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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-16225
EMCON
(Exact name of Registrant as specified in its charter)
California 94-1738964
(State or other jurisdiction of (I.R.S. Employer
incorporation 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 (650) 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.
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 March 1, 1999, was $23,174,519. 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
26, 1999, was 8,317,649.
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, 1998 are incorporated by reference in Part III of this Form 10-K.
The Index to Exhibits appears on Page 47 of this Report. This Report, including
all exhibits and attachments, contains 113 pages.
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TABLE OF CONTENTS
PART I PAGE
Item 1: Business................................... 4
Item 2: Properties................................. 9
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.............................. 13
Item 8: Financial Statements and Supplementary
Data.................................... 18
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.. 43
PART III
Item 10: Directors and Executive Officers of the
Registrant.............................. 43
Item 11: Executive Compensation..................... 43
Item 12: Security Ownership of Certain Beneficial
Owners and Management.................. 43
Item 13: Certain Relationships and Related
Transactions........................... 43
PART IV
Item 14: Exhibits, Financial Statement Schedules,
and Reports on Form 8-K................ 44
Signatures................................ 45
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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 industrial and
solid waste clients. The Company is comprised of two reporting segments -- the
Operation and Construction Division (EOC) and the Professional Services Division
(PSD) -- and services three key service lines: Solid Waste, Site Restoration and
Facility Services.
EMCON is a leader in the design, construction and remediation of solid and
hazardous waste facilities, having participated in the design, construction and
remediation of several hundred transfer, storage and disposal facilities in the
United States, as well as Argentina, Canada, Hong Kong, India, Indonesia,
Israel, Kuwait, Malaysia, Russia, Saudi Arabia, Mexico, Peru and Venezuela.
EMCON's solid waste services include site selection and evaluation, facility
design, development of preprocessing and operating facilities, 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; ecologists; chemists; geologists;
hydrogeologists; hydrologists; industrial hygienists; toxicologists; computer
programmers; planners and regulatory analysts. References to the Company and
EMCON in this report include the Company's subsidiaries, unless the context
indicates otherwise.
On April 3, 1998, EMCON acquired all of 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, 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 $1,150,000 is being amortized over
twenty years using the straight-line method. Accumulated amortization at
December 31, 1998, was approximately $43,000. Additional consideration may be
paid for the purchase of A2S subject to the achievement of predetermined
operating performance goals over the next two 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 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 December 31, 1998, was approximately $1,000. 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.
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Services
The Company is comprised of two reportable segments: the Professional Services
Division (PSD); and the Operations and Construction Division (EOC). These two
reportable segments work in concert to address the needs of the Company's
clients in three key service lines: Solid Waste, Site Restoration and Facility
Services.
Solid Waste Services: The Company's Professional Services Segment and Operations
and Construction Segment 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 fabrication 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 the solid waste industry, the Company has
developed expertise in several critical areas of waste disposal technology -
landfill cells and related infrastructure, 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 technology.
Federal regulation now requires that all new landfill 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 solid waste 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.
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.
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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 Company is also seeing more opportunities to provide fully
integrated design-build projects, utilizing the combined solid waste expertise
of PSD and EOC.
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 site restoration 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
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 groundwater 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.
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Facility 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, regulatory, health and safety compliance and plant maintenance
requirements. EMCON services this niche by offering stand-alone and bundled
plant packages wrapped around client's industrial operations.
Air Quality: Air emission permits; emission credit trading (specified states);
air quality modeling; source monitoring and inventory services; exposure
monitoring; risk analysis; and air quality control system designs.
Water/Waste Water: Industrial process wastewater evaluation and treatment
design; toxicity reduction evaluations; storm water monitoring and control;
NPDES permits and monitoring; wastewater source assessments; receiving water
studies; industrial pretreatment packages and; operations of related systems.
Health and Safety: Training; site specific plans; indoor exposure evaluations;
noise and ergonomics; accident investigations; development of process safety
evaluation; OSHA compliance; emergency response plans; respiratory/health and
hazard communication; and industry specific assessment and training.
Regulatory Compliance: Multimedia audits; environmental risk assessments; agency
negotiations; compliance packages; and oversight of programs.
Environmental Management Consulting: Development and implementation of EMS' for
ISO 14001 certification; translating regulatory requirements into job
procedures/processes.
Environmental management Information Systems: Manifest tracking software; point
source solutions; groundwater monitoring tools; data management and regulatory
compliance products; regulatory analysis and summary web based packages; and EMS
and GIS Key products.
Information Technology Services: Network system integration; e-Commerce
consulting, web design and web-based training; and related equipment/software
packages.
Industrial Maintenance: Outsourcing scheduled and emergency fabrication, plant
improvement, facility and pipeline maintenance; HVAC and hydraulics maintenance,
specialty welding; and equipment relocations.
Clients and Marketing
EMCON's principal clients are industrial concerns, predominantly in the solid
waste, petroleum, wood products, aerospace, power generation, chemicals and
manufacturing industries. The Company also provides services to utilities,
non-regulatory government entities, and financial institutions. 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.
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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.
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.
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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 applicable
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, 1998, the Company had a total of 1,088 employees, including
525 technical professionals; 404 construction, operations and maintenance and
field technicians; and 159 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; toxicologists and construction and field personnel. 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.
Seasonality
EMCON's business has experienced an increase in seasonality in recent years, due
in part to the increase in on-site investigation, construction and other field
work. Consequently, the consolidated financial results in its second and third
quarters (ending June 30 and September 30, respectively) tend to be stronger
than such results in its first and fourth quarters.
Backlog
The Company estimates that at December 31, 1998, the backlog of future net
revenue from contracts in existence and orders believed to be firm was in excess
of $75 million, all of which is expected to be received within the next twelve
months, compared to $75 million backlog at December 31, 1997. 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, 2000.
The Company owns 4.4 acres of real property in Kelso, Washington, including
37,000 square feet of office and analytical lab space. The facilities are
currently leased to Columbia Analytical Services, Inc. ("CAS") under a long term
lease expiring April 3, 2007. The Company also owns a 10 acre piece of property
in New Concord, Ohio, including 30,000 square feet of office and equipment
fabrication facilities.
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The Company leases office and warehouse space in a total of 50 facilities
located in Alaska, Arizona, California, Colorado, Connecticut, Florida, Georgia,
Illinois, Iowa, Maine, Maryland, Massachusetts, Michigan, New Jersey, New York,
Ohio, Oregon, Pennsylvania, Puerto Rico, Texas, Vermont, Virginia and Washington
under leases expiring at various times through December 2003.
These facilities have a combined area of approximately 345,500 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 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 consolidated
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, 1998.
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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 1998 and 1997:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
High Low
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
January 1 - March 31, 1997 3.75 3.00
April 1 - June 30, 1997 4.06 2.88
July 1 - September 30, 1997 5.50 3.13
October 1 - December 31, 1997 6.88 4.63
January 1 - March 31, 1998 5.13 4.63
April 1 - June 30, 1998 5.25 3.31
July 1 - September 30, 1998 5.13 2.81
October 1 - December 31, 1998 3.50 2.50
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On January 1, 1999, there were 1,771 shareholders of record of the Company's
common stock.
Although the Company does make annual distributions to a minority shareholder of
one of OWT's subsidiaries, the Company did not pay cash dividends to EMCON
shareholders in 1998 or 1997 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) 1998 1997 1996 1995 1994
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations Statement Data (a)
Gross revenue $151,348 $139,343 $137,626 $122,542 $115,638
Net revenue 129,960 109,502 117,705 103,409 95,926
Direct expenses 76,749 56,134 52,608 39,473 37,307
Indirect expenses 49,373 49,782 65,844 61,498 59,302
Restructuring/other charges (4) (1,612) 8,197 (17) 1,958
Loss on disposition of laboratory -- 333 3,327 -- --
Income (loss) from operations 3,842 4,865 (12,271) 2,455 (2,641)
Interest income 548 516 317 369 348
Interest expense 1,234 1,251 1,112 181 66
Equity in income (loss) of affiliates (15) (2) 227 (74) (58)
Minority interest expense -- 810 188 -- --
Income (loss) before provision (benefit) for
income taxes 3,141 3,318 (13,027) 2,569 (2,417)
Provision (benefit) for income taxes 1,508 1,161 (2,936) 783 (500)
Net income (loss) 1,633 2,157 (10,091) 1,786 (1,917)
- - ------------------------------------------------------------------------------------------------------------------
Per Share Data (a)
Basic earnings (loss) per share $ 0.19 $ 0.25 $(1.19) $ 0.22 $ (0.24)
Diluted earnings per share $ 0.19 $ 0.25 -- $ 0.21 --
Shares used in computing basic earnings (loss)
per share 8,648 8,549 8,485 8,274 7,919
Shares used in computing diluted earnings per
share 8,795 8,693 -- 8,338 --
- - ------------------------------------------------------------------------------------------------------------------
Balance Sheet Data (a)
Total assets $95,889 $93,075 $ 90,912 $ 78,636 $ 80,989
Working capital 28,307 32,583 34,601 36,313 32,582
Noncurrent obligations and deferred income
taxes 11,584 14,177 16,799 1,700 1,348
Shareholders' equity 59,137 58,100 55,812 65,306 63,059
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Company was involved in several acquisitions, mergers, and
divestitures during the five year period presented. See Notes 5 and 8
to the Company's consolidated financial statements.
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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
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)
------------------------------------ --------------------------------
1998 1997
vs. vs.
Years Ended December 31, 1998 1997 1996 1997 1996
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenue 100.0% 100.0% 100.0% 18.7% (7.0%)
Direct expenses 59.1% 51.3% 44.7% 36.7% 6.7%
Indirect expenses 38.0% 45.5% 55.9% 0.1% (24.4%)
Restructuring/other charges -- (0.5%) 7.0% (99.3%) (107.1%)
Loss on disposition of laboratory -- 0.3% 2.8% -- (90.0%)
Gain on disposition of assets -- (1.0%) -- -- --
Income (loss) from operations 2.9% 4.4% (10.4%) (21.0%) 139.6%
Interest income (expense), net (0.5%) (0.7%) (0.7%) (6.7%) 7.5%
Equity in income(loss) of affiliates -- -- 0.2% (650.0%) (100.9%)
Minority interest expense -- (0.7%) (0.2%) -- (330.9%)
Income (loss) before provision (benefit)
for income taxes 2.4% 3.0% (11.1%) (5.3%) 125.5%
Provision (benefit) for income
taxes 1.2% 1.0% (2.5%) 29.9% 139.5%
Net income (loss) 1.2% 2.0% (8.6%) (24.3%) 121.4%
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net Revenue: Net revenues for 1998 totaled $129,960,000, an 18.7% increase from
$109,502,000 in 1997. At the end of the first quarter of 1997, the Company
divested its laboratory line of business, CAS. CAS contributed net revenues of
$4,904,000 in 1997. Excluding net revenue contributed by CAS in the first
quarter of 1997, net revenue from continuing operations in 1998 increased 24.3%
from $104,598,000 in 1997. The increase in net revenue was primarily due to a
57.6% increase in net revenue from EMCON's EOC reportable segment and a 2.6%
increase in net revenue from EMCON's PSD reportable segment, as the demand for
EMCON's services continued to increase.
Net revenue for 1997 decreased 7.0% from $117,705,000 in 1996. The decrease was
due in part to the divestiture of CAS at the end of the first quarter of 1997
(CAS contributed net revenue of $4,904,000 in 1997 and $20,505,000 in 1996), as
well as lower demand for the Company's services within the Company's PSD
reportable segment. The decrease in net revenue was offset in part by the growth
of the EOC reportable segment from net revenues of $22,167,000 in 1996
(following the acquisition of OWT on February 29, 1996) to $41,386,000 in 1997.
13
<PAGE>
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, construction, drilling and
operations/maintenance activities. Direct expenses for 1998 totaled $76,749,000,
a 36.7% increase compared to direct expenses of $56,134,000 during 1997.
Excluding the impact of CAS (which incurred direct expenses of $2,267,000 in the
first quarter of 1997), direct expenses increased 42.5% from $53,867,000 in
1997. As a percentage of net revenue, direct expenses, as reported, increased
from 51.3% in 1997 to 59.1% in 1998. The increase was due in large part to a
shift in business mix resulting from the divestiture of CAS and the continued
expansion of the EOC reportable segment.
Direct expenses for 1997 increased 6.7% over direct expenses of $52,608,000 in
1996. Direct expenses as a percent of net revenue increased to 51.3% in 1997
from 44.7% in 1996. The increase was due in large part to a shift in business
mix resulting from the divestiture of CAS and the continued expansion of the EOC
reportable segment combined with higher utilization of professional staff within
the PSD reportable segment.
Indirect Expenses: Indirect expenses include salary compensation for
non-billable hours of professional, technical and administrative staff and
general administrative expenses such as rent, bonuses, benefits, insurance,
legal, depreciation and amortization. Indirect expenses for 1998 totaled
$49,373,000; essentially flat as compared to indirect expenses of $49,782,000 in
1997. Excluding the impact of CAS (which incurred indirect expenses of
$2,529,000 in the first quarter of 1997) indirect expenses during 1998 increased
4.5% from $47,253,000 during 1997. As a percentage of net revenue, however,
indirect expenses, as reported, decreased from 45.5% in 1997 to 38.0% in 1998.
The decrease was due in part to the above-noted shift in business mix, the
expansion of the EOC reportable segment and the continued positive impact of
cost containment measures.
Indirect expenses for 1997 decreased 24.4% from indirect expenses of $65,844,000
in 1996. Indirect expenses as a percent of net revenue decreased to 45.5% in
1997 from 55.9% in 1996. The decrease was due in part to the above-noted shift
in business mix following the divestiture of CAS, the expansion of the EOC
reportable segment and the planned short-term contraction of the PSD reportable
segment as it refocused its service offerings, combined with the effect of
significant severance costs and expenses related to the closure of several small
offices during 1996. In addition, during the fourth quarter of 1996, the Company
increased reserves relating to pending litigation matters by an additional
$1,553,000. The increased litigation reserves proved adequate for resolution of
the matters contemplated.
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, in 1996 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 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. Net reductions of
$4,000 and
14
<PAGE>
$586,000 to the reserve were recorded in 1998 and 1997, respectively, to reflect
lower than anticipated costs associated with the abandonment and subsequent
sublease of certain office space and lower than anticipated severance costs due
to retaining certain previously identified personnel.
Loss on Disposition of Laboratory: In December 1996, the Company executed a
letter of intent to sell its laboratory line of business, Columbia Analytical
Services, Inc. (CAS), to the employees of CAS 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.
During the first quarter of 1997, the Company completed the sale of CAS to the
employees of CAS for $4,000,000 in cash, CAS' promissory notes for $3,219,000
("CAS Notes") and a continuing preferred stock interest in CAS valued at
$500,000. The Company paid $206,000 in cash to CAS for retired employee
contracts and for accelerated vesting of stock options and other non-vested
stock rights. As a result of several closing adjustments, the Company recognized
an additional loss on disposition of CAS in the first quarter of 1997 of
$333,000. CAS and the Company also entered into a Master Service Agreement
(subsequently amended April, 1998) relating to the continued provision of
laboratory services to the Company (the "MSA"). The CAS Notes are subject to
offset, in certain circumstances, based upon the levels of future revenues to
CAS accruing under the amended MSA. The Company currently does not anticipate
that any offset will occur under the terms of the amended MSA.
Gain on Sale of Assets: During the first quarter of 1997, the Company completed
the sale of one of its landfill gas-to-energy projects, including the related
leasehold production rights and associated machinery and equipment. The Company
recognized a gain on disposition of the project in 1997 of $1,026,000.
Interest Income: The Company recorded interest income of $548,000 in 1998
compared to $516,000 in 1997 and $317,000 in 1996. The increase in interest
income in 1998 and 1997 compared to 1996 was primarily due to the recognition of
interest income on the CAS Notes.
Interest Expense: The Company incurred interest expense of $1,234,000 in 1998
compared to $1,251,000 in 1997. The decrease in interest expense was due
primarily to a decrease in debt.
The Company incurred interest expense of $1,112,000 in 1996. The increase in
interest expense in 1997 compared to 1996 was due primarily to an increase in
debt in connection with (i) the acquisition of National Earth Products, Inc. and
(ii) the acquisition and expansion of the EOC reporting segment's equipment
fabrication facility. This was offset by the $3,000,000 prepayment on the OWT
secured term loan.
Income Taxes Provision (Benefit): The provision (benefit) for income taxes in
1998 was $1,508,000 compared to $1,161,000 in 1997 and ($2,936,000) in 1996. The
effective tax rate for 1998 was 48.0% versus 35.0% in 1997 and (22.5%) for 1996.
The increase in the 1998 effective tax rate compared to 1997 was primarily due
to the reduction in alternative fuel tax credits generated by the Company
following the sale of one of EMCON's landfill gas-to-energy projects in 1997 and
the increase in the level of non-deductible goodwill. 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 increase in the legal reserve.
15
<PAGE>
Included in the Company's consolidated balance sheet at December 31, 1998, are
total current and long-term net deferred tax assets of $4,466,000. The full
utilization of such assets is dependent upon a number of factors including the
Company's ability to generate future profits and the anticipated reduction in
the level of new tax credits generated from the Company's existing landfill
gas-to-energy project. 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.
Liquidity and Capital Resources
Working Capital: Cash provided by operating activities for fiscal 1998, 1997 and
1996 was $4,741,000, $6,189,000, and $1,583,000, respectively. The changes in
cash provided by operating activities in 1998, 1997 and 1996 were primarily
attributed to changes in the Company's net income (loss), accounts receivable,
accounts payable, depreciation and amortization, bad debt expense, gain on
disposition of assets, prepaid expense and other current tax assets and other
accrued liabilities. During 1998, the Company's uses of cash for non-operating
activities primarily consisted of repayment of debt in the amount of $2,430,000,
repurchase of 408,000 shares of common stock in the amount of $1,247,000 and
$4,094,000 in additions to property and equipment.
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 line of credit component of the Credit Agreement is available for
working capital purposes. The line of credit component of the Credit Agreement
has been extended to April 30, 1999 at a level of $5,000,000 pending completion
of negotiations of a long-term facility. The Company expects to renew the line
of credit component of the Credit Agreement at the $10,000,000 level 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. In April 1997, following the infusion of cash
upon the divestiture of CAS, the Company prepaid, on an accelerated basis,
$3,000,000 of the then outstanding principal balance of the secured loan.
Amounts outstanding as of December 31, 1998, were $3,429,000 and $0 for the term
loan and line of credit, respectively.
Capital Expenditures: The Company invested $4,094,000 in 1998 in additions to
property and equipment, mainly computers, field equipment and development of the
Company's leachate evaporation system (LES) projects. 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.
In 1998, the Company announced a plan to repurchase, under certain
circumstances, up to 1,000,000 shares of its common stock. In 1998, the Company
repurchased 407,700 shares under the program for a total purchase price of
$1,247,000.
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.
16
<PAGE>
The Company's State of Readiness: The Company is in the process of completing
its internal analysis of potential Y2K compliance issues. Internal surveys are
being completed to identify potential hardware and software concerns and other
potential non-IT systems that may be affected. During 1998, the Company began
testing its internal systems for Y2K compliance and anticipates completing the
testing phase in the first quarter of 1999. The Company has begun to review
third party vendor/suppliers and customers that management believes could have a
material effect to its business, to ascertain if and when they will be Y2K
compliant. Survey letters to these third parties will be distributed early in
the first quarter of 1999. Information supplied by third parties will be entered
into a database and reviewed by the Company's IT department and business
managers to determine whether there are any potential issues. Once issues are
identified (anticipated to occur in 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. It is anticipated that the costs to bring these systems
into Y2K compliance is approximately $1,850,000; consisting primarily of
software updates, computer replacements, 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 it's computer, network, telephone
and related systems. It is expected that 40%, 35%, 20% and 5% of the total costs
will be incurred in first, 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 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 initial 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. Internal testing of
systems should be substantially finished prior to April, 1999. The Company plans
to evaluate the status of its internal testing and the information supplied by
its vendors and customers in June, 1999 and determine whether such a plan is
necessary.
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, 1998,
1997, and 1996................................................ 19
Consolidated Balance Sheets as of December 31, 1998 and 1997.... 20
Consolidated Statements of Shareholders' Equity for each of the
three years ended December 31, 1998, 1997, and 1996........... 21
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 1998, 1997, and 1996................. 22
Notes to Consolidated Financial
Statements.................................................... 23
Report of Ernst & Young LLP, Independent Auditors............... 42
18
<PAGE>
EMCON
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------
(In thousands, except per share amounts) 1998 1997 1996
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenue $151,348 $139,343 $137,626
Outside services at cost 21,388 29,841 19,921
-------- -------- --------
Net revenue 129,960 109,502 117,705
Costs and expenses:
Direct expenses 76,749 56,134 52,608
Indirect expenses 49,373 49,782 65,844
Restructuring/other charges (4) (586) 8,197
Loss on disposition of laboratory -- 333 3,327
Gain on sale of assets -- (1,026) --
-------- -------- --------
Income (loss) from operations 3,842 4,865 (12,271)
Interest income 548 516 317
Interest expense (1,234) (1,251) (1,112)
Equity in income (loss) of affiliates (15) (2) 227
Minority interest expense -- (810) (188)
-------- -------- --------
Income (loss) before provision (benefit) for
income taxes 3,141 3,318 (13,027)
Provision (benefit) for income taxes 1,508 1,161 (2,936)
-------- -------- --------
Net income (loss) $ 1,633 $ 2,157 $(10,091)
========= ========= ========
Basic earnings (loss) per share $ 0.19 $ 0.25 $ (1.19)
========= ========= ========
Diluted earnings per share $ 0.19 $ 0.25 --
========= ========= ========
Shares used in computing basic earnings (loss) per share 8,648 8,549 8,485
========= ========= ========
Shares used in computing diluted earnings per share 8,795 8,693 --
========== ========= ========
See accompanying notes.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
EMCON
CONSOLIDATED BALANCE SHEETS
- - ------------------------------------------------------------------------------------------------------------------------
December 31,
--------------------------
(In thousands, except share amounts) 1998 1997
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 2,677 $ 6,106
Accounts Receivable:
Billed accounts receivable, net of allowance for doubtful accounts
of $737 and $634 at December 31, 1998 and 1997, respectively 32,683 31,413
Unbilled accounts receivable, net of allowance for doubtful accounts
of $801 and $295 at December 31, 1998 and 1997, respectively 6,664 5,310
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,511 678
Prepaid expenses and other current assets 2,876 3,401
Inventory 2,630 2,238
Deferred taxes, current portion 3,434 4,235
------- -------
Total Current Assets 53,475 53,381
Net property and equipment, at cost 16,519 16,182
Notes receivable 2,724 2,811
Cash surrender value of insurance policies 3,466 2,346
Other assets 2,971 2,597
Deferred tax assets 1,032 1,028
Goodwill, net of amortization 14,850 13,916
Other intangible assets, net of amortization 852 814
------- -------
Total Assets $95,889 $93,075
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $10,711 $ 8,391
Accrued payroll and related benefits 5,335 4,356
Other accrued liabilities 4,347 2,969
Billings in excess of costs and estimated earnings
on uncompleted contracts 2,598 2,732
Long-term obligations due within one year 2,177 2,350
------- -------
Total Current Liabilities 25,168 20,798
Long-term debt 9,400 11,441
Other noncurrent obligations 2,184 2,736
Commitments and contingencies -- --
Shareholders' Equity:
Preferred stock, no par value, 5,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, no par value, 15,000,000 shares authorized;
8,315,399 and 8,571,764 shares issued and outstanding at
December 31, 1998 and 1997, respectively 41,628 42,184
Retained earnings 17,509 15,916
------- -------
Total Shareholders' Equity 59,137 58,100
------- -------
Total Liabilities and Shareholders' Equity $95,889 $93,075
======= =======
See accompanying notes.
</TABLE>
20
<PAGE>
EMCON
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------
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, 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
Issuance of common stock upon exercise of options,
net of redemptions 42 151 -- -- 151
Issuance of common stock under the Employee Stock
Purchase Plan 36 99 -- -- 99
Cancellation of restricted stock (19) (67) -- -- (67)
Dividends paid -- -- (52) -- (52)
Net income -- -- 2,157 -- 2,157
-----------------------------------------------------------------------
Balance at December 31, 1997 8,572 42,184 15,916 -- 58,100
Issuance of common stock upon exercise of options,
net of redemptions 29 104 -- -- 104
Issuance of common stock for the purchase of
Advanced Analytical Solutions (A2S) 123 593 -- -- 593
Cancellation of restricted stock (1) (6) -- -- (6)
Dividends paid -- -- (40) -- (40)
Repurchase of common stock (408) (1,247) -- -- (1,247)
Net income -- -- 1,633 -- 1,633
-----------------------------------------------------------------------
Balance at December 31, 1998 8,315 $41,628 $17,509 $0 $59,137
-----------------------------------------------------------------------
</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) 1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 1,633 $ 2,157 $(10,091)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 3,781 3,808 7,330
Amortization 663 652 1,034
Bad debt expense 755 1,424 717
(Gain) loss on sale/disposal of property and equipment (279) 227 474
Loss on disposition of laboratory -- 333 --
Gain on disposition of assets -- (1,026) --
Write-down of gas production rights -- -- 247
Impairment of goodwill -- -- 6,194
Increase (decrease) in salary continuation plan (203) 102 133
Changes in operating assets and liabilities:
Accounts receivable (2,957) (3,971) 509
Costs in excess of billings (1,833) 226 (421)
Inventory (392) (1,359) (102)
Prepaid expenses and other assets 847 (1,015) (782)
Notes receivable 87 (2,211) (257)
Cash surrender value, insurance policies (1,120) (639) (381)
Other assets (369) 2,425 (1,238)
Deferred tax assets 797 1,193 (3,616)
Accounts payable 1,862 2,912 (351)
Accrued payroll and related benefits 940 (562) 661
Billings in excess of costs (134) 2,638 (217)
Other accrued liabilities 663 (1,125) 1,740
- - ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,741 6,189 1,583
- - ---------------------------------------------------------------------------------------------------------------------------
Cash flow from investing activities:
Additions to property and equipment (4,094) (5,325) (2,484)
Maturities of available for sale securities -- -- 514
Net cash on disposition of laboratory -- 3,794 --
Net cash from dispositions of assets -- 1,040 --
Cash portion of assets held for sale -- -- (593)
Acquisitions, net of cash acquired (827) (858) (13,827)
Additional investment in intangible assets (102) -- --
Proceeds from sale of property and equipment 414 203 508
- - ---------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (4,609) (1,146) (15,882)
- - ---------------------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Proceeds of new debt obligation 58 1,314 17,526
Payments of current and noncurrent obligations (2,430) (5,731) (7,931)
Issuance of common stock for cash, net of cancellations 98 201 600
Repurchase of common stock (1,247) -- --
Dividend payments (40) (52) (16)
- - ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (3,561) (4,268) 10,179
- - ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (3,429) 775 (4,120)
Cash and cash equivalents, beginning of year 6,106 5,331 9,451
- - ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,677 $ 6,106 $ 5,331
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
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 1996 financial statements have been reclassified to conform to
the 1997 and 1998 presentations.
