UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-16225
EMCON
(Exact name of Registrant as specified in its charter)
California 94-1738964
---------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1200
San Mateo, California 94402
- ---------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (650) 375-1522
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
8,340,669 shares of Common Stock Issued and Outstanding as of May 10, 1999.
1
<PAGE>
EMCON
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED APRIL 2, 1999
Page
Number
------
FACING SHEET..................................................... 1
TABLE OF CONTENTS................................................ 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998.......... 3
Consolidated Statements of Operations -
Three months ended March 31, 1999 and 1998.... 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1999 and 1998.... 5
Notes to Consolidated Financial Statements.... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 12
PART II. OTHER INFORMATION.................................... 15
Signatures...................................................... 16
Index to Exhibits............................................... 17
2
<PAGE>
<TABLE>
<CAPTION>
EMCON
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1999 1998
(In thousands, except share amounts) (Unaudited) (Audited)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,048 $ 2,677
Accounts receivable:
Billed accounts receivable, net of allowance for doubtful accounts
of $794 and $737 at March 31, 1999 and December 31, 1998 respectively 25,368 32,683
Unbilled accounts receivable, net of allowance for doubtful accounts
of $326 and $801 at March 31, 1999 and December 31, 1998, respectively 6,518 6,664
Costs and estimated earnings in excess of billings on
uncompleted contracts 3,584 2,511
Prepaid expenses and other current assets 4,275 2,876
Inventory 3,145 2,630
Deferred taxes, current portion 3,434 3,434
------- -------
Total Current Assets 47,372 53,475
Net property and equipment, at cost 16,707 16,519
Notes receivable 2,623 2,724
Cash surrender value of insurance policies 4,074 3,466
Other assets 3,281 2,971
Deferred tax assets 1,032 1,032
Goodwill, net of amortization 14,845 14,850
Other intangible assets, net of amortization 835 852
-------- ---------
Total Assets $90,769 $95,889
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable - short term line of credit $ 2,712 $ --
Accounts payable 6,300 10,711
Accrued payroll and related benefits 4,913 5,335
Other accrued liabilities 2,737 4,347
Billings in excess of costs and estimated earnings
on uncompleted contracts 2,188 2,598
Long-term obligations due within one year 1,969 2,177
------- ---------
Total Current Liabilities 20,819 25,168
Long-term debt 8,685 9,400
Other noncurrent obligations 2,443 2,184
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;
8,339,869 and 8,315,399 shares issued and outstanding at
March 31, 1999 and December 31, 1998, respectively 41,711 41,628
Retained earnings 17,111 17,509
------- -------
Total Shareholders' Equity 58,822 59,137
------ -------
Total Liabilities and Shareholders' Equity $90,769 $95,889
======= =======
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
EMCON
CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------
Three months ended
March 31,
(Unaudited)
----------------------------------
(In thousands, except per share amounts) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross revenue $30,226 $28,779
Outside services at cost 4,058 2,957
------- -------
Net revenue $26,168 25,822
Costs and expenses:
Direct expenses 13,477 13,822
Indirect expenses 13,239 11,857
------- -------
Income (loss) from operations (548) 143
Interest income (92) (168)
Interest expense 337 293
Equity in income of affiliates (41) (15)
Minority interest (income) expense 11 (22)
------- -------
Income (loss) before provision (benefit) for income taxes (763) 55
Provision (benefit) for income taxes (378) 35
------- -------
Net income (loss) $ (385) $ 20
======= =======
Basic earnings (loss) per share $ (0.05) $ 0.00
======= =======
Diluted earnings per share N/A $ 0.00
======= =======
Shares used in computing basic earnings (loss) per share 8,318 8,573
======= =======
Shares used in computing diluted earnings per share N/A 8,827
------- =======
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
EMCON
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------
Three months ended
March 31,
(Unaudited)
-------------------------------
Increase (decrease) in cash and cash equivalents (in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ (385) $ 20
Adjustments to reconcile net income to net cash provided by (used for) operating
activities:
Depreciation 963 967
Amortization 177 153
Bad debt expense 99 73
Loss (gain) on sale/disposal of property and equipment 33 (257)
Increase in salary continuation plan 43 40
Changes in operating assets and liabilities:
Accounts receivable 7,362 5,183
Costs and estimated earnings in excess of billings on uncompleted contracts (1,073) (1,523)
Inventory (515) (465)
Prepaid expenses and other assets (1,442) 252
Notes receivable 101 385
Cash surrender value, insurance policies (608) (20)
Other assets (310) (268)
Notes payable - short term revolver 2,712 --
Accounts payable (4,486) (3,173)
Accrued payroll and related benefits (422) 306
Billings in excess of costs and estimated earnings on uncompleted projects (410) 53
Other accrued liabilities (1,351) 275
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 488 2,001
- -------------------------------------------------------------------------------------------------------------------
Cash flow from investing activities:
Additions to property and equipment (1,219) (395)
Additional payout related to acquisitions (5) --
Proceeds from sale of property and equipment 35 346
- -------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (1,189) (49)
- -------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Payments of current and long term portion of debt (923) (706)
Issuance of common stock for cash, net of cancellations 8 9
Dividend payments (13) (5)
- -------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (928) (702)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,629) 1,250
Cash and cash equivalents, beginning of year 2,677 6,106
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $1,048 $7,356
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes.
</TABLE>
5
<PAGE>
EMCON
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries after elimination of all significant
intercompany accounts and transactions.
While the financial information is unaudited, the statements in this report
reflect all adjustments, which are normal and recurring, that are necessary
for a fair presentation of the results of operations for the interim
periods covered and of the financial condition of the Company at the dates
of the consolidated balance sheets. The operating results for the interim
periods presented are not necessarily indicative of performance for the
entire year.
These consolidated financial statements and notes should be read in
conjunction with the Company's consolidated financial statements as of and
for the fiscal year ended December 31, 1998.
