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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended August 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-17594
USA BIOMASS CORPORATION
(Name of small business issuer in its charter)
DELAWARE 33-0329559
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
52300 ENTERPRISE WAY
COACHELLA, CALIFORNIA 92236
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (including area code): (760) 398-9520
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.002 par value per share
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes No X
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
The registrant's revenues from continuing operations for its most recent
fiscal year were $2,005,611.
Based on the average of bid and asked prices on March 1, 1999, the
aggregate market value of common stock held by non-affiliates of the registrant
on March 1, 1999 was approximately $11,166,115.
The number of shares outstanding of the registrant's only class of Common
Stock, $0.002 par value per share, was 7,784,097 on March 1, 1999.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
HISTORICAL SUMMARY
USA Biomass Corporation, formerly AMCOR Capital Corporation (the
"Company"), was incorporated in Delaware on March 10, 1988. The Company's
consolidated operations, as of August 31, 1998, include its wholly-owned
subsidiaries, Sun Goddess Farms, Inc., AMCOR Properties, Inc. and TransPacific
Environmental, Inc. ("TPE"). The Company also holds a 99% ownership interest in
(i) Las Palomas Country Club Estates LLC, which acted as the development entity
for a championship golf course and a contiguous 1,350 acre residential
subdivision located southeast of San Antonio, Texas; (ii) AMCOR Builders LLC,
which managed the construction of single family residences by the Company in
Texas; and (iii) AMCOR Biomass Farms, LLC, which operated a "clean green waste"
processing business in Southern California.
DESCRIPTION OF BUSINESS
The Company's operations at August 31, 1998 included: (i) agribusiness
(including packing/cold storage services), (ii) "clean green waste" processing
and tree maintenance (collectively, "biomass") and (iii) land
planning/development. The Company's principal agribusiness operations involved
the production, processing and marketing of table grapes, all of which are
located in the Coachella Valley of Southern California, where the Company, along
with its affiliated partnerships, has in past years had a dominant market share.
The Company's biomass activities are carried out in Southern California, and its
land planning/development activities are located in Southern California and
Texas. Most of the non-agricultural properties are owned by partnerships for
which the Company is the managing agent.
Following the Company's acquisition of TPE in November 1997, the Company's
focus shifted from agribusiness and land planning/development to biomass.
Subsequently, in June 1998, the Company broadened its new focus to include solid
waste transportation and developed a strategic alliance with Waste Management,
Inc., formerly USA Waste Services ("Waste Management"), discussed further below.
See "--Solid Waste Transportation."
In light of the Company's strategic alliance with Waste Management and
related actual and potential biomass and solid waste transportation
opportunities, the Company's Board of Directors has determined that the
Company's shift in focus from agribusiness and land planning/development to
solid waste transportation and biomass should be complete and permanent.
Consequently, the Board of Directors approved the Company's name change
effective August 31, 1998 and subsequently, on December 22, 1998, adopted a Plan
of Discontinued Operations (the "Plan") pursuant to which the Company will
discontinue its agribusiness and land planning/development activities and will
focus on its solid waste transportation and biomass activities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Plan of Discontinued Operations." In addition, on January 12, 1999,
the Board of Directors approved a change in the Company's fiscal year end to
December 31.
Implementation of the Plan is in process and has had a material impact on
the presentation of the Company's financial statements. The operations, cash
flows and net assets of these operations for both fiscal 1998 and fiscal 1997
have been reclassified as discontinued operations, and the assets of these
operations have been reduced to the lower of cost or net realizable value. The
Company incurred an after-tax loss of $15,785,686 from all operations for fiscal
1998, which includes a loss of $5,838,804 from continuing operations and the
write-down of real estate and certain other assets of discontinued operations.
With regard to the discontinuation of the Company's agribusiness
activities, the acreage divestiture provided for in the Plan is the culmination
of a strategy initiated over five years ago to reduce the Company's focus on
agribusiness due to increased competition from Mexico. To date, the Company has
reduced its managed acreage from over 3,000 acres to just 560 producing acres.
During fiscal 1998, the Company sold 510 acres of table grape and date
properties valued at approximately $4.5 million. In December 1998, the Company
leased the remaining 560 producing acres for the 1999 crop year.
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With regard to the discontinuation of the Company's land
planning/development activities, the Company sold a 600-acre Rancho California
parcel in a $14.5 million transaction in August 1998. The Company's only
remaining significant property is the Las Palomas golf course/subdivision
development near San Antonio. The Company has accepted an offer to purchase this
project for $11.5 million in cash, subject to the completion of the buyer's due
diligence. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Management anticipates that the discontinuations contemplated by the Plan
can be fully implemented by December 22, 1999, so that the Company can then
focus entirely on solid waste transportation and biomass activities.
SOLID WASTE TRANSPORTATION
The Company entered into a transportation services contract with Waste
Management in June 1998. Under the contract, the Company has the exclusive right
to provide transportation services from two of Waste Management's Los
Angeles-area transfer stations to certain landfills. The Company began providing
transportation services in October 1998. To date, the Company has acquired 40
trucks and 16 trailers, all of which were in service during the latter part of
1998. The contract has an initial term of five years, with two automatic
five-year extensions unless either party gives 180 days' prior written notice of
their desire to terminate the contract at the end of the then current term.
BIOMASS
"Clean green waste" is organic material in the form of plants, leaves,
clippings, cuttings, trimmings of grass, weeds, shrubbery, bushes, trees, garden
wastes and wood products from both commercial and residential sources, including
sawdust, tree trunks, scrap lumber and untreated wooden pallets. The material
received as clean green waste cannot contain more than 0.5% non-organic matter
by total weight.
The Company's clean green waste operations have been and most likely
will continue to be influenced significantly by the implementation of the
California Integrated Waste Management Act of 1989 (Assembly Bill 939 ("AB
939")). The provisions of AB 939 mandate, among other things, the diversion
of recyclable materials from over-crowded landfills. A key element of AB 939
relates to green waste that could be processed and incorporated back into the
soil or recycled in other ways. AB 939 currently mandates that California's
municipalities must divert 25% of all waste from the landfills, and this
requirement is scheduled to increase to 50% by the year 2000.
The Company is engaged in private green waste recycling and holds leasehold
interests in a transfer station facility located in Santa Fe Springs, California
and a 3-acre site in Fontana, California that is fully permitted for green
waste processing. The Company receives green waste at its transfer stations from
various sources and pursuant to an oral agreement with Waste Management. The
Company processes and markets the green waste to various users thereby assisting
Waste Management and others in fulfilling their recycling obligations under AB
939.
The Company's ability to process biomass material enabled the Company to
enter into a green waste clean-up contract with the California State University,
San Marcos (in San Diego County). Work under the contract commenced in August
1998.
In November 1998, the Company commenced hauling green waste for the County
of Los Angeles Sanitation District in connection with the County's diversion of
processed material from its Puente Hills landfill. The initial contract, which
presently is estimated to generate annual revenues of $500,000, is for a term of
three years plus an option for three additional years and specifies that the
Company will divert the first 100 tons per day (600 tons per week) of excess
ground or processed green waste from the landfill. The Company is currently
supplying the diverted material to a composting operation. Pursuant to this
contract, the Company has been informally presented with the opportunity to
divert more than the minimum of 100 tons per day, which opportunity the Company
intends to pursue as sufficient outlet markets are identified.
Presently, there appears to be an abundant supply of green waste available
due primarily to the large volume produced in Southern California and the
implementation of AB 939. The Company believes there is good economic incentive
to take all of the green waste that is offered, particularly in that landfill
"tipping fees" ranging from $17 to
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over $27 per ton tend to establish the market. The challenge is to identify and
tie-down end-markets (outbound) for the incoming green waste, which historically
have included fertilizer/compost operations and co-generation (boiler fuel)
companies.
The Company owns 710-acres of raw, undeveloped land which is planned to be
used as a land-application/biomass depository for the Company's continuing green
waste operations.
DISCONTINUED OPERATIONS - AGRIBUSINESS
Historically, the Company has managed the agribusiness land (table
grapes and, formerly, dates) owned by the Company and in prior years its
affiliated partnerships for which it generally received management and/or
development fees and income from packing and cold storage services that it
provided for some of the partnerships and third parties. The Company leases
an 80,000-square foot packing and cold storage plant, which it also uses as
its headquarters in the Coachella Valley of Southern California.
In past years, the Company has been one of the largest producer/shippers
specializing in "early market" table grapes that are harvested from early May
through June and typically command premium prices. However, due to increased
competition from Mexico, which has a similar micro climate to that of the
Coachella Valley, the early table grape market is becoming increasingly
uncertain. Consequently, the Plan provides for the complete divestiture of the
Company's agribusiness properties. During fiscal 1998, the Company sold 510
acres of table grape and date properties valued at approximately $4.5 million.
To date, the Company has reduced its managed acreage from over 3,000 acres to
just 560 producing acres and has disposed of all of its date properties.
The Company's only remaining operating property is a 560-acre table grape
ranch located in the Coachella Valley. The property has ample water and a good
production history. The book value of the land and equipment approximates $4.6
million, and the land is encumbered with a first mortgage note in the amount of
$2.1 million. The Company has leased-out the 560 acres for the 1998-1999 growing
season and plans to sell the property during fiscal 1999.
The Company's investment in the Columbia River Basin of eastern Oregon
includes a 50% ownership interest in a 6,000-acre irrigated potato and grain
farming operation, together with certain Columbia River water rights appurtenant
thereto. Production from this farming operation includes potatoes grown under
contract. The property is operated by the joint venture partner under a lease
that terminates September 30, 1999. Consistent with the Plan, the Company
intends to sell its 50% interest to its partner during fiscal 1999, and
negotiations are in process.
DISCONTINUED OPERATIONS - LAND PLANNING/DEVELOPMENT
The Company traditionally has been engaged in agribusiness, with additional
revenues derived from partnership management, which has included real estate
development partnerships. These partnerships owned land that was once used for
farming and has since evolved into a higher and better use or that was acquired
as transitional land.
Due to the generally depressed real estate market since 1990, particularly
in California, the Company has generated much smaller revenues from its land
planning/development operations in recent years. Nonetheless, during fiscal
1996, the Company began a major subdivision/golf course project known as Las
Palomas Country Club Estates ("Las Palomas") and which is located in Wilson
County, Texas approximately 30 miles southeast of San Antonio. The Company,
under contract with a partnership managed by the Company, Lake Valley Realty
Partners ("Lake Valley"), has since completed development of a 155-acre, 7,000
yard, 18-hole championship golf course at Las Palomas.
On behalf of Lake Valley, the Company has developed and now manages the
1,300-lot subdivision and golf course at Las Palomas, which includes 1,000
single-family residential lots and 300 multi-family and timeshare lots. Lot
sales have commenced on Sections I and II, which contain 206 single-family
lots, priced generally from $17,000 to $35,000. AMCOR Builders LLC has built
11 homes on certain of the subdivision's lots. In addition, in May 1997 the
Company acquired a 152-acre "entry parcel" contiguous to the golf course
which it has subdivided into 68 single-family home lots which are currently
offered for sale at prices averaging $20,000 per lot. Since inception, 168
lots and homes have been sold.
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Due to disappointing sales activity, the Plan contemplates the sale of the
entire project in a "bulk sale" transaction and, in that regard, the Company has
entered into an agreement to sell the project. Consequently, the Company has
written-down its cost of the project to estimated net realizable value plus any
costs incurred to carry the project through liquidation and has taken a one-time
charge of $5,306,244 to its fiscal 1998 financial statements to reflect this
write-down.
The Company sold a 600-acre Rancho California parcel in a $14.5 million
transaction in August 1998. Presently, the Company manages approximately 17
limited partnerships, down from over 120 in 1991. This includes other real
estate interests, primarily two Southern California parcels owned by one
partnership, as well as a 173-acre property located outside Houston owned by
another. These parcels are also expected to be sold during the next 12 months,
consistent with the Plan. The Company expects that about one-half of the
remaining limited partnerships will file final tax returns for calender 1998
pursuant to liquidation plans that are now in process, and that the remaining
partnerships will be terminated in fiscal 1999.
COMPETITION
The foundation of the Company's continuing solid waste transportation
activities is an exclusive transport contract with Waste Management, the
largest waste hauler in the country. See "--Solid Waste Transportation." The
contract includes two transfer stations, one of which is located in Carson,
California and is reported to be one of the largest in the country. Due to
the exclusive nature of the contract and its five-year term and two five-year
options to extend, the Company does not expect to be confronted with any
significant competition for these two transfer stations for as long as 15
years, provided that the Company satisfactorily discharges its contractual
responsibilities. The Company intends to bid on future solid waste
transportation contracts for Waste Management and other waste companies as
they become available, which could provide the Company with significant
growth opportunities in the future.
The Company's clean green waste operations provide alternatives to landfill
disposal and are part of the non-hazardous waste industry. The Company believes
that successful entry into the green waste industry, on a volume basis, requires
that the Company identify and contract with multiple end-users for the product.
The industry is dominated by several large national waste management companies
and numerous regional and local companies, all of which contribute to the
significant, somewhat fragmented, competition that characterizes the industry,
many having much greater financial and operational resources, and more
established market positions, than the Company. The Company believes that its
recent strategic alliance with Waste Management will help protect the Company
from external competition and provide a reliable supply of biomass to support
the Company's green waste operations.
There has been an increasing trend at the state and local levels to mandate
solid waste reduction at the source and to prohibit the disposal of certain
types of wastes at landfills, as evidenced by legislation such as AB 939. The
Company believes that as this trend continues, the Company will encounter
additional competition from new and existing waste industry participants. In
addition, the Company may compete with municipalities that maintain their own
waste collection and landfill operations and that have significant financial
advantages over the Company due to, among other things, the availability of tax
revenues and tax-exempt financing.
BUSINESS STRATEGY
The Company continues to manage and expand its solid waste transportation
and biomass businesses. The Company's present business strategy includes: (i)
expansion of its contractual relationships with Waste Management and other waste
haulers, and (ii) growth of its green waste processing and marketing business as
additional markets are generated, both internally and through acquisitions. As
previously stated, the Company intends to aggressively pursue its asset
divestiture strategy as set forth in the Plan. This will include liquidation of
its remaining agricultural assets and sale of its real estate (principally the
Las Palomas project near San Antonio). These sales and divestitures are expected
to generate working capital to retire debt and fund future growth.
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EMPLOYEES
As of August 31, 1998, the Company, together with its subsidiaries, had 98
full-time employees, including 18 in administration and 69 in agribusiness and
biomass operations. This includes 64 employees engaged in continuing operations
and 34 employees assigned to discontinued operations. None of the Company's
employees are represented by a labor union and the Company has experienced no
work stoppages. The Company believes that there is an adequate supply of labor
to staff the Company's expanding solid waste transportation and biomass
operations.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices and table grape processing cold storage
facility occupy approximately 80,000 square feet of leased space at 52300
Enterprise Way, Coachella, California 92236. Most of the Company's annual rental
expense has been offset by revenues generated through the lease of the Company's
cold storage packing facility. The Company rents these facilities from an
affiliate of the Company on a month-to-month basis at an annual rental of
$156,000. The Company and its affiliate are in the process of renegotiating the
terms of this rental agreement to provide for an annual rental of $36,000 for
the Company for executive office space only.
The Company's headquarters facility is located within the Coachella Valley
Enterprise Zone. Under the California Revenue and Taxation Code, the Company is
offered a number of California tax benefits. The Company is exploring relocation
of its headquarters in connection with the Plan.
The Company's biomass operations are headquartered at a 1.75-acre site in
Santa Fe Springs, California, which it leases for $54,000 annually. The site
also serves as a green waste transfer station pursuant to a Conditional Use
Permit from the City of Santa Fe Springs. The Company also operates a fully
permitted green waste transfer and processing facility on a 3-acre site in
Fontana, California, which it leases for $42,000 annually.
On December 31, 1998, the Company acquired a 4-acre parcel located in Bell
Gardens, California, which includes a 40,000 square-foot maintenance facility
and a separate 2,400 square-foot office building used as the base for the
Company's transportation operations.
ITEM 3. LEGAL PROCEEDINGS.
In December 1997, a judgment was entered against the Company and two of
its officers, who are also shareholders. The plaintiffs are an individual and
a related estate of a former officer and shareholder. The litigation related
to breaches of promissory notes and sought declaratory relief, judicial
foreclosure and attorney's fees. The judgment required the Company to reissue
144,000 shares of its Common Stock to the plaintiff's estate. In addition, the
court reaffirmed that the Company must honor an existing note payable of
$283,389 that had previously been assumed by an affiliate of the Company. The
court also awarded the plaintiffs attorney's fees in the amount of $115,387.
The Company is contingently liable for the attorney's fees. The Company has
filed an appeal of this judgment.
On January 22, 1999, Gus Franklin and Susan Franklin filed a lawsuit in
Orange County Superior Court, Central Justice Center, Case No. 804714,
seeking damages for breach of employment contract, breach of the covenant of
good faith and fair dealing, fraud and wrongful termination of employment in
violation of public policy in connection with the termination by the Company
of the Franklins' employment agreements with the Company. The plaintiffs are
seeking damages, according to proof, including for lost salaries, cash and
stock bonuses, stock options and other wages and employment benefits,
together with other expenses and losses. In addition, the plaintiffs are
seeking punitive and exemplary damages in connection with certain of the
causes of action. To date, the Company has not filed an answer to the
lawsuit. The Company plans to attempt to settle the dispute prior to the date
upon which the Company must answer the complaint. In the event the Company is
not successful in settling this matter prior to such date, the Company plans
to file an answer denying any wrongdoing. However, no assurances can be given
with respect to the outcome of this proceeding and the effect such outcome
may have on the Company.
The Company is not involved in any other pending legal proceedings other
than legal proceedings occurring in the ordinary course of business. Such other
legal proceedings in the aggregate are believed by management to be immaterial.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the last
quarter of the fiscal year ended August 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 has traded in the over-the-counter market since
1989 and is currently trading on The Nasdaq SmallCap Market. Set forth below are
the high and low bid prices of the Common Stock during each quarter of fiscal
1997 and 1998, as reported by a member firm of the National Association of
Securities Dealers, Inc. that effects transactions in Nasdaq SmallCap Market
stocks and acts as one of the market makers for the Company's Common Stock. The
quotations listed below reflect inter-dealer prices, without retail mark-up,
mark-down or commissions, and may not represent actual transactions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Risk Factors--Nasdaq Delisting Hearing."
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Stock Prices
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High Low
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FISCAL 1997
First Quarter $ 2.5312 $ .9062
Second Quarter (1) 4.75 2.00
Third Quarter 5.875 4.125
Fourth Quarter 5.4375 4.4375
FISCAL 1998
First Quarter $ 5.375 $ 4.1875
Second Quarter 5.313 4.125
Third Quarter 5.187 4.125
Fourth Quarter 4.938 2.375
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(1) On February 24, 1997, the Company effected a 1-for-2 reverse stock split of
its Common Stock.
At February 15, 1999, there were approximately 2,600 stockholders of record
of the Company's Common Stock. The Company has paid no dividends on its Common
Stock and does not expect to pay dividends in the foreseeable future.
In November 1997, the Company issued 406,109 shares of Common Stock to
Gus and Susan Franklin, the then sole shareholders of TPE, in connection with
the acquisition of all of the outstanding shares of common stock of TPE.
In December 1997, the Company issued 144,000 shares of Common Stock in
connection with a judgment rendered by a court in litigation brought by an
individual and the estate of a former officer and stockholder of the Company.
In January 1998, the Company issued an aggregate of 31,250 shares of Common
Stock in exchange for $62,500 upon the exercise of options issued under the
Company's 1994 Non-Qualified Stock Option Plan.
In January 1998, the Company issued 3,938 shares of Common Stock in
exchange for the cancellation of a 5% note payable to a non-affiliate in the
principal amount of $15,816.88.
Effective February 28, 1998, the Company retired an aggregate of 404,414
shares of Series B Convertible Preferred Stock that were issued to three
affiliated limited partnerships as part of a transaction arranged by the Company
pursuant to which the Company agreed to reduce the amount of debt owed to the
Company by Lake Valley by $4,044,140 in exchange for the issuance by Lake Valley
to the partnerships of promissory notes collateralized by a first priority
security interest in certain real property owned by Lake Valley and the payment
by Lake Valley to the Company of a financing fee of approximately $417,000.
Subsequently, Lake Valley inadvertently failed to record the partnerships'
security interest in the real property prior to the recordation by a third party
of a security interest in the
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real property. In light of the inability of Lake Valley to provide to the
partnerships a first priority security interest in the real property, the
Company rescinded the foregoing transactions and reissued the 404,414 shares of
Series B Convertible Preferred Stock effective as of February 28, 1998. Each
share of Series B Convertible Preferred Stock is convertible at any time at the
option of the holder into one fully paid nonassessable share of the Company's
Common Stock. In addition, each share of Series B Convertible Preferred Stock is
automatically converted into one fully paid nonassessable share of Common Stock
upon a change in control during any twelve-month period or upon sale of all or
substantially all of the assets of the Company.
In December 1998, the Company issued an aggregate of 11,507 shares of
Common Stock to two non-affiliated holders of 12% notes in lieu of an interest
payout of $55,376.71.
The issuances of the Company's Common Stock in the above referenced
transactions were effected in reliance upon the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"), as transactions not involving a public offering. Exemption from the
registration provisions of the Securities Act is claimed on the basis that such
transactions did not involve any public offering and the purchasers were
sophisticated with access to the kind of information registration would provide.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Following the Company's acquisition of TPE in November 1997, the Company's
focus shifted from agribusiness and land planning/development to biomass.
Subsequently, in June 1998, the Company broadened its new focus to include solid
waste transportation and developed a strategic alliance with Waste Management.
In light of the Company's strategic alliance with Waste Management and related
actual and potential biomass and solid waste transportation opportunities, the
Company's Board of Directors determined that the Company's shift in focus from
agribusiness and land planning/development to solid waste transportation and
biomass should be complete and permanent. Consequently, the Board of Directors
approved the Company's name change effective August 31, 1998 and subsequently,
on December 22, 1998, adopted the Plan pursuant to which the Company intends to
discontinue its agribusiness and land planning/development activities by
December 22, 1999 and focus on its solid waste transportation and biomass
activities.
Implementation of the Plan is in process and has had a material impact on
the presentation of the Company's financial statements. The operations, cash
flows and net assets of these operations for both fiscal 1998 and fiscal 1997
have been reclassified as discontinued operations, and the assets of these
operations have been reduced to the lower of cost or net realizable value. The
Company's agribusiness and land planning/development operations have been
accounted for as discontinued operations and the results thereof, for fiscal
1998 and as restated for fiscal 1997, have been excluded from continuing
operations in the Company's consolidated financial statements. The effect is to
classify most revenues as discontinued operations, as most of the Company's
fiscal 1998 and prior revenues were derived from these discontinued activities.
The Company had no biomass activities prior to fiscal 1997. The Company incurred
an after-tax loss of $15,785,686 from all operations for fiscal 1998 compared to
an after-tax income of $2,176,366 from all operations for fiscal 1997. This loss
is principally due to the write-down of real estate and related assets and costs
pursuant to the Plan and a loss of $5,838,804 from continuing operations.
RESULTS OF OPERATIONS
The Company's continuing operations consist of solid waste transportation
and biomass activities, which include green waste processing and tree
maintenance. The Company's discontinued operations consist of agribusiness and
land planning/development. A discussion of the material factors that affected
the Company's results of continuing operations and, where applicable, the
results of its discontinued operations, are presented separately below.
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RESULTS OF CONTINUING OPERATIONS
REVENUES
The Company's revenues from continuing operations for fiscal 1998 and
fiscal 1997 reflect principally its biomass activities, because its major waste
transport contract did not commence until the first quarter of fiscal 1999. The
Company generated revenues of $2,005,611 for fiscal 1998 compared to $380,129
for fiscal 1997, an increase of $1,625,482 or 428%. This increase reflects
revenues of TPE, which was acquired on November 25, 1997, of $1,297,895.
Revenues from other sources increased by $327,587 or 86% as a result of a full
year of biomass operations during fiscal 1998 as compared to fiscal 1997, the
first year of biomass operations.
COST OF REVENUES
Cost of revenues were $2,665,206 for fiscal 1998 compared to $987,833 for
fiscal 1997, an increase of $1,677,373 or 170%. This increase in cost of
revenues was due primarily to costs of $1,371,535 associated with revenues of
TPE subsequent to its acquisition in November 1997. Costs related to green waste
operations increased to $1,293,671. Of this amount, $797,207 related to the
initial soil enhancement biomass activities which have been terminated.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $3,228,682 for fiscal 1998
compared to $1,656,930 for fiscal 1997, an increase of $1,571,752 or 95%. This
increase in general and administrative expenses was attributable to increased
administrative services associated with the acquisition of TPE of $671,604,
consulting fees related to corporate restructuring in fiscal 1998 of $360,000,
fiscal 1998 settlement costs of $118,000, and the value of stock options granted
to members of the Company's Board of Directors in fiscal 1998, calculated in
accordance with SFAS 123, of $187,500.
INTEREST EXPENSE, NET OF INTEREST INCOME
Net interest expense was $661,889 for fiscal 1998 compared to $476,699 for
fiscal 1997, an increase of $185,190 or 39%. This increase in net interest
expense was attributable to an IRS interest assessment in fiscal 1998 of
$155,723. The additional net interest expense relates to an increase of
interest-bearing debt in fiscal 1998.
LOSS FROM ASSET IMPAIRMENT
Of the total $1,971,123 loss from asset impairment in fiscal 1998,
$1,336,560 relates to amounts allocated to an anticipated green waste contract
that was never awarded. The remaining loss of $634,563 relates to the expected
loss to be incurred upon sale of certain assets used in initial soil enhancement
in biomass operations. There were no comparable amounts in fiscal 1997.
LOSS ON SALE OF ASSETS
During fiscal 1998, the Company sold certain biomass equipment at a loss of
$365,990. There were no comparable amounts in fiscal 1997. The Company's initial
biomass operations included the use of green waste as soil enhancement on the
Company's Rancho California property. In fiscal 1997 the Company acquired
certain equipment to perform those activities. As a result of regulatory and
community issues and the sale of the Rancho California property, the Company's
biomass operations were modified and the equipment purchased for the soil
enhancement activities was no longer useable. The loss on sale of equipment of
$365,990 and loss from asset impairment of $634,563 relates to this equipment.
LOSS FROM CONTINUING OPERATIONS
Loss from continuing operations was $5,838,804 for fiscal 1998 compared to
$2,128,114 for fiscal 1997, a change of $3,710,690 or 174%. This change was
attributable to a loss from asset impairment of $1,971,123 and loss on sale of
assets of $365,990 in fiscal 1998 with no corresponding amounts in fiscal 1997
combined with increased general,
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<PAGE>
administrative and operating costs associated with the acquisition of TPE and
the growth of the Company's biomass operations.
RESULTS OF DISCONTINUED OPERATIONS
The Company's agribusiness and land planning/development operations have
been accounted for as discontinued operations as of August 31, 1998, and
previously reported financial statements have been restated.
The Company reported a net loss from discontinued operations of $7,068,069
for fiscal 1998 compared with net income from discontinued operations of
$4,304,480 for fiscal 1997, a change of $11,372,549 or 264%. Fiscal 1998 also
included a loss of $2,878,813 from disposal of discontinued operations.
AGRIBUSINESS
Agricultural revenues for fiscal 1998 were $6,057,166, a decrease of
$4,262,919 or 41% over the previous year. The decline is the result of (i) the
Company's management of fewer acres, as 510 producing acres of table grapes and
dates were sold prior to harvest, (ii) lower market prices due to an "El Nino"
delayed harvest, which allowed Mexican producers to beat Californian producers
to the market and (iii) fewer grapes processed for others in the Company's
packing facility. Cost of revenues in fiscal 1998 was 109% of revenues compared
to 85% of revenue in fiscal 1997. Total cost of revenues declined $2,136,389 or
24% in fiscal 1998 compared to fiscal 1997, principally as a result of the sale
in fiscal 1998 of 316 acres of table grapes. General and administrative expenses
increased $1,030,794 or 1419% in fiscal 1998 compared to fiscal 1997. This
increase is due primarily to settlement costs and related legal expenses of
$894,589. As a result, the Company incurred a $1,989,554 loss from agribusiness
operations in fiscal 1998, as compared to a $1,651,301 profit for fiscal 1997.
The Company has leased this property for the ensuing harvest and believes
that it will sell this property during fiscal 1999. The Company has reserved
expected costs to carry or dispose of its agricultural assets. Management of the
Company believes that the current book value of land and equipment is less than
market value.
LAND PLANNING/DEVELOPMENT
Revenues from real estate operations in fiscal 1998 were $12,304,686, up
183% over the prior year's $6,717,500, primarily due to the sale of the
Company's Rancho California property in August 1998. The transaction resulted in
the Company taking back a $10 million purchase-money note, which is non-interest
bearing for two years, plus an option for a one-year extension bearing interest
at 8% under certain circumstances. The Company has borrowed $4 million against
this note and has indicated that it would entertain sale of the note and has
entered into discussions to that end.
Property sales in the Texas golf course/subdivision project increased 37%
to $370,000 in fiscal 1998 compared to $271,000 in fiscal 1997. The appraisal of
this property in fiscal 1997 assumed absorption of 56 lots per year commencing
in fiscal 1998. Actual lot sales in fiscal 1998 total 16. This significant
shortfall greatly increases the number of years required to sell out the
project. The present value of the lot sales at the current absorption rate
reduces the current value of the project substantially. This significant decline
in absorption of the project resulted in the write down of the Company's
receivable associated with this project by $5,306,244 and resulted in the
Company's decision to cease development activities and to market the project in
a bulk sale transaction. To that end, the Company has entered into an agreement
to sell this project.
LIQUIDITY AND CAPITAL RESOURCES
Despite the significant loss in fiscal 1998, liquidity at August 31, 1998
is improved from August 31, 1997. This improvement is due primarily to the
reclassification of the net assets of discontinued operations as current assets,
as they are expected to be liquidated within one year. In addition, liquidity in
fiscal 1998 improved as a result of the following: (i) management of cash flow,
(ii) proceeds of $6.2 million in connection with the issuance of 747,500 shares
of Series A 9% Convertible Preferred Stock, (iii) disposal of marginal or non-
producing assets, including proceeds of $16.7 million ($6.7 million in cash and
a $10 million note receivable) in connection with the sale during fiscal 1998
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<PAGE>
of real estate and agricultural property, (iv) conversion of short-term debt
into equity and (v) proceeds of $2.2 million in connection with the issuance
of long-term debt. However, the Company had current liabilities of $6.4
million at August 31, 1998 and $8.5 million at February 15, 1999, including
delinquent payroll taxes of $1.1 million and $1.2 million at August 31, 1998
and February 15, 1999, respectively. The Company believes that long and
short-term liquidity will continue to improve due to projected internal
growth from continuing operations, which includes continued maturity of
biomass activities, the commencement in October 1998 of solid waste
transportation activities and liquidation of assets in accordance with the
Plan.
In October 1998 the Company obtained a $5.0 million equipment lease line
from a national financial institution. About $4.1 million of this line was used
to acquire 40 trucks and 16 trailers which are being used in the solid waste
transportation activities. This equipment is expected to be sufficient to meet
the requirements of these activities for fiscal 1999.
In December 1998, the Company obtained a $4 million loan collateralized by
the $10 million note receivable related to the sale of the Rancho California
property. The loan accrues interest at 12%, with interest and principal due at
the time the $10 million note receivable is due and payable. The net proceeds of
the loan was used to repay a $2.5 million note payable and to reduce accounts
payable by about $1 million. Because this loan does not require current payment
of principal or interest, the Company's operating cash requirements have been
reduced.
On February 19, 1999, the Company entered into an agreement to sell the
Las Palomas subdivision for $11.5 million cash, subject to the completion of
the buyer's due diligence. The Company expects to net approximately $5
million in cash from the transaction. However, no assurances can be given
that the Company will be successful in completing the sale of the Las Palomas
subdivision.
The Company has an oral agreement with an equipment financing source to
provide equipment financing in addition to that obtained in October 1998
required for new solid waste transportation or biomass contracts.
The Company believes that the combination of the $4.0 million loan
entered into in December 1998 and the financing for equipment that may be
needed for additional growth, combined with expected asset sales, are
sufficient to meet its liquidity requirements for fiscal 1999.
YEAR 2000 COMPLIANCE
Management of the Company believes that its software packages currently in
use and expected to be used prior to the year 2000 are Year 2000 compliant.
Management does not expect that the financial impact of required modifications
to such software, if any, will be material to the Company's financial position,
cash flows or results of operations in any given year.
