This Quarterly Report is filed by Norcal Waste Systems, Inc.
pursuant to certain contractual requirements and not
pursuant to the Securities Exchange Act of 1934
and the rules and regulations thereunder.
QUARTERLY REPORT
For the quarterly period ended June 30, 1998
NORCAL WASTE SYSTEMS, INC.
(Exact name of company as specified in its charter)
CALIFORNIA 94-2922974
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Five Thomas Mellon Circle, Suite 304
San Francisco, California 94134
- --------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (415) 330-1000
----------------
Norcal Waste Systems, Inc. is currently 100% owned by an employee stock
ownership plan.
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date. On August 10,1998,
there were 24,134,973 shares of $.01 par value Common Stock outstanding.
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
<CAPTION>
June 30, September 30,
1998 1997
------------- -------------
Assets
<S> <C> <C>
Current assets:
Cash $42,258 $32,330
Marketable securities 5,552 5,552
Trust accounts, current portion 968 4,362
Accounts receivable, less allowance for doubtful
accounts of $2,112 at June 30, 1998 and $2,017
at September 30, 1997 37,445 42,677
Parts and supplies 2,362 2,436
Prepaid expenses 2,333 2,568
--------- ---------
Total current assets 90,918 89,925
--------- ---------
Property and equipment:
Land 42,291 44,558
Landfills 25,207 25,206
Buildings and improvements 47,082 47,325
Vehicles and equipment 125,931 116,925
Construction in progress 6,529 6,232
--------- ---------
Total property and equipment 247,040 240,246
Less accumulated depreciation and amortization 107,799 97,313
--------- ---------
Property and equipment, net 139,241 142,933
--------- ---------
Franchises, permits and other intangibles, net 73,997 76,829
Trust accounts 33,617 30,647
Prepaid pension costs 1,546 1,941
Deferred financing costs, net 7,255 8,261
Other assets 7,592 633
--------- ---------
Total other assets 124,007 118,311
--------- ---------
Total assets $354,166 $351,169
========= =========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
CONSOLIDATED BALANCE SHEETS, Continued
(in thousands)
(unaudited)
<CAPTION>
June 30, September 30,
1998 1997
------------- -------------
Liabilities and Stockholder's Equity
<S> <C> <C>
Current liabilities:
Current portion:
Long-term debt $308 $306
Capital leases 1,128 1,040
Accounts payable 9,364 15,379
Accrued expenses 40,479 48,637
Income taxes payable 841 1,087
Deferred revenues 2,742 2,777
Other accrued liabilities 4,690 4,867
--------- ---------
Total current liabilities 59,552 74,093
--------- ---------
Long-term debt 174,055 174,047
Obligations under capital leases 1,168 2,025
Deferred income taxes 8,250 9,732
Landfill closure liability 24,717 22,823
Postretirement medical benefits 33,582 32,844
Other liabilities 12,689 12,096
--------- ---------
Total liabilities 314,013 327,660
--------- ---------
Commitments and contingencies
Stockholder's equity:
Common stock, $.01 par value; 100,000,000 shares
authorized;
24,134,973 shares issued and outstanding 241 241
Additional paid-in-capital 166,378 166,378
Accumulated deficit (99,104) (106,389)
Unrealized gains (losses) on marketable securities 3 (21)
--------- ---------
67,518 60,209
Less net scheduled contribution to the ESOP (27,365) (36,700)
--------- ---------
Total stockholder's equity 40,153 23,509
--------- ---------
Total liabilities and stockholder's equity $354,166 $351,169
========= =========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $80,653 $79,959 $245,992 $231,027
Cost of operations:
Operating expenses 55,333 54,726 174,216 162,831
Depreciation and amortization 5,067 5,035 15,002 14,647
ESOP compensation expense 3,596 3,476 10,885 10,426
General and administrative 8,685 8,420 25,596 24,572
--------- --------- --------- ---------
Total cost of operations 72,681 71,657 225,699 212,476
Operating income 7,972 8,302 20,293 18,551
Interest expense (6,594) (6,459) (19,665) (19,159)
Interest income 972 705 2,658 1,526
Gain on dispositions, net 3,250 49 3,725 156
Other income (expense) 96 (47) 274 2,286
--------- --------- --------- ---------
Income before income taxes 5,696 2,550 7,285 3,360
Income tax expense - - - -
--------- --------- --------- ---------
Net income $5,696 $2,550 $7,285 $3,360
========= ========= ========= =========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
For the nine months ended June 30, 1998
(in thousands)
(unaudited)
<CAPTION>
Unrealized
gains Net
Additional (losses) on scheduled
Common Stock paid-in Accumulated marketable contribution
Shares Amount capital deficit securities to the ESOP Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, September 30, 1997 $24,135 $241 $166,378 ($106,389) ($21) ($36,700) $23,509
Contributions to reduce
ESOP debt - - - - - 9,335 9,335
Net income - - - 7,285 - - 7,285
Net unrealized gains on
marketable securities - - - - 24 - 24
-------- ------- --------- ---------- -------- --------- --------
Balances, June 30, 1998 $24,135 $241 $166,378 ($99,104) $3 ($27,365) $40,153
======== ======= ========= ========== ======== ========= ========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Nine Months Ended
June 30
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $7,285 $3,360
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 15,002 14,647
ESOP compensation expense 10,744 10,163
Accrued interest, amortization of discounts and
deferred financing fees (4,543) (4,473)
Gains on dispositions (3,725) (156)
Other 975 (2,619)
Changes in assets and liabilities, net of
effects of acquisitions and dispositions (10,423) (139)
--------- ---------
Net cash provided by operating activities 15,315 20,783
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (11,738) (11,474)
Acquisition of businesses - (3,495)
Proceeds from dispositions 7,229 361
Proceeds from the sales of marketable securities - 1,350
Other 142 42
--------- ---------
Net cash used in investing activities (4,367) (13,216)
--------- ---------
Cash flows from financing activities:
Principal payments on long-term debt and capitalized leases (1,020) (1,020)
--------- ---------
Net cash used in financing activities (1,020) (1,020)
--------- ---------
Net increase in cash and cash equivalents 9,928 6,547
Cash and cash equivalents, beginning balance 32,330 14,378
--------- ---------
Cash and cash equivalents, ending balance $42,258 $20,925
========= =========
Supplemental schedule of net cash paid for:
Interest $24,328 $23,783
========= =========
Income taxes $1,746 -
========= =========
<FN>
<F1>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of the Norcal Waste Systems, Inc.
Employee Stock Ownership Plan and Trust)
Notes to Consolidated Financial Statements
(1) General
The interim consolidated financial statements presented herein include Norcal
Waste Systems, Inc. ("Norcal") and its subsidiaries (collectively, Norcal and
its subsidiaries are referred to herein as the "Company"). These interim
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and the notes thereto, which
include information as to significant accounting policies, for the year ended
September 30, 1997. Such interim consolidated financial statements are
unaudited but, in the opinion of management, reflect all adjustments necessary
(consisting of items of a normal recurring nature) for a fair presentation of
the Company's interim financial position, results of operations, and cash
flows. Results of operations for interim periods are not necessarily indicative
of those of a full year.
(2) Nature of Business
Through its subsidiaries, the Company provides integrated waste services to
residential, commercial, municipal and industrial customers in California. The
Company's services include refuse collection, recycling and other waste
diversion, transfer station and hauling operations, and operation of
Company-owned landfills and third party landfill management services (including
engineering and construction management services). The Company continues to be,
with limited exceptions, the sole provider of commercial and residential refuse
collection for the City and County of San Francisco.
(3) Long-term Debt
<TABLE>
Long-term debt at June 30, 1998 and September 30, 1997 is
summarized as follows:
(in thousands)
<CAPTION>
June 30 September 30
------------ ------------
<S> <C> <C>
Senior Notes due November 15, 2005, interest at 13.5% $170,919 $170,679
Note payable for business acquired due in monthly
installments through 2016, interest imputed at 8.75% 1,627 1,658
Notes payable to former shareholders, due in monthly
installments through 2017, interest at 6% to 8.5% 748 792
Other Notes 1,069 1,224
---------- ----------
Total debt 174,363 174,353
Less current portion 308 306
---------- ----------
Long-term debt $174,055 $174,047
========== ==========
</TABLE>
On November 21, 1995, the Company completed a private debt offering of $175.0
million in Senior Notes (the "Senior Notes"). The Senior Notes mature in
November 2005 with interest payable semi-annually. The Senior Notes are
redeemable at the option of the Company, in whole or in part, at any time
during or after November 2000. Until November 15, 1998, the Senior Notes may be
partially redeemed in the event of a public offering of the Company's Common
Stock. In the event of a change in control of the Company, the Company would be
required to offer to purchase the Senior Notes. The Senior Notes are unsecured
and rank pari passu in right of payment to all existing and future senior
indebtedness of the Company. The Senior Notes are guaranteed, on a senior
unsecured basis, by the Company's wholly-owned subsidiaries. The Indenture
governing the Senior Notes contains provisions which, among other things, (i)
limit the Company's and its subsidiaries' ability to declare or pay dividends
or other distributions (other than dividends or distributions payable to Norcal
or any wholly owned subsidiary of Norcal), (ii) limit the purchase, redemption
or retirement of capital stock and (iii) limit the incurrence of additional
debt. In September 1996, the Company completed the exchange of all of its
outstanding privately-placed Senior Notes for Senior Notes with identical terms
and provisions, which exchange was registered under the Securities Act of 1933.
