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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 0-11688
AMERICAN ECOLOGY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3889638
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
805 W. IDAHO, SUITE #200, BOISE, IDAHO 83702-8916
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (208) 331-0135
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value per Share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ( X ) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will be not contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( ).
At March 1, 1996, Registrant had outstanding 7,825,628 shares of its Common
Stock. The aggregate market value of the Registrant's voting stock held by
non-affiliates at this date was approximately $7,233,000 based on the closing
price of $3.13 per share as reported on the National Association of Securities
Dealers Automated Quotations National Market System. For purposes of the
foregoing calculation, all directors and officers of the Registrant have been
deemed to be affiliates, but the Registrant disclaims that any of such
directors or officers is an affiliate.
Documents Incorporated by Reference
Portions of the Proxy Statement for 1996 Annual Meeting of Stockholders.
Part III
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PART I
ITEM 1. BUSINESS
American Ecology Corporation and its subsidiaries (hereinafter collectively
referred to as the "Company" unless the context indicates otherwise) provide
processing, packaging, transportation, remediation and disposal services for
generators of hazardous waste and low-level radioactive waste. Hazardous waste
consists primarily of industrial waste, including waste regulated under the
Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA" or "Superfund"), and the Toxic Substance Control Act ("TSCA").
Low-level radioactive waste ("LLRW or "low-level waste") consists of materials
contaminated with low-levels of radioactivity and is generated by nuclear power
facilities, industry, hospitals, universities, laboratories and other research
facilities. In 1995, 62% of the Company's revenues were derived from hazardous
waste services and 38% of the Company's revenues were derived from LLRW
services.
The Company generally performs its operations through its wholly owned
subsidiaries. The Company's material subsidiaries are: US Ecology, Inc., a
California corporation ("US Ecology"), Texas Ecologists, Inc., a Texas
corporation wholly owned by US Ecology ("Texas Ecologists"); American Ecology
Recycle Center, Inc., a Delaware corporation ("AERC"), American Ecology
Environmental Services Corporation, a Texas corporation ("AEESC"), and American
Liability and Excess Insurance Company, a Vermont corporation.
The Company and its predecessors have been in business for over 40 years. The
Company was originally incorporated in California in October 1983. In May
1987, the Company was reincorporated as a Delaware corporation by merger into a
newly formed wholly-owned subsidiary incorporated in Delaware for that purpose.
HAZARDOUS WASTE SERVICES
The Company provides a variety of hazardous waste management services to its
customers including stabilization, solid waste disposal, aqueous waste
disposal, fuels blending, transportation, brokerage and solvent recovery. The
Company's customers are generally in the chemical, petroleum, pharmaceutical,
manufacturing, electronics and transportation industries.
The hazardous waste management services provided by the Company are generally
performed pursuant to non-exclusive service agreements that obligate the
Company to accept hazardous waste from the customer. Fees are determined by
such factors as the chemical composition and volume or weight of the wastes
involved, the type of transportation or processing equipment used and distance
to the processing or disposal facility. The Company periodically reviews and
adjusts the fees charged for its services.
Prior to performing services for a customer, the Company's specially trained
personnel review the waste profile sheet prepared by the customer which
contains information about the chemical composition of the waste. A sample of
the waste may be analyzed in a Company laboratory or in an independent
laboratory to enable the Company to recommend and approve the best method of
transportation, treatment and disposal. Upon arrival at one of the Company's
facilities, and prior to unloading, a sample of the delivered waste is analyzed
to confirm that it conforms to the customer's waste profile sheet.
STABILIZATION AND DISPOSAL SERVICES
The Company operates two of the eighteen commercial hazardous waste landfill
disposal sites in the United States. The facilities are located in Robstown,
Texas and Beatty, Nevada. In addition, the Company also operates one of the
nation's nine commercial deepwell disposal facilities, located in Winona,
Texas. These operations primarily serve the needs of hazardous waste
generators in the Gulf Coast and West Coast regions of the country.
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The Robstown and Beatty facilities may dispose of only solid wastes, but both
facilities also have the ability to treat and stabilize waste prior to disposal
and operate transfer and staging facilities for delivery of containerized waste
for off-site disposals. Stabilization involves the mixing of sludges and
certain wet wastes with cement, lime or other solidifying and stabilizing
agents to prevent leaching under acidic conditions. These facilities are
sited, designed, constructed, operated and monitored to provide long-term
containment of the waste in accordance with regulatory requirements. The
Winona deepwell disposal system accepts only liquid wastes. The Company also
maintains two closed landfills in Sheffield, Illinois. See "Closed Facilities"
for more detailed information about these closed facilities. The following
sections describe the Company's active hazardous waste disposal facilities.
Beatty, Nevada Facility. The Company's Beatty, Nevada hazardous waste
landfill site is located on 80 acres of land 11 miles southeast of Beatty,
Nevada in the Amargosa Desert, approximately 100 miles northwest of Las Vegas
and 8 miles northeast of Death Valley and the California border. The Company
leases the site from the State of Nevada pursuant to a 1977 lease which
provides for an initial 20-year term, with a 10-year option for renewal. The
waste site is operated under license from the State of Nevada. The State of
Nevada charges waste fees which are deposited in state maintained trust funds
for closure and perpetual care and maintenance. These funds contained
approximately $11.2 million as of December 31, 1995.
The facility has approximately 1.5 million cubic yards of remaining capacity.
In 1995, 1994 and 1993, 131,000, 202,000 and 147,000 cubic yards of waste,
respectively, were disposed of at the facility. The hazardous waste site was
opened in 1970 and operates under authority from the Nevada Department of
Conservation and Natural Resources and the Environmental Protection Agency's
("EPA") Region IX. It is also subject to regulations of the U.S. Department of
Transportation ("DOT") relating to methods of handling, packaging and
transporting chemical waste. Disposal operations at the Beatty site involve
stabilization of certain wastes to meet land disposal criteria, and the burial
of chemical waste in secure landfill cells which are engineered, constructed,
operated and monitored so as to provide for the long-term containment of the
waste. During 1988, the Beatty site received its RCRA Part B permit from the
EPA and the State of Nevada.
The Beatty site is one of seven landfill sites in the United States which are
authorized by the EPA under TSCA to receive and dispose of certain types of
solid polychlorinated biphenyls ("PCBs"). This authority was issued jointly to
the Company and the State of Nevada by EPA Region IX. The disposal of PCBs
accounted for approximately 22% and 21% of the Beatty site's total volumes in
1995 and 1994, respectively. In 1995, the Company was issued a five-year
renewal permit which allows the Company to continue to dispose of non-liquid
PCBs at the Beatty site. In 1990, the Company received written confirmation
from the EPA that the Beatty site was currently authorized to accept CERCLA
clean-up waste for disposal.
Robstown, Texas Facility. The Company owns 400 acres of land near Robstown,
Texas, located 15 miles west of Corpus Christi, and operates a hazardous waste
disposal site on 240 acres of the land. The site is operated under the
regulations of, and a permit issued by, the Texas Natural Resource Conservation
Commission ("TNRCC"). In addition to TNRCC regulation, the site is subject to
EPA and DOT regulation. In 1988, the Robstown site received its RCRA Part B
permit. Disposal operations at the Robstown site involve the burial of
hazardous waste in secure landfill cells which are engineered, constructed,
operated, and monitored so as to provide for the long-term containment of the
waste. The landfill is currently developing a 100,000 cubic yard landfill to
dispose of non-hazardous waste which should greatly improve profit margins by
allowing disposal in less expensive cell space.
Groundwater at the Robstown site is monitored through the use of an extensive
well system. In 1978, an analysis of the non-potable aquifer underlying the
site showed the presence of chemical contamination. The Company has no
evidence that the contaminants have migrated beyond the permitted site
boundaries and continues to address corrective action plans in connection with
the permitting process. The Company is currently operating a non-commercial
deep-injection well at the facility for the disposal of contaminated
groundwater and leachate in order to comply with its groundwater cleanup
program.
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The facility is currently the only operating commercial landfill in Texas
with a RCRA Part B hazardous waste disposal permit. The facility serves a wide
range of industries including refining, petrochemical, agricultural and
manufacturing. In operation since 1972, the facility has disposed of more than
840,000 cubic yards of hazardous waste and there are approximately 3 million
cubic yards of remaining capacity. In 1995, 1994 and 1993, 47,000, 68,000 and
47,000 cubic yards of waste, respectively, were disposed of at the facility.
Winona, Texas Facility. The Winona facility is a 620 acre fuels blending and
solvent recycling facility with two hazardous waste deepwells. The first
deepwell has been in operation since 1981 and currently can accept waste at a
rate of 70 gallons per minute. The deepwell accepts both hazardous and
non-hazardous liquid industrial wastes that are not suitable for recycling or
landfill disposal. The deepwell accepts aqueous wastestreams, including spent
acids, landfill leachates, rinse water, storm water from contaminated
containment areas, and wastewaters with heavy metal content. Wastes remaining
from the facility's fuels blending and solvent recycling processes are also
injected into its deepwell. The second deepwell, which was constructed in
1991, received final EPA approval and commenced operation on March 14, 1996.
The second deepwell has a capacity of 200 gallons per minute and will expand
the facility's capacity and increase its flexibility in handling wastestreams.
The facility's permits allow receipt of most categories of liquid wastes except
for PCBs, dioxins, radioactive materials, and biological wastes. Prior to the
injection of any wastes, the facility's laboratory conducts tests on the wastes
to ensure that the materials are compatible with the geological characteristics
of the formation surrounding the Company's two hazardous waste deepwells. In
1995, 1994 and 1993, 10 million, 11 million and 12 million gallons of waste,
respectively, were disposed of at the facility.
The Winona site was selected for its favorable geological characteristics for
deepwell injection and the absence of any nearby oil and gas production. Its
two wells are completed to a depth of approximately 5,500 feet in the Woodbine
formation, which is highly porous and permeable. The formation is separated
from sources of drinking water by impermeable layers of shale and limestone.
In order for the facility to commence deepwell operations without incurring the
added costs of treating the hazardous waste, it was required to obtain from the
EPA an exemption from the land disposal restrictions based on proof of
"no-migration". To obtain the exemption, the facility was required to
demonstrate to the satisfaction of the EPA that the wastes would not migrate
from the geological zone into which the wastes are injected for at least 10,000
years.
Competition. In the Gulf Coast market for solid hazardous waste disposal,
the Company primarily competes with a hazardous waste landfill in Oklahoma and
a landfill in Louisiana. Each of these facilities offers similar disposal
capabilities, and competition is based on the level of ongoing service provided
to the customer, distance from the waste site to the landfill and price. In
the Gulf Coast market for liquid hazardous waste disposal services, the Company
competes primarily with three other deepwell facilities, two facilities in
Houston, Texas; and a facility in Corpus Christi, Texas. In the West Coast
market for solid hazardous waste disposal, the Company competes with three
hazardous waste landfills in California, one in Utah, and one in Idaho.
TRANSPORTATION SERVICES
General. As a complement to its disposal operations, the Company also offers
hazardous waste transportation services to its customers. The Company's waste
transportation operations focus on the Gulf Coast market. The Company
transports both hazardous and non-hazardous solid and liquid wastes generally
by truck or trailer from a waste site to a disposal or treatment facility, such
as a landfill or incinerator. Hazardous waste is transported by the Company
primarily in specially-constructed vehicles designed to comply with applicable
regulations and specifications of the DOT. The Company's hazardous waste fleet
includes 45 trucks or tractors, 318 roll-off containers and 82 trailers.
Liquid waste is frequently transported in bulk, but also may be transported in
drums. Heavier sludges and bulk solids are transported in sealed roll-off
boxes or bulk trailers.
The Company operates a scheduled, containerized hazardous waste collection
service in the Gulf Coast market called Surecycle(R), which provides small
quantity generators with comprehensive waste management services that includes
waste analysis, technical advice, labeling, manifesting, collecting,
transporting, treating and disposing of
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hazardous wastes. An important feature of the Surecycle(R) program is the use
of intermediate bulk containers as a replacement for drums in many
applications.
Competition. The hazardous and non-hazardous waste transportation business
is highly fragmented, with no company having established itself as a national
competitor. There are numerous local and regional companies providing solid or
liquid hazardous waste transportation services. Many of the large
environmental services companies have transportation divisions; however, most
of these companies with fixed-based disposal landfills or incinerators
primarily use their transportation divisions to provide services to customers
where the contract stipulates disposal or treatment at their own facilities.
REMEDIATION SERVICES
The Company also performs site remediation services and specialized hazardous
waste services to a limited extent, using a variety of equipment and
technologies to implement specific waste removal and clean-up plans. Most site
remediation projects are bid by the Company based on the customer's project
specifications, with the contract awarded to the lowest qualified bidder on a
unit price basis. Remediation services are generally provided in conjunction
with disposal services by the Company. The remediation market is highly
competitive and the Company does not have a significant presence in the market.
FUELS BLENDING AND SOLVENT RECYCLING SERVICES
As a result of its acquisition of the Winona facility in December 1994, the
Company expanded its hazardous waste services in the Gulf Coast Region to
include two important new services: fuels blending and solvent recycling.
These two new services have enabled the Company to substantially increase the
range of waste services that it provides to its existing transportation and
disposal customers and have added new customers to the Company's client base.
A substantial portion of the organic wastes received at the Winona facility
is placed into its fuels blending operations. The Company blends these wastes
into fuels to meet specifications prescribed for use in cement kilns. The
Company also employs a thinfilm evaporator for reclaiming limited quantities of
certain waste solvents. In this process, a solvent is mechanically wiped onto
a steam-heated metal surface in extremely thin layers, causing most of the
solvent to evaporate and be condensed as a liquid. Reclaimed solvents, which
include metal cleaning and paint solvents and freon, are sold to end-users or
returned to the customer who generated them. Wastes that are separated from
the reclaimed solvent are used in the fuels blending process or injected into
the Company's deepwell.
The Company receives waste in bulk shipments through specialized containers
that are picked up at the customer's site, placed on rail for shipment to the
railroad's transfer facility and then delivered to the Winona facility. This
method of transportation is more efficient for long-distance shipments than
truck transportation. The Winona facility maintains a rail spur transhipment
facility nearby that provides the capability of transferring certain wastes
from railcar to the facility.
Competition. In fuels blending services, the Company primarily competes with
several Texas competitors. Competition is generally based upon overall
services provided to the customer, distance from the customer, price and
off-site disposal fees.
LOW-LEVEL RADIOACTIVE WASTE SERVICES
Radioactive waste is generally classified as either high-level or low-level.
High-level radioactive wastes, such as spent nuclear fuel and waste generated
during the reprocessing of spent fuel from nuclear reactors, contain
substantial quantities of long-lived radioactive isotopes and require hundreds
or thousands of years to decay to safe levels.
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Low-level radioactive waste consists primarily of solid materials containing
far less radioactive contamination, generally decaying to safe levels within
several decades to approximately 500 years. The Company's LLRW business
includes the packaging, transportation, disposal, treatment, recycling and
processing of low-level waste. Low-level waste is generated by nuclear power
facilities, industry, hospitals, universities, laboratories and other research
facilities. This waste consists generally of material such as contaminated
equipment, discarded glassware, tools, gloves and protective clothing,
radio-pharmaceuticals and other hospital wastes, and laboratory waste
materials. This waste generally requires minimal packaging for the protection
of the public or employees and is usually packed in metal boxes or 55-gallon
drums for transport and disposal.
The LLRW services market is generally composed of three segments: (i)
disposal, including both commercial and government markets, (ii) commercial
processing and volume reduction, and (iii) government services. The Company
operates in all three of these segments. The Company's LLRW disposal
activities involve the operation of a landfill site on government owned land
near Richland, Washington. The Company's LLRW commercial processing and volume
reduction services include both fixed base processing facilities and service
capabilities located at the Oak Ridge, Tennessee Recycle Center. The
government services segment activities includes processing, volume reduction
and disposal, at US Department of Energy ("DOE") and US Department of Defense
("DOD") locations. The Recycle Center provides these services and intends to
pursue these DOE and DOD markets.
THE COMPACT SYSTEM
The Low-Level radioactive Waste Policy Act of 1980 and the Low-Level
Radioactive Policy Amendments of 1985 (collectively, the "Low-Level Act")
established the general framework for the management of commercial LLRW
disposal facilities. The Low-Level act created incentives for states to form
formal regional alliances ("compacts") as ratified by the U.S. Congress, each
containing a designated landfill for use by member states. One state within
each compact is required to site and build a permitted disposal facility on a
rotating basis so that continuous disposal capacity for that compact can be
maintained.
The Low-Level Act also provides that any compact approved by Congress may
restrict the use of its disposal facility to low-level waste generated within
the member states, and may limit the export of waste from that compact as of
January 1, 1993. As a result, in 1992 the Company saw a marked increase in
LLRW volumes disposed because of this pending limitation of disposal space
availability. Since January 1, 1993, the state of Washington, through the
Northwest Compact (Washington, Oregon, Idaho, Montana, Utah, Wyoming, Alaska,
and Hawaii), has prohibited disposal of LLRW generated from outside the
Northwest Compact at the Company's Richland, Washington facility with the
following exception. The Northwest Compact entered into an inter-regional
contract with the Rocky Mountain Compact to accept waste generated by the Rocky
Mountain Compact (Nevada, Colorado, and New Mexico). As a result, the
implementation of the Low-Level Act has resulted in a reduction of waste
receipts at the Company's low-level waste disposal site in Richland,
Washington. This restriction is expected to continue in the foreseeable
future.
It is also possible that, pending the full implementation of the Low-Level
Act and the final alignment of compacts, other actions could be taken which
would further restrict the ability of LLRW facilities nationwide to continue to
receive low-level waste. Such actions could include the implementation of
additional state-imposed fees, which could further restrict volumes, or the
imposition of higher insurance or bonding requirements.
DISPOSAL SERVICES
The Company operates the only licensed LLRW disposal facility within the
regional compact system, located near Richland, Washington. This facility
serves the LLRW disposal needs of the states in the Northwest Compact and the
Rocky Mountain Compact. The Company is in the process of developing two
additional LLRW disposal facilities for the Southwest and Central states
compacts. The Company also maintains two closed LLRW landfills in Sheffield,
Illinois and Beatty, Nevada. (See "Closed Facilities" for more detailed
information about each of
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these closed facilities' operations.) The following sections describe the
Company's active and proposed LLRW disposal operations.
Richland, Washington Facility. This facility is located on 100 acres, 25
miles northwest of Richland, Washington on the DOE's Hanford Nuclear
Reservation ("Hanford") and is operated by the Company. The State of
Washington leases the land from the federal government and the Company
subleases the land from the State of Washington. In 1990, the Company
exercised its option to renew its sublease for another 15-year period. Under
the terms of the lease, the site is to be used for LLRW burial and related
activities. The primary disposal operations at the site are conducted under a
license issued by the State of Washington. The Company's license was renewed
for a five-year period in May 1992. The Company also holds a special nuclear
materials permit license, reissued in December 1988 by the NRC, which permits
burial of materials containing certain radioactive elements in amounts greater
than those permitted under the license issued by the State of Washington. The
Company applied for renewal of this special nuclear materials permit in 1993
and continues to operate under the license pending renewal by the NRC, which is
expected in 1996 or 1997. "Special nuclear material" is not classified as LLRW
and consists primarily of reactor-produced materials which contain plutonium,
uranium 235 and any material artificially enriched by these isotopes.
The disposal rates charged at the Richland facility are regulated by the
Washington Utilities and Transportation Commission (WUTC). Rate regulation is
designed to set disposal rates sufficient to cover the costs of operation and
provide the Company with a reasonable profit margin. In May 1995 the Company
filed a rate setting case to implement a new rate design and revenue
requirement effective between 1996 and 2001. The Company's filing, after
amendment by a settlement agreement with major site users, was approved by WUTC
to establish a $5.6 million annual revenue requirement and a rate design to
collect this revenue from site availability, a per container, a per shipment, a
dose at container surface and volume charges. The approved revenue requirement
is exclusive of taxes and fees. The State of Washington charges and collect
fees for burial, site surveillance, local economic development, rate regulation
and site use from low-level waste generators using the Richland facility.
Revenues are also contributed by generators to fund dedicated trust accounts,
administrated by the Washington Treasurer for closure and long term maintenance
of the Richland site. As of December 31, 1995, $22.8 million was retained in a
site closure account and $23 million in a perpetual maintenance account.
The Richland facility is permitted to accept naturally occurring and
accelerator produced radioactive materials (NARM) waste from throughout the
nation. During 1995 approximately 77,000 cubic feet of NARM waste supplemented
company revenues collected from the disposal of over 200,000 cubic feet of
low-level waste generated from Northwest and Rocky Mountain Compact states.
Due to political pressure, the State of Washington recently implemented
regulations to limit NARM volume to 8,600 cubic feet annually and any single
generator to no more than 1,000 cubic feet. The Company filed litigation
on this issue and executed a Settlement Agreement on May 15, 1996. The
Agreement provides that the Washington State Department of Health initiate
rule-making procedures for the purpose of promulgating revised regulations with
a 100,000 cubic feet cap on annual NARM waste disposal. Also on May 15, 1996,
the Court stayed application of the disputed regulation for the duration of the
amendment process. During this stay, the 100,000 cubic feet limit will apply.
Although NARM waste disposal rates are not regulated by WUTC, a portion of NARM
revenues can be applied to reduce the Company's annual revenue requirement.
Proposed Ward Valley, California Facility. In December 1985, the Company was
selected as the State of California's license designee to site, develop and
operate a LLRW disposal facility ("Ward Valley") in that state to serve the
Southwestern Compact (California, Arizona, North Dakota and South Dakota). In
September 1993, the California Department of Health Services ("DHS") certified
its final environmental impact report, issued its Record of Decision on the
project, issued a license to the Company to construct and operate the facility
and executed a lease of the site with the Company. The license and lease
become effective and construction can only begin once the land for the site is
conveyed from the U.S. to the State of California. In connection with the
development of this LLRW facility, the Company has expended and capitalized
$40.7 million, including pre-operational interest, as of December 31, 1995.
Construction and operation of the facility has been delayed in large measure
because the federal government has not yet conveyed the land for the facility,
located in California's Ward Valley, to the State of California. In January
1993, former Secretary of the Interior in the Bush Administration, Manuel
Lujan, decided to sell the
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Ward Valley site to the State of California. That sale was enjoined, however,
as a result of the lawsuits described below. Subsequently, the new Secretary of
Interior in the Clinton administration, Bruce Babbitt, rescinded Secretary
Lujan's land sale decision and decided to conduct additional federal hearings
before determining whether to convey the land. In August 1993, Secretary
Babbitt requested that California Governor Pete Wilson hold an adjudicatory
hearing on behalf of the U.S. Department of the Interior to provide information
that might be relevant to the Secretary's decision on the land transfer, and in
September 1993, the Governor agreed to hold such a hearing. In November 1993,
Secretary Babbitt sent a letter to Governor Wilson stating that he was
postponing further action on his proposed hearing in order to await the final
outcome of two state court litigations that had been filed against the project
in October 1993. In 1994, Secretary Babbitt asked the National Academy of
Sciences ("NAS") to conduct an independent review of certain geological issues
related to the suitability of the Ward Valley site. The NAS convened a panel in
1994, conducted hearings on the project in June and September 1994. The NAS
panel issued a May 1995 report which concluded that the project would pose no
significant threat to groundwater quality and no credible threat to the quality
of water in the Colorado River which is about twenty miles and a mountain range
away. Subsequently, Secretary Babbitt announced his intention to transfer the
land, subject to several specific conditions, to DHS. Interior and DHS
negotiated transfer conditions through the summer and fall of 1995. In the fall
of 1995, these negotiations were put on hold and the State of California
petitioned Congress for statutory transfer of the land. Accordingly, legislation
was introduced and attached to the Omnibus Budget Reconciliation Act of 1995.
This measure was vetoed by the President, in part because of its provisions
regarding the Ward Valley land transfer. Since then, new Ward Valley land
transfer legislation has been introduced in both the House and Senate. It
therefore is possible that the Ward Valley site could be transferred to the
State of California during 1996 through Congressional action.
In February 1996, John Garamendi, Deputy Secretary of the Department of
Interior, announced that Interior would not make a decision on California's
pending application for the purchase of the Ward Valley site until after
additional on-site testing is conducted. Mr. Garamendi also stated that the
results of this testing as well as several other issues would be presented in a
supplement to the project's Environmental Impact Statement, and that Interior's
decision on the sale probably would not be made for another year. The testing
at issue is that which the National Academy of Sciences recommended in its May
1995 report be performed during facility construction. The Academy stated that
the land transfer should be delayed to conduct these tests, and the State of
California has already stated that the recommended tests would be conducted
after the land is transferred. Mr. Garamendi's decision is therefore widely
regarded as a politically motivated effort to postpone the land transfer
decision until after the 1996 Presidential election.
Two lawsuits challenging the 1993 decisions by DHS to issue a license and a
lease to the Company for the construction and operation of the Ward Valley
disposal site were filed in the California Superior Court for the County of Los
Angeles (the "License Litigation") in October 1993. The Company was named as a
real party in interest in both lawsuits. In general, the plaintiffs in the
license litigation alleged that the DHS violated various procedural and
substantive requirements of the California Radiation Control Law and the
California Environmental Quality Act in reaching its license decision and sought
to have the facility's license invalidated. In July 1994, one of the plaintiffs
in the License Litigation voluntarily dismissed its lawsuit. In June 1994, the
judge ruled in favor of the DHS and the Company on all issues with the exception
of one. In December 1993, nearly three months after the license had been
issued, three geologists from the US Geological Survey issued an unofficial
report ("Wilshire report") which suggested that groundwater protection and
protection of the Colorado River had not been adequately evaluated by DHS. The
trial court concluded this report should be considered by the DHS in a
"pre-approval setting", and remanded the case to the DHS for reconsideration.
Because the DHS determined that the report contained no significant new
information, DHS asked the court to reconsider its decision concerning this
report. The trial court refused to do so, and cross-appeals of the judge's
several rulings were taken by the plaintiffs, DHS and the Company, among others.
In August 1995, the California Appeals Court ruled in favor of DHS on all
counts, overturning the trial court's determination regarding the Wilshire
report. In January 1996, the California Supreme Court refused to entertain
project opponents' further appeals. Therefore, all legal challenges to the
license and the EIR at the state level have been successfully resolved.
In January 1993, a lawsuit was filed against the Secretary of the Interior,
Manuel Lujan, in federal district court for the Northern District of California
to enjoin the intended sale of the land for the Ward Valley site to the State of
California on the grounds that the Secretary could not sell the land until he
had designated critical habitat for the desert tortoise, a threatened species
under the Federal Endangered Species Act, and that the 1990 U.S. Fish and
Wildlife Service's ("FWS") biologic opinion, which concluded that the project
would not jeopardize the continued existence of the desert tortoise,
impermissibly failed to analyze the project's potential radiological impacts on
the desert tortoise. In February 1994, the U.S. Department of Interior
designated approximately 6,400,000 acres in the states of California, Nevada,
Utah and Arizona as critical habitat for the desert tortoise. The designation
includes the proposed Ward Valley site. Based on these developments, the
lawsuit was dismissed without prejudice. Inclusion of the Ward Valley as
critical habitat requires the Bureau of Land Management, the EPA and the FWS to
consider and weigh several factors, including whether the project would result
in the destruction or adverse modification of critical habitat. These
deliberations are ongoing. Nevertheless, the Company does not believe that the
decision concerning the project's impact on the desert tortoise and its critical
habitat will prevent
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<PAGE> 9
conveyance of the land to the State of California since, in August 1995, the
U.S. Fish & Wildlife Service issued an updated Biological Opinion which
reaffirmed an opinion of "No Jeopardy" to the desert tortoise, and further
concluded that the project would not result in the destruction or adverse
modification of desert tortoise critical habitat.
A second lawsuit was also filed in 1993 against the Secretary of Interior
which alleged violations of the National Environmental Policy Act by Secretary
Lujan in his decision to transfer the land to the State of California. Based
on Secretary Babbitt's decisions later in 1993 to rescind the land transfer and
supplement the project's Final Environmental Impact Statement, this action was
stayed by agreement of the parties, but technically is still pending in federal
district court and may be amended. The Company is not a defendant in this
matter.
In October 1995, the San Bernardino County Board of Supervisors passed an
emergency ordinance which prohibited the disposal in San Bernardina County of
LLRW not generated within its borders, and which imposed facility location and
design standards on any LLRW disposal facility established in the County which,
if valid, would have had the practical effect of prohibiting the establishment
of the Ward Valley facility as licensed by DHS. Several parties, including US
Ecology, brought suit in U.S. District Court for the Central district of
California to have the ordinance invalidated. In February 1996, the County
rescinded the Ordinance and the litigation has been stayed by agreement of the
parties. Technical discussions regarding the Ward Valley project are
continuing between the County and DHS.
Additional legal challenges and political delays could delay the opening of
the facility to between 1997 and 1999 or beyond. Assuming the land is
transferred and all challenges and appeals to the land transfer and the facility
license decision are favorably resolved, the Company expects that the
construction and start-up of the facility will take approximately eight to
twelve months. It is not possible to assess the ultimate length of the delay at
this time, nor can there be any assurance that the land will be transferred. If
the land is not transferred or the facility is not established for any reason,
the Company may proceed with legal action to protect its rights. Because the
reasons for not transferring the land or otherwise preventing the establishment
of the facility are not known, the ultimate outcome of any such legal action is
uncertain, and there is no assurance that the Company will recover monetary
damages or restitution of its past expenditures. The Company expects to incur
expenses of approximately $200,000 per month, excluding interest, until
construction begins. These expenses are not currently reimbursable from the
Southwestern Compact or any other party. Once the construction period
commences, expenditures are expected to be approximately $16 million, excluding
interest, including payment for the lease of the land.
If the California LLRW facility cannot be established and if the Company is
unable to recoup its investment through legal recourse, the Company would
suffer a loss that would have a material adverse effect on its financial
condition.
Proposed Butte, Nebraska Facility. In June 1987, the Company was designated
to develop and operate a LLRW disposal facility ("Butte") by the Central
Interstate Low-Level Radioactive Waste Commission ("CIC"). The facility is on
schedule to be completed by 2000 and will cost an estimated $152 million to
license, design and construct. Project costs through 1995 totaled $74.2
million. Additional funding of approximately $12 million in the pre-licensing
phase of the contract has been authorized by the major generators of the waste
in the CIC (Nebraska, Kansas, Oklahoma, Arkansas and Louisiana); however, if
the proposed management plan of the licensing agency is followed, then this
amount may not be sufficient to carry the project through the initial licensing
decision. The Company and the CIC are attempting to speed-up the license
review process which will reduce project costs, but there is no assurance that
they will be successful. If the time taken to review the license is not
reduced, the Company will attempt to negotiate an amendment to its contract to
cover any additional prelicensing costs in excess of $12 million.
The Company's portion of the project costs through 1995, which have been
capitalized, totaled $6.7 million including pre-operational interest, and,
except for pre-operational interest, the Company anticipates no additional
investment in the project prior to construction. Under the terms of the
Company's contract with the CIC, interest is earned on the Company's
contribution to the project costs at the rate of 20% from the date of
contribution until a final license decision is made, or until January 1, 1997,
whichever occurs first. Following a final license decision or after January 1,
1997, whichever occurs first, and prior to commencement of facility operations,
interest is earned on the Company's contribution at prime rate plus 3%. The
rate would be reduced to prime if all currently authorized pre-licensing
funding is expended prior to a final licensing decision.
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<PAGE> 10
In December 1993, the County of Boyd, Nebraska and the Boyd County Local
Monitoring Committee sued the Company asserting fraud and misrepresentation
regarding the community consent requirement for the disposal facility. In July
1994 the federal district court granted the Company's motion for summary
judgment and dismissed the lawsuit. In February 1995, the U.S. Court of
Appeals for the Eighth Circuit upheld the lower court's decision and in October
1995 the U.S. Supreme Court declined to consider the case.
In January 1993, the directors of the Nebraska Department of Environmental
Quality and the Department of Health issued a Notice of Intent to Deny the
Company's license application based on their interpretation of a regulatory
requirement. The two agencies took the position that the presence of wetlands
within the proposed site boundaries, even though not in the area to be used for
waste disposal, precluded the issuance of a license. Subsequently, the
proposed site boundaries were reconfigured to eliminate the presence of
wetlands and the two agencies withdrew the Intent to Deny.
In August 1994, the U.S. Army Corps of Engineers determined that a small
wetland, less than one acre in size, exists on the reconfigured site. The
disposal of waste will not take place in the area determined to be a wetland by
the Corps. The Company does not agree with the Corps' wetland determination.
The State of Nebraska has taken no action against the Company's license
application as the result of the Corps' wetland determination. However, there
can be no assurance that some action will not be taken.
It is not presently possible to assess the length of delay that may be
experienced prior to the construction of the facility. According to the
licensing agency's proposed licensing management plan, the facility is expected
to receive an initial licensing decision in late 1997. However, there can be
no assurance that a license will be issued. The Company expects to incur
expenses of approximately $500,000 per month until the license is received.
All these expenses are reimbursed monthly by the CIC. Once the two year
construction period commences, expenditures are expected to be approximately
$50 million excluding interest. Under the present contract with the CIC, this
construction expense will be the Company's responsibility.
Competition. The Company operates the only commercial low-level waste
disposal site operating within the regional compact system in the United
States. The Company's Richland, Washington facility operates as the exclusive
LLRW disposal site for the Northwest and Rocky Mountain Compacts. The other
United States LLRW disposal facility near Barnwell, South Carolina is operated
by Chem-Nuclear, a subsidiary of WMX Technologies, Inc.
A disposal facility located near Clive, Utah is licensed by the State of Utah
to accept NORM and certain types of LLRW. This facility has not been
designated as a regional facility under the Low-Level Act. The Clive, Utah
facility accepts principally low-level radioactive contaminated soil from
clean-up sites.
LLRW PROCESSING AND RECYCLING SERVICES AT THE RECYCLE CENTER
The commercial processing and volume reduction segment of the LLRW services
market includes both fixed-based facilities and service capabilities performed
at the radioactive waste generator sites. The Company's processing and volume
reduction services are conducted under the auspices of its Recycle Center in
Oak Ridge, Tennessee.
The Company acquired the Recycle Center from Quadrex in September 1994. The
Recycle Center is equipped to process and recycle materials which are
contaminated with low levels of radioactivity. The Recycle Center provides
services primarily to nuclear power facilities, industrial nuclear generators
and the federal government. Historically, the Recycle Center's customers have
included a substantial number of public utilities. The Recycle Center's
principal services include the following:
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<PAGE> 11
NUCLEAR MATERIAL MANAGEMENT CENTER
LLRW Packaging and Transportation Services. The company packages and
transports small quantities of LLRW from laboratories, hospitals, universities
and other commercial facilities to disposal facilities. The Company may
contract with low-level waste generators to pick up waste which is shipped to
commercial LLRW sites. The waste is either shipped by the Company in its own
vehicles or is shipped by common carriers under subcontract. The Company
supplies many of these customers with equipment and material for the packaging,
labeling and transportation of the LLRW material. The packaging and
transportation market is highly competitive, and the Company does not have a
significant presence in the market.
Metal Waste Decontamination. Radioactive contaminated metals exist primarily
in the form of large components such as pumps, valves, fuel racks, stream
generators, and smaller items such as condensers, heat exchangers, racks,
stands, pumps and valves. The Recycle Center can decontaminate these metals
through an abrasive process, or an acid dip process.
Dry Active Waste ("DAW") Processing. DAW processing services include volume
reduction and free release programs. This waste is primarily in the form of
wood, glass, clothing, and paper products. The Recycle Center uses its super-
compactor to reduce the volume of this waste before it is shipped for disposal.
The Recycle Center facility differentiates itself in this service by compacting
and/or baling waste prior to supercompaction. The combination of compacting,
binding and super-compacting accomplishes superior volume reduction by reducing
the resiliency of the waste material. The Recycle Center also sorts and
segregates waste prior to super-compaction.
Green is Clean Program. In 1989, the Recycle Center initiated its free
release, or Green is Clean program. Under this program, generators place
potentially contaminated waste in yellow bags and waste believed to be
non-contaminated in green bags. The bags are then shipped to the Recycle
Center for radioactivity scanning. Waste certified as non-radioactive is
disposed of in an industrial waste landfill. Radioactive material that cannot
be decontaminated is packaged for disposal in a LLRW facility. This packaging
includes super compaction to produce significant volume reduction.
NUCLEAR EQUIPMENT SERVICE CENTER (NESC)
The Nuclear Equipment Service Center (NESC) provides refurbishment and repair
services for high value nuclear power plant electric motors and equipment.
These services include decontamination, disassembly, modifications, reassembly
and testing to meet stringent client requirements for safety and reliability.
Additionally, the Company frequently provides field services to nuclear power
plants for removal, inspection, maintenance and reinstallation of high value
equipment.
Motors, valves, pumps and other components of nuclear power facilities in the
United States require periodic maintenance which requires them to be
decontaminated before they can be refurbished. The Company can remove
radioactive contaminated insulation, decontaminate the motor and rebuild and
test the motor with minimal outside service providers. The Company believes
that the NESC is the only major facility in the United States combining all of
these services.
Scaffolding and Lead Management Services. During maintenance periods,
nuclear utilities require the use of scaffolding and lead blankets. The
Recycle Center maintains an inventory of approximately two million pounds of
scaffolding and 350,000 pounds of lead blankets. The scaffolding and lead
blankets are decontaminated, surveyed for release and then rented to the
customer.
Competition. The Company's competitors in the commercial LLRW processing and
recycling market include Scientific Ecology Group (a division of Westinghouse),
Chem-Nuclear Systems, Inc., Allied Technology Group, Inc., Frank Hake and
Associates, Inc. and Alaron, Inc.
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<PAGE> 12
LLRW DISPOSAL OPERATIONS
The Company has operated the Richland low-level waste disposal facility since
1963 under a lease with the State of Washington for 100 acres of disposal site
area. Approximately 40 acres of the site have been used to date. Under the
provisions of the low-level waste policy act of 1980 and as amended in 1985,
the State of Washington has accepted responsibility for disposal of waste from
the Rocky Mountain Compact and has entered into a contract agreement to provide
disposal for the Rocky Mountain Compact. Together, this 11-state region
generates approximately 125,000 cubic feet of low-level radioactive waste per
year which must be disposed of at the Richland facility. The Company's prices
and costs are regulated by the Washington Utilities and Tariffs Commission
(WUTC) as a legal monopoly providing LLRW services.
Under a rate settlement agreement reached in 1995 with the generators and
approved by the WUTC, the Company's annual revenue requirement of $5.6 million
plus its allowable profit of $1.6 million can be recovered in each of the next
five years. The Company can adjust unit prices to recover the costs and
allowed profit in six-month intervals. At Richland, the Company also provides
disposal of naturally-occurring and accelerator produced radioactive material
(NARM) under the licenses issued by the State of Washington. In 1995 the
Company disposed of approximately 77,000 cubic feet of NARM, largely from
industrial and institutional customers. In mid 1995, the State of Washington
significantly reduced the volume of waste allowed for disposal by implementing
a new state rule. This new rule retricts the annual volume of NARM waste to
8,600 cubic feet per year. The Company has vigorously opposed this new rule
and as of March 1996, expects that a new limit of 100,000 cubic feet per year
will be applied to the NARM disposal business at Richland. This service
generates additional revenues for the Richland facility which are outside the
scope of the rate regulations imposed by the WUTC. During 1996, under the new
rate agreement, expenses assigned by site operations and administrative
personnel to NARM disposal will be credited back to regulated waste generators.
CLOSED FACILITIES
The Company's closed hazardous waste and LLRW disposal facilities are
described below.
Sheffield, Illinois Facility. The Company previously operated two hazardous
waste disposal sites at Sheffield, Illinois. The sites are located on property
owned by the Company on 45 acres adjacent to a closed state-owned LLRW site
also previously operated by the Company. One hazardous waste site was opened
in 1974 and ceased accepting hazardous waste in 1983. A second closed
hazardous waste disposal site occupied less than five acres, and accepted
hazardous waste pursuant to Illinois authorization from 1968 through 1974. The
two sites were operated and are maintained under federal and state
environmental regulations.
The Company also maintains a 20-acre LLRW disposal facility three miles
southwest of Sheffield, Illinois located on land owned by the State of
Illinois. The Company has closed the facility, which last received low-level
waste in 1978, and is maintaining the site pursuant to a 1988 Agreed Order
settling long-standing litigation between the Company and the State of
Illinois.
In 1984, the Company submitted for approval a closure and post-closure plan
for the hazardous waste disposal sites to the Illinois EPA and to the U.S. EPA.
The regulatory agencies have approved the Company's detailed program for
implementation and operation of comprehensive corrective action, but have not
approved the Company's closure and post-closure plan. The Company believes
that its closure and post-closure plan fully satisfies the health and safety
needs of the public and all regulatory requirements. Review of the plan by the
Illinois EPA and the U.S. EPA is currently in progress.
In 1982, hazardous waste was detected in site-monitoring wells at one of the
two Sheffield facilities and as a result, the Illinois EPA requested that the
Company conduct an investigation of the site. The Company completed, pursuant
to a 1985 Consent order, a Remedial Investigation and Feasibility Study of the
Sheffield facility. Pursuant to that order, a final Corrective Measures
Implementation Plan was issued by the U.S. EPA in
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<PAGE> 13
October 1990 and the Company is in the process of implementing this plan. The
Company completed its source isolation programs in 1994. The Company is
currently renegotiating the terms of the Corrective Measures Implementation
Plan for groundwater monitoring and extraction programs.
RCRA regulations also require the Company to carry environmental impairment
insurance against sudden and accidental occurrences, as well as against
non-sudden occurrences such as subsurface migration. See "Insurance". These
coverages are not able to be maintained for the Sheffield, Illinois site due to
the history of the facility as described above.
Maxey Flats, Kentucky Facility. Between 1963 and 1978, the Company operated
the Maxey Flats, Kentucky LLRW site, a facility that was owned, licensed and
maintained by the Commonwealth of Kentucky (the "Commonwealth"). In 1978, the
Commonwealth entered into an agreement with the Company to permanently close
the facility and the Commonwealth agreed, in part, to assume any and all
liabilities related to the facility and to exercise responsibility for
perpetual care and maintenance of the facility. The Commonwealth later filed a
lawsuit against the Company seeking to have that agreement declared invalid.
The Company then filed an action against the Commonwealth seeking cost recovery
and contribution and to enforce its rights under the agreement. After several
federal court decisions in favor of the Company on the issues, in July 1994,
the Commonwealth and the Company settled all pending litigation regarding the
Maxey flats facility. The Company and the Commonwealth also agreed to
cooperate in the resolution of any third party indemnification claims against
the Company from potentially responsible parties involved with the facility.
The Company estimates that the maximum amount of the Company's share of these
third party claims is less than $1.1 million, and the Company recognized this
liability in its 1994 financial statements.
LLRW Portion of Beatty, Nevada Facility. In December 1992, the Governor of
Nevada, citing the federal Low-Level Act as authority, issued an executive
order for the Company's Beatty, Nevada LLRW disposal site to cease accepting
LLRW for disposal. In January 1993, the Company filed a lawsuit challenging
that order. In September 1993, the Company and the State of Nevada executed a
settlement agreement disposing of all pending litigation between the parties.
The settlement resulted in the dismissal of three lawsuits. Two of the
lawsuits had been filed by the Company challenging the authority of the Nevada
Environmental Commission to establish two new fees on disposal of waste at the
Beatty facility. The other suit dismissed was filed by Nevada seeking to
obtain a declaration from the court that it had the right to terminate the
lease agreement with the Company for the Beatty facility. The Company also
dismissed its claims against Nevada for damages associated with the Governor's
executive order closing the LLRW facility. Pursuant to the settlement
agreement, the parties also agreed that until December 31, 1996, regulatory,
statutory and lease fees for hazardous waste disposal would not exceed $40.20
per ton in the aggregate, though subject to decrease in certain events. The
settlement agreement also provides for the permanent closure of the Company's
LLRW disposal facility at Beatty, Nevada. The State of Nevada has agreed to
accelerate the licensing process of the unused disposal acreage from the LLRW
site for use in the Company's hazardous waste disposal operations at Beatty.