10
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this report, including those under
"Description of Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and especially those contained under
"Liquidity and Capital Resources" and "Looking Ahead," are "forward-looking
statements" that involve risks and uncertainties. The actual future results of
the Company could differ materially from those statements. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in this Annual Report on Form 10-KSB, risks associated with managing
the Company's growth and those factors discussed in "Risk Factors" described
below in this Item 6 of this Annual Report on Form 10-KSB. While the Company
believes that these statements are accurate, the Company's business is dependent
upon general economic conditions and various conditions specific to the clean
green waste, solid waste transportation and tree maintenance industries.
Moreover, future liquidity will partially depend on the Company's expeditious
execution of the Plan related to the discontinuation of the Company's
agribusiness and land planning/development operations, and future trends and
results cannot be predicted with certainty. In particular:
- The Company has elected to embark on a major departure from its
historic business into the biomass and solid waste transportation
businesses in which the Company has relatively little experience. Such
a transformation has many risks and uncertainties that could far
outweigh the benefits of its strategic alliance with Waste Management.
And, notwithstanding the attractiveness of its long-term transport
contract with Waste Management, the Company's success will ultimately
depend heavily on the ability of management to guide the Company in
executing and performing the contracts with Waste Management and
others. Despite the Company's apparent initial success under its
contracts, the future remains uncertain.
- The Company has also committed part of its future to expansion of its
green waste operations. The future of this industry will be partially
dictated by AB 939, which by the year 2000 will mandate the diversion
from landfills of 50% of the waste stream. At the present time,
municipalities and waste haulers seem eager to comply and willing to
pay fees to those processors willing to take the material. However, if
the Company expands its green waste operations without locating
reliable, adequate end-market users, major green waste disposal
problems could result.
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- The Company's future liquidity and viability is dependent upon a
relatively rapid and orderly execution of the Plan. This includes not
only funding the periodic cash requirements of the discontinued
operations, but also locating suitable buyers in the prescribed period
of time. Satisfactory execution of the Plan could provide significant
positive cash flow to the Company. However, should the Company fail to
discharge its liquidation plan in an expedient fashion, this could
severely impair the Company's liquidity.
The Company has not experienced a material adverse impact of such risks and
uncertainties and does not anticipate such an impact. However, no assurance can
be given that such risks and uncertainties will not affect the Company's future
results of operations or its financial position.
RISK FACTORS
OPERATING LOSS; ACCUMULATED DEFICIT
In connection with the implementation of the Plan, the Company's
agribusiness and land planning/development operations have been accounted for as
discontinued operations and the results thereof, for fiscal 1998 and as restated
for fiscal 1997, have been excluded from continuing operations. The effect is to
classify most revenues as discontinued operations, as most of the Company's
fiscal 1998 and prior revenues were derived from these discontinued activities,
and the Company had no biomass activities prior to fiscal 1997. The Company
incurred an after-tax loss of $15,785,686 from all operations for fiscal 1998
compared to an after-tax income of $2,176,366 from all operations for fiscal
1997. As of August 31, 1998, the Company had an accumulated deficit of
$13,023,580. Although the Company expects to generate working capital from its
continuing biomass and transportation operations and divestiture of the
Company's remaining agricultural assets and sale of its real estate (principally
the Las Palomas project near San Antonio) pursuant to the Plan, the Company has
shifted its focus to activities with which it has relatively little experience,
and there can be no assurance the Company will have profitable operations in the
future.
POTENTIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS; COMPETITION
The Company's quarterly results have varied significantly in the past and
will likely continue to do so in the future due to a variety of factors, many of
which are beyond the Company's control, including: the shift in the Company's
focus away from its historical business and toward new activities with which it
has little experience; the timing and nature of revenues from transportation and
biomass contracts that are recognized during any particular quarter; the impact
of potential increased competition with respect to the Company's biomass
activities by municipalities that maintain their own waste collection and
landfill operations and have significant financial advantages over the Company
due to, among other things, the availability of tax revenues and tax-exempt
financing; the implementation and enforcement of and compliance with legislation
such as AB 939; the price and availability of fuel and other resources needed
for the Company's solid waste transportation and biomass activities; the
financial health of the Company's customers; the overall state of the solid
waste transportation and biomass industries; and economic conditions generally.
The ability of the Company to successfully obtain new biomass and transportation
contracts and the volume of the stream of biomass available to the Company for
transport or recycling under existing contracts during a quarter are difficult
to forecast. Such fluctuations may also contribute to volatility in the market
price for the Common Stock of the Company.
CUSTOMER CONCENTRATION
The Company derives a significant portion of its revenues from a relatively
limited number of customers. The foundation of the Company's continuing solid
waste transportation activities is an exclusive transport contract with Waste
Management. The Company anticipates that this contract may account for as much
as 80% of the Company's anticipated revenues from continuing operations in
fiscal 1999. Although the Company intends to bid on future solid waste
transportation contracts for Waste Management and other waste companies as they
become available and to use its strategic alliance with Waste Management to
capitalize on existing and emerging markets in the growing green waste recycling
industry, there can be no assurance that the Company will be successful in
obtaining additional transportation and biomass contracts. Further, the Company
anticipates that its contract with Waste Management will continue to account for
the majority of its transportation revenues for the foreseeable future. The loss
of this contract
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<PAGE>
or the failure of Waste Management to continue to provide a reliable stream of
biomass for transport would likely have a material adverse effect on the
Company's business, operating results and financial condition.
NEED FOR SUBSTANTIAL ADDITIONAL CAPITAL
The Company's future capital requirements will depend upon many factors,
including the Company's ability to obtain new biomass and transportation
contracts and customers and to rapidly and orderly execute the Plan. Capital
will be necessary to fund the periodic cash requirements of the discontinued
operations during the execution of the Plan and to fund the Company's potential
transportation and biomass activities. The Company has entered into an escrow
arrangement relating to the sale of the Las Palomas property and is attempting
to sell or further hypothecate the $10 million note that it obtained upon
consummation of a $14.5 million real estate transaction. There can be no
assurance that such transactions will be completed or that sufficient financing
will be available, on a timely basis, if at all, or on terms acceptable to the
Company. If adequate funds are not available, implementation of the Plan and the
Company's business strategy could be impeded and the Company may be required to
delay, scale back or eliminate its efforts to expand its biomass and
transportation activities. Accordingly, the Company's business, financial
condition and results of operations could be materially and adversely affected.
If additional funds are raised by issuing equity or convertible debt securities,
options or warrants, dilution to the existing stockholders of the Company may
result.
MANAGEMENT OF CHANGES IN WORK FORCE AND ACTIVITIES; DEPENDENCE UPON KEY
PERSONNEL
The Company has elected to embark on a major departure from its historic
business into the biomass and solid waste transportation businesses in which the
Company has relatively little experience. The Company's future success depends
to a large extent upon the continued service of certain key managerial employees
and the Company's ability to restructure its existing work force and attract and
retain highly qualified personnel in connection with the shift in the Company's
activities.
The Company recently terminated its agribusiness employees and hired four
individuals with extensive management and operational experience in the biomass
and solid waste transportation industries. The Company's ability to succeed in
its continuing operations will require it to continue to restructure its
existing workforce, hire and integrate new talent experienced in solid waste
transportation and biomass activities, and motivate and effectively manage all
of its employees. There can be no assurance that the Company will be able to
attract, assimilate or retain such personnel. If the Company is unable to
successfully restructure its existing work force and attract, manage and retain
qualified personnel experienced in the Company's continuing operations, the
Company's business, operating results and financial condition could be adversely
affected.
NASDAQ DELISTING HEARING
On December 21, 1998, the Company was advised by The Nasdaq Stock
Market, Inc. ("Nasdaq") that because of the Company's failure to file timely
with the Securities and Exchange Commission (the "Commission") and Nasdaq
this annual report on Form 10-KSB as required by Nasdaq Marketplace Rule
4310(c)(14), the Company's Common Stock was subject to being delisted from
The Nasdaq SmallCap Market. On December 29, 1998, the Company requested the
opportunity for an oral hearing regarding the potential delisting of the
Company's Common Stock. On January 28, 1999, the Company was advised by
Nasdaq that the hearing request was granted and scheduled for March 11, 1999.
At that hearing, the Company must demonstrate its ability to regain
compliance with Rule 4310(c)(14) and must demonstrate its ability to sustain
long-term compliance with all applicable maintenance criteria. In that
regard, the Company has been advised by Nasdaq that Nasdaq may apply
additional or more stringent criteria for the continued listing of the
Company's Common Stock based on any event, condition or circumstance which
makes continued inclusion of the Company's Common Stock in The Nasdaq
SmallCap Market inadvisable or unwarranted in the opinion of Nasdaq, even
though the Company's Common Stock may meet all enumerated criteria for
continued inclusion in The Nasdaq SmallCap Market. Upon the filing with the
Commission and Nasdaq of this Annual Report on Form 10-KSB, a transition
report on Form 10-QSB covering the transition period beginning September 1,
1998 and ending on December 31, 1998 (to be filed in connection with the
change of the Company's fiscal year end from August 31 to December 31) and
amended Form 10-QSBs for the quarterly periods ending November 30, 1997,
February 28, 1998 and May 31, 1998 (to be filed in connection with the
Company's Plan of Discontinued Operations), which filings shall be made prior
to the date of the Nasdaq hearing, the Company
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<PAGE>
believes that as of the date of hearing it will have met all enumerated criteria
established by Nasdaq for continued listing of the Company's Common Stock on The
Nasdaq SmallCap Market. However, because of Nasdaq's ability to impose
additional or more stringent criteria for continued listing, no assurance can be
given that the Company will be successful in its attempts to prevent Nasdaq from
delisting the Company's Common Stock from The Nasdaq SmallCap Market. In the
event the Company is not successful in these attempts, the Company's Common
Stock will be delisted from The Nasdaq SmallCap Market.
PAYROLL TAX DELINQUENCIES; RISK OF GOVERNMENT SEIZURE OF ASSETS AND CLOSURE OF
COMPANY OPERATIONS
At February 15, 1999, the Company was delinquent in the remittance of
approximately $1.3 million in payroll tax payments for continuing and
discontinued operations due to taxing authorities. As a result, the Company is
exposed to sanctions, which can be imposed by the Internal Revenue Service and
can include seizure of assets and closure of operations. The Company intends to
pay these delinquent tax payments with the proceeds from the sale of the Las
Palomas subdivision.
ENVIRONMENTAL REGULATION
It may be necessary to expend considerable time, effort and money to keep
the Company's existing or acquired facilities and vehicles in compliance with
applicable federal, state and local requirements regulating health, safety,
environment, zoning and land use, and as to which there may not be adequate
insurance coverages or reserves. If environmental laws become more stringent,
the Company's environmental capital expenditures and costs for environmental
compliance may increase in the future. In addition, due to the possibility of
unanticipated factual or regulatory development, the amounts and timing of
future environmental expenditures could vary substantially from those currently
anticipated.
ITEM 7. FINANCIAL STATEMENTS.
The consolidated financial statements of the Company and its subsidiaries
are submitted as a separate section of this Annual Report on Form 10-KSB on
pages F-1 through F-62.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Fred H. Behrens 57 Chairman of the Board, Chief Executive
Officer and Director
Robert A. Wright 62 President, Chief Operating Officer and
Director
Eugene W. Tidgewell 49 Chief Financial Officer, Treasurer, Vice
President and Director
Robin Swanson 42 Secretary
Marlene A. Tapie 43 Director
Dale P. Paisley 57 Director
Marlin T. McKeever 58 Director
Richard Mora 58 Director
Mike McDonald 58 Director
H. Glen Leason 74 Director
</TABLE>
FRED H. BEHRENS has served as the Chairman, Chief Executive Officer, and
a director of the Company since 1988 and previously served as Treasurer and
Chief Financial Officer of the Company from 1990 to January 1998. Mr. Behrens
also serves as the Chairman and a director of Sun Goddess Farms, Inc., a
wholly-owned subsidiary of the Company ("SGF"). Mr. Behrens has been actively
involved with the Company and its affiliates since August 1979. From 1966 to
1971, Mr. Behrens was on the audit staff of Arthur Andersen & Co.; between
1971 and 1973, he was a principal in a real estate development company; and
from 1973 to August 1979, he was employed as a Vice President of an
agricultural management company. Mr. Behrens holds a Bachelor of Science
degree from the University of Minnesota School of Business Administration.
Mr. Behrens is a general partner of Rancho California Partners II, a
California limited partnership (the "Partnership"), which filed a voluntary
Chapter 11 Reorganization Petition under the federal Bankruptcy Act to
resolve certain issues with the Riverside County Tax Assessor's Office on or
about March 20, 1996. The decision to file for reorganization was made to
protect certain real property owned by the Partnership from foreclosure while
the property was being reappraised. The issues raised in the Petition have
been favorably resolved and the Partnership has dismissed the Petition.
ROBERT A. WRIGHT has served as the President, Chief Operating Officer, and
a director of the Company since 1988. Mr. Wright also serves as the President
and a director of SGF. During the past 25 years Mr. Wright has been, and
continues to be, a principal in and the President of a farm equipment
manufacturing company located in central Illinois. Mr. Wright also served as
general partner or co-general partner for several agricultural real estate
partnerships which were not organized by the Company or its affiliates.
Mr. Wright holds a Bachelor of Science degree in Business (Management and
Finance) from the University of Colorado. Mr. Wright is a general partner of the
Partnership which filed a voluntary Chapter 11 Reorganization Petition under the
federal Bankruptcy Act to resolve certain issues with the Riverside County Tax
Assessor's Office on or about March 20, 1996. The decision to file for
reorganization was made to protect certain real property owned by the
Partnership from foreclosure while the property was being reappraised. The
issues raised in the Petition have been favorably resolved and the Partnership
has dismissed the Petition.
MARLENE A. TAPIE has served as a director of the Company since 1988.
Between 1979 and 1994, she served in various capacities including Vice
President, Executive Secretary to the Chairman and Office Administrator. From
1992 through 1995, Ms. Tapie owned and operated a clothing company, Marlene &
Company. In October 1994 she and her husband, Alan Tapie, a PGA golf
professional, purchased a controlling interest in Buena Park Golf Center, a golf
course and driving range located in Buena Park, California. Ms. Tapie also acts
as Director of Operations for Morgan
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Rae, Inc., a publishing company located in Mission Viejo, California, which
specializes in greeting cards and other paper gift items that are marketed and
distributed worldwide.
DALE P. PAISLEY has served as a director of the Company since February
1997. From December 1995 to April 1997, he was Chief Financial Officer and from
September 1996 to April 1997 a director of TravelMax International, Inc. From
May 1993 to December 1995, Mr. Paisley provided accounting and financial
consulting services to Pacific Snax Corporation. From mid-1991 through mid-1993,
Mr. Paisley was Chief Operating Officer of CMS Capital Ventures, a Newport
Beach, California firm specializing in providing financial and asset-management
services to the Resolution Trust Corporation and the Federal Deposit Insurance
Corporation. During the past 5 years, Mr. Paisley has also provided financial
consulting services to companies such as Telluride Management Solutions,
Directors Mortgage Loan Company and Admor Memory Corporation. From 1977 to 1991,
Mr. Paisley was a partner in the "Big 5" accounting firm of Coopers & Lybrand.
Mr. Paisley directed that firm's mergers and acquisitions practice and was
responsible for services provided to Shearson Lehman Brothers. Mr. Paisley holds
a Bachelor of Arts degree in Accounting from San Diego State University and is a
CPA. On August 15, 1997, a complaint for damages was filed by TravelMax
International, Inc. in the Superior Court of Orange County, California which
alleges that certain conduct by the therein specified defendants, including
Mr. Paisley, purportedly resulted in damages to TravelMax International, Inc. in
an unascertained amount, but believed to be in excess of $13,000,000. The causes
of action alleged in that complaint against Mr. Paisley are (i) fraud, (ii)
breach of fiduciary duty, (iii) negligence, (iv) conversion, (v)
misappropriation of funds, (vi) money had and received, (vii) unjust enrichment,
and (viii) determination of a constructive trust. Mr. Paisley denies the
allegations specified in that complaint. Moreover, Mr. Paisley believes he has
been released from liability by TravelMax International, Inc. for his conduct
while in its service.
MARLIN T. MCKEEVER has served as a director of the Company since February
1997. Mr. McKeever has been the Vice President of Sales at Andreini & Company,
an insurance brokerage firm located in Orange County, California, since 1989.
Prior to that Mr. McKeever was Vice President of another insurance brokerage
firm, Johnson & Higgins, also located in Orange County, California. Mr. McKeever
was also a professional football player with several teams, including the Los
Angeles Rams, Minnesota Vikings and Washington Redskins, from 1961 through 1973.
Mr. McKeever holds a Bachelors Degree in Finance from the University of Southern
California, a Masters Degree in Business from the University of Southern
California and has been licensed as an insurance broker in California since
1974.
RICHARD MORA has served as a director of the Company since April 1998.
Prior to that, Mr. Mora served as President and Chief Operating Officer of
Coastcast Corporation from 1995 to 1998 and served as President and Chief
Executive Officer of Coastcast Corporation during 1998. From 1992 to 1995, Mr.
Mora was Chief Operating Officer of Pharmavite Corporation, a manufacturer and
distributor of nutritional supplements. Prior to that, Mr. Mora had held various
sales and management positions with Bergen Brunswig from 1969 to 1992. Mr. Mora
holds a Bachelor of Arts Degree from Occidental College.
MIKE MCDONALD has served as a director of the Company since June 1998. Mr.
McDonald was employed by Baxter International of Deerfield, Illinois from 1967
to 1993, advancing from Sales Representative to Vice President, Sales and Sales
Operations of that company's I.V. Systems Division. From 1991 to 1994, Mr.
McDonald was President of CareMark Therapeutic Services, a division of Baxter
International of Redlands, California. Mr. McDonald served as Vice President for
Disease Management from 1994 when CareMark Therapeutic Services was spun off
from Baxter International until 1997 when CareMark Therapeutic Services was
acquired by MedPartners. Mr. McDonald is on the Advisory Board of the University
of Southern California School of Pharmacy and the Boards of Directors of
InfoCare, Inc. and Millenium Health, Inc. Mr. McDonald holds a Bachelors Degree
in Public Administration from the University of Southern California.
EUGENE W. TIDGEWELL has served as the Chief Financial Officer and Treasurer
and as a Vice President of the Company since January 1998 and has served as a
Director of the Company since February 1999. Mr. Tidgewell was an audit manager
at Kelly & Company, the Company's independent auditors, from 1989 to 1998.
Mr. Tidgewell holds a Bachelor of Science Degree in Business Administration
(Accounting) from the University of Notre Dame and is a Certified Public
Accountant in the State of California.
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<PAGE>
H. GLEN LEASON has served as a director of the Company since February 1999.
From 1984 to the present, Mr. Leason has served as a Senior Vice President with
Torrey Pines Securities. Prior to that, Mr. Leason served in the United States
Navy Submarine Service from 1943 to 1946, was a securities broker with Leason &
Company in Chicago, Illinois from 1946 through 1960, eventually becoming Vice
President for its initial public offering department in Newport Beach,
California, was a Vice President in the initial public offering department at
R.J. Henderson & Co. in Newport Beach, California from 1960 to 1966, was an
Emerging Growth Stock Vice President with Jefferies & Co. in Newport Beach,
California from 1966 until Jefferies & Co. was purchased in 1969, and rejoined
Leason & Company as President until 1973. From 1973 to 1978, Mr. Leason retired
and worked as a private consultant. From 1978 to 1984, Mr. Leason worked with
Wedbush Securities and then with McDonald, Krieger & Bowyer in Beverly Hills,
California. Mr. Leason completed various courses at Northwestern University and
Loyola Marymount University, is a registered representative with the NASD and
holds a principal's license.
ROBIN SWANSON has served as Corporate Secretary of the Company since May
1996. Ms. Swanson is also the Company's Office Administrator. From 1993 to 1996,
Ms. Swanson served as the Office Manager for Swanson Financial Group, LLP in
Palm Desert, California. From 1982 to 1993, Ms. Swanson worked in the capacity
of Executive Secretary and Office Manager in Houston, Texas for The Horne
Company Realtors, Real Vest Corporation, Eastdil Realty, Inc. and Nevins, Inc.
From 1979 to 1982, Ms. Swanson served as Purchasing Agent for Phi-Technologies
located in Oklahoma City, Oklahoma.
All directors hold office until the next annual stockholders' meeting or
until their respective successors are elected or until their earlier death,
resignation or removal. Officers are appointed by, and serve at the discretion
of, the Board of Directors.
COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING RULES
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), requires the Company's executive officers and directors and
persons who beneficially own more than 10% of a registered class of the
Company's Common Stock ("reporting persons") to file initial reports of
ownership and reports of changes in ownership with the SEC. Such reporting
persons are required by SEC regulations to furnish the Company with copies of
all such reports that they file.
Based solely upon a review of copies of such reports furnished to the
Company during its fiscal year ended August 31, 1998 and thereafter, or any
written representations received by the Company from reporting persons that
no other reports were required, the Company believes that, during the
Company's 1998 fiscal year, all Section 16(a) filing requirements applicable
to the Company's reporting persons were complied with except that Mr.
Behrens, the Company's Chairman and Chief Executive Officer, inadvertently
failed to file on a timely basis a Form 4 with respect to purchases of an
aggregate of 3,800 shares in October 1998; Gene Tidgewell, the Chief
Financial Officer and Treasurer and a Vice President of the Company, failed
to file on a timely basis a Form 4 with respect to the repricing of a stock
option; Mike McDonald, a director of the Company, failed to file on a timely
basis a Form 4 with respect to his purchase of 3,000 shares in September
1998; Marlin McKeever, a director of the Company, failed to file on a timely
basis a Form 4 with respect to his wife's purchase of 1,000 shares in
December 1997; and each member of the Board of Directors inadvertently failed
to file on a timely basis Form 4s with respect to a grant to each member on
August 28, 1998 of options to purchase up to 15,000 shares of the Company's
Common Stock. In December 1998, each of these persons filed late Form 4s
reflecting these transactions.
ITEM 10. EXECUTIVE COMPENSATION.
There is shown below information concerning the annual and long-term
compensation for services in all capacities to the Company of the Company's
Chief Executive Officer and the only other executive officer of the Company
whose aggregate cash compensation exceeded $100,000 (collectively, the "Named
Executives") during the fiscal years ended August 31, 1996, 1997 and 1998.
17
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------
Other Annual
Name and Salary(1) Compensation
Principal Position Year ($) ($)(2)
------------------ ---- -------- ----------------
<S> <C> <C> <C>
Fred H. Behrens 1998 152,500 15,864
Chairman and Chief 1997 120,000 5,724
Executive Officer 1996 120,000 8,994
Robert A. Wright 1998 133,081 15,080
President and Chief 1997 120,000 11,519
Operating Officer 1996 120,000 23,038
</TABLE>
- ---------------
(1) Effective September 1, 1998, Messrs. Behrens and Wright agreed to reduce
their annual salaries to $75,000.
(2) Includes premiums paid by the Company pursuant to $2.0 million key
person insurance policies on each of the lives of Messrs. Behrens and
Wright. According to the provisions of those policies, $2.0 million would
be paid upon the death of either Messrs. Behrens or Wright, of which
$1.0 million would be paid to the Company and $1.0 million would be paid
to each insured's beneficiaries.
STOCK OPTION GRANTS IN 1998
The following table sets forth information concerning individual grants of
stock options made pursuant to the Company's 1997 Stock Option Plan during
fiscal 1998 to each of the Named Executives. The Company has never granted any
stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------
Number of Percent of
Securities Total
Underlying Options Exercise
Options Granted to or Base
Granted Employees in Price Expiration
Name (#) Fiscal Year ($/Sh) Date
---- ------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Fred H. Behrens 15,000 4.5% $3.00 8/28/08
Robert A. Wright 15,000 4.5% $3.00 8/28/08
</TABLE>
18
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to the number of shares of the
Company's Common Stock acquired upon exercise of options, the value realized
therefor, the number of unexercised options at August 31, 1998 and the value of
unexercised in-the-money options at August 31, 1998 for the Named Executives in
the Summary Compensation Table above. The Named Executives did not hold any
stock appreciation rights during fiscal 1998.
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying
Unexercised Value of Unexercised
Options at Fiscal in-the-Money
Year-End(#) Options at Fiscal
Exercisable/ Year-End($)
Unexercisable Exercisable/
Name --------------- Unexercisable(1)
---- ----------------
<S> <C> <C>
Fred H. Behrens 246,955/15,000 $345,737/$0
Robert A. Wright 175,928/15,000 $246,299/$0
</TABLE>
- ---------------
(1) Based upon the closing price of the Company's Common Stock on August 28,
1998.
DIRECTORS' COMPENSATION
The Company's outside directors receive $500 per meeting of the Board of
Directors and $250 per meeting of any committee of the Board of Directors. In
addition, each member of the Board of Directors received options on August 28,
1998 to purchase up to 15,000 shares of the Company's Common Stock at $3.00 per
share, the then closing price of the Company's Common Stock. Effective August
28, 1998, options to purchase up to an aggregate of 50,000 shares of the
Company's Common Stock that were granted to the Company's outside directors at
various times between March 1997 and June 1998 pursuant to the Company's 1994
and 1997 Stock Option Plans were canceled without consideration.
19
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of March 1, 1999, certain information
with respect to (i) each director of the Company, (ii) the Named Executives and
(iii) all directors and executive officers of the Company as a group. Other than
as described below, no other person is known to the Company to be the beneficial
owner of more than 5% of the Company's Common Stock. The information with
respect to each person specified is as supplied or confirmed by such person or
based upon statements filed with the Commission. Each person set forth below is
a director of the Company.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
OF BENEFICIAL OWNER OF COMMON STOCK(1) OF COMMON STOCK
- ------------------- ----------------------- ----------------
<S> <C> <C>
Fred H. Behrens(2) 1,051,291 13.09%
52300 Enterprise Way
Coachella, California 92236
Robert A. Wright(3) 864,507 10.86%
52300 Enterprise Way
Coachella, California 92236
H. Glen Leason(4) 102,770 *
77-955 Calle Arroba
La Quinta, California 92253
Marlene Tapie(5) 89,167 *
52300 Enterprise Way
Coachella, California 92236
Eugene W. Tidgewell(6) 20,000 *
52300 Enterprise Way
Coachella, California 92236
Mike McDonald 3,000 *
52300 Enterprise Way
Coachella, California 92236
Marlin McKeever(7) 1,000 *
52300 Enterprise Way
Coachella, California 92236
Dale Paisley __ __
52300 Enterprise Way
Coachella, California 92236
Richard Mora __ __
52300 Enterprise Way
Coachella, California 92236
All Directors and Executive
Officers as a group (10 persons)(8) 2,134,235 25.73%
</TABLE>
- ---------------
* Represents less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares
20
<PAGE>
of Common Stock shown as beneficially owned by them. Shares of Common Stock
subject to options currently exercisable, or exercisable within 60 days
after March 1, 1999 are deemed to be outstanding in calculating the
percentage ownership of a person or group but are not deemed to be
outstanding as to any other person or group.
(2) Includes 583,681 shares of Common Stock held by Behrens Partners, Ltd., a
family limited partnership controlled by Mr. Behrens. Also includes (i)
207,355 shares of Common Stock held in escrow on behalf of Mr. Behrens,
(ii) 13,300 shares held in an IRA account, and (iii) 246,955 shares of
Common Stock underlying options.
(3) Includes (i) 110,654 shares of Common Stock held by Wright Family Partners,
Ltd., a family limited partnership controlled by Mr. Wright, (ii) 447,533
shares of Common Stock held in escrow on behalf of Mr. Wright, (iii)
130,392 shares held in an IRA account, and (iv) 175,928 shares of Common
Stock underlying options.
(4) Includes 33,120 shares of Common Stock underlying 18,400 shares of Series A
9% Convertible Preferred Stock that are convertible and 69,650 shares of
Common Stock held in an IRA account.
(5) Includes 31,250 shares of Common Stock underlying options.
(6) Represents 20,000 shares of Common Stock underlying options.
(7) Represents 1,000 shares held by Mr. McKeever's wife, over which Mr.
McKeever disclaims beneficial ownership.
(8) Includes 476,633 shares of Common Stock underlying options and
33,120 shares of Common Stock underlying 18,400 shares of Series A 9%
Convertible Preferred Stock that are convertible.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Between 1981 and 1986, the Company, in its capacity as general partner
and/or placement agent, raised approximately $200 million in private placement
syndications. This syndication activity resulted in the formation of
approximately 137 limited partnerships, which acquired real estate for
agribusiness or development and resale purposes. Partnership liquidations have
reduced this total to 17 limited partnerships as of August 31, 1998. The Company
expects that all but five of the limited partnerships will file final tax
returns for calender 1998 pursuant to liquidation plans that are now in process,
and that the remaining five partnerships will be terminated in fiscal 1999.
As a result of the liquidation of various partnerships, the Company
acquired much of the acreage of those liquidated partnerships for (i) payment of
promissory notes payable to the Company from those liquidated partnerships, (ii)
Common Stock of the Company, (iii) preferred stock of the Company, or (iv)
purchase money promissory notes from the Company. Much of the Company's business
during fiscal 1998 consisted of managing the (a) operating vineyard properties
acquired from those liquidated partnerships and (b) remaining affiliated limited
partnerships. Therefore, much of the Company's revenues during fiscal 1998 were
derived from agribusiness land management and management of land acquired for
development or resale, activities which are planned to be discontinued pursuant
to the Plan. The Company also was eligible to participate in any appreciation,
subject to certain provisions relating to limited partners' returns, realized in
the sale of land acquired for development or resale.
Pursuant to the Company's management relationship with the remaining
affiliated limited partnerships, those partnerships were indebted to the
Company during fiscal 1998 in the form of promissory notes, accounts
receivable and other advances. Accounts receivable by the Company from
limited partnerships consisted primarily of costs incurred by the Company on
behalf of those limited partnerships and advances to those limited
partnerships. Those costs and advances totaled $9,091,834 at August 31, 1998,
are due on demand, and are without interest. The Company has promissory notes
and advances payable to the limited partnerships occurring from farming
activities. On August 31, 1998, the advances and notes payable to related
parties were $1,614,558 and $2,409,469, respectively, compared with $620,000
of advances and $2,196,027 of notes payable at August 31, 1997. The August
31, 1998 balance sheet includes an unsecured promissory note payable in
November 1998 to an employee in the amount of $370,189, with interest at 8%
during fiscal 1998.
On November 30, 1995, the Company acquired a 50% interest in PS III Farms,
L.L.C., which leases 6,490 acres to one of the limited liability company members
which is not affiliated with the Company. The lease expires September 30, 1999
21
<PAGE>
and has a renewal option with terms subject to mutual agreement. The primary
crop grown on the farm is potatoes. Consistent with the Plan, the Company
intends to sell its 50% interest to its partner during fiscal 1999, and
negotiations are in process.
The Company holds a 99% ownership interest in Las Palomas Country Club
Estates LLC, a California limited liability company, which acts as the
development entity for the golf course owned by an affiliated partnership and a
residential building lot development in Texas which is owned by Lake Valley.
Fred H. Behrens, Chairman, Chief Executive Officer, director, and principal
shareholder of the Company holds a 1% ownership interest in Las Palomas Country
Club Estates LLC. The Company also holds a 99% ownership interest in AMCOR
Builders LLC, which manages the construction operations of the Company in Texas.
Robert A. Wright, President, Chief Operating Officer, director and principal
shareholder of the Company holds a 1% ownership interest in AMCOR Builders LLC.
The Company holds a 99% ownership interest in AMCOR Biomass Farms LLC.
Enterprise Packing Company ("EPC") owns 442 limited partnership interests issued
by Lake Valley. Mr. Behrens and Mr. Wright are the only general partners of Lake
Valley and EPC. There are 2,600 limited partnership interests of Lake Valley
presently issued and outstanding. Therefore, by attribution of their ownership
interests in EPC, Messrs. Behrens and Wright jointly own 17% of the issued and
outstanding limited partnership interests of Lake Valley.
In December 1997, Messrs. Behrens and Wright agreed, at the lenders'
request, to personally guarantee $4,250,000 of debt financing obtained by the
Company from GMAC Credit Corporation and TexStar Bank in connection with the Las
Palomas golf course/subdivision project. In consideration for the guarantee, the
Company agreed to pay to Messrs. Behrens and Wright a loan guarantee fee in the
aggregate amount of $212,500. Messrs. Behrens and Wright assigned to the Company
their rights to this guarantee fee effective August 31, 1998 as described below
in this Item 12.
Mr. Wright loaned the Company $140,158.50 as evidenced by an unsecured
promissory note dated August 26, 1998, payable on December 31, 1999 with
interest at 10% per annum. Wright Family Partners, Ltd., a family limited
partnership controlled by Mr. Wright ("WFPL"), loaned the Company $400,000 as
evidenced by an unsecured promissory note dated August 1, 1998, payable July 31,
1999 with interest at 12% per annum and an origination fee of $20,000. Mr.
Behrens loaned the Company $815,184 as evidenced by an unsecured promissory note
dated June 1, 1998, payable on December 31, 2001 with interest at 10% per annum.
