-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E7VC0AkHgp8Ik3IWwbLsmSJ0Ts0tZkMdrQ5729/FWHR2JjEkLLbdcZRoqHgoSDLF SyeHxwVzY1NiL9P0KByTQg== /in/edgar/work/0000950129-00-005380/0000950129-00-005380.txt : 20001114 0000950129-00-005380.hdr.sgml : 20001114 ACCESSION NUMBER: 0000950129-00-005380 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ECOLOGY CORP CENTRAL INDEX KEY: 0000742126 STANDARD INDUSTRIAL CLASSIFICATION: [4953 ] IRS NUMBER: 953889638 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11688 FILM NUMBER: 758188 BUSINESS ADDRESS: STREET 1: 805 W IDAHO STREET 2: STE 200 CITY: BOSIE STATE: ID ZIP: 83702 BUSINESS PHONE: 2083318400 MAIL ADDRESS: STREET 1: 805 W IDAHO STREET 2: STE 200 CITY: BOISE STATE: ID ZIP: 83702 10-Q 1 h81676e10-q.txt AMERICAN ECOLOGY CORPORATION - DATED 09/30/2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission File Number 0-11688 AMERICAN ECOLOGY CORPORATION ---------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-3889638 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 805 W. Idaho Suite #200 Boise, Idaho 83702-8916 ------------ ---------- (Address of principal executive offices) (Zip Code) (208) 331-8400 -------------- (Registrants telephone number, including area code) Indicate by a check mark whether Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] At November 12, 2000, Registrant had outstanding 13,711,517 shares of its Common Stock. 2 AMERICAN ECOLOGY CORPORATION QUARTERLY REPORT FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION
PAGE Item 1. Consolidated Financial Statements Consolidated Balance Sheet (Unaudited) 4 Consolidated Statements of Operations (Unaudited) 5 Consolidated Statements of Cash Flows (Unaudited) 6 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings 20 Item 2. Changes in Securities 20 Item 3. Defaults upon Senior Securities 20 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 21 Item 6. Exhibits and Reports on Form 8-K 21 Signatures 23
2 3
DIRECTORS OFFICERS --------- -------- Jack K. Lemley Jack K. Lemley Chairman of the Board Chairman, Chief Executive Officer and President American Ecology Corporation James R. Baumgardner Rotchford L. Barker Senior Vice President and Chief Financial Officer Independent Businessman L. Gary Davis Paul C. Bergson Vice President and Controller Principal Bergson & Company Zaki K. Naser Executive Vice President and Operations Manager Keith D. Bronstein Stephen A. Romano President Vice President Tradelink, LLC Robert S. Thorn Patricia M. Eckert Vice President and Chief Accounting Officer Principal Patricia M. Eckert & Associates Robert M. Trimble General Counsel and Secretary Edward F. Heil Chairman of the Board American Environmental Construction Company FINANCIAL REPORTS Dan Rostenkowski A copy of the American Ecology Corporation President Financial Reports, filed with the DanRoss & Associates, Inc. Securities and Exchange Commission, may be Obtained by writing to: Paul F. Schutt Chief Executive Officer American Ecology Corporation Nuclear Fuel Services, Inc. 805 W. Idaho, Suite 200 Boise, Idaho 83702 John J. Scoville OR: President at www.americanecology.com J.J. Scoville & Associates, Inc. TRANSFER AGENT CORPORATE OFFICE ChaseMellon Shareholder Services, LLC American Ecology Corporation Overpeck Centre 805 W. Idaho, Suite 200 85 Challenger Road Boise, Idaho 83702 Ridgefield Park, New Jersey 07660 (208) 331-8400 (201) 296-4000 (208) 331-7900 (fax) www.chasemellon.com www.americanecology.com AUDITOR COMMON STOCK Balukoff, Lindstrom & Co., P.A. American Ecology Corporation's common stock 877 West Main Street, Suite 805 Trades on the NASDAQ Stock Market under the Boise, Idaho 83702 Symbol ECOL. 208-344-7150
3 4 PART 1 FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. AMERICAN ECOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS (UNAUDITED) ($ IN 000'S EXCEPT PER SHARE AMOUNTS)
September 30, December 31, 2000 1999 ------------- ------------ ASSETS Current Assets: Cash and cash equivalents $ 2,225 $ 4,771 Receivables, net of allowance for doubtful accounts of $927 and $619 respectively 10,679 7,696 Income tax receivable 740 740 Prepayments and other 1,216 1,207 -------- -------- Total current assets 14,860 14,414 Cash and investment securities, pledged 233 226 Property and equipment, net 14,464 10,432 Deferred site development costs 27,430 27,430 Cell development costs 3,984 2,386 Intangible assets relating to acquired businesses, net 372 390 Other assets 3,115 3,181 -------- -------- Total assets $ 64,459 $ 58,458 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long term debt $ 182 $ 781 Accounts payable 3,666 2,706 Accrued liabilities 11,050 12,334 Deferred site maintenance, current portion 700 700 Income taxes payable 161 202 -------- -------- Total current liabilities 17,745 16,723 Long term debt, excluding current portion 5,907 3,569 Deferred site maintenance, excluding current portion 16,215 16,585 Commitments and contingencies Shareholders' equity: Convertible preferred stock, $.01 par value, 1,000,000 shares authorized, none issued and outstanding -- -- Series D cumulative convertible preferred stock, $.01 par value, 105,264 authorized, 100,001 shares issued and outstanding 1 1 Series E redeemable convertible preferred stock, $.01 par value, 300,000 authorized, 300,000 shares converted and retired -- -- Common stock, $.01 par value, 50,000,000 authorized, 13,711,517 and 13,704,050 shares issued and outstanding, respectively 137 137 Additional paid-in capital 54,570 54,513 Retained earnings (deficit) (30,116) (33,069) -------- -------- Total shareholders' equity 24,592 21,582 -------- -------- Total Liabilities and Shareholders' Equity $ 64,459 $ 58,459 ======== ========
See notes to consolidated financial statements. 4 5 AMERICAN ECOLOGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ($ IN 000'S EXCEPT PER SHARE AMOUNTS)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 -------- -------- -------- -------- Revenue $ 11,796 $ 6,007 $ 31,600 $ 24,093 Operating costs 6,555 3,664 17,327 12,684 -------- -------- -------- -------- Gross profit 5,241 2,343 14,273 11,409 Selling, general and administrative expenses 4,228 2,280 11,672 11,025 -------- -------- -------- -------- Income from operations 1,013 63 2,601 384 Investment income (loss) (95) (200) 141 113 Interest income (expense) (175) (44) (249) (117) Gain on sale of assets 45 3 44 666 Other income 320 23 821 391 -------- -------- -------- -------- Net income (loss) before income taxes 1,108 (155) 3,314 1,437 Income tax expense (benefit) 8 (29) 69 18 -------- -------- -------- -------- Net income 1,100 (126) 3,245 1,419 Preferred stock dividends 100 86 299 316 -------- -------- -------- -------- Net income (loss) available to common Shareholders $ 1,000 $ (212) $ 2,946 $ 1,103 ======== ======== ======== ======== Basic earnings per share $ .07 $ (.02) $ .22 $ .08 ======== ======== ======== ======== Diluted earnings per share $ .06 $ (.02) $ .18 $ .07 ======== ======== ======== ======== Dividends paid per common share $ -- $ -- $ -- $ -- ======== ======== ======== ========
See notes to consolidated financial statements. 5 6 AMERICAN ECOLOGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) ($ IN 000'S)
Nine Months Ended September 30, 2000 1999 ---- ---- Cash flows from operating activities: Net income $ 3,245 $ 1,419 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,647 1,711 Deferred income tax provision (40) (64) (Gain) on sale of assets (1,098) (663) Changes in assets and liabilities: Receivables (2,983) 3,100 Investment securities (7) 1,412 Other assets (146) 473 Accounts payable and accrued liabilities (324) (11,184) Deferred site maintenance (371) (265) -------- -------- Total adjustments (3,322) (5,480) -------- -------- Net cash provided by (used in) operating activities (77) (4,061) -------- -------- Cash flows from investing activities: Capital expenditures (7,959) (1,793) Site development costs, including capitalized interest (550) Proceeds from sales of property and equipment 2,000 1,910 Proceeds from sales of investment securities -- -- -------- -------- Net cash provided by (used in) investing activities (5,959) (433) Cash flows from financing activities: Proceeds from common stock issued 57 14 Proceeds from issuance of indebtedness 4,032 1,733 Proceeds from rights offering -- -- Repayments of indebtedness (599) (42) -------- -------- Net cash provided by financing activities 3,490 1,705 Increase (decrease) in cash and cash equivalents (2,546) (2,789) Cash and cash equivalents at beginning of period 4,771 4,442 -------- -------- Cash and cash equivalents at end of period $ 2,225 $ 1,653 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest, net of amounts capitalized $ 249 $ 117 Income taxes 130 83 Acquisition of Equipment with Capital Leases 3,006 --
See notes to consolidated financial statements. 6 7 AMERICAN ECOLOGY CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (UNAUDITED) ($ IN 000'S)
ADDITIONAL RETAINED PREFERRED COMMON PAID-IN EARNINGS STOCK STOCK CAPITAL (DEFICIT) -------- -------- ---------- -------- Balance, December 31, 1999 $ 1 $ 137 $ 54,513 $(33,069) Net Income -- -- -- 1,382 Dividends of preferred stock -- -- -- (100) Other adjustments -- -- -- 5 -------- -------- -------- -------- Balance, March 31, 2000 $ 1 $ 137 $ 54,513 $(31,782) -------- -------- -------- -------- Net Income -- -- -- 764 Common stock issuance -- -- -- 12 Dividends of preferred stock -- -- -- (100) Other adjustments -- -- -- 2 -------- -------- -------- -------- Balance, June 30, 2000 $ 1 $ 137 $ 54,525 $(31,116) -------- -------- -------- -------- Net Income -- -- -- 1,100 Common stock issuance -- -- 45 -- Dividends of preferred stock -- -- -- (100) Other adjustments -- -- -- -- -------- -------- -------- -------- Balance, September 30, 2000 $ 1 $ 137 $ 54,570 $(30,116) -------- -------- -------- --------
The accompanying notes are an integral part of these financial statements. 7 8 AMERICAN ECOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION. The accompanying unaudited financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments and disclosures necessary to a fair presentation of these financial statements have been included. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's 1999 Annual Report on Form 10-K for the year ended December 31, 1999, as filed with the Securities and Exchange Commission. Certain reclassifications and other corrections for rounding have been made in prior period financial statements to conform to the current period presentation. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation. NOTE 2. LONG-TERM DEBT. Long term debt at September 30, 2000 and December 31, 1999 consisted of the following (in thousands):
September 30, December 31, 2000 1999 ------- ------- Notes payable $ 1,300 $ 1,847 Capital lease obligations 3,006 1,675 Other long-term debt 3,769 828 ------- ------- 8,075 4,350 Less: Current maturities (2,168) (781) ------- ------- Long-term debt $ 5,907 $ 3,569
Aggregate maturity of future minimum payments under notes payable and capital leases is as follows (in thousands):
September 30, December 31, 2000 1999 ------- ------- 2000 $ 182 $ 781 2001 3183 1,631 2002 3,337 730 2003 666 520 2004 595 688 2005 42 -- 2006 70 -- ------- ------- TOTAL $ 8,075 $ 4,350 ======= =======
The Company borrowed $1.3 million from two of its board members in March 1999 and issued unsecured notes at 9% interest that mature September 2, 2001. The Company is prohibited from paying dividends on common or preferred shares until these notes are retired. In the third quarter of 2000, the Company executed capital lease agreements totaling approximately $1,225,000, bringing year-to-date capital leases to $2.3 million. The Company also entered into a financing agreement for insurance premiums in the amount of $705,000 due March 1, 2001. The average annual percentage interest rate on the aforementioned obligations is between 9% and 10.5%. On August 17, 2000 the Company entered into a 2-year, revolving line of credit with a local bank. The line of credit is secured by the Company's accounts receivable and is governed by a Credit Agreement. Under the terms of the Credit Agreement, borrowings cannot 8 9 exceed 80% of eligible accounts receivable or $5.0 million, whichever is less. Interest on borrowings under the Credit Agreement are based on a 'pricing grid,' whereby after the first 6 months, the interest rate decreases or increases based on the Company's ratio of funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA). The Company can elect to borrow monies utilizing the Prime Rate or the offshore London Inter-Bank Offering Rate (LIBOR) plus an applicable spread. During the first six months of the credit facility, borrowings are Prime plus 0.75% or LIBOR plus 3.25%, at the election of the Company, subject to certain conditions. The Credit Agreement contains certain financial covenants that the Company must adhere to quarterly, including a maximum leverage ratio, a minimum current ratio and a debt service coverage ratio. At September 30, 2000 the Company was in compliance with all applicable bank financial covenants. At September 30, 2000 the outstanding balance on principal loan and revolving line of credit was $2,500,000, with $2,500,000 available with any balance due June 30, 2002. During the third quarter, the interest rate on borrowings ranged from 9.875% to 10.5%. As of October 19, 2000 the Company had repaid $1,000,000 of the revolving line of credit. NOTE 3. SALE-LEASE-BACK On August 3, 2000 the Company entered into a $2 million equipment sale and leaseback transaction. The Company sold various Company-owned equipment and rolling stock to a lessor. The Company received $2,000,000 in proceeds from the asset sale and entered into an operating lease for their use of the equipment beginning August 8, 2000 with monthly payments through January 8, 2006, with no security deposit. The lease allows for the early buyout of the equipment at a fixed price at the 60th month. The lease requires the Company to pay customary operating and repair expenses and to observe certain operating restrictions and covenants.
At December 31: Minimum Lease Payment 2000 $ 173,971 2001 417,529 2002 417,530 2003 417,530 2004 417,530 2005 417,530 2006 34,794 ---------- Total Minimum Payments $2,296,414
The Company realized a $1,098,000 gain on the sale of the equipment that will be amortized over the life of the lease. The gain will be recognized proportionate to the gross rental charged over the 66-month lease life. The $16,600 monthly recognition of gain on sale is offset against the lease expense. Proceeds from this sale of assets were used to fund expansion of the El Centro facility and general business obligations. NOTE 4. DEFERRED SITE DEVELOPMENT COSTS. On May 2, 2000, subsidiary US Ecology filed suit against the State of California in Superior Court for the County of San Diego alleging that the State has abandoned its duty to obtain the Ward Valley property from the U.S. Department of the Interior. The suit seeks recovery of monetary damages stemming from the state's failure to honor its obligations to the Company, and also seeks to compel the State to resume efforts to complete the land acquisition process. Damages sought are in excess of $162 million for costs incurred, interest, lost profits and certain legal expenses. On October 24, 2000, the Superior Court signed an order granting the State of California's demurrer, dismissing the case. The Company believes the ruling is in error and has appealed the ruling. The Company also continues to protect its investment in the Ward Valley project in federal court through two lawsuits filed against the United States in 1997. These suits are based on actions by Interior Secretary Bruce Babbitt purporting to rescind his predecessor's decision to transfer the Ward Valley site to California. The first case, filed in the United States Court of Federal Claims, seeks monetary damages in excess of $73 million. On March 27, 2000, the court dismissed this case, the Company promptly appealed. Written briefs have been filed in the appeal, but oral argument has not been scheduled. The second case, filed in the Federal District Court for the District of Columbia, seeks injunctive relief and a writ of mandamus ordering delivery of the Ward Valley site to California. The trial court rendered an adverse judgment in this action on March 31, 1999, which the Company also appealed. The United States District of Columbia Circuit Court of Appeals heard oral arguments in this case on September 5, 2000 but has not yet ruled. 9 10 All costs incurred through July 31, 1999 to develop the Ward Valley facility were capitalized. Since then, all costs have been expensed as incurred. After adjusting for a 1998 bank settlement, the Company had deferred $20,952,000 (33% of total assets) of development costs for the Ward Valley facility, of which $895,000 represents capitalized interest, as of September 30, 2000. The Company has incurred reimbursable costs and received revenue for development of the Butte, Nebraska disposal facility under a contract with the CIC Commission. While the Company (through subsidiary US Ecology) has an equity position in the project, it has acted principally as a contractor to the CIC. Major generators of waste within the five-state CIC region have provided approximately 89% of funds expended to develop the Butte facility. As of September 30, 2000, the Company has contributed and capitalized approximately $6,478,000 (10% of total assets) for the Butte facility, $386,000 of which is capitalized interest. In 1998, the State of Nebraska denied US Ecology's license application to build and operate the Butte facility. At the CIC's direction, US Ecology challenged this denial. The major waste generators funding the project filed suit in the Federal District Court for Nebraska in December 1998 seeking to recover certain costs expended on the licensing process and to prevent the State of Nebraska from proceeding with a hearing on the license denial. US Ecology intervened as a plaintiff. The Company expects no significant project revenue pending the outcome of the litigation. In April 2000, the United States Court of Appeals for the Eighth Circuit upheld a preliminary injunction issued in United States District Court enjoining the State of Nebraska hearing process. The Eighth Circuit also affirmed a District Court ruling that Nebraska waived certain sovereign immunity protections when it willingly became a CIC member state. The Company believes the case will go to trial in 2001. US Ecology continues to maintain the Butte facility under contract to the CIC. Management believes the Company's legal position in each of the above legal matters is strong and intends to continue devoting resources necessary to pursue each of these actions. The Company believes that deferred site development costs for the Butte facility will be realized and that its investment in Ward Valley will be recouped through either monetary damages recovery or facility construction and operation. There can be no assurance that the Company will recover its investment or earn a return on either project, however, since the outcome of litigation is unknown. Failure to recover deferred site development costs for either facility would have a material adverse effect on the Company's financial condition. NOTE 5. EARNINGS PER SHARE. The following table shows the weighted average number of common shares outstanding and dilutive potential effect of options, warrants, and convertible preferred shares outstanding for the respective three and nine month periods used to calculate basic and diluted earnings per common share:
(000'S EXCEPT PER SHARE AMOUNTS) Three Months Ended Nine Months ended September 30, September 30, 2000 1999 2000 1999 -------- -------- -------- -------- Net earnings (loss) available to common shareholders $ 1,000 $ (212) $ 2,946 $ 1,103 ======== ======== ======== ======== Weighted average shares outstanding at end of period used to calculate basic earnings per share 13,709 13,564 13,709 13,564 Dilutive effect of options and warrants 2,653 1,844 2,653 1,844 Shares used to compute diluted earnings (loss) per share 16,362 15,407 16,362 15,407 Basic earnings per share $ .07 $ (.02) $ .22 $ .08 ======== ======== ======== ======== Diluted earnings per share $ .06 $ (.02) $ .18 $ .07 ======== ======== ======== ========
10 11 NOTE 6. INCOME TAXES. The Company had an effective federal tax rate of 0% on September 2000 and December 31, 1999 respectively. The statutory rate of 34% is offset by a valuation allowance for deferred tax assets of approximately 35%. This valuation allowance was established for certain deferred tax assets due to uncertainties inherent in long-term deferred site maintenance costs, uncertainties affecting future operating results, and limitations on utilization of acquired net operating loss carry forwards for tax purposes. At September 30, 2000, the available net operating loss carry forward was $30.9 million plus an estimated $3.0 of additional net operating loss carry forward for 2000 based on 1999 results. This unrestricted net operating loss carry forward expires as follows: - $4.3 million in 2010 - $8.7 million in 2011 - $7.8 million in 2012 - $6.9 million in 2018 - $3.2 million in 2019 - $3.0 million in 2020 In addition to the above unrestricted net operating loss carry forward, the Company has net operating loss carryforwards subject to Internal Revenue Code Section 382 restrictions, of approximately $2.7 million, which begin to expire in 2006 through 2008. These amounts assume that the position of the Internal Revenue Service ("IRS") is incorrect in the matter discussed below. The Company filed a federal income tax refund claim for 1995 and prior years seeking a refund of approximately $740,000. In September 1999, the IRS proposed to deny this claim. The Company protested this denial and proposed a reduction in November 1999 and intends to continue efforts to obtain the refund. The Company and the IRS have met three times in 2000 on this matter. As of September 30, 2000, the $740,000 claimed is reflected as income taxes receivable. The matter is still pending. The Company sold this $740,000 refund claim to its former bank with recourse in November 1998 and agreed in a subsequent repurchase agreement and the bank settlement agreement to buy back 25% of the tax refund claim for $184,000. The Company has been making monthly payments to satisfy this obligation and completed the repurchase in October 2000. If the Company's protest to the IRS is unsuccessful, it may have an obligation to pay 75% of the claim (or $555,000) to its prior bank. NOTE 7. ENVIRONMENTAL LIABILITIES. The Company has financial commitments for future closure and/or post-closure maintenance obligations at facilities it operates and is otherwise responsible for. Closure and post-closure liabilities are covered by insurance policies should the Company fail to comply with its obligations. The total estimated final closure and post-closure cost must be fully accrued for each landfill at the time the site stops accepting waste. Environmental Matters The Company maintains reserves and insurance polices for future closure and post-closure cost obligations at both current and formerly operated disposal facilities. These reserves and insurance policies are based on professional engineering studies and interpretations of current and foreseeable regulatory requirements performed at least annually. Costs accounted for include final disposal unit capping, gas emission control, subsurface soil and groundwater monitoring, and other monitoring and routine maintenance costs required after a disposal site stops accepting waste. The Company believes it has made adequate provision through reserves and the insurance policy for closure and post-closure obligations. The Company estimates that the aggregate final closure and post-closure costs for all insured facilities owned or operated was approximately $16,914,000 as of September 30, 2000. The Company has a three-year prepaid insurance policy for its facilities, and has set aside investment securities to pay certain deductible limits. Operation of disposal facilities creates operational, monitoring, site maintenance, closure and post-closure obligations that could result in unforeseen costs for monitoring and corrective action. The Company cannot predict the likelihood or effect of such costs, regulation or statute changes, or other future events affecting its facilities. Management believes, however, that disposition of such matters would not have a material adverse effect on the financial condition of the Company. 11 12 Financial Assurance and Site Maintenance When disposal facilities reach capacity or upon lease or license termination dates, they must be closed and then maintained for a prescribed period. In the case of hazardous waste facilities, federal regulations require that operators demonstrate financial capability to close on an immediate, unscheduled (worst-case) basis. The estimated costs of such a closure are set forth in the operator's required RCRA closure/post-closure plan. The Company has provided letters of credit, trust funds, closure bonds, and certificates of insurance as financial assurance to meet closure and post closure obligations at its hazardous waste facilities. Cash and investment securities totaling $233,000 on September 30, 2000 and $226,000 on December 31, 1999 are pledged as collateral for these obligations. Management believes that $233,000 is an adequate reserve in combination with the above sureties. NOTE 8. OPERATING SEGMENTS. Summarized financial information concerning the Company's reportable segments are shown below. The Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company operates two business segments, Chemical Services and Low-Level Radioactive Waste ("LLRW") Services. The Chemical Services division processes and disposes of hazardous, PCB and non-hazardous waste. The LLRW Services division removes, processes, packages, and disposes of material contaminated with low-level and naturally occurring radioactive material. Segment data includes inter-Company transactions at cost, as well as allocation for certain corporate costs. The "Corporate & Other" column includes corporate-related items not allocated to the reportable segments.