In 1994, the Company converted to a fifty-two/fifty-three week fiscal year,
resulting in a fifty-two week year in 1998 and 1997. 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 1998 and 1997 were January 1, 1999 and January 2, 1998,
respectively, for convenience, the date shown on accompanying consolidated
financial statements is December 31, the last day of the calendar periods.
Use of Estimates in the Preparation of Financial Statements: The preparation of
consolidated 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, revenue from construction projects is
recognized on a percentage of completion basis and revenue from maintenance
contracts is recognized on a straight-line basis over the life of the contract.
The Company routinely subcontracts for outside services, such as 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, depreciation
and amortization.
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 held as
investments as either held-to-maturity or available-for-sale at the time of
purchase and reevaluates such designation as of each consolidated 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 consolidated
shareholders' equity. The cost of debt securities is adjusted for amortization
of premiums and accretion of discounts to maturity, which is 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 debt securities held as investment as of
December 31, 1998 or 1997.
Supplemental Cash Flow Information: Cash paid for income taxes was approximately
$926,000, $1,673,000 and $659,000 for the years ended December 31, 1998, 1997
and 1996, respectively. Cash paid for interest was approximately $1,026,000,
$1,210,000 and $951,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
23
<PAGE>
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 2003, and the Company expects to
utilize such credits prior to expiration. To date, $506,000 of the trade credits
have been applied to payments. The Company has agreements for the utilization of
an additional $175,000 of the trade credits and are included on the December 31,
1998 consolidated balance sheet in other current assets. As of December 31,
1998, the remaining balance of $419,000 is included in other assets.
Inventories: Inventories are recorded at the lower of cost using the first-in,
first-out method, or market.
<TABLE>
<CAPTION>
Property and Equipment: Property and equipment consists of (in thousands):
- - -------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1998 1997
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and buildings $ 4,688 $ 4,683
Machinery and equipment 22,995 19,895
Furniture and fixtures 3,661 3,685
Vehicles 2,253 2,362
Leasehold improvements 1,293 1,074
- - -------------------------------------------------------------------------------------------------------------------------
Total 34,890 31,699
Less accumulated depreciation and amortization 18,371 15,517
- - -------------------------------------------------------------------------------------------------------------------------
Net property and equipment $16,519 $16,182
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 2-31 years).
Amortization of property and equipment acquired under capital leases is included
with depreciation expense. Approximately $1,187,000 and $3,963,000 of fixed
assets, net of accumulated depreciation of $1,052,000 and $3,533,000,
respectively, were sold or disposed of in 1998 and 1997, respectively.
Basic and Diluted Net Income (Loss) per Share: In 1997, the Financial Accounting
Standards Board issued Statement No. 128, Earnings per Share. Statement 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to fully
diluted earnings per share as previously computed under APB 15. Income (loss)
per share amounts for all periods have been presented, and where appropriate,
the presentation has been restated to conform to the requirements under
Statement 128.
Adoption of Statement 131: Effective January 1, 1998, the Company adopted the
Financial Accounting Standards Board's Statement of Financial Accounting
standards No. 131, Disclosure about Segments of an Enterprise and Related
Information, ("Statement 131"). Statement 131 superseded FASB Statement 14,
Financial Reporting for Segments of a Business Enterprise. Statement 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. The adoption of Statement 131 did not affect
consolidated results of operations or financial position, but did affect the
disclosure of segment information. See Note 2.
Business Segment and Concentration of Credit Risk: The Company operates within
two reportable segments, the Operations and Construction Division (EOC) and the
Professional Services Division (PSD), which provides comprehensive environmental
engineering, consulting, construction facilities operations and
24
<PAGE>
maintenance, and 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.
In 1998, one customer, Waste Management, accounted for 12% and 11% of
consolidated gross and net revenues, respectively. On a reportable segment
basis, the customer represented approximately 21% and 5% of the gross revenues
of the EOC and PSD reportable segments, respectively.
In 1997, one customer, Commonwealth Environmental Systems, accounted for 10% and
1% of consolidated gross and net revenues, respectively. All of the revenue was
recorded by the EOC reportable segment and represented approximately 27% and 3%
of EOC's gross and net revenues, respectively.
In 1996, no customer accounted for more than 10% of consolidated gross revenue.
Recent Accounting Pronouncements: In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes standards
for the reporting and display of comprehensive income and its components in the
financial statements. Comprehensive income is comprised of net income (loss),
changes in the value of available-for-sale securities and foreign currency
translation adjustments, and other such items disclosed in the statement of
stockholders' equity. The Company adopted SFAS 130 in the first quarter of 1998,
with no effect on its consolidated financial statements.
Fair Value of Financial Instruments: The following methods and assumptions were
used by the Company in estimating its fair value disclosure for financial
instruments:
Cash and cash equivalents: The carrying amount reported in the
consolidated balance sheet for cash and cash equivalents approximates
its fair value.
Notes receivable: The carrying amount reported in the consolidated
balance sheet for notes receivable approximates its fair value.
Short and long-term debt: The carrying amounts reported in the
consolidated balance sheet for short and long-term debt approximates
their fair value because the interest rates are either market variable
rates or fixed rates that approximate market rates.
2. 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.
In 1996 and the first quarter of 1997, the Company had, as part of its PSD
reportable segment, a laboratory operation known as Columbia Analytical
Services, Inc. (CAS). During the first quarter of 1997, the Company completed
the sale of CAS.
25
<PAGE>
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. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies in Note 1.
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.
26
<PAGE>
<TABLE>
<CAPTION>
Segment Information
- - --------------------------------------------------------------------------------------------------------------------------------
PSD EOC Other Total
------------------------------------
Year ended December 31, 1998 Consulting Lab Total
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues from:
External customers $86,366 N/A $86,366 $64,982 -- $151,348
Intersegment revenues 3,187 N/A 3,187 3,597 -- 6,784
Outside services from:
External subcontractors 20,979 N/A 20,979 409 -- 21,388
Intersegment services 3,852 N/A 3,852 2,937 -- 6,789
Net revenues 64,722 N/A 64,722 65,233 5 129,960
Depreciation expense 2,120 N/A 2,120 1,406 255 3,781
Amortization expense -- N/A -- 64 599 663
Segment operating profit before allocations 4,483 N/A 4,483 5,018 -- 9,501
Segment operating profit after allocations 595 N/A 595 3,007 240 3,842
Accounts receivable, net(1) 27,607 N/A 27,607 11,740 -- 39,347
- - --------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997
- - --------------------------------------------------------------------------------------------------------------------------------
Gross revenues from:
External customers $81,738 $4,453 $86,191 $52,883 $ 269 $139,343
Intersegment revenues 1,513 734 2,247 2,375 -- 4,622
Outside services from:
External subcontractors 16,813 275 17,088 12,754 (1) 29,841
Intersegment services 3,385 8 3,393 1,118 -- 4,511
Net revenues 63,053 4,904 67,957 41,386 159 109,502
Depreciation expense 2,285 462 2,747 1,207 316 4,270
Amortization expense -- -- -- 101 551 652
Restructuring/other charges -- -- -- -- (586) (586)
Loss on disposition of laboratory -- -- -- -- 333 333
Gain on sale of assets -- -- -- -- (1,026) (1,026)
Segment operating profit before allocations 4,923 108 5,031 4,982 -- 10,013
Segment operating profit (loss) after
allocations 1,294 (59) 1,235 3,067 563 4,865
Accounts receivable, net(1) 23,164 N/A 23,164 13,559 -- 36,723
- - --------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1996
- - --------------------------------------------------------------------------------------------------------------------------------
Gross revenues from:
External customers $94,836 $17,305 $112,141 $25,191 $294 $137,626
Intersegment revenues 536 4,013 4,549 528 -- 5,077
Outside services from:
External subcontractors 15,794 806 16,600 3,321 -- 19,921
Intersegment services 4,820 8 4,828 231 -- 5,059
Net revenues 74,758 20,505 95,263 22,167 275 117,705
Depreciation expense 3,841 2,297 6,138 1,172 20 7,330
Amortization expense -- -- -- -- 1,034 1,034
Restructuring/other charges -- -- -- -- 8,197 8,197
Loss on disposition of laboratory -- -- -- -- 3,327 3,327
Segment operating profit before allocations 2,891 754 3,645 2,493 -- 6,138
Segment operating profit (loss) after
allocations (815) (455) (1,270) 510 (11,511) (12,271)
Accounts receivable, net(1) 26,704 -- 26,704 6,156 -- 32,860
- - --------------------------------------------------------------------------------------------------------------------------------
(1) The Company reviews its consolidated balance sheet and reviews only accounts
receivable on a segment basis.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
Years ended December 31,
- - ----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Total external revenues for reportable segments $151,348 $139,343 $137,626
Intersegment revenues for reportable segments 6,784 4,622 5,077
Elimination of intersegment revenues (6,784) (4,622) (5,077)
-------- -------- --------
Total gross consolidated revenues 151,348 139,343 137,626
Less outside services 21,388 29,841 19,921
-------- -------- --------
Total net revenue $129,960 $109,502 $117,705
- - ----------------------------------------------------------------------------------------------------------------------
Profit or Loss
Total operating profit for reportable segments before allocations $ 9,501 $10,013 $ 6,138
Overhead allocations expense (5,899) (5,711) (6,898)
Unallocated overhead 240 563 (11,511)
------- ------- -------
Total operating profit (loss) after allocations 3,842 4,865 (12,271)
Interest income 548 516 317
Interest expense (1,234) (1,251) (1,112)
Equity in earnings (loss) of affiliates (15) (2) 227
Minority interest expense -- (810) (188)
------- ------- -------
Income (loss) before provision (benefit) for income taxes $ 3,141 $3,318 ($13,027)
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------
As of December 31, 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Accounts receivable for reportable segments $39,347 $36,723 $32,860
Other current assets 14,628 16,658 20,042
Net property and equipment at cost 16,519 16,182 14,722
Goodwill, net of amortization 14,850 13,916 12,716
Other assets 10,545 9,596 10,572
------- ------- -------
Total consolidated assets $95,889 $93,075 $90,912
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
3. Contracts in Progress
Information related to contracts in progress (in thousands):
- - ----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1998 1997
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Costs incurred on uncompleted contracts $28,219 $12,995
Estimated earnings on uncompleted contracts 3,380 2,187
-------- --------
31,599 15,182
Less billings to date on uncompleted contracts 31,686 17,236
- - ----------------------------------------------------------------------------------------------------------------------------
Total $ (87) $(2,054)
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Included in the accompanying consolidated balance sheets on an individual
contract basis are (in thousands):
- - ----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1998 1997
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Costs and estimated earnings in excess of billings
on uncompleted contracts. $2,511 $ 678
Billings in excess of costs and estimated earnings
on uncompleted contracts (2,598) (2,732)
- - ----------------------------------------------------------------------------------------------------------------------------
Total $ (87) $(2,054)
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
4. 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
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, 1998, $367,000 of the 1996 restructuring charges have been
paid and $275,000 remains in other accrued liabilities. Net reductions of $4,000
and $586,000 to the reserve were recorded in 1998 and 1997, respectively, to
reflect lower than anticipated costs associated with the abandonment and
subsequent sublease of certain office space and lower than anticipated severance
costs due to retaining certain previously identified personnel.
29
<PAGE>
5. Impairment of Assets Held for Sale/Loss on Disposition of Laboratory
In December 1996, the Company executed a letter of intent to sell its CAS
laboratory line of business to the employees of CAS 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.
During the first quarter of 1997, the Company completed the sale of CAS to the
employees of CAS for $4,000,000 in cash, CAS' promissory notes for $3,219,000
("CAS Notes") and a continuing preferred stock interest in CAS valued at
$500,000. The Company paid $206,000 in cash to CAS for retired employee
contracts and for accelerated vesting of stock options and other non-vested
stock rights. As a result of several closing adjustments, the Company recognized
an additional loss on disposition of CAS in the first quarter of 1997 of
$333,000. CAS and the Company also entered into a Master Service Agreement
(subsequently amended April, 1998) relating to the continued provision of
laboratory services to the Company (the "MSA"). The CAS Notes are subject to
offset, in certain circumstances, based upon the levels of future revenues to
CAS accruing under the amended MSA. The Company currently does not anticipate
that any material offset will occur under the terms of the amended MSA. At
December 31, 1998, the outstanding principal balance of the CAS Notes was
$2,435,000, of which $436,000 and $1,999,000 were recorded in the consolidated
balance sheet in prepaid and other current assets, and in notes receivable,
respectively. The notes bear interest at a rate of 8% compounded annually and
mature in April, 2004. Payments of interest and principal are due quarterly.
6. Notes Receivable and Advances
During the year ended December 31, 1998, the Company provided a $500,000 loan to
e-Com Solutions, Inc. ("e-Com"), an unrelated third party, in exchange for a
convertible promissory note receivable. The note bears interest at a rate of 9%
compounded annually and matures on demand, but not later than December 31, 2000.
In addition, the Company has provided $770,000 of non-interest bearing net
short-term cash advances to e-Com to fund its working capital requirements in
connection with its start-up activities. e-Com is in the business of high-end
technical consulting, specializing in computer network integration, e-Commerce,
and the development of web-based tools. The note agreement entitles the Company
to convert its outstanding principal and accrued interest into e-Com common
shares at a rate of $0.064516 per share at the Company's sole discretion after
June 30, 1998. Should the Company convert the entire note into e-Com common
shares, the Company would be a majority shareholder (holding approximately an
83% interest) of e-Com.
The Company's recovery of the note receivable balance and related accrued
interest and advances of working capital is dependent upon e-Com's ability to
successfully execute its business plan and generate sufficient cash flows to
repay its obligations. It is reasonably possible that e-Com's estimates of
future cash flows may change in the near term. As a result, the carrying amount
of the note and interest receivable and advances may be materially reduced in
the future.
In connection with the acquisition of A2S as further discussed in Note 8, the
Company extended a note receivable to one of A2S's former officers for $225,000.
The note bears interest at a rate of 8% compounded annually and matures on the
third anniversary (April, 2001) of the note date. Repayment is secured by EMCON
stock (approximately 56,000 shares) and rights to subsequent earnouts of A2S to
which the borrower may be entitled.
See note 5 for discussion of the CAS notes receivable.
30
<PAGE>
7. Other Dispositions
During the first quarter of 1997, the Company completed the sale of one of its
landfill gas-to-energy projects, including the related leasehold production
rights and associated machinery and equipment. The Company recognized a gain on
disposition of the project in 1997 of $1,026,000.
8. Acquisitions
Goodwill: On April 3, 1998, EMCON acquired all of 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, 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 $1,150,000 is being amortized over
twenty years using the straight-line method. Accumulated amortization at
December 31, 1998, was approximately $43,000. Additional consideration may be
paid for the purchase of A2S subject to the achievement of predetermined
operating performance goals over the next two 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 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 December 31, 1998, was approximately $1,000. 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.
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 $1,601,000
resulting from this acquisition are being amortized over twenty-five years using
the straight line method. Accumulated amortization as of December 31, 1998 and
1997, was approximately $102,000 and $39,000, respectively. Included in goodwill
is an additional $125,000 cash payment made to the former NEP shareholders in
May, 1998 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 over the next year to be measured as of April, 1999. This acquisition
would not have had a material effect on consolidated net revenue, net income, or
income per share, had it been effective at January 1, 1997.
On February 29, 1996, EMCON acquired all the outstanding capital stock of 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 to certain senior OWT management in the aggregate
principal amount of $1,747,000. The transaction was accounted for as a purchase.
The indebtedness bears interest at the rate of
31
<PAGE>
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 $11,382,000, which included a $253,000
increase resulting from the establishment of a deferred tax asset related to
this acquisition, is being amortized over thirty years using the straight line
method. Related accumulated amortization at December 31, 1998 and 1997, was
approximately $1,068,000 and $689,000, respectively.
Acquisitions made by the Company from 1992 through 1994 have resulted in
goodwill of approximately $3,112,000 which is included with intangible assets
and is being amortized over a period of twenty years using the straight-line
method. Related accumulated amortization was approximately $1,439,000 and
$1,327,000 at December 31, 1998 and 1997, respectively.
Other Intangible Assets: Other intangible assets at December 31, 1998, also
include $989,000, representing the gross cost to reacquire certain patent rights
associated with the Company's proprietary leachate evaporation system
technology. Accumulated amortization at December 31, 1998 and 1997, was
approximately $137,000 and $74,000, respectively. The patent is being amortized
over the fifteen year life of the patent.
9. 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 the salary
continuation agreements. Liabilities under salary continuation agreements were
$1,097,000 and $1,088,000 at December 31, 1998 and 1997, respectively and
represent the estimated present value of the future obligation discounted at the
Company's incremental borrowing rate of 7.5%. These liabilities have been
indirectly funded through insurance policies which are recorded at their
estimated cash surrender value.
The Company also provides, for certain employees, a Company contributory
deferred compensation plan. Contributions by the Company were $430,000 and
$387,150 in 1998 and 1997, respectively. Cumulative individual compensation
liabilities range from $10,000 to $124,817 and vest in varying amounts from one
year to six years and accrue interest. Deferred compensation liabilities were
$254,000 and $43,000 as of December 31, 1998 and 1997, respectively, and are
included in non-current liabilities.
Capital lease obligations are included in property and equipment with a cost and
accumulated depreciation of $101,000 and $30,000, respectively, at December 31,
1998, and $87,000 and $44,000, respectively, at December 31, 1997.
32
<PAGE>
10. 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 Code.
Employees may elect to contribute up to 20% of their annual compensation to the
plan up to the Internal Revenue Code annual contribution limit of $10,000 and
$9,500 for 1998 and 1997, respectively. Prior to 1997, the Company voluntarily
matched the employee's contribution to a maximum of 3% of annual compensation.
In 1997 and 1998, the Company elected to suspend the Company match. The
Company's contributions to the retirement plan were $1,146,000 for the year
ended December 31, 1996.
11. Commitments
The Company's minimum annual lease commitments under all operating leases for
the five years subsequent to December 31, 1998 are approximately (in thousands):
- - --------------------------------------------------------------------------------
Years Ending December 31,
- - --------------------------------------------------------------------------------
1999 $5,143
2000 3,779
2001 2,345
2002 1,310
2003 593
- - --------------------------------------------------------------------------------
Rent expense was approximately $4,271,000, $5,523,000 and $5,263,000 for the
years ended December 31, 1998, 1997 and 1996, 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 9.)
12. 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 at December 31, 1996. No significant
increases to legal reserves occurred in 1998 and 1997. 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
consolidated financial position, results of operations or cash flows.
33
<PAGE>
<TABLE>
<CAPTION>
13. Long-term Debt
Long-term debt consists of the following (in thousands):
- - -------------------------------------------------------------------------------------------- -------------- -------------
Years Ended December 31, 1998 1997
- - -------------------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Variable-rate note payable to bank $ 3,429 $ 4,857
(effective rate at 12/31/98 and 12/31/97 was 6.77% and 7.46%, respectively). Payable
in quarterly installments of $357 with a final payment of $571 in 2001.
Collateralized by the assets of EMCON.
8.00% unsecured notes payable to certain former OWT shareholders. Payable on termination 1,747 1,747
date in 2001. This debt may be converted into common stock at $6.50 per share.
Conversion of debt, if it occurs, would be within ninety days after November 30,
2001.
7.99% note payable to bank in monthly installments through 2006. Cross-collateralized by 3,937 4,285
the assets of OWT with a net book value of $9,372.
8.49% note payable to bank in monthly installments through 2001. Collateralized by 202 284
equipment of OWT with a net book value of $268.
8.99% note payable to bank in monthly installments through 2000. Cross-collateralized by 130 206
the assets of OWT with a net book value of $9,372.
7.89% note payable to bank in monthly installments through 2012. Cross-collateralized by 1,085 1,158
the assets of OWT with a net book value of $9,372.
8.00% unsecured notes payable to former NEP shareholders. Approximately 50% of the 800 800
convertible notes are due on May 1, 2000 with the balance due on May 1, 2002. This
debt may be converted into common stock at $6.50 per share. Conversion of debt, if
it occurs, would be 50% on May 1, 2000, and 50% on May 1, 2002.
9.07% note payable to finance company in monthly installments through 2001. 107 142
Collateralized by equipment of NEP with a net book value of $53.
Other indebtedness, interest rates vary from 5.3% to 15.9% payable in installments through 140 312
2000. (Primarily lease obligations)
----------------------------
Total Long-term Debt $ 11,577 $13,791
Less current portion $ 2,177 $ 2,350
- - -------------------------------------------------------------------------------------------------------------------------
Long-term Debt, net of current portion $ 9,400 $11,441
- - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest paid on all outstanding debt amounted to $956,000 in 1998 and
$1,135,000 in 1997.
Aggregate principal payments for the next five years for years ending December
31,
- - --------------------------------------------------------------------------------
1999 $ 2,177
2000 2,575
2001 1,175
2002 2,767
2003 647
thereafter 2,236
- - --------------------------------------------------------------------------------
34
<PAGE>
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. Amounts outstanding under the term loan as of December 31, 1998 were
$3,429,000. The line of credit component of the Credit Agreement is available
for working capital purposes. No amount was outstanding as of December 31, 1998.
Subsequent to year-end, the line of credit component of the Credit Agreement was
extended to April 30, 1999 at a level of $5,000,000. 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.
14. 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 and Restricted Stock Plans: The Company has issued options to
purchase shares of common stock pursuant to its 1986 and 1988 Incentive Stock
Option Plans (both expired in 1997) and its 1998 Stock Option Plan. These
options were 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.
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, 1998, 119,573 shares were
available for issuance.
<TABLE>
<CAPTION>
A summary of activity of the Plans follows:
- - --------------------------------------------------------------------------------------------------------------------------
Options Outstanding
-----------------------------------------------------------
Available Number Price Aggregate
for Grant of Shares Per Share Value
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
- - --------------------------------------------------------------------------------------------------------------------------
Options granted (1,261,500) 1,261,500 $3.13 - $ 5.00 5,250,375
Options canceled 534,043 (534,043) $3.25 - $11.25 (3,030,431)
Options exercised -- (42,374) $3.33 - $ 3.75 (150,621)
Options expired (1,004,671) -- -- --
- - --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 118,361 1,864,515 $3.13 - $10.00 8,789,581
- - --------------------------------------------------------------------------------------------------------------------------
Options authorized 1,000,000 -- -- --
Options granted (510,500) 510,500 $2.69 - $ 4.50 1,568,764
Options canceled 58,286 (58,286) $3.25 - $10.00 (188,465)
Options exercised -- (29,470) $3.25 - $ 4.13 (104,731)
Options expired (57,074) -- -- --
- - --------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 609,073 2,287,259 $2.69 - $10.00 $10,065,149
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
Employee Stock Purchase Plan: The EMCON Employee Stock Purchase Plan (ESPP)
provided that substantially all employees could 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.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------
Options ESPP
------- ----
1998 1997 1996 1998 1997 1996
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected life (years) 5.0 4.5 6.6 -- -- 0.5
Expected volatility .80 .66 .49 -- -- .32
Risk-free interest rate 4.9% 6.1% 6.1% -- -- 5.5%
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 1998 1997 1996
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss)
As reported $1,633 $2,157 $(10,091)
Pro forma $1,089 $1,918 $(10,311)
Basic (loss) earnings per share
As reported $ 0.19 $ 0.25 $ (1.19)
Pro forma $ 0.13 $ 0.22 $ (1.22)
- - ------------------------------------------------------------------------------------------------------------------------------
</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 1998, 1997 and 1996
was $1.93, $2.11 and $2.14 per share, respectively.
36
<PAGE>
<TABLE>
<CAPTION>
The following summarizes information about fixed stock options outstanding at
December 31, 1998:
- - --------------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
Weighted Weighted
Number Weighted Average Average Average
Range of Exercise Prices Outstanding at Remaining Contractual Exercise Price Number Exercise Price
12/31/98 Life Exercisable
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$9.25 - $10.00 171,300 3.61 $9.31 171,300 $9.31
6.50 - 8.83 69,950 4.60 6.98 69,950 6.98
5.00 - 6.00 680,500 4.03 5.02 22,000 5.26
2.69 - 4.88 1,365,509 4.49 3.34 361,843 3.71
- - --------------------------------------------------------------------------------------------------------------------------
$2.69 - $10.00 2,287,259 4.29 $4.40 625,093 $5.66
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1997, 415,153 shares were exercisable at an average exercise
price of $6.67 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 to 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 options for an additional 203,727
shares being canceled in exchange for the grant of new options covering 47,247
shares with an option exercise price of $3.68 per share.
37
<PAGE>
<TABLE>
<CAPTION>
15. Earnings Per Share
- - ---------------------------------------------------------------------------------------------------------------------------
Years Ended December 31,
(In thousands, except for earnings per share) 1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ 1,633 $ 2,157 $(10,091)
------- ------- ---------
Numerator for basic earnings per share -
income (loss) available to common stockholders $ 1,633 $ 2,157 $(10,091)
Effect of dilutive securities:
8% convertible debentures N/A(1) N/A(1) --
------- ------- --------
Numerator for diluted earnings per share -
income (loss) available to common stockholders
after assumed conversions $ 1,633 $ 2,157 $(10,091)
------- ------- --------
Denominator:
Denominator for basic earnings (loss) per share -
weighted-average shares 8,648 8,549 8,485
Effect of dilutive securities:
Employee stock options 147 144 --
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
conversions 8,795 8,693 --
======= ======= ========
Basic earnings (loss) per share $ 0.19 $ 0.25 $ (1.19)
======== ======= ========
Diluted earnings per share $ 0.19 $ 0.25 --
======== ======= ========
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 December 31, 1998 and 1997.