Mr. Behrens advanced the Company $90,000 as evidenced by an unsecured promissory
note dated June 1, 1998 payable on December 31, 2001 with interest at 10% per
annum accruing on (i) $40,000 from January 12, 1998, (ii) $25,000 from May 21,
1998 and (iii) $25,000 from May 22, 1998. The interest rate on each of these
notes was reduced to 8% per annum effective August 31, 1998 as described below
in this Item 12.
The Company made advances to EPC during fiscal 1998 in the amount of
$651,029. At August 31, 1998, $913,632 remained unpaid and outstanding. This
debt was memorialized in an unsecured promissory note dated September 1, 1998
made by EPC in favor of the Company, payable on January 1, 2000 with interest
at 8% per annum as described in the following paragraph.
The Company entered into an agreement effective as of August 31, 1998 among
the Company, EPC, Messrs. Behrens and Wright and WFPL. Pursuant to the
agreement: (i) EPC assigned to the Company all right, title and interest in and
to amounts due to EPC from Lake Valley in connection with the financing of the
Las Palomas project; (ii) Messrs. Behrens and Wright assigned to the Company all
right, title and interest in and to the $212,500 loan guarantee fee relating to
the Las Palomas financing and in and to a $336,000 loan guarantee fee promised
to Messrs. Behrens and Wright in April 1996 in connection with their agreement
to guarantee certain restructured indebtedness relating to the 600-acre parcel
of land located in Rancho California that was sold by the Company in August
1998; (iii) the amount due from EPC to the Company in connection with advances
described in the preceding paragraph was reduced by the value of the rights
assigned by EPC, Messrs. Behrens and Wright and WFPL as described in clauses (i)
and (ii) above (the "Reduced EPC Debt"); (iv) the interest rates payable by the
Company in connection with notes payable by the Company to each of
Messrs. Behrens and Wright and WFPL as described above in this Item 12 were
reduced to 8% per annum from rates of 10% and 12%; (v) the Reduced EPC Debt was
memorialized in an unsecured promissory note dated September 1, 1998, payable on
January 1, 2000 with interest at the rate of 8% per annum; (vi) Messrs. Behrens
and Wright and WFPL agreed not to require repayment prior to January 1, 2000 of
any amounts due under or in connection with the notes and advances referred to
in clause (iii) above in excess of the Reduced EPC Debt; and (vii) the Company
agreed not to require repayment prior to January 1, 2000 of amounts due under or
in connection with the Reduced EPC Debt.
22
<PAGE>
Effective February 28, 1998, the Company retired an aggregate of 404,414
shares of Series B Convertible Preferred Stock that were issued to three
affiliated limited partnerships as part of a transaction arranged by the
Company pursuant to which the Company agreed to reduce the amount of debt
owed to the Company by Lake Valley by $4,044,140 in exchange for the issuance
by Lake Valley to the partnerships of promissory notes collateralized by a
first priority security interest in certain real property owned by Lake
Valley and the payment by Lake Valley to the Company of a financing fee of
approximately $417,000. Subsequently, Lake Valley inadvertently failed to
record the partnerships' security interest in the real property prior to the
recordation by a third party of a security interest in the real property. In
light of the inability of Lake Valley to provide to the partnerships a first
priority security interest in the real property, the Company rescinded the
foregoing transactions and reissued the 404,414 shares of Series B
Convertible Preferred Stock effective as of February 28, 1998. Each share of
Series B Convertible Preferred Stock is convertible at any time at the option
of the holder into one fully paid nonassessable share of the Company's Common
Stock. In addition, each share of Series B Convertible Preferred Stock is
automatically converted into one fully paid nonassessable share of Common
Stock upon a change in control during any twelve month period or upon sale of
all or substantially all of the assets of the Company.
The Company rents its corporate headquarters and table grape processing
cold storage facility from EPC, a general partnership controlled by Messrs.
Behrens and Wright, at an annual rental of $156,000. The Company and EPC are in
the process of renegotiating the terms of this rental agreement to provide for
an annual rental of $36,000 for the Company for executive office space only. See
"Description of Property."
H. Glen Leason has been a director of the Company since February 1999 and a
Senior Vice President of Torrey Pines Securities since 1984. As a Senior Vice
President at Torrey Pines Securities, Mr. Leason received from Torrey Pines
Securities approximately $75,000 in gross commissions for assisting the Company
in its September 1997 offering of shares of Series A 9% Convertible Preferred
Stock.
On October 22, 1998, the Company confirmed in writing to Mr. Leason the
arrangement between the Company and Mr. Leason concerning the proposed sale or
hypothecation of the Company's $10 million note receivable secured by the
600-acre parcel of land in Rancho California sold by the Company in August 1998.
The arrangement allows for a 2% placement fee to be paid to Mr. Leason from the
proceeds of the sale or hypothecation of the note if Mr. Leason's efforts to
locate a suitable financing party are successful.
23
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF AUGUST 31, 1998 AND 1997
AND FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Financial Statements for USA Biomass Corporation:
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Shareholders' Equity . . . . . . . . . . . . . . . . . . F-6
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . F-8
Notes to the Financial Statements. . . . . . . . . . . . . . . . . . . . . . . F-12
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
USA Biomass Corporation
We have audited the accompanying consolidated balance sheets of USA Biomass
Corporation (formerly AMCOR Capital Corporation) and its subsidiaries as of
August 31, 1998 and 1997, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 USA
Biomass Corporation (formerly AMCOR Capital Corporation) and subsidiaries as of
August 31, 1998 and 1997, and the consolidated results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1, 2, and 3, the
Company has discontinued substantially all of the business operations in which
it was engaged to concentrate on further development of its biomass line of
business. The Company's continuing operations have incurred losses and negative
cash flows from operations since its inception in fiscal year 1997. In addition,
the Company is delinquent in the payment of payroll tax deposits as described in
Note 12. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans (unaudited) in regard to these
matters are also described in Management's Discussion and Analysis. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Kelly & Company
Newport Beach, California
February 22, 1999
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and equivalents $ 827,771 $ 179,866
Accounts receivable 335,534 121,444
Due from officers and directors (Note 4) 913,632 54,946
Income taxes recoverable 292,639 -
Other current assets 169,305 830,867
Net current assets of discontinued
operations (Note 3) 7,398,855 6,815,361
---------- -----------
Total current assets 9,937,736 8,002,484
Property and equipment, net 3,794,830 3,250,838
Note receivable, noncurrent (Note 5) 7,250,000 -
Other assets 30,181 41,125
Intangible assets, net 458,332 -
Net noncurrent assets of discontinued
operations (Note 3) - 15,558,294
---------- -----------
TOTAL ASSETS $21,471,079 $26,852,741
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current liabilities:
Accounts payable:
Officer and director $ 90,000 $ 97,669
Others 1,266,257 1,458,133
Payroll taxes payable 1,065,005 977,448
Accrued remediation costs 507,000 -
Line of credit 249,610 -
Notes payable:
Related parties 1,466,994 974,452
Officers and directors 400,000 395,708
Other 836,680 1,438,594
Capitalized lease obligations 360,400 274,556
Income taxes payable 3,200 1,036,400
Accrued interest 162,845 344,428
----------- ----------
Total current liabilities 6,407,991 6,997,388
Deferred income taxes - 55,894
Notes payable, net of current portion:
Related parties 825,864 825,866
Officers and directors 955,343
Employee 370,189 450,000
Other 470,777 515,026
Capitalized lease obligations, net of current
portion 931,557 488,731
Net noncurrent liabilities of discontinued
operations (Note 3) 2,654,213 -
----------- ----------
TOTAL LIABILITIES 12,615,934 9,332,905
----------- ----------
----------- ----------
Commitments and contingencies
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY, CONTINUED
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Shareholders' equity:
Preferred Stock (2,000,000 shares authorized):
Series A, 9% Convertible Preferred Stock, $0.01 par value; cumulative
nonvoting, $7,475,000 aggregate liquidation preference; 812,500 shares
authorized, 747,500 shares
issued and outstanding 7,475 -
Series B, 6% Convertible Preferred Stock, $0.01 par value; cumulative
nonvoting, $4,044,140 aggregate liquidation preference; 750,000 shares
authorized, 404,414 shares
issued and outstanding 4,044 4,044
Common stock, $0.002 par value; 25,000,000 shares authorized, 7,761,385 and
7,172,974 shares issued, 7,737,135 and 7,172,974 shares outstanding at
August 31, 1998 and 1997, respectively 15,522 14,345
Additional paid-in capital 21,970,023 14,242,065
Accumulated earnings (deficit) (13,023,580) 3,259,382
Treasury stock, at cost (24,250 common shares
at August 31, 1998) (118,339) -
------------ ------------
Total shareholders' equity 8,855,145 17,519,836
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 21,471,079 $ 26,852,741
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Biomass revenues $ 2,005,611 $ 380,129
------------ ------------
Costs and expenses:
Cost of revenues 2,665,206 987,833
General and administrative expenses 3,228,682 1,656,930
Loss from asset impairment 1,971,123 -
Loss on sale of assets 365,990 -
Interest expense, net of interest income 661,889 476,699
------------ ------------
8,892,890 3,121,462
------------ ------------
Loss from continuing operations
before income taxes (6,887,279) (2,741,333)
Benefit from income taxes 1,048,475 613,219
------------ ------------
Loss from continuing operations (5,838,804) (2,128,114)
------------ ------------
Discontinued operations (Note 3):
Income (loss) from discontinued operations,
net of tax of $1,242,530 in
1997 (Note 10) (7,068,069) 4,304,480
Loss from disposal of discontinued
operations (Note 10) (2,878,813) -
------------ ------------
(9,946,882) 4,304,480
------------ ------------
NET INCOME (LOSS) $(15,785,686) $ 2,176,366
------------ ------------
------------ ------------
LOSS FROM CONTINUING OPERATIONS PER COMMON
SHARE, BASIC AND DILUTED $(0.88) $(0.41)
------------ ------------
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE,
BASIC AND DILUTED $(2.19) $0.29
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series B Common Series A Series B
Preferred Preferred Common Treasury Preferred Preferred Common
Shares Shares Shares Shares Stock Stock Stock
---------- --------- ---------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1996 - 628,972 11,596,566 - - $ 6,290 $ 23,193
Shares issued
under consulting
agreement - - 400,000 - - - 800
One for two reverse stock
split (including effect
of fractional shares) - - (5,998,283) - - - (11,997)
Shares issued upon
exercise of options - - 30,000 - - - 60
Shares issued in
acquisition of
partnership net assets - - 176,187 - - - 352
Shares issued in exchange
for interest in affiliated
partnership - - 94,830 - - - 190
Shares issued in
payment for debt - - 912,622 - - - 1,825
Preferred Stock retired
as payment of
receivable - (171,983) - - - (1,720) -
Common stock retired
as payment of
receivable - - (200,000) - - - (400)
Shares issued upon
acquisition of
partnership net assets - (52,575) 161,052 - - (526) 322
Series B Preferred
Stock dividends - - - - - - -
Net income - - - - - - -
---------- --------- ---------- --------- --------- ---------- --------
BALANCE, AUGUST 31, 1997 - 404,414 7,172,974 - - $ 4,044 $ 14,345
---------- --------- ---------- --------- --------- ---------- --------
---------- --------- ---------- --------- --------- ---------- --------
</TABLE>
<TABLE>
<CAPTION>
Treasury Additional
Common Paid-in Accumulated
Stock Capital Earnings (Deficit) Total
-------- ------------ ------------------ -------------
<S> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1996 - $ 11,150,064 $ 1,454,399 $ 12,633,946
Shares issued
under consulting
agreement - 359,200 - 360,000
One for two reverse stock
split (including effect
of fractional shares) - 11,997 - -
Shares issued upon
exercise of options - 60,740 - 60,800
Shares issued in
acquisition of
partnership net assets - 1,042,648 - 1,043,000
Shares issued in exchange
for interest in affiliated
partnership - 394,536 - 394,726
Shares issued in
payment for debt - 3,790,853 - 3,792,678
Preferred Stock retired
as payment of
receivable - (1,718,110) - (1,719,830)
Common stock retired
as payment of
receivable - (850,067) - (850,467)
Shares issued upon
acquisition of
partnership net assets - 204 - -
Series B Preferred
Stock dividends - - (371,383) (371,383)
Net income - - 2,176,366 2,176,366
-------- ------------ ------------------ -------------
BALANCE, AUGUST 31, 1997 - $ 14,242,065 $ 3,259,382 $ 17,519,836
-------- ------------ ------------------ -------------
-------- ------------ ------------------ -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Series B Common Series A Series B
Preferred Preferred Common Treasury Preferred Preferred Common
Shares Shares Shares Shares Stock Stock Stock
---------- --------- ---------- --------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1997 - 404,414 7,172,974 - - $ 4,044 $ 14,345
Issuance of Series A
9% Convertible
Preferred Stock 747,500 - - - $ 7,475 - -
Shares issued upon
exercise of options - - 31,250 - - - 63
Shares issued in
payment of debt - - 14,927 - - - 30
Shares issued for the
acquisition of
TransPacific
Environmental, Inc. - - 406,109 - - - 812
Shares issued in
settlement of
litigation - - 144,000 - - - 288
Options on common
stock granted to
nonemployees for
consulting and other
services - - - - - - -
Treasury shares
acquired - - - (24,250) - - -
Shares reacquired
and retired - - (7,875) - - - (16)
Series A Preferred
Stock dividends - - - - - - -
Net loss - - - - - - -
---------- --------- ---------- --------- --------- ---------- --------
BALANCE, AUGUST 31, 1998 747,500 404,414 7,761,385 (24,250) $ 7,475 $ 4,044 $ 15,522
---------- --------- ---------- --------- --------- ---------- --------
---------- --------- ---------- --------- --------- ---------- --------
</TABLE>
<TABLE>
<CAPTION>
Treasury Additional
Common Paid-in Accumulated
Stock Capital Earnings (Deficit) Total
-------- ------------ ------------------ -------------
<S> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1997 - $ 14,242,065 $ 3,259,382 $ 17,519,836
Issuance of Series A
9% Convertible
Preferred Stock - 6,161,869 - 6,169,344
Shares issued upon
exercise of options - 62,437 - 62,500
Shares issued in
payment of debt - 70,869 - 70,899
Shares issued for the
acquisition of
TransPacific
Environmental, Inc. - 1,195,030 - 1,195,842
Shares issued in
settlement of
litigation - 83,093 - 83,381
Options on common
stock granted to
nonemployees for
consulting and other
services - 187,500 - 187,500
Treasury shares
acquired $(118,339) - - (118,339)
Shares reacquired
and retired - (32,840) - (32,856)
Series A Preferred
Stock dividends - - (497,276) (497,276)
Net loss - - (15,785,686) (15,785,686)
-------- ------------ ------------------ -------------
BALANCE, AUGUST 31, 1998 $(118,339) $ 21,970,023 $(13,023,580) $ 8,855,145
-------- ------------ ------------------ -------------
-------- ------------ ------------------ -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(15,785,686) $2,176,366
Add loss (deduct income) from discontinued
operations 9,946,882 (4,304,480)
------------ ----------
Net loss from continuing operations (5,838,804) (2,128,114)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 316,229 57,163
Amortization 41,668 -
Loss on impairment of assets 1,971,123 -
Loss on sale of assets 365,990 -
Provision for settlement expense 112,129 -
Stock options granted to nonemployees for
consulting and other services 187,500 -
Decrease (increase) in assets, net of effect of
acquisition of TransPacific Environmental, Inc.:
Accounts receivable (97,855) (93,064)
Income taxes recoverable (292,639) -
Other current assets 710,093 127,816
Due from related parties 239,887 (2,280,033)
Other assets 2,782 (41,130)
Increase (decrease) in liabilities, net of effect of
acquisition of TransPacific Environmental, Inc.:
Accounts payable (400,579) 1,260,505
Payroll taxes payable 87,557 921,017
Income taxes payable (1,033,200) (543,965)
Accrued interest payable (181,583) (160,589)
Deferred taxes (55,894) (68,437)
------------ ----------
NET CASH USED IN OPERATING
ACTIVITIES OF CONTINUING OPERATIONS (3,865,596) (2,948,831)
NET CASH USED IN OPERATING
ACTIVITIES OF DISCONTINUED OPERATIONS (6,105,493) (195,183)
------------ ----------
CASH USED IN OPERATING ACTIVITIES (9,971,089) (3,144,014)
------------ ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property and equipment $(142,777) $(1,289,887)
Sales of property and equipment 101,393 -
Acquisition of TransPacific Environmental, Inc.,
net of cash acquired (398,154) -
--------- -----------
NET CASH USED IN INVESTING
ACTIVITIES OF CONTINUING OPERATIONS (439,538) (1,289,887)
NET CASH PROVIDED BY INVESTING
ACTIVITIES OF DISCONTINUED OPERATIONS 4,199,029 1,543,698
--------- -----------
CASH PROVIDED BY INVESTING OPERATIONS 3,759,491 253,811
--------- -----------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from line of credit 249,610 -
Proceeds from notes and loans 2,229,065 1,767,516
Repayment of notes and loans (3,541,141) (267,151)
Dividends paid on Series A Preferred Stock (497,276) -
Acquisition of treasury shares (118,339) -
Net proceeds from issuance of Series A
Preferred Stock 6,169,344 -
Purchase and retirement of common stock (32,856) -
Exercise of stock options 62,500 60,800
--------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES
OF CONTINUING OPERATIONS 4,520,907 1,561,165
NET CASH PROVIDED BY FINANCING ACTIVITIES
OF DISCONTINUED OPERATIONS 2,338,596 421,802
--------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES 6,859,503 1,982,967
--------- -----------
NET INCREASE (DECREASE) IN CASH 647,905 (907,236)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR 179,866 1,087,102
--------- -----------
CASH AND EQUIVALENTS AT END OF YEAR $827,771 $179,866
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997
----- ----
<S> <C> <C>
Cash paid during the year for:
Interest:
Continuing operations $ 838,066 $ 703,630
Discontinued operations 521,191 523,072
---------- ----------
$1,359,257 1,226,702
---------- ----------
---------- ----------
Income taxes $332,589 -
---------- ----------
---------- ----------
SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING AND FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Assets acquired (disposed of) in non-cash transactions:
Assets acquired $1,141,225 1,808,400
Receivables from related parties 815,184 394,726
Issuance of common stock - (754,726)
Capital lease obligations incurred (727,610) -
Liabilities incurred (413,615) (1,448,400)
Liability to officer incurred (815,184) -
Satisfaction of debt through issuance of stock:
Liabilities satisfied $70,899 $3,792,678
Common stock issued (70,899) (3,792,678)
Accrual of dividends on Preferred Stock:
Liability incurred - $(371,383)
Reduction in retained earnings - 371,383
Satisfaction of debt through offset of related receivables:
Receivables satisfied - $(1,026,580)
Receivables of discontinued operations satisfied - (742,766)
Liabilities satisfied - 211,396
Liability to officer satisfied - 815,184
Accrued dividends satisfied - 742,766
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF
NON-CASH INVESTING AND FINANCING ACTIVITIES OF CONTINUING OPERATIONS, CONTINUED
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Settlement liability and related party receivable:
Liability to estate of former officer $(283,388) -
Receivable from related party 283,388 -
Retirement of stock:
Receivables of discontinued operations satisfied - $(1,719,830)
Receivable of officers and directors satisfied - (850,467)
Series B Preferred Stock retired - 1,719,830
Common stock retired - 850,467
Purchase of all the capital stock of TransPacific Environmental, Inc.:
Fair value of assets acquired $2,260,933 -
Less:
Cash paid (411,207) -
Common stock issued (1,195,842) -
---------- -----------
Liabilities assumed $(653,884) -
---------- -----------
---------- -----------
Included in the net liabilities assumed were the following operating assets
and liabilities:
Cash $13,053 -
---------- -----------
Accounts receivable 116,235 -
---------- -----------
Other current assets 48,531 -
---------- -----------
Other assets 2,230 -
---------- -----------
Accounts payable (679,283) -
---------- -----------
Notes payable (154,650) -
---------- -----------
Assets acquired (disposed of) in non-cash transaction:
Assets acquired - $11,741,070
Liabilities assumed - (1,988,560)
Issuance of common stock - (1,043,000)
Receivable satisfied - (8,709,510)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-11
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1. DESCRIPTION OF THE COMPANY'S BUSINESS
The continuing operations of USA Biomass Corporation (the "Company"), a
Delaware corporation, consist of tree maintenance and clean green waste
processing conducted by TransPacific Environmental, Inc. ("TPE"), which was
acquired by the Company in November 1997 ("biomass"). In order to focus on
expanding its biomass operation and its waste transport operation, which
commenced in October 1998, the Company's Board of Directors adopted a plan
to discontinue its agribusiness and real estate activities on December 22,
1998 (Note 3).
During the year ended August 31, 1998, the Company changed its name from
AMCOR Capital Corporation to USA Biomass Corporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of USA Biomass
Corporation and subsidiaries. TPE and AMCOR Biomass Farms, LLC (99% owned)
are the Company's continuing operating subsidiaries. Sun Goddess Farms,
Inc., AMCOR Properties, Inc., Las Palomas Country Club Estates, LLC (99%
owned) and AMCOR Builders, LLC (99% owned) are discontinued operations. All
significant intercompany transactions have been eliminated.
As a result of the Company's decision to discontinue its agribusiness and
real estate operations and to sell the related assets, the results of
operations, cash flows, and the net assets of these operations for both
1998 and 1997 have been reclassified to discontinued operations. Assets of
discontinued operations are recorded at the lower of cost or market (net
realizable value) (Note 3). Certain reclassifications have been made to the
1997 continuing operations in order for them to conform to the 1998
presentation.
REVENUE RECOGNITION
Biomass revenues are recognized on the accrual method at the time the
related services are performed.
F-12
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND EQUIVALENTS
Cash and equivalents include short-term, highly liquid instruments with
original maturities of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated using the
straight-line method over the expected useful lives noted below.
<TABLE>
<CAPTION>
Estimated Useful
Life
----------------
<S> <C>
Vehicles and equipment 3-10 years
Office furniture and equipment 3-10 years
Buildings 30 years
</TABLE>
Leasehold improvements are amortized over the shorter of the life of the
assets or the life of the related lease.
INTANGIBLE ASSETS
Intangible assets include licenses and agreements and contracts. Intangible
assets are amortized using the straight-line method over a period of 10
years. Regularly, the Company assesses the intangible assets for impairment
based on recoverability of the balances from expected future operating cash
flows on an undiscounted basis (Note 13).
F-13
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
LONG LIVED ASSETS
Long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The estimated undiscounted cash
flows associated with the assets are compared to the carrying amounts to
determine if a writedown to fair value is required.
As a result of the Company's review and assessment, and based upon the best
information available in the circumstances, including independent
appraisals, the Company determined that the carrying amounts of certain
assets exceeded the fair value of such assets (Notes 6 and 13).
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards ("SFAS") No. 123, "ACCOUNTING
FOR STOCK-BASED COMPENSATION," established accounting and disclosure
requirements using a fair-value-based method of accounting for stock-based
employee and nonemployee compensation plans.
The Company continues to account for stock-based employee compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" as permitted by
SFAS 123. Compensation cost for stock options, if any, is measured as the
excess of the quoted market price of the Company's stock at the date of
grant over the amount an employee must pay to acquire the stock.
Compensation cost is recorded over the requisite vesting periods based on
the market value on the date of grant.
EARNINGS PER COMMON SHARE
In 1997 the Financial Accounting Standards Board issued SFAS No. 128,
"EARNINGS PER SHARE". This pronouncement replaced the previously reported
primary and fully diluted earnings per share with basic and diluted
earnings per share, respectively. Earnings per share for the years ended
August 31, 1998 and 1997 have been calculated in accordance with this
pronouncement.
F-14
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
EARNINGS PER COMMON SHARE, CONTINUED
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding
for the year. Diluted earnings per share reflects the potential dilution
that could occur if dilutive securities and other contracts to issue common
stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the Company's earnings.
SIGNIFICANT ACCOUNTING POLICIES SPECIFIC TO DISCONTINUED OPERATIONS
REVENUE RECOGNITION
Revenues from the Company's discontinued agribusiness and real estate
operations are generated through management service and development fees
charged to various partnerships engaged in agribusiness and real estate.
Management service fee income, primarily due from affiliates, is recognized
when contractually due, which approximates the time that services are
performed. Crop sales, other farm income and real estate sales are
recognized by the accrual method at the time of sale.
INVENTORIES
AGRIBUSINESS
All direct and indirect costs of growing crops are accumulated and valued
at the lower of cost or market (net realizable value). Harvested crops are
valued at net realizable value using the average cost method and relieved
from inventory as the crops are sold (Note 3).
REAL ESTATE
All direct and indirect costs of real estate development are accumulated
and valued at the lower of cost or market (net realizable value).
INVESTMENT
The Company uses the equity method of accounting for its 50% investment
interest in PS III Farms, LLC, an Oregon limited liability company.
F-15
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
3. DISCONTINUED OPERATIONS
On December 22, 1998, the Company adopted a formal plan to discontinue its
agribusiness and real estate operations and to sell the related assets in
order to focus on its biomass and waste transportation segments. The
Company plans to dispose of its agribusiness and real estate operations by
November 30, 1999. As a result, the financial statements of the Company
reflect the net assets and operating results of the agribusiness and real
estate segments as discontinued operations. In this connection, estimated
losses of approximately $1,543,000 anticipated on sales of discontinued
operations are included in the estimated loss on disposal of discontinued
operations. In addition, estimated operating losses of approximately
$1,336,000 for the period from August 31, 1998 through the estimated dates
of disposition of discontinued operations have been provided for and
included in the estimated loss on disposal of discontinued operations.
Selected information for the discontinued agribusiness and real estate
operations is presented below.
<TABLE>
<CAPTION>
For the year ended August 31, 1998
-----------------------------------
Agribusiness Real Estate Total
------------ ------------ -----
<S> <C> <C> <C>
Revenues $6,057,166 $12,304,686 $ 18,361,852
Operating and administrative costs (7,689,412) (12,194,688) (19,884,100)
Writedown of receivables from
managed limited partnerships - (5,306,244) (5,306,244)
Other (357,308) 117,731 (239,577)
----------- ----------- -------------
Loss from discontinued
operations (1,989,554) (5,078,515) (7,068,069)
Estimated loss on disposal of
discontinued operations (1,323,883) (1,554,930) (2,878,813)
----------- ----------- -------------
Total loss from discontinued
operations $(3,313,437) $(6,633,445) $ (9,946,882)
----------- ----------- -------------
----------- ----------- -------------
<CAPTION>
For the year ended August 31, 1997
-----------------------------------
Agribusiness Real Estate Total
------------ ------------ -----
<S> <C> <C> <C>
Revenues $10,320,085 6,717,500 $ 17,037,585
Operating and administrative costs (8,795,007) (2,851,684) (11,646,691)
Other 602,887 (446,771) 156,116
Provisions for income taxes (476,664) (765,866) (1,242,530)
----------- ----------- -------------
Income from discontinued
operations $1,651,301 $2,653,179 $ 4,304,480
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
F-16
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
3. DISCONTINUED OPERATIONS, CONTINUED
The net assets (liabilities) of discontinued agribusiness and real estate
segments are summarized as follows:
<TABLE>
<CAPTION>
As of August 31, 1998
---------------------
Agribusiness Real Estate Total
------------ --------------------- ------------
<S> <C> <C> <C>
Current assets:
Receivables $ 344,880 - $ 344,880
Due from managed limited
partnerships 137,444 $ 8,954,390 9,091,834
Inventory 152,332 1,999,783 2,152,115
Other current assets 16,330 165,730 182,060
------------ ------------ ------------
Total current assets 650,986 11,119,903 11,770,889
------------ ------------ ------------
Current liabilities:
Accounts payable and
other liabilities 946,344 956,206 1,902,550
Due to managed limited
partnerships 874,984 739,574 1,614,558
Notes and capitalized lease
obligations payable 265,721 589,205 854,926
------------ ------------ ------------
Total current liabilities 2,087,049 2,284,985 4,372,034
------------ ------------ ------------
NET CURRENT ASSETS (LIABILITIES)
OF DISCONTINUED OPERATIONS $ (1,436,063) $ 8,834,918 $ 7,398,855
------------ ------------ ------------
------------ ------------ ------------
Noncurrent assets:
Property and equipment, net $ 4,150,486 - $ 4,150,486
Investment - $ 2,489,199 2,489,199
Other noncurrent assets 193,460 62,078 255,538
------------ ------------ ------------
Total noncurrent assets 4,343,946 2,551,277 6,895,223
------------ ------------ ------------
Noncurrent liabilities:
Notes and capitalized
lease obligations payable,
net of current portion 4,452,559 5,096,877 9,549,436
------------ ------------ ------------
Total noncurrent
liabilities 4,452,559 5,096,877 9,549,436
------------ ------------ ------------
NET NONCURRENT LIABILITIES
OF DISCONTINUED OPERATIONS $ (108,613) $ (2,545,600) $ (2,654,213)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-17
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
3. DISCONTINUED OPERATIONS, CONTINUED
<TABLE>
<CAPTION>
As of August 31, 1997
---------------------
Agribusiness Real Estate Total
------------ --------------------- ------------
<S> <C> <C> <C>
Current assets:
Restricted cash $ 842,287 - $ 842,287
Receivables 2,024,685 - 2,024,685
Due from managed
limited partnerships - $ 8,009,445 8,009,445
Inventory 483,785 682,441 1,166,226
Other current assets 41,534 20,248 61,782
------------ ------------ ------------
Total current assets 3,392,291 8,712,134 12,104,425
------------ ------------ ------------
Current liabilities:
Accounts payable and
other liabilities 957,245 1,393,888 2,351,133
Due to managed limited
partnerships - 620,000 620,000
` Notes and capitalized lease
obligations payable 1,455,222 862,709 2,317,931
------------ ------------ ------------
Total current liabilities 2,412,467 2,876,597 5,289,064
------------ ------------ ------------
NET CURRENT ASSETS OF DISCONTINUED
OPERATIONS $ 979,824 $ 5,835,537 $ 6,815,361
------------ ------------ ------------
------------ ------------ ------------
Noncurrent assets:
Property and
equipment, net $ 7,544,300 - $ 7,544,300
Due from managed limited
partnerships - $ 3,793,358 3,793,358
Land held for future
development - 9,411,999 9,411,999
Investment - 2,455,596 2,455,596
Other noncurrent assets 946,126 - 946,126
------------ ------------ ------------
Total noncurrent assets 8,490,426 15,660,953 24,151,379
------------ ------------ ------------
Noncurrent liabilities:
Notes and capitalized lease
obligations payable, net
of current portion 2,685,525 5,907,560 8,593,085
------------ ------------ ------------
Total noncurrent
liabilities 2,685,525 5,907,560 8,593,085
------------ ------------ ------------
NET NONCURRENT ASSETS OF
DISCONTINUED OPERATIONS $ 5,804,901 $ 9,753,393 $ 15,558,294
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-18
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
3. DISCONTINUED OPERATIONS, CONTINUED
RESTRICTED CASH
At August 31, 1997, certain of the Company's funds were held by a bank as a
restricted deposit used to pay settlement costs during 1998.
NOTES RECEIVABLE
Notes receivable included in discontinued operations consist of the
following:
<TABLE>
<CAPTION>
August 31
------------------------
1998 1997
---------- -----------
<S> <C> <C>
Agribusiness operations:
Notes receivable with interest at 6.5% per
annum, paid in full during the fiscal year
ended August 31, 1998. - 1,016,667
Notes receivable with interest at 6.5% per
annum, paid in full during the fiscal year
ended August 31, 1998. - 405,524
---------- -----------
TOTAL - 1,422,191
Less: current portion (111,597) (1,714,680)
---------- -----------
TOTAL NONCURRENT PORTION $ (111,597) $ (292,489)
---------- -----------
---------- -----------
</TABLE>
F-19
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
3. DISCONTINUED OPERATIONS, CONTINUED
DUE FROM AND DUE TO MANAGED LIMITED PARTNERSHIPS
The Company manages limited partnerships that are involved in real
estate, farming, and related agribusiness activities. The Company and/or
certain officers of the Company, who are also shareholders, are general
partners in all of the partnerships.
As of August 31, 1998, the Company managed seventeen limited
partnerships and is a general partner in eleven of them. Approximately
half of these partnerships are in the process of being wound up and the
remainder are expected to be wound up in calendar year 1999. The effects
of the winding up of these partnerships are not expected to be material
to the Company's financial position or results of operations.
While the terms of the partnerships are specified in their respective
partnership agreements, the partnerships do not terminate until the
general partner has wound up the partnership affairs, liquidated and
distributed its remaining assets to its partners and its Certificate of
Limited Partnership is cancelled. There were no partnership terminations
in fiscal year 1998; however, during fiscal year 1997 two partnerships
were terminated and their residual net assets exchanged for shares of
the Company's common stock (Note 17).