Reported in ($000) - ----------------- 3 Months Ending, September 30, 2000 Chemical Services LLRW Services Corporate & Other Total - ----------------------------------- ----------------- ------------- ----------------- ----- Revenue $ 4,244 $ 7,552 $ -- $ 11,796 Direct Operating Costs 2,385 4,366 (196) 6,555 -------- -------- -------- -------- Gross Profit $ 1,859 $ 3,186 $ (196) $ 5,241 SG&A Expense 1,146 1,513 1,569 4,228 Interest Expense/(Income) (35) (83) (58) (178) Corporate Allocation 708 1,019 (1,646) 81 Income Taxes -- -- 8 8 -------- -------- -------- -------- Net Income $ 40 $ 737 $ (69) $ 1,100 9 Months Ending September 30, 2000 - ---------------------------------- Gross Profit 5,482 8,449 $ 14,273 SG&A Expense 2,769 5,314 3,589 11,672 Interest Expense/(Income) (195) (84) (177) (456) Corporate Allocation 1,445 2,242 (3,944) (257) Income Taxes -- -- 69 69 -------- -------- -------- -------- Net Income $ 1,463 977 805 $ 3,245 Total Assets $ 24,414 $ 39,674 $ 371 $ 64,459
Reported in ($000) - ----------------- 3 Months Ending September 30, 1999 Chemical Services LLRW Services Corporate & Other Total - ---------------------------------- ----------------- ------------- ----------------- ----- Revenue $ 2,363 $ 3,690 $ (46) $ 6,007 Direct Operating Costs 1,708 1,966 (10) 3,664 -------- -------- -------- -------- Gross Profit $ 655 $ 1,724 $ (36) $ 2,343 SG&A Expense 891 1,389 -- 2,280 Interest Expense/(Income) (30) 53 (7) 16 Corporate Allocation 247 466 (511) 202 Income Taxes -- -- (29) (29) -------- -------- -------- -------- Net Income $ (453) $ (184) $ 511 $ 126
12 13
9 Months Ending September 30, 1999 - ---------------------------------- Revenue $ 9,015 $ 15,078 $ -- $ 24,093 Direct Operating Costs 5,966 7,289 (571) 12,684 -------- -------- -------- -------- Gross Profit $ 3,049 $ 7,789 $ 571 $ 11,409 SG&A Expense 4,432 3,478 3,115 11,025 Interest Expense/(Income) (163) (739) (38) (940) Corporate Allocation 957 1,783 (2,853) (113) Income Taxes -- -- 18 18 -------- -------- -------- -------- Net Income $ (647) $ 1,737 $ 329 $ 1,419 Total Assets $ 13,670 $ 35,757 $ 3,672 $ 53,099
NOTE 9. CASH AND INVESTMENT SECURITIES. The Company and wholly owned subsidiary American Liability and Excess Insurance Company ("ALEX"), a captive insurance company, maintains a securities portfolio with a national brokerage firm. At September 30, 2000, ALEX held $257,000 in cash and money market accounts. This account decreased $1,130,000 from August 31, 2000 to September 30, 2000 to pay for major capital expansion at the El Centro facility, and general corporate purposes. The Company has pledged $250,000 of the remaining monies as security for various insurance policies. On July 13, 2000 the Company's Board of Directors approved management's recommendation to close ALEX to reduce the costs associated with maintaining an inactive, captive insurance company. No financial or other impacts are anticipated as a result of the scheduled 2000 closing. NOTE 10. COMMITMENTS AND CONTINGENCIES. The Company becomes involved in judicial and administrative proceedings involving federal, state and local governmental authorities in the ordinary course of conducting business. Actions may also be brought by individuals or groups of individuals in connection with facility permitting, alleged violations of permits or licenses, or alleged damages suffered from exposure to hazardous substances purportedly released from Company operated sites, and other litigation. The Company maintains insurance intended to cover property and damage claims asserted as a result of its operations. Insurance: While the Company believes it operates safely, professionally and prudently, the environmental business exposes the Company to risks, including potential releases of harmful substances that may cause damage or injury. Primary casualty insurance programs do not generally cover accidental environmental contamination losses. To provide insurance protection for such claims, the Company maintains environmental impairment liability insurance and professional environmental consultants liability insurance for non-nuclear occurrences. The Company also maintains nuclear liability insurance covering the operations of its facilities, suppliers and transporters; as well as primary property, casualty and excess liability policies through traditional third party insurance. In 1998, the Company elected to discontinue providing financial assurance for its closure and post-closure responsibilities through its ALEX insurance subsidiary. The Company will close the captive insurance company during 2000, as discussed in Note 9 to the financial statements. In July 2000, the Company initiated cancellation of its Reliance Insurance Company policies and obtained substantially identical coverage through XL Capital Insurance Company. Transferring these policies to XL Capital enables the Company to maintain coverage with an insurance provider with a higher credit rating and greater financial wherewithal. Periodically management reviews and may establish reserves for legal and administrative matters, or fees expected to be incurred in connection with such matters. Management believes that its reserves and insurance are adequate. There have been no significant changes in commitments and contingencies other than that included in Part II, Item 1 of this report, Legal Proceedings. NOTE 11. PREFERRED STOCK. In November 1996, the Company issued 300,000 shares of Series E Redeemable Convertible Preferred Stock ("Series E") in a private offering to four of its directors for $3,000,000 in cash. The Series E bore an 11.25% annual dividend, paid quarterly in shares of the Company's common stock, and was issued to fulfill a prior banking requirement. No voting rights or powers apply. 13 14 In February 1998, the Company concluded its rights offering and carried out a partial redemption of the Series E for common stock and a mandatory conversion to cash for the remaining Series E holders. This preferred stock was then considered converted and retired, but carries 3,000,000 warrants with no assigned value, and a $1.50 per share exercise price, which expire in June 2008. In September 1995, the Board of Directors authorized issuance of preferred stock designated as 8 3/8% Series D Cumulative Convertible Preferred Stock ("Series D"). The Company issued 105,264 shares of Series D and warrants allowing Series D holders to purchase 1,052,640 shares of the Company's common stock. The Series D with warrants were sold in a private offering to members or past members of the Board of Directors for $4,759,000. Offering expenses of $101,000 and $140,000 in settlement of liabilities were deducted from the proceeds. Each Series D share is convertible at any time, at the option of the holder, at the current conversion rate into common shares of the Company as specified in the designation certificate. In 2000, one Series D holder converted 5,263.2 preferred shares into common shares and extended 64,211 warrants. The balance of the Series D warrants has expired. Each warrant has an exercise price of $4.75. Since their value is deemed de minimus, no value is assigned to these warrants in the accompanying consolidated financial statements. 100,001 shares of Series D preferred stock are outstanding. The dividends on Series D Stock are cumulative from the date of issuance and payable quarterly commencing October 15, 1995. Covenants in current notes payable prohibit the payment of dividends. At September 30, 2000, accrued dividends totaled $695,000. Accrued but unpaid dividends are convertible into common stock on the same basis as the preferred. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis contains trend information and other forward-looking statements that involve a number of risks and uncertainties. Actual results could differ materially from the Company's historical results of operations and those discussed in these forward-looking comments. Factors that could cause actual results to differ materially include, but are not limited to, those identified in Notes 2, 4, 5, 6, and 7 to the Consolidated Financial Statements herein, Part II, Item 1. Legal Proceedings, and the discussion below. Certain factors that may influence actual operations in the future are discussed in the Company's Form 10-K for the year ended December 31, 1999 in Part I, Item 1. Business. Introduction Incorporated in 1952 as Nuclear Engineering Company, American Ecology Corporation and its predecessors have operated commercial radioactive and chemical waste disposal and treatment facilities nationwide longer than any other U.S. Company. The Company mainly derives its revenues from fees charged for processing and disposal of hazardous, non-hazardous, and low-level radioactive waste. Revenues are also derived from rebuilding electric motors from nuclear power plants, brokering wastes to other service providers, and environmental remediation work. Disposal fees assessed to customers of the Company's operating facilities may include state and local fees, and are generally based on the volume or weight of waste deposited. The Company may assess fees and incur costs to process waste (e.g. compaction or decontamination), stabilize waste (e.g. mixing with concrete), or transporting waste. Some of these costs create inter-company charges and revenue, all of which have been eliminated in these consolidated financial statements. Operating expenses include direct and indirect costs for labor, maintenance and repairs, subcontracted costs and equipment, insurance, taxes and accruals for burial fees and other costs. The Company has properly accounted for fees assessed by regulatory authorities for the issuance of permits and licenses. Selling, general & administrative costs include management salaries, sales and marketing efforts, clerical and administrative costs, legal fees, office rentals, corporate insurance, and other administrative costs for the general corporate overhead. Revenue for the nine months ended September 30, 2000 reached $31,600,000 or 31% higher than during the same period in 1999. Growth in revenue was primarily the result of strong operations at the Company's Beatty, Nevada and Richland, Washington facilities. 14 15 RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 The following table presents, for the periods indicated, the percentage of operating line items in the consolidated income statement to operating revenues:
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended September 30, 2000 September 30,2000 September 30, 1999 September 30, 1999 ------------------ ----------------- --------------------- ------------------ $ % $ % $ % $ % Revenue 11,796 31,600 6,007 24,093 Direct Operating Costs 6,555 55.6 17,327 54.8 3,664 61.0 12,684 52.6 ------ ------ ------ ------ Gross Profits 5,241 44.4 14,273 45.2 2,343 39.0 11,409 47.4 SG & A 4,228 35.8 11,672 36.9 2,280 38.0 11,025 45.8 ------ ------ ------ ------ Income from Operations 459 8.6 2,601 8.2 63 1.0 384 1.6 Investment Income (95) -0.8 141 0.4 (200) -3.3 113 0.5 Gain on sale of assets 45 0.4 44 0.1 3 0.0 666 2.8 Other (income) expense 145 1.2 528 1.7 (21) -0.3 274 1.1 Net Income Before income taxes 1,108 9.4 3,314 10.5 (155) -2.6 1,437 6.0 Income tax expense (benefit) 8 0.1 69 0.2 (29) -0.5 18 0.1 Net Income 1,100 9.3 3,245 10.3 (126) -2.1 1,419 5.9 Preferred stock Dividends 100 0.8 299 0.9 86 1.4 296 1.2 Net Income (loss) Available to common 1,000 8.5 2,946 9.3 (212) -3.5 1,123 4.7 Shareholders
CONDENSED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDING
Reported in $000 September 30, 2000 September 30, 1999 Chemical LLRW Chemical LLRW -------- -------- -------- -------- Revenue $ 13,298 $ 18,302 $ 9,015 $ 15,078 Direct Operating costs 7,816 9,853 5,966 7,289 -------- -------- -------- -------- Gross Profit 5,482 8,449 3,049 7,789 SG & A 2,769 5,314 3,478 4,432 -------- -------- -------- -------- Income (loss) from operations 2,713 3,135 (429) 3,357 Other income (expense) (1,250) (2,158) (218) (1,620) -------- -------- -------- -------- Net Income (loss) $ 1,463 $ 977 $ (647) $ 1,737 ======== ======== ======== ========
15 16 REVENUE
Period to Period Change For Period to Period Change For The Three Months Ended The Nine Months Ended September 30, 2000 and 1999 September 30, 2000 and 1999 --------------------------- ---------------------------- $ % $ % ----- ----- ----- ----- Statement of Operations Revenue Chemical Division 1,881 79.6 4,283 47.5 LLRW Division 3,862 10.5 3,224 21.4
For the three and nine months ended September 30, 2000, the Company reported revenue of $11,796,000 and $31,600,000, respectively, or a 96.4% and 31.2% increase compared to corresponding prior year periods. For the three months ended September 30, 2000, Chemical Division revenue increased $1,881,000 over the same period last year. For the nine months ended September 30, 2000, Chemical Division revenue increased $4,283,000 or 47.5% compared to the same period last year. This was primarily due to continuing work on two major contracts at the Beatty, Nevada facility. The Beatty facility began commercial operation of a new treatment technology known as "thermal desorption" to serve both new and existing customers during the quarter. The Company also opened a new municipal solid waste landfill in Robstown, Texas during the quarter ended September 30, although it had little impact on revenue. LLRW division revenue increased by $3,862,000 in the quarter, principally due to a large international contract for waste disposal at the Richland, Washington facility and the improved performance at the Oak Ridge, Tennessee facility. For the nine months ended September 30, 2000, revenue for the LLRW Division increased $3,224,000 or 21.4% compared to the same period last year. DIRECT OPERATING COSTS The following table indicates the period-to-period change in direct operating costs:
Period to Period Change Period to Period Change For the Three Months Ended For the Nine Months Ended September 30, 2000 and 1999 September 30, 2000 and 1999 --------------------------- --------------------------- $ % $ % Statement of Operations-Direct Operating Costs Chemical Division 677 39.6 1,850 31.0 LLRW Division 2,400 122.0 2,564 35.2
For the three and nine months ending September 30, 2000 direct operating costs increased for both the Chemical and LLRW Divisions. Total direct operating costs for the third quarter were $6,555,000 or 55.6% of revenue compared to $3,664,000 or 61.0% of revenue during the same quarter last year. For the nine months, direct operating costs increased to $17,327,000 or 54.8% of revenue compared to $12,684,000 or 52.7% of revenue for the same period in 1999. The increase in direct operating costs in the Chemical Division were less than additional revenue generated by such division, although the higher revenue levels necessitated higher spending on labor, cell costs, transportation, and materials. Revenue in the Chemical Division increased by 79.6% and 47.5% for the three and nine months ending September 30, 2000, respectively, while the direct operating costs during these periods increased 39% and 31% for the same periods in 1999. The LLRW Division's direct operating costs increased 122% and 35.2% over the same periods of three and nine months ended September 30, 1999. The higher direct costs were the result of LLRW processing operations at the Oak Ridge facility and a large remediation services contract in New York for both the three and nine months ended September 30, 2000. Higher production costs at Oak Ridge have been experienced throughout the year and management continues to take action to improve productivity and efficiency. On going efforts to process and remove aged (non-revenue) waste from the Oak Ridge facility are a significant factor. It is expected that the majority, if not all, of the aged waste will be removed from the facility by the end of the first quarter of 2001. The Company released 5 Oak Ridge employees in October in its continuing effort to control costs. Additional cost and expense reductions are currently being evaluated. The Richland facility also incurred higher direct costs for the three and nine months reported, however, these were proportional to the increased sales activities. 16 17 SELLING, GENERAL AND ADMINISTRATIVE COSTS (SG&A)
Period to Period Change Period to Period Change For the Three Months Ended For the Nine Months Ended September 30, 2000 and 1999 September 30, 2000 and 1999 --------------------------- --------------------------- $ % $ % Selling, General and Administrative Costs Chemical Division 255 28.6 (709) (20.4) LLRW Division 124 8.9 882 19.9
SG&A costs increased to $4,228,000 for the three months ending September 30, 2000 compared to $2,280,000 for the same quarter in 1999. However, SG&A for the three months ending September 30, 1999 was reduced due to approximately $920,000 of nonrecurring reductions in corporate legal expense, and an adjustment of an accrual for outside accounting fees. For the nine months ended September 30, 2000, SG&A increased to $11,672,000 compared to $11,025,000 for the same period in 1999. Increases in SG&A resulted from higher selling costs, as the Company continued its program to expand its sales force and coverage, and higher consulting, insurance, bonding, and travel expenses. Relative to sales, SG&A has decreased substantially, from 45.8% of revenue in 1999 to 36.9% in 2000. During the first nine months of 2000, the Company utilized a $950,000 legal reserve that was established to offset costs associated with ongoing litigation. The Company expects that SG&A will be higher in the coming quarters than reported year to date during 2000 due to continued investments in sales, marketing, training, and information systems. The Chemical Division SG&A for the nine months ended September 30, 2000 was $709,000 or 20.4% less than the same period last year partly due to the capitalization of SG&A costs at the Robstown, Texas and Beatty, Nevada hazardous waste facilities. Capitalization of construction and associated SG&A costs for the new El Centro municipal waste landfill ceased when the facility opened in the July 2000. As a percentage of revenue, SG&A for the Chemical Division has decreased to 35.8% and 36.9% of revenue for the three and nine months ending September 30, 2000, respectively, compared to 38.0% and 45.8% of revenue for the same periods in 1999. The Company anticipates that SG&A for the Chemical division will increase in the coming quarters as the Company continues to invest in sales and marketing efforts and the administrative costs of operating El Centro are reflected in the income statement. The LLRW division experienced 8.9% and 19.9% increases in SG&A costs for the three and nine months ending September 30, 2000 respectively. SG&A costs increased for the three months ended September 30, 2000 due to additional contracts that were proportional to revenue. The nine months ending September 30, 2000 were higher than usual primarily due to a second quarter reserve of $546,000 established in response to an adverse ruling by the National Labor Relations Board ("NLRB") arising from a claim by the Company's Oak Ridge, Tennessee union that the Company engaged in unfair labor practices. The Company has appealed the ruling, but established a reserve that will be evaluated quarterly for adequacy to provide for potential payment of these back wages. Without the NLRB reserve, SG&A would have decreased 13% for the nine months of 2000 and there would have been no change in the three months ending September 2000. OTHER COSTS, INCOME AND INVESTMENT INCOME
Period to Period Change Period to Period Change For the Three Months Ended For the Nine Months Ended September 30, 2000 and 1999 September 30, 2000 and 1999 --------------------------- --------------------------- $ % $ % Other Costs Chemical Division (5) 16.7 544 73.6 LLRW Division (136) (256.6) 79 48.4
Other costs or income and investment income is comprised principally of costs or income that the Company may incur outside the normal course of business. Income or interest income earned is for various investments in securities held-to-maturity, dividend income, and realized and unrealized gains and losses earned on the Company's investment portfolio classified as trading securities. In the last three years the Company has successfully coordinated new insurance policies that do not demand collateral backed investments for the deductibles. The Company has used these investments to fund ongoing expansion and operations as an alternative to long-term borrowing. As a result of third quarter 2000 withdrawals totaling about $1,100,000, only $233,000 remains as pledged investment securities. 17 18 For the nine months ended September 30, 2000 the Company reported investment income of $141,000 compared to $113,000 for the same nine months ending 1999. Included in this section is the gain on the sale of fixed assets and rolling stock equipment for $2,000,000 in a sale-leaseback transaction. This leaseback is an operating lease and the gain on the sale will be deferred and amortized in proportion to the gross rental charged to expense over the lease term of sixty-six months. The gain on the sale of fixed assets for the three and nine months ended September 30, 2000 was $45,000 and $44,000, compared to $3,000 and $666,000 for the periods of 1999. The nine months of 1999 results included the sale of the transportation division. The Company incurred interest expense of $249,000 and $117,000 for the nine months ended September 30, 2000 and 1999 respectively. The increase is attributed to additional heavy equipment capital leases, and a bank line of credit. The Company has notes payable with two directors for $1.3 million, for which interest accrues monthly. Other income for the three and nine months ended 2000 was $145,000 and $528,000 compared to a loss of $21,000 and income of $274,000 for same periods in 1999. The largest increase in the nine months ending September 30, 2000 reflected an adjustment for banking fees allowed as a reduction to future obligations with a predecessor bank. The Company also collected about $131,000 of debts previously written off in prior years and accounted for as other income. INCOME TAXES The Company had an effective federal tax rate of 0% at September 30, 2000 and at December 31, 1999. See Note 6 to the financial statements for detailed discussion. The Company has tax obligations to state and local taxing authorities for both the parent company and its operating subsidiaries. OPERATING EARNINGS AND NET INCOME
Period to Period Change Period to Period Change For the Three Months Ended For the Nine Months Ended September 30, 2000 and 1999 September 30, 2000 and 1999 --------------------------- --------------------------- $ % $ % ----- ----- ----- ----- Income from Operations Chemical Division 953 397.0 3,142 733.87 LLRW Division 1,380 470.9 (222) (6.5) EBINT (1) Chemical Division 1,032 500.9 2,549 433.5 LLRW Division 1,592 576.8 (265) (7.0) Consolidated Net Income 1,226 973.0 1,826 128.6 EBITDA (2) 1,267 337.8 1,573 50.3
(1) EBINT represents earnings from operations before deducting interest and taxes. (2) EBITDA represents earnings from operations before deducting interest and tax plus depreciation and amortization expense. Other costs or income and investment income is comprised principally of costs or income that the Company may incur outside the normal course of business. Income or interest income earned is for various investments in securities held-to-maturity, dividend income, and realized and unrealized gains and losses earned on the Company's investment portfolio classified as trading securities. The Company had maintained an investment portfolio for several years to supplement the deductibles for insurance on various policies for closure and post closure of Company-owned facilities. In the last three years the Company has successfully coordinated new insurance policies that do not require collateral for the deductibles. The Company has used these investments to fund ongoing expansion and operations as an alternative to long-term borrowing. Third quarter 2000 withdrawals totaled about $1,100,000, and only $233,000 remains as pledged investment securities. 18 19 SEASONAL EFFECTS Operating revenues are generally lower in the winter months than the warmer summer months. However, both Chemical and LLRW Services revenues are more affected by market conditions than seasonality. CAPITAL RESOURCES AND LIQUIDITY: On September 30, 2000, cash, cash equivalents and short-term investments totaled $2,225,000, a decrease of $2,546,000 from December 31, 1999. The decrease in cash was the result of paying down large accounts payable. Accounts receivable totaled $10,679,000 at September 30, 2000 compared to $7,696,000 at year-end December 31, 1999 a $2,983,000 increase from the same period in 1999. The increase in accounts receivable directly correspond to the increase in revenue experienced during the third quarter, in particular, September revenue. As of September 30, 2000 the Company's liquidity, as measured by the current ratio, declined slightly to 0.83:1.0 from 0.86:1.0 at December 31, 1999. The Company's working capital deficit declined as the Company applied available cash to accounts payable. At September 30 the working capital deficit increased to $2,885,000 compared to $2,309,000 at December 31, 1999. Stronger third quarter sales and the corresponding internally generated cash flow allowed the Company to reduce current liabilities. Total current liabilities increased with the additional lease payments that are now less than twelve months. In August 2000, the Company secured a long-term line of credit and closed on a sale/leaseback thereby improving its capital structure and enhancing its liquidity. For nine months ended September 30, the Company used $77,000 more in cash from its operations than the operations generated, compared to $4,061,000 of cash used than generated during the same period last year. The change in the decrease in cash used in operations was principally the result of increased profitability and improved collections on accounts receivable. Cash was used to fund capital projects, principally the El Centro landfill. Capital spending in the first nine months of 2000 increased significantly over 1999. Through September 30, 2000, capital expenditures totaled $7,959,000 compared to $1,793,000 for the first nine months of 1999. Capital spending was largely devoted to the El Centro landfill, where approximately $4,500,000 was directed to construction and other development costs in 2000. The Company is also constructing vertical expansion disposal cells at the Beatty, Nevada facility and has capitalized almost $1,515,000 of costs. The Company signed capital leases for large heavy earthmoving equipment for all of the site locations. In the remaining three months of 2000, the Company will continue capital spending on expansion of operations. The majority of these expenditures will be for construction of approved disposal area expansions at Robstown, Texas and Beatty, Nevada. Management expects that total capital expenditures for 2000 will approach $9 million. 19 20 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. In the ordinary course of conducting business, the Company becomes involved in judicial and administrative proceedings involving federal, state and local governmental authorities, individuals or groups of individuals in connection with permitting or repermitting facilities, alleged violations of existing permits, or damages claimed as a result of alleged exposure to hazardous substances purportedly released from Company operated sites, and related litigation. The Company maintains insurance intended to cover property, environmental and personal injury claims asserted as a result of its operations. Periodically management reviews and may establish reserves for legal and administrative matters, or fees expected to be incurred in connection therewith. At this time, management believes that resolution of pending matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows. Except as described below, there were no material developments with regard to previously reported legal proceedings: On October, 26 2000, a previously reported legal proceeding, Erin L. Dalton v. Brown Distributing Co. et al., Defendants/Third-Party Plaintiffs v Sam Tarlton, Jr. and American Ecology Services Corporation d/b/a American Ecology Trans., Inc. Third Party Defendants, Cause No. 99-06725 (250th Judicial District Court, Travis County, Texas) was settled with the plaintiffs. The settlement did not have a material adverse impact on the Company's financial position, results of operations, or cash flows. One of the Company's principal subsidiaries is a plaintiff in two related cases against the United States, and in a case against the State of California, in which one or more outcomes may have a significant favorable future impact on the Company. In the first federal case, US Ecology is suing to recover development costs, as well as lost profits and lost opportunity costs related to development of the Southwestern LLRW Compact disposal facility in Ward Valley, California. The trial court dismissed this case on March 27, 2000, and the Company has appealed the decision. In the second federal case, US Ecology is seeking an order (writ of mandamus) to compel completion of the federal land transfer required for construction of the state-licensed facility to proceed. The trial court rendered an adverse judgment in this case on March 31, 1999, which the Company has also appealed. Oral argument before the D.C. Circuit Court of Appeals was made on September 5, 2000, but the court has not yet issued a ruling. In a further effort to protect its investment in the Ward Valley project, the Company filed a lawsuit against the State of California on May 2, 2000, seeking (1) a writ of mandate to compel California to acquire the property to build the Ward Valley project, (2) a court declaration of the state's duties to the Company, and (3) damages in excess of $162 million, primarily for costs incurred in developing the project, interest, and future lost profits. On July 6, 2000, the state of California filed a motion to dismiss the case. On October 24, 2000, the California court signed an order granting the state's motion to dismiss the case on demurrer. The Company has appealed the trial court's decision. The Company has intervened in a lawsuit against the State of Nebraska seeking recovery of approximately $6.5 million investment and future lost profits related to development of the proposed Central Interstate Compact LLRW disposal facility near Butte, Nebraska. The trial court has ruled on several preliminary matters that are now under appeal by the State of Nebraska. The trial court has not yet ruled on whether the Company may be awarded money damages. On April 12, 2000, the appeals court upheld the trial court's ruling that Nebraska is not immune to suit in this case and also upheld the trial court's preliminary injunction prohibiting Nebraska from taking any further steps in the state license hearing process until the matter is decided. The case is expected to go to trial in 2001. See Note 4 Deferred Site Development Cost for additional discussion. ITEM 2. CHANGES IN SECURITIES. None ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None 20 21 ITEM 5. OTHER INFORMATION. None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) EXHIBITS