If the additional capacity is licensed, the capacity of the Company's Beatty
hazardous waste disposal facility will approximately double. As a result of
the above order and settlement agreement, the Beatty facility accepted no LLRW
for disposal after January 1, 1993. The State of Nevada maintains a perpetual
care and maintenance trust fund for the Beatty, Nevada LLRW and hazardous waste
facilities which is funded by the Company. Recently, analysis results by USGS
indicating small amounts of tritium and carbon-14 at this facility have been
cited by opponents of Ward Valley as evidence that the Ward Valley site is not
suitable. The USGS in their recent review of the Beatty data determined that
"extrapolation of results from Beatty to Ward Valley are too tenuous to have
much scientific value". These trace amounts are the result of operations or
practices that occurred in the early 1970's. This issue was thoroughly
reviewed by the State of Nevada and the USNRC in 1976. Actions were
implemented by the Company to correct and upgrade disposal practices. Both
California DHS and USGS have stated that past disposal practices, not site
characteristics contributed to the results at Beatty. Furthermore, the results
are not indicative of likely Ward Valley performance.
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<PAGE> 14
The USGS data are noteworthy from a research perspective, but have no health
and safety or regulatory significance. USGS has stated, however, that the
agency will propose and perform additional studies near Beatty. See "Business
- - Hazardous Waste Services - Stabilization and Disposal Services - Beatty,
Nevada Facility".
REGULATION
The environmental services industry is subject to extensive regulation by
federal, state and local authorities. In particular, the regulatory process
requires the Company to obtain and retain numerous governmental permits or
other authorizations to conduct various aspects of its operations, any of which
may be subject to revocation, modification or denial. Adverse decisions by
governmental authorities on permit applications submitted by the Company may
result in premature closure of facilities or restriction of operations, which
could have a material adverse effect on the Company's results of operation.
Because of the heightened public awareness of environmental issues, companies
in the environmental service business, including the Company, may in the normal
course of their business be expected periodically to become subject to judicial
and administrative proceedings. The Company may also be subject to actions
brought by private parties or special interest groups in connection with the
permitting or licensing of its operations, alleging violations of such
permits, licenses or environmental laws and regulations.
The Company's business is heavily dependent upon environmental laws and
regulations which effectively require wastes to be managed in facilities of the
type owned and operated by the Company. The Company makes a continuing effort
to anticipate regulatory, political and legal developments that might affect
its operations, but is not always able to do so. Federal, state and local
governments have from time to time proposed or adopted other types of laws or
regulations which significantly affect the environmental services industry.
These have included laws and regulations to ban or restrict the interstate
shipment of hazardous wastes, impose higher taxes on out-of-state hazardous
waste shipments than in-state shipments and to reclassify certain categories of
hazardous wastes as non-hazardous. In particular, the federal government
currently is considering several fundamental changes to laws and regulations
that define which wastes are hazardous, that establish treatment standards for
certain wastes that could lead to their reclassification as non-hazardous, and
that revise the nature and extent of responsible parties' obligations to
remediate contaminated property. While the outcome of these deliberations
cannot be predicted, it is possible that some of the changes under
consideration could facilitate exemptions from hazardous waste requirements for
significant volumes of waste and alter the types of treatment and disposal that
will be required. If such changes are implemented, the overall impact on the
Company's business is likely to be unfavorable. The Company cannot predict the
extent to which any legislation or regulation that may be enacted or enforced
in the future may affect its operations.
Hazardous Waste Regulations. The Company is required to obtain federal,
state, local and foreign governmental permits for its hazardous waste
treatment, storage and disposal facilities. Such permits are difficult to
obtain, and in most instances extensive geological studies, tests and public
hearings are required before permits may be issued. In particular, the
Company's operations are subject to RCRA (as discussed below), the Safe
Drinking Water Act (which regulates deep well injection), TSCA (pursuant to
which the EPA has promulgated regulations concerning the disposal of PCBs), the
Clean Water Act (which regulates the discharge of pollutants into surface
waters and sewers by municipal, industrial and other sources) and the Clean Air
Act (which regulates emissions into the air of certain potentially harmful
substances). In its transportation operations, the Company is subject to the
jurisdiction of the Interstate Commerce Commission and is regulated by the DOT
and by state regulatory agencies. Employee safety and health standards under
the Occupational Safety and Health Act ("OSHA") are also applicable to the
Company's operations.
RCRA. Pursuant to RCRA, the EPA has established and administers a
comprehensive, "cradle-to-grave" system for the management of a wide range of
solid and "hazardous" wastes. States that have adopted hazardous waste
management programs with standards at least as stringent as those promulgated
by the EPA may be authorized by the EPA to administer their programs in lieu of
the EPA.
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<PAGE> 15
Under RCRA and federal transportation laws, all generators of hazardous
wastes are required to label shipments in accordance with detailed regulations
and prepare a detailed manifest identifying the material and stating its
destination before shipment off site. A transporter must deliver the hazardous
wastes in accordance with the manifest and generally only to a treatment,
storage or disposal facility having a RCRA permit or interim status under RCRA.
Every facility that treats or disposes of hazardous wastes must obtain a RCRA
permit from the EPA or an authorized state and must comply with certain
operating standards. The RCRA permitting process involves applying for interim
status and also for a final permit. Under RCRA and the implementing
regulations, facilities which have obtained interim status are allowed to
continue operating by complying with certain minimum standards pending issuance
of a permit. The Company believes that each of its facilities is in
substantial compliance with the applicable requirements promulgated pursuant to
RCRA.
It is possible that the EPA may consider a number of fundamental changes to
its regulations under RCRA that could facilitate exemptions from hazardous
waste management requirements, including policies and regulations that could
implement the following changes: redefine the criteria for determining whether
wastes are hazardous; prescribe treatment levels which, if achieved, could
render wastes non-hazardous; encourage further recycling and waste
minimization; reduce treatment requirements for certain wastes to encourage
alternatives to incineration; establish new operating standards for combustion
technologies; and indirectly encourage on-site remediation. Because many of
these initiatives are at an early stage of development, the Company cannot
predict the final decisions that the EPA might make or the extent of their
impact on the Company's business.
Superfund. Superfund provides for immediate response and removal actions
coordinated by the EPA to releases of hazardous substances into the
environment, and authorizes the federal government either to clean up
facilities at which hazardous substances have created actual or potential
environmental hazards or to order persons responsible for the situation to do
so. Moreover, Superfund grants a right of recovery to private parties who
incur costs in response to the release or threatened release of hazardous
substances. Superfund has been interpreted as creating strict, joint and
several liability for costs of removal and remediation, other necessary
response costs and damages for injury to natural resources. Liability extends
to owners and operators of waste disposal facilities (and waste transportation
vehicles) from which a release occurs, persons who owned or operated such
facilities at the time the hazardous substances were disposed, persons who
arranged for disposal or treatment of a hazardous substance at or
transportation of a hazardous substance to such a facility, and waste
transporters who selected such facilities for treatment or disposal of
hazardous substances.
It is possible that the U.S. Congress could revise the Superfund statute in
the future. In addition to possible changes in the statute's funding
mechanisms and provisions for allocating cleanup responsibility, it is possible
that Congress could fundamentally alter the statute's provisions governing the
selection of appropriate site cleanup remedies, conclude not to continue
Superfund's current reliance on stringent technology standards issued under
other statutes to govern removal and treatment of remediation wastes or could
adopt new approaches such as national or site-specific risk based standards.
These and other potential policy changes could significantly affect the
stringency and extent of site remediation, the types of remediation techniques
that will be employed, and the degree to which permitted hazardous waste
management facilities will be used for remediation wastes.
LLRW Regulations. The LLRW services of the Company are also subject to
extensive governmental regulation. Various phases of the Company's LLRW
services are regulated by various state agencies, the Nuclear Regulatory
Commission ("NRC") and the DOT. Regulations applicable to the Company's
operations include those dealing with packaging, handling, labeling and routing
of radioactive materials, and prescribe detailed safety and equipment standards
and requirements for training, quality control and insurance, among other
matters. Employee safety and health standards under OSHA are also applicable
to the Company's operations.
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<PAGE> 16
Financial Assurance and Site Maintenance. The Company operates its
hazardous waste disposal sites under RCRA permits. The LLRW sites are operated
under licenses from state and, in some cases, federal agencies. When one of
these facilities reach capacity, or lease or license termination dates, the
facility must be closed and maintained for a period of time prescribed by law
or by license. In the case of the RCRA-permitted hazardous sites, federal
regulation requires that operators demonstrate the financial capability to
close sites on an immediate, unscheduled (worst-case) basis. The estimated
costs of such a closure are set forth in the operator's RCRA closure and
post-closure plan.
Financial assurance requirements for closure/post-closure plans may generally
be satisfied by various means, including insurance, letters of credit, surety
bonds, trust funds, a financial net worth test and/or a corporate guarantee.
The Company is currently satisfying such requirements through a combination of
certain of the various allowable methods. Cash and investment securities
totaling $13.8 million and $13.2 million at December 31, 1995 and 1994,
respectively, have been pledged as collateral for the Company's closure and
post-closure obligations, performance of a Remedial Investigation and
Feasibility Study and performance of corrective action at the closed Sheffield,
Illinois facility, compliance with the TNRCC requirements related to the
Company's non-commercial use deepwell at its Robstown, Texas facility, closure
costs for the Beatty, Nevada LLRW site, closure costs for the Recycle Center,
closure costs for the Winona, Texas facility, test borings at the proposed LLRW
sites in Nebraska and California, settlement with generators of waste at the
Richland, Washington LLRW facility and other general performance bonds. The
amounts pledged by the Company generally equal the present value of its
estimated future closure and post-closure obligations.
INSURANCE
The nature of the Company's business exposes it to a risk of accidental
release of harmful substances into the environment resulting in contamination,
the cost of which could be substantial. The Company currently has liability
insurance coverage for non-nuclear related occurrences under environmental
impairment liability, primary casualty and excess liability policies. Pursuant
to RCRA, the Company is required to maintain environmental impairment liability
insurance coverage with specified minimum policy limits for sudden and
non-sudden accidental occurrences. The Company is in compliance with required
limits and coverage.
The Company has organized and funded a wholly-owned corporation, American
Liability and Excess Insurance Company, to provide for financial assurance for
the Company's site closure and post-closure responsibilities in certain
instances and to provide a source of insurance for the Company in the event
that traditional third party insurance becomes unavailable. The Company is not
currently utilizing its insurance subsidiary because traditional third party
insurance is available. The Company has funded insurance policies issued by
this insurance subsidiary with cash representing the present value of the
closure or post-closure obligation being insured. As of January 1, 1996, the
Company's insurance subsidiary had pledged $7.1 million of collateral for
policies issued to insure site closing or post-closing obligations of the
Company.
CUSTOMERS
No single customer accounted for 10% of the Company's consolidated revenues
for 1995. Revenues resulting from the cost reimbursement contract with the
Central Interstate Low-Level Radioactive Waste Commission were approximately
$8,100,000 in 1995, or 12% of the Company's consolidated revenues.
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PERSONNEL
The Company had a total of 413 employees as of March 12, 1996. The Company
has collective bargaining agreements which cover 12 employees at its Richland,
Washington facility, 31 employees at its Winona, Texas facility, and 76
employees at its Oak Ridge, Tennessee facility. The Company believes that its
relationship with its employees is good.
A settlement has been reached regarding unfair labor practice charges filed
by the Oil, Chemical and Atomic Workers Union with the National Labor Relations
Board ("NLRB") relating to the union's contention that a subsidiary of the
Company should be held to the terms of a collective bargaining agreement
negotiated by the union and Quadrex, the previous owner of the Oak Ridge,
Tennessee facility purchased by the Company in September 1994. The Company has
recognized the union as the collective bargaining agent of its employees and
has negotiated a new collective bargaining agreement with the union.
ITEM 2. PROPERTIES
The Company believes that its property and equipment are well-maintained, in
good operating condition and adequate for the Company's present needs. The
Company's headquarters are located in Boise, Idaho in leased office space. The
Company also leases sales and administrative offices in Washington, California,
Nebraska, Illinois, Nevada, Texas, and Kentucky.
The following table sets forth certain information regarding the principal
operating, treatment, processing or disposal facilities owned or leased by the
Company.
<TABLE>
<CAPTION>
LOCATION FUNCTION ACREAGE OWN/LEASE
----------------- ------------------------------ ------- ---------
<S> <C> <C> <C>
Richland, Washington LLRW Disposal Facility 100 acres Lease
Robstown, Texas Hazardous Waste Disposal Facility 400 acres Own
Beatty, Nevada Hazardous Waste Disposal Facility 80 acres Lease
Oak Ridge, Tennessee LLRW Processing Facility 16 acres Own
Winona, Texas Fuels Blending, Solvent Recycling 620 acres Own
and Deepwell Disposal Facility
Pasadena, Texas Transportation Facility 3 acres Own
Robstown, Texas Transportation Facility 1 acre Own
</TABLE>
The Company leases transfer facilities in El Paso and Laredo, Texas for the
transfer of wastes collected from maquiladora plants in Mexico and a facility
in Dallas, Texas to support its Surecycle(R) operations.
ITEM 3. LEGAL PROCEEDINGS
The Company's business inherently involves risks of unintended or unpermitted
discharge of materials into the environment. In the ordinary course of
conducting its business activities, the Company becomes involved in judicial
and administrative proceedings involving governmental authorities at the
federal, state and local levels (including, in certain instances, proceedings
instituted by citizens or local governmental authorities seeking to overturn
governmental action where governmental officials or agencies are named as
defendants together with the Company or one or more of its subsidiaries, or
both). In the majority of the situations where regulatory
- 17 -
<PAGE> 18
enforcement proceedings are commenced by governmental authorities the matters
involved relate to alleged technical violations of licenses or permits pursuant
to which the Company operates or of laws or regulations to which its operations
are subject, or are the result of different interpretations of the applicable
requirements.
In addition, the Company and certain of its subsidiaries are involved in
civil litigation relating to the conduct of their business. While the outcome
of any particular lawsuit or governmental investigation cannot be predicted
with certainty, the Company believes that the ultimate disposition of these
matters will not have a material adverse effect upon the consolidated financial
position of the Company.
Richland, Washington Facility. In 1964, the Washington Department of Ecology
("WDOE") leased from the DOE a 1,000 acre portion of the Hanford Reservation.
In 1965, the WDOE subleased 100 acres of that property to the Company for use
as a Low-Level Radioactive Waste ("LLRW") disposal facility under the
regulation of the Washington Department of Health pursuant to the Atomic Energy
Act. In 1990, the DOE applied to the EPA for a permit under the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA") and other laws and
regulations to obtain the appropriate regulatory approvals needed to proceed
with the environmental cleanup of the Hanford Reservation. In 1994, the EPA
issued a corrective action permit that includes most of the land owned by the
DOE at the Hanford Reservation, including that portion leased to WDOE, which
includes the 100 acres subleased to the Company for its LLRW disposal facility.
Since the Company's Richland, Washington facility is located on land owned by
the DOE, the EPA considered the Company's disposal site to be part of the
"Facility" covered by the RCRA permit. Thirteen trenches at the Company's LLRW
disposal facility have been included in the final permit as "solid waste
management units" which may require further investigation to determine whether
releases of any hazardous wastes have occurred. Because portions of the
Company's facility remain included in the final permit issued to the DOE, the
Company is potentially subject to proposed permit conditions for site
investigation and possible cleanup should any releases be discovered even
though the Company is not a permittee and though it was not involved in the
activities contributing to the DOE Hanford facility contamination that are the
subject of the DOE Hanford consent order. It is the Company's opinion that it
has legal defenses that may preclude the inclusion of its Hanford site in the
DOE permit and to any corrective action relating to the LLRW disposal facility
that may be proposed pursuant to the DOE permit. Both the Company and the DOE
have appealed to the Environmental Appeals Board ("EAB") of the EPA those terms
of the permit that may potentially apply to any of the Company's facilities.
That appeal has been stayed during protracted negotiations with the EPA, DOE,
Washington Department of Ecology and Washington Department of Health. The
purpose of the negotiations is to determine whether an agreeable process for
site investigation can be negotiated. It appears at this time that all parties
will agree upon a method of sampling below certain trenches and testing for
hazardous constituents under RCRA. All parties to the appeal before the EAB
have requested a two-year stay while the negotiations are completed and the
Company conducts the site investigation. The EAB recently issued an order
dismissing the Company's appeal without prejudice to raising the identical
issues in any subsequent appeal and remanding the matter to the EPA to modify
the permit if necessary. The order specifically allows any party to resume the
appeal if negotiations fail. The EPA does not believe a modification is
necessary (thereby obviating the need for the Company to file another appeal at
this time). The Company is presently negotiating an agreement with state
agencies for a Company investigation of the site. Depending on the results of
the site investigation, the cost of conducting the site investigation and any
corrective action, if any, could be material. As part of its negotiations, the
Company is seeking to have all the costs of investigations and any resultant
corrective actions included in its rate base. As of December 31, 1995, the
Company had not recognized any liability in its financial statements for any
costs associated with the site investigation because the site investigation
terms have not been determined and the costs of any site investigation may be
recovered in the rate base.
In 1992, the Benton County assessor issued property tax assessments on
improvements owned by the Company and located on the Company's leasehold at the
Hanford Reservation. The increased property taxes totaled $1.7 million for the
years 1989, 1990 and 1991. Prior to 1989, the annual taxes had been about
$5,400. The Company sued Benton County and the Assessor and Treasurer to enjoin
them from collecting these taxes. An injunction was granted by the Benton
County Superior Court but overturned by the State Court of Appeals which ruled
that the Company should first pursue all of its administrative remedies.
Accordingly, the Company has prosecuted its
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<PAGE> 19
appeal to the State Board of Tax Appeals. A hearing was held in November 1995.
A decision is expected in 1996. The Company has recently been assessed an
additional $1.9 million in taxes for 1992, 1993 and 1994. Management believes
that Benton County's assessments were improper and intends to vigorously defend
this matter in the courts and through any appropriate administrative process,
if necessary. The Company has not recognized any liability in its financial
statements for any of the tax assessments discussed above.
Winona, Texas Facility - The Company purchased the stock of Gibraltar
Chemical Resources, Inc. ("Gibraltar"), since renamed American Ecology
Environmental Services Corporation, from Mobley Environmental Services, Inc.
("Mobley") on December 31, 1994. The Company's stock purchase agreement with
Mobley provides that Mobley will indemnify the Company, without limitation as
to amount, for any damages or costs, including legal fees, associated with
certain pre-closing liabilities, including the claims set forth hereunder.
Pursuant to its stock purchase agreement with Mobley, the Company was also
named as an additional insured for a one year period (1995) for pre-closing
claims under Mobley's pollution liability insurance policy. The policy has a
$10 million aggregate limit and a $5 million per loss limit.
Permit renewal filings were made for the Winona, Texas facility in November
1994 and a hearing on the renewal was held November 28, 1995. The renewal of
the Permits is required under Part B of RCRA and other environmental regulatory
laws. There is active opposition in the local area to the renewal of these
permits. This matter will be determined by the TNRCC, and the Company expects
a final determination in late 1996. If these permits are not ultimately
renewed, such result could have a material adverse effect on the Company's
consolidated financial position and results of operations.
A group called Mothers Organized to Stop Environmental Sins filed a lawsuit
in 1994 against the Company in the United States Eastern District Court for the
State of Texas alleging that the Winona facility violated certain permits and
regulations, and contributed to the handling, storage, treatment,
transportation and disposal of solid and hazardous waste that presents an
imminent and substantial endangerment to health and the environment. The
plaintiffs have requested that the facility be shut down and civil penalties
imposed on the Company. The Company has filed a Motion for Summary Judgment in
this matter and the Court has granted a partial summary judgment but has yet to
rule on all issues presented in the Motion. In December 1995, legal counsel
was retained by the Company in connection with a potential conflict of interest
which arose from the October merger of a law firm retained by the Company in
other matters with the law firm representing the plaintiff's counsel. The
Company is in the process of preparing a motion to disqualify plaintiffs'
counsel in this matter. The case is in its initial phases of discovery and it
is too early to accurately evaluate this case. The Company believes there is
no factual background to support this claim and intends to vigorously defend
this case.
Four lawsuits, including one purported class action, were filed against
Gibraltar in 1992 and 1993 which are pending in State District Court in Smith
County, Texas, by certain persons in Winona, Texas. In August 1995, another
lawsuit was filed in Dallas County, Texas by other Winona citizens. The suits
assert various theories of liability, including subsurface trespass, nuisance
per se, negligence, gross negligence, and fraudulent concealment for alleged
air emissions. The suits also allege that the plaintiffs have experienced
personal injuries, diminution in property values, and other economic losses
which are alleged to have been caused by operation of the Winona facility. The
plaintiffs assert various grounds for recovery, and seek unspecified altered
and punitive damages. On August 4, 1995, a jury in one of the lawsuits found
that the Company's Winona facility did not use or possess the plaintiffs'
property and awarded nothing in damage. To date, the Company and Mobley have
settled certain of the plaintiffs' claims in these actions for amounts that
were not material and which were funded by the Mobley insurance policy referred
to above.
In 1992, a citizens group filed a petition with the TNRCC for revocation of
the Winona facility's deepwell permits alleging that a geological fault exists
in the vicinity of the Winona facility's deepwells and other alleged grounds.
The EPA has previously concluded in its proceedings relating to the Winona
facility's second injection well that no such fault exists. There has been a
recent filing with TNRCC by the opponents asking that there be a
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<PAGE> 20
decision made on the revocation request. At this time we know of no response
by the agency to that filing. The Company believes the petition is without
merit.
Compact Related Disputes. The Company is involved in numerous challenges and
legal proceedings in connection with its siting efforts for LLRW facilities for
the Southwest Compact and Central Interstate Compact. For a description of
these proceedings, see "Business - Low-Level Radioactive Waste Services -
Disposal Services - Proposed Ward Valley, California Facility" and "- Proposed
Butte, Nebraska Facility".
A claim has been made by the Central Interstate Low-Level Radioactive Waste
Commission ("Commission") against the Company in a letter dated May 1, 1995, in
the amount $195,000, resulting from bonuses paid by the Company to certain of
its employees for the period July 1987 through December 1993. The Commission
apparently reimbursed the Company for the payment of these bonuses and now is
claiming that the reimbursement was not authorized under the contract between
the Company and the Commission. The Company has disputed the claim and
believes such reimbursement was proper. The parties have attempted to
negotiate a settlement but as of this time none has been reached. The Company
believes that a settlement can be reached. There has been no threat of suit as
of this time.
In August 1995, the Company and the Southeast Compact Commission reached a
mutually acceptable agreement on past access fee assessments incurred by
Quadrex Corporation, the previous parent company of the Recycle Center. The
Company had received and objected to invoices from the Southeast Compact for
approximately $1.5 million and a notice that an additional $1.5 million could
also be subsequently invoiced. In disputing the assessment fees the Company
argued that the fees were calculated on abnormal past waste volumes shipped to
the Barnwell, South Carolina disposal facility. The assessment calculations
included extraordinary cleanup events at the Recycle Center that were not
indicative of normal operations. In August 1995, the Southeast Compact
Commission agreed to recalculate the fee assessment on an average of normal
historical waste disposal volumes. This action resulted in a total access fee
liability of $206,156 which the Company paid during 1996. The Company had
previously recognized this liability in its consolidated financial statements.
Other Litigation. The City of San Antonio filed suit against several parties
related to environmental issues in connection with the acquisition, development
and construction of a bus transit station and multi-purpose dome stadium and
sports complex, commonly known as the Alamodome. The City named as the
defendants: the former owner of the property, various consultants involved in
the project, the project manager, and a subsidiary of the Company which served
as the construction contractor for the project. The City alleged that its
consultants failed to advise the City that the site selected for construction
of the Alamodome was environmentally contaminated, thereby breaching their
contracts and committing torts. The City also alleged that following the
discovery of actual or potential environmental problems, that the consultants
and project manager failed to act properly in handling allegedly contaminated
soil and groundwater. Various citizen groups raised concerns over the on-site
landfill and lobbied the TNRCC to force the City to move the landfill off-site.
In June 1994, the TNRCC wrote a letter to the City stating that the agency
believed that the on-site landfill should be removed. During the summer and
fall of 1995, the on-site landfill was removed. In January 1996, the Company's
insurance carrier and the City of San Antonio reached an agreement to settle
the City's claim against the Company. Prior to such settlement, however, one
of the defendants filed a cross claim against the Company. The Company has
filed two motions for Summary Judgment and a hearing was held March 29, 1996 on
one such motion. The Company is unable to predict the outcome of this cross
claim.
In November 1994, the Company was named as a defendant in a purported class
action lawsuit by former employees of Quadrex that relates to unpaid medical
benefits and an underfunded pension plan of Quadrex. Based on information
available to it, the Company believes that the aggregate amount of these claims
are less than $1 million. The Company purchased the assets of the Quadrex
Recycle Center from Quadrex on September 19, 1994. However, the asserted
claims in the purported class action were specifically excluded by the purchase
agreement pursuant to which the Company purchased the assets of the Quadrex
Recycle Center. Some of the former Quadrex employees on whose behalf the suit
was brought are now employees of the Company. The
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<PAGE> 21
Company does not believe it has any liability in this matter and as such has
not recognized any liability in its financial statements. The Company intends
to contest the matter vigorously. The Company's purchase agreement with
Quadrex provides that Quadrex will indemnify the Company for any damages or
costs, including legal fees, associated with a claim of this sort. However,
because Quadrex filed for bankruptcy protection in February 1995, it is very
likely that the Company will not realize the benefits of such indemnification.
In September 1994, an unfair labor practice charge was filed against the
Company by the Oil, Chemical and Atomic Workers International Union ("Union").
The Complaint alleges that the Company and Quadrex have operated as joint
employers at the Oak Ridge, Tennessee facility during the period April 8, 1994
to September 1, 1994. As a result of this contention, the National Labor
Relations Board ("NLRB") asserts that the Company was obligated at all times
since April 8, 1994 to assume and abide by the collective bargaining agreement
negotiated by the Union and Quadrex. A hearing was held on December 12, 1995
before an administrative law judge of the NLRB. If the NLRB prevails in this
action, the Company will be liable for any and all variances for the collective
bargaining agreements since April 8, 1994. The Company recognized a liability
of $447,000 in its consolidated financial statements during 1995 for the
estimated settlement of this claim.
The Company has received a notice from an individual purporting to own debt
secured by certain real property in Midlothian, Texas. The individual alleges
that a predecessor of the Company's subsidiary, Texas Ecologists, caused
environmental contamination of the property in the early 1970's. The Company
believes it has no liability in connection with the matter and intends to
contest the matter vigorously. In connection with its investigation of the
matter, the Company also conducted its own assessment of the property with an
independent environmental consultant and concluded that any contamination on
the property falls below material levels.
In April 1995, management learned that one of its subsidiaries had not
always complied with the transit time limitations allowed for hazardous waste
being transferred from generators to final disposal sites. These requirements
are under the regulatory supervision of the TNRCC and the Company promptly
reported the situation to the TNRCC. As a result of an internal review of this
matter, the Company determined that there was a substantial number of instances
where the transit time limitations were exceeded over approximately eight
months from June 1994 through February 1995. As a direct result of this
circumstance, the Company has reorganized the operations of the subsidiary,
including the replacement of a number of personnel, and the adoption of
stronger internal systems for monitoring the movement of boxes and
transportation vehicles. At this time, the Company does not know whether the
TNRCC will ultimately assess any fines against the Company for exceeding
transit time limitations. While the Company believes the steps that it has
taken are appropriate and responsible, it is possible that the TNRCC may seek
to impose a fine on the Company in connection with the matter. The Company is
not in a position to assess the amount of such a fine. However, a fine of
sufficient magnitude could have a material adverse effect upon the consolidated
financial position of the Company.
In 1990, the Company was sued by certain landowners owning property adjacent
to the Robstown, Texas facility. The landowners have alleged that there has
been migration of pollutants through groundwater which has contaminated the
subterranean reservoir and other water resources on their respective
properties. These landowners have alleged theories including nuisance per se,
negligence and trespass. The case had a trial date in September 1995.
However, the landowners' counsel withdrew prior to the trial date and to our
knowledge, they have yet to obtain new counsel. The case has been continued.
The Company's investigation has found no migration of pollutants onto the
adjacent landowners' properties and the Company intends to contest this matter
vigorously.
In 1992, the U.S. EPA initiated an administrative enforcement action against
US Ecology and alleged in its complaint that the Company had failed to comply
with certain regulatory requirements to provide financial assurances for
closure and post-closure costs as well as liability insurance relating to its
hazardous waste management facility in Sheffield, Illinois. The EPA is seeking
a penalty of approximately $1 million and ordering compliance. The Company
ceased operating that facility in 1983 and it has been undergoing closure and
corrective action pursuant to regulatory requirements and a RCRA 3008(h)
Consent Order since that time.
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<PAGE> 22
Because the Sheffield facility has not been an interim status facility under
the RCRA regulations since November of 1985, the Company has responded that the
interim status regulatory requirements for financial assurance and liability
insurance do not apply to the facility. Moreover, the Company has objected to
the penalties demanded by U.S. EPA in its complaint as entirely unwarranted.
Recently, the administrative law judge has ruled that the Sheffield facility is
subject to the RCRA regulatory requirements for financial assurance and
liability insurance, notwithstanding its loss of interim status in 1985. The
Company has appealed that decision to the Environmental Appeals board. The
penalty amount, if any, has yet to be litigated or decided. Though the outcome
of this matter is uncertain, the Company believes these insurance requirements
are not applicable to this closed site and intends to vigorously contest this
matter. As of December 31, 1995, the Company had not recognized any liability
in its financial statements for the penalty.
Since 1987, the Company has been engaged in litigation with many of its
former insurers regarding coverage for environmental damages at two facilities
formerly operated by the company. The Company has been seeking coverage for
costs arising from its Sheffield, Illinois waste facility which ceased
receiving waste in 1983. Most of the defendant-insurers entered into
settlement agreements with the Company. Several of the insurers continued to
litigate, however, and moved for summary judgment on the grounds that the
Company either knew of its loss at the Sheffield facility before the subject
insurance policies were issued or failed to notify the insurers of the
occurrences at the Sheffield facility as soon as practicable. In September
1995, the Bureau County Circuit Court granted summary judgment in favor of the
remaining insurers on grounds of both known loss and late notice. The Company
has filed a notice of appeal from that ruling with respect to certain of those
insurers.
The Company has been litigating against the same insurers with respect to the
Maxey Flats waste disposal facility which the Company operated in Kentucky
through the mid-1970's. All but two of the insurers have entered into
settlement agreements with the Company regarding that dispute. The Circuit
Court of Jefferson County, Kentucky has denied several major motions of the
insurers for summary judgment and discovery is now proceeding with respect to
the remaining issues in the litigation.
In October 1995, Boston Edison Company ("Boston Edison") filed a complaint
against U.S. Ecology, Inc. (the "Company") in the United States District Court
of Massachusetts alleging claims related to the Company's alleged failure to
indemnify Boston Edison for various costs arising out of the shipping and
burial of waste materials at the Maxey Flats Nuclear Disposal Site. The
Company had entered into a series of contracts with Boston Edison to provide
radioactive waste disposal services at this site. Boston Edison alleges that
the Company breached these contracts because the Company failed to indemnify
Boston Edison for its costs. Boston Edison also alleges that the Company
committed an unfair and deceptive trade practice in the State of Massachusetts
because of its failure to indemnify Boston Edison as required by these
contracts. Finally, Boston Edison seeks a declatory judgment that would set
forth the contractual rights and liabilities of the parties. Boston Edison
claims $600,000 in past and future costs for the alleged breach of the
contracts. It also seeks treble damages equal to three times the actual
damages caused by the Company's alleged violation of the Massachusetts
Deceptive Trade Practices Act. At this time, the Company is not in a position
to predict a favorable or unfavorable outcome of this case or the amount of
potential loss, if any, which might result to the Company if the outcome in
this matter was unfavorable. The Company intends to answer the complaint and
defend this action vigorously.
In addition to the above described litigation, the Company and its
subsidiaries are involved in various other administrative matters of
litigation, including personal injury and other civil actions, as well as other
claims, disputes and assessments that could result in additional litigation or
other proceedings. The Company and its subsidiaries are also involved in
various other environmental matters or proceedings, including permit
application proceedings in connection with the established operation, closure
and post-closure activities of certain sites, as well as other matters or
claims that could result in additional environmental proceedings.
- 22 -
<PAGE> 23
Management has established reserves as deemed necessary for the matters
discussed above based on management's estimates of the outcome. It is
reasonably possible that the Company's estimates for such matters will change
in the near term. Due to the Company's current financial condition and
liquidity issues, management is unable to conclude that the outcome of these
claims, disputes and other matters described above and adjustments, if any,
which may result from these matters will not have a material adverse effect on
the operations or financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's security holders during the fourth
quarter of 1995.
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<PAGE> 24
PART II
ITEM 5. MARKET FOR AMERICAN ECOLOGY CORPORATION COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
American Ecology Corporation common stock is currently listed on the NASDAQ
National Market System under the symbol ECOL. As of March 1, 1996, there were
approximately 7,600 record holders of common stock. The high and low sales
prices for the common stock on the NASDAQ and the dividends paid per common
share for each quarter in the last two years are shown below:
<TABLE>
<CAPTION>
1995 1994 Dividends Per Share
--------------------- ------------------------- ---------------------------
PERIOD High Low High Low 1995 1994
-------- ------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter 7-1/4 5-3/4 12-1/2 8-1/4 $ .025 $ .025
2nd Quarter 7 3-1/2 10-3/4 7-3/4 -- .025
3rd Quarter 7 3 9 7-3/4 -- .025
4th Quarter 4-3/4 2-7/8 8-1/2 5-7/8 -- .025
</TABLE>
The Company's amended credit facility with its bank lender prohibits cash
dividends on common stock.
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<PAGE> 25
ITEM 6. SELECTED FINANCIAL DATA
AMERICAN ECOLOGY CORPORATION
This summary should be read in conjunction with the consolidated financial
statements and related notes.
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenues $ 67,895 $71,891 $60,312 $ 70,940 $55,811
% Increase (decrease) in revenue from prior year (5.6)% 19.2% (15.0)% 27.1% 14.6%
Net income (loss) (1) (48,903) $ 3,850 $ 4,744 $ 12,556 $ 7,407
Net income (loss) per share (2) $ (6.26) $ .49 $ .60 $ 1.51 $ 1.27
Shares used to compute income (loss) per
share (000's) (2) 7,822 7,851 8,097 8,568 6,624
Working capital (deficit) $(16,115) $ 1,563 $ 4,771 $ 14,078 $ 7,773
Current ratio (current assets divided by current
liabilities) 0.6:1 1.0:1 1.2:1 1.7:1 1.5:1
Total assets $ 114,125 $155,439 108,122 $104,166 $84,691
Long-term debt, net of current portion $ 28,357 $33,493 $ -- $ -- $ 543
Shareholders' equity $ 22,024 $67,045 $63,564 $ 54,730 $40,470
Long-term debt to total capitalization as a percentage 56.3% 33.3% --% --% 1.3%
Return on average equity (109.8)% 5.9% 8.0% 26.4% 30.1%
Dividends declared per common share $ .025 $ .10 $ -- $ -- $ --
Capital spending, including capital expenditures and
site development costs $ 8,445 $ 8,035 $12,558 $ 9,582 $ 9,453
Depletion, depreciation and amortization expense $ 7,319 $ 6,279 $ 4,356 $ 4,173 $ 4,973
</TABLE>
(1) 1995 expenses include $33,048 in impairment losses on long-lived assets.
See Note 4 to the Financial Statements.
(2) Adjusted for July 1992 three-for-two stock split.
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<PAGE> 26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
CAPITAL RESOURCES AND LIQUIDITY
The Company has incurred recurring losses from operations, had a working
capital deficit of $16,115,000 as of December 31, 1995, and is currently
experiencing difficulty paying its on-going obligations as they become due. The
Company cannot be certain about its ability to improve short-term operating
results. The Company's financial statements as of December 31, 1995, do not
contain any adjustments to asset carrying amounts or for the amount of
liabilities that might result from asset liquidations or discontinued
operations. Management's actions and plans to address these issues are as
follows:
Credit Agreement
Effective June 30, 1995, the Company and its bank lender amended the existing
Credit Agreement to extend the maturity of the Credit Agreement to December 31,
1998, and to modify certain other terms. A description of the Credit Agreement
as so amended is set forth in Note 7 to the Consolidated Financial Statements.
As of December 31, 1995, the Company had available borrowings of $1,584,000
under its Credit Agreement.
Equity Investments
In September 1995, the Company completed a definitive agreement for
$5,000,000 in equity investments to be made by a group of investors comprised
principally of members of the Company's directors. A description of the
preferred stock and warrants issued is set forth in Note 8 to the Consolidated
Financial Statements. From these equity investments, the Company received net
cash proceeds of approximately $4,759,000 which have been used for general
working capital needs.
Strategic Plan
The Company has adopted a strategic plan focusing on its low-level
radioactive waste disposal and processing operations and its hazardous waste
disposal and processing operations as separate operations. The Company is
being reorganized under those respective divisions. One purpose of the
reorganization is to facilitate potential strategic alliances with other
companies which may provide additional sources of capital and open greater
opportunities.
Senior Management Changes
The Company has made substantial senior management changes. These include
installation of a new Chief Executive Officer, a new President and Chief
Operating Officer, and a new General Counsel, as well as new managers to head
the LLRW and hazardous waste operations.
Measures to Reduce Costs
Management has implemented a business plan and long term strategy which
success is dependent upon the Company's ability to substantially reduce
operating expenses and enhance revenues from low-level radioactive waste
disposal and processing. Management has taken steps during 1995 to reduce
costs and will continue this effort in the future. These steps include
reducing personnel, among them certain members of senior management, and
various sales, operating, and administrative personnel. The Company plans to
decentralize responsibility to the LLRW and hazardous waste operating groups
and transfer most of the functions currently performed at the corporate office
to the operating divisions to drastically reduce corporate overhead. Other
than the capital required for developing the Ward Valley facility and for
regulatory compliance at the Winona facility, the
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<PAGE> 27
Company has deferred almost all other capital expenditures planned for 1996.
In addition, the Company discontinued certain unprofitable operations including
a transportation terminal in Ohio and its related sales offices and the
remediation services division in Texas. The Company is also evaluating the
viability of certain other operations and their current potential to perform at
an acceptable level. As a consequence of the personnel reductions and the
reorganization, effective March 1, 1996, the corporate office has been
relocated to smaller space in Boise, Idaho and negotiations are in progress to
sublease the corporate office space in Houston, Texas.
The Company believes that it has a viable plan to improve its cost structure
and operating results. However, considering the Company's recent losses and
insufficient cash flow from operations, there can be no assurance that this
plan will resolve the Company's liquidity problem in a timely fashion. The
Company will more likely than not need to raise additional financing or sell
assets. There can be no assurance, however, that any such financing or asset
sales will be consummated. In either event, the Company may experience
increasing cash flow problems which could cause the Company to materially
reduce the current level of its operating activities.
For the year ended December 31, 1995, the Company raised $4,759,000 in cash
from the sale of preferred stock, generated cash from operations of $2,596,000,
spent $2,320,000 for capital expenditures, invested $2,844,000 in site
development costs for the Ward Valley facility and incurred capitalized
interest of $3,281,000 related to the Ward Valley and Butte facilities. The
Company realized net proceeds of $1,080,000 from the sales of excess site
equipment at various facilities and sales of transportation equipment primarily
from the discontinued transportation business in Ohio.
FUTURE CONSIDERATIONS
As a result of the changes to its management and operations in 1995, the
Company believes that the future operating results of its existing businesses
will improve, although no assurances can be given that such improvements will
occur. In addition, the Company expects to receive federal income tax refunds
of approximately $6,700,000 during the second quarter of 1996. In April 1996,
$5,947,000 of such tax refunds were received and $4,000,000 of the proceeds was
used to pay down a short-term bank loan entered into in February 1996.
The Company is currently negotiating insurance claims relating to the July
1994 fire at the Recycle Center and expects to settle such claims in the near
future. The Company has a $2,538,000 receivable recorded for these claims at
December 31, 1995. In May 1996, the Company received a $1,800,000 portion of
the claim, which will be used to replace property and equipment damaged in
the fire.
The estimated unaudited results for the first quarter of 1996 is a net loss
of approximately $3,000,000.
The Company offered an unsolicited proposal in the second quarter of 1995 to
the Department of Energy ("DOE") to dispose of large volumes of LLRW from the
DOE's Hanford site into the Company's Richland, Washington, facility which is
located on the Hanford Reservation. Although the Company believed and still
believes the economics of its proposal should be very attractive to the DOE,
the DOE rejected the Company's proposal. The Company, however, will continue
to pursue this opportunity.
RESULTS OF OPERATIONS - 1995 VS. 1994
The Company reported a net loss of $48,903,000 for the year ended December
31, 1995 compared to net income of $3,850,000 for 1994. The 1995 results
included pretax charges totaling $40,988,000 for unusual events and
non-recurring adjustments of which $33,048,000 related to impairment losses on
long-lived assets. Exclusive of material unusual events and non-recurring
accounting adjustments in both periods, the Company had a pre-tax loss of
$13,330,000 in 1995 and a pre-tax income of $1,823,000 in 1994.
Approximately $9,586,000 of the increase in the adjusted loss from operations
for 1995, as compared to 1994, is attributable to the operating results of the
Recycle Center and Winona facility that were acquired in September and December
1994, respectively.
- 27 -
<PAGE> 28
The following table sets forth items in the Statements of Operations for the
three years ended December 31, 1995, as a percentage of revenue:
<TABLE>
<CAPTION>
Percentage of Revenues for the
Year Ended December 31,
--------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Operating costs 104.8 75.4 69.3
--------- --------- ---------
Gross profit (loss) (4.8) 24.6 30.7
Selling, general and administrative expenses 24.2 17.2 19.8
Impairment losses on long-lived assets 48.7 -- --
--------- --------- ---------
Income (loss) from operations (77.6) 7.4 10.9
Other (income) expense, net 2.4 (0.4) (1.7)
Interest expense 0.0 0.0 0.1
--------- --------- ---------
Income (loss) before income taxes (80.0) 7.8 12.5
Income tax expense (benefit) (8.0) 2.5 4.6
--------- --------- ---------
Net income (loss) (72.0)% 5.3% 7.9%
========== ========= =========
</TABLE>
Revenues
Revenues for 1995 were $67,895,000, a 6% decrease from 1994 revenues of
$71,891,000.
Hazardous waste revenues for 1995 decreased $4,578,000, or 10%, compared to
1994. A $11,519,000 increase in revenues was attributable to the Winona
facility which was acquired on December 31, 1994. The discontinuation of
Midwest transportation operations and Gulf Coast remediation services during
the first quarter of 1995 resulted in decreased revenues of $6,077,000.
Disposal and related transportation and field services revenues at the Beatty,
Nevada, disposal facility, the Robstown, Texas, disposal facility, and Gulf
Coast transportation operations decreased $10,088,000 due to a 33% decline in
disposal volumes, offset in part by 15% higher average disposal prices.
LLRW revenues increased $582,000, or 2%, during 1995 as compared to 1994. A
$5,704,000 increase in revenues was attributable to the Recycle Center due to
recognizing a full year of operations in 1995 versus three and one-third months
during 1994. LLRW brokerage services decreased $2,696,000 due to the closing
of the Barnwell, South Carolina, disposal facility for the period from January
to June 1995. A decrease in revenues of $1,706,000 resulted from the Company's
completion of a contract milestone with the Central Interstate Low-Level
Radioactive Waste Commission in early 1995. When the Butte facility's license
is granted, facility development activities and associated revenues will
resume.
Revenues for 1994 were $71,891,000, a 19% increase over 1993 revenues of
$60,312,000. LLRW revenues increased 26% compared to 1993. Hazardous waste
revenues increased 16% compared to 1993. Disposal volumes increased
approximately 34% due to obtaining several large volume contracts for remedial
projects on the West Coast and in Texas. However, due to the high volume
nature of these contracts and the competitive remedial pricing environment,
average disposal prices for the Company's two hazardous landfills decreased by
approximately 23%. An increase in transportation revenues of 29% in 1994
resulted from a full year of results from the operations of Waste Processors
Industries, Inc. ("WPI") acquired in March 1993, and the successful integration
of marketing transportation and disposal services with the Robstown, Texas
facility. Remediation revenues increased 17% in 1994 due principally to the
large remediation and disposal contracts obtained in the West Coast region with
ultimate waste disposal occurring at the Company's Beatty, Nevada facility.
Stabilization
- 28 -
<PAGE> 29
revenues nearly tripled in 1994 compared to 1993 due to state regulatory
requirements for debris treatment and to the large debris cleanup projects
requiring stabilization treatment prior to disposal.
