MINUTES OF THE

METRO COUNCIL REGIONAL ENVIRONMENTAL MANAGEMENT COMMITTEE MEETING

Tuesday, January 20, 1998

Council Chamber

Chair Morissette called the meeting to order at 1:25 PM.

1.  CONSIDERATION OF MINUTES OF NOVEMBER 5, 1997

2.  REGIONAL ENVIRONMENTAL MANAGEMENT DIRECTOR’S UPDATE

Bruce Warner, Director of Regional Environmental Management, gave the Regional Environmental Management (REM) Director’s Update. The following items were updated: the rate ordinance, the SWIS report, the reception for the Forest Grove Transfer Station, the Year 9 Annual Waste Reduction Plan, Miller’s Citistics Beaverton facility, media matters, the consultant review of recycling/recovery impacts, and new employee Meg Lynch. Mr. Warner distributed to councilors, copies of the Draft #2 Year 9 Annual Waste Reduction Plan Task Framework, a copy of which is included as part of the meeting record.

Regarding the Year 9 Annual Waste Reduction Plan, Councilor McLain asked to receive a personal briefing. She said in completing the plan, Mr. Warner’s staff should consider the Auditor’s report on waste reduction, as well as some of the comments made in REM Committee and Council regarding the nature of the program. She said it is important that the committee know how money distribution is being handled, and that a work session should be held to discuss the program. The report should not be finalized until committee members and the public have the opportunity for input. Mr. Warner said staff intends to use the committee process to review and clarify issues raised by the Auditor in her audit. He also agreed to conduct individual interviews with committee members, as well as to participate in a work session regarding the Year 9 plan.

Councilor McLain asked about the time frame for appeals in the Miller Citistics case. Mr. Warner said he is not familiar with the deadlines set forth in the city of Beaverton’s code, however, parties have 21 days after a decision is rendered to make an appeal. He said an appeal would go first to the City Council, and ultimately to the Land Use Board of Appeals (LUBA).

Regarding the consultant review on recycling and recovery impacts, Councilor McLain said she has requested a report from staff about how much of what is left to recycle is wet waste. She said if changing the rate leads to increased percentages of wet waste, more energy will need to be directed toward lowering the amount of wet waste. If the rate cannot be lowered while continuing to keep people working toward the wet waste problem, then incentives should be initiated to encourage people to reduce the amount of wet waste in the waste stream. Councilor McLain said this issue needs to be incorporated into the Year 9 plan. Mr. Warner said staff views development of the plan as an opportunity to re-evaluate the direction of Metro’s waste reduction programs.

3.  RESOLUTION NO. 98-2590, FOR THE PURPOSE OF AUTHORIZING CHANGE ORDER NO. 23 TO THE CONTRACT FOR WASTE TRANSPORT SERVICES

Mr. Warner reported on Resolution No. 98-2590, which would authorize Change Order No. 23 to the contract for waste transport services. In giving his report, Mr. Warner referred to the executive summary and staff report to the resolution, copies of which are included as part of the meeting record. Also distributed at committee was a revised version of the resolution, entitled Resolution No. 98-2590A. A copy of the revised resolution is included as part of the meeting record. The resolution authorizes the executive officer to assign the Waste Transport Services agreement to Specialty Transportation Services, Inc.

Mr. Warner reported that on October 24,1997, Gary Goldberg, Executive Vice President of Jack Gray Transport, and President of Specialty Transportation Services, was notified in writing that Change Order No. 21 to the contract with Jack Gray Transport requires written consent to undertake a change of ownership. Change Order No. 21 that provides “Metro shall, within thirty (30) days of receipt of a request to enter into the transaction either approve or disapprove the request, provided such approval shall not be unreasonably withheld. If Metro requests information regarding the above criteria the thirty (30) approve/disapprove time shall begin upon satisfactory response by the contractor to Metro.” Mr. Warner stated for the record that Metro staff believes the 30-day clock began last Friday, January 16, 1998. This means Metro must either approve or disapprove of the contract by February 16, 1998.

