-----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, HsUmVe7+5xH+p3idePf+7UQWvk9vBgcAUtutPF3fKn4szOaBsdAxvmj9+6VZ10e/ JNTOo9svwelQNGnTGI1xMw== 0001015402-03-000473.txt : 20030218 0001015402-03-000473.hdr.sgml : 20030217 20030218154952 ACCESSION NUMBER: 0001015402-03-000473 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ECOLOGY CORP CENTRAL INDEX KEY: 0000742126 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 953889638 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11688 FILM NUMBER: 03571119 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-K 1 doc1.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED DECEMBER 31, 2002 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 NO.) 300 E. MALLARD, SUITE 300, BOISE, IDAHO 83706 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (208) 331-8400 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $.01 par value per share (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] At February 10, 2003, Registrant had outstanding 14,546,764 shares of its Common Stock and the aggregate market value of the Registrant's voting stock held by non-affiliates was approximately $25,448,000 based on the closing price of $3.00 per share. The aggregate market value of the Registrant's voting stock held by non-affiliates on June 28, 2002 was approximately $48,748,000 based on the closing price of $4.55 per share as reported on the NASDAQ Stock Market, Inc.'s National Market System. For purposes of the foregoing calculation, all directors and executive officers of the Registrant have been deemed to be affiliates, but the Registrant disclaims that any of such directors or executive officers is an affiliate. Documents Incorporated by Reference Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held May 29, 2003. Part III
TABLE OF CONTENTS Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART I Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . PART II Item 5. Market for Registrants Common Equity and Related Stockholders Matters . . . . . . . . . . . . . . . . . . . . . . . Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . Management's Discussion and Analysis of Financial Condition and Results. . . . . . . . . . . . . . . . . . Item 7. of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . Changes in and Disagreements with Accountants on Accounting and. . Item 9. Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . PART III Items 10, 11, 12 and 13 are incorporated by reference from the definitive proxy statement . . . . . . . . . . . . . . . . . . . . Item 14. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . PART IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
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DEFINITIIONS TERM MEANING ---- ------- AEC or the Company. . . . . . American Ecology Corporation and its subsidiaries CERCLA or "Superfund" . . . . Comprehensive Environmental Response, Compensation and Liability Act of 1980 FUSRAP. . . . . . . . . . . . U.S. Army Corps of Engineers Formerly Utilized Site Remedial Action Program LLRW. . . . . . . . . . . . . Low-level radioactive waste processing. NORM/NARM . . . . . . . . . . Naturally occuring and accelerator produced radioactive material NRC . . . . . . . . . . . . . U.S. Nuclear Regulatory Commission PCBs. . . . . . . . . . . . . Polychlorinated biphenyls RCRA. . . . . . . . . . . . . Resource Conservation and Recovery Act of 1976 SEC . . . . . . . . . . . . . Securities and Exchange Commission TCEQ. . . . . . . . . . . . . Texas Commission on Environmental Quality TSCA. . . . . . . . . . . . . Toxic Substance Control Act of 1976 USACE . . . . . . . . . . . . U.S. Army Corps of Engineers US EPA. . . . . . . . . . . . U.S. Environmental Protection Agency WUTC. . . . . . . . . . . . . Washington Utilities and Transportation Commission
3 PART I ITEM 1. BUSINESS The Company provides radioactive, hazardous and industrial waste management services to commercial and government entities, such as nuclear power plants, medical and academic institutions, steel mills and petro-chemical facilities. Headquartered in Boise, Idaho, the Company is one of the nation's oldest providers of radioactive and hazardous waste services. AEC and its predecessor companies have been in business for more than 50 years. AEC operates nationally and currently employs 199 people. The Company's official website can be found at www.americanecology.com. Company filings with the SEC are posted on the website subsequent to the official filing. AEC was most recently incorporated as a Delaware corporation in May 1987. The Company's wholly owned subsidiaries are US Ecology, Inc., a California corporation ("US Ecology"); Texas Ecologists, Inc., a Texas corporation wholly owned by US Ecology ("Texas Ecologists"); American Ecology Recycle Center, Inc., a Delaware corporation ("AERC"); American Ecology Environmental Services Corporation, a Texas corporation ("AEESC"); and US Ecology Idaho, Inc., a Delaware corporation ("USEI") wholly owned by AEESC. The Company operates within two business segments: Operating Disposal Facilities and Non-Operating Disposal Facilities. These segments reflect AEC's internal reporting structure and the nature of services offered by each. The Operating Disposal Facilities are currently accepting hazardous and low-level radioactive waste and include the Company's hazardous waste treatment and disposal facilities in Beatty, Nevada; Grand View, Idaho; and Robstown, Texas; and its LLRW and NORM/NARM disposal facility in Richland, Washington. The Non-Operating Disposal Facilities segment includes non-operating disposal facilities in Sheffield, Illinois; Beatty, Nevada; and Bruneau, Idaho; a closed hazardous waste processing and deep-well injection facility in Winona, Texas; and two proposed new disposal facilities. Income taxes are assigned to Corporate, but all other items are included in the segment where they originated. Inter-company transactions have been eliminated from the segment information and are not significant between segments. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation for information concerning the revenues, income (loss) from operations and total assets attributable to the Company's operating segments. On December 27, 2002, the Company announced its LLRW Processing and Field Services business was eliminated as an operating segment, at which time employees were notified that processing operations had been discontinued. The Company is marketing the Oak Ridge, Tennessee LLRW processing facility for sale to qualified buyers. The Processing and Field Services operations have been reported as discontinued operations. See DISCONTINUED OPERATIONS and Item 8. Financial Statements and Supplemental Data, Note 19 for information concerning discontinued operations. In mid-2002 the Company entered into discussions regarding the potential sale of the Company's El Centro solid waste landfill located in Robstown, Texas. On February 13, 2003, the Company announced the sale of the El Centro municipal and industrial waste landfill to a wholly-owned subsidiary of Allied Waste Industries, Inc. ("Allied") for $10 million cash at closing and future volume-based royalty payments. The El Centro landfill is located adjacent to Company subsidiary Texas Ecologists' hazardous and industrial waste treatment and disposal facility. Under the Agreement, Allied will pay American Ecology minimum royalties of at least $215,000 annually. Once Allied has paid the Company $14,000,000 it no longer has an obligation to pay annual minimum royalties but will still be required to pay royalties based on waste volumes received at El Centro. The Purchase Agreement also provides incentives for Allied to bring certain industrial waste to the Texas Ecologists hazardous waste facility, and for the Company to utilize the El Centro landfill. Opened in July 2000, the El Centro solid waste landfill was carried on the Company's books at approximately $7 million prior to sale. When combined with reductions in liabilities and the recognition of certain future minimum royalties, the sale should result in a gain of approximately $5 million, which will be recognized during the first quarter of 2003. The following table summarizes each segment: 4
SUBSIDIARY LOCATION SERVICES - ---------- -------- -------- OPERATING DISPOSAL FACILITIES ----------------------------- USEI Grand View, Idaho Hazardous, PCB and NRC-exempt radioactive and mixed waste treatment and disposal, rail transfer station Texas Ecologists Robstown, Texas Hazardous, non-hazardous industrial and NRC-exempt radioactive and mixed waste treatment and disposal US Ecology Beatty, Nevada Hazardous, Thermal, and PCB waste treatment and disposal US Ecology Richland, Washington Low-Level Radioactive and NORM/NARM waste disposal NON-OPERATING DISPOSAL FACILITIES --------------------------------- US Ecology Beatty, Nevada Closed LLRW disposal facility: State of Nevada is licensee US Ecology Sheffield, Illinois Closed LLRW disposal facility: State of Illinois is licensee US Ecology Sheffield, Illinois Non-operating hazardous waste disposal facility: US Ecology is permittee AEESC Winona, Texas Non-operating hazardous waste treatment and deep well facility: AEESC is permittee USEI Bruneau, Idaho Closed hazardous waste disposal facility: US Ecology Idaho is permittee US Ecology Ward Valley, California Proposed LLRW disposal facility: in litigation US Ecology Butte, Nebraska Proposed LLRW disposal facility: in litigation DISCONTINUED OPERATIONS ----------------------- AERC Oak Ridge, Tennessee Idle low-level radioactive waste volume reduction and processing and related Field Services Texas Ecologists Robstown, Texas Municipal and industrial solid waste sold February 13, 2003
OPERATING DISPOSAL FACILITIES A significant portion of the Company's revenue from operating disposal facilities is attributable to discrete, one-time clean-up projects ("Event Business"). The project-specific nature of the Event Business necessarily creates variability in revenue and earnings. This can produce large quarter to quarter swings, depending on the relative contribution from single Event Business projects. Management's strategy is to expand its recurring business ("Base Business"), while opportunistically and simultaneously securing both large and small Event Business opportunities. Management believes that by controlling and structuring its operating costs so that the Company's Base Business covers fixed costs, an increased amount of the Event Business revenue will fall through to the bottom line. This strategy takes advantage of the inherently high fixed cost nature of waste disposal operations. Grand View, Idaho Facility. Located on 1,760 acres of Company-owned land about 60 miles southeast of Boise, Idaho in the Owyhee Desert, this operation was acquired in February 2001. During 2001, the new subsidiary's name was changed from Envirosafe Services of Idaho to US Ecology Idaho. The acquired assets included a rail transfer station located approximately 30 miles northeast of the disposal site. As part of the acquisition, the Company also obtained rights to a patented, U.S. Environmental Protection Agency ("US EPA") approved technology to stabilize and delist certain steel mill hazardous wastes, allowing more economical disposal as non-hazardous waste. The facility is also permitted to accept certain naturally occurring and accelerator produced radioactive material, source material, and certain mixed wastes from commercial and government customers, including materials received under a contract with the U.S. Army Corps of Engineers. The facility is regulated under a joint permit issued by the Idaho 5 Department of Environmental Quality and the US EPA, and State law and regulations governing NRC-exempt radioactive materials. Robstown, Texas Facility. Texas Ecologists operates on 240 acres of land near Robstown, Texas about 10 miles west of Corpus Christi. The facility, opened to accept waste in 1973, is regulated under a permit issued by the Texas Commission on Environmental Quality ("TCEQ") and has been in operation for 30 years. The site is also subject to US EPA regulations and is permitted to accept certain radioactive materials and mixed wastes pursuant to its TCEQ permit. Beatty, Nevada Facility. US Ecology leases approximately 80 acres from the State of Nevada on which operations are conducted. The Company's lease was renewed for ten years in 1997. Opened to receive hazardous waste in 1970, the site is located in the Amargosa Desert approximately 100 miles northwest of Las Vegas, Nevada and 30 miles east of Death Valley, California. The facility is regulated under permits issued by the Nevada Department of Conservation and Natural Resources and the US EPA. Richland, Washington Facility. In operation since 1965, this US Ecology facility is located on 100 acres of leased land on the U.S. Department of Energy Hanford Reservation approximately 35 miles west of Richland, Washington. The lease between the State of Washington and the Federal government expires in 2061. The Company intends to renew its sublease with the State, which expires in 2005. The facility is licensed by the Washington Department of Health for health and safety purposes, and is also regulated by the Washington Utilities and Transportation Commission ("WUTC"), which sets disposal rates for low-level radioactive wastes. Rates are set at an amount sufficient to cover the costs of operations and provide the Company with a reasonable profit. A new rate agreement was established in 2001 and expires January 1, 2008. The State also assesses facility user fees for local economic development, State regulatory agency expenses, and a dedicated trust account to pay for long-term care and maintenance after the facility closes. NORM/NARM Services: The US Ecology NORM/NARM Services group capabilities have been expanded to offer additional site characterization, contamination studies, decontamination, waste removal and off-site shipment services. These services are similar to, but distinctly different from, services previously provided by the Company's Oak Ridge Field Services group, which primarily involved LLRW fixed facility processing at AERC's Oak Ridge facility. During 2003, Norm/Narm Services employees will reposition the business to focus on remediation projects involving wastes accepted at the Company's operating disposal facilities. NON-OPERATING DISPOSAL FACILITIES Beatty, Nevada Facility. Operated by the Company from 1962 to 1993, the Beatty site was the nation's first commercial facility licensed to dispose of LLRW. In 1997, it became the first LLRW disposal facility to successfully complete closure and post-closure stabilization and to transfer its license to the government for long-term institutional control. Since that time, the Company has performed maintenance and surveillance under a contract with the State of Nevada, drawing on a State-controlled fund contributed during facility operations. Bruneau, Idaho Facility. This remote 88 acre desert site, acquired along with the Grand View, Idaho disposal operation in February 2001, was closed under an approved RCRA plan. Post closure monitoring will continue for approximately 25 years in accordance with permit and regulatory requirements. Sheffield, Illinois Facility. The Company previously operated this LLRW disposal facility on a 5-acre, State-owned site from 1968 to 1978. After performing closure work under a 1988 Settlement Agreement with the State of Illinois, the Company monitored and maintained the site until mid-2001, when the LLRW license was transferred to the State. Like Beatty, the Company has a contract with the State to perform long-term monitoring and maintenance. Sheffield, Illinois Facility. The Company previously operated two hazardous waste disposal facilities adjacent to the Sheffield LLRW disposal area. One hazardous waste site was opened in 1974 and ceased accepting waste in 1983. The second accepted hazardous waste from 1968 through 1974. In January 2003, the Company renegotiated its corrective measures agreement, allowing the Company to reduce its financial assurance requirement to $800,000. The Company continues to perform remediation activities at the facility under regulation by the US EPA. 6 Winona, Texas Facility. From 1980 to 1994, Gibraltar Chemical Resources operated the Winona hazardous waste processing and deep well facility, at which time AEC purchased the facility. Solvent recovery, deep well injection and waste brokerage operations were conducted on an eight acre site until March 1997, when the Company ceased operations. The Company is proceeding with an Agreed Order entered with the State of Texas for closure, including posting a $1,300,000 financial assurance. State action is pending on a Closure Certification Report submitted in 1999. The Company owns an additional 587 acres contiguous to the permitted site. Efforts are underway to sell the excess property. Ward Valley, California Proposed Facility. In 1993, the Company received a State of California license to construct and operate a LLRW disposal facility in a remote, Mojave Desert location to serve the Southwestern LLRW Compact. The license remains valid. The Company alleges the State of California has abandoned its duty to acquire the project property from the U.S. Department of the Interior. The Company filed suit against the State to recover monetary damages in excess of $162 million. The matter is scheduled for trial in February 2003. Additional discussion of this litigation is presented under Item 3. Legal Proceedings of this Form 10-K. Butte, Nebraska, Proposed Facility. The Company submitted an application to the State of Nebraska to construct and operate this facility, developed under contract to the Central Interstate LLRW Compact Commission ("CIC"). Following proposed license denial by the State of Nebraska, the CIC, the Company and a number of nuclear power utilities funding the project sued the State of Nebraska alleging bad faith in the license review process. A federal court order was issued enjoining the State license review process. On September 30, 2002, the federal district court awarded plaintiffs $153 million in damages, including approximately $12 million based on the Company's contributions to the project. The State's appeal of this ruling is pending. Additional discussion of this litigation is presented under Item 3. Legal Proceedings of this Form 10-K. DISCONTINUED OPERATIONS Oak Ridge, Tennessee Facility. AERC, acquired from Quadrex Corp. in 1994, processed LLRW to reduce the volume of waste requiring disposal at licensed radioactive waste facilities. On December 27, 2002, the Company announced the cessation of LLRW services and operations. The plant, situated on 16 acres of Company property in Oak Ridge, Tennessee, primarily served the commercial nuclear power industry, but also accepted brokered waste from biomedical, academic and non-utility industry customers. On October 18, 2002, the Company announced its intent to actively market the facility and exit the LLRW processing business. While a number of potential buyers were identified, no acceptable offers were received to acquire the facility. After concluding it would not be possible to sell the business as a going concern, management discontinued AERC's commercial services. AERC's processing services had never been successfully integrated with the Company's core disposal business, and management was unable to identify a viable business strategy to reverse the recurring losses that have occurred at the facility since its acquisition in 1994. The discontinuance of commercial operations resulted in the dismissal of 63 employees. Seventeen employees are presently engaged in removal of LLRW from the facility, maintaining the facility's radioactive materials licenses and preparing the facility for sale. It is expected that removal of waste will take most of 2003, although staffing requirements will diminish over time. The Company intends to maintain the facility's existing radioactive materials operating licenses pending a possible sale. Robstown, Texas Municipal Solid Waste Landfill. In July 2000, the Company began operation of a municipal and industrial waste landfill on 160 acres of land immediately adjacent to its hazardous waste facility. On February 13, 2003, the Company announced the sale of the El Centro municipal and industrial waste landfill to a subsidiary of Allied Waste Industries, Inc. ("Allied") for $10 million cash at closing and future volume-based royalty payments. The El Centro landfill is located adjacent to Company subsidiary Texas Ecologists' hazardous and industrial waste treatment and disposal facility. Under the Agreement, Allied will pay American Ecology minimum royalties of at least $215,000 annually. Once Allied has paid the Company $14,000,000 it no longer has an obligation to pay annual minimum royalties, but will still be required to pay royalties based on waste volumes received at El Centro. The Purchase Agreement also provides incentives for Allied to bring certain industrial waste to the Texas Ecologists hazardous waste facility, and for the Company to utilize the El Centro landfill. Opened in July 2000, the El Centro solid waste landfill was carried on the Company's books at approximately $7 million prior to sale and, when combined with reductions in liabilities and the recognition of certain future minimum royalties, should result in a gain on sale of approximately $5 million, which will be recognized during the first quarter of 2003. 7 INDUSTRY In 2002, the hazardous waste industry trend of reduced waste volumes and consolidation and restructuring underway since the mid-1990s continued. This maturation period followed rapid expansion in the 1970s and 1980s driven by new environmental laws and actions by federal and state agencies to regulate existing hazardous waste management facilities and to direct the clean up of contaminated sites under the federal Superfund law. By the early 1990s, excess hazardous waste management capacity had been constructed and permitted by the waste services industry. At the same time, to better manage risk and reduce expenses, many waste generators also instituted industrial process changes and other methods to minimize their waste production. The volume of waste shipped for disposal from Superfund and other properties also diminished as the many contaminated sites were cleaned up. Improved waste management by generators coupled with excess commercial disposal capacity and a maturing federal Superfund program created highly competitive market conditions that still apply today. Management believes that the hazardous waste business will continue to consolidate, but that a baseline demand for services will remain. Management further believes that the ability to deliver specialized services, while aggressively competing for non-specialized, commodity business, will set apart successful from unsuccessful companies going forward. The Company's 2001 acquisition of Envirosafe Services of Idaho and its patented hazardous steel mill waste treatment technology, the expanded handling capabilities for certain radioactive and mixed waste materials at its Idaho and Texas hazardous waste facilities, and the installation of patented thermal treatment units at its Beatty, Nevada hazardous waste facility reflect successful initiatives by the Company to increase market share profitability under present market conditions. The commercial LLRW business is also experiencing significant change. This is primarily due to the failure of the LLRW Policy Act of 1980 ("Policy Act") and interstate Compacts encouraged by the Policy Act to provide any new disposal sites and a series of market responses to that failure. The Company's efforts to site new disposal facilities in Ward Valley, California and Butte, Nebraska have been delayed by litigation. Management believes that both of these proposed facilities are safe and environmentally sound, and that the States of California and Nebraska have abandoned their duties under existing law. Management believes the Company is entitled to substantial compensation for its past investments in these statutorily-required site development processes. See Item 3. Legal Proceedings of this Form 10-K. The Company's Richland, Washington disposal facility, serving the Northwest and Rocky Mountain Compacts, is one of only two operating Compact disposal facilities in the nation. Both were in full operation for many years before passage of the LLRW Policy Act. While the Richland site has substantial unused capacity, it can only accept LLRW from the eleven western states comprising the two Compacts served. The Barnwell, South Carolina site, owned by a competitor, is located in the Atlantic Compact. The Barnwell site is open to the entire nation but has limited remaining service capacity (in terms of space and years of availability) and imposes much higher state fees. Restricted access to the Company's Richland, Washington facility, Barnwell's limited capacity and high state fees and the failure of the Compacts to establish new disposal facilities created a market opportunity for a privately held Utah disposal company. The Utah facility is licensed to accept a substantial subset of the LLRW, which Congress assigned as a state responsibility under the Policy Act. Increased disposal prices also induced a number of businesses to offer LLRW processing and volume reduction services. The Company purchased its Oak Ridge facility in 1994 to participate in this market, along with other new market entrants. The LLRW volume reduction business has experienced heavy price competition and a number of companies have ceased operations and/or declared bankruptcy. This heavy competition and the Oak Ridge facility's reliance on disposal facilities operated by competitors to ship processed waste produced substantial losses leading to the Company's decision to discontinue commercial LLRW processing operations in December 2002. The significant increase in radioactive waste disposal prices has also encouraged a search for more cost-effective disposal methods for soil, debris, consumer products, industrial wastes and other materials containing very low concentrations of radioactive contamination, and mixed wastes exhibiting both hazardous and radioactive properties. Management believes the expanded use of permitted hazardous waste disposal facilities to dispose of such these materials is a safe, environmentally sound market response. The Company's Grand View, Idaho facility has 8 significantly increased waste volume throughput in both 2001 and 2002 based in large part on this growing demand. The Company's Texas Ecologists disposal facility is positioned to serve a more limited portion of this demand. PERMITS, LICENSES AND REGULATORY REQUIREMENTS The Company's hazardous, industrial, non-hazardous, and radioactive materials business is subject to extensive environmental, health, safety, and transportation laws, regulations, permits and licenses. These requirements are administered by federal, state and local agencies. The responsible agencies regularly inspect the Company's operations to monitor compliance. They have authority to enforce compliance through the suspension of operating licenses and permits and the imposition of civil or criminal penalties in case of violations. This body of law and regulations contribute to the demand for Company services and represent a significant obstacle to new market entrants. RCRA provides a comprehensive framework for regulating hazardous waste handling, transportation, treatment, storage, and disposal. RCRA regulation and permitting is the responsibility of the US EPA and state agencies delegated such authority. Listed chemical compounds and residues derived from listed industrial processes are subject to RCRA standards unless they are delisted through a formal rulemaking process such as the patented steel mill treatment employed at the Company's Grand View, Idaho facility. RCRA liability may be imposed for improper waste management or for failure to take corrective action to address releases of hazardous substances. To the extent waste can be recycled or beneficially reused, regulatory controls under RCRA diminish. CERCLA and its amendments ("Superfund") impose strict, joint and several liability on owners or operators of facilities where a release of hazardous substances has occurred, on parties who generated hazardous substances released at such facilities, and on parties who arranged for the transportation of hazardous substances. Liability under Superfund may be imposed if releases of hazardous substances occur at treatment, storage, or disposal sites used or operated by the Company. Since customers of the Company face the same liabilities, Superfund incentivizes potential Company customers to minimize the number of commercial disposal sites utilized and to manage their own wastes when feasible. Commercial disposal facilities require authorization from the US EPA to receive Superfund clean-up wastes. The Company's three hazardous waste disposal facilities each have this authorization. TSCA establishes a comprehensive regulatory program for treatment, storage and disposal of PCBs. Regulation and licensing of PCB wastes is the responsibility of the US EPA. The Company's Grand View, Idaho and Beatty, Nevada disposal facilities have TSCA permits. The Atomic Energy Act of 1954 ("AEA") and the Energy Reorganization Act of 1974 assign the NRC regulatory authority for the receipt, possession, use and transfer of specified radioactive materials including disposal. The NRC has adopted regulations for licensing commercial LLRW processing and disposal sites, and may delegate regulatory and licensing authority to individual states. The U.S. Department of Transportation regulates the transport of radioactive materials. Shippers and carriers of radioactive materials must comply with both the general requirements for hazardous materials transportation and with specific requirements for radioactive materials. The AEA does not authorize the NRC to regulate NORM/NARM; however, individual states may assume regulatory jurisdiction. Many states, including Idaho and Texas, where the Company operates facilities, have chosen to do so. The process of applying for and obtaining licenses and permits to construct and operate a radioactive, hazardous or industrial waste facility is lengthy and complex. Management believes it has significant knowledge and expertise regarding environmental laws and regulations. The Company also believes it possesses all permits, licenses and regulatory approvals currently required to maintain regulatory compliance and safely operate its facilities, and has the specialized expertise required to secure additional approvals to grow its business in the future. 9 INSURANCE, FINANCIAL ASSURANCE AND RISK MANAGEMENT The Company carries a broad range of insurance coverage, including general liability, automobile liability, real and personal property, workers' compensation, directors' and officers' liability, environmental impairment liability, and other coverage customary to the industry. Except as discussed in Item 3. "Legal Proceedings" section of this report, the Company does not expect the impact of any known casualty, property, environmental insurance or other contingency to be material to its financial condition, results of operations or cash flows. Existing regulations require financial assurance to cover the cost of final closure and/or post-closure obligations at the Company's processing and disposal facilities. Acceptable forms of financial assurance include escrow-type accounts funded by revenue during the operational life of a facility, letters of credit from third parties, surety bonds, and traditional insurance. States may also require facilities to fund escrow type or trust accounts during the operating life of the facility. Through December 31, 2002, the Company had not experienced significant difficulty obtaining insurance. However, the Company's insurer for its closure and post-closure financial assurance obligations has notified the Company to expect significantly increased premiums and collateral requirements at renewal of its current financial assurance policies on September 27, 2003. Although the Company expects to renew these insurance policies, if the Company were unable to obtain adequate closure, post-closure or environmental insurance in the future, any partially or completely uninsured claim against the Company, if successful and of sufficient magnitude, could have a material adverse effect on the Company's financial condition, results of operations and cash flows. Additionally, continued access to casualty and pollution legal liability insurance with sufficient limits, at acceptable terms, is important to obtaining new business and revenue-producing waste service contracts. Failure to maintain adequate financial assurance could also result in regulatory action being taken against the Company that could include the unplanned closing of certain facilities. As of December 31, 2002, the Company provided letters of credit of $1,150,000 as collateral for insurance policies of approximately $50,231,000 for performance of facility final closure and post-closure requirements. Management believes the Company will be able to maintain the requisite financial assurance policies, though at an increased cost. Management believes that increased premiums and cash collateral requirements to meet financial assurance obligations could create a significant impediment to new market entrants. These conditions also present an added challenge for financially struggling competitors. While the Company has not experienced difficulty in obtaining financial assurance for its current operations, the cost of maintaining surety bonds, letters of credit and insurance policies in sufficient amounts will be more expensive in the future than in the recent past. Primary casualty insurance programs do not generally cover accidental environmental contamination losses. To provide insurance protection for such environmental claims, the Company maintains environmental impairment liability insurance and professional environmental consultants liability insurance for non-nuclear occurrences. For nuclear liability coverage, the Company maintains so-called Facility Form nuclear liability insurance provided under the federal Price Anderson Act. This insurance covers the operations of its facilities, suppliers and transporters. The Company has also purchased primary property, casualty and excess liability policies through traditional third party insurance. CUSTOMERS The Company manages the disposal of CERCLA and other environmental remediation waste under a contract with the U.S. Army Corps of Engineers Formerly Utilized Site Remedial Action Program ("FUSRAP"), and the disposal of steel mill air pollution control dust (KO61) under various contracts. The following customers accounted for more than 10% of the Company's revenue during 2002, 2001 and 2000: % OF REVENUE FOR YEAR ENDING CUSTOMER 2002 2001 2000 ---- ---- ---- U.S. Army Corps of Engineers 27 15 - Nucor Steel Company 13 11 - Tamco Steel Company - - 20 10 MARKETS Disposal Services. The hazardous waste treatment and disposal business is generally highly competitive and sensitive to transportation costs. Specialized niche service offerings are less sensitive to these factors. Wastes transported by rail is less expensive, on a per mile basis, than wastes transported by truck. The Company's Robstown, Texas hazardous waste facility is geographically well positioned to serve petro-chemical plants and other industries concentrated along the Texas Gulf coast. The facility is also permitted to accept limited concentrations of certain NRC-exempt radioactive materials and mixed wastes, and can compete over a much larger area for these wastes. The Company's Beatty, Nevada facility primarily competes for business in the California, Arizona and Nevada markets. Due to the site's superior geologic and climate conditions in the Amargosa Desert, the Nevada facility can compete for wastes shipped from more distant locations. The Nevada facility also competes over a broader geographic area for PCB waste due to the more limited number of TSCA disposal facilities nationwide. The Beatty facility also offers thermal treatment services to customers in its western service region. The Company's Grand View, Idaho facility accepts wastes from across the United States and operates a Company-owned rail transfer station located adjacent to a main east-west rail line, generally allowing much lower cost transportation than by truck. The Idaho facility's two primary markets are for steel mill air pollution control dust, and NRC-exempt radioactive materials and mixed wastes in concentrations specified by permit. Substantial waste volumes are received under a five-year, renewable contract with the U.S. Army Corps of Engineers that is also utilized by other federal agencies. Recent permit modifications have expanded disposal capabilities at the Idaho facility. In late 2002, the site's rail transfer station throughput capabilities were more than doubled by the addition of 3,000 feet of track and another switch on Company property. Waste stabilization, encapsulation, chemical oxidation and other treatment technologies are available at the Company's Idaho, Nevada and Texas facilities to meet US EPA land disposal restrictions. This capability allows all three sites to manage a significantly broader spectrum of wastes than if pre-disposal treatment was not offered. The Richland, Washington disposal facility serves LLRW producers in the eight States that are members of the Northwest Compact. The three Rocky Mountain Compact States are also eligible to use the facility subject to annual volume limits. Since US Ecology is a monopoly LLRW service provider, the State of Washington approves the facility's LLRW disposal rates. The site competes for NORM/NARM from customers across the country. These NORM/NARM rates are not regulated, since a monopoly does not exist. COMPETITION The Company competes with large and small companies in each of the markets in which it operates. The radioactive, hazardous and non-hazardous industrial waste management industry is highly competitive. Management believes that its principal disposal competitors are Chemical Waste Management, The EQ Company, Heritage, Clean Harbors, Envirocare of Utah, and Waste Control Specialists. Management believes that the principal competitive factors applicable to its radioactive and hazardous waste management business are: - - Price - - Specialized "niche" service offerings - - Customer service reputation - - Five decades of experience and technical proficiency - - Compliance and positive working relations with regulatory agencies - - Brand name recognition Management believes the Company is competitive based on these factors. The Company further believes that it offers a nationally unique mix of services, including specialized "niche" services, which distinguish it from 11 competitors. The Company's understanding of the industry, strong "brand" name recognition from 50 years of industry experience in the business, excellent compliance record and customer service reputation, and long established relationships with customers, regulators, and the local communities bolster these advantages. While the Company is competitive, advantages exist for certain competitors with technology, permits, and equipment enabling them to accept additional wastes streams, who have greater resources, who are sited in jurisdictions that impose lower disposal taxes, or are sited closer to waste generating customers. PERSONNEL Since October, 2001, a new executive management team has implemented fundamental changes to the Company's organizational structure and management, including a large reduction in force following a December 2002 decision to exit the LLRW processing business. On February 4, 2002, the Company's Board of Directors appointed Michael J. Gilberg as Vice President and Controller. On March 15, 2002, the Company's Board of Directors appointed Stephen A. Romano as Chief Executive Officer in addition to his duties as President and Chief Operating Officer. On December 27, 2002, the Company notified the majority of its workforce in Oak Ridge, Tennessee of the Company's intent to discontinue operations and terminate their employment effective January 1, 2003. Severance was paid, consistent with Company policy, to non-union employees. Severance was not specified in the collective bargaining agreement previously entered into with the Paper, Allied-Industrial, Chemical and Energy Workers International Union AFL-CIO-CLC ("PACE" or the "Union"). The Company has met on two occasions with the Union to negotiate severance; however, no agreement has been reached, despite the Company's best efforts to reach a mutually acceptable separation package. On February 3, 2003 the Company extended another severance package to Union employees, which was not accepted. The declined offer would have resulted in a charge of approximately $168,000 in 2003 to discontinued operations. If the former Union employees and the Company do not reach a mutually agreeable settlement, these employees or the Union may take legal action to secure greater severance. On February 10, 2003, the Company had 199 full time employees, of which 11 were members of PACE at its Richland, Washington site. 12 ITEM 2. PROPERTIES The Company believes that its property and equipment are well maintained, in good operating condition, and suitable for the Company's current and projected needs. Company headquarters are located in Boise, Idaho in leased office space. AEC also leases sales and administrative offices in Washington and Kentucky. The following table describes the principal properties and facilities owned or leased by the Company.
CORPORATE FUNCTION ACREAGE OWN/LEASE - --------- -------- ------- --------- Boise, Idaho Corporate office 8,572 sq. ft. Lease OPERATING DISPOSAL FACILITIES - ----------------------------- Beatty, Nevada Treatment and disposal facility 80 acres Lease Grand View, Idaho Treatment and disposal facility, and approved expansion area 1,760 acres Own Elmore County, Idaho Rail transfer station 110 acres Own Robstown, Texas Treatment and disposal facility 240 acres Own Richland, Washington Disposal facility 100 acres Lease NON-OPERATING DISPOSAL FACILITIES - --------------------------------- Bruneau, Idaho Closed disposal facility 88 acres Own Sheffield, Illinois Closed disposal facility 204 acres Own Sheffield, Illinois Closed disposal facility 170 acres Own Winona, Texas Non-operating treatment and deep well facility 620 acres Own DISCONTINUED OPERATIONS - ----------------------- Oak Ridge, Tennessee Processing facility 16 acres Own Robstown, Texas Municipal landfill 200 acres Own
The principal properties of the Company make up less than 10% of the total assets. The properties utilized are sufficient and suitable for the Company's needs. 13 ITEM 3. LEGAL PROCEEDINGS - -------------------------- ONGOING LITIGATION - ------------------ MANCHAK V. US ECOLOGY, INC., U.S. DISTRICT COURT FOR THE DISTRICT OF NEVADA, - ------------------------------ CIVIL ACTION NO. 96-494. In March 1996, Frank Manchak, Jr. ("Plaintiff" or "Manchak") filed suit alleging infringement of a sludge treatment patent to stabilize hazardous waste at the Company's Beatty, Nevada hazardous waste disposal facility. Plaintiff seeks unspecified damages for infringement, treble damages, interest, costs and attorney fees. In August 2001, the trial court disqualified the Company's original counsel based on failure to identify a conflict. The Company engaged new counsel and obtained a fee disgorgement and settlement of $155,000 from the previous counsel on July 3, 2002. On October 17, 2002, the US District Court for the District of Nevada granted the Company's motion for summary judgment to dismiss the suit. Manchak's motion for reconsideration was denied on January 8, 2003. Previous to the court's denial of reconsideration, Manchak filed an appeal. The Company does not believe it infringed any Manchak patent, will continue to vigorously defend the case, and has filed a claim to recover attorney fees and costs. ENTERGY ARKANSAS, INC., ET AL, CENTRAL INTERSTATE LOW-LEVEL RADIOACTIVE WASTE - -------------------------------------------------------------------------------- COMMISSION AND US ECOLOGY, INC. ("PLAINTIFFS") V. STATE OF NEBRASKA, ET AL., - ------------------------------------------------------------------------------ CASE NO. 4:98CV3411, U.S. DISTRICT COURT, DISTRICT OF NEBRASKA This action was brought in federal court in December of 1999 by electric utilities that generate low-level radioactive waste ("LLRW") within the Central Interstate Low-Level Radioactive Waste Compact (CIC). CIC member states are Nebraska, Kansas, Oklahoma, Arkansas, and Louisiana. The action seeks declaratory relief and damages for bad faith in the State of Nebraska's processing and ultimate denial of US Ecology's application to site, develop and operate a LLRW disposal facility near Butte, Nebraska. US Ecology is the CIC's contractor and developer. The CIC was originally named as a defendant and subsequently realigned as a plaintiff. US Ecology intervened as a plaintiff. The CIC sought to recover contributions made by the utilities and US Ecology to the CIC for pre-licensing project costs in the approximate amounts of $95 million and $6.2 million, respectively, and removal of the State of Nebraska from the licensing process. The Eighth Circuit Court of Appeals subsequently dismissed the utilities' and US Ecology's independent claims against Nebraska for breach of the good faith provision of the Compact, and for denial of due process based on sovereign immunity. The utilities and US Ecology subsequently filed cross claims against the CIC for breach of contract and the imposition of a constructive trust. In June 2002, a 42 day bench trial began. On September 30, 2002, the US District Court for the District of Nebraska entered judgment against Nebraska in favor of the CIC for $153 million, including approximately $50 million for prejudgment interest. Of this amount, US Ecology's share was for a $6.2 million contribution and $6.1 for prejudgment interest. The Court also dismissed the utilities' and US Ecology's cross claims for breach of contract and imposition of a constructive trust, finding that it was premature to decide the merits of these claims and leaving the question open for future resolution if necessary. The State appealed the judgment to the Eighth Circuit Court of Appeals. It is expected that the case will be argued in the fall of 2003 with a decision around the end of 2003. Among the issues raised by the State on appeal are the trial court's failure to grant the State a jury trial and its failure to dismiss the CIC's claim on sovereign immunity grounds. If the Eighth Circuit affirms the trial court's decision, Nebraska may seek review by the US Supreme Court. Management believes the Company is entitled to any money that the CIC recovers based on US Ecology contributions. No assurance can be given that the trial court's decision will be affirmed on appeal or that US Ecology will recover its contributions or interest thereon. US ECOLOGY, INC. V. THE STATE OF CALIFORNIA, ET AL., CASE NO.GIC747562, SUPERIOR - --------------------------------------------------- COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN DIEGO In May 2000, the Company's subsidiary, US Ecology, Inc., sued the State of California, its Governor, Gray Davis, and the Director of its Department of Health Services (DHS) and other State agencies ("the State") for monetary damages exceeding $162 million. The suit stems from the State's abandonment of the Ward Valley low-level radioactive waste ("LLRW") disposal project. Laws on the books since the 1980s require the state to build a disposal site for LLRW produced in California, Arizona, North Dakota and South Dakota; member states of the Southwestern Compact. In keeping with these laws, US Ecology was selected in 1985 to locate and license the site using its own funds on a reimbursable basis. In 1993, US Ecology obtained a license from the DHS that it continues to 14 hold and entered a ground lease. The State successfully defended the license against court challenges and, until Governor Davis took office, actively pursued conveyance of the site from the federal government as required by law and its contractual obligations to US Ecology. In September 2000, the Superior Court granted California's motion to dismiss all causes of action. The Company appealed this decision to the California Court of Appeal Fourth Appellate District in November 2000. In September 2001, the Appellate Court upheld the trial court's decision in part and denied it in part, remanding the case for trial based on the Company's promissory estoppel claim. In December 2001, the California Supreme Court denied review. Counsel for the Company filed a peremptory writ seeking appointment of a new trial court judge to hear the case, which was granted. On November 20, 2002, the Superior Court denied the State's motions for summary judgment as well as a protective order seeking to prevent production of certain documents and deposition of persons most knowledgeable in the Governor's staff. A settlement conference was held without result on December 9, 2002. Discovery is complete and the trial is scheduled to begin on February 24, 2003. The Company intends to continue prosecuting this claim vigorously; however, no assurance can be given that the Company will recover any damages. MATTIE CUBA, ET AL. V. AMERICAN ECOLOGY ENVIRONMENTAL SERVICES CORPORATION, ET - -------------------------------------------------------------------------------- AL.,CAUSE NO. 2000-092, 4TH JUDICIAL DISTRICT COURT, RUSK COUNTY, TEXAS - --- This suit was brought in November 2000 by 28 named plaintiffs against the Company and named subsidiaries, the former owners and approximately 60 former customers of its Winona, Texas facility. Plaintiffs seek recovery for personal injuries, property damages and exemplary damages based on negligence, gross negligence, nuisance and trespass. The Company filed a motion for summary judgment in July 2002 based on lack of evidence. On November 27, 2002, the trial court granted partial summary judgment, dismissing certain causes of action and reducing the number of plaintiffs, but preserving other causes of action. Counsel for the Company subsequently filed a motion for summary judgment seeking dismissal against all of the adult plaintiffs on statute of limitations grounds. At a February 6, 2003 hearing, the court took the motion under advisement. If the Company's motion is granted, six plaintiffs will remain. The Company believes plaintiffs' remaining case is without merit and will continue to vigorously defend the matter. No assurance can be given that the Company will prevail or that the matter can be favorably resolved. The Company's current insurance carrier is paying for defense of this matter, subject to the Company's $250,000 deductible which has been fully accrued. RESOLVED LITIGATION - -------------------- DAVID DUPUY AND RICHARD HAMMOND V. AMERICAN ECOLOGY ENVIRONMENTAL SERVICES - -------------------------------------------------------------------------------- CORPORATION, ET AL., CAUSE NO. 98-1304-C, 241ST JUDICIAL DISTRICT COURT, SMITH - --------------------- COUNTY, TEXAS Plaintiffs sought unspecified damages, alleging personal injury as the result of negligence by the Company for failure to warn and protect plaintiffs from alleged hazardous conditions while plaintiffs were performing work at the Winona, Texas facility. The Company's insurance carrier assumed defense costs subject to the Company's $250,000 deductible. In June 2000, the Company's attorneys filed a motion for costs due to lack of diligence by plaintiffs' attorneys in pursuing the case. The court awarded costs in accordance with the motion and plaintiffs paid $4,000. On January 31, 2001, the court granted the Company's summary judgment motion and dismissed the case with prejudice. In May of 2002, this dismissal ruling was sustained on appeal. This matter is now fully resolved. FEDERAL RCRA INVESTIGATION AT THE AMERICAN ECOLOGY RECYCLE CENTER, INC. OAK - -------------------------------------------------------------------------------- RIDGE, TENNESSEE FACILITY - --------------------------- In September 1999, investigators associated with the FBI, US EPA and the Tennessee Valley Authority initiated an investigation and obtained records at the Company's Oak Ridge, Tennessee subsidiary under a search warrant issued by the U.S. District Court, Eastern District of Tennessee. In October 2001, the Company responded to a subpoena for additional records through September 2001. On August 8, 2002, counsel for the Company's wholly-owned subsidiary, American Ecology Recycle Center, Inc., entered a guilty plea in US District Court for the Eastern District of Tennessee to a single felony count of storing hazardous waste without the necessary permit at AERC from 1997 to 2000, and paid a $10,000 fine. The plea agreement recognized the subsidiary's voluntary contributions of 15 $12,500 to the Tennessee Wildlife Resources Agency and $12,500 to the Tennessee Valley Authority Police to support environmental training and enforcement. The matter is now fully resolved. ZURICH AMERICAN INSURANCE COMPANY V. NATIONAL UNION FIRE INSURANCE COMPANY OF - -------------------------------------------------------------------------------- PITTSBURGH, ET AL INCL. AEC, AEESC, AEMC AND AESC; SUPREME COURT OF STATE OF NEW - ------------------------------------------------- YORK, COUNTY OF NEW YORK; CASE NO. 604662/99 In October 1999, plaintiff Zurich American Insurance Co. (Zurich) filed suit seeking declaratory and other relief against National Union Fire Insurance Company of Pittsburgh (National Union), the Company and subsidiaries AEESC, AESC and AEMC (AEC Defendants) and Doe Insurers 1-50 relating to Zurich's defense coverage in the Virgie Adams matter. In October 2001, the Company received a payment of $250,000 from Zurich finalizing settlement of Zurich's claims. By this settlement, the Company relinquished future rights to seek defense and indemnity from Zurich for the following Adams, Cuba, Dupuy, and GM matters. The ----- ---- ----- -- Company also agreed to assume defense costs as of April 2001. Settlement with the Mobley entities was reached on February 12, 2002, resolving the matter with Zurich and National Union. On March 15, 2002, the Company received $250,000 from the Mobley Entities based on dismissal of all claims by the Company against National Union and Mobley, and vice versa. This matter is now fully resolved. GENERAL MOTORS CORPORATION V. AMERICAN ECOLOGY ENVIRONMENTAL SERVICES CORP., ET - -------------------------------------------------------------------------------- AL., CASE NO. 3-99CV2626-L, U.S. DISTRICT COURT, NORTHERN DISTRICT OF TEXAS. - --- General Motors ("GM") filed suit naming the Company, its subsidiaries, the former owner of the Winona Facility and its associated business entities seeking contribution and indemnity, including reimbursement of defense costs and attorneys' fees, incurred by GM in the Virgie Adams matter and this case. The claims, based on a waste disposal contract between GM and the Winona Facility from 1989 to 1997, were brought on breach of contract, contribution, and common law indemnity grounds. Claims included a demand for reimbursement of a $1,500,000 third party settlement paid by GM plus legal fees. In August 2001, the Court found that the Company owed GM a defense and indemnity under GM's contract with the Winona Facility's former owner. After settling with the Mobley entities, GM made a settlement demand to the Company for $1,400,000 based in part on GM's receipt of $960,000 from the Mobley entities. Without admitting fault or wrongdoing, the Company paid GM $1,040,000 on May 16, 2002 of which $740,000 had not been previously accrued. This matter is now fully resolved. U.S. ECOLOGY CORPORATION [SIC] AND OIL, CHEMICAL & ATOMIC WORKERS INTERNATIONAL - -------------------------------------------------------------------------------- UNION, AFL-CIO, CASES 10-CA-30847 AND 10-CA-31149 - --------------- This matter, filed by Oil, Chemical & Atomic Workers International Union, AFL-CIO (the "Union") in March 1998 and amended in May 1998, alleged unfair labor practices. In May 1999, an administrative law judge ("ALJ") ruled against the Company. In May 2000, the National Labor Relations Board (NLRB) affirmed this decision. The Company appealed to the US Sixth Circuit Court of Appeals in May 2000. The Court of Appeals affirmed the NLRB ruling in December 2001. In June 2002, the Company reached settlement with the Union for $1,027,000 for back wages and benefits of which $156,000 had not been previously accrued. This matter is now fully resolved. US ECOLOGY, INC. V. DAMES & MOORE, INC., CASE NO. CV OC 0101396D, FOURTH - ----------------------------------------------------- JUDICIAL DISTRICT COURT, ADA COUNTY, IDAHO DAMES & MOORE, INC. V. US ECOLOGY, INC., ET AL.,INDEX NO. 602567-01, SUPREME - ---------------------------------------------------- COURT OF NEW YORK, NEW YORK COUNTY, NEW YORK These two cases relate to a project for work performed in 2000-01 and the failure to be paid under a subcontract to Dames & Moore, a wholly-owned subsidiary of URS Corporation and prime contractor to Brookhaven Science Associates, LLC. The project involved removal, decontamination and disposal of above-ground cement ducts at Brookhaven National Laboratory ("BNL") in Upton, New York. In February 2001, subsidiary US Ecology filed a breach of contract suit in Idaho state court seeking (1) damages and reformation of the contract between US Ecology and Dames & Moore; (2) indemnification from Dames & Moore for negligence; and (3) a declaratory judgment declaring the "pay-if-paid" clause in the contract void and unenforceable. Dames & Moore filed a motion to dismiss the 16 Idaho action, and a counter claim in New York state trial court. The New York action alleged, among other things, negligence by US Ecology and certain crane companies providing services at the job site. On May 3, 2002, the Company entered into a Settlement Agreement with Dames & Moore, Inc.\URS and received cash of $700,000. On March 20, 2002, BNL entered an agreement to pay the Company $86,000. The Idaho suit has been dismissed. Dames & Moore has been requested to dismiss the New York case based on the terms of the Settlement Agreement. If this is not forthcoming, a dismissal motion will be filed. INTERNAL REVENUE SERVICE DISPUTE - ----------------------------------- In 1996, the Company filed an amended federal income tax return claiming a refund of approximately $740,000. In September 1999, the Internal Revenue Service ("IRS") proposed to deny this claim, sought to recover portions of tentative refunds previously received by the Company and proposed to reduce Company net operating loss carry forwards. In November 1999, the Company protested this denial. The Company tentatively settled this claim in 2000; however, settlement was rejected by the Congressional Joint Committee on Taxation pending US Supreme Court consideration of a germane issue. This issue was later resolved in favor of the Company's position. On December 4, 2002, the IRS approved a settlement to pay the Company $605,000 plus interest and confirmed the Company's net operating loss carry forward after 1995. Payment is pending. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to the Company's security holders during the fourth quarter of 2002. PART II ITEM 5. MARKET FOR AMERICAN ECOLOGY CORPORATION COMMON STOCK AND RELATED STOCKHOLDER MATTERS American Ecology Corporation common stock is currently listed on the NASDAQ National Market System under the symbol ECOL. As of February 10, 2003, there were approximately 639 record holders of common stock. The high and low sales prices for the common stock on the NASDAQ and the dividends paid per common share for each quarter in the last two years are shown below: 2002 2001 Dividends Per Share ---- ---- ------------------- PERIOD High Low High Low 2002 2001 ----- ----- ----- ----- ----- ----- 1st Quarter $1.98 $1.25 $3.00 $2.06 $ -- $ -- 2nd Quarter 4.85 1.66 2.70 2.20 -- -- 3rd Quarter 4.50 2.10 2.95 1.84 -- -- 4th Quarter 3.23 2.31 2.25 1.50 -- -- In August of 2000, the Company established a credit facility with Wells Fargo Bank. This credit facility currently provides the Company with $6.0 million of borrowing capacity, but prohibits cash dividends on any of the Company's outstanding capital stock while the credit facility is in place. The credit facility matures on June 15, 2004. On January 14, 2003, the Company extended an offer to the holders of the Company's Series D Cumulative Convertible Preferred Stock to repurchase their stock for the original sales price of $47.50 a share plus accrued but unpaid dividends. The offer was subject to approval of the Company's Board of Directors, Wells Fargo Bank, and requires a minimum of 67% of the Series D stock to be tendered by the stockholders. All Series D stockholders have accepted the offer granting the Company the right to repurchase their Series D. If the Company does not repurchase the offered shares prior to July 31, 2003 the Company's right to repurchase will expire. 17 ITEM 6 SELECTED FINANCIAL DATA This summary should be read in conjunction with the consolidated financial statements and related notes. (Dollars in thousands, except per share amounts)
YEARS ENDED DECEMBER 31, 2002 2001 2000 1999 1998 - ------------------------ --------- -------- -------- -------- -------- Revenue $ 46,789 $40,175 $27,054 $20,830 $29,877 Income tax benefit from reversal of valuation allowance $ 8,284 $ -- $ -- $ -- $ -- Income from continuing operations $ 16,094 $ 2,991 $ 5,510 $ 4,301 $ 2,853 Cumulative effect of change in accounting principal $ 13,141 $ -- $ -- $ -- $ -- (Loss) from discontinued operations $(10,464) $(2,189) $ (813) $ 108 $(2,091) Net Income $ 18,771 $ 802 $ 4,697 $ 4,409 $ 762 Preferred stock dividends accrued $ 398 $ 398 $ 398 $ 398 $ 398 Basic earnings per share from continuing operations $ 1.09 $ .19 $ .37 $ .29 $ .19 Shares used to compute income (loss) per share (000's) 14,311 13,738 13,711 13,585 12,772 Total assets $ 87,125 $86,824 $65,750 $58,459 $61,800 Long-term debt, net of current portion $ 8,344 $ 4,436 $10,775 $ 3,569 $ 2,223 Shareholders' equity $ 45,948 $26,416 $25,984 $21,582 $17,460 Current ratio (current assets divided by current liabilities) 1.47:1 0.65:1 1.17:1 0.9:1 0.7:1 Return on average equity (net income divided by average equity) 51.9% 3.1% 19.7% 22.6% 4.9% Dividends declared per common share $ -- $ -- $ -- $ -- $ -- Capital expenditures $ 2,737 $ 4,009 $ 3,267 $ 3,740 $ 2,128 Depletion, depreciation and amortization expense $ 6,604 $ 4,076 $ 1,899 $ 1,498 $ 2,565
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements - --------------------------- This document contains forward-looking statements that involve known and unknown risks and uncertainties which may cause actual results in future periods to differ materially from those indicated herein. These risks include, but are not limited to: - - compliance with and changes in applicable laws and regulations - - exposure to litigation, - - access to capital, - - access to insurance and financial assurances, - - new technologies, - - competitive environment, - - general economic conditions - - potential loss of major contracts, and - - costs of discontinuing operations at the Oak Ridge facility. 18 When the Company uses words like "may," "believes," "expects," "anticipates," "should," "estimate," "project," "plan," their opposites and similar expressions, the Company is making forward-looking statements. These expressions are most often used in statements relating to business plans, strategies, anticipated benefits or projections about the anticipated revenues, earnings or other aspects of our operating results. The Company makes these statements in an effort to keep shareholders and the public informed about its business based on its current expectations about future events. Such statements should be viewed with caution and are not guarantees of future performance or events. As noted elsewhere in this report, the Company's business is subject to uncertainties, risks and other influences, many of which are not within the its control. Additionally, these factors, either alone or taken together, could have a material adverse effect on the Company and could change whether any forward-looking statement ultimately proves to be true. The Company undertakes no obligation to publicly release updates or revisions to these statements. The following discussion should be read in conjunction with audited consolidated financial statements and the notes thereto for the year ending December 31, 2002, included elsewhere in this Form 10-K. General - ------- The Company is a hazardous, industrial, non-hazardous, and radioactive waste management company providing treatment and disposal service to commercial and government entities, including but not limited to nuclear power plants, petro-chemical refineries, steel mills, the U.S. Department of Defense, biomedical facilities, universities and research institutions. The majority of revenues are derived from fees charged for use of the Company's waste disposal facilities. Fees are also charged for field investigations, waste removal and transportation to fixed facilities operated by others. The Company and its predecessors have been in business for more than 50 years. In late 2001, the Board of Directors appointed a new executive team that reorganized the Company with the objectives of optimizing performance of its core waste treatment and disposal assets and exiting non-core businesses. Management believes that this restructuring has yielded benefits, including improved market penetration, clearer organizational accountability, cost savings, and improved utilization of operating assets. Management further believes that actions to resolve a number of long-standing lawsuits, sell its El Centro municipal solid waste landfill, and discontinue its unprofitable LLRW processing operations provide a solid foundation to expand the Company's profitable hazardous and low-level radioactive waste disposal business. On July 1, 2002, the Company moved into a new corporate headquarters located at 300 E. Mallard Drive, Suite 300, Lakepointe Centre I, Boise, ID 83706. Overall Company Performance - ----------------------------- On a consolidated basis, the Company's financial performance for the twelve-months ended December 31, 2002, as measured by income from continuing operations, showed material improvement over 2001. Management believes this improvement is due to the turn-around plan and restructuring actions implemented since late 2001. These actions have focused on increasing waste throughput at the Company's disposal facilities, expanding higher margin "niche" services, controlling costs, streamlining reporting, implementing new information systems, and restructuring the sales function to increase revenue and earnings. The improvements resulting from the execution of management's plan in 2002 were offset, in part, by continued losses from the Company's Oak Ridge, Tennessee based subsidiary, AERC. On December 27, 2002, the Company announced the discontinuance of LLRW processing services and operations at AERC, resulting in a $7,000,000 restructuring charge. Management believes the cessation of LLRW processing operations and timely removal of waste will reduce liabilities and improve the Company's opportunity to sell AERC or its assets. However, uncertainties exist regarding the cost required to remove remaining waste from the premises. The Company has accounted for these expected costs consistent with Statement of Financial Accounting Standard ("FAS") No. 144 and Emerging Issues Task Force Issue No. 94-3, which are discussed and included elsewhere in this Form 10-K. 19 FACTORS THAT MAY AFFECT FUTURE RESULTS Compliance and Changes with Applicable Laws and Regulations - ----------------------------------------------------------- The changing regulatory framework governing the Company's business creates significant risks, including potential liabilities from violations of environmental statutes and regulations. Failure to timely obtain, or to comply with the conditions of applicable federal, state and local governmental licenses, permits or approvals for our waste treatment and disposal facilities could prevent or inhibit the Company from operating its facilities and providing services, resulting in a significant loss of revenue and earnings. Changes in laws or regulations or changes in the enforcement or interpretation of existing laws and regulations may require the Company to modify existing operating licenses or permits, or obtain additional approvals if new environmental legislation or regulations are enacted or existing legislation or regulations are amended, reinterpreted or enforced differently than in the past. Any new governmental requirements that raise compliance standards or require changes in operating practices or technology requirements may impose significant costs upon the Company. The Company's failure to comply with applicable statutes, and regulations, licenses and permits may result in the imposition of substantial fines and penalties and could adversely affect the Company's ability to carry on its business as presently constituted. While management believes the nation's basic framework of environmental laws and regulations are broadly accepted as a matter of sound public policy, a substantial relaxation of these requirements or a substantial reduction of enforcement activities by governmental agencies could materially reduce the demand for the Company's services. Large portions of the Company's revenues are generated as a result of requirements arising under federal and state laws, regulations and programs to protect the environment. If requirements to comply with environmental laws and regulations were substantially relaxed in the future or were less vigorously enforced, particularly those relating to the treatment, storage or disposal of hazardous and low-level radioactive waste, the demand for the Company's services could decrease and revenues could be significantly reduced. Exposure to Litigation - ------------------------ Since Company personnel routinely handle radioactive and hazardous materials, the Company may be subject to liability claims by employees, customers and third parties. There can be no assurance that the Company's existing liability insurance is adequate to cover claims asserted against the Company or that the Company will be able to maintain such insurance in the future. Management believes the Company has adopted prudent risk management programs to reduce these risks and potential liabilities; however, there can be no assurance that such programs will fully protect the Company. Adverse rulings in ongoing legal matters, including but not limited to litigation brought to protect the Company's investment in the proposed Ward Valley, California disposal project, Butte, Nebraska disposal project and other matters could have a material adverse effect on the Company. See Item 3. Legal Proceedings of this Form 10-K. Access to Capital - ------------------- The Company requires cost effective access to capital to implement its strategic and financial plan. If the Company cannot maintain access to capital or raise additional capital, the Company may need to curtail or scale back planned infrastructure improvements and disposal capacity expansions, which could negatively impact the Company's ability to generate earnings. Although the Company expects to maintain access to cost effective capital, no assurance can be given that the Company will continue to have cost-effective access to the capital markets. Access to Insurance and Financial Assurances - -------------------------------------------- The Company is required by license, permit and prudence to maintain a variety of insurance instruments and financial assurances. Since early 2001, there has been a tightening in the insurance markets, decreasing access to cost-effective insurance. This market tightness was exacerbated by the terrorist attacks against the United States on September 11, 2001 and the claims resulting from those attacks. Without cost effective access to insurance and/or financial assurance markets, the Company's ability to operate its facilities would be materially and adversely affected. In September of 2003, the Company's primary financial assurance insurance for its hazardous waste disposal facilities expires. The Company has been and continues to be in negotiations with the 20 insurance provider, but it is likely that the cost and cash collateral requirements of this insurance will increase. Although the Company expects to be able to renew these policies, no guarantee can be given that the Company will be able to renew or procure new financial assurance insurance on terms favorable to the Company. Inability to obtain cost effective insurance and/or financial assurance could have a material adverse effect on the Company New Technologies - ----------------- The Company expects to increase its utilization of thermal treatment and to adopt other technologies from time to time. The Company has experienced difficulties implementing new technologies in the past. The Company's future growth, particularly at its Beatty, Nevada facility, is partially tied to its ability to improve its knowledge and implementation of treatment technologies. If the Company cannot successfully implement commercially viable treatment technologies in response to market conditions in a manner that is responsive to the clients' requirements, the business could be adversely affected. Competitive Environment - ------------------------ The Company faces competition from companies with much greater resources and potentially more cost-effective waste treatment and disposal services. An increase in the number of commercial treatment or disposal facilities for hazardous or radioactive waste in the United States, or a decrease in the treatment or disposal fees charged by competitors could reduce or eliminate the competitive advantage of the Company's facilities and services. General Economic Conditions - ----------------------------- The Company's hazardous waste facilities serve steel mills, petro-chemical plants and other basic industries that are, or may be affected by general economic conditions. During periods of economic weakness, these industries may cut back production activities producing waste and/or delay spending on plant maintenance, waste clean-ups and other discretionary projects. Management believes the Company's business was adversely affected by the general economic conditions in 2002 and that these conditions will exist through 2003. Potential Loss of Major Contracts - ------------------------------------- A loss on one or more of the Company's larger contracts could significantly reduce the Company's revenues and negatively impact earnings. Discontinuation of the Grand View, Idaho site's contract with the Army Corps of Engineers, for example, could have a material adverse impact on Company operations given the significant revenue from that contract. Cost of Discontinuing Operations at Oak Ridge - --------------------------------------------- On December 27, 2002, the Company announced the discontinuance of LLRW processing services and operations at its wholly-owned subsidiary, AERC. Associated with these decisions, the Company has made assumptions about future costs. Developing these estimates required numerous subjective and complex judgments, estimates, and assumptions that may or may not ultimately prove accurate. No assurance can be given that the Company's estimates are accurate or complete. RESULTS OF OPERATIONS Operating Disposal Facilities, Non-operating Disposal Facilities, the discontinued Processing and Field Services operations and Corporate must be included in order to arrive at consolidated income. The Operating Disposal Facility segment is the only segment to report revenue and profits. Revenue, costs and profits or losses in the discontinued Processing and Field Services segment are reflected in the consolidated financial statements in a single line item. The Non-operating Disposal Facility segment generates minimal revenues and does not generate profits. The Corporate segment generates no revenue and provides administrative, managerial and support services for the other segments. 21
Summarized financial information concerning the Company's reportable segments is shown in the following table. Operating Non-Operating Discontinued Disposal Disposal Processing and Facilities Facilities Field Services Corporate Total 2002 - ---- Revenue $ 46,494 $ 295 $ -- $ -- $ 46,789 Direct operating cost 23,436 1,787 -- -- 25,223 ------------ --------------- ---------------- ----------- --------- Gross profit 23,058 (1,492) -- 21,566 S,G&A 8,000 103 -- 4,528 12,631 ------------ --------------- ---------------- ----------- --------- Income (loss) from operations 15,058 (1,595) -- (4,528) 8,935 Investment income 13 -- -- 18 31 Gain (loss) on sale of assets (20) 4 -- 1 (15) Interest expense 711 -- -- 109 820 Other income (expense) 78 (389) -- (231) (542) ------------ --------------- ---------------- ----------- --------- Income before income tax, discontinued operations and cumulative effect 14,418 (1,980) -- (4,849) 7,589 Income tax benefit -- -- -- 8,505 8,505 ------------ --------------- ---------------- ----------- --------- Income before discontinued operations and cumulative effect 14,418 (1,980) -- 3,656 16,094 Gain (loss) from discontinued operations 466 -- (10,930) -- (10,464) ------------ --------------- ---------------- ----------- --------- Income before cumulative effect 14,884 (1,980) (10,930) 3,656 5,630 Cumulative effect of change in accounting principle 14,983 1,548 (3,390) -- 13,141 ------------ --------------- ---------------- ----------- --------- Net income $ 29,867 $ (432) $ (14,320) $ 3,656 $ 18,771 ============ =============== ================ =========== ========= Depreciation and accretion $ 6,443 $ 458 $ 518 $ 361 $ 7,780 Capital Expenditures $ 3,010 $ 6 $ 300 $ 30 $ 3,346 Total Assets $ 44,832 $ 27,467 $ 4,649 $ 10,177 $ 87,125 2001 - ---- Revenue $ $40,088 $ 87 $ -- $ -- $ 40,175 Direct operating cost 21,637 1,141 -- -- 22,778 ------------ --------------- ---------------- ----------- --------- Gross profit 18,451 (1,054) -- -- 17,397 S,G&A 8,287 556 -- 5,431 14,274 ------------ --------------- ---------------- ----------- --------- Income from operations 10,164 (1,610) -- (5,431) 3,123 Investment income 188 -- -- 58 246 Gain (loss) on sale of assets (8) -- -- -- (8) Interest expense 746 -- -- 265 1,011 Other income (expense) 450 (286) -- 663 827 ------------ --------------- ---------------- ----------- --------- Income before income tax and discontinued operations effect 10,048 (1,896) -- (4,975) 3,177 Income tax benefit (expense) -- -- -- (186) (186) ------------ --------------- ---------------- ----------- --------- Income before discontinued operations 10,048 (1,896) -- (5,161) 2,991 Gain (loss) from discontinued operations 378 -- (2,567) -- (2,189) ------------ --------------- ---------------- ----------- --------- Net Income $ 10,426 $ (1,896) $ (2,567) $ (5,161) $ 802 ============ =============== ================ =========== ========= Depreciation Expense $ 4,285 $ 2 $ 684 $ 59 $ 5,030 Capital Expenditures $ 2,865 $ 3 $ 557 $ 31 $ 3,456 Total Assets $ 43,371 $ 27,482 $ 9,892 $ 6,079 $ 86,824 2000 - ---- Revenue $ 27,013 $ 41 $ -- $ -- $ 27,054 Direct operating cost 11,507 916 -- -- 12,423 ------------ --------------- ---------------- ----------- --------- 22 Gross profit 15,506 (875) -- -- 14,631 S,G&A 4,691 (119) -- 5,812 10,384 ------------ --------------- ---------------- ----------- --------- Income (loss) from operations 10,815 (756) -- (5,812) 4,247 Investment income 53 293 -- 89 435 Gain on sale of assets 11 -- -- -- 11 Interest expense 77 -- -- 183 260 Other income 472 -- -- 593 1,065 ------------ --------------- ---------------- ----------- --------- Income before income tax and discontinued operations 11,274 (463) -- (5,313) 5,498 Income tax benefit (expense) -- -- -- 12 12 ------------ --------------- ---------------- ----------- --------- Income before discontinued operations 11,274 (463) -- (5,301) 5,510 Discontinued operations (641) -- (172) -- (813) ------------ --------------- ---------------- ----------- --------- Net Income $ 10,633 $ (463) $ (172) $ (5,301) $ 4,697 ============ =============== ================ =========== ========= Depreciation Expense $ 1,397 $ 2 $ 571 $ 58 $ 2,028 Capital Expenditures $ 5,469 $ -- $ 904 $ 69 $ 6,442 Total Assets $ 23,119 $ 27,442 $ 9,034 $ 6,155 $ 65,750