LLRW disposal revenues decreased 8% in 1994 due principally to the
implementation of the Federal Low-Level Radioactive Waste Policy Amendments Act
of 1985 (the "Low-Level Act") on January 1, 1993. The Low-Level Act together
with state regulatory initiatives resulted in the inactivity of the Beatty,
Nevada LLRW facility and the regulatory restrictions placed on the Richland,
Washington facility and caused unusually large volumes of waste receipts at the
end of 1992 which were not buried and recognized as revenues until the first
quarter of 1993. Exclusive of the carryover effect of volumes received in
1992, 1994 disposal revenues increased by approximately 37% compared to 1993
due to penetration of the NORM waste disposal market. In 1994, the Company
entered the LLRW on-site remediation business generating approximately
$1,900,000 of revenues by providing technical and remedial services for several
projects in various regions of the country. Additionally, the acquisition of
the Recycle Center in September 1994, contributed approximately $2,800,000 in
treatment, processing, and recycling revenues.
Revenues resulting from the cost reimbursement contract with the Central
Interstate Low-Level Radioactive Waste Commission were $8,100,000, $9,800,000,
and $9,300,000, in 1995, 1994, and 1993, respectively.
- 29 -
<PAGE> 30
Operating Costs
Operating costs in fiscal 1995 increased $16,948,000, or 31%, as compared to
1994. An increase in operating costs of $23,637,000 for 1995 as compared to
1994 was due to the acquisitions of the Recycle Center and the Winona facility
in September and December 1994, respectively. This was partially offset by a
reduction in operating costs of $5,499,000 due to the discontinuation of the
transportation and remediation services business during the first quarter of
1995. As a percentage of revenues, operating costs were 105%, 75% and 69% for
1995, 1994, and 1993, respectively. The following table sets forth unusual
events and non-recurring accounting adjustments which affected operating costs
for 1995, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
Increase (Decrease) in Operating Costs
(in thousands)
------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Deferred site maintenance accrual adjustments due to changes
in current cost estimates $ -- $ (3,202) $ (96)
Settlements of environmental insurance claims on closed sites -- (505) (2,275)
Deferred site maintenance accrual reversal, settlement with
the Commonwealth of Kentucky, and estimated PRP
settlements all regarding remedial liability and indemnity
for the closed Maxey Flats site -- (518) (1,768)
Writedowns of certain permitting costs and airspace costs 76 413 --
Deferred site maintenance accrual adjustment due to change
in the discount rate used to compute present value 1,396 -- (1,199)
Disposal fees and taxes payable and deferred site maintenance
accrual reversed due to settlement with the State of Nevada
regarding the Beatty, Nevada LLRW facility -- -- (2,792)
Writedowns of design fees/facility costs due to abandonments 320 -- --
Cell development cost amortization adjustment due to
changes in cell utilization 204 -- (768)
Settlement of variances from collective bargaining
agreement - Recycle Center 447 -- --
Remedial investigation costs - Beatty, Nevada site 491 -- --
-------- --------- ---------
Total unusual events and non-recurring adjustments
included in operating costs $ 2,934 $ (3,812) $ (8,898)
======== ======== ========
</TABLE>
Exclusive of these unusual events and non-recurring adjustments, operating
costs for 1995, 1994 and 1993 would have been $68,195,000, $57,993,000 and
$50,688,000, or 100%, 81% and 84% of revenues, respectively. In 1995, exclusive
of these unusual events and non-recurring adjustments, the operating costs as a
percentage of revenues for the Recycle Center and the Winona facility were 126%
and 124%, respectively, and all other locations combined were 89%.
- 30 -
<PAGE> 31
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") for 1995 were
$16,411,000 compared to $12,362,000 for 1994. Included in SG&A for the 1995
period are charges for several unusual events and non-recurring accounting
adjustments which increased SG&A by $5,006,000. These charges related
principally to severance for certain corporate executives and other corporate
personnel, recognition of a loss for a portion of the corporate office lease
and furniture which is in the process of being subleased, a writedown of
obsolete computer hardware and software and a writedown of deferred debt
issuance costs related to the bank credit facility which was amended effective
June 30, 1995. Exclusive of these charges, SG&A was $11,405,000, a decrease of
$957,000 as compared to 1994.
As a result of the impairment losses on long-lived assets recognized in 1995,
future goodwill amortization is expected to be reduced by approximately
$718,000 annually. As part of corporate overhead cost reduction efforts, the
Company has relocated the remaining corporate personnel effective March 1, 1996
and is in the process of negotiating a sublease of the prior corporate office
space. The estimated $1,100,000 loss on the lease obligation for the unused
portion of the office space and furniture was recognized in 1995.
Selling, general and administrative expenses for 1994 were $12,362,000, an
increase of $430,000 compared to 1993. The increase is attributable
principally to incremental selling costs and amortization of intangible assets
resulting from acquired businesses.
Investment Income
Net investment income is comprised of interest income earned on various debt
securities, certificates of deposit and other interest bearing deposits, and
dividend income and capital gains and losses earned on the Company's preferred
stock portfolio. This portfolio is principally the Company's captive insurance
investments reinsuring the present value of certain long-term closure and post
closure liabilities. The amount of investment income in 1995 increased from
1994 due principally to a higher weighted average of outstanding investments in
1995 as compared to 1994. Investment income recognized in 1994 decreased from
1993 due to lower preferred stock portfolio performance as a result of rising
interest rates and to the decrease in interest bearing investments outstanding.
Interest Expense
Interest expense is the total interest expense incurred by the Company on
outstanding indebtedness less capitalized amounts. In 1995 and 1994, the
Company incurred $3,281,000 and $968,000, respectively in interest cost, all of
which was capitalized for the development of the Company's LLRW facilities in
California and Nebraska in accordance with Statement of Financial Accounting
Standards No. 34, Capitalization of Interest Cost. Substantially all of the
interest cost incurred for 1995 and 1994 related to borrowings under the
Company's credit agreement with its bank lender.
Income Taxes
The Company's effective income tax (benefit) rates were (10)%, 32%, and 37%,
for the fiscal years 1995, 1994, and 1993, respectively. The effective benefit
rate of 10% in 1995 does not reflect any recognition of future tax benefits on
timing differences or net operating loss carryforwards.
- 31 -
<PAGE> 32
Financial Assurance and Site Maintenance
The Company operates its hazardous waste disposal sites under RCRA of 1976
("RCRA") permits. The LLRW sites are operated under licenses from state and,
in some cases, federal agencies. When these facilities reach capacity, or
lease or license termination dates, as the case may be, they must be closed and
maintained for a period of time prescribed by law or by license. In the case
of the RCRA-permitted hazardous sites, federal regulation requires that
operators demonstrate the financial capability to close sites on an immediate,
unscheduled (worst-case) basis. The estimated costs of such a closure are set
forth in the operator's RCRA closure/post-closure plan.
To secure closure/post-closure obligations of its hazardous waste disposal
sites under federal and state regulations, the Company has provided letters of
credit, certificates of insurance, and corporate guarantees as financial
assurance. Cash and investment securities totaling $13,770,000 and $13,175,000
at December 31, 1995, and 1994, respectively, have been pledged as collateral
for the Company's closure/post-closure obligations, performance of a Remedial
Investigation and Feasibility Study ("RI/FS") and performance of corrective
action at the closed Sheffield, Illinois chemical waste facility, compliance
with the TNRCC requirements related to a deepwell at the Company's Robstown,
Texas hazardous disposal site, closure costs for the Beatty, Nevada LLRW site,
closure costs for the Recycle Center, closure costs for the Winona facility,
test borings at the proposed LLRW sites in Nebraska and California, settlement
with generators of waste at the Richland, Washington facility and performance
bonds.
The RI/FS for the closed Sheffield facility was completed and approved by the
EPA in 1990. The Company is in the remedial phase of the Sheffield program as
set forth in the EPA's corrective measures implementation plan. During 1995,
the Company spent approximately $92,000 on remediation at the closed Sheffield
hazardous disposal site.
The nature of the hazardous material handled by the Company and its
subsidiaries could give rise to substantial damages if spills, accidents or
migration of hazardous material occurs. The occurrence of such events could
have a material adverse effect upon the Company's liquidity and operating
results.
Corporate Development Considerations
See "Business - Low-Level Radioactive Waste Services - Disposal Services -
Proposed Ward Valley, California Facility" and "Proposed Butte, Nebraska
Facility" for a description of the Company's and the impact of such facilities
and other future considerations on the Company's consolidated financial
condition and results of operations.
- 32 -
<PAGE> 33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Ecology Corporation:
We have audited the accompanying consolidated balance sheets of American
Ecology Corporation (a Delaware Corporation) and subsidiaries as of December
31, 1995 and 1994, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Ecology Corporation
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has incurred significant
losses from operations and writedowns of assets. At December 31, 1995, the
Company had a working capital deficiency of $16.1 million. During 1995, the
Company obtained capital contributions from certain of its directors and others
and restructured its Credit Agreement with the bank; however, the Company
continues to have limited cash resources available and has substantial
obligations that are due in the future. Under the terms of the Credit
Agreement, the bank may accelerate the maturity of the debt in the event of
violation of any covenant of the Credit Agreement or if a material adverse event
is deemed by the bank to have occurred. If the Company is unable to remain in
compliance with the terms of the Credit Agreement or obtain waivers in the event
of a default and the bank accelerates maturity of the Credit Agreement, the
Company does not have adequate financial resources to extinguish the loan and
the Company's operations may be negatively impacted. As discussed in Note 13 to
the consolidated financial statements, the Company is involved in various
significant permitting efforts, claims, lawsuits and other administrative
matters which are uncertain at this time. The foregoing matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
accompanying consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern, or adjustments, if any, that
may be necessary as a result of the outcome of the matters discussed above.
ARTHUR ANDERSEN LLP
Houston, Texas
April 11, 1996
- 33 -
<PAGE> 34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
($ IN 000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
As of December 31,
------------------------------------
1995 1994
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 229 $ 231
Investment securities 523 1,703
Receivables, net of allowance for doubtful
accounts of $1,322 and $1,749, respectively 16,938 29,043
Income taxes receivable 5,339 --
Insurance claim receivable 2,538 2,976
Deferred income taxes -- 991
Prepayments and other 1,675 2,854
------------ ------------
Total current assets 27,242 37,798
Cash and investment securities, pledged 13,770 13,175
Property and equipment, net 21,764 30,122
Deferred site development costs 47,364 41,239
Intangible assets relating to acquired businesses, net 486 31,313
Other assets 3,499 1,792
------------ ------------
Total Assets $ 114,125 $ 155,439
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loan $ 6,416 $ -
Current portion of long term debt 780 850
Accounts payable 13,376 12,464
Accrued liabilities 21,022 19,397
Deferred site maintenance, current portion 1,763 3,524
------------ ------------
Total current liabilities 43,357 36,235
Long term debt, excluding current portion 28,357 33,493
Deferred site maintenance, excluding current portion 20,387 18,666
Commitments and contingencies (Note 13)
Shareholders' equity:
Convertible preferred stock, $.01 par value,
1,000,000 shares authorized, none issued -- --
8 3/8% series D cumulative convertible preferred stock,
$.01 par value, 105,264 shares authorized, 105,264
and 0 shares issued and outstanding, respectively
(liquidation preference of $47.50 per share) 1 --
Common stock, $.01 par value,
20,000,000 shares authorized, 7,825,628
and 7,818,828 shares issued and
outstanding, respectively 78 78
Additional paid-in capital 46,762 41,837
Unrealized gain (loss) on securities available-for-sale (718) 43
Retained earnings (deficit) (24,099) 25,087
------------ ------------
Total shareholders' equity 22,024 67,045
------------ ------------
Total Liabilities and Shareholders' Equity $ 114,125 $ 155,439
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 34 -
<PAGE> 35
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN 000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $ 67,895 $ 71,891 $ 60,312
Operating costs 71,129 54,181 41,790
--------- -------- --------
Gross profit (loss) (3,234) 17,710 18,522
Selling, general and administrative expenses 16,411 12,362 11,932
Impairment loss on long-lived assets 33,048 -- --
--------- -------- --------
Income (loss) from operations (52,693) 5,348 6,590
Investment income (582) (287) (973)
Loss on sale of assets 1,386 -- --
Other expense 821 -- --
Interest expense -- -- 31
--------- -------- --------
Income (loss) before income taxes (54,318) 5,635 7,532
Income tax expense (benefit) (5,415) 1,785 2,788
--------- -------- --------
Net income (loss) (48,903) 3,850 4,744
Preferred stock dividends 88 -- --
--------- -------- --------
Net income (loss) available to common shareholders $ (48,991) $ 3,850 $ 4,744
========= ======== ========
Net income (loss) per share, primary $ (6.26) $ .49 $ .60
========= ======== ========
Dividends paid per common share $ .025 $ .10 $ --
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 35 -
<PAGE> 36
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
($ IN 000'S)
<TABLE>
<CAPTION>
8 3/8%
SERIES D UNREALIZED
CUMULATIVE GAIN (LOSS) ON
CONVERTIBLE CONVERTIBLE ADDITIONAL SECURITIES RETAINED
PREFERRED PREFERRED COMMON PAID-IN AVAILABLE- EARNINGS
STOCK STOCK STOCK CAPITAL FOR-SALE (DEFICIT)
----------- ----------- ---------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ -- $ -- $ 74 $ 37,383 $ -- $ 17,273
Net income -- -- -- -- -- 4,744
Common stock issued for
acquisition -- -- 3 3,464 -- --
Other common stock issuances,
net of repurchases -- -- 1 340 -- --
Income tax benefit of stock
options exercised -- -- -- 282 -- --
--------- -------- -------- --------- --------- --------
Balance, December 31, 1993 $ -- $ -- $ 78 $ 41,469 $ -- $ 22,017
Net income -- -- -- -- -- 3,850
Common stock issuances -- -- -- 301 -- --
Income tax benefit of stock
options exercised -- -- -- 67 -- --
Dividends - common stock -- -- -- -- -- (780)
Unrealized gain on securities
available-for-sale -- -- -- -- 43 --
--------- -------- -------- --------- --------- --------
Balance, December 31, 1994 $ -- $ -- $ 78 $ 41,837 $ 43 $ 25,087
Net loss - -- -- -- -- (48,903)
Preferred stock issuances -- 1 -- 4,898 -- --
Common stock issuances -- -- -- 98 -- --
Income tax benefit of
stock options exercised -- -- -- 7 -- --
Liquidation of shareholders'
rights -- -- -- (78) -- --
Dividends - common stock -- -- -- -- (195)
Dividends - preferred stock -- -- -- -- (88)
Unrealized loss on securities
available-for-sale -- -- -- -- (761) --
--------- -------- -------- --------- --------- --------
Balance, December 31, 1995 $ -- $ 1 $ 78 $ 46,762 $ (718) $(24,099)
========= ======== ======== ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 36 -
<PAGE> 37
AMERICAN ECOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN 000'S)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (48,903) $ 3,850 $ 4,744
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Impairment loss on long-lived assets 33,048 -- --
Depletion, depreciation and amortization 7,319 6,279 4,356
Deferred income taxes 816 3,044 2,232
(Gain) loss on sale of assets 1,386 (65) (24)
Realized loss on sales of securities available-for-sale 101 -- --
Changes in assets and liabilities, excluding effects of acquisitions:
Receivables 12,655 (4,534) 4,437
Income taxes receivable (5,339) -- --
Investment securities classified as trading (354) 472 --
Other assets (1,016) (411) (1,456)
Deferred site maintenance (40) (7,041) (5,249)
Other liabilities 2,923 (3,394) (2,341)
---------- --------- ---------
Total adjustments 51,499 (5,650) 1,955
---------- --------- ---------
Net cash provided by (used in) operating activities 2,596 (1,800) 6,699
---------- --------- ---------
Cash flows from investing activities:
Capital expenditures, excluding site development costs (2,320) (3,714) (8,943)
Site development costs, including capitalized interest (6,125) (4,321) (3,615)
Payments for businesses acquired -- (27,871) (3,305)
Proceeds from sales of assets 1,080 299 24
Proceeds from sales of investment securities 214 -- --
Transfers to (from) cash and investment
securities, pledged (241) 885 4,502
---------- --------- ---------
Net cash used in investing activities (7,392) (34,722) (11,337)
---------- --------- ---------
Cash flows from financing activities:
Proceeds from issuances of indebtedness 26,640 56,555 1,100
Payments of indebtedness (26,430) (23,739) (3,221)
Proceeds from common stock issued 98 301 341
Proceeds from preferred stock issued, net 4,759 -- --
Liquidation of shareholders' rights (78) -- --
Payment of cash dividends (195) (780) --
---------- --------- ---------
Net cash provided by (used in)
financing activities 4,794 32,337 (1,780)
---------- --------- ---------
Decrease in cash and cash equivalents (2) (4,185) (6,418)
Cash and cash equivalents at beginning of year 231 4,416 10,834
---------- --------- ---------
Cash and cash equivalents at end of year $ 229 $ 231 $ 4,416
========== ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized $ -- $ -- $ 31
Income taxes -- 123 2,338
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 37 -
<PAGE> 38
AMERICAN ECOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
American Ecology Corporation (a Delaware Corporation) and its subsidiaries
("the Company") provide processing, packaging, transportation, remediation and
disposal services for generators of hazardous waste and low-level radioactive
waste. The Company services the needs of hazardous waste generators in the
Gulf and West Coast regions of the country at its hazardous waste landfill
disposal sites in Robstown, Texas and Beatty, Nevada and commercial deepwell
disposal facility in Winona, Texas. The Company services the needs of
low-level radioactive waste (LLRW) generators in the Northwest region at its
rate regulated LLRW facility located near Richland, Washington and provides
LLRW processing and recycling services to LLRW waste generators in the Mid-West
and East Coast regions of the country at its Oak Ridge, Tennessee facility.
Business Conditions. The Company has incurred significant losses from
operations during 1995 and had a working capital deficit of $16.1 million as of
December 31, 1995. Furthermore, as a result of the above conditions and other
circumstances discussed in Note 4, the Company recorded a $33.0 million
impairment loss on long-lived assets during 1995. The estimated unaudited
results for the first quarter of 1996 is a net loss of approximately
$3.0 million.
Although the Company obtained capital contributions of approximately $4.9
million from certain of its directors and others, restructured its bank credit
agreement extending its maturity to December 1998, and received certain waivers
for financial and other covenant violations in the credit agreement from the
bank for 1995 and the first and second quarters of 1996, the Company continues
to have very limited cash resources available and is currently experiencing
difficulty paying its on-going obligations as they become due. As discussed in
Note 7, available borrowings under the Credit agreement were approximately $1.6
million as of December 31, 1995. Under the terms of the Credit Agreement, the
bank may accelerate the maturity of the debt in the event of violation of any
covenant of the Credit Agreement or if a material adverse event is deemed by the
bank to have occurred. If the Company is unable to remain in compliance with
the terms of the Credit Agreement or obtain waivers in the event of a default
and the bank accelerates maturity of the Credit Agreement, the Company does not
have adequate financial resources to extinguish the loan and the Company's
operations may be negatively impacted.
Management has implemented a business plan and long term strategy which
success is dependent upon the Company's ability to substantially reduce
operating expenses and enhance revenues from low-level radioactive waste
disposal and processing. Management has taken steps during 1995 to reduce
costs and will continue this effort in the future. These steps include
reducing personnel and decentralizing responsibilities to the operating
divisions. Furthermore, the Company is limiting future capital expenditures.
The Company will more likely than not need to raise additional financing or
sell assets. There can be no assurance, however, that any such financing or
asset sales will be consummated. In the event the Company does not meet its
business plan or the Company is unable to obtain alternative financing, there
can be no assurance that the Company will be able to meet its obligations as
they become due or obtain further forbearance from the bank.
As discussed in Note 13 to the consolidated financial statements, the Company
is involved in various significant permitting efforts, claims, lawsuits and
other administrative matters which are uncertain at this time.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern, or
adjustments, if any, that may be necessary as a result of the outcome of the
matters discussed above.
- 38 -
<PAGE> 39
Principles of Consolidation. The accompanying financial statements present
the consolidated accounts of American Ecology Corporation and its subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
Revenue Recognition. Generally, revenues are recognized as services are
performed and as waste materials are buried or processed.
Cash Equivalents. Cash equivalents consist of short-term, highly liquid
investments with original maturities of three months or less, which are readily
convertible into cash.
Investments in Debt and Equity Securities. The Company adopted Statement of
Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain
Investments in Debt and Equity Securities", effective January 1, 1994. Debt
and equity securities that the Company has the intent and ability to hold to
maturity are classified as "securities held-to-maturity" and reported at
amortized cost. Debt and equity securities that are held for current resale
are classified as "trading securities" and reported at fair value with
unrealized holding gains and losses included in earnings. Debt and equity
securities not classified as either "securities held-to-maturity" or "trading
securities" are classified as "securities available-for-sale" and reported at
estimated fair value with net unrealized holding gains and losses reported as a
component of shareholders' equity. The adoption of SFAS 115 did not have a
material effect on the Company's financial position or results of operations.
The Company uses the specific identification method to determine the cost basis
used in computing realized gains or losses.
Property and Equipment. Property and equipment are recorded at cost and
depreciated on straight-line and declining balance methods over estimated
useful lives. Land is comprised of land owned at the processing and disposal
sites. Land owned at disposal sites is depleted over the estimated useful life
of the disposal site on a straight-line basis. Cell development costs
represent waste disposal site preparation costs which are capitalized and
charged to operating costs as disposal space is utilized. Cell development
costs include direct costs related to site preparation, including legal,
engineering, construction, and the direct cost of Company personnel dedicated
for these purposes. The estimated useful lives of buildings and improvements
is fifteen to thirty-one years. The estimated useful lives of vehicles,
decontamination, processing and other equipment is three to ten years. See
Note 3. for major categories of property and equipment. Expenditures for major
renewals and betterments are capitalized and expenditures for maintenance and
repairs are charged to expense as incurred. During 1995, 1994 and 1993,
maintenance and repairs expense was $603,000, $750,000, and $642,000,
respectively.
Deferred Site Development Costs. The Company has been selected to locate,
develop and operate the low-level radioactive waste ("LLRW") facilities for the
Southwestern Compact ("Ward Valley facility") and the Central Interstate
Compact ("Butte facility").
The license application for the Southwestern Compact was approved by the
California Department of Health Services ("DHS") in September 1993. All costs
related to the development of the Ward Valley facility have been paid and
capitalized by the Company. As of December 31, 1995, the Company had deferred
$40,673,000 (36% of total assets) of pre-operational facility development costs
of which $3,649,000 was capitalized interest. These deferred costs relating
to the development of the Ward Valley facility are expected to be recovered
during the facility's 20 year operating period from future waste disposal
revenues based upon disposal fees approved by the DHS in accordance with
existing state rate-base regulations. The disposal fee approval process is
expected to include an independent prudency review of all the pre-operational
costs incurred by the Company prior to their inclusion in the rate-base. The
Company expects all of the costs which it has deferred for this facility, plus
additional unrecognized project interest costs to be included as a component of
the rate-base; however, there can be no assurance that all of the costs will be
approved by the DHS.
Allowable costs incurred by the Company for the development of the Butte
facility are reimbursed under a contract with the Central Interstate LLRW
Compact Commission ("CIC") and are recognized as revenues. Such revenues
totaled $8,100,000, $9,800,000 and $9,300,000 in 1995, 1994 and 1993,
respectively. Substantially all funding to develop the Butte facility is being
provided by the major generators of the waste in the CIC. As of
- 39 -
<PAGE> 40
December 31, 1995, the Company has contributed and deferred approximately
$6,691,000 (6% of total assets), of which $600,000 was capitalized interest,
toward the development of the Butte facility and no additional capital
investment is expected to be required from the Company prior to granting of the
license. The Company expects all of the costs which it has deferred for this
facility plus additional unrecognized project interest costs to be included as
a component of the rate-base; however, there can be no assurance that all of
these amounts will be approved. In addition, the CIC has the option to
terminate the contract, upon ten (10) days written notice, in the event it has
expended an additional $31.1 million provided under the last contract amendment
and the State of Nebraska's licensing decision has not been made and the major
generators in the compact region have either ceased funding the project or
thereafter notified the CIC pursuant to amendment No. 5 of its contract with
the CIC that the major generators intend to cease funding of the project. If
the CIC elects to terminate the contract, then the Company has no further claim
or right to reimbursement of its contributions or accrued interest unless the
CIC and the Company agree to go forward with the facility, in which event the
Company retains its rights to recover its contribution together with any
accrued interest.
The construction and operation of the Ward Valley and Butte facilities are
currently being delayed by various political and environmental opposition
toward the development of the sites and by various legal proceedings as further
discussed under "Business - Low-Level Radioactive Waste Services - Disposal
Services - Proposed Ward Valley, California Facility" and "- Proposed Butte,
Nebraska Facility". At this time, it is not possible to assess the length of
these delays or when, or if, the Butte facility license will be granted, and
when, or if, the land for the Ward Valley facility will be obtained. Although
the timing and outcome of the proceedings referred to above are not presently
determinable, the Company continues to actively urge the conveyance of the land
from the federal government to the State of California so that construction may
begin, and to actively pursue licensing of the Butte facility. The Company
believes that the Butte facility license will be granted, operations of both
facilities will commence and that the deferred site development costs for both
facilities will be realized. In the event the Butte facility license is not
granted, operations of either facility do not commence or the Company is unable
to recoup its investments through legal recourse, the Company would suffer
losses that would have a material adverse effect on its financial position and
results of operations.
In 1994, the Company began to capitalize interest in accordance with
Statement of Financial Accounting Standards No. 34, Capitalization of Interest
Cost, on the site development projects while the facilities being developed are
undergoing activities to ready them for their intended use. Interest
capitalized was $3,281,000 in 1995 and $968,000 in 1994.
Intangible Assets. Intangible assets relating to acquired businesses consist
primarily of the cost of purchased businesses in excess of fair value of net
assets acquired ("goodwill"). Intangible assets are being amortized on the
straight-line method over periods not exceeding 40 years with the majority
being amortized over 25 years. The accumulated amortization of intangible
assets amounted to $314,000 and $962,000 at December 31, 1995 and 1994,
respectively. Amortization of intangible assets was $742,000, $520,000 and
$215,000 in 1995, 1994 and 1993, respectively. On an ongoing basis, the
Company measures realizability of intangible assets. In the event that facts
and circumstances indicate intangible or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation was
required, the estimated future undiscounted cash flows associated with the
assets would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow value was necessary. In
1995, a $31,367,000 impairment of intangible assets was recorded, see Note 4.
Permitting Costs. Permitting costs, which are primarily comprised of outside
engineering and legal expenses, are capitalized and amortized over the life of
the applicable permits. At December 31, 1995 and 1994, there were $2,057,000
and $1,389,000, respectively, of such unamortized costs included in other
assets in the accompanying consolidated balance sheets.
The Company operates its various sites under the regulations of, and permits
issued by various state and federal agencies. Several of the Company's
existing sites are currently seeking permit renewals and/or expansion
- 40 -
<PAGE> 41
permits. There is no assurance of the outcome of any permitting efforts. The
permitting process is subject to regulatory approval, time delays, local
opposition and potential stricter governmental regulation. Substantial losses
which would have a material adverse effect on the Company's consolidated
financial position, could be incurred by the Company in the near term in the
event a permit is not granted, if facility construction programs are delayed or
changed, or if projects are otherwise abandoned. The Company reviews the status
of permitting projects on a periodic basis to assess realizability of related
asset values. As of December 31, 1995, management believes that assets which
could currently be affected by permitting efforts are recoverable at their
recorded values.
Deferred Site Maintenance. Deferred site maintenance includes the accruals
associated with obligations for closure and post-closure of the Company's
operating and closed disposal sites and for corrective actions and remediation.
The portion of these obligations expected to be spent within the following
twelve month period is classified as deferred site maintenance, current portion
in the accompanying consolidated balance sheets. The Company generally
provides accruals for the estimated costs of closures and post-closure
monitoring and maintenance as permitted airspace of such sites is consumed.
Liabilities are recorded when environmental assessments and/or remedial efforts
are probable, and the costs can be reasonably estimated. The Company performs
routine periodic reviews of closed operating sites and revises accruals for
estimated post-closure, remediation or other costs related to these locations
as deemed necessary. The Company's recorded liabilities are based on best
estimates of current costs and are updated periodically to include the effects
of existing technology, presently enacted laws and regulations, inflation and
other economic factors. The Company estimates its future cost requirements for
closure and post-closure monitoring and maintenance for operating chemical
disposal sites based on RCRA and the respective site permits. RCRA requires
that companies provide financial assurance for the closure and post-closure
care and maintenance of their chemical sites for at least thirty years
following closure. Where both the amount of a particular environmental
liability and the timing of the payments are reliably determinable, the cost is
discounted to present value at a discount rate of 2.5%, net of inflation. See
the discussion of Operating Costs included in Management's Discussion and
Analysis of Financial Condition and Results of Operations for information
concerning certain adjustments recorded in 1995, 1994 and 1993.
- 41 -
<PAGE> 42
Net Income (Loss) Per Share. The calculation of net income (loss) per common
and common equivalent share is in accordance with the treasury stock method for
1995 and 1994 and the modified treasury stock method for 1993. The change in
methods relates to the reductions in common stock equivalents due to the
expiration of an outstanding warrant in 1993.
<TABLE>
<CAPTION>
(000's except per share amounts)
Year Ended December 31,
-----------------------------------------------
1995 1994 1993
-------------- -------------- -------------
<S> <C> <C> <C>
Net income (loss) $ (48,903) $ 3,850 $ 4,744
Adjustments to net income (loss):
Investment income on assumed investment
of excess proceeds from exercise of
common stock equivalents -- -- 137
Preferred stock dividends 88 -- --
--------- --------- ---------
Adjusted net income (loss) available to
common shareholders $ (48,991) $ 3,850 $ 4,881
Weighted average shares outstanding -
Common shares outstanding at year end 7,826 7,819 7,784
Effect of using weighted average common and
common equivalent shares outstanding (4) (6) (88)
Effect of shares issuable under stock option
plans based on the treasury stock method -- 38 632
Effect of shares issuable under warrant
based on the treasury stock method -- -- 1,327
Modified treasury stock, 20% repurchase limit -- -- (1,558)
--------- --------- ---------
Shares used in computing earnings (loss)
per share 7,822 7,851 8,097
--------- --------- ---------
Net income (loss) per common and common
equivalent share, primary $ (6.26) $ .49 $ .60
========= ========= =========
</TABLE>
There was no difference between the primary and fully diluted earnings per
share calculations in 1995, 1994 and 1993.
New Accounting Principles. In October 1995, Statement of Financial
Accounting Standards No. 123 "Accounting for Stock-Based Compensation" was
issued. This statement establishes a fair value based method of accounting for
stock-based compensation plans. The Company currently accounts for its
stock-based compensation plans under Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees". The Company has decided
not to adopt this new standard in 1996, and alternatively will provide certain
pro forma disclosures in the notes to the financial statements in future
filings.
Effective December 31, 1994, the Company adopted Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments". This statement requires disclosure of fair market value
information for financial instruments. The book values of investment
securities, excluding investments in common and preferred stocks, receivables,
accounts payable and financial instruments included in other assets and accrued
liabilities approximate their fair values principally because of the short-term
nature of these instruments. Investments in common and preferred stocks are
stated at fair market values. The quoted market price was used to determine
the fair market value of the investment in common stock and estimated market
values were used to determine the fair market value of the investments in
preferred stocks. The carrying value of long-term debt approximates fair value
principally because of the variable interest rate terms set forth in the bank
credit facility agreement. See Note 2.
- 42 -
<PAGE> 43
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and affect the reported amounts of revenues and expenses during the
reporting period. The significant estimates used by the Company in the
accompanying consolidated financial statements primarily relate to waste
processing and burial, deferred site maintenance, and commitments and
contingencies as discussed in Notes 5, 6 and 13, respectively. Actual results
could materially differ from the Company's estimates.
Reclassification. Certain reclassifications have been made to prior year
financial statements to conform to the fiscal 1995 presentation.
NOTE 2. CASH AND INVESTMENT SECURITIES
Cash and investment securities at December 31, 1995 and 1994, were as follows
(in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cash and cash equivalents $ 1,246 $ 1,425
Trading securities 6,993 6,640
Securities held-to-maturity 5,760 5,341
Securities available-for-sale 523 1,703
---------- ----------
$ 14,522 $ 15,109
========== ==========
</TABLE>
Investments in trading securities consist principally of preferred stocks,
which are held by a captive insurance company wholly-owned by the Company. The
change in net unrealized holding gains on trading securities was $114,000 in
1995 which has been included in earnings during this period. Investments in
securities available-for-sale consist of common stock of Perma-Fix, Inc. (see
Note 12) which has an original cost value of $1,320,000, fair value of $602,000
and a gross unrealized holding loss of 718,000 at December 31, 1995. The
change in net unrealized holding loss on securities available-for-sale was
$761,000 which has been included as a separate component of shareholders'
equity during the period. Proceeds of $214,000 received on sales of securities
available-for-sale during 1995 resulted in realized losses of $101,000. There
were no sales of securities available-for-sale during 1994. Investments in
securities held-to-maturity mature over various dates during 1996 and are
reported at their amortized cost basis, which approximates fair value at
December 31, 1995. Investments in securities held-to-maturity at December 31,
1995 and 1994, consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
U.S. Government securities $ 5,547 $ 5,140
Certificates of deposit 138 43
Money market accounts and other 75 158
---------- ----------
$ 5,760 $ 5,341
========== ==========
</TABLE>
Certain cash accounts and substantially all investments in securities
held-to-maturity and trading securities totaling $13,770,000 and $13,175,000 at
December 31, 1995 and 1994, respectively, have been classified as non-current
assets as cash and investment securities, pledged. The pledged cash and
investment securities represent collateral for the Company's closure/post
closure obligations, performance of a Remedial Investigation and Feasibility
Study ("RI/FS") and performance of corrective action at the closed Sheffield,
Illinois facility, compliance with Texas Natural Resource Conservation
Commission ("TNRCC") requirements related to the Company's non-commercial use
deepwell at the Company's Robstown, Texas, facility, closure costs for the
Beatty, Nevada LLRW site, test borings at the proposed LLRW facilities in
Nebraska and California, settlement with generators of waste at the Richland,
Washington facility, and various performance bonds. Also, a portion of
- 43 -
<PAGE> 44
the pledged cash and investment securities at December 31, 1995 is pledged as
collateral for closure costs relating to the two facilities acquired in 1994
(see Note 12). The amounts pledged by the Company generally equal the present
value of its estimated future closure and post-closure obligations.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1994, was as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Land $ 1,484 $ 1,818
Cell development costs 10,452 10,172
Buildings and improvements 7,673 8,143
Decontamination and processing equipment 2,131 4,281
Vehicles and other equipment 22,112 24,732
---------- ----------
43,852 49,146
Less: Accumulated depletion, depreciation and amortization (22,088) (19,024)
---------- ----------
$ 21,764 $ 30,122
========== ==========
</TABLE>
NOTE 4. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," which is
intended to establish more consistent accounting standards for measuring the
recoverability of long-lived assets.
The Company adopted this statement during 1995 in conjunction with recording
a substantial writedown of goodwill and certain property and equipment. The
impairment loss on long-lived assets of $33,048,000 was comprised of the
following (in thousands):
<TABLE>
<S> <C>
Writedown of the carrying amount of goodwill resulting from
the acquisition of the Recycle Center (Note 12) $ 22,165
Writedown of the carrying amount of goodwill resulting from
the acquisition of Waste Processor Industries, Inc. 5,744
Writedown of the carrying amount of goodwill resulting from
the acquisition of the Winona facility (Note 12) 3,458
Writedown of property and equipment at the Winona facility (Note 12) 1,681
-----------
Total impairment losses $ 33,048
===========
</TABLE>
The circumstances leading to the impairment losses include an accumulation
of costs significantly in excess of the amount of acquisition costs originally
expected for the Recycle Center and to a lesser degree, the Winona facility.
Contributing factors include a current period operating and cash flow loss, a
recent history of operating losses, and the Company's inability to achieve the
operating results anticipated prior to the respective acquisitions.
Additionally, the transportation operations of Transtec, Inc., and the
chemical remediation services operations of American Ecology Services
Corporation, both acquired as part of the Waste Processor Industries, Inc.
acquisition in March 1993, have been discontinued. Changes in the marketplace
and competitive situations in certain service lines, particularly at the
Recycle Center and the Winona facility, have contributed to the Company's
inability to achieve anticipated operating results.
- 44 -
<PAGE> 45
The impairment losses were calculated as the excess of carrying amounts of
long-lived assets as compared to estimated fair values of the respective
assets. Fair values were determined using the present value of management's
estimated expected future cash flows. Should estimated cash flows not be
attainable, further material writedowns of assets may be required in the near
term.
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1995 and 1994 were as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Waste processing and burial $ 7,008 $ 10,063
State disposal fees and taxes 1,994 1,384
Regulated rate settlements 2,123 1,331
Compensation costs 1,778 1,541
Deferred revenue 1,064 --
Other 7,055 5,078
---------- ----------
$ 21,022 $ 19,397
========== ==========
</TABLE>
The Company has recorded a liability of $7,008,000 for the waste processing
and burial of waste on-site at the Recycle Center. The liability is based on
management estimates of anticipated waste treatment methods, associated volume
reductions and burial fees. Should estimated volume reductions or proposed
disposal methods not be attainable, the costs for processing and burial could
increase materially in the near term.
NOTE 6. DEFERRED SITE MAINTENANCE
Deferred site maintenance accruals at December 31, 1995 and 1994 were as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Accrued costs associated with open facilities $ 10,568 $ 10,108
Accrued costs associated with closed facilities 11,582 12,082
---------- ----------
Sub-total 22,150 22,190
Less: current portion (1,763) (3,524)
---------- ----------
Deferred site maintenance, excluding current portion $ 20,387 $ 18,666
========== ==========
</TABLE>
Accrued costs associated with open facilities principally relate to closure
and post-closure for the permitted and developed portion of the Robstown, Texas
facility, groundwater contamination remediation at the Robstown and Winona,
Texas facilities, and to capping of active cells at the chemical waste disposal
facilities in Robstown, Texas and Beatty, Nevada and the LLRW facility in
Richland, Washington. The Company is in process of re-permitting the Robstown
facility to include development of an additional portion of the site. The
Company's current estimate of the Robstown site's closure and post-closure
costs of $5,199,000 does not include the incremental closure and post-closure
costs for this undeveloped portion of the site. The estimated additional cell
capping costs to be expensed over the remaining developed cell space at the
Company's disposal facilities was approximately $2,600,000 at December 31,
1995.
The Company is in the process of addressing corrective action plans at the
Robstown, Texas site. A 1978 analysis showed the presence of chemical
contamination in the shallow, non-potable aquifer underlying the site. The
Company operates a deep-injection well for the disposal of contaminated
groundwater and leachate generated at the facility. The Company has recorded
an accrual ($1,982,000 balance at December 31, 1995) for the estimated costs
of the groundwater remediation program based upon a compliance plan agreed to
with the state's regulatory authority in 1992. Based on remediation results to
date, the reduction in contamination levels outlined in the compliance plan are
not being achieved. In 1993, the state's regulatory rules were amended to base
clean-
- 45 -
<PAGE> 46
up requirements upon reasonable standards criteria. The Company believes that
the standards upon which the costs are estimated should be reduced and has
proposed an alternative plan to the State which could substantially mitigate
future groundwater remediation costs. If the Company's proposal is not
accepted, significant costs may be required to remediate the site to the
state's specifications in the current compliance plan.
The Winona facility, acquired on December 31, 1994, has on-site, underground
chemical contamination for which the facility has developed a corrective action
plan and is in process of remediating. Groundwater is recovered and disposed
of in the facility's deep-injection well. The current estimated cost of the
remediation of $838,000 is included in the Company's deferred site maintenance
accruals at December 31, 1995.
The State of Nevada and the State of Washington have responsibility for the
costs of closure and post-closure care and maintenance of the respective
Beatty, Nevada and Richland, Washington sites. The Company currently submits
waste volume-based fees to state maintained funds. Such fees are periodically
negotiated with, or established by, the states and are based upon engineering
cost estimates provided by the Company and approved by the state.
Accrued costs associated with closed facilities relate to remediation,
closure and post-closure of the Sheffield, Illinois chemical facility and
maintenance of the Sheffield LLRW facility.
The Company is in the process of remediating the closed chemical waste
disposal facility in Sheffield, Illinois under a final corrective measures
implementation plan issued by the U.S. EPA in 1990 pursuant to the Remedial
Investigation and Feasibility Study completed by the Company. The Company has
submitted for approval a closure/post-closure plan for the site to the Illinois
EPA and to the U.S. EPA. The plan has not been approved by the agencies
pending further implementation of the RI/FS. The estimated term of the closure
plan combined with the required thirty years post-closure monitoring is forty
years. As of December 31, 1995, the Company had accrued $10,800,000 for
estimated plan costs. This estimate is based on the current plan and the
estimate may vary materially based on the provisions of the approved plan.
Additionally, the Company is maintaining until 1998 a closed LLRW disposal
facility adjacent to the closed chemical waste disposal facility pursuant to a
May 25, 1988 Agreed Order with the State of Illinois. The estimated costs of
the remediation and closure program, maintenance and post-closure monitoring of
the LLRW facility with the expected timing of future payments at December 31,
1995 were as follows (in thousands):
<TABLE>
<S> <C>
1996 $ 384
1997 400
1998 53
--------
Total estimated costs 837
Discount amount at 2.5% (37)
--------
Amount accrued, net of discount $ 800
========
</TABLE>
The Company's estimates of future deferred site maintenance costs are subject
to change in the near term in the event amendments are made to current laws and
regulations governing the Company's operations or if more stringent
implementation thereof is required, or if additional information regarding
required remediation activities is obtained. Such changes could have a
material adverse effect on the Company's consolidated results of operations and
financial position in the near term and require substantial capital
expenditures.
- 46 -
<PAGE> 47
NOTE 7. REVOLVING CREDIT LOAN AND LONG TERM DEBT
Long term debt at December 31, 1995 and 1994 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Secured bank credit facility $ 28,079 $ 32,905
Acquisition note payable 550 550
Capital lease obligations and other 508 888
---------- ----------
29,137 34,343
Less: Current maturities (780) (850)
---------- ----------
Long term debt $ 28,357 $ 33,493
========== ==========
</TABLE>
Aggregate maturities of long-term debt and the future minimum payments under
capital leases are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
<S> <C>
1996 $ 780
1997 264
1998 28,093
--------
Total $ 29,137
========
</TABLE>
On June 30, 1995, the Company refinanced its prior bank debt under the terms
of a Second Amended and Restated Credit Agreement ("Credit Agreement"). The
secured bank credit facility matures on December 31, 1998 and is comprised of a
$27,000,000 term loan ("Term Loan"), an $8,000,000 revolving credit loan
("Revolver"), and a $5,000,000 standby letter of credit facility. Accelerated
Term Loan principal repayments are due upon occurrence of certain contingent
events, including the opening of the Ward Valley Facility and sales of assets.
Upon closing of the Credit Agreement on June 30, 1995, the lender bank agreed
to accept a note, known as the Fee Capitalization Note, from the Company to
capitalize the fees associated with the Credit Agreement. The note, which
provides for borrowings up to $4,000,000, includes an initial amount of
$1,000,000 representing the fees (including previously deferred fees) to
compensate the bank for the restructured commitment. The Fee Capitalization
Note matures on December 31, 1998 and is entitled to the benefits of the Credit
Agreement. The bank has the option of requiring payment of the Fee
Capitalization Note with shares of the Company's common stock.
As of December 31, 1995, the outstanding balances under the Term Loan,
Revolver and Fee Capitalization Note were $26,923,000, $6,416,000 and
$1,156,000, respectively. The outstanding balance under the Revolver is
included as a component of current liabilities based on the terms of the Credit
Agreement. At December 31, 1995, the Company had $1,584,000
available for borrowing under the Revolver.
Interest on the Term Loan and Revolver is accrued daily at a rate equal to
the bank's prime rate, as it changes, plus 1% with that rate increasing by
0.25% each calendar quarter. As of December 31, 1995 the Company's actual
accrual interest rate was 9.75%. Each month, the Company pays interest at a
rate, known as the pay rate, which is equal to the bank's prime rate, as it
changes. As of December 31, 1995, the actual interest rate was 8.5%. The
incremental difference between the accrual rate and the pay rate calculated
each month is capitalized into the Fee Capitalization Note. Each month, the
Company accrues and pays interest on the Fee Capitalization Note at a rate
equal to the bank's prime rate, as it changes, which was 8.5% at December 31,
1995.