Mr. Warner asked Mr. Goldberg to explain elements of the assignment to the committee. Mr. Goldberg said Jack Gray, the sole owner of Jack Gray Transport (JGT), has decided to divest himself of parts of his company. About 18 months ago he worked with Metro staff and legal counsel to develop a change order setting forth the process for divestiture. The public offering that Mr. Gray anticipated was not successful, so he decided to split the company in order to sell the municipal solid waste division of JGT. Mr. Gray offered to sell the division to Mr. Goldberg, and negotiations began approximately one year ago. A purchase agreement was signed between JGT and Mr. Goldberg on September 24, 1997; and five days later Mr. Goldberg assigned his rights under that agreement to a publicly held company named Aasche Transportation Services. Mr. Goldberg has served on the Board of Directors of Aasche for the past two years. He and Aasche set up a wholly-owned subsidiary of Aasche Transportation called Specialty Transportation Services (STS), which will take title to all the assets, contracts, and employees of the municipal solid waste portion of JGT. Mr. Goldberg reported Metro represents approximately one third of STS’s revenue.

Mr. Goldberg said legal advisors for all parties have met and settled items needing clarification. Three entities are involved in funding the purchase: 1) Aasche Transportation Services is investing $6 million or 23% of the purchase price in common stock of STS. 2) A mezzanine fund “sub-debt holder” named American Capital Strategies is providing $8 million in unsecured debt. 3) The Mellon Bank of Pittsburgh, with whom Mr. Goldberg has had an 18 year relationship, and the major senior creditor for JGT, will fund $18 million of the acquisition, plus provide $5 million in working capital.

Mr. Goldberg said the same management team and employees that have been involved with JGT since the beginning will continue with STS. One of the aspects Metro staff has been very concerned about is the availability of the equipment if there was ever any kind of failure in service or any default under the contract. He said the contract that has existed for the past eight years is the identical contract going forward in terms of fault provisions. Change Order No. 23 establishes one major modification, which is an extension of time whereby, if STS defaults, Metro will have use of all equipment for a period of 180 days. Previously, Change Order No. 21 set that time frame at 90 days. Mr. Goldberg said STS feels comfortable with the extension because they have never been in a default situation in the past. Mr. Goldberg said he looks forward to working until the end of the contract in twelve years, and said many employees have looked forward to an essential guarantee of twenty years work.

Councilor McFarland said she told Mr. Goldberg in a conversion last year that if Metro’s legal counsel did not have a final draft version in enough time for them to review it and brief the committee, and to give councilors time to read it themselves, she could not vote for it.

Mr. Goldberg recalled his conversation with Councilor McFarland. He said since that time, his company has continued to communicate with Metro in all areas. Legal counsel has been kept informed, and has now received all the documents, which are several hundred pages in length, in draft form. The areas of special concern to Metro staff have all been covered, and staff should be sufficiently comfortable to recommend moving forward.

Councilor McFarland said if she is forced to vote today she will vote no.

Terry Petersen, REM Environmental Services Manager, said the department has been very satisfied with the performance of JGT in the past. Almost 200,000 loads of waste have been transported out to Arlington over the past eight years on time and with no incidences. He said staff is interested in ensuring the level of service Metro currently receives will not deteriorate.

Chair Morissette said Metro is also interested in assuring that Metro has a financially sound partner. This led to the 180-day guarantee with Mellon Bank, which has been one of the biggest stumbling blocks in the process. Mr. Goldberg said this guarantee is a sign of the confidence Mellon Bank has in the contract and in Metro. Chair Morissette said the information has been available for some time, however, some of the key issues have just now been resolved.

Mr. Peterson said staff wanted the lending agreements to recognize that Metro has first rights to the waste transport equipment if something goes wrong with the new company. He said Metro’s second interest has been to ensure that STS has a legal firewall around it so that any financial difficulties of the parent company, Aasche, will not impact the operations of STS. These two items summarize Metro’s major interest, and have been dealt with in the lending documents.

Chair Morissette said one of Metro’s goals is to ensure that the financial arrangements with STS are equal to or better than with JGT. Marvin Fjordbeck, Senior Assistant Counsel, said the change from a 90-day provision to a 180-day provision accomplishes this goal.