2. Restructuring Charges
In the fourth quarter of 1996, senior management reviewed the Company's
operational and administrative functions for the purpose of further
improving the Company's competitiveness and overall profitability. Based on
this review, the Company's Board of Directors approved a strategic
restructuring plan to reposition the Company to fully exploit its core
strengths in engineering, design, construction, operations and maintenance.
The plan included closure or downsizing of underperforming offices,
write-off of employment contracts for former employees no longer
participating in the Company's affairs and employee severance. During the
quarter ended March 31, 1999, $16,000 relating to the restructuring were
incurred and charged against the established reserve. At March 31, 1999,
$377,000 of accrued restructuring costs have been incurred and $265,000
remains in other accrued liabilities, which includes present value
adjustments during 1999 of $6,000.
3. Acquisition
On December 4, 1998, Organic Waste Technologies, Inc. ("OWT"), a
wholly-owned subsidiary of EMCON, acquired all of the outstanding capital
stock of Western Industrial Resources Corporation ("WI"), an industrial
maintenance outsourcing firm based in Arizona. The Company purchased WI for
$155,000 in cash and assumed liabilities in excess of assets acquired of
$103,000. The transaction was accounted for as a purchase. Goodwill of
approximately $258,000 is being amortized over ten years using the
straight-line method. Accumulated amortization at March 31, 1999, was
approximately $7,000. Additional consideration may be paid for the purchase
of WI subject to the achievement of predetermined operating performance
goals over the next three years. The acquisition would not have had a
material affect on consolidated net revenue, net income, or earnings per
share, had it been effective at January 1, 1998.
On April 3, 1998, EMCON acquired all the outstanding capital stock of
Advanced Analytical Solutions, Inc. ("A2S"), a provider of alternative
dispute resolution, cost allocation, cost recovery, and litigation support
services primarily for Superfund projects. A2S has offices in Denver,
6
<PAGE>
Colorado and Philadelphia, Pennsylvania. The Company purchased A2S for
$593,000 in stock and $601,000 in cash and direct acquisition costs. The
transaction was accounted for as a purchase. Goodwill of approximately
$1,300,000 is being amortized over twenty years using the straight line
method. Accumulated amortization at March 31, 1999, was approximately
$58,000. Included in goodwill, is additional consideration of $150,000 in
stock (22,220 shares) and cash payments ($75,000) that was earned during
the twelve months ended March 31, 1999, and paid in April, 1999, as a
result of A2S attaining certain predetermined operating performance goals.
Additional consideration may be paid for the purchase of A2S subject to the
achievement of certain earnout goals over the next year, to be measured as
of March, 2000. This acquisition would not have had a material effect on
consolidated net revenue, net income, or earnings per share, had it been
effective at January 1, 1998.
Effective May 1, 1997, OWT acquired all of the outstanding equity interest
in National Earth Products, Inc. ("NEP"), a Lancaster, Pennsylvania-based
company with significant expertise in landfill civil construction and
related soils processing. NEP was acquired for $933,000 in cash and the
issuance of EMCON's convertible promissory notes in the aggregate principal
amount of $800,000. Approximately 50% of the convertible notes are due on
May 1, 2000, with the balance due on May 1, 2002. The indebtedness bears
interest at the rate of 8% per annum and is convertible into EMCON common
stock at a conversion price of $6.50 per share. The transaction was
accounted for as a purchase. Specifically identifiable intangible assets
and goodwill of approximately $1,606,000 resulting from this acquisition
are being amortized over twenty-five years using the straight line method.
Accumulated amortization as of March 31, 1999, was approximately $118,000.
Included in goodwill is an additional $125,000 cash payment made to the
former NEP shareholders in May, 1998 and a $5,000 adjustment made in March,
1999 as a result of NEP attaining certain predetermined operating
performance goals following its acquisition. Additional consideration may
be paid for the purchase of NEP subject to the achievement of certain earn
out goals to be measured over the twelve-month period ending April, 1999.
4. Credit Agreement
In conjunction with the acquisition of OWT, the Company entered into a
$20,000,000 secured credit agreement with its existing commercial bank,
replacing its previous $10,000,000 unsecured line of credit. Under the new
agreement, the Company borrowed $10,000,000 on a term loan basis with
interest at a managed rate not to exceed the prime rate. Principal is to be
amortized over seven years, but with any unpaid amount finally due and
payable on June 30, 2001. In April 1997, following the infusion of cash
upon the sale of CAS, the Company prepaid, on an accelerated basis,
$3,000,000 of the then outstanding principal balance of the term loan. The
line of credit component of the Credit Agreement was extended until August
31, 1999 at an available credit limit of $5,000,000. The failure to achieve
profitability in the first quarter of 1999 was waived by the bank as part
of the above-noted line extension. The Company expects to renew the line of
credit component of the Credit Agreement prior to its expiration. The
Credit Agreement contains provisions with respect to the payment of
dividends and the level of capital expenditures and requires the
maintenance of specific levels of working capital, tangible net worth and
continued quarterly profitability. Amounts outstanding as of March 31,
1999, were $3,071,000 and $2,712,000 for the term loan and the line of
credit, respectively.
5. Litigation
As a professional services firm engaged in environmental-related matters,
the Company encounters potential liability, including claims for
significant environmental damage in the
7
<PAGE>
normal course of business. The Company is party to lawsuits and is aware of
potential exposure related to certain claims, but in the opinion of
management the resolution of these matters will not have a material adverse
effect on the Company's consolidated financial position, results of
operations or cash flows.