The interest rate on the Senior Notes is currently 13.5%, however, the interest
rate reverts to 12.5% if Norcal (in one or more transactions) offers to
purchase (whether or not any actual purchases are made) or redeems an aggregate
of $25.0 million in principal amount of Senior Notes out of the proceeds of
equity sales.
<PAGE>
In conjunction with the private debt offering, the Company entered into a new
Credit Agreement (the "Credit Agreement") with a group of lenders and
BankBoston, N.A., as Agent. The Credit Agreement, as amended, provides for a
revolving credit facility in an amount of up to $100.0 million (depending upon
certain financial ratios), up to $25.0 million of which may be used for letters
of credit. At June 30, 1998, the Company had utilized $2.1 million of its
credit facility for letters of credit and had availability under the Credit
Agreement (based on limitations imposed by certain financial ratios) of $75.0
million along with $22.9 million which may be utilized for additional letters
of credit.
(4) Guarantee of Securities
Norcal is a holding company and has no independent operations other than
those relating to its subsidiaries. The Senior Notes are guaranteed by
certain direct and indirect subsidiaries of Norcal. The guarantor subsidiaries
are all wholly owned subsidiaries and the guarantees of the guarantors are
full, unconditional and joint and several. The direct and indirect nonguarantor
subsidiaries are individually and in the aggregate inconsequential. Separate
financial statements of each guarantor have not been presented since management
has determined such separate financial statements are not material to
investors.
(5) Commitments and Contingencies
On April 24, 1997, employees represented by the Sanitary Truck Drivers and
Helpers Union Local 350 International Brotherhood of Teamsters ("Local 350")
initiated a strike against certain San Francisco operations of the Company.
The strike was resolved on April 26, 1997 when Local 350 voted to accept a
five-year contract. A provision of the new contract related to an increase in
pension benefits. The Company believes that it was agreed that the increase to
certain pension benefits was to be prospective. Subsequently, Local 350
asserted that it understood the increase to be retroactive. On February 10,
1998, the Company filed a petition for order compelling arbitration in U.S.
District Court for the Northern District of California entitled Norcal Waste
Systems, Inc., Golden Gate Disposal and Recycling, Inc. and Sunset Scavenger
Company v. Sanitary Truck Drivers and Helpers Union Local 350, IBT. On April
23, 1998 the Company filed a motion for order compelling such arbitration. On
May 29, 1998, the Court ruled in the Company's favor and directed the parties
to proceed with arbitration. Arbitration between the Company and Local 350
could determine that there has been no meeting of the minds regarding the
pension benefits provision in the contract and the provision could have to be
renegotiated. If the matter is not satisfactorily renegotiated, the Company
could be subject to another work stoppage.
If Local 350 were to prevail in the arbitration discussed above, the Company
estimates that the accumulated benefit obligation (ABO) would increase by an
additional $8.4 million, which would result in a charge to the minimum pension
liability of $4.2 million. In addition, if Local 350 were to prevail, the
Company estimates that its annual accruals for employee benefits would increase
by approximately $3.0 million for additional pension and medical costs. The
above estimates are based on a discount rate of 7.5%. The discount rate applied
under generally accepted accounting principles ("GAAP") fluctuates with market
conditions. A change in the discount rate can result in significant adjustments
to the ABO.
On February 3, 1998, the Company received a determination letter from the
Department of Industrial Relations of the State of California ("DIR") adverse
to the Company. The DIR ruled that the operation of San Bernardino County
Landfills is a public work within the meaning of the labor code and therefore
subject to prevailing wage laws for construction. This determination was in
response to a request by the Company for a determination after the Southern
California Labor/Management Operating Engineers Contract Compliance Committee
filed a Complaint (Case No. 4002639/001) with the Long Beach office of the
Division of Labor Standards Enforcement. The Complaint alleged that the Company
is not paying prevailing wages and benefits required for a public work by the
Labor Code to those persons employed by the Company to operate the landfills in
San Bernardino County.
<PAGE>
The Company filed an appeal of the DIR's ruling with the Director of the DIR
(the "Director") on March 4, 1998. On July 27, 1998, the Director issued a
decision affirming the DIR's initial determination that the operation of the
San Bernardino County landfills is a public work and is therefore subject to
prevailing wage laws. However, the Director rejected the automatic adoption of
general construction industry prevailing wage rates for landfill operators and
referred the matter to the Labor Commissioner of the Division of Labor
Standards Enforcement (the "Commissioner") for a determination as to the
prevailing wage for landfill operators such as those employed by the Company in
San Bernardino County. The Company believes that it will be able to
satisfactorily resolve this matter either through the Commissioner's rate
determination process, or if necessary, through litigation. If the Company is
unsuccessful in such efforts, it could have a material adverse impact on the
financial condition and results of operations of the Company.
<PAGE>
Item II. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements. Those statements followed by an asterisk (*) are
forward looking statements. Any such statements should be considered in light
of various risks and uncertainties that could cause results to differ
materially from expectations, estimates or forecasts expressed. These risks and
uncertainties include, but are not limited to: changes in general economic
conditions, inability to obtain timely rate increases sufficient to cover
costs, fluctuations in commodities prices, changes in the amount of ESOP
compensation expense recorded by the Company, uncertainties of legal
proceedings and unfavorable resolutions of such proceedings, changes in
environmental regulations or related laws, the discovery of environmental
matters and competition. The Company does not undertake to update any
forward-looking statement that may be made from time to time by it or on its
behalf.
The following discussion pertains to the Company's operations for the three
and nine months ended June 30, 1998 and 1997 and should be read in conjunction
with the unaudited consolidated financial statements and related notes thereto
included elsewhere herein, and the Company's September 30, 1997 audited
consolidated financial statements contained in the Company's Annual Report for
the fiscal year ended September 30, 1997. On November 21, 1995, the Company
issued 12.5% Series A Senior Notes in an aggregate principal amount of $175.0
million, for which it received proceeds, after original issue discount, of
approximately $170.2 million (the "Offering"). The Company used the proceeds
from the Offering (less certain associated expenses), together with certain
cash balances, to retire approximately $199.1 million of its then outstanding
indebtedness and certain of the ESOP's indebtedness to third parties.
Concurrent with the Offering, the Company entered into a new bank credit
agreement providing for a revolving credit facility with a maximum availability
of $100.0 million, of which up to $25.0 million may be used for letters of
credit. These transactions are collectively referred to as the "Refinancing
Transaction."
Introduction
Norcal Waste Systems, Inc. ("Norcal") and its subsidiaries (collectively
referred to herein as the "Company") provide solid waste management services
throughout California, including collection, transfer, disposal, landfill
management, recycling and other waste services. The Company operates 16
landfills in California, four of which it owns and 12 of which are owned by
local governmental entities. The Company currently serves an estimated 450,000
customers.
The Company's revenues are comprised primarily of fees charged to residential,
commercial, municipal and industrial customers for the collection and disposal
of solid waste, disposal fees (known as "tipping fees") charged to third party
waste collectors who dispose of solid waste at the Company's transfer
stations and landfills, fees charged to third party landfill owners for landfill
operations and solid waste systems management activities and revenues generated
from the sale of recyclable materials.
Operating expenses include labor, landfill project and subcontractor costs,
disposal fees paid to third parties, fuel, equipment maintenance and rentals,
engineering, consulting and other professional services and other direct costs
of operating collection, recycling, transfer station, hauling and landfill
operations. Also included are accruals for future landfill closure,
post-closure and corrective action costs, consistent with regulatory
requirements. General and administrative expenses include management salaries,
administrative and clerical overhead costs, professional services costs and
other fees and expenses. ESOP compensation expense includes amounts contributed
by the Company to the ESOP to allow the ESOP to repay its intercompany loans to
the Company along with amounts to fund distributions to retired, terminated or
withdrawing participants. The total contributions are subject to various
limitations imposed by the Internal Revenue Code of 1986, as amended, and are
generally tax deductible. The debt repayments by the ESOP result in allocation
of Company common stock to ESOP participants' accounts pursuant to an
allocation formula.