Amounts due from managed limited partnerships involved in agribusiness
activities consists of management fees charged by the Company and costs
incurred by the Company on behalf of various limited partnerships whose
farm properties are located in Coachella Valley, California.
Amounts due from managed limited partnerships involved in real estate
activities includes advances to and fees charged by the Company to
various limited partnerships in California and Texas relating to the
development and management of the limited partnerships' properties and
assets and amounts advanced by the Company on behalf of various limited
partnerships for the development of a residential community located in
Texas. The receivable consists of the following:
F-20
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
3. DISCONTINUED OPERATIONS, CONTINUED
DUE FROM AND DUE TO MANAGED LIMITED PARTNERSHIPS, CONTINUED
<TABLE>
<CAPTION>
August 31
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Development advances $ 8,695,634 $ 6,465,803
Golf course development 4,000,000 4,000,000
Management and other fees 1,565,000 1,337,000
----------- -----------
14,260,634 11,802,803
Less: writeoff to net realizable value (5,306,244) -
----------- -----------
Balance $ 8,954,390 $11,802,803
----------- -----------
----------- -----------
</TABLE>
These amounts do not bear interest and are due on demand.
Amounts due to related parties involved in agribusiness activities
consists primarily of cash receipts from partnership crop sales
exceeding advances by the Company for farming costs made on behalf of
certain partnerships. These amounts do not bear interest, are not
collateralized, and are due on demand.
Management, on a regular basis, reviews the collectibility of the
amounts due from related parties by considering the proceeds to be
received from current crop period sales (if applicable), current real
estate appraisals, and other relevant information. In fiscal year 1998,
management's review resulted in a $5,306,244 writedown of advances,
which result primarily from the decrease in the value of the residential
community development project near San Antonio, Texas. The decrease in
value results from a substantial decline in the residential lot sales in
1998 as compared to the initial lot sales absorption rate assumed in the
1997 appraisal, the first year of sales. Absorption is the rate at which
lot sales occur. The initial 1997 absorption rate was based on the
general absorption rate then being experienced in the greater San
Antonio, Texas real estate market. In addition, the 1998 valuation
reflects the Company's decision to discontinue its real estate
operations and to dispose of this project in an orderly liquidation
through a bulk sale. In fiscal year 1997, management's review resulted
in no provision for such uncollectible advances.
F-21
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
3. DISCONTINUED OPERATIONS, CONTINUED
INVENTORIES
The real estate inventory primarily consists of the cumulative
development costs of model homes, custom homes, undeveloped residential
lots, and related infrastructure located in San Antonio, Texas. The
project is financed by loans obtained from two financial institutions.
The value of the Company owned lots in San Antonio, Texas, was
determined to be in excess of their face value, which resulted in a
writedown of $360,273 for the year ended August 31, 1998.
On August 31, 1997, the Company acquired approximately 600 acres of
undeveloped property in Riverside County, California, from an affiliate.
At acquisition, property taxes and notes payable (private development
bonds) liens recorded on the property of $1,386,358 and $620,337,
respectively, were in default. The Company's acquisition price consisted
of the cancellation of $7,005,304 of amounts due to the Company and
assumption of the $2,006,695 in liens against the property for a total
of $9,011,999. This amount was equal to the then current fair market
value of the property.
In August 1998 the Company sold the 600 acre parcel at a sales value of
$11,750,000. This amount represents the net sales value after a
$2,750,000 discount necessary to adjust a $10,000,000
noninterest-bearing note received as part of the sale consideration to a
representative market rate of interest (an effective rate of 17.4%). In
connection with the sale, the Company is required to remediate by
removal the surface debris contaminating a portion of the property
within one year from the closing. In this regard, the Company engaged an
environmental engineering firm to evaluate the extent of remediation
necessary. However, to date, the remediation work has not commenced. The
cost of required remediation is estimated to be $507,000 and has,
accordingly, been accrued by the Company. There was no gain or loss
on this sale.
F-22
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
3. DISCONTINUED OPERATIONS, CONTINUED
INVESTMENT IN PARTNERSHIP
In fiscal year 1996, the Company acquired a 50% interest in PS III
Farms, LLC, which owns 6,490 acres that it leases to a limited liability
company owned by the other 50% venture partner. The lease has a
remaining term of sixteen months and contains a renewal option on terms
subject to mutual agreement at that time. The primary crop grown on the
Oregon farm is potatoes. The investment included in discontinued
operations consists of the following:
<TABLE>
<CAPTION>
August 31
------------------------
1998 1997
---- ----
<S> <C> <C>
PS III Farms, LLC, which is accounted
for utilizing the equity method $2,489,199 $2,455,596
---------- ----------
---------- ----------
Capital Contributions $ 78,505 -
---------- ----------
---------- ----------
Equity in net loss $ 44,902 $ 34,010
---------- ----------
---------- ----------
</TABLE>
PROPERTY LEASE
In December 1998, the Company leased to a third party for the 1999 crop
year its remaining producing grape vineyards consisting of 560 acres
located in Coachella Valley, California.
4. DUE FROM OFFICERS AND DIRECTORS
Amounts due from officers and directors relate to the activities of a
partnership, Enterprise Packing Company ("EPC"), the partners of which are
two officers who are also shareholders and directors of the Company. The
amount due from the partnership represents the net of advances to and other
transactions with the partnership and bears interest at 8%.
FACILITY LEASE
EPC owns the rights to the use of a packing facility during the grape
harvest cycle and the annual use of related office space in Coachella
Valley. The Company rents these facilities on a month to month basis for
use in its now discontinued agribusiness operations and its corporate
offices based on an annual amount of $156,000.
F-23
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
4. DUE FROM OFFICERS AND DIRECTORS, CONTINUED
OFFSET OF GUARANTEE FEES
The partners of EPC have from time to time provided their personal
guarantees to lenders who required the guarantees as necessary conditions
to lending the Company various amounts, which aggregate approximately
$11,750,000. In fiscal year 1998, as partial satisfaction of amounts that
EPC owes the Company, the partners of EPC assigned and offset their rights
to receive loan guarantee fees totaling $548,500.
ASSIGNMENT OF PRIORITY RECEIVABLE
Also, in 1995, EPC assumed certain liabilities, net of certain assets from
the Company. Part of the assets EPC received was a receivable relating to
advances made by the Company to Lake Valley Realty Partners ("LVRP"), an
affiliated real estate partnership. Subsequently, EPC made additional
advances to LVRP. As a condition to the assumption of liabilities and
transfer of assets, the Company and EPC agreed that the total receivable
assumed and advances subsequently made by EPC to LVRP would, up to $625,000
be, as to distributions from LVRP, superior to any future advances made by
the Company to LVRP. In fiscal year 1998, EPC assigned its right to its
priority receivable from LVRP to the Company with a value of $428,841 as
partial satisfaction of its amount owed to the Company.
STAND STILL AGREEMENT
In addition, the Company owes these two officers approximately $1,445,343,
of which $1,355,343 are notes payable, which bear interest at effective
rates ranging from 10% to 17.6%. Effective August 31, 1998, these notes
were modified to bear interest at an annual rate of 8%. The officers have
agreed that the amount due them will remain at least equal to the amount
due the Company from EPC until January 1, 2000.
F-24
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
5. NOTE RECEIVABLE
Note receivable arising from the sale of undeveloped real estate in
Riverside County, California (Note 3) consists of the following:
<TABLE>
<CAPTION>
August 31
--------------------
1998 1997
---- ----
<S> <C> <C>
Noninterest-bearing note receivable collateralized by
a deed of trust on real property; face amount of
$10,000,000 due in August 2000, discounted
$2,750,000 to yield a representative market effective
interest rate of 17.4%. The note provides that the
maturity date may be extended to August 2001 if
certain development plan milestones have not been
achieved. In consideration for the extension, the note
receivable will bear an interest rate of 8% or a major
bank prime lending rate, whichever is greater, with the
earned interest and principal due at the end of the
extension period. In December 1998, the Company
obtained a $4,000,000 loan, which is collateralized by
this note receivable. Terms of the loan provide, among
other things, that the Company may not in any way sell,
further encumber, or dispose of the note without
the written consent of the lender (Note 7 ). $7,250,000 -
------------ --------
TOTAL NOTE RECEIVABLE $7,250,000 -
------------ --------
------------ --------
F-25
</TABLE>
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
CONTINUING OPERATIONS
<TABLE>
<CAPTION>
August 31
------------------------
1998 1997
---- ----
<S> <C> <C>
Vehicles and equipment $2,681,511 $1,893,476
Office furniture and equipment 43,811 26,248
Leasehold improvements 74,230 61,233
Buildings 155,000 155,000
Land 1,216,071 1,216,071
---------- ----------
4,170,623 3,352,028
Less: accumulated amortization
and depreciation (375,793) (101,190)
---------- ----------
TOTAL CONTINUING OPERATIONS $3,794,830 $3,250,838
---------- ----------
---------- ----------
DISCONTINUED OPERATIONS
AGRIBUSINESS:
Vineyard and development costs $2,928,491 $5,294,047
Vehicles and equipment 1,291,935 1,512,436
Office furniture and equipment 24,882 24,882
Leasehold improvements - -
Buildings 146,928 146,928
Land 1,680,000 2,553,000
---------- ----------
6,072,236 9,531,293
Less: accumulated amortization
and depreciation (1,921,750) (1,986,993)
---------- ----------
TOTAL DISCONTINUED OPERATIONS $4,150,486 $7,544,300
---------- ----------
---------- ----------
</TABLE>
F-26
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- --------------------------------------------------------------------------------
6. PROPERTY AND EQUIPMENT, CONTINUED
The following is an analysis of property held under capital leases
(included in the preceding summaries) with related accumulated
depreciation, depreciation expense, and total depreciation expense of
continuing and discontinued operations:
CONTINUING OPERATIONS
<TABLE>
<CAPTION>
August 31
------------------------
1998 1997
---- ----
<S> <C> <C>
Vehicles and equipment $1,161,314 $649,309
Accumulated depreciation (126,872) (6,938)
---------- ----------
Total continuing operations $1,034,442 $642,371
---------- ----------
---------- ----------
<CAPTION>
For the Years Ended August 31
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Capitalized lease depreciation expense $119,934 $6,938
---------- ----------
---------- ----------
Total property, equipment and
capital lease depreciation expense $316,229 $57,163
---------- ----------
---------- ----------
</TABLE>
During fiscal year 1998, the Company sold biomass equipment with a net book
amount of $467,383 and recognized a loss of $365,990 on the sale of these
assets.
DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
August 31
------------------------
1998 1997
---- ----
<S> <C> <C>
Vehicles and equipment $118,837 $196,209
Accumulated depreciation (57,461) (58,687)
---------- ----------
Total discontinued operations $61,376 $137,522
---------- ----------
---------- ----------
<CAPTION>
For the Years Ended August 31
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Capitalized lease depreciation expense $23,389 $36,176
---------- ----------
---------- ----------
Total depreciation expense $377,975 $525,850
---------- ----------
---------- ----------
</TABLE>
F-27
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
6. PROPERTY AND EQUIPMENT, CONTINUED
ASSET IMPAIRMENT
Certain equipment previously utilized by the Company was determined to no
longer be necessary, or the Company significantly changed the manner and
extent to which it was used in its biomass operations. When the Company
determined that the assets would no longer be utilized, it decided to hold
these assets for disposition and ceased recording depreciation expense. In
this connection, the Company obtained an appraisal of the value less
estimated costs of disposal of the equipment and, accordingly, recognized
an impairment loss of $624,171.
7. LINES OF CREDIT
Lines of credit consist of the following:
CONTINUING OPERATIONS
<TABLE>
<CAPTION>
August 31
-------------------
1998 1997
---- ----
<S> <C> <C>
Borrowing under line of credit with a bank
entered into on April 27, 1998 to provide
working capital up to $250,000. The line
of credit bears interest at prime plus 2% (the
bank prime was 8.5% at August 31, 1998) and
is collateralized by all assets of TPE with a net
carrying amount of approximately $1,955,000.
The line matures on April 27, 1999. $249,610 $ -
-------- -----
TOTAL CONTINUING OPERATIONS 249,610 -
Less: current portion (249,610) -
-------- -----
TOTAL NONCURRENT CONTINUING OPERATIONS $ - $ -
-------- -----
-------- -----
</TABLE>
F-28
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
7. LINES OF CREDIT, CONTINUED
DISCONTINUED OPERATIONS
AGRIBUSINESS:
<TABLE>
<CAPTION>
August 31
-------------------
1998 1997
---- ----
<S> <C> <C>
Borrowing under line of credit with a bank entered
into on September 18, 1996 to provide working
capital up to $750,000. The line of credit bears
interest at prime plus 0.75% (the bank prime was
8.5% at August 31, 1997) and was collateralized
by agricultural land. This line of credit was paid
in full in fiscal year 1998. - $749,746
Borrowing under line of credit with a bank entered
into on January 13, 1996 to provide working
capital financing up to $2,500,000 for farm
operations. The line of credit bears interest at
prime plus 0.75% (the bank prime was 8.5% at
August 31, 1998), due August 15, 1998 and was
collateralized by a note receivable (Note 5) and
real property. In December 1998, the Company
obtained from another lender a $4,000,000 loan
collateralized by a note receivable with a carrying
amount of $7,250,000 (Note 5), using part of
the $3,750,000 net proceeds to retire this debt.
The new loan bears interest at 12.25% per annum
and provides that the collateral may not be
further encumbered, sold, assigned or disposed of
without the prior written consent of the lender.
Principal and interest shall be paid in full on the
date of the payment in full of the note receivable
collateralizing this loan, which is due August 2000,
unless extended to August 2001 (Note 5). $2,500,000 378,811
</TABLE>
F-29
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
7. LINES OF CREDIT, CONTINUED
DISCONTINUED OPERATIONS (CONTINUED)
REAL ESTATE OPERATIONS:
<TABLE>
<CAPTION>
August 31
-------------------
1998 1997
---- ----
<S> <C> <C>
Borrowing under line of credit with a financial
institution entered into on September 4, 1997 to
provide for borrowings of up to $3,000,000 for
the construction of single family residences in
Texas. The line of credit bears interest at prime
plus 1% (the bank prime was 8.5% at August
31, 1998) and is collateralized by Texas real
property, inventory of completed homes with
carrying amounts of approximately $1,223,000,
and the personal guarantees of two shareholders
who are officers of the Company. The agreement
expired on September 5, 1998. On November 2,
1998 the line was extended to mature on
November 2, 1999. On February 15, 1999 the
line was amended to provide for the maturity
of $461,450 on May 5, 1999 and $421,825 to
mature on October 9, 1999 with balance due
November 2, 1999. $1,322,000 -
---------- ----------
TOTAL DISCONTINUED OPERATIONS 3,822,000 $1,128,557
Less: current portion (461,450) (1,128,557)
---------- ----------
TOTAL NONCURRENT DISCONTINUED OPERATIONS $3,360,550 $ -
---------- ----------
</TABLE>
The weighted average interest rate on borrowings outstanding under line of
credit at August 31, 1998 was 9.43%.
F-30
<PAGE>
USA BIOMASS COPRPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- ------------------------------------------------------------------------------
8. NOTES PAYABLE
Notes payable consist of the following:
CONTINUING OPERATIONS
Notes payable to related parties:
UNCOLLATERALIZED
<TABLE>
<CAPTION>
August 31
----------------------
1998 1997
---- ----
<S> <C> <C>
Notes payable, with effective interest rates ranging
from 6% to 17.6% per annum, principal amounts
of $1,583,604, $15,713 and $810,152 plus accrued
interest due December 31, 1998, 1999, and 2001,
respectively. Notes with aggregate principal
amounts of $1,583,604 are payable to shareholders
of the Company who are investors in limited
partnerships managed by the Company, to a
shareholder who is an officer of the Company and
general partner in limited partnerships managed by
the Company, and to such person's spouse. The
amounts due the officer and his spouse are
$615,000. Of these notes, $300,000 due on
December 31, 1998, are past due and in default.
In December 1998 the Company extended the
maturity dates on $1,258,603 of these notes
to July 31, 1999 and agreed to pay each lender
for the extension an additional 5% of their
outstanding balance, which results in an effective
interest rate of 20.92%. The $15,713 and the
$810,152 notes payable are due to affiliated
real estate limited partnerships managed by
the Company. $2,409,469 $2,196,026
</TABLE>
F-31
<PAGE>
USA BIOMASS COPRPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- ------------------------------------------------------------------------------
8. NOTES PAYABLE, CONTINUED
CONTINUING OPERATIONS, CONTINUED
Notes payable to related parties, continued:
UNCOLLATERALIZED, CONTINUED
<TABLE>
<CAPTION>
August 31
----------------------
1998 1997
---- ----
<S> <C> <C>
Note payable to estate of former shareholder who
was an officer of the Company, with interest at 10%
per annum and is currently due and payable
(Note 12). $ 283,389 -
Notes payable to officers, with interest at 8% per
annum, principal of $140,159 and $815,184 plus
accrued interest due December 31, 1999 and 2001,
respectively (Note 4). 955,343 -
------------ ------------
TOTAL DUE TO RELATED PARTIES 3,648,201 $ 2,196,026
Less: current portion (1,866,994) (1,370,160)
------------ ------------
TOTAL NONCURRENT DUE TO RELATED PARTIES $ 1,781,207 $ 825,866
------------ ------------
------------ ------------
Note payable to an employee:
Note payable to an employee, with interest at
8% per annum, principal and interest due in
September 1999. $ 370,189 $ 450,000
------------ ------------
TOTAL DUE TO AN EMPLOYEE 370,189 450,000
Less: current portion - -
TOTAL NONCURRENT DUE TO AN EMPLOYEE $ 370,189 $ 450,000
------------ ------------
------------ ------------
</TABLE>
F-32
<PAGE>
USA BIOMASS COPRPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- ------------------------------------------------------------------------------
8. NOTES PAYABLE, CONTINUED
Notes payable to third parties:
UNCOLLATERALIZED
<TABLE>
<CAPTION>
August 31
---------------------
1998 1997
---- ----
<S> <C> <C>
Note payable, with interest at 8% per annum
with monthly payments of $11,182, due in
March 1999. $ 78,794 -
COLLATERALIZED
Notes payable to individuals, collateralized by the
Company's interest in PS III Farms, LLC with a
carrying amount of approximately $2,490,000,
interest at 5% per annum, due in December 1997
and are in default. 338,165 $ 1,102,522
Notes payable, collateralized by equipment with
an approximate net carrying value amount of
$720,000, with interest ranging from 8% to
18.7% per annum, monthly principal and interest
payments ranging from $381 to $8,538, which
aggregate $51,355. Maturity dates range from
December 1998 to March 2003. 890,498 851,098
----------- -----------
TOTAL DUE TO THIRD PARTIES 1,307,457 1,953,620
Less: current portion (836,680) (1,438,594)
----------- -----------
TOTAL NONCURRENT DUE TO THIRD PARTIES $ 470,777 $ 515,026
----------- -----------
----------- -----------
</TABLE>
F-33
<PAGE>
USA BIOMASS COPRPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- ------------------------------------------------------------------------------
8. NOTES PAYABLE, CONTINUED
DISCONTINUED OPERATIONS
AGRIBUSINESS:
<TABLE>
<CAPTION>
August 31
---------------------
1998 1997
---- ----
<S> <C> <C>
Notes payable, collateralized by equipment with
an approximate net carrying amount of $106,000,
with interest ranging from 10.4% to 10.5% per
annum, principal of $22,735 plus accrued interest
payable annually with the final payment due in
August 1999. $47,479 $90,504
Note payable to an insurance company,
collateralized by real property and improvements
with an approximate carrying amount of
$4,994,000, with interest at 7.75% per annum.
Semi-annual payments of principal and interest
of $188,005, due on October 1 and April 1 of each
year, with final payment due in April 2011. The
interest rate will be reviewed in April 2006 and
adjusted per the terms of the loan. 2,143,826 2,401,686
Note payable, collateralized by real property,
with interest at 8.46% per annum. This note
was paid through the sale of the collateral in 1998. - 520,000
------------ ------------
TOTAL AGRIBUSINESS NOTES PAYABLE DUE TO
THIRD PARTIES 2,191,305 3,012,190
Less: current portion (260,511) (326,665)
------------ ------------
TOTAL NONCURRENT DUE TO THIRD PARTIES $1,930,794 $2,685,525
------------ ------------
------------ ------------
</TABLE>
F-34
<PAGE>
USA BIOMASS COPRPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- ------------------------------------------------------------------------------
8. NOTES PAYABLE, CONTINUED
DISCONTINUED OPERATIONS, CONTINUED
REAL ESTATE OPERATIONS:
<TABLE>
<CAPTION>
August 31
----------------------
1998 1997
---- ----
<S> <C> <C>
Note payable, collateralized by residential lots in
Texas, with an approximate carrying amount of
$100,000, with interest at 9.25% per annum,
principal and interest of $806 payable monthly.
The final payment is due in March 2000. $84,731 $87,219
Notes payable, collateralized by real property,
with interest at bank prime (8.5% at August 31,
1997) plus 2% per annum. These notes were
paid in full in April and August of 1998. - 221,028
Notes payable, collateralized by real property of
the Company located in Rancho California;
guaranteed by two officers of the Company who
are also the largest shareholders of the Company,
several affiliates of the Company, and a subsidiary
of the Company. The notes, repaid through the sale
of the collateral, consist of the following:
Note A: Interest at prime plus 1% (9.25%
at August 31, 1997), semi-annual interest
payments until March 1998, then all unpaid
interest and principal due in September 1998.
In November 1997, the Company, by virtue
of a prepayment of $1,000,000 on this note,
received a $107,682 discount on Note C. - 3,900,000
Note B: Noninterest-bearing with face amount
of $900,000, discounted $86,223 to yield an
effective market interest rate, due September
30, 1998. - 733,727
</TABLE>
F-35
<PAGE>
USA BIOMASS COPRPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- ------------------------------------------------------------------------------
8. NOTES PAYABLE, CONTINUED
DISCONTINUED OPERATIONS, CONTINUED
REAL ESTATE OPERATIONS, CONTINUED:
<TABLE>
<CAPTION>
August 31
-----------------------
1998 1997
---- ----
<S> <C> <C>
Note C: Noninterest-bearing with face amount
of $800,000, discounted $82,770 to yield an
effective market interest rate, due September
30, 1998. - $717,230
Notes payable, collateralized by real property,
with interest at 8.25% per annum, annual
principal payments of $23,087 and semi-annual
interest payments, unpaid principal and interest
due in 2014. These notes were assumed in the
sale of the Rancho California real estate. - 620,336
Note payable to a bank, collateralized by real
property, with interest at bank prime (8.5%
at August 31, 1997) plus 1.75% per annum, due
in January 1998. This note was refinanced. - 230,000
Note payable to a bank, collateralized by
inventory of completed residential lots with an
approximate carrying amount of $732,000,
guaranteed by two shareholders who are officers
of the Company, with interest at prime
(8.25% at August 31, 1998) plus 1.75%,
interest payable monthly. Installments of $12,000
due upon the sale of each residential lot from the
Texas development project. All unpaid principal
and interest due in January 2000. $1,138,110 -
</TABLE>
F-36
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
8. NOTES PAYABLE, CONTINUED
DISCONTINUED OPERATIONS, CONTINUED
REAL ESTATE OPERATIONS, CONTINUED:
<TABLE>
<CAPTION>
August 31
-------------------
1998 1997
---- ----
<S> <C> <C>
Note payable to a bank, collateralized by real
property in Texas owned by an affiliated
partnership, with interest at 8.75% per annum.
Monthly payments of interest only until May 31,
1998; thereafter, monthly payments of principal
and interest of $31,727, with final payment due
June 1, 2003. $3,141,241 -
---------- -----------
TOTAL REAL ESTATE NOTES PAYABLE DUE TO
THIRD PARTIES 4,364,082 $6,509,540
Less: current portion (127,755) (862,709)
---------- -----------
TOTAL NONCURRENT DUE TO THIRD PARTIES $4,236,327 $5,646,831
---------- -----------
---------- -----------
TOTAL DISCONTINUED OPERATIONS NOTES PAYABLE $6,555,387 $9,521,730
Less: current portion (388,266) (1,189,374)
---------- -----------
TOTAL NONCURRENT PORTION $6,167,121 $8,332,356
---------- -----------
---------- -----------
</TABLE>
MATURITIES OF NOTES PAYABLE FOR THE FISCAL YEAR ENDING AUGUST 31, 1998:
CONTINUING OPERATIONS
<TABLE>
<S> <C>
1999 $2,703,673
2000 875,182
2001 1,731,089
2002 9,974
2003 and thereafter 5,929
</TABLE>
F-37
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
8. NOTES PAYABLE, CONTINUED
DISCONTINUED OPERATIONS, CONTINUED
While the Company's plan to discontinue the agribusiness and real estate
operations contemplates the retirement of these obligations during 1999,
the contractually required payments at August 31, 1998, are as follows:
<TABLE>
Agribusiness Real Estate
------------ -----------
<S> <C> <C>
1999 $260,511 $ 127,755
2000 229,950 1,342,710
2001 248,212 132,777
2002 267,925 144,873
2003 and thereafter 1,184,707 2,615,967
</TABLE>
Interest expense included in discontinued operations for fiscal years 1998
and 1997 was $601,817 and $606,818, respectively. In addition, interest of
$413,363 and $202,661 was capitalized in fiscal years 1998 and 1997,
respectively.
9. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases vehicles and equipment under long-term noncancellable
capital leases. Obligations under capital leases consist of the following:
CONTINUING OPERATIONS
<TABLE>
<CAPTION>
August 31
--------------------
1998 1997
---- ----
<S> <C> <C>
Capital leases with effective interest rates of 9.5%
and 9.75% per annum, with aggregate monthly
principal and interest payments of $3,545 through
December 1998. $23,967 $99,948
Capital lease with an effective interest rate of 8.5%
per annum, with monthly principal and interest
payments of $1,525 through September 2002. 54,299 66,325
</TABLE>
F-38
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
9. OBLIGATIONS UNDER CAPITAL LEASES, CONTINUED
CONTINUING OPERATIONS, CONTINUED
<TABLE>
<CAPTION>
August 31
--------------------
1998 1997
---- ----
<S> <C> <C>
Capital leases with interest ranging from 9.1% to
12.62% per annum, with monthly principal and
interest payments ranging from $924 to $5,564,
which aggregate $21,515. Maturity dates range
from August 2000 to June 2001. $562,573 $597,014
Capital leases with interest ranging from 7.8% to
17% per annum, with monthly principal and interest
payments ranging from $1,040 to $6,691, which
aggregate $16,426. Maturity dates range from
February 2001 to March 2003. 651,118 -
--------- ---------
TOTAL OBLIGATIONS UNDER CAPITAL LEASES -
CONTINUING OPERATIONS $1,291,957 $763,287
--------- ---------
--------- ---------
</TABLE>
Future minimum lease payments under capital leases at August 31, 1998 are
as follows:
<TABLE>
<S> <C>
1999 $475,009
2000 438,279
2001 531,099
2002 68,460
2003 8,859
----------
Total minimum lease payments 1,521,706
Less: amount representing interest at
the incremental borrowing rate (229,749)
----------
Present value of minimum lease payments 1,291,957
Less: current maturities (360,400)
----------
OBLIGATIONS UNDER CAPITAL LEASES, LONG-TERM $931,557
----------
----------
</TABLE>
See Note 20 for additional capital lease obligations incurred subsequent to
year end.
F-39
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
9. OBLIGATIONS UNDER CAPITAL LEASES, CONTINUED
DISCONTINUED OPERATIONS
<TABLE>
<CAPTION>
August 31
-------------------
1998 1997
---- ----
<S> <C> <C>
Capital lease with an effective interest rate of 8.7%
per annum, with monthly payments of $618 through
January 2003. $26,975 -
------- ------
------- ------
</TABLE>
While the Company's plan to discontinue certain operations contemplates the
retirement of these obligations during 1999, the contractually required
future minimum lease payments at August 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $7,420
2000 7,420
2001 7,420
2002 7,420
2003 3,092
-------
Total minimum lease payments 32,772
Less: amount representing interest at
the incremental borrowing rate (5,797)
-------
Present value of minimum lease payments 26,975
Less: current maturities (5,210)
-------
OBLIGATIONS UNDER CAPITAL LEASES, LONG-TERM $21,765
-------
-------
</TABLE>
F-40
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
10. DEFERRED INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
For the Years Ended August 31
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Current tax expense (benefit):
Federal $(995,904) $682,198
State 3,323 2,945
----------- --------
(992,581) 685,143
----------- --------
Deferred tax expense (benefit):
Federal (240,381) 128,655
State 184,487 (184,487)
----------- --------
(55,894) (55,832)
----------- --------
TOTAL PROVISION (BENEFIT) $(1,048,475) $629,311
----------- --------
----------- --------
<CAPTION>
For the Years Ended August 31
-----------------------------
1998 1997
---- ----
<S> <C> <C>
Provision (benefit) allocated to:
Discontinued operations - $1,242,530
Loss on disposal of discontinued operations - -
Continuing operations $(1,048,475) (613,219)
----------- --------
TOTAL PROVISION (BENEFIT) $(1,048,475) $629,311
----------- --------
----------- --------
</TABLE>
The deferred tax benefit for federal income tax purposes is primarily due
to the utilization of the net operating loss to offset prior years' income
taxes and the expected future tax liability. The deferred tax expense for
state income tax purposes is primarily due to the establishment of a
valuation allowance in fiscal year 1998 for the state deferred tax asset
recognized in fiscal year 1997.
The total fiscal year 1998 income tax benefit is allocated to loss from
continuing operations as the tax benefit arising from the loss from
continuing operations is the same as the benefit arising from the aggregate
of all losses from operations. Consequently, no incremental tax benefit
remains for allocation to the loss from discontinued operations or loss on
disposal of discontinued operations.
F-41
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
10. DEFERRED INCOME TAXES, CONTINUED
Significant components of the Company's deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
August 31
-----------------------
1998 1997
---- ----
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforward $1,606,828 -
Nondeductible writedowns related
to discontinued operations 3,742,011 -
State tax credit carryforward 250,462 $250,462
Other 25,214 816
----------- ---------
Total deferred income tax assets 5,624,515 251,278
Valuation allowance (5,215,370) -
----------- ---------
Net deferred income tax asset 409,145 251,278
----------- ---------
<CAPTION>
August 31
-----------------------
1998 1997
---- ----
<S> <C> <C>
Deferred income tax liability:
Depreciation $144,214 $122,442
Partnership loss 264,931 184,730
----------- ---------
Total deferred income tax liability 409,145 307,172
----------- ---------
NET DEFERRED INCOME TAX LIABILITY $ - $55,894
----------- ---------
----------- ---------
</TABLE>
Reconciliation of the effective tax rate to the U.S. federal statutory
income tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997
----- ----
<S> <C> <C>
U.S. federal statutory income tax rate (34.0)% 34.0%
State tax provision 0.7 -
Nondeductible writedowns related to
discontinued operations 2.7 -
(Benefit) of federal research and
experimentation credit - (3.1)
Other 1.0 1.7
Change in valuation allowance 23.4 (10.2)
------ -----
EFFECTIVE INCOME TAX RATE (6.2)% 22.4%
------ -----
------ -----
</TABLE>
F-42
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
10. DEFERRED INCOME TAXES, CONTINUED
The Company has a state tax credit carryforward of $250,462 that expires in
2010. The Company will carry back $2,929,129 of the federal net operating
loss to receive a refund of taxes paid of $292,639 for the year ended
August 31, 1996 and offset an unpaid tax liability of $703,266 for the year
ended August 31, 1997. The Company also has federal and state net operating
loss carryforwards of $3,805,363 and $3,365,646, respectively. The federal
and state net operating losses begin to expire in 2018 and 2003,
respectively.
11. COMMITMENTS
The Company leases certain of its biomass facilities and equipment under
noncancellable operating leases. Future minimum lease payments under
noncancellable operating leases at August 31, 1998 are as follows:
CONTINUING OPERATIONS
<TABLE>
<S> <C>
1999 $237,878
2000 162,936
2001 57,629
--------
TOTAL FUTURE MINIMUM LEASE PAYMENTS $458,443
--------
--------
</TABLE>
Rent expense from operating leases related to continuing operations was
$240,728 and $135,187 for fiscal years 1998 and 1997, respectively.
DISCONTINUED OPERATIONS
The costs associated with early termination of operating leases in the real
estate operations have been included in loss on disposal of discontinued
operations. Contractually required payments relating to these operating
leases are as follows:
<TABLE>
<S> <C>
1999 $152,907
2000 147,257
2001 18,915
--------
TOTAL $319,079
--------
--------
</TABLE>
F-43
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
11. COMMITMENTS, CONTINUED
Rental expense from operating leases related to discontinued operations was
$152,907 and $138,064 related to real estate and $156,000 and $156,000
associated with the agribusiness for fiscal years 1998 and 1997,
respectively. Subsequent to August 31, 1998, the agribusiness lease was
amended to a month to month rental agreement on similar terms.