<TABLE>
<CAPTION>
6. Earnings (Loss) Per Share
-------------------------------------------------------------------------------------------------------------------
Three months ended
March 31,
--------------------------
(In thousands, except for earnings (loss) per share) 1999 1998
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Numerator:
Net income (loss) $ (385) $ 20
------ -----
Numerator for basic earnings (loss) per share -
income (loss) available to common stockholders (385) 20
Effect of dilutive securities:
8% convertible debentures N/A(1) N/A(1)
------ -----
Numerator for diluted earnings per share -
income available to common stockholders
after assumed conversions N/A 20
====== =====
Denominator:
Denominator for basic earnings (loss) per share -
weighted-average shares 8,318 8,573
Effect of dilutive securities:
Employee stock options -- 254
8% convertible debentures N/A(1) N/A(1)
Dilutive potential common shares
Denominator for diluted earnings per share -
adjusted weighted average shares and assumed -- 8,827
conversions ====== =====
Basic earnings (loss) per share $(0.05) $0.00
====== =====
Diluted earnings per share $ -- $0.00
====== =====
------------------------------------------------------------------------------------------------------------------
(1)Excluded from the above reconciliations were approximately 269,000
shares of common stock that may be issued at $6.50 per share to convert
$1,747,000 of indebtedness to certain senior management of OWT because they
were antidilutive at March 31, 1999. Conversion of debt, if it occurs,
would be within ninety days after November 30, 2001. Also excluded from the
above reconciliations were approximately 123,000 shares of common stock
that may be issued at $6.50 per share to convert $800,000 of indebtedness
to certain senior management of NEP because they were antidilutive at March
31, 1999. Conversion of debt, if it occurs, would be 50% at May 1, 2000,
and 50% at May 1, 2002.
</TABLE>
7. Other
The Company operates under to a fifty-two/fifty-three week fiscal year
which will result in a fifty-two week year in 1999. The Company's year end
falls on the Friday closest to the last day of the calendar year. The
Company also follows a five-four-four week quarterly cycle. For
convenience, the accompanying consolidated financial statements have been
shown as ending on the last day of the calendar or quarterly calendar
period.
8. Adoption of Statement 131
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting standards No. 131,
Disclosure about Segments of an Enterprise and Related Information,
("Statement 131"). Statement 131 superseded FASB Statement 14, Financial
Reporting for Segments of a Business Enterprise. Statement 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report
8
<PAGE>
selected information about operating segments in interim financial reports.
The adoption of Statement 131 did not affect results of operations or
financial position, but did affect the disclosure of segment information.
See note 9.
9. Segment Reporting
Description of the types of services from which each reportable segment
derives its revenues: The Company provides comprehensive environmental
engineering, design, construction, operations and maintenance, and
equipment fabrication services to a variety of public and private
industrial and solid waste clients. The Company is comprised of two
reportable segments -- the Operations and Construction Division (EOC) and
the Professional Services Division (PSD) -- and services three key service
lines: Solid Waste, Site Restoration and Facility Services.
Measurement of segment profit or loss and segment assets: The Company
evaluates performance of its reportable segments, EOC and PSD, based on
operating income or loss before and after corporate overhead allocations,
but before interest income, interest expense, equity in income of
affiliates and minority interest income (loss). Corporate overhead expenses
are substantially allocated to the reporting segments based on revenue
and/or headcount when an item is not specifically identified to a reporting
segment.
Intersegment sales consist primarily of labor and are marked up to provide
the supplying reportable segment a measure of profit. The receiving
reportable segment records the transfer as an "Outside Service" and may or
may not further mark up the labor cost prior to passing the cost through to
its customer. If the cost is not passed through to the customer, the
receiving reportable segment records the transaction as an indirect cost.
All intersegment accounts are eliminated in consolidation.
Factors management used to identify the enterprise's reportable segments:
The Company's reportable segments are divisional units that offer different
services. The reportable segments are each managed separately. The PSD
reportable segment concentrates on professional engineering, design and
consulting services in solid waste, site restoration and facilities
services. The PSD reportable segment has regional operations situated in
the Northeast, Southeast, Northwest and Southwest portions of the United
States, each overseen by an Area Operations Manager. These regional
operations have the same operating parameters (services offered and
required operating margins), may serve the same national customers, and
often share personnel. For reportable segment reporting, these regional PSD
operations are aggregated. The EOC reportable segment concentrates on
construction, drilling, equipment fabrication and operations and
maintenance services, primarily to the Company's solid waste clients.
9
<PAGE>
<TABLE>
<CAPTION>
Segment Information
-----------------------------------------------------------------------------------------------------------------
(Three months ended March 31, 1999) PSD EOC Other Total
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues from:
External customers $20,231 $ 9,995 $ -- $30,226
Intersegment revenues 623 570 -- 1,193
Outside services from:
External subcontractors 3,903 155 -- 4,058
Intersegment services 637 552 -- 1,189
Net revenues 16,314 9,858 (4) 26,168
Depreciation expense 454 404 105 963
Amortization expense -- 23 154 177
Segment operating profit (loss) before allocations 1,345 (122) -- 1,223
Segment operating profit (loss) after allocations 91 (772) 133 (548)
Segment assets(1)
Accounts receivable, net $24,387 $ 7,499 $ -- $31,886
-----------------------------------------------------------------------------------------------------------------
(Three months ended March 31, 1998) PSD EOC Other Total
-----------------------------------------------------------------------------------------------------------------
Gross revenues from:
External customers $18,047 $10,732 $ -- $28,779
Intersegment revenues 197 524 -- 721
Outside services from:
External subcontractors 2,872 85 -- 2,957
Intersegment services 572 151 -- 723
Net revenues 14,800 11,020 2 25,822
Depreciation expense 553 343 71 967
Amortization expense -- 15 138 153
Segment operating profit before allocations(2) 765 807 -- 1,572
Segment operating profit (loss) after (277) 361 59 143
allocations(2)
Segment assets(1)
Accounts receivable, net $21,215 $10,252 $ -- $31,467
(1)The Company reviews its consolidated balance sheet and reviews only accounts receivable on a segment basis.
