Filed with the Securities and Exchange Commission on November 30, 1999
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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STERICYCLE, INC.
(exact name of registrant as specified in its charter)
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Delaware 4953 36-3640402
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
---------------
Co-Registrants
See Next Page
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28161 North Keith Drive
Lake Forest, Illinois 60045
(847) 367-5910
(Address, including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
---------------
Mark C. Miller With a copy to:
President and Chief Executive Officer Thomas J. Murphy, Esq.
Stericycle, Inc. McDermott, Will & Emery
28161 North Keith Drive 227 West Monroe Street
Lake Forest, Illinois 60045 Chicago, Illinois 60606
(847) 367-5910 (312) 984-2069
(Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent for Service of Process)
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Approximate date of commencement of proposed sale to the public: As
soon as practicable following the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] ___________________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_] __________________
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
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Amount Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities to to be Offering Price Per Aggregate Offering Registration Fee
be Registered Registered Note(1) Price
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<S> <C> <C> <C> <C>
12 3/8 % Series B Senior
Subordinated Notes due
2009....................................$125,000,000 100% $125,000,000 $34,750
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Guarantees of 12 3/8% Series B
Senior Subordinated Notes due
2009............................................... None(2)
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(1) Estimated solely for purposes of computing the registration fee
pursuant to Rule 457(f).
(2) Pursuant to Rule 457(n), no separate filing fee is required for the
guarantees.
</TABLE>
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The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
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<PAGE>
<TABLE>
Co-Registrants
<CAPTION>
Exact Name of Co-Registrant
as Specified in its Charter State or Other Jurisdiction of Primary Standard Industrial I.R.S. Employer
Incorporation or Organization Classification Code Number Identification No.
- ------------------------------- -------------------------------- ------------------------------- --------------------
<S> <C> <C> <C>
Stericycle of Arkansas, Inc. Arkansas 4953 36-3678162
Stericycle of Washington,
Inc. Washington 4953 91-1609302
SWD Acquisition Corp. Delaware 4953 --
Environmental Control
Co., Inc. New York 4953 11-2865803
Waste Systems, Inc. Delaware 4953 74-2538495
Med-Tech Environmental,
Inc. Delaware 4953 04-3378047
Med-Tech Environmental
(MA), Inc. Delaware 4953 75-2360164
Ionization Research Co.,
Inc. Delaware 4953 77-0386813
BFI Medical Waste, Inc. Delaware 4953 76-0608258
Browning-Ferris
Industries of Connecticut,
Inc. Delaware 4953 06-1119690
</TABLE>
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<PAGE>
[LEGEND]
The information in this prospectus is not complete and may be changed. We may
not sell or offer these securities until the time the registration statement
filed with the SEC becomes effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities any
state where the offer or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 30, 1999
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PROSPECTUS
[LOGO OF STERICYCLE, INC.]
$125,000,000
OFFER TO EXCHANGE
ALL OUTSTANDING 12 3/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2009
FOR 12 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2009
OF
STERICYCLE, INC.
This Exchange Offer will Expire at 5:00 P.M.,
New York City Time, on ___________,
_____________ __, 2000
================================================================================
Material Terms of the Exchange Offer:
o This exchange offer is not subject to any condition other than that it must
not violate applicable law or any applicable interpretation of the staff of
the Securities and Exchange Commission.
o All outstanding series A notes that are validly tendered and not validly
withdrawn will be exchanged for an equal principal amount of series B notes
which are registered under the Securities Act of 1933.
o You may withdraw tendered outstanding series A notes at any time prior to
the expiration of this exchange offer.
o This exchange of notes will not be a taxable event for U.S. federal income
tax purposes.
o We will not receive any proceeds from the exchange offer.
o You may tender outstanding notes only in denominations of $1,000 and
multiples of $1,000.
The Series B Notes:
o The terms of the new series of notes are substantially identical to the
outstanding notes, except for transfer restrictions and registration rights
relating to the outstanding notes.
o There is no existing market for the series B notes, and we do not intend to
apply for their listing on any securities exchange.
PLEASE CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS
PROSPECTUS.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved of the notes or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
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The date of this prospectus is December __, 1999.
<PAGE>
TABLE OF CONTENTS
Page
Summary...................................................................... 1
Risk Factors................................................................. 9
Special Note Regarding Forward-Looking Statements............................ 20
The Exchange Offer........................................................... 21
The BFI Acquisition.......................................................... 29
Capitalization............................................................... 30
Unaudited Pro Forma Condensed Combined Financial Statements of
Stericycle and the BFI Medical Waste Business............................. 31
Selected Consolidated Financial and Other Data............................... 40
Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................. 42
Business..................................................................... 52
Management................................................................... 70
Executive Compensation....................................................... 73
Principal Stockholders....................................................... 77
Certain Transactions......................................................... 80
Description of Other Indebtedness............................................ 81
Description of Notes......................................................... 84
Description of Capital Stock.................................................127
Federal Income Tax Considerations............................................130
Plan of Distribution.........................................................134
Legal Matters................................................................134
Independent Public Accountants...............................................134
Index to Financial Statements................................................F-1
AVAILABLE INFORMATION
We are subject to the informational requirements of the Exchange Act,
and in accordance therewith we file reports, proxy and information statements
and other information with the Securities and Exchange Commission. You can
inspect and copy these reports, proxy and information statements and other
information at:
o the public reference facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, DC 20549, and
o the regional offices of the SEC located at:
o 500 West Madison Street, Room 1400, Chicago, Illinois
60606, and
o 7 World Trade Center, 13th Floor, New York, New York
10048.
You also can obtain copies of these materials from the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Washington, DC 20549 at prescribed
rates. You can obtain electronic filings made through the Electronic Data
Gathering, Analysis and Retrieval System at the SEC's web site,
http://www.sec.gov.
In addition, you can inspect material filed by us at the offices of the Nasdaq
Stock Market, Reports Section, at 1735 K Street, Washington, D.C. 20006, on
which shares of our common stock are traded.
<PAGE>
SUMMARY
The following is a summary of the more detailed information appearing
elsewhere in this prospectus. You should read this entire prospectus carefully,
including the "Risk Factors" and the financial statements and related notes.
Unless the context otherwise requires, the statements of operations and
other data provided on a "pro forma combined basis" assume that for each period
presented the acquisition of the medical waste businesses of Browning-Ferris
Industries, Inc. and Allied Waste Industries, Inc. and each acquisition we
completed during that period was completed at the beginning of the period.
Balance sheet information provided on a "pro forma combined basis" assumes those
same events occurred at the date of the balance sheet.
THE EXCHANGE OFFER
Securities Offered...................... Up to $125,000,000 principal amount
of 12 3/8% Series B Senior
Subordinated Notes due 2009.
The Exchange Offer...................... We are offering the series B notes
in exchange for a like principal
amount of our series A notes. You
may exchange series A notes only in
integral multiples of $1,000. We are
issuing the series B notes to
satisfy our obligations under the
terms of the registration rights
agreement among us, our subsidiary
guarantors and Donaldson, Lufkin &
Jenrette Securities Corporation,
Bear, Stearns & Co., Inc, Credit
Suisse First Boston Corporation and
Warburg Dillon Read LLC, who were
the initial purchasers of the series
A notes.
Tenders; Expiration Date;
Withdrawal............................ This exchange offer will expire at
5:00 p.m., New York City time, on
___________, ___________ __, 2000,
or any later date and time to which
it is extended. You may withdraw
your tender of series A notes
pursuant to this exchange offer at
any time prior to its expiration. In
the event we terminate this exchange
offer and do not accept for exchange
any series A notes, we will promptly
return tendered series A notes to
their holders.
Accrued Interest on the Notes........... The series B notes will bear
interest from and including the date
of issuance of the series A notes.
Accordingly, if you receive series B
notes in exchange for series A
notes, you will forego accrued but
unpaid interest on your exchanged
series A notes for the period from
and including the date of issuance
of your series A notes to the date
of exchange, but you will be
entitled to interest under the
series B notes.
Conditions to the Exchange
Offer................................. This exchange offer is subject to
customary conditions, any or all of
which may be waived by us. We
currently expect that each of the
conditions will be satisfied and
that no waivers will be necessary.
Procedures for Tendering
Series A Notes........................ If you wish to tender your series A
notes in this exchange offer, you
must complete and sign the letter of
transmittal, in accordance with the
instructions, and submit the letter
of transmittal to the exchange
agent.
Guaranteed Delivery
Procedures............................ If you wish to tender your series A
notes and your series A notes are
not immediately available or you
cannot deliver your series A notes
and letter of transmittal and any
other documents required by the
letter of transmittal to the
exchange agent prior to the
expiration of this exchange offer,
you must tender your series A notes
according to the guaranteed delivery
procedures set forth in "The
Exchange Offer--Guaranteed Delivery
Procedures."
Acceptance of Series A
Notes and Delivery of
Series B Notes........................ We will accept for exchange any and
all series A notes that are properly
tendered in this exchange offer
prior to 5:00 P.M., New York City
time, on ____________, ___________
__, 2000.
Material Federal Income
Tax Considerations.................... The exchange of series A notes for
series B notes will not constitute a
taxable event for federal income tax
purposes.
Rights of Dissenting Holders............ As a holder of series A notes you do
not have any appraisal or
dissenters' rights under the
Delaware General Corporation Law in
connection with this exchange offer.
Exchange Agent.......................... State Street Bank and Trust Company.
Use of Proceeds......................... We will receive no cash proceeds
from exchanges made pursuant to this
exchange offer. We used the cash
proceeds from the sale of the series
A notes to fund the acquisition of
the medical waste businesses of
Browning-Ferris Industries, Inc. and
Allied Waste Industries, Inc., which
we refer to as the "BFI
acquisition."
CONSEQUENCES OF EXCHANGING SERIES A NOTES PURSUANT TO THE EXCHANGE OFFER
Based on interpretive letters issued by the staff of the Securities and
Exchange Commission to other parties in unrelated transactions, we believe that
you may offer, sell or otherwise transfer your series B notes, as long as:
o you are not our "affiliate" within the meaning of Rule 405
under the Securities Act;
o you acquired your series B notes in the ordinary course of
your business; and
o you have no arrangement with any person to participate in a
distribution of the series B notes.
If you fail to satisfy any of these conditions and you transfer any
series B notes without delivering a proper prospectus or without qualifying for
a registration exemption, you may incur liability under the Securities Act. We
will not be responsible for, or indemnify you against, any liability you may
incur.
Each broker-dealer that receives series B notes for its own account in
exchange for series A notes must acknowledge that it will deliver a prospectus
in connection with any resale of the series B notes. See "Plan of Distribution."
In addition, to comply with the securities laws of some jurisdictions, a
broker-dealer may not offer or sell series B notes unless they have been
registered or qualified for sale in that jurisdiction or an exemption from
registration or qualification is available and the conditions to the exemption
have been met.
We have agreed, under the registration rights agreement, subject to
specified limitations, to register or qualify the series B notes for offer or
sale under the securities or blue sky laws of the jurisdictions in which any
holder of series A or series B notes reasonably requests in writing. If you do
not exchange your series A notes for series B notes pursuant to this exchange
offer, your series A notes will continue to be subject to the restrictions on
transfer contained in the legend set forth on your series A notes. In general,
you may not offer or sell series A notes unless they are registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. See "The
Exchange Offer--Purposes of the Exchange Offer" and "--Resales of Notes."
TERMS OF THE SERIES B NOTES
Issuer.................................. Stericycle, Inc.
Securities Offered...................... $125.0 million in principal amount
of 12 3/8% Series B Senior
Subordinated Notes due 2009.
Maturity Date........................... November 15, 2009.
nterest................................ Annual rate--12 3/8%. Payment
frequency--in cash every six months
on November 15 and May 15. First
payment--May 15, 2000.
Guarantors.............................. Each of our wholly owned domestic
subsidiaries will initially be a
guarantor. Non-guarantor
subsidiaries accounted for
approximately 9.9% of our pro forma
combined revenues for the twelve
months ended June 30, 1999. If we
cannot make payments on the series B
notes when they are due, the
subsidiary guarantors must make them
instead.
Ranking................................. The series B notes and the
subsidiary guarantees are senior
subordinated debts. They rank behind
all of our and our subsidiary
guarantors' current and future
indebtedness except indebtedness
that expressly provides that it is
not senior to the series B notes and
the subsidiary guarantees.
As of September 30, 1999, the series
B notes would have been subordinated
to, on a pro forma basis,
approximately $235.9 million of
outstanding senior debt and would
have ranked effectively junior to
$22.5 million of other liabilities,
including trade payables, of
non-guarantor subsidiaries.
Optional Redemption..................... We may redeem some or all of the
series B notes at any time at the
redemption prices listed in the
section "Description of Notes" under
the heading "Optional Redemption."
Before November 15, 2002, we may
redeem up to 35% of the series B
notes with the proceeds of certain
offerings of our equity at the
prices listed in the section
"Description of Notes" under the
heading "Optional Redemption."
Mandatory Offer to
Repurchase............................ If we sell specific assets or
experience specific kinds of changes
of control, we must offer to
repurchase the series B notes at the
prices listed in the section
"Description of Notes" under the
heading "Repurchase at the Option of
Holders."
Covenants............................... The indenture covering the series B
notes contains covenants that, among
other things, restrict our ability
and the ability of our restricted
subsidiaries to:
o borrow money;
o pay dividends on stock or
purchase stock;
o make investments;
o allow the imposition of
dividend restrictions on
subsidiaries;
o use assets as security in
other transactions;
o sell specific assets or
merge with or into other
companies; and
o create specified liens.
For more details, see the section
"Description of Notes" under the
heading "Certain Covenants."
Absence of a Public Market
for the Notes......................... No active public market for the
series B notes is currently
anticipated. We currently do not
intend to apply for the listing of
the series B notes on any securities
exchange, although we expect the
series B notes to be eligible for
trading in PORTAL. Firms making a
market in these notes may cease
their market-making at any time.
Accordingly, we can give no
assurance as to the liquidity or the
trading market for the series B
notes.
<PAGE>
THE COMPANY
We are the largest regulated medical waste management company in North
America, serving over 235,000 customers. We operate the only fully integrated,
national medical waste management network and have an estimated 22% share of the
regulated medical waste market in the United States. We use this network to
provide the industry's broadest service offering, including medical waste
collection, transportation, treatment, recycling, and disposal to unrelated
parties, together with related consulting, training and education services and
products. Our treatment technologies include our proprietary, environmentally
friendly and efficient electro-thermal deactivation system, as well as
traditional methods such as autoclaving and incineration. On a pro forma
combined basis, for the year ended December 31, 1998 and for the nine months
ended September 30, 1999, we generated revenues of $290.3 million and $229.4
million, respectively.
On November 12, 1999, we completed the BFI acquisition whereby we
purchased from Allied Waste Industries, Inc. the medical waste business of BFI
and the medical waste operations of Allied. The purchase price for these
operations was $410.5 million in cash, subject to post-closing adjustment.
An independent study estimated the size of the regulated medical waste
market in the United States in 1999 to be approximately $1.4 billion. We believe
the worldwide market for regulated medical waste services is approximately $3.0
billion. Including ancillary services such as training, education, product sales
and consulting services, we believe the worldwide market is in excess of $10.0
billion. Industry sources estimate the current annual growth rate of the
regulated medical waste industry in the United States to be 7-10%, driven by a
number of factors, including:
o cost reduction pressures in the health care industry that are
expected to increasingly lead hospitals to outsource their medical
waste management needs;
o the continued expansion of small account customers, due to the
continued growth of the alternate site health care market;
o the increasing average age of the United States population, resulting
in people requiring more medical attention, which increases the
generation of medical waste;
o broader awareness of and compliance with an increasingly complex
environmental and safety regulatory environment; and
o increased costs of operating medical waste incinerators and the
anticipated closures of a significant number of on-site treatment
facilities, thereby increasing the demand for off-site treatment
services, as a result of Clean Air Act regulations adopted in 1997.
Our principal executive offices are located at 28161 North Keith Drive,
Lake Forest, Illinois 60045. Our telephone number is (847) 367-5910.
<PAGE>
PRICE RANGE OF COMMON STOCK
The following table shows for the periods indicated the high and low
closing sales prices of our common stock as reported on the Nasdaq Stock Market.
Fiscal Year Ended High Low
----------------- ---- ---
December 31, 1997
First Quarter..................$11.125 $8
Second Quarter................. 9.25 7.25
Third Quarter.................. 10.25 7.625
Fourth Quarter................. 14.625 9.125
December 31, 1998
First Quarter.................. 16.50 12.25
Second Quarter................. 17.25 11.125
Third Quarter.................. 19.75 13.50
Fourth Quarter................. 21 13.625
December 31, 1999
First Quarter.................. 17.9375 11.75
Second Quarter................. 15.0625 9.875
Third Quarter.................. 16.0625 12.375
Our common stock is traded on the Nasdaq Stock Market under the symbol
"SRCL." On November 26, 1999, the closing price for our common stock was $17 1/4
per share, and there were approximately 14.7 million shares of our common stock
outstanding, resulting in a market capitalization of approximately $ 253.6
million.
RISK FACTORS
See the section entitled "Risk Factors" beginning on page 9 for a
discussion of certain factors you should consider carefully before deciding to
invest in the series B notes.
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
Below are summary unaudited pro forma financial data for Stericycle and
the BFI medical waste business presented on a combined basis. The information in
the following table is qualified by reference to, and should be read in
conjunction with the sections "Unaudited Pro Forma Condensed Combined Financial
Statements of Stericycle and the BFI Medical Waste Business," "Selected
Consolidated Financial and Other Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Stericycle's consolidated
financial statements and the financial statements of the BFI medical waste
business and, in each case, the related notes thereto, included elsewhere in
this prospectus.
The summary unaudited pro forma financial data set forth below have
been derived from the unaudited pro forma financial data included elsewhere in
this prospectus and give effect to the following:
(i) the BFI acquisition;
(ii) the offering of the series A notes;
(iii) $225 million of borrowings under our credit facility with various
financial institutions, DLJ Capital Funding, Inc., as syndication agent
for the financial institutions, lead arranger and sole book running
manager, Bank of America, N.A., as administrative agent for the
financial institutions, and Bankers Trust Company, as documentation
agent for the financial institutions (See "Description of Other
Indebtedness -- Credit Facility");
(iv) $75.0 million of gross proceeds from the sale by us on November
12, 1999 of our convertible preferred stock to investment funds
associated with Bain Capital, Inc. and with Madison Dearborn Partners,
Inc., which represents approximately 22.6% of our outstanding common
stock on an as-if converted basis (See "Description of Capital Stock --
Convertible Preferred Stock");
(v) the application of the net proceeds received from (ii), (iii) and
(iv) above; and
(vi) the costs and expenses associated with (i)-(iv) above.
The unaudited pro forma statements of operations data, other data and
related ratio information, give effect to these transactions as if each had
occurred as of the beginning of the period presented and the pro forma balance
sheet data give effect to these transactions as if each had occurred on
September 30, 1999. The unaudited pro forma statements of operations data also
include our acquisition of Waste Systems, Inc., the majority owner of 3CI
Complete Compliance Corporation, which closed in October 1998, the acquisition
of Med-Tech Environmental Limited and related transactions, which closed in
December 1998, and the acquisition of Medical Disposal Services, which closed in
April 1999, as if each had occurred as of the beginning of the period presented.
The unaudited pro forma financial data do not purport to represent what our
financial position and results of operations would have been if the transactions
listed above and the other acquisitions had actually occurred as of the dates
indicated and are not intended to project our financial position or results of
operations for any future period.
<PAGE>
THE COMBINED COMPANIES--UNAUDITED PRO FORMA DATA
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31 SEPTEMBER 30,
1998(1) 1999(2)
------- -------
(IN THOUSANDS, EXCEPT RATIOS)
STATEMENTS OF OPERATIONS DATA:
Revenues..................................... $ 290,275 $ 229,438
Cost of revenues............................. 190,355 146,124
----------- ------------
Gross profit................................. 99,920 83,314
Selling, general and administrative
expenses................................... 40,719 30,454
Special charges.............................. 435 189
----------- ------------
Operating income............................. 58,766 52,671
Net income applicable to common
shareholders............................... 11,740 15,147
OTHER DATA:
Ratio of earnings to fixed charges(3)........ 1.5x 1.8x
AS OF SEPTEMBER 30, 1999
------------------------
ACTUAL PRO FORMA
------ ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.....................$ 16,017 $ 12,348
Working capital............................... 28,192 18,679
Total assets.................................. 128,728 555,434
Long-term debt, including current portion..... 5,778 360,910
Convertible Preferred Stock................... -- 70,275
Common shareholders' equity................... 111,812 110,012
(1) The BFI medical waste business component of the combined companies'
statement of operations is for the year ended September 30, 1998.
(2) The BFI medical waste business component of the combined companies'
statement of operations is for the nine months ended June 30, 1999.
(3) The ratio of earnings to fixed charges is computed by dividing
earnings by fixed charges. For this purpose, "earnings" include pro
forma income (loss) before income taxes and fixed charges and "fixed
charges" include pro forma interest expense, amortization of deferred
financing fees and costs, and a portion of rent expense that is
representative of the interest factor in these rentals.
<PAGE>
RISK FACTORS
Before you invest in the series B notes, you should consider carefully
the following factors, in addition to the other information contained in this
prospectus.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS MAY HAVE A NEGATIVE IMPACT ON
OUR BUSINESS AND FINANCIAL CONDITION, WHICH COULD PREVENT US FROM FULFILLING OUR
OBLIGATIONS UNDER THE NOTES.
We have now and, after this exchange offer, will continue to have a
substantial amount of indebtedness. This leverage could have adverse
consequences both for us and for you. It could, for example:
o make it more difficult for us to satisfy our obligations under
the notes and our other financial obligations;
o make us more vulnerable to unfavorable economic conditions;
o make it more difficult for us to pursue the purchase of other
medical waste management businesses;
o limit our ability to obtain necessary financing for working
capital, for the purchase of machinery, equipment and other
major assets, and for other general corporate requirements;
o require us to dedicate or reserve a large portion of our cash
flow from operations to payments on our indebtedness, which
would prevent us from using it for other purposes;
o limit our ability to plan for and react to changes in our
business; and
o place us at a competitive disadvantage compared to competitors
that have less debt.
Assuming that we had completed the offering of the series A notes, the
BFI acquisition, the issuance of our convertible preferred stock and the
borrowing of funds for the BFI acquisition under our credit agreement at January
1, 1998 our pro forma ratio of earning to fixed charges for the year ended
December 31, 1998 would have been 1.5.
ADDITIONAL BORROWINGS AVAILABLE--DESPITE CURRENT INDEBTEDNESS LEVELS, WE AND OUR
SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT THAT WOULD BE
SENIOR TO THE SERIES B NOTES, WHICH COULD EXACERBATE THE RISKS DESCRIBED ABOVE.
The terms of the indenture do not fully prohibit us or our subsidiaries
from incurring substantial additional indebtedness in the future. Our credit
facility permits additional borrowings of up to $50 million, all of which would
be senior to the notes and the subsidiary guarantees. If new debt is added to
our and our subsidiaries' current debt levels, the related risks that we and
they now face could intensify. See "Capitalization," "Selected Consolidated
Financial and Other Data" and "Description of Other Indebtedness--Credit
Facility."
COVENANT RESTRICTIONS--COVENANT RESTRICTIONS IN OUR CREDIT FACILITY AND THE
INDENTURE MAY LIMIT OUR ABILITY TO OPERATE OUR BUSINESS.
Our credit facility and the indenture contain covenants that restrict
our ability to make distributions or other payments to our investors and
creditors unless certain financial tests or other criteria are satisfied. We
must also comply with financial ratios and tests. In some cases our subsidiaries
are subject to similar restrictions which may restrict their ability to make
distributions to us. If we do not comply with these or other covenants and
restrictions contained in our credit facility or the indenture, we could default
under those agreements and the debt, together with accrued interest, could then
be declared immediately due and payable. Our ability to comply with these
provisions of our credit facility and the indenture may be affected by changes
in economic or business conditions or other events beyond our control.
Our credit facility contains additional affirmative and negative
covenants, which could affect our ability to operate our business, including
limitations on our ability to incur additional indebtedness and to make
acquisitions and capital expenditures. The indenture for the series B notes
restricts, among other things, our ability to incur additional debt, sell
assets, create liens or other encumbrances, make certain payments and dividends
or merge or consolidate, all of which could affect our ability to operate our
business and may limit our ability to take advantage of potential business
opportunities as they arise. A failure to comply with these covenants and
restrictions could result in an event of default under either our credit
facility or the indenture which could lead to an acceleration of debt under
other debt instruments that may contain cross-acceleration or cross-default
provisions.
SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THE SERIES B NOTES WILL BE
JUNIOR TO OUR CREDIT FACILITY AND POSSIBLY ALL OF OUR FUTURE BORROWINGS.
The series B notes and the subsidiary guarantees rank junior to all of
our and our subsidiary guarantors' existing indebtedness and all of our and
their future borrowings, except any future indebtedness that expressly provides
that it ranks equal with, or is subordinated in right of payment to, the notes
and the subsidiary guarantees. In addition, a substantial portion of our and our
subsidiary guarantors' existing indebtedness is secured by substantially all of
our and their assets. As a result, upon any distribution to our creditors or the
creditors of the subsidiary guarantors in a bankruptcy, liquidation or
reorganization or similar proceeding relating to us or the subsidiary guarantors
or our or their property, the holders of our senior debt and of the senior debt
of our subsidiary guarantors will be entitled to be paid in full in cash before
any payment may be made on the notes or the subsidiary guarantees. In addition,
all payments on the series B notes and the subsidiary guarantees will be blocked
if we default on the payment of our senior debt and may be blocked for up to 179
of 360 consecutive days if a non-payment default occurs on our senior debt. If
we had completed this exchange on September 30, 1999, the series B notes would
have been junior or effectively junior to approximately $258.4 million of our
and our subsidiary guarantors' senior indebtedness and other liabilities
(including trade payables) of our non-guarantor subsidiaries.
In the event of a bankruptcy, liquidation, reorganization or similar
proceeding relating to us or our subsidiary guarantors, holders of the series B
notes will participate with all other holders of our subordinated indebtedness
and that of the subsidiary guarantors in the assets remaining after we and the
subsidiary guarantors have paid all of our and their senior debt, respectively.
However, because the indenture requires that amounts otherwise payable to
holders of the series B notes in a bankruptcy or similar proceeding be paid to
holders of senior debt instead, holders of the notes may receive less, ratably,
than holders of trade payables in any proceeding. In any of these cases, we and
our subsidiary guarantors may not have sufficient funds to pay all of our
creditors and the holders of the notes may receive less, ratably, than the
holders of senior debt.
ABILITY TO SERVICE DEBT--WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH TO SERVICE
OUR INDEBTEDNESS, INCLUDING THE SERIES B NOTES, AND OUR ABILITY TO GENERATE CASH
DEPENDS ON MANY FACTORS, SOME OF WHICH ARE BEYOND OUR CONTROL.
Our ability to make payments on our indebtedness, including the series
B notes, as well as to fund our operations and future growth, will depend on our
ability to generate cash. Our success in doing so will depend on the results of
our operations, which in turn depend on many factors, including those described
in this "Risk Factors" section and elsewhere in this prospectus. Our ability to
generate adequate cash is also subject to general economic, financial,
competitive, legislative, regulatory and other factors beyond our control.
Based on our current level of operations and anticipated cost savings
and operating improvements, we believe that our cash flow from operations,
available cash and available borrowings under our credit facility will be
sufficient to meet our future liquidity needs, including potential acquisitions.
We cannot assure you, however, that our business will generate
sufficient cash flow from operations, that currently anticipated cost savings
and operating improvements will be realized on schedule or that future
borrowings will be available to us under our credit facility in an amount
sufficient to enable us to pay our indebtedness, including these notes, or to
fund our other liquidity needs. We may need to refinance all or a portion of our
indebtedness, including the series B notes, on or before maturity. We cannot
assure you that we will be able to refinance any of our indebtedness, including
our credit facility and the series B notes, on commercially reasonable terms or
at all.
SECURED INDEBTEDNESS--OUR ASSETS ARE ENCUMBERED TO SECURE OUR CREDIT FACILITY.
The series B notes will not be secured by any of our assets. Our
obligations under our credit facility, however, are secured by a first priority
pledge of and security interest in the stock of all our present and future
domestic subsidiaries, other than the publicly held stock of 3CI Complete
Compliance Corporation and other subsidiaries which are designated as
unrestricted subsidiaries, and by a first priority pledge of 65% of the stock of
all our present and future first-tier foreign subsidiaries, and substantially
all of our assets and the assets of our domestic subsidiaries. If we were to
become insolvent or liquidated, or if payment under our credit facility were
accelerated, the lenders under the credit facility would be entitled to exercise
the remedies available to a secured lender under applicable law. Accordingly,
all secured lenders would be effectively senior to the holders of series B notes
in right of payment to the extent of the assets securing the indebtedness owed
to the secured lenders.
NOT ALL SUBSIDIARIES ARE GUARANTORS--YOUR RIGHT TO RECEIVE PAYMENTS ON THE
SERIES B NOTES COULD BE ADVERSELY AFFECTED IF ANY OF OUR NON-GUARANTOR
SUBSIDIARIES DECLARE BANKRUPTCY, LIQUIDATE, OR REORGANIZE.
Some but not all of our subsidiaries will guarantee the series B notes.
In the event of a bankruptcy, liquidation or reorganization of any of the
non-guarantor subsidiaries, holders of their indebtedness and their trade
creditors will generally be entitled to payment of their claims from the assets
of those subsidiaries before any assets are made available for distribution to
us.
Assuming we had completed this exchange on September 30, 1999, the
series B notes would have been effectively junior to $22.5 million of
indebtedness and other liabilities (including trade payables) of these
non-guarantor subsidiaries. The non-guarantor subsidiaries generated 9.9% of our
pro forma revenues for the twelve-month period ended June 30, 1999 and held 4.9%
of our pro forma combined assets as of September 30, 1999.
BFI ACQUISITION--WE MAY NOT SUCCESSFULLY INTEGRATE THE BFI ACQUISITION.
The BFI acquisition greatly increases our size and geographical scope
of operations. We have completed 42 previous acquisitions, however, none of our
prior acquisitions were as large as the BFI acquisition.
The table below sets forth differences between our business before the
BFI acquisition and our business after the BFI acquisition.
BEFORE AFTER
------ -----
(IN THOUSANDS, EXCEPT
STATES AND SITES)
Total assets as of September 30, 1999.................$ 128,728 $ 555,434
Annual revenues for year ending December 31, 1998.....$ 66,681 $ 290,275(1)
Customers............................................. 85 235
Number of states doing business in.................... 40 46
Treatment sites....................................... 11 35(2)
(1) Revenues for the BFI medical waste business included in this total are
actually revenues for the fiscal year ended September 30, 1998.
(2) Adjusted for three duplicative facilities which have been or are being
closed.
This increase in our size and geographic scope of operations is
expected to present our management with new and unique challenges. Our
management resources may be stretched to the point where our business, financial
condition and results of operations could be adversely affected.
RISKS OF ACHIEVEMENT OF COST SAVINGS--WE MAY NOT ACHIEVE ANTICIPATED COST
SAVINGS AND OTHER BENEFITS FROM THE BFI ACQUISITION AND OUR OTHER RECENT AND
FUTURE ACQUISITIONS.
Our integration plan for the BFI acquisition contemplates certain cost
savings, including the elimination of duplicative personnel and facilities. The
potential cost savings are based on analyses completed by members of our
management. These analyses necessarily involve assumptions as to future events,
including general business and industry conditions, costs to operate our
business and competitive factors, many of which are beyond our control and may
not materialize. While we believe these analyses and their underlying
assumptions to be reasonable, they are inherently estimates which are difficult
to predict and are necessarily speculative in nature. We cannot assure you that
unforeseen factors will not offset the estimated cost savings or other
components of our integration plan in whole or in part. As a result, our actual
cost savings may vary considerably, or be considerably delayed, compared to the
estimates in this prospectus. We also cannot assure you that we will realize any
cost savings or other benefits from our recent acquisitions other than those
already realized, or that we will realize any cost savings or other benefits
from other future acquisitions.
RISKS RELATED TO UNAUDITED PRO FORMA FINANCIAL DATA--INVESTORS ARE CAUTIONED NOT
TO PLACE UNDUE RELIANCE ON THE UNAUDITED PRO FORMA FINANCIAL DATA PRESENTED
HEREIN.
The unaudited pro forma financial information set forth in this
prospectus is based on a number of assumptions and estimates related to, among
other things, the cost of running the BFI medical waste business. See "--Risks
of Achievement of Cost Savings." The historical financial data of the BFI
medical waste business presented in this prospectus are of limited relevance in
understanding what our results of operations, financial position or cash flows
would have been for the historical periods presented had the BFI acquisition
been completed at the beginning of those periods. In particular, the actual
historical selling, general and administrative expenses for the BFI medical
waste business cannot be determined with precision from BFI's accounting
records. Only that portion of the selling, general and administrative expenses
directly attributable to the BFI medical waste business is reflected in the
historical financial statements and other BFI medical waste business financial
data included in this prospectus. No portion of the selling, general and
administrative expenses associated with the employees and operations of BFI that
were employed in multiple segments of BFI's overall business have been included
in the historical results of the BFI medical waste business. Our management
believes that selling, general and administrative expenses for the BFI medical
waste business should properly include a portion of these indirect expenses. We
have made supplemental disclosures to the pro forma combined financial
information presented in this prospectus to present information that includes
our management's estimate of the indirect selling, general and administrative
expenses of the BFI medical waste business. See Note 5 of Notes to Pro Forma
Condensed Combined Statements of Operations. The actual selling, general and
administrative expenses incurred in the future could be materially different
than those presented herein and, accordingly, you should not place undue
reliance on the unaudited pro forma and adjusted pro forma combined selling,
general and administrative expense information presented herein.
ENVIRONMENTAL AND OTHER LIABILITIES--WE WILL ALWAYS FACE THE RISK OF LIABILITY,
AND INSURANCE MAY NOT ALWAYS BE AVAILABLE OR SUFFICIENT.
Our industry presents risks of liability under:
o statutes and regulations;
o contracts; and
o tort law.
If we fail to comply with any duty imposed by laws or contracts,
liability for environmental contamination, personal injury, or property damage
might result. We maintain pollution liability and general liability insurance
which we believe is adequate to protect our business and employees. If a claim
is made against us for which we are uninsured, or for which we do not have
enough insurance, it could have a material adverse effect on our business,
financial condition and results of operations.
The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (CERCLA), and similar state laws, impose
strict liability on current and former owners and operators of facilities which
have released hazardous substances into the environment, as well as the
businesses that generate and transport the hazardous substances that come to be
located at those facilities. Responsible parties may be liable for substantial
investigation and clean-up costs and damage to the environment even if they
operated their businesses properly and complied with applicable laws and
regulations. Liability under CERCLA may be joint and several. Accordingly, if we
were found to be a business with responsibility related to a particular CERCLA
site--even if we were not the party responsible for the release of the hazardous
substance--we could be required to pay the entire cost of the investigation and
clean-up, even though other parties might also be liable. We might not be able
to identify who the other responsible parties might be, and we might not be able
to compel them to contribute to these expenses or they might be insolvent or
unable to afford to contribute. Our pollution liability insurance excludes
liabilities under CERCLA. Thus, if we do incur liability under CERCLA and if we
cannot identify other parties responsible under the law who we can compel to
contribute to our expenses and who are financially able to do so, it could have
a material adverse effect on our business, financial condition and results of
operations. See "Business--Potential Liability and Insurance."
We may also be susceptible to negative publicity if we are identified
as the source of potential environmental contamination. If an accident occurred
with one of our transportation trucks, with the potential risk of even minor
medical waste environmental contamination, the resulting media coverage could
have a material adverse effect on our business, financial condition and results
of operations.
GOVERNMENT REGULATION--WE ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION WITH
WHICH IT IS FREQUENTLY DIFFICULT, TIME-CONSUMING AND EXPENSIVE TO COMPLY.
The medical waste industry is subject to extensive federal, state,
local and foreign laws and regulations. These regulations pertain to the:
o collection, o documentation,
o transportation, o reporting,
o packaging, o treatment, and
o labeling, o disposal
o handling,
of regulated medical waste. Our business requires us to obtain many permits,
authorizations, approvals, certificates, consent orders, or other types of
governmental permission from every jurisdiction where we operate. In some
states, we are required to obtain governmental approval of our pricing. We
believe that we currently have all the permits that the applicable regulations
require and that we are complying in all material respects with all applicable
laws and regulations.
State and local regulations change often and new ones are frequently
enacted. This could require us to obtain new permits or to change the way we
operate. It is possible that we would not be able to obtain newly-required
permits. It is also possible that the cost of complying with new or changed
regulations could have a material adverse effect on our business, financial
condition and results of operations. See "Business--Governmental Regulation."
A permit may be revoked by the government if we do not comply with the
conditions of the permit or with the regulations pursuant to which the permit
was issued or with any other regulation. Inspections by regulatory agencies, as
well as complaints filed or anonymously sponsored by our competitors or others
alleging that we are not complying with regulations, could result in proceedings
to modify, suspend or revoke a permit. If successful, this type of proceeding
could have a material adverse effect on our business, financial condition and
results of operations. Some permits must be renewed periodically, and it is
possible that a particular permit might not be renewed or that unfavorable
conditions would be placed on its renewal. The failure to obtain a renewal or
the imposition of new permit conditions could have a material adverse effect on
our business, financial condition and results of operations. See
"Business--Governmental Regulation."
The permits that our business or operations require, especially the
permits that we need to build and operate treatment and transfer facilities and
to transport medical waste, are difficult and time-consuming to obtain. They may
also contain conditions or restrictions which limit our ability to operate
efficiently, and they may not be issued as quickly as we need to operate
efficiently. If we cannot obtain the permits we need when we need them, or if
they contain unfavorable conditions, it could have a material adverse effect on
our business, financial condition and results of operations.
Applications for operating and transportation permits are frequently
opposed by elected officials, local residents, or citizen groups. It is possible
that public opposition could force us to delay or withdraw applications and
abandon our plans to expand into or locate our operations at a particular
location. Even after a permit is issued, opponents may initiate administrative
proceedings or litigation to force the applicable regulatory agency to place new
conditions on the permit, or even to revoke it.
We own a treatment technology called electro-thermal-deactivation (ETD)
that is an alternative to incineration (burning) and autoclaving (pressurized
steam heating) for the treatment of regulated medical waste. ETD has not been
approved in all states for the treatment of medical waste. We have received
permits or legislative approval to use ETD in 15 states and we have filed for
permits in other states. We cannot be sure, however, that ETD will be approved
in other jurisdictions where we might want to install it. Our ETD process
involves grinding medical waste within a containment room, which may result in
the aerosolization of pathogens. While we believe that our containment and other
safety systems fully protect our employees through multiple protective measures,
equipment failure or human error possibly could result in exposure of our
employees to pathogens that may be present in medical waste.
In addition to ETD, we currently employ incineration, autoclaving,
chemclaving (steam heating with disinfectant chemicals) and microwaving for the
treatment of regulated medical waste. Incineration is subject to more stringent
regulation than ETD and may expose us to unfavorable regulations. See
"Business--Treatment Technologies" and "--Governmental Regulation."
If we expand into other countries, we will be subject to regulation by
foreign governments. These regulations may include pricing tariffs (taxes),
controls over the location and operation of facilities, and permit requirements
similar to, or more stringent than, those imposed by federal, state and local
governments in the United States. See "Business--Governmental Regulation."
ENVIRONMENTAL REGULATION--THE VIGOR OF GOVERNMENTAL ENFORCEMENT OF ENVIRONMENTAL
REGULATIONS HAS AN UNCERTAIN EFFECT ON OUR BUSINESS.
We believe that the government's strict enforcement of laws and
regulations relating to medical waste collection and treatment has been good for
our business. These laws and regulations increased the demand for our services.
We also believe that laws and regulations that made it more difficult or
expensive to use technologies that compete with our ETD process, such as
incineration, have previously given us a competitive advantage. This advantage
has diminished, however, and is likely to be further reduced because we have
increased our use of autoclaving and incineration, mainly as a result of
purchasing companies, including the BFI medical waste business, that use these
processes. We estimate that during 1998, prior to the BFI acquisition, we used
incineration or autoclaving at our own facilities or those of other parties for
approximately 49% of the regulated medical waste that we treated. This
percentage has increased as a result of the BFI acquisition and is likely to
further increase as we acquire other companies in the future which use
incineration and autoclaving. See "Business--Treatment Technologies."
Changes in governmental regulation of medical waste, such as:
o encouraging the use of landfills;
o removing obstacles to the use of incineration and autoclaving;
or
o reducing manpower and money used to enforce environmental
regulations favorable to our operations
could have a material adverse effect on our business, financial condition and
results of operations.
We cannot predict the type or size of the effect that any government
action or inaction will have on our business.
GOVERNMENTAL ENFORCEMENT PROCEEDINGS--WE MAY BE SUBJECT TO FINES AND PENALTIES
FOR VIOLATIONS OF REGULATIONS.
From time to time we are subject to governmental proceedings to enforce
regulations. We have had to pay fines and penalties and to undertake remedial
work at our facilities. We may be subject to similar proceedings in the future.
Government enforcement actions also may be initiated against us for the purpose
of revoking or modifying our permits. It is possible that these proceedings
could have a material adverse effect on our business, financial condition and
results of operations.
In April 1997, a worker at our Morton, Washington treatment facility
was diagnosed with active tuberculosis. Testing revealed two additional cases of
active tuberculosis and 15 additional workers who tested positive for exposure
to tuberculosis. Officials of the Washington Departments of Health and of Labor
and Industries have concluded that the workers were probably exposed to
tuberculosis bacteria from the medical waste being processed at the Morton
facility. We believe that the actual source of exposure has not been determined.
However, we have complied with the recommendations of all regulatory authorities
to outfit the facility's workers with personal protective equipment. In
addition, we have complied with governmental recommendations to modify equipment
at the Morton facility. We are also taking these actions, as applicable, at our
other treatment facilities. The safety measures being taken include those
recommended by the National Institute for Occupational Safety and Health in a
report issued in December 1998.
While future claims are possible, to date we have not been subject to
any court proceedings by the affected employees as a result of the Morton
incident, which the Washington Department of Labor and Industries has determined
is covered by the state workers' compensation program. Incidents like the one in
Morton could result in adverse publicity and could cause governments to:
o require us to adopt additional safety measures;
o impose fines or other penalties on us; or
o modify or revoke our permits, or deny our future applications
for permits.
These incidents could also lead to lawsuits by the employees involved.
Costs associated with conducting or settling these proceedings, the amount of an
adverse judgment, or the negative publicity and loss of customers, could have a
material adverse effect on our business, financial condition and results of
operations. See "Business--Governmental Regulation" and "--Legal and Other
Proceedings."
ACQUISITIONS--OUR GROWTH DEPENDS IN PART ON OUR ACQUIRING OTHER MEDICAL WASTE
BUSINESSES OR OTHER RELATED SERVICE BUSINESSES, WHICH WE MAY BE UNABLE TO DO.
Our growth strategy is based in part on our ability to acquire other
medical waste businesses. We do not know whether in the future we will be able
to:
o identify suitable businesses to buy;
o complete the purchase of those businesses on terms acceptable
to us;
o improve the operations of the businesses that we buy and
successfully integrate their operations into our own; or
o avoid or overcome any concerns expressed by regulators,
including antitrust concerns.
We compete with other potential buyers for the acquisition of other
medical waste companies. This competition may result in fewer opportunities to
purchase companies that are for sale. It may also result in higher purchase
prices for the businesses that we want to purchase.
In addition, we also cannot be sure that we will: have enough money; be
able to borrow enough money on reasonable terms; be able to issue stock or debt
instruments (like promissory notes) as consideration for the purchase; or be
able to raise enough money by issuing stock or through other financing methods
to complete the purchases of the businesses that we want to buy.
We also do not know whether our growth strategy will continue to be
effective following the BFI acquisition. As a result of the BFI acquisition, our
business is significantly larger, and the BFI acquisition and other acquisitions
may not have the desired benefits that we have expected in the past. Our
increased size as a result of the BFI acquisition also means that state and
federal government regulators, such as antitrust regulators, will be examining
our acquisitions more closely. They may object to some purchases or place
conditions on them that would limit their benefit to us.
COMPETITION--OUR ABILITY TO GROW MAY BE LIMITED BY COMPETITION.
The medical waste industry is very competitive. This has required us in
the past to discount our prices, especially to large account customers, and
competition may require us to discount our prices in the future. Substantial
price reductions could have a material adverse effect on our business, financial
condition and results of operations.
We face important competition from a large number of small, local
competitors. Because companies can enter the collection and transport aspects of
the medical waste industry with very little money or technical know-how, there
are a large number of regional and local companies in the industry. We face
competition from these businesses and that competition may exist in each
location into which we try to expand in the future. Our competitors could take
actions that would hurt our growth strategy, including the support of
regulations which could delay or prevent us from obtaining or keeping permits.
They might also give financial support to citizens' groups that oppose our plans
to locate a treatment or transfer facility at a particular location. See
"Business--Competition."
Y2K PROBLEMS--COMPUTER PROBLEMS RELATED TO THE YEAR 2000 COULD ADVERSELY AFFECT
OUR BUSINESS.
We are highly dependent on our computer software programs and operating
systems in operating our business. For example, we use our computers to assist
in the scheduling and routing of the trucks which pick up waste from our
customers and deliver it to transfer stations and treatment facilities. We also
depend on the proper functioning of the computer systems of other parties,
particularly those parties whose ability to pay us on a timely basis depends on
their computers working correctly.
The failure of any of these systems to correctly interpret calendar
year 2000 could cause business interruptions or shutdowns, financial losses,
regulatory actions, harm to our reputation, and legal liability, any one of
which could have a material adverse effect on our business, financial condition
and results of operations.
We have established plans and conducted tests of our critical hardware
and financial and administrative software, which have verified that our internal
systems are Year 2000 compliant. We are also communicating with customers,
suppliers, financial institutions and others with which we do business to
coordinate Year 2000 conversion. However, given the complexity of Year 2000
issues and the uncertainty surrounding the responses of other parties to these
issues, we cannot assure you that we will be effective in eliminating all Year
2000 problems relating to our business. For more information on our Year 2000
program, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Issues."
PROPRIETARY INFORMATION--OUR ETD PROCESS AND OTHER ASPECTS OF OUR BUSINESS
DEPEND ON PATENTS AND PROPRIETARY INFORMATION.
We own nine United States patents relating to the ETD treatment process
and other aspects of processing medical waste. We have filed or have been
assigned patent applications in several foreign countries and have received
patents in five of them. We also own one United States patent for our reusable
container, for which we have the registered trademark "Steri-Tub(R)."
We believe that our patents are important to our prospects for success.
However, we cannot be sure that our patent applications will issue as patents or
that any issued patents will give us a competitive advantage. It is also
possible that our patents could be successfully challenged or circumvented by
competitors or other parties. In addition, we cannot be sure that our treatment
processes do not infringe patents or other proprietary rights of other parties.
We may need to sue any company that is infringing our patents, and we
may need to defend against claims of patent infringement brought by other
companies. Any litigation could be very costly and demand a great deal of our
management's time and attention. We also could be required to participate in
proceedings before the United States Patent and Trademark Office to determine
the priority of inventions or the validity of patents, which also could involve
a substantial expense and significant management time and attention. An
unfavorable judgment or decision in any lawsuit or proceeding could:
o result in substantial monetary liability, or
o prevent us from continuing to use our waste treatment
processes or equipment.
If we are prevented from using our processes or equipment, we could
attempt to negotiate a license from the party owning the patent, or we could
attempt to redesign our processes to avoid infringement. If we did suffer a
large monetary liability, or if we could not negotiate a license on reasonable
terms or redesign our processes to avoid infringement, it could have a material
adverse effect on our business, financial condition and results of operations.
See "Business--Patents and Proprietary Rights."
In addition to filing for patent protection where appropriate, we try
to protect our proprietary information through confidentiality agreements with
our employees, consultants and other people who must use our information. We
cannot be sure that these agreements will be complied with or that we can
enforce them effectively. Our proprietary information could become known to
competitors in other ways, and competitors might develop the same information
themselves. See "Business--Patents and Proprietary Rights."
We own federal registrations of:
o the trademarks "Steri-Fuel(R)," "Steri-Plastic(R),"
"Steri-Tub(R)," and "Steri-Cement(R);"
o the service mark "Stericycle(R);" and
o the service mark consisting of the nine green disks that
Stericycle uses in association with its name and services in
the United States (it appears on the cover of this
prospectus).
We cannot be sure that our trademarks or service marks will not infringe on the
rights of other parties. If we had to change any trademark, service mark or
trade name, we might lose the goodwill associated with it. A change could also
be very expensive and could have a material adverse effect on our business,
financial condition and results of operations.
See "Business--Patents and Proprietary Rights."
Our competitors and others are continuously trying to develop new and
better medical waste treatment and disposal technologies. These technologies may
operate more cheaply, handle more waste, produce fewer waste by-products or
pollutants, or have other advantages over our processes. If our competitors
successfully introduce these technologies, we could be placed at a competitive
disadvantage. New treatment and disposal technologies could also render our
processes obsolete. It might not be possible to replace or improve our equipment
and processes to compete effectively with new technologies, and even if it is
possible it could be extremely expensive.
KEY MANAGEMENT--WE DEPEND HEAVILY ON OUR SENIOR EXECUTIVES.
We depend on a small number of senior executives. Our future success
will depend upon, among other things, our ability to keep these executives and
to hire other highly qualified employees at all levels. We compete with other
potential employers for employees, and we may not be successful in hiring and
keeping the executives and other employees that we need. We do not have written
employment agreements with our President and Chief Executive Officer and our
four other most highly compensated officers, and officers and other key
employees may leave us with little or no prior notice, either individually or as
part of a group. Our loss of or inability to hire key employees could have a
material adverse effect on our business, financial condition and results of
operations.
INTERNATIONAL OPERATIONS--SALES OVERSEAS PRESENT NEW AREAS OF RISK.
We plan to grow both in the United States and in foreign countries. We
have already begun to establish operations in some foreign countries. Our
international activities may include the export of ETD technology and equipment.
Foreign operations carry special risks. Our business in foreign
countries may be limited or disrupted by:
o government controls; o changes in tariffs and taxes;
o import and export license o restrictions on repatriating foreign profits
requirements; back to the United States;
o political or economic o our unfamiliarity with foreign laws and
instability; regulations; or
o trade restrictions; o difficulties in staffing and managing
international operations.
Foreign governments and agencies often establish permit and regulatory
standards different from those in the United States. If we cannot obtain foreign
regulatory approvals, or if we cannot get them when we expect, it could have a
material adverse effect on our international business and its financial
condition and results of operations.
Fluctuations in currency exchange rates and increases in duty rates for
ETD equipment could have similar effects. On a pro forma combined basis,
revenues from customers and other sources outside the United States for the
twelve months ending June 30, 1999 were 5.2% of total revenues for the period.
We cannot assure you that we will be able to successfully operate in
any foreign market. See "Business--Business Strategy" and "--Marketing and
Sales."
LACK OF PUBLIC MARKET--NO PUBLIC MARKET EXISTS FOR THE SERIES B NOTES, AND YOU
MAY NOT BE ABLE TO RESELL YOUR SERIES B NOTES.
The series B notes are a new issue of securities with no established
trading market and will not be listed on any securities exchange, although we
expect that the series B notes will be eligible for trading in the PORTAL
market. Firms making a market in these notes may cease their market-making at
any time. In addition, the liquidity of the trading market for the series B
notes, if any, and the market price quoted for the series B notes, or, in the
case of non-tendering holders of series A notes the trading market and market
price for the series A notes, may be adversely affected by the changes in
interest rates in the market for high-yield securities and by changes in our
financial performance or prospects, or in the prospects for companies in the
medical waste management industry generally. As a result, you cannot be sure
than an active trading market will develop for these notes.
FRAUDULENT CONVEYANCE MATTERS--FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER
SPECIFIC CIRCUMSTANCES, TO VOID GUARANTEES AND REQUIRE NOTEHOLDERS TO RETURN
PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee, such as the subsidiary guarantees of the
series B notes by our subsidiary guarantors, could be voided, or claims in
respect of a guarantee could be subordinated to all other debts of that
guarantor if, among other things, the guarantor, at the time it incurred the
indebtedness evidenced by its guarantee, received less than reasonably
equivalent value or fair consideration for the incurrence of a guarantee; and
any one of the following:
o was insolvent or rendered insolvent by reason of any
incurrence;
o was engaged in a business or transaction for which the
guarantor's remaining assets constituted unreasonably small
capital; or
o intended to incur, or believed that it would incur, debts
beyond its ability to pay debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could be
voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer
laws will vary depending upon the law applied in any proceeding to determine
whether a fraudulent transfer has occurred. Generally, however, a guarantor
would be considered insolvent if:
o the sum of its debts, including contingent liabilities, were
greater than the fair saleable value of all of its assets;
o if the present fair saleable value of its assets were less
than the amount that would be required to pay its probable
liability on its existing debts, including contingent
liabilities, as they become absolute and mature; or
o it could not pay its debts as they become due.
On the basis of historical financial information, recent operating
history and other factors, we believe that each of our subsidiary guarantors,
after giving effect to its subsidiary guarantee of these notes, will not be
insolvent, will not have unreasonably small capital for the business in which it
is engaged and will not have incurred debts beyond its ability to pay any debts
as they mature. There can be no assurance, however, as to what standard a court
would apply in making these determinations or that a court would agree with our
conclusions in this regard.
FINANCING CHANGE OF CONTROL OFFER--WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE.
Upon the occurrence of specific change of control events, we will be
required to offer to repurchase all outstanding series A and series B notes.
However, it is possible that we will not have sufficient funds at the time of
the change of control to make the required repurchase of notes or that
restrictions in our credit facility will not allow any repurchases. In addition,
certain important corporate events, such as leveraged recapitalizations that
would increase the level of our indebtedness, would not constitute a "change of
control" under the indenture. See "Description of Notes--Repurchase at the
Option of Holders--Change of Control."
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements of our intentions, beliefs, expectations or predictions for
the future, denoted by the words "anticipate," "believe," "estimate," "expect,"
"project," "imply," "intend," "foresee" and similar expressions are
forward-looking statements that reflect our current views about future events.
For example, our current estimate of the timing and amount of cost savings that
we will realize as a result of the BFI acquisition is a forward-looking
statement. All of these forward-looking statements are subject to risks,
uncertainties and assumptions. These risks, uncertainties and assumptions
include those identified in the "Risk Factors" and "Business" sections of this
prospectus and the following:
o changes in laws or regulations affecting the medical waste
industry generally and our operations in particular;
o our success in integrating the BFI acquisition and achieving
the expected cost savings and other benefits of the
acquisition;
o the success of our acquisition strategy generally;
o management of our cash resources, particularly in light of our
substantial leverage; and
o industry-wide market factors and other general economic and
business conditions.
Although we believe that the expectations reflected in these
forward-looking statements are reasonable, our actual results could differ
materially from those projected in these forward-looking statements as a result
of these factors and others, many of which are beyond our control. There can be
no assurance our expectations will prove to have been correct. We are under no
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
prospectus might not occur.
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We have commenced this exchange offer to provide holders of series A
notes with an opportunity to acquire series B notes which, unlike the series A
notes, will be freely tradable at all times, subject to any restrictions on
transfer imposed by state "blue sky" laws. On November 12, 1999, we issued and
sold the outstanding series A notes in the aggregate principal amount of $125.0
million in order to provide a portion of the financing for the BFI acquisition.
We did not register the sale of the series A notes to the initial purchasers
under the Securities Act in reliance upon the exemption provided by Section 4(2)
of the Securities Act. The initial purchasers did not register the concurrent
resale of the series A notes to investors under the Securities Act in reliance
upon the exemptions provided by Rule 144A and Regulation S of the Securities
Act.
You may not reoffer, resell or transfer your series A notes other than
by means of a registration statement filed pursuant to the Securities Act or
unless an exemption from the registration requirements of the Securities Act is
available. Pursuant to Rule 144, you generally may resell your series A notes:
o commencing one year after their original issue date, in an amount up
to, for any three-month period, the greater of 1% of the series A notes
then outstanding or the average weekly trading volume of the series A
notes during the four calendar weeks immediately preceding the filing
of the required notice of sale with the SEC;
o commencing two years after the original issue date, in any amount and
otherwise without restriction as long as you are not, and have not been
for the preceding 90 days, an affiliate of ours.
The series A notes are eligible for trading in the PORTAL market, and
you may resell your series A notes to qualified institutional buyers pursuant to
Rule 144A. Other exemptions may also be available under other provisions of the
federal securities laws for the resale of the series A notes.
In connection with the original issue and sale of series A notes, we
entered into a registration rights agreement, pursuant to which we agreed to
file with the SEC a registration statement covering the exchange by us of the
series B notes for the series A notes. The registration rights agreement
provides that:
o we will file a registration statement with the SEC on or prior to 120
days after the issue date of the series A notes;
o we will use all commercially reasonable efforts to have the
registration statement declared effective by the SEC on or prior to 210
days after the original issue date;
o unless this exchange offer would not be permitted by applicable law
or SEC policy, we will use all commercially reasonable efforts to
commence this exchange offer and issue, on or prior to 30 business days
after the date on which the registration statement is declared
effective by the SEC, series B notes in exchange for all series A notes
tendered in this exchange offer; and
o if obligated to file a shelf registration statement covering the
series A notes, we will file the shelf registration statement with the
SEC on or prior to 30 days after the filing obligation arises and will
use all commercially reasonably efforts to cause the shelf registration
statement to be declared effective by the SEC on or prior to 60 days
after the obligation arises.
We will pay liquidated damages to each holder of transfer-restricted
securities, as described below, if any of the following occurs:
o we fail to file any of the registration statements required by the
registration rights agreement on or before the date specified for the
filing;
o any of the registration statements is not declared effective by the
SEC on or prior to the date specified for the effectiveness;
o we fail to consummate this exchange offer within 30 business days
after the date on which the registration statement covering the
exchange of series B notes for series A notes is declared effective; or
o any registration statement filed by us pursuant to the terms of the
registration rights agreement is declared effective but thereafter
ceases to be effective or usable in connection with resales of
transfer-restricted securities during the periods specified in the
registration rights agreement.
We will pay liquidated damages to the holders of transfer-restricted
securities, with respect to the first 90-day period immediately following the
occurrence of a default, in an amount equal to $.05 per week per $1,000
principal amount of transfer-restricted securities. The amount paid by us to the
holders of series A notes will increase by an additional $.05 per week per
$1,000 principal amount of transfer-restricted securities with respect to each
subsequent 90-day period until all defaults have been cured up to a maximum
amount of $.50 per week per $1,000 principal amount of transfer- restricted
securities, regardless of whether one or more default is outstanding. Following
the cure of all defaults, the accrual of damages will cease.
"Transfer-restricted securities" means each series B note until the
date on which the series B note is disposed of by a broker-dealer pursuant to
the procedures outlined under the caption "Plan of Distribution," including the
delivery of this prospectus and each series A note until:
o the date on which the series A note has been exchanged in this
exchange offer for a series B note which is entitled to be resold to
the public by the holder thereof without complying with the prospectus
delivery requirements of the Securities Act;
o the date on which the series A note has been disposed of in
accordance with a shelf registration statement and the purchasers
thereof have been issued series B notes; or
o the date on which the series A note is distributed to the public
pursuant to Rule 144 under the Securities Act.
The series B notes otherwise will be substantially identical in all
material respects, including interest rate, maturity, security and restrictive
covenants, to the series A notes for which they may be exchanged pursuant to
this exchange offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
prospectus and in the accompanying letter of transmittal, we will exchange
$1,000 principal amount of series B notes for each $1,000 principal amount of
our outstanding series A notes. Series B notes will be issued only in integral
multiplies of $1,000 to each tendering holder of series A notes whose series A
notes are accepted in this exchange offer.
The series B notes will bear interest from and including the original
issue date of the series A notes. Accordingly, if you receive series B notes in
exchange for series A notes, you will forego accrued but unpaid interest on your
exchanged series A notes for the period from and including the issue date of the
series A notes to the date of your exchange for series B notes, but will be
entitled to interest under the series B notes.
As of the date of this prospectus, $125.0 million aggregate principal
amount of series A notes were outstanding. This prospectus and the letter of
transmittal are being sent to all registered holders of series A notes as of
this date. You will not be required to pay brokerage commissions or fees or,
subject to the instructions in the letter of transmittal, transfer taxes with
respect to your exchange of series A notes pursuant to this exchange offer. We
will pay all charges and expenses, other than specific transfer taxes that may
be imposed, in connection with this exchange offer. See "--Payment of Expenses"
below.
As a holder of series A notes, you do not have any appraisal or
dissenters' rights under the Delaware General Corporation Law in connection with
this exchange offer.
EXPIRATION DATE; EXTENSIONS; TERMINATION
This exchange offer will expire at 5:00 p.m., New York City time, on
____________, __________ __, 2000, subject to our extension by notice to State
Street Bank and Trust Company, the exchange agent. We reserve the right to
extend this exchange offer in our discretion, in which event the expiration date
shall be the time and date on which this exchange offer as so extended shall
expire. We shall notify the exchange agent of any extension by oral or written
notice and shall mail to you an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date.
We reserve the right to extend or terminate this exchange offer and not
accept for exchange any series A notes if any of the events set forth below
under "--Conditions to the Exchange Offer" occur and are not waived by us, by
giving oral or written notice of this delay or termination to the exchange
agent. See "--Conditions to the Exchange Offer." The rights we reserve in this
paragraph are in addition to our rights set forth below under the caption "--
Conditions to the Exchange Offer."
PROCEDURES FOR TENDERING
Your tender of series A notes pursuant to one of the procedures set
forth below and our acceptance will constitute an agreement between you and us
in accordance with the terms and subject to the conditions set forth in this
prospectus and the letter of transmittal.
Except as set forth below, if you who wish to tender your series A
notes for exchange pursuant to this exchange offer, you must transmit a properly
completed and duly executed letter of transmittal, including all other documents
required by the letter of transmittal, to the exchange agent at the address set
forth below under "Exchange Agent" on or prior to the expiration date. In
addition, either:
o certificates for the series A notes must be received by the exchange
agent along with the letter of transmittal; or
o a timely confirmation of a book-entry transfer of the series A notes,
if the procedure is available, into the exchange agent's account at The
Depository Trust Company pursuant to the procedure for book-entry
transfer described below, must be received by the exchange agent prior
to the expiration date; or
o the holder must comply with the guaranteed delivery procedures
described below.
Letters of transmittal and series A notes should not be sent to us. We
are not asking you for a proxy, and you are requested not to send us a proxy.
Signatures on a letter of transmittal must be guaranteed unless the
series A notes are tendered (1) by a registered holder of series A notes who has
not completed the box entitled "Special Issuance and Delivery Instructions" on
the letter of transmittal or (2) for the account of any firm that is a member of
a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office in the U.S., sometimes referred to as an eligible institution.
In the event that signatures on a letter of transmittal are required to be
guaranteed, the guarantee must be by an eligible institution.
Your method of delivery of series A notes and other documents to the
exchange agent is at your election and risk, but if delivery is by mail we
suggest that the mailing be made sufficiently in advance of the expiration date
to permit delivery to the exchange agent before the expiration date.
If the letter of transmittal is signed by a person other than a
registered holder of any tendered series A note, the series A note must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear on the
series A note.
If the letter of transmittal or any series A notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, they should indicate the capacity in which they are signing, and,
unless waived by us, should provide proper evidence satisfactory of their
authority to act.
We will resolve all questions as to the validity, form, eligibility,
including time of receipt and acceptance of tendered series A notes, which
determination will be final and binding. We reserve the absolute right to reject
any or all tenders that are not in proper form or the acceptance of which would,
in the opinion of our counsel, be unlawful. We also reserve the right to waive
any irregularities or conditions of tender as to particular series A notes. Our
interpretation of the terms and conditions of this exchange offer, including the
instructions in the letter of transmittal, will be final and binding. Unless
waived, any irregularities in connection with tenders must be cured within the
period of time determined by us. Neither we nor the exchange agent is under any
duty to give notification of defects in these tenders or shall incur liabilities
for failure to give notification. Tenders of series A notes will not be deemed
to have been made until any irregularities have been cured or waived. Any series
A notes received by the exchange agent that are not properly tendered and as to
which the irregularities have not been cured or waived will be returned by the
exchange agent to the tendering holder, unless otherwise provided in the letter
of transmittal, as soon as practicable following the expiration date.
Our acceptance of your series A notes pursuant to this exchange offer
will constitute a binding agreement between you and us upon the terms and
subject to the conditions of this exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with
respect to the series A notes at DTC for purposes of this exchange offer within
two business days after the date of effectiveness of the registration statement
of which this prospectus forms a part, and any financial institution that is a
participant in DTC's systems may make book-entry delivery of series A notes by
causing DTC to transfer series A notes into the exchange agent's account at DTC
in accordance with DTC's procedures for transfer. However, although delivery of
series A notes may be effected through book-entry transfer at DTC, the letter of
transmittal or facsimile thereof with any required signature guarantees and any
other required documents must, in any case, be transmitted to and received by
the exchange agent at one of the addresses set forth below under "Exchange
Agent" on or prior to the expiration date or the guaranteed delivery procedures
described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your series A notes and (1) your series A notes
are not immediately available or (2) you cannot deliver your series A notes, the
letter of transmittal or any other required documents to the exchange agent
prior to the expiration date, you may effect a tender if:
o your tender is made through an eligible institution;
o prior to the expiration date, the exchange agent receives from your
designated eligible institution a properly completed and duly executed
notice of guaranteed delivery by facsimile transmission, mail or hand
delivery setting forth your name and address, the certificate number(s)
of your tendered series A notes and the principal amount of your
tendered series A notes, stating that the tender is being made thereby
and guaranteeing that, within five NYSE trading days after the
expiration date, the letter of transmittal or facsimile thereof
together with the certificate(s) representing your series A notes, or a
book-entry confirmation, as the case may be, and any other documents
required by the letter of transmittal will be deposited by the eligible
institution with the exchange agent; and
o your properly completed and executed letter of transmittal or
facsimile thereof, as well as the certificate(s) representing all your
tendered series A notes in proper form for transfer, or a book-entry
confirmation, as the case may be, and all other documents required by
the letter of transmittal are received by the exchange agent within
five NYSE trading days after the expiration date.
Upon request of the exchange agent, the exchange agent or we will send
a notice of guaranteed delivery to you if you wish to tender your series A notes
according to the guaranteed delivery procedures set forth above.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of this exchange offer or any
extension of this exchange offer, we will not be required to issue series B
notes in respect of any properly tendered series A notes not previously
accepted, and may terminate this exchange offer by oral or written notice to the
exchange agent and the holders, or at our option, modify or otherwise amend this
exchange offer, if any material change occurs that is likely to affect this
exchange offer, including, but not limited to, the following:
o there shall be instituted or threatened any action or proceeding
before any court or governmental agency challenging this exchange offer
or otherwise directly or indirectly relating to this exchange offer or
otherwise affecting us;
o there shall occur any development in any pending action or proceeding
that, in our sole judgment, would or might (1) have an adverse effect
on our business, (2) prohibit, restrict or delay consummation of this
exchange offer or (3) impair the contemplated benefits of this exchange
offer;
o any statute, rule or regulation shall have been proposed or enacted,
or any action shall have been taken by any governmental authority
which, in our sole judgment, would or might (1) have an adverse effect
on our business, (2) prohibit, restrict or delay consummation of this
exchange offer or (3) impair the contemplated benefits of this exchange
offer; or
o there exists, in our sole judgment, any actual or threatened legal
impediment, including a default or prospective default under an
agreement, indenture or other instrument or obligation to which we are
a party or by which we are bound, to the consummation of the
transactions contemplated by this exchange offer.
We expressly reserve the right to terminate this exchange offer and not
accept for exchange any series A notes upon the occurrence of any of the
foregoing conditions. In addition, we may amend this exchange offer at any time
prior to 5:00 p.m., New York City time, on the expiration date if any of the
conditions listed above occur. Moreover, regardless of whether any of these
conditions has occurred, we may amend this exchange offer in any manner that, in
our good faith judgment, is advantageous to you.
These conditions are for our sole benefit and may be waived by us, in
whole or in part, in our sole discretion. Any determination we make concerning
an event, development or circumstance described or referred to above will be
final and binding on all parties.
ACCEPTANCE OF SERIES A NOTES FOR EXCHANGE; DELIVERY OF SERIES B NOTES
Upon the terms and subject to the conditions of this exchange offer, we
will accept all series A notes validly tendered prior to 5:00 p.m., New York
City time, on the expiration date. We will deliver series B notes in exchange
for series A notes promptly following the expiration date.
For purposes of this exchange offer, we shall be deemed to have
accepted validly tendered series A notes when, as and if we have given oral or
written notice of acceptance to the exchange agent. The exchange agent will act
as agent for the tendering holders for the purpose of receiving the series A
notes. Under no circumstances will interest be paid by the exchange agent or us
for any delay in making payment or delivery.
If we do not accept your tendered series A notes for exchange because
of an invalid tender, the occurrence of other events listed in this prospectus
or otherwise, we will return your unaccepted series A notes to you, at our
expense, as promptly as practicable after the expiration or termination of this
exchange offer.
WITHDRAWAL RIGHTS
Your tender of series A notes may be withdrawn at any time prior to the
expiration date.
For your withdrawal to be effective, you must deliver a written notice
of withdrawal to the exchange agent at the address set forth below under
"Exchange Agent." Your notice of withdrawal must specify your name, identify the
series A notes to be withdrawn, including the principal amount, and, where
certificates for series A notes have been transmitted, specify the name in which
the series A notes are registered, if different from your name. If certificates
for series A notes have been delivered or otherwise identified to the exchange
agent, then, prior to the release of the certificates you must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an eligible institution
unless you are an eligible institution. If your series A notes have been
tendered pursuant to the procedure for book-entry transfer described above, your
notice of withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawn series A notes and otherwise comply with the
procedures of the facility. We will determine all questions as to the validity,
form and eligibility (including time of receipt) of these notices which
determination shall be final and binding on all parties.
Any series A notes that are withdrawn will be deemed not to have been
validly tendered for exchange for purposes of this exchange offer. Any series A
notes that have been tendered for exchange but that are not exchanged for any
reason will be returned to the holder thereof without cost to the holder, or, in
the case of series A notes tendered by book-entry transfer into the exchange
agent's account at DTC pursuant to the book-entry transfer procedures described
above, will be credited to an account maintained with DTC for the series A
notes, as soon as practicable after withdrawal, rejection of tender or
termination of this exchange offer. You may retender any properly withdrawn
series A notes by following one of the procedures described under "--Procedures
for Tendering" above at any time on or prior to the expiration date.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of this exchange offer. This discussion is not binding on the IRS
or the courts, and we cannot assure you that the IRS will not take, and that a
court would not sustain, a position contrary to that described below. This
summary is based on the current provisions of the tax code and applicable
Treasury regulations, judicial authority and administrative pronouncements. The
tax consequences described below could be modified by future changes in the
relevant law, which could have retroactive effect. You should consult your own
tax adviser as to these and any other federal income tax consequences of this
exchange offer as well as any tax consequences to you under foreign, state,
local or other law.
The exchange of the series A notes for series B notes pursuant to this
exchange offer should not be treated as an "exchange" for U.S. federal income
tax purposes because the series B notes will not be considered to differ
materially in kind or extent from the series A notes. Rather, any series B notes
received by you should be treated as a continuation of your investment in the
series A notes. As a result, there should be no material U.S. federal income tax
consequences to you resulting from the exchange offer. In addition, you should
have the same adjusted issue price, adjusted basis and holding period in the
series B notes as you had in the series A notes immediately prior to the
exchange. See " Federal Income Tax Considerations."
<PAGE>
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as exchange
agent for this exchange offer. You should address all correspondence in
connection with this exchange offer and the letter of transmittal to the
exchange agent as follows:
State Street Bank and Trust Company
By Registered or Certified Mail: By Hand /Overnight Delivery:
- ----------------------------------------- ------------------------------------
State Street Bank and Trust Company State Street Bank and Trust Company
P.O. Box 778 Two Avenue de Lafayette
Boston, MA 02102-0078 5th Floor, Corporate Trust Window
Attention: Kellie Mullen Boston, MA 02111-1724
Attention: Kellie Mullen/
MacKenzie Elijah
By Facsimile:
-----------------------------
(617) 662-1452
Confirm by Telephone
(617) 662-1525
You may request additional copies of this prospectus or the letter of
transmittal from the exchange agent or us.
PAYMENT OF EXPENSES
We have not retained any dealer-manager or similar agent in connection
with this exchange offer and will not make any payments to brokers, dealers or
others for soliciting acceptances of this exchange offer. We, however, will pay
reasonable and customary fees and reasonable out-of-pocket expenses to the
exchange agent in connection with the solicitation of acceptances. We will also
pay the cash expenses to be incurred in connection with this exchange offer,
including accounting, legal, printing and related fees and expenses.
ACCOUNTING TREATMENT
We will record the series B notes at the same carrying value as the
series A notes, as reflected in our accounting records on the date of the
exchange. Accordingly, we will recognize no gain or loss for accounting
purposes.
We will capitalize our expenses of this exchange offer for accounting purposes.
RESALES OF NOTES
With respect to resales of series B notes, based on interpretive
letters issued by the staff of the SEC to third parties, we believe that a
holder of series B notes who exchanged series A notes for series B notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement or understanding with any person to
participate, in a distribution of the series B notes, will be allowed to resell
the series B notes to the public without further registration under the
Securities Act and without delivering to purchasers of the series B notes a
prospectus that satisfies the requirements of the Securities Act, except for:
o a broker-dealer who purchases series B notes directly from us to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act, or
o a person who is our "affiliate" within the meaning of Rule 405 under
the Securities Act.
However, a broker-dealer who holds series A notes that were acquired
for its own account as a result of market-making or other trading activities may
be deemed to be an underwriter within the meaning of the Securities Act and
must, therefore, deliver a prospectus meeting the requirements of the Securities
Act. If any other holder is deemed to be an underwriter within the meaning of
the Securities Act or acquires series B notes in this exchange offer for the
purpose of distributing or participating in a distribution of series B notes,
the holder must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless an exemption from registration is otherwise available. We
have agreed that for a period of up to one year from the expiration date, we
will make this prospectus, as amended or supplemented, available to any broker-
dealer for use in connection with any resale.
<PAGE>
THE BFI ACQUISITION
TRANSACTION OVERVIEW
On November 12, 1999, we acquired from Allied all of the medical waste
management operations of BFI and Allied in the United States, Canada and Puerto
Rico. The purchase price was $410.5 million in cash, subject to post-closing
adjustment. Our purchase of the BFI medical waste business excluded accounts
receivable and accounts payable. As a result, based on historical requirements
of the BFI medical waste business, we expect to make a net investment in working
capital of approximately $15.0 million in the twelve months following closing.
Prior to the BFI acquisition, BFI was the largest provider of regulated
medical waste services in the United States. For the twelve months ended June
30, 1999, BFI's medical waste business had revenues of $201.7 million. The
medical waste business that Allied owned prior to the BFI acquisition represents
an insignificant amount of the businesses we acquired.
TRANSITION AGREEMENT
We have entered into a transition agreement with Allied that requires
Allied, for a period of one year following the closing, to provide specified
operational and administrative support to us and to make facilities available to
us in order to facilitate a smooth transition of the BFI medical waste business.
In particular, this agreement requires Allied to: (1) continue to operate
permitted treatment and disposal facilities and transfer stations of the BFI
medical waste business for us until we receive the necessary permits and
approvals to operate them, (2) make available to us at operating locations of
the BFI medical waste business substantially the same space used by that
business prior to the closing, and (3) to provide operational and administrative
support to us at the operating locations of the BFI medical waste business as we
require to facilitate a smooth transition, including vehicle maintenance,
telephone answering, dispatching, backup drivers, personnel assistance and
customer billing. The transition agreement requires us to reimburse Allied for
these services on a direct cost, pass-through basis, except that for services
other than facility operation there are no charges during the first six months
following the closing of the BFI acquisition provided we use our reasonable best
efforts to stop using these services as soon as possible.
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated cash and cash
equivalents and capitalization as of September 30, 1999 on an actual basis and
pro forma to give effect to the BFI acquisition and related financing
transactions as if those events all occurred on September 30, 1999. You should
read this table in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Description of Other
Indebtedness" and our financial statements and notes thereto.
AS OF SEPTEMBER 30,
1999
----
ACTUAL PRO FORMA
------ ---------
(IN THOUSANDS)
Cash and cash equivalents ............................ $ 16,017 $ 12,348
========= =========
Long-term debt (including current portion):
Credit facility:
Revolving credit facility(1) ................... $ -- $ --
Term loan A .................................... -- 75,000
Term loan B .................................... -- 150,000
Notes offered hereby .............................. -- 125,000
Capital leases assumed ............................ -- 5,132
Existing indebtedness ............................. 5,778 5,778
--------- ---------
Total long-term debt, including current portion 5,778 360,910
Convertible Preferred Stock .......................... -- 70,275
Common shareholders' equity:
Common stock ...................................... 147 147
Additional paid-in capital ........................ 136,148 136,148
Accumulated deficit ............................... (24,483) (26,283)
--------- ---------
Common shareholders' equity .................... 111,812 110,012
--------- ---------
Total capitalization ........................... $ 117,590 $ 541,197
========= =========
(1) Our revolving credit facility has a total availability of $50.0
million, subject to satisfaction of certain customary conditions. See
"Description of Other Indebtedness-- Credit Facility."
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
OF STERICYCLE AND THE BFI MEDICAL WASTE BUSINESS
The unaudited pro forma condensed combined balance sheet as of
September 30, 1999 gives effect to the following, as if each had occurred on
September 30, 1999:
(i) the BFI acquisition;
(ii) the offering of the series A notes;
(iii) $225 million of borrowings under our credit facility with various
financial institutions, DLJ Capital Funding, Inc., as syndication agent
for the financial institutions, lead arranger and sole book running
manager, Bank of America, N.A., as administrative agent for the
financial institutions, and Bankers Trust Company, as documentation
agent for the financial institutions (See "Description of Other
Indebtedness -- Credit Facility");
(iv) $75.0 million of gross proceeds from the sale by us on November
12, 1999 of our convertible preferred stock to investment funds
associated with Bain Capital, Inc. and with Madison Dearborn Partners,
Inc., which represents approximately 22.6% of our outstanding common
stock on an as-if converted basis (See "Description of Capital Stock --
Convertible Preferred Stock");
(v) the application of the net proceeds received from (ii), (iii) and
(iv) above; and
(vi) the costs and expenses associated with (i)-(iv) above.
The unaudited pro forma condensed combined statements of operations for
the year ended December 31, 1998 and for the nine months ended September 30,
1999 give effect to these transactions as if each occurred at the beginning of
the period presented. In addition, the unaudited pro forma condensed combined
statements of operations include our acquisition of Waste Systems, Inc., the
majority owner of 3CI Complete Compliance Corporation, which closed in October
1998, the acquisition of Med-Tech Environmental Limited and related
transactions, which closed in December 1998, and the acquisition of Medical
Disposal Systems, which closed in April 1999, as if each had occurred at the
beginning of the period presented.
The unadited pro forma condensed combined financial statements do not
include adjustments to reflect (a) cost savings that we expect to realize over
the year following the BFI acquisition or (b) an increase in selling, general
and administrative expense to reflect the allocation of historical BFI corporate
and shared services costs to the BFI medical waste business. See Note 5 of Notes
to Pro Forma Condensed Combined Statements of Operations. The unaudited pro
forma financial data do not purport to represent what our financial position and
results of operations would have been if the transactions listed above and the
other acquisitions had actually occurred as of the dates indicated and are not
intended to project our financial position or results of operations for any
future period. See "Special Note Regarding Forward-Looking Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The pro forma adjustments to the purchase price allocation and
financing of the BFI medical waste business acquisition are preliminary and
based on information obtained to date that is subject to revision as additional
information becomes available. Revision to the preliminary purchase price
allocation and financing may have a significant impact on total assets, total
liabilities and shareholders' equity, cost of revenue, selling, general and
administrative expenses, depreciation and amortization, and interest expense.
The unaudited pro forma condensed combined financial statements should
be read in conjunction with the notes thereto, the historical consolidated
financial statements of Stericycle and related notes thereto included herein,
and the historical financial statements of the BFI medical waste business and
related notes thereto included herein.
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS)
<CAPTION>
BFI MEDICAL
STERICYCLE WASTE PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
(NOTE 1) (NOTE 2) (NOTE 3)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ................................ $ 16,017 $ -- $ (3,669) (a) $ 12,348
Other current assets ..................................... 25,213 18,152 (16,552) (b) 26,813
--------- --------- --- ---------
Total current assets ..................................... 41,230 18,152 (20,221) 39,161
Property and equipment, net .............................. 22,435 60,548 (6,001) (c) 76,982
Other assets ............................................. 5,539 3,061 16,359 (d) 24,959
Goodwill, net ............................................ 59,524 53,100 301,708 (e) 414,332
--------- --------- --------- --- ---------
Total assets ............................................. $ 128,728 $ 134,861 $ 291,845 $ 555,434
========= ========= ========= === =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Other current liabilities ................................ $ 11,138 $ 3,198 $ (99) (f) $ 14,237
Current portion of long-term debt ........................ 1,900 970 3,375 (g) 6,245
--------- --------- --------- --- ---------
Total current liabilities ................................ 13,038 4,168 3,276 20,482
Long-term debt, net of current portion ................... 3,878 4,162 346,625 (g) 354,665
Other long-term liabilities .............................. -- 938 (938) (h) --
Convertible preferred stock .............................. -- -- 70,275 (i) 70,275
Common shareholders' equity .............................. 111,812 125,593 (127,393) (j) 110,012
--------- --------- --------- --- ---------
Total liabilities and
shareholders' equity ................................. $ 128,728 $ 134,861 $ 291,845 $ 555,434
========= ========= ========= === =========
The accompanying notes are an integral part of this unaudited pro forma
condensed combined balance sheet.
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
1. STERICYCLE HISTORICAL
The historical balances represent the consolidated balance sheet of
Stericycle as of September 30, 1999 as reported in the unaudited historical
consolidated financial statements of Stericycle.
2. BFI MEDICAL WASTE BUSINESS HISTORICAL
The amounts related to the BFI medical waste business in the pro forma
condensed combined balance sheet represent the historical assets and liabilities
of the BFI medical waste business (which includes the MDS acquisition) as of
June 30, 1999, as reported in the unaudited historical financial statements of
the BFI medical waste business. The amount included in common shareholders'
equity in the unaudited pro forma condensed combined balance sheet for the BFI
medical waste business is its Directly Identifiable Assets in excess of its
Directly Identifiable Liabilities.
3. PRO FORMA ADJUSTMENTS
The pro forma adjustments reflected in the unaudited pro forma
condensed combined balance sheet give effect to the following (in thousands,
except share data):
(a) The use of Stericycle cash on hand to fund a portion of the cash
required in connection with the BFI acquisition and related financing
transactions, as follows:
Total Stericycle cash required.....................................$ 6,475
Transaction costs paid by September 30, 1999 ....................... (2,806)
-------
$ 3,669
(b) The elimination of the historical book value of the BFI medical
waste business accounts receivable of $16,552, which is not included in
the net assets acquired.
(c) Based on preliminary appraisal information, the historical net book
values of the acquired property and equipment exceed the fair market
values of these assets by approximately $6,001.
(d) The increase in the fair value of intangible assets and the
capitalization of deferred financing fees and costs, as follows:
Increase in fair value of intangible assets.......................$ 5,109
Payment of deferred financing fees and costs ...................... 11,250
-------
$16,359
(e) The incremental increase in goodwill resulting from the BFI
acquisition, as follows:
Cost in excess of the estimated fair value of the acquired net assets.$ 358,315
Elimination of historical goodwill of the BFI medical waste business .. (53,100)
Transaction costs incurred by September 30, 1999 ....................... (3,507)
---------
$ 301,708
(f) Adjustments to exclude the historical book value of accrued
liabilities which are not included in the net assets acquired and to
record liabilities in accordance with EITF Issue 95-3, "Recognition of
Liabilities in Connection with a Purchase Business Combination" and
EITF Issue 94-3, "Liability Recognition of Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Including Certain Costs
Incurred in a Restructuring)." The liabilities recognized in accordance
with EITF 95-3 and EITF 94-3 represent severance and closure costs
estimated to be incurred in the expected elimination of duplicative
personnel and closing of certain duplicative facilities of both
Stericycle and the BFI medical waste business. The adjustments are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Liabilities relating to the BFI medical waste business severance and facility
closings .................................................................. $ 2,000
Liabilities relating to Stericycle severance and facility closings, net of tax 1,800
Elimination of historical accrued liabilities of the BFI medical waste business (3,198)
Transaction costs accrued at September 30, 1999 ............................... (701)
-------
$ (99)
</TABLE>
(g) The offering of series A notes and borrowings under our credit
facility calculated as follows:
Proceeds from our credit facility...............................$ 225,000
Proceeds from the series A notes................................ 125,000
-------------
$ 350,000
The net increase in long-term debt has been classified as follows:
Current portion of long-term debt...............................$ 3,375
Long-term debt, net of current portion.......................... 346,625
-------------
$ 350,000
(h) The elimination of other long-term liabilities of $938, which were
will not assumed in the BFI acquisition.