The following table sets forth items in the Statements of Operations for Continuing Operations the three years ended December 31, 2002, as a percentage of revenue:
Percentage of Revenues for the Year Ended December 31, ---------------------- 2002 2001 2000 ------ ------ ------ Revenue 100.0% 100.0% 100.0% Operating costs 53.9 56.7 45.9 ------ ------ ------ Gross profit 46.1 43.3 54.1 ------ ------ Selling, general and administrative expenses 27.0 35.5 38.4 ------ ------ ------ Income from operations 19.1 7.8 15.7 Other income (expense), net (2.9) 0.1 3.9 ------ ------ ------ Income from continuing operations before income taxes 16.2 7.9 19.6 Income tax benefit (expense) 18.2 (0.5) -- ------ ------ ------ Income from continuing operations 34.4 7.4 19.6 ====== ====== ======
23 RESULTS OF OPERATING DISPOSAL FACILITY SEGMENT OPERATIONS The following discussion and analysis reflects the Company's Operating Disposal facility operations and does not include the results of Discontinued Operations, Non-Operating Facilities or Corporate for the 12 months ended December 31, 2000, 2001 and 2002. Revenue - ------- During the 12 months ended December 31, 2002, revenue from Operating Disposal Facilities reached $46,494,000 or 16% higher than the $40,088,000 posted in 2001, and 72% higher than the $27,013,000 in 2000 revenue. The $6,406,000 increase in Operating Disposal Facility revenue from 2001 to 2002 was driven by higher waste volumes at the Company's Texas, Washington and Idaho disposal facilities. Revenue and volume growth in Texas during 2002 was the result of winning two large Event Business contracts with waste shipped from Florida. In Washington, a large packaging and disposal project for the USACE accounted for almost 50% of the 2002 site revenue. Revenue and volume growth at the Company's Idaho facility increased 26% and 29%, respectively. Growth at the Idaho facility was principally the result of increased utilization of a contract with USACE for disposal services provided to the USACE and other federal agencies. Revenue at the Company's Nevada facility slipped by nearly 9% during the year as the Company replaced site management, upgraded compliance and worked to resolve a large thermal treatment backlog. Overall, the significant growth in revenue from 2000 to 2002 was principally the result of the February 2001 acquisition of the Idaho hazardous waste disposal facility. Direct Operating Costs - ------------------------ Direct operating costs represent costs at the disposal facilities that are directly involved in the disposal of waste. They include transportation, labor, equipment depreciation, fuel, re-agents, testing and analysis, and amortization of disposal cell "airspace" costs. Most of these costs are fixed and do not materially vary with changes in volume. From 2001 to 2002, direct operating costs from continuing operations increased 8%, reaching $23,436,000, up from the $21,637,000 in 2001. Since 2000, direct operating costs from continuing operations have increased by over 100%, principally as the result of the acquisition of the Idaho facility acquisition in early 2001. In 2002, the higher direct operating cost reflected higher aggregate waste volumes at the disposal facilities. Relative to revenue, direct cost decreased from 54% of revenue in 2001 to 50% in 2002 resulting in a 4% increase in gross margin and a $4,607,000 increase in gross profit from Operating Disposal facility operations in 2002. Selling, General and Administrative Expenses ("SG&A") - ----------------------------------------------------- During late 2001, management began concerted efforts to control and reduce SG&A. As a result of management's cost control initiatives, SG&A associated with Operating Disposal facility operations declined by 4%, dropping to $8,000,000 in 2002 from $8,287,000 in 2001. SG&A decreases occurred at the Texas and Grand View facilities. However, these decreases in SG&A were offset by increases in SG&A in Nevada and Washington. The increased SG&A in Nevada was principally the result of higher costs associated with upgraded regulatory compliance and a mid-2002 restructuring of management at the site. In Washington, the higher SG&A was the direct result of higher State usage and volume taxes. SG&A in 2002 was $3,309,000 higher than in 2000. The majority of the increase ($2,521,000) over 2000 is attributable to the acquisition of the Idaho facility in 2001. Relative to revenue, SG&A decreased in 2002, dropping to 17% of revenue, from 21% in 2001 and 17% in 2000. Operating Income - ----------------- For the 12 months ended December 31, 2002, operating income from the Operating Disposal facility segment reached $15,058,000 or a 48% increase from the $10,164,000 posted during 2001 and 39% higher than the $10,815,000 of operating income in 2000. The higher revenue combined with the relatively lower direct costs and lower SG&A allowed the Company to generate an operating margin of 32% in 2002. This compared favorably to the 25% operating margin posted in 2001, but was lower than the 40% operating margin from continuing operations in 2000. RESULTS FROM NON-OPERATING DISPOSAL FACILITIES 24 Revenue - ------- Revenue generated by Non-Operating Disposal facilities represents amounts that are billable to third parties for services performed by the Company's non-operating sites. In Nebraska, the Company is paid by the Central Interstate Compact ("Compact") for certain specified costs the Company incurs for providing technical support to the Compact and maintaining the proposed Butte, Nebraska disposal site for potential use. In Illinois, the Company is paid by the State for maintenance and monitoring associated with a closed low-level radioactive waste site that was returned to the state for perpetual care and maintenance. Generally speaking, these revenue amounts are immaterial. For the 12 months ended December 31, 2002, revenue generated from closed sites reached $295,000, which was a $208,000 and $254,000 increase over revenue generated in 2001 and 2000, respectively. Operating Costs and SG&A - --------------------------- Non-Operating Disposal Facilities incur primarily legal and consulting costs required to protect or license the facilities for initial use, and labor costs in order to properly maintain the Company's facilities. For the years ended December 31, 2002, 2001 and 2000, the Company reported $1,595,000, $1,610,000 and $756,000, respectively, of operating losses for the two proposed disposal site development projects and to closing and maintaining existing facilities subsequent to use. In 2002, 76% of these costs pertained to legal fees for lawsuits in Nebraska and California. Refer to Item 3. LEGAL PROCEEDINGS for a description of these cases. In 2003, it is expected that spending in support of the Nebraska lawsuit will decrease; however, spending on the California case could increase over the $1,217,000 spent in 2002, as the trial in the case is scheduled to begin February 24, 2003. During the 4th quarter of 2002, $652,000 of legal fees were incurred related to the California case. RESULTS FOR CORPORATE - ----------------------- SG&A - ---- During late 2001, management undertook concerted efforts to control and reduce SG&A across the Company, particularly at its corporate office in Boise, Idaho where spending declined by $903,000 or 16% in 2002. The majority, or $539,000 of the decrease in Corporate SG&A was due to the resolution of multiple longstanding lawsuits and the resulting decreased reliance on law firms litigating these issues. RESULTS OF DISCONTINUED OPERATIONS During 2002, the Company entered into discussions with various parties potentially interested in purchasing its municipal solid waste landfill in Texas and with other parties regarding potential sale of its LLRW processing business in Tennessee. Accordingly, the Company has reclassified these business operations as discontinued operations consistent with Generally Accepted Accounting Principles ("GAAP") and specifically, in accordance with FAS No. 144 "Accounting for the Impairment or Disposal of Long Lived Assets" and Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." El Centro Solid Waste Landfill, Robstown, Texas - ----------------------------------------------- In mid-2002 the Company entered into discussions with several parties regarding the potential sale of the Company's El Centro municipal solid waste disposal facility near Robstown, Texas. On February 13, 2003, the Company announced the sale of the El Centro municipal and industrial waste landfill to a wholly-owned subsidiary of Allied Waste Industries, Inc. ("Allied") for $10 million cash at closing and future volume-based royalty payments. The El Centro landfill is located adjacent to Company subsidiary Texas Ecologists' hazardous and industrial waste treatment and disposal facility. Under the Agreement, Allied will pay American Ecology minimum royalties of at least $215,000 annually. Once Allied has paid the Company $14,000,000 it no longer has an obligation to pay annual minimum royalties but will still be required to pay royalties based on waste volumes received at El Centro. The Purchase Agreement also provides incentives for Allied to bring certain industrial waste to the Texas Ecologists hazardous waste facility, and for the Company to utilize the El Centro landfill. Opened in July 2000, the El Centro solid waste landfill was carried on the Company's books at approximately $7 million prior to sale and, when combined with reductions in liabilities and the recognition of a portion of future 25 minimum royalties, should result in a gain on sale of approximately $5 million, which will be recognized during the first quarter of 2003. The table below provides financial information on the operations of the El Centro landfill included in discontinued operations as of December 31, 2002:
$ in Thousands Year Ended December 31, 2002 2001 2000 ------ ------ ------ Revenue $2,563 $2,450 $ 398 Direct Operating costs 1,351 1,480 490 ------ ------ ------ Gross profit 1,212 970 (92) Selling, general and administrative expenses 705 538 506 ------ ------ ------ Income (loss) from operations 507 432 (598) Other expenses 41 54 43 ------ ------ ------ Gain (loss) from discontinued operations $ 466 $ 378 $(641) ====== ====== ======
Despite the Company's expertise in operating disposal facilities, the business model and marketplace for solid waste services is significantly different from that of the Company's core hazardous and radioactive waste business. Management believes that by exiting this business and monetizing its investment in the solid landfill, the Company will obtain resources with which the Company will be able to grow its core business and/or improve its capital structure. Low-level Radioactive Waste Processing and Field Services, Oak Ridge Tennessee - ------------------------------------------------------------------------------ Oak Ridge, Tennessee Facility. AERC, acquired from Quadrex Corp. in 1994, processed LLRW to reduce the volume of waste requiring disposal at licensed radioactive waste facilities. On December 27, 2002, the Company announced the cessation of LLRW services and operations. The plant, situated on 16 acres of Company property in Oak Ridge, Tennessee, primarily served the commercial nuclear power industry, but also accepted brokered waste from biomedical, academic and non-utility industry customers. On October 18, 2002, the Company announced its intent to actively market the facility and exit the LLRW processing business. While a number of potential buyers were identified, no acceptable offers were received to acquire the facility. After concluding it would not be possible to sell the business as a going concern, management discontinued AERC's commercial services. AERC's processing services had not been successfully integrated with the Company's core disposal business, and management was unable to identify a viable business strategy to reverse the recurring losses that have occurred at the facility since its acquisition in 1994. The discontinuance of commercial operations resulted in the dismissal of 63 employees. Less than 20 employees are presently engaged in removal of LLRW from the facility, maintaining the facility's radioactive materials licenses and preparing the facility for sale. It is expected that removal of waste and related clean-up work will take most of 2003, although staffing requirements will diminish over time. The Company intends to maintain the facility's existing radioactive materials and operating license pending a possible sale. The Company has retained a limited number of AERC employees to oversee the removal of stored waste from the site, and to maintain compliance with its radioactive materials license, and prepare the facility for sale. The Company is also working with certain former competitors to expedite waste removal on commercially favorable terms. The Company's Field Services division also suspended operations at this time due to its connection and dependence upon the LLRW processing facility and focused efforts on prompt completion of existing projects. These existing AERC Field Services projects are presently at or near completion. During 2002, the Company invested substantially in the removal of accumulated customer and Company waste inventory, non-revenue producing material and facility upgrades to prepare the Oak Ridge-based subsidiary for sale. Despite the efforts to improve the facility's appearance, upgrade efficiency and a decision to increase prices on services, the subsidiary continued to operate with significant losses. Since purchasing AERC in 1994, the subsidiary has lost $56 million, including substantial operating and net losses in 2001 and 2002. Management concluded that a lack of core business integration and AERC's highly 26 competitive market environment would continue to prevent AERC from achieving profitability in the foreseeable future. Accordingly, action was taken to discontinue commercial operations and prepare the facility for sale. The table below provides financial information on the combined operations of the LLRW processing facility and Field Services included in discontinued operations as of December 31, 2002:
$ in thousands Year Ended December 31, 2002 2001 2000 --------- -------- -------- Revenue $ 17,018 $13,391 $14,506 Direct Operating costs 16,687 12,086 10,025 --------- -------- -------- Gross profit 331 1,305 4,481 Selling, general and administrative expenses 3,627 4,465 4,602 --------- -------- -------- (Loss) from operations (3,296) (3,160) (121) Other expenses (gains) 616 (593) 51 Accrued charges 7,018 -- -- --------- -------- -------- (Loss) from discontinued operations $(10,930) $(2,567) $ (172) ========= ======== ========
Management does not believe that the Oak Ridge processing business is consistent with the Company's core treatment and disposal business model and has assigned priority attention to removing accumulated waste and marketing the remaining assets to potentially interested buyers identified after the Company announced its intentions to exit the LLRW processing business in October 2002. Management considers the timely and orderly disposition of that business as critical to the ability of the Company to meet its future growth objectives. RESULTS OF CONSOLIDATED OPERATIONS Revenue - ------- During the 12 months ended December 31, 2002, consolidated revenue reached $46,789,000 which was 16% and 73% higher than consolidated revenue achieved during 2001 and 2000, respectively. The acquisition of the Idaho hazardous waste facility in 2001 combined with higher waste volumes pushed revenue higher. Direct Operating Costs - ------------------------ Consolidated direct operating costs were $25,223,000 in the year ended December 31, 2002. This was $2,445,000 or 11% higher than consolidated direct operating costs incurred in 2001 and $12,800,000 or 103% higher than direct costs in 2000. Like revenue, the higher direct costs in 2002 were primarily driven by the acquisition of the Idaho hazardous waste facility and substantially increasing waste volumes. Relative to revenue, consolidated direct operating costs were 54%, 57% and 46%. As a result of higher revenue in 2002 and relatively lower direct operating costs, gross profit reached $21,566,000 or 46% of revenue compared to gross profit of $17,397,000 or 43% of revenue in 2001 and $14,631,000 or 54% of revenue in 2000. SG&A - ---- During late 2001, management began concerted efforts to control and reduce SG&A across the Company. As a result of management's cost control initiatives SG&A spending decreased at each operating segment. Corporate SG&A spending decreased significantly with the majority of the decrease resulting from the reduction in litigation. Moderate reductions in SG&A were experienced by the remaining segments as higher costs associated with upgraded regulatory compliance and higher state usage and volume taxes limited the net reductions in SG&A spending. In 2002, consolidated SG&A dropped by 12% to $12.6 million compared to $14.3 million in 2001. Relative to revenue, SG&A showed even greater improvement, dropping to 27% of revenue compared to 36% of revenue last year. SG&A was 22% in 2002 than in 2000. The majority of the increase ($2,247,000) over 2000 is attributable to the acquisition of the Idaho facility in 2001. 27 Operating Income - ----------------- Consolidated operating income reached $8,935,000 or a 187% increase from the $3,123,000 posted during 2001 and 110% higher than operating income of $4,247,000 posted in 2000. The higher revenue and the relatively lower direct costs and lower SG&A allowed the Company to generate a consolidated operating margin of 19%. This compared favorably to the 8% operating margin posted in 2001 and the 16% operating margin posted in 2000. Interest Income - ---------------- Interest income represents earnings on cash balances, restricted investments and notes receivable, as to which the Company currently maintains minimal amounts. Interest income in 2002 was only $31,000. The $246,000 of interest income in 2001 was primarily earnings on investments acquired on February 1, 2001 as part of the Envirosource of Idaho acquisition. These investments were subsequently converted to cash and used in operations. The $435,000 of interest income in 2000 was primarily earnings on investments used as collateral for insurance policies. The policies were subsequently restructured, which enabled the Company to convert the investments to cash for use in operations. Gain on Sale of Fixed Assets - ---------------------------- The Company has realized minimal gains or losses on the sale of fixed assets. The Company purchases fixed assets when necessary. Fixed assets are replaced at the end of their useful life. Interest Expense - ----------------- Interest expense was $820,000, $1,011,000 and $260,000 in 2002, 2001 and 2000, respectively. Interest expense increased substantially in 2001 due to the assumption of an 8.25%, $8,500,000 industrial revenue bond assumed as part of the February 2001 acquisition of the Grand View, Idaho facility. On October 28, 2002, the Company refinanced the industrial revenue bond with a variable rate $7,000,000, 5-year amortizing term loan. As of December 31, 2002, the interest rate on the new term loan was 3.7%. Also contributing to the lower interest expense in 2002 was the retirement of additional debt of $6,628,000 as part of management initiatives to more efficiently utilize cash, improve the Company's balance sheet and reduce higher cost debt. Interest expense is expected to decrease further in 2003 due to less debt and lower interest rates. Other Income (Expense) - ------------------------ Other income (expense) was $(542,000), $827,000 and $859,000 for 2002, 2001 and 2000, respectively. Other income is the account used to record various business activities that are not a part of the Company's current year ordinary and usual revenues and expenses. The following table summarizes the business transactions from outside the Company's current year normal business scope.
($ in thousands) As of December 31, OTHER INCOME 2002 2001 2000 - --------------------------------------------------------------- ------ ------ ------ State tax adjustments $ -- $ 106 $ 7 Correction of expensed debt payments -- 177 112 Insurance claim refunds 31 172 24 Payment on sales invoices previously written off -- -- 98 Adjust prior years accrued burial fee based on actual payments -- 500 372 Adjust bad debt expense reserve -- (21) 76 Settlement related to GM litigation (740) (300) -- Payment received on National Union litigation 250 -- -- Impairment of equity investment (358) -- -- 28 Reversal of previous professional fee accrual -- 160 -- Other litigation related settlements 100 -- -- Correction of prior year capitalized costs -- -- 132 Other miscellaneous income, net 3 28 28 Cash receipts for sale and rent of property rights 117 5 10 Gain on early extinguishment of debt -- -- 206 Data services sold 55 -- -- ------ ------ ------ Total Other Income (Expense) $(542) $ 827 $1,065 ====== ====== ======
During 2002 the Company sought to resolve pending litigation in order to focus its resources and energies on the core disposal business. The large increase in Other Expense during 2002 is a reflection of this attempt and has resulted in 7 of 11 legal disputes being resolved in 2002. The 2001 and 2000 accrued burial fee adjustment is the result of correcting the previous year's accrual of burial fees based on actual burial fees paid. The Company makes a monthly accrual for burial fees based on actual waste receipts. However, the actual amount paid may be different, especially given that each operating facility generally pays in excess of $1,000,000 in burial fees each year with rates changing periodically. In December 2000, the Company entered into an agreement with Chase Bank of Texas for settlement of debt associated with the Company's 1994 federal income tax claim. The Company had pledged the income tax receivable and a deed of trust on the Company's Winona, Texas site to Chase Bank in 1998. The settlement, which was paid in December 2000, allowed the Company to pay $350,000 to Chase Bank and in return be released and discharged from all obligations of the $556,000 loan. The result was a gain on early extinguishment of debt of $206,000, and the release by the bank of its security interest in the Winona property and the income tax refund claim. Income Taxes - ------------- The Company's effective income tax rates were (112)%, 17%, and (.2)% for the fiscal years 2002, 2001 and 2000 respectively. The Company has approximately $19,000,000 in net deferred tax assets for federal income tax purposes, of which a reduction in the valuation allowance of $8,284,000 was recorded as of December 31, 2002. This reflects management's belief that it was more likely than not that approximately $8,284,000 of the deferred tax asset would be utilized in the foreseeable future. Management believes that the certainty with which it can project taxable income decreases over time, and consequently a three years projection is the longest period that the Company can project with confidence. Moreover, uncertainties regarding future disposition of AERC raise substantial questions about the potential future use of net operating loss carry forwards applicable to that subsidiary. The Company will continue to periodically assess the adequacy of the valuation allowance. Due to the amount of federal deferred tax assets available to the Company, regular federal income tax is not expected to be paid for the foreseeable future, although a small amount of federal alternative minimum tax is expected to be paid starting in 2003. The Company pays income and franchise taxes to various state and local jurisdictions. The Company paid $6,000, $51,000 and $75,000 in state and local taxes for the fiscal years 2002, 2001 and 2000, respectively. Cumulative Effect of Accounting Change - -------------------------------------- On January 1, 2002, the Company early adopted FAS 143, "Accounting for Asset Retirement Obligations." This change is more fully described in Notes 2 and 9 to the financial statements with a pro-forma effect as shown on the face of the income statement. Compliance with FAS 143 is mandatory for fiscal years beginning after June 15, 2002. Implementation is expected to have the following effects upon the Company: - A stronger balance sheet through a reduction in liabilities and an increase in the Company reported book net worth. Management believes the reduction in liabilities was helpful in renewing the Company's line of credit on more favorable terms and in successfully refinancing the industrial revenue bond in October 2002. 29 - Improved comparability of results with competitors is expected to occur as uniform application of the FAS 143 standard replaces the varying practices previously employed in the waste industry. - Future expenses will increase on a period basis as the $13,141,000 cumulative effect recognized as of January 1, 2002 flows through expenses over a currently projected 55 years. The current estimated expense increase is approximately $240,000 per year. CAPITAL RESOURCES AND LIQUIDITY As of December 31, 2002, the Company's working capital position had materially improved, increasing to $8,087,000. This compared to a working capital deficit of $10,568,000 at December 31, 2001. The significant improvement in the Company's working capital position principally resulted from the refinancing of the $8,500,000 Idaho Industrial Revenue Bond, which had been classified as a current liability at December 31, 2001 and the reclassification of $10,722,000 of long term assets at El Centro and AERC as current assets held for sale. The Company's current ratio improved to 1.5:1.0 in 2002 compared with 0.7:1.0 and 1.2:1.0 for the years ended December 31, 2001 and 2000. Liquidity, as measured by day's receivables outstanding ("DRO"), also improved, decreasing to 77 days during 2002, down from 83 days in 2001. Despite a slowing economy and increasing concern about the creditworthiness of certain customers, the Company was able to increase revenue and speed collections in 2002. Management will continue to focus on improving DRO in 2003 through the implementation of new information systems and the dedication of additional personnel to accounts receivable collection efforts. As demonstrated by the improvement in working capital, current ratio and DSO, the Company's liquidity improved during 2002 from 2001. In addition to improving the Company's liquidity, the Company's leverage has markedly improved, as measured by the debt to equity ratio. At December 31, 2002, the Company's debt to equity ratio had decreased to 0.9 to 1 from 2.3 to 1 and 1.5 to 1 at December 31, 2001 and 2000, respectively. This decrease in leverage is the result of the retention of earnings, reduction in long term closure and post-closure obligations from the implementation of FAS 143, and the net retirement of $7,513,000 of debt in 2002. The reduction in debt was accomplished by substantially paying off the Company's $5,000,000 outstanding balance on its line of credit, a $1,500,000 reduction in the Idaho industrial revenue bond through a refinancing, and the pay off of $1,431,000 in notes payable during the year. On October 15, 2002, the Company and Wells Fargo Bank entered into an amendment to an existing credit agreement that reduced the interest rate and fee structure on the Company's line of credit, modified existing financial covenants, reduced the periodic reporting requirements, reduced the maximum amount available from $8,000,000 to $6,000,000 and extended the maturity date of the line of credit to June 15, 2004. The line of credit is secured by the Company's accounts receivable. At December 31, 2002 and 2001, the outstanding balance on the revolving line of credit was $603,000 and $5,000,000, respectively. The Company borrows and repays according to business demands and availability of cash. On October 28, 2002, the Company refinanced the $8,500,000 Idaho Industrial Revenue Bond with a $7.0 million term loan from Wells Fargo Bank. The remaining $1,500,000 was funded with cash on hand. At December 31, 2002, $5,483,000 was reported as long term debt since it is not scheduled to be repaid within the next year with $1,392,000 reported within the current portion of long term debt. The term loan agreement permits prepayment of the debt without penalty and allows the Company to borrow at a floating interest rates based on the Company's Funded Debt ratio. Depending upon the Company's Funded Debt ratio, the Company can borrow either an interest rate range based on the bank's prime rate to prime rate plus 1% or a range of 2% to 3.25% over an offshore interest rate. At December 31, 2002 the interest rate on the new term loan was 3.7%. This is significantly lower than the 8.25% interest rate the Company was paying under the terms of the refinanced Idaho Industrial Revenue Bond. Assuming the current interest rate payable on the term loan remains constant, the Company would expect to save approximately $442,250 annually in interest payments. The Company has pledged substantially all of its fixed assets at the Grand View, Beatty, Richland, and Robstown hazardous and radioactive waste disposal facilities as collateral for the term loan. The term loan is cross-collateralized with the Company's line of credit. Management expects its capital spending needs to reach approximately $8 million in 2003. It is expected that $4.8 million or 56% of 2003 capital spending will be allocated to the Idaho hazardous waste disposal facility, primarily for new 30 disposal cell construction. Combined with new cell construction at the Company's Texas, Nevada, and Washington facilities, landfill development (trench or cell construction) is expected to account for 72% or $5.8 million of 2003 capital spending. While this represents a $5.3 million or 200% increase in capital outlays over 2002, approximately $5.0 million or 60% of the planned 2003 capital spending is deferred from 2002. On February 13, 2003, the Company announced the sale of the El Centro municipal and industrial waste landfill located near Corpus Christi, Texas to a wholly-owned subsidiary of Allied Waste Industries, Inc. ("Allied") for $10 million cash at closing and future volume-based royalty payments. The El Centro landfill is located adjacent to Company subsidiary Texas Ecologists' hazardous and industrial waste treatment and disposal facility. Under the Agreement, Allied will pay American Ecology minimum royalties of at least $215,000 annually. Once Allied has paid the Company $14,000,000 it no longer has an obligation to pay annual minimum royalties, but will still be required to pay royalties based on waste volumes received at El Centro. The Purchase Agreement also provides incentives for Allied to bring certain industrial waste to the Texas Ecologists hazardous waste facility, and for the Company to utilize the El Centro landfill. Opened in July 2000, the El Centro solid waste landfill was carried on the Company's books at approximately $7 million prior to sale and, when combined with reduction in liabilities and the recognition of a portion of future minimum royalties, should result in a gain on sale of approximately $5 million, which will be recognized during the first quarter of 2003. The Company has 2,350,000 series E Warrants expiring July 1, 2003 with an exercise price of $1.50 a share. As the market price for Company common shares is well above $1.50, the Company expects most, if not all, of the Series E warrants to be exercised as of July 1, 2003. If the Series E warrants are exercised, the Company will receive a cash infusion of $3,525,000. On January 14, 2003, the Company extended an offer to the holders of the Company's Series D Preferred Stock to repurchase their stock for the original sales price of $47.50 a share plus accrued but unpaid dividends. The offer was subject to approval of the Company's Board of Directors and Wells Fargo Bank, and requires a minimum of 67% of the Series D Preferred Stock to be tendered by the stockholders. All Series D holders have accepted the offer granting the Company the right to repurchase their Series D. If the Company does not repurchase the offered shares prior to July 31, 2003, the Company's right to repurchase will expire. While Wells Fargo Bank has not waived the prohibition on the payment of dividends, it has agreed to consider waiving the prohibition with respect to the repurchase of the Series D Preferred Stock and payment of accrued dividends. Should Wells Fargo Bank allow the Company to repurchase the stock, approximately $6,500,000 of cash would be required in order to effect the transaction. The Company believes that cash flow from operations, proceeds from the sale of El Centro, the expected conversion of the Series E warrants, and borrowings under the line of credit will be sufficient to meet the Company's cash needs for the foreseeable future. OTHER MATTERS Environmental Matters - ---------------------- The Company maintains reserves and insurance policies for costs associated with future closure and post-closure obligations at both current and formerly operated disposal facilities. These reserves and insurance policies are based on professional engineering studies and interpretations of current regulatory requirements which are updated annually. Accounting for closure and post-closure costs includes final disposal unit capping for the site, soil and groundwater monitoring, and other monitoring and routine maintenance costs expected after a site stops accepting waste. The Company believes it has made adequate provisions through reserves and the insurance policy for its obligations. The Company estimates that its future closure and post-closure costs for all insured facilities included in continuing operations were approximately $40,000,000 as of December 31, 2002 with a median year for payment of 2025. This compares to recorded closure and post-closure costs for facilities in continuing operations of $10,200,000, $25,654,000 and $15,927,000 for 2002, 2001 and 2000, respectively. An additional $19,000,000 of future closure and post-closure costs for facilities included in discontinued operations was estimated as of December 31 31, 2002. As described in Item 1 of this Form 10-K under "Insurance," the Company has a prepaid insurance policy expiring September 2003 for costs of closure and post closure of facilities. Management believes that disposition of these environmental matters will not have a material adverse effect on the financial condition of the Company. The Company's 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 all such costs, regulations, legislation enacted, or other future events affecting these facilities. Seasonal Effects - ----------------- The Company's operating revenue is generally lower in the winter months and increases in the summer months when weather sensitive cleanup projects are undertaken. While volume of hazardous waste generally tends to decrease during winter months, market conditions have a larger effect on revenue than seasonality. NEW ACCOUNTING PRONOUNCEMENTS - ------------------------------- In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. Under the new rules, goodwill, as well as intangible assets deemed to have indefinite lives, will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. Currently, the Company has no intangible assets that are categorized as having indefinite lives and does not anticipate any changes in the estimated useful lives of its intangibles. Consequently, there was no material financial statement impact upon the adoption of FAS No. 142. As described in Notes 2, 9, and 19 to the Consolidated Financial Statements included under Item 8 of this Form 10-K, the Company adopted the provisions of FAS 143 and FAS 144. The adoption of the provisions of these statements had a material effect on the Company's financial condition and operating results as of December 31, 2002. In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. FAS No. 145 rescinds or amends various standards on accounting for debt extinguishments, intangible assets of motor carriers, and certain lease transactions. Additional technical corrections and amendments were made to various other existing authoritative pronouncements. The implementation of this Statement resulted in the reclassification to other income of an extraordinary gain of $206,000 as the result of early extinguishments of debt in 2000. In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities. FAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. Under prior guidance from EITF 94-3, a liability for such costs could be recognized at the date of commitment to an exit plan. The provisions of this Statement are to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not expect the Statement to result in a material impact on its financial position or results of operations except as discussed in Note 19 to the financial statements. In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Interpretation elaborates on the disclosures to be made by sellers or guarantors of products and services, as well as those entities guaranteeing the financial performance of others. The Interpretation further clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are effective on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of periods ending after December 15, 2002. The Company believes that its disclosures with regard to these matters are adequate as of December 31, 2002. In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure an amendment of FASB Statement No. 123. This Statement amends FASB No. 123 to 32 provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, the Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As of December 31, 2002, the Company continues to follow the intrinsic value method to account for stock-based employee compensation. The additional disclosure requirements of this statement are effective for financial statements for interim periods beginning after December 15, 2002. Consequently, those disclosures will be included in the Company's financial statements for the quarter ending March 31, 2003. CRITICAL ACCOUNTING POLICIES In preparing the financial statements, management makes many estimates and assumptions that affect the Company's financial position and results of operations. It is unlikely that changes in most estimates and assumptions would materially change the Company's financial position and results of operations. Disposal Facility Accounting, Accounting for Discontinued Operations, Litigation, Income Taxes, and Project Accounting involve subjective judgments, estimates and assumptions that would likely produce a materially different financial position and result of operation if different judgments, estimates, or assumptions were used. These matters are discussed below. Additional information concerning significant account policies is set forth in Note 3 to the Consolidated Financial Statements. DISPOSAL FACILITY ACCOUNTING In general terms, a cell development asset exists for the cost of building usable disposal space and a closure liability exists for closing, maintaining and monitoring the disposal unit once this space has been filled. Major assumptions and judgments used to calculate cell development assets and closure liabilities are as follows: - - Personnel and equipment costs incurred to construct disposal cells are identified by management and capitalized as a cell development asset. - - The cell development asset is depreciated as each available cubic yard of disposal space is filled. Periodic independent engineering surveys and inspection reports are used to determine the remaining volume available. These reports take into account volume, compaction rates and space reserved for capping the filled disposal units. - - The closure liability is the present value based on a current cost estimate prepared by an independent engineering firm of the costs to close, maintain and monitor disposal units. Management estimates the timing of payment and then accretes the current cost estimate by an estimated cost of living (1.5%), and then discounts (9.3%) the accreted current cost estimate back to a present value. The final payments of the closure liability are currently estimated as being paid in 2056. On January 1, 2002, the Company early adopted FAS 143 Accounting for Asset Retirement Obligations. This change is more fully described in Notes 2 and 9 to the financial statements with a pro-forma effect as shown on the face of the income statement. Compliance with FAS 143 is mandatory for fiscal years beginning after June 15, 2002. Under FAS 143, future expenses will increase on a period basis as the $13,141,000 cumulative effect flows through expenses over the currently projected period of 55 years. The current estimated expense increase is approximately $240,000 per year. ACCOUNTING FOR DISCONTINUED OPERATIONS Accounting for discontinued operations requires numerous subjective and complex judgments, estimates and assumptions that materially affect financial position and discontinued operations. At December 27, 2002, the Company discontinued the operations of the former Processing and Field Services segment at its Oak Ridge, Tennessee facility. The discontinued operations were accounted for under Emerging Issues Task Force Issue No 94-3 Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring), which requires a liability to be recognized at the time that the decision to exit the segment was made. EITF 94-3 was chosen as the guiding 33 literature rather than Statement of Financial Accounting Standards No. 146 Accounting for Costs Associated with Exit or Disposal Activities (FAS 146), which requires a liability to be recognized at the time that the liability is incurred. FAS 146 is required for exit activities entered into after December 31, 2002 and is optional for exit activities prior to December 31, 2002. Approximately $1,800,000 of liabilities were recognized as of December 31, 2002 under EITF 94-3 that would not have been recognized until incurred had the Company adopted FAS 146 prior to December 27, 2002. As of December 27, 2002, the Company recognized $7,018,000 in incremental liabilities relating to the discontinuance of the LLRW Processing and Field Services operations located in Oak Ridge, Tennessee. The Company has assumed that the Oak Ridge facility will be cleared of remaining material and prepared for sale during 2003. During 2003, the Company expects to spend $1,800,000 to maintain compliance with conditions of its existing licenses and permits. An additional $1,227,000 is expected to be spent removing waste from the facility and arranging for its disposal. Property and equipment was reduced by $1,593,000 to net realizable value. Due to the preliminary status of the waste removal effort and related preparation for sale it is expected that the estimate for exit from the segment will change, potentially by a material amount. LITIGATION The Company is involved in litigation requiring estimates of timing and loss potential whose timing and ultimate disposition is controlled by the judicial process. Approximately $1,100,000 is included as an Other Expense for litigation where the Company was the defendant in the year ended December 31 2002. The Company also has recorded $27,430,000 for future facility development costs, which may not be realized if the Company does not recover monetary damages from the State of California and/or the State of Nebraska or the disposal projects in these states do not become operational. The decision to accrue costs or write off assets is based upon the specific facts and circumstances pertaining to each case and management's evaluation of present circumstances. INCOME TAXES The Company has historically recorded a valuation allowance against its deferred tax assets in accordance with FAS 109, Accounting for Income Taxes. This past valuation allowance reflected management's belief that due to a history of tax losses and the previously weak financial condition and prospects for the business, it was more likely than not that the Company would be unable to utilize portions of the deferred tax assets prior to their expiration. The Company reported taxable income in 2001 and 2002, and expects to report taxable income in 2003. The determination of whether a valuation allowance is appropriate and the valuation allowance amount is based on management's judgments and evaluation of whether it is more likely than not that the Company will be able to utilize some, or all of the deferred tax assets. The Company has assessed the valuation allowance and has reversed approximately $8,284,000 of the valuation allowance that the Company expects to utilize through 2005. PROJECT ACCOUNTING The Company has performed relatively large, fixed fee and long-duration remediation projects through the Company's discontinued Field Services Division. Securing contracts to perform work required the Company to make assumptions regarding job duration, percentage of completion for waste processing, and disposal costs that would not be known until the actual project is complete. Differences between estimated and actual cost to remove, process and arrange final disposal of contaminated material can vary widely, resulting in potentially significant changes in each individual project's profit or loss. As of December 31, 2002, one major project is awaiting completion and changes in the estimated cost to complete are expected to positively or negatively impact the results of discontinued operations. 34 OFF BALANCE SHEET ARRANGEMENTS The Company does not have any off balance sheet arrangements or interests in variable interest entities that would require consolidation. The Company operates through wholly owned subsidiaries. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not maintain equities, commodities, derivative, or any other instruments for trading or any other purposes, and also does not enter into transactions denominated in currencies other than the U.S. Dollar. The Company has minimal interest rate risk on investments or other assets as the amount held is the minimum requirement imposed by insurance or government agencies. At December 31, 2002, $244,000 was held in short term pledged investment accounts and approximately $740,000 in tax refunds was due from the federal government. Together, these items earned interest at approximately 5% and comprise 1.1% of assets. The Company has interest rate risk on debt instruments, as the Company repaid an $8,500,000 fixed interest obligation with a $7,000,000 term loan bearing interest at variable rates. At December 31, 2002, $603,000 of variable rate debt was owed under a line of credit and was accruing interest at the rate of 4.4% and $6,884,000 of variable rate debt was owed under the term loan and was accruing interest at the rate of 3.7%. 35 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors American Ecology Corporation We have audited the accompanying consolidated balance sheet of American Ecology Corporation and subsidiaries as of December 31, 2002, and the related consolidated statement of operations, shareholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Ecology Corporation and subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Notes 2 and 9 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations", effective January 1, 2002. Moss Adams, LLP Seattle, Washington February 11, 2003 36 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors American Ecology Corporation We have audited the accompanying consolidated balance sheets of American Ecology Corporation and subsidiaries as of December 31, 2001, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended December 31, 2001, and 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Ecology Corporation and subsidiaries as of December 31, 2001, and the results of their operations and their cash flows for the years ended December 31, 2001, and 2000, in conformity with U.S. generally accepted accounting principles. Balukoff, Lindstrom & Co., P.A. Boise, Idaho February 15, 2002 37
AMERICAN ECOLOGY CORPORATION CONSOLIDATED BALANCE SHEETS ($ IN 000'S EXCEPT PER SHARE AMOUNTS) As of December 31, ------------------- 2002 2001 -------- --------- ASSETS Current Assets: Cash and cash equivalents $ 135 $ 4,476 Receivables, net 10,460 12,674 Income taxes receivable 740 740 Prepayments and other 498 1,881 Deferred income taxes 2,745 -- Assets held for sale or closure 10,722 -- -------- --------- Total current assets 25,300 19,771 Cash and investment securities, pledged 244 243 Property and equipment, net 26,998 38,462 Facility development costs 27,430 27,430 Other assets 129 918 Assets held for sale or closure 1,485 -- Deferred income taxes 5,539 -- -------- --------- Total Assets $87,125 $ 86,824 ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long term debt $ 1,985 $ 9,860 Short term line of credit -- 5,000 Accounts payable 2,192 2,408 Accrued liabilities 4,166 12,121 Accrued closure and post closure obligation, current portion 882 700 Income taxes payable 23 250 Current liabilities of assets held for sale or closure 7,965 -- -------- --------- Total current liabilities 17,213 30,339 Long term accrued liabilities 2,372 1,843 Long term debt 5,972 2,593 Revolving line of credit 603 -- Liabilities of assets held for sale or closure, excluding current portion 5,699 -- Accrued closure and post closure obligation, excluding current portion 9,318 25,633 -------- --------- Total liabilities 41,177 60,408 -------- --------- Commitments and contingencies Shareholders' equity: Convertible preferred stock, 1,000,000 shares authorized, Designated as follows: Series D cumulative convertible preferred stock, $.01 par value, 100,001 shares issued and outstanding; 1 1 Series E redeemable convertible preferred stock, $10.00 par value, 300,000 shares converted and retired -- -- Common stock, $.01 par value, 50,000,000 authorized, 14,539,264 and 13,766,485 shares issued and outstanding 145 138 Additional paid-in capital 55,789 54,637 Accumulated deficit (9,987) (28,360) -------- --------- Total shareholders' equity 45,948 26,416 -------- --------- Total Liabilities and Shareholders' Equity $87,125 $ 86,824 ======== =========
The accompanying notes are an integral part of these financial statements. 38
AMERICAN ECOLOGY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS ($ IN 000'S EXCEPT PER SHARE AMOUNTS) For the Year Ended December 31, ------------------------------ 2002 2001 2000 --------- -------- -------- Revenue $ 46,789 $40,175 $27,054 Direct operating costs 25,223 22,778 12,423 --------- -------- -------- Gross profit 21,566 17,397 14,631 Selling, general and administrative expenses 12,631 14,274 10,384 --------- -------- -------- Income from operations 8,935 3,123 4,247 Investment income 31 246 435 Gain/(loss) on sale of assets (15) (8) 11 Interest expense 820 1,011 260 Other income (expense) (542) 827 1,065 --------- -------- -------- Income before income tax, discontinued operations and cumulative effect of change in accounting principle 7,589 3,177 5,498 Income tax benefit (expense) 8,505 (186) 12 --------- -------- -------- Income before discontinued operations and cumulative effect of change in accounting principle 16,094 2,991 5,510 (Loss) from discontinued operations (net of tax of $0) (10,464) (2,189) (813) --------- -------- -------- Income before cumulative effect of change in accounting principle 5,630 802 4,697 Cumulative effect of change in accounting principle (net of tax of $0) 13,141 -- -- --------- -------- -------- Net income 18,771 802 4,697 Preferred stock dividends 398 398 398 --------- -------- -------- Net income available to common shareholders $ 18,373 $ 404 $ 4,299 ========= ======== ======== Basic earnings per share $ 1.28 $ .03 $ .31 ========= ======== ======== Diluted earnings per share $ 1.15 $ .03 $ .26 ========= ======== ======== Dividends paid per common share $ -- $ -- $ -- ========= ======== ======== PRO FORMA RESULTS AS IF FAS 143 WAS IMPLEMENTED JANUARY 1, 2000 Net income before discontinued operations and cumulative effect of change in accounting principle $ 2,991 $ 5,510 Less pro forma accretion of closure and post closure liability (876) (802) Less pro forma amortization of closure asset (198) (79) Plus previous closure and post closure expenses 131 101 -------- -------- Pro forma net income before discontinued operations and cumulative effect of change in accounting principle $ 2,048 $ 4,730 ======== ======== Basic earnings per share from income before discontinued operations and cumulative effect of change in accounting principle- pro forma $ .15 $ .35 ======== ======== Diluted earnings per share from income before discontinued operations and cumulative effect of change in accounting principle-pro forma $ .13 $ .28 ======== ========
The accompanying notes are an integral part of these financial statements. 39
AMERICAN ECOLOGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS ($ IN 000'S) For the Year Ended December 31, ----------------------------- 2002 2001 2000 --------- -------- -------- Cash flows from operating activities: Net income $ 18,771 $ 802 $ 4,697 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization, and accretion 6,604 4,076 1,899 Loss from discontinued operations 10,464 2,189 813 Cumulative effect of change in accounting principle (13,141) -- -- Reversal of deferred income tax allowance (8,284) -- -- (Gain) loss on sale of assets 15 8 (11) Stock compensation 68 82 79 Changes in assets and liabilities: Receivables (2,517) (827) (1,678) Other assets 538 (123) 191 Closure and post closure obligation (1,598) (386) (1,358) Income taxes payable (227) 135 (87) Accounts payable and accrued liabilities (3,063) 1,236 (1,158) --------- -------- -------- Net cash provided by operating activities 7,630 7,192 3,387 Cash flows from investing activities: Capital expenditures (2,737) (4,009) (3,267) Proceeds from sales of assets -- -- 11 Acquisition of Envirosafe Services of Idaho, Inc. -- 2,575 -- Transfers from cash and investment securities, pledged -- 434 -- --------- -------- -------- Net cash used by investing activities (2,737) (1,000) (3,256) Cash flows from financing activities: Proceeds from issuances and indebtedness 7,615 907 6,058 Payments of indebtedness (15,128) (4,035) (648) Stock purchased and canceled in forward split -- (149) -- Stock options exercised 1,091 95 18 --------- -------- -------- Net cash provided by (used in) financing activities (6,422) (3,182) 5,428 --------- -------- -------- Increase (decrease) in cash and cash equivalents (1,529) 3,010 5,559 Net cash used by discontinued operations (2,812) (2,656) (6,208) Cash and cash equivalents at beginning of year 4,476 4,122 4,771 --------- -------- -------- Cash and cash equivalents at end of year $ 135 $ 4,476 $ 4,122 ========= ======== ======== Supplemental disclosures of cash flow information: Cash paid during the year for: Interest expense $ 820 $ 1,011 $ 260 Income taxes paid 6 51 75 Non-cash investing and financing activities: Purchase of Envirosafe Services of Idaho, Inc. -- 18,541 -- Stock issuance-director's compensation 68 82 79 Preferred stock dividends accrued 398 398 398 Acquisition of equipment with notes/capital leases -- 1,557 211
The accompanying notes are an integral part of these financial statements. 40
AMERICAN ECOLOGY CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY ($ IN 000'S) ADDITIONAL RETAINED PREFERRED COMMON PAID-IN EARNINGS STOCK STOCK CAPITAL (DEFICIT) ---------- -------- ------------ ---------- Balance, January 1, 2000 $ 1 $ 137 $ 54,513 $ (33,069) Net income -- -- -- 4,697 Common stock issuance -- -- 97 -- Dividends on preferred stock -- -- -- (398) Other -- -- -- 6 ---------- -------- ------------ ---------- Balance, December 31, 2000 $ 1 $ 137 $ 54,610 $ (28,764) Net income -- -- -- 802 Common stock issuance -- 2 175 -- Dividends on preferred stock -- -- -- (398) Common stock cancelled -- (1) (148) -- ---------- -------- ------------ ---------- Balance, December 31, 2001 $ 1 $ 138 $ 54,637 $ (28,360) ========== ======== ============ ========== NET INCOME -- -- -- 18,771 COMMON STOCK ISSUANCE -- 7 1,152 -- DIVIDENDS ON PREFERRED STOCK -- -- -- (398) ---------- -------- ------------ ---------- BALANCE, DECEMBER 31, 2002 $ 1 $ 145 $ 55,789 $ (9,987) ========== ======== ============ ==========
The accompanying notes are an integral part of these financial statements 41 AMERICAN ECOLOGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. DESCRIPTION OF BUSINESS American Ecology Corporation, through its subsidiaries (collectively, the "Company" or "AEC"), provides radioactive, hazardous and industrial waste management services to commercial and government entities, such as nuclear power plants, medical and academic institutions, steel mills and petro-chemical facilities. The Company's headquarters are located in Boise, Idaho. The Company's principal wholly owned subsidiaries are US Ecology, Inc., a California corporation ("US Ecology"); Texas Ecologists, Inc., a Texas corporation wholly owned by US Ecology ("Texas Ecologists"); American Ecology Recycle Center, Inc., a Delaware corporation ("AERC"); American Ecology Environmental Services Corporation, a Texas corporation ("AEESC"); and US Ecology Idaho, Inc., a Delaware corporation ("USEI") wholly owned by AEESC. The Company operates within two segments: Operating Disposal Facilities and Non-Operating Disposal Facilities. Prior to December 27, 2002, the Company operated a Low-Level Radioactive Waste ("LLRW") Processing and Field Services business. The Operating Disposal Facilities are currently accepting hazardous, industrial and low-level radioactive waste. The Non-Operating Disposal Facilities segment includes non-operating disposal facilities, a closed hazardous waste processing and deep-well injection facility, and two proposed new disposal facilities. The Operating Disposal Facilities segment includes the Company's hazardous waste treatment and disposal facilities in Beatty, Nevada; Grand View, Idaho, and Robstown, Texas, and its LLRW and naturally occurring and accelerator produced radioactive material ("NORM/NARM") disposal facility in Richland, Washington. On February 13, 2003, the Company sold its El Centro, Texas municipal solid waste landfill facility, which previously was included in the Operating Disposal Facilities segment, but has been included in the results of discontinued operations as of December 31, 2002 due to the anticipated sale. See Note 19. The Non-Operating Disposal Facilities segment includes the closed hazardous waste disposal, processing, and deep-well injection facilities located in Sheffield, Illinois; Bruneau, Idaho; Beatty, Nevada; and Winona, Texas. The Company is currently incurring costs for remediation and long-term monitoring and maintenance activities at the closed facilities. The two proposed disposal facilities are located in Butte, Nebraska, and Ward Valley, California, and are currently involved in ongoing litigation. See Note 8. The Processing and Field Services segment previously aggregated, volume-reduced, and performed remediation and contamination removal services primarily for radioactive materials. The Processing and Field Services operations have been included in the results of discontinued operations. See Note 19. NOTE 2. ACCOUNTING CHANGES AND ADJUSTMENTS Effective January 1, 2002, the Company implemented Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (FAS 143) under the early adoption provisions. FAS 143 requires a liability to be recognized as part of the fair value of future asset retirement obligations and an associated asset to be recognized as part of the carrying amount of the underlying asset. Previously the Company recorded a Closure and Post Closure Obligation for the pro-rata amount of space used to the permitted space available in the facilities. On January 1, 2002, in accordance with FAS 143, this obligation was valued at the current closure cost, increased by a cost of living adjustment for the estimated time of payment, and discounted back to its present value. See Note 9. In accordance with FAS 143, upon calculation of the asset retirement obligation the Company also recorded an associated asset related to the retirement obligation. This asset is amortized to operations over the estimated useful life of the related long-lived asset. FAS 143 allows for the aggregation of certain assets in calculating and subsequently amortizing this asset. During the fourth quarter of 2002 the Company reassessed its methodology of applying FAS 143 and disaggregated certain facility components. In recalculating the asset under the revised methodology, the Company recorded a reduction in the asset in the amount of $3,182,000 with no corresponding change in the recorded liability. Consequently, the initial gain on implementation of the new accounting standard recorded in the first quarter of 2002 was reduced by the $3,182,000, and the 42 amortization associated with the asset was reduced from what was previously recorded during the first three quarters of 2002. The following restatements occurred as a result of the change in FAS 143 implementation methodology (in thousands):
Nine Three Months Ended Months Ended ------------------------------------------------ --------------- March 31, 2002 June 30, 2002 Sep. 30, 2002 Sep. 30, 2002 ---------------- -------------- -------------- --------------- Reported Net Income $ 19,077 $ 2,175 $ 1,032 $ 22,284 Effect of Restatement: Cumulative Effect of Accounting Change $ (3,182) $ -- $ -- $ (3,182) Amortization $ 24 $ 26 $ 34 $ 84 ---------------- -------------- -------------- --------------- Restated Net Income $ 15,919 $ 2,201 $ 1,066 $ 19,186 ================ ============== ============== =============== Reported Diluted EPS $ 1.33 $ .12 $ .06 $ 1.39 Effect of Restatement: Cumulative Effect of Accounting Change $ (.22) $ -- $ -- $ (.20) Amortization $ -- $ -- $ -- $ .01 ---------------- -------------- -------------- --------------- Restated EPS $ 1.11 $ .12 $ .06 $ 1.20 ================ ============== ============== ===============
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The accompanying financial statements are prepared - ---------------------------- on a consolidated basis. All significant inter-company balances and transactions have been eliminated in consolidation. The Company's fiscal year-end is December 31. Cash and Cash Equivalents. The Company considers cash and cash equivalents to - --------------------------- be balances with financial institutions available within 30 days of request. Cash and Investment Securities Pledged. Pledged cash and investment securities - --------------------------------------- of $244,000 and $243,000 at December 31, 2002 and 2001, respectively, shown as a non current asset in the accompanying consolidated balance sheet consists of money market accounts. The Company maintains these investments in accordance with collateral commitments related to the closed facility in Sheffield, Illinois. Financial Instruments. The recorded amounts of cash and cash equivalents, - ---------------------- accounts receivable, short-term borrowings, accounts payable and accrued liabilities as presented in the consolidated financial statements approximate fair value because of the short-term nature of these instruments. The recorded amount of short and long-term borrowings approximates fair value as the interest rates approximate current competitive rates. Revenue Recognition. Revenues are recognized by operating segment, as follows: - -------------------- Disposal facility revenues - Disposal facility revenues result primarily from fees charged to customers for waste treatment and/or disposal services. Fees are generally charged on a per-ton basis based on contract or quoted prices. Generally, revenues are recognized as services are performed, and as waste is buried. The Richland, Washington disposal facility is regulated by the Washington Utilities and Transportation Commission ("WUTC"), which sets and regulates rates for the disposal of low-level radioactive wastes. Annual revenue levels are established in agreement with the WUTC at amounts sufficient to cover the costs of operation and to provide the Company with a reasonable profit. Per-unit rates charged during the year are based upon estimated disposal activity and revenue levels submitted by the Company and approved by the WUTC. In the event annual revenue exceeds the approved levels set by the WUTC, the Company is required to refund the excess collections to facility users on a pro-rata basis. At December 31, 2002 and 2001, the Company had decreased revenue by $693,200 and $422,000, respectively, for these refunds. Processing facility revenues result primarily from fees charged for waste processing and waste treatment. Upon completion the waste is transported and disposed in third party or company owned disposal facilities. Fees are generally charged on a per-pound basis depending on the nature and volume of the waste. Generally, a minimum charge is billed in connection with the preliminary services and recorded as unearned revenue until the related work is performed. 43 Work performed in excess of preliminary billings are recorded as unbilled revenue and billed upon off-site shipment and disposal of the waste. Field Services Operations and Contracts - Field services revenues result from land and building contamination studies, waste removal and off-site shipment services. Fees are generally charged under quoted contractual terms for the related services. Revenues from contracts are recognized on the percentage-of-completion method. Revenue recognition on certain fixed-price contracts begins when progress is sufficient to estimate the probable outcome, or on the completed contract method if the probable outcome cannot be reasonably estimated. Change orders are included in total estimated contract revenue when it is probable that the change order will result in a bona fide addition to contract value and can be reliably estimated. Completion on contracts is generally measured based on the proportion of costs incurred to total estimated contract costs, or for certain long-term contracts completion is measured on estimated physical completion or units of disposal. Revenue producing contracts are reviewed in the ordinary course of business to determine if the direct costs, exclusive of any non-variable costs, to service the contractual arrangements exceed the revenues to be produced by the contract. Any resulting excess direct costs over the life of the contract are expensed at the time of such determination. Unbilled receivables. Unbilled receivables are recorded for work performed under - --------------------- contracts or services in process that have not yet been invoiced to customers, and arise from the use of the percentage-of-completion method of accounting, and the timing of billings. Substantially all unbilled receivables at December 31, 2002 were expected to be billed and collected within one year. Deferred revenue. Advance billings or collections are recorded as deferred - ------------------ revenue, and recognized when related services are provided. At December 31, 2002 and 2001, deferred revenue included in accrued liabilities amounted to approximately $988,000 and $5,349,000, respectively. Operations held-for-sale. In August 2001, the Financial Accounting Standards - -------------------------- Board issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("FAS No. 144"). The Company adopted the provision of FAS No. 144 effective January 1, 2002. It is the Company's policy to classify the businesses the Company is marketing for sale as operations held-for-sale when; 1. management commits to a plan to sell or dispose of the operations; 2. the operations are available for immediate sale; 3. an active program to locate a buyer has been initiated and; 4. the sale of the operations within one year is probable. The sale of certain assets within one year may be contingent upon regulatory approvals. The carrying values of these assets are written down to estimated fair value, less estimated costs to sell. Estimates and certain contingencies exist that could cause actual results to materially differ from the estimated results for these operations. The Company discontinues depreciation on fixed assets for businesses that are classified as held-for-sale. See Note 19. Property, Plant and Equipment. Property plant and equipment are recorded at - --------------------------------- cost and depreciated on the straight-line method over estimated useful lives. Lease obligations for which the Company assumes or retains substantially all the property rights and risks of ownership are capitalized. Replacements and major repairs of property and equipment are capitalized and retirements are made when the useful life has been exhausted. Minor components and parts are charged to expense as incurred. During 2002, 2001 and 2000, maintenance and repair expenses charged to continuing operations were $337,000, $348,000 and $135,000, respectively. The Company assumes no salvage value for its depreciable fixed assets. The estimated useful lives for significant property and equipment categories are as follows (in years): Useful Lives ------------ Vehicles and other equipment 3 to 10 Disposal facility and equipment 3 to 20 Buildings and improvement 5 to 40 Cell development costs and landfill accounting. Capitalizable cell development - ------------------------------------------------ costs are recorded at cost. Capitalized cell development costs, net of recorded amortization, are added to estimated future costs of the permitted disposal cell to be incurred over the remaining construction of the cell, to determine the amount to be amortized over the remaining estimated useful life of a cell. 44 Estimated future costs are developed using input from external and Company engineers, and internal accountants. Management reviews these estimates at least annually. Amortization is recorded on a unit of consumption basis, typically applying cost as a rate per cubic yard. Disposal facility site costs are expected to be fully amortized upon final closure of the facility, as no salvage value is probable. Costs associated with the ongoing operation of the landfill are charged to expense as incurred. The Company has material financial commitments for closure and post-closure obligations for facilities it owns or operates. The Company estimates its future cost requirements for closure and post-closure monitoring based on Resource Conservation and Recovery Act ("RCRA") requirements and the respective site permits. RCRA requires that companies provide the applicable regulatory agency an acceptable financial assurance for the closure and post-closure monitoring of each facility for thirty years following closure. Estimates for final closure and post-closure costs are developed using input from the Company's engineers and internal accountants and are reviewed by management, typically at least once per year. These estimates involve projections of costs that will be incurred after the disposal facility ceases operations and during the legally required post-closure monitoring period. In August 2001, the Financial Accounting Standards Board (FASB) issued FAS No. 143, Accounting for Asset Retirement Obligations (FAS 143), which established standards for accounting for an obligation associated with the retirement of a long-lived tangible asset. The Company adopted these standards effective January 1, 2002. In accordance with FAS 143, the present value of the estimated closure and post-closure costs are accreted using the interest method of allocation so that 100% of the future cost has been incurred at the time of payment. See Note 9 for a further explanation of the early adoption of FAS 143. The Company has generally been successful in receiving approvals for disposal facility expansions pursued; however, there can be no assurance that the Company will be successful in obtaining expansions in the future. In some cases, the Company may be unsuccessful in obtaining an expansion permit modification or the Company may determine that such permit modification that the Company previously thought was probable is no longer probable. The Company's engineers and internal accountants review the estimates and assumptions used in developing this information at least annually, and the Company believes them to be reasonable. If such estimates prove to be incorrect, the costs incurred in the pursuit of the expansion would be charged against earnings. Additionally, the disposal facility's future operations would reflect lower profitability due to expenses relating to the decrease in life, or impairment of the facility. Impairment of Long-lived assets. Long-lived assets consist primarily of property - ------------------------------- and equipment, facility development costs and deferred site development costs. The recoverability of long-lived assets is evaluated periodically at the operating unit level by an analysis of operating results and consideration of other significant events or changes in the business environment. If an operating unit has indications of possible impairment, such as current operating losses, the Company will evaluate whether impairment exists on the basis of undiscounted expected future cash flows from operations for the remaining amortization period. If an impairment loss exists, the carrying amount of the related long-lived assets is reduced to its estimated fair value based upon discounted cash flows from operations. During 2002, the Company recorded an impairment charge of $1,593,000 relating to certain discontinued operations. See Note 19. Income taxes. Income taxes are accounted for using an asset and liability - -------------- approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities at the applicable enacted tax rates. A valuation allowance is recorded against deferred tax assets, if based on the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Income tax expense is the income tax payable or refundable for the period plus or minus the change during the period in deferred income tax assets and liabilities. Insurance. The Company is self-insured for health-care coverage of employees. - --------- Stop-loss insurance is carried, which assumes liability for claims in excess of $75,000 per individual or on an aggregate basis based on the monthly population. The Company also maintains a Pollution and Remediation Legal Liability Policy pursuant to RCRA regulations subject to a $250,000 self-insured retention. In addition, the Company is insured for consultant's environmental liability subject to a $100,000 self-insured retention. New Accounting Pronouncements. - -------------------------------- In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. Under the new rules, goodwill, as well as intangible assets deemed to have indefinite lives, will no longer be amortized 45 but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. Currently, the Company has no intangible assets that are categorized as having indefinite lives and does not anticipate any changes in the estimated useful lives of its intangibles. Consequently, there was no material financial statement impact upon the adoption of FAS 142. As discussed above, the Company adopted the provisions of FAS 143 and FAS 144 in 2002. The adoption of the provisions of these Statements had a material effect on the Company's financial condition and operating results as of December 31, 2002 as summarized in Note 2. In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. FAS 145 rescinds or amends various standards on accounting for debt extinguishments, intangible assets of motor carriers, and certain lease transactions. Additional technical corrections and amendments were made to various other existing authoritative pronouncements. The implementation of this Statement resulted in the reclassification to other income of an extraordinary gain of $206,000 as the result of early extinguishments of debt in 2000. In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities. FAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. Under prior guidance, a liability for such costs could be recognized at the date of commitment to an exit plan. The provisions of this Statement are to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not expect the Statement to result in a material impact on its financial position or results of operations except as discussed in Note 10. In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Interpretation elaborates on the disclosures to be made by sellers or guarantors of products and services, as well as those entities guaranteeing the financial performance of others. The Interpretation further clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are effective on a prospective basis to guarantees issued or modified after December 31, 2002, and the disclosure requirements are effective for financial statements of periods ending after December 15, 2002. The Company believes that its disclosures with regards to these matters are adequate as of December 31, 2002. In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123. This Statement amends FAS 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, it amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. As of December 31, 2002, the Company continued to follow the intrinsic value method to account for stock-based employee compensation. The additional disclosure requirements of this Statement are effective for financial statements for interim periods beginning after December 15, 2002. Stock Options. At December 31, 2002, the Company has two stock-based employee - --------------- compensation plans, which are more fully described in Note 14. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income. The following table illustrates the effect on net income and earning per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation for the years ended December 31: 46
2002 2001 2000 -------- ------ ------- Net income, as reported $18,771 $ 802 $4,697 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (283) (111) (354) -------- ------ ------- Pro forma net income $18,488 $ 691 $4,343 ======== ====== ======= EARNINGS PER SHARE: Basic - as reported $ 1.28 $ .03 $ .31 ======== ====== ======= Basic - pro forma $ 1.26 $ .02 $ .29 ======== ====== ======= Diluted - as reported $ 1.15 $ .03 $ .26 ======== ====== ======= Diluted - pro forma $ 1.13 $ .02 $ .24 ======== ====== =======
Reclassification. Reclassifications have been made to prior year financial - ----------------- statements to conform to the current year presentation. These reclassifications have no impact on reported equity or net income available to common shareholders. NOTE 4. EARNINGS PER SHARE Basic earnings per share are computed based on net income and the weighted average number of common shares outstanding. Diluted earnings per share reflect the assumed issuance of common shares for outstanding options and conversion of warrants. The computation of diluted earnings per share does not assume exercise or conversion of securities that would have an anti-dilutive effect on earnings per share.