Incorporated by Reference Exhibit No. Description from Registrant's - ----------- ----------- ------------------------- 3.1 Restated Certificate of Incorporation, as amended 1989 Form 10-K 3.2 Certificate of Amendment to Restated Certificate of Incorporation Form S-4 dated 12-24-92 dated June 4, 1992 3.3 Amended and Restated Bylaws dated February 28, 1995 1994 Form 10-K 10.1 Sublease dated February 26, 1976, between the State of Washington, Form 10 filed 3-8-84 the United States Dept. of Commerce and Economic Development, and Nuclear Engineering Company with Amendments dated January 11, 1980, and January 14, 1982. 10.2 Lease dated May 1, 1977 ("Nevada Lease"), between the state of Form 10 filed 3-8-84 Nevada, Dept. of Human Resources and Nuclear Engineering Company, with Addendum thereto, dated December 7, 1982 10.3 Addendum to Nevada Lease dated March 28, 1988 1989 Form 10-K 10.4 Nevada State Health Division, Radioactive Material License issued to 1989 Form 10-K US Ecology, Inc. dated December 29, 1989 10.5 Administrative Order by Consent between the United States 1985 Form 10-K Environmental Protection Agency and US Ecology, Inc. ("USE") dated September 30, 1985 10.6 State of Washington Radioactive Materials License issued to US 1986 Form 10-K Ecology, Inc. dated January 21, 1987 10.11 Agreement between the Central Interstate Low-Level Radioactive Waste 2nd Quarter 1988 10-Q Compact Commission and US Ecology, Inc. for the development of a facility for the disposal of low-level radioactive waste dated January 28, 1988 ("Central Interstate Compact Agreement") 10.12 Amendment to Central Interstate Compact Agreement dated May 1, 1990 1994 Form 10-K 10.13 Second Amendment to Central Interstate Compact Agreement dated 1994 Form 10-K June 24, 1991 10.14 Third Amendment to Central Interstate Compact Agreement dated 1994 Form 10-K July 1, 1994 10.15 Settlement agreement dated May 25, 1988 among the Illinois Form 8-K dated 6-7-88 Department of Nuclear Safety, US Ecology, Inc. and American Ecology Corporation of a December 1978 action related to the closure, care and maintenance of the Sheffield, Illinois LLRW disposal site 10.16 Nevada Division of Environmental Protection Permit for Hazardous 1988 Form 10-K Waste Treatment, Storage and Disposal (Part B) issued to US Ecology, Inc. dated June 24, 1988 10.17 Texas Water Commission Permit for Industrial Solid Waste Management 1988 Form 10-K Site (Part B) issued to Texas Ecologists, Inc. dated December 5, 1988 10.18 Memorandum of Understanding between American Ecology Corporation and 1989 Form 10-K the State of California dated August 15, 1988
21 22 10.19 United States Environmental Protection Agency approval to dispose of 1989 Form 10-K non-liquid polychlorinated biphenyl (PCB) wastes at the Beatty, Nevada chemical waste disposal facility 10.26 Amended and Restated American Ecology Corporation 1992 Stock Option Proxy Statement dated 4-26-94 Plan* 10.27 Amended and Restated American Ecology Corporation 1992 Outside Proxy Statement dated 4-26-94 Director Stock Option Plan * 10.28 American Ecology Corporation 401 (k) Savings Plan* 1994 Form 10-K 10.29 American Ecology Corporation Retirement Plan* 1994 Form 10-K 10.34 Rights Agreement dated as of December 7, 1993 between American Form 8-K dated 12-7-93 Ecology Corporation and Chemical Shareholders Services Group, Inc. as Rights Agent 10.35 Agreement and Plan of Merger by and between American Ecology Form S-4 dated 12-24-92 Corporation and Waste Processor Industries, Inc. 10.36 Settlement Agreement dated September 24, 1993 by US Ecology, Inc., 1993 Form 10-K the State of Nevada, the Nevada State Environmental Commission, and the Nevada Dept. of Human Resources 10.37 Settlement Agreement dated as of January 19, 1994 by and among US 1993 Form 10-K Ecology, Inc., Staff of the Washington Utilities and Transportation Commission, Precision Castparts Corp., Teledyne Wah Chang, Portland General Electric Company, the Washington Public Power Supply System and Public Service Company of Colorado. 10.38 Agreement dated January 28, 1994 between American Ecology Form 8-K dated 2-3-94 Corporation, Edward F. Heil, Edward F. Heil as trustee for Edward F. Heil, Jr., Sandra Heil, and Karen Heil Irrevocable Trust Agreement #2, Thomas W. McNamara and Thomas W. McNamara as a trustee of the Jenner & Block Profit Sharing Trust No. 082. 10.39 Agreement of Purchase and Sale dated as of April 7, 1994 by and 1st Quarter 1994 Form 10-Q, among American Ecology Corp., American Ecology Recycle Center, 3rd Quarter 1994 Form 10-Q Inc., Quadrex Environmental Company and Quadrex Corporation, as amended by Amendments dated June 14, 1994 and August 22, 1994. 10.40 Stock Purchase Agreement dated as of May 10, 1994 by and between 1st Quarter 1994 Form 10-Q, American Ecology Corporation and Mobley Environmental Services, 3rd Quarter 1994 Form 10-Q Inc., as amended by Amendment dated September 21, 1994. 10.46 Rights Offering and Prospectus with American Ecology Corporation and Form S-3 dated 9-9-97 ChaseMellon Shareholder Services as Rights Agent. 10.48 Amended and Restated 1992 outside Directors Stock Option Plan Form S-8 dated 12-30-98 10.49 Master Equipment Lease Agreement between First Security Bank and American Ecology Corporation dated August 3, 2000 10.50 Credit Agreement between First Security Bank and American Ecology Corporation dated August 17, 2000 21 List of Subsidiaries 1994 Form 10-K 27 Financial Data Schedule
Management contract or compensatory plan. (b) REPORTS ON FORM 8-K 22 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN ECOLOGY CORPORATION (REGISTRANT) Date: November 13, 2000 By: /s/ Jack K. Lemley ------------------ Jack K. Lemley Chairman and Chief Executive Officer Date: November 13, 2000 By: /s/ James R. Baumgardner ------------------------ James R. Baumgardner Senior Vice President and Chief Financial Officer 23 24 INDEX TO EXHIBITS
Incorporated by Reference Exhibit No. Description from Registrant's - ----------- ----------- ------------------------- 3.1 Restated Certificate of Incorporation, as amended 1989 Form 10-K 3.2 Certificate of Amendment to Restated Certificate of Incorporation Form S-4 dated 12-24-92 dated June 4, 1992 3.3 Amended and Restated Bylaws dated February 28, 1995 1994 Form 10-K 10.1 Sublease dated February 26, 1976, between the State of Washington, Form 10 filed 3-8-84 the United States Dept. of Commerce and Economic Development, and Nuclear Engineering Company with Amendments dated January 11, 1980, and January 14, 1982. 10.2 Lease dated May 1, 1977 ("Nevada Lease"), between the state of Form 10 filed 3-8-84 Nevada, Dept. of Human Resources and Nuclear Engineering Company, with Addendum thereto, dated December 7, 1982 10.3 Addendum to Nevada Lease dated March 28, 1988 1989 Form 10-K 10.4 Nevada State Health Division, Radioactive Material License issued to 1989 Form 10-K US Ecology, Inc. dated December 29, 1989 10.5 Administrative Order by Consent between the United States 1985 Form 10-K Environmental Protection Agency and US Ecology, Inc. ("USE") dated September 30, 1985 10.6 State of Washington Radioactive Materials License issued to US 1986 Form 10-K Ecology, Inc. dated January 21, 1987 10.11 Agreement between the Central Interstate Low-Level Radioactive Waste 2nd Quarter 1988 10-Q Compact Commission and US Ecology, Inc. for the development of a facility for the disposal of low-level radioactive waste dated January 28, 1988 ("Central Interstate Compact Agreement") 10.12 Amendment to Central Interstate Compact Agreement dated May 1, 1990 1994 Form 10-K 10.13 Second Amendment to Central Interstate Compact Agreement dated 1994 Form 10-K June 24, 1991 10.14 Third Amendment to Central Interstate Compact Agreement dated 1994 Form 10-K July 1, 1994 10.15 Settlement agreement dated May 25, 1988 among the Illinois Form 8-K dated 6-7-88 Department of Nuclear Safety, US Ecology, Inc. and American Ecology Corporation of a December 1978 action related to the closure, care and maintenance of the Sheffield, Illinois LLRW disposal site 10.16 Nevada Division of Environmental Protection Permit for Hazardous 1988 Form 10-K Waste Treatment, Storage and Disposal (Part B) issued to US Ecology, Inc. dated June 24, 1988 10.17 Texas Water Commission Permit for Industrial Solid Waste Management 1988 Form 10-K Site (Part B) issued to Texas Ecologists, Inc. dated December 5, 1988 10.18 Memorandum of Understanding between American Ecology Corporation and 1989 Form 10-K the State of California dated August 15, 1988
25 10.19 United States Environmental Protection Agency approval to dispose of 1989 Form 10-K non-liquid polychlorinated biphenyl (PCB) wastes at the Beatty, Nevada chemical waste disposal facility 10.26 Amended and Restated American Ecology Corporation 1992 Stock Option Proxy Statement dated 4-26-94 Plan* 10.27 Amended and Restated American Ecology Corporation 1992 Outside Proxy Statement dated 4-26-94 Director Stock Option Plan * 10.28 American Ecology Corporation 401 (k) Savings Plan* 1994 Form 10-K 10.29 American Ecology Corporation Retirement Plan* 1994 Form 10-K 10.34 Rights Agreement dated as of December 7, 1993 between American Form 8-K dated 12-7-93 Ecology Corporation and Chemical Shareholders Services Group, Inc. as Rights Agent 10.35 Agreement and Plan of Merger by and between American Ecology Form S-4 dated 12-24-92 Corporation and Waste Processor Industries, Inc. 10.36 Settlement Agreement dated September 24, 1993 by US Ecology, Inc., 1993 Form 10-K the State of Nevada, the Nevada State Environmental Commission, and the Nevada Dept. of Human Resources 10.37 Settlement Agreement dated as of January 19, 1994 by and among US 1993 Form 10-K Ecology, Inc., Staff of the Washington Utilities and Transportation Commission, Precision Castparts Corp., Teledyne Wah Chang, Portland General Electric Company, the Washington Public Power Supply System and Public Service Company of Colorado. 10.38 Agreement dated January 28, 1994 between American Ecology Form 8-K dated 2-3-94 Corporation, Edward F. Heil, Edward F. Heil as trustee for Edward F. Heil, Jr., Sandra Heil, and Karen Heil Irrevocable Trust Agreement #2, Thomas W. McNamara and Thomas W. McNamara as a trustee of the Jenner & Block Profit Sharing Trust No. 082. 10.39 Agreement of Purchase and Sale dated as of April 7, 1994 by and 1st Quarter 1994 Form 10-Q, among American Ecology Corp., American Ecology Recycle Center, Inc., 3rd Quarter 1994 Form 10-Q Quadrex Environmental Company and Quadrex Corporation, as amended by Amendments dated June 14, 1994 and August 22, 1994. 10.40 Stock Purchase Agreement dated as of May 10, 1994 by and between 1st Quarter 1994 Form 10-Q, American Ecology Corporation and Mobley Environmental Services, 3rd Quarter 1994 Form 10-Q Inc., as amended by Amendment dated September 21, 1994. 10.46 Rights Offering and Prospectus with American Ecology Corporation and Form S-3 dated 9-9-97 ChaseMellon Shareholder Services as Rights Agent. 10.48 Amended and Restated 1992 outside Directors Stock Option Plan Form S-8 dated 12-30-98 10.49 Master Equipment Lease Agreement between First Security Bank and American Ecology Corporation dated August 3, 2000 10.50 Credit Agreement between First Security Bank and American Ecology Corporation dated August 17, 2000 21 List of Subsidiaries 1994 Form 10-K 27 Financial Data Schedule
EX-10.49 2 h81676ex10-49.txt MASTER EQUIPMENT LEASE AGREEMENT 1 EXHIBIT 10.49 First Security Master Equipment Lease THIS MASTER EQUIPMENT LEASE AGREEMENT ("MASTER LEASE") IS BETWEEN FIRST SECURITY BANK, N.A. ("LESSOR") AND THE LESSEE OR LESSEES SPECIFIED BELOW ("LESSEE"). SECTION 1. INTENT TO LEASE. Lessor agrees to pay for and lease to Lessee and Lessee agrees to lease from Lessor the personal property (the "Equipment" or, individually, an "Item") described in each Lease Schedule to Master Equipment Lease Agreement (a "Schedule") pursuant hereto. Each Schedule and a copy of the Master Lease shall be a separate lease (a "Lease"). "Agreement" shall mean this Master Lease and all Schedules. SECTION 2. TERM; RENTAL; UNCONDITIONAL OBLIGATIONS; SECURITY. A. The lease of each Item shall begin on the date of the related Schedule (the "Acceptance Date") and end on the Expiration Date specified in the Schedule (the "Expiration") or on the date of any earlier or later termination hereunder (the "Termination"). B. Lessee shall pay to Lessor Interim Rental, if applicable, and Basic Rental ("Rental") for each Item in the amounts and on the dates ("Rental Payment Dates") shown in the applicable Schedule. If any amount payable under the Agreement is not paid within ten (10) days after it is due, Lessee shall immediately pay to Lessor a late charge equal to five percent (5%) of such amount. Lessee shall also pay to Lessor interest on all overdue amounts at the rate of eighteen percent (18%) per annum or the maximum rate allowed by law, whichever is less, compounded daily. C. All Leases are net leases. Lessee's obligations under each Lease shall all be performed at Lessee's expense and shall only terminate under the provisions thereof. Lessee shall not be entitled to any reduction or withholding of any amount payable under any Lease for any reason (including any present or future claims of Lessee against Lessor, under the Lease or otherwise, or against any manufacturer or vendor). Except as expressly provided, Lessee's obligations shall not be affected by any defect in, damage to, loss of, or interference with use of any Item from any cause or by any person, entity or government, by any invalidity or unenforceability of the Lease or any lack of authority of Lessor to enter into the Lease, or by any other cause, notwithstanding any present or future law or regulation. Lessee waives any rights under Sections 221, 405 and 406 of the applicable version of Uniform Commercial Code Article 2A ("UCC 2A") and any similar laws or rights, including rights to avoidance, allowance, allocation, modification, and notice. D. If a Schedule specifies that a security deposit is required, upon its execution Lessee shall deposit the amount so specified with Lessor. Lessor may commingle such deposit with its other funds. Lessee grants Lessor a security interest in such deposit to secure all of Lessee's obligations under the Agreement. Within fifteen (15) days after written notice to Lessee that all or any part of a security deposit has been used to satisfy any such obligation, Lessee shall deposit with Lessor an amount sufficient to restore the security deposit to the required amount. Upon Expiration or Termination, if no Default (as defined in Section 13) exists, any unused portion of the related security deposit will be returned to Lessee without interest. E. Any security for Lessee's existing or future obligations under this or any other agreements with Lessor shall secure Lessee's existing or future obligations under all such agreements. SECTION 3. LESSEE OPTIONS AT EXPIRATION OF LEASE TERM. At least one hundred twenty (120) days, but not more than one hundred eighty (180) days, before Expiration (or, in the case of purchase or return under clause (b) or (c) below, the renewal term, if any, of such item), Lessee will give Lessor irrevocable written notice that it either (a) exercises its option to renew this Lease as to all (but not less than all) Items at their Fair Rental Value and for a single renewal term to be agreed upon by Lessor and Lessee but in no case less than six (6) months (but this renewal option may not be exercised if an Event of Default has occurred or if there has been a material adverse change in Lessee's business or financial condition since the Acceptance Date), (b) exercises its option to purchase all such Items at Expiration or at the expiration of the renewal term, if any, for cash for their Fair Rental Value or (c) will return all such Items to Lessor at Expiration or at the expiration of the renewal term, if any, as described below. If such notice is not given, Lessee shall be deemed to have elected to renew this Lease as to all such Items at their current periodic rent and for a renewal term of six (6) months, unless Lessor by written notice instructs Lessee to return such Items as described below. "Fair Market Value" or "Fair Market Rental" is to be determined by agreement between Lessor and Lessee, and if they cannot agree, by an independent appraiser selected by Lessor but acceptable to Lessee. The cost of appraisal shall be borne by Lessee. Lessee will at its sole expense return each Item to Lessor where designated by Lessor, in the good operating order and condition as when delivered to Lessee, free and clear of liens or rights of others and properly packed and crated, with freight prepaid to Lessor at such locations as Lessor may designate to Lessee. Upon Lessor's request, Lessee will store any Item before its return without charge at its current location for up to one hundred twenty (120) days, during which period Lessee will remain liable for all of its obligations under this Lease except payment of rent. If Lessee fails to return any Item in full compliance with this Section 3, or in full compliance with any return provision in the Agreement including, any and all additional return provisions attached to any Schedule as an exhibit, Lessor may treat this Lease as continuing in full force and effect as to such Item and Lessee will continue to pay the full current periodic rent for such Item, but Lessor may at any time terminate this Lease without notice and repossess such Item. The Fair Market Value of any Item shall be the value upon which an informed and willing seller and informed and willing buyer (other than a used equipment or scrap dealer) would agree, each under no compulsion to buy or sell. Fair Market Rental value for any Item shall be the value upon which an informed and willing lessee (other than a lessee currently in possession) and informed and willing lessor, each under no compulsion to lease, would agree. For purposes of this Section 3 only, the value shall be determined on the assumption that such Item has been maintained and operated in the manner required by Section 8(B) hereof. Costs of removal from the location of current use shall not be a deduction from such value. SECTION 4. CONDITIONS PRECEDENT. Lessor's obligation to pay for and lease an Item is subject to the non-existence of any Default and to Lessee's supplying the following in form and substance satisfactory to Lessor: A. If Lessee is a corporation, if requested by Lessor, its articles of incorporation, by-laws, board resolutions, and incumbency certificates, each certified by its secretary or assistant secretary, evidencing the duly authorized execution, delivery and performance of this Agreement and each Lease; B. If Lessee is not a corporation, Lessee's partnership agreement, trust indenture, assumed name filings or such other documents as Lessor may require; C. Evidence of compliance with the insurance provisions hereof; D. If requested by Lessor, a favorable written opinion of Lessee's counsel as to the matters in Section 5(B)(i)-(v) and any other matters Lessor reasonably requests; E. A completed and signed Schedule; F. An invoice of the vendor of the Item; and G. If requested by Lessor, bills of sale, financing statements, lien waivers and any other documents reasonably necessary in Lessor's opinion. The effectiveness of any Lease identified in the Schedule as a UCC 2A "finance lease" is conditioned upon Lessee's approval of the contract for Lessor's purchase of the Equipment. 1 2 SECTION 5. REPRESENTATIONS AND WARRANTIES. A. Lessor warrants that if no Default has occurred, Lessee's use of each Item under a Lease shall not be interrupted by Lessor or anyone claiming solely through Lessor. The foregoing is in lieu of all other written, oral or implied warranties of Lessor, and Lessor shall not, due to this or any other document or any other reason, be deemed to have made any other warranties. LESSOR LEASES THE EQUIPMENT AS IS, WITHOUT WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, (i) ITS DESIGN, PERFORMANCE, SPECIFICATIONS OR CONDITION, (ii) ITS MERCHANTABILITY, (iii) ITS FITNESS FOR ANY PARTICULAR PURPOSE, (iv) LESSOR'S TITLE THERETO, (v) INTERFERENCE BY ANY PARTY OTHER THAN LESSOR WITH THE QUIET ENJOYMENT THEREOF, OR (vi) THE QUALITY OF ITS MATERIAL OR WORKMANSHIP OR ITS CONFORMITY TO THE SPECIFICATIONS OF ANY RELATED PURCHASE DOCUMENT. AS BETWEEN LESSOR AND LESSEE, ALL SUCH RISKS SHALL BE BORNE BY LESSEE. During the Lease, Lessee may, at its expense, assert for Lessor's account Lessor's rights under any warranty on the Equipment, and Lessor will cooperate with Lessee in doing so if Lessee indemnifies and holds Lessor harmless from and against all related claims, costs, losses and liabilities. Any warranty payment received shall be applied to restore the Equipment to the condition it should have been in when delivered to Lessee, ordinary wear and tear excepted, with any balance retained by Lessor. Lessor shall not be responsible for special or consequential damages relating to its obligations or performance under the Agreement. B. Lessee represents and warrants that: (i) Lessee, if a corporation, is duly organized and in good standing and is qualified to do business wherever necessary for its operations; (ii) Lessee, if an entity other than a corporation, is duly organized, registered and validly existing under applicable law and is qualified to do business wherever necessary for its operations; (iii) Lessee has duly authorized this Agreement, and its execution, delivery and performance do not require any further approval or notice and do not contravene Lessee's organizational documents or by-laws, any other agreement, or any law or regulation; (iv) The Agreement is Lessee's legal, valid and enforceable obligation; (v) There are no judgments or pending or threatened proceedings which may materially adversely affect Lessee; (vi)Lessee's balance sheet, income statement and statement of cash flows for its most recent fiscal year have been given to Lessor and follow generally accepted accounting principles consistently applied, and there has been no material adverse change in Lessee's condition or operations since the date thereof; (vii) Lessee shall keep the Equipment duly registered in Lessor's name and file timely any required reports regarding the Equipment, or, at Lessor's request, Lessee shall give Lessor all information necessary for Lessor to do so; and (viii) Lessee shall not dissolve, consolidate with, or merge into any other entity or transfer or lease substantially all of its assets without Lessor's prior written consent. SECTION 6. MORTGAGES, LIENS, PERSONALTY, ETC. Lessee will not directly or indirectly create, incur, assume or permit the existence of any mortgage, security interest, pledge, lien, charge, encumbrance or claim on or with respect to the Equipment, title thereto or any interest therein except (a) the respective rights of Lessor and Lessee as herein provided, (b) liens or encumbrances which result from claims against Lessor except to the extent that such liens and encumbrances arise from failure of Lessee to perform any of Lessee's obligations hereunder, and (c) liens for taxes either not yet due or being contested in good faith and by appropriate proceedings. Lessee will promptly, at its own expense, take such action as may be necessary duly to discharge any such mortgage, security interest, pledge, lien, charge encumbrance or claim not specifically excepted above. The Items shall be personal property even if attached to the real property. SECTION 7. TAXES. Lessee agrees to pay promptly when due and to indemnify and hold Lessor harmless from all sales, use, personal property, leasing, leasing use, stamp or other taxes, levies, imposts, duties, charges, fees or withholding of any nature (together with any penalties, fines or interest thereon) imposed against Lessor, Lessee or the Equipment by any federal, state, local or foreign government or taxing authority upon or with respect to the Equipment or upon the purchase, ownership, delivery, leasing, possession, use operation, return or other disposition thereof, or upon the rentals, receipts or earnings arising therefrom, or upon or with respect to any Lease (excluding, however, federal, state and local taxes on or measured solely by the net income of Lessor) unless, and to the extent only, that any such tax, levy, impost, duty, charge or withholding is being contested by Lessee in good faith and by appropriate proceedings. In case any report or return is required to be made with respect to any obligation of Lessee under this Section, Lessee will notify Lessor of such requirement and make such report or return in such manner as shall be satisfactory to Lessor. Lessor agrees to cooperate fully with lessee in the preparation of any such reports or returns. Lessee agrees to remit all applicable sales or use taxes to Lessor promptly upon receipt of an invoice therefor. SECTION 8. TITLE; USE, MAINTENANCE AND OPERATION, IDENTIFICATION MARKING. A. Lessor shall retain full legal title to the Equipment notwithstanding delivery to and possession and use thereof by Lessee. Upon delivery of the Equipment Lessee shall cause said Equipment to be duly registered, and at all times thereafter to remain duly registered, in the name of Lessor, or at Lessor's request shall furnish to Lessor such information as may be required to enable Lessor to make application for such registration and shall promptly furnish to Lessor such information as may be required to enable Lessor to file timely any reports required to be filed by it as Lessor under the Lease or as the owner of the Equipment with any governmental authority. B. Lessee agrees that the Equipment will be used solely in the conduct of its business. Lessee further agrees to comply in all material respects with all applicable governmental laws, regulations, requirements and rules with respect to the use, maintenance and operation of each Item of Equipment. Lessee agrees that each Item of Equipment (except Items which prior to the execution of this Lease Lessee shall have advised Lessor in writing are normally used or to be used in more than one location) will be kept at the address shown in the Schedules with respect to such Item unless Lessor shall first otherwise consent in writing. Lessee will immediately give written notice to Lessor of any change in its principal place of business. Lessee, at its own cost and expense, will repair and maintain the Equipment so as to keep it in a good condition as when delivered to Lessee hereunder, ordinary wear and tear excepted. Lessee may from time to time add further parts or accessories to any Item of Equipment provided that such addition does not impair the value, utility or warranties of such Item of Equipment and is readily removable without causing material damage to such Item. C. Lessee agrees at its own cost and expense to place such markings, plates or other identification on the Equipment showing Lessor's title thereto as Lessor may from time to time request, provided such identification markings are placed so as not to interfere with the usefulness of such Equipment. Except as above provided, Lessee will not allow the name of any person, association or corporation to be placed on the Equipment as a designation that might be interpreted as a claim of ownership. D. Upon request, Lessee shall inform Lessor of each Item's location and make each Item and Lessee's related records available for inspection at any reasonable time. SECTION 9. LOSS OR DESTRUCTION. If any Item is lost or stolen or becomes permanently unfit for use for any reason (an "Event of Loss"), Lessee shall, within ten (10) days, notify Lessor in writing and shall, at Lessor's option, either (i) replace it with property acceptable to Lessor within thirty (30) days after the Event of Loss or (ii) on the first Rental Payment Date at least twenty (20) days after the Event of Loss, pay to Lessor the value of its interest in the Item and the remainder of the Lease thereof (plus compensation for the loss of Tax Benefits, if applicable), as such value is established by Lessor from time to time, (the "Casualty Value") and all unpaid amounts due with respect to such Item through that date. Lessor may apply the Casualty Value payment to Lessee's obligations, whether or not matured, in any order, at Lessor's option. Upon request, Lessor will furnish Lessee a schedule of the Casualty Values for any Item. 2 3 If Lessee replaces such Item, the replacement shall be of like kind, be free of all liens, encumbrances and rights of others, and have a fair market value substantially equal to the value the replaced Item would have if it were in the condition required by the Lease. The replacement shall immediately become Lessor's property and part of the Equipment for all purposes, and Lessee's Rental obligation shall not change. Lessee shall execute any documents Lessor deems necessary to ensure Lessor's full title thereto. The replaced Item shall no longer be part of the Equipment, and Lessor will transfer its interest therein to Lessee without recourse or warranty. If Lessee does not replace such Item, upon payment of all amounts due with respect thereto, Lessee's Rental obligation with respect to the Item shall cease, and Lessor will transfer its interest in the Item to Lessee, without recourse or warranty, "as is and where is." SECTION 10. INSURANCE At its own expense, Lessee shall maintain comprehensive general liability, products liability and property damage insurance acceptable to Lessor with respect to each Item in an amount not less than the amount specified in the Schedules relating thereto and, in any event, in an amount sufficient to provide full coverage against all loss and liability. Each such insurance policy shall name Lessor as an insured and as loss payee and shall provide that it may be altered or canceled by the insurer only after thirty (30) days prior written notice to Lessor. Lessee agrees to cause certificates or other evidence satisfactory to Lessor showing the existence of such insurance, the terms and conditions of each policy and payment of the premium therefor to be delivered to Lessor upon demand thirty (30) days prior to expiration or cancellation showing renewal or replacement of such policy. In the event Lessee shall fail to obtain and/or maintain insurance in accordance with the provisions of this paragraph, Lessor shall have the right to obtain such insurance as Lessor deems necessary, and Lessee shall reimburse Lessor for the payment by Lessor of all premiums therefor together with interest computed from the date of Lessor's payment at the rate of eighteen percent (18%) per annum. If (a) any insurance proceeds are received with respect to a loss with respect to Equipment which does not constitute an Event of Loss under Section 9, or (b) if Lessee elects to replace an Item or Items suffering an Event of Loss under the provisions of Section 9 hereof, proceeds will be applied in payment for repairs and replacement required pursuant to Section 8 hereof, or to reimburse Lessee having made such payments. SECTION 11. INDEMNIFICATION. A. Lessee shall indemnify and hold harmless Lessor and its assignees and their agents and employees from and against all claims, liability (including strict tort and strict products