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 December 31, 1998 and 1997. Conversion of debt, if it occurs, would be 50% at
May 1, 2000, and 50% at May 1, 2002.
38
<PAGE>
16. Income Taxes
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $ 330 $ 43 $ 607
Deferred 768 832 (3,358)
- - ---------------------------------------------------------------------------------------------------------------------------
Total Federal $1,098 $ 875 ($2,751)
- - ---------------------------------------------------------------------------------------------------------------------------
State:
Current $ 476 $ 179 $ 73
Deferred (66) 107 (258)
- - ---------------------------------------------------------------------------------------------------------------------------
Total State $ 410 $ 286 ($ 185)
- - ---------------------------------------------------------------------------------------------------------------------------
Total Federal and State $1,508 $1,161 ($2,936)
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation between the Company's effective tax rate of 48.0% in 1998,
35.0% in 1997, and (22.5%) in 1996 and the U.S. statutory rate of 34% is as
follows (in thousands):
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at U.S. statutory rate $1,068 $1,128 ($4,559)
State taxes, net of federal benefit 185 189 (280)
Fuel tax credits (170) (416) (454)
Goodwill amortization 203 180 2,306
Meals and entertainment 185 90 94
Other individually immaterial items 37 (10) (43)
- - ---------------------------------------------------------------------------------------------------------------------------
Total Federal and State $1,508 $1,161 ($2,936)
- - ---------------------------------------------------------------------------------------------------------------------------
As of December 31, 1998, the Company has federal alternative minimum tax credit
carryforwards of approximately $1,386,000 which have no expiration date.
</TABLE>
39
<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 (in
thousands):
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1998 1997
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax credit carryforwards $1,386 $1,980
Deferred compensation 370 342
Allowance for doubtful accounts 631 318
Vacation accruals 715 582
Restructuring accruals 871 2,330
Book over tax depreciation 149 --
Other individually immaterial items 439 221
- - -------------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets $4,561 $5,773
- - -------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Tax over book depreciation $ -- $ 436
Tax accounting method changes 95 72
Payment liabilities deducted -- 2
- - -------------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities $ 95 $ 510
- - -------------------------------------------------------------------------------------------------------------------------------
Total net deferred tax assets $4,466 $5,263
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17. Related Party Transactions
The Company's Chief Financial Officer, currently serves as a member of the Board
of Directors of Columbia Analytical Services, Inc. (CAS), an analytical
laboratory company in which the Company retains a minority interest. CAS remains
a significant outside vendor of laboratory services to the Company.
40
<PAGE>
<TABLE>
<CAPTION>
18. Quarterly Data (unaudited)
- - --------------------------------------------------------------------------------------------------------------------------
(In thousands First Second Third Fourth
except per share amounts) Quarter Quarter Quarter Quarter
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Gross revenue $31,363 $33,114 $40,764 $34,102
Net revenue 27,581 24,467 29,899 27,555
Income from operations 1,317 1,084 1,789 675
Net income 691 494 943 29
Basic earnings per share $ 0.08 $ 0.06 $ 0.11 $ 0.00
Diluted earnings per share $ 0.08 $ 0.06 $ 0.11 $ 0.00
- - --------------------------------------------------------------------------------------------------------------------------
1998
Gross revenue $28,779 $40,985 $41,585 $39,999
Net revenue 25,822 36,209 35,631 32,298
Income from operations 143 1,190 1,568 941
Net income 20 574 730 309
Basic earnings per share $ 0.00 $ 0.07 $ 0.08 $ 0.04
Diluted earnings per share $ 0.00 $ 0.07 $ 0.08 $ 0.04
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Historically, the Company's net revenue is adversely affected in the first and
fourth quarters of each year, primarily as a result of restricted field work due
to weather conditions.
41
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
EMCON
We have audited the accompanying consolidated balance sheets of EMCON as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1998. Our audits also included the financial
statement schedule listed in the Index at Item 14(a)(2). 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of EMCON
at December 31, 1998 and 1997, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, 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, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
San Francisco, California
February 23, 1999
42
<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 1999
Annual Meeting of Shareholders to be filed with the Commission within 120 days
of the end of Registrant's fiscal year ended December 31, 1998.
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 1999
Annual Meeting of Shareholders to be filed with the Commission within 120 days
of the end of Registrant's fiscal year ended December 31, 1998.
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 1999
Annual Meeting of Shareholders to be filed with the Commission within 120 days
of the end of Registrant's fiscal year ended December 31, 1998.
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 1999
Annual Meeting of Shareholders to be filed with the Commission within 120 days
of the end of Registrant's fiscal year ended December 31, 1998.
43
<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 46
(b) Reports on Form 8-K --
No reports on Form 8-K were filed during
the quarter ended December 31, 1998. 47
(c) Index to Exhibits
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.
44
<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: March 25, 1999 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Douglas P. Crane Chairman of the Board and Director March 25, 1999
- - ---------------------
Douglas P. Crane
/s/ Eugene M. Herson President, Chief Executive Officer March 25, 1999
- - --------------------- and Director (Principal Executive
Eugene M. Herson Officer)
/s/ R. Michael Momboisse Chief Financial Officer, Vice March 25, 1999
- - ------------------------ President-Legal and Secretary
R. Michael Momboisse (Principal Financialand Accounting Officer)
/s/ Richard A. Peluso Vice President and Director March 25, 1999
- - ------------------------
Richard A. Peluso
/s/ Franklin J. Agardy Director March 25, 1999
- - ------------------------
Franklin J. Agardy
/s/ Donald R. Kerstetter Director March 25, 1999
- - ------------------------
Donald R. Kerstetter
/s/ Peter Vardy Director March 25, 1999
- - ------------------------
Peter Vardy
</TABLE>
45
<PAGE>
SCHEDULE II
EMCON
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Additions
Charged to
Balance Costs and Balance
at Beginning Expenses or at End
of Period Bonuses Write-Offs of Period
------------ ----------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for
Doubtful Accounts:
Year Ended
December 31, 1996 $ 1,052 $1,985 $(2,086) $ 951
Year Ended
December 31, 1997 $ 951 $1,295 $(1,317) $ 929
Year Ended
December 31, 1998 $ 929 $1,349 $ (740) $ 1,538
</TABLE>
46
<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 52
4, 1998 by and among Registrant, Western
52 Industrial Resources Corporation, and
various affiliated parties.
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").
47
<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 *(1)
and 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 *(1)
to 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 *(1)
by 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").
48
<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.
49
<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 *(1)
R. 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 *(1)
standard form of Incentive Stock Option
*(1) 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 Registrant and Union Bank of
California dated June 1, 1998,
incorporated by reference from Exhibit
10.32 of the June 30, 1998 10-Q.
50
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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 77(1)
and Patrick Gillespie dated November 10,
1998.
10.32 Employment Agreement between Registrant 80(1)
and Gerard Ridzon dated November 10,
1998.
10.33 Amendment 1998-1 to EMCON Deferred 83(1)
Compensation Plan dated November 12,
1998.
10.34 Eighth Amendment to Credit Agreement 84
among Registrant and Union Bank of
California dated November 30, 1998.
10.35 Ninth Amendment to Credit Agreement 89
among Registrant and Union Bank of
California dated December 22, 1998.
10.36 Tenth Amendment to Credit Agreement 94
among Registrant and Union Bank of
California dated January 27, 1999.
10.37 Extension and Modification Agreement 99
between the Union Bank of California and
Registrant dated March 19, 1999.
23.1 Consent of Ernst & Young, LLP, 112
Independent Auditors
27 Financial Data Schedule, included 113
herein.
* 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.
51
EXHIBIT 2.7
STOCK PURCHASE AGREEMENT
BY AND AMONG
WESTERN INDUSTRIAL RESOURCES CORPORATION,
AN ARIZONA CORPORATION,
ORGANIC WASTE TECHNOLOGIES, INC.,
A DELAWARE CORPORATION,
BRUCE NAVE AND MARCIA NAVE,
AND, WITH RESPECT TO SECTIONS 6.4, 6.8 and 8.5,
EMCON, A CALIFORNIA CORPORATION
52
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TABLE OF CONTENTS
Page
1. Definitions ...................................................... 55
1.1 Affiliate ............................................ 55
1.2 Cash Consideration ................................... 55
1.4 Closing Date ......................................... 55
1.5 Commission ........................................... 55
1.6 "GAAP" ............................................... 55
1.7 Governmental Entity .................................. 55
1.8 Holder Knowledge ..................................... 55
1.9 Material Adverse Effect .............................. 55
1.10 "Purchase" ........................................... 55
1.11 Securities Act ....................................... 55
2. Purchase and Sale ................................................ 56
2.1 Purchase and Sale .................................... 56
2.2 Aggregate Consideration .............................. 56
2.3 Closing; Delivery .................................... 56
3. Representations and Warranties of WI and the Sellers ............. 56
3.1 Organization, Standing and Power ..................... 56
3.2 Authority ............................................ 57
3.3 Title to Property .................................... 57
3.4 Capital Structure .................................... 57
3.5 Financial Statements ................................. 58
3.6 Absence of Certain Changes ........................... 58
3.7 Absence of Undisclosed Liabilities ................... 58
3.8 Governmental Authorization ........................... 58
3.9 Litigation ........................................... 58
3.10 Restrictions on Business Activities .................. 58
3.11 Intellectual Property ................................ 59
3.12 Interested Party Transactions ........................ 59
3.13 Minute Books ......................................... 59
3.14 Complete Copies of Materials ......................... 59
3.15 Material Contracts ................................... 59
3.16 Accounts Receivable .................................. 59
3.17 Customers and Suppliers .............................. 60
3.18 Employees and Consultants ............................ 60
3.19 Environmental Matters ................................ 60
3.20 Taxes ................................................ 60
3.21 Employee Benefit Plans ............................... 62
3.22 Employee Matters ..................................... 63
3.23 Insurance ............................................ 63
3.24 Compliance With Laws ................................. 63
3.25 Ownership of Shares and Options ...................... 63
3.26 Information Supplied ................................. 64
3.27 Brokers or Finders ................................... 64
3.28 Representations Complete ............................. 64
4. Representations and Warrantees of EMCON .......................... 64
4.1 Organization, Standing and Power ..................... 64
4.2 Authority ............................................ 64
5. Preclosing Covenants of WI ....................................... 64
5.1 Conduct of Business of WI ............................ 64
5.2 Access to Information ................................ 66
5.3 Exclusivity .......................................... 66
53
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TABLE OF CONTENTS
Page
6. Mutual Covenants ................................................. 66
6.1 No Public Announcement ............................... 66
6.2 Consents; Cooperation ................................ 67
6.3 Legal Requirements ................................... 67
6.4 Confidentiality ...................................... 67
6.5 Public Disclosure .................................... 67
6.6 Further Assurances ................................... 67
6.7 Expenses ............................................. 67
7. Conditions to Each Party's Obligations ........................... 67
7.1 No Injunctions or Restraints; Illegality ............. 67
7.2 Governmental Approval ................................ 68
8. Conditions to the Sellers' Obligations ........................... 68
8.1 Accuracy of Representations and Warranties ........... 68
8.2 Covenants and Conditions ............................. 68
8.3 Employment and Non-Competition Agreements ............ 68
8.4 Documents ............................................ 68
8.5 Release of Personal Guaranty ......................... 68
9. Conditions to Emcon's Obligations ................................ 68
9.1 Accuracy of Representations and Warranties ........... 68
9.2 Covenants and Conditions ............................. 68
9.3 Certificate of Secretary ............................. 68
9.4 No Material Adverse Change ........................... 68
9.5 Repayment and Cancellation of Promissory Note ........ 68
9.6 Third Party Consents ................................. 68
9.7 Employment and Non-Competition Agreements ............ 69
9.8 Delivery of Stock Certificates ....................... 69
9.9 Opinion of Counsel ................................... 69
9.10 Termination of Employment Contracts .................. 69
9.11 Documents ............................................ 69
10. Termination ...................................................... 69
10.1 Termination .......................................... 69
10.2 Effect of Termination ................................ 69
10.3 Extension; Waiver .................................... 69
10.4 Obligations Following Termination .................... 70
11. Miscellaneous .................................................... 70
11.1 Governing Law ........................................ 70
11.2 Notices .............................................. 70
11.3 Binding Upon Successors and Assigns .................. 72
11.4 Severability.......................................... 72
11.5 Remedies Cumulative .................................. 72
11.6 Entire Agreement ..................................... 72
11.7 Counterparts ......................................... 72
11.8 Amendment and Waivers ................................ 72
11.9 Survival of Agreements ............................... 72
11.10 Construction of Agreement ............................ 72
11.11 Absence of Third Party Beneficiary Rights ............ 72
54
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is effective as of the
4th day of December, 1998, by and among Western Industrial Resources
Corporation, an Arizona corporation ("WI"), Organic Waste Technologies, Inc., a
Delaware corporation ("OWT"), Bruce Nave and Marcia Nave (collectively, the
"Sellers" and each a "Seller") and, with respect to Sections 6.4, 6.8 and 8.5,
EMCON, a California Corporation ("EMCON").
RECITALS
A. The Sellers are the owners of all of the outstanding capital stock
of WI (the "WI Shares") prior to the Closing Date (as defined below).
B. OWT wishes to acquire the WI Shares in exchange for certain cash
payments pursuant to the terms of this Agreement and each of the Sellers wishes
to sell all WI Shares which he, she or it holds as of the Closing Date (as
defined below) to OWT pursuant to the terms of this Agreement (the "Purchase").
C. The parties hereto desire to set forth certain representations,
warranties and covenants made by each of the other as an inducement to the
consummation of the Purchase.
AGREEMENT
NOW, THEREFORE, in reliance on the foregoing recitals and in and for
the consideration and mutual covenants set forth herein, the parties agree as
follows:
1. Definitions.
1.1 "Affiliate" shall have the meaning set forth in the rules
and regulations promulgated by the Commission pursuant to the Securities Act.
1.2 "Cash Consideration" shall mean the amount to be paid to
the Sellers under Sections 2.2(a) and (b), subject to Section 2.2(c).
1.3 "Closing" shall have the meaning set forth in Section 2.3
hereof.
1.4 "Closing Date" shall have the meaning set forth in Section
2.3 hereof.
1.5 "Commission" shall mean the United States Securities and
Exchange Commission.
1.6 "GAAP" shall mean generally accepted accounting
principals.
1.7 "Governmental Entity" means any (i) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (ii) federal, state, local, municipal, foreign or
other government; or (iii) governmental or quasi-governmental authority of any
nature (including any governmental division, department, agency, commission,
official, organization, and any court or other tribunal).
1.8 "Knowledge" means any reference to a party's "knowledge"
means such party's actual knowledge after reasonable inquiry of officers,
directors and other employees of such party reasonably believed to have
knowledge of such matters.
1.9 "Material Adverse Effect" means any reference with respect
to any entity or group of entities to a material adverse effect on the business,
assets (including intangible assets), financial condition or results of
operations of such entity, taken as a whole. When the word "material" is not
capitalized it shall mean material with respect to the matter referenced.
1.10 "Purchase" shall mean the purchase and sale of the WI
shares as described in Section 2.1 hereof.
1.11 "Securities Act" shall mean the Securities Act of 1933,
as amended, or any similar federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
55
<PAGE>
2. Purchase and Sale.
2.1 Purchase and Sale. At the Closing, the Sellers shall sell
to OWT, and OWT shall purchase from the Sellers, all of the issued and
outstanding WI Shares for the Cash Consideration described below.
2.2 Cash Consideration.
(a) The initial purchase price for the WI Shares shall be
One Hundred Eighty Nine Thousand Dollars ($189,000), of which One Hundred Fifty
Nine Thousand Dollars ($159,000) shall be paid to the Sellers at the Closing
(the "Initial Payment") and Thirty Thousand Dollars ($30,000) shall be withheld
pursuant to Section 2.2(c) hereof for payment of the Outstanding Tax Liabilities
(as defined below). The Initial Payment will be allocated to each Seller pro
rata based on the number of WI Shares being sold to OWT by such Seller.
(b) In addition to the Initial Payment, the Sellers will
be eligible to earn additional consideration, regardless of the either Sellers'
employment status with the Company, based on the performance of WI subsequent to
the Closing, as described on Exhibit A attached hereto (each an "Earn-out
Payment"). Each Earn-out Payment paid to Sellers, if any, will be allocated to
each Seller pro rata based on the number of WI Shares sold to OWT by such
Seller.
(c) OWT shall withhold Thirty Thousand Dollars ($30,000)
from the Initial Consideration for payment to applicable tax authorities of
interest and penalties paid or payable after September 21, 1998 and any
undisclosed taxes as of the Closing (the "Outstanding Tax Liabilities"). In the
event the Outstanding Tax Liabilities are less than $30,000 as of March 31,
1999, the amount of the shortfall shall be paid as soon as practicable by OWT to
the Sellers pro rata based on the number of WI Shares sold to OWT by such
Seller. In the event the Outstanding Tax Liabilities are greater than $30,000 as
of March 31, 1999, the amount of the excess (the "Excess Liability") shall be
paid as soon as practicable to OWT by Sellers pro rata based on the number of WI
Shares sold to OWT by such Seller; provided, however, that any Excess Liability
owed that is not assessed at March 31, 1999 or that is unpaid by the Sellers,
shall be deducted from the first Earn-out Payment and, to the extent necessary,
from each subsequent Earn-out Payment to the extent such subsequent Earn-out
Payments are sufficient to offset the Excess Liability.
2.3 Closing; Delivery. The closing of the Purchase (the
"Closing") shall take place at the offices of Gray Cary Ware & Freidenrich LLP,
400 Hamilton Avenue, Palo Alto, California at 10:00 a.m., on December 4, 1998
(the "Closing Date"), or at such other time and place as OWT and the Sellers
shall mutually agree. At the Closing, each Seller shall deliver to OWT
certificate(s) representing the WI Shares that the Seller is selling, duly
endorsed or with assignments separate from certificate, against delivery to the
Seller by OWT of a check in the amount of the Initial Payment due to such
Seller.
3. Representations and Warranties of WI and the Sellers. Except as
disclosed in a document of even date herewith and delivered by WI to OWT prior
to the execution and delivery of this Agreement and referring to the
representations and warranties in this Agreement (the "WI Disclosure Schedule"),
each of the Sellers and WI, represents and warrants to OWT as follows (any
representation or warranty of WI herein being deemed to be a representation and
warranty of each Seller):
3.1 Organization, Standing and Power. WI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Arizona. WI has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified and
in good standing would have a Material Adverse Effect on WI. WI has delivered to
OWT a true and correct copy of the Articles of Incorporation and Bylaws of WI
each as amended to date. WI is not in violation of any of the provisions of its
Articles of Incorporation or Bylaws. WI does not directly or indirectly own any
equity or similar interest in, or any interest convertible or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
3.2 Authority.
(a) WI has, and will have as of the Closing Date, all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement has, and as of the Closing Date the consummation of the
transactions contemplated hereby will have been, duly authorized by all
necessary corporate action on the part of WI. This Agreement has been duly
executed and delivered by WI and constitutes the valid and binding obligation of
WI enforceable against WI in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to creditors' rights generally, and is
subject to general principles of equity. The execution and delivery of this
Agreement by WI does not, and the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any
56
<PAGE>
material obligation or loss of any material benefit under (i) any provision of
the Articles of Incorporation or Bylaws of WI, or (ii) any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to WI or any of its properties or assets. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to WI in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for such consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
have a Material Adverse Effect on WI and would not prevent, or materially alter
or delay any of the transactions contemplated by this Agreement.
(b) Each Seller has, and will have as of the Closing Date,
all requisite power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement has, and as of the Closing Date the consummation of the transactions
contemplated hereby will have been, duly authorized by all necessary action on
the part of each Seller, to the extent necessary. This Agreement has been duly
executed and delivered by Seller and constitutes the valid and binding
obligation of Seller enforceable against Seller in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting or relating to creditors' rights
generally, and is subject to general principles of equity. Any other agreements
or documents required hereunder to be executed and delivered by each Seller at
Closing will constitute the legal, valid and binding agreements of each Seller
executing the same, enforceable against such Seller in accordance with their
respective terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other laws
affecting creditor's rights generally. The execution and delivery of this
Agreement by Seller does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any material
obligation or loss of any material benefit under any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Seller or any of Seller's properties or assets. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required by or with respect to Seller in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for such consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Seller and would not prevent,
or materially alter or delay any of the transactions contemplated by this
Agreement.
3.3 Title to Property. WI has good and marketable title to all
of its properties, interests in properties and assets, real and personal,
reflected in the WI Balance Sheet or acquired after the WI Balance Sheet Date
(except properties, interests in properties and assets sold or otherwise
disposed of since the WI Balance Sheet Date in the ordinary course of business),
and with respect to leased properties and assets, valid leasehold interests
therein, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any kind or character, except (i) the lien of current taxes not
yet due and payable, (ii) such imperfections of title, liens and easements as do
not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties and (iii) liens securing debt
which is reflected on the WI Balance Sheet. The property and equipment of WI
that are used in the operations of its businesses are in all material respects
in good operating condition and repair, subject to normal wear and tear. All
material properties used in the operations of WI are reflected in the WI Balance
Sheet to the extent GAAP require the same to be reflected. All leases to which
WI is a party are in full force and effect and are valid, binding and
enforceable in accordance with their respective terms, except as such
enforceability may be limited by (i) bankruptcy laws and other similar laws
affecting creditors' rights generally and (ii) general principles of equity,
regardless of whether asserted in a proceeding in equity or at law. True and
correct copies of all such leases have been provided to OWT. WI owns no real
property.
3.4 Capital Structure.
(a) The authorized capital stock of WI consists of 100,000
shares of Common Stock. As of the Closing Date, there will be issued and
outstanding 100,000 shares of Common Stock. All outstanding shares of Common
Stock of WI are duly authorized, validly issued, fully paid and non-assessable
and are free of any liens or encumbrances other than any liens or encumbrances
created by or imposed upon the holders thereof, and are not subject to
preemptive rights or rights of first refusal created by statute, the Articles of
Incorporation or Bylaws of WI or any agreement to which WI is a party or by
which it is bound.
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(b) Except for the rights created pursuant to this
Agreement, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which WI is a party or by which it is bound
obligating WI to issue, deliver, sell, repurchase or redeem or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of Capital Stock of
WI or obligating WI to grant, extend, accelerate the vesting of, change the
price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. There are no other contracts, commitments or
agreements relating to voting, purchase or sale of WI's capital stock (i)
between or among WI and any of its shareholders and (ii) to WI's knowledge,
between or among any of WI's shareholders. All shares of outstanding Common
Stock of WI were issued in compliance with all applicable federal and state
securities laws.
3.5 Financial Statements. WI has delivered to OWT its
unaudited financial statements for the fiscal year ended December 31, 1997, and
for the nine-month period ended September 30, 1998 (collectively, the "Financial
Statements"). The Financial Statements have been prepared in accordance with
GAAP (except that the Financial Statements do not contain footnotes) applied on
a consistent basis throughout the periods indicated and with each other. The
Financial Statements fairly present the financial condition and operating
results of WI as of the dates, and for the periods, indicated therein, subject
to normal end of period adjustments. WI maintains and will continue to maintain
a standard system of accounting established and administered in accordance with
GAAP.
3.6 Absence of Certain Changes. Since September 30, 1998 (the
"WI Balance Sheet Date"), WI has conducted its business in the ordinary course
consistent with past practice, and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect on WI; (ii)
any acquisition, sale or transfer of any material asset of WI other than in the
ordinary course of business and consistent with past practice; (iii) any change
in accounting methods or practices (including any change in depreciation or
amortization policies or rates) by WI or any revaluation by WI of any of its
assets; (iv) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of WI or any direct or indirect
redemption, purchase or other acquisition by WI of any of its shares of capital
stock; (v) any material contract entered into by WI, other than in the ordinary
course of business and as provided to OWT, or any material amendment or
termination of, or default under, any material contract to which WI is a party
or by which it is bound; (vi) any amendment or change to the Articles of
Incorporation or Bylaws of WI; (vii) any increase in or modification of the
compensation or benefits payable or to become payable by WI to any of its
directors or employees; or (viii) any negotiation or agreement by WI to do any
of the things described in the preceding clauses (i) through (vii) (other than
negotiations with OWT and its representatives regarding the transactions
contemplated by this Agreement). At the Effective Time, there will be no accrued
but unpaid dividends on shares of WI's capital stock.
3.7 Absence of Undisclosed Liabilities. WI has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet for the period ended September 30, 1998 (the "WI Balance Sheet"),
(ii) those incurred in the ordinary course of business and not required to be
set forth in the WI Balance Sheet under GAAP, (iii) those incurred in the
ordinary course of business since the WI Balance Sheet Date and consistent with
past practice; and (iv) those incurred in connection with the execution of this
Agreement.
3.8 Governmental Authorization. WI has obtained each federal,
state, county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (i) pursuant to which WI currently
operates or holds any interest in any of its properties or (ii) that is required
for the operation of WI's business or the holding of any such interest, and all
of such authorizations are in full force and effect except where the failure to
obtain or have any such authorizations could not reasonably be expected to have
a Material Adverse Effect on WI.
3.9 Litigation. There is no private or governmental action,
suit, proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of WI, threatened
against WI or any of their respective properties or any of their respective
officers or directors (in their capacities as such) that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on WI.
There is no judgment, decree or order against WI, or, to the knowledge of WI,
any of their respective directors or officers (in their capacities as such),
that could prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to have a
Material Adverse Effect on WI. All litigation to which WI is a party (or, to the
knowledge of WI, threatened to become a party) is disclosed in the WI Disclosure
Schedule.
3.10 Restrictions on Business Activities. There is no
agreement, judgment, injunction, order or decree binding upon WI which has or
could reasonably be expected to have the effect of prohibiting or materially
impairing any current or future business practice of WI, any acquisition of
property by WI or the conduct of business by WI as currently conducted or as
proposed to be conducted by WI.