Year Ended December 31, ----------------------------- ($in thousands except per share amounts) 2002 2001 2000 --------- -------- -------- Income before discontinued operations and cumulative effect of accounting change $ 16,094 $ 2,991 $ 5,510 Loss from operations of discontinued segments (10,464) (2,189) (813) Cumulative effect of accounting change 13,141 -- -- --------- -------- -------- Net income 18,771 802 4,697 Preferred stock dividends 398 398 398 --------- -------- -------- Net income available to common shareholders $ 18,373 $ 404 $ 4,299 ========= ======== ======== Weighted average shares outstanding- Common shares 14,311 13,738 13,711 Effect of dilutive shares Series E Warrants 981 1,055 1,113 Chase Bank Warrants 564 475 639 Stock Options 114 314 1,405 --------- -------- -------- Average shares 15,970 15,582 16,868 ========= ======== ======== Basic earnings per share from continuing operations $ 1.09 $ .19 $ .37 Basic loss per share from discontinued operations (.73) (.16) (.06) Basic earnings per share from cumulative effect of accounting change .92 -- -- --------- -------- -------- Basic earnings per share $ 1.28 $ .03 $ .31 ========= ======== ======== Diluted earnings per share from continuing operations $ .99 $ .17 $ .31 Diluted loss per share from discontinued operations (.66) (.14) (.05) Diluted earnings per share from cumulative effect of accounting change .82 -- -- --------- -------- -------- Diluted earnings per share $ 1.15 $ .03 $ .26 ========= ======== ========
47 NOTE 5. USE OF ESTIMATES AND ASSUMPTIONS Use of Estimates. The preparation of financial statements in conformity with - ------------------ accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Listed below are the estimates and assumptions that management considers to be significant in the preparation of its financial statements. - Allowance for Doubtful Accounts -- The Company estimates losses for uncollectible accounts based on the aging of the accounts receivable and the evaluation of the likelihood of success in collecting the receivable. - Recovery of Long-Lived Assets -- The Company evaluates the recovery of its long-lived assets periodically by analyzing its operating results and considering significant events or changes in the business environment. - Operations Held-for-Sale and Discontinued Operations -- The Company writes down the carrying value of its held-for-sale operations to the estimate of the fair value of such operations. Additionally, estimates and accruals are made related to future operations that could significantly change and result in increased or decreased charges during future periods. - Loss Contracts -- The Company evaluates its revenue-producing contracts to determine whether the projected revenues of such contracts exceed the direct costs to service such contracts. These evaluations include estimates of future revenues and expenses. Accruals for loss contracts are adjusted upward or downward based on these evaluations. - Acquisition Accounting -- The Company estimates the fair value of assets and liabilities when allocating the purchase price of an acquisition. - Income Taxes -- The Company assumes the deductibility of certain costs in its income tax filings and estimates the future recovery of deferred tax assets. - Legal Accruals -- The Company estimates the amount of potential exposure it may have with respect to litigation, claims and assessments. - Cell Development and Final-Closure/Post-Closure Amortization - The Company expenses amounts for cell development usage and final closure and post-closure costs for each cubic yard of waste accepted at its disposal facilities. In determining the amount to expense for each cubic yard of waste accepted, the Company estimates the cost to develop each disposal cell and the final closure and post-closure costs for each disposal facility. The expense for each cubic yard is then calculated based on the remaining permitted capacity and the total permitted capacity. Estimates for final closure and post-closure costs are developed using input from third party engineering consultants, Company engineers and internal accountants. Management reviews estimates at least annually. The estimates for landfill final closure and post-closure consider when the costs would actually be paid and, where appropriate, inflation and discount rates. Actual results could differ materially from the estimates and assumptions that the Company uses in the preparation of its financial statements. As it relates to estimates and assumptions in amortization rates and environmental remediation liabilities, significant engineering and accounting input is required. The Company reviews these estimates and assumptions no less than annually. In many circumstances, the ultimate outcome of these estimates and assumptions may not be known for decades into the future. Actual results could differ materially from these estimates and assumptions due to changes in environmental-related regulations, changes in future operational plans, and inherent imprecision associated with estimating environmental matters so far into the future. NOTE 6. CONCENTRATIONS AND CREDIT RISK Major Customers. The Company manages the disposal of hazardous and radioactive - ---------------- waste under a contract with the U.S. Army Corps of Engineers Formerly Utilized Site Remedial Action Program ("FUSRAP"), and the disposal of steel mill dust (KO-61) under various contracts. The following customers accounted for more than 10% of revenue during 2002, 2001 and 2000: 48 % OF REVENUE FOR YEAR ENDING CUSTOMER 2002 2001 2000 ---- ---- ---- U.S. Army Corps of Engineers 27 15 - Nucor Steel Company 13 11 - Tamco Steel Company - - 20 Receivable balances from these customers as of December 31, were as follows ($ in thousands): CUSTOMER 2002 2001 ------ ------ U.S. Army Corps of Engineers $1,730 $2,238 Nucor Steel Company $ 408 $ 309 Credit Risk Concentration. The Company maintains most of its cash with Wells - --------------------------- Fargo Bank in Boise, Idaho. Substantially all of the cash balances are uninsured and are not used as collateral for other obligations. Concentrations of credit risk with respect to accounts receivable are believed to be limited due to the number, diversification and character of the obligors and the Company's credit evaluation process. Typically, the Company has not required customers to provide collateral for such obligations. Labor Concentrations. As of December 31, 2002, the Paper, Allied-Industrial - ---------------------- Chemical & Energy Workers International Union, AFL-CIO, CLC (PACE), represents 11 employees at one of the Company's facilities, and 188 other employees did not belong to a union. NOTE 7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at December 31, 2002 and 2001, were as follows (in thousands):
2002 2001 --------- --------- Construction in progress $ 797 $ 1,023 Land and improvements 4,831 3,452 Cell development costs 14,262 26,396 Buildings and improvements 14,031 14,424 Disposal facility equipment 9,421 9,424 Vehicles and other equipment 6,360 11,882 --------- --------- 49,702 66,601 Less: Accumulated depletion, depreciation and amortization (22,704) (28,139) --------- --------- Property, Plant and Equipment $ 26,998 $ 38,462 ========= =========
Depreciation expense was $4,864,000, $4,076,000 and $1,899,000 for 2002, 2001 and 2000, respectively. NOTE 8. FACILITY DEVELOPMENT COSTS A wholly owned subsidiary of the Company, US Ecology, has been licensed to construct and operate the low-level radioactive waste ("LLRW") facility for the Southwestern Compact ("Ward Valley facility"), and been selected to obtain a license to develop and operate the Central Interstate Compact LLRW facility ("Butte facility"). The State of California, where the Ward Valley Site is located, has abandoned efforts to obtain the project property from the U.S. Department of the Interior. For the Company to realize its investment, the federal government will need to transfer the land to the State of California, or the Company will need to recover monetary damages from the State of California. The Company has taken steps to recover its investment in Ward Valley and will continue to seek recovery. In early 1997, the Company filed two lawsuits against the United States. In the first case, US Ecology sued to recover site development costs as well as lost profits and lost opportunity costs. US Ecology lost this case at the trial court level and in the Federal Circuit Court of Appeals, and such rulings are now final. In the second case, US Ecology sought an order from a federal court 49 to compel the transfer of the Ward Valley site. Both the trial court and the D.C. Circuit Court of Appeals ruled against US Ecology in this second case, and such rulings are also now final. The Company's appeals in the two federal lawsuits were dismissed in part based on lack of standing following the State of California's decision not to appeal. The Company filed a lawsuit against the State of California on May 2, 2000, seeking to compel California to acquire the property to build the Ward Valley project and monetary damages in excess of $162 million. In October 2000, the California trial court dismissed the case, and the Company appealed. On September 5, 2001, the California appellate court upheld the trial court's decision in part and denied it in part, remanding the case for further proceedings on the Company's promissory estoppel claim. On October 15, 2001, both the Company and the State filed petitions for review with the California Supreme Court. On December 5, 2001 the California Supreme Court denied both requests and the case was remanded back to Superior Court in San Diego, California. Counsel for the Company subsequently filed a peremptory writ seeking appointment of a new trial court judge to hear the case. This writ was granted, followed by a December 2002 ruling declining to grant a summary judgment filed by the State seeking a scheduling conference in February, 2003. Trial has been set for February 24, 2003. The Company intends to vigorously prosecute the case. In November 1998 the Company finalized a settlement with the bank that provided the financing for the Ward Valley facility. As part of the settlement, the Company issued the bank warrants to purchase 1,349,843 shares of common stock at $1.50 a share expiring June 30, 2010. The Company also committed the first $29,600,000 of any monetary settlement or judgment with the State of California to the bank. In return for the warrants and part of any settlement or a share of future disposal facility revenue, the Company received a $37,700,000 reduction in the amount owed to the bank. All costs through July 31, 1999 relating to the development of the Ward Valley facility had been capitalized, and since then have been expensed as incurred. After adjusting for the bank settlement in November 1998, and as of December 31, 2002, the Company had deferred $20,952,000 of pre-operational facility development costs of which $895,000 represented capitalized interest. These deferred costs and additional amounts owed the Company under terms of its accepted proposal to develop the Ward Valley facility were intended to be recovered during the facility's first 20 years of operation from disposal fees approved by the Department of Health Services ("DHS"). The Company has incurred reimbursable costs and received revenues for the development of the Butte, Nebraska facility under a contract with the Central Interstate LLRW Compact Commission ("CIC"). While US Ecology has a minor equity position in the Butte, Nebraska project, it has acted principally as a contractor to the Central Interstate Low-Level Radioactive Waste Commission. Major generators of waste within the CIC's five-state region have provided the majority of the funding to develop the Butte facility. As of December 31, 2002, the Company has contributed and capitalized approximately $6,478,000 in costs, $386,000 which is capitalized interest toward development of the Butte facility. In December 1998, the State of Nebraska proposed to deny US Ecology's license application to build and operate the facility. The CIC directed US Ecology to pursue a Petition for a contested case challenging the State's denial. US Ecology filed its Petition pursuant to Nebraska law on January 15, 1999. The Major Generators funding the development project filed suit in the Federal District Court for Nebraska on December 30, 1998, seeking to recover certain costs expended on the Nebraska licensing process and to prevent the State of Nebraska from proceeding with the contested case. US Ecology intervened as a plaintiff to protect the Company's interest and is seeking relief. The Contested Case is stayed by a preliminary injunction issued by the presiding federal judge. The major generators are providing the majority of funding in the litigation, and have provided funding to support the minimal level of work required to maintain the project pending the outcome of the litigation. In September 2002, the court ruled in favor of the plaintiffs, awarding $153 million, off which the Company was to receive twelve million dollars reflecting the Company's actual damages and interest. The State of Nebraska has appealed the judge's ruling. The timing and outcome of the above matters are unknown. The Company has alleged that the State of California has abandoned the project. No litigation is currently pending to compel the state to continue development of the Ward Valley project and a state law has been enacted effectively precluding disposal facility development at that site. However, the Company believes that its damages claim is strong and that a substantial recovery will ultimately be obtained through its litigation. The Company also continues to participate in the CIC legal action. The Company believes that the deferred site development costs for both facilities will be realized. In the event the Butte facility 50 license is not granted, operation of that facility does not commence or the Company is unable to recoup its investments in either or both projects through legal recourse, it may have a material adverse effect on its financial position. The following table shows the ending capitalized balances for facility development costs for the periods ended December 31, 2002 and December 31, 2001 (in thousands):
Capitalized Costs Capitalized Interest Total ------------------ --------------------- ------- Ward Valley, CA Project $ 20,057 $ 895 $20,952 Butte, Nebraska Project 6,092 386 6,478 ------------------ --------------------- ------- Total $ 26,149 $ 1,281 $27,430 ================== ===================== =======
NOTE 9. CUMULATIVE EFFECT OF ACCOUNTING CHANGE AND CLOSURE AND POST CLOSURE OBLIGATION Accrued closure and post-closure liability represents the expected future costs, including corrective actions and remediation, associated with closure and post-closure of the Company's Operating and Non-Operating disposal facilities. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the costs can be reasonably estimated, consistent with Statement of Financial Accounting Standards No. 5 "Accounting for Contingencies" ("FAS 5"). The Company performs periodic reviews of both non-operating and operating sites and revises accruals for estimated post-closure, remediation or other costs as necessary. The Company's recorded liabilities are based on best estimates of current costs and are updated periodically to include the effects of existing technology, presently enacted laws and regulations, inflation and other economic factors. The Company does not bear financial responsibility for closure and post-closure of the disposal facilities located on State owned land at Beatty, Nevada and Richland, Washington. Nevada and Washington collect fees from a portion of the disposal charges on a quarterly basis from the Company. Such fees are deposited in dedicated, State controlled funds to cover the future costs of closure and post-closure care and maintenance. Such fees are periodically reviewed by the States and are based upon engineering cost estimates provided by the Company and approved by the States. As described in Note 2, the Company implemented Statement of Financial Accounting Standards 143, Accounting for Asset Retirement Obligations (FAS 143), effective January 1, 2002. FAS 143 requires a liability to be recognized as part of the fair value of future asset retirement obligations and an associated asset to be recognized as part of the carrying amount of the underlying asset. Previously, the Company recorded a Closure and Post Closure Obligation for the pro-rata amount of disposal space used to the original space available. On January 1, 2002, in accordance with FAS 143, this obligation was valued at the current estimated closure cost, increased by a cost of living adjustment for the estimated time of payment, and discounted back to present value. A previously unrecognized asset was also recorded. As further described in Note 2, during the fourth quarter of 2002, the Company reduced the amount of the recorded asset by $3,182,000. The result was an associated reduction in the cumulative effect gain as a result of the change in accounting principle from the gain originally reported in the first quarter of 2002 of $16,323,000 to the restated gain of $13,141,000. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the costs can be reasonably estimated consistent with FAS 5. The Company performs periodic reviews of both non-operating and operating sites and revises accruals for estimated post-closure, remediation and other costs as necessary. Recorded liabilities are based on best estimates of current costs and are updated periodically to reflect current technology, laws and regulations, inflation and other economic factors. Changes to reported closure and post closure obligations were as follows (in thousands): December 31, 2001 obligation $ 26,333 January 1, 2002 implementation of FAS 143 (restated) (11,130) Accretion of obligation 1,099 Payment of obligation (1,414) Adjustment of obligation 1,872 --------- December 31, 2002 obligation $ 16,760 ========= 51 The adjustment of obligation is a change in the expected timing of cash expenditures based upon actual and estimated cash expenditures. The primary adjustment was a $2,038,000 increase in the estimated cost of removing accumulated waste contamination at the discontinued Oak Ridge processing business and preparing the facility for sale. The reported closure and post closure obligation is recorded in the consolidated balance sheet for the years ended December 31 as follows:
($in thousands) 2002 2001 ------- ------- Accrued closure and post closure obligation, current portion $ 882 $ 700 Liabilities related to assets held for sale or closure, current portion 1,082 -- Accrued closure and post closure obligation, non-current portion 9,318 25,633 Liabilities related to assets held for sale or closure, non-current portion 5,478 -- ------- ------- $16,760 $26,333 ======= =======
The closure and post closure asset recognized and allocated as part of the carrying amount of the underlying assets related to the retirement obligations amounted to $2,011,000 upon the recalculated implementation described in Note 2. Amortization expense and accumulated amortization for the year ended December 31, 2002 amounted to $199,000. Cumulative effect of change in accounting principle as of January 1, 2002 included in the consolidated statement of operations is as follows ($ in thousands):
Reduction in closure and post closure obligation $11,130 Initial recognition of closure and post closure asset (restated) 2,011 ------- Cumulative effect of implementation of FAS 143 $13,141 =======
NOTE 10. LONG TERM DEBT On October 24, 2002, the Company announced that it had entered into a five year, fully amortizing, $7,000,000 term loan agreement, effective October 28, 2002, with Wells Fargo Bank to substantially refinance its $8,500,000 Idaho industrial revenue bond obligation. The term loan provides for a variable interest rate based upon the bank's prime rate or an offshore rate plus an applicable margin that depends upon the Company's performance. The Company has pledged substantially all of its fixed assets at the Grand View, Beatty, Richland, and Robstown hazardous and radioactive waste facilities as collateral. The term loan is cross-collateralized with the Company's line of credit. The Company paid the $1,500,000 balance owing on the industrial revenue bond with cash on hand. Long-term debt at December 31 consisted of the following (in thousands):
INTEREST RATE AT DEC. 31, 2002 2002 2001 ------------------------------- -------- -------- Term Loan VARIABLE 3.7% $ 6,883 $ -- Industrial revenue bond -- 8,500 Notes payable and other FIXED 6.9% AVERAGE 1,074 3,953 -------- -------- 7,957 12,453 Less: Current maturities (1,985) (9,860) -------- -------- Long term debt $ 5,972 $ 2,593 ======== ========
52 Aggregate maturity of future minimum payments on long-term debt is as follows (in thousands): Year Ended December 31, ----------------------- 2003 $1,985 2004 1,874 2005 1,409 2006 1,400 2007 1,289 ------ TOTAL $7,957 ====== NOTE 11. REVOLVING LINE OF CREDIT On October 15, 2002, the Company and Wells Fargo Bank entered into an amendment to the line of credit that reduced the interest rate and fee structure, modified existing financial covenants, reduced the periodic reporting requirements, reduced the maximum amount available from $8,000,000 to $6,000,000 and extended the maturity date to June 15, 2004. The amended line of credit is collateralized by the Company's accounts receivable and is cross-collateralized with the Company's term loan. Monthly interest only payments are required and based on a pricing grid, under which the interest rate decreases or increases based on the Company's ratio of funded debt to earnings before interest, taxes, depreciation and amortization. The Company can elect to borrow monies utilizing the Prime Rate or the offshore London Inter-Bank Offering Rate ("LIBOR") plus an applicable spread. At December 31, 2002, the applicable interest rate on the outstanding balance was 4.4%. 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 December 31, 2002 and 2001, the outstanding balance on the revolving line of credit was $603,000 and $5,000,000, respectively. At December 31, 2002 and 2001, the availability under the line of credit was $4,247,000 and $1,850,000, respectively, with $1,150,000 of line of credit availability restricted for the outstanding letter of credit utilized as financial assurance for the Company's Sheffield, Illinois Non-Operating facility. The Company has continued to borrow and repay according to business demands and availability of cash. NOTE 12. OPERATING LEASES On August 3, 2000, the Company entered into a $2,000,000 equipment sale and leaseback transaction. The Company sold various Company-owned equipment and rolling stock to a third party lessor. The Company received $2,000,000 in proceeds from the asset sale and entered into an operating lease for the use of the equipment beginning August 8, 2000 with monthly payments through September 8, 2006 and no security deposit. The lease allows for the early buyout of the equipment at a fixed price after 60 months. The lease requires the Company to pay customary operating and repair expenses and to observe certain operating restrictions and covenants. 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. Proceeds from this sale of assets were used to fund expansion of the El Centro facility and other general business obligations. In November 2001, with the sale of the principal assets of the Company's Nuclear Equipment Service Center, the Company repaid a pro-rata portion of the lease. At December 31, 2002 and 2001, the unamortized balance included in accrued liabilities was $497,000 and $658,000, respectively. Other lease agreements primarily cover office equipment and office space. Future minimum lease payments as of December 31, 2002 were as follows ($ in thousands): Minimum Lease Payment 2003 $ 645 2004 648 2005 599 2006 213 2007 79 --------------------- Total Minimum Payments $ 2,184 ===================== 53 Rental expense from continuing operations amounted to $461,000, $983,000 and $769,000 during 2002, 2001 and 2000, respectively. NOTE 13. PREFERRED STOCK In November 1996, the Company issued 3,000,000 Series E Warrants to purchase common stock at $1.50 per share in a private offering to four of its directors to fulfill a prior banking requirement. On March 29, 2002, a Series E warrant holder serving on the Board of Directors exercised 650,000 Series E warrants. At December 31, 2002, there were 2,350,000 Series E warrants outstanding, which expire July 1, 2003. In September 1995, the Board of Directors authorized the issuance of 105,264 shares of preferred stock designated as 8 3/8% Series D Cumulative Convertible Preferred Stock (Series D Preferred Stock), which were sold in a private offering to a group of members or past members of the Board of Directors for $4,759,000. At December 31, 2002, each of the 100,001 currently outstanding shares of Series D Preferred Stock were convertible at any time at the option of the holder into 17.09 shares of the Company's common stock, equivalent to a conversion price of $3.71 per share due to dilution by subsequent sales of common stock. Dividends on the Series D Preferred Stock are cumulative from the date of issuance and payable quarterly, although since payment of dividends is prohibited by the current bank credit facility, dividends in arrears are due for January 1, 1999 through December 31, 2002. Accrued dividends as of December 31, 2002 totaled $1,591,000 and are included in other long-term liabilities. On January 14, 2003, the Company extended an offer to the holders of the Company's Series D Preferred Stock to repurchase their stock for the original sales price of $47.50 a share plus accrued but unpaid dividends. Repurchase was subject to approval of the Company's Board of Directors and Wells Fargo Bank, and required a minimum of 67% of the Series D Preferred Stock to be tendered by the stockholders. The offer was accepted by all Series D holders and will expire if the Company does not repurchase offered shares prior to July 31, 2003. While Wells Fargo Bank has not waived the prohibition on the payment of dividends, it has agreed to consider waiving the prohibition with respect to the repurchase of the Series D Preferred Stock and payment of accrued dividends. Should Wells Fargo Bank allow the Company to repurchase the stock, approximately $6,500,000 of cash would be required in order to effect the transaction. NOTE 14. STOCK OPTION PLANS The Company presently maintains two stock option plans. The exercise price, term and other conditions applicable to each option granted under the Company's plans are generally determined by the Compensation Committee of the Board of Directors at the time of the grant of each option and may vary with each option granted. No options may have a term longer than ten years. In 1992, the Company adopted the two plans as the 1992 Stock Option Plan for Employees and the 1992 Stock Option Plan for Directors. On May 13, 1999, 500,000 shares were added to the Employee's Plan of 1992 for a total of 1,300,000 shares authorized. Options under the employee plan are designated as incentive or non-qualified in nature at the discretion of the Compensation Committee, and only employees will receive options under the 1992 Stock Option Plan for Employees. On May 24, 2001, 350,000 shares were added to the Directors Plan of 1992 for a total of 1,000,000 shares authorized. Both plans provide for cancelled options to be returned to the plan for re-issue. The stock option plan summary and changes during years ended December 31 are as follows:
2002 2001 2000 --------------- --------------- --------------- Options outstanding, beginning of year 1,128,650 1,448,898 1,326,572 Granted 147,500 100,000 135,926 Exercised (108,500) (59,000) (13,600) 54 Canceled (414,500) (361,248) -- --------------- --------------- --------------- Options outstanding, end of year 753,150 1,128,650 1,448,898 =============== =============== =============== Price range per share of outstanding options $1.00 - $10.13 $1.00 - $14.75 $1.00 - $14.75 Price range per share of options exercised $ 1.25 - $3.00 $ 1.25 - $2.00 $ 1.25 - $2.00 Price range per share of options canceled $1.06 - $14.74 $ 1.25 - $5.00 $ -- Options exercisable at end of year 753,150 1,020,700 1,448,898 =============== =============== =============== Options available for future grant at end of year 1,202,850 1,453,350 630,002 =============== =============== ===============
The following table summarizes information about the stock options outstanding under the Company's option plans as of December 31, 2002:
Weighted average Weighted Weighted a remaining average verage Range of exercise contractual life Number exercise price Number exercise price price per share (years) outstanding per share exercisable per share - ------------------ ----------------- ----------- --------------- ----------- --------------- 1.00 - $1.47 6.0 152,500 $ 1.32 152,500 $ 1.32 1.60 - $2.25 6.8 154,500 $ 1.96 154,500 $ 1.96 2.42 - $3.50 7.2 155,500 $ 2.93 155,500 $ 2.93 3.75 - $5.00 5.7 217,500 $ 4.00 217,500 $ 4.00 10.13 1.1 73,150 $ 10.13 73,150 $ 10.13 ----------- ----------- 753,150 753,150 =========== ===========
As of December 31, 2002, the 1992 Stock Option Plan for Employees had options outstanding for 218,150 shares with 842,150 shares remaining available, and under the 1992 Stock Option Plan for Directors, options were outstanding for 535,000 shares with 360,700 shares remaining available. The fair value of each option grant is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2002, 2001 and 2000:
2002 2001 2000 ----------- ---------- --------- Expected volatility 49% - 102% 51% 116% Risk-free interest rates 4.75% 5.7% 5.01% Expected lives 10 YEARS 10 years 3 years Dividend yield 0% 0% 0% Weighted-average fair value of options granted during the year (Black-Scholes) $ 1.92 $ 1.11 $ 2.23
On February 11, 2003, the Company offered a significant number of options to four key employees at the following prices: Exercise Price of Option Number of Options Issued - ------------------------- ------------------------ 3.00 270,329 4.50 315,384 6.50 173,011 55 NOTE 15. EMPLOYEE'S BENEFIT PLANS 401(k) Plan. The Company maintains a 401(k) plan for employees who voluntarily - ----------- contribute a portion of their compensation, thereby deferring income for federal income tax purposes. The plan is called The American Ecology Corporation 401(k) Savings Plan ("the Plan"). The Plan covers substantially all of the Company's employees after one full year of employment. Participants may contribute a percentage of salary up to the IRS limits. The Company's contribution matches 55% of participant contributions up to 6% of deferred compensation. The Company contributions for the Plan in 2002, 2001 and 2000 were $522,000, $209,000 and $176,000, respectively. The contributions for 2002 included $294,000 paid as part of the union settlement at the discontinued Oak Ridge operations. NOTE 16. INCOME TAXES The components of the income tax provision (benefit) were as follows (in thousands): Year Ended December 31, 2002 2001 2000 -------- ----- ------ Current - State $ (221) $ 186 $ (12) Deferred - Federal (8,284) -- -- -------- ----- ------ $(8,505) $ 186 $ (12) ======== ===== ====== The following table reconciles between the effective income tax (benefit) rate and the applicable statutory federal and state income tax (benefit) rate: Year Ended December 31, 2002 2001 2000 ------ ----- ----- Income tax statutory rate 34% 34% 34% Reversal of valuation allowance for deferred tax assets (109) -- -- Timing differences between book and tax basis (34) (34) (21) State income tax and loss carry forward (3) 17 (12) Other, net -- -- (1) ------ ----- ----- Total effective tax rate (112)% 17% --% ====== ===== ===== The tax effects of temporary differences between income for financial reporting and taxes that gave rise to significant portions of the deferred tax assets and liabilities as of December 31 were as follows (in thousands):
2002 2001 --------- --------- CURRENT - ------- Assets: Net operating loss carry forward $ 2,470 $ -- Accruals, allowances and other 1,362 -- --------- --------- Total gross deferred tax assets - current portion 3,832 -- Less valuation allowance (1,087) -- --------- --------- Net deferred tax asset - current portion 2,745 -- --------- --------- 56 2002 2001 --------- --------- NON-CURRENT - ----------- Assets: Environmental compliance and other site related costs, principally due to accruals for financial reporting purposes $ 4,054 $ 5,128 Depreciation and amortization 1,236 2,948 Net operating loss carry forward 8,852 11,137 Accruals, allowances and other 2,543 477 --------- --------- Total gross deferred tax assets - non-current portion 16,685 19,690 Less valuation allowance (10,777) (19,321) --------- --------- Liability: Capitalized interest (369) (369) --------- --------- Net deferred tax assets - non-current portion $ 5,539 $ -- ========= =========
The Company has historically recorded a valuation allowance for certain deferred tax assets due to uncertainties regarding future operating results and for limitations on utilization of acquired net operating loss carry forwards for tax purposes. The realization of a significant portion of net deferred tax assets is based in part on the Company's estimates of the timing of reversals of certain temporary differences and on the generation of taxable income before such reversals. During 2002, the Company reevaluated the deferred tax asset valuation allowance and determined it was "more likely than not" that a portion of the deferred tax asset would be realizable. Consequently, the Company decreased the portion of the valuation allowance related to its operating facilities. The Company's net operating loss carry forward of approximately $30,699,000 at December 31, 2002, begins to expire in the year 2006. Of this carry forward, $2,605,000 is limited pursuant to the net operating loss limitation rules of Internal Revenue Code Section 382. The portion of the carry forward limited under Internal Revenue Code Section 382 expires $793,000 in 2006, $904,000 in 2007, and $908,000 in 2008. The remaining unrestricted net operating loss carry forward expires $976,000 in 2010, $8,657,000 in 2011, $7,828,000 in 2012, $6,927,000 in 2018, $3,208,000 in 2019, and $498,000 in 2020. In 1996, the Company filed an amended federal income tax return claiming a refund of approximately $740,000. In September 1999, the Internal Revenue Service ("IRS") proposed to deny this claim, sought to recover portions of tentative refunds previously received by the Company and proposed to reduce Company net operating loss carry forwards. In November 1999, the Company protested this denial. The Company tentatively settled this claim in 2000; however the settlement was rejected by the Congressional Joint Committee on Taxation pending US Supreme Court consideration of a germane issue. This issue was later resolved in favor of the Company's position. On December 4, 2002, the IRS approved a settlement to pay the Company $605,000 plus interest and confirmed the Company's net operating loss carry forward after 1995. Payment is pending. NOTE 17. COMMITMENTS AND CONTINGENCIES In the ordinary course of conducting business, the Company becomes involved in judicial and administrative proceedings involving federal, state, and local governmental authorities. There may also be actions brought by individuals or groups in connection with permitting of planned facilities, alleging violations of existing permits, or alleging 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. 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 these matters will not have a material adverse effect on the Company's financial position, results of operations or cash flows. Effective January 1, 2003, the Company established the American Ecology Corporation Management Incentive Plan. The Plan provides for selected participants to receive bonuses tied to pre-tax operating income levels. Bonuses under the plan are to be paid out over three years with a maximum in any one year of $1,125,000 in bonuses if pre-tax operating income is in excess of $12,000,000. 57 On February 11, 2003, the Company offered employment agreements to four key employees. The agreements expire December 31, 2004 and 2005 and provide for aggregate minimum annual salaries of $639,000. LITIGATION MANCHAK V. US ECOLOGY, INC., U.S. DISTRICT COURT FOR THE DISTRICT OF NEVADA, - -------------------------------- CIVIL ACTION NO. 96-494. In March 1996, Frank Manchak, Jr. ("Plaintiff" or "Manchak") filed suit alleging infringement of a sludge treatment patent to stabilize hazardous waste at the Company's Beatty, Nevada hazardous waste disposal facility. Plaintiff seeks unspecified damages for infringement, treble damages, interest, costs and attorney fees. In August 2001, the trial court disqualified the Company's original counsel based on failure to identify a conflict. The Company engaged new counsel and obtained a fee disgorgement and settlement of $155,000 from the previous counsel on July 3, 2002. On October 17, 2002, the US District Court for the District of Nevada granted the Company's motion for summary judgment to dismiss the suit. Manchak's motion for reconsideration was denied on January 8, 2003. Previous to the court's denial of reconsideration, Manchak filed an appeal. The Company does not believe it infringed any Manchak patent, will continue to vigorously defend the case, and has filed a claim to recover attorney fees and costs. ENTERGY ARKANSAS, INC., ET AL, CENTRAL INTERSTATE LOW-LEVEL RADIOACTIVE WASTE - -------------------------------------------------------------------------------- COMMISSION AND US ECOLOGY, INC. ("PLAINTIFFS") V. STATE OF NEBRASKA, ET AL., - ------------------------------------------------------------------------------ CASE NO. 4:98CV3411, U.S. DISTRICT COURT, DISTRICT OF NEBRASKA This action was brought in federal court in December of 1999 by electric utilities that generate low-level radioactive waste ("LLRW") within the Central Interstate Low-Level Radioactive Waste Compact (CIC). CIC member states are Nebraska, Kansas, Oklahoma, Arkansas, and Louisiana. The action seeks declaratory relief and damages for bad faith in the State of Nebraska's processing and ultimate denial of US Ecology's application to site, develop and operate a LLRW disposal facility near Butte, Nebraska. US Ecology is the CIC's contractor and developer. The CIC was originally named as a defendant and subsequently realigned as a plaintiff. US Ecology intervened as a plaintiff. The CIC sought to recover contributions made by the utilities and US Ecology to the CIC for pre-licensing project costs in the approximate amounts of $95 million and $6.2 million, respectively, and removal of the State of Nebraska from the licensing process. The Eighth Circuit Court of Appeals subsequently dismissed the utilities' and US Ecology's independent claims against Nebraska for breach of the good faith provision of the Compact, and for denial of due process based on sovereign immunity. The utilities and US Ecology subsequently filed cross claims against the CIC for breach of contract and the imposition of a constructive trust. In June 2002, a 42 day bench trial began. On September 30, 2002, the US District Court for the District of Nebraska entered judgment against Nebraska in favor of the CIC for $153 million, including approximately $50 million for prejudgment interest. Of this amount, US Ecology's share was for a $6.2 million contribution and $6.1 for prejudgment interest. The Court also dismissed the utilities' and US Ecology's cross claims for breach of contract and imposition of a constructive trust, finding that it was premature to decide the merits of these claims and leaving the question open for future resolution if necessary. The State appealed the judgment to the Eighth Circuit Court of Appeals. It is expected that the case will be argued in the fall of 2003 with a decision around the end of 2003. Among the issues raised by the State on appeal are the trial court's failure to grant the State a jury trial and its failure to dismiss the CIC's claim on sovereign immunity grounds. If the Eighth Circuit affirms the trial court's decision, Nebraska may seek review by the US Supreme Court. Management believes the Company is entitled to any money that the CIC recovers based on US Ecology contributions. No assurance can be given that the trial court's decision will be affirmed on appeal or that US Ecology will recover its contributions or interest thereon. US ECOLOGY, INC. V. THE STATE OF CALIFORNIA, ET AL., CASE NO.GIC747562, SUPERIOR - --------------------------------------------------- COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF SAN DIEGO In May 2000, the Company's subsidiary, US Ecology, Inc., sued the State of California, its Governor, Gray Davis, and the Director of its Department of Health Services (DHS) and other State entities ("the State") for monetary damages exceeding $162 million. The suit stems from the State's abandonment of the Ward Valley low-level radioactive waste ("LLRW") disposal project. Laws on the books since the 1980s require the state to build a disposal site for LLRW produced in California, Arizona, North Dakota and South Dakota; member states of the Southwestern Compact. In keeping with these laws, US Ecology was selected in 1985 to locate and license the site using its own funds on a reimbursable basis. In 1993, US Ecology obtained a license from the DHS that it continues to hold and entered a ground lease. 58 The State successfully defended the license against court challenges and, until Governor Davis took office, actively pursued conveyance of the site from the federal government as required by law and its contractual obligations to US Ecology. In September 2000, the Superior Court granted California's motion to dismiss all causes of action. The Company appealed this decision to the California Court of Appeal Fourth Appellate District in November 2000. In September 2001, the Appellate Court upheld the trial court's decision in part and denied it in part, remanding the case for trial based on the Company's promissory estoppel claim. In December 2001, the California Supreme Court denied review. Counsel for the Company filed a peremptory writ seeking appointment of a new trial court judge to hear the case, which was granted. On November 20, 2002, the Superior Court denied the State's motions for summary judgment as well as a protective order seeking to prevent production of certain documents and deposition of persons most knowledgeable in the Governor's office involved in the Ward Valley project. A settlement conference was held without result on December 9, 2002. Discovery is complete and the trial is scheduled to begin on February 24, 2003. The Company intends to continue prosecuting this claim vigorously; however, no assurance can be given that the Company will recover any damages. MATTIE CUBA, ET AL. V. AMERICAN ECOLOGY ENVIRONMENTAL SERVICES CORPORATION, ET - -------------------------------------------------------------------------------- AL., CAUSE NO. 2000-092, 4TH JUDICIAL DISTRICT COURT, RUSK COUNTY, TEXAS - --- This suit was brought in November 2000 by 28 named plaintiffs against the Company and named subsidiaries, the former owners and approximately 60 former customers of its Winona, Texas facility. Plaintiffs seek recovery for personal injuries, property damages and exemplary damages based on negligence, gross negligence, nuisance and trespass. The Company filed a motion for summary judgment in July 2002 based on lack of evidence. On November 27, 2002, the trial court granted partial summary judgment, dismissing certain causes of action and reducing the number of plaintiffs, but preserving other causes of action. Counsel for the Company subsequently filed a motion for summary judgment seeking dismissal against all of the adult plaintiffs on statute of limitations grounds. At a February 6, 2003 hearing, the court took the motion under advisement. If the Company's motion is granted, six plaintiffs will remain. The Company believes plaintiffs' remaining case is without merit and will continue to vigorously defend the matter. No assurance can be given that the Company will prevail or that the matter can be favorably resolved. The Company's current insurance carrier is paying for defense of this matter, subject to the Company's $250,000 deductible which has been fully accrued. RESOLVED LITIGATION - -------------------- DAVID DUPUY AND RICHARD HAMMOND V. AMERICAN ECOLOGY ENVIRONMENTAL SERVICES - -------------------------------------------------------------------------------- CORPORATION, ET AL., CAUSE NO. 98-1304-C, 241ST JUDICIAL DISTRICT COURT, SMITH - --------------------- COUNTY, TEXAS Plaintiffs sought unspecified damages, alleging personal injury as the result of negligence by the Company for failure to warn and protect plaintiffs from alleged hazardous conditions while plaintiffs were performing work at the Winona, Texas facility. The Company's insurance carrier assumed defense costs subject to the Company's $250,000 deductible. In June 2000, the Company's attorneys filed a motion for costs due to lack of diligence by plaintiffs' attorneys in pursuing the case. The court awarded costs in accordance with the motion and plaintiffs paid $4,000. On January 31, 2001, the court granted the Company's summary judgment motion and dismissed the case with prejudice. In May of 2002, this dismissal ruling was sustained on appeal. This matter is now fully resolved. FEDERAL RCRA INVESTIGATION AT THE AMERICAN ECOLOGY RECYCLE CENTER, INC. OAK - -------------------------------------------------------------------------------- RIDGE, TENNESSEE FACILITY - ------------------------- In September 1999, investigators associated with the FBI, US EPA and the Tennessee Valley Authority initiated an investigation and obtained records at the Company's Oak Ridge, Tennessee subsidiary under a search warrant issued by the U.S. District Court, Eastern District of Tennessee. In October 2001, the Company responded to a subpoena for additional records through September 2001. On August 8, 2002, counsel for the Company's wholly-owned subsidiary, American Ecology Recycle Center, Inc., entered a guilty plea in US District Court for the Eastern District of Tennessee to a single felony count of storing hazardous waste without the necessary permit at AERC from 1997 to 2000, and paid a $10,000 fine. The plea agreement recognized the subsidiary's voluntary contributions of $12,500 to the Tennessee Wildlife Resources Agency and $12,500 to the Tennessee Valley Authority Police to support environmental training and enforcement. The matter is now fully resolved. 59 ZURICH AMERICAN INSURANCE COMPANY V. NATIONAL UNION FIRE INSURANCE COMPANY OF - -------------------------------------------------------------------------------- PITTSBURGH, ET AL INCL. AEC, AEESC, AEMC AND AESC; SUPREME COURT OF STATE OF NEW - ------------------------------------------------- YORK, COUNTY OF NEW YORK; CASE NO. 604662/99 In October 1999, plaintiff Zurich American Insurance Co. (Zurich) filed suit seeking declaratory and other relief against National Union Fire Insurance Company of Pittsburgh (National Union), the Company and subsidiaries AEESC, AESC and AEMC (AEC Defendants) and Doe Insurers 1-50 relating to Zurich's defense coverage in the Virgie Adams matter. In October 2001, the Company received a payment of $250,000 from Zurich finalizing settlement of Zurich's claims. By this settlement, the Company relinquished future rights to seek defense and indemnity from Zurich for the following Adams, Cuba, Dupuy, and GM matters. The ----- ---- ----- -- Company also agreed to assume defense costs as of April 2001. Settlement with the Mobley entities was reached on February 12, 2002, resolving the matter with Zurich and National Union. On March 15, 2002, the Company received $250,000 from the Mobley Entities based on dismissal of all claims by the Company against National Union and Mobley, and vice versa. This matter is now fully resolved. GENERAL MOTORS CORPORATION V. AMERICAN ECOLOGY ENVIRONMENTAL SERVICES CORP., ET - -------------------------------------------------------------------------------- AL., CASE NO. 3-99CV2626-L, U.S. DISTRICT COURT, NORTHERN DISTRICT OF TEXAS. - --- General Motors ("GM") filed suit naming the Company, its subsidiaries, the former owner of the Winona Facility and its associated business entities seeking contribution and indemnity, including reimbursement of defense costs and attorneys' fees, incurred by GM in the Virgie Adams matter and this case. The claims, based on a waste disposal contract between GM and the Winona Facility from 1989 to 1997, were brought on breach of contract, contribution, and common law indemnity grounds. Claims included a demand for reimbursement of a $1,500,000 third party settlement paid by GM plus legal fees. In August 2001, the Court found that the Company owed GM a defense and indemnity under GM's contract with the Winona Facility's former owner. After settling with the Mobley entities, GM made a settlement demand to the Company for $1,400,000 based in part on GM's receipt of $960,000 from the Mobley entities. Without admitting fault or wrongdoing, the Company paid GM $1,040,000 on May 16, 2002 of which $740,000 had not been previously accrued. This matter is now fully resolved. U.S. ECOLOGY CORPORATION [SIC] AND OIL, CHEMICAL & ATOMIC WORKERS INTERNATIONAL - -------------------------------------------------------------------------------- UNION, AFL-CIO, CASES 10-CA-30847 AND 10-CA-31149 - ---------------- This matter, filed by Oil, Chemical & Atomic Workers International Union, AFL-CIO (the "Union") in March 1998 and amended in May 1998, alleged unfair labor practices. In May 1999, an administrative law judge ("ALJ") ruled against the Company. In May 2000, the National Labor Relations Board (NLRB) affirmed this decision. The Company appealed to the US Sixth Circuit Court of Appeals in May 2000. The Court of Appeals affirmed the NLRB ruling in December 2001. In June 2002, the Company reached settlement with the Union for $1,027,000 for back wages and benefits of which $156,000 had not been previously accrued. This matter is now fully resolved. US ECOLOGY, INC. V. DAMES & MOORE, INC., CASE NO. CV OC 0101396D, FOURTH - ----------------------------------------------------- JUDICIAL DISTRICT COURT, ADA COUNTY, IDAHO DAMES & MOORE, INC. V. US ECOLOGY, INC., ET AL., INDEX NO. 602567-01, SUPREME - --------------------------------------------------- COURT OF NEW YORK, NEW YORK COUNTY, NEW YORK These two cases relate to a project for work performed in 2000-01 and the failure to be paid under a subcontract to Dames & Moore, a wholly-owned subsidiary of URS Corporation and prime contractor to Brookhaven Science Associates, LLC. The project involved removal, decontamination and disposal of above-ground cement ducts at Brookhaven National Laboratory ("BNL") in Upton, New York. In February 2001, subsidiary US Ecology filed a breach of contract suit in Idaho state court seeking (1) damages and reformation of the contract between US Ecology and Dames & Moore; (2) indemnification from Dames & Moore for negligence; and (3) a declaratory judgment declaring the "pay-if-paid" clause in the contract void and unenforceable. Dames & Moore filed a motion to dismiss the Idaho action, and a counter claim in New York state trial court. The New York action alleged, among other things, negligence by US Ecology and certain crane companies providing services at the job site. On May 3, 2002, the Company entered into a Settlement Agreement with Dames & Moore, Inc.\URS and received cash of $700,000. On March 20, 2002, BNL entered an agreement to pay the Company $86,000. The Idaho suit has been dismissed. Dames & Moore has been requested to dismiss the New York case based on the terms of the Settlement Agreement. If this is not forthcoming, a dismissal motion will be filed. 60 INTERNAL REVENUE SERVICE DISPUTE - ----------------------------------- In 1996, the Company filed an amended federal income tax return claiming a refund of approximately $740,000. In September 1999, the Internal Revenue Service ("IRS") proposed to deny this claim, sought to recover portions of tentative refunds previously received by the Company and proposed to reduce Company net operating loss carry forwards. In November 1999, the Company protested this denial. The Company tentatively settled this claim in 2000; however, settlement was rejected by the Congressional Joint Committee on Taxation pending US Supreme Court consideration of a germane issue. This issue was later resolved in favor of the Company's position. On December 4, 2002, the IRS approved a settlement to pay the Company $605,000 plus interest and confirmed the Company's net operating loss carry forward after 1995. Payment is pending. NOTE 18. RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS Receivables for the year ended December 31 consisted of the following (in thousands): 2002 2001 -------- -------- Accounts receivable - trade $ 8,049 $11,997 Unbilled revenue 2,818 1,825 Other -- 28 -------- -------- 10,867 13,850 Allowance for uncollectible accounts (407) (1,176) -------- -------- $10,460 $12,674 ======== ======== The allowance for doubtful accounts is a provision for un-collectible accounts receivable and unbilled receivables. The allowance, as a general company policy, is increased by a monthly accrual equal to approximately 1 % of sales. The allowance is decreased by accounts receivable as they are written off. The allowance is adjusted periodically to reflect actual experience ($in thousands)
Allowance for Description doubtful accounts ----------- ------------------- Balance January 1, 2000 $ 619 Plus 2000 provision 966 Less accounts written off 2000 (1,017) ------------------- Balance December 31, 2000 568 Plus 2001 provision 338 Plus allowance acquired in Envirosafe Services of Idaho acquisition 530 Less accounts written off 2001 (260) ------------------- Balance December 31, 2001 $ 1,176 Less 2002 benefit (301) Less allowance for discontinued operations (240) Less accounts written off 2002 (228) ------------------- Balance December 31, 2002 $ 407 ===================
NOTE 19. ACQUISITIONS, DIVESTITURES AND DISCONTINUED OPERATIONS As of December 31, 2002, the components of "Assets Held for Sale or Closure" consisted of certain assets relating to the El Centro municipal waste disposal facility, which the Company sold to a wholly-owned subsidiary of Allied Waste Industries, Inc. on February 13, 2003, and the assets and liabilities relating to the Oak Ridge processing facility and field services operations for which 61 management has implemented a wind down and disposal plan and have been classified as "held for sale or closure". Accordingly, the revenue, costs and expenses and cash flows relating to the El Centro and Oak Ridge facility and field services operations have been excluded from the results from continuing operations and have been reported as "Loss from discontinued operations" and as "Net cash used by discontinued operations". Prior periods have been restated to reflect the discontinued operations. The assets and liabilities of discontinued operations included within the consolidated balance sheet as of December 31, 2002 are as follows (in thousands):
Processing and Field El Centro Disposal Total Assets Held for Services Facility Facility Sale or Closure --------------------- ------------------- ---------------------- Current assets - -------------- Current assets $ 2,599 $ 648 $ 3,247 Property & equipment, net 565 6,910 7,475 --------------------- ------------------- ---------------------- 3,164 7,558 10,722 ===================== =================== ====================== Non-current assets - ------------------ Property, plant & equipment, net 1,436 -- 1,436 Other 49 -- 49 --------------------- ------------------- ---------------------- 1,485 -- 1,485 ===================== =================== ====================== Current liabilities - ------------------- Accounts payable & accruals 5,416 108 5,524 Current portion long term debt 112 570 682 Current portion closure/post closure obligations -- 1,082 1,082 Other 601 76 677 --------------------- ------------------- ---------------------- 6,129 1,836 7,965 ===================== =================== ====================== Non-current liabilities - ----------------------- Closure/post closure obligations 5,478 -- 5,478 Long-term debt 72 67 139 Other 77 5 82 --------------------- ------------------- ---------------------- 5,627 72 5,699 ===================== =================== ======================
Depreciation and amortization expense relating to assets classified as "Held for Sale or Closure" amounted to $1,202,000, $954,000 and $129,000 during 2002, 2001 and 2000, respectively. Operating results for the discontinued operations were as follows for years ending December 31:
Processing and Field El Centro Disposal Total Discontinued Services Operations Facility Operations ---------------------- -------------------- -------------------- 2002 - ---- Revenues, net $ 17,018 $ 2,563 $ 19,581 Operating income (loss) (3,296) 507 (2,789) Net income (loss) (10,930) 466 (10,464) Basic earnings (loss) per share (.76) .03 (.73) Diluted earnings (loss) per share (.69) .03 (.66) 2001 - ---- Revenues, net $ 13,391 $ 2,450 $ 15,841 Operating income (loss) (3,160) 432 (2,728) Net income (loss) (2,567) 378 (2,189) Basic earnings (loss) per share (.19) .03 (.16) Diluted earnings (loss) per share (.17) .03 (.14) 2000 - ---- Revenues, net $ 14,506 $ 398 $ 14,904 Operating income (loss) (121) (598) (719) Net loss (172) (641) (813) Basic loss per share (.01) (.05) (.06) Diluted earnings loss per share (.01) (.04) (.05)
62 El Centro Disposal Facility. During 2002, management initiated a plan to actively market the municipal waste disposal facility located outside Robstown, Texas, and closed a sale transaction on February 13, 2003 for substantially all of the assets held at the facility. For segment reporting purposes, the El Centro municipal waste disposal facility operating results were previously classified as "Operating Disposal Facilities". Oak Ridge Processing Facility and Field Services. During 2002, the Company offered for sale its Processing Facility and Field Services operations based in Oak Ridge, TN. On December 27, 2002, the Company announced it was ceasing revenue-producing operations at this facility and would no longer be accepting waste. Based upon the amount of waste present at the facility and the preferences of the potential buyers, the Company plans to remove accumulated customer and Company waste as needed, to sell the facility. Removal of accumulated waste is considered necessary by management to maintain a safe and compliant facility, as well as prepare the facility for sale. Disposal of the waste at the facility is expected to be completed by July 2003, and a significant portion is currently being shipped off site for processing and disposal. Upon completion of the removal of material on hand, management intends to resume discussions with potential buyers identified during the fourth quarter of 2002 for the remaining facility components. In connection with the discontinuance of the processing operations and field services, the Company has recorded $7,018,000 in pre-tax charges to cover estimated costs associated with the wind down and asset disposal, which are as follows (in thousands):
ACCRUED COSTS AMOUNT - ------------------------------------------- ------- Closure, post closure obligation adjustment $ 2,038 Impairment of property, plant and equipment 1,593 Impairment of receivables 360 External waste disposal 1,227 Payroll and related costs 778 Facility operating costs 641 Insurance costs 381 ------- $ 7,018 -------
In conjunction with the plan to sell the facility, an updated third party engineering study was performed, which resulted in an additional $2,038,000 estimated liability related to closure and post closure costs. This liability pertains to certain materials located on the premises which were previously received or used in the operation of the business. The Company has recorded an impairment charge of $1,593,000 on certain buildings, improvements and equipment at the facility. The estimated fair value of the buildings, improvements and equipment was based upon the estimated net realizable value after substantial facility clean-up activities take place. Additionally, certain assets expected to be disassembled and disposed were fully impaired as a result of the wind down and disposal plan. Depreciation on the long-lived assets at the processing facility will cease as the current recorded values, net of the impairment charges, represent the net realizable value. To prepare the facility for sale or possible closure, the Company will be required to dispose of all waste on site. Management estimates the external disposal cost of these materials will be $1,227,000 and expects these costs to be incurred during 2003. On December 27, 2002, management informed all employees of the intention to cease operations and specifically identified those employees who would be involved in the wind down operations. Terminated employees were compensated for prior service, provided health coverage through January 31, 2003, and notified of the proposed severance package. Terminated non-union employees were paid severance consistent with Company policy. For employees covered under the collective bargaining agreement, the Company entered into good faith severance negotiations with representatives of the local and international union. The Company has met on two occasions with the union's representatives to negotiate severance, however, no agreement has been reached, despite the Company's best efforts to reach a mutually acceptable separation package. Both sides have amended their original proposals during these negotiations; however, agreement has not been reached. On February 3, 2003 the Company extended another severance package to Union employees, which was not accepted. The declined offer would have resulted in a charge of approximately $168,000 in 2003 to discontinued operations. Currently, the Company is open to additional discussions with the labor union to reach a satisfactory resolution of any severance payment. The outcome of these discussions or negotiations and any severance or benefits associated with the terminations cannot reasonably be estimated at this time and, therefore, no costs relating to these employees have been included in the above charges. However, management believes any such payment will not be 63 material. If agreement is not reached, management expects the union to litigate the matter. Payroll and related costs, facility operating costs and insurance costs noted above are the anticipated costs to be incurred by the Company during the wind down phase. In accordance with FAS 143, the Company has fully accrued for all estimated closure and post closure obligations related to the Oak Ridge processing facility, which amounted to $5,478,000 at December 31, 2002 (see Note 9). In the event the Company divests of the facility in a sale transaction, the Company may not incur the entire closure, which may result in a gain being realized in future periods. For business segment reporting purposes, the processing and field services operating results were previously classified as "Processing and Field Services". On October 11, 2001, the Company sold the primary assets of the Nuclear Equipment Service Center ("NESC") for $800,000. NESC assets with a book value of $418,000 were sold and a gain on sale of property and equipment was recognized for $382,000. NESC was reported under the Company's Processing and Field Services segment and is included in discontinued operations. On November 11, 2001, the Company sold its brokerage business that collected and transported small amounts of waste for processing and disposal in larger, more economical batches (the "Mid West Brokerage"). Other than a fully depreciated semi-truck and trailer, no tangible property was sold and a gain on sale was recognized for $100,000. Mid West Brokerage was reported under the Company's Processing and Field Services segment and is included in discontinued operations. ACQUISITION OF ENVIROSAFE SERVICES OF IDAHO, INC. On February 1, 2001, the Company, by its wholly-owned subsidiary American Ecology Environmental Services Corporation, a Texas corporation, acquired Envirosafe Services of Idaho, Inc. a Delaware corporation ("ESII"), pursuant to a Stock Purchase Agreement from Envirosource Technologies Inc., a Delaware corporation and Envirosource, Inc., a Delaware corporation, and parent company of Envirosource Technologies Inc. This acquisition was accounted for as a purchase and approved by the board of directors of each company. Under the terms of the agreement, the Company paid $1,000 in cash for all of the outstanding shares of ESII, a subsidiary of Envirosource Technologies Inc. The Company acquired all of the authorized and issued stock of ESII, thereby obtaining ownership of all ESII assets and liabilities. The principal ESII assets were a RCRA and TSCA permitted hazardous and PCB waste treatment and disposal facility located in southwestern Idaho, and exclusive rights to use a patented hazardous waste treatment process for steel mill electric arc furnace dust within a defined service territory in the western United States. With the acquisition of ESII, the Company acquired $2,576,000 in cash, $2,188,000 in accounts receivable, $12,417,000 in property and equipment, and $3,935,000 in other assets. The Company also assumed $1,660,000 of accounts payable, an $8,500,000 industrial revenue bond obligation, $10,038,000 of closure/post-closure liabilities, and $917,000 of other accrued liabilities. No goodwill was recorded with this acquisition. NOTE 20. REVERSE AND FORWARD STOCK SPLIT On June 29, 2001, the Company completed a reverse 1 for 100 stock split with fractional shareholders receiving cash for their fractional interest. The Company purchased and cancelled 60,801 common shares for $148,000 and incurred $28,000 in transaction costs. Later on June 29, 2001 the Company completed a 100 for 1 forward stock split. The effect of these transactions was to remove approximately 3,000 shareholders who held, on average, 20 shares each and for whom it was prohibitively expensive to trade their shares. The Company, in return, was able to lower reporting costs by removing the 33 percent of shareholders who in total owned less than ..5% of the outstanding common shares. NOTE 21. OPERATING SEGMENTS The Company operates with two segments, Operating Disposal Facilities, and Non-Operating Disposal Facilities. These segments have been determined by evaluating the Company's internal reporting structure and nature of services offered. The Operating Disposal Facility segment represents Disposal Facilities 64 accepting hazardous and radioactive waste. The Non-Operating Disposal Facility segment represents facilities which are not accepting hazardous and/or radioactive waste or are awaiting approval to open. As of December 27, 2002, the Company announced it was discontinuing operations at the Processing and Field Services segment which aggregated, volume-reduced, and performed remediation and other services on radioactive material, but excluded processing performed at the disposal facilities. All prior segment information has been restated in order to present the operations at the Oak Ridge facility, including the Field Services division, as discontinued operations. Effective December 31, 2002, the Company classified the El Centro municipal landfill as an asset held for sale due to the expected sale of the facility which occurred on February 13, 2003. All prior segment information has been restated in order to present the operations of the El Centro landfill as discontinued operations. Income taxes are assigned to Corporate, but all other items are included in the segment where they originated. Inter-company transactions have been eliminated from the segment information and are not significant between segments. Summarized financial information concerning the Company's reportable segments is shown in the following table (in thousands $(000).