On February 7, 1996 the Company entered into an agreement (First Amendment to
Second Amended and Restated Credit Agreement) with its bank for the issuance of
a note, the Advance Note, in the amount of $4,000,000. This note was issued to
provide the Company working capital funds over and above the availability of
the Revolver and matures on the earlier of June 30, 1996 or upon obtaining the
tax refund attributable to
- 47 -
<PAGE> 48
carrybacks of 1995 tax losses or other receipts, as defined. Interest on the
Advance Note accrues at a rate equal to the bank's prime rate, as it changes,
plus 1.5% and is paid monthly by the Company. The Advance Note is entitled to
the benefits of the Credit Agreement. Also on February 7, 1996 the bank issued
a $1,100,000 standby letter of credit on behalf of the Company.
Borrowings under the Credit Agreement are secured by substantially all
of the Company's assets. Additionally, the holders of the Company's 8 3/8%
Series D Cumulative Convertible Preferred Stock have pledged the preferred
stock as security for the Credit Agreement. The Credit Agreement requires,
among other things, the maintenance of certain financial covenants including
(i) minimum consolidated net worth, as defined, of $18 million through June 30,
1996 and minimum consolidated net worth to remain at the June 30, 1996 level for
the remainder of 1996, subject to certain adjustments thereafter, and (ii)
minimum monthly and quarterly earnings, as defined, of $250,000 and $1 million,
respectively, for the third and fourth quarters of 1996, subject to certain
adjustments thereafter. Further, the Credit Agreement requires the Company to
maintain a lock box arrangement for cash receipts with the bank and restricts
the Company from additional borrowings, prohibits payment of dividends on common
stock, and limits capital expenditures. Under the terms of the Credit
Agreement, the bank may accelerate the maturity of debt in the event of
violation of any covenant of the Credit Agreement or if a material adverse event
is deemed by the bank to have occurred. The Company has obtained waivers from
the bank for certain financial and other covenant violations during 1995 and for
the first and second quarters of 1996. If the Company is unable to remain in
compliance with the terms of the Credit Agreement or is unable to obtain
additional waivers in the event of a default and the bank accelerates maturity
of the Credit Agreement, the Company does not have adequate financial resources
to retire the debt. As a result, the Company's operations may be negatively
impacted. While management believes the Company will be able to remain in
compliance with the terms of the Credit Agreement or obtain waivers in the event
of default, there are no assurances such levels of compliance will be achieved
or further forebearance will be provided by the bank.
The acquisition note payable matured on December 31, 1995 and represents a
note payable to Mobley Environmental Services, Inc. ("Mobley"). This note was
incurred as part of the Company's acquisition of Gibraltar Chemical Resources,
Inc. on December 31, 1994. The note is non-interest bearing and payment of the
note is subject to set-off any indemnification amounts owed by Mobley to the
Company. The Company has not paid the note to Mobley, since it is the
Company's opinion that its claims against Mobley in conjunction with the
acquisition are materially in excess of the amount of the acquisition note
payable to Mobley.
At December 31, 1995 the Company had a total of $4,452,000 of issued letters
of credit outstanding, including $1,872,000 issued under the bank credit
facility, of which the most significant relate to site operating permits for
licenses and guarantees for site closure and post-closure required in obtaining
operating permits for the disposal sites. The issued letters of credit are
secured by cash and investment securities. The Company is required to pay fees
ranging from 1/2 of one percent to one percent on letters of credit drawn. The
letters of credit expire no more than one year after December 31, 1998.
NOTE 8. PREFERRED STOCK
In September 1995, the Board of Directors of the Company authorized 105,264
shares of preferred stock designated as 8 3/8% Series D Cumulative Convertible
Preferred Stock ("8 3/8% Preferred Stock") and authorized the issuance of
105,264 of such shares and warrants to purchase 1,052,640 shares of the
Company's common stock. During September through December 1995, the Company
sold 105,264 shares of 8 3/8% Preferred Stock with warrants in a private
offering to a group comprised principally of members of the Company's directors
("the Investing Group") and received cash proceeds of $4,759,000, which is net
of offering expenses of $101,000 and $140,000 in settlement of liabilities to
two members of the Investing Group. Each 8 3/8% Preferred Stock share is
convertible at any time at the option of the holder into 8.636 shares of the
Company's common stock, equivalent to a conversion price of $5.50 on the $47.50
total per share offering price. Dividends on the 8 3/8% Preferred Stock are
cumulative from the date of issuance and payable quarterly commencing on
October 15, 1995. Accrued unpaid dividends totaled $88,000 at December 31,
1995. The 8 3/8% Preferred Stock shares are not redeemable and the
liquidation preference is $47.50 per share plus unpaid dividends. Each share
of the 8 3/8% Preferred Stock issued includes ten warrants to purchase shares
of the Company's common stock. Each warrant entitles the holder to purchase
one share of common stock for an exercise price of $4.75. The $4.75 warrants
are exercisable at any time and expire September 12, 1999. No value was
assigned to the warrants in the accompanying consolidated financial statements
as the value is deemed to be de minimus.
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<PAGE> 49
NOTE 9. INCOME TAXES
Effective January 1, 1993, the Company prospectively adopted Financial
Accounting Standards No. 109, Accounting for Income Taxes ("Statement 109").
The effect of the adoption was not material to the Company's financial position
or results of operations. The Company previously accounted for income taxes
under Statement of Financial Accounting Standards No. 96.
The components of the income tax provision (benefit) were as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C><C> <C> <C> <C>
Current - Federal $ (6,061) $ (1,184) $ 192
- State (170) (75) 364
-------- -------- --------
(6,231) (1,259) 556
-------- -------- --------
Deferred - Federal 816 3,044 2,232
-------- -------- --------
$ (5,415) $ 1,785 $ 2,788
======== ======== ========
</TABLE>
The following is a reconciliation between the effective income tax (benefit)
rate and the applicable statutory federal income tax (benefit) rate:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Income tax (benefit) - statutory rate (34.0)% 34.0% 34.0%
State income taxes, net of federal tax benefit (.3) (.1) 3.1
Dividend income excluded from taxable income (.1) (2.2) (1.2)
Non-deductible goodwill amortization 5.3 1.6 --
Valuation allowance for deferred tax assets 18.0 -- --
Other, net 1.1 (1.6) 1.1
---------- ---------- ----------
Total effective tax (benefit) rate (10.0)% 31.7% 37.0%
========== ========== ==========
</TABLE>
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<PAGE> 50
The tax effects of temporary differences between income for financial
reporting and taxes that gave rise to significant portions of the deferred tax
assets and liabilities and their changes during the year were as follows (in
thousands):
<TABLE>
<CAPTION>
January 1, Deferred December 31,
1995 Provision 1995
-------------- ----------- --------------
<S> <C> <C> <C>
Deferred tax assets:
Environmental compliance and
other site related costs,
principally due to accruals for
financial reporting purposes $ 5,655 $ 2,557 $ 8,212
Depreciation and amortization -- 6,396 6,396
Net operating loss carryforward 2,177 524 2,701
Other 3,803 (1,702) 2,101
---------- ---------- ----------
Total gross deferred tax assets 11,635 7,775 19,410
Less valuation allowance (5,266) (9,443) (14,709)
---------- ---------- ----------
Net deferred tax assets 6,369 (1,668) 4,701
---------- ---------- ----------
Deferred tax liabilities:
Site development costs (874) (1,759) (2,633)
Depreciation and amortization (1,239) 1,239 --
Insurance claim - (1,000) (1,000)
Other (3,440) 2,372 (1,068)
---------- ---------- ----------
Total gross deferred tax liabilities (5,553) 852 (4,701)
---------- ---------- ----------
Net deferred tax assets $ 816 $ (816) $ --
========== ========== ==========
</TABLE>
The Company has established a valuation allowance for certain deferred tax
assets due to realization uncertainties inherent with the long-term nature of
deferred site maintenance costs, uncertainties regarding future operating
results and for limitations on utilization of acquired net operating loss
carryforwards for tax purposes. The realization of a significant portion of
net deferred tax assets is based in part on the Company's estimates of the
timing of reversals of certain temporary differences and on the generation of
taxable income before such reversals. The net operating loss carryforward of
approximately $7,944,000 at December 31, 1995, begins to expire in the year
2007 and utilization of $5,222,000 of this carryforward is limited pursuant to
the net operating loss limitation rules of Internal Revenue Code Section 382.
NOTE 10. EMPLOYEE'S BENEFIT PLANS
Retirement Plan. Effective December 31, 1995, the Company's defined
contribution retirement plan ("Plan") was amended to provide that participants
will not earn additional benefits under the Plan, no Company contributions will
be made and no employees will be eligible to become participants in the Plan on
or after December 31, 1995.
Prior to the December 31, 1995 amendment, the Plan covered substantially all
of the Company's full-time employees after one full year of employment. The
Company made contributions to the plan equal to 5% of the participant's monthly
compensation, as defined. The Company also made an additional 5% contribution
for employees who earned in excess of the prior year's FICA base compensation,
as defined. The Company's contributions vest to the employees at 20% per year,
beginning with the first full year of employment.
401(k) Plan. The Company maintains a 401(k) plan for employees who
voluntarily contribute a portion of their compensation, thereby deferring
income for federal income tax purposes. The plan covers substantially all of
the
- 50 -
<PAGE> 51
Company's employees. Participants may contribute between 1% and 10% of their
compensation. The Company matches 55% of participant contributions up to 6%
of an employee's compensation. The Company's matching contributions vest to
the employee over a three year period.
The Company's total contribution for both the retirement plan and 401(k) plan
was $829,000, $946,000 and $783,000, for 1995, 1994, and 1993, respectively.
The Company has no post-retirement or post-employment benefit plans.
NOTE 11. STOCK OPTION PLANS
The Company presently maintains four stock option plans affording employees
and outside directors of the Company the right to purchase shares of its common
stock. The exercise price, term and other conditions applicable to each option
granted under the Company's plans are generally determined by the Compensation
Committee of the Board of Directors at the time of the grant of each option and
may vary with each option granted. No option may be granted at a price less
than the fair market value of the shares when the option is granted, and no
options may have a term longer than ten years. The following is a summary of
the transactions under the plans:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------ ------------
<S> <C> <C> <C>
Under option:
Options outstanding, beginning of year 691,950 611,450 612,550
Granted 706,000 125,000 119,150
Exercised (6,800) (35,000) (120,250)
Canceled (204,550) (9,500) --
---------- -------- --------
Options outstanding, end of year 1,186,600 691,950 611,450
========== ======== ========
Price range per share of outstanding options $ 4.00- $ 2.79- $ 2.79-
$ 14.75 $ 14.75 $ 14.75
========== ======== ========
Price range per share of options exercised $ 8.00- $ 2.79-
$ 2.79 $ 8.58 $ 8.00
========== ======== ========
Prince range per share of options canceled $ 6.38- $ 10.13- $ --
$ 14.75 $ 11.00 $ --
========== ======== ========
Options exercisable at end of year 721,340 521,660 401,300
========== ======== ========
Options available for future grant at end of year 383,900 710,900 226,400
========== ======== ========
</TABLE>
NOTE 12. ACQUISITIONS
On September 19, 1994, the Company acquired the assets of Quadrex Recycle
Center, ("Recycle Center"), a business segment of Quadrex Corporation
("Quadrex") that provides recycling, decontamination, volume reduction of
radioactive waste and related equipment rental services to government,
commercial and nuclear power industries. The purchase consideration was
comprised of payments by the Company for assumed liabilities and working
capital for the Recycle Center through the closing date, additional unpaid
liabilities assumed as of the closing date, and direct acquisition costs, all
of which total approximately $28,000,000. The purchase method of accounting
was used for this asset acquisition, therefore, the Recycle Center's results of
operations are consolidated with the Company's since September 19, 1994. The
excess of acquisition cost over fair value of net tangible assets of the
Recycle Center of approximately $22,165,000 was written down during 1995 as
discussed in Note 4. The acquisition cost was reduced by the estimated fair
value of 545,000 common shares of Perma-Fix,
- 51 -
<PAGE> 52
Inc. ("Perma-Fix") which Quadrex transferred to the Company effective September
30, 1994. The Company has the right to receive up to 355,000 additional common
shares of Perma-Fix, Inc. from Quadrex pending certain regulatory approvals and
approval of the bankruptcy court where Quadrex has filed its bankruptcy
proceedings. The fair value of these additional shares will reduce the
acquisition cost when received.
The Company has recorded receivables totaling $2,538,000 at December 31, 1995
for anticipated insurance claim settlements relating to a fire which damaged a
processing building and related equipment at the Recycle Center in July 1994.
The amount of proceeds from business interruptions and property and related
damage claims is subject to negotiations and final determination.
On December 31, 1994, the Company acquired Gibraltar Chemical Resources, Inc.
("the Winona facility"), a wholly-owned subsidiary of Mobley. The Winona
facility provides fuels blending, solvent recycling, and deepwell injection
services to the hazardous and industrial waste disposal markets with a fixed
base facility in Winona, Texas and collections and technical operations in El
Paso, Texas and Laredo, Texas. The total acquisition cost of $10,628,000
included cash, a $550,000 note payable to Mobley, assumed liabilities, and
direct acquisition costs. The excess of cost over fair market of net assets of
the Winona facility of approximately $3,458,000 was written down during 1995 as
discussed in Note 4. Since the acquisition was effective the last day of 1994
and since the purchase method of accounting was used for this acquisition, no
results of operations of the Winona facility were included in the Company's
1994 consolidated results.
The consolidated results of operations on an unaudited proforma basis as
though the businesses acquired in 1994 and 1993 had been acquired on January 1,
1993 are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Revenues $ 91,335 $ 96,357
Net loss $ (16,356) $ (19,170)
Net loss per share $ (2.09) $ (2.49)
</TABLE>
The pro forma financial information is presented for information purposes
only and is not necessarily indicative of the operating results that would have
occurred had the acquisitions been consummated as of the above dates, nor are
they necessarily indicative of future operating results.
NOTE 13. COMMITMENTS AND CONTINGENCIES
Richland, Washington Facility. In 1964, the Washington Department of Ecology
("WDOE") leased from the U.S. Department of Energy ("DOE") a 1,000 acre portion
of the Hanford Reservation. In 1965, the WDOE subleased 100 acres of that
property to the Company for use as a Low-Level Radioactive Waste ("LLRW")
disposal facility under the regulation of the Washington Department of Health
pursuant to the Atomic Energy Act. In 1990, the DOE applied to the EPA for a
permit under the Resource Conservation and Recovery Act of 1976, as amended
("RCRA") and other laws and regulations to obtain the appropriate regulatory
approvals needed to proceed with the environmental cleanup of the Hanford
Reservation. In 1994, the Environmental Protection Agency ("EPA") issued a
corrective action permit that includes most of the land owned by the DOE at the
Hanford Reservation, including that portion leased to WDOE, which includes the
100 acres subleased to the Company for its LLRW disposal facility. Since the
Company's Richland, Washington facility is located on land owned by the DOE,
the EPA considered the Company's disposal site to be part of the "Facility"
covered by the RCRA permit. Thirteen trenches at the Company's LLRW disposal
facility have been included in the final permit as "solid waste management
units" which may require further investigation to determine whether releases of
any hazardous wastes have occurred. Because portions of the Company's facility
remain included in the final permit issued to the DOE, the Company is
potentially subject to proposed permit conditions for site investigation and
possible cleanup should any releases be discovered even though the Company is
not a permittee and though it was not involved in the activities contributing
to the DOE Hanford facility contamination that are the subject of the
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<PAGE> 53
DOE Hanford consent order. It is the Company's opinion that is has legal
defenses that may preclude the inclusion of its Hanford site in the DOE permit
and to any corrective action relating to the LLRW disposal facility that may be
proposed pursuant to the DOE permit. Both the Company and the DOE have
appealed to the Environmental Appeals Board ("EAB") of the EPA those terms of
the permit that may potentially apply to any of the Company's facilities. That
appeal has been stayed during protracted negotiations with the EPA, DOE,
Washington Department of Ecology and Washington Department of Health. The
purpose of the negotiations is to determine whether an agreeable process for
site investigation can be negotiated. It appears at this time that all parties
will agree upon a method of sampling below certain trenches and testing for
hazardous constituents under RCRA. All parties to the appeal before the EAB
have requested a two-year stay while the negotiations are completed and the
Company conducts the site investigation. The EAB recently issued an order
dismissing the Company's appeal without prejudice to raising the identical
issues in any subsequent appeal and remanding the matter to the EPA to modify
the permit if necessary. The order specifically allows any party to resume the
appeal if negotiations fail. The EPA does not believe a modification is
necessary (thereby obviating the need for the Company to file another appeal at
this time). The Company is presently negotiating an agreement with the state
agencies for a Company investigation of the site. Depending on the results of
the site investigation, the cost of conducting the site investigation and any
corrective action, if any, could be material. As part of its negotiations, the
Company is seeking to have all the costs of investigations and any resultant
corrective actions included in its rate base. As of December 31, 1995, the
Company had not recognized any liability in its financial statements for any
costs associated with the site investigation because the site investigation
terms have not been determined and the costs of any site investigation may be
recovered in the rate base.
In 1992, the Benton County assessor issued property tax assessments on
improvements owned by the Company and located on the Company's leasehold at the
Hanford Reservation. The increased property taxes totaled $1.7 million for the
years 1989, 1990 and 1991. Prior to 1989, the annual taxes had been about
$5,400. The Company sued Benton County and the Assessor and Treasurer to enjoin
them from collecting these taxes. An injunction was granted by the Benton
County Superior Court but overturned by the State Court of Appeals which ruled
that the Company should first pursue all of its administrative remedies.
Accordingly, the Company has prosecuted its appeal to the State Board of Tax
Appeals. A hearing was held in November 1995. A decision is expected in 1996.
The Company has recently been assessed an additional $1.9 million in taxes for
1992, 1993 and 1994. Management believes that Benton County's assessments were
improper and intends to vigorously defend this matter in the courts and through
any appropriate administrative process, if necessary. The Company has not
recognized any liability in the financial statements for any of the tax
assessments discussed above.
Winona, Texas Facility - The Company purchased the stock of Gibraltar Chemical
Resources, Inc. ("Gibraltar"), since renamed American Ecology Environmental
Services Corporation, from Mobley on December 31, 1994. The Company's stock
purchase agreement with Mobley provides that Mobley will indemnify the Company,
without limitation as to amount, for any damages or costs, including legal fees,
associated with certain pre-closing liabilities, including the claims set forth
hereunder. Pursuant to its stock purchase agreement with Mobley, the Company
was also named as an additional insured for a one year period (1995) for
pre-closing claims under Mobley's pollution liability insurance policy. The
policy has a $10 million aggregate limit and a $5 million per loss limit.
Permit renewal filings were made for the Winona, Texas facility in November
1994 and a hearing on the renewal was held November 28, 1995. The renewal of
the Permits is required under Part B of the RCRA and other environmental
regulatory laws. There is active opposition in the local area to the renewal
of these permits. This matter will be determined by the TNRCC, and the Company
expects a final determination in late 1996. If these permits are not
ultimately renewed, such result could have a material adverse effect on the
Company's consolidated financial position and results of operations.
A group called Mothers Organized to Stop Environmental Sins filed a lawsuit
in 1994 against the Company in the United States Eastern District Court for the
State of Texas alleging that the Winona facility violated certain permits and
regulations, and contributed to the handling, storage, treatment,
transportation and disposal of solid and hazardous waste that presents an
imminent and substantial endangerment to health and the environment. The
plaintiffs have requested that the facility be shut down and civil penalties
imposed on the Company. The
- 53 -
<PAGE> 54
Company has filed a Motion for Summary Judgment in this matter and the Court
has granted a partial summary judgment but has yet to rule on some issues
presented in the Motion. In December 1995, legal counsel was retained by the
Company in connection with a potential conflict of interest which arose from
the October merger of a law firm retained by the Company in other matters with
the law firm representing the plaintiff's counsel. The Company is in the
process of preparing a motion to disqualify plaintiffs' counsel in this matter.
The case is in its initial phases of discovery and it is too early to
accurately evaluate this case. The Company believes there is no factual
background to support this claim and intends to vigorously defend this case.
Four lawsuits, including one purported class action, were filed against
Gibraltar in 1992 and 1993 which are pending in State District Court in Smith
County, Texas, by certain persons in Winona, Texas. In August 1995, another
lawsuit was filed in Dallas County, Texas by other Winona citizens. The suits
assert various theories of liability, including subsurface trespass, nuisance
per se, negligence, gross negligence, and fraudulent concealment for alleged
air emissions. The suits also allege that the plaintiffs have experienced
personal injuries, diminution in property values, and other economic losses
which are alleged to have been caused by operation of the Winona facility. The
plaintiffs assert various grounds for recovery, and seek unspecified altered
and punitive damages. On August 4, 1995, a jury in one of the lawsuits found
that the Company's Winona facility did not use or possess the plaintiffs'
property and awarded nothing in damage. To date, the Company and Mobley have
settled certain of the plaintiffs' claims in these actions for amounts that
were not material and which were funded by the Mobley insurance policy referred
to above.
In 1992, a citizens group filed a petition with the TNRCC for revocation of
the Winona facility's deepwell permits alleging that a geological fault exists
in the vicinity of the Winona facility's deepwells and other alleged grounds.
The EPA has previously concluded in its proceedings relating to the Winona
facility's second injection well that no such fault exists. There has been a
recent filing with TNRCC by the opponents asking that there be a decision made
on the revocation request. At this time we know of no response by the agency
to that filing. The Company believes the petition is without merit.
Compact Related Disputes. The Company is involved in numerous challenges and
legal proceedings in connection with its siting efforts for LLRW facilities for
the Southwest Compact and Central Interstate Compact. For a description of
these proceedings, see "Business - Low-Level Radioactive Waste Services -
Disposal Services - Proposed Ward Valley, California Facility" and "- Proposed
Butte, Nebraska Facility".
A claim has been made by the Central Interstate Low-Level Radioactive Waste
Commission ("Commission") against the Company in a letter dated May 1, 1995, in
the amount of $195,000, resulting from bonuses paid by the Company to certain
of its employees for the period July 1987 through December 1993. The
Commission apparently reimbursed the Company for the payment of these bonuses
and now is claiming that the reimbursement was not authorized under the
contract between the Company and the Commission. The Company has disputed the
claim and believes such reimbursement was proper. The parties have attempted
to negotiate a settlement but as of this time none has been reached. The
Company believes that a settlement can be reached. There has been no threat of
suit as of this time.
In August 1995, the Company and the Southeast Compact Commission reached a
mutually acceptable agreement on past access fee assessments incurred by
Quadrex Corporation, the previous parent company of the Recycle Center. The
Company had received and objected to invoices from the Southeast Compact for
approximately $1.5 million and a notice that an additional $1.5 million could
also be subsequently invoiced. In disputing the assessment fees the Company
argued that the fees were calculated on abnormal past waste volumes shipped to
the Barnwell, South Carolina disposal facility. The assessment calculations
included extraordinary cleanup events at the Recycle Center that were not
indicative of normal operations. In August 1995, the Southeast Compact
Commission agreed to recalculate the fee assessment on an average of normal
historical waste disposal volumes. This action resulted in a total access fee
liability of $206,156 which the Company paid during 1996. The Company had
previously recognized this liability in its consolidated financial statements.
- 54 -
<PAGE> 55
Other Litigation. The City of San Antonio filed suit against several parties
related to environmental issues in connection with the acquisition, development
and construction of a bus transit station and multi-purpose dome stadium and
sports complex, commonly known as the Alamodome. The City named as the
defendants: the former owner of the property, various consultants involved in
the project, the project manager, and a subsidiary of the Company which served
as the construction contractor for the project. The City alleged that its
consultants failed to advise the City that the site selected for construction
of the Alamodome was environmentally contaminated, thereby breaching their
contracts and committing torts. The City also alleged that following the
discovery of actual or potential environmental problems, that the consultants
and project manager failed to act properly in handling allegedly contaminated
soil and groundwater. Various citizen groups raised concerns over the on-site
landfill and lobbied the TNRCC to force the City to move the landfill off-site.
In June 1994, the TNRCC wrote a letter to the City stating that the agency
believed that the on-site landfill should be removed. During the summer and
fall of 1995, the on-site landfill was removed. In January 1996, the Company's
insurance carrier and the City of San Antonio reached an agreement to settle
the City's claim against the Company. Prior to such settlement, however, one
of the defendants filed a cross claim against the Company. The Company has
filed two motions for Summary Judgment and a hearing was held March 29, 1996 on
one such motion. The Company is unable to predict the outcome of this cross
claim.
In November 1994, the Company was named as a defendant in a purported class
action lawsuit by former employees of Quadrex that relates to unpaid medical
benefits and an underfunded pension plan of Quadrex. Based on information
available to it, the Company believes that the aggregate amount of these claims
are less than $1 million. The Company purchased the assets of the Quadrex
Recycle Center from Quadrex on September 19, 1994. However, the asserted
claims in the purported class action were specifically excluded by the purchase
agreement pursuant to which the Company purchased the assets of the Quadrex
Recycle Center. Some of the former Quadrex employees on whose behalf the suit
was brought are now employees of the Company. The Company does not believe it
has any liability in this matter and as such has not recognized any liability
in its financial statements. The Company intends to contest the matter
vigorously. The Company's purchase agreement with Quadrex provides that
Quadrex will indemnify the Company for any damages or costs, including legal
fees, associated with a claim of this sort. However, because Quadrex filed for
bankruptcy protection in February 1995, it is very likely that the Company will
not realize the benefits of such indemnification.
In September 1994, an unfair labor practice charge was filed against the
Company by the Oil, Chemical and Atomic Workers International Union ("Union").
The Complaint alleges that the Company and Quadrex have operated as joint
employers at the Oak Ridge, Tennessee facility during the period April 8, 1994
to September 1, 1994. As a result of this contention, the National Labor
Relations Board ("NLRB") asserts that the Company was obligated at all times
since April 8, 1994 to assume and abide by the collective bargaining agreement
negotiated by the Union and Quadrex. A hearing was held on December 12, 1995
before an administrative law judge of the NLRB. If the NLRB prevails in this
action, the Company will be liable for any and all variances for the collective
bargaining agreements since April 8, 1994. The Company recognized a liability
of $447,000 in its Consolidated Financial Statements during 1995 for the
estimated settlement of this claim.
The Company has received a notice from an individual purporting to own debt
secured by certain real property in Midlothian, Texas. The individual alleges
that a predecessor of the Company's subsidiary, Texas Ecologists, caused
environmental contamination of the property in the early 1970's. The Company
believes it has no liability in connection with the matter and intends to
contest the matter vigorously. In connection with its investigation of the
matter, the Company also conducted its own assessment of the property with an
independent environmental consultant and concluded that any contamination on
the property falls below material levels.
In April 1995, management learned that one of its subsidiaries had not
always complied with the transit time limitations allowed for hazardous waste
being transferred from generators to final disposal sites. These requirements
are under the regulatory supervision of the TNRCC, and the Company promptly
reported the situation to the TNRCC. As a result of an internal review of this
matter, the Company determined that there was a substantial number of instances
where the transit time limitations were exceeded over approximately eight
months from June 1994 through February 1995. As a direct result of this
circumstance, the Company has
- 55 -
<PAGE> 56
reorganized the operations of the subsidiary, including the replacement of a
number of personnel, and the adoption of stronger internal systems for
monitoring the movement of boxes and transportation vehicles. At this time,
the Company does not know whether the TNRCC will ultimately assess any fines
against the Company for exceeding transit time limitations. While the Company
believes the steps that it has taken are appropriate and responsible, it is
possible that the TNRCC may seek to impose a fine on the Company in connection
with the matter. The Company is not in a position to assess the amount of such
a fine. However, a fine of sufficient magnitude could have a material adverse
effect upon the consolidated financial position of the Company.
In 1990, the Company was sued by certain landowners owning property adjacent
to the Robstown, Texas facility. The landowners have alleged that there has
been migration of pollutants through groundwater which has contaminated the
subterranean reservoir and other water resources on their respective
properties. These landowners have alleged theories including nuisance per se,
negligence and trespass. The case had a trial date in September 1995.
However, the landowners' counsel withdrew prior to the trial date and to our
knowledge, they have yet to obtain new counsel. The case has been continued.
The Company's investigation has found no migration of pollutants onto the
adjacent landowners' properties and the Company intends to contest this matter
vigorously.
In 1992, the U.S. EPA initiated an administrative enforcement action against
US Ecology and alleged in its complaint that the Company had failed to comply
with certain regulatory requirements to provide financial assurances for
closure and post-closure costs as well as liability insurance relating to its
hazardous waste management facility in Sheffield, Illinois. The EPA is seeking
a penalty of approximately $1 million and ordering compliance. The Company
ceased operating that facility in 1983 and it has been undergoing closure and
corrective action pursuant to regulatory requirements and a RCRA 3008(h)
Consent Order since that time. Because the Sheffield facility has not been an
interim status facility under the RCRA regulations since November of 1985, the
Company has responded that the interim status regulatory requirements for
financial assurance and liability insurance do not apply to the facility.
Moreover, the Company has objected to the penalties demanded by U.S. EPA in its
complaint as entirely unwarranted. Recently, the administrative law judge has
ruled that the Sheffield facility is subject to the RCRA regulatory
requirements for financial assurance and liability insurance, notwithstanding
its loss of interim status in 1985. The Company has appealed that decision to
the Environmental Appeals board. The penalty amount, if any, has yet to be
litigated or decided. Though the outcome of this matter is uncertain, the
Company believes these insurance requirements are not applicable to this closed
site and intends to vigorously contest this matter. As of December 31, 1995,
the Company had not recognized any liability in its financial statements for
the penalty.
Since 1987, the Company has been engaged in litigation with many of its
former insurers regarding coverage for environmental damages at two facilities
formerly operated by the company. The Company has been seeking coverage for
costs arising from its Sheffield, Illinois waste facility which ceased
receiving waste in 1983. Most of the defendant-insurers entered into
settlement agreements with the Company. Several of the insurers continued to
litigate, however, and moved for summary judgment on the grounds that the
Company either knew of its loss at the Sheffield facility before the subject
insurance policies were issued or failed to notify the insurers of the
occurrences at the Sheffield facility as soon as practicable. In September
1995, the Bureau County Circuit Court granted summary judgment in favor of the
remaining insurers on grounds of both known loss and late notice. The Company
has filed a notice of appeal from that ruling with respect to certain of those
insurers.
The Company has been litigating against the same insurers with respect to the
Maxey Flats waste disposal facility which the Company operated in Kentucky
through the mid-1970's. All but two of the insurers have entered into
settlement agreements with the Company regarding that dispute. The Circuit
Court of Jefferson County, Kentucky has denied several major motions of the
insurers for summary judgment and discovery is now proceeding with respect to
the remaining issues in the litigation.
In October 1995, Boston Edison Company ("Boston Edison") filed a complaint
against U.S. Ecology, Inc. (the "Company") in the United States District Court
of Massachusetts alleging claims related to the Company's alleged failure to
indemnify Boston Edison for various costs arising out of the shipping and
burial of waste materials at the
- 56 -
<PAGE> 57
Maxey Flats Nuclear Disposal Site. The Company had entered into a series of
contracts with Boston Edison to provide radioactive waste disposal services at
this site. Boston Edison alleges that the Company breached these contracts
because the Company failed to indemnify Boston Edison for its costs. Boston
Edison also alleges that the Company committed an unfair and deceptive trade
practice in the State of Massachusetts because of its failure to indemnify
Boston Edison as required by these contracts. Finally, Boston Edison seeks a
declatory judgment that would set forth the contractual rights and liabilities
of the parties. Boston Edison claims $600,000 in past and future costs for the
alleged breach of the contracts. It also seeks treble damages equal to three
times the actual damages caused by the Company's alleged violation of the
Massachusetts Deceptive Trade Practices Act. At this time, we are not in a
position to predict a favorable or unfavorable outcome of this case or the
amount of potential loss, if any, which might result to the Company if the
outcome in this matter was unfavorable. The Company intends to answer the
complaint and defend this action vigorously.
In addition to the above described litigation, the Company and its
subsidiaries are involved in various other administrative matters of
litigation, including personal injury and other civil actions, as well as other
claims, disputes and assessments that could result in additional litigation or
other proceedings. The Company and its subsidiaries are also involved in
various other environmental matters or proceedings, including permit
application proceedings in connection with the established operation, closure
and post-closure activities of certain sites, as well as other matters or
claims that could result in additional environmental proceedings.
Management has established reserves as deemed necessary for the matters
discussed above based on management's estimates of the outcome. It is
reasonably possible that the Company's estimates for such matters will change
in the near term. Due to the Company's current financial condition and
liquidity issues, management is unable to conclude that the outcome of these
claims, disputes and other matters described above and adjustments, if any,
which may result from these matters will not have a material adverse effect on
the operations or financial position of the Company.
Financial Assurance and Insurance. Under RCRA, the Company is required to
develop closure and post-closure plans for each of its chemical waste disposal
sites. In conjunction with these plans, the Company must prepare closure and
post-closure cost estimates and give financial assurance that the planned
actions will be completed. Financial assurance must be given by either funding
a trust, posting a bond, providing a letter of credit, providing a certificate
of insurance, or if the operator meets certain financial tests, giving a
corporate guarantee. The Company currently covers these requirements by
pledging letters of credit, providing certificates of insurance and by
corporate guarantee. Cash and investment securities have been pledged as
collateral for these instruments (See Note 2.). The Company could be required
to fund additional monies for financial assurance if the Company was to fail to
meet certain financial tests under existing corporate guarantees, or if a
regulatory entity requires additional funding.
RCRA regulations require the Company to carry environmental impairment
insurance against sudden and accidental occurrences, as well as against
non-sudden occurrences such as subsurface migration. While the Company's
current level of coverage meets the requirements (except for the Sheffield
chemical site), there is no assurance that insurance carriers will continue to
provide such coverage to operators, or that such coverage will be obtainable in
future years.
Lease Commitments. The Company leases substantial portions of its office and
other facilities under various lease agreements. Future minimum lease
commitments under noncancellable operating leases as of December 31, 1995, were
as follows (in thousands):
<TABLE>
<S> <C>
1996 $ 1,069
1997 1,075
1998 1,001
1999 776
2000 673
Thereafter 1,397
--------
Total minimum payments $ 5,991
========
</TABLE>
- 57 -
<PAGE> 58
The above lease commitments include amounts related to the Company's
non-cancelable lease which expires in 2002 for its previous corporate offices.
The Company is currently negotiating a sublease for this previously occupied
space and has provided a $1,100,000 reserve for the anticipated difference
between its lease commitment and estimated sublease rental income. In the
event that actual sublease income varies materially from estimated amounts or
the Company is unsuccessful in negotiating a sublease, the Company's
consolidated financial position and results of operations could be materially
impacted.
Rental expense, which also includes month-to-month equipment rentals, was
$2,793,000, $2,307,000, and $1,848,000, for 1995, 1994, and 1993, respectively.
NOTE 14. SHAREHOLDER RIGHTS PLAN
During December 1993, the Company adopted a Shareholder Rights Plan (the
"Plan"). Pursuant to the Plan each outstanding share of the Company's Common
Stock on December 17, 1993, received one Right as a dividend that becomes
exercisable upon certain triggering events. On March 29, 1995, the Company
terminated the Plan and authorized the redemption of all outstanding Rights
issued under the Plan. The redemption price was $.01 per Right, totaling
$78,000 and was paid on April 15, 1995 to shareholders of record on April 10,
1995.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Items 10, 11, 12 and 13 of Part III have been omitted from this report
because the Company will file with the Securities and Exchange Commission, not
later than 120 days after the close of its fiscal year, a definitive proxy
statement. The information required by Items 10, 11, 12 and 13 of this report,
which will appear in the definitive proxy statement, is incorporated by
reference into Part III of this report.
- 58 -
<PAGE> 59
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(A) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
1. Financial statements and reports of Arthur Andersen LLP
Reports of Independent Auditors
Consolidated Balance Sheets - December 31, 1995 and
1994
Consolidated Statements of Operations for the years
ended December 31, 1995, 1994 and 1993
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
2. Financial statement schedules
Other schedules are omitted because they are not
required or because the information is included in
the financial statements or notes thereto.
3. Exhibits
<TABLE>
<CAPTION>
Exhibit Incorporated by Reference
No. Description from Registrant's
------- ----------- -----------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation, as amended 1989 Form 10-K
3.2 Certificate of Amendment to Restated Certificate of Form S-4 dated 12-24-92
Incorporation dated June 4, 1992
3.3 Amended and Restated Bylaws dated February 28, 1995 1994 Form 10-K
10.1 Sublease dated February 26, 1976, between the State of Form 10 filed 3-8-84
Washington, the United States Dept. of Commerce and Economic
Development, and Nuclear Engineering Company with Amendments
dated January 11, 1980, and January 14, 1982.
10.2 Lease dated May 1, 1977 ("Nevada Lease"), between the State of Form 10 filed 3-8-84
Nevada, Dept. of Human Resources and Nuclear Engineering
Company, with Addendum thereto, dated December 7, 1982
10.3 Addendum to Nevada Lease dated March 28, 1988 1989 Form 10-K
10.4 Nevada State Health Division, Radioactive Material License 1989 Form 10-K
issued to US Ecology, Inc. dated December 29, 1989
10.5 Administrative Order by Consent between the United States 1985 Form 10-K
Environmental Protection Agency and US Ecology, Inc. ("USE")
dated September 30, 1985
10.6 State of Washington Radioactive Materials License issued to 1986 Form 10-K
US Ecology, Inc. dated January 21, 1987
10.11 Agreement between The Central Interstate Low-Level Radioactive 2nd Quarter 1988 10-Q
Waste Compact Commission and US Ecology. Inc. for the
development of a facility for the disposal of low-level
radioactive waste dated January 28, 1988 ("Central Interstate
Compact Agreement")
10.12 Amendment to Central Interstate Compact Agreement dated May 1, 1994 Form 10-K
1990
10.13 Second Amendment to Central Interstate Compact Agreement dated 1994 Form 10-K
June 24, 1991
</TABLE>
- 59 -
<PAGE> 60
<TABLE>
<S> <C> <C>
10.14 Third Amendment to Central Interstate Compact Agreement dated 1994 Form 10-K
July 1, 1994
10.15 Settlement Agreement dated May 25, 1988 among the Illinois Form 8-K dated 6-7-88
Department of Nuclear Safety, US Ecology, Inc. and American
Ecology Corporation of a December 1978 action related to the
closure, care and maintenance of the Sheffield, Illinois LLRW
disposal site
10.16 Nevada Division of Environmental Protection Permit for 1988 Form 10-K
Hazardous Waste Treatment, Storage and Disposal (Part B)
issued to US Ecology, Inc. dated June 24, 1988
10.17 Texas Water Commission Permit for Industrial Solid Waste 1988 Form 10-K
Management Site (Part B) issued to Texas Ecologists, Inc.
dated December 5, 1988
10.18 Memorandum of Understanding between American Ecology 1989 Form 10-K
Corporation and the State of California dated August 15, 1988
10.19 United States Environmental Protection Agency approval to 1989 Form 10-K
dispose of non-liquid polychlorinated biphenyl (PCB) wastes at
the Beatty, Nevada chemical waste disposal facility
10.20 Employment Agreement between American Ecology Corporation and 1993 Form 10-K
C. Clifford Wright, Jr. dated April 1, 1994 * (terminated in
1995)
10.21 Employment Agreement between American Ecology Corporation and 1993 Form 10-K
William P. McCaughey dated April 1, 1994 * (terminated in
1995)
10.22 Employment Agreement between American Ecology Corporation and 1993 Form 10-K
Stephen W. Travers dated April 1, 1994 * (terminated in
1995)
10.23 Employment Agreement between American Ecology Corporation and 1993 Form 10-K
Harry O. Nicodemus, IV dated April 1, 1994 * (terminated in
1995)
10.24 Employment Agreement between American Ecology Corporation and 1993 Form 10-K
Ronald K. Gaynor dated April 1, 1994 * (terminated in 1995)
10.26 Amended and Restated American Ecology Corporation 1992 Stock Proxy Statement dated
Option Plan * 4-26-94
10.27 Amended and Restated American Ecology Corporation 1992 Outside Proxy Statement dated
Director Stock Option Plan * 4-26-94
10.28 American Ecology Corporation 401 (k) Savings Plan * 1994 Form 10-K
10.29 American Ecology Corporation Retirement Plan * 1994 Form 10-K
10.30 Credit Agreement between American Ecology Corporation, its 1994 Form 10-K
subsidiaries and Texas Commerce Bank National Association
dated December 1, 1994 (terminated by 10.41 below)
10.31 Security Agreement dated as of December 1, 1994 by American 1994 Form 10-K
Ecology Corporation in favor of Texas Commerce Bank, National
Association (terminated by 10.43 below)
10.32 Security Agreement by subsidiaries of American Ecology 1994 Form 10-K
Corporation dated as of December 1, 1994 in favor of Texas
Commerce Bank, National Association (terminated by 10.43
below)
10.33 Lease Agreement between American Ecology Corporation and Form S-4 filed 12-24-92
VPM 1988-1, Ltd. dated October 14, 1992
10.34 Rights Agreement dated as of December 7, 1993 between American Form 8-K dated 12-7-93
Ecology Corporation and Chemical Shareholders Services Group,
Inc., as Rights Agent
10.35 Agreement and Plan of Merger by and between American Ecology Form S-4 dated 12-24-92
Corporation and Waste Processor Industries, Inc.
10.36 Settlement Agreement dated September 24, 1993 by US Ecology, 1993 Form 10-K
Inc., the State of Nevada, the Nevada State Environmental
Commission, and the Nevada Dept. of Human Resources
</TABLE>
- 60 -
<PAGE> 61
<TABLE>
<S> <C> <C>
10.37 Settlement Agreement dated as of January 19, 1994 by and among 1993 Form 10-K
US Ecology, Inc., Staff of the Washington Utilities and
Transportation Commission, Precision Castparts Corp., Teledyne
Wah Chang, Portland General Electric Company, the Washington
Public Power Supply System and Public Service Company of
Colorado.
10.38 Agreement dated January 28, 1994 between American Ecology Form 8-K dated 2-3-94
Corporation, Edward F. Heil, Edward F. Heil as trustee for
Edward F. Heil, Jr., Sandra Heil, and Karen Heil Irrevocable
Trust Agreement #2, Thomas W. McNamara and Thomas W. McNamara
as a trustee of the Jenner & Block Profit Sharing Trust
No. 082.
10.39 Agreement of Purchase and Sale dated as of April 7, 1994 by 1st Quarter 1994 Form 10-Q,
and among American Ecology Corporation, American Ecology Schedule 13D dated 9-27-94
Recycle Center, Inc., Quadrex Environmental Company and
Quadrex Corporation, as amended by Amendments dated June 14,
1994 and August 22, 1994.
10.40 Stock Purchase Agreement dated as of May 10, 1994 by and 1st Quarter 1994 Form 10-Q,
between American Ecology Corporation and Mobley Environmental 3rd Quarter 1994 Form 10-Q
Services, Inc., as amended by Amendment dated September 21,
1994.
10.41 Second Amended Restated Credit Agreement between American
Ecology Corporation, its subsidiaries and Texas Commerce Bank
National Association dated June 30, 1995.
10.42 Security Agreement dated June 30, 1995 by American Ecology
Corporation in favor of Texas Commerce Bank National
Association.
10.43 Security Agreement dated June 30, 1995 by subsidiaries of
American Ecology Corporation in favor of Texas Commerce Bank
National Association.
21 List of Subsidiaries 1994 Form 10-K
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
* Management contract or compensatory plan.
(B) REPORTS ON FORM 8-K
The Company did not file any Reports on Form 8-K during the
quarter ended December 31, 1995.
- 61 -
<PAGE> 62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN ECOLOGY CORPORATION
Dated: May 17, 1996 By: /s/ Jack K. Lemley
----------------------------------
Jack K. Lemley
Chairman of the Board and Chief
Executive Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Jack K. Lemley Chairman of the Board and Chief May 17, 1996
- ------------------------------- Executive Officer
JACK K. LEMLEY
/s/ Edmund J. Gorman President and Chief Operating May 17, 1996
- ------------------------------- Officer (Principal Financial and
EDMUND J. GORMAN Accounting Officer)
/s/ Jack J. Agresti Director May 17, 1996
- -------------------------------
JACK J. AGRESTI
Director
- -------------------------------
ROTCHFORD L. BARKER
/s/ Paul Bergson Director May 17, 1996
- -------------------------------
PAUL BERGSON
/s/ Patricia M. Eckert Director May 17, 1996
- -------------------------------
PATRICIA M. ECKERT
/s/ Edward F. Heil Director May 17, 1996
- -------------------------------
EDWARD F. HEIL
</TABLE>
<PAGE> 63
<TABLE>
<S> <C> <C>
/s/ Harry J. Phillips, Jr. Director May 17, 1996
- -------------------------------
HARRY J. PHILLIPS, JR.