12. CONTINGENCIES
LITIGATION
In December 1997, a judgment was entered against the Company and two of its
officers, who are also shareholders. The plaintiffs are an individual and a
related estate of a former officer and shareholder. The litigation related
to breaches of promissory notes and sought declaratory relief, judicial
foreclosure and attorney's fees.
The judgment required the Company to reissue 144,000 shares of its common
stock to the plaintiff's estate. In addition, the Court reaffirmed that the
Company must honor an existing note payable of $283,389 that had previously
been assumed by EPC (Note 4). Accordingly, the note payable was recorded
and a receivable from EPC established. Attorney's fees of $115,387 were
also awarded to the plaintiffs. The Company has recognized $28,750 as its
portion of these fees. The Company is contingently liable for the balance
if it is not paid by the other defendants.
The defendants have an appeal pending.
PAYROLL TAXES
At August 31, 1998, the Company was several quarters delinquent in
filing certain of its quarterly payroll tax returns (which have now been
filed) and in the remittance of $1,065,005 in payroll tax payments for
continuing and discontinued operations due to the taxing authorities. A
portion of the payroll tax deposits required to be made subsequent to
year end have been paid as well as some payment of past due amounts.
Because of the shortage of the Company's operating resources available
to pay these amounts, the Company is exposed to collection actions,
which can be imposed by the Internal Revenue Service and can include
seizure of assets and closure of operations.
F-44
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
12. CONTINGENCIES, CONTINUED
CONCENTRATIONS
The Company maintains cash balances in bank accounts which exceeded
federally insured limits by $836,802 and $822,153 at August 31, 1998 and
1997, respectively; however, the Company has not experienced any losses in
such accounts. Balances which exceeded federally insured limits as of
August 31, 1997 included restricted cash that has been classified with net
assets of discontinued operations. During fiscal year 1998, all
restrictions on cash deposits were removed.
CERTAIN SIGNIFICANT ESTIMATES:
WRITE-DOWN OF EQUIPMENT
The Company recognized an impairment write-down of certain specialized
equipment previously utilized in its biomass operations. In determining the
amount of the impairment, the Company obtained a valuation from an
independent equipment appraiser. The valuation contemplates the orderly
sale of this equipment in, and the existence of, a market for used
specialty equipment. Given the unique economic and operational nature of
the equipment and the limited market, it is reasonably possible that the
Company's estimate of the amount to be realized from the disposition of the
equipment to recover its carrying amount will change in the near term.
DISCONTINUED OPERATIONS:
Discontinued operations includes management's best estimates of amounts it
expects to realize on the sales of its agribusiness and real estate
operations. These operations include significant estimates of amounts
expected to be realized related to agricultural land, producing vineyards,
equipment, completed houses and residential lots held for sale, and
receivables due from affiliated real estate limited partnerships. These
estimates are based on several factors including values of recent sales of
similar agricultural properties, rights of first refusal on agricultural
producing properties, and valuations by independent appraisers of equipment
and real estate. These valuations contemplate sale in an orderly
liquidation over one year and assume the existence of a market for all the
assets of the discontinued operations, all or any of which may or may not
materialize. Consequently, the amounts the Company will ultimately realize
could differ materially in the near term from the amounts assumed in
arriving at the loss on disposal of the discontinued operations.
F-45
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
13. ACQUISITION OF TRANSPACIFIC ENVIRONMENTAL, INC.
On November 25, 1997, the Company completed the acquisition of the stock of
TransPacific Environmental, Inc. ("TPE"). TPE is located in Santa Fe
Springs, California and is engaged in clean green waste processing and
contract tree maintenance services. The stock of TPE was acquired for a
total cost of $1,607,049, consisting of $350,000 in cash, allocable
acquisition costs of $61,207, and 406,109 shares of the Company's common
stock with a value of $1,195,842. The acquisition is accounted for as a
purchase and TPE's operations are included in the Company's consolidated
statement of operations for the fiscal year ended August 31, 1998 from the
date of acquisition. The excess of purchase price over the net liabilities
of TPE totaled $2,260,933 and has been allocated to the assets and the
liabilities based upon the fair values on the date of acquisition as
follows:
<TABLE>
<S> <C>
Equipment $ 424,373
Intangibles 1,836,560
----------
2,260,933
Less: net liabilities assumed (653,884)
----------
Total $1,607,049
----------
----------
The intangibles consist of the following:
Material recycling facility license $ 300,000
Facilities lease 200,000
----------
500,000
Pending City of Los Angeles curb
side green waste contract 1,336,560
----------
Total intangibles acquired 1,836,560
Less: reduction of the City of Los Angeles
curb side green waste contract value due to
impairment (1,336,560)
----------
INTANGIBLE ASSETS 500,000
Less: accumulated amortization (41,668)
----------
NET INTANGIBLE ASSETS AS OF AUGUST 31, 1998 $ 458,332
----------
----------
</TABLE>
F-46
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
13. ACQUISITION OF TRANSPACIFIC ENVIRONMENTAL, INC., CONTINUED
The following unaudited proforma summary presents the consolidated
results of operations of the Company as if the acquisition had been
completed at the beginning of the periods presented and does not purport
to be indicative of what would have occurred had the acquisition
actually been made as of such date or of results which may occur in the
future.
<TABLE>
<CAPTION>
Years Ended August 31,
-------------------------
1998 1997
---------- -----------
<S> <C> <C>
UNAUDITED
Net sales $ 2,407,194 $ 2,406,680
Net loss - continuing operations $(6,227,870) $(2,103,879)
Earnings (loss) per share - continuing operations $ (0.93) $ (0.41)
</TABLE>
Subsequent to the acquisition of TPE, the Company concluded, based on
its review of value assigned to the intangible assets, and in particular
the amount assigned to the pending City of Los Angeles curb side green
waste contract, that facts and circumstances currently do not support
the initial value ascribed to that contract. As was subsequently
learned, the contract was not awarded to the Company subsidiary TPE. The
tree maintenance portion of TPE had historically operated at significant
losses and therefore did not warrant any value other than that assigned
to the equipment acquired. Consequently, a loss from asset impairment of
$1,336,560 was recognized in the statement of operations for the 1998
fiscal year. In January 1999, the Company terminated the employment of
the former owners of TPE and is now engaged in litigation (Note 20). The
termination of the former owners resulted in the forfeiture of 150,000
shares of the Company's stock options.
14. STOCK BASED COMPENSATION PLANS
The Company granted options under a 1990 stock option plan that is
nonqualified as to Section 422 of the Internal Revenue Code of 1986.
These options were reduced to reflect a one-for-two reverse stock split
in February 1997. There are 454,133 post reverse stock split options
outstanding that are exercisable at $1.60 per share and expire in July
2000. These options were granted in July 1990 in connection with the
repurchase by the Company of shares from the officers and directors.
F-47
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
14. STOCK BASED COMPENSATION PLANS, CONTINUED
The Company adopted the AMCOR Capital Corporation 1994 Stock Option Plan
for qualified Company employees that authorized the granting of options
for 500,000 shares of common stock, which was subsequently reduced to
250,000 shares upon the Company's one-for-two reverse stock split in
February 1997. The exercise price per share of options granted may not
be less than 100% of the fair market value per share of the Company's
common stock at the date of grant. The plan provides that the exercise
price per share of options granted to anyone who owns more than 10% of
the voting power of all classes of the Company's stock must be at least
110% of the fair market value per share of the Company's common stock on
the date of grant. The exercise price per share of options otherwise
granted must be at least equal to or greater than 85% of the fair market
value per share of the Company's common stock on the grant date. The
plan is nonqualified as to Section 422 of the Internal Revenue Code of
1986, and the Company granted options to purchase 232,500 shares of its
common stock to several employees with exercise prices ranging from
$1.30 to $4.00 per share. From the date of grant, the options vest on an
annual pro rata basis over four years and are exercisable, upon proper
notice, in whole or in part at anytime after vesting provided that
options may not be exercised for less than 10,000 shares. Under the
plan, unvested options terminate when an employee leaves the Company and
in general any vested options may be exercised up to three months after
termination of employment at which time the options expire. Options to
purchase 153,750 and 202,500 shares were still outstanding at August 31,
1998 and 1997, respectively. The options under the plan have a
contractual life of 10 years.
The Company adopted the AMCOR Capital Corporation 1997 Stock Option Plan
for Company employees, directors, and vendors, which authorized the
granting of options on 500,000 shares of common stock. The exercise
price per share of options granted may not be less than 100% of the fair
market value per share of the Company's common stock at the date of
grant. The plan provides that the exercise price per share of options
granted to anyone who owns more than 10% of the voting power of all
classes of the Company's stock must be at least 110% of the fair market
value per share of the Company's common stock on the date of grant. The
exercise price per share of options otherwise granted must be at least
equal to or greater than 85% of the fair market value per share of the
Company's common stock on the grant date. The plan is nonqualified as to
Section 422 of the Internal Revenue Code of 1986, and in fiscal year
1998, the Company granted options to purchase 405,000 shares of its
common stock to selected employees at an exercise price ranging between
$3.00 and $5.00 per share. On August 28, 1998, options on 100,000 and
50,000 shares, which were granted with exercise prices per share of
$4.75 and $4.31, respectively, and market prices per share at the dates
of grant of $4.81 and $4.63, respectively, were cancelled and reissued
at exercise prices of $3.00 per share. The market price per share at the
date of reissuance was $2.81. From the date of grant, the
F-48
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
14. STOCK BASED COMPENSATION PLANS, CONTINUED
options vest on an annual pro rata basis over four years and are
exercisable, upon proper notice, in whole or in part at any time upon
vesting. Under the plan, unvested options terminate when an employee
leaves the Company, and in general, any vested options may be exercised
up to three months after termination of employment at which time the
option expires. As of August 31, 1998, none of the options were
exercised. The options under the plan have a contractual life of 10
years.
A summary of the activity relating to the Company's stock option plans
as of August 31, 1998 and 1997, and changes during the years then ended
is presented below:
<TABLE>
<CAPTION>
1998 1997
--------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------- --------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 656,633 $1.65 541,633 $1.50
Exercised (31,250) 2.00 (30,000) 2.00
Granted 555,000 3.97 145,000 2.28
Cancelled/repriced (150,000) 4.60 - -
Forfeited (17,500) 3.14 - -
--------- -------
Outstanding at end of year 1,012,883 2.43 656,633 1.65
--------- -------
--------- -------
</TABLE>
The following table summarizes information about stock options
outstanding at August 31, 1998:
<TABLE>
<CAPTION>
Weighted Average
Outstanding at Remaining contractual Exercisable at
Exercise Prices August 31, 1998 Life (in Years) August 31, 1998
--------------- --------------- --------------------- ---------------
<S> <C> <C> <C>
$1.30 87,500 6 87,500
1.60 454,133 2 454,133
2.00 56,250 9 14,062
3.00 255,000 10 -
4.00 10,000 9 7,500
5.00 150,000 10 -
--------- -------
1.30 to 5.00 1,012,883 563,195
--------- -------
--------- -------
</TABLE>
SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION", requires the
use of option valuation models to provide supplemental information
regarding options granted after 1994. Pro forma information regarding
net income and earnings per share shown below was determined as if the
Company had accounted for its employee stock options under the fair
value method of that statement.
F-49
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
14. STOCK BASED COMPENSATION PLANS, CONTINUED
The fair value of each option granted was estimated at the date of grant
using the Black-Scholes option pricing model (the "BSOPM") with the
following weighted average assumptions used for grants in 1998 and 1997,
respectively: dividend yield of 0% for both years, expected volatility
of 0.971 and 1.17, risk-free interest rate of 4.90% and 5.26%, and
expected contractual life of 10 years for both years. The weighted
average fair value of options granted during 1998 and 1997 was $3.07 and
$2.76, respectively.
The BSOPM was developed for use in estimating the fair value of traded
options. The Company's employee stock options have characteristics
significantly different from those of traded options such as vesting
restrictions and extremely limited transferability. In addition, the
assumptions used in option valuation models are highly subjective,
particularly the expected stock price volatility of the underlying
stock. Because changes in these subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not provide a reliable single measure of the fair
value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting periods. The pro forma
effect on net income for 1998 and 1997 is not representative of the pro
forma effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made
prior to 1994. The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
Net income (loss), as reported $(15,785,686) $2,176,366
Net income (loss), pro forma $(16,803,346) $1,790,389
Basic earnings (loss) per share, as reported $(2.19) $0.29
Basic earnings (loss) per share, pro forma $(2.21) $0.29
</TABLE>
Common stock warrants issued in 1998 and 1997 to non-employees for
services rendered primarily under consulting agreements are accounted
for based on the fair value of the consideration received or the fair
value of the equity instrument issued, whichever is more reliably
measurable. The following is a description of warrants granted and
outstanding and the assumptions utilized involving the grants in 1998
and 1997.
F-50
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
14. STOCK BASED COMPENSATION PLANS, CONTINUED
In connection with a consulting agreement for investor relation services
entered into with an individual on October 1, 1996, the Company issued
400,000 shares of common stock and also granted warrants to purchase
340,000 shares of its common stock at $2.00 per share. The warrants
expire on September 30, 1999. The fair value of the services in this
transaction was $360,000 and is recognized as consulting expense over
the life of the related agreement.
On February 1, 1997, the Company entered into a four-month agreement for
financial communication consulting services for which it paid $5,000 per
month and also granted warrants to purchase 12,500 shares of its common
stock at $4.50 per share. The transaction has been accounted for based
on the value of the services provided. The warrants expire three years
after the effective date of the registration statement covering these
warrants, which became effective on January 20, 1998.
On June 1, 1997, the Company entered into a four-month agreement for
financial communication consulting services at $5,000 per month and also
granted warrants to purchase 10,000 shares of its common stock at $6.00
per share. The agreement provided for automatic renewal for an
additional eight-month period unless either party, thirty days prior to
expiration of the initial term, notifies the other in writing of their
desire not to renew. Upon renewal, the Company is required to grant
warrants to acquire an additional 10,000 common shares at $6.00 per
share. The transaction has been accounted for based on the value of the
services provided. The warrants expire three years after the effective
date of a registration statement covering these warrants, which became
effective on January 20, 1998.
A summary of the activity relating to warrants as of August 31, 1998 and
1997, and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Warrants Price Warrants Price
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 362,500 $2.20 - -
Granted 65,000 6.67 362,500 $2.20
------- -------
Outstanding at end of year 427,500 2.88 362,500 2.20
------- -------
------- -------
</TABLE>
F-51
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
14. STOCK BASED COMPENSATION PLANS, CONTINUED
The range of exercise prices of warrants outstanding at August 31, 1998
was $2.00 to $6.67. The weighted average fair value of warrants granted
during 1998 and 1997 was $3.25 and $2.08, respectively.
The following table summarizes information about warrants outstanding at
August 31, 1998:
<TABLE>
<CAPTION>
Estimated
Volatility Dividend Risk-Free Lives
Factor Yield Interest Rates (In Years)
------------- -------- -------------- ----------
<S> <C> <C> <C> <C>
1998 warrant grants 1.032 0% 5.20% 5
1997 warrant grants 1.08 to 1.184 0% 5.34% 3
</TABLE>
15. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of all financial instruments, both on
and off the Company's balance sheets, have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in
interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated
fair value amounts.
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments:
CASH AND EQUIVALENTS
The carrying amounts of cash and equivalents, accounts receivable,
advances, certain other current assets, accounts payable,
current maturity of long term debt, and certain other current
liability amounts approximate fair value due to the short term
maturities of these instruments. The Company has not held or
issued any derivative financial instruments.
F-52
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
15. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED
LONG TERM DEBT
The fair value is estimated by determining the net present value
of future payments. The carrying amount on the balance sheet
exceeds the fair value of the debt due to the change in interest
rates from the time the debt was incurred to the current period.
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and equivalents $ 827,771 $ 827,771 $ 179,866 $ 179,866
Accounts receivable 335,534 335,534 121,444 121,444
Due from related parties 913,632 913,632 54,946 54,946
Income taxes receivable 292,639 292,639 - -
Other current assets 169,305 169,305 830,867 830,867
Other assets:
Note receivable, noncurrent 7,250,000 7,250,000 - -
Other assets 30,181 30,181 41,125 41,125
Current liabilities:
Accounts payable 1,356,257 1,356,257 1,555,802 1,555,802
Payroll taxes payable 1,065,005 1,065,005 977,448 977,448
Accrued remediation costs 507,000 507,000 - -
Line of credit 249,610 249,610 - -
Notes payable, current:
Related parties 1,866,994 1,866,994 1,370,160 1,370,160
Other 836,680 836,680 1,438,594 1,438,594
Capitalized lease
obligations, current 360,400 360,400 274,556 274,556
Income taxes payable 3,200 3,200 1,036,400 1,036,400
Accrued interest 162,845 162,845 344,428 344,428
Other liabilities:
Notes payable, net of
current portion:
Related parties 1,781,208 1,369,647 825,866 562,065
Employee 370,189 340,046 450,000 376,031
Other 470,777 385,198 515,026 416,118
Capitalized lease
obligations, net of
current portion 931,557 931,557 488,731 488,731
</TABLE>
F-53
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
16. EARNINGS PER COMMON SHARE
In 1998, the Company adopted SFAS 128, "EARNINGS PER SHARE". Earnings per
common share have been calculated in accordance with this statement, and
earnings per share for the prior years were restated to conform to the
requirements of SFAS No. 128.
Basic and diluted earnings (loss) per common share have been computed by
dividing the income (loss) available to common stockholders by the
weighted-average number of common shares for the period. Income (loss)
available to common stockholders is income (loss) after deducting from
income or adding to the (loss) any preferred stock dividend requirements.
The additional common shares that would be issuable for options and
warrants outstanding are ignored, as to include them in the calculation of
diluted earnings per share would be antidilutive.
The computations of basic and diluted earnings per common share are as
follows:
<TABLE>
<CAPTION>
For the Years Ended August 31,
------------------------------
1998 1997
---- ----
<S> <C> <C>
Loss from continuing operations $(5,838,804) $(2,128,114)
Add: dividends on preferred shares -
declared (497,276) (371,383)
Add: dividends on preferred shares -
cumulative, not declared (362,059) (6,000)
------------ ----------
Loss to common shareholders (6,698,139) (2,505,497)
Income (loss) from discontinued operations,
including loss on disposal (9,946,882) 4,304,480
------------ ----------
Net income (loss) available to common
shareholders $(16,645,021) $1,798,983
------------ ----------
------------ ----------
Weighted average shares - basic and diluted 7,595,556 6,125,617
------------ ----------
------------ ----------
</TABLE>
F-54
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
16. EARNINGS PER COMMON SHARE, CONTINUED
Earnings per Common Share - Basic and Diluted
<TABLE>
<CAPTION>
For the Years Ended August 31,
------------------------------
1998 1997
---- ----
<S> <C> <C>
Loss per share from continuing operations $(0.88) $(0.41)
Income (loss) per share from discontinued
operations, including loss on disposal (1.31) 0.70
------ ------
Net income (loss) per share available to
common shareholders $(2.19) $0.29
------ ------
------ ------
</TABLE>
The effect of the potentially dilutive securities listed below were not
included in the computation of diluted earnings per share because to do so
would have been antidilutive for the periods presented.
<TABLE>
<CAPTION>
For the Years Ended August 31,
------------------------------
1998 1997
---- ----
<S> <C> <C>
Shares of common stock issuable under:
Employee stock options 449,084 392,048
Warrants 182,227 186,847
Series A Convertible Preferred Stock 1,345,500 -
Series B Convertible Preferred Stock 404,414 628,972
</TABLE>
Warrants to purchase an additional 12,500 and 10,000 shares of common stock
with exercise prices of $4.50 and $6.00 per share, respectively, were
outstanding during fiscal years 1998 and 1997 and were not included in the
computation of diluted earnings per share because their exercise prices
were greater than the average market prices of the common shares for each
of the years.
F-55
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
17. STOCK TRANSACTIONS
SERIES A CONVERTIBLE PREFERRED STOCK AND RELATED TRANSACTIONS
During the first quarter of fiscal year 1998, the Company sold 747,500
shares of its Series A 9% Convertible Preferred Stock (the "Series A
Preferred Stock") at $10 per share. In conjunction with the creation,
issuance, and sale of this Preferred Stock, the Company changed the
designation of the previously issued Series A 6% Convertible Preferred
Stock to Series B 6% Convertible Preferred Stock (the "Series B Preferred
Stock"). The Series B Preferred Stock is subordinate to the Series A
Preferred Stock. In connection with the offering, the Company granted the
underwriters warrants to purchase 65,000 shares of Series A Preferred Stock
at $12 per share, which are exercisable in September 1998 and expire four
years thereafter.
The Series A Preferred Stock is convertible into the Company's common stock
at the option of the holder at any time at a price equal to 125% of the
common stock closing price on September 24, 1997 of $4.4375 per share,
which represents approximately 1.8 shares of common stock for each share of
Series A Preferred Stock upon conversion. The Company may convert the
Series A Preferred Stock to common stock at such time as the common stock
has traded for 20 consecutive days at 150% of the closing stock price on
September 24, 1997. In the event the number of shares of the Company's
common stock is increased or decreased as a result of a stock split, stock
dividend, reverse stock split, or otherwise, the number of shares of common
stock into which each share of Series A Preferred Stock may be converted
shall concurrently be proportionately increased or decreased. Further,
after five years, the Company may redeem the Series A Preferred Stock at
$10.00 per share. Upon notice by the Company to redeem, the holders of
Series A Preferred Stock will have 30 days to elect to convert their Series
A shares to common stock at 125% of its closing price on September 24,
1997.
The Series A Preferred Stock provides for a 9% annual dividend of $.90 per
share payable quarterly. Dividends accumulate whether or not declared and
must be paid prior to any dividend distribution to the holders of Series B
Preferred Stock or common stock. In any liquidation or dissolution of the
Company, the holders of Series A Preferred Stock will be entitled to a
liquidation preference of $10 per share plus all related accumulated,
accrued, and unpaid dividends. Further, if the Company does not pay
dividends on the Series A Preferred Stock for eight cumulative quarters
whether consecutive or not, the holders of Series A Preferred Stock have
the right to elect the majority of the Company's Board of Directors. As of
January 31, 1999, the Company had not declared dividends for two
consecutive quarters, which totals $336,375.
F-56
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
17. STOCK TRANSACTIONS, CONTINUED
SERIES B CONVERTIBLE PREFERRED STOCK AND RELATED TRANSACTIONS
The Series B Preferred Stock provides for a 6% annual dividend of $0.60
per share payable quarterly. Dividends accumulate whether or not
declared and may be paid in cash or by the issuance of additional shares
of Series B Preferred Stock. In any liquidation or dissolution of the
Company, the holders of Series B Preferred Stock will be entitled to a
liquidation preference of $10 per share plus all related accumulated,
accrued, and unpaid dividends. However, the payment of any dividend or
liquidation preference is subordinate to any dividend or liquidation
preference payments of the Series A Preferred Stock. At August 31, 1998,
Series B Preferred Stock dividends were in arrears by $248,648.
Each share of Series B Preferred Stock is convertible at any time at the
option of the holder into one fully paid nonassessable share of the
Company's common stock. In addition, each share of Series B Preferred
Stock shall automatically convert into one fully paid nonassessable
share of common stock upon a change in control during any twelve month
period or upon sale of all or substantially all of the assets of the
Company. Change in control is defined as the acquisition of the direct
or indirect beneficial ownership of more than 40% of the aggregate
number of shares of Series B Preferred Stock and common stock
outstanding as of the date on which the initial Series B Preferred Stock
was first issued. In the event the number of shares of the Company's
common stock is increased or decreased as a result of a stock split,
stock dividend, reverse stock split or otherwise, the number of shares
of common stock into which each share of Series B Preferred Stock may be
converted shall concurrently be proportionately increased or decreased.
Accordingly, as a result of the one for two reverse stock split effected
in fiscal year 1997, each share of Series B Preferred Stock is now
convertible into one fully paid nonassessable share of common stock.
Further, the Company cannot redeem, purchase, or acquire any Series B
Preferred Stock or common stock, other than from officers, directors, or
others employed by the Company under certain circumstances and
limitations, without the consent of 66.67% of the holders of Series B
Preferred Stock.
In fiscal year 1997, the Company acquired 171,983 shares of its Series B
Preferred Stock from three affiliated partnerships managed by the Company,
in satisfaction of amounts due the Company which totaled $1,719,830. The
shares received were valued at the amount of the receivables satisfied, and
no gain or loss was recognized on these transactions.
F-57
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
17. STOCK TRANSACTIONS, CONTINUED
SERIES B CONVERTIBLE PREFERRED STOCK AND RELATED TRANSACTIONS, CONTINUED
In fiscal year 1997, the Company exchanged 161,052 shares of common stock
for the net assets of an affiliated partnership, which consisted
principally of 52,575 shares of Series B Preferred Stock, in satisfaction
of the amount owed to the Company of $158,066 and the assumption of
partnership's obligation of $7,439. No gain or loss was realized on this
transaction.
RESCISSION OF TRANSACTION TO RETIRE A PORTION OF SERIES B PREFERRED STOCK
In February 1998, the Company entered into an agreement with certain
affiliated partnerships which was to result in the Company acquiring the
404,414 shares of Series B Preferred Stock outstanding in satisfaction of
$4,044,140 owed to the Company. Not all of the requirements of the
transactions between the partnerships and the Company could be met.
Therefore, the transactions were rescinded and the 404,414 shares of Series
B Preferred Stock were reissued to the affiliated partnerships. No gain or
loss was realized on this transaction by the Company.
COMMON STOCK TRANSACTIONS
TRANSACTION PRIOR TO THE ONE-FOR-TWO REVERSE STOCK SPLIT
COMMON STOCK ISSUED UNDER CONSULTING AGREEMENT
In fiscal year 1997, the Company issued 400,000 shares of common
stock and warrants to purchase 340,000 shares of its common stock
at $2.00 per share to an individual for investor relations services
under a long term consulting agreement; the fair value of the
services in this transaction was $360,000 at the date of issuance
and is recognized as consulting expense over the life of the related
agreement.
STOCK SPLIT
On February 21, 1997, the Company's shareholders approved a
one-for-two reverse stock split of the Company's common stock.
Accordingly, $11,997 was transferred from common stock to additional
paid-in capital representing the par value of the shares cancelled in
the reverse split.
F-58
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
17. STOCK TRANSACTIONS, CONTINUED
COMMON STOCK TRANSACTIONS, CONTINUED
TRANSACTIONS SUBSEQUENT TO THE ONE-FOR-TWO REVERSE STOCK SPLIT
SHARES ISSUED UNDER STOCK OPTION PLANS
During fiscal years 1998 and 1997, stock options under the 1994
nonqualified stock option plan were exercised resulting in the
purchase of 31,250 shares for $62,500 and 30,000 shares for $60,800,
respectively.
COMMON STOCK ISSUED IN EXCHANGE FOR DEBT
In fiscal year 1998, the Company issued 14,927 shares of common stock
at market value in payment of debt of $70,899. In fiscal year 1997,
the Company issued 912,622 shares of common stock at market value in
payment of debt of $3,792,678.
COMMON STOCK RETIRED
In fiscal year 1997, the Company acquired and then retired 200,000
shares of common stock at market value from an affiliated partnership
owned by two officers of the Company, who are shareholders of the
Company, in satisfaction of $850,467 due the Company.
SHARES ISSUED FOR PARTNERSHIP NET ASSETS
In fiscal year 1997, the Company issued 176,187 and 161,052 shares of
common stock at market value to two affiliated partnerships managed
by the Company to acquire the net assets of these partnerships valued
at $1,043,000.
SHARES ISSUED IN EXCHANGE FOR PARTNERSHIP INTERESTS
In fiscal year 1997, the Company issued 94,830 shares of its common
stock with a market value of $394,726 in exchange for partnership
interests in Company affiliated partnerships held by third parties.
The interests were sold at no gain or loss to the Company to a
related partnership owned by two officers of the Company who are
shareholders of the Company.
F-59
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
17. STOCK TRANSACTIONS, CONTINUED
COMMON STOCK TRANSACTIONS, CONTINUED
TRANSACTIONS SUBSEQUENT TO THE ONE-FOR-TWO REVERSE STOCK SPLIT, CONTINUED
SHARES ISSUED FOR THE ACQUISITION OF TRANSPACIFIC ENVIRONMENTAL, INC.
In fiscal year 1998, the Company issued 406,109 shares of common
stock for the acquisition of TransPacific Environmental, Inc. (Note
13).
SHARES ISSUED IN CONNECTION WITH LEGAL SETTLEMENT
In fiscal year 1998, the Company issued 144,000 shares of stock in
connection with a judgment rendered by a court in litigation brought
by an individual and the estate of a former officer and shareholder
(Note 12). As a result of the judgment, the issuance of these shares
is recorded as settlement expense.
TREASURY STOCK REPURCHASE PROGRAM
The Company's Board of Directors on November 10, 1997 authorized
management to purchase up to $1,000,000 worth of its common stock
over a 12 month period. As of August 31, 1998, the Company had
repurchased at market value 24,250 shares for $118,339.
18. BUSINESS SEGMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION". The statement requires implementation for fiscal years
beginning after December 15, 1997. However, while not required to, the
Company has chosen early implementation.
The Company's biomass operation provides tree maintenance services and
processes clean green waste, which it diverts from the general waste
stream.
In December 1998, the Company adopted a plan to discontinue its
agribusiness and real estate segments. Accordingly, business segment
information for the discontinued segments is presented in Note 3 and the
Company's biomass segment is the only continuing operations presented in
the financial statements.
F-60
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
19. SUBSEQUENT EVENTS
SOLID WASTE TRANSPORTATION
The Company entered into a waste transportation services contract with
Waste Management in June 1998. Under the contract, the Company has the
exclusive right to provide waste transportation services from two of Waste
Management's Los Angeles-area transfer stations to certain landfills. The
Company officially began providing waste transportation services in
October 1998. The contract has an initial term of five years, with two
automatic five-year extensions unless either party gives 180 days prior
written notice of its desire to terminate the contract at the end of the
then current term.
This contractual relationship represents the primary source of revenue of
the Company's continuing operations. As of December 31, 1998, the Company
has acquired 40 trucks and 16 trailers, most of which were in service in
the first quarter of fiscal year 1999. The notes and capital lease
obligations total approximately $4,092,000, with interest ranging from
7.31% to 8.92%, and are payable over 5 years in monthly installments
aggregating $74,135.
In January 1999, the Company acquired a truck terminal/maintenance
facility in Bell Gardens, California for its transportation operations for
approximately $1,000,000, consisting of $200,000 in cash and a mortgage
note payable of $800,000.
CHANGE IN FISCAL YEAR
On January 12, 1999, the Company adopted December 31 as its year end.
SECURITIES AND EXCHANGE COMMISSION FILINGS
The Company has not made certain of its required filings with the
Securities and Exchange Commission. The extended due date for its Form
10-KSB was December 14, 1998. In addition, the Company's Form 10-QSB for
the first quarter of fiscal year 1999 was due January 14, 1999. Further,
amended Forms 10-QSB for the first, second, and third quarters of fiscal
year 1998 are required and have not been filed. Filing of required reports
with the Securities and Exchange Commission is necessary to maintain the
Company's listing on the NASDAQ Small Cap Market.
F-61
<PAGE>
USA BIOMASS CORPORATION
(FORMERLY AMCOR CAPITAL CORPORATION)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED AUGUST 31, 1998 AND 1997
- -------------------------------------------------------------------------------
19. SUBSEQUENT EVENTS, CONTINUED
LITIGATION
On January 22, 1999, a lawsuit was filed against the Company and its
officers by two former employees of the Company's wholly owned subsidiary,
TransPacific Environmental, Inc. ("TPE"), which was acquired on November
25, 1997 (Note 13). These employees were the former owner of TPE and his
spouse. The suit alleges breach of employment agreements, implied covenant
of good faith and fair dealing, wrongful termination, fraud, and deceit.
The plaintiffs seek recovery of unspecified amounts for, among other
things, lost salaries, wages, bonuses, punitive damages, and attorneys'
fees.
The Company believes that the allegations are without merit, and that the
outcome of this lawsuit will not have a material adverse effect on its
earnings, cash flow, or financial position.
REAL ESTATE PROJECT SALE
On February 19, 1999, a $11.5 million contract was executed for the sale
of the Texas real estate project. The transaction provides for a 30 day
due diligence period at which time a $100,000 deposit becomes
nonrefundable. The transaction is scheduled to close on April 20, 1999.
This transaction is expected to provide the Company $5 million after
payment of approximately $5.9 million of debt.