liability), or expenses (including attorneys' fees) relating to (i) the Equipment or any part thereof, or its construction, purchase, delivery, installation, ownership, leasing, use, maintenance, repair, replacement, operation, return or condition (whether defects are latent or discoverable), (ii) Lessee's failure to accept the Equipment "as is," (iii) any actual or alleged patent or trademark infringement or act or omission of Lessee or its agents or employees, or (iv) Lessee's financial or tax accounting. This Section shall be effective from the date the first Item is ordered even though not accepted by Lessee. Lessee shall give Lessor prompt notice of any claim or liability indemnified against. B. (OPTIONAL. This Section 11 (B) shall apply if so indicated in the applicable Schedule.) Lessor shall be entitled to the following benefits (the "Tax Benefits"):(i) Lessor will be the owner and lessor of each Item for all purposes; (ii) Lessor will have a basis in each Item under Section 1012 of the Internal Revenue Code of 1986, as amended, (the "Code") equal to the invoice purchase price indicated in the Schedule therefor; (iii) Each Item will be "3-year," "5-year," "7-year," "10-year," "15-year," or "20-year" property (as defined in Section 168(e) of the Code) as indicated in the Schedule, and Lessor will be allowed 100% of the deduction with respect to each Item in each recovery year as provided in Sections 168(b) and (c) of the Code. Neither Lessee nor any of its affiliates will at any time, take or fail to take any action inconsistent with the Tax Benefits or which would increase the amount Lessor is required to take into income with respect to any Item. Lessee shall keep and make available for Lessor's inspection and copying all records necessary to facilitate the foregoing. Lessee represents and warrants that Lessor will be the owner of each Item on or before its Acceptance Date and that each Item will be "placed in service" (within the meaning of the Code and related regulations) no later than the end of the calendar year in which the Acceptance Date occurs. If Lessor shall lose or shall not have the right to any of the Tax Benefits for any reason other than (i) Lessor's sale of an Item before any Event of Default, (ii) Lessor's failure to claim the Tax Benefits, (iii) a change in the Lessor's business, or (iv) Lessor's failure to have sufficient income to use the Tax Benefits, then Lessee shall pay Lessor, on demand, an amount which, in Lessor's reasonable opinion and after deduction of all related taxes, will provide Lessor with the same net after-tax return Lessor would have had through Expiration if there had been no such loss. C. Lessor's rights under Section 11 shall survive Expiration or Termination with respect to any Item. For purposes of Section 11, "Lessor" shall include any group of which Lessor is a member which files a consolidated income tax return. SECTION 12. ASSIGNMENTS AND SUBLEASES. Lessor may at any time, without notice, grant a security interest in, transfer or assign any or all Leases, Items, or rights and remedies as Lessor to any party, with such party assuming all, part or none of Lessor's obligations. Lessee shall not assert against such party any defense, counterclaim, or offset Lessee may have against Lessor. Lessee acknowledges that any such grant, transfer or assignment would not materially change Lessee's duties, risks or interests under the Agreement. LESSEE SHALL NOT, WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, SUBLEASE OR RELINQUISH POSSESSION OF ANY ITEM OR ASSIGN ANY OF ITS RIGHTS OR DELEGATE ANY OF ITS OBLIGATIONS HEREUNDER. Lessee grants Lessor a security interest in any existing or future sublease of an Item and the proceeds thereof, whether or not such sublease is prohibited. SECTION 13. DEFAULT; REMEDIES. A. The following shall be Events of Default: (i) Lessee's failure to pay any Rental when due which continues unremedied for ten (10) days; (ii) Lessee's failure to maintain required insurance; (iii) Lessee's failure to pay any amount other than Rental or perform any obligation under the Agreement for ten (10) days after notice of non-performance from Lessor; (iv) The failure of any of Lessee's representations or warranties herein or in any related document to be correct in any respect at any time; (v) Lessee's insolvency, bankruptcy, or assignment for the benefit of creditors, or the appointment of or Lessee's consent to the appointment of a trustee or receiver for Lessee or a substantial part of its property; (vi) Any event of default or default as described in the documentation executed in connection with any other credit or lease facility extended by Lessor, or any affiliated company of Lessor, to Lessee.(vii) Lessee's failure to perform any obligation under any agreement with Lessor or any other creditor; (viii) The existence of any judgments or any pending or threatened proceedings which may adversely affect Lessee; (ix) An adverse change in Lessee's financial condition as a result of which Lessor, in good faith, deems itself or any Item to be insecure; or (x) The occurrence of any of the above Events of Default with regard to any guarantor of any of Lessee's obligations under the Agreement. B. "Default" shall mean an Event of Default or an event which would be an Event of Default with only the passage of time or the giving of notice or both. C. At any time after an Event of Default, Lessor may, at its option, exercise any one or more of the following remedies and any other remedies under applicable law: (i) By written notice, terminate any or all Leases, whereupon Lessee's rights to possess and use the Equipment shall cease; (ii) By court action, enforce Lessee's performance of the Agreement and/or recover damages for its breach; (iii) Whether or not a Lease is terminated, cause Lessee to promptly return such Equipment in accordance with Section 3; (iv) At any hour, without notice, and without liability except for malicious acts, enter Lessee's or any other premises and take possession of or render unusable any Item and attachments thereon, whether or not the property of Lessor; (v) Retain, use, re-lease or sell at public or private sale the Item and attachments thereon; (vi) Recover (a) all accrued and unpaid Rental and other amounts payable under the Agreement (including all of Lessor's costs and any decrease in the value of any Item resulting from Lessee's failure to maintain, operate, remove, or deliver the Item as required by the Lease) and (b) as liquidated damages and not as a penalty, (1) the amount of each remaining Rental payment (which otherwise would have accrued thereafter) and the Fair Market Value of each Item (assuming its sale at Expiration) all discounted at the rate of six percent (6%) per annum to the date the Item is returned to or recovered by Lessor (or if it is not returned or recovered, to the 3 4 date of judgment against Lessee) minus (2) the Fair Market Value of such Item on the date of such return, recovery or judgment; (vii) Recover (a) all of its related expenses, collection costs and costs of remarketing the Equipment, including employees' salaries and reasonable attorneys' fees (including fees on appeal), (b) interest on all amounts payable under any Lease at the rate of eighteen percent (18%) per annum or the maximum rate allowed by law, whichever is less, compounded daily, both before and after judgment, and (c) if applicable, an amount sufficient in Lessor's opinion to compensate Lessor for the related loss of Tax Benefits. D. Lessor's remedies shall be cumulative and in addition to all other legal or equitable remedies. No express or implied waiver of any Default shall waive any later Default. Lessor's complete or partial failure to exercise or delay in exercising any right shall not waive or exhaust such right or any other right. E. To the extent allowed, Lessee waives (i) all rights under UCC 2A Sections 508-522 or any similar laws, including rights to cancel or repudiate; reject or revoke acceptance; claim a security interest; deduct claimed damages; accept partial delivery; cover; recover general, special, incidental or consequential damages; and seek specific performance, replevin, or the like and (ii) any rights now or hereafter conferred by law requiring Lessor to sell, lease or use any Item to mitigate damages or which might otherwise modify Lessor's rights or remedies. F. Any action by Lessee against Lessor relating to the Agreement must be commenced within one (1) year after any such cause of action accrues. SECTION 14. LESSOR'S PERFORMANCE FOR LESSEE. Lessee authorizes Lessor or Lessor's agent to sign and/or file, on Lessee's behalf, financing statements, reports and similar documents with respect to any Item and all related replacements, modifications, attachments and additions and the proceeds thereof. If Lessee fails to perform any obligation under the Agreement, Lessor may do so, but shall not be required to, make payment or perform or comply with any covenant or agreement contained herein, and all reasonable expenses of Lessor incurred in connection therewith shall be payable by Lessee upon demand together with interest as set out in Section 2(B) herein. SECTION 15. FURTHER ASSURANCES; FINANCIAL INFORMATION. Lessee will promptly execute and deliver to Lessor such documents and take such action as Lessor may request in order to carry out the intent of the Agreement and protect Lessor's rights. Lessee, at its sole expense, shall deliver to Lessor a balance sheet, income statement and statement of cash flows prepared by accountants acceptable to Lessor within one hundred twenty (120) days after the close of each fiscal year of Lessee and within forty-five (45) days after the close of each fiscal quarter and shall authorize the filing of financing statements with respect to the Equipment in accordance with the laws of such jurisdictions as Lessor may from time to time deem advisable. SECTION 16. NOTICES AND PAYMENTS. Notices and payments to Lessor shall be sent to or made at the following address: First Security Leasing Company, 381 East Broadway, 2nd Floor, Salt Lake City, Utah 84111, or such other address as Lessor may designate in writing. Notices to Lessee may be sent to the address on the signature page hereof. All required notices shall be in writing and be effective when placed in the United States mail, first class postage prepaid. SECTION 17. EXECUTION OF FINANCING STATEMENTS AND TITLE DOCUMENTS. Lessee authorizes Lessor to file financing statements describing the Equipment. Additionally, Lessee agrees to execute and deliver to Lessor such documents and/or title documents as reasonably requested by Lessor to protect and identify Lessor's interest in the Equipment. Lessee appoints Lessor, or Lessor's agents or assigns, its true and lawful attorney-in-fact to prepare, to execute and to sign any instrument concerning the Equipment, to sign the name of Lessee with the same force and effect as if signed by Lessee, and to file the same at the locations reasonably determined by Lessor. SECTION 18. MISCELLANEOUS. A. If there is more than one Lessee, their liability shall be joint and several, and each Lessee has the authority to enter into written agreements with Lessor modifying or extending the terms of the Agreement on behalf of each other Lessee. If used herein or in any related document, the term "Co-lessee" or "Co-lessees" shall be synonymous with "Lessee" as defined herein. B. Any provision of this Agreement which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. C. The Agreement may only be changed by a writing signed by the party against which enforcement of the change is sought. No third-party manufacturer, supplier, salesperson, or broker, or any agent thereof, is Lessor's agent or is authorized to waive or modify any provision of the Agreement. D. Lessee shall have no interest in any Item except as specified in the Agreement. E. THE AGREEMENT SHALL BE GOVERNED BY UTAH LAW. In order to induce Lessor to enter into the Agreement (and, if Lessee executes it outside of Utah, in consideration for Lessor allowing Lessee to do so) Lessee agrees that ANY PROCEEDING AGAINST LESSEE MAY BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN UTAH AND LESSEE UNCONDITIONALLY AGREES TO BE BOUND BY JUDGMENTS OF SUCH COURTS. If Lessee is not a Utah resident, service of process upon Lessee by mail shall be sufficient. Lessor may serve process in any other manner and bring proceedings in any jurisdiction. LESSEE WAIVES ANY RIGHT TO A JURY TRIAL IN ANY PROCEEDING CONCERNING THE AGREEMENT. F. The word "including" as used in the Agreement shall mean "including, but not limited to." G. The Agreement and related documents executed by the parties contain their entire agreement, and there are no related oral agreements, representations or warranties. The Agreement shall benefit and be binding upon the parties' heirs, personal representatives, successors and assigns. LESSEE ACKNOWLEDGES THAT IT HAS READ THE ENTIRE MASTER LEASE. IN WITNESS WHEREOF, the parties have caused this Master Lease to be executed as of AUGUST 3, 2000, and Lessee's signatories warrant their authority to sign on Lessee's behalf. 4 5 Lease No. 001-5001733 FIRST SECURITY BANK, N.A. LEASE SCHEDULE TO MASTER EQUIPMENT LEASE AGREEMENT Master Equipment Lease Schedule This Lease Schedule to Master Equipment Lease Agreement ("Lease Schedule") constitutes a separate Lease pursuant to the Master Equipment Lease Agreement between FIRST SECURITY BANK, N.A. ("Lessor") and the lessee or lessees designated below (Lessee") dated as of AUGUST 3, 2000 (the "Master Lease"), all terms and conditions of which are incorporated herein. Lessor and Lessee reaffirm as of the date hereof all terms, representations and warranties in the Master Lease. A copy of the signed Master Lease attached to the Lease Schedule, which attachment shall adopt the copied signatures on the Master Lease as of the date of the Lease Schedule, shall constitute an original lease. This Lease shall alone constitute the chattel paper for purposes of perfecting a security interest. DESCRIPTION OF EQUIPMENT
ID NEW INVOICE OR OR PURCHASE QUANTITY VENDOR DESCRIPTION SERIAL # USED PRICE - -------- ------ ----------- -------- ---- -------- 1 SEE THE ATTACHED EXHIBIT A FOR A COMPLETE DESCRIPTION OF EQUIPMENT. USED $2,000,000.00 TOTAL INVOICE PURCHASE PRICE: $2,000,000.00
B. TAX: Section 11(B) of Master Lease shall apply. Recovery Class: 5 -year property. C. TERM EXPIRATION: 66 months (the "Expiration" or "Expiration Date"). D. RENTAL: 1. Frequency : MONTHLY 2. Advanced or Arrears: ADVANCE 3. Interim Rental equal to N/A of each Item's Invoice Purchase Price (as shown in Section A of this Lease Schedule) for each day from (and including) its Acceptance Date to (but excluding) N/A (the "Interim Rental Payment Date") shall be due on the Interim Rental Payment Date. 4. Basic Rental equal to 0.017397 of the Total Invoice Purchase Price shall be due on each of the following Basic Rental Payment Dates: AUGUST 8, 2000 and the same day of each MONTH thereafter, with the final payment JANUARY 8, 2006. E. PURCHASE OPTION AMOUNT: FAIR MARKET VALUE F. LOCATION: 1. The Equipment shall be located at: Address: VARIOUS County: VARIOUS G. SECURITY DEPOSIT: NOT REQUIRED H. INSURANCE. The minimum amount of insurance to be provided by Lessee as required under the terms of the Master Lease shall be as follows: 1. Liability: $2,000,000.00 each individual $2,000,000.00 each accident $2,000,000.00 property damage liability 2. Physical Damage and Loss: $ 2,000,000.00 3. Additional riders, exclusions or special terms required by Lessor: N/A I. OTHER TERMS. PLEASE SEE THE ATTACHED EXHIBIT B FOR THE EARLY BUYOUT OPTION. J. FINANCE LEASE. As to an Item for which a vendor is shown, this is a UCC 2A "finance lease." Lessee approves the purchase contract for such Item and acknowledges that (a) it has received a copy of such contract if such contract is in writing, (b) Lessor hereby informs it of the vendor's identity and that it may have rights under such contract, and (c) Lessor hereby advises it to contact the vendor for a description of such rights. K. EXECUTION OF FINANCING STATEMENTS AND TITLE DOCUMENTS. Lessee authorizes Lessor to file financing statements describing the Equipment. Additionally, Lessee agrees to execute and deliver to Lessor such other documents and/or title documents as reasonably requested by Lessor to protect and identify Lessor's interest in the Equipment. Lessee appoints and authorizes Lessor, or Lessor's agents or assigns, its true and lawful attorney-in-fact to prepare, to execute and to sign any instrument concerning the Equipment, to sign the name of Lessee with the same force and effect as if signed by Lessee, and to file the same at the locations reasonably determined by Lessor. L. ADDITIONAL MAINTENANCE AND RETURN PROVISIONS. In addition to the return and maintenance provisions of the Master Lease, the provisions contained in the attached exhibit are hereby incorporated into this Lease Schedule and Master Lease by reference. IN WITNESS WHEREOF, the parties have executed this Lease Schedule as of AUGUST 3, 2000 and Lessee's signatories warrant their authority to sign on Lessee's behalf. LESSEE: AMERICAN ECOLOGY CORPORATION LESSOR: FIRST SECURITY BANK, N.A. a(n) DELAWARE CORPORATION BY: ---------------------------- BY: TITLE: ---------------------------- ---------------------------- TITLE: ---------------------------- Address: c/o First Security Leasing Company Address: 805 W IDAHO ST, SUITE 200 381 East Broadway, 2nd Floor BOISE, ID 83702 Salt Lake City, Utah 84111 Federal ID or Social Security Number: 95-3889638
5 6 Lease No. 001-5001733 FIRST SECURITY BANK, N.A. LEASE SCHEDULE TO MASTER EQUIPMENT LEASE AGREEMENT LESSEE: AMERICAN ECOLOGY CORPORATION a(n) DELAWARE CORPORATION BY: ---------------------------- TITLE: ---------------------------- Address: 805 W IDAHO ST, SUITE 200 BOISE, ID 83702 Federal ID or Social Security Number: 95-3889638 6 7 Lease No. 001-5001733 FIRST SECURITY BANK, N.A. LEASE SCHEDULE TO MASTER EQUIPMENT LEASE AGREEMENT LESSOR: FIRST SECURITY BANK, N.A. BY: ---------------------------- TITLE: ---------------------------- Address: c/o First Security Leasing Company 381 East Broadway, 2nd Floor Salt Lake City, Utah 84111 7 EX-10.50 3 h81676ex10-50.txt CREDIT AGREEMENT - DATED AUGUST 17, 2000 1 EXHIBIT 10.50 Lease No. 001-5001733 FIRST SECURITY BANK, N.A. LEASE SCHEDULE TO MASTER EQUIPMENT LEASE AGREEMENT CREDIT AGREEMENT BETWEEN FIRST SECURITY BANK, N.A. AND AMERICAN ECOLOGY CORPORATION DATED ____________, 2000 2 TABLE OF CONTENTS ARTICLE 1 - DEFINITIONS AND ACCOUNTING TERMS.........................................1 1.1 DEFINED TERMS......................................................1 1.2 ACCOUNTING TERMS...................................................5 ARTICLE 2 - LOANS AND TERMS OF PAYMENT...............................................5 2.1 REVOLVING CREDIT...................................................5 2.1.1 MANNER OF REQUESTING......................................5 2.1.1.1 PRIME LOANS......................................5 2.1.1.2 LIBOR LOANS......................................5 2.1.2 INTEREST ON THE REVOLVING LOANS...........................5 2.1.3 REVOLVING NOTE............................................6 2.1.4 REPAYMENT.................................................6 2.1.5 COMMITMENT FEE............................................6 2.1.6 ORIGINATION FEE...........................................7 2.1.7 USE OF PROCEEDS OF REVOLVING LINE OF CREDIT...............7 2.2 LETTERS OF CREDIT..................................................7 2.2.1 APPLICATIONS..............................................7 2.2.2 FACILITY TERMINATION......................................7 2.2.3 FEES......................................................7 2.2.4 FORM......................................................7 2.2.5 REIMBURSEMENT.............................................7 2.2.6 REIMBURSEMENT OBLIGATIONS ABSOLUTE........................8 2.3 METHOD OF PAYMENT..................................................8 2.4 PREPAYMENTS........................................................8 2.5 LATE CHARGES AND DEFAULT INTEREST..................................8 2.6 ADDITIONAL INTEREST RATE PROVISIONS................................8 2.7 LIBOR LOAN EXTENSIONS AND CONVERSIONS..............................9 2.8 MINIMUM LIBOR LOAN REQUIREMENTS....................................9 2.9 FUNDING LOSS INDEMNIFICATION.......................................9 2.10 TAXES ON PAYMENTS..................................................9 2.11 GRANT OF SECURITY INTEREST........................................10 2.12 FINANCING STATEMENTS..............................................10 ARTICLE 3 - CONDITIONS PRECEDENT....................................................10 3.1 INITIAL ADVANCE...................................................10 3.1.1 REVOLVING NOTE...........................................10 3.1.2 SECURITY AGREEMENT.......................................10 3.1.3 GUARANTY.................................................10 3.1.4 GUARANTOR SECURITY AGREEMENTS............................10 3.1.5 EVIDENCE OF INSURANCE....................................10
-i- 3 3.1.6 OPINION OF COUNSEL FOR BORROWER AND GUARANTOR............11 3.1.7 EVIDENCE OF ALL CORPORATE ACTION BY BORROWER.............11 3.1.8 CERTIFICATES OF EXISTENCE FOR BORROWER...................11 3.1.9 ARTICLES OF INCORPORATION AND BYLAWS OF BORROWER.........11 3.1.10 EVIDENCE OF ALL CORPORATE ACTION BY GUARANTOR............11 3.1.11 CERTIFICATES OF EXISTENCE FOR GUARANTOR..................11 3.1.12 ARTICLES OF INCORPORATION AND BYLAWS OF GUARANTOR........11 3.1.13 CERTIFICATES OF ASSUMED BUSINESS NAME....................11 3.1.14 LETTER TO ACCOUNTANTS....................................11 3.1.15 PUBLIC RECORD SEARCHES...................................11 3.1.16 PAYMENT OF ORIGINATION FEE...............................11 3.1.17 ADDITIONAL DOCUMENTS.....................................12 3.2 ALL ADVANCES......................................................12 ARTICLE 4 - REPRESENTATIONS AND WARRANTIES..........................................12 4.1 ORGANIZATION, GOOD STANDING, AND DUE QUALIFICATION................12 4.2 POWER AND AUTHORITY...............................................12 4.3 LEGALLY ENFORCEABLE AGREEMENT.....................................12 4.4 FINANCIAL STATEMENTS..............................................13 4.5 LABOR DISPUTES AND CASUALTIES.....................................13 4.6 OTHER AGREEMENTS..................................................13 4.7 NO LITIGATION.....................................................13 4.8 NO DEFAULTS ON OUTSTANDING JUDGMENTS OR ORDERS....................13 4.9 OWNERSHIP AND LIENS...............................................13 4.10 EMPLOYEE BENEFITS.................................................13 4.11 OPERATION OF BUSINESS.............................................14 4.12 TAXES.............................................................14 4.13 DEBT..............................................................14 4.14 ENVIRONMENTAL MATTERS.............................................14 4.15 INVESTMENT COMPANY ACT............................................14 4.16 PERFECTION OF SECURITY INTEREST...................................14 4.17 SUBSIDIARIES AND OWNERSHIP OF STOCK...............................15 ARTICLE 5 - AFFIRMATIVE COVENANTS...................................................15 5.1 MAINTENANCE OF EXISTENCE..........................................15 5.2 MAINTENANCE OF RECORDS............................................15 5.3 MAINTENANCE OF PROPERTIES.........................................15 5.4 CONDUCT OF BUSINESS...............................................15 5.5 MAINTENANCE OF INSURANCE..........................................15 5.6 COMPLIANCE WITH LAWS..............................................15 5.7 RIGHT OF INSPECTION...............................................16
-ii- 4 5.8 REPORTING REQUIREMENTS............................................16 5.8.1 ANNUAL FINANCIAL STATEMENTS..............................16 5.8.2 BORROWING BASE CERTIFICATE...............................16 5.8.3 MANAGEMENT LETTERS.......................................16 5.8.4 NOTICE OF LITIGATION.....................................16 5.8.5 NOTICE OF DEFAULTS AND EVENTS OF DEFAULT.................16 5.8.6 ERISA REPORTS............................................16 5.8.7 REPORTS TO OTHER CREDITORS...............................16 5.8.8 SEC REPORTS..............................................17 5.8.9 COMPLIANCE CERTIFICATE...................................17 5.8.10 GENERAL INFORMATION......................................17 5.9 ENVIRONMENT.......................................................17 5.10 REIMBURSEMENT OF LENDER EXPENSES..................................17 5.11 BANK ACCOUNTS.....................................................17 ARTICLE 6 - NEGATIVE COVENANTS......................................................17 6.1 LIENS.............................................................17 6.2 DEBT..............................................................18 6.3 MERGERS OR REORGANIZATION.........................................18 6.4 LEASES............................................................18 6.5 SALE AND LEASEBACK................................................19 6.6 DIVIDENDS.........................................................19 6.7 SALE OF ASSETS....................................................19 6.8 INVESTMENTS.......................................................19 6.9 GUARANTIES........................................................19 6.10 ERISA PLANS.......................................................19 6.11 TRANSACTIONS WITH AFFILIATES......................................19 6.12 CHANGE OF NAME....................................................19 6.13 CHANGE IN MANAGEMENT..............................................20 6.14 ACCOUNTING........................................................20 6.15 LOCATION OF CHIEF EXECUTIVE OFFICE................................20 ARTICLE 7 - FINANCIAL COVENANTS.....................................................20 7.1 DEBT SERVICE COVERAGE RATIO.......................................20 7.2 LEVERAGE RATIO....................................................20 7.3 CURRENT RATIO.....................................................20 ARTICLE 8 - EVENTS OF DEFAULT.......................................................20 8.1 EVENTS OF DEFAULT.................................................20 8.2 CURE OF EVENT OF DEFAULT..........................................20
-iii- 5 ARTICLE 9 - BANK'S RIGHTS AND REMEDIES..............................................22 9.1 SPECIFIC REMEDIES.................................................22 9.2 SET OFF...........................................................22 9.3 CUMULATIVE REMEDIES...............................................22 ARTICLE 10 - MISCELLANEOUS..........................................................22 10.1 AMENDMENTS, ETC...................................................22 10.2 NOTICES, ETC......................................................22 10.3 NO WAIVER.........................................................23 10.4 SUCCESSORS AND ASSIGNS............................................23 10.5 INTEGRATION.......................................................23 10.6 APPLICATION OF PAYMENTS...........................................23 10.7 CONTINUING WARRANTIES, REPRESENTATIONS AND COVENANTS..............23 10.8 INDEMNITY.........................................................24 10.9 CHOICE OF LAW AND VENUE...........................................24 10.10 SEVERABILITY OF PROVISIONS........................................24 10.11 HEADINGS..........................................................24 10.12 JURY TRIAL WAIVER.................................................24 10.13 DESTRUCTION OF BORROWER'S DOCUMENTS...............................24 10.14 PARTICIPATIONS....................................................24 10.15 EFFECTIVE DATE....................................................25 10.16 COUNTERPARTS......................................................25
EXHIBITS TO CREDIT AGREEMENT
EXHIBIT NO. EXHIBIT DESCRIPTION - ----------- ------------------- 2.1.1.1 AUTHORIZED PERSONS 2.1.1.2 LIBOR LOAN REQUEST FORM 2.1.3 FORM OF REVOLVING NOTE 3.1.2 FORM OF SECURITY AGREEMENT 3.1.3 FORM OF CONTINUING AND UNCONDITIONAL GUARANTY 3.1.4 FORM OF GUARANTOR SECURITY AGREEMENT 3.1.6 FORM OF OPINION OF COUNSEL FOR BORROWER AND GUARANTORS 3.1.9 FORM OF LETTER TO ACCOUNTANTS 4.13 DEBT 4.17 SUBSIDIARIES 5.8.2 FORM OF BORROWING BASE CERTIFICATE 6.1 PERMITTED LIENS 6.10 ERISA PLANS