(i) The issuance of 75,000 shares of 3.375% payment-in-kind Convertible
Preferred Stock and payment of the related financing fees and costs, as
follows:
Issuance of Convertible Preferred Stock.........................$ 75,000
Payment of financing fees and costs............................. (4,725)
--------------
$ 70,275
(j) The elimination of the historical shareholders' equity of the BFI
medical waste business and an accrual for a Stericycle restructuring
charge in accordance with EITF 94-3, as follows:
<TABLE>
<CAPTION>
<S> <C>
Elimination of historical shareholders' equity ............................... $(125,593)
Liabilities relating to Stericycle severance and facility closings, net of tax (1,800)
---------
$(127,393)
</TABLE>
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<CAPTION>
BFI ADJUSTMENTS OTHER
STERICYCLE MEDICAL WASTE FOR PRIOR PRO FORMA
HISTORICAL HISTORICAL ACQUISITIONS ADJUSTMENTS PRO FORMA
---------- ---------- ------------ ----------- ---------
(NOTE 1) (NOTE 2) (NOTE 3) (NOTE 4)
<S> <C> <C> <C> <C> <C>
Revenues..................... $ 66,681 $ 198,222 $ 25,372 $ -- $ 290,275
Cost of revenues............. (45,328) (132,629) (19,282) 6,884 (a) (190,355)
Selling, general and
administrative expense.... (14,929) (13,273) (4,964) (7,553)(b) (40,719)
Special charges.............. -- (257) (178) -- (435)
----------- ----------- ----------- ----------- ------------
Operating income............. 6,424 52,063 948 (669) 58,766
Interest income.............. 714 -- -- -- 714
Interest expense............. (777) -- (1,619) (36,770)(d) (39,166)
----------- ----------- ----------- ------------ ------------
Income before income taxes... 6,361 52,063 (671) (37,439) 20,314
Income tax expense........... (648) -- -- (5,438)(e) (6,086)
Minority interest............ -- -- 43 -- 43
----------- ----------- ----------- ----------- ------------
Net income................... 5,713 52,063 (628) (42,877) 14,271
Dividends on convertible
preferred stock........... -- -- -- (2,531)(f) (2,531)
----------- ----------- ----------- ------------ ------------
Net income applicable to
common shareholders....... $ 5,713 $ 52,063 $ (628) $ (45,408) $ 11,740
=========== =========== =========== ============ ============
Basic earnings per share..... $ 0.54 -- -- -- $ 1.10
=========== ============
Weighted average common
shares outstanding........ 10,647 -- 37 -- 10,684
=========== =========== ============
Diluted earnings per share... $ 0.51 -- -- -- $ 0.92
=========== ============
Weighted average common
and common equivalent
shares outstanding........ 11,264 -- 37 4,286 (g) 15,586
=========== =========== =========== ============
OTHER DATA:
Ratio of earnings to
fixed charges............. 1.5x
The accompanying notes are an integral part of this unaudited pro forma
condensed combined statement of operations.
</TABLE>
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
<CAPTION>
BFI ADJUSTMENTS OTHER
STERICYCLE MEDICAL WASTE FOR PRIOR PRO FORMA
HISTORICAL HISTORICAL ACQUISITIONS ADJUSTMENTS PRO FORMA
---------- ---------- ------------ ----------- ---------
(NOTE 1) (NOTE 2) (NOTE 3) (NOTE 4)
<S> <C> <C> <C> <C> <C>
Revenues..................... $ 74,285 $ 152,266 $ 2,887 $ -- $ 229,438
Cost of revenues............. (48,998) (99,831) (2,137) 4,842 (a) (146,124)
Selling, general and
administrative expense.... (15,541) (8,824) (525) (5,564)(b) (30,454)
Special (charges) credit..... -- 469 (178) (480)(c) (189)
----------- ----------- ------------ ----------- ------------
Operating income............. 9,746 44,080 47 (1,202) 52,671
Interest income.............. 576 -- -- -- 576
Interest expense............. (689) -- -- (27,632)(d) (28,321)
Other income................. 404 -- -- -- 404
----------- ----------- ----------- ----------- ------------
Income before income taxes... 10,037 44,080 47 (28,834) 25,330
Income tax expense........... (2,168) -- -- (6,117)(e) (8,285)
----------- ----------- ----------- ----------- ------------
Net income................... 7,869 44,080 47 (34,951) 17,045
Dividends on convertible
preferred stock........... -- -- -- (1,898)(f) (1,898)
----------- ----------- ----------- ----------- ------------
Net income applicable to
common shareholders....... $ 7,869 $ 44,080 $ 47 $ (36,849) $ 15,147
=========== =========== =========== =========== ============
Basic earnings per shares.... $ 0.56 -- -- -- $ $1.08
=========== ============
Weighted average common
shares outstanding........ 14,073 -- -- -- $ 14,073
=========== ==============
Diluted earnings per shares.. $ 0.54 -- -- -- $ 0.91
=========== =============
Weighted average common
and common equivalent
shares outstanding........ 14,482 -- -- 4,286 (g) 18,768
=========== =========== ==============
OTHER DATA:
Ratio of earnings to
fixed charges............. 1.8x
The accompanying notes are an integral part of this unaudited pro forma
condensed combined statement of operations.
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENTS OF OPERATIONS
1. STERICYCLE HISTORICAL
The historical balances in this column represent the consolidated
results of operations of Stericycle for each of the indicated periods as
reported in the historical consolidated financial statements of Stericycle.
2. BFI MEDICAL WASTE BUSINESS HISTORICAL
The amounts related to the BFI medical waste business in this column
represent the historical Revenues and Direct Expenses of the BFI medical waste
business for its fiscal year ended September 30, 1998 and the nine months ended
June 30, 1999 as reported in the historical financial statements of the BFI
medical waste business. The historical Statements of Revenues and Direct
Expenses for the BFI medical waste business exclude specific costs for selling,
general and administrative efforts which are performed by BFI on a shared
service basis.
3. ADJUSTMENTS FOR PRIOR ACQUISITIONS
The pro forma adjustments in this column reflect, in accordance with
SEC regulations, the unaudited pro forma condensed combined results of
operations for the year ended December 31, 1998 of Waste Systems, Inc., acquired
by Stericycle in October 1998, and Med-Tech Environmental Limited, acquired by
Stericycle in December 1998 and the related purchase price allocations and
financing, all to give effect to these transactions as if each had occurred at
the beginning of the period presented. The results of operations of Med-Tech for
the year ended December 31, 1998 have been adjusted to exclude $803,000 of
direct acquisition costs, principally professional fees, incurred by Med-Tech as
a result of its sale to Stericycle. Also reflects the unaudited pro forma
condensed combined results of operations for the year ended September 30, 1998,
and the nine months ended June 30, 1999 of Medical Disposal Systems, acquired by
BFI in April 1999, and the related purchase price allocations.
4. OTHER PRO FORMA ADJUSTMENTS
The pro forma adjustments in this column reflect the following:
(a) A decrease in depreciation expense relating to acquired property
and equipment based on estimated useful lives and appraised values. The
preliminary appraised values of the acquired property and equipment are
not less than the BFI historical net book value. The following table
indicates the components of the adjustments by asset class and the
amount by which current estimates of average useful lives differ from
the average remaining lives in the depreciation accounts of BFI (in
thousands, except lives in years):
<PAGE>
<TABLE>
<CAPTION>
DEPRECIATION EXPENSE
--------------------
PRELIMINARY CURRENT APPROXIMATE YEAR NINE MONTHS
ESTIMATED AVERAGE BFI AVERAGE ENDED ENDED
FAIR VALUE ESTIMATED LIFE REMAINING LIFE 12/31/98 9/30/99
---------- -------------- -------------- -------- -------
<S> <C> <C> <C> <C> <C>
Land....................................... $ 7,222 N/A N/A $ -- $ --
Buildings and improvements................. 19,782 28.2 21 701 526
Machinery and equipment.................... 26,284 6.3 3 4,146 3,110
Office equipment and furniture............. 1,055 5 2 211 158
Construction in process.................... 204 N/A N/A -- --
------------ --------- --------
$ 54,547 5,058 3,794
------------
<S> <C> <C>
BFI medical waste business depreciation expense (including MDS)................. 12,361 8,982
--------- --------
Decrease in depreciation expense................................................ 7,303 5,188
Less: decrease allocated to selling, general, and administrative expense....... (419) (346)
--------- --------
Decrease in cost of revenues.................................................... $ 6,884 $ 4,842
========= ========
</TABLE>
The decrease in depreciation expense is due to a decrease in the fair
value of the acquired assets compared to their net book value and our belief
that the assets acquired will have an average useful life longer than that
originally determined by BFI. The expected remaining useful lives added to the
current age of the assets is consistent with the useful lives Stericycle assigns
to its other similar assets, when acquired.
(b) An increase in amortization expense relating to acquired intangible
assets and goodwill based on estimated lives, net of a decrease in
depreciation expense as computed in Note 4(a) above and the
reclassification of interest expense which has been included in the
historical selling, general, and administrative expense of the BFI
medical waste business, on capital leases which are being assumed, as
follows (in thousands, except estimated lives in years):
<TABLE>
<CAPTION>
AMORTIZATION EXPENSE
--------------------
PRELIMINARY CURRENT YEAR NINE MONTHS
ESTIMATED ESTIMATED ENDED ENDED
FAIR VALUE AVERAGE LIFE 12/31/98 9/30/99
---------- ------------ -------- -------
<S> <C> <C> <C> <C>
Non-compete agreement................ $ 5,300 5 $ 1,060 $ 795
Employee work force.................. 2,870 3 957 718
Goodwill............................. 358,315 40 8,958 6,718
--------- ---------
10,975 8,231
<S> <C> <C>
BFI medical waste business amortization expense (including MDS)................. 2,845 2,148
--------- ---------
Increase in amortization expense................................................ 8,130 6,083
Reclassification of interest expense on capital leases assumed.................. (158) (173)
Decrease in depreciation expense................................................ (419) (346)
--------- ---------
Increase in selling, general, and administrative expense........................ $ 7,553 $ 5,564
========= =========
</TABLE>
(c) The elimination of a gain on the sale of customer lists to
Stericycle of $480,000 for the nine months ended June 30, 1999, which
is included in the historical financial statements of the BFI medical
waste business during this period.
(d) A net increase in interest expense reflecting the draw down of our
credit facility, issuance of the notes, amortization of deferred
financing costs, and a reclassification of interest expense which has
been included in the historical selling, general and administrative
expenses of the BFI medical waste business on capital leases which are
being assumed, calculated as follows (in thousands, except interest
rates):
<TABLE>
<CAPTION>
INTEREST EXPENSE
----------------
YEAR NINE MONTHS
AMOUNT INTEREST ENDED ENDED
BORROWED RATE 12/31/98 9/30/99
-------- ---- -------- -------
<S> <C> <C> <C> <C>
New credit facility:
Term loan A............................ $ 75,000 8.25% $ 6,188 $ 4,641
Term loan B............................ 150,000 9.00% 13,500 10,125
Notes offered hereby...................... 125,000 12.375% 15,469 11,602
Amortization of deferred financing costs.. 1,455 1,091
Reclassification of interest expense on
capital leases assumed................. 158 173
--------- ---------
Increase in interest expense.............. $ 36,770 $ 27,632
========= =========
</TABLE>
(e) Income tax expense resulting from a pro forma increase in taxable
income at an effective rate of 40%, net of an elimination of
alternative minimum taxes of $143 for the year ended December 31, 1998.
(f) Payment-in-kind dividends at an annual rate of 3.375% on the $75
million liquidation value of our convertible preferred stock.
(g) Incremental issuance of common shares on an as if converted basis
for the convertible preferred shares at a conversion price of $17.50
per share.
5. EXCLUDED COSTS AND EXPECTED COST SAVINGS (IN THOUSANDS, EXCEPT PER
SHARE DATA)
The statements of operations data for the BFI Medical Waste Business
and the pro forma condensed combined statements of operations exclude indirect
selling, general and administrative expenses of the BFI medical waste business
of $13,298 and $17,090 for the nine months ended September 30, 1999 and the year
ended September 30, 1998, respectively. See note 3 to the Notes to Financial
Statements of the BFI Medical Waste Business. The pro forma condensed combined
statements of operations also do not reflect the effect of the expected
elimination of duplicative personnel and facilities costs related to both
Stericycle and the BFI medical waste business. Based upon our detailed
transition plans, we estimate that if these expected eliminations had been in
effect on January 1, 1998, they would have had the effect of reducing
transportation, plant, operations and facilities costs by $9,581, during the
nine months ended September 30, 1999 and by $12,805, during the year ended
December 31, 1998. Adjusting for the indirect selling, general and
administrative expenses mentioned above, the reduction in transportation, plant,
operations and facilities costs, and the related tax effects of each, would
result in net income to common shareholders, basic earnings per share, and
diluted earnings per share of $13,213, $0.94, and $0.81 for the nine months
ended September 30, 1999 and $9,554, $0.89 and $0.78 for the year ended December
31, 1998, respectively.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
STERICYCLE
You should read Stericycle's selected historical consolidated financial
data set forth below in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," our consolidated financial
statements and the notes thereto, and the other financial information included
herein. The data for the full years have been derived from our audited
consolidated financial statements. The data for the nine months ended September
30, 1998 and 1999 have been derived from our unaudited consolidated financial
statements and, in the opinion of our management, include all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the results of operations for the periods and financial
condition as of the dates presented. The results of operations for the nine
months ended September 30, 1999 are not necessarily indicative of the results of
operations for the full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues............................. $ 16,141 $ 21,339 $ 24,542 $ 46,166 $ 66,681 $ 44,759 $ 74,285
Cost of revenues..................... 13,922 17,478 19,423 34,109 45,328 30,492 48,998
Selling, general and administrative
expenses........................... 7,927 8,137 7,556 10,671 14,929 10,151 15,541
-------- --------- -------- -------- --------- --------- ---------
Total costs and expenses............. 21,849 25,615 26,979 44,780 60,257 40,643 64,539
-------- --------- -------- -------- --------- --------- ---------
Income (loss) from operations........ (5,708) (4,276) (2,437) 1,386 6,424 4,116 9,746
Interest income (expense), net....... (104) (268) 48 190 (63) 66 (113)
Other income......................... -- -- -- -- -- 20 404
-------- --------- -------- -------- --------- --------- ---------
Income (loss) before income taxes.... (5,812) (4,544) (2,389) 1,576 6,361 4,202 10,037
Income tax expense................... -- -- -- 146 648 781 2,168
-------- --------- -------- -------- --------- --------- ---------
Net income (loss).................... (5,812) (4,544) (2,389) 1,430 5,713 3,421 7,869
Less cumulative preferred dividends(1) (4,481) -- -- -- -- -- --
-------- --------- -------- -------- --------- --------- ---------
Income (loss) applicable to common stock $(10,293) $ (4,544) $ (2,389) $ 1,430 $ 5,713 $ 3,421 $ 7,869
======== ========= ======== ======== ========= ========= =========
OTHER DATA:
Ratio of earnings to fixed charges(2) -- -- -- 1.9x 4.3x 3.9x 5.5x
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 1,206 $ 138 $ 11,950 $ 5,374 $ 1,283 $ 775 $ 16,017
Working capital...................... 2,510 438 14,617 4,879 1,166 3,298 28,192
Property, plant and equipment, net... 11,633 10,228 12,007 11,241 23,100 12,043 22,435
Total assets......................... 27,809 23,491 55,155 61,226 97,755 68,183 128,728
Long-term debt (including current portion) 5,441 5,919 7,806 6,527 28,959 9,527 5,778
Convertible redeemable preferred stock(1) 62,909 -- -- -- -- -- --
Shareholders' equity (capital deficiency) (45,363) 12,574 40,014 45,026 53,651 50,550 111,812
(1) In August 1995, our Board of Directors adopted a plan of
recapitalization which was approved by our stockholders in September
1995, pursuant to which we reclassified our previously outstanding
convertible redeemable preferred stock as common stock. As part of the
plan of recapitalization, all conversion, redemption and liquidation
rights associated with the convertible redeemable preferred stock were
terminated in exchange for the issuance of shares of common stock.
(2) The ratio of earnings to fixed charges is computed by dividing
earnings by fixed charges. For this purpose, "earnings" include income
(loss) before income taxes and fixed charges and "fixed charges"
include interest expense, amortization of deferred financing fees and
costs, and a portion of rent expense that is representative of the
interest factor in these rentals. For the years ended December 31,
1994, 1995, and 1996, earnings were insufficient to cover fixed
charges by $4,093, $2,563, and $50, respectively.
</TABLE>
THE BFI MEDICAL WASTE BUSINESS
You should read the selected historical financial data for the BFI
medical waste business set forth below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations--BFI
Medical Waste Business," the financial statements and the notes thereto of the
BFI medical waste business, and the other financial information included in this
prospectus. The financial statements of the BFI medical waste business are not
intended to be a complete presentation of the assets and liabilities and results
of operations and cash flows of the BFI medical waste business. Rather, these
financial statements were prepared for the purpose of complying with the rules
and regulations of the SEC. In particular, the actual historical selling,
general and administrative expenses for the BFI medical waste business cannot be
determined with precision from BFI's accounting records. Only that portion of
the selling, general and administrative expenses directly attributable to the
BFI medical waste business is reflected in the historical financial data for
that business included in this prospectus. No portion of the selling, general
and administrative expenses associated with the employees and operations of BFI
that were employed in multiple segments of BFI's overall business have been
included in the historical results of the BFI medical waste business. Therefore,
the selling, general and administrative expenses of the BFI medical waste
business are not comparable to those of Stericycle. See Note 3 of Notes to
Financial Statements of Browning-Ferris Industries, Inc. Medical Waste Business.
In addition, in connection with the installation of new computer
systems in 1998, the manner of accounting for certain selling, general and
administrative costs was changed. Beginning in January 1998, some costs
previously identifiable directly with medical waste operations were pooled with
similar costs related to BFI's other business operations by marketplace so that
only the selling, general and administrative costs related to medical waste-only
geographic locations could be specifically identified and charged to the BFI
medical waste business in fiscal year 1998 and subsequent financial statements.
Therefore, the financial data of the BFI medical waste business are not
comparable between the fiscal year ended September 30, 1998 and prior years.
The data for the fiscal years have been derived from the audited
financial statements of the BFI medical waste business. The data for the nine
months ended June 30, 1998 and 1999 have been derived from the unaudited
financial statements of the BFI medical waste business. The results of
operations for the nine months ended June 30, 1999 are not necessary indicative
of the results of operations for the full fiscal year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------- --------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF REVENUES IN EXCESS
OF DIRECT EXPENSES DATA:
Revenues........................... $ 199,886 $ 199,060 $ 198,222 $ 148,837 $ 152,266
Cost of revenues................... 140,482 138,000 132,629 99,406 99,831
------------- ----------- ------------ ------------- ------------
Gross profit....................... 59,404 61,060 65,593 49,431 52,435
Direct selling, general
and administrative
expenses......................... 22,468 20,948 13,273 8,937 8,824
Special charges
(credits)(1)..................... 9,236 4,500 257 257 (469)
------------- ----------- ------------ ------------- ------------
Revenues in excess of direct
expenses........................ $ 27,700 $ 35,612 $ 52,063 $ 40,237 $ 44,080
============= =========== ============ ============= ============
OTHER DATA:
Depreciation and amortization...... $ 20,098 $ 17,327 $ 14,972 $ 11,525 $ 11,010
Capital expenditures............... 10,794 4,149 6,847 5,790 6,456
AS OF SEPTEMBER 30, AS OF JUNE 30,
------------------- --------------
1997 1998 1999
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ -- $ -- $ --
Working capital............................................. 13,132 14,820 13,984
Total directly identifiable assets.......................... 129,503 125,632 134,861
Long-term debt, including current portion................... 1,766 3,015 5,132
Total directly identifiable assets in
excess of directly identifiable liabilities............... 121,719 117,967 125,593
(1) See Note 11 of Notes to Financial Statements of Browning-Ferris Industries, Inc. Medical Waste Business.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STERICYCLE
BACKGROUND
Stericycle derives its revenues from services to two principal types of
customers: (i) small account customers, including outpatient clinics, medical
and dental offices and long-term and sub-acute care facilities; and (ii) large
account customers, including hospitals, blood banks and pharmaceutical
manufacturers. Substantially all of our services are provided pursuant to
long-term customer contracts specifying either scheduled or on-call services, or
both. Contracts with small accounts are generally two to three years in length,
usually can be terminated only for cause, generally provide for annual price
increases and renew automatically unless the customer notifies us prior to
expiration of the contract. Contracts with hospitals and other large accounts,
which generally run for one to five years, typically include price escalator
provisions which allow for price increases, generally tied to an inflation index
or to a fixed percentage. As of June 30, 1999, we served over 85,000 customers.
In addition to various wholly owned domestic subsidiaries, we own 55%
of 3CI Complete Compliance Corporation and have international investments and
operations, including: Med-Tech Environmental Limited, a Canadian medical waste
services subsidiary; Medam S.A. de C.V., a joint venture company in Mexico
formed by us and others for the collection, treatment and disposal of regulated
medical waste in the Mexico City metropolitan market; and a licensing and
equipment sales agreement for our ETD technology in Brazil with Companhia
Auxiliar de Viacao e Obrar.
We recognize revenue when the treatment of the regulated medical waste
is completed on-site or the waste is shipped off-site for processing and
disposal. For waste shipped off-site, all associated costs are recognized at
time of shipment. Revenue and costs on contracts to supply our proprietary
treatment equipment are accounted for by the percentage of completion method,
whereby income is recognized based on the estimated stage of completion of the
individual contract.
We currently expense as incurred all permitting, design and start-up
costs associated with our facilities. We elect to expense rather than to
capitalize the costs of obtaining permits and approvals for each proposed
facility regardless of whether we are ultimately successful in obtaining the
desired permits and approvals and developing the facility. We currently
recognize as a current expense all legal fees and other costs related to
obtaining and maintaining permits and approvals. In addition, we currently
expense all costs related to research and development as incurred.
Our cost of revenues includes all costs of treatment, transportation,
disposal and supplies, depreciation of operating assets, and some indirect
overhead costs such as operations managers. Our selling, general and
administrative expenses are comprised of accounting, information systems,
selling, district and area management offices and corporate headquarters costs.
In addition, we include amortization of intangible assets, such as goodwill
resulting from acquisitions, in selling, general and administrative expenses.
We do not own or operate any landfills or waste storage facilities. We
dispose of any waste remaining after completion of the treatment process at
facilities of unrelated parties. Accordingly, the calculation of our operating
costs is not subject to the estimates inherently associated with landfill
accounting.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1998
Revenues. Revenues increased $29,526,000, or 66.0%, to $74,285,000
during the nine months ended September 30, 1999 from $44,759,000 during the
comparable period in 1998 as we continued to implement our strategy of acquiring
selected businesses and focusing on sales to higher-margin small account
customers while simultaneously paring specified higher-revenue but lower-margin
accounts with large account customers. Revenues generated from the sale of
machinery internationally was $5,161,000 during the nine month period ended
September 30, 1999 as compared to $3,802,000 during the same period in 1998.
During the nine months ended September 30, 1999, acquisitions made during the
last 12 months contributed approximately $24,846,000 to the increase in revenues
as compared to the prior year.
Cost of Revenues. Cost of revenues increased $18,506,000, or 60.7%, to
$48,998,000 during the nine months ended September 30, 1999 from $30,492,000
during the comparable period in 1998. This increase was primarily due to the
substantial increase in revenues during 1999 compared to the same period in 1998
and an increase in the cost of equipment sold internationally. The gross margin
percentage increased to 34.0% during the nine months ended September 30, 1999
from 31.9% during the comparable period in 1998 due to further integration of
new acquisitions into the existing infrastructure, lower relative costs relating
to the changing mix of small account versus large account customers, increased
utilization of treatment capacity and an increase in sales of equipment
internationally.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $15,541,000 for the nine months ended
September 30, 1999 from $10,151,000 for the comparable period in 1998. The
increase was largely the result of increases in selling and marketing expenses
and goodwill amortization as a result of our acquisitions, expansion of the
sales network, and increased administrative expenses related to the higher
volume. Selling, general and administrative expenses as a percentage of revenues
decreased to 20.9% during the nine months ended September 30, 1999 from 22.7%
during the comparable period in 1998. Excluding amortization, selling, general
and administrative expenses as a percent of revenue decreased to 18.5% during
the nine months ended September 30, 1999 from 20.4% during the comparable period
in 1998.
Interest Expense and Interest Income. Interest expense increased to
$689,000 during the nine months ended September 30, 1999, from $242,000 during
the comparable period in 1998, primarily due to increased interest expense
related to borrowings associated with acquisitions completed prior to our public
offering in February 1999. Interest income also increased to $576,000 during the
nine months ended September 30, 1999, from $308,000 during the comparable period
in 1998, primarily due to the investment of proceeds from the public offering,
offset by lower cash balances prior to the stock issuance.
Other Income and Expense. A one-time gain of $656,000 on the sale of
routes by 3CI Complete Compliance Corporation of which Waste Systems, Inc. (our
wholly owned subsidiary) is majority shareholder, was partially offset by a
one-time non-cash expense of $192,000 for warrants issued with bridge loan
borrowings in December 1998 and January 1999. See "Certain Transactions."
Income Tax Expense. The estimated effective tax rate of approximately
21.6% for the nine months ended September 30, 1999 reflects federal taxable
income expected in excess of Internal Revenue Code Section 382 limitations on
the annual utilization of our net operating loss carryforward and state income
taxes in states where we have no offsetting net operating losses.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues. Revenues increased $20,515,000, or 44.4%, to $66,681,000
during 1998 from $46,166,000 during 1997 as we continued to focus on sales to
higher margin, small account customers, while simultaneously paring some lower
margin accounts with large account customers. The increase also reflects
$5,952,000 in revenues from the sale of equipment to Companhia Auxiliar and
Medam. During 1998, acquisitions completed since January 1, 1997 contributed
approximately $13,103,000 to the increase in revenues from 1997. Excluding these
incremental revenues from acquisitions, revenues increased from $46,166,000 to
$53,578,000 or 16.1%. For the year, internal revenue growth for small account
customers increased 14.8% while revenues from large account customers decreased
by 7.2%.
Cost of Revenues. Cost of revenues increased $11,219,000, or 32.9%, to
$45,328,000 during 1998, from $34,109,000 during 1997. The increase was
primarily due to the substantial increase in revenues during 1998 and to the
cost of equipment supplied to Companhia Auxiliar and Medam. The gross margin
percentage increased to 32.0% during 1998 from 26.1% during 1997 as a result of
the sale of equipment internationally, the further integration of new
acquisitions into our existing infrastructure, improved profitability relating
to the changing mix of small account and large account customers and increased
utilization of existing treatment capacity.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $14,929,000 during 1998 from $10,671,000
during 1997 due to our continued progress in strengthening our sales and
administrative organizations and due to the increase in the amortization of
goodwill and other incremental costs associated with acquisitions. Selling,
general and administrative expenses as a percentage of revenues decreased to
22.4% during 1998 from 23.1% during 1997. Amortization of goodwill increased to
$1,505,000 during 1998 from $1,042,000 in 1997, and excluding amortization,
selling, general and administrative expenses as a percent of revenues decreased
to 20.1% in 1998 from 20.9% in 1997.
Interest Expense and Interest Income. Interest expense increased to
$777,000 during 1998, from $428,000 during 1997, primarily due to borrowings on
our revolving line of credit partially offset by the repayment of certain debt
issued in connection with one of our acquisitions. Interest income also
increased to $714,000 during 1998 from $618,000 during 1997, primarily due to
interest income on the Med-Tech subordinated debt acquired in October 1998
partially offset by lower interest income on invested cash balances.
Income Tax Expense. The estimated effective tax rate of approximately
10.2% for 1998 reflects the utilization of our net operating losses for income
tax purposes, offset by alternative minimum tax and state income taxes in states
where we have no offsetting net operating losses.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. Revenues increased $21,624,000, or 88.1%, to $46,166,000
during 1997 from $24,542,000 during 1996 as we continued to implement our
strategy of focusing on higher margin small account customers while
simultaneously paring certain higher revenue but lower margin accounts with
large account customers. This increase also reflects the inclusion of a full
year's revenues from the acquisition of a major portion of the regulated medical
waste business of Waste Management, Inc., which was completed in December 1996,
eight months of revenues from the Environmental Control Co., Inc. acquisition
completed in May 1997, and a partial year's revenues from various other smaller
acquisitions. During 1997, acquisitions completed since January 1, 1996
contributed approximately $20,975,000 to the increase in revenues from 1996.
Excluding these incremental revenues from acquisitions, revenues increased from
$24,542,000 in 1996 to $25,191,000 in 1997, or 2.6%. For the year, internal
revenue growth for small account customers was 13.0%, while revenues from large
account customers decreased by 4.0%.
Cost of Revenues. Cost of revenues increased $14,686,000, or 75.6%, to
$34,109,000 during 1997 from $19,423,000 during 1996. The principal reasons for
the increase were higher transportation, treatment and disposal costs as a
result of the higher volume attributable to our acquisitions and integration
expenses related to our expansion into new geographic service areas. The gross
margin percentage increased to 26.1% during 1997 from 20.9% during 1996, due to
the continuing shift to small account customers and increased utilization of our
treatment capacity.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $10,671,000 during 1997 from $7,556,000
during 1996. The increase was largely due to increases in selling and marketing
expenses as a result of our acquisitions and expansion of our sales network, and
increased administrative costs related to the higher volume. Selling, general
and administrative expenses as a percentage of revenues decreased to 23.1%
during 1997 from 30.8% during 1996 due to improved leverage of the
administrative structure versus the sales growth. Amortization of goodwill
increased to $1,042,000 during 1997 from $390,000 in 1996 and, excluding
amortization, selling, general and administrative expenses as a percent of
revenues decreased to 20.9% in 1997 from 29.2% in 1996.
Interest Expense and Interest Income. Interest expense increased to
$428,000 during 1997 from $373,000 during 1996. This increase was primarily
attributable to higher indebtedness related to the Waste Management and
Environmental Control acquisitions. Interest income increased to $618,000 during
1997 from $421,000 during 1996 due to interest earned on the invested cash
proceeds from our initial public offering in August 1996.
Income Tax Expense. The estimated effective tax rate of 9.3% for 1997
reflects the utilization of our net operating losses for income tax purposes,
offset by alternative minimum tax and state income taxes in states where we have
no offsetting net operating losses. We did not pay any income taxes in 1996.
BFI MEDICAL WASTE BUSINESS
The following discussion of the financial condition and results of
operations of the BFI medical waste business should be read in conjunction with
the BFI Medical Waste Business Statements of Directly Identifiable Assets and
Liabilities and Statements of Revenues and Direct Expenses and related notes
included elsewhere in this prospectus.
BACKGROUND
On November 12, 1999, we acquired from Allied all of the medical waste
operations of BFI in the United States, Canada, and Puerto Rico. The purchase
price for these operations was $410.5 million in cash, subject to post-closing
adjustment. Allied purchased BFI on July 30, 1999.
The BFI medical waste business provides medical waste collection,
transportation, treatment, and disposal services to hospitals, healthcare
providers and other small quantity generators in the United States, Canada, and
Puerto Rico. The BFI medical waste business is a service line of BFI.
BFI's operating organization is aligned along functional lines into
five groups: sales and marketing, collection, post-collection, business
development and business analysis. As a result, BFI does not maintain separate
books and records for the medical waste operations other than service line
revenues and direct operating costs. Therefore, the financial statements include
only those costs that are directly attributable to the medical waste operations
and that are separately identifiable in BFI's accounting records. Significant
additional costs are incurred by BFI on a shared service basis and have been
excluded because these costs have not been allocated to the various BFI service
lines. As a result, the accompanying financial statements are not intended to
be, and are not, a complete presentation of the assets, liabilities and results
of operations of the BFI medical waste business. Rather, the accompanying
financial statements were prepared for the purpose of complying with rules and
regulations of the SEC, which indicate that specific financial statements are
required for the BFI medical waste business. All significant transactions among
units of the BFI medical waste business have been eliminated. For a further
description of the bases of the financial statements, see the notes to the
financial statements of the BFI medical waste business.
The BFI medical waste business derives its revenues from services to
two principal types of customers: (i) small account customers, including
outpatient clinics, medical and dental offices, and long-term and subacute care
facilities; and (ii) large account customers, including hospitals, blood banks
and pharmaceutical manufacturers. Substantially all of the services of the BFI
medical waste business are provided pursuant to long-term customer contracts
specifying either scheduled or on-call services, or both. Contracts with small
accounts are generally two to three years in length, usually can be terminated
only for cause, generally provide for annual price increases and have an
automatic renewal provision which operates unless the customer notifies the BFI
medical waste business prior to completion of the contract. Contracts with
hospitals and other large accounts, which generally run for one to five years,
typically include price escalator provisions which allow for price increases,
generally tied to an inflation index or to a fixed percentage. As of June 30,
1999, the BFI medical waste business served over 150,000 customers.
Direct selling, general and administrative expense and special charges
(credits) include only those costs which are incurred solely for the medical
waste operations and are separately identified in BFI's accounting records.
These costs include payroll costs for sales and administrative employees whose
function is to solely support the medical waste business and general and
administrative costs of medical waste only facilities. Further, in connection
with the installation of new computer systems in January 1998, certain selling,
general and administrative costs previously identifiable directly to medical
waste operations through December 1997 were no longer accounted for in this
manner. Beginning in January 1998, these costs were pooled with similar costs
related to BFI's other business operations by marketplace so that only the
selling, general and administrative costs related to geographic locations
devoted exclusively to medical waste could be specifically identified and
charged to medical waste in fiscal year 1998 and subsequent financial
statements. For these reasons, the selling, general and administrative costs of
the BFI medical waste business are not comparable to those of Stericycle and are
not comparable between the fiscal year ended September 30, 1998 and prior fiscal
years.
For processing activities, the BFI medical waste business recognizes
revenue when the treatment of the regulated medical waste is completed at its
facilities or the waste is shipped off-site for processing and disposal. For
waste shipped off-site, all associated costs are recognized at time of shipment.
For collection activities, the BFI medical waste business recognizes revenue
when regulated medical waste is collected from its customers.
The BFI medical waste business expenses costs associated with the
operation of new plants prior to the commencement of services to customers.
Initial plant permit costs are capitalized as part of property, plant, and
equipment and are amortized using the straight-line method over the useful lives
up to 25 years. All ongoing permit costs are expensed.
BFI's cost of revenues does not include depreciation of operating
assets.
The BFI medical waste business does not own or operate any landfills or
waste storage facilities. It disposes of any waste remaining after completion of
the treatment process at facilities of unrelated parties. Accordingly, the
calculation of its operating costs is not subject to the estimates inherently
associated with landfill accounting.
NINE MONTHS ENDED JUNE 30, 1999 COMPARED TO NINE MONTHS ENDED JUNE 30, 1998
Revenues. Revenues for the nine months ended June 30, 1999 were
$152,266,000 representing an increase of $3,429,000 or 2.3% over revenues of
$148,837,000 for the nine months ended June 30, 1998. During the nine months
ended June 30, 1999, the BFI medical waste business completed six acquisitions
which contributed approximately $3,000,000 in revenue for the nine-month period.
The estimated annual revenues for the six acquisitions were approximately
$9,800,000. The remaining increase in revenues is attributable to internal
growth in other marketplaces.
Direct Operating Costs. Direct operating costs increased $1,108,000, or
1.2%, to $91,568,000 for the nine months ended June 30, 1999 from $90,460,000
for the nine months ended June 30, 1998, primarily as a result of the
acquisition transactions completed during the period. However, as a percentage
of revenues, the direct gross operating margin increased from 39.2% to 39.9%,
primarily as a result of the continuing implementation of additional safety
training, which reduced costs associated with accidents and injuries, and the
consolidation of certain small collection operations into nearby larger
collection facilities. Including the depreciation of operating assets, gross
margin increased to 34.4% for the nine months ended June 30, 1999 from 33.2% in
the prior year period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $281,000 to $6,077,000 for the nine months
ended June 30, 1999 from $6,358,000 for the nine months ended June 30, 1998. The
nine months ended June 30, 1998 includes the January 1, 1998 conversion date of
BFI to its SAP management software system. Therefore, for three months of this
nine-month period, the BFI medical waste business was charged for shared
selling, general and administrative costs. After the conversion, only directly
related selling, general and administrative costs were charged to the BFI
medical waste business.
Depreciation and Amortization Expense. Total depreciation and
amortization expense decreased $515,000 to $11,010,000 for the nine months ended
June 30, 1999 from $11,525,000 for the nine months ended June 30, 1998 and as a
percentage of revenues, decreased from 7.7% to 7.2%. These decreases are
primarily due to assets becoming fully depreciated in 1998, and longer useful
lives of assets acquired in the nine months ended June 30, 1999 than in the
prior period.
Special Charges (Credits). During the nine months ended June 30, 1999,
the BFI medical waste business recorded special credits of $469,000 relating to
a gain on the sale of customer lists totaling $480,000, offset by a write-down
of a non-core business asset totaling $11,000. During the nine months ended June
30, 1998, the BFI medical waste business recorded special charges of $257,000
relating to the write-down of a non-core business asset.
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
Revenues. Revenues remained relatively flat between periods,
$198,222,000 for the year ended September 30, 1998 compared to $199,060,000 for
the year ended September 30, 1997. In December, 1997, the BFI medical waste
business divested its Arizona collection and processing operations representing
approximately $3,000,000 or 1.5% of revenues in fiscal 1997. However, internal
growth and acquisitions in other markets largely offset the reduction in revenue
resulting from the Arizona divestiture. The BFI medical waste business completed
three acquisitions during the year ended September 30, 1998, which collectively
contributed approximately $1,000,000 in revenues.
Direct Operating Costs. Direct operating costs decreased $3,060,000, or
2.5%, to $121,096,000 for the year ended September 30, 1998, from $124,156,000
during the year ended September 30, 1997. As a percentage of revenues, the
direct gross operating margin increased from 37.6% to 38.9%, primarily due to
the implementation of cost control measures at all of the processing facilities,
and a reduction of accident and injury costs due to continuing implementation of
additional safety training. Costs were also reduced by $800,000 as a result of
the divestiture of the Arizona operation.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, as reported on the Statements of Revenues and Direct
Expenses, decreased $7,631,000, or 43.7%, to $9,834,000 for the year ended
September 30, 1998, from $17,465,000 during the year ended September 30, 1997.
As indicated elsewhere herein, selling, general and administrative expenses
include only those expenses which are incurred solely for the medical waste
operations and are separately identified in BFI's accounting records. In
connection with the installation of a new general ledger system in January 1998,
certain selling, general and administrative expenses assigned directly to
medical waste operations through December 1997 were no longer accounted for in
this manner. Beginning in January 1998, these expenses were pooled with similar
expenses related to BFI's other business operations by marketplace so that only
the selling, general and administrative expenses related to medical waste only
geographic locations could be specifically charged to the BFI medical waste
business in fiscal year 1998 and subsequent periods. Also, in May 1998, BFI
announced that its corporate office and marketplace level offices, which provide
shared selling, general and administrative expenses, had undertaken various
cost-cutting measures. Further, the year ended September 30, 1997 included
$1,500,000 in expenses related to fines paid for violations of the Clean Water
Act.
Depreciation and Amortization Expense. Total depreciation and
amortization expense decreased $2,355,000, to $14,972,000 for the year ended
September 30, 1998, from $17,327,000 during the year ended September 30, 1997
and as a percentage of revenues decreased from 8.7% to 7.6%. These decreases
were due primarily to the divestiture of the Arizona operation in December 1997,
and due to a significant number of medical waste containers becoming fully
depreciated.
Special Charges. In the year ended September 30, 1998, the BFI medical
waste business recorded special charges of $257,000 relating to the write-down
of one non-core business asset. In 1997 the BFI medical waste business recorded
special charges of $4,500,000 relating to the closure of an incinerator at the
Bronx, New York facility.
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996
Revenues. Revenues remained relatively flat between periods, decreasing
slightly to $199,060,000 for the year ended September 30, 1997 compared to
$199,886,000 for the year ended September 30, 1996. The BFI medical waste
business completed one acquisition during the year ended September 30, 1997,
which contributed approximately $300,000 in revenues. The closure of an
incinerator at the Bronx, New York facility in July 1997 resulted in a reduction
in revenues of approximately $500,000.
Direct Operating Costs. Direct operating costs remained relatively flat
at $124,156,000 during the year ended September 30, 1997 compared to
$123,801,000 for the year ended September 30, 1996. As a percentage of revenues,
the direct gross operating margin decreased from 38.1% to 37.6%. Increased costs
for repair and maintenance of equipment of approximately $604,000 were incurred
in the Arizona operations prior to its divestiture. However, these cost
increases were offset by cost reduction programs instituted in the year ended
September 30, 1997. These cost reduction programs include centralized purchasing
of materials and supplies, re-routing of collection operations, and a balancing
of the volumes of waste processed among the various processing facilities.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $1,586,000 during the year ended September 30,
1997 to $17,465,000 compared to $19,051,000 for the year ended September 30,
1996. This decrease was due primarily to the internal reorganization within BFI
of the corporate sales, marketing, and accounting service groups during fiscal
1997. Selling, general and administrative expenses include specific directly
charged shared services provided by BFI's corporate and district level offices.
Further, the year ended September 30, 1997 included $1,500,000 in costs related
to fines paid for violations of the Clean Water Act.
Depreciation and Amortization Expense. Total depreciation and
amortization expense decreased $2,771,000 to $17,327,000 in 1997 from
$20,098,000 in 1996 and as a percentage of revenues decreased from 10.1% to
8.7%. These decreases were primarily due to a significant number of medical
waste containers becoming fully depreciated, due primarily to a change in the
useful life of medical waste containers. This change retired the containers
which had been in service in excess of three years, and accordingly, reduced the
following year's depreciation and amortization. These decreases were also due in
part to the curtailment of acquisitions in that only one acquisition was
completed during the year ended September 30, 1997, adding less than $200,000 in
assets. Additionally, capital expenditures decreased due to BFI's reduction of
capital spending.
Special Charges. In 1997 the BFI medical waste business recorded
special charges of $4,500,000 relating to the closure of an incinerator at the
Bronx, New York facility. In 1996, the BFI medical waste business recorded
$9,236,000 in special charges related to the future closures of processing
facilities at Rancho Cordova, California, Washington, D.C., Bartow, Florida and
Vancouver, Washington. Waste processed at these locations was redirected to
other facilities of the BFI medical waste business after those facilities were
closed. Collection operations continued at each of these locations.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, our working capital was $28,192,000 compared to
working capital of $1,166,000 at December 31, 1998. The increase in working
capital was primarily due to higher cash balances and lower current liabilities
as a result of the public offering completed in February 1999.
Net cash provided by operating activities was $5,834,000 during the
nine months ended September 30, 1999 compared to $1,346,000 for the comparable
period in 1998. This increase primarily reflects higher net income and
depreciation and amortization expense, offset by changes in working capital.
Net cash used in investing activities for the nine months ended
September 30, 1999 was $15,074,000 compared to $8,955,000 for the comparable
period in 1998. The change is primarily attributable to the increase in cash
used for funding acquisitions and international investments completed in 1999
and an increase in capital expenditures. Capital expenditures were $2,367,000
for the nine months ended September 30, 1999 compared to $1,825,000 for the same
period in 1998. The increase in capital spending is a result of improvements
made to existing treatment facilities, the movement of the corporate office to a
new facility and facility improvements made by our subsidiaries, 3CI Complete
Compliance Corporation and Med-Tech Environmental Limited. Payments for
acquisitions and international investments amounted to $11,667,000 during the
nine months ended September 30, 1999.
In order to finance the BFI acquisition, we conducted a series of
financings in addition to the sale of the series A notes. As a result, we are a
substantially leveraged company. See "Risk Factors--Substantial Leverage,"
"--Additional Borrowings Available," and "--Ability to Service Debt." We also
recorded a substantial increase in goodwill and other intangible assets in
connection with the BFI acquisition, and we will have a corresponding large
increase in amortization expense.
We have a credit agreement with a group of lenders that provides for an
aggregate of up to $275.0 million in senior secured financing comprised of (i) a
six-year term loan A amortizing facility of $65.0 million, (ii) a seven-year
term loan B amortizing facility of $160.0 million, and (iii) a $50.0 million
revolving loan facility. Stericycle has drawn the $225.0 million term loan
facilities to finance the BFI acquisition. The revolving loan facility is
currently undrawn. See "Description of Other Indebtedness" for a more detailed
description of these credit facilities.
Pursuant to a Series A Convertible Preferred Stock Purchase Agreement,
on November 12, 1999 we issued and sold to investment funds associated with Bain
Capital and with Madison Dearborn 75,000 shares of our convertible preferred
stock for $1,000 per share, or an aggregate of $75.0 million, in cash, less some
of the fees and expenses which are described below. See "Description of Capital
Stock" for a more detailed description of the convertible preferred stock.
Dividends on the convertible preferred stock are payable in kind in additional
shares and accrue at the annual rate of 3.375%, subject to adjustment.
Our ability to make payments on our indebtedness, including these
notes, as well as to fund our operations and future growth, will depend on our
ability to generate cash. Our success in doing so will depend on the results of
our operations, which in turn will depend on many factors, including those
described in the "Risk Factors" section of this prospectus and elsewhere in this
prospectus. Our ability to generate adequate cash is also subject to general
economic, financial, competitive, legislative, regulatory and other factors
beyond our control. We also will continue to evaluate and pursue selected
acquisitions.
Based on our current level of operations and anticipated cost savings
and operating improvements, we believe that our cash flow from operations,
available cash and available borrowings under our credit facility will be
sufficient to meet our future liquidity needs, including potential acquisitions,
however, we cannot assure you that this will be the case. We also may need to
refinance all or a portion of our indebtedness, including these notes, on or
before maturity. We cannot assure you that we will be able to refinance any of
our indebtedness, including our new credit facility and these notes, on
commercially reasonable terms or at all. See "Risk Factors--Ability to Service
Debt."
Capital expenditures for Stericycle and the BFI medical waste business
on a pro forma combined basis for the twelve months ended June 30, 1999 were
approximately $14.4 million. In addition, we currently anticipate that we will
spend approximately $14.0 million on a pro forma combined basis for capital
expenditures in 2000, which includes approximately $4.0 million to install air
pollution control systems so that our incinerators will comply with EPA
regulations which become effective in 2002.
As part of the BFI acquisition, we anticipate taking a non-cash charge
of approximately $1.8 million, net of tax, and recording accrued purchase
accounting liabilities of approximately $2.0 million for severance and facility
closing costs expected to be incurred as part of the integration plan. We
anticipate incurring the cash costs related to these initiatives over the next
twelve months.
We are purchasing the BFI medical waste business excluding accounts
receivable and accounts payable. As a result, based on historical requirements
of the BFI medical waste business, we expect to make a net investment in working
capital of approximately $15.0 million in the twelve months following closing.
Our exposure to market risk includes the possibility of rising interest
rates in connection with our credit facility, thereby increasing debt service
obligations, which could adversely affect our cash flows. We have borrowings
outstanding subject to variable interest rates of approximately $225.0 million.
Net cash provided by financing activities was $23,974,000 during the
nine months ended September 30, 1999 compared to $3,010,000 for the comparable
period in 1998. The difference between the two periods results primarily from
the completion of the Company's second public offering of common stock, which
raised $47,158,000 net of offering costs, partially offset by the repayment of
$25,881,000 in debt in 1999.
Our other financial obligations include industrial development revenue
bonds issued on behalf of and guaranteed by us to finance our Woonsocket, Rhode
Island treatment facility and equipment. These bonds, which had an outstanding
aggregate balance of $1,071,000 as of September 30, 1999 at fixed interest rates
ranging from 6.30% to 7.375%, are due in various amounts through June 2017. In
addition, we have issued various promissory notes in connection with
acquisitions during 1997 and 1998, consisting primarily of a 10-year note issued
as part of the Environmental Control acquisition, which had an outstanding
balance of $1,840,000 at September 30, 1999.
As a consequence of changes in stock ownership, it is expected our
annual utilization of net operating loss carryforwards permitted by Internal
Revenue Code Section 382 will be limited and that, as a result, our effective
tax rate will increase.
For all periods for which financial statements of the BFI medical waste
business are presented in this prospectus, all treasury related activities,
including cash payments, receipts, and borrowings were performed by BFI's
corporate headquarters and are not separately identifiable with the BFI medical
waste business. BFI did not separately identify intercompany loans receivable or
payable associated with different service lines. Accordingly, all treasury
related assets and liabilities (cash and debt and the related interest income
and expense) and intercompany loans receivable and payable have been excluded
from the BFI medical waste business financial statements.
YEAR 2000 ISSUES
Stericycle. We have developed a plan to modify our information systems
in anticipation of the year 2000. We currently have substantially implemented
this plan at a cost of less than $200,000. In light of our progress to date and
the fact that our business is not significantly affected by the software
employed by our vendors and customers, we do not anticipate that the year 2000
will present any material problems in respect of our key products and services.
We are continuously making acquisitions and in the course of an acquisition may
acquire software or hardware that is not year 2000 compliant. In the event that
this situation arises, we will take the necessary steps to correct the
compliance issues in a timely manner.
Our plan for the year 2000 comprises both remediating our existing
hardware and software and upgrading our business information systems generally.
We initiated the upgrading process in 1998 in order to respond to the growth in
size of our business and the inefficiencies caused by disparate hardware and
software. Undertaken for reasons unrelated to year 2000 issues, our upgrading of
our business information systems has the benefit of enabling us to become year
2000 compliant in the course of the upgrade.
We have conducted an extensive review of potential year 2000 issues.
Our assessment of our treatment facilities and equipment concluded that there
was no material risk that we would be unable to treat regulated medical waste as
a result of year 2000 issues. The new software that we adopted in 1998 for
accounting and related purposes is already year 2000 compliant. Our other
software and computer hardware are currently being tested, and upgrades or
appropriate adjustments have been or will be made in accordance with our upgrade
plans or as required. We are also in the process of reviewing the year 2000
compliance status of our significant vendors.
We believe that we have an effective plan in place to resolve year 2000
issues in a timely manner. In the event that we are unable to complete the
remaining phases of our year 2000 plan, we believe that, as a result of year
2000 issues solely affecting us, the principal effect on us would be an
inability to invoice a portion of our customers for our services.
We are also developing contingency plans to take into account any
inability of us and others to become fully year 2000 compliant in time. These
plans involve, among other actions, implementing manual systems, increasing
inventories of parts and supplies and adjusting staffing strategies.
The BFI medical waste business. In fiscal 1995, BFI initiated a project
to implement the SAP suite of business systems software (which is year 2000
compliant) to replace essentially all of its existing business systems. The
first phase of this project, implemented in January 1998, replaced approximately
45% of the existing business systems of BFI. Due to timing related to
implementation of the second phase of this project, BFI commenced a year 2000
project to ensure compliance of remaining legacy systems.
As of June 30, 1999 nearly all of the facilities and operations of the
BFI medical waste business utilized BFI's SAP suite of business systems software
as well as BFI's legacy system known as CMS. Both SAP and CMS are already year
2000 compliant systems. Conversions of the remaining facilities and operations
are planned for completion before December 1999. The costs related to these
conversions are not material to the results of operations or financial position
of the BFI medical waste business.
The risk to the BFI medical waste business of not completing the
conversions of the remaining facilities and operations are that customer
invoices from those facilities may have to be prepared manually and therefore
may be delayed. Our contingency plan for the BFI medical waste business is to
enter all customer information into CMS so as to produce invoices in a timely
manner. This entry may have to be performed manually which may cause a short
delay in customer invoices.
In addition, BFI has initiated a process to (1) identify critical
supplier and customer related issues, (2) assess the year 2000 readiness of
equipment located at all of its operating facilities and (3) determine what
contingency plans may be required. At this time, the potential effects in the
event that the BFI medical waste business and/or third parties are unable to
resolve year 2000 problems timely are not determinable.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activity." SFAS No. 133
provides comprehensive and consistent standards for the recognition and
measurement of derivative and hedging activities. It requires that derivatives
be recorded on the consolidated balance sheets at fair value and establishes
criteria for hedges of changes in the fair value of assets, liabilities or firm
commitments, hedges of variable cash flows of forecasted transactions and hedges
of foreign currency exposures of net investments in foreign operations. Changes
in the fair value of derivatives that do not meet the criteria for hedges would
be recognized in the consolidated statement of earnings. This statement will be
effective for us beginning January 1, 2001. The adoption of SFAS No. 133 is not
expected to have a material impact on us.
<PAGE>
BUSINESS
OVERVIEW
We are the largest regulated medical waste management company in North
America, serving over 235,000 customers throughout the United States, Canada and
Puerto Rico. We have the only fully integrated, national medical waste
management network and an estimated 22% share of the United States regulated
medical waste market. Our network includes 35 treatment/collection centers and
93 additional transfer and collection sites. We use this network to provide the
industry's broadest service offering, including medical waste collection,
transportation, treatment, recycling and disposal to unrelated parties, together
with related consulting, training and education services and products. Our
treatment technologies include our proprietary, environmentally friendly and
efficient electro-thermal deactivation system, as well as traditional methods
such as autoclaving and incineration. On a pro forma combined basis, for the
year ended December 31, 1998 and for the nine months ended September 30, 1999,
we generated revenues of $290.3 million and $229.4 million, respectively.
On November 12, 1999, we acquired from Allied the BFI medical waste
business and Allied's medical waste operations. The purchase price for these
operations was $410.5 million in cash, subject to post-closing adjustment.
Our operations benefit significantly from the stability associated with
our long-term customer relationships. We have long-term customer contracts of
between one and five years with substantially all of our customers. In general,
our contracts with small account customers have automatic renewal provisions. We
believe the services we offer are compelling to our customers, because they
allow our customers to avoid the significant capital and operating costs that
they would have to incur to internally manage their regulated medical waste.
Furthermore, by outsourcing these services and purchasing consulting and other
services from us, our customers reduce or eliminate their risk of the large
fines associated with regulatory non-compliance.
We benefit from significant customer diversification, with no single
customer accounting for more than 2% of revenues, and our top 10 customers
accounting for approximately 7% of revenues, in each case on a pro forma
combined basis for the year ended December 31, 1998. Our two principal groups of
customers include: over 230,700 small account customers (e.g., outpatient
clinics, medical and dental offices and long-term and sub-acute care facilities)
and over 4,300 large account customers (e.g., hospitals, blood banks and
pharmaceutical manufacturers). Small account customers tend to be most likely to
outsource medical waste management services and tend to be more service oriented
and less price sensitive, resulting in higher margins for us. We are targeting
new small account customers through our proprietary database of over 330,000
potential small account customers not presently served by us and our dedicated
small account sales force. We successfully increased the proportion of revenues
from small account customers from 33% of revenues in the fourth quarter of 1996
to 57% in the second quarter of 1999, which helped increase our operating income
margin significantly.
<PAGE>
INDUSTRY OVERVIEW
The large, fragmented medical waste industry has experienced
significant growth since its inception. The regulated medical waste industry
began with the Medical Waste Tracking Act of 1988, which was enacted by Congress
in response to media attention after medical waste washed ashore on beaches,
particularly in New York and New Jersey. Since the 1980s, the public and
government regulators have increasingly demanded the proper handling and
disposal of the medical waste generated by the health care industry. Regulated
medical waste is generally described as any medical waste that can cause an
infectious disease, including: single-use disposable items, such as needles,
syringes, gloves and other medical supplies; cultures and stocks of infectious
agents; and blood and blood products.
An independent study estimated the size of the regulated medical waste
market in the United States in 1999 to be approximately $1.4 billion. We believe
the worldwide market for regulated medical waste management services currently
is approximately $3.0 billion and, including ancillary services such as
training, education, product sales and consulting services, in excess of $10.0
billion. We also believe the regulated medical waste industry is less
susceptible than most industries to the effects of a general economic downturn.
Industry sources estimate the current annual growth rate of the United States
regulated medical waste industry to be 7-10%, driven by a number of factors,
including:
Pressure to Reduce Hospital Costs Leads to Outsourcing of Services. The
health care industry is under pressure to reduce costs and improve efficiency.
To accomplish this, it is using outside contractors to perform some services,
including medical waste management. We believe that our medical waste management
services help health care providers reduce costs by reducing their medical waste
tracking, handling and compliance costs, reducing their potential liability
related to employee exposure to bloodborne pathogens and other infectious
material and reducing the amount of money invested in on-site treatment of
medical waste.
Growing Importance of Smaller Account Customers. We believe that
managed care and other health care cost-containment pressures are causing
patient care to shift from institutional higher-cost acute-care settings to less
expensive, smaller, off-site treatment alternatives. Many common diseases and
conditions are now being treated in smaller non-institutional settings. We
believe that these non-institutional alternate-site health care expenditures
will continue to grow as cost-cutting pressures increase.
Aging of the Population. According to industry statistics, the "baby
boom" generation (births between 1946 and 1964) constitutes approximately 30% of
the United States population. The relative size of this generation, combined
with declining birth rates, will continue to result in an increase in the
average age of the population, while falling mortality rates ensure that the
average person will live longer. As people age, they typically require more
medical attention and a wider variety of tests and procedures. In addition, as
technology improves, more tests and procedures become available. All of these
factors lead to increased generation of medical waste.
Environmental and Safety Regulation. We believe that many businesses
currently not using outsourced medical waste services are unaware of the need
for proper training of employees and the Occupational Safety and Health
Administration requirements regarding the handling of medical waste. These
businesses include restaurants, casinos, hotels and generally all businesses
where employees may come in contact with blood-borne pathogens. In addition,
home health care is currently unregulated and may become subject to similar
blood-borne pathogen regulations in the future.
Our industry is subject to extensive regulation beyond the MWTA. For
example, the new stringent Clean Air Act regulations adopted in 1997 limit the
discharge into the atmosphere of pollutants released by medical waste
incineration. This is expected to increase the costs of operating medical waste
incinerators and to result in significant closures of on-site treatment
facilities, thereby increasing the demand for off-site treatment services. The
EPA estimates that approximately 83-90% of small medical waste incinerators,
60-95% of medium medical waste incinerators and up to 35% of large medical waste
incinerators in the United States will be closed over the next several years. In
addition, OSHA has issued regulations concerning employee exposure to bloodborne
pathogens and other potentially infectious materials that require, among other
things, special procedures for the handling and disposal of medical waste and
annual training of all personnel who may be exposed to blood and other body
fluids. We believe that these regulations will help to expand the market for our
services beyond traditional providers of health care.
COMPETITIVE STRENGTHS
We believe that we benefit from the following competitive strengths:
MARKET LEADER. We are the largest and the only national provider of
medical waste management services in the United States. We estimate our market
share to be approximately 22% in the United States and that we have over 11
times the revenues of our next largest competitor. As a result of our market
leadership position, we provide our customers with superior, vertically
integrated services as well as a variety of products and we are the only
industry participant able to service national accounts. We believe our leading
market position provides us with more operating leverage and a unique
competitive advantage in attracting and retaining customers as compared to our
smaller regional and local competitors.
BROADEST RANGE OF HIGH QUALITY SERVICES. We offer our customers a wide
range of services to help them develop internal systems and processes which
allow them to efficiently and safely manage their medical waste from the point
of generation through treatment and disposal. For example, we have developed
programs to help train our customers' employees on the proper methods of
handling medical waste in order to reduce potential employee exposure. Other
services include those designed to help clients ensure and maintain compliance
with OSHA and other relevant regulations. We also supply specially designed
containers for use by most of our large account customers, including our
Steri-Tub(R) container, a reusable leak- and puncture-resistant container, made
from recycled plastic, which we developed and patented.
ESTABLISHED NATIONAL NETWORK. Our 35 treatment/collection centers and
our 235,000 customers in 46 states give us the largest and the only national
network in the regulated medical waste industry. The extensive federal, state
and local laws and regulations governing the regulated medical waste industry
typically require some type of governmental approval for new facilities. These
approvals are frequently opposed by elected officials, local residents or
citizen groups, and can be difficult to obtain. We have significant experience
in obtaining and maintaining these permits, authorizations and other types of
governmental approvals. We believe a network similar in scale and scope to ours
would be expensive and time-consuming for a competitor to develop.
LOW COST OPERATOR. We are often the low-cost provider within the
markets we serve. This results from our vertically integrated network and our
broad geographic presence. As a result, we are able to: increase our route
densities, which permits our drivers to make more stops per shift; minimize the
distance traveled by our collection vehicles to treatment facilities; and
increase the utilization of our equipment and facilities to internally treat
more of the waste we collect. Our next largest competitor in the U.S. market has
five treatment facilities and we believe most of our competitors do not have
fully integrated operations. We believe our vertically integrated operations
provide us a competitive advantage over smaller, less integrated competitors.
DIVERSE CUSTOMER BASE AND REVENUE STABILITY. We have developed strong
contracts and service agreements with a diverse network of established
customers. Our top 10 customers only accounted for approximately 7% of revenues
and no single customer accounted for more than 2% of revenues, in each case on a
pro forma combined basis for the year ended December 31, 1998. We believe that
our diverse customer base would mitigate the impact of the loss of any
particular customer. We are also generally protected from regulatory changes
which affect our costs, because our contracts generally contain provisions which
allow us to adjust our prices to reflect any additional costs caused by changes
in regulations.
STRONG SALES NETWORK AND PROPRIETARY DATABASE. We have the largest,
most well-established sales force in the medical waste industry, with over 277
sales representatives and telemarketing personnel. We use both telemarketing and
direct sales efforts to obtain new customers. In addition, we have developed a
proprietary database of over 330,000 potential small account customers not
presently served by us, which we believe gives us a competitive advantage in
identifying and reaching higher margin, small account customers. We believe that
we have been particularly effective at attracting new small account customers
through our innovative "flex-rep" program in which part-time field sales
representatives work in tandem with telemarketers. We believe that the
combination of the two allows us to cost-effectively sell "face-to-face" with
potential small account customers and is more effective at converting sales
leads into customers than telemarketing alone.
EXPERIENCED MANAGEMENT TEAM. The Chairman of our Board of Directors and
our five most senior executives collectively have over 45 years of management
experience in the health care and waste management industries. Our Chief
Executive Officer, had more than 15 years of senior management experience at
Abbott Laboratories and, since joining us in 1992 as Chief Executive Officer,
has led us from an early stage venture capital concept to the industry leader.
Frank ten Brink, our Chief Financial Officer, previously served as Chief
Financial Officer of Hexacomb Corporation. Richard Kogler recently joined us as
executive vice president for domestic operations and Chief Operating Officer.
Previously, Mr. Kogler served in senior roles with American Disposal Services,
Inc. Jack Schuler, our Chairman, is also the current Chairman of Ventana Medical
Systems. Previously, Mr. Schuler was the President and Chief Operating Officer
of Abbott Laboratories. Anthony J. Tomasello has been our Executive Vice
President and Chief Technical Officer since January 1999, and previously was our
Vice President, Operations beginning in 1990. Previously, Mr. Tomasello was
President and Chief Operating Officer of Pi Enterprises and Orbital Systems.
Collectively, our directors and senior executives have beneficial ownership of
approximately 16.1% of our common stock.
BUSINESS STRATEGY
Our goals are to maintain our position as the largest provider of
integrated services in the regulated medical waste industry and to continuously
improve our profitability. Components of our strategy to achieve these goals
include:
TARGET HIGHER MARGIN, SMALL ACCOUNT CUSTOMERS. We intend to continue
actively targeting and growing our base of higher margin, small account
customers. Prior to the BFI acquisition, our management had successfully raised
the percentage of our revenues from small account customers from 33% of revenues
in the fourth quarter of 1996 to 57% in the second quarter of 1999, which helped
increase our operating income margin significantly. Small account customers
typically do not produce a sufficient volume of regulated medical waste on an
individual basis to justify capital expenditures on their own waste treatment
facilities or the expense of hiring regulatory compliance personnel. Small
account customers are more service sensitive and typically rely on fully
integrated service providers like us for timely waste removal, staff training,
assistance with recordkeeping, and OSHA compliance consulting. We believe that
the number of small account customers and the opportunities for sales of
ancillary services and products to these customers will continue to grow, which
will generate significant additional revenue growth opportunities.
CAPITALIZE ON OUTSOURCING DUE TO NEWLY ENACTED CLEAN AIR REGULATIONS.
The Clean Air Act regulations have increased both the capital costs required to
bring many existing incinerators into compliance and the operating costs of
continued compliance. The EPA expects that most hospitals will shut down their
incinerators in response to regulations adopted in 1997, which limit the
discharge into the atmosphere of pollutants released by medical waste
incineration. We plan to capitalize on the anticipated movement by hospitals to
outsource medical waste treatment rather than incur the cost of installing the
air pollution control systems necessary to comply with these EPA regulations. We
believe that approximately 35% of the total medical waste disposal market is
treated on-site at hospitals. Because our facilities are modern and well
maintained, we believe that our capital expenditures required to bring our
incinerators into compliance with these new regulations will only be
approximately $4.0 million.
EXPAND RANGE OF SERVICES AND PRODUCTS. We believe that we have the
opportunity to expand our business by increasing the range of products and
services that we offer to our existing customers. For example, we may expand our
collection and treatment of materials like photographic chemicals, lead foils
and amalgam used in dental and radiology laboratories. In addition, because our
drivers call on numerous medical facilities on a routine basis, we offer many
single-use disposable medical supplies to our customers and we intend to
increase these offerings in the future.
ACQUISITION AND INTEGRATION HISTORY
We believe that our management team has substantial experience in
evaluating potential acquisition candidates and determining whether a particular
medical waste management business can be successfully integrated into our
business. In determining whether to proceed with a business acquisition, we
evaluate a number of factors including:
o the financial impact of the proposed acquisition, including
the effect on our cash flow and earnings per share;
o the historical and projected financial results of the target
company;
o the purchase price negotiated with the seller and our expected
internal rate of return;
o the composition and size of the target company's customer
base;
o the efficiencies we can achieve by integrating the target
company with one or more of our existing operations;
o the potential for enhancing or expanding our geographic
service area and allowing us to make other acquisitions in the
same service area;
o the experience, reputation, and personality of the target
company's management;
o the target company's reputation for customer service and
relationships with the communities that it serves; and
o whether the acquisition gives us any strategic advantages over
our competition.
We have established an efficient procedure for integrating
newly-acquired companies into our business while minimizing disruption of our
operations. Once a business is acquired, we implement programs designed to
improve customer service, sales, marketing, routing, equipment utilization,
employee productivity, operating efficiencies and overall profitability.
We have completed the following 43 acquisitions:
<TABLE>
<CAPTION>
SELLER DATE MARKETS SERVED
<S> <C> <C>
Allied Waste Industries, Inc. (BFI acquisition)...... November 1999 United States, Canada and Puerto
Rico
All-Med Safewaste Inc................................ July 1999 Massachusetts
Ionization Research Company, Inc..................... July 1999 California
Enviro-Tech Services................................. June 1999 Arizona
Foster Environmental Services Corp................... May 1999 New York
Environmental Guardian, Inc.......................... May 1999 Wisconsin
Browning-Ferris Industries, Inc...................... April 1999 Texas
Arizona Medical Waste Management..................... March 1999 Arizona
Enviro-Tech Disposal Division of
Lancaster General Services Business Trust........ March 1999 Pennsylvania
Medical Express and General Courier
Service, Inc...................................... February 1999 Pennsylvania
Southwest Medecol L.C................................ February 1999 Kansas, Texas and Colorado
Medical Resources Recycling Systems, Inc............. February 1999 Washington and Idaho
Medical Resources Corporation........................ February 1999 New Mexico, Colorado and Arizona
Environmental Transloading Services, Inc............. January 1999 California
Med-Tech Environmental Limited....................... January 1999 and
December 1998 Alberta, British Columbia,
Ontario, Quebec, Connecticut,
Maine, Massachusetts,
New Hampshire,
New York, Rhode Island and
Vermont
Mid-America Environmental, Inc....................... December 1998 Indiana
Waste Systems, Inc. (3CI)............................ October 1998 Alabama, Arkansas, Florida,
Georgia, Kansas, Louisiana,
Mississippi, Missouri, Oklahoma,
Tennessee and Texas
Medical Compliance Services, Inc..................... September 1998 New Mexico and Texas
Regional Recycling, Inc.............................. August 1998 New Jersey
Allegro Carting and Recycling, Inc................... August 1998 New York
Mediwaste Disposal Services LLC...................... July 1998 Texas
Superior of Wisconsin, Inc........................... July 1998 Wisconsin
Arizona Hazardous Waste Disposal..................... July 1998 Arizona
Controlled Medical Disposal, Inc..................... June 1998 New Jersey
Arizona Hazardous Waste Disposal..................... June 1998 Arizona
Medisin, Inc......................................... April 1998 Kentucky and Ohio
Bridgeview, Inc...................................... March 1998 Pennsylvania
Browning-Ferris Industries, Inc...................... December 1997 Arizona
Phoenix Services, Inc................................ November 1997 Maryland
Cal-Va, Inc.......................................... November 1997 Virginia and Washington, D.C.
Envirotech Enterprises, Inc.......................... August 1997 Arizona
Rumpke Container Service, Inc........................ July 1997 Ohio
Regional Carting, Inc................................ July 1997 New Jersey
Waste Management, Inc................................ June 1997 Wisconsin
Environmental Control Co., Inc....................... May 1997 Connecticut, New Jersey and New
York
Waste Management, Inc................................ December 1996 Arizona, Colorado, Indiana,
Kentucky, Maryland, North
Carolina, Ohio, Pennsylvania,
South
Carolina, Tennessee, Utah,
Washington and Washington D.C.
Doctors Environmental Control, Inc................... May 1996 California
WMI Medical Services of New England.................. February 1996 New Hampshire, Massachusetts and
Maine
Bio-Med of Oregon, Inc............................... January 1996 Oregon
Safetech Health Care................................. June 1995 California
Safe Way Disposal Systems, Inc....................... September 1994 Connecticut and New York
Recovery Corporation of America...................... March 1994 Illinois, Indiana and Michigan
Therm-Tec Destruction Service of Oregon, Inc......... August 1993 Oregon
</TABLE>
SERVICES AND OPERATIONS
Our services and operations are comprised of collection,
transportation, treatment, disposal and recycling, together with related
training and education programs, consulting services and product sales. We have
35 treatment/collection facilities that service over 235,000 customers,
consisting of over 230,700 small account customers and over 4,300 large account
customers. We develop programs to help our customers handle, separate and
contain medical waste. We also advise health care providers on the proper
methods of recording and documenting their medical waste management to comply
with federal, state and local regulations. In addition, we offer consulting
services to our health care customers to assist them in reducing the amount of
medical waste they generate.
Collection and Transportation. We consider efficiency of collection and
transportation to be a critical element of our operations because it represents
the largest component of our operating costs. We try to maximize the number of
stops on each route. We use a tracking system for our collection vehicles that
helps to improve efficiency. We try to match the size of our collection vehicles
to the amount of medical waste to be collected at a particular stop or on a
particular route. We collect containers or corrugated boxes of medical waste
from our customers at intervals depending upon customer requirements, terms of
the service agreement and the volume of medical waste produced. The containers
or boxes are inspected at the customer's site prior to pickup. The waste is then
transported directly to one of our treatment facilities or to one of our
transfer stations where it is combined with other medical waste and transported
to a treatment facility. In some circumstances we transport waste to other
specially-licensed medical waste treatment facilities. We transport small
quantities of specific hazardous substances, such as photographic fixer, lead
foils and dental amalgam, from certain of our customers to a metals recycling
operation.
The use of transfer stations is another important component of our
collection and transportation operations. We utilize transfer stations in a "hub
and spoke" configuration which allows us to expand our geographic service area
and increase the volume of medical waste that can be treated at a particular
facility. Smaller loads of waste containers are temporarily held at the transfer
stations until they can be consolidated into full truckloads and transported to
a treatment facility.
As part of our collection operations, we supply specially-designed
containers for use by most of our large account customers and many of our larger
small account customers. We have developed and patented a reusable leak- and
puncture-resistant container, made from recycled plastic, which we call the
Steri-Tub(R) container. The plastic container enables our customers to reduce
costs by reducing the number of times that medical waste is handled, eliminating
the cost (and weight) of corrugated boxes and potentially reducing liability
resulting from human contact with medical waste. The plastic containers are
designed to maximize the loads that will fit within the cargo compartments of
standard trucks and trailers. We believe these features make the Steri-Tub(R)
plastic container superior to our competitors' reusable containers. If a
customer generates a large volume of waste, we will place a large temporary
storage container or trailer on the customer's premises. In order to maximize
regulatory compliance and minimize potential liability, we will not accept
medical waste unless it is properly packaged by customers in containers that we
have either supplied or approved.
Treatment and Disposal. Upon arrival at a treatment facility,
containers or boxes of medical waste are scanned to verify that they do not
contain any unacceptable substances, like radioactive material. Any container or
box that is discovered to contain unacceptable waste is returned to the
customer. In some cases our operating permits require that unacceptable waste be
reported to regulatory authorities. After inspection, the waste is treated using
one of our various treatment technologies. Upon completion of the particular
process, the resulting waste or incinerator ash is transported for resource
recovery, recycling or disposal in a nonhazardous waste landfill operated by
parties unaffiliated with us. After the Steri-Tub(R) plastic containers have
been emptied, they are washed, sanitized and returned to customers for re-use.
Consulting Services. Before medical waste is picked up by our trucks,
our integrated waste management approach attempts to "build in" efficiencies
that will yield logistic advantages. For example, our consulting services can
assist our customers in reducing the volume of medical waste they generate. In
addition, we provide customers with the documentation necessary for compliance
with laws which, if they complete them properly, will reduce interruptions to
their businesses to verify compliance.
Documentation. We provide complete documentation to our customers for
all medical waste that we collect, including the name of the generator, date of
pick-up and date of delivery to a treatment facility. We believe that our
documentation system meets all applicable federal, state and local regulations
regarding the packaging and labeling of medical waste, including regulations
issued by the U.S. Department of Transportation, OSHA and state and local
authorities. This documentation is sometimes used by our customers to prove that
they are in compliance with these regulations. These customers will often pay
for us to retrieve and reprint old manifests and other documentation. We believe
that our ability to offer document archiving and retrieval services represents a
competitive advantage.
MARKETING AND SALES
MARKETING STRATEGY
We have the largest, most well-established sales force in the medical
waste industry, with over 277 sales representatives and telemarketing personnel.
We use both telemarketing and direct sales efforts to obtain new customers. In
addition, we developed a proprietary database of over 330,000 potential small
account customers not presently served by us, which we believe gives us a
competitive advantage in identifying and reaching higher margin, small account
customers. We believe that we have been particularly effective at attracting new
small account customers through our innovative "flex-rep" program in which
part-time field sales representatives work in tandem with telemarketers. We
believe that the combination of the two allows us to cost-effectively sell
"face-to-face" with potential small account customers and is more effective at
converting sales leads into customers than telemarketing alone.
In addition to our sales representatives and telemarketing personnel we
have 21 account managers responsible for customer service centers. Our 868
drivers also participate in our marketing and sales effort by actively
soliciting small account customers while they service their routes.
SMALL ACCOUNT CUSTOMERS
We have targeted small account customers as a growth area. We believe
that these customers offer high profit potential compared to other potential
customers. Typical small account customers are individual or small groups of
doctors, dentists and other health care providers who are widely dispersed and
generate only small amounts of medical waste. These customers are very concerned
about having the medical waste picked up and disposed of in compliance with
applicable state and federal regulations. We believe the potential risks of
non-compliance by these customers with applicable state and federal medical
waste regulations is viewed by them as disproportionate to the cost of the
services we provide. We believe this has been the basis for the significantly
higher gross margins we have achieved with our small account customers relative
to our large account customers. Our telemarketers use our proprietary database
to identify and qualify these small account customers and arrange appointments
for our trained "flex-reps." We believe that our telemarketing program provides
a cost-effective way to reach the numerous but scattered small account
customers.
We have a "mail-back" service through which we can reach small account
customers located in outlying areas that would be inefficient to serve using our
regular route structure. In addition, we have introduced a medical waste
management and compliance program specifically targeted to small account
customers who are required to comply with the OSHA bloodborne pathogens
regulations but who lack the internal personnel and systems to do so.
LARGE ACCOUNT CUSTOMERS
We believe that we have been successful in serving large account
customers and plan to continue to serve those customers as long as satisfactory
levels of profitability can be maintained. Our marketing and sales efforts to
large account customers are conducted by full-time account executives whose
responsibilities include identifying and attracting new customers and serving
our existing account base of approximately 4,300 large account customers. In
addition to securing new contracts, our marketing and sales personnel provide
consulting services to our health care customers, assisting them in reducing the
amount of medical waste they generate, training their employees on safety issues
and implementing programs to audit, classify and segregate medical waste in a
proper manner. We have several strategic alliances to supplement our marketing
and sales efforts to large account customers.
We believe that the implementation of more stringent Clean Air Act and
other federal regulations directly and indirectly affecting medical waste will
enable us to improve our marketing efforts to large account customers because
the additional costs they will incur to comply with these regulations will make
the costs of our services more attractive, particularly relative to their use of
their own incinerators.
NATIONAL ACCOUNTS
As a result of our extensive geographic coverage, we are the only
company capable of servicing national account customers (i.e., those customers
requiring medical waste disposal services at various geographically dispersed
locations). The BFI medical waste business has historically focused on national
accounts and, as a result of its extensive geographic coverage, has been very
successful with this type of account.
CONTRACT AND SERVICE AGREEMENTS
We have long-term contracts with substantially all of our customers. We
negotiate individual service agreements with each large account and small
account customer. Although we have a standard form of agreement, particularly
for small account customers, terms may vary depending upon the customer's
service requirements and the volume of medical waste generated and, in some
jurisdictions, requirements imposed by statute or regulation. Service agreements
typically include provisions relating to types of containers, frequency of
collection, pricing, treatment and documentation for tracking purposes. Each
agreement also specifies the customer's obligation to pack its medical waste in
approved containers. Substantially all of our agreements with small account
customers contain automatic renewal provisions.
Service agreements are generally for a period of one to five years,
although customers may terminate on written notice and, in most service areas,
upon payment of a penalty. Many payment options are available, including flat
monthly or quarterly charges. We may set our prices on the basis of the number
of containers that we collect, the weight of the medical waste that we collect
and treat, the number of collection stops that we make on the customer's route,
the number of collection stops that we make for a particular multi-site
customer, and other factors.
We have a diverse customer base, with no single customer accounting for
more than 2% of revenues, and our top 10 customers accounting for approximately
7% of revenues, in each case on a pro forma combined basis for the year ended
December 31, 1998. We do not believe that the loss of any single customer would
have a material adverse effect on our business, financial condition or results
of operations.
INTERNATIONAL
We have also expanded beyond the United States and Canada. In 1996, we
entered into an agreement with a Brazilian company to assist in exploring
opportunities for the commercialization of our medical waste management
technology in South America. This relationship was expanded in July 1998, when
we entered into an agreement for an exclusive license to use our ETD technology
in Brazil and for the sale to Companhia Auxiliar of two fully integrated ETD
processing lines for use in treating medical waste in the Sao Paulo, Brazil
metropolitan market. In February 1998, we announced the formation of Medam, a
Mexican joint venture company, to utilize our ETD technology to treat medical
and infectious waste, primarily in the Mexico City market. Medam, which was
formed with an established Mexican company and an American firm of international
consulting engineers, has obtained the appropriate permits to construct and
operate a treatment facility with a 150-ton per day capacity. This facility,
which is the largest medical waste treatment facility permitted to date in
Mexico, became operational in June 1998. In addition, Medam has acquired a
transportation service company in Mexico.
TREATMENT TECHNOLOGIES
We primarily use three treatment technologies for treating regulated
medical waste: autoclaving, incineration and our proprietary ETD technology. On
a pro forma combined basis, the percentages of medical waste, by volume, that we
treated in 1998, by the type of treatment technology used, were as follows:
o autoclaving, 63%;
o incineration, 27%; and
o our proprietary ETD technology, 10%.
We vary our treatment of medical waste among available treatment
technologies based on the type of waste and capacity and pricing considerations
in each service area, in order to minimize operating costs and capital
investments.
AUTOCLAVING. We estimate that autoclaving accounts for approximately
20-25% of United States capacity to treat medical waste at a site other than its
source. Autoclaving treats medical waste with steam at high temperature and
pressure to kill pathogens. Autoclaving alone does not change the appearance of
waste, and recognizable medical waste may not be accepted by some landfill
operators, but autoclaving may be combined with a shredding or grinding process
to render the medical waste unrecognizable.
INCINERATION. We estimate that incineration accounts for approximately
65-70% of United States capacity to treat medical waste at a site other than its
source. Incineration burns medical waste at elevated temperatures and reduces it
to ash. Incineration reduces the volume of waste, and it is the recommended
treatment and disposal option for some types of medical waste such as anatomical
waste or residues from chemotherapy procedures. However, incineration has come
under criticism from the public and from federal, state and local regulators
because of the air emissions which must be controlled. Emissions from
incinerators can contain certain pollutants which are subject to federal, state
and, in some cases, local regulation. In some circumstances the ash byproduct of
incineration may be regulated. As a result, it is expensive to permit and
construct new incineration facilities.
ETD TREATMENT PROCESS. We estimate that our patented ETD treatment
process accounts for approximately 8% of United States capacity to treat medical
waste at a site other than its source. ETD includes a system for grinding
medical waste. After grinding, ETD uses an oscillating field of low-frequency
radio waves to heat medical waste to temperatures that destroy pathogens such as
viruses, bacteria, fungi and yeast, without melting the plastic content of the
waste. ETD employs low-frequency radio waves because they can penetrate deeper
than high-frequency waves, like microwaves, which can penetrate medical waste of
a typical density only to a depth of approximately five inches. ETD uses
frequencies that match the physical properties of medical waste, enabling the
ETD treatment process to kill pathogens at temperatures as low as 90(0)C.
Although ETD is effective in destroying pathogens present in anatomical waste,
we do not currently treat anatomical waste using the ETD process.
We believe that ETD offers advantages over other methods of treating
medical waste. We believe that it is easier to get permits for ETD facilities
than for incineration facilities because ETD does not produce fluid or air
pollution. ETD facilities are also cheaper to construct than incinerators or
autoclaves with shredding capability. ETD also renders medical waste
unrecognizable and thus more acceptable for landfills and reduces the volume of
waste as well. It may also facilitate recycling of polypropylene plastics and
some of the ETD-treated waste may be used for fuel in "waste-to-energy"
electrical plants.
FACILITIES
We lease office space for our corporate offices in Lake Forest,
Illinois. We own or lease three ETD treatment facilities, 12 incineration
facilities, 14 autoclave facilities, three facilities that use a combination of
these methods, and three facilities that use other methods. We also operate one
ETD treatment facility through Medam, our Mexican joint venture company. All of
our treatment facilities also serve as collection sites. We own or lease 93
additional transfer and collection sites. We consider these facilities adequate
for our present and anticipated needs. Substantially all of these facilities are
pledged to secure the indebtedness under our credit facility.
We do not own or operate any landfills or any other type of disposal
site. After treatment, all remaining waste materials are transported to parties
unaffiliated with us for permanent disposal.
COMPETITION
The medical waste services industry is highly competitive. It consists
of many different types of service providers, including a large number of
regional and local companies. Another major source of competition is the on-site
treatment of medical waste by some large-quantity generators, particularly
hospitals. We believe this internal capacity represents approximately 35% of the
total industry and that we have approximately a 22% share of the industry.
In addition, we face potential competition from businesses that are
attempting to commercialize alternate treatment technologies or products
designed to reduce or eliminate the generation of medical waste, such as
reusable or degradable medical products.