Operating Non-Operating Discontinued Disposal Disposal Processing and Facilities Facilities Field Services Corporate Total 2002 - ---- Revenue $ 46,494 $ 295 $ -- $ -- $ 46,789 Direct operating cost 23,436 1,787 -- -- 25,223 ------------ --------------- ---------------- ----------- --------- Gross profit 23,058 (1,492) -- -- 21,566 S,G&A 8,000 103 -- 4,528 12,631 ------------ --------------- ---------------- ----------- --------- Income (loss) from operations 15,058 (1,595) -- (4,528) 8,935 Investment income 13 -- -- 18 31 Gain (loss) on sale of assets (20) 4 -- 1 (15) Interest expense 711 -- -- 109 820 Other income (expense) 78 (389) -- (231) (542) ------------ --------------- ---------------- ----------- --------- Income before income tax, discontinued operations and cumulative effect 14,418 (1,980) -- (4,849) 7,589 Income tax benefit -- -- -- 8,505 8,505 ------------ --------------- ---------------- ----------- --------- Income before discontinued operations and cumulative effect 14,418 (1,980) -- 3,656 16,094 Gain (loss) from discontinued operations 466 -- (10,930) -- (10,464) ------------ --------------- ---------------- ----------- --------- Income before cumulative effect 14,884 (1,980) (10,930) 3,656 5,630 Cumulative effect of change in accounting principle 14,983 1,548 (3,390) -- 13,141 ------------ --------------- ---------------- ----------- --------- Net income $ 29,867 $ (432) $ (14,320) $ 3,656 $ 18,771 ============ =============== ================ =========== ========= Depreciation and accretion $ 6,443 $ 458 $ 518 $ 361 $ 7,780 Capital Expenditures $ 3,010 $ 6 $ 300 $ 30 $ 3,346 Total Assets $ 44,832 $ 27,467 $ 4,649 $ 10,177 $ 87,125 2001 - ---- Revenue $ $40,088 $ 87 $ -- $ -- $ 40,175 Direct operating cost 21,637 1,141 -- -- 22,778 ------------ --------------- ---------------- ----------- --------- Gross profit 18,451 (1,054) -- -- 17,397 S,G&A 8,287 556 -- 5,431 14,274 ------------ --------------- ---------------- ----------- --------- Income from operations 10,164 (1,610) -- (5,431) 3,123 Investment income 188 -- -- 58 246 65 Gain (loss) on sale of assets (8) -- -- -- (8) Interest expense 746 -- -- 265 1,011 Other income (expense) 450 (286) -- 663 827 ------------ --------------- ---------------- ----------- --------- Income before income tax and discontinued operations effect 10,048 (1,896) -- (4,975) 3,177 Income tax benefit (expense) -- -- -- (186) (186) ------------ --------------- ---------------- ----------- --------- Income before discontinued operations 10,048 (1,896) -- (5,161) 2,991 Gain (loss) from discontinued operations 378 -- (2,567) -- (2,189) ------------ --------------- ---------------- ----------- --------- Net Income $ 10,426 $ (1,896) $ (2,567) $ (5,161) $ 802 ============ =============== ================ =========== ========= Depreciation Expense $ 4,285 $ 2 $ 684 $ 59 $ 5,030 Capital Expenditures $ 2,865 $ 3 $ 557 $ 31 $ 3,456 Total Assets $ 43,371 $ 27,482 $ 9,892 $ 6,079 $ 86,824 2000 - ---- Revenue $ 27,013 $ 41 $ -- $ -- $ 27,054 Direct operating cost 11,507 916 -- -- 12,423 ------------ --------------- ---------------- ----------- --------- Gross profit 15,506 (875) -- -- 14,631 S,G&A 4,691 (119) -- 5,812 10,384 ------------ --------------- ---------------- ----------- --------- Income (loss) from operations 10,815 (756) -- (5,812) 4,247 Investment income 53 293 -- 89 435 Gain on sale of assets 11 -- -- -- 11 Interest expense 77 -- -- 183 260 Other income 472 -- -- 593 1,065 ------------ --------------- ---------------- ----------- --------- Income before income tax and discontinued operations 11,274 (463) -- (5,313) 5,498 Income tax benefit (expense) -- -- -- 12 12 ------------ --------------- ---------------- ----------- --------- Income before discontinued operations 11,274 (463) -- (5,301) 5,510 Discontinued operations (641) -- (172) -- (813) ------------ --------------- ---------------- ----------- --------- Net Income $ 10,633 $ (463) $ (172) $ (5,301) $ 4,697 ============ =============== ================ =========== ========= Depreciation Expense $ 1,397 $ 2 $ 571 $ 58 $ 2,028 Capital Expenditures $ 5,469 $ -- $ 904 $ 69 $ 6,442 Total Assets $ 23,119 $ 27,442 $ 9,034 $ 6,155 $ 65,750
NOTE 22. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA The unaudited consolidated quarterly results of operations for 2002 and 2001 have been restated to reflect the cumulative effect of the change in accounting principle as discussed in Notes 2 and 9, and the discontinued operations as discussed in Note 19. ($ in thousands, except per share amounts) were:
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER RESTATED RESTATED RESTATED RESTATED 2002 2001 2002 2001 2002 2001 2002 2001 ------- ------ ------- ------- ------- ------- ------- ------- Revenue 13,424 9,730 10,605 10,193 11,048 9,776 11,712 10,476 Gross profit 7,249 5,014 4,764 3,887 4,631 2,711 4,922 5,785 Income (loss) before, discontinued operations, cumulative effect and preferred dividends 2,989 2,289 2,470 1,312 1,987 (1,063) 8,648 453 Discontinued operations (211) (807) (269) (986) (921) (149) (9,063) (247) 66 Cumulative effect 13,141 - - - - - - - Net income (loss) 15,919 1,482 2,201 326 1,066 (1,212) (415) 206 EARNINGS PER SHARE - BASIC Income (loss) before, discontinued operations, cumulative effect and preferred dividends .22 .16 .16 .09 .12 (.09) .60 .03 Discontinued operations (.02) (.06) (.02) (.07) (.06) (.01) (.63) (.02) Cumulative effect .95 - - - - - - - Net income (loss) 1.15 .10 .14 .02 .06 (.10) (.03) .01 EARNINGS PER SHARE - DILUTED Income (loss) before, discontinued operations, cumulative effect and preferred dividends .17 .13 .14 .07 .12 (.09) .60 .03 Discontinued operations .02 (.05) (.02) (.06) (.06) (.01) (.63) (.02) Cumulative effect .92 - - - - - - - Net income (loss) 1.11 .08 .12 .01 .06 (.10) (.03) .01
Basic and diluted earnings per common share for each of the quarters presented above is based on the respective weighted average number of common shares for the quarters. The dilutive potential common shares outstanding for each period and the sum of the quarters may not necessarily be equal to the full year basic and diluted earnings per common share amounts. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On September 16, 2002, American Ecology Corporation's Board of Directors, upon recommendation of the Audit Committee, engaged Moss Adams LLP as independent auditor, replacing Balukoff Lindstrom & Co. Balukoff Lindstrom & Co.'s reports on American Ecology Corporation's financial statements for the past two years did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. During American Ecology Corporations's two most recent fiscal years and through the date of Balukoff Lindstrom & Co.'s dismissal, there were no disagreements with Balukoff Lindstrom & Co. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to Balukoff Lindstrom & Co's satisfaction, would have caused Balukoff Lindstrom & Co. to make reference to the subject matter in connection with its report of the financial statements for such years; and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K. PART III Items 10, 11, 12, and 13 of Part III have been omitted from this report because the Company will file with the Securities and Exchange Commission, no later than 120 days after the close of its fiscal year, a definitive proxy statement. The information required by Items 10, 11, 12, and 13 of this report, which will appear in the definitive proxy statement, is incorporated by reference into Part III of this report. ITEM 14. CONTROLS AND PROCEDURES (a) Within the 90 day period prior to the filing of this report, Company management, under the direction of the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (Exchange Act). Based upon 67 that evaluation, the Chief Executive Officer and Chief Financial Officer believe that the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be disclosed in the Company's Exchange Act filings. (b) The Company maintains a system of internal controls that are designed to provide reasonable assurance that its records and filings accurately reflect the transactions in which it has engaged. For the year ending December 31, 2002, there were no significant changes to our internal controls or in other factors that could significantly affect the Company's internal controls. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS 1. Financial statements and reports of Independent Auditors Independent Auditors' Reports Consolidated Balance Sheets - December 31, 2002 and 2001 Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2002, 2001 and 2000 Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 Notes to Consolidated Financial Statements 2. Financial statement schedules Other schedules are omitted because they are not required or because the information is included in the financial statements or notes thereto 3. Exhibits
Exhibit Description Incorporated by Reference from No. 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 Agreement as amended between American Ecology Corporation 2002 Form 10-K and the State of Nevada - ------- -------------------------------------------------------------------- ------------------------------------- 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 2nd Quarter 1988 10-Q Waste Compact Commission and US Ecology, Inc. for the development of a facility for the disposal of low-level radioactive waste dated January 28, 1988 ("Central Interstate Compact Agreement") - ------- -------------------------------------------------------------------- ------------------------------------- 10.12 Amendment to Central Interstate Compact Agreement May 1, 1990 1994 Form 10-K - ------- -------------------------------------------------------------------- ------------------------------------- 10.13 Second Amendment to Central Interstate Compact Agreement dated 1994 Form 10-K June 24, 1991 68 - ------- -------------------------------------------------------------------- ------------------------------------- 10.14 Third Amendment to Central Interstate Compact Agreement dated July 1994 Form 10-K 1, 1994 - ------- -------------------------------------------------------------------- ------------------------------------- 10.18 Memorandum of Understanding between American Ecology 1989 Form 10-K Corporation and the State of California dated August 15, 1988 - ------- -------------------------------------------------------------------- ------------------------------------- 10.35 Lease Agreement for Corporate Office Space between American 2nd Qtr 2002 Form 10-Q filed 8-14-02 Ecology Corporation and M&S Prime Properties dated April 18, 2002 - ------- -------------------------------------------------------------------- ------------------------------------- 10.49 First Security Bank Master Equipment Lease - Sale Leaseback 3rd Qtr 2000 Form 10-Q filed 11-13-00 - ------- -------------------------------------------------------------------- ------------------------------------- 10.50a First Security Bank Credit Agreement 3rd Qtr 2000 Form 10-Q filed 11-13-00 - ------- -------------------------------------------------------------------- ------------------------------------- 10.50b Fourth Amendment to Credit Agreement between American Ecology Form 8-K filed 10-25-02 Corporation and Wells Fargo Bank dated October 15, 2002 - ------- -------------------------------------------------------------------- ------------------------------------- 10.50c Term Loan Agreement between American Ecology Corporation and Form 8-K filed 10-25-02 Wells Fargo Bank dated October 22, 2002 - ------- -------------------------------------------------------------------- ------------------------------------- 10.52 *Amended and Restated American Ecology Corporation 1992 Director Proxy Statement dated 3-28-01 Stock Option Plan - ------- -------------------------------------------------------------------- ------------------------------------- 10.53 *Amended and Restated American Ecology Corporation 1992 Proxy Statement dated 4-12-99 Employee Stock Option Plan - ------- -------------------------------------------------------------------- ------------------------------------- 10.54 *2002 Management Bonus Plan dated July 25, 2002 3rd Qtr 2002 Form 10-Q filed 11-14-02 - ------- -------------------------------------------------------------------- ------------------------------------- 10.55 *Management Incentive Plan Effective January 1, 2003 2002 Form 10-K - ------- -------------------------------------------------------------------- ------------------------------------- 10.56 *Form of Management Incentive Plan Participation Agreement Dated 2002 Form 10-K February 11, 2003 - ------- -------------------------------------------------------------------- ------------------------------------- 10.57 *Form of Executive Employment Agreement Dated February 11, 2003 2002 Form 10-K - ------- -------------------------------------------------------------------- ------------------------------------- 10.58 * Form of Stock Option Agreement Dated February 11, 2003 2002 Form 10-K - ------- -------------------------------------------------------------------- ------------------------------------- 10.60 Chase Bank Settlement and Warrant Agreement dated November 12, 2002 Form 10-K 1998 - ------- -------------------------------------------------------------------- ------------------------------------- 10.61 Series E Preferred Stock and Warrant Agreement dated November 13, 2002 Form 10-K 1996 - ------- -------------------------------------------------------------------- ------------------------------------- 10.62 Series D Cumulative Convertible Preferred Stock Certificate of 2002 Form 10-K Designation dated September 1995 - ------- -------------------------------------------------------------------- ------------------------------------- 10.70 Form of Royalty Agreement for El Centro Landfill Dated February 13, Form 8-K filed 2-13-03 2003 - ------- -------------------------------------------------------------------- ------------------------------------- 16 Change of Auditors Letter dated September 18, 2002 Form 8-K filed 9-19-02 - ------- -------------------------------------------------------------------- ------------------------------------- 21 List of Subsidiaries 2002 Form 10-K - ------- -------------------------------------------------------------------- ------------------------------------- 23.1 Consent of Moss Adams LLP - ------- -------------------------------------------------------------------- ------------------------------------- 23.2 Consent of Balukoff, Lindstrom & Co., P.A. - ------- -------------------------------------------------------------------- ------------------------------------- 99 Certifications of December 31, 2002 Form 10-K by Chief Executive Officer and Chief Financial Officer dated February 17, 2003 - ------- -------------------------------------------------------------------- -------------------------------------
*Management contract or compensatory plan. (b) REPORTS ON FORM 8-K. THE FOLLOWING REPORTS ON FORM 8-K WERE FILED DURING THE QUARTER ENDED DECEMBER 31, 2002:
- ---------------------------------------------------------------- ----------------------- Press Release, dated December 27, 2002, entitled "AMERICAN Form 8-K filed 12-27-02 ECOLOGY DISCONTINUES RADIOACTIVE WASTE PROCESSING BY OAK RIDGE, TENN SUBSIDIARY" - ---------------------------------------------------------------- ----------------------- Press Release, dated October 22, 2002, entitled "AMERICAN Form 8-K filed 10-25-02 ECOLOGY COMPLETES INDUSTRIAL REVENUE BOND REFINANCING" - ---------------------------------------------------------------- ----------------------- Press Release, dated October 1, 2002, entitled "COURT RULES Form 8-K filed 10-2-02 69 AGAINST NEBRASKA IN RADIOACTIVE WASTE LAWSUIT, AMERICAN ECOLOGY TO PURSUE $12.2 MILLION IN DAMAGES; NEBRASKA ORDERED TO PAY TOTAL OF $151 MILLION" - ---------------------------------------------------------------- -----------------------
70 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN ECOLOGY CORPORATION
SIGNATURE TITLE DATE - ------------------------ -------------------------------------- ----------------- /s/ Stephen A.Romano President, Chief Executive Officer February 17, 2003 - ------------------------ ----------------- STEPHEN A. ROMANO Chief Operating Officer, Director /s/ James R. Baumgardner Senior Vice President, Chief Financial February 17, 2003 - ------------------------ ----------------- JAMERS R. BAUMGARDNER Officer, Treasurer and Secretary /s/ Michael J. Gilberg Vice President and Controller February 17, 2003 - ------------------------ ----------------- MICHAEL J. GILBERG /s/ Roger P. Hickey Chairman of the Board of Directors February 17, 2003 - ------------------------ ----------------- ROGER P. HICKEY ______________________ Director February 17, 2003 ----------------- DAVID B. ANDERSON /s/ Rotchford L. Barker Director February 17, 2003 - ------------------------ ----------------- ROTCHFORD L. BARKER /s/ Roy C. Eliff Director February 17, 2003 - ------------------------ ----------------- ROY C. ELIFF /s/ Edward F. Heil Director February 17, 2003 - ------------------------ ----------------- EDWARD F. HEIL /s/ Paul F. Schutt Director February 17, 2003 - ------------------------ ----------------- PAUL F. SCHUTT
71 I, Stephen A. Romano, certify that: 1. I have reviewed this annual report on Form 10-K of American Ecology Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. February 17, 2003 /S/ Stephen A. Romano _______________________ Chief Executive Officer I, James R. Baumgardner, certify that: 1. I have reviewed this annual report on Form 10-K of American Ecology Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. February 17, 2003 /S/ James R. Baumgardner ________________________ Chief Financial Officer EX-10.2 3 doc2.txt LEASE AGREEMENT EXHIBIT 10.2 LEASE AGREEMENT AS AMENDED BETWEEN AMERICAN ECOLOGY CORPORATION AND THE STATE OF NEVADA LEASE ----- This agreement made and entered into this 1st day of May, 1977, by and between the State of Nevada, Department of Human Resources, hereinafter called "LESSOR," and Nuclear Engineering Company, Inc., hereinafter called "LESSEE," a corporation duly organized and existing under the laws of the State of California, authorized to do business in the State of Nevada, having its registered office in Beatty, Nevada, and authorized to engage in the business of receiving, possessing, processing, repackaging, using, storing and disposing of radioactive wastes and materials by License No. 04-3766-01 issued by the Nevada State Health Division, and being further authorized by appropriate perm issued in accordance with applicable provisions of law to engage in the disposal of chemical and toxic wastes and materials. WITNESSETH: ---------- WHEREAS, LESSOR has determined that a facility for the disposal of low-level radioactive waste materials may be maintained in the State of Nevada; and WHEREAS, LESSOR has determined that a facility for the disposal of chemical and toxic waste and materials may be maintained in the State of Nevada; and WHEREAS, LESSOR has procured certain real estate hereinafter referred to as the "Site"; NOW, THEREFORE, in consideration of the payments reserve herein and the mutual covenants made by the parties, it is agreed as follows: I. RENTAL-LICENSE FEE. For and in consideration of the terms, ---------------------- covenants, payments, conditions and restrictions hereinafter set forth, the LESSOR, pursuant to Chapter 374 of the 1961 Statutes of Nevada, does hereby lease, let and demise unto LESSEE the following described premises situate in the County of Nye, State of Nevada, more particularly described as follows, to wit: All that certain piece, parcel or tract of land located in the NW1/4 NE1/4; NE1/4 NW1/4 of Section 35, Twp. 13 South, Range 47 Ease, M.D.B.&M. containing 80 acres, more or less. 1 To have and to hold unto the LESSEE for the term of twenty (20) years from the effective date hereof, with the option to extend for an additional in accordance with the terms of this lease, at a yearly rental of ten thousand ($10,000.00) per year, the first annual payment acknowledged, and succeeding payments to be payable annually within twenty (20) days after the anniversary date of this lease. The rental payments shall be payable to the LESSOR; provided, however, that in the event regulations are promulgated establishing a license fee for the issuance of a license to dispose of low-level radioactive waste it is acknowledged and agreed that LESSEE shall have as a full credit against the payment of the aforestated license fee any and all rental fees previously paid under this lease. Further, LESSOR and LESSEE agree that upon the establishment of a license fee that LESSEE'S responsibility for payment of any and all rental fees, as set forth in this lease, shall immediately cease and the rental fee terms contained herein shall be null and void at that time. II. RENEWAL OF LEASE. The term of this lease shall be extended for --------------------- an additional ten (10) year term if, prior to six (6) months before the end of the term but not before nineteen (19) years from the effective date of this lease, the LESSEE makes written request to the LESSOR that it wishes to exercise its option to extend under this paragraph. The LESSOR may, notwithstanding LESSEE'S option herein, declare the lease terminated at the end of the initial term if, after consultation with the State Health Officer, it makes a reasonable determination that, considering the volume of waste materials buried at the Site and the available space remaining, that an extension for an additional term would not be feasible. The LESSOR may, however, extend the lease for a term less than ten (10) years if, after consultation with the State Health Officer, it determines that such an extension is feasible, considering the factors hereinbefore set forth. The LESSOR'S determination of feasibility under this paragraph is subject to review by the State Board of Health. III. OPPORTUNITY FOR HEARING. Prior to the issuing of any order or ----------------------------- the making of any determination including but not limited to the denial, modification or revocation of this lease the LESSOR and the State Board of Health shall give reasonable notice in writing by certified mail to the LESSEE and shall afford the LESSEE an opportunity for a hearing within twenty (20) calendar days after giving the aforesaid notice. IV. ASSIGNMENT. The LESSEE may not assign the lease, nor any right --------------- inuring to its benefit by virtue of any term or covenant herein set forth, without prior written approval of the LESSOR. For purposes of this paragraph a sale or change of Corporate ownership directly affecting this lease shall be deemed 2 an assignment requiring prior written approval by LESSOR as to the technical competence of the assignee to assume burial operations, it being understood and agreed that technical competence shall, as a minimum, be deemed legal and factual capability for successfully obtaining and carrying out lawful activity under either a license issued in accordance with law for the receipt, storage and disposal of chemical and toxic waste materials. The parties acknowledge and agree that the LESSOR shall not unreasonably withhold its approval of any proposed assignment by LESSEE. The LESSEE agrees that it will not, without the written consent of the LESSOR, sublet the premises or any part thereof or permit the use of the premises by any party other than the LESSEE. V. TERMINATION. The LESSOR and LESSEE agree that the primary purpose --------------- for which this lease is entered into is the proper burial and disposal of radioactive and chemical and toxic wastes and materials and any other activity which may lawfully be carried out under the terms of License No. 04-3766-01 or any other provision of Nevada Revised Statutes. The parties, therefore, expressly agree that the portion of the lease providing for the disposal or burial of radioactive waste may, at the option of the LESSOR, terminate after hearing and opportunity for judicial review is afforded LESSEE in the event License No. 04-3766-01 and all amendments thereto or any renewal thereof expires without timely application for renewal thereof having been made or for any reason ceases to be effective. VI. RENEWAL OF LICENSE. The LESSEE shall diligently and ----------------------- expeditiously provide the State Health Officer with information as required by law for processing any application LESSEE may submit for any renewal of its license issued under NRS Chapter 459. Failure on the part of the LESSEE to timely file an application for renewal in accordance with applicable State regulations, after notice to the LESSEE and reasonable opportunity to file following such notice, not to exceed thirty (30) days, may be deemed an expression of intent on the part of the LESSEE to voluntarily surrender the portion of the premises utilized for the disposal of low-level radioactive waste unto the LESSOR who may then declare that part of the lease terminated by serving written notice of its intent to terminate under this paragraph upon LESSEE. In no event, however, shall such an aforesaid voluntary surrender or termination of the LESSEE'S rights to dispose or bury low-level radioactive waste affect the portion of the lease that provides for the disposal of chemical and toxic wastes and materials and in that respect this lease shall continue in full force and effect. 3 VII. LIMITED TERMINATION-ADJUSTMENT OF BURIAL FEE. The LESSOR and -------------------------------------------------- LESSEE further agree that a termination or voluntary surrender of one of LESSEE'S rights to dispose of or store either low-level radioactive wastes or chemical and toxic wastes and materials shall not affect LESSEE'S right under this lease to continue to dispose of or store any of the other aforestated materials not so terminated or surrendered. LESSEE agrees that in the event it continues operations at either Site not so terminated or surrendered LESSEE will renegotiate a reasonable adjustment, if any, in the burial fee applicable to the Site retained by LESSEE. VIII. COMPLIANCE WITH APPLICABLE LAWS. The LESSEE covenants and -------------------------------------- agrees that it will use the leased premises only for the purposes for which this lease is entered into and in all respects in accordance with the laws of the State of Nevada, and with the requirements specified in License No. 04-3766-01 and all amendments thereto or renewal thereof. It is expressly understood that the LESSEE shall comply with all applicable laws, rules and regulations of the United States, and all applicable regulations of the State of Nevada as the same are properly promulgated and amended from time to time by the Nevada State Board of Health and the Nevada State Environmental Commission. However, if the LESSEE is required to comply with any Federal or State laws, rules or regulations that render it prohibitive economically or otherwise, for LESSEE to continue its rights and obligations under this lease the parties agree to immediately renegotiate those provisions of this lease affected by such laws, rules or regulations. If, within ninety (90) days after LESSEE'S written request to renegotiate the lease, the parties fail to reach agreement, either party shall thereafter have the right to cancel this lease, within thirty (30) days. IX. INSURANCE. The LESSEE shall provide adequate hazard and fire -------------- insurance at its own proper expense on all outbuildings, fixtures and other personal property situate on the leased premises, with loss payable provisions in favor of the LESSEE. The proceeds from any hazard or fire insurance shall be used by the LESSEE to replace all or so much of said outbuildings, fixtures or other personal property as may be economically reasonable and feasible. X. REPAIRS. The LESSEE shall make all necessary repairs or ----------- improvements as may be economically reasonable or feasible to all outbuildings, fixtures and other personal property situate on the leased premises at its own proper expense. 4 XI. FEES FOR PERPETUAL CARE AND MAINTENANCE. The LESSEE agrees to -------------------------------------------- pay LESSOR the sum of thirteen cents (13 ) for each and every cubic foot of low-level radioactive waste materials and seven cents (7 ) for each and every cubic foot of chemical and toxic waste materials which is disposed of or buried upon the described premises to provide funds for a perpetual care and maintenance trust fund as provided by law. The amounts payable to LESSOR for the disposal or burial of low-level radioactive waste or chemical and toxic waste under this lease are for a term of ten (10) years from the effective date of this lease. At the expiration of each ten (10) year period the LESSOR and the LESSEE hereby agree to conduct a joint technical study to reevaluate the then existing conditions. Subsequent to the completion of the aforestated joint study should additional funds be determined necessary then the parties agree to renegotiate the cubic foot amounts payable to LESSOR; provided, however, LESSOR agrees that any increase in the amounts to be paid for each and every cubic foot of low-level radioactive waste or chemical and toxic waste disposed of or buried upon the premises shall not exceed one hundred percent (100%) of the then current rates. XII. PREPAYMENT. LESSEE shall pay to LESSOR the sum of FIFTY ---------------- THOUSAND AND NO/100 DOLLARS ($50,000.00) which shall constitute a prepayment for the disposal and/or burial of radioactive, chemical and toxic wastes and materials on the heretofore described premises. All prepayments shall be deposited by LESSOR in the radioactive materials disposal fund as provided by law. The aforesaid prepayment shall be debited by LESSOR in accordance with the existing perpetual care and maintenance contribution rates and the monthly burial or disposal quantities for radioactive, chemical and toxic waste and materials. LESSEE shall provide additional prepayments when the balance of the deposit is equal to five percent (5%) of the original prepayment, notwithstanding that such prepayments may occur at intervals more frequent than on a yearly basis. Furthermore, LESSOR and LESSEE agree that LESSEE shall receive full credit and appropriate adjustments for any and all prepayments made prior to the execution of this lease document. In the even this lease is terminated for whatsoever reason, LESSOR agrees that LESSEE shall receive a full refund for any and all prepayment amounts not previously debited by LESSOR in accordance with all applicable provisions of this lease. The LESSOR and LESSEE acknowledge and agree that the primary purpose of LESSEE'S payment to LESSOR of the cubic foot charge on low-level radioactive, chemical and toxic wastes disposed of 5 or buried at the Site is to provide funds for satisfactory surveillance in conjunction with the implementation of proper safeguards for the public health and safety upon expiration of the lease term or extension thereof and final closure. XIII. MINIMUM BURIAL DEDUCTION. It is understood that the primary ------------------------------- purpose for the assessment of the aforestated burial rate is to ensure the adequate growth of a perpetual care and maintenance fund. In order to stimulate the growth of the perpetual care and maintenance fund, LESSOR shall deduct for any six (6) month operating period the minimum amount of TWELVE THOUSAND AND NO/100 DOLLARS ($12,000.00) from the burial prepayment as set forth in Section XII herein. The Minimum Burial Deduction amount will be adjusted at the end of each five (5) year calendar period during the term of this lease or any extension thereof. The adjusted minimum deduction amount will be computed by multiplying the annual average of the latest five (5) years' deposits by the then current contribution rates and said adjustment will be effective for the next succeeding five (5) year period. The LESSOR agrees to make adjustments on a consecutive twelve month basis in the event actual revenue earned by the LESSOR falls below the minimum burial deduction; LESSEE shall receive a credit to the prepayment in the amount of the difference between the minimum burial deduction and the actual revenue earned. However, if the actual revenue earned by the LESSOR from collection of the burial rates set forth in Section XI exceeds the applicable minimum deduction set forth in the preceding paragraph, the actual revenue earned will be deducted from the prepayment set forth in Section XII. LESSOR and LESSEE agree that LESSEE'S performance as set forth in this provision shall be excused for any month in the event of an act of God, war, riot; fire, lack of adequate fuel; power, labor, transportation; compliance with governmental requests, actions, laws, regulations, orders or action, or in the event of labor trouble, (provided that LESSEE shall not be required to settle a labor dispute against its own best judgment); or any other event beyond the reasonable control of LESSEE; which event prevents the delivery, transportation, acceptance or disposal of waste products. XIV. VIOLATIONS. The LESSEE will not, without the LESSOR'S consent ---------------- violate any of the terms and conditions of this lease, or the terms of authorizing licenses issued by the State of Nevada. If such violations, misuse, or noncompliance occur, which result in lawful revocation of License No. 04-3766-01 6 or any amendment thereto or renewal thereof, the LESSOR shall have the right, upon written notice of its intention and after providing an opportunity to LESSEE for hearing as provided herein and judicial review, to terminate this lease solely as to that portion thereof providing for radioactive waste disposal. XV. COMPENSATION TO LESSEE UPON TERMINATION. In the event of such -------------------------------------------- termination of this lease as to that portion providing for radioactive waste disposal should LESSOR relet that portion of the Site to any other party for the same, similar, or allied use, LESSEE shall be entitled to reasonable compensation, including, but not limited to, any and all buildings and other Site improvements left thereon. In the event LESSOR or LESSEE cannot reach an agreement as to the amount of such compensation, the same shall be submitted to arbitration before an arbitrator appointed by the American Arbitration Association. The costs of said arbitration shall be borne equally by the parties. XVI. WAIVER. The LESSEE agrees that the LESSOR'S failure to insist ------------ upon the strict performance of any provision of this lease, failure to exercise any right based upon a breach thereof, or the acceptance by the LESSOR of any fees during such breach shall not waive any of the LESSOR'S rights under this lease except when the LESSOR has agreed in writing to waive such rights. XVII. INDEMNITY. LESSEE agrees to indemnify and save LESSOR harmless ---------------- from and against any and all claims, demands, suits, damages, expenses and liabilities brought by a third party to the extent that any injury to or death of any person or any damage to or loss of property arises out of the sole negligence of the LESSEE. XVIII. CLOSURE REQUIREMENTS. Upon final legal termination, legal ---------------------------- termination prior to expiration of the term of this lease, or formal voluntary surrender of LESSEE'S rights to store or dispose of low-level radioactive waste material, LESSOR and LESSEE acknowledge and agree that LESSEE shall perform the following activities as its sole closure obligation under this lease agreement: (1) burial of all radioactive waste; (2) removal of all surface structures and equipment except lighting equipment, fences and gates; (3) all equipment and facilities which cannot be released by radiation survey after decontamination will be disposed of, or transported from the Site, as radioactive material; 7 (4) backfilling and mounding of all open trenches, without exception, in accordance with radioactive material license requirements; (5) reduction of radiation levels to 2mR/hr at ground level within radioactive burial area; (6) plugging and capping water wells and dry wells; (7) the East access gate to the radiological burial facility will be sealed shut; (8) installing alarms on all remaining gates which will activate in Deputy Sheriff's Office in Beatty when gat is opened; (9) replacement of faulty or damaged fencing; (10) replacement of any illegible or damaged warning signs; and (11) final radiation survey and written report to LESSOR which is confirmed by LESSOR. LESSOR shall reserve the right to waive any or all of the above Site closure conditions. XIX. RESPONSIBILITY FOLLOWING TERMINATION. The parties hereby ------------------------------------------ expressly agree that, subject to the closure requirements of the preceding paragraph, upon expiration or earlier termination of this lease, all materials buried at the Site prior to and subsequent to such expiration or termination shall be the sole and exclusive responsibility of LESSOR. XX. ACCESS TO PREMISES. The LESSOR or any person authorized by it ----------------------- shall have access to the leased premises during LESSEE'S regular business hours, or any other time upon giving reasonable notice, for any lawful purpose. XXI. SOVEREIGN AUTHORITY. It is understood that none of the terms of ------------------------- this lease, nor any of the covenants herein contained, shall operate to restrain the LESSOR from fulfilling its responsibilities in its capacity as sovereign of the State of Nevada, including, but not limited to, a determination on the part of the sovereign that a public emergency exists and that immediate State action be formally determined as necessary. Should the aforestated State action be formally determined as necessary, LESSOR shall, as provided in NRS 459.130 or any amendment thereto, upon LESSEE'S application, promptly afford LESSEE an opportunity to be heard and to present proof that such a condition or activity does not warrant the original determination. 8 XXII. HEARINGS. All hearings for all alleged violations under this --------------- lease other than those specifically stated otherwise or provided for by law shall be submitted to formal hearing before a qualified hearing officer appointed by the Department of Human Resources of the State of Nevada. Within twenty (20) days following the final conclusion of the hearing, the hearing officer shall make a report and ruling which shall contain findings of fact and conclusions of law. The hearing officer shall serve a copy of his report and ruling upon all parties of record to the proceeding. Any party to the hearing may be represented by counsel, may make oral or written argument, offer testimony, cross-examine witnesses, or take any combination of such actions. The record of such hearing shall be open to public inspection. XXIII. NOTICES. All notices, demands, requests, consents, approvals, --------------- cancellations and/or other communications which may be or are required to be given by either party to the other under this lease shall be in writing and shall be deemed to have been sufficiently given for all purposes when delivered or mailed by certified or registered mail, postage prepaid. Notices to the LESSOR shall be given by mailing to the State of Nevada, Department of Human Resources, Capitol Complex, Carson City, Nevada, 89710. Notice to the LESSEE shall be given by mailing to Nuclear Engineering Company, Inc., 9200 Shelbyville Road, Louisville, Kentucky, 40222. XXIV. HEADINGS. The provision headings appearing in this lease have --------------- been inserted for the purpose of convenience and ready reference. They do not purport to, and shall not be deemed to define, limit or extend the scope or intent of the provisions to which they pertain. XXV. APPEALS. It is understood that none of the provisions contained ------------- in this lease shall affect the LESSEE'S right to appeal any of the rulings or regulations of the LESSOR or the Nevada State Board of Health in the manner prescribed by law. XXVI. EFFECT OF LEASE. Execution of this lease by LESSOR or LESSEE ---------------------- shall terminate and replace any presently existing lease between the LESSEE and any other party related to the premises described herein. XXVII. ENTIRE AGREEMENT. The lease embodies the entire agreement ------------------------ between the parties. It may not be modified or terminated except as provided herein or by other written agreement between the parties. 9 IN WITNESS WHEREOF, the parties have hereunto set their hands the day and year in this lease first above written. PPROVED THIS 12TH day of STATE OF NEVADA May, 1977. DEPARTMENT OF HUMAN RESOURCES - -------------------------------- ------------------------------ GOVERNOR OF THE STATE OF NEVADA ROGER S. TROUNDAY, DIRECTOR LESSOR APPROVED AS TO FORM THIS 6TH NUCLEAR ENGINEERING COMPANY, INC. day of May, 1977. ROBERT LIST ATTORNEY GENERAL --------------------------------- JAMES N. NEEL, PRESIDENT LESSEE BY: (Corporate Seal) --------------------------------- D. MICHAEL CLASEN DEPUTY ATTORNEY GENERAL Attest: --------------------------------- ASSISTANT SECRETARY 10 ADDENDUM AGREEMENT ------------------ This Addendum Agreement made and entered into this the seventh day of December, 1979, by and between the State of Nevada, Department of Human Resources, hereinafter called "LESSOR," and Nuclear Engineering Company, Inc., hereinafter called "LESSEE," a corporation duly organized and existing under the laws of the State of California, authorized to do business in the State of Nevada, having its registered office in Beatty, Nevada, and authorized to engage in the business of receiving, possessing, processing, repackaging, using, storing and disposing of radioactive wastes and materials by License No. 13-11-0043-02 issued by the Nevada State Health Division, and being further authorized by appropriate permit issued in accordance with applicable provisions of law to engage in the disposal of chemical and toxic wastes and materials. WITNESSETH: ---------- WHEREAS, LESSOR and LESSEE entered into a Lease dated May 1, 1977, whereby LESSOR leased to LESSEE certain real property in Nye County, Nevada, hereinafter known as the "Site"; WHEREAS, LESSOR and LESSEE have determined that additional monetary consideration in the form of increased yearly rental payments Need to be provided in order that LESSOR may further ensure that it has sufficient personnel to continue and administer its on-site surveillance of that portion of the Site pertaining solely to low-level radioactive waste; and WHEREAS, LESSOR and LESSEE have mutually agreed to raise the per cubic foot Perpetual Care and Maintenance payments for low-level radioactive waste paid by LESSEE in order to further accelerate the growth of the Perpetual Care and Maintenance Trust Fund maintained by the LESSOR; NOW, THEREFORE, in consideration of the payments reserved herein and the mutual covenants made by the parties, it is agreed as follows: I. That Section I, entitled RENTAL-LICENSE FEE, of the May 1, 1977 Lease be amended in part in that the yearly rental of Ten Thousand Dollars ($10,000) per year shall now read Twenty Thousand Dollars ($20,000) per year effective the date of this Addendum Agreement. In all other respects, Section I, entitled RENTAL-LICENSE FEE, of the May 1, 1977 Lease shall remain unchanged. LESSOR acknowledges the receipt of LESSEE'S check number 21861, dated December 7, 1979, in the amount of Ten 11 Thousand Dollars ($10,000) and agrees to prorate this amount over the present remaining annual rental period with the remaining balance to be applied towards the next annual rental period. II. That Section XI, entitled FEES FOR PERPETUAL CARE AND MAINTENANCE, of the May 1, 1977 Lease be amended in part, in that the sum of thirteen cents (13 ) for each and every cubic foot of low-level radioactive waste materials shall now read twenty-five cents (25 ) for each and every cubic foot of low-level radioactive waste materials. However, the LESSOR and LESSEE agree that in recognition of LESSEE'S current contractual commitments, that the per cubic foot increase from thirteen cents (13 ) to twenty-five cents (25 ) shall not be immediately effective, but rather shall take effect on the twenty-fifth day of February, 1980. In all other respects, Section XI, entitled FEES FOR PERPETUAL CARE AND MAINTENANCE, of the May 1, 1977 Lease shall remain unchanged. III. This Addendum Agreement is annexed to and is a part of the May 1, 1977 Lease and is governed by and hereby becomes subject to all of its provisions and promises, except to the extent that those provisions and/or promises are expressly qualified, modified or alerted by this Addendum Agreement. The May 1, 1977 Lease, as amended by this Addendum Agreement, remains in full force and effect. IV. This Addendum Agreement embodies the entire agreement between the parties. It may not be modified or terminated except as provided herein or by other written agreements between the parties. IN WITNESS WHEREOF, the parties have hereunto set their hands the day and year in this Lease first above written. APPROVED: STATE OF NEVADA DEPARTMENT OF HUMAN RESOURCES - ----------------------------------- ----------------------------------- GOVERNOR OF THE STATE OF NEVADA RALPH R. DISIBIO, DIRECTOR LESSOR APPROVED AS TO FORM: NUCLEAR ENGINEERING CO., INC. RICHARD BRYAN ATTORNEY GENERAL JAMES N. NEEL, PRESIDENT LESSEE 12 By: ------------------------------------------- BRYAN NELSON DEPUTY ATTORNEY GENERAL Attest: ------------------------- ------------------------- ------------------------- DAVID R. HAFENDORFER ------------------------- ASSISTANT SECRETARY (affix Corporate Seal) 13 ADDENDUM AGREEMENT ------------------ This Addendum Agreement made and entered into this the twenty-eighth day of March, 1988, by and between the STATE OF NEVADA, Department of Human Resources, hereinafter called "LESSOR," and US ECOLOGY, Inc., hereinafter called "LESSEE," a corporation duly organized and existing under the laws of the State of California, authorized to do business in the State of Nevada, having its registered office in Beatty, Nevada, and authorized to do engage in the business of receiving, possessing, processing, repackaging, using, storing and disposing of radioactive wastes and materials by License No. 13-11-0043-02, as amended, issued by the Nevada State Health Division. WITNESSETH: ---------- WHEREAS, LESSOR and LESSEE entered into a Lease dated May 1, 1977, whereby LESSOR leased to LESSEE certain real property in Nye County, Nevada, hereinafter known as "Site"; and WHEREAS, LESSOR and LESSEE entered into an Addendum Agreement dated December 7, 1979, which amended in part the May 1, 1977 Lease; and WHEREAS, LESSOR and LESSEE have mutually agreed to raise the per cubic foot Perpetual Care and Maintenance payments for low-level radioactive waste paid by LESSEE in order to further accelerate the growth of the Perpetual Care and Maintenance Trust Fund maintained by the LESSOR. NOW, THEREFORE, in consideration of the payments reserved herein and the mutual covenants made by the parties, it is agreed as follows: I. That Section XI, entitled FEES FOR PERPETUAL CARE AND MAINTENANCE, of the May 1, 1977 Lease, as amended by the December 7, 1979 Addendum, be further amended in that the sum of TWENTY-FIVE CENTS ($0.25) for each and every cubic foot of low-level radioactive waste materials shall now read TWO DOLLARS ($2.00) for each and every cubic foot of low-level radioactive waste materials. However, the LESSOR and LESSEE agree that the new fee shall be effective on the first day of April, 1988. In al other respects, Section XI, entitled FEES FOR PERPETUAL CARE AND MAINTENANCE, of the May 1, 1977 Lease, as amended by the December 7, 1979 Addendum, shall remain unchanged. II. That Section XII, entitled PREPAYMENT, of the May 1, 1977 Lease be amended in its entirety to read as follows: 14 XII. QUARTERLY PAYMENTS. LESSEE shall make Perpetual Care and ------------------- Maintenance payments on a quarterly basis and in the contribution rates set forth in Section XI as amended. Specifically, the TWO DOLLAR ($2.00) perpetual care and maintenance fee for radioactive waste materials and the SEVEN CENTS ($0.07) perpetual care and maintenance fee for chemical and toxic waste materials shall be paid to the State on a quarterly basis for the quarters ending January15, April 15, July 15, and October 15, provided, however, that LESSEE shall have up to forty-five (45) days from the end of each quarter to secure collection of the fees from its customers and subsequently make payment to the LESSOR. Furthermore, LESSOR and LESSEE agree that LESSEE shall receive full credit and appropriate adjustments for any and all prepayments made prior to the execution of this lease document. In the event this Lease is terminated for whatsoever reason, LESSOR agrees that LESSEE shall receive a full refund for any and all prepayment amounts not previously debited by LESSOR in accordance with all applicable provisions of this Lease. The LESSOR and LESSEE acknowledge and agree that the primary purpose of LESSEE'S payment to LESSOR of the cubic foot charge on low-level radioactive, chemical and toxic wastes disposed of or buried at the Site is to provide funds for the implementation of proper safeguards for the public health and safety upon expiration of the lease term or extension thereof and final closure. III. This Addendum Agreement is annexed to and is a part of the May 1, 1977 Lease, as amended. The sole purpose of the Addendum is for purposes stated herein and its execution by the undersigned parties is intended only to address the fee payment schedules and Perpetual Care and Maintenance fees as set forth in the May 1, 1977 Lease, as amended. IV. This Addendum Agreement embodies the entire agreement between the parties. It may not be modified or terminated except as provided herein or by other written agreements between the parties. 15 IN WITNESS WHEREOF, the parties have hereunto set their hands the day and year in this Lease first above written. APPROVED: STATE OF NEVADA ("LESSOR") DEPARTMENT OF HUMAN RESOURCES - ------------------------------------ -------------------------------------- RICHARD H. BRYAN, GOVERNOR Jerry Griepentrog, Director US ECOLOGY, INC. ("LESSEE") -------------------- -------------------- Thomas S. Baer, Vice President -------------------- APPROVED AS TO FORM: BRYAN MCKAY ATTORNEY GENERAL BY: ---------------------------------------- Bryan M. Nelson, Chief Deputy ATTEST: -------------------- -------------------- Robert L. Ash, Assistant Secretary -------------------- (CORPORATE SEAL) 16 EXHIBIT P --------- ADDENDUM AGREEMENT ------------------ This Addendum Agreement made and entered into this ____ day of September, 1993, by and between the State of Nevada, Department of Human Resources, (hereinafter collectively referred to as "LESSOR"), the State of Nevada Department of Conservation and Natural Resources, and US Ecology, Inc., a corporation duly organized and existing under the laws of the State of California, authorized to do business in the State of Nevada, and having its registered office in Beatty, Nevada (hereinafter "LESSEE"). WITNESSETH: ---------- WHEREAS, LESSOR and LESSEE entered into a Lease dated May 1, 1977 (hereinafter the "May 1, 1977" Lease), whereby LESSOR leased to LESSEE certain real property in Nye County, Nevada, hereinafter known as the "Site"; and WHEREAS, LESSOR and LESSEE entered into an Addendum Agreement dated December 7, 1979, which amended in part the May 1, 1977 Lease; and WHEREAS, LESSOR and LESSEE entered into an Addendum Agreement dated March 28, 1988, which amended in part the May 1, 1977 Lease; and WHEREAS, LESSOR and LESSEE entered into a Settlement Agreement dated September ____, 1993, pursuant to which LESSOR and LESSEE agreed in part to amend the May 1, 1977 Lease as set forth herein. NOW THEREFORE, in consideration of the premises, covenants, and mutual promises set forth herein, and other good and valuable consideration, the sufficiency and receipt of which are hereby mutually acknowledged LESSOR and LESSEE agree as follows: I. That the definition of the term LESSEE provided in the preamble to the May 1, 1977 Lease and used therein shall be amended by deleting any reference to the State of Nevada Department of Human Resources and by Adding the State of Nevada Department of Conservation and Natural Resources. It is the express intent of LESSEE and LESSOR that the State of Nevada Department of Conservation and Natural Resources will thereby become a party to the May 1, 1977 Lease and that the State of Nevada Department of Human Resources will no longer be a party thereto. 17 II. That Section II, entitled RENEWAL OF LEASE, of the May 1, 1977 Lease be amended in its entirety to read as follows: II. RENEWAL OF LEASE. The term of this lease shall be extended as US ---------------------- Ecology determines, in its sole discretion, for an additional ten (10) year term or until such time that the Site has reached its full capacity if the Site does so prior to the expiration of the ten (10) year term, if, prior to six (6) months before the end of the term but not before nineteen (19) years from the effective date of this lease, the LESSEE provides written notice to the LESSOR that it is exercising its option to extend the lease term pursuant to this paragraph. III. That Section XI, entitled FEES FOR PERPETUAL CARE AND MAINTENANCE, of the May 1, 1977 Lease, as amended by the December 7, 1979 Addendum and by the March 28, 1988 Addendum, be further amended, in that the sum of seven cents for each and every cubic foot of chemical and toxic waste materials shall now read $2.80 per ton + 7 cents per cubic foot of chemical and toxic waste materials. However, the LESSOR and LESSEE agree that the fee shall be effective on the 1st day of October, 1993. LESSOR and LESSEE further agree that the following sentence be added to the end of the first paragraph of Section XI of May 1, 1977 Lease, as amended by the December 7, 1979 Addendum and by the March 28, 1988 Addendum: LESSOR and LESSEE hereby agree that the sole purpose of LESSEE'S payment to LESSOR of the fee $2.80 per ton + 7 cents per cubic foot charged for chemical and toxic waste disposed of at the Site is to provide LESSOR funds for the perpetual care and maintenance of the chemical and toxic waste portion of the Site. In all other respects, Section XI of the May 1, 1977 Lease, as amended by the December 7, 1979 Addendum and by the March 28, 1988 Addendum, be further amended, in that the reference to the seven cents (7 ) perpetual care and maintenance fees for chemical and toxic waste materials shall now read $2.80 per ton + 7 cents per cubic foot of chemical and toxic waste materials. V. That the following additional Section XXVIII be added to the May 7, 1977 Lease, as amended by the December 7, 1979 Addendum and by the March 28, 1988 Addendum: XXVIII. FEES FOR HAZARDOUS WASTE MANAGEMENT PROGRAM. The LESSEE agrees --------------------------------------------------- to pay LESSOR the sum of two and seventy-six/one hundredths dollars ($2.76) for every ton of chemical and toxic waste material which is disposed of at the Site. LESSOR and LESSEE hereby agree that the sole purpose of LESSEE'S payment to LESSOR of such fee is to provide LESSOR funds for the State of Nevada's hazardous waste management programs. 18 VI. Sections III and VI of the May 1, 1977 Lease are amended to delete reference to the State Board of Health and the State Health Officer, respectively. VII. This Addendum Agreement is annexed to and is a part of the May 1, 1977 Lease, as amended, and is governed by and hereby becomes subject to all of its provisions and promises, except to the extent that those provisions and/or promises are expressly qualified, modified or altered by this Addendum Agreement. The May 1, 1977 Lease, as amended hereby, remains in full force and effect. VIII. This Addendum Agreement embodies the entire agreement between the parties. It may not be modified or terminated except as provided herein or by other written agreements between the parties. 19 September 17, 1996 Mr. Peter G. Morros, P.E. Director Nevada Department of Conservation and Natural Resources 123 West Nye Lane Carson City, Nevada 89710 Subject: Notice of Lease Renewal ----------------------- Dear Mr. Morros: In accordance with the lease as amended between the State of Nevada, Department of Conservation and Natural Resources, and US Ecology, Inc. for certain real property located in Nye County, I am pleased to inform you of our decision to renew the lease for an additional ten (10) year term or until such time that the Site has reached its full capacity if the Site does so prior to the expiration of the ten (10) year term. Sincerely, J. K. Lemley Chairman and Chief Executive Officer cc: L. H. Dodgion, Administrator, Division of Environmental Protection Vern Rosse, Assistant Administrator, Division of Environmental Protection David Emme, Chief, Bureau of Waste Management Jeffrey C. Dennison, P.E., Supervisor, RCRA Facilities William J. Frey, Deputy Attorney General Don Brady, Senior Vice President, Chemical Operations Zaki Naser, Facility Manager Phil Chattin, General Counsel Lawrence Levine, Esquire 20 EX-10.55 4 doc3.txt MANAGEMENT INCENTIVE PLAN EXHIBIT 10.55 MANAGEMENT INCENTIVE PLAN AMERICAN ECOLOGY CORPORATION ---------------------------- MANAGEMENT INCENTIVE PLAN ------------------------- 1. ESTABLISHMENT, PURPOSE AND DURATION. The American Ecology Corporation Management Incentive Plan (the "Plan") is hereby established by American Ecology Corporation (the "Company"). The purpose of the Plan is to promote the success and enhance the value of the Company by providing selected executive officers with the opportunity to participate in the creation and sustaining of significant shareholder value over an extended period and to set annual compensation of such officers at levels commensurate with the Company's size, locale and such officers' duties. The Plan is adopted, effective as of January 1, 2003 (the "Effective Date"), and shall remain in effect, subject to the right of the Board of Directors of the Company (the "Board") to amend or terminate the Plan at any time. 2. ADMINISTRATION. The Plan shall be administered by the Compensation Committee of the Board, or such other committee designated by the Board, or in the absence of such Committee, by the full Board (the Committee, or the Board acting in the absence of a Committee shall hereafter be referred to as the "Committee"). 3. ELIGIBILITY. Only those executive officers designated by the Committee shall participate in this Plan and shall be a "Participant" in this Plan. References herein to an "executive officer" shall refer to only those executive officers who have been selected for participation in the Plan. The Committee will provide each Participant with an agreement evidencing such Participant's share of the incentive opportunity bonus pool (the "Participation Agreement"). 4. AWARDS. (a) The Company has targeted generation of at least $12 million of annual, pre-tax operating income by 2005 and in each year thereafter. For purposes of computing any amounts funded or paid hereunder, pre-tax operating income shall be determined in the same manner used in the Company's planning and budgeting process, and shall include expenses related to amounts payable under this Plan. (b) In the event the Company achieves in the 2003, 2004 or 2005 fiscal years annual pre-tax operating income of at least $12 million (the "Income Goal"), the Company will establish a $3.375 million bonus pool. The fiscal year in which such Income Goal is achieved is referred to herein as the "Attainment Year". In the event the Income Goal is not achieved, but the Company's annual, pre-tax operating income is at least $9.0 million in 2005, then the bonus pool will be established at $1.6875 million (50% for achieving 75% of the Income Goal), and will be increased on a straight line basis for pre-tax, operating income above $9.0 million up to the $12 million target. Such income level between $9.0 million and $12.0 million shall become the Income Goal for subsequent years, and 2005 shall be the Attainment Year. Upon the Company's establishment of the bonus pool as set forth above, each Participant shall be eligible to receive the portion of such bonus pool allocated to him by the Committee. (c) In order to assure that the Income Goal is sustainable in future years, the bonus pool (and all resulting bonus payments to Participants) will be paid in three substantially equal installments, the first payable promptly upon availability of audited annual financial results for the Attainment Year; the second payable promptly upon availability of audited annual financial results for the fiscal year immediately following the Attainment Year if the Income Goal is achieved in the fiscal year immediately following the Attainment Year; and the remainder promptly upon availability of audited annual financial results for the second fiscal year immediately following the Attainment Year, if the Income Goal is achieved in the second fiscal year immediately following the Attainment Year. In the event the Income Goal is not achieved in the first fiscal year following the Attainment Year, that year's portion of the bonus pool (and all resulting bonus payments for all Participants) will not be paid, but will be carried forward and paid in the subsequent year, if the Company's aggregate, two-year pre-tax operating income at the end of the second year following the Attainment Year is at least 200% of the Income Goal applicable for such second year. In the event the Company's aggregate, two-year pre-tax operating income at the end of the second year exceeds $18.0 million but is not at least 200% of the Income Goal applicable for such second year, the portion of the balance remaining in the bonus pool that will be paid out for such second year will be computed on a straight line basis (with $18 million being zero percent) for aggregate, two-year pre-tax, operating income above $18.0 million up to the amount which equals 200% of the Income Goal applicable for such second year. 5. PAYOUTS. All awards shall be paid in cash, unless payment is deferred at the election of the Participant under a deferred compensation plan then maintained by the Company. 6. TERMINATION. (a) Except as provided in the remainder of this Section 6(a), a Participant must be employed by the Company on the date of payment in order to be entitled to such payment. If a Participant's employment terminates prior to the end of the Attainment Year due to death, disability, or termination by the Company without Cause (as defined in Paragraph 6(b)), or termination by the Participant with Good Reason (as defined in Paragraph 6(c)) then the Participant will share in any subsequent bonus pool payouts. The share will be determined based on the number of full and partial months elapsed in the period from the Effective Date to the termination of such Participant's employment divided by the number of months from the Effective Date to the end of the Attainment Year. For example, if such an employment termination occurs on December 31, 2004 and 2005 is the Attainment Year, the Participant (or his beneficiary) will be entitled to receive two-thirds of any payout he otherwise would have received had he remained employed. (b) "Cause" shall mean, with respect to termination of a Participant's employment, the occurrence of any one or more of the following, as determined by the Committee, in the exercise of good faith and reasonable judgment: -2- (i) In the case where there is no employment, change in control or similar agreement in effect between the Participant and the Company at the time of the grant of the bonus opportunity, or where there is such an agreement but the agreement does not define "cause" (or similar words) or a "cause" termination would not be permitted under such agreement at that time because other conditions were not satisfied, the termination of an employment arrangement by reason of a determination by two-thirds of the members of the Board voting that such Participant: has engaged in willful neglect (other than neglect resulting from his incapacity due to physical or mental illness) or misconduct; has engaged in conduct the consequences of which are materially adverse to the Company, monetarily or otherwise; has materially breached the terms of any employment, change in control or similar agreement in effect between the Participant and the Company, and such breach persisted after notice thereof from the Company and a reasonable opportunity to cure; or has been convicted of (or has plead guilty or no contest to) any felony other than a traffic violation; or (ii) In the case where there is an employment, change in control or similar agreement in effect between the Participant and the Company at the time of the grant of the bonus opportunity that defines "cause" (or similar words) and a "cause" termination would be permitted under such agreement at that time, the termination of an employment that is or would be deemed to be for "cause" (or similar words) as defined in such agreement. (c) "Good Reason" shall mean the occurrence of any of the following without Participant's prior written consent during the term of his employment with the Company, which occurrence continues for ten (10) days after written notice thereof from the Participant to the Company: (i) In the case where there is no employment, change in control or similar agreement in effect between the Participant and the Company at the time of the grant of the bonus opportunity, or where there is such an agreement, but the agreement does not define "good reason" (or similar words) or a "good reason" termination would not be permitted under such agreement at that time because other conditions were not satisfied, the termination of an employment arrangement by the Participant for any of the following reason: (1) Any material adverse change in Participant's status, title, authorities or responsibilities which represents a demotion from such status, title, authorities or responsibilities which are materially inconsistent with his then current status, title, position or work responsibilities, or any removal of Participant from, or failure to appoint, elect, reappoint or reelect Participant to, any of his positions, except in connection with the termination of his employment with or without Cause, or as a result of his death or disability, provided, however, that no change in title, authorities or responsibilities customarily attributable solely to the Company ceasing to be a publicly traded corporation shall constitute Good Reason hereunder; -3- (2) The exclusion of Participant in any incentive, bonus or other compensation plan in which Participant then participates in, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to the failure to continue such plan, or the failure by the Company to continue Participant's participation therein, or any action by the Company which would directly or indirectly materially reduce his participation therein or reward opportunities thereunder; provided, however, that Participant continues to meet all eligibility requirements thereof. Notwithstanding the foregoing, this provision shall not apply to the exclusion of Participant in any incentive, bonus or other compensation plan in which Employee then participates to the extent that such termination is required by law. (3) Any amendment, modification or termination of this Plan which materially and adversely affects Participant's rights hereunder. (4) The failure by the Company to continue in effect any employee benefit plan (including any medical, hospitalization, life insurance or disability benefit plan in which Participant participates), or any material fringe benefit or prerequisite enjoyed by him as of the Effective Date, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to the failure to continue such plan, or the failure by the Company to continue Participant's participation therein, or any action by the Company which would directly or indirectly materially reduce his participation therein or reward opportunities thereunder, or the failure by the Company to provide him with the then current benefits to which he is entitled under any employment agreement or otherwise; provided, however, that Participant continues to meet all eligibility requirements thereof. Notwithstanding the foregoing, this provision shall not apply to the exclusion of Participant in any employee benefit plan in which Participant then participates to the extent that such termination is required by law, or to such failure to continue any employee benefit plan or fringe benefit, or the Participant's participation therein or reward opportunity thereunder if such failure to continue such plan or benefit is applicable to the Company's executive officers and/or employees generally. (5) Any material breach by the Company of any provision of his employment agreement, if any; (6) The failure of the Company to obtain a reasonably satisfactory agreement from any successor or assign of the Company to assume and agree to perform Participant's employment agreement, if any, as contemplated in such employment agreement; or (7) termination by a Participant during the thirty (30)-day period immediately following the first anniversary of the date of any Change in Control (as defined herein) of the Company. -4- (ii) In the case where there is an employment, change in control or similar agreement in effect between the Participant and the Company at the time of the grant of the bonus opportunity that defines "good reason" (or similar words) and a "good reason" termination would be permitted under such agreement at that time, the termination of an employment by the Participant that is or would be deemed to be for "good reason" (or similar words) as defined in such agreement. 7. CHANGE IN CONTROL. (a) In the event of a Change in Control (as defined in Paragraph 7(b)), on or prior to December 31, 2005, the bonus pool will be established on a pro rata basis based on the number of months elapsed in the performance period divided by 36, and each Participant shall receive the amount of such bonus pool allocated to him within 30 days after the closing of the transaction giving rise to such Change in Control. The proration will be based on the actual, trailing twelve months' pre-tax operating income divided by $12 million. For example, if the Change in Control occurs in 2003 and the trailing twelve months pre-tax operating income is $6 million, then the bonus pool will be established at a 50% level. In the event of a Change in Control after December 31, 2005, then any unpaid bonus pool shall be paid out in full within 30 days after the closing of the transaction giving rise to such Change in Control. (b) "Change in Control" shall mean: (i) the consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; provided, however, that a public offering of the Company's securities shall not constitute a corporate reorganization; (ii) the sale, transfer, or other disposition of all or substantially all of the Company's assets; (iii) a change in the composition of the Board, as a result of which fewer than 50% of the incumbent directors are directors who either (x) had been directors of the Company on the date 24 months prior to the date of the event that may constitute a Change in Control (the "original directors") or (y) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the aggregate of the original directors who were still in office at the time of the election or nomination and the directors whose election or nomination was previously so approved; or (iv) any transaction as a result of which any person is the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company's then outstanding voting securities. For purposes of this Paragraph (iv), the term "person" shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act, but shall exclude (x) a trustee or other fiduciary -5- holding securities under an employee benefit plan of the Company and (y) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company. Notwithstanding the foregoing, a transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company's incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company's securities immediately before such transaction. 