<PAGE> 1
As filed with the Securities and Exchange Commission on November 17, 1997
Registration No. 333-35261
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
AMERICAN ECOLOGY CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 95-3889638
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
805 WEST IDAHO
SUITE 200
BOISE, IDAHO 83702-8916
(208) 331-8400
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
PHILLIP K. CHATTIN, ESQ.
GENERAL COUNSEL
AMERICAN ECOLOGY CORPORATION
805 WEST IDAHO
SUITE 200
BOISE, IDAHO 83702-8916
--------------------------------------------------
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COPIES TO:
Larry D. Blust, Esq.
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
---------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
[ ]
If any of the securities being registered on this form are to offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 162(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
---------------------------------------------
<PAGE> 3
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM
CLASS OF AMOUNT AGGREGATE AGGREGATE AMOUNT OF
SECURITY TO TO BE PRICE OFFERING REGISTRATION
BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(1)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rights ................. $8,323,081 - - -
- ---------------------------------------------------------------------------------------------------
Common Stock, $.01 par
value per share ........ $8,323,081 $1.00 $8,323,081 $2,485.02
===================================================================================================
</TABLE>
(1) Estimated solely for purposes of determining the registration fee.
-----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY THE EFFECTIVE
DATE UNTIL THE REGISTRANT FILES A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT WILL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
BECOMES EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
================================================================================
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS WILL NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY NOR WILL THERE BE ANY SOLICITATION OF ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION UNDER THE SECURITIES LAWS
OF ANY STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1997
PROSPECTUS
RIGHTS TO SUBSCRIBE FOR 8,323,081 SHARES OF
COMMON STOCK AND EXCHANGE AND CONVERSION
OF SERIES E REDEEMABLE CONVERTIBLE PREFERRED STOCK
IN CONJUNCTION THEREWITH
AMERICAN ECOLOGY CORPORATION
-----------------------------------
American Ecology Corporation (the "Company") is issuing to holders of shares
of its Common Stock, $.01 par value per share ("Common Stock"),
non-transferable rights (the "Rights") to subscribe for additional shares of
Common Stock (the "Rights Offering"). Each holder of Common Stock will receive
one Right for each share of Common Stock held of record as of 5:00 p.m.,
eastern time, on September 24, 1997 (the "Record Date") . Each Right will
entitle the holder to subscribe for one share of Common Stock at a subscription
price of $1.00 per share (the "Subscription Price"). The Subscription price is
payable in cash except that holders of the Company's Series E Redeemable
Convertible Preferred Stock (the "Series E Preferred Stock") may exchange, in
lieu of payment in cash, one share of Series E Preferred Stock for each 10
shares of Common Stock such holder is entitled to purchase in the Rights
Offering. The Rights will expire at 5:00 p.m., eastern time, on ___________,
1997 (the "Expiration Date"). Rights not duly exercised on or prior to the
Expiration Date will lapse and will be void and without value. To the extent
that less than 5,000,000 shares of Common
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Stock are subscribed for in the Rights Offering, one share of Series E
Preferred Stock will be converted on the first business date following the
Expiration Date into 10 shares of Common Stock for each 10 shares or portion
thereof of Common Stock less than 5,000,000 sold in the Rights Offering. To
the extent that the purchase price of the Common Stock sold in the Rights
Offering plus the stated amount ($10 per share) of the Series E Preferred Stock
outstanding immediately after the Rights Offering exceeds $5,000,000, proceeds
of the Rights Offering shall be used to redeem Series E Preferred Stock at its
stated amount. As a result of the Rights Offering, all Series E Preferred Stock
will be either (i) exchanged by the holders thereof for Common Stock to which
they have Rights to subscribe in lieu of paying cash for such Common Stock,
(ii) redeemed from the proceeds of the Rights Offering, or (iii) converted into
Common Stock to the extent that less than 5,000,000 shares of Common Stock are
subscribed for. The Rights are represented by non- transferable subscription
certificates (the "Subscription Certificates") which are being mailed together
with this Prospectus to each holder of Common Stock as of the Record Date. See
"DESCRIPTION OF RIGHTS OFFERING."
The Common Stock is included for trading on the National Market System of
the Nasdaq Stock Market, Inc. ("Nasdaq") under the symbol "ECOL." The average
of the closing bid and sale prices of the Common Stock as of November 12, 1997
was $1.563. Application will be made to list on the Nasdaq National Market
System the shares of Common Stock issuable upon the exercise of the Rights.
SEE "RISK FACTORS" BEGINNING ON PAGE __ FOR A DISCUSSION OF CERTAIN RISKS
RELATED TO AN INVESTMENT IN THE COMMON STOCK
-----------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-----------------------------------
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<TABLE>
<CAPTION>
SUBSCRIPTION PROCEEDS TO THE
PRICE COMMISSIONS COMPANY(1)
<S> <C> <C> <C>
Per Share of Common Stock...............
$ 1.00 N/A $ 1.00
Total .................................. $8,323,081 N/A $8,323,081
========== ==========
</TABLE>
(1) Before deducting expenses of the offering, estimated as $141,485.
It is expected that certificates for the Common Stock subscribed for in this
offering will be available for delivery on or about the fifth business day
following the Expiration Date.
____________________, 1997
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the United States Securities
and Exchange Commission (the "Commission"). Such reports and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549-1004; and at the Commission's Regional Offices at 500
West Madison St., Suite 1400, Chicago, Illinois 60661- 2511 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can also
be obtained at prescribed rates from the Public Reference Section of the
Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission also maintains a web site (http://www.sec.gov) that
contains reports, proxy statements and other information regarding the
Company. Such reports and other information concerning the Company can also be
inspected at the offices of the Nasdaq Stock Market, Inc., 1735 K Street,
Washington, D.C. 20006, on which the Company's Common Stock is listed.
Reference is hereby made to the Registration Statement of which this Prospectus
is a part (the "Registration Statement") and to the exhibits thereto filed with
the Commission for further information with respect to the Company, the Common
Stock and the Rights. Statements contained herein concerning provisions of
documents are necessarily summaries of such documents, and each statement is
qualified in its entirety by reference to the copy of the complete document
filed with the Commission. As permitted by the rules and regulations of the
Commission, this Prospectus omits certain information contained in the
Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus:
(a) The Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, as amended by Form 10-K/A;
(b) The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, 1997, June 30, 1997, and September 30, 1997; and
(c) The Company's Proxy Statement pursuant to Section
14(a) of the Securities Exchange Act dated April 22, 1997.
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<PAGE> 8
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made hereby will be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents. Any statement contained herein or in a report or document
incorporated or deemed to be incorporated by reference herein will be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed report or document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded will
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company will provide without charge to each
person, including any beneficial owner of Common Stock to whom this Prospectus
is delivered, upon written or oral request of such person, a copy (without
exhibits) of any or all documents incorporated by reference in this Prospectus.
Requests for such copies should be made to Scott Peyron, (208) 388-3800.
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<PAGE> 9
PROSPECTUS SUMMARY
The following is a summary only, the contents of which is necessarily
selective, and should be read in conjunction with the detailed information and
consolidated financial statements (including the notes thereto) appearing
elsewhere in this Prospectus or incorporated by reference herein.
THE COMPANY
The Company and its subsidiaries provide processing, packaging,
transportation, remediation and disposal services for generators of hazardous
waste and low-level radioactive waste ("LLRW"). Hazardous waste consists
primarily of industrial waste, including waste regulated under the Resource
Conservation and Recovery Act of 1976, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, and the Toxic Substance
Control Act. LLRW consists of materials contaminated with low levels of
radioactivity and is generated by nuclear power facilities, hospitals,
universities, laboratories and other research facilities. The mailing address
and phone number of the Company's principal executive offices are 805 West
Idaho, Suite 200, Boise, Idaho 83701-8916, (208) 331-8400.
THE RIGHTS OFFERING
ISSUE OF RIGHTS: The Company is issuing non-transferable rights (the
"Rights") to subscribe for up to 8,323,081 shares of the
Company's Common Stock, $.01 par value per share ("Common
Stock"). Each holder of the Company's Common Stock is
entitled to receive one Right for each share of Common
Stock held of record on the Record Date (as defined below).
Such holders are entitled to purchase one additional share
of Common Stock for each Right held. In the event all
holders of Common Stock (8,323,081 shares outstanding as of
the Record Date) were to exercise all the Rights issued in
this offering, the Company would issue 8,323,081 additional
shares of Common Stock for an aggregate consideration of
$8,323,081.
SUBSCRIPTION PRICE: $1.00 per share payable by the Expiration Date (the
"Subscription Price"). See "DESCRIPTION OF THE RIGHTS
OFFERING".
RECORD DATE: 5:00 p.m., eastern time, on September 24, 1997 (the "Record
Date").
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EXPIRATION DATE: ___________, 1997 at 5:00 p.m., eastern time (the
"Expiration Date"). Rights not duly exercised by such time
will lapse and will be void and without value.
NON-TRANSFERABILITY
OF RIGHTS: The Rights are non-transferable.
SUBSCRIPTION
PROCEDURES: The Rights are represented by non-transferable subscription
certificates (the "Subscription Certificates") which are
being mailed together with this Prospectus to each holder
of record on the Record Date. Rights may be exercised in
whole or in part by a record holder of Common Stock by
filling in and signing the relevant forms on the
Subscription Certificate and mailing or delivering the
Subscription Certificate, together with payment in full for
the Common Stock subscribed for, to the Subscription Agent
(as defined below) at the address set forth in the
Subscription Certificate. Record holders who hold shares
of Common Stock for the accounts of others must follow the
instructions of such beneficial owners with respect to the
Rights to which such beneficial owners are entitled. See
"DESCRIPTION OF THE RIGHTS OFFERING -- Rights of Beneficial
Owners of Common Stock." A Right will not be deemed
exercised unless the Subscription Agent receives payment
and a duly executed Subscription Certificate by 5:00 p.m.,
eastern time, on the Expiration Date.