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3.11 Intellectual Property.
(a) WI owns or is licensed or otherwise possesses legally
enforceable rights to use, all patents, patent applications, trademarks, trade
names, service marks, copyrights (whether registered or unregistered), and any
applications therefor, maskworks, maskwork applications, net lists, schematics,
technology, know-how, trade secrets, inventory, ideas, algorithms, processes,
computer software programs and applications (in both source code and object code
form), client lists and tangible or intangible proprietary information and
material ("Intellectual Property") that are used or currently proposed to be
used in the business of WI as currently conducted or as proposed to be conducted
by WI, except to the extent that the failure to have such rights has not had and
would not reasonably be expected to have a Material Adverse Effect on WI. WI is
the exclusive owner of all Intellectual Property. WI has not licensed any of the
Intellectual Property on an exclusive basis.
(b) All patents, registered trademarks, service marks and
copyrights held by WI are valid and subsisting. WI is not infringing,
misappropriating or making unlawful use of, and has not received any notice or
other communication (in writing or otherwise) of any actual, alleged, possible
or potential infringement, misappropriation or unlawful use of any proprietary
asset owned or used by any third party. WI (i) has not been sued in any suit,
action or proceeding which involves a claim of infringement of any patents,
trademarks, service marks, copyrights or violation of any trade secret or other
proprietary right of any third party; and (ii) has not brought any action, suit
or proceeding for infringement of Intellectual Property or breach of any license
or agreement involving Intellectual Property against any third party.
(c) All current and former officers, employees and
consultants of WI have executed and delivered to WI an agreement (containing no
exceptions or exclusions from the scope of its coverage) regarding the
protection of proprietary information and the assignment to WI of any
Intellectual Property arising from services performed for WI by such persons,
the form of which has been supplied to OWT.
3.12 Interested Party Transactions. WI is not indebted to any
director, officer, employee or agent of WI (except for amounts due as normal
salaries and bonuses and in reimbursement of ordinary expenses), and no such
person is indebted to WI.
3.13 Minute Books. The minute books of WI made available to
OWT contain a complete and accurate summary of all meetings of directors and
shareholders or actions by written consent since the time of incorporation of WI
through the date of this Agreement, and reflect all transactions referred to in
such minutes accurately in all material respects.
3.14 Complete Copies of Materials. WI has delivered or made
available true and complete copies of each document which has been requested by
OWT or its counsel in connection with their legal and accounting review of WI.
3.15 Material Contracts. All material contracts and agreements
to which WI is a party are listed in the WI Disclosure Schedule hereto. With
respect to each such agreement: (i) the agreement is legal, valid, binding and
enforceable and in full force and effect with respect to WI, and to WI's
knowledge is legal, valid, binding, enforceable and in full force and effect
with respect to each other party thereto, in either case subject to the effect
of bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and except as the availability of
equitable remedies may be limited by general principles of equity; (ii) the
agreement will continue to be legal, valid, binding and enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect prior to the Closing, subject to the effect of bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and except as the availability of equitable remedies
may be limited by general principles of equity; and (iii) neither the WI nor, to
WI's knowledge, any other party, is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach of default
by WI or, to WI's knowledge, by any such other party, or permit termination,
modification or acceleration, under the agreement. WI is not a party to any
material oral contract, agreement or other arrangement other than as may be
disclosed in the WI Disclosure Schedule.
3.16 Accounts Receivable. Subject to any reserves set forth in
the Financial Statements, the accounts receivable shown on the Financial
Statements represent and will represent bona fide claims against debtors for
sales and other charges, are collectible in accordance with their terms at their
recorded amounts and are not subject to discount except for normal cash and
immaterial trade discounts. The amount carried for doubtful accounts and
allowances disclosed in the Financial Statements is sufficient to provide for
any losses which may be sustained on revaluation of the receivables.
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3.17 Customers and Suppliers. As of the date hereof, no
customer which individually accounted for more than 5% of WI's gross revenues
during the 12 month period preceding the date hereof and no supplier of WI has
canceled or otherwise terminated, or made any written threat to WI to cancel or
otherwise terminate, its relationship with WI or has at any time on or after
September 30, 1998 decreased materially its services or supplies to WI in the
case of any such supplier, or its usage of the services or products of WI in the
case of such customer, and to WI's knowledge, no such supplier or customer has
indicated either orally or in writing that it will cancel or otherwise terminate
its relationship with WI or to decrease materially its services or supplies to
WI or its usage of the services or products of WI, as the case may be. WI has
not knowingly breached any agreement with, or engaged in any fraudulent conduct
with respect to, any customer or supplier of WI.
3.18 Employees and Consultants. The WI Disclosure Schedule
contains a list of the names of all employees and consultants of WI, their
respective salaries or wages, other compensation and dates of employment and
positions.
3.19 Environmental Matters.
(a) As used in this Agreement:
(i) "Environmental Laws" shall mean any federal, state
or local laws, ordinances, codes, regulations, rules, policies and orders that
are intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to, or
list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants, or which are intended
to assure the safety of employees, workers or other persons, including the
public.
(ii) "Hazardous Materials" shall mean any toxic or
hazardous substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without limitation,
those substances, materials and wastes defined in or regulated under any
Environmental Laws.
(b) WI is not and has not been in violation of any
Environmental Law relating to the properties or facilities of WI at which any
part of WI's business is or has been conducted. WI has not used, generated,
manufactured or stored on or under any part of its properties or facilities at
which any part of WI's business is or has been conducted, or transported to or
from any part thereof, any Hazardous Materials in violation of any applicable
Environmental Laws. There has not been any presence, disposal, or release of any
Hazardous Materials on, from or under any part of WI's properties or facilities
at which any part of WI's business is or has been conducted. No civil, criminal
or administrative action, proceeding or investigation is pending or, to WI's
knowledge, threatened against WI, and WI is not aware of any facts or
circumstances which could form the basis for assertion of a claim or liability,
regarding non-compliance with Environmental Laws relating to WI's business.
3.20 Taxes.
(a) For purposes of this Agreement, a "Tax" or,
collectively, "Taxes" means any and all federal, state, local and foreign taxes,
assessments and other similar governmental charges, duties and impositions,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes, together
with all interest, penalties and additions imposed with respect to such amounts
and any obligations under any agreements or arrangements with any other person
with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Each of the Company and its Subsidiaries have
accurately prepared and timely filed (or will so file) all federal, state, local
and foreign returns, estimates, information statements and reports relating to
any and all Taxes concerning or attributable to the Company or any of its
Subsidiaries or to their operations ("Returns") required to be filed at or
before the Closing Date, and such Returns are true and correct in all material
respects and have been completed in all material respects in accordance with
applicable law. Each of the Company and its Subsidiaries has disclosed on its
federal income Tax returns all positions taken therein that could give rise to a
substantial understatement of federal income tax within the meaning of Section
6662 of the Code.
(c) Each of the Company and its Subsidiaries as of the
Closing Date: (i) will have paid all Taxes it is required to pay prior to the
Closing Date and (ii) will have withheld with respect to its employees all
federal and state income taxes, FICA, FUTA and other Taxes required to be
withheld, except for Taxes contested in good faith by appropriate proceedings
for which adequate reserves have been taken.
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(d) There is no Tax deficiency outstanding, proposed or
assessed against the Company or any of its Subsidiaries that is not reflected as
a liability on the Company Balance Sheet nor has the Company or any of its
Subsidiaries executed any waiver of any statute of limitations on or extending
the period for the assessment or collection of any Tax.
(e) Neither the Company nor any of its Subsidiaries has
any liability for unpaid federal, state, local or foreign Taxes that has not
been accrued for or reserved on the Company Balance Sheet, whether asserted or
unasserted, contingent or otherwise.
(f) No audit or other examination of any Return of the
Company or any of its Subsidiaries is presently in progress, nor has the Company
or any of its Subsidiaries been notified of any request for such an audit or
other examination.
(g) The Company has made available to Buyer or its legal
counsel copies of all foreign, federal and state income and all state sales and
use Returns for the Company and all its Subsidiaries filed for all periods since
their respective inceptions.
(h) There are (and immediately following the Closing Date
there will be) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"Liens") on the assets of the Company nor any of its Subsidiaries relating to or
attributable to Taxes other than Liens for Taxes not yet due and payable.
(i) Neither the Company nor any of its Subsidiaries has
knowledge of any basis for the assertion of any claim relating or attributable
to Taxes which, if adversely determined, would result in any Lien on the assets
of the Company or any of its Subsidiaries.
(j) None of the assets of the Company of any of its
Subsidiaries are treated as "tax-exempt use property" within the meaning of
Section 168(h) of the Code.
(k) As of the Closing Date, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company or any of its Subsidiaries that, individually or collectively, could
give rise to the payment of any amount that would not be deductible by the
Company or any of its Subsidiaries as an expense under applicable law.
(l) Neither the Company nor any of its Subsidiaries has
filed any consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(4) of the Code apply to any disposition of a subsection (f) asset
(as defined in Section 341(f)(4) of the Code) owned by the Company or any of its
Subsidiaries.
(m) Neither the Company nor any of its Subsidiaries is a
party to, or owes any amount under, any Tax sharing, indemnification or
allocation agreement. Neither the Company nor any of its Subsidiaries (i) has
been a member of an affiliated group filing a consolidated federal income Tax
return (other than a group the common parent of which was the Company) or (ii)
has any liability for Taxes of any person (other than any of the Company and its
Subsidiaries) under Treas. Reg. Section 1.1502-6 (or any similar provision of
state, local or foreign law), as a transferee or successor, by contract or
otherwise.
(n) Each of the Company's and its Subsidiaries' Tax basis
in its assets for purposes of determining its future amortization, depreciation
and other federal income Tax deductions is accurately reflected on its
respective Tax books and records. WI Disclosure Schedule sets forth the
following information with respect to each of the Company and its Subsidiaries
(or with respect to each of the Subsidiaries) as of the most recent practicable
date: (i) the basis of the stockholder(s) of any Subsidiary it its stock (or the
amount of any excess loss account); (ii) the amount of any net operating loss,
net capital loss, unused investment or other credit, unused foreign tax, or
excess charitable contribution allocable to the Company or any Subsidiary; and
(iii) the amount of any deferred gain or loss allocable to the Company or any
Subsidiary arising out of any deferred intercompany transaction.
(o) Neither the Company nor any of its Subsidiaries is and
has not been at any time, a "United States real property holding corporation"
within the meaning of Section 897(c)(2) of the Code.
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(p) Except as may be required as a result of the Purchase,
the Company and its Subsidiaries have not been and will not be required to
include any adjustment in taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or Section 263A of the Code or any comparable provision
under state or foreign Tax laws as a result of the transactions, events or
accounting methods employed prior to Closing.
(q) WI Disclosure Schedule lists (i) any Tax exemption,
Tax holiday or other Tax-sparing arrangement that the Company or any of its
subsidiaries has in any jurisdiction, including the nature, amount and lengths
of such Tax exemption, Tax holiday or other Tax-sparing arrangement and (ii) any
expatriate tax programs or policies affecting the Company or any of its
Subsidiaries. Each of the Company and its Subsidiaries is in full compliance in
all material respects with all terms and conditions required to maintain any Tax
exemption, Tax holiday or other Tax-sparing arrangement or order of any
Governmental Entity and the consummation of the Purchase will not have any
adverse effect on the continued validity and effectiveness of any such Tax
exemption, Tax holiday or other Tax-sparing arrangement or order.
3.21 Employee Benefit Plans.
(a) The WI Disclosure Schedule lists, with respect to WI
and any trade or business (whether or not incorporated) which is treated as a
single employer with WI (an "ERISA Affiliate") within the meaning of Section
414(b), (c), (m) or (o) of the Code, (i) all material employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), (ii) each loan to a non-officer employee in excess of
$5,000, loans to officers and directors and any stock option, stock purchase,
phantom stock, stock appreciation right, supplemental retirement, severance,
sabbatical, medical, dental, vision care, disability, employee relocation,
cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life
insurance or accident insurance plans, programs or arrangements, (iii) all
bonus, pension, profit sharing, savings, deferred compensation or incentive
plans, programs or arrangements, (iv) other fringe or employee benefit plans,
programs or arrangements that apply to senior management of WI and that do not
generally apply to all employees, and (v) any current or former employment or
executive compensation or severance agreements, written or otherwise, as to
which unsatisfied obligations of WI of greater than $5,000 remain for the
benefit of or relating to, any present or former employee, consultant or
director of WI (together, the "WI Employee Plans").
(b) WI has furnished to OWT a copy of each of the WI
Employee Plans and related plan documents (including trust documents, insurance
policies or contracts, employee booklets, summary plan descriptions and other
authorizing documents, and, to the extent still in its possession, any material
employee communications relating thereto) and has, with respect to each WI
Employee Plan which is subject to reporting requirements under ERISA or the
Code, provided copies of the Form 5500 reports filed for the last three plan
years. Any WI Employee Plan intended to be qualified under Section 401(a) of the
Code has either obtained from the Internal Revenue Service a favorable
determination letter as to its qualified status under the Code, including all
amendments to the Code effected by the Tax Reform Act of 1986 and subsequent
legislation (to the extent required by the Code), or has applied to the Internal
Revenue Service for such a determination letter prior to the expiration of the
requisite period under applicable Treasury Regulations or Internal Revenue
Service pronouncements in which to apply for such determination letter and to
make any amendments necessary to obtain a favorable determination, or has been
established under a standardized prototype plan for which an Internal Revenue
Service opinion letter has been obtained by the plan sponsor and is valid as to
the adopting employer. WI has also furnished OWT with the most recent Internal
Revenue Service determination or opinion letter issued with respect to each such
WI Employee Plan, and nothing has occurred since the issuance of each such
letter which could reasonably be expected to cause the loss of the tax-qualified
status of any WI Employee Plan subject to Code Section 401(a).
(c) (i) None of the WI Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there has
been no "prohibited transaction," as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any WI Employee Plan, which
could reasonably be expected to have, in the aggregate, a Material Adverse
Effect; (iii) each WI Employee Plan has been administered in accordance with its
terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), except as would
not have, in the aggregate, a Material Adverse Effect, and WI and each
subsidiary or ERISA Affiliate have performed all material obligations required
to be performed by them under, are not in any material respect in default under
or violation of and have no knowledge of any material default or violation by
any other party to, any of the WI Employee Plans; (iv) neither WI nor any other
ERISA Affiliate is subject to any liability or penalty under Sections 4976
through 4980 of the Code or Title I of ERISA with respect to any of the WI
Employee Plans; (v) all material contributions required to be made by WI or any
other ERISA Affiliate to any WI Employee Plan have been made on or before their
due dates and a reasonable amount has been accrued for contributions to each WI
Employee Plan for the current plan years; (vi) with respect to each WI Employee
Plan, no "reportable event" within the meaning of Section 4043 of ERISA
(excluding any such event for which the thirty (30) day notice requirement has
been waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 or ERISA has occurred; and (vii) no WI
Employee Plan is covered by, and neither WI or ERISA
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Affiliate has incurred or expects to incur any liability under Title IV of ERISA
or Section 412 of the Code. With respect to each WI Employee Plan subject to
ERISA as either an employee pension plan within the meaning of Section 3(2) of
ERISA or an employee welfare benefit plan within the meaning of Section 3(l) of
ERISA, WI has prepared in good faith and timely filed all requisite governmental
reports (which were true and correct as of the date filed) and has properly and
timely filed and distributed or posted all notices and reports to employees
required to be filed, distributed or posted with respect to each such WI
Employee Plan. No suit, administrative proceeding, action or other litigation
has been brought, or to the knowledge of WI is threatened, against or with
respect to any such WI Employee Plan, including any audit or inquiry by the IRS
or United States Department of Labor. Neither WI nor any other ERISA Affiliate
is a party to, or has made any contribution to or otherwise incurred any
obligation under, any "multiemployer plan" as defined in Section 3(37) of ERISA.
(d) With respect to each WI Employee Plan, WI and each of
its United States subsidiaries have complied with (i) the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and the proposed regulations thereunder and
(ii) the applicable requirements of the Family Leave Act of 1993 and the
regulations thereunder, except to the extent that such failure to comply would
not in the aggregate, have a Material Adverse Effect.
(e) The consummation of the transactions contemplated by
this Agreement will not (i) entitle any current or former employee or other
service provider of WI or any other ERISA Affiliate to severance benefits or any
other payment (including, without limitation, unemployment compensation, golden
parachute or bonus), except as expressly provided in this Agreement or (ii)
accelerate the time of payment or vesting of any such benefits, or increase the
amount of compensation due any such employee or service provider.
(f) There has been no amendment to, written interpretation
or announcement (whether or not written) by WI or any other ERISA Affiliate
relating to, or change in participation or coverage under, any WI Employee Plan
which would materially increase the expense of maintaining such plan above the
level of expense incurred with respect to that plan for the most recent fiscal
year included in WI's financial statements.
3.22 Employee Matters. WI is in compliance with all currently
applicable laws and regulations respecting discrimination in employment, terms
and conditions of employment, wages, hours and occupational safety and health
and employment practices, except for such noncompliance as has not and would not
reasonably be expected to have had a Material Adverse Effect on WI, and is not
engaged in any unfair labor practice. There are no pending claims against WI
under any workers' compensation plan or policy or for long term disability. WI
has no material obligations under COBRA with respect to any former employees or
beneficiaries thereunder. There are no proceedings pending or, to the knowledge
of WI, threatened, between WI and its employees, which proceedings have or could
reasonably be expected to have a Material Adverse Effect on WI. WI is not a
party to any collective bargaining agreement or other labor union contract nor
does WI know of any activities or proceedings of any labor union to organize its
employees. There has been no claim against WI based on actual or alleged race,
age, sex, disability or other harassment or discrimination, or similar tortuous
conduct, nor, to WI's knowledge, is there any basis for such claim. In addition,
WI has provided all employees with all relocation benefits, stock options,
bonuses and incentives, and all other compensation earned up through the date of
this Agreement.
3.23 Insurance. The WI Disclosure Schedule lists each policy
of insurance and bonds held by WI. WI has policies of insurance and bonds of the
type and in amounts customarily carried by persons conducting businesses or
owning assets similar to those of WI. There is no material claim pending under
any of such policies or bonds as to which coverage has been questioned, denied
or disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and WI are otherwise in
compliance with the terms of such policies and bonds. WI has no knowledge of any
threatened termination of, or material premium increase with respect to, any of
such policies.
3.24 Compliance With Laws. WI has complied with, is not in
violation of and has not received any notices of violation with respect to, any
federal state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as could not be reasonably expected to
have a Material Adverse Effect on WI.
3.25 Ownership of Shares and Options. Except as set forth in
the WI Disclosure Schedule, each Seller owns of record and beneficially the
number of shares of WI Common Stock indicated opposite such Seller's name in the
WI Disclosure Schedule hereto, as applicable, with full right and authority to
sell or exchange, as applicable, such securities hereunder, and upon delivery of
such shares hereunder, OWT will receive good title thereto, free and clear of
all mortgages, pledges or security interests and not subject to any agreements
or understandings among any Persons with respect to the voting or transfer of
such securities other than those arising under agreements to which EMCON or OWT
is a party.
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3.26 Information Supplied. Neither this Agreement, the WI
Financial Statements, the WI Disclosure Schedule, the Exhibits attached to this
Agreement, nor any other certificate or document furnished or to be furnished by
WI or the Sellers pursuant to the terms of this Agreement, contains or will
contain any untrue statement of a material fact known to the Sellers or WI,
respectively, or omits or will omit to state a material fact necessary to make
the statements contained in such information not misleading in light of the
circumstances under which such statements were made.
3.27 Brokers or Finders. Neither WI nor either of the Sellers
nor any of such Sellers' agents has 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.
3.28 Representations Complete. None of the representations or
warranties made by WI herein or in any Schedule or Exhibit hereto, including the
WI Disclosure Schedule, or certificate furnished by WI pursuant to this
Agreement or any written statement furnished to OWT pursuant hereto or in
connection with the transactions contemplated hereby, when all such documents
are read together in their entirety, contain, or will contain at the Effective
Time any untrue statement of a material fact, or omits or will omit at the
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
4. Representations and Warrantees of OWT. OWT represents and warrants
to WI as follows:
4.1 Organization, Standing and Power. OWT is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
4.2 Authority. OWT has, and will have as of the Closing Date,
all requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement has, and as of the Closing Date the consummation of the
transactions contemplated hereby will have been, duly authorized by all
necessary corporate action on the part of OWT. This Agreement has been duly
executed and delivered by OWT and constitutes the valid and binding obligation
of OWT enforceable against OWT in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to creditors' rights generally, and is
subject to general principles of equity. The execution and delivery of this
Agreement by OWT does not, and the consummation of the transactions contemplated
hereby will not conflict with or result in any violation of (with or without
notice or lapse of time, or both) (i) any provision of the Certificate of
Incorporation or Bylaws of OWT, or (ii) any material mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to OWT or any of its properties or assets. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to OWT in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for such consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not have a
Material Adverse Effect on OWT and would not prevent or materially alter or
delay any of the transactions contemplated by this Agreement.
5. Preclosing Covenants of WI
5.1 Conduct of Business of WI. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing, WI agrees (except to the extent expressly contemplated
by this Agreement or as consented to in writing by OWT), to carry on its and its
subsidiaries' business in the usual regular and ordinary course in substantially
the same manner as heretofore conducted; to pay and to cause its subsidiaries to
pay debts and Taxes when due subject (i) to good faith disputes over such debts
or Taxes and (ii) to OWT's consent to the filing of material Tax Returns if
applicable; to pay or perform other obligations when due, and to use all
reasonable efforts to preserve intact its present business organizations, keep
available the services of its and its subsidiaries' present officers and key
employees and preserve its and its subsidiaries' relationships with customers,
suppliers, distributors, licensers, licensees, and others having business
dealings with it or its subsidiaries, to the end that its and its subsidiaries'
goodwill and ongoing businesses shall be unimpaired at the Effective Time. WI
agrees to promptly notify OWT of (x) any event or occurrence not in the ordinary
course of its or its subsidiaries' business, and of any event which could have a
Material Adverse Effect on WI and (y) any material change in its capitalization
as set forth in Section 3.4. Without limiting the foregoing, except as expressly
contemplated by this Agreement or the WI Disclosure Schedule, WI shall not do,
cause or permit any of the following, or allow, cause or permit any of its
subsidiaries to do, cause or permit any of the following, without the prior
written consent of OWT:
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(a) Charter Documents. Cause or permit any amendments to
its Articles of Incorporation or Bylaws;
(b) Dividends; Changes in Capital Stock. Declare or pay
any dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its subsidiaries;
(c) Material Contracts. Enter into any material contract
or commitment, or violate, amend or otherwise modify or waive any of the terms
of any of its material contracts, other than in the ordinary course of business
consistent with past practice;
(d) Issuance of Securities. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities;
(e) Intellectual Property. Transfer to any person or
entity any rights to its Intellectual Property other than in the ordinary course
of business consistent with past practice;
(f) Exclusive Rights. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of its products or
technology;
(g) Dispositions. Sell, lease, license or otherwise
dispose of or encumber any of its properties or assets which are material
individually or in the aggregate, to its business, except in the ordinary course
of business consistent with past practice;
(h) Indebtedness. Incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(i) Agreements. Enter into, terminate or amend, in a
manner which will adversely affect the business of WI (i) any agreement
involving an obligation to pay or the right to receive $5,000 or more, (ii) any
agreement relating to the license, transfer or other disposition or acquisition
of intellectual property rights or rights to market or sell WI products, or
(iii) any other agreement which is material to the business or prospects of WI.
(j) Payment of Obligations. Pay, discharge or satisfy, in
an amount in excess of $5,000 in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of business, other than the payment,
discharge or satisfaction of liabilities reflected or reserved against in the WI
Financial Statements;
(k) Capital Expenditures. Make any capital expenditures,
capital additions or capital improvements except in the ordinary course of
business and consistent with past practice;
(l) Insurance. Materially reduce the amount of any
material insurance coverage provided by existing insurance policies;
(m) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business;
(n) Employee Benefit Plans; New Hires; Pay Increases.
Adopt or amend any employee benefit or stock purchase or option plan, or hire
any new employee, pay any special bonus or special remuneration (except payments
made pursuant to written agreements outstanding on the date hereof), or increase
the salaries or wage rates of its employees except in the ordinary course of
business in accordance with its standard past practice;
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(o) Severance Arrangements. Grant any severance or
termination pay (i) to any director or officer or (ii) to any other employee
except (A) payments made pursuant to written agreements outstanding on the date
hereof or (B) grants which are made in the ordinary course of business in
accordance with its standard past practice;
(p) Lawsuits. Commence a lawsuit other than (i) for the
routine collection of bills, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material impairment
of a valuable aspect of its business, provided that it consults with OWT prior
to the filing of such a suit, or (iii) for a breach of this Agreement;
(q) Acquisitions. Acquire or agree to acquire by merging
or consolidating with, or by purchasing a substantial portion of the assets of,
or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any assets which are material individually or in the
aggregate, to its business;
(r) Taxes. Other than in the ordinary course of business,
make or change any material election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any material Tax Return or any
amendment to a material Tax Return, enter into any closing agreement, settle any
material claim or assessment in respect of Taxes, or consent to any extension or
waiver of the limitation period applicable to any material claim or assessment
in respect of Taxes;
(s)Revaluation. Revalue any of its assets, including
without limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business; or
(t) Other. Take or agree in writing or otherwise to take,
any of the actions described in Sections 5.1 (a) through (s) above, or any
action which would cause a material breach of its representations or warranties
contained in this Agreement or prevent it from materially performing or cause it
not to materially perform its covenants hereunder.
5.2 Access to Information. Until the Closing, WI shall allow
OWT and its agents and representatives reasonable access upon reasonable notice
and during normal working hours to its files, books, records and offices
including, without limitation, any and all information relating to taxes,
commitments, contracts, leases, licenses and personal property and financial
condition. Until the Closing, WI shall cause its accountants to cooperate with
OWT, OWT and their agents and representatives in making available all financial
information requested, including, without limitation, the right to examine all
working papers pertaining to all financial statements prepared or audited by
such accountants.