We compete for service agreements primarily on the basis of
cost-effectiveness, quality of service and geographic location. We also attempt
to compete by demonstrating to customers that we can do a better job in reducing
their potential liability. Our ability to obtain new service agreements may be
limited by the fact that a potential customer's current vendor may have an
excellent service history or a long-term service contract or may offer prices to
the potential customer that are lower than ours.
GOVERNMENTAL REGULATION
We operate within the medical waste management industry, which is
subject to extensive and frequently changing federal, state and local laws and
regulations. This statutory and regulatory framework imposes compliance burdens
and risks on us, including requirements to obtain and maintain government
permits. These permits grant us the authority:
o to construct and operate treatment and transfer facilities,
o to transport medical waste within and between relevant
jurisdictions, and
o to handle particular regulated substances,
among other things. Our permits must be periodically renewed and are subject to
modification or revocation by the regulatory authority. We are also subject to
regulations that govern the definition, generation, segregation, handling,
packaging, transportation, treatment, storage and disposal of medical waste. We
are also subject to extensive regulations designed to minimize employee exposure
to medical waste. In addition, we are subject to foreign laws and regulations.
FEDERAL REGULATION
There are at least four federal agencies that have authority over
medical waste. These agencies are the EPA, OSHA, the U.S. Department of
Transportation and the U.S. Postal Service. These agencies regulate medical
waste under a variety of statutes and regulations.
Medical Waste Tracking Act of 1988. In the late 1980s, the EPA outlined
a two-year demonstration program pursuant to the Medical Waste Tracking Act of
1988 (MWTA), which was added to the Resource Conservation and Recovery Act of
1976. The MWTA was adopted in response to health and environmental concerns over
infectious medical waste after medical waste washed ashore on beaches,
particularly in New York and New Jersey, during the summer of 1988. Public
safety concerns grew following media reports of careless management of medical
waste. The MWTA was intended to be the first step in addressing these problems.
The primary objective of the MWTA was to ensure that medical wastes which were
generated in a covered state and which posed environmental problems, including
an unsightly appearance, were delivered to disposal or treatment facilities with
minimum exposure to waste management workers and the public. The MWTA's tracking
requirements included accounting for all waste transported and imposed civil and
criminal sanctions for violations.
In regulations implementing the MWTA, the EPA defined medical waste and
established guidelines for its segregation, handling, containment, labeling and
transport. Under the MWTA, the EPA was to deliver three reports to Congress on
different aspects of medical waste management and the success of the
demonstration program for tracking medical waste. Two of these reports were
completed; the third report has not yet been issued. The third report is
expected to cover the use of alternative medical waste treatment technologies,
including our ETD technology. It is possible that this third report will contain
findings or make recommendations that are unfavorable to our business and
technology.
The MWTA demonstration program expired in 1991, but the MWTA
established a model followed by many states in developing their specific medical
waste regulatory frameworks.
Clean Air Act Regulations. In August 1997, the EPA adopted regulations
under the Clean Air Act Amendments of 1990 that limit the discharge into the
atmosphere of pollutants released by medical waste incineration. These
regulations required every state to submit to the EPA for approval a plan to
meet minimum emission standards for these pollutants. See "--State and Local
Regulation." The EPA estimates that of the approximately 1,100 small, 690 medium
and 460 large medical waste incinerators in operation in May 1996, approximately
83-90% of the small incinerators, 60-95% of the medium incinerators and up to
35% of the large incinerators will be closed as hospitals seek less expensive
methods of medical waste disposal rather than incur the cost of installing the
necessary air pollution control systems to comply with the EPA's regulations. We
currently operate 10 incinerators. Because our facilities are modern and well
maintained, we believe that our capital expenditures required to bring our
incinerators into compliance with these new regulations will only be
approximately $4.0 million. We believe that we will be successful in obtaining
all necessary federal and state permits to continue the operation of our
incinerators. The Natural Resources Defense Council, an environmental
organization, has sued the EPA challenging the validity of its regulations on
the grounds that the minimum emissions standards are too lenient. If successful,
this lawsuit could result in the EPA's adoption of stricter air emissions
standards for medical waste incinerators. Stricter emissions standards could
benefit us if the result is that hospitals and other generators increase or
accelerate their use of outside medical waste treatment contractors like us.
Stricter emissions standards could also have a material adverse effect on us to
the extent that we incur increased costs to bring our own incinerators into
compliance with the more stringent standards. We might also face price increases
for treatment of medical waste that we deliver to other parties for
incineration.
Occupational Safety and Health Act of 1970. The Occupational Safety and
Health Act of 1970 authorizes OSHA to issue occupational safety and health
standards. OSHA regulations are designed to minimize the exposure of employees
to hazardous work environments. Various standards apply to certain aspects of
our operations. These regulations govern, among other things:
o exposure to bloodborne pathogens and other potentially
infectious materials;
o lock out/tag out procedures;
o medical surveillance requirements;
o use of respirators and personal protective equipment;
o emergency planning;
o hazard communication;
o noise;
o ergonomics; and
o forklift safety.
We are subject to unannounced OSHA safety inspections at any time.
Our employees are required by our policy to receive new employee
training, annual refresher training and training in their specific tasks. As
part of our medical surveillance program, employees receive pre-employment
physicals, including drug testing, annually-required medical surveillance and
exit physicals. We also subscribe to a drug-free workplace policy.
Resource Conservation and Recovery Act of 1976. In 1976, Congress
passed RCRA as a response to growing public concern about problems associated
with the handling and disposal of solid and hazardous waste. RCRA required the
EPA to promulgate regulations identifying hazardous wastes. RCRA also created
standards for the generation, transportation, treatment, storage and disposal of
solid and hazardous wastes. These standards included a documentation program for
the transportation of hazardous wastes and a permit system for solid and
hazardous waste disposal facilities. Medical wastes are currently considered
non-hazardous solid wastes under RCRA. However, some substances collected by us
from some of our customers, including photographic fixer developer solutions,
lead foils and dental amalgam, are considered hazardous wastes.
We use landfills operated by parties unrelated to us for the disposal
of treated medical waste from two of our ETD facilities and for the disposal of
incinerator ash and autoclaved waste. Waste is not regulated as hazardous under
RCRA unless it contains hazardous substances exceeding certain quantities or
concentration levels, meets specified descriptions, or exhibits specific
hazardous characteristics. Following treatment, waste from our ETD and autoclave
facilities is disposed of as nonhazardous waste. At our incineration facilities,
we test ash from the incineration process to determine whether it must be
disposed of as hazardous waste.
We employ quality control measures to check incoming medical waste for
specific types of hazardous substances. Our customer agreements also require our
customers to exclude different kinds of hazardous substances or radioactive
materials from the medical waste they provide us. We use a different type of
contract for the relatively small number of customers from whom we pick up
hazardous wastes.
DOT Regulations. The U.S. Department of Transportation has put
regulations into effect under the Hazardous Materials Transportation
Authorization Act of 1994. These regulations require us to package and label
medical waste in compliance with designated standards, and incorporate
bloodborne pathogens standards issued by OSHA. Under these standards, we must,
among other things, identify our packaging with a "biohazard" marking on the
outer packaging, and our medical waste container must be sufficiently rigid and
strong to prevent tearing or bursting, and must be puncture-resistant,
leak-resistant, properly sealed and impervious to moisture.
DOT regulations also require that a transporter be capable of
responding on a 24-hour-a-day basis in the event of an accident, spill, or
release to the environment of a hazardous material. We have entered into an
agreement with CHEMTREC, an organization that provides 24-hour emergency spill
notification in the United States and Canada, to provide this service and we
also have agreements with several emergency response organizations to provide
spill cleanup services in some of our service areas.
Our drivers are trained on topics such as safety, hazardous materials,
medical waste, hazardous chemicals and infectious substances. Employees are
trained to deal with emergency spills and releases of hazardous materials, and
we have a written contingency plan for these events. Our vehicles are outfitted
with spill control equipment and the drivers are trained in its use.
Comprehensive Environmental Response, Compensation and Liability Act of
1980. The Comprehensive Environmental Response, Compensation and Liability Act
of 1980 established a regulatory and remedial program to provide for the
investigation and cleanup of facilities that have released or threaten to
release hazardous substances into the environment. CERCLA and state laws similar
to it may impose strict, joint and several liability on the current and former
owners and operators of facilities from which releases of hazardous substances
have occurred and on the generators and transporters of the hazardous substances
that come to be located at these facilities. Responsible parties may be liable
for substantial site investigation and cleanup costs and natural resource
damages, regardless of whether they exercised due care and complied with
applicable laws and regulations. If we were found to be a responsible party for
a particular site, we could be required to pay the entire cost of site
investigation and cleanup, even though other parties also may be liable. This
would be the case if we were unable to identify other responsible parties, or if
those parties were financially unable to contribute money to the cleanup.
United States Postal Service. We have obtained a permit from the U.S.
Postal Service to conduct our "mail-back" program, pursuant to which customers
mail approved "sharps" (needles, knives, broken glass and the like) containers
directly to our treatment facilities.
STATE AND LOCAL REGULATION
We conduct business in numerous states. Each state has its own
regulations related to the handling, treatment and storage of medical waste.
Although there are many differences among the various state laws and
regulations, many states have followed the medical waste model under the MWTA
and are implementing programs under RCRA. In each of the states where we operate
a treatment facility or a transfer station, we are required to comply with
numerous state and local laws and regulations as well as our operating plan for
each site. State agencies involved in regulating the medical waste industry are
frequently the departments of health and environmental protection agencies. In
addition, many local governments have ordinances, local laws and regulations,
such as zoning and health regulations, that affect our operations.
In recent years, a number of communities have instituted "flow control"
requirements, which require that waste collected within a particular area be
deposited at a designated facility. In May 1994, the U.S. Supreme Court ruled
that a flow control ordinance was inconsistent with the Commerce Clause of the
Constitution of the United States. A number of lower federal courts have struck
down similar measures. The U.S. Congress may consider legislation that would at
least partially overturn these court decisions.
Similarly, the U.S. Supreme Court has consistently held that state and
local measures that seek to restrict the importation of waste into the
particular jurisdiction, or to tax imported waste at a higher rate, are
unconstitutional. To date, congressional efforts to enable states to impose
differential taxes on out-of-state waste or restrict waste importation have been
unsuccessful.
In the absence of federal legislation, various local laws that direct
waste to designated facilities, or limit or tax the interstate movement of
waste, may continue to be invalidated by the courts. If the U.S. Congress adopts
legislation allowing for specific types of flow control or authorizing
restriction on the importation of waste, or if valid legislation affecting
interstate transportation of waste is adopted at the federal or state level, our
business, financial condition and results of operations could be materially
adversely affected. In addition, we cannot assure you that municipalities will
not pass ordinances which effectively block or discourage us from locating a
treatment or transfer facility within their limits.
States usually regulate medical waste as a solid or "special" waste and
not as a hazardous waste under RCRA. State definitions of medical waste include:
o microbiological waste (cultures and stocks of infectious
agents);
o pathology waste (human body parts from surgical procedures and
autopsies);
o blood and blood products; and
o sharps.
Most states require segregation of different types of medical waste at the
hospital or other location where they were created. A majority of states require
that the universal biohazard symbol or a label appear on medical waste
containers. Storage regulations may apply to the party generating the waste, the
treatment facility, the transport vehicle, or all three. Storage rules seek to
identify and secure the storage area for public safety as well as set standards
for the manner and length of storage. Many states require employee training for
safe environmental cleanup through emergency spill and decontamination plans.
Many states also require that transporters carry spill equipment in their
vehicles. Those states whose regulatory framework relies on the MWTA model have
tracking document systems in place. Some states (Washington, for example)
regulate the prices we may charge.
We maintain numerous governmental permits and licenses to conduct our
business. Our permits vary from state to state based upon our activities within
that state and on the applicable state and local laws and regulations. These
permits include:
o transport permits for solid waste, medical waste and hazardous
substances;
o permits to construct and operate treatment facilities;
o permits to construct and operate transfer stations;
o permits governing discharge of sanitary water and registration
of equipment under air regulations;
o approvals for the use of ETD to treat medical waste; and
o various business operator's licenses.
We believe that we are currently in compliance in all material respects
with our permits and applicable laws and regulations.
Pursuant to medical waste incinerator regulations adopted by the EPA in
1997, every state was required by September 1998 to adopt a plan to comply with
federal guidelines which, among other things, limit the release of some airborne
pollutants from medical waste incinerators to levels prescribed by the EPA. Each
state's implementation plan must be at least as restrictive as the federal
emissions standards. If a state in which we operate an incinerator adopts more
stringent limits than the federal emissions standards, it could be very
expensive for us to bring our incinerator into compliance with the state's
requirements. See "--Governmental Regulation--Federal Regulation--Clean Air Act
Regulations."
Subsequent to the issuance of our original license for our Woonsocket,
Rhode Island treatment facility, the State of Rhode Island enacted legislation
that required us to obtain an additional license for our medical waste
management operations. We applied for but have not yet received this additional
license. Until regulatory action is taken on this additional license, we are
being permitted to continue to operate under our current license. Denial of this
additional license could result in us being required to cease our operations in
Rhode Island and it could have a material adverse effect on our business,
financial condition and results of operations.
Our ETD treatment technology has not been approved in all states. We
have received permits or been granted legislative approval to operate our ETD
treatment technology in 15 states, with additional applications pending. We
cannot be sure, however, that our treatment technology will be approved for the
treatment of medical waste in each state or other jurisdiction where we may want
to use it. Our inability to obtain regulatory approval could have a material
adverse effect on our business, financial condition and results of operations.
FOREIGN AND TERRITORIAL REGULATION
We presently conduct business in several provinces in Canada. Our
activities in British Columbia are governed at the federal level by the Canadian
Transportation of Dangerous Goods Act and the Canadian Environmental Protection
Act, and at the provincial level by comparable legislation. The Canadian
Environmental Protection Act regulates, among other things, the transborder
movement of medical waste. The federal Transportation of Dangerous Goods Act
regulates the movement of dangerous goods, including infectious substances, by
all modes of transportation. It imposes joint and several liability on all
persons who are responsible for, or who caused or contributed to the release of
any dangerous substance into the environment. Any business engaged in a
regulated activity is presumed to be liable for any release, unless the business
can demonstrate that it acted reasonably.
Provincial legislation typically regulates the storage, transportation
and disposal of waste, including biomedical waste, and imposes strict, joint and
several liability for all the costs of cleanup of contaminated sites. We believe
that we have obtained all permits required by federal and provincial
legislation.
We presently conduct business in the United States territory of Puerto
Rico. Our storage and treatment activities in Puerto Rico are governed at the
territorial level by the Puerto Rico Environmental Quality Board, while the U.S.
Department of Transportation regulates the transportation of medical waste in
Puerto Rico and applies the regulations promulgated under the Hazardous
Materials Transportation Authorization Act of 1994. We believe that we have in
place all permits required by federal and territorial legislation applicable to
Puerto Rico.
We cannot give you any assurances, however, that we will not be
required in the future to pay for cleanup costs incurred under Canadian or
Puerto Rican environmental laws, or that we will not incur additional operating
or capital costs required by changes to laws, regulations or permits.
We also conduct business in Mexico through our joint venture, Medam,
which collects medical waste and transports it for treatment to a new facility
close to Mexico City. Medical waste is regulated in Mexico as a category of
waste distinct from solid or "municipal" waste. Mexican regulations have
established collection schedules that are specific to the type and size of
generator. The Secretariat of the Environment, Natural Resources and Fisheries
is responsible for the enforcement of Mexico's medical waste law. We believe
that our joint venture operations in Mexico are in compliance with all
applicable laws, rules and regulations.
If we expand our operations into other foreign jurisdictions, we will
be required to comply with the laws and regulations of each of these
jurisdictions.
PERMITTING PROCESS
Each state in which we currently operate, and each state in which we
may operate in the future, has a specific permitting process. After we have
identified a geographic area in which we want to locate a treatment or transfer
facility, we identify one or more locations for a potential new site. Typically,
we will develop a site contingent on obtaining zoning approval and local and
state operating authority. Most communities rely on state authorities to provide
operating rules and safeguards for their community. Usually the state provides
public notice of the project and, if enough public interest is shown, a public
hearing may be held. If we are successful in meeting all regulatory
requirements, the state may issue a permit to construct the treatment facility
or transfer station. Once the facility is constructed, the state may again issue
public notice of its intent to issue an operating permit and may provide an
opportunity for public opposition or other action that may impede our ability to
construct or operate the planned facility. Permitting for transportation
operations frequently involves registration of vehicles, inspection of
equipment, and background investigations on our officers and directors.
We have been successful in obtaining permits for our current medical
waste transfer, treatment and processing facilities and for our transportation
operations. Several of our past attempts to construct and operate medical waste
treatment facilities, however, have met with significant community opposition.
In some of these cases, we have withdrawn our permit application.
PATENTS AND PROPRIETARY RIGHTS
We consider the protection of our technology to be important to our
business. Our policy is to protect our technology by a variety of means,
including applying for patents in the United States and in some foreign
countries.
We hold nine United States patents relating to the ETD treatment
process and other aspects of processing medical waste. We have filed or have
been assigned patent applications in several foreign countries and we have
received patents in Russia, Hungary, Canada, Mexico and Australia. We also hold
one United States patent for our reusable container, which is used under the
registered trademark Steri-Tub(R).
In November 1995, we entered into a cross-license agreement with IIT
Research Institute (IITRI). Under this agreement, IITRI granted us an exclusive
royalty-free license in North America, portions of Europe (including all 15
member countries of the European Union), Japan and other industrialized
countries throughout the world to use and commercialize various patent rights
and know-how held by IITRI relating to the use of radio-frequency technology in
the treatment of medical waste, and we granted to IITRI a royalty-free exclusive
license in the remaining countries of the world to use and commercialize
specified corresponding patent rights and know-how held by us. The agreement
continues until the expiration of the last-to-expire of any of the subject
patents held by either IITRI or us.
The term of the first-to-end of our existing United States patents
relating to our ETD treatment process will end in October 2009 at the earliest
or in September 2010 at the latest, and the term of the last-to-end of these
patents will end in January 2015.
In addition, we own additional technology relating to the processing of
medical waste and other health care waste that we believe is patentable. We are
evaluating the technology to determine whether to file for patent protection on
it.
There can be no assurance that any pending or future patent
applications will be granted; that any issued patents will provide us with
competitive advantages; that our patents will not be challenged by other
parties; or that the existing or future patents of other parties will not have
an adverse effect on our ability to carry out our business. In addition, there
can be no assurance that other companies will not independently develop similar
processes or avoid our patents. Litigation or administrative proceedings may be
necessary to enforce the patents issued to us or to determine the scope and
validity of others' proprietary rights. Any litigation or administrative
proceeding could result in substantial cost to us and distraction of our
management. A ruling against us in any litigation or administrative proceeding
could have a material adverse effect on our business, financial condition and
results of operations.
Our commercial success may also depend on our not infringing patents
issued to other parties. There can be no assurance that patents belonging to
other parties will not require us to alter our processes, pay licensing fees, or
cease development of our current or future processes. In addition, there can be
no assurance that we would be able to license the technology rights that we may
require at a reasonable cost or at all. If we could not obtain a license to any
infringing technology that we currently use, it could have a material adverse
effect on our business, financial condition and results of operations. In
addition, to determine the priority of inventions or patent applications we may
have to participate in proceedings before the U.S. Patent and Trademark Office
or in proceedings before foreign agencies, any of which could result in
substantial costs to us and distraction of our management.
We own federal registrations of the trademarks "Steri-Fuel(R),"
"Steri-Plastic(R)," "Steri-Tub(R)," and "Steri-Cement(R)," the service mark
Stericycle(R) and a service mark consisting of six green disks that we use in
the UniteD States. (It appears on the front of this prospectus.) There can be no
assurance that our registered or unregistered trademarks or service marks will
not infringe upon the rights of other parties. The requirement to change any
trademark, service mark or trade name of us could result in the loss of any
goodwill associated with that trademark, service mark or trade name and could
entail significant expense.
We also rely on unpatented and unregistered trade secrets, trademarks,
proprietary know-how and continuing technological innovation. We try to protect
this information, in part, by confidentiality agreements with our employees,
vendors and consultants. There can be no assurance that these agreements will
not be breached, that we would have adequate remedies for any breach or that our
trade secrets or know-how will not otherwise become known or independently
discovered by other parties.
EMPLOYEES
As of November 30, 1999, we had 2,165 full-time and 120 part-time
employees. Approximately 37 of our drivers and transportation helpers at our New
York City facilities and drivers at Med-Tech's Montreal, Quebec facility are
covered by collective bargaining agreements with the International Brotherhood
of Teamsters. Our production and maintenance employees at our Morton, Washington
facility were previously represented by the Teamsters but voted in April 1998 to
decertify the union. Approximately 100 former employees of the BFI medical waste
business that are now our employees are covered by a total of 16 collective
bargaining agreements with local Teamster unions. Two of these agreements,
covering a total of six BFI medical waste employees, have expiration dates of
September 30, 1999 and October 31, 1999. Both of these agreements are area
agreements involving multiple employers and management expects both to be
renewed without any work stoppage or other disruption. The remaining 14
agreements expire at various dates from April 2000 to April 2004. We consider
our employee relations to be satisfactory.
POTENTIAL LIABILITY AND INSURANCE
The medical waste industry involves potentially significant risks of
statutory, contractual, tort and common law liability claims. Potential
liability claims could involve, for example:
o cleanup costs;
o personal injury;
o damage to the environment;
o employee matters;
o property damage; and
o alleged negligence or professional errors or omissions in the
planning or performance of work.
We could also be subject to fines or penalties in connection with
violations of regulatory requirements.
We carry $26.0 million of liability insurance (including umbrella
coverage), and under a separate policy, $10.0 million of aggregate pollution and
legal liability insurance ($5.0 million per incident), which we consider
sufficient to meet regulatory and customer requirements and to protect our
employees, assets and operations. Our pollution liability insurance excludes
liabilities under CERCLA. There can be no assurance that we will not face claims
under CERCLA or similar state laws resulting in substantial liability for which
we are uninsured and which could have a material adverse effect on our business,
financial condition and results of operations.
Our insurance programs utilize large deductible plans offered by a
commercial insurance company. Large deductible plans allow us the benefits of
cost-effective risk financing while protecting us from catastrophic risk with
specific stop loss insurance limiting the amount of self-funded exposure for any
one loss and aggregate stop loss insurance limiting the self-funding exposure
for any one year.
LEGAL AND OTHER PROCEEDINGS
We operate in a highly regulated industry and are exposed to regulatory
inquiries or investigations from time to time. Government authorities can
initiate investigations for a variety of reasons. We have been involved in
several legal and administrative proceedings that have been settled or otherwise
resolved on terms acceptable to us, without having a material adverse effect on
our business. From time to time, we may consider it more cost-effective to
settle proceedings than to become involved in costly and time-consuming
administrative actions or litigation. We are also a party to various legal
proceedings arising in the ordinary course of business. We believe that the
resolution of these other matters will not have a material adverse effect on us.
In April 1997, a worker at our Morton, Washington treatment facility
was diagnosed with active tuberculosis. Testing revealed two additional cases of
active tuberculosis and 15 additional workers who tested positive for exposure
to tuberculosis. Officials of the Washington Departments of Health and of Labor
and Industries have concluded that workers were probably exposed to tuberculosis
bacteria from the medical waste being processed at the Morton facility. We
believe that the actual source of exposure has not been determined. However, we
have complied with the recommendations of all regulatory authorities to outfit
the facility's workers with personal protective equipment. In addition, we have
complied with governmental recommendations to modify equipment at the Morton
facility. We are also taking these actions, as applicable, at our other
treatment facilities. The safety measures being taken include those recommended
by the National Institute for Occupational Safety and Health in a report issued
in December 1998. While future claims are possible, to date we have not been
subject to any civil proceedings by the affected employees as a result of this
incident, which the Washington Department of Labor and Industries has determined
is covered by the state workers' compensation program.
In 1998, BFI filed a plea agreement with the U.S. Department of Justice
regarding possible violations of the Clean Water Act by the BFI medical waste
business arising from its Washington, D.C. treatment facility. The possible
violations arose from the wastewater treatment system used to contain and treat
all wastewater produced by the facility. BFI pled guilty to three violations
under the Clean Water Act and agreed to pay $1,500,000 in fines and make a
$100,000 community service contribution. These obligations have been satisfied
and the Washington, D.C. facility was closed in 1997.
In 1997, the BFI medical waste business voluntarily ceased operating
its incinerator at the Bronx, New York facility due to its inability to
consistently meet its permit requirements. In 1999, BFI executed an agreement
with the New York Department of Environmental Conservation to dismantle and
dispose of the incinerator of the BFI medical waste business located in the
Bronx, New York, pay a civil penalty of $50,000, institute a pilot program for
the use of natural gas powered trucks within six months of the date of the order
and establish and fund an Environmental Benefit Program for projects benefiting
the community and the environment in the amount of $200,000 to be paid within
two years of the date of the agreement. The agreement also allows us, on an
interim basis, to continue to operate the former BFI medical waste business,
collection and transfer operation at the same site.
<PAGE>
MANAGEMENT
The following table contains certain information with respect to our
directors, executive officers and certain key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Mark C. Miller.............................. 43 President, Chief Executive Officer and Director
Richard T. Kogler........................... 40 Chief Operating Officer
Anthony J. Tomasello........................ 53 Executive Vice President and Chief Technical Officer
Frank J.M. ten Brink........................ 42 Vice President, Finance and Chief Financial Officer
Michael J. Bernert.......................... 45 Vice President, Sales and Marketing
Joel P. Wilson.............................. 40 Vice President, Operations
Jack W. Schuler............................. 58 Chairman of the Board of Directors
Rod F. Dammeyer............................. 58 Director
Patrick F. Graham........................... 58 Director
John Patience............................... 51 Director
Peter Vardy................................. 68 Director
L. John Wilkerson, Ph.D..................... 55 Director
John P. Connaughton......................... 33 Director
Thomas R. Reusche........................... 44 Director
</TABLE>
Our directors are elected annually to serve until the next annual
meeting and until their successors have been elected and qualified. Our officers
serve at the discretion of our Board of Directors. Thomas R. Reusche and John P.
Connaughton joined our Board of Directors in November 1999 as the selections of
Bain Capital and Madison Dearborn, respectively, pursuant to the terms of the
preferred stock purchase agreement by which we issued and sold our convertible
preferred stock to certain investment funds associated with Bain Capital and
with Madison Dearborn. See "Description of Capital Stock--Convertible Preferred
Stock."
Mark C. Miller has served as President and Chief Executive Officer and
a director since joining us in May 1992. From May 1989 until he joined us, Mr.
Miller served as Vice President for the Pacific, Asia and Africa in the
International Division of Abbott Laboratories, which he joined in 1976 and where
he held a number of management and marketing positions. He is a director of
Affiliated Research Centers, Inc., which provides clinical research for
pharmaceutical companies and is a director of Lake Forest Hospital. Mr. Miller
received a B.S. degree in computer science from Purdue University, where he
graduated Phi Beta Kappa.
Richard T. Kogler joined us as Chief Operating Officer in December
1998. From May 1995 through October 1998, Mr. Kogler was Vice President and
Chief Operating Officer of American Disposal Services, Inc., a solid waste
management company. From October 1984 through May 1995, Mr. Kogler served in a
variety of management positions with Waste Management, Inc. Mr. Kogler received
a B.A. degree in chemistry from St. Louis University.
Anthony J. Tomasello has served as our Executive Vice President and
Chief Technical Officer since January 1999 and previously had served as Vice
President, Operations since joining us in August 1990. For eight years prior to
joining us, Mr. Tomasello was President and Chief Operating Officer of Pi
Enterprises and Orbital Systems, companies providing process and automation
services. From 1980 to 1982, he served as Vice President of Operations for Spang
and Company, an operating service firm specializing in resource recovery and
recycling for manufacturing and process industries. Mr. Tomasello received a
B.S. degree in mechanical engineering from the University of Pittsburgh.
Frank J.M. ten Brink has served as our Vice President, Finance and
Chief Financial Officer since June 1997. From 1991 until 1996 he served as Chief
Financial Officer of Hexacomb Corporation, and from 1996 until joining us, he
served as Chief Financial Officer of Telular Corporation. Prior to 1991, he held
various financial management positions with Interlake Corporation and
Continental Bank of Illinois. Mr. ten Brink received a B.B.A. degree in
international business and a M.B.A. degree in finance from the University of
Oregon.
Michael J. Bernert has served as our Vice President, Sales and
Marketing, with responsibility for sales and marketing throughout North America,
since January 1999. Since joining us in 1992, Mr. Bernert had held the position
of Vice President, Eastern Region. Prior to joining us in 1992, he held a series
of management positions with Abbott Laboratories. Mr. Bernert received a B.A.
degree in economics from Brown University and a M.B.A. degree from the
University of Dallas.
Joel P. Wilson has served as our Vice President, Operations, with
responsibility for operations throughout North America, since January 1999.
Since joining us in 1991, Mr. Wilson had held the positions of Vice President,
Midwest Region, Director of Engineering, General Manager of the Midwest Region,
General Manager of Operations and District Manager of Wisconsin. Prior to
joining us, he held several management positions with Orbital Systems and
Orbital Engineering. Mr. Wilson received a B.S. degree in civil engineering from
Brigham Young University.
Jack W. Schuler has served as our Chairman of the Board of Directors
since January 1990. From January 1987 to August 1989, Mr. Schuler served as
President and Chief Operating Officer of Abbott Laboratories, a diversified
health care company, where he served as a director from April 1985 to August
1989. Mr. Schuler serves as a director of Chiron Corporation, Medtronic, Inc.
and Ventana Medical Systems, Inc. He is a co-founder of Crabtree Partners LLC, a
private investment firm in Lake Forest, Illinois, which was formed in June 1995.
Mr. Schuler received a B.S. degree in mechanical engineering from Tufts
University and a M.B.A. degree from the Stanford University Graduate School of
Business Administration.
Rod F. Dammeyer has served as a director since January 1998. He is the
Managing Partner of Equity Group Corporate Investments and Vice Chairman and a
director of Anixter International Inc., where he has been employed since 1985.
Mr. Dammeyer is a director of Antec Corporation, CNA Surety Corporation, Grupo
Azucarero Mexico, IMC Global, Inc., Jacor Communications, Inc., Matria
Healthcare, Inc., Metal Management, Inc., TeleTech Holdings, Inc. and Transmedia
Network, Inc., and a trustee of Van Kampen Investments, Inc. closed-end funds.
He received a B.S. degree from Kent State University.
Patrick F. Graham has served as a director since May 1991. Mr. Graham
is a Vice President of A. T. Kearney and is the head of Global Strategy Practice
and a director of Intelidata Technologies, Inc. He was a co-founder of Bain &
Company, Inc., a management consulting firm in Boston, Massachusetts, where he
served in a number of positions from 1973 to 1997. He received a B.A. degree in
economics from Knox College and a M.B.A. degree from the Stanford University
Graduate School of Business Administration.
John Patience has served as a director since our incorporation in March
1989. He is a co-founder and partner of Crabtree Partners LLC, a private
investment firm in Lake Forest, Illinois, which was formed in June 1995. From
January 1988 to March 1995, Mr. Patience was a general partner of Marquette
Venture Partners, L.P., a venture capital fund which he co-founded and which led
our initial capitalization. Mr. Patience is a director of TRO Learning, Inc. and
Ventana Medical Systems, Inc. He received B.A. and B.L. degrees from the
University of Sydney in Sydney, Australia, and a M.B.A. degree from the Wharton
School of Business of the University of Pennsylvania.
Peter Vardy has served as a director since July 1990. He is the
Managing Director of Peter Vardy & Associates, an international environmental
consulting firm in Chicago, Illinois, which he founded in June 1990. From April
1973 to May 1990, Mr. Vardy served at Waste Management, Inc., a waste management
services company, where he was Vice President, Environmental Management. He is a
director of EMCON, which he co-founded in 1971. Mr. Vardy received a B.S. degree
in geological engineering from the University of Nevada.
L. John Wilkerson, Ph.D., has served as a director since July 1992. He
is a consultant to The Wilkerson Group, a health care products consulting firm
in New York, New York. Dr. Wilkerson has served with The Wilkerson Group since
1980 and prior to its acquisition by IBM Corporation was its Chairman. Dr.
Wilkerson also serves as a general partner of Galen Partners, L.P. and Galen
Partners International, L.P., affiliated health care venture capital funds. He
is a director of British Biotech Plc. and several privately held health care
companies. Dr. Wilkerson received a B.S. degree in biological sciences from Utah
State University and a Ph.D. degree in managerial economics and marketing
research from Cornell University.
John P. Connaughton has served as a director since November 1999. He
has been a Managing Director of Bain Capital since 1997 and a member of the firm
since 1989. Prior to joining Bain Capital, Mr. Connaughton was a consultant at
Bain & Company, where he worked in consumer products and healthcare strategy
consulting. He is also a director of Epoch Senior Living and Dade Behring Inc.
Mr. Connaughton received a B.S. degree in commerce from the University of
Virginia and a M.B.A. degree from the Harvard University Graduate School of
Business.
Thomas R. Reusche has served as a director since November 1999. He is a
Managing Director and co-founder of Madison Dearborn. Prior to founding Madison
Dearborn, Mr. Reusche was a senior investment manager of First Chicago Venture
Capital, which comprised the private equity investment activities of First
Chicago Corporation, the holding company parent of First National Bank of
Chicago. Mr. Reusche serves on the board of directors of Hines Horticulture,
Inc., Woods Equipment Company and a number of private companies. He has received
an A.B. degree from Brown University and a M.B.A. degree from the Harvard
University Graduate School of Business.
<PAGE>
EXECUTIVE COMPENSATION
1998 COMPENSATION
The following table provides certain information regarding the
compensation paid to or earned by our President and Chief Executive Officer and
our four other most highly compensated executive officers (the "named executive
officers") for services rendered in 1998, 1997 and 1996:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
NUMBER OF SECURITIES
FISCAL ANNUAL COMPENSATION UNDERLYING ALL OTHER
-------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) COMPENSATION(3)
- --------------------------- ---- ------ -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Mark C. Miller(4) 1998 $235,000 $30,500 $51,429 $300
President and 1997 235,000 -- 60,000 300
Chief Executive Officer 1996 148,481 -- 41,220 300
Anthony J. Tomasello 1998 150,000 1,750 22,000 300
Executive Vice President and 1997 150,000 -- 20,972 300
Chief Technical Officer 1996 136,025 -- 9,946 300
Frank J.M. ten Brink(5) 1998 150,000 11,867 20,429 300
Vice President, Finance and 1997 70,619 -- 55,000 300
Chief Financial Officer 1996 -- -- -- --
Linda D. Lee(6) 1998 130,000 13,400 11,286 300
Vice President, Regulatory 1997 130,000 -- 16,830 300
Affairs and Quality Assurance 1996 120,583 -- 5,086 300
Michael J. Bernert 1998 127,462 21,569 11,000 300
Vice President, 1997 123,833 -- 21,174 300
Sales and Marketing 1996 112,615 -- 22,101 300
(1) The bonuses paid during 1998 to Messrs. Miller, Tomasello, ten Brink
and Bernert and Ms. Lee were awarded under our cash bonus program for
executive officers. Under this program executive officers may elect, in
advance of any award, to forego some portion or all of any bonus
otherwise payable under the bonus program and receive instead an
immediately vested nonstatutory stock option. The option has an
exercise price per share equal to the closing price of a share of our
common stock on the bonus award date. For the bonuses paid in 1998, the
number of shares for which an option was granted was determined by
dividing the product of four times the amount of the cash bonus that a
participating executive officer elected to forego by the closing price.
Without giving effect to their prior elections to forego portions of
their cash bonuses, the cash bonuses paid to Messrs. Miller, Tomasello
and ten Brink and Ms. Lee would have been $70,500, $36,750, $16,867 and
$28,400, respectively. Mr. Bernert did not elect to forego any portion
of his cash bonus.
(2) The stock options granted during 1998 to Messrs. Miller, Tomasello and
ten Brink and Ms. Lee include options to purchase 11,429, 10,000, 1,429
and 4,286 shares, respectively. These options were granted to them in
lieu of portions of the cash bonuses otherwise payable to them under
our cash bonus program for executive officers. See Note 1.
(3) These amounts represent our matching contribution under our 401(k)
plan. For 1996, 1997 and 1998, the matching contribution was 30% of the
first $1,000 contributed by each participant.
(4) The salary for 1996 shown for Mr. Miller includes $22,917 paid to him
in February 1997. This amount represented the additional salary that we
would have paid to Mr. Miller in 1996 if, like our other executive
officers, he had resumed receiving his full base salary upon the
termination in mid-October 1996 of a voluntary 12-month salary
reduction program for management. The amount in question has been
excluded from the salary for 1997 shown for Mr. Miller.
(5) Mr. ten Brink joined us in June 1997.
(6) Ms. Lee resigned as an employee in March 1999.
</TABLE>
1998 STOCK OPTION GRANTS
The following table provides certain information regarding stock
options granted to the named executive officers in 1998. In accordance with the
rules of the SEC, the following table also provides the potential realizable
value over the term of the options (i.e., the period from the date of grant to
the date of expiration) based upon assumed rates of stock appreciation of 5% and
10%, compounded annually. These amounts do not represent our estimate of future
appreciation of the price of its common stock. We did not grant stock
appreciation rights to any named executive officer in 1998.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
-----------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN PRICE EXPIRATION OPTION TERM(4)
--------------
OPTIONS(1) FISCAL YEAR(2) PER SHARE(3) DATE 5% 10%
---------- -------------- ------------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Mark C. Miller 8,545 2.90% $13.625 3/31/08 $ 73,219 $ 185,552
11,429 3.88% 14.00 3/31/08 100,627 255,008
31,455 10.69% 13.625 3/31/08 269,528 683,037
Anthony J. Tomasello 12,000 4.08% 13.625 3/31/08 102,824 260,577
10,000 3.40% 14.00 3/31/08 88,045 223,124
Frank J.M. ten Brink 7,725 2.62% 13.625 3/31/08 66,193 167,746
1,429 0.49% 14.00 3/31/08 12,582 31,884
11,275 3.83% 13.625 3/31/08 96,612 244,834
Linda D. Lee 7,000 2.38% 13.625 3/31/08 59,981 152,003
4,286 1.46% 14.00 3/31/08 37,736 95,631
Michael J. Bernert 11,000 3.74% 13.625 3/31/08 94,256 238,862
(1) All of the stock options granted to the named executive officers were
granted under our 1997 Stock Option Plan. Each option granted vests
over a four-year period: one-quarter of the option vests at the end of
the first year, and the balance of the option vests in equal monthly
increments over the next 36 months. The options for 11,429, 10,000,
1,429 and 4,286 shares granted to Messrs. Miller, Tomasello and ten
Brink and Ms. Lee, respectively, were granted in lieu of portions of
the cash bonuses otherwise payable to them under our cash bonus
program for executive officers.
(2) The percentages shown in the table reflect options for a total of
294,368 shares granted to employees during 1998. All of these options
were granted under our 1997 Stock Option Plan.
(3) The exercise price per share shown in the table is equal to the closing
price of a share of common stock on the date of grant.
(4) The potential realizable value was calculated on the basis of the
10-year term of each option on its grant date, assuming that the fair
market value of the underlying stock on the grant date appreciates at
the indicated annual rate compounded annually for the entire term of
the term of the option and that the option is exercised and sold on
the last day of its term for the appreciated stock price. The
potential realizable value of each option was calculated using the
exercise price of the option as the fair market value of the
underlying stock on the grant date.
</TABLE>
1998 OPTION EXERCISES AND YEAR END OPTION VALUES
The following table provides certain information regarding stock option
exercises in 1998 by the named executive officers and the value of the stock
options that they held at December 31, 1998. No named executive officer
exercised any stock appreciation rights during the year or had any stock
appreciation rights outstanding at the end of the year.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FISCAL OPTIONS AT
ACQUIRED VALUE YEAR END FISCAL YEAR END(2)
-------- ------------------
ON EXERCISE REALIZED(1) VESTED UNVESTED VESTED UNVESTED
----------- ----------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Mark C. Miller 26,400 $300,246 95,904 90,941 $1,163,146 $579,651
Anthony J. Tomasello 6,000 81,750 20,925 28,121 133,756 173,814
Frank J.M. ten Brink -- -- 17,925 57,504 147,067 360,345
Linda D. Lee 11,354 159,532 5,658 19,292 21,770 123,791
Michael J. Bernert 2,000 29,940 62,361 31,929 901,741 238,446
(1) The value realized was determined by multiplying the number of option
shares acquired by the closing price of a share of our common stock on
the date of exercise, and then subtracting the aggregate exercise
price.
(2) The value of in-the-money stock options was determined by multiplying
the number of vested (exercisable) or unvested (unexercisable) options
by $16.125 per share, which was the closing price of a share of common
stock on December 31, 1998, and then subtracting the aggregate
exercise price.
</TABLE>
STOCK OPTION PLANS
We have adopted two stock option plans in addition to the Directors
Stock Option Plan: (1) the 1997 Stock Option Plan (the "1997 Plan"), which was
approved by our stockholders at the 1997 Annual Meeting; and (2) the Incentive
Compensation Plan (the "1995 Plan"), which was adopted in August 1995. Each plan
authorizes a total of 1,500,000 shares of common stock to be issued pursuant to
options granted under the plan or, in the case of the 1995 Plan, restricted
stock awarded under the plan. If an option granted under either plan expires
unexercised or is surrendered, or, in the case of the 1995 Plan, if we
repurchase shares of restricted stock awarded under the plan, the shares subject
to the option or repurchased by it once again become available for option grants
or, in the case of the 1995 Plan, restricted stock awards.
As of December 31, 1998, 924,224 shares were available for future
option grants under the 1997 Plan, and 377,942 shares were available for future
option grants or restricted stock awards under the 1995 Plan. No option grants
or restricted stock awards were made under the 1995 Plan during 1998. Each plan
has a 10-year term, and no option may be granted under the 1997 Plan after its
expiration in January 2007, and no option may be granted or shares of restricted
stock awarded under the 1995 Plan after its expiration in July 2005.
Both plans provide for the grant of incentive stock options intended to
satisfy the requirements of section 422 of the Internal Revenue Code of 1986, as
amended, nonstatutory stock options and, in the case of the 1995 Plan,
restricted stock awards. Incentive stock options may be granted and, in the case
of the 1995 Plan, shares of restricted stock may be awarded only to our
employees. Nonstatutory stock options may be granted under the 1997 Plan to
employees, directors and consultants and may be granted under the 1995 Plan to
employees and consultants. Both plans are administered by our Board of Directors
in respect of all eligible persons other than executive officers and by the
Compensation Committee of our Board of Directors in respect of executive
officers. Our Board of Directors or the Compensation Committee, as the case may
be, selects the eligible persons to whom options are granted or, in the case of
the 1995 Plan, restricted stock is awarded and, subject to the provisions of the
particular plan, determines the terms of each option or award, including, in the
case of an option, the number of shares, type of option, exercise price and
vesting schedule, and, in the case of an award of restricted stock under the
1995 Plan, the purchase price, if any, and the restrictions applicable to the
award.
The exercise price per share of options granted under either plan must
be at least equal to the closing price of a share of common stock on the date of
grant, with the exception that the exercise price per share of an incentive
stock option granted to an employee holding more than 10% of our outstanding
common stock must be at least 110% of the closing price. The maximum term of an
option granted under either plan may not exceed 10 years. An option may be
exercised only when it is vested and, in the case of an option granted to an
employee, only while the holder of the option remains an employee of ours or
during the 90-day period following the termination of his or her employment. In
the discretion of our Board of Directors or the Compensation Committee, as the
case may be, this 90-day period may be extended in the case of nonstatutory
stock options to any date ending on or before the expiration date of the option.
In addition, our Board of Directors or the Compensation Committee, as the case
may be, may accelerate the exercisability of an option at any time.
OTHER PLANS
We maintain a 401(k) plan in which employees who have completed one
year's employment and attained age 21 are eligible to participate. The plan
permits us to make matching contributions of a percentage of participants'
deferrals as determined each year by the Board of Directors. For 1998, we made
matching contributions of 30% of the first $1,000 contributed by participants.
We also maintain a nonqualified employee stock purchase plan under which
employees may purchase common stock on the open market through payroll
deductions.
EMPLOYMENT AGREEMENTS
We have not entered into written employment agreements with any of our
executive officers or employees. All of our executive officers and employees
have signed confidentiality agreements with us.
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides certain information regarding the
beneficial ownership of our common stock as of November 22, 1999 by (i) each
person known by us to be the beneficial owner of more than 5% of our outstanding
common stock, (ii) each of our directors, (iii) each of our executive officers
listed in the Summary Compensation Table and (iv) all of our directors and
executive officers as a group:
<TABLE>
<CAPTION>
OPTION AND
WARRANT SHARES
INCLUDED IN
SHARES BENEFICIALLY
BENEFICIALLY OWNED COMBINED
OWNED SHARES(1) PERCENTAGE(2)
----- --------- -------------
<S> <C> <C> <C>
The TCW Group, Inc.(3)
865 South Figueroa Street
Los Angeles, CA 90017........................................ 1,043,700 -- 7.1%
Bain Capital Group(4)(6)
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116............................................. 2,142,857 -- 11.3
Madison Dearborn Partners, LLC (5)(6)
70 W. Madison Street
Chicago, IL 60602............................................ 2,142,857 -- 11.3
Mark C. Miller(7)................................................. 543,932 138,483 4.6
Anthony J. Tomasello.............................................. 129,013 39,612 1.1
Frank J.M. ten Brink.............................................. 53 32,167 *
Michael J. Bernert(8)............................................. 6,371 83,274 *
Jack W. Schuler(9)................................................ 894,515 51,969 6.4
Rod F. Dammeyer(10)............................................... 11,000 16,583 *
Patrick F. Graham................................................. 9,783 19,567 *
John Patience..................................................... 211,057 52,596 1.8
Peter Vardy(11)................................................... 163,362 43,549 1.4
L. John Wilkerson, Ph.D.(12)...................................... 29,226 17,385 *
Thomas R. Reusche................................................. -- -- *
John P. Connaughton............................................... -- -- *
All directors and executive officers
as a group (14 persons)(13).................................. 2,007,656 488,944 16.4
* Less than 1%.
(1) This column shows shares of common stock issuable upon the exercise of
stock options or warrants exercisable as of or within 60 days after
June 30, 1999.
(2) Shares of common stock issuable upon the exercise of stock options or
warrants exercisable as of or within 60 days after June 30, 1999 are
considered outstanding for purposes of computing the percentage of the
person holding the option or warrant but are not considered
outstanding for purposes of computing the percentage of any other
person.
(3) The shares shown as beneficially owned by The TCW Group, Inc., are
derived from a Schedule 13F, filed by the TCW Group, Inc. on June 30,
1999. Schedule 13G filings are more comprehensive than Schedule 13F
filings but filed less frequently. A Schedule 13G, jointly filed by
The TCW Group, Inc., a parent holding company, and Robert Day, an
individual who may be deemed to control The TCW Group, Inc., reported
that, as of December 31, 1998, for reporting purposes, each of them
held sole voting and dispositive power over 785,300 shares. The
Schedule 13G indicated that: (i) no shares are held directly by The
TCW Group, Inc.; (ii) The TCW Group, Inc. indirectly held shares
through its subsidiaries, Trust Company of the West, TCW Asset
Management Company and TCW Funds Management, Inc.; and (iii) aside
from the indirect holdings of The TCW Group, Inc., Robert Day did not
directly or indirectly hold any of these shares.
(4) The shares shown as beneficially owned by Bain Capital Group are
derived from a joint Schedule 13D filed on November 22, 1999 by
investment funds associated with Bain Capital and with Madison
Dearborn. The shares of common stock reported as beneficial owned by
these funds are derived from the beneficial ownership of our
convertible preferred stock on an as-if converted basis. See
"Description of Capital Stock--Convertible Preferred Stock." The
Schedule 13D reports that the following funds associated with Bain
Capital are the beneficial owners of the following shares, and each has
sole voting and sole dispositive power with respect to these shares:
Convertible Preferred Stock Common Stock Percentage of
Fund Beneficially Owned Beneficially Owned Outstanding Shares
---- ------------------ ------------------ ------------------
Bain Capital Fund VI, L.P. 25,403.76 1,451,643 7.63%
BCIP Associates II 4,491.38 256,650 1.35%
BCIP Associates II-B 615.62 35,178 0.19%
BCIP Associates II-C 1,319.76 75,415 0.40%
BCIP Trust Associates II 1,291.22 73,784 0.39%
BCIP Trust Associates II-B 206.08 11,776 0.06%
Pep Investments Pty Limited 84.68 4,839 0.03%
Brookside Capital Partners Fund L.P. 1,856.25 106,071 0.56%
Sankaty High Yield Asset Partners, L.P. 1,856.25 106,071 0.56%
The Schedule 13D further reports that other entities related to Bain
Capital, in their roles as general partners of the funds, may be deemed
to control some of these funds and thus share voting and dispositive
power with respect to those common shares. In addition, W. Mitt Romney,
an individual, may be deemed to share voting and dispositive power with
respect to 2,116,588 shares of common stock in his capacity as sole
shareholder of Bain Capital and of other entities that serve as general
partners of the funds.
(5) The Schedule 13D jointly filed by investment funds associated with Bain
Capital and with Madison Dearborn reports that Madison Dearborn
Partners, LLC, as sole general partner of Madison Dearborn Partners
III, L.P., shares voting and dispositive power with respect to
2,142,857 common share based on the beneficial ownership of convertible
preferred stock by the following investment funds for which Madison
Dearborn Partners III is the general partner:
Convertible Preferred Stock Common Stock Percentage of
Fund Beneficially Owned Beneficially Owned Outstanding Shares
---- ------------------ ------------------ ------------------
Madison Dearborn Capital Partners III, L.P. 36,538.68 2,087,925 10.98%
Madison Dearborn Special Equity III, L.P. 811.32 46,361 0.24
Special Advisors Fund I, LLC, L.P.. 150 8,571 0.05
(6) The funds associated with Bain Capital and with Madison Dearborn have
agreed to vote their shares of convertible preferred stock in
accordance with the terms of an inter-investor agreement. As a result
of the terms of the inter-investor agreement, the Bain Capital and
Madison Dearborn funds may be deemed to constitute a "group" for
purposes of the Exchange Act. Accordingly, by virtue of their
beneficial ownership of 75,000 shares of convertible preferred stock,
the funds associated with Bain Capital and with Madison Dearborn may
be deemed to beneficially own 4,285,714 shares of common stock,
representing approximately 22.6% of the total number of outstanding
shares of common stock. For purposes of computing the percentages
for each of Bain Capital and Madison Dearborn, all of our convertible
preferred stock is assumed to be converted into common stock.
(7) The shares shown as beneficially owned by Mr. Miller include 76,346
shares owned by trusts for the benefit of his sons, as to which Mr.
Miller disclaims beneficial ownership.
(8) The shares shown as beneficially owned by Mr. Bernert include 1,000
shares owned by his wife, as to which Mr. Bernert disclaims beneficial
ownership.
(9) The shares shown as beneficially owned by Mr. Schuler include 35,218
shares owned by his wife and trusts for the benefit of his children,
as to which Mr. Schuler disclaims any beneficial ownership, and 30,000
shares owned by a family foundation of which Mr. Schuler is the sole
trustee, as to which Mr. Schuler disclaims beneficial ownership.
(10) The shares shown as beneficially owned by Mr. Dammeyer include 1,000
shares owned by his wife, as to which Mr. Dammeyer disclaims
beneficial ownership.
(11) The shares shown as beneficially owned by Mr. Vardy include 67,614
shares owned by trusts for the benefit of his children, as to which
Mr. Vardy disclaims beneficial ownership.
(12) Dr. Wilkerson is an indirect general partner of Galen Partners, L.P.
and Galen Partners International, L.P., which together own 290,484
shares (including 16,279 shares issuable upon the exercise of stock
options and warrants exercisable as of or within 60 days after May 31,
1999). Dr. Wilkerson disclaims any beneficial interest in the shares
held by these two limited partnerships except to the extent of his
individual ownership of limited partnership interests and his
pecuniary interest arising from his indirect general partnership
interest.
(13) The group of directors and executive officers does not include Ms.
Lee, who resigned as an employee in March 1999.
</TABLE>
<PAGE>
CERTAIN TRANSACTIONS
In December 1998, we entered into a subordinated loan agreement with a
group of lenders consisting of six of our seven directors at that time (Mr.
Graham being the only director not participating), pursuant to which the lenders
agreed to provide us with up to $5,500,000 of short-term financing upon our
request. In December 1998, we borrowed $2,750,000, and in January 1999, we
borrowed the remaining balance available under the loan agreement. Each loan
bore interest at 6.0% per annum and was repaid in March 1999 following the
completion in February 1999 of our public offering which was pending when the
loans were made. Under the terms of the subordinated loan agreement, the lenders
were granted five-year warrants to purchase shares of our common stock,
exercisable at any time after the first anniversary of the grant date. Upon
entering into the loan agreement, each lender was granted a warrant to purchase
a number of shares of common stock equal to the amount of the lender's loan
commitment multiplied by 0.05 and then divided by the closing price of a share
of common stock on the trading day immediately prior to the date of the lender's
execution of the loan agreement. This closing price is also the exercise price
of the warrant. In addition, at the time of each loan, each lender was granted a
warrant to purchase a number of shares of common stock equal to the amount of
the loan multiplied by 0.30 and then divided by the closing price of a share of
common stock on the trading day immediately prior to date of disbursement of the
lender's loan. This closing price is also the exercise price of the warrant. In
connection with their loans, the lenders were granted warrants to purchase, in
the aggregate, 18,970 shares of common stock at $14.50 per share, 43,551 shares
of common stock at $15.50 per share and 59,092 shares of common stock at $16.50
per share.
In May 1996, we borrowed $1,000,000 under a short-term loan from a
group of nine lenders consisting of directors (Messrs. Schuler, Miller, Patience
and Vardy), executive officers (Messrs. Tomasello and Bernert and our former
Vice President, Finance) and stockholders (Galen Partners, L.P. and Galen
Partners International, L.P.). Our loan was interest-free if paid when due and
was due within 30 days after completion of an initial public offering or upon
the occurrence of other events. We repaid the loan following the closing of our
initial public offering in August 1996. In connection with the loan, we issued
warrants to members of the lending group to purchase, in the aggregate, 226,036
shares of our common stock at an exercise price of $7.96 per share. These
warrants expire in May 2001 and are exercisable at any time prior to their
expiration. During 1998, warrants to purchase 35,940 shares were exercised, and
at December 31, 1998, warrants to purchase 190,096 shares remained outstanding.
In November 1999, in connection with the Preferred Stock Purchase
Agreement, we paid a closing fee to investment funds associated with Bain
Capital and Madison Dearborn, the purchasers of our convertible preferred stock,
of $750,000 and agreed to pay $600,000 of their expenses. See "Description of
Capital Stock--Convertible Preferred Stock."
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
CREDIT FACILITY
We have a term loan and revolving credit facility with various
financial institutions from time to time parties thereto, DLJ Capital Funding,
Inc., as syndication agent for the financial institutions, lead arranger and
sole book running manager, Bank of America, N.A., as administrative agent for
the financial institutions and Bankers Trust Company, as documentation agent for
the financial institutions, consisting of (a) a six-year revolving credit
facility of up to $50.0 million, (b) a six-year term loan A in the principal
amount of up to $65.0 million and (c) a seven-year term loan B in the principal
amount of up to $160.0 million. We have not made any draws under the revolving
credit facility.
REPAYMENT
The term loan A matures in quarterly installments, resulting in
aggregate annual amortization payments as a percentage of the initial principal
amount as follows:
YEAR AFTER CLOSING ANNUAL AMORTIZATION
(IN PERCENTAGE OF THE
INITIAL PRINCIPAL AMOUNT)
1.............................................. 2.5%
2.............................................. 7.5%
3.............................................. 12.5%
4.............................................. 22.5%
5.............................................. 25.0%
6.............................................. 30.0%
The term loan B matures in quarterly installments, resulting in
aggregate annual amortization payments as a percentage of the initial principal
amount as follows:
YEAR AFTER CLOSING ANNUAL AMORTIZATION
(IN PERCENTAGE OF THE
INITIAL PRINCIPAL AMOUNT)
1-6............................................. 1%
7............................................... 94%
GUARANTEES; SECURITY
The credit facility is secured by a first-priority (subject to
customary exceptions), perfected lien on: (i) substantially all our property and
assets and substantially all the property and assets of our subsidiaries, other
than unrestricted subsidiaries and foreign subsidiaries, (ii) all capital stock
(or similar equity interests) of all of our direct and indirect subsidiaries,
provided that no more than 65% of the capital stock (or similar equity
interests) of our foreign subsidiaries directly held by us or one of our
non-foreign subsidiaries is required to be pledged and no capital stock of our
foreign subsidiaries held by our foreign subsidiaries is required to be pledged,
and (iii) all intercompany notes other than intercompany notes held by our
foreign subsidiaries.
The credit facility is guaranteed on a senior secured basis by entities
customary for transactions of this nature, including all of our direct and
indirect non-foreign subsidiaries (other than any unrestricted subsidiaries).
INTEREST
At our option, the interest rates per annum applicable to the revolving
credit facility, term loan A and term loan B will be a fluctuating rate of
interest determined by reference to (a) the London Interbank Offered Rate
(LIBOR) plus the applicable margin, or (b) a base rate which is the greater of
the prime rate and the rate which is 1/2 of 1% in excess of the rates on
overnight Federal funds transactions as published by the Federal Reserve Bank of
New York, plus the applicable margin. The applicable margin will be determined
based on our total leverage ratio.
USE OF PROCEEDS
The term loans were used to finance in part the BFI acquisition, the
refinancing of existing debt and fees and expenses associated with the BFI
acquisition and related financing transactions. The revolving credit facility is
available to be used for working capital and general corporate purposes.
PREPAYMENTS
We are permitted to voluntarily prepay the obligations under the term
loans and to reduce the amount committed under the revolving credit facility
without any penalty or premium at any time. We are required to prepay the term
loans with:
(i) 100% net proceeds of specified asset sales, proceeds from
condemnation and the like and proceeds from loss or casualty, subject
to customary exceptions for repairs and replacements;
(ii) 100% of the net proceeds from the sale or issuance of debt
securities;
(iii) 50% of the net proceeds from the issuance of equity securities,
subject to customary adjustments to be mutually determined;
(iv) 75% of excess cash flow, subject to customary adjustments to be
mutually determined; and
(v) 100% of payments by or on behalf of Allied in respect of any
purchase price adjustment under the purchase agreements regarding the
BFI acquisition.
Prepayments will be applied pro rata to term loan A and term loan B and
will be applied to scheduled installments on each loan on a pro rata basis;
provided that the lenders with respect to term loan B can decline to be prepaid.
COVENANTS; EVENTS OF DEFAULT
The credit facility contains covenants restricting our ability and the
ability of any of our subsidiaries to (with limited exceptions), among other
things:
o incur debt;
o subject our assets to liens;
o make investments;
o incur contingent liabilities;
o pay dividends;
o merge or sell assets;
o make capital expenditures;
o enter into sale/lease-back transactions;
o enter into new businesses;
o discount receivables; and
o enter into affiliate transactions.
In addition, the credit facility requires us to meet financial
performance tests, including a maximum leverage ratio and a minimum cash
interest coverage ratio and, as we elect, either a minimum fixed charge coverage
ratio or minimum EBITDA.
The credit facility contains conditions under which an event of default
under the credit facility will exist, including:
o failure to make payments when due under the credit facility;
o defaults in other agreements;
o breach of covenants;
o material misrepresentations;
o involuntary or voluntary bankruptcy;
o judgments or attachments against us;
o dissolution; and
o changes in control.
OTHER INDEBTEDNESS
Our other financial obligations include industrial development revenue
bonds issued on behalf of and guaranteed by us to finance our Woonsocket, Rhode
Island treatment facility and equipment. These bonds, which had an outstanding
aggregate balance of $1,071,000 as of September 30, 1999 at fixed interest rates
ranging from 6.300% to 7.375%, are due in various amounts through June 2017. In
addition, we have issued various promissory notes in connection with
acquisitions during 1997 and 1998, consisting primarily of a 10-year note issued
as part of the Environmental Control Co. acquisition, which had an outstanding
balance of $1,840,000 at September 30, 1999.
<PAGE>
DESCRIPTION OF NOTES
You can find the definitions of various terms used in this description
under the subheading " Definitions." In this description, the words "we," "us,"
"our" and similar terms refer to Stericycle, Inc. and not to any of our
subsidiaries.
We issued the series A notes under an indenture among us, our
Subsidiary Guarantors and State Street Bank and Trust Company, as trustee, in a
private transaction that was not subject to the registration requirements of the
Securities Act. The terms of the indenture apply to the series A notes and to
the Series B notes to be issued in exchange for the series A notes pursuant to
the exchange offer. The terms of the series B notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939. The series B notes are subject to all of these terms.
The following description is a summary of the material provisions of
the indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they, and not this description, define
your rights as Holders of the notes. Copies of the indenture and the
registration rights agreement are filed as exhibits to the registration
statement of which this prospectus is a part and are also available as set forth
below under "--Additional Information."
Generally terms used in this description but not defined below under
"--Definitions" have the meanings assigned to them in the indenture. Unless the
context requires otherwise, "notes" refers to both the series A and the series B
notes. We us the term "Guarantors" in this description consistently with its use
in the indenture, but elsewhere in this prospectus we have used the terms
"Subsidiary Guarantors" to have the same meanings.
BRIEF DESCRIPTION OF THE SERIES B NOTES AND THE GUARANTEES
THE SERIES B NOTES
The series B notes:
o are general unsecured obligations of ours;
o are subordinated in right of payment to all of our existing
and future Senior Debt;
o are pari passu in right of payment with any of our future
senior subordinated Indebtedness; and
o are unconditionally guaranteed by our Guarantors.
THE SUBSIDIARY GUARANTEES
The series B notes will be guaranteed by all of our current and future
Domestic Subsidiaries that are Restricted Subsidiaries, except 3CI Complete
Compliance Corporation, a publicly traded corporation in which we hold a
controlling interest, and our foreign subsidiaries.
The guarantees of the series B notes:
o are general unsecured obligations of each Guarantor;
o are subordinated in right of payment to all existing and
future Senior Debt of each Guarantor; and
o are pari passu in right of payment with any future senior
subordinated Indebtedness of each Guarantor.
Not all of our subsidiaries will guarantee the series B notes. Med-Tech
Environmental Limited, Med-Tech Environmental (CDA), Ltd., Bio-Med Waste
Disposal Systems, Ltd., and 507375 N.B. Ltd., our existing foreign subsidiaries,
and 3CI Complete Compliance Corporation will not be guarantors. In the event of
a bankruptcy, liquidation or reorganization of any of these non-guarantor
subsidiaries, these non-guarantor subsidiaries will pay the holders of their
debts and their trade creditors before they will be able to distribute any of
their assets to us. The non-guarantor subsidiaries generated 9.9% of our pro
forma revenues for the twelve-month period ended June 30, 1999 and held 4.9% of
our pro forma combined assets as of September 30, 1999.
As of the date of the indenture, all of our subsidiaries were
"Restricted Subsidiaries." However, under the circumstances described below
under the subheading "--Covenants--Designation of restricted and unrestricted
subsidiaries," we will be permitted to designate some of our subsidiaries as
"unrestricted subsidiaries." The effect of designating a Subsidiary as an
"Unrestricted Subsidiary" will be
o an Unrestricted Subsidiary will not be subject to many of the
restrictive covenants in the indenture;
o a Subsidiary that has previously been a Guarantor and that is
designated an Unrestricted Subsidiary will be removed from its
Subsidiary Guarantee; and
o the assets, income, cash flow and other financial results of an
Unrestricted Subsidiary will not be consolidated with ours for purposes
of calculating compliance with the restrictive covenants contained in
the indenture.
PRINCIPAL, MATURITY AND INTEREST
The indenture provides for the issuance by us of notes with a maximum
aggregate principal amount of $200.0 million, of which $125.0 million of series
A notes were issued in the initial offering. We may issue additional notes (the
"Additional Notes") from time to time after this offering. Any offering of
Additional Notes is subject to the covenant described below under the caption
"--Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." The
series A and series B notes and any Additional Notes subsequently issued under
the indenture would be treated as a single class for all purposes under the
indenture, including, without limitation, waivers, amendments, redemptions and
offers to purchase. We have issued and will issue notes in denominations of
$1,000 and integral multiples of $1,000.
The series B notes will mature on November 15, 2009.
Interest on the series B notes will accrue at the rate of 12 3/8% per
annum and will be payable semi-annually in arrears on November 15 and May 15,
commencing on May 15, 2000. We will make each interest payment to the Holders of
record on the immediately preceding November 1 and May 1.
Interest on the series B notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
METHODS OF RECEIVING PAYMENTS ON THE SERIES B NOTES
If you have given wire transfer instructions to us at least ten
business days prior to the applicable payment date, we will pay all principal,
interest and premium and Liquidated Damages, if any, on your series B notes in
accordance with those instructions. All other payments on the series B notes
will be made at the office or agency of the paying agent and registrar for the
notes within the City and State of New York unless we elect to make interest
payments by check mailed to the Holders at their addresses set forth in the
register of Holders.
PAYING AGENT AND REGISTRAR FOR THE SERIES B NOTES
The trustee will initially act as paying agent and registrar. We may
change the paying agent or registrar without prior notice to the Holders of
series B notes, and we or any of our subsidiaries may act as paying agent or
registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange series B notes in accordance with the
indenture. The registrar and the trustee may require a Holder to furnish
appropriate endorsements and transfer documents in connection with a transfer of
series B notes. Holders will be required to pay all taxes due on transfer. We
are not required to transfer or exchange any note selected for redemption. Also,
we are not required to transfer or exchange any note for a period of 15 days
before a selection of series B notes to be redeemed.
The registered holder of a series B note will be treated as its owner
for all purposes.
SUBSIDIARY GUARANTEES
The Guarantors will jointly and severally guarantee our obligations
under the series B notes. Each Subsidiary Guarantee will be subordinated to the
prior payment in full in cash of all Senior Debt of that Guarantor (including,
without limitation, Senior Debt incurred after the date of the indenture) to the
extent the payment of Subordinated Note Obligations are subordinated to our
Senior Debt, as described below under the caption "Subordination." The
obligations of each Guarantor under its Subsidiary Guarantee will be limited as
necessary to prevent that Subsidiary Guarantee from constituting a fraudulent
conveyance under applicable law. See "Risk Factors--Fraudulent Conveyance
Matters--Federal and state statutes allow courts, under specific circumstances,
to void guarantees and require noteholders to return payments received from
guarantors."
A Guarantor may not sell or otherwise dispose of all or substantially
all of its assets to, or consolidate with or merge with or into (whether or not
the Guarantor is the surviving Person), another Person, other than us or another
Guarantor, unless:
(1) immediately after giving effect to that transaction, no
Default or Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any sale or
disposition or the Person formed by or surviving any
consolidation or merger assumes all the obligations
of that Guarantor under the indenture, its Subsidiary
Guarantee and the registration rights agreement
pursuant to a supplemental indenture satisfactory to
the trustee; or
(b) any sale or other disposition complied with the
"Asset Sale" provisions of the indenture.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including
by way of merger or consolidation) to a Person that is not
(either before or after giving effect to the transaction) a
Restricted Subsidiary of ours, if the Guarantor applies the
Net Proceeds of that sale or other disposition in accordance
with the "Asset Sale" provisions of the indenture;
(2) in connection with any sale of all of the Capital Stock of
a Guarantor to a Person that is not (either before or after
giving effect to the transaction) a Restricted Subsidiary of
ours, if we apply the Net Proceeds of that sale in accordance
with the "Asset Sale" provisions of the indenture; or
(3) if we properly designate any Restricted Subsidiary of ours
that is a Guarantor as an Unrestricted Subsidiary in
accordance with the applicable provisions of the indenture.
See "--Repurchase at the Option of Holders--Asset Sales."
SUBORDINATION
The payment of Subordinated Note Obligations will be subordinated to
the prior payment in full in cash of all of our Senior Debt, including Senior
Debt incurred after the date of the indenture.
The holders of Senior Debt will be entitled to receive payment in full
in cash of all Obligations due in respect of Senior Debt (including interest
after the commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt) before the Holders of series B notes will be entitled to
receive any payment with respect to Subordinated Note Obligations (except that
Holders of series B notes may receive and retain Permitted Junior Securities and
payments made from the trust described under "--Legal Defeasance and Covenant
Defeasance"), in the event of any distribution to our creditors:
(1) in our liquidation or dissolution;
(2) in a bankruptcy, reorganization, insolvency, receivership
or similar proceeding relating to us or our property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of our assets and liabilities.
We also may not make any payment in respect of the series B notes
(except in Permitted Junior Securities or from the trust described under
"--Legal Defeasance and Covenant Defeasance") if:
(1) a payment default on Designated Senior Debt occurs and is
continuing; or
(2) any other default occurs and is continuing on Designated
Senior Debt that permits holders of the Designated Senior Debt
as to which that Default relates to accelerate its maturity
and the trustee receives a notice of the default (a "Payment
Blockage Notice") from us or the holders of any Designated
Senior Debt.
Payments on the series B notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which
the default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date
on which the nonpayment default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice
is received, unless the maturity of any Designated Senior Debt
has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360
days have elapsed since the delivery of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless the default shall have
been cured or waived for a period of not less than 90 days.
If the trustee or any Holder of the notes receives a payment in respect
of the notes (except in Permitted Junior Securities or from the trust described
under "--Legal Defeasance and Covenant Defeasance") when the payment is
prohibited by these subordination provisions, the trustee or the Holder, as the
case may be, shall promptly turn over the payment to the holders of Senior Debt
or their proper representative. Until the trustee or the Holder, as the case may
be, shall have so turned over the payment, the trustee or the Holder, as the
case may be, shall hold the payment in trust for the benefit of the holders of
Senior Debt.
We must promptly notify Holders of Senior Debt if payment of the series
B notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the
event of our bankruptcy, liquidation or reorganization, Holders of series B
notes may recover less ratably than trade creditors and our other creditors who
are holders of Senior Debt. See "Risk Factors--Subordination."
OPTIONAL REDEMPTION
At any time prior to November 15, 2002, we may on any one or more
occasions redeem up to 35% of the aggregate principal amount of series B notes
issued under the indenture at a redemption price of 112.375% of the principal
amount of the series B notes redeemed, plus accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date, with the net cash proceeds
of one or more Equity Offerings; provided that:
(1) at least 65% of the series B notes issued under the
indenture remain outstanding immediately after the occurrence
of the redemption (excluding series B notes held by any of our
Subsidiaries or us); and
(2) the redemption occurs within 60 days of the date of the
closing of the Equity Offering.
Except pursuant to the preceding paragraph, the series B notes will not
be redeemable at our option prior to November 15, 2004. We are not prohibited,
however, from acquiring series B notes by means other than a redemption, whether
pursuant to an issuer tender offer or otherwise, assuming the acquisition does
not otherwise violate the terms of the indenture.
After November 15, 2004, we may redeem all or a part of the series B
notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages, if any, on the series B
notes redeemed to the applicable redemption date, if redeemed during the
twelve-month period beginning on November 15 of the years indicated below:
YEAR PERCENTAGE
2004....................................... 106.1875%
2005....................................... 104.1250
2006....................................... 102.0625
2007 and thereafter........................ 100.0000%
MANDATORY REDEMPTION
Except as described in "Repurchase at the Option of Holders--Change of
Control" and "Repurchase at the Option of Holders--Asset Sales," We are not
required to make mandatory redemption or sinking fund payments with respect to
the series B notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of series B notes will have
the right to require us to repurchase all or any part (equal to $1,000 or an
integral multiple of $1,000) of that Holder's series B notes pursuant to the
Change of Control Offer on the terms set forth in the indenture. In the Change
of Control Offer, we will offer a Change of Control Payment in cash equal to
101% of the aggregate principal amount of series B notes repurchased plus
accrued and unpaid interest and Liquidated Damages, if any, on the series B
notes repurchased to the date of purchase. Within 30 days following any Change
of Control, we will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
series B notes on the Change of Control Payment Date specified in the notice,
which date shall be no earlier than 30 days and no later than 60 days from the
date the notice is mailed, pursuant to the procedures required by the indenture
and described in the notice. We will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent those laws and regulations are applicable in connection with the
repurchase of the notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict with the Change of
Control provisions of the indenture, we will comply with the applicable
securities laws and regulations and will not be deemed to have breached our
obligations under the Change of Control provisions of the indenture by virtue of
this conflict.
On the Change of Control Payment Date, we will, to the extent lawful:
(1) accept for payment all series B notes or portions of notes
properly tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the
Change of Control Payment in respect of all series B notes or
portions of notes properly tendered; and
(3) deliver or cause to be delivered to the trustee the series
B notes so accepted together with an officers' certificate
stating the aggregate principal amount of series B notes or
portions of series B notes being purchased by us.
The paying agent will promptly mail to each Holder of series B notes
properly tendered the Change of Control Payment for the series B notes, and the
trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new note equal in principal amount to any unpurchased
portion of the notes surrendered, if any; provided that each new series B note
will be in a principal amount of $1,000 or an integral multiple of $1,000.
Prior to complying with any of the provisions of this "Change of
Control" covenant, but in any event within 90 days following a Change of
Control, we will either repay all outstanding Senior Debt or obtain the
requisite consents, if any, under all agreements governing outstanding Senior
Debt to permit the repurchase of series B notes required by this covenant. We
will publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control payment date.
The provisions described above that require us to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the Holders of the series B notes to require that
we repurchase or redeem the series B notes in the event of a takeover,
recapitalization or similar transaction.
We will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by us and purchases all
series B notes properly tendered and not withdrawn under the Change of Control
Offer.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in
one or a series of related transactions, of all or
substantially all of the properties or assets of our
Subsidiaries and us taken as a whole to any "person" (as that
term is used in Section 13(d)(3) of the Exchange Act) other
than a Principal or a Related Party of a Principal;
(2) the adoption of a plan relating to our liquidation or
dissolution;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which
is that any "person" (as defined above), other than the
Principals and their Related Parties, becomes the Beneficial
Owner, directly or indirectly, of more than 50% of our Voting
Stock, measured by voting power rather than number of shares;
or
(4) the first day on which a majority of the members of our
Board of Directors are not Continuing Directors.
The definition of Change of Control in the indenture includes a phrase
relating to the direct or indirect sale, lease, transfer, conveyance or other
disposition of "all or substantially all" of the properties or assets of our
Subsidiaries and us taken as a whole. Although there is a limited body of case
law interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of series B notes to require us to repurchase the series B notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of our assets and our Subsidiaries taken as a whole to another Person or
group may be uncertain.
ASSET SALES
We will not, and will not permit any of our Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) We (or the Restricted Subsidiary, as the case may be)
receive consideration at the time of the Asset Sale at least
equal to the fair market value of the assets or Equity
Interests issued or sold or otherwise disposed of;
(2) in the case of Asset Sales involving consideration in
excess of $5.0 million, the fair market value is determined by
our Board of Directors and evidenced by a resolution of the
Board of Directors set forth in an officers' certificate
delivered to the trustee; and
(3) at least 75% of the consideration received in the Asset
Sale by the Restricted Subsidiary or us from or on behalf of
the transferee consists of:
(a) cash or readily marketable Cash Equivalents;
(b) the assumption of Indebtedness or other
liabilities reflected on the consolidated balance
sheet of us and and our Restricted Subsidiaries in
accordance with GAAP (excluding Indebtedness or any
other liabilities that are subordinate in right of
payment to the series B notes) and the release from
all liability on the Indebtedness or other
liabilities assumed;
(c) all or substantially all of the assets of, or a
majority of the Voting Stock of, another Permitted
Business;
(d) other long-term assets that are used or useful in
a Permitted Business;
(e) any securities, notes or other obligations
received by us or any Restricted Subsidiary of ours
from a transferee that are converted by us or the
Restricted Subsidiary into cash within 90 days of the
receipt thereof, to the extent of the cash received
in that conversion or Cash Equivalents, to the extent
of the Cash Equivalents received in that conversion;
(f) any Permitted Investment; or
(g) any combination thereof.
Within 365 days after the receipt of any Net Proceeds from an Asset
Sale, we may apply those Net Proceeds at our option:
(1) to repay Senior Debt and, if the Senior Debt repaid is
revolving credit Indebtedness, to correspondingly reduce
commitments with respect thereto;
(2) to acquire all or substantially all of the assets of, or a
majority of the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure;
(4) to acquire other long-term assets that are used or useful
in a Permitted Business;
(5) to redeem the notes with the Net Proceeds of an Asset Sale
pursuant to any of the provisions described above under the
caption "Optional Redemption;" or
(6) any combination of the foregoing.
Pending the final application of any Net Proceeds, we may temporarily
reduce revolving credit borrowings (without reducing commitments) or otherwise
invest the Net Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, we will make an Asset
Sale Offer to all Holders of series B notes and all holders of other
Indebtedness that is pari passu with the series B notes containing provisions
similar to those set forth in the indenture relating to the series B notes with
respect to offers to purchase or redeem with the proceeds of sales of assets to
purchase the maximum principal amount of series B notes and such other pari
passu Indebtedness that may be purchased out of the Excess Proceeds. The offer
price in any Asset Sale Offer will be equal to 100% of the principal amount plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase, and will be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, we may use those Excess Proceeds for any
purpose not otherwise prohibited by the indenture. If the aggregate principal
amount of series B notes and other Indebtedness tendered into the Asset Sale
Offer exceeds the amount of Excess Proceeds, the trustee will select the series
B notes and the other Indebtedness to be purchased on a pro rata basis based on
the principal amount of series B notes and the other pari passu Indebtedness
tendered. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds will be reset at zero.
We will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent these
laws and regulations are applicable in connection with each repurchase of series
B notes pursuant to an Asset Sale Offer. To the extent that the provisions of
any securities laws or regulations conflict with the Asset Sales provisions of
the indenture, we will comply with the applicable securities laws and
regulations and will not be deemed to have breached our obligations under the
Asset Sale provisions of the indenture by virtue of the conflict.
The agreements governing our outstanding Senior Debt currently prohibit
us from purchasing any series B notes, and also provide that some change of
control or asset sale events with respect to us would constitute a default under
these agreements. Any future credit agreements or other agreements relating to
Senior Debt to which we become a party may contain similar restrictions and
provisions. In the event a Change of Control or Asset Sale occurs at a time when
we are prohibited from purchasing series B notes, we could seek the consent of
our senior lenders to the purchase of series B notes or could attempt to
refinance the borrowings that contain the prohibition. If we do not obtain a
consent or repay the borrowings, we will remain prohibited from purchasing
series B notes. In that case, our failure to purchase tendered series B notes
would constitute an Event of Default under the indenture which would, in turn,
constitute a default under the Senior Debt. In these circumstances, the
subordination provisions in the indenture would likely restrict payments to the
Holders of series B notes.
SELECTION AND NOTICE
If less than all of the series B notes are to be redeemed at any time,
the trustee will select series B notes for redemption as follows:
(1) if the series B notes are listed on any national
securities exchange, in compliance with the requirements of
the principal national securities exchange on which the series
B notes are listed; or
(2) if the series B notes are not listed on any national
securities exchange, on a pro rata basis, by lot or by any
method as the trustee shall deem fair and appropriate.
No series B notes of $1,000 or less will be redeemed in part. Notices
of redemption will be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of series B notes to be
redeemed at its registered address. Notices of redemption may not be
conditional.
If any series B note is to be redeemed in part only, the notice of
redemption that relates to that series B note will state the portion of the
principal amount of that series B note that is to be redeemed. A new series B
note in principal amount equal to the unredeemed portion of the original series
B note will be issued in the name of the Holder thereof upon cancellation of the
original series B note. Series B notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on series B notes or portions of them called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of our Equity Interests (including,
without limitation, any payment in connection with any merger
or consolidation involving us) or to the direct or indirect
holders of our Equity Interests in that capacity (other than
dividends or distributions payable in Equity Interests (other
than Disqualified Stock) of ours);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger
or consolidation involving us) any Equity Interests of us or
any direct or indirect parent of ours;
(3) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the series B notes or the
Subsidiary Guarantees, except a payment of interest or
principal at the Stated Maturity thereof; or
(4) make any Permitted Investment (all of the payments and
other actions set forth in these clauses (1) through (4) above
being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to the Restricted Payment:
(1) no Default or Event of Default has occurred and is
continuing or would occur as a consequence thereof; and
(2) we would, at the time of the Restricted Payment and after
giving pro forma effect thereto as if the Restricted Payment
had been made at the beginning of the applicable four-quarter
period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock;" and
(3) the Restricted Payment, together with the aggregate amount
of all other Restricted Payments made by our Restricted
Subsidiaries and us after the date of the indenture (excluding
Restricted Payments permitted by clauses (2), (3), (4), (6),
(7), (8), (9) and (10) of the next succeeding paragraph) is
less than the sum, without duplication, of:
(a) 50% of our Consolidated Net Income for the period
(taken as one accounting period) from the beginning
of the first fiscal quarter commencing after the date
of the indenture to the end of our most recently
ended fiscal quarter for which internal financial
statements are available at the time of the
Restricted Payment (or, if the Consolidated Net
Income for the period is a deficit, less 100% of the
deficit), plus
(b) 100% of the aggregate net cash proceeds received
by us since the date of the indenture as a
contribution to our common equity capital or from the
issue or sale of our Equity Interests (other than
Disqualified Stock) or from the issue or sale of our
convertible or exchangeable Disqualified Stock or
convertible or exchangeable debt securities that have
been converted into or exchanged (pursuant to the
terms thereof) for the Equity Interests (other than
Equity Interests (or Disqualified Stock or debt
securities) sold to a Subsidiary of ours), plus
(c) to the extent that any Restricted Investment that
was made after the date of the indenture is sold for
cash or otherwise liquidated or repaid for cash, the
lesser of (i) the cash return of capital with respect
to the Restricted Investment (less the cost of
disposition, if any) and (ii) the initial amount of
the Restricted Investment.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend, other payment or
distribution, within 60 days after the date of declaration
notice thereof, if at said date of declaration the payment or
distribution would have complied with the provisions of the
indenture;
(2) the redemption, repurchase, retirement, defeasance or
other acquisition of any subordinated Indebtedness of any
Guarantor or us or of any of our Equity Interests in exchange
for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary of
ours) of our Equity Interests (other than Disqualified Stock);
provided that the amount of any net cash proceeds that are
utilized for any redemption, repurchase, retirement,
defeasance or other acquisition will be excluded from clause
(3)(b) of the preceding paragraph;
(3) any purchase, repurchase, redemption defeasance or other
acquisition or retirement for value of subordinated
Indebtedness, either
(i) solely in exchange for Permitted Refinancing
Indebtedness that is permitted to be incurred
pursuant to the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred
Stock," or
(ii) through the application of the Net Proceeds of a
substantially current sale for cash (other than to a
Subsidiary of ours) of our Permitted Refinancing
Indebtedness that is permitted to be incurred
pursuant to the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred
Stock;"
(4) repurchases of Equity Interests from Persons who are not
our Affiliates who have sold assets or stock of a Permitted
Business to us within the prior 18 months in exchange for the
Equity Interests repurchased;
(5) the declaration and payment of dividends to holders of any
class or series of Designated Preferred Stock (other than
Disqualified Stock) issued after the date of the indenture;
provided, that at the time of the issuance, after giving
effect to the issuance as if the same had occurred at the
beginning of the applicable four-quarter period on a pro forma
basis, we would have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock;"
(6) repurchases of Capital Stock deemed to occur upon the
exercise of stock options if the Capital Stock represents a
portion of the exercise price thereof;
(7) payments in connection with the BFI acquisition and
related transactions made on the date of the indenture;
(8) payment to holders of our Capital Stock in lieu of
issuance of fractional shares of our Capital Stock in an
amount not to exceed $100,000 per annum;
(9) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of our or any
Subsidiary of us held by any former member of our (or any of
our Subsidiaries') management committee or any former officer,
employee or director of ours or any of our Subsidiaries
pursuant to any equity subscription agreement, stock option
agreement, employment agreement or other similar agreements
provided that the aggregate price paid for all repurchased,
redeemed, acquired or retired Equity Interests shall not
exceed $2.0 million in any calendar year (with unused amounts
in any calendar year being carried over to succeeding calendar
years);
(10) the payment of dividends on the series A convertible
preferred stock pursuant to the provisions of the Preferred
Stock Agreement as in effect on the date of the indenture; and
(11) other Restricted Payments in an aggregate amount not to
exceed $5.0 million since the date of the indenture.
