event of a
dispute between the parties related to or arising out of this Agreement, the
Agent and representatives of EMCON and the Company will meet promptly in an
effort to resolve the dispute amicably. If such parties cannot agree upon a
resolution within thirty (30) days of any such party requesting a meeting for
resolution of a dispute, then the matter will promptly be submitted to binding
arbitration in accordance with this Section 13.5.
(i) Arbitration will be held in San Francisco, California, in
accordance with the rules and regulations of the American Arbitration
Association. The number of arbitrators will be one and will be selected in
accordance with the rules and regulations of the American Arbitration
Association. The determination of the arbitrator will be conclusive and binding
upon the parties, and any determination by the arbitrator of an award may be
filed with the clerk of a court of competent jurisdiction as a final
adjudication of the claim involved, or application may be made to such court for
judicial acceptance of the award and an order of enforcement, as the case may
be. Except to the extent otherwise directed by the arbitrator, each party will
bear its own expenses, including legal and accounting fees, if any, with respect
to the arbitration, and one-half of the costs of the arbitrator and of the fees
imposed by the American Arbitration Association.
(ii) In any arbitration hereunder, the demand for arbitration
shall specifically delineate the claims asserted and the material issues with
respect thereto. Within thirty (30) days after filing a demand for arbitration,
claimant shall provide to respondent a list of all fact witnesses known to
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claimant, the names and curriculum vitae of each expert witness anticipated to
be called by claimant, and a copy of relevant documents. Within thirty (30) days
after receipt of the foregoing information, respondent shall provide to claimant
a list of all fact witnesses known to respondent, the names and curriculum vitae
of each expert witness anticipated to be called by respondent, and a copy of
relevant documents known to respondent. Within ten (10) days after discovery has
been closed by the arbitrator (but in no event later than sixty (60) days prior
to the arbitration hearing), claimant shall present to respondent a list of all
fact and expert witnesses anticipated to be called by claimant, a summary of the
substance of each such witness' testimony, and a list of all documents
anticipated to be introduced by claimant (and a copy of such documents if not
previously provided to respondent). Within thirty (30) days after receipt of the
foregoing information, respondent shall present to claimant a list of all fact
and expert witnesses anticipated to be called by respondent, a summary of the
substance of each such witness' testimony, and a list of all documents
anticipated to be introduced by respondent (and a copy of such documents if not
previously provided to claimant). Any award by the arbitrator shall be subject
to all dollar and other limitations set forth in this Agreement.
(iii) A demand for arbitration may be served on EMCON or
Management Stakeholders by certified U.S. Mail, postage prepaid, or reliable
overnight delivery service, to the address set forth in Section 13.4 hereof.
(e) FURTHER ASSURANCES. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
(f) WAIVER. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power, or privilege under this Agreement
or the documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. To
the maximum extent permitted by applicable law, (a) no claim or right arising
out of this Agreement or the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
(g) ENTIRE AGREEMENT AND MODIFICATION. Except as set forth in
Section 1 hereof, this Agreement supersedes all prior agreements between the
parties with respect to its subject matter and constitutes (along with the
documents referred to in this Agreement) a complete and exclusive statement of
the terms of the agreement between the parties with respect to its subject
matter. This Agreement may not be amended except by a written agreement executed
by the party to be charged with the amendment.
(h) ASSIGNMENTS, SUCCESSORS, AND NO THIRD PARTY RIGHTS Neither
party may assign any of its rights under this Agreement without the prior
consent of the other parties, which will not be unreasonably withheld, except
that EMCON may assign any of its rights under this Agreement to any Subsidiary
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of EMCON but EMCON will not be relieved of its obligations hereunder as a result
of such assignment. Subject to the preceding sentence, this Agreement will apply
to, be binding in all respects upon, and inure to the benefit of the successors
and permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their successors and assigns.
(i) SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
(j) SECTION HEADINGS, CONSTRUCTION. The headings of Sections in
this Agreement are provided for convenience only and will not affect its
construction or interpretation. Unless otherwise indicated, all references to
"Sections" refer to the corresponding Sections of this Agreement. All words used
in this Agreement will be construed to be of such gender or number as the
circumstances require. Unless otherwise expressly provided, the word "including"
does not limit the preceding words or terms.
(k) INTERPRETATION OF AGREEMENT. This Agreement has been submitted
to the scrutiny of all parties hereto and their respective counsel and shall be
given a fair and reasonable interpretation without consideration being given to
its having been drafted by either party or its counsel.
(l) TIME OF ESSENCE. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
(m) GOVERNING LAW. This Agreement will be governed by and construed
under the laws of the State of Delaware without regard to conflicts of laws
principles.
(n) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
EMCON THE COMPANY
EMCON, a California corporation ORGANIC WASTE TECHNOLOGIES,INC.,
a Delaware corporation
By: /s/R. Michael Momboisse By: /s/Mark H. Shipps
--------------------------- -----------------------
R. Michael Momboisse Mark H. Shipps
Its: CFO & Vice President Legal Its: President
--------------------------- -----------------------
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THE MANAGEMENT STAKEHOLDERS
/s/Mark H. Shipps
-------------------------------
MARK H. SHIPPS
/s/Anthony A. Alexander
-------------------------------
ANTHONY A. ALEXANDER
/s/James Helmick
-------------------------------
JAMES HELMICK
/s/Raymond J. Nardelli
-------------------------------
RAYMOND J. NARDELLI
/s/Stephen Lingafelter
-------------------------------
STEPHEN LINGAFELTER
/s/Randall W. Chapman
-------------------------------
RANDALL W. CHAPMAN
65
EXHIBIT 10.19
NEW NOTE AGREEMENT
THIS AGREEMENT is made effective as of the 1st day of
November, 1996, by and among EMCON, a California corporation
("EMCON"), Organic Waste Technologies, Inc., a Delaware corporation,
("OWT"), and the undersigned holders of common stock ("Shares at
Issue") of OWT and holders of options to purchase the common stock of
OWT ("Options at Issue") listed on the signature pages hereto
(collectively, the holders thereof being the "Management
Stakeholders").
WHEREAS, the Management Stakeholders are parties to that
certain Rescission and Reformation Agreement dated as of November 1,
1996 by and among the Management Stakeholders, OWT and EMCON (the
"Rescission Agreement");
WHEREAS, pursuant to the Rescission Agreement, each
Management Stakeholder has agreed to the cancellation of the Options
at Issue held by him in exchange for an unfunded, unsecured promise of
OWT to pay certain sums, and the exchange of Shares at Issue held by
him for a new convertible note made by OWT (collectively, the
"Notes");
WHEREAS, in connection therewith, the parties hereto desire
to enter into additional agreements regarding the Notes;
WHEREAS, EMCON desires to lend each Management Stakeholder an
amount equal to any additional federal, state and local income taxes
(the "Tax Liability") paid by him as a result of the cancellation of
the Options in exchange for an unfunded, unsecured promise to pay
certain sums and the exchange of the Shares at Issue owned by him for
a Note (the "Loan Amount").
NOW, THEREFORE, in consideration of the foregoing and the
agreements set forth below, the parties agree with each other as
follows:
1. LOAN. Upon the date on which any amounts are withheld by OWT or
EMCON for each Management Stakeholder's Tax Liability or paid directly by such
Management Stakeholder to the appropriate taxing authority, EMCON shall pay to
such Management Stakeholder an amount equal to such withholding or Tax
Liability, by cashier's check or wire transfer, and such Management Stakeholder
shall execute a note in the principal amount of the Loan Amount, in the form of
Exhibit A hereto (the "Loan Note").
2. (a) EXCHANGE RIGHT. In the event that the Note or the Option Base
Amount (as defined in the Rescission Agreement) has not been converted into OWT
Common Stock in accordance with its terms prior to the fifth anniversary of the
date hereof, each Management Stakeholder shall have the right, for a period of
ninety (90) days prior to the fifth anniversary of the date hereof, to exchange
the Note payable to him for fully paid and nonassessable shares of Common Stock,
no par value, of EMCON as such stock exists on the date of issuance of the Note
payable to him and the date of the Rescission Agreement, or any shares of
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capital stock of EMCON into which such stock shall hereafter be changed or
reclassified (the "EMCON Common Stock") at the exchange price determined as
provided herein (the "EMCON Exchange Price"). Upon the surrender of the Note,
accompanied by a Notice of Exchange of Convertible Note in the form attached
hereto as Exhibit B with respect to both the amount due under the Note and the
Option Base Amount, properly completed and duly executed by the Management
Stakeholder (an "Exchange Notice"), EMCON shall issue and deliver to or upon the
order of the Management Stakeholder that number of shares of EMCON Common Stock
for which the sum of the Principal (as defined in the Note) and the Option Base
Amount shall be exchanged, as determined in accordance herewith. Upon such
exchange, any accrued but unpaid interest on the Notes shall be immediately due
and payable.
The number of shares of EMCON Common Stock to be issued upon conversion
of each Note and Option Base Amount shall be determined by dividing the sum of
the Principal of such Note and the Option Base Amount of such Management
Stakeholder by the EMCON Exchange Price in effect on the date the Exchange
Notice is delivered to EMCON by the Management Stakeholder.
(b) EXCHANGE PRICE. The EMCON Exchange Price shall initially be
$6.50.
(i) SUBDIVISIONS. In case EMCON shall at any time subdivide the
outstanding shares of EMCON Common Stock, the EMCON Exchange Price in effect
immediately prior to such subdivision shall be proportionately decreased, and in
case the Company shall at any time combine the outstanding shares of EMCON
Common Stock, the Exchange Price in effect immediately prior to such combination
shall be proportionately increased, effective at the close of business on the
date of such subdivision or combination, as the case may be.
(ii) STOCK DIVIDENDS. In case EMCON shall at any time pay a
dividend with respect to EMCON Common Stock payable in EMCON Common Stock, then
the EMCON Exchange Price in effect immediately prior to the record date for
distribution of such dividend shall be adjusted to that price determined by
multiplying the EMCON Exchange Price in effect immediately prior to such record
date by a fraction (i) the numerator of which shall be the total number of
shares of Common Stock outstanding immediately prior to such dividend and (ii)
the denominator of which shall be the total number of shares of EMCON Common
Stock outstanding immediately after such dividend.
(iii) RECLASSIFICATION OR MERGER. In case of any
reclassification, change or conversion of the EMCON Common Stock (other than as
a result of a subdivision or combination described above and other than upon any
Acceleration Event, as defined below), each Management Stakeholder shall have
the right to receive, upon exchange of the Note owned by him and satisfaction of
the promise to pay the Option Base Amount the kind and amount of shares of
stock, other securities, money and property receivable upon such
reclassification, change or conversion by a holder of the number of shares of
EMCON Common Stock the number of EMCON Common Shares into which his Note and his
respecting Option Base Amount could then be exchanged. The provisions of this
subparagraph (iii) shall similarly apply to successive reclassifications,
changes, and conversions.
(c) AUTHORIZED SHARES. EMCON covenants that during the period the
exchange right set forth in this Section 2 exists, EMCON will reserve from the
authorized and unissued EMCON Common Stock a sufficient number of shares to
provide for the issuance of EMCON Common Stock upon the full exchange of the
Notes and the Option Base Amounts. EMCON represents that upon issuance, such
shares will be duly and validly issued, fully paid and non-assessable.
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(d) METHOD OF EXCHANGE. Except as otherwise provided in the Note or
the Rescission Agreement, or agreed by the Management Stakeholder, the Note held
by him and his respective Option Base Amount may be exchanged by the Management
Stakeholder in whole by (i) submitting to EMCON an Exchange Notice and (ii)
surrendering the Note held by him at the principal office of EMCON.
(e) RESTRICTIONS CONCERNING THE SHARES. The shares of EMCON Common
Stock to be held by Management Stakeholders pursuant to the exercise of the
exchange rights set forth in Section 2 may not be sold or transferred unless
either (i) such shares first shall have been registered under the Securities Act
of 1933 (the "Act") and applicable state securities laws or (ii) EMCON shall
have been furnished with an opinion of legal counsel to the effect that such
sale or transfer is exempt from the registration requirements of the Act and all
applicable state securities laws. Each certificate for shares of EMCON Common
Stock to be held by the Management Stakeholders that have not been so registered
and that have not been sold pursuant to an exemption that permits removal of the
legend, shall bear a legend substantially in the following form, as appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
Upon the request a Management Stakeholder, EMCON shall remove the foregoing
legend from the certificate representing the EMCON Common Stock held by such
Management Stakeholder upon exercise of the exchange rights pursuant to Section
2 or issue to such Management Stakeholder a new certificate therefor free of any
transfer legend, if, with such request, EMCON shall have received either (i) an
opinion of counsel to the effect that any such legend may be removed from such
certificate, or (ii) if the present paragraph (k) of Rule 144 or a substantially
similar successor rule remains in force and effect, satisfactory representations
from the Management Stakeholder that such Management Stakeholder is not then,
and has not been during the preceding three (3) months, an affiliate of EMCON,
and that a period of at least three (3) years has elapsed since the later of the
date the securities were acquired (as determined under Rule 144) from EMCON or
an affiliate of EMCON.
(f) ACCELERATION OF EXCHANGE RIGHTS. Notwithstanding anything to
the contrary herein, in the event that any of the following events set forth in
paragraphs (i) through (v) of this Section 2(f) (each, an "Acceleration Event")
shall occur, then the exchange rights set forth in Section 2(a) shall, at the
option of each Management Stakeholder, be immediately exercisable:
(i) by any Management Stakeholder upon a consolidation or
merger of EMCON with or into any other corporation or corporations (other than a
wholly-owned subsidiary of EMCON and other than a merger in which EMCON is the
surviving corporation), or the sale, transfer or other disposition of all or
substantially all of the assets of EMCON;
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(ii) by any Management Stakeholder, upon a change in ownership
of Fifty Percent (50%) or more, in a single transaction, of the stock of OWT,
other than to an affiliate or affiliates of EMCON which does not materially
alter EMCON's direct or indirect ownership of OWT;
(iii) by any Management Stakeholder, upon a change in ownership
of Fifty Percent (50%) or more, in a series of two (2) or more transactions, of
the outstanding stock of OWT, other than to an affiliate or affiliates of OWT
and a substantial diminution in the responsibilities of Mark H. Shipps with
respect to OWT in his capacity as an employee of EMCON;
(iv) (A) upon a change in ownership of Thirty-Five Percent
(35%) or more of the stock of EMCON to a single buyer or an affiliated group of
buyers, resulting in a change in the majority of the board of directors of EMCON
from the board of directors as it existed immediately prior to such change in
ownership, or (B) upon a change in ownership of Fifty Percent (50%) or more, in
a single transaction, of the stock of EMCON;
(v) by any Management Stakeholder, upon the liquidation,
dissolution or winding up of OWT or the consolidation or merger of OWT with and
into another corporation (other than a merger in which OWT is the surviving
corporation);
(vi) by any Management Stakeholder, upon the occurrence of any
transaction, without the consent of Mark H. Shipps, in which Twenty Percent
(20%) or more of the outstanding common stock of OWT becomes owned by persons
other than EMCON or an affiliate or affiliates of EMCON;
(vii) by any Management Stakeholder upon his death or the
termination of his employment by OWT other than a Termination for Cause, the
"Termination for Cause" is intended to embrace intentionally or grossly
negligent conduct on the part of the Maker which is materially detrimental to
the operations and/or reputation of OWT or the Holder. By way of illustration
such actions would include (but would not be limited to) a material breach of
Maker's obligations under any employment agreement between the Maker and OWT
and/or the Holder, and/or conviction of a crime (other than minor infractions
such as parking or similar traffic violations), moral turpitude and revocation
by the applicable licensing authority of professional licenses (if any) material
to the Maker's ability to perform the Maker's employment obligations; or
(viii) by any Management Stakeholder upon a fundamental change
in EMCON's current strategy of focussing a material amount of EMCON's resources
on services relating to the design, construction, ownership, operation and
maintenance of infrastructure.
3. REQUEST FOR REGISTRATION.
(a) Upon the receipt by EMCON of Exchange Notices from Management
Stakeholders holding Notes, the aggregate Principal of which together with the
Option Base Amounts owed to such Management Stakeholders, may be exchanged for
EMCON Common Stock with an aggregate value, based on the closing price of the
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EMCON Common Stock on the principal market on which such stock is traded on the
date of such Exchange Notices, $1,000,000 or more, EMCON will:
(i) promptly file a registration statement with the Securities
and Exchange Commission (the "Commission") and effect all such registrations,
qualifications and compliances (including, without limitation, the execution of
an undertaking to file post-effective amendments, appropriate qualifications
under the applicable blue sky or other state securities laws and appropriate
compliance with exemptive regulations issued under the Securities Act of 1933,
as amended (the "Securities Act"), and any other governmental requirements or
regulations) as would permit or facilitate the sale and distribution of all of
the EMCON Common Stock issuable upon the full exchange of the Notes by the
Management Stakeholders and the cancellation of (the "Management Shares");
provided, however, that EMCON shall not be obligated to effect such
registration, qualification or compliance pursuant to this Section 3(a)(i)(A) in
any particular jurisdiction in which EMCON would be required to execute a
general consent to service of process unless EMCON is already subject to service
in such jurisdiction and except as required by the Securities Act and (B) after
EMCON has already effected one such registration, qualification or compliance;
(ii) promptly give notice to all Management Stakeholders of the
expected registration of the Management Shares;
(iii) use its best efforts to cause such registration to be
declared effective by the Commission;
(iv) keep such registration statement effective for a period of
one year or until the Management Stakeholders have completed the distribution
described in the registration statement, whichever first occurs;
(v) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities offered by such registration statement;
(vi) furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Management Stakeholder from time to time may reasonably request;
(vii) notify each Management Stakeholder selling EMCON Common
Stock covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or incomplete in the
light of the circumstances then existing, and at the request of any such
Management Stakeholder, prepare and furnish to such Management Stakeholder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or incomplete
in the light of the circumstances then existing;
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(viii) cause all such EMCON Common Stock registered pursuant
hereunder to be listed on each securities exchange, if any, on which similar
securities issued by EMCON are then listed;
(ix) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission; and
(x) in connection with any underwritten offering pursuant to a
registration statement filed pursuant to this Section, enter into an
underwriting agreement reasonably necessary to effect the offer and sale of
EMCON Common Stock, provided such underwriting agreement contains customary
underwriting provisions and provided further that if the underwriter so requests
the underwriting agreement will contain customary contribution provisions.