F-62
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
2 Plan of Discontinued Operations
3.1 Certificate of Incorporation of the Company filed with the
Secretary of State of Delaware on March 10, 1988 (1)
3.2 Certificate of Amendment of Certificate of Incorporation of
the Company filed with the Secretary of State of Delaware on
December 21, 1988 (1)
3.3 Certificate of Amendment of Certificate of Incorporation of
the Company filed with the Secretary of State of Delaware on
March 21, 1989 (1)
3.4 Certificate of Designations, Preferences and Relative
Rights, Qualifications and Restrictions of the Series A
Convertible Preferred Stock of the Company filed with the
Secretary of State of Delaware on May 13, 1994 (2)
3.5 Certificate of Amendment of Certificate of Incorporation of
the Company filed with the Secretary of State of Delaware on
February 24, 1997 (3)
3.6 Amended Certificate of Designations, Preferences and
Relative Rights, Qualifications and Restrictions of the
Series A 9% Convertible Preferred Stock of the Company filed
with the Secretary of State of Delaware on November 13, 1997
(4)
3.7 Bylaws of the Company, as amended (3)
4.1 Trust Indenture between the Company and First City Bank of
Dallas (1)
10.1 Coachella Packing Shed Lease (1)
10.6 Stock Option Agreement dated July 2, 1990 between the
Company and Fred H. Behrens (5)
10.7 Stock Option Agreement dated July 2, 1990 between the
Company and Robert A. Wright (5)
10.8 Stock Option Agreement dated July 2, 1990 between the
Company and Marlene A. Tapie (5)
10.12 Lease Agreement dated April 1, 1991 between the Company and
Enterprise Packing Company (5)
10.25 Sublease Agreement dated as of November 24, 1993 between the
Company and Enterprise Packing Company (6)
10.28 Stock Acquisition Agreement dated as of November 25, 1997 by
and among Gus Franklin and Susan K. Franklin, the Company
and TPE
10.29 Agreement regarding Transportation Services dated as of June
8, 1998 by and between USA Waste of California, Inc., the
Company and AMCOR Biomass, Inc.
21 Subsidiaries of the Company (7)
23 Consent of Independent Auditors
27 Financial Data Schedule
- ---------------
<PAGE>
(1) Filed as an exhibit to the Company's Form 10-K for the fiscal year ended
November 30, 1988 and incorporated herein by reference.
(2) Filed as Exhibit 4.2 to the Company's Form 10-QSB for the quarterly period
ended May 31, 1994, and incorporated herein by reference.
(3) Amended Bylaws filed as an exhibit to the Company's Form 10-KSB for the
fiscal year ended August 31, 1997 as filed with the Commission on December
5, 1997 and incorporated herein by reference. Additional amendment to
Bylaws filed as an exhibit to the Company's Form 10-QSB for the quarterly
period ended February 28, 1998 as filed with the Commission on April 15,
1998 and incorporated herein by reference.
(4) Form of which was filed as an exhibit to Amendment No. 3 to the Company's
Registration Statement on Form S-2 as filed with the Commission on
September 22, 1997 (Registration No. 333-28373) and incorporated herein by
reference.
(5) Filed as an exhibit to the Company's Form 10-K for the fiscal years ended
November 30, 1992, 1991, and 1990 as filed with the Commission on March 15,
1991 and incorporated herein by reference.
(6) Filed as an exhibit to the Company's Form 10-KSB for the fiscal year ended
November 30, 1993 as filed with the Commission on March 15, 1994 and
incorporated herein by reference.
(7) Filed as an exhibit to the Company's Form 10-KSB for the fiscal year ended
August 31, 1997 as filed with the Commission on December 5, 1997 and
incorporated herein by reference.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
USA BIOMASS CORPORATION
Dated: March 5, 1999. By: /S/ FRED H. BEHRENS
------------------------------------
Fred H. Behrens, Chairman and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Name Title Date
---- ----- ----
/S/ FRED H. BEHRENS Chairman of the Board, Chief March 5, 1999
- ------------------------- Executive Officer (principal
Fred H. Behrens executive officer) and Director
/S/ ROBERT A. WRIGHT President, Chief Operating March 5, 1999
- ------------------------- Officer and Director
Robert A. Wright
/S/ EUGENE W. TIDGEWELL Vice President, Treasurer and March 5, 1999
- ------------------------- Chief Financial Officer (principal
Eugene W. Tidgewell financial and accounting officer)
/S/ MARLENE A. TAPIE Director March 5, 1999
- -------------------------
Marlene A. Tapie
/S/ DALE P. PAISLEY Director March 5, 1999
- -------------------------
Dale P. Paisley
/S/ MARLIN T. McKEEVER Director March 5, 1999
- -------------------------
Marlin T. McKeever
/S/ RICHARD MORA Director March 5, 1999
- -------------------------
Richard Mora
/S/ MIKE McDONALD Director March 5, 1999
- -------------------------
Mike McDonald
/S/ H. GLEN LEASON Director March 5, 1999
- -------------------------
H. Glen Leason
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2 Plan of Discontinued Operations
10.28 Stock Acquisition Agreement dated as of November 25,
1997 by and among Gus Franklin and Susan K. Franklin,
the Company and TPE
10.29 Agreement regarding Transportation Services dated as of
June 8, 1998 by and between USA Waste of California,
Inc., the Company and AMCOR Biomass, Inc.
23 Consent of Independent Auditors
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 2
USA BIOMASS CORPORATION
PLAN OF DISCONTINUED OPERATIONS
December 22, 1998
The expansion of the Company's biomass operations and entry into solid waste
transportation has resulted in the decision to discontinue the Company's
agribusiness and real estate operations.
During fiscal 1998, the Company sold 510 acres of table grape and date
properties and its 600-acre Rancho California real estate parcel. The
remaining agribusiness operations consist of a 560-acre table grape vineyard
and a cold storage processing operation.
In December 1998, the Company leased the 560-acre table grape vineyard for
the 1999 crop year and terminated its agribusiness employees. The vineyard
and related equipment is being marketed and is expected to be sold by
December 22, 1999. The appraised value of this property is $4.5 million,
which after costs associated with its sale, is expected to be in excess of
carrying value. The lease payments reimbursed the Company for farming costs
incurred prior to the lease will pay debt service and other costs through the
expected date of sale.
The Company's obligations of $13,000 per month with respect to the cold
storage processing facility expire in May 1999 and will not be renewed.
The Company's remaining real estate assets are a golf-oriented housing
development near San Antonio, Texas, which the Company is developing for a
managed limited partnership, and a 50% joint venture interest in a 6,000-acre
parcel of land in Oregon leased to a potato and grain farming operation.
The Company has offered the Texas property for sale in bulk and expects it to
be sold in fiscal 1999. The current appraised value of the Texas property is
$12.1 million. It is expected, based upon discussions with real estate
marketing professionals, that the property can be sold in bulk within one
year at between $11.0 million and $12.0 million. The estimated cost
associated with this project until sale is $870,000.
The current appraised value of the property owned by the joint venture is
$7.0 million, and there is $2.1 million of joint venture debt, which is
collateralized by this property. The value of the Company's joint venture
interest is therefore $2.5 million, which approximates the carrying value of
the joint venture interest. The lease payments received by the joint venture
are sufficient to pay debt service and administrative costs. Therefore, there
is no cost of carry on this investment to the Company.
The Company's interest in the joint venture has been offered to the other
venture partner. The interest will be offered for sale to others if the joint
venture partner does not acquire the Company's interest.
<PAGE>
Exhibit 10.28
STOCK ACQUISITION AGREEMENT
THIS STOCK ACQUISITION AGREEMENT ("Agreement") is made and entered
effective November 25, 1997 ("Effective Date") by and among Gus Franklin and
Susan K. Franklin, husband and wife (collectively, "Sellers"), AMCOR Capital
Corporation, a Delaware corporation ("Purchaser" and/or "AMCOR"), and
TransPacific Environmental, Inc., a California corporation ("TransPacific").
A. The Sellers constitute all of the stockholders and all of the directors
of TransPacific.
B. The Sellers own of record and beneficially and in the aggregate Fifty
Thousand (50,000) shares of the common stock, no par value of TransPacific
("Sellers Shares"). The Sellers Shares constitute all of the issued and
outstanding stock of TransPacific.
C. The Sellers desire to sell, assign, transfer, convey, deliver and set
over to the Purchaser, and the Purchaser desires to purchase, all, but not less
than all, of the Sellers Shares on the terms and subject to the conditions
specified in this Agreement.
D. The Purchaser and TransPacific are engaged in the business of receiving,
processing, transporting and recycling clean green waste products.
NOW, THEREFORE, in consideration of the Recitals specified above that shall be
deemed to be a substantive part of this Agreement, and the mutual covenants,
promises, agreements, representations and warranties specified in this Agreement
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, with the intent to be obligated legally and equitably,
the parties do hereby covenant, promise, agree, represent and warrant as
follows:
1. PURCHASE AND SALE OF THE SELLERS SHARES.
1.1. PURCHASE AND SALE. On the terms and subject to the conditions
specified by the provisions of this Agreement, at the Closing (defined later in
this Agreement) the Sellers, and each of them, shall sell, assign, transfer,
convey, deliver and set over to the Purchaser and the Purchaser shall purchase
from the Sellers, free and clear of all liens, claims, encumbrances, pledges,
options, security interests and any other adverse interests, all of the Sellers
Shares.
1.2. PURCHASE PRICE. Transfer of Sellers Shares; Allocation to Covenants
Against Competition.
1.2.1. The full, entire and aggregate purchase price that shall
be paid at the Closing on the Closing Date by the Purchaser to the Sellers
for the Sellers Shares shall be Two Million Thirty Thousand Five Hundred
Forty-five dollars ($2,030,545) (the "Purchase Price"). The Purchase Price
shall be payable to Sellers, by Purchasers issuance to Sellers on the Closing
Date (as hereinafter defined) of Four Hundred Six Thousand One Hundred Nine
(406,109) shares of AMCOR's $0.002 par value common stock (the "Shares").
1
<PAGE>
1.2.2. The Sellers, and each of them, shall deliver to the
Purchaser at the Closing on the Closing Date, concurrently with the delivery of
the Purchase Price stock certificate numbered one (1) of the Sellers,
representing the Sellers Shares owned of record and beneficially by the Sellers
duly endorsed in blank, or accompanied by assignments separate from certificate
duly endorsed in blank.
1.2.3 CERTAIN EMPLOYMENT ARRANGEMENTS. AMCOR and Mr. Gus Franklin,
Mrs. Susan Franklin, and Eric Franklin shall enter into and deliver the
Employment Agreements dated as of the Closing Date (the "Franklin Employment
Agreements"). The Franklin Employment Agreements shall be in the form of
Schedule 1.24 (A-1), (A-2) and (A-3) and shall be under the terms and conditions
as set forth in the Agreements.
2. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES
ACT.
2.1 RESTRICTIONS ON TRANSFERABILITY. The Shares of Common Stock of AMCOR
held by Sellers shall not be transferable, except upon the conditions specified
in this Article 2 which conditions are intended to ensure compliance with the
provisions of the Securities Act of 1933, as amended (the "Securities Act") or
to account for the acquisition as a pooling-of-interests transaction or to
assist in an orderly distribution, as the case may be. Purchasers agree to take
and hold the Shares subject to the provisions and upon the conditions specified
in this Article 2.
2.2 CERTAIN DEFINITIONS. As used in this Article 2, the following terms
shall have the following respective meanings:
2.2.1 "Restricted Securities" shall mean the Shares of AMCOR
bearing the legend set forth in Section 2.3 hereof.
2.2.2 "Registrable Securities" shall mean (i) the Shares of AMCOR
common stock issued to Sellers pursuant to this Agreement; and (ii) any shares
of the Company's common stock issued in respect of the Registrable Securities
pursuant to any stock split, stock dividend, recapitalization or similar event.
2.2.3 The terms "Register," "Registered" and "Registration" shall
refer to registration effected by preparing and filing a registration statement
in compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
2.2.4 "Registration Expenses" shall mean all expenses incurred by
AMCOR in connection with registration and filing fees, printing expenses, fees
and disbursements of counsel for AMCOR, blue sky fees and expenses, reasonable
fees and disbursements of counsel for the Sellers and expenses incident to or
required by any such registration.
2.2.5 "Selling Expenses" shall mean all underwriting discounts and
selling commissions, if any, applicable to the sale of Registrable Securities.
2
<PAGE>
2.3 RESTRICTED SHARES.
2.3.1 RESTRICTIVE LEGEND. Each of Sellers acknowledges and agrees
that it has acquired the Shares in a transaction not involving a public offering
and that such Shares are subject to restrictions as to resale under federal and
state securities laws. The Sellers agree and understand that until satisfaction
of the conditions set forth in this Section 2.3, stock transfer instructions
will be given to the transfer agent for the Shares and each certificate for
shares, and each certificate delivered on transfer of, or in substitution for,
any such certificate, shall bear a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
IMPOSED BY THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS. THE SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE SECURITIES ACT OF 1933
AND ANY APPLICABLE STATE SECURITIES LAWS."
2.3.2 DISPOSITION OF SHARES. Each of Sellers agree that it will
not sell, pledge, assign, transfer or otherwise dispose (collectively,
"Transfer") of any of the Shares unless the Transfer will be made pursuant to an
exemption from the registration requirements of the Securities Act or pursuant
to an effective registration statement under the Securities Act and pursuant to
an exemption from any applicable state securities laws or any effective
registration or other qualification under any applicable state securities laws,
or under any applicable exemption under state Securities Laws.
2.4 NOTICE OF PROPOSED TRANSFERS. Sellers hereby agree by acceptance of
the Shares to comply in all respects with the provisions of this Section 2.5.
Prior to any proposed Transfer of any Restricted Securities, Sellers shall give
written notice to AMCOR of Sellers intention to effect such Transfer (except in
all transactions in compliance with Rule 144), whereupon Sellers shall be
entitled to Transfer such Restricted Securities in accordance with the terms of
the notice delivered by Sellers to AMCOR.
2.5 REGISTRATION.
2.5.1 REGISTRATION OF INITIAL 100,000 SHARES. As soon as
practicable after the Closing Date, but in no event later than ninety (90) days
AMCOR shall file a Registration Statement on Form S-3 to permit the resale of a
maximum of 100,000 Shares of the Registrable Securities held by Sellers. AMCOR
shall give twenty (20) days notice to Sellers of such registration. In its
capacity as holder of Registrable Securities that are to be included in the
Registration Statement, Sellers are sometimes referred to herein as "Selling
Shareholders."
2.5.2 EFFECTIVE DATE OF REGISTRATION STATEMENT. AMCOR agrees to
use commercially reasonable efforts to have the Registration Statement described
in Section 2.5.1 declared effective as soon as practicable after the date of
filing thereof, but in any event within sixty (60) days and to keep such
Registration Statement effective for a period of nine months. Nothing in this
Section 2.5.2 shall require AMCOR to file a Registration Statement for an
underwritten offering or to participate therein.
3
<PAGE>
2.5.3 SELLING SHAREHOLDER INFORMATION. In connection with the
Registration Statement filed pursuant to this Section 2.5, AMCOR may require the
Selling Shareholders to furnish to AMCOR such information regarding the
distribution of such securities as AMCOR may from time to time reasonably
request in writing as being necessary and appropriate for completion of the
Registration Statement and each Selling Shareholder agrees to cooperate with
AMCOR in all reasonable respects in connection with the preparation and filing
of any Registration Statement hereunder in which such Registrable Securities are
included or expected to be included.
2.5.4 NOTIFICATION BY COMMISSION. The Selling Shareholders agree
that, at any time when any Registration Statement is effective, upon receipt of
any written notice from AMCOR of any of the following events: (i) any request by
Commission for amendments or supplements to the Registration Statement or for
additional information; (ii) the issuance by the Commission of any stop-order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose; (iii) the receipt by AMCOR of any notification
with respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose; (iv) the existence of any fact (including without
limitation any fact or disclosure of which at such time the Board of Directors
of AMCOR shall have determined in good faith would be detrimental to AMCOR's
business interests) that results in the Registration Statement or any document
incorporated therein by reference containing an untrue statement of material
fact or omitting to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, the Selling
Shareholders will forthwith discontinue disposition of Registrable Securities
pursuant to the Registration Statement until the Selling Shareholders are in
receipt of copies of a supplemented or amended prospectus that does not contain
an untrue statement of a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading, or until they are advised in writing by
AMCOR that the use of the Prospectus may be resumed, and have received copies of
any additional or supplemental filings that are incorporated by reference and,
if so directed by AMCOR, such Selling Shareholders will deliver to AMCOR, at
AMCOR's expense, all copies, other than permanent file copies of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
2.5.5 COSTS AND EXPENSES. AMCOR shall pay the costs and expenses
of preparation and filing of any Registration Statement filed in accordance with
this Section 2.5, including the cost of printing and distributing the
Registration Statement, the fees and disbursements of counsel to AMCOR, the
costs and expenses of its accountants, any registration or other fees payable to
the Commission, and underwriting fees and any transfer taxes.
2.5.6 INDEMNITY. AMCOR shall indemnify and hold harmless the
Selling Shareholders against any and all losses, claims, damages and
liabilities, joint or several (including any investigation, legal and other
expenses incurred in connection with and any amount paid in settlement of any
action, suit, proceeding or asserted claim) insofar as such losses, claims,
damages and liabilities arise out of or are based upon (a) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement under which such securities were registered under the Securities Act
and any amendments thereto or any prospectus or preliminary prospectus forming a
4
<PAGE>
part thereof or any supplement thereto, or (b) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except for any such untrue statement
or alleged untrue statement or omission or alleged omission that is made in
reliance upon and in conformity with information furnished by the Selling
Shareholders in writing specifically for inclusion in such Registration
Statement, Prospectus, Preliminary Prospectus, amendment or supplement;
provided, however, that AMCOR shall not be liable in any such case to, or in
respect of the Selling Shareholders to the extent that any such loss, claim,
damage, liability or expenses arises out of or is based upon an untrue statement
or alleged untrue statement made in any preliminary prospectus if (i) such
Selling Shareholders fail to send or deliver a copy of the Prospectus with, or
prior to the delivery of written confirmation of the sale of Registrable
Securities, and (ii) the Prospectus would have completely corrected such untrue
statement or omission.
2.5.7 CLAIM UNDER INDEMNITY. If the Selling Shareholders shall
assert the right to be indemnified under this Section 2.5.7 Sellers will
promptly, after receipt of notice of the commencement of any action, suit or
proceeding against such party in respect of which a claim is to be made against
the indemnifying party, notify each such indemnifying party of the commencement
of such action, suit or proceeding, enclosing a copy of all papers served, the
omission so to notify such indemnifying party for any such action, suit or
proceeding shall not relieve it from any liability that it may have to any
indemnified party otherwise then under this Section 2.5.7. In case any such
action, suit or proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement.
2.5.8 REPORTING REQUIREMENTS. With a view to making available the
benefits of certain rules and regulations of the Commission that may at any time
permit the sale of the Shares to the public without registration or a
registration on SEC Form S-3, AMCOR agrees to use its best efforts to: (i) make
and keep public information available, as those terms are understood and defined
in Rule 144 of the Securities Act, at all time from and after ninety (90) days
following the effective date of the first registration under the Securities Act
filed by AMCOR for an offering of its securities to the general public; (ii)
file with the Commission in a timely manner all reports and other documents
required of AMCOR under the Securities Act and the Exchange Act; and (iii) so
long as the Sellers own Registrable Securities to furnish the Sellers forthwith
upon request (1) a written statement by AMCOR as to whether it complies with the
reporting requirements of Rule 144, the Securities Act and the Exchange Act, or
whether it qualifies as a registrant who securities may be resold pursuant to
SEC Form S-3, (2) a copy of the most recent annual or quarterly report of AMCOR
and such other reports and documents so filed by AMCOR, and (3) such other
information reasonably requested in availing the Sellers of any rule or
regulation of the Commission that would permit the selling of the Registrable
Securities without registration.
3. THE CLOSING.
3.1 CLOSING DATE. The purchase and sale (the "Closing") provided for in
this Agreement will take place at the offices of Snell & Wilmer, LLP, 1920
Main Street, 12th Floor, Irvine, California 92614, on November __, 1997, or
such other time or place as mutually agreed by the parties hereto,
hereinafter referred to as the "Closing."
5
<PAGE>
3.2 CLOSING OBLIGATIONS.
3.2.1 SELLERS OBLIGATIONS. The Sellers will deliver to the
Purchasers (i) the certificates representing the Sellers Shares (the "Sellers
Certificate") within five (5) business days following the Closing; (ii)
Employment Agreements executed by Gus Franklin, Susan Franklin and Eric Franklin
in the form of Schedule 1.24 (A-1)-(A-3); and (iii) such other documents as
Purchasers may reasonably request for the purpose of facilitating the
consummation or performance of any of the transactions contemplated by this
Agreement.
3.2.2 PURCHASERS OBLIGATIONS. As of the Closing Date,
Purchasers will deliver to Sellers (i) certificates representing the Shares
(the "Purchasers Certificate"), within five (5) business days following the
Closing; and (ii) such other documents as Sellers may reasonably request for
the purpose of facilitating the consummation or performance of any of the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES.
4.1. REPRESENTATIONS AND WARRANTIES OF SELLERS. Each of TransPacific, Gus
Franklin and Susan Franklin hereby jointly and severally represents and warrants
to the Purchaser and Purchaser, in agreeing to consummate the transactions
contemplated by this Agreement, has relied upon such representations and
warranties with respect to the operations, business and assets of TransPacific,
as follows:
4.1.1. OWNERSHIP OF SELLERS SHARES. The Sellers are the exclusive
record and beneficial owners of the Sellers Shares. The Sellers possess good and
merchantable title to the Sellers Shares, and own the Sellers Shares free and
clear of any and all security interests, agreements, restrictions, claims,
liens, pledges and encumbrances of any nature or manner whatsoever. The Sellers
have the absolute and unconditional right to sell, assign, transfer, convey,
deliver and set over the Sellers Shares to the Purchaser in accordance with the
provisions of this Agreement.
4.1.2. DUE ORGANIZATION; GOOD STANDING; AUTHORITY OF TRANSPACIFIC.
TransPacific is a corporation duly organized, validly existing as a stock
corporation, and in good standing under the laws of the State of California.
TransPacific has full and complete right power, and authority to own its
properties and assets, and to carry on its business as a California corporation.
TransPacific is duly licensed, classified and authorized to do business as a
foreign corporation, and is in good standing, in each jurisdiction in which the
properties and assets owned by it or the nature of the business conducted by it
makes such licensing, qualification and authorization legally necessary. A
complete and correct copy of each of TransPacific's Articles of Incorporation,
as amended to the date of this Agreement certified by the State of California
Secretary of State ("Charter") and By-laws, as amended to the date of this
Agreement, ("Bylaws"), are attached to this Agreement as Exhibits 4.1.2-A and
4.1.2-B, respectively. The Charter and the Bylaws are in full force and effect,
and TransPacific is not in breach or violation of any of the provisions thereof.
The minute books of TransPacific containing the minutes of the meetings of the
shareholders of TransPacific and the Board of Directors of TransPacific, which
were heretofore made available to the Purchaser for examination, are complete
and correct and accurately specify all proceedings of the shareholders of
TransPacific and the Board of Directors of TransPacific.
6
<PAGE>
4.1.3. VALIDITY OF AGREEMENT. TransPacific and the Sellers, and
each of them, have the legal capacity and authority to enter into and deliver
this Agreement. This Agreement is a valid and legally binding obligation of
TransPacific and the Sellers, and each of them, and is fully enforceable against
TransPacific and the Sellers, and each of them, in accordance with its terms,
except as such enforceability may be limited by general principles of equity,
bankruptcy, insolvency, moratorium and similar laws relating to creditors rights
generally.
4.1.4. CAPITALIZATION; TRANSPACIFIC STOCK; RELATED MATTERS. The
authorized capital stock of TransPacific consists of five hundred thousand
(500,000) shares of common stock, without par value; the Sellers Shares, are
issued and outstanding and owned of record and beneficially by the Sellers. The
Sellers Shares have been duly, legally and validly issued, and are fully-paid
and non-assessable. Delivery of the Sellers Shares by the Sellers to the
Purchaser at the Closing on the Closing Date pursuant to the provisions of this
Agreement will transfer to the Purchaser full, complete and entire legal and
equitable title to one hundred percent (100%) of the issued and outstanding
capital stock of TransPacific.
4.1.5. OPTIONS, WARRANTS AND OTHER RIGHTS AND AGREEMENTS AFFECTING
TRANSPACIFIC'S CAPITAL STOCK. TransPacific has no authorized or outstanding
options, warrants, calls, subscriptions, rights, convertible securities or other
securities, as defined by the provisions of the Securities Act or any
commitments, agreements, arrangements or understandings of any manner or nature
obligating TransPacific, in any such case, to issue shares of TransPacific's
capital stock or other securities or securities convertible into or evidencing
the right to purchase shares of TransPacific capital stock or other securities.
Neither the Sellers nor TransPacific is a party to any agreement, understanding,
arrangement or commitment, or obligated by any Charter or Bylaw provision which
creates any rights in any person with respect to the authorization, issuance,
voting, sale or transfer of any shares of TransPacific's capital stock or other
Securities.
4.1.6. NO SUBSIDIARIES. TransPacific does not have any subsidiaries
and does not, directly or indirectly, own any interest in or control any
corporation, partnership, joint venture, or other business entity.
4.1.7. AGREEMENT NOT IN CONFLICT WITH OTHER INSTRUMENTS; REQUIRED
APPROVALS OBTAINED. The execution, acknowledgment, sealing, delivery, and
performance of this Agreement by TransPacific and the Sellers and the
consummation of the transactions contemplated by the provisions of this
Agreement will not (a) violate or require any registration, qualification,
consent, approval, or filing under (i) any law, statute, ordinance, rule or
regulation ("Laws") of any federal, state or local government ("Governments,")
or any agency, bureau, commission or instrumentality of any Governments
("Governmental Agencies") or (ii) any judgment, injunction, order, writ or
decree of any court, arbitrator, Government or Governmental Agency by which
TransPacific or any of its assets or properties is obligated; (b) conflict with,
require any consent, approval, or filing under, result in the breach or
termination of any provision of, constitute a default under, result in the
acceleration of the performance of TransPacific's obligations under, or result
in the creation of any claim, security interest, lien, charge, or encumbrance
upon any of TransPacific's properties, assets, or businesses pursuant to, (i)
the Charter; (ii) ByLaws; (iii) any indenture, mortgage, deed of trust, license,
permit,
7
<PAGE>
approval, consent, franchise, lease, contract, or other instrument or agreement
to which TransPacific is a party or by which TransPacific or any of
TransPacific's assets or properties is obligated; or (iv) any judgment,
injunction, order, writ or decree of any court, arbitrator, Government or
Governmental Agency by which TransPacific or any of its assets or properties is
obligated.
4.1.8. CONDUCT OF BUSINESS IN COMPLIANCE WITH REGULATORY AND
CONTRACTUAL REQUIREMENTS. TransPacific has conducted and is conducting
TransPacific's business in compliance with all applicable Laws of all
Governments and Governmental Agencies. Neither the real or personal properties
owned, leased, operated or occupied by TransPacific, nor the use, operation or
maintenance thereof, (i) violates any Laws of any Government or Governmental
Agency, or (ii) violates any restrictive or similar covenant, agreement,
commitment, understanding or arrangement.
4.1.9. LICENSES; PERMITS; RELATED APPROVALS. TransPacific possesses
all licenses, permits, consents, approvals, authorizations, qualifications, and
orders ("Permits") of all Governments and Governmental Agencies lawfully
required to enable TransPacific to conduct TransPacific's business in all
jurisdictions. All of the Permits are in full force and effect, and no
suspension, modification or cancellation of any of the Permits is pending or
threatened. A list of the Permits is attached hereto as Schedule 4.1.9.
4.1.10. LEGAL PROCEEDINGS. Except as disclosed in Schedule 4.1.10,
there is no action, suit' proceeding, claim, arbitration, or investigation by
any Government, Governmental Agency or other person (i) pending to which
TransPacific is a party; (ii) threatened against or relating to TransPacific or
any of TransPacific's assets or businesses; (iii) challenging TransPacific's
right to execute, acknowledge, seal, deliver, perform under, or consummate the
transactions contemplated by the provisions of, this Agreement; or (iv)
asserting any right with respect to any of the Sellers Shares, and there is no
basis for any such action, suit, proceeding, claim, arbitration or
investigation.
4.1.11. FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. Sellers have
delivered to Purchaser, and Purchasers hereby acknowledge the receipt of copies
of TransPacific's balance sheets as of December 31, 1995 and 1996 together with
TransPacific's Statement of Operations and Retained Earnings for the years ended
as of same fiscal periods and TransPacific's audited Statement of Changes in
Financial Position for the years ended as of the same fiscal periods
(collectively, "Financial Statements"). Purchasers also acknowledge receipt of
copies of TransPacific's unaudited balance sheets as of August 31, 1997,
TransPacific's unaudited Statement of Operations and retained Earnings for the
period ended as of August 31, 1997, TransPacific's unaudited Statement of
Changes in Financial Position for the period ended as of August 31, 1997,
(collectively, "Interim Statements"). The Financial Statements and the Interim
Statements are in accordance with the books and records of TransPacific, are
true, correct and complete and accurately present TransPacific's financial
position as of the dates set forth therein and the results of TransPacific's
operations and changes in TransPacific's financial position for the periods then
ended, all in conformity with generally accepted accounting principles applied
on a consistent basis during each period and on a basis consistent with that of
prior periods. Except (i) as disclosed in the Financial Statements and the
Interim Statements. and (ii) as disclosed in this Agreement, TransPacific has no
liabilities or obligations of any nature or kind, known or unknown, whether
accrued, absolute, contingent, or otherwise. There is no basis for assertion
against TransPacific of any claim,
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liability or obligation not fully disclosed in the financial Statements and the
Interim Statements. All prepaid items specified in the Financial Statements and
Interim Statements have been properly accrued. Purchasers hereby acknowledge
that Purchasers have reviewed and approved the Financial Statements and the
Interim Statements.
4.1.12. TAX MATTERS. TransPacific has previously disclosed to AMCOR
certain tax liabilities of TransPacific in connection with TransPacific's
failure to pay federal and state employee withholding taxes which at the time of
disclosure to the Purchasers was in the approximate amount of Four Hundred
Seventy-two Thousand Dollars (including penalties and interest) (the "Tax
Liability"). As of the Closing Date, the actual Tax Liability may be in excess
of that amount. AMCOR has agreed to assume and be responsible for the payment of
the Tax Liability and such assumption by AMCOR has previously been reflected in
an adjustment to the consideration paid to Sellers by decreasing the Purchase
Price paid to Sellers hereunder by a reciprocal amount. Except for the Tax
Liability, TransPacific has duly and timely filed with all appropriate
Governmental Agencies, all tax returns, information returns, and reports
required to be filed by TransPacific. Except for accruals for payroll taxes
payable, income taxes payable, and deferred taxes as set forth in TransPacific's
Balance Sheet as of August 31, 1997 (collectively, '"Accrued Taxes"),
TransPacific has paid in full all taxes except the Tax Liability, interest,
penalties, assessments and deficiencies owed by TransPacific to all taxing
authorities. Complete and correct copies of (a) the income tax returns of
TransPacific for TransPacific's two (2) fiscal years ending 1995 and 1996, as
filed by TransPacific with the Internal Revenue Service ("IRS") and all state
taxing authorities ("Returns"), (b) all audit reports received by TransPacific
during the last two (2) years and issued by the IRS or any state taxing
authorities, if any; and (c) all consents and agreements entered into by
TransPacific during the last two (2) years with the IRS or any state taxing
authorities, if any, ("Tax Agreements") have been delivered to Purchasers by
Sellers and set forth in Schedule 4.1.12. All information reported on the
Returns is true, accurate, and complete. All claims by the IRS or any state
taxing authorities for taxes due and payable by TransPacific have been paid by
TransPacific. All federal income tax returns required to be filed- by
TransPacific have either been examined by the IRS, or the period during which
any assessments may be made by the IRS has expired WITHOUT waiver or EXTENSION
for all years THROUGH TransPacific's fiscal year ended December 31, 1996, and
any deficiencies or assessments claimed or made have been paid, settled, or
fully provided for in the Financial Statements. TransPacific is not a party to
and is not aware of, any pending or threatened action, suit, proceeding, or
assessment against it for the collection of taxes by any Governmental Agency.
Sellers have reviewed and approved TransPacific returns and all other tax
matters on behalf of TransPacific.
4.1.13. ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE. TransPacific's accounts
receivable specified on TransPacific's Balance Sheet as of August 31, 1997
("Balance Sheet') and all accounts receivable occurring and accruing after the
date of the Balance Sheet ("Accounts Receivable") are bona fide accounts
receivable, the full amount of which is actually owing to TransPacific. The
Accounts Receivable will be fully collectible by the Purchaser within 90 days of
the Closing Date, without offset, recoupment, counterclaim, claim or diminution.