<PAGE>
Results of Operations
<TABLE>
NORCAL WASTE SYSTEMS, INC. AND SUBSIDIARIES
Summary Statements of Operations
Operating Comparison
(in thousands)
<CAPTION>
Relationship to Total Revenue
Three Months Ended Nine Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Collection and disposal operations 78.1% 76.8% 75.0% 77.0%
Third party landfill management services 16.9% 17.8% 20.0% 18.0%
Recycled commodities sales 5.0% 5.4% 5.0% 5.0%
------- ------ ------ -------
Total revenues 100.0% 100.0% 100.0% 100.0%
Cost of operations:
Operating expenses 68.6% 68.4% 70.8% 70.5%
Depreciation and amortization 6.3% 6.3% 6.1% 6.4%
ESOP compensation expense 4.5% 4.4% 4.4% 4.5%
General and administrative 10.8% 10.5% 10.4% 10.6%
------- ------ ------- -------
Total cost of operations 90.2% 89.6% 91.7% 92.0%
------- ------ ------- -------
Operating income 9.8% 10.4% 8.3% 8.0%
Interest expense (8.2)% (8.1)% (8.0)% (8.3)%
Interest income 1.2% 0.9% 1.1% 0.7%
Gain on dispositions, net 4.0% 0.1% 1.5% 0.1%
Other income (expense) 0.1% (0.1)% 0.1% 1.0%
------- ------ ------- -------
Income (loss) before income taxes 6.9% 3.2% 3.0% 1.5%
Income tax expense 0.0% 0.0% 0.0% 0.0%
------- ------ ------- -------
Net income 6.9% 3.2% 3.0% 1.5%
======= ====== ======= =======
<PAGE>
<CAPTION>
Period to Period Change
Three Months Ended Nine Months Ended
June 30, 1998 June 30, 1998
$ % $ %
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Collection and disposal operations 1,534 2.5% 6,714 3.8%
Third party landfill management services (617) (4.3)% 7,576 18.3%
Recycled commodities sales (223) (5.2)% 675 5.8%
------- ------ ------ -------
Total revenues 694 0.9% 14,965 6.5%
Cost of operations:
Operating expenses 607 1.1% 11,385 7.0%
Depreciation and amortization 32 0.6% 355 2.4%
ESOP compensation expense 120 3.5% 459 4.4%
General and administrative 265 3.1% 1,024 4.2%
------- ------ ------- -------
Total cost of operations 1,024 1.4% 13,223 6.2%
------- ------ ------- -------
Operating income (330) (4.0)% 1,742 9.4%
Interest expense (135) 2.1% (506) 2.6%
Interest income 267 37.9% 1,132 74.2%
Gain (loss) on dispositions, net 3,201 6532.7% 3,569 2287.8%
Other income (expense) 143 304.3% (2,012) (88.0)%
------- ------ ------- -------
Income before income taxes 3,146 123.4% 3,925 116.8%
Income tax expense - - - -
------- ------ ------- -------
Net income 3,146 123.4% 3,925 116.8%
======= ======= ======= =======
</TABLE>
Revenues. Revenues for the three months ended June 30, 1998 increased $0.7
million (0.9%) to $80.7 million from $80.0 million for the three months ended
June 30, 1997. The increase in revenues was caused by higher waste collection
and disposal revenues partially offset by lower third party landfill management
services revenues and recycled commodities sales. Waste collection and disposal
revenues increased $1.5 million resulting from volume increases. Third party
landfill management revenues decreased $0.6 million resulting from a decrease
of $1.1 million from the prior period as the Company ceased operations of the
San Diego County landfills on March 31, 1998, when the new owner assumed
operations, partially offset by increased project management revenues in San
Bernardino County and from the start of operations of two landfills in
Kern County, effective May 1, 1997 and January 1, 1998.
Operating Expenses. Operating expenses for the three months ended June 30,
1998 increased $0.6 million (1.1%) to $55.3 million from $54.7 million for the
three months ended June 30, 1997. As a percentage of revenues, operating
expenses increased to 68.6% for the three months ended June 30, 1998 from 68.4%
for the three months ended June 30, 1997. Payroll and related costs increased
$1.4 million due to an increase of $1.8 million for union wage increases
(primarily a 2.0% increase in San Francisco, effective January 1, 1998), higher
employee benefit costs in San Francisco as a result of the April 1997 union
agreement, higher health care costs and personnel associated with the start of
operations of two landfills in Kern County, effective May 1, 1997 and January
1, 1998, partially offset by a $0.4 million reduction in payroll and
related costs as the Company ceased operations of the San Diego County landfills
on March 31, 1998. Disposal costs increased $0.4 million due to volume
increases and tipping fee increases. These increased costs were partially
offset by lower landfill related costs of $0.6 million due to the substantial
completion of corrective action activities at one of the Company's landfills
and from lower professional services of $0.6 million.
<PAGE>
ESOP Compensation Expense. ESOP compensation expense is primarily based
on the cost of shares allocated as determined by the Company's contribution
to the ESOP, along with contributions to fund distributions to retired,
terminated and withdrawing participants. ESOP compensation expense for the
three months ended June 30, 1998 increased $0.1 million (3.5%) to $3.6 million
from $3.5 million for the three months ended June 30, 1997. The Company has
accrued ESOP expense based upon anticipated contributions for loan payments and
prepayments of additional principal.
General and Administrative. General and administrative expenses for the three
months ended June 30, 1998 increased $0.3 million (3.1%) to $8.7 million from
$8.4 million for the three months ended June 30, 1997. As a percentage of
revenues, general and administrative expenses increased to 10.8% for the three
months ended June 30, 1998 from 10.5% for the three months ended June 30, 1997.
The increased costs were primarily due to wage increases and higher
professional services.
Operating Income. Operating income for the three months ended June 30, 1998
decreased $0.3 million (4.0%) to $8.0 million from $8.3 million for the three
months ended June 30, 1997. As a percentage of revenues, operating income
decreased to 9.8% for the three months ended June 30, 1998 from 10.4% for the
three months ended June 30, 1997. The decrease in operating income was due to
higher expenses without a corresponding increase in revenues resulting from the
nature and timing of the rate setting process. See "Inflation, Prevailing
Economic Conditions and Certain Regulatory Issues."
Interest Income. Interest income for the three months ended June 30, 1998
increased $0.3 million (37.9%) to $1.0 million from $0.7 million for the
three months ended June 30, 1997. The increase is due to additional interest
earned on higher cash balances in the current period.
Gain on Dispositions. The gain on dispositions for the three months ended
June 30, 1998 increased by $3.2 million to $3.3 million from $0.1 million
for the three months ended June 30, 1997. The increase is due to the sale of
real estate in San Francisco.
Income Tax Expense. There was no income tax expense for the three months
ended June 30, 1998 or 1997. The Company experienced an effective tax rate of
zero for the three months ended June 30, 1998 and 1997 as a result of realizing
certain of its deferred tax assets for which a valuation allowance had been
previously established.
Net Income. Net income for the three months ended June 30, 1998 increased
by $3.1 million to $5.7 million from $2.6 million for the three months ended
June 30, 1997. The primary causes of the increase in net income was the gain on
dispositions and higher interest income partially offset by lower operating
income.
Nine months ended June 30, 1998 and 1997
Revenues. Revenues for the nine months ended June 30, 1998 increased $15.0
million (6.5%) to $246.0 million from $231.0 million for the nine months ended
June 30, 1997. The increase in revenues was due to higher third party landfill
management services revenues, waste collection and disposal revenues and
recycled commodities sales. Third party landfill management revenues increased
$7.6 million due to an increase of $10.4 million as a result of landfill
closure and expansion project activities in San Bernardino County partially
offset by a temporary reduction of volumes to the San Bernardino County
landfills during the first half of the 1998 fiscal year. Waste collection and
disposal revenues increased $6.7 million from the prior period, resulting
from rate increases in several service areas (primarily an 11.0% increase in
San Francisco, effective March 1, 1997) and volume increases. The prior period
included non-recurring revenues of $1.9 million from unusual flood clean-up and
disposal activities in the Sacramento Valley of California.
<PAGE>
Operating Expenses. Operating expenses for the nine months ended June 30,
1998 increased $11.4 million (7.0%) to $174.2 million from $162.8 million for
the nine months ended June 30, 1997. As a percentage of revenues, operating
expenses increased to 70.8% for the nine months ended June 30, 1998 from 70.5%
for the nine months ended June 30, 1997. Project and subcontractor related
costs increased $9.1 million as a result of increased landfill closure and
expansion project activity in San Bernardino County. Payroll and related costs
increased $3.9 million due to union wage increases (primarily a 4.7% increase
and 2.0% increase in San Francisco, effective January 1, 1997 and January 1,
1998, respectively), higher employee benefit costs in San Francisco as a
result of the April 1997 union agreement, higher health care costs and
personnel associated with the start of operations of two landfills in Kern
County, effective May 1, 1997 and January 1, 1998. Disposal costs increased
$1.2 million due to volume increases, tipping fee increases and operations
acquired in November 1996. Equipment maintenance costs increased $0.6 million
as a result of heavy equipment repairs in Southern California. These increased
costs were partially offset by lower professional services of $1.5 million,
primarily reflecting lower engineering services for recycling facilities, lower
landfill related costs of $0.7 million due to the substantial completion of
corrective action activities at one of the Company's landfills and lower
fuel costs of $0.6 million.
General and Administrative. General and administrative expenses for the nine
months ended June 30, 1998 increased $1.0 million (4.2%) to $25.6 million from
$24.6 million for the nine months ended June 30, 1997. As a percentage of
revenues, general and administrative expenses decreased to 10.4% for the nine
months ended June 30, 1998 from 10.6% for the nine months ended June 30, 1997.
The increased costs were primarily due to wage increases and higher
professional services.
Operating Income. Operating income increased $1.7 million (9.4%) to $20.3
million for the nine months ended June 30, 1998 from $18.6 million for the
nine months ended June 30, 1997. As a percentage of revenues, operating income
increased to 8.3% for the nine months ended June 30, 1998 from 8.0% for the
nine months ended June 30, 1997. The primary cause of the increase in operating
income for the nine months ended June 30, 1998 were higher revenues from
landfill management activities that generated higher margins during the current
period.
Interest Income. Interest income for the nine months ended June 30, 1998
increased $1.1 million (74.2%) to $2.7 million from $1.6 million for the nine
months ended June 30, 1997. The increase is due to additional interest earned
on higher cash balances in the current period.
Gain on Dispositions. The gain on dispositions for the nine months ended June
30, 1998 increased by $3.6 million to $3.7 million from $0.1 million for the
nine months ended June 30, 1997. The increase is due to the sale of real estate
in San Francisco and Kansas City.