The amount of all Restricted Payments (other than cash) will be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued to or by us or any Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant will be determined by the Board of Directors whose resolution with
respect thereto shall be delivered to the trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $10.0 million. Not later than the date of making any
Restricted Payment, we will deliver to the trustee an officers' certificate
stating that the Restricted Payment is permitted and setting forth the basis
upon which the calculations required by this "Restricted Payments" covenant were
computed, together with a copy of any fairness opinion or appraisal required by
the indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
We will not, and will not permit any of our Subsidiaries to, directly
or indirectly, create, incur, issue, assume, guarantee or otherwise become
directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and we will
not issue any Disqualified Stock and will not permit any of our Subsidiaries to
issue any shares of preferred stock; provided, however, that we may incur
Indebtedness (including Acquired Debt) or issue Disqualified Stock, and our
Restricted Subsidiaries may incur Indebtedness or issue preferred stock, if the
Fixed Charge Coverage Ratio for our most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which the additional Indebtedness is incurred or the
Disqualified Stock or preferred stock is issued would have been at least 2.0 to
1.0 in the case of any incurrence or issuance occurring on or prior to the third
anniversary of the date of the indenture and 2.25 to 1.0 in the case of any
incurrence or issuance that occurs thereafter, in each case determined on a pro
forma basis (including a pro forma application of the Net Proceeds therefrom),
as if the additional Indebtedness had been incurred or the preferred stock or
Disqualified Stock had been issued, as the case may be, at the beginning of the
four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence
of any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by us and any Guarantor of additional
Indebtedness and letters of credit under Credit Facilities in
an aggregate principal amount at any one time outstanding
under this clause (1) (with letters of credit being deemed to
have a principal amount equal to the maximum potential
liability of any Guarantors and us thereunder) not to exceed
$275.0 million less the aggregate amount of all Net Proceeds
of Asset Sales that have been applied by us or any of our
Restricted Subsidiaries since the date of the indenture to
repay any term Indebtedness under a Credit Facility pursuant
to the covenant described under the caption "--Repurchase at
the Option of Holders--Asset Sales" and less the aggregate
amount of all Net Proceeds of Asset Sales applied by us or any
of our Restricted Subsidiaries to repay any revolving credit
Indebtedness under a Credit Facility and effect a
corresponding commitment reduction thereunder pursuant to the
covenant described under the caption "--Repurchase at the
Option of Holders--Asset Sales" and less the aggregate amount
of Indebtedness of Receivables Subsidiaries outstanding
pursuant to clause (13) below;
(2) the incurrence by us and our Subsidiaries of the Existing
Indebtedness;
(3) the incurrence by the Guarantors and us of Indebtedness
represented by the series A and series B notes and the related
Subsidiary Guarantees;
(4) the incurrence by us or any of our Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each
case, incurred for the purpose of financing all or any part of
the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of any of
the Restricted Subsidiary or us, in an aggregate principal
amount, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (4), not to exceed $10.0
million at any time outstanding;
(5) the incurrence by any of our Restricted Subsidiaries or us
of Permitted Refinancing Indebtedness in exchange for, or the
Net Proceeds of which are used to refund, refinance or replace
Indebtedness (other than intercompany Indebtedness) that was
permitted by the indenture to be incurred under the first
paragraph of this covenant or clauses (2), (3), (4), (5), or
(14) of this paragraph;
(6) the incurrence by us or any of our Restricted Subsidiaries
of intercompany Indebtedness between or among any of our
Restricted Subsidiaries and us; provided, however, that:
(a) if we or any Guarantor are the obligor on the
Indebtedness and the holders of Senior Debt under the
Credit Facilities do not have a security interest
therein, the Indebtedness must be expressly
subordinated to the prior payment in full in cash of
all Obligations with respect to the series B notes,
in our case, or the Subsidiary Guarantee, in the case
of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity
Interests that results in the Indebtedness being held
by a Person other than us or a Restricted Subsidiary
of ours and (ii) any sale or other transfer of the
Indebtedness to a Person that is not either our
Restricted Subsidiary or us will be deemed, in each
case, to constitute an incurrence of the Indebtedness
by us or the Restricted Subsidiary, as the case may
be, that was not permitted by this clause (6);
(7) Indebtedness consisting of Permitted Hedging Agreements;
(8) the guarantee by us or any of the Guarantors of
Indebtedness of us or a Restricted Subsidiary of ours that was
permitted to be incurred by another provision of this
covenant;
(9) the incurrence by our Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if the Indebtedness
ceases to be Non-Recourse Debt of an Unrestricted Subsidiary,
that event will be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of ours that was not
permitted by this clause (9);
(10) the accrual of interest, the accretion or amortization of
original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the
same terms, and the payment of dividends on Disqualified Stock
in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes
of this covenant; provided, in each case, that the amount
thereof is included in our Fixed Charges as accrued;
(11) obligations in respect of performance and surety bonds
and completion guarantees provided by us or any of our
Restricted Subsidiaries in the ordinary course of business;
(12) Indebtedness incurred by us or any of our Restricted
Subsidiaries constituting reimbursement obligations with
respect to letters of credit issued in the ordinary course of
business in respect of workers' compensation claims or
self-insurance, or other Indebtedness with respect to
reimbursement type obligations regarding workers' compensation
claims;
(13) the incurrence by a Receivables Subsidiary of
Indebtedness in a Qualified Receivables Transaction that is
without recourse to us or any other Restricted Subsidiary of
ours or our or their assets (other than the Receivables
Subsidiary and its assets and, as to us or any Subsidiary of
ours, other than pursuant to representations, warranties,
covenants and indemnities customary for these transactions);
and
(14) the incurrence by us or any of our Restricted
Subsidiaries of additional Indebtedness and/or the issuance of
Permitted Domestic Subsidiary Preferred Stock by our Domestic
Subsidiaries in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to
this clause (14), not to exceed $20.0 million.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (14) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, we
will be permitted to classify the item of Indebtedness on the date of its
incurrence in any manner that complies with this covenant. Indebtedness incurred
under Credit Facilities outstanding on the date on which notes are first issued
and authenticated under the indenture shall be deemed to have been incurred on
that date in reliance on the exception provided by clause (1) of the definition
of Permitted Debt.
NO SENIOR SUBORDINATED DEBT
We will not incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment to
any of our Senior Debt and senior in any respect in right of payment to the
series B notes. No Guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to the Senior Debt of the Guarantor and senior in any respect
in right of payment to the Guarantor's Subsidiary Guarantee.
LIENS
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind securing Indebtedness that is pari passu or subordinated in right of
payment to the series B notes on any asset now owned or hereafter acquired,
except Permitted Liens, unless the series B notes are secured by the Lien on an
equal and ratable basis.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its
Capital Stock to us or any of our Restricted Subsidiaries, or
with respect to any other interest or participation in, or
measured by, its profits, or pay any Indebtedness owed to us
or any of our Restricted Subsidiaries;
(2) make loans or advances to us or any of our Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to us or any of
our Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) agreements existing on the date of the indenture, as in
effect on the date of the indenture;
(2) the indenture, the series B notes and the Subsidiary
Guarantees;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of
a Person acquired by us or any of our Restricted Subsidiaries
as in effect at the time of the acquisition (except to the
extent the Indebtedness was incurred in connection with or in
contemplation of the acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that,
in the case of Indebtedness, the Indebtedness was permitted by
the terms of the indenture to be incurred;
(5) customary non-assignment provisions in leases, licenses
and other agreements entered into in the ordinary course of
business;
(6) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions on the
property so acquired of the nature described in clause (3) of
the preceding paragraph;
(7) any agreement for the sale or other disposition of a
Restricted Subsidiary that restricts distributions by that
Restricted Subsidiary pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing the
Permitted Refinancing Indebtedness are no more restrictive,
taken as a whole, than those contained in the agreements
governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be
incurred pursuant to the provisions of the covenant described
above under the caption "--Liens" that limit the right of the
debtor to dispose of the assets subject to the Lien;
(10) provisions with respect to the disposition or
distribution of assets or property in joint venture
agreements, asset sale agreements, stock sale agreements and
other similar agreements entered into in the ordinary course
of business;
(11) restrictions on cash or other deposits or net worth
imposed by customers under contracts entered into in the
ordinary course of business;
(12) Indebtedness or other contractual requirements of a
Receivables Subsidiary in connection with a Qualified
Receivables Transaction, provided that the restrictions apply
only to the Receivables Subsidiary and its Subsidiaries; and
(13) any encumbrances or restrictions imposed by any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of the
contracts, instruments or obligations referred to in clauses
(1) through (12) above; provided that the amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good
faith judgment of our Board of Directors, no more restrictive
with respect to the dividend or other payment restrictions
prior to the amendment, modification, restatement, renewal,
increase, supplement, refunding, replacement or refinancing.
MERGER, CONSOLIDATION OR SALE OF ASSETS
We may not (1) consolidate or merge with or into another Person
(whether or not we are the surviving corporation); or (2) directly or
indirectly, sell, assign, transfer, convey or otherwise dispose of all or
substantially all of the properties or assets of us and our Restricted
Subsidiaries taken as a whole, in one or more related transactions, to another
Person; unless:
(1) either: (a) we are the surviving corporation; or (b) the
Person formed by or surviving any consolidation or merger (if
other than us) or to which a sale, assignment, transfer,
conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia;
(2) the Person formed by or surviving the consolidation or
merger (if other than us) or the Person to which a sale,
assignment, transfer, conveyance or other disposition shall
have been made assumes all our Obligations under the series B
notes, the indenture and the registration rights agreement
pursuant to agreements reasonably satisfactory to the trustee;
(3) immediately after the transaction no Default or Event of
Default exists; and
(4) we, or the Person formed by or surviving the consolidation
or merger (if other than us), or to which a sale, assignment,
transfer, conveyance or other disposition shall have been made
will, on the date of the transaction after giving pro forma
effect thereto and any related financing transactions as if
the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant
described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock."
In addition, we may not, directly or indirectly, lease all or
substantially all of our properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among us and any of our Restricted
Subsidiaries.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
Our Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
fair market value of all outstanding Investments owned by us and our Restricted
Subsidiaries in the Restricted Subsidiary so designated will be deemed to be an
Investment made as of the time of the designation and will either reduce the
amount available for Restricted Payments under the first paragraph of the
covenant described above under the caption "--Restricted Payments" or reduce the
amount available for future Investments under one or more clauses of the
definition of Permitted Investments, as we shall determine. That designation
will only be permitted if the Investment would be permitted at that time and if
the Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. Our Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
TRANSACTIONS WITH AFFILIATES
We will not, and will not permit any of our Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of our
or their properties or assets to, or purchase any property or assets from, or
enter into or make or amend any transaction, contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are no less
favorable to us or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable
transaction by us or the Restricted Subsidiary with an
unrelated Person; and
(2) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate
consideration in excess of $2.0 million, the Affiliate
Transaction complies with this covenant and the Affiliate
Transaction has been approved by a majority of the
disinterested members of our Board of Directors; and
(3) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate
consideration in excess of $10.0 million, our Board of
Directors or the Board of Directors of any Restricted
Subsidiary party to the Affiliate Transaction shall have
received an opinion as to the fairness to the Holders of the
Affiliate Transaction from a financial point of view issued by
an accounting, appraisal or investment banking firm of
national standing.
The following items shall not be deemed to be Affiliate Transactions
and, therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by us or any of our
Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of us or the Restricted
Subsidiary;
(2) transactions between or among us and/or our Restricted
Subsidiaries;
(3) transactions with a Person that is our Affiliate solely
because we own an equity interest in the Person;
(4) payment of reasonable directors fees;
(5) sales of Equity Interests (other than Disqualified Stock)
to our Affiliates;
(6) Restricted Payments that are permitted by the provisions
of the indenture described above under the caption
"--Restricted Payments;"
(7) loans by us and our Restricted Subsidiaries to employees
of us of our Restricted Subsidiaries that are entered in the
ordinary course of business and that are approved by our Board
of Directors in good faith;
(8) payments of customary arms'-length fees by us and any of
our Restricted Subsidiaries to investment banking firms,
financial consultants and financial advisors made for any
financial advisory, financing, underwriting or placement
services or in respect of other investment banking activities,
including, without limitation, in connection with acquisitions
and divestitures, in each case to the extent that the same are
approved by a majority of the disinterested members of our
Board of Directors in good faith;
(9) transactions with customers, clients, suppliers, joint
venture partners or purchasers or sellers of goods or
services, in each case in the ordinary course of business
(including, without limitation, pursuant to joint venture
agreements) and otherwise in compliance with the terms of the
indenture that are fair to us or our Restricted Subsidiaries,
in the reasonable determination of our Board of Directors or
senior management, or are on terms at least as favorable as
might reasonably have been obtained at the time from an
unaffiliated party;
(10) any agreement as in effect on the date of the indenture
or any amendment to the agreement (so long as the amendment is
not disadvantageous to the Holders of the series B notes in
any respect) or any transaction contemplated thereby;
(11) transactions between or among us and/or our Restricted
Subsidiaries or transactions between a Receivables Subsidiary
and any Person in which the Receivables Subsidiary has an
Investment; and
(12) any transaction with an Affiliate where the only
consideration paid by us or any of our Restricted Subsidiaries
is our Capital Stock (other than Disqualified Stock).
ADDITIONAL SUBSIDIARY GUARANTEES
If we or any of our Restricted Subsidiaries acquire or create another
Domestic Subsidiary after the date of the indenture (other than a Receivables
Subsidiary), then that newly acquired or created Domestic Subsidiary will become
a Guarantor and execute a supplemental indenture and deliver an opinion of
counsel satisfactory to the trustee within 20 business days of the date on which
it was acquired or created. This covenant will not apply to any Subsidiary that
has been properly designated as an Unrestricted Subsidiary in accordance with
the indenture for so long as it continues to constitute an Unrestricted
Subsidiary. The designation may be made effective concurrent with the Person
becoming a Domestic Subsidiary.
BUSINESS ACTIVITIES
We will not, and will not permit any Subsidiary to, engage in any
business other than Permitted Businesses, except to the extent as would not be
material to us and our Subsidiaries taken as a whole.
PAYMENTS FOR CONSENT
We will not, and will not permit any of our Restricted Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any Holder of series B notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the indenture or the
notes unless the consideration is offered to be paid and is paid to all Holders
of the series B notes that consent, waive or agree to amend in the time frame
set forth in the solicitation documents relating to the consent, waiver or
agreement.
REPORTS
Whether or not required by the SEC, so long as any notes are
outstanding, we will furnish to the Holders of series B notes, within the time
periods specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would
be required to be contained in a filing with the SEC on Forms
10-Q and 10-K if we were required to file these Forms,
including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the
annual information only, a report on the annual financial
statements by our certified independent accountants; and
(2) all current reports that would be required to be filed
with the SEC on Form 8-K if we were required to file these
reports.
In addition, following the consummation of the exchange offer
contemplated by the registration rights agreement, whether or not required by
the SEC, we will file a copy of all of the information and reports referred to
in clauses (1) and (2) above with the SEC for public availability within the
time periods specified in the SEC's rules and regulations (unless the SEC will
not accept the filing) and make the information available to securities analysts
and prospective investors upon request. In addition, we and the Guarantors have
agreed that, for so long as any series B notes remain outstanding, we will
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest
on, or Liquidated Damages with respect to, the series B notes
whether or not prohibited by the subordination provisions of
the indenture;
(2) default in payment when due of the principal of, or
premium, if any, on the series B notes, whether or not
prohibited by the subordination provisions of the indenture;
(3) failure by any of our Subsidiaries or us to comply with
the provisions described under the captions "--Repurchase at
the Option of Holders--Change of Control" and "--Repurchase at
the Option of Holders--Asset Sales;"
(4) failure by any of our Subsidiaries or us to comply with
any of the other agreements in the indenture or the series B
notes for 60 days after notice from the trustee or the Holders
of at least 25% in principal amount of the then outstanding
series B notes;
(5) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by us or any of
our Subsidiaries (or the payment of which is guaranteed by us
or any of our Subsidiaries), which Default continues for at
least 10 days whether the Indebtedness or guarantee now
exists, or is created after the date of the indenture, if that
Default:
(a) is caused by a failure to pay Indebtedness at its
stated final maturity (after giving effect to any
applicable grace period provided in that
Indebtedness) (a "Payment Default"); or
(b) results in the acceleration of the Indebtedness
prior to its stated final maturity,
and, in each case, the principal amount of the Indebtedness,
together with the principal amount of any other Indebtedness
under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $10.0 million or
more;
(6) failure by us or any of our Subsidiaries to pay final
judgments aggregating in excess of $7.5 million, which
judgments are not paid, discharged or stayed for a period of
60 days after the judgment or judgments become final and
non-appealable;
(7) any Guarantor, or any Person acting on behalf of any
Guarantor, shall deny or disaffirm its Obligations under its
Subsidiary Guarantee;
(8) except as permitted by the indenture, any Subsidiary
Guarantee issued by any Significant Subsidiary shall be held
in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect; and
(9) events of bankruptcy or insolvency described in the
indenture with respect to us or any of our Significant
Subsidiaries or any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary.
In the case of an Event of Default arising from specific events of
bankruptcy or insolvency with respect to us or any of our Significant
Subsidiaries, all outstanding series B notes will become due and payable
immediately without further action or notice. If any other Event of Default
occurs and is continuing, the trustee or the Holders of at least 25% in
principal amount of the then outstanding series B notes may declare all the
series B notes to be due and payable immediately. However, so long as any
Indebtedness permitted to be incurred pursuant to the Credit Agreement shall be
outstanding, an acceleration of the series B notes shall not be effective until
the earlier of an acceleration of any Indebtedness under the Credit Agreement
and five business days after receipt by us and the administrative agent under
the Credit Agreement of written notice of that acceleration.
Holders of the series B notes may not enforce the indenture or the
series B notes except as provided in the indenture. Subject to specific
limitations, Holders of a majority in principal amount of the then outstanding
series B notes may direct the trustee in its exercise of any trust or power. The
trustee may withhold from Holders of the series B notes notice of any continuing
Default or Event of Default if it determines that withholding notice is in their
interest, except a Default or Event of Default relating to the payment of
principal or interest or Liquidated Damages.
The Holders of a majority in aggregate principal amount of the notes
then outstanding by notice to the trustee may on behalf of the Holders of all of
the notes waive any existing Default or Event of Default and its consequences
under the indenture except a continuing Default or Event of Default in the
payment of interest or Liquidated Damages on, or the principal of, the series B
notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of us with the intention
of avoiding payment of the premium that we would have had to pay if we then had
elected to redeem the series B notes pursuant to the optional redemption
provisions of the indenture, an equivalent premium will also become and be
immediately due and payable to the extent permitted by law upon the acceleration
of the series B notes. If an Event of Default occurs prior to November 15, 2004,
by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of us with the intention of avoiding the prohibition on redemption of the
notes prior to November 15, 2004, then the premium specified in the indenture
will also become immediately due and payable to the extent permitted by law upon
the acceleration of the series B notes.
We are required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, we are required to deliver to the trustee a statement
specifying the Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of us or
any Guarantor, as such, will have any liability for any obligations of us or the
Guarantors under the series B notes, the indenture, the Subsidiary Guarantees or
for any claim based on, in respect of, or by reason of, the obligations or their
creation. Each Holder of series B notes by accepting a series B note waives and
releases all liability. The waiver and release are part of the consideration for
issuance of the notes. The waiver might not be effective to waive liabilities
under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, elect to have all of our
Obligations discharged with respect to the outstanding series B notes and all
obligations of the Guarantors discharged with respect to their Subsidiary
Guarantees ("Legal Defeasance") except for:
(1) the rights of Holders of outstanding series B notes to
receive payments in respect of the principal of, or interest
or premium and Liquidated Damages, if any, on the series B
notes when the payments are due from the trust referred to
below;
(2) our obligations with respect to the series B notes
concerning issuing temporary series B notes, registration of
series B notes, mutilated, destroyed, lost or stolen notes and
the maintenance of an office or agency for payment and money
for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the
trustee, and our and the Guarantor's obligations in connection
therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have the
obligations of us and the Guarantors released with respect to specific covenants
that are described in the indenture ("Covenant Defeasance") and thereafter any
omission to comply with those covenants shall not constitute a Default or Event
of Default with respect to the series B notes. In the event Covenant Defeasance
occurs, some events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the series B notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) we must irrevocably deposit with the trustee, in trust,
for the benefit of the Holders of the series B notes, cash in
U.S. dollars, non-callable government securities, or a
combination thereof, in the amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, or interest and
premium and Liquidated Damages, if any, on the outstanding
series B notes on the stated maturity or on the applicable
redemption date, as the case may be, and we must specify
whether the series B notes are being defeased to maturity or
to a particular redemption date;
(2) in the case of Legal Defeasance, we shall have delivered
to the trustee an opinion of counsel reasonably acceptable to
the trustee confirming that (a) we have received from, or
there has been published by, the Internal Revenue Service a
ruling or (b) since the date of the indenture, there has been
a change in the applicable federal income tax law, in either
case to the effect that, and based thereon the opinion of
counsel shall confirm that, the Holders of the outstanding
series B notes will not recognize income, gain or loss for
federal income tax purposes as a result of the Legal
Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as
would have been the case if the Legal Defeasance had not
occurred;
(3) in the case of Covenant Defeasance, we shall have
delivered to the trustee an opinion of counsel reasonably
acceptable to the trustee confirming that the Holders of the
outstanding series B notes will not recognize income, gain or
loss for federal income tax purposes as a result of the
Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times
as would have been the case if the Covenant Defeasance had not
occurred;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of the deposit (other than a Default or
Event of Default resulting from the incurrence of Indebtedness
all or a portion of the proceeds of which will be used to
defease the series B notes pursuant to either Legal Defeasance
or Covenant Defeasance concurrently with the incurrence);
(5) the Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a Default
under any material agreement or instrument (other than the
indenture) to which we or any of our Subsidiaries are a party
or by which we, or any of our Subsidiaries are bound;
(6) we must deliver to the trustee an officers' certificate
stating that the deposit was not made by us with the intent of
preferring the Holders of series B notes over our other
creditors with the intent of defeating, hindering, delaying or
defrauding our creditors or others; and
(7) we must deliver to the trustee an officers' certificate
and an opinion of counsel, each stating that all conditions
precedent relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the
indenture or the notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, notes), and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of
any note or alter the provisions with respect to the
redemption of the notes (other than provisions relating to the
covenants described above under the caption "--Repurchase at
the Option of Holders");
(3) reduce the rate of or change the time for payment of
interest on any note;
(4) waive a Default or Event of Default in the payment of
principal of, or interest or premium, or Liquidated Damages,
if any, on the notes (except a rescission of acceleration of
the notes by the Holders of at least a majority in aggregate
principal amount of the notes and a waiver of the payment
default that resulted from the acceleration);
(5) make any note payable in money other than that stated in
the notes;
(6) make any change in the provisions of the indenture
relating to waivers of past Defaults or the rights of Holders
of notes to receive payments of principal of, or interest or
premium or Liquidated Damages, if any, on the notes;
(7) waive a redemption payment with respect to any note (other
than a payment required by one of the covenants described
above under the caption "--Repurchase at the Option of
Holders");
(8) release any Guarantor from any of its Obligations under
its Subsidiary Guarantee or the indenture, except in
accordance with the terms of the indenture; or
(9) make any change in the preceding amendment and waiver
provisions.
Notwithstanding the preceding, without the consent of any Holder of
notes, the Guarantors, the trustee and we may amend or supplement the indenture
or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in
place of certificated notes;
(3) to provide for the assumption of our Obligations to
Holders of notes in the case of a merger or consolidation or
sale of all or substantially all of our assets;
(4) to make any change that would provide any additional
rights or benefits to the Holders of notes or that does not
adversely affect the legal rights under the indenture of any
Holder; or
(5) to comply with requirements of the SEC in order to effect
or maintain the qualification of the indenture under the Trust
Indenture Act.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect
as to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated (except
lost, stolen or destroyed notes that have been
replaced or paid and notes for whose payment money
has theretofore been deposited in trust and
thereafter repaid to us) have been delivered to the
trustee for cancellation; or
(b) all notes that have not been delivered to the
trustee for cancellation have become due and payable
by reason of the making of a notice of redemption or
otherwise or will become due and payable within one
year we or any Guarantor has irrevocably deposited or
caused to be deposited with the trustee as trust
funds in trust solely for the benefit of the Holders,
cash in U.S. dollars, non-callable government
securities, or a combination thereof, in amounts as
will be sufficient without consideration of any
reinvestment of interest, to pay and discharge the
entire Indebtedness on the notes not delivered to the
trustee for cancellation for principal, premium and
Liquidated Damages, if any, and accrued interest to
the date of maturity or redemption;
(2) no Default or Event of Default shall have occurred and be
continuing on the date of the deposit or shall occur as a
result of the deposit and the deposit will not result in a
breach or violation of, or constitute a Default under, any
other instrument to which we or any Guarantor is a party or by
which we or any Guarantor is bound;
(3) we or any Guarantor has paid or caused to be paid all sums
payable by us under the indenture; and
(4) we have delivered irrevocable instructions to the trustee
under the indenture to apply the deposited money toward the
payment of the notes at maturity or the redemption date, as
the case may be.
In addition, we must deliver an officers' certificate and an opinion of counsel
to the trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of us or any Guarantor, the indenture
limits its right to obtain payment of claims in some cases, or to realize on
property received in respect of a claim as security or otherwise. The trustee
will be permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate the conflict within 90 days, apply to the
SEC for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to the provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
Holder of series B notes, unless the Holder shall have offered to the trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture
and registration rights agreement without charge by writing to Stericycle, Inc.,
28161 N. Keith Drive, Lake Forest, IL 60045, Attention: Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The series B notes will be issued in the form of one or more registered
global notes without interest coupons (collectively, the "Global Notes"). Upon
issuance, the Global Notes will be deposited with the trustee, as custodian for
The Depository Trust Company ("DTC"), in New York, New York, and registered in
the name of DTC or its nominee for credit to the accounts of DTC's Direct and
indirect participants (as defined below).
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be exchanged
for series B notes in certificated form in some limited circumstances. See
"--Transfer of Interests in Global Notes for Certificated Notes." In addition,
transfer of beneficial interests in any Global Note will be subject to the
applicable rules and procedures of DTC and its direct or indirect participants
(including, if applicable, those of Euroclear and CEDEL), which may change from
time to time.
Initially, the trustee will act as paying agent and registrar. The
series B notes may be presented for registration of transfer and exchange at the
offices of the registrar.
DEPOSITARY PROCEDURES
The following description of the operations and procedures of DTC,
Euroclear and Cedel are provided solely as a matter of convenience. These
operations and procedures are solely within the control of their respective
settlement systems and are subject to change by them. We take no responsibility
for these operations and procedures and urge investors to contact the DTC,
Euroclear or Cedel or their Participants directly to discuss these matters.
DTC has advised us that it is a limited-purpose trust company created
to hold securities for its participating organizations, referred to in this
prospectus as "direct participants," and to facilitate the clearance and
settlement of transactions in those securities between direct participants
through electronic book-entry changes in accounts of direct participants. The
direct participants include securities brokers and dealers (including the
initial purchasers), banks, trust companies, clearing corporations and other
organizations, including Euroclear and CEDEL. Access to DTC's system is also
available to other entities that clear through or maintain a direct or indirect,
custodial relationship with a direct participant, referred to in this prospectus
as "indirect participants."
DTC has advised us that, pursuant to DTC's procedures:
(1) upon deposit of the Global Notes, DTC will credit the
accounts of the direct participants designated by the exchange
agent with portions of the principal amount of the Global
Notes; and
(2) DTC will maintain receords of the ownership interests by
and between direct participants. DTC will not maintain records
of the ownership interests of, or the transfer of ownership
interests by and between, indirect participants or other
owners of beneficial interests in the Global Notes. direct
participants and indirect participants must maintain their own
records of the ownership interests of, and the transfer of
ownership interests by and between, indirect participants and
other owners of beneficial interests in the Global Notes.
The laws of some states in the United States require that some Persons
take physical delivery in definitive, certificated form, of securities that they
own. This may limit or curtail the ability to transfer beneficial interests in a
Global Note to these Persons. Because DTC can act only on behalf of direct
participants, which in turn act on behalf of indirect participants and others,
the ability of a Person having a beneficial interest in a Global Note to pledge
the interest to Persons or entities that are not direct participants in DTC, or
to otherwise take actions in respect of the interests, may be affected by the
lack of physical certificates evidencing the interests. For other restrictions
on the transferability of the notes see the subheading "--Transfers of Interests
in Global Notes for Certificated Notes."
EXCEPT AS DESCRIBED UNDER THE SUBHEADING "--TRANSFERS OF INTERESTS IN
GLOBAL NOTES FOR CERTIFICATED NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE
GLOBAL NOTES WILL NOT HAVE SERIES B NOTES REGISTERED IN THEIR NAMES, WILL NOT
RECEIVE PHYSICAL DELIVERY OF SERIES B NOTES IN CERTIFICATED FORM AND WILL NOT BE
CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY
PURPOSE.
Under the terms of the indenture, the Guarantors, the trustee and us
will treat the Persons in whose names the Series B notes are registered
(including the series B notes represented by Global Notes) as the owners thereof
for the purpose of receiving payments and for any and all other purposes
whatsoever. Payments in respect of the principal, premium, Liquidated Damages,
if any, and interest on Global Notes registered in the name of DTC or its
nominee will be payable by the trustee to DTC or its nominee as the registered
Holder under the indenture. Consequently, neither we, the trustee nor any agent
of ours or of the trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any direct participant's or
indirect participant's records relating to or payments made on
account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any of DTC's
records or any direct participant's or indirect participant's
records relating to the beneficial ownership interests in any
Global Note; or
(2) any other matter relating to the actions and practices of
DTC or any of its direct participants or indirect
participants.
DTC has advised us that its current payment practice (for payments of
principal, interest and the like) with respect to securities such as the series
B notes is to credit the accounts of the relevant direct participants with the
payment on the payment date in amounts proportionate to the direct participant's
respective ownership interests in the Global Notes as shown on DTC's records.
Payments by direct participants and indirect participants to the beneficial
owners of the notes will be governed by standing instructions and customary
practices between them and will not be the responsibility of DTC, the trustee,
the Guarantors or us. Neither we, the Guarantors, nor the trustee will be liable
for any delay by DTC or its direct participants or indirect participants in
identifying the beneficial owners of the notes, and the trustee and we may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee as the registered owner of the notes for all purposes.
The Global Notes will trade in DTC's Same-day Funds Settlement System
and, therefore, transfers between direct participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between indirect participants (other than indirect participants
who hold an interest in the notes through Euroclear or CEDEL) who hold an
interest through a direct participant will be effected in accordance with the
procedures of the direct participant but generally will settle in immediately
available funds. Transfers between and among indirect participants who hold
interests in the notes through Euroclear and CEDEL will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
series B notes described herein, cross-market transfers between direct
participants in DTC, on the one hand, and indirect participants who hold
interests in the series B notes through Euroclear or CEDEL, on the other hand,
will be effected by Euroclear's or CEDEL's respective Nominee through DTC in
accordance with DTC's rules on behalf of Euroclear or CEDEL; however, delivery
of instructions relating to crossmarket transactions must be made directly to
Euroclear or CEDEL, as the case may be, by the counterparty in accordance with
the rules and procedures of Euroclear or CEDEL and within their established
deadlines (Brussels time for Euroclear and UK time for CEDEL). indirect
participants who hold interests in the notes through Euroclear and CEDEL may not
deliver instructions directly to Euroclear's or CEDEL's Nominee. Euroclear or
CEDEL will, if the transaction meets its settlement requirements, deliver
instructions to its respective Nominee to deliver or receive interests on
Euroclear's or CEDEL's behalf in the relevant Global Note in DTC, and make or
receive payment in accordance with normal procedures for same-day fund
settlement applicable to DTC.
Because of time zone differences, the securities accounts of an
indirect participant that comes to hold an interest in the series B notes
through Euroclear or CEDEL purchasing an interest in a Global Note from a direct
participant in DTC will be credited, and that crediting will be reported to
Euroclear or CEDEL during the European business day immediately following the
settlement date of DTC in New York. Although recorded in DTC's accounting
records as of DTC's settlement date in New York, Euroclear and CEDEL customers
will not have access to the cash amount credited to their accounts as a result
of a sale of an interest in a Global Note to a DTC Participant until the
European business day for Euroclear or CEDEL immediately following DTC's
settlement date.
DTC has advised us that it will take any action permitted to be taken
by a Holder of series B notes only at the direction of one or more direct
participants to whose account interests in the Global Notes are credited and
only in respect of the portion of the aggregate principal amount of the series B
notes to which the direct participant or direct participants has or have given
direction. However, if there is an Event of Default under the series B notes,
DTC reserves the right to exchange Global Notes (without the direction of one or
more of its direct participants) for series B legended notes in certificated
form, and to distribute the certificated forms of series B notes to its direct
participants. See "--Transfers of Interests in Global Notes for Certificated
Notes."
Although DTC, Euroclear and CEDEL have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Notes, they are
under no obligation to perform or to continue to perform these procedures, and
these procedures may be discontinued at any time. Neither we, the Guarantors,
the initial purchasers nor the trustee shall have any responsibility for the
performance by DTC, Euroclear or CEDEL or their respective direct and indirect
participants of their respective obligations under the rules and procedures
governing any of their operations.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive series B notes in
registered, certificated form without interest coupons ("Certificated Notes")
if:
(1) DTC:
(a) notifies us that it is unwilling or unable to
continue as depositary for the Global Notes and we
thereupon fail to appoint a successor depositary
within 90 days, or
(b) has ceased to be a clearing agency registered
under the Exchange Act;
(2) we, at our option, notify the trustee in writing that we
elect to cause the issuance of Certificated Notes; or
(3) there shall have occurred and be continuing a Default or
an Event of Default with respect to the series B notes. In any
case, we will notify the trustee in writing that, upon
surrender by the direct and indirect participants of their
interest in the Global Note, Certificated Notes will be issued
to each Person that the direct and indirect participants and
DTC identify as being the beneficial owner of the related
series B notes.
Beneficial interests in Global Notes held by any direct or indirect
participant may be exchanged for Certificated Notes upon request to DTC, by the
direct participant (for itself or on behalf of an indirect participant), to the
trustee in accordance with customary DTC procedures. Certificated notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of the direct or indirect participants (in accordance with DTC's
customary procedures).
Neither we, the Guarantors nor the trustee will be liable for any delay
by the Holder of any Global Note or DTC in identifying the beneficial owners of
series B notes, and we and the trustee may conclusively rely on, and will be
protected in relying on, instructions from the Holder of the Global Note or DTC
for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The indenture will require that payments in respect of the series B
notes represented by the Global Notes, including principal, premium, if any,
interest and Liquidated Damages, if any, be made by wire transfer of immediately
available same day funds to the accounts specified by the Holder of interests in
the Global Note. With respect to Certificated Notes, we will make all payments
of principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available same day funds to the accounts specified by
the Holders thereof or, if no account is specified, by mailing a check to each
of the Holder's registered address. We expect that secondary trading in the
Certificated Notes will also be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The following description is a summary of the material provisions of
the registration rights agreement. It does not restate that agreement in its
entirety. We urge you to read the proposed form of registration rights agreement
in its entirety because it, and not this description, defines your registration
rights as Holders of these notes. See "--Additional Information."
We, the Guarantors and the initial purchasers entered into the
registration rights agreement upon the closing of the initial offering of the
series A notes. Pursuant to the registration rights agreement, we and the
Guarantors agreed to file with the SEC the Exchange Offer Registration Statement
on the appropriate form under the Securities Act with respect to the exchange
notes. Upon the effectiveness of the Exchange Offer Registration Statement, the
Guarantors and we will offer to the Holders of Transfer Restricted Securities
pursuant to the Exchange Offer who are able to make specific representations the
opportunity to exchange their Transfer Restricted Securities for series B notes.
If:
(1) we and the Guarantors are not required to file the
Exchange Offer Registration Statement, or permitted to
consummate the Exchange Offer because the Exchange Offer is
not permitted by applicable law or SEC policy; or
(2) any Holder of Transfer Restricted Securities notifies us
prior to the 20th business day following the consummation
deadline for the Exchange Offer that:
(a) it is prohibited by law or SEC policy from
participating in the Exchange Offer; or
(b) it may not resell the Exchange Notes acquired by
it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained
in the Exchange Offer Registration Statement is not
appropriate or available for the resales; or
(c) it is a broker-dealer and owns series B notes
acquired directly from any of our Affiliates or us,
we and the Guarantors will file with the SEC a Shelf Registration Statement to
cover resales of the series B notes by the Holders thereof who satisfy certain
conditions relating to the provision of information in connection with the Shelf
Registration Statement.
The Guarantors and we will use all commercially reasonable efforts to
cause the applicable registration statement to be declared effective as promptly
as possible by the SEC.
For purposes of the preceding, "Transfer Restricted Securities" means:
(1) each series A note until:
(a) the date on which the series A note has been
exchanged in the Exchange Offer for a series B note
which is entitled to be resold to the public by the
Holder thereof without complying with the prospectus
delivery requirements of the Securities Act;
(b) the date on which the series B note has been
disposed of in accordance with a Shelf Registration
Statement and the purchasers thereof have been issued
Exchange Notes;
(c) the date on which the series B note is
distributed to the public pursuant to Rule 144 under
the Securities Act; and
(2) each series B note held by a broker-dealer until the date
on which the exchange note is disposed of by a broker-dealer
to a purchaser who receives from the broker-dealer on or prior
to the date of sale a copy of the prospectus contained in the
Exchange Offer Registration Statement.
The registration rights agreement provides:
(1) we and the Guarantors will file an Exchange Offer
Registration Statement with the SEC on or prior to 120 days
after the closing of the offering of the series A notes;
(2) we and the Guarantors will use all commercially reasonable
efforts to have the Exchange Offer Registration Statement
declared effective by the SEC at the earliest possible time
but in no event later than 210 days after the closing of this
offering;
(3) unless the Exchange Offer would not be permitted by
applicable law or SEC policy, we and the Guarantors will
(a) use all commercially reasonable efforts to
commence the Exchange Offer and to keep the Exchange
Offer open for a period of not less than the minimum
period required under applicable federal and state
securities laws provided that in no event shall the
period be less than 20 business days; and
(b) use all commercially reasonable efforts to issue
on or prior to 30 business days, or longer, if
required by the federal securities laws, after the
date on which the Exchange Offer Registration
Statement was declared effective by the SEC, series B
notes in exchange for all series A notes tendered
prior thereto in the Exchange Offer; and
(4) if obligated to file the Shelf Registration Statement, we
and the Guarantors will file the Shelf Registration Statement
with the SEC on or prior to 30 days after the filing
obligation arises and use all commercially reasonable efforts
to cause the shelf registration to be declared effective by
the SEC on or prior to 60 days after the obligation arises.
If:
(1) we and the Guarantors fail to file any of the registration
statements required by the registration rights agreement on or
before the date specified for the filing; or
(2) any required registration statements is not declared
effective by the SEC on or prior to the date specified for its
effectiveness (the "Effectiveness Target Date"); or
(3) the Guarantors and we fail to consummate the Exchange
Offer within 30 business days of the Effectiveness Target Date
with respect to the Exchange Offer Registration Statement; or
(4) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in
the registration rights agreement (each event referred to in
clauses (1) through (4) above, a "Registration Default"),
then the Guarantors and we will pay Liquidated Damages to each Holder of series
A notes, with respect to the first 90-day period immediately following the
occurrence of the first Registration Default in an amount equal to $.05 per week
per $1,000 principal amount of series A notes held by the Holder.
The amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of series A notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages for all Registration Defaults of $.50 per
week per $1,000 principal amount of series A notes.
All accrued Liquidated Damages with respect to the Global Note will be
paid by us and the Guarantors on each damages payment date to the Global Note
Holder by wire transfer of immediately available funds or by federal funds check
and to Holders of Certificated Notes by wire transfer to the accounts specified
by them or by mailing checks to their registered addresses if no accounts have
been specified.
Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of series A notes will be required to make specific
representations to us (as described in the registration rights agreement) in
order to participate in the Exchange Offer and will be required to deliver
certain information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within the
time periods set forth in the registration rights agreement in order to have
their series A notes included in the Shelf Registration Statement and benefit
from the provisions regarding Liquidated Damages set forth above. By acquiring
Transfer Restricted Securities, a Holder will be deemed to have agreed to
indemnify the Guarantors and us against losses arising out of information
furnished by the Holder in writing for inclusion in any Shelf Registration
Statement. Holders of series A notes will also be required to suspend their use
of the prospectus included in the Shelf Registration Statement under certain
circumstances upon receipt of written notice to that effect from us.
CERTAIN DEFINITIONS
Set forth below are some of the defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of these terms, as well
as other terms used herein.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time the
other Person is merged with or into or became a Restricted Subsidiary
of the specified Person, whether or not the Indebtedness is incurred in
connection with, or in contemplation of, the other Person merging with
or into, or becoming a Restricted Subsidiary of, the specified Person;
and
(2) Indebtedness secured by a Lien encumbering any asset
acquired by the specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of the Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings. No Person (other than us or any of our
subsidiaries) in whom a Receivables Subsidiary makes an Investment in connection
with a Qualified Receivables Transaction will be deemed to be an Affiliate of us
or any of our Subsidiaries solely by reason of the Investment.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition by us or
any of our Restricted Subsidiaries of any assets or rights (other than
director's qualifying shares); provided that the sale, conveyance or
other disposition of all or substantially all of the assets of us and
our Restricted Subsidiaries taken as a whole will be governed by the
provisions of the indenture described above under the caption
"--Repurchase at the Option of Holders--Change of Control" and/or the
provisions described above under the caption "--Certain
Covenants--Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of our Restricted
Subsidiaries or the sale of Equity Interests in any of our Subsidiaries
(other than director's qualifying shares).
Notwithstanding the preceding, the following items shall not be deemed
to be Asset Sales:
(1) any single transaction or series of related transactions
that involves assets having a fair market value of less than $1.0
million;
(2) a transfer of assets between or among us and our Restricted
Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary
to us or to another Restricted Subsidiary;
(4) the sale or lease of equipment, inventory, accounts
receivable or other assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment or Permitted Investment that is
permitted by the covenant described above under the caption "--Certain
Covenants--Restricted Payments;"
(7) the licensing of intellectual property in the ordinary
course of business;
(8) sales of accounts receivable and related assets of the type
specified in the definition of "Qualified Receivables Transaction" to a
Receivables Subsidiary for the fair market value thereof, including
cash in an amount at least equal to 90% of the book value thereof as
determined in accordance with GAAP, it being understood that, for the
purposes of this clause (8), notes received in exchange for the
transfer of accounts receivable and related assets will be deemed cash
if the Receivables Subsidiary or other payor is required to repay said
notes as soon as practicable from available cash collections less
amounts required to be established as reserves pursuant to contractual
agreements with entities that are not Affiliates of us entered into as
part of a Qualified Receivables Transaction; and
(9) transfers of accounts receivable and related assets of the
type specified in the definition of "Qualified Receivables Transaction"
(or a fractional undivided interest therein) by a Receivables
Subsidiary in a Qualified Receivables Transaction.
"Beneficial Owner" has the meaning assigned to the term in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), the "person" shall be deemed to have beneficial ownership
of all securities that the "person" has the right to acquire by conversion or
exercise of other securities, whether the right is currently exercisable or is
exercisable only upon occurrence of a subsequent condition (other than a
condition that the noteholders waive one or more provisions of the indenture).
The terms "Beneficially Owns" and "Beneficially Owned" shall have corresponding
meanings.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of
the corporation;
(2) with respect to a partnership, the Board of Directors of
the general partner of the partnership; and
(3) with respect to any other Person, the board or committee of
the Person serving a similar function.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at that time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and
all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or
insured by the United States government or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States is pledged in support thereof) having maturities of not
more than one year from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case, with any lender party to the Credit Agreement
or with any domestic commercial bank having capital and surplus in
excess of $500.0 million and a Thomson Bank Watch Rating of "B" or
better;
(4) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any state or
any public instrumentality thereof maturing within one year from the
date of acquisition thereof and, at the time of acquisition, having one
of the two highest ratings obtainable from either Standard & Poor's
Rating Services or Moody's Investors Service, Inc.;
(5) certificates of deposit or bankers' acceptance (or, with
respect to foreign banks, similar instruments) maturing within one year
from the date of acquisition thereof issued by a bank organized under
the laws of the United States of America or any state thereof or the
District of Columbia, Japan or any member of the European Economic
Community or any U.S. branch of a foreign bank having at the date of
acquisition thereof combined capital and surplus of not less than
$500.0 million;
(6) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (2),
(3) and (4) above entered into with any financial institution meeting
the qualifications specified in clauses (3) or (4) above;
(7) commercial paper having a rating of at least P-1 from
Moody's Investors Service, Inc. or at least A1 from Standard & Poor's
Rating Services and in each case maturing within one year after the
date of acquisition; and
(8) money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in clauses (1)
through (7) of this definition.
"Consolidated Cash Flow" means, with respect to any specified Person
for any period, the Consolidated Net Income of the Person for the period plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized by the Person or any of its Restricted Subsidiaries in
connection with an Asset Sale, to the extent losses were deducted in
computing Consolidated Net Income; plus
(2) provision for taxes based on income or profits of the
Person and its Restricted Subsidiaries for the period, to the extent
that provision for taxes was deducted in computing Consolidated Net
Income; plus
(3) consolidated interest expense of the Person and its
Restricted Subsidiaries for the period, whether paid or accrued and
whether or not capitalized (including, without limitation, amortization
of debt issuance costs and original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred
in respect of letter of credit or bankers' acceptance financings, and
net of the effect of all payments made or received pursuant to Hedging
Agreements), to the extent that any expense was deducted in computing
Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of
goodwill and other intangibles but excluding amortization of prepaid
cash expenses that were paid in a prior period) and other non-cash
expenses (excluding any non-cash expense to the extent that it
represents an accrual of or reserve for cash expenses in any future
period or amortization of a prepaid cash expense that was paid in a
prior period) of the Person and its Restricted Subsidiaries for the
period to the extent that depreciation, amortization and other non-cash
expenses were deducted in computing Consolidated Net Income; minus
(5) non-cash items increasing Consolidated Net Income for the
period, other than normal accruals in the ordinary course of business,
in each case, on a consolidated basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified Person
for any period, the aggregate of the Net Income of the Person and its Restricted
Subsidiaries for the period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income of any Person that is not a Restricted
Subsidiary of the specified Person or that is accounted for by the
equity method of accounting shall be included in the Consolidated Net
Income of the specified Person only to the extent of the amount of
dividends or distributions paid in cash to the specified Person or a
Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net Income
is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement
(other than an agreement with us or our Restricted Subsidiaries or an
agreement in effect on the date of the indenture as in effect on that
date), instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders;
(3) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of the
acquisition shall be excluded;
(4) the cumulative effect of a change in accounting principles
shall be excluded;
(5) gains and losses from Asset Sales (without regard to the
$1.0 million limitation set forth in the definition thereof) or
abandonments or reserves relating thereto and the related tax effects
according to GAAP shall be excluded;
(6) gains and losses due solely to fluctuations in currency
values and the related tax effect according to GAAP shall be excluded;
and
(7) one-time non-cash compensation charges arising from stock
options or stock grant plans shall be excluded.
"Continuing Directors" means, as of any date of determination, any
member of our Board of Directors who:
(1) was a member of the Board of Directors on the date of the
indenture; or
(2) was nominated for election or elected to the Board of
Directors with the approval of a majority of the Continuing Directors
who were members of the Board at the time of nomination or election.
"Credit Agreement" means that certain Credit Agreement, dated as of
November 12, 1999, by and among us, the various financial institutions from time
to time parties thereto, DLJ Capital Funding, Inc., as syndication agent for the
financial institutions, lead arranger and sole book running manager, Bank of
America, N.A., as administrative agent for the financial institutions and
Bankers Trust Company, as documentation agent for the financial institutions,
including any related notes, guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time.
"Credit Facilities" means, (a) the Credit Agreement and (b) following
written notice thereof by us to the trustee, other debt facilities or commercial
paper facilities, in each case with banks or other institutional lenders
providing for revolving credit loans, term loans, note issuances, receivables
financing (including through the sale of receivables to the lenders or to
special purpose entities formed to borrow from the lenders against the
receivables) or letters of credit. Without limiting the generality of the
foregoing, the term "Credit Facilities" shall include any amendment, amendment
and restatement, supplement or other modification to the Credit Agreement and
ancillary documents and all renewals, extensions, refundings, replacements and
refinancings thereof, including, without limitation, any agreement or agreements
(i) extending or shortening the maturity of any Indebtedness incurred thereunder
or contemplated thereby, (ii) adding or deleting borrowers or guarantors
thereunder or (iii) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder to the extent permitted under the indenture.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Preferred Stock" means preferred stock that is so
designated as Designated Preferred Stock, pursuant to an officers' certificate
executed by our principal executive officer and principal financial officer, on
the issuance date thereof, the cash proceeds of which are excluded from the
calculation set forth in clause (3)(b) of the first paragraph of the covenant
described under the caption "--Restricted Payments."
"Designated Senior Debt" means:
(1) any Indebtedness outstanding under the Credit Agreement;
and
(2) in the event no Indebtedness is outstanding under the
Credit Agreement, any other Senior Debt permitted under the indenture
the principal amount of which is $25.0 million or more and that has
been designated by us as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the series B notes mature. Notwithstanding the preceding sentence,
any Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require us to repurchase the Capital Stock
upon the occurrence of a change of control or an asset sale shall not constitute
Disqualified Stock if the terms of the Capital Stock provide that we may not
repurchase or redeem any Capital Stock pursuant to the provisions unless the
repurchase or redemption complies with the covenant described above under the
caption "--Certain Covenants--Restricted Payments."
"Domestic Subsidiary" means any Subsidiary that was formed under the
laws of the United States or any state thereof or the District of Columbia or
that guarantees or otherwise provides direct credit support for any of our
Indebtedness.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any offering of our Qualified Capital Stock.
"Existing Indebtedness" means our Indebtedness and the Indebtedness of
our Restricted Subsidiaries (other than Indebtedness under the Credit Agreement)
in existence on the date of the indenture.
"Fixed Charges" means, with respect to any specified Person for any
period, the sum, without duplication, of:
(1) the consolidated interest expense of the Person and its
Restricted Subsidiaries for the period, whether paid or accrued,
including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of
credit or bankers' acceptance financings, and net of the effect of all
payments made or received pursuant to Hedging Agreements (excluding
amortization of capitalized deferred financing fees in existence on the
date of the indenture); plus
(2) the consolidated interest of the Person and its Restricted
Subsidiaries that was capitalized during the period; plus
(3) any interest expense on Indebtedness of another Person that
is Guaranteed by the Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of the Person or one of its Restricted
Subsidiaries, whether or not the Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued
and whether or not in cash, on any series of preferred stock of the
Person or any of its Restricted Subsidiaries, other than dividends on
(i) Equity Interests payable solely in our Equity Interests (other than
Disqualified Stock), (ii) the series A convertible preferred stock to
the extent dividends are paid in kind in accordance with the Preferred
Stock Agreement as in effect on the date of the indenture or (iii) to
us or a Restricted Subsidiary of ours, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the
then current combined effective federal, state and local statutory tax
rate of the Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified
Person and its Restricted Subsidiaries for any period, the ratio of the
Consolidated Cash Flow of the Person and its Restricted Subsidiaries for the
period to the Fixed Charges of the Person and its Restricted Subsidiaries for
the period. In the event that the specified Person or any of its Restricted
Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any
Indebtedness (other than ordinary working capital borrowings) or issues,
repurchases or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated and on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to the incurrence,
assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or
the issuance, repurchase or redemption of preferred stock, and the use of the
proceeds therefrom as if the same had occurred at the beginning of the
applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage
Ratio:
(1) acquisitions that have been made by the specified Person or
any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during
the four-quarter reference period or subsequent to the reference period
and on or prior to the Calculation Date shall be given pro forma effect
as if they had occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for the reference period shall be
calculated on a pro forma basis (including Pro Forma Cost Savings), but
without giving effect to clause (3) of the proviso set forth in the
definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be
excluded;
(3) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but only
to the extent that the obligations giving rise to the Fixed Charges
will not be obligations of the specified Person or any of its
Restricted Subsidiaries following the Calculation Date;
(4) notwithstanding the foregoing, the Consolidated Cash Flow
for any period that includes the period from July 1, 1999 through and
including September 30, 1999, shall be determined by assuming that the
Consolidated Cash Flow attributable to the BFI medical waste business
for that period was equal to one-half of the Consolidated Cash Flow
attributable to that business for the six-month period ended June 30,
1999; and
(5) notwithstanding the foregoing, the Consolidated Cash Flow
for any period that includes the period from October 1, 1999 through
and including the date of the indenture, shall be determined by
assuming that the Consolidated Cash Flow attributable to the BFI
medical waste business for that period was equal to the Consolidated
Cash Flow attributable to that business for the six-month period ended
June 30, 1999 times a fraction the numerator of which is the number of
days in the period from October 1, 1999 through and including the date
of the indenture and the denominator of which is 181.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in other statements by the other
entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors" means each of:
(1) Stericycle of Arkansas, Inc., Stericycle of Washington,
Inc., SWD Acquisition Corp., Environmental Control Co., Inc., Waste
Systems, Inc., Med-Tech Environmental, Inc., Med-Tech Environmental
(MA), Inc., Ionization Research Company, Inc., BFI Medical Waste, Inc.,
Browning-Ferris Industries of Connecticut, Inc.; and
(2) any other Domestic Subsidiary that executes a Subsidiary
Guarantee in accordance with the provisions of the indenture;
and their respective successors and assigns.
"Hedging Agreement" means, with respect to any specified Person, any
interest rate protection agreement (including, without limitation, interest rate
swaps, caps, floors, collars, derivative instruments and similar agreements),
and/or other types of interest hedging agreements and any currency protection
agreement (including, without limitation, foreign exchange contracts, currency
swap agreements or other currency hedging arrangements) of the Person.
"Holder" means a Person in whose name a note is registered.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of the Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in
respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) in respect of the balance deferred and unpaid of the
purchase price of any property, except any balance that constitutes an
accrued expense or trade payable; or
(6) representing any net payment obligation under Hedging
Agreements at the time of determination,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Agreements) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not the Indebtedness is assumed by the
specified Person) and, to the extent not otherwise included, the Guarantee by
the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness
issued with original issue discount; and
(2) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
indebtedness.
For purposes of calculating the amount of Indebtedness of a Receivables
Subsidiary outstanding as of any date, the face or notional amount of any
interest in receivables or equipment that is outstanding as of the date shall be
deemed to be Indebtedness but any interests held by us or any of our Restricted
Subsidiaries shall be excluded for purposes of the calculation.
"Investments" means, with respect to any Person, all direct or indirect
investments by the Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If we or any of
our Restricted Subsidiaries sells or otherwise disposes of any Equity Interests
of any of our direct or in direct Restricted Subsidiaries such that, after
giving effect to any sale or disposition, the Person is no longer a Restricted
Subsidiary of ours, we shall be deemed to have made an Investment on the date of
the sale or disposition equal to the cost basis of the Equity Interests of the
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "--Certain Covenants--Restricted Payments." The acquisition by us or any
of our Restricted Subsidiaries of a Person that holds an Investment in a third
Person shall be deemed to be an Investment by us or the Restricted Subsidiary in
the third Person in an amount equal to the fair market value of the Investment
held by the acquired Person in the third Person in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "--Certain Covenants--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of the asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and, except in connection with any Qualified Receivable Transaction,
any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.
"Net Income" means, with respect to any specified Person, the net
income (loss) of the Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, any
extraordinary gain and loss, together with any related provision for taxes on
items of extraordinary gain and loss.
"Net Proceeds" means the aggregate cash proceeds received by us or any
of our Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
the Asset Sale, including, without limitation, legal, accounting and investment
banking fees, and sales commissions, and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof, in each case, after
taking into account any available tax credits or deductions and any tax sharing
arrangements, and amounts required to be applied to the repayment of
Indebtedness, other than Senior Debt under a Credit Facility, secured by a Lien
on the asset or assets that were the subject of the Asset Sale and any reserve
for adjustment in respect of the sale price of the asset or assets established
in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness of an Unrestricted Subsidiary:
(1) as to which neither we nor any of our Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable as a guarantor or
otherwise, or (c) constitutes the lender;
(2) no default with respect to which (including any rights that
the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or
both any holder of any other Indebtedness (other than the notes) of
ours or any of our Restricted Subsidiaries to declare a default on the
other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; and
(3) as to which the lenders have been notified in writing that
they will not have any recourse to the stock or assets of us or any of
our Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness, including, in each case, interest
accruing subsequent to the filing of, or which would have accrued but for the
filing of, a petition for bankruptcy, reorganization or similar proceeding,
whether or not the interest is an allowable claim in the proceeding.
"Permitted Business" means medical waste disposal and consulting,
distribution of medical services and products to medical waste customers, and
the expansion of related services and distribution of products to medical waste
customers.
"Permitted Domestic Subsidiary Preferred Stock" means any series of
Preferred Stock of a Domestic Subsidiary of ours that has a fixed dividend rate,
the liquidation value of all series of which, when combined with the aggregate
amount of Indebtedness of us and our Restricted Subsidiaries incurred pursuant
to clause (14) of the definition of Permitted Debt, does not exceed $20.0
million.
"Permitted Hedging Agreement" of any Person means any Hedging Agreement
entered into with one or more financial institutions in the ordinary course of
business (a) for the purpose of fixing or hedging interest or foreign currency
exchange rate risk with respect to any floating rate Indebtedness or foreign
currency based Indebtedness, respectively, that is permitted by the terms of the
indenture to be outstanding; provided that the notional amount of any Hedging
Agreement does not exceed the amount of Indebtedness or other liability to which
the Hedging Agreement relates; or (b) for the purpose of fixing or hedging
currency exchange risk with respect to any currency exchanges made in the
ordinary course of business and not for purposes of speculation.
"Permitted Investments" means:
(1) any Investment in us or in our Restricted Subsidiaries;
(2) any Investment in Cash Equivalents;
(3) any Investment by us or any of our Restricted Subsidiaries
in a Person, if as a result of the Investment:
(a) the Person becomes a Restricted Subsidiary of
ours; or
(b) the Person is merged, consolidated or amalgamated
with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, us or a Restricted Subsidiary
of ours;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales;"
(5) any acquisition of assets solely in exchange for the
issuance of our Equity Interests (other than Disqualified Stock);
(6) Hedging Agreements;
(7) Investments existing on the date of the indenture
(including Indebtedness received in exchange therefor);
(8) loans and advances to our employees and officers and the
employees and officers of our Restricted Subsidiaries in the ordinary
course of business;
(9) accounts receivable created or acquired in the ordinary
course of business;
(10) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of trade creditors or customers;
(11) Guarantees by us of Indebtedness otherwise permitted to be
incurred by our Restricted Subsidiaries that are Guarantors under the
indenture;
(12) the acquisition by a Receivables Subsidiary in connection
with a Qualified Receivables Transaction of Equity Interests of a trust
or other Person established by the Receivables Subsidiary to effect the
Qualified Receivables Transaction; and any other Investment by us or
our Subsidiaries in a Receivables Subsidiary or any Investment by a
Receivables Subsidiary in any other Person in connection with a
Qualified Receivables Transaction provided, that the other Investment
is in the form of a note or other instrument that the Receivables
Subsidiary or other Person is required to repay as soon as practicable
from available cash collections less amounts required to be established
as reserves pursuant to contractual agreements with entities that are
not our Affiliates entered into as part of a Qualified Receivables
Transaction;
(13) any Investment in a joint venture with one or more foreign
partners to the extent that, as a result of the Investment, we
recognize gross profit from licensing of intellectual property or sales
of equipment to that joint venture over the twelve-month period
following the Investment that is at least equal to the amount of the
Investment; and
(14) other Investments in any Person having an aggregate fair
market value (measured on the date each Investment was made and without
giving effect to subsequent changes in value), when taken together with
all other Investments made pursuant to this clause (14) that are at the
time outstanding not to exceed $25.0 million.
"Permitted Junior Securities" means:
(1) Equity Interests in us or any Guarantor; or
(2) debt securities that are subordinated to (a) all Senior
Debt and (b) any debt securities issued in exchange for Senior Debt to
substantially the same extent as, or to a greater extent than, the
notes and the Subsidiary Guarantees are subordinated to Senior Debt
under the indenture.
"Permitted Liens" means:
(1) Liens in favor of us or the Guarantors;
(2) Liens on property of a Person existing at the time the
Person is merged with or into or consolidated with us or any of our
Subsidiaries; provided that the Liens were in existence prior to the
contemplation of the merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
us or the Subsidiary;
(3) Liens on property existing at the time of acquisition
thereof by us or any of our Subsidiaries, provided that the Liens were
in existence prior to the contemplation of the acquisition;
(4) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business;
(5) Liens existing on the date of the indenture and any
extensions, renewals and replacements thereof;
(6) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good
faith by appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision as
shall be required in conformity with GAAP shall have been made
therefor;
(7) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries;
(8) Liens incurred or deposits made in the ordinary course of
business in connection with worker's compensation, unemployment
insurance and other types of social security, including any Lien
securing letters of credit issued in the ordinary course of business
consistent with past practice in connection therewith, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, government contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(9) judgment Liens not giving rise to an Event of Default;
(10) easements, rights-of-way, zoning restrictions and other
similar charges or encumbrances in respect of real property not
interfering in any material respect with the ordinary conduct of the
business of us or any of our Restricted Subsidiaries;
(11) any interest or title of a lessor under any Capitalized
Lease Obligation;
(12) purchase money Liens to finance property or assets of us
or any of our Restricted Subsidiaries acquired in the ordinary course
of business; provided, however, that
(A) the related purchase money Indebtedness shall not
exceed the cost of the property or assets and shall not be
secured by any property or assets of us or any of our
Restricted Subsidiaries other than the property and assets so
acquired and
(B) the Lien securing the Indebtedness shall be
created within 90 days of the acquisition;
(13) Liens upon specific items of inventory or other goods and
proceeds of any Person securing the Person's obligations in respect of
banker's acceptances issued or created for the account of the Person to
facilitate the purchase, shipment, or storage of the inventory or other
goods;
(14) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other
property relating to the letters of credit and products and proceeds
thereof;
(15) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual, or warranty
requirements of us or any of our Restricted Subsidiaries, including
rights of offset and set-off;
(16) Liens securing Indebtedness incurred in reliance on clause
(4) of the second paragraph of the covenant described above under the
caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock" so long as the Lien extends to no assets other than
the assets acquired;
(17) Liens on assets of us or a Receivables Subsidiary incurred
in connection with a Qualified Receivables Transaction;
(18) Leases or subleases granted to others that do not
materially interfere with the ordinary course of business of us and our
Restricted Subsidiaries;
(19) Liens arising from filing Uniform Commercial Code
financing statements regarding leases;
(20) Liens securing the series A and series B notes and the
related guarantees;
(21) Liens securing intercompany Indebtedness of us or a
Restricted Subsidiary on assets of any of our Subsidiaries;
(22) Liens securing Senior Debt and other Obligations with
respect thereto;
(23) Liens securing Hedging Agreements which relate to
Indebtedness that is otherwise permitted under the indenture; and
(24) Liens incurred in the ordinary course of business of us or
any of our Restricted Subsidiaries with respect to obligations that do
not exceed $5.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of us or
any of our Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of us or any of our Restricted Subsidiaries (other than
intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of
the Permitted Refinancing Indebtedness does not exceed the principal
amount (or accreted value, if applicable) of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus all
accrued interest thereon and the amount of all fees, expenses and
premiums incurred in connection therewith);
(2) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to
the series B notes, the Permitted Refinancing Indebtedness is
subordinated in right of payment to, the series B notes on terms at
least as favorable to the Holders of series B notes as those contained
in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded;
(3) the Permitted Refinancing Indebtedness has a Weighted
Average Life to Maturity later than the Weighted Average Life to
Maturity of the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and
(4) the Indebtedness is incurred either by us or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Preferred Stock Agreement" means the agreement by and among Bain
Capital, Inc., Madison Dearborn Partners, Inc. and us relating to the purchase
and sale of our series A convertible preferred stock, as in effect on the date
hereof.
"Principals" means Bain Capital, Inc. and Madison Dearborn Partners,
Inc.
"Pro Forma Cost Savings" means, with respect to any period, the
reduction in costs that occurred during the four-quarter period or after the end
of the four-quarter period and on or prior to the transaction date that were (i)
directly attributable to an asset acquisition and calculated on a basis that is
consistent with Article 11 of Regulation S-X under the Securities Act as in
effect on the date of the indenture or (ii) implemented by the business that was
the subject of the asset acquisition within six months of the date of the asset
acquisition and that are supportable and quantifiable by the underlying
accounting records of the business, as if, in the case of each of clause (i) and
(ii), all the reductions in costs had been effected as of the beginning of the
period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio
for any four-quarter period that includes a period prior to the date of the
indenture, we shall also give effect to the supplemental adjustments described
in the Offering Memorandum, dated as of November 4, 1999.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Stock.
"Qualified Receivables Transaction" means any transaction or series of
transactions entered into by us or any of our Subsidiaries pursuant to which we
or any of our Subsidiaries sell, convey or otherwise transfer to (i) a
Receivables Subsidiary (in the case of a transfer by us or any of our
Subsidiaries) and (ii) any other Person (in the case of a transfer by a
Receivables Subsidiary), or grant a security interest in, any accounts
receivable (whether now existing or arising in the future) of us or any of our
Subsidiaries, and any assets related thereto including, without limitation, all
collateral securing the accounts receivable, all contracts and all guarantees or
other obligations in respect of the accounts receivable, proceeds of the
accounts receivable and other assets which are customarily transferred or in
respect of which security interests are customarily granted in connection with
asset securitization transactions involving accounts receivable.
"Receivables Subsidiary" means a Subsidiary of ours which engages in no
activities other than in connection with the financing of accounts receivable
and which is designated by our Board of Directors (as provided below) as a
Receivables Subsidiary (a) no portion of the Indebtedness or any other
Obligations (contingent or otherwise) of which (i) is guaranteed by us or any of
our Subsidiaries (excluding guarantees of Obligations (other than the principal
of, and interest on, Indebtedness) pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business in
connection with a Qualified Receivables Transaction), (ii) is recourse to or
obligates us or any of our Subsidiaries in any way other than pursuant to
representations, warranties, covenants and indemnities entered into in the
ordinary course of business in connection with a Qualified Receivables
Transaction or (iii) subjects any property or asset of us or any of our
Subsidiaries (other than accounts receivable and related assets as provided in
the definition of "Qualified Receivables Transaction"), directly or indirectly,
contingently or otherwise, to the satisfaction thereof, other than pursuant to
representations, warranties, covenants and indemnities entered into in the
ordinary course of business in connection with a Qualified Receivables
Transaction, (b) with which neither we nor any of our Subsidiaries has any
material contract, agreement, arrangement or understanding other than on terms
no less favorable to us or the Subsidiary than those that might be obtained at
the time from Persons who are not our Affiliates, other than fees payable in the
ordinary course of business in connection with servicing accounts receivable and
(c) with which neither we nor any of our Subsidiaries has any obligation to
maintain or preserve the Subsidiary's financial condition or cause the
Subsidiary to achieve certain levels of operating results. Any designation by
our Board of Directors will be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolution of our Board of Directors giving
effect to the designation and an officers' certificate certifying that the
designation complied with the foregoing conditions.
"Related Party" means:
(1) any controlling stockholder, more than 50% owned
Subsidiary, or immediate family member (in the case of an individual)
of any Principal; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially
holding a greater than 50% or more controlling interest of which
consist of any one or more Principals and/or the other Persons referred
to in the immediately preceding clause (1).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Senior Debt" means:
(1) all Indebtedness of us or any Guarantor outstanding under
Credit Facilities and all Hedging Agreements permitted to be entered
into under the terms of the indenture;
(2) any other Indebtedness of us or any Guarantor permitted to
be incurred under the terms of the indenture, unless the instrument
under which the Indebtedness is incurred expressly provides that it is
on a parity with or subordinated in right of payment to the notes or
any Subsidiary Guarantee; and
(3) all Obligations with respect to the items listed in the
preceding clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt
will not include:
(1) any liability for federal, state, local or other taxes owed
or owing by us;
(2) any Indebtedness of us to any of our Subsidiaries or other
Affiliates;
(3) any trade payables; or
(4) the portion of any Indebtedness that is incurred in
violation of the indenture except to the extent that the Indebtedness
so incurred was extended by the lenders thereof in reliance on a
certificate executed and delivered by our president, chief executive
officer or chief financial or accounting officer, in which certificate,
the officer certified that the incurrence of the Indebtedness was
permitted under the proviso to the first sentence under the caption
"Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock."
"Significant Subsidiary" means any Subsidiary that would be a
"significant Subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as the Regulation is in effect on
the date hereof (excluding in all cases, 3CI Complete Compliance Corporation
which is a public non-wholly-owned subsidiary of us).
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing the Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Note Obligations" means all Obligations with respect to
the notes, including, without limitation, principal, premium, if any, interest
and Liquidated Damages, if any, payable pursuant to the terms of the notes
(including, without limitation, upon acceleration or redemption thereof),
together with and including, without limitation, any amounts received or
receivable upon the exercise of rights of rescission or other rights of action,
including, without limitation, claims for damages, or otherwise.
"Subsidiary" means, with respect to any specified Person (and if no
Person is specified, it shall be understood to mean with respect to us):
(1) any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital
Stock entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at
the time owned or controlled, directly or indirectly, by the Person or
one or more of the other Subsidiaries of that Person (or a combination
thereof); and
(2) any partnership (a) the sole general partner or the
managing general partner of which is the Person or a Subsidiary of the
Person or (b) the only general partners of which are the Person or one
or more Subsidiaries of the Person (or any combination thereof).
"Unrestricted Subsidiary" means any Subsidiary of ours that is
designated by our Board of Directors as an Unrestricted Subsidiary pursuant to a
Board resolution and in accordance with the terms of the indenture, but only to
the extent that the Subsidiary:
(1) has no indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with us or any of our Restricted Subsidiaries unless the
terms of the agreement, contract, arrangement or understanding are no
less favorable to us or the Restricted Subsidiary than those that might
be obtained at the time from Persons who are not our Affiliates;
(3) is a Person with respect to which neither we nor any of our
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or
preserve the Person's financial condition or to cause the Person to
achieve any specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of us or any of our
Restricted Subsidiaries.
Any designation of a Subsidiary of us as an Unrestricted Subsidiary
shall be evidenced to the trustee by filing with the trustee a certified copy of
the Board resolution giving effect to the designation and an Officers'
Certificate certifying that the designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"--Certain Covenants--Restricted Payments." If, at any time, any Unrestricted
Subsidiary would fail to meet the preceding requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of the Subsidiary shall be deemed
to be incurred by a Restricted Subsidiary of us as of the date and, if the
Indebtedness is not permitted to be incurred as of the date under the covenant
described under the caption "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock," we shall be in default of the covenant. Our Board
of Directors may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that the designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of us of any outstanding
Indebtedness of the Unrestricted Subsidiary and the designation shall only be
permitted if (1) the Indebtedness is permitted under the covenant described
under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," calculated on a pro forma basis as if the designation had
occurred at the beginning of the four-quarter reference period; (2) no Default
or Event of Default would be in existence following the designation; and (3) if
any Subsidiary is a Domestic Subsidiary, it shall execute a supplemental
indenture to become a Guarantor with respect to the notes.
"Voting Stock" of any Person as of any date means the Capital Stock of
the Person that is at the time entitled to vote in the election of the Board of
Directors of the Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the
amount of each then remaining installment, sinking fund, serial
maturity or other required payments of principal, including payment at
final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between the
date and the making of the payment; by
(2) the then outstanding principal amount of the Indebtedness.
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 30,000,000 shares of common
stock, par value $0.01 per share, of which 14,729,797 shares were issued and
outstanding as of November 30, 1999, and 1,000,000 shares of preferred stock,
par value $0.01 per share, of which 75,000 shares of 3.375% payment-in-kind
series A convertible preferred stock are issued and outstanding. As of
November 30, shares of our common stock were held of record by approximately
____ stockholders.
COMMON STOCK
Our outstanding shares of common stock are validly issued, fully paid
and nonassessable. Common stockholders are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholderss.
Holders of shares of common stock do not have any preemptive rights or
rights to subscribe for any additional securities. Our common stock is neither
redeemable nor convertible into other securities, and there are no sinking fund
provisions. Subject to the preferences applicable to any shares of convertible
preferred stock outstanding at the time, common stockholders are entitled to
dividends if, when and as declared by the Board of Directors from funds legally
available therefore and are entitled, in the event of liquidation, to share
ratably in all assets remaining after payment of liabilities and convertible
preferred stock preferences, if any.
UNDESIGNATED PREFERRED STOCK
We have authorized 1,000,000 shares of preferred stock, $.01 par value.
Our Board of Directors has designated 100,000 shares of this preferred stock as
Series A convertible preferred stock (see description below). The remaining
900,000 shares of preferred stock may be issued in series from time to time by
our Board of Directors, who would have the power to determine the respective
powers, designations, preferences, rights, qualifications, limitations and
restrictions of each series. These matters would include, for example: (1) the
number of shares in each series, (2) whether a series will bear dividends and,
if so, whether the dividends will be cumulative, (3) the dividend rate and the
dates of dividend payments, (4) liquidation preferences, if any, (5) the terms
of redemption, if any, including timing, rates and prices, (6) conversion
rights, if any, (7) sinking fund requirements, if any, (8) any restrictions on
the issuance of additional shares of any series, (9) any voting rights and (10)
any other powers, designations, preferences, rights, qualifications, limitations
or restrictions.
Shares of preferred stock could have priority over shares of common
stock with respect to dividends (which may be made cumulative with respect to
the preferred stock) and with respect to our assets upon liquidation, and could
reduce the amount of assets available for distribution to the holders of common
stock upon a liquidation. Depending upon the particular terms of any series of
preferred stock, holders of that series may have significant voting rights and
the right to representation on our Board of Directors. In addition, the approval
of holders of shares of preferred stock, voting as a class or as a series, may
be required for the taking of specific corporate actions, such as mergers.
CONVERTIBLE PREFERRED STOCK
On November 12, 1999, we issued and sold 75,000 shares of our
convertible preferred stock to certain investment funds associated with Bain
Capital and with Madison Dearborn, as initial investors, for $1,000 per share,
or an aggregate of $75.0 million, in cash, less various fees and expenses.
DIVIDENDS
The convertible preferred stock bears preferential dividends, payable
in additional shares of convertible preferred stock, at the rate of 3.375% per
annum from the date of issuance. Dividends accrue daily at the per annum rate of
3.375% and will accumulate annually on the anniversary date of initial issuance.
In addition to preferential dividends, the convertible preferred stock will also
be entitled to share pro rata with holders of common stock, on the basis of the
number of shares of common stock into which the convertible preferred stock is
convertible, in all other dividends and distributions. Because the convertible
preferred stock dividends are payable in additional shares of convertible
preferred stock, the certificate of designations covers 100,000 share in order
that we will have shares available for the payment of those dividends for a
period of time.
LIQUIDATION
Upon any liquidation, dissolution or winding up of us, each holder of
convertible preferred stock shall be entitled to be paid, before any
distribution or payment is made to the holders of common stock, a liquidation
value of the greater of (i) the sum of $1,000 per share plus accumulated
preferential dividends plus accrued and unpaid dividends not yet accumulated and
(ii) the amount that would be payable if the convertible preferred stock had
been converted into common stock.
VOTING; ELECTION OF DIRECTORS
The convertible preferred stock is entitled to vote with the holders of
common stock as a single class on each matter submitted to our stockholders.
Each share of convertible preferred stock shall have a number of votes for the
matters submitted to our stockholders equal to the number of votes possessed by
the common stock into which the convertible preferred stock is convertible. So
long as the initial investors hold 50% or more of the convertible preferred
stock or the common stock into which it is convertible, they will have the
right, voting as a separate class, to elect two directors to our Board of
Directors. In the event that the initial investors and their affiliates cease to
hold 50% but still hold 25% or more, they will have the right, voting as a
separate class, to elect one director and if they cease to hold 25%, their right
to elect directors as a separate class will terminate.
CONVERSION
Each holder of convertible preferred stock may, at any time and from
time to time, upon ten business days notice, convert all or part of the
convertible preferred stock into shares of common stock. The price at which the
holders may convert is $17.50 per share, subject to adjustment, and this price,
as adjusted from time to time, is referred to as the "conversion price." The
conversion price will be adjusted under specified circumstances.
The 75,000 shares of convertible preferred stock held by the initial
investors is convertible into 4,285,714 shares of our common stock, or
approximately 22.6% of the amount of our common stock currently outstanding.
REDEMPTION AT OUR OPTION
Beginning on the 30th month anniversary of the date of initial issuance
of the convertible preferred stock, if the closing price of the common stock
exceeds 150% of the Conversion Price for 20 consecutive trading days, we may
elect, upon at least 30 days' prior written notice, to redeem all (but not part)
of the outstanding shares of convertible preferred stock, subject to any
holder's right to first convert its shares into common stock prior to the
redemption date, in the manner described above. If we make an election, the
redemption price will equal the liquidation value to the date of redemption.
REDEMPTION UPON A CHANGE OF CONTROL
A "change of control" with respect to us is defined as a circumstance
in which: (i) any person or group (as the terms are used for purposes of
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended)
becomes the beneficial owner of more than 50% of our total voting power; or (ii)
during any consecutive 36-month period, our directors at the beginning of the
period and their successors cease to comprise a majority of our Board of
Directors.
In the event of a change of control, or if a bankruptcy event (as
defined in the Certificate of Designation governing the convertible preferred
stock) has occurred and continued for 60 days, each holder of shares of
convertible preferred stock can, by the giving of 15 business days notice, cause
us to redeem all or any part of the holder's shares at a price per share equal
to the liquidation value per share.
CORPORATE GOVERNANCE AGREEMENT
A corporate governance agreement between us and the initial investors
contains specific provisions to implement the right of the initial investors to
elect two directors to our Board of Directors and under specific circumstances
to appoint an observer. The corporate governance agreement also provides that
until the earlier of (i) the date on which the initial investors and their
permitted transferees (as defined in the corporate governance agreement) cease
to own any convertible preferred stock, (ii) the date on which the initial
investors have completed a distribution of the convertible preferred stock to
their partners or (iii) the first anniversary of the closing, the initial
investors and their transferees and affiliates will not acquire beneficial
ownership of more than 30% of the voting power of our company or acquire or
attempt to acquire control of our company, except in response to a proposal that
has been made to our stockholders that would materially and adversely affect the
initial investors, or pursuant to the exercise of their preemptive rights. The
corporate governance agreement also contains specified restrictions, for a
period of five years, on an initial investor's ability to transfer the
convertible preferred stock and further provides that the approval of the
holders of a majority of the convertible preferred stock and underlying common
stock be obtained for us to: (1) engage in mergers, acquisitions or divestitures
of specified sizes, (2) enter into contracts with our officers, directors,
employees or affiliates, except for ordinary employment and benefit plans and
transactions with our subsidiaries, and (3) incur indebtedness or issue
specified capital stock that would cause our fixed charge coverage ratio (as
defined in the preferred stock purchase agreement) to be less than 1.75 to 1.0
(2.0 to 1.0 after the second anniversary of the initial issuance of the
convertible preferred stock).
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the material U.S. federal
income tax consequences associated with the exchange of the series A notes for
series B notes and the ownership and disposition of the series B noes by an
original purchaser of the series B notes who is not a U.S. holder. The
discussion below is based upon current provisions of the Internal Revenue Code
of 1986, as amended, applicable Treasury Regulations, judicial authority and
administrative rulings and practice, any of which may be altered with
retroactive effect thereby changing the federal tax consequences discussed
below.
The tax treatment of a holder of the notes may vary depending upon the
holder's particular situation. Certain holders (including, but not limited to,
specific financial institutions, insurance companies, tax-exempt organizations,
broker-dealers and persons holding the notes as part of a "straddle," "hedge" or
"conversion transaction") may be subject to special rules not discussed below.
This discussion is limited to holders who purchase the notes on original
issuance and who hold the notes as "capital assets" (generally, property held
for investment) within the meaning of Section 1221 of the Tax Code. We will not
seek a ruling from the IRS with respect to any of the matters discussed herein
and there can be no assurance that the IRS will not challenge one or more of the
tax consequences described below.
THIS SUMMARY DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF U.S. FEDERAL
INCOME TAXATION THAT MAY BE RELEVANT TO A HOLDER'S DECISION TO EXCHANGE SERIES A
NOTES FOR SERIES B NOTES OR TO PURCHASE THE NOTES. PERSONS CONSIDERING AN
EXCHANGE OF SERIES A NOTES FOR SERIES B NOTES OR A PURCHASE OF THE NOTES SHOULD
CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY AND EFFECT
OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.
EXCHANGE OFFER
The exchange of the series A notes for series B notes pursuant to this
exchange offer should not be treated as an "exchange" for U.S. federal income
tax purposes because the series B notes will not be considered to differ
materially in kind or extent from the series A notes. Rather, any series B notes
received by you should be treated as a continuation of your investment in the
series A notes. As a result, there should be no material U.S. federal income tax
consequences to you resulting from the exchange offer. In addition, you should
have the same adjusted issue price, adjusted basis, and holding period in the
series B notes as you had in the series A notes immediately prior to the
exchange.
NON-U.S. HOLDERS
U.S. Holders acquiring the notes are subject to different rules than
those discussed below. For purposes of this discussion, a U.S. Holder is a
holder of the notes who is:
o a citizen or resident of the U.S. or any political subdivision
thereof;
o a partnership or corporation created or organized in the U.S. or
under the laws of the U.S. or any political subdivision thereof;
o an estate the income of which is subject to U.S. federal income
taxation regardless of its source; or
o a trust if a court within the U.S. is able to exercise primary
supervision of the administration of the trust and one or more U.S.
persons have the authority to control all decisions of the trust.
"U.S." refers to the United States of America (including the States and
the District of Columbia) and its possessions, which include, as of the date
hereof, Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island
and the Northern Mariana Islands. This summary is based upon current provisions
of the Tax Code, applicable Treasury Regulations, judicial authority and
administrative rulings and practice, any of which may be altered with
retroactive effect thereby changing the U.S. federal tax consequences discussed
below.
Under present U.S. federal income and estate tax law, and subject to
the discussion below concerning backup withholding:
(a) The so-called "portfolio interest" exception provides
that interest on the notes will not be subject to U.S. federal
income tax and withholding of U.S. federal income tax will not
be required with respect to the payment by us or our paying
agent of principal or interest on the notes owned by a
Non-U.S. Holder, provided that (1) the beneficial owner of the
notes does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of
Stericycle entitled to vote within the meaning of Section
871(h)(3) of the Tax Code and the Treasury Regulations issued
thereunder, (2) the beneficial owner is not (i) a foreign
private foundation as defined in Section 509 of the Tax Code
and the Treasury Regulations issued thereunder, (ii) a bank
whose receipt of interest on the notes is described in Section
881(c)(3)(A) of the Tax Code or (iii) a "controlled foreign
corporation" (as defined Section 957 of the Tax Code) that is
related directly, indirectly or constructively to us through
stock ownership, and (3) the interest is not considered
contingent interest under Section 871(h)(4) of the Tax Code
and the Treasury Regulations issued thereunder and (4) the
beneficial owner satisfies the requirements (described
generally below) set forth in Section 871(h) and Section
881(c) of the Tax Code and the Treasury Regulations issued
thereunder relating to registered securities.
To satisfy the requirements referred to in (4) above, the
beneficial owner of the notes, or a financial institution
holding the notes on behalf of the owner, must provide, in
accordance with specified procedures, our paying agent with a
statement to the effect that the beneficial owner is not a
U.S. person. Currently, these requirements will be met if
either (i) the beneficial owner of the notes certifies to us
or our paying agent, under penalties of perjury, that it is
not a U.S. person (which certification may be made on an IRS
Form W-8 or successor form) and provides its name and address
or (ii) a securities clearing organization, bank or other
financial institution that holds customers' securities in the
ordinary course of its trade or business (a "financial
institution") and that holds the notes on behalf of a
beneficial owner, certifies to us or our paying agent, under
penalties of perjury, that the statement has been received by
it from the beneficial owner (directly or through another
intermediary financial institution), and furnishes us or our
paying agent with a copy thereof. A certificate described in
this paragraph is effective only with respect to payments of
interest made to the certifying Non-U.S. Holder after the
issuance of the certificate, in the calendar year of its
issuance and two immediately succeeding calendar years.