5.3 Exclusivity.. During the period from the date of this
Agreement until the earlier of the termination of this Agreement or the Closing
Date, WI or the Sellers shall not, directly or indirectly, through any officer,
director, employee, representative or agent, (i) solicit, initiate, or encourage
any inquiries or proposals that constitute, or could reasonably be expected to
lead to, a proposal or offer for a merger, consolidation, business combination,
sale of substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transactions involving WI, other
than the transactions contemplated by this Agreement (any of the foregoing
inquiries or proposals being referred to in this Agreement as a "WI Acquisition
Proposal"), (ii) engage in negotiations or discussions concerning, or provide
any non-public information to any person or entity relating to, any WI
Acquisition Proposal, or (iii) agree to, approve or recommend any WI Acquisition
Proposal.
(a) WI or the Sellers shall notify OWT no later than
twenty-four (24) hours after receipt by WI (or its advisors) of any WI
Acquisition Proposal or any request for nonpublic information in connection with
a WI Acquisition Proposal or for access to the properties, books or records of
WI by any person or entity that informs WI that it is considering making, or has
made, a WI Acquisition Proposal. Such notice shall be made orally and in writing
and shall indicate in reasonable detail the identity of the offeror and the
terms and conditions of such proposal, inquiry or contact.
6. Mutual Covenants..
6.1 No Public Announcement. Neither WI nor OWT shall make any
public announcement concerning this Agreement, any memos, letters or other
agreements or the discussions between the parties relating to the Purchase
including the Letter of Intent dated September 21, 1998, between OWT and WI (the
"Letter of Intent") without the prior written approval
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of the other party, which approval will not be delayed or unreasonably withheld;
provided that either party may make disclosure if required under applicable law,
but only after reasonable consultation with the other.
6.2 Consents; Cooperation.. Each of OWT and WI shall promptly
apply for or otherwise seek, and use reasonable best efforts to obtain, all
consents and approvals required to be obtained by it for the consummation of the
transactions contemplated by this Agreement and shall use reasonable best
efforts to obtain all necessary consents, waivers and approvals under any of its
material contracts in connection with such transactions for the assignment
thereof or otherwise.
6.3 Legal Requirements. Each of OWT and WI will take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement and will promptly cooperate with and
furnish information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of or any registration,
declaration or filing with, any Governmental Entity or other person, required to
be obtained or made in connection with the taking of any action contemplated by
this Agreement.
6.4 Confidentiality. The parties acknowledge that EMCON, OWT
and WI have previously executed a non-disclosure agreement dated August 1, 1998
(the "Non-Disclosure Agreement"), which Non-Disclosure Agreement is hereby
incorporated herein by reference and shall continue in full force and effect in
accordance with its terms.
6.5 Public Disclosure. Unless otherwise permitted by this
Agreement, OWT and WI shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
NASDAQ.
6.6 Further Assurances. Prior to and following the Closing,
each party agrees to cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give such further written
assurances, as may be reasonably requested by any other party to better evidence
and reflect the transactions described herein and contemplated hereby and to
carry into effect the intents and purposes of this Agreement.
6.7 Expenses. WI is authorized to incur expenses for legal and
accounting services to review this Agreement, the Employment Agreement and
Non-Competition Agreement with Bruce Nave and the related documents comprising
the transactions contemplated herein with the limitation that any such expenses
that exceed $10,000 shall be borne exclusively by Bruce and Marcia Nave
personally. Such expenses shall be paid after the Closing within a reasonable
time after submission of an itemized billing statement by legal counsel and
accounting advisor.
6.8 EMCON Stock Options. After the Closing, options to
purchase an aggregate 10,000 shares of EMCON Common Stock shall be granted to
employees of WI consistent with the standard terms of the EMCON 1998 Stock
Option Plan.
7. Conditions to Each Party's Obligations. The obligations of each
party to close the transactions contemplated under this Agreement are subject to
the fulfillment or satisfaction, on or before the Closing Date, of each of the
following conditions (any of which may be waived by the party benefiting from
such condition, but only in a writing executed by such party):
7.1 No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Purchase shall be and remain in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending, which would have a Material
Adverse Effect on OWT or WI after the Closing, nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Purchase, which makes the consummation of the Purchase
illegal. In the event an injunction or other order shall have been issued, each
party agrees to use its reasonable diligent efforts to have such injunction or
other order lifted.
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7.2 Governmental Approval. OWT and WI and their respective
subsidiaries shall have timely obtained from each applicable Governmental Entity
all approvals, waivers and consents, if any, necessary for consummation of or in
connection with the Purchase and the several transactions contemplated hereby,
other than filings and approvals relating to the Purchase or affecting OWT's
ownership of WI or any of its properties if failure to obtain such approval,
waiver or consent would not have a Material Adverse Effect on OWT or WI after
the Closing.
8. Conditions to the Sellers' Obligations. The Sellers' obligations to
close the transactions contemplated under this Agreement are subject to the
fulfillment or satisfaction, on or before the Closing Date, of each of the
following conditions (any of which may be waived by the Sellers, but only in a
writing signed by either Seller):
8.1 Accuracy of Representations and Warranties. The
representations and warranties of OWT set forth in Section 4 shall be true in
all material respects on and as of the Closing Date with the same force and
effect as if they had been made at the Closing, and the Sellers shall receive a
certificate to such effect signed by an officer of OWT.
8.2 Covenants and Conditions. All of the covenants of OWT
contained in Sections 6 and all of the conditions set forth in Section 7 of this
Section 8 shall have been performed, complied with or satisfied in all material
respects on or before the Closing, and the Sellers shall receive a certificate
to such effect signed by an officer of OWT.
8.3 Employment and Non-Competition Agreements. OWT shall have
executed and delivered to Bruce Nave an Employment and Non-Competition Agreement
substantially in the form of Exhibit B attached hereto.
8.4 Documents. All of the documents required to be delivered
by OWT pursuant to this Agreement shall have been delivered and the Sellers
shall be reasonably satisfied with the content and form of all such documents.
8.5 Release of Personal Guaranty. EMCON, WI and each of the
Sellers shall have entered into a Letter Agreement, substantially in the form
attached hereto as Exhibit C, agreeing to and acknowledging the release of the
personal guaranty granted by each of the Sellers to EMCON pursuant to a
promissory note of WI dated October 23, 1998 in the principal amount of $27,000,
a promissory note of WI dated October 29, 1998 in the principal amount of
$10,000 and a promissory note of WI dated November 30, 1998 in the principal
amount of $60,000.
9. Conditions to OWT's Obligations. The obligations of OWT are subject
to the fulfillment or satisfaction, on or before the Closing Date, of each of
the following conditions (any one of which may be waived by OWT, but only in a
writing signed by OWT):
9.1 Accuracy of Representations and Warranties. The
representations and warranties of WI and the Sellers contained in Section 3
shall be true in all material respects, on and as of the Closing Date with the
same force and effect as if they had been made at the Closing, and OWT shall
have received a certificate to such effect signed by each of the Sellers.
9.2 Covenants and Conditions. All material respects with all
of the covenants of the Sellers contained in Sections 5 and 0 and all of the
conditions set forth in Section 7 and this Section 9 shall have been performed,
complied with or satisfied in all material respects on or before the Closing,
and OWT shall have received a certificate to such effect signed by each of the
Sellers.
9.3 Certificate of Secretary. WI shall have delivered to OWT
copies of its Articles of Incorporation, Bylaws and all resolutions adopted by
the Board of Directors and shareholders of WI pertaining to the Purchase, each
certified by the Secretary or an Assistant Secretary of WI as being accurate,
complete and in full force and effect.
9.4 No Material Adverse Change. Since the Balance Sheet Date,
there shall not have occurred any material adverse change in the financial
condition, properties, assets (including intangible assets), liabilities,
business, operations or results of operations of WI, taken as a whole.
9.5 Repayment and Cancellation of Promissory Note.. OWT shall
have received cash payment from the Sellers against the promissory note of WI in
the principal amount of $89,000, and such promissory note and any accrued
interest shall be canceled upon receipt of such payment pursuant to the terms
thereof.
9.6 Third Party Consents. OWT shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval is required in connection with the Purchase.
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9.7 Employment and Non-Competition Agreements. Bruce Nave
shall have executed and delivered the Employment and
Non-Competition Agreement.
9.8 Delivery of Stock Certificates. The Sellers shall have
delivered to OWT stock certificates representing all of the outstanding capital
stock of WI endorsed or accompanied by executed assignments separate from
certificate.
9.9 Opinion of Counsel; WI Legal Expenses. OWT shall have
received a written opinion from the offices of Mark A. Sippel, P.C., counsel to
WI ("Sippel"), in substantially the form attached hereto as Exhibit D. OWT shall
have received a statement from Sippel stating the amount of legal expenses
accrued by WI as of the Closing Date, and the Sellers shall have delivered a
check to OWT for any legal and accounting expenses in the aggregate over
$10,000, pursuant to Section 6.7 hereof.
9.10 Termination of Employment Agreements. WI shall have
terminated any oral or written employment agreements between WI and any of its
employees.
9.11 Documents. All of the documents required to be delivered
by WI or the Sellers pursuant to this Agreement shall have been delivered and
OWT shall be reasonably satisfied with the content and form of all such
documents.
10. Termination.
10.1 Termination. This Agreement may be terminated at any time
prior to the Closing as follows:
(a) by the mutual written consent of each of the parties
hereto;
(b) by either WI or OWT, if the Closing has not occurred
by December 31, 1998, provided that the right to terminate this Agreement
pursuant to this Section 10.1 (b) shall not be available to any party whose
failure to fulfill any obligation or condition under this Agreement has been the
cause of or resulted in the failure of the Closing to occur on or before such
date;
(c) by either OWT or WI if a court of competent
jurisdiction or other Governmental Entity having jurisdiction over the matter
shall have issued a nonappealable final order, decree or ruling or taken any
other action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Purchase, except, if the party relying on
such order, decree or ruling or other action has not complied with its
obligations under this Agreement; or
(d) by either OWT or WI, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach (i) causes the conditions set forth in
Section 9.1 or 9.2 (in the case of termination by OWT) or Section 8.1 or 8.2 (in
the case of termination by WI) not to be satisfied and (ii) shall not have been
cured within ten (10) business days following receipt by the breaching party of
written notice of such breach from the other party.
Any termination of this Agreement under this Section 10.1 shall be effective by
the delivery of written notice of the terminating party to the other parties
hereto.
10.2 Effect of Termination. In the event of termination of
this Agreement as provided in Section 10.1, there shall be no liability or
obligation on the part of OWT, WI or their respective officers, directors, or
shareholders, except to the extent that such termination results from the breach
by a party of any of its representations, warranties or covenants set forth in
this Agreement; provided that the provisions of Section 6.4 shall remain in full
force and effect and survive any termination of this Agreement.
10.3 Extension; Waiver. At any time prior to the Effective
Time, the parties hereto, by action taken or authorized by their respective
Boards of Directors, may, to the extent legally allowed, (i) extend the time for
the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto or (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
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10.4 Obligations Following Termination. In the event of the
termination of this Agreement:
(a) each party, if so requested by the other party, will
(i) return promptly every document (other than documents publicly available)
furnished to it by the other party (or any subsidiary, division, associate or
affiliate of such other party) in connection with the transactions contemplated
hereby, whether so obtained before or after the execution of this Agreement, and
any copies thereof which may have been made, and will cause its representatives
and any representatives of financial institutions and investors and others to
whom such documents were furnished promptly to return such documents and any
copies thereof any of them may have made, or (ii) destroy such documents and
cause its representatives and such other representatives to destroy such
documents, and such party shall deliver a certificate executed by its President
or Vice President stating to such effect; and
(b) WI and OWT shall continue to abide by the provisions
of the Non-Disclosure Agreement.
11. Miscellaneous.
11.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of California that might otherwise govern
under applicable principles of conflicts of law. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction of any court located within
San Mateo County, State of California, in connection with any matter based upon
or arising out of this Agreement or the matters contemplated hereby and it
agrees that process may be served upon it in any manner authorized by the laws
of the State of California for such persons and waives and covenants not to
assert or plead any objection which it might otherwise have to such jurisdiction
and such process.
11.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed duly delivered if delivered personally
(upon receipt), or three (3) business days after being mailed by registered or
certified mail, postage prepaid (return receipt requested), or one (1) business
day after it is sent by reputable nationwide overnight courier service, or upon
transmission, if sent via facsimile (with confirmation of receipt) to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
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(a) if to OWT:
Organic Waste Technologies, Inc.
7550 Lucerne Drive, #110
Cleveland, OH
Attention: Mary Geiger, Chief Financial Officer
Fax: (440) 891-0300
with a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Paul A. Blumenstein, Esq.
Fax: (650) 328-3699
(b) if to WI:
Western Industrial Resources Corporation
4711 North Falcon Drive, Suite 201
Mesa, AZ 85215
Attention: President
with a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Paul A. Blumenstein, Esq.
Fax: (650) 328-3699
(c) if to the Sellers:
Bruce and Marcia Nave
2236 North Rico Circle
Mesa, AZ 85213
with a copy to:
Mark A. Sippel, P.C.
3260 North Hayden Road, Suite 214
Scottsdale, AZ 85251-6651
Attention: Mark A. Sippel, Esq.
(d) if to EMCON:
EMCON
400 S. El Camino Real, Suite 1200
San Mateo, CA 94402
Attention: R. Michael Momboisse, Chief Financial Officer
Fax: (650) 375-0763
with a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Paul A. Blumenstein, Esq.
Fax: (650) 328-3699
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11.3 Binding Upon Successors and Assigns. Subject to, and
unless otherwise provided in, this Agreement, each and all of the covenants,
terms, provisions, and agreements contained herein shall be binding upon, and
inure to the benefit of, the permitted successors, executors, heirs,
representatives, administrators and assigns of the parties hereto.
11.4 Severability. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall be interpreted so as best to reasonably
effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible, the economic,
business and other purposes of the void or unenforceable provision.
11.5 Remedies Cumulative. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
11.6 Entire Agreement. This Agreement, the exhibits hereto,
the documents referenced herein (including the Non-Disclosure Agreement), and
the exhibits thereto, constitute the entire understanding and agreement of the
parties hereto with respect to the subject matter hereof and thereof and
supersede all prior and contemporaneous agreements or understandings,
inducements or conditions, express or implied, written or oral, between the
parties with respect hereto and thereto. The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent with any
of the terms hereof.
11.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original as against any party
whose signature appears thereon and all of which together shall constitute one
and the same instrument.
11.8 Amendment and Waivers. Any term or provision of this
Agreement may be amended, and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof for default in payment of any amount due
hereunder or default in the performance hereof shall not be deemed to constitute
a waiver of any other default or any succeeding breach or default. The failure
of any party to enforce any of the provisions hereof shall not be construed to
be a waiver of the right of such party thereafter to enforce such provisions.
11.9 Survival of Agreements. Except as otherwise provided for
herein, all covenants, agreements, representations and warranties made herein
shall survive the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby.
11.10 Construction of Agreement. This Agreement has been
negotiated by the respective parties hereto and their attorneys and the language
hereof shall not be construed for or against any party. The titles and headings
herein are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole.
11.11 Absence of Third Party Beneficiary Rights. No provisions
of this Agreement are intended, nor shall be interpreted, to provide or create
any third party beneficiary rights or any other rights of any kind in any
client, customer, affiliate, shareholder, partner of any party hereto or any
other person or entity unless specifically provided otherwise herein, and,
except as so provided, all provisions hereof shall be personal solely between
the parties to this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
WESTERN INDUSTRIAL RESOURCES ORGANIC WASTE TECHNOLOGIES, INC.
CORPORATION
By: /s/ Bruce Nave
- - -----------------------------
Bruce Nave, President By:/s/ Mary Geiger
------------------------------------
Mary Geiger, Chief Financial Officer
/s/ Bruce Nave
- - -----------------------------
Bruce Nave
/s/ Marcia Nave
- - -----------------------------
Marcia Nave
EMCON
By:/s/ R. Michael Momboisse
- - ----------------------------------------------------
R. Michael Momboisse, Chief Financial Officer
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EXHIBITS
Exhibit A Earn-out Payment Schedule
Exhibit B Forms of Employment and Non-Competition Agreement
Exhibit C Form of Letter Agreement
Exhibit D Form of Legal Opinion
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EXHIBIT A
Earn-Out Payment Schedule
OWT will pay to Sellers, as soon as practicable following the end of
each of the calendar years 1999, 2000 and 2001, an amount equal to 50% of the
amount by which WI's pre-tax income for such year exceeds the following
milestone amounts:
Pretax
Earning Period Income Milestone
-------------- ----------------
Calendar 1999 $100,000
Calendar 2000 $150,000
Calendar 2001 $200,000
Calculation of WI's pretax income for purposes of the above earn-out
will be based on the application of GAAP, consistently applied, including the
use of accrual accounting. OWT shall not allocate any portion of its general
corporate overhead to WI for the purposes of the above earn-out calculation,
provided that, to the extent OWT incurs expenses (e.g., insurance, in-house or
outside legal services, or accounting services) directly for the benefit of WI,
or otherwise provide administrative services for the benefit of WI, the actual
cost of such items, without markup, shall be charged to WI for purposes of such
calculation.
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EXHIBIT 10.3
EMCON
SALARY CONTINUATION PLAN PARTICIPANTS
<TABLE>
<CAPTION>
Monthly Payments
--------------------------------------
Salary Date Payments
Participant Continuation Non-compete Commence
- - --------------------------------- -------------------- ----------------- ---------------------------------
<S> <C> <C> <C> <C>
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
$ 600 $ 400 July 2007
Gary O. McEntee $ 600 $ 400 November 2004
</TABLE>
76
EXHIBIT 10.31
EMPLOYMENT AGREEMENT
(Patrick Gillespie)
THIS AGREEMENT is entered into effective the 10th day of November, 1998
by and between EMCON, a California corporation ("Employer"), and Patrick
Gillespie ("Employee").
RECITALS
WHEREAS, the parties hereto desire to set forth the terms of Employee's
continued employment with Employer.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto hereby agree as follows:
1. Duties. Employer shall employ Employee as a Vice President of
Employer responsible for the North Area of Employer's Professional Services
Division as presently configured (inclusive of all office locations, Wehran of
Puerto Rico, Airbank, the Clean Harbors alliance and the Xenergy alliance),
reporting directly to Employer's Chief Executive Officer and with such duties
and responsibilities as are typical for an officer in a similar role.
2. Term. Employee's employment pursuant to this Agreement will commence
on the date hereof and continue through January 3, 2002; provided, however, that
(i) this Agreement (except Section 7 hereof) shall terminate and be of no
further force or effect at the election of Employee, upon violation by Employer
of its obligations hereunder or upon ninety (90) days advance notice by Employee
at any time after December 31, 1999, and (ii) this Agreement (except Sections 6
and 7 hereof) shall terminate and be of no further force or effect at the
election of Employer upon termination of Employee's employment for cause
pursuant to Section 5, below.
3. Compensation.
(a) Employer shall pay Employee a base salary equivalent to
$140,000 per year, in equal bi-weekly installments (less applicable
withholding), which salary may be adjusted upward, from time to time during the
term of this Agreement by Employer's Board of Directors.
(b) During Employee's full time employment with Employer,
Employee shall be entitled to participate in all applicable benefit plans and
bonus programs generally available to employees of Employer
(c) On the first regular pay day of January 1999 and on the
first regular pay day of each applicable year of the term of this Agreement
(i.e. January 2000, January 2001, and January 2002). Employer shall pay Employee
a cash bonus of $50,000 per installment less applicable withholdings.
4. Extent and Place of Services. During Employee's full time employment
with Employer, Employee agrees to devote Employee's full business time to
employment with Employer. Employer shall
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not transfer or relocate Employee from Employer's office in New Hampshire during
the term hereof without the approval of Employee. In the event of a relocation,
Employee shall be entitled to receive relocation assistance consistent with
Employer's relocation policy.
5. Termination of Employment. Employee's employment under this
Employment Agreement shall not be terminated without good cause shown. Dismissal
for cause is intended to embrace intentional or grossly negligent conduct on the
part of Employee which is materially detrimental to the operations and/or
reputation of Employer. By way of illustration such actions would include (but
would not be limited to) material breach of Employee's obligations under this
Employment Agreement, 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 Employee's ability to perform Employee's employment obligations.
6. Covenant Not to Compete. In consideration for the hiring of Employee
by Employer during the term of this Agreement, Employee shall not render any
services or engage in any activities which are competitive with Employer's
activities in any other state in which Employer conducts business. In the event
of any breach of the foregoing covenant, the Employee acknowledges that
Employer's remedies at law will be inadequate and Employer shall be entitled to
seek injunctive relief, as well as any rights Employer may have at law or in
equity, including any rights regarding the misuse of confidential or proprietary
information.
7. Confidentiality. Employee agrees to keep confidential and not
disclose or make any use of any confidential or proprietary information of
EMCON, except for EMCON's benefit, at any time either during or subsequent to
Employee's employment. Confidential or proprietary information is subject matter
pertaining to any business of EMCON or any of their clients, consultants or
affiliates which Employee may produce, obtain, become aware of or otherwise
acquire during the course of employment which is not public knowledge.
8. Miscellaneous.
(a) This Agreement and each of its provisions shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors, representatives, and assigns.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware as applied to transactions
between Delaware residents wholly within the State of Delaware. If any provision
of the Agreement is held invalid or unenforceable for any reason, the parties
hereto agree that such invalidity will not affect the remaining provisions of
this Agreement.
(c) This Agreement constitutes the entire Agreement between
the parties with respect to the subject matter hereof and it hereby supersedes
any and all prior agreements or understandings between the parties with respect
to such subject matter. This Agreement may not be amended or changed except by
an instrument in writing signed by the parties hereto.
(d) This Agreement may be executed in one or more
counterparts, each of which shall be an original instrument, but all of which
together shall constitute one and the same instrument.
(e) The headings of this Agreement have been inserted for
convenience of reference only and shall in no way restrict or otherwise modify
any of the terms or provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EMPLOYER: EMPLOYEE:
EMCON, a California corporation
By: /s/ Eugene M. Herson /s/ Patrick Gillespie
- - ---------------------------- ---------------------
Title: President & Chief Executive Officer Patrick Gillespie
79
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
(Gerard Ridzon)
THIS AGREEMENT is entered into effective the 10th day of November, 1998
by and between EMCON, a California corporation ("Employer"), and Gerard Ridzon
("Employee").
RECITALS
WHEREAS, the parties hereto desire to set forth the terms of Employee's
continued employment with Employer.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the parties hereto hereby agree as follows:
1. Duties. Employer shall employ Employee as a Vice President of
Employer reporting directly to the Area Operations Manager for the North Area of
Employer's Professional Services Division as presently configured (inclusive of
all office locations, Wehran of Puerto Rico, Airbank, the Clean Harbors alliance
and the Xenergy alliance) and with such duties and responsibilities as are
typical for an officer in a similar role.
2. Term. Employee's employment pursuant to this Agreement will commence
on the date hereof and continue through January 3, 2002; provided, however, that
(i) this Agreement (except Section 7 hereof) shall terminate and be of no
further force or effect at the election of Employee, upon violation by Employer
of its obligations hereunder or upon ninety (90) days advance notice by Employee
at any time after December 31, 1999, and (ii) this Agreement (except Sections 6
and 7 hereof) shall terminate and be of no further force or effect at the
election of Employer upon termination of Employee's employment for cause
pursuant to Section 5, below.
3. Compensation.
(a) Employer shall pay Employee a base salary equivalent to
$110,000 per year, in equal bi-weekly installments (less applicable
withholding), which salary may be adjusted upward, from time to time during the
term of this Agreement by Employer's Board of Directors.
(b) During Employee's full time employment with Employer,
Employee shall be entitled to participate in all applicable benefit plans and
bonus programs generally available to employees of Employer
(c) On the first regular pay day of January 1999 and on the
first regular pay day of each applicable year of the term of this Agreement
(i.e. January 2000, January 2001, and January 2002). Employer shall pay Employee
a cash bonus of $50,000 per installment less applicable withholdings.
4. Extent and Place of Services. During Employee's full time employment
with Employer, Employee agrees to devote Employee's full business time to
employment with Employer. Employer shall
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not transfer or relocate Employee from Employer's office in New Hampshire during
the term hereof without the approval of Employee. In the event of a relocation,
Employee shall be entitled to receive relocation assistance consistent with
Employer's relocation policy.
5. Termination of Employment. Employee's employment under this
Employment Agreement shall not be terminated without good cause shown. Dismissal
for cause is intended to embrace intentional or grossly negligent conduct on the
part of Employee which is materially detrimental to the operations and/or
reputation of Employer. By way of illustration such actions would include (but
would not be limited to) material breach of Employee's obligations under this
Employment Agreement, 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 Employee's ability to perform Employee's employment obligations.
6. Covenant Not to Compete. In consideration for the hiring of Employee
by Employer during the term of this Agreement, Employee shall not render any
services or engage in any activities which are competitive with Employer's
activities in any other state in which Employer conducts business. In the event
of any breach of the foregoing covenant, the Employee acknowledges that
Employer's remedies at law will be inadequate and Employer shall be entitled to
seek injunctive relief, as well as any rights Employer may have at law or in
equity, including any rights regarding the misuse of confidential or proprietary
information.
7. Confidentiality. Employee agrees to keep confidential and not
disclose or make any use of any confidential or proprietary information of
EMCON, except for EMCON's benefit, at any time either during or subsequent to
Employee's employment. Confidential or proprietary information is subject matter
pertaining to any business of EMCON or any of their clients, consultants or
affiliates which Employee may produce, obtain, become aware of or otherwise
acquire during the course of employment which is not public knowledge.
8. Miscellaneous.
(a) This Agreement and each of its provisions shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors, representatives, and assigns.
(b) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware as applied to transactions
between Delaware residents wholly within the State of Delaware. If any provision
of the Agreement is held invalid or unenforceable for any reason, the parties
hereto agree that such invalidity will not affect the remaining provisions of
this Agreement.