Other Income (Expense). Other income for the nine months ended June 30, 1998
decreased by $2.0 million (88.0%) to $0.3 million from $2.3 million for the
nine months ended June 30, 1997. For the nine months ended June 30, 1997, other
income included gains of $1.3 million on the sale of marketable securities and
a settlement of $1.0 million with a third party in connection with a dispute
over a landfill engineering matter at one of the Company's landfills.
Income Tax Expense. There was no income tax expense for the nine months
ended June 30, 1998 or 1997. The Company experienced an effective tax rate of
zero for the nine months ended June 30, 1998 and 1997 as a result of realizing
certain of its deferred tax assets for which a valuation allowance had been
previously established.
Net Income. Net income for the nine months ended June 30, 1998 increased
$3.9 million to $7.3 million compared to $3.4 million for the nine months
ended June 30, 1997. The primary causes of the increase in net income were
higher gains on dispositions, interest income and operating income, partially
offset by a reduction in other income.
<PAGE>
Liquidity and Capital Resources
The Company's cash requirements consist principally of working capital
requirements, interest on outstanding indebtedness, capital expenditures and
deposits to trust funds to satisfy certain environmental statutes and
regulations. The Company had working capital of $31.4 million compared to $15.8
million at September 30, 1997.
As part of the Refinancing Transaction the Company entered into the Credit
Agreement that provides for up to $100.0 million of additional borrowings
which, subject to certain limitations and covenant restrictions (including
financial ratios), can be drawn by the Company to fund ongoing operations,
invest in capital equipment and/or facilities and to finance acquisitions.
Letters of credit under the Credit Agreement are limited to a maximum of $25.0
million. The Credit Agreement expires in November 2000. At June 30, 1998, the
Company had utilized $2.1 million of the credit facility provided by the Credit
Agreement for letters of credit and had availability under the Credit Agreement
of approximately $75.0 million for borrowings unrelated to letters of credit,
with an additional $22.9 million available for letters of credit. Certain
acquisitions could increase availability for borrowings unrelated to letters of
credit under the Credit Agreement (up to a maximum of $100.0 million principal
amount including all outstanding letters of credit), due to the Company's
ability to include certain pro forma financial information of acquired entities
in calculating its financial ratios to determine availability. Changes in
availability under the Credit Agreement are a function of changes in operating
results, among other things. In addition, certain covenant measures become more
restrictive over time, and the maximum availability will decrease by $2.5
million per quarter beginning December 31, 1998, unless certain conditions are
met.
The Indenture governing the Senior Notes contains provisions which, among
other things, (i) limit the Company's and its subsidiaries' ability to declare
or pay dividends or other distributions (other than dividends or distributions
payable to Norcal or any wholly owned subsidiary of Norcal or, in certain
cases, the ESOP), (ii) limit the purchase, redemption or retirement of capital
stock and (iii) limit the incurrence of certain additional debt.
The Senior Notes mature in November 2005. As of June 30, 1998, interest on
the Senior Notes accrued at the rate of 13.5% per annum. However, the interest
rate on the Senior Notes is subject to decrease to 12.5% at such time the
Company (in one or more transactions) offers to purchase (whether or not any
actual purchases are made) or redeems an aggregate of $25.0 million in
principal amount of Senior Notes out of the proceeds of equity sales.
Cash Flow from Operating Activities. Cash provided by operating activities
was $15.3 million for the nine months ended June 30, 1998 compared to cash
provided of $20.8 million for the same period last year.
Cash Flow from Investing Activities. Cash used in investing activities was $4.4
million for the nine months ended June 30, 1998 compared to cash used of $13.2
million for the same period last year. During the current period, the Company
used $11.7 million on capital expenditures, primarily vehicles, containers and
other equipment compared to $11.5 million for building improvements, containers
and other equipment in the same period last year. During the current period,
the Company received $5.1 million from the sale of real estate in San Francisco
and $1.5 million from the sale of a portion of real estate in Kansas City.
During the nine months ended June 30, 1997, the Company also used $3.5 million
to purchase substantially all of the assets of a solid waste collection company
in Butte County and acquire other assets of medical waste businesses and
generated $1.4 million from the sale of marketable securities.
Cash Flow from Financing Activities. Cash used in financing activities was
$1.0 million for the nine months ended June 30, 1998 compared to $1.0 million
for the nine months ended June 30, 1997. Activity in both periods consisted of
scheduled note and capital lease payments.
<PAGE>
Certain Other Cash Requirements. The Company is in discussions with the
City of San Francisco regarding plans for the construction of materials
recovery and other facilities for use in connection with the Company's San
Francisco operations and to facilitate compliance with mandated recycling
requirements. The Company and the City are continuing to negotiate the nature,
scope and financing of this project. The Company cannot predict the timing of
an agreement with the City and therefore is unable to accurately project the
timing of initiation of construction. Over the term of the Senior Notes, the
Company may need to invest substantial capital to acquire or construct waste
processing facilities, household hazardous waste facilities, maintenance
and administrative complexes, and equipment.* The Company intends to seek
continued rate recovery for amounts expended on any projects and may seek to
finance such capital expenditures through additional secured borrowings,
including up to $30.0 million of borrowing for certain "Designated Capital
Expenditures" (as defined in the Indenture).*
The Company sold property in San Francisco in June 1998 that generated net
proceeds of $5.1 million, which are included in other assets at June 30, 1998.
The Company has entered into an escrow agreement to purchase a property
directly adjacent to one of its San Francisco facilities and intends to
purchase other properties in order to effect a tax-free exchange.
The Company has substantially completed a major portion of the implementation
of an established third party package of integrated financial applications
to replace most of its existing management information systems. The
implementation is expected to be completed by December 1998. As of June 30,
1998, the Company has spent $2.9 million and expects to spend an additional
$1.9 million in external costs through the completion of the project. The new
applications are Year 2000 compliant. The Company has a plan to address the
Year 2000 compliance issue for the remaining functions which are not currently
Year 2000 compliant. Although the Company believes it will not have material
Year 2000 Conversion issues, its future operations are dependent upon the
ability of its vendors and suppliers to successfully address the Year 2000
Conversion issues. There can be no assurance that the computer systems of other
companies upon which the Company's own computer system relies or upon which its
business is dependent, will be timely converted, or that failure of another
company to convert will not adversely affect the Company.
Environmental Regulations
The Company's business activities are subject to extensive and evolving
regulation under complex federal, state and local laws for the protection of
public health and the environment. These laws, and the numerous regulatory
bodies responsible for interpreting and enforcing them, impose significant
restrictions and requirements on the Company and also impact the municipalities
the Company serves and operators of non-owned landfills used by the Company.
The Company believes that this regulation will continue in the future.*
Various federal and state regulations require owners or operators of solid
waste landfill sites to provide financial assurances for the closure and
post-closure monitoring and maintenance of these sites. The Company uses
independent engineers to assist it in assessing the estimates of future costs
of complying with such regulations. A significant portion of the landfill
closure and post-closure liability relates to the leachate and groundwater
management and remediation. There are many unknowns and uncertainties which may
affect the accuracy of the Company's estimates, including potential changes
to and interpretations of regulatory requirements and incomplete data with
respect to projected volumes, quality and cost of treatment among others.
Accordingly, estimates for closure and post-closure management and remediation
of leachate and contaminated groundwater could be subject to periodic and
substantial upward revision as the Company's knowledge increases concerning
these factors.
Inflation, Prevailing Economic Conditions and Certain Regulatory Issues
Historically, the Company has experienced cost increases due to the effects of
inflation on its operating expenses, particularly the cost of compensation and
benefits, and the replacement of or additions to property and equipment. Fuel
costs which fluctuate with inflation and other market conditions may also
affect operating results. Most of the Company's operations are subject to rate
setting processes which allow for the recovery of certain costs including labor
and fuel. However, inflationary increases in operating costs may cause the
Company to incur lower operating margins, at least until such time as new rates
can be implemented. Rate adjustments, if approved, can take several months to
achieve.*
<PAGE>
In February 1997, the San Francisco Refuse Collection and Disposal Rate
Board (the "Rate Board") issued two rate orders (the "Orders") approving an
11.0% rate increase to the Company's refuse collection rates for the City of
San Francisco effective March 1, 1997. The Rate Board also directed the
Department of Public Works to examine solid waste rate setting methods in other
jurisdictions and to propose changes in the current system for regulation of
refuse collection and disposal to the San Francisco Board of Supervisors. A
significant modification to the rate setting methodology or any significant
change in the existing system could have a material adverse effect on the
Company's financial condition and results of operations.*
On April 24, 1997, employees represented by the Sanitary Truck Drivers and
Helpers Union Local 350 International Brotherhood of Teamsters ("Local 350")
initiated a strike against certain San Francisco operations of the Company.
The strike was resolved on April 26, 1997 when Local 350 voted to accept a
five-year contract. A provision of the new contract related to an increase in
pension benefits. The Company believes that it was agreed that the increase to
certain pension benefits was to be prospective. Subsequently, Local 350
asserted that it understood the increase to be retroactive. The Company has
filed a petition for order compelling arbitration and a motion for order
compelling arbitration in U.S. District Court for the Northern District of
California against Local 350 to arbitrate this dispute under the terms of the
collective bargaining agreement between the parties. On May 29, 1998, the Court
ruled in the Company's favor and directed the parties to proceed with
arbitration.