-iv- 6 CREDIT AGREEMENT THIS CREDIT AGREEMENT is entered into as of the ___ day of August, 2000, between FIRST SECURITY BANK, N.A. ("Bank") and AMERICAN ECOLOGY CORPORATION, a Delaware corporation ("Borrower"). The parties agree as follows: AGREEMENT ARTICLE 1 - DEFINITIONS AND ACCOUNTING TERMS 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the following definitions (terms defined in the singular to have the same meaning when used in the plural and vice versa): "ACCOUNT" means a trade account, account receivable, or other right to payment for goods sold or leased or for services rendered (whether or not it has been earned by performance) owing to Borrower. "ACCOUNT DEBTOR" means the person or entity obligated on an Account. "ADJUSTED LIBOR INTEREST RATE" means the rate per annum equal to the quotient of (i) the London Interbank Offered Rate divided by (ii) one (1) minus the Eurocurrency Reserve Requirement for the applicable Interest Period, rounded upward, if necessary, to the nearest one-sixteenth of one percent. "Eurocurrency Reserve Requirement" means, for any LIBOR Loan for any Interest Period therefor, the daily average of the stated maximum rate (expressed as a decimal) at which reserves (including any marginal, supplemental, or emergency reserves) are required to be maintained by Bank during such Interest Period under Regulation D of the Board of Governors of the Federal Reserve System, as amended or supplemented from time to time, against "Eurocurrency Liabilities" (as such term is used in Regulation D) but without benefit or credit of proration, exemptions, or offsets that might otherwise be available to Bank from time to time under Regulation D. Without limiting the effect of the foregoing, the Eurocurrency Reserve Requirement shall reflect any other reserves required to be maintained by Bank against (i) any category of liabilities that includes deposits by reference to which the Adjusted LIBOR Interest Rate for LIBOR Loans is to be determined; or (ii) any category of extension of credit or other assets that include LIBOR Loans. "AFFILIATE" means any Person (1) who directly or indirectly controls, or is controlled by, or is under common control with the Borrower; (2) who directly or indirectly beneficially owns or holds five percent (5%) or more of any class of voting stock of the Borrower; or (3) five percent (5%) or more of the voting stock of which is directly or indirectly beneficially owned or held by the Borrower. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. "AGREEMENT" means this Credit Agreement, as amended, supplemented, or modified from time to time. "BANK" means First Security Bank, N.A., its successors and assigns. "BORROWER" means American Ecology Corporation, a Delaware corporation. "BORROWING BASE" means eighty percent (80%) of the aggregate amount of Eligible Accounts. "BUSINESS DAY" means a day other than Saturday or Sunday and a day on which commercial banks are required to be open for business in Boise, Idaho, under the laws of the state of Idaho, and, if the applicable day relates to a LIBOR Loan, Interest Period, or notice with respect to a LIBOR Loan, a day on which dealings in Dollar deposits are also carried on in the London Interbank market and banks are open for business in London. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations and published interpretations thereof. "COLLATERAL" means and includes, without limitation, all property and assets granted as collateral security for an Obligation, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or -1- 7 title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. The Collateral includes, without limitation, all of Borrower's and each Guarantor's now owned or hereafter acquired Accounts. "COMMITMENT AMOUNT" means Five Million Dollars ($5,000,000). "COMMONLY CONTROLLED ENTITY" means an entity, whether or not incorporated, that is under common control with a Borrower within the meaning of Section 414(b) or 414(c) of the Code. "ELIGIBLE ACCOUNT" means an Account, excluding all of the following: (a) Accounts that remain uncollected more than ninety (90) days from the invoice date ("Delinquent Accounts"). (b) Accounts due from an Account Debtor that has suffered a business failure or the termination of its existence, or as to which a dissolution, insolvency or bankruptcy proceeding has been commenced, any assignment for the benefit of creditors has been made, or a trustee, receiver or conservator has been appointed for all or any part of the property of such Account Debtor. (c) Accounts due from an Account Debtor affiliated with Borrower in any manner, including, without limitation, as stockholder, owner, officer, director, agent or employee. (d) Accounts with respect to which payment is or may be conditional. (e) Accounts due from an Account Debtor who is not a resident or citizen of, located in, or subject to service of process in, the United States of America, except to the extent such Accounts are supported by insurance, bonds or other assurances satisfactory to Bank. (f) Accounts with respect to which goods are placed on consignment, guaranteed sale, or other terms by reason of which the payment by the Account Debtor may be conditional. (g) Accounts due from an Account Debtor that is any national, federal or state government, including, without limitation, any instrumentality, division, agency, body or department thereof, except where such Account Debtor has agreed to make payment directly to the Bank. (h) Accounts commonly known as "bill and hold" or similar arrangement. (i) Accounts due from an Account Debtor as to which ten percent (10%) or more of the aggregate dollar amount of all outstanding accounts owing from such Account Debtor are Delinquent Accounts. (j) That portion of Accounts due from an Account debtor that is in excess of ten percent (10%) of Borrower's aggregate dollar amount of all outstanding accounts. (k) Accounts as to which Borrower is or may become liable to the Account Debtor for any reason. (l) Accounts that are not free of all liens, encumbrances, charges, rights and interest of any kind, except in favor of Lender. (m) Accounts that are supported or represented by chattel paper or an instrument, unless such instrument or chattel paper is endorsed and actually delivered to Bank and Bank shall have specifically agreed to include the current payment due under the instrument or chattel paper as an Eligible Account. (n) Accounts with respect to which the Account Debtor is located in any state denying creditors access to its courts in the absence of a Notice of Business Activities Report or other similar filing, unless Borrower has either qualified as a foreign corporation authorized to transact business in such state or has filed a Notice of Business Activities Report or similar filing with the applicable state agency for the then current year. "ENVIRONMENTAL LAWS" shall mean and include, without limitation, the Resource Conversation and Recovery Act of 1976 (RCRA), 42 USC Sections 6901 et. seq., the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) 42 USC Sections 9601-9657, as amended by the Superfund Amendments and Reauthorization Act of 1986 (SARA), the Hazardous Materials Transportation Authorization Act of 1994, 49 USC Sections 5101 et. seq., the Federal Water Pollution Control Act, 33 USC Sections 1251 et. seq., the Clean Air Act, 42 USC Sections 741 et. seq., the Clean Water Act, 33 USC Section 7401, the Toxic Substances Control Act, 15 USC Sections 2601-2629, the Safe Drinking Water Act, 42 USC Sections 300f-300j, and all amendments thereto, and legally enforceable rules, regulations, orders, and decrees promulgated thereunder, and any other local, state and/or federal laws, rules, -2- 8 regulations and ordinances, whether currently in existence or hereafter enacted, that govern, to the extent applicable to Borrower's businesses, properties and assets: (a) the existence, cleanup and/or remedy of contamination on property; (b) the protection of the environment from soil, air or water pollution, or from spilled, deposited or otherwise emplaced contamination; (c) the emission or discharge of Hazardous Substances into the environment; (d) the control of Hazardous Substances; or (e) the use, generation, transport, treatment, removal or recovery of Hazardous Substances. "ERISA" means the Employment Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time, including any regulations issued in connection therewith. "EVENT OF DEFAULT" means the occurrence of any of the events set forth in Article 9 of this Agreement. "GAAP" means the generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board that are applicable to the circumstances as of the date of determination consistently applied. "GUARANTOR" means, jointly and severally, US Ecology, Inc., a California corporation, Texas Ecologists, Inc., a Texas corporation, American Ecology Recycle Center, Inc., a Delaware corporation, American Ecology Environmental Services Corporation, a Texas corporation, American Ecology Management Corporation, a Delaware corporation, American Ecology International, Inc., a Delaware corporation, American Ecology Services Corp., a Delaware corporation, Transtec Environmental, Inc., an Ohio corporation, Nuclear Equipment Services Center, Inc., a Delaware corporation, and American Liability and Excess Insurance Company, a Vermont corporation. "GUARANTY" means any guaranty of the Obligations executed by a Guarantor. "HAZARDOUS SUBSTANCE" means (a) any oil, petroleum products, flammable substance, explosives, radioactive materials, hazardous wastes or substances, toxic wastes or substances or any other wastes, materials or pollutants that (i) pose a hazard to Borrower's owned or leased real property or to persons on or about such real property or (ii) cause Borrower's owned or leased real property to be in violation of any Environmental Laws; (b) asbestos in any form that is or could become friable, urea formaldehyde foam insulation, transformers or other equipment that contain dielectric fluid containing regulated levels of polychlorinated biphenyls, or radon gas; (c) any chemical, material or substance defined as or included in the definition of "toxic waste," "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous waste," "restricted hazardous waste," or "toxic substances" or words of similar import under any Environmental Laws; (d) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any governmental authority or agency or may or could pose a hazard to the health and safety of the occupants of Borrower's owned or leased real property or the owners and/or occupants of property adjacent to or surrounding such real property or any other person coming upon such real property or adjacent property; and (e) any other chemical, materials or substance that may or could pose a hazard to the environment and are or become subject to regulation by any Environmental Laws. "INTEREST PERIOD" means with respect to any LIBOR Loan, the period commencing on the date such loan is made and ending, as the Borrower may select, pursuant to this Agreement, on the numerically corresponding day in the first, second, third or sixth calendar month thereafter, except that each such Interest Period that commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month; provided that if an Interest Period would end on a day that is not a Business Day, such Interest Period shall be extended to the next Business Day unless such Business Day would fall in the next calendar month, in which event such Interest Period shall end on the immediately preceding Business Day. "LENDER EXPENSES" means all costs and expenses reasonably incurred by Bank in connection with the preparation, negotiation, execution, delivery, filing, and administration of the Loan Documents, and of any amendment, modification, extension, renewal or supplement to the Loan Documents, including, without limitation, the fees and out-of-pocket expenses of counsel for Bank, incurred in connection with advising Bank as to its rights and responsibilities hereunder and structuring, drafting, reviewing, amending, or otherwise involving the Loan Documents, and all costs and expenses, including court costs, incurred in connection with enforcement of the Loan Documents, or any amendment, modification, or supplement thereto, whether by negotiation, legal proceedings, or otherwise. "LETTER OF CREDIT" has the meaning set forth in Section 2.2, but specifically excludes the Term Standby Letter of Credit. "LETTER OF CREDIT COMMITMENT" means Bank's commitment to issue letters of credit from time to time in accordance with Section 2.2 of this Agreement. -3- 9 "LETTER OF CREDIT COMMITMENT AMOUNT" means Three Million Dollars ($3,000,000), less the amount of the outstanding principal balance of the Revolving Loans in excess of Two Million Dollars ($2,000,000). "LIBOR LOAN" means any loan under this Agreement bearing interest at a rate based upon Adjusted LIBOR Interest Rate. "LIEN" means any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority, or other security agreement or preferential arrangement, charge, or encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing). "LOAN" means a Revolving Loan. "LOAN DOCUMENTS" means collectively this Agreement, any note executed by Borrower to the order of Bank and any other agreements or documents, whether now or hereafter existing, executed or delivered in connection with this Agreement or any amendment thereto, and any amendments, supplements, modifications, renewals, extensions, or refundings of any of the foregoing documents. "LONDON INTERBANK OFFERED RATE" means for any Interest Period for a LIBOR Loan the lowest rate per annum quoted by Barclays, Tokyo/Mitsubishi, and Banker's Trust at approximately 11:00 a.m. London time appearing on the Reuters LIBOR page screen two Business Days prior to the first day of such Interest Period for the offering to leading banks in the London interbank market of dollar deposits for a period and an amount comparable to the Interest Period and principal amount of the LIBOR Loan that shall be made by Bank and outstanding during the Interest Period. "MATURITY DATE" means August 30, 2002, or such other date as Bank and Borrower may agree upon in writing from time to time. "MULTIEMPLOYER PLAN" means a Plan described in Section 4001(a)(3) of ERISA. "OBLIGATIONS" means any and all loans, lines of credit, advances, letter of credit obligations, debts, overdrafts, liabilities, indebtedness, lease payments, guaranties, covenants, and duties owing by Borrower to Bank of any kind and description (whether advanced pursuant to or evidenced by the Loan Documents or any other instrument or agreement between Bank and Borrower), any debt, liability, or obligation owing by Borrower to others that Bank may have obtained by assignment or otherwise, any interest not paid when due, all Lender Expenses, and all renewals, extensions, and modifications of the foregoing, or any part thereof, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PERMITTED LIENS" shall have the meaning assigned to such term in Section 6.1 of this Agreement. "PERSON" means an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, or other entity of whatever nature. "PLAN" means any pension plan that is covered by Title IV of ERISA and in respect of which any Borrower or a Commonly Controlled Entity is an "employer" as defined in Section 3(5) of ERISA. "PRIME LOAN" means any loan under this Agreement bearing interest at a rate based upon the Prime Rate. "PRIME RATE" means the Bank's announced rate of interest referred to as its prime rate used as a reference point from which the cost of credit to customers may be calculated. The Prime Rate is subject to change from time to time. The Prime Rate is not intended to be the lowest rate of interest charge by the Bank to its borrowers, and Bank may make loans to other Persons bearing interest at, above, or below the Prime Rate. "PROHIBITED TRANSACTION" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code. "REPORTABLE EVENT" means any of the events set forth in Section 4043 of ERISA. -4- 10 "REVOLVING LOANS" shall have the meaning assigned to such term in Section 2.1 of this Agreement. "REVOLVING NOTE" means the promissory note described in Subsection 2.1.3. "SECURITY AGREEMENT" means the Security Agreement to be delivered to Bank by the Borrower pursuant to Subsection 3.1.2 of this Agreement. "SUBSIDIARY" means, as to the Borrower, a corporation of which shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by the Borrower. 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined in this Agreement shall be construed in accordance with GAAP consistent with those applied in the preparation of the financial statements referred to in Section 4.4, and all financial data submitted pursuant to this Agreement shall be prepared in accordance with GAAP. ARTICLE 2 - LOANS AND TERMS OF PAYMENT 2.1 REVOLVING CREDIT. Upon the request of Borrower, made at any time and from time to time from the date hereof until the Maturity Date, and so long as no Event of Default has occurred, Bank shall make loans (the "Revolving Loans") to Borrower in an aggregate principal amount not to exceed at any time outstanding the lesser of (i) the Borrowing Base or (ii) the Commitment Amount. Subject to the terms of this Agreement, loans made by Bank may be repaid and reborrowed, up to and including the Maturity Date. If at any time and for any reason the amount of advances made pursuant to this Section exceed the above dollar limitation, then Borrower, upon Bank's election and demand, shall immediately pay to Bank in cash the amount of such excess. 2.1.1 MANNER OF REQUESTING. 2.1.1.1 PRIME LOANS. Except for Sweep Loans described below, Bank is authorized to make a Prime Revolving Loan upon written or, at the discretion of Bank, telephonic instructions received from any person purporting to be a person identified in the attached EXHIBIT 2.1.1.1 or such other persons as Borrower may from time to time designate in writing to Bank. Upon receipt of such instructions and fulfillment of the applicable conditions set forth in Article 3, Bank shall make the Revolving Loan to Borrower by crediting the amount thereof to the Borrower's account with Bank. Subject to the terms hereof, Bank shall make Prime Revolving Loans to Borrower in an amount equal to the amount by which the amount of checks clearing any designated disbursement bank account that Borrower may now or hereafter have with Bank exceeds the amount of collected funds in the disbursement account's related depository bank account that Borrower may now or hereafter have with Bank ("Sweep Loans"). The existence of such an excess of clearing checks shall be deemed to be a request by Borrower for any such Prime Revolving Loan. Each Sweep Loan shall be a Revolving Loan and must satisfy all requirements for a Revolving Loan. 2.1.1.2 LIBOR LOANS. For any Revolving Loan that is to be a LIBOR Loan, the Borrower shall request such a Loan by delivering a LIBOR Loan Request to Bank no later than 11:00 a.m. (Boise, Idaho time) at least two (2) Business days prior to the requested date of the Loan. A LIBOR Loan Request shall specify (a) the date of the requested Loan, (b) the amount of such Loan, and (c) the requested duration of the Interest Period for the Loan, and shall be in substantially the form of the attached EXHIBIT 2.1.1.2 executed by any person purporting to be a person identified in Exhibit 2.1.1.1 or such other persons as Borrower may from time to time designate in writing to Bank. If Bank determines that the requested Loan is available and will comply with this Agreement, and if no Event of Default has occurred and is continuing, Bank shall make the LIBOR Loan to Borrower by crediting the amount thereof to the Borrower's account with Bank. 2.1.2 INTEREST ON THE REVOLVING LOANS. Each Revolving Loan shall be a Prime Loan or a LIBOR Loan, as selected by Borrower in accordance with the terms of this Agreement. 2.1.2.1 Each Revolving Loan that is a Prime Loan shall bear interest at a fluctuating per annum rate equal to the Prime Rate increased by 0.75% during the first 6 months after the date of this Agreement and thereafter increased by the applicable Prime Margin set forth below. Agent's Prime Rate may change from time to time, and the interest payable will continue to fluctuate at the rate as stated herein. Any changes to the Prime Rate shall become effective without prior notice to Borrower on the date on which the Prime Rate changes. -5- 11 2.1.2.2 Each Revolving Loan that is a LIBOR Loan shall bear interest at a fluctuating per annum rate equal to the Adjusted LIBOR Interest Rate for the applicable Interest Period, as quotes are available, increased by 3.25% during the first 6 months after the date of this Agreement and thereafter increased by the applicable LIBOR Margin set forth below. Any changes to the LIBOR Margin shall not apply to LIBOR Loans outstanding or requested on the date the LIBOR Margin is adjusted. 2.1.2.3 The Prime Margins, the LIBOR Margins, and the Commitment Margins and the L/C fees are as follows:
FUNDED DEBT RATIO PRIME LIBOR COMMITMENT L/C FEE less than 1.00:1.00 0.0% 2.50% 0.15% 1.25% less than 2.00:1.00 but greater than or 0.25% 2.75% 0.25% 1.375% equal to 1.00:1.00 less than 3.00:1.00 but greater than or 0.50% 3.00% 0.30% 1.50% equal to 2.00:1.00 less than 4.00:1.00 but greater than or 0.75% 3.25% 0.40% 1.75% equal to 3.00:1.00 greater than or equal to 4.00:1.00 1.00% 3.50% 0.50% 2.00%
2.1.2.4 The Prime Margin, LIBOR Margin, and Commitment Margin shall be based upon the Borrower's Funded Debt Ratio (defined in paragraph 2.1.2.5) determined on a rolling four quarter basis from the Borrower's financial statements delivered to Bank and adjusted, if necessary, on the first day of the second month after Bank's receipt of financial statements that show an adjustment is necessary. 2.1.2.5 Borrower's Funded Debt Ratio shall be the ratio of Borrower's Funded Debt to EBITDA. The term "Funded Debt" shall mean, as of the date of determination as applied to Borrower, the sum of (i) all indebtedness of Borrower owing to third parties for money borrowed, including capitalized leases of Borrower having a final maturity of one (1) year or more from the date of creation (including that portion of the principal of such indebtedness due within one (1) year from the date of such determination), (ii) any indebtedness of the Borrower having a final maturity within one (1) year from such date which may be renewed or extended at the option of the Borrower for more than one (1) year from such date, (iii) the outstanding balance of the Revolving Loans, (iv) all obligations for the deferred purchase price of any property or assets, including, without limitation, operating leases for such purpose (excluding trade payables), and (v) all obligations of Borrower created or arising with respect to property or assets acquired under any conditional sales contract or other title retention agreement or incurred as financing, less the amount of Borrower's short term investments as of the date of determination. The term "EBITDA" shall mean, for any period, as applied to Borrower, the sum of Borrower's earnings before (a) interest expense, (b) depreciation, (c) dividends, (d) taxes, and (e) amortization. 2.1.3 REVOLVING NOTE. All Revolving Loans made by the Bank under this Agreement shall be evidenced by a single promissory note of the Borrower in the stated principal amount of the Commitment Amount executed by Borrower substantially in the form of EXHIBIT 2.1.3 (the "Revolving Note"). 2.1.4 REPAYMENT. Interest accrued on Prime Revolving Loans shall be paid on or before the 10th day of each month in an amount equal to the interest accrued as of the last day of the immediately preceding month. Interest accrued on LIBOR Revolving Loans shall be paid on the last day of the Interest Period with respect thereto and, in the case of an Interest Period greater than three months (if such an Interest Period is permitted under this Agreement), at three month intervals after the first day of such Interest Period. All outstanding principal and accrued interest of the Revolving Loans shall be paid in full on the Maturity Date. 2.1.5 COMMITMENT FEE. The Borrower shall pay to the Bank a commitment fee on the average daily unused portion of the Commitment Amount from the date of this Agreement until the Maturity Date at the per annum rate of 0.40% during the first 6 months after the date of this Agreement and thereafter at the per annum rate of the Commitment Margin set forth in paragraph 2.1.2.3, payable in arrears on the first Business Day of each of Borrower's fiscal quarter during the term of such Bank's Commitment and on the Maturity Date. -6- 12 2.1.6 ORIGINATION FEE. The Borrower shall pay Bank an origination fee for the Revolving Loans in the amount of Ten Thousand Dollars ($10,000). The origination fee shall be paid on the date of this Agreement. The origination fee shall represent an unconditional payment to Bank in consideration of Bank's agreement to extend financial accommodations to Borrower pursuant to this Agreement. 2.1.7 USE OF PROCEEDS OF REVOLVING LINE OF CREDIT. The proceeds of the Revolving Line of Credit shall be used by the Borrower to provide financing for Borrower's Accounts and other working capital needs. The Borrower shall not, directly or indirectly, use any part of such proceeds for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or to extend credit to any person for the purpose of purchasing or carrying any such margin stock, or for any purpose that violates, or is inconsistent with, Regulation X of such Board of Governors. 2.2 LETTERS OF CREDIT. Subject to the terms and conditions of this Agreement, as a subfeature of the Revolving Loans, Bank shall issue for the account of Borrower from time to time until the Maturity Date such standby or commercial letters of credit to be used by Borrower for general corporate purposes (individually a "Letter of Credit" and collectively the "Letters of Credit") as Borrower may request under this Section. Subject to the terms of this Agreement, Letters of Credit may be drawn, reimbursed, or returned undrawn, as applicable, up to and including the Maturity Date. At no time, however, shall the total face amount of the Letters of Credit outstanding, less any partial draws under the Letters of Credit exceed the Letter of Credit Commitment Amount. 2.2.1 APPLICATIONS. Prior to issuance of each Letter of Credit, and in all events prior to any daily cutoff time Bank may have established for purposes thereof, Borrower shall deliver to Bank an executed standard form of application for issuance of a letter of credit with such other documents, instruments and agreements as Bank may reasonably require. 2.2.2 FACILITY TERMINATION. The commitment by Bank to issue Letters of Credit shall, unless earlier terminated in accordance with the terms of this Agreement, automatically terminate on the Maturity Date. No Letter of Credit shall expire on a date that is after the Maturity Date without Bank's prior written approval. 2.2.3 FEES. Borrower shall pay Bank, on demand, Bank's standard fees for issuing or administering a commercial Letter of Credit. With respect to each standby Letter of Credit, Borrower shall pay Bank a fee equal to the L/C Fee (set forth in paragraph 2.1.2.3) per annum of the face amount of the Letter of Credit, payable quarterly in advance, except that during the first 6 months after the date of this Agreement the fee shall be equal to 1.75% per annum of the face amount of the Letter of Credit. 2.2.4 FORM. Each Letter of Credit shall be subject to the terms and conditions of the application and agreement submitted to Bank by Borrower and otherwise in form and substance reasonably satisfactory to Bank and in favor of beneficiaries reasonably satisfactory to Bank. Bank may, in its reasonable discretion, refuse to issue a Letter of Credit due to the nature of the transaction or its terms or in connection with any transaction where Bank, due to the beneficiary or the nationality or residence of the beneficiary, would be prohibited by any applicable law, regulation or order from issuing such Letter of Credit. In all cases, however, the Bank shall use its best efforts to issue a Letter of Credit reasonably acceptable to Bank and Borrower. 2.2.5 REIMBURSEMENT. Immediately after the payment by Bank of any drawing under any Letter of Credit (a "Drawing Payment") and not later than 12:00 noon (Boise, Idaho time) on the date of such Drawing Payment, Borrower shall make or cause to be made a payment in the amount of such Drawing Payment (a "Reimbursement Payment") to Bank. Borrower may, to the extent Revolving Loans then are available under this Agreement, make any Reimbursement Payment with the proceeds of a Revolving Loan. Bank may, if it so elects (but shall have no obligation to), treat any Drawing Payment as a Prime Loan. The right of Bank to treat a Drawing Payment as a Prime Loan shall not be -7- 13 affected by the occurrence or existence of any Event of Default, the failure of Borrower to satisfy any conditions precedent to a Loan, or any other circumstance or condition. 2.2.6 REIMBURSEMENT OBLIGATIONS ABSOLUTE. The obligation of Borrower to reimburse Bank for Drawing Payments (such obligation referred to as a "Reimbursement Obligation") shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement and any Letter of Credit agreement. 2.3 METHOD OF PAYMENT. All payments shall be made to Bank at its Corporate Banking office in Boise, Idaho in lawful money of the United States in immediately available funds. Bank shall send Borrower a monthly statement of the amount of interest accrued during the preceding month. No checks, drafts, or other instruments received by Bank purportedly in satisfaction of any of the Obligations shall constitute payment thereof unless and until such instruments have actually been collected. All payments received after 11:00 a.m. Boise, Idaho time shall be considered to have been received the next Business Day. The Borrower authorizes the Bank, if and to the extent payment is not made when due under any Loan Document, to charge from time to time against any account of the Borrower with the Bank any amount so due. In case the due date of any payment falls on a day that is not a Business Day, such payment shall instead be due the next succeeding Business Day, and interest shall continue to accrue. Bank may note the date, amount and interest rate (and Interest Period with respect to LIBOR Loans) of each Loan and each payment of principal and interest with respect hereto in Bank's books and records (either manually or by electronic entry), which notation shall be conclusive evidence of the information noted, absent manifest error. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs and any late charges, then to any unpaid interest, and any remaining amount to principal. 2.4 PREPAYMENTS. The Borrower may prepay any or all Prime Loans without penalty or premium. A LIBOR Loan may be prepaid in whole or in part only on the last day of the Interest Period for such Loan, unless Borrower pays to Bank the prepayment funding loss indemnification pursuant to Section 2.9. 2.5 LATE CHARGES AND DEFAULT INTEREST. If Bank has not received the full amount of any payment by the end of fifteen (15) calendar days after the date due, including the balance due at maturity, Borrower shall pay a late charge to Bank in the amount of five percent (5%) of the overdue payment of principal and/or interest. Borrower shall pay the late charge promptly, but only once on each late payment. In addition to any late charges that may be assessed as herein provided, the outstanding balance of the Loans after the occurrence of an Event of Default shall accrue interest from the date of the Event of Default at the rate equal to four (4) percentage points per annum in excess of the interest rate that would otherwise be charged if no Event of Default existed. If Bank shall waive in writing or Borrower shall cure such Event of Default, the interest rate shall revert to the non-default rate from and after such waiver or completion of such cure, until another such Event of Default. 2.6 ADDITIONAL INTEREST RATE PROVISIONS. 2.6.1 If Bank shall have determined (which determination shall be conclusive and binding) that for any reason adequate and reasonable means do not exist for ascertaining the Adjusted LIBOR Interest Rate for any or all Interest Periods, Bank shall give notice of such determination to the Borrower. If such notice is given, and until such notice has been withdrawn by Bank, no additional LIBOR Loans for such Interest Periods shall be made and no additional conversions of Loans to LIBOR Loans for such Interest Periods shall be permitted, and at the end of the Interest Period relating to any outstanding LIBOR Loans such Loans shall become Prime Loans. 