8. OTHER PROVISIONS. Bonus opportunities granted under the Plan may also be subject to such other provisions (whether or not applicable to the bonus opportunity granted to any other Participant) as the Committee determines on the date of grant to be appropriate, including, without limitation, making such bonus opportunity contingent upon execution by such Participant of a Participation Agreement or similar agreement containing restrictive covenants, in addition to such other provisions specifically provided for under the Plan. 9. AMENDMENT. The Plan may be amended, modified or terminated by the Board. 10. NO RIGHT TO CONTINUED EMPLOYMENT. A Participant's rights, if any, to continue to serve the Company as an officer, employee, or otherwise, shall not be enlarged or otherwise affected by his or her designation as a Participant under the Plan, and the Company reserves the right to terminate the employment of any Participant at any time. 11. NO RIGHT, TITLE, OR INTEREST IN COMPANY ASSETS. Participants shall have no right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended. 12. WITHHOLDING. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state and local taxes (including such Participant's FICA obligations) required by law to be withheld with respect to any taxable event arising as a result of the Plan. 13. BENEFICIARIES. The Committee shall establish such procedures as it deems appropriate for a Participant to designate a beneficiary or beneficiaries to whom any amounts payable in the event of such Participant's death are to be paid. 14. MISCELLANEOUS. The Plan shall inure to the benefit of and be binding upon each successor and assign of the Company. All obligations imposed upon a Participant, and all rights granted to the Company hereunder, shall be binding upon such Participant's heirs, legal -6- representatives and successors. The Plan and all awards made and actions taken hereunder shall be governed by and construed in accordance with the laws of the State of Idaho (other than its provisions respecting choice of law). 15. DISPUTE RESOLUTION. (a) All disputes arising out of this Plan shall be resolved by the following alternative dispute resolution process: (i) the Company shall seek a fair and prompt negotiated resolution with any Participant; but if this is not possible, (ii) all disputes shall be resolved by binding arbitration; provided, -------- that during this process, at the request of the Company or any Participant, made not later than 60 days after the initial arbitration demand, the parties shall attempt to resolve any dispute by non-binding, third-party intervention, including either mediation or evaluation or both but without delaying the arbitration hearing date. By the adoption hereof by the Company, and by becoming a Participant in the Plan, both parties give up their right to have the dispute decided in court by a judge or jury. (b) Any controversy or claim arising out of or connected with this Plan shall be decided by arbitration. In the event the parties cannot agree on an arbitrator, then the arbitrator shall be selected by the administrator of the American Arbitration Association ("AAA") office in Salt Lake City, Utah. The arbitrator shall be an attorney with at least 15 years' experience in employment law in Idaho. Boise, Idaho shall be the site of the arbitration. All statutes of limitation, which would otherwise be applicable, shall apply to any arbitration proceeding hereunder. Any issue about whether a controversy or claim is covered by this Plan shall be determined by the arbitrator. (c) The arbitration shall be conducted in accordance with this Plan, using as appropriate the AAA Employment Dispute Resolution Rules in effect on the date hereof. The arbitrator shall not be bound by the rules of evidence or of civil procedure, but rather may consider such writings and oral presentations as reasonable business people would use in the conduct of their day-to-day affairs, and may require both parties to submit some or all of their respective cases by written declaration or such other manner of presentation as the arbitrator may determine to be appropriate. The parties agree to limit live testimony and cross-examination to the extent necessary to ensure a fair hearing on material issues. (d) The arbitrator shall take such steps as may be necessary to hold a private hearing within 120 days of the initial request for arbitration and to conclude the hearing within two days; and the arbitrator's written decision shall be made not later than 14 calendar days after the hearing. These time limits are included in order to expedite the proceeding, but they are not jurisdictional, and the arbitrator may for good cause allow reasonable extensions or delays, which shall not affect the validity of the award. Both written discovery and depositions shall be allowed. The extent of such discovery will be determined by the Company and the Participant and any disagreements concerning the scope and extent of discovery shall be resolved by the arbitrator. The written decision shall contain a brief statement of the claim (s) determined and the award made on each claim. In making the decision and award, the arbitrator shall apply applicable substantive law. The arbitrator may award injunctive relief or any other remedy available from a judge, including consolidation of this arbitration with any other involving common issues of law or fact which may promote judicial economy, and may award -7- attorneys' fees and costs to the prevailing party, but shall not have the power to award punitive or exemplary damages. -8- EX-10.56 5 doc4.txt FORM OF INCENTIVE PLAN EXHIBIT 10.56 FORM OF MANAGEMENT INCENTIVE PLAN PARTICIPATION AGREEMENT OFFERED TO THE FOLLOWING KEY EMPLOYEES ON FEBRUARY 11, 2003: KEY EMPLOYEE POOL % ------------ STEPHAN ANTHONY ROMANO 43.956% JAMES RANDALL BAUMGARDNER 17.5824% JOHN SCOTT NICHOLSON 17.5824% MICHAEL JAMES GILBERG 10.989% PARTICIPATION AGREEMENT ----------------------- Reference is hereby made to that certain American Ecology Corporation (the "Company") Management Incentive Plan effective as of January 1, 2003 (the "Plan"), a copy of which is attached hereto as Exhibit A and made a part hereof by reference. The undersigned ("Participant") hereby acknowledges receipt of the Plan and agrees to be subject to all terms and conditions of the Plan. Further, as a condition to the effectiveness of Participant's incentive opportunity under the Plan, in addition to the covenants made by Participant in that certain Executive Employment Agreement made and entered into effective as of the first day of January, 2003 (the "Employment Agreement"), the parties agree as follows: 1. INCENTIVE OPPORTUNITY. The Company grants to Participant the opportunity to receive up to _________________________ of the bonus pool established by the Company under the Plan. Participant acknowledges that his entitlement, if any, to any award payments under the Plan shall be determined thereunder. 2. GENERAL. Participant acknowledges that his employment with the Company has special, unique and extraordinary value to the Company; that the Company has a lawful interest in protecting its investment in entrusting its Confidential Information (as defined in Paragraph 5) to him; and that the Company would be irreparably damaged if Participant were to provide services to any person or entity in violation of this Agreement because in performing such services Participant would inevitably disclose the Company's Confidential Information to third parties and that the restrictions, prohibitions and other provision of this Section are reasonable, fair and equitable in scope, terms, and duration to protect the legitimate business interests of the Company, and are a material inducement to the Company to enter into this Agreement. 3. NON-COMPETITION. Without the consent in writing of the Board of Directors of the Company (the "Board"), Participant will not, during his employment with the Company and for a period of two years thereafter, if employment is terminated by the Company for Cause or by Participant without Good Reason (as defined in the Plan), acting alone or in conjunction with others, directly or indirectly engage (either as owner, investor, partner, stockholder, employer, employee, consultant, advisor or director) in activities on behalf of any entity or entities engaged in waste processing and disposal services for low-level radioactive-wastes, naturally occurring, accelerator produced, and exempt radioactive materials, and hazardous and PCB wastes. It is agreed that the ownership of not more than five percent of the equity securities of any company having securities listed on an exchange or regularly traded in the over-the-counter market shall not, of itself, be deemed inconsistent with this Paragraph 3. 4. NON-SOLICITATION. (a) Without the consent in writing of the Board, after Participant's employment has terminated for any reason, Participant will not, during his employment with the Company and for a period of one year thereafter (two years thereafter, if employment is terminated by the Company for Cause or by Participant without Good Reason (as defined in the Plan)), acting alone or in conjunction with others, either directly or indirectly induce any vendors or customers of the Company to curtail or cancel their business with the Company or any of its subsidiaries. (b) Without the consent in writing of the Board, after Participant's employment has terminated for any reason, Participant will not, during his employment with the Company and for a period of two years thereafter, acting alone or in conjunction with others, either directly or indirectly induce, or attempt to influence, any employee of the Company or any of its subsidiaries to terminate his/her employment. 5. CONFIDENTIAL INFORMATION. (a) Participant agrees not to disclose or reveal to any person or entity outside the Company any secret or confidential information concerning any Company product, process, equipment, machinery, design, formula, business, or other activity (collectively, "Confidential Information") without prior permission of Company in writing. Confidential Information shall not include any information which is in the public domain or becomes publicly known through no wrongful act on the part of Participant or breach of his Employment Agreement. Participant acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company. The obligation to protect the secrecy of such information continues after employment with Company may be terminated. In furtherance of this agreement, Participant acknowledges that all Confidential Information which Participant now possesses, or shall hereafter acquire, concerning and pertaining to the business and secrets of the Company and all inventions or discoveries made or developed, or suggested by or to Participant during said term of employment relating to Company's business shall, at all times and for all purposes, be regarded as acquired and held by Participant in his fiduciary capacity and solely for the benefit of Company. All records of every nature and description which come into Participant's possession, whether prepared by Participant, or otherwise, shall remain the sole property of the Company and upon termination of Participant's employment for any reason, said records shall be left with the Company as part of its property. (b) Participant agrees that all inventions, innovations, improvements, technical information, systems, software developments, methods, designs, analyses, drawings, reports, service marks, trademarks, trade names, logos and all similar or related information (whether patentable or unpatentable) which relate to the Company's or any of its subsidiaries or affiliates' actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Participant (whether or not during usual business hours and whether or not alone or in conjunction with any other person) while employed by the Company (including those conceived, developed or made prior to the date of this Agreement) together with all patent applications, letters patent, trademark, tradename and service mark applications or registrations, copyrights and reissues thereof that may be granted for or upon any of the foregoing (collectively referred to herein as the "Work Product"), belong in all instances to the Company or its subsidiaries or affiliates. Participant will promptly perform all actions reasonably requested by the Board (whether during or after his employment with the Company) to establish and confirm the Company's or its subsidiaries or affiliates' ownership of such Work Product (including, without limitation, the execution and delivery of assignments, consents, powers of attorney and other instruments) and to provide reasonable assistance to the Company or any of its subsidiaries and affiliates in connection with the prosecution of any applications for patents, trademarks, trade names, service marks or reissues thereof or in the prosecution or defense of interferences relating to any Work Product. 6. REMEDIES. (a) The provisions of Paragraphs 3, 4 and 5 of this Agreement are separate and distinct commitments independent of each of the Paragraphs. Participant acknowledges that the covenants and agreements which he has made in this Agreement are reasonable and are required for the reasonable protection of the Company and its business. Participant agrees that the breach of any covenant or agreement contained herein will result in irreparable injury to the Company and that, in addition to all other remedies provided by law or in equity -2- with respect to the breach of any provision of this Agreement, the Company and its successors and assigns will be entitled to enforce the specific performance by Participant of his obligations hereunder and to enjoin him from engaging in any activity in violation hereof and that no claim by Participant against the Company or its successors or assigns will constitute a defense or bar to the specific enforcement of such obligations. Participant agrees that the Company and any successor or assign shall be entitled to recover all costs of enforcing any provision of this Agreement, including, without limitation, reasonable attorneys' fees and costs of litigation. In the event of a breach by Participant of any covenant or agreement contained herein, the running of the restrictive covenant periods (but not of Participant's obligations hereunder) shall be tolled during the period of the continuance of any actual breach or violation. (b) The parties hereto agree that the covenants set forth in Paragraphs 3, 4 and 5 are reasonable with respect to their duration, geographical area and scope. If the final judgment of a court of competent jurisdiction declares that any term or provision of Paragraphs 3, 4 or 5 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. (c) In addition, the Company may, at the sole discretion of the Board, cancel, rescind, suspend, withhold or otherwise limit or restrict bonus payouts under the Plan granted to Participant, whether vested or not, at any time if Participant in not in compliance with all of the provisions of Paragraphs 3, 4 or 5. As a condition to the receipt of any such bonus payout, Participant shall certify to the Company that he is in compliance with the provisions set forth above. In the event that Participant fails to comply with the provisions set forth above prior to or within 12 months after payment by the Company with respect to any such bonus payout, such payment may be rescinded by the Company within 12 months thereafter. In the event of such rescission, Participant shall pay to the Company the amount of any payment received as a result of the rescinded payment, in such manner and on such terms and conditions as may be required by the Company, and the Company shall be entitled to set-off against the amount of such payment any amount owed to Participant by the Company. Participant acknowledges that the foregoing provisions are fair, equitable and reasonable for the protection of the Company's interests in a stable workforce and the time and expense the Company has incurred to develop its business and its customer and vendor relationships. This Participation Agreement is effective as of the 1st day of January, 2003. -3- EX-10.57 6 doc5.txt FORM OF EXECUTIVE EMPLOYMENT AGREEMENT EXHIBIT 10.57 FORM OF EXECUTIVE EMPLOYMENT AGREEMENT - ---------------------------------------------------------- OFFERED TO THE FOLLOWING KEY EMPLOYEES ON FEBRUARY 11, 2003 WITH THE FOLLOWING EXPIRATION DATES:
KEY EMPLOYEE AGREEMENT EXPIRATION MINIMUM SALARY - ------------ -------------------- -------------- STEPHAN ANTHONY ROMANO DECEMBER 31, 2005 $ 205,000 JAMES RANDALL BAUMGARDNER DECEMBER 31, 2004 $ 174,000 JOHN SCOTT NICHOLSON DECEMBER 31, 2004 $ 155,000 MICHAEL JAMES GILBERG DECEMBER 31, 2004 $ 105,000
EXECUTIVE EMPLOYMENT AGREEMENT ------------------------------ THIS EMPLOYMENT AGREEMENT (the "Employment Agreement") is made and entered into as of the ____ day of February, 2003 (the "Commencement Date"), by and between AMERICAN ECOLOGY CORPORATION, a Delaware corporation (the "Company), and _________________, an individual ("Employee"). WHEREAS, the Company desires to employ Employee upon the terms and subject to the terms and conditions set forth in this Employment Agreement. NOW, THEREFORE, in consideration of the premises, the mutual promises, covenants and conditions herein contained and for other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, the parties hereto intending to be legally bound hereby agree as follows: EMPLOYMENT. The Company hereby employs Employee, and Employee hereby accepts employment with the Company, all upon the terms and subject to the conditions set forth in this Employment Agreement. TERM OF EMPLOYMENT. The term of employment of Employee by the Company pursuant to this Employment Agreement shall be for the period (the "Employment Period") commencing on the Commencement Date and ending _______________, or such earlier date that Employee's employment is terminated in accordance with the provisions of this Employment Agreement; provided, however, that the Employment Period shall automatically renew for additional one (1) year periods if neither the Company nor Employee has notified the other in writing of its or his intention not to renew this Employment Agreement on or before sixty (60) days prior to the expiration of the Employment Period (including any renewal thereof). CAPACITY AND DUTIES. Employee is and shall be employed in the capacity of Vice President and Controller of the Company and its subsidiaries and shall have such other duties, responsibilities and authorities as may be assigned to him by the Board of Directors of the Company (the "Board") not materially inconsistent with Employee's positions with the Company. Except as otherwise herein provided, Employee shall devote his entire business time, best efforts and attention to promote and advance the business of the Company and its subsidiaries and to perform diligently and faithfully all the duties, responsibilities and obligations of Employee to be performed by him under this Employment Agreement. Employee's duties shall include all of those duties being performed by Employee as of the date hereof. Employee shall report to the Chief Financial Officer of the Company. PLACE OF EMPLOYMENT. Employee's principal place of work shall be main office of the Company, currently located in Boise, Idaho provided that the location of the Company and its offices may be moved from time to time in the discretion of the Board. NO OTHER EMPLOYMENT. During the Employment Period, Employee shall not be employed in any other business activity, whether or not such activity is pursued for gain, profit or other pecuniary advantage, provided, however, that this restriction shall not be construed as preventing Employee from (i) participating in charitable, civic, educational, professional, community or industry affairs; and (ii) investing his personal assets in a business which does not compete with the Company or its subsidiaries or with any other company or entity affiliated with the Company, where the form or manner of such investment will not require services on the part of Employee in the operation of the affairs of the business in which such investment is made and in which his participation is solely that of a passive investor or advisor, so long as the activities in (i) and (ii), above, do not materially interfere with the performance of Employee's duties hereunder or create a potential business conflict or the appearance thereof. COMPENSATION. During the Employment Period, subject to all the terms and conditions of this Employment Agreement and as compensation for all services to be rendered by Employee under this Employment Agreement, the Company shall pay to or provide Employee with the following: 1. BASE SALARY. The Company shall pay to employee an annual base salary at the rate paid at the time this Employment Agreement is executed, or as adjusted in the future by the Company, but in no case shall the annual base salary be less than $105,000. Such base salary shall be payable in accordance with the regular payroll practices of the Company. 2. BONUS. Employee shall be eligible to participate in any cash bonus plan(s) of the Company which are in effect from time to time, including the cash bonus opportunity granted to Employee under the Company's Long-Term Incentive Compensation Program. Anything to the contrary in this Agreement notwithstanding, the Company reserves the right to modify or eliminate the cash bonus plan(s) at any time. 3. VACATION AND OTHER BENEFITS. Employee shall be entitled to vacation and other benefits applicable to other similarly situated employees based on length of service, but in no event greater than the amount accrued by other similarly situated employees with an equivalent length of service. 4. OTHER. The Company may provide Employee with other benefits. In the event the Company provides other benefits not specifically stated herein, these other benefits be specified in writing and attached hereto in an attachment entitled, "Exhibit: Other Benefits". 5. STOCK OPTION GRANTS. During the Employment Period, Employee shall be eligible to participate in any equity-based incentive compensation plan or program adopted by the Company, including the grant of options to purchase stock pursuant to the Company's Long-Term Incentive Compensation Program. EXPENSES. The Company shall reimburse Employee for all reasonable, ordinary and necessary expenses including, but not limited to, automobile and other business travel and customer entertainment expenses, incurred by him in connection with his employment in accordance with the Company's expense reimbursement policy; however, Employee shall render to the Company a complete and accurate accounting of all such expenses in accordance with the substantiation requirements of the Internal Revenue Code, as amended (the "Code"), as a condition precedent to such reimbursement. ADHERENCE TO STANDARDS. Employee shall comply with the written policies, standards, rules and regulations of the Company from time to time established for all executive officers of the Company consistent with Employee's position and level of authority. REVIEW OF PERFORMANCE. The Company shall periodically review and evaluate the performance of Employee under this Employment Agreement with Employee. TERMINATION OF EMPLOYMENT. Employee's employment and this Employment Agreement may be terminated: 1. By either party by delivering notice of non-renewal as set forth in "Term of Employment", above; 2. Upon no less than thirty (30) days' written notice from the Company to Employee at any time without Cause (as defined below) and other than due to Employee's death or Disability; 3. Immediately upon written notice from the Company to Employee for Cause; 4. Due to the death or Disability (as hereinafter defined) of Employee; 5. By Employee at any time with or without Good Reason (as hereinafter defined) upon thirty (30) days' written notice from Employee to the Company (or such shorter period to which the Company may agree); or 6. Upon the mutual agreement of the Company or Employee. In the event of termination of Employee's employment with the Company for any reason, or if Employee is required by the Board, Employee agrees to resign, and shall automatically be deemed to have resigned, from any offices (including any directorship) Employee holds with the Company effective as of the termination date of Employee's employment hereunder, or, if applicable, effective as of a date selected by the Board. TERMINATION BY THE COMPANY FOR CAUSE OR BY EMPLOYEE WITHOUT GOOD REASON. If Employee's employment and this Employment Agreement are terminated by the Company for Cause (as hereinafter defined) or by Employee without Good Reason, the Company shall pay Employee the Accrued Obligations (as hereinafter defined). TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY EMPLOYEE FOR GOOD REASON. If Employee's employment and this Employment Agreement are terminated by the Company without Cause or if Employee terminates his employment and this Employment Agreement for Good Reason, Employee shall be entitled to receive his base salary and medical, hospitalization and disability benefits to which he was entitled at the date of termination for the greater of (i) the remainder of the term of the Agreement or (ii) twelve (12) months after the date of such termination of employment. The Company shall also pay Employee the Accrued Obligations. TERMINATION DUE TO DEATH OR DISABILITY. If Employee's employment and this Employment Agreement are terminated due to his death or Disability (as hereinafter defined), the Company shall continue to pay to Employee (or the estate of Employee in the event of termination due to the death of employee) Employee's then-current base salary for six (6) months after the date of such termination of employment. In the event of termination by the Company by reason of Employee's death or Disability, the Company will pay all medical, hospitalization or disability premiums for six (6) months from the date of termination at the same cost-sharing basis as in effect on the date of such termination. Unless required by law, the benefits provided under this sub-paragraph shall be no less favorable to Employee in terms of amounts, deductibles and costs to him, if any, than such benefits provided by the Company to him prior to his death or Disability and shall not be interpreted so as to limit any benefits to which Employee, as a terminated employee of the Company, or his family may be entitled under the Company's life insurance, medical, hospitalization or disability plans following his Date of Termination or under applicable law. DEFINITIONS. In addition to the words and terms elsewhere defined in this Employment Agreement, certain capitalized words and terms used in this Employment Agreement shall have the meanings given to them by the definitions and descriptions in this Section entitled Definitions unless the context or use indicates another or different meaning or intent, and such definition shall be equally applicable to both the singular and plural forms of any of the capitalized words and terms herein defined. The following words and terms are defined terms under this Employment Agreement: 1. "Disability" shall mean a physical or mental illness which, in the judgment of the Company after consultation with a licensed physician selected by the Board, and as to whom Employee has no reasonable objection, impairs Employee's ability to perform any of the essential functions of his position under this Employment Agreement as an employee on a full-time basis for three (3) consecutive months or an aggregate period of three (3) months out of any consecutive twelve (12) months. If any question arises as to whether Employee is disabled, upon reasonable request therefor by the Board, Employee shall submit to reasonable medical examination for the purpose of determining the existence, nature and extent of any such disability. 2. A termination with "Cause" shall mean a termination of this Employment Agreement by reason of a determination by two-thirds (2/3) of the members of the Board voting that Employee: a. Has engaged in willful neglect (other than neglect resulting from his incapacity due to physical or mental illness) or misconduct; b. Has engaged in conduct the consequences of which are materially adverse to the Company, monetarily or otherwise; c. Has materially breached the terms of this Employment Agreement or any change in control or similar agreement in effect between Employee and the Company, and such breach persisted after notice thereof from the Company and a reasonable opportunity to cure; or d. Has been convicted of (or has plead guilty or no contest to) any felony other than a traffic violation. 3. "Good Reason" shall mean the occurrence of any of the following without Employee's prior written consent during the Employment Period, which occurrence continues for ten (10) days after written notice thereof from Employee to the Board: a. Any material adverse change in Employee's status, title, authorities or responsibilities under this Employment Agreement which represents a demotion from such status, title, authorities or responsibilities which are materially inconsistent with his status, title, position or work responsibilities set forth in this Employment Agreement, or any removal of Employee from, or failure to appoint, elect, reappoint or reelect Employee to, any of his positions, except in connection with the termination of his employment with or without Cause, or as a result of his death or Disability, provided, however, that no change in title, authorities or responsibilities customarily attributable solely to the Company ceasing to be a publicly traded corporation shall constitute Good Reason hereunder; b. The exclusion of Employee in any incentive, bonus or other compensation plan in which Employee participated at the time that this Employment Agreement is executed, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to the failure to continue such plan, or the failure by the Company to continue Employee's participation therein, or any action by the Company which would directly or indirectly materially reduce his participation therein or reward opportunities thereunder; provided, however, that Employee continues to meet all eligibility requirements thereof. Notwithstanding the foregoing, this provision shall not apply to the exclusion of Employee in any incentive, bonus or other compensation plan in which Employee participated at the time that this Employment Agreement is executed to the extent that such termination is required by law; c. Any amendment, modification or termination of the Company's Management Incentive Plan which materially and adversely affects Employee's rights thereunder. d. The failure by the Company to continue in effect any employee benefit plan (including any medical, hospitalization, life insurance or disability benefit plan in which Employee participates), or any material fringe benefit or prerequisite enjoyed by him unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to the failure to continue such plan, or the failure by the Company to continue Employee's participation therein, or any action by the Company which would directly or indirectly materially reduce his participation therein or reward opportunities thereunder, or the failure by the Company to provide him with the benefits to which he is entitled under this Employment Agreement; provided, however, that Employee continues to meet all eligibility requirements thereof. Notwithstanding the foregoing, this provision shall not apply to the exclusion of Employee in any employee benefit plan in which Employee participated at the time that this Employment Agreement is executed to the extent that such termination is required by law, or to such failure to continue any employee benefit plan or fringe benefit, or Employee's participation therein or reward opportunity thereunder if such failure to continue such plan or benefit is applicable to the Company's executive officers and/or employees generally ; e. Any material breach by the Company of any provision of this Employment Agreement; f. The failure of the Company to obtain a reasonably satisfactory agreement from any successor or assign of the Company to assume and agree to perform this Employment Agreement, as contemplated in the Section entitled SUCCESSORS hereof; or g. any termination by Employee during the thirty (30)-day period immediately following the first anniversary of the date of any Change in Control (as defined herein) of the Company. 4. "Change of Control" shall be deemed to have occurred upon: a. the consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; provided, however, that a public offering of the Company's securities shall not constitute a corporate reorganization; b. the sale, transfer, or other disposition of all or substantially all of the Company's assets; c. a change in the composition of the Board, as a result of which fewer than 50% of the incumbent directors are directors who either (x) had been directors of the Company on the date 24 months prior to the date of the event that may constitute a Change of Control (the "original directors") or (y) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the aggregate of the original directors who were still in office at the time of the election or nomination and the directors whose election or nomination was previously so approved; or d. any transaction as a result of which any person is the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company's then outstanding voting securities. For purposes of this paragraph 4.d, the term "person" shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act, but shall exclude (x) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or of a Subsidiary and (y) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company. 5. "Accrued Obligations" shall include (i) any unpaid base salary through the date of termination and any accrued vacation in accordance with the Company's policy; (ii) any unpaid bonus earned with respect to any fiscal year ending on or prior to the date of termination; (iii) reimbursement for any unreimbursed business expenses incurred through the date of termination; and (iv) all other payments, benefits or fringe benefits to which Employee may be entitled under the terms of any applicable compensation arrangement or benefit, equity or fringe benefit plan or program or grant or this Employment Agreement. NOTICES. For the purposes of this Employment Agreement, notices and all other communications provided for in the Employment Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, or by expedited (overnight) courier with established national reputation, shipping prepaid or billed to sender, in either case addressed to the respective addresses last given by each party to the other (provided that all notices to the Company shall be directed to the attention of the Chairman, Board, with a copy to the Secretary of the Company) or to such other address as either party may have furnished to the other in writing in accordance herewith. All notices and communication shall be deemed to have been received on the date of delivery thereof, or on the second day after deposit thereof with an expedited courier service, except that notice of change of address shall be effective only upon receipt. - Company at: 300 East Mallard Drive, Suite 300, Boise, Idaho 83706. - Employee at: 300 East Mallard Drive, Suite 300, Boise, Idaho 83706. LIFE INSURANCE. The Company may, at any time after the execution of this Employment Agreement, apply for and procure as owner and for its own benefit, life insurance on Employee, in such amounts and in such form or forms as the Company may determine. Employee shall, at the request of the Company, submit to such medical examinations, supply such information, and execute such documents as may be required by the insurance company or companies to whom the Company has applied for such insurance. Employee hereby represents that to his knowledge he is in excellent physical and mental condition and is not under the influence of alcohol, drugs or similar substance. CONFIDENTIALITY. Employee agrees not to disclose or reveal to any person or entity outside the Company any secret or confidential information concerning any Company product, process, equipment, machinery, design, formula, business, or other activity (collectively, "Confidential Information") without prior permission of Company in writing. Confidential Information shall not include any information which is in the public domain or becomes publicly known through no wrongful act on the part of Employee or breach of this Employment Agreement. Employee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company. The obligation to protect the secrecy of such information continues after employment with Company may be terminated. In furtherance of this agreement, Employee acknowledges that all Confidential Information which Employee now possesses, or shall hereafter acquire, concerning and pertaining to the business and secrets of the Company and all inventions or discoveries made or developed, or suggested by or to Employee during said term of employment relating to Company's business shall, at all times and for all purposes, be regarded as acquired and held by Employee in his fiduciary capacity and solely for the benefit of Company. Employee agrees that all inventions, innovations, improvements, technical information, systems, software developments, methods, designs, analyses, drawings, reports, service marks, trademarks, trade names, logos and all similar or related information (whether patentable or unpatentable) which relate to the Company's or any of its subsidiaries or affiliates' actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Employee (whether or not during usual business hours and whether or not alone or in conjunction with any other person) while employed by the Company (including those conceived, developed or made prior to the date of this Agreement) together with all patent applications, letters patent, trademark, trade name and service mark applications or registrations, copyrights and reissues thereof that may be granted for or upon any of the foregoing (collectively referred to herein as the "Work Product"), belong in all instances to the Company or its subsidiaries or affiliates. Employee will promptly perform all actions reasonably requested by the Board (whether during or after his employment with the Company) to establish and confirm the Company's or its subsidiaries or affiliates' ownership of such Work Product (including, without limitation, the execution and delivery of assignments, consents, powers of attorney and other instruments) and to provide reasonable assistance to the Company or any of its subsidiaries and affiliates in connection with the prosecution of any applications for patents, trademarks, trade names, service marks or reissues thereof or in the prosecution or defense of interferences relating to any Work Product. COVENANT NOT TO COMPETE. Employee acknowledges that his employment with the Company has special, unique and extraordinary value to the Company; that the Company has a lawful interest in protecting its investment in entrusting its Confidential Information to him; and that the Company would be irreparably damaged if Employee were to provide services to any person or entity in violation of this Employment Agreement because in performing such services Employee would inevitably disclose the Company's Confidential Information to third parties and that the restrictions, prohibitions and other provision of this Section are reasonable, fair and equitable in scope, terms, and duration to protect the legitimate business interests of the Company, and are a material inducement to the Company to enter into this Employment Agreement. 1. Non-Competition. Without the consent in writing of the Board, Employee will not, during the Employment Agreement and, in the event of the termination of Employee's employment by the Company for Cause or by Employee without Good Reason, for a period of two (2) years after such termination of employment if employment is terminated by the Company for Cause or by Employee without Good Reason, acting alone or in conjunction with others, directly or indirectly engage (either as owner, investor, partner, stockholder, employer, employee, consultant, advisor or director) in activities on behalf of any entity or entities engaged in waste processing and disposal services for low-level radioactive-wastes, naturally occurring, accelerator produced, and exempt radioactive materials, and hazardous and PCB wastes. It is agreed that the ownership of not more than five percent of the equity securities of any company having securities listed on an exchange or regularly traded in the over-the-counter market shall not, of itself, be deemed inconsistent with this sub-paragraph. 2. Non-Solicitation of Vendors and Customers. Without the consent in writing of the Board, after Employee's employment has terminated for any reason, Employee will not, during the Employment Agreement and for a period of one (1) year thereafter (two (2) years thereafter if employment is terminated by the Company for Cause or by Employee without Good Reason), acting alone or in conjunction with others, either directly or indirectly induce any vendors or customers of the Company to curtail or cancel their business with the Company or any of its subsidiaries. 3. Non-Solicitation of Employees. Without the consent in writing of the Board, after Employee's employment has terminated for any reason, Employee will not, during the Employment Agreement and for a period of one (1) year thereafter, acting alone or in conjunction with others, either directly or indirectly induce, or attempt to influence, any employee of the Company or any of its subsidiaries to terminate his/her employment. The provisions of the Section entitled CONFIDENTIALITY hereof and subparagraphs (1), (2), and (3) of this paragraph are separate and distinct commitments independent of each of the other subparagraphs. Employee acknowledges that the covenants and agreements which he has made in this Employment Agreement are reasonable and are required for the reasonable protection of the Company and its business. Employee agrees that the breach of any covenant or agreement contained herein will result in irreparable injury to the Company and that, in addition to all other remedies provided by law or in equity with respect to the breach of any provision of this Employment Agreement, the Company and its successors and assigns will be entitled to enforce the specific performance by Employee of his obligations hereunder and to enjoin him from engaging in any activity in violation hereof and that no claim by Employee against the Company or its successors or assigns will constitute a defense or bar to the specific enforcement of such obligations. Employee agrees that the Company and any successor or assign shall be entitled to recover all costs of enforcing any provision of this Employment Agreement, including, without limitation, reasonable attorneys' fees and costs of litigation. In the event of a breach by Employee of any covenant or agreement contained herein, the running of the restrictive covenant periods (but not of Employee's obligations hereunder) shall be tolled during the period of the continuance of any actual breach or violation. In addition, the Company may, at the sole discretion of the Board, cancel, rescind, suspend, withhold or otherwise limit or restrict any unexpired, unexercised stock options and any bonus payouts under the Company's Long-Term Incentive Plan granted to Employee, whether vested or not, at any time if Employee is not in compliance with all of the provisions of the Section entitled CONFIDENTIALITY hereof and subparagraphs (1), (2), and (3) of the immediately preceding paragraph. As a condition to the exercise of any stock option or the receipt of any such bonus payout, Employee shall certify to the Company that he is in compliance with the provisions set forth above. In the event that Employee fails to comply with the provisions set forth above in the Section entitled CONFIDENTIALITY hereof and subparagraphs (1), (2) and (3) prior to or within 12 months after any exercise of a stock option or payment by the Company with respect to any stock options or bonus payout, such exercise or payment may be rescinded by the Company within 12 months thereafter. In the event of such rescission, Employee shall pay to the Company the amount of any gain realized or payment received as a result of the rescinded exercise or payment, in such manner and on such terms and conditions as may be required by the Company, and the Company shall be entitled to set-off against the amount of such gain any amount owed to Employee by the Company. Employee acknowledges that the foregoing provisions are fair, equitable and reasonable for the protection of the Company's interests in a stable workforce and the time and expense the Company has incurred to develop its business and its customer and vendor relationships. PRIOR EMPLOYMENT AGREEMENTS. Employee represents and warrants that Employee's performance of all the terms of this Employment Agreement and as an employee of the Company does not, and will not, breach any employment agreement, arrangement or understanding or any agreement, arrangement or understanding to keep in confidence proprietary information acquired by Employee in confidence or in trust prior to Employee's employment by the Company. Employee has not entered into, and shall not enter into, any agreement, arrangement or understanding, either written or oral, which is in conflict with this Employment Agreement or which would be violated by Employee entering into, or carrying out his obligations under, this Employment Agreement. This Employment Agreement supersedes any former oral agreement and any former written agreement heretofore executed relating generally to the employment of Employee with the Company; provided, however, that nothing in this Section shall be deemed to terminate, supersede, extinguish or otherwise amend any outstanding stock options or stock option agreements currently in effect between Employee and the Company. SUCCESSORS. This Employment Agreement shall be binding on the Company and any successor to any of its businesses or assets. Without limiting the effect of the prior sentence, the Company shall use its best efforts to require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Employment Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. As used in this Employment Agreement, "Company" shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which assumes and agrees to perform this Employment Agreement or which is otherwise obligated under this Employment Agreement by the first sentence of this Section, entitled Successors, by operation of law or otherwise. BINDING EFFECT. This Employment Agreement shall inure to the benefit of and be enforceable by Employee's personal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Employment Agreement to Employee's estate. HEADINGS. Headings used in this Employment Agreement are for convenience only and shall not be used to interpret or construe its provisions. WAIVER. No provision of this Employment Agreement may be waived or discharged unless such waiver or discharge is agreed to in writing and signed by the Chairman of the Board or any other member of the Board to which the Chairman delegates such authority. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Employment Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. AMENDMENTS. No amendments or variations of the terms and conditions of this Employment Agreement shall be valid unless the same is in writing and signed by the parties hereto. SEVERABILITY. The invalidity or unenforceability of any provision of this Employment Agreement, whether in whole or in part, shall not in any way affect the validity and/or enforceability of any other provision contained herein. Any invalid or unenforceable provision shall be deemed severable to the extent of any such invalidity or unenforceability. It is expressly understood and agreed that while the Company and Employee consider the restrictions contained in this Employment Agreement reasonable for the purpose of preserving for the Company the good will, other proprietary rights and intangible business value of the Company, if a final judicial determination is made by a court having jurisdiction that the time or territory or any other restriction contained in this Employment Agreement is an unreasonable or otherwise unenforceable restriction against Employee, the provisions of such clause shall not be rendered void but shall be deemed amended to apply as to maximum time and territory and to such other extent as such court may judicially determine or indicate to be reasonable. GOVERNING LAW. This Employment Agreement shall be construed and enforced pursuant to the laws of the State of Idaho. DISPUTE RESOLUTION. 1. The Company and Employee agree to resolve all disputes arising out of their employment relationship by the following alternative dispute resolution process: (a) the Company and Employee agree to seek a fair and prompt negotiated resolution; but if this is not possible, (b) all disputes shall be resolved by binding arbitration; provided, that during this process, at the request of either party, made not later than 60 days after the initial arbitration demand, the parties agree to attempt to resolve any dispute by non-binding, third-party intervention, including either mediation or evaluation or both but without delaying the arbitration hearing date. By entering into this Employment Agreement, both parties give up their right to have the dispute decided in court by a judge or jury. 2. Any controversy or claim arising out of or connected with Employee's employment at the Company, including but not limited to claims for compensation or severance and claims of wrongful termination, age, sex or other discrimination or civil rights shall be decided by arbitration. In the event the parties cannot agree on an arbitrator, then the arbitrator shall be selected by the administrator of the American Arbitration Association ("AAA") office in Salt Lake City, Utah. The arbitrator shall be an attorney with at least 15 years' experience in employment law in Idaho. Boise, Idaho shall be the site of the arbitration. All statutes of limitation, which would otherwise be applicable, shall apply to any arbitration proceeding hereunder. Any issue about whether a controversy or claim is covered by this Employment Agreement shall be determined by the arbitrator. 3. The arbitration shall be conducted in accordance with this Employment Agreement, using as appropriate the AAA Employment Dispute Resolution Rules in effect on the date hereof. The arbitrator shall not be bound by the rules of evidence or of civil procedure, but rather may consider such writings and oral presentations as reasonable business people would use in the conduct of their day-to-day affairs, and may require both parties to submit some or all of their respective cases by written declaration or such other manner of presentation as the arbitrator may determine to be appropriate. The parties agree to limit live testimony and cross-examination to the extent necessary to ensure a fair hearing on material issues. 4. The arbitrator shall take such steps as may be necessary to hold a private hearing within 120 days of the initial request for arbitration and to conclude the hearing within two days; and the arbitrator's written decision shall be made not later than 14 calendar days after the hearing. The parties agree that they have included these time limits in order to expedite the proceeding, but they are not jurisdictional, and the arbitrator may for good cause allow reasonable extensions or delays, which shall not affect the validity of the award. Both written discovery and depositions shall be allowed. The extent of such discovery will be determined by the parties and any disagreements concerning the scope and extent of discovery shall be resolved by the arbitrator. The written decision shall contain a brief statement of the claim (s) determined and the award made on each claim. In making the decision and award, the arbitrator shall apply applicable substantive law. The arbitrator may award injunctive relief or any other remedy available from a judge, including consolidation of this arbitration with any other involving common issues of law or fact which may promote judicial economy, and may award attorneys' fees and costs to the prevailing party, but shall not have the power to award punitive or exemplary damages. The parties specifically state that the agreement to limit damages was agreed to by the parties after negotiations. ATTORNEY FEES. 1. In any action at law or in equity to enforce any of the provisions or rights under this Employment Agreement, the unsuccessful party to such litigation, as determined by the arbitrator in accordance with the dispute resolution provisions set forth above, shall pay the successful party or parties all costs, expenses and reasonable attorneys' fees incurred therein by such party or parties (including, without limitation, such costs, expenses and fees on appeal), and if such successful party or parties shall recover judgment in any such action or proceeding, such costs, expenses and attorneys' fees shall be included as part of such judgment. 2. Notwithstanding the foregoing provision, in no event shall the successful party or parties be entitled to recover an amount from the unsuccessful party for costs, expenses and attorneys' fees that exceeds the unsuccessful party's or parties' costs, expenses and attorneys' fees in connection with the action or proceeding. EXECUTIVE OFFICER STATUS. Employee acknowledges that he may be deemed to be an "executive officer" of the Company for purposes of the Securities Act of 1993, as amended (the "1933 Act"), and the Securities Exchange Act of 1934, as amended (the "1934 Act") and, if so, he shall comply in all respects with all the rules and regulations under the 1933 Act and the 1934 Act applicable to him in a timely and non-delinquent manner. In order to assist the Company in complying with its obligations under the 1933 Act and 1934 Act, Employee shall provide to the Company such information about Employee as the Company shall reasonably request including, but not limited to, information relating to personal history and stockholdings. Employee shall report to the Secretary of the Company or other designated officer of the Company all changes in beneficial ownership of any shares of the Company's Common Stock deemed to be beneficially owned by Employee and/or any members of Employee's immediate family. Employee further agrees to comply with all requirements placed on him by the Sarbanes-Oxley Act of 2002, Pub.L. No.107-204 PRONOUNS. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular, or plural, as the identity of the person or entity may require. As used in this agreement: (1) words of the masculine gender shall mean and include corresponding neuter words or words of the feminine gender, (2) words in the singular shall mean and include the plural and vice versa, and (3) the word "may" gives sole discretion without any obligation to take any action. COUNTERPARTS. This Employment Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one document. EXHIBITS. Any Exhibits attached hereto are incorporated herein by reference and are an integral part of this Employment Agreement. IN WITNESS WHEREOF, this Employment Agreement has been duly executed by the Company and Employee as of the date first above written. EMPLOYEE: ---------------------------------- AMERICAN ECOLOGY CORPORATION By: ------------------------------- Name: ----------------------------- Its: ------------------------------ BENEFICIARY DESIGNATION FORM I hereby designate the following person or persons as Beneficiary to receive severance and any management incentive bonus payments due under the attached Employment Agreement made and entered into as of the _____________ day of January, 2003, between American Ecology Corporation and me, in the event of my death, reserving the full right to revoke or modify this designation, or any modification thereof, at any time by a further written designation: PRIMARY BENEFICIARY - ------------------------------- ---------------------- -------------- Name of Individual Relationship to Me Birth Date (if minor) - -------------------------------------------------------------------------------- Address - ----------------------------------------------- ---------------------- Name of Trust Date of Trust - -------------------------------------------------------------------------------- Trustee Provided, however, that if such Primary Beneficiary shall not survive me by at least sixty (60) days, the following shall be the Beneficiary: CONTINGENT BENEFICIARY - ------------------------------- ---------------------- -------------- Name of Individual Relationship to Me Birth Date (if minor) - -------------------------------------------------------------------------------- Address - ------------------------------- ---------------------- -------------- Name of Individual Relationship to Me Birth Date (if minor) - -------------------------------------------------------------------------------- Address This beneficiary designation shall not affect any other beneficiary designation form that I may have on file with the Company regarding benefits other than those referred to above. Date: ---------------------- - --------------------------------- ------------------------------------ Employee's Printed Name Employee's Signature NOTE: If Employee is married, and the Primary Beneficiary is other than Employee's spouse, the spouse's signature shall be required below. I am the spouse of the above-named Employee, and hereby consent to the designation of a Primary Beneficiary other than myself. Date: --------------------- EX-10.58 7 doc6.txt FORM OF STOCK OPTION AGREEMENT EXHIBIT 10.58 FORM OF STOCK OPTION AGREEMENT THE FOLLOWING OPTIONS WERE OFFERED TO THE BELOW NAMED KEY EMPLOYEES ON FEBRUARY 11, 2003: EXERCISE PRICE STEPHEN ANTHONY JAMES RANDALL JOHN SCOTT MICHAEL JAMES ROMANO BAUMGARDNER NICHOLSON GILBERG 3.00 131,868 52,747 52,747 32,967 4.50 153,846 61,538 61,538 38,462 6.50 84,396 33,758 33,758 21,099 AMERICAN ECOLOGY CORPORATION STOCK OPTION AGREEMENT ---------------------- Effective this 11th day of February, 2003, American Ecology Corporation, a Delaware corporation (the "Company"), hereby grants to _________________ (the "Optionee") a stock option (the "Option") to purchase from the Company, that number of shares of the Company's authorized and unissued common stock, $0.01 par value per share (the "Common Stock"), at the exercise price(s) set forth on Schedule 1 and upon the terms and conditions set forth in this Stock Option - ----------- Agreement (the "Agreement"): 1. STOCK OPTION PLAN. This Agreement and the Option granted herein are made and accepted pursuant to and in accordance with the Company's Amended and Restated 1992 Stock Option Plan (the "Plan") as amended from time to time. The terms and provisions of the Plan, and any amendments thereto, are incorporated herein by reference. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan will prevail. 2. TERM AND VESTING. The Option will vest in four installments over three years: 25% upon the date hereof, and 25% on each of the first three anniversaries of the date hereof. 3. EXERCISABILITY. (a) The Option granted herein may be exercised in whole or in part, to the extent then vested and subject to earlier termination as provided herein, continuing to a date 10 years subsequent to the date hereof (the "Expiration Date"). In the event the Option is exercised in full or in part prior to a Change of Control of the Company, the Optionee agrees, as a condition to such exercise, that he will retain 75% of the "after-tax" shares received from any such exercise for a period of two years from the date of such exercise; provided, that such retention obligation shall terminate and no longer apply upon a Change of Control or termination of employment without Cause or resignation for Good Reason (as defined in the Employment Agreement). Failure to comply with this provision will result in the Optionee's forfeiture of the unvested portion of the Option and ineligibility to participate in the Company's incentive programs. (b) In the event of the Optionee's death, Disability (as defined in that certain Executive Employment Agreement made and entered into as of the first day of January, 2003 (the "Employment Agreement")) or termination without Cause or resignation for Good Reason (each as defined in the Employment Agreement), the next 25% tranche of the Option will vest, and the vested portion of such Option will stay outstanding and remain exercisable until 30 days after termination of employment (one year, if termination is due to death). (c) The Option will fully vest on a Change of Control of the Company (as defined in the Employment Agreement) and will stay outstanding and remain exercisable until 30 days after termination of employment (one year, if termination is due to death). (d) Except in the event of termination of the Optionee's employment after a Change of Control or due to death, Disability or termination without Cause, the Option will expire upon termination of the Optionee's employment. In such event, to the extent not exercised by the Optionee prior to termination of his employment, the Option will be canceled. 4. TRANSFERABILITY. The Option granted under this Agreement is not transferable otherwise than by will or operation of laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act, or the rules thereunder. During the lifetime of the Optionee, the Option granted in this Agreement shall be exercisable only by the Optionee, the Optionee's guardian or legal representative. 5. METHOD OF EXERCISE. Any exercise of the Option granted herein shall be by written notice delivered by the Optionee to the Company. Once the Company has received written notice of an exercise of the Option, the Company shall issue the shares covered by any such notice to the Optionee as soon as practicable after receipt of such notice. Such shares of Common Stock shall be delivered to the Optionee against payment therefore in accordance with the Plan. All federal and state stock transfer, issuance and sales taxes relating to the sale of said Common Stock of the Company to the Optionee shall be borne and paid by the Optionee. 6. CONFIDENTIAL INFORMATION. (a) The Optionee agrees not to disclose or reveal to any person or entity outside the Company any secret or confidential information concerning any Company product, process, equipment, machinery, design, formula, business, or other activity (collectively, "Confidential Information") without prior permission of Company in writing. Confidential Information shall not include any information which is in the public domain or becomes publicly known through no wrongful act on the part of the Optionee or breach of this Agreement. The Optionee acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company. The obligation to protect the secrecy of such information continues after employment with Company may be terminated. In furtherance of this agreement, the Optionee acknowledges that all Confidential Information which the Optionee now possesses, or shall hereafter acquire, concerning and pertaining to the business and secrets of the Company -2- and all inventions or discoveries made or developed, or suggested by or to the Optionee during said term of employment relating to Company's business shall, at all times and for all purposes, be regarded as acquired and held by the Optionee in his fiduciary capacity and solely for the benefit of Company. (b) The Optionee agrees that all inventions, innovations, improvements, technical information, systems, software developments, methods, designs, analyses, drawings, reports, service marks, trademarks, trade names, logos and all similar or related information (whether patentable or unpatentable) which relate to the Company's or any of its subsidiaries or affiliates' actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by the Optionee (whether or not during usual business hours and whether or not alone or in conjunction with any other person) while employed by the Company (including those conceived, developed or made prior to the date of this Agreement) together with all patent applications, letters patent, trademark, trade name and service mark applications or registrations, copyrights and reissues thereof that may be granted for or upon any of the foregoing (collectively referred to herein as the "Work Product"), belong in all instances to the Company or its subsidiaries or affiliates. The Optionee will promptly perform all actions reasonably requested by the Board (whether during or after his employment with the Company) to establish and confirm the Company's or its subsidiaries or affiliates' ownership of such Work Product (including, without limitation, the execution and delivery of assignments, consents, powers of attorney and other instruments) and to provide reasonable assistance to the Company or any of its subsidiaries and affiliates in connection with the prosecution of any applications for patents, trademarks, trade names, service marks or reissues thereof or in the prosecution or defense of interferences relating to any Work Product. 7. RESTRICTIVE COVENANTS GENERALLY. The Optionee acknowledges that his employment with the Company has special, unique and extraordinary value to the Company; that the Company has a lawful interest in protecting its investment in entrusting its Confidential Information (as defined in Paragraph 7) to him; and that the Company would be irreparably damaged if the Optionee were to provide services to any person or entity in violation of this Agreement because in performing such services the Optionee would inevitably disclose the Company's Confidential Information to third parties and that the restrictions, prohibitions and other provision of this Section are reasonable, fair and equitable in scope, terms, and duration to protect the legitimate business interests of the Company, and are a material inducement to the Company to enter into this Agreement. 8. NON-COMPETITION. Without the consent in writing of the Board of Directors of the Company (the "Board"), the Optionee will not, during his employment with the Company and for a period of two years thereafter, if employment is terminated by the Company for Cause or by the Optionee without Good Reason (each as defined in the Employment Agreement), acting alone or in conjunction with others, directly or indirectly engage (either as owner, investor, partner, stockholder, employer, employee, consultant, advisor or director) in activities on behalf of any entity or entities engaged in waste processing and disposal services for low-level radioactive-wastes, naturally occurring, accelerator produced, and exempt radioactive materials, and hazardous and PCB wastes. It is agreed that the ownership of not more than five percent of the equity securities of any company having securities listed on an exchange or regularly traded in the over-the-counter market shall not, of itself, be deemed inconsistent with this Paragraph 8. -3- 9. NON-SOLICITATION. (a) Without the consent in writing of the Board, after the Optionee's employment has terminated for any reason, the Optionee will not, during his employment with the Company and for a period of one year thereafter, (two years if employment is terminated by the Company for Cause or by the Optionee without Good Reason (each as defined in the Employment Agreement)), acting alone or in conjunction with others, either directly or indirectly induce any vendors or customers of the Company to curtail or cancel their business with the Company or any of its subsidiaries. (b) Without the consent in writing of the Board, after the Optionee's employment has terminated for any reason, the Optionee will not, during his employment with the Company and for a period of one year thereafter, acting alone or in conjunction with others, either directly or indirectly induce, or attempt to influence, any employee of the Company or any of its subsidiaries to terminate his employment. 10. REMEDIES. (a) The provisions of Paragraphs 6-9 of this Agreement are separate and distinct commitments independent of each of the Paragraphs. The Optionee acknowledges that the covenants and agreements which he has made in this Agreement are reasonable and are required for the reasonable protection of the Company and its business. The Optionee agrees that the breach of any covenant or agreement contained herein will result in irreparable injury to the Company and that, in addition to all other remedies provided by law or in equity with respect to the breach of any provision of this Agreement, the Company and its successors and assigns will be entitled to enforce the specific performance by the Optionee of his obligations hereunder and to enjoin him from engaging in any activity in violation hereof and that no claim by the Optionee against the Company or its successors or assigns will constitute a defense or bar to the specific enforcement of such obligations. The Optionee agrees that the Company and any successor or assign shall be entitled to recover all costs of enforcing any provision of this Agreement, including, without limitation, reasonable attorneys' fees and costs of litigation. In the event of a breach by the Optionee of any covenant or agreement contained herein, the running of the restrictive covenant periods (but not of the Optionee's obligations hereunder) shall be tolled during the period of the continuance of any actual breach or violation. (b) The parties hereto agree that the covenants set forth in Paragraphs 6-9 are reasonable with respect to their duration, geographical area and scope. If the final judgment of a court of competent jurisdiction declares that any term or provision of Paragraph 6, 7, 8 or 9 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. -4- (c) In addition, the Company may, at the sole discretion of the Board, cancel, rescind, suspend, withhold or otherwise limit or restrict the Option to the extent it is unexpired, and unexercised, whether vested or not, at any time if the Optionee in not in compliance with all of the provisions of Paragraphs 6-9. As a condition to the exercise of any part of the Option, the Optionee shall certify to the Company that he is in compliance with the provisions set forth above. In the event that the Optionee fails to comply with the provisions set forth above in Paragraphs 6-9 prior to or within 12 months after any exercise of any part of the Option or payment by the Company with respect to the Option, such exercise or payment may be rescinded by the Company within 12 months thereafter. In the event of such rescission, the Optionee shall pay to the Company the amount of any gain realized or payment received as a result of the rescinded exercise or payment, in such manner and on such terms and conditions as may be required by the Company, and the Company shall be entitled to set-off against the amount of such gain any amount owed to the Optionee by the Company. The Optionee acknowledges that the foregoing provisions are fair, equitable and reasonable for the protection of the Company's interests in a stable workforce and the time and expense the Company has incurred to develop its business and its customer and vendor relationships. 