Under GAAP any deficiency between the liability for pension benefits
(defined as the Accumulated Benefit Obligation ("ABO")) and the market value of
plan assets can result in a charge to the minimum pension liability in the
equity section of the Company's balance sheet. If Local 350 were to prevail in
the arbitration discussed above, the Company estimates the ABO would increase
by an additional $8.4 million, which would result in a charge to the minimum
pension liability of $4.2 million. In addition, if Local 350 were to prevail,
the Company estimates that its annual accruals for employee benefits would
increase by approximately $3.0 million for additional pension and medical
costs. The above estimates are based on a discount rate of 7.5%. The discount
rate applied under GAAP fluctuates with market conditions. A change in the
discount rate can result in significant adjustments to the ABO.
Although the ultimate outcome of such proceeding cannot be determined at this
time and the results of these legal proceedings cannot be predicted with
certainty, the Company, after consultation with outside labor counsel, believes
it should prevail and therefore the resolution of this matter will not have a
material adverse effect on the financial condition or results of operations of
the Company. However, if the Company does not prevail, there could be a
material adverse impact on the financial condition and results of operations of
the Company. Arbitration could conclude that there has been no meeting of the
minds on this provision of the contract and the provision could have to
be renegotiated. If the matter is not satisfactorily renegotiated, the Company
could be subject to another work stoppage.*
The Company's current 5 year contract with Local 350, effective January 1,
1997, provides for an aggregate 13.4% increase over the term of the agreement.
The Company generally intends to seek rate recovery for future labor cost
increases but to date has not sought rate recovery beyond the first year's cost
which was included in the rate effective March 1, 1997 in San Francisco. There
can be no assurance that the Company will pursue, or succeed in obtaining,
timely rate increases sufficient to cover all costs or sufficient to maintain
profit levels at historical levels.*
On February 3, 1998, the Company received a determination letter from the
Department of Industrial Relations of the State of California ("DIR") adverse
to the Company. The DIR ruled that the operation of San Bernardino County
Landfills is a public work within the meaning of the labor code and therefore
subject to prevailing wage laws for construction. This determination was in
response to a request by the Company for a determination after the Southern
California Labor/Management Operating Engineers Contract Compliance Committee
filed a Complaint (Case No. 4002639/001) with the Long Beach office of the
Division of Labor Standards Enforcement. The Complaint alleged that the Company
is not paying prevailing wages and benefits required for a public work by the
Labor Code to those persons employed by the Company to operate the landfills in
San Bernardino County.
<PAGE>
The Company filed an appeal of the DIR's ruling with the Director of the DIR
(the "Director") on March 4, 1998. On July 27, 1998, the Director issued a
decision affirming the DIR's initial determination that the operation of the
San Bernardino County landfills is a public work and is therefore subject to
prevailing wage laws. However, the Director rejected the automatic adoption of
general construction industry prevailing wage rates for landfill operators and
referred the matter to the Labor Commissioner of the Division of Labor
Standards Enforcement (the "Commissioner") for a determination as to the
prevailing wage for landfill operators such as those employed by the Company in
San Bernardino County. The Company believes that it will be able to
satisfactorily resolve this matter either through the Commissioner's rate
determination process, or if necessary, through litigation. If the Company is
unsuccessful in such efforts, it could have a material adverse impact on the
financial condition and results of operations of the Company.
Due to the Company's concentration in California, cyclical economic
conditions in California will have an impact on the Company's results.* The
Company is unable to determine the significance a California economic downturn
would have on its operations.
Seasonality and Quarterly Fluctuations
The Company's revenues tend to be lower during winter due to decreased
volume at the Company's transfer stations, waste collection, and landfill
operations than during spring and summer when higher volumes of certain types
of waste, such as yard clippings and construction and demolition debris are
generated.* In addition, project management revenues tend to be lower during
winter as a result of unfavorable weather conditions for construction
activities. Unusual changes in weather patterns can also affect the operating
results on a quarter to quarter basis.
Accounting and Other Matters
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." The standard must be adopted by fiscal year 1999. SFAS No. 130 does
not change any accounting measurements, but requires presentation of
comprehensive income and a reconciliation thereof to net income. The principal
differences between comprehensive and net income are certain adjustments made
directly to shareholders' equity, such as minimum pension liability.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which requires financial information
to be reported on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments. The standard
must be adopted by fiscal 1999. The Company is currently evaluating the
disclosures required under this new standard.
In February 1998, the FASB issued SFAS No. 132, "Disclosures about Pensions and
Other Postretirement Benefits," which standardizes the disclosure requirements
for pensions and other postretirement benefits to the extent practical, and
requires additional information on changes in the benefit obligations and fair
values of plan assets. The standard must be adopted by fiscal 1999. The Company
is currently evaluating the disclosures required under this new standard.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
San Francisco Union Arbitration.
See discussion relating to the Company's request for arbitration with Local
350 in San Francisco which appears in note 5 to the Consolidated Financial
Statements in Part 1 hereof and incorporated herein by reference.
DIR Determination Letter.
See discussion relating to the determination letter from the DIR received by
Company which appears in note 5 to the Consolidated Financial Statements in
Part 1 hereof and incorporated herein by reference.
Also see the Company's Annual Report for the year ended September 30, 1997,
the Company's Quarterly Report for the Quarterly Period ended December 31,
1997 and the Company's Quarterly Report for the Quarterly Period ended March
31, 1998, as amended.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Certain Reports
(a) Exhibits:
10.1 Agreement of Purchase and Sale and Joint Escrow Instructions
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
NORCAL WASTE SYSTEMS, INC.
(Company)
/s/ Mark R. Lomele
Mark R. Lomele
Senior Vice President and
Chief Financial Officer
Dated: August 13, 1998
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
TO: First American Title
Insurance Company
345 California Street, Escrow Officer: Virginia Breffman
Suite 2400 Title Order No: SP-276188
San Francisco, CA 94103-3047
Tel.: 415-837-2220
Facsimile: 415-398-1750
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT
ESCROW INSTRUCTIONS ("Agreement") is made and entered into as
of the 8th day of April, 1998, and constitutes an agreement
by which Macor, Inc., a California corporation ("Seller"),
agrees to sell, and SKS Investments LLC, a Delaware limited
liability company ("Buyer"), agrees to purchase, on the terms
and conditions set forth below:
A. That certain real property located at 1950 -
17th Street in San Francisco, California, as more
particularly described in the April 8, 1998, Commitment
prepared by First American Title Insurance Company ("Escrow
Holder") on Exhibit "A" attached hereto (the "Report"),
together with any and all rights, privileges, tenements,
hereditaments, entitlements, easements, rights-of-way and
appurtenances belonging or appertaining to the same
(collectively, the "Land"), together with all buildings and
improvements located on the Land (collectively, the
"Improvements"). The Land and the Improvements are
collectively referred to herein as the "Property."
B. Buyer intends to demolish the Improvements.
The terms and conditions of this Agreement and the
instructions to Escrow Holder with regard to the escrow
("Escrow") created pursuant hereto are set forth below.
1. Purchase and Sale. For valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged, Seller agrees to sell the Property to
Buyer, and Buyer agrees to purchase the Property from Seller,
upon the terms and conditions herein set forth.
2. Deposit. Within two (2) business days
following the mutual execution of this Agreement, Buyer will
deposit into the Escrow the sum of One Hundred Thousand
Dollars ($100,000)in immediately available funds (the
"Initial Deposit"). Concurrently with Buyer's delivery of
the Due Diligence Waiver pursuant to Section 7(a)(i), Buyer
will make an additional deposit of Four Hundred Thousand
Dollars ($400,000) (the "Additional Deposit"). The Initial
Deposit and the Additional Deposit, together with the
interest earned thereon, are hereinafter collectively
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<PAGE>
referred to as the "Deposit"). Upon Buyer's delivery of such
Due Diligence Waiver, the Deposit will become non-refundable
(except as otherwise provided herein) subject only to
Seller's fulfillment of its obligations hereunder. The
Deposit will be credited against the Purchase Price. The
Deposit will be invested by Escrow Holder in an interest-
bearing account acceptable to Buyer with all interest
accruing thereon to be credited to the account of Buyer.
3. Purchase Price; Optional Reduction in Purchase
Price.
(a) Purchase Price. The purchase price
("Purchase Price") for the Property will be Five Million
Seven Hundred Thousand Dollars ($5,700,000). Buyer will
deposit prior to the Close of Escrow (as such term is defined
in Section 5(b)) immediately available funds (which will
include the Deposit) in an amount equal to the Purchase
Price.
(b) Environmental Remediation Credit. Buyer
will be entitled to a credit against the Purchase Price equal
to fifty percent (50%) of all environmental remediation costs
required to remediate the Property up to a maximum credit of
Two Hundred Fifty Thousand Dollars ($250,000). Buyer's
environmental consultant in good faith will estimate and
reasonably itemize such remediation costs in writing prior to
the end of the Due Diligence Period.
(c) Landfill Disposal Obligation. As
additional consideration for the Property, Buyer will cause
all contaminated soil removed from either the Property or the
sites in San Francisco controlled by Buyer or its affiliates
at: 475 Brannan Street; the block bounded by Bryant Street,
York Street and 19th and 20th Streets; and 500 Treat Street,
to be placed in a landfill reasonably designated by Norcal
Waste Systems at prevailing and competitive fees.
4. Certain Covenants of Seller and Buyer.
(a) Documents. Seller has provided Buyer
with copies of the documents listed in Exhibit "B" attached
hereto (the "Documents").
(b) Access to Property. From and after
payment of the Initial Deposit until the Close of Escrow,
Buyer, its agents, contractors and subcontractors will have
the right to enter upon the Property, at reasonable times
during ordinary business hours, to make any and all
inspections and tests as may be necessary or desirable in
Buyer's sole judgment and discretion. Buyer will use care
and consideration in connection with any of its inspections.