2.6.2 Notwithstanding any other provisions herein, if any law, treaty, rule or regulation, or determination of a court or other governmental authority, or any change therein or in the interpretation or application thereof, shall make it unlawful for Bank to make or maintain LIBOR Loans as contemplated by this Agreement, the obligation of Bank hereunder to make LIBOR Loans shall forthwith be canceled, and, if required, each LIBOR Loan then outstanding shall immediately become a Prime Loan. 2.6.3 In the event that any adoption or modification of any law, treaty, rule, or regulation, or determination of a court or other governmental authority, or that any change in the interpretation or application thereof, which adoption, modification or change becomes effective after the date hereof, or in the event that compliance by Bank with and request or directive issued after the date hereof (whether or not having the force of law) from any governmental authority: -8- 14 (A) does or shall subject Bank or any of its foreign offices to any tax of any kind whatsoever with respect to the Loan Documents, or changes the basis of taxation of payments to Bank of principal, interest, fees, or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of Bank); or (B) does or shall impose, modify, or hold applicable any reserve, special deposit, compulsory loan, FDIC insurance, or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, other credit extended by or any other acquisition of funds by any office of Bank (other than to the extent previously taken into account in determining the Prime Rate or statutory reserves); or (C) does or shall impose on Bank any other condition; and the result of any of the foregoing is to increase the cost to Bank of making, renewing, or maintaining the loans hereunder, or to reduce any amount receivable thereunder or under any of the Loan Documents; then, in any such case, the Borrower shall promptly pay to Bank, upon demand, such amount or amounts as may be necessary to compensate Bank for any additional cost or reduced amount received. Bank shall deliver to the Borrower a written statement of the losses or expenses sustained or incurred, and any reasonable allocation made by Bank of such losses and expenses shall be conclusive, absent manifest error. Bank shall promptly notify the Borrower of any event of which it has knowledge, occurring after the Closing Date, which event will entitle Bank to compensation under this Section. 2.6.4 The actual interest to be charged on the Loans shall be calculated daily on the outstanding balance for the actual number of days elapsed on the basis of a year consisting of 360 days for LIBOR Loans and 365/366 days for Prime Loans. Should the rate of interest exceed that allowed by law, the applicable rate of interest will be the maximum rate of interest lawfully allowed. The principal amount outstanding on which the interest rate(s) shall be charged shall be determined from the Bank's records, which shall at all times be conclusive, absent manifest error. 2.7 LIBOR LOAN EXTENSIONS AND CONVERSIONS. So long as no Event of Default has occurred and is continuing and subject to the terms and conditions hereof, the Borrower may extend a LIBOR Loan beyond its current Interest Period by giving Bank a LIBOR Loan Request for the extension. The Borrower may also convert any Prime Loan into a LIBOR Loan by giving Bank a LIBOR Loan Request for the conversion. Unless Bank receives notice of a proposed extension or conversion as and when required hereunder, then at the end of an Interest Period for a LIBOR Loan such Loan shall automatically convert to a Prime Loan. 2.8 MINIMUM LIBOR LOAN REQUIREMENTS. Each LIBOR Loan shall be in a minimum amount of Two Hundred Fifty Thousand Dollars ($250,000). No Revolving Loan shall be made as, extended as, or converted into, a LIBOR Loan with an Interest Period that ends after the Maturity Date. No part of the Term Loan shall be made as, extended as, or converted into, a LIBOR Loan with an Interest Period that ends after the Term Loan Maturity Date. No part of the Loan shall be made as, extended as, or converted into, a LIBOR Loan with an Interest Period that ends after the Maturity Date. No more than four (4) LIBOR Loans shall be outstanding at one time. 2.9 FUNDING LOSS INDEMNIFICATION. The Borrower shall indemnify and hold Bank free and harmless from any loss or expense (including without limitation any loss or expense incurred by reason of the liquidation or redeployment of deposits or other funds acquired by Bank to fund or maintain any LIBOR Loan) that Bank may incur as a result of (i) the Borrower's failure to make a borrowing, conversion, or extension with respect to a LIBOR Loan after making a request therefor; (ii) a prepayment (whether optional or mandatory) of a LIBOR Loan prior to the expiration of a related Interest Period, and (iii) the conversion of a LIBOR Loan as a result of any of the events indicated in paragraph 2.6.2. At the election of Bank such losses shall be conclusively deemed to consist of an amount equal to: (i) The interest that would have been received from the Borrower on the amounts during the Interest Period (or remaining portion thereof in question) had the Borrower not prepaid, repaid, or failed to borrow, convert, or extend, such funds, as the case may be, minus (ii) The return that Bank could have obtained had it placed such funds on deposit in the interbank dollar market selected by Bank in its sole discretion on the date of such prepayment, repayment or failure to borrow, convert, or extend as the case may be, and such funds had remained on deposit until the end of the applicable Interest period. 2.10 TAXES ON PAYMENTS. All payments made by Borrower under this Agreement and the other Loan Documents shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Taxes"), now or hereafter imposed, -9- 15 levied, collected, withheld or assessed by any governmental authority (except net income taxes and franchise taxes in lieu of net income taxes imposed on Bank as a result of a present or former connection between the jurisdiction of the governmental authority imposing such tax on Bank, excluding a connection arising solely from Bank having executed, delivered, or performed its obligations or received a payment under, or enforced, this Agreement or the other Loan Documents). If any Taxes are required to be withheld from any amounts payable to Bank under any Loan Document, the amounts so payable to Bank shall be increased to the extent necessary to yield to Bank (after payment of all Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the other Loan Documents. 2.11 GRANT OF SECURITY INTEREST. Borrower grants to Bank a continuing security interest in the Collateral, including all proceeds and products thereof, in order to secure prompt repayment of the Obligations and prompt performance by Borrower of each and all of its covenants and obligations under this Agreement and the other Loan Documents. Bank's security interest in the Collateral shall be further evidenced by the Security Agreement and such other security documents as Bank may at any time require. 2.12 FINANCING STATEMENTS. The Borrower shall from time to time, at the expense of Borrower, promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Bank may reasonably request, in order to perfect and protect any pledge, assignment or security interest granted or purported to be granted by any Loan Document or to enable Bank to exercise and enforce its rights and remedies under any Loan Document with respect to any Collateral. Without limiting the generality of the foregoing, the Borrower shall execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Bank may request, in order to perfect and preserve the pledge assignment, and security interest granted or purported to be granted by any Loan Document. Borrower irrevocably makes, constitutes, and appoints Bank (and any of Bank's officers, employees, or agents designated by Bank) as Borrower's true and lawful attorney with power, upon Borrower's failure or refusal to comply with their undertakings contained in this paragraph, to sign the name of Borrower on any of the above-described documents or on any other similar documents that need to be executed, recorded, and/or filed in order to perfect or continue Bank's perfected security interest in the Collateral. ARTICLE 3 - CONDITIONS PRECEDENT 3.1 INITIAL ADVANCE. The obligation of Bank to make the initial Loan to the Borrower under this Agreement is subject to the conditions precedent that Bank shall have received on or before the day of such loan each of the following, in form and substance satisfactory to Bank and its legal counsel: 3.1.1 REVOLVING NOTE. The Revolving Note executed by the Borrower. 3.1.2 SECURITY AGREEMENT. The Security Agreement in substantially the form of EXHIBIT 3.1.2 executed by Borrower, together with all UCC-1 financing statements desirable in the opinion of Bank to perfect the security interest created by the Security Agreement. 3.1.3 GUARANTY. A guaranty of the Obligations in substantially the form of EXHIBIT 3.1.3 executed by each Guarantor. 3.1.4 GUARANTOR SECURITY AGREEMENTS. A security agreement in substantially the form of EXHIBIT 3.1.4 executed by each Guarantor, together with all UCC-1 financing statements desirable in the opinion of Bank to perfect the security interest created by the security agreement. 3.1.5 EVIDENCE OF INSURANCE. Evidence of the insurance Borrower must maintain in accordance with the Loan Documents. -10- 16 3.1.6 OPINION OF COUNSEL FOR BORROWER AND GUARANTOR. A favorable opinion of counsel for Borrower and Guarantor, in substantially the form of EXHIBIT 3.1.6 and as to such other matters as Bank may reasonably request. 3.1.7 EVIDENCE OF ALL CORPORATE ACTION BY BORROWER. Certified copies of all corporate action taken by Borrower authorizing its execution and delivery of the Loan Documents and each other document to be delivered pursuant to this Agreement and its performance of its agreements thereunder. 3.1.8 CERTIFICATES OF EXISTENCE FOR BORROWER. Certificates of existence or good standing dated a reasonable date before the effective date of this Agreement showing that the Borrower is in good standing under the laws of the state of its incorporation and all other states in which it is doing business. 3.1.9 ARTICLES OF INCORPORATION AND BYLAWS OF BORROWER. Copies of the articles of incorporation and bylaws of Borrower certified by an officer of Borrower to be true and correct. 3.1.10 EVIDENCE OF ALL CORPORATE ACTION BY GUARANTOR. Certified copies of all corporate action taken by each Guarantor authorizing its execution and delivery of the Guaranty and the performance of its agreements thereunder. 3.1.11 CERTIFICATES OF EXISTENCE FOR GUARANTOR. Certificates of existence or good standing dated a reasonable date before the effective date of this Agreement showing that each Guarantor is in good standing under the laws of the state of its incorporation and all other states in which it is doing business. 3.1.12 ARTICLES OF INCORPORATION AND BYLAWS OF GUARANTOR. Copies of the articles of incorporation and bylaws of each Guarantor certified by an officer of the Guarantor to be true and correct. 3.1.13 CERTIFICATES OF ASSUMED BUSINESS NAME. Copies of all certificates of assumed business name, if any, filed by Borrower. 3.1.14 LETTER TO ACCOUNTANTS. A letter in the form of EXHIBIT 3.1.14 to Borrower's outside auditors (which letter Borrower shall also deliver to any subsequent outside auditors hired by Borrower, all of which shall be independent certified public accountants acceptable to Bank): (1) instructing such auditors to send to Bank copies of all final financial statements and reports that are prepared as a result of any audit or other review of Borrower's operations, finances, or internal controls, including any reports dealing with improper accounting practices, defalcations, financial reporting errors, or misstatements or fraud; (2) authorizing such auditors to, upon Bank's request, meet with Bank to discuss said financial statements and any questions regarding same; and (3) advising such auditors that one of the principal purposes of the audited financial statements which they may be asked to prepare is to provide Bank with information regarding Borrower's financial condition. 3.1.15 PUBLIC RECORD SEARCHES. Uniform Commercial Code financing statement searches, federal and state income tax lien searches, judgment searches, or other similar searches on Borrower and any other Persons that Bank may require and in such form as Bank may require. 3.1.16 PAYMENT OF ORIGINATION FEE. Payment of the origination fee as required by Section 2.1.6 of this Agreement. -11- 17 3.1.17 ADDITIONAL DOCUMENTS. Such additional approvals, opinions, or documents as Bank may reasonably request. 3.2 ALL ADVANCES. The obligation of Bank to make each Loan under this Agreement shall be subject to the following conditions precedent: 3.2.1 The following statements shall be true on the date of each loan, and, if requested by Bank, Borrower shall have delivered to Bank a certificate signed by a duly authorized officer of the Borrower, certifying to Bank the truth of the following statements: (a) The representations and warranties contained in this Agreement and in the Loan Documents are correct on and as of the date of such loan as though made on and as of such date. (b) No Event of Default has occurred and is continuing, or would result from such loan. 3.2.2 Bank shall have received such other approvals, opinions, or documents as Bank may reasonably request. ARTICLE 4 - REPRESENTATIONS AND WARRANTIES In order to induce the Bank to enter into this Agreement and to make the loans as provided in this Agreement, the Borrower makes the following representations and warranties to the Bank, which shall survive execution of this Agreement: 4.1 ORGANIZATION, GOOD STANDING, AND DUE QUALIFICATION. Borrower was organized under the Delaware General Corporation Law and exists in good standing under the laws of the jurisdiction of its organization with power under the Delaware General Corporation Law to own or lease its assets and to transact the business in which it is now engaged or proposed to be engaged. Borrower is qualified to transact business as a foreign corporation in good standing under the laws of each other jurisdiction in which such qualification is required. Each of Borrower's Subsidiaries and each Guarantor was organized under the general business corporation law of the jurisdiction of its organization and exists in good standing under the laws of the jurisdiction of its organization with power under the general business corporation law of such jurisdiction to own or lease its assets and to transact the business in which it is now engaged or proposed to be engaged. Each of Borrower's Subsidiaries and each Guarantor is qualified to transact business as a foreign corporation in good standing under the laws of each other jurisdiction in which such qualification is required. 4.2 POWER AND AUTHORITY. Borrower has authorized the execution and delivery of the Loan Documents to which it is a party and the performance of its agreements thereunder by all necessary corporate action under the Delaware General Corporation Law. Each Guarantor has authorized the execution and delivery of the Loan Documents to which it is a party and the performance of its agreements thereunder by all necessary corporate action under the general business corporation law of the jurisdiction of its organization. Borrower's and each Guarantor's execution and delivery of the Loan Documents to which it is a party and the performance of its respective obligations thereunder will not (1) require any consent or approval of the shareholders of Borrower or the Guarantor that has not been obtained; (2) violate Borrower's or the Guarantor's certificate or articles of incorporation (however denominated); (3) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award presently in effect having applicability to Borrower or the Guarantor; (4) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease, or instrument to which Borrower or a Guarantor is a party or by which it or its properties may be bound or affected; or (5) cause Borrower or a Guarantor to violate any such law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award or be in default under any such indenture, agreement, lease, or instrument. 4.3 LEGALLY ENFORCEABLE AGREEMENT. This Agreement is, and each of the other Loan Documents to which Borrower is a party when delivered under this Agreement will be, legal, valid, and binding obligations of the Borrower, enforceable against the Borrower, in accordance with their respective terms, except to the extent that such enforcement may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors' rights generally. Each Guaranty and other Loan Document to which a Guarantor is a party when delivered under this Agreement will be the legal, valid, and binding obligation of the applicable Guarantor, enforceable against the Guarantor in accordance with their terms, except to the -12- 18 extent that such enforcement may be limited by applicable bankruptcy, insolvency, and other similar laws affecting creditors' rights generally. 4.4 FINANCIAL STATEMENTS. All financial statements and information relating to Borrower, any Subsidiary, any Affiliate of Borrower, and any Guarantor that have been delivered by Borrower or a Guarantor to Bank are complete and correctly and fairly present the financial condition of the Borrower, the Subsidiary, the Affiliate of Borrower, or the Guarantor, as applicable, as of the date of such statements and information and the results of the operations of the Borrower and the affiliates of Borrower for the periods covered by such statements, all in accordance with GAAP (subject to year-end adjustments in the case of the interim financial statements). There has been no material adverse change in the financial condition of Borrower, an Affiliate of Borrower, or a Guarantor since the date of the most recent of such applicable financial statements submitted to Bank. There are no liabilities of Borrower, a Subsidiary, or a Guarantor, fixed or contingent, that are material but are not reflected in the financial statements or in the notes thereto, other than liabilities arising in the ordinary course of business since the date of the most recent of such applicable financial statements submitted to Bank. No information, exhibit, or report furnished by the Borrower to the Bank in connection with the negotiation of this Agreement contained any material misstatement of fact or omitted to state a material fact or any fact necessary to make the statement contained therein not materially misleading. 4.5 LABOR DISPUTES AND CASUALTIES. Except as disclosed in Borrower's Forms 10-K and 10-Q filed with the Securities and Exchange Commission and copies of which have been delivered to Bank, neither the businesses nor the properties of the Borrower or any Subsidiary or any Guarantor are affected by any fire, explosion, accident, strike, lockout, or other labor dispute, drought, storm, hail, earthquake, embargo, act of God, or other casualty (whether or not covered by insurance), materially and adversely affecting such businesses or properties or the operation of the Borrower or the Subsidiary or the Guarantor. 4.6 OTHER AGREEMENTS. No event has occurred and is continuing that constitutes or that, with the giving of notice or the lapse of time or both, could constitute, an event of default or a default under any agreement or guaranty to which the Borrower or any Subsidiary or any Guarantor is a party, and no such event will occur upon the making of the loans hereunder. 4.7 NO LITIGATION. Except as disclosed in Borrower's Forms 10-K and 10-Q filed with the Securities and Exchange Commission and copies of which have been delivered to Bank, there is no pending action or proceeding against or affecting the Borrower or any Subsidiary or any Guarantor before any court, governmental agency, or arbitrator, that would have a reasonable possibility to, in any one case or in the aggregate, materially adversely affect the financial condition, operations, properties, or business of the Borrower or the ability of the Borrower or any Subsidiary or any Guarantor to perform its obligations under the Loan Documents to which it is a party. 4.8 NO DEFAULTS ON OUTSTANDING JUDGMENTS OR ORDERS. Except as disclosed in Borrower's Forms 10-K and 10-Q filed with the Securities and Exchange Commission and copies of which have been delivered to Bank, the Borrower, each Subsidiary, and each Guarantor have satisfied all judgments against it, and neither the Borrower nor any Subsidiary nor any Guarantor is in default with respect to any judgment, writ, injunction, decree, rule, or regulation of any court, arbitrator, or federal, state, municipal, or other governmental authority, commission, board, bureau, agency, or instrumentality, domestic or foreign. 4.9 OWNERSHIP AND LIENS. The Borrower and each Subsidiary has title to, or valid leasehold interests in, all of its properties and assets, real and personal, including, without limitation, the Collateral, and none of such properties and assets owned by the Borrower or a Subsidiary and none of their leasehold interests are subject to any Lien, except Permitted Liens. 4.10 EMPLOYEE BENEFITS. The Borrower and each Subsidiary is in compliance in all material respects with all applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has occurred and is continuing with respect to any Plan; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated; no circumstances exist that constitute grounds entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; neither Borrower nor any Commonly Controlled Entity has completely or partially withdrawn from a Multiemployer Plan; the Borrower and each Commonly Controlled Entity have met their minimum funding requirements under ERISA with respect to all of their Plans and the -13- 19 present value of all vested benefits under each Plan does not exceed the fair market value of all Plan assets allocable to such benefits, as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA; and neither the Borrower nor any Commonly Controlled Entity has incurred any liability to the PBGC under ERISA. 4.11 OPERATION OF BUSINESS. To the best of Borrower's knowledge, Borrower, each Subsidiary, and each Guarantor possesses all licenses, permits, franchises, patents, copyrights, trademarks, and trade names, or rights thereto, to conduct its businesses substantially as now conducted and as presently proposed to be conducted, and the Borrower, each Subsidiary, and each Guarantor is not in violation of any valid rights of others with respect to any of the foregoing. Borrower, each Subsidiary, and each Guarantor has filed, and will file in the future, with the appropriate governmental entities all assumed business name certificates necessary or required to conduct its businesses. 4.12 TAXES. The Borrower, each Subsidiary, and each Guarantor have filed all tax returns (federal, state, and local) required to be filed and have paid all taxes, assessments, and governmental charges and levies thereon to be due, including interest and penalties, except those presently being or to be contested by Borrower, a Subsidiary, or a Guarantor in good faith in the ordinary course of business and for which adequate reserves have been provided in Bank's reasonable judgment. 4.13 DEBT. EXHIBIT 4.13 is a complete and correct list of all credit agreements, indentures, purchase agreements, guaranties, capital leases, and other investments, agreements, and arrangements presently in effect providing for or relating to extensions of credit (including agreements and arrangements for the issuance of letters of credit or for acceptance financing) in respect of which the Borrower or any Subsidiary is in any manner directly or contingently obligated; and the maximum principal or face amounts of the credit in question, which are outstanding and which can be outstanding, are correctly stated, and all Liens of any nature given or agreed to be given as security therefor are correctly described or indicated in such Exhibit. 4.14 ENVIRONMENTAL MATTERS. To the best of its knowledge and except as disclosed in Borrower's Forms 10-K and 10-Q filed with the Securities and Exchange Commission and copies of which have been delivered to Bank, the Borrower and each Subsidiary has materially complied with, and its businesses, operations, assets, equipment, property, leaseholds or other facilities are in compliance with, the provisions of the Environmental Laws and all other federal, state, and local environmental, health and safety laws, codes and ordinances, and all rules and regulations promulgated thereunder. The Borrower and each Subsidiary has been issued and will maintain all required federal, state, and local permits, licenses, certificates, and approvals relating to (1) air emissions; (2) discharges to surface water or groundwater; (3) noise emissions; (4) solid or liquid waste disposal; (5) the use, generation, storage, transportation, or disposal of Hazardous Substances; or (6) other environmental, health, or safety matters. Except as disclosed in Borrower's Forms 10-K and 10-Q filed with the Securities and Exchange Commission and copies of which have been delivered to Bank, neither Borrower nor any Subsidiary has received notice of, nor knows of, or suspects facts that might constitute any material violations of an Environmental Law or any other federal, state, or local environmental, health, noise emission, or safety laws, codes, or ordinances and any rules or regulations promulgated thereunder with respect to its businesses, operations, assets, equipment, property, leaseholds, or other facilities. To the best of Borrower's knowledge, except in accordance with a valid governmental regulation, permit, license, certificate, or approval, and except as previously disclosed, there has been no emission, spill, release, or discharge into or upon (1) the air; (2) soils, or any improvements located thereon; (3) surface water or groundwater; or (4) the sewer, septic system or waste treatment, storage, or disposal system servicing the premises of any Hazardous Substances or from the premises. 4.15 INVESTMENT COMPANY ACT. Neither Borrower nor any Subsidiary is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 4.16 PERFECTION OF SECURITY INTEREST. The Security Agreement and the pledge of the Collateral pursuant thereto creates a valid and perfected first priority security interest in the Collateral (except for Permitted Liens), securing the payment of the obligations, and all filings and other actions necessary or desirable to perfect and protect such security interest have been taken. -14- 20 4.17 SUBSIDIARIES AND OWNERSHIP OF STOCK. Set forth in EXHIBIT 4.17 is a complete and accurate list of the Subsidiaries of the Borrower, showing the jurisdiction of incorporation of each and showing the percentage of the Borrower's ownership of the outstanding stock of each Subsidiary. All of the outstanding capital stock of each such Subsidiary has been validly issued, is fully paid and nonassessable, and is owned by the Borrower free and clear of all Liens. ARTICLE 5 - AFFIRMATIVE COVENANTS The Borrower covenants and agrees that so long as any Obligation is outstanding it will comply with the following provisions: 5.1 MAINTENANCE OF EXISTENCE. Borrower shall preserve and maintain, and cause each Subsidiary to preserve and maintain, its existence and good standing in the jurisdiction of its organization, and qualify and remain qualified, as a foreign corporation in each jurisdiction in which such qualification is required. 5.2 MAINTENANCE OF RECORDS. Borrower shall keep, and cause each Subsidiary to keep, adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions of the Borrower. 5.3 MAINTENANCE OF PROPERTIES. Borrower shall maintain, keep, and preserve, and cause each Subsidiary to maintain, keep, and preserve, all of its properties (tangible and intangible) necessary or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted. 5.4 CONDUCT OF BUSINESS. Borrower shall continue, and cause each Subsidiary to continue, to engage in a commercially reasonable and efficient and economical manner in businesses of the same general type as conducted by it on the date of this Agreement. 5.5 MAINTENANCE OF INSURANCE. Borrower shall, at its expense, maintain, and cause each Subsidiary to maintain, insurance with financially sound and reputable insurance companies or associations in such amounts, covering such risks, and in such form as shall be consistent with the industry practices and satisfactory to Bank. Without limiting the foregoing sentence, Borrower shall procure and maintain all risks insurance, including without limitation fire, theft, and liability coverage together with such other insurance as Bank may require with respect to the Collateral, in form, amounts coverages and basis consistent with industry practices and reasonably acceptable to Bank and issued by a company or companies reasonably acceptable to Bank. Borrower, upon request of Bank, shall deliver to Bank from time to time the policies or certificates of insurance in form satisfactory to Bank, including stipulations that coverages will not be canceled or diminished without at least thirty (30) days' prior written notice to Bank and not including any disclaimer of the insurer's liability for failure to give such a notice. In connection with all policies covering the Collateral, Borrower shall provide Bank with such lender loss payable or other endorsements as Bank may require. If Borrower at any time fails to obtain or maintain any insurance required under the Loan Documents, Bank may, but shall not be obligated to, obtain such insurance as Bank deems appropriate, including if it so chooses, "single interest insurance" that will cover only Bank's interest in the Collateral. 5.6 COMPLIANCE WITH LAWS. Borrower shall comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, rules, regulations, and orders, such compliance to include, without limitation, paying before the same become delinquent all taxes, assessments, and governmental charges imposed upon it or upon its property, except for such taxes, assessments or charges that are contested by Borrower or a Subsidiary in good faith in the ordinary course of business and for which adequate reserves have been provided in Bank's reasonable judgment. -15- 21 5.7 RIGHT OF INSPECTION. Borrower shall, at any reasonable time and from time to time with reasonable notice, permit the Bank or any agent or representative thereof to inspect the Collateral, examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Borrower and any Subsidiary, and to discuss the affairs, finances, and accounts of the Borrower and any Subsidiary with any of its employees, officers, and directors and the Borrower's independent accountants. Without limiting the foregoing, at least once every year, and more often if Bank reasonably deems it necessary, Bank's auditors may audit and examine Borrower's books and records. Borrower shall reimburse Bank at the rate of Three Hundred Fifty Dollars ($350) per day for each auditor plus travel expenses, not to exceed Two Thousand Five Hundred Dollars ($2,500) per year as long as no Event of Default occurs. 5.8 REPORTING REQUIREMENTS. 5.8.1 ANNUAL FINANCIAL STATEMENTS. Borrower shall furnish to Bank within one hundred twenty (120) days after the end of each fiscal year of the Borrower, consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as of the end of such fiscal year, and consolidated and consolidating statements of income and retained earnings of the Borrower and its Subsidiaries for such fiscal year, and consolidated and consolidating statements of cash flows of the Borrower and its Subsidiaries for such fiscal year, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior fiscal year and all prepared in accordance with GAAP consistently applied and audited by independent certified public accountants selected by the Borrower and acceptable to the Bank. 5.8.2 BORROWING BASE CERTIFICATE. Borrower shall furnish to Bank on or before the 20th day of each month reporting as of the end of the last Business Day of the prior month statements of accounts receivable aging and a certificate setting forth information with respect to the Borrowing Base, executed and certified as accurate by an authorized officer of Borrower. The certificate shall be in substantially the form attached as EXHIBIT 5.8.2 or such other form as Borrower and Bank may agree upon in writing. 