Chair Morissette said staff believes the 30-day deadline started last Friday, when Metro received the complete documents. He asked Mr. Goldberg for his opinion. Mr. Goldberg said he felt the 30-day period began with the earlier of the first two letters corresponding with Metro, however, the language of Change Order No. 21 is not as clear as it should be. He has been working with Metro staff to clarify this matter. He said as far as the closing date of January 31, 1998, it is a firm date. Two extensions have already been granted, and a fine paid for the second extension. Mr. Goldberg said if the January 31 deadline is not met, the deal will end.

Chair Morissette asked Mr. Fjordbeck if negotiations regarding the firewall are adequate. Mr. Fjordbeck said he received the lending instrument that will provide this protection on Friday. He said staff has two concerns in this regard. One is to ensure funds are not diverted from STS to Aasche to the detriment of STS’s operations. After an initial review of both the junior lenders’ agreement and the senior lender’s agreement, he believes the provisions go a long way toward creating the fire wall. He said provisions are not complete in the Mellon document, and that he has been on the telephone with legal counsel for STS to try to fill in the blanks. Until this happens, it is difficult for him to say he is satisfied that they are adequate.

Mr. Fjordbeck said staff’s second concern is that, although ownership of the company will change, Metro wants assurances that control of the operation will remain largely with Mr. Goldberg at the helm, and his management team retained. He said the provisions of both the junior and senior debt arrangements appear to assure that Mr. Goldberg will stay as the manager and head of the company for five years.

Mr. Fjordbeck said he needs to see a draft of a voting trust agreement that will put the stock that Aasche will acquire into a voting trust subject to Mr. Goldberg’s control. He has asked when this document will be completed, and has been told negotiations are likely to go up to the time of closing.

Councilor McFarland said she is bothered by the continuing pattern of delay in obtaining the promised documents. She said her direction would be to give legal staff and the committee sufficient time to review the documents. Chair Morissette said finds absolutely nothing fearful in this transaction. He said we already have an excellent relationship with exactly the same people, and the only difference is they now have a different company name.

Chair Morissette told Mr. Warner he took exception to the portion of the staff report that reads, “Budget Impact -- None.” He said Messrs. Warner, Fjordbeck, and Peterson’s time could not tally up to equal “none.” There is some budget impact in processing this request, and he requested that a sixth item be added to help defray the costs of processing this for JGT and STS.

Chair Morissette asked Mr. Fjordbeck to frame the issues before the committee. Mr. Fjordbeck replied that, one, the issue of diversion of funds downstream is largely resolved. Two, he would recommend the language regarding the senior lender 180-day provision. Three, provisions are in place to retain the management of the current company. However, he said he is not comfortable with the provisions, particularly in, one, the senior lending agreement, dealing with the affiliated transaction. Two, he expressed concern about the provisions in the senior lending agreement referring to a voting trust agreement, a copy of which he has not yet received.

Chair Morissette told Mr. Goldberg the last two items need to be resolved before the committee can reach a decision. He asked Mr. Fjordbeck to frame an amendment to the resolution that addresses all the provisions discussed at today’s meeting.

Mr. Warner asked Chair Morissette for clarification about the costs associated with this transaction. He said an outside consultant has been employed, and the bill for that service was $2,300. Chair Morissette said he wants Mr. Warner’s best estimate of the true cost, including all staff time involved in processing the document, so Metro can negotiate with Mr. Goldberg to pay for what the cost of this contract has cost Metro. Chair Morissette said his request is on this transaction specifically, and other issues will be dealt with as they occur.

Following discussion, it was decided to recess the committee meeting until Thursday, January 22, 1988 at 4:00 PM.

4.  RESOLUTION NO. 98-2586, FOR THE PURPOSE OF AUTHORIZING AN AMENDMENT TO AN INTERGOVERNMENTAL AGREEMENT WITH THE CITY OF PORTLAND BUREAU OF ENVIRONMENTAL SERVICES TO ESTABLISH NATIVE VEGETATION ON THE PERIMETER OF ST JOHNS LANDFILL

Committee members indicated they had been fully briefed on Resolution No. 98-2586, and were prepared to vote at once.

5.  COUNCILOR COMMUNICATIONS

None.

Chair Morissette recessed the January 20, 1998 meeting of the REM Committee until January 22, 1998 at 4:00 PM at 1:30 PM.

Prepared by,

Lindsey Ray

Senior Council Assistant

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