Treasury Regulations (the "Final Regulations") finalized in
1997, applicable to interest paid after December 31, 2000,
provide alternative documentation procedures for satisfying
the certification requirement described above. These
regulations add intermediary certification options for
specific qualifying agents. Under one option, a withholding
agent would be allowed to rely on IRS Form W-8IMY furnished by
a financial institution or other intermediary on behalf of one
or more beneficial owners (or other intermediaries) without
having to obtain the beneficial owner certificate described in
the preceding paragraph, provided that the financial
institution or intermediary has entered into a withholding
agreement with the IRS and thus is a "qualified intermediary".
Under another option, an authorized foreign agent of a U.S.
withholding agent would be permitted to act on behalf of the
U.S. withholding agent, provided certain conditions are met.
With respect to the certification requirement for notes that
are held by a foreign partnership, the Final Regulations
provide that unless the foreign partnership has entered into a
withholding agreement with the IRS, the foreign partnership
will be required, in addition to providing an intermediary
Form W-8IMY, to attach an appropriate certification by each
partner. Prospective investors, including foreign partnerships
and their partners, should consult their tax advisors
regarding possible additional reporting requirements.
(b) If a Non-U.S. Holder cannot satisfy the requirements of
the "portfolio interest" exception described in paragraph (a)
above, payments of interest made to the Non-U.S. Holder will
generally be subject to withholding tax of 30% unless the
beneficial owner of the notes provides us or our paying agent,
as the case may be, with a properly executed (i) IRS Form 1001
(or successor form) claiming an exemption from or reduced rate
of withholding under the benefit of a tax treaty or (ii) IRS
Form 4224 (or successor form) stating that interest paid on
the notes is not subject to withholding tax because it is
effectively connected with the beneficial owner's conduct of a
trade or business in the United States. Under the Final
Regulations, Non-U.S. Holders will generally be required to
provide IRS Form W-8BEN, W-8IMY, W-8EXP or W-8ECI in lieu of
Form 1001 and Form 4224, although alternative documentation
may be applicable in specific situations. Additionally, the
Non-U.S. Holder may be required to obtain a U.S. taxpayer
identification number. In each case, the relevant IRS form
must be delivered pursuant to applicable procedures and must
be properly transmitted to the person otherwise required to
withhold U.S. federal income tax, and none of the persons
receiving the relevant form may have actual knowledge that any
statement on the form is false.
(c) A Non-U.S. Holder will not be subject to U.S. federal
income tax on any gain realized on the sale, exchange,
retirement, or other disposition of the notes, unless (i) the
holder is an individual who is present in the United States
for 183 days or more during the taxable year and certain other
requirements are met, or (ii) the gain is effectively
connected with the conduct of a United States trade or
business of the holder.
(d) Under Section 2105(b) of the Tax Code, if interest on the
notes would be exempt from withholding of U.S. federal income
tax under the rules set forth in paragraph (a) above (without
regard to the statement requirement), the notes will not be
included in the estate of a Non-U.S. Holder for U.S. federal
estate tax purposes.
(e) If a Non-U.S. Holder is engaged in a trade or business in
the United States and interest on the notes (or gain realized
on the sale, exchange or other disposition of the notes) is
effectively connected with the conduct of the trade or
business, the Non-U.S. Holder, although exempt from the
withholding tax discussed above, will generally be subject to
U.S. federal income tax on the effectively connected income in
the same manner as if it were a U.S. person. The Non-U.S.
Holder may also need to provide a United States taxpayer
identification number (social security number or employer
identification number) on the forms referred to in paragraph
(b) above in order to meet the requirements set forth above.
In addition, if the Non-U.S. Holder is a foreign corporation,
it may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits for the taxable
year, subject to adjustments. For this purpose, interest on,
and any gain recognized on the sale, exchange or other
disposition of, the notes will be included in the foreign
corporation's effectively connected earnings and profits if
the interest or gain, as the case may be, is effectively
connected with the conduct by the foreign corporation of a
trade or business in the United States.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain "backup" withholding and information reporting requirements may
apply to payments on, and to proceeds of sale before maturity of, the notes.
Interest paid to a Non-U.S. Holder on a registered security will be required to
be reported annually on IRS Form 1042-S. We are not obligated to reimburse or
indemnify holders of the notes, including Non-U.S. Holders, for any tax imposed
on, or withheld from payments with respect to, the notes.
No information reporting on IRS Form 1099 or backup withholding will be
required with respect to payments made by us or any paying agent to Non-U.S.
Holders on registered securities with respect to which a statement described in
paragraph (a)(4) above has been received; provided that we or our paying agent,
as the case may be, does not have actual knowledge that the beneficial owner is
a U.S. person.
In addition, backup withholding and information reporting will not
apply if payments of principal or interest on the notes are paid to or collected
by a foreign office of a custodian, nominee or other foreign agent on behalf of
the beneficial owner of the notes, or if the foreign office of a broker (as
defined in applicable Treasury Regulations) pays the proceeds of the sale of the
notes to the owner thereof. If, however, the nominee, custodian, agent or broker
is, for U.S. federal income tax purposes, a U.S. person, a controlled foreign
corporation or a foreign person 50% or more of whose gross income is effectively
connected with the conduct of a United States trade or business for a specified
three-year period, or another United States related person described in Section
1 .6049-5(c)(5) of the Treasury Regulations, then information reporting will be
required unless (i) the custodian, nominee, agent or broker has in its records
documentary evidence that the beneficial owner is not a U.S. person and specific
other conditions are met or (ii) the beneficial owner otherwise establishes an
exemption.
Payments of principal and interest on the notes to the beneficial owner
of the notes by a United States office of a custodian, nominee or agent, or
payment by the United States office of a broker of the proceeds of the sale of
the notes, will be subject to information reporting and backup withholding
unless the holder or beneficial owner provides the statement referred to in
paragraph (a)(4) above or otherwise establishes an exemption from information
reporting and backup withholding, and the payor does not have actual knowledge
that the beneficial owner is a U.S. person.
APPLICABLE TAX TREATIES
Non-U.S. purchasers should also consult any applicable income tax
treaties, which may provide for a lower rate of withholding tax, exemption from
or reduction of branch profits tax, or other rules different from those under
United States federal tax laws.
The U.S. federal income tax discussion set forth above is included for
general information only and may not be applicable depending upon a holder's
particular situation. You should consult your own tax advisor with respect to
the consequences of your ownership and disposition of the notes, including the
tax consequences under state, local, foreign and other tax laws and the possible
effects on you of changes in U.S. federal or other tax laws.
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives series B notes for its own account
pursuant to this exchange offer, sometimes referred to as a participating
broker, must acknowledge that it will deliver a prospectus in connection with
any resale of the series B notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a participating broker in
connection with any resale of series B notes received in exchange for series A
notes where the series A notes were acquired as a result of market-making
activities or other trading activities. We have agreed that for a period of one
year from the expiration of this exchange offer, we will make this prospectus,
as amended or supplemented, available to any participating broker for use in
connection with the resales. In addition, until ____________ ___. 2000, 90 days
from the date of this prospectus, all broker-dealers effecting transactions in
the notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of series B notes by
broker- dealers. Series B notes received by any participating broker may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the series B notes or
a combination of the methods of resale, at market prices prevailing at the time
of resale, at prices related to the prevailing market prices or negotiated
prices. Any resale may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any broker-dealer and/or the purchasers of any series B notes.
Any participating broker that resells notes that were received by it for its own
account pursuant to this exchange offer and any broker or dealer that
participates in a distribution of series B notes may be deemed to be an
underwriter within the meaning of the Securities Act and any profit on any
resale of series B notes and any commissions or concessions received by any
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that by acknowledging that it will deliver, and
by delivering, a prospectus as required, a participating broker will not be
deemed to admit that it is an underwriter within the meaning of the Securities
Act.
For a period of one year from the expiration of this exchange offer, we
will send a reasonable number of additional copies of this prospectus and any
amendment or supplement to this prospectus to any participating broker that
requests these documents in the letter of transmittal. We will pay all the
expenses incident to this exchange offer, which shall not include the expenses
of any holder in connection with resales of series B notes. We have agreed to
indemnify holders of series B notes, including any participating broker, against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
McDermott, Will & Emery, Chicago, Illinois will opine on the validity
of the series B notes for us.
INDEPENDENT PUBLIC ACCOUNTANTS
Ernst & Young LLP, independent public accountants, have audited our
consolidated financial statements at December 31, 1998 and 1997, and for each of
the three years in the period ended December 31, 1998, as set forth in their
report. We have included our consolidated financial statements in the prospectus
and elsewhere in the registration statement in reliance on Ernst & Young's
report, given their authority as experts in accounting and auditing. We have
included in this registration statement the audited financial statements of the
BFI medical waste business as of September 30, 1998 and for each of the three
years in the period ended September 30, 1998 in reliance on the audit report of
Arthur Andersen LLP, which issued the report as independent public accountants
and as experts in auditing and accounting.
<PAGE>
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
<S> <C>
STERICYCLE, INC. FINANCIAL STATEMENTS
Report of Independent Public Accountants...................................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998.................................................. F-3
Consolidated Statements of Operations for each of the years in the three year
period ended December 31, 1998............................................................................ F-4
Consolidated Statements of Cash Flows for each of the years in the three year
period ended December 31, 1998............................................................................ F-5
Consolidated Statements of Shareholder's Equity for each of the years in the
three year period ended December 31, 1998................................................................. F-6
Notes to Consolidated Financial Statements.................................................................... F-7
Consolidated Balance Sheet as of September 30, 1999 (Unaudited)............................................... F-22
Consolidated Statements of Operations for the nine months ended September 30, 1998
and 1999 (Unaudited)...................................................................................... F-23
Consolidated Statements of Cash Flows for the nine months ended September 30, 1998
and 1998 (Unaudited)...................................................................................... F-24
Notes to Unaudited Consolidated Financial Statements.......................................................... F-25
BFI MEDICAL WASTE BUSINESS FINANCIAL STATEMENTS
Report of Independent Public Accountants...................................................................... F-30
Statements of Directly Identifiable Assets and Liabilities of BFI Medical
Waste as of September 30, 1997 and 1998 and June 30, 1999................................................. F-31
Statements of Revenues and Direct Expenses of BFI Medical Waste for the
Years Ended September 30, 1996, 1997 and 1998 and for the nine months
ended
June 30, 1998 and 1999.................................................................................... F-32
Notes to Financial Statements................................................................................. F-33
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Stericycle, Inc.
We have audited the accompanying consolidated balance sheets of
Stericycle, Inc. and Subsidiaries as of December 31, 1997 and 1998, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe 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 consolidated financial position of
Stericycle, Inc. and Subsidiaries at December 31, 1997 and 1998, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 16, 1999, except Note 16, as to which the date is
November 12, 1999
<PAGE>
<TABLE>
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<CAPTION>
DECEMBER 31,
------------
1997 1998
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................ $ 5,374 $ 1,283
Short-term investments............................................................... -- 536
Accounts receivable, less allowance for doubtful accounts of
$361 in 1997 and $901 in 1998..................................................... 10,286 16,582
Parts and supplies................................................................... 660 1,291
Prepaid expense...................................................................... 440 1,283
Other ............................................................................... 392 835
------------- -------------
Total current assets.............................................................. 17,152 21,810
------------- -------------
Property, plant and equipment:
Land ............................................................................... 90 680
Buildings and improvements........................................................... 5,561 10,514
Machinery and equipment.............................................................. 11,469 18,924
Office equipment and furniture....................................................... 746 1,425
Construction in progress............................................................. 614 1,007
------------- -------------
18,480 32,550
Less accumulated depreciation........................................................... (7,239) (9,450)
------------- -------------
Property, plant and equipment, net................................................ 11,241 23,100
------------- -------------
Other assets:
Goodwill, less accumulated amortization of $2,040 in 1997
and $3,551 in 1998................................................................ 29,458 49,112
Other ............................................................................... 3,375 3,733
------------- -------------
Total other assets................................................................ 32,833 52,845
------------- -------------
Total assets...................................................................... $ 61,226 $ 97,755
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt.................................................... $ 3,052 $ 5,499
Accounts payable..................................................................... 1,927 6,502
Accrued liabilities.................................................................. 7,039 6,465
Deferred revenue..................................................................... 255 2,178
------------- -------------
Total current liabilities......................................................... 12,273 20,644
------------- -------------
Long term debt, net of current portion.................................................. 3,475 23,460
Other liabilities....................................................................... 452 --
Shareholders' equity:
Common stock (par value $.01 per share, 30,000,000 shares authorized,
10,472,799 issued and outstanding in 1997,
10,865,862 issued and outstanding in 1998)........................................ 105 109
Additional paid-in capital........................................................... 82,986 85,894
Notes receivable for common stock purchases.......................................... (4) --
Accumulated deficit.................................................................. (38,061) (32,352)
------------- -------------
Total shareholders' equity........................................................ 45,026 53,651
------------- -------------
Total liabilities and shareholders' equity........................................ $ 61,226 $ 97,755
============= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues.............................................................. $ 24,542 $ 46,166 $ 66,681
Costs and expenses:
Cost of revenues................................................... 19,423 34,109 45,328
Selling, general and administrative expenses....................... 7,556 10,671 14,929
-------------- -------------- ----------
Total costs and expenses........................................ 26,979 44,780 60,257
-------------- -------------- ----------
Income (loss) from operations......................................... (2,437) 1,386 6,424
Other income (expense):
Interest income.................................................... 421 618 714
Interest expense................................................... (373) (428) (777)
-------------- -------------- ----------
Total other income (expense).................................... 48 190 (63)
-------------- -------------- ----------
Income (loss) before income taxes..................................... $ (2,389) $ 1,576 $ 6,361
Income tax expense.................................................... -- 146 648
Net income (loss)..................................................... $ (2,389) $ 1,430 $ 5,713
============== ============== ==========
Basic earnings per share:
Basic net income (loss) per share.................................. $ (0.32) $ 0.14 $ 0.54
============= ============== ==========
Diluted earnings per share:
Diluted net income (loss) per share................................ $ (0.32) $ 0.13 $ 0.51
============= ============== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)..................................................... $ (2,389) $ 1,430 $ 5,713
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization...................................... 2,064 3,078 4,064
Changes in operating assets, net of effect
of acquisitions
Accounts receivable................................................ (554) (4,123) (1,884)
Parts and supplies................................................. 144 (300) (420)
Prepaid expenses................................................... (18) (14) 58
Other assets....................................................... (37) 98 302
Accounts payable................................................... (428) (413) 1,781
Accrued liabilities................................................ 1,178 559 (6,223)
Deferred revenue and other liabilities............................. 97 (415) 1,471
-------------- -------------- ----------
Net cash provided by (used in) operating activities................... 57 (100) 4,862
-------------- -------------- ----------
INVESTING ACTIVITIES:
Capital expenditures............................................... (995) (1,235) (4,342)
Payments for acquisitions, net of cash acquired.................... (6,516) (5,552) (19,775)
Proceeds from maturity of short-term investments................... -- 5,799 --
Purchases of short-term investments................................ (5,799) (2,335) (41)
Proceeds from sale of property..................................... -- -- 405
-------------- -------------- ----------
Net cash used in investing activities................................. (13,310) (3,323) (23,753)
-------------- -------------- ----------
FINANCING ACTIVITIES:
Net proceeds from bank lines of credit............................. (858) -- 16,386
Repayment of long term debt........................................ (3,275) (2,905) (3,189)
Principal payments on capital lease obligations.................... (397) (305) (1,273)
Principal payments on notes receivable for
common stock purchases.......................................... 60 -- --
Proceeds from long-term debt....................................... 1,000 -- --
Proceeds from subordinated notes................................... -- -- 2,750
Payment of deferred financing costs................................ -- -- (218)
Proceeds from issuance of common stock............................. 28,535 57 344
-------------- -------------- ----------
Net cash provided by (used in) financing activities................... 25,065 (3,153) 14,800
-------------- -------------- ----------
Net (decrease) increase in cash and cash and
cash equivalents................................................... 11,812 (6,576) (4,091)
Cash and cash equivalents at beginning of year........................ 138 11,950 5,374
-------------- -------------- ----------
Cash and cash equivalents at end of year.............................. $ 11,950 $ 5,374 $ 1,283
============== ============== ==========
Non-cash activities:
Issuance of common stock for certain acquisitions.................. $ -- $ 3,525 $ 2,568
Issuance of notes payable for certain acquisitions................. $ 6,497 $ 1,120 $ 195
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
STERICYCLE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
(IN THOUSANDS)
<CAPTION>
NOTES
ISSUED AND ADDITIONAL RECEIVABLE FOR TOTAL
OUTSTANDING PAR PAID-IN COMMON STOCK ACCUMULATED SHAREHOLDERS'
SHARES VALUE CAPITAL PURCHASES DEFICIT EQUITY
------ ----- ------- --------- ------- ------
<S> > <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995.................. 5,582 $ 55 $ 49,621 $ -- $ (37,102) $ 12,574
Initial public offering of common
stock (net of offering costs)............... 3,450 35 27,586 27,621
Issuance of common stock for
exercise of options and warrants
and employee stock purchases................ 870 9 717 (64) 662
Note payable exchanged for common
stock ...................................... 98 1 1,485 1,486
Principal payments under note
receivable.................................. 60 60
Net loss.................................... (2,389) (2,389)
--------- ------- --------- ---------- ---------- -----------
BALANCES AT DECEMBER 31, 1996.................. 10,000 $ 100 $ 79,409 $ (4) $ (39,491) $ 40,014
Issuance of common stock for
exercise of options and warrants
and employee stock purchases................ 70 $ 1 56 57
Common stock issued for acquisitions........... 403 4 3,521 3,525
Net income..................................... 1,430 1,430
--------- ------- --------- ---------- ---------- -----------
BALANCES AT DECEMBER 31, 1997.................. 10,473 $ 105 $ 82,986 $ (4) $ (38,061) $ 45,026
Issuance of common stock for
exercise of options and warrants
and employee stock purchases................ 226 $ 2 342 344
Common stock issued for acquisitions........... 167 2 2,566 2,568
Principal payments under note
receivable.................................. 4 (4) 0
Net income..................................... 5,713 5,713
--------- ------- --------- ---------- ---------- -----------
BALANCES AT DECEMBER 31, 1998.................. 10,866 $ 109 $ 85,894 $ -- $ (32,352) $ 53,651
========= ======= ========= ========== ========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
STERICYCLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1--DESCRIPTION OF BUSINESS
Stericycle, Inc. and Subsidiaries (the "Company") provides medical
waste collection, transportation, treatment, disposal, reduction, re-use, and
recycling services to hospitals, health care providers, and other small quantity
generators in the United States and Canada. The Company is also expanding into
international markets through joint ventures and by licensing its proprietary
technology and selling associated equipment.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Stericycle, Inc. and its wholly-owned subsidiaries, Stericycle of Arkansas,
Inc., Stericycle of Washington, Inc., SWD Acquisition Corp., Environmental
Control Co., Inc. ("ECCO"), Waste Systems, Inc. ("WSI") (majority shareholder of
3CI Complete Compliance Corporation ("3CI")), Mid-America Environmental, Inc.,
507375 N.B. Ltd., and Med-Tech Environmental Limited ("Med-Tech"). All
significant intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION
The Company recognizes revenue when the treatment of the regulated
medical waste is completed on-site or the waste is shipped off-site for
processing and disposal. For waste shipped off-site, all associated costs are
recognized at time of shipment. Revenue and costs on contracts to supply the
Company's proprietary treatment equipment are accounted for by the percentage of
completion method, whereby income is recognized based on the estimated stage of
completion of the individual contract.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid instruments with a maturity of
less than three months when purchased to be cash equivalents. Short-term
investments consist of highly liquid investments in corporate debt obligations
and certificates of deposit which mature in less than one year and are
classified as held-to-maturity. These obligations are stated at amortized cost,
which approximates fair market value. Interest income is recognized as earned.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and
amortization, which include the depreciation of assets recorded under capital
leases, are computed using the straight-line method over the estimated useful
lives of the assets as follows:
Buildings and improvement -- 10 to 30 years
Machinery and equipment -- 3 to 10 years
Office equipment and furniture -- 5 to 10 years
GOODWILL
Goodwill is amortized using the straight-line method over 25 years.
Amortization expense for 1996, 1997 and 1998 related to goodwill was
approximately $390,000, $1,042,000 and $1,505,000, respectively.
The Company continually evaluates the value and future benefits of its
goodwill. The Company assesses recoverability from future operations using
income from operations of the related acquired business as a measure. Under this
approach, the carrying value of goodwill would be reduced if it becomes probable
that the Company's best estimate for expected undiscounted future cash flows of
the related business would be less than the carrying amount of goodwill over its
remaining amortization period. For the three-year period ended December 31,
1998, there were no adjustments to the carrying amounts of goodwill resulting
from these evaluations.
NEW PLANT DEVELOPMENT AND PERMITTING COSTS
The Company expenses costs associated with the operation of new plants
prior to the commencement of services to customers and all initial and on-going
costs related to permitting.
RESEARCH AND DEVELOPMENT COSTS
The Company expenses costs associated with research and development as
incurred. Research and development expense for 1996, 1997 and 1998 was $194,000,
$281,000 and $15,000, respectively.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Deferred tax
liabilities and assets are determined based on the differences between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash
equivalents, short-term investments, accounts receivable and payable and
long-term debt. The fair values of these financial instruments were not
materially different from their carrying values. Financial instruments which
potentially subject the Company to concentrations of credit risk consist
principally of accounts receivable. Credit risk on trade receivables is
minimized as a result of the large size of the Company's customer base. No
single customer represents greater than 10% of total accounts receivable. The
Company performs ongoing credit evaluation of its customers and maintains
allowances for potential credit losses. These losses, when incurred, have been
within the range of management's expectations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
SEGMENT REPORTING
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"). FAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related enterprise-wide disclosures about products and services, geographic
areas, and major customers. The adoption of FAS 131 did not affect the Company's
results of operations or financial position, but did affect its disclosures. The
Company's operating segments, (Stericycle, Inc., WSI, and Med-Tech) have similar
economic characteristics and are similar in the nature of their products and
services, treatment processes, types of customers, methods of distribution of
services, and nature of their regulatory environments. Based on this conclusion,
the Company has not presented segment disclosure information. The Company has
provided its enterprise-wide disclosures in Note 15.
NOTE 3--PUBLIC OFFERINGS
On August 28 and August 30, 1996, the Company successfully completed an
initial public offering of 3,500,000 shares of common stock at $9 per share. The
Company received total proceeds from the offering, net of offering costs, of
approximately $27,621,000.
On February 5, 1999, the Company successfully completed a public
offering of 3,500,000 shares of common stock at $14.50 per share. The Company
received total proceeds from the offering, net of offering costs, of
approximately $47,250,000.
NOTE 4--INCOME TAXES
The Company's deferred tax liabilities and assets as of December 31,
1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Deferred tax liabilities:
Capital lease obligations................................................... $ (461,000) $ (561,000)
Property, plant and equipment............................................... (509,000) (357,000)
Goodwill.................................................................... (228,000) (465,000)
Other ...................................................................... -- (265,000)
----------------- ---------------
Total deferred tax liabilities................................................. (1,198,000) (1,648,000)
Deferred tax assets:
Accrued liabilities......................................................... 857,000 659,000
Research and development costs.............................................. 324,000 324,000
Other ...................................................................... 195,000 149,000
Net operating tax loss carryforward......................................... 14,344,000 10,927,000
Alternative minimum tax credit carry-forward................................ 60,000 140,000
----------------- ---------------
Total deferred tax assets...................................................... 15,780,000 12,199,000
----------------- ---------------
Net deferred tax assets..................................................... 14,582,000 10,551,000
Valuation allowance......................................................... (14,582,000) (10,551,000)
----------------- ---------------
Net deferred tax assets................................................. $ -- $ --
================= ===============
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards
for federal income tax purposes of approximated $27,000,000, which expire
beginning in 2004. Based on the Internal Revenue Code of 1986, as amended, and
changes in the ownership of the Company, utilization of the net operating loss
carryforwards are subject to annual limitations which could significantly
restrict or partially eliminate the utilization of the net operating losses.
Additionally, the Company has an alternative minimum tax credit carryforward of
$140,000 available indefinitely.
Significant components of the Company's income tax expense for the
year ended December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Current
Federal..................................................................... $ 60,000 $ 243,000
State ...................................................................... 86,000 405,000
----------------- ---------------
Total provisions............................................................ $ 146,000 $ 648,000
================= ===============
</TABLE>
A reconciliation of the income tax provision computed at the federal
statutory rate to the effective tax rate for the years ended December 31, 1997
and 1998 is as follows:
<PAGE>
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Federal statutory income tax rate.............................................. 34.0% 34.0%
Effect of:
State taxes, net of federal tax effect...................................... 4.4% 4.0%
Alternative minimum taxes................................................... 3.8% 3.8%
Nondeductible goodwill amortization......................................... 4.5% 1.8%
Other ...................................................................... 1.7% --
Utilization of net operating loss carryforward.............................. (39.1)% (33.4)%
------- -------
Effective tax rate............................................................. 9.3% 10.2%
======= =======
</TABLE>
The Company paid income taxes of $1,030,000 and $58,300 in 1998 and
1997. Additionally, the Company did not recognize any income tax benefit for
1996 due to the Company's historical operating losses and valuation allowances
established for net deferred tax assets.
NOTE 5--ACQUISITIONS
In late December 1998 the Company gained control of a significant
majority of the outstanding common stock and warrants of Med-Tech Environmental
Limited ("Med-Tech") and in January 1999 the Company acquired all of the
remaining outstanding common stock and warrants of Med-Tech. Med-Tech, which is
located in Toronto, Canada, provides medical waste management services in Canada
and the northeastern United States. The Company paid a total of approximately
$3,059,000 in cash for the Med-Tech shares and warrants that it acquired. In
October 1998, the Company purchased Med-Tech's junior secured indebtedness of
approximately $3,576,000, paying the face value of the acquired debt, in the
form of $2,920,000 in cash and 36,940 shares of the Company's common stock, and
replacing a letter of credit of approximately $1,641,000 (which was cancelled in
January 1999).
In October 1998, the Company acquired all of the outstanding capital
stock of Waste Systems, Inc. ("WSI"). The purchase price was (i) $10,000,000 in
cash and (ii) the grant of certain exclusive negotiation and first refusal
rights to the sellers in connection with the purchase, for installation and
operation in the Federal Republic of Germany, of medical waste treatment units
incorporating the Company's proprietary ETD technology. WSI owns approximately
52.2% of the common stock and all of the preferred stock of 3CI, which provides
regulated medical waste management services in the southeastern United States.
3CI's common stock is traded on the Nasdaq SmallCap Market under the symbol
"TCCC." WSI also owns a secured promissory note from 3CI which, as amended in
December 1998, is payable to WSI in the principal amount of approximately
$6,237,000 on or before September 30, 1999.
In August 1998, the Company acquired the customer contracts, vehicles,
and certain other assets of the regulated medical waste management business of
Medical Compliance Services, Inc. (MCS) for $5,850,000 in cash. The Company also
agreed to purchase from MCS and a related party, MCS's Albuquerque, New Mexico
treatment facility and equipment for $1,250,000 in cash. The purchase of the
treatment facility and equipment closed in March 1999.
In May 1997, the Company acquired all of the outstanding stock of
Environmental Control Co., Inc. ("ECCO"), a regulated medical waste business
operating in the New York City market. The company paid $4,200,000 in cash,
issued 125,000 shares of stock, assumed debt on vehicles and issued a $2,300,000
10-year promissory note for the balance of the purchase price. The note bears
interest at the rate of 6.86% per annum payable in 10 equal installments of
$230,000, which started in May 1998.
In December 1996, the Company purchased the customer lists, vehicles,
and certain other assets of the major portion of the medical waste business of
Waste Management, Inc. ("WMI") for $5,450,000 in cash and a note for $5,210,000.
During the quarter ended June 30, 1997, adjustments were made to the value of
the vehicles purchased and to the purchase price. The purchase price was
decreased by $756,000 as specified in the agreement, and the related goodwill
and note payable were adjusted accordingly. The Company finalized its estimate
of the value of the vehicles purchased and reduced the related note accordingly.
In the quarter ended December 31, 1997, the purchase price was decreased by
$163,000 as specified in the agreement, and the related goodwill was adjusted
accordingly. The Company paid the adjusted balance of the note plus accrued
interest in 1997 and 1998.
In addition to the above acquisitions, in 1996, 1997 and 1998, the
Company acquired the customer contracts and other assets of nineteen other
regulated medical waste businesses. The purchase prices for these acquisitions
were paid by a combination of cash, notes payable, and shares of common stock of
the Company.
For financial reporting purposes these acquisition transactions were
accounted for using the purchase method of accounting. The total aggregate
purchase price for 1996, 1997 and 1998 of $13,013,000, $10,197,000 and
$22,538,000, respectively, net of cash acquired, was allocated to the assets
acquired and liabilities assumed based on their estimated fair market values at
the dates of acquisition. The total aggregate purchase price of 1997 and 1998
acquisitions includes the value of 403,000 and 167,000 shares of common stock,
respectively, issued to the sellers. The excess of the purchase prices over the
fair market values of the net assets acquired is reflected in the accompanying
Consolidated Balance Sheets as goodwill. The results of operations of these
acquired businesses are included in the Consolidated Statements of Operations
from the respective dates of acquisition. The effect of these acquisitions would
not have a significant effect on the Company's operations, except for the
Med-Tech, WSI, MCS and ECCO acquisitions.
The following unaudited pro forma results of operations assumes that
the Med-Tech, WSI, MCS and ECCO acquisitions occurred as of January 1, 1997,
after giving effect to certain adjustments including amortization of goodwill,
increased interest expense on debt incurred in connection with the acquisitions
and adjustments to record incremental recurring costs associated with the
consolidation of the operations as the historical results of operations of Med
Tech, WSI, MCS and ECCO did not reflect these costs:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1997 1998
---- ----
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Pro forma revenues............................................................. $79,213 $91,726
Pro forma net income (loss).................................................... (3,031) 4,245
Pro forma diluted net income (loss) per share.................................. (0.29) 0.38
The unaudited pro forma financial information does not purport to be
indicative of the results of operations that would have occurred had the
transactions taken place at the beginning of the periods indicated or of future
results of operations.
</TABLE>
NOTE 6--LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Industrial development revenue bonds.................................. $ 1,358 $ 1,093
Obligations under capital leases...................................... 212 847
Notes payable to banks................................................ -- 19,412
Subordinated debt..................................................... -- 2,750
Notes payable......................................................... 4,957 4,857
--------------- ----------
6,527 28,959
Less: Current portion................................................. 3,052 5,499
--------------- ----------
Total.......................................................... $ 3,475 $ 23,460
=============== ==========
</TABLE>
In December 1998, the Company entered into a subordinated loan
agreement with a group of lenders consisting of six of the Company's seven
directors pursuant to which the lenders agreed to provide the Company with up to
$5,500,000 of short-term financing upon the Company's request. At December 31,
1998 the Company had borrowed $2,750,000. Each loan bore interest at 6.0% per
annum and was due on the earlier of 10 days after completion of the Company's
February 5, 1999 public offering pending when the loan was made or January 5,
2000. Under the terms of the subordinated loan agreement, the lenders were
granted five-year warrants to purchase shares of the Company's common stock
exercisable at any time after the first anniversary of the grant date. Upon
entering into the loan agreement, each lender was granted a warrant for a number
of shares of common stock equal to the amount of the lender's loan commitment
multiplied by 0.05 and then divided by the closing price of a share of common
stock on the trading day immediately prior to the date of the lender's execution
of the loan agreement. This closing price is also the exercise price of the
warrant. In addition, at the time of each loan, each lender was granted a
warrant for a number of shares of common stock equal to the amount of the loan
multiplied by 0.30 and then divided by the closing price of a share of common
stock on the trading day immediately prior to date of disbursement of the
lender's loan. This closing price is also the exercise price of the warrant. In
January 1999, the Company borrowed the remaining balance of $2,750,000 available
under the loan agreement. In connection with their loans, the lenders were
granted warrants to purchase, in the aggregate, 18,970 shares of common stock at
$14.50 per share, 43,551 shares of common stock at $15.50 per share and 59,092
shares of Common Stock at $16.50 per share. All of the loans were repaid in
March 1999.
In connection with the Company's acquisition of Med-Tech, in December
1998, the Company assumed bank notes payable having an aggregate balance of
$3,023,000 at December 31, 1998, with the National Bank of Canada. The notes
were paid in full in January 1999.
In connection with the Company's acquisition of WSI, in October 1998,
the Company acquired a number of notes payable having an aggregate balance of
$1,838,000 at December 31, 1998. These notes are collateralized by vehicles and
equipment and are due in monthly installments, including interest at rates
ranging from 7% to 16.75% through 2002.
In October 1998, the Company established a new $25,000,000 credit
facility at LaSalle National Bank in Chicago, Illinois under a credit agreement
entered into by the Company, its subsidiaries, and LaSalle National Bank, for
itself and as agent for other lenders who may participate in the credit
agreement. This new credit facility replaced the credit facility previously in
place with Silicon Valley Bank. The new credit facility provides for a five-year
$5,000,000 revolving line of credit for working capital purposes and a one-year
$20,000,000 revolving line of credit for acquisition purposes. Upon the maturity
of this latter line of credit, the outstanding balance, if any, will convert
into a four-year term loan repayable in 16 equal quarterly payments of
principal. If the principal amount of the term loan upon conversion is less than
$15,000,000, however, a further one-year line of credit in the amount of the
difference will be available for acquisition purposes, and upon the maturity of
this further line of credit, the outstanding balance, if any, will convert into
a three-year term loan repayable in 12 equal quarterly payments of principal.
The Company's borrowings under its LaSalle Bank credit facility bear
interest at either the Bank's prime rate plus .25% (8.00% at December 31, 1998),
or an adjusted LIBOR rate (7.05% at December 31, 1998) as the Company elects at
the time of each borrowing. The Company also pays a commitment fee of 0.25% per
annum on the unborrowed portion of the credit facility. Interest is payable
quarterly (or at the end of the interest period, if the Company selects an
interest period of less than three months in the case of a borrowing bearing
interest at the adjusted LIBOR rate). As security for the Company's borrowings,
the Company granted the bank a security interest in all of the Company's
tangible and intangible assets and pledged all of the capital stock of its
subsidiaries. In addition, the Company is required to maintain a minimum level
of net worth and comply with certain restrictive financial covenants, and is
restricted from paying dividends on its capital stock. At December 31, 1998, the
Company had borrowed $16,386,000 under the credit facility. In February 1999,
upon receipt of the proceeds from the Company's public offering of common stock,
all borrowings under the credit facility were repaid.
In connection with the Company's May 1997 purchase of ECCO's stock, a
10-year note for $2,300,000 was issued to the owners of ECCO. The note is
payable in 10 equal annual installments due on May 1 of each year starting in
1998. The note bears interest at the rate of 6.86% per annum.
In connection with the Company's December 1996 purchase of WMI's
medical waste business, a note payable totaling $5,210,000 was issued to WMI.
The amount of the note was subsequently adjusted to $3,593,301 and was repaid
during 1997 and 1998.
In 1994, a non-interest bearing note in the amount of $2,480,000 was
issued as part of the purchase of the net assets of Safe Way Disposal Systems,
Inc. As a result of the Company's initial public offering in August 1996, a
portion of the note was converted into 98,001 shares of common stock and the
remainder was paid in cash.
During 1992, the Company entered into an obligation to finance the
development of its Woonsocket, Rhode Island facility. The development and
purchase of substantially all of the property and equipment for the Woonsocket,
Rhode Island facility was financed from the issuance of industrial development
revenue bonds. The bonds are due in various amounts through 2017 at fixed
interest rates ranging from 6.3% to 7.375% and are collateralized by the
property and equipment at the Woonsocket, Rhode Island facility. The terms of an
agreement entered into in connection with the issuance of the bonds contain,
among other provisions, requirements for maintaining defined levels of working
capital and various financial ratios including debt to net worth.
Payments due on long-term debt during each of the five years subsequent
to December 31, 1998, including capital lease obligations and excluding
borrowings under the Company's LaSalle National Bank credit facility and under
the subordinated loan agreement with certain of its directors, which amounts
were repaid in February 1999, are as follows:
(IN THOUSANDS)
1999...................................... $5,499
2000...................................... 1,262
2001...................................... 788
2002...................................... 445
2003...................................... 230
The Company paid interest of $352,000, $444,000 and $670,000 for the
fiscal years ended December 31, 1996, 1997 and 1998, respectively.
NOTE 7--LEASE COMMITMENTS
The Company leases various plant equipment, office furniture and
equipment, motor vehicles and office and warehouse space under operating lease
agreements which expire at various dates over the next eight years. The leases
for most of the properties contain renewal provisions.
Rent expense for 1996, 1997 and 1998 was $2,462,000, $3,284,000 and
$3,508,000 respectively.
Minimum future rental payments under non-cancelable operating leases
that have initial or remaining terms in excess of one year as of December 31,
1998 for each of the next five years and in the aggregate are as follows:
(IN THOUSANDS)
1999......................................$ 3,916
2000...................................... 3,052
2001...................................... 2,584
2002...................................... 1,915
2003...................................... 1,078
Thereafter................................ 895
------------
Total minimum rental payments.............$ 13,440
============
<PAGE>
NOTE 8--NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Net income (loss)............................................ $ (2,389) $ 1,430 $ 5,713
Denominator:
Denominator for basic earnings per
share--weighted-average shares............................. 7,471,151 10,239,996 10,647,083
Effect of dilutive securities:
Employee stock options....................................... -- 441,586 473,723
Warrants .................................................... -- 84,534 142,722
---------------- ---------------- ---------------
Dilutive potential common shares............................. -- 526,120 616,445
Denominator for diluted earnings per
share--adjusted weighted average shares
and assumed conversions................................... 7,451,151 10,766,116 11,263,528
================ ================ ===============
Basic net income (loss) per share............................ $ (0.32) $ 0.14 $ 0.54
=============== ================ ===============
Diluted net income (loss) per share.......................... $ (0.32) $ 0.13 $ 0.51
=============== ================ ===============
</TABLE>
For additional information regarding outstanding employee stock options
and outstanding warrants, see Note 9.
Options to purchase 838,849 shares of common stock were outstanding
during 1996 at exercise prices ranging from $.53-$69.02, but were not included
in the computation of diluted earnings per share because the Company had a net
loss in 1996 and the effect would be antidilutive. In 1997 and 1998, options and
warrants to purchase 75,945 shares and 67,615 shares, respectively, at exercise
prices of $10.25-$69.02 and $15.50-$69.02, respectively, were not included in
the computation of diluted earnings per share because the effect would be
antidilutive. In 1999, the Company issued 3,500,000 shares of common stock upon
completion of its February 5, 1999 public offering and 59,157 shares of common
stock in payment for certain acquisitions.
NOTE 9--STOCK OPTIONS AND WARRANTS
Shares of the Company's common stock have been reserved for issuance
upon the exercise of options and warrants. These shares have been reserved as
follows at December 31, 1998:
1995 Plan options........................... 242,763
1996 Directors Plan options................. 152,345
1997 Plan options........................... 550,862
Warrants.................................... 268,481
-------------
Total shares reserved....................... 1,214,451
=============
STOCK OPTIONS
In 1995, the Company's Board of Directors and shareholders approved an
incentive compensation plan (the "1995 Plan"), which, as amended and restated in
1996, provides for the granting of 1,500,000 shares of common stock in the form
of stock options and restricted stock to employees, officers, directors and
consultants of the Company. The exercise price of options granted under the 1995
Plan must be at least equal to the fair market value of the common stock on the
date of grant. All options granted to date have 10-year terms and vest over
periods of up to four years after the date of grant.
In 1997, the Company's Board of Directors and shareholders approved the
1997 Stock Option Plan (the "1997 Plan"), which provides for the granting of
1,500,000 shares of common stock in the form of stock options to selected
officers, directors and employees of the Company and its subsidiaries. The
exercise price of options granted under the 1997 Plan must be at least equal to
the fair market value of the common stock on the date of grant. All options
granted to date have 10-year terms and vest over periods of up to 5 years after
the date of grant.
In June 1996, the Company's Board of Directors adopted and in July
1996, the Company's shareholders approved, the Directors Stock Option Plan. The
plan authorizes stock options for a total of 285,000 shares of common stock to
be granted to eligible directors of the Company, consisting of directors who are
neither officers nor employees of the Company. As of each annual meeting of the
Company's shareholders, each incumbent eligible director who is re-elected as a
director at the annual meeting automatically receives an option grant based on a
predetermined formula. The exercise price of each option will be the closing
price on the date of grant. The term of each option is six years from the date
of grant, and each option vests in 16 equal quarterly installments and may be
exercised only when it is vested and only while the holder of the option remains
a director of the Company or during the 90-day period following the date that he
or she ceases to serve as a director.
A summary of stock option information follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............ 933,235 $ 0.62 537,166 $ 1.93 845,861 $ 4.98
Granted.................................. 279,053 $ 3.20 433,367 $ 7.97 360,238 $ 13.92
Exercised................................ (660,767) $ 0.59 (83,006) $ 0.70 (155,979) $ 2.21
Canceled/Forfeited....................... (14,355) $ 3.42 (41,666) $ 5.38 (104,150) $ 8.89
---------- ------- ------------- ------ ------------ -------
Outstanding at end of year.................. 537,166 $ 1.93 845,861 $ 4.98 945,970 $ 8.37
========== ======= ============= ====== ============ =======
Exercisable at end of year.................. 315,273 $ 0.81 326,119 $ 1.53 393,084 $ 5.37
Available for future grant.................. 592,004 1,700,303 1,434,821
</TABLE>
Options outstanding and exercisable as of December 31, 1998 by price
range:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------- -----------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE IN YRS PRICE SHARES PRICE
- ------------------------ ------ ----------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
$.53-$1.99.................................. 238,314 7.08 $ 1.14 201,578 $ 0.98
$5.84-$10.25................................ 384,292 7.29 $ 8.18 135,438 $ 8.29
$11.125-$18.125............................. 323,364 8.51 $ 13.94 56,068 $ 14.11
------------- -------------
945,970 393,084
============= =============
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), requires the use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options approximates the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income (loss) and net income (loss)
per share is required by FAS 123 as if the Company has accounted for its
employee stock options granted subsequent to December 31, 1994 under the fair
value method of that statement. Options granted in 1997 and 1998 were valued
using the Black-Scholes option pricing model. Options granted in 1996 and 1995,
as a non-public company, were valued using the minimum value method. The
following assumptions were used in 1996, 1997 and 1998: expected volatility of
zero in 1996, 0.50 in 1997 and 0.61 in 1998; risk-free interest rates ranging
from 5.1% to 6.7% in 1996, 5.9% to 6.8% in 1997 and 4.5% to 4.8% in 1998; a
dividend yield of 0%; and a weighted-average expected life of the option of 31
months in 1996, 72 months in 1997 and 1998. The weighted-average fair values of
options granted during 1996, 1997 and 1998 were $0.79 per share, $4.48 per share
and $6.52 per share, respectively.
Option value models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing method does not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option vesting period. The Company's
pro forma information follows (in thousands, except for per share information):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Pro forma net income (loss).................................. $ (2,474) $ 1,112 $ 4,485
Pro forma net income (loss) per share........................ $ (0.33) $ 0.10 $ 0.40
</TABLE>
The pro forma effect in 1996, 1997 and 1998 is not representative of
the pro forma effect in future years as the pro forma disclosures reflect only
the fair value of stock options granted subsequent to December 31, 1994.
WARRANTS
The Company, in connection with the issuance of preferred stock, which
was subsequently reclassified as common stock, issued warrants to purchase up to
6,773 shares of common stock at an exercise price of $69.02 per share. At
December 31, 1998, all of these warrants were outstanding. They expire in March
1999.
During 1995, several of the Company's shareholders and directors
provided a bridge loan to the Company. The loan totaled $830,000 with interest
at the prime rate plus 3% and was repaid. In addition to the interest, the
lenders received warrants to purchase 220,559 shares of common stock at $1.59
per share. These warrants expire on July 31, 2000. In 1996, the lenders
exercised warrants to purchase 166,749 shares. In 1998, all of the remaining
warrants to purchase 53,810 shares were exercised.
In May 1996, the Company obtained a $1,000,000 bridge loan from certain
shareholders, directors and officers to provide working capital and to finance
acquisitions. The bridge loan was repaid in August 1996. In connection with this
loan, the Company issued warrants to members of the lending group to purchase an
aggregate of 226,036 shares of common stock at $7.96 per share. The warrants
expire in May 2001. In 1998, warrants to purchase 35,940 shares were exercised.
At December 31, 1998, warrants to purchase 190,096 shares remained outstanding.
In December 1998, the Company entered into a subordinated loan
agreement with a group of lenders consisting of six of the Company's seven
directors pursuant to which the lenders agreed to provide the Company with up to
$5,500,000 of short-term financing upon the Company's request. Under the terms
of the subordinated loan agreement, the lenders have been granted five-year
warrants to purchase shares of the Company's Common Stock exercisable at any
time after the first anniversary of the grant date. The closing price of the
Company's common stock on the dates of grant is also the exercise price of the
warrant. In December 1998 and January, 1999, lenders were granted warrants to
purchase, in the aggregate, 18,970 shares of common stock at $14.50 per share,
43,551 shares of common stock at $15.50 per share and 59,092 shares of common
stock at $16.50 per share.
NOTE 10--EMPLOYEE STOCK PURCHASE PLAN
Under a plan for 1997 approved by the Board of Directors, employees of
Stericycle can purchase shares of common stock at a market price. Under the
terms of the plan, employees were allowed to purchase shares throughout the year
and pay for the stock through salary deduction. Employees elected to purchase a
total of 2,905 shares under this plan in 1998.
NOTE 11--EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution retirement savings plan
covering substantially all employees of the Company. Each participant may elect
to defer a portion of his or her compensation subject to certain limitations.
The Company may match up to 30% of the first $1,000 contributed to the plan by
each employee. The Company's contributions for the years ended December 31,
1996, 1997 and 1998 were approximately $14,000, $25,000 and $10,000,
respectively.
NOTE 12--RELATED PARTIES
In February 1998, the Company announced the formation of an
international joint venture company called Medam S.A. de C.V., ("Medam") which
utilizes Stericycle's proprietary Electro-Thermal Deactivation ("ETD")
technology to treat medical and infectious waste in the Mexico City market.
Stericycle's partners in the joint venture are Controladora Ambiental S.A. de
C.V. ("Contam"), headquartered in Mexico City and Pennoni Associates, Inc.,
headquartered in Philadelphia, Pennsylvania. The Company owns 24.5% of the
common stock of Medam. At December 31, 1998, the Company had made $1,164,000 in
capital contributions. In 1998 the Company sold to Medam $1,202,000 of
proprietary equipment and earned technology license fees of $1,060,000. The
Company's investment in Medam is accounted for under the equity method and is
included in other non-current assets in the Consolidated Balance Sheets. The
Company's share of the results of operations of Medam in 1998 was not material.
NOTE 13--LEGAL PROCEEDINGS
The Company operates in a highly regulated industry and is exposed to
regulatory inquiries or investigations from time to time. Investigations can be
initiated for a variety of reasons. The Company has been involved in several
legal and administrative proceedings that have been settled or otherwise
resolved on terms acceptable to the Company, without having a material adverse
effect on the Company's business, financial condition or results of operations.
From time to time, the Company may consider it more cost-effective to settle
such proceedings than to involve itself in costly and time-consuming
administrative actions or litigation. The Company is also a party to various
legal proceedings arising in the ordinary course of its business. The Company
believes that the resolution of these other matters will not have a material
adverse effect on the Company's business, financial condition or results of
operations.
NOTE 14--SUBSEQUENT EVENTS
In the first quarter of 1999, the Company completed six acquisitions.
In January 1999, the Company purchased the customer lists and selected other
assets of Environmental Transloading Services, Inc., in Los Angeles, California,
and Medical Resources Corporation, in Farmington, New Mexico. In February 1999,
the Company purchased the customer lists and selected other assets of Medical
Resource Recycling Systems, Inc., in Spokane, Washington, Southwest Medecol,
L.C., in Amarillo, Texas, and Medical Express & General Courier Service, Inc.,
in Pittsburgh, Pennsylvania. In March 1999, the Company purchased the customer
list and selected other assets of Enviro-Tech Disposal, a division of Lancaster
General Service Business Trust, in Lancaster, Pennsylvania.
The aggregate purchase price for these six acquisitions was
approximately $3,825,000 (exclusive of liabilities assumed in two cases), of
which approximately $2,550,000 was paid in cash, approximately $1,200,000 was
paid (or will be paid) by the issuance of 59,157 unregistered shares of the
Company's common stock, and $75,000 was paid by a seven-month interest-free
note. In addition, the Company assumed certain liabilities of two of the sellers
in the aggregate amount of approximately $130,000. In the case of three of the
acquisitions, the purchase price is subject to a downwards adjustment if
revenues from the customer contracts acquired do not reach certain specified
levels.
NOTE 15--PRODUCTS AND SERVICES AND GEOGRAPHIC INFORMATION
Summary revenue information for the Company's products and services is
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Medical waste management services............................ $ 24,542 $ 46,166 $ 59,669
Proprietary equipment sales.................................. -- -- 5,952
Technology license........................................... -- -- 1,060
------------ -------------- --------------
Total........................................................ $ 24,542 $ 46,166 $ 66,681
============ ============== ==============
</TABLE>
Summary financial information by geographic area is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
United States............................................. $ 24,542 $ 46,166 $ 59,206
Canada.................................................... -- -- 463
Other foreign countries................................... -- -- 7,012
------------ -------------- --------------
Total .................................................... $ 24,542 $ 46,166 $ 66,681
============ ============== ==============
Long-lived assets:
United States............................................. $ 44,074 $ 66,853
Canada.................................................... -- 9,092
Other foreign countries................................... -- --
-------------- --------------
Total .................................................... $ 44,074 $ 75,945
============== ==============
</TABLE>
Revenues are attributed to countries based on the location of
customers. In 1998, the Company provided medical waste management services to
customers in Canada and licensed and sold proprietary equipment to a Brazilian
company and to a joint venture in Mexico. Additionally, no individual customer
represents more than 10% of the Company's revenues.
NOTE 16--BROWNING FERRIS ACQUISITION AND FINANCING
On November 12, 1999, the Company issued $125 million aggregate
principal amount of Senior Subordinated Notes (the Notes) due November 15, 2009.
The Notes bear interest at 12.375% per annum, payable semi-annually in arrears
on November 15 and May 15, commencing May 15, 2000. Payments under the Notes are
unconditionally guaranteed, jointly and severally, on a senior subordinated
basis by all of the Company's wholly-owned domestic subsidiaries, which include
Environmental Control Company, Inc., acquired in May 1997, Waste Systems, Inc.,
acquired October 1, 1998, Med-Tech Environmental, Inc., acquired December 31,
1998, and certain other subsidiaries which have insignificant assets and
operations (collectively, the Guarantors). Simultaneously with the issuance, the
Company entered into a credit agreement (the New Credit Facility) with DLJ
Capital Funding, Inc., Bank of America, N.A., and Bankers Trust Company, which
will provide an aggregate facility of $275 million, consisting of a six-year
revolving line of credit of $50 million, a six-year term loan A in the principal
amount of $75 million, and a seven-year term loan B in the principal amount of
$150 million. Also simultaneous with the issuance, the Company issued for $75
million a new class of convertible preferred stock to investment funds
affiliated with Bain Capital, Inc. and Madison Dearborn Partners, Inc.
On April 14, 1999, the Company entered into agreements with Allied
Waste Industries, Inc. (Allied) to purchase all of the medical waste operations
of Allied and Browning-Ferris Industries, Inc. in the United States, Canada, and
Puerto Rico for $410.5 million in cash, subject to post-closing adjustment.
These transactions closed on November 12, 1999.
Financial information concerning the Guarantors as of and for the year
ended December 31, 1998 is presented below for purposes of complying with the
reporting requirements of the Guarantor Subsidiaries. The financial information
concerning the Guarantors is being presented through condensed consolidating
financial statements since the guarantees are full and unconditional and are
joint and several. Guarantor financial statements have not been presented
because management does not believe that such financial statements are material
to investors.
<TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
<CAPTION>
NON-
GUARANTOR GUARANTOR
STERICYCLE, SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC.
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,590 $ 173 $ (480) $ - $ 1,283
Other current assets 13,339 10,139 8,657 (11,608) 20,527
--------------------------------------------------------------------------------
Total current assets 14,929 10,312 8,177 (11,608) 21,810
Property, plant and equipment, net 11,569 788 10,727 16 23,100
Goodwill, net 29,065 14,246 6,016 (215) 49,112
Investment in subsidiaries 25,976 2,588 - (28,564) -
Other assets 3,559 5 174 (5) 3,733
================================================================================
Total assets $85,098 $27,939 $25,094 $(40,376) $97,755
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Current portion of long-term debt $ 2,937 $ 99 $ 2,463 $ - $ 5,499
Other current liabilities 7,255 925 18,395 (11,430) 15,145
--------------------------------------------------------------------------------
Total current liabilities 10,192 1,024 20,858 (11,430) 20,644
Long-term debt, net of current
portion 20,997 - 2,463 - 23,460
Shareholders' equity 53,909 26,915 1,773 (28,946) 53,651
================================================================================
Total liabilities and shareholders'
equity $85,098 $27,939 $25,094 $(40,376) $97,755
================================================================================
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
<CAPTION>
NON-
GUARANTOR GUARANTOR
STERICYCLE, SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC.
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $52,357 $9,598 $4,726 $ - $66,681
Cost of revenues 35,194 6,334 3,800 - 45,328
Selling, general, and
administrative expense 12,789 1,408 732 - 14,929
--------------------------------------------------------------------------------
Total costs and expenses 47,983 7,742 4,532 - 60,257
--------------------------------------------------------------------------------
Income from operations 4,374 1,856 194 - 6,424
Equity in net income (loss) of
subsidiaries 2,081 (106) - (1,975) -
Other income (expense), net (244) 144 37 - (63)
--------------------------------------------------------------------------------
Income before income taxes 6,211 1,894 231 (1,975) 6,361
Income tax expense 498 150 - - 648
================================================================================
Net income $ 5,713 $ 1,744 $ 231 $(1,975) $ 5,713
================================================================================
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<CAPTION>
NON-
GUARANTOR GUARANTOR
STERICYCLE, SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC.
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net cash provided by (used in)
operating activities $ 3,749 $ 278 $ 835 $ - $ 4,862
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (3,629) (271) (442) - (4,342)
Payments for acquisitions, net
of cash acquired (19,775) - - - (19,775)
Purchases of short-term
investments (41) - - - (41)
Proceeds from sale of property 395 10 - - 405
--------------------------------------------------------------------------------
Net cash used in investing
activities (23,050) (261) (442) (1,894) (23,753)
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from bank lines of
credit 16,589 - (203) - 16,386
Repayment of long term debt (2,513) (6) (670) - (3,189)
Principal payments on capital
lease obligations (1,273) - - - (1,273)
Proceeds from subordinated notes
2,750 - - - 2,750
Payment of deferred financing
costs (218) - - - (218)
Proceeds from issuance of common
stock 344 - - - 344
--------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 15,679 (6) (873) - 14,800
--------------------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents $ (3,622) $ 11 $ (480) $ - (4,091)
================================================================
Cash and cash equivalents at
beginning of year 5,374
-----------------
Cash and cash equivalents at end of
year $ 1,283
=================
</TABLE>
<PAGE>
<TABLE>
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<CAPTION>
SEPTEMBER 30, 1999
------------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................................... $ 16,017
Short-term investments........................................................................ 1,583
Accounts receivable, less allowance for doubtful accounts of $743............................. 18,553
Other receivable.............................................................................. 1,679
Parts and supplies............................................................................ 1,003
Prepaid expenses.............................................................................. 808
Other ...................................................................................... 1,587
--------------
Total current assets....................................................................... 41,230
-------------
Property, plant and equipment:
Land ...................................................................................... 725
Buildings and improvements.................................................................... 11,066
Machinery and equipment....................................................................... 20,964
Office equipment and furniture................................................................ 1,644
Construction in progress...................................................................... 901
-------------
35,300
Less accumulated depreciation.................................................................... (12,865)
-------------
Property, plant and equipment net............................................................. 22,435
-------------
Other assets:
Goodwill, less accumulated amortization of $5,461............................................. 59,524
Other ...................................................................................... 5,539
--------------
Total other assets......................................................................... 65,063
-------------
Total assets............................................................................. $ 128,728
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt............................................................. $ 1,900
Accounts payable.............................................................................. 4,747
Accrued liabilities........................................................................... 6,213
Deferred revenue.............................................................................. 178
-------------
Total current liabilities.................................................................. 13,038
-------------
Long-term debt, net of current portion........................................................... 3,878
Shareholders' equity:
Common stock (par value $.01 per share, 30,000,000 shares authorized,
14,713,398 issued and outstanding)......................................................... 147
Additional paid-in capital.................................................................... 136,148
Accumulated deficit........................................................................... (24,483)
-------------
Total shareholders' equity................................................................. 111,812
-------------
Total liabilities and shareholders' equity............................................... $ 128,728
=============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1999
---- ----
<S> <C> <C>
Revenues ..................................................................... $ 44,759 $ 74,285
Costs and expenses:
Cost of revenues............................................................ 30,492 48,998
Selling, general and administrative expenses................................ 10,151 15,541
---------------- ----------------
Total costs and expenses................................................. 40,643 64,539
---------------- ----------------
Income from operations......................................................... 4,116 9,746
Other income (expense):
Interest income............................................................. 308 576
Interest expense............................................................ (242) (689)
Other income................................................................ 20 404
---------------- ----------------
Total other income (expense)............................................. 86 291
---------------- ----------------
Income before income taxes..................................................... $ 4,202 $ 10,037
Income tax expense............................................................. 781 2,168
---------------- ----------------
Net income..................................................................... $ 3,421 $ 7,869
================ ================
Earnings per share--Basic....................................................... $ 0.32 $ 0.56
================ ================
Earnings per share--Diluted..................................................... $ 0.30 $ 0.54
================ ================
Weighted average number of common shares outstanding--Basic..................... 10,579,886 14,073,309
Weighted average number of common shares outstanding--Diluted................... 11,233,812 14,471,191
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
STERICYCLE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED, IN THOUSANDS)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
1998 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income.............................................................................. $ 3,421 $ 7,869
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................................................ 2,694 5,316
Changes in operating assets and liabilities, net of effect
of acquisitions:
Accounts receivable.................................................................. (541) (1,864)
Parts and supplies................................................................... (365) 438
Prepaid expenses..................................................................... (88) 475
Other assets......................................................................... (1,632) (2,393)
Accounts payable..................................................................... 59 (1,755)
Accrued liabilities.................................................................. (2,179) (252)
Deferred revenue..................................................................... (23) (2,000)
----------- ----------
Net cash provided by operating activities............................................... 1,346 5,834
----------- ----------
INVESTING ACTIVITIES:
Payments for acquisitions and international investments,
net of cash acquired.............................................................. (7,130) (11,667)
Proceeds from maturity of short-term investments..................................... -- 460
Purchases of short term investments.................................................. -- (1,500)
Capital expenditures................................................................. (1,825) (2,367)
----------- ----------
Net cash used in investing activities................................................... (8,955) (15,074)
----------- ----------
FINANCING ACTIVITIES:
Net proceeds (payments) on line of credit............................................ 4,075 (16,359)
Proceeds from subordinated debt...................................................... -- 2,750
Repayment of subordinated debt....................................................... -- (5,500)
Repayment of long term debt.......................................................... (1,244) (4,022)
Payments of deferred financing costs................................................. -- (40)
Principal payments on capital lease obligations...................................... (116) (154)
Net proceeds from secondary public offering.......................................... -- 47,158
Proceeds from issuance of common stock............................................... 295 141
----------- ----------
Net cash provided by financing activities............................................... 3,010 23,974
----------- ----------
Net (decrease) increase in cash and cash equivalents.................................... (4,599) 14,734
Cash and cash equivalents at beginning of period........................................ 5,374 1,283
----------- ----------
Cash and cash equivalents at end of period.............................................. $ 775 $ 16,017
=========== ==========
Non-cash activities:
Net issuances of common stock for certain acquisitions
and international investments..................................................... $ 1,807 $ 2,993
Net issuances of notes payable for certain acquisitions.............................. $ 195 $ 103
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
STERICYCLE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations; but the Company believes the disclosures in the
accompanying condensed consolidated financial statements are adequate to make
the information presented not misleading. In the opinion of management, all
adjustments necessary for a fair presentation for the periods presented have
been reflected and are of a normal recurring nature. These condensed
consolidated financial statements should be read in conjunction with the
Company's Consolidated Financial Statements and notes thereto for the three
years ended December 31, 1998, included herein. The results of operations for
the nine-month period ended September 30, 1999 are not necessarily indicative of
the results that may be achieved for the entire year ending December 31, 1999.
2. ACQUISITIONS
During the nine months ended September 30, 1999, the Company purchased
the customer lists and selected other assets 13 medical waste management
businesses. The aggregate purchase price for these acquisitions was
approximately $7,767,000, of which $6,091,000 was paid in cash, $1,572,000 was
paid by the issuance of unregistered shares of the Company's common stock, and
$103,000 was paid by the issuance of promissory notes. In addition, the Company
assumed certain liabilities of the sellers aggregating approximately $105,000.
In certain cases, the purchase price is subject to downwards adjustment if
revenues from customer contracts acquired do not reach certain specified levels.
On September 30, 1999, the Company purchased an additional 18.45%
ownership in its Mexican joint venture from Pennoni, Inc., increasing its
ownership percentage to 49%. The purchase price was immaterial and was paid by
the issuance of common stock.
3. STOCK OPTIONS
During the nine months ended September 30, 1999, options to purchase
common stock totaling 803,323 shares were granted to key employees. These
options will vest ratably over a five year period and have an exercise prices
ranging from $12.563 to 13.625 per share. The grant of options was made under
the Company's 1997 Stock Option Plan, which authorized the grant of options for
a total of 1,500,000 shares of the Company's common stock. The 1997 Stock Option
Plan was approved by the Company's stockholders in April 1997.
4. STOCK ISSUANCES
During the nine months ended September 30, 1999, options to purchase
130,826 shares of common stock were exercised at prices ranging from
$.53-$13.625 per share. The Company also issued 216,710 shares of common stock
in connection with certain acquisitions and international investments made
during the nine months ended September 30, 1999. In February 1999 the Company
issued 3,500,000 shares of common stock at a price to the public of $14.50 per
share in a public offering.
5. INCOME TAXES
Prior to 1997, the Company had generated net operating losses for
income tax purposes. Any benefit resulting from these net operating losses has
been offset by a valuation allowance. Annual utilization of the Company's net
operating loss carryforward is limited by Internal Revenue Code Section 382. The
Company's income tax expense reflects federal taxable income expected in excess
of the Section 382 limitation and income taxes in states where the Company has
no offsetting net operating losses.
6. SUBSEQUENT EVENTS
On November 12, 1999, the Company completed its pending acquisition
from Allied Waste Industries, Inc. (Allied) of the medical waste businesses of
both Allied and Browning-Ferris Industries, Inc. (BFI) which Allied acquired in
July 1999.
The purchase price for the Company's acquisition of BFI's medical waste
business was $410.5 million in cash. The Company paid the purchase price from
the following sources, in addition to cash on hand: (i) $225.0 million in
borrowings under the term loan facilities of a new senior credit facility that
the Company established with DLJ Capital Funding, Inc., Bank of America, N.A.
and Bankers Trust Company; (ii) $125.0 million in proceeds from the sale of
12.375 senior subordinated notes due 2009; and (iii) $75.0 in proceeds from the
issuance of new convertible preferred stock to investment funds affiliated with
Bain Capital, Inc. and Madison Dearborn Partners, Inc. These transactions were
completed concurrently with completion of the Company's acquisition.
The convertible preferred stock issued to the Bain and Madison Dearborn
funds accrues dividends at the rate of 3.375% per annum, payable in additional
shares of convertible preferred stock, and are convertible into common stock
based on the liquidation preference of the convertible preferred stock at a
conversion price of $17.50 per share. Such stock also has voting rights on an
as-if-converted basis, with special class voting rights on certain matters, and
possesses certain demand and piggyback registration rights. The convertible
preferred stock has a liquidation preference over the Company's common stock in
an amount equal to the purchase price of the convertible preferred stock plus
accumulated and accrued dividends. Pursuant to an agreement with Bain and
Madison Dearborn, the Company increased the size of its board of directors from
seven to nine members, and in November 1999, the Bain and Madison Dearborn funds
designated John P. Connaughton and Thomas R. Reusche to serve as directors of
the Company.
7. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Payments under the Company's senior subordinated notes (the Notes) are
unconditionally guaranteed, jointly and severally, by all of the Company's
wholly-owned domestic subsidiaries, which include Environmental Control Company,
Inc., acquired in May 1997, Waste Systems, Inc., acquired October 1, 1998, and
Med-Tech Environmental, Inc., acquired December 31, 1998 and certain other
subsidiaries which have insignificant assets and operations (collectively, the
Guarantors). Financial information concerning the Guarantors as of and for the
nine month period ended September 30, 1999 is presented below for purposes of
complying with the reporting requirements of the Guarantor Subsidiaries. The
financial information concerning the Guarantors is being presented through
condensed consolidating financial statements since the guarantees are full and
unconditional and are joint and several. Guarantor financial statements have not
been presented because management does not believe that such financial
statements are material to investors.
<PAGE>
<TABLE>
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1999
<CAPTION>
NON-
GUARANTOR GUARANTOR
STERICYCLE, SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC.
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,086 $ 393 $ 435 $ 103 $ 16,017
Other current assets 16,519 12,193 10,164 (13,663) 25,213
--------------------------------------------------------------------------------
Total current assets 31,605 12,586 10,599 (13,560) 41,230
Property, plant and equipment, net 11,959 652 9,824 - 22,435
Goodwill, net 38,494 13,982 6,964 84 59,524
Investment in subsidiaries 30,942 3,320 - (34,262) -
Other assets 6,847 (194) 13 (1,127) 5,539
================================================================================
Total assets $119,847 $30,346 $27,400 $(48,865) $128,728
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Current portion of long-term debt $ 317 $ 81 $ 1,502 $ - $ 1,900
Other current liabilities 4,435 692 20,279 (14,268) 11,138
--------------------------------------------------------------------------------
Total current liabilities 4,752 773 21,781 (14,268) 13,038
Long-term debt, net of current
portion 3,178 - 700 - 3,878
Shareholders' equity 111,917 29,573 4,919 (34,597) 111,812
================================================================================
Total liabilities and shareholders'
equity $119,847 $30,346 $27,400 $(48,865) $128,728
================================================================================
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1999
<CAPTION>
NON-
GUARANTOR GUARANTOR
STERICYCLE, SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC.
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $47,945 $9,135 $17,569 $(364) $74,285
Cost of revenues 29,904 5,820 13,638 (364) 48,998
Selling, general, and
administrative expense 10,772 1,758 3,011 - 15,541
--------------------------------------------------------------------------------
Total costs and expenses 40,676 7,578 16,649 (364) 64,539
--------------------------------------------------------------------------------
Income from operations 7,269 1,557 920 - 9,746
Equity in net income of subsidiaries
2,608 732 - (3,340) -
Other income (expense), net 53 431 (193) - 291
--------------------------------------------------------------------------------
Income before income taxes 9,930 2,720 727 (3,340) 10,037
Income tax expense 2,061 107 - - 2,168
================================================================================
Net income $ 7,869 $2,613 $ 727 $(3,340) $ 7,869
================================================================================
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999
<CAPTION>
NON-
GUARANTOR GUARANTOR
STERICYCLE, SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
INC.
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net cash provided by (used in)
operating activites $(895) $238 $6,409 $ 82 $5,834
--------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures (2,254) - (129) 16 (2,367)
Payments for acquisitions, net
of cash acquired (11,667) - - - (11,667)
Proceeds from sale of short-term
investments 460 - - - 460
Purchases of short-term
investments - - (1,500) - (1,500)
--------------------------------------------------------------------------------
Net cash used in investing
activities (13,461) - (1,629) 16 (15,074)
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net payments on bank lines of
credit (16,359) - - - (16,359)
Repayment of long term debt (262) - (3,760) - (4,022)
Principal payments on capital
lease obligations (36) (18) (100) - (154)
Proceeds from subordinated notes
2,750 - - - 2,750
Payments on subordinated notes (5,500) - - - (5,500)
Payment of deferred financing
costs (40) - - - (40)
Net proceeds from secondary
public offering 47,158 - - - 47,158
Proceeds from issuance of common
stock 141 - (5) 5 141
--------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 27,852 (18) (3,865) 5 23,974
--------------------------------------------------------------------------------
Net increase in cash and cash
equivalents 13,496 220 915 103 14,734
================================================================
Cash and cash equivalents at
beginning of year 1,283
-----------------
Cash and cash equivalents at end of
year $ 16,017
=================
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Stericycle, Inc.:
We have audited the accompanying statements of directly identifiable
assets and liabilities of the Medical Waste Business of Browning-Ferris
Industries, Inc., a Delaware corporation ("BFI Medical Waste" as described in
Note 1), as of September 30, 1998 and 1997, and the related statements of
revenues and direct expenses of BFI Medical Waste for each of the three years in
the period ended September 30, 1998. These financial statements are the
responsibility of management of BFI Medical Waste. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The financial statements have been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission as described in Note 3, and are not intended to be a complete
presentation of BFI Medical Waste's financial position as of September 30, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended September 30, 1998.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the directly identifiable assets and
liabilities of BFI Medical Waste as of September 30, 1998 and 1997, and its
revenues and direct expenses for each of the three years in the period ended
September 30, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 30, 1999
<PAGE>
<TABLE>
BROWNING-FERRIS INDUSTRIES, INC.
MEDICAL WASTE BUSINESS
STATEMENTS OF DIRECTLY IDENTIFIABLE ASSETS AND LIABILITIES
AS OF SEPTEMBER 30, 1997 AND 1998 AND JUNE 30, 1999
IN THOUSANDS)
<CAPTION>
AS OF
AS OF SEPTEMBER 30, JUNE 30,
------------------- --------
1997 1998 1999
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
DIRECTLY IDENTIFIABLE ASSETS:
Accounts Receivable, net of Allowance
for Doubtful Accounts of $840, $904,
and $1,040 as of September 30, 1997
and 1998 and June 30, 1999............................ $ 15,356 $ 16,300 $ 16,552
Parts and Supplies....................................... 1,456 1,435 1,393
Prepaid Expenses......................................... 317 181 207
--------------- ------------- --------------
Total Current Assets............................... 17,129 17,916 18,152
--------------- ------------- --------------
Property, Plant and Equipment
Land.................................................. 3,014 2,951 3,308
Buildings and Improvements............................ 34,108 36,181 37,134
Machinery and Equipment............................... 104,771 102,972 105,744
Office Furniture and Equipment........................ 2,139 1,878 2,228
Construction in Progress.............................. -- 141 204
--------------- ------------- --------------
144,032 144,123 148,618
Accumulated Depreciation.............................. (81,367) (83,999) (88,070)
--------------- ------------- --------------
Property, Plant and Equipment, net.................... 62,665 60,124 60,548
Intangibles, net of Accumulated Amortization
of $20,064, $22,781 and $24,988 as
of September 30, 1997 and 1998 and
June 30, 1999......................................... 49,709 47,592 56,161
--------------- ------------- --------------
Total Directly Identifiable Assets....................... $ 129,503 $ 125,632 $ 134,861
DIRECTLY IDENTIFIABLE LIABILITIES:
Compensation Accruals.................................... $ 1,875 $ 2,168 $ 1,969
Other Accrued Liabilities................................ 1,752 259 1,229
Current Portion of Capital Lease Obligation.............. 370 669 970
--------------- ------------- --------------
Total Current Liabilities.......................... 3,997 3,096 4,168
--------------- ------------- --------------
Capital Lease Obligation, net of
current portion....................................... 1,396 2,346 4,162
Other Long-Term Liabilities.............................. 2,391 2,223 938
--------------- ------------- --------------
Total Long-Term Liabilities........................... 3,787 4,569 5,100
--------------- ------------- --------------
Total Directly Identifiable Liabilities............ 7,784 7,665 9,268
--------------- ------------- --------------
Total Directly Identifiable Assets in
Excess of Directly Identifiable Liabilities........... $ 121,719 $ 117,967 $ 125,593
=============== ============= ==============
The accompanying notes are an integral part of these Financial Statements.
</TABLE>
<PAGE>
<TABLE>
BROWNING-FERRIS INDUSTRIES, INC.
MEDICAL WASTE BUSINESS
STATEMENTS OF REVENUES AND DIRECT EXPENSES
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND
1998 AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999
(IN THOUSANDS)
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------ --------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues...................... $ 199,886 $ 199,060 $ 198,222 $ 148,837 $ 152,266
Cost of Revenues:
Direct Operating Costs........ 123,801 124,156 121,096 90,460 91,568
Depreciation.................. 16,681 13,844 11,533 8,946 8,263
----------- ----------- ------------- -------------- -------------
Total Cost of Revenues.. 140,482 138,000 132,629 99,406 99,831
Other Expenses:
Selling, General and
Administrative.............. 19,051 17,465 9,834 6,358 6,077
Depreciation and
Amortization................ 3,417 3,483 3,439 2,579 2,747
Special Charge (Credit)....... 9,236 4,500 257 257 (469)
----------- ----------- ------------- -------------- -------------
Total Other Expenses.... 31,704 25,448 13,530 9,194 8,355
----------- ----------- ------------- -------------- -------------
Revenues in excess of
Direct Expenses............. $ 27,700 $ 35,612 $ 52,063 $ 40,237 $ 44,080
The accompanying notes are an integral part of these Financial Statements.
</TABLE>
<PAGE>
BROWNING-FERRIS INDUSTRIES, INC.
MEDICAL WASTE BUSINESS
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION
The accompanying financial statements include certain assets and
liabilities and revenues and direct expenses of the Medical Waste Business of
Browning-Ferris Industries, Inc. ("BFI Medical Waste"). For the periods
presented herein, BFI Medical Waste is a service line of Browning-Ferris
Industries, Inc. ("BFI"), a Delaware corporation. BFI Medical Waste provides
medical waste collection, transportation, treatment, and disposal services to
hospitals, healthcare providers and other small account customers in the United
States, Canada, and Puerto Rico.
2. DESCRIPTION OF ACQUISITION
On April 14, 1999, Stericycle entered into purchase agreements with
Allied Waste Industries, Inc. ("Allied"), pursuant to which Stericycle will
acquire all of the medical waste operations of BFI in the United States, Canada,
and Puerto Rico. The purchase price for these operations is $410.5 million in
cash, subject to post-closing adjustment. As of July 30, 1999, concurrent with
Allied's acquisition of BFI, BFI Medical Waste became a wholly-owned subsidiary
of Allied.
Under Stericycle's purchase agreements with Allied, Allied will cause
BFI to transfer all of the assets, as defined in the agreements, used by BFI in
its United States, Canada and Puerto Rico medical waste operations, which are
currently held and operated with a variety of other BFI operations by many
different BFI subsidiaries, to one or more newly-formed wholly-owned
subsidiaries. At closing, Allied will sell all of the stock of these
newly-formed subsidiaries to Stericycle for $410.5 million in cash, subject to
closing adjustments as provided for in the purchase agreements. The purchase
agreements are subject to a number of conditions including Stericycle obtaining
the necessary financing to fund the acquisition and the U.S. Department of
Justice ("DOJ") approval among other items. The purchase agreements also contain
clauses regarding shared assets, employee benefits, transition services and
assumed liabilities, among other items.
3. BASIS OF PRESENTATION
BFI's operating organization is aligned along functional lines into
five groups: sales and marketing, collection, post-collection, business
development and business analysis. As a result of this and other factors, BFI
does not maintain separate books and records for its medical waste operations
other than service line revenues and direct operating costs. The basis upon
which these financial statements have been prepared is described further below
and in Note 4. As a result, the accompanying financial statements are not
intended to be a complete presentation of the assets and liabilities and results
of operations and cash flows of BFI Medical Waste. Rather, these financial
statements were prepared for the purpose of complying with rules and regulations
of the Securities and Exchange Commission, which indicate that certain financial
statements are required for BFI Medical Waste. All significant transactions
among BFI Medical Waste units have been eliminated. Significant transactions
with other BFI business units are disclosed in Note 9.
STATEMENTS OF DIRECTLY IDENTIFIABLE ASSETS AND LIABILITIES OF BFI MEDICAL WASTE
Service line balance sheet information is not prepared by BFI. However,
certain assets and liabilities, which are specific to the medical waste
operations, are directly identifiable. Assets and liabilities included in the
accompanying financial statements of BFI Medical Waste include accounts
receivable, parts and supplies, prepaid expenses, property, plant and equipment,
intangibles, compensation accruals and other accruals specifically related to
and identified with BFI Medical Waste.
All treasury related activities including cash payments, receipts, and
borrowings are performed by BFI's corporate headquarters and are not separately
directly identifiable with BFI Medical Waste. BFI does not separately identify
intercompany loans receivable or payable associated with different service
lines. Accordingly, all treasury related assets and liabilities (cash and debt
and the related interest income and expense) and intercompany loans receivable
and payable have been excluded from these financial statements.
Accounts receivable presented in the financial statements include only
those accounts receivable attributable to medical waste operations which are
identified separately from other BFI operations. Accounts receivable, other
assets, accounts payable and accrued liabilities, that are not directly
identifiable to the individual service lines due to the fact that they are
managed and accounted for on a consolidated basis, have not been included in
these financial statements.
Property, plant and equipment included in the accompanying financial
statements include all assets and related accumulated depreciation that are
specific to BFI Medical Waste. Excluded from the BFI Medical Waste specific
assets are shared operating facilities and administrative offices.
STATEMENTS OF REVENUES AND DIRECT EXPENSES OF BFI MEDICAL WASTE
Revenues and direct cost of revenues for BFI's medical waste service
line are separately accounted for within BFI's accounting systems. Cost of
revenues (including certain allocations) include costs of vehicle drivers and
related benefit costs, vehicle operating expenses, processing operations,
disposal costs, containers, supplies and certain occupancy costs. Cost of
revenues also include an allocation for costs of shared facilities and employees
that can be attributed to BFI Medical Waste. This allocation is generally based
on square footage and number of employees attributable to BFI Medical Waste at
these shared facilities.
Direct selling, general and administrative expenses and special charges
(credits) include only those costs which are incurred solely for the medical
waste operations and are separately identified as such in BFI's accounting
records. These costs include payroll costs for sales and administrative
employees whose function is to solely support the medical waste business and
general and administrative costs of medical waste only facilities. In connection
with the installation of new computer systems in January 1998, certain selling,
general and administrative costs previously identifiable directly to medical
waste operations through December 1997 were no longer accounted for in this
manner. Beginning in January 1998, these costs were pooled with similar costs
related to BFI's other business operations by marketplace so that only the
selling, general and administrative costs related to medical waste-only
geographic locations could be specifically identified and charged to medical
waste in fiscal year 1998 and subsequent financial statements.
Significant additional costs related to selling, general and
administrative ("SG&A") efforts are performed by BFI on a corporate and shared
service basis. Such costs have been excluded from the statements of revenues and
direct expenses of BFI Medical Waste because an allocation of these costs in
accordance with Staff Accounting Bulletin No. 55 ("SAB No. 55") could not be
obtained for the years ended September 30, 1996 and 1997. Accordingly, as
discussed above, the accompanying financial statements are not intended to be a
complete presentation of the assets and liabilities and results of operations of
BFI Medical Waste. This allocation could not be obtained due to the fact that
information flow at BFI was re-engineered which resulted in the consolidation of
several hundred administrative locations into 26 administrative locations. In
addition, many of the employees needed to assist in the preparation of the
allocation of shared service expenses for 1996 and 1997 are no longer employed
by BFI. However, an allocation of corporate and shared service expense was
prepared for the year ended September 30, 1998 and for the nine months in the
periods ended June 30, 1998 and 1999, respectively. The allocation of BFI
corporate and shared services historical costs were determined in accordance
with Staff Accounting Bulletin No. 55 ("SAB No. 55"). These costs were allocated
by BFI to BFI Medical Waste based on various formulas which reasonably
approximate the actual costs incurred.
The incremental increases in expenses recorded by BFI Medical Waste as
a result of these allocations were approximately:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED JUNE 30,
1998 1998 1999
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Approximate incremental increase
in expenses as a result of
allocations in accordance
with SAB No. 55................................ $ 17,090,000 $ 13,861,000 $ 13,298,000
</TABLE>
Depreciated and amortization expense relates to the property, plant and
equipment and intangible assets which are directly related to BFI Medical Waste
and included in the statements of directly identifiable assets and liabilities.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NEW ACCOUNTING PRONOUNCEMENT
In April 1998, Statement of Position No. 98-5--"Reporting on the Costs
of Start-Up Activities" ("SOP No. 98-5") was issued by the American Institute of
Certified Public Accountants. The statement requires costs of start-up
activities and organization costs to be expensed as incurred. Initial
application of the statement, which is effective for BFI Medical Waste's fiscal
year 2000, is to be reported as a cumulative effect of a change in accounting
principle. Management of BFI Medical Waste believes that the future adoption of
SOP No. 98-5 will not have a material effect on its results of operations or
financial position.
REVENUE RECOGNITION
For processing activities, BFI Medical Waste recognizes revenue when
the treatment of the regulated medical waste is completed at its facilities or
the waste is shipped off-site for processing and disposal. For waste shipped
off-site, all associated costs are recognized at time of shipment. For
collection activities, BFI Medical Waste recognizes revenue when regulated
medical waste is collected from its customers.
ACCOUNTS RECEIVABLE
The financial statements include only those accounts receivable
directly attributable to the medical waste operations. Accounts receivable at
certain facilities co-located with other BFI operations are not separately
directly identifiable. BFI Medical Waste grants credit to the majority of its
customers on terms of up to 60 days. It is not the policy of BFI Medical Waste
to require collateral from its customers in order to obtain credit. Management
does not believe a significant credit risk exists as of June 30, 1999.
PARTS AND SUPPLIES
Parts and supplies consist of containers and vehicle and processing
facility replacement parts and are carried at the lower of cost ("first in,
first out") or market. The amounts presented in the financial statements reflect
parts and supplies at medical waste only operations. Parts and supplies at
facilities co-located with other BFI operations are not separately directly
identifiable.
PREPAID EXPENSES
Prepaid expenses consist of prepaid licenses, insurance and permits.
The amounts presented in the financial statements reflect prepaid expenses at
medical waste only operations. Prepaid expenses at facilities co-located with
other BFI operations are not separately directly identifiable.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation
expense, which includes the depreciation of assets recorded under capital
leases, is computed using the straight-line method over the estimated useful
lives (or life of lease if shorter) of the assets as follows:
ASSET DESCRIPTION LIFE
Buildings and improvements 10 to 30 years
Machinery and equipment 5 to 12 years
Office furniture and equipment 3 to 10 years
Expenditures for major renewals and betterments are capitalized and
expenditures for maintenance and repairs are charged to expense as incurred.
During fiscal years 1996, 1997 and 1998, maintenance and repairs charged to
expense were $12,822,000, $13,388,000 and $12,745,000, respectively.
When property and equipment is retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in operating expenses.
INTANGIBLE ASSETS
Goodwill is amortized using the straight-line method over 40 years.
Amortization expense for 1996, 1997 and 1998 related to goodwill was
approximately $1,171,000, $1,208,000 and $1,207,000, respectively.
Other directly identifiable intangible assets, substantially all of
which are customer lists and covenants not to compete, are amortized on the
straight-line method over their estimated lives, which is no more than seven
years. Amortization expense related to other intangible assets was $1,772,000,
$1,783,000 and $1,510,000 in 1996, 1997 and 1998, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are comprised principally of property and equipment,
goodwill and other intangible assets. BFI Medical Waste periodically evaluates
whether events and circumstances have occurred that indicate the remaining
estimated useful lives of these assets should be revised or the remaining
balances of these assets are not recoverable. When factors indicate that an
evaluation should be performed for possible impairment, BFI Medical Waste uses
an estimate of the future income from operations of the related asset or
business as a measure of future recoverability of these assets.