(2)Allocation amounts in 1998 were restated to conform to the 1999 presentation.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1999 1998
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Total external revenues for reportable segments $30,226 $28,779
Intersegment revenues for reportable segments 1,193 721
Elimination of intersegment revenues (1,193) (721)
------- -------
Total gross consolidated revenues 30,226 28,779
Less outside services 4,058 2,957
------- -------
Total net revenue $26,168 $25,822
-----------------------------------------------------------------------------------------------------------------
Profit or Loss
Total operating profit for reportable segments before allocations $1,223 $1,572
Overhead allocations expense (1,904) (1,488)
Unallocated overhead 133 59
------ ------
Total operating profit (loss) after allocations (548) 143
Interest income 92 168
Interest expense (337) (293)
Equity earnings 41 15
Minority interest (11) 22
------ ------
Income (loss) before income taxes ($763) $ 55
-----------------------------------------------------------------------------------------------------------------
March 31, 1999 1998
-----------------------------------------------------------------------------------------------------------------
Assets
Accounts receivable for reportable segments $31,886 $31,467
Other current assets 15,486 19,644
Net property and equipment at cost 16,707 15,521
Goodwill, net of amortization 14,845 13,778
Other assets 11,845 9,444
- ------ --- -----
Total consolidated assets $90,769 $89,854
-----------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
EMCON
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
Of Operations.
RESULTS OF OPERATIONS
Net Revenue. Net revenue for the first quarter of 1999 totaled $26,168,000, a
1.3% increase from $25,822,000 for the first quarter of 1998. The increase in
net revenue was primarily due to a 10.2% increase in net revenue from EMCON's
Professional Services (PSD) reportable segment as the demand for its services
continued to improve. This was offset by a 10.5% decrease in net revenue from
the Operations and Constructions reportable segment (EOC) due to project delays
and difficult weather conditions.
Direct Expenses. Direct expenses include compensation for billable hours for
technical and professional staff and other project related expenses, as well as
direct labor and materials for in-house testing and construction activities.
Direct expenses for the first quarter of 1999 totaled $13,477,000, a 2.5%
decrease from $13,822,000 during the first quarter of 1998. As a percentage of
net revenue, direct expenses as reported decreased from 53.5% in the first
quarter of 1998 to 51.5% in the first quarter of 1999. The decrease was due in
part to a modest shift in business mix resulting from the improvement in the PSD
reportable segment.
Indirect Expenses. Indirect expenses include salary compensation for
non-billable hours for professional, technical and administrative staff and
general administrative expenses such as rent, bonuses, benefits, insurance,
legal, depreciation and amortization. Indirect expenses for the first quarter of
1999 totaled $13,239,000, a 11.7% increase from indirect expenses of $11,857,000
during the first quarter of 1998. As a percentage of net revenue, indirect
expenses increased from 45.9% in the first quarter of 1998 to 50.6% in the first
quarter of 1999. The increase was due in part to the above-noted shift in
business mix and the increase in down time for EOC construction crews during the
winter months.
Income (Loss) From Operations. Loss from operations for the first quarter of
1999 was ($548,000) compared to income from operations of $143,000 during the
comparable period last year.
Interest Income. The Company recorded interest income of $92,000 in the first
quarter of 1999 compared to $168,000 in the first quarter of 1998.
Interest Expense. The Company incurred interest expense of $337,000 in the first
quarter of 1999 compared to $293,000 in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1999, the Company's uses of cash for non-operating
activities primarily consisted of repayment of debt in the amount of $923,000
and additions to property and equipment in the amount of $1,219,000; mainly
computers, field equipment and LES units. This was offset by net cash provided
by operating activities during the period of $488,000.
In conjunction with the acquisition of OWT, the Company entered into a
$20,000,000 secured credit agreement with its existing commercial bank,
replacing its previous $10,000,000 unsecured line of
12
<PAGE>
credit. Under the new agreement, the Company borrowed $10,000,000 on a term loan
basis with interest at a managed rate not to exceed the prime rate. Principal is
to be amortized over seven years, but with any unpaid amount finally due and
payable on June 30, 2001. In April 1997, following the infusion of cash upon the
sale of CAS, the Company prepaid, on an accelerated basis, $3,000,000 of the
then outstanding principal balance of the term loan. The line of credit
component of the Credit Agreement was extended until August 31, 1999 at an
available credit limit of $5,000,000. The failure to achieve profitability in
the first quarter of 1999 was waived by the bank as part of the above-noted line
extension. The Company expects to renew the line of credit component of the
Credit Agreement prior to its expiration. The Credit Agreement contains
provisions with respect to the payment of dividends and the level of capital
expenditures and requires the maintenance of specific levels of working capital,
tangible net worth and continued quarterly profitability. Amounts outstanding as
of March 31, 1999, were $3,071,000 and $2,712,000 for the term loan and the line
of credit, respectively.
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.
YEAR 2000
Impact of Year 2000. The Year 2000 (Y2K) issue is the result of computer
programs being written using two digits rather than four to define applicable
years. Any of the Company's computer programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
The Company's State of Readiness. During 1998, the Company began testing its
internal systems for Y2K compliance and completed the testing phase during the
first quarter of 1999. Survey letters to third parties, vendors/suppliers, and
customers that management believe could have a material effect to its business,
were sent during the first quarter to ascertain if and when they would be Y2K
compliant. The information supplied by these third parties is being entered into
a database and reviewed by the Company's IT Department and business managers to
determine whether there are any potential issues. As issues are identified
during the second quarter of 1999, senior management will determine their
potential impact to the Company's business and develop action plans accordingly.
The Cost to Address the Company's Year 2000 Issues. Budgets for the Company's
internal computer, network, phone and related system needs were completed in the
fourth quarter of 1998. At the close of the first quarter, ended March 31, 1999,
the original budgeted costs to bring these systems into Y2K compliance of
approximately $1,850,000 is still on target. The costs consist primarily of
software updates, computer replacement, telephone system changes and other
costs, including disposition of assets, and outside consulting. The majority of
these costs are being incurred in the ordinary course of business as part of
EMCON's normal replacement/upgrade program for its computer, network, telephone
and related systems. In the first quarter, the Company spent 38% of its total
budget versus the planned 40%. It is expected that 37%, 20%, and 5% of the total
budget of $1,850,000 will be incurred in the second, third and fourth quarters
of 1999, respectively. Approximately $1,000,000 of the $1,850,000 estimated
costs will be financed through multi-year operating leases. The costs of the
project and the dates on which the Company believes it
13
<PAGE>
will complete the Y2K modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events.