(b) During the period that EMCON's registration statement is
effective pursuant to this Section 3, the Management Stakeholders shall comply
with all applicable EMCON policies regarding trading of securities by insiders
and members of management, including the observance of "window period" and other
restrictions.
4. EMCON REGISTRATION.
(a) If, at any time after the registration statement described in
Section 3 is no longer effective, EMCON shall determine to register any of its
securities either for its own account or the account of a security holder or
holders, other than a registration relating solely to employee benefit plans, or
a registration relating solely to a Rule 145 transaction, or a registration on
any registration form that does not permit secondary sales, EMCON will:
(i) promptly give to each Management Stakeholder written notice
thereof;
(ii) use its best efforts to include in such registration (and
any related qualification under blue sky laws or other compliance), except as
set forth in Section 4(b) below, and in any underwriting involved therein, all
the Management Shares specified in a written request or requests, made by any
Management Stakeholder and received by EMCON within twenty (20) days after the
written notice from EMCON described in clause (i) above is mailed or delivered
by EMCON. Such written request may specify all or a part of a Management
Stakeholder's Management Shares;
(iii) furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Management Stakeholder from time to time may reasonably request;
(iv) cause all such EMCON Common Stock registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by EMCON are then listed; and
(v) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission.
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(b) If the registration of which EMCON gives notice is for a
registered public offering involving an underwriting, EMCON shall so advise the
Management Stakeholders as a part of the written notice given pursuant to
Section 4(a)(i). In such event, the right of any Management Stakeholder to
registration pursuant to this Section 4 shall be conditioned upon such
Management Stakeholder's participation in such underwriting and the inclusion of
such Management Stakeholder's Management Shares in the underwriting to the
extent provided herein. All Management Stakeholders proposing to distribute
their securities through such underwriting shall (together with EMCON and the
other holders of securities of EMCON with registration rights to participate
therein distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by EMCON.
(c) Notwithstanding any other provision of this Section 4, if the
representative of the underwriters advises EMCON in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all the
Management Stakeholders from, or limit the number of the Management Shares to be
included in, the registration and underwriting. EMCON shall so advise the
Management Stakeholders and all other holders of EMCON securities (the "Other
Shares") requesting registration and the number of Management Shares and Other
Shares that may be included shall be allocated among the Management Stakeholders
and other selling stockholders requesting inclusion of shares pro rata on the
basis of the number of Management Shares and Other Shares that are requested to
be registered.
(d) EMCON's obligations pursuant to this Section 4 shall expire as
to each Management Stakeholder at such time as such Management Stakeholder may
sell all shares of EMCON Common Stock issued upon exchange for such Management
Stakeholder's Note during any successive two quarter period pursuant to Rule 144
under the Securities Act.
5. EXPENSES OF REGISTRATIOn. All Registration Expenses (as hereinafter
defined) incurred in connection with any registration, qualification or
compliance pursuant to Section 3 and 4 hereof shall be borne by EMCON. All
Selling Expenses (as hereinafter defined) relating to securities so registered
shall be borne by the Management Stakeholders who own such Management Shares pro
rata on the basis of the number of Management Shares so registered on their
behalf. For purposes of this Section 5, Registration Expenses shall mean all
expenses incurred in effecting any registration pursuant to this Agreement,
including, without limitation, all registration, qualification, and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for EMCON,
blue sky fees and expenses, and expenses of any regular or special audits
incident to or required by any such registration, but shall not include Selling
Expenses and fees and disbursements of counsel for the Management Stakeholders.
For purposes of this Section 5. Selling Expenses shall mean all underwriting
discounts and selling commissions applicable to the sale of the Management
Shares and fees and disbursements of counsel for any Management Stakeholder
(other than the fees and disbursements of counsel included in Registration
Expenses).
6. INDEMNIFICATION.
(a) EMCON will indemnify each Management Stakeholder with respect
to which registration, qualification, or compliance has been effected pursuant
to this Agreement, and each underwriter, if any, and each person who controls
within the meaning of Section 15 of the Securities Act, any underwriter, against
all expenses, claims, losses, damages, and liabilities (or actions, proceedings,
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or settlements in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus offering circular, or other document (including any related
registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
EMCON of the Securities Act or any rule or regulation thereunder applicable to
EMCON and relating to action or inaction required of EMCON in connection with
any such registration, qualification, or compliance, and will reimburse each
such Management Stakeholder, each such underwriter, and each person who controls
any such underwriter, for any legal and any other expenses reasonably incurred
in connection with investigating and defending or settling any such claim, loss,
damage, liability or action, provided that EMCON will not be liable in any such
case to the extent that any such claim, loss, damage, liability, or expense
arises out of or is based on any untrue statement or omission based upon written
information furnished to EMCON by such Management Stakeholder or underwriter and
stated to be specifically for use therein. It is agreed that the indemnity
agreement contained in this Section 6 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of EMCON (which consent has not been
unreasonably withheld).
(b) Each Management Stakeholder will, if Management Shares held by
him or her are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify EMCON, each of its
directors, officers, partners, legal counsel, and accountants and each
underwriter, if any, of EMCON's securities covered by such a registration
statement, each person who controls EMCON or such underwriter within the meaning
of Section 15 of the Securities Act, and each other Management Stakeholder
against all claims, losses, damages any liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular, or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
EMCON and such Management Stakeholders, directors, officers, partners, legal
counsel, and accountants, persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability, or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular, or other document in reliance upon and
in conformity with written information furnished to EMCON by such Management
Stakeholder and stated to be specifically for use therein provided, however,
that the obligations of such Management Stakeholder hereunder shall not apply to
amounts paid in settlement of any such claims, losses, damages, or liabilities
(or actions in respect thereof) if such settlement is effected without the
consent of such Management Stakeholder (which consent shall not be unreasonably
withheld).
(c) Each party entitled to indemnification under this Section 6
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
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Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability with respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
(d) If the Indemnification provided for in this Section 6 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expenses as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provision in the underwriting
agreement shall control.
7. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of
restricted securities to the public without registration, EMCON agrees to use
its best efforts to:
(a) Make and keep public information regarding EMCON available as
those terms are understood and defined in Rule 144 under the Securities Act;
(b) File with the Commission in a timely manner all reports and
other documents required of EMCON under the Securities Act and the Securities
Exchange Act of 1934, as amended; and
(c) So long as a Management Stakeholder owns any restricted
securities, furnish to the Management Stakeholder forthwith upon written request
a written statement by EMCON as to its compliance with the reporting
requirements of Rule 144; and of the Securities Act and the Exchange Act.
8. OWT'S REGISTRATION RIGHTS OBLIGATIONS. In the event that OWT shall
be required to register shares of its stock pursuant to Section 2.3 of the
Notes, then the provisions of Sections 4 to 7 hereof shall apply with respect to
such registration.
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9. MISCELLANEOUS.
(a) NOTICES. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed within three (3) business days by registered
mail, return receipt requested, (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service (receipt requested), or (d)
three (3) business days after being sent by registered or certified mail, return
receipt requested, in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Management Stakeholders: To each Management Stakeholder at the
address set forth on Schedule 1
EMCON: EMCON
400 S. El Camino Real, Suite 1200
San Mateo, California 94402
Attention: R. Michael Momboisse, Esq.
Fax No.: (415) 375-0763
(b) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties with respect to the matters contemplated herein. This
Agreement supersedes any and all prior understandings as to the subject matter
of this Agreement.
(c) AMENDMENTS, WAIVERS AND CONSENTS. Any provision in this
Agreement to the contrary notwithstanding, changes in or additions to this
Agreement may be made, and compliance with any covenant or provision herein set
forth may be omitted or waived, if agreed to by EMCON and Management
Stakeholders holding Notes representing in aggregate in excess of Fifty Percent
(50%) of the aggregate amount due under all of the Notes.
(d) BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the personal representatives and successors of
the respective parties hereto, except that no Management Stakeholder shall have
the right to assign its rights hereunder or any interest herein without
obtaining the prior written consent of EMCON. Notwithstanding the foregoing,
each Management Stakeholder may assign his rights hereunder
(i) to his spouse, parents, grandparents, children or
grandchildren or other family members (including relatives by marriage), or to a
custodian, trustee or other fiduciary for his account or the account of a member
of his family, or
(ii) by way of bequest or inheritance upon death.
(e) GENERAL. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. In this Agreement the singular includes the
plural, the plural the singular.
(f) SEVERABILITY. If any provision of this Agreement shall be found
by any court of competent jurisdiction to be invalid or unenforceable, the
parties hereby waive such provision to the extent that it is found to be invalid
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or unenforceable. Such provision shall, to the maximum extent allowable by law,
be modified by such court so that it becomes enforceable, and, as modified,
shall be enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.
(g) COUNTERPARTS. This Agreement may be execute in counterparts,
all of which together shall constitute one and the same instrument.
(h) GOVERNING LAW. This Agreement shall be governed by the internal
laws of the State of Delaware without regard to the principles of conflict of
laws.
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the date first written above.
EMCON
/s/ R. Michael Momboisse
----------------------------------
By: R. MICHAEL MOMBOISSE
Title: CFO and VP Legal
ORGANIC WASTE TECHNOLOGIES, INC.
/s/ Anthony A. Alexander
----------------------------------
By: ANTHONY A. ALEXANDER
Title: Secretary
MANAGEMENT STAKEHOLDERS
/s/Mark H. Shipps
----------------------------------
MARK H. SHIPPS
/s/Anthony A. Alexander
----------------------------------
ANTHONY A. ALEXANDER
/s/James Helmick
----------------------------------
JAMES HELMICK
/s/Raymond J. Nardelli
----------------------------------
RAYMOND J. NARDELLI
/s/Stephen Lingafelter
----------------------------------
STEPHEN LINGAFELTER
/s/Randall W. Chapman
----------------------------------
RANDALL W. CHAPMAN
77
EXHIBIT 10.20
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is dated
as of December 31, 1996, by and among YOLO ENERGY
PARTNERS, INC., an Indiana corporation ("Seller"), YOLO
LANDFILL GAS CORPORATION, a California corporation ("Yolo
Gasco"), EMCON, a California corporation ("Emcon"), YOLO
NEO LLC, a Delaware limited liability company ("NEO Yolo")
and Minnesota Methane LLC, a Wyoming limited liability
company ("Buyer").
A. Seller is the owner of the lessee's interest under a Commercial Gas
Production Agreement dated June 18, 1985 (the "Production Agreement") with the
County of Yolo, California, as lessor, pursuant to which the Seller is granted
the rights to collect, process, use and sell landfill gas and produce electric
power at the Yolo County Central Landfill in Yolo County, California.
B. On April 22, 1988 certain of the rights and responsibilities under
the Production Agreement were delegated to and assumed by Yolo Gasco pursuant to
an amendment to the Production Agreement and the terms of a Delegation Agreement
between Seller and Yolo Gasco (the "Delegation Agreement").
C. Pursuant to the terms of the Delegation Agreement Yolo Gasco has
caused to be installed, owned and operated certain landfill gas collection
wells, piping, compressors and associated equipment for the collection, sale,
processing and sale to Seller of landfill gas (the "Gas Project").
D. Pursuant to the terms of the Production Agreement the Seller has
acquired, installed, owned and operated certain electric generation equipment
and associated rights, permits, contracts and other authorizations for the
production and sale of electric power (the "Electric Project").
E. EMCON owns all of the issued and outstanding shares of Yolo Gasco.
EMCON also has provided services to Yolo Gasco for the operation and maintenance
of the landfill gas collection system owned by Yolo Gasco.
F. In 1995, Seller entered into an agreement with Pacific Gas &
Electric Company ("PG&E") pursuant to which Seller agreed to terminate all of
its rights to sell power to PG&E from the Power Project (the "Termination
Agreement"). The Termination Agreement includes certain other restrictions on
the sale of electric power to PG&E by any purchasers of the Electric Project
that may continue to utilize the electric power generation equipment at the Yolo
County Central Landfill.
G. Seller desires to sell and Buyer desires to buy the assets of the
Power Project for the purchase price and on the terms set forth herein.
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H. Yolo Gasco desires to sell and NEO Yolo desires to buy the assets of
the Gas Project for the purchase price and on the terms set forth herein.
I. As an inducement to NEO Yolo and Buyer to enter into this Agreement,
EMCON has agreed to provide its services at attractive rates for the operation
and maintenance of the landfill gas collection system in connection with the Gas
Project to be acquired by NEO Yolo.
J. In order to settle all claims that may exist between Yolo Gasco and
the Seller, the Seller and Buyer have agreed upon the terms of a settlement of
such claims which settlement will be a condition precedent to the closing of
this transaction.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements herein contained, the parties hereto agree as follows:
1. PURCHASE AND SALE OF ELECTRIC PROJECT ASSETS. On the terms and
subject to the conditions set forth in this Agreement, Seller hereby agrees to
sell, assign, convey, transfer and deliver to Buyer, and Buyer hereby agrees to
purchase from Seller, on a going concern basis, all of the assets and business
properties of every kind and description, wherever located, personal or mixed,
tangible and intangible, owned or held by Seller and used or held for use in
connection with the Electric Project (collectively, the "Electric Assets"),
including, without limitation, all right, title and interest of Seller in, to
and under:
(a) All raw materials, supplies, work-in-process, and other
materials included in the inventory of the Electric Project or including,
without limitation, such items that have been ordered by Seller but have not yet
been received by Seller;
(b) All of the real estate and personal property leases listed and
described in Schedule 1(b) attached hereto (collectively the "Electric Project
Assumed Leases");
(c) All machinery and equipment, vehicles, furniture, fixtures, and
other personal property owned by Seller and used or useful in connection with
the Electric Project including, without limitation, the items listed or
described on Schedule 1(c) attached hereto;
(d) The contracts, agreements or understandings listed or described
on Schedule 1(d) attached hereto (collectively, the "Electric Project Assumed
Contracts");
(e) All of the permits, licenses and authorizations listed or
described on Schedule 1(e) attached hereto (collectively, the "Electric Project
Permits");
(f) All customer lists, processes, trade secrets, know how and
other proprietary or confidential information used in or related to the Electric
Project (but excluding privileged attorney-client communications, attorney work
product and such other confidential information as would ordinarily fall within
the category of "privileged" material for purposes of discovery in general civil
litigation in California's state or federal courts);
(g) All trademarks and trade names associated with the Electric
Project (the "Goodwill");
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(h) All of Seller's rights, claims or causes of action against
third parties related to the assets, properties, business or operations of the
Electric Project arising out of transactions occurring prior to the Closing
Date; and
(i) Copies of all books and records which copies shall be made at
Buyer's expense to the extent such cost exceeds $200.
2. PURCHASE AND SALE OF THE GAS PROJECT ASSETS. On the terms and
subject to the conditions set forth in this Agreement, Yolo Gasco hereby agrees
to sell, assign, convey, transfer and deliver to NEO Yolo, and NEO Yolo hereby
agrees to purchase from Yolo Gasco, on a going concern basis, all of the assets
and business properties of every kind and description, wherever located,
personal or mixed, tangible or intangible, owned by Yolo Gasco and used or held
for use in connection with the Gas Project (collectively, the "Gas Assets"),
excluding cash and accounts receivable, but including, without limitation, all
right, title and interest of Seller in, to and under:
(a) All raw materials, supplies, work-in-process, and other
materials included in the inventory of the Gas Project, including, without
limitation, such items that have been ordered by Yolo Gasco but have not yet
been received by Yolo Gasco;
(b) All of the real estate and personal property leases listed and
described in Schedule 2(b) attached hereto (collectively the "Gas Project
Assumed Leases");
(c) All machinery and equipment and other personal property owned
by Yolo Gasco and exclusively used in connection with the Gas Project including,
without limitation, the items listed or described on Schedule 2(c) attached
hereto;
(d) The contracts, agreements or understandings listed or described
on Schedule 2(d) attached hereto (collectively, the "Gas Project Assumed
Contracts");
(e) All of the permits, licenses and authorizations listed or
described on Schedule 2(e) attached hereto (collectively, the "Gas Project
Permits");
(f) All customer lists, processes, trade secrets, know-how and
other proprietary or confidential information exclusively used in or related to
the Gas Project (but excluding privileged attorney-client communications,
attorney work product and such other confidential information as would
ordinarily fall within the category of "privileged" material for purposes of
discovery in general civil litigation in California's state or federal courts);
(g) All trademarks and trade names of Yolo Gasco associated with
the Gas Project (the "Goodwill");
(h) All of Yolo Gasco's rights, claims or causes of action against
third parties related to the assets, properties, business or operations of the
Gas Project arising out of transactions occurring prior to the Closing Date; and
(i) Copies of all books and records, which copies shall be made at
NEO Yolo's expense to the extent such cost exceeds $200.
3. PURCHASE PRICE FOR ELECTRIC PROJECT. On the terms and subject to the
conditions set forth in this Agreement, and in
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consideration of the sale, conveyance, assignment, transfer and delivery of the
Electric Assets, Buyer agrees to deliver at Closing good funds in the amount of
$550,000 as the purchase price for the Electric Assets (the "Electric Project
Purchase Price"). As a condition to the Closing, Buyer shall pay the Electric
Project Purchase Price, and shall also pay certain other amounts, in accordance
with the following provisions:
(a) On the terms and subject to the conditions set forth in this
Agreement, including, without limitation, Section 3(b) below, upon the Closing,
Buyer agrees to assume and discharge the liabilities of Seller set forth on
Schedule l(b) attached hereto. All of the foregoing liabilities and obligations
of Seller to be assumed by Buyer pursuant to this Section 3(a) are referred to
as the "Electric Project Assumed Liabilities".
(b) Buyer expressly does not assume and does not agree to assume
any liability or obligation of Seller, direct or indirect, known or unknown,
absolute or contingent, not expressly assumed by Buyer pursuant to Section 3(a)
and, notwithstanding anything to the contrary in Section 3(a), none of the
following shall be Electric Project Assumed Liabilities for purposes of this
Agreement:
(i) any income taxes (including foreign, federal, state, county
or local) of Seller or Yolo Gasco;
(ii) any costs and expenses incurred by Seller incident to its
negotiation and preparation of this Agreement and the consummation of the
transactions contemplated herein (it being understood that such costs and
expenses are being and will be paid by Seller);
(iii) any liability under any insurance, pension, deferred
compensation or any other employee benefit plan including any claim or liability
to make any contribution to any such plan relating to the period prior to
Closing;
(iv) any sales, use or transfer taxes, if any, in connection
with this transaction, any tax liability of Yolo Gasco or Seller resulting from
the transactions contemplated herein, including, without limitation, any
recapture by Seller of investment tax credit or depreciation; (v) any claim or
liability the existence of which would constitute a breach of any of the
representations of Seller hereunder (provided, however, that the existence of
any such claim or liability shall not give rise to, or create an inference with
respect to, any independent basis for asserting or initiating any claim for
damages for breach of any representation of Seller hereunder); and
(vi) any debt, liability or obligation of Seller, its
shareholders, or any one of them, other than the Electric Project Assumed
Leases.