5.8.3 MANAGEMENT LETTERS. Borrower shall furnish to Bank promptly upon receipt thereof, copies of any reports submitted to the Borrower by independent certified public accountants in connection with examination of the financial statements of the Borrower made by such accountants. 5.8.4 NOTICE OF LITIGATION. Borrower shall furnish to Bank promptly after the commencement thereof, notice of all actions, suits, and proceedings before any court or governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, affecting the Borrower that, if determined adversely to the Borrower, could have a material adverse effect on the financial condition, properties, or operations of the Borrower. 5.8.5 NOTICE OF DEFAULTS AND EVENTS OF DEFAULT. Borrower shall furnish to Bank as soon as possible and in any event within five Business Days after the occurrence of each Event of Default, a written notice setting forth the details of such Event of Default and the action that is proposed to be taken by the Borrower with respect thereto. 5.8.6 ERISA REPORTS. Borrower shall furnish to Bank as soon as possible, and in any event within thirty (30) days after the Borrower knows or has reason to know that any circumstances exist that constitute grounds entitling the PBGC to institute proceedings to terminate a Plan subject to ERISA with respect to the Borrower or any Commonly Controlled Entity, and promptly but in any event within ten (10) Business Days of receipt by the Borrower or any Commonly Controlled Entity of notice that the PBGC intends to terminate a Plan or appoint a trustee to administer the same, and promptly but in any event within ten (10) Business Days of the receipt of notice concerning the imposition of withdrawal liability with respect to the Borrower or any Commonly Controlled Entity, a certificate of an authorized officer of the Borrower setting forth all relevant details and the action that the Borrower proposes to take with respect thereto. 5.8.7 REPORTS TO OTHER CREDITORS. Borrower shall furnish to Bank promptly after the furnishing thereof, copies of any statement or report furnished to any party pursuant to the terms of any indenture, loan, credit, or similar agreement and not otherwise required to be furnished to the Bank pursuant to any other clause of this Section. -16- 22 5.8.8 SEC REPORTS. Borrower shall furnish to Bank as soon as possible and in any event within five (5) Business Days after the filing thereof, copies of all regular, periodic, and special reports, and all registration statements that the Borrower or any Subsidiary files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange, including, without limitation, 10-Q, 10-K, and 8-K reports. 5.8.9 COMPLIANCE CERTIFICATE. Borrower shall furnish Bank within 45 days after the end of each fiscal quarter and 90 days after each fiscal year (in the case of the 4th fiscal quarter) a certificate of the chief executive officer or the chief financial officer or other officer approved by Bank in writing stating that he or she has individually reviewed the provisions of this Agreement and that review of the activities of Borrower during such quarter period has been made by him or her or under his or her supervision, with a view to determining whether Borrower had fulfilled all its obligations under this Agreement, and that Borrower has observed and performed each undertaking contained in the Loan Documents and is not in default in the observance or performance of any of the provisions of the Loan Documents or, if Borrower shall be so in default, specifying all such defaults and events of which he or she may have knowledge. 5.8.10 GENERAL INFORMATION. Borrower shall furnish to Bank such other information respecting the condition or operations, financial or otherwise, of the Borrower as the Bank may from time to time reasonably request. 5.9 ENVIRONMENT. Borrower shall, and shall cause each Subsidiary to, (i) be and remain in substantial compliance with Environmental Laws and with the provisions of all other federal, state, and local environmental, health, and safety laws, codes, and ordinances, and all rules and regulations issued thereunder; (ii) notify the Bank immediately of any notice of a Hazardous Substance discharge or environmental complaint received by Borrower from any governmental agency or other party; (iii) notify the Bank immediately of any material Hazardous Substance discharge from or affecting its premises; (iv) immediately comply with all applicable laws regarding the same; (v) promptly pay any fine or penalty assessed in connection therewith after exhausting all recourse; (vi) permit the Bank to inspect the premises, to conduct tests thereon, and to inspect all books, correspondence, and records pertaining thereto; and (vii) at the Bank's request, and at the Borrower's expense, provide a report of a qualified environmental engineer, satisfactory in scope, form, and content to the Bank, and such other and further assurances reasonably satisfactory to the Bank that the condition has been corrected. 5.10 REIMBURSEMENT OF LENDER EXPENSES. Borrower shall promptly on demand reimburse Bank for sums expended by Bank that constitute Lender Expenses, and Borrower authorizes and approves all advances and payments by Bank for items constituting Lender Expenses after written notice to Borrower. In addition, the Borrower shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing, and recording of any of the Loan Documents and the other documents to be delivered under any such Loan Documents, and agrees to hold the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. This provision shall survive termination of this Agreement. 5.11 BANK ACCOUNTS. Borrower shall use Bank as Borrower's primary depository and transaction bank. ARTICLE 6 - NEGATIVE COVENANTS The Borrower covenants and agrees that so long as any Obligation is outstanding it will comply with the following provisions: 6.1 LIENS. Without Bank's prior written consent, Borrower shall not create, incur, assume, or suffer to exist, or permit any Subsidiary to create, incur, assume, or suffer to exist, any Lien upon any of its property or assets, now owned or hereafter acquired, except for the following ("Permitted Liens"): (i) Liens (if any) granted to Bank to secure the Obligations, -17- 23 (ii) Liens described in the attached EXHIBIT 6.1, (iii) pledges or deposits made to secure payment of worker's compensation insurance (or to participate in any fund in connection with worker's compensation insurance), unemployment insurance, pensions, or social security programs, (iv) Liens imposed by mandatory provisions of law such as for materialmen, mechanics, warehousemen, and other like Liens arising in the ordinary course of business, securing indebtedness whose payment is not yet due, or that is being contested by Borrower in good faith and for which adequate reserves have been provided, (v) Liens for taxes, assessments, and governmental charges or levies imposed upon a person or upon such person's income or profits or property, if the same are not yet due and payable or if the same are being contested in good faith and as to which adequate cash reserves have been provided, (vi) Liens arising from good faith deposits in connection with tenders, leases, real estate bids, or contracts (other than contracts involving the borrowing of money), pledges or deposits to secure public or statutory obligations and deposits to secure (or in lieu of) surety, stay, appeal, or customs bonds and deposits to secure the payment of taxes, assessments, customs duties, or other similar charges, (vii) encumbrances consisting of zoning restrictions, easements, or other restrictions on the use of real property, provided that such items do not impair the use of such property for the purposes intended, and none of which is violated by existing or proposed structures or land use, or (viii) purchase-money Liens on any property hereafter acquired or the assumption of any Lien on property existing at the time of such acquisition (and not created in contemplation of such acquisition), or a Lien incurred in connection with any conditional sale or other title retention agreement or a capital lease, provided that (a) any property subject to any of the foregoing is acquired by the Borrower in the ordinary course of its business and the Lien on any such property attaches to such asset concurrently or within ninety (90) days after the acquisition thereof; (b) the obligation secured by any Lien so created, assumed, or existing shall not exceed the lesser of the cost or the fair market value as of the time of acquisition of the property covered thereby to the Borrower, (c) each such Lien shall attach only to the property so acquired, (d) the debt secured by all such Liens shall not exceed Twenty-five Thousand Dollars ($25,000) at any time outstanding in the aggregate, and (e) the debt secured by such Lien is permitted by the provisions of Section 6.2, and the related expenditure is permitted under Section 7.1. 6.2 DEBT. Without Bank's prior written consent, Borrower shall not incur, assume, or suffer to exist, or permit any Subsidiary to incur, assume, or suffer to exist, any debt other than (i) the Obligations; (ii) indebtedness and liabilities of Borrower identified in EXHIBIT 4.13; (iii) indebtedness and liabilities of Borrower that have been subordinated to the Obligations by written agreement in form and substance acceptable to Bank; (iv) accounts payable to trade creditors for goods or services that are incurred in the ordinary course of business, as presently conducted, and paid within a reasonable time, unless contested in good faith and by appropriate proceedings; and (vi) debt of the Borrower secured by purchase-money liens that are Permitted Liens. 6.3 MERGERS OR REORGANIZATION. Borrower shall not, without Bank's prior written consent, which consent shall not be unreasonably withheld, wind up, liquidate or dissolve itself, reorganize, merge or consolidate with or into, or convey, sell, assign, transfer, lease, or otherwise dispose of (whether in one transactions or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person, or acquire all or substantially all of the assets or the business of any Person, or permit any Subsidiary to do so, except that (1) any Subsidiary may merge into or transfer assets to the Borrower, (2) any Subsidiary may merge into or consolidate with or transfer assets to any other Subsidiary., (3) acquire or merge with any entity whose assets are valued at ten percent (10%) or less of the Borrower's net worth. 6.4 LEASES. Without Bank's prior written consent, Borrower shall not create, incur, assume, or suffer to exist, or permit any Subsidiary to create, incur, assume, or suffer to exist, any obligation as lessee for the rental or hire of any real or personal property, except: (1) leases existing on the date of this Agreement and any extensions or renewals thereof; (2) leases with Bank or an affiliate of Bank; and (3) leases (other than capital leases) that do not in the aggregate require the Borrower and its Subsidiaries on a consolidated basis to make payments (including taxes, insurance, maintenance, and similar expenses that the Borrower or any Subsidiary is required to pay under the terms of any lease) in any fiscal year of the Borrower in excess of One Hundred Thousand Dollars ($100,000). -18- 24 6.5 SALE AND LEASEBACK. Without Bank's prior written consent, Borrower shall not sell, transfer, or otherwise dispose of, or permit any Subsidiary to sell, transfer, or otherwise dispose of, any real or personal property to any Person other than Bank or an affiliate of Bank and thereafter directly or indirectly lease back the same or similar property. 6.6 DIVIDENDS. Without Bank's prior written consent, Borrower shall not declare or pay any dividends; or purchase, redeem, retire, or otherwise acquire for value any of its capital stock now or hereafter outstanding; or make any distribution of assets to its shareholders as such whether in cash, assets, or in obligations of the Borrower; or allocate or otherwise set apart any sum for the payment of any dividend or distribution on, or for the purchase, redemption, or retirement of any shares of its capital stock; or make any other distribution by reduction of capital or otherwise in respect of any shares of its capital stock, except that the Borrower (1) may declare and deliver dividends and make distributions payable solely in common stock of the Borrower; and (2) may purchase or otherwise acquire shares of its capital stock by exchange for or out of the proceeds received from a substantially concurrent issue of new shares of its capital stock. 6.7 SALE OF ASSETS. Without Bank's prior written consent, Borrower shall not sell, lease, assign, transfer, or otherwise dispose of any of its now owned or hereafter acquired material operating assets (including, without limitation, receivables), except: (1) inventory disposed of in the ordinary course of business; and (2) the sale or other disposition of assets no longer used or useful in the conduct of its business. 6.8 INVESTMENTS. Without Bank's Prior written consent, Borrower shall not make any loan or advance to any Person, or purchase or otherwise acquire any capital stock, assets, obligations, or other securities of, make any capital contribution to, or otherwise invest in or acquire any interest in any Person, or participate as a partner or joint venturer with any other Person, except: (1) direct obligations of the United States or any agency thereof with maturities of one year or less from the date of acquisition; (2) commercial paper of a domestic issuer rated at least "A-1" by Standard & Poor's Corporation or "P-1" by Moody's Investors Service, Inc.; (3) certificates of deposit with maturities of one year or less from the date of acquisition; (4) stock, obligations, or securities received in settlement of debts (created in the ordinary course of business) owing to the Borrower; (5) investments made through Bank or one of its affiliates, and (6) as provided for in Section 6.3. 6.9 GUARANTIES. Without Bank's prior written consent, Borrower shall not assume, guarantee, endorse, or otherwise be or become directly or contingently responsible or liable (including, but not limited to, an agreement to purchase any obligation, stock, assets, goods, or services, or to supply or advance any funds, assets, goods, or services, or an agreement to maintain or cause such Person to maintain a minimum working capital or net worth, or to otherwise assure the creditors of any Person against loss) for obligations of any Person, except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business. 6.10 ERISA PLANS. Borrower shall not, without the Bank's prior written consent, enter into, contribute to, or become a party to any Plan, other than those Plans listed in EXHIBIT 6.10. 6.11 TRANSACTIONS WITH AFFILIATES. Without Bank's prior written consent, Borrower shall not enter into any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate except in the ordinary course of and pursuant to the reasonable requirements of the Borrower's business and upon fair and reasonable terms no less favorable to the Borrower than would obtain in a comparable arm's-length transaction with a Person not an Affiliate; except that Borrower may repay Affiliate Debt, as listed on Exhibit 4.13 at anytime. 6.12 CHANGE OF NAME. Borrower shall not, without Bank's prior written consent, change the Borrower's name, business structure, or identity, or add any new assumed business name. -19- 25 6.13 CHANGE IN MANAGEMENT. Borrower shall not materially and adversely alter the executive management positions of Chief Executive Officer and/or Chief Financial Officer without giving Bank written notice of such alteration at least sixty (60) days prior to the effective date of such alteration in executive management. If such advance notice is not possible, Borrower shall notify Bank of such change as soon as is possible. 6.14 ACCOUNTING. Borrower shall not (i) modify or change its method of accounting without advising Bank of such change, or (ii) enter into, modify, or terminate any agreement presently existing or at any time hereafter entered into with any third party accounting firm and/or service bureau for the preparation and/or storage of Borrower's accounting records without Borrower instructing said accounting firm and/or service bureau to provide to Bank information regarding the Collateral and Borrower's financial condition. 6.15 LOCATION OF CHIEF EXECUTIVE OFFICE. Borrower shall not relocate its chief executive office from Boise, Idaho without thirty (30) days prior written notice to Bank. ARTICLE 7 - FINANCIAL COVENANTS So long as any Obligation is outstanding or the Bank shall have any commitment under this Agreement, Borrower shall maintain the following financial covenants: 7.1 DEBT SERVICE COVERAGE RATIO. Borrower shall maintain on a rolling four quarter basis a ratio of EBITDA to Debt Service of not less than 1.50 to 1.00. The term "EBITDA" shall mean, for any period, as applied to Borrower, the sum of Borrower's earnings before (a) interest expense, (b) depreciation or amortization, (c) dividends, (d) taxes, and (e) extraordinary expenses. The term "Debt Service" shall mean for any fiscal period cash interest expense plus the scheduled amortization of any outstanding Funded Debt (as defined in paragraph 2.1.2.5) for such period plus required payments on operating leases. 7.2 LEVERAGE RATIO. Borrower shall maintain at the end of each fiscal quarter and each fiscal year a ratio of Borrower's total liabilities to Borrower's shareholder's equity of not greater than 2.00 to 1.00. 7.3 CURRENT RATIO. Borrower shall maintain at the end of each fiscal quarter and each fiscal year a ratio of current assets to current liabilities less current maturities of Deferred Site Maintenance of at least 0.75 to 1.00 through December 31, 2000, 1.00 to 1.00 through June 30, 2001, and 1.20 to 1.00 thereafter. The term "Deferred Site Maintenance" shall be defined as "DSM" as reported by the Borrower in accordance with GAAP in its periodic reports to the Securities and Exchange Commission. ARTICLE 8 - EVENTS OF DEFAULT 8.1 EVENTS OF DEFAULT. Each of the following events, at the option of Bank, shall constitute an event of default (each an "Event of Default"): 8.1.1 The Borrower shall fail to pay the principal of, or interest on, the Revolving Note, or any Obligation within fifteen (15) days of when due and payable. 8.1.2 Any representation or warranty made or deemed made by Borrower in this Agreement, the Security Agreements, or other Loan Document or that is contained in any certificate, document, opinion, or financial or other statement furnished at any time under or in connection with any Loan Document shall prove to have been incorrect, incomplete, or misleading in any material respect on or as of the date made or deemed made. 8.1.3 Borrower shall fail to perform or observe any term, covenant, or condition contained in this Agreement or other Loan Document, or Borrower shall be in default under any other agreement with Bank or an affiliate of Bank. 8.1.4 Borrower shall (a) fail to pay any indebtedness for borrowed money (other than the Loans) of the Borrower in excess of an aggregate principal amount of $25,000, or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise); or (b) fail to perform or observe any term, covenant, or condition on its part to be performed or observed under any agreement or -20- 26 instrument relating to any such indebtedness, when required to be performed or observed, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of after the giving of notice or passage of time, or both, the maturity of such indebtedness, whether or not such failure to perform or observe shall be waived by the holder of such indebtedness, or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof. 8.1.5 Borrower (a) shall generally not pay, or shall be unable to pay, or shall admit in writing its inability to pay its debts as such debts become due; or (b) shall make an assignment for the benefit of creditors, or petition or apply to any tribunal for the appointment of a custodian, receiver, or trustee for it or a substantial part of its assets; or (c) shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (d) shall have had any such petition or application filed or any such proceeding commenced against it in which an order for relief is entered or an adjudication or appointment is made, and that remains undismissed for a period of sixty (60) days or more; or (e) shall take any corporate action indicating its consent to, approval of, or acquiescence in any such petition, application, proceeding, or order for relief or the appointment of a custodian, receiver, or trustee for all or any substantial part of its properties; or (f) shall suffer any such custodianship, receivership, or trusteeship to continue undischarged for a period of sixty (60) days or more. 8.1.6 One or more judgments, decrees, or orders for the payment of money in excess of One Hundred Twenty-five Thousand Dollars ($125,000) in the aggregate shall be rendered against the Borrower, and such judgments, decrees, or orders shall continue unsatisfied and in effect for a period of sixty (60) consecutive days without being vacated, discharged, satisfied, or stayed or bonded pending appeal. 8.1.7 The Security Agreement shall at any time after its execution and delivery and for any reason cease (a) to create a valid and perfected first priority security interest in and to the property purported to be subject to such Security Agreement; or (b) to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by the Borrower, or the Borrower shall deny it has any further liability or obligation under the Security Agreement, or the Borrower shall fail to perform any of its obligations under the Security Agreement. 8.1.8 Any Guaranty shall at any time after its execution and delivery and for any reason cease to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by the Guarantor, or the Guarantor shall deny he has any further liability under, or shall fail to perform its obligations under, the Guaranty, or the Guarantor, if a natural person, shall die. 8.1.9 Any of the following events shall occur or exist with respect to Borrower and any Commonly Controlled Entity under ERISA: any Reportable Event shall occur; complete or partial withdrawal from any Multiemployer Plan shall take place; any Prohibited transaction shall occur; a notice of intent to terminate a Plan shall be filed, or a Plan shall be terminated; or circumstances shall exist that constitute grounds entitling the PBGC to institute proceedings to terminate a Plan, or the PBGC shall institute such proceedings; and in each case above, such event or condition, together with all other events or conditions, if any, could subject the Borrower to any tax, penalty, or other liability that in the aggregate may exceed Fifty Thousand Dollars ($50,000). 8.1.10 If any federal, state, or local agency asserts or creates a Lien upon any or all of the assets, equipment, property, leaseholds, or other facilities of Borrower by reason of the occurrence of a hazardous discharge or an environmental complaint; or if any federal, state, or local agency asserts a claim against the Borrower and/or its assets, equipment, property, leaseholds or other facilities for damages or cleanup costs relating to a hazardous discharge or an environmental complaint; provided, however, that such claim shall not constitute a default if, within ten (10) Business Days of the occurrence giving rise to the claim, (a) the Borrower can prove to the Bank's reasonable satisfaction that the Borrower has commenced and is diligently pursuing an investigation of the claim to be followed promptly by either: (i) a cure or plan for correction of the event that constitutes the basis for the claim, and continues diligently to pursue such cure or correction to completion, or (ii) proceedings for an injunction, a restraining order, or other appropriate emergent relief preventing such agency or agencies from asserting such claim, that relief is granted within ten (10) Business Days of the occurrence giving rise to the claim and the injunction, order, or relief is not thereafter resolved or reversed on appeal; and (b) in either of the foregoing events, the Borrower has posted a bond, letter of credit, or other security satisfactory in form, substance and amount to both the Bank and the agency or entity asserting the claim to secure the proper and complete cure or correction of the event that constitutes the basis for the claim. 8.1.11 Any material misrepresentation exists now or hereafter in any warranty or representation made to Bank by any officer or director of Borrower, or if any such warranty or representation is withdrawn by any officer or director. 8.1.12 This Agreement shall at any time after its execution and delivery and for any reason cease to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by Borrower, or Borrower shall deny it has any further liability or obligation under this Agreement. -21- 27 8.2 CURE OF EVENT OF DEFAULT. If any Event of Default, other than a payment default, is curable and if Borrower has not been given a notice of a similar default within the preceding twelve (12) months, it may be cured (and no Event of Default will have occurred) if Borrower, after receiving written notice from Bank demanding cure of such default: (a) cures the default within fifteen (15) days; or (b) if the cure requires more than fifteen (15) days, immediately initiates steps that Bank deems in Bank's sole, but reasonable, discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. Bank at its sole discretion may elect to give Borrower additional cure opportunities. ARTICLE 9 - BANK'S RIGHTS AND REMEDIES 9.1 SPECIFIC REMEDIES. Upon the occurrence of an Event of Default by Borrower under this Agreement, Bank may, at its election and without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower: 9.1.1 Declare all Obligations, whether evidenced by this Agreement or the Loan Documents, due and payable immediately. 9.1.2 Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of Bank, but without affecting Bank's rights and security interest in the Collateral and without affecting the Obligations. 9.2 SET OFF. Upon the occurrence and during the continuance of any Event of Default the Bank is hereby authorized at any time and from time to time, without notice to the Borrower (any such notice being expressly waived by the Borrower), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement or the Revolving Note or any other Loan Document, irrespective of whether or not the Bank shall have made any demand under this Agreement or the Revolving Note or such other Loan Document and although such obligations may be unmatured. The Bank agrees promptly to notify the Borrower after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Bank under this Section are in addition to other rights and remedies (including, without limitation, other rights of setoff) that the Bank may have. 9.3 CUMULATIVE REMEDIES. The rights and remedies provided herein are cumulative, and are not exclusive of any other rights, powers, privileges, or remedies, now or hereafter existing, at law or in equity or otherwise. ARTICLE 10 - MISCELLANEOUS 10.1 AMENDMENTS, ETC. No amendment, modification, termination, or waiver of any provision of any Loan Document to which the Borrower is a party, nor consent to any departure by the Borrower from any Loan Document to which it is a party, shall in any event be effective unless the same shall be in writing and signed by the Bank and Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 10.2 NOTICES, ETC. Unless otherwise provided in this Agreement, All notices and other communications provided for under this Agreement and under the other Loan Documents to which the Borrower is a party shall be in writing and either personally served or sent by verified facsimile transmission, overnight delivery service, or regular United States mail, postage prepaid, to Borrower or to Bank as the case may be at the addresses set forth below: -22- 28 If to Borrower: American Ecology Corporation 805 W. Idaho Suite 200 Boise, Idaho 83702-8916 Attention: Jim Baumgardner Fax: 208/331-7900 With a copy to: American Ecology Corporation 1 Rosedale Brook Court The Woodlands, TX 77381 Attention: Robert M. Trimble Fax: 281/419-8711 Paul M. Boyd, Esq. Stoel Rives 101 South Capitol Blvd., Suite 1900 Boise, Idaho 83702-5958 Fax: 208/389-9040 If to Bank: First Security Bank, N.A. Post Office Box 7069 Boise, Idaho 83730 Attention: Corporate Banking Fax: 208/393-2472 With a copy to: Moffatt, Thomas, Barrett, Rock & Fields, Chartered 101 S. Capitol Blvd., 10th Floor P.O. Box 829 Boise, Idaho 83701-0829 Attention: David S. Jensen Fax: 208/385-5384 The parties may change the address at which they are to receive notices and other communications hereunder by notice in writing in the foregoing manner given to the other. All notices or demands sent in accordance with this Section shall be deemed received on the earlier of the date of confirmed actual receipt or three (3) Business Days after the deposit thereof in the mail. 10.3 NO WAIVER. No failure or delay on the part of the Bank in exercising any right, power, or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder. 10.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights under any Loan Document to which the Borrower is a party without the prior written consent of the Bank. 10.5 INTEGRATION. This Agreement and the Loan Documents contain the entire agreement between the parties relating to the subject matter hereof and supersede all oral statements and prior writings with respect thereto. 10.6 APPLICATION OF PAYMENTS. Borrower waives the right to direct the application of any and all payments at any time or times hereafter received by Bank on account of the Obligations, and Borrower agrees that Bank shall have the continuing exclusive right to apply and reapply such payments in any manner as Bank may deem advisable, notwithstanding any entry by Bank upon its books. 10.7 CONTINUING WARRANTIES, REPRESENTATIONS AND COVENANTS. Each warranty, representation, and covenant contained in this Agreement shall continue until the Agreement is terminated and all Obligations have been paid or satisfied in full and shall be conclusively presumed to have been relied upon by Bank regardless of any investigation made or information possessed by Bank. The -23- 29 warranties, representations, and covenants set forth herein shall be cumulative and in addition to any and all other warranties, representations, and covenants that Borrower shall give or cause to be given to Bank, either now or hereafter. 10.8 INDEMNITY. The Borrower shall defend, indemnify, and hold the Bank harmless from and against any and all claims, damages, judgments, penalties, costs, and expenses (including attorney fees and court costs now or hereafter arising from the aforesaid enforcement of this clause) arising directly or indirectly from the activities of the Borrower and its Subsidiaries, its predecessors in interest, or third parties with whom it has a contractual relationship, or arising directly or indirectly from the violation of any environmental protection, health, or safety law, whether such claims are asserted by any governmental agency or any other person. This indemnity shall survive termination of this Agreement for a period of five years. 