The Company believes it will be able to test and remedy the majority of any Y2K
issues utilizing its existing IT staff with minimal use of outside consultants.
The Risks of the Company's Year 2000 Issues. The Company does not expect the Y2K
project to have a significant effect on operations. At this time, the Company
believes that any internal Y2K issues can be resolved prior to the year 2000.
The potential impact of Y2K issues on the Company's two reporting segments, the
PSD and EOC is expected to be somewhat different. PSD, a consulting operation,
has less exposure due to the professional services nature of its business. A
portion of EOC's revenues, however, involve the use of sophisticated equipment
which at this time, based on extensive testing, the Company believes to be Y2K
compliant. To-date, the Company has not received from its vendors, any
indication that the Company would not be able to receive necessary supplies for
its construction or fabrication processes.
The Company's Contingency Plans. The Company has not established a contingency
plan to address unexpected failures due to Y2K problems. Having substantially
completed all internal testing of systems, the Company has not found cause to
establish a comprehensive contingency plan. The Company will continue to
evaluate the status of its internal testing and the information supplied by its
vendors and customers though June, 1999, and determine whether such a plan is
necessary.
14
<PAGE>
EMCON
PART II OTHER INFORMATION
Items 1. - 4. Not applicable.
Item 5. Other Information
None
Item 6. Exhibits and Reports
(a) Exhibits - See Index to Exhibits on Page 15
(b) Reports on Form 8-K - No reports on Form 8-K were filed with the
Securities and Exchange Commission during the quarter ended March 31,
1999.
15
<PAGE>
EMCON
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 10, 1999 EMCON
\o\ R. Michael Momboisse
-------------------------------------
R. MICHAEL MOMBOISSE
Chief Financial Officer,
Vice President - Legal, and Secretary
(Duly authorized and principal
financial and accounting officer)
16
<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 option holders of OWT,
incorporated by reference from Exhibit 2.1 of
the Current Report on Form 8-K dated March
14, 1996, (the "March 1996 8-K").
2.2 Asset Purchase Agreement between Yolo Energy *
Partners, Inc., Yolo Landfill Gas
Corporation, EMCON, Yolo Neo LLC, and
Minnesota Methane LLC dated December 31,
1996, incorporated by reference from Exhibit
10.20 of the Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 (the
"1996 10-K").
2.3 Acquisition Agreement between EMCON and its *
wholly owned subsidiary, Monterey Landfill
Gas Corporation, and Biomass Energy Partners
V, L.P., dated March 6, 1997, incorporated by
reference from Exhibit 10.22 of the 1996
10-K.
2.4 Stock Purchase Agreement dated April 4, 1997 *
among Registrant, Columbia Analytical
Services, Inc. (`CAS"), Northwest Trust as
trustee of the CAS Employee Stock Ownership
Trust and certain senior management employees
of CAS, incorporated by reference from
Exhibit 2.4 of the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter
ended March 31, 1997 (the "March 1997 10-Q").
2.5 Stock Purchase Agreement dated April 30, 1997 *
among Registrant, OWT, National Earth
Products, Inc. ("NEP") and the selling
stockholders of NEP, incorporated by
reference from Exhibit 2.5 of the March 1997
10-Q.
2.6 Agreement and Plan of Reorganization among *
Registrant, Advanced Analytical Solutions,
Inc. ("A2S") and certain other parties dated
April 3, 1998, incorporated by reference from
Exhibit 2.6 of the Quarterly Report on Form
10-Q for the fiscal quarter ended March 31,
1998 (the "March 1998 10-Q").
2.7 Stock Purchase Agreement dated December 4, *
1998 by and among Registrant, Western
Industrial Resources Corporation, and various
affiliated parties, incorporated by reference
from Exhibit 2.7 of the Annual Report on Form
10-K for the Fiscal Year ended December 31,
1998 (the "1998 10-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").
17
<PAGE>
Sequentially
Exhibit Numbered
Number INDEX TO EXHIBITS (Continued) Page
- -------------- ------------
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 *(1)
Amendment, incorporated by reference from
Exhibit 10.15 of the Form S-1 Registration
Statement.
10.2 Form of Agreement pursuant to Salary *(1)
Continuation Plan, incorporated by reference
from Exhibit 10.17 of the Form S-1
Registration Statement.
10.3 Schedule identifying Agreements pursuant to *(1)
Salary Continuation Plan between Registrant
and certain employees, incorporated by
reference from Exhibit 10.3 of the
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 (the
"1997 10-K").
10.4 Form of Indemnity Agreement between the *
Registrant and each of the Registrant's
officers and directors, incorporated by
reference from Exhibit 10.20 of the
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988 (the
"1988 10-K").
10.5 EMCON 1988 Stock Option Plan, amended by *(1)
shareholder approval on May 25,1994,
including form of Nonqualified Stock Option
Agreement (Outside Directors), incorporated
by reference from Exhibit 10.9 of
Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1994
(the "June 30, 1994 10-Q").
10.6 EMCON Employee Stock Purchase Plan *(1)
incorporated by reference from Exhibit 10.10
of the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30,
1995.
10.7 EMCON Restricted Stock Plan incorporated by *(1)
reference from Exhibit 10.15 of the Annual
Report on Form 10-K for the fiscal year ended
December 31, 1990.
10.8 Trust Agreement for the EMCON Deferred *(1)
Compensation Plan and Salary Continuation
Plan Trust dated February 19, 1994, between
Registrant and Wells Fargo Bank, N.A.
incorporated by reference from Exhibit 10.13
of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31,
1993 (the "1993 10-K").
18
<PAGE>
Sequentially
Exhibit Numbered
Number INDEX TO EXHIBITS (Continued) Page
- -------------- ------------
10.9 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.
10.10 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.
10.11 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.
10.12 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.
10.13 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.
10.14 Note Agreement among the Registrant, OWT, *
and certain employees of OWT, incorporated by
reference from Exhibit 10.1 of the March 1996
8-K.