/s/ Paul F. Schutt Director May 17, 1996
- -------------------------------
PAUL F. SCHUTT
/s/ John J. Scoville Director May 17, 1996
- -------------------------------
JOHN J. SCOVILLE
</TABLE>
<PAGE> 64
EXHIBIT INDEX
10.41 Second Amended Restated Credit Agreement between American
Ecology Corporation, its subsidiaries and Texas Commerce Bank
National Association dated June 30, 1995.
10.42 Security Agreement dated June 30, 1995 by American Ecology
Corporation in favor of Texas Commerce Bank National
Association.
10.43 Security Agreement dated June 30, 1995 by subsidiaries of
American Ecology Corporation in favor of Texas Commerce Bank
National Association.
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.41
================================================================================
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
$8,000,000.00 REVOLVING CREDIT LOAN
$27,000,000.00 TERM LOAN
$5,000,000.00 LETTER OF CREDIT FACILITY
AMONG
AMERICAN ECOLOGY CORPORATION,
AS THE COMPANY
THE SUBSIDIARIES OF THE COMPANY
LISTED AS GUARANTORS HEREIN
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
Dated as of June 30, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS; ACCOUNTING TERMS; INTERPRETATION
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II ACCOUNTING TERMS; INTERPRETATION
Section 2.01. The Revolving Credit Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.02. Advances Under the Revolving Credit Loan . . . . . . . . . . . . . . . . . . . 13
Section 2.03. The Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.04. Minimum Amount of Each Loan . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.05. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.06. Payment of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.07. Required Payments of Principal . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.08. Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.09. Method and Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.10. Increased Taxes or Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE III LETTERS OF CREDIT
Section 3.01. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.02. Letter of Credit Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.03. Repayment of Letter of Credit Drawings . . . . . . . . . . . . . . . . . . . . 18
Section 3.04. Rights of Bank Regarding Letters of Credit . . . . . . . . . . . . . . . . . . 19
Section 3.05. Increased Letter of Credit Costs . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.06. Letter of Credit Collateral and Fees . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE IV FEE AND COMMITMENTS
Section 4.01. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.02. Voluntary Reduction of Commitment . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.03. Mandatory Reduction of Commitment . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE V CONDITIONS PRECEDENT
Section 5.01. Conditions Precedent to the Initial Credit Event . . . . . . . . . . . . . . . 21
Section 5.02. Conditions Precedent to All Credit Events . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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<TABLE>
<S> <C>
ARTICLE VI REPRESENTATIONS AND WARRANTIES
Section 6.01. Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.02. Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.03. Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 6.04. Conflicting or Adverse Agreements or Restrictions . . . . . . . . . . . . . . . 25
Section 6.05. Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.06. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.07. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.08. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.09. Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.10. Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.11. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.12. Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.13. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 6.14. Purpose of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.15. Franchises and Other Operating Rights . . . . . . . . . . . . . . . . . . . . . 27
Section 6.16. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VII AFFIRMATIVE COVENANTS
Section 7.01. Information Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.02. Books, Records and Inspections . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.03. Insurance and Maintenance of Properties . . . . . . . . . . . . . . . . . . . . 30
Section 7.04. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 7.05. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 7.06. Compliance with Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 7.07. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 7.08. Additional Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VIII NEGATIVE COVENANTS
Section 8.01. Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.02. Consolidation, Merger or Sale Assets . . . . . . . . . . . . . . . . . . . . . 32
Section 8.03. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 8.04. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.05. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.06. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.07. Change in Accounting; Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.08. Minimum EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.09. Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 8.10. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
Section 8.11. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 8.12. Change of Certain Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE IX GUARANTY
Section 9.01. Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 9.02. Continuing Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 9.03. Effect of Debtor Relief Laws . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 9.04. Complete Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 9.05. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 9.06. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 9.07. Full Force and Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE X EVENTS OF DEFAULT AND REMEDIES
Section 10.01. Events of Default and Remedies . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 10.02. Primary Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 10.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XI MISCELLANEOUS
Section 11.01. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 11.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 11.03. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 11.04. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 11.05. Indemnity and Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 11.06. Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 11.07. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.08. Maximum Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 11.09. Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . 46
Section 11.10. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 11.11. Successors and Assigns; Participations . . . . . . . . . . . . . . . . . . . . 47
Section 11.12. Types of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 11.13. Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 11.14. Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 11.15. Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 11.16. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 11.17. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 11.18. Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 11.19. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 11.20. Final Agreement of the Parties . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
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<PAGE> 5
List of Exhibits and Schedules:
<TABLE>
<S> <C> <C>
Exhibit 2.05A Form of Revolving Credit Note
Exhibit 2.05B Form of Term Note
Exhibit 2.05C Form of Fee Capitalization Note
Exhibit 7.01(c) American Ecology Corporation Borrowing Base Certificate
Exhibit 7.01(e) Certificate Regarding No Default (and Status of Subsidiaries)
Schedule 6.06 Pending Litigation
Schedule 6.13 Environmental Compliance
Schedule 8.03 Permitted Liens
Schedule 8.04 Indebtedness
Schedule 8.05 Permitted Investments
</TABLE>
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<PAGE> 6
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated
effective as of June 30, 1995 (this "Agreement") is among AMERICAN ECOLOGY
CORPORATION, a Delaware corporation (the "Company"), the subsidiaries of the
Company listed on the signature pages hereof under the caption "Guarantors"
(together with each other Person (as hereinafter defined) who becomes a
Guarantor pursuant to Section 7.08, collectively, the "Guarantors") and TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, a national banking association having its
principal place of business in Houston, Texas (the "Bank").
WHEREAS, the Company and the Bank, as agent and as a Bank,
entered into that one certain Amended and Restated Credit Agreement dated as of
December 1, 1994 (the "Original Agreement"), which Original Agreement was a
restatement of a prior agreement between the Company and the Bank, dated April
22, 1994 (the Original Agreement and the earlier agreement hereinafter
collectively referred to as the "Prior Agreements"); and
WHEREAS, the Company has requested the Bank to renew, extend
and modify the Original Agreement and make certain changes to the terms and
provisions thereof; and
WHEREAS, the Bank has agreed to do so upon certain terms and
conditions; and
WHEREAS, the parties wish to execute this document for the
purpose of evidencing this agreement and these terms and conditions.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the below signed parties do hereby agree to restate and replace the
Original Agreement with this Agreement as follows:
ARTICLE I
DEFINITIONS; ACCOUNTING TERMS; INTERPRETATION
SECTION 1.01. Definitions. As used in this Agreement, the
following terms shall have the following meanings:
"Additional Guaranties" has the meaning specified in
Section 7.08.
"Adjusted Net Worth" shall mean, with respect to a Guarantor,
as of any date of determination thereof, the excess of (a) the amount of the
present fair saleable value of the assets of
<PAGE> 7
such Guarantor as of the date of such determination, over (b) the amount of all
liabilities of such Guarantor, contingent or otherwise, as of the date of such
determination, as such terms are determined in accordance with applicable
federal and state laws governing determinations of the insolvency of debtors.
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling (including all directors and officers
of such Person), controlled by, or under direct or indirect common control with
such Person, and any other Person in which such Person's direct or indirect
equity interest is 10% or more of the total outstanding equity interests of
such Person.
"Agreement" has the meaning specified in the introduction to
this Agreement.
"Alternate Base Rate" means, for any date, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of
(a) the Prime Rate in effect on such day and (b) the Federal Funds Effective
Rate in effect on such day plus 1/2 of 1%. For purposes hereof, the term
"Prime Rate" shall mean, as of a particular date, the prime rate most recently
determined by the Bank and thereafter entered in the minutes of the Bank's Loan
and Discount Committee, automatically fluctuating upward and downward with and
at the time specified in each such announcement without notice to the Company
or any other Person, which prime rate may not necessarily represent the lowest
or best rate actually charged to a customer. "Federal Funds Effective Rate"
means, for any day, the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by the Bank from three federal funds brokers of recognized standing
selected by it. If for any reason the Bank shall have determined (which
determination shall be conclusive absent manifest error) that it is unable to
ascertain the Federal Funds Effective Rate for any reason, including the
inability or failure of the Bank to obtain sufficient quotations in accordance
with the terms hereof, the Alternate Base Rate shall be determined without
regard to clause (b) of the first sentence of this definition until the
circumstances giving rise to such inability no longer exist. Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective on the effective date of such change in the
Prime Rate or the Federal Funds Effective Rate, respectively.
"Application For Letter of Credit" has the meaning specified
in Section 3.02.
"Bank" has the meaning specified in the introduction to this
Agreement.
"Bankruptcy Code" has the meaning specified in Section
10.01(e).
"Board" means the Board of Governors of the Federal Reserve
System of the United States (or any successor).
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<PAGE> 8
"Borrowing Base" means an amount equal to eighty percent (80%)
of the Eligible Receivables.
"Borrowing Base Certificate" means, as of any date, a
certificate as to the Borrowing Base as of such date in the form of Exhibit
7.01(c).
"Business Day" means any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of Texas) on which the Bank is
open for business in Houston, Texas.
"Capital Lease" means, as to any Person, any lease in respect
of which the rental obligations of such Person constitute Capitalized Lease
Obligations.
"Capitalized Expenditures" has the meaning specified in
Section 8.10.
"Capitalized Lease Obligations" means, as to any Person, all
rental obligations of such Person which, in accordance with GAAP, are or will
be required to be capitalized on the books of such Person.
"Cash Management and Lock Box Agreement" has the meaning
specified in Section 2.09(b).
"Cell Development Expenditure" means all costs incurred in
connection with the preparation of new sites for the purpose of storing
hazardous wastes, including, without limitation, all costs for legal,
engineering and construction work, direct costs of Company personnel dedicated
to such purposes and other similar costs.
"Code" means Internal Revenue Code of 1986, and the
regulations promulgated thereunder.
"Collateral" means all the collateral pledged to the Bank (i)
pursuant to the Pledge Agreements and the Security Agreements and (ii) to
secure the issuance of any Letters of Credit.
"Commercial Letter of Credit" means a letter of credit issued
to finance the purchase or shipment of goods and payable upon presentation of
appropriate documents of title and receipt in regard to said goods.
"Company" has the meaning specified in the introduction to
this Agreement.
"Consolidated EBITDA" means, for any period, Consolidated Net
Income for such period, plus Consolidated Interest Expense actually deducted in
arriving at Consolidated Net Income, Deferred Site Maintenance Expense,
depreciation, depletion, amortization and provision for taxes, without giving
effect to any extraordinary gains or gains from sales of assets or write downs
in the value of assets owned by any of the Loan Parties.
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<PAGE> 9
"Consolidated Interest Expense" means, as to the Company and
its Subsidiaries and for any period, the total consolidated gross interest
expense, including all amortization of debt discount and imputed interest for
such period.
"Consolidated Net Income" means, for any period, the net
income (or loss) of the Company and its Subsidiaries for such period,
determined on a consolidated basis.
"Consolidated Net Worth" means the sum of the par value or
stated value of the capital stock (excluding treasury stock), capital in excess
of par or stated value of shares of capital stock, retained earnings (or minus
accumulated deficit) and any other account which, in accordance with GAAP,
constitutes stockholders' equity, of the Company and its Subsidiaries,
determined on a consolidated basis.
"Credit Event" means the making of any Loan or the issuance or
the extension of any Letter of Credit.
"Default" means the occurrence of any event which with the
giving of notice or the passage of time or both could become an Event of
Default.
"Deferred Site Maintenance Expense" means the amount of money
allocated on the Company's consolidated statement of income to the Deferred
Site Maintenance Reserve.
"Deferred Site Maintenance Reserve" means the amount shown on
the Company's consolidated balance sheet as a reserve to be utilized in
connection with closing, preparing to close and maintaining closed disposal
sites.
"Designated Payment Date" means the last day of each month
during the term hereof; provided, if in any such month a Designated Payment
Date shall be a day which is not a Business Day, such Designated Payment Date
shall be the next succeeding Business Day, and such extension of time shall be
included in determining the amount to be paid on such date.
"Drawing" has the meaning specified in Section 3.03(b).
"Effective Date" means the date on which all conditions to
borrowing set forth in Section 5.01 are first met or waived in accordance with
Section 11.01.
"Eligible Receivable" means all (i) billed Receivables of the
Company and (ii) all unbilled Receivables of the Company as to which the work
therefor has been completed, each of which meets all of the following criteria
on the date of any determination of Eligible Receivables:
(a) the Receivable arose in the ordinary course of
business from the sale of goods or the providing of services by the
Company;
-4-
<PAGE> 10
(b) the Receivable is owned by the Company free and clear
of any and all Liens and or rights of others, other than Permitted
Liens;
(c) the Receivable is not more than ninety (90) days past
due;
(d) not more than thirty (30) days have elapsed since (A)
the date the service was provided and (B) the date of the invoice for
such goods (this provision shall not apply to any unbilled
Receivables);
(e) the Receivable is not evidenced by a promissory note,
chattel paper or other instrument;
(f) the account debtor has made no claim that the
Receivable is subject to set-off, counterclaim, defense, allowance or
adjustment and there has been no dispute, objection or complaint by
the account debtor concerning its liability on the Receivable,
provided that if any such claim has been made in regard to a portion
of a receivable, the remainder may still be considered to be an
Eligible Receivable;
(g) no notice of bankruptcy, insolvency or financial
distress of the account debtor has been received by the Company;
(h) the Bank has a valid and perfected Lien in the
Receivable;
(I) the account debtor is domiciled in the United States
of America or any of its possessions and the Receivable is denominated
in dollars; and
(j) with respect to any Receivable, the Company shall not
have received notification from the Bank that, in the reasonable
discretion of the Bank, such Receivable is not acceptable to the Bank.
"Environmental Laws" means federal, state or local laws, rules
or regulations, and any judicial, arbitral or administrative interpretations
thereof, including any judicial, arbitral or administrative order, judgment,
permit, approval, decision or determination pertaining to conservation or
protection of the environment in effect at the time in question, including the
Clean Air Act, the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), the Federal Water Pollution Control Act, the
Occupational Safety and Health Act, the Resource Conservation and Recovery Act,
the Safe Drinking Water Act, the Toxic Substances Control Act, the Superfund
Amendment and Reauthorization Act of 1986, the Hazardous Materials
Transportation Act, and comparable state and local laws, and other
environmental conservation and protection laws.
-5-
<PAGE> 11
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations promulgated thereunder.
"ERISA Affiliate" means (a) any trade or business (whether or
not incorporated) which is either a member of the same "controlled group" or
under "common control," within the meaning of Section 414 of the Code and the
regulations thereunder, with a Loan Party and (b) any Subsidiary.
"Events of Default" has the meaning specified in Section 10.01.
"Execution Date" means November 14, 1995.
"Extension Fee" has the meaning specified in Section 4.01(a).
"FDIC" means the Federal Deposit Insurance Corporation (or
any successor).
"Federal Funds Effective Rate" has the meaning specified in
the definition of the term "Alternate Base Rate."
"Fee Capitalization Note" has the meaning specified in Section
2.05(c).
"Fees" means all amounts payable pursuant to Section 4.01.
"Financial Statement Delivery Date" means the date on which
the monthly, quarterly or annual financial statements of the Company are
delivered pursuant to Section 7.01(a) or Section 7.01(b), as the case may be.
"Financials" has the meaning specified in Section 6.07.
"GAAP" means generally accepted accounting principles as in
effect from time to time as set forth in the opinions, statements and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants, the Financial Accounting Standards Board and such
other Persons who shall be approved by a significant segment of the accounting
profession and concurred in by the independent certified public accountants
certifying any audited financial statements of the Company.
"Guaranteed Obligations" has the meaning specified in Section
9.01.
"Guarantors" has the meaning specified in the introduction to
this Agreement.
-6-
<PAGE> 12
"Guaranty" means the guaranty of the Guarantors contained in
Article IX and shall include any Additional Guaranty.
"Hazardous Materials" means (a) hazardous waste as defined in
the Resource Conservation and Recovery Act of 1976, or in any applicable
federal, state or local law or regulation, (b) hazardous substances, as defined
in CERCLA, or in any applicable state or local law or regulation, (c) gasoline,
or any other petroleum product or by-product, (d) toxic substances, as defined
in the Toxic Substances Control Act of 1976, or in any applicable federal,
state or local law or regulation or (e) insecticides, fungicides, or
rodenticides, as defined in the Federal Insecticide, Fungicide, and Rodenticide
Act of 1975, or in any applicable federal, state or local law or regulation, as
each such Act, statute or regulation may be amended from time to time.
"Highest Lawful Rate" means the maximum nonusurious rate of
interest that, under applicable law, may be contracted for, taken, reserved,
charged or received by the Bank on the Loans or under the Loan Documents at any
time or from time to time. If the maximum rate of interest which, under
applicable law, the Bank is permitted to charge the Company on the Loans shall
change after the date hereof, to the extent permitted by applicable law, the
Highest Lawful Rate shall be automatically increased or decreased, as the case
may be, as of the effective time of such change without notice to the Company
or any other Person.
"Indebtedness" means, when used with respect to any Person,
without duplication (a) all indebtedness of such Person for borrowed money
(whether by loan or the issuance and sale of debt securities) or for the
deferred purchase price of property or services (excluding, however, accounts
payable and other accrued liabilities arising in the ordinary course of such
Person's business that are a current liability under GAAP and payments or
benefits in the nature of compensation for services of employees, officers and
directors), (b) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person, (c) all Capitalized Lease Obligations of such Person, (d) all
guaranties or other contingent obligations of any kind of such Person in
respect of the Indebtedness of any other Person of the type referred to in
clause (a), (b) or (c) above and (e) all Indebtedness of the type referred to
in clause (a), (b) or (c) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise to be secured by)
any Lien upon or interest in property owned by such Person, even though such
Person has not assumed or become liable for the payment of such indebtedness,
to the extent any of the foregoing described in clauses (a) through (e) above
constitute a liability on such Person's balance sheet prepared in accordance
with GAAP.
"Investment" means, as applied to any Person, any direct or
indirect purchase or other acquisition by such Person of the assets, stock or
other securities of any other Person, or any direct or indirect loan, advance
or capital contribution by such Person to any other Person, and any other item
which would be classified as an "investment" on a balance sheet of such Person,
including any
-7-
<PAGE> 13
direct or indirect contribution by such Person of property or assets to a joint
venture, partnership or other business entity in which such Person retains an
interest.
"Letter of Credit Collateral" means cash, securities issued or
directly and fully guaranteed or issued by the United States, deposits in the
Bank or other securities, which other securities are, in the Bank's sole
discretion, satisfactory collateral.
"Letter of Credit Commitment" means the Bank's obligation to
issue Letters of Credit hereunder.
"Letter of Credit Fee" has the meaning specified in Section
4.01(c).
"Letter of Credit Termination Date" means the date that is (a)
one year subsequent to the Maturity Date or (b) the earlier acceleration of the
Obligations pursuant hereto.
"Letters of Credit" has the meaning provided in Section 3.01.
"Lien" means, when used with respect to any Person, any
mortgage, lien, charge, pledge, security interest or encumbrance of any kind
(whether voluntary or involuntary and whether imposed or created by operation
of law or otherwise) upon, or pledge of, any of its property or assets, whether
now owned or hereafter acquired, or any lease intended as security, any Capital
Lease in the nature of the foregoing, any conditional sale agreement or other
title retention agreement, in each case, for the purpose, or having the effect,
of protecting a creditor against loss of securing the payment or performance of
an obligation.
"Loans" has the meaning provided in Section 2.03
"Loan Date" means, with respect to each Loan, the Business Day
upon which the proceeds of such Loan are to be made available to the Company.
"Loan Documents" means this Agreement (including the
Guaranty), the Notes, the Letter of Credit Requests, the Application for Letter
of Credit, the Security Agreements, the Pledge Agreements, the Mortgage and all
other security documents granting liens in the Letter of Credit Collateral and,
to the extent the context requires, the Prior Agreements and related documents.
"Loan Party" means the Company or any Guarantor and "Loan
Parties" means the Company and the Guarantors.
"Margin" means, with respect to the Term Loan and the
Revolving Credit Loan, 1%; provided, the Margin on the Term Loan will increase
by .25% each calendar quarter during the term
-8-
<PAGE> 14
hereof, commencing on September 30, 1995, and provided further, the Margin on
the Term Loan will reduce to (a) 1% upon an aggregate principal repayment of
$10,000,000.00 on the Term Loan, and, thereafter, the Margin will again
increase by .25% each calendar quarter during the term hereof, (b) 0% upon an
aggregate principal repayment of $15,000,000.00 on the Term Loan, and,
thereafter, the Margin will again increase by .25% each calendar quarter during
the term hereof and (c) 0% upon an aggregate principal repayment of
$20,000,000.00 on the Term Loan, and, thereafter, the Margin shall remain at 0%
during the term hereof; unless a Default shall have occurred hereunder.
"Material Adverse Effect" means, relative to any occurrence of
whatever nature (including any adverse determination in any litigation,
arbitration or governmental investigation or proceeding), (a) a material
adverse effect on the financial condition, business or operations of the
Company and its Subsidiaries taken as a whole or (b) an event which materially
impairs the ability of the Company to make payment hereunder or under the Notes
or the right of the Bank to enforce any of its remedies to collect any amounts
owing under the Loan Documents.
"Maturity Date" means December 31, 1998 or the earlier date of
the acceleration of the Notes pursuant to Section 10.01.
"Maximum Guaranteed Amount" for each Guarantor shall mean the
greater of (a) ninety-five percent (95%) of the Adjusted Net Worth of such
Guarantor as of the date hereof and (b) ninety-five percent (95%) of the
Adjusted Net Worth of such Guarantor at the earlier of (i) the date of the
commencement of a case under Title 11 of the United States Code in which such
Guarantor is a debtor and (ii) the date enforcement of the Guaranty is sought.
"Mortgage" means that certain Mortgage or Deed of Trust of
even date herewith, executed by the Company and granting a lien by the Company
for the benefit of the Bank on certain real property in Phoenix, Maricopa
County, Arizona, as security for the Obligations.
"Multiemployer Plan" means any plan which is a "multiemployer
plan" (as such term is defined in Section 4001(a)(3) of ERISA).
"Notes" means the Revolving Credit Note and the Term Note.
"Notice of Default" has the meaning specified in Section
10.01.
"Obligations" means all the obligations of the Company and the
other Loan Parties now or hereafter existing under the Loan Documents or any of
the Prior Agreements or any documents executed in connection therewith, whether
for principal, Unpaid Drawings, interest, Fees, expenses, indemnification or
otherwise.
-9-
<PAGE> 15
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to all or any of its functions under ERISA.
"Permitted Investments" means, as to any Person,
(a) securities issued or directly and fully guaranteed or
insured by the United States or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is
pledged in support thereof) having maturities of not more than twelve
months from the date of acquisition thereof,
(b) time deposits and certificates of deposit with
maturities of not more than twelve months from the date of acquisition
by such Person in the Bank or other commercial bank incorporated in
the United States or any U.S. branch of any other commercial bank, in
each case having capital, surplus and undivided profits aggregating
$100,000,000 or more with a long-term unsecured debt rating of at
least A- from Standard & Poor's Ratings Group or A3 from Moody's
Investors Service, Inc.,
(c) commercial paper issued by any Person incorporated in
the United States rated at least A-1 or the equivalent thereof by
Standard & Poor's Ratings Group or at least P-1 or the equivalent
thereof by Moody's Investors Services, Inc. and, in each case,
maturing not more than 270 days after the date of issuance,
(d) investments in money market mutual funds having
assets in excess of $2,000,000,000 substantially all of whose assets
are comprised of securities of the types described in clauses (a)
through (c) above,
(e) repurchase or reverse purchase agreements respecting
obligations with a term of not more than seven days for underlying
securities of the types described in clause (a) above entered into
with any bank listed in or meeting the qualifications specified in
clause (b) above, and
(f) banker's acceptances maturing within one year from
the date of origin issued by a bank or trust company organized under
the law of the United States having capital, surplus and undivided
profits aggregating at least $100,000,000 and a long-term deposit
rating of A- or higher by Standard & Poor's Ratings Group.
"Person" means an individual, partnership, corporation
(including a business trust), limited liability company, joint stock company,
trust, unincorporated association, joint venture or other entity, or a foreign
or domestic state or political subdivision thereof or any agency of such state
or subdivision.
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<PAGE> 16
"Plan" means any employee pension benefit plan (as defined in
Section 3(2) of ERISA), subject to Title IV of ERISA or Section 412 of the
Code, other than a Multiemployer Plan, with respect to which a Loan Party or an
ERISA Affiliate contributes or has an obligation or liability to contribute,
including any such plan that may have been terminated.
"Pledge Agreements" mean those three (3) certain Amended and
Restated Pledge Agreements of even date herewith executed by the Company,
American Ecology Services Corporation and US Ecology, Inc., respectively,
pledging to the Bank the stock of each of the above-referenced entities'
Subsidiaries, except for the stock of American Liability and Excess Insurance
Company, and all stock of Permafix Corporation owned by the Company, as
security for the Obligations.
"Prior Agreements" has the meaning set forth in the Recitals.
"Regulation U" means Regulation U of the Board (respecting
margin credit extended by banks), as the same is from time to time in effect,
and all official rulings and interpretations thereunder or thereof.
"Regulation X" means Regulation X of the Board (respecting
borrowers who obtain margin credit), as the same is from time to time in
effect, and all official rulings and interpretations thereunder or thereof.
"Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the environment (including the abandonment or discarding of
barrels, containers and other closed receptacles).
"Reportable Event" means an event described in Section 4043(b)
of ERISA with respect to a Plan as to which the 30-day notice requirement has
not been waived by the PBGC.
"Requirements of Environmental Laws" means, as to any Person,
the requirements of any applicable Environmental Law relating to or affecting
such Person or the condition or operation of such Person's business or its
properties, both real and personal.
"Responsible Officer" means, with respect to any Loan Party,
the president, chief executive officer, treasurer or chief financial officer of
such Loan Party.
"Restricted Payment" means (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of
stock of the Company now or hereafter outstanding, except a dividend payable
solely in shares of stock or warrants, rights or options to acquire shares of
stock of the Company and (b) any redemption, retirement, purchase or other
acquisition, direct or indirect,
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<PAGE> 17
of any shares of any class of stock of the Company, now or hereafter
outstanding, or of any warrants, rights or options to acquire any such shares,
except to the extent that the consideration therefor consists of shares of
stock (including warrants, rights or options relating thereto) of the Company.
"Revolving Credit Commitment" means the Bank's obligation to
make Revolving Credit Loans hereunder.
"Revolving Credit Loan" has the meaning specified in Section
2.01.
"Revolving Credit Note" has the meaning specified in Section
2.05(a).
"Security Agreements" mean those two (2) certain Security
Agreements dated as of the date hereof, executed by the Company and the
Guarantors, respectively, in favor of the Bank, pledging to the Bank a security
interest in all of the personal property and assets of each of the Loan Parties
as described therein and all proceeds thereof as security for the Obligations.
"Standby Letter of Credit" means a letter of credit that is
issued to secure the payment or performance of an obligation and payable upon
notice of a failure or default in regard thereto and that is not a Commercial
Letter of Credit.
"Subsidiary" means and includes, with respect to any Person,
(a) any corporation more than 50% of whose stock of any class or classes having
by the terms thereof ordinary voting power to elect a majority of the directors
of such corporation (irrespective of whether or not at the time stock of any
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time owned by such
Person, directly or indirectly and (b) any partnership, association, joint
venture or other entity in which such Person, directly or indirectly, has
greater than 50% of (i) the directors (or Persons performing similar functions)
thereof or (ii) equity interest.
"Term Loan" has the meaning specified in Section 2.03.
"Term Note" has the meaning specified in Section 2.05(b).
"Unfunded Current Liability" means, with respect to any Plan,
the amount, if any, by which the present value of the accrued benefits under
the Plan as of the close of its most recent Plan year exceeds the fair market
value of the assets allocable thereto, determined in accordance with Section
412 of the Code.
"Unpaid Drawing" has the meaning specified in Section 3.03(a).
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ARTICLE II
MAKING AND REPAYING THE LOANS
SECTION 2.01. The Revolving Credit Loan. Subject to the
terms and conditions herein set forth, the Bank agrees at any time and from
time to time on and after the Effective Date and prior to the Maturity Date, to
make and maintain a loan or loans up to a maximum of $8,000,000.00 (each a
"Revolving Credit Loan" and collectively, the "Revolving Credit Loans") to the
Company. Revolving Credit Loans may be repaid and reborrowed in accordance
with the provisions hereof and shall, in the aggregate, not exceed the lesser
of (i) $8,000,000.00 or (ii) the Borrowing Base. There shall be no further
advances of any Revolving Credit Loans after the Maturity Date.
SECTION 2.02. Advances Under the Revolving Credit Loan.
The Bank shall, from time to time, make Revolving Credit Loans to the Company
in the form of advances to the Company or third parties for the sole purpose of
paying any drafts, checks, wire transfer requests or clearinghouse debits which
name the Company as maker or drawer thereon and are presented to the Bank by
the Company or such third parties. The Bank shall not make any other Revolving
Credit Loans except pursuant to Section 2.09(a).
SECTION 2.03. The Term Loan. Subject to the terms and
conditions herein set forth, the Bank agrees to lend to the Company a term loan
of up to $27,000,000.00 (the "Term Loan" and, together with the Revolving
Credit Loan, any advances under a Letter of Credit described in Article III
hereof and any amounts owing under the Fee Capitalization Note, the "Loans").
The Term Loan evidences amounts owed to the Bank under the Prior Agreements.
SECTION 2.04. [Intentionally Omitted]
SECTION 2.05. Notes. (a) The Company's obligation to pay
the Revolving Credit Loans made by the Bank shall be evidenced by a single
revolving promissory note in the original principal sum of $8,000,000.00 (the
"Revolving Credit Note") duly executed and delivered by the Company
substantially in the form of Exhibit 2.05A hereto.
(b) The Company's obligation to repay the Term Loan shall
be evidenced by a single term promissory note in the original principal sum of
$27,000,000.00 (the "Term Note"), duly executed and delivered by the Company
substantially in the form of Exhibit 2.05B hereto.
(c) The Company's obligation to pay the Fee described in
Section 4.01(a) and (b) shall be evidenced by the Fee Capitalization Note (the
"Fee Capitalization Note"), duly executed and delivered by the Company
substantially in the form of Exhibit 2.05C hereto.
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SECTION 2.06. Payment of Interest. (a) Prior to a Default
hereunder, the Company agrees that interest shall accrue in respect of the
unpaid principal amount of the Revolving Credit Loan and the Term Loan from the
date of the making of each such Loan to maturity (whether by acceleration or
otherwise) at a rate per annum which shall at all times be equal to the lesser
of (i) the Highest Lawful Rate and (ii) the applicable Margin plus the
Alternate Base Rate in effect from time to time; provided, the Company agrees
that it shall only be required to pay interest at a rate per annum equal to the
lesser of (x) the Highest Lawful Rate and (y) the Alternate Base Rate; and
provided further, the Company agrees that any accrued interest which is not
required to be paid hereunder shall be capitalized and added to the principal
balance of the Fee Capitalization Note. If the Alternate Base Rate is based on
the Prime Rate, interest shall be computed on the basis of the actual number of
days elapsed over a year of 365 or 366 days, as the case may be. If the
Alternate Base Rate is based on the Federal Funds Effective Rate, interest
shall be computed on the basis of the actual number of days elapsed over a year
of 360 days. Prior to a Default hereunder, the Company agrees that interest
shall accrue in respect of the unpaid principal amount outstanding under the
Fee Capitalization Note as provided therein. Upon the occurrence of a Default
hereunder, all outstanding principal under any Loan shall accrue at the Highest
Lawful Rate.
(b) Overdue principal and, to the extent permitted by
law, overdue interest in respect of each Loan and all other overdue amounts
owing hereunder shall bear interest for each day that such amounts are overdue
at a rate per annum equal to the Highest Lawful Rate.
(c) Interest on each Loan shall accrue from the date of
such Loan to the date of any repayment thereof and shall be payable in
accordance with the above provisions (i) on each Designated Payment Date and
(ii) on the date of any voluntary or mandatory prepayment and (iii) at
maturity.
SECTION 2.07. Required Payments of Principal. (a) All
outstanding principal (and any accrued, unpaid interest) on the Revolving
Credit Note shall be due and payable on the Maturity Date.
(b) Outstanding principal on the Term Note shall be due
and payable as follows:
(i) a principal payment of $1,000,000.00 shall be
due and payable (A) on the date one hundred eighty (180) days
after the start of operations at that particular facility
operated in the State of California and commonly referred to
as "Ward Valley" and (B) every quarterly date following such
initial payment; provided, however, if any such payment date
shall be a day which is not a Business Day, such payment date
shall be the next succeeding Business Day; and
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(ii) all remaining outstanding principal and any
accrued, unpaid interest shall be due on the Maturity Date.
(c) In addition to the amounts required under (b) above,
the following principal payments shall be due on the Term Note:
(i) (A) one hundred percent (100%) of the net
proceeds of the sale of any of the Collateral (other than (y)
inventory sold in the ordinary course of business and (z)
Permafix Stock, which is provided for in the Pledge
Agreements), (B) one hundred percent (100%) of the net
proceeds of the sale of any assets of any Loan Parties that
are not Collateral (to the extent such sales exceed
$500,000.00 in the aggregate) and (C) fifty percent (50%) of
the net proceeds of the sale of any assets of any Loan Parties
that are not Collateral (to the extent such sales do not
exceed $500,000.00 in the aggregate), shall be due and payable
on the Term Note immediately upon receipt, which amounts shall
not reduce the required payments described above;
(ii) any funds received as insurance proceeds in
connection with damage to American Ecology Recycle Center,
Inc., a subsidiary of the Company, which are in excess of the
cost to rebuild and refurbish the damaged facility which
amounts will not reduce the required payments described above;
(iii) any funds received as business interruption
insurance proceeds up to an amount equal to one hundred
percent (100%) of the proceeds received in connection with the
liquidation of WPI Transportation, Inc., a subsidiary of the
Company, which amounts will not reduce the required payments
described above;
(iv) one hundred percent (100%) of the net
proceeds of any industrial development bond financing for
American Ecology Recycle Center, Inc., a subsidiary of the
Company (and only if the gross proceeds from such industrial
revenue bond financing are equal to or greater than
$10,000,000.00 and one hundred percent (100%) of the net
proceeds therefrom are applied to the Term Loan as required
hereby, the Agent shall release, on behalf of the Banks, all
of the pledged assets of American Ecology Recycle Center,
Inc., a subsidiary of the Company);
(v) any funds received from any entity as
reimbursement for permit costs incurred in the State of
Nebraska; and
(vi) within 10 days after the Bank receives the
financial statements required to be delivered by the Company
pursuant to Section 7.01(b) beginning
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effective December 31, 1996, the Company will pay to the Bank,
as a reduction on the Term Loan, an amount equal to 75% of a
sum obtained by subtracting from Consolidated EBITDA (A) the
amounts paid hereunder from the liquidation of WPI
Transportation, Inc., a subsidiary of the Company, (B) the
amount of all interest payments required hereunder
(including capitalized interest added to the Fee Capitalization
Note), (C) the amount of taxes actually paid or payable, (D)
the amount of all cash dividends paid or payable at the rate of
up to 8 3/8% per annum on all preferred stock, (E) the amount
of all principal payments required hereunder, (F) the amount of
all Capitalized Expenditures for the prior year (including,
without limitation, all such expenditures at the sites of the
Company or any Subsidiary located in the States of California
or Nebraska), (G) the amount of all charges to the Deferred
Site Maintenance Reserve for the prior year, (H) the amount of
all costs relating to the burial or other disposal of
radioactive material at the Oak Ridge, Tennessee facility owned
by a Subsidiary of the Company and (I) any increase (from the
Effective Date) in the amount of marketable securities pledged
by the Company as security for its obligations, and adding
thereto (Y) the proceeds obtained from any equity or debt
offerings (exclusive of the sale of the Company's preferred
stock) and (Z) the net proceeds of the sale of any assets of
the Loan Parties which are not required to be paid under clause
(i) above.
(d) In addition to all other payments required by this
Section 2.07, the Company shall repay the outstanding principal amount of the
Revolving Credit Note on any day to the extent that the aggregate outstanding
principal amount of the Revolving Credit Loan exceeds the lesser of the (i)
Borrowing Base or (ii) $8,000,000.00.
(e) Each repayment pursuant to this Section which is not
specifically characterized as a repayment of principal shall be applied first,
to the payment of accrued and unpaid interest, and then to the outstanding
principal of the Loans.
SECTION 2.08. Voluntary Prepayments. The Company shall
have the right to voluntarily prepay the Loans (other than the Fee
Capitalization Note which may not be prepaid without the consent of the Bank)
in whole or in part from time to time.
SECTION 2.09. Method and Place of Payment. (a) The Company
shall enter into a Cash Management and Lock Box Agreement (the "Cash Management
and Lock Box Agreement") with the Bank whereby all of the Company's accounts
receivable will be deposited by the Company's third party account debtors into
account number 00100354902 maintained at the Bank. The Bank shall have the
right, but not the obligation, and the Company hereby grants the Bank the
right, to deduct and set-off any amounts owing to the Bank under this Agreement
from the collections made pursuant to the above-referenced Cash Management and
Lock Box Agreement. All collected funds
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in account number 00100354902 will be swept daily by the Bank and applied
first, against any accrued interest which is due and payable, second, against
any principal amounts which are due and payable under the Term Loan, the
Revolving Credit Loan or any Letter of Credit and third, against the
outstanding principal balance of the Revolving Credit Loan. If at any time any
payments are owing by the Company to the Bank and funds in the above referenced
account are insufficient to satisfy the same, the Company shall make such
payment to the Bank immediately upon demand therefor by the Bank. Any
chargebacks or other debits subsequently affecting said funds or account shall
adjust the subsequent balance of the account, or if same is insufficient, will
allow the Bank to make an advance, at its sole option, to allow payment of such
items.
(b) The Company irrevocably authorizes the Bank to make,
and irrevocably appoints the Bank as its attorney-in-fact (which power shall be
coupled with an interest), to make transfers of funds to and from the Cash
Management and Lockbox Account, any other (except special trust, pension and
tax accounts) account of the Company, or any of them, necessary to accomplish
the purposes of the Loan Documents.
SECTION 2.10. Increased Taxes or Costs. (a) If the Bank
shall have determined in good faith that any law, rule, regulation or guideline
regarding required reserves or reserve percentages, capital adequacy, or any
change therein, or any change in the interpretation or administration thereof
or compliance by the Bank with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency has or would have the effect of reducing the
rate of return on the capital of the Bank as a consequence of its obligations
hereunder to a level below that which it could have achieved but for such
adoption, change or compliance by an amount deemed to be material, then, from
time to time, the Company shall pay to the Bank such additional amount or
amounts as will reasonably compensate the Bank for such reduction.
(b) The Bank will notify the Company of any event which
will entitle it to compensation pursuant to this Section, promptly provided,
the Company shall not be obligated hereunder for any such amounts in respect of
changes occurring more than ninety (90) days prior to the date of such notice.
A certificate of a Bank setting forth in reasonable detail (i) such amount or
amounts as shall be necessary to compensate the Bank as specified in paragraph
(a) above, as the case may be, and (ii) the calculation of such amount or
amounts, shall be delivered to the Company and shall be conclusive absent
manifest error. The Company shall pay to the Bank the amount shown as due on
any such certificate as will reasonably compensate the Bank for such matters
within thirty (30) days after its receipt of the same.
(c) Failure on the part of the Bank to demand
compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital shall not constitute a waiver of
the Bank's rights to demand compensation for any increased costs or reduction
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in amounts received or receivable or reduction in return on capital, provided,
the Bank shall be entitled to collect such costs or expenses only in regard to
change in circumstances occurring after the Effective Date.
ARTICLE III
LETTERS OF CREDIT
SECTION 3.01. Letters of Credit. (a) Subject to and upon
the terms and conditions herein set forth, the Bank agrees that it will, at any
time and from time to time on or after the Effective Date and prior to the
Maturity Date, following its receipt of a Letter of Credit Request, and
satisfaction of the conditions described in Section 3.02 below, issue for the
account of the Company and in support of the obligations of the Company, one or
more irrevocable standby, but not commercial, letters of credit (all such
letters of credit together with any existing letters of credit previously
issued by the Bank, collectively, the "Letters of Credit"), up to a maximum
total outstanding and/or drawn upon at any one time of $5,000,000.00. All
Letters of Credit shall be Standby Letters of Credit and have a maturity date
not later than the Letter of Credit Termination Date.
(b) The Bank shall not issue, renew or permit the renewal
of any Letter of Credit if (i) any of the conditions precedent to such issuance
or renewal set forth in Section 5.02 are not satisfied, (ii) the expiry date is
a date that is later than one (1) year after the date of issuance or renewal,
as the case may be, (iii) the expiry date is a date that is later than the
Maturity Date, unless such Letter of Credit is secured by Letter of Credit
Collateral, (iv) after giving effect to such renewal, the expiry date of such
Letter of Credit would be a date that is later than the Letter of Credit
Termination Date or (v) if the Letter of Credit Collateral for such Letter of
Credit is not received by and pledged to the Bank in a manner satisfactory to
the Bank in its sole discretion.
SECTION 3.02. Letter of Credit Requests. Whenever the
Company desires that a Letter of Credit be issued for its account or that the
existing expiry date of a Letter of Credit shall be extended, it shall give the
Bank at least two Business Days' prior written request therefor. Each such
request shall be in the form of an Application for Letter of Credit on the
Bank's standard form therefor, completed to the satisfaction of the Bank,
shall be accompanied by the Letter of Credit Collateral, pledged to the Bank in
a manner satisfactory to the Bank in its sole discretion, and such other
certificates, documents and other papers and information as the Bank may
reasonably request. Each Letter of Credit shall be in such form as may be
reasonably approved from time to time by the Bank and the Company.
SECTION 3.03. Repayment of Letter of Credit Drawings. (a)
The Company hereby agrees to reimburse the Bank by making payment to the Bank
in immediately available funds, for
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any payment made by the Bank under any Letter of Credit issued by it (each such
amount so paid until reimbursed, an "Unpaid Drawing") immediately after, and in
any event on the date of, such payment prior to 2:00 p.m. (Houston, Texas time)
on the date of such payment, from and including the date paid to but excluding
the date reimbursement is made as provided above, at a rate per annum equal to
the Highest Lawful Rate, such interest to be payable on demand. Failure to
make such payment shall (i) constitute a Default hereunder and (ii) allow the
Bank, in its sole discretion, to make a Revolving Credit Loan under the
Revolving Credit Note to effect such repayment.
(b) The Company's obligations under this Section 3.03 to
reimburse the Bank with respect to Unpaid Drawings (including, in each case,
interest thereon) shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to
payment which the Company may have or have had against the Bank, including any
defense based upon the failure of any drawing under a Letter of Credit (each a
"Drawing") to conform to the terms of the Letter of Credit or any
non-application or misapplication by the beneficiary of the proceeds of such
Drawing. The issuance of a Letter of Credit shall reduce the amount available
for future Letters of Credit by the face amount of the Letter of Credit issued.
Additionally, all Letters of Credit outstanding under either of the Prior
Agreements shall be considered Letters of Credit hereunder and shall reduce the
amount of Letters of Credit available to be issued by the face amount thereof.
SECTION 304. Rights of Bank Regarding Letters of Credit.
The Bank shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit, except for errors or
omissions caused by the Bank's willful misconduct. IT IS THE EXPRESS INTENTION
OF THE PARTIES HERETO THAT THE BANK, ITS OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS SHALL BE INDEMNIFIED AND HELD HARMLESS FROM ANY ACTION TAKEN OR OMITTED
BY SUCH PERSON UNDER OR IN CONNECTION WITH ANY LETTER OF CREDIT OR ANY RELATED
DRAFT OR DOCUMENT ARISING OUT OF OR RESULTING FROM SUCH PERSON'S SOLE OR
CONTRIBUTORY NEGLIGENCE. The Company agrees that any action taken or omitted
by the Bank under or in connection with any Letter of Credit or the related
drafts or documents, if done in accordance with the standards of care specified
in the Uniform Customs and Practice for Documentary Credits (1993 Revision),
International Chamber of Commerce, Publication No. 500 (and any subsequent
revisions thereof approved by a Congress of the International Chamber of
Commerce and adhered to by the Bank) and, to the extent not inconsistent
therewith, the Uniform Commercial Code of the State of Texas, shall not result
in any liability of the Bank to the Company or any other Loan Party.
