MINUTES OF THE METRO COUNCIL REGIONAL ENVIRONMENTAL MANAGEMENT

COMMITTEE MEETING

Tuesday, November 28, 2000

Council Chamber

Members Present:  Ed Washington (Chair), Susan Councilor McLain (Vice Chair), Rod Park

Also Present: Rod Monroe, David Bragdon

Chair Washington called the meeting to order at 1:43 p.m.

2.  REGIONAL ENVIRONMENTAL MANAGEMENT DIRECTOR’S BRIEFING

Mike Burton, Executive Officer, discussed his recommendations for Resolution No. 00-3020, which he said were based on a number of factors to assure protection of the public’s investment in the system and an ability to get the waste to Arlington. He recommended approval of the change of ownership of Specialty Transportation Services, Inc. (STS) from Asche Transportation Services, Inc. to Churchill Environmental & Industrial Equity Partners, L.P. with the conditions specified in the resolution. Those conditions included a performance guarantee from Churchill, increasing the period of Metro’s access to the contractor’s equipment to one year in the event of default, that Churchill exercise its stock options, and imposition of stricter reporting requirements to enable Metro to better monitor the contractor’s financial condition.

He reported that STS’s performance during the last 10 years had been outstanding and their safety record was excellent. He said Churchill had given verbal assurance that they would stand behind STS but Metro was requesting to have that in writing. He said approval of this resolution would give STS 30 days to respond and meet the conditions. Meeting the conditions would authorize the change order, but if the conditions were not met, STS would receive a default notice. He added that a number of trucking companies had indicated interest in the contract. He thanked staff for their incredible amount of work on the request.

Marv Fjordbeck, Senior Assistant Counsel, discussed the terms and conditions of the contract, which states that a change of control or transfer of controlling ownership requires prior written consent from Metro. That consent could require 4 criteria: whether the purchaser was of sufficient size to perform the agreement, whether they had sufficient financial resources to fill the operational and financial requirements of the agreement, whether they had sufficient experience in providing the services, and the nature of their other commitments. Finally the contract provides that approval should not be unreasonably withheld.

He wanted the Committee to be aware of a dispute where Churchill and STS argued that they had not yet converted the stock so there had not yet been a change in control. Metro disagreed because under the language of the contract, the note is freely convertible, and there were no conditions on the conversion right, so the change of control occurred from the date of closure. He explained that was why, if the council did not approve the Executive Officer’s proposal, they were prepared to go forward and consider the company to be in default without regard to whether they had converted the note into shares of the company.

Terry Petersen, Director of the Regional Environmental Management Department, felt the details would make it clear why these conditions were essential. He said Churchill Environmental Industrial Equity Partners (Churchill Environmental) was one of six investment funds established in 1989 by Churchill Capital, Inc., made up of some high net worth investors. He said they are an investment fund, not a trucking company, and had to rely on STS to operate the company who would continue with the current management. He reported no concerns about STS’s current operations. He said Churchill Environmental’s partnership agreement had a limitation to the amount of money they could invest in one company, but there was still $6.6 million available to invest in this. He reiterated that Metro was looking for written assurance of that fact. He commented that he had seen confidential financial data from STS, and as reported by their president, they continued to have difficulties. He said there was no certainty that the available $6.6 million would be sufficient to get them out of trouble.

Councilor Park said it seemed they were perhaps getting better coverage, but at least not a diminishment of financial coverage.

Mr. Burton said that was correct and that the letter of credit remained in place with the Mellon Bank. He said the additional things they were asking for were an increase in the amount of time they would have access to the equipment should there be a default, and further financial guarantees for any costs that might be incurred as a result of their inability to meet the contract.

Mr. Fjordbeck said the same protections put in place when the Council approved Change Order 24 would remain in place. The letter of credit was the same, the guarantee of Asche remained in place, and in addition they were proposing a guarantee to the new owner.

Councilor Monroe asked if there was any indication that Churchill would accept these stipulations

Mr. Burton said that they had given verbal guarantees but had not, at this point, been willing to put it in writing.

Mr. Peterson said someone from Churchill would attend the meeting on the 6^th and that would be a good question for him. He said one condition that could be a problem for them was the performance guarantee. Their rationale was they would rather see that money invested in the company than put on stand-by in the event they would have to make good on this guarantee.

Mr. Burton added that those guarantees were needed for our ratepayers.

Councilor Monroe felt they needed to be careful not to leave Metro open to litigation on the basis of withholding approval without cause. He felt the conditions were reasonable and wondered if it was a “take it or leave it” deal.

Mr. Burton said yes.

Councilor McLain wanted to know more about the contingency plan timeline.

Mr. Burton said if they were unwilling or unable to meet the conditions within 30 days, they would be sent a letter of default. There was then an opportunity, 30 days, for them to cure the default. If they did not, a termination letter would be sent, and he guessed they would want to go to arbitration. He said during that entire period, they were still obligated to meet the contract. If STS defaulted during that time, under the contract we have, we would be able to assume the operation of their equipment. He reiterated there was no end to the interest of various trucking companies to work with Metro on that.

Mr. Fjordbeck said the Executive was correct in general. He added that the Executive’s resolution had a day requirement of entry into the agreement. After that 30 days, the Executive would have authority to go ahead with the default letter, which would allow the company to cure the default. After that 30-day period, which would be about mid-February, the government was required to provide a 10-day termination letter at which point the company would be likely to seek arbitration. He expected, if the arbitration went forward, it would be late winter or spring of next year

Presiding Officer Bragdon asked if the 30 days was to reach agreement

Mr. Fjordbeck said he would characterize it as the Council granting some limited authority to the Executive, providing him 30 days to reach and execute the agreement.

Presiding Officer Bragdon asked if they had to reply by a certain date

Mr. Fjordbeck said yes, they requested a consent on June 15, 2000. Under the terms of Change Order 21, the Council had 90 days to respond unless the company waived the 90 day requirement, which they did last summer. He said the new deadline for the current request for consent was December 14, 2000.

Presiding Officer Bragdon asked if it would satisfy the deadline if they acted on this by December 14, even though the action would not be consummated for another 30 days.

Mr. Fjordbeck said yes. The contract required the Council to consent or not consent by a certain date.

Presiding Officer Bragdon asked if the $25.6 million limit that Churchill was willing to put into STS was entirely self imposed.

Mr. Peterson said the limitation was self-imposed in their partnership agreement.

Presiding Officer Bragdon asked if they had the power to change that agreement.

Mr. Burton said they had changed it at one point and could change it again.

1.  CONSIDERATION OF THE MINUTES OF AUGUST 9, 2000

3.  COUNCILOR COMMUNICATIONS

Councilor Monroe asked if this issue would be on the December14, 2000 Council agenda.

Chair Washington said it would come to the REM committee again next week and then to Council on December 12, 2000, at the special Council meeting.

There being no further business to come before the committee, the meeting was adjourned at 2:15 p.m.

Respectfully submitted,

Cheryl Grant

Council Assistant

PLEASE NOTE: There were no attachments to the public record for the November 28, 2000 Regional Environmental Management Committee meeting.