10.15 Rescission and Reformation Agreement dated *
effective November 1, 1996 among EMCON, OWT,
and certain employees of OWT, incorporated by
reference from Exhibit 10.18 of the 1996
10-K.
10.16 New Note Agreement dated effective November *
1, 1996 among EMCON, OWT and certain
employees of OWT, incorporated by reference
from Exhibit 10.19 of the 1996 10-K.
10.17 Second Amendment to Credit Agreement dated *
effective January 27, 1997 among EMCON and
Union Bank of California, N.A. (formerly
known as The Bank of California, N.A.),
incorporated by reference from Exhibit 10.21
of the 1996 10-K.
10.18 Third Amendment to Credit Agreement dated *
effective March 27, 1997 among EMCON and
Union Bank of California, N.A. (formerly
known as The Bank of California, N.A.),
incorporated by reference from Exhibit 10.23
of the 1996 10-K.
10.19 Convertible Notes dated April 30, 1997 *
issued by EMCON to Dennis Grimm and Charles
Gearhart in the principal amounts of
$400,798.40 and $399,201.60, respectively,
incorporated by reference from Exhibit 10.22
of the March 1997 10-Q.
19
<PAGE>
Sequentially
Exhibit Numbered
Number INDEX TO EXHIBITS (Continued) Page
- -------------- ------------
10.20 Lease Agreement dated April 4, 1997, between *
EMCON and Columbia Analytical Services, Inc.,
incorporated by reference from Exhibit 10.23
of the March 1997 10-Q.
10.21 Amendment 1997-I to EMCON Deferred *(1)
Compensation Plan dated effective February
22, 1997, incorporated by reference from
Exhibit 10.24 of the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter
ended June 30, 1997 (the "June 30, 1997
10-Q").
10.22 Fourth Amendment to Credit Agreement dated *
effective June 24, 1997 among EMCON and Union
Bank of California, N.A., incorporated by
reference from Exhibit 10.25 of the June 30,
1997 10-Q.
10.23 Amended and Restated Agreement between *(1)
Eugene M. Herson and Registrant dated
November 3, 1997, incorporated by reference
from Exhibit 10.26 of the 1997 10-K.
10.24 Amended and Restated Agreement between R. *(1)
Michael Momboisse and Registrant dated
November 3, 1997, incorporated by reference
from Exhibit 10.27 of the 1997 10-K.
10.25 Deferred Compensation Plan, Amended and *(1)
Restated effective January 1, 1998,
incorporated by reference from Exhibit 10.28
of the 1997 10-K.
10.26 Registration Rights Agreement among *
Registrant, and the former shareholders of
A2S dated April 3, 1998, incorporated by
reference from Exhibit 10.29 of the March
1998 10-Q.
10.27 Secured Promissory Note of Timothy M. Keaten *
dated April 3, 1998, in the principal amount
of $225,000, incorporated by reference from
Exhibit 10.30 of the March 1998 10-Q.
10.28 EMCON 1998 Stock Option Plan, with standard *(1)
form of Incentive Stock Option Agreement,
Non-Statutory Stock Option Agreement and
Non-Statutory Stock Option Agreement (outside
Director Option) attached, incorporated by
reference from Exhibit 10.31 of the
Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1998
(the "June 30, 1998 10-Q").
10.29 Sixth Amendment to Credit Agreement among *(1)
Registrant and Union Bank of California dated
June 1, 1998, incorporated by reference from
Exhibit 10.32 of the June 30, 1998 10-Q.
20
<PAGE>
Sequentially
Exhibit Numbered
Number INDEX TO EXHIBITS (Continued) Page
- -------------- ------------
10.30 Seventh Amendment to Credit Agreement among *
Registrant and Union Bank of California dated
August 31, 1998, incorporated by reference
from Exhibit 10.33 of the September 30, 1998
10-Q.
10.31 Employment Agreement between Registrant and *(1)
Patrick Gillespie dated November 10, 1998,
incorporated by reference from Exhibit 10.31
of the 1998 10-K.
10.32 Employment Agreement between Registrant and *(1)
Gerard Ridzon dated November 10, 1998,
incorporated by reference from Exhibit 10.32
of the 1998 10-K.
10.33 Amendment 1998-1 to EMCON Deferred *(1)
Compensation Plan dated November 12, 1998,
incorporated by reference from Exhibit 10.33
of the 1998 10-K.
10.34 Eighth Amendment to Credit Agreement among *
Registrant and Union Bank of California dated
November 30, 1998, incorporated by reference
from Exhibit 10.34 of the 1998 10-K.
10.35 Ninth Amendment to Credit Agreement among *
Registrant and Union Bank of California dated
December 22, 1998, incorporated by reference
from Exhibit 10.35 of the 1998 10-K.
10.36 Tenth Amendment to Credit Agreement among *
Registrant and Union Bank of California dated
January 27, 1999, incorporated by reference
from Exhibit 10.36 of the 1998 10-K.
10.37 Extension and Modification Agreement between *
the Union Bank of California and Registrant
dated March 19, 1999, incorporated by
reference from Exhibit 10.37 of the 1998
10-K.
10.38 First Amendment to Extension and 22
Modification Agreement between the Union Bank
of California and registrant dated April 30,
1999.
27 Financial Data Schedule, included herein. 27
* 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.
21
EXHIBIT 10.38
FIRST AMENDMENT TO EXTENSION AND MODIFICATION AGREEMENT
THIS FIRST AMENDMENT TO EXTENSION AND MODIFICATION AGREEMENT ("Amendment") is
made effective as of April 30, 1999, by and between UNION BANK CALIFORNIA, N.A.,
formerly known as The Bank of California, N.A. ("Bank") and EMCON, a California
corporation. This Amendment amends that certain Extension and Modification
Agreement by and between Bank and borrower dated as of March 19, 1999 (as
amended or supplemented, or renewed from time to time, the "Agreement").
RECITALS
A. Pursuant to the Agreement, the parties agreed to certain extensions and
modifications of the Loan documents. Each capitalized term not otherwise defined
in this Amendment shall have the meaning set forth in the Agreement.