PAYMENT: Payment may be made in U.S. funds by certified check, bank
draft or money order payable to the order of ChaseMellon
Shareholder Services, L.L.C. (the "Subscription Agent").
In lieu of making payment in cash, holders of Series E
Preferred Stock may exchange one share of Series E
Preferred Stock for each 10 shares of Common Stock such
holder is entitled to purchase in the Rights Offering by
delivery to the Subscription Agent of the requisite number
of shares of Series E Preferred Stock either endorsed in
blank for transfer or together with an assignment separate
from certificate executed in blank.
USE OF PROCEEDS: The purpose of the Rights Offering is to raise permanent
equity capital for the
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Company by (i) converting the $3,000,000 in stated amount
of Series E Preferred Stock to Common Stock or redeeming
the Series E Preferred Stock from the proceeds of the
Rights Offering and (ii) by raising up to an additional
$5,323,081 in working capital for the Company before
expenses of the Rights Offering. To the extent that less
than 5,000,000 shares of Common Stock are subscribed for in
the Rights Offering, one share of Series E Preferred Stock
will be converted into 10 shares of Common Stock for each
10 shares or portion thereof of Common Stock less than
5,000,000 sold in the Rights Offering. To the extent that
the purchase price of the Common Stock sold in the Rights
Offering plus the stated amount of the Series E Preferred
Stock outstanding immediately after the Rights Offering
exceeds $5,000,000, proceeds of the Rights Offering shall
be used to redeem Series E Preferred Stock at its stated
amount of $10.00 per share. The result will be that a
minimum of $3,000,000 in permanent equity capital will be
raised in the Rights Offering by exchange or conversion of
the existing $3,000,000 in Series E Preferred Stock, the
Series E Preferred Stock will be eliminated no matter how
many Rights are exercised, and $5,323,081 in additional
working capital, before expenses of the Rights Offering,
will be raised for the Company if all Rights are exercised.
See "USE OF PROCEEDS" and "DETERMINATION OF SUBSCRIPTION
PRICE".
RISK FACTORS
Prospective purchasers of shares of Common Stock should carefully consider
all of the information contained in this Prospectus, including the following
risk factors.
This Prospectus, including the information incorporated herein by reference,
contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 concerning, among other matters, the
prospects, developments and business strategies of the Company, all of which
are subject to risks and uncertainties. These forward-looking statements are
identifiable by the use of words and phrases such as "anticipates," "intends,"
"goal," "estimates,"
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"expects," "projects," "projections," "plans," "should," "believes,"
"scheduled" and similar words and phrases.
When a forward-looking statement includes a statement of the assumptions or
basis underlying the forward-looking statement, the Company cautions that,
while it believes such assumptions or basis to be reasonable, assumed facts or
basis almost always vary from actual results, and the differences between
assumed facts or basis and actual results can be material. Where, in any
forward-looking statement, the Company or its management expresses an
expectation or belief as to future results or events, such expectation or
belief is expressed in good faith and believed to have a reasonable basis, but
there can be no assurance that the expected results or events will be
accomplished or occur. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements.
RISKS RELATING TO COMPANY AND COMMON STOCK
Recurring Losses From Operations. The Company has suffered recurring losses
from operations and continues experiencing difficulty paying its on-going
obligations as they become due. The Company had working capital deficits of
$13,979,000 and $20,314,000 as of September 30, 1997 and September 30, 1996,
respectively. See "SELECTED FINANCIAL DATA." Although the Company has taken
various actions intended to improve its financial condition, there can be no
assurance that these actions will be successful. The failure of the Company in
the future to improve its operating results would have a material adverse
effect on the Company's financial condition and could result in a cessation of
the Company's business operations.
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
operations and financial condition. In many cases, the Company's licenses and
permits govern what it can charge its customers and how much waste it can
dispose of and from which sources. 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. Changes
in these laws and regulations 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, they
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<PAGE> 13
could have a material adverse effect on the Company's operations and financial
condition. See "THE COMPANY - REGULATION".
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 and private plaintiffs. While the outcome of any particular
lawsuit or administrative proceeding cannot be predicted with certainty, due to
the Company's current financial condition, management is unable to conclude
that the ultimate outcome, if unfavorable, of the litigation and other matters
to which the Company is a party will not have a material adverse effect on the
operations or financial condition of the Company.
Environmental Liability and Insurance. The nature of the Company's business
exposes it to risk of accidental release of harmful substances into the
environment from the Company's operating and closed sites and during
transportation to and from such sites. The remediation cost of such a release
could be substantial. The Company currently maintains environmental impairment
liability insurance coverage for non-nuclear related occurrences as required by
the Resource Conservation and Recovery Act of 1976 except for one closed site
as to which coverage is unavailable. See "THE COMPANY - CLOSED FACILITIES -
Sheffield, Illinois Facility. The Company covers radioactive risk through
nuclear liability insurance policies written to cover the operations of its
facilities, suppliers and transporters. While the Company's environmental
liability insurance coverage is in amounts required by law and deemed
sufficient by the Company, there can be no assurance that the costs of
environmental remediation might not exceed the amounts the Company could
recover under its insurance. In addition, a subsidiary of the Company
re-insures certain closure and post-closure liability of the Company exposing
the approximately $8.6 million in investments held by this subsidiary to risk
of liability. See "THE COMPANY - INSURANCE." The Company could also be liable
for losses due to fines, penalties, intentional, fraudulent or criminal acts,
the risks of which cannot be insured.
Dependence on Ability to Operate Ward Valley Site. The Company has a lease
and license from the State of California to develop and operate a LLRW disposal
facility to serve the Southwestern Compact in Ward Valley, California and has
expended and capitalized $49.4 million in costs and pre-operational interest as
of September 30, 1997 in regard to this site. This amount, plus unrecorded
interest on the Company's invested funds of $40.8 million, can only be recouped
once this site (or an alternative site if this site is determined to be
unsuitable) is operational. The lease and license become
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effective and construction of the facility can only begin on conveyance of the
land to the State by the federal government. While the prior administration
approved this transfer, the current Secretary of the Interior opposes the
transfer and a number of opponents have sued to block the transfer. Additional
legal challenges and political delays are likely to at least postpone the
opening of the facility, which the Company believes will take eight to twelve
months to construct and start up once the land is transferred to the State of
California. 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 ever be
transferred. If the land cannot be transferred, an alternative site is not
approved and 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 and would result in a default under its
present bank financing. See "THE COMPANY-LOW-LEVEL RADIOACTIVE WASTE
SERVICES-Disposal Services-Proposed Ward Valley, California Facility".
Restrictions on Dividends in Bank Credit Agreement. The Third Amended and
Restated Credit Agreement dated October 31, 1996 (the "Credit Agreement")
between the Company and Texas Commerce Bank National Association (the "Bank")
prohibits the Company from paying dividends on its Common Stock so long as the
debt to the Bank has not been fully paid. This loan matures on December 31,
2000 and is unlikely to be fully paid before that date unless the Ward Valley
site is transferred to the State of California prior to such date.
Consequently, no dividends are likely to be paid on the Common Stock in the
foreseeable future.
Other Restrictions in Credit Agreement. In addition to the preclusion of
dividends on Common Stock, the Credit Agreement contains covenants which
preclude (i) additional indebtedness except for limited exceptions and
unsecured indebtedness incurred in the ordinary course of business, (ii) sales
or transfers of Company assets, and (iii) mergers and consolidations and limits
the amount of capital assets which the Company may acquire. The Credit
Agreement requires that the Company maintain a minimum tangible net worth equal
to (i) 80% of the net worth shown on the Company's June 30, 1996 Form 10-Q less
(ii) any write-offs associated with the closure of the Winona Facility (see
"THE COMPANY - HAZARDOUS WASTE SERVICES -Stabilization and Disposal Services -
Winona, Texas Facility") and plus (iii) any proceeds of debt or equity
offerings (including the Rights Offering) and the Company's positive net
income. The Credit Agreement covenants also require minimum earnings before
interest, taxes, depreciation and amortization ("EBITDA") during 1997 of
$500,000 each quarter and during 1998 of $250,000 each month and $1,000,000
each quarter. The Company did not meet the EBITDA requirements for the first
quarter of 1997 and the Bank waived this default. The Company was in
compliance for the second and third quarters of 1997. There can be no
assurance that the Company will be able to meet
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<PAGE> 15
the minimum net worth or EBITDA requirements of the Credit Agreement in the
future or that the Bank will waive such requirements if not met. If the Bank
declared a default for this reason or any other and accelerated the
approximately $36,000,000 in debt to the Bank, the Company would likely be
unable to pay such amount immediately and would likely be forced to seek the
protection of the bankruptcy laws. Such action could eliminate or
substantially impair the value of any Common Stock even if the Company were
able to successfully reorganize and refinance.
Payment Terms of Bank Debt. Interest on the debt to the Bank accrues and is
added to the principal balance until December 31, 1998 unless there is a
default. Thereafter, interest is due quarterly at a rate equal to the greater
of 10% per annum or the prime rate. In addition, a principal payment of
$5,000,000 is due on December 31, 1999 and quarterly principal payments of
$250,000 commence on March 31, 2000 or upon the earlier transfer of Ward Valley
to the State of California in a manner allowing The Company's operations to
commence at Ward Valley. The entire debt is due on December 31, 2000. There
can be no assurance that the Company will be able to make any of these
payments. Absent significant improvements in operations, the Company will not
be able to meet its interest obligations in 1999. Absent either the transfer
of Ward Valley to the State of California and the Company obtaining
satisfactory replacement financing on such transfer or the sale of Company
assets or operations, the Company is unlikely to be able to pay the principal
amounts due on and after December 31, 1999.
Possible Dilution and Limitation on Stock Price Due to Outstanding Options.