(c) Buyer expressly does not assume and does not agree to assume
any income, business, occupation, employment, withholding, sales and use,
personal property or real estate tax, assessment or governmental charge or any
other tax, assessment or governmental charge of any kind related to the Electric
Project or the Electric Assets for any period ending prior to or on the Closing;
provided, however, Buyer does expressly assume taxes, assessments or
governmental charges, if any, which accrue or relate to a period subsequent to
the Closing as a result of Buyer's ownership, operation, sale or transfer of the
Electric Project or the Electric Assets subsequent to the Closing or as provided
elsewhere herein.
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(d) The purchase price for the Electric Assets shall be allocated
as set forth on Schedule 3(d) attached hereto.
4. Purchase Price for Gas Project Assets. On the terms and subject to
the conditions set forth in this Agreement, and in consideration of the sale,
conveyance, assignment, transfer and delivery of the Gas Assets, at the Closing
NEO Yolo agrees to deliver at Closing good funds in the amount of $250,000 as
the purchase price for the Gas Assets (the "Gas Project Purchase Price"). As a
condition to the Closing, Buyer shall pay the Gas Purchase Price, and shall also
pay certain other amounts, in accordance with the following provisions:
(a) On the terms and subject to the conditions set forth in this
Agreement, including, without limitation, Section 4(b) below, upon the Closing,
NEO Yolo agrees to assume and discharge the liabilities of Yolo Gasco set forth
on Schedule 2(b) attached hereto. All of the foregoing liabilities and
obligations of Yolo Gasco to be assumed by NEO Yolo pursuant to this Section
4(a) are referred to as the "Gas Project Assumed Liabilities".
(b) NEO Yolo expressly does not assume and does not agree to assume
any liability or obligation of Yolo Gasco, direct or indirect, known or unknown,
absolute or contingent, not expressly assumed by NEO Yolo pursuant to Section
4(a) and, notwithstanding anything to the contrary in Section 4(a), none of the
following shall be Gas Project Assumed Liabilities for purposes of this
Agreement:
(i) any income taxes (including foreign, federal, state, county
or local) of Seller or Yolo Gasco;
(ii) any costs and expenses incurred by Yolo Gasco incident to
its negotiation and preparation of this Agreement and the consummation of the
transactions contemplated herein (it being understood that such costs and
expenses are being and will be paid by Yolo Gasco);
(iii) any liability under any insurance, pension, deferred
compensation or any other employee benefit plan including any claim or liability
to make any contribution to any such plan relating to the period prior to
Closing;
(iv) any sales, use or transfer taxes, if any, in connection
with this transaction, any tax liability of Yolo Gasco or Seller resulting from
the transactions contemplated herein, including, without limitation, any
recapture by Yolo Gasco of investment tax credit or depreciation;
(v) any claim or liability the existence of which would
constitute a breach of any of the representations of Yolo Gasco hereunder
(provided, however, that the existence of any such claim or liability shall not
give rise to, or create an inference with respect to, any independent basis for
asserting or initiating any claim for damages for breach of any representation
of Yolo Gasco hereunder); and
(vi) any debt, liability or obligation of Yolo Gasco, its
shareholders, or any one of them, other than the Gas Project Assumed
Liabilities.
(c) NEO Yolo expressly does not assume and does not agree to assume
any income, business, occupation, employment, withholding, sales and use,
personal property or real estate tax, assessment or governmental charge or any
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other tax, assessment or governmental charge of any kind related to the Gas
Project or the Gas Assets for any period ending prior to or on the Closing;
provided, however, NEO Yolo does expressly assume, taxes, assessments, and
governmental charges, if any, which accrue or relate to a period subsequent to
the Closing as a result of NEO Yolo's ownership, operation, sale or transfer of
the Gas Project or the Gas Assets subsequent to the Closing.
5. CLOSING. The purchase and sale of the Gas Assets and the Electrical
Assets (the "Closing") shall take place at the offices of Poindexter & Doutre',
Inc., at 10:00 a.m. local time on December 13, 1996, (the "Closing Date"), or at
such other place and time as the parties may mutually agree.
(a) Deliveries by Seller. At or prior to the Closing, Seller shall
deliver to Buyer, in a form reasonably satisfactory to Buyer, the following
items:
(i) A bill of sale and assignment in the form attached hereto
as Schedule 5(a)(i), duly executed by Seller, conveying all of Seller's rights,
title and interest in and to all of the Electric Assets to Buyer, to the full
extent of Seller's interest in the Electric Assets;
(ii) An assignment and assumption agreement in the form
attached hereto as Exhibit 5(a)(ii), duly executed by Seller, and such other
assignment agreements as are necessary to transfer, assign, and convey all of
Seller's right, title, and interest in and to all leases, agreements, contracts,
licenses, permits, orders and other Electric Assets which constitute an Electric
Project Assumed Lease, an Electric Project Assumed Contract or Electric Project
Permit;
(iii) Such other instruments of sale, conveyance, transfer and
assignment as Buyer may reasonably request, duly executed by Seller, as are
necessary to vest in Buyer as of the Closing all of Seller's rights, title and
interest in and to all of the Electric Assets to the full extent of Seller's
interest in the Electric Assets; and
(iv) A duly certified copy of resolutions of the Board of
Directors and shareholders of Seller authorizing the transactions that are the
subject of this Agreement.
(v) A duly executed Certificate of Seller certifying the
accuracy of Seller's representations contained in this Agreement as of the
Closing Date and Seller's compliance with, and fulfillment of, all covenants,
agreements, obligations and conditions as required by this Agreement.
(vi) Opinion of Sommer & Barnard, P.C., counsel for Seller,
dated the Closing Date and in the form attached hereto as Exhibit 5(a) (vi).
(vii) Signed consents or approvals by third parties set forth
in Schedule 6(c).
(viii) A power purchase agreement on Form Standard Offer 1
between Southern California Edison and Buyer with respect to the Electric
Project on terms satisfactory to Buyer.
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(ix) A transmission and interconnection agreement between
Pacific Gas and Electric Company and Buyer with respect to the delivery of
electric power from the Electric Project to Southern California Edison on terms
satisfactory to Buyer.
In connection with the foregoing deliveries, on the Closing Date, Seller shall
deliver full possession and enjoyment of all of the Electric Assets to Buyer, to
the full extent of Seller's interest therein, in accordance with the provisions
of this Agreement. Seller shall cooperate with Buyer after the Closing and shall
execute and deliver such additional documents or instruments which are
reasonably necessary to sell, convey, transfer or assign Seller's interest in
the Electric Assets to Buyer.
(b) DELIVERIES BY BUYER. At or prior to the Closing, Buyer shall
deliver to Seller, in form reasonably satisfactory to Seller, the following
items:
(i) Good funds in the amount of $550,000;
(ii) An assignment and assumption agreement in the form
attached hereto as Exhibit 5(a)(ii), duly executed by Buyer, pursuant to which
Buyer assumes and agrees to discharge all of the Electric Project Assumed
Liabilities;
(iii) A duly certified copy of resolutions of the Managers or
Members of Buyer authorizing the transactions contemplated by this Agreement;
(iv) A duly executed Certificate of President or Manager of
Buyer certifying the accuracy of Buyer's representations and warranties
contained in this Agreement and Buyer's compliance with, and fulfillment of, all
covenants, agreements, obligations and conditions as required by this Agreement;
(c) DELIVERIES BY YOLO GASCO. At or prior to the Closing, Yolo
Gasco shall deliver to NEO Yolo, in a form reasonably satisfactory to NEO Yolo,
the following items:
(i) A bill of sale and assignment in the form attached hereto
as Exhibit 5(c)(i), duly executed by Yolo Gasco, conveying all of Yolo Gasco's
rights, title and interest in and to all of the Gas Assets to NEO Yolo, to the
full extent of Yolo Gasco's interest in the Gas Assets;
(ii) An assignment and assumption agreement in the form
attached hereto as Exhibit 5(c)(ii), duly executed by Yolo Gasco, and such other
assignment agreements as are necessary to transfer, assign, and convey all of
Yolo Gasco's right, title and interest in and to all leases, agreements,
contracts, licenses, permits, orders and other Gas Assets which constitute a Gas
Project Assumed Lease, a Gas Project Assumed Contract or a Gas Project Permit;
(iii) Such other instruments of sale, conveyance, transfer and
assignment as NEO Yolo may reasonably request, duly executed by Yolo Gasco, as
are necessary to vest in NEO Yolo as of the Closing all of Yolo Gasco's rights,
title and interest in and to all of the Gas Assets to the full extent of
Seller's interest in the Gas Assets;
(iv) A certified copy of resolutions of the Board of Directors
and Shareholder of Yolo Gasco authorizing the transactions that are the subject
of this Agreement.
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(v) A duly executed Certificate of President of Yolo Gasco
certifying the accuracy of Yolo Gasco's representations contained in this
Agreement as of the Closing Date and Yolo Gasco's compliance with, and
fulfillment of, all covenants, agreements, obligations and conditions as
required by this Agreement.
In connection with the foregoing deliveries, on the Closing Date, Yolo
Gasco shall deliver full possession and enjoyment of all of the Gas Assets to
NEO Yolo to the full extent of Yolo Gasco's interest therein, in accordance with
the provisions of this Agreement. Yolo Gasco shall cooperate with NEO Yolo after
the closing and shall execute and deliver such additional documents or
instruments which are reasonably necessary to sell, convey, transfer or assign
Yolo Gasco's interest in the Gas Assets to NEO Yolo.
(d) Deliveries by NEO Yolo. At or prior to the Closing, NEO Yolo
shall deliver to Yolo Gasco, in a form reasonably satisfactory to Yolo Gasco,
the following items:
(i) Good funds in the amount of $250,000;
(ii) An assignment and assumption agreement in the form
attached hereto as Exhibit 5(c)(ii), duly executed by NEO Yolo, pursuant to
which NEO Yolo assumes and agrees to discharge all of the Gas Project Assumed
Liabilities;
(iii) A duly certified copy of resolution of the manager or
members of NEO Yolo authorizing the transactions contemplated by this Agreement;
(iv) Consents, waivers, settlement and termination agreements
and such other documents duly executed by other third parties listed on Schedule
3(b)(iv), as are reasonably required for the consummation of the transactions
contemplated by this Agreement;
(v) An agreement of indemnification by NEO Yolo in the form of
Exhibit 5(c)(v) of Yolo Gasco and EMCON for liabilities, costs and expenses that
arise after the Closing Date for actions by NEO Yolo for actions taken after the
Closing Date that relate to the Gas Project.
(vi) A duly executed Certificate of the President or a Manager
or Member of NEO Yolo certifying the accuracy of NEO Yolo's representations and
warranties contained in this Agreement and NEO Yolo's compliance with, and
fulfillment of, all covenants, agreements, obligations and conditions as
required by this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and
warrants to Buyer the following (both as of the Closing Date and as of the date
hereof):
(a) DUE CORPORATE FORMATION AND QUALIFICATION. Seller is a
corporation duly organized and validly existing under the laws of the State of
Indiana, and is qualified to do business in the State of California and has the
power and lawful authority to carry on its business as now being conducted, and
to own or lease and operate its properties and assets as now owned, leased or
operated by it. To the best knowledge and belief of the Seller, the Seller is
not required to be licensed or qualified as a foreign corporation in any other
jurisdiction other than the State of California except where a failure to be so
qualified would have a material adverse effect upon the business of the Seller.
Seller has no subsidiaries and does not own any securities issued by any other
business organization or governmental authority. Seller does not own or have any
direct or indirect interest in or control over any other corporation,
partnership, joint venture or entity of any kind.
(b) CORPORATE AUTHORIZATION OF SELLER. The Seller has full
corporate power and authority to execute and deliver this Agreement and each
agreement, document and instrument executed and delivered by Seller pursuant to
this Agreement and to consummate the transactions contemplated hereby, and
assuming due authorization, execution and delivery of this Agreement by the
Buyer, Yolo Gasco and NEO Yolo, this Agreement and each agreement, document and
instrument executed and delivered by Seller pursuant to this Agreement
constitutes the valid and binding obligation of the Seller enforceable in
accordance with its terms, except that such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors rights
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generally and the remedy of specific performance and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(c) AUTHORITY OF THE SELLER. Except as set forth in Schedule
attached hereto, to the best knowledge and belief of the Seller, no consent,
authorization or approval of, or declaration, filing or registration with, any
governmental, administrative or regulatory body, or any consent, authorization
or approval of any other third party, is necessary in order to enable the Seller
to enter into and perform its obligations under this6 Agreement and to
consummate the transactions contemplated hereby, and, to the best knowledge and
belief of the Seller, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will:
(i) be in violation of the articles of incorporation or code of
bylaws of the Seller or constitute a breach of any evidence of indebtedness or
agreement relating to the business to which the Seller is a party;
(ii) cause a default under any mortgage or deed of trust or
other lien, charge or encumbrance to which any of the Electric Assets is subject
or under any contract relating to the Seller's business to which the Seller is a
party, or permit the termination of any such contract by another person;
(iii) result in the creation or imposition of any security
interest, lien, charge or other encumbrance upon any of the Electric Assets
under any agreement or commitment to which the Seller is bound;
(iv) accelerate, or constitute an event entitling, or which
would, on notice or lapse of time or both, entitle, the holder of any
indebtedness of the Seller to accelerate the maturity of any such indebtedness;
(v) conflict with or result in the breach of any writ,
injunction or decree of any court or governmental instrumentality; or
(vi) violate any statute, law, regulation, permit order or
other governmental authorization of any jurisdiction as such statute, law,
regulation, permit, order or other governmental authorization relates to the
properties of the Electric Project.
(d) FINANCIAL STATEMENTS AND TAX RETURNS. Seller has heretofore
furnished the Buyer with the balance sheet of Seller dated December 31, 1994
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(the "Seller Balance Sheet Date"), together with the statement of earnings,
stockholders equity and cash flow of Seller for the twelve-month period ending
December 31, 1994 and for the two years ending December 31, 1992 and 1993
(collectively, the "Seller Financial Statements"). Copies of the Seller
Financial Statements are attached hereto as Schedule 6(d). Except as otherwise
indicated in the Seller Financial Statements, to the best knowledge and belief
of Seller, the Seller Financial Statements have been prepared utilizing
generally accepted accounting principles consistently applied. Seller has
furnished to Buyer true and correct copies of its federal and state tax returns
and all amendments thereto for the years 1992, 1993 and 1994.
(e) ABSENCE OF UNDISCLOSED LIABILITIES. All liabilities of the
Seller with respect to the Seller's business and the Electric Assets (whether
accrued, absolute, contingent or otherwise and whether due or to become due) are
set forth or adequately reserved against in the Seller Financial Statements in
accordance with generally accepted accounting principles, except for liabilities
set forth on Schedule 6(e) attached hereto and except for liabilities incurred
since the Seller Balance Sheet Date in the ordinary course of business as
therefore conducted.
(f) TITLE TO PROPERTIES; ENCUMBRANCES. Except as reflected in the
Seller Financial Statements, and except for assets and properties which have
been sold or otherwise disposed of in the ordinary course of business, the
Seller has good, valid and marketable title (except for leasehold interests,
rights pursuant to easements, licenses and other interests of third parties
specifically set forth on any Schedule annexed hereto) to all its material
tangible and intangible personal properties and assets, including all tangible
and intangible personal properties and assets, which are included among the
Electric Assets reflected in the Seller Financial Statements, and all other
tangible and intangible personal properties and assets, which are included among
the Electric Assets, purchased by the Seller since the Seller Balance Sheet
Date, in each case subject to no encumbrance, lien, charge or other restriction
of any kind or character, except for (i) consisting of zoning or planning
restrictions, easements, permits and other restrictions or limitations on the
use of real or tangible or intangible personal property which are described in
Schedule 6(f) attached hereto, (ii) liens for current taxes, assessments or
governmental charges or levies on property not yet due and delinquent and (iii)
liens, encumbrances and easements under the contracts and agreements which are
included among the Electric Assets and which are specifically identified on any
Schedule annexed hereto (liens of the type described in clause (i), (ii), and
(iii) above are hereinafter sometimes referred to as "Electric Project Permitted
Liens"), and (iv) the liens or other encumbrances set forth on Schedule 6(f)
attached hereto.
(g) COMPLIANCE WITH LAWS. Except as set forth on Schedule attached
hereto, to the Seller's best knowledge and belief, with respect to the Seller's
business, (i) Seller has received no notice from any governmental authority that
it is in violation of applicable laws and regulations, and (ii) Seller has not
received any notification of past violations of such laws or regulations that
could reasonably be expected to result in future material claims against it. To
the best knowledge and belief of the Seller, set forth on Schedule 6(g) attached
hereto is a list of all of the Seller's licenses, permits, orders and approvals
of any federal, state or local governmental or regulatory bodies that are
material to or necessary for the conduct of the Seller's business (collectively
"Electric Project Permits"). To the best knowledge and belief of the Seller, all
Electric Project Permits are in full force and effect and no proceeding is
pending or threatened to revoke or limit any Electric Project Permit.
(h) LITIGATION. Except as set forth on Schedule 6(h) attached
hereto, there are no actions, suits or claims, or legal, administrative or
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arbitral proceedings or investigations pending or, to the best knowledge and
belief of the Seller, threatened against or involving the Seller or any of its
properties or assets with respect to the Seller's business. To the best
knowledge and belief of the Seller, none of the actions, suits, claims,
proceedings or investigations set forth on Schedule 6(h), individually or in the
aggregate, can reasonably be expected to have a material adverse effect on the
Electric Project.
(i) POWER PURCHASE AGREEMENTS. Seller has delivered true and
correct copies of the termination agreement and any amendments thereto entered
into between Seller and PG&E. Schedule 6(i) sets forth a list of all documents
and agreements between Seller and PG&E that have or could have a material
adverse effect on the Electric Project or on the use of the Electric Assets at
the Yolo County Central Landfill, copies of which documents have been provided
to Buyer.