INCOME TAXES
Each of the different BFI subsidiaries that currently hold and operate
BFI Medical Waste also hold and operate various other operations of BFI.
Accordingly, BFI Medical Waste is not a subsidiary. Therefore, in accordance
with Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes," income taxes are not included in the accompanying financial statements.
NEW PLANT DEVELOPMENT AND PERMITTING COSTS
BFI Medical Waste expenses costs associated with the operation of new
plants prior to the commencement of services to customers. Initial plant permit
costs are capitalized as part of property, plant, and equipment and are
amortized using the straight-line method over their useful lives up to 25 years.
All ongoing permit costs are expensed.
USE OF ESTIMATES
The preparation of these financial statements required management to
make estimates and assumptions that affected the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
these financial statements and the reported amounts of revenues and expenses
during the reported periods. Actual results may differ from those estimates.
5. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The unaudited statements of revenues and direct expenses for the nine
months ended June 30, 1998 and 1999, and the unaudited statement of directly
identifiable assets and liabilities as of June 30, 1999, include, in the opinion
of management, all adjustments necessary to present fairly BFI Medical Waste's
directly identifiable assets and liabilities and revenues and direct expenses.
In the opinion of management, all these adjustments are of a normal and
recurring nature. Operating results for the interim periods are not necessarily
indicative of the results that may be expected for the fiscal year.
6. SUPPLEMENTARY CASH FLOW INFORMATION
As a service line of BFI, BFI Medical Waste does not maintain separate
cash flow information. Disbursements of BFI Medical Waste for payroll, capital
projects, operating supplies and operating expenses are processed and funded by
BFI through centrally managed accounts. In addition, cash receipts from the
collection of accounts receivable and the sales of assets are remitted directly
to bank accounts controlled by BFI. In this type of centrally managed cash
system in which the cash receipts and disbursements of BFI's various divisions
and service lines are commingled, it is not feasible to segregate cash received
from BFI (e.g., financing for BFI Medical Waste) from cash transmitted to BFI
(e.g., distribution). Accordingly, a statement of cash flows has not been
prepared.
Selected supplemental cash flow information for BFI Medical Waste is as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------- --------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Capital Expenditures............. $ 10,794 $ 4,149 $ 6,847 $ 5,790 $ 6,456
Depreciation and
Amortization................... 20,098 17,327 14,972 11,525 11,010
Acquisition of
Businesses..................... 6,023 400 1,000 186 11,927
</TABLE>
7. LEASE COMMITMENTS
BFI Medical Waste leases various plant equipment, office furniture and
equipment, motor vehicles and office and warehouse space under lease agreements
which expire at various dates over the next nine years. The leases for most of
the properties contain renewal provisions.
Rent expense for 1996, 1997 and 1998 was $3,816,000, $3,769,000 and
$3,526,000, respectively.
Minimum future rental payments under noncancellable leases that have
initial or remaining terms in excess of one year as of September 30, 1998, for
each of the next five years and in the aggregate are as follows:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
------ ------
(IN THOUSANDS)
<S> <C> <C>
1999............................................................. $ 994 $ 1,215
2000............................................................. 805 1,179
2001............................................................. 625 1,091
2002............................................................. 460 965
2003............................................................. 370 811
Thereafter....................................................... 514 2,599
--------------- ------------------
Minimum rental payments.......................................... $ 3,768 $ 7,860
Less: Amount representing interest............................... 753 --
--------------- ------------------
Total minimum rental payments.................................... $ 3,015 $ 7,860
=============== ==================
1997 1998
---- ----
(IN THOUSANDS)
Capital lease obligations, primarily trucks, trailers and other operating
equipment, weighted average interest rate of 6.6% for both 1997 and 1998 due
in varying
amounts through December 2008.................................. $ 2,338 $ 4,088
Capital lease obligations, primarily
office equipment, weighted average interest
rate of 8.06% and 7.05% for 1997 and 1998,
respectively, due in varying amounts
through September 2003......................................... 55 98
Accumulated Amortization......................................... (627) (1,171)
--------------- ------------------
Total capital lease obligations................................ $ 1,766 $ 3,015
=============== ==================
</TABLE>
Leases at co-located facilities that benefit all operations at the
facility are not included in the above tables.
8. EMPLOYEE BENEFIT PLAN
EMPLOYEE STOCK OWNERSHIP AND SAVINGS PLAN
BFI sponsors an employee stock ownership and savings plan which
incorporates deferred savings features permitted under IRS Code Section 401(k).
The plan covers substantially all U.S. employees (including Medical Waste
employees) with one or more years of service except for certain employees
subject to collective bargaining agreements. Eligible employees may make
voluntary contributions to one or more of six investment funds through payroll
deductions which, in turn, will allow them to defer income for federal income
tax purposes. BFI matches these voluntary contributions at a rate of $0.50 per
$1.00 on the first 5% of total earnings contributed by each participating
employee. BFI matches the voluntary contributions through open market purchases
or issuances of shares of BFI's common stock. BFI expenses its contributions to
the employee stock ownership and savings plan. Included in the statements of
revenues and direct expenses are costs of $570,000, $616,000 and $585,000 for
fiscal years 1996, 1997 and 1998, respectively, related to the employee stock
ownership and savings plan. These contribution amounts were allocated to BFI
Medical Waste based on the percentage of total payroll method. The costs are
included in costs of revenues or selling, general, and administrative expense
based on the percentage of employees included in each expense type.
EMPLOYEE RETIREMENT PLANS
BFI and its domestic subsidiaries have two defined benefit retirement
plans covering substantially all U.S. employees except for certain employees
subject to collective bargaining agreements. The benefits for these plans are
based on years of service and the employee's compensation. BFI's general funding
policy for these plans is to make annual contributions to the plans equal to or
exceeding the actuary's recommended contribution. During the second quarter of
fiscal 1998, BFI changed its method of accounting for recognition of value
changes in its employee retirement plan for purposes of determining annual
expense under SFAS No. 87--"Employers' Accounting for Pensions," effective
October 1, 1997. The impact of this accounting change decreased pension expense
by $315,000 in 1998. Included in the statements of revenues and direct expenses
are costs (income) of $668,000, $537,000 and $(86,000) for fiscal years 1996,
1997 and 1998, respectively, related to the employee retirement plans. These
amounts were allocated to BFI Medical Waste based on the percentage of total
payroll method. The costs are included in costs of revenues or selling, general,
and administrative expense based on the percentage of employees included in each
expense type. In connection with the Stericycle acquisition of BFI Medical
Waste, the assets and liabilities of these plans remain with BFI.
OTHER POST-RETIREMENT BENEFITS
BFI maintains an unfunded post-retirement benefit plan which provides
for employees participating in its medical plan to receive a monthly benefit
after retirement based on years of service. As permitted under SFAS No.
106--"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
BFI chose to recognize the transition obligation over a 20 year period. The
actuarially-determined accumulated postretirement benefit obligation was
historically amortized over a 20 year period, and the related expense is not
material to the statement of revenues and direct expenses for any period
presented.
During the fourth quarter of fiscal 1998, BFI restricted the
participation in its postretirement benefit plan to employees over the age of 55
with 10 years of experience and individuals already covered by the plan. The BFI
Medical Waste portion of the curtailment gain is $465,000 and was recognized in
income in the fourth quarter of fiscal 1998. In connection with the Stericycle
acquisition of BFI Medical Waste, the assets and liabilities of this plan remain
with BFI.
9. RELATED PARTY TRANSACTIONS
Related-party transactions with BFI not disclosed elsewhere in the
financial statements are as follows:
SHARED SERVICES
BFI Medical Waste shares services of BFI employees for such items as
sales and marketing and certain general and administrative costs including
accounting. The cost of these shared services is not allocated to BFI Medical
Waste.
CORPORATE SERVICES
BFI provides certain support services to BFI Medical Waste including,
but not limited to, legal, accounting, information systems, human resource and
business development and building services. The cost of these corporate services
is not allocated to BFI Medical Waste.
FINANCIAL ACCOMMODATIONS
Letters of credit and performance bonds have been provided by BFI
Medical Waste to customers and various states to support facility closures.
Total letters of credit and performance bonds outstanding for this purpose
aggregated approximately $1,084,000 as of June 30, 1999.
BFI is a guarantor and is jointly responsible for the various
performance bonds issued on behalf of BFI Medical Waste. The letters of credit
have been issued by BFI's financial institutions which are guaranteed by amounts
on deposit in BFI accounts.
WASTE DISPOSAL SERVICES
BFI provides BFI Medical Waste with waste disposal services for its
solid waste. Cost of revenues includes, $6,843,000, $6,355,000 and $5,431,000
for the years ended September 30, 1996, 1997, and 1998, respectively. These
services were provided by BFI to BFI Medical Waste on a basis management
believes is consistent with third parties.
INSURANCE MATTERS
BFI is self-insured for workers' compensation, auto liability and
general and comprehensive liability claims. Under its insurance programs, BFI
generally has self-insured retention limits ranging from $500,000 to $5,000,000
and has obtained fully insured layers of coverage above such self-retention
limits. BFI provides for self-insurance costs based upon estimates provided by a
third-party actuary. The actuary reviews BFI's actual claims activity and
estimates the ultimate exposure related to these aggregate claims.
BFI Medical Waste was allocated approximately $4,996,000, $5,605,000,
and $2,317,000 in the years ended September 30, 1996, 1997, and 1998,
respectively, for insurance costs. Insurance premiums are allocated based on the
percent of BFI Medical Waste revenues to total BFI revenues. Directly
identifiable BFI Medical Waste insurance claims are expensed at the plant level
for amounts up to $100,000 per claim.
10. LEGAL PROCEEDINGS
BFI Medical Waste operates in a highly regulated industry and is
subject to regulatory inquiries or investigations from time to time.
Investigations can be initiated for a variety of reasons.
BFI Medical Waste is involved in various administrative matters or
litigation, including personal injury and other civil actions, as well as other
claims and disputes that could result in additional litigation or other
adversary proceedings.
While the final resolution of any matter may have an impact on the
results of BFI Medical Waste for a particular reporting period, management
believes that the ultimate disposition of these matters will not have a
materially adverse effect upon the results of operations or financial position
of BFI Medical Waste.
On January 23, 1998, BFI was notified by the DOJ that it was the target
of a federal grand jury investigation regarding possible violations of the Clean
Water Act with respect to a BFI Medical Waste facility located in the District
of Columbia. On May 29, 1998, the DOJ and BFI filed a plea agreement styled
United States of America v. Browning-Ferris Inc. in the U.S. District Court for
the District of Columbia. On October 1, 1998, judgment was entered pursuant to
which BFI pled guilty to three violations under the Clean Water Act and agreed
to pay $1,500,000 in fines and make a $100,000 community service contribution.
All requirements of the judgment have been completed. In fiscal 1997 this amount
is included in other accrued liabilities in the statement of directly
identifiable assets and liabilities and as an expense in the statement of
revenues and direct expenses.
In July 1995, BFI Medical Waste acquired the assets of Metro New York
Health Waste Processing, Inc. which included a facility and incinerator in the
Bronx, New York. BFI Medical Waste undertook extensive retrofitting and
improvements to the incinerator and its emissions control equipment to meet the
compliance requirements of the two year permit issued by the New York Department
of Environmental Conservation ("NYDEC"). In July of 1997, BFI Medical Waste
voluntarily suspended operation of the incinerator and did not seek renewal of
its permit. In March of 1999, BFI Medical Waste executed an agreement with NYDEC
to dismantle the incinerator and its emissions control equipment, pay a civil
penalty of $50,000, institute a pilot program for the use of natural gas powered
trucks within six months of the date of the order and establish and fund an
Environmental Benefit Program for projects benefiting the community and the
environment in the amount of $200,000 to be paid within two years of the date of
the agreement. The agreement also allows BFI Medical Waste on an interim basis
to continue to operate its collection and transfer operation at the same site.
11. SPECIAL CHARGES
Special charges of $9,236,000 were reported in fiscal 1996. The charges
resulted from BFI Medical Waste's decision to divest certain non-core business
assets and close specific facilities. These decisions were reached based on a
review of the non-core business assets and operations which were not expected to
achieve BFI Medical Waste's desired performance objectives. The special charges,
which included asset writedowns of $7,771,000 and related liabilities recorded
for certain contractual arrangements of $1,468,000, do not consider future
expenses associated principally with severance and relocation costs which will
occur as a result of these decisions. The results of operations for these
non-core business assets were not material to BFI Medical Waste's financial
statements. During 1997, BFI Medical Waste divested or closed the majority of
these facilities, with the remaining facilities divested or closed during 1998.
A total of $366,000 and $227,000 of the special charge liabilities were utilized
during 1997 and 1998, respectively.
A special charge of $4,500,000 was reported in fiscal 1997. This charge
related to the closure of an incinerator. Except for the special charge, the
closure of the incinerator did not have a material effect on BFI Medical Waste's
financial statements. Of the special charge, a $952,000 liability was
established for the dismantlement of the incinerator. None of this liability was
utilized during 1998.
A special charge of $257,000 was reported for 1998. This special charge
related to the write-down of an additional non-core business asset. The
aggregate total assets of this charge represented less than 1% of BFI Medical
Waste's total assets on a pre-special charge basis.
12. BUSINESS COMBINATIONS
During the fiscal year ended September 30, 1998, BFI Medical Waste paid
approximately $1,000,000 to acquire three medical waste businesses, which were
accounted for as purchases. During the fiscal years ended September 30, 1997 and
September 30, 1996, BFI Medical Waste paid approximately $400,000 and
$6,023,000, respectively, to acquire medical waste businesses, which were
accounted for as purchases. The results of these business combinations are not
material to the operating results or assets and liabilities of BFI Medical
Waste.
13. SUBSEQUENT EVENTS--BUSINESS COMBINATIONS (UNAUDITED)
In April 1999, BFI Medical Waste acquired, as a result of an asset swap
transaction between BFI and Allied Waste Industries, Inc., all of the assets of
Medical Disposal Services for cash and other consideration of approximately
$7,123,000 and certain contingent payment obligations. The acquisition was
accounted for as a purchase, with the excess of the purchase price over the fair
market value of net assets acquired being allocated to goodwill in the amount of
approximately $5,843,000. The goodwill is being amortized over its estimated
useful life of 40 years.
In November 1998, BFI Medical Waste acquired all of the assets of
Safety Medical Systems of Burlington, Vermont for cash of approximately
$2,860,000. The acquisition was accounted for as a purchase, with the excess of
the purchase price over the fair market value of the net assets acquired being
allocated to goodwill in the amount of approximately $2,254,000. The goodwill is
being amortized over its estimated useful life of 40 years.
During the nine months ended June 30, 1999, BFI Medical Waste also paid
approximately $1,944,000 to acquire four other medical waste businesses, which
were accounted for as purchases. The results of all of these business
combinations are not material to the operating results or assets and liabilities
of BFI Medical Waste.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides generally
that a person sued as a director, officer, employee or agent of a corporation
may be indemnified by the corporation in non-derivative suits for expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement if
such person acted in good faith and in a manner that he or she reasonably
believed to be in or not opposed to the best interests of the corporation. In
the case of criminal actions and proceedings, the person must also not have had
reasonable cause to believe that his or her conduct was unlawful.
Indemnification of expenses is also authorized in stockholder derivative actions
if the person acted in good faith and in a manner that he or she reasonably
believed to be in or not opposed to the best interests of the corporation and if
he or she has not been found liable to the corporation. Even in this latter
instance, the court may determine that in view of all the circumstances such
person is entitled to indemnification for such expenses as the court deems
proper. A person sued as a director, officer, employee or agent of a corporation
who has been successful in defense of the action must be indemnified by the
corporation against expenses.
Article Fifth of the our By-Laws requires us to indemnify our
directors, officers, employees and agents to the maximum extent permitted by
Delaware law. Article Fifth also requires us to advance litigation expenses of a
director or officer on receipt of his or her written undertaking to repay all
amounts advanced if it s ultimately determined that he or she is not entitled to
indemnification.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to include a provision in its certificate of incorporation
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for a breach of the director's
fiduciary duty of care. Such a provision may not eliminate or limit the
liability of a director for breaching his or her duty of loyalty, failing to
actin good faith, engaging in intentional misconduct or knowingly violating a
law, declaring an illegal dividend or approving an illegal stock repurchase, or
obtaining an improper personal benefit.
Article Ninth of our Certificate of Incorporation eliminates the
personal liability of our directors to the fullest extent permitted by Section
102(b)(7).
By reason of directors' and officers' liability insurance which we
maintain, our directors and officers are insured against actual liabilities,
including liabilities under the federal securities laws, for acts or omissions
related to the conduct of their duties.
Item 21. Exhibits
(a)......Exhibits
EXHIBIT
NO. DESCRIPTION
2.1* Stock Purchase Agreement, dated as of April 14, 1999, between
Allied Waste Industries, Inc. and Stericycle, Inc.
(incorporated by reference to Exhibit 2.1 to the Registrant's
Current Report on Form 8-K filed April 23, 1999)
2.2* Asset Purchase Agreement, dated as of April 14, 1999, between
Allied Waste Industries, Inc. and Stericycle, Inc.
(incorporated by reference to Exhibit 2.2 of the Registrant's
Current Report on Form 8-K filed April 23, 1999)
2.3* First Amendment to Stock Purchase Agreement, dated as of
October 22, 1999, between Allied Waste Industries, Inc. and
Stericycle, Inc. (incorporated by reference to Exhibit 2.1 of
the Registrant's Current Report on Form 8-K filed October 25,
1999)
2.4* First Amendment to Asset Purchase Agreement, dated as of
October 22, 1999, between Allied Waste Industries, Inc. and
Stericycle, Inc. (incorporated by reference to Exhibit 2.2 of
the Registrant's Current Report on From 8-K filed October 25,
1999)
2.5* Second Amendment to Stock Purchase Agreement, dated as of
November 12, 1999, between Allied Waste Industries, Inc. and
the Registrant (incorporated by reference to Exhibit 2.1 of
the Registrant's Current Report on From 8-K filed November 29,
1999)
3.1* Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 (Registration
No. 333-05665), effective on August 22, 1996 (the "1996 Form
S-1"))
3.2* First Certificate of Amendment to Amended and Restated
certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1 of the Registrant's Current Report
on Form 8-K filed November 29, 1999)
3.3* Certificate of Designation Relating to the Series A
Convertible Preferred Stock, Par Value $.01 Per Share
(incorporated by reference to Exhibit 3.2 to the Registrant's
Current Report on Form 8-K filed November 29, 1999)
3.4* Amended and Restated By-Laws of the Registrant (incorporated
by reference to Exhibit 3.2 to the Registrant's 1996 Form S-1)
4.1 Registration Rights Agreement, dated as of November 12, 1999,
among Donaldson, Lufkin & Jenrette Securities Corporation,
Bear, Stearns & Co., Inc., Credit Suisse First Boston
Corporation, Warburg Dillon Read LLC, the Registrant and the
Guarantors named therein
4.2* Registration Rights Agreement, dated as of November 12, 1999,
between the Registrant and certain funds affiliated with Bain
Capital, Inc. and Madison Dearborn Partners, Inc.
(incorporated by reference to Exhibit 4.1 of the Registrant's
Current Report on Form 8-K filed November 29, 1999)
4.3* Specimen certificate for shares of the Registrant's Common
Stock, par value $.01 per share (incorporated by reference to
Exhibit 4.1 to the Registrant's 1996 Form S-1)
4.4* Form of Common Stock Purchase Warrant in connection with July
1995 line of credit (incorporated by reference to Exhibit 4.2
to the Registrant's 1996 Form S-1)
4.5* Form of Common Stock Purchase Warrant in connection with May
1996 short-term loan (incorporated by reference to Exhibit 4.3
to the Registrant's 1996 Form S-1)
4.6* Form of Common Stock Purchase Warrant in connection with
December 1998 subordinated loan (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form
S-3 (Registration Number 333-60591) effective on February 5,
1999 (the "1999 Form S-3"))
4.7* Amended and Restated Registration Agreement dated October 19,
1994 between the Registrant and certain of its stockholders,
and related First Amendment dated September 30, 1995 and
Second Amendment dated July 1, 1996 (incorporated by reference
to Exhibit 4.4 to the Registrant's 1996 Form S-1)
5.1 Opinion of McDermott, Will & Emery
10.1 Indenture, dated as of November 12, 1999, among the
Registrant, the Guarantors named therein, and State Street
Bank and Trust Company, as Trustee
10.2* Credit Agreement, dated as of November 12, 1999, by and among
the Registrant, the various financial institutions from time
to time parties thereto, DLJ Capital Funding, Inc., as
syndication agent for the financial institutions, lead
arranger and sole book running manager, Bank of America, N.A.,
as administrative agent for the financial institutions and
Bankers Trust Company, as documentation agent for the
financial institutions. (incorporated by reference to Exhibit
10.1 of the Registrant's Current Report on From 8-K filed
November 29, 1999)
10.3* Amended and Restated Series A Convertible Preferred Stock
Purchase Agreement, dated September 26, 1999, between the
Registrant and certain investors (incorporated by reference to
Exhibit 10.1 of the Registrant's Current Report on Form 8-K
filed October 15, 1999).
10.3* Amended and Restated Incentive Compensation Plan (incorporated
by reference to Exhibit 10.1 to the Registrant's 1996 Form
S-1)
10.4* First Amendment to Amended and Restated Incentive Compensation
Plan (incorporated by reference to Exhibit 10.7 to the
Registrant's 1999 Form S-3)
10.5* Directors Stock Option Plan (incorporated by reference to
Exhibit 10.2 to the Registrant's 1996 Form S-1)
10.6* First and Second Amendments to Directors Stock Option Plan
(incorporated by reference to Exhibit 10.8 to the Registrant's
1999 Form S-3)
10.7* 1997 Stock Option Plan (incorporated by reference to Exhibit
10.3 to the Registrant's Annual Report on Form 10-K for 1997)
10.8* First Amendment to 1997 Stock Option Plan (incorporated by
reference to Exhibit 10.9 to the Registrant's 1999 Form S-3)
10.9* Industrial Building Lease, dated July 28, 1998, between Curto
Reynolds Oelerich, Inc. and the Registrant, relating to the
Registrant's lease of office and warehouse space in Lake
Forest, Illinois (incorporated by reference to Exhibit 10.3 of
the Registrant's 1999 Form S-3)
10.10* Joint Venture Agreement dated May 16, 1997 among the
Registrant, Pennoni Associates, Inc., Conopam, S.A. de C.V.
and Controladora Ambiental, S.A. de C.V., relating to the
organization of Medam, S.A. de C.V. (incorporated by reference
to Exhibit 10.2 of the Registrant's 1999 S-3)
11 Statement re: Computation of Per Share Earnings
12 Statement re: Computation of Ratios
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of McDermott, Will & Emery (filed as part of Exhibit
5.1)
24.1 Powers of Attorney (included on signature page)
25.1 Statement of Eligibility of Trustee on Form T-1
99.1 Letter of Transmittal
99.2 Notice of Guaranteed Delivery
99.3 Form of Letter to Clients
99.4 Form of Letter to Nominees
99.5 Form of Instruction to Registered Holder from Beneficial Owner
- -------------------------
* Previously filed
(b) Financial Statement Schedules. All schedules for which provision is
made in the applicable accounting regulations of the SEC are not required under
the applicable instructions or are inapplicable and therefore have been omitted.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any
material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter as been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in Item 20, or otherwise,
the Registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Village of Lake
Forest, State of Illinois, on November 30, 1999.
Stericycle, Inc.
By: /s/ MARK C. MILLER
Mark C. Miller
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below who is then an officer or
director of the Registrant authorizes Mark C. Miller and Frank J.M. ten Brink,
or either of them, with full power of substitution and resubstitution, to sign
in his name and to file any amendments to this Registration Statement (including
post-effective amendments) and all related documents necessary or advisable to
enable the Registrant to comply with the Securities Act of 1933, as amended, in
connection with the registration of the securities which are the subject of this
Registration Statement, which amendments may make such changes in this
Registration Statement (as it may be so amended) as Mark C. Miller or Frank J.M.
ten Brink, or either of them, may deem appropriate, and to do and perform all
other related acts and things necessary to be done.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ JACK W. SCHULER Chairman of the Board of Directors November 30, 1999
- ------------------------------------------------
Jack W. Schuler
/s/ MARK C. MILLER President, Chief Executive Officer November 30, 1999
- ------------------------------------------------ and a Director (Principal Executive
Mark C. Miller Officer)
/s/ FRANK J.M. TEN BRINK Vice President, and Chief Financial November 30, 1999
- ------------------------------------------------ Officer (Principal Financial
Frank J.M. Ten Brink and Accounting Officer)
/s/ RICHARD T. KOGLER Chief Operating Officer November 30, 1999
- ------------------------------------------------
Richard T. Kogler
/s/ ANTHONY J. TOMASELLO Vice President, Operations November 30, 1999
- ------------------------------------------------
Anthony J. Tomasello
/s/ ROD F. DAMMEYER Director November 30, 1999
- ------------------------------------------------
Rod F. Dammeyer
/s/ PATRICK F. GRAHAM Director November 30, 1999
- ------------------------------------------------
Patrick F. Graham
/s/ JOHN PATIENCE Director November 30, 1999
- ------------------------------------------------
John Patience
/s/ PETER VARDY Director November 30, 1999
- ------------------------------------------------
Peter Vardy
/s/ L. JOHN WILKERSON, PH.D. Director November 30, 1999
- ------------------------------------------------
L. John Wilkerson, PH.D.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Village of Lake
Forest, State of Illinois, on November 30, 1999.
Stericycle of Arkansas, Inc.
By: /s/ MARK C. MILLER
Mark C. Miller
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ MARK C. MILLER President and a Director November 30, 1999
- ------------------------------------------------ (Principal Executive Officer)
Mark C. Miller
/s/ FRANK J.M. TEN BRINK Vice President, Secretary, November 30, 1999
- ------------------------------------------------ Treasurer and a Director
Frank J.M. Ten Brink (Principal Financial and
Accounting Officer)
/s/ RICHARD T. KOGLER Vice President and a Director November 30, 1999
- ------------------------------------------------
Richard T. Kogler
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Village of Lake
Forest, State of Illinois, on November 30, 1999.
Stericycle of Washington, Inc.
By: /s/ MARK C. MILLER
Mark C. Miller
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ MARK C. MILLER President and a Director November 30, 1999
- ------------------------------------------------ (Principal Executive Officer)
Mark C. Miller
/s/ FRANK J.M. TEN BRINK Vice President, Secretary, November 30, 1999
- ------------------------------------------------ Treasurer and a Director
Frank J.M. Ten Brink (Principal Financial and
Accounting Officer)
/s/ RICHARD T. KOGLER Vice President and a Director November 30, 1999
- ------------------------------------------------
Richard T. Kogler
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Village of Lake
Forest, State of Illinois, on November 30, 1999.
SWD Acquisition Corp.
By: /s/ MARK C. MILLER
Mark C. Miller
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ MARK C. MILLER President and a Director November 30, 1999
- ------------------------------------------------ (Principal Executive Officer)
Mark C. Miller
/s/ FRANK J.M. TEN BRINK Vice President, Secretary, Treasurer November 30, 1999
- ------------------------------------------------ and a Director (Principal Financial and
Frank J.M. Ten Brink Accounting Officer)
/s/ RICHARD T. KOGLER Vice President and a Director November 30, 1999
- ------------------------------------------------
Richard T. Kogler
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Village of Lake
Forest, State of Illinois, on November 30, 1999.
Environmental Control Co., Inc.
By: /s/ BENNETT VELOCCI
Bennett Velocci
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ BENNETT VELOCCI President November 30, 1999
- ------------------------------------------------ (Principal Executive Officer)
Bennett Velocci
/s/ MARK C. MILLER Vice President and a Director November 30, 1999
- ------------------------------------------------
Mark C. Miller
/s/ FRANK J.M. TEN BRINK Vice President, Secretary, Treasurer November 30, 1999
- ------------------------------------------------ and a Director (Principal Financial and
Frank J.M. Ten Brink Accounting Officer)
/s/ RICHARD T. KOGLER Vice President and a Director November 30, 1999
- ------------------------------------------------
Richard T. Kogler
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Village of Lake
Forest, State of Illinois, on November 30, 1999.
Waste Systems, Inc.
By: /s/ MARK C. MILLER
Mark C. Miller
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ MARK C. MILLER President and a Director November 30, 1999
- ------------------------------------------------ (Principal Executive Officer)
Mark C. Miller
/s/ FRANK J.M. TEN BRINK Vice President, Secretary, November 30, 1999
- ------------------------------------------------ Treasurer and a Director
Frank J.M. Ten Brink (Principal Financial and
Accounting Officer)
/s/ RICHARD T. KOGLER Vice President and a Director November 30, 1999
- ------------------------------------------------
Richard T. Kogler
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Village of Lake
Forest, State of Illinois, on November 30, 1999.
Med-Tech Environmental, Inc.
By: /s/ MARK C. MILLER
Mark C. Miller
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ MARK C. MILLER President and a Director November 30, 1999
- ------------------------------------------------ (Principal Executive Officer)
Mark C. Miller
/s/ FRANK J.M. TEN BRINK Vice President, Secretary, November 30, 1999
- ------------------------------------------------ Treasurer and a Director
Frank J.M. Ten Brink (Principal Financial and
Accounting Officer)
/s/ RICHARD T. KOGLER Vice President and a Director November 30, 1999
- ------------------------------------------------
Richard T. Kogler
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Village of Lake
Forest, State of Illinois, on November 30, 1999.
Med-Tech Environmental (MA), Inc.
By: /s/ MARK C. MILLER
Mark C. Miller
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ MARK C. MILLER President and a Director November 30, 1999
- ------------------------------------------------ (Principal Executive Officer)
Mark C. Miller
/s/ FRANK J.M. TEN BRINK Vice President, Secretary, November 30, 1999
- ------------------------------------------------ Treasurer and a Director
Frank J.M. Ten Brink (Principal Financial and
Accounting Officer)
/s/ RICHARD T. KOGLER Vice President and a Director November 30, 1999
- ------------------------------------------------
Richard T. Kogler
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Village of Lake
Forest, State of Illinois, on November 30, 1999.
Ionization Research Co., Inc.
By: /s/ MARK C. MILLER
Mark C. Miller
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/ MARK C. MILLER President and a Director November 30, 1999
- ------------------------------------------------ (Principal Executive Officer)
Mark C. Miller
/s/ FRANK J.M. TEN BRINK Vice President, Secretary, November 30, 1999
- ------------------------------------------------ Treasurer and a Director
Frank J.M. Ten Brink (Principal Financial and
Accounting Officer)
/s/ RICHARD T. KOGLER Vice President and a Director November 30, 1999
- ------------------------------------------------
Richard T. Kogler
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Village of Lake
Forest, State of Illinois, on November 30, 1999.
BFI Medical Waste, Inc.
By: /s/ MARK C. MILLER
Mark C. Miller
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/ MARK C. MILLER President and a Director November 30, 1999
- ------------------------------------------------ (Principal Executive Officer)
Mark C. Miller
/s/ FRANK J.M. TEN BRINK Vice President, Secretary, November 30, 1999
- ------------------------------------------------ Treasurer and a Director
Frank J.M. Ten Brink (Principal Financial and
Accounting Officer)
/s/ RICHARD T. KOGLER Vice President and a Director November 30, 1999
- ------------------------------------------------
Richard T. Kogler
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Village of Lake
Forest, State of Illinois, on November 30, 1999.
Browning-Ferris Industries of Connecticut, Inc.
By: /s/ MARK C. MILLER
Mark C. Miller
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/s/ MARK C. MILLER President and a Director November 30, 1999
- ------------------------------------------------ (Principal Executive Officer)
Mark C. Miller
/s/ FRANK J.M. TEN BRINK Vice President, Secretary, November 30, 1999
- ------------------------------------------------ Treasurer and a Director
Frank J.M. Ten Brink (Principal Financial and
Accounting Officer)
/s/ RICHARD T. KOGLER Vice President and a Director November 30, 1999
- ------------------------------------------------
Richard T. Kogler
</TABLE>
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
--- -----------
2.1* Stock Purchase Agreement, dated as of April 14, 1999, between
Allied Waste Industries, Inc. and Stericycle, Inc.
(incorporated by reference to Exhibit 2.1 to the Registrant's
Current Report on Form 8-K filed April 23, 1999)
2.2* Asset Purchase Agreement, dated as of April 14, 1999, between
Allied Waste Industries, Inc. and Stericycle, Inc.
(incorporated by reference to Exhibit 2.2 of the Registrant's
Current Report on Form 8-K filed April 23, 1999)
2.3* First Amendment to Stock Purchase Agreement, dated as of
October 22, 1999, between Allied Waste Industries, Inc. and
Stericycle, Inc. (incorporated by reference to Exhibit 2.1 of
the Registrant's Current Report on Form 8-K filed October 25,
1999)
2.4* First Amendment to Asset Purchase Agreement, dated as of
October 22, 1999, between Allied Waste Industries, Inc. and
Stericycle, Inc. (incorporated by reference to Exhibit 2.2 of
the Registrant's Current Report on From 8-K filed October 25,
1999)
2.5* Second Amendment to Stock Purchase Agreement, dated as of
November 12, 1999, between Allied Waste Industries, Inc. and
the Registrant (incorporated by reference to Exhibit 2.1 of
the Registrant's Current Report on From 8-K filed November 29,
1999)
3.1* Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 (Registration
No. 333-05665), effective on August 22, 1996 (the "1996 Form
S-1"))
3.2* First Certificate of Amendment to Amended and Restated
certificate of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1 of the Registrant's Current Report
on Form 8-K filed November 29, 1999)
3.3* Certificate of Designation Relating to the Series A
Convertible Preferred Stock, Par Value $.01 Per Share
(incorporated by reference to Exhibit 3.2 to the Registrant's
Current Report on Form 8-K filed November 29, 1999)
3.4* Amended and Restated By-Laws of the Registrant (incorporated
by reference to Exhibit 3.2 to the Registrant's 1996 Form S-1)
4.1 Registration Rights Agreement, dated as of November 12, 1999,
among Donaldson, Lufkin & Jenrette Securities Corporation,
Bear, Stearns & Co., Inc., Credit Suisse First Boston
Corporation, Warburg Dillon Read LLC, the Registrant and the
Guarantors named therein
4.2* Registration Rights Agreement, dated as of November 12, 1999,
between the Registrant and certain funds affiliated with Bain
Capital, Inc. and Madison Dearborn Partners, Inc.
(incorporated by reference to Exhibit 4.1 of the Registrant's
Current Report on Form 8-K filed November 29, 1999)
4.3* Specimen certificate for shares of the Registrant's Common
Stock, par value $.01 per share (incorporated by reference to
Exhibit 4.1 to the Registrant's 1996 Form S-1)
4.4* Form of Common Stock Purchase Warrant in connection with July
1995 line of credit (incorporated by reference to Exhibit 4.2
to the Registrant's 1996 Form S-1)
4.5* Form of Common Stock Purchase Warrant in connection with May
1996 short-term loan (incorporated by reference to Exhibit 4.3
to the Registrant's 1996 Form S-1)
4.6* Form of Common Stock Purchase Warrant in connection with
December 1998 subordinated loan (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form
S-3 (Registration Number 333-60591) effective on February 5,
1999 (the "1999 Form S-3"))
4.7* Amended and Restated Registration Agreement dated October 19,
1994 between the Registrant and certain of its stockholders,
and related First Amendment dated September 30, 1995 and
Second Amendment dated July 1, 1996 (incorporated by reference
to Exhibit 4.4 to the Registrant's 1996 Form S-1)
5.1 Opinion of McDermott, Will & Emery
10.1 Indenture, dated as of November 12, 1999, among the
Registrant, the Guarantors named therein, and State Street
Bank and Trust Company, as Trustee
10.2* Credit Agreement, dated as of November 12, 1999, by and among
the Registrant, the various financial institutions from time
to time parties thereto, DLJ Capital Funding, Inc., as
syndication agent for the financial institutions, lead
arranger and sole book running manager, Bank of America, N.A.,
as administrative agent for the financial institutions and
Bankers Trust Company, as documentation agent for the
financial institutions. (incorporated by reference to Exhibit
10.1 of the Registrant's Current Report on From 8-K filed
November 29, 1999)
10.3* Amended and Restated Series A Convertible Preferred Stock
Purchase Agreement, dated September 26, 1999, between the
Registrant and certain investors (incorporated by reference to
Exhibit 10.1 of the Registrant's Current Report on Form 8-K
filed October 15, 1999).
10.3* Amended and Restated Incentive Compensation Plan (incorporated
by reference to Exhibit 10.1 to the Registrant's 1996 Form
S-1)
10.4* First Amendment to Amended and Restated Incentive Compensation
Plan (incorporated by reference to Exhibit 10.7 to the
Registrant's 1999 Form S-3)
10.5* Directors Stock Option Plan (incorporated by reference to
Exhibit 10.2 to the Registrant's 1996 Form S-1)
10.6* First and Second Amendments to Directors Stock Option Plan
(incorporated by reference to Exhibit 10.8 to the Registrant's
1999 Form S-3)
10.7* 1997 Stock Option Plan (incorporated by reference to Exhibit
10.3 to the Registrant's Annual Report on Form 10-K for 1997)
10.8* First Amendment to 1997 Stock Option Plan (incorporated by
reference to Exhibit 10.9 to the Registrant's 1999 Form S-3)
10.9* Industrial Building Lease, dated July 28, 1998, between Curto
Reynolds Oelerich, Inc. and the Registrant, relating to the
Registrant's lease of office and warehouse space in Lake
Forest, Illinois (incorporated by reference to Exhibit 10.3 of
the Registrant's 1999 Form S-3)
10.10* Joint Venture Agreement dated May 16, 1997 among the
Registrant, Pennoni Associates, Inc., Conopam, S.A. de C.V.
and Controladora Ambiental, S.A. de C.V., relating to the
organization of Medam, S.A. de C.V. (incorporated by reference
to Exhibit 10.2 of the Registrant's 1999 S-3)
11 Statement re: Computation of Per Share Earnings
12 Statement re: Computation of Ratios
21 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of McDermott, Will & Emery (filed as part of Exhibit
5.1)
24.1 Powers of Attorney (included on signature page)
25.1 Statement of Eligibility of Trustee on Form T-1
99.1 Letter of Transmittal
99.2 Notice of Guaranteed Delivery
99.3 Form of Letter to Clients
99.4 Form of Letter to Nominees
99.5 Form of Instruction to Registered Holder from Beneficial Owner
- -------------------------
* Previously filed
Exhibit 4.1
EXECUTION COPY
================================================================================
================================================================================
STERICYCLE, INC.
AND
THE GUARANTORS NAMED HEREIN
----------------------------------------------
$125,000,000
12 3/8 % SENIOR SUBORDINATED NOTES DUE 2009
----------------------------------------------
------------------------
REGISTRATION RIGHTS AGREEMENT
DATED AS OF NOVEMBER 12, 1999
------------------------
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
WARBURG DILLON READ LLC
------------------------
<PAGE>
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of November 12, 1999, by and among Stericycle, Inc., a Delaware
corporation (the "Company"), the Guarantors listed on the signature pages hereto
(each, a "GUARANTOR" and collectively, the "GUARANTORS"), and Donaldson, Lufkin
& Jenrette Securities Corporation, Bear, Stearns & Co. Inc., Credit Suisse First
Boston Corporation and Warburg Dillon Read LLC (each an "Initial Purchaser" and,
collectively the "INITIAL PURCHASERS"), each of whom has agreed to purchase the
Company's 12 3/8% Series A Senior Subordinated Notes due 2009 (the "SERIES A
NOTES") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
November 4, 1999, (the "PURCHASE AGREEMENT"), by and among the Company, the
Guarantors and the Initial Purchasers. In order to induce the Initial Purchasers
to purchase the Series A Notes, the Company and the Guarantors have agreed to
provide the registration rights set forth in this Agreement. The execution and
delivery of this Agreement is a condition to the obligations of the Initial
Purchasers set forth in Section 3 of the Purchase Agreement. Capitalized terms
used herein and not otherwise defined shall have the meaning assigned to them in
the Indenture, dated November 12, 1999, among the Company, the Guarantors and
State Street Bank and Trust Company, as Trustee, relating to the Series A Notes
and the Series B Notes (the "INDENTURE").
The parties hereby agree as follows:
SECTION 1 DEFINITIONS
As used in this Agreement, the following capitalized terms shall
have the following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144 of the Act.
BROKER-DEALER: Any broker or dealer registered under the Exchange
Act.
CERTIFICATED SECURITIES: Definitive Notes, as defined in the
Indenture.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Series B Notes in the same aggregate
principal amount as the aggregate principal amount of Series A Notes tendered by
Holders thereof pursuant to the Exchange Offer.
CONSUMMATION DEADLINE: As defined in Section 3(b) hereof.
EFFECTIVENESS DEADLINE: As defined in Sections 3(a) and 4(a)
hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
EXCHANGE OFFER: The exchange and issuance by the Company of a
principal amount of Series B Notes (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal amount
of Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial Purchasers
propose to sell the Series A Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act and pursuant to Regulation S
under the Act.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
HOLDERS: As defined in Section 2 hereof.
PROSPECTUS: The prospectus included in a Registration Statement
at the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company
and the Guarantors relating to (a) an offering of Series B Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
REGULATION S: Regulation S promulgated under the Act.
RULE 144: Rule 144 promulgated under the Act.
SERIES B NOTES: The Company's 12 3/8% Series B Senior
Subordinated Notes due 2009 to be issued pursuant to the Indenture: (i) in the
Exchange Offer or (ii) as contemplated by Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: Each (A) Series A Note, until the
earliest to occur of (i) the date on which such Series A Note is exchanged in
the Exchange Offer for a Series B Note which is entitled to be resold to the
public by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (ii) the date on which such Series A Note has been
disposed of in accordance with a Shelf Registration Statement (and the
purchasers thereof have been issued Series B Notes), or (iii) the date on which
such Series A Note is distributed to the public pursuant to Rule 144 under the
Act and each (B) Series B Note held by a Broker-Dealer until the date on which
such Series B Note is disposed of by a Broker-Dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration Statement
(including the delivery of the Prospectus contained therein).
SECTION 2 HOLDERS
A Person is deemed to be a holder of Transfer Restricted
Securities (each, a "HOLDER") whenever such Person is the record owner of
Transfer Restricted Securities.
SECTION 3 REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by
applicable federal law (after the procedures set forth in Section 6(a)(i) below
have been complied with), the Company and the Guarantors shall (i) cause the
Exchange Offer Registration Statement to be filed with the Commission as soon as
practicable after the Closing Date, but in no event later than 120 days after
the Closing Date (such 120th day being the "FILING DEADLINE"), (ii) use all
commercially reasonable efforts to cause such Exchange Offer Registration
Statement to become effective at the earliest possible time, but in no event
later than 210 days after the Closing Date (such 210th day being the
"EFFECTIVENESS DEADLINE"), (iii) in connection with the foregoing, (A) file all
pre-effective amendments to such Exchange Offer Registration Statement as may be
necessary in order to cause it to become effective, (B) file, if applicable, a
post-effective amendment to such Exchange Offer Registration Statement pursuant
to Rule 430A under the Act and (C) cause all necessary filings, if any, in
connection with the registration and qualification of the Series B Notes to be
made under the Blue Sky laws of such jurisdictions as are necessary to permit
Consummation of the Exchange Offer, and (iv) upon the effectiveness of such
Exchange Offer Registration Statement, commence and Consummate the Exchange
Offer. The Exchange Offer shall be on the appropriate form permitting (i)
registration of the Series B Notes to be offered in exchange for the Series A
Notes that are Transfer Restricted Securities and (ii) resales of Series B Notes
by Broker-Dealers that tendered into the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any Affiliate of the Company) as contemplated by
Section 3(c) below.
(b) The Company and the Guarantors shall use all commercially
reasonable efforts to cause the Exchange Offer Registration Statement to be
effective continuously, and shall keep the Exchange Offer open for a period of
not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 20 Business Days. The Company and the
Guarantors shall cause the Exchange Offer to comply with all applicable federal
and state securities laws. No securities other than the Series B Notes shall be
included in the Exchange Offer Registration Statement. The Company and the
Guarantors shall use all commercially reasonable efforts to cause the Exchange
Offer to be Consummated on the earliest practicable date after the Exchange
Offer Registration Statement has become effective, but in no event later than 30
Business Days thereafter (such 30th day being the "CONSUMMATION DEADLINE").
(c) The Company shall include a "Plan of Distribution" section in
the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Broker-Dealer who holds Transfer Restricted Securities
that were acquired for the account of such Broker-Dealer as a result of
market-making activities or other trading activities (other than Series A Notes
acquired directly from the Company or any Affiliate of the Company), may
exchange such Transfer Restricted Securities pursuant to the Exchange Offer.
Such "Plan of Distribution" section shall also contain all other information
with respect to such sales by such Broker-Dealers that the Commission may
require in order to permit such sales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the amount of
Transfer Restricted Securities held by any such Broker-Dealer, except to the
extent required by the Commission as a result of a change in policy, rules or
regulations after the date of this Agreement. See the Shearman & Sterling
no-action letter (available July 2, 1993).
Because such Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer, the Company and the
Guarantors shall permit the use of the Prospectus contained in the Exchange
Offer Registration Statement by such Broker-Dealer to satisfy such prospectus
delivery requirement. To the extent necessary to ensure that the prospectus
contained in the Exchange Offer Registration Statement is available for sales of
Series B Notes by Broker-Dealers, the Company and the Guarantors agree to use
all commercially reasonable efforts to keep the Exchange Offer Registration
Statement continuously effective, supplemented, amended and current as required
by and subject to the provisions of Section 6(a) and (c) hereof and in
conformity with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of one year from the Consummation Deadline or such shorter period as will
terminate when all Transfer Restricted Securities covered by such Registration
Statement have been sold pursuant thereto. The Company and the Guarantors shall
provide sufficient copies of the latest version of such Prospectus to such
Broker-Dealers, promptly upon request, and in no event later than one day after
such request, at any time during such period.
SECTION 4 SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not
permitted by applicable law (after the Company and the Guarantors have complied
with the procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of
Transfer Restricted Securities shall notify the Company within 20 Business Days
following the Consummation Deadline that (A) such Holder was prohibited by law
or Commission policy from participating in the Exchange Offer or (B) such Holder
may not resell the Series B Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds Series A
Notes acquired directly from the Company or any of its Affiliates, then the
Company and the Guarantors shall:
(x) cause to be filed, on or prior to 30 days after the earlier
of (i) the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above and
(ii) the date on which the Company receives the notice specified in clause
(a)(ii) above, (such earlier date, the "FILING DEADLINE"), a shelf registration
statement pursuant to Rule 415 under the Act (which may be an amendment to the
Exchange Offer Registration Statement (the "SHELF REGISTRATION STATEMENT")),
relating to all Transfer Restricted Securities, and
(y) shall use all commercially reasonable efforts to cause such
Shelf Registration Statement to become effective on or prior to 60 days after
the Filing Deadline for the Shelf Registration Statement (such 60th day the
"EFFECTIVENESS DEADLINE").
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law (i.e.,
clause (a)(i) above), then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above;
provided that, in such event, the Company shall remain obligated to meet the
Effectiveness Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration
Statement is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a) and the other
securities required to be registered therein pursuant to Section 6(b)(ii)
hereof, the Company and the Guarantors shall use all commercially reasonable
efforts to keep any Shelf Registration Statement required by this Section 4(a)
continuously effective, supplemented, amended and current as required by and
subject to the provisions of Sections 6(b) and (c) hereof and in conformity with
the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of at
least two years (as extended pursuant to Section 6(c)(i)) following the Closing
Date, or such shorter period as will terminate when all Transfer Restricted
Securities covered by such Shelf Registration Statement have been sold pursuant
thereto.
(b) Provision by Holders of Certain Information in Connection
with the Shelf Registration Statement. No Holder of Transfer Restricted
Securities may include any of its Transfer Restricted Securities in any Shelf
Registration Statement pursuant to this Agreement unless and until such Holder
furnishes to the Company in writing, within 20 days after receipt of a request
therefor, the information specified in Item 507 or 508 of Regulation S-K, as
applicable, of the Act for use in connection with any Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. No Holder of
Transfer Restricted Securities shall be entitled to liquidated damages pursuant
to Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5 LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is
not filed with the Commission on or prior to the applicable Filing Deadline,
(ii) any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation Deadline
or (iv) any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself declared effective immediately (each such event referred to
in clauses (i) through (iv), a "REGISTRATION DEFAULT"), then the Company and the
Guarantors hereby jointly and severally agree to pay to each Holder of Transfer
Restricted Securities affected thereby liquidated damages in an amount equal to
$.05 per week per $1,000 in principal amount of Transfer Restricted Securities
held by such Holder for each week or portion thereof that the Registration
Default continues for the first 90-day period immediately following the
occurrence of such Registration Default. The amount of the liquidated damages
shall increase by an additional $.05 per week per $1,000 in principal amount of
Transfer Restricted Securities with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
liquidated damages of $.50 per week per $1,000 in principal amount of Transfer
Restricted Securities; provided that the Company and the Guarantors shall in no
event be required to pay liquidated damages for more than one Registration
Default at any given time. Notwithstanding anything to the contrary set forth
herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (i) above, (2)
upon the effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the liquidated
damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders
entitled thereto, in the manner provided for the payment of interest in the
Indenture, on each Interest Payment Date, as more fully set forth in the
Indenture and the Notes. Notwithstanding the fact that any securities for which
liquidated damages are due cease to be Transfer Restricted Securities, all
obligations of the Company and the Guarantors to pay liquidated damages with
respect to securities shall survive until such time as such obligations with
respect to such securities shall have been satisfied in full.
SECTION 6 REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantors shall (x) comply with all
applicable provisions of Section 6(c) below, (y) use all commercially reasonable
efforts to effect such exchange and to permit the resale of Series B Notes by
Broker-Dealers that tendered in the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of its market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof, and (z) comply with
all of the following provisions:
(i) If, following the date hereof there has been
announced a change in Commission policy with respect to exchange
offers such as the Exchange Offer, that in the reasonable opinion
of counsel to the Company raises a substantial question as to
whether the Exchange Offer is permitted by applicable federal
law, the Company and the Guarantors hereby agree to take all
commercially reasonable actions to pursue a decision from the
staff of the Commission to allow the Company and the Guarantors
to Consummate an Exchange Offer for such Transfer Restricted
Securities if, in the reasonable opinion of counsel to the
Company there is a reasonable chance of succeeding in obtaining
such a decision from the staff of the Commission.
(ii) As a condition to its participation in the Exchange
Offer, each Holder of Transfer Restricted Securities (including,
without limitation, any Holder who is a Broker-Dealer) shall
furnish, upon the request of the Company, prior to the
Consummation of the Exchange Offer, a written representation to
the Company and the Guarantors (which may be contained in the
letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an
Affiliate of the Company, (B) it is not engaged in, and does not
intend to engage in, and has no arrangement or understanding with
any person to participate in, a distribution of the Series B
Notes to be issued in the Exchange Offer and (C) it is acquiring
the Series B Notes in its ordinary course of business. As a
condition to its participation in the Exchange Offer each Holder
using the Exchange Offer to participate in a distribution of the
Series B Notes shall acknowledge and agree that, if the resales
are of Series B Notes obtained by such Holder in exchange for
Series A Notes acquired directly from the Company or an Affiliate
thereof, it (1) could not, under Commission policy as in effect
on the date of this Agreement, rely on the position of the
Commission enunciated in Morgan Stanley and Co., Inc. (available
June 5, 1991) and Exxon Capital Holdings Corporation (available
May 13, 1988), as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and similar no-action
letters (including, if applicable, any no-action letter obtained
pursuant to clause (i) above), and (2) must comply with the
registration and prospectus delivery requirements of the Act in
connection with a secondary resale transaction and that such a
secondary resale transaction must be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of
Regulation S-K.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Company and the Guarantors shall
provide a supplemental letter to the Commission (A) stating that
the Company and the Guarantors are registering the Exchange Offer
in reliance on the position of the Commission enunciated in Exxon
Capital Holdings Corporation (available May 13, 1988), Morgan
Stanley and Co., Inc. (available June 5, 1991) as interpreted in
the Commission's letter to Shearman & Sterling dated July 2,
1993, and, if applicable, any no-action letter obtained pursuant
to clause (i) above, (B) including a representation that neither
the Company nor any Guarantor has entered into any arrangement or
understanding with any Person to distribute the Series B Notes to
be received in the Exchange Offer and that, to the best of the
Company's and each Guarantor's information and belief, each
Holder participating in the Exchange Offer is acquiring the
Series B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in
the distribution of the Series B Notes received in the Exchange
Offer and (C) any other undertaking or representation required by
the Commission as set forth in any no-action letter obtained
pursuant to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall:
(i) comply with all the provisions of Section 6(c) below
and use all commercially reasonable efforts to effect such
registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or
methods of distribution thereof (as indicated in the information
furnished to the Company pursuant to Section 4(b) hereof), and
pursuant thereto the Company and the Guarantors will prepare and
file with the Commission a Registration Statement relating to the
registration on any appropriate form under the Act, which form
shall be available for the sale of the Transfer Restricted
Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in
accordance with the provisions hereof, and
(ii) issue, upon the request of any Holder or purchaser
of Series A Notes covered by any Shelf Registration Statement
contemplated by this Agreement, Series B Notes having an
aggregate principal amount equal to the aggregate principal
amount of Series A Notes sold pursuant to the Shelf Registration
Statement and surrendered to the Company for cancellation; the
Company shall register Series B Notes on the Shelf Registration
Statement for this purpose and issue the Series B Notes to the
purchaser(s) of securities subject to the Shelf Registration
Statement in the names as such purchaser(s) shall designate.
(c) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement, the Company and
the Guarantors shall:
(i) use all commercially reasonable efforts to keep such
Registration Statement continuously effective and provide all
requisite financial statements for the period specified in
Section 3 or 4 of this Agreement, as applicable. Upon the
occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain an
untrue statement of material fact or omit to state any material
fact necessary to make the statements therein not misleading or
(B) not to be effective and usable for resale of Transfer
Restricted Securities during the period required by this
Agreement, the Company and the Guarantors shall file promptly an
appropriate amendment to such Registration Statement curing such
defect, and, if Commission review is required, use all
commercially reasonable efforts to cause such amendment to be
declared effective as soon as practicable;
(ii) prepare and file with the Commission such amendments
and post-effective amendments to the applicable Registration
Statement as may be necessary to keep such Registration Statement
effective for the applicable period set forth in Section 3 or 4
hereof, as the case may be; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act, and
to comply fully with Rules 424, 430A and 462, as applicable,
under the Act in a timely manner; and comply with the provisions
of the Act with respect to the disposition of all securities
covered by such Registration Statement during the applicable
period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise each Holder promptly and, if requested by
such Holder, confirm such advice in writing, (A) when the
Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to any applicable
Registration Statement or any post-effective amendment thereto,
when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional
information relating thereto concurrently with the filing of the
response to such request by the Company, (C) of the issuance by
the Commission of any stop order suspending the effectiveness of
the Registration Statement under the Act or of the suspension by
any state securities commission of the qualification of the
Transfer Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the existence of any fact or of the
notification of the happening of any event that makes any
statement of a material fact made in the Registration Statement,
the Prospectus, any amendment or supplement thereto or any
document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the
Registration Statement in order to make the statements therein
not misleading, or that requires the making of any additions to
or changes in the Prospectus in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading. If at any time the Commission shall issue
any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted
Securities under state securities or Blue Sky laws, the Company
and the Guarantors shall use all commercially reasonable efforts
to obtain the withdrawal or lifting of such order at the earliest
possible time;
(iv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of
Transfer Restricted Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not
misleading;
(v) furnish to each Holder in connection with such
exchange or sale, if any, copies of any Registration Statement or
any Prospectus included therein or any amendments or supplements
to any such Registration Statement or Prospectus (including all
documents incorporated by reference after the initial filing of
such Registration Statement), concurrently with the filing of
such documents with the Commission. The Company and the
Guarantors agree to file an amendment to such Registration
Statement, amendment, Prospectus or supplement, as applicable, if
a Holder advises the Company that as filed such document contains
an untrue statement of a material fact or omits to state any
material fact necessary to make the statements therein not
misleading or fails to comply with the applicable requirements of
the Act;
(vi) promptly prior to the filing of any document that is
to be incorporated by reference into a Registration Statement or
Prospectus, provide copies of such document to each Holder in
connection with such exchange or sale, if any, make the Company's
and the Guarantors' representatives available for discussion of
such document and other customary due diligence matters, and
include such information in such document prior to the filing
thereof as such Holders may reasonably request;
(vii) make available, at reasonable times, for inspection
by each Holder and any attorney or accountant retained by such
Holders, all financial and other records, pertinent corporate
documents of the Company and the Guarantors and cause the
Company's and the Guarantors' officers, directors and employees
to supply all information reasonably requested by any such
Holder, attorney or accountant in connection with such
Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness
provided, however, that such Persons shall first agree in writing
with the Company that any information that is reasonably and in
good faith designated by the Company in writing as confidential
at the time of delivery of such information shall be kept
confidential by such Persons, unless (i) disclosure of such
information is required by court or administrative order or is
necessary to respond to inquiries of regulatory authorities, (ii)
disclosure of such information is required by law (including any
disclosure requirements pursuant to federal securities laws in
connection with the filing of such Registration Statement or the
use of any Prospectus), (iii) such information becomes generally
available to the public other than as the result of a disclosure
or failure to safeguard such information by such Person or (iv)
such information becomes available to such Person from a source
other than the Company and its subsidiaries and such source is
not known, after due inquiry, by such Person to be bound by a
confidentiality agreement; provided further, that the foregoing
investigation shall be coordinated on behalf of such Persons by
one representative designated by and on behalf of such Persons
and any such confidential information shall be available from
such representative to such Persons so long as such Person agrees
to be bound by such confidentiality agreement;
(viii) if requested by any Holders in connection with
such exchange or sale, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or
post-effective amendment if necessary, such information as such
Holders may reasonably request to have included therein,
including, without limitation, information relating to the "Plan
of Distribution" of the Transfer Restricted Securities; and make
all required filings of such Prospectus supplement or
post-effective amendment as soon as practicable after the Company
is notified of the matters to be included in such Prospectus
supplement or post-effective amendment;
(ix) furnish to each Holder in connection with such
exchange or sale, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and
of each amendment thereto, including all documents incorporated
by reference therein and all exhibits (including exhibits
incorporated therein by reference);
(x) deliver to each Holder without charge, as many copies
of the Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as such Holder reasonably may
request; the Company and the Guarantors hereby consent to the use
(in accordance with law) of the Prospectus and any amendment or
supplement thereto by each selling Holder in connection with the
offering and the sale of the Transfer Restricted Securities
covered by the Prospectus or any amendment or supplement thereto;
(xi) upon the reasonable request of any Holder, enter
into such agreements (including underwriting agreements) and make
such representations and warranties and take all such other
actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities
pursuant to any applicable Registration Statement contemplated by
this Agreement as may be reasonably requested by any Holder in
connection with any sale or resale pursuant to any applicable
Registration Statement. In such connection, the Company and the
Guarantors shall:
(A) upon request of any Holder, furnish (or in
the case of paragraphs (2) and (3), use their respective
best efforts to cause to be furnished) to each Holder,
upon Consummation of the Exchange Offer or upon the
effectiveness of the Shelf Registration Statement, as the
case may be:
(1) a certificate, dated such date,
signed on behalf of the Company and each
Guarantor by (x) the President or any Vice
President and (y) a principal financial or
accounting officer of the Company and such
Guarantor, confirming, as of the date thereof,
the matters set forth in Sections 6(bb), 9(a)
and 9(b) of the Purchase Agreement and such
other similar matters as such Holders may
reasonably request;
(2) opinions, dated the date of
Consummation of the Exchange Offer or the date
of effectiveness of the Shelf Registration
Statement, as the case may be, of counsel for
the Company and the Guarantors covering matters
similar to those set forth in paragraphs (e) and
(f) of Section 9 of the Purchase Agreement and
such other matters as such Holder may reasonably
request, and in any event including a statement
to the effect that such counsel has participated
in conferences with officers and other
representatives of the Company and the
Guarantors, representatives of the independent
public accountants for the Company and the
Guarantors and have considered the matters
required to be stated therein and the statements
contained therein, although such counsel has not
independently verified the accuracy,
completeness or fairness of such statements; and
that such counsel advises that, on the basis of
the foregoing (relying as to materiality to the
extent such counsel deems appropriate upon the
statements of officers and other representatives
of the Company and the Guarantors and without
independent check or verification), no facts
came to such counsel's attention that caused
such counsel to believe that the applicable
Registration Statement, at the time such
Registration Statement or any post-effective
amendment thereto became effective and, in the
case of the Exchange Offer Registration
Statement, as of the date of Consummation of the
Exchange Offer, contained an untrue statement of
a material fact or omitted to state a material
fact required to be stated therein or necessary
to make the statements therein not misleading,
or that the Prospectus contained in such
Registration Statement as of its date and, in
the case of the opinion dated the date of
Consummation of the Exchange Offer, as of the
date of Consummation, contained an untrue
statement of a material fact or omitted to state
a material fact necessary in order to make the
statements therein, in the light of the
circumstances under which they were made, not
misleading. Without limiting the foregoing, such
counsel may state further that such counsel
assumes no responsibility for, and has not
independently verified, the accuracy,
completeness or fairness of the financial
statements, notes and schedules and other
financial data included in any Registration
Statement contemplated by this Agreement or the
related Prospectus; and
(3) a customary comfort letter, dated
the date of Consummation of the Exchange Offer,
or as of the date of effectiveness of the Shelf
Registration Statement, as the case may be, from
the Company's independent accountants, in the
customary form and covering matters of the type
customarily covered in comfort letters to
underwriters in connection with underwritten
offerings, and affirming the matters set forth
in the comfort letters delivered pursuant to
Section 9(h) of the Purchase Agreement; and
(B) deliver such other documents and certificates
as may be reasonably requested by the selling Holders to
evidence compliance with the matters covered in clause
(A) above and with any customary conditions contained in
any agreement entered into by the Company and the
Guarantors pursuant to this clause (xi);
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel
in connection with the registration and qualification of the
Transfer Restricted Securities under the securities or Blue Sky
laws of such jurisdictions as the selling Holders may request and
do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Transfer
Restricted Securities covered by the applicable Registration
Statement; provided, however, that neither the Company nor any
Guarantor shall be required to register or qualify as a foreign
corporation where it is not now so qualified or to take any
action that would subject it to the service of process in suits
or to taxation, other than as to matters and transactions
relating to the Registration Statement, in any jurisdiction where
it is not now so subject;
(xiii) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being
Transfer Restricted Securities, cooperate with the Holders to
facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not
bearing any restrictive legends; and to register such Transfer
Restricted Securities in such denominations and such names as the
selling Holders may request at least two Business Days prior to
such sale of Transfer Restricted Securities;
(xiv) use all commercially reasonable efforts to cause
the disposition of the Transfer Restricted Securities covered by
the Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate
the disposition of such Transfer Restricted Securities, subject
to the proviso contained in clause (xii) above;
(xv) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration
Statement covering such Transfer Restricted Securities and
provide the Trustee under the Indenture with printed certificates
for the Transfer Restricted Securities which are in a form
eligible for deposit with the Depository Trust Company;
(xvi) otherwise use all commercially reasonable efforts
to comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders
with regard to any applicable Registration Statement, as soon as
practicable, a consolidated earnings statement meeting the
requirements of Rule 158 (which need not be audited) covering a
twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c)
of Rule 158 under the Act);
(xvii) cause the Indenture to be qualified under the TIA
not later than the effective date of the first Registration
Statement required by this Agreement and, in connection
therewith, cooperate with the Trustee and the Holders to effect
such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the
TIA; and execute and use all commercially reasonable efforts to
cause the Trustee to execute, all documents that may be required
to effect such changes and all other forms and documents required
to be filed with the Commission to enable such Indenture to be so
qualified in a timely manner; and
(xviii) provide promptly to each Holder, upon request,
each document filed with the Commission pursuant to the
requirements of Section 13 or Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of
a Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "RECOMMENCEMENT
DATE"). Each Holder receiving a Suspension Notice hereby agrees that it will
either (i) destroy any Prospectuses, other than permanent file copies, then in
such Holder's possession which have been replaced by the Company with more
recently dated Prospectuses or (ii) deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Holder's
possession of the Prospectus covering such Transfer Restricted Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by a number of days equal to the
number of days in the period from and including the date of delivery of the
Suspension Notice to the Recommencement Date.
SECTION 7 REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantors'
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses; (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing certificates
for the Series B Notes to be issued in the Exchange Offer and printing of
Prospectuses), messenger and delivery services and telephone; (iv) all fees and
disbursements of counsel for the Company, the Guarantors and the Holders of
Transfer Restricted Securities; (v) all application and filing fees in
connection with listing the Series B Notes on a national securities exchange or
automated quotation system pursuant to the requirements hereof; and (vi) all
fees and disbursements of independent certified public accountants of the
Company and the Guarantors (including the expenses of any special audit and
comfort letters required by or incident to such performance).
The Company will, in any event, bear its and the Guarantors'
internal expenses (including, without limitation, all salaries and expenses of
their respective officers and employees performing legal or accounting duties),
the expenses of any annual audit and the fees and expenses of any Person,
including special experts, retained by the Company or the Guarantors.
(b) In connection with any Registration Statement required by
this Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Initial Purchasers and the Holders of Transfer Restricted
Securities who are tendering Series A Notes in the Exchange Offer and/or selling
or reselling Series A Notes or Series B Notes pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or the
Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be Latham & Watkins,
unless another firm shall be chosen by the Holders of a majority in principal
amount of the Transfer Restricted Securities for whose benefit such Registration
Statement is being prepared.
SECTION 8 INDEMNIFICATION
(a) The Company and the Guarantors agree, jointly and severally,
to indemnify and hold harmless each Holder, its directors, officers and each
Person, if any, who controls such Holder (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act), from and against any and all losses,
claims, damages, liabilities, judgments, (including without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement, preliminary prospectus or Prospectus (or any amendment or supplement
thereto) provided by the Company to any Holder or any prospective purchaser of
Series B Notes or registered Series A Notes, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages, liabilities or judgments are caused by an untrue
statement or omission or alleged untrue statement or omission that is based upon
information relating to any of the Holders furnished in writing to the Company
by any of the Holders.
(b) Each Holder of Transfer Restricted Securities agrees,
severally and not jointly, to indemnify and hold harmless the Company and the
Guarantors, and their respective directors and officers, and each person, if
any, who controls (within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act) the Company, or the Guarantors to the same extent as the
foregoing indemnity from the Company and the Guarantors set forth in section (a)
above, but only with reference to information relating to such Holder furnished
in writing to the Company by such Holder expressly for use in any Registration
Statement. In no event shall any Holder, its directors, officers or any Person
who controls such Holder be liable or responsible for any amount in excess of
the amount by which the total amount received by such Holder with respect to its
sale of Transfer Restricted Securities pursuant to a Registration Statement
exceeds (i) the amount paid by such Holder for such Transfer Restricted
Securities and (ii) the amount of any damages that such Holder, its directors,
officers or any Person who controls such Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all reasonable fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be required
to assume the defense of such action pursuant to this Section 8(c), but may
employ separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Holder). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel in writing that there may be one or more legal defenses
available to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right or obligation to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all indemnified parties
and all reasonable fees and expenses shall be reimbursed as they are incurred.
Such firm shall be designated in writing by a majority of the Holders, in the
case of the parties indemnified pursuant to Section 8(a), and by the Company and
Guarantors, in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall indemnify and hold harmless the indemnified party from
and against any and all losses, claims, damages, liabilities and judgments by
reason of any settlement of any action (i) effected with its written consent or
(ii) effected without its written consent if the settlement is entered into more
than forty business days after the indemnifying party shall have received a
request from the indemnified party for reimbursement for the fees and expenses
of counsel (in any case where such reasonable fees and expenses are at the
expense of the indemnifying party) and, prior to the date of such settlement,
the indemnifying party shall have failed to comply with such reimbursement
request or to begin to make arrangements to comply with such request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Guarantors, on the one hand, and the Holders, on the other hand, from their
sale of Transfer Restricted Securities or (ii) if the allocation provided by
clause 8(d)(i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of the Company and the Guarantors, on
the one hand, and of the Holder, on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of the Company and the Guarantors, on the one
hand, and of the Holder, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or such Guarantor, on the one hand, or by
the Holder, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and judgments referred to above shall be deemed to
include, subject to the limitations set forth in the second paragraph of Section
8(a), any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
The Company, the Guarantors and each Holder agree that it would
not be just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any matter,
including any action that could have given rise to such losses, claims, damages,
liabilities or judgments. Notwithstanding the provisions of this Section 8, no
Holder, its directors, its officers or any Person, if any, who controls such
Holder shall be required to contribute, in the aggregate, any amount in excess
of the amount by which the total received by such Holder with respect to the
sale of Transfer Restricted Securities pursuant to a Registration Statement
exceeds (i) the amount paid by such Holder for such Transfer Restricted
Securities and (ii) the amount of any damages which such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 8(c) are several in proportion to the respective principal amount of
Transfer Restricted Securities held by each Holder hereunder and not joint.
SECTION 9 RULE 144A AND RULE 144
The Company and each Guarantor agrees with each Holder, for so
long as any Transfer Restricted Securities remain outstanding and during any
period in which the Company or such Guarantor (i) is not subject to Section 13
or 15(d) of the Exchange Act, to make available, upon request of any Holder, to
such Holder or beneficial owner of Transfer Restricted Securities in connection
with any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to
Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby
in a timely manner in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144.
SECTION 10 MISCELLANEOUS
(a) Remedies. The Company and the Guarantors acknowledge and
agree that any failure by the Company and/or the Guarantors to comply with their
respective obligations under Sections 3 and 4 hereof may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it will not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
Purchasers or any Holder may obtain such relief as may be required to
specifically enforce the Company's and the Guarantors' obligations under
Sections 3 and 4 hereof. The Company and the Guarantors further agree to waive
the defense in any action for specific performance that a remedy at law would be
adequate. It being understood that the sole remedies available to the Initial
Purchasers or the Holders for the failure of the Company and/or the Guarantors
to comply with their respective obligations under Sections 3 and 4 hereof are
the rights to specific performance set forth in this Section 10(a) and the
payment of Liquidated Damages pursuant to Section 5 of this Agreement.
(b) No Inconsistent Agreements. Neither the Company nor any
Guarantor will, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Company nor any Guarantor has previously entered into any agreement
granting registration rights with respect to its securities to any Person. The
rights granted to the Holders hereunder do not in any way conflict with and are
not inconsistent with the rights granted to the holders of the Company's and the
Guarantors' securities under any agreement in effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless (i) in the case of
Section 5 hereof and this Section 10(c)(i), the Company has obtained the written
consent of Holders of all outstanding Transfer Restricted Securities and (ii) in
the case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer, and that does not affect directly or indirectly the rights
of other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities subject to
such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect its rights or the rights
of Holders hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
(ii) if to the Company or the Guarantors:
Stericycle, Inc.
28161 N. Keith Drive
Lake Forest, IL 60045
Telecopier No.: (847) 367-9462
Attention: Chief Financial Officer
With a copy to:
Johnson and Colmar
300 South Wacker Drive, Suite 1000
Chicago, IL 60606
Telecopier No.: (312) 922-9283
Attention: Craig P. Colmar, Esq.
McDermott, Will & Emery
227 West Monroe Street
Chicago, IL 60606
Telecopier No.: (312) 984-3669
Attention: Thomas Murphy, Esq.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and on the next business day, if
timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall
be concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders; provided, that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Transfer Restricted
Securities in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Transfer Restricted
Securities in any manner, whether by operation of law or otherwise, such
Transfer Restricted Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Transfer Restricted Securities such
Person shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement, including the restrictions on
resale set forth in this Agreement and, if applicable, the Purchase Agreement,
and such Person shall be entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
STERICYCLE, INC.
By:
Name:
Title:
EACH OF THE GUARANTORS LISTED ON
SCHEDULE A HERETO
By:
Name:
Title:
<PAGE>
The foregoing Registration Rights Agreement is
hereby confirmed and accepted as of the
date first above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
Name:
Title:
BEAR, STEARNS & CO. INC.
By:
Name:
Title:
CREDIT SUISSE FIRST BOSTON CORPORATION
By:
Name:
Title:
WARBURG DILLON READ LLC
By:
Name:
Title:
<PAGE>
SCHEDULE A
GUARANTORS
Stericycle of Arkansas, Inc., an Arkansas corporation.
Stericycle of Washington, Inc., a Washington corporation.
SWD Acquisition Corp., a Delaware corporation.
Environmental Control Co., Inc., a New York corporation.
Waste Systems, Inc., a Delaware corporation.
Med-Tech Environmental, Inc., a Delaware corporation.
Med-Tech Environmental (MA), Inc., a Delaware corporation.
Ionization Research Company, Inc., a California corporation.
BFI Medical Waste, Inc., a Delaware corporation.
BFI Medical Waste Systems of Washington, Inc., a Delaware corporation.
Browning-Ferris Industries of Connecticut, Inc., a Delaware corporation.
EXHIBIT 5.1
[McDermott, Will & Emery Letterhead]
November 30, 1999
Stericycle, Inc.
28161 North Keith Drive
Lake Forest, Illinois 60045
Re: Registration Statement on Form S-4 of Stericycle, Inc.
filed November 30, 1999
Ladies and Gentlemen:
This opinion is furnished to you in connection with the
above-referenced registration statement on Form S-4 (the "Registration
Statement") filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"), for the registration of up to
$125,000,000 aggregate principal amount of 12 3/8% Series B Senior Subordinated
Notes due 2009 (the "Series B Notes") of Stericycle, Inc., a Delaware
corporation (the "Company"). The Series B Notes will be offered in exchange (the
"Exchange") for any and all of the issued and outstanding Series A Senior
Subordinated Notes due 2009 of the Company (the "Series A Notes").
The Series A Notes were issued, and the Series B Notes will be issued
in exchange for Series A Notes, pursuant to an Indenture (the "Indenture") dated
as of November 12, 1999 between the Company and State Street Bank and Trust
Company, as Trustee (the "Trustee") and the related Registration Rights
Agreement dated as of November 12, 1999 among the Company and Donaldson Lufkin &
Jenrette Securities Corporation, Bear, Stearns & Co. Inc., Credit Suisse First
Boston Corporation and Warburg Dillon Read LLC (the "Registration Rights
Agreement").
In arriving at the opinion expressed below, we have examined the
Registration Statement, the Indenture, the Registration Rights Agreement, the
Series B Notes, and such other documents as we have deemed necessary to enable
us to express the opinion hereinafter set forth. In addition, we have examined
and relied, to the extent we deemed proper, on certificates of officers of the
Company as to factual matters, and on originals or copies certified or otherwise
identified to our satisfaction, of all such corporate records of the Company and
such other instruments and certificates of public officials and other persons as
we have deemed appropriate. In our examination, we have assumed the authenticity
of all documents submitted to us as originals, the conformity to the original
documents of all documents submitted to us as copies, the genuineness of all
signatures on documents reviewed by us and the legal capacity of natural
persons.
We express no opinion as to the applicability of, compliance with or
effect of, the law of any jurisdiction other than United States Federal law and
the laws of Delaware and New York.
Based upon and subject to the foregoing, we are of the opinion that the
Series B Notes, when duly executed and authenticated in accordance with the
terms of the Indenture, and delivered in exchange for Series A Notes in
accordance with the terms of the Indenture, will be valid and legally binding
obligations of the Company and will be entitled to the benefits of the
Indenture, except that the enforceability thereof may be limited by or subject
to bankruptcy, reorganization, insolvency, fraudulent conveyance, moratorium or
other similar laws now or hereafter existing which affect the rights and
remedies of creditors generally and equitable principles of general
applicability.
We hereby consent to the references to our firm under the caption
"Legal Matters" in the Registration Statement and to the use of this opinion as
an exhibit to the Registration Statement. In giving this consent, we do not
hereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act for 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ McDermott, Will & Emery
Exhibit 10.1
- --------------------------------------------------------------------------------
STERICYCLE, INC.
and the
GUARANTORS
Signatories Hereto
SERIES A AND SERIES B
12 3/8% SENIOR SUBORDINATED NOTES DUE 2009
-------------------------------------------------------
INDENTURE
Dated as of November 12, 1999
-------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
Trustee
-------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310(a)(1)........................................... 7.10
(a)(2)....................................... 7.10
(a)(3)....................................... N.A.
(a)(4)....................................... N.A.
(a)(5)....................................... 7.10
(b).......................................... 7.10
(c).......................................... N.A.
311(a) 7.11
(b).......................................... 7.11
(c).......................................... N.A.
312(a) 2.05
(b).......................................... 13.03
(c).......................................... 13.03
313(a) 7.06
(b)(1)....................................... N.A.
(b)(2)....................................... 7.07
(c).......................................... 7.06;13.02
(d).......................................... 7.06
314(a) 4.03;13.02
(b).......................................... N.A.
(c)(1)....................................... 13.04
(c)(2)....................................... 13.04
(c)(3)....................................... N.A.
(d).......................................... N.A.
(e).......................................... 13.05
(f).......................................... N.A.
315(a) 7.01
(b).......................................... 7.05,13.02
(c).......................................... 7.01
(d).......................................... 7.01
(e).......................................... 6.11
316(a) (last sentence).............................. 2.09
(a)(1)(A).................................... 6.05
(a)(1)(B).................................... 6.04
(a)(2)....................................... N.A.
(b).......................................... 6.07
(c).......................................... 2.12
317(a)(1)........................................... 6.08
(a)(2)....................................... 6.09
(b).......................................... 2.04
318(a) 13.01
(b).......................................... N.A.
(c).......................................... 13.01
N.A. means not applicable.
* This Cross Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.....................................................1
Section 1.02. Other Definitions..............................................22
Section 1.03. Incorporation by Reference of Trust Indenture Act..............23
Section 1.04. Rules of Construction..........................................23
ARTICLE 2.
THE NOTES
Section 2.01. Form and Dating................................................24
Section 2.02. Execution and Authentication...................................25
Section 2.03. Registrar and Paying Agent.....................................25
Section 2.04. Paying Agent to Hold Money in Trust............................25
Section 2.05. Holder Lists...................................................26
Section 2.06. Transfer and Exchange..........................................26
Section 2.07. Replacement Notes..............................................37
Section 2.08. Outstanding Notes..............................................37
Section 2.09. Treasury Notes.................................................38
Section 2.10. Temporary Notes................................................38
Section 2.11. Cancellation...................................................38
Section 2.12. Defaulted Interest.............................................38
ARTICLE 3.
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.............................................39
Section 3.02. Selection of Notes to Be Redeemed..............................39
Section 3.03. Notice of Redemption...........................................39
Section 3.04. Effect of Notice of Redemption.................................40
Section 3.05. Deposit of Redemption Price....................................40
Section 3.06. Notes Redeemed in Part.........................................40
Section 3.07. Optional Redemption............................................41
Section 3.08. Mandatory Redemption...........................................41
Section 3.09. Offer to Purchase by Application of Excess Proceeds............41
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Notes...............................................43
Section 4.02. Maintenance of Office or Agency................................43
Section 4.03. Reports........................................................44
Section 4.04. Compliance Certificate.........................................44
Section 4.05. Taxes..........................................................45
Section 4.06. Stay, Extension and Usury Laws.................................45
Section 4.07. Restricted Payments............................................45
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries.48
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.....49
Section 4.10. Asset Sales....................................................51
Section 4.11. Transactions with Affiliates...................................53
Section 4.12. Liens..........................................................54
Section 4.13. Business Activities............................................55
Section 4.14. Corporate Existence............................................55
Section 4.15. Offer to Repurchase Upon Change of Control.....................55
Section 4.16. No Senior Subordinated Debt....................................56
Section 4.17. Payments for Consent...........................................56
Section 4.18. Additional Subsidiary Guarantees...............................57
Section 4.19. Designation of Restricted and Unrestricted Subsidiaries........57
ARTICLE 5.
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.......................57
Section 5.02. Successor Corporation Substituted..............................58
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default..............................................58
Section 6.02. Acceleration...................................................60
Section 6.03. Other Remedies.................................................60
Section 6.04. Waiver of Past Defaults........................................61
Section 6.05. Control by Majority............................................61
Section 6.06. Limitation on Suits............................................61
Section 6.07. Rights of Holders of Notes to Receive Payment..................61
Section 6.08. Collection Suit by Trustee.....................................62
Section 6.09. Trustee May File Proofs of Claim...............................62
Section 6.10. Priorities.....................................................62
Section 6.11. Undertaking for Costs..........................................63
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee..............................................63
Section 7.02. Rights of Trustee..............................................64
Section 7.03. Individual Rights of Trustee...................................65
Section 7.04. Trustee's Disclaimer...........................................65
Section 7.05. Notice of Defaults.............................................65
Section 7.06. Reports by Trustee to Holders of the Notes.....................65
Section 7.07. Compensation and Indemnity.....................................66
Section 7.08. Replacement of Trustee.........................................66
Section 7.09. Successor Trustee by Merger, etc...............................67
Section 7.10. Eligibility; Disqualification..................................67
Section 7.11. Preferential Collection of Claims Against Company..............68
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.......68
Section 8.02. Legal Defeasance and Discharge.................................68
Section 8.03. Covenant Defeasance............................................68
Section 8.04. Conditions to Legal or Covenant Defeasance.....................69
Section 8.05. Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions..........................70
Section 8.06. Repayment to Company...........................................70
Section 8.07. Reinstatement..................................................71
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes............................71
Section 9.02. With Consent of Holders of Notes...............................72
Section 9.03. Compliance with Trust Indenture Act............................73
Section 9.04. Revocation and Effect of Consents..............................73
Section 9.05. Notation on or Exchange of Notes...............................73
Section 9.06. Trustee to Sign Amendments, etc................................73
ARTICLE 10.
SUBORDINATION
Section 10.01. Agreement to Subordinate.......................................4
Section 10.02. Liquidation; Dissolution; Bankruptcy...........................4
Section 10.03. Default on Designated Senior Debt..............................4
Section 10.04. Acceleration of Notes..........................................5
Section 10.05. When Distribution Must Be Paid Over............................5
Section 10.06. Notice by Company..............................................5
Section 10.07. Subrogation....................................................6
Section 10.08. Relative Rights................................................6
Section 10.09. Subordination May Not Be Impaired by Company...................6
Section 10.10. Distribution or Notice to Representative.......................6
Section 10.11. Rights of Trustee and Paying Agent.............................7
Section 10.12. Authorization to Effect Subordination..........................7
Section 10.13. Amendments.....................................................7
ARTICLE 11.
SUBSIDIARY GUARANTEES
Section 11.01. Guarantee.....................................................78
Section 11.02. Subordination of Subsidiary Guarantee.........................79
Section 11.03. Limitation on Guarantor Liability.............................79
Section 11.04. Execution and Delivery of Subsidiary Guarantee................79
Section 11.05. Guarantors May Consolidate, etc., on Certain Terms............80
Section 11.06. Releases Following Sale of Assets.............................80
ARTICLE 12.
SATISFACTION AND DISCHARGE
Section 12.01. Satisfaction and Discharge....................................81
Section 12.02. Application of Trust Money....................................82
ARTICLE 13.
MISCELLANEOUS
Section 13.01. Trust Indenture Act Controls..................................82
Section 13.02. Notices.......................................................82
Section 13.03. Communication by Holders of Notes with Other Holders of Notes.84
Section 13.04. Certificate and Opinion as to Conditions Precedent............84
Section 13.05. Statements Required in Certificate or Opinion.................84
Section 13.06. Rules by Trustee and Agents...................................84
Section 13.07. No Personal Liability of Directors, Officers, Employees and
Stockholders..................................................84
Section 13.08. Governing Law.................................................85
Section 13.09. No Adverse Interpretation of Other Agreements.................85
Section 13.10. Successors....................................................85
Section 13.11. Severability..................................................85
Section 13.12. Counterpart Originals.........................................85
Section 13.13. Table of Contents, Headings, etc..............................85
EXHIBITS
Exhibit A-1 FORM OF NOTE
Exhibit A-2 FORM OF REGULATION S TEMPORARY GLOBAL NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Exhibit E FORM OF SUBSIDIARY GUARANTEE
Exhibit F FORM OF SUPPLEMENTAL INDENTURE
<PAGE>
INDENTURE dated as of November 12, 1999 between Stericycle, Inc.,
a Delaware corporation (the "Company" or "Stericycle"), the guarantors listed in
the signature pages hereto (the "Guarantors") and State Street Bank and Trust
Company, a state chartered trust company organized and duly existing under the
laws of the Commonwealth of Massachusetts, as trustee (the "Trustee").