Numerous options and rights to purchase the Company's Common Stock are
outstanding pursuant to the Stock Option Plans maintained by the Company,
pursuant to arrangements made with the purchasers of the Company's Series D and
Series E Preferred Stock, and pursuant to the Credit Agreement. Most of these
options and rights have exercise prices high enough that they are not likely to
be exercised or, if exercised, are not likely to be economically dilutive to
purchasers of Common Stock in the Rights Offering. No options or rights other
than the Rights are outstanding giving the holders the right to purchase Common
Stock at $1.00 per share. However, the purchasers of the Series E Preferred
Stock received warrants to purchase 3,000,000 shares of Common Stock at $1.50
per share, which warrants will become exercisable 30 days after the Expiration
Date. Depending on the price at which the Company's Common Stock is trading,
these warrants could either allow the purchase of Common Stock at a price
dilutive to the other holders thereof or provide a limit on any increase in the
value of the Company's Common Stock.
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RISKS RELATING TO RIGHTS
Determination of Subscription Price. The Subscription Price for Common
Stock pursuant to the Rights Offering was arbitrarily determined by the Board
of Directors of the Company at the time the Series E Preferred Stock was
approved in October 1996 based on prices of the Common Stock at that time. The
issuance of Common Stock pursuant to the Rights Offering at this price was
ratified by the shareholders at the most recent annual meeting when they
approved the terms of the Series E Preferred Stock. See "DETERMINATION OF
SUBSCRIPTION PRICE". While the Subscription Price bore some relationship to
the market price of the Common Stock in October 1996, it does not necessarily
bear and is not intended to bear any relationship to the current market price
of the Common Stock, the Company's net worth, its results of operations or any
other generally accepted criterion of value. In addition, there can be no
assurance that the market price of the Common Stock will not decline during the
Rights Offering as a result thereof or for other reasons or that a shareholder
exercising the Rights received will be able to sell the Common Stock purchased
in the Rights Offering at a price equal to or greater than the Subscription
Price.
Possible Dilution by Failure to Exercise. Rights are being distributed to
each holder on the basis of the right to purchase one share of Common Stock for
each share of Common Stock held on the Record Date. Thus, were all holders to
exercise their Rights, all stockholders would have the same percentage interest
in the Company as such stockholders had prior to the Rights Offering. On the
other hand, if no shareholders exercised their Rights, the Series E Preferred
Stock would be converted into 3,000,000 shares of Common Stock causing the
interests of the present holders of Common Stock to decrease. The Series E
Preferred Stock is presently held by four directors. See "DETERMINATION OF
SUBSCRIPTION PRICE." Consequently, these four directors could materially
increase their interests vis-a-vis other shareholders who fail to exercise
their Rights.
Rights Not Transferable; No Market for the Rights. The Rights are
non-transferable. Thus, there will be no market or other means for holders of
the Rights to directly realize any value associated with the Rights.
Accordingly, holders of Rights must exercise them and acquire Common Stock in
order to have an opportunity to realize any value of the Rights.
THE COMPANY
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
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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 1996,
47% of the Company's revenues were derived from hazardous waste services and
53% 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 ("ALEX").
The Company and its predecessors have been in business since 1952. 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.
The Company incurred significant losses in its 1995 and 1996 fiscal years.
See "SELECTED FINANCIAL DATA". During the nine months ended September 30,
1997, there was a significant improvement in the results of operations from the
prior two years. Operating results were impacted by a greater percentage
reduction of operating costs than declining revenues as well as, to a lesser
degree, a decrease in selling, general and administrative costs. The Company
realized certain non-recurring gains which favorably impacted net income for
the nine months ended September 30, 1997. Without the non-recurring gains,
there would have been a net loss during this nine months. Several areas of
concern to management remain where there is uncertainty as to whether or not
there will be an adverse effect on the Company's operations and financial
condition, depending on the outcome of events and issues. Those areas of
concern are addressed in the following discussion of the Company's businesses
and operating sites. Because of liquidity issues, and the Company's current
financial condition, management is unable to conclude that the outcome of
certain issues, claims and disputes, and other matters described herein with
respect to the Company's operations and sites, will not have a material adverse
effect on operations or the financial position of the Company.
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HAZARDOUS WASTE SERVICES
The Company provides a variety of hazardous waste management services to its
customers including stabilization, solid waste disposal, transportation, and
brokerage. 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
stabilization, 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
sites in the United States. The facilities are located in Robstown, Texas and
Beatty, Nevada. In addition, until August 1996, the Company operated one of
the nation's nine commercial deepwell disposal facilities located in Winona,
Texas. As a result of political pressures, and those of the local community,
the Company sustained high legal fees and extraordinary costs to maintain the
Winona facility. In August 1996, the Company decided to suspend the Winona
facility operations as a result of the adverse impact on the business base
caused by inaccurate public statements and other actions of persons opposed to
the facility. The litigation strategy being pursued by persons opposed to the
facility includes numerous and duplicative lawsuits filed in several
jurisdictions. The Company believes the number of suits, as well as the
discovery and motion practices used in each, is designed to overwhelm the
financial resources of AEESC, the subsidiary of the Company which operated the
Winona facility. These operations primarily served the needs of hazardous
waste generators in the Gulf Coast and West Coast regions of the country.
Management closed the Winona facility March 17, 1997
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and will comply with all substantive environmental regulations for site
closure.
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 Company also maintains two closed landfills in Sheffield, Illinois. See
"THE COMPANY - CLOSED FACILITIES" for more detailed information about these
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
provided for an initial 20-year term, with a 10-year option for renewal. The
Company recently renewed the lease for 10 years. 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, perpetual care
and maintenance. The Company does not control these two state funds, but the
Company understands from State of Nevada correspondence that these funds
contained approximately $12.0 million and $2.5 million, respectively, as of
June 30, 1997.
The facility has permitted capacity of more than 2.0 million cubic yards and
approximately 750,000 cubic yards of remaining constructed capacity. It is
currently positioned to compete much more aggressively in an overall depressed
market than it has been in a number of years. Reduced state fees have been
negotiated with state regulatory staff, but are not yet incorporated into
implementing regulations. State regulatory staff have reviewed and approved
revised closure cost estimates that result in a reduction in future closure
costs. Closure of the former low level radioactive waste disposal site in the
third quarter of 1997 has allowed the Company to transfer custody of the
occupied portion to the State while transferring the unused portion of the site
to the hazardous waste facility, thereby extending the life of the facility.
In 1996, 1995, and 1994, 71,000, 131,000, and 202,000 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
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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 Company
received A permit from the EPA and the State of Nevada issued in accordance
with Part B of the EPA regulations promulgated under RCRA allowing the Company
to operate a commercial hazardous waste disposal facility at Beatty. In April,
1997, the State granted a five year permit renewal including approval to
construct a new cell with a capacity of 1.5 million cubic yards. The Company
is studying the future use of the production related assets at this former
facility and has not yet reached a decision as to their remaining value, if
any.
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 31% and 22% of the Beatty site's total volumes in
1996 and 1995, 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. The Beatty site also has all necessary air
permits for its disposal activities.
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 to operate. A proposed permit renewal is expected to go to public
hearing in the second half of 1997. 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 Company recently completed development
of a 89,000 cubic yard expansion to dispose of Class 1 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
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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.
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
873,000 cubic yards of hazardous waste and there is approximately 30,000 cubic
yards of remaining hazardous waste capacity in place and approximately 85,000
cubic yards of non-hazardous waste capacity. In 1996, 1995, and 1994, 41,000,
47,000, and 68,000 cubic yards of waste, respectively, were disposed of at the
facility. At the current fill rate, the hazardous waste capacity in place is
sufficient for only between 18 and 24 months. The Company has a permit
allowing construction of 450,000 cubic yards of future expansion, but expansion
is very costly. Accordingly, the Company has worked with the TNRCC to develop
a concept that will allow placement of hazardous waste vertically on top of
existing operating cells and has requested a permit modification from the TNRCC
to allow this. Vertical stacking of waste would allow the Company to obtain
approximately 275,000 cubic yards of hazardous and 20,000 cubic yards of non-
hazardous waste disposal space at minimal cost, and would provide 10 years of
hazardous and one year of nonhazardous disposal capacity at current fill rates.
Thereafter, new cell construction will be required. The permit modification is
pending. The company expects a response from TNRCC in November 1997 which will
require revision of its application. The revised permit modification is likely
to be submitted in January 1998. TNRCC will then review the revised permit for
technical completeness for approximately six weeks before commencing public
hearings. The Company should know by the end of 1998 whether this permit
modification will be granted. If the modification is granted, the Company
estimates that approximately $600,000 in engineering and $750,000 in
construction costs will be incurred to permit vertical stacking over the
existing operating cells.
Winona, Texas Facility. The Winona facility, now a closed facility, was a
620 acre fuels blending and solvent recycling facility with two hazardous waste
deep wells and waste brokerage services. In August of 1996, the Company made a
decision to suspend further receipts of waste at the Winona facility. This
decision was made based on the adverse impact on the business base of the
Winona facility caused by inaccurate public statements and other actions of
persons opposed to the facility. The litigation strategy being pursued by
persons opposed to the facility includes numerous and duplicative lawsuits
filed in
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several jurisdictions. The Company believes that the number of suits as well
as the discovery and motion practices used in each is designed to overwhelm the
financial resources of AEESC, a wholly owned subsidiary of the Company which
operated The Winona facility.
During the period of discontinued waste receipts, the Company, primarily
through its Surecycle(R) division, has continued to broker waste materials to
other off-site disposal facilities. Based on the regulatory and litigation
morass under which the Winona facility was forced to operate, management
concluded that it was not economically feasible for the Winona facility to
continue to operate. Also during this period of discontinued waste receipt
AEESC removed from inventory all waste materials which it believed would
require the continued operation of the facility's ambient air monitoring system
and the thermal oxidizer air emission control equipment, both of which are
expensive to operate. The Company has obtained approval of the regulatory
authorities to discontinue the use of this equipment since the Company is no
longer processing any waste at this facility.