SECTION 3.05. Increased Letter of Credit Costs.
Notwithstanding any other provision herein, but subject to Section 11.08, if
the Bank shall determine in good faith that any change in any law, rule,
regulation or guideline (whether or not having the force of law) either (i)
shall impose, modify or make applicable any reserve, deposit, capital adequacy
or similar requirement against letters of credit issued, or participated in, by
the Bank or (ii) shall impose on the
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Bank any other conditions affecting this Agreement or any Letter of Credit; and
the result of any of the foregoing is to increase the cost to the Bank of
issuing, maintaining or participating in any Letter of Credit, or reduce the
amount received or receivable by the Bank hereunder with respect to Letters of
Credit, by an amount deemed to be material, then, from time to time, the
Company shall pay to the Bank such additional amount or amounts as will
reasonably compensate such Bank for such increased cost, provided, the Bank
shall notify the Company of such change promptly and the Company shall not be
obligated hereunder for any such amounts in respect of changes occurring more
than ninety (90) days prior to the date of any such notice.
SECTION 3.06. Letter of Credit Collateral and Fees. The Fees
and collateral granted or paid by the Company in respect of Letters of Credit
are described in Section 4.01(c). Notwithstanding the terms of Section
4.01(c), any Letter of Credit Collateral pledged by the Company which is not
used to repay the Bank for any draws under any Letter of Credit shall, if an
Event of Default under Section 10.01(f) occurs, be available to secure and
satisfy any of the Obligations.
ARTICLE IV
FEE AND COMMITMENTS
SECTION 4.01. Fees. (a) The Company, in consideration of
the Bank's agreement to extend and modify the Loans, agrees to pay the Bank an
extension fee (the "Extension Fee") equal to $840,000.00, said fee to be paid
on or before the Effective Date, provided, such fee may be evidenced by the Fee
Capitalization Note, at the option of the Bank.
(b) The Company agrees to pay to the Bank the fee
previously owing to the Bank as of March 31, 1995, payment of which has been
deferred, of $160,000.00, provided, such fee may be evidenced by the Fee
Capitalization Note, at the option of the Bank.
(c) Upon the date of issuance of any Letter of Credit and
on each annual anniversary thereof, the Company agrees to pay the Bank a fee in
respect of each Letter of Credit issued for the account of the Company (the
"Letter of Credit Fee"), for the period from the date of issuance of such
Letter of Credit to the expiry date of such Letter of Credit, computed at the
rate of (i) one-half of one percent (0.5%) per annum of the face amount of any
Letter of Credit secured by Letter of Credit Collateral and (ii) at the rate of
one percent (1%) per annum of the face amount of any Letter of Credit secured
by collateral other than Letter of Credit Collateral. The Letter of Credit
Fees (i) will be in lieu of all commissions and fees for the Letters of Credit
other than customary administrative, issuance, amendment, payment and
negotiation charges, (ii) shall be paid in immediately available funds, (iii)
shall be calculated on the basis of the actual number of days
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elapsed over a year of 365 or 366 days, as the case may be, and (iv) shall be
deemed earned when paid and are non- refundable.
(d) In no event shall the Fees payable under this Section
(to the extent, if any, constituting interest under applicable laws) together
with all amounts constituting interest under applicable laws and payable in
connection with this Agreement, the Notes and the other Loan Documents exceed
the Highest Lawful Rate.
SECTION 4.02. Voluntary Reduction of Commitment. Upon at
least five (5) Business Days' prior telephonic notice confirmed in writing to
the Bank, the Company shall have the right, without premium or penalty, to
terminate any portion of the Revolving Credit Commitment or the Letter of
Credit Commitment. Any reduction of either of said commitments shall be in the
amount of $500,000.00 or, if greater, an integral multiple of $100,000.00.
SECTION 4.03. Mandatory Reduction of Commitment. Unless
sooner terminated pursuant to Article X hereof, the Revolving Credit Commitment
and the Letter of Credit Commitment shall terminate on the Maturity Date.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01. Conditions Precedent to the Initial Credit
Event. The obligation of the Bank to make its initial Loan or issue a Letter of
Credit to the Company is subject to receipt by the Bank of the following, each
in form satisfactory to the Bank, executed by the appropriate party:
(a) this Agreement;
(b) the Revolving Credit Note;
(c) the Term Note;
(d) the Fee Capitalization Note;
(e) the most recent management letter delivered to the
Company by the Company's independent certified public accountants
dealing with management or operational issues of the Company or its
Subsidiaries;
(f) the Security Agreements;
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(g) the Pledge Agreements;
(h) the Financing Statements;
(i) the Mortgage;
(j) the Guaranties;
(k) if the Credit Event is the issuance of a Letter of
Credit, and the Company exercises its option to pledge Letter of
Credit Collateral as described in Section 4.01(c), the Bank shall have
received the Letter of Credit Collateral pledged to it in a manner
satisfactory to the Bank in its sole discretion;
(l) a certificate of an officer and of the secretary or
an assistant secretary of each Loan Party certifying, inter alia, (A)
true and correct copies of the articles or certificate of
incorporation, as amended and in effect, of such Person and, the
bylaws, as amended and in effect, of each Loan Party, as well as
resolutions adopted by the Board of Directors of such Person (1)
authorizing the execution, delivery and performance by such Person of
this Agreement and the other Loan Documents to which it is or will be
a party and, in the case of the Company, the Loans to be made
hereunder, (2) approving the forms of the Loan Documents to which it
is a party and which will be delivered at or prior to the initial
Borrowing Date and (3) authorizing officers of such Person to execute
and deliver the Loan Documents to which it is or will be a party and
any related documents, and (B) the incumbency and specimen signatures
of the officers of such Person executing any documents on its behalf;
(m) favorable, signed opinions dated the Effective Date
and addressed to the Bank from David Crow, counsel to the Loan
Parties, in form and substance satisfactory to the Bank and its
counsel;
(n) the payment to the Bank, as applicable, of all Fees
and all expenses incurred (including the fees and disbursements of
Andrews & Kurth L.L.P.) and agreed upon by such parties to be paid on
or prior to the date this Agreement is actually executed;
(o) certificates of appropriate public officials as to
the existence, good standing and qualification to do business as a
foreign corporation, as applicable, of each Loan Party in each
jurisdiction in which the ownership of its properties or the conduct
of its business requires such qualifications and where the failure to
so qualify would have a Material Adverse Effect;
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(p) a certificate from the Company's insurance broker
describing in detail all insurance by the Company and its Subsidiaries
on its property and its business as of the Effective Date in form and
amounts satisfactory to the Bank and naming the Bank as an additional
insured of liability insurance maintained by the Company and its
Subsidiaries;
(q) a certificate of an officer of the Company listing
all jurisdictions in which the Company owns and/or maintains
Collateral, including, without limitation, all licenses and permits;
and
(r) evidence satisfactory to the Bank that the Company
has received an equity infusion on terms satisfactory to the Bank, of
at least $4,000,000.00 and that all documentation related thereto has
been satisfactorily completed.
SECTION 5.02. Conditions Precedent to All Credit Events.
The obligation of the Bank to make any Loan or to issue or extend any Letter of
Credit is subject to the further conditions precedent that on the date of such
Credit Event:
(a) The conditions precedent set forth in Section 5.01
shall have theretofore been satisfied or waived.
(b) The representations and warranties set forth in
Article VI shall be true and correct in all material respects as of, and as if
such representations and warranties were made on, the date of the proposed Loan
or Letter of Credit, as the case may be (unless such representation and
warranty expressly relates to an earlier date or are no longer true and correct
solely as a result of transactions permitted by the Loan Documents), and the
Company shall be deemed to have certified to the Bank that such representations
and warranties are true and correct in all material respects by submitting a
Notice of Loan Request or a Letter of Credit Request, as the case may be.
(c) The Company shall have appropriately requested the
Loan or issuance of Letters of Credit.
(d) No Default or Event of Default shall have occurred
and be continuing or would result from such Credit Event.
(e) No Material Adverse Effect shall have occurred since
the delivery of the Financials.
(f) If the Credit Event is the issuance of a Letter of
Credit, and the Company exercises its option to pledge Letter of Credit
Collateral as described in Section 4.01(c), the Bank
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shall have received the Letter of Credit Collateral pledged to it in a manner
satisfactory to the Bank in its sole discretion.
(g) The Bank shall have received such other approvals,
opinions or documents as the Bank may reasonably request.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement and
to make the Loans provided for herein and issue Letters of Credit, each Loan
Party makes to the extent applicable and relevant, the following
representations and warranties to the Bank.
SECTION 6.01. Organization and Qualification. Each Loan
Party (a) is a corporation or partnership duly organized, validly existing and
in good standing under the laws of the state of its incorporation or
organization, (b) has the corporate or partnership power to own its property
and to carry on its business as now conducted and (c) is duly qualified as a
foreign corporation or foreign partnership to do business and is in good
standing in every jurisdiction in which the failure to be so qualified would
have a Material Adverse Effect.
SECTION 6.02. Authorization and Validity. Each Loan Party
has the corporate power and authority to execute, deliver and perform its
obligations hereunder and under the other Loan Documents, and all such action
has been duly authorized by all necessary proceedings on its part. This
Agreement has been duly and validly executed and delivered by each Loan Party
and constitutes a valid and legally binding agreement of such Loan Party
enforceable in accordance with its terms, and the Notes and the other Loan
Documents to which such Loan Party is a party, when duly executed and delivered
by such Loan Party, will constitute valid and legally binding obligations of
such Loan Party enforceable in accordance with the respective terms thereof and
of this Agreement, except, in each case, as such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other similar laws relating to or affecting the enforcement of creditors'
rights generally, and by general principles of equity.
SECTION 6.03. Governmental Consents. No authorization,
consent, approval, license or exemption of or filing or registration with, any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is necessary for the valid execution,
delivery or performance by any Loan Party of any Loan Document.
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SECTION 6.04. Conflicting or Adverse Agreements or
Restrictions. No Loan Party is a party to any contract or agreement or subject
to any restriction which would reasonably be expected to have a Material
Adverse Effect. Neither the execution nor delivery of the Loan Documents nor
compliance with the terms and provisions hereof or thereof will be contrary to
the provisions of, or constitute a default under (a) the charter or bylaws of
such Loan Party or (b) any applicable law (including Regulation U) or any
applicable regulation, order, writ, injunction or decree of any court or
governmental instrumentality or (c) any material agreement to which such Loan
Party is a party or by which it is bound or to which it is subject.
SECTION 6.05. Title to Assets. Each Loan Party has good
and indefeasible title to all of its assets, subject to no Liens, except those
permitted hereunder. All of such assets have been and are being maintained by
the appropriate Person in good working condition in accordance with industry
standards.
SECTION 6.06. Litigation. Except as disclosed on Schedule
6.06, no proceedings against or affecting any Loan Party are pending or, to the
knowledge of any Loan Party, threatened before any court or governmental agency
or department which involve a risk of having a Material Adverse Effect.
SECTION 6.07. Financial Statements. The Company has
furnished to the Bank its audited consolidated balance sheet, income statement
and statement of cash flow for itself and its consolidated Subsidiaries as of
December 31, 1994 and as of June 30, 1995 (the "Financials"). The Financials
have been prepared in conformity with GAAP consistently applied (except as
otherwise disclosed in such financial statements) throughout the periods
involved and present fairly, in all material respects, the consolidated
financial position of the Company and its consolidated Subsidiaries as of
December 31, 1994 and the results of their operations for the period then
ended. As of the Effective Date, no Material Adverse Effect has occurred in
the consolidated financial condition of the Company and its consolidated
Subsidiaries since the date of said Financials.
SECTION 6.08. Default. Upon the execution hereof, no Loan
Party is in default under the provisions of any instrument evidencing any
Indebtedness or of any agreement relating thereto, or in default in any respect
under any order, writ, injunction or decree of any court, or in default in any
respect under or in violation of any order, injunction or decree of any
governmental instrumentality, which defaults or violations would reasonably be
expected to have a Material Adverse Effect. No Loan Party is a party to any
material agreement evidencing any Indebtedness of such Person with an
outstanding principal amount in excess of $250,000.00 on the date of the
execution of this Agreement.
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SECTION 6.09. Investment Company Act. No Loan Party is, or
is directly or indirectly controlled by or acting on behalf of any Person which
is, an "investment company," as such term is defined in the Investment Company
Act of 1940, as amended.
SECTION 6.10. Public Utility Holding Company Act. No Loan
Party is a non-exempt "holding company," or subject to regulation as such, or,
to the knowledge of any Loan Party's officers, an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company," within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
SECTION 6.11. ERISA. No accumulated funding deficiency (as
defined in Section 412 of the Code or Section 302 of ERISA), whether or not
waived, exists or is expected to be incurred with respect to any Plan(s). No
liability to the PBGC (other than required premium payments) has been or is
expected by the Loan Parties to be incurred with respect to any Plan(s) by the
Loan Parties or any ERISA Affiliate which would reasonably be expected to have
a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has
incurred any withdrawal liability under Title IV of ERISA with respect to any
Multi-Employer Plans which would reasonably be expected to have a Material
Adverse Effect.
SECTION 6.12. Tax Returns and Payments. Each Loan Party
has filed all federal income tax returns and other material tax returns,
statements and reports (or obtained extensions with respect thereto) which, are
required to be filed and have paid or deposited or made adequate provision in
accordance with GAAP for the payment of all taxes (including estimated taxes
shown on such returns, statements and reports) which are shown to be due
pursuant to such returns, except for such taxes as are being contested in good
faith and by appropriate proceedings.
SECTION 6.13. Environmental Matters. Each Loan Party and
each of its Subsidiaries (a) possesses all environmental, health and safety
licenses, permits, authorizations, registrations, approvals and similar rights
necessary under law or otherwise for such Loan Party or such Subsidiary to
conduct its operations as now being conducted (other than those with respect to
which the failure to possess or maintain would not, individually or in the
aggregate for all Loan Parties and such Subsidiaries, have a Material Adverse
Effect) and (b) each of such licenses, permits, authorizations, registrations,
approvals and similar rights is valid and subsisting, in full force and effect
and enforceable by such Loan Party or such Subsidiary, and each Loan Party and
each of its Subsidiaries is in compliance with all terms, conditions or other
provisions of such permits, authorizations, registrations, approvals and
similar rights except for such failure or noncompliance that, individually or
in the aggregate for all Loan Parties and such Subsidiaries, would not have a
Material Adverse Effect. Except as disclosed on Schedule 6.13, no Loan Party
nor any of its Subsidiaries has received any notices of any violation of,
noncompliance with, or remedial obligation under, Requirements of Environmental
Laws (which violation or non-compliance has not been cured, and there are no
writs, injunctions, decrees, orders or judgments outstanding, or lawsuits,
claims,
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proceedings, investigations or inquiries pending or, to the knowledge of such
Loan Party, threatened, relating to the ownership, use, condition, maintenance
or operation of, or conduct of business related to, any property owned, leased
or operated by such Loan Party or such Subsidiary or other assets of such Loan
Party or such Subsidiary, other than those violations, instances of
noncompliance, obligations, writs, injunctions, decrees, orders, judgments,
lawsuits, claims, proceedings, investigations or inquiries that, individually
or in the aggregate for all Loan Parties and such Subsidiaries, would not have
a Material Adverse Effect. Except as disclosed on Schedule 6.13, there are no
material obligations, undertakings or liabilities arising out of or relating to
Environmental Laws to which any Loan Party or any of its Subsidiaries has
agreed, assumed or retained, or by which any Loan Party or any of its
Subsidiaries is adversely affected, by contract or otherwise, which would have
a Material Adverse Effect. Except as disclosed on Schedule 6.13, no Loan Party
or any of its Subsidiaries has received a written notice or claim to the effect
that such Person is or may be liable to any other Person as the result of a
Release or threatened Release of a Hazardous Material, which liability would
have a Material Adverse Effect.
SECTION 6.14. Purpose of Loans. None of the proceeds of
the Loans will be used directly or indirectly for the purpose of purchasing or
carrying any "margin stock" within the meaning of Regulation U (herein called
"margin stock") or for the purpose of reducing or retiring any indebtedness
which was originally incurred to purchase or carry a margin stock, or for any
other purpose which might constitute this transaction a "purpose" credit within
the meaning of Regulation U. Neither any Loan Party nor any agent acting on
its behalf has taken or will take any action which might cause this Agreement
or any other Loan Document to violate Regulation U, Regulation X, or any other
regulation of the Board or to violate the Securities Exchange Act of 1934.
SECTION 6.15. Franchises and Other Operating Rights. Each
Loan Party and each of its Subsidiaries have all franchises, permits, licenses
and other authority as are necessary to enable them to carry on their
respective businesses as now being conducted.
SECTION 6.16. Subsidiaries. The Subsidiaries executing this
Agreement are all the Subsidiaries owned by the Company as of the Effective
Date, except for American Liability and Excess Insurance Company.
ARTICLE VII
AFFIRMATIVE COVENANTS
Each Loan Party covenants and agrees for itself, that on and
after the date hereof and for so long as this Agreement is in effect and until
all Loans have been paid in full and each Letter of Credit shall have
terminated:
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SECTION 7.01. Information Covenants. The Company will
furnish or cause to be furnished to the Bank:
(a) (i) As soon as available, and in any event within
fifteen (15) Business Days following the end of each month and twenty (20)
Business Days after the close of each of the first three quarterly accounting
periods in each fiscal year of the Company, the consolidated and consolidating
balance sheet of the Company and its consolidated Subsidiaries as of the end of
such monthly or quarterly period, as applicable, and the related consolidated
and consolidating statements of income, retained earnings and cash flows for
such period, setting forth, in each case, comparative consolidated figures for
the related periods in the prior fiscal year, and with the quarterly reports
all proposed budgets for the next succeeding quarter or year, all of which
shall be certified by the chief financial officer or chief executive officer of
the Company as fairly presenting in all material respects, the financial
position of the Company and its consolidated Subsidiaries as of the end of such
period and the results of their operation for the period then ended in
accordance with GAAP, subject to changes resulting from normal year-end audit
adjustments and the inclusion of abbreviated footnotes.
(ii) As soon as available, and in any event within
forty-five (45) days following the close of each of the first three quarterly
accounting periods in each fiscal year of the Company (or such additional
period as the Securities and Exchange Commission may extend to the Company),
all Form 10-Q filings and any other reports filed with the Securities and
Exchange Commission (provided, if the Securities and Exchange Commission
extends the 45-day filing deadline, the Company shall furnish or cause to be
furnished to the Bank, within forty-five (45) days following the close of each
of the first three quarterly accounting periods in each fiscal year of the
Company, drafts of the Form 10- Q filings and drafts of any other reports to be
filed with the Securities and Exchange Commission), all of which shall be
certified by the chief financial officer or chief executive officer of the
Company as fairly presenting in all material respects, the financial position
of the Company and its consolidated Subsidiaries as of the end of such period
and the results of their operation for the period then ended in accordance with
GAAP, subject to changes resulting from normal year-end audit adjustments and
the inclusion of abbreviated footnotes.
(b) As soon as available, and in any event within ninety
(90) days (or such additional period as the Securities and Exchange Commission
may extend to the Company), after the close of each fiscal year of the Company,
the consolidated and consolidating balance sheet of the Company and its
consolidated Subsidiaries as at the end of such fiscal year and the related
consolidated and consolidating statements of income, retained earnings and cash
flows for such fiscal year, setting forth, in each case, comparative figures
for the preceding fiscal year and certified by Arthur Andersen & Co. or other
independent certified public accountants of recognized national standing
reasonably acceptable to the Bank, whose report shall be without limitation as
to the scope of the audit and reasonably satisfactory in substance to the Bank
along with the Annual Report on
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Form 10-K of the Company for such year filed with the Securities and Exchange
Commission (provided, if the Securities and Exchange Commission extends the
90-day filing deadline, the Company shall furnish or cause to be furnished to
the Bank, within ninety (90) days following the close of each fiscal year of
the Company, drafts of the Form 10-Q filings and drafts of any other reports to
be filed with the Securities and Exchange Commission).
(c) Simultaneously with the delivery of the financial
statements described in paragraph (a) above and in any event within fifteen
(15) days after the end of each month, (i) a Borrowing Base Certificate
substantially in the form of Exhibit 7.01(c) and (ii) a summary report of all
Receivables and payables of the Company and its Subsidiaries, in form and
substance satisfactory to the Bank.
(d) Immediately after any Responsible Officer of any Loan
Party obtains knowledge thereof, notice of
(i) any material violation of, noncompliance
with, or remedial obligations under, Requirements of Environmental
Laws,
(ii) any material Release or threatened material
Release of Hazardous Materials affecting any property owned, leased or
operated by such Loan Party or any of its Subsidiaries,
(iii) any event or condition which constitutes a
Default or an Event of Default,
(iv) any condition or event which, in the opinion
of management of the Company, would be expected to have a Material
Adverse Effect,
(v) any Person having given any written notice to
any Loan Party or taken any other action with respect to a claimed
material default or event under any material instrument or material
agreement,
(vi) the institution of any litigation which might
reasonably be expected either to have a Material Adverse Effect or
result in a final, non-appealable judgment or award in excess of (A)
$1,000,000.00 with respect to any single cause of action or (B)
$5,000,000.00 with respect to all causes of action in the aggregate,
or
(vii) any condition or event which, in the opinion
of management of the Company, could be expected to jeopardize the
existence or good standing of any license or permit held by the
Company.
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A notice of such event or condition will be delivered to the
Bank specifying the nature and period of existence thereof and specifying the
notice given or action taken by such Person and the nature of any such claimed
default, event or condition and, in the case of an Event of Default or Default,
what action has been taken, is being taken or is proposed to be taken with
respect thereto.
(e) At the time of the delivery of the financial
statements provided for in paragraphs (a) and (b), a certificate of the chief
financial officer, treasurer or the controller of the Company, substantially
in the form of Exhibit 7.01(e) hereto, to the effect that no Default or Event of
Default exists or, if any Default or Event of Default does exist, specifying the
nature and extent thereof and the action that is being taken or that is proposed
to be taken with respect thereto, which certificate shall set forth among other
matters, the calculations required to establish whether the Company was in
compliance with the provisions of Section 8.08 through Section 8.12 as at the
end of such fiscal period or year, as the case may be.
(f) Upon request by the Bank, but not more often than
semi-annually, such environmental reports, studies and audits (all of which
shall be reasonable in scope) of any Loan Party's procedures and policies,
assets and operations in respect of Environmental Laws as the Bank may request.
(g) Promptly upon transmission thereof, copies of any
filings and registrations with, and reports to, the SEC, and copies of all
financial statements, proxy statements, notices and reports as the Company
shall send to its public shareholder.
(h) From time to time and with reasonable promptness,
such other information or documents as the Bank may reasonably request.
SECTION 7.02. Books, Records and Inspections. The Company
will maintain, and will permit, or cause to be permitted, any Person designated
by the Bank in writing upon one (1) Business Day's notice and without
materially disrupting the operations of any Loan Party to visit and inspect any
of the properties of such Loan Party, to examine the corporate books and
financial records of such Loan Party and make copies thereof or extracts
therefrom and to discuss the affairs, finances and accounts of any such
corporations with the officers, employees and agents of such Loan Parties and
with their independent public accountants, all at such reasonable times and as
often as the Bank may reasonably request.
SECTION 7.03. Insurance and Maintenance of Properties. (a)
Each Loan Party will keep adequately insured by financially sound and
reputable insurers all of its property of a character, and in amounts and
against such risks, usually insured by similar Persons engaged in the same or
similar businesses, including insurance against fire, casualty and any other
hazards normally insured against. Each Loan Party will at all times maintain
insurance against its liability for injury to Persons
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<PAGE> 36
or property, which insurance shall be by financially sound and reputable
insurers (which shall, for purposes of this Agreement, include American
Liability and Excess Insurance Company) and in such amounts and form as are
customary for corporations of established reputation engaged in the same or
similar businesses and owning and operating similar properties.
(b) Each Loan Party will cause all of its material
properties used or useful in the conduct of its business to be maintained and
kept in good condition, repair and working order and supplied with all
necessary equipment and will cause to be made all necessary repairs, renewals
and replacements thereof, all as in the judgment of such Person may be
reasonably necessary so that the business carried on in connection therewith
may be properly conducted at all times.
SECTION 7.04. Payment of Taxes. Each Loan Party will pay
and discharge all taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits, or upon any properties belonging to it,
prior to the date on which penalties attach thereto, except for such amounts
that are being contested in good faith and by appropriate proceedings.
SECTION 7.05. Corporate Existence. Each Loan Party will do
all things necessary to preserve and keep in full force and effect the
corporate or partnership existence of such Person, and the rights and
franchises of such Loan Party.
SECTION 7.06. Compliance with Statutes. Each Loan Party
will comply with all material applicable statutes, regulations and orders of,
and all applicable restrictions imposed by, all governmental bodies, domestic
or foreign, in respect of the conduct of its business and the ownership of its
property.
SECTION 7.07. ERISA. As soon as possible and, in any event,
within ten days after any Responsible Officer of any Loan Party knows or has
reason to know any of the following items are true, such Loan Party will
deliver or cause to be delivered to the Bank a certificate of the chief
financial officer of the Company setting forth details as to such occurrence
and such action, if any, which the Loan Party or its ERISA Affiliate is
required or proposes to take, together with any notices required or proposed to
be given to or filed with or by such Loan Party or ERISA Affiliate with respect
thereto: that a Reportable Event has occurred or that an application may be or
has been made to the Secretary of the Treasury for a waiver or modification of
the minimum funding standard; that a Multiemployer Plan has been or may be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA; that any required contribution to a Plan or Multiemployer Plan has not
been or may not be timely made; that proceedings may be or have been instituted
under Section 4069(a) of ERISA to impose liability on a Loan Party or an ERISA
Affiliate or under Section 4042 of ERISA to terminate a Plan or appoint a
trustee to administer a Plan;
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<PAGE> 37
that a Loan Party or any ERISA Affiliate has incurred or may incur any
liability (including any contingent or secondary liability) on account of the
termination of or withdrawal from a Plan or a Multiemployer Plan; and that a
Loan Party or an ERISA Affiliate may be required to provide security to a Plan
under Section 401(a)(29) of the Code; or any other condition(s) exist(s) or may
occur with respect to one or more Plans and/or Multiemployer Plans.
SECTION 7.08. Additional Guaranties. Whenever the Company
acquires any new Subsidiary, the Company shall, within ten (10) Business Days,
cause such Subsidiary to deliver to the Bank (A) a guaranty agreement in form
and substance reasonably satisfactory to the Bank (an "Additional Guaranty")
and (B) a certificate of an officer and of the secretary or an assistant
secretary of such Subsidiary certifying a true and correct copy of the
resolutions adopted by the Board of Directors of such Subsidiary authorizing
the execution, delivery and performance of the Additional Guaranty.
ARTICLE VIII
NEGATIVE COVENANTS
Each Loan Party covenants and agrees for itself, that on and
after the date hereof and for so long as this Agreement is in effect and until
all of the Loans and each Letter of Credit shall have terminated, and the
Obligations are paid in full:
SECTION 8.01. Change in Business. No Loan Party will
engage in any business not of the same general type as that conducted by it on
the date of this Agreement.
SECTION 8.02. Consolidation, Merger or Sale Assets. No
Loan Party will wind up, liquidate or dissolve its affairs, or enter into any
transaction of merger or consolidation, unless a Loan Party is the surviving
entity, or sell or otherwise dispose of all or any part of its property or
assets (other than sales of inventory or surplus or obsolete assets in the
ordinary course of business).
SECTION 8.03. Liens. No Loan Party, except for American
Liability and Excess Insurance Company, will create, incur, assume or suffer to
exist any Lien upon or with respect to any of its property or assets of any
kind whether now owned or hereafter acquired, except:
(a) Liens for taxes or assessments or other governmental
charges or levies, either not yet due and payable or being contested in good
faith and by appropriate proceedings for which adequate reserves have been
established;
(b) minor defects, irregularities and deficiencies in
title to, and easements, rights-of-way, zoning restrictions and other similar
restrictions, charges or encumbrances on, real
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property of such Person which do not interfere with the ordinary conduct of the
business of such Person and which do not materially detract from the value of
the real property which they affect;
(c) Liens existing on the Effective Date, which are
described in the Financials or listed on Schedule 8.03 and approved by the
Bank; and
(d) any renewal, extension or replacement of any Lien
referred to in the foregoing clauses; provided that no Lien arising as a result
of such extension or renewal shall cover any property not theretofore subject
to the Lien being extended or secure any increased Indebtedness.
SECTION 8.04. Indebtedness. No Loan Party will create,
incur, assume or permit to exist any Indebtedness other than Indebtedness
created hereby, including renewals and extensions thereof (in the same amounts
or less), except:
(a) Indebtedness existing on the Effective Date and
described in the Financials or, if not so shown, listed on Schedule 8.04;
(b) current accounts payable incurred in the ordinary
course of business, which accounts payable have not remained unpaid for a
period of one hundred twenty (120) days after the same became due;
(c) Indebtedness arising as a result of the endorsement
in the ordinary course of business of negotiable instruments in the course of
collection;
(d) liabilities for taxes, assessments, governmental
charges or liens; and
(e) renewals and extensions (in the same or lesser
principal amount on similar terms and conditions) of any Indebtedness listed in
the foregoing clauses.
SECTION 8.05. Investments. No Loan Party will, directly or
indirectly, make or own any Investment in any Person, except:
(a) Permitted Investments owned on the date hereof as set
forth on Schedule 8.05; and
(b) Endorsements of negotiable instruments for collection
in the ordinary course of business.
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SECTION 8.06. Restricted Payments. The Company will not
make or declare any Restricted Payment; provided, that prior to the occurrence
of any Event of Default, the Company may declare and pay dividends at the rate
of up to 8 3/8% per annum on all of its preferred stock.
SECTION 8.07. Change in Accounting; Fiscal Year. No Loan
Party will change its method of accounting except for immaterial changes in
methods, changes permitted by GAAP in which such Loan Party's auditors concur
and changes required by GAAP. The Company shall advise the Bank in writing
promptly upon making any such change to the extent same is not disclosed in the
financial statements required hereunder.
SECTION 8.08. Minimum EBITDA. The Company will not permit
Consolidated EBITDA, as of the last day of each calendar month and each
calendar quarter, to be less than the amounts shown on the following table:
<TABLE>
<CAPTION>
Minimum Minimum
Year Monthly EBITDA Quarterly EBITDA
---- -------------- ----------------
<S> <C> <C>
1996 $250,000.00 $1,000,000.00
1997 and 1998 500,000.00 2,000,000.00
</TABLE>
; provided, that one hundred eighty (180) days after operations have commenced
at that particular facility operated in the State of California and commonly
referred to as "Ward Valley", the Company will not permit Consolidated EBITDA
(i) as of the last day of each calendar month during 1998 to be less than
$750,000.00 and (ii) as of the last day of each calendar quarter during 1998 to
be less than $3,000,000.00.
(c) Such calculations shall be based on the financial
information provided by the Company to the Bank as required in Section 7.01.
SECTION 8.09. Minimum Net Worth. The Company will not
permit Consolidated Net Worth (a) prior to June 30, 1996 to be less than
$25,000,000.00, (b) during the last two (2) calendar quarter of 1996, to be
less than the Consolidated Net Worth on June 30, 1996 and (c) quarterly
thereafter during the term hereof, to be less than the Consolidated Net Worth
on December 31, 1996 plus (i) $200,000.00 per calendar quarter commencing on
March 31, 1997 and (ii) $250,000.00 per calendar quarter commencing on March
31, 1998.
SECTION 8.10. Capital Expenditures. The Company will not
permit total consolidated capital expenditures (including Cell Development
Expenditures but not including any interest capitalized pursuant to the terms
hereof, the "Capitalized Expenditures") to be greater than (i) $6,000,000.00
per calendar year prior to December 31, 1997 and (ii) $6,125,000.00 during all
of calendar year 1998.
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<PAGE> 40
SECTION 8.11. Transactions with Affiliates. No Loan Party
will, directly or indirectly, engage in any transaction with any Affiliate of
such Loan Party, including the purchase, sale or exchange of assets or the
rendering of any service, except in the ordinary course of business or pursuant
to the reasonable requirements of such Loan Party's business and, in each case,
upon terms that are no less favorable to such Loan Party than those which might
be obtained in an arm's-length transaction at the time from non-Affiliates.
Specifically, no Loan Party will transfer any of its assets to any Subsidiary
of the Company that is not a Guarantor, provided that Loan Parties may pay to
American Liability and Excess Insurance Company annual premiums for closing
and/or post closure obligations and for performance bonds (including, without
limitation, payments of premiums to Steadfast Insurance Company which are
thereafter delivered to American Liability and Excess Insurance Company for
reinsurance) up to a maximum of $500,000.00, per year.
SECTION 8.12. Change of Certain Indebtedness. No Loan Party
will, after the occurrence and during the continuance of any Event of Default,
(i) make any voluntary prepayments of principal of or interest on any
Consolidated Funded Indebtedness (whether or not subordinated) or (ii) alter,
amend, modify or otherwise change the terms, conditions and provisions of any
Consolidated Funded Indebtedness to accelerate the scheduled payments of
principal of such Indebtedness.
ARTICLE IX
GUARANTY
SECTION 9.01. Guaranty. In consideration of, and in order
to induce the Bank to make the Loans and to issue Letters of Credit hereunder,
each Guarantor hereby absolutely, unconditionally and irrevocably, jointly and
severally guarantees the punctual payment and performance when due, whether at
stated maturity, by acceleration or otherwise, of the Obligations, and all
other obligations and covenants of the Company now or hereafter existing under
this Agreement, the Notes and the other Loan Documents whether for principal,
interest (including interest accruing or becoming owing both prior to and
subsequent to the commencement of any proceeding against or with respect to the
Company under any chapter of the Bankruptcy Code), fees, commissions, expenses
(including reasonable attorneys' fees and expenses) or otherwise, and all
reasonable costs and expenses, if any, incurred by the Bank in connection with
enforcing any rights under this Guaranty (all such obligations being the
"Guaranteed Obligations"), and agrees to pay any and all reasonable expenses
incurred by the Bank in enforcing this Guaranty; provided that anything herein
or in any other Loan Document to the contrary notwithstanding, the maximum
liability of each Guarantor hereunder and under the other Loan Documents shall
in no event exceed such Guarantor's Maximum Guaranteed Amount as determined at
the earlier of the date of the commencement of a case under Title 11 of the
United States Code in which the said Guarantor is a debtor and the date
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<PAGE> 41
enforcement hereunder is sought. This Guaranty is an absolute, unconditional,
present and continuing guaranty of payment and not of collectibility and is in
no way conditioned upon any attempt to collect from the Company or any other
action, occurrence or circumstance whatsoever. Each Guarantor agrees that the
Guaranteed Obligations may at any time and from time to time exceed the Maximum
Guaranteed Amount of such Guarantor without impairing this Guaranty or
affecting the rights and remedies of the Bank hereunder.
SECTION 9.02. Continuing Guaranty. Each Guarantor
guarantees that the Guaranteed Obligations will be paid strictly in accordance
with the terms of this Agreement, the Notes and the other Loan Documents. Each
Guarantor agrees that the Guaranteed Obligations and Loan Documents may be
extended or renewed, and Loans repaid and reborrowed in whole or in part,
without notice to or assent by such Guarantor, and that it will remain bound
upon this Guaranty notwithstanding any extension, renewal or other alteration
of any Guaranteed Obligations or Loan Documents, or any repayment and
reborrowing of Loans. To the maximum extent permitted by applicable law, the
obligations of each Guarantor under this Guaranty shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms hereof under any circumstances whatsoever, including:
(a) any extension, renewal, modification, settlement,
compromise, waiver or release in respect of any Guaranteed
Obligations;
(b) any extension, renewal, amendment, modification,
rescission, waiver or release in respect of any Loan Documents;
(c) any release, exchange, substitution, non-perfection
or invalidity of, or failure to exercise rights or remedies with
respect to, any direct or indirect security for any Guaranteed
Obligations, including the release of any Guarantor or other Person
liable on any Guaranteed Obligations;
(d) any change in the corporate existence, structure or
ownership of the Company, any Guarantor, or any insolvency,
bankruptcy, reorganization or other similar proceeding affecting the
Company, such Guarantor, any other Guarantor or any of their
respective assets;
(e) the existence of any claim, defense, set-off or other
rights or remedies which such Guarantor at any time may have against
the Company, or the Company or such Guarantor may have at any time
against the Bank, any other Guarantor or any other Person, whether in
connection with this Guaranty, the Loan Documents, the transactions
contemplated thereby or any other transaction other than by the
payment in full by the Company of the Guaranteed Obligations after the
termination of the commitments of the Bank and the expiration or
termination of all Letters of Credit;
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(f) any invalidity or unenforceability for any reason of
this Agreement or other Loan Documents, or any provision of law
purporting to prohibit the payment or performance by the Company, such
Guarantor or any other Guarantor of the Guaranteed Obligations or Loan
Documents, or of any other obligation to the Bank; or
(g) any other circumstances or happening whatsoever,
whether or not similar to any of the foregoing.
SECTION 9.03. Effect of Debtor Relief Laws. If after
receipt of any payment of, or proceeds of any security applied (or intended to
be applied) to the payment of all or any part of the Guaranteed Obligations,
the Bank is for any reason compelled to surrender or voluntarilysurrenders,
such payment or proceeds to any Person (a) because such payment or application
of proceeds is or may be avoided, invalidated, declared fraudulent, set aside,
determined to be void or voidable as a preference, fraudulent conveyance,
fraudulent transfer, impermissible set-off or a diversion of trust funds or (b)
for any other reason, including (i) any judgment, decree or order of any court
or administrative body having jurisdiction over the Bank, or any of its
properties or (ii) any settlement or compromise of any such claim effected by
the Bank with any such claimant (including the Company), then the Guaranteed
Obligations or part thereof intended to be satisfied shall be reinstated and
continue, and this Guaranty shall continue in full force as if such payment or
proceeds have not been received, notwithstanding any revocation thereof or the
cancellation of any Note or any other instrument evidencing any Guaranteed
Obligations or otherwise; and each Guarantor, jointly and severally, shall be
liable to pay the Bank, and hereby does indemnify the Bank and hold it harmless
for the amount of such payment or proceeds so surrendered and all expenses
(including reasonable attorneys' fees, court costs and expenses attributable
thereto) incurred by the Bank in the defense of any claim made against it that
any payment or proceeds received by the Bank in respect of all or part of the
Guaranteed Obligations must be surrendered. The provisions of this paragraph
shall survive the termination of this Guaranty, and any satisfaction and
discharge of the Company by virtue of any payment, court order or any federal
or state law.
SECTION 9.04. Complete Waiver of Subrogation.
Notwithstanding any payment or payments made by any Guarantor hereunder, or any
set-off or application by the Bank of any security or of any credits or claims,
no Guarantor will assert or exercise any rights of the Bank or of such
Guarantor against the Company to recover the amount of any payment made by such
Guarantor to the Bank hereunder by way of any claim, remedy or subrogation,
reimbursement, exoneration, contribution, indemnity, participation or otherwise
arising by contract, by statute, under common law or otherwise, and such
Guarantor shall not have any right of recourse to or any claim against assets
or property of the Company, whether or not the obligations of the Company
guaranteed hereby have been satisfied. Each Guarantor hereby expressly waives
any right to exercise any claim, right or remedy which such Guarantor may now
have or hereafter acquire against the Company or any other Guarantor that
arises under this Agreement or any other Loan Document or from the performance
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by any Guarantor of the Guaranty hereunder including any claim, remedy or right
of subrogation, reimbursement, exoneration, contribution, indemnification or
participation in any claim, right or remedy of the Bank against the Company or
any Guarantor, or any security that the Bank now has or hereafter acquires,
whether or not such claim, right or remedy arises in equity, under contract, by
statute, under common law or otherwise. Each Guarantor agrees not to seek
contribution or indemnity or other recourse from any other Guarantor or other
Person. If any amount shall nevertheless be paid to a Guarantor by the Company
or another Guarantor prior to payment in full of the Guaranteed Obligations,
such amount shall be held in trust for the benefit of the Bank and shall
forthwith be paid to the Bank to be credited and applied to the Guaranteed
Obligations, whether matured or unmatured. The provisions of this paragraph
shall survive the termination of this Guaranty, and any satisfaction and
discharge of the Company by virtue of any payment, court order or any federal
or state law.
SECTION 9.05. Subordination. If any Guarantor becomes the
holder of any indebtedness payable by the Company or another Guarantor, each
Guarantor hereby subordinates all indebtedness owing to it from the Company to
all indebtedness of the Company to the Bank, and agrees that during the
continuance of any Default or Event of Default it shall not accept any payment
on the same until payment in full of the Obligations of the Company under this
Agreement and the other Loan Documents after the termination of the commitments
of the Bank and the termination or expiration of the Letters of Credit, the
Notes and all other Loan Documents, and shall in no circumstance whatsoever
attempt to set-off or reduce any obligations hereunder because of such
indebtedness. If any amount shall nevertheless be paid to a Guarantor by the
Company or another Guarantor prior to payment in full of the Guaranteed
Obligations, such amount shall be held in trust for the benefit of the Bank and
shall forthwith be paid to the Bank to be credited and applied to the
Guaranteed Obligations, whether matured or unmatured.
SECTION 9.06. Waiver. Each Guarantor hereby waives
promptness, diligence, notice of acceptance and any other notice with respect
to any of the Guaranteed Obligations and this Guaranty and waives presentment,
demand of payment, notice of intent to accelerate or of acceleration, notice of
dishonor or nonpayment and any requirement that the Bank institute suit,
collection proceedings or take any other action to collect the Guaranteed
Obligations, including any requirement that the Bank protect, secure, perfect
or insure any Lien against any property subject thereto or exhaust any right or
take any action against the Company or any other Person or any Collateral (it
being the intention of the Bank and each Guarantor that this Guaranty is to be
a guaranty of payment and not of collection). It shall not be necessary for
the Bank, in order to enforce any payment by any Guarantor hereunder, to
institute suit or exhaust its rights and remedies against the Company, any
other Guarantor or any other Person, including others liable to pay any
Guaranteed Obligations, or to enforce its rights against any security ever
given to secure payment thereof. Each Guarantor hereby expressly waives to the
maximum extent permitted by applicable law each and every right to which it may
be entitled by virtue of the suretyship laws of the State of Texas,
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including any and all rights it may have pursuant to Rule 31, Texas Rules of
Civil Procedure, Section 17.001 of the Texas Civil Practice and Remedies Code
and Chapter 34 of the Texas Business and Commerce Code. Each Guarantor hereby
waives marshaling of assets and liabilities, notice by the Bank of any
indebtedness or liability to which the Bank applies or may apply any amounts
received, and of the creation, advancement, increase, existence, extension,
renewal, rearrangement or modification of the Guaranteed Obligations. Each
Guarantor expressly waives, to the extent permitted by applicable law, the
benefit of any and all laws providing for exemption of property from execution
or for valuation and appraisal upon foreclosure.
SECTION 9.07. Full Force and Effect. This Guaranty is a
continuing guaranty and shall remain in full force and effect until all of the
Obligations of the Company under this Agreement and the other Loan Documents
and all other amounts payable under this Guaranty have been paid in full (after
the termination of the commitments of the Bank and the termination or
expiration of the Letters of Credit). All rights, remedies and powers provided
in this Guaranty may be exercised, and all waivers contained in this Guaranty
may be enforced, only to the extent that the exercise or enforcement thereof
does not violate any provisions of applicable law which may not be waived.