B. The following documents evidence Borrower's obligations to and relationship
with Bank: this Amendment, the Agreement, the Replacement Line of Credit Note,
the Term Note, the Credit Agreement, the Security Agreements, the Additional
Security Agreement, the SLC Agreement and the UCC-1. The documents described
above, together with any other documents executed by or among the parties in
connection with the Liabilities, and any and all amendments and modifications
thereto, are referred to collectively in this Agreement as "Loan Documents".
There are no written or oral agreements concerning or affecting the Liabilities
between Borrower on the one hand and Bank on the other, other than the Loan
Documents. Unless otherwise defined herein, all capitalized terms shall have the
meanings assigned to them in the Loan Documents.
C. As of April 27, 1999, the outstanding principal balance under the Replacement
Line of Credit Note was $1,619,419.75, plus accrued and unpaid interest in the
amount of $16,776.59, together with all accruing interest, fees, costs and
expenses provided in the Loan Documents.
D. The Replacement Line of Credit Note will mature April 30, 1999 and Borrower
will not satisfy its obligations to Bank thereunder and Borrower is not in
compliance with the profitability covenant set forth in the Agreement
("Designated Defaults"). Borrower acknowledges that it has received adequate and
reasonable notice of the Designated Defaults from Bank, and that Bank has not
waived any of such defaults or any of its rights with respect to the Designated
Defaults or any other breach by Borrower of the Loan Documents.
E. Because of the existence of the Designated Defaults, Bank has the current
right to exercise any and all of its rights and remedies against Borrower or
otherwise under applicable law or in equity and the other Loan Documents.
F. Borrower has requested that Bank further extend the maturity date of the Line
of Credit. Although Bank is under no obligation to do so, Bank is willing to
modify and extend the Line of Credit for the period set forth herein on the
terms an condition set forth in this Amendment. Bank is entering into this
Amendment to allow Borrower additional time to ensure the full repayment of the
Liabilities. Borrower has assured Bank that its financial position will not
deteriorate during the extension period requested and that Borrower shall
perform in accordance with the Replacement Line of Credit Note, as amended by
this Amendment.
22
<PAGE>
NOW THEREFORE, in consideration of the foregoing and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Bank and hereby agree as follows:
1. Incorporation of Recitals. Each of the above recitals is incorporated herein
and deemed to be the agreement of the Bank and Borrower and is relied upon by
each party to this Amendment in agreeing to the terms of this Amendment.
2. Confirmation of Collateral. Borrower hereby grants and confirms that all
obligations of Borrower to Bank are secured by a duly perfected security
interest of first priority in the Collateral.
3. Confirmation of Representations and Warranties. Borrower hereby confirms all
representations and warranties contained in the Agreement and the other Loan
Documents and reaffirms all covenants set forth therein through and including
the date of this Amendment. Further, Borrower certifies that, as of the date of
this Amendment, there exists no Event of Default as defined in the Loan
Documents other than the Designated Defaults, nor any conditions, act or event
which with the giving of notice or the passage of time or both would constitute
an Event of Default.
4. Borrower's Covenants. Unless Bank otherwise consents in writing during the
extension period provided herein, Borrower will do the following:
(a) Comply with all requirements of all Loan Documents to the extent
not inconsistent with this Agreement.
(b) On or before May 28, 1999, Borrower shall obtain or cause to be
obtained from Charter One, in form and substance satisfactory to Bank,
a UCC-1 Termination Statement terminating Charter One's security
interest in Borrower's accounts, as such term is defined in Charter
One's UCC Financing Statement.
5. Conditions Precedent. Borrower understands that this Amendment shall not be
effective and Bank shall have no obligation to amend the terms of the Agreement
or the other Loan Documents as provided herein unless and until each of the
following conditions precedent has been satisfied not later than May 5, 1999, or
waived by Bank (in Bank's sole discretion):
(a) Borrower shall have executed and delivered to Bank this Amendment.
(b) Borrower shall have taken any and all actions and executed and
delivered to Bank any and all documents necessary or appropriate in
Bank's sole discretion to effectuate this Amendment.
(c) Borrower shall have reimbursed Bank for Bank's costs and expenses,
including, without limitation, reasonable attorneys' fees and expenses
(including the fees of Bank's inside counsel) incurred in connection
with the negotiation and drafting of this Amendment and the
transactions contemplated hereby.
(d) Borrower shall have paid to Bank a non-refundable extension fee in
the amount of $25,000.00.
23
<PAGE>
6. Waiver of Defaults. Subject to all of the terms and conditions of this
Amendment, including, without limitation, the requirements of Section 5 hereof,
Bank hereby agrees to waive its default rights in connection with the Designated
Defaults, provided, however, that this waiver is not a waiver of any subsequent
breach of the same provision of the Replacement Line of Credit Note or other
Loan Documents, nor is it a waiver of any current or future breach of any other
provision of the Replacement Line of Credit Note or other Loan Documents. Bank
is not obligated to provide this or any other waiver of its default rights.
Further, the Bank reserves all of the rights, powers and remedies available to
it under applicable law or in equity and under the Replacement Line of Credit
Note and any other Loan Documents if any subsequent breach of the same
provisions or any other provision of the Replacement Line of Credit Note or any
other Loan Document should occur.
7. Amendment of Agreement and Loan Documents. To induce Bank to enter into this
Amendment, Borrower agrees that the Agreement and Loan Documents are hereby
supplemented and amended as follows, which amendments shall supersede and
prevail over any conflicting provisions of the Agreement and/or Loan Documents:
(a) The date "April 30, 1999" in the paragraph entitled "Termination
Date" in Article One of the Credit Agreement is hereby amended to
"August 31, 1999".
(b) Section 2.1.1 of the Credit Agreement is hereby deleted in its
entirety and replacement with the following:
"2.1.1 Line of Credit. Subject to the terms and conditions of
this Agreement from time to time prior to the Termination
Date, upon request by Borrower, Bank will provide extensions
of credit ("Line of Credit") to Borrower in the form of
Advances and Letters of Credit that, in the aggregate, shall
not exceed at any time FIVE MILLION AND NO/100 DOLLARS
($5,000,000.00) ("Credit Limit").