TransPacific's accounts payable specified on the Balance Sheet and all accounts
payable occurring and accruing after the date of the Balance Sheet arose from
bona fide transactions in the ordinary course of TransPacific's business.
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4.1.14. NO REAL PROPERTY. Except as specified on Schedule 4.1.14,
TransPacific does not own or have any interest in any real property.
4.1.15. CONDITION OF PERSONAL PROPERTY. Attached hereto as Schedule
4.1.15, is a true, correct and complete list of all personal property, owned by
TransPacific or used by TransPacific in the conduct of its business, including,
but not limited to, all equipment, machinery and fixtures, ("Personal
Property"), indicating whether it is owned or the manner in which the Personal
Property is otherwise utilized by TransPacific. TransPacific has sole and
exclusive, good and merchantable title to all of the Personal Property owned by
it, free and clear of all pledges, claims, liens, restrictions, security
interests, charges and other encumbrances except as disclosed in Schedule
4.1.16.6. All of the Personal Property is in good repair and good operating
condition, fit for its intended purposes, and is adequate for the continuation
of TransPacific's business.
4.1.16. CONTRACTS, LICENSES AND OTHER AGREEMENTS. Attached hereto
are the following:
4.1.16.1. Schedule 4.1.16.1, which is a true, correct and
complete list and copy (or where they are oral, true, correct and complete
written summaries) of all leases of TransPacific relating to real property.
4.1.16.2. Schedule 4.1.16.2, which is a true, correct and
complete list and copy (or where they are oral, true, correct and complete
written summaries) of all leases of TransPacific relating to personal property.
4.1.16.3. Schedule 4.1.16.3, which is a true, correct and
complete list and copy (or where they are oral, true, correct and complete
written summaries) of all licenses, franchises, assignments or other agreements
of TransPacific relating to trademarks, trade names, patents, copyrights and
service marks (or applications therefor), unpatented designs or styles, know-how
and technical assistance.
4.1.16.4. Schedule 4.1.16.4, which is a true, correct and
complete list and copy (or where they are oral, true, correct and complete
written summaries) of all Permits, other than those listed in Exhibit 13,
relating to the operation of the business of TransPacific.
4.1.16.5. Schedule 4.1.16.5, which is a true, correct and
complete list and copy (or where they are oral, true, correct and complete
written summaries) of all employment, compensation and consulting agreements,
contracts, understandings or arrangements of TransPacific with any officer,
director, employee, broker, agent, consultant, salesman or other person,
including the names, starting dates of employment, term of employment, functions
and aggregate compensation (including salary, bonuses, commissions and other
forms or compensation).
4.1.16.6. Schedule 4.1.16.6, which is a true, correct and
complete list and copy (or where they are oral, true, correct and complete
written summaries) of all agreements of TransPacific for the purchase, sale or
lease of goods, materials, supplies, machinery, equipment, capital assets and
services having a cost in excess of $10,000 in any one instance or in excess of
$30,000 in the aggregate.
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4.1.16.7. Schedule 4.1.16.7, which is a true, correct and
complete list and copy (or where they are oral, true, correct and complete
written summaries) of agreements and arrangements which TransPacific has with
any supplier, distributor, franchisor, dealer, sales agent, broker, or
representative.
4.1.16.8. Schedule 4.1.16.8, which is a true, correct and
complete list and copy (or where they are oral, true, correct and complete
written summaries) of all agreements and arrangements of TransPacific for the
borrowing or lending of money, on a secured or unsecured basis, or guaranteeing,
indemnifying or otherwise becoming liable for the obligations or liabilities of
any other person.
4.1.16.9. Schedule 4.1.16.9, which is a true, correct and
complete list and copy (or where they are oral, true, correct and complete
written summaries) of all agreements and arrangements of TransPacific for the
construction, modification or improvement of any building or structure having a
cost in excess of $10,000, or the incurrence of any other capital expenditure
involving payments in excess of $30,000.
4.1.16.10. Schedule 4.1.16.10, which is a true, correct
and complete list and copy (or where they are oral, true, correct and complete
written summaries) of all contracts and agreements of TransPacific for its
services other than those listed in prior Schedules.
Each of the agreements, arrangements and understandings, if any, listed in
Schedules 4.1.16.4 through 4.1.16.10, inclusive, ("Commitments") is in full
force and effect, is valid and binding upon each of the parties thereto and is
fully enforceable by TransPacific against the other party thereto in accordance
with its terms. Neither Sellers, nor TransPacific has any notice of, or any
reason to believe that there is or has been any actual, threatened or
contemplated termination or modification of any of the Commitments. No party to
any of the Commitments is in breach of or in default thereunder, nor has any
event occurred which, with the lapse of time, notice or election, may become a
breach or default by TransPacific or any other party to or under any of the
Commitments. TransPacific has the right to quiet enjoyment of all real
properties leased to it for the full term of the lease thereof. The execution,
acknowledgment, sealing, delivery, and performance of this Agreement by the
Sellers and the consummation of the transactions contemplated by the provisions
of this Agreement (i) will not result in the breach or termination of or
constitute default under any Commitment, (ii) does not require the consent of
any party to any of the Commitments, and (iii) will not give any such party the
right to terminate any of the Commitments. All payments required to be made by
Sellers, TransPacific or any other party to any of the Commitments pursuant to
any of the Commitments have been paid in full through August 31, 1997. The
Commitments are in compliance with all applicable Laws of all Governments and
Governmental Agencies and there are no Laws of any Government or Governmental
Agencies, actions, suits proceedings, arbitrations, orders, writs, or decrees in
any such case existing or proposed, which adversely affect or might adversely
affect TransPacific's rights under any of the Commitments.
4.1.17 INSURANCE. Attached hereto as Schedule 4.1.17, is a list of
all insurance policies of TransPacific, specifying with respect to each policy
the name of the insurer, a description of the policy, the dollar amount of
coverage, the amount of the
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premium, the date through which all premiums have been paid, and the expiration
date. Each insurance policy relating to the insurance referred to in Schedule
4.1.17 is in full force and effect, is valid and enforceable, and TransPacific
is not in breach of or in default under any such policy. Neither Sellers nor
TransPacific has any notice of or any reason to believe that there is or has
been any actual, threatened, or contemplated termination or cancellation of any
insurance policy relating to the insurance referred to in such Schedule.
Included in Schedule 4.1.17 is a true, correct and complete list and summary of
all claims which have been made under each insurance policy. TransPacific has
not failed to give any notice or to present any claim under any insurance policy
in a due and timely fashion.
4.1.18 BENEFIT PLANS. As of the Closing Date, TransPacific does not
maintain a Benefit Plan (as defined below) of any type on behalf of its
management and/or employees. For purposes of the representations and warranties
set forth below in this Paragraph 4.1.18, the term "Benefit Plans" is defined
broadly to include (i) all plans, programs, or arrangements (whether or not
insured) which provide to employees pension, profit sharing, ESOP, stock option,
incentive bonus, surgical or other physician, hospitalization, major medical,
dental, optical, prescription drug, health insurance, life insurance, accidental
death and dismemberment, short-term disability, long-term disability, sick
leave, vacation, severance, supplemental unemployment, layoff, automobile,
apprenticeship and training, day care, scholarship, or group legal benefits, and
(ii) any other "employee benefit plan", as that term is defined in Section 3 of
ERISA.
4.1.19 EMPLOYEE RELATIONS AND EMPLOYMENT AGREEMENTS.
4.1.19.1 None of TransPacific's employees is represented by
a labor organization. No petition for representation has ever been filed with
the National Labor Relations Board ("NLRB") with respect to TransPacific's
employees. Sellers are not aware of any union organizational activity with
respect to TransPacific and have no reason to believe that any such activity is
being contemplated.
4.1.19.2 TransPacific is not in violation of applicable
equal employment opportunity laws, wage and hour laws, occupational safety and
health laws, federal labor laws, or any other Laws of any Government or
Governmental Agency relating to employment. Sellers have disclosed to the
Purchaser the status of all investigations, claims, charges, and
employment-related suits or controversies which have occurred with respect to
TransPacific within the last 10 years or which are presently pending or
threatened with respect to TransPacific under any employment related Law of any
Government or Governmental Agency (including common law). TransPacific has
satisfied and performed fully all judgments, decrees, conciliation agreements,
or settlement agreements by which it is bound or to which it is subject
concerning employment-related matters and each such judgment, decree, or
agreement, if any, is disclosed on Schedule 4.1.19.
4.1.19.3 TransPacific has not entered into any employment
agreements or consulting agreements and all employees and/or consultants, if
any, can be terminated at will. TransPacific has no contractual obligation or
special termination or severance arrangement in respect of any employee or
consultant, if any.
4.1.19.4 TransPacific has paid all wages due through the
Closing Date.
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4.1.19.5 Attached hereto as Schedule 4.1.19 is a list of
the names, current annual rates of salary, bonus, employee benefits, accrued
vacation times, sick pay and other compensation of all the present employees of
TransPacific whose current annual cash compensation from TransPacific (salary
and bonus) is expected to equal or exceed $20,000. None of such employees has
received or will receive an increase in salary or other compensation from
TransPacific prior to the Closing Date, except as shown on Schedule 4.1.19.
4.1.20 PATENTS; TRADEMARKS; RELATED CONTRACTS. Attached hereto as
Schedule 4.1.20, is a true, correct and complete list of all of TransPacific's
patents, trademarks, tradenames, or trademark or tradename registrations,
service marks, and copyrights or copyright registrations ("Proprietary Rights"),
if any. All of TransPacific's Proprietary Rights, if any, are valid,
enforceable, in full force and effect and free and clear of any and all security
interests, liens, pledges and encumbrances of any nature or kind. TransPacific
has not licensed, leased or otherwise assigned, transferred or granted any right
to use any of its Proprietary Rights to any other person, and no person is
infringing upon TransPacific's Proprietary Rights. TransPacific has not
infringed and is not infringing upon any patent, trademark, tradename, or
trademark or tradename registration, service mark, copyright, or copyright
registration of any other person.
4.1.21 BOOKS AND RECORDS; FISCAL YEAR; METHOD OF ACCOUNTING.
TransPacific has made available to the Purchaser all of its tax, accounting,
corporate and financial books and records. The books and records pertaining to
TransPacific's business made available to the Purchaser are true, correct and
complete, have been maintained on a current basis, and fairly reflect the basis
for TransPacific's financial condition and results of operations as set forth in
the Financial Statements and the Interim Statements. Except as specifically
reserved for or specified in the Financial Statements and the Interim Statements
and except for the Tax Liability disclosed in Section 4.12, TransPacific is not
obligated for, nor are any of TransPacific's assets subject to, any liabilities,
whether absolute, accrued or contingent, other than liabilities occurring in the
ordinary course of business, none of which liabilities is materially adverse.
There is no basis for the assertion against TransPacific of any liability,
obligation or claim that, directly or indirectly or in the aggregate, might
result in or cause any material adverse change in the business, future prospects
or financial condition of TransPacific which is not specified fairly and
accurately in the Financial Statements.
4.1.22. BANK ACCOUNTS AND SAFE DEPOSIT ARRANGEMENTS. Attached hereto
as Schedule 4.1.22, is a true, correct and complete list of each checking
account, savings account and other bank account and safe deposit box maintained
by TransPacific, and the names of all persons authorized to withdraw funds or
other property from, or otherwise deal with, such accounts and safe deposit
boxes.
4.1.23 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1996, except as specified in Schedule 4.1.23 attached hereto and incorporated by
reference herein, TransPacific has not:
4.1.23.1 Incurred any indebtedness, obligation or liability
(contingent or otherwise), except normal trade or business obligations incurred
in the
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ordinary course of its business, none of which was entered into for inadequate
consideration and none of which exceed $30,000 in amount.
4.1.23.2 Discharged or satisfied any security interest,
lien or encumbrance or paid any indebtedness, obligation or liability
(contingent or otherwise), except (A) current liabilities and (B) scheduled
payments pursuant to obligations under contracts, agreements, or leases listed
in the attached Schedules.
4.1.23.3 Mortgaged, pledged, or subjected to lien, charge,
security interest, or other encumbrance any of its assets or properties not
previously disclosed in any other schedule to this Agreement.
4.1.23.4 Sold, assigned, transferred, leased, disposed of,
or agreed to sell, assign, transfer, lease, or dispose of, any of its assets or
properties.
4.1.23.5 Acquired or leased any assets or property of any
other.
4.1.23.6 Canceled or compromised any debt or claim.
4.1.23.7 Waived or released any rights.
4.1.23.8 Transferred or granted any rights with respect to
know-how or any rights existing under any leases, licenses, agreements,
inventions, or any of the Proprietary Rights.
4.1.23.9 Granted or made any contract, agreement, promise
or commitment to grant any wage, salary or employee benefit increase to, or
entered into any employment contract, bonus, stock option, profit sharing,
pension, incentive, retirement or other similar arrangement or plan with, any
officer, employee or other person.
4.1.23.10 Entered into any collective bargaining agreement
or made any commitment or incurred any liability to any labor organization.
4.1.23.11 Made any capital expenditure in excess of $50,000
or entered into any commitment therefor.
4.1.23.12 Suffered any casualty loss or damage, whether or
not such loss or damage is or was covered by insurance.
4.1.23.13 Suffered any adverse change in its operations,
earnings, assets, liabilities, properties, or business or in its condition
(financial or otherwise).
4.1.23.14 Changed the nature of its business or its method
of doing business.
4.1.23.15 Other than in the ordinary course of business,
entered into any transaction, contract, or commitment.
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4.1.23.17 Suffered a loss of any supplier or suppliers,
which loss (individually or in the aggregate) has had, or may have, an adverse
effect on its financial condition, results of operations, business, or
prospects.
4.1.23.18 Suffered any material adverse change in its assets
or liabilities, in its condition, financial or otherwise, or in its business,
properties, earnings or net worth.
4.1.24 INSIDER TRANSACTIONS. Attached hereto as Schedule 4.1.24, is
a true, correct and complete list of the following:
4.1.24.1. The amounts and other essential terms of
indebtedness or other obligations, agreements, undertakings, liabilities or
commitments (contingent or otherwise) of TransPacific to or from any past or
present officer, director, member, stockholder or any person related to,
controlling, controlled by or under common control with any of the foregoing
("Control Persons").
4.1.24.2 All transactions between each Control Person and
TransPacific since TransPacific's date of incorporation, and all proposed or
contemplated transactions with each Control Person, together with the essential
terms thereof.
4.1.25 ADVERSE CONDITIONS. Sellers have no knowledge of any present
or future condition, state of facts or circumstances which has affected or may
affect adversely the business of TransPacific or prevent TransPacific from
carrying on its business.
4.1.26 FULL DISCLOSURE. This Agreement (including the schedules
hereto) does not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements contained herein not
misleading. There is no fact known to Sellers or TransPacific which is not
disclosed in this Agreement which materially adversely affects the accuracy of
the representations and warranties contained in this Agreement or TransPacific's
financial condition, results of operations, business, or prospects.
4.1.27 NEGOTIATIONS WITH OTHER PERSONS. Sellers will not, and will
not permit TransPacific, to initiate, encourage the initiation by others, or
participate in any discussions or negotiations with any other persons relating
to the sale or other disposition of any of the capital stock of TransPacific or
any assets of TransPacific and will promptly notify the Purchaser if any person
initiates such discussions or negotiations with them or TransPacific.
4.1.28 NO BROKERAGE. Sellers have not incurred any obligation or
liability, contingent or otherwise for brokerage fees, finder's fees, agent's
commissions, or the like in connection with this Agreement or the transactions
contemplated hereby.
4.1.29 CUSTOMERS AND SALES. Neither TransPacific nor the Sellers,
have any information, nor are they aware of any facts, indicating that any
customer of TransPacific intends to cease doing business with TransPacific or to
materially reduce the amount of the business that each such customer is
presently doing with TransPacific.
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4.1.30 ENVIRONMENTAL MATTERS.
4.1.30.1. COMPLIANCE WITH LAW. Except as specified in
Schedule 4.1.30, and, by this TransPacific, its business and properties, whether
leased or owned, and its assets are in compliance with all applicable statutes,
laws, ordinances, rules and regulations of any governmental authority, agency or
instrumentality, domestic or foreign, including, without limiting the generality
of the foregoing, the Comprehensive Environmental Response, Compensation and
Liability Act, as amended by the Superfund Amendments and Reauthorization Act,
the Solid Waste Disposal Act, the Clean Water Act, the Clean Air Act, the Toxic
Substances Act, all applicable state statutes, laws, rules and regulations
concerning the same or similar subject matters, and all successor or related
legislation, and all other federal, state and local statutes, laws, rules and
regulations relating to emissions, discharges, releases or threatened released
of pollutants, contaminants or hazardous or toxic substances into ambient air,
surface water, groundwater, publicly owned treatment works, septic systems or
land or otherwise into the environment or, the use, treatment, storage,
disposal, handling, manufacture, sale, transportation or shipment of any
hazardous or toxic waste, material, substance or product or by-product or
otherwise relating to pollution or the protection of health or the environment
(collectively, the "Environmental Laws").
4.1.30.2 CONTINUED COMPLIANCE WITH LAW. Except as specified
in Schedule 4.1.30.2, there are not past or present conditions, circumstances,
activities, practices, incidents, actions or plans which may interfere with or
prevent continual compliance with the Environmental Laws by TransPacific or
which may result in any claim, litigation, action, proceeding, hearing or
investigation against TransPacific based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal, transportation,
handling, or the emission, discharge, release or threatened release into the
environment, of any pollutants, contaminants or hazardous or toxic substances
(as defined in any Environmental Law). There are no underground storage tanks on
any property of TransPacific.
4.1.30.3 COMPLIANCE WITH PERMITS. Except as specified in
Schedule 4.1.30.3, TransPacific is in full and complete compliance in the
conduct of TransPacific's business with all terms and conditions of any and all
required permits, licenses and authorizations, and TransPacific is, also, in
full and complete compliance with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules and
timetables specified by any Environmental Law or specified by any regulation,
code, plan, order decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved pursuant thereto.
4.1.31 OSHA COMPLIANCE. TransPacific has complied with all
requirements of the Occupational Safety and Health Act and its California
equivalents and regulations promulgated pursuant to any such legislation, the
consequences of a violation of which could have a material adverse effect on the
operations of TransPacific, and with all orders, judgments, and decrees of any
tribunal pursuant to such legislation that apply to the business and properties
of TransPacific.
4.1.32 NO BRIBES OR KICKBACKS. TransPacific has not, directly or
indirectly, paid or delivered any fee, commission, or other money, funds, or
property,
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however characterized, to any person, in the United States or any other country,
that is in any manner related to the business or operations of TransPacific, and
the Sellers, and each of them, do not know and do not have reason to believe
that any conduct by TransPacific, the Sellers, or any of them, is or has been
illegal pursuant to any federal, state, or local law of the United States or any
other country having jurisdiction of such conduct. TransPacific, the Sellers,
and each of them, have not participated, directly or indirectly, in any boycott
or other similar practice affecting any of the actual or potential customers of
TransPacific has at all times done business in an open and ethical manner.
4.1.33 INVESTMENT INTENT. Sellers are acquiring the Shares for
investment only, for the Seller's own account, and not with a view to, for offer
for sale or for sale in connection with, the distribution or transfer thereof.
The Shares are not being purchased for subdivision or fractionalization thereof;
and the Seller has no contract, undertaking, agreement or arrangement with any
person to sell, hypothecate, pledge, donate or otherwise transfer (with or
without consideration) to any such person any of the Shares, and Seller has no
present plans or intention to enter into any such contract, undertaking,
agreement or arrangement.
4.2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Purchaser represents
and warrants to Sellers that:
4.2.1. DUE ORGANIZATION; GOOD STANDING; POWER. Purchaser is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware. Purchaser has all requisite corporate power to
enter into this Agreement and to perform its obligations hereunder.
4.2.2. AUTHORIZATION AND VALIDITY OF DOCUMENTS. The execution,
acknowledgment, sealing, delivery, and performance of this Agreement by
Purchaser, and the consummation by Purchaser of the transactions contemplated
hereby, have been duly and validly authorized by Purchaser. This Agreement has
been duly executed, acknowledged, sealed and delivered by Purchaser and is a
legal, valid, and binding obligation of the Purchaser, enforceable against
Purchaser in accordance with its terms, except as such enforceability may be
limited by general principles of equity, bankruptcy, insolvency, moratorium and
similar laws relating to creditors rights generally.
4.2.3. INVESTMENT INTENT. The Purchaser is acquiring the Sellers
Shares for investment only, for the Purchaser's own account, and not with a view
to, for offer for sale or for sale in connection with, the distribution or
transfer thereof. The Sellers Shares are not being purchased for subdivision or
fractionalization thereof; and the Purchaser has no contract, undertaking,
agreement or arrangement with any person to sell, hypothecate, pledge, donate or
otherwise transfer (with or without consideration) to any such person any of the
Sellers Shares, and the Purchaser has no present plans or intention to enter
into any such contract, undertaking, agreement or arrangement.
4.2.4 BROKERAGE. Purchaser has not incurred any obligation or
liability, contingent or otherwise, for brokerage fees, finder's fees, agent's
commissions, or the like in connection with this Agreement or the transactions
contemplated hereby.
4.2.5 NO CONFLICT. Neither the execution and delivery of this
Agreement nor the consummation or performance of any of the transactions
contemplated
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by this Agreement will give any person the right to prevent, delay or otherwise
interfere with any of the transactions contemplated by this Agreement pursuant
to (a) any provision of Purchaser's charter or by-laws; (b) any resolution
adopted by the Board of Directors or Shareholders of Purchaser; (c) any legal
requirement or order to which Purchaser may be subject; (d) any contract to
which Purchaser is a party or by which Purchaser may be bound. Purchaser is not
and will not be required to obtain any consent from any person or agency in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the transactions contemplated by this Agreement.
4.2.6 COMMISSION FILINGS. AMCOR has made available to Sellers
copies of AMCOR's (i) annual report for the fiscal year ended August 31, 1996,
and (ii) any filings under the Securities Act and the Securities Exchange Act of
1934, as amended ("Exchange Act"), since January 1, 1997, in each case as filed
with the SEC. AMCOR has filed all reports, registration statements and other
documents required to be filed under the Exchange Act and the rules and
regulations thereunder, and all such reports, registration statements and other
documents complied, in all material respects with the requirements of the
Exchange Act. As of their respective dates, the AMCOR annual report and other
filings did not contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statement
therein, in light of the circumstances under which they were made, not
misleading.
5. COVENANTS AGAINST COMPETITION.
5.1. SELLERS' AGREEMENT NOT TO COMPETE. The parties acknowledge that
following the consummation of the purchase and sale of the Sellers Shares, the
Purchaser will enter into an employment agreements with Gus K. Franklin and
Susan K. Franklin (collectively, the "Franklins"). The Purchaser and the
Franklins acknowledge and agree that the services of the Franklins will be of a
special and unusual character which have a unique value to the Purchaser, the
loss of which cannot be adequately compensated by damages in an action at law
and, if used in competition with the Purchaser, could cause serious harm to the
Purchaser. Additionally, the Franklins and the Purchaser also recognize that an
important part of the Franklins' duties will be to develop good will for the
Purchaser through the Franklins' personal contact with individual and group
subscribers of TransPacific's services, agents and other persons having business
relationships with the Purchaser, and that there is a danger that this good
will, a proprietary asset of the Purchaser, may follow Gus and Susan Franklin,
if and when their relationship with the Purchaser is terminated. Accordingly,
Gus and Susan Franklin agree that they shall not, during the time period that
they are employed by Purchaser and for a period of two years from the date of
the termination of such employment for any reason whatsoever, do any of the
following: (i) directly or indirectly, solicit or otherwise contact any person
who then receives or has the right to receive or at any prior time received or
had the right to receive from TransPacific's or Purchaser's services
("Subscriber") for the purpose of seeking to obtain any such Subscriber as a
subscriber to or beneficiary of a similar business conducted by any person other
than the Purchaser; (ii) directly or indirectly employ, hire or otherwise engage
the services of or associate in any business with any other person who is or has
been employed by either the Purchaser, or any affiliate of the Purchaser, unless
such other person shall have ceased to be employed by the Purchaser, (as the
case may be), or the Affiliate of the Purchaser, for at least one year, or (iii)
engage, directly or indirectly, as a proprietor, stock holder, partner,
director, of office, employee, independent
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contractor or otherwise in the business of providing services in competition
with Purchaser, in any of the counties of California or any other state, as more
particularly set forth in Schedule 5.1, in which Purchaser provides its services
on the date the Franklins' employment with the Purchaser is terminated for any
reason whatsoever.
5.2. ENFORCEABILITY. The parties agree that to the extent that any
provision or portion of Section 5.1 of this Agreement shall be held, found or
deemed to be unreasonable, unlawful or unenforceable by a court of competent
jurisdiction, then any such provision or portion thereof shall be deemed to be
modified to the extent necessary in order that any such provision or portion
thereof shall be legally enforceable to the fullest extent permitted by
applicable law; and the parties do further agree that any court of competent
jurisdiction shall, and the parties do hereby expressly authorize, request and
empower any court of competent jurisdiction to, enforce any such provision or
portion thereof or to modify any such provision or portion thereof in order that
any such provision or portion thereof shall be enforced by such court to the
fullest extent permitted by applicable law.
5.3. RIGHT TO ENJOIN. As the violation by Gus K. Franklin or Susan K.
Franklin of the provisions of Section 5.1 of this Agreement would cause
irreparable injury to the Purchaser, and there is no adequate remedy at law for
such violation, the Purchaser shall have the right, in addition to any other
remedies available at law or in equity, to enjoin Gus K. Franklin or Susan K.
Franklin in a court of equity from violating such provisions.
6. INDEMNIFICATION.
6.1. TransPacific, Gus K. Franklin and Susan K. Franklin shall jointly
and severally defend, indemnify and hold Purchaser its officers, directors,
stockholders, representatives, agents, accountants, attorneys, servants and
employees, and their respective heirs, personal and legal representatives,
guardians, successors and assigns harmless, in respect of any and all claims,
threats, liabilities, taxes, interest, fines, penalties, suits, actions,
proceedings, demands, damages, losses, costs and expenses (including without
limitation, settlement costs and any attorneys' and experts' fees and court
costs) of every kind and nature reasonably incurred by Purchaser arising out of,
resulting from, or in connection with:
6.1.1. Any misrepresentation or breach by TransPacific or the
Sellers of any representation or warranty specified in this Agreement.
6.1.2. Any nonfulfillment, failure to comply or breach by
TransPacific or the Sellers or either of them, of or with any covenant, promise
or agreement of the Sellers or any of Sellers specified in this Agreement.
6.2. INDEMNIFICATION BY PURCHASER. The Purchaser shall defend
indemnify and hold the Sellers and their respective heirs, personal and legal
representatives, guardians, successors and assigns harmless from and against any
and all claims, threats, liabilities, taxes, interest, fines, penalties, suits,
actions, proceedings, demands, damages, losses, costs and expenses (including
attorneys' and experts' fees and court costs) of every kind and nature arising
out of, resulting from, or in connection with:
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6.2.1. Any misrepresentation omission or breach by Purchaser of
any representation or warranty specified in this Agreement.
6.2.2. Any nonfulfillment, failure to comply or breach by the
Purchaser of or with any covenant, promise or agreement of the Purchaser
specified in this Agreement.
6.3 CLAIMS FOR INDEMNIFICATION; LIMITATIONS ON INDEMNIFICATION.
6.3.1 Whenever any claim shall arise for indemnification
hereunder, the party entitled to indemnification ("Indemnified Party") shall
promptly notify the other party ("Indemnifying Party") of the claim and, when
known, the facts constituting the basis for such claim. In the event of any
claim for indemnification hereunder resulting from or in connection with any
claim or legal proceedings by a third party, the notice to the Indemnifying
Party shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. The Indemnified Party shall not settle or
compromise any claim by a third party for which it is entitled to
indemnification hereunder, without the prior written consent of the
Indemnifying Party (which shall not be unreasonably withheld) unless suit
shall have been instituted against it and the Indemnifying Party shall not
have acknowledged and performed its indemnity obligations after notification
of such suit as provided in Section 6.3.2.
6.3.2 In connection with any claim giving rise to indemnity
hereunder resulting from or arising out of any claim or legal proceeding by a
person who is not a party to this Agreement, the Indemnifying Party shall
timely pay all reasonable attorneys' fees, costs and other expenses as they
are incurred by the Indemnified Party in connection with the defense of any
such claim or legal proceeding. The Indemnified Party shall be entitled to
select capable and qualified counsel to defend any such claim. The
Indemnifying Party shall be entitled to participate in the defense of any
such action, with its counsel and at its own expense. If the Indemnifying
Party does not acknowledge to the Indemnified Party, in writing, its
obligations to indemnify the Indemnified Party with respect to all elements
of such claim or does not timely pay all reasonable attorneys' fees, costs
and other expenses incurred by the Indemnified Party in connection with such
claim, the Indemnified Party may defend against such claim or litigation, in
such manner as it may deem appropriate, including, but not limited to,
settling such claim or litigation, in such manner as it may deem appropriate,
including, but not limited to, settling such claim or litigation, after
giving notice of the same to the Indemnifying Party, on such terms as the
Indemnified Party may deem appropriate. If the Indemnifying Party thereafter
seeks to question the manner in which the Indemnified Party defended such
third party claim or the amount or nature of any such settlement, the
Indemnifying Party shall have the burden to prove by a preponderance of the
evidence that the Indemnified Party did not defend or settle such third party
claim in a reasonably prudent manner.
6.3.3 Each party will fully cooperate with the other in the
defense or prosecution of any litigation or proceedings already instituted or
which may be instituted hereafter against or by such party relating to or
arising out of the conduct of the business of TransPacific prior to or after
the Closing Date (other than litigation arising out of the transactions
contemplated by this Agreement). The party requesting such cooperation shall
pay the out-of-pocket expenses (including legal fees and disbursements) of
the party providing such cooperation and of its officers, directors,
employees and agents reasonably
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incurred in connection with providing such cooperation, but shall not be
responsible to reimburse the party providing such cooperation for such party's
time spent in such cooperation or the salaries or costs of fringe benefits or
other similar expenses paid by the party providing such cooperation to its
officers, directors, employees and agents while assisting in the defense or
prosecution of any such litigation or proceeding.
6.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
investigation at any time made by or on behalf of any party, or of any
information any party may have in respect thereof, all covenants, agreements,
representations and warranties made hereunder or pursuant thereto or in
connection with the transactions contemplated hereby shall survive the Closing.
7. MISCELLANEOUS
7.1 NOTICES. Any notice, direction or instrument required or permitted to
be given pursuant to this Agreement shall be given in writing by (i) telegram,
facsimile transmission or similar method, if confirmed by mail as herein
provided, by mail; (ii) if mailed postage prepaid, by certified mail, return
receipt requested; or (iii) hand delivery to any party at the addresses of the
parties specified, below. If given by telegram or facsimile transmission or
similar method or by hand delivery, such notice, direction or instrument shall
be deemed to have been given or made on the day on which it was given, and if
mailed, shall be deemed to have been given or made on the second (2nd) business
day following the day after which it was mailed. Any party may, from time to
time by similar notice, give notice of any change of address, and in such event,
the address of such party shall be deemed to be changed accordingly. The
address, telephone number and facsimile transmission number for the notice of
each party are:
If to Sellers: TransPacific Environmental Incorporated
12815 E. Imperial Highway
Santa Fe Springs, California 90670
Telephone: 562.906.5220
Facsimile: 562.906.5226
If to Purchaser: AMCOR Capital Corporation
52-300 Enterprise Way
Coachella, California 92236
Telephone: 760.398.9520
Facsimile: 760.398.9530
7.2 BROKERS. Each of the parties hereto represents and warrants that no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission, or to the reimbursement of any of its expenses, in
connection with the transaction contemplated hereby based upon arrangements made
by or on behalf of either of the parties.
7.3 RECOVERY OF ENFORCEMENT COSTS. In the event any party shall institute
any action or proceeding to enforce any provision of this Agreement to seek
relief from any violation of this Agreement, or to otherwise obtain any judgment
or order relating to or arising from the subject matter of this Agreement, each
prevailing party shall be entitled to
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receive from each losing party such prevailing party's reasonable attorneys'
fees and costs incurred to prosecute or defend such action or proceeding.
7.4 ASSIGNMENT. No party shall have the right, without the consent of the
other party, to assign, transfer, sell, pledge, hypothecate, delegate, or
otherwise transfer, whether voluntarily, involuntarily or by operation of law,
any of such party's rights or obligations created by the provisions of this
Agreement, nor shall the parties' rights be subject to encumbrance or the claim
of creditors. Any such purported assignment, transfer, or delegation shall be
null and void.