(j) CONTRACTS AND OTHER AGREEMENTS. Schedule 6(j) attached hereto
contains a complete and accurate list of all of the following contracts and
other agreements with respect to the Electric Project to which the Seller is a
party or by or to which it or its assets or properties are bound or subject;
(i) contracts and other agreements with any current or former
officer, director, or employee not cancelable without penalty on notice of
thirty (30) days or less;
(ii) contracts and other agreements with material suppliers of
products sold or leased by Seller in the normal course of the Seller's business;
(iii) contracts and other agreements relating to the borrowing
of money including any indenture, mortgage, promissory note, loan agreement, or
guaranty;
(iv) operations and maintenance agreements with respect to the
Electric Project;
(v) any water supply agreement or any other agreement for
condensate or other liquid disposal; and
(vi) any other contract or other agreement which the Seller
reasonably believes is material to the Electric Project (other than those
reflected on any of the other Schedules to this Agreement). There have been
delivered or made available to the Buyer true and complete copies of all of the
contracts and other agreements set forth on Schedule 6(j) or on any other
Schedule attached hereto. To the best knowledge and belief of the Seller, all of
such contracts and other agreements are valid and binding upon the Seller in
accordance with their terms, and, except as set forth on Schedule 6(c), the
Seller is not in material default under any such contracts.
(k) REAL ESTATE LEASES. Schedule 6(k) attached hereto sets forth a list
and summary description of all leases, subleases, easements, licenses or other
agreement under which the Seller is the lessor or lessee of, or uses or occupies
or allows the use or occupancy of, any real property (the "Seller Leases and
Easements"). All of the Seller Leases and Easements, true and complete copies of
which have been delivered or made available to the Buyer, are in effect and, to
the best knowledge and belief of the Seller, the Seller is not in material
default under or with respect to any of the Seller Leases or Easements nor has
the Seller received or sent any notice of any default under or with respect to
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any of the same. To the best knowledge and belief of the Seller, no other party
to any of the Seller Leases and Easements is in material default under or with
respect to any of the same.
(l) ACCOUNTS AND NOTES RECEIVABLE. To the best knowledge and belief
of the Seller, all accounts receivable reflected on the Seller Financial
Statements, and all accounts receivable arising subsequent to the Seller Balance
Sheet Date and prior to the Closing Date, have arisen, or will have arisen at
the Closing Date, in the ordinary course of business of the Seller and
represent, or will represent, valid obligations due to the Seller and subject to
no set off and counterclaim. Seller has no account or loans receivable from any
person, firm or corporation which is affiliated with Seller or from any
director, officer or employee of Seller.
(m) INTELLECTUAL PROPERTY. Schedule 6(m) attached hereto sets forth
a list of all patents, trade secrets, proprietary rights, trademarks, service
marks and trade names (collectively, "Intellectual Property") that relate to the
Seller's business. Except as set forth on Schedule 6(m), to the best knowledge
and belief of the Seller, all Intellectual Property is owned outright by Seller,
free and clear of any lien or encumbrance and except as so set forth, there
exist no obligations with respect to any Intellectual Property requiring the
Seller to make any payment in respect of its use or otherwise. Except as set
forth on Schedule 6(m), to the best knowledge and belief of the Seller, the
Seller has no notice of any patent, trademark, service mark or trade name of any
other person that infringes upon, or is infringed upon by, any of the property
set forth on Schedule 6(m) or notice of any claim of any other person relating
to any of the property set forth or any process or confidential information of
the Seller. Seller's rights in all of such Intellectual Property are freely
transferable.
(n) BROKER'S OR FINDER'S FEES. No agent, broker, person or firm
acting on behalf of the Seller is, or will be, entitled to any commission or
broker's or finder's fees from any of the parties hereto, or from any person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated herein.
(o) EMPLOYEE BENEFIT PLANS.
(i) Schedule 6(o) attached hereto lists all employee benefit
plans, as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and all bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and other
similar fringe or employee benefit plans, programs or arrangements, and any
employment or compensation agreements, written or otherwise, currently or
heretofore maintained, contributed to or entered into by the Seller for the
benefit or, relating to, or with any employee of the Seller employed in the
Seller's business (the "Employee Plans"). None of the Employee Plans is a
multi-employer plan, as defined in Section 4001(a)(3) of ERISA (a
"Multi-employer Plan"). There has been no "prohibited transaction", as such term
is defined in Section 406 of ERISA and Section 4975 of the Code, with respect to
any Employee Plan. No Employee Plan has breached any requirement prescribed by
any applicable statute, order, or governmental rule or regulation currently in
effect with respect thereto, nor has the Seller failed to perform any
obligations required to be performed by it under, nor is it in default under or
in violation of, nor has it knowledge of any default or violation by any other
party of the Employee Plans which would result in liability to the Buyer. Each
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Employee Plan intended to qualify under Section 401(a) of the Code does so
qualify, and each trust created thereunder intended to be exempt from tax under
the provisions of Section 501(a) of the Code is so exempt, a determination
letter from the Internal Revenue Service (the "IRS") that each such plan is so
qualified and each such trust is so exempt has been applied for and the Seller
is aware of no reason why each such favorable determination letter should not be
issued; and there exists no fact which would adversely affect the qualified
status of any such plan or which would eliminate or partially eliminate the tax
treatment accorded to the employers, employees or the corpus of any such plan
under the Code. The Seller has not incurred and does not reasonably expect to
incur (i) any liability to the Pension Benefit Guaranty Corporation (other than
a liability for premiums pursuant to Section 4007 of ERISA) with respect to any
employee plan subject to Title IV of ERISA or (ii) any withdrawal liability with
respect to any Multi-employer Plan. All contributions required to be made to any
Employee Plan have been made, and all appropriate accruals of contributions,
disbursements and expenses have been made with respect to such Employee Plans.
With respect to each Employee Plan which is covered by Title IV of ERISA, the
market value of assets of such plan as of the date hereof exceeds the actuarial
present value of benefits accrued under such plan as of the date hereof,
determined in accordance with the actuarial assumptions set forth in the most
recent actuarial valuation report of such plan.
(ii) The Seller has delivered to the Buyer true and complete
copies of all Employee Plans listed in Schedule 6(o) and of all agreements,
including trust agreements and other funding instruments, such as insurance
contracts, embodying such plans. With respect to each employee benefit plan, as
defined in Section 3(3) of ERISA, listed in Schedule 6(o), true and complete
copies of the (i) last filed Form 5500 and all applicable schedules thereto;
(ii) summary plan description and all modifications thereto communicated to
employees; and (iii) most recent annual and periodic accounting of related plan
assets, if any, have been delivered to the Buyer and are correct in all material
respects. With respect to each employee pension benefit plan, as defined in
Section 3(2) of ERISA, listed on Schedule 6(o), true and complete copies of the
(i) most recent determination letter, if any, issued by the IRS and the
application therefor, and (ii) most recent annual actuarial valuation report, if
any, have been delivered to the Buyer and are correct in all material respects.
(p) LABOR MATTERS. Except as set forth in Schedule 6(p) attached
hereto, with respect to the Seller's business, the Seller is currently in
compliance in all material respects with all applicable laws, rules and
regulations relating to the employment of labor, including those related to
wages, hours, collective registrations, and authorizations.
(q) TAX RETURNS. Seller, as appropriate, has timely filed
(including extensions) with the appropriate governmental authorities, all tax
and other returns required to be filed by it and such returns are true and
complete and all taxes due have been paid. The Seller will timely file
(including extensions) with appropriate governmental authorities, all tax and
other returns which shall be required to be filed by it after the Closing Date
and such returns shall be true and complete and all taxes due shall be paid by
the Seller.
(r) INSURANCE. All insurance policies and arrangements of Seller
relative the Electric Project are set forth on Schedule 6(r) attached hereto.
Said insurance policies and arrangements are in full force and effect, all
premiums with respect thereto are currently paid, and Seller is in compliance in
all material respects with the terms thereof.
(s) ENVIRONMENTAL MATTERs. Seller has provided to Buyer copies of
all documents, records and information available to Seller, a complete listing
of which is set forth on Schedule 6(s) attached hereto, concerning any
environmental or health and safety matter relevant to Seller, whether generated
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by Seller or others, including, without limitation, environmental audits,
environmental risk assessments, site assessments, documentation regarding
offsite disposal, spill control plans, and reports, correspondence, permits,
licenses, approvals, consents, and other authorizations related to environmental
or health and safety matters issued by any governmental agency.
(t) QUALIFYING FACILITY. Seller has taken all actions and filed all
notices or applications necessary to obtain and maintain qualifying facility
status of the Electric Project pursuant to the Public Utility Regulatory
Policies Act of 1978. Seller has received no notices and has no knowledge of any
facts or circumstances that (i) violate the requirements for maintaining
qualifying facility status for the operations of the Electric Project, or (ii)
following the purchase of the Electric Project by Buyer, would prevent the
obtaining or maintaining or would increase the cost of obtaining or maintaining
qualifying facility status under such statute for the Electric Project by the
Buyer.
(u) PERMITS AND GOVERNMENTAL AUTHORITY.
(i) All Electric Project Permits required for the construction
and operation of the Electric Project either (i) have been obtained and remain
in full force and effect and are not subject to any appeals or further
proceedings or to any unsatisfied conditions that may allow material
modification or revocation or (ii) with respect to Electric Project Permits
required for operation and construction and not yet obtained, are of a type that
are routinely granted on application and that could not be reasonably obtained
before the Closing Date. Upon the purchase of the Electric Assets, the Buyer
will, to the extent permitted by law, without penalty, additional cost or
consent of any person, be entitled to the benefit of each such Electric Project
Permit so that the operation of the Electric Project may continue, except as set
forth on Schedule 6(u). All applicable Electric Project Permits obtained as of
the Closing Date are listed in Schedule l(e).
(ii) Except for the Electric Project Permits identified in
Schedule l(e), no action by, and no notice to or filing with, any federal, state
or local governmental authority or regulatory body (x) is or will be required
for the due execution, delivery and performance by the Seller of this Agreement
or any agreement, lease or document to be entered into, assigned or delivered
pursuant to the terms hereof of to which it is or will be a party, or (y) is or
will be required for the financing and operation of the Electric Assets.
(v) ENVIRONMENTAL COMPLIANCE. Seller has taken all necessary steps
to investigate the past and present condition and usage of its properties and
the operations conducted thereon and, based upon such diligent investigation,
has determined and hereby represents and warrants that:
(i) Neither the Seller nor any operator of its properties is in
violation, or alleged violation, of any judgment, decree, order, law, license,
rule or regulation pertaining to the environmental matters, including without
limitation, those arising under federal, state or local environmental laws,
which violation would have a material adverse effect on the business, assets or
financial condition of the Seller;
(ii) The Seller has not received notice from any third party
including, without limitation; any federal, state or local governmental
authority, (a) that it has been identified by the United States Environmental
Protection Agency ("EPA") as a potentially responsible party under CERCLA with
respect to a site listed on the National Priorities List, 40 C.F.R. Part 300
Appendix B (1986); (b) that any hazardous waste, as defined by 42 U.S.C.
ss.6903(5), any hazardous waste, as defined by 42 U.S.C. ss.9601(14), any
pollutant or contaminant as defined by 42 U.S.C. ss.9601(33) or any toxic
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substance, oil or hazardous materials or other chemicals or substances regulated
by any federal, state or local environmental laws ("Hazardous Substances") which
it has generated, transported or disposed of has been found at any site at which
a federal, state or local agency or other third party has conducted or has
ordered that the Seller conduct a remedial investigation, removal or other
response action pursuant to any federal, state or local environmental law; or
(c) that it is or shall be a named party to any claim, action, cause of action,
complaint, legal or administrative proceeding arising out of any third party's
incurrence of costs, expenses, losses or damages of any kind whatsoever in
connection with the release of Hazardous Substances;
(iii) (a) No portion of the Seller's leased real property has
been used for the handling, processing, storage or disposal of Hazardous
Substances except in accordance with applicable federal, state or local
environmental laws; and no underground tank or other underground storage
receptacle for Hazardous Substances is located on such real property; (b) in the
course of any activities conducted by the Seller or operators of the real
property, no Hazardous Substances have been generated or are being used on such
real property except in accordance with applicable federal, state or local
environmental laws; (c) there have been no unpermitted releases (i.e. any past
or present releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, disposing or dumping) or threatened releases
property, which releases would have a material adverse effect on the value of
such real property or adjacent properties or the environment; (d) to the best of
the Seller's knowledge, there have been no releases on, upon, from or into any
real property in the vicinity of the real property which, through soil or
groundwater contamination, may have come to be located on, and which would have
a material adverse effect on the value of, the real property; and (e) in
addition, any Hazardous Substances that have been generated on the real property
have been transported offsite only by carriers having an identification number
issued by the EPA, treated or disposed of only by treatment or disposal
facilities maintaining valid permits as required under applicable federal, state
or local environmental laws, which transporters and facilities have been and
are, to the best of the Seller's knowledge, operating in compliance with such
permits and applicable environmental laws;
(iv) The real property owned or leased by Seller in Yolo
County, California is not subject to any applicable environmental clean up
responsibility law or environmental restrictive transfer law or regulation by
virtue of the transactions set forth herein and contemplated hereby; and
(v) The Seller has provided the Buyer with true and complete
copies of all material, documents, reports, site assessments, data,
communications and other materials in its possession or to which it has access
which contain information with respect to potential environmental liabilities of
the Seller related to compliance with federal, state and local environmental
laws.
(w) Disclosure. No representation or warranty made by the Seller in
this Agreement or in any agreement, instrument, document, certificate, statement
or letter furnished to the Buyer by or on behalf of or at the request of the
Seller in connection with any of the transactions contemplated by this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein not misleading
in light of the circumstances in which they are made.
7. REPRESENTATIONS AND WARRANTIES OF BUYER. The Buyer represents and
warrants to Seller and Yolo Gasco the following (both as of the Closing Date and
as of the date hereof):
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(a) DUE FORMATION AND QUALIFICATION. The Buyer is a limited
liability company duly organized, validly existing and in good standing under
the laws of its state of formation, and has the power and lawful authority to
carry on its business as now being conducted and to own or lease its properties
and assets as now owned, leased or operated by it. The Buyer is duly qualified
or otherwise authorized as a foreign limited liability company to transact
business and is in good standing in each jurisdiction in which, to the best
knowledge and belief of the Buyer, a failure to be so qualified would have a
material adverse effect on the business of the Buyer.
(b) AUTHORIZATION. The Buyer has full power and authority under its
formation documents and operating agreement and, the managers and members of
Buyer have taken all necessary action to authorize the Buyer to execute and
deliver this Agreement and to consummate the transactions contemplated hereby
and, assuming due authorization, execution and delivery of this Agreement by the
Seller and Yolo Gasco, this Agreement constitutes the valid and binding
obligation of the Buyer enforceable in accordance with its terms except that
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium and other similar laws now or hereafter in effect relating to
creditors' rights generally and the remedy of specific performance and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(c) NON-CONTRAVENTION. Neither the execution and delivery of this
Agreement or the other agreements contemplated hereby nor the consummation of
the transactions contemplated hereby does or will violate, conflict with, result
in a breach of any provision of, constitute a default under, result in the
termination of or permit any third party to terminate (with or without notice,
lapse of time or pursuant to any legal or equitable principle) or accelerate the
performance required on the part of the Buyer by the terms of, or accelerate the
maturity of or require the prepayment of any indebtedness of the Buyer under,
any judgment, order, decree or agreement or instrument to or by which the Buyer
or any of its assets is subject or bound.
(d) AUTHORITY OF THE BUYER. Except as set forth on Schedule 7(d)
attached hereto, no consent, authorization or approval of, or declaration,
filing or registration with, any governmental, administrative or regulatory
body, or any consent, authorization or approval of any other third party, is
necessary in connection with the Buyer's purchase of the Electric Assets
contemplated hereby or the consummation of the other transactions contemplated
hereby.
(e) LITIGATION. Except as set forth on Schedule 7(e) attached
hereto, there are no claims, actions, suits, proceedings or investigations
pending or, to the best knowledge and belief of the Buyer, threatened by or
against the Buyer with respect to the transactions contemplated hereby, at law
or in equity or before or by any federal, state, municipal, foreign or other
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governmental department, commission, board, agency, instrumentality or authority
nor does the Buyer know or have any reason to know of any basis for any such
claim, action, suit, proceeding or investigation except with respect to those
claims, actions, suits, proceedings or investigations which would not have a
material adverse effect on the Buyer.
(f) BROKER'S OR FINDER'S FEES. No agent, broker, person or firm
acting on behalf of Buyer is, or will be, entitled to any commission or broker's
or finder's fees from the Seller or from any person controlling, controlled by
or under common control with the Seller in connection with any of the
transactions contemplated herein.
8. REPRESENTATIONS AND WARRANTIES OF YOLO GASCO. Yolo Gasco represents
and warrants to NEO Yolo the following (both as of the Closing Date and as of
the date hereof):
(a) DUE CORPORATE FORMATION AND QUALIFICATION. Yolo Gasco is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California, and has the power and lawful authority to carry on
its business as now being conducted, and to own or lease and operate its
properties and assets as now owned, leased or operated by it. To the best
knowledge and belief of Yolo Gasco, Yolo Gasco is not required to be licensed or
qualified as a foreign corporation in any other jurisdiction except where a
failure to be so qualified would have a material adverse effect upon the Gas
Project. Yolo Gasco has no subsidiaries and does not own any securities issued
by any other business organization or governmental authority. Yolo Gasco does
not own or have any direct or indirect interest in or control over any
corporation, partnership, joint venture or entity of any kind.