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
SECTION 10.01. Events of Default and Remedies. The
following events=shall constitute Events of Default hereunder:
(a) any installment of principal or payment of interest
on any Note, any Fee or any Unpaid Drawing shall not be paid on the date on
which such payment is due as required under this Agreement; or
(b) any representation or warranty made or, for purposes
of Article V, deemed made by or on behalf of any Loan Party herein or in any of
the Loan Documents or other document, certificate or financial statement
delivered in connection with this Agreement or any other Loan Document shall
prove to have been incorrect in any material respect when made or deemed made
or reaffirmed, as the case may be; or
(c) the Company shall fail to perform or observe or cause
any Subsidiary to fail to perform or observe any duty or covenant contained in
this Agreement including the Exhibits and Schedules hereto; or
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(d) any Loan Party fails to make (whether as primary
obligor or as guarantor or other surety) any principal payment of or interest
or premium, if any, on any Indebtedness (other than the Notes or the Guaranty)
with an aggregate principal amount in excess of $250,000.00 outstanding beyond
any period of grace provided with respect thereto or fails to duly observe,
perform or comply with any agreement with any Person or any term or condition
of any such instrument, if such failure is to cause, or to permit the holder or
holders to cause, such obligations to become due prior to any stated maturity;
or
(e) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent jurisdiction
seeking (i) relief in respect of any Loan Party, or of a substantial part of
the property or assets of such Loan Party, under Title 11 of the United States
Code, as now or hereafter in effect, or any successor thereto (the "Bankruptcy
Code"), or any other federal or state bankruptcy, insolvency, receivership or
similar law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for any Loan Party or for a
substantial part of the property or assets of such Loan Party or (iii) the
winding-up or liquidation of any Loan Party; and such proceeding or petition
shall continue undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered; or
(f) any Loan Party shall (i) voluntarily commence any
proceeding or file any petition seeking relief under the Bankruptcy Code or any
other federal or state bankruptcy, insolvency, receivership or similar law,
(ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or the filing of any petition described in
clause (e) above, (iii) apply for or consent to the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for any Loan
Party or for a substantial part of the property or assets of such Loan Party,
(iv) file an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) make a general assignment for the
benefit of creditors, (vi) become unable, admit in writing its inability or
fail generally to pay its debts as they become due or (vii) take any action for
the purpose of effecting any of the foregoing; or
(g) any Plan shall incur an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived, or a waiver of the minimum funding standard or extension
of any amortization period is sought or granted under Section 412 of the Code
with respect to a Plan; any proceeding shall have occurred or is reasonably
likely to occur by the PBGC under Section 4069(a) of ERISA to impose liability
on the Company, any Subsidiary or an ERISA Affiliate; any Plan shall have an
Unfunded Current Liability; any required contribution to a Plan or
Multiemployer Plan shall not have been timely made; or the Company, any
Subsidiary or any ERISA Affiliate has incurred or is reasonably likely to incur
a liability to or on account of a Plan or Multiemployer Plan under Section 515,
4062, 4063, 4064, 4201 or 4204 of ERISA, and there shall result (individually
or collectively) from any such event or events a material risk of either (i)
the imposition of a Lien(s) upon, or the granting of a security interest(s)
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in, the assets of the Company, any Subsidiary and/or an ERISA Affiliate in an
amount(s) equal to or exceeding $1,000,000.00 or (ii) the Company, any
Subsidiary and/or an ERISA Affiliate incurring a liability(ies) or
obligation(s) with respect thereto equal to or exceeding $1,000,000.00; or
(h) a judgment or order, which with other outstanding
judgments and orders against any Loan Party equals or exceeds $250,000.00 in
the aggregate (to the extent not covered by insurance as to which the
respective insurer has acknowledged coverage), shall be entered against any
Loan Party and (i) within 30 days after entry thereof such judgment shall not
have been discharged or execution thereof stayed pending appeal or, within 30
days after the expiration of any such stay, such judgment shall not have been
discharged or (ii) any enforcement proceeding shall have been commenced (and
not stayed) by any creditor or upon such judgment; or
(i) the Company shall fail to receive at least
$1,000,000.00 on or before January 6, 1996 from the sale of preferred stock of
the Company.
SECTION 10.02. Primary Remedies. At any time any Event of
Default has occurred and is continuing, the Bank may, by written notice to the
Company (a "Notice of Default") take any or all of the following actions,
without prejudice to the rights of the Bank or other holder of any of the
Obligations to enforce its claims against any Loan Party (provided that, if an
Event of Default specified in Section 10.01(e) or Section 10.01(f) shall occur
with respect to any Loan Party, the following shall occur automatically without
the giving of any Notice of Default): (i) declare the Bank's Revolving Credit
Commitment and the Letter of Credit Commitment terminated; (ii) declare the
principal of and any accrued and unpaid interest in respect of all Loans, and
all obligations owing hereunder, to be, whereupon the same shall become,
forthwith due and payable without presentment, demand, notice of demand or of
dishonor and non-payment, protest, notice of protest, notice of intent to
accelerate, declaration or notice of acceleration or any other notice of any
kind, all of which are hereby waived by each Loan Party; (iii) exercise any
rights or remedies under any document securing or guaranteeing any of the
obligations; (iv) terminate any Letter of Credit which may be terminated in
accordance with its terms (whether by the giving of written notice to the
beneficiary or otherwise); and (v) direct the Company to pay, and the Company
agrees that upon receipt of such notice (or upon the occurrence of an Event of
Default specified in Section 10.01(e) or Section 10.01(f)), it will pay to the
Bank, to the extent permitted by law, such additional amount of cash as is
equal to the aggregate stated amount of all Letters of Credit then outstanding
to be held in an interest bearing account with the Bank as security for the
Obligations and the other obligations of the Loan Parties hereunder and under
the Notes and the other Loan Documents.
SECTION 10.03. Other Remedies. Upon the occurrence and
during the continuance of any Event of Default, the Bank, may proceed to
protect and enforce its rights, either by suit in equity or by action at law or
both, whether for the specific performance of any covenant or agreement
contained in this Agreement or in any other Loan Document or in aid of the
exercise of
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any power granted in this Agreement or in any other Loan Document; or may
proceed to realize on any collateral securing the Loans or to enforce the
payment of all amounts owing to the Bank under the Loan Documents and any
accrued and unpaid interest thereon in the manner set forth herein or therein;
it being intended that no remedy conferred herein or in any of the other Loan
Documents is to be exclusive of any other remedy, and each and every remedy
contained herein or in any other Loan Document shall be cumulative and shall be
in addition to every other remedy given hereunder and under the other Loan
Documents now or hereafter existing or provided it at law or in equity or by
statute or otherwise.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Amendments. No amendment or waiver of any
provision of this Agreement, any Note or any other Loan Document, nor consent
to any departure by any Loan Party herefrom or therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Company, as to
amendments, and by the Bank in all cases, and then, in any case, such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given
SECTION 11.02. Notices. All notices, consents, requests,
approvals, demands and other communications provided for herein shall be in
writing (including telecopy communications) and mailed, telecopied, sent by
overnight courier or delivered:
(a) If to the Loan Parties, to them at:
5333 Westheimer, Suite 1000
Houston, Texas 77056-5407
Telecopy No: (713) 624-1909
Attention: __________________
(b) If to the Bank, to it at:
712 Main Street, 24 TCB E-74
Houston, Texas 77002
Telecopy No.: (713) 216-2092
Attention: Mr. Bruce A. Shilcutt
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With a copy to:
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Telecopy No.: (713) 220-4285
Attention: Mr. Thomas J. Perich
All communications shall, when mailed, telecopied or
delivered, be effective when mailed by certified mail, return receipt requested
to any party at its address specified herein (or other address designated by
such party in a communication to the other parties hereto), or telecopied to
any party to the telecopy number set forth herein, or delivered personally to
any party at its address herein specified; provided, that communications to the
Bank pursuant to Article II and Article III shall not be effective until
received.
SECTION 11.03. No Waiver; Remedies. No failure on the part
of the Bank to exercise, and no delay in exercising, any right hereunder, under
any Note or under any other Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any such right, or any abandonment
or discontinuance of any steps to enforce such right, preclude any other or
further exercise thereof or the exercise of any other right. No notice to or
demand on the Company in any case shall entitle the Company to any other or
further notice or demand in similar or other circumstances. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
SECTION 11.04. Costs, Expenses and Taxes. The Company
agrees to pay on demand: (a) all reasonable out-of-pocket costs and expenses
of the Bank in connection with the preparation, execution, delivery,
interpretation or enforcement of the Loan Documents and the other documents to
be delivered hereunder, including the reasonable fees and out-of-pocket
expenses of counsel for the Bank with respect thereto, (b) all reasonable
out-of-pocket costs and expenses of the Bank in connection with the syndication
of the credit evidenced by this Agreement and the other Loan Documents, and (c)
reasonable costs and expenses incurred in connection with other third party
professional services required by the Bank. In addition, the Company shall pay
any and all stamp and similar taxes payable or determined to be payable in
connection with the execution and delivery of the Loan Documents and the other
documents to be delivered hereunder, and agrees to save the Bank harmless from
and against any and all liabilities with respect to or resulting from any delay
in paying or omission to pay such taxes, if any, which may be payable or
determined to be payable in connection with the execution and delivery of this
Agreement, any Note or any other Loan Document. Without prejudice to the
survival of any other obligations of the Company hereunder and under the Notes,
the obligations of the Company under this Section shall survive the termination
of this Agreement and the payment of the Obligations or the assignment of the
Notes.
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SECTION 11.05. Indemnity and Release. (a) The Loan Parties
jointly and severally indemnify the Bank and each Affiliate thereof and their
respective directors, officers, employees and agents from, and hold each of
them harmless against, any and all losses, liabilities, claims or damages
(including reasonable legal fees and expenses) to which any of them may become
subject, insofar as such losses, liabilities, claims or damages arise out of or
result from (i) any actual or proposed use by the Company of the proceeds of
any extension of credit by any Bank hereunder or (ii) any investigation,
litigation or other proceeding (including any threatened investigation or
proceeding) relating to the foregoing or any of the other Loan Documents, and
the Loan Parties jointly and severally shall reimburse the Bank and each
Affiliate thereof and their respective directors, officers, employees and
agents, upon demand for any expenses (including legal fees) reasonably incurred
in connection with any such investigation or proceeding; but excluding any such
losses, liabilities, claims, damages or expenses incurred by reason of the
gross negligence or willful misconduct of the Person to be indemnified.
(b) WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT, IT
IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE
INDEMNIFIED HEREUNDER OR THEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS
AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS OR DAMAGES ARISING OUT OF OR
RESULTING FROM THE ORDINARY SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON.
Without prejudice to the survival of any other obligations of the Loan Parties
hereunder and under the other Loan Documents, the obligations of the Loan
Parties under this Section shall survive the termination of this Agreement and
the other Loan Documents and the payment of the Obligations or the assignment
of the Notes.
(c) The Loan Parties do hereby release and forever
discharge the Bank and each Affiliate thereof and their respective employees,
officers, directors, trustees, agents, successors, assigns or other
representatives from any and all claims (civil or criminal), demands, damages,
actions, cross-actions, causes of action, costs and expenses (including legal
expenses), of any kind or nature whatsoever, which any Loan Party has held or
may now or in the future own or hold, whether known or unknown, for or because
of any matter or thing done, omitted or suffered to be done on or before the
Execution Date hereof by any of such parties (i) arising directly or indirectly
out of the Loan Documents or any other documents, instruments or any other
transactions relating thereto and/or (ii) relating directly or indirectly to
all transactions by and between the Loan Parties and the Bank. Such release,
waiver, acquittal and discharge shall and does include, without limitation, any
claims of usury which may or could be asserted by the Loan Parties. This
release shall not include a release of the Bank from any claim by the Loan
Parties for breach by the Bank of this Agreement.
SECTION 11.06. Right of Setoff. If any Event of Default
shall have occurred and be continuing, the Bank is hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (time or demand, provisional or final) at
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any time held and other indebtedness at any time owing by the Bank, or any
branch, subsidiary or Affiliate, to or for the credit or the account of any
Loan Party against any and all the Obligations of the Loan Parties now or
hereafter existing under this Agreement and the other Loan Documents and other
obligations of the Loan Parties held by the Bank, irrespective of whether or
not the Bank shall have made any demand under this Agreement, such Note, the
Obligations or such other obligations and although the Obligations or such
other obligations may be unmatured. The Bank agrees promptly to notify the
Company after any such setoff and application, but the failure to give such
notice shall not affect the validity of such setoff and application. The
rights of the Bank under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Bank may have.
SECTION 11.07. Governing Law. This Agreement, all Notes,
the other Loan Documents and all other documents executed in connection
herewith and therewith, shall be deemed to be contracts and agreements executed
by the Loan Parties, the Bank under the laws of the State of Texas and of the
United States of America and for all purposes shall be construed in accordance
with, and governed by, the laws of said state and of the United States of
America. Without limitation of the foregoing, nothing in this Agreement, or in
the Notes or in any other Loan Document shall be deemed to constitute a waiver
of any rights which any Bank may have under applicable federal legislation
relating to the amount of interest which such Bank may contract for, take,
receive or charge in respect of any Loans or other Obligations to such Bank
hereunder and under the other Loan Documents, including any right to take,
receive, reserve and charge interest at the rate allowed by the law of the
state where such Bank is located. The Bank and the Loan Parties further agree
that insofar as the provisions of Article 1.04, Subtitle 1, Title 79, of the
Revised Civil Statutes of Texas, 1925, as amended, are applicable to the
determination of the Highest Lawful Rate with respect to the Notes and the
Obligations hereunder and under the other Loan Documents, the indicated rate
ceiling computed from time to time pursuant to Section (a)(1) and Section (b)
of such Article shall be applicable; provided, however, that to the extent
permitted by such Article, the Bank may from time to time by notice from the
Bank to the Company revise the election of such interest rate ceiling as such
ceiling affects the then current or future balances of the Loans outstanding
under the Notes and the Obligations hereunder and under the other Loan
Documents. The provisions of Chapter 15 of Subtitle 3 of the said Title 79 do
not apply to this Agreement, any Note issued hereunder or the Obligations
hereunder and under the other Loan Documents.
SECTION 11.08. Maximum Interest. Each provision in this
Agreement and each other Loan Document is expressly limited so that in no event
whatsoever shall the amount paid, or otherwise agreed to be paid, to the Bank,
or charged, contracted for, reserved, taken or received by the Bank, for the
use, forbearance or detention of the money to be loaned under this Agreement or
any Loan Document or otherwise (including any sums paid as required by any
covenant or obligation contained herein or in any other Loan Document which is
for the use, forbearance or detention of such money), exceed that amount of
money which would cause the effective rate of interest to exceed
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the Highest Lawful Rate, and all amounts owed under this Agreement and each
other Loan Document shall be held to be subject to reduction to the effect that
such amounts so paid or agreed to be paid, charged, contracted for, reserved,
taken or received which are for the use, forbearance or detention of money under
this Agreement or such Loan Document shall in no event exceed that amount of
money which would cause the effective rate of interest to exceed the Highest
Lawful Rate. Anything in any Note or any other Loan Document to the contrary
notwithstanding, the Company shall not be required to pay unearned interest on
any Note and no Loan Party shall be required to pay interest on its Obligations
hereunder and under the Loan Documents to which it is a party at a rate in
excess of the Highest Lawful Rate, and if the effective rate of interest which
would otherwise be payable under such Note, such Obligations and such Loan
Documents would exceed the Highest Lawful Rate, or if the holder of such Note or
such Obligations shall receive any unearned interest or shall receive monies
that are deemed to constitute interest which would increase the effective rate
of interest payable by the Company under such Note and the Loan Parties under
such Obligations and the Loan Documents to which it is a party to a rate in
excess of the Highest Lawful Rate, then (a) the amount of interest which would
otherwise be payable by such Loan Party under such Obligations and such Loan
Documents shall be reduced to the amount allowed under applicable law and (b)
any unearned interest paid by such Loan Party or any interest paid by such
Loan Party in excess of the Highest Lawful Rate shall in the first instance be
credited on the principal of the Obligations of such Loan Party (or if all such
Obligations shall have been paid in full, refunded to the Loan Party paying such
unearned interest). It is further agreed that, without limitation of the
foregoing, all calculations of the rate of interest contracted for, charged or
received by the Bank in respect of the Obligations shall be made, to the extent
permitted by law by amortizing, prorating and spreading in equal parts during
the period of the full stated term of all of the Loans and the other
Obligations, all interest at any time contracted for, charged or received by the
Bank.
SECTION 11.09. Survival of Representations and Warranties.
All representations, warranties and covenants contained herein or made in
writing by the Loan Parties in connection herewith and the other Loan Documents
shall survive the execution and delivery of this Agreement, the Notes and the
other Loan Documents until two years and one day after payment in full of the
Obligations, the termination of the commitments of the Bank and the termination
or expiration of the Letters of Credit, and will bind and inure to the benefit
of the respective successors and assigns of the parties hereto, whether so
expressed or not, provided, that the Revolving Credit Commitment and the Letter
of Credit Commitment of the Bank shall not inure to the benefit of any
successor or assign of the Company.
SECTION 11.10. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Loan Parties and the Bank and
shall inure to the benefit of the Loan Parties, Bank and their respective
permitted successors and assigns.
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SECTION 11.11. Successors and Assigns; Participations. The
Loan Parties may not assign or transfer any of their rights or obligations
hereunder without the written consent of the Bank. The Bank may, without the
consent of any Loan Party, assign to or sell participations to one or more
banks in all or a portion of its rights and obligations under this Agreement
and the other Loan Documents.
SECTION 11.12. Types of Loans. Loans hereunder are
distinguished by "Type" and by "Purpose". The Type of a Loan refers to whether
such Loan is a Eurodollar Rate Loan or an Alternate Base Rate Loan, the Purpose
of a Loan refers to whether it is a Revolving Credit Loan, Term Loan or Letter
of Credit Loan.
SECTION 11.13. Accounting Terms. All accounting terms not
otherwise defined herein shall be construed in accordance with GAAP.
SECTION 11.14. Independence of Covenants. All covenants
contained in this Agreement and in the other Loan Documents shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that such action or condition would be
permitted by an exception to, or otherwise be within the limitations of,
another covenant, shall not avoid the occurrence of a Default or an Event of
Default if such action is taken or condition exists.
SECTION 11.15. Separability. Should any clause, sentence,
paragraph or Section of this Agreement be judicially declared to be invalid,
unenforceable or void, such decision will not have the effect of invalidating
or voiding the remainder of this Agreement, and the parties hereto agree that
the part or parts of this Agreement so held to be invalid, unenforceable or
void will be deemed to have been stricken herefrom and the remainder will have
the same force and effectiveness as if such part or parts had never been
included herein.
SECTION 11.16. Execution in Counterparts. This Agreement
may be executed in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
SECTION 11.17. Interpretation. (a) In this Agreement,
unless a clear contrary intention appears:
(i) the singular number includes the plural number
and vice versa;
(ii) reference to any gender includes each other
gender;
-47-
<PAGE> 53
(iii) the words "herein," "hereof" and "hereunder"
and other words of similar import refer to this Agreement as a whole
and not to any particular Article, Section or other subdivision;
(iv) reference to any Person includes such
Person's successors and assigns but, if applicable, only if such
successors and assigns are permitted by this Agreement, and reference
to a Person in a particular capacity excludes such Person in any other
capacity or individually, provided that nothing in this clause is
intended to authorize any assignment not otherwise permitted by this
Agreement;
(v) except as expressly provided to the contrary
herein, reference to any agreement, document or instrument (including
this Agreement) means such agreement, document or instrument as
amended, supplemented or modified and in effect from time to time in
accordance with the terms thereof and, if applicable, the terms
hereof, and reference to any Note or other note includes any note
issued pursuant hereto in extension or renewal thereof and in
substitution or replacement therefor;
(vi) unless the context indicates otherwise,
reference to any Article, Section, Schedule or Exhibit means such
Article or Section hereof or such Schedule or Exhibit hereto;
(vii) the words "including" (and with correlative
meaning "include") means including, without limiting the generality of
any description preceding such term;
(viii) with respect to the determination of any
period of time, except as expressly provided to the contrary, the word
"from" means "from and including" and the word "to" means "to but
excluding"; and
(ix) reference to any law, rule or regulation
means such as amended, modified, codified or reenacted, in whole or in
part, and in effect from time to time.
(b) The Article and Section headings herein and the Table
of Contents are for convenience only and shall not affect the construction
hereof.
(c) No provision of this Agreement shall be interpreted
or construed against any Person solely because that Person or its legal
representative drafted such provision.
SECTION 11.18. SUBMISSION TO JURISDICTION. (A) ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS
-48-
<PAGE> 54
OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF TEXAS AND, BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH LOAN PARTY HEREBY IRREVOCABLY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. EACH LOAN
PARTY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS
PROVIDED IN SECTION 11.02, SUCH SERVICE TO BECOME EFFECTIVE THIRTY DAYS AFTER
SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY BANK
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY LOAN PARTY IN ANY OTHER
JURISDICTION.
(B) EACH OF THE LOAN PARTIES HEREBY IRREVOCABLY WAIVES
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY
FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.
SECTION 11.19. Waiver of Jury Trial. THE COMPANY HEREBY
WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED
OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM
OR RELATING TO ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, AND AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
-49-
<PAGE> 55
SECTION 11.20. Final Agreement of the Parties. THIS
AGREEMENT (INCLUDING THE SCHEDULES AND EXHIBITS HERETO), THE NOTES AND THE
OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION
26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
-50-
<PAGE> 56
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
Borrower:
AMERICAN ECOLOGY CORPORATION
By: /s/ EDMUND J. GORMAN
------------------------------
Edmund J. Gorman
President and Chief Operating Officer
Bank:
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
By: /s/ F. HALL WEBB
------------------------------
F. Hall Webb
Senior Vice President
-51-
<PAGE> 57
Guarantors:
AMERICAN ECOLOGY ENVIRONMENTAL
SERVICES CORPORATION
AMERICAN ECOLOGY INTERNATIONAL, INC.
AMERICAN ECOLOGY MANAGEMENT
CORPORATION
AMERICAN ECOLOGY RECYCLE CENTER, INC.
AMERICAN ECOLOGY SERVICES
TEXAS ECOLOGISTS, INC.
TRANSTEC ENVIRONMENTAL, INC.
US ECOLOGY, INC.
WPI TRANSPORTATION, INC.
WPI WASTE CARRIERS, INC.
By: /s/ EDMUND J. GORMAN
-----------------------------
Edmund J. Gorman
Executive Vice President
AMERICAN ECOLOGY SERVICES
CORPORATION
By: /s/ EDMUND J. GORMAN
-----------------------------
Edmund J. Gorman
Senior Vice President
-52-
<PAGE> 58
EXHIBIT 2.05A
FORM OF REVOLVING CREDIT NOTE
$8,000,000.00 June 30, 1995
FOR VALUE RECEIVED, the undersigned, AMERICAN ECOLOGY
CORPORATION, a Delaware corporation (the "Company"), HEREBY PROMISES TO PAY to
the order of TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking
association (the "Bank"), EIGHT MILLION and No/100 DOLLARS ($8,000,000.00) or
so much thereof as may be advanced and outstanding on the Revolving Credit Note
Maturity Date as defined in that certain Second Amended and Restated Credit
Agreement dated effective as of even date herewith between the Company, certain
of its subsidiaries and the Bank (the "Credit Agreement"). The terms defined
therein and not otherwise defined herein being used herein as therein defined.
The Company promises to pay interest on the unpaid principal
amount of this Note from the date hereof until such principal amount is paid in
full, at such interest rates as are specified in the Credit Agreement. Both
principal and interest are payable in same day funds in lawful money of the
United States of America to the Bank at 712 Main Street, Houston, Texas, or at
such other place as the Bank shall designate in writing to the Company.
This Note is the Revolving Credit Note referred to in, and is
entitled to the benefits of, the Credit Agreement. The obligations of the
Company hereunder are guaranteed by the the Guaranty and are secured by the
Security Agreement. The Credit Agreement, among other things, (a) provides for
the making of the Revolving Credit Loan by the Bank to the Company from time to
time, and (b) contains provisions for acceleration of the maturity hereof upon
the happening of certain stated events, for prepayments on account of principal
hereof prior to the maturity hereof upon the terms and conditions therein
specified, and for limitations on the amount of interest paid such that no
provision of the Credit Agreement or this Note shall require the payment or
permit the collection of interest in excess of the Highest Lawful Rate.
The Company and any and all endorsers, guarantors and sureties
severally waive grace, demand, presentment for payment, notice of dishonor or
default, acceleration or or intent to accelerate, protest and notice of protest
and diligence in collecting and bringing of suit against any party hereto, and
agree to all renewals, extensions or partial payments hereon and to any release
or substitution of security herefor, in whole or in part, with or without
notice, before or after maturity.
<PAGE> 59
This Note is executed in partial renewal and rearrangement, but
not in extinguishment, of the indebtedness owing by the Company to the Bank
under that certain Revolving Credit Note of the Borrower dated December 1, 1994
in the principal amount of $5,000,000.00 payable to the order of the Bank and
that certain Term Note of the Borrower dated December 1, 1994 in the principal
amount of $30,000,000.00 payable to the order of the Bank.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
AMERICAN ECOLOGY CORPORATION
By:
-------------------------------------
Edmund J. Gorman
President and Chief Operating Officer
<PAGE> 60
EXHIBIT 2.05B
FORM OF TERM NOTE
$27,000,000.00 June 30, 1995
FOR VALUE RECEIVED, the undersigned, AMERICAN ECOLOGY
CORPORATION, a Delaware corporation (the "Company"), HEREBY PROMISES TO PAY to
the order of TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking
association (the "Bank"), TWENTY-SEVEN MILLION and No/100 DOLLARS
($27,000,000.00) at the times and in the amounts set forth in that certain
Second Amended and Restated Credit Agreement dated effective as of even date
herewith between the Company, certain of its subsidiaries and the Bank (the
"Credit Agreement"). The terms defined therein and not otherwise defined
herein being used herein as therein defined. Any accrued unpaid interest and
all unpaid principal shall be due and payable on the Term Note Maturity Date.
The Company promises to pay interest on the unpaid principal
amount of this Note from the date hereof until such principal amount is paid in
full, at such interest rates as are specified in the Credit Agreement. Both
principal and interest are payable in same day funds in lawful money of the
United States of America to the Bank at 712 Main Street, Houston, Texas, or at
such other place as the Bank shall designate in writing to the Company.
This Note is the Term Note referred to in, and is entitled to
the benefits of, the Credit Agreement. The obligations of the Company
hereunder are guaranteed by the the Guaranty and are secured by the Security
Agreement. The Credit Agreement, among other things, (a) provides for the
making of the Term Loan by the Bank to the Company from time to time, and (b)
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events, for prepayments on account of principal hereof prior
to the maturity hereof upon the terms and conditions therein specified, and for
limitations on the amount of interest paid such that no provision of the Credit
Agreement or this Note shall require the payment or permit the collection of
interest in excess of the Highest Lawful Rate.
The Company and any and all endorsers, guarantors and sureties
severally waive grace, demand, presentment for payment, notice of dishonor or
default, acceleration or or intent to accelerate, protest and notice of protest
and diligence in collecting and bringing of suit against any party hereto, and
agree to all renewals, extensions or partial payments hereon and to any release
or substitution of security herefor, in whole or in part, with or without
notice, before or after maturity.
This Note is executed in partial renewal and rearrangement, but
not in extinguishment, of the indebtedness owing by the Company to the Bank
under that certain Term Note of the Borrower
<PAGE> 61
dated December 1, 1994 in the principal amount of $30,000,000.00 payable to the
orderof the Bank and that certain Revolving Credit Note of the Borrower dated
December 1, 1994 in the principal amount of $5,000,000.00 payable to the order
of the Bank.
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS AND ANY
APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
AMERICAN ECOLOGY CORPORATION
By:
-------------------------------------
Edmund J. Gorman
President and Chief Operating Officer
<PAGE> 62
EXHIBIT 2.05C
FORM OF FEE CAPITALIZATION NOTE
$2,000,000.00 June 30, 1995
FOR VALUE RECEIVED, the undersigned, AMERICAN ECOLOGY
CORPORATION, a Delaware corporation ("Maker"), promises to pay to the order
of TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national banking association
("Payee"), at 712 Main Street, Houston, Texas 77002, or such other place as the
Payee may designate from time to time in writing, in lawful money of the United
States of America, the principal sum of TWO MILLION AND NO/100 DOLLARS
($2,000,000.00), together with interest on said principal, or so much thereof
as may be from time to time outstanding, at a rate per annum equal to the
lesser of: (i) the Prime Rate plus one percent per annum and (ii) the maximum,
non-usurious rate of interest (the "Highest Lawful Rate") permitted by the
applicable laws of the State of Texas or the United States of America,
whichever shall permit the higher lawful rate and as to which Maker could not
successfully assert a claim or defense of usury, and to the extent that the
Highest Lawful Rate is determined by reference to the laws of the State of
Texas, the Highest Lawful Rate shall be the indicated (weekly) rate ceiling (as
defined and described in Texas Revised Civil Statutes, Article 5069-1.04, as
amended) at the applicable time in effect. Upon the occurrence of a Default
under the Credit Agreement (hereinafter defined), interest on the outstanding
principal balance of this Note shall accure at the Highest Lawful Rate. The
"Prime Rate" means, for any day, a fluctuating rate per annum as shall be in
effect from time to time, which rate per annum shall at all times be equal to
the prime rate most recently determined by Payee and thereafter entered in the
minutes of Payee's Loan and Discount Committee, automatically fluctuating
upward and downward with and at the times specified in each such determination
without notice to Makers or any other person, which prime rate may not
necessarily represent the lowest or best rate actually charged to a customer.
As of the date hereof, the outstanding principal balance owing under this Note
is ONE MILLION AND NO/100 DOLLARS ($1,000,000.00); provided, such outstanding
principal balance is subject to increase pursuant to the terms of the Credit
Agreement (hereinafter defined).
This Note shall be payable as follows: Interest due hereunder
shall be payable monthly as it accrues on the 1st day of each month. All
principal due hereunder shall be due and payable on the Maturity Date, as
defined in that one certain Credit Agreement of even date herewith between
Maker, as borrower, and the Payee, as Bank, concerning the extension of certain
loans by Payee to Maker (the "Credit Agreement"); provided, the Payee may, at
any time in its sole and absolute discretion, in lieu of accepting payment in
cash, require a principal payment or prepayment hereunder to be made in the
common stock of the Company (the "Common Stock") currently trading
Initial for ID
------
<PAGE> 63
on the Nasdaq National Market, in the amount of the number of shares of Common
Stock equal to the quotient of the outstanding principal balance to be paid or
prepaid under this Note on the such payment date divided by $4.75. In the
event Maker recapitalizes, reclassified its capital stock, merges with or into
or consolidates with any other corporation, sells or transfers substantially
all of its assets or otherwise changes its capital structure in such a way that
the Common Stock is converted into the right to receive stock, securities or
other property, then Payee may, in its sole and absolute discretion, require
payment hereof to be made in such stock, securities or other property that
Payee would have been entitled to receive had Payee owned the number of shares
of Common Stock equal to the quotient of the outstanding principal balance
owing under this Note immediately prior to such recapitalization,
reclassification, merger, consolidation, sale, transfer or other change in
capital structure divided by $4.75. Notwithstanding anything contained in the
Credit Agreement, this Note may not be prepaid without the express written
consent of Payee.
This Note is the Fee Capitalization Note referred to in, and is
entitled to the benefits of, the Credit Agreement. This Note evidences the
obligations of the Company in respect of: (i) the unpaid fees due and owing
under Sections 4.01(a) and (c) of the Credit Agreement; (ii) the option
exercised by the Company to reduce the interest rate owing on the Term Loan,
which amount is also unpaid; and (iii) any accrued, unpaid interest due under
the terms of the Credit Agreement but capitalized as provided therein and
included as principal hereunder. The obligations of the Company hereunder are
guaranteed by the guaranty agreements contained in the Credit Agreement. The
Credit Agreement, among other things (i) provides for the making of Loans by
the Bank to the Company, certain of the Indebtedness of the Company to the Bank
being evidenced by this Note, (ii) contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events, (iii) describes
the collateral securing the Obligations thereunder and (iv) contains provisions
for the limitation on the amount of interest to be paid such that no term of
the Credit Agreement or this Note shall require the payment or permit the
collection of interest in excess of the Highest Lawful Rate.
Maker and Payee agree that: (i) this is not a separate lending
transaction, but rather that this Note evidences obligations of the Company as
described in the Credit Agreement and constitutes consideration for the waiver
by Payee of the requirements contained therein and (ii) no funds have been
advanced by Payee under this Fee Capitalization Note but that it is an element
of the Obligations of the Company under the Credit Agreement and documentary
evidence of the Company's duty to make payment in respect of its Obligations
thereunder.
The Company and any and all endorsers, guarantors and sureties
severally waive grace, demand, presentment for payment, notice of dishonor or
default or intent to accelerate, protest and notice of protest and diligence in
collecting and bringing of suit against any party hereto, and agree to all
renewals, extensions or partial payments hereon and to any release or
substitution of security herefor, in whole or in part, with or without notice,
before or after maturity.
Initial for ID
------
<PAGE> 64
This Note shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Texas and any applicable laws of the
United States of America.
EXECUTED to be effective as of the day and year written above.
AMERICAN ECOLOGY CORPORATION
By:
-------------------------------------
Edmund J. Gorman
President and Chief Operating Officer
Initial for ID
------
<PAGE> 65
EXHIBIT 7.01(c)
AMERICAN ECOLOGY CORPORATION
BORROWING BASE CERTIFICATE
As of the end of , 199 :
--------------------------- -----
<TABLE>
<S> <C> <C>
(1) (a) Total Receivables $
---------------
(b) Total Eligible Receivables $
---------------
(2) Borrowing Base $
(Line (1)(b) multiplied by .80 - ---------------
Never to exceed $8,000,000.00)
(3) Total Loans Outstanding $
---------------
(4) Amount Available $
(Line 2 minus Line 4 ---------------
never to exceed $8,000,000.00)
</TABLE>
The undersigned has prepared this Borrowing Base Certificate,
responsive to the Second Amended and Restated Credit Agreement dated effective
as of June 30, 1995 between the above named company and Texas Commerce Bank
National Association and certain other parties, from the books and records of
the company as of the date set forth above.
AMERICAN ECOLOGY CORPORATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 66
EXHIBIT 7.01(e)
FORM OF
NO DEFAULT CERTIFICATE
The undersigned, on behalf of the Company, hereby certifies and
represents to the Bank that no Default or Event of Default has occurred under
the Second Amended and Restated Credit Agreement (the "Credit Agreement") since
the effective date thereof or the date of the delivery of the most recent of
these Certificates, whichever is later, except as follows:
The undersigned further certifies and represents to the Bank
that the Company has no Subsidiaries that are not Guarantors of the
Indebtedness of the Company to the Bank described in the Credit Agreement
except for those Guarantors listed in Section 6.16 thereof and
.
- -----------------
This certificate is delivered to you pursuant to Section 7.01(e)
of the Credit Agreement with the understanding that you are relying hereon in
making Loans thereunder.
Very truly yours,
AMERICAN ECOLOGY CORPORATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 67
Schedule 6.06
None except as disclosed in the Company's Form 10-Q filed with the
Securities and Exchange Commission for the quarterly period ended September 30,
1995.
<PAGE> 68
Schedule 6.13
None except as disclosed in the Company's Form 10-Q filed with the
Securities and Exchange Commission for the quarterly period ended September 30,
1995.
<PAGE> 69
Schedule 8.03
None.
<PAGE> 70
Schedule 8.04
None.
<PAGE> 1
EXHIBIT 10.42
AMENDED AND RESTATED SECURITY AGREEMENT
THIS AMENDED AND RESTATED SECURITY AGREEMENT (this "Security
Agreement") dated effective as of June 30, 1995 is made by AMERICAN ECOLOGY
CORPORATION, a Delaware corporation, having its office located at 5333
Westheimer, Suite 1000, Houston, Texas 77056 (the "Grantor"), in favor of TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, a national banking association (the
"Secured Party").
PRELIMINARY STATEMENT
WHEREAS, the Grantor executed that one certain Security
Agreement dated as of December 1, 1994 (the "Original Security Agreement") in
favor of the Secured Party, as agent and as a bank, as security for the
obligations of the Grantor under that certain Amended and Restated Credit
Agreement dated of December 1, 1994; and
WHEREAS, the Security Party, the Grantor and certain of its
subsidiaries, as Guarantors, have entered into a Second Amended and Restated
Credit Agreement dated effective as of even date herewith (said Second
Amendment and Restated Credit Agreement, as it may hereafter be amended or
otherwise modified from time to time, being the "Credit Agreement") under the
terms of the which the Secured Party has agreed to make various loans to the
Grantor up to a total of $35,000,000.00; and
WHEREAS, it is a condition precedent to the obligation of the
Secured Party to make the loans to the Grantor under the Credit Agreement that
the Grantor shall execute and deliver this Security Agreement to the Secured
Party in amendment and restatement of the Original Security Agreement and
continuation of the liens in respect thereof, and the Grantor desires to
execute this Security Agreement in order to satisfy such condition precedent.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Secured Party to make the loans to the Grantor under the Credit
Agreement, the Grantor hereby agree as follows:
SECTION 1. Defined Terms. "UCC" means the Uniform Commercial
Code as in effect on the date hereof in the State of Texas, provided that if by
mandatory provisions of law, the perfection or the effect of perfection or non-
perfection of the security interests granted pursuant to Section 2 hereof, as
well as all other security interests created or assigned as additional security
for the Obligations pursuant to the provisions of this Security Agreement, in
any Collateral is governed by the UCC as in effect in such other jurisdiction
other than Texas, "UCC" means the UCC as in effect in such other jurisdiction
for purposes of the provisions hereof relating to such perfection or
<PAGE> 2
effect of perfection or non-perfection. All capitalized terms used herein
which are defined in the Credit Agreement and not otherwise defined herein
shall have the meanings specified therein.
SECTION 2. Grant of Security. The Grantor hereby assigns and
pledges to the Secured Party, and hereby grants to the Secured Party, a
security interest in all of the Grantor's right, title and interest in and to
the following, whether presently held or hereafter acquired (the "Collateral"):
(a) All accounts (as defined in the UCC), receivables,
accounts receivable, lease receivables, contract rights, chattel
paper, drafts, acceptances, instruments, writings evidencing a
monetary obligation or a security interest or a lease of goods,
general intangibles and other obligations of any kind, now or
hereafter existing, whether or not arising out of or in connection
with the sale or lease of goods or the rendering of services, and all
rights now or hereafter existing in and to all security agreements,
leases, and other contracts securing or otherwise relating to any such
accounts, receivables, accounts receivable, lease receivables,
contract rights, chattel paper, drafts, acceptances, instruments,
writings evidencing a monetary obligation or a security interest or a
lease of goods, general intangibles or obligations (any and all of the
foregoing being the "Receivables"); and
(b) All equipment (as defined in the UCC) and all
machinery, chattels, tools, dies, jigs, molds, parts, machine tools,
furniture, furnishings, fixtures rolling stock, cars, trucks,
trailers, tractors, cabs, engines, motors, parts and supplies of every
nature wherever located, including all additions, accessories and
improvements thereto and substitutions therefor (any and all of the
foregoing being the "Equipment"); and
(c) All inventory (as defined in the UCC) in all of its
forms, wherever located, now or hereafter existing and whether
acquired by purchase, merger or otherwise and all raw materials and
work in process therefor, all finished goods thereof and all materials
used or consumed in the manufacture, packing, shipping, advertising,
selling, leasing or production thereof, goods in which the Grantor has
an interest in mass or joint or other interest or right of any kind
and goods which are returned to or repossessed by the Grantor, and all
accessions thereto and products thereof and documents therefor (any
and all of the foregoing being the "Inventory"); and
(d) All licenses, permits, leases, operating agreements
and rights of any kind to store, process, transport, dispose of, treat
or otherwise deal with chemical radioactive or other types of
hazardous wastes or other materials, including, without limitation,
those items listed on Schedule 2(d) hereto.
-2-
<PAGE> 3
(e) Notwithstanding that the Collateral secures all of
the Secured Obligations, specific Letter of Credit Collateral is
subject to the terms of Sections 3.06 and 4.01(c) of the Credit
Agreement, and is specifically pledged to individual Letters of Credit
as described in Section 4.01(c) of the Credit Agreement; provided, if
an Event of Default under Section 10.01(f) of the Credit Agreement
occurs, then all Letter of Credit Collateral that is not otherwise
included in the definition of Collateral hereunder and is not used to
repay the Secured Party for any draws under any Letter of Credit shall
be expressly included as Collateral hereunder; and
(f) All products and proceeds of any and all of the
foregoing Collateral and, to the extent not otherwise included, all
payments under insurance or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to
any of the foregoing Collateral.
The inclusion of proceeds in this Security Agreement does not
authorize the Grantor to sell, dispose of or otherwise use the Collateral in
any manner not specifically authorized hereby.
SECTION 3. Security for Obligations. This Security Agreement
secures the prompt and complete (a) payment and performance of all obligations
of the Grantor to the Secured Party now or hereafter existing under the
Revolving Credit Note, the Fee Capitalization Note and the Term Note and any
duties or obligations of the Grantor under the Credit Agreement, including
letters of credit, and the other Loan Documents, and (b) performance and
observance by the Grantor of all covenants and conditions contained in the
Credit Agreement, this Security Agreement and any other Loan Document to which
it is a party, and in any case whether for principal, interest, fees, expenses
or otherwise, including without limitation, Article IX of the Credit Agreement
(all such obligations, covenants and conditions described in the foregoing
clauses (a) and (b) being hereinafter collectively referred to as the "Secured
Obligations").
SECTION 4. Grantor Remain Liable. Anything herein to the
contrary notwithstanding, (a) the Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Security Agreement had not been executed, (b) the exercise by
the Secured Party of any of the rights hereunder shall not release the Grantor
from any of its duties or obligations under the contracts and agreements
included in the Collateral, and (c) the Secured Party shall not have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Security Agreement, nor shall the Secured Party be
obligated to perform any of the obligations or duties of the Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
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SECTION 5. Representations and Warranties. The Grantor
represents and warrants as follows:
(a) All of the Collateral is located at the places
specified on Schedule 15(b) hereto. The chief place of business and
chief executive office of the Grantor and the office where the Grantor
keeps its records concerning the Collateral is located at the address
specified in the introductory paragraph to this Security Agreement.
(b) The Grantor owns the Collateral free and clear of any
lien or security interest except for the lien and security interest
created by this Security Agreement and Liens existing in favor of the
Secured Party. No effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on
file in any recording office, except such as may have been filed in
favor of the Secured Party relating to this Security Agreement. The
Grantor has no trade names except as shown on Schedule 15(b) hereto.
(c) This Security Agreement has been duly executed and
delivered by the Grantor and creates a valid and perfected first
priority lien and security interest in the Collateral, securing the
payment of the Secured Obligations, and all filings and other actions
necessary or desirable to perfect and protect such lien and security
interest have been duly taken.
(d) No consent of, or notice to, any other persons and no
authorization, approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required either
(i) for the grant by the Grantor of the lien and security interest
granted hereby or for the execution, delivery or performance of this
Security Agreement by the Grantor or (ii) for the perfection of or the
exercise by the Secured Party of its rights and remedies hereunder,
other than the filing of financing statements with the Secretary of
State of the States of Texas and Delaware.
(e) All information with respect to the Collateral and
the obligors under the Receivables set forth in any Schedule
(including Schedule I hereto), certificate or other writing at any
time heretofore or hereafter furnished by the Grantor to the Secured
Party is and will be true, correct and complete in all material
respects as of the date specified therein.
SECTION 6. Further Assurances. (a) The Grantor agrees that
from time to time, at the expense of the Grantor, the Grantor will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Secured Party may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Secured Party to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, the Grantor will: (i) mark
conspicuously, at the request of the Secured Party, each of their records
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<PAGE> 5
pertaining to the Collateral with a legend indicating that such document,
chattel paper, or Collateral is subject to the security interest granted
hereby; (ii) if any Receivable shall be evidenced by a promissory note or other
instrument or chattel paper, upon the request of the Secured Party, the Grantor
shall, deliver and pledge to the Secured Party for the benefit of the Secured
Party such note, instrument or chattel paper duly endorsed and accompanied by
duly executed instruments of transfer or assignment, all in form and substance
satisfactory to the Secured Party and (iii) execute and file such financing or
continuation statements or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as the Secured Party may request,
in order to perfect and preserve the security interests granted or purported to
be granted hereby.
(b) The Grantor hereby authorizes the Secured Party to
file one or of more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral without the signatures
of the Grantor where permitted by law. A carbon, photographic or other
reproduction of this Security Agreement of any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
(c) The Grantor will furnish to the Secured Party from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Secured Party may reasonably request, all in reasonable detail.