11. SUCCESSORS OF COMPANY AND OPTIONEE. This Agreement shall inure to the benefit of and be binding upon the Company and the Optionee and their respective heirs, legal representatives, successors and assigns, subject to the restrictions on assignability and transferability set forth herein. 12. ADJUSTMENTS. The number of shares of Common Stock and prices per share contained herein shall be proportionately adjusted from time to time as and when provided in the Plan. IN WITNESS WHEREOF, this Agreement has been executed effective the 10th day of February, 2003. AMERICAN ECOLOGY CORPORATION By: ----------------------------------- Name: ----------------------------------- Its: ------------------------------------ OPTIONEE ---------------------------------------- Name: ------------------------------- Address: ------------------------------- ------------------------------- -5- SS#: ------------------------------- -6- Schedule 1 ---------- NUMBER OF SHARES EXERCISE PRICE ___________ $3.00 ___________ $4.50 ___________ $6.50 For purposes of vesting and whenever applicable in this Agreement, each tranche of stock options (a tranche shall consist only of the shares which have the same exercise price) shall be treated as separate Options. For example, 25% of the Options with an exercise price of $3.00, 25% of the Options with an exercise price of $4.50 and 25% of the Options with an exercise price of $6.50 will vest on the date hereof and on each of the first three anniversaries of the date hereof. EX-10.60 8 doc7.txt BANK SETTLEMENT AND WARRANT AGREEMENT EXHIBIT 10.60 1998 CHASE BANK SETTLEMENT AND WARRANT AGREEMENT AGREEMENT This Settlement Agreement ("Agreement") is made and entered into this 12th day of November, 1998 by and between American Ecology Corporation, a Delaware corporation ("Company") and each of its subsidiary companies as identified herein (all of which are, where the context so requires, referred to as "Subsidiaries") and Chase Bank of Texas, National Association ("Bank"), a national banking association with its principal place of business in Houston, Texas (f/k/a Texas Commerce Bank, National Association). RECITALS: WHEREAS, effective as of October 31, 1996, the Company, each of the Subsidiaries as Guarantors, and the Bank entered into that certain agreement known as the "Third Amended And Restated Credit Agreement" (hereinafter referred to as the "Third Amended Credit Agreement"); WHEREAS, on August 21, 1998 the Company executed and delivered to the Bank the Demand Promissory Note ("Demand Note") in the principal amount of $160,000.00; WHEREAS, on August 14, 1998 the Company, the Subsidiaries and the Bank agreed to settle all existing obligations of the Company and the Subsidiaries to the Bank, terminating the Third Amended Credit Agreement, in accordance with the terms, covenants and conditions contained herein; WHEREAS, the parties wish to execute this Agreement for the purpose of evidencing the terms, covenants and conditions of this Agreement. NOW THEREFORE, in consideration of the covenants, conditions and other provisions hereof, the parties agree as follows: 1. DEFINITIONS 1.1 Definitions. Unless the context in which a defined term is used clearly requires otherwise, as used in this Agreement, the following terms shall have the following meanings: "Assignment Agreement" means that certain Assignment entered into as of August 21, 1998 by and between the Company and the Bank, a copy of which is attached hereto as EXHIBIT 6. "Agreement" has the meaning specified in the introduction to this Agreement. "Bank" shall mean Chase Bank of Texas, National Association, a subsidiary of Chase Manhattan Corporation. "Business Trading Day" means any day (other than a day which is a Saturday, Sunday or legal holiday) on which the NASDAQ Stock Market, Inc. is open for trading in securities listed thereon. "Cash Management and Lock Box Agreement" means that certain Cash Management and Lock Box Agreement between the Bank and the Company dated December 22, 1992, governing the Company's account number 00100354902 at Chase. "Company" means American Ecology Corporation, a Delaware corporation. "Default" means the occurrence of any event which with the giving of notice or the passage of time or both could become an Event of Default. "Demand Note" has the meaning set forth in the Recitals of this Agreement. "Events of Default" has the meaning specified in Section 10.01 of the Third Amended Credit Agreement. "Fees" means all amounts payable pursuant to Section 4.01 of the Third Amended Credit Agreement. "Guaranteed Obligations" has the meaning specified in Section 9.01 of the Third Amended Credit Agreement. "Guarantors" means the Company's subsidiaries which guaranteed the Company's Obligations under the Third Amended Credit Agreement. "Guaranty" means the guaranty of the Guarantors contained in Article IX of the Third Amended Credit Agreement and includes any additional Guaranty. "Indebtedness" means, without duplication (a) all indebtedness of the Company and its Subsidiaries to the Bank for borrowed money, accrued and unpaid interest, and fees imposed by contract in respect of the borrowed money; (b) all guaranties or other contingent obligations of any kind of the Company and its Subsidiaries in respect of the Indebtedness referred to in clause (a), above; and (c) all Indebtedness of the type referred to in clause (a) or (b) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise to be secured by) any Lien upon or interest in property owned by the Company and its Subsidiaries, even though they have not assumed or become liable for the payment of such Indebtedness "Letter of Credit" has the meaning provided in Section 3.01 of the Third Amended Credit Agreement. "Letter of Credit Collateral" means cash, securities issued by or directly and fully guaranteed by the United States, deposits in the Bank or other securities, which secure the Company's obligation to the Bank in the event a Letter of Credit is drawn upon by the beneficiary thereof. "Letter of Credit Termination Date" means the date that a Letter of Credit expires by its terms. "Lien" means, when used with respect to the Company and its Subsidiaries, any Mortgage, lien, charge, pledge, security interest or encumbrance of any kind (whether voluntary or involuntary and whether imposed or created by operation of law or otherwise) upon, or pledge of, any of its property or assets, whether now owned or hereafter acquired, or any lease intended as security, any Capital Lease in the nature of the foregoing, any conditional sale agreement or other title retention agreement, in each case, for the purpose, or having the effect, of protecting the Bank against loss and of securing the payment or performance of the Obligations under the Third Amended Credit Agreement. "Loans" has the meaning provided in Section 2.03 of the Third Amended Credit Agreement. "Loan Documents" means the Third Amended Credit Agreement (including the Guaranty), the Notes, the Letter of Credit, the Security Agreements, the Pledge Agreements, the Mortgage and all other security documents granting Liens in the Company's property, equipment, fixtures, cash and intangible assets, including, without limitation, the Letter of Credit Collateral and all amendments, waivers, agreements and other documents modifying, amending or supplementing the Loan Documents and, to the extent the context requires, the Original Agreement, the Prior Agreements and related documents. "Material Adverse Effect" means, relative to any occurrence of whatever nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding), (a) a material adverse effect on the financial condition, business or operations of the Company and its Subsidiaries taken as a whole; or (b) an event which materially impairs the ability of the Company to perform its obligations hereunder or under the Notes or the right of the Bank to enforce any of its remedies to collect any amounts owing under the Loan Documents. "Mortgage" means any Mortgage or Deed of Trust executed in connection with the Third Amended Credit Agreement, or supplement to a prior Mortgage and deed of trust executed by the Company or any of its Subsidiaries and granting a Lien by the Company for the benefit of the Bank on certain real property owned by the Company or any of its Subsidiaries as security for the Obligations. "Notes" means the Revolving Credit Note, the Term Note and the Demand Note. "Obligations" means all the obligations of the Company and its Subsidiaries under the Loan Documents, the Original Agreement, or the Prior Agreements or any documents executed in connection therewith, whether for principal, unpaid drawings on Letters of Credit, interest, fees, expenses, indemnification or otherwise. "Original Agreement" has the meaning set forth in the Recitals of the Third Amended Credit Agreement. "Pledge Agreements" mean those certain Amended and Restated Pledge Agreements dated October 31, 1996 executed by the Company, American Ecology Services Corporation and US Ecology, Inc., respectively, as security for the Obligations, pledging to the Bank the stock owned by each of the three above-referenced corporations, issued by their respective Subsidiaries (including ALEX). "Prior Agreements" has the meaning set forth in the Recitals of the Third Amended Credit Agreement. "Release Agreement" means the respective Release Agreements attached hereto as EXHIBIT 3a AND 3b. "Revolving Credit Note" has the meaning set forth in Section 2.05(a) of the Third Amended Credit Agreement. "Security Agreements" mean those certain supplemental Security Agreements dated as of the date hereof, executed by the Company and the Guarantors, respectively, in favor of the Bank, pledging to the Bank a security interest in all of the personal property and assets of each of the Loan Parties as described therein and all proceeds thereof as security for the Obligations. "Subrogation Agreement" means that certain Subrogation and Contribution Agreement among the Company and the Guarantors entered into in connection with the Third Amended Credit Agreement. "Subsidiary" means and includes, the following corporations, more than 50% of whose stock voting control of which is owned directly or indirectly by the Company: American Ecology Environmental Services Corporation; American Ecology International, Inc.; American Ecology Management Corporation; American Ecology Recycle Center, Inc.; American Ecology Services Corporation; American Liability and Excess Insurance Company ("ALEX"); Texas Ecologists, Inc.; Transtec Environmental, Inc.; US Ecology, Inc.; WPI Transportation, Inc.; and WPI Waste Carriers, Inc.; Collectively in this Agreement, the Company's subsidiaries are referred to as "Subsidiaries". "Term Note" has the meaning set forth in Section 2.05(b) of the Third Amended Credit Agreement. "Third Amended Credit Agreement" means that certain Third Amended and Restated Credit Agreement executed December 31, 1996, but dated effective as of October 31, 1996, by, between and among American Ecology Corporation and its Subsidiaries and Texas Commerce Bank National Association, now known as Chase Bank of Texas, National Association, and includes the Schedules and Exhibits thereto, and any and all subsequent written amendments, modifications, waivers, releases, agreements and other documents modifying, amending or supplementing the Third Amended Credit Agreement. "Ward Valley Interest Agreement" means the Ward Valley Interest Agreement attached hereto as EXHIBIT 2. "Ward Valley Project" means the low-level radioactive waste disposal facility to be constructed and operated by US Ecology, Inc., a Subsidiary of the Company, in accordance with the license issued by the California Department of Health Services and the leasehold interest of US Ecology which becomes effective when the transfer to California from the U.S. Department of Interior of the land located in Ward Valley, California takes place and includes, without limitation, the Ward Valley Facility and the Ward Valley Site, as each are defined in the Ward Valley Interest Agreement, and the interests conveyed to the Bank thereunder. "Warrant Agreement" means the Warrant Agreement attached hereto as EXHIBIT 1. "Warrant" has the meaning specified in the Warrant Agreement. 2. PAYMENT OF LOANS The Bank and the Company agreed on August 14, 1998 to the general terms upon which the Company will settle its existing Obligations to the Bank, subject to the Bank's acceptance of a business plan prepared by the Company and detailing how it will survive for the next two (2) years. More specifically, the Bank and the Company have agreed to the following: 2.1 Payment. At the closing, as provided in Section 5 hereof, the Company shall pay, in readily available U.S. funds, the sum of $4,000,000.00 to the Bank, or as directed in writing by the Bank. As of August 21, 1998 the Demand Note has been funded by the Bank and the amount of such proceeds, together with interest thereon, for the period of time they are outstanding, shall be added to the $4,000,000.00 payment due at closing. The payment provided for in this Section shall reduce the cumulative outstanding balance of the Notes 2.2 Ward Valley Project Interest. The Company's Subsidiary, US Ecology, Inc., shall sell, assign and convey to the Bank an interest in and to the Ward Valley Project to the maximum value of $29,600,000.00, which sum shall further reduce the collective outstanding balance of the Notes. The $29,600,000.00 shall be reduced by a maximum amount of $1,000,000.00 (50% of $2.0 million) of legal fees and costs incurred by the Company and US Ecology in pursuing litigation involving the Ward Valley Project, after November 13, 1998. The interest in the Ward Valley Project shall be governed solely by the Ward Valley Interest Agreement, attached hereto as EXHIBIT 2. 2.3 Warrants. In satisfaction of the remaining collective outstanding balance of the Notes, the Company shall grant to the Bank a Warrant to purchase up to 1,349,843 shares of the Company's common stock at any time beginning on the date of closing up to and including June 30, 2010 at a price of $1.50 per share provided that the Warrant shall expire and thereafter be of no force or effect thirty (30) days from the date the Bank has received $35.0 million resulting from the payments provided for herein and any partial exercise or sale of the Warrant. The Warrant provided for in this Agreement replaces the October 31, 1996 Warrant, which is canceled. The Warrant shall be subject to the anti-dilution provisions contained therein. 2.4 Mutual Releases. The Company and the Bank shall enter into release agreements for the purpose of releasing each other and their respective Subsidiaries and affiliates, officers, directors, employees and attorneys, from all liability of any kind, whether existing, accrued or which might arise from or be incurred in respect of the Third Amended Credit Agreement, the Loan Documents, the Indebtedness of the Company to the Bank, and any action or inaction taken by either party in regard to such documents and the underlying transactions prior to the closing. The releases shall not extend to or operate to excuse performance of any obligations undertaken in accordance with this Agreement, the Warrant Agreement, the Ward Valley Interest Agreement, the Assignment Agreement and Section 11.05(a) of the Third Amended Credit Agreement. 2.5 Business Plan. The Company shall prepare and provide the Bank with a 2-year forward looking business plan based on reasonable assumptions and future projections of the Company's operating results and periodic capital structure. The assumptions used and basis for financial projections shall be described with sufficient clarity to enable the Bank to reach a reasonable conclusion that the Company has a reasonable plan and chance to survive for the period covered by the business plan and to accept the plan. The Bank agrees it will not arbitrarily or capriciously reject the plan and that it will specify in writing the part or parts of the plan which caused the Bank to conclude the Company cannot survive for the period covered by the plan. Thereafter, the Company may submit additional or clarifying information to the Bank in order for the Bank to reconsider its decision and accept the plan. If the Bank, upon reconsideration, fails or refuses to accept the plan, then all of the obligations of the Company and the Bank undertaken by this Agreement, and all exhibits hereto, including, without limitation, the Release Agreement, shall no longer be binding . 2.6 Release of Liens. The Bank shall, at the Company's expense, prepare such documentation as may be necessary or convenient to release all Liens and encumbrances held by the Bank with regard to the Company's property, equipment, fixtures, cash, furnishings and intangible property; it being the intent of the parties that upon consummation of the transactions provided for herein, the Bank shall have no Lien, encumbrance or other interest of any kind in any of the property of the Company or its Subsidiaries, except as is provided in EXHIBITS 1 AND 2 and Section 2.12 of this Agreement. 2.7 Extinguishment of Indebtedness. Upon the payment as provided for in Section 2.1 hereof, the granting of an interest in the Ward Valley Project as provided for in Section 2.2 hereof, and the granting of the Warrant as provided for in Section 2.3 hereof, any and all Indebtedness of the Company and each of its Subsidiaries shall be deemed to have been fully paid, discharged, extinguished or forgiven, as the case may be, with the effect that the Bank shall have no claim of any sort for money lent or interest thereon, against the Company or any of its Subsidiaries, whether individually or collectively, except as provided in Section 2.12 hereof. 2.8 Termination of Loan Documents. Upon the Company's performance of its obligations under Sections 2.1, 2.2, 2.3, 2.4 and 2.5 hereof, the Loan Documents, except the modified deed of trust provided for in Section 2.12 and 3.2 (d) hereof, shall be deemed fully performed and any and all Obligations of the Company and its Subsidiaries, whether as Guarantors thereof or otherwise, shall be fully performed and discharged. The Loan Documents shall be of no further force or effect for any purpose whatever. At the closing, the Bank shall return all collateral held by the Bank in securing the Indebtedness, including, without limitation, all cash, securities (except as provided in Section 2.9 hereof), and the original stock certificates issued to the Company by the direct and indirect Subsidiaries of the Company. 2.9 Letter of Credit. On or about October 31, 1998, the Bank issued for the benefit of Zurich Insurance Company, its Letter of Credit No. I-474394 in the face amount of $674,575.00 (the "Letter of Credit"). The Letter of Credit expires October 31, 1999 and is secured by cash or other securities in the approximate amount of the face amount of the Letter of Credit. The Bank agrees that it shall immediately wire transfer, at the direction of the Company, or otherwise deliver to the Company or its designee, the cash or securities held as the Letter of Credit Collateral, together with any earnings or interest thereon when the original Letter of Credit is returned (or certified lost) to the Bank by the beneficiary, accompanied by a letter from the beneficiary requesting its cancellation, regardless of whether the closing has yet occurred. 2.10 Transition to New Bank. The Company and the Bank understand and agree that one of the purposes of this Agreement is to terminate all relationships between the Company, its Subsidiaries and the Bank, except the continuing relationship provided for in EXHIBITS 1 AND 2 and Section 2.9 hereof. The Company and the Bank understand and agree that the Company shall close all of its accounts identified on EXHIBIT 5 attached hereto and incorporated herein by reference, in an orderly manner; provided, however that the Bank and the Company agree to maintain its lock box account in accordance with the Cash Management and Lock Box Agreement, for a reasonable transition period of time so that the Company may direct its customers to forward invoice payments to its new bank. Upon completion of the transition period, the Cash Management and Lock Box Agreement shall be terminated by the parties thereto. The Company and the Bank agree to cooperate with one another and the Company's new bank during the transition from the Bank to the Company's new bank. Except in the event of its gross negligence or willful misconduct, the Bank shall not be liable for operation of the Cash Management and Lock Box Agreement or other Company accounts during the transition period. 2.11 Tax Reporting. Although the Company believes the total consideration paid in accordance with this Agreement exceeds the total outstanding balance of the Notes, and the Bank is uncertain as to the total value, accordingly, the Bank may, if it so chooses, file a Form 1099-C report with the Internal Revenue Service with the following language inserted: "The total principal owed as of November 13, 1998 is $31,494,330.97. In exchange for a release of liability for this debt , Chase Bank received $4,163,682.19 in cash, warrants equal to 10.0% of American Ecology Corporation's (`AEC') outstanding common stock, and an interest in certain rights to receive payments from the Ward Valley, California low-level radioactive waste disposal facility being developed by an AEC subsidiary. AEC values the total consideration as exceeding the principal amount of the debt discharged. Chase Bank is unable to determine the value of the non-cash payments." 2.12 Assignment Agreement and Collateral. To provide reasonable assurance to the Bank that it can honor its endorsement liability as provided in the Assignment Agreement, the Company agrees to grant the Bank a security interest in that certain real property of the Company located near Winona, Texas and the Company shall repurchase twenty-five percent (25%) of the repurchase obligation by paying the Bank $8,000 monthly for twenty-three months beginning December 1, 1998 and ending October 1, 2000. Failure to make such payments shall constitute a default hereunder and shall allow the Bank to take all remedies available to it at law or in equity. With the Bank's consent, which shall not be unreasonably withheld, the Company may from time to time substitute other collateral for that at the Winona, Texas location. The Company shall have the right at any time to repurchase at face value the entire balance of the interest assigned under the Assignment Agreement and not already repurchased as provided for in this Section 2.12. Interest paid by the Internal Revenue Service with respect to the income tax refund claim previously assigned to the Bank under the Assignment Agreement shall be distributed to the Bank and the Company in accordance with their respective ownership of the income tax refund claim at the time the interest accrued to the claim. 3. CONDITIONS PRECEDENT 3.1 Conditions to Company's Obligations. The obligations of the Company and its Subsidiaries under this Agreement are subject to the following conditions: (a) Satisfaction of Covenants. Prior to the closing, the Bank shall have fully performed, satisfied and fulfilled each of the obligations imposed upon the Bank pursuant to the terms of this Agreement; (b) Approval of the Company's Directors. The Company and each of its subsidiaries shall have obtained the approval of a majority of its directors to enter into and perform this Agreement; (c) Financing. The Company shall have obtained satisfactory financing to perform its obligations pursuant to this Agreement; (d) Default Waiver. The Bank shall have waived any Default or Event of Default occurring between August 14, 1998 and the closing date, if not previously waived, provided that such Default or Event of Default has not caused or resulted in a Material Adverse Effect on the Company and its Subsidiaries when taken together as a whole. (e) Letter of Credit Collateral. The Bank shall have transferred, as the Company so directed, the Letter of Credit collateral securing the Letter of Credit referred to in Section 2.9 hereof. (f) Business Plan. The Bank shall have accepted the Company's future business plan, as provided in Section 2.5 hereof. 3.2 Conditions to Bank's Obligations. The obligations of the Bank under this Agreement are subject to the following conditions: (a) Satisfaction of Covenants. The Company and its Subsidiaries shall have satisfied and fulfilled each of the obligations imposed upon them pursuant to the terms of this Agreement. (b) Business Plan. The Company shall have prepared and provided to the Bank its future business plan which shall have been accepted by the Bank, as described in Section 2.5 hereof. (c) Intentionally Left Blank. (d) Deed of Trust Modification. The Company shall have delivered to the Bank a modification of the deed of trust encumbering the Company's Smith County, Texas real property, in accordance with Section 2.12 hereof. 4. REPRESENTATIONS AND WARRANTIES 4.1 Representations and Warranties of the Company. In order to induce the Bank to enter into this Agreement and to perform its Obligations hereunder, the Company, and each of its Subsidiaries to the extent applicable and relevant, make the following Representations and Warranties to the Bank: (a) Organization and Qualification. The Company and each of its Subsidiaries is a corporation duly organized, validly existing under the laws of the state of its incorporation, has the corporate power and authority to own its property and to carry on its business as now conducted. Each of the Company's directly owned Subsidiaries are wholly owned subsidiaries and each indirect Subsidiary is wholly owned by a direct Subsidiary of the Company. (b) US Ecology License. US Ecology, Inc., a direct Subsidiary of the Company, is the licensee of the State of California which status affords it the sole right to develop and operate a low-level radioactive waste disposal site at Ward Valley, California in accordance with the Low Level Radioactive Waste Policy Act, as amended. (c) Ward Valley Litigation. US Ecology is a plaintiff in two pending court cases concerning the Ward Valley Project. The cases are styled as: (i) US Ecology, Inc. v United States of America, United States Court of Federal Claims, Case No. 97-65C; and (ii) US Ecology, Inc. v U.S. Department of the Interior, et al, U.S. District Court, District of Columbia, Case No. 1:97CV00365, each of which is more particularly described on EXHIBIT 4 attached hereto and incorporated herein. (d) Authorization and Validity. The Company and each of its Subsidiaries executing this Agreement have all requisite corporate power and authority to execute, deliver this Agreement and to perform their respective obligations hereunder, and under the Warrant, the Ward Valley Interest Agreement, and the Release, and all such actions have been duly authorized by all necessary proceedings. When it has been duly executed and delivered by the Company and its Subsidiaries to the Bank, this Agreement will constitute a valid and legally binding agreement of the Company and its Subsidiaries enforceable in accordance with its terms. The Warrant, the Ward Valley Interest Agreement, and the Release will, upon the execution and delivery thereof, constitute valid and legally binding obligations of the Company and its Subsidiaries enforceable in accordance with the respective terms thereof. The enforceability of this Agreement, the Warrant and the Release may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other similar laws relating to or affecting the enforcement of contract rights generally, and by general principles of equity. (e) Governmental Consents. No authorization, consent, approval, license or exemption of or filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is necessary for the valid execution, delivery or performance by the Company or its Subsidiaries of this Agreement, the Warrant, the Ward Valley Interest Agreement, and the Release. 4.2 Representations and Warranties of the Bank. In order to induce the Company to enter into this Agreement and to perform its Obligations hereunder, the Bank makes the following representations and warranties to the Company and, to the extent applicable and relevant, to the Company's Subsidiaries: (a) Organization and Qualification. The Bank is a national banking association duly organized, validly existing and in good standing under the laws of the United States, has the corporate power and authority to carry on its business as now conducted and is duly qualified to enter into and perform the obligations undertaken by this Agreement. (b) Authorization and Validity. The Bank has all requisite corporate power and authority to execute, deliver this Agreement and perform its obligations under this Agreement, the Ward Valley Interest Agreement and the Release, and all such action has been duly authorized by all necessary proceedings on its part. When it has been duly executed and delivered by the Bank to the Company, this Agreement will constitute a valid and legally binding agreement of the Bank, enforceable in accordance with its terms. The Ward Valley Interest Agreement and the Release will, when duly executed and delivered, constitute valid and legally binding agreements of the Bank, enforceable in accordance with the respective terms thereof. The enforceability of this Agreement and the Release may be limited by insolvency, receivership, fraudulent transfer or other similar laws relating to or affecting the enforcement of claims against a national banking association. (c) Governmental Consent. No authorization, consent, approval, charter, memorandum of understanding or other agreement with any state or federal bank regulatory authority or order of any court or governmental agency or instrumentality is necessary for the valid execution, delivery or performance by the Bank of this Agreement, the Ward Valley Interest Agreement and the Release. (d) Extinguishment of Debt. Upon the performance by the Company and US Ecology of their respective obligations undertaken in Section 2.1, 2.2, 2.3, 2.4 and 2.5 of this Agreement, (i) except as provided in subsection (ii) below, all Indebtedness of the Company and its Subsidiaries to the Bank under the Notes, the Third Amended Credit Agreement, all Loan Documents, all Prior Agreements and any amendments, modifications, restatements, waivers, extensions or other agreements related thereto, shall be fully paid, performed and discharged; and (ii) upon the full and complete performance of this Agreement by the Bank and the Company and its Subsidiaries, no contractual obligations exist between the Bank and the Company and its Subsidiaries, except those undertaken in accordance with the Warrant, the Ward Valley Interest Agreement, the Releases (including the indemnity provisions in favor of the Bank retained and referenced therein), the Assignment Agreement, the Letter of Credit and related collateral provided for in Section 2.9 hereof, the collateral documents provided for in Section 2.12 hereof, and those identified in Section 6.1 of this Agreement. 5. CLOSING 5.1 Date and Location. On or about November 13, 1998 a closing shall be held at the offices of the Bank in Houston, Texas at such time as is convenient for the Bank and the Company. 5.2 Extension. One time only, AEC shall have the right to unilaterally extend the closing for a period not to exceed ten (10) days from November 13, 1998 upon letter notification to the Bank. Thereafter, any extension of the closing date may only be made with the consent of both parties to this Agreement. Any extension of the closing shall not serve to enlarge, modify or amend the obligations of the parties under this Agreement, unless otherwise provided in writing. 5.3 Company's Closing Obligations. At the closing, as provided for above, the Company and its relevant Subsidiaries shall: (a) pay to the Bank in U.S. Dollars the exact amount calculated in accordance with Section 2.1 hereof; (b) execute and deliver to the Bank the Warrant, attached hereto as EXHIBIT 1; (c) execute and deliver to the Bank the Ward Valley Interest Agreement, attached hereto as EXHIBIT 2; (d) execute and deliver to the Bank the Release Agreement, attached hereto as EXHIBIT 3A; and (e) provide the Bank with two (2) copies of its business plan. 5.4 Bank's Closing Obligations. At the closing, as provided for above, the Bank shall: (a) deliver each of the original signed Notes to the Company; (b) execute and deliver releases suitable for recording or filing, as the case may be, of (i) Deeds of Trust; (ii) security interests; (iii) the Guaranty Agreements; (iv) the Pledge Agreements; and (v) all other Liens of the Bank; (c) deliver to the Company all original stock certificates held by the Bank of the Company's Subsidiaries; (d) deliver to the Company the original unexercised Warrant dated October 31, 1996; (e) execute and deliver to the Company the Ward Valley Interest Agreement attached hereto as EXHIBIT 2; (f) execute and deliver to the Company the Release Agreement attached hereto as EXHIBIT 3b; (g) execute and deliver to the Company a release from the Subrogation Agreement; and (h) wire transfer, as directed by the Company and its subsidiary, American Liability and Excess Insurance Company, the $1,000,000.00 held by the Bank in account number 295259, which serves as security for the performance bond underwritten by American Liability and Excess Insurance Company in favor of the Central Interstate Compact Commission. 6. MISCELLANEOUS The following provisions are an integral part of this Agreement: 6.1 Survival of Terms. Sections 2.6, 2.7, 2.8, 2.9, 2.10, 2.11, 2.12, 4.1(d), 4.1(e), 4.2(b) and 4.2(d) hereof, and all documents executed in accordance with this Agreement, including without limitation, the Warrant, the Ward Valley Interest Agreement and the Releases, shall survive the execution and delivery hereof or thereof and the closing, and shall remain in full force and effect thereafter. 6.2 Assignment. This Agreement may be assigned by a party only with the prior written approval of the other party, which approval may not be unreasonably withheld. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors or assigns, if any. 6.3 Entire Agreement. This Agreement together with the exhibits attached hereto, constitutes the entire agreement of the parties. There are no binding promises, terms or conditions other than those contained herein. This Agreement shall supersede all previous communications, representations or agreements, whether oral or written, between the parties. 6.4 Titles. Section titles or captions to this Agreement are for convenience only and do not define, limit, augment, extend or describe the content or scope of intent of this Agreement and shall not be deemed to be a part hereof. 6.5 Gender. Whenever the context hereof shall so require, the singular shall include the plural, the male gender shall include the female and neuter genders, and vice versa. 6.6 Notices. Any notice required or permitted by this Agreement to be given by a party to the other shall be deemed served, given and received when personally delivered to an officer of such party, or in lieu of such personal service or delivery, when deposited in the U.S. mail, registered or certified mail, postage pre-paid, return receipt requested, and received, or three days from the date of such mailing, whichever is earlier, addressed as follows: Chase: Chase Bank of Texas, N.A. Telephone: (713) 216-5162 712 Main Street, 24TCB E-74 Facsimile: (713) 216-2092 Houston, Texas 77002 Attn.: Mr. Bruce A. Shilcutt with a copy to: Thomas J. Perich, Esq. Telephone: (713) 220-4200 Andrews & Kurth L.L.P. Facsimile: (713) 220-4285 4200 Texas Commerce Tower Houston, Texas 77002 The Company American Ecology Corporation Telephone: (208) 331-8400 or any 805 West Idaho Street, Suite 200 Facsimile: (208) 331-7900 Subsidiary: Boise, Idaho 83702 Attn.: Joseph J. Nagel, President with a copy to: Legal Department Telephone: (208) 331-8400 805 West Idaho Street, Suite 200 Facsimile: (208) 331-7990 Boise, Idaho 83702 6.7 Counterparts. This Agreement may be executed in any number of counterparts, and once so executed by all parties hereto each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one Agreement. 6.8 Further Agreements. The parties to this Agreement shall execute and deliver all documents, provide all information which is not confidential, take or forebear from all such action as my be necessary, convenient or appropriate to fully perform the intent of the transactions expressed by this Agreement. 6.9 Choice of Law. This Agreement shall be construed in accordance with the laws of the State of New York, provided, in applying the laws of New York, its conflict of law rules shall not be employed to apply the substantive or procedural laws or equitable principles of any other state. Venue for any action brought hereunder by either party shall lie exclusively in the federal district courts for the Southern District of New York, or only in the event the diversity or jurisdictional limits thereof are not met, in the courts of the State of New York in the borough of Manhattan, City of New York. 6.10 Time of Essence. All times provided for in this Agreement, or in any other document executed in accordance herewith, requiring the performance of any act will be strictly construed, time being of the essence. 6.11 Attorneys' Fees. In the event it becomes necessary for either party to commence any action or suit to enforce its rights pursuant to this Agreement, the prevailing party in such litigation shall be entitled to an award of reasonable attorneys' fees, including without limitation, fees and costs allocable to in-house counsel, incurred in relation thereto. 6.12 Fees and Commissions. Each party agrees to pay and hold the other party harmless from any commissions or fees of any nature, including, but not limited to, attorneys' fees incurred in negotiation and preparation of this Agreement, by any person or entity employed or allegedly employed by such party. 6.13 Severability. In the event that any part, provision, representation, covenant, condition or warranty contained in this Agreement is prohibited by law or is held to be void or unenforceable, such provision shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. 6.14 Construction. Both the Bank and the Company have been represented by counsel in the course of the negotiations for and the preparation of this Agreement; accordingly, in all cases, the language of this Agreement will be construed simply, according to its fair meaning, and not strictly for or against either party. 6.15 Modification and Waiver. The waiver, compromise, or cure of any breach or default hereunder by either party hereto must be done in writing, signed by the parties hereto, and shall not be considered a waiver of any other similar or dissimilar breach or default. Any modification to any provision herein contained or any amendment to this Agreement shall be effective only if such modification or amendment is in writing and signed by each of the parties hereto. 6.16 Laws and Regulations. This Agreement and all acts of the parties conducted under or in connection with this Agreement, are subject to all valid and applicable federal, state and local laws and ordinances and all applicable rules, orders and regulations of any duly constituted federal, state or local regulatory body or authority having jurisdiction, and all acts of the parties shall be conducted in conformity therewith. 6.17 Authority. Each party executing this Agreement on behalf of his respective association or corporation, as the case may be, represents and warrants that he is duly authorized to execute and deliver this Agreement on behalf of said association or corporation in accordance with a duly adopted resolution of the board of directors of said association or corporation, or in accordance with the authority granted him by the bylaws or governing documents of said association or corporation, as the case may be, and that this Agreement is binding upon such association or corporation and all its partners in accordance with its terms. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers as of the date first above written. COMPANY: AMERICAN ECOLOGY CORPORATION By: /s/ Jack K. Lemley ------------------------------- Jack K. Lemley Chief Executive Officer SUBSIDIARIES: AMERICAN ECOLOGY ENVIRONMENTAL SERVICES CORPORATION AMERICAN ECOLOGY INTERNATIONAL, INC. AMERICAN ECOLOGY MANAGEMENT CORPORATION AMERICAN ECOLOGY RECYCLE CENTER, INC. AMERICAN ECOLOGY SERVICES CORPORATION AMERICAN LIABILITY AND EXCESS INSURANCE COMPANY TEXAS ECOLOGISTS, INC. TRANSTEC ENVIRONMENTAL, INC. US ECOLOGY, INC. WPI TRANSPORTATION, INC. WPI WASTE CARRIERS, INC. By: /s/ Jack K. Lemley ------------------------------- Jack K. Lemley Chief Executive Officer BANK: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION By: /s/ Bruce A. Shilcutt ------------------------------- Bruce A. Shilcutt Vice President NEITHER THIS WARRANT NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY OTHER SECURITIES STATUTE. NO SALE, TRANSFER OR OTHER DISPOSITION HEREOF OR THEREOF, OR OF ANY INTEREST HEREIN OR THEREIN, MAY BE MADE OR SHALL BE RECOGNIZED UNLESS IN THE OPINION OF COUNSEL TO OR REASONABLY SATISFACTORY TO THE COMPANY SUCH TRANSACTION WOULD NOT VIOLATE OR REQUIRE REGISTRATION UNDER SUCH ACT OR OTHER STATUTE. WARRANT TO PURCHASE COMMON STOCK OF AMERICAN ECOLOGY CORPORATION THIS WARRANT CERTIFIES that, for value received, Chase Bank of Texas, National Association, (the "Holder") is entitled to purchase from American Ecology Corporation, a Delaware corporation (the "Company"), at a price of $1.50 per share, subject to adjustment as provided in Section 4 hereof ("Purchase Price"), at any time after the Exercise Trigger Date (as such term is defined in Section 1 below) and up to and including June 30, 2010 (such period, the "Exercise Period"), 1,349,843 fully paid and non-assessable shares of the Company's Common Stock, par value $.01 per share ("Common Stock"), which Company represents equals 10% of the issued and outstanding Common Stock, subject, however, to the provisions and upon the terms and conditions hereinafter set forth, and provided that this Warrant shall expire and thereafter be of no force or effect thirty (30) days from the date Chase Bank of Texas has received $35.0 million from American Ecology Corporation or its subsidiaries resulting from the payments provided for in the Settlement Agreement dated November 12, 1998 between said parties and any partial exercise or sale of the Warrants. 1. Exercise of Warrant. (a) The rights represented by this Warrant may be exercised by the holder hereof, at any time or from time to time during the Exercise Period, on any day that is not a Saturday, Sunday or public holiday under the laws of the State of Idaho (such day being hereinafter referred to as a "Business Day"), for all or part of the number of shares of Common Stock purchasable upon its exercise, by (i) delivery of a Subscription Notice (in the form attached to this Warrant) of such holder's election to exercise this Warrant, specifying the number of shares of Common Stock to be purchased, (ii) payment of the Purchase Price for such shares by certified check or bank draft payable to the order of the Company and (iii) surrender of this Warrant (properly endorsed if required) at the Company's principal office or such other office or agency of the Company as the Company may designate by notice in writing to the holder hereof. (b) For purposes of this Warrant, the term "Exercise Trigger Date" shall mean November 13, 1998. (c) In the event of any exercise of the rights represented by this Warrant, certificates for the shares of Common Stock so purchased shall be delivered to the holder hereof as soon as reasonably practicable, but in any event within twenty-one days, after the rights represented by this Warrant shall have been so exercised, and unless this Warrant has expired, a new Warrant representing the number of shares of Common Stock, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof within such time. Each person in whose name any such certificate for shares of Common Stock is issued shall for all purposes be deemed to have become the holder of record of the Common Stock represented hereby on the date on which this Warrant was surrendered and payment of the Purchase Price was made, irrespective of the date of issue or delivery of such certificate. 2. Transfer. (a) The Company will maintain books for the registration and transfer of the Warrants, and any such transfer will be registrable thereon upon surrender of the transferred Warrant to the Company's principal office, together with a duly executed assignment thereof and funds sufficient to pay any required stock transfer taxes. Upon such surrender and payment, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignees and in the number of shares of Common Stock specified in the assignment and this Warrant shall promptly be canceled. (b) The Company covenants and agrees that (i) it will pay, when due and payable, any and all stock transfer and similar taxes that may be payable in respect of the issuance of this Warrant or of any shares of Common Stock issuable upon exercise; and (ii) the Common Stock shall be deemed to be issued to the Holder or its designee as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment of the Exercise Price has been properly tendered for the purchase of such shares. 3. Certain Covenants of the Company. The Company covenants and agrees that all shares of Common Stock that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and non-assessable and free from all taxes, liens, charges and security interests with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by the Warrant may be exercised, the Company will at all times have authorized, and reserved free of preemptive or other rights for the exclusive purpose of issue upon exercise of the rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. The Company shall take all such actions as may be necessary to assure that all such shares of Common Stock may be issued upon the exercise of the rights represented by this Warrant without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Company upon each such issuance). 4. Adjustment of Purchase Price and Number of Shares. The number of shares of Common Stock with respect to which this Warrant is exercisable (the "Exercise Rate") shall be subject to adjustment from time to time as follows: a. In case the Company shall (x) pay a dividend in or make a distribution of Common Stock on outstanding Common Stock, (y) subdivide outstanding Common Stock into a larger number of shares of Common Stock by reclassification or otherwise, or (z) combine outstanding Common Stock into a smaller number of shares of Common Stock by reclassification or otherwise, the Exercise Rate in effect immediately prior thereto shall be adjusted proportionately so that the holder of this Warrant thereafter exercised shall be entitled to receive the number of shares of the Common Stock that such holder would have owned after the happening of any of the events described above had such warrant been exercised immediately prior to the happening of such event. An adjustment made pursuant to this subsection (a) shall become effective retroactively to immediately after the record date in the case of a share dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination. b. In case of any capital reorganization or reclassification of the shares of Common Stock (except as provided in subsection (a) above), or in case of any consolidation or merger to which the Company is a party (other than a merger in which the Company is the surviving corporation and which does not result in any capital reorganization or reclassification of Common Stock), or in case of any sale or conveyance to another corporation of all or substantially all of the property and assets of the Company, and if, in connection with any such consolidation, merger, sale or conveyance, shares or other securities or property shall be issuable or deliverable in exchange for shares of Common Stock, provision shall be made as part of the terms of such capital reorganization or reclassification, consolidation, merger, sale or conveyance that the holder of this Warrant thereafter exercised shall have the right upon such exercise to receive the same kind and amount of stock and other securities and property as would have been receivable upon such capital reorganization or reclassification, consolidation, merger, sale or conveyance by a holder of the number shares of Common Stock with respect to which such Warrant might have been exercised immediately prior thereto. In any such case, appropriate provision (as determined to be equitable in the business judgment of the Board of Directors) shall be made for the application of Section 4 with respect to the rights and interests thereafter of the holder of this Warrant to the end that such Section (including adjustments of the Exercised Rate) shall be reflected thereafter, as nearly as reasonably practicable, in all subsequent exercises of this Warrant. The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor corporation (if other than the Company) resulting from consolidation or merger or the corporation purchasing such assets assumes by written instrument (in a manner determined to be equitable in the business judgment of the Board of Directors to the holder of this Warrant), the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. c. In case the Company shall offer shares of Common Stock or securities convertible into or exchangeable for Common Stock or rights, options or warrants to subscribe for or purchase shares of its Common Stock or securities convertible into or exchangeable for Common Stock (including, without limitation, any offering of rights or warrants entitling holders of shares of Common Stock to purchase Common Stock or securities convertible or exchangeable into Common Stock) at a price per share equal to or less than $1.50 each, the number of shares of its Common Stock with respect to which this Warrant is exercisable thereafter shall be determined by multiplying the number of shares of Common Stock with respect to which this Warrant was exercisable theretofore by a fraction (not to be less than one), of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to such record date plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding immediately prior to such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares being offered would purchase at $1.50 per share. Such adjustment shall be made whenever such Common Stock or rights, options or other securities are issued and shall become retroactively effective immediately after the record date. This paragraph c. shall not apply to the Warrants that were issued in connection with the Series E Redeemable Convertible Preferred Stock which was issued on or about October 31, 1996 The foregoing provisions for adjustment of the Exercise Rate shall apply in each successive instance in which an adjustment is required thereby. No adjustment in the Exercise Rate resulting from the application of the foregoing provisions is to be given effect unless, by making such adjustment, the Exercise Rate in effect immediately prior to such adjustment would be changed thereby by 1% or more, but any adjustment that would change the Exercise Rate by less than 1% is to be carried forward and given effect in making future adjustments. All calculations under this Section 4 shall be made to the nearest one-hundredth (1/100th) of a share. Shares of Common Stock owned by or held for the account of the Company shall not be deemed to be outstanding for the purposes of any computation made under this Section 4. Whenever the number of shares of Common Stock deliverable upon the exercise of this Warrant shall be adjusted pursuant to the provisions hereof, the Company shall forthwith file at its principal office and with any transfer agent for the Common Stock a statement, signed by the President or one of the Vice-Presidents of the Company and by its Treasurer or one of its Assistant Treasurers, stating the adjusted number of shares of Common Stock deliverable with respect to this Warrant and setting forth in reasonable detail the method of calculation and the facts requiring such adjustment and upon which such calculation is based, and shall mail a notice of such adjustment to the holder of record of this Warrant. Each adjustment shall remain in effect until a subsequent adjustment hereunder is required. In the event: (x) of the occurrence of any of the events referred to in subsections (a), (b) and (c) above; or (y) of any liquidation, dissolution or winding up of the Company (a "Liquidation"); then the Company shall cause to be mailed to the holder of record of this Warrant at least 20 days prior to the applicable date hereinafter specified, a notice describing the event and stating the effect, if any, that such event will have upon the Exercise Rate, and (A) the date on which a record is to be taken for the purpose of a distribution referred to in subsections (a) or (c) above, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such distribution are to be determined, or (B) the date on which any subdivision, combination or other capital reorganization or reclassification or any consolidation, merger, sale or conveyance referred to in subsections (a) or (b) above or such Liquidation is expected to become effective. In the case of rights, options, warrants or convertible or exchangeable securities being issued, the price per share of Common Stock shall be determined by dividing (x) the total amount receivable by the Company in consideration of the sale and issuance of such rights, options, warrants or convertible or exchangeable securities, plus the total consideration payable to the Company upon exercise, conversion or exchange thereof, by (y) the total number of shares of such class or series of Common Stock covered by such rights, options, warrants or convertible or exchangeable securities. In case the Company shall sell and issue shares of any class or series of Common Stock, or options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of any class or series of Common Stock, for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then in determining the consideration received by the Company for purposes hereof, the Board of Directors of Company shall determine, in good faith, the fair value of the property. The Company will at all times during the Exercise Period reserve and keep available for issuance upon exercise of this Warrant the number of shares of Common Stock that is equal to the Exercise Rate; provided, however, that nothing contained herein shall be construed to preclude the Company from satisfying its obligations in respect of the exercise of this Warrant by delivery of shares of Common Stock that are held in the treasury of the Company. The Company covenants that all shares of Common Stock that shall be issued upon exercise of this Warrant will, upon issue, be fully paid and nonassessable and not subject to any preemptive rights. The shares of Common Stock issuable upon exercise of this Warrant when the same shall be issued in accordance with the terms hereof are hereby declared to be and shall be fully paid nonassessable shares of Common Stock and not liable to any calls or assessments thereon, and the holders thereof shall not be liable for any further payments in respect thereof. "Common Stock" when used in Section 4 with reference to the Common Stock with respect to which this Warrant is exercisable, shall mean only Common Stock as authorized by the Restated Certificate of Incorporation of the Company, as amended to the date hereof, and any shares into which such Common Stock may thereafter have been changed, and, when otherwise used in Section 4, shall also include shares of the Company of any other class or series, whether now or hereafter authorized, that ranks or is entitled to participation, as to payment of assets upon Liquidation and payment of dividends, substantially on a parity with such Common Stock or other class of shares into which such Common Stock may have been changed. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion privilege of the holders of this Warrant against dilution or other impairment. Without limiting the generality of the foregoing, the Company (1) will not increase the par value of any shares of stock receivable upon exercise of this Warrant above the Purchase Price then in effect, and (2) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock upon the exercise in full of this Warrant from time to time outstanding. 5. Fractional Interests. The Company shall not be required to issue fractional shares on the exercise of a Warrant. If any faction of a share would be issuable on the exercise of a Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to the Current Market Price per share of Common Stock (as defined in Section 6) multiplied by such fraction. 6. Definition of Current Market Value. (a) The "Current Market Price" on any given day shall be: (i) if the Common Stock is listed or admitted to unlisted trading privileges on any exchange registered with the Securities and Exchange Commission as a national securities exchange" under the Securities Exchange Act of 1934 (a "National Securities Exchange"), the last sales price of the shares of Common Stock on the National Securities Exchange in or nearest the City of New York on which the shares of Common Stock shall be listed or admitted to unlisted trading privileges (or the quoted closing bid if there be no sales on such National Securities Exchange) on the most recently completed trading day prior to such day; or (ii) if the Common Stock is not so listed or admitted, the closing sales price of a share of Common Stock as quoted in The Nasdaq Stock Market on the most recently completed trading day prior to the day in question; or (iii) if the Common Stock is not so quoted, the mean between the high and low bid prices of the shares of Common Stock in the over-the-counter market on the most recently completed trading day prior to the day in question as reported by National Quotation Bureau Incorporated or similar organization. If the Company's Common Stock is not traded or a price is not quoted as set forth above, Current Market Price shall be Fair Market Value. (b) "Fair Market Value" shall be determined (i) in good faith by the Board of Directors of the Company, or (ii) if the holder of this Warrant disagrees with the Fair Market Value as so determined pursuant to subsection (i), it must notify the Company in writing of such disagreement within twenty days after receiving notice of the Board of Directors' determination and include in such notice the holder's estimate of the Fair Market Value, in which event the Fair Market Value shall then be determined by an investment banking firm chosen by the Company which is satisfactory to and approved by the holder (the "Independent Financial Expert"). If the Company and the holder are unable to agree upon an investment banking firm to act as the Independent Financial Expert within ten days after the notice from Holder provided for in subsection (b)(ii) above, then each party will within ten days thereafter select an investment banking firm and the two investment banking firms so selected shall select a third investment banking firm within ten days and such third investment banking firm shall, as the Independent Financial Expert, determine the Fair Market Value. If either party fails to timely designate its investment banking firm as provided above then the investment banking firm selected by the other party shall act as Independent Financial Expert to determine Fair Market Value. The Independent Financial Expert shall use one or more valuation methods that it, in its professional judgment, determines to be most appropriate. The decision of the Independent Financial Expert so selected shall be final and binding upon all parties. The Company shall bear the costs of the chosen investment banking firms. 7. Taking of Record; Stock and Warrant Transfer Books. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 8. Restrictions on Transferability. This Warrant was originally issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), and neither this Warrant nor any shares of Common Stock issuable upon the exercise hereof were then registered under the Securities Act. Unless this Warrant or such shares were subsequently registered under the Securities Act and sold by the holder thereof in accordance with such registration, this Warrant or such shares, as the case may be, may not be sold by the holder hereof or of such shares unless this Warrant or such shares is or are subsequently registered under the Securities Act or an exemption from such registration is available. The shares of Common Stock issuable hereunder will bear an appropriate restrictive legend as is required by the Securities Act or any state blue sky laws. The holder of this Warrant, by acceptance of this Warrant, agrees to be bound by the provisions of this Section and represents to the Company that it is acquiring the Warrant and the Common Stock issuable hereunder solely for its own account, for the purpose of investment and not with a view to distributing or selling it or any part thereof in violation of the Securities Act, but subject, nevertheless, to any requirement of law that the disposition of such holder's property be at all times within its control. 9. Replacement. Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of this Warrant, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company (provided that the holder's own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of this Warrant, the Company shall (at its expense) execute and deliver in lieu of this Warrant a new warrant of like kind dated the date of such lost, stolen, destroyed or mutilated Warrant. 10. Notice Generally. Any notice, demand or delivery pursuant to the provisions hereof shall be sufficiently given or made if sent by first class mail, postage prepaid, addressed to the holder of this Warrant or of the Common Stock issued upon the exercise hereof at the holder's last known address appearing on the books of the Company, or, except as herein otherwise expressly provided, to the Company at its main office, Attention of the President, or such other address as shall have been furnished to the party giving or making such notice, demand or delivery. 11. Voting Rights, Dividends. This Warrant does not grant the holder hereof any voting rights or other rights as a stockholder of the Company. No dividends are payable or will accrue on this Warrant or the shares purchasable hereunder until, and except to the extent that, this Warrant is exercised. 12. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY THE LAW OF THE STATE OF DELAWARE. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed this 13th day of November, 1998. AMERICAN ECOLOGY CORPORATION By: /s/ Jack K. Lemley ----------------------------------- Name: Jack K. Lemley Title: Chief Executive Officer SUBSCRIPTION NOTICE (To be executed only upon exercise of Warrant) _______________________________________, being the undersigned registered owner of this Warrant irrevocably exercises this Warrant for and purchases ______ shares of the Common Stock, par value $.01 per share (the "Common Stock"), of American Ecology Corporation, constituting all or part of the shares of Common Stock purchasable with this Warrant, and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) together with, if such certificates do not represent all the shares of Common Stock purchasable with this Warrant, a new Warrant, identical to the canceled Warrant except with respect to the number of shares of Common Stock evidenced thereby, for the remaining unsold shares of Common Stock, be issued in the name of and delivered to the undersigned at the address set forth below. Dated: ----------------------------- -------------------------------------- Name of Warrant Holder By: ----------------------------------- Name: ------------------------------ Title: ----------------------------- STREET ADDRESS ---------------------------------------- CITY STATE ZIP CODE 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 19, 1998 By: /s/ Jack K. Lemley --------------------------------- Jack K. Lemley Chief Executive Officer Date: November 19, 1998 By: /s/ R. S. Thorn --------------------------------- R. S. Thorn Vice President of Administration Chief Accounting Officer Common Stock represented hereby on the date on which this Warrant was surrendered and payment of the Purchase Price was made, irrespective of the date of issue or delivery of such certificate. 2. Transfer. (a) The Company will maintain books for the registration and transfer of the Warrants, and any such transfer will be registrable thereon upon surrender of the transferred Warrant to the Company's principal office, together with a duly executed assignment thereof and funds sufficient to pay any required stock transfer taxes. Upon such surrender and payment, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignees and in the number of shares of Common Stock specified in the assignment and this Warrant shall promptly be canceled. (b) The Company covenants and agrees that (i) it will pay, when due and payable, any and all stock transfer and similar taxes that may be payable in respect of the issuance of this Warrant or of any shares of Common Stock issuable upon exercise; and (ii) the Common Stock shall be deemed to be issued to the Holder or its designee as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment of the Exercise Price has been properly tendered for the purchase of such shares. 3. Certain Covenants of the Company. The Company covenants and agrees that all shares of Common Stock that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and non-assessable and free from all taxes, liens, charges and security interests with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by the Warrant may be exercised, the Company will at all times have authorized, and reserved free of preemptive or other rights for the exclusive purpose of issue upon exercise of the rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. The Company shall take all such actions as may be necessary to assure that all such shares of Common Stock may be issued upon the exercise of the rights represented by this Warrant without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Company upon each such issuance). 