(b) CORPORATE AUTHORIZATION OF YOLO GASCO. Yolo Gasco has full
power and authority under its corporate charter to execute and deliver this
Agreement and each agreement, document and instrument executed and delivered by
Yolo Gasco pursuant to this Agreement and to consummate the transactions
contemplated hereby, and assuming due authorization, execution and delivery of
this Agreement by the other parties hereto, this Agreement and each agreement,
document and instrument executed and delivered by Yolo Gasco pursuant to this
Agreement constitutes the valid and binding obligation of Yolo Gasco enforceable
in accordance with its terms, except that such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and the remedy of
specific performance and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(c) AUTHORITY OF YOLO GASCO. Except as set forth in Schedule 8(c)
attached hereto, to the best knowledge and belief of Yolo Gasco, no consent,
authorization or approval of, or declaration, filing or registration with, any
governmental, administrative or regulatory body, or any consent, authorization
or approval of any other third party, is necessary in order to enable Yolo Gasco
to enter into and perform its obligations under this Agreement and to consummate
the transactions contemplated hereby, and, to the best knowledge and belief of
Yolo Gasco, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will:
(i) be in violation of the articles of incorporation or bylaws
of Yolo Gasco or constitute a breach of any evidence of indebtedness or
agreement relating to the Gas Project to which Yolo Gasco is a party;
(ii) cause a default under any mortgage or deed of
trust or other lien, charge or encumbrance to which any Gas Asset is
subject or under any contract relating to the Gas Project to which
Yolo Gasco is a party, or permit the termination of any such contract
by another person;
(iii) result in the creation or imposition of any security
interest, lien, charge or other encumbrance upon any Gas Assets under any
agreement or commitment to which Yolo Gasco is bound;
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(iv) accelerate, or constitute an event entitling, or which
would, on notice or lapse of time or both, entitle, the holder of any
indebtedness of Yolo Gasco to accelerate the maturity of any such indebtedness;
(v) conflict with or result in the breach of any writ,
injunction or decree of any court or governmental instrumentality; or
(vi) violate any statute, law, regulation, permit, order or
other governmental authorization of any jurisdiction as such statute, law,
regulation, permit, order or other governmental authorization relates to the
properties of the Gas Project.
(d) TITLE TO PROPERTIES; ENCUMBRANCES. Yolo Gasco has good, valid
and marketable title (except for leasehold interests, rights pursuant to
easements, licenses and other interests of third parties specifically set forth
on any Schedule annexed hereto) to all its material tangible and intangible
personal properties and assets, including all tangible and intangible personal
properties and assets which are included among the Gas Assets, to be purchased
by Yolo Gasco in each case subject to no encumbrance, lien, charge or other
restriction of any kind or character, except for (i) liens consisting of zoning
or planning restrictions, easements, permits and other restrictions or
limitations on the use of real or tangible or intangible personal property which
are described in Schedule 8(d) attached hereto, (ii) liens for current taxes,
assessments or governmental charges or levies on property not yet due and
delinquent and (iii) liens, encumbrances and easements under the contracts and
agreements which are included among the Gas Assets and which are specifically
identified on any Schedule annexed hereto (liens of the type described in clause
(i), (ii), and (iii) above are hereinafter sometimes referred to as "Yolo Gasco
Permitted Liens"), and (iv) the liens or other encumbrances set forth on
Schedule 8(d) attached hereto.
(e) COMPLIANCE WITH LAWS. Except as set forth on Schedule 8e(i)
attached hereto, to Yolo Gasco's best knowledge and belief, with respect to the
Gas Project, (i) Yolo Gasco has received no notice from any governmental
authority that it is in violation of applicable laws and regulations, and (ii)
Yolo Gasco has not received any notification of past violations of such laws or
regulations that could reasonably be expected to result in future material
claims against it. To the best knowledge and belief of Yolo Gasco, set forth on
Schedule 8e(ii) attached hereto is a list of all of Yolo Gasco's licenses,
permits, orders and approvals of any federal, state or local governmental or
regulatory bodies that are material to or necessary for the conduct of the Gas
Project (collectively "Gas Project Permits"). To the best knowledge and belief
of Yolo Gasco, all Gas Project Permits are in full force and effect and no
proceeding is pending or threatened to revoke, or limit any Gas Project Permit.
(f) LITIGATION. There are no actions, suits or claims, or legal,
administrative or arbitral proceedings or investigations pending or, to the best
knowledge and belief of Yolo Gasco, threatened against or involving Yolo Gasco
or any of its properties or assets with respect to the Gas Project.
(g) DELEGATION AGREEMENT. Yolo Gasco has received no notice from
either Seller or Yolo County that it is in violation or breach of any material
provision of the Delegation Agreement. The Delegation Agreement is in full force
and effect, and Yolo Gasco is not in default or breach under such agreement.
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(h) CONTRACTS AND OTHER AGREEMENTS. Schedule 8(h) attached hereto
contains a complete and accurate list of all of the Gas Project contracts and
other agreements with respect to the Gas Project to which the Yolo Gasco is a
party or by or to which it or its assets or properties are bound or subject;
(i) contracts and other agreements with any current or former
officer, director, or employee not cancelable without penalty on notice of
thirty (30) days or less;
(ii) contracts and other agreements with material suppliers of
products sold or leased by Yolo Gasco in the normal course of the Gas Project;
(iii) contracts and other agreements relating to the
borrowing of money including any indenture, mortgage, promissory note,
loan agreement, or guaranty;
(iv) operations and maintenance agreements with respect to the
Gas Project;
(v) any water supply agreement or any other agreement for
condensate or other liquid disposal; and
(vi) any other contract or other agreement which Yolo Gasco
reasonably believes is material to the Gas Project (other than those reflected
on any of the other Schedules to this Agreement). There have been delivered or
made available to NEO Yolo true and complete copies of all of the contracts and
other agreements set forth on Schedule 8(h) or on any other schedule attached
hereto. To the best knowledge and belief of Yolo Gasco, all of such contracts
and other agreements are valid and binding upon Yolo Gasco in accordance with
their terms, and Yolo Gasco is not in material default under any such contracts.
(i) REAL ESTATE LEASES. Schedule 8(i) attached hereto sets forth a
list and summary description of all leases, subleases, easements, licenses or
other agreements under which Yolo Gasco is the lessor or lessee of, or uses or
occupies or allows the use or occupancy of, any real property (the "Yolo Gasco
Leases and Easements"). All of the Yolo Gasco Leases and Easements, true and
complete copies of which have been delivered to NEO Yolo, are in effect and, to
the best knowledge and belief of Yolo Gasco, Yolo Gasco is not in material
default under or with respect to any of Yolo Gasco Leases or Easements nor has
the Yolo Gasco received or sent any notice of any default under or with respect
to any of the same. To the best knowledge and belief of Yolo Gasco, no other
party to any of the Yolo Gasco Leases and Easements is in material default under
or with respect to any of the same.
(j) INTELLECTUAL PROPERTY. Schedule 8(j) attached hereto sets forth
a list of all patents, trade secrets, proprietary rights, trademarks, service
marks and trade names (collectively, "Yo1o Gasco Intellectual Property") owned
by Yolo Gasco that relate to the Gas Project. Except as set forth on Schedule
8(j), to the best knowledge and belief of Yolo Gasco, all Yolo Gasco
Intellectual Property is owned outright by Yolo Gasco, free and clear of any
lien or encumbrance and except as so set forth, there exist no obligations with
respect to any Yolo Gasco Intellectual Property requiring Yolo Gasco to make any
payment in respect of its use or otherwise. Except as set forth on Schedule
8(j), to the best knowledge and belief of Yolo Gasco, Yolo Gasco has no notice
of any patent, trademark, service mark or trade name of any other person that
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infringes upon, or is infringed upon by, any of the property set forth on
Schedule 8(j) or notice of any claim of any other person relating to any of the
property set forth on Schedule 8(j) or any process or confidential information
of Yolo Gasco. Yolo Gasco's rights in all of such Yolo Gasco Intellectual
Property are freely transferable.
(k) BROKER'S OR FINDER'S FEES. No agent, broker, person or firm
acting on behalf of Yolo Gasco is, or will be, entitled to any commission or
broker's or finder's fees from any of the parties hereto, or from any person
controlling, controlled by or under common control with any of the parties
hereto, in connection with any of the transactions contemplated herein.
(l) EMPLOYEE BENEFIT PLANS.
(i) Schedule 8(l) attached hereto lists all employee benefit
plans, as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and all bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and other
similar fringe or employee benefit plans, programs or arrangements, and any
employment or compensation agreements, written or otherwise, currently or
heretofore maintained, contributed to or entered into by Yolo Gasco for the
benefit or, relating to, or with any employee of Yolo Gasco employed in the Gas
Project (the "Employee Plans"). None of the Employee Plans is a multi-employer
plan, as defined in Section 4001(a)(3) of ERISA (a "Multi-employer Plan"). There
has been no "prohibited transaction", as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Employee Plan. No
Employee Plan has breached any requirement prescribed by any applicable statute,
order, or governmental rule or regulation currently in effect with respect
thereto, nor has Yolo Gasco failed to perform any obligations required to be
performed by it under, nor is it in default under or in violation of, nor has it
knowledge of any default or violation by any other party of the Employee Plans
which would result in liability to NEO Yolo. Each Employee Plan intended to
qualify under Section 401 (a) of the Code does so qualify, and each trust
created thereunder intended to be exempt from tax under the provisions of
Section 501 (a) of the Code is so exempt a determination letter from the
Internal Revenue Service (the "IRS") that each such plan is so qualified and
each such trust is so exempt has been applied for and Yolo Gasco is aware of no
reason why each such favorable determination letter should not be issued, and
there exists no fact which would adversely affect the qualified status of any
such plan or which would eliminate or partially eliminate the tax treatment
accorded to the employers, employees or the corpus of any such plan under the
Code. Yolo Gasco has not incurred and does not reasonably expect to incur (i)
any liability to the Pension Benefit Guaranty Corporation (other than a
liability for premiums pursuant to Section 4007 of ERISA) with respect to any
employee plan subject to Title IV of ERISA or (ii) any withdrawal liability with
respect to any Multi-employer Plan. All contributions required to be made to any
Employee Plan have been made, and all appropriate accruals of contributions,
disbursements and expenses have been made with respect to such Employee Plans.
With respect to each Employee Plan which is covered by Title IV of ERISA, the
market value of assets of such plan as of the date hereof exceeds the actuarial
present value of benefits accrued under such plan as of the date hereof,
determined in accordance with the actuarial assumptions set forth in the most
recent actuarial valuation report of such plan.
(ii) Yolo Gasco has delivered to NEO Yolo true and complete
copies of all Employee Plans listed in Schedule 8(1) and of all agreements,
including trust agreements and other funding instruments, such as insurance
contracts, embodying such plans. With respect to each employee benefit plan, as
defined in Section 3(3) of ERISA, listed in Schedule 8(1), true and complete
copies of the (a) last filed Form 5500 and all applicable Schedules thereto, (b)
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summary plan description and all modifications thereto communicated to employees
and (c) most recent annual and periodic accounting of related plan assets, if
any, have been delivered to NEO Yolo and are correct in all material respects.
With respect to each employee pension benefit plan, as defined in Section 3(2)
of ERISA, listed on Schedule 8(1), true and complete copies of the (a) most
recent determination letter, if any, issued by the IRS and the application
therefor and (b) most recent annual actuarial valuation report, if any, have
been delivered to NEO Yolo and are correct in all material respects.
(m) LABOR MATTERS. Except as set forth in Schedule attached hereto,
with respect to the Gas Project, Yolo Gasco is currently in compliance in all
material respects with all applicable laws, rules and regulations relating to
the employment of labor, including those related to wages, hours, collective
registrations, and authorizations.
(n) TAX RETURNS. Yolo Gasco, as appropriate, has timely filed
(including extensions) with the appropriate governmental authorities, all tax
and other returns required to be filed by it and such returns are true and
complete and all taxes due have been paid. Yolo Gasco will timely file
(including extensions) with appropriate governmental authorities, all tax and
other returns which shall be required to be filed by it after the Closing Date
and such returns shall be true and complete and all taxes due shall be paid by
Yolo Gasco.
(o) ENVIRONMENTAL MATTERS. Yolo Gasco has provided to NEO Yolo
copies of all documents, records and information available to Yolo Gasco, a
complete listing of which is set forth on Schedule attached hereto, concerning
any environmental or health and safety matter relevant to Yolo Gasco, whether
generated by Yolo Gasco or others, including, without limitation, environmental
audits, environmental risk assessments, site assessments, documentation
regarding off-site disposal, spill control plans, and reports, correspondence,
permits, licenses, approvals, consents, and other authorizations related to
environmental or health and safety matters issued by any governmental agency.
(p) Section 29 Qualification. Yolo Gasco submitted a purchase order
for the requisition of certain equipment for the extraction of landfill gas in
connection with the Gas Project, a true and correct copy of which purchase order
is attached hereto as Exhibit 8 (p).
(q) PERMITS AND GOVERNMENTAL AUTHORITY.
(i) All Gas Project permits required for the construction and
operation of the Gas Project either (i) have been obtained and remain in full
force and effect and are not subject to any appeals or further proceedings or to
any unsatisfied conditions that may allow material modification or revocation or
(ii) with respect to Gas Project Permits required for operation and construction
and not yet obtained, are of a type that are routinely granted on application
and that could not be reasonably obtained before .the Closing Date. Upon the
purchase of the Gas Assets, NEO Yolo will, to the extent permitted by law,
without penalty, additional cost or consent of any person, be entitled to the
benefit of each such Gas Project Permit so that the operation of the Gas Project
may continue. All applicable Gas Project Permits obtained as of the Closing Date
are listed in Schedule 8(u)(i).
(ii) Except for the permits identified in Schedule 8(q)(ii), no
action by, and no notice to or filing with, any federal, state or local
governmental authority or regulatory body (i) is or will be required for the due
execution, delivery and performance by Yolo Gasco of this Agreement or any
agreement, lease or document to be entered into, assigned or delivered pursuant
to the terms hereof of to which it is or will be a party, or (ii) is required
for the construction, financing and operation of the Gas Project through the
Closing Date.
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(r) ENVIRONMENTAL COMPLIANCE. Yolo Gasco has taken all reasonable
steps to investigate the past and present condition and usage of the Gas Project
and the operations conducted thereon and, based upon such diligent
investigation, has determined and hereby represents and warrants that, except as
set forth on Schedule 8(r):
(i) Neither Yolo Gasco nor any operator of the Gas Project is
in violation, or alleged violation, of any judgment, decree, order, law,
license, rule or regulation pertaining to the environmental matters, including
without limitation, those arising under federal, state or local environmental
laws, which violation would have a material adverse effect on the Gas Project or
the Gas Assets.
(ii) Yolo Gasco has not received notice from any third party
including, without limitation, any federal, state or local governmental
authority, (a) that it has been identified by the United States Environmental
Protection Agency ("EPA") as a potentially responsible party under CERCLA with
respect to a site listed on the National Priorities List, 40 C.F.R. Part 300
Appendix B (1986); (b) that any hazardous waste, as defined by 42 U.S.C.
ss.6903(5), any hazardous waste, as defined 42 U.S.C. ss.9601(14), any pollutant
or contaminant as defined by 42 U.S.C. ss.9601(33) or any toxic substance, oil
or hazardous materials or other chemicals or substances regulated by any
federal, state or local environmental laws ("Hazardous Substances") which Yolo
Gasco has generated, transported or disposed of has been found at any site at
which a federal, state or local agency or other third party to the best of Yolo
Gasco's knowledge has conducted or has ordered that Yolo Gasco conduct a
remedial investigation, removal or other response action pursuant to any
federal, state or local environmental law, or (c) that it is or shall be a named
party to any claim, action, cause of action, complaint, legal or administrative
proceeding arising out of any third party's incurrence of costs, expenses,
losses or damages of any kind whatsoever in connection with the release of
Hazardous Substances,
(iii) (a) No portion of Yolo Gasco's leased real property has
been used by Yolo Gasco for the handling, processing, storage or disposal of
Hazardous Substances except in accordance with applicable federal, state or
local environmental laws, and to the best of Yolo Gasco's knowledge no
underground tank or other underground storage receptacle for Hazardous
Substances is located on such real property; (b) in the course of any activities
conducted by Yolo Gasco, no Hazardous Substances have been generated or are
being used on such real property by Yolo Gasco except in accordance with
applicable federal, state or local environmental laws; (c) to the best of Yolo
Gasco's knowledge there have been no unpermitted releases (i.e. any past or
present releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, disposing or dumping) or threatened releases
caused by Yolo Gasco, which releases Yolo Gasco has responsibility to correct
and which it left uncorrected and which would have a material adverse effect on
the value of such real property or adjacent properties or the environment; (d)
to the best of Yolo Gasco's knowledge, there have been no releases by Yolo Gasco
on, upon, from or into, any real property in the vicinity of the real property
which, through soil or groundwater contamination, may have come to be located
on, and which would have a material adverse effect on the value of, the real
property; and (e) in addition, any Hazardous Substances that have been generated
by Yolo Gasco on the real property have been (i) either delivered to Yolo County
for treatment and disposal or (ii) have been transported offsite only by
carriers having an identification number issued by the EPA, treated or disposed
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of only by treatment or disposal facilities maintaining valid permits as
required under applicable federal, state or local environmental laws, which
transporters and facilities have been and are, to the best of the Yolo Gasco's
knowledge, operating in compliance with such permits and applicable
environmental laws;
(iv) To the best of Yolo Gasco's knowledge, the real property
owned or leased by Yolo Gasco in Yolo County, California is not subject to any
applicable environmental clean up responsibility law or environmental
restrictive transfer law or regulation by virtue of Yolo Gasco's activities on
the property;
(v) Yolo Gasco has provided NEO Yolo with true and complete
copies of all material documents, reports, site assessments, data,
communications and other materials in its possession or to which it has access
which contain information with respect to potential environmental liabilities of
Yolo Gasco related to compliance with federal, state and local environmental
laws.
(s) DISCLOSURE. No representation or warranty made by Yolo Gasco in
this Agreement or in any agreement, instrument, document, certificate, statement
or letter furnished to NEO Yolo by or on behalf of or at the request of Yolo
Gasco in connection with any of the transactions contemplated by this Agreement
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein not misleading
in light of the circumstances in which they are made.
(t) INDEPENDENT OPERATIONS. The operations of Yolo Gasco have been
run completely independently from those of Seller, and Yolo Gasco makes no
representations or warranties about Seller. Seller's operations or the
conditions of Seller's assets or properties, whether owned, leased or used.
9. REPRESENTATIONS AND WARRANTIES OF NEO YOLO.
NEO Yolo represents and warrants to Yolo Gasco the following (both
as of the Closing Date and as of the date hereof):
(a) DUE FORMATION AND QUALIFICATION. NEO Yolo is a corporation duly
organized, validly existing and in good standing under the laws of its state of
formation, and has the power and lawful authority to carry on its business as
now being conducted and to own or lease its properties and assets as now owned,
leased or operated by it. NEO Yolo viii, prior to the commencement of activities
in California, be duly qualified or otherwise authorized as a foreign limited
liability company to transact business in California.