(c) This Agreement constitutes the entire Agreement between
the parties with respect to the subject matter hereof and it hereby supersedes
any and all prior agreements or understandings between the parties with respect
to such subject matter. This Agreement may not be amended or changed except by
an instrument in writing signed by the parties hereto.
(d) This Agreement may be executed in one or more
counterparts, each of which shall be an original instrument, but all of which
together shall constitute one and the same instrument.
(e) The headings of this Agreement have been inserted for
convenience of reference only and shall in no way restrict or otherwise modify
any of the terms or provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EMPLOYER: EMPLOYEE:
EMCON, a California corporation
By: /s/ Eugene M. Herson /s/ Gerard Ridzon
- - ------------------------- -----------------
Title: President & Chief Executive Officer Gerard Ridzon
82
EXHIBIT 10.33
AMENDMENT NO. 1998-1
TO
EMCON
DEFERRED COMPENSATION PLAN
EMCON, a California corporation (the "Company"), pursuant to
the power granted to it by Section 11.2 of the EMCON Deferred Compensation Plan,
dated as of August 1, 1997, as amended January 1, 1998 (the "Plan"), hereby
further amends the Plan, as follows, effective as of January 1, 1999:
1. The first two sentences of Section 4.1 are hereby amended in their entirety
to read as follows:
"Each Plan Year, a Participant may irrevocably elect to receive a
future "Short-Term Payout" from the Plan with respect to such Plan
Year's Annual Deferral Amount and Discretionary Company Contribution
Amount. Subject to the Deduction Limitation, the Short-Term Payout
shall be a lump sum payment in an amount that is equal to the Annual
Deferral Amount and the Discretionary Company Contribution Amount for
such Plan Year, plus amounts credited or debited thereon in the manner
provided in Section 3.5 above, determined at the time that the
Short-Term Payout becomes payable (rather than the date of a
Termination of Employment)."
The Company has caused this Amendment to be signed by its duly
authorized officer as of the 12th day of November, 1998.
EMCON
By: /s/ R. Michael Momboisse
----------------------------------------------
R. Michael Momboisse
Chief Financial Officer - Vice President Legal
83
EXHIBIT 10.34
EIGHTH AMENDMENT
TO CREDIT AGREEMENT
THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT (this "Eighth Amendment") dated as of
November 30, 1998, is made and entered into by and between EMCON, a California
Corporation ("Borrower"), and UNION BANK OF CALIFORNIA, N.A. ("Bank"), successor
in interest to the Bank of California, N.A.
RECITALS:
A. Borrower and Bank are parties to that certain Credit Agreement dated
February 29, 1996 as amended from time to time (the "Agreement"),
pursuant to which Bank agreed to extend credit to Borrower.
B. Borrower is currently indebted to Bank under the Agreement in the
aggregate commitment amount of $13,785,713 and Borrower has no defense,
offset or counterclaim against Bank or any other person or entity that
diminishes such indebtedness.
Now, therefore, in consideration of the above recitals and of the mutual
covenants and conditions contained herein, Borrower and Bank agree as follows:
AGREEMENT:
1. Defined Terms. Initially capitalized terms used herein which are not
otherwise defined shall have the meanings assigned thereto in the
Agreement.
2. Amendments to the Agreement.
(a) In ARTICLE 1 - DEFINITIONS, "Termination Date" is amended in its
entirety to read as follows:
""Termination Date" means the earlier of (a) the date Bank may
terminate making Advances or extending credit pursuant to the rights of Bank
under Article 7; or (b) December 31, 1998 for the Line of Credit; or (c) June
30, 2001 for the Term Loan."
3. Effectiveness of the Eighth amendment. This Eighth Amendment shall
become effective as of the date hereof when, and only when, Bank shall
have received all of the following, in form and substance satisfactory
to Bank:
(a) The counterpart of this Seventh Amendment, duly executed by
Borrower;
(b) Such other documents, instruments or agreements as Bank may
reasonably deem necessary.
4. Ratification. Except as specifically amended hereinabove, the Agreement
shall remain in full force and effect and is hereby ratified and
confirmed.
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5. Representations and Warranties. Borrower represents and warrants as follows:
(a) Each of the representations and warranties contained in the
Agreement, as may be amended hereby, is hereby reaffirmed as of the
date hereof, each as if set forth herein:
(b) The executive, delivery and performance of the Eighth Amendment and
any other instruments or documents in connection herewith are within
Borrower's power, have been duly authorized, are legal, valid and
binding obligations of Borrower, and are not in conflict with the terms
of any charter, bylaw, or other organization papers of Borrower or with
any law, indenture, agreement or undertaking to which Borrower is a
party or by which Borrower is bound or affected;
(c) No event has occurred and is continuing or would result from this
Eighth Amendment which constitutes or would constitute an Event of
Default under the Agreement.
6. Governing Law. This Eighth Amendment and all other instruments or
documents in connection herewith shall be governed by and construed
according to the laws of the State of California.
7. Counterparts. This Eighth Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
WITNESS the due execution hereof as of the date first above written.
UNION BANK OF CALIFORNIA, N.A. EMCON
By: /s/ David Jackson By: /s/ Eugene M. Herson
- - -------------------------- -----------------------------
Title: Vice President Title: CFO & President
By: /s/ R. Mike Momboisse
-----------------------------
Title: CFO and VP Legal
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PROMISSORY NOTE
(BASE RATE)
Borrower Name: EMCON
Borrower Address: Office 70061
400 SOUTH EL CAMINO REAL, STE 1200 Loan Number 259-668-7520 0081-00-000
SAN MATEO, CA 94402 Maturity Date DECEMBER 31, 1998
Amount $10,000,000.00
$10,000,000.00 Date NOVEMBER 30, 1998
- - -------------- -----------------------
FOR VALUE RECEIVED, on DECEMBER 31, 1998, the undersigned ("Debtor") promises to
pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated below,
the principal sum of TEN MILLION AND NO/100 Dollars ($10,000,000.00), or so much
thereof as is disbursed, together with interest on the balance of such principal
from time to time outstanding, at the per annum rate or rates and at the times
set forth below.
1. INTEREST PAYMENTS. Debtor shall pay interest at maturity. Should interest not
be paid when due, it shall become a part of the principal and bear interest as
herein provided. All computations of interest under this note shall be made on
the basis of a year of 360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding
hereunder in minimum amounts of at least $100,000.00 shall bear
interest at a rate, based on an index selected by Debtor, which is
1.50% per annum in excess of Bank's LIBOR-Rate for the Interest Period
selected by Debtor, acceptable to Bank.
No Base Interest Rate may be changed, altered or otherwise modified
until the expiration of the Interest Period selected by Debtor. The
exercise of interest rate options by Debtor shall be as recorded in
Bank's records, which records shall be prima facie evidence of the
amount borrowed under either interest option and the interest rate;
provided, however, that failure of Bank to make any such notation in
its records shall not discharge Debtor from it obligations to repay in
full with interest all amounts borrowed. In no event shall any Interest
Period extend beyond the maturity date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing,
and on the expiration of any Interest Period with respect to principal
outstanding on which a Base Interest Rate has been accruing select an
index offered by Bank for a Base Interest Rate Loan and an Interest
Period by telephoning an authorized lending officer of Bank located at
the banking office identified below prior to 10:00 a.m., Pacific time,
on any Business Day and advising that officer of the selected index,
the Interest Period and the Origination Date selected (which
Origination Date, for a Base Interest Rate Loan based on the
LIBOR-Rate, shall follow the date of such selection by no more than two
(2) Business Days).
Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at at
the rate selected. If, on the date of the selection, the index selected
is unavailable for any reason, the selection shall be void. Bank
reserves the right to fund the principal from any source of funds
notwithstanding any Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is
not bearing interest at a Base Interest Rate shall bear interest at a
rate per annum of equal to the Reference Rate, which rate shall vary as
and when the Reference Rate changes.
At any time prior to the maturity of this note, subject to the
provisions of paragraph 4, below, of this note, Debtor may borrow,
repay and reborrow hereon so long as the total outstanding at any one
time does not exceed the principal amount of this note. Debtor shall
pay any amounts due under this note in lawful money of the United
States at Bank's NORTHERN CALIFORNIA COMMERCIAL BANKING Office, or such
other office as may be designated by Bank, from time to time.
2. LATE PAYMENTS. If any payment required by the terms of this note
shall remain unpaid ten days after same is due, at the option of Bank, Debtor
shall pay a fee of $100 to Bank.
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3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the
option of Bank, and, to the extend permitted by law, interest shall be payable
on the outstanding principal under this note at a per annum rate equal to five
percent (5%) in excess of the interest rate specified in paragraph 1.b., above,
calculated from the date of default until all amounts payable under this note
are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based
on the Reference Rate may be prepaid in whole or in part at any time,
without penalty or premium. Debtor may prepay amounts outstanding under
this note bearing interest at a Base Interest Rate in whole or in part
provided Debtor has given Bank not less than five (5) Business Days
prior written notice of Debtor's intention to make such prepayment and
pays to Bank the liquidated damages due as a result. Liquidated Damages
shall also be paid, if Bank, for any other reason, including
acceleration or foreclosure, receives all or any portion of principal
bearing interest at a Base Interest Rate prior to its scheduled payment
date. Liquidated Damages shall be an amount equal to the present value
of the product of: (i) the difference (but not less than zero) between
(a) the Base Interest Rate applicable to the principal amount which is
being prepaid, and (b) the return which Bank could obtain if it used
the amount of such prepayment of principal to purchase at bid price
regularly quoted securities issued by the United State having a
maturity date most closely coinciding with the relevant Base Rate
Maturity Date and such securities were held by Bank until the relevant
Base Rate Maturity Date ("Yield Rate"); (ii) a fraction, the numerator
of which is the number of days in the period between the date of
prepayment and the relevant Base Rate Maturity Date and the denominator
of which is 360; and (iii) the amount of the principal so prepaid
(except in the event that principal payments are scheduled under the
terms of the Base Interest Rate Loan being prepaid, then an amount
equal to the lesser of (A) the amount prepaid or (B) 50% of the sum of
(1) the amount prepaid and (2) the amount of principal scheduled under
the terms of the Base Interest Rate Loan being prepaid to be
outstanding at the relevant Base Rate Maturity Date). Present value
under this note is determined by discounting the above product to
present value using the Yield Rate as the annual discount factor.
b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim
against bank, should the return which Bank could obtain under this
prepayment formula exceed the interest that Bank would have received if
no prepayment had occurred. All prepayments shall include payment of
accrued interest on the principal amount so prepaid and shall be
applied to payment of interest before application to principal. A
determination by Bank as to the prepayment fee amount, if any, shall be
conclusive.
c. Bank shall provide Debtor a statement of the amount payable on
account of prepayment. Debtor acknowledges that (i) Bank establishes a
Base Interest Rate upon the understanding that it apply to the Base
Interest Rate Loan for the entire Interest Period, and (ii) any
prepayment may result in Bank incurring additional costs, expenses or
liabilities; and Debtor agrees to pay these liquidated damages as a
reasonable estimate of the costs, expenses and liabilities of Bank
associated with such prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include,
but not be limited to, any of the following: (a) the failure of Debtor to make
any payment required under this note when due; (b) any breach, misrepresentation
or other default by Debtor, any guarantor, co-maker endorser, or any person or
entity other than Debtor providing security for this note (hereinafter
individually and collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement between Bank and any obligor; (c) the
insolvency of any Obligor or the failure of any Obligor generally to pay such
Obligor's debts as such debts become due; (d) the commencement as to any Obligor
of any voluntary or involuntary proceeding under any laws relating to
bankruptcy, insolvency, reorganization, arrangement, debt adjustment or debtor
relief; (e) the assignment by any Obligor for the benefit of such Obligor's
creditors; (f) the appointment, or commencement of any proceeding for the
appointment of a receiver, trustee, custodian or similar official for all or
substantially all of any Obligor's property; (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the revocation of any
guaranty or subordination agreement given in connection with this note; (j) the
failure of any Obligor to comply with any order, judgment, injunction, decree,
writ or demand of any court or other public authority; (k) the filing or
recording against any Obligor, or the property of any Obligor, of any notice or
levy, notice to withhold, or other legal process for taxes other than property
taxes; (l) the default by any obligor personally liable for amounts owed
hereunder on any obligation concerning the borrowing of money; (m) the issuance
against any Obligor, or the property of any Obligor, of any writ of attachment,
execution, or other judicial lien; or (n) the deterioration of the financial
condition of any Obligor which results in Bank deeming itself in good faith,
insecure. Upon the occurrence of any such default, Bank, in its discretion, may
cease to advance funds hereunder and may declare
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all obligations under this note immediately due and payable; however, upon the
occurrence of an event of default under d, e, f, or g, all principal and
interest shall automatically become immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this
note are not paid when due, Debtor promises to pay all costs and expenses,
including reasonable attorneys' fees, incurred by Bank in the collection or
enforcement of this note. Debtor and any endorsers of this note for the maximum
period of time and the full extent permitted by law, (a) waive diligence,
presentment, demand, notice of nonpayment, protest, notice of protest, and
notice of every kind; (b) waive the right to assert the defense of any statute
of limitations to any debt or obligation hereunder; and (c) consent to renewals
and extensions of time for the payment of any amounts due under this note. If
this note is signed by more than one party, the term "Debtor" includes each of
the undersigned and any successors in interest thereof; all of whose liability
shall be joint and several. Any married person who signs this note agrees that
recourse may be had against the separate property of that person for any
obligations hereunder. The receipt of any check or other item of payment by
Bank, at its option, shall not be considered a payment on account until such
check or other item of payment is honored when presented for payment at the
drawee bank. Bank may delay the credit of such payment based upon Bank's
schedule of funds availability, and interest under this note shall accrue until
the funds are deemed collected. In any action brought under or arising out of
this note, Debtor and any Obligor, including their successors and assigns,
hereby consent to the jurisdiction of any competent court within the State of
California, as provided in any alternative dispute resolution agreement executed
between Debtor and Bank, and consent to service of process by any means
authorized by said state's law. The term "Bank" includes, without limitation,
any holder of this note. This note shall be construed in accordance with and
governed by the laws of the State of California. This note hereby incorporates
any alternative dispute resolution agreement previously, concurrently or
hereafter executed between Debtor and Bank.
7. DEFINITIONS. As used herein, the following terms shall have the
meanings respectively set forth below: "Base Interest Rate" means a rate of
interest based on the LIBOR-Rate. "Base Interest Rate Loan" means amounts
outstanding under this note that bear interest at a Base Interest Rate. "Base
Rate Maturity Date" means the last day of the Interest Period with respect to
principal outstanding under a Base Interest Rate Loan. "Business Day" means a
day on which Bank is open for business for the funding of corporate loans, and,
with respect to the rate of interest based on the LIBOR Rate, on which dealings
in U.S. dollar deposits outside of the United States may be carried on by Bank.
"Interest Period" means with respect to funds bearing interest at a rate based
on the LIBOR Rate, any calendar period of one, three, six, nine or twelve
months. In determining an Interest Period, a month means a period that starts on
one Business Day in a month and ends on and includes the day preceding the
numerically corresponding day in the next month. For any month in which there is
no such numerically corresponding day, then as to that month, such day shall be
deemed to be the last calendar day of such month. Any Interest Period which
would otherwise an on a non-Business Day shall end on the next succeeding
Business Day unless that is the first day of a month, in which event such
Interest Period shall end on the next preceding Business Day. "LIBOR Rate" means
a per annum rate of interest (rounded upward, if necessary, to the nearest 1/100
of 1%) at which dollar deposits, in immediately available funds and in lawful
money of the United Sates would be offered to Bank, outside of the United Sates,
for a term coinciding with the Interest Period selected by Debtor and for an
amount equal to the amount of principal covered by Debtors' interest rate
selection, plus Bank's costs, including the costs, if any, of reserve
requirements. "Origination Date" means the first day of the Interest Period.
"Reference Rate" means 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 or index nor
necessarily the lowest rate of interest charged by Bank at any given time.
EMCON
By: /s/ Eugene M. Herson
- - -------------------------------
Title: CFO and President
By: /s/ R. Michael Momboisse
- - -------------------------------
Title: CFO and VP Legal
88
EXHIBIT 10.35
NINTH AMENDMENT
TO CREDIT AGREEMENT
THIS NINTH AMENDMENT TO CREDIT AGREEMENT (this "Ninth Amendment") dated as of
December 22, 1998, is made and entered into by and between EMCON, a California
Corporation ("Borrower"), and UNION BANK OF CALIFORNIA, N.A. ("Bank"), successor
in interest to the Bank of California, N.A.
RECITALS:
A. Borrower and Bank are parties to that certain Credit Agreement dated
February 29, 1996 as amended from time to time (the "Agreement"),
pursuant to which Bank agreed to extend credit to Borrower.
B. Borrower is currently indebted to Bank under the Agreement in the
aggregate commitment amount of $13,785,713 and Borrower has no defense,
offset or counterclaim against Bank or any other person or entity that
diminishes such indebtedness.
Now, therefore, in consideration of the above recitals and of the mutual
covenants and conditions contained herein, Borrower and Bank agree as follows:
AGREEMENT:
1. Defined Terms. Initially capitalized terms used herein which are not
otherwise defined shall have the meanings assigned thereto in the
Agreement.
2. Amendments to the Agreement.
(a) In ARTICLE 1 - DEFINITIONS, "Termination Date" is amended in its
entirety to read as follows:
""Termination Date" means the earlier of (a) the date Bank may
terminate making Advances or extending credit pursuant to the rights of Bank
under Article 7; or (b) February 1, 1999, for the Line of Credit; or (c) June
30, 2001 for the Term Loan."
3. Effectiveness of the Ninth amendment. This Ninth Amendment shall become
effective as of the date hereof when, and only when, Bank shall have
received all of the following, in form and substance satisfactory to
Bank:
(a) The counterpart of this Ninth Amendment, duly executed by
Borrower;
(b) Such other documents, instruments or agreements as Bank may
reasonably deem necessary.
4. Ratification. Except as specifically amended hereinabove, the Agreement
shall remain in full force and effect and is hereby ratified and
confirmed.
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5. Representations and Warranties. Borrower represents and warrants as follows:
(a) Each of the representations and warranties contained in the
Agreement, as may be amended hereby, is hereby reaffirmed as of the
date hereof, each as if set forth herein:
(b) The executive, delivery and performance of the Ninth Amendment and
any other instruments or documents in connection herewith are within
Borrower's power, have been duly authorized, are legal, valid and
binding obligations of Borrower, and are not in conflict with the terms
of any charter, bylaw, or other organization papers of Borrower or with
any law, indenture, agreement or undertaking to which Borrower is a
party or by which Borrower is bound or affected;
(c) No event has occurred and is continuing or would result from this
Ninth Amendment which constitutes or would constitute an Event of
Default under the Agreement.
6. Governing Law. This Ninth Amendment and all other instruments or
documents in connection herewith shall be governed by and construed
according to the laws of the State of California.
7. Counterparts. This Ninth Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
WITNESS the due execution hereof as of the date first above written.
UNION BANK OF CALIFORNIA, N.A. EMCON
By: /s/ David Jackson By: /s/ Eugene M. Herson
- - ------------------------- ----------------------------
Title: Vice President Title: CFO & President
By: /s/ R. Mike Momboisse
----------------------------
Title: CFO and VP Legal
90
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PROMISSORY NOTE
(BASE RATE)
Borrower Name: EMCON
Borrower Address: Office 70061
400 SOUTH EL CAMINO REAL, STE 1200 Loan Number 259-668-7520 0081-00-000
SAN MATEO, CA 94402 Maturity Date FEBRUARY 1, 1999
Amount $10,000,000.00
$10,000,000.00 Date DECEMBER 31, 1998
- - -------------- -----------------------
FOR VALUE RECEIVED, on FEBRUARY 1, 1999, the undersigned ("Debtor") promises to
pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated below,
the principal sum of TEN MILLION AND NO/100 Dollars ($10,000,000.00), or so much
thereof as is disbursed, together with interest on the balance of such principal
from time to time outstanding, at the per annum rate or rates and at the times
set forth below.
1. INTEREST PAYMENTS. Debtor shall pay interest at maturity. Should interest not
be paid when due, it shall become a part of the principal and bear interest as
herein provided. All computations of interest under this note shall be made on
the basis of a year of 360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding
hereunder in minimum amounts of at least $100,000.00 shall bear
interest at a rate, based on an index selected by Debtor, which is
1.50% per annum in excess of Bank's LIBOR-Rate for the Interest Period
selected by Debtor, acceptable to Bank.
No Base Interest Rate may be changed, altered or otherwise modified
until the expiration of the Interest Period selected by Debtor. The
exercise of interest rate options by Debtor shall be as recorded in
Bank's records, which records shall be prima facie evidence of the
amount borrowed under either interest option and the interest rate;
provided, however, that failure of Bank to make any such notation in
its records shall not discharge Debtor from it obligations to repay in
full with interest all amounts borrowed. In no event shall any Interest
Period extend beyond the maturity date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing,
and on the expiration of any Interest Period with respect to principal
outstanding on which a Base Interest Rate has been accruing select an
index offered by Bank for a Base Interest Rate Loan and an Interest
Period by telephoning an authorized lending officer of Bank located at
the banking office identified below prior to 10:00 a.m., Pacific time,
on any Business Day and advising that officer of the selected index,
the Interest Period and the Origination Date selected (which
Origination Date, for a Base Interest Rate Loan based on the
LIBOR-Rate, shall follow the date of such selection by no more than two
(2) Business Days).
Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at at
the rate selected. If, on the date of the selection, the index selected
is unavailable for any reason, the selection shall be void. Bank
reserves the right to fund the principal from any source of funds
notwithstanding any Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is
not bearing interest at a Base Interest Rate shall bear interest at a
rate per annum of equal to the Reference Rate, which rate shall vary as
and when the Reference Rate changes.
At any time prior to the maturity of this note, subject to the
provisions of paragraph 4, below, of this note, Debtor may borrow,
repay and reborrow hereon so long as the total outstanding at any one
time does not exceed the principal amount of this note. Debtor shall
pay any amounts due under this note in lawful money of the United
States at Bank's NORTHERN CALIFORNIA COMMERCIAL BANKING Office, or such
other office as may be designated by Bank, from time to time.
2. LATE PAYMENTS. If any payment required by the terms of this note
shall remain unpaid ten days after same is due, at the option of Bank, Debtor
shall pay a fee of $100 to Bank.
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3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the
option of Bank, and, to the extend permitted by law, interest shall be payable
on the outstanding principal under this note at a per annum rate equal to five
percent (5%) in excess of the interest rate specified in paragraph 1.b., above,
calculated from the date of default until all amounts payable under this note
are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based
on the Reference Rate may be prepaid in whole or in part at any time,
without penalty or premium. Debtor may prepay amounts outstanding under
this note bearing interest at a Base Interest Rate in whole or in part
provided Debtor has given Bank not less than five (5) Business Days
prior written notice of Debtor's intention to make such prepayment and
pays to Bank the liquidated damages due as a result. Liquidated Damages
shall also be paid, if Bank, for any other reason, including
acceleration or foreclosure, receives all or any portion of principal
bearing interest at a Base Interest Rate prior to its scheduled payment
date. Liquidated Damages shall be an amount equal to the present value
of the product of: (i) the difference (but not less than zero) between
(a) the Base Interest Rate applicable to the principal amount which is
being prepaid, and (b) the return which Bank could obtain if it used
the amount of such prepayment of principal to purchase at bid price
regularly quoted securities issued by the United State having a
maturity date most closely coinciding with the relevant Base Rate
Maturity Date and such securities were held by Bank until the relevant
Base Rate Maturity Date ("Yield Rate"); (ii) a fraction, the numerator
of which is the number of days in the period between the date of
prepayment and the relevant Base Rate Maturity Date and the denominator
of which is 360; and (iii) the amount of the principal so prepaid
(except in the event that principal payments are scheduled under the
terms of the Base Interest Rate Loan being prepaid, then an amount
equal to the lesser of (A) the amount prepaid or (B) 50% of the sum of
(1) the amount prepaid and (2) the amount of principal scheduled under
the terms of the Base Interest Rate Loan being prepaid to be
outstanding at the relevant Base Rate Maturity Date). Present value
under this note is determined by discounting the above product to
present value using the Yield Rate as the annual discount factor.
b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim
against bank, should the return which Bank could obtain under this
prepayment formula exceed the interest that Bank would have received if
no prepayment had occurred. All prepayments shall include payment of
accrued interest on the principal amount so prepaid and shall be
applied to payment of interest before application to principal. A
determination by Bank as to the prepayment fee amount, if any, shall be
conclusive.
c. Bank shall provide Debtor a statement of the amount payable on
account of prepayment. Debtor acknowledges that (i) Bank establishes a
Base Interest Rate upon the understanding that it apply to the Base
Interest Rate Loan for the entire Interest Period, and (ii) any
prepayment may result in Bank incurring additional costs, expenses or
liabilities; and Debtor agrees to pay these liquidated damages as a
reasonable estimate of the costs, expenses and liabilities of Bank
associated with such prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include,
but not be limited to, any of the following: (a) the failure of Debtor to make
any payment required under this note when due; (b) any breach, misrepresentation
or other default by Debtor, any guarantor, co-maker endorser, or any person or
entity other than Debtor providing security for this note (hereinafter
individually and collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement between Bank and any obligor; (c) the
insolvency of any Obligor or the failure of any Obligor generally to pay such
Obligor's debts as such debts become due; (d) the commencement as to any Obligor
of any voluntary or involuntary proceeding under any laws relating to
bankruptcy, insolvency, reorganization, arrangement, debt adjustment or debtor
relief; (e) the assignment by any Obligor for the benefit of such Obligor's
creditors; (f) the appointment, or commencement of any proceeding for the
appointment of a receiver, trustee, custodian or similar official for all or
substantially all of any Obligor's property; (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the revocation of any
guaranty or subordination agreement given in connection with this note; (j) the
failure of any Obligor to comply with any order, judgment, injunction, decree,
writ or demand of any court or other public authority; (k) the filing or
recording against any Obligor, or the property of any Obligor, of any notice or
levy, notice to withhold, or other legal process for taxes other than property
taxes; (l) the default by any obligor personally liable for amounts owed
hereunder on any obligation concerning the borrowing of money; (m) the issuance
against any Obligor, or the property of any Obligor, of any writ of attachment,
execution, or other judicial lien; or (n) the deterioration of the financial
condition of any Obligor which results in Bank deeming itself in good faith,
insecure. Upon the occurrence of any such default, Bank, in its discretion, may
cease to advance funds hereunder and may declare
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all obligations under this note immediately due and payable; however, upon the
occurrence of an event of default under d, e, f, or g, all principal and
interest shall automatically become immediately due and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this
note are not paid when due, Debtor promises to pay all costs and expenses,
including reasonable attorneys' fees, incurred by Bank in the collection or
enforcement of this note. Debtor and any endorsers of this note for the maximum
period of time and the full extent permitted by law, (a) waive diligence,
presentment, demand, notice of nonpayment, protest, notice of protest, and
notice of every kind; (b) waive the right to assert the defense of any statute
of limitations to any debt or obligation hereunder; and (c) consent to renewals
and extensions of time for the payment of any amounts due under this note. If
this note is signed by more than one party, the term "Debtor" includes each of
the undersigned and any successors in interest thereof; all of whose liability
shall be joint and several. Any married person who signs this note agrees that
recourse may be had against the separate property of that person for any
obligations hereunder. The receipt of any check or other item of payment by
Bank, at its option, shall not be considered a payment on account until such
check or other item of payment is honored when presented for payment at the
drawee bank. Bank may delay the credit of such payment based upon Bank's
schedule of funds availability, and interest under this note shall accrue until
the funds are deemed collected. In any action brought under or arising out of
this note, Debtor and any Obligor, including their successors and assigns,
hereby consent to the jurisdiction of any competent court within the State of
California, as provided in any alternative dispute resolution agreement executed
between Debtor and Bank, and consent to service of process by any means
authorized by said state's law. The term "Bank" includes, without limitation,
any holder of this note. This note shall be construed in accordance with and
governed by the laws of the State of California. This note hereby incorporates
any alternative dispute resolution agreement previously, concurrently or
hereafter executed between Debtor and Bank.