(a) Advances. Provides up to the Credit Limit in aggregate
outstanding principal amounts ("Advance Sublimit") in Advances
to Borrower. Each Advance shall be payable not later than the
Termination Date. Borrower may borrow, repay and reborrow
under the Advance Sublimit, as Borrower may elect, in minimum
amounts of $10,000.00 or integral multiples thereof. Advances
shall be used by Borrower for the purpose of working capital
for its own operations.
(b) Credit Limits. If at any time and Sublimit, or the Credit
Limit, as a whole, has been exceeded, Borrower shall,
immediately after demand by Bank, repay such excess, or, as
Bank might specify, cash secure such excess".
Notwithstanding any other provisions of this Agreement or any Loan Document,
upon the Termination Date, all sums of interest, principal and any other amounts
owing under any Loan Documents shall be immediately due and payable (with Bank
also having the immediate right to full cash prepayment for the unpaid amounts
of all outstanding Letters of Credit) without notice of default, presentment or
demand for payment, protest or notice of nonpayment or dishonor or any other
notices or demands. The Loan Documents are hereby modified to reflect
24
<PAGE>
this change in the terms of the Facilities.
8. Release. Borrower hereby, for itself, its successors, heirs, executors,
administrators and assigns (each a "Releasing Party" and collectively, the
"Releasing Parties"), releases, acquits and forever discharges Bank, its
directors, officers, employees, agents, affiliates, successors, administrators
and assigns ("Released Parties") of and from any and all claims, actions, causes
of action, demands, rights, damages, costs, loss of service, expenses and
compensation whatsoever which any Releasing Party might have because of anything
done, omitted to be done, or allowed to be done by any of the Released parties
and in any way connected with the Loan or this Amendment or the other Loan
Documents as of the date of execution of this Amendment, WHETHER KNOWN OR
UNKNOWN, FORESEEN OR UNFORESEEN, including, without limitation, any settlement
negotiations and any damages and the consequences thereof resulting or to result
from the events described, referred to or inferred hereinabove ("Released
Matters"). Releasing Parties each further agrees never to commence, aid or
participate in (except to the extent required by order or legal process issued
by a court or governmental agency of competent jurisdiction) any legal action or
other proceeding based in whole or in part upon the foregoing. In furtherance of
this general release, Releasing Parties each acknowledges and waives the
benefits of California Civil Code Section 1542 (and all similar ordinances and
statutory, regulatory, or judicially created laws or rules of any other
jurisdiction), which provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED
HIS SETTLEMENT WITH THE DEBTOR.
Releasing Parties each agrees that this waiver and release is an essential and
material term of this Amendment and that the agreements in this paragraph are
intended to be in full satisfaction of any alleged injuries or damages in
connection with the Released Matters. Releasing Parties each represents and
warrants that it has not purported to convey, transfer or assign any right,
title or interest in any Released Matter to any other person or entity and that
the foregoing constitutes a full and complete release of the Released Matters.
Releasing Parties each also understands that this release shall apply to all
unknown or unanticipated results of the transactions and occurrences described
above, as well as those known and anticipated. Releasing Parties each has
consulted with legal counsel prior to signing this release, or had an
opportunity to obtain such counsel and knowingly chose not to do so, and
executes such release voluntarily, with the intention of fully and finally
extinguishing all Released Matters.
9. Dispute Resolution. This Amendment hereby incorporates any alternative
dispute resolution agreement previously, concurrently or hereafter executed
between Borrower and Bank.
10. Effect of Amendment. Bank and Borrower agree that except as expressly
provided herein, the Agreement and the other Loan Documents shall remain in full
force and effect in accordance with their respective terms, without waiver or
modification. Borrower acknowledges that it is relying on no written or oral
agreement, representation, warranty, or understanding of any kind made by Bank
or any employee or agent of Bank except for the agreements of Bank set forth
herein or in the Agreement or other Loan Documents. This Amendment is not a
novation, nor is it to be construed as a release or modification of any of the
terms, conditions, covenants, waivers and releases contained in the Agreement
and the Loan Documents, except as expressly amended herein. This Amendment and
the Agreement shall be read together as one document.
25
<PAGE>
IN WITNESS WHEREOF, Bank and Borrower have executed this Amendment as of the
date set forth in the preamble.
"BORROWER" "BANK"
EMCON, a UNION BANK OF CALIFORNIA, N.A.
California corporation
By: /s/ R. Michael Momboisse By: /s/ David Jackson
------------------------ ---------------------
Title: CFO and VP - Legal Title: Vice President
--------------------- -----------------
By: /s/ Eugene M. Herson
-------------------------
Title: CEO and President
---------------------
26
<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-Q for the three month
period ended March 31, 1997, and is qualified in its entirety by reference to
such financial statements and the notes thereto.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-2-1999
<PERIOD-END> APR-2-1999
<EXCHANGE-RATE> 1
<CASH> 1,048,000
<SECURITIES> 0
<RECEIVABLES> 33,006,000
<ALLOWANCES> 1,120,000
<INVENTORY> 3,145,000
<CURRENT-ASSETS> 47,372,000
<PP&E> 35,770,000
<DEPRECIATION> 19,063,000
<TOTAL-ASSETS> 90,769,000
<CURRENT-LIABILITIES> 20,819,000
<BONDS> 0
<COMMON> 41,711,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 90,769,000
<SALES> 26,168,000
<TOTAL-REVENUES> 26,168,000
<CGS> 13,477,000
<TOTAL-COSTS> 13,477,000
<OTHER-EXPENSES> 13,018,000
<LOSS-PROVISION> 99,000
<INTEREST-EXPENSE> 337,000
<INCOME-PRETAX> (763,000)
<INCOME-TAX> (378,000)
<INCOME-CONTINUING> (385,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (385,000)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> 0.00
</TABLE>