The Company, the Guarantors and the Trustee agree as follows for
the benefit of each other and for the equal and ratable benefit of the Holders
of the 12 3/8% Series A Senior Subordinated Notes due 2009 (the "Series A
Notes") and the 12 3/8% Series B Senior Subordinated Notes due 2009 (the "Series
B Notes" and, together with the Series A Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"144A Global Note" means a global note substantially in the form
of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of, and registered in the name of, the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Restricted Subsidiary
of such specified Person, including, without limitation,
Indebtedness incurred in connection with, or in contemplation of,
such other Person merging with or into or becoming a Restricted
Subsidiary of such specified Person and
(2) Indebtedness secured by a Lien encumbering any assets acquired by
such specified Person.
"Additional Notes" means up to $50.0 million aggregate principal
amount of Notes (other than the Initial Notes) issued under this Indenture in
accordance with Sections 2.02 and 4.09 hereof, as part of the same series as the
Initial Notes.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For purposes of this definition,
"control," as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; provided, that beneficial ownership of
10% or more of the Voting Stock of a Person shall be deemed to be control. For
purposes of this definition, the terms "controlling," "controlled by" and "under
common control with" shall have correlative meanings. No Person (other than
Stericycle or any Subsidiary of Stericycle) in whom a Receivables Subsidiary
makes an Investment in connection with a Qualified Receivables Transaction will
be deemed to be an Affiliate of Stericycle or any of its Subsidiaries solely by
reason of such Investment.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition by Stericycle or
any of its Restricted Subsidiaries of any assets or rights (other
than director's qualifying shares); provided that the sale,
conveyance or other disposition of all or substantially all of
the assets of Stericycle and its Restricted Subsidiaries taken as
a whole will be governed by the provisions of this Indenture
described in Section 4.15 hereof and/or the provisions described
in Section 5.01 hereof and not by the provisions of Section 4.10
hereof; and
(2) the issuance of Equity Interests by any of Stericycle's
Restricted Subsidiaries or the sale of Equity Interests in any of
its Subsidiaries (other than director's qualifying shares).
Notwithstanding the preceding, the following items shall not be
deemed to be Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $1.0
million;
(2) a transfer of assets between or among Stericycle and its
Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to
Stericycle or to another Restricted Subsidiary;
(4) the sale or lease of equipment, inventory, accounts receivable or
other assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment or Permitted Investment that is permitted by
Section 4.07 hereof;
(7) the licensing of intellectual property in the ordinary course of
business;
(8) sales of accounts receivable and related assets of the type
specified in the definition of "Qualified Receivables
Transaction" to a Receivables Subsidiary for the fair market
value thereof, including cash in an amount at least equal to 90%
of the book value thereof as determined in accordance with GAAP,
it being understood that, for the purposes of this clause (8),
notes received in exchange for the transfer of accounts
receivable and related assets will be deemed cash if the
Receivables Subsidiary or other payor is required to repay said
notes as soon as practicable from available cash collections less
amounts required to be established as reserves pursuant to
contractual agreements with entities that are not Affiliates of
Stericycle entered into as part of a Qualified Receivables
Transaction; and
(9) transfers of accounts receivable and related assets of the type
specified in the definition of "Qualified Receivables
Transaction" (or a fractional undivided interest therein) by a
Receivables Subsidiary in a Qualified Receivables Transaction.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal
or state law for the relief of debtors.
"Beneficial Owner" has the meaning assigned to such term in Rule
13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the
beneficial ownership of any particular "person" (as that term is used in Section
13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire by
conversion or exercise of other securities, whether such right is currently
exercisable or is exercisable only upon occurrence of a subsequent condition
(other than a condition that the Holders waive one or more provisions of this
Indenture). The terms "Beneficially Owns" and "Beneficially Owned" shall have
corresponding meanings.
"BFI medical waste business" means the medical waste business of
Browning-Ferris Industries, Inc.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the Board of Directors of the
general partner of the partnership; and
(3) with respect to any other Person, the board or committee of such
Person serving a similar function.
"Broker-Dealer" has the meaning set forth in the Registration
Rights Agreement.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents
(however designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited);
and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality
thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case, with any lender party to
the Credit Agreement or with any domestic commercial bank having
capital and surplus in excess of $500.0 million and a Thompson
Bank Watch Rating of "B" or better;
(4) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state
or any public instrumentality thereof maturing within one year
from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable
from either Standard & Poor's Rating Services or Moody's
Investors Service, Inc.;
(5) certificates of deposit or bankers' acceptance (or, with respect
to foreign banks, similar instruments) maturing within one year
from the date of acquisition thereof issued by a bank organized
under the laws of the United States of America or any state
thereof or the District of Columbia, Japan or any member of the
European Economic Community or any U.S. branch of a foreign bank
having at the date of acquisition thereof combined capital and
surplus of not less than $500.0 million;
(6) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (2),
(3) and (4) above entered into with any financial institution
meeting the qualifications specified in clauses (3) or (4) above;
(7) commercial paper having a rating of at least P-1 from Moody's
Investors Service, Inc. or at least A1 from Standard & Poor's
Rating Services and in each case maturing within one year after
the date of acquisition; and
(8) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through
(7) of this definition.
"Cedel" means Cedel Bank, SA.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in
one or a series of related transactions, of all or substantially
all of the properties or assets of Stericycle and its
Subsidiaries taken as a whole to any "person" (as that term is
used in Section 13(d)(3) of the Exchange Act) other than a
Principal or a Related Party of a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution
of Stericycle;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is
that any "person" (as defined above), other than the Principals
and their Related Parties, becomes the Beneficial Owner, directly
or indirectly, of more than 50% of the Voting Stock of
Stericycle, measured by voting power rather than number of
shares; or
(4) the first day on which a majority of the members of the Board of
Directors of Stericycle are not Continuing Directors.
"Company" means Stericycle, Inc., and any and all successors
thereto.
"Consolidated Cash Flow" means, with respect to any specified
Person for any period, the Consolidated Net Income of such Person for such
period plus:
(1) an amount equal to any extraordinary loss plus any net loss
realized by such Person or any of its Restricted Subsidiaries in
connection with an Asset Sale, to the extent such losses were
deducted in computing such Consolidated Net Income; plus
(2) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that
such provision for taxes was deducted in computing such
Consolidated Net Income; plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether
or not capitalized (including, without limitation, amortization
of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated
with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net of the effect of all
payments made or received pursuant to Hedging Agreements), to the
extent that any such expense was deducted in computing such
Consolidated Net Income; plus
(4) depreciation, amortization (including amortization of goodwill
and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash
expenses (excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any
future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Restricted
Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income; minus
(5) non-cash items increasing such Consolidated Net Income for such
period, other than normal accruals in the ordinary course of
business,
in each case, on a consolidated basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified
Person for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that:
(1) the Net Income of any Person that is not a Restricted Subsidiary
of the specified Person or that is accounted for by the equity
method of accounting shall be included in the Consolidated Net
Income of the specified Person only to the extent of the amount
of dividends or distributions paid in cash to the specified
Person or a Restricted Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or
similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any
prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter
or any agreement (other than an agreement with Stericycle or its
Restricted Subsidiaries or an agreement in effect on the date of
this Indenture as in effect on that date), instrument, judgment,
decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition
shall be excluded;
(4) the cumulative effect of a change in accounting principles shall
be excluded;
(5) gains and losses from Asset Sales (without regard to the $1.0
million limitation set forth in the definition thereof) or
abandonments or reserves relating thereto and the related tax
effects according to GAAP shall be excluded;
(6) gains and losses due solely to fluctuations in currency values
and the related tax effect according to GAAP shall be excluded;
and
(7) one-time non-cash compensation charges arising from stock options
or stock grant plans shall be excluded.
"Continuing Directors" means, as of any date of determination,
any member of the Board of Directors of Stericycle who
(1) was a member of such Board of Directors on the date of this
Indenture or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who
were members of such Board at the time of such nomination or
election.
"Corporate Trust Office of the Trustee" shall be at the address
of the Trustee specified in Section 13.02 hereof or such other address as to
which the Trustee may give notice to the Company.
"Credit Agreement" means that certain Credit Agreement, dated as
of November 12, 1999, by and among Stericycle, the various financial
institutions from time to time parties thereto, DLJ Capital Funding, Inc., as
syndication agent for such financial institutions, lead arranger and sole book
running manager, Bank of America, N.A., as administrative agent for such
financial institutions and Bankers Trust Company, as documentation agent for
such financial institutions, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, restated, modified, renewed, refunded, replaced or
refinanced from time to time.
"Credit Facilities" means, (a) the Credit Agreement and (b)
following written notice thereof by Stericycle to the Trustee, other debt
facilities or commercial paper facilities, in each case with banks or other
institutional lenders providing for revolving credit loans, term loans, note
issuances, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit. Without limiting the generality
of the foregoing, the term "Credit Facilities" shall include any amendment,
amendment and restatement, supplement or other modification to such credit
agreement and ancillary documents and all renewals, extensions, refundings,
replacements and refinancings thereof, including, without limitation, any
agreement or agreements (i) extending or shortening the maturity of any
Indebtedness incurred thereunder or contemplated thereby, (ii) adding or
deleting borrowers or guarantors thereunder or (iii) increasing the amount of
Indebtedness incurred thereunder or available to be borrowed thereunder to the
extent permitted under this Indenture.
"Custodian" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.
"Default" means any event that is, or with the passage of time or
the giving of notice or both would be, an Event of Default.
"Definitive Note" means a certificated Note registered in the
name of the Holder thereof and issued in accordance with Section 2.06 hereof,
substantially in the form of Exhibit A-1 hereto except that such Note shall not
bear the Global Note Legend and shall not have the "Schedule of Exchanges of
Interests in the Global Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued
in whole or in part in global form, the Person specified in Section 2.03 hereof
as the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"Designated Preferred Stock" means preferred stock that is so
designated as Designated Preferred Stock, pursuant to an Officers' Certificate
executed by the principal executive officer and the principal financial officer
of Stericycle, on the issuance date thereof, the cash proceeds of which are
excluded from the calculation set forth in clause (3)(b) of the first paragraph
of Section 4.07 hereof.
"Designated Senior Debt" means:
(1) any Indebtedness outstanding under the Credit Agreement; and
(2) in the event no Indebtedness is outstanding under the Credit
Agreement, any other Senior Debt permitted under this Indenture
the principal amount of which is $25.0 million or more and that
has been designated by Stericycle as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms
(or by the terms of any security into which it is convertible, or for which it
is exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require Stericycle to repurchase such Capital
Stock upon the occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
Stericycle may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with Section 4.07
hereof.
"Domestic Subsidiary" means any Subsidiary that was formed under
the laws of the United States or any state thereof or the District of Columbia
or that guarantees or otherwise provides direct credit support for any
Indebtedness of Stericycle.
"Equity Interests" means Capital Stock and all warrants, options
or other rights to acquire Capital Stock (but excluding any debt security that
is convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any offering of Qualified Capital Stock
of Stericycle.
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means the Series B Notes issued in the Exchange
Offer pursuant to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration
Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set forth
in the Registration Rights Agreement.
"Existing Indebtedness" means the Indebtedness of Stericycle and
its Restricted Subsidiaries (other than Indebtedness under the Credit Agreement)
in existence on the date of this Indenture.
"fair market value" means, with respect to any asset or property,
the price which could be negotiated in an arm's-length, free market transaction,
for cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Unless the
TIA otherwise requires, fair market value shall be determined by the Board of
Directors of the Company acting reasonably and in good faith and shall be
evidenced by a Board Resolution of the Board of Directors of the Company
delivered to the Trustee.
"Fixed Charges" means, with respect to any specified Person for
any period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued,
including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net of the effect of all payments made or
received pursuant to Hedging Agreements (excluding amortization
of capitalized deferred financing fees in existence on the date
of this Indenture); plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries
or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries, whether or not such Guarantee or Lien is
called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and
whether or not in cash, on any series of preferred stock of such
Person or any of its Restricted Subsidiaries, other than
dividends on (i) Equity Interests payable solely in Equity
Interests of Stericycle (other than Disqualified Stock), (ii) the
Series A Convertible Preferred Stock to the extent such dividends
are paid in kind in accordance with the Preferred Stock Agreement
as in effect on the date of this Indenture or (iii) to Stericycle
or a Restricted Subsidiary of Stericycle, times (b) a fraction,
the numerator of which is one and the denominator of which is one
minus the then current combined effective federal, state and
local statutory tax rate of such Person, expressed as a decimal,
in each case, on a consolidated basis and in accordance with
GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified
Person and its Restricted Subsidiaries for any period, the ratio of the
Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such
period to the Fixed Charges of such Person and its Restricted Subsidiaries for
such period. In the event that the specified Person or any of its Restricted
Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any
Indebtedness (other than ordinary working capital borrowings) or issues,
repurchases or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated and on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance, repurchase or redemption of preferred stock, and the use of the
proceeds therefrom as if the same had occurred at the beginning of the
applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge
Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any
of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be
given pro forma effect as if they had occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow
for such reference period shall be calculated on a pro forma
basis (including Pro Forma Cost Savings), but without giving
effect to clause (3) of the proviso set forth in the definition
of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be
excluded;
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the specified Person or any of
its Restricted Subsidiaries following the Calculation Date;
(4) notwithstanding the foregoing, the Consolidated Cash Flow for any
period that includes the period from July 1, 1999 through and
including September 30, 1999, shall be determined by assuming
that the Consolidated Cash Flow attributable to the BFI medical
waste business for that period was equal to one-half of the
Consolidated Cash Flow attributable to that business for the
six-month period ended June 30, 1999; and
(5) notwithstanding the foregoing, the Consolidated Cash Flow for any
period that includes the period from October 1, 1999 through and
including the date of this Indenture, shall be determined by
assuming that the Consolidated Cash Flow attributable to the BFI
medical waste business for that period was equal to the
Consolidated Cash Flow attributable to that business for the
six-month period ended June 30, 1999 times a fraction the
numerator of which is the number of days in the period from
October 1, 1999 through and including the date of this Indenture
and the denominator of which is 181.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect on the date of this Indenture.
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, substantially in the
form of Exhibit A-1 hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"Government Securities" means direct obligations of, or
obligations guaranteed by, the United States of America, and the payment for
which the United States pledges its full faith and credit.
"Guarantee" means a guarantee other than by endorsement of
negotiable instruments for collection in the ordinary course of business, direct
or indirect, in any manner including, without limitation, by way of pledge or
assets or through letters of credit and reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors" means each of:
(1) Stericycle of Arkansas, Inc., Stericycle of Washington, Inc., SWD
Acquisition Corp., Environmental Control Co., Inc., Waste
Systems, Inc., Med-Tech Environmental, Inc., Med-Tech
Environmental (MA), Inc., Ionization Research Company, Inc., BFI
Medical Waste Inc., BFI Medical Waste Systems of Washington,
Inc., Browning-Ferris Industries of Connecticut, Inc.; and
(2) any other Domestic Subsidiary that executes a Subsidiary
Guarantee in accordance with the provisions of this Indenture;
and their respective successors and assigns.
"Hedging Agreement" means, with respect to any specified Person,
any interest rate protection agreement (including, without limitation, interest
rate swaps, caps, floors, collars, derivative instruments and similar
agreements), and/or other types of interest hedging agreements and any currency
protection agreement (including, without limitation, foreign exchange contracts,
currency swap agreements or other currency hedging arrangements) of such Person.
"Holder" means a Person in whose name a Note is registered.
"IAI Global Note" means the global Note substantially in the form
of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of and registered in the name of the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Notes sold to Institutional Accredited
Investors.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect
thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) in respect of the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes
an accrued expense or trade payable; or
(6) representing any net payment obligation under Hedging Agreements
at the time of determination,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Agreements) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall
be:
(1) the accreted value thereof, in the case of any Indebtedness
issued with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other
Indebtedness.
For purposes of calculating the amount of Indebtedness of a Receivables
Subsidiary outstanding as of any date, the face or notional amount of any
interest in receivables or equipment that is outstanding as of such date shall
be deemed to be Indebtedness but any such interests held by Stericycle or any of
its Restricted Subsidiaries shall be excluded for purposes of such calculation.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Indirect Participant" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"Initial Notes" means the first $150.0 million aggregate
principal amount of Notes issued under this Indenture on the date hereof.
"Institutional Accredited Investor" means an institution that is
an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all direct or
indirect investments by such Person in other Persons (including Affiliates) in
the forms of loans (including Guarantees or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If Stericycle
or any Restricted Subsidiary of Stericycle sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of Stericycle
such that, after giving effect to any such sale or disposition, such Person is
no longer a Restricted Subsidiary of Stericycle, Stericycle shall be deemed to
have made an Investment on the date of any such sale or disposition equal to the
cost basis of the Equity Interests of such Restricted Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of
Section 4.07 hereof. The acquisition by Stericycle or any Restricted Subsidiary
of Stericycle of a Person that holds an Investment in a third Person shall be
deemed to be an Investment by Stericycle or such Restricted Subsidiary in such
third Person in an amount equal to the fair market value of the Investment held
by the acquired Person in such third Person in an amount determined as provided
in the final paragraph of Section 4.07 hereof.
"Legal Holiday" means a Saturday, a Sunday or a day on which
banking institutions in the City of New York, the city in which the principal
corporate trust office of the Trustee is located, or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday at a place of payment, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue on such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all Holders of the Notes for use by such
Holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law, including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and, except in connection with any Qualified Receivable
Transaction, any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Liquidated Damages" means all liquidated damages then owing
pursuant to Section 5 of the Registration Rights Agreement.
"Net Income" means, with respect to any specified Person, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, any
extraordinary gain and loss, together with any related provision for taxes on
such items of extraordinary gain and loss.
"Net Proceeds" means the aggregate cash proceeds received by
Stericycle or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof, in each case, after taking into account any available tax
credits or deductions and any tax sharing arrangements, and amounts required to
be applied to the repayment of Indebtedness, other than Senior Debt under a
Credit Facility, secured by a Lien on the asset or assets that were the subject
of such Asset Sale and any reserve for adjustment in respect of the sale price
of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness of an Unrestricted
Subsidiary:
(1) as to which neither Stericycle nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including
any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable as a
guarantor or otherwise, or (c) constitutes the lender;
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time
or both any holder of any other Indebtedness (other than the
Notes) of Stericycle or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated
maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of Stericycle
or any of its Restricted Subsidiaries.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Notes" has the meaning assigned to it in the preamble to this
Indenture. The Initial Notes and the Additional Notes shall be treated as a
single class for all purposes under this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness, including, in each case, interest
accruing subsequent to the filing of, or which would have accrued but for the
filing of, a petition for bankruptcy, reorganization or similar proceeding,
whether or not such interest is an allowable claim in such proceeding.
"Offering" means the offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of
the Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 13.05 hereof.
"Opinion of Counsel" means an opinion in form and substance
reasonably satisfactory to the Trustee and from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Section 13.05 hereof.
The counsel may be an employee of or counsel to the Company, any Subsidiary of
the Company or the Trustee.
"Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to DTC, shall include Euroclear and Cedel).
"Permitted Business" means medical waste disposal and consulting,
distribution of medical services and products to medical waste customers, and
the expansion of related services and distribution of products to medical waste
customers.
"Permitted Domestic Subsidiary Preferred Stock" means any series
of Preferred Stock of a Domestic Subsidiary of Stericycle that has a fixed
dividend rate, the liquidation value of all series of which, when combined with
the aggregate amount of Indebtedness of Stericycle and its Restricted
Subsidiaries incurred pursuant to clause (14) of the definition of Permitted
Debt, does not exceed $20.0 million.
"Permitted Hedging Agreement" of any Person means any Hedging
Agreement entered into with one or more financial institutions in the ordinary
course of business (a) for the purpose of fixing or hedging interest or foreign
currency exchange rate risk with respect to any floating rate Indebtedness of
foreign currency based Indebtedness, respectively, that is permitted by the
terms of this Indenture to be outstanding; provided that the notional amount of
any such Hedging Agreement does not exceed the amount of Indebtedness or other
liability to which such Hedging Agreement relates; or (b) for the purpose of
fixing or hedging currency exchange risk with respect to any currency exchanges
made in the ordinary course of business and not for purposes of speculation.
"Permitted Investments" means:
(1) any Investment in Stericycle or in a Restricted Subsidiary of
Stericycle;
(2) any Investment in Cash Equivalents;
(3) any Investment by Stericycle or any Restricted Subsidiary of
Stericycle in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of
Stericycle; or
(b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, Stericycle or a
Restricted Subsidiary of Stericycle;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with Section 4.10 hereof;
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of Stericycle;
(6) Hedging Agreements;
(7) Investments existing on the date of this Indenture (including
Indebtedness received in exchange therefor);
(8) loans and advances to employees and officers of Stericycle and
its Restricted Subsidiaries in the ordinary course of business;
(9) accounts receivable created or acquired in the ordinary course of
business;
(10) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of such trade
creditors or customers;
(11) Guarantees by Stericycle of Indebtedness otherwise permitted to
be incurred by Restricted Subsidiaries of Stericycle that are
Guarantors under this Indenture;
(12) the acquisition by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction of Equity Interests of a trust
or other Person established by such Receivables Subsidiary to
effect such Qualified Receivables Transaction; and any other
Investment by Stericycle or a Subsidiary of Stericycle in a
Receivables Subsidiary or any Investment by a Receivables
Subsidiary in any other Person in connection with a Qualified
Receivables Transaction provided, that such other Investment is
in the form of a note or other instrument that the Receivables
Subsidiary or other Person is required to repay as soon as
practicable from available cash collections less amounts required
to be established as reserves pursuant to contractual agreements
with entities that are not Affiliates of Stericycle entered into
as part of a Qualified Receivables Transaction;
(13) any Investment in a joint venture with one or more foreign
partners to the extent that, as a result of the Investment,
Stericycle recognizes gross profit from licensing of intellectual
property or sales of equipment to that joint venture over the
twelve-month period following the Investment that is at least
equal to the amount of such Investment; and
(14) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and
without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause
(14) that are at the time outstanding not to exceed $25.0
million.
"Permitted Junior Securities" means:
(1) Equity Interests in Stericycle or any Guarantor; or
(2) debt securities that are subordinated to (a) all Senior Debt and
(b) any debt securities issued in exchange for Senior Debt to
substantially the same extent as, or to a greater extent than,
the Notes and the Subsidiary Guarantees are subordinated to
Senior Debt under this Indenture.
"Permitted Liens" means:
(1) Liens in favor of Stericycle or the Guarantors;
(2) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with Stericycle or any
Subsidiary of Stericycle; provided that such Liens were in
existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of
the Person merged into or consolidated with Stericycle or the
Subsidiary;
(3) Liens on property existing at the time of acquisition thereof by
Stericycle or any Subsidiary of Stericycle, provided that such
Liens were in existence prior to the contemplation of such
acquisition;
(4) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like
nature incurred in the ordinary course of business;
(5) Liens existing on the date of this Indenture and any extensions,
renewals and replacements thereof;
(6) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good
faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with
GAAP shall have been made therefor;
(7) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries;
(8) Liens incurred or deposits made in the ordinary course of
business in connection with worker's compensation, unemployment
insurance and other types of social security, including any Lien
securing letters of credit issued in the ordinary course of
business consistent with past practice in connection therewith,
or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed
money);
(9) judgment Liens not giving rise to an Event of Default;
(10) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not
interfering in any material respect with the ordinary conduct of
the business of Stericycle or any of its Restricted Subsidiaries;
(11) any interest or title of a lessor under any Capitalized Lease
Obligation;
(12) purchase money Liens to finance property or assets of Stericycle
or any Restricted Subsidiary of Stericycle acquired in the
ordinary course of business; provided, however, that
(A) the related purchase money Indebtedness shall
not exceed the cost of such property or assets and
shall not be secured by any property or assets of
Stericycle or any Restricted Subsidiary of
Stericycle other than the property and assets so
acquired and
(B) the Lien securing such Indebtedness shall be
created with 90 days of such acquisition;
(13) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in
respect of banker's acceptances issued or created for the account
of such Person to facilitate the purchase, shipment, or storage
of such inventory or other goods;
(14) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other
property relating to such letters of credit and products and
proceeds thereof;
(15) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements
of Stericycle or any of its Restricted Subsidiaries, including
rights of offset and set-off;
(16) Liens securing Indebtedness incurred in reliance on clause (4) of
the second paragraph of Section 4.09 hereof so long as such Lien
extends to no assets other than the assets acquired;
(17) Liens on assets of Stericycle or a Receivables Subsidiary
incurred in connection with a Qualified Receivables Transaction;
(18) Leases or subleases granted to others that do no materially
interfere with the ordinary course of business of Stericycle and
its Restricted Subsidiaries;
(19) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(20) Liens securing the Notes and the Subsidiary Guarantees;
(21) Liens securing intercompany Indebtedness of Stericycle or a
Restricted Subsidiary on assets of any Subsidiary of Stericycle;
(22) Liens securing Senior Debt and other Obligations with respect
thereto;
(23) Liens securing Hedging Agreements which relate to Indebtedness
that is otherwise permitted under this Indenture; and
(24) Liens incurred in the ordinary course of business of Stericycle
or any Restricted Subsidiary of Stericycle with respect to
obligations that do not exceed $5.0 million at any one time
outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of
Stericycle or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of Stericycle or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal
amount (or accreted value, if applicable) of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded
(plus all accrued interest thereon and the amount of all fees,
expenses and premiums incurred in connection therewith);
(2) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness is
subordinated in right of payment to, the Notes on terms at least
as favorable to the Holders as those contained in the
documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded;
(3) such Permitted Refinancing Indebtedness has a Weighted Average
Life to Maturity later than the Weighted Average Life to Maturity
of the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Stericycle or by the
Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
limited liability company or government or other entity.
"Preferred Stock Agreement" means the agreement by and among Bain
Capital, Inc., Madison Dearborn Partners, Inc. and Stericycle relating to the
purchase and sale of the Series A Convertible Preferred Stock, as in effect on
the date hereof.
"Principals" means Bain Capital, Inc. and Madison Dearborn
Partners, Inc.
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
"Pro Forma Cost Savings" means, with respect to any period, the
reduction in costs that occurred during the four-quarter period or after the end
of the four-quarter period and on or prior to the Transaction Date that were (i)
directly attributable to an asset acquisition and calculated on a basis that is
consistent with Article 11 of Regulation S-X under the Securities Act as in
effect on the date of this Indenture or (ii) implemented by the business that
was the subject of any such asset acquisition within six months of the date of
the asset acquisition and that are supportable and quantifiable by the
underlying accounting records of such business, as if, in the case of each of
clause (i) and (ii), all such reductions in costs had been effected as of the
beginning of such period. In addition, for purposes of calculating the Fixed
Charge Coverage Ratio for any four-quarter period that includes a period prior
to the date of this Indenture, Stericycle shall also give effect to the
supplemental adjustments described in the Offering Memorandum, dated as of
November 4, 1999.
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Stock.
"Qualified Receivables Transaction" means any transaction or
series of transactions entered into by Stericycle or any of its Subsidiaries
pursuant to which Stericycle or any of its Subsidiaries sells, conveys or
otherwise transfers to (i) a Receivables Subsidiary (in the case of a transfer
by Stericycle or any of its Subsidiaries) and (ii) any other Person (in the case
of a transfer by a Receivables Subsidiary), or grants a security interest in,
any accounts receivable (whether now existing or arising in the future) of
Stericycle or any of its Subsidiaries, and any assets related thereto including,
without limitation, all collateral securing such accounts receivable, all
contracts and all guarantees or other obligations in respect of such accounts
receivable, proceeds of such accounts receivable and other assets which are
customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Receivables Subsidiary" means a Subsidiary of Stericycle which
engages in no activities other than in connection with the financing of accounts
receivable and which is designated by the Board of Directors of Stericycle (as
provided below) as a Receivables Subsidiary (a) no portion of the Indebtedness
or any other Obligations (contingent or otherwise) of which (i) is guaranteed by
Stericycle or any Subsidiary of Stericycle (excluding guarantees of Obligations
(other than the principal of, and interest on, Indebtedness) pursuant to
representations, warranties, covenants and indemnities entered into in the
ordinary course of business in connection with a Qualified Receivables
Transaction), (ii) is recourse to or obligates Stericycle or any Subsidiary of
Stericycle in any way other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business in
connection with a Qualified Receivables Transaction or (iii) subjects any
property or asset of Stericycle or any Subsidiary of Stericycle (other than
accounts receivable and related assets as provided in the definition of
"Qualified Receivables Transaction"), directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to representations,
warranties, covenants and indemnities entered into in the ordinary course of
business in connection with a Qualified Receivables Transaction, (b) with which
neither Stericycle nor any Subsidiary of Stericycle has any material contract,
agreement, arrangement or understanding other than on terms no less favorable to
Stericycle or such Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of Stericycle, other than fees payable in the
ordinary course of business in connection with servicing accounts receivable and
(c) with which neither Stericycle nor any Subsidiary of Stericycle has any
obligation to maintain or preserve such Subsidiary's financial condition or
cause such Subsidiary to achieve certain levels of operating results. Any such
designation by the Board of Directors of Stericycle will be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors of Stericycle giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of November 12, 1999, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time and, with respect to any Additional
Notes, one or more registration rights agreements between the Company and the
other parties thereto, as such agreement(s) may be amended, modified or
supplemented from time to time, relating to rights given by the Company to the
purchasers of Additional Notes to register such Additional Notes under the
Securities Act."
"Regulation S" means Regulation S promulgated under the
Securities Act.
"Regulation S Global Note" means a Regulation S Temporary Global
Note or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global
Note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the
Private Placement Legend and deposited with or on behalf of and registered in
the name of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global
Note in the form of Exhibit A-2 hereto bearing the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee, issued in a denomination equal to the outstanding principal amount
of the Notes initially sold in reliance on Rule 903 of Regulation S.
"Related Party" means:
(1) any controlling stockholder, more than 50% owned Subsidiary, or
immediate family member (in the case of an individual) of any
Principal; or
(2) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons
beneficially holding a greater than 50% or more controlling
interest of which consist of any one or more Principals and/or
such other Persons referred to in the immediately preceding
clause (1).
"Representative" means the indenture trustee or other trustee,
agent or representative for any Senior Debt.
"Responsible Officer," when used with respect to the Trustee,
means any officer within the Corporate Trust Administration of the Trustee (or
any successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private
Placement Legend.
"Restricted Investment" means an Investment other than a
Permitted Investment.
"Restricted Period" means the 40-day restricted period as defined
in Regulation S.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means:
(1) all Indebtedness of Stericycle or any Guarantor outstanding under
Credit Facilities and all Hedging Agreements permitted to be
entered into under the terms of this Indenture;
(2) any other Indebtedness of Stericycle or any Guarantor permitted
to be incurred under the terms of this Indenture, unless the
instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of
payment to the Notes or any Subsidiary Guarantee; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior
Debt will not include:
(1) any liability for federal, state, local or other taxes owed or
owing by Stericycle;
(2) any Indebtedness of Stericycle to any of its Subsidiaries or
other Affiliates;
(3) any trade payables; or
(4) the portion of any Indebtedness that is incurred in violation of
this Indenture except to the extent that the Indebtedness so
incurred was extended by the lenders thereof in reliance on a
certificate executed and delivered by the president, chief
executive officer or chief financial or accounting officer of
Stericycle, in which certificate, such officer certified that the
incurrence of such Indebtedness was permitted under the proviso
to the first paragraph of Section 4.09 hereof.
"Senior Guarantees" means the Guarantees by the Guarantors of
Obligations under the Credit Agreement.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date of this Indenture (excluding in all cases 3CI Complete Compliance
Corporation where it is a public non-wholly-owned subsidiary of Stericycle).
"Stated Maturity" means, with respect to any installment of
interest or principal on any series of Indebtedness, the date on which such
payment of interest or principal was scheduled to be paid in the original
documentation governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
"Subordinated Note Obligations" means all Obligations with
respect to the Notes, including, without limitation, principal, premium, if any,
interest and Liquidated Damages, if any, payable pursuant to the terms of the
Notes (including, without limitation, upon acceleration or redemption thereof),
together with and including, without limitation, any amounts received or
receivable upon the exercise of rights of rescission or other rights of action,
including, without limitation, claims for damages, or otherwise.
"Subsidiary" means, with respect to any specified Person (and if
no such Person is specified, it shall be understood to mean with respect to the
Company):
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital
Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person
or one or more Subsidiaries of such Person (or any combination
thereof).
"Subsidiary Guarantee" means the Guarantee by each Guarantor of
the Company's payment obligations under this Indenture and on the Notes,
executed pursuant to the provisions of this Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive Notes
that do not bear and are not required to bear the Private Placement Legend.
"Unrestricted Global Note" means a permanent global Note
substantially in the form of Exhibit A-1 attached hereto that bears the Global
Note Legend and that has the "Schedule of Exchanges of Interests in the Global
Note" attached thereto, and that is deposited with or on behalf of and
registered in the name of the Depositary, representing a series of Notes that do
not bear the Private Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary of Stericycle that
is designated by the Board of Directors as an Unrestricted Subsidiary pursuant
to a Board Resolution and in accordance with the terms of this Indenture, but
only to the extent that such Subsidiary:
(1) has no indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with Stericycle or any Restricted Subsidiary of
Stericycle unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to Stericycle
or such Restricted Subsidiary than those that might be obtained
at the time from Persons who are not Affiliates of Stericycle;
(3) is a Person with respect to which neither Stericycle nor any of
its Restricted Subsidiaries has any direct or indirect obligation
(a) to subscribe for additional Equity Interests or (b) to
maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating
results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of Stericycle or any of its
Restricted Subsidiaries.
Any designation of a Subsidiary of Stericycle as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
preceding conditions and was permitted by Section 4.07 hereof. If, at any time,
any Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
Stericycle as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.09 hereof, Stericycle shall be in
default of such covenant. The Board of Directors of Stericycle may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of Stericycle of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (1) such
Indebtedness is permitted under Section 4.09 hereof, calculated on a pro forma
basis as if such designation had occurred at the beginning of the four-quarter
reference period; (2) no Default or Event of Default would be in existence
following such designation; and (3) if any such Subsidiary is a Domestic
Subsidiary, it shall execute a supplemental indenture to become a Guarantor with
respect to the Notes.
"U.S. Person" means a U.S. person as defined in Rule 902(k) under
the Securities Act.
"Voting Stock" of any Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final
maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
Section 1.02. Other Definitions.
Defined in
Term Section
---- -------
"Affiliate Transaction"...............................
"Asset Sale Offer".................................... 3.09
"Authentication Order"................................ 2.02
"Change of Control Offer"............................. 4.15
"Change of Control Payment"........................... 4.15
"Change of Control Payment Date"...................... 4.15
"Covenant Defeasance"................................. 8.03
"DTC"................................................. 2.03
"Event of Default".................................... 6.01
"Excess Proceeds"..................................... 4.10
"incur"............................................... 4.09
"Legal Defeasance".................................... 8.02
"Offer Amount"........................................ 3.09
"Offer Period"........................................ 3.09
"Paying Agent"........................................ 2.03
"Permitted Debt"...................................... 4.09
"Purchase Date"....................................... 3.09
"Registrar"........................................... 2.03
"Restricted Payments"................................. 4.07
Section 1.03.................Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the Notes and the Subsidiary Guarantees means the
Company and the Guarantors, respectively, and any successor obligor upon the
Notes and the Subsidiary Guarantees, respectively.
All other terms used in this Indenture and not otherwise defined
herein that are defined by the TIA, defined by TIA reference to another statute
or defined by SEC rule under the TIA have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural
include the singular;
(e) provisions apply to successive events and transactions; and
(f) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
Section 2.01. Form and Dating.
(a) General. The Notes and the Trustee's certificate of
authentication shall be substantially in the forms of Exhibits A-1 and A-2
hereto. The Notes may have notations, legends or endorsements required by law,
stock exchange rule or usage. Each Note shall be dated the date of its
authentication. The Notes shall be in denominations of $1,000 and integral
multiples thereof.
The terms and provisions contained in the Notes shall constitute,
and are hereby expressly made, a part of this Indenture and the Company, the
Guarantors and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby. However,
to the extent any provision of any Note conflicts with the express provisions of
this Indenture, the provisions of this Indenture shall govern and be
controlling.
(b) Global Notes. Notes issued in global form shall be
substantially in the forms of Exhibits A-1 or A-2 attached hereto (including the
Global Note Legend thereon and the "Schedule of Exchanges of Interests in the
Global Note" attached thereto). Notes issued in definitive form shall be
substantially in the form of Exhibit A-1 attached hereto (but without the Global
Note Legend thereon and without the "Schedule of Exchanges of Interests in the
Global Note" attached thereto). Each Global Note shall represent such of the
outstanding Notes as shall be specified therein and each shall provide that it
shall represent the aggregate principal amount of outstanding Notes from time to
time endorsed thereon and that the aggregate principal amount of outstanding
Notes represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Note to reflect the amount of any increase or decrease in the aggregate
principal amount of outstanding Notes represented thereby shall be made by the
Trustee or the Custodian, at the direction of the Trustee, in accordance with
instructions given by the Holder thereof as required by Section 2.06 hereof.
(c) Temporary Global Notes. Notes offered and sold in reliance on
Regulation S shall be issued initially in the form of the Regulation S Temporary
Global Note, which shall be deposited on behalf of the purchasers of the Notes
represented thereby with the Trustee, at its New York office, as custodian for
the Depositary, and registered in the name of the Depositary or the nominee of
the Depositary for the accounts of designated agents holding on behalf of
Euroclear or Cedel Bank, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The Restricted Period shall be terminated upon
the receipt by the Trustee of (i) a written certificate from the Depositary,
together with copies of certificates from Euroclear and Cedel Bank certifying
that they have received certification of non-United States beneficial ownership
of 100% of the aggregate principal amount of the Regulation S Temporary Global
Note (except to the extent of any beneficial owners thereof who acquired an
interest therein during the Restricted Period pursuant to another exemption from
registration under the Securities Act and who will take delivery of a beneficial
ownership interest in a 144A Global Note or an IAI Global Note bearing a Private
Placement Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (ii)
an Officers' Certificate from the Company. Following the termination of the
Restricted Period, beneficial interests in the Regulation S Temporary Global
Note shall be exchanged for beneficial interests in Regulation S Permanent
Global Notes pursuant to the Applicable Procedures. Simultaneously with the
authentication of Regulation S Permanent Global Notes, the Trustee shall cancel
the Regulation S Temporary Global Note. The aggregate principal amount of the
Regulation S Temporary Global Note and the Regulation S Permanent Global Notes
may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee, as the case may be, in
connection with transfers of interest as hereinafter provided.
(d) Euroclear and Cedel Procedures Applicable. The provisions of
the "Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in the Regulation S Temporary Global Note and the
Regulation S Permanent Global Notes that are held by Participants through
Euroclear or Cedel Bank.
Section 2.02. Execution and Authentication.
Two Officers shall sign the Notes for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by
two Officers (an "Authentication Order"), authenticate Notes for issuance up to
the aggregate principal amount of $200.0 million of which $150.0 million in
aggregate principal amount will be originally issued as Initial Notes and up to
$50.0 million may be issued as Additional Notes. The aggregate principal amount
of Notes outstanding at any time may not exceed such amount except as provided
in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Custodian with respect to the Global
Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for the
benefit of Holders or the Trustee all money held by the Paying Agent for the
payment of principal, premium or Liquidated Damages, if any, or interest on the
Notes, and will notify the Trustee of any default by the Company in making any
such payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is
not the Registrar, the Company shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA ss. 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not
be transferred as a whole except by the Depositary to a nominee of the
Depositary, by a nominee of the Depositary to the Depositary or to another
nominee of the Depositary, or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary. All Global Notes
will be exchanged by the Company for Definitive Notes if (i) the Company
delivers to the Trustee notice from the Depositary that it is unwilling or
unable to continue to act as Depositary or that it is no longer a clearing
agency registered under the Exchange Act and, in either case, a successor
Depositary is not appointed by the Company within 120 days after the date of
such notice from the Depositary or (ii) the Company in its sole discretion
determines that the Global Notes (in whole but not in part) should be exchanged
for Definitive Notes and delivers a written notice to such effect to the
Trustee; provided that in no event shall the Regulation S Temporary Global Note
be exchanged by the Company for Definitive Notes prior to (x) the expiration of
the Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act. Upon the
occurrence of either of the preceding events in (i) or (ii) above, Definitive
Notes shall be issued in such names as the Depositary shall instruct the
Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as
provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and
delivered in exchange for, or in lieu of, a Global Note or any portion thereof,
pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be
authenticated and delivered in the form of, and shall be, a Global Note. A
Global Note may not be exchanged for another Note other than as provided in this
Section 2.06(a), however, beneficial interests in a Global Note may be
transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global
Notes. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions of
this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same
Global Note. Beneficial interests in any Restricted Global Note
may be transferred to Persons who take delivery thereof in the
form of a beneficial interest in the same Restricted Global Note
in accordance with the transfer restrictions set forth in the
Private Placement Legend; provided, however, that prior to the
expiration of the Restricted Period, transfers of beneficial
interests in the Regulation S Temporary Global Note may not be
made to a U.S. Person or for the account or benefit of a U.S.
Person (other than an Initial Purchaser). Beneficial interests in
any Unrestricted Global Note may be transferred to Persons who
take delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note. No written orders or instructions shall
be required to be delivered to the Registrar to effect the
transfers described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of
Beneficial Interests in Global Notes. In connection with all
transfers and exchanges of beneficial interests that are not
subject to Section 2.06(b)(i) above, the transferor of such
beneficial interest must deliver to the Registrar either (A) (1)
a written order from a Participant or an Indirect Participant
given to the Depositary in accordance with the Applicable
Procedures directing the Depositary to credit or cause to be
credited a beneficial interest in another Global Note in an
amount equal to the beneficial interest to be transferred or
exchanged and (2) instructions given in accordance with the
Applicable Procedures containing information regarding the
Participant account to be credited with such increase or (B) (1)
a written order from a Participant or an Indirect Participant
given to the Depositary in accordance with the Applicable
Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to
be transferred or exchanged and (2) instructions given by the
Depositary to the Registrar containing information regarding the
Person in whose name such Definitive Note shall be registered to
effect the transfer or exchange referred to in (1) above;
provided that in no event shall Definitive Notes be issued upon
the transfer or exchange of beneficial interests in the
Regulation S Temporary Global Note prior to (x) the expiration of
the Restricted Period and (y) the receipt by the Registrar of any
certificates required pursuant to Rule 903 under the Securities
Act. Upon consummation of an Exchange Offer by the Company in
accordance with Section 2.06(f) hereof, the requirements of this
Section 2.06(b)(ii) shall be deemed to have been satisfied upon
receipt by the Registrar of the instructions contained in the
Letter of Transmittal delivered by the Holder of such beneficial
interests in the Restricted Global Notes. Upon satisfaction of
all of the requirements for transfer or exchange of beneficial
interests in Global Notes contained in this Indenture and the
Notes or otherwise applicable under the Securities Act, the
Trustee shall adjust the principal amount of the relevant Global
Note(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another
Restricted Global Note. A beneficial interest in any Restricted
Global Note may be transferred to a Person who takes delivery
thereof in the form of a beneficial interest in another
Restricted Global Note if the transfer complies with the
requirements of Section 2.06(b)(ii) above and the Registrar
receives the following:
(A) if the transferee will take delivery in
the form of a beneficial interest in the 144A
Global Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;
(B) if the transferee will take delivery in
the form of a beneficial interest in the Regulation
S Temporary Global Note or the Regulation S
Permanent Global Note, then the transferor must
deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (2)
thereof; and
(C) if the transferee will take delivery in
the form of a beneficial interest in the IAI Global
Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto,
including the certifications and certificates and
Opinion of Counsel required by item (3) thereof, if
applicable.
(iv) Transfer and Exchange of Beneficial Interests
in a Restricted Global Note for Beneficial Interests in the
Unrestricted Global Note. A beneficial interest in any Restricted
Global Note may be exchanged by any holder thereof for a
beneficial interest in an Unrestricted Global Note or transferred
to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note if the
exchange or transfer complies with the requirements of Section
2.06(b)(ii) above and:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with
the Registration Rights Agreement and the holder of
the beneficial interest to be transferred, in the
case of an exchange, or the transferee, in the case
of a transfer, certifies in the applicable Letter
of Transmittal that it is not (1) a broker-dealer,
(2) a Person participating in the distribution of
the Exchange Notes or (3) a Person who is an
affiliate (as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) such transfer is effected by a
Broker-Dealer pursuant to the Exchange Offer
Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global Note
proposes to exchange such beneficial
interest for a beneficial interest in an
Unrestricted Global Note, a certificate from
such holder in the form of Exhibit C hereto,
including the certifications in item (1)(a)
thereof; or
(2) if the holder of such beneficial
interest in a Restricted Global Note
proposes to transfer such beneficial
interest to a Person who shall take delivery
thereof in the form of a beneficial interest
in an Unrestricted Global Note, a
certificate from such holder in the form of
Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this
subparagraph (D), if the Registrar so requests or
if the Applicable Procedures so require, an Opinion
of Counsel in form reasonably acceptable to the
Registrar to the effect that such exchange or
transfer is in compliance with the Securities Act
and that the restrictions on transfer contained
herein and in the Private Placement Legend are no
longer required in order to maintain compliance
with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or
(D) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive
Notes.
(i) Beneficial Interests in Restricted Global Notes
to Restricted Definitive Notes. If any holder of a beneficial
interest in a Restricted Global Note proposes to exchange such
beneficial interest for a Restricted Definitive Note or to
transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Restricted Definitive Note, then, upon
receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest
in a Restricted Global Note proposes to exchange
such beneficial interest for a Restricted
Definitive Note, a certificate from such holder in
the form of Exhibit C hereto, including the
certifications in item (2)(a) thereof;
(B) if such beneficial interest is being
transferred to a QIB in accordance with Rule 144A
under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such beneficial interest is being
transferred to a Non-U.S. Person in an offshore
transaction in accordance with Rule 903 or Rule 904
under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the
certifications in item (2) thereof;
(D) if such beneficial interest is being
transferred pursuant to an exemption from the
registration requirements of the Securities Act in
accordance with Rule 144 under the Securities Act,
a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(a)
thereof;
(E) if such beneficial interest is being
transferred to an Institutional Accredited Investor
in reliance on an exemption from the registration
requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a
certificate to the effect set forth in Exhibit B
hereto, including the certifications, certificates
and Opinion of Counsel required by item (3)
thereof, if applicable;
(F) if such beneficial interest is being
transferred to the Company or any of its
Subsidiaries, a certificate to the effect set forth
in Exhibit B hereto, including the certifications
in item (3)(b) thereof; or
(G) if such beneficial interest is being
transferred pursuant to an effective registration
statement under the Securities Act, a certificate
to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(c)
thereof,
the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to
Section 2.06(h) hereof, and the Company shall execute and the
Trustee shall authenticate and deliver to the Person designated
in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a
beneficial interest in a Restricted Global Note pursuant to this
Section 2.06(c) shall be registered in such name or names and in
such authorized denomination or denominations as the holder of
such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Notes to
the Persons in whose names such Notes are so registered. Any
Definitive Note issued in exchange for a beneficial interest in a
Restricted Global Note pursuant to this Section 2.06(c)(i) shall
bear the Private Placement Legend and shall be subject to all
restrictions on transfer contained therein.
(ii) Beneficial Interests in Regulation S Temporary
Global Note to Definitive Notes. Notwithstanding Sections
2.06(c)(i)(A) and (C) hereof, a beneficial interest in the
Regulation S Temporary Global Note may not be exchanged for a
Definitive Note or transferred to a Person who takes delivery
thereof in the form of a Definitive Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the
Registrar of any certificates required pursuant to Rule
903(c)(3)(ii)(B) under the Securities Act, except in the case of
a transfer pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 903 or Rule
904.
(iii) Beneficial Interests in Restricted Global
Notes to Unrestricted Definitive Notes. A holder of a beneficial
interest in a Restricted Global Note may exchange such beneficial
interest for an Unrestricted Definitive Note or may transfer such
beneficial interest to a Person who takes delivery thereof in the
form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with
the Registration Rights Agreement and the holder of
such beneficial interest, in the case of an
exchange, or the transferee, in the case of a
transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2)
a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate
(as defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) such transfer is effected by a
Broker-Dealer pursuant to the Exchange Offer
Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial
interest in a Restricted Global Note
proposes to exchange such beneficial
interest for a Definitive Note that does not
bear the Private Placement Legend, a
certificate from such holder in the form of
Exhibit C hereto, including the
certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial
interest in a Restricted Global Note
proposes to transfer such beneficial
interest to a Person who shall take delivery
thereof in the form of a Definitive Note
that does not bear the Private Placement
Legend, a certificate from such holder in
the form of Exhibit B hereto, including the
certifications in item (4) thereof;
and, in each such case set forth in this
subparagraph (D), if the Registrar so requests or
if the Applicable Procedures so require, an Opinion
of Counsel in form reasonably acceptable to the
Registrar to the effect that such exchange or
transfer is in compliance with the Securities Act
and that the restrictions on transfer contained
herein and in the Private Placement Legend are no
longer required in order to maintain compliance
with the Securities Act.
(iv) Beneficial Interests in Unrestricted Global
Notes to Unrestricted Definitive Notes. If any holder of a
beneficial interest in an Unrestricted Global Note proposes to
exchange such beneficial interest for a Definitive Note or to
transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Definitive Note, then, upon satisfaction
of the conditions set forth in Section 2.06(b)(ii) hereof, the
Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to
Section 2.06(h) hereof, and the Company shall execute and the
Trustee shall authenticate and deliver to the Person designated
in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a
beneficial interest pursuant to this Section 2.06(c)(iv) shall be
registered in such name or names and in such authorized
denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions from
the Depositary and the Participant or Indirect Participant. The
Trustee shall deliver such Definitive Notes to the Persons in
whose names such Notes are so registered. Any Definitive Note
issued in exchange for a beneficial interest pursuant to this
Section 2.06(c)(iv) shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial
Interests.
(i) Restricted Definitive Notes to Beneficial
Interests in Restricted Global Notes. If any Holder of a
Restricted Definitive Note proposes to exchange such Note for a
beneficial interest in a Restricted Global Note or to transfer
such Restricted Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in a Restricted
Global Note, then, upon receipt by the Registrar of the following
documentation:
(A) if the Holder of such Restricted
Definitive Note proposes to exchange such Note for
a beneficial interest in a Restricted Global Note,
a certificate from such Holder in the form of
Exhibit C hereto, including the certifications in
item (2)(b) thereof;
(B) if such Restricted Definitive Note is
being transferred to a QIB in accordance with Rule
144A under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such Restricted Definitive Note is
being transferred to a Non-U.S. Person in an
offshore transaction in accordance with Rule 903 or
Rule 904 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including
the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is
being transferred pursuant to an exemption from the
registration requirements of the Securities Act in
accordance with Rule 144 under the Securities Act,
a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(a)
thereof;
(E) if such Restricted Definitive Note is
being transferred to an Institutional Accredited
Investor in reliance on an exemption from the
registration requirements of the Securities Act
other than those listed in subparagraphs (B)
through (D) above, a certificate to the effect set
forth in Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel
required by item (3) thereof, if applicable;
(F) if such Restricted Definitive Note is
being transferred to the Company or any of its
Subsidiaries, a certificate to the effect set forth
in Exhibit B hereto, including the certifications
in item (3)(b) thereof; or
(G) if such Restricted Definitive Note is
being transferred pursuant to an effective
registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (3)(c)
thereof,
the Trustee shall cancel the Restricted Definitive Note, increase
or cause to be increased the aggregate principal amount of, in
the case of clause (A) above, the appropriate Restricted Global
Note, in the case of clause (B) above, the 144A Global Note, in
the case of clause (C) above, the Regulation S Global Note, and
in all other cases, the IAI Global Note.
(ii) Restricted Definitive Notes to Beneficial
Interests in Unrestricted Global Notes. A Holder of a Restricted
Definitive Note may exchange such Note for a beneficial interest
in an Unrestricted Global Note or transfer such Restricted
Definitive Note to a Person who takes delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note only
if:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with
the Registration Rights Agreement and the Holder,
in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person
who is an affiliate (as defined in Rule 144) of the
Company;
(B) such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) such transfer is effected by a
Broker-Dealer pursuant to the Exchange Offer
Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive
Notes proposes to exchange such Notes for a
beneficial interest in the Unrestricted
Global Note, a certificate from such Holder
in the form of Exhibit C hereto, including
the certifications in item (1)(c) thereof;
or
(2) if the Holder of such Definitive
Notes proposes to transfer such Notes to a
Person who shall take delivery thereof in
the form of a beneficial interest in the
Unrestricted Global Note, a certificate from
such Holder in the form of Exhibit B hereto,
including the certifications in item (4)
thereof;
and, in each such case set forth in this
subparagraph (D), if the Registrar so requests or
if the Applicable Procedures so require, an Opinion
of Counsel in form reasonably acceptable to the
Registrar to the effect that such exchange or
transfer is in compliance with the Securities Act
and that the restrictions on transfer contained
herein and in the Private Placement Legend are no
longer required in order to maintain compliance
with the Securities Act.
Upon satisfaction of the conditions of any of the
subparagraphs in this Section 2.06(d)(ii), the Trustee shall
cancel the Definitive Notes and increase or cause to be increased
the aggregate principal amount of the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial
Interests in Unrestricted Global Notes. A Holder of an
Unrestricted Definitive Note may exchange such Note for a
beneficial interest in an Unrestricted Global Note or transfer
such Definitive Notes to a Person who takes delivery thereof in
the form of a beneficial interest in an Unrestricted Global Note
at any time. Upon receipt of a request for such an exchange or
transfer, the Trustee shall cancel the applicable Unrestricted
Definitive Note and increase or cause to be increased the
aggregate principal amount of one of the Unrestricted Global
Notes.
If any such exchange or transfer from a Definitive
Note to a beneficial interest is effected pursuant to
subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an
Unrestricted Global Note has not yet been issued, the Company
shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall
authenticate one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of
Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive
Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance
with the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Notes to Restricted
Definitive Notes. Any Restricted Definitive Note may be
transferred to and registered in the name of Persons who take
delivery thereof in the form of a Restricted Definitive Note if
the Registrar receives the following:
(A) if the transfer will be made pursuant to
Rule 144A under the Securities Act, then the
transferor must deliver a certificate in the form
of Exhibit B hereto, including the certifications
in item (1) thereof;
(B) if the transfer will be made pursuant to
Rule 903 or Rule 904, then the transferor must
deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (2)
thereof; and
(C) if the transfer will be made pursuant to
any other exemption from the registration
requirements of the Securities Act, then the
transferor must deliver a certificate in the form
of Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by
item (3) thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted
Definitive Notes. Any Restricted Definitive Note may be exchanged
by the Holder thereof for an Unrestricted Definitive Note or
transferred to a Person or Persons who take delivery thereof in
the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected
pursuant to the Exchange Offer in accordance with
the Registration Rights Agreement and the Holder,
in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable
Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the
distribution of the Exchange Notes or (3) a Person
who is an affiliate (as defined in Rule 144) of the
Company;
(B) any such transfer is effected pursuant to
the Shelf Registration Statement in accordance with
the Registration Rights Agreement;
(C) any such transfer is effected by a
Broker-Dealer pursuant to the Exchange Offer
Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted
Definitive Notes proposes to exchange such
Notes for an Unrestricted Definitive Note, a
certificate from such Holder in the form of
Exhibit C hereto, including the
certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted
Definitive Notes proposes to transfer such
Notes to a Person who shall take delivery
thereof in the form of an Unrestricted
Definitive Note, a certificate from such
Holder in the form of Exhibit B hereto,
including the certifications in item (4)
thereof;
and, in each such case set forth in this
subparagraph (D), if the Registrar so requests, an
Opinion of Counsel in form reasonably acceptable to
the Company to the effect that such exchange or
transfer is in compliance with the Securities Act
and that the restrictions on transfer contained
herein and in the Private Placement Legend are no
longer required in order to maintain compliance
with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted
Definitive Notes. A Holder of Unrestricted Definitive Notes may
transfer such Notes to a Person who takes delivery thereof in the
form of an Unrestricted Definitive Note. Upon receipt of a
request to register such a transfer, the Registrar shall register
the Unrestricted Definitive Notes pursuant to the instructions
from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) they are not
broker-dealers, (y) they are not participating in a distribution of the Exchange
Notes and (z) they are not affiliates (as defined in Rule 144) of the Company,
and accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an
aggregate principal amount equal to the principal amount of the Restricted
Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with
the issuance of such Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced accordingly, and
the Company shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of
all Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B)
below, each Global Note and each Definitive Note
(and all Notes issued in exchange therefor or
substitution thereof) shall bear the legend in
substantially the following form:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF,
U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A
"QIB"), (B) IT HAS ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) (AN "IAI"),
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE
TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO
A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903
OR RULE 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE FORM
OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH
THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION, AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO
WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION"
AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING."
(B) Notwithstanding the foregoing, any Global
Note or Definitive Note issued pursuant to
subparagraphs (b)(iv), (c)(iii), (c)(iv), (d)(ii),
(d)(iii), (e)(ii), (e)(iii) or (f) to this Section
2.06 (and all Notes issued in exchange therefor or
substitution thereof) shall not bear the Private
Placement Legend.
(ii) Global Note Legend. Each Global Note shall
bear a legend in substantially the following form:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY."
(iii) Regulation S Temporary Global Note Legend.
The Regulation S Temporary Global Note shall bear a legend in
substantially the following form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes. At such time
as all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall
authenticate Global Notes and Definitive Notes upon the Company's
order or at the Registrar's request.
(ii) No service charge shall be made to a holder of
a beneficial interest in a Global Note or to a Holder of a
Definitive Note for any registration of transfer or exchange, but
the Company may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer pursuant to
Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).
(iii) The Registrar shall not be required to
register the transfer of or exchange any Note selected for
redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued
upon any registration of transfer or exchange of Global Notes or
Definitive Notes shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits under
this Indenture, as the Global Notes or Definitive Notes
surrendered upon such registration of transfer or exchange.
(v) The Company shall not be required (A) to issue,
to register the transfer of or to exchange any Notes during a
period beginning at the opening of business 15 days before the
day of any selection of Notes for redemption under Section 3.02
hereof and ending at the close of business on the day of
selection, (B) to register the transfer of or to exchange any
Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part or (C) to
register the transfer of or to exchange a Note between a record
date and the next succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration
of a transfer of any Note, the Trustee, any Agent and the Company
may deem and treat the Person in whose name any Note is
registered as the absolute owner of such Note for the purpose of
receiving payment of principal of and interest on such Notes and
for all other purposes, and none of the Trustee, any Agent or the
Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes
and Definitive Notes in accordance with the provisions of Section
2.02 hereof.
(viii) All certifications, certificates and
Opinions of Counsel required to be submitted to the Registrar
pursuant to this Section 2.06 to effect a registration of
transfer or exchange may be submitted by facsimile.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the
Company and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Note, the Company shall issue and the Trustee,
upon receipt of an Authentication Order, shall authenticate, a replacement Note
if the Trustee's requirements are met. If required by the Trustee or the
Company, an indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Company to protect the Company, the Trustee,
any Agent and any authenticating agent from any loss that any of them may suffer
if a Note is replaced. The Company may charge for its expenses in replacing a
Note.
Every replacement Note is an additional obligation of the Company
and shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated
by the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note; however, Notes held by the Company or a Subsidiary of
the Company shall not be deemed to be outstanding for purposes of Section
3.07(a) hereof.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, shall
be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that the Trustee knows are so owned
shall be so disregarded.
Section 2.10. Temporary Notes.
Until certificates representing Notes are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Company
considers appropriate for temporary Notes and as shall be reasonably acceptable
to the Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate, as soon as practicable upon its receipt of an
Authentication Order, Definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the
benefits of this Indenture.
Section 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.
Section 3.02. Selection of Notes to Be Redeemed.
If less than all of the Notes are to be redeemed or purchased in
an offer to purchase at any time, the Trustee shall select the Notes to be
redeemed or purchased among the Holders of the Notes in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or in accordance with any other method the Trustee considers fair and
appropriate. In the event of partial redemption by lot, the particular Notes to
be redeemed shall be selected, unless otherwise provided herein, not less than
30 nor more than 60 days prior to the redemption date by the Trustee from the
outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.09 hereof, at least 30
days but not more than 60 days before a redemption date, the Company shall mail
or cause to be mailed, by first class mail, a notice of redemption to each
Holder whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall
state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section
3.03 hereof, Notes called for redemption become irrevocably due and payable on
the redemption date at the redemption price. A notice of redemption may not be
conditional.
Section 3.05. Deposit of Redemption Price.
One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Company
shall issue and, upon receipt of the Company's written request, the Trustee
shall as soon as practicable authenticate for the Holder at the expense of the
Company a new Note equal in principal amount to the unredeemed portion of the
Note surrendered.
Section 3.07. Optional Redemption.
(a) At any time prior to November 15, 2002, Stericycle may on any one or more
occasions redeem up to 35% of the aggregate principal amount of Notes issued
under this Indenture at a redemption price of 112 3/8% of the principal amount
of the Notes redeemed, plus accrued and unpaid interest and Liquidated Damages,
if any, to the redemption date, with the net cash proceeds of one or more Equity
Offerings; provided that:
(1) at least 65% of the Notes issued under this Indenture remain
outstanding immediately after the occurrence of such redemption
(excluding Notes held by Stericycle and its Subsidiaries); and
(2) the redemption occurs within 60 days of the date of the closing
of such Equity Offering.
(b) Except pursuant to the preceding paragraph, the Notes will
not be redeemable at Stericycle's option prior to November 15, 2004. Stericycle
is not prohibited, however, from acquiring Notes by means other than a
redemption, whether pursuant to an issuer tender offer or otherwise, assuming
such acquisition does not otherwise violate the terms of this Indenture.
After November 15, 2004, Stericycle may redeem all or a part of
the Notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages, if any, on the Notes
redeemed to the applicable redemption date, if redeemed during the twelve-month
period beginning on November 15 of the years indicated below:
YEAR PERCENTAGE
2004...............................................................106.1875%
2005...............................................................104.1250%
2006...............................................................102.0625%
2007 and thereafter................................................100.0000%
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption.
Except as described in Sections 4.10 and 4.15 hereof, Stericycle
shall not be required to make mandatory redemption payments with respect to the
Notes.
Section 3.09. Offer to Purchase by Application of Excess
Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Company
shall be required to commence an offer to all Holders to purchase Notes (an
"Asset Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20
Business Days following its commencement and no longer, except to the extent
that a longer period is required by applicable law (the "Offer Period"). No
later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Company shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount")
or, if less than the Offer Amount has been tendered, all Notes tendered in
response to the Asset Sale Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and
on or before the related interest payment date, any accrued and unpaid interest
shall be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall
send, by first class mail, a notice to the Trustee and each of the Holders, with
a copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this
Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrete or accrue interest;
(d) that, unless the Company defaults in making such payment, any
Note accepted for payment pursuant to the Asset Sale Offer shall cease to
accrete or accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer may elect to have Notes purchased in integral multiples of
$1,000 only;
(f) that Holders electing to have a Note purchased pursuant to
any Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, a depositary, if
appointed by the Company, or a Paying Agent at the address specified in the
notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if
the Company, the depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered
by Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in accordance
with the terms of this Section 3.09. The Company, the Depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Notes tendered by such Holder and accepted by
the Company for purchase, and the Company shall promptly issue a new Note, and
the Trustee, upon written request from the Company shall authenticate and mail
or deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall publicly announce the results of the Asset Sale Offer on the Purchase
Date.
Other than as specifically provided in this Section 3.09, any
purchase pursuant to this Section 3.09 shall be made pursuant to the provisions
of Sections 3.01 through 3.06 hereof.
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Notes.
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Company
or a Subsidiary thereof, (i) holds as of 12:00 p.m. Eastern Time on the due date
money deposited by the Company in immediately available funds and designated for
and sufficient to pay all principal, premium, if any, and interest then due and
(ii) is not prohibited from paying such money to the Holders pursuant to the
terms of this Indenture or the Notes. The Company shall pay all Liquidated
Damages, if any, in the same manner on the dates and in the amounts set forth in
the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal at the rate
equal to 1% per annum in excess of the then applicable interest rate on the
Notes to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable grace period)
at the same rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, the City
of New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more
other offices or agencies where the Notes may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the City of New York for such purposes. The Company shall
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.
Section 4.03. Reports.
(a) Whether or not required by the SEC, so long as any Notes are
outstanding, Stericycle shall furnish to the Holders of Notes, within the time
periods specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q
and 10-K if Stericycle were required to file such Forms,
including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the
annual information only, a report on the annual financial
statements by Stericycle's certified independent accountants; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if Stericycle were required to file such reports.
In addition, following the consummation of the exchange offer
contemplated by the Registration Rights Agreement, whether or not required by
the SEC, Stericycle shall file a copy of all of the information and reports
referred to in clauses (1) and (2) above with the SEC for public availability
within the time periods specified in the SEC's rules and regulations (unless the
SEC will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. Stericycle shall at
all times comply with TIA ss. 314(a).
(b) In addition, Stericycle and the Guarantors have agreed that,
for so long as any Notes remain outstanding, they shall furnish to the Holders
and to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
Section 4.04. Compliance Certificate.
(a) The Company and each Guarantor (to the extent that such
Guarantor is so required under the TIA) shall deliver to the Trustee, within 90
days after the end of each fiscal year, an Officers' Certificate stating that a
review of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, as to each such
Officer signing such certificate, that to the best of his or her knowledge the
Company has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions of this Indenture (or,
if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Company is taking or proposes to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Company is taking or proposes to
take with respect thereto.
(b) So long as not contrary to the then current recommendations
of the American Institute of Certified Public Accountants, the year-end
financial statements delivered pursuant to Section 4.03(a) above shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that in
making the examination necessary for certification of such financial statements,
nothing has come to their attention that would lead them to believe that the
Company has violated any provisions of Article 4 or Article 5 hereof or, if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) The Company shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
Section 4.05. Taxes.
The Company shall pay, and shall cause each of its Subsidiaries
to pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.
Section 4.06. Stay, Extension and Usury Laws.
The Company and each of the Guarantors covenants (to the extent
that it may lawfully do so) that it shall not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that may affect the covenants or the performance of this Indenture; and the
Company and each of the Guarantors (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it shall not, by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
Section 4.07. Restricted Payments.
Stericycle shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of Stericycle's Equity Interests
(including, without limitation, any payment in connection with
any merger or consolidation involving Stericycle) or to the
direct or indirect holders of Stericycle's Equity Interests in
their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of
Stericycle);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving Stericycle) any Equity Interests of
Stericycle or any direct or indirect parent of Stericycle;
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness
that is subordinated to the Notes or the Guarantees, except a
payment of interest or principal at the Stated Maturity thereof;
or
(4) make any Restricted Investment (all such payments and other
actions set forth in these clauses (1) through (4) above being
collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof; and
(2) Stericycle would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00
of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of Section 4.09
hereof; and
(3) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by Stericycle and its
Restricted Subsidiaries after the date of this Indenture
(excluding Restricted Payments permitted by clauses (2), (3),
(4), (6), (7), (8), (9) and (10) of the next succeeding
paragraph) is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of
Stericycle for the period (taken as one accounting period) from
the beginning of the first fiscal quarter commencing after the
date of this Indenture to the end of Stericycle's most recently
ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100%
of such deficit), plus
(b) 100% of the aggregate net cash proceeds
received by Stericycle since the date of this Indenture as a
contribution to its common equity capital or from the issue or
sale of Equity Interests of Stericycle (other than Disqualified
Stock) or from the issue or sale of convertible or exchangeable
Disqualified Stock or convertible or exchangeable debt securities
of Stericycle that have been converted into or exchanged
(pursuant to the terms thereof) for such Equity Interests (other
than Equity Interests (or Disqualified Stock or debt securities)
sold to a Subsidiary of Stericycle), plus
(c) to the extent that any Restricted Investment
that was made after the date of this Indenture is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (i) the
cash return of capital with respect to such Restricted Investment
(less the cost of disposition, if any) and (ii) the initial
amount of such Restricted Investment.
So long as no Default has occurred and is continuing or would be
caused thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend, other payment or distribution,
within 60 days after the date of declaration notice thereof, if
at said date of declaration such payment or distribution would
have complied with the provisions of this Indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of Stericycle or any
Guarantor or of any Equity Interests of Stericycle in exchange
for, or out of the net cash proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary of
Stericycle) of Equity Interests of Stericycle (other than
Disqualified Stock); provided that the amount of any such net
cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition will be
excluded from clause (3) (b) of the preceding paragraph;
(3) any purchase, repurchase, redemption defeasance or other
acquisition or retirement for value of subordinated Indebtedness,
either
(i) solely in exchange for Permitted Refinancing
Indebtedness that is permitted to be incurred pursuant to Section
4.09 hereof, or
(ii) through the application of the net proceeds of
a substantially concurrent sale for cash (other than to a
Subsidiary of Stericycle) of Permitted Refinancing Indebtedness
of Stericycle that is permitted to be incurred pursuant to
Section 4.09 hereof;
(4) repurchases of equity interests from Persons who are not
Affiliates of Stericycle who have sold assets or stock of a
Permitted Business to Stericycle within the prior 18 months in
exchange for the equity interests repurchased;
(5) the declaration and payment of dividends to holders of any class
or series of Designated Preferred Stock (other than Disqualified
Stock) issued after the date of this Indenture; provided, that at
the time of such issuance, Stericycle, after giving effect to
such issuance as if the same had occurred at the beginning of the
applicable four-quarter period on a pro forma basis, would have
been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of Section 4.09 hereof;
(6) repurchases of Capital Stock deemed to occur upon the exercise of
stock options if such Capital Stock represents a portion of the
exercise price thereof;
(7) payments in connection with the acquisition of the BFI medical
waste business from Allied pursuant to those certain agreements
between the Company and Allied dated April 14, 1999 (the "BFI
acquisition") and related transactions made on the date of this
Indenture;
(8) payment to holders of Stericycle's Capital Stock in lieu of
issuance of fractional shares of its Capital Stock in an amount
not to exceed $100,000 per annum;
(9) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Stericycle or any Subsidiary of
Stericycle held by any former member of Stericycle's (or any of
the Subsidiaries') management committee or any former officer,
employee or director of Stericycle or any of its Subsidiaries
pursuant to any equity subscription agreement, stock option
agreement, employment agreement or other similar agreements
provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed
$2.0 million in any calendar year (with unused amounts in any
calendar year being carried over to succeeding calendar years);
(10) the payment of dividends on the Series A Convertible Preferred
Stock pursuant to the provisions of the Preferred Stock Agreement
as in effect on the date of this Indenture; and
(11) other Restricted Payments in an aggregate amount not to exceed
$5.0 million since the date of this Indenture.
The amount of all Restricted Payments (other than cash) shall be
the fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued to or by Stericycle or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be valued
by this covenant shall be determined by the Board of Directors whose resolution
with respect thereto shall be delivered to the Trustee. The Board of Directors'
determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $10.0 million. Not later than the date of making any
Restricted Payment, Stericycle shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this "Restricted Payments"
covenant were computed, together with a copy of any fairness opinion or
appraisal required by this Indenture.
Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries.
Stericycle shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital
Stock to Stericycle or any of its Restricted Subsidiaries, or
with respect to any other interest or participation in, or
measured by, its profits, or pay any indebtedness owed to
Stericycle or any of its Restricted Subsidiaries;
(2) make loans or advances to Stericycle or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to Stericycle or any of
its Restricted Subsidiaries.
However, the preceding restrictions shall not apply to
encumbrances or restrictions existing under or by reason of:
(1) agreements existing on the date of this Indenture, as in effect
on the date of this Indenture;
(2) this Indenture, the Notes and the Subsidiary Guarantees;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a
Person acquired by Stericycle or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except
to the extent such Indebtedness was incurred in connection with
or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or
assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of
this Indenture to be incurred;
(5) customary non-assignment provisions in leases, licenses and other
agreements entered into in the ordinary course of business;
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so
acquired of the nature described in clause (3) of the preceding
paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted
Subsidiary pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive, taken as a
whole, than those contained in the agreements governing the
Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of Section 4.12 hereof that limit the
right of the debtor to dispose of the assets subject to such
Lien;
(10) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements, asset sale
agreements, stock sale agreements and other similar agreements
entered into in the ordinary course of business;
(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(12) Indebtedness or other contractual requirements of a Receivables
Subsidiary in connection with a Qualified Receivables
Transaction, provided that such restrictions apply only to such
Receivables Subsidiary and its Subsidiaries; and
(13) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts,
instruments or obligations referred to in clauses (1) through
(12) above; provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of
Stericycle's Board of Directors, no more restrictive with respect
to such dividend or other payment restrictions prior to such
amendment, modification, restatement, renewal, increase,
supplement, refunding, replacement or refinancing.
Section 4.09. Incurrence of Indebtedness and Issuance of
Preferred Stock.
Stericycle shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and Stericycle shall not issue any Disqualified Stock and shall not
permit any of its Subsidiaries to issue any shares of preferred stock; provided,
however, that Stericycle may incur Indebtedness (including Acquired Debt) or
issue Disqualified Stock, and Stericycle's Restricted Subsidiaries may incur
Indebtedness or issue preferred stock, if the Fixed Charge Coverage Ratio for
Stericycle's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2.0 to 1.0 in the case of any such
incurrence or issuance occurring on or prior to the third anniversary of the
date of this Indenture and 2.25 to 1.0 in the case of any such incurrence or
issuance that occurs thereafter, in each case determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred or the preferred stock or Disqualified
Stock had been issued, as the case may be, at the beginning of such four-quarter
period.
The first paragraph of this covenant shall not prohibit the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(1) the incurrence by Stericycle and any Guarantor of additional
Indebtedness and letters of credit under Credit Facilities in an
aggregate principal amount at any one time outstanding under this
clause (1) (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of
Stericycle and any Guarantors thereunder) not to exceed $275.0
million less the aggregate amount of all Net Proceeds of Asset
Sales that have been applied by the Company or any of its
Restricted Subsidiaries since the date of this Indenture to repay
any term Indebtedness under a Credit Facility pursuant to Section
4.10 hereof and less the aggregate amount of all Net Proceeds of
Asset Sales applied by the Company or any of its Restricted
Subsidiaries to repay any revolving credit Indebtedness under a
Credit Facility and effect a corresponding commitment reduction
thereunder pursuant to Section 4.10 hereof and less the aggregate
amount of Indebtedness of Receivables Subsidiaries outstanding
pursuant to clause (13) below;
(2) the incurrence by Stericycle and its Subsidiaries of the Existing
Indebtedness;
(3) the incurrence by Stericycle and the Guarantors of Indebtedness
represented by the Notes and the related Subsidiary Guarantees to
be issued on the date of this Indenture and the Exchange Notes
and the related Subsidiary Guarantees to be issued pursuant to
the Registration Rights Agreement;
(4) the incurrence by Stericycle or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings or purchase money obligations,
in each case, incurred for the purpose of financing all or any
part of the purchase price or cost of construction or improvement
of property, plant or equipment used in the business of
Stericycle or such Restricted Subsidiary, in an aggregate
principal amount, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (4), not to exceed
$10.0 million at any time outstanding;
(5) the incurrence by Stericycle or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund, refinance
or replace Indebtedness (other than intercompany Indebtedness)
that was permitted by this Indenture to be incurred under the
first paragraph of this Section 4.09 or clauses (2), (3), (4),
(5), or (14) of this paragraph;
(6) the incurrence by Stericycle or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among
Stericycle and any of its Restricted Subsidiaries; provided,
however, that:
(a) if Stericycle or any Guarantor is the obligor on
such Indebtedness and the holders of Senior Debt
under the Credit Facilities do not have a security
interest therein, such Indebtedness must be
expressly subordinated to the prior payment in full
in cash of all Obligations with respect to the
Notes, in the case of Stericycle, or the Subsidiary
Guarantee, in the case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness
being held by a Person other than Stericycle or a
Restricted Subsidiary of Stericycle and (ii) any
sale or other transfer of any such Indebtedness to
a Person that is not either Stericycle or a
Restricted Subsidiary of Stericycle; will be
deemed, in each case, to constitute an incurrence
of such Indebtedness by Stericycle or such
Restricted Subsidiary, as the case may be, that was
not permitted by this clause (6);
(7) Indebtedness consisting of Permitted Hedging Agreements;
(8) the guarantee by Stericycle or any of the Guarantors of
Indebtedness of Stericycle or a Restricted Subsidiary of
Stericycle that was permitted to be incurred by another provision
of this Section 4.09;
(9) the incurrence by Stericycle's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted
Subsidiary, that event will be deemed to constitute an incurrence
of Indebtedness by a Restricted Subsidiary of Stericycle that was
not permitted by this clause (9);
(10) the accrual of interest, the accretion or amortization of
original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same
terms, and the payment of dividends on Disqualified Stock in the
form of additional shares of the same class of Disqualified Stock
will not be deemed to be an incurrence of Indebtedness or an
issuance of Disqualified Stock for purposes of this covenant;
provided, in each such case, that the amount thereof is included
in Fixed Charges of Stericycle as accrued;
(11) obligations in respect of performance and surety bonds and
completion guarantees provided by Stericycle or any Restricted
Subsidiary of Stericycle in the ordinary course of business;
(12) Indebtedness incurred by Stericycle or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect
to letters of credit issued in the ordinary course of business in
respect of workers' compensation claims or self-insurance, or
other Indebtedness with respect to reimbursement type obligations
regarding workers' compensation claims;
(13) the incurrence by a Receivables Subsidiary of Indebtedness in a
Qualified Receivables Transaction that is without recourse to
Stericycle or to any other Restricted Subsidiary of Stericycle or
their assets (other than such Receivables Subsidiary and its
assets and, as to Stericycle or any Subsidiary of Stericycle,
other than pursuant to representations, warranties, covenants and
indemnities customary for such transactions); and
(14) the incurrence by Stericycle or any of its Restricted
Subsidiaries of additional Indebtedness and/or the issuance of
Permitted Domestic Subsidiary Preferred Stock by Stericycle's
Domestic Subsidiaries in an aggregate principal amount (or
accreted value, as applicable) at any time outstanding, including
all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this
clause (14), not to exceed $20.0 million.
For purposes of determining compliance with this Section 4.09, in
the event that an item of proposed Indebtedness meets the criteria of more than
one of the categories of Permitted Debt described in clauses (1) through (14)
above, or is entitled to be incurred pursuant to the first paragraph of this
Section 4.09, Stericycle shall be permitted to classify such item of
Indebtedness on the date of its incurrence in any manner that complies with this
Section 4.09. Indebtedness incurred under Credit Facilities outstanding on the
date on which Notes are first issued and authenticated under this Indenture
shall be deemed to have been incurred on such date in reliance on the exception
provided by clause (1) of the definition of Permitted Debt. The Series A
Convertible Preferred Stock issued pursuant to the Preferred Stock Agreement
dated the date hereof shall be deemed to have been issued prior to the execution
of this Indenture.
Section 4.10. Asset Sales.
Stericycle shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) Stericycle (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of the Asset Sale at least
equal to the fair market value of the assets or Equity Interests
issued or sold or otherwise disposed of;
(2) in the case of Asset Sales involving consideration in excess of
$5.0 million, the fair market value is determined by Stericycle's
Board of Directors and evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the
Trustee; and
(3) at least 75% of the consideration received in such Asset Sale by
Stericycle or such Restricted Subsidiary from or on behalf of the
transferee consists of:
(a) cash or readily marketable Cash Equivalents;
(b) the assumption of Indebtedness or other
liabilities reflected on the consolidated balance sheet of
Stericycle and its Restricted Subsidiaries in accordance with
GAAP (excluding Indebtedness or any other liabilities that are
subordinate in right of payment to the Notes) and the release
from all liability on such Indebtedness or other liabilities
assumed;
(c) all or substantially all of the assets of, or a
majority of the Voting Stock of, another Permitted Business;
(d) other long-term assets that are used or useful
in a Permitted Business;
(e) any securities, notes or other obligations
received by Stericycle or any such Restricted Subsidiary from
such transferee that are converted by Stericycle or such
Restricted Subsidiary into cash within 90 days of the receipt
thereof, to the extent of the cash received in that conversion or
Cash Equivalents, to the extent of the Cash Equivalents received
in that conversion;
(f) any Permitted Investment; or
(g) any combination thereof.
Within 365 days after the receipt of any Net Proceeds from an
Asset Sale, Stericycle may apply those Net Proceeds at its option:
(1) to repay Senior Debt and, if the Senior Debt repaid is revolving
credit Indebtedness, to correspondingly reduce commitments with
respect thereto;
(2) to acquire all or substantially all of the assets of, or a
majority of the Voting Stock of, another Permitted Business;
(3) to make a capital expenditure;
(4) to acquire other long-term assets that are used or useful in a
Permitted Business;
(5) to redeem the Notes with the Net Proceeds of such Asset Sale
pursuant to any of the provisions described in Section 3.07
hereof; or
(6) any combination of the foregoing.
Pending the final application of any Net Proceeds, Stericycle may
temporarily reduce revolving credit borrowings (without reducing commitments) or
otherwise invest the Net Proceeds in any manner that is not prohibited by this
Indenture.
Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the preceding paragraph will constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million,
Stericycle shall make an Asset Sale Offer pursuant to Section 3.09 hereof to all
Holders of Notes and all holders of other Indebtedness that is pari passu with
the Notes containing provisions similar to those set forth in this Indenture
with respect to offers to purchase or redeem with the proceeds of sales of
assets to purchase the maximum principal amount of Notes and such other pari
passu Indebtedness that may be purchased out of the Excess Proceeds. The offer
price in any Asset Sale Offer will be equal to 100% of the principal amount plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase, and will be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, Stericycle may use those Excess Proceeds
for any purpose not otherwise prohibited by this Indenture. If the aggregate
principal amount of Notes and other Indebtedness tendered into such Asset Sale
Offer exceeds the amount of Excess Proceeds, the Trustee will select the Notes
and such other Indebtedness to be purchased on a pro rata basis based on the
principal amount of Notes and such other pari passu Indebtedness tendered. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset
at zero.
Stericycle shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with each
repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sales
provisions of this Indenture, Stericycle shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the Asset Sale provisions of this Indenture by virtue of the
conflict.
Section 4.11. Transactions with Affiliates.
Stericycle shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to Stericycle or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by
Stericycle or such Restricted Subsidiary with an unrelated
Person; and
(2) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $2.0 million, such Affiliate Transaction complies with
this Section 4.11 and such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board
of Directors; and
(3) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $10.0 million, the Board of Directors of Stericycle or
any such Restricted Subsidiary party to such Affiliate
Transaction shall have received an opinion as to the fairness to
the Holders of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal or investment banking
firm of national standing.
The following items shall not be deemed to be Affiliate
Transactions and, therefore, will not be subject to the provisions of the prior
paragraph:
(1) any employment agreement entered into by Stericycle or any of its
Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of Stericycle or such
Restricted Subsidiary;
(2) transactions between or among Stericycle and/or its Restricted
Subsidiaries;
(3) transactions with a Person that is an Affiliate of Stericycle
solely because Stericycle owns an Equity Interest in such Person;
(4) payment of reasonable directors fees;
(5) sales of Equity Interests (other than Disqualified Stock) to
Affiliates of Stericycle;
(6) Restricted Payments that are permitted by the provisions of this
Indenture described in Section 4.07 hereof;
(7) loans by Stericycle and its Restricted Subsidiaries to employees
of Stericycle and its Restricted Subsidiaries that are entered in
the ordinary course of business and that are approved by the
Board of Directors of Stericycle in good faith;
(8) payments of customary arms'-length fees by Stericycle or any of
its Restricted Subsidiaries to investment banking firms,
financial consultants and financial advisors made for any
financial advisory, financing, underwriting or placement services
or in respect of other investment banking activities, including,
without limitation, in connection with acquisitions and
divestitures, in each case to the extent that the same are
approved by a majority of the disinterested members of the Board
of Directors in good faith;
(9) transactions with customers, clients, suppliers, joint venture
partners or purchasers or sellers of goods or services, in each
case in the ordinary course of business (including, without
limitation, pursuant to joint venture agreements) and otherwise
in compliance with the terms of this Indenture that are fair to
Stericycle or its Restricted Subsidiaries, in the reasonable
determination of the Board of Directors of Stericycle or the
senior management thereof, or are on terms at least as favorable
as might reasonably have been obtained at such time from an
unaffiliated party;
(10) any agreement as in effect on the date of this Indenture or any
amendment to such agreement (so long as the amendment is not
disadvantageous to the Holders of the Notes in any respect) or
any transaction contemplated thereby;
(11) transactions between or among Stericycle and/or its Restricted
Subsidiaries or transactions between a Receivables Subsidiary and
any Person in which the Receivables Subsidiary has an Investment;
and
(12) any transaction with an Affiliate where the only consideration
paid by Stericycle or any Restricted Subsidiary is Capital Stock
of Stericycle (other than Disqualified Stock).