(d) The Grantor will promptly notify the Secured Party of
any change of its name, corporate structure or federal tax identification
number.
(e) The Grantor shall keep its chief place of business
and chief executive office and the office where it keeps its books and records
concerning the Collateral, and all originals of all chattel paper, instruments
and documents which evidence Receivables at the location therefor specified in
Section 5(a) or, upon 30 days prior written notice to the Secured Party, at
such other locations in a jurisdiction where all action required by Section 6
shall have been taken with respect to the Receivables. The Grantor will hold
and preserve such records and chattel paper and will upon reasonable notice
permit representatives of the Secured Party at any time during normal business
hours to inspect and make abstracts from such records and chattel paper.
(f) Except as otherwise provided in this subsection (f),
the Grantor shall continue to collect, at its own expense, all amounts due or
to become due the Grantor under the Receivables. In connection with such
collections, the Grantor may take (and, upon the occurrence and continuance of
an Event of Default at the Secured Party's direction, shall take) such action
as the Grantor or the Secured Party may deem necessary or advisable to enforce
collection of the Receivables; provided, that the Secured Party shall have the
right at any time, upon the occurrence and during the continuance of an Event
of Default and upon written notice to the Grantor of its intention to do so, to
notify the account debtors or obligors under any Receivables of the assignment
of such
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<PAGE> 6
Receivables to the Secured Party and to direct such account debtors or obligors
to make payment of all amounts due or to become due to the Grantor thereunder
directly to the Secured Party and, upon such notification and at the expense of
the Grantor, to enforce collection of any such Receivables, and to adjust,
settle or compromise the amount of payment thereof, in the same manner and to
the same extent as the Grantor might have done. After receipt by the Grantor
of the notice from the Secured Party referred to in the proviso to the
preceding sentence, (i) all amounts and proceeds (including instruments)
received by the Grantor in respect of the Receivables shall be received in
trust for the benefit of the Secured Party hereunder, shall be segregated from
other funds of the Grantor and shall be forthwith paid over to the Secured
Party in the same form as so received (with any necessary endorsement) to be
held as cash collateral and either (A) released to the Grantor so long as no
Event of Default shall have occurred and be continuing or (B) if any Event of
Default shall have occurred and be continuing, applied as provided in Section
9, and (ii) the Grantor shall not adjust, settle or compromise the amount or
payment of any Receivable, or release wholly or partly any account debtor or
obligor thereof, or allow any credit or discount thereon, except with the prior
written consent of the Secured Party.
(g) The Grantor shall keep the Inventory (other than
Inventory sold in the ordinary course of business or Inventory in transit to a
buyer) at the places therefor specified in Section 5(a) or, upon at least 30
days' prior written notice to the Secured Party, at such other places in
jurisdictions where all action required by Section 6 shall have been taken with
respect to the Inventory.
(h) Not permit anything to be done that may impair the
value of any of the Collateral or the lien and security interest to be afforded
by this Security Agreement.
SECTION 7. Insurance. The Grantor shall, at their own
expense, maintain insurance as provided in Section 7.03 of the Credit
Agreement.
SECTION 8. Transfers and Other Liens. The Grantor shall not:
(a) sell, assign (by agreement, operation of law or otherwise) or otherwise
dispose of any of the Collateral (other than in the ordinary course of
business) or (b) create or suffer to exist any lien or security interest upon
or with respect to any of the Collateral, except for the lien or security
interest created by this Security Agreement and liens and security interests in
favor of the Secured Party as previously disclosed to the Secured Party.
SECTION 9. Remedies and Application of Proceeds. If any
Event of Default shall have occurred and be continuing, the Secured Party may
exercise in respect of the Collateral, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies
of a secured party on default under the UCC (whether or not the UCC applies to
the affected Collateral) and the Secured Party may also (a) require the Grantor
to, and the Grantor hereby
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<PAGE> 7
agrees that it will at its expense and upon request of the Secured Party
forthwith, assemble all or part of the Collateral as directed by the Secured
Party and make it available to the Secured Party at a place to be designated by
the Secured Party which is reasonably convenient to both parties and (b),
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, for cash, on credit
or for future delivery, and upon such other terms as the Secured Party may
deem commercially reasonable. The Grantor will execute and deliver such
documents and take such other action as the Secured Party deems necessary or
advisable in order that any sale may be made. Upon any such sale the Secured
Party shall have the right to deliver and transfer to the purchaser thereof the
Collateral sold. The Grantor agrees that, to the extent notice of sale shall
be required by law, at least ten (10) days' prior written notice to the Grantor
of the time and place of any public sale or the time after which any private
sale is to be made or other intended disposition of any of the Collateral shall
constitute reasonable notification thereof, except any Collateral which is
perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market. The Grantor agrees that such notice
constitutes "reasonable notification" within the meaning of Section 9.504(c) of
the UCC. The Secured Party shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Secured Party
may adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.
SECTION 10. Secured Party Appointed Attorney-in-Fact.
Effective upon the occurrence of and continuance of an Event of Default, the
Grantor hereby irrevocably appoints the Secured Party the Grantor's
attorney-in-fact, with full authority in the place and stead of the Grantor
and in the name of the Grantor, the Secured Party or otherwise, from time to
time after the occurrence and during the continuance of an Event of Default in
the Secured Party's sole discretion, to take any action and to execute any
instrument which the Secured Party may deem necessary or advisable to
accomplish the purposes of this Security Agreement, including:
(a) to ask, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipts for moneys due
and to become due under or in respect of any of the Collateral,
(b) to settle, compromise, prosecute or defend any action
or proceeding with respect thereto,
(c) to extend the time of payment thereof and to make
any allowances or adjustment with reference thereto, and
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<PAGE> 8
(d) to sell, transfer, assign, or otherwise deal in or
with the Collateral or the proceeds or avails thereof, as fully and
effectually as if the Secured Party were the absolute owner thereof.
SECTION 11. Secured Party May Perform. If the Grantor fails
to perform any agreement contained herein, the Secured Party may itself
perform, or cause performance of, such agreement, and the expenses of the
Secured Party incurred in connection therewith shall be payable by the Grantor
under Section 13.
SECTION 12. Limitations of the Secured Party's Duties. The
powers conferred on the Secured Party hereunder are solely to protect its
interests in the Collateral and shall not impose any duty upon it to exercise
any such powers. Except for reasonable care in the custody of any Collateral
in its possession and the accounting for moneys actually received by it
hereunder, the Secured Party shall have no duty as to any Collateral or as to
the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral. The Secured Party shall be
deemed to have exercised reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Secured Party accords it own property, it
being understood that the Secured Party shall not have any responsibility for
taking any necessary steps to preserve rights against any parties with respect
to any Collateral.
SECTION 13. Indemnity and Expenses. (a) The Grantor shall
indemnify the Secured Party and any Affiliate thereof and their respective
directors, officers, employees and Secured Party from, and hold each of them
harmless against, any and all losses, liabilities, claims or damages (including
reasonable legal fees and expenses) to which any of them may become subject,
insofar as such losses, liabilities, claims or damages arise out of or result
from (i) this Security Agreement, the Credit Agreement or any of the loan
documents executed in connection herewith or (ii) any investigation, litigation
or other proceeding (including any threatened investigation or proceeding)
relating to the foregoing, and the Grantor shall reimburse the Secured Party
and each Affiliate thereof and their respective directors, officers, employees
and Secured Party, upon demand for any expenses (including legal fees)
reasonably incurred in connection with any such investigation or proceeding,
but excluding any such losses, liabilities, claims, damages or expenses
incurred by reason of the gross negligence or willful misconduct of the person
to be indemnified. IT IS THE EXPRESS INTENTION OF THE GRANTOR THAT EACH PERSON
TO BE INDEMNIFIED HEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY
AND ALL LOSSES, LIABILITIES, CLAIMS OR DAMAGES AS LIMITED IN THE PRECEDING
SENTENCE ARISING OUT OF OR RESULTING FROM THE ORDINARY, SOLE OR CONTRIBUTORY
NEGLIGENCE OF SUCH PERSON. Without prejudice to the survival of any other
obligations of the Grantor hereunder, the obligations of the Grantor under this
Section shall survive the termination of this Security Agreement.
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<PAGE> 9
(b) The Grantor agrees to pay within ten (10) Business
Days (as such term is defined in the Credit Agreement) after demand, to the
Secured Party the amount of any and all reasonable expenses, including the fees
and disbursements of its counsel and of any experts and agents, that the
Secured Party may incur in connection with (i) the administration of this
Security Agreement, (ii) the evaluation, appraisal, custody, preservation, use
or operation of, or the sale of, collection from, or other realization upon,
any of the Collateral, (iii) the exercise or enforcement of any of the rights
of the Secured Party hereunder or (iv) the failure by the Grantor to perform or
observe any of the provisions hereof. The Grantor agrees to pay interest on
any expenses or other sums payable to the Secured Party hereunder that are not
paid when due at a rate per annum equal to the Default Rate (as such term is
defined in the Credit Agreement).
SECTION 14. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing and, if to the
Grantor, mailed or telecopied or delivered to them, addressed to them at the
addresses provided for the Grantor in the introductory paragraph to this
Security Agreement, Attention: Mr. Edmund J. Gorman, Telecopy No.
(713) 624-1909, if to the Secured Party to it at 712 Main Street, Houston, Texas
77002, Attention: Mr. Bruce A. Shilcutt, Telecopy No. (713) 216-2902, or as to
any party at such other address as shall be designated by such party in a
written notice to each other party complying as to delivery with the terms of
this Section. All such notices and other communications shall, when mailed or
telecopied, or delivered respectively, be effective when mailed by certified
mail return receipt requested to any party as its address specified herein, or
telecopied to any party to the telecopy number set forth herein, as applicable,
or delivered personally to any party at its address specified above.
SECTION 15. Termination; Reinstatement. (a) The Grantor
agrees that this Security Agreement and the liens and security interests
granted hereunder shall terminate only when all Obligations have been fully
paid and performed, at which time the Secured Party upon the Grantor's request
shall reassign and redeliver, including the termination of any financing
statements (or cause to be reassigned and redelivered) to the Grantor, or to
such person as the Grantor shall designate in writing, against receipt, such of
the Collateral (if any) as shall not have been sold or otherwise applied by the
Secured Party pursuant to the terms hereof and shall still be held by it
hereunder. Any such reassignment shall be without recourse upon, or
representation or warranty by, the Secured Party (other than that the Secured
Party has not sold, encumbered or otherwise transferred any interest in the
Collateral except as provided in this Security Agreement) and shall be at the
sole cost and expense of the Grantor.
(b) This Security Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any amount
received by the Secured Party in respect of the Secured Obligations is
rescinded or must otherwise be restored or returned by the Secured Party upon
the filing of any bankruptcy proceeding by or of the Grantor or upon the
appointment of any intervenor
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<PAGE> 10
or conservator of, or trustee or similar official for, the Grantor or any
substantial part of their assets, or otherwise, all as though such payments had
not been made.
SECTION 16. Miscellaneous. (a) No amendment or waiver of
any provision of this Security Agreement, nor consent to any departure by the
Grantor herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Secured Party and the Grantor, and then such waiver
or consent shall be effective only in the specific instance and for the
specific purpose for which given.
(b) All rights and marshalling of assets of the Grantor,
including any such right with respect to the Collateral, are hereby waived by
the Grantor.
(c) All rights, remedies and powers provided in this
Security Agreement may be exercised only to the extent that the exercise
thereof does not violate any applicable provision of law, and all the
provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law which may be controlling and to be
limited to the extent necessary so that they will not render Security Agreement
invalid, unenforceable, in whole or in part, or not entitled to be recorded,
registered or filed under the provision of any applicable law.
(d) Should any clause, sentence, paragraph, subsection or
Section of this Security Agreement be judicially declared to be invalid,
unenforceable or void, such decision will not have the effect of invalidating
or voiding the remainder of this Security Agreement, and the parties hereto
agree that the part or parts of this Security Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom by the
parties hereto, and the remainder will have the same force and effectiveness as
if such stricken part or parts had never been included herein.
(e) No failure on the part of the Secured Party to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
(f) This Security Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement.
(g) This Security Agreement shall create a continuing
security interest in the Collateral and shall (a) remain in full force and
effect until payment in full of the Secured Obligations, (b) be binding upon
the Grantor, its successors and assigns and (c) inure to the benefit of the
Secured Party and its successors, transferees and assigns. Upon the payment in
full of the
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<PAGE> 11
Secured Obligations, the lien and security interest granted hereby shall
terminate and all rights to the Collateral shall revert to the Grantor. Upon
any such termination, the Secured Party will, at the Grantor's expense,
promptly execute and deliver to the Grantor such documents as the Grantor shall
reasonably request to evidence such termination.
(h) All representations and warranties contained in this
Security Agreement or made in writing by or on behalf of the Grantor in
connection herewith shall survive the execution and delivery of this Security
Agreement and repayment of the Secured Obligations. Any investigation by the
Secured Party shall not diminish in any respect whatsoever its rights to rely
on such representations and warranties.
(i) The Grantor hereby expressly waive, to the extent
permitted by applicable law, (1) notice of the acceptance by the Secured Party
of this Security Agreement, (2) notice of the existence or creation or
non-payment of all or any of the Secured Obligations, (3) presentment, demand,
notice of dishonor, protest, intent to accelerate, acceleration and all other
notices whatsoever, and (4) all diligence in collection or protection of or
realization upon the Secured Obligations or any thereof, any obligation
hereunder, or any security for or guaranty of any of the foregoing.
(j) In this Security Agreement, unless a clear contrary
intention appears:
(i) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Security agreement as a whole
and not to any particular Article, Section or other subdivision;
(ii) reference to any person includes such person's
successors and assigns and reference to a person in a particular
capacity excludes such person in any other capacity or individually;
(iii) reference to any agreement, document or instrument
means such agreement, document or instrument as amended, supplemented
or modified and in effect from time to time in accordance with the
terms thereof;
(iv) unless the context indicates otherwise, reference to any
Article, Section, Schedule or Exhibit means such Article or Section
hereof or such Schedule or Exhibit hereto;
(v) the words "including" (and "include") means
including, without limiting the generality of any description
preceding such term;
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<PAGE> 12
(vi) with respect to the determination of any period of
time, the word "from" means "from and including" and the word "to"
means "to but excluding;" and
(vii) reference to any law means such as amended, modified,
codified or reenacted, in whole or in part, and in effect from time to
time.
(k) The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.
(l) No provision of this Security Agreement shall be
interpreted or construed against any Person solely because that person or its
legal representative drafted such provision.
SECTION 17. Ratification of Security Agreement. The Original
Security Agreement, as amended and restated by this Security Agreement, and the
liens created thereby, are hereby in all respects affirmed, ratified, confirmed
and continued.
SECTION 18. Governing Law, Terms. THIS SECURITY AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS.
SECTION 19. Waiver of Jury Trial. THE GRANTOR HEREBY WAIVES,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS SECURITY
AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED
OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM
OR RELATING TO ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
SECURITY AGREEMENT AND AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT
ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A
JURY.
SECTION 20. Submission to Jurisdiction. (a) ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS SECURITY AGREEMENT AND THE OTHER LOAN
DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF TEXAS AND, BY EXECUTION AND DELIVERY OF
THIS SECURITY AGREEMENT, THE GRANTOR
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<PAGE> 13
HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS WITH
RESPECT TO ANY SUCH ACTION OR PROCEEDING. THE GRANTOR FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN
ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS SET FORTH IN SECTION 14,
SUCH SERVICE TO BECOME EFFECTIVE THIRTY DAYS AFTER SUCH MAILING. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF THE SECURED PARTY TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST ANY LOAN PARTY IN ANY OTHER JURISDICTION.
(b) THE GRANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR
PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN THE
COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES
AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
SECTION 21. Final Agreement of the Parties. THIS SECURITY
AGREEMENT (INCLUDING THE SCHEDULES HERETO), THE NOTES, THE CREDIT AGREEMENT AND
THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION
26.02 (A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
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<PAGE> 14
IN WITNESS WHEREOF, the Grantor has caused this Security
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
AMERICAN ECOLOGY CORPORATION
By: /s/ EDMUND J. GORMAN
-------------------------------------
Edmund J. Gorman
President and Chief Operating Officer
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<PAGE> 15
Schedule 15(b)
Locations of Inventory and Equipment
Houston, Texas
Trade Names
None
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<PAGE> 1
EXHIBIT 10.43
AMENDED AND RESTATED SECURITY AGREEMENT
THIS AMENDED AND RESTATED SECURITY AGREEMENT (this "Security
Agreement") dated effective as of June 30, 1995 is made by AMERICAN ECOLOGY
RECYCLE CENTER, INC., a Delaware corporation, AMERICAN ECOLOGY SERVICES
CORPORATION, a Delaware corporation, AMERICAN ECOLOGY MANAGEMENT CORPORATION,
a Delaware corporation, AMERICAN ECOLOGY INTERNATIONAL, INC., a Delaware
corporation, AMERICAN ECOLOGY ENVIRONMENTAL SERVICES CORPORATION, a Texas
corporation, TEXAS ECOLOGISTS, INC., a Texas corporation, TRANSTEC
ENVIRONMENTAL, INC., a Ohio corporation, US ECOLOGY, INC., a California
corporation, WPI TRANSPORTATION, INC., a Texas corporation and WPI WASTE
CARRIERS, INC., a Texas corporation (individually, each a "Grantor" and
collectively, the "Grantors") with offices located at 5333 Westheimer, Suite
1000, Houston, Texas 77056, in favor of TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking association (the "Secured Party").
PRELIMINARY STATEMENT
WHEREAS, the Grantors executed that one certain Security
Agreement dated as of December 1, 1994 (the "Original Security Agreement") in
favor of the Secured Party, as agent and as a bank, as security for the
obligations of the Borrower under that certain Amended and Restated Credit
Agreement dated of December 1, 1994; and
WHEREAS, the Secured Party, American Ecology Corporation, a
Delaware corporation (the "Borrower") and the Grantors, as guarantors, have
entered into a Second Amended and Restated Credit Agreement dated effective as
of even date herewith (said Second Amendment and Restated Credit Agreement, as
it may hereafter be amended or otherwise modified from time to time, being the
Credit Agreement) under the terms of the which the Secured Party has agreed to
make various loans to the Borrower up to a total of $35,000,000.00; and
WHEREAS, it is a condition precedent to the obligation of the
Secured Party to make the loans to the Borrower under the Credit Agreement that
each Grantor execute and deliver this Security Agreement to the Secured
Party in amendment and restatement of the Original Security Agreement and
continuation of the liens in respect thereof, and the Grantors desire to
execute this Security Agreement in order to satisfy such condition precedent.
NOW THEREFORE, in consideration of the premises and in order
to induce the Secured Party to make the loans to the Borrower under the Credit
Agreement, the Grantors hereby agree as follows:
<PAGE> 2
SECTION 1. Defined Terms. "UCC" means the Uniform Commercial
Code as in effect on the date hereof in the State of Texas, provided that if by
mandatory provisions of law, the perfection or the effect of perfection or non-
perfection of the security interests granted pursuant to Section 2 hereof, as
well as all other security interests created or assigned as additional security
for the Obligations pursuant to the provisions of this Security Agreement, in
any Collateral is governed by the UCC as in effect in such other jurisdiction
other than Texas, "UCC" means the UCC as in effect in such other jurisdiction
for purposes of the provisions hereof relating to such perfection or effect of
perfection or non-perfection.
SECTION 2. Grant of Security. Each Grantor hereby assigns and
pledges to the Secured Party, and hereby grants to the Secured Party, a
security interest in, all of the Grantor's right, title and interest in and to
the following, whether presently held or hereafter acquired (the "Collateral"):
(a) All accounts (as defined in the UCC), receivables,
accounts receivable, lease receivables, contract rights, chattel
paper, drafts, acceptances, instruments, writings evidencing a
monetary obligation or a security interest or a lease of goods,
general intangibles and other obligations of any kind, now or
hereafter existing, whether or not arising out of or in connection
with the sale or lease of goods or the rendering of services, and all
rights now or hereafter existing in and to all security agreements,
leases, and other contracts securing or otherwise relating to any such
accounts, receivables, accounts receivable, lease receivables,
contract rights, chattel paper, drafts, acceptances, instruments,
writings evidencing a monetary obligation or a security interest or a
lease of goods, general intangibles or obligations (any and all of the
foregoing being the "Receivables"); and
(b) All equipment (as defined in the UCC) and all
machinery, chattels, tools, dies, jigs, molds, parts, machine tools,
furniture, furnishings, fixtures, rolling stock, cars, trucks,
trailers, tractors, cabs, engines, motors, parts and supplies of every
nature wherever located, including all additions, accessories and
improvements thereto and substitutions therefor (any and all of the
foregoing being the "Equipment"); and
(c) All inventory (as defined in the UCC) in all of its
forms, wherever located, now or hereafter existing and whether
acquired by purchase, merger or otherwise and all raw materials and
work in process therefor, all finished goods thereof and all materials
used or consumed in the manufacture, packing, shipping, advertising,
selling, leasing or production thereof, goods in which each Grantor has
an interest in mass or joint or other interest or right of any kind
and goods which are returned to or repossessed by each Grantor, and all
accessions thereto and products thereof and documents therefor (any
and all of the foregoing being the "Inventory"); and
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(d) All licenses, permits, leases, operating agreements
and rights of any kind to store, process, transport, dispose of, treat
or otherwise deal with chemical, radioactive or other types of
hazardous wastes or other materials, including, without limitation,
those items listed on Schedule 2(d) hereto.
(de) All products and proceeds of any and all of the
foregoing Collateral and, to the extent not otherwise included, all
payments under insurance or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to
any of the foregoing Collateral.
The inclusion of proceeds in this Security Agreement does not
authorize the Grantors to sell, dispose of or otherwise use the Collateral in
any manner not specifically authorized hereby.
SECTION 3. Security for Obligations. This Security Agreement
secures the prompt and complete (a) payment and performance of all obligations
of the Borrower and the Grantors to the Secured Party now or hereafter existing
under the Revolving Credit Note, the Fee Capitalization Note and the Term Note
and any duties or obligations of the Borrower and the Grantors under the Credit
Agreement, including letters of credit, and the other Loan Documents, and (b)
performance and observance by the Borrower and the Grantors of all covenants
and conditions contained in the Credit Agreement, this Security Agreement and
any other Loan Document to which it is a party, and in any case whether for
principal, interest, fees, expenses or otherwise, including without limitation,
Article IX of the Credit Agreement (all such obligations, covenants and
conditions described in the foregoing clauses (a) and (b) being hereinafter
collectively referred to as the "Secured Obligations").
SECTION 4. Grantor Remain Liable. Anything herein to the
contrary notwithstanding, (a) the Grantors shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Security Agreement had not been executed, (b) the exercise by
the Secured Party of any of the rights hereunder shall not release the Grantors
from any of its duties or obligations under the contracts and agreements
included in the Collateral, and (c) the Secured Party shall not have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Security Agreement, nor shall the Secured Party be
obligated to perform any of the obligations or duties of the Grantors
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
SECTION 5. Representations and Warranties. Each Grantor
represents and warrants as follows:
(a) All of the Collateral is located at the places
specified on Schedule 15(b) hereto. The chief place of business and
chief executive office of each Grantor and the office where
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each Grantor keeps its records concerning the Collateral is located at
the address specified in the introductory paragraph to this Security
Agreement.
(b) The Grantors own the Collateral free and clear of
any lien or security interest except for the lien and security
interest created by this Security Agreement and Liens existing in
favor of the Secured Party. No effective financing statement or other
instrument similar in effect covering all or any part of the
Collateral is on file in any recording office, except such as may have
been filed in favor of the Secured Party relating to this Security
Agreement. The Grantors have no trade names except as shown on
Schedule 15(b) hereto.
(c) This Security Agreement has been duly executed and
delivered by the Grantors and creates a valid and perfected first
priority lien and security interest in the Collateral, securing the
payment of the Secured Obligations, and all filings and other actions
necessary or desirable to perfect and protect such lien and security
interest have been duly taken.
(d) No consent of, or notice to, any other persons and no
authorization, approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required either
(i) for the grant by the Grantors of the lien and security interest
granted hereby or for the execution, delivery or performance of this
Security Agreement by the Grantors or (ii) for the perfection of or
the exercise by the Secured Party of its rights and remedies
hereunder, other than the filing of financing statements with the
Secretary of State of the States of Texas and Delaware.
(e) All information with respect to the Collateral and
the obligors under the Receivables set forth in any Schedule
(including Schedule I hereto), certificate or other writing at any
time heretofore or hereafter furnished by the Grantors to the Secured
Party is and will be true, correct and complete in all material
respects as of the date specified therein.
SECTION 6. Further Assurances. (a) The Grantors agree that
from time to time, at the expense of the Grantors, the Grantors will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Secured Party may
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Secured Party to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, the Grantors will: (i) mark
conspicuously, at the request of the Secured Party, each of their records
pertaining to the Collateral with a legend indicating that such document,
chattel paper, or Collateral is subject to the security interest granted
hereby; (ii) if any Receivable shall be evidenced by a promissory note or other
instrument or chattel paper, upon the request of the Secured Party, the
Grantors shall, deliver and pledge to the Secured Party such note, instrument
or chattel paper duly endorsed and accompanied by duly executed instruments
of transfer or assignment, all in form and
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substance satisfactory to the Secured Party and (iii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Secured
Party may request, in order to perfect and preserve the security interests
granted or purported to be granted hereby.
(b) The Grantors hereby authorize the Secured Party to
file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral without the signatures
of the Grantors where permitted by law. A carbon, photographic or other
reproduction of this Security Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
(c) The Grantors will furnish to the Secured Party from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Secured Party may reasonably request, all in reasonable detail.
(d) Each Grantor will promptly notify the Secured Party
of any change of its name, corporate structure or federal tax identification
number.
(e) Each Grantor shall keep its chief place of business
and chief executive office and the office where it keeps its books and records
concerning the Collateral, and all originals of all chattel paper, instruments
and documents which evidence Receivables, at the location therefor specified in
Section 5(a) or, upon 30 days' prior written notice to the Secured Party, at
such other locations in a jurisdiction where all action required by Section 6
shall have been taken with respect to the Receivables. Each Grantor will hold
and preserve such records and chattel paper and will upon reasonable notice
permit representatives of the Secured Party at any time during normal business
hours to inspect and make abstracts from such records and chattel paper.
(f) Except as otherwise provided in this subsection (f),
each Grantor shall continue to collect, at its own expense, all amounts due or
to become due such Grantor under the Receivables. In connection with such
collections, each Grantor may take (and, upon the occurrence and continuance of
an Event of Default at the Secured Party's direction, shall take) such action
as such Grantor or the Secured Party may deem necessary or advisable to enforce
collection of the Receivables; provided, that the Secured Party shall have the
right at any time, upon the occurrence and during the continuance of an Event
of Default and upon written notice to each Grantor of its intention to do so,
to notify the account debtors or obligors under any Receivables of the
assignment of such Receivables to the Secured Party and to direct such account
debtors or obligors to make payment of all amounts due or to become due to each
Grantor thereunder directly to the Secured Party and, upon such notification
and at the expense of such Grantor, to enforce collection of any such
Receivables, and to adjust, settle or compromise the amount of payment thereof,
in the same manner and to the same extent as each such Grantor might have done.
After receipt by the
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Grantors of the notice from the Secured Party referred to in the proviso to the
preceding sentence, (i) all amounts and proceeds (including instruments)
received by the Grantors in respect of the Receivables shall be received in
trust for the benefit of the Banks hereunder, shall be segregated from
other funds of the Grantors and shall be forthwith paid over to the Secured
Party in the same form as so received (with any necessary endorsement) to be
held as cash collateral and either (A) released to the Grantors so long as no
Event of Default shall have occurred and be continuing or (B) if any Event of
Default shall have occurred and be continuing, applied as provided in Section
9, and (ii) the Grantors shall not adjust, settle or compromise the amount or
payment of any Receivable, or release wholly or partly any account debtor or
obligor thereof, or allow any credit or discount thereon, except with the prior
written consent of the Secured Party.
(g) The Grantors shall keep the Inventory (other than
Inventory sold in the ordinary course of business or Inventory in transit to a
buyer) at the places therefor specified in Section 5(a) or, upon at least 30
days' prior written notice to the Secured Party, at such other places in
jurisdictions where all action required by Section 6 shall have been taken with
respect to the Inventory.
(h) Not permit anything to be done that may impair the
value of any of the Collateral or the lien and security interest to be afforded
by this Security Agreement.
SECTION 7. Insurance. The Grantors shall, at their own
expense, maintain insurance as provided in Section 7.03 of the Credit
Agreement.
SECTION 8. Transfers and Other Liens. The Grantors shall not:
(a) sell, assign (by agreement, operation of law or otherwise) or otherwise
dispose of any of the Collateral (other than in the ordinary course of
business) or (b) create or suffer to exist any lien or security interest upon
or with respect to any of the Collateral, except for the lien or security
interest created by this Security Agreement and liens and security interests in
favor of the Secured Party as previously disclosed to the Banks.
SECTION 9. Remedies and Application of Proceeds. If any
Event of Default shall have occurred and be continuing, the Secured Party may
exercise in respect of the Collateral, in addition to other rights and remedies
provided for herein or otherwise available to it, all the rights and remedies
of a secured party on default under the UCC (whether or not the UCC applies to
the affected Collateral) and the Secured Party may also (a) require the
Grantors to, and the Grantors hereby agree that they will at their expense and
upon request of the Secured Party forthwith, assemble all or part of the
Collateral as directed by the Secured Party and make it available to the
Secured Party at a place to be designated by the Secured Party which is
reasonably convenient to both parties and (b), without notice except as
specified below, sell the Collateral or any part thereof in one or more
parcels at public or private sale, for cash, on credit or for future delivery,
and upon
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such other terms as the Secured Party may deem commercially reasonable. The
Grantors will execute and deliver such documents and take such other action as
the Secured Party deems necessary or advisable in order that any sale may be
made. Upon any such sale the Secured Party shall have the right to deliver and
transfer to the purchase thereof the Collateral sold. The Grantors agree
that, to the extent notice of sale shall be required by law, at least ten (10)
days' prior written notice to the Grantors of the time and place of any public
sale or the time after which any private sale is to be made or other intended
disposition of any of the Collateral shall constitute reasonable notification
thereof, except any Collateral which is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market. The
Grantors agree that such notice constitutes "reasonable notification" within
the meaning of 9.504(c) of the UCC. The Secured Party shall not be obligated
to make any sale of the Collateral regardless of notice of sale having been
given. The Secured Party may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
SECTION 10. Secured Party Appointed Attorney-in-Fact.
Effective upon the occurrence of and continuance of an Event of Default, the
Grantors hereby irrevocably appoint the Secured Party the Grantors' attorney-
in-fact, with full authority in the place and stead of the Grantors and in the
name of the Grantors, the Secured Party or otherwise, from time to time after
the occurrence and during the continuance of an Event of Default in the Secured
Party's sole discretion, to take any action and to execute any instrument which
the Secured Party may deem necessary or advisable to accomplish the purposes of
this Security Agreement, including:
(a) to ask, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipts for moneys due
and to become due under or in respect of any of the Collateral,
(b) to settle, compromise, prosecute or defend any action
or proceeding with respect thereto,
(c) to extend the time of payment thereof and to make
any allowance or adjustment with reference thereto, and
(d) to sell, transfer, assign, or otherwise deal in or
with the Collateral or the proceeds or avails thereof, as fully and
effectually as if the Secured Party were the absolute owner thereof.
SECTION 11. Secured Party May Perform. If any Grantor fails
to perform any agreement contained herein, the Secured Party may itself
perform, or cause performance of, such
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agreement, and the expenses of the Secured Party incurred in connection
therewith shall be payable by such Grantor under Section 13.
SECTION 12. Limitations of the Secured Party's Duties. The
powers conferred on the Secured Party hereunder are solely to protect its
interest in the Collateral and shall not impose any duty upon it to exercise
any such powers. Except for reasonable care in the custody of any Collateral
in its possession and the accounting for moneys actually received by it
hereunder, the Secured Party shall have no duty as to any Collateral or as to
the taking of any necessary steps to preserve rights against prior parties or
any other rights pertaining to any Collateral. The Secured Party shall be
deemed to have exercised reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Secured Party accords it own property, it
being understood that the Secured Party shall not have any responsibility for
taking any necessary steps to preserve rights against any parties with respect
to any Collateral.
SECTION 13. Indemnity and Expenses. (a) The Grantors shall
indemnify the Secured Party and any Affiliate thereof and their respective
directors, officers, employees and agents from, and hold each of them
harmless against, any and all losses, liabilities, claims or damages (including
reasonable legal fees and expenses) to which any of them may become subject,
insofar as such losses, liabilities, claims or damages arise out of or result
from (i) this Security Agreement, the Credit Agreement or any of the loan
documents executed in connection herewith or (ii) any investigation, litigation
or other proceeding (including any threatened investigation or proceeding)
relating to the foregoing, and the Grantors shall reimburse the Secured Party
and each Affiliate thereof and their respective directors, officers, employees
and agents, upon demand for any expenses (including legal fees)
reasonably incurred in connection with any such investigation or proceeding,
but excluding any such losses, liabilities, claims, damages or expenses
incurred by reason of the gross negligence or willful misconduct of the person
to be indemnified. IT IS THE EXPRESS INTENTION OF THE GRANTORS THAT EACH
PERSON TO BE INDEMNIFIED HEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS
AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS OR DAMAGES AS LIMITED IN THE
PRECEDING SENTENCE ARISING OUT OF OR RESULTING FROM THE ORDINARY, SOLE OR
CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. Without prejudice to the survival of
any other obligations of the Grantors hereunder, the obligations of the
Grantors under this Section shall survive the termination of this Security
Agreement.
(b) The Grantors agree to pay within ten (10) Business
Days (as such term is defined in the Credit Agreement) after demand, to the
Secured Party the amount of any and all reasonable expenses, including the fees
and disbursements of its counsel and of any experts and agents, that the
Secured Party may incur in connection with (i) the administration of this
Security Agreement, (ii) the evaluation, appraisal, custody, preservation, use
or operation of, or the sale of, collection from, or other realization upon,
any of the Collateral, (iii) the exercise or enforcement of
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any of the rights of the Secured Party hereunder of (iv) the failure by the
Grantors to perform or observe any of the provisions hereof. The Grantors
agree to pay interest on any expenses or other sums payable to the Secured
Party hereunder that are not paid when due at a rate per annum equal to the
Default Rate (as such term is defined in the Credit Agreement).
SECTION 14. Address for Notices. All notices and other
communications provided for hereunder shall be in writing and, if to the
Grantors, mailed or telecopied or delivered to them, addressed to them at the
addresses provided for the Grantors in the introductory paragraph to this
Security Agreement, Attention: Mr. Edmund J. Gorman, Telecopy No.
(713) 624-1909, if to the Secured Party to it at 712 Main Street, Houston,
Texas 77002, Attention: Mr. Bruce A. Shilcutt, Telecopy No. (713) 216-2902,
or as to any party at such other address as shall be designated by such party
in a written notice to each other party complying as to delivery with the
terms of this Section. All such notices and other communications shall, when
mailed or telecopied, or delivered respectively, be effective when mailed by
certified mail return receipt requested to any party as its address specified
herein, or telecopied to any party to the telecopy number set forth herein, as
applicable, or delivered personally to any party at its address specified above.
SECTION 15. Termination; Reinstatement. (a) The Grantors
agree that this Security Agreement and the liens and security interests granted
hereunder shall terminate only when all Obligations have been fully paid and
performed, at which time the Secured Party upon the Grantors' request shall
reassign and redeliver, including the termination of any financing statements
(or cause to be reassigned and redelivered) to the Grantors, or to such person
as the Grantors shall designate in writing, against receipt, such of the
Collateral (if any) as shall not have been sold or otherwise applied by the
Secured Party pursuant to the terms hereof and shall still be held by it
hereunder. Any such reassignment shall be without recourse upon, or
representation or warranty by, the Secured Party (other than that the Secured
Party has not sold, encumbered or otherwise transferred any interest in the
Collateral except as provided in this Security Agreement) and shall be at the
sole cost and expense of the Grantors.
(b) This Security Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any amount
received by the Secured Party in respect of the Secured Obligations is
rescinded or must otherwise be restored or returned by the Secured Party upon
the filing of any bankruptcy proceeding by or of the Grantors or upon the
appointment of any intervenor or conservator of, or trustee or similar official
for, the Grantors or any substantial part of their assets, or otherwise, all as
though such payments had not been made.
SECTION 16. Miscellaneous.
(a) No amendment or waiver of any provision of this
Security Agreement, nor consent to any departure by the Grantors herefrom,
shall in any event be effective unless the
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same shall be in writing and signed by the Secured Party and the Grantors, and
then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
(b) All rights and marshalling of assets of the Grantors,
including any such right with respect to the Collateral, are hereby waived by
the Grantors.
(c) All rights, remedies and powers provided in this
Security Agreement may be exercised only to the extent that the exercise
thereof does not violate any applicable provision of law, and all the
provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law which may be controlling and to be
limited to the extent necessary so that they will not render this Security
Agreement invalid, unenforceable, in whole or in part, or not entitled to
be recorded, registered or filed under the provisions of any applicable law.
(d) Should any clause, sentence, paragraph, subsection or
Section of this Security Agreement be judicially declared to be invalid,
unenforceable or void, such decision will not have the effect of invalidating
or voiding the remainder of this Security Agreement, and the parties hereto
agree that the part or parts of this Security Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom by the
parties hereto, and the remainder will have the same force and effectiveness as
if such stricken part or parts had never been included herein.
(e) No failure on the part of the Secured Party to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
(f) This Security Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement.
(g) This Security Agreement shall create a continuing
security interest in the Collateral and shall (a) remain in full force and
effect until payment in full of the Secured Obligations, (b) be binding upon
the Grantors, their successors and assigns and (c) inure to the benefit of the
Secured Party and its successors, transferees and assigns. Upon the payment in
full of the Secured Obligations, the lien and security interest granted hereby
shall terminate and all rights to the Collateral shall revert to the Grantors.
Upon any such termination, the Secured
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Party will, at the Grantors' expense, promptly execute and deliver to the
Grantors such documents as the Grantors shall reasonably request to evidence
such termination.
(h) All representations and warranties contained in this
Security Agreement or made in writing by or on behalf of the Grantors in
connection herewith shall survive the execution and delivery of this Security
Agreement and repayment of the Secured Obligations. Any investigation by the
Secured Party shall not diminish in any respect whatsoever its rights to rely
on such representations and warranties.
(i) The Grantors hereby expressly waive, to the extent
permitted by applicable law, (1) notice of the acceptance by the Secured Party
of this Security Agreement, (2) notice of the existence or creation or
non-payment of all or any of the Secured Obligations, (3) presentment, demand,
notice of dishonor, protest, intent to accelerate, acceleration and all other
notices whatsoever, and (4) all diligence in collection or protection of or
realization upon the Secured Obligations or any thereof, any obligation
hereunder, or any security for or guaranty of any of the foregoing.
(j) In this Security Agreement, unless a clear contrary
intention appears:
(i) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Security Agreement as a
whole and not to any particular Article, Section or other subdivision;
(ii) reference to any person includes such person's
successors and assigns and reference to a person in a particular
capacity excludes such person in any other capacity or individually;
(iii) reference to any agreement, document or instrument
means such agreement, document or instrument as amended, supplemented
or modified and in effect from time to time in accordance with the
terms thereof;
(iv) unless the context indicates otherwise, reference to
any Article, Section, Schedule or Exhibit means such Article or
Section hereof or such Schedule or Exhibit hereto;
(v) the words "including" (and "include") means
including, without limiting the generality of any description
preceding such term;
(vi) with respect to the determination of any period of
time, the word "from" means "from and including" and the word "to"
means "to but excluding;" and
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(vii) reference to any law means such as amended, modified,
codified or reenacted, in whole or in part, and in effect from time to
time.
(k) The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.
(l) No provision of this Security Agreement shall be
interpreted or construed against any Person solely because that person or its
legal representative drafted such provision.
SECTION 17. Ratification of Security Agreement. The Original
Security Agreement, as amended and restated by this Security Agreement, and the
liens created thereby, are hereby in all respects affirmed, ratified, confirmed
and continued.
SECTION 18. Governing Law, Terms. THIS SECURITY AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS.
SECTION 19. Waiver of Jury Trial. THE GRANTORS HEREBY WAIVE,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS SECURITY
AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED
OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM
OR RELATING TO ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
SECURITY AGREEMENT AND AGREES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THAT
ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A
JURY.
SECTION 20. Submission to Jurisdiction. (a) ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS SECURITY AGREEMENT AND THE OTHER LOAN
DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED
STATES FOR THE SOUTHERN DISTRICT OF TEXAS AND, BY EXECUTION AND DELIVERY OF
THIS SECURITY AGREEMENT, EACH GRANTOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND
IN RESPECT OF ITS PROPERTY, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF
THE
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AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. EACH GRANTOR
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS
SET FORTH IN SECTION 14, SUCH SERVICE TO BECOME EFFECTIVE THIRTY DAYS AFTER
SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE SECURED PARTY TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY LOAN PARTY IN ANY OTHER
JURISDICTION.
(b) EACH GRANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID
ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT
BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY
SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
SECTION 21. Final Agreement of the Parties. THIS SECURITY
AGREEMENT (INCLUDING THE SCHEDULES HERETO), THE NOTES, THE CREDIT AGREEMENT AND
THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION
26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
-13-
<PAGE> 14
IN WITNESS WHEREOF, each Grantor has caused this Security
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
AMERICAN ECOLOGY RECYCLE CENTER, INC.
AMERICAN ECOLOGY MANAGEMENT
CORPORATION
AMERICAN ECOLOGY INTERNATIONAL, INC.
AMERICAN ECOLOGY ENVIRONMENTAL
SERVICES CORPORATION
TEXAS ECOLOGISTS, INC.
TRANSTEC ENVIRONMENTAL, INC.
US ECOLOGY, INC.
WPI TRANSPORTATION, INC.
WPI WASTE CARRIERS, INC.
By: /s/ EDMUND J. GORMAN
-----------------------------------
Edmund J. Gorman
Executive Vice President
AMERICAN ECOLOGY SERVICES CORPORATION
By: /s/ EDMUND J. GORMAN
-----------------------------------
Edmund J. Gorman
Senior Vice President
-14-
<PAGE> 15
SCHEDULE 15(b)
Locations of Inventory and Equipment
<TABLE>
<S> <C>
American Ecology Environmental Services Corp. Winona, Texas
American Ecology International, Inc. Houston, Texas
American Ecology Management Corp. Houston, Texas
American Ecology Recycle Center, Inc. Oak Ridge, Tennessee
American Ecology Services Corp. Houston, Texas
American Liability and Excess Insurance Company Burlington, Vermont
Texas Ecologists, Inc. Robstown, Texas
Transtec Environmental, Inc. Louisville, Ohio
US Ecology, Inc. Beatty, Nevada
US Ecology, Inc. Butte, Nebraska
US Ecology, Inc. Needles, California
US Ecology, Inc. Oak Ridge, Tennessee
US Ecology, Inc. Richland, Washington
US Ecology, Inc. Sheffield, Illinois
WPI Transportation, Inc. Pasadena, Texas
WPI Waste Carriers, Inc. Pasadena, Texas
</TABLE>
Trade Names
None
-15-
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American Ecology Corporation:
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated April 11, 1996, included in this Form 10K, into
the Company's previously filed Registration Statements on Form S-8 File Nos 33-
55762, 33-58076, 33-11578, each as filed with the Securities and Exchange
Commission.
ARTHUR ANDERSEN LLP
Houston, Texas
May 17, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 229
<SECURITIES> 0
<RECEIVABLES> 18,260
<ALLOWANCES> 1,322
<INVENTORY> 0
<CURRENT-ASSETS> 27,242
<PP&E> 43,852
<DEPRECIATION> 22,088
<TOTAL-ASSETS> 114,125
<CURRENT-LIABILITIES> 43,357
<BONDS> 29,137
<COMMON> 78
0
1
<OTHER-SE> 21,945
<TOTAL-LIABILITY-AND-EQUITY> 114,125
<SALES> 67,895
<TOTAL-REVENUES> 67,895
<CGS> 71,129
<TOTAL-COSTS> 71,129
<OTHER-EXPENSES> 51,666
<LOSS-PROVISION> 1,029
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (54,318)
<INCOME-TAX> (5,415)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (48,991)
<EPS-PRIMARY> (6.26)
<EPS-DILUTED> (6.26)
</TABLE>