(b) AUTHORIZATION. NEO Yolo has full power and authority under its
formation documents and operating agreement, and the managers and members of NEO
Yolo have taken all necessary action to authorize NEO Yolo to execute and
deliver this Agreement and to consummate the transactions contemplated hereby
and, assuming due authorization, execution and delivery of this Agreement by
Yolo Gasco, Seller and Buyer, this Agreement constitutes the valid and binding
obligation of NEO Yolo enforceable in accordance with its terms except that such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
and other similar laws now or hereafter in effect relating to creditors1 rights
generally and the remedy of specific performance and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
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(c) NON-CONTRAVENTION. Neither the execution and delivery of this
Agreement or the other agreements contemplated hereby nor the consummation of
the transactions contemplated hereby does or will violate, conflict with, result
in a breach of any provision of, constitute a default under, result in the
termination of or permit any third party to terminate (with or without notice,
lapse of time or pursuant to any legal or equitable principle) or accelerate the
performance required on the part of NEO Yolo by the terms of, or accelerate the
maturity of or require the prepayment of any indebtedness of NEO Yolo under, any
judgment, order, decree or agreement or instrument to or by which NEO Yolo or
any of its assets is subject or bound.
(d) AUTHORITY OF NEO YOLO. Except as set forth on Schedule 9(d)
attached hereto, no consent, authorization or approval of, or declaration,
filing or registration with, any governmental, administrative or regulatory
body, or any consent, authorization or approval of any other third party, is
necessary in connection with NEO Yolo's consummation of the other transactions
contemplated hereby.
(e) LITIGATION. Except as set forth on Schedule 9(e) attached
hereto, there are no claims, actions, suits, proceedings or investigations
pending or, to the best knowledge and belief of NEO Yolo threatened by or
against NEO Yolo with respect to the transactions contemplated hereby, at law or
in equity or before or by any federal, state, municipal, foreign or other
governmental department, commission, board, agency, instrumentality or authority
nor does NEO Yolo know or have any reason to know of any basis for any such
claim, action, suit, proceeding or investigation except with respect to those
claims, actions, suits, proceedings or investigations which would not have a
material adverse effect on NEO Yolo.
10. SELLER'S AND BUYER CONDITIONS OF CLOSING.
(a) The obligations of Buyer hereunder are subject to the
fulfillment to the reasonable satisfaction of Buyer of each of the following
conditions prior to or on the Closing Date: (i) Seller have been performed and
complied with all covenants and conditions, and shall have made all deliveries,
required by this Agreement to be performed or complied with by Seller prior to
or at the Closing and the representations of Seller shall be true and accurate
in all material respects as of the Closing.
(ii) On the Closing Date, neither Seller nor Buyer shall be a
party to, nor will there otherwise be pending, any judicial, administrative or
other action, proceeding or investigation (other than any such action brought by
Buyer) seeking to enjoin or restrain the transactions contemplated hereby, and
there will not be in effect any injunction, writ, temporary restraining order or
any order of any nature issued by a court of competent jurisdiction directing
that any transactions Provided for herein not be consummated as so provided.
(iii) Buyer shall have received executed counterparts of any
consents, releases and other documentation, including such consents, releases
and other documentation as are reasonably satisfactory to Buyer from the parties
listed on Schedule 3(b) (iv), required to permit Seller and Buyer to consummate
the transactions contemplated by this Agreement and to vest in Buyer all of
Seller's right, title and interest in the Electric Assets, in accordance with
the provisions of this Agreement.
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(iv) There shall have occurred no material adverse change in
the operations of the Electric Project or the condition of the Electric Assets
during the period from the date hereof to the Closing Date, except for ordinary
wear and tear, maintenance and repair of the Electric Assets- For purposes
hereof, "material adverse change" shall include, without limitation, (a) any
material breach by any party under a material contract to which Seller is a
party, by which Seller is bound to which the Electric Assets are subject which
causes a material diminution in value of the Electric Project, and the Electric
Assets, (b) any material adverse change in relationships with licensees,
suppliers, distributors, customers or other having material business
relationships with Seller which causes a material diminution in value of the
Electric Project and the Electric Assets, (c) any sale or other disposition of
any of the Electrical Assets other than in the ordinary course of business, (d)
any further encumbrance of any Electric Assets, and (e) any modification,
amendment or cancellation of any of Sellers existing commitments, contracts or
agreements relating to the Electric Project or the Electric Assets, or the
entering into of any new commitments, contracts or agreements other than in the
ordinary course of business.
(v) All liens, claims and encumbrances upon or against the
Electric Assets and the Electric Project other than the Electric Permitted Liens
shall be released and discharged against and with respect to the Electric Assets
and the Electric Project to the reasonable satisfaction of Buyer.
(vi) Buyer shall have received consents and waivers and other
documents reasonably satisfactory to Buyer, pursuant to which all third parties
under the Electric Project Assumed Contracts and Electric project Assumed Leases
have waived or agreed to waive all breaches and defaults by Seller under such
Electric Project Assumed Contracts and Electric Project Assumed Leases.
(vii) Buyer shall have received the approval of this Agreement
and the transaction that is the subject hereof by the Board of Directors of NEO
Corporation, as a member of Buyer.
(viii) Buyer shall be satisfied with (a) the results of the
legal, accounting and business due diligence investigation of the Electric
Assets and the Electric Project which will be performed by its attorneys,
accountants and representatives, and the performance of the Electric Project
prior to Closing and (b) that all legal and administrative proceedings and
actions related to the approval of this Agreement and the transactions
contemplated hereby have been fully and completely satisfied in such manner as
to vest in Buyer good and marketable title to the Electric Assets, free and
clear of all liens, claims and encumbrances (other than any such lien, claim or
encumbrance which comprises either an Electric Permitted Lien or an Electric
Project Assumed Liability) upon the consummation of the transactions
contemplated hereby.
(ix) NEO Yolo shall have received a bill of sale, in form and
substance reasonably satisfactory to NEO Yolo, duly executed by Yolo Gasco,
conveying all of Yolo Gasco's rights, title and interest in and to all of the
Gas Assets to NEO Yolo.
(x) Buyer shall have entered into (a) a Standard Offer No. 1
Power Purchase Agreement in form and substance satisfactory to Buyer with SCE
for purchase of electric power from the Electric Project, (b) a transmission
agreement in form and substance satisfactory to Buyer with PG&E for the
transmission by PG&E to SCE of electric power generated by Buyer from the
Electric Project, and (c) such interconnection, scheduling and other agreements
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with either PG&E or SCE, or both, as may be reasonably required by Buyer with
respect to the transmission and purchase of electric power generated by the
Electric Project as set forth above.
(xi) Buyer shall have received from Seller such other
documents, instruments, writings and actions as may. be reasonably requested by
Buyer or its legal counsel to confirm to Buyer marketable title to the Electric
Assets, the Electric Project and the agreements with SCE, PG&E and all other
third parties other than NEO Yolo or Yolo Gasco required for the profitable
operation of the Electric Project as contemplated herein.
(xii) Buyer shall have received from EMCON an agreement in form
and substance satisfactory to Buyer pursuant to which EMCON agrees to use its
best efforts to assist Buyer and NEO Yolo to negotiate with and obtain from Yolo
County an amended and restated Production Agreement in which Yolo County would
agree to reduce the compensation payable to it pursuant to such Production
Agreement to a level of compensation that is satisfactory to Buyer and NEO Yolo.
(xiii) The concurrent closing of the purchase by NEO Yolo of
the Gas Assets and the Gas Project from Yolo Gasco.
(b) The obligations of Seller hereunder are subject to the
fulfillment to the reasonable satisfaction of Seller of each of the following
conditions prior to or at the Closing:
(i) Buyer shall have performed and complied with all covenants
and conditions, and shall have made all deliveries, required by this Agreement
to be performed or complied with by Buyer prior to or at the Closing and the
representations and warranties of Buyer shall be true and accurate in all
material respects as of the Closing.
(ii) On the Closing Date, neither Seller nor Buyer shall be a
party to, nor will there otherwise be pending, .any judicial, administrative or
other action, proceeding or investigation (other than any such action brought by
Seller) seeking to enjoin or restrain the transactions contemplated hereby, and
there will not be in effect any injunction, writ, temporary restraining order or
any order of any nature issued by a court of competent jurisdiction directing
that any transactions Provided for herein not be consummated as so provided.
11. NEO YOLO'S AND THE YOLO GASCO'S CONDITIONS OF CLOSING.
(a) The obligations of NEO Yolo hereunder are subject to the
fulfillment to the reasonable satisfaction of NEO Yolo of each of the following
conditions prior to or on the Closing Date:
(i) Yolo Gasco shall have performed and complied with all
covenants and conditions, and shall have made all deliveries, required by this
Agreement to be performed or complied with by Yolo Gasco prior to or at the
Closing and the representations of Yolo Gasco shall be true and accurate in all
material respects as of the Closing.
(ii) On the Closing Date, neither Yolo Gasco nor NEO Yolo shall
be a party to, nor will there otherwise be pending, any judicial, administrative
or other action, proceeding or investigation (other than any such action brought
by NEO Yolo) seeking to enjoin or restrain the transactions contemplated hereby,
and there will not be in effect any injunction, writ, temporary restraining
order or any order of any nature issued by a court of competent jurisdiction
directing that any transactions Provided for herein not be consummated as so
provided.
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(iii) NEO Yolo shall have received executed counterparts of any
consents, releases and other documentation, including such consents, releases
another documentation, including such consents, releases and other documentation
as are reasonably satisfactory to NEO Yolo from the parties listed on Schedule
11(a)(iii), required to permit Yolo Gasco and NEO Yolo to consummate the
transactions contemplated by this Agreement and to vest in NEO Yolo all of Yolo
Gasco's right, title and interest in the Gas Assets, in accordance with the
provisions of this Agreement.
(iv) There shall have occurred no material adverse change in
the operations of the Gas Project, or the condition of the Gas Assets during the
period from the date hereof to the Closing Date, except for ordinary wear and
tear and maintenance and repair of the Gas Assets. For purposes hereof,
"material adverse change" shall include, without limitation, (a) any material
breach by any party under a material contract to which Yolo Gasco is a party, by
which Yolo Gasco is bound or to which the Gas Assets are subject which cause a
material diminution in value of the Gas Project, and the Gas Assets, (b) any
material adverse change in relationships with licensees, suppliers,
distributors, customers or others having material business relationships with
Yolo Gasco which causes a material diminution in value of the Gas Project and
the Gas Assets, (c) any sale or other disposition of any of the Gas Assets other
than in the ordinary course of business, (d) any further encumbrance of any Gas
Assets, and (e) any modification, amendment or cancellation of any of Yolo
Gasco's existing commitments, contracts or agreements relating to the Gas
Project or the Gas Assets, or the entering into of any new commitments,
contracts or agreements other than in the ordinary course of business.
(v) All liens, claims and encumbrances upon or against the Gas
Assets and the Gas Project shall be released and discharged against and with
respect to the Gas Assets and the Gas Project, to the reasonable satisfaction of
NEO Yolo.
(vi) NEO Yolo shall have received consents and waivers and
other documents reasonably satisfactory to NEO Yolo pursuant to which all third
parties under the Gas Project Assumed Contracts and Gas Project Assumed Leases
have waived or agreed to waive all breaches and default by Yolo Gasco under such
Gas Project Assumed Contracts and Gas Project Assumed Leases.
(vii) NEO Yolo shall have received the approval of this
Agreement and the transactions that is the subject hereof by the Board of
Directors of NEO Corporation, the sole shareholder of NEO Yolo.
(viii) NEO Yolo shall be satisfied with (a) the results of the
legal, accounting and business due diligence investigation of the Gas Assets and
the Gas Project which will be performed by its attorneys, accountants and
representatives, and the performance of the Gas Project prior to Closing and (b)
that all legal and administrative proceedings and actions related to the
approval of this Agreement and the transactions contemplated hereby have been
fully and completely satisfied in such manner as to vest in NEO Yolo good and
marketable title to the Gas Assets, free and clear of all liens, claims and
encumbrances upon the consummation of the transactions contemplated hereby.
(ix) NEO Yolo shall have received a bill of sale, in form and
substance reasonably satisfactory to NEO Yolo, duly executed by Yolo Gasco,
conveying all of Yolo Gasco's rights, title and interest in and to all of the
Gas Assets to NEO Yolo.
(x) The receipt by NEO Yolo of an agreement between NEO Yolo
and EMCON in which NEO Yolo shall have the right, at its sole option to retain
EMCON (i) to install additional landfill gas collection wells at the Yolo County
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Central Landfill at a cost not to exceed $3,250 per well for the period
commencing with the Closing Date and continuing for a period ending twelve
months from the Closing Date and (ii) to perform operations, maintenance and
repair services with respect to the landfill gas collection system at the Yolo
County Central Landfill at either a fixed price or at hourly rates, as set forth
in such agreement that are 75% of the normal fixed price or hourly rates
published and billed to other clients by EMCON for comparable services for the
period commencing on the Closing Date and continuing for a period ending twelve
months from the Closing Date.
(xi) NEO Yolo shall have received from Yolo Gasco such other
documents, instruments, writings and actions as may be reasonably requested by
NEO Yolo or its legal counsel to confirm to NEO Yolo marketable title to the Gas
Assets and the Gas Project, including any agreements with third parties other
than Seller or Buyer required for the Gas Project as contemplated herein.
(xii) The concurrent closing of the purchase by Buyer of the
Electric Assets and Electric Project from Buyer.
(b) The obligations of Yolo Gasco hereunder are subject to the
fulfillment to the reasonable satisfaction of Yolo Gasco of each of the
following conditions prior to or at the Closing:
(i) NEO Yolo shall have performed and complied with all
covenants and conditions, and shall have made all deliveries, required by this
Agreement to be performed or complied with by NEO Yolo prior to or at the
Closing and the representations and warranties of NEO Yolo shall be true and
accurate in all material respects as of the Closing.
(ii) On the Closing Date, neither Yolo Gasco or NEO Yolo shall
be a party to, nor will there otherwise be pending, any judicial, administrative
or other action, proceeding or investigation seeking to enjoin or restrain the
transactions contemplated hereby, and there will not be in effect any
injunction, writ, temporary restraining order or any order of any nature issued
by a court of competent jurisdiction directing that any transactions provided
for herein not be consummated as so provided.
(iii) The receipt from Seller of an agreement with Yolo Gasco
on terms and conditions and in a form satisfactory to Yolo Gasco providing for
(a) the settlement of outstanding claims between Seller and Yolo Gasco, and (b)
such other matters as maybe agreed upon between Seller and Yolo Gasco.
12. COVENANTS OF SELLER.
(a) Seller hereby covenants and agrees that, from and after the
date hereof and until the Closing Date:
(i) Seller shall provide full access to Buyer and its
representatives to all of its properties, books, contracts, commitments and
records concerning the Electric Assets and the Electric Project (other than
privileged attorney-client communications and privilege attorney work product
relating to the Electric Assets and the Electric Project) and shall furnish such
information relating thereto as Buyer may reasonably request.
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(ii) Seller will notify Buyer regarding any significant
developments, transactions and proposals relating to the Electric Project and
the Electric Assets, other than in the ordinary course of business as conducted
as of the date hereof. In particular, Seller will notify Buyer of any event
that, to Seller's actual knowledge, occurs prior to the Closing Date that (a)
would have required disclosure in a Schedule or Exhibit to this Agreement if it
had occurred prior to the date hereof or (b) could reasonably cause a failure of
any condition set forth in Section 10(a) hereof.
13. COVENANTS OF YOLO GASCO.
(a) Yolo Gasco hereby covenants and agrees that, from and after the
date hereof and until the Closing Date:
(i) Yolo Gasco shall provide full access to NEO (Y) Yolo and
its representatives to all of its properties, books, contracts, commitments and
records concerning the Gas Assets-and the Gas Project (other than privileged
attorney-client communications and privileged attorney work product relating to
the Gas Assets and the Gas Project) and shall furnish such information relating
thereto as NEO (Y) Yolo may reasonably request.
(ii) Yolo Gasco will notify NEO Yolo regarding any significant
developments, transactions and proposals relating to the Gas Project and the Gas
Assets, other than in the ordinary course of business as conducted as of the
date hereof. In particular, Yolo Gasco will notify, NEO Yolo of any event that,
to Yolo Gasco's actual knowledge, occurs prior to the Closing Date that (a)
would have required disclosure in a Schedule or Exhibit to this Agreement if it
had occurred prior to the date hereof, or (b) could reasonably cause a failure
of any condition set forth in Section Il(a) hereof.
14. TAXES; PREPAID ITEMS; PRORATIONS; EXPENSES.
(a) Buyer shall pay all income, franchise and other taxes and
charges, if any, arising out of Buyer's ownership of the Electric Assets or
operation of the Electric Project after the Closing Date. Except as may be
included in the Electric Project Assumed Liabilities or under assumption
agreements, assignment agreements or consents to assignment executed by Buyer in
connection herewith, Buyer shall not pay nor be responsible for any income,
franchise, sales, use and other taxes and charges, if any, arising out of
Seller's ownership of the Electric Assets or operations of the Electric Project
prior to and through the Closing Date.
(b) NEO Yolo shall pay all income, franchise and other taxes and
charges, if any, arising out of NEO Yolo's ownership of the Gas Assets or
operation of the Gas Project after the Closing Date. Except as may be included
in the Gas Project Assumed Liabilities or under assumption agreements,
assignment agreements or consents to assignment executed by NEO Yolo in
connection herewith, NEO Yolo shall not pay nor be responsible for any income,
franchise, sales, use or other taxes and charges, if any, arising out of Yolo
Gasco's ownership of the Gas Assets or operations of the Gas Project prior to
and through the Closing Date.
(c) Property taxes and the payment for easement rights to James
Fitzgerald Kelly and Thomas Ross Kelly as co-trustees of the Margaret Ross
Noonan Kelly Irrevocable Trust dated March 14, 1990 shall be prorated as of the
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Closing Date. All rights of Seller and Yolo Gasco to any refund or reduction in
assessment of taxes, whether existing before or after the Closing Date, shall be
transferred by Seller and (Y) Yolo Gasco to Buyer and NEO Yolo at the Closing
Date. Such prorations shall occur on the Closing Date or as soon thereafter as
is reasonable practicable.