4. Adjustment of Purchase Price and Number of Shares. The number of shares of Common Stock with respect to which this Warrant is exercisable (the "Exercise Rate") shall be subject to adjustment from time to time as follows: a. In case the Company shall (x) pay a dividend in or make a distribution of Common Stock on outstanding Common Stock, (y) subdivide outstanding Common Stock into a larger number of shares of Common Stock by reclassification or otherwise, or (z) combine outstanding Common Stock into a smaller number of shares of Common Stock by reclassification or otherwise, the Exercise Rate in effect immediately prior thereto shall be adjusted proportionately so that the holder of this Warrant thereafter exercised shall be entitled to receive the number of shares of the Common Stock that such holder would have owned after the happening of any of the events described above had such warrant been exercised immediately prior to the happening of such event. An adjustment made pursuant to this subsection (a) shall become effective retroactively to immediately after the record date in the case of a share dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination. b. In case of any capital reorganization or reclassification of the shares of Common Stock (except as provided in subsection (a) above), or in case of any consolidation or merger to which the Company is a party (other than a merger in which the Company is the surviving corporation and which does not result in any capital reorganization or reclassification of Common Stock), or in case of any sale or conveyance to another corporation of all or substantially all of the property and assets of the Company, and if, in connection with any such consolidation, merger, sale or conveyance, shares or other securities or property shall be issuable or deliverable in exchange for shares of Common Stock, provision shall be made as part of the terms of such capital reorganization or reclassification, consolidation, merger, sale or conveyance that the holder of this Warrant thereafter exercised shall have the right upon such exercise to receive the same kind and amount of stock and other securities and property as would have been receivable upon such capital reorganization or reclassification, consolidation, merger, sale or conveyance by a holder of the number shares of Common Stock with respect to which such Warrant might have been exercised immediately prior thereto. In any such case, appropriate provision (as determined to be equitable in the business judgment of the Board of Directors) shall be made for the application of Section 4 with respect to the rights and interests thereafter of the holder of this Warrant to the end that such Section (including adjustments of the Exercised Rate) shall be reflected thereafter, as nearly as reasonably practicable, in all subsequent exercises of this Warrant. The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor corporation (if other than the Company) resulting from consolidation or merger or the corporation purchasing such assets assumes by written instrument (in a manner determined to be equitable in the business judgment of the Board of Directors to the holder of this Warrant), the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. c. In case the Company shall offer shares of Common Stock or securities convertible into or exchangeable for Common Stock or rights, options or warrants to subscribe for or purchase shares of its Common Stock or securities convertible into or exchangeable for Common Stock (including, without limitation, any offering of rights or warrants entitling holders of shares of Common Stock to purchase Common Stock or securities convertible or exchangeable into Common Stock) at a price per share equal to or less than $1.50 each, the number of shares of its Common Stock with respect to which this Warrant is exercisable thereafter shall be determined by multiplying the number of shares of Common Stock with respect to which this Warrant was exercisable theretofore by a fraction (not to be less than one), of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to such record date plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding immediately prior to such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares being offered would purchase at $1.50 per share. Such adjustment shall be made whenever such Common Stock or rights, options or other securities are issued and shall become retroactively effective immediately after the record date. This paragraph c. shall not apply to the Warrants that were issued in connection with the Series E Redeemable Convertible Preferred Stock which was issued on or about October 31, 1996 The foregoing provisions for adjustment of the Exercise Rate shall apply in each successive instance in which an adjustment is required thereby. No adjustment in the Exercise Rate resulting from the application of the foregoing provisions is to be given effect unless, by making such adjustment, the Exercise Rate in effect immediately prior to such adjustment would be changed thereby by 1% or more, but any adjustment that would change the Exercise Rate by less than 1% is to be carried forward and given effect in making future adjustments. All calculations under this Section 4 shall be made to the nearest one-hundredth (1/100th) of a share. Shares of Common Stock owned by or held for the account of the Company shall not be deemed to be outstanding for the purposes of any computation made under this Section 4. Whenever the number of shares of Common Stock deliverable upon the exercise of this Warrant shall be adjusted pursuant to the provisions hereof, the Company shall forthwith file at its principal office and with any transfer agent for the Common Stock a statement, signed by the President or one of the Vice-Presidents of the Company and by its Treasurer or one of its Assistant Treasurers, stating the adjusted number of shares of Common Stock deliverable with respect to this Warrant and setting forth in reasonable detail the method of calculation and the facts requiring such adjustment and upon which such calculation is based, and shall mail a notice of such adjustment to the holder of record of this Warrant. Each adjustment shall remain in effect until a subsequent adjustment hereunder is required. In the event: (x) of the occurrence of any of the events referred to in subsections (a), (b) and (c) above; or (y) of any liquidation, dissolution or winding up of the Company (a "Liquidation"); then the Company shall cause to be mailed to the holder of record of this Warrant at least 20 days prior to the applicable date hereinafter specified, a notice describing the event and stating the effect, if any, that such event will have upon the Exercise Rate, and (A) the date on which a record is to be taken for the purpose of a distribution referred to in subsections (a) or (c) above, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such distribution are to be determined, or (B) the date on which any subdivision, combination or other capital reorganization or reclassification or any consolidation, merger, sale or conveyance referred to in subsections (a) or (b) above or such Liquidation is expected to become effective. In the case of rights, options, warrants or convertible or exchangeable securities being issued, the price per share of Common Stock shall be determined by dividing (x) the total amount receivable by the Company in consideration of the sale and issuance of such rights, options, warrants or convertible or exchangeable securities, plus the total consideration payable to the Company upon exercise, conversion or exchange thereof, by (y) the total number of shares of such class or series of Common Stock covered by such rights, options, warrants or convertible or exchangeable securities. In case the Company shall sell and issue shares of any class or series of Common Stock, or options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of any class or series of Common Stock, for a consideration consisting, in whole or in part, of property other than cash or its equivalent, then in determining the consideration received by the Company for purposes hereof, the Board of Directors of Company shall determine, in good faith, the fair value of the property. The Company will at all times during the Exercise Period reserve and keep available for issuance upon exercise of this Warrant the number of shares of Common Stock that is equal to the Exercise Rate; provided, however, that nothing contained herein shall be construed to preclude the Company from satisfying its obligations in respect of the exercise of this Warrant by delivery of shares of Common Stock that are held in the treasury of the Company. The Company covenants that all shares of Common Stock that shall be issued upon exercise of this Warrant will, upon issue, be fully paid and nonassessable and not subject to any preemptive rights. The shares of Common Stock issuable upon exercise of this Warrant when the same shall be issued in accordance with the terms hereof are hereby declared to be and shall be fully paid nonassessable shares of Common Stock and not liable to any calls or assessments thereon, and the holders thereof shall not be liable for any further payments in respect thereof. "Common Stock" when used in Section 4 with reference to the Common Stock with respect to which this Warrant is exercisable, shall mean only Common Stock as authorized by the Restated Certificate of Incorporation of the Company, as amended to the date hereof, and any shares into which such Common Stock may thereafter have been changed, and, when otherwise used in Section 4, shall also include shares of the Company of any other class or series, whether now or hereafter authorized, that ranks or is entitled to participation, as to payment of assets upon Liquidation and payment of dividends, substantially on a parity with such Common Stock or other class of shares into which such Common Stock may have been changed. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion privilege of the holders of this Warrant against dilution or other impairment. Without limiting the generality of the foregoing, the Company (1) will not increase the par value of any shares of stock receivable upon exercise of this Warrant above the Purchase Price then in effect, and (2) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock upon the exercise in full of this Warrant from time to time outstanding. 5. Fractional Interests. The Company shall not be required to issue fractional shares on the exercise of a Warrant. If any faction of a share would be issuable on the exercise of a Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to the Current Market Price per share of Common Stock (as defined in Section 6) multiplied by such fraction. 6. Definition of Current Market Value. (a) The "Current Market Price" on any given day shall be: (i) if the Common Stock is listed or admitted to unlisted trading privileges on any exchange registered with the Securities and Exchange Commission as a national securities exchange" under the Securities Exchange Act of 1934 (a "National Securities Exchange"), the last sales price of the shares of Common Stock on the National Securities Exchange in or nearest the City of New York on which the shares of Common Stock shall be listed or admitted to unlisted trading privileges (or the quoted closing bid if there be no sales on such National Securities Exchange) on the most recently completed trading day prior to such day; or (ii) if the Common Stock is not so listed or admitted, the closing sales price of a share of Common Stock as quoted in The Nasdaq Stock Market on the most recently completed trading day prior to the day in question; or (iii) if the Common Stock is not so quoted, the mean between the high and low bid prices of the shares of Common Stock in the over-the-counter market on the most recently completed trading day prior to the day in question as reported by National Quotation Bureau Incorporated or similar organization. If the Company's Common Stock is not traded or a price is not quoted as set forth above, Current Market Price shall be Fair Market Value. (b) "Fair Market Value" shall be determined (i) in good faith by the Board of Directors of the Company, or (ii) if the holder of this Warrant disagrees with the Fair Market Value as so determined pursuant to subsection (i), it must notify the Company in writing of such disagreement within twenty days after receiving notice of the Board of Directors' determination and include in such notice the holder's estimate of the Fair Market Value, in which event the Fair Market Value shall then be determined by an investment banking firm chosen by the Company which is satisfactory to and approved by the holder (the "Independent Financial Expert"). If the Company and the holder are unable to agree upon an investment banking firm to act as the Independent Financial Expert within ten days after the notice from Holder provided for in subsection (b)(ii) above, then each party will within ten days thereafter select an investment banking firm and the two investment banking firms so selected shall select a third investment banking firm within ten days and such third investment banking firm shall, as the Independent Financial Expert, determine the Fair Market Value. If either party fails to timely designate its investment banking firm as provided above then the investment banking firm selected by the other party shall act as Independent Financial Expert to determine Fair Market Value. The Independent Financial Expert shall use one or more valuation methods that it, in its professional judgment, determines to be most appropriate. The decision of the Independent Financial Expert so selected shall be final and binding upon all parties. The Company shall bear the costs of the chosen investment banking firms. 7. Taking of Record; Stock and Warrant Transfer Books. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 8. Restrictions on Transferability. This Warrant was originally issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), and neither this Warrant nor any shares of Common Stock issuable upon the exercise hereof were then registered under the Securities Act. Unless this Warrant or such shares were subsequently registered under the Securities Act and sold by the holder thereof in accordance with such registration, this Warrant or such shares, as the case may be, may not be sold by the holder hereof or of such shares unless this Warrant or such shares is or are subsequently registered under the Securities Act or an exemption from such registration is available. The shares of Common Stock issuable hereunder will bear an appropriate restrictive legend as is required by the Securities Act or any state blue sky laws. The holder of this Warrant, by acceptance of this Warrant, agrees to be bound by the provisions of this Section and represents to the Company that it is acquiring the Warrant and the Common Stock issuable hereunder solely for its own account, for the purpose of investment and not with a view to distributing or selling it or any part thereof in violation of the Securities Act, but subject, nevertheless, to any requirement of law that the disposition of such holder's property be at all times within its control. 9. Replacement. Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of this Warrant, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company (provided that the holder's own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of this Warrant, the Company shall (at its expense) execute and deliver in lieu of this Warrant a new warrant of like kind dated the date of such lost, stolen, destroyed or mutilated Warrant. 10. Notice Generally. Any notice, demand or delivery pursuant to the provisions hereof shall be sufficiently given or made if sent by first class mail, postage prepaid, addressed to the holder of this Warrant or of the Common Stock issued upon the exercise hereof at the holder's last known address appearing on the books of the Company, or, except as herein otherwise expressly provided, to the Company at its main office, Attention of the President, or such other address as shall have been furnished to the party giving or making such notice, demand or delivery. 11. Voting Rights, Dividends. This Warrant does not grant the holder hereof any voting rights or other rights as a stockholder of the Company. No dividends are payable or will accrue on this Warrant or the shares purchasable hereunder until, and except to the extent that, this Warrant is exercised. 12. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY THE LAW OF THE STATE OF DELAWARE. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed this 13th day of November, 1998. AMERICAN ECOLOGY CORPORATION By: /s/ Jack K. Lemley ----------------------------------- Name: Jack K. Lemley Title: Chief Executive Officer SUBSCRIPTION NOTICE (To be executed only upon exercise of Warrant) _______________________________________, being the undersigned registered owner of this Warrant irrevocably exercises this Warrant for and purchases ______ shares of the Common Stock, par value $.01 per share (the "Common Stock"), of American Ecology Corporation, constituting all or part of the shares of Common Stock purchasable with this Warrant, and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) together with, if such certificates do not represent all the shares of Common Stock purchasable with this Warrant, a new Warrant, identical to the canceled Warrant except with respect to the number of shares of Common Stock evidenced thereby, for the remaining unsold shares of Common Stock, be issued in the name of and delivered to the undersigned at the address set forth below. Dated: ----------------------------- -------------------------------------- Name of Warrant Holder By: ----------------------------------- Name: -------------------------------- Title: ------------------------------- EX-10.61 9 doc8.txt SERIES E PREFERRED STOCK EXHIBIT 10.61 1996 SERIES E PREFERRED STOCK AND WARRANT AGREEMENT PURCHASE AGREEMENT This Purchase Agreement ("Agreement") is dated and effective as of November 13, 1996, and is entered into by and among (i) American Ecology Corporation, a Delaware corporation (the "Company"), (ii) Edward F. Heil ("Heil"), and (iii) Rotchford Barker ("Barker") (the individuals identified in clauses (ii) through (iii) being herein referred to collectively as "Purchasers" and severally as "Purchaser"). In consideration of the agreements and undertakings of the parties hereinafter set forth, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows. 1. Purchase and Sale of Securities. Subject to the terms and conditions set forth in this Agreement the Company will issue and sell to each Purchaser on the date hereof and each Purchaser will purchase from the Company on the date hereof the number of shares of Series E Preferred Stock (as hereinafter defined) specified on Schedule 1 and (b) the number of Warrants (as hereinafter defined) specified on Schedule 1 of the Company (collectively the Series E Preferred Stock, the Warrants and any common stock issued in respect of the foregoing are sometimes referred to as the "Securities"). The aggregate purchase price of each (i) one share of Series E Preferred Stock and (ii) ten Warrants shall be $10.00, which shall be paid to the Company in cash. The obligations of the respective Purchasers to purchase shares of Series E Preferred Stock and Warrants pursuant to this Agreement are several, and not joint. The purchase and sale of the shares of Series E Preferred Stock and Warrants shall occur at the offices of Jenner & Block, Chicago, Illinois not later than the close of business on the date hereof, or at such other time and place as may be agreed to by all of the parties to this Agreement. As used in this Purchase Agreement, the term "Series E Preferred Stock" means a series of preferred stock of the Company established by the Certificate of Designation, Preferences and Rights of Series E Redeemable Convertible Preferred Stock of American Ecology Corporation (the "Certificate of Designation") attached hereto as Exhibit A. As used in this Agreement, the term "Warrant" means a warrant to purchase common stock of the Company in the form attached hereto as Exhibit B. 2. Representations of the Company. The Company represents and warrants to each Purchaser as follows: 2.1 The Company has all requisite corporate power and authority to enter into this Agreement and to perform all the obligations required to be performed by the Company under this Agreement. 2.2 This Agreement has been duly executed and delivered by the Company, and, upon execution and delivery by the Purchasers, this Agreement will be the valid and legally binding obligation of the Company, enforceable as to the Company in accordance with its terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and equitable remedies. 2.3 All shares of Series E Preferred Stock being issued shall be, all Warrants being issued shall be, and all shares of common Stock issuable pursuant to such Warrants ("Underlying Common Shares") shall be upon issuance of such Underlying Common Shares, duly authorized, validly issued, fully paid and nonassessable and issued without violation of and not subject to any preemptive right; and a number of shares of authorized and unissued Common Stock of the Company equal to the number of such Underlying Common Shares shall have been reserved for issuance on or before July 1, 1997. 3. Representations of Purchasers. Each Purchaser, severally and not jointly, represents and warrants to the Company as to himself as follows: 3.1. Such Purchaser has all requisite authority to enter into this Agreement and to perform all the obligations required to be performed by such Purchaser under this Agreement. This Agreement has been duly executed and delivered by such Purchaser, and, upon execution and delivery by the Company and the other Purchasers, this Agreement will be the valid and legally binding obligation of such Purchaser, enforceable as to such Purchaser in accordance with its terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and equitable remedies. 3.2. Neither the Company nor any person acting or purporting to act on behalf of the Company has offered or sold any of the Securities to such Purchaser by means of any form of general solicitation or general advertising. Such Purchaser is acquiring the Securities to be purchased by such Purchaser under this Agreement solely for his own beneficial account, for investment purposes, and not with any view to, or for resale in connection with, any distribution of any such Securities. Such Purchaser understands that the Securities have not been registered under the Securities Act of 1933, as amended (the "Act"), or any state securities laws, by reason of specific exemptions under the provisions thereof which depend in part upon the investment intent of such Purchaser and upon the accuracy of the other representations made by such Purchaser in this Agreement. Such Purchaser understands that the Company is relying upon the representations and agreements contained in this Agreement for the purpose of determining that the transactions contemplated by this Agreement meet the requirements for such exemptions. Such Purchaser is a director of the Company and an "accredited investor" as defined in Regulation D pursuant to the Act. 4. Restrictive Legends. 4.1. Each certificate or other document representing any of the Securities issued pursuant to this Agreement shall be stamped or otherwise imprinted with a restrictive legend in the form set forth on the form of the Warrant attached hereto as an exhibit (or, in the case of shares of Series E Preferred Stock or shares of common stock issuable upon conversion thereof or exercise of the Warrants, an equivalent legend appropriately modified to refer to such Securities). In the event of any transfer or reissuance of any such Security, the certificates or other instruments representing such Securities shall continue to bear such legends. 4.2. The Company hereby agrees that it will promptly deliver or cause to be delivered a new certificate or certificates or instrument or instruments for any Securities, which certificate or certificates or instrument or instruments will not bear the legends referred to above, upon determination by the Company that such Securities have been held beneficially by the holder for at least three years and that such holder is not and has not been within the preceding three months an affiliate of the Company. All determinations pursuant to the preceding sentence shall be made in accordance with Rule 144(k) under the Act or any applicable successor rule. In the event that a period shorter than specified above is permitted by reason of the amendment or replacement of such Rule 144(k), then the Company shall impose no greater restriction than the restriction imposed as the result of such amendment or replacement. 5. Conditions to the Obligations of the Purchasers. The obligations of each Purchaser to purchase the Securities to be purchased by such Purchaser under this Agreement are subject to the satisfaction or waiver by such Purchaser of the following conditions: 5.1. The Company shall, against receipt of payment therefore as provided herein, deliver to the Purchaser the certificates or other instruments evidencing such Securities in the form contemplated by this Agreement; and 5.2. The representations of the Company set forth in Section 2 of the Agreement shall be true and correct in all material respects at the time of such purchase and sale of such Securities. 6. Conditions to the Obligations of the Company. The obligations of the Company to issue and sell the Securities to be issued and sold by the Company under this Agreement are subject to the satisfaction or waiver by the Company of the following conditions: 6.1. Each Purchaser shall have delivered payment as provided herein against delivery to such Purchaser of the certificates or other instruments evidencing such Securities in the form contemplated by this Agreement; and 6.2. The representations of each Purchaser set forth in Section 3 of this Agreement shall be true and correct in all material respects at the time of such purchase and sale of such Securities; and 6.3. The Company shall have received such consents, waivers and agreements from its secured bank lender as shall be required, in the judgment of the Company, to permit the issuance and sale of such Securities with the result that, upon consummation of such issuance and sale, the Company shall not be in default (or shall be subject to a forbearance agreement reasonably satisfactory to the Company with respect to any such default) under the provisions of any agreement or instrument governing or evidencing any obligations of the Company to its secured bank lender. 7. Registration Rights. 7.1. As used in this Section 7: (a) The terms "register," "registered" and "registration" refer to a registration effective by preparing and filing a registration statement in compliance with the Act, and the declaration or ordering of the effectiveness of such registration statement. (b) The term "Registrable Securities" means: (i) any common stock of the Company ("Common Stock") issued, or issuable, upon the conversion of any Series E Preferred Stock regardless of whether such conversion has taken place at any time; (ii) any Common Stock issued, or issuable upon the conversion or exercise of any Warrant, regardless of whether such exercise has taken place at any time, or any warrant, right or other security which is issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, any Series E Preferred Stock or any Warrant; and (iii) any Common Stock issued as a dividend on any Series E Preferred Stock; excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Section 7 are not assigned. (c) The term "Holder" means any holder of Registrable Securities who acquired such Registrable Securities in a transaction or series of transactions not involving any public offering or any sale pursuant to Rule 144 under the Act. 7.2. The Company hereby agrees that: (a) If at any time or from time to time, the Company determines to register any of its securities, either for its own account or the account of a security holder or holders, (other than a registration solely to implement an employee benefit plan or a registration on Form S-4 or a Rights Offering as such term is defined in the Certificate of Designation), the Company will: (i) promptly give to each Holder written notice thereof (which will include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky law or other state securities laws); and (ii) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in any written request or requests by any Holder received by the Company within twenty days after such written notice is given and make its best efforts to qualify all the Registrable Securities specified in such request under the blue sky or other securities laws of any jurisdiction which said Holders may reasonably request. (b) If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company will so advise the Holders as a part of the written notice given pursuant to Section 7.2(a)(i) above. In such event, the right of any Holder to registration pursuant to this Section 7.2 will be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute Registrable Securities through such underwriting (together with the Company and the other shareholders distributing their securities through such underwriting) will enter into an underwriting agreement in customary form, satisfactory to the Company, with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Section 7.2, if the managing underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten for the accounts of Holders of Registrable Securities and other securities of the Company entitled to registration pursuant to agreements with the Company, the managing underwriter may limit the number of Registrable Securities and other securities of the Company entitled to registration pursuant to agreements with the Company to be included in the registration. The Company will so advise all Holders of Registrable Securities and all shareholders owning securities of the Company entitled to registration pursuant to agreements with the Company and participating in such registration, and the number of shares of Registrable Securities and such other securities that may be included in the registration and underwriting will be allocated among all Holders and other shareholders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities and such other securities entitled to such registration held by such Holders and other shareholders at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the underwriter's marketing limitation will be included in such registration. If any Holder disapproves of the terms of the underwriting, he may elect to withdraw therefrom by written notice to the Company and the managing underwriter. The Registrable Securities so withdrawn will also be withdrawn from registration; provided, however, that, if by the withdrawal of such Registrable Securities or any other securities entitled to registration pursuant to agreements with the Company a greater number of Registrable Securities held by Holders may be included in such registration (up to the maximum of any limitation imposed by the managing underwriter) then the Company will offer to all Holders and other shareholders who have included Registrable Securities and such other securities in the registration the right to include additional Registrable Securities or other securities in portion to the amounts of their Registrable Securities and such other securities so included. (c) The Company shall cooperate and communicate with all Holders wishing to participate in any registration pursuant to this Section 7.2 so as to permit them a reasonable and effective opportunity to participate, including providing prompt notice of any stop orders and copies of all registration statements and prospectuses filed with the Securities and Exchange Commission, including any amendments, and any such other materials and information that is provided to other participating securities holders. The Company will bear all expenses of any registration, including filing fees, blue sky fees and expenses, accounting and legal fees and expenses, printing and mailing costs and other similar expenses, but will not bear any expenses (including fees of legal counsel) incurred by participating Holders and will not bear any underwriting discount or concession or similar sale costs with respect to Registrable Securities offered and sold by or for participating Holders. The Company and the participating Holders will agree to indemnify each other or to contribute to one another on reasonable and customary terms. 8. Selection of Shares to be Redeemed or Converted. If less than all the Series E Preferred Stock is required to be redeemed or converted pursuant to Subsections 5(a) or 6(a) of the Certificate of Designation, the shares to be redeemed or converted shall be determined by written agreement of the Purchasers or, if the Purchasers fail to tender a written agreement to the Company prior to the time for redemption or conversion, the shares to be redeemed or converted shall be determined as follows: 8.1. The first 100,000 shares of Series E Preferred Stock redeemed pursuant to Subsection 5(a) of the Certificate of Designation shall be redeemed from those shares purchased by Barker and any remaining shares redeemed shall be redeemed ratably from the balance of the Series E Preferred Stock purchased by each Purchaser after deducting therefrom any Series E Preferred Stock tendered by the Purchaser to pay for Common Stock purchased in a Rights Offering pursuant to Subsection 5(b) of the Certificate of Designation. 8.2. Any Series E Preferred Stock converted pursuant to Subsection 6(a) of the Certification of Designation shall come ratably from the Series E Preferred Stock purchased by each Purchaser after deducting therefrom any Series E Preferred Stock tendered by the Purchaser to pay for Common Stock purchased in a Rights Offering pursuant to Subsection 5(b) of the Certificate of Designation. 8.3. Should either or both Purchasers transfer all or any part of their Series E Preferred Stock, the shares transferred shall be treated for purposes of the computations in this Section 8 as still owned by the transferring Purchaser and a pro rata portion of any shares required to be redeemed or converted from the shares originally purchased by the Purchaser shall be converted or redeemed from those transferred. The Purchasers shall notify each transferee of the restrictions in this Agreement and shall require that each transferee notify any transferee from it of such restrictions. 9. Miscellaneous. 9.1. Remedies Not Exclusive. No remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. The election of any one or more remedies by any party hereto shall not constitute a waiver of the right to pursue other available remedies. 9.2. Parties Bound. Except to the extent otherwise expressly provided herein, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, representatives, administrators, guardians, successors and assigns; and no other person shall have any right, benefit or obligation hereunder. 9.3. Notices. All notices, reports records or other communications that are required or permitted to be given to the parties under this Agreement shall be sufficient in all respects if given in writing and delivered in person, by telecopy, by overnight courier or by registered or certified mail, postage prepaid, return receipt requested, to the receiving party at the following address: If to a Purchaser, to him at the most recent address furnished by him to the Company; If to the Company, to the Company's main office; or to such other address as such party may have given to the other parties by notice pursuant to this Section 9.3. Notice shall be deemed given on the date of delivery, in the case of personal delivery or telecopy, or on the delivery or refusal date, as specified on the return receipt, in the case of overnight courier or registered or certified mail. 9.4. Choice of Law. This Agreement shall be construed, interpreted, and the rights of the parties determined in accordance with, the laws of the State of Delaware, without giving effect to any conflicts of laws principles. 9.5. Entire Agreement; Amendments and Waivers; Assignment. This Agreement, together with all exhibits and schedules hereto, constitutes the entire agreement between the parties pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties. Except as set forth herein, there are no warranties, representations or other agreements between the parties in connection with the subject matter hereof. No supplement, modification or waiver of this Agreement shall be binding unless it shall be specifically designated to be a supplement, modification or wavier of this Agreement and shall be executed in writing by each party to be bound thereby. No wavier of any of the provisions of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. In the event of any permitted transfer of any Securities, any rights of the holder thereof pursuant to Section 7 shall be transferred automatically. Except as set forth in the preceding sentence and except as provided in Section 8 hereof, this Agreement may not be assigned by operation of law or otherwise. 9.6. Further Assurances. From time to time hereafter and without further consideration, each of the parties hereto shall execute and deliver such additional or further instruments of conveyance, assignment and transfer and take such actions as any of the other parties hereto may reasonably request in order to more effectively consummate the transactions contemplated by this Agreement or as shall be reasonably necessary or appropriate in connection with the carrying out of the parties' respective obligations hereunder or the purposes of this Agreement. 9.7. Multiple Counterparts. This Agreement may be executed in or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9.8. Headings. The headings of the several Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of November 13, 1996. AMERICAN ECOLOGY CORPORATION By: /s/ Jack L. Lemley ----------------------------------- Jack K. Lemley Chairman & CEO /s/ Edward F. Heil --------------------------------------- Edward F. Heil /s/ Rotchford Barker --------------------------------------- Rotchford Barker SCHEDULE 1 Aggregate Purchase Price of Series D Number of Shares Preferred Stock of Series D Number of Shares and Warrants Purchaser Preferred Stock Warrants to be Purchased - ---------- --------------- -------- ----------- Rotchford Barker 200,000 2,000,000 $2,000,000 Edward F. Heil 100,000 1,000,000 $1,000,000 CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES E REDEEMABLE CONVERTIBLE PREFERRED STOCK OF AMERICAN ECOLOGY CORPORATION American Ecology Corporation, a corporation organized and existing under the Delaware General Corporation Law, (the "Corporation") DOES HEREBY CERTIFY: That, effective October 31, 1996, pursuant to the authority conferred upon the Board of Directors by the Amended and Restated Certificate of Incorporation of the Corporation and pursuant to the provisions of Section 151(a) and other applicable provisions of the Delaware General Corporation Law, the Board of Directors (or, as and to the extent authorized pursuant to applicable law, a committee acting with the authority of the Board of Directors) duly adopted, by all necessary action on the part of the Corporation, the following resolution creating a series of 300,000 shares of preferred stock designated as Series E Redeemable Convertible Preferred Stock: RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Amended and Restated Certificate of Incorporation, a series of preferred stock of the Corporation be and it hereby is created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: SERIES E REDEEMABLE CONVERTIBLE PREFERRED STOCK. 1. Designation. The series shall be designated as the "Series E Redeemable Convertible Preferred Stock" (the "Series E Preferred Stock"). 2. Number. The number of shares of the Series E Preferred Stock authorized to be issued is 300,000. 3. Dividends. (a) The Corporation shall pay to the holders of the Series E Preferred Stock, a mandatory quarterly dividend at an annual rate of 11.25% of the Stated Amount (as such term is defined in Section 4 below) payable solely in the form of Common Stock of the Corporation, subject only to the Corporation being able to lawfully pay such dividend in accordance with applicable law. Dividends on the Series E Preferred Stock shall commence to accrue and are cumulative (whether or not declared) from the date on which such shares shall have been issued until the date on which such shares are redeemed, converted or exchanged. Such dividends shall be mandatorily payable as stated above, in Common Stock of the Corporation at its Current Market Price (as defined below) on the date of payment, in equal quarterly payments in arrears on the last day of each fiscal quarter of the Corporation of each year or such earlier date on which a share of Series E Preferred Stock is redeemed, converted or exchanged (each such date being referred to herein as a "Dividend Payment Date"), commencing December 31, 1996, or if not paid on such Dividend Payment Date by reason of a prohibition against such payment pursuant to the first sentence of this Subsection (a) (a "Payment Prohibition"), then promptly when and to the extent no such Payment Prohibition continues to apply; provided, however, that the dividend payable in respect of the quarter ended on the first dividend payment date after the date on which such shares shall have been issued and in respect of any other quarter in which some or all of the Series E Preferred Stock was not outstanding for the entire quarter shall be reduced in proportion to the portion of such quarterly period in which such shares were not outstanding; and provided further, however, that if and to the extent that, at any dividend payment date, the Corporation shall fail to make any quarterly dividend payment on the Series E Preferred Stock (which failure shall only be permitted to the extent a Payment Prohibition applies), such unpaid dividend amount shall accumulate without interest until paid. Such dividends shall be paid to the Series E Preferred Stock stockholders of record on the last business day immediately preceding the date of payment. All partial dividends paid with respect to shares of the Series E Preferred Stock shall be paid pro rata to the holders entitled thereto in proportion to the total amount of dividends to which each is entitled. The "Current Market Price" of the Corporation's Common Stock on any given day shall be: (i) if the Common Stock is listed or admitted to unlisted trading privileges on any exchange registered with the Securities and Exchange Commission as a "national securities exchange" under the Securities Exchange Act of 1934 (a "National Securities Exchange"), the arithmetic average of the last sales price of the shares of Common Stock on the National Securities Exchange in or nearest the City of New York on which the shares of Common Stock shall be listed or admitted to unlisted trading privileges (or the quoted closing bid if there be no sales on such National Securities Exchange) on the ten most recently completed trading days prior to such day; or (ii) if the Common Stock is not so listed or admitted, the arithmetic average of the closing sales price of a share of Common Stock as quoted in The Nasdaq Stock Market on the ten most recently completed trading days prior to the day in question; or (iii) if the Common Stock is not so quoted, the arithmetic average of the mean between the high and low bid prices of a share of Common Stock in the over-the-counter market on the ten most recently completed trading days prior to the day in question as reported by National Quotation Bureau Incorporated or a similar organization. (b) So long as any shares of the Series E Preferred Stock are outstanding, unless all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series E Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) pay or declare any dividends, or make any other distributions, on any shares of stock ranking junior to the Series E Preferred Stock in respect of dividends or distribution of assets upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (a "Liquidation"); (ii) pay or declare any dividends, or make any other distributions, on any shares of stock ranking on a parity to the Series E Preferred Stock in respect of dividends or distribution of assets upon Liquidation, except dividends paid ratably on the Series E Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; or (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior to the Series E Preferred Stock in respect of dividends or distribution of assets upon Liquidation, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation raking junior to the Series E Preferred Stock in respect of dividends or distribution of assets upon Liquidation. Except as otherwise provided in this Subsection (b), the Board of Directors may declare and the Corporation may pay or set apart for payment dividends and other distributions on the common stock (the "Common Stock") and the preferred stock (the "Preferred Stock") of the Corporation ranking junior to or on a parity with the Series E Preferred Stock in respect of dividends or distributions of assets upon Liquidation, and may redeem, purchase, retire or otherwise acquire for consideration shares of Common Stock or Preferred Stock ranking junior to or on a parity with the Series E Preferred Stock in respect of dividends or distributions of assets upon Liquidation, and the holders of the Series E Preferred Stock shall not be entitled to share therein. (c) In the event the Corporation, not being in violation of the provisions of the preceding paragraph, shall distribute to all holders of its Common Stock (x) evidences of indebtedness or assets and property other than cash, (y) capital stock of the Corporation other than Common Stock, or (z) rights to purchase only (i) Common Stock (except in a Rights Offering as defined in Subsection 5(b) below) or (ii) units consisting of shares of Common Stock and warrants to purchase shares of Common Stock (all of such distributions collectively hereinafter called "Shared Distributions"), then the holders of the Series E Preferred Stock shall participate in such Shared Distributions as if immediately prior to the record date for determination of stockholders entitled to receive such Shared Distribution such holders had converted their shares of the Series E Preferred Stock in to shares of Common Stock. 4. Liquidation Rights. In the event of the Liquidation of the Corporation, the holders of the Series E Preferred Stock shall be entitled to have paid to them out of the assets of the Corporation, before any distribution is made to or set apart for the holders of Common Stock or of any other class or series of stock of the Corporation ranking junior to the Series E Preferred Stock in respect of distribution of assets upon Liquidation, an amount equal to $10. 00 per share (the " Stated Amount"), plus unpaid dividends and Shared Distributions which have accrued but have not been paid on or prior to the date of final distribution to holders of the Series E Preferred Stock, and no more. The liquidation payment with respect to each outstanding fractional share of the Series E Preferred Stock shall be equal to a ratably proportionate amount of the liquidation payment with respect to each outstanding share of the Series E Preferred Stock. If upon any Liquidation of the Corporation the assets of the Corporation or proceeds thereof distributable among the holders of shares of the Series E Preferred Stock and the holders of any stock on a parity with the Series E Preferred Stock shall be insufficient to pay in full the preferential amounts payable to such holders, then such assets or the proceeds thereof shall be distributed among such holders ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. For purposes of this Section 4, the voluntary sale, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation to, or a consolidation or merger of the Corporation with, one or more corporations shall not be deemed to be a Liquidation. 5. Redemption. (a) Shares of the Series E Preferred Stock shall be redeemed by the Corporation on the first business day (the "Redemption Date") following the issuance of Common Stock in a Rights Offering (as defined in Subsection 5(b) below) from the proceeds of such Rights Offering at the Stated Amount of such Series E Preferred Stock (in addition to the payment in Common Stock pursuant to Subsection 1 (a) above of dividends to the Redemption Date on the Series E Preferred Stock redeemed) to the extent that the purchase price of the Common Stock sold in the Rights Offering plus the Stated Amount of the Series E Preferred outstanding on the Redemption Date is in excess of $5,000,000. If less than all of the Series E Preferred Stock outstanding is redeemed, the Series E Preferred Stock to be redeemed shall be determined pursuant to the agreement for the initial purchase of the Series E Preferred Stock. Except as provided in the Subsection 5(a), the Series E Preferred Stock shall not be subject to redemption. Any Series E Preferred Stock called for redemption pursuant to this Subsection 5(a) but not tendered by the holder thereof for redemption shall be deemed cancelled and shall no longer be treated as outstanding and no dividends or Shared Distributions thereon or interest on the redemption price shall be paid in regard to the period on or after the Redemption Date. (b) The term "Rights Offering" shall refer to any offering of rights to acquire the Corporation's Common Stock made after October 31, 1996 and prior to June 30, 1997. The Corporation shall not make a Rights Offering without the consent of all the holders of the Series E Preferred Stock except on the terms set forth in this Subsection 5(b). Any Rights Offering shall be an offer, to all holders of record of the Corporation's Common Stock on or about the second business day preceding the date the registration of the Rights Offering is declared effective by the Securities and Exchange Commission, to purchase one share of Common Stock for each share of Common Stock held of record on such date at a purchase price of $1.00 per share payable, within 30 days after the effective date of such Rights Offering, either in cash or by tender of Series E Preferred Stock for exchange for such Common Stock at the Stated Amount of such Series E Preferred Stock. Any Series E Preferred Stock tendered in payment of the purchase price of Common Stock in the Rights Offering at its Stated Amount shall be cancelled but dividends in Common Stock shall be paid thereon pursuant to Section l(a) to the date of exchange. Nothing herein or in any other document shall obligate the Corporation to make any Rights Offering. Other than pursuant to a Rights Offering or to options, warrants, or other rights outstanding prior to November 1, 1996, the Corporation shall not issue any shares of Common Stock in addition to these outstanding on October 3 1, 1996 prior to July 1, 1997. 6. Conversion Rights. (a) If there is a Rights Offering and less than 5,000,000 shares of Common Stock are sold pursuant to the Rights Offering, one share of Series E Preferred Stock shall be converted into 10 shares of fully paid and nonassessable Common Stock for each 10 shares or portion thereof of Common Stock less than 5,000,000 sold in the Rights Offering. Such conversion shall occur on the first business day (the "Mandatory Conversion Date") immediately following the expiration of the Rights Offering. If less than all of the Series E Preferred Stock is required to be converted, the Series E Preferred Stock to be converted shall be determined pursuant to the agreement for the initial purchase of the Series E Preferred Stock. Any Series E Preferred Stock required to be converted pursuant to this Subsection 6(a) but not tendered for conversion shall be deemed cancelled on the Mandatory Conversion Date and shall no longer be treated as outstanding. Dividends accrued to the Mandatory Conversion Date shall be paid pursuant to Subsection l(a) on the Series E Preferred Stock converted but no dividends or Shared Distributions thereon shall be paid in regard to the period on and after the Mandatory Conversion Date. For all purposes the holders of record of the Series E Preferred Stock required to be converted on the Mandatory Conversion Date shall be deemed to have become the record holder or holders of the Common Stock in to which such Series E Preferred Stock is convertible on the Mandatory Conversion Date. (b) Subject to the provisions for adjustment hereinafter set forth, shares of Series E Preferred Stock may be converted, at the option of the holder thereof, at any time or from time to time after June 30, 1997 into fully paid and nonassessable whole shares of Common Stock at rate of 10 shares of Common Stock for each share of the Series D Preferred Stock duly surrendered for conversion. Dividends accrued to the Date of Conversion (as defined below), shall be paid pursuant to Subsection 1(a) on the Series E Preferred Stock converted but no dividends or Shared Distributions with respect to the shares of Series D Preferred Stock converted shall be paid in regard to the period on and after the Date of Conversion. (c) Each holder of the Series E Preferred Stock desiring to exercise such holder's right of conversion pursuant to Subsection 6(b) shall deliver written notice of election to convert, stating the names and addresses of the persons to whom the Common Stock is to be issued, and shall surrender the certificate or certificates for the shares of Series E Preferred Stock to be converted, duly endorsed or accompanied by proper instruments of transfer (unless such endorsement or instruments are waived by the Corporation) to the Corporation during usual business hours at the office of the transfer agent of the Corporation for the transfer of its Common Stock in Dallas, Texas (or such other place as may be designated by the Corporation upon written notice to all holders of the Series E Preferred Stock). Upon receipt by the Corporation of any such notice of election to convert shares of the Series E Preferred Stock, and upon surrender of the certificate or certificates therefor, the Corporation shall execute and deliver, as soon as practicable, to the converting holder, or to such holder's nominee or nominees, a certificate or certificates for the number of shares of Common Stock resulting from such conversion, together with any cash adjustment in lieu of fractional shares as provided in Subsection (e). For all purposes, the rights of a converting holder, as such, shall cease, and the person or persons in whose name or names the certificate or certificates for Common Stock issuable upon such conversion are to be issued shall be deemed to have become the record holder or holders of such Common Stock at the close of business on the day (the "Date of Conversion") on which delivery of such notice or the surrender of the certificate or certificates for such shares (whichever shall later occur) shall be made. (d) The Corporation shall pay all issue costs, if any, incurred in respect to the Common Stock delivered on conversion; provided, however, that the Corporation shall not be required to pay transfer or other taxes, if any, incurred by reason of the issuance or delivery of such Common Stock in names other than those in which the shares surrendered for conversion are registered, and no delivery of certificates for such Common Stock shall be made unless and until there has been paid to the Corporation the amount of any such taxes, or there shall have been established to the satisfaction of the Corporation that such taxes have been or are not required to be paid. The Corporation shall not close its books against the transfer of Series E Preferred Stock or of Common Stock issued or issuable upon conversion of Series E Preferred Stock in any manner which interferes with the timely conversion of Series E Preferred Stock. The Corporation shall assist and cooperate with any holder of shares of Series E Preferred Stock required to make any required governmental filings or obtain any governmental approval prior to or in connection with any conversion of such shares hereunder (including, without limitation, making any filings required to be made by the Corporation). All shares of Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). (e) The Corporation shall not be required to issue fractional shares of Common Stock upon conversion of shares of the Series E Preferred Stock. If more than one share of the Series E Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares so surrendered. If any fractional interest in a share of Common Stock would be deliverable upon the conversion of any shares, the Corporation shall, in lieu of delivering such fractional share, make a cash payment, as an adjustment in respect of such undelivered fraction of a share, in an amount equal to the same fraction of the Current Market Price of one share of the Common Stock on the last business day before the Date of Conversion. (f) The number of shares of Common Stock into which each share of the Series E Preferred Stock is convertible (the "Conversion Rate") shall be subject to adjustment from time to time as follows: (i) In case the Corporation shall (A) pay a dividend in or make a distribution of Common Stock on outstanding Common Stock, (B) subdivide outstanding Common Stock into a larger number of shares of Common Stock by reclassification or otherwise, or (C) combine outstanding Common Stock into a smaller number of shares of Common Stock by reclassification or otherwise, the Conversion Rate in effect immediately prior thereto shall be adjusted proportionately so that the holder of a share of the Series E Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock that such holder would have owned after the happening of any of the events described above had such share been converted immediately prior to the happening of such event. An adjustment made pursuant to this subparagraph (i) shall become effective retroactively to immediately after the record date in the case of a share dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination. (ii) In case of any capital reorganization or reclassification of the shares of Common Stock (except as provided in subparagraph (i) above), or in case of any consolidation or merger to which the Corporation is a party (other than a merger in which the Corporation is the surviving corporation and which does not result in any capital reorganization or reclassification of Common Stock), or in case of any sale or conveyance to another corporation of all or substantially all of the property and assets of the Corporation, and if, in connection with any such consolidation, merger, sale or conveyance, shares or other securities or property shall be issuable or deliverable in exchange for shares of Common Stock, provision shall be made as part of the terms of such capital reorganization or reclassification, consolidation, merger, sale or conveyance that the holder of each share of the Series E Preferred Stock thereafter surrendered for conversion shall have the right to convert such share into the same kind and amount of stock and other securities and property as would have been receivable upon such capital reorganization or reclassification, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock into which such share might have been converted immediately prior thereto. In any such case, appropriate provision (as determined to be equitable in the business judgment of the Board of Directors) shall be made for the application of Section 6 with respect to the rights and interest thereafter of the holders of the Series E Preferred Stock to the end that such Section (including adjustments of the Conversion Rate) shall be reflected thereafter, as nearly as reasonably practicable, in all subsequent conversions of the Series E Preferred Stock. The Corporation shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor corporation (if other than the Corporation) resulting from consolidation or merger or the corporation purchasing such assets assumes by written instrument (in a manner determined to be equitable in the business judgment of the Board of Directors to the holders of the Series E Preferred Stock then outstanding), the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. (iii) In case the Corporation shall issue, other than pursuant to a Rights Offering, pro rata to the holders of shares of its Common Stock rights or warrants entitling them, during a period not exceeding 30 days after the record date mentioned below, to subscribe for or purchase only shares of its Common Stock at a price per share less than the average of the Current Market Price (as defined above) of the Common Stock determined as of such record date, the number of shares of its Common Stock into which each share of the Series E Preferred Stock shall be convertible thereafter shall be determined by multiplying the number of shares of Common Stock into which each such share was convertible theretofore by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to such record date plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding immediately prior to such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares being offered would purchase at such Current Market Price. Such adjustment shall be made whenever such rights or warrants are issued and shall become retroactively effective immediately after the record date for the determination of the stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate that would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock actually delivered. (iv) In case the Corporation shall issue, other than pursuant to a Rights Offering, pro rata to the holders of shares of its Common Stock rights or warrants to subscribe for or purchase only (A) shares of its Common Stock except as described in subparagraph (iii) above, or (B) units consisting of shares of Common Stock and warrants to purchase shares of Common Stock, the number of shares of its Common Stock into which each share of the Series E Preferred Stock shall be convertible thereafter shall be determined by multiplying the number of shares of Common Stock into which each such share was convertible theretofore by a fraction, of which the numerator shall be the Current Market Price for a share of Common Stock determined as of the record date mentioned below, and of which the denominator shall be such Current Market Price less the fair market value (as determined in the business judgment of the Board of Directors) as of such record date of the rights or warrants distributed pro rata to one of the outstanding shares of Common Stock. Such adjustment shall be made whenever such distribution is made and shall become retroactively effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. (v) In case the Corporation shall issue or sell any shares (including treasury shares) of Common Stock ("Additional Shares of Common Stock"), whether or not subsequently reacquired or retired by the Corporation, other than shares of Common Stock issued (A) upon exercise of warrants to purchase shares of Common Stock issued prior to or substantially simultaneously with the first issuance of shares of the Series E Preferred Stock, (B) pursuant to any stock option plan or other stock incentive or stock ownership plan for employees or management of the Corporation, (C) pursuant to a Rights Offering, or (D) in payment of dividends on the Series E Preferred Stock, for a cash purchase price per share that is less than the quotient of $10.00 divided by the number of shares of Common Stock into which each share of Series E Preferred Stock was theretofore convertible (such quotient, the "Conversion Price"), the number of shares of Common Stock into which each share of the Series E Preferred Stock shall be convertible thereafter shall be determined by multiplying the number of shares of Common Stock into which each such share was convertible theretofore by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately after such issuance or sale, and of which the denominator shall be the number of shares of Common Stock outstanding immediately prior to such issuance or sale plus the number of shares of Common Stock that the aggregate consideration received by the Corporation for such Additional Shares of Common Stock so issued or sold would purchase at the Conversion Price. Such adjustment shall be made whenever any such Additional Shares of Common Stock are so issued or sold. The foregoing provisions for adjustment of the Conversion Rate shall apply in each successive instance in which an adjustment is required thereby. No adjustment in the Conversion Rate resulting from the application of the foregoing provisions is to be given effect unless, by making such adjustment, the Conversion Rate in effect immediately prior to such adjustment would be changed thereby by 1% or more, but any adjustment that would change the Conversion Rate by less than 1% is to be carried forward and given effect in making future adjustments; provided, however, that each adjustment of the conversion Rate shall in all events be made not later than three years from the date such adjustment would have been required to be made except for the provisions of this sentence. All calculations under this Section 6 shall be made to the nearest one-hundredth (1/100th) of a share. Shares of Common Stock owned by or held for the account of the Corporation shall not be deemed to be outstanding for the purposes of any computation made under this Section 6. Whenever the number of shares of Common Stock deliverable upon the conversion of shares of the Series E Preferred Stock shall be adjusted pursuant to the provisions hereof, the Corporation shall forthwith file at its principal office and with any transfer agent for the Series E Preferred Stock and for the Common Stock a statement, signed by the President or one of the Vice-Presidents of the Corporation and by its Treasurer or one of its Assistant Treasurers, stating the adjusted number of shares of Common Stock deliverable per share of the Series E Preferred Stock and setting forth in reasonable detail, the method of calculation and the facts requiring such adjustment and upon which such calculation is based, and shall mail a notice of such adjustment to each holder of record of the Series E Preferred Stock. Each adjustment shall remain in effect until a subsequent adjustment hereunder is required. In the event: (x) of the occurrence of any of the events referred to in subparagraphs (i), (ii), (iii) and (iv) above; or (y) of the Liquidation of the Corporation; then the Corporation shall cause to be mailed to any transfer agent for the Series E Preferred Stock and to the holders of record of the outstanding shares of the Series E Preferred Stock at least 20 days prior to the applicable date hereinafter specified, a notice describing the event and stating the effect, if any, that such event will have upon the Conversion Rate, and (A) the date on which a record is to be taken for the purpose of a distribution referred to in subparagraphs (i), (iii) or (iv) above, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such distribution are to be determined, or (B) the date on which any subdivision, combination or other capital reorganization or reclassification or any consolidation, merger, sale or conveyance referred to in subparagraphs (i) or (ii) above or such Liquidation is expected to become effective. The Corporation will at all times reserve and keep available for issuance upon conversion of the Series E Preferred Stock the number of shares of Common Stock that is equal to the number of shares of the Series E Preferred Stock outstanding multiplied by the Conversion Rate; provided, however, that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of the conversion of the outstanding shares of the Series E Preferred Stock by delivery of shares of Common Stock that are held in the treasury of the Corporation. The Corporation covenants that all shares of Common Stock that shall be issued upon conversion of the shares of the Series E Preferred Stock will, upon issue, be fully paid and nonassessable and not subject to any preemptive rights. The shares of Common Stock issuable upon conversion of the shares of the Series E Preferred Stock when the same shall be issued in accordance with the terms of the Series E Preferred Stock are hereby declared to be and shall be fully paid nonassessable shares of Common Stock and not liable to any calls or assessments thereon, and the holders thereof shall not be liable for any further payments in respect thereof. "Common Stock" when used in Section 6 with reference to the Common Stock into which the Series E Preferred Stock is convertible and when used in Section 8 below, shall mean only Common Stock as authorized by the Restated Certificate of Incorporation of the Corporation, as amended to the date hereof, and any shares into which such Common Stock may thereafter have been changed, and, when otherwise used in Section 6 and when used in Section 3, shall also include shares of the Corporation of any other class or series, whether now or hereafter authorized, that ranks or is entitled to participation, as to payment of assets upon Liquidation and payment of dividends, substantially on a parity with such Common Stock or other class of shares into which such Common Stock may have been changed. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 6 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion privilege of the holders of the Series E Preferred Stock against dilution or other impairment. Without limiting the generality of the foregoing, the Corporation (1) will not increase the par value of any shares of stock receivable upon conversion of the Series E Preferred Stock above the Conversion Price then in effect, and (2) will take all such actions as may be necessary or appropriate in order that the Corporation may validly and legally issue fully paid and nonassessable shares of stock upon the conversion in full of all Series E Preferred Stock from time to time outstanding. 7. Voting Rights. Except as otherwise required by applicable law, the holders of the Series E Preferred Stock shall have no voting rights or powers. 8. Ranking. The Series E Preferred Stock shall rank senior to the Common Stock (as defined in Section 6) and to all other series of the Corporation's preferred stock as to the payment of dividends and Shared Distributions, and as to the distribution of the Corporation's assets, unless the terms and designations of any such series of preferred stock shall provide otherwise, provided, however, that in no event shall the Series E Preferred Stock rank junior to any other class or series of the Corporation's capital stock. 9. Other Rights. The holders of the Series E Preferred Stock shall not have any other preferences or special rights. 10. Registration of Transfer. The Corporation shall keep at its principal office a register for the registration of Series E Preferred Stock. Upon the surrender of any certificate representing Series E Preferred Stock at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of Series E Preferred Stock represented by the surrendered certificate. Each such new certificate shall be registered in such name (upon satisfactory compliance with all applicable securities laws) and shall represent such number of Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Series E Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Series E Preferred Stock represented by the surrendered certificate. 11. Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing shares of any class of Series E Preferred Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that the holder's own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Series E Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. 12. Amendment and Waiver. Any amendment, modification or waiver shall be binding or effective with respect to any provision of Sections 1 to 12 hereof with the prior written consent of all the holders of the Series E Preferred Stock outstanding at the time such action is taken. IN WITNESS WHEREOF, the undersigned officers of the Corporation have executed and subscribed this Certificate this _____ day of November, 1996. AMERICAN ECOLOGY CORPORATION By: --- Name: - ----- Title: - ------ ATTEST: ----------------------------------------- Name: - ----- Title: - ------ Number: W --------- NEITHER THIS WARRANT NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY OTHER SECURITIES STATUTE. NO SALE, TRANSFER OR OTHER DISPOSITION HEREOF OR THEREOF, OR OF ANY INTEREST HEREIN OR THEREIN, MAY BE MADE OR SHALL BE RECOGNIZED UNLESS IN THE OPINION OF COUNSEL TO OR REASONABLY SATISFACTORY TO THE COMPANY SUCH TRANSACTION WOULD NOT VIOLATE OR REQUIRE REGISTRATION UNDER SUCH ACT OR OTHER STATUTE. WARRANT TO PURCHASE COMMON STOCK OF AMERICAN ECOLOGY CORPORATION THIS WARRANT CERTIFIES that, for value received, ___________________, (the "Holder") is entitled to purchase from American Ecology Corporation, a Delaware corporation (the "Company"), at a price of $1.50 per share, subject to adjustment as provided in Section 4 hereof ("Purchase Price"), at any time after June 30, 1997 up to and including June 30, 2003 (such period, the "Exercise Period"), _________________ fully paid and non-assessable shares of the Company's Common Stock, par value $.Ol per share ("Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. 1. Exercise of Warrant. The rights represented by this Warrant may be exercised by the holder hereof, at any time or from time to time during the Exercise Period, on any day that is not a Saturday, Sunday or public holiday under the laws of the State of Idaho (such day being hereinafter referred to as a "Business Day"), for all or part of the number of shares of Common Stock purchasable upon its exercise, by (i) delivery of a Subscription Notice (in the form attached to this Warrant) of such holder's election to exercise this Warrant, specifying the number of shares of Common Stock to be purchased, (ii) payment of the Purchase Price for such shares by certified check or bank draft payable to the order of the Company and (iii) surrender of this Warrant (properly endorsed if required) at the Company's principal office or such other office or agency of the Company as the Company may designate by notice in writing to the holder hereof. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of Common Stock so purchased shall be delivered to the holder hereof as soon as reasonably practicable, but in any event within twenty-one days, after the rights represented by this Warrant shall have been so exercised, and unless this Warrant has expired, a new Warrant representing the number of shares of Common Stock, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof within such time. Each person in whose name any such certificate for shares of Common Stock is issued shall for all purposes be deemed to have become the holder of record of the Common Stock represented hereby on the date on which this Warrant was surrendered and payment of the Purchase Price was made, irrespective of the date of issue or delivery of such certificate. 2. Transfer. The Company will maintain books for the registration and transfer of the Warrants, and any such transfer will be registrable thereon upon surrender of the transferred Warrant to the Company's main office, together with a duly executed assignment thereof and funds sufficient to pay any required stock transfer taxes. Upon such surrender and payment, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignees and in the number of shares of Common Stock specified in the assignment and this Warrant shall promptly be cancelled. 