Buyer will indemnify and hold Seller harmless from any and
2
<PAGE>
all damage or destruction arising out of or resulting from
the negligence of Buyer, its agents, contractors and/or
subcontractors in connection with such entry and/or
activities upon the Property.
Buyer will have the right to contact any
governmental or quasi-governmental entity or authority to
investigate any matters relating to the Property. Seller
agrees to cooperate reasonably with the Buyer in Buyer's
inspection of the Property.
(c) Operation of Property. Seller covenants
that from and after the date of this Agreement and to and
until the Close of Escrow, Seller will:
(i) No Contracts. Not, without Buyer's
prior written consent, enter into any lease or other
agreement or contract that in any way affects the Property
and that will survive the Close of Escrow;
(ii) No Encumbrances. Not alienate,
lien, encumber or otherwise transfer any of the Property, or
any interest therein except as may be required by law; and
(iii) Notice of Change of Condition.
Promptly notify Buyer of any change in any condition with
respect to the Property that materially and adversely affects
the Land.
(iv) Maintenance of Land. Not:
(i) permit any active waste or act that would tend to
diminish the value of the Land; (ii) store, manufacture, use
or sell any hazardous or toxic substances on, in or under the
Property except in the course of Seller's ordinary commercial
operations; or (iii) cause any liens, encumbrances or
easements to be placed on the Property, or, except in an
emergency, enter into any agreement regarding the repair,
improvement or any other matter affecting the Property that
would be binding on Buyer or the Property after the Close of
Escrow without the consent of Buyer which will not be
unreasonably withheld or delayed.
(v) Maintenance of Insurance. Maintain
all the insurance policies affecting the Property in full
force and effect.
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<PAGE>
5. Escrow.
(a)) Opening of Escrow. Promptly following
execution of this Agreement, the parties hereto will cause a
copy of this Agreement (showing the signatures of the parties
thereon) to be delivered to Escrow Holder. For purposes of
this Agreement, the Escrow will be deemed opened on the date
Escrow Holder will have received such copy of this Agreement
plus the Initial Deposit. Escrow Holder will notify Buyer
and Seller, in writing, of the date Escrow is opened and will
return to each of the parties a copy of the last page of this
Agreement duly executed by Escrow Holder. In addition, Buyer
and Seller will execute, deliver and be bound by any
reasonable and customary supplemental escrow instructions of
Escrow Holder or other instruments as may reasonably be
required by Escrow Holder in order to consummate the
transaction contemplated by this Agreement. Any such
supplemental instructions will not conflict with, amend or
supersede any portions of this Agreement. If there is any
inconsistency between such supplemental instructions and this
Agreement, this Agreement will control.
(b) Close of Escrow. For purposes of this
Agreement, the "Close of Escrow" will be defined as the date
that the Grant Deed, the form of which is attached hereto as
Exhibit "C" ("Grant Deed") conveying the Real Property to
Buyer, is recorded in the Official Records of San Francisco
County, California. The Close of Escrow will occur between
June 30, 1998, and July 31, 1998, as determined by Seller by
written notice to Buyer on or before June 3, 1998 (the
"Closing Date").
6. Title.
(a) Condition of Title. It will be a
condition to the Close of Escrow that title to the Real
Property be conveyed to Buyer by Seller by the Grant Deed
subject to all of the exceptions in the Report and subject to
non-delinquent taxes and assessments and matters which would
be disclosed by an ALTA Survey of the Real Property and free
and clear of all occupants and tenancies ("Approved Condition
of Title"). Seller covenants and agrees that during the term
of this Escrow, it will not voluntarily cause title to the
Real Property to differ from the Approved Condition of Title.
(b) Title Policy. At the Close of Escrow,
Seller will convey title to the Real Property to Buyer in fee
simple subject only to the Approved Condition of Title.
Title will be evidenced by the willingness of the Escrow
Holder to issue its ALTA Extended Coverage Owner's Form
Policy of Title Insurance, with such endorsements as Buyer
may reasonably require, in the amount of the Purchase Price
4
<PAGE>
(or any lesser amount agreed to by Buyer in its sole
discretion) showing title to the Property vested in Buyer
subject only to the Approved Condition of Title (the "Title
Policy").
7. Certain Conditions to Close of Escrow.
(a) Conditions to Buyer's Obligations. The
Close of Escrow and Buyer's obligation to consummate the
transaction contemplated by this Agreement are subject to the
satisfaction, in Buyer's sole and absolute discretion, of
each of the following conditions for Buyer's benefit:
(i) Due Diligence Period. Buyer will
have until noon PDT on May 29, 1998, to review and approve
the Property (the "Due Diligence Period"). If Buyer does not
notify Seller in writing before the end of the Due Diligence
Period that Buyer is satisfied with the Property (the "Due
Diligence Waiver"), then this Agreement will be terminated
and the Deposit will be returned to Buyer.
(ii) Underground Storage Tank Removal.
During the Due Diligence Period, Seller will have removed, at
Seller's expense, an underground storage tank which Seller
believes is located on the east central portion of the
Property, and Seller will have provided Buyer with all
information available to Seller with respect to such removal
and related soil remediation or removal.
(iii) Title. On the Closing Date, Seller
will deliver insurable title to the Real Property to the
Buyer in fee simple, subject only to the Approved Condition
of Title, and the Escrow Holder will be committed to issue
the Title Policy upon payment of the scheduled premium.
(iv) Deposits. Seller will have made the
deposits set forth in Section 8 hereof.
(v) Representations, Warranties and
Covenants of Seller. Seller will have duly performed each
and every agreement to be performed by Seller hereunder. The
representations and warranties of Seller contained herein
will be true and correct in all material respects as of the
Closing Date.
(vi) No Material Adverse Changes. At the
Closing Date, there will have been no material adverse
changes in the physical condition of the Land.
(b) Conditions to Seller's Obligations. The
Close of Escrow and Seller's obligation to consummate the
transaction contemplated by this Agreement are subject to the
satisfaction of each of the following conditions for Seller's
5
<PAGE>
benefit:
(i) Deposits. Buyer will have made the
deposits set forth in Section 9 hereof.
(ii) Buyer's Obligations. Buyer will
have timely performed all of the obligations required by the
terms of this Agreement to be performed by Buyer.
8. Deposits by Seller. At least one (1) business
day prior to the Closing Date, Seller will deposit or cause
to be deposited with Escrow Holder the following documents
and instruments:
(a) Grant Deed. The Grant Deed conveying the
Property to Buyer, duly executed by Seller, acknowledged and
in recordable form.
(b) Seller's Certificate. A certificate of
non-foreign status ("Seller's Certificate"), duly executed,
by Seller, in the form attached hereto as Exhibit "D".
(c) Additional Documentation. Such
additional documentation as Buyer and/or Escrow Agent may
deem reasonably necessary in order to effectuate the
transactions set forth in this Agreement.
9. Deposits by Buyer. On or before the Closing
Date, Buyer will deposit or cause to be deposited with Escrow
Holder the funds which are to be applied towards the payment
of the Purchase Price in the amounts and at the times
designated in Sections 2 and 3 hereof. Buyer further will
deposit such documentation as Seller or Escrow Holder may
deem reasonably necessary to effectuate the transactions set
forth in this Agreement.
10. Costs and Expenses. Seller will pay the cost
of documentary transfer taxes, recordation costs, one-half of
the escrow fee, and Seller's share of the prorations. Buyer
will pay the premiums for the Title Policy (including any
survey costs), one-half of the escrow fee, and Buyer's share
of the prorations. The amount of such transfer taxes will
not be posted on the Grant Deed but will be supplied by
separate affidavit. If, as a result of no fault of Buyer or
Seller, Escrow fails to close, Buyer and Seller will share
equally all of Escrow Holder's fees and charges.
11. Prorations and Credits. The following
prorations and credits will be made between Seller and Buyer
as set forth below:
(a) Taxes. Real property taxes on the
Property will be prorated on the basis that Seller is
6
<PAGE>
responsible for (i) all such taxes for fiscal years
occurring prior to the "Current Tax Period," and
(ii) that portion of such taxes for the Current Tax
Period determined on the basis of the number of days
which have elapsed from the first day of the Current Tax
Period to the Closing Date, inclusive, whether or not
the same will be payable prior to the Closing Date. The
phrase "Current Tax Period" refers to the fiscal year of
the applicable taxing authority in which the Closing
Date occurs.
(b) Utilities. All utilities relating to the
Property (including, without limitation, water, sewer,
gas and electric) will be prorated as of the Closing
Date. If the parties are unable to obtain appropriate
information as of the Closing Date to calculate such
prorations, such expenses will be estimated as of the
Closing Date on the basis of the prior operating history
of the Property.
In the event any prorations, apportionments or computations
made under this Section 11 will require final adjustment,
then the parties will make the appropriate adjustments
promptly when accurate information becomes available and
either party will be entitled to an adjustment to correct the
same, provided that it makes written demand on the one from
whom it is entitled to such adjustment within thirty (30)
days after the Closing Date. Any corrected adjustment or
proration will be paid in cash to the party entitled thereto.
The provisions of this Section 11 will survive the Close of
Escrow.
12. Disbursements and Other Actions by Escrow
Holder. Upon the Close of Escrow, the Escrow Holder will
promptly undertake all of the following in the manner
indicated:
(a) Prorations. Prorate all matters
referenced in Section 11 based upon the statement delivered
into Escrow signed by the parties.