7.5 CAPTIONS AND INTERPRETATIONS. Captions of the articles and sections of
this Agreement are for convenience and reference only, and the works specified
therein shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction, or meaning of the provisions of this Agreement.
The language in all parts to this Agreement, in all cases, shall be construed in
accordance with the fair meaning of that language as if prepared by all parties
and not strictly for or against any party. Each party and counsel for such party
have reviewed this Agreement. The rule of construction, which requires a court
to resolve any ambiguities against the drafting party, shall not apply in
interpreting the provisions of this Agreement.
7.6 ENTIRE AGREEMENT. This Agreement and the schedules to this Agreement
are the final written expression and the complete and exclusive statement of all
the agreements, conditions, promises, representations, warranties and covenants
between the parties with respect to the subject matter of this Agreement, and
this Agreement supersedes all prior or contemporaneous agreements, negotiations,
representations, warranties, covenants, understandings and discussions by and
between and among the parties, their respective representatives, and any other
person, with respect to the subject matter specified in this Agreement.
7.7 CHOICE OF LAW AND CONSENT TO JURISDICTION. All questions concerning
the validity, interpretation, or performance of any of the terms, conditions and
provisions of this Agreement or of any of the rights or obligations of the
parties shall be governed by, and resolved in accordance with, the laws of the
State of California, without regard to conflicts of law principles. The parties
hereby consent in any dispute, action, litigation or other proceeding concerning
this Agreement, to the jurisdiction of the courts located in Orange County,
California.
7.8 WAIVER AND MODIFICATION. No modification, supplement or amendment of
this Agreement or of any covenant, condition, or limitation specified in this
Agreement shall be valid unless the same is made in writing and duly executed by
both parties. No waiver of any covenant, condition, or limitation specified in
this Agreement shall be valid unless the same is made in writing and duly
executed by the party making the waiver. No waiver of any provision of this
Agreement shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver.
7.9 NUMBER AND GENDER. Whenever the singular number is used in this
Agreement and, when required by the context, the same shall include the plural,
and vice versa; the masculine gender shall include the feminine and the neuter
genders, and vice versa, and the word "person" shall include individual,
company, sole proprietorship,
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corporation, joint venture, association, joint stock company, fraternal order,
cooperative, league, club, society, organization, trust, estate, governmental
agency, political subdivision or authority, firm, municipality, congregation,
partnership, or other form of entity. As used in this Agreement, the word
"affiliate," as it relates to a person, shall be defined as and mean a parent,
spouse, brother or sister, or natural or adopted lineal descendent or spouse of
such descendent of such person, and any proprietorship, corporation,
partnership, congregation, organization, firm, estate, association, league,
club, society, joint venture, trust or other form of entity in which such person
or parent, spouse, brother or sister, or natural or adopted lineal descendent or
spouse of such descendent or such person may have an equity interest or in which
such person or parent, spouse, brother or sister, or natural or adopted lineal
descendent or spouse of such descendent of such person is a proprietor, partner,
officer, director, shareholder, employee, consultant, independent contractor,
owner, co-venturer, employer, agent, representative, settlor or beneficiary.
7.10 SEVERABILITY. If any term or provision hereof, or the application
thereof to any person, entity or circumstance, shall to any extent be invalid or
enforceable in any pertinent jurisdiction, then the remainder hereof shall not
be affected thereby but shall be valid and enforceable as if the invalid term or
provision were not a part hereof.
7.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will constitute an original, but together shall be
construed as one document.
IN WITNESS WHEREOF the parties have executed this Common Stock Exchange
Agreement in duplicate on the date specified in the preamble of this Agreement.
AMCOR Capital Corporation, Delaware corporation
By: /s/ Fred Behrens
--------------------------------------
Its: Chief Executive Officer
By: /s/ Robin E. Swanson
--------------------------------------
Its: Secretary
TRANSPACIFIC ENVIRONMENTAL, INC., a California corporation
By: /s/ Gus K. Franklin
--------------------------------------
Its: President
By: /s/ Susan K. Franklin
--------------------------------------
Its: Secretary
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Exhibit 10.29
AGREEMENT REGARDING TRANSPORTATION SERVICES
This Agreement Regarding Transportation Services (the "Agreement") is
effective as of the 8th day of June, 1998 (the "Effective Date") by and
between USA Waste of California, Inc., a Delaware corporation ("Shipper"),
AMCOR Capital Corporation, a Delaware corporation ("AMCOR") and AMCOR
Biomass, Inc., a Delaware corporation ("Carrier").
W I T N E S S E T H
In consideration of the mutual covenants and agreements herein set forth, and
other good and valuable consideration, Carrier and Shipper do hereby agree as
follows:
1. TRANSPORTATION SERVICES.
1.1. Effective on the Commencement Date, Carrier will have the
exclusive right to transport for Shipper all Acceptable Waste
described in Exhibits "A-1" and "A-2" and any supplements,
reissuances or amendments thereto which have been agreed to and
initialed by each of the parties hereto (collectively,
"Amendments") (hereinafter each reference to Exhibits "A-1" and
"A-2" shall be deemed to refer to such Exhibits "A-1" and "A-2"
and any Amendments thereto) between the points named therein and
subject to the terms and provisions set forth below.
1.2. Effective on the Commencement Date, Shipper shall utilize Carrier
exclusively to transport the Acceptable Waste described in
Exhibits "A-1" and "A-2" from Shipper's Facility(s) (i.e.
transfer stations) described in Exhibits "A-1 and "A-2" and any
supplements, reissuances or amendments thereto which have been
agreed to and initialed by each of the parties hereto
(collectively, "Amendments") (hereinafter each reference to
Exhibits "A-1" and "A-2" shall be deemed to refer to such
Exhibits "A-1" and "A-2" and any Amendments thereto), to the
Final Destination as described in Exhibits "A-1" and "A-2", and
Carrier shall have the right to haul and deliver all such waste
material as long as it strictly fulfills its obligations under
this Agreement. This right of shipment shall not be applicable to
other commodities or material shipped by Shipper. Carrier shall
have no right to perform services, or obtain compensation
therefor, other than as expressly set forth in this Agreement or
by separate written agreement between the parties.
1.3. The amount of Acceptable Waste received at Shipper's Facility(s)
on a daily basis is subject to variation the term of this
Agreement. Shipper makes no representations or warranties as to
the amount of waste material that will be made available to
Carrier for transportation during the term of this Agreement, and
all amounts stated in Exhibits "A-1" and "A-2" are estimates
only, provided in good faith by Shipper and accurate to the best
of its knowledge as of the date of execution of this Agreement.
Shipper shall provide Carrier with at least three (3) business
days notice if it anticipates a substantial increase in the
amount of waste material to be transported by Carrier on a daily
basis.
1.4. In the event of Amendments to Exhibits "A-1" and "A-2" suggested
by Shipper, or the request of Shipper that Carrier perform
additional services, the parties agree to negotiate in good faith
for any changes in the transportation rate or a rate to be
charged for any additional services, as appropriate.
Notwithstanding any provision herein to the contrary, in the
event the parties are unable to reach agreement on a change in
the transportation rate, or a rate to be charged for any
additional services, Shipper shall have the right to obtain the
changed or additional services from another party without
penalty, provided, however, that the parties for a period of not
less than thirty (30) days attempt in good faith to resolve the
determination of rates for changed or additional services by
mediation under the
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Commercial Mediation Rules of the American Arbitration
Association ("AAA"). If the parties cannot agree on the selection
of the mediator, the AAA will select the mediator.
Notwithstanding the above, Carrier shall have the right to
continue providing existing services (i.e. not the subject of
Shipper's request for changed or additional services) on an
exclusive basis for the term of this Agreement.
2. TERMS OF PAYMENT.
2.1. Carrier will charge for the above transportation service on the
basis of the rates, charges and provisions set forth in Exhibits
"A-1" and "A-2".
2.2. Shipper shall pay Carrier for transportation services performed
within 30 days of invoice date. Carrier will bill Shipper on or
before the 15th day and the 30th day of the month for services
performed during the period since the last invoice. Shipper must
notify Carrier of any discrepancies in billings made within ten
(10) days of receipt. All undisputed amounts must be paid within
thirty (30) days of the invoice date.
3. TRACTORS, DRIVERS AND WORK RULES. Carrier will supply, maintain and
operate such tractors and provide the services of, and supervise,
drivers as in each instance are required to perform the transportation
service. Carrier shall provide all necessary trailers to perform the
services described in Exhibit A-2 (South Gate Transfer Station) and
Shipper will provide all necessary trailers to perform the services
described in Exhibit A-1 (Carson Transfer Station). Carrier warrants
that it will maintain its tractors, and any other vehicles used under
this Agreement, in roadworthy condition and comply with all state and
federal safety regulations, particularly with regard to the replacement
of tires and brakes. Carrier may, but is not required to, store
tractors used for this Agreement at Shipper's Facility in a location
designated by Shipper. Shipper shall operate the Shipper's Facility(s)
in a reasonable and prudent manner so as to prevent or minimize any
damage to Carrier's tractors or trailers while at Shipper's
Facility(s), other than normal wear and tear. Carrier shall hold
Shipper harmless for any damage to its tractors and trailers while at
Shipper's Facility except to the extent that such damage is caused by
the negligence of Shipper, its employees or agents. In addition to the
foregoing, Carrier will implement, maintain and enforce Work Rules that
at a minimum contain the provisions set forth on Exhibit "B". Carrier's
failure to implement, maintain and enforce its Work Rules shall
constitute a material breach of this Agreement.
4. CARE, CUSTODY AND CONTROL. Carrier shall have the sole and exclusive
care, custody and control of the Acceptable Waste described in the
applicable section of Exhibits "A-1" and "A-2" from the time Carrier
attaches its tractor to Shipper's loaded trailer until the Acceptable
Waste is discharged from such trailer at the Final Destination
specified by Shipper. Carrier assumes full responsibility for any
damage thereto or loss thereof, however occurring, during the time that
said Acceptable Waste and trailers are in Carrier's custody or
possession. Once the waste material is discharged from the trailer at
the Final Destination to the reasonable satisfaction of Shipper,
Shipper shall protect, defend and indemnify Carrier from any future
environmental liability in accordance with the terms and conditions of
Section 8.4 below.
5. COMPLIANCE WITH LAWS. Carrier agrees to comply with all local, state
and federal laws, regulations, approvals, requirements or orders
applicable to its performance under this Agreement and respecting all
of Carrier's operations hereunder. Without limiting the foregoing,
Carrier will at all times have and maintain all permits,
authorizations, registrations and franchises, and will make all filings
and notifications, required in order to perform its obligations
hereunder.
6. NOTIFICATION OF LOSS. Carrier shall give prompt notice to Shipper of
losses, damage injuries or liabilities to or involving persons or
property of Shipper, Carrier, third parties or the waste material in
any way related to the services covered by this Agreement.
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7. RELATIONSHIP OF THE PARTIES. In the performance of the Agreement,
Carrier and/or its agents and employees are not the agents or employees
of Shipper, but Carrier is an independent contractor, employing agents
and/or employees under the exclusive management and control of Carrier.
8. INDEMNIFICATION.
8.1. Carrier and AMCOR agree to defend, indemnify and hold Shipper
harmless and assume full responsibility for payment of all State
and Federal taxes for unemployment insurance, workers'
compensation, old age pensions or under any social security laws
or law, as to all employees of Carrier engaged in the performance
of this Agreement.
8.2. Carrier and AMCOR agree to defend, indemnify and hold Shipper
harmless for losses, damages, injuries or death that arise in
connection with the acts or omissions of Carrier in the
performance of its duties under this Agreement, or a violation of
applicable laws and regulations.
8.3. Shipper agrees to defend, indemnify and hold Carrier and AMCOR
harmless for damages, injuries or death that arise in connection
with the acts or omissions of Shipper in the performance of its
duties under this Agreement, or a violation of applicable laws
and regulations.
8.4. Shipper agrees to defend, indemnify and hold Carrier and AMCOR
harmless for any losses, injuries, or claims (including but not
limited to Removal or Remedial actions brought pursuant to the
Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C Section 9601 et seq., or any similar state or local
law) that arise in connection with the release of Hazardous
Substances (as that term is defined under 42 U.S.C. Section
9601(14) or any similar state or local law) from the facility
which is the Final Destination for waste material transported by
Carrier, provided, however, that this indemnity shall not apply
to the extent (i) that Carrier, and not Shipper, selected the
Final Destination for the waste material or (ii) the negligence
or willful misconduct of Carrier in the performance of its duties
under this Agreement.
9. TERM. This Agreement shall remain in effect for an initial term of five
(5) years from the Effective Date of this Agreement. Thereafter, the
term of this Agreement shall be automatically extended for two
successive five (5) year terms, unless notice in writing of termination
is given by either party to the other not less that 180 days prior to
the end of the the initial term or any successive term (the "Nonrenewal
Notice"). Notwithstanding the foregoing, at any time this Agreement may
be terminated for Cause by either party following written notice and
opportunity to cure of fifteen (15) days, upon 60 days' written notice
(except as otherwise provided herein). For purposes of this Agreement,
"Cause" shall include, but shall not be limited to:
9.1. The failure of Carrier to give notice of the Commencement Date
within six (6) months of the date of execution of this Agreement,
except where arising from an event of Force Majeure;
9.2. the failure of Carrier to perform or observe (unless arising from
events of Force Majeure as hereinafter defined) any of the terms
or provisions of this Agreement;
9.3. dishonesty or misconduct on the part of Carrier that is or is
reasonably likely to be damaging or detrimental to the business
of Shipper;
9.4. the assignment or sale of Carrier or AMCOR to a direct competitor
of Shipper, or any other material change in the ownership or
control of Carrier (including but not limited to the
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acquisition, through one or more transactions, of 50% or more of
the voting stock of Carrier or AMCOR by a person or persons not
already owning 50% of the voting stock of Carrier or AMCOR) not
approved by Shipper;
9.5. the failure of Carrier to provide the necessary equipment and
remove all waste material from Shipper's Facility(s) that Carrier
is capable of in good faith during the authorized operating hours
as set forth in Shipper's Solid Waste Facility Permit, or other
permits, licenses or approvals governing the operation of
Shipper's Facility(s) the "Permits");
9.6. actions on the part of Carrier that cause Shipper to be in
material or repeated violation of Shipper's Permits, or the
permits, licenses or approvals governing the operation of
disposal facilities owned or operated by Shipper or its affiliate
(; or
9.7. failure to maintain the insurance coverages as set forth in
Section 15;
provided, however, that (i) Carrier and AMCOR agree with respect to
Section 9.4 above to notify Shipper thirty (30) days prior to the
closing of any such sale or transaction and that Shipper shall have
the right upon such prior notification to terminate this Agreement
immediately upon 30 days' notice thereof to Carrier, (ii) that if
Shipper becomes entitled to terminate with Cause pursuant to
Sections 9.5 or 9.6 above, then notice of breach may be made by any
means, Carrier's opportunity to cure shall extend only until two
hours prior to the commencement of operations at Shipper's Facility(s)
on the business day following the day on which notice of breach is
provided, and Shipper shall have the right to provide for
transportation of the waste material through other parties at
Carrier's expense or to terminate this Agreement upon forty-eight (48)
hours notice thereof to Carrier, and (iii), that if Shipper becomes
entitled to terminate with Cause pursuant to Section 9.7 above, then
following written notice and opportunity to cure of five (5) business
days, Shipper shall have the right to provide for transportation of
the waste material through other parties at Carrier's expense or to
terminate this Agreement upon forty-eight (48) hours notice thereof
to Carrier.
10. FORCE MAJEURE. In the event that either party is prevented from
performing its duties and obligations pursuant to this Agreement by
circumstances beyond its control, including, without limitation, fires,
floods, labor disputes, or Acts of God (hereinafter referred to a
"Force Majeure") such that Shipper is unable to provide the waste
material for shipment or Carrier is unable to carry the waste material,
then the affected party shall be excused from performance hereunder
during the period of such disability and the term of the Agreement
shall be extended for a period identical to the period of such
disability. The party claiming Force Majeure shall promptly notify the
other when it learns of the existence of a Force Majeure condition and
shall similarly notify the other within a period of two (2) days,
excluding weekends and holidays, when the Force Majeure condition has
terminated. In the event Carrier fails to take delivery of shipments of
waste under this Agreement as a result of Force Majeure, bankruptcy or
insolvency Shipper shall have the right to engage another party to make
such Shipment without liability to Carrier hereunder.
11. UNACCEPTABLE WASTE. In the event that Shipper delivers Unacceptable
Waste to Carrier, Shipper, upon notification, shall take immediate
measures to remove the Unacceptable Waste for proper handling and
disposal at its own expense. If the Unacceptable Waste is not removed
within twenty-four (24) hours from receipt of notice, Carrier shall
have the right and authority to handle and dispose of the Unacceptable
Waste, and Shipper agrees to reimburse Carrier for its reasonable costs
related to the handling and disposal of the of Unacceptable Waste.
Shipper shall indemnify and hold Carrier harmless from and against any
any losses, injuries, or claims (including, but not limited to,
reasonable investigation and legal expenses) as incurred arising,
caused by, or resulting from Shipper's delivery of Unacceptable Waste.
4
<PAGE>
12. REPRESENTATIONS AND WARRANTIES.
12.1. Shipper's Representations. Shipper has the full right, power and
authority to enter into this Agreement as provided herein, and to
perform its obligations hereunder, and the individual executing
this Agreement is authorized to execute the Agreement on behalf
of Shipper. Shipper's execution of this Agreement and the
performance of its obligations hereunder will not (i) violate any
constitution, statute, regulation, rule, injunction, judgment,
order, decree, charge, or other restriction of any government,
governmental agency, or court to which Shipper is subject or any
provision of the articles or bylaws of Shipper or (ii) conflict
with, result in a breach of, constitute a default under, result
in the acceleration of, or create in any party the right to
accelerate, terminate, modify, or cancel, any agreement,
contract, lease, license, instrument, or other arrangements to
which Shipper is a party or to which any of its assets are
subject (or result in the imposition of any security interest
upon any of its assets), including but not limited to any
collective bargaining agreement or any solid waste collection
franchise agreement with a local governmental entity held by
Shipper or its affiliates. Shipper represents that to the best of
its knowledge and belief Carrier's performance of its obligations
pursuant to this Agreement will not subject Carrier to any taxes,
fees or charges imposed on a weight or volumetric basis on solid
waste operations, including but not limited to the Los Angeles
County Solid Waste Management Fee or any franchise fees payable
pursuant to any solid waste collection franchise agreement with a
local governmental entity held by Shipper or its affiliates.
12.2. Carrier's and AMCOR's Representations. Carrier and AMCOR have the
full right, power and authority to enter into this Agreement as
provided herein, and to perform their respective obligations
hereunder, and the individual executing this Agreement is
authorized to execute the Agreement on behalf of Carrier and
AMCOR. Carrier's and AMCOR's execution of this Agreement and the
performance of their respective obligations hereunder will not
(i) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, charge, or other restriction
of any government, governmental agency, or court to which Shipper
is subject or any provision of the articles or bylaws of Carrier
or AMCOR or (ii) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, or create in any
party the right to accelerate, terminate, modify, or cancel, any
agreement, contract, lease, license, instrument, or other
arrangements to which Carrier or AMCOR is a party or to which any
of its assets are subject (or result in the imposition of any
security interest upon any of its assets).
13. AMCOR'S GUARANTY. AMCOR agrees to be fully responsible for and to
assure performance of the financial obligations of Carrier pursuant to
this Agreement. Upon demand of Shipper, AMCOR shall promptly pay all
monies due and owing by Carrier.
14. PUBLICITY. The parties agree that any press releases, brochures,
promotional materials or investor communications will be provided to
the other in advance for review and approval, which shall not be
withheld unreasonably. In addition, Carrier and AMCOR shall make no
disclosures of any kind regarding this transaction until forty-eight
(48) hours in advance of the Commencement Date, unless required by law.
15. INSURANCE. Carrier agrees to furnish to Shipper, upon execution,
certificates attesting to the existence of the following insurance, to
maintain the following insurance during the term of this Agreement:
5
<PAGE>
<TABLE>
<CAPTION>
Coverages Limits of Liability
--------- -------------------
<S> <C>
Workmen's Compensation Statutory
Employer's Liability $1,00,000 Each Occurrence
General Liability, Including $5,000,000 Combined Single
Bodily Injury, Property Limit, Each Occurrence
Damage and Contractual Liability
Automobile Liability, Including $5,000,000 Combined Single
Bodily Injury and Property Limit, Each Occurrence
Damage
</TABLE>
Each such certificate shall contain a statement of the insurer's
obligation to notify the party to whom the certificate is addressed at
least thirty (30) days prior to cancellation of any policy covered
thereunder.
Customer's General Liability and Automobile Liability policies
shall name Shipper as an additional insured.
16. ASSIGNMENT. This Agreement is not assignable by Carrier, nor may there
be any other material change in the ownership or control of Carrier
without the written consent of Shipper, which shall not be withheld
unreasonably. This Agreement is not assignable by Shipper without the
written consent of Carrier, which shall not be withheld unreasonably,
except that Carrier's consent shall not be required for an assignment
to an affiliate of Shipper.
17. NOTICES. All notices required under this Agreement shall be to the
following addresses:
If to Shipper: USA Waste of California, Inc,
Los Angeles Division
1970 East 213th Street
Long Beach, CA 90810
Attn: Division Manager
If to Carrier and AMCOR: AMCOR Capital Corporation
12815 East Imperial Highway
Santa Fe Springs, CA 92670
Attn: Eugene Tidgewell,
Vice President/CFO
18. GOVERNING LAW. This Agreement shall be construed under and in
accordance with the laws of the State of California.
19. HEADINGS. The headings in this Agreement are intended for convenience
and identification only, are in no way intended to describe, interpret,
define, or limit the scope, extent or intent of this Agreement or any
provision hereof and shall be disregarded in the construction and
enforcement of this Agreement.
20. CONSTRUCTION. Each of the parties hereto agree and acknowledge that
each party has reviewed and has had the opportunity to revise this
Agreement and that the normal rule of construction
6
<PAGE>
to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed to the interpretation of this
Agreement or any amendment or exhibit hereto.
21. SEVERABILITY. Every provision of this Agreement is intended to be
severable. If any term or provision is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the
validity of the remainder hereof.
22. REMEDIES CUMULATIVE. The rights and remedies provided by this Agreement
are cumulative and the use of any one right or remedy by either party
shall not preclude or waive its right to use any or all other remedies.
Said rights and remedies are given in addition to other rights the
parties may have by law, statute, ordinance or otherwise.
23. ENTIRE AGREEMENT. This Agreement and the exhibits hereto constitute the
entire agreement and understanding of the parties with respect to the
subject matter hereof, and supersede all prior and contemporaneous
agreements and understandings, oral or written, relative to said
subject matter. No amendment, modification or alteration of the terms
hereof shall be binding unless the same shall be in writing, dated
subsequent to the date hereof, and duly executed (or, with respect to
Exhibit A, initialed) by the parties hereto.
24. DEFINITIONS. As used in this Agreement, the following terms shall have
the meanings set forth below.
24.1. "Acceptable Waste" means all garbage, refuse, rubbish and other
materials and substances discarded or rejected as being spent,
useless, worthless, or in excess to the owners at the time of
such discard or rejection and which are normally disposed of, or
collected from residential (single family or multi-family),
commercial, industrial, governmental and institutional
establishments which are acceptable for disposal at Class III
landfills in California.
24.2. "Commencement Date" means the date upon which Carrier has
obtained the necessary equipment and is ready, willing and able
to perform its obligations under this Agreement. Carrier shall
give Shipper at least ten (10) days written notice prior to the
estimated date on which it intends to begin performance.
Notwithstanding any provision herein to the contrary, Carrier
shall not be obligated to commence services pursuant to this
Agreement unless and until each of the Contingencies to Closing
set forth in Section 6.1 of the Real Estate Purchase Agreement
and Escrow Instructions between Carrier, AMCOR and an affiliate
of Shipper, dated June 8, 1998 have been satisfied, except for
the contingency set forth in Section 6.1.5 or to the extent that
any of the contingencies have been waived by Carrier.
24.3. "Unacceptable Waste" means Hazardous Waste; Hazardous Substances;
Hazardous Materials; untreated medical waste; Household
Hazardous Waste that has been separated from Acceptable Waste,
and waste that is not acceptable for disposal at Class III
landfills in California.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
AMCOR Capital Corporation USA Waste of California, Inc.
By: /s/ Fred Behrens By: /s/ W.C. Zeto
------------------------------- ---------------------------------
Title: CHAIRMAN Title: Vice President
---------------------------- ------------------------------
AMCOR Biomass, Inc.
By: /s/ Fred Behrens
-------------------------------
Title: CHAIRMAN
----------------------------
8
<PAGE>
EXHIBIT A-1
TRANSPORTATION SERVICES TERMS - CARSON TRANSFER STATION
Waste Material/Product: Acceptable Waste
Shipper's Facility(s): Carson Transfer Station
321 Francisco Street
Carson, CA 90745
Hauling Rate: Rates are calculated per load and vary
by transfer final destination
(landfill). Current rates are as for
the Carson Transfer Station are as
follow:
<TABLE>
<CAPTION>
LANDFILL RATE PER LOAD
--------------------------------------
<S> <C>
Chiquita Canyon $120
Puente Hills $ 80
El Sobrante $121.50
CIM (Green Waste) $ 85
</TABLE>
Hauling Rate Adjustment: The Hauling Rate will be adjusted
upward annually on each anniversary of
the Effective Date to reflect increases
(not decreases) in the Consumer Price
Index for the Los Angeles-Long Beach-
Anaheim area, as published by the U.S.
Department of Labor, Bureau of Labor
Statistics. In addition, Hauling Rate
shall be increased or decreased to
reflect extraordinary increases or
decreases in the cost of fuel, upon
presentation of appropriate
documentation by the party seeking the
adjustment.
Estimated Daily Tonnage: Average of 2,700 tons per day Monday
through Saturday
Special Requirements As set forth in El Sobrante Landfill
(El Sobrante) Agreement between USA Waste and
Riverside County, as it currently
exists or may be amended, including (i)
identifying markings on the tractors,
(ii) refraining from transporting waste
on SR91 through Corona from 6:00 - 8:30
am and 4:00 - 6:30 pm Monday -Friday,
and (iii) entering and exiting the I-15
freeway only at Temescal Canyon Road.
<PAGE>
EXHIBIT A-2
TRANSPORTATION SERVICES TERMS - SOUTH GATE TRANSFER STATION
Waste Material/Product: Acceptable Waste
Shipper's Facility(s): South Gate Transfer Station
4489 Ardine Street
South Gate, CA 90280
Hauling Rate: Rates are calculated per load and vary
by transfer final destination
(landfill). Current rates are as for
the South Gate Transfer Station are as
follow:
<TABLE>
<CAPTION>
LANDFILL RATE PER LOAD
----------------------------------------
<S> <C>
Chiquita Canyon $160
Puente Hills $120
El Sobrante $161.50
Chino $125
Irvine/Frank Bowerman L/F $135
</TABLE>
Hauling Rate Adjustment: The Hauling Rate will be adjusted
upward annually on each anniversary of
the Effective Date to reflect increases
(not decreases) in the Consumer Price
Index for the Los Angeles-Long Beach-
Anaheim area, as published by the U.S.
Department of Labor, Bureau of Labor
Statistics. In addition, Hauling Rate
shall be increased, or decreased to
reflect extraordinary increases or
decreases in the cost of fuel, upon
presentation of appropriate
documentation by the party seeking the
adjustment.
Estimated Daily Tonnage: Average of 1,000 tons per day Monday
through Saturday
Special Requirements As set forth in El Sobrante Landfill
(El Sobrante) Agreement between USA Waste and
Riverside County, as it currently
exists or may be amended, including (i)
identifying markings on the tractors,
(ii) refraining from transporting waste
on SR91 through Corona from 6:00 - 8:30
am and 4:00 - 6:30 pm Monday -Friday,
and (iii) entering and exiting the I-15
freeway only at Temescal Canyon Road.
<PAGE>
EXHIBIT B
AMCOR BIOMASS, INC.
WORK RULES
PAGE 1 OF 3
The following work rules are for the purpose of governing drivers employed by
AMCOR Biomass, Inc., hereinafter referred to as "drivers," while utilizing the
property of USA Waste of California, hereinafter referred to as "company."
We ask that all drivers read and understand the following work rules. They are
intended as a guide for all drivers so there will be no confusion or
misunderstanding of what the company expects from each of you.
All drivers are invited and encouraged to discuss all work problems with their
supervisor or the district manager or operations manager of the company.
Specific problems which interfere with the completion of your work in a prompt
and correct manner should be brought to the attention of your immediate
supervisor or the company district manager as soon as they develop. Failure to
do so can only result in growing problems for all of us.
MANAGEMENT RIGHTS
The company reserves the right to assign work, schedule production, or request
that TransPacific reassign any driver by necessity to enforce compliance with
the rules and regulations of conduct and safety. These rights are vested solely
and exclusively with and retained by the company, except as specifically
mediated by the terms of the agreement.
DISHONESTY, THEFT AND PILFERAGE
Theft, pilferage or unauthorized possession of company owned property or the
property of others and any other form of dishonesty will not be tolerated.
LOITERING
Drivers are requested not to loiter on company premises before or after their
week's shift, or on their day off. Loitering will only interfere with those
drivers who are working.
DEPARTMENT OF TRANSPORTATION (D.O.T.)
As contractor transporting company trailers, it is imperative that the contract
drivers meet all D.O.T. requirements. Company reserves the right to have access
to and inspect all contractors employee D.O.T. files for compliance.
<PAGE>
PAGE 2 OF 3
SAFETY
Each driver is responsible for compliance of all established safety rules on
landfills, disposal sites, and while on company owned property.
All drivers must report immediately any and all accidents involving company
owned equipment, regardless of how minor the accident might appear. Whether only
company owned equipment is involved, or whether another person or other person's
property is involved, absolutely all accidents must be reported.
Any driver who is careless, irresponsible or negligent to the point of causing
injury to himself or others shall be immediately denied further access to
company equipment and premises.
CONDUCT
The company's reputation is the result of the individual conduct and integrity
of all drivers and owner operators that represent it. We want the public to
always have confidence that these individuals representing the company respect
the law, respect the rights of others, and are concerned with public safety.
All drivers are expected to conduct themselves in an adult, professional manner
as is appropriate for business.
CONFIDENTIALITY
All of the records and information which you work with or have access to must be
regarded as confidential and cannot be released to or discussed with anyone
other than your supervisor, company operations manager, or company district
manager.
ABUSIVE OR THREATENING LANGUAGE
Drivers are prohibited from engaging in abusive or threatening language with
other employees, supervisors, or member of the general public.
ALCOHOL, MARIJUANA, AND DRUGS
The sale, use, possession or being under the influence of alcoholic beverages,
marijuana or any unauthorized or illegal drug while on duty or on company's
premises will be cause for immediate expulsion from company premises.
<PAGE>
PAGE 3 OF 3
SALVAGING
No attempt by drivers to salvage items from their loads or from the landfill is
allowed. All refuse must be dumped at either the landfill or other designated
locations.
The company may find it necessary to modify or add to these rules and procedures
from time to time, and will notify AMCOR of such modifications.
<PAGE>
Exhibit 23
Consent of Independent Auditors
The Board of Directors
USA Biomass Corporation
We consent to the incorporation by reference in the registration statement of
USA Biomass Corporation (formerly AMCOR Capital Corporation) on Form S-8
(File No. 333-06646) Form S-8 (File No. 333-44477) and Form S-3 (File No.
333-46663) of our report dated February 22, 1999 on our audits of the
consolidated financial statements of USA Biomass Corporation as of August 31,
1998 and 1997 and for the years ended August 31, 1998 and 1997 which report
is included in this Annual Report on Form 10KSB.
KELLY & COMPANY
/S/ KELLY & COMPANY
Newport Beach, California
March 5, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<CASH> 827,771
<SECURITIES> 0
<RECEIVABLES> 1,711,110
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,937,736
<PP&E> 4,170,623
<DEPRECIATION> 375,793
<TOTAL-ASSETS> 21,471,079
<CURRENT-LIABILITIES> 6,407,991
<BONDS> 6,207,943
0
7,475
<COMMON> 4,446
<OTHER-SE> 8,843,626
<TOTAL-LIABILITY-AND-EQUITY> 21,471,079
<SALES> 2,005,611
<TOTAL-REVENUES> 2,005,611
<CGS> 2,665,206
<TOTAL-COSTS> 3,228,682
<OTHER-EXPENSES> (2,337,113)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (661,889)
<INCOME-PRETAX> (6,887,279)
<INCOME-TAX> 1,048,475
<INCOME-CONTINUING> (5,838,804)
<DISCONTINUED> (9,946,882)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,785,686)
<EPS-PRIMARY> (2.19)
<EPS-DILUTED> (2.19)
</TABLE>