7. DEFINITIONS. As used herein, the following terms shall have the
meanings respectively set forth below: "Base Interest Rate" means a rate of
interest based on the LIBOR-Rate. "Base Interest Rate Loan" means amounts
outstanding under this note that bear interest at a Base Interest Rate. "Base
Rate Maturity Date" means the last day of the Interest Period with respect to
principal outstanding under a Base Interest Rate Loan. "Business Day" means a
day on which Bank is open for business for the funding of corporate loans, and,
with respect to the rate of interest based on the LIBOR Rate, on which dealings
in U.S. dollar deposits outside of the United States may be carried on by Bank.
"Interest Period" means with respect to funds bearing interest at a rate based
on the LIBOR Rate, any calendar period of one, three, six, nine or twelve
months. In determining an Interest Period, a month means a period that starts on
one Business Day in a month and ends on and includes the day preceding the
numerically corresponding day in the next month. For any month in which there is
no such numerically corresponding day, then as to that month, such day shall be
deemed to be the last calendar day of such month. Any Interest Period which
would otherwise an on a non-Business Day shall end on the next succeeding
Business Day unless that is the first day of a month, in which event such
Interest Period shall end on the next preceding Business Day. "LIBOR Rate" means
a per annum rate of interest (rounded upward, if necessary, to the nearest 1/100
of 1%) at which dollar deposits, in immediately available funds and in lawful
money of the United Sates would be offered to Bank, outside of the United Sates,
for a term coinciding with the Interest Period selected by Debtor and for an
amount equal to the amount of principal covered by Debtors' interest rate
selection, plus Bank's costs, including the costs, if any, of reserve
requirements. "Origination Date" means the first day of the Interest Period.
"Reference Rate" means 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 or index nor
necessarily the lowest rate of interest charged by Bank at any given time.
EMCON
By: /s/ Eugene M. Herson
Title: CFO and President
By: /s/ R. Michael Momboisse
Title: CFO and VP Legal
93
EXHIBIT 10.36
TENTH AMENDMENT
TO CREDIT AGREEMENT
THIS TENTH AMENDMENT TO CREDIT AGREEMENT (this "Tenth Amendment") dated as of
January 28, 1999, is made and entered into by and between EMCON, a California
Corporation ("Borrower"), and UNION BANK OF CALIFORNIA, N.A. ("Bank"), successor
in interest to the Bank of California, N.A.
RECITALS:
A. Borrower and Bank are parties to that certain Credit Agreement dated
February 29, 1996 as amended from time to time (the "Agreement"),
pursuant to which Bank agreed to extend credit to Borrower.
B. Borrower is currently indebted to Bank under the Agreement in the
aggregate commitment amount of $13,428,570 and Borrower has no defense,
offset or counterclaim against Bank or any other person or entity that
diminishes such indebtedness.
Now, therefore, in consideration of the above recitals and of the mutual
covenants and conditions contained herein, Borrower and Bank agree as follows:
AGREEMENT:
1. Defined Terms. Initially capitalized terms used herein which are not
otherwise defined shall have the meanings assigned thereto in the
Agreement.
2. Amendments to the Agreement.
(a) In ARTICLE 1 - DEFINITIONS, "Termination Date" is amended in its
entirety to read as follows:
""Termination Date" means the earlier of (a) the date Bank may
terminate making Advances or extending credit pursuant to the rights of
Bank under Article 7; or (b) March 19, 1999, for the Line of Credit; or
(c) June 30, 2001 for the Term Loan."
3. Effectiveness of the Tenth amendment. This Tenth Amendment shall become
effective as of the date hereof when, and only when, Bank shall have
received all of the following, in form and substance satisfactory to
Bank:
(a) The counterpart of this Tenth Amendment, duly executed by Borrower;
(b) Such other documents, instruments or agreements as Bank may
reasonably deem necessary.
4. Ratification. Except as specifically amended hereinabove, the Agreement
shall remain in full force and effect and is hereby ratified and
confirmed.
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5. Representations and Warranties. Borrower represents and warrants as follows:
(a) Each of the representations and warranties contained in the
Agreement, as may be amended hereby, is hereby reaffirmed as of the
date hereof, each as if set forth herein:
(b) The executive, delivery and performance of the Tenth Amendment and
any other instruments or documents in connection herewith are within
Borrower's power, have been duly authorized, are legal, valid and
binding obligations of Borrower, and are not in conflict with the terms
of any charter, bylaw, or other organization papers of Borrower or with
any law, indenture, agreement or undertaking to which Borrower is a
party or by which Borrower is bound or affected;
(c) No event has occurred and is continuing or would result from this
Eighth Amendment which constitutes or would constitute an Event of
Default under the Agreement.
6. Governing Law. This Tenth Amendment and all other instruments or
documents in connection herewith shall be governed by and construed
according to the laws of the State of California.
7. Counterparts. This Tenth Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
WITNESS the due execution hereof as of the date first above written.
UNION BANK OF CALIFORNIA, N.A. EMCON
By: /s/ David Jackson By: /s/ Eugene M. Herson
- - -------------------------- -------------------------------
Title: Vice President Title: CFO & President
By: /s/ R. Mike Momboisse
-------------------------------
Title: CFO and VP Legal
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PROMISSORY NOTE
(BASE RATE)
Borrower Name: EMCON
Borrower Address: Office 70061
400 SOUTH EL CAMINO REAL, STE 1200 Loan Number 259-668-7520 0081-00-000
SAN MATEO, CA 94402 Maturity Date MARCH 19, 1999
Amount $10,000,000.00
$10,000,000.00 Date JANUARY 27, 1999
- - -------------- ----------------------
FOR VALUE RECEIVED, on MARCH 19, 1999 the undersigned ("Debtor") promises to pay
to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated below, the
principal sum of TEN MILLION AND NO/100 Dollars ($10,000,000.00), or so much
thereof as is disbursed, together with interest on the balance of such principal
from time to time outstanding, at the per annum rate or rates and at the times
set forth below.
1. INTEREST PAYMENTS. Debtor shall pay interest at maturity. Should interest not
be paid when due, it shall become a part of the principal and bear interest as
herein provided. All computations of interest under this note shall be made on
the basis of a year of 360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding
hereunder in minimum amounts of at least $100,000.00 shall bear
interest at a rate, based on an index selected by Debtor, which is
1.50% per annum in excess of Bank's LIBOR-Rate for the Interest Period
selected by Debtor, acceptable to Bank.
No Base Interest Rate may be changed, altered or otherwise modified
until the expiration of the Interest Period selected by Debtor. The
exercise of interest rate options by Debtor shall be as recorded in
Bank's records, which records shall be prima facie evidence of the
amount borrowed under either interest option and the interest rate;
provided, however, that failure of Bank to make any such notation in
its records shall not discharge Debtor from it obligations to repay in
full with interest all amounts borrowed. In no event shall any Interest
Period extend beyond the maturity date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing,
and on the expiration of any Interest Period with respect to principal
outstanding on which a Base Interest Rate has been accruing select an
index offered by Bank for a Base Interest Rate Loan and an Interest
Period by telephoning an authorized lending officer of Bank located at
the banking office identified below prior to 10:00 a.m., Pacific time,
on any Business Day and advising that officer of the selected index,
the Interest Period and the Origination Date selected (which
Origination Date, for a Base Interest Rate Loan based on the
LIBOR-Rate, shall follow the date of such selection by no more than two
(2) Business Days).
Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at at
the rate selected. If, on the date of the selection, the index selected
is unavailable for any reason, the selection shall be void. Bank
reserves the right to fund the principal from any source of funds
notwithstanding any Base Interest Rate selected by Debtor.
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is
not bearing interest at a Base Interest Rate shall bear interest at a
rate per annum of equal to the Reference Rate, which rate shall vary as
and when the Reference Rate changes.
At any time prior to the maturity of this note, subject to the
provisions of paragraph 4, below, of this note, Debtor may borrow,
repay and reborrow hereon so long as the total outstanding at any one
time does not exceed the principal amount of this note. Debtor shall
pay any amounts due under this note in lawful money of the United
States at Bank's NORTHERN CALIFORNIA COMMERCIAL BANKING Office, or such
other office as may be designated by Bank, from time to time.
2. LATE PAYMENTS. If any payment required by the terms of this note
shall remain unpaid ten days after same is due, at the option of Bank, Debtor
shall pay a fee of $100 to Bank.
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3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the
option of Bank, and, to the extend permitted by law, interest shall be payable
on the outstanding principal under this note at a per annum rate equal to five
percent (5%) in excess of the interest rate specified in paragraph 1.b., above,
calculated from the date of default until all amounts payable under this note
are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based
on the Reference Rate may be prepaid in whole or in part at any time,
without penalty or premium. Debtor may prepay amounts outstanding under
this note bearing interest at a Base Interest Rate in whole or in part
provided Debtor has given Bank not less than five (5) Business Days
prior written notice of Debtor's intention to make such prepayment and
pays to Bank the liquidated damages due as a result. Liquidated Damages
shall also be paid, if Bank, for any other reason, including
acceleration or foreclosure, receives all or any portion of principal
bearing interest at a Base Interest Rate prior to its scheduled payment
date. Liquidated Damages shall be an amount equal to the present value
of the product of: (i) the difference (but not less than zero) between
(a) the Base Interest Rate applicable to the principal amount which is
being prepaid, and (b) the return which Bank could obtain if it used
the amount of such prepayment of principal to purchase at bid price
regularly quoted securities issued by the United State having a
maturity date most closely coinciding with the relevant Base Rate
Maturity Date and such securities were held by Bank until the relevant
Base Rate Maturity Date ("Yield Rate"); (ii) a fraction, the numerator
of which is the number of days in the period between the date of
prepayment and the relevant Base Rate Maturity Date and the denominator
of which is 360; and (iii) the amount of the principal so prepaid
(except in the event that principal payments are scheduled under the
terms of the Base Interest Rate Loan being prepaid, then an amount
equal to the lesser of (A) the amount prepaid or (B) 50% of the sum of
(1) the amount prepaid and (2) the amount of principal scheduled under
the terms of the Base Interest Rate Loan being prepaid to be
outstanding at the relevant Base Rate Maturity Date). Present value
under this note is determined by discounting the above product to
present value using the Yield Rate as the annual discount factor.
b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim
against bank, should the return which Bank could obtain under this
prepayment formula exceed the interest that Bank would have received if
no prepayment had occurred. All prepayments shall include payment of
accrued interest on the principal amount so prepaid and shall be
applied to payment of interest before application to principal. A
determination by Bank as to the prepayment fee amount, if any, shall be
conclusive.
c. Bank shall provide Debtor a statement of the amount payable on
account of prepayment. Debtor acknowledges that (i) Bank establishes a
Base Interest Rate upon the understanding that it apply to the Base
Interest Rate Loan for the entire Interest Period, and (ii) any
prepayment may result in Bank incurring additional costs, expenses or
liabilities; and Debtor agrees to pay these liquidated damages as a
reasonable estimate of the costs, expenses and liabilities of Bank
associated with such prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include,
but not be limited to, any of the following: (a) the failure of Debtor to make
any payment required under this note when due; (b) any breach, misrepresentation
or other default by Debtor, any guarantor, co-maker endorser, or any person or
entity other than Debtor providing security for this note (hereinafter
individually and collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement between Bank and any obligor; (c) the
insolvency of any Obligor or the failure of any Obligor generally to pay such
Obligor's debts as such debts become due; (d) the commencement as to any Obligor
of any voluntary or involuntary proceeding under any laws relating to
bankruptcy, insolvency, reorganization, arrangement, debt adjustment or debtor
relief; (e) the assignment by any Obligor for the benefit of such Obligor's
creditors; (f) the appointment, or commencement of any proceeding for the
appointment of a receiver, trustee, custodian or similar official for all or
substantially all of any Obligor's property; (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the revocation of any
guaranty or subordination agreement given in connection with this note; (j) the
failure of any Obligor to comply with any order, judgment, injunction, decree,
writ or demand of any court or other public authority; (k) the filing or
recording against any Obligor, or the property of any Obligor, of any notice or
levy, notice to withhold, or other legal process for taxes other than property
taxes; (l) the default by any obligor personally liable for amounts owed
hereunder on any obligation concerning the borrowing of money; (m) the issuance
against any Obligor, or the property of any Obligor, of any writ of attachment,
execution, or other judicial lien; or (n) the deterioration of the financial
condition of any Obligor which results in Bank deeming itself in good faith,
insecure. Upon the occurrence of any such default, Bank, in its discretion, may
cease to advance funds hereunder and may declare all obligations under this note
immediately due and payable; however, upon the occurrence of an event of default
under d, e, f, or g, all principal and interest shall automatically become
immediately due and payable.
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6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this
note are not paid when due, Debtor promises to pay all costs and expenses,
including reasonable attorneys' fees, incurred by Bank in the collection or
enforcement of this note. Debtor and any endorsers of this note for the maximum
period of time and the full extent permitted by law, (a) waive diligence,
presentment, demand, notice of nonpayment, protest, notice of protest, and
notice of every kind; (b) waive the right to assert the defense of any statute
of limitations to any debt or obligation hereunder; and (c) consent to renewals
and extensions of time for the payment of any amounts due under this note. If
this note is signed by more than one party, the term "Debtor" includes each of
the undersigned and any successors in interest thereof; all of whose liability
shall be joint and several. Any married person who signs this note agrees that
recourse may be had against the separate property of that person for any
obligations hereunder. The receipt of any check or other item of payment by
Bank, at its option, shall not be considered a payment on account until such
check or other item of payment is honored when presented for payment at the
drawee bank. Bank may delay the credit of such payment based upon Bank's
schedule of funds availability, and interest under this note shall accrue until
the funds are deemed collected. In any action brought under or arising out of
this note, Debtor and any Obligor, including their successors and assigns,
hereby consent to the jurisdiction of any competent court within the State of
California, as provided in any alternative dispute resolution agreement executed
between Debtor and Bank, and consent to service of process by any means
authorized by said state's law. The term "Bank" includes, without limitation,
any holder of this note. This note shall be construed in accordance with and
governed by the laws of the State of California. This note hereby incorporates
any alternative dispute resolution agreement previously, concurrently or
hereafter executed between Debtor and Bank.
7. DEFINITIONS. As used herein, the following terms shall have the
meanings respectively set forth below: "Base Interest Rate" means a rate of
interest based on the LIBOR-Rate. "Base Interest Rate Loan" means amounts
outstanding under this note that bear interest at a Base Interest Rate. "Base
Rate Maturity Date" means the last day of the Interest Period with respect to
principal outstanding under a Base Interest Rate Loan. "Business Day" means a
day on which Bank is open for business for the funding of corporate loans, and,
with respect to the rate of interest based on the LIBOR Rate, on which dealings
in U.S. dollar deposits outside of the United States may be carried on by Bank.
"Interest Period" means with respect to funds bearing interest at a rate based
on the LIBOR Rate, any calendar period of one, two or three months. In
determining an Interest Period, a month means a period that starts on one
Business Day in a month and ends on and includes the day preceding the
numerically corresponding day in the next month. For any month in which there is
no such numerically corresponding day, then as to that month, such day shall be
deemed to be the last calendar day of such month. Any Interest Period which
would otherwise an on a non-Business Day shall end on the next succeeding
Business Day unless that is the first day of a month, in which event such
Interest Period shall end on the next preceding Business Day. "LIBOR Rate" means
a per annum rate of interest (rounded upward, if necessary, to the nearest 1/100
of 1%) at which dollar deposits, in immediately available funds and in lawful
money of the United Sates would be offered to Bank, outside of the United Sates,
for a term coinciding with the Interest Period selected by Debtor and for an
amount equal to the amount of principal covered by Debtors' interest rate
selection, plus Bank's costs, including the costs, if any, of reserve
requirements. "Origination Date" means the first day of the Interest Period.
"Reference Rate" means 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 or index nor
necessarily the lowest rate of interest charged by Bank at any given time.
EMCON
By: /s/ Eugene M. Herson
Title: CFO and President
By: /s/ R. Michael Momboisse
Title: CFO and VP Legal
98
EXHIBIT 10.37
EXTENSION AND MODIFICATION AGREEMENTS
THIS EXTENSION AND MODIFICATION AGREEMENT ("Agreement") is made as of March 19,
1999 between UNION BANK OF CALIFORNIA, N.A., formerly known as The Bank of
California, N.A. ("Bank") and EMCON, a California corporation.
RECITALS
This Agreement is made and entered into in reliance on the accuracy of the
following recitals which are acknowledged by Borrower and Bank to be true and
accurate:
A. Borrower is liable to Bank as follows (collectively, "Liabilities"): a line
of credit ("Line of Credit") and a term loan ("Term Loan") originally granted
pursuant to the terms of that certain Credit Agreement dated as of February 29,
1996 (as amended, supplemented, extended, restated, or renewed from time to
time, the "Credit Agreement") by and between Bank and Borrower and evidenced by
that certain (i) Promissory Note Base Rate dated January 27, 1999 in the maximum
principal amount of $10,000,000.00 ("Line of Credit Note"); and (ii) Term Loan
Note dated February 29, 1996 in the original principal amount of $10,000,000.00
("Term Note" together with the Line of Credit Note, each a "Note" and
collectively, the "Notes"). As of March 17, 1999, the outstanding principal
balance under the (1) Line of Credit Note was $1,190,893.71, together with
accrued and unpaid interest in the amount of $9,138.86; and (2) Term Note was
$3,428,570.00, together with accrued and unpaid interest in the amount of
$10,497.94; and (3) together with all accruing interest, fees, costs and
expenses provided in the Loan Documents. The purpose of the Line of Credit was
to support working capital needs. The purpose of the Term Loan was to support
Borrower's acquisition of Organic Waste Technologies ("OWT") and, in connection
with this acquisition, Borrower obtained financing for the operating
requirements of OWT from Charter One Bank ("Charter One"). As of March 17, 1999,
$150,000.000 in the aggregate is unpaid under unexpired letters of credit issued
by Bank for the account of Borrower.
B. To secure Borrower's obligations to Bank, Borrower executed and delivered to
Bank that certain (i) Security Agreement; and (ii) Pledge Agreement, each dated
as of February 29, 1996, each executed by Borrower in favor of Bank (each a
"Security Agreement" and collectively, the "Security Agreements") pursuant to
which Borrower granted to Bank a security interest in personal property and
fixtures described therein ("Collateral") which security interest was perfected
by that certain UCC-1 Financing Statement filed February 29, 1999, as File No.
9606660051, in the Office of the Secretary of State of the State of California
("UCC-1"). Pursuant to the Security Agreements and UCC-1 Bank has a valid,
perfected lien of first priority upon the Collateral.
C. The following documents evidence Borrower's obligations to and relationship
with Bank: the Agreement, the Line of Credit Note, the Term Note, the Credit
Agreement, the Security Agreements, the Additional Security Agreement (defined
below), the SLC Agreement (defined below) 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 not 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.
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D. Borrower, Bank and Charter One have been working to combine Borrower's and
OWT's existing financing arrangements into a combined credit relationship that
would be agented by Bank ("Joint Lending Project"). Borrower has recently
advised Bank and charter One that Borrower may be sold and has requested that
Bank and Charter One defer work on the combined credit relationship. The Line of
Credit Note will mature on March 19, 1999, on which date all sums of principal
and accrued unpaid interest will be due and payable in full. Borrower has
advised Bank that because of the potential sale of Borrower, Borrower will not
satisfy it obligations to Bank on the Termination Date ("Potential Default"). In
addition, Borrower has advised Bank that financing requirements for its working
capital requirements equal approximately $5,000,000.00 for the remaining term
(as extended by this Agreement) of the Line of Credit Note. Borrower has further
requested that Bank extend the Termination Date and provide additional credit in
the form of a cash secured standby letter of credit. Borrower is also agreeable
to a reduction in the maximum amount available under the Line of Credit Note and
to the cancellation of OWT's line of credit from Charter One.
E. At Borrower's request, Bank is willing to modify the Loan Documents as set
forth herein, provided that the conditions set forth herein are satisfied within
the time periods required under this Agreement, and provided further that all
security interests and liens under the Loan Documents shall continue to exist
and remain in full force and effect. Bank is entering into this Agreement for
the sole purpose of allowing Borrower an additional opportunity to negotiate the
possible sale of Borrower.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Bank and Borrower 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 Agreement in agreeing to the terms of this Agreement.
2. Confirmation of Collateral. Borrower hereby grants and confirms that all
obligations of Borrower to Bank are secured by a perfected, first priority
security interest in Collateral.
3. Conditions Precedent. Borrower understands that this Agreement shall not be
effective and Bank shall have no obligation to amend the terms of the Loan
Documents as provided herein unless and until each of the following conditions
precedent has been satisfied not later than March 19, 1999, or waived by Bank
(in Bank's sole discretion):
(a) Borrower shall have executed and delivered to Bank this Agreement
together with (i) a promissory note, in form and substance satisfactory
to Bank in the maximum principal amount of FIVE MILLION AND NO/100
DOLLARS ($5,000,000.00), dated as of the date of this Agreement
("Replacement Line of Credit Note"), which Replacement Line of Credit
Note shall supersede and replace the Line of Credit Note in its
entirety, and which Replacement Line of Credit Note shall evidence all
amounts outstanding under the Line of Credit Note, and such outstanding
amounts to be repaid as provided in the Replacement Line of Credit
Note; and (ii) a security agreement, in form and substance satisfactory
to Bank ("Additional Security Agreement"), granting Bank a security
interest in that certain certificate of deposit no. 7009033775 in the
principal amount of $136,500.00, issued and held by Bank, and all
renewals of and substitutions for such certificate ("Additional
Collateral").
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(b) Borrower shall have reimbursed Bank for Bank's costs and expenses
through the date of this Agreement, including, without limitation,
reasonable attorney's fees and expenses (including the fees of Bank's
inside counsel), incurred in connection with both the Joint Lending
Project and the negotiation and drafting of this Agreement and the
transactions contemplated hereby in the amount of $6,610.00.
(c) On or before such time as Bank may require, 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 Agreement.
(d) Borrower shall have paid to Bank a non-refundable documentation fee
in the amount of $10,000.00
4. Documentation Fee. In consideration of the extension and modifications
granted by Bank to Borrower pursuant to this Agreement, Borrower agrees to pay
to Bank a non-refundable fee of $10,000.00 which amount shall be paid as maybe
provided in Section 3 above.
5. Waiver of Potential Default. Subject to all of the terms and conditions of
this Agreement, including, without limitation, the requirements of Section 3
hereof, Bank hereby agrees to waive its default rights in connection with the
Potential Default, provided, however, that this waiver is not a waiver of any
subsequent breach of the same provision of the Credit Agreement or any Note or
other Loan Documents, nor is it a waiver of any current or future breach of any
other provision of the Credit Agreement or any 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 the Credit Agreement, each Note and any other Loan Documents if any
subsequent breach of the same provisions or any other provision of the Credit
Agreement, any Note or any other Loan Document should occur.
6. Modification of Loan Documents. To induce Bank to enter into this Agreement,
Borrower agrees that the Loan Documents are hereby supplemented and modified as
follows, which modifications shall supersede and prevail over any conflicting
provisions of the Loan Documents:
(a) The date "March 19, 1999" in the paragraph entitled "Termination
Date" in Article One of the Credit Agreement is hereby amended to "April 30,
1999".
(b) Section 2.1.1 of the Credit Agreement is hereby deleted in its
entirety and replaced with the following:
"2.1.1 Line of Credit. Subject to the terms and conditions of
this Agreement from time to time prior to Termination Date,
upon request by Borrower, Bank will provide extensions of
credit ("Line of Credit") to Borrower in the form of Advances.
Letters of Credit that, in the aggregate, shall not exceed at
any time FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) (the
"Credit Limit"), in the following manner."
(c) Section 2.1.1(a) of the Credit Agreement is hereby deleted in its
entirety and replaced with the following:
"(a) Advances. Provide up to the Credit Limit in aggregate
outstanding principal amounts ("Advance Sublimit") in Advances
to Borrower. Each Advance shall be payable no later than the
Termination Date. Borrower may borrow, repay and reborrow
under the
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Advance Sublimit, as Borrower may elect, in minimum amounts of
$10,000.000 or integral multiples thereof. Advances shall be
used by Borrower for the purpose of working capital for its
own operations".