(b) Recording. Cause the Grant Deed and any
other documents which the parties hereto may mutually direct
to be recorded in the Official Records of San Francisco
County, California in the order set forth in this subsection.
Escrow Holder is instructed not to affix the amount of
documentary transfer tax on the face of the Deed, but to
supply the same by separate affidavit.
(c) Funds. Disburse from funds deposited by
or for Buyer with Escrow Holder towards payment of all items
chargeable to the account of Buyer pursuant hereto in payment
of such costs and disburse the balance of such funds, if any,
7
<PAGE>
to Buyer.
(d) Documents to Buyer. Deliver to Buyer a
conformed copy of the Grant Deed, and, when issued, the Title
Policy.
13. Seller's Representations and Warranties. In
consideration of Buyer's entering into this Agreement and as
an inducement to Buyer to purchase the Property, Seller makes
the following representations and warranties as of the date
hereof and as of the Close of Escrow:
(a) Authorization. Seller is a California
corporation, duly organized, validly existing and in good
standing under the laws of the State of California. This
Agreement and the transactions contemplated herein have been
duly and validly authorized, executed and delivered by Seller
and no other action by Seller is requisite to the valid and
binding execution, delivery and performance of this Agreement
by Seller, except as otherwise expressly set forth herein.
(b) Third Party Consents. No consents or
waivers of or by any third party (including any governmental
entity) are necessary to permit the consummation by Seller of
the transactions contemplated pursuant to this Agreement.
(c) Condemnation. There are no pending, or,
to Seller's knowledge, threatened proceedings in eminent
domain or otherwise, which would affect the Real Property or
any portion thereof.
(d) Foreign Person. Seller is not a "foreign
person" within the meaning of the Section 1445(f)(3) of the
Internal Revenue Code, and no portion of the Purchase Price
is required to be withheld by Buyer pursuant to Section 1445
of the Code and the regulations promulgated thereunder.
(e) Litigation. There is no pending or, to
Seller's knowledge, threatened litigation or administrative
proceeding with respect to the Property, or which may impair
Seller's ability to sell the Property.
(f) Contracts. There are no leases, service
or other contracts (written or oral) affecting the Property.
14. Buyer's Representations and Warranties. In
consideration of Seller entering into this Agreement and as
an inducement to Seller to sell the Property to Buyer, Buyer
represents and warrants that this Agreement and the
transactions contemplated herein, have been duly and validly
authorized, executed and delivered by Buyer and no other
action by Buyer is requisite to the valid and binding
execution, delivery and performance of this Agreement.
8
<PAGE>
15. As-Is Conveyance.
(a) Marketing Materials. No representations
or warranties, express or implied, by operation of law or
otherwise, are made as to the accuracy or completeness of the
information contained in the materials regarding the Property
prepared by Broker or Seller. To the extent Buyer desires to
rely upon any information contained in such materials, Buyer
independently will verify such information.
(b) AS-IS. Except as expressly provided
herein, Buyer will accept the Property on the Closing Date in
its existing condition as of such date, "AS IS, WHERE IS AND
WITH ALL FAULTS," without any representation or warranty of
any kind, express or implied, including, but not limited to,
with respect to such matters as title, zoning, use, economic
feasibility, soil, occupancy, capital and tenant
improvements, compliance or conformity with building, fire
and other codes, environmental conditions and any and all
other physical conditions. Buyer hereby acknowledges that it
has been afforded full opportunity to and has fully
investigated such matters to its satisfaction prior to
entering into this Agreement and/or will investigate such
matters fully during the Due Diligence Period and will
purchase the Property based solely upon such investigations.
Buyer hereby releases Seller and Seller's partners and
agents from all claims, liabilities, demands and causes of
action of any kind whatsoever, known or unknown, with respect
to any of the foregoing matters and specifically waives the
provisions of California Civil Code Section 1542 regarding
the matters covered by a general release (a copy of which
statute is attached hereto as Exhibit "E"). Buyer hereby
releases Seller from any and all claims and causes of action
of any kind whatsoever, whether statutory, contractual, under
tort principles, or at law or in equity including, without
limitation, any claims under the Comprehensive Environmental
Response Compensation and Liability Act, as amended
("CERCLA"), 42 U.S.C. ??9601 et seq., and the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. ??6901
et seq., and corresponding state laws. Notwithstanding
anything contained in this Section 15(b) to the contrary,
Buyer does not release Seller from any claim based on the
fraud (including the intentional misrepresentation or the
intentional omission) of Seller. Furthermore, Seller will
indemnify Buyer from any liability suffered by Buyer with
respect to any claims for personal injury (or death) brought
by a third party arising out of an event occurring on or
about the Property during the period of Seller's ownership
thereof; provided, however, that such indemnification will be
only to the extent such claim(s) are covered by liability
insurance maintained by Seller at the time of the event
9
<PAGE>
giving rise to such claim(s).
(c) Non-Compliance with Laws. Buyer
acknowledges that the Improvements are in extremely poor
condition and that the Improvements are not in compliance
with codes. Buyer will be responsible at its sole cost for
complying with all laws respecting the Improvements and the
Property and the transfer thereof, including all ordinances
relating to energy conservation, ADA, seismic upgrading and
environmental remediation.
16. LIQUIDATED DAMAGES. IF BUYER COMMITS A
DEFAULT UNDER THIS AGREEMENT AND THE CLOSE OF ESCROW FAILS TO
OCCUR BY REASON OF SUCH DEFAULT, THEN IN SUCH EVENT, THE
ESCROW HOLDER MAY BE INSTRUCTED BY SELLER TO CANCEL THE
ESCROW AND SELLER WILL THEREUPON BE RELEASED FROM ITS
OBLIGATIONS HEREUNDER. BUYER AND SELLER AGREE THAT BASED
UPON THE CIRCUMSTANCES NOW EXISTING, KNOWN AND UNKNOWN, IT
WOULD BE IMPRACTICAL OR EXTREMELY DIFFICULT TO ESTABLISH
SELLER'S DAMAGE BY REASON OF BUYER'S DEFAULT. ACCORDINGLY,
BUYER AND SELLER AGREE THAT IT WOULD BE REASONABLE AT SUCH
TIME TO AWARD SELLER THE DEPOSIT AS "LIQUIDATED DAMAGES" LESS
THE ESCROW HOLDER'S CHARGES.
SELLER AND BUYER ACKNOWLEDGE AND AGREE THAT THE
AWARD OF THE DEPOSIT IS REASONABLE AS LIQUIDATED DAMAGES AND
WILL BE SELLER'S SOLE AND EXCLUSIVE REMEDY IN LIEU OF ANY
OTHER RELIEF, RIGHT OR REMEDY, AT LAW OR IN EQUITY, TO WHICH
SELLER MIGHT OTHERWISE BE ENTITLED BY REASON OF BUYER'S
DEFAULT. ACCORDINGLY, IF BUYER COMMITS A DEFAULT UNDER THE
AGREEMENT AND THE CLOSE OF ESCROW FAILS TO OCCUR SOLELY BY
REASON OF SUCH DEFAULT, SELLER MAY INSTRUCT THE ESCROW HOLDER
TO CANCEL THE ESCROW WHEREUPON SELLER WILL BE RELIEVED FROM
ALL LIABILITY HEREUNDER, AND, PROMPTLY FOLLOWING ESCROW
HOLDER'S RECEIPT OF SUCH INSTRUCTION, ESCROW HOLDER WILL
(i) CANCEL THE ESCROW, (ii) PAY ALL OF ESCROW HOLDER'S
CHARGES FROM THE DEPOSIT THEN HELD BY ESCROW HOLDER, AND
(iii) DISBURSE TO SELLER THE REMAINDER OF THE DEPOSIT. IF
THE CLOSE OF ESCROW FAILS TO OCCUR FOR ANY REASON OTHER THAN
BUYER'S DEFAULT UNDER THIS AGREEMENT, BUYER'S SOLE REMEDIES
WILL BE EITHER (i) TO TERMINATE THIS AGREEMENT AND TO CAUSE
THE ESCROW HOLDER TO DISBURSE TO BUYER ALL OF THE DEPOSIT
THEN HELD BY ESCROW HOLDER, PLUS THE ACCRUED INTEREST
THEREON, LESS BUYER'S SHARE OF ESCROW CANCELLATION CHARGES;
OR TO SEEK SPECIFIC PERFORMANCE. WITHOUT LIMITING THE
FOREGOING PROVISIONS OF THIS PARAGRAPH, SELLER WAIVES ANY AND
ALL RIGHTS WHICH SELLER OTHERWISE WOULD HAVE HAD UNDER
CALIFORNIA CIVIL CODE SECTION 3389 TO SPECIFICALLY ENFORCE
THIS AGREEMENT. SELLER AND BUYER ACKNOWLEDGE THAT THEY HAVE
READ AND UNDERSTAND THE PROVISIONS OF THIS SECTION 16 AND BY
10
<PAGE>
THEIR INITIALS IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS
TERMS.