(d) Each of the parties shall pay its own expenses in connection
with this Agreement and the transactions contemplated hereby. The expense of
furnishing documents required under this Agreement shall be borne by the parties
which is obligated to furnish the same.
15. ATTORNEYS; FEES. If any action be instituted between or among any
of the parties to enforce any of the provisions of this Agreement, the
prevailing party shall be entitled to recover any expenses incurred in
connection with such dispute, including reasonable accountants' and attorneys'
fees.
16. MISCELLANEOUS.
(a) Buyer and NEO Yolo each acknowledge that after the Closing
Seller will have no substantial assets. As a result thereof, any recovery of
monetary damages or relief against Seller for any breach of any representation
or covenant, or the inaccuracy of any warranty, under this Agreement would be
substantially unlikely and speculative. Notwithstanding the foregoing, Buyer and
NEO Yolo each hereby waives any claims it may have had against the officers,
directors and/or shareholders of Seller under "piercing the corporate veil" and
other similar theories for any such breach or inaccuracy.
(b) If the Closing Date has not occurred on or before December 31,
1996, any of the parties may terminate this Agreement by giving notice of its
election to terminate this Agreement to the other parties in accordance with the
provisions hereof.
(c) All Exhibits and Schedules referred to and attached to this
Agreement are hereby incorporated into and by this reference made apart of this
Agreement. Disclosure of information on any of the Schedules to this Agreement
shall be regarded for all purposes as disclosure of such information on any
other Schedule for which such information is relevant. This Agreement, including
all such Exhibits and Schedules, and any agreements and documents delivered or
entered into in connection herewith constitute the complete agreement of the
parties hereto and supersede all negotiations, prior agreements, or
understandings between or among the parties, and no term or provision of this
Agreement may be altered, amended or waived except by a writing signed by Buyer,
Seller, Yolo Gasco and NEO Yolo. The failure of any party hereto to enforce at
any time any provision of this Agreement shall not be construed as a waiver of
such provision, nor in any way to affect the validity of this Agreement or any
part hereof or the right of any such party thereafter to enforce each and every
such provision. No waiver of any breach of this Agreement shall constitute a
waiver of any other or subsequent breach or a continuing waiver.
(d) This Agreement shall be binding upon and inure to the benefit
of, and be enforceable by, the respective representatives, successors and
assigns of Buyer, Seller, Yolo Gasco and NEO Yolo.
(e) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
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(f) The subject headings of the Paragraphs of this Agreement are
included for purposes of convenience only and shall not affect the constructions
or interpretation of any of its provisions.
(g) Each party agrees to pay any brokerage commission or finder's
fee which may be due on account of the transactions contemplated by this
Agreement to any broker or finder employed or retained by it, and to indemnify
and hold the other party harmless from all liabilities, expenses (including
reasonable attorneys~ fees), damage and claims arising from any claim for such
commission or fees.
(h) All notices or other communications required or permitted
hereunder shall be in writing and shall be given by hand or by registered mail,
return receipt requested, addressed as follows:
If to Seller:
Yolo Energy Partners, Inc.
P.O. Box 1186
Frazier, CA 19355
Attn: Theodore H. Van Buren,
President
With a copy to:
Sommer & Barnard, PC
4000 Bank One Tower
111 Monument Circle
P.O. Box 44363
Indianapolis, IN 46244
Attn.' Robert J. Hicks, Esq.
If to Buyer:
Minnesota Methane LLC
c/o NEO Corporation
1221 Nicollet Mall, Suite 700
Minneapolis, MN 55403-2445
Attention: President
If to Yolo Gasco:
Yolo Landfill Gas Corporation
c/o Emcon
400 S. El Camino Real, Suite 1200
San Mateo, CA 94402
Attention: R. Michael Momboisse
Chief Financial Officer
If to Emcon:
Emcon
400. S. El Camino Real, Suite 1200
San Mateo, CA 94402
Attention: R. Michael Momboisse
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If to NEO Yolo:
Yolo NEO LLC
c/o NEO Corporation
1221 Nicollet Mall, Suite 700
Minneapolis, MN 55403-2445
Attention: President
(i) In case one or more provisions of this Agreement shall be
invalid, illegal or unenforceable in any respect under any applicable law, the
validity, legality and enforceability of the remaining provisions contained
herein shall not be affected or impaired thereby and the parties hereto shall
enter into an agreement amending such provision in such manner as to make it
valid, legal and enforceable while retaining the original intent of the parties
with respect to such provision.
(j) This Agreement shall be governed by and construed in accordance
with the laws of the State of California.
(k) Time is of the essence as to the provisions of this Agreement.
(l) This Agreement shall terminate and shall be of no further force
or effect upon mutual agreement of the parties. No termination of this Agreement
shall release, or be construed as releasing, any party hereto from any liability
or damage to the other party hereto arising out of, in connection with or
otherwise relating to, directly or indirectly, such party's material breach,
such party's material default or such party's failure in performance of any of
its material covenants, agreements, duties or obligations arising hereunder.
(m) Each party hereto intends that this Agreement shall not benefit
or create any right or cause of action in or on behalf of any person or entity
other than the parties hereto.
(n) This Agreement may be executed in counterparts, which
counterparts, taken collectively, shall constitute one and the same document.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
SELLER:
YOLO ENERGY PARTNERS, INC.
an Indiana Corporation
By: /s/Theodore H. Van Buren
--------------------------
Name: Theodore H. Van Buren
Title: President
BUYER:
Minnesota Methane LLC
a Wyoming limited liability company
By: /s/Peter D. Jones
---------------------------
Name: Peter D. Jones
Title: Director
YOLO LANDFILL GAS CORPORATION
a California Corporation
By: /s/R. Michael Momboisse
---------------------------
Name: R. Michael Momboisse
Title: CFO & Vice President Legal
YOLO NEO LLC
a Delaware Limited Liability Company
By: /s/Peter D. Jones
--------------------------
Name: Peter D. Jones
Title: Manager
EMCON
a California Corporation
By: /s/R. Michael Momboisse
--------------------------
Name: R. Michael Momboisse
Title: CFO & Vice President Legal
110
EXHIBIT 10.21
AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT ("Amendment") is made effective as of the 17th day of
January, 1997, by and between EMCON ("Borrower") and Union Bank of California,
N.A. ("Bank").
RECITALS
A. Borrower is currently indebted to Bank pursuant to the terms and
conditions of that certain Credit Agreement dated February 29,
1996 and amended on September 13, 1996 (the "Agreement");
B. Borrower and Bank have agreed to amend the Agreement to reflect
certain changes in the terms and conditions set forth therein.
C. All references to the "Prime Rate" in all the Loan Documents
shall be deemed to be references to the "Reference Rate".
"Reference Rate" shall mean the rate announced by Bank from time
to time at its corporate headquarters as its Reference Rate. The
Reference Rate is an index rate determined by Bank from time to
time as a means of pricing certain extensions of credit and is
neither directly tied to any external rate of interest or index
nor necessarily the lowest rate of interest charged by Bank at
any given time.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 5.2(b) of the Agreement the amount Forty-One
Million Dollars ($41,000,000) is deleted and the amount
Thirty Six Million Dollars ($36,000,000) is substituted
therefore.
2. Section 6.8 of the Agreement the amount Six Million
Dollars ($6,000,000) is deleted and the amount Three
Million Five Hundred Thousand Dollars ($3,500,000) is
substituted therefore.
3. Upon the sale of Columbia Analytical Services, Inc.,
under the terms of that Agreement between EMCON and
Columbia Analytical Services, Inc., EMCON will reduce
the outstanding term loan with the Bank by $3,000,000.
GENERAL AMENDMENT PROVISIONS
A. Except as specifically provided herein, all terms and conditions of
the Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Agreement shall have the same
meaning when used in this Amendment, and this Amendment and the
Agreement shall be read together as one document. Where any provisions
of the Agreement amended by this Amendment appear in a promissory note
tied to the Agreement, the same provisions in said promissory note
shall be deemed likewise amended.
B. Borrower hereby confirms all representations and warranties
contained in the Agreement and reaffirms all covenants set forth
therein. Further, Borrower certifies that, as of the date of this
Amendment, there exists no Event of Default as defined in the
Agreement, nor any condition, act or event which with the giving of
notice or the passage of time or both would constitute an Event of
Default.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to
become effective as of the date and year first written above.
Union Bank of California, N.A. EMCON
By: /s/ William Hinch By: /s/ R. Michael Momboisse
-------------------- ------------------------
William Hinch R. Michael Momboisse
Title: Vice President Title: Chief Financial Officer &
Vice President Legal
Dated: 1/28/97
111
EXHIBIT 10.22
ACQUISITION AGREEMENT
THIS AGREEMENT made and entered into as of this 6th day of March 1997,
by and between EMCON, a California corporation ("EMCON"), and its wholly-owned
subsidiary, MONTEREY LANDFILL GAS CORPORATION, a California corporation (the
"Seller"), both having an address at 400 S. El Camino Real, Suite 1200, San
Mateo, California 94402, and BIOMASS ENERGY PARTNERS V, L.P., a Delaware limited
partnership having an office at 40 Tower Lane, Avon, Connecticut 06001 (the
"Buyer").
W I T N E S S E T H :
WHEREAS, the Seller is party to those certain agreements described on
Exhibit A annexed hereto (the "Project Agreements"), pursuant to which the
Seller was granted the exclusive lease of all rights to the Landfill Gas which
is produced within the Monterey Peninsula Landfill located north of the Town of
Marina, County of Monterey, State of California, as shown on the attached
Exhibit B (hereinafter referred to as the "Landfill"); and
WHEREAS, the District has constructed and installed certain Landfill
Gas recovery wells and other equipment in the Landfill and further intends to
construct additional wells and equipment in the Landfill and all of such wells
and equipment are used or are to be used in the Landfill Gas Recovery Project
conducted at the Landfill under the terms of the Project Documents and are owned
by the Seller; and
WHEREAS, the Seller desires to sell to the Buyer and the Buyer desires
to acquire from the Seller for the consideration hereinafter set forth, the sole
and exclusive right and privilege to drill and recover all Landfill Gas at the
Landfill and all other related rights covered by the Project Documents, subject
to the terms and conditions of the Project Documents and to the provisions
hereof, and the parties further desire that the Seller shall sell to the Buyer
all of the Seller's interest in the wells and equipment used in the Landfill Gas
Recovery Project.
NOW, THEREFORE, in consideration, of the performance and observance of
the mutual covenants, terms and conditions herein contained, the parties agree
as follows:
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1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Agreements" - this Agreement, the Assignment, the Bill of Sale
and any other agreements between Buyer and Seller relating hereto.
(b) "Amendment to and Restatement of Gas Sales Contract" Amendment
and Restatement dated December 22, 1986, as amended, originally between Marina
Landfill Gas Corporation and Monterey Landfill Gas Corporation.
(c) "Amendments" - The Third Lease Amendment and Amendment No. 2 to
Amended and Restated Gas Sales Contract, each as more particularly described on
Exhibit A annexed hereto.
(d) "Assignment" - the assignment of Seller's rights in the Project
Documents, in the form annexed hereto as Exhibit E, and in form suitable for
recording.
(e) "Bill of Sale" - the bill of sale in the form annexed hereto as
Exhibit G.
(f) "Code" - the Internal Revenue Code of 1986, as amended.
(g) "Construction Contract" - defined as in Section 5(c).
(h) "District" - Monterey Regional Waste Management District, the
owner and operator of the Landfill.
(i) "Equipment" - the Landfill Gas recovery wells and other
equipment now used and to be used in connection with the Landfill Gas Recovery
Project at the Landfill and more particularly described in the Project
Documents.
(j) "Expansion Area" - Module 3 and the "Wet Weather" area as
described on Exhibit B annexed hereto.
(k) "Landfill" - Monterey Peninsula Landfill located in Monterey,
California, as shown on Exhibit B annexed hereto.
(l) "Landfill Gas" - methane gas and other gases produced by the
anaerobic decomposition of matter within the Landfill.
(m) "Landfill Gas Lease" - the Lease, dated June, 1983, as amended,
originally entered into between Monterey Peninsula Garbage and Refuse Disposal
District and Marina Landfill Gas Corporation.
(n) "Landfill Gas Recovery Project" - the project to recover
Landfill Gas now and to be undertaken at the Landfill, utilizing the Project
Properties.
(o) "Permits" - the permits and licenses relating to the Landfill
Gas Recovery Project as more fully described in Section 2(a)(iv).
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(p) "Project Documents" - The Landfill Gas Lease, the Amendment to
and Restatement of Gas Sales Contract and the Amendments, each as more
particularly described as Exhibit A annexed hereto.
(q) "Project Properties" - the assets described in Section 2(a).
(r) "Section 29 Credits" - the credits against income tax liability
provided for the production and sale of fuel from a nonconventional source under
Section 29 of the Code.
(s) "User" - Pacific Gas and Electric Company.
2. SALE AND ASSIGNMENT.
(a) Subject to the payment by Buyer of the purchase price of
$1,150,000, Seller hereby sells, transfers and assigns unto the Buyer, its
successors and assigns, all of Seller's right, title and interest in
(i) the Project Documents and the Landfill Gas Recovery
Project, including, without limitation, all easements, rights of way, and
appurtenances and all rights to drill for Landfill Gas in all sections of the
Landfill, whether developed now or hereafter;
(ii) the Landfill Gas and the Landfill Gas reserves at, in and
under the Landfill;
(iii) the Equipment; and
(iv) all other tangible and intangible personal property,
interests and rights relating to the Landfill Gas Recovery Project, including,
without limitation, any use, occupancy, water, environmental, discharge,
construction and operating permits or licenses (the "Permits"), to the extent
assignable.
All the foregoing are referred to herein as the "Project
Properties."
All of Buyer's rights shall be subject to the rights of
the District under the Project Documents.
(b) As a material condition hereof and covenant of the Buyer, the
Buyer agrees to be bound by all the terms, covenants, obligations and conditions
of the Project Documents.
(c) The Seller has received from the Buyer simultaneously herewith
all of the following duly executed:
(i) the Assignment; and
(ii) the Bill of Sale.
(d) The Buyer has received from the Seller simultaneously herewith:
(i) the Assignment, duly executed by the Seller and duly
consented to by the District;
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<PAGE>
(ii) the Bill of Sale;
(iii) such other instruments of transfer and consent as shall
be necessary to transfer to Buyer the rights to the Project Properties.
3. ALLOCATION OF PURCHASE PRICE. The purchase price set forth in
section 2(a) shall be allocated as set forth in Exhibit D annexed hereto. The
Buyer and the Seller shall report the transfer of project properties in
accordance with the provisions of Section 1060 of the Internal Revenue Code of
1986, as amended and the regulations thereunder.
4. PAYMENT.
(a) In consideration for the Seller's agreements hereunder, the
Buyer shall pay an aggregate of $1,150,000, payable as follows:
(i) The Buyer has heretofore paid to the Seller the sum of
$7,500.
(ii) The Buyer has paid to the Seller the sum of $942,500 in
immediately available funds on the date hereof; and
(iii) The Buyer shall pay to Seller the sum of $200,000, in
immediately available funds, upon the first to occur of the following events,
with interest at the rate of 9% per annum from the date of this Agreement
through the date of payment, payable at the date of payment:
(x) December 31, 1997, if no changes to Section 29 of the
Code materially adverse to Buyer with respect to the Landfill Gas
Recovery Project shall have been enacted into law prior to that date;
or, if enacted, shall have been repealed prior to that date; or
(y) the date upon which an amendment to Section 29(g)(1)(A) of
the Code shall have been enacted into law; provided that the July 1, 1998 date
in such Section shall be changed to a date no earlier than December 31, 1997 and
no other amendments to Section 29 of the Code materially adverse to the Buyer
with respect to the Landfill Gas Recovery Project shall have been enacted into
law; or
(z) the date upon which the next Federal budget shall be
enacted into law; provided that no changes to Section 29 of the Code materially
adverse to the Buyer with respect to the Landfill Gas Recovery Project shall
have been enacted into law in connection with the enactment of such budget.
If none of the above events shall occur on or before December 31, 1997, then,
upon such date, the obligation to make the $200,000 payment along with any
accrued interest shall terminate and be of no further force and effect and the
aggregate consideration shall be thereupon reduced automatically to $950,000.
5. EMCON'S AND SELLER'S WARRANTIES. EMCON and the Seller jointly
represent and warrant to the Buyer on and as of the date hereof:
(a) The Seller is a corporation duly and validly organized and
existing in good standing under the laws of the state of its organization; the
115
<PAGE>
Seller has all necessary power and authority to own its properties and carry on
its business in the places where the ownership of such properties and the
conduct of such business so requires; the Seller has the necessary power and
authority to enter into the Agreements and to carry out the transactions
contemplated hereunder and thereunder; the execution and delivery of the
Agreements by the Seller and the performance of its obligations hereunder and
thereunder, including the conveyance of its rights under the Project Documents
and the acceptance of the purchase price in exchange therefor and the sale of
the Project Properties, have been duly authorized by all necessary action of the
Seller and do not violate or conflict with (i) any provision of the Articles of
Incorporation or By-Laws of the Seller, (ii) any law or any order, writ,
injunction, decree, rule or regulation of any court, administrative agency or
any other governmental authority, or (iii) any agreement to which the Seller is
a party or by which the Seller's interest in the Project Properties is bound;
the Seller is not subject to any restriction or agreement which (with or without
the giving of notice or passage of time or both) prohibits or would be violated
by, and the Seller has obtained all of the consents of the parties necessary
for, the consummation of the transactions contemplated hereby; and the
Agreements constitute, and when executed and delivered will constitute, the
valid and binding obligations of the Seller enforceable in accordance with their
terms.
(b) The Seller is the sole owner of the leasehold estate and
Landfill Gas rights created or granted by the Project Documents all of which
upon transfer to Buyer shall be free and clear of all liens, claims and
encumbrances of any kind or nature whatsoever. With respect to the Equipment,
the Seller has not transferred any interest in the Equipment, nor made or
suffered any lien, claim or encumbrance, to or by any person.