(d) A new Section 2.1.3 is hereby added to the Credit Agreement and
shall read as follows:
"2.1.3 Standby Letter of Credit/Cash Secured. Provide up to
$136,500.00 in aggregate outstanding unpaid face amount for
the purpose of issuing an irrevocable, standby letter of
credit, in form and substance satisfactory to Bank, for the
account of Borrower in United States Dollars ("SLC"). The SLC
shall expire on September 30, 1999. Borrower shall execute,
deliver and perform in accordance with Bank's standard form
Standby Letter of Credit Application & Agreement, all terms of
which are incorporated herein by this reference ("SLC
Agreement"). To secure Borrower's obligations to Bank
evidenced by the SLC Agreement, Borrower execute and deliver
to Bank that certain security agreement dated as of March 19,
1999 (Additional Security Agreement")" providing to Bank a
first priority security interest in that certain certificate
of deposit no. 7009033775 in the principal amount of
$136,500.00, issued and held by Bank, and all renewals of an
substitutions for such certificate".
7. Representations and Warranties. To induce Bank to enter into this Agreement,
Borrower hereby represents and warrants to Bank as follows:
(a) All representations and warranties contained in this Agreement and
in any and all of the other Loan Documents are true and correct as of
the date of this Agreement, and all such representations and warranties
shall survive the execution of this Agreement.
(b) The execution, delivery and performance by Borrower of this
Agreement and all documents contemplated hereunder are within
Borrower's powers, have been duly authorized, and are not in conflict
with Borrower's articles of incorporation or by-laws, or the terms of
any charter or other organizational document of Borrower; and all such
documents constitute valid and binding obligations of Borrower,
enforceable in accordance with their terms. In addition, such
execution, delivery and performance by Borrower will not violate any
law, rule or order of any court or governmental agency or body to which
Borrower is subject; and cannot (except as expressly provided or
contemplated herein) result in the creation or imposition of any lien,
security interest or encumbrance on any now owned or hereafter acquired
property of Borrower.
(c) With the exception of the Potential Default, no event has occurred
or failed to occur that is, or, with notice or lapse of time or both
would constitute a default, an event of default, or a breach or failure
of any condition under any Loan Document.
(d) Each Note represents an unconditional, absolute, valid and
enforceable obligation against Borrower. Borrower has no claims or
defenses against Bank or any other person or entity which would or
might affect; (a) the enforceability of any provisions of the Loan
Documents; or (b) the collectability of sums advanced by Bank in
connection with the Liabilities. Borrower understands and acknowledges
that the Bank is entering into this Agreement in reliance upon, and in
partial consideration for, this acknowledgment and representation, and
agrees that such reliance is reasonable and appropriate.
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8. 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 April 5, 1999, provide Bank with written evidence of
the cancellation of OWT's credit facility with Charter One.
(c) Not enter into any agreements with any of its other creditors that
might impair it ability to perform under this Agreement.
(d) Ensure that Bank is fully informed at all times of all matters
relating to the operation of Borrower's business, including any new
reformed or revived subsidiaries or affiliates, any planned changes in
key personnel or manner of operating its business.
(e) Ensure that Bank is fully informed at all times of all matters
relating to the possible sale of Borrower.
(f) Take any and all actions of any kind or nature whatsoever, either
directly or indirectly, that are necessary to prevent Bank from
suffering a loss with respect to the Liabilities or being deprived of
the Collateral or the Additional Collateral, or of any rights or
remedies of Bank with respect to the Liabilities, the Loan Documents or
this Agreement in the event of a default by Borrower under this
Agreement or any other Loan Documents (or the ability to exercise such
any rights or remedies).
(g) Reimburse Bank for Bank's costs and expenses as set forth in
Section 3(b) of this Agreement for such costs and expenses for which
Bank did not have invoices or statements as of the date of this
Agreement.
9. Additional Events of Default. In addition to the events of default set forth
in the Loan Documents, the occurrence of any of the following events of default
other than the Potential Default shall be an event of default and, at Bank's
option, may make all obligations of Borrower immediately due and payable, all
without demand, presentment or notice, all of which requirements Borrower hereby
waives:
(a) Failure to perform any of the obligations set forth in this
Agreement or in any other Loan documents (as the same may be modified
by this Agreement).
(b) Any representation or warranty of Borrower herein or in any other
Loan Document shall be false, misleading or incorrect.
(c) If there is any substantial impairment of the prospect of
Borrower's satisfaction of its obligations to Bank or substantial
impairment of the value of the Collateral or the Additional Collateral,
or any substantial impairment of the priority of Bank's security
interest in or lien on any Collateral or Additional Collateral.
10. Remedies. Upon the occurrence of an Event of Default and at all times
thereafter, Bank, without the necessity of obtaining any prior approval of any
court, shall be entitled to terminate all advances or other extensions of credit
under the Loan Documents and Bank shall also be entitled to exercise all rights
and remedies available to Bank as a creditor generally, including, without
limitation, all remedies
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available to Bank under the Loan Documents, as well as rights and remedies
available to Bank at law or in equity. All such rights and remedies shall be
cumulative. No failure or delay on the part of Bank in exercising any power,
right or remedy under any of the Loan Documents shall operate as a waiver
thereof, and no single or partial exercise of any such power, right or remedy
shall preclude any further exercise thereof or the exercise of any other power,
right or remedy.
11. Dispute Resolution. This Agreement hereby incorporates any alternative
dispute resolution agreement previously, concurrently or hereafter executed
between Borrower and Bank.
12. Waiver of Statute of Limitations. Borrower shall not please the statute of
limitations to any action brought by Bank with respect to the Liabilities, the
Notes, Credit Agreement, any other Loan Document, the Collateral, and hereby
waives the statute of limitations in respect of any and all sums due from it
under the Notes.
13. Miscellaneous
(a) All the parties hereto agree to and will cooperate fully with each
other in the performance of this Agreement and the Loan Documents
including, without limitation, executing any additional documents and
instruments reasonable or necessary to the full performance of this
Agreement. Without limiting the generality of the foregoing, Borrower
agrees to execute such other and further documents and instruments as
Bank may request to implement the provisions of this Agreement and to
perfect and protect the liens and security interests created by this
Agreement or any other Loan Document.
(b) This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto, their respective successors
and assigns. No other person or entity shall be entitled to claim any
right or benefit hereunder, including, without limitation, the status
of a third party beneficiary hereunder, except the Released Parties.
(c) Bank and Borrower agree that except as expressly provided herein,
the Loan Documents shall remain in full force and effect in accordance
with their respective terms, and this Agreement shall not be construed
to:
(i) Impair the validity, perfection or priority of any lien or
security interest securing Borrower's obligations to Bank;
(ii) Waive or impair any rights, powers or remedies of Bank
under the Loan Documents;
(iii) Constitute an agreement by Bank or require Bank to grant
forbearance periods or extend the term of the Credit
Agreement, the Line of Credit Note, or the time for payment of
any of Borrower's obligations to Bank except as expressly
provided herein, none of which Bank agrees or has agreed to
do, and all of which matters are in Bank's sole and absolute
discretion; or
(iv) make any other loans or other extension of credit to or
for the benefit of Borrower.
In the event of any inconsistency between the terms of this Agreement
and any other Loan Document, this Agreement shall govern. Borrower
acknowledges that it has consulted with counsel and with such other
experts and advisors as it has deemed necessary in connection with
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the negotiation, execution and delivery of this Agreement, or has had
an opportunity to so consult and has knowingly chosen not to do so.
This Agreement shall be construed without regard to any presumption or
rule requiring that it be construed against the party causing this
Agreement or any part hereof to be drafted. The headings used in this
Agreement are for convenience only and shall be disregarded in
interpreting the substantive provisions of this Agreement.
(d) This Agreement and the other Loan Documents shall not be deemed or
construed to create a partnership, tenancy in common, joint tenancy,
joint venture, co-ownership or any other relationship aside from a
continuing debtor-creditor relationship between Borrower on the one
hand and Bank on the other.
(e) In case any provision in this Agreement shall be invalid, illegal
or unenforceable, such provision shall be severable from the remainder
of this agreement and the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired
thereby.
(f) If Bank receives any payment or rents, issues, profits or proceeds
of any Collateral which are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be paid to a
trustee, debtor-in-possession, receiver or any other party under any
bankruptcy law, common law, equitable cause or otherwise, then, to such
extent, the obligations or part thereof intended to be satisfied by
such payments or proceeds shall be reserved and continue as if such
payments or proceeds had not been received by Bank.
(g) This Agreement may not be amended, waived or modified in any manner
without the prior written consent of the party against whom the
amendment, waiver or modification is sought to be enforced.
(h) Borrower shall reimburse Bank for all costs and expenses,
including, without limitation, reasonable attorneys' fees and
disbursements (and fees and disbursements of Bank's in-house counsel)
expended or incurred by Bank in an arbitration, mediation, judicial
reference, legal action or otherwise in connection with; (a) the
negotiation, preparation, amendment, interpretation and enforcement of
the Loan Documents, including, without limitation, during any workout,
attempted workout, and/or in connection with the rendering of legal
advice as to Bank's rights, remedies and obligations under the Loan
Documents; (b) collecting any sum which becomes due Bank under any Loan
Document; (c) any proceeding for declaratory relief, any counterclaim
to any proceeding, or any appeal; or (d) the protection, preservation
or enforcement of any rights of Bank. For the purposes of this section,
attorneys' fees shall include, without limitation, fees incurred in
connection with the following: (1) contempt proceedings; (2) discover;
(3) any motion proceeding or other activity of any kind in connection
with a bankruptcy proceeding or case arising out of or relating to any
petition under Title 11 of the United Sates Code, as the same shall be
in effect from time to time, or any similar law; (4) garnishment, levy,
and debtor and third party examinations; and (5) postjudgment motions
and proceedings of any kind, including, without limitation, any
activity taken to collect or enforce any judgment. All of such costs
and expenses shall bear interest from the time of demand at the rate
then in effect under the Line of Credit Note.
(i) Except as otherwise provided herein, this Agreement and all other
Loan Documents and the rights and obligations of the parties hereto
shall be governed by the laws of the State of California without regard
to principles concerning choice of law. In any action arising out of or
connected with this Agreement, Borrower hereby expressly consents to
the personal jurisdiction of any state or federal court located in the
State of California and also consents to service of process by any
means authorized by federal or governing state law.
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(j) This Agreement may be executed in any number of counterparts which,
when taken together, shall constitute but one agreement.
(k) All representations, warranties, covenants, agreements, waivers and
releases of Borrower contained herein shall survive the payment in full
of Borrower's obligations to Bank.
(l) Any notices or other communications provided for or allowed
hereunder shall be effective only when given by one of the following
methods and addressed to the respective party at its address given with
the signatures at the end of this Agreement and shall be considered to
have been validly given: (a) upon delivery, if delivered personally;
(b) upon receipt, if mailed, first class postage prepaid, with the
United States Postal Service; (c) on the next business day, if sent by
overnight courier service of recognized standing; and (d) upon
telephoned confirmation of receipt, if telecopied. The addresses to
which notices or demands are to be given may be changed from time to
time by notice delivered as provided above.
(m) In the event of any inconsistency between the terms of this
Agreement and any other billings, statements or the like form Bank to
Borrower in connection with the Liabilities, the terms of this
Agreement shall prevail over the terms of any other such billings,
statements or the like.
(n) This Agreement and other Loan Documents are intended by the parties
as the final expression of their agreement and therefore incorporate
all negotiations of the parties hereto and are the entire agreement of
the parties hereto. 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 other Loan Documents.
Except as expressly set forth in this Agreement, the other Loan
Documents remain unchanged and in full force and effect. Where any
provisions of the Credit Agreement amended by this Agreement appear in
a promissory note tied to the Credit Agreement, the same provisions in
said promissory note shall be deemed likewise amended.
IN WITNESS WHEREOF, Bank and Borrower have executed this Agreement as of the
date set forth in the preamble.
EMCON, a UNION BANK OF CALIFORNIA, N.A.
California corporation
By: \s\ Eugene M. Herson By:
- - ----------------------------- ------------------------------
Title: CEO and President Title:
By: \s\ R. Michael Momboisse
- - -----------------------------
Title: CFO and VP Legal
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EXHIBIT 23.1
REPLACEMENT LINE OF CREDIT NOTE
================================================================================
Borrower Name
EMCON
================================================================================
Borrower Address Office Loan Number
400 South El Camino Real, Suite 1200 70061
San Mateo, California 94402-1708
--------------------------------------
Maturity Date Amount
April 30, 1999 $5,000,000.00
================================================================================
$5,000,000.00 Effective as of March 19, 1999
FOR VALUE RECEIVED, on April 30, 1999 ("Maturity Date"), the undersigned
("Borrower") promises to pay to the order of UNION BANK OF CALIFORNIA, N.A.
("Bank"), as indicated below, the principal sum of FIVE MILLION AND NO/100
DOLLARS ($5,000,000.00), or so much thereof as is disbursed, together with
interest on the balance of such principal from time to time outstanding, at the
per annum rate or rates and at the times set forth below. At any time prior to
the maturity of this Note, subject to the provisions of paragraph 4, below, of
this Note, Borrower may borrow, repay and reborrow hereon so long as the total
outstanding at any one time does not exceed the principal amount of this Note.
All computations of interest under this Note shall be made on the basis of a
year of 360 days, for actual days elapsed.
1. INTEREST PAYMENTS. Borrower shall pay interest on the 19TH day of each month
commencing the first such date to occur after the first advance under this Note.
Should interest not be paid when due, it shall become part of the principal and
bear interest as herein provided. On the Maturity Date, all principal and
interest then unpaid shall be due and payable.
(a) BASE INTEREST RATE. At Borrower's options, amounts outstanding
hereunder in increments of at least $100,000.00 shall bear interest at
a rate, based on an index selected by Borrower, which is 1-3/4% per
annum in excess of Bank's LIBOR Rate for the Interest Period selected
by Borrower, in each case acceptable to Bank.
No Base Interest Rate may be changed, altered or otherwise modified
until the expiration of the Interest Period selected by Borrower. The
exercise of interest rate options by Borrower shall be as recorded in
Bank's records, which records shall be prima facile evidence of the
amount borrowed under either interest option and the interest rate;
provided, however, that failure of Bank to make any such notation in
its records shall not discharge Borrower from its obligations to repay
in full with interest all amounts borrowed. In no event shall any
Interest Period extend beyond the maturity date of this Note.
To exercise this option, Borrower may, from time to time with respect
to principal outstanding on which a Base Interest Rate is not accruing,
and on the expiration of any Interest period with respect to principal
outstanding on which a Base Interest Rate has been accruing, select an
index offered by Bank for a Base Interest Rate Loan and an Interest
Period by telephoning an authorized lending officer of Bank located at
the banking office identified below prior to 10:00 a.m., Pacific time,
on any Business Day and advising that officer of the selected Index,
the Interest Period and the Origination Date selected (which
Origination Date, for a Base Interest Rate Loan based on the LIBOR
Rate, shall follow the date of such selection by no more than two (2)
Business Days).
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Bank will mail a written confirmation of the terms of the selection to
Borrower promptly after the election is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the
rate selected. If, on the date of the selection, the index selected is
unavailable for any reason, the selection shall be void. Bank reserves
the right to fund the principal from any source of funds
notwithstanding any Base Interest Rate selected by Borrower.
(b) VARIABLE INTEREST RATE. All principal outstanding hereunder which
is not bearing interest at a Base Interest Rate shall bear interest at
a rate per annum equal to the Reference Rate, which rate shall vary as
and when the Reference Rate changes.
Borrower shall pay all amounts due under this Note in lawful money of
the United States at Bank's Northern California Commercial Banking
Office, or such other office as may be designated by Bank, from time to
time.
2. LATE PAYMENTS. If any payment required by the terms of this Note
shall remain unpaid ten days after same is due, at the option of Bank,
Borrower shall pay a fee of $100 to Bank.
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the
option of Bank, and, to the extent permitted by law, interest shall be
payable on the outstanding principal under this Note at a per annum
rate equal to five percent (5%) in excess of the Reference Rate,
calculated from the date of default until all amounts payable under
this Note are paid in full.
4. PREPAYMENT.
(a) Amounts outstanding under this Note bearing interest at a
rate based on the Reference Rate may be prepaid in whole or in
part at any time, without penalty or premium. Borrower may
prepay amounts outstanding under this Note bearing interest at
a Base Interest Rate in whole or in part provided Borrower has
given Bank not less than five (5) Business Days prior written
notice of Borrower's intention to make such prepayment and
pays to Bank the liquidated damages due as a result.
Liquidated Damages shall also be paid, if Bank, for any other
reason, including acceleration or foreclosure, receives all or
any portion of principal bearing interest at a Base Interest
Rate prior to its scheduled payment date. Liquidated Damages
shall be an amount equal to the present value of the product
of: (i) the difference (but not less than zero) between (a)
the Base Interest Rate applicable to the principal amount
which is being prepaid, and (b) the return which Bank could
obtain if it used the amount of such prepayment of principal
to purchase at bid price regularly quoted securities issued by
the United States having a maturity date most closely
coinciding with the relevant Base Rate Maturity Date and such
securities were held by Bank until the relevant Base Rate
Maturity Date ("Yield Rate"); (ii) a fraction, the numerator
of which is the number of days in the period between the date
of prepayment and the relevant Base Rate Maturity Date and the
denominator of which is 360; and (iii) the amount of the
principal so prepaid (except in the event that principal
payments are required and have been made as scheduled under
the terms of the Base Interest Rate Loan being prepaid, then
an amount equal to the lesser of (A) the amount prepaid or (B)
50% of the sum of (1) the amount prepaid and (2) the amount of
principal scheduled under the terms of the Base Interest Rate
Loan being prepaid to be outstanding at the relevant Base Rate
Maturity Date). Present value under this Note is determined by
discounting the above product to present value using the Yield
Rate as the annual discount factor.
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(b) In no event shall Bank be obligated to make any payment or
refund to Borrower, nor shall Borrower be entitled to any
setoff or other claim against Bank, should the return which
Bank could obtain under this prepayment formula exceed the
interest that Bank would have received if not prepayment had
occurred. All prepayments shall include payment of accrued
interest on the principal amount so prepaid and shall be
applied to payment of interest before application to
principal. A determination by Bank as to the prepayment fee
amount, if any, shall be conclusive.
(c) Bank shall provide Borrower a statement of the amount
payable on account of prepayment. Borrower acknowledges that
(1) Bank establishes a Base Interest Rate upon the
understanding that it apply to the Base Interest Rate Loan for
the entire Interest Period, and (ii) any prepayment may result
in Bank incurring additional costs, expenses or liabilities;
and Borrower agrees to pay these liquidated damages as a
reasonable estimate of the costs, expenses and liabilities of
Bank associated with such prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include,
but not be limited to, any of the following: (a) the failure of
Borrower to make any payment required under this Note when due; (b) any
breach, misrepresentation or other default by Borrower, any guarantor,
co-maker, endorser, or any person or entity other than Borrower
providing security for this Note (hereinafter individually and
collectively referred to as the "Obligor") under any security, guaranty
or other agreement between Bank and any Obligor; (c) the insolvency of
any Obligor or the failure of any Obligor generally to pay such
Obligor's debts as such debts become due; (d) the commencement as to
any Obligor of any voluntary or involuntary proceeding under any laws
relating to bankruptcy, insolvency, reorganization, arrangement, debt
adjustment or debtor relief; (e) the assignment by any Obligor for the
benefit of such Obligor's creditors; (f) the appointment, or
commencement of any proceeding for the appointment of a receiver,
trustee, custodian or similar official for all or substantially all of
any Obligor's property; (g) the commencement of any proceeding for the
dissolution or liquidation of any Obligor; (h) the termination of
existence or death of any Obligor; (i) the revocation of any guaranty
or subordination agreement given in connection with this Note; (j) the
failure of any Obligor to comply with any order, judgment, injunction,
decree, writ or demand of any court or other public authority; (k) the
filing or recording against any Obligor, or the property of any
Obligor, of any notice of levy, notice to withhold, or other legal
process for taxes other than property taxes; (l) the default by any
Obligor personally liable for amounts owed hereunder on any obligation
concerning the borrowing of money; (m) the issuance against any
Obligor, or the property of any Obligor, of any writ of attachment,
execution, or other judicial lien; or (n) the deterioration of the
financial condition of any Obligor which results in Bank deeming
itself, in good faith, insecure. Upon the occurrence of any such
default, Bank, in its discretion, may cease to advance funds hereunder
and may declare all obligations under this Note immediately due and
payable; however, upon the occurrence of an event of default under d,
e, f, or g, all principal and interest shall automatically become
immediately due and payable.
6. ADDITIONAL AGREEMENTS OF BORROWER. If any amounts owing under this
note are not paid when due, borrower promises to pay all costs and
expenses, including reasonable attorneys' fees, incurred by bank in the
collection or enforcement of this note. Borrower and any endorser of
this Note, for the maximum period of time and the full extent permitted
by law, (a) waive diligence, presentment, demand, notice of nonpayment,
protest, notice of protest, and notice of every kind; (b) waive the
right to assert the defense of any statute of limitations to any debt
or obligation hereunder; and (c) consent to renewals and extensions of
time for the payment of any amount due under this Note. If this Note is
signed by more than one party, the term "Borrower"
109
<PAGE>
includes each of the undersigned and any successors in interest
thereof; all of whose liability shall be joint and several. Any married
person who signs this Note agrees that recourse may be had against the
separate property of that person for any obligations hereunder. The
receipt of any check or other item of payment by Bank, at its option,
shall not be considered a payment on account until such check or other
item of payment is honored when presented for payment at the drawee
bank. Bank may delay the credit of such payment based upon Bank's
schedule of funds availability, and interest under this Note shall
accrue until the funds are deemed collected. In any action brought
under or arising out of this Note, Borrower and any Obligor, including
their successors and assigns, hereby consent to the jurisdiction of any
competent court within the State of California, as provided in any
alternative dispute resolution agreement executed between Borrower and
Bank, and consent to service of process by any means authorized by said
state's law. The term "Bank" includes, without limitation, any holder
of this Note. This Note shall be construed in accordance with and
governed by the laws of the State of California. This Note hereby
incorporates any alternative dispute resolution agreement previously,
concurrently or hereafter executed between Borrower and Bank.
7. DEFINITIONS. As used herein, the following terms shall have the
meanings respectively set forth below. "Base Interest Rate" means a
rate of interest based on the LIBOR Rate. "Base Interest Rate Loan"
means amounts outstanding under this Note that bear interest at a Base
Interest Rate. "Base Rate Maturity Date" means the last day of the
Interest Period with respect to principal outstanding under a Base
Interest Rate Loan. "Business Day" means a day on which Bank is open
for business for the funding of corporate loans, and, with respect to
the rate of interest based on the LIBOR Rate, on which dealings in U.S.
dollar deposits outside of the United States may be carried on by Bank.
"Interest Period" means with respect to funds bearing interest at a
rate based on the LIBOR Rate, any calendar period of one, two, or three
months. In determining an Interest Period, a month means a period that
starts on one Business Day in a month and ends on and includes the day
preceding the numerically corresponding day in the next month. For any
month in which there is no such numerically corresponding day, then as
to that month, such day shall be deemed to the last calendar day of
such month. Any Interest Period which would otherwise end on a
non-Business Day shall end on the next succeeding Business Day unless
that is the first day of a month, in which event such Interest Period
shall end on the next preceding Business Day. "LIBOR Rate" means a per
annum rate of Interest (rounded upward, if necessary, to the nearest
1/100 of 1%) at which dollar deposits, in immediately available funds
and in lawful money of the United States would be offered to Bank,
outside of the United States, for a term coinciding with the Interest
Period selected by Borrower and for an amount equal to the amount of
principal covered by Borrower's interest rate selection, plus Bank's
costs, including the cost, if any, of reserve requirements.
"Origination Date" means the first day of the Interest Period.
"Reference Rate" means 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.
This Note is the Replacement Line of Credit Note defined in that
certain Extension and Modification Agreement dated as of March 19, 1999
between Bank and Borrower (as amended, supplemented, extended,
restated, or renewed from time to time, "Agreement"), and is governed
by the terms thereof, and supersedes and replaces that certain Line of
Credit Note dated January 27, 1999, as amended from time to time,
executed by Borrower in favor of Bank (the "Previous Note"). As of the
effective date of the Agreement, all unpaid principal, interest and
other amounts accrued and outstanding under the Previous Note shall for
all purposes be and constitute unpaid
110
<PAGE>
amounts outstanding under, and evidenced by this Note. Each capitalized
term not otherwise defined in this Note shall have the meaning set
forth in the Agreement.
EMCON, a California corporation
By: \s\ Eugene M. Herson
-------------------------------
Title: President and CEO
By: \s\ R. Michael Momboisse
-------------------------------
Title: CFO and VP Legal
111
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No.333-61151) pertaining to the 1998 Stock Option Plan of EMCON of our
report dated February 23, 1999, with respect to the consolidated financial
statements and schedules of EMCON included in its Annual Report (Form 10-K) for
the year ended December 31, 1998.
San Francisco, California
March 24, 1999
112
<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 inthe Company's Form 10-K for the twelve month
period ended December 31, 1998, 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-1-1999
<PERIOD-START> JAN-3-1998
<PERIOD-END> JAN-1-1999
<EXCHANGE-RATE> 1
<CASH> 2,677,000
<SECURITIES> 0
<RECEIVABLES> 40,885,000
<ALLOWANCES> 1,538,000
<INVENTORY> 2,630,000
<CURRENT-ASSETS> 53,475,000
<PP&E> 34,890,000
<DEPRECIATION> 18,371,000
<TOTAL-ASSETS> 95,889,000
<CURRENT-LIABILITIES> 25,168,000
<BONDS> 0
0
0
<COMMON> 41,628,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 95,889,000
<SALES> 129,960,000
<TOTAL-REVENUES> 129,960,000
<CGS> 76,749,000
<TOTAL-COSTS> 76,749,000
<OTHER-EXPENSES> 48,081,000
<LOSS-PROVISION> 755,000
<INTEREST-EXPENSE> 1,234,000
<INCOME-PRETAX> 3,141,000
<INCOME-TAX> 1,508,000
<INCOME-CONTINUING> 1,633,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,633,000
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>