3. Certain Covenants of the Company. The Company covenants and agrees that all shares of Common Stock that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and non-assessable and free from all taxes, liens, charges and security interests with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by the Warrant may be exercised, the Company will at all times have authorized, and reserved free of preemptive or other rights for the exclusive purpose of issue upon exercise of the rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. The Company shall take all such actions as may be necessary to assure that all such shares of Common Stock may be issued upon the exercise of the rights represented by this Warrant without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Company upon each such issuance). 4. Adjustment of Purchase Price and Number of Shares. The number of shares of Common Stock with respect to which this Warrant is exercisable (the "Exercise Rate") shall be subject to adjustment from time to time as follows: a. In case the Company shall (x) pay a dividend in or make a distribution of Common Stock on outstanding Common Stock, (y) subdivide outstanding Common Stock into a larger number of shares of Common Stock by reclassification or otherwise, or (z) combine outstanding Common Stock into a smaller number of shares of Common Stock by reclassification or otherwise, the Exercise Rate in effect immediately prior thereto shall be adjusted proportionately so that the holder of this Warrant thereafter exercised shall be entitled to receive the number of shares of the Common Stock that such holder would have owned after the happening of any of the events described above had such warrant been exercised immediately prior to the happening of such event. An adjustment made pursuant to this subparagraph (a) shall become effective retroactively to immediately after the record date in the case of a share dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination. b. In case of any capital reorganization or reclassification of the shares of Common Stock (except as provided in subparagraph (a) above), or in case of any consolidation or merger to which the Company is a party (other than a merger in which the Company is the surviving corporation and which does not result in any capital reorganization or reclassification of Common Stock), or in case of any sale or conveyance to another corporation of all or substantially all of the property and assets of the Company, and if, in connection with any such consolidation, merger, sale or conveyance, shares or other securities or property shall be issuable or deliverable in exchange for shares of Common Stock, provision shall be made as part of the terms of such capital reorganization or reclassification, consolidation, merger, sale or conveyance that the holder of this Warrant thereafter exercised shall have the right upon such exercise to receive the same kind and amount of stock and other securities and property as would have been receivable upon such capital reorganization or reclassification, consolidation, merger, sale or conveyance by a holder of the number shares of Common Stock with respect to which such Warrant might have been exercised immediately prior thereto. In any such case, appropriate provision (as determined to be equitable in the business judgment of the Board of Directors) shall be made for the application of Section 4 with respect to the rights and interests thereafter of the holder of this Warrant to the end that such Section (including adjustments of the Exercised Rate) shall be reflected thereafter, as nearly as reasonably practicable, in all subsequent exercises of this Warrant. The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor corporation (if other than the Company) resulting from consolidation or merger or the corporation purchasing such assets assumes by written instrument (in a manner determined to be equitable in the business judgment of the Board of Directors to the holder of this Warrant), the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. c. In case the Company shall issue (other than pursuant to a Rights Offering as defined in the Company's Certificate of Designation, Preferences and Rights of Series E Redeemable Convertible Preferred Stock) pro rata to the holders of shares of its Common Stock rights or warrants entitling them, during a period not exceeding 30 days after the record date mentioned below, to subscribe for or purchase only shares of its Common Stock at a price per share less than the average of the Current Market Price (as defined in Section 6) of the Common Stock for the 30 consecutive trading days commencing 45 days before such record date (the "Average Market Price"), the number of shares of its Common Stock with respect to which this Warrant is exercisable thereafter shall be determined by multiplying the number of shares of Common Stock with respect to which this Warrant was exercisable theretofore by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to such record date plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding immediately prior to such record date plus the number of shares of Common Stock which the aggregate offering pr ice of the total number of shares being offered would purchase at such Average Market Price. Such adjustment shall be made whenever such rights or warrants are issued and shall become retroactively effective immediately after the record date for the determination of the stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Exercise Rate shall be readjusted to the Exercise Rate that would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock actually delivered. d. In case the Company shall issue (except pursuant to a Rights Offering as defined in subparagraph (c) above) pro rata to the holders of shares of its Common Stock rights or warrants to subscribe for or purchase only (x) shares of its Common Stock except as described in subparagraph (c) above, or (y) units consisting of shares of Common Stock and warrants to purchase shares of Common Stock, the number of shares of its Common Stock with respect to which this Warrant is exercisable thereafter shall be determined by multiplying the number of shares of Common Stock with respect to which this Warrant was exercisable theretofore by a fraction, of which the numerator shall be the Average Market Price for a share of Common Stock determined as of the record date mentioned below, and of which the denominator shall be such Average Market Price less the fair market value (as determined in the business judgment of the Board of Directors) as of such record date of the rights or warrants distributed pro rata to one of the outstanding shares of Common Stock. Such adjustment shall be made whenever such distribution is made and shall become retroactively effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. The foregoing provisions for adjustment of the Exercise Rate shall apply in each successive instance in which an adjustment is required thereby. No adjustment in the Exercise Rate resulting from the application of the foregoing provisions is to be given effect unless, by making such adjustment, the Exercise Rate in effect immediately prior to such adjustment would be changed thereby by 1% or more, but any adjustment that would change the Exercise Rate by less than 1% is to be carried forward and given effect in making future adjustments; provided, however, that each adjustment of the Exercise Rate shall in all events be made no later than three years from the date such adjustment would have been required to be made except for the provisions of this sentence. All calculations under this Section 4 shall be made to the nearest one-hundredth (1/100th) of a share. Shares of Common Stock owned by or held for the account of the Company shall not be deemed to be outstanding for the purposes of any computation made under this Section 4. Whenever the number of shares of Common Stock deliverable upon the exercise of this Warrant shall be adjusted pursuant to the provisions hereof, the Company shall forthwith file at its principal office and with any transfer agent for the Common Stock a statement, signed by the President or one of the Vice-Presidents of the Company and by its Treasurer or one of its Assistant Treasurers, stating the adjusted number of shares of Common Stock deliverable with respect to this Warrant and setting forth in reasonable detail the method of calculation and the facts requiring such adjustment and upon which such calculation is based, and shall mail a notice of such adjustment to the holder of record of this Warrant. Each adjustment shall remain in effect until a subsequent adjustment hereunder is required. In the event: (x) of the occurrence of any of the events referred to in subparagraphs (a), (b), (c) and (d) above; or (y) of any liquidation, dissolution or winding up of the Company (a "Liquidation"); then the Company shall cause to be mailed to the holder of record of this Warrant at least 20 days prior to the applicable date hereinafter specified, a notice describing the event and stating the effect, if any, that such event will have upon the Exercise Rate, and (A) the date on which a record is to be taken for the purpose of a distribution referred to in subparagraphs (a), (c) or (d) above, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such distribution are to be determined, or (B) the date on which any subdivision, combination or other capital reorganization or reclassification or any consolidation, merger, sale or conveyance referred to in subparagraphs (a) or (b) above or such Liquidation is expected to become effective. The Company will at all times during the Exercise Period reserve and keep available for issuance upon exercise of this Warrant the number of shares of Common Stock that is equal to the Exercise Rate; provided, however, that nothing contained herein shall be construed to preclude the Company from satisfying its obligations in respect of the exercise of this Warrant by delivery of shares of Common Stock that are held in the treasury of the Company. The Company covenants that all shares of Common Stock that shall be issued upon exercise of this Warrant will, upon issue, be fully paid and nonassessable and not subject to any preemptive rights. The shares of Common Stock issuable upon exercise of this Warrant when the same shall be issued in accordance with the terms hereof are hereby declared to be and shall be fully paid nonassessable shares of Common Stock and not liable to any calls or assessments thereon, and the holders thereof shall not be liable for any further payments in respect thereof. "Common Stock" when used in Section 4 with reference to the Common Stock with respect to which this Warrant is exercisable, shall mean only Common Stock as authorized by the Restated Certificate of Incorporation of the Company, as amended to the date hereof, and any shares into which such Common Stock may thereafter have been changed, and, when otherwise used in Section 4, shall also include shares of the Company of any other class or series, whether now or hereafter authorized, that ranks or is entitled to participation, as to payment of assets upon Liquidation and payment of dividends, substantially on a parity with such Common Stock or other class of shares into which such Common Stock may have been changed. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion privilege of the holders of this Warrant against dilution or other impairment. Without limiting the generality of the foregoing, the Company (1) will not increase the par value of any shares of stock receivable upon exercise of this Warrant above the Purchase Price then in effect, and (2) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock upon the exercise in full of this Warrant from time to time outstanding. 5. Fractional Interests. The Company shall not be required to issue fractional shares on the exercise of a Warrant. If any faction of a share would be issuable on the exercise of a Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to the Current Market Price per share of Common Stock (as defined in Section 6) multiplied by such fraction. 6. Definition of Current Market Value. The "Current Market Price" on any given day shall be: (i) if the Common Stock is listed or admitted to unlisted trading privileges on any exchange registered with the Securities and Exchange Commission as a national securities exchange" under the Securities Exchange Act of 1934 (a "National Securities Exchange"), the last sales price of the shares of Common Stock on the National Securities Exchange in or nearest the City of New York on which the shares of Common Stock shall be listed or admitted to unlisted trading privileges (or the quoted closing bid if there be no sales on such National Securities Exchange) on the most recently completed trading day prior to such day; or (ii) if the Common Stock is not so listed or admitted, the closing sales price of a share of Common Stock as quoted in The Nasdaq Stock Market on the most recently completed trading day prior to the day in question; or (iii) if the Common Stock is not so quoted, the mean between the high and low bid prices of the shares of Common Stock in the over-the-counter market on the most recently completed trading day prior to the day in question as reported by National Quotation Bureau Incorporated or similar organization. 7. Taking of Record; Stock and Warrant Transfer Books. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 8. Restrictions on Transferability. This Warrant was originally issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), and neither this Warrant nor any shares of Common Stock issuable upon the exercise hereof were then registered under the Securities Act. Unless this Warrant or such shares were subsequently registered under the Securities Act and sold by the holder thereof in accordance with such registration, this Warrant or such shares, as the case may be, may not be sold by the holder hereof or of such shares unless this Warrant or such shares is or are subsequently registered under the Securities Act or an exemption from such registration is available. The shares of Common Stock issuable hereunder will bear an appropriate restrictive legend as is required by the Securities Act or any state blue sky laws. The holder of this Warrant, by acceptance of this Warrant, agrees to be bound by the provisions of this Section and represents to the Company that it is acquiring the Warrant and the Common Stock issuable hereunder solely for its own account, for the purpose of investment and not with a view to distributing or selling it or any part thereof in violation of the Securities Act, but subject, nevertheless, to any requirement of law that the disposition of such holder's property be at all times within its control. 9. Replacement. Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of this Warrant, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company (provided that the holder's own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of this Warrant, the Company shall (at its expense) execute and deliver in lieu of this Warrant a new warrant of like kind dated the date of such lost, stolen, destroyed or mutilated Warrant. 10. Notice Generally. Any notice, demand or delivery pursuant to the provisions hereof shall be sufficiently given or made if sent by first class mail, postage prepaid, addressed to the holder of this Warrant or of the Common Stock issued upon the exercise hereof at the holder's last known address appearing on the books of the Company, or, except as herein otherwise expressly provided, to the Company at its main office, Attention of the President, or such other address as shall have been furnished to the party giving or making such notice, demand or delivery. 11. Voting Rights, Dividends. This Warrant does not grant the holder hereof any voting rights or other rights as a stockholder of the Company. No dividends are payable or will accrue on this Warrant or the shares purchasable hereunder until, and except to the extent that, this Warrant is exercised. 12. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY THE LAW OF THE STATE OF DELAWARE. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed this ______ day of November, 1996. AMERICAN ECOLOGY CORPORATION By: --- Name: - ----- Title: - ------ SUBSCRIPTION NOTICE (To be executed only upon exercise of Warrant) _______________________________________, being the undersigned registered owner of this Warrant irrevocably exercises this Warrant for and purchases ______ shares of the Common Stock, par value $.Ol per share (the "Common Stock"), of American Ecology Corporation, constituting all or part of the shares of Common Stock purchasable with this Warrant, and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) together with, if such certificates do not represent all the shares of Common Stock purchasable with this Warrant, a new Warrant, identical to the cancelled Warrant except with respect to the number of shares of Common Stock evidenced thereby, for the remaining unsold shares of Common Stock, be issued in the name of and delivered to the undersigned at the address set forth below. Dated: --------------------------- ------------------------------ Name of Warrant Holder By: --------------------------- Name: ------------------------- Title: ------------------------- ------------------------------ Street Address ------------------------------ EX-10.62 10 doc9.txt SERIES D CUMULATIVE CONVERTIBLE STOCK EXHIBIT 10.62 SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK CERTIFICATE OF DESIGNATION DATED SEPTEMBER 1995 CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK OF AMERICAN ECOLOGY CORPORATION American Ecology Corporation, a corporation organized and existing under the Delaware General Corporation Law, (the "Corporation") DOES HEREBY CERTIFY: That, effective September ___, 1995, pursuant to the authority conferred upon the Board of Directors by the Amended and Restated Certificate of Incorporation of the Corporation and pursuant to the provisions of Section 151(a) and other applicable provisions of the Delaware General Corporation Law, the Board of Directors (or, as and to the extent authorized pursuant to applicable law, a committee acting with the authority of the Board of Directors) duly adopted, by all necessary action on the part of the Corporation, the following resolution creating a series of 105,264 shares of preferred stock designated as Series D Cumulative Convertible Preferred Stock; RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Amended and Restated Certificate of Incorporation, a series of preferred stock of the Corporation be and it hereby is created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK. 1. Designation. The series shall be designated as the "Series D Cumulative Convertible Preferred Stock" (the "Series D Preferred Stock"). 2. Number. The number of shares of the Series D Preferred Stock authorized to be issued is 105,264. 3. Dividends. (a) The Corporation shall pay to the holders of the Series D Preferred Stock, a mandatory cumulative dividend at an annual rate of 8.375% of the Base Liquidation Preference (as such term is defined in Section 4 below) each year, subject only to the Corporation having funds from which dividends may lawfully be paid in accordance with applicable law; provided, however, that the Corporation shall not be obligated to pay any dividend if, as a result of such payment, the Corporation would breach (i) any agreement or instrument governing or evidencing the corporation's senior bank debt as in effect (including giving effect to then applicable waivers, forbearances, amendments, consents or other arrangements with the lender) on the date of initial issuance of shares of the Series D Preferred Stock (the "Initial Debt Documents") or (ii) any successor agreement or instrument, or any modification or amendment thereto, that is reasonably determined by the Board of Directors, acting in good faith, to be, as of the time of effectiveness of the successor agreement or instrument, or the modification or amendment thereto, not more restrictive upon the payment of dividends on the Series D Preferred Stock than the Initial Debt Documents. Dividends on the Series D Preferred Stock shall be cumulative and shall commence to accrue and be cumulative (whether or not declared) from the date on which such shares shall have been issued. Such dividends shall be mandatorily payable as stated above, in cash, in equal quarterly payments on January 15, April 15, July 15 and October 15 of each year (each such date being referred to herein as a "dividend payment date"), commencing October 15, 1995, or if not paid on such dividend payment date by reason of a prohibition against such payment pursuant to the first sentence of this subsection (a) (a "payment prohibition"), then promptly when and to the extent no such payment prohibition continues to apply; provided, however, that the dividend payable in respect of the quarter ended on the first dividend payment date after the date on which such shares shall have been issued shall be reduced in proportion to the portion of such quarterly period in which such shares were not issued; and provided further, however, that if and to the extent that, at any dividend payment date, the Corporation shall fail to make any quarterly dividend payment on the Series D Preferred Stock (which failure shall only be permitted to the extent a payment prohibition applies), such unpaid dividend amount shall accumulate without interest until paid. Such dividends shall be paid to the Series D Preferred Stock stockholders of record on a date, not exceeding 60 days preceding each such dividend payment date, fixed not less than 10 days in advance for that purpose by the Board of Directors. All full or partial dividends paid with respect to shares of the Series D Preferred Stock, whether in cash or additional shares of the Series D Preferred Stock or otherwise, shall be paid pro rata to the holders entitled thereto. (b) So long as any shares of the Series D Preferred Stock are outstanding, unless all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series D Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) pay or declare any dividends, or make any other distributions, on any shares of stock ranking junior to the Series D Preferred Stock in respect of dividends or distribution of assets upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (a "Liquidation"); (ii) pay or declare any dividends, or make any other distributions, on any shares of stock ranking on a parity to the Series D Preferred Stock in respect of dividends or distribution of assets upon Liquidation, except dividends paid ratably on the Series D Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; or (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior to the Series D Preferred Stock in respect of dividends or distribution of assets upon Liquidation, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior to the Series D Preferred Stock in respect of dividends or distribution of assets upon Liquidation. Except as otherwise provided in this subsection (b), the Board of Directors may declare and the Corporation may pay or set apart for payment dividends and other distributions on the common stock (the "Common Stock") and the preferred stock (the "Preferred Stock") of the Corporation ranking junior to or on a parity with the Series D Preferred Stock in respect of dividends or distributions of assets upon Liquidation, and may redeem, purchase, retire or otherwise acquire for consideration shares of Common Stock or Preferred Stock ranking junior to or on a parity with the Series D Preferred Stock in respect of dividends or distributions of assets upon Liquidation, and the holders of the Series D Preferred Stock shall not be entitled to share therein. (c) In the event the Corporation, not being in violation of the provisions of the preceding paragraph, shall distribute to all holders of its Common Stock (x) evidences of indebtedness or assets and property other than cash, (y) capital stock of the Corporation other than Common Stock, or (z) rights to subscribe for or warrants to purchase any security other than rights or warrants to purchase only (i) Common Stock or (ii) units consisting of shares of Common Stock and warrants to purchase shares of Common Stock (all of such distributions collectively hereinafter called "Shared Distributions"), then the holders of the Series D Preferred Stock shall participate in such Shared Distributions as if immediately prior to the record date for determination of stockholders entitled to receive such Shared Distribution such holders had converted their shares of the Series D Preferred Stock into shares of Common Stock. 4. Liquidation Rights. In the event of the Liquidation of the Corporation, the holders of the Series D Preferred Stock shall be entitled to have paid to them out of the assets of the Corporation, before any distribution is made to or set apart for the holders of Common Stock or of any other series of Preferred Stock or any other class or series of stock of the Corporation ranking junior to the Series D Preferred Stock in respect of distribution of assets upon Liquidation, an amount equal to $47.50 per share (the "Base Liquidation Preference"), plus an amount equal to any cash dividends and Shared Distributions which have accumulated but have not been paid on or prior to the date of final distribution to holders of the Series D Preferred Stock (collectively, the "Aggregate Liquidation Preference"), and no more. The liquidation payment with respect to each outstanding fractional share of the Series D Preferred Stock shall be equal to a ratably proportionate amount of the liquidation payment with respect to each outstanding share of the Series D Preferred Stock. If upon any Liquidation of the Corporation the assets of the Corporation or proceeds thereof distributable among the holders of shares of the Series D Preferred Stock shall be insufficient to pay in full the preferential amounts payable to such holders, then such assets or the proceeds thereof shall be distributed among such holders ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. For purposes of this Section 4, the voluntary sale, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation to, or a consolidation or merger of the Corporation with, one or more corporations shall not be deemed to be a Liquidation. 5. Redemption. Shares of the Series D Preferred Stock will not be redeemable. 6. Conversion Rights. (a) Subject to the provisions for adjustment hereinafter set forth, the shares of the Series D Preferred Stock may be converted, at the option of the holder thereof, at any time or from time to time into fully paid and nonassessable whole shares of Common Stock at rate of 1 share of Common Stock for each $5.50 of the Aggregate Liquidation Preference of the Series D Preferred Stock duly surrendered for conversion, provided, however, that any right a holder of any shares of the Series D Preferred Stock may have otherwise had for the payment of any dividends or Shared Distributions which have accumulated or are in arrears with respect to the shares of Series D Preferred Stock converted hereunder shall terminate as of the date of surrender for conversion of such shares, and such holder shall have no further rights to the payment of such dividends or Shared Distributions. (b) Each holder of the Series D Preferred Stock desiring to exercise such holder's right of conversion shall deliver written notice of election to convert, stating the names and addresses of the persons to whom the Common Stock is to be issued, and shall surrender the certificate or certificates for the shares of Series D Preferred Stock to be converted, duly endorsed or accompanied by proper instruments of transfer (unless such endorsement or instruments are waived by the Corporation) to the Corporation during usual business hours at the office of the transfer agent of the Corporation for the transfer of its Common Stock in Dallas, Texas (or such other place as may be designated by the Corporation upon written notice to all holders of the Series D Preferred Stock). Upon receipt by the Corporation of any such notice of election to convert shares of the Series D Preferred Stock, and upon surrender of the certificate or certificates therefor, the Corporation shall execute and deliver, as soon as practicable, to the converting holder, or to such holder's nominee or nominees, a certificate or certificates for the number of shares of Common Stock resulting from such conversion, together with any cash adjustment in lieu of fractional shares as provided in subsection (d). For all purposes, the rights of a converting holder, as such, shall cease, and the person or persons in whose name or names the certificate or certificates for Common Stock issuable upon such conversion are to be issued shall be deemed to have become the record holder or holders of such Common Stock at the close of business on the day (the "Date of Conversion") on which delivery of such notice or the surrender of the certificate or certificates for such shares (whichever shall later occur) shall be made. (c) The Corporation shall pay all issue taxes, if any, incurred in respect to the Common Stock delivered on conversion; provided, however, that the Corporation shall not be required to pay transfer or other taxes, if any, incurred by reason of the issuance or delivery of such Common Stock in names other than those in which the shares surrendered for conversion are registered, and no delivery of certificates registered in names other than those in which the shares surrendered for conversion are registered, and no delivery of certificates for such Common Stock shall be made unless and until there has been paid to the Corporation the amount of any such taxes, or there shall have been established to the satisfaction of the Corporation that such taxes have been or are not required to be paid. The Corporation shall not close its books against the transfer of Series D Preferred Stock or of Common Stock issued or issuable upon conversion of Series D Preferred Stock in any manner which interferes with the timely conversion of Series D Preferred Stock. The Corporation shall assist and cooperate with any holder of shares of Series D Preferred Stock required to make any required governmental filings or obtain any governmental approval prior to or in connection with any conversion of such shares hereunder (including, without limitation, making any filings required to be made by the Corporation). All shares of Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). (d) The Corporation shall not be required to issue fractional shares of Common Stock upon conversion of shares of the Series D Preferred Stock. If more than one share of the Series D Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares so surrendered. If any fractional interest in a share of Common Stock would be deliverable upon the conversion of any shares, the Corporation shall, in lieu of delivering such fractional share, make a cash payment, as an adjustment in respect of such undelivered fraction of a share, in an amount equal to the same fraction of the Current Market Price of one share of the Common Stock on the last business day before the Date of Conversion. The "Current Market Price" on any given day shall be: (i) if the Common Stock is listed or admitted to unlisted trading privileges on any exchange registered with the Securities and Exchange Commission as a "national securities exchange" under the Securities Exchange Act of 1934 (a "National Securities Exchange"), the last sales price of the shares of Common Stock on the National Securities Exchange in or nearest the City of New York on which the shares of Common Stock shall be listed or admitted to unlisted trading privileges (or the quoted closing bid if there be no sales on such National Securities Exchange) on the most recently completed trading day prior to such day; or (ii) if the Common Stock is not so listed or admitted, the closing sales price of a share of Common Stock as quoted in The Nasdaq Stock Market on the most recently completed trading day prior to the day in question; or (iii) if the Common Stock is not so quoted, the mean between the high and low bid prices of the shares of Common Stock in the over-the- counter market on the most recently completed trading day prior to the day in question as reported by National Quotation Bureau Incorporated or similar organization. (e) The number of shares of Common Stock into which each share of the Series D Preferred Stock is convertible (the "Conversion Rate") shall be subject to adjustment from time to time as follows: (i) In case the Corporation shall (x) pay a dividend or make a distribution of Common Stock on outstanding Common Stock, (y) subdivide outstanding Common Stock into a larger number of shares of Common Stock by reclassification or otherwise, or (z) combine outstanding Common Stock into a smaller number of shares of Common Stock by reclassification or otherwise, the Conversion Rate in effect immediately prior thereto shall be adjusted proportionately so that the holder of a share of the Series D Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of the Common Stock that such holder would have owned after the happening of any of the events described above had such share been converted immediately prior to the happening of such event. An adjustment made pursuant to this subparagraph (i) shall become effective retroactively to immediately after the record date in the case of a share dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination. (ii) In case of any capital reorganization or reclassification of the shares of Common Stock (except as provided in subparagraph (i) above), or in case of any consolidation or merger to which the Corporation is a party (other than a merger in which the Corporation is the surviving corporation and which does not result in any capital reorganization or reclassification of Common Stock), or in case of any sale or conveyance to another corporation of all or substantially all of the property and assets of the Corporation, and if, in connection with any such consolidation, merger, sale or conveyance, shares or other securities or property shall be issuable or deliverable in exchange for shares of Common Stock, provision shall be made as part of the terms of such capital reorganization or reclassification, consolidation, merger, sale or conveyance that the holder of each share of the Series D Preferred Stock thereafter surrendered for conversion shall have the right to convert such share into the same kind and amount of stock and other securities and property as would have been receivable upon such capital reorganization or reclassification, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock into which such share might have been converted immediately prior thereto. In any such case, appropriate provision (as determined to be equitable in the business judgment of the Board of Directors) shall be made for the application of Section 6 with respect to the rights and interests thereafter of the holders of the Series D Preferred Stock to the end that such Section (including adjustments of the Conversion Rate) shall be reflected thereafter, as nearly as reasonably practicable, in all subsequent conversions of the Series D Preferred Stock. The Corporation shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor corporation (if other than the Corporation) resulting from consolidation or merger or the corporation purchasing such assets assumes by written instrument (in a manner determined to be equitable in the business judgment of the Board of Directors to the holders of the Series D Preferred Stock then outstanding), the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. (iii) In case the Corporation shall issue pro rata to the holders of shares of its Common Stock rights or warrants entitling them, during a period not exceeding 30 days after the record date mentioned below, to subscribe for or purchase only shares of its Common Stock at a price per share less than the average of the Current Market Price (as defined above) of the Common Stock for the 30 consecutive trading days commencing 45 days before such record date (the "Average Market Price"), the number of shares of its Common Stock into which each share of the Series D Preferred Stock shall be convertible thereafter shall be determined by multiplying the number of shares of Common Stock into which each such share was convertible theretofore by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to such record date plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding immediately prior to such record date, plus the number of shares of Common Stock which the aggregate offering price of the total number of shares being offered would purchase at such Average Market Price. Such adjustment shall be made whenever such rights or warrants are issued and shall become retroactively effective immediately after the record date for the determination of the stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate that would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock actually delivered. (iv) In case the Corporation shall issue pro rata to the holders of shares of its Common Stock rights or warrants to subscribe for or purchase only (x) shares of its Common Stock except as described in subparagraph (iii) above, or (y) units consisting of shares of Common Stock and warrants to purchase shares of Common Stock, the number of shares of its Common Stock into which each share of the Series D Preferred Stock shall be convertible thereafter shall be determined by multiplying the number of shares of Common Stock into which each such share was convertible theretofore by a fraction, of which the numerator shall be the Average Market Price for a share of Common Stock determined as of the record date mentioned below, and of which the denominator shall be such Average Market Price less the fair market value (as determined in the business judgment of the Board of Directors) as of such record date of the rights or warrants distributed pro rata to one of the outstanding shares of Common Stock. Such adjustment shall be made whenever such distribution is made and shall become retroactively effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. (v) In case the Corporation shall issue or sell any shares (including treasury shares) of Common Stock, whether or not subsequently reacquired or retired by the Corporation, other than shares of Common Stock issued (x) upon exercise of warrants to purchase shares of Common Stock issued prior to or substantially simultaneously with the first issuance of shares of the Series D Preferred Stock or (y) pursuant to any stock option plan or other stock incentive or stock ownership plan for employees or management of the Corporation ("Additional Shares of Common Stock") for a cash purchase price that is less than the quotient of $5.50 divided by the number of shares of Common Stock into which each $5.50 of the Aggregate Liquidation Preference was theretofore convertible (such quotient, the "Conversion Price"), the number of shares of Common Stock into which each share of the Series D Preferred Stock shall be convertible thereafter shall be determined by multiplying the number of shares of Common Stock into which each such share was convertible theretofore by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately after such issuance or sale, and of which the denominator shall be the number of shares of Common Stock outstanding immediately prior to such issuance or sale plus the number of shares of Common Stock that the aggregate consideration received by the Corporation for such Additional Shares of Common Stock so issued or sold would purchase at the Conversion Price. Such adjustment shall be made whenever any such Additional Shares of Common Stock are so issued or sold. The foregoing provisions for adjustment of the Conversion Rate shall apply in each successive instance in which an adjustment is required thereby. No adjustment in the Conversion Rate resulting from the application of the foregoing provisions is to be given effect unless, by making such adjustment, the Conversion Rate in effect immediately prior to such adjustment would be changed thereby by 1% or more, but any adjustment that would change the Conversion Rate by less than 1% is to be carried forward and given effect in making future adjustments; provided, however, that each adjustment of the Conversion Rate shall in all events be made not later than three years from the date such adjustment would have been required to be made except for the provisions of this sentence. All calculations under this Section 6 shall be made to the nearest one-hundredth (1/100th) of a share. Shares of Common Stock owned by or held for the account of the Corporation shall not be deemed to be outstanding for the purposes of any computation made under this Section 6. Whenever the number of shares of Common Stock deliverable upon the conversion of shares of the Series D Preferred Stock shall be adjusted pursuant to the provisions hereof, the Corporation shall forthwith file at its principal office and with any transfer agent for the Series D Preferred Stock and for the Common Stock a statement, signed by the President or one of the Vice-Presidents of the Corporation and by its Treasurer or one of its Assistant Treasurers, stating the adjusted number of shares of Common Stock deliverable per share of the Series D Preferred Stock and setting forth in reasonable detail, the method of calculation and the facts requiring such adjustment and upon which such calculation is based, and shall mail a notice of such adjustment to each holder of record of the Series D Preferred Stock. Each adjustment shall remain in effect until a subsequent adjustment hereunder is required. In the event: (x) of the occurrence of any of the events referred to in subparagraphs (i), (ii), (iii) and (iv) above; or (y) of the Liquidation of the Corporation; then the Corporation shall cause to be mailed to any transfer agent for the Series D Preferred Stock and to the holders of record of the outstanding shares of the Series D Preferred Stock at least 20 days prior to the applicable date hereinafter specified, a notice describing the event and stating the effect, if any, that such event will have upon the Conversion Rate, and (A) the date on which a record is to be taken for the purpose of a distribution referred to in subparagraphs (i), (iii) or (iv) above, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such distribution are to be determined, or (B) the date on which any subdivision, combination or other capital reorganization or reclassification or any consolidation, merger, sale or conveyance referred to in subparagraphs (i) or (ii) above or such Liquidation is expected to become effective. The Corporation will at all times reserve and keep available for issuance upon conversion of the Series D Preferred Stock the number of shares of Common Stock that is equal to the number of shares of the Series D Preferred Stock outstanding multiplied by the Conversion Rate; provided, however, that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of the conversion of the outstanding shares of the Series D Preferred Stock by delivery of shares of Common Stock that are held in the treasury of the Corporation. The Corporation covenants that all shares of Common Stock that shall be issued upon conversion of the shares of the Series D Preferred Stock will, upon issue, be fully paid and nonassessable and not subject to any preemptive rights. The shares of Common Stock issuable upon conversion of the shares of the Series D Preferred Stock when the same shall be issued in accordance with the terms of the Series D Preferred Stock are hereby declared to be and shall be fully paid nonassessable shares of Common Stock and not liable to any calls or assessments thereon, and the holders thereof shall not be liable for any further payments in respect thereof. "Common Stock" when used in Section 6 with reference to the Common Stock into which the Series D Preferred Stock is convertible and when used in Section 8 below, shall mean only Common Stock as authorized by the Restated Certificate of Incorporation of the Corporation, as amended to the date hereof, and any shares into which such Common Stock may thereafter have been changed, and, when otherwise used in Section 6 and when used in Section 3, shall also include shares of the Corporation of any other class or series, whether now or hereafter authorized, that ranks or is entitled to participation, as to payment of assets upon Liquidation and payment of dividends, substantially on a parity with such Common Stock or other class of shares into which such Common Stock may have been changed. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 6 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion privilege of the holders of the Series D Preferred Stock against dilution or other impairment. Without limiting the generality of the foregoing, the Corporation (1) will not increase the par value of any shares of stock receivable upon conversion of the Series D Preferred Stock above the Conversion Price then in effect, and (2) will take all such actions as may be necessary or appropriate in order that the Corporation may validly and legally issue fully paid and nonassessable shares of stock upon the conversion in full of all Series D Preferred Stock from time to time outstanding. 7. Voting Rights. Except as otherwise required by applicable law, the holders of the Series D Preferred Stock shall have no voting rights or powers. 8. Ranking. The Series D Preferred Stock shall rank senior to the Common Stock (as defined in Section 6) and to all other series of the Corporation's preferred stock as to the payment of dividends and Shared Distributions, and as to the distribution of the Corporation's assets, unless the terms and designations of any such series of preferred stock shall provide otherwise, provided, however, that in no event shall the Series D Preferred Stock rank junior to any other class or series of the Corporation's capital stock. 9. Other Rights. The holders of the Series D Preferred Stock shall not have any other preferences or special rights. 10. Registration of Transfer. The Corporation shall keep at its principal office a register for the registration of Series D Preferred Stock. Upon the surrender of any certificate representing Series D Preferred Stock at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of Series D Preferred Stock represented by the surrendered certificate. Each such new certificate shall be registered in such name (upon satisfactory compliance with all applicable securities laws) and shall represent such number of Shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate, and dividends shall accrue on the Series D Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such Series D Preferred Stock represented by the surrendered certificate. 11. Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing shares of any class of Series D Preferred Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that the holder's own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate, and dividends shall accrue on the Series D Preferred Stock represented by such new certificate from the date to which dividends have been fully paid on such lost, stolen, destroyed or mutilated certificate. 12. Amendment and Waiver. Any amendment, modification or waiver shall be binding or effective with respect to any provision of Sections 1 to 12 hereof with the prior written consent of the holders of a majority of the Series D Preferred Stock outstanding at the time such action is taken. IN WITNESS WHEREOF, the undersigned officers of the Corporation have executed and subscribed this Certificate this ____ day of September, 1995. AMERICAN ECOLOGY CORPORATION By: Name: ------------------------------------- ------------------------------ Title: ---------------------------------- ATTEST: Name: -------------------------------- Title: ------------------------------- NEITHER THIS WARRANT NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY OTHER SECURITIES STATUTE. NO SALE, TRANSFER OR OTHER DISPOSITION HEREOF OR THEREOF, OR OF ANY INTEREST HEREIN OR THEREIN, MAY BE MADE OR SHALL BE RECOGNIZED UNLESS IN THE OPINION OF COUNSEL TO OR REASONABLY SATISFACTORY TO THE COMPANY SUCH TRANSACTION WOULD NOT VIOLATE OR REQUIRE REGISTRATION UNDER SUCH ACT OR OTHER STATUTE WARRANT TO PURCHASE COMMON STOCK OF AMERICAN ECOLOGY CORPORATION THIS WARRANT CERTIFIES that, for value received, _____________________ (the "Holder") is entitled to purchase from American Ecology Corporation, a Delaware corporation (the "Company"), at a price of $4.75 per share, subject to adjustment as provided in Section 4 hereof ("Purchase Price"), at any time after the date hereof up to and including September _____, 1999, ___________________ fully paid and non-assessable shares of the Company's Common Stock, par value $.01 per share ("Common Stock"), subject, however, to the provisions and upon the terms and conditions hereinafter set forth. 1. Exercise of Warrant. The rights represented by this Warrant may be exercised by the holder hereof, at any time or from time to time, on any day that is not a Saturday, Sunday or public holiday under the laws of the State of Texas (such day being hereinafter referred to as a "Business Day"), for all or part of the number of shares of Common Stock purchasable upon its exchange, by (i) delivery of a Subscription Notice (in the form attached to this Warrant) of such holder's election to exercise this Warrant, specifying the number of shares of Common Stock to be purchased, (ii) payment of the Purchase Price for such shares by certified check or bank draft payable to the order of the Company and (iii) surrender of this Warrant (properly endorsed if required) at the Company's principal office in Houston, Texas, or such other office or agency of the Company as the Company may designate by notice in writing to the holder hereof. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of Common Stock so purchased shall be delivered to the holder hereof as soon as reasonably practicable, but in any event within twenty-one (21) days, after the rights represented by this Warrant shall have been so exercised, and unless this Warrant has expired, a new Warrant representing the number of shares of Common Stock, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof within such time. Each person in whose name any such certificate for shares of Common Stock is issued shall for all purposes be deemed to have become the holder of record of the Common Stock represented hereby on the date on which this Warrant was surrendered and payment of the Purchase Price was made, irrespective of the date of issue or delivery of such certificate. 2. Transfer. The Company will maintain books for the registration and transfer of the Warrants, and any such transfer will be registrable thereon upon surrender of the transferred Warrant to the Company's office at the address set forth in Section 11, together with a duly executed assignment thereof and funds sufficient to pay any required stock transfer taxes. Upon such surrender and payment, the Company shall, subject to Section 9, execute and deliver a new Warrant or Warrants in the name of the assignees and in the number of shares of Common Stock specified in the Assignment set forth on the reverse of the Subscription Notice, and this Warrant shall promptly be canceled. 3. Certain Covenants of the Company. The Company covenants and agrees that all shares of Common Stock that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and non-assessable and free from all taxes, liens, charges and security interests with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by the Warrant may be exercised, the Company will at all times have authorized, and reserved free of preemptive or other rights for the exclusive purpose of issue upon exercise of the rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. The Company shall take all such actions as may be necessary to assure that all such shares of Common Stock may be issued upon the exercise of the rights represented by this Warrant without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Company upon each such issuance. 4. Adjustment of Purchase Price and Number of Shares. The number of shares of Common Stock with respect to which this Warrant is exercisable (the "Exercise Rate") shall be subject to adjustment from time to time as follows: a. In case the Company shall (x) pay a dividend or make a distribution of Common Stock on outstanding Common Stock, (y) subdivide outstanding Common Stock into a larger number of shares of Common Stock by reclassification or otherwise, or (z) combine outstanding Common Stock into a smaller number of shares of Common Stock by reclassification or otherwise, the Exercise Rate in effect immediately prior thereto shall be adjusted proportionately so that the holder of this Warrant thereafter exercised shall be entitled to receive the number of shares of the Common Stock that such holder would have owned after the happening of any of the events described above had such Warrant been exercised immediately prior to the happening of such event. An adjustment made pursuant to this subparagraph (a) shall become effective retroactively to immediately after the record date in the case of a share dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision or combination. b. In case of any capital reorganization or reclassification of the shares of Common Stock (except as provided in subparagraph (a) above), or in case of any consolidation or merger to which the Company is a party (other than a merger in which the Company is the surviving corporation and which does not result in any capital reorganization or reclassification of Common Stock), or in case of any sale or conveyance to another corporation of all or substantially all of the property and assets of the Company, and if, in connection with any such consolidation, merger, sale or conveyance, shares or other securities or property shall be issuable or deliverable in exchange for shares of Common Stock, provision shall be made as part of the terms of such capital reorganization or reclassification, consolidation, merger, sale or conveyance that the holder of this Warrant thereafter exercised shall have the right upon such exercise to receive the same kind and amount of stock and other securities and property as would have been receivable upon such capital reorganization or reclassification, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock with respect to which such Warrant might have been exercised immediately prior thereto. In any such case, appropriate provision (as determined to be equitable in the business judgment of the Board of Directors) shall be made for the application of Section 4 with respect to the rights and interests thereafter of the holder of this Warrant to the end that such Section (including adjustments of the Exercise Rate) shall be reflected thereafter, as nearly as reasonably practicable, in all subsequent exercises of this Warrant. The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor corporation (if other than the Company) resulting from consolidation or merger or the corporation purchasing such assets assumes by written instrument (in a manner determined to be equitable in the business judgment of the Board of Directors to the holder of this Warrant), the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. c. In case the Company shall issue pro rata to the holders of shares of its Common Stock rights or warrants entitling them, during a period not exceeding 30 days after the record date mentioned below, to subscribe for or purchase only shares of its Common Stock at a price per share less than the average of the Current Market Price (as defined in Section 6) of the Common Stock for the 30 consecutive trading days commencing 45 days before such record date (the "Average Market Price"), the number of shares of its Common Stock with respect to which this Warrant is exercisable thereafter shall be determined by multiplying the number of shares of Common Stock with respect to which this Warrant was exercisable theretofore by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to such record date plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding immediately prior to such record date, plus the number of shares of Common Stock which the aggregate offering price of the total number of shares being offered would purchase at such Average Market Price. Such adjustment shall be made whenever such rights or warrants are issued and shall become retroactively effective immediately after the record date for the determination of the stockholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered after the expiration of such rights or warrants, the Exercise Rate shall be readjusted to the Exercise Rate that would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock actually delivered. d. In case the Company shall issue pro rata to the holders of shares of its Common Stock rights or warrants to subscribe for or purchase only (x) shares of its Common Stock except as described in subparagraph (iii) above, or (y) units consisting of shares of Common Stock and warrants to purchase shares of Common Stock, the number of shares of its Common Stock with respect to which this Warrant is exercisable thereafter shall be determined by multiplying the number of shares of Common Stock with respect to which this Warrant was exercisable theretofore by a fraction, of which the numerator shall be the Average Market Price for a share of Common Stock determined as of the record date mentioned below, and of which the denominator shall be such Average Market Price less the fair market value (as determined in the business judgment of the Board of Directors) as of such record date of the rights or warrants distributed pro rata to one of the outstanding shares of Common Stock. Such adjustment shall be made whenever such distribution is made and shall become retroactively effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. The foregoing provisions for adjustment of the Exercise Rate shall apply in each successive instance in which an adjustment is required thereby. No adjustment in the Exercise Rate resulting from the application of the foregoing provisions is to be given effect unless, by making such adjustment, the Exercise Rate in effect immediately prior to such adjustment would be changed thereby by 1% or more, but any adjustment that would change the Exercise Rate by less than 1% is to be carried forward and given effect in making future adjustments; provided, however, that each adjustment of the Exercise Rate shall in all events be made not later than three years from the date such adjustment would have been required to be made except for the provisions of this sentence. All calculations under this Section 4 shall be made to the nearest one-hundredth (1/100th) of a share. Shares of Common Stock owned by or held for the account of the Company shall not be deemed to be outstanding for the purposes of any computation made under this Section 4. Whenever the number of shares of Common Stock deliverable upon the exercise of this Warrant shall be adjusted pursuant to the provisions hereof, the Company shall forthwith file at its principal office and with any transfer agent for the Common Stock a statement, signed by the President or one of the Vice-Presidents of the Company and by its Treasurer or one of its Assistant Treasurers, stating the adjusted number of shares of Common Stock deliverable with respect to this Warrant and setting forth in reasonable detail, the method of calculation and the facts requiring such adjustment and upon which such calculation is based, and shall mail a notice of such adjustment to the holder of record of this Warrant. Each adjustment shall remain in effect until a subsequent adjustment hereunder is required. In the event: (x) of the occurrence of any of the events referred to in subparagraphs (a), (b), (c) and (d) above; or (y) of any liquidation, dissolution or winding up of the Company (a "Liquidation"); then the Company shall cause to be mailed to the holder of record of this Warrant at least 20 days prior to the applicable date hereinafter specified, a notice describing the event and stating the effect, if any, that such event will have upon the Exercise Rate, and (A) the date on which a record is to be taken for the purpose of a distribution referred to in subparagraphs (a), (c) or (d) above, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such distribution are to be determined, or (B) the date on which any subdivision, combination or other capital reorganization or reclassification or any consolidation, merger, sale or conveyance referred to in subparagraphs (a) or (b) above or such Liquidation is expected to become effective. The Company will at all times reserve and keep available for issuance upon exercise of this Warrant the number of shares of Common Stock that is equal to the Exercise Rate; provided, however, that nothing contained herein shall be construed to preclude the Company from satisfying its obligations in respect of the exercise of this Warrant by delivery of shares of Common Stock that are held in the treasury of the Company. The Company covenants that all shares of Common Stock that shall be issued upon exercise of this Warrant will, upon issue, be fully paid and nonassessable and not subject to any preemptive rights. The shares of Common Stock issuable upon exercise of this Warrant when the same shall be issued in accordance with the terms hereof are hereby declared to be and shall be fully paid nonassessable shares of Common Stock and not liable to any calls or assessments thereon, and the holders thereof shall not be liable for any further payments in respect thereof. "Common Stock" when used in Section 4 with reference to the Common Stock with respect to which this Warrant is exercisable, shall mean only Common Stock as authorized by the Restated Certificate of Incorporation of the Company, as amended to the date hereof, and any shares into which such Common Stock may thereafter have been changed, and, when otherwise used in Section 4, shall also include shares of the Company of any other class or series, whether now or hereafter authorized, that ranks or is entitled to participation, as to payment of assets upon Liquidation and payment of dividends, substantially on a parity with such Common Stock or other class of shares into which such Common Stock may have been changed. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion privilege of the holder of this Warrant against dilution or other impairment. Without limiting the generality of the foregoing, the Company (1) will not increase the par value of any shares of stock receivable upon exercise of this Warrant above the Purchase Price then in effect, and (2) will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock upon the exercise in full of this Warrant from time to time outstanding. 5. Fractional Interests. The Company shall not be required to issue fractional shares on the exercise of a Warrant. If any fraction of a share would be issuable on the exercise of a Warrant (or specified portion thereof), the Company shall pay an amount in cash equal to the current market price per share of Common Stock (as defined in Section 6) multiplied by such fraction. 6. Definition of Current Market Value. The "Current Market Price" on any given day shall be: (i) if the Common Stock is listed or admitted to unlisted trading privileges on any exchange registered with the Securities and Exchange Commission as a "national securities exchange" under the Securities Exchange Act of 1934 (a "National Securities Exchange"), the last sales price of the shares of Common Stock on the National Securities Exchange in or nearest the City of New York on which the shares of Common Stock shall be listed or admitted to unlisted trading privileges (or the quoted closing bid if there be no sales on such National Securities Exchange) on the most recently completed trading day prior to such day; or (ii) if the Common Stock is not so listed or admitted, the closing sales price of a share of Common Stock as quoted in The Nasdaq Stock Market on the most recently completed trading day prior to the day in question; or (iii) if the Common Stock is not so quoted, the mean between the high and low bid prices of the shares of Common Stock in the over-the-counter market on the most recently completed trading day prior to the day in question as reported by National Quotation Bureau Incorporated or similar organization. 7. Taking of Record; Stock and Warrant Transfer Books. In the case of all dividends or other distributions by the Company to the holders of its Common Stock with respect to which any provision of Section 4 refers to the taking of a record of such holders, the Company will in each such case take such a record and will take such record as of the close of business on a Business Day. The Company will not at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant. 8. Restrictions on Transferability. This Warrant was originally issued in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), and neither this Warrant nor any shares of Common Stock issuable upon the exercise hereof were then registered under the Securities Act. Unless this Warrant or such shares were subsequently registered under the Securities Act and sold by the holder thereof in accordance with such registration, this Warrant or such shares, as the case may be, may not be sold by the holder hereof or of such shares unless this Warrant or such shares is or are subsequently registered under the Securities Act or an exemption from such registration is available. The shares of Common Stock issuable hereunder will be an appropriate restrictive legend as is required by the Securities Act or any state blue sky laws. The holder of this Warrant, by acceptance of this Warrant, agrees to be bound by the provisions of this Section and represents to the Company that it is acquiring the Warrant and the Common Stock issuable hereunder solely for its own account, for the purpose of investment and not with a view to distributing or selling it or any part thereof in violation of the Securities Act, but subject, nevertheless, to any requirement of law that the disposition of such holder's property be at all times within its control. 9. Replacement. Upon receipt of evidence reasonably satisfactory to the Company (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of this Warrant, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Company (provided that the holder's own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of this Warrant, the Company shall (at its expense) execute and deliver in lieu of this Warrant a new warrant of like kind dated the date of such lost, stolen, destroyed or mutilated Warrant. 10. Notice Generally. Any notice, demand or delivery pursuant to the provisions hereof shall be sufficiently given or made if sent by first class mail, postage prepaid, addressed to the holder of this Warrant or of the Common Stock issued upon the exercise hereof at its last known address appearing on the books of the Company, or, except as herein otherwise expressly provided, to the Company at its office, 5333 Westheimer, Suite 1000, Houston, Texas 77056-5407, Attention of the President, or such other address as shall have been furnished to the party giving or making such notice, demand or delivery. 11. Voting Rights, Dividends. This Warrant does not grant the holder hereof any voting rights or other rights as a stockholder of the Company. No dividends are payable or will accrue on this Warrant or the shares purchasable hereunder until, and except to the extent that, this Warrant is exercised. 12. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY THE LAW OF THE STATE OF DELAWARE. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed this ____ day of September, 1995. AMERICAN ECOLOGY CORPORATION By: --------------------------------- Name: Title: SUBSCRIPTION NOTICE (To be executed only upon exercise of Warrant) _____________________________, being the undersigned registered owner of this Warrant irrevocably exercises this Warrant for and purchases __________ shares of the Common Stock, par value $.01 per share (the "Common Stock"), of American Ecology Corporation, constituting all or part of the shares of Common Stock purchasable with this Warrant, and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) together with, if such certificates do not represent all the shares of Common Stock purchasable with this Warrant, a new Warrant, identical to the canceled Warrant except with respect to the number of shares of Common Stock evidenced thereby, for the remaining unsold shares of Common Stock, be issued in the name of and delivered to the undersigned at the address set forth below. Dated: --------------------- --------------------------------------------- NAME OF WARRANT HOLDER By: --------------------------------- Name: Title: --------------------------------------------- STREET ADDRESS --------------------------------------------- CITY STATE ZIP CODE EX-21 11 doc10.txt LIST OF SUBSIDIARIES EXHIBIT 21 LIST OF SUBSIDIARIES SUBSIDIARY NAME STATE OF INCORPORATION - --------------- ---------------------- American Ecology Environmental Services Corporation Texas American Ecology Holdings Corporation Delaware American Ecology Management Corporation Delaware American Ecology Recycle Center, Inc. Delaware American Ecology Services Corporation Delaware Texas Ecologists, Inc. Texas US Ecology, Inc. California US Ecology Idaho, Inc. Delaware EX-23.1 12 doc11.txt CONSENT OF MOSS ADAMS Exhibit 23.1 CONSENT OF MOSS ADAMS LLP We consent to the inclusion in this Annual Report on Form 10-K of American Ecology Corporation for the year ended December 31, 2002 and to the incorporation by reference in Registration Statement Numbers 33-55782, 33-58076, 33-11578, 333-69863 and 333-93105 of American Ecology Corporation on Forms S-8, of our report dated February 11, 2003. /S/ Moss Adams LLP Seattle, Washington February 17, 2003 EX-23.2 13 doc12.txt CONSENT OF BALUKOFF, LINDSTROM & CO. Exhibit 23.2 CONSENT OF BALUKOFF LINDSTROM & CO., P.A. As independent public accountants, we hereby consent to the inclusion of our report on the financial statements of American Ecology Corporation and Subsidiaries dated February 15, 2002, included in this report on Form 10-K, and the incorporation by reference into American Ecology Corporation and Subsidiaries' previously filed Registration Statements on Form S-8 File Nos. 33-55782, 33-58076, 33-11578, 333-69863 and 333-93105 each as filed with the Securities and Exchange Commission. /S/ Balukoff, Lindstrom & Co., P.A. Boise, Idaho February 17, 2003 EX-99 14 doc13.txt CERTIFICATIONS EXHIBIT 99 Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C. 1350 Solely for the purposes of complying with 18 U.S.C. 1350, I, the undersigned Chief Executive Officer of American Ecology Corporation (the "Company"), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Stephen A. Romano - ------------------------ Stephen A. Romano February 17, 2003 Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C. 1350 Solely for the purposes of complying with 18 U.S.C. 1350, I, the undersigned Chief Financial Officer of American Ecology Corporation (the "Company"), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the year ended December 31, 2002 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ James R. Baumgardner - --------------------------- James R. Baumgardner February 17, 2003 -----END PRIVACY-ENHANCED MESSAGE-----