(c) The District has entered into a Construction Contract (the
"Construction Contract") with O.W.T. Construction Company effective as of
December 31, 1996 to build an addition to the Landfill Gas Recovery Project in
the Expansion Area. A true and complete copy of this Construction Contract is
attached to this Agreement as Exhibit C. The Construction Contract is in full
force and effect, is valid and subsisting, and no party is in default
thereunder. The Project Documents, including, without limitation, the
Amendments, and the Construction Contract, are valid and subsisting and in full
force and effect, no party is in default thereunder, and the Project Documents
grant all rights necessary for the conduct of the Landfill Gas Recovery Project
upon the lands described therein.
(d) The Seller has good and lawful right to assign rights under the
Project Documents and to assign the Landfill Gas lying in and under the Landfill
to the Buyer as done in the Assignment and to sell the Equipment as is done by
the Bill of Sale.
(e) The Buyer shall have the exclusive right to recover and remove
the Landfill Gas in and under the Landfill (including any areas of the Landfills
not yet developed), subject to the terms of the Project Documents.
(f) The Seller has granted to the Buyer its entire economic
interest in the Landfill Gas in the Landfill subject to the terms hereof.
(g) The Project Properties will be kept free from any adverse lien,
security interest or encumbrance attributable to the acts of the Seller and the
Seller warrants specially its title to the leasehold estate granted herein and
hereby subject to the terms of the Project Documents.
(h) All income, sales, use, value added, or other taxes, licenses,
tolls, inspection or other fees, permits or certificates ("Imposts") which were
or may be required to be paid or obtained in connection with the Seller and the
Seller's business operations have been, or when due will promptly be, paid in
full or obtained.
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<PAGE>
(i) There is no action, suit or proceeding pending or threatened
against the Seller or any other party before or by any court, administrative
agency or other governmental authority affecting the Project Properties, the
Landfill Gas Recovery Project or the transactions contemplated by the
Agreements. In connection with its operation of the Landfill Gas Recovery
Project, the Seller has complied with all applicable laws, statutes,
regulations, ordinances and rules, including those relating to the environment
and the Seller and the District have secured all necessary Permits, copies of
which have been heretofore furnished to the Buyer.
(j) The Seller has furnished or will, upon request, furnish to the
Buyer a true, correct and complete copy of the Project Documents, the
Amendments, the agreement with the User relating to the sale by the Seller to
the User of electricity and of each and every material document delivered to or
by the Seller, as the case may be, in connection with the purchase of the
Project Properties by Seller.
(k) To the best of Seller's knowledge, the Equipment is in good
working order and operating condition.
(l) The gas flow projections prepared by John Pacey, dated December
12, 1996, attached to this Agreement as Exhibit F, represent Seller's best
estimate of the flow of Landfill Gas to be produced at the Landfill Gas Recovery
Project from January 1, 1997 to 2020. Buyer acknowledges that projections and
the related representations herein are not to be construed as a guarantee of the
actual flow of Landfill Gas to be provided at the Landfill Gas Recovery Project
after the closing. The attached Exhibit H represents Seller's accurate statement
of income received from the sale of LFG to the District for the period indicated
in Exhibit H. In addition, the Section 29 Credits generated by the Landfill Gas
Recovery Project for the period January 1, 1994 through November 30, 1996 are as
follows:
1994 - 12 months - $126,588
1995 - 12 months - $173,562
1996 - 11 months - $120,621
(m) In connection with the construction, fuel supply, power
generation and transmission and other operations and processes relating to the
Landfill Gas Recovery Project, no release, emission, or discharge into the
environment of petroleum or petroleum products, or hazardous substances as
defined under the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, 42 U.S.C. ss.9601 et seq., or hazardous waste as defined
under the Solid Waste Disposal Act, 42 U.S.C. ss.6901 et seq., or air pollutants
as defined under the Clean Air Act, 42 U.S.C. ss.7401 et seq., or toxic
pollutants as defined under the Clean Water Act, 33 U.S.C. ss.1251 et seq., has,
to the best of the Seller's or the Seller's Affiliate's knowledge and after
inquiry, occurred, is presently occurring, or is expected to occur other than
federally permitted releases or those equal to or less than reportable
quantities, or other than releases, emissions or discharges that do not or would
not exceed applicable standards or limitations under any other applicable
federal, state, or local laws or regulations. The Landfill Gas Recovery Project,
the Project Properties, and the Seller's use and proposed use thereof are not in
violation of any environmental or occupational safety and health laws, or other
applicable law now in effect, the effect of which violation, in any case or in
the aggregate, would materially adversely affect the Landfill Gas Recovery
Project or the Seller's use thereof, or which, in any case or in the aggregate,
would impose a material liability on or jeopardize the interest of the Seller in
the Landfill Gas Recovery Project. Seller has no knowledge of any past or
existing violations of any such laws, ordinances or regulations issued by any
governmental authority.
117
<PAGE>
(n) Except with respect to the Equipment, as to which Seller makes
no representation, there are no liabilities or obligations affecting the Project
Properties or the Landfill Gas Recovery Project, except as specifically set
forth in this Agreement or the Project Documents.
(o) To the best of their knowledge, neither EMCON nor Seller is
aware of any fact or circumstance through the date hereof that would prevent the
Landfill Gas to be recovered from the Landfill Gas Recovery Project to be
eligible for Section 29 Credits at least through December 31, 2002. For purposes
hereof, the liability of EMCON and Seller for a breach of this warranty shall in
the aggregate not exceed the total purchase price actually paid to Seller
pursuant to Section 4 above.
6. BUYER'S WARRANTIES. the Buyer represents and warrants to the Seller:
(a) The Buyer is a limited partnership duly and validly organized
and existing in good standing under the laws of the state of Delaware; the Buyer
has all power and authority to own its properties and carry on its business in
the places where the ownership of such properties and the conduct of such
business so requires; the Buyer has the power and authority to enter into the
Agreements, and to carry out the transactions contemplated hereunder and
thereunder; the execution and delivery of the Agreements by the Buyer and the
performance of its obligations hereunder and thereunder, including the payment
of the purchase price in exchange for the assignment of the Seller's rights
under the Project Documents, have been duly authorized by all necessary action
of the Buyer and do not violate or conflict with (i) any provision of the
Buyer's limited partnership agreement or certificate of limited partnership,
(ii) any law, or any order, writ, injunction, decree, rule or regulation of any
court, administrative agency or any other governmental authority, or (iii) any
agreement to which the Buyer is a party or by which the Buyer is bound; the
Buyer is not subject to any restriction or agreement which (with or without the
giving of notice or the passage of time or both) prohibits or would be violated
by, and the Buyer has obtained all of the consents of third parties necessary
for, the consummation of the transactions contemplated hereby; and the
Agreements constitute and when executed will constitute, the valid and binding
obligations of the Buyer enforceable in accordance with their terms.
7. INDEMNIFICATION BY SELLER.
(a) The Seller hereby indemnifies and holds the Buyer harmless from
and against any and all loss, cost, damage, injury or expense (including,
without limitation, court costs and reasonable attorneys' fees) wheresoever and
howsoever arising which the Buyer or its officers, directors, shareholders,
agents, employees, successors or assigns may incur by reason of any breach by
the Seller of any of the warranties or representations by, or obligations of,
the Seller set forth in this Agreement, up to and including the date of this
Agreement. The Seller further indemnifies and holds the Buyer harmless from and
against any loss sustained or reasonable expense incurred by the Buyer as the
direct result of, or arising out of, the imposition on the Equipment of any tax
lien, or the foreclosure of such lien, by virtue of the Seller's failure to pay,
or the underpayment of, any tax required to be paid by the Seller pursuant to
this Agreement.
(b) Without limiting the generality of the provisions of Section
7(a) above, the Seller further indemnifies and holds the Buyer harmless from any
loss, liability, claim, damage or expense resulting from any defect of title as
specially warranted herein and further agrees to assume and bear the reasonable
expense of the defense of any action brought against the Buyer as a result of
118
<PAGE>
such title defect; and the Seller covenants that it will take no action or omit
to take any action which would result in the amendment, modification,
cancellation or termination either of the Project Documents unless such
amendment, modification, cancellation or termination shall not diminish the
Buyer's rights under this Agreement. If the Seller fails to perform any of such
covenants and agreements within a reasonable time after written notice thereof,
the Buyer shall have the right to make the same and to perform such obligation
and cause Seller to reimburse Buyer for its cost in so doing.
8. INDEMNIFICATION BY BUYER. The Buyer hereby indemnifies and holds the
Seller harmless from and against any and all loss, cost, damage, injury or
expense (including, without limitation, court costs and reasonable attorneys'
fees) wheresoever and howsoever arising which the Seller or its officers, agents
or employees may incur by reason of any breach by the Buyer of any of the
warranties or representations by, or obligations of, the Buyer set forth in this
agreement. The Buyer further indemnifies and holds the Seller harmless from and
against any loss incurred by the Seller as the direct result of, or arising out
of, the imposition on the Equipment of any tax liens, or the foreclosure of such
lien, by virtue of the Buyer's failure to pay, or the Buyer's underpayment of,
any federal, state or local income tax liability, franchise tax, capital tax,
value added tax or other taxes or fees.
9. NOTICES.
Any notice, consent, communication or delivery which is permitted
or required hereunder shall be duly and properly given if in writing and either
delivered personally to the person to whom it is authorized to be given or if
sent by nationally recognized over-night courier (including express mail) or
registered or certified mail, return receipt requested, postage prepaid, as
follows:
If to the Seller:
Monterey Landfill Gas Corporation
c/o EMCON
400 S. El Camino Real, Suite 1200
San Mateo, California 94402
Attention: R. Michael Momboisse, Esq.
Telecopy Number: 415-375-0763
If to EMCON:
EMCON
400 S. El Camino Real, Suite 1200
San Mateo, California 94402
Attention: R. Michael Momboisse, Esq.
Telecopy Number: 415-375-0763
If to the Buyer:
119
<PAGE>
Biomass Energy Partners V, L.P.
c/o ZFC Energy, Inc.
40 Tower Lane
Avon, Connecticut 06001
Attention: Mr. Martin F. Laughlin
Telecopy Number: (860) 677-4036
With a copy to:
Newman Tannenbaum Helpern Syracuse & Hirschtritt LLP
900 Third Avenue
New York, New York 10022
Attention: Stephen Rosenberg, Esq.
Telecopy Number: (212) 371-1084
Changes of address or parties to be notified shall be accomplished in
like manner.
10. BEST EFFORTS; FURTHER ASSURANCES. Each of the Buyer and the Seller
agree to use their best efforts in good faith to consummate the transactions
provided for and contemplated by this Agreement. Each of the Buyer and the
Seller further agree to execute and deliver to the other party such documents or
instruments as shall be reasonably requested by such other party in order to
carry out the transactions contemplated by this agreement.
11. MISCELLANEOUS.
(a) SURVIVAL. The covenants, agreements, representations and
warranties made herein of each of the Seller and the Buyer shall survive the
execution and delivery of this Agreement, the other Agreements, and the
consummation of the transactions described herein or therein.
(b) AMENDMENTS. This Agreement may not be altered, modified, or
amended except by a writing signed by the parties.
(c) SUCCESSORS. The rights and obligations of the parties hereto
shall inure to the benefit of, and be binding and enforceable upon, their
respective legal representatives, successors, assigns, and transferees. Without
limiting the foregoing, the Buyer shall have the right to assign all of its
rights and obligations under this Agreement to a limited partnership of which
the Buyer is the general partner. Upon any such assignment, the Buyer shall give
notice thereof to the Seller.
(d) GOVERNING LAW. This Agreement shall be governed by, and
interpreted under, the laws of the State of California applicable to contracts
made and to be performed therein, without giving effect to the principles of
conflict of laws.
(e) GENDER. All terms and words used in this Agreement, regardless
of the number or gender in which they are used, shall be deemed to include any
other number and any other gender, as the context may require.
(f) CAPTIONS. Captions used herein are inserted for reference
purposes only and shall not affect the interpretation or construction of this
Agreement.
120
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(g) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
121
<PAGE>
IN WITNESS WHEREOF, the Buyer and the Seller have executed this
Agreement on the date first above written.
SELLER:
MONTEREY LANDFILL GAS CORPORATION
By: /s/ R. Michael Momboisse
--------------------------
Name: R. Michael Momboisse
Title: Chief Financial Officer
Vice President - Legal
BUYER:
BIOMASS ENERGY PARTNERS V, L.P.
By: ZFC Energy, Inc., General Partner
By: /s/ Martin F. Laughlin
------------------------
Name: Martin F. Laughlin
Title: Vice President
EMCON:
EMCON, a California corporation
By: /s/ R. Michael Momboisse
-------------------------
R. Michael Momboisse
Chief Financial Officer
Vice President -Legal
122
EXHIBIT 10.23
AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT ("Amendment") is made effective as of the 27th day of
March, 1997, by and between EMCON ("Borrower") and Union Bank of California,
N.A. ("Bank").
RECITALS
A. Borrower is currently indebted to Bank pursuant to the terms and
conditions of that certain Credit Agreement dated February 29,
1996 and amended on September 13, 1996 and January 27, 1997 (the
"Agreement");
B. Borrower and Bank have agreed to amend the Agreement to reflect
certain changes in the terms and conditions set forth therein.
C. All references to the "Prime Rate" in all the Loan Documents
shall be deemed to be references to the "Reference Rate".
"Reference Rate" shall mean the rate announced by Bank from time
to time at its corporate headquarters as its Reference Rate. The
Reference Rate is an index rate determined by Bank from time to
time as a means of pricing certain extensions of credit and is
neither directly tied to any external rate of interest or index
nor necessarily the lowest rate of interest charged by Bank at
any given time.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 6.3 of the Agreement the first and the second lines are
to read as follows:
Pay any dividends except those payable solely in
Borrower's capital stock, provided however, that
Keystone Recovery, Inc. may pay dividends
according to the Keystone Recovery, Inc.
Distribution Policy in effect at the time of this
Amendment, so long as the aggregate annual
distribution does not exceed Fifty Thousand
Dollars ($50,000);
GENERAL AMENDMENT PROVISIONS
A. Except as specifically provided herein, all terms and conditions of
the Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Agreement shall have the same
meaning when used in this Amendment, and this Amendment and the
Agreement shall be read together as one document. Where any provisions
of the Agreement amended by this Amendment appear in a promissory note
tied to the Agreement, the same provisions in said promissory note
shall be deemed likewise amended.
B. Borrower hereby confirms all representations and warranties
contained in the Agreement and reaffirms all covenants set forth
therein. Further, Borrower certifies that, as of the date of this
Amendment, there exists no Event of Default as defined in the
Agreement, nor any condition, act or event which with the giving of
notice or the passage of time or both would constitute an Event of
Default.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to
become effective as of the date and year first written above.
Union Bank of California, N.A. EMCON
By: /s/ Susan M. Cunliffe By: /s/ R. Michael Momboisse
--------------------- -------------------------
Susan M. Cunliffe R. Michael Momboisse
Title: Vice President Title: Chief Financial Officer
and Vice President- Legal
Dated: 3/27/97
123
EXHIBIT 11.1
EMCON
COMPUTATION OF INCOME (LOSS) PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
Twelve months ended
December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net income (loss) ......................................................... $(10,091) $ 1,786 $(1,917)
Pro forma interest income related to modified
treasury stock method ................................................ N/A 221 N/A
-------- ------- -------
Adjusted net income (loss) ................................................ $(10,091) $ 2,007 $(1,917)
======== ======= =======
Weighted average number of common shares outstanding
during the period ......................................................... 8,485 8,274 7,919
Common equivalent shares from outstanding stock options using the
modified treasury stock method........................................ N/A 687 N/A
Incremental shares to reflect full dilution .......................... N/A 0 N/A
-------- ------- -------
Total shares for purposes of calculating diluted
income (loss) per share (1) ............................................... 8,485 8,961 7,919
======== ======= =======
Primary income (loss) per share ........................................... $ (1.19) $ 0.22 $ (0.24)
======== ======= =======
Fully diluted income (loss) per share ..................................... $ (1.19) $ 0.22 $ (0.24)
======== ======= =======
</TABLE>
- --------------------------------------------------------
(1) This calculation is submitted in accordance with Regulation S-K
Item 601(b)(11) although not required by footnote 2 to paragraph 14 to
APB opinion No. 15, because it results in dilution of less than 3%.
124
EXHIBIT 21.1
SIGNIFICANT SUBSIDIARIES OF REGISTRANT
NAME PLACE OF ORGANIZATION
- ---- --------------------
Columbia Analytical Services, Inc. Washington
EMCON Alaska, Inc. Alaska
ET Environmental Corporation Delaware
(50/50 Joint Venture with
The Turner Construction Company)
Organic Waste Technologies, Inc. Delaware
125
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 Nos. 33-83060, 33-61369 and 33-42186) pertaining
to the EMCON 1986 Incentive Stock Option and 1988 Stock Option Plans,
the EMCON Employee Stock Purchase Plan and the EMCON Restricted Stock
Plan of our report dated February 6, 1997, with respect to the
consolidated financial statements and schedule of EMCON included in
the Annual Report (Form 10-K) for the year ended December 31, 1996.
San Francisco, California
March 26, 1997
126
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets, consolidated statements of income, and consolidated
statements of cash flows included in the Company's Form 10-K for the twelve
month period ended December 31, 1996, and is qualified in its entirety by
reference to such financial statements and the notes thereto.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-3-1997
<PERIOD-START> DEC-31-1995
<PERIOD-END> JAN-3-1997
<EXCHANGE-RATE> 1
<CASH> 5,331,000
<SECURITIES> 0
<RECEIVABLES> 33,811,000
<ALLOWANCES> 951,000
<INVENTORY> 0
<CURRENT-ASSETS> 52,902,000
<PP&E> 30,023,000
<DEPRECIATION> 15,301,000
<TOTAL-ASSETS> 90,912,000
<CURRENT-LIABILITIES> 18,301,000
<BONDS> 0
<COMMON> 42,001,000
0
0
<OTHER-SE> (16,000)
<TOTAL-LIABILITY-AND-EQUITY> 90,912,000
<SALES> 117,705,000
<TOTAL-REVENUES> 117,705,000
<CGS> 52,608,000
<TOTAL-COSTS> 52,608,000
<OTHER-EXPENSES> 75,989,000
<LOSS-PROVISION> 1,023,000
<INTEREST-EXPENSE> 1,112,000
<INCOME-PRETAX> (13,027,000)
<INCOME-TAX> (2,936,000)
<INCOME-CONTINUING> (10,091,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,091,000)
<EPS-PRIMARY> (1.19)
<EPS-DILUTED> (1.19)
</TABLE>