Section 4.12. Liens.
Stericycle shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly create, incur, assume or suffer to exist
any Lien of any kind securing Indebtedness that is pari passu or subordinated in
right of payment to the Notes on any asset now owned or hereafter acquired,
except Permitted Liens, unless the Notes are secured by such Lien on an equal
and ratable basis.
Section 4.13. Business Activities.
Stericycle shall not, and shall not permit any Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to Stericycle and its Subsidiaries taken as a whole.
Section 4.14. Corporate Existence.
Subject to Article 5 hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of the Company or any such
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of its Subsidiaries, if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders of the Notes.
Section 4.15. Offer to Repurchase Upon Change of Control.
If a Change of Control occurs, each Holder of Notes shall have
the right to require Stericycle to repurchase all or any part (equal to $1,000
or an integral multiple of $1,000) of that Holder's Notes pursuant to the Change
of Control Offer on the terms set forth in this Indenture. In the Change of
Control Offer, Stericycle shall offer a Change of Control Payment in cash equal
to 101% of the aggregate principal amount of Notes repurchased plus accrued and
unpaid interest and Liquidated Damages, if any, on the Notes repurchased to the
date of purchase. Within 30 days following any Change of Control, Stericycle
shall mail a notice to each Holder stating: (1) the transaction or transactions
that constitute the Change of Control; (2) that the Change of Control Offer is
being made pursuant to this Section 4.15 and that all Notes tendered shall be
accepted for payment; (3) the purchase price and the purchase date, which date
shall be no earlier than 30 days and no later than 60 days from the date the
notice is mailed (the "Change of Control Payment Date"); (4) that any Note not
tendered shall continue to accrue interest; (5) that, unless Stericycle defaults
in the payment of the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date; (6) that Holders electing to have any Notes
purchased pursuant to a Change of Control Offer shall be required to surrender
the Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Notes completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the third Business Day preceding
the Change of Control Payment Date; (7) that Holders shall be entitled to
withdraw their election if the Paying Agent receives, not later than the close
of business on the second Business Day preceding the Change of Control Payment
Date, a telegram, telex, facsimile transmission or letter setting forth the name
of the Holder, the principal amount of Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have the Notes
purchased; and (8) that Holders whose Notes are being purchased only in part
shall be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof. Stericycle shall comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent those laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the Change of Control provisions of this Indenture,
Stericycle shall comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the Change of Control
provisions of this Indenture by virtue of such conflict.
On the Change of Control Payment Date, Stericycle shall, to the
extent lawful:
(1) accept for payment all Notes or portions of Notes properly
tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all Notes or portions of Notes
properly tendered; and
(3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions of Notes being
purchased by Stericycle.
The paying agent shall promptly mail to each Holder of Notes
properly tendered the Change of Control Payment for such Notes, and the Trustee
shall promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a new Note equal in principal amount to any unpurchased portion
of the Notes surrendered, if any; provided that each new Note will be in a
principal amount of $1,000 or an integral multiple of $1,000.
Prior to complying with any of the provisions of this Section
4.15, but in any event within 90 days following a Change of Control, Stericycle
shall either repay all outstanding Senior Debt or obtain the requisite consents,
if any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this Section 4.15. Stericycle shall publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The provisions described above that require Stericycle to make a
Change of Control Offer following a Change of Control will be applicable
regardless of whether any other provisions of this Indenture are applicable.
Except as described above with respect to a Change of Control, this Indenture
does not contain provisions that permit the Holders of the Notes to require that
Stericycle repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
Stericycle shall not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control Offer
made by Stericycle and purchases all Notes properly tendered and not withdrawn
under such Change of Control Offer.
Section 4.16. No Senior Subordinated Debt.
Stericycle shall not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt of Stericycle and senior in any respect in
right of payment to the Notes. No Guarantor shall incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate or
junior in right of payment to the Senior Debt of such Guarantor and senior in
any respect in right of payment to such Guarantor's Subsidiary Guarantee.
Section 4.17. Payments for Consent.
Stericycle shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any Holder of Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of this Indenture or the Notes unless such consideration is offered to be paid
and is paid to all Holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
Section 4.18. Additional Subsidiary Guarantees.
If Stericycle or any of its Restricted Subsidiaries acquires or
creates another Domestic Subsidiary after the date of this Indenture (other than
a Receivables Subsidiary), then that newly acquired or created Domestic
Subsidiary shall become a Guarantor and execute a supplemental indenture and
deliver an Opinion of Counsel satisfactory to the Trustee within 20 Business
Days of the date on which it was acquired or created. This covenant shall not
apply to any Subsidiary that has been properly designated as an Unrestricted
Subsidiary in accordance with this Indenture for so long as it continues to
constitute an Unrestricted Subsidiary. Such designation may be made effective
concurrent with such Person becoming a Domestic Subsidiary.
Section 4.19. Designation of Restricted and Unrestricted
Subsidiaries.
The Board of Directors may designate any Restricted Subsidiary to
be an Unrestricted Subsidiary if that designation would not cause a Default. If
a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the
aggregate fair market value of all outstanding Investments owned by Stericycle
and its Restricted Subsidiaries in the Restricted Subsidiary so designated shall
be deemed to be an Investment made as of the time of such designation and shall
either reduce the amount available for Restricted Payments under the first
paragraph of Section 4.07 hereof or reduce the amount available for future
Investments under one or more clauses of the definition of Permitted
Investments, as Stericycle shall determine. That designation shall only be
permitted if such Investment would be permitted at that time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
ARTICLE 5.
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.
Stericycle shall not (1) consolidate or merge with or into
another Person (whether or not Stericycle is the surviving corporation); or (2)
directly or indirectly, sell, assign, transfer, convey or otherwise dispose of
all or substantially all of the properties or assets of Stericycle and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person; unless:
(1) either: (a) Stericycle is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger
(if other than Stericycle) or to which such sale, assignment,
transfer, conveyance or other disposition shall have been made is
a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or
merger (if other than Stericycle) or the Person to which such
sale, assignment, transfer, conveyance or other disposition shall
have been made assumes all the obligations of Stericycle under
the Notes, this Indenture and the Registration Rights Agreement
pursuant to agreements reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) Stericycle or the Person formed by or surviving any such
consolidation or merger (if other than Stericycle), or to which
such sale, assignment, transfer, conveyance or other disposition
shall have been made will, on the date of such transaction after
giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section
4.09 hereof.
In addition, Stericycle shall not, directly or indirectly, lease
all or substantially all of its properties or assets, in one or more related
transactions, to any other Person. The provisions of this Section 5.01 shall not
apply to a sale, assignment, transfer, conveyance or other disposition of assets
between or among Stericycle and any of its Restricted Subsidiaries.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under this Indenture with the same
effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Notes except in the case
of a sale, assignment, transfer, conveyance or other disposition of all of the
Company's assets that meets the requirements of Section 5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes whether or not
prohibited by the subordination provisions of this Indenture;
(2) default in payment when due of the principal of, or premium, if
any, on the Notes, whether or not prohibited by the subordination
provisions of this Indenture;
(3) failure by Stericycle or any of its Subsidiaries to comply with
the provisions described in Sections 4.10 and 4.15 hereof;
(4) failure by Stericycle or any of its Subsidiaries to comply with
any of the other agreements in this Indenture or the Notes for 60
days after notice from the Trustee or the Holders of at least 25%
in principal amount of the then outstanding Notes;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by Stericycle or any of its
Subsidiaries (or the payment of which is guaranteed by Stericycle
or any of its Subsidiaries), which default continues for at least
10 days whether such Indebtedness or guarantee now exists, or is
created after the date of this Indenture, if that default:
(a) is caused by a failure to pay Indebtedness at its
stated final maturity (after giving effect to any
applicable grace period provided in that
Indebtedness) (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness
prior to its stated final maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $10.0 million or more;
(6) failure by Stericycle or any of its Subsidiaries to pay final
judgments aggregating in excess of $7.5 million, which judgments
are not paid, discharged or stayed for a period of 60 days after
such judgment or judgments become final and non-appealable;
(7) any Guarantor, or any Person acting on behalf of any Guarantor,
shall deny or disaffirm its obligations under its Subsidiary
Guarantee;
(8) except as permitted by this Indenture, any Subsidiary Guarantee
issued by any Significant Subsidiary shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect; and
(9) Stericycle or any of its Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary pursuant to or within the meaning of
Bankruptcy Law:
(a) commences a voluntary case;
(b) consents to the entry of an order for relief
against it in an involuntary case;
(c) consents to the appointment of a custodian of it or
for all or substantially all of its property;
(d) makes a general assignment for the benefit of its
creditors; or
(e) generally is not paying its debts as they become
due; or
(10) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(a) is for relief against the Company or any of its
Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary in an
involuntary case;
(b) appoints a custodian of the Company or any of its
Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary or for all or
substantially all of the property of the Company or
any of its Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary; or
(c) orders the liquidation of the Company or any of its
Significant Subsidiaries or any group of
Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days.
Section 6.02. Acceleration.
If any Event of Default (other than an Event of Default specified
in clause (9) or (10) of Section 6.01 hereof with respect to the Company, any
Significant Subsidiary or any group of Subsidiaries that, taken as a whole,
would constitute a Significant Subsidiary) occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately; provided, that so
long as any Indebtedness permitted to be incurred pursuant to the Credit
Agreement shall be outstanding, such acceleration of the Notes shall not be
effective until the earlier of an acceleration of any Indebtedness under the
Credit Agreement and five Business Days after receipt by Stericycle and the
administrative agent under the Credit Agreement of written notice of that
acceleration. Upon any such declaration, the Notes shall become due and payable
immediately. Notwithstanding the foregoing, if an Event of Default specified in
clause (9) or (10) of Section 6.01 hereof occurs with respect to Stericycle, any
of its Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary, all outstanding Notes shall be
due and payable immediately without further action or notice. The Holders of a
majority in aggregate principal amount of the then outstanding Notes by written
notice to the Trustee may on behalf of all of the Holders rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree and if all existing Events of Default (except nonpayment of
principal, interest or premium that has become due solely because of the
acceleration) have been cured or waived.
If an Event of Default occurs on or after November 15, 2004 by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of the Company with the intention of avoiding payment of the premium that the
Company would have had to pay if the Company then had elected to redeem the
Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an
equivalent premium shall also become and be immediately due and payable, to the
extent permitted by law, anything in this Indenture or in the Notes to the
contrary notwithstanding. If an Event of Default occurs prior to November 15,
2004 by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then, upon acceleration of the
Notes, an additional premium shall also become and be immediately due and
payable in an amount, for each of the years beginning on November 15 of the
years set forth below, as set forth below (expressed as a percentage of the
principal amount of the Notes on the date of payment that would otherwise be due
but for the provisions of this sentence):
YEAR PERCENTAGE
---- ----------
1999................................................. 112.3750%
2000................................................. 111.1375%
2001................................................. 109.9000%
2002................................................. 108.6625%
2003................................................. 107.4250%
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest and Liquidated Damages, if any, on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default.
All remedies are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount
of the then outstanding Notes by notice to the Trustee may on behalf of the
Holders of all of the Notes waive an existing Default or Event of Default and
its consequences hereunder, except a continuing Default or Event of Default in
the payment of the principal of, premium and Liquidated Damages, if any, or
interest on, the Notes (including in connection with an offer to purchase)
(provided, however, that the Holders of a majority in aggregate principal amount
of the then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
Section 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may result in the
incurrence of liability by the Trustee.
Section 6.06. Limitation on Suits.
A Holder may pursue a remedy with respect to this Indenture or
the Notes only if:
(a) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity satisfactory to the Trustee against any loss, liability or
expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over another Holder.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right
of any Holder to receive payment of principal, premium and Liquidated Damages,
if any, and interest on the Note, on or after the respective due dates expressed
in the Note (including in connection with an offer to purchase), or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(1) or (2) occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for
amounts due under Section 7.07 hereof, including payment of all
compensation, expense and liabilities incurred, and all advances
made, by the Trustee and the costs and expenses of collection;
Second: to Holders of Notes for amounts due and
unpaid on the Notes for principal, premium and Liquidated
Damages, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on
the Notes for principal, premium and Liquidated Damages, if any
and interest, respectively; and
Third: to the Company or to such party as a court
of competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined
solely by the express provisions of this Indenture and the
Trustee need perform only those duties that are specifically set
forth in this Indenture and no others, and no implied covenants
or obligations shall be read into this Indenture against the
Trustee; and
(ii) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture. However, the Trustee shall
examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture but need not
verify the contents thereof.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section;
(ii) the Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer, unless
it is proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Sections
6.02, 6.04 or 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision
of this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), (c), (e) and (f) of this Section 7.01 and Section 7.02.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed
by it to be genuine and to have been signed or presented by the proper Person
and shall be fully protected in acting or refraining from acting based upon such
reasonable belief or presentation. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may
consult with counsel and the advice of such counsel or any Opinion of Counsel
shall be full and complete authorization and protection from liability in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request or direction
of any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(g) Except with respect to Section 4.01 hereof, the Trustee shall
have no duty to inquire as to the performance of the Company's covenants in
Article 4 hereof. In addition, the Trustee shall not be deemed to have knowledge
of any Default or Event of Default except (i) any Event of Default occurring
pursuant to Sections 6.01(1), 6.01(2) and 4.01 or (ii) any Default or Event of
Default of which the Trustee shall have received written notification or
obtained actual knowledge.
(h) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document, but
the Trustee may, in its discretion, make such further inquiry or investigation
into such facts or matters as it may see fit and if the Trustee shall determine
to make such further inquiry or investigation, it shall be entitled to examine
the books, records and premises of the Company personally or by agent or
attorney.
(i) The Trustee shall not be required to give any bond or surety
in respect of the performance of its powers and duties hereunder.
(j) Delivery of reports, information and documents to the Trustee
under Section 4.03 is for informational purposes only and the Trustee's receipt
of the foregoing shall not constitute constructive notice of any information
contained therein or determinable from information contained therein, including
the Company's compliance with any of their covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officers' Certificates).
Section 7.03. Individual Rights of Trustee.
The Trustee may become the owner or pledgee of Notes and may
otherwise deal with the Company or any Affiliate of the Company with the same
rights it would have if it were not Trustee. However, in the event that the
Trustee acquires any conflicting interest it must eliminate such conflict within
90 days, apply to the SEC for permission to continue as trustee or resign. Any
Agent may do the same with like rights and duties. The Trustee is also subject
to Sections 7.10 and 7.11 hereof.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the Notes, it
shall not be accountable for the Company's use of the proceeds from the Notes or
any money paid to the Company or upon the Company's direction under any
provision of this Indenture, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and it shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if
it is known to the Trustee, the Trustee shall mail to Holders of Notes a notice
of the Default or Event of Default within 90 days after such Default or Event of
Default becomes known to the Trustee. Except in the case of a Default or Event
of Default in payment of principal of, premium, if any, or interest on any Note,
the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of the Holders of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA ss. 313(a) (but if no
event described in TIA ss. 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by mail all
reports as required by TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders
of Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA ss. 313(d). The
Company shall promptly notify the Trustee when the Notes are listed on any stock
exchange.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company and the Guarantors shall jointly and severally
indemnify the Trustee and its agents, employees, officers, directors and
shareholders for, and hold same harmless against, any and all losses,
liabilities or expenses (including, without limitation, reasonable attorneys'
fees and expenses) incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. At the
Trustee's sole discretion, the Company shall defend the claim with counsel
reasonably satisfactory to the Trustee, and the Trustee shall cooperate in the
defense at the Company's expense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel. The Company
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The obligations of the Company and the Guarantors under this
Section 7.07 shall survive the resignation or removal of the Trustee and/or the
satisfaction and discharge or termination of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the resignation or removal
of the Trustee and/or the satisfaction and discharge or termination of this
Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(9) or (10) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of administration
under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA ss. 313(b)(2)
to the extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged
from the trust hereby created by so notifying the Company. The Holders of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company,
or the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder who has been
a Holder for at least six months, fails to comply with Section 7.10, such Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 hereof shall continue for the
benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $100 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIAss. 310(a)(1), (2) and (5). The Trustee is subject to TIAss.
310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIAss. 311(a), excluding any creditor
relationship listed in TIAss. 311(b). A Trustee who has resigned or been removed
shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance.
Stericycle may, at the option of its Board of Directors evidenced
by a resolution set forth in an Officers' Certificate, at any time, elect to
have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article Eight.
Section 8.02. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.02, the Company and the Guarantors shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be deemed to have been discharged from their respective obligations with respect
to all outstanding Notes and Subsidiary Guarantees on the date the conditions
set forth below are satisfied (hereinafter, "Legal Defeasance"). For this
purpose, Legal Defeasance means that the Company shall be deemed to have paid
and discharged the entire Indebtedness represented by the outstanding Notes,
which shall thereafter be deemed to be "outstanding" only for the purposes of
Section 8.05 hereof and the other Sections of this Indenture referred to in (a)
and (b) below, and to have satisfied all its other obligations under such Notes
and this Indenture (and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding Notes to receive
solely from the trust fund described in Section 8.04 hereof, and as more fully
set forth in such Section, payments in respect of the principal of, premium, if
any, and interest and Liquidated Damages, if any, on such Notes when such
payments are due, (b) the Company's obligations with respect to such Notes under
Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and the Company's and the Guarantors'
obligations in connection therewith and (d) this Article Eight. Subject to
compliance with this Article Eight, the Company may exercise its option under
this Section 8.02 notwithstanding the prior exercise of its option under Section
8.03 hereof.
Section 8.03. Covenant Defeasance.
Upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03, the Company and the Guarantors shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be released from their respective obligations under the covenants contained in
Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18 and
4.19 hereof and clause (4) of Section 5.01 hereof with respect to the
outstanding Notes on and after the date the conditions set forth in Section 8.04
are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.01 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon the Company's exercise under Section
8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the
satisfaction of the conditions set forth in Section 8.04 hereof, Sections
6.01(3) through 6.01(6) hereof shall not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of
either Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(a) Stericycle must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, or interest and premium
and Liquidated Damages, if any, on the outstanding Notes on the stated maturity
or on the applicable redemption date, as the case may be and Stericycle must
specify whether the Notes are being defeased to maturity or to a particular
redemption date;
(b) in the case of an election under Section 8.02 hereof,
Stericycle shall have delivered to the Trustee an Opinion of Counsel reasonably
acceptable to the Trustee confirming that (A) Stericycle has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of this Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof,
Stericycle shall have delivered to the Trustee an Opinion of Counsel reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the incurrence of Indebtedness all or a portion of the proceeds
of which will be used to defease the Notes pursuant to this Article Eight
concurrently with such incurrence) or insofar as Sections 6.01(9) or 6.01(10)
hereof is concerned, at any time in the period ending on the 91st day after the
date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which Stericycle or any
of its Subsidiaries is a party or by which Stericycle or any of its Subsidiaries
is bound;
(f) Stericycle shall have delivered to the Trustee an Opinion of
Counsel (which may be subject to customary exceptions) to the effect that on the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(g) Stericycle shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by Stericycle with the intent
of preferring the Holders of Notes over any other creditors of Stericycle or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of Stericycle; and
(h) Stericycle shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 8.05. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as
Paying Agent) as the Trustee may determine, to the Holders of such Notes of all
sums due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article Eight to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money or non-callable Government Securities held by
it as provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
Section 8.06. Repayment to Company.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest on any Note and remaining unclaimed for two years after such
principal, and premium and Liquidated Damages, if any, or interest has become
due and payable shall be paid to the Company on its request or (if then held by
the Company) shall be discharged from such trust; and the Holder of such Note
shall thereafter look only to the Company for payment thereof, and all liability
of the Trustee or such Paying Agent with respect to such trust money, and all
liability of the Company as trustee thereof, shall thereupon cease; provided,
however, that the Trustee or such Paying Agent, before being required to make
any such repayment, may at the expense of the Company cause to be published
once, in the New York Times and The Wall Street Journal (national edition),
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such notification
or publication, any unclaimed balance of such money then remaining will be
repaid to the Company.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United
States dollars or non-callable Government Securities in accordance with Section
8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee
or Paying Agent is permitted to apply all such money in accordance with Section
8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company
makes any payment of principal of, premium, if any, or interest on any Note
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Notes to receive such payment from the
money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, Stericycle, the
Guarantors and the Trustee may amend or supplement this Indenture, the
Subsidiary Guarantees or the Notes without the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes or to alter the provisions of Article 2 hereof
(including the related definitions) in a manner that does not
materially adversely affect any Holder;
(3) to provide for the assumption of Stericycle's or a Guarantor's
obligations to Holders of Notes by a successor to Stericycle or
such Guarantor pursuant to Article 5 or Article 11 hereof;
(4) to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely
affect the legal rights under this Indenture of any such Holder;
(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the Trust
Indenture Act;
(6) to provide for the issuance of Additional Notes in accordance
with the limitations set forth in this Indenture as of the date
hereof; or
(7) to allow any Guarantor to execute a supplemental indenture and/or
a Subsidiary Guarantee with respect to the Notes.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Company and
the Guarantors in the execution of any amended or supplemental indenture
authorized or permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations that may be therein contained, but the
Trustee shall not be obligated to enter into such amended or supplemental
indenture that affects its own rights, duties or immunities under this Indenture
or otherwise.
Section 9.02. With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Company and
the Trustee may amend or supplement this Indenture (including Sections 3.09,
4.10 and 4.15 hereof), the Subsidiary Guarantees and the Notes with the consent
of the Holders of at least a majority in principal amount of the Notes
(including Additional Notes, if any) then outstanding voting as a single class
(including consents obtained in connection with a tender offer or exchange offer
for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof,
any existing Default or Event of Default (other than a Default or Event of
Default in the payment of the principal of, premium, if any, or interest on the
Notes, except a payment default resulting from an acceleration that has been
rescinded) or compliance with any provision of this Indenture, the Subsidiary
Guarantees or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including Additional
Notes, if any) voting as a single class (including consents obtained in
connection with a tender offer or exchange offer for, or purchase of, the
Notes). Section 2.08 hereof shall determine which Notes are considered to be
"outstanding" for purposes of this Section 9.02.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02
hereof, the Trustee shall join with the Company in the execution of such amended
or supplemental indenture unless such amended or supplemental indenture directly
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders of Notes affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the
Holders of a majority in aggregate principal amount of the Notes (including
Additional Notes, if any) then outstanding voting as a single class may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Notes. However, without the consent of each Holder affected, an
amendment or waiver under this Section 9.02 may not (with respect to any Notes
held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the
Notes (except as provide above with respect to Sections 3.09,
4.10 and 4.15 hereof);
(3) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(4) waive a Default or Event of Default in the payment of principal
of, or interest or premium, or Liquidated Damages, if any, on the
Notes (except a rescission of acceleration of the Notes by the
Holders of at least a majority in aggregate principal amount of
the then outstanding Notes, including Additional Notes if any and
a waiver of the payment default that resulted from such
acceleration);
(5) make any Note payable in money other than that stated in the
Notes;
(6) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of, or interest or premium or
Liquidated Damages, if any, on the Notes;
(7) waive a redemption payment with respect to any Note (other than a
payment required by Section 3.09, 4.10 or 4.15 hereof);
(8) release any Guarantor from any of its obligations under its
Subsidiary Guarantee or this Indenture, except in accordance with
the terms of this Indenture; or
(9) make any change in the preceding amendment and waiver provisions.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes
shall be set forth in an amended or supplemental indenture that complies with
the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder or subsequent Holder may revoke the consent as to
its Note if the Trustee receives written notice of revocation before the date
the waiver, supplement or amendment becomes effective. An amendment, supplement
or waiver becomes effective in accordance with its terms and thereafter binds
every Holder.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental indenture
authorized pursuant to this Article Nine if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon, in addition to the documents required
by Section 12.04 hereof, an Officers' Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
ARTICLE 10.
SUBORDINATION
Section 10.01. Agreement to Subordinate.
The Company agrees, and each Holder by accepting a Note agrees,
that the payment of Subordinated Note Obligations is subordinated in right of
payment, to the extent and in the manner provided in this Article 10, to the
prior payment in full in cash of all Senior Debt (whether outstanding on the
date hereof or hereafter created, incurred, assumed or guaranteed), and that the
subordination is for the benefit of the holders of Senior Debt.
Section 10.02. Liquidation; Dissolution; Bankruptcy.
Upon any distribution to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to the Company or its
property, in an assignment for the benefit of creditors or any marshaling of the
Company's assets and liabilities:
(i) holders of Senior Debt shall be entitled to
receive payment in full in cash of all Obligations due in respect
of such Senior Debt (including interest after the commencement of
any such proceeding at the rate specified in the applicable
Senior Debt) before Holders of the Notes shall be entitled to
receive any payment with respect to Subordinated Note Obligations
(except that Holders of Notes may receive and retain (A)
Permitted Junior Securities and (B) payments and other
distributions made from any defeasance trust created pursuant to
Section 8.01 hereof); and
(ii) until all Obligations with respect to Senior
Debt (as provided in clause (i) above) are paid in full in cash,
any distribution to which Holders would be entitled but for this
Article 10 shall be made to holders of Senior Debt (except that
Holders of Notes may receive (A) Permitted Junior Securities and
(B) payments and other distributions made from any defeasance
trust created pursuant to Section 8.01 hereof), as their
interests may appear.
Section 10.03. Default on Designated Senior Debt.
(a) The Company may not make any payment or distribution to the
Trustee or any Holder in respect of Subordinated Note Obligations, including any
acquisition from the Trustee or any Holder of any Notes for cash or property
(other than (A) Permitted Junior Securities and (B) payments and other
distributions made from any defeasance trust created pursuant to Section 8.01
hereof) until all principal and other Obligations with respect to the Senior
Debt have been paid in full if:
(i) a default in the payment of any principal or
other Obligations with respect to Designated Senior Debt occurs
and is continuing; or
(ii) a default, other than a payment default, on
Designated Senior Debt occurs and is continuing that then permits
holders of the Designated Senior Debt to accelerate its maturity
and the Trustee receives a notice of the default (a "Payment
Blockage Notice") from the Company or the requisite number of
holders of such Designated Senior Debt or their Representative.
If the Trustee receives any such Payment Blockage Notice, no
subsequent Payment Blockage Notice shall be effective for
purposes of this Section unless and until at least 360 days shall
have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage
Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of not less than 90 days.
(b) The Company may and shall resume payments on and
distributions in respect of the Notes upon:
(i) in the case of a default referred to in Section
10.03(a)(i) hereof, the date on which such default is cured or
waived, or
(ii) in the case of a default referred to in
Section 10.03(a)(ii) hereof, the earlier of the date on which
such nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Debt has been
accelerated.
Section 10.04. Acceleration of Notes.
If payment of the Notes is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Debt of the
acceleration.
Section 10.05. When Distribution Must Be Paid Over.
In the event that the Trustee or any Holder receives any payment
of any Subordinated Note Obligations at a time when the Trustee or such Holder,
as applicable, has actual knowledge that such payment is prohibited by Section
10.02 or 10.03 hereof, such payment shall be held by the Trustee or such Holder,
in trust for the benefit of, and shall be paid forthwith over and delivered,
upon written request, to, the holders of Senior Debt as their interests may
appear or their Representative under this Indenture or other agreement (if any)
pursuant to which Senior Debt may have been issued, as their respective
interests may appear, for application to the payment of all Obligations with
respect to Senior Debt remaining unpaid to the extent necessary to pay such
Obligations in full in accordance with their terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Debt.
With respect to the holders of Senior Debt, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into this
Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt, and shall not be liable to any
such holders if the Trustee shall pay over or distribute to or on behalf of
Holders or the Company or any other Person money or assets to which any holders
of Senior Debt shall be entitled by virtue of this Article 10, except if such
payment is made as a result of the willful misconduct or gross negligence of the
Trustee.
Section 10.06. Notice by Company.
The Company shall promptly notify the Trustee and the Paying
Agent of any facts known to the Company that would cause a payment of any
Obligations with respect to the Notes to violate this Article 10, but failure to
give such notice shall not affect the subordination of the Notes to the Senior
Debt as provided in this Article 10.
Section 10.07. Subrogation.
After all Senior Debt is paid in full in cash and until the Notes
are paid in full, Holders of Notes shall be subrogated (equally and ratably with
all other Indebtedness pari passu with the Notes) to the rights of holders of
Senior Debt to receive distributions applicable to Senior Debt to the extent
that distributions otherwise payable to the Holders of Notes have been applied
to the payment of Senior Debt. A distribution made under this Article 10 to
holders of Senior Debt that otherwise would have been made to Holders of Notes
is not, as between the Company and Holders, a payment by the Company on the
Notes.
Section 10.08. Relative Rights.
This Article 10 defines the relative rights of Holders of Notes
and holders of Senior Debt. Nothing in this Indenture shall:
(i) impair, as between the Company and Holders of
Notes, the obligation of the Company, which is absolute and
unconditional, to pay principal of and interest on the Notes in
accordance with their terms;
(ii) affect the relative rights of Holders of Notes
and creditors of the Company other than their rights in relation
to holders of Senior Debt; or
(iii) prevent the Trustee or any Holder of Notes
from exercising its available remedies upon a Default or Event of
Default, subject to the rights of holders and owners of Senior
Debt to receive distributions and payments otherwise payable to
Holders of Notes.
If the Company fails because of this Article 10 to pay principal
of or interest on a Note on the due date, the failure is still a Default or
Event of Default.
Section 10.09. Subordination May Not Be Impaired by Company.
No right of any holder of Senior Debt to enforce the
subordination of the Subordinated Note Obligations shall be impaired by any act
or failure to act by the Company or any Holder or by the failure of the Company
or any Holder to comply with this Indenture.
Section 10.10. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to
holders of Senior Debt, the distribution may be made and the notice given to
their Representative.
Upon any payment or distribution of assets of the Company
referred to in this Article 10, the Trustee and the Holders of Notes shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other Person making any distribution to the
Trustee or to the Holders of Notes for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the Senior Debt and
other Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 10.
Section 10.11. Rights of Trustee and Paying Agent.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least five Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Notes to violate this Article 10. Only the Company or a
Representative may give the notice. Nothing in this Article 10 shall impair the
claims of, or payments to, the Trustee under or pursuant to other sections of
this Indenture, including but not limited to Section 7.07 hereof.
The Trustee may hold Senior Debt with the same rights it would
have if it were not Trustee. Any Agent may do the same with like rights.
Section 10.12. Authorization to Effect Subordination.
Each Holder of Notes, by the Holder's acceptance thereof,
authorizes and directs the Trustee on such Holder's behalf to take such action
as may be necessary or appropriate to effectuate the subordination as provided
in this Article 10, and appoints the Trustee to act as such Holder's
attorney-in-fact for any and all such purposes. If the Trustee does not file a
proper proof of claim or proof of debt in the form required in any proceeding
referred to in Section 6.09 hereof at least 30 days before the expiration of the
time to file such claim, the Representatives are hereby authorized to file an
appropriate claim for and on behalf of the Holders of the Notes.
Section 10.13. Amendments.
The provisions of this Article 10 shall not be amended or
modified without the written consent of the holders of all Senior Debt, except
to the extent such amendment or modification would not adversely affect the
rights of such holders of Senior Debt.
Section 10.14. Miscellaneous.
(a) No right of any present or future holder of any Senior Debt
to enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act by any such holder.
(b) Without in any way limiting the generality of paragraph (a)
of this Section 10.14, the holders of Senior Debt may, at any time and from time
to time, without the consent of or notice to the Trustee or any Holder, without
incurring responsibility to any Holder and without impairing or releasing the
subordination provided in this Article 10 or the obligations hereunder of the
Holders to the holders of Senior Debt, do any one or more of the following: (i)
change the manner, place or terms of payment or extend the time of payment of,
or renew or alter, any Senior Debt or any instrument evidencing the same or any
agreement under which Senior Debt is outstanding; (ii) sell, exchange, release
or otherwise deal with any property pledged, mortgaged or otherwise securing
Senior Debt; (iii) release any Person liable in any manner for the collection of
Senior Debt; and (iv) exercise or refrain from exercising any rights against
either the Company or any other Person.
Section 10.15. Certain Definitions
For purposes of this Article 10, the terms "distribution" and
"payment" include payments, distributions and other transfers of assets by or on
behalf of the Company (including redemptions, repurchases or other acquisitions
of the Notes) from any source, of any kind or character, whether direct or
indirect, by set-off or otherwise, whether in cash, property or securities.
ARTICLE 11.
SUBSIDIARY GUARANTEES
Section 11.01. Guarantee.
Subject to this Article 11, each of the Guarantors hereby,
jointly and severally, unconditionally guarantees to each Holder authenticated
and delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the Notes or
the obligations of the Company hereunder or thereunder, that: (a) the principal
of and interest on the Notes will be promptly paid in full when due, whether at
maturity, by acceleration, redemption or otherwise, and interest on the overdue
principal of and interest on the Notes, if any, if lawful, and all other
obligations of the Company to the Holders or the Trustee hereunder or thereunder
will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; and (b) in case of any extension of time of payment or
renewal of any Notes or any of such other obligations, that same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
Failing payment when due of any amount so guaranteed or any performance so
guaranteed for whatever reason, the Guarantors shall be jointly and severally
obligated to pay the same immediately. Each Guarantor agrees that this is a
guarantee of payment and not a guarantee of collection.
The Guarantors hereby agree that their obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of a guarantor.
Each Guarantor hereby waives diligence, presentment, demand of payment, filing
of claims with a court in the event of insolvency or bankruptcy of the Company,
any right to require a proceeding first against the Company, protest, notice and
all demands whatsoever and covenant that this Subsidiary Guarantee shall not be
discharged except by complete performance of the obligations contained in the
Notes and this Indenture.
If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guarantors or any custodian, trustee,
liquidator or other similar official acting in relation to either the Company or
the Guarantors, any amount paid by either to the Trustee or such Holder, this
Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated
in full force and effect.
Each Guarantor agrees that it shall not be entitled to any right
of subrogation in relation to the Holders in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed hereby.
Each Guarantor further agrees that, as between the Guarantors, on the one hand,
and the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6 hereof
for the purposes of this Subsidiary Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such obligations as provided in Article 6 hereof, such
obligations (whether or not due and payable) shall forthwith become due and
payable by the Guarantors for the purpose of this Subsidiary Guarantee. The
Guarantors shall have the right to seek contribution from any non-paying
Guarantor so long as the exercise of such right does not impair the rights of
the Holders under the Guarantee.
Section 11.02. Subordination of Subsidiary Guarantee.
The Obligations of each Guarantor under its Subsidiary Guarantee
pursuant to this Article 11 shall be junior and subordinated to the Senior
Guarantee and Senior Debt of such Guarantor on the same basis as the Notes are
junior and subordinated to Senior Debt of the Company. For the purposes of the
foregoing sentence, the Trustee and the Holders shall have the right to receive
and/or retain payments by any of the Guarantors only at such times as they may
receive and/or retain payments in respect of the Notes pursuant to this
Indenture, including Article 10.
Section 11.03. Limitation on Guarantor Liability.
Each Guarantor, and by its acceptance of Notes, each Holder,
hereby confirms that it is the intention of all such parties that the Subsidiary
Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance
for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar federal or state law to the
extent applicable to any Subsidiary Guarantee. To effectuate the foregoing
intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree
that the obligations of such Guarantor will, after giving effect to such maximum
amount and all other contingent and fixed liabilities of such Guarantor that are
relevant under such laws, and after giving effect to any collections from,
rights to receive contribution from or payments made by or on behalf of any
other Guarantor in respect of the obligations of such other Guarantor under this
Article 10, result in the obligations of such Guarantor under its Subsidiary
Guarantee not constituting a fraudulent transfer or conveyance.
Section 11.04. Execution and Delivery of Subsidiary Guarantee.
To evidence its Subsidiary Guarantee set forth in Section 11.01,
each Guarantor hereby agrees that a notation of such Subsidiary Guarantee
substantially in the form included in Exhibit E shall be endorsed by an Officer
of such Guarantor on each Note authenticated and delivered by the Trustee and
that this Indenture shall be executed on behalf of such Guarantor by its
President or one of its Vice Presidents.
Each Guarantor hereby agrees that its Subsidiary Guarantee set
forth in Section 11.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Subsidiary Guarantee.
If an Officer whose signature is on this Indenture or on the
Subsidiary Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which a Subsidiary Guarantee is endorsed, the
Subsidiary Guarantee shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee set
forth in this Indenture on behalf of the Guarantors.
In the event that the Company creates or acquires any new
Subsidiaries subsequent to the date of this Indenture, if required by Section
4.18 hereof, the Company shall cause such Subsidiaries to execute supplemental
indentures to this Indenture and Subsidiary Guarantees in accordance with
Section 4.18 hereof and this Article 10, to the extent applicable.
Section 11.05. Guarantors May Consolidate, etc., on Certain Terms.
A Guarantor may not sell or otherwise dispose of all or
substantially all of its assets to, or consolidate with or merge with or into
(whether or not such Guarantor is the surviving Person), another Person, other
than Stericycle or another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default
or Event of Default exists; and
(2) either:
(a) the Person acquiring the property in any such
sale or disposition or the Person formed by or surviving any such
consolidation or merger assumes all the obligations of that
Guarantor under this Indenture, its Subsidiary Guarantee and the
Registration Rights Agreement pursuant to a supplemental
indenture satisfactory to the Trustee; or
(b) such sale or other disposition complied with
the provisions of Section 4.10 hereof.
In case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor Person, by supplemental indenture, executed
and delivered to the Trustee and satisfactory in form to the Trustee, of the
Subsidiary Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Guarantor, such successor Person shall succeed to and be
substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Such successor Person thereupon may cause to be signed
any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes
issuable hereunder which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in
all respects have the same legal rank and benefit under this Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance with the
terms of this Indenture as though all of such Subsidiary Guarantees had been
issued at the date of the execution hereof.
Except as set forth in Articles 4 and 5 hereof, and
notwithstanding clauses (a) and (b) above, nothing contained in this Indenture
or in any of the Notes shall prevent any consolidation or merger of a Guarantor
with or into the Company or another Guarantor, or shall prevent any sale or
conveyance of the property of a Guarantor as an entirety or substantially as an
entirety to the Company or another Guarantor.
Section 11.06. Releases Following Sale of Assets.
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by
way of merger or consolidation) to a Person that is not (either
before or after giving effect to such transaction) a Restricted
Subsidiary of Stericycle, if the Guarantor applies the Net
Proceeds of that sale or other disposition in accordance with the
provisions of Section 4.10 hereof;
(2) in connection with any sale of all of the Capital Stock of a
Guarantor to a Person that is not (either before or after giving
effect to such transaction) a Restricted Subsidiary of
Stericycle, if Stericycle applies the Net Proceeds of that sale
in accordance with the provisions of Section 4.10 hereof; or
(3) if Stericycle properly designates any Restricted Subsidiary that
is a Guarantor as an Unrestricted Subsidiary in accordance with
the applicable provisions of this Indenture.
Upon delivery by the Company to the Trustee of an Officers'
Certificate and an Opinion of Counsel to the effect that such sale or other
disposition was made by the Company in accordance with the provisions of this
Indenture, including without limitation Section 4.10 hereof, the Trustee shall
execute any documents reasonably required in order to evidence the release of
any Guarantor from its obligations under its Subsidiary Guarantee.
Any Guarantor not released from its obligations under its
Subsidiary Guarantee shall remain liable for the full amount of principal of and
interest on the Notes and for the other obligations of any Guarantor under this
Indenture as provided in this Article 11.
ARTICLE 12.
SATISFACTION AND DISCHARGE
Section 12.01. Satisfaction and Discharge.
This Indenture shall be discharged and shall cease to be of
further effect as to all Notes issued hereunder, when:
(1) either:
(a) all Notes that have been authenticated (except
lost, stolen or destroyed Notes that have been
replaced or paid and Notes for whose payment money
has theretofore been deposited in trust and
thereafter repaid to the Company) have been
delivered to the Trustee for cancellation; or
(b) all Notes that have not been delivered to the
Trustee for cancellation have become due and
payable by reason of the making of a notice of
redemption or otherwise or will become due and
payable within one year and the Company or any
Guarantor has irrevocably deposited or caused to be
deposited with the Trustee as trust funds in trust
solely for the benefit of the Holders, cash in U.S.
dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be
sufficient without consideration of any
reinvestment of interest, to pay and discharge the
entire indebtedness on the Notes not delivered to
the Trustee for cancellation for principal, premium
and Liquidated Damages, if any, and accrued
interest to the date of maturity or redemption;
(2) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or shall occur as a result
of such deposit and such deposit will not result in a breach or
violation of, or constitute a default under, any other instrument
to which Stericycle or any Guarantor is a party or by which
Stericycle or any Guarantor is bound;
(3) Stericycle or any Guarantor has paid or caused to be paid all
sums payable by it under this Indenture; and
(4) Stericycle has delivered irrevocable instructions to the Trustee
under this Indenture to apply the deposited money toward the
payment of the Notes at maturity or the redemption date, as the
case may be.
In addition, Stericycle must deliver an Officers' Certificate and an Opinion of
Counsel to the Trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.
Notwithstanding the satisfaction and discharge of this Indenture,
if money shall have been deposited with the Trustee pursuant to subclause (b) of
clause (1) of this Section, the provisions of Section 12.02 and Section 8.06
shall survive.
Section 12.02. Application of Trust Money.
Subject to the provisions of Section 8.06, all money deposited
with the Trustee pursuant to Section 12.01 shall be held in trust and applied by
it, in accordance with the provisions of the Notes and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal (and premium, if any) and interest for whose
payment such money has been deposited with the Trustee; but such money need not
be segregated from other funds except to the extent required by law.
If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 12.01 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and any Guarantor's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 12.01; provided that if the Company has made any payment of principal
of, premium, if any, or interest on any Notes because of the reinstatement of
its obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money or Government Securities held
by the Trustee or Paying Agent.
ARTICLE 13.
MISCELLANEOUS
Section 13.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA ss.318(c), the imposed duties shall control.
Section 13.02. Notices.
Any notice or communication by the Company, any Guarantor or the
Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the others' address:
If to the Company and/or any Guarantor:
Stericycle, Inc.
28161 N. Keith Drive
Lake Forest, IL 60045
Telecopier No.: (847) 367-9462
Attention: Chief Financial Officer
With a copy to:
Johnson and Colmar
300 South Wacker Drive, Suite 1000
Chicago, IL 60606
Telecopier No.: (312) 922-9283
Attention: Craig P. Colmar, Esq.
McDermott, Will & Emery
227 West Monroe Street
Chicago, IL 60606
Telecopier No.: (312) 984-3669
Attention: Thomas Murphy, Esq.
If to the Trustee:
State Street Bank and Trust Company
Goodwin Square
225 Asylum Street, 23rd Floor
Hartford, CT 06103
Telecopier No.: (860) 244-1889
Attention: Corporate Trust Administration
With a copy to:
Brown, Rudnick, Freed & Gesmer, P.C.
City Place I
Hartford, CT 06103-3402
Telecopier No.: (860) 509-6501
Attention: James E. Rosenbluth, Esq.
The Company, any Guarantor or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first
class mail, certified or registered, return receipt requested, or by overnight
air courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA ss. 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
Section 13.03. Communication by Holders of Notes with Other
Holders of Notes.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA ss. 312(c).
Section 13.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 13.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 13.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
Section 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of
TIAss. 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
Section 13.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
Section 13.07. No Personal Liability of Directors, Officers,
Employees and Stockholders.
No past, present or future director, officer, employee,
incorporator or stockholder of the Company or any Guarantor, as such, shall have
any liability for any obligations of the Company or such Guarantor under the
Notes, the Subsidiary Guarantees, this Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes.
Section 13.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE SUBSIDIARY GUARANTEES WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Section 13.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture,
loan or debt agreement of the Company or its Subsidiaries or of any other
Person. Any such indenture, loan or debt agreement may not be used to interpret
this Indenture.
Section 13.10. Successors.
All agreements of the Company in this Indenture and the Notes
shall bind its successors. All agreements of the Trustee in this Indenture shall
bind its successors. All agreements of each Guarantor in this Indenture shall
bind its successors, except as otherwise provided in Section 11.05.
Section 13.11. Severability.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 13.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 13.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following pages]
<PAGE>
SIGNATURES
Dated as of November 12, 1999
STERICYCLE, INC.
By:
Name:
Title:
EACH OF THE GUARANTORS LISTED
ON SCHEDULE A HERETO
By:
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
By:
Name:
Title:
<PAGE>
SCHEDULE A
GUARANTORS
Stericycle of Arkansas, Inc., an Arkansas corporation.
Stericycle of Washington, Inc., a Washington corporation.
SWD Acquisition Corp., a Delaware corporation.
Environmental Control Co., Inc., a New York corporation.
Waste Systems, Inc., a Delaware corporation.
Med-Tech Environmental, Inc., a Delaware corporation.
Med-Tech Environmental (MA), Inc., a Delaware corporation.
Ionization Research Co., Inc., a California corporation.
BFI Medical Waste, Inc., a Delaware corporation.
BFI Medical Waste Systems of Washington, Inc., a Delaware corporation.
Browning-Ferris Industries of Connecticut, Inc., a Delaware corporation.
Exhibit 11
STERICYCLE, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(unaudited)
For the Nine
Months Ended
September 30,
1999 1998
---- ----
Weighted average common shares
outstanding--basic earnings
per share 14,073,309 10,579,886
Common stock issuable upon
assumed conversion of stock
options and warrants 397,882 653,926
----------- -----------
Adjusted weighted average
common shares outstanding--
diluted earnings per share 14,471,191 11,233,812
=========== ===========
Net income (in thousands) $ 7,869 $ 3,421
=========== ===========
Net income per share--basic $ 0.56 $ 0.32
=========== ===========
Net income per share--diluted $ 0.54 $ 0.30
=========== ===========
Exhibit 12
<TABLE>
Computation of the Ratio of Earnings to Fixed Charges
(In thousands)
CONSOLIDATED HISTORICAL
YEAR ENDED DECEMBER 31,
<CAPTION>
1994 1995 1996 1997 1998
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS
Pre-tax income (loss) $ (5,709) $ (4,277) $ (2,438) $ 1,386 $ 6,361
Add: fixed charges 808 857 1,194 1,523 1,964
--------------------------------------------------------------------------------
Total earnings (4,900) (3,420) (1,244) 2,909 8,325
--------------------------------------------------------------------------------
FIXED CHARGES
Interest expense 260 277 373 428 777
Rent expense included in fixed
charges 548 580 821 1,095 1,169
--------------------------------------------------------------------------------
Total assets $ 808 $ 857 $ 1,194 $ 1,523 $ 1,946
--------------------------------------------------------------------------------
Ratio of earnings to fixed charges (a) (a) (a) 1.9 4.3
CONSOLIDATED PRO FORMA
CONSOLIDATED HISTORICAL YEAR NINE
NINE MONTHS ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
-------------------------------- ---------------------------------
1998 1999 1998 1999
-------------------------------- ---------------------------------
EARNINGS
Pre-tax income $ 4,202 $ 10,037 $ 20,315 $ 25,330
Add: fixed charges 1,476 2,212 41,831 30,691
-------------------------------- ---------------------------------
Total earnings 5,678 12,249 62,146 56,021
-------------------------------- ---------------------------------
FIXED CHARGES
Interest expense 308 689 39,167 28,321
Rent expense included in fixed
charges 1,168 1,523 2,664 2,370
-------------------------------- ---------------------------------
Total assets $ 1,476 $ 2,212 $ 41,831 $ 30,691
-------------------------------- ---------------------------------
Ratio of earnings to fixed charges 3.9 5.5 1.5 1.8
(a) For the historical years ended December 31, 1994, 1995, and 1996, earnings
were insufficient to cover fixed charges by approximately $4,093, $2,563,
and $50, respectively.
</TABLE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Stericycle of Arkansas, Inc., an Arkansas corporation
Stericycle of Washington, Inc., a Washington corporation
SWD Acquisition Corp., a Delaware corporation
Environmental Control Co., Inc., a New York corporation
Waste Systems, Inc., a Delaware corporation
Med-Tech Environmental, Inc., a Delaware corporation
Med-Tech Environmental (MA), Inc., a Delaware corporation
Ionization Research Co., Inc., a California corporation
3CI Complete Compliance Corporation, a Delaware corporation
BFI Medical Waste, Inc., a Delaware corporation
Browning-Ferris Industries of Connecticut, Inc., a Delaware corporation
BFI Medical Waste, Inc., a Puerto Rico corporation
Med-Tech Environmental Limited, an Ontario, Canada corporation
Med-Tech Environmental (CDA), Ltd., a Canadian federal corporation
Bio-Med Waste Disposal Systems, Ltd., an Ontario, Canada corporation
507375 N.B. Ltd., a New Brunswick, Canada corporation
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Public
Accountants" and to the use of our report dated March 16, 1999 (except Note 16,
as to which the date is November 12, 1999), in the attached Registration
Statement and the related Prospectus of Stericycle, Inc. for the registration of
$125,000,000 of its 12 3/8% Series B Senior Subordinated Notes due 2009.
/s/ Ernst & Young LLP
Chicago, Illinois
November 29, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT PULIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
on the statements of directly identifiable assets and liabilities of the Medical
Waste Business of Browning-Ferris Industries, Inc. (BFI Medical Waste) and the
related statements of revenues and direct expenses of BFI Medical Waste dated
July 30, 1999, and to all references to our Firm, included in or made a part of
this registration statement.
/s/ Arthur Andersen LLP
Chicago, Illinois
November 29, 1999
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
STERICYCLE, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 36-3640402
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
28161 NORTH KEITH DRIVE
LAKE FOREST, ILLINOIS 60045
(Address of principal executive offices) (Zip Code)
12 3/8% SENIOR NOTES DUE 2009
(Title of indenture securities)
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange Commission as Exhibit 1
to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee to commence
business was necessary or issued is on file with the Securities and Exchange
Commission as Exhibit 2 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration Statement of
Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference
thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED
IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and Exchange Commission as
Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and Qualification
of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4 to the Statement
of Eligibility and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Eastern Edison Company (File No. 33-37823) and is
incorporated herein by reference thereto.
1
<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Hartford and The
State of Connecticut, on the 23rd of November 1999.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Maryanne Y. Dufresne
NAME MARYANNE Y. DUFRESNE
TITLE ASSISTANT VICE PRESIDENT
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by Stericycle,
INC. of its 12 3/8% Senior Notes due 2009, we hereby consent that reports of
examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Maryanne Y. Dufresne
NAME MARYANNE Y. DUFRESNE
TITLE ASSISTANT VICE PRESIDENT
DATED: November 23, 1999
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business June 30, 1999, published
in accordance with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act and in accordance with a
call made by the Commissioner of Banks under General Laws, Chapter 172, Section
22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ....................... 1,755,237
Interest-bearing balances ................................................ 14,209,161
Securities .............................................................................. 13,027,148
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ...................................... 7,840,413
Loans and lease financing receivables:
Loans and leases, net of unearned income ........... 8,134,756
Allowance for loan and lease losses ................ 88,351
Allocated transfer risk reserve..................... 0
Loans and leases, net of unearned income and allowances .................. 8,046,405
Assets held in trading accounts ......................................................... 1,753,511
Premises and fixed assets ............................................................... 529,247
Other real estate owned ................................................................. 0
Investments in unconsolidated subsidiaries .............................................. 603
Customers' liability to this bank on acceptances outstanding ............................ 76,078
Intangible assets ....................................................................... 223,035
Other assets............................................................................. 1,481,250
----------
Total assets ............................................................................ 48,942,088
==========
LIABILITIES
Deposits:
In domestic offices ...................................................... 13,006,374
Noninterest-bearing .................. 9,462,505
Interest-bearing ..................... 3,543,869
In foreign offices and Edge subsidiary ................................... 19,913,151
Noninterest-bearing .................. 444,189
Interest-bearing .....................19,468,962
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ...................................... 10,510,055
Demand notes issued to the U.S. Treasury................................................. 0
Trading liabilities..................................................... 1,151,604
Other borrowed money .................................................................... 198,253
Subordinated notes and debentures ....................................................... 0
Bank's liability on acceptances executed and outstanding ................................ 76,078
Other liabilities ....................................................................... 1,291,791
Total liabilities ....................................................................... 46,147,306
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus............................................ 0
Common stock ............................................................................ 29,931
Surplus ................................................................................. 489,739
Undivided profits and capital reserves/Net unrealized holding gains (losses) ............ 2,313,006
Net unrealized holding gains (losses) on available-for-sale securities.. (25,610)
Cumulative foreign currency translation adjustments .................................... (12,284)
Total equity capital .................................................................... 2,794,782
----------
Total liabilities and equity capital .................................................... 48,942,088
----------
</TABLE>
4
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
EXHIBIT 99.1
Letter of Transmittal
Stericycle, Inc.
OFFER TO EXCHANGE ITS 12 3/8% SERIES B SENIOR SUBORDINATED NOTES
DUE 2009 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 FOR ANY AND ALL OF ITS OUTSTANDING 12 3/8% SERIES A
SENIOR SUBORDINATED NOTES DUE 2009 WHICH WERE ISSUED IN A
PRIVATE PLACEMENT
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
____________, OR SUCH LATER DATE AND TIME TO WHICH IT IS EXTENDED. TENDERS MAY
BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
State Street Bank and Trust Company
By Hand or Overnight Delivery: Facsimile Transmissions:
(Eligible Institutions Only)
State Street Bank and Trust Company Attention: Kellie Mullen
Two Avenue de Lafayette (617) 662-1452
5th Floor, Corporate Trust Window
Boston, MA 02111-1724 To Confirm by Telephone or for
Attention: Kellie Mullen/
MacKenzie Elijah Information Call:
(617) 662-1525
By Registered or Certified Mail
State Street Bank and Trust Company
P.O. Box 778
Boston, MA 02102-0078
Attention: Kellie Mullen
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same
meaning given them in the Prospectus (as defined below).
The undersigned acknowledges that he or she has received the
Prospectus, dated _________, 1999 (the "Prospectus"), of Stericycle, Inc., a
Delaware corporation (the "Company"), and this Letter of Transmittal, which
together constitute the Company's offer (the "Exchange Offer") to exchange an
aggregate principal amount at maturity of up to $125,000,000 of the Company's 12
3/8% Series B Senior Subordinated Notes due 2009 (the "Series B Notes"), which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), for a like principal amount at maturity of the Company's
issued and outstanding 12 3/8% Series A Senior Subordinated Notes due 2009 (the
"Series A Notes") from the holders thereof.
This Letter of Transmittal is to be completed by holders of Series A
Notes either if (a) certificate(s) are to be forwarded herewith or (b) tenders
are to be made by book-entry transfer to an account maintained by State Street
Bank and Trust Company (the "Exchange Agent") at The Depository Trust Company
(the "Book-Entry Transfer Facility" or "DTC") pursuant to the procedures set
forth in "The Exchange Offer--Procedures for Tendering" in the Prospectus.
Holders of Series A Notes whose certificates (the "Certificates") for
such Series A Notes are not immediately available or who cannot deliver their
Certificates and all other required documents to the Exchange Agent on or prior
to the Expiration Date, must tender their Series A Notes according to the
guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" in the Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE
ACCOMPANYING INSTRUCTIONS CAREFULLY.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
Principal Amount of
Name and address of registered holder as Certificate number(s) of Series A Notes
it appears on the Series A Notes Series A Notes transmitted* transmitted
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ---------------------------------------- ------------------------------------ ---------------------
- ---------------------------------------- ------------------------------------ ---------------------
- ---------------------------------------- ------------------------------------ ---------------------
- ---------------------------------------- ------------------------------------ ---------------------
- ---------------------------------------- ------------------------------------ ---------------------
- ---------------------------------------- ------------------------------------ ---------------------
* Need not be completed if Series A Notes are being tendered by book-entry
Holders.
</TABLE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[_] CHECK HERE IF TENDERED SERIES A NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY, AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
--------------------------------------------------
Account Number:
-----------------------------------------------------------------
Transaction Code Number:
--------------------------------------------------------
[_] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED SERIES A NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT, AND COMPLETE THE
FOLLOWING:
Name of Registered Holder(s):
---------------------------------------------------
Window Ticket Number:
-----------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
-----------------------------
Name of Institution which Guaranteed Delivery:
----------------------------------
If Guaranteed Delivery is to be made By Book-Entry Transfer:
--------------------
Name of Tendering Institution:
--------------------------------------------------
Account Number:
-----------------------------------------------------------------
Transaction Code Number:
--------------------------------------------------------
[_] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED SERIES A
NOTES ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER SET FORTH ABOVE.
[_] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE SERIES A NOTES FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE TEN ADDITIONAL COPIES OF
THE PROSPECTUS AND TEN COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
---------------------------------------------------------------------------
Address:
------------------------------------------------------------------------
Ladies and Gentlemen:
1. The undersigned hereby agrees to exchange the above-described
principal amount of the Company's privately placed 12 3/8% Series A Senior
Subordinated Notes Due 2009 (the "Series A Notes") for a like principal amount
of the Company's 12 3/8% Series B Senior Subordinated Notes Due 2009 (the
"Series B Notes"), upon the terms and subject to the conditions set forth in the
Prospectus, dated ____________, 1999 (the "Prospectus"), receipt of which is
hereby acknowledged, and in this Letter of Transmittal.
2. The undersigned hereby acknowledges and agrees that the Series B
Notes will bear interest from and including November 12, 1999, the date of
issuance of the Series A Notes. Accordingly, the undersigned will forego accrued
but unpaid interest on his, her or its Series A Notes that are exchanged for
Series B Notes for the period from and including November 12, 1999 to the date
of exchange but will be entitled to receive such interest under the Series B
Notes.
3. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as its agent and attorney-in-fact (with full knowledge that the
Exchange Agent is also acting as the agent of the Company in connection with the
Exchange Offer) with respect to the tendered Series A Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) subject only to the right of withdrawal described in
the Prospectus, (a) to deliver Certificates for Series A Notes to the Exchange
Agent together with all accompanying evidences of transfer and authenticity to,
or upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the Series B Notes to be issued in exchange for such
Series A Notes, and (b) to present Certificates for such Series A Notes for
transfer and (c) to transfer the Series A Notes on the books of the Exchange
Agent.
4. The undersigned hereby represents and warrants that he, she or it
has full authority to tender the Series A Notes described above. The undersigned
will, upon request, execute and deliver any additional documents deemed by the
Company to be necessary or desirable to complete the exchange of the Series A
Notes.
5. If any tendered Series A Notes are not exchanged pursuant to the
Exchange Offer for any reason, or if Certificates are submitted for more Series
A Notes than are tendered or accepted for exchange, Certificates for such
non-exchanged or non-tendered Series A Notes will be returned (or, in the case
of Series A Notes tendered by book-entry transfer, such Series A Notes will be
credited to an account maintained at DTC), without expense to the tendering
holder, promptly following the expiration or termination of the Exchange Offer.
6. The undersigned understands that the tender of the Series A Notes
pursuant to any of the procedures set forth in the Prospectus will constitute an
agreement between the undersigned and the Company as to the terms and conditions
set forth in the Prospectus. The undersigned recognizes that, under certain
circumstances set forth in the Prospectus, the Company may not be required to
accept for exchange any of the Series A Notes tendered hereby.
7. With respect to resales of the Series B Notes, based on certain
interpretive letters issued by the staff of the Commission to third parties, the
Company believes that a holder of Notes who exchanged Series A Notes for Series
B Notes in the ordinary course of business and who is not participating, does
not intend to participate, and has no arrangement or understanding with any
person to participate, in a distribution of the Series B Notes, will be allowed
to resell the Series B Notes to the public without further registration under
the Securities Act and without delivering to the purchasers of the Series B
Notes a prospectus that satisfies the requirements of the Securities Act, except
for: (a) a broker-dealer who purchases Series A Notes directly from the Company
to resell pursuant to Rule 144A or any other available exemption under the
Securities Act, or (b) a person who is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act.
8. If the undersigned is a broker-dealer, (a) it hereby represents and
warrants that it acquired the Series A Notes for its own account as a result of
market-making activities or other trading activities and (b) it hereby
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), in connection with
any resale of the Series B Notes received hereby. The acknowledgment contained
in the foregoing sentence shall not be deemed an admission that the undersigned
is an "underwriter" within the meaning of the Securities Act. If any other
holder is deemed to be an underwriter within the meaning of the Securities Act
or acquires Series B Notes in this Exchange Offer for the purpose of
distributing or participating in a distribution of Series B Notes, such holder
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction, unless an
exemption from registration is otherwise available. The Company has agreed that
for a period of 180 days from the expiration date, they will make the
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
9. The Company has not retained any dealer-manager or similar agent in
connection with this Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of this Exchange Offer. The
Company, however, will pay reasonable and customary fees and reasonable out-
of-pocket expenses to the Exchange Agent in connection with the solicitation of
acceptances. The Company will also pay the cash expenses incurred in connection
with this Exchange Offer, including accounting, legal, printing and related fees
and expenses.
10. The Series B Notes will be recorded at the same carrying value as
the Series A Notes, as reflected in the Company's accounting records on the date
of the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The Company's expenses from this Exchange Offer will be capitalized
for accounting purposes.
11. Any obligation of the undersigned hereunder shall be binding upon
its successors, assigns, executors, administrators, trustees in bankruptcy and
legal and personal representatives.
SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
(See Instruction 1)
To be completed ONLY IF the Series B Notes are to be issued in the name
of someone other than the undersigned or are to be sent to someone other than
the undersigned or to the undersigned at an address other than that provided
above.
Issue to:
Name:
---------------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
(Include Zip Code)
Mail to:
Name:
---------------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
(Include Zip Code)
SIGNATURE
- --------------------------------------------------------------------------------
(Name of Registered Holder)
By:
---------------------------------------
Name:
-------------------------------
Title:
------------------------------
Date:
-------------------------------------
(Must be signed by registered holder exactly as name appears on the
Series A Notes. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.)
Address:
---------------------------------
Telephone No.:
---------------------------
Taxpayer Identification No.:
----------------------------------------------------
Signature Guaranteed By:
--------------------------------------------------------
(See Instruction 1)
Title:
------------------------------------
Name of Institution:
----------------------
Address:
----------------------------------
Date:
-------------------------------------
PLEASE READ THE INSTRUCTIONS BELOW, WHICH FORM A PART OF THIS LETTER OF
TRANSMITTAL.
INSTRUCTIONS
1. Guarantee of Signatures. Signatures on this Letter of Transmittal
must be guaranteed by a firm that is a member of a registered national
securities exchange or the National Association of Securities Dealers, Inc. or
by a commercial bank or trust company having an office in the United States
which is a member of a recognized Medallion Signature Program approved by the
Securities Transfer Association, Inc. (an "Eligible Institution") unless (a) the
"Special Issuance and Delivery Instructions" above have not been completed or
(b) the Series A Notes described above are tendered for the account of an
Eligible Institution.
2. Delivery of Letter of Transmittal and Series A Notes. This Letter of
Transmittal is to be completed either if (a) Certificates are to be forwarded
herewith or (b) tenders are to be made pursuant to the procedures for tender by
book-entry transfer set forth in "The Exchange Offer--Procedures for
Tendering--Book-Entry Transfer" in the Prospectus. Certificates, or timely
confirmation of a book-entry transfer of such Series A Notes into the Exchange
Agent's account at DTC, as well as this Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, together with any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at its address set forth
herein on or prior to the Expiration Date.
The method of delivery of Series A Notes and other documents is at the
election and risk of the respective holder. If delivery is by mail, registered
mail (with return receipt), properly insured, is suggested.
3. Guaranteed Delivery Procedures. Registered holders who wish to
tender their Series A Notes and (a) whose Series A Notes are not immediately
available or (b) who cannot deliver their Series A Notes, the Letter of
Transmittal and any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(i) The tender is made through an Eligible Institution;
(ii) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice
of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the registered holder
of the Series A Notes, the certificate number(s) of such Series A
Note(s) and the principal amount of Series A Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within
five New York Stock Exchange trading days after the Expiration Date,
the Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Series A Notes and any other documents
required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) Such properly
completed and executed Letter of Transmittal (or facsimile thereof), as
well as the certificate(s) representing all tendered Series A Notes in
proper form for transfer, or a book-entry confirmation, as the case may
be, and all other documents required by the Letter of Transmittal are
received by the Exchange Agent within five New York Stock Exchange
trading days after the Expiration Date.
Upon request of the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to registered holders who wish to tender their Series A Notes
according to the guaranteed delivery procedures set forth above.
The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by facsimile or mail to the Exchange Agent, and must include a
guarantee by an Eligible Institution in the form set forth in such Notice. For
Series A Notes to be properly tendered pursuant to the guaranteed delivery
procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on or
prior to the Expiration Date. As used herein and in the Prospectus, "Eligible
Institution" means a firm or other entity Identified in Rule 17Ad-15 under the
Exchange Act as an "eligible guarantor institution," including (as such terms
are defined therein) (a) a bank; (b) a broker, dealer, municipal securities
broker or dealer or government securities broker or dealer; (c) credit union;
(d) a national securities exchange, registered securities association or
clearing agency; or (e) a savings association that is a participant in a
Securities Transfer Association.
4. Inadequate Space. If the space provided in the box captioned
"Description of Securities Tendered" is inadequate, the Certificate number(s)
and the principal amount of Series A Notes and any other required information
should be listed on a separate signed schedule which is attached to this Letter
of Transmittal.
5. Partial Tenders and Withdrawal Rights. Tenders of Series A Notes
will be accepted only in the principal amount of $1,000 (one (1) Note) and
integral multiples of $1,000 in excess thereof, provided that if any Series A
Notes are tendered for exchange in part, the untendered principal amount thereof
must be $1,000 (one (1) Note) or any integral multiple of $1,000 in excess
thereof. If less than all the Series A Notes evidenced by any Certificate
submitted are to be tendered, fill in the principal amount of Series A Notes
which are to be rendered in the box entitled "Liquidation Amount of Series A
Notes Tendered (if less than all)." In such case, new Certificate(s) for the
remainder of the Series A Notes that were evidenced by your old Certificate(s)
will only be sent to the holder of the Series A Notes, promptly after the
Expiration Date. All Series A Notes represented by Certificates delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Series A Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth above or in the
Prospectus on or prior to the Expiration Date. Any such notice of withdrawal
must specify the name of the person who tendered the Series A Notes to be
withdrawn, identify the Series A Notes to be withdrawn, including the aggregate
principal amount of Series A Notes to be withdrawn, and (if Certificates for
Series A Notes have been tendered) the name of the registered holder of the
Series A Notes as set forth on the Certificate for the Series A Notes, if
different from that of the person who tendered such Series A Notes. If
Certificates for the Series A Notes have been delivered or otherwise identified
to the Exchange Agent, then prior to the physical release of such Certificates
for the Series A Notes, the tendering holder must submit the serial numbers
shown on the particular Certificates for the Series A Notes to be withdrawn and
the signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of Series A Notes tendered for the account of an
Eligible Institution. If Series A Notes have been tendered pursuant to the
procedures for book-entry transfer set forth in the Prospectus under "The
Exchange Offer--Procedures for Tendering--Book-Entry Transfer," the notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawal of Series A Notes, in which case a notice of withdrawal will
be effective if delivered to the Exchange Agent by written, telegraphic, telex
or facsimile transmission. The Company will determine all questions as to the
validity, form and eligibility (including time of receipt) of such notices which
determination shall be final and binding on all parties. Any Series A Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of this Exchange Offer. Any Series A Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder, or, in the case of Series A Notes
tendered by book-entry transfer into the Exchange Agent's account at DTC
pursuant to the book-entry transfer procedures set forth in the Prospectus under
"The Exchange Offer--Procedures for Tendering--Book-Entry Transfer," such Series
A Notes will be credited to an account maintained with DTC for the Series A
Notes, as soon as practicable after withdrawal, rejection of tender or
termination of this exchange offer. Withdrawals of tenders of Series A Notes may
not be rescinded. Series A Notes properly withdrawn will not be deemed validly
tendered for purposes of the Exchange Offer, but may be retendered at any
subsequent time on or prior to the Expiration Date by following any of the
procedures described In the Prospectus under "The Exchange Offer--Procedures for
Tendering."
The Company's acceptance of Series A Notes tendered for exchange
pursuant to this Exchange Offer constitutes a binding agreement between the
tendering person and us upon the terms and subject to the conditions of this
Exchange Offer.
6. Signatures on Letter of Transmittal, Bond Powers and Endorsements.
If this Letter of Transmittal is signed by the registered holder(s) of the
Series A Notes tendered hereby, the signature(s) must correspond exactly with
the name(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
If any tendered Series A Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If any of the Series A Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If this Letter of Transmittal is signed by a person other than a
registered holder of any Series A Notes, such Series A Notes must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name or names of the registered holder or holders appear on the Series A Notes.
If this Letter of Transmittal or any Series A Notes or bond power is
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted.
When this Letter of Transmittal is signed by the registered owner(s) of
the Series A Notes listed and transmitted hereby, no endorsement(s) of
Certificate(s) or separate bond power(s) are required unless Exchange Notes are
to be issued in the name of a person other than the registered holder(s).
Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an
Eligible Institution.
7. Exchange of Series A Notes Only. Only the above-described Series A
Notes may be exchanged for Notes pursuant to the Exchange Offer.
8. Miscellaneous. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Series A
Notes will be resolved by the Company, whose determination will be final and
binding. The Company reserves the absolute right to reject any or all tenders
that are not in proper form or the acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any irregularities or conditions of tender as to particular Series A
Notes. The Company's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in this Letter of Transmittal) will be final
and binding. Unless waived, any irregularities in connection with tenders or
consents must be cured within such time as the Company shall determine. Neither
the Company nor the Exchange Agent shall be under any duty to give notification
of defects in such tenders or shall incur liabilities for failure to give such
notification. Tenders of Series A Notes will not be deemed to have been made
until such irregularities have been cured or waived. Any Series A Notes received
by the Exchange Agent that are not properly tendered and as to which the
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holder thereof, as soon as practicable following the
expiration date.
9. Questions, Requests for Assistance and Additional Copies. Questions
and requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery amid the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, or other nominee.
IMPORTANT TAX INFORMATION
Under current Federal income tax law, a holder of Series A Notes whose
tendered Series A Notes are accepted for payment generally is required to
provide the Exchange Agent (as agent for the payer) with his or her correct
taxpayer identification number ("TIN") on Substitute Form W-9 below. If such
holder of Series A Notes is an individual, the TIN is his or her social security
number. If the Exchange Agent is not provided with the correct TIN, the holder
of Series A Notes may be subject to a $50 penalty imposed by the Internal
Revenue Service. In addition, payments that are made to such holder of Series A
Notes with respect to the Series B Notes exchanged pursuant to the Offer may be
subject to 31% backup withholding.
Certain holders of Series A Notes (including, among others, all
corporations and certain foreign individuals) may not be subject to these backup
withholding and reporting requirements. Exempt holders of Series A Notes should
indicate their exempt status on Substitute Form W-9. In order for a foreign
individual to qualify as an exempt recipient, that holders of Series A Notes
must submit a properly completed Internal Revenue Service Form W-8, signed under
penalties of perjury, attesting to his or her exempt status. Such statements can
be obtained from the Exchange Agent. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, the Exchange Agent is required to
withhold 31% of any such payments made to the holder of Series A Notes. Backup
withholding is not an additional tax. Rather, the federal income tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained.
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to a holder of
Series A Notes with respect to Series A Notes exchanged pursuant to the Offer,
each holder of Series A Notes is required to notify the Exchange Agent of his,
her or its correct TIN by completing the Substitute Form W-9 below certifying
the TIN provided on such form is correct (or that such holder of Series A Notes
is awaiting a TIN) and that (1) the holder of Series A Notes has not been
notified by the Internal Revenue Service that he, she or it is subject to backup
withholding as a result of a failure to report all interest or dividends or (2)
the Internal Revenue Service has notified the holders of Series A Notes that he,
she or it is no longer subject to backup withholding.
What Number to Give the Exchange Agent
The holder of Series A Notes is required to give the Exchange Agent the
social security number or employer identification number of the record owner of
the Series A Notes. If the Series A Notes are in more than one name or are not
in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidelines on which number to report.
PAYER'S NAME: THE BANK OF NEW YORK AS AGENT
SUBSTITUTE PART 1 - PLEASE PROVIDE Social Security Number
Form W-9 YOUR TIN IN THE BOX AT of Employer
RIGHT AND CERTIFY BY Identification Number:
SIGNING AND DATING BELOW
Department of the
Treasury Internal
Revenue Service
-----------------------
-----------------------------------------------------------
Payer's Request for
Taxpayer Identification PART 2 - Certification - Under penalties of
Number "TIN" perjury, I certify that:
(1) The number shown on this form is my
correct Taxpayer Identification
Number (or I am waiting for a number
to be issued to me) and
(2) I am not subject to backup
withholding because: (a) I am exempt
from backup withholding, (b) I have
not been notified by the Internal
Revenue Service ("IRS") that I am
subject to backup withholding as a
result of a failure to report all
interest or dividends or (c) the IRS
has notified me that I am no longer
subject to back withholding.
(3) Any other information provided on this
form is true and correct.
Certification Instructions - You must cross
out Item (2) above if you have been
notified by the IRS that you are currently
subject to backup withholding because of
under-reporting interest or dividends on
your tax return. However, if after being
notified by the IRS that you were subject
to backup withholding you received another
notification from the IRS that you are no
longer subject to backup withholding, do
not cross out such Item (2).
-------------------------------------------
PART 3
Awaiting
TIN [_]
SIGNATURE: DATE:
------------ ------
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31%
OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER, PLEASE REVIEW THE
ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within sixty days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
- --------------------------------------------- -------------------------------
Signature Date
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
$125,000,000 AGGREGATE PRINCIPAL AMOUNT OF
12 3/8% SENIOR SUBORDINATED NOTES DUE 2009
OF
STERICYCLE, INC.
This Notice of Guaranteed Delivery, or a form substantially equivalent
to this form, must be used to accept the Exchange Offer (as defined below) if
the certificates representing Series A Notes are not immediately available or if
the procedure for book-entry transfer cannot be completed on a timely basis or
if time will not permit all required documents to reach State Street Bank and
Trust Company (the "Exchange Agent") at or prior to the Expiration Date (as
defined in the Prospectus (as defined below)). Such form may be delivered by
hand, transmitted by facsimile transmission, sent by overnight courier or mailed
to the Exchange Agent. (See the section entitled "The Exchange Offer" in the
Prospectus.) In addition, in order to utilize the guaranteed delivery procedure
to tender Series A Notes pursuant to the Exchange Offer, a completed, signed and
dated Letter of Transmittal relating to the Series A Notes (or facsimile
thereof) must also be received by the Exchange Agent prior to the Expiration
Date. Capitalized terms not defined herein have the meanings assigned to them in
the Prospectus.
The Exchange Agent for the Exchange Offer is:
State Street Bank and Trust Company
By Hand or Overnight Delivery: Facsimile Transmissions:
(Eligible Institutions Only)
State Street Bank and Trust Company Attention: Kellie Mullen
Two Avenue de Lafayette (617) 662-1452
5th Floor, Corporate Trust Window
Boston, MA 02111-1724 To Confirm by Telephone or for
Attention: Kellie Mullen/
MacKenzie Elijah Information Call:
(617) 662-1525
By Registered or Certified Mail
State Street Bank and Trust Company
P.O. Box 778
Boston, MA 02102-0078
Attention: Kellie Mullen
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION VIA FACSIMILE TO A NUMBER OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Stericycle, Inc., a Delaware
corporation, upon terms and subject to the conditions set forth in the
Prospectus dated _____________, (the "Prospectus") and the related Letter of
Transmittal (which together with the Prospectus, each as amended or supplemented
from time to time, constitute the "Exchange Offer"), receipt of which is hereby
acknowledged, the aggregate principal amount of Series A Notes indicated below
pursuant to the guaranteed delivery procedure set forth in the section of the
Prospectus entitled "The Exchange Offer." All authority herein conferred or
agreed to be conferred shall not be affected by and shall survive the death or
incapacity of the undersigned and every obligation of the undersigned hereunder
shall be binding upon the successors, assigns, heirs, executors, administrators,
trustees in bankruptcy and legal representatives of the undersigned.
Principal Amount of Series A Notes Tendered Name(s) of Registered Holder(s):
- -------------------------------------------- ---------------------------------
---------------------------------
Please Type or Print
Certificate Number(s) (if available):
- --------------------------------------------
Address(es):
- ------------------------------------------- ---------------------------------
- ------------------------------------------- ---------------------------------
- ------------------------------------------- Zip Code
If Series A Notes will be delivered by book-entry
transfer, check the following box: [_] Area Code and
Telephone Number: ------------
Account Number at
The Depository Trust Company:
- -------------------------------------------- -------------------------
-------------------------
-------------------------
Signature(s)*
Dated:------------------------ 1999
* If a holder is tendering any Series A Notes, this Notice of Guaranteed
Delivery must be signed by the registered holder(s) as the name(s)
appear(s) on the certificate(s) for the Series A Notes or on a security
position listing or by any person(s) authorized to become registered
holder(s) by endorsements and documents transmitted herewith. If
signature is by a trustee, executor, administrator, guardian, officer
or other person acting in a fiduciary or representative capacity,
please set forth full title.
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of the registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States (each of the foregoing being referred to as
an "Eligible Institution"), hereby guarantees that either the certificates
representing the Series A Notes tendered hereby in proper form for transfer, or
timely confirmation of a book-entry transfer of such Series A Notes into the
Exchange Agent's account at The Depository Trust Company pursuant to the
procedures set forth in the section entitled "The Exchange Offer" in the
Prospectus, in either case together with a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof), any required
signature guarantees and any other documents required by the Letter of
Transmittal, will be received by the Exchange Agent at one of its addresses set
forth above within three (3) New York Stock Exchange trading days after the date
of execution hereof.
THE ELIGIBLE INSTITUTION THAT COMPLETES THIS FORM ACKNOWLEDGES THAT IT
MUST COMMUNICATE THE GUARANTEE TO THE EXCHANGE AGENT AND MUST DELIVER THE LETTER
OF TRANSMITTAL, CERTIFICATES FOR SERIES A NOTES AND ANY OTHER REQUIRED DOCUMENTS
TO THE EXCHANGE AGENT WITHIN THE TIME PERIOD SHOWN HEREIN. FAILURE TO DO SO
COULD RESULT IN A FINANCIAL LOSS TO SUCH ELIGIBLE INSTITUTION.
Name of Firm:--------------------------- ------------------------------------
Authorized Signature
Address: -------------------------------- Name:-------------------------------
-------------------------------- Please Type or Print
Zip Code
Title:------------------------------
Area Code and Dated: ------------------------ 1999
Telephone Number:------------------
NOTE: DO NOT SEND CERTIFICATES FOR SERIES A NOTES WITH THIS NOTICE OF
GUARANTEED DELIVERY. CERTIFICATES FOR SERIES A NOTES ARE TO BE
DELIVERED WITH THE LETTER OF TRANSMITTAL.
EXHIBIT 99.3
Stericyle, Inc.
Offer to Exchange
All of Its Outstanding
12 3/8% Series A Senior Subordinated Notes due 2009
for
12 3/8% Series B Senior Subordinated Notes due 2009
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON ___ , _____________, ______, UNLESS THE EXCHANGE OFFER IS EXTENDED.
To Our Clients:
Enclosed for your consideration is a Prospectus dated _______, 1999
(the "Prospectus") and the related Letter of Transmittal (which, together with
any amendments or supplements thereto, collectively constitute the "Exchange
Offer") relating to an offer by Stericycle, Inc., a Delaware corporation (the
"Company"), to exchange all of its outstanding 12 3/8% Series A Senior
Subordinated Notes due 2009 (the "Series A Notes") for 12 3/8% Series B Senior
Subordinated Notes due 2009 upon the terms and subject to the conditions set
forth in the Exchange Offer.
We are the holder of record of the Series A Notes held by us for your
account. A tender for exchange of such Series A Notes can be made only by us as
the holder of record and pursuant to your instructions. The Letter of
Transmittal is furnished to you for your information only and cannot be used by
you to tender for exchange the Series A Notes held by us for your account.
We request instructions as to whether you wish to have us tender for
exchange on your behalf any or all of such Series A Notes held by us for your
account, pursuant to the terms and subject to the conditions set forth in the
Exchange Offer.
Your attention is directed to the following:
1. The Exchange Offer and withdrawal rights will expire at 5:00 P.M.,
New York City time, on __________ _________, 1999, unless the Exchange Offer is
extended. Your instructions to us should be forwarded to us in ample time to
permit us to submit a tender on your behalf.
2. The Exchange Offer is made for all Series A Notes outstanding,
constituting $125,000,000 aggregate principal amount as of the date of the
Prospectus.
3. The minimum permitted tender is $1,000 principal amount of Series A
Notes, and all tenders must be in integral multiples of $1,000.
4. The Offer is conditioned upon the satisfaction of certain conditions
set forth in the Prospectus under the caption "The Exchange Offer--Conditions to
the Exchange Offer." The Exchange Offer is not conditioned upon any minimum
principal amount of Series A Notes being tendered for exchange.
5. Tendering eligible holders will not be obligated to pay brokerage
fees or commissions or to pay transfer taxes applicable to the exchange of
Series A Notes pursuant to the Exchange Offer.
6. In all cases, the exchange of Series A Notes tendered and accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by State Street Bank and Trust Company (the "Exchange Agent") of
(a)certificates representing such Series A Notes or timely confirmation of a
book-entry transfer of such Series A Notes into the Exchange Agent's account at
The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to
the procedures set forth in the Prospectus under the caption "The Exchange
Offer--Procedures for Tendering," (b) the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, or an Agent's Message (as defined in the Prospectus) in connection
with a book-entry transfer, and (c) any other documents required by the Letter
of Transmittal. Accordingly, payment may be made to tendering Eligible Holders
at different times if delivery of the Series A Notes and other required
documents occurs at different times.
The Exchange Offer is being made solely by the Prospectus and the
related Letter of Transmittal and is being made to all Eligible Holders of
Series A Notes. The Company is not aware of any state where the making of the
Exchange Offer is prohibited by administrative or judicial action pursuant to
any valid state statute. If the Company becomes aware of any valid state statute
prohibiting the making of the Exchange Offer or the acceptance of Series A Notes
tendered for exchange pursuant thereto, the Company will make a good faith
effort to comply with any such state statute. If, after such good faith effort,
the Company cannot comply with such state statute, the Exchange Offer will not
be made to, nor will tenders be accepted from or on behalf of, the holders of
Series A Notes in such state. In any jurisdiction where the securities, blue sky
or other laws require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer shall be deemed to be made on behalf of the Company
by one or more registered brokers or dealers that are licensed under the laws of
such jurisdiction.
If you wish to have us tender any or all of the Series A Notes held by
us for your account, please instruct us by completing, executing and returning
to us the instruction form contained in this letter. If you authorize a tender
for exchange of your Series A Notes, the entire aggregate principal amount of
such Series A Notes will be tendered for exchange unless otherwise specified in
such instruction form. Your instructions should be forwarded to us in ample time
to permit us to submit a tender on your behalf prior to the expiration of the
Exchange Offer.
Instructions with Respect to the
Stericycle, Inc.
Offer to Exchange
all of its Outstanding
12 3/8% Series A Senior Subordinated Notes due 2009
for
12 3/8% Series B Senior Subordinated Notes due 2009
The undersigned acknowledge(s) receipt of your letter enclosing the
Prospectus dated _________, 1999 and the related Letter of Transmittal (which,
together with any amendments or supplements thereto, collectively constitute the
"Exchange Offer") pursuant to an offer by Stericycle, Inc., a Delaware
corporation, to exchange all of its outstanding 12 3/8% Series A Senior
Subordinated Notes due 2009 ("