10.9 CHOICE OF LAW AND VENUE. This Agreement is made in the state of Idaho, which state the parties agree has a substantial relationship to the parties and to the underlying transaction embodied hereby. Accordingly, in all respects, this Agreement and the Loan Documents and the obligations arising hereunder and thereunder shall be governed by, and construed in accordance with, the laws of the state of Idaho applicable to contracts made and performed in such state and any applicable law of the United States of America. Each party hereby unconditionally and irrevocably waives, to the fullest extent permitted by law, any claim to assert that the law of any jurisdiction other than the state of Idaho governs this Agreement. All disputes, controversies, or claims arising out of, or in connection with, this Agreement or any Loan Document shall be litigated in any court of competent jurisdiction within the state of Idaho. Each party hereby accepts jurisdiction of such state and agrees to accept service of process as if it were personally served within such state. Each party irrevocably waives, to the fullest extent permitted by law, any objection that the party may now or hereafter have to the jurisdiction of the courts of such state and any claim that any such litigation brought in any such court has been brought in an inconvenient forum. 10.10 SEVERABILITY OF PROVISIONS. Any provision of any Loan Document that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. 10.11 HEADINGS. Article and Section headings in the Loan Documents are included in such Loan Documents for the convenience of reference only and shall not constitute a part of the applicable Loan Documents for any other purpose. 10.12 JURY TRIAL WAIVER. THE BANK AND THE BORROWER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM, OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE LOAN DOCUMENTS. 10.13 DESTRUCTION OF BORROWER'S DOCUMENTS. After notice to Borrower, any documents, schedules, invoices, or other papers delivered to Bank may be destroyed or otherwise disposed of by Bank at any time six (6) months after they are delivered to or received by Bank, unless Borrower requests in writing the return of the said documents, schedules, invoices, or other papers and makes arrangements at Borrower's expense for their return. 10.14 PARTICIPATIONS. With Borrower's consent, which consent shall not be unreasonably withheld, Bank may, at any time, sell to one or more banks, financial institutions or other Persons (each a "Participant") participating interests in the Loans or any other interest of Bank under the Loan Documents. In the event of any such sale by Bank, Bank's obligations to Borrower under this Agreement shall remain unchanged, Bank shall remain solely responsible for the performance thereof, Bank shall remain the holder of the Loans for all purposes under the Loan Documents, and Borrower shall continue to deal solely and directly with Bank in connection with the Bank's rights and obligations under the Loan Documents. If Obligations are due or unpaid, or shall have been declared or shall have become due or unpaid, upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as Bank under this Agreement. -24- 30 10.14.1 With Borrower's consent, which consent shall not be unreasonably withheld, Borrower authorizes Bank to disclose to any actual or prospective Participant and/or assignee, any and all financial information in Bank's possession or known to Bank concerning Borrower, its affiliates, and the Collateral that has been delivered to Bank by or on behalf of Borrower pursuant to the Loan Documents or in connection with Bank's credit evaluation of Borrower. 10.14.2 Notwithstanding any contrary provision of this Section, Bank shall at all times be the lead lender (i.e., the sole party with whom Borrower needs to communicate) with respect to the Loans, and Borrower shall only be required to communicate with Bank. Each Participant that receives confidential information regarding Borrower or the Collateral must agree to use reasonable efforts to keep all information acquired by it in connection with the Loans or Loan Documents and relating to Borrower and/or the collateral confidential; provided, however, that such information may be distributed by any Participant (i) pursuant to a court order or a demand made by any governmental agency or authority, or otherwise in connection with litigation or as otherwise required by law, (ii) after the occurrence of an Event of Default, but only with respect to the Collateral, (iii) to such person's consultants or professionals, as necessary, (iv) in connection with a sale or participation of such person's interest in the Loans, and (v) to regulators in connection with audits. 10.15 EFFECTIVE DATE. This Agreement shall be binding and deemed effective as of the date first written above when executed by Borrower and accepted and executed by Bank. 10.16 COUNTERPARTS. This Agreement may be executed in any number of counterparts and delivered by facsimile transmission. Each counterpart when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Agreement. [Signature Page Follows] -25- 31 IN WITNESS WHEREOF, Borrower has executed this Agreement. Borrower: AMERICAN ECOLOGY CORPORATION By ------------------------------------ Its -------------------------------- ACCEPTED AND EFFECTIVE as of the _____ day of _________, 2000, in the state of Idaho. Bank: FIRST SECURITY BANK, N.A. By ------------------------------------ Brian W. Cook, Vice President -26- 32 REVOLVING NOTE AUGUST 17, 2000 Boise, Idaho BORROWER: AMERICAN ECOLOGY CORPORATION ADDRESS: 805 W. IDAHO, SUITE 200 BOISE, IDAHO 83702 PRINCIPAL AMOUNT: FIVE MILLION DOLLARS ($5,000,000) FOR VALUE RECEIVED, AMERICAN ECOLOGY CORPORATION, a Delaware corporation ("Borrower"), promises to pay to the order of FIRST SECURITY BANK, N.A. ("Bank") the total principal amount outstanding on this note (the "Note") together with interest thereon as stated below, in lawful money of the United States of America. This Note is executed pursuant to and is the Revolving Note referred to in that certain Credit Agreement, dated August 17, 2000, between Borrower and Bank (as amended, modified, or supplemented from time to time, the "Credit Agreement"). Capitalized terms used but not defined in this Note shall have the same definitions as are ascribed to such terms in the Credit Agreement. This Note is governed by the provisions of the Credit Agreement. This Note is a revolving promissory note and evidences a revolving line of credit not to exceed the maximum principal amount stated above at any one time. The amount outstanding on this Note at any specific time shall be the total amount advanced by Bank less the amount of principal payments made from time to time, plus any interest due and payable. Borrower agrees that any and all advances made hereunder shall be for Borrower's benefit, whether or not said advances are deposited to Borrower's account. Advances may be made at the request of those persons so identified in the Credit Agreement and such persons are hereby authorized to request advances and to direct the disposition of any such advances in the manner provided in the Credit Agreement until written notice of revocation of this authority is received by Bank from Borrower. The outstanding unpaid balance of this Note shall bear interest at a fluctuating per annum rate as set forth in the Credit Agreement. This Note shall be repaid in the manner set forth in the Credit Agreement. This Note is secured by a Security Agreement covering accounts and other collateral as provided therein and in the Credit Agreement. This Note is made in the state of Idaho, which state the parties agree has a substantial relationship to the parties and to the underlying transaction embodied hereby. Accordingly, in all respects, this Note and the obligations arising hereunder shall be governed by, and construed in accordance with, the laws of the state of Idaho applicable to contracts made and performed in such state and any applicable law of the United States of America. Each party hereby unconditionally and irrevocably waives, to the fullest extent permitted by law, any claim to assert that the law of any jurisdiction other than the state of Idaho governs this Note. All disputes, controversies, or claims arising out of, or in connection with, this Note shall be litigated in any court of competent jurisdiction within the state of Idaho. Each party hereby accepts jurisdiction of such state and agrees to accept service of process as if it were personally served within such state. Each party irrevocably waives, to the fullest extent permitted by law, any objection that the party may now or hereafter have to the jurisdiction of the courts of such state and any claim that any such litigation brought in any such court has been brought in an inconvenient forum. Except as expressly provided in the Credit Agreement, the makers, sureties, guarantors and endorsers of this Note jointly and severally waive presentment for payment, protest, notice of protest and notice of nonpayment of this Note, and consent that this Note or any payment due under this Note may be extended or renewed without demand or notice, and further consent to the release of any collateral or part thereof, with or without substitution. AMERICAN ECOLOGY CORPORATION By ------------------------------------ Its -------------------------------- -27- 33 SECURITY AGREEMENT This SECURITY AGREEMENT is made as of August 17, 2000, by AMERICAN ECOLOGY CORPORATION, a Delaware corporation (the "Grantor"), to FIRST SECURITY BANK, N.A., (the "Bank"). RECITALS: A. Grantor and the Bank have entered into a Credit Agreement dated as of August 17, 2000 (as amended from time to time, the "Credit Agreement"). B. It is a condition precedent to the making of financial accommodations to Grantor by the Bank under the Credit Agreement that Grantor shall have granted the security interest contemplated by this Agreement. NOW, THEREFORE, in order to induce the Bank to make the loans under the Credit Agreement, the Grantor agrees with the Bank as follows: 1. ASSIGNMENT AND GRANT OF SECURITY INTEREST. The Grantor hereby assigns and grants to the Bank a security interest in all of the Grantor's right, title and interest in and to the following, whether now owned or hereafter acquired (the "Collateral"): 1.1 All trade accounts, accounts receivable or other rights to payment for goods sold or leased or for services rendered, now or hereafter existing, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services, and all rights, now or hereafter existing, in and to all leases and other contracts securing or otherwise relating to the foregoing obligations. 1.2 All proceeds of any and all of the foregoing Collateral (including, without limitation, proceeds that constitute property of the types described in clause l.1 of this Section 1), and, to the extent not otherwise included, all (a) payments under insurance (whether or not the Bank is the loss payee thereof), or any indemnity, warranty, or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral, and (b) cash. 1.3 All records and data relating to any of the foregoing Collateral, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media together with all of Grantor's right, title, and interest in and to all computer software required to use, create, maintain, and process any such records or data on electronic media. 2. SECURITY FOR OBLIGATIONS. The assignment and security interest granted by this Agreement is granted to secure the payment of all obligations of the Grantor now or hereafter existing under the Credit Agreement whether for principal, interest, fees, expenses, or otherwise, and all obligations of the Grantor now or hereafter existing under this Agreement (all such -28- 34 obligations of the Grantor being the "Obligations"). In addition, the "Obligations" includes all other obligations, debts and liabilities, plus interest thereon, of Grantor, or any one or more of them, to Bank, as well as all claims by Bank against Grantor, or any one or more of them, whether existing now or later; whether they are voluntary or involuntary, due or not due, direct or indirect, absolute or contingent, liquidated or unliquidated; whether Grantor may be liable individually or jointly with others; whether Grantor may be obligated as guarantor, surety, accommodation party or otherwise. Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts that constitute part of the Obligations and would be owed by the Grantor to the Bank under the Credit Agreement but for the fact that they are unenforceable or not allowable owing to the existence of bankruptcy, reorganization, or similar proceedings involving the Grantor. 3. GRANTOR REMAINS LIABLE. Anything herein to the contrary notwithstanding, (1) the Grantor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed; (2) the exercise by the Bank of any rights hereunder shall not release the Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral; and (3) the Bank shall not have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall the Bank be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. 4. REPRESENTATIONS AND WARRANTIES. The Grantor represents and warrants to Bank as follows: 4.1 The chief place of business and chief executive office of the Grantor and the office where the Grantor keeps its records concerning the Receivables and other Collateral, and the originals of all chattel paper that evidence Receivables, are located at its address specified in Section 16. None of the Receivables is evidenced by a promissory note or other instrument. 4.2 The Grantor is the legal and beneficial owner of the Collateral free and clear of any lien except for the security interest created by this Agreement. No effective financing statement or other document similar in effect covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of the Bank. The Grantor has no assumed business names. 4.3 This Agreement creates a valid security interest in the Collateral, securing the payment of the Obligations, and all filings and other actions necessary or desirable to perfect and protect such security interest in a first priority position have been taken. 4.4 No consent of any other person or entity and no authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required (a) for the grant by the Grantor of the assignment and security interest granted hereby or for the execution and delivery of this Agreement and the performance by the Grantor of its obligations thereunder; (b) for the perfection or maintenance of the assignment and security -29- 35 interest created hereby (including the first priority nature of such assignment and security interest); or (c) for the exercise by the Bank of the voting or other rights provided for in this Agreement or the remedies in respect of the Collateral pursuant to this Agreement (except as may be required in connection with the disposition of any portion of the Security Collateral by laws affecting the offering and sale of securities generally). 4.5 All of the Accounts are and will be bona fide existing obligations created by the sale and actual delivery property, the rendition of services, or the furnishing of other good and sufficient consideration to Account Debtors in the regular course of business. 5. FURTHER ASSURANCES. 5.1 The Grantor shall from time to time, at the reasonable expense of the Grantor, promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Bank may reasonably request, in order to perfect and protect any assignment or security interest granted or purported to be granted hereby or to enable the Bank to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, the Grantor will: (a) mark conspicuously each chattel paper included in the Receivables, each Related Contract, and, at the request of the Bank, each of its records pertaining to the Collateral with a legend, in form and substance satisfactory to the Bank, indicating that such document, chattel paper, Related Contract, or Collateral is subject to the assignment, and security interest granted hereby; (b) if any Collateral shall be evidenced by a promissory note or other instrument or chattel paper, deliver and pledge to the Bank hereunder such note or instrument or chattel paper duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Bank; (c) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Bank may request, in order to perfect and preserve the pledge, assignment, and security interest granted or purported to be granted hereby; and (d) deliver to Bank any certificate of title now or hereafter existing on any of the Collateral and take all steps necessary for the title to recite the interest of Bank. 5.2 The Grantor authorizes the Bank to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of the Grantor where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. 5.3 The Grantor will furnish to the Bank from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Bank may reasonably request, all in reasonable detail. -30- 36 6. INSURANCE. 6.1 The Grantor shall, at its own expense, maintain insurance with respect to the Collateral in such amounts, against such risks, in such form and with such insurers, as shall be satisfactory to the Bank from time to time. Each policy for liability insurance shall provide for all losses to be paid on behalf of the Bank and the Grantor as their respective interests may appear and each policy for property damage insurance shall provide for all losses (except for losses of less than $50,000 per occurrence) to be paid directly to the Bank. Each such policy shall in addition (a) name the Grantor and the Bank as insured parties thereunder (without any representation or warranty by or obligation upon the Bank) as their interests may appear; (b) contain the agreement by the insurer that any loss thereunder shall be payable to the Bank notwithstanding any action, inaction, or breach of representation or warranty by the Grantor; (c) provide that there shall be no recourse against the Bank for payment of premiums or other amounts with respect thereto; and (d) provide that at least thirty days' prior written notice of cancellation or of lapse shall be given to the Bank by the insurer. The Grantor shall, if so requested by the Bank, deliver to the Bank original or duplicate policies of such insurance and, as often as the Bank may reasonably request, a report of a reputable insurance broker with respect to such insurance. Further, the Grantor shall, at the request of the Bank, duly execute and deliver instruments of assignment of such insurance policies to comply with the requirements of Section 5.1 and cause the insurers to acknowledge notice of such assignment. 6.2 Grantor shall promptly notify Bank of any loss or damage to the Collateral. Bank may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Bank as part of the Collateral. If Bank consents to repair or replacement of the damaged or destroyed Collateral, Bank shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Bank does not consent to repair or replacement of the Collateral, Bank shall retain a sufficient amount of the proceeds to pay all of the Obligations, and shall pay the balance to Grantor. Any proceeds that have not been disbursed within six (6) months after their receipt and that Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Obligations. 7. PLACE OF PERFECTION; RECORDS; COLLECTION OF RECEIVABLES. 7.1 The Grantor shall keep its chief place of business and chief executive office and the office where it keeps its records concerning the Receivables, and the originals of all chattel paper that evidence Receivables, at the location therefor specified in Section 4.1 or, upon 30 days' prior written notice to the Bank, at any other locations in a jurisdiction where all actions required by Section 5 shall have been taken with respect to the Receivables. The Grantor will hold and preserve such records and chattel paper and will permit representatives of the Bank at any time during normal business hours to inspect and make abstracts from such records and chattel paper. 7.2 Except as otherwise provided in this subsection, the Grantor shall continue to collect, at its own expense, all amounts due or to become due the Grantor under the Receivables. In connection with such collections, the Grantor may take (and, at the Bank's direction, shall take) such action as the Grantor or the Bank may deem necessary or advisable to enforce -31- 37 collection of the Receivables; provided, however, that the Bank shall have the right upon the occurrence and during the continuance of an Event of Default or an event that, with the giving of notice or the lapse of time, or both, would become an Event of Default and upon written notice to the Grantor of its intention to do so, to notify the account debtors or obligors under any Receivables of the assignment of such Receivables to the Bank and to direct such account debtors or obligors to make payment of all amounts due or to become due to the Grantor thereunder directly to the Bank and, upon such notification and at the expense of the Grantor, to enforce collection of any such Receivables, and to adjust, settle, or compromise the amount or payment thereof, in the same manner and to the same extent as the Grantor might have done. After receipt by the Grantor of the notice from the Bank referred to in the proviso to the preceding sentence, (a) all amounts and proceeds (including instruments) received by the Grantor in respect of the Receivables shall be received in trust for the benefit of the Bank hereunder, shall be segregated from other funds of the Grantor, and shall be forthwith paid over to the Bank in the same form as so received (with any necessary endorsement) to be held as cash collateral and either (i) released to the Grantor so long as no Event of Default shall have occurred and be continuing or (ii) if any Event of Default shall have occurred and be continuing, applied as provided by Section 13.2, and (b) the Grantor shall not adjust, settle, or compromise the amount or payment of any Receivable, release wholly or partly any account debtor or obligor thereof, or allow any credit or discount thereon. 8. TRANSFERS AND OTHER LIENS. The Grantor shall not (a) sell, assign (by operation of law or otherwise), or otherwise dispose of, or grant any option with respect to, any of the Collateral or (b) create or permit to exist any lien upon or with respect to any of the Collateral, except for the security interest under this Agreement. 9. BANK APPOINTED ATTORNEY-IN-FACT. The Grantor irrevocably appoints the Bank the Grantor's attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Bank's discretion, to take any action and to execute any instrument that the Bank may deem necessary or advisable to accomplish the purposes of this Agreement (subject to the rights of the Grantor under Section 8), including, without limitation: 9.1 To obtain and adjust insurance required to be paid to the Bank pursuant to the Section captioned "Insurance;" 9.2 To ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in connection with the Collateral; 9.3 To receive, endorse, and collect any drafts or other instruments, documents, and chattel paper, in connection therewith; and 9.4 To file any claims or take any action or institute any proceedings that the Bank may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Bank with respect to any of the Collateral. -32- 38 10. BANK MAY PERFORM. If the Grantor fails to perform any agreement contained herein, the Bank may itself perform, or cause performance of, such agreement, and the expenses of the Bank incurred in connection therewith shall be payable by the Grantor under Subsection 14.2. 11. THE BANK'S DUTIES. The powers conferred on the Bank hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Bank shall have no duty as to any Collateral, or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. The Bank shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if such Collateral is accorded treatment substantially equal to that which it accords its own property. 12. REMEDIES. If any Event of Default shall have occurred and be continuing: 12.1 The Bank may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code in effect in the State of Idaho at that time (whether or not such code applies to the affected Collateral), and also may (a) require the Grantor to, and the Grantor agrees that it will at its expense and upon request of the Bank forthwith, assemble all or part of the Collateral as directed by the Bank and make it available to the Bank at a place to be designated by the Bank that is reasonably convenient to both parties and (b) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Bank's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Bank may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Bank shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Bank may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. 12.2 Any cash held by the Bank as Collateral and all cash proceeds received by the Bank in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Bank, be held by the Bank as Collateral for, and/or then or any time thereafter be applied (after payment of any amounts payable to the Bank pursuant to Section 14) in whole or in part by the Bank against, all or any part of the Obligations in such order as the Bank shall elect. Any surplus of such cash or cash proceeds held by the Bank and remaining after payment in full of all the Obligations shall be paid over to the Grantor or to whomsoever may be lawfully entitled to receive such surplus. -33- 39 13. INDEMNITY AND EXPENSES. 13.1 The Grantor shall indemnify the Bank from and against any and all claims, losses, and liabilities (including reasonable attorney fees) growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses, or liabilities resulting from the Bank's gross negligence or willful misconduct. 13.2 The Grantor shall upon demand pay to the Bank the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that the Bank may incur in connection with (a) the administration of this Agreement; (b) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral; (c) the exercise or enforcement of any of the rights of the Bank hereunder; or (d) the failure by the Grantor to perform or observe any of the provisions hereof. 14. AMENDMENTS. No amendment, modification, termination, or waiver of any provision of this Agreement, and no consent to any departure by the Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 15. NOTICES. Unless otherwise provided in this Agreement, all notices or demands by either party relating to this Agreement shall be in writing and either personally served or sent by facsimile transmission, overnight delivery service, or regular United States mail, postage prepaid, to Grantor or to Bank as the case may be at the addresses set forth below: If to Grantor: US Ecology Corporation 805 W. Idaho, Suite 200 Boise, Idaho 83702 Attention: James R. Baumgardner Fax: 208-331-7900 With a Copy to: Stoel Rives 101 S. Capitol Blvd., Suite 1900 Boise, Idaho 83702-5958 Attention: Paul M. Boyd Fax: 208-389-9040 And to: US Ecology Corporation 1 Rosedale Brook Court The Woodlands, TX 77381 Fax: 281-419-8711 -34- 40 If to Bank: First Security Bank P.O. Box 7069 Boise, Idaho 83709 Attention: Corporate Banking Fax: 208-393-2472 With a copy to: Moffatt, Thomas, Barrett, Rock & Fields, Chartered 101 S. Capitol Blvd., 10th Floor (83702) P.O. Box 829 Boise, Idaho 83701-0829 Attention: David S. Jensen Fax: 208-385-5384 The parties may change the address at which they are to receive notices hereunder by notice in writing in the foregoing manner given to the other. All notices or demands sent in accordance with this Section shall be deemed received on the earlier of the date of confirmed actual receipt or two (2) business days after the deposit thereof in the mail. 16. CONTINUING SECURITY INTEREST; ASSIGNMENTS UNDER CREDIT AGREEMENT. This Agreement shall create a continuing security interest in the Collateral and shall (1) remain in full force and effect until the later of the payment in full of the Obligations and all other amounts payable under this Agreement; (2) be binding upon the Grantor, its successors and assigns; and (3) inure to the benefit of, and be enforceable by, the Bank and its successors, transferees, and assigns. Without limiting the generality of the foregoing clause (3), the Bank may assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to the Bank herein or otherwise. Upon the later of the payment in full of the Obligations and all other amounts payable under this Agreement, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to the Grantor. Upon any such termination, the Bank will, at the Grantor's expense, execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. 17. GOVERNING LAW. This Agreement is made in the state of Idaho, which state the parties agree has a substantial relationship to the parties and to the underlying transaction embodied hereby. Accordingly, in all respects, including, without limiting the generality of the foregoing, matters of construction, validity, enforceability and performance, this Agreement and the obligations arising hereunder and thereunder shall be governed by, and construed in accordance with, the laws of the state of Idaho applicable to contracts made and performed in such state and any applicable law of the United States of America. Each party hereby unconditionally and irrevocably waives, to the fullest extent permitted by law, any claim to assert that the law of any jurisdiction other than the state of Idaho governs this Agreement. All disputes, controversies, or claims arising out of, or in connection with, this Agreement shall be litigated in any court of competent jurisdiction within the state of Idaho. Each party hereby accepts jurisdiction of such state and agrees to accept service of process as if it were personally served within such state. Each party irrevocably waives, to the fullest extent permitted by law, any objection that the party may now or hereafter have to the jurisdiction of the courts of such -35- 41 state and any claim that any such litigation brought in any such court has been brought in an inconvenient forum. 18. DEFINITIONS. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings provided therefor in the Credit Agreement. 19. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed an original and all of which taken together shall be deemed to be one and the same Agreement. IN WITNESS WHEREOF, the Grantor has caused this Agreement to be executed as of the date first written above. AMERICAN ECOLOGY CORPORATION By ------------------------------------ Its -------------------------------- -36- EX-27 4 h81676ex27.txt FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-2000 SEP-30-2000 2,225 0 10,679 927 0 14,860 42,114 23,666 64,459 17,445 0 0 1 137 (30,116) 64,459 31,600 31,600 17,327 11,672 757 0 249 1,437 69 0 0 0 0 3,245 0.22 0.18
-----END PRIVACY-ENHANCED MESSAGE-----