Seller's Initials Buyer's Initials
/s/ MJS /s/ JHS
__________ __________
17. Damage or Condemnation Prior to Closing.
Seller will promptly notify Buyer of any casualty to the
Property or any condemnation proceeding commenced prior to
the Close of Escrow. If any such damage materially and
adversely affects the Land (as opposed to the Improvements)
or if any condemnation proceeding relates to or may result in
the loss of any material portion of the Land or materially
and adversely affects Buyer's proposed use of the Property,
then within five (5) days after receipt of notice from Seller
Buyer may, at its option, elect either to: (i) terminate
this Agreement, in which event the entire Deposit will be
returned to Buyer and neither party will have any further
rights or obligations hereunder, or (ii) continue the
Agreement in effect. Upon the Close of Escrow, Buyer will be
entitled to any insurance proceeds, compensation, awards, or
other payments or relief resulting from such casualty or
condemnation proceeding.
18. Notices. All notices or other communications
required or permitted hereunder will be in writing, and will
be personally delivered or sent by reputable overnight
carrier and will be deemed received upon the earlier of
(i) if personally delivered, the date of delivery to the
address of the person to receive such notice, or (ii) if sent
by reputable overnight carrier, one (1) business day after
the date of posting.
To Buyer: Julie H. Stein
SKS Investments LLC
c/c Stein Kingsley Stein
235 Montgomery Street
San Francisco, CA 94104
Attention:
Tel: 415-393-9666
With a copy to: Coblentz, Patch, Duffy & Bass, LLP
222 Kearny Street, 7th Floor
San Francisco, CA 94108
Attention: Michael L. Meyers, Esq.
Tel: 415-391-4800
11
<PAGE>
To Seller: Macor, Inc.
Five Thomas Mellon Circle
San Francisco, CA 94134
Attention: Michael J. Mahoney
Tel: (415) 330-1196
With a copy to: Howard, Rice, Nemerovski, Canady,
Falk & Rabkin
A Professional Corporation
Three Embarcadero Center
Seventh Floor
San Francisco, CA 94111-4065
Attention: Thomas A. Larsen, Esq.
Tel: (415) 434-1600
and a copy to: Peter W. Cliff
The Cliff Company
1300 22nd Street
San Francisco, CA 94107
Tel: (415) 648-7700
To Escrow Holder: As Set Forth On Page 1
Notice of change of address will be given by written notice
in the manner detailed in this Section. Rejection or other
refusal to accept or the inability to deliver because of
changed address of which no notice was given will be deemed
to constitute receipt of the notice, demand, request or
communication sent.
19. Broker. Seller has engaged The Cliff Company
("Broker") in connection with the sale of the Property and a
commission equal to five percent (5%) of the Purchase Price
(as it may be reduced pursuant to Section 3(a)) will be
payable on the Closing Date. Broker will share 50% of such
commission with the CAC Group. Seller in no event will be
liable for any other commissions. Each party agrees to
defend, indemnify and hold harmless the other party from any
claims, losses, damages, expenses, costs or liabilities
(including, without limitation, reasonable attorneys' fees)
arising in connection with the breach of that party's
representations, warranties or covenants under this Section.
20. Arbitration. Any dispute hereunder will be
resolved by a representative designated by JAMS/Endispute
("JAMS") in San Francisco, California pursuant to
Sections 1280 et seq. of the California Code of Civil
Procedure. The parties each initially will advance fifty
percent (50%) of all arbitration fees as and when payable.
The prevailing party in such arbitration will be entitled to
have and recover from the other party all costs and expenses
of arbitration, including reasonable attorneys' fees.
12
<PAGE>
21. Assignment. Except to an entity owned or
controlled by Buyer, or an entity in which Buyer is the
managing member or co-managing member, Buyer may not assign,
transfer or convey its rights or obligations under this
Agreement without the prior written consent of Seller, and
then only if Buyer's assignee assumes in writing all of
Buyer's obligations hereunder.
22. Seller's Indemnification. Seller will
indemnify, defend and hold harmless Buyer, from and against
any and all obligations, liabilities, claims, liens,
encumbrances, losses, damages, costs and expenses, including
without limitation, attorneys' fees, incurred by Buyer as a
result of any breach by Seller of the representations or
warranties contained in Section 13 of this Agreement. After
the Closing Date, the foregoing indemnification will be
Buyer's sole remedy in the event of any such breach by
Seller.
23. Section 1031 Exchange. Seller and Buyer each
reserve the right to restructure this transaction so that
either of them may effect a simultaneous or non-simultaneous
tax-deferred exchange pursuant to and in accordance with the
provisions of Internal Revenue Code Section 1031. Seller and
Buyer will cooperate with one another in this regard, and
each agrees to execute such additional documents and
instruments as may be necessary and desirable for the other
party to effect such exchange with and to only each other or
an exchange intermediary, including exchange agreement,
purchase and sale agreements, escrow instructions, deeds and
other instruments. However, neither Seller nor Buyer will be
required to cooperate with such exchange if such cooperating
party (a) is not provided with written notice to such effect
at least five (5) calendar days prior to the Closing Date, or
(b) is or will be required: (i) to incur any additional
liability or financial obligations as a consequence of such
exchange; (ii) to assume any continuing liabilities; (iii) to
make any warranties or representations of any nature to the
other party hereto or to any other party other than with
respect to the Property; or (iv) to release the other Party
hereto of any warranties and representations made herein.
All such involvement by either Seller or Buyer or both, as
the case may be, with respect to the exchange of the other
party will be at no cost or expense to such involved party,
and the exchanging party will hold harmless and indemnify the
cooperating party hereto from any and all liabilities,
claims, losses or actions of any nature which the cooperating
party incurs or to which it may be exposed as a result of its
participation in such exchange. This Agreement is not
subject to or contingent upon either party's ability to
effectuate an exchange, and if either Seller or Buyer, as the
case may be, is unable to effect such an exchange on the
13
<PAGE>
Closing Date such party will in all events be required to
complete the disposition or acquisition of the Property, as
the case may be, on the Closing Date.
24. Miscellaneous.
(a) Survival of Covenants. The covenants,
representations and warranties of both Buyer and Seller set
forth in this Agreement will survive the recordation of the
Grant Deed and the Close of Escrow.
(b) Time of Essence. Time is of the essence
of each and every term, condition, obligation and provision
hereof.
(c) Counterparts. This Agreement may be
executed in multiple counterparts, each of which will be
deemed an original, but all of which, together, will
constitute one and the same instrument.
(d) Captions. Any captions to, or headings
of, the paragraphs or subparagraphs of this Agreement are
solely for the convenience of the parties hereto, are not a
part of this Agreement, and will not be used for the
interpretation or determination of the validity of this
Agreement or any provision hereof.
(e) No Obligations to Third Parties. Except
as otherwise expressly provided herein, the execution and
delivery of this Agreement will not be deemed to confer any
rights upon, nor obligate any of the parties thereto, to any
person or entity other than the parties hereto.
(f) Exhibits and Schedules. The Exhibits
attached hereto are hereby incorporated herein by this
reference.
(g) Amendment to this Agreement. The terms
of this Agreement may not be modified or amended except by an
instrument in writing executed by each of the parties hereto.
(h) Waiver. The waiver or failure to enforce
any provision of this Agreement will not operate as a waiver
of any future breach of any such provision or any other
provision hereof.
(i) Applicable Law. This Agreement will be
governed by and construed in accordance with the laws of the
State of California.
14
<PAGE>
(j) Fees and Other Expenses. Except as
otherwise provided herein, each of the parties will pay its
own fees and expenses in connection with this Agreement.
(k) Entire Agreement. This Agreement
supersedes any prior agreements, negotiations and
communications, oral or written, and contains the entire
agreement between Buyer and Seller as to the subject matter
hereof. No subsequent agreement, representation, or promise
made by either party hereto, or by or to an employee,
officer, agent or representative of either party will be of
any effect unless it is in writing and executed by the party
to be bound thereby.
(l) Successors and Assigns. This Agreement
will be binding upon and will inure to the benefit of the
successors and assigns of the parties hereto.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement as of the day and year first-above
written.
"Seller" Macor, Inc.,
a California corporation
By: /s/ Michael J. Sangiacomo
President
"Buyer" SKS Investments LLC,
a Delaware Limited Liability company
By: /s/ Julie H. Stein
Julie H. Stein
Member
Acceptance by Escrow Holder:
First American Title Insurance Company hereby
acknowledges that it has received a fully executed
counterpart of the foregoing Agreement of Purchase and Sale
and Joint Escrow Instructions and agrees to act as Escrow
Holder thereunder and to be bound by and perform the terms
thereof as such terms apply to Escrow Holder.
Dated: April 9, 1998 FIRST AMERICAN TITLE INSURANCE
COMPANY
Escrow No.SP276188 By: /s/ Virginia Bressman
Its: Senior Escrow Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
CONSOLIDATED FINANCIAL STATEMENTS OF NORCAL WASTE SYSTEMS, INC., FOR THE
NINE MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
(IN THOUSANDS EXCEPT PER SHARE DATA.)
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 42,258
<SECURITIES> 5,552
<RECEIVABLES> 39,557
<ALLOWANCES> 2,112
<INVENTORY> 2,362
<CURRENT-ASSETS> 90,918
<PP&E> 247,040
<DEPRECIATION> 107,799
<TOTAL-ASSETS> 354,166
<CURRENT-LIABILITIES> 59,552
<BONDS> 174,055
0
0
<COMMON> 241
<OTHER-SE> 39,912
<TOTAL-LIABILITY-AND-EQUITY> 354,166
<SALES> 0
<TOTAL-REVENUES> 245,992
<CGS> 0
<TOTAL-COSTS> 225,107
<OTHER-EXPENSES> (6,657)
<LOSS-PROVISION> 592
<INTEREST-EXPENSE> 19,665
<INCOME-PRETAX> 7,285
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,285
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,285
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>