On March 17, 1997, management agreed to a plan for closing the site under
RCRA rules. As part of its business closure activities, Company officials have
been meeting with State regulators to negotiate a mutually acceptable schedule
for environmental closure of the facility to fully satisfy substantive
environmental requirements. The cost for environmentally correct closure has
been estimated at $1,500,000.
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, packaged Class 1 non-hazardous and RCRA
hazardous waste collection service in the Gulf Coast, Dallas/Ft. Worth, and
Tulsa, Oklahoma markets called Surecycle(R), a division of AEESC.
Surecycle(R), provides small quantity generators with comprehensive waste
management services
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that includes waste analysis, technical advice, labeling, manifesting,
collecting, transporting, treating and disposing of 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. Surecycle also
offers specialized 350 gallon waste packages or "totes". These totes allow
waste generators to accumulate up to six drums worth of material in the same
floor space required to store four drums. The totes are reusable, therefore
the customer also enjoys substantial savings in avoided drum purchase costs.
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.
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 shielding for the protection
of the public or employees from radiation. It is packaged in metal containers
designed to protect the public during transportation and provide additional
long-term containment of the waste once it is placed in the permanent disposal
facility.
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 Recycle Center in Oak Ridge,
Tennessee has LLRW commercial processing and volume reduction services that
include both fixed base processing facilities and service capabilities as well
as on site service capabilities managed as an extension of the organization
located at Oak Ridge, Tennessee. The government services segment activities
includes acceptance, processing, volume reduction and disposal of federal
government LLRW. The Recycle Center is a well established commercial service
provider and intends to pursue these government markets.
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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.
LLRW DISPOSAL SERVICES
The Company operates the only licensed LLRW disposal facility within the
regional compact system. The facility is located near Richland, Washington on
land within the Hanford Nuclear Reservation leased by the Department of Energy
("DOE") to the State of Washington and subleased to US Ecology. This facility
serves the LLRW disposal needs of the eight member states of the Northwest
Compact and the three member states of 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 "THE COMPANY -
CLOSED FACILITIES" for more detailed information about each of these closed
facilities). The following section describes 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 DOE's Hanford Nuclear Reservation
("Hanford"). The State of Washington leases the land from the federal
government and the
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Company subleases the land from the state for a period of 99 years. The
Company has operated this facility since 1965. In 1990, the Company exercised
its option to renew its sublease for an additional 15 years. Waste has been
emplaced to date on approximately 40 acres of the site. Under provisions of
the Low-Level Act, the State of Washington has accepted responsibility for
disposal of waste generated in the Northwest Compact and has entered into a
contract agreement to provide disposal for the Rocky Mountain Compact states.
The combined 11 member states generate approximately 100,000 cubic feet of
low-level radioactive waste per year which is available to be disposed of at
the Richland facility.
Under the terms of the sublease, the site is to be used for LLRW burial and
related activities. The primary disposal operations at the site are conducted
under a radioactive materials license issued by the Washington State Department
of Health. A timely application to renew the Company's 5 year license, which
terminated in May 1997, was submitted in February 1997, and is expected to be
approved by the state. The Company also holds a special nuclear materials
license ("the NRC License") issued by the U.S. Nuclear Regulatory Commission
("NRC") which permits burial of material containing certain radioactive
elements in amounts greater than those allowed under the license issued by the
State of Washington. Special nuclear material is LLRW which contains uranium
233, uranium 235 or plutonium. The NRC License is also in the process of
timely renewal.
The LLRW disposal rates charged at the Richland facility have been regulated
by the Washington Utilities and Transportation Commission (WUTC) since 1993.
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 case to implement a new rate design and revenue
requirement for the years 1996 through 2001. The Company's filing, after
amendment by a settlement agreement signed by major site users, was approved by
the WUTC to establish a $5.6 million annual revenue requirement and a rate
designed to collect this revenue from site availability, per container, per
shipment, volume and dose rate at the container surface charges. These prices
are adjusted annually for inflation. The approved revenue requirement is
exclusive of taxes and fees. The State of Washington charges and collects fees
for burial, site surveillance, local economic development, rate regulation and
site use from low-level generators using the Richland facility. Revenues are
also contributed by generators to fund dedicated trust accounts, administered
by the Washington State Treasurer, for closure and long term care and
maintenance of the Richland site. As of December 31, 1996, $24.4 million was
retained in the site closure account and $24.4 million in the perpetual
maintenance account.
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The Richland facility is also permitted to accept naturally occurring and
accelerator produced radioactive materials (NARM) waste from throughout the
nation. During 1996 approximately 12,000 cubic feet of NARM waste supplemented
company revenues collected from the disposal of over 105,000 cubic feet of
low-level waste generated from Northwest and Rocky Mountain Compact states. In
1995, the State of Washington implemented a regulation to limit NARM volume to
8,600 cubic feet annually and any single generator to no more than 1,000 cubic
feet. The Company litigated this issue and executed a settlement agreement on
May 15, 1996. The agreement provides that the Washington Department of Health
promulgate revised regulations with a 100,000 cubic feet annual cap on NARM
waste disposal. Until new regulations are adopted, a court stay has mandated
that the 100,000 cubic feet limit will apply with the provision that any unused
allocation may be transferred to future years. Although NARM waste disposal
rates are not regulated by the WUTC, a portion of NARM revenue can be applied
to reduce the Company's annual LLRW revenue requirement.
On July 29, 1996, the Company submitted to the Washington Department of
Health a revised site stabilization and closure plan for the Richland facility.
This amended the closure plan submitted in December 1994. On March 29, 1996,
the Company also submitted to the Washington Department of Ecology ("WDOE") a
work plan for a comprehensive investigation of the Richland site to assess the
presence of hazardous waste constituents in the unsaturated strata between the
ground surface and the water table beneath the trenches within the facility
with respect to the protection of the groundwater from small amounts of
hazardous material associated with some LLRW. The plan received preliminary
approval by WDOE and funding for the investigation is expected to be provided
from the dedicated site closure account after authorization by the legislature.
The Company has completed the installation of two new monitoring wells
consistent with this plan.
The WDOE determined in January, 1997, that an environmental impact statement
is required in regard to the renewals of the Company's radioactive materials
license, the Company's closure plan, and the regulations providing for a
100,000 cubic feet annual cap on NARM waste disposal. The Company submitted
its material for this statement in spring, 1997. The State is expected to
finalize this environmental impact statement by June, 1998.
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
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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 $45.9 million, including pre-operational
interest, as of December 31, 1996. Under its agreement with the State of
California, the Company may earn interest on the venture capital expended in
developing the Ward Valley project. As of December 31, 1996 the unrecorded
interest component is $34.8 million.
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, Manuel Lujan, announced the sale of the
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, purported to rescind
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
that he was postponing further action on his proposed hearing in order to await
the final outcome of two state court lawsuits 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 and 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 California DHS.
Interior and DHS negotiated transfer conditions through the summer and fall of
1995. In the fall of 1995, when it became apparent that Interior would not
accept the State's good faith assurances, 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. Efforts to advance legislation
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were resisted by California's Senators and were unsuccessful in 1996. Efforts
at legislative resolution of this matter will continue in 1997.
In February 1996, John Garamendi, Deputy Secretary of the Department of
Interior (DOI), announced that the DOI 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 third 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 could be performed during facility construction. The
Academy stated that the land transfer should not 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 politically motivated. Throughout
1996, the Department of Interior did little to advance either site testing or
development of the third supplement to the environmental impact statement.
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 in October 1993. The plaintiffs in this 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
June 1994, the trial court ruled in favor of the DHS and the Company on all
issues with the exception of one. The trial court concluded that the Wilshire
report should be considered by the DHS in a "pre-approval setting", and
remanded the case to the DHS for reconsideration. 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 Environmental
Impact Statement 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. The suit was filed 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
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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 site 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. 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 Bernardino 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. Recently, the County passed a
resolution and offered draft legislation which would invalidate the federal
LLRW Protection Act. The implications of this draft legislation have
far-reaching national impact and it is unlikely that it will supplant current
federal law.
Additional legal challenges and political delays could postpone the opening
of the facility for several years or more. 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
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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.
The Company expects to incur costs of approximately $120,000 per month,
excluding interest, until construction begins. These costs are not currently
reimbursable from the Southwestern Compact or any other party and are being
capitalized as project costs.
As a result of the continued inaction by DOI, the California Department of
Health Services brought suit against DOI in early 1997 seeking an immediate
land transfer citing Secretary Lujan's Record of Decision in 1993. This suit
claims DOI has acted in bad faith and abused its discretionary authority to
transfer the land for political purposes. US Ecology also filed a separate
suit against DOI seeking a writ of mandamus and injunctive relief ordering the
Secretary of the Interior to convey the land to the State of California in
accordance with Secretary Lujan's Record of Decision. US Ecology has also
filed a breach of contract action in the Court of Federal Claims seeking from
the federal government contract damages, including recoupment of the Company's
investment, interest and lost profits if the land is not transferred.
If the California LLRW facility cannot be established and if the Company is
unable to recoup its investment through legal recourse, the Company will 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 Compact Commission ("CIC"). In July of
1990, the Company submitted an application to the Nebraska Departments of
Environmental Quality and Health ("NDEQ" and "NDOH") for the necessary license.
The application has been under review and the anticipated project completion
date has been postponed several times. In 1996 the NDEQ, the lead license
review agency, removed anticipated task completion dates from its published
management plans. The last published management plan estimated the license
review would be completed, with publication of draft licensing documents and
preliminary licensing decisions, in July of 1996. The director of the NDEQ has
since estimated that stage of the licensing process would be reached in October
of 1997. However, the state has declined to provide the Company or the CIC
with a formal schedule. In August 1996, the CIC held a special meeting to
gather testimony on a review schedule that would be reasonable and enforceable
upon the state. That meeting resulted in a January 14, 1997 deadline for
completion of the review and the publication of draft documents and preliminary
decisions. The CIC schedule would have led to issuance of a license in
December 1997 and a facility operations start-up in December of 1999. In
November, 1996 the state filed a federal lawsuit against the CIC challenging
its authority to enforce a schedule and, in the
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alternative, seeks a determination that the schedule is unreasonable. The
Company is not a party to this lawsuit. The state has subsequently failed to
meet the CIC deadline and the CIC has taken preliminary steps that could lead
to a lawsuit against the state, alleging bad faith in processing the license
application. Although the Company is prepared to proceed through construction
and into operation under the accelerated schedule, there can be no assurance
the CIC will succeed in its efforts to enforce it. Currently, the Company
anticipates final license issuance in the fourth quarter of 1999, with facility
operations start-up in 2001 and an estimated total cost of $154.3 million for
licensing, design and construction. In addition the Company is currently
estimating the cost of a smaller facility in anticipation of lesser waste
volumes. However, there can be no assurance that the license review process
will result in the issuance of a license by Nebraska authorities.
Project costs through 1996 totaled $80.3 million, substantially all of which
has been provided by the major low-level radioactive waste generators in the
CIC states (Nebraska, Kansas, Oklahoma, Arkansas and Louisiana). The Company
expects to incur expenses of approximately $600,000 per month for the remainder
of the pre-licensing phase. All these expenses are reimbursed monthly by the
CIC. The CIC had an option to terminate the contract when the $31.1 million in
pre-licensing costs provided for in the last contract amendment were expended
in October 1997, since license approval had not been obtained by then.
However, instead of terminating the contract, the CIC, the Company and the
major generators entered into a new amendment in October 1997 extending
pre-licensing funding for an additional five months. If the license decision
has not been made by that time, the CIC may terminate the contract upon ten
days notice. If the contract were terminated, the Company's costs of closing
down the project would be funded for ninety days. However, the Company would
not be able to recover its capitalized costs and interest under the contract if
the contract were terminated pursuant to this provision. Such costs might be
recoverable, however, from the state for wrongful failure to grant a license.
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. However, The CIC may provide construction financing under the
terms of its contract with the Company.
The Company's portion of the project costs through 1996, which have been
capitalized, totaled $6,092,000, and the Company anticipates no additional
investment in the project other than capitalized interest costs prior to
construction. The Company has also capitalized $1,388,000 of interest as of
September 30, 1997, which represents only a portion of the
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interest recoverable per the Company's contract. From 1988 to January 1, 1997
interest was earned per the contract on the Company's contribution to the
project costs at a rate of 20 percent. Under the terms of the Company's
revised contract with the CIC, interest computed after January 1, 1997 is
calculated at prime rate plus 3 percent. This interest rate will remain in
effect until all currently authorized pre-licensing funding is expended.
Interest on the Company's cost has not been recorded in the Company's financial
statements. The existing contract provisions would allow the Company to
recover its $6,092,000 cost plus up to $15 million in interest in the rate
base. However, there can be no assurance that these amounts will be approved
for the rate base and these amounts will not be recoverable if the contract is
terminated prior to license approval.
In January 1993, the directors of the NDEQ issued a Notice of Intent to Deny
the Company's license application based on their interpretation of an NRC
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 addition, the
NRC subsequently clarified its regulations to allow small wetlands within a
site's borders provided the U.S. Army Corps of Engineers permitted mitigation
of such wetlands on or off site.
In August 1994, the U.S. Army Corps of Engineers determined that a small
wetlands 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 State of Nebraska has taken no action against the Company's
license application as the result of the Corps' wetland determination.
However, the Company believes that resolution of the issue is prudent in order
to avoid any potential future adverse action by the state. Although the
Company disagreed with the Corps' wetland determination, the Company decided it
was more expeditious, efficient and publicly acceptable to obtain permits to
fill the disputed area and create a new wetland area off-site. The necessary
permits, which are valid through January of 1998, were obtained in August 1996.
Resolution of the issue, however, has been delayed by a state regulatory
interpretation that filling the disputed area would amount to a prohibited
prelicense initiation of project construction. The Company attempted to
resolve the issue through negotiations with the state, but negotiations did not
result in an agreement. The Company, as authorized by the CIC, commenced a
lawsuit in 1997, to resolve the issue.
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
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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., and is no longer a part of the Southeast Compact.
A disposal facility located near Clive, Utah is licensed by the State of
Utah to accept NARM and certain other types of LLRW. This facility has not
been designated as a regional facility under the Low-Level Act. The 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 Corp. in September
1994. Certain packaged but undisposed of waste existed at the Oak Ridge
facility when it was purchased. The State of Tennessee Department of
Environment and Conservation Division of Radiological Health wrote to the
Company in April of 1996 agreeing to the Company's proposed schedule for the
removal of this waste before December 31, 1997. The cost of disposal has been
estimated at $6.2 million. Due to cash flow and liquidity issues, the Company
has not yet been able to comply with the agreed schedule and is engaging in
discussions with the State regarding an extension of time.
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 radioactive waste
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:
NUCLEAR MATERIAL MANAGEMENT CENTER
LLRW Brokerage, 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
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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,
and larger items such as condensers, heat exchangers, and other large
components. The Recycle Center can decontaminate these metals through an
abrasive process or chemical processing.
Dry Active Waste ("DAW") Processing. DAW processing services include volume
reduction and free release programs. This waste is primarily in the form of
wood, 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
baling waste prior to supercompaction. The combination of baling, binding and
super-compacting accomplishes superior volume reduction. The Recycle Center
also sorts and segregates waste prior to supercompaction.
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 potentially clean material in
green bags. The bags are then shipped to the Recycle Center for scanning.
Waste certified as uncontaminated is disposed of in an industrial waste
landfill. Material that cannot be certified as clean is packaged for disposal
at a radioactive waste burial facility. This packaging includes
super-compaction to facilitate significant volume reduction.
Remedial Services. The Field Services Division of the Recycle Center offers
a full range of turnkey services including site characterization, verification,
on-site volume reduction, license termination, decontamination and
decommissioning. The Recycle Center's staff has been involved in conducting
radiological decontamination projects for over 20 years. This highly
experienced staff has implemented multiple projects on time and within budget.
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 other
high value 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,
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inspection, maintenance and reinstallation of high value equipment.
Motors, valves, pumps and other components of nuclear power plants in the
United States require periodic maintenance which requires them to be
decontaminated before they can be refurbished. The Company can remove
contaminated winding insulation, decontaminate the motor stator and rotor, then
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
providing a combination of 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, refurbished, painted, and then rented to
the customer.
Competition. The Company's competitors in the commercial LLRW processing
and recycling market include Scientific Ecology Group (recently purchased by
GTS Duratech), Chem-Nuclear Systems, Inc., Allied Technology Group, Inc., Frank
Hake and Associates, Inc., Alaron, Inc., and Manufacturing Sciences Company.
CLOSED FACILITIES
Except for the Winona facility, which the Company is in the process of
environmentally closing as described in "THE COMPANY - HAZARDOUS WASTE SERVICES
- - Stabilization and Disposal Services - Winona, Texas Facility," 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 with the State of Illinois.
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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. The Company amended its
closure plan in 1996 to reflect up-to-date activities at the site. 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 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. A pilot air sparging system has been approved by the U.S.
EPA.
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 "THE COMPANY -
INSURANCE". These coverages are not available for the Sheffield, Illinois site
due to its 1984 inclusion on the RCRA National Priorities List. Even though
the site was removed from the list as a result of the consent agreement between
the Company and U.S. EPA, and the site has not received waste for 20 years, the
site does not qualify for environmental impairment insurance. The State of
Illinois has sued the Company for failure to provide a financial assurance bond
of $1.9 million in regard to the Sheffield facility which the State claims is
required due to the decrease in the Company's net worth. See "Recent -
Developments - Sheffield Litigation."
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
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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 $400,000, and the Company has recognized this
liability in its 1996 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, which occurred in the third quarter
of 1997. The State of Nevada 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. The EPA has published a proposed permit
for the unused land and the Health Division has formally released it for other
use. Release of this land will roughly double the site's hazardous waste
capacity. 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
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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 NRC in 1976. Actions were implemented
by the Company to correct and upgrade disposal practices. Both California DHS
and the U.S. Geological Survey ("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.
The USGS data is noteworthy from a research perspective, but has no health
and safety or regulatory significance. USGS has stated, however, that the
agency will propose and perform additional studies near Beatty. See "THE
COMPANY - 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
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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.
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
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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. 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 in various stages of development and implementation, the
Company cannot predict the final outcome of EPA decisions 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
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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 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.
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 on 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 $16.4 million and $13.8 million at December 31,
1996 and 1995, 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.
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<PAGE> 42
INSURANCE
The nature of the Company's business exposes it to risk of accidental
release of harmful substances into the environment resulting in contamination,
the remediation 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 limits for
sudden and non-sudden accidental occurrences. The Company is in compliance
with required limits and coverage with the exception of the Sheffield, Illinois
site where such insurance is unavailable. See "THE COMPANY - CLOSED
FACILITIES". The Company covers radioactive risk through nuclear liability
insurance policies written to cover the operations of its facilities, suppliers
and transporters. Generally excluded from coverage under all policies are
losses resulting from fines and penalties imposed by governmental authorities
and intentional, fraudulent or criminal acts.
In 1987, the Company organized and funded ALEX as a wholly-owned subsidiary
to reinsure financial assurance insurance for the Company's closure and
post-closure responsibilities at certain of its sites, and to provide a source
of insurance for the Company in the event that traditional third party
insurance becomes unavailable. ALEX is currently reinsuring financial
assurance for closure and post-closure of the Company's facilities, and
underwriting a performance bond for one of the Company's subsidiaries.
Traditional third party insurance is utilized for other lines of coverage.
ALEX has funded cash reserves representing the approximate present value of the
closure or post-closure obligation being insured. As of June 30, 1997, the
ALEX investment portfolio was approximately $8.6 million.
During the first six months of 1997, the Company borrowed $300,000 from
ALEX. The State of Vermont, which regulates ALEX as a captive insurance
company, objected to the loan as being a violation of regulatory provisions.
In August 1997, the Company repaid $180,000 of the loan.
CUSTOMERS
Revenues resulting from the cost reimbursement contract with the CIC were
approximately $5,711,000 in 1996, or 11% of the Company's consolidated
revenues. No other single customer accounted for 10% of the Company's
consolidated revenues for 1996.
PERSONNEL
The Company had a total of 306 employees as of June 30, 1997. The number of
total Company employees has been
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essentially stable since March, 1997. The Company has collective bargaining
agreements which cover 10 employees at its Richland, Washington facility, 2
employees at its Winona, Texas facility, and 58 employees at its Oak Ridge,
Tennessee facility. The Company believes that its relationship with its
employees is good.
In November 1996, the Company changed to a new 401(k) and Retirement Plan
Administrator. After soliciting bids from various providers, the Company
selected Manulife as the new primary trustee and Pihl, Gutierrez, Garretson &
Roberts ("PGG&R") as the new plan administrators. Manulife allows the
Company's 401(k) and Retirement Plan participants greater benefit flexibility.
PGG&R is dedicated to providing Company employees with excellent service in
processing timely statements, distributions, and loans.
Employee benefits have also been enhanced as of January 1997. The Company
selected Idaho Employers Council to administer the medical/dental plan.
Scriptcard was chosen as the new pharmaceutical provider. Also, the Company
chose Benefit America to administer a new "cafeteria" flexible benefit program
that allows employees to set aside medical and dependent care funds on a
pre-tax basis. The Company allowed Colonial Life and Accident Insurance to
provide several supplemental programs such as cancer, intensive care and
hospitalization coverage. The Company chose Northwestern Life (Reliastar) to
offer supplemental spouse/dependent life insurance and continue with their
existing services. The Company selected Business Psychology Associates to
provide an employee assistance program that allows employees and his/her family
enrolled in the medical/dental plan, to attend three counseling sessions per
incident at no cost to the employee.
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>
Beatty, Nevada Hazardous Waste 80 acres Lease
Disposal Facility
Houston, Texas Westheimer Office 33,800 sq. ft. Lease
vacated March 1996
</TABLE>
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<PAGE> 44
<TABLE>
<S> <C> <C> <C>
Houston, Texas Katy Freeway Office 11,000 sq. ft. Lease
Vacated May 1997
Oak Ridge, Tennessee LLRW Processing 16 acres Own
Facility
Pasadena, Texas Transportation Facility 3 acres Own
Richland, Washington LLRW Disposal Facility 100 acres Lease
Robstown, Texas Transportation Facility 1 acre Own
Robstown, Texas Hazardous and Class 1 400 acres Own
Non-Hazardous Waste
Disposal Facility
Winona, Texas Closed facility 620 acres Own
March 17, 1997
</TABLE>
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<PAGE> 45
RECENT DEVELOPMENTS
SETTLEMENT OF ALLY CAPITAL LITIGATION
As a result of litigation with Ally Capital Corporation, the Company
renegotiated in July 1997 a capital equipment lease at the Recycle Center
extending the term, reducing the end of lease residual payment and reducing
monthly payments. The total lease payments over the next four years in regard
to the renegotiated lease are $618,286. The Company has determined that
$160,000 of this amount represents an increased cost which did not extend the
useful life of the assets leased. Consequently, this amount was expensed in
the third quarter of 1997. The balance will be depreciated over the remaining
TERM OF the renegotiated lease .
SHEFFIELD LITIGATION
On November 3, 1997, the State of Illinois sued the Company and U.s.
Ecology in the Circuit Court of Bureau County, Illinois for failing to provide
$2.0 million in letters of credit as a financial assurance bond in regard to
the Company's closed Sheffield, Illinois LLRW facility and to prevent the
Company from transferring the site to the state as scheduled in May 1998. See
"THE COMPANY - CLOSED FACILITIES - Sheffield Illinois Facility". In 1988 the
Company settled long standing litigation with the State of Illinois regarding
this facility. In accordance with the settlement agreement, the Company has
maintained the facility and paid to Illinois nearly $2.5 million to be used for
long term care of the facility after title is transferred to the state in may
1998. The settlement agreement also obligates the Company to provide a letter
of credit in a decreasing amount, which is presently $123,000, to secure
certain closure if the Company fails to meet certain financial tests relating
to working capital, debt-equity ratio and net worth. the state claims that the
Company has failed to meet some or all of these tests and that this letter of
credit thus is required. the state has also claimed that a second letter of
credit in the amount of $1.9 million is also required because the financial
covenants have not been met and that the provision of both letters of credit is
a precondition to the state's acceptance of the site.
The Company has argued that it should not be required to provide the
decreasing letter of credit since any failure to meet the financial covenants
which may exist is likely to be temporary and the site is scheduled to be
transferred to the state in May 1998 in any event. The Company offered to
extend the Company's maintenance period for a limited time in lieu of providing
this letter of credit, but this offer was rejected. The Company has asserted
that the $1.9 million letter of credit
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<PAGE> 46
is only required when both (i) one or more of the environmental triggering
events listed in the settlement agreement have occurred and (ii) the financial
tests are not met. The state does not allege that any of these environmental
triggering events has occurred, and the Company believes that the likelihood of
such an event ever occurring is remote. Although the state has taken a
contrary position, the Company believes that the settlement agreement clearly
excludes the posting of the letters of credit as a condition of transfer of the
facility and that the Company has performed all the conditions required for
transfer. The Company expects to defend the lawsuit on the basis of these
arguments.
ADDITIONAL INCENTIVE COMPENSATION
On August 12, 1997, pursuant to a recommendation of the Compensation
Committee, the Company's Board of Directors approved additional compensation
for Jack K. Lemley, the Company's President and Chief Executive Officer in the
form of: (i) the immediate issuance of 25,000 shares of the Company's Common
Stock as compensation for past services, (ii) the grant of immediately vested
and exercisable options under the Company's 1992 Stock Option Plan to purchase
150,000 shares of the Company's Common Stock at $1.81 per share, the fair
market value of the Company's Common Stock on the date of grant, and (iii) the
grant within 10 business days following the Expiration Date of the Rights
Offering of vested options under the Company's 1992 Stock Option Plan to
purchase shares of the Company's Common Stock constituting (with the shares
issued pursuant to (i) and the options issued pursuant to (ii)) 5% of the
Company's outstanding Common Stock after the Rights Offering at a purchase
price equal to the fair market value of a share of Common Stock on the date of
grant. Mr. Lemley exercised options referred to in (ii) to purchase 50,000
shares of Common StocK prior to the Record Date.
On September 4, 1997, pursuant to a recommendation of the Compensation
Committee, the Company's Board of Directors approved the grant to Robert S.
Thorn, the Company's Vice President and chief accounting officer, and Joseph J.
Nagel, a Company Vice President, of immediately vested and exercisable options
under the Company's 1992 Stock Option Plan to each purchase 10,000 shares of
the Company's Common Stock for $2.00 per share, the fair market value of the
Company's Common Stock on the date of grant. Mr. Thorn exercised options to
purchase 2,500 shares of Common Stock prior to the Record Date. Mr. Nagel did
not exercise any options prior to the Record Date.
OTHER OPTION EXERCISES PRIOR TO RECORD DATE
In addition to Mr. Lemley and Mr. Thorn, the following directors of the
Company exercised options and purchased Common Stock entitling them to
participate in the
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<PAGE> 47
Rights Offering subsequent to June 30, 1997, and prior to the Record Date:
<TABLE>
<CAPTION>
Individual Shares Purchased
---------- ----------------
<S> <C>
Rotchford L. Barker 20,000
Patricia M. Eckert 5,000
Paul F. Schutt 20,000
</TABLE>
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<PAGE> 48
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company and has been derived from, and should be read in conjunction with, the
audited financial statements of the Company, including the notes thereto, as of
and for the fiscal years ended December 31, 1996, 1995, 1994, 1993, and 1992
and the unaudited interim consolidated financial statements of the Company,
including notes thereto, for the nine months ended September 30, 1997 and 1996.
(Dollars in Thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Nine
Months Ended
September 30, For the Fiscal Years Ended December 31,
---------------------- ------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 31,333 $ 39,503 $ 49,972 $ 67,895 $ 71,891 $ 60,312 $ 70,940
% Increase (decrease) in revenues
from prior year (20.7)% (30.5)% (26.4)% (5.6)% 19.2% (15.0)% 27.1%
Net income (loss) (1) $ 670 $ (3,350) $ (11,407) $ (48.903) $ 3,850 $ 4,744 $ 12,556
Net income (loss) per share $ .01 $ (.32) $ (1.50) $ (6.26) $ .49 $ .60 $ 1.51
Shares used to compute income (loss) per
share (000's) $ 8,095 7,857 7,896 7,822 7,851 8.097 8,568
Working capital (deficit) $ (13,979) $ (20,314) $ (16,693) $ (16,115) $ 1,563 $ 4,771 $ 14,078
Total assets $ 97,165 $ 105,668 $ 99,027 $ 114,125 $ 155,439 $ 108,122 $ 104,166
Long-term debt, net of current portion $ 38,391 $ 28,600 $ 36,202 $ 28,357 $ 33,493 $ -- $ --
Shareholders' equity $ 14,810 $ 20,638 $ 13,604 $ 22,024 $ 67,045 $ 63,564 $ 54,730
Long-term debt to total capitalization
as a percentage 72.2% 58.1% 72.7% 56.3% 33.3% --% --%
Current ratio (current assets divided by
current liabilities) 0.4:1 0.4:1 0.4:1 0.6:1 1.0:1 1.2:1 1.7:1
Return on average equity 1.0% (10.6)% (64.0)% (109.8)% 5.9% 8.0% 26.4%
Dividends declared per common share $ -- $ -- $ -- $ .025 $ .10 $ -- $ --
Capital spending, including capital
expenditures and site
development costs (2) $ 2,897 $ (2,431) $ 5,659 $ 8,445 $ 8,035 $ 12, 558 $ 9,582
Depletion, depreciation and amortization
expense $ 2,768 $ 3,752 $ 5,383 $ 7,319 $ 6.279 $ 4,356 $ 4,173
</TABLE>
(1) 1996 expenses include $7,451 in impairment losses on long-lived assets for
the Winona facility and 1995 includes $33,048 in impairment losses on
long-lived assets for the Recycle Center, WPI Waste Processors and the
Winona facility. See Note 4 to the Financial Statements.
(2) Excludes capitalized interest.
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<PAGE> 49
DESCRIPTION OF RIGHTS OFFERING
ISSUE OF RIGHTS
The Company is issuing to holders of its Common Stock non-transferable
Rights to subscribe for up to 8,323,081 additional shares of Common Stock.
Each holder of Common Stock is entitled to receive one Right for each share of
Common Stock held of record at 5:00 p.m., eastern time, on the Record Date.
All such holders are entitled to purchase, at the Subscription Price, one share
of Common Stock for each Right held. In the event all holders of Common Stock
(8,323,081 shares outstanding as of the Record Date) were to exercise all of
the Rights, the Company would issue 8,323,081 additional shares of Common
Stock for an aggregate consideration of $8,323,081. No Rights are currently
outstanding. The Company will bear all of the costs and expenses of issuing
the Rights and Common Stock offered hereby.
The Company has filed a Registration Statement, of which this Prospectus is
a part, with the Commission with respect to the Rights and the Common Stock
issuable upon exercise of the Rights.
SUBSCRIPTION CERTIFICATES
The Rights are represented by non-transferable Subscription Certificates,
evidencing the total number of Rights to which the holder is entitled. A
Subscription Certificate representing Rights to acquire shares of Common Stock
will be sent to each record holder of Common Stock on the Record Date.
Possession of a Subscription Certificate does not constitute the holder
thereof to be a holder of the Common Stock to which such Subscription
Certificate relates unless and until such holder subscribes for and is issued
such Common Stock.
EXPIRATION DATE
The Rights represented by the Subscription Certificates will expire on the
Expiration Date at 5:00 p.m., eastern time. RIGHTS NOT EXERCISED BY THE
EXPIRATION DATE WILL LAPSE AND BE VOID AND WITHOUT VALUE.
SUBSCRIPTION AGENT
The Subscription Agent for this offering is ChaseMellon Shareholder
Services, L.L.C.
INFORMATION AGENT
Investors who desire additional copies of this Prospectus or additional
information should contact Mr. Scott Peyron at (208) 388-3800. Scott Peyron
and Associates is acting as
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<PAGE> 50
information agent pursuant to its existing monthly retainer arrangement for
public relations and shareholder relations work.
SUBSCRIPTION FOR COMMON STOCK
Rights may be exercised in whole or in part by a record holder of Common
Stock by filling in and signing the relevant forms on the Subscription
Certificate and mailing or delivering the Subscription Certificate, together
with payment in full for the Common Stock subscribed for, to the Subscription
Agent at the address set forth in the Subscription Certificate. EXCEPT AS
PROVIDED BELOW, A RIGHT WILL NOT BE DEEMED EXERCISED UNLESS THE SUBSCRIPTION
AGENT RECEIVES BOTH PAYMENT OF THE SUBSCRIPTION PRICE AND A DULY EXECUTED
SUBSCRIPTION CERTIFICATE BY 5:00 P.M., EASTERN TIME, ON THE EXPIRATION DATE.
Any exercise of Rights pursuant to this offering will be irrevocable and
will not be subject to withdrawal.
If the recipient of a Subscription Certificate wishes to exercise the Rights
represented thereby, but time will not permit the holder to deliver the
Subscription Certificate to the Subscription Agent prior to the Expiration
Date, the Rights may nevertheless be exercised if all the following conditions
are met:
1. The holder has caused payment in full of the Subscription
Price for the shares of Common Stock being subscribed for pursuant to the
Rights to be made (in the form prescribed below under "PAYMENT OF
SUBSCRIPTION PRICE") to the Subscription Agent prior to the Expiration Date.
2. The Subscription Agent receives, prior to the Expiration
Date, a guarantee notice (a "Notice of Guaranteed Delivery"), substantially
in the form delivered with the Subscription Certificate, from a financial
institution having an office or correspondent in the United States, or a
member firm of any registered United States national securities exchange or
of the National Association of Securities Dealers, Inc. (each an "Eligible
Institution"), stating the certificate number of the Subscription
Certificate relating to the Rights, the name and address of the exercising
stockholder, the number of Rights represented by the Subscription
Certificate held by such exercising stockholder, the number of shares of
Common Stock being subscribed for pursuant to the Rights and guaranteeing
the delivery to the Subscription Agent of the Subscription Certificate
evidencing such Rights within three Nasdaq trading days following the date
of the Notice of Guaranteed Delivery.
3. The properly completed Subscription Certificate evidencing
the Rights being exercised is received by the
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<PAGE> 51
Subscription Agent within three Nasdaq trading days following the date of
the Notice of Guaranteed Delivery relating thereto.
The Notice of Guaranteed Delivery must be delivered to the Subscription
Agent at the address set forth in the Subscription Certificate or may be
transmitted to the Subscription Agent by facsimile transmission (telecopy no.
(201) 329-8936). Additional copies of the Notice of Guaranteed Delivery are
available upon request from the Subscription Agent.
RIGHTS OF BENEFICIAL OWNERS OF COMMON STOCK
Record holders of Common Stock, such as brokers, trustees or securities
depositaries, who hold shares of Common Stock for the accounts of others should
notify such beneficial owners of this offering as soon as possible and obtain
instructions with respect to the Rights to which such beneficial owners are
entitled. If such a beneficial owner of Rights so instructs, the record
holder should complete the Subscription Certificate, including the amount of
Common Stock each beneficial owner elects to purchase, and submit it to the
Subscription Agent with the proper payment, in accordance with the terms of
this offering. In addition, beneficial owners of Common Stock held through
record holders should contact such record holders and request that they effect
transactions in accordance with such beneficial owner's instructions.
Record holders who exercise the Rights on behalf of beneficial owners of
Common Stock will be required to certify to the Subscription Agent and the
Company, in connection with the exercise of the Rights, as to (i) the number of
shares of Common Stock owned by each such beneficial owner and (ii) the number
of shares of Common Stock to which such beneficial owner subscribed pursuant to
that person's exercise of the Rights.
THE METHOD OF DELIVERY TO THE SUBSCRIPTION AGENT OF A SUBSCRIPTION
CERTIFICATE AND PAYMENT OF THE SUBSCRIPTION PRICE IS AT THE ELECTION AND RISK
OF EACH STOCKHOLDER. SUBSCRIPTION CERTIFICATES, TOGETHER WITH PAYMENT OF THE
SUBSCRIPTION PRICE, SHOULD BE SENT WITH SUFFICIENT TIME TO ALLOW FOR DELIVERY
PRIOR TO THE EXPIRATION DATE. IF DELIVERY IS MADE BY REGULAR MAIL SERVICE, THE
USE OF REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED.
COMPLETED SUBSCRIPTION CERTIFICATES AND PAYMENTS SHOULD BE MAILED OR
DELIVERED TO THE SUBSCRIPTION AGENT AND NOT TO THE COMPANY. QUESTIONS SHOULD
BE DIRECTED TO THE INFORMATION AGENT.
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<PAGE> 52
PAYMENT OF SUBSCRIPTION PRICE
The total Subscription Price for the Common Stock subscribed for must be
paid to the Subscription Agent in U.S. funds by certified check, bank draft or
money order payable at par (without deduction for bank service charges or
otherwise) to the order of the Subscription Agent. All funds received in
payment of the Subscription Price under the Rights Offering will be promptly
remitted by the Subscription Agent to the Company. In lieu of making payment
in cash, holders of Series E Preferred Stock may exchange one share of Series E
Preferred Stock for each 10 shares of Common Stock such holder is entitled to
purchase in the Rights Offering by delivery to the Subscription Agent of the
requisite number of shares of Series E Preferred Stock either endorsed in blank
for transfer or together with an assignment separate from certificate executed
in blank by the registered holder thereof.
DELIVERY OF STOCK CERTIFICATES
Certificates for shares of Common Stock duly subscribed and paid for will be
mailed to the subscriber by the Subscription Agent as soon as practicable
(which is anticipated to be the fifth business day after the Expiration Date)
at the subscriber's registered address on the books of the Company.
SIGNATURES
Whenever any of the forms on a Subscription Certificate are signed, the
signature must correspond in every particular with the name of the holder as it
appears on the face of the Subscription Certificate. If the Subscription
Certificate is signed by a trustee, executor, administrator, guardian, attorney
or officer of a corporation or any person acting in fiduciary or representative
capacity, the person so signing should give his full title in such capacity
and, on request, satisfactory evidence of authority to act must be furnished.
DETERMINATION AS TO VALIDITY OF SUBSCRIPTIONS
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of any subscription will be determined by the Company,
in its sole discretion, which determination will be final and binding. The
Company reserves the absolute right to reject any subscription if it is not in
proper form or if the acceptance thereof or the issuance of the Common Stock
pursuant thereto could be deemed unlawful. The Company also reserves the right
to waive any defect with regard to any particular subscription or request for
transfer. The Company and the Subscription Agent will not be under any duty to
give notification of any defects or irregularities in subscriptions, nor will
either of them incur any liability for failure to give such notification.
Subscriptions will not be
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<PAGE> 53
deemed to have been made until any such defects or irregularities have been
cured or waived within such time as the Company will determine. Subscriptions
with defects or irregularities which have not been cured or waived will be
returned by the Subscription Agent to the appropriate holder of the Rights as
soon as practicable.
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price for Common Stock pursuant to the Rights Offering does
not and was not intended to bear any relationship to the current market price
of the Common Stock, the Company's net worth, its results of operations or any
other generally accepted criterion of value. Instead, it was determined in
conjunction with the terms of the Series E Preferred Stock unanimously approved
by the Company's Board of Directors on October 31, 1996 and ratified by the
Company's shareholders on May 22, 1997. The purpose of the Rights Offering is
to allow all the Company's shareholders to participate on an equal basis in the
provision of equity required by the Bank in regard to the Credit Agreement.
In early 1996 the Company was in a state of financial crisis. In the
mid-1990s the Company had made several acquisitions in order to strengthen its
position in its businesses. The capital requirements of the acquired
businesses together with those of the Company's prior businesses greatly
exceeded the Company's capital resources and borrowing capacity. The Company
wrote off approximately $33.0 million in capitalized costs in 1995 and incurred
a loss of $48.9 million in 1995 versus net income in 1994 of $3.8 million. The
market price of the Company's Common Stock fell from a 1994 high of $12.50 per
share to the $1.00 per share range in 1996, the Company's line of credit from
the Bank went into default and the Bank refused to advance additional funds.
As a result, the Company was reorganized outside of bankruptcy in 1996 and the
existing Credit Agreement was negotiated with the Bank extending the maturity
of the Bank debt to December 31, 2000 and deferring principal amortization and
interest payments until 1999. As a condition to renegotiating the loan terms,
the Bank required that there be an immediate infusion of $3.0 million in new
equity and that the Company use its best efforts to raise an additional $2.0
million in equity in 1997.
An equity offering to all the Company's shareholders was not feasible to
meet the timetable required by the Bank and necessitated by the Company's
immediate cash needs. Two Company directors, Rotchford Barker and Edward F.
Heil, agreed to provide the $3.0 million in equity immediately required by
purchasing 300,000 shares of Series E Preferred Stock at $10 per share or an
aggregate purchase price of $3,000,000. In order to give all Company
shareholders the right to participate in the required $3.0 million of new
equity and to satisfy the Company's obligations to the Bank to use its best
efforts to raise an
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<PAGE> 54
additional $2.0 million in equity, Mr. Heil and Mr. Barker requested that the
Company register with the Commission an offering giving all holders of Common
Stock the right to purchase for $1.00 a share of Common Stock for each share of
Common Stock held. To the extent the Rights Offering generates less than $5.0
million in proceeds, the Series E Preferred Stock will be automatically
converted into Common Stock at the rate of 10 shares of Common Stock for each
share of Series E Preferred Stock. To the extent that the sum of the amount of
stock sold in the Rights Offering plus the stated amount of any Series E
Preferred Stock not converted into or exchanged for Common Stock in the Rights
Offering is in excess of $5.0 million, the Series E Preferred Stock will be
redeemed at its stated value of $10.0 per share from such proceeds of the
Rights Offering. Because of the redemption and mandatory conversion terms, the
Series E Preferred Stock will be either redeemed or converted into or exchanged
for Common Stock as a result of the Rights Offering. In order to allow this to
happen, the Subscription Price in the Rights Offering could not fluctuate with
the market price for the Company's Common Stock over time. Consequently, the
Subscription Price was fixed at $1.00 per share which was the approximate
market price for a share of Common Stock when the Series E Preferred Stock was
approved in October 1996.
USE OF PROCEEDS
The purpose of the Rights Offering is to raise working capital for the
Company to use in its day to day operations. See "DETERMINATION OF
SUBSCRIPTION PRICE". This will be accomplished by either converting the
existing $3,000,000 in stated amount of Series E Preferred Stock to Common
Stock or redeeming the Series E Preferred Stock from the proceeds of the Rights
Offering and by raising up to an additional $5,323,081 in working capital for
the Company. To the extent that less than 5,000,000 shares of Common Stock are
subscribed for in the Rights Offering, one share of Series E Preferred Stock
will be converted into 10 shares of Common Stock for each 10 shares or portions
thereof of Common Stock less than 5,000,000 sold in the Rights Offering. To
the extent that the purchase price of the Common Stock sold in the Rights
Offering plus the stated amount of the Series E Preferred Stock outstanding
immediately after the Rights Offering exceeds $5,000,000 Series E Preferred
Stock will be redeemed at its stated amount of $10.00 per share from the
proceeds of the Rights Offering. The result will be that a minimum of
$3,000,000 in permanent working capital will be raised in the Rights Offering
by exchange or conversion of the existing Series E Preferred Stock, the Series
E Preferred Stock will be eliminated no matter how many Rights are exercised,
and $5,323,081 in additional working capital will be raised if all Rights are
exercised.
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<PAGE> 55
LEGAL MATTERS
The validity of the Common Stock to be issued upon the exercise of the
Rights will be passed upon by Jenner & Block, Chicago, Illinois, counsel for
the Company.
EXPERTS
The consolidated financial statements and schedules of the Company
incorporated by reference in this Prospectus from the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996 have been audited by
Balukoff, Lindstrom & Company, independent auditors, as set forth in their
report thereon and incorporated herein by reference. Such consolidated
financial statements and schedules have been incorporated hereby by reference
in reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.
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<PAGE> 56
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER WILL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFERING IN SUCH JURISDICTION.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION ....................................
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ...........
PROSPECTUS SUMMARY.........................................
RISK FACTORS ..............................................
THE COMPANY ...............................................
RECENT DEVELOPMENTS .......................................
SELECTED FINANCIAL DATA ...................................
DESCRIPTION OF RIGHTS OFFERING ............................
DETERMINATION OF SUBSCRIPTION PRICE .......................
USE OF PROCEEDS ...........................................
LEGAL MATTERS..............................................
EXPERTS ...................................................
</TABLE>
RIGHTS TO SUBSCRIBE FOR $8,323,081 SHARES OF COMMON STOCK
AND EXCHANGE AND CONVERSION OF SERIES E REDEEMABLE PREFERRED
STOCK IN CONJUNCTION THEREWITH
AMERICAN ECOLOGY CORPORATION
Prospectus
-56-
<PAGE> 57
November 17, 1997
-57-
<PAGE> 58
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution of
the securities being registered are:
<TABLE>
<S> <C>
SEC Filing Fees ......................... $ 2,485
Legal Fees and Expenses ................. 40,000
Accounting Fees and Expenses ............ 6,500
Printing and Engraving Fees ............. 13,000
Registrar, Subscription Agent and
Information Agent Fees and
Distribution Costs ..................... 50,000
Stock Exchange Listing Fees ............. 17,500
Miscellaneous ........................... 12,000
Total Expenses ................. $141,485
========
</TABLE>
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for
indemnification of directors and officers against claims and liabilities
against them in their capacities as such. Article Seventh of the Restated
Certificate of Incorporation of the Company provides for indemnification of the
Company's officers and directors to the fullest extent allowed by Delaware law.
Item 16. EXHIBITS
The exhibits listed on the Exhibit Index on page II-5 of this Registration
Statement have been previously filed, are filed herewith, will be filed by
amendment or are incorporated herein by reference to other filings.
Item 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act;
II-1
<PAGE> 59
(ii) to reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement; provided, however, that paragraphs
(a)(1)(i) and (a)(1)(ii) do not apply if the information required
to be included in a post-effective amendment by those paragraphs in
contained in the periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference
herein.
(2) That, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment will be deemed
to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in this Registration Statement will
be deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time will be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is
II-2
<PAGE> 60
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of the appropriate jurisdiction the question whether such indemnification by it
is against public policy as expressed by the Securities Act and will be
governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that is has reasonable grounds to believe it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement or amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Boise, State of Idaho, on November
14, 1997.
AMERICAN ECOLOGY CORPORATION
By:/s/ Jack K. Lemley
-------------------------------
Jack K. Lemley
Chairman of the Board,
Chief Executive Officer
and President
II-3
<PAGE> 61
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board, Chief NOVEMBER 14, 1997
- ----------------------------- Executive Officer, President and
Jack K. Lemley Director
Chief Accounting Officer NOVEMBER 14, 1997
- -----------------------------
Robert S. Thorn
* Director NOVEMBER 14, 1997
- -----------------------------
Rotchford L. Barker
* Director NOVEMBER 14, 1997
- -----------------------------
Paul C. Bergson
* Director NOVEMBER 14, 1997
- -----------------------------
Keith D. Bronstein
* Director NOVEMBER 14, 1997
- -----------------------------
Edward F. Heil
* Director NOVEMBER 14, 1997
- -----------------------------
Paul F. Schutt
* Director NOVEMBER 14, 1997
- -----------------------------
John J. Scoville
*By:
-------------------------
Phillip K. Chattin,
Attorney in Fact
</TABLE>
II-4
<PAGE> 62
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
4.1* Specimen Common Stock Certificate
4.2* Form of Subscription Certificate
4.3* Form of Subscription Agent Agreement
5.1* Form of Opinion of Jenner & Block as to legality of
Common Stock being registered
23.1 Consent of Balukoff, Lindstrom & Co., P.A.
23.2 Consent of Arthur Andersen LLP
23.3* Consent of Jenner & Block (incorporated in opinion
filed as Exhibit 5.1)
24.1* Power of Attorney
99.1* Instructions to Shareholders re Subscription Certificate
</TABLE>
*Previously filed
II-5
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made a part of this
registration statement.
/s/ BALUKOFF, LINDSTROM & CO., P.A.
Boise, Idaho
November 14, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Form S-3 Registration Statement of our report dated
April 11, 1996, included in the American Ecology Corporation's 1996 Form 10-K,
and to all references to our firm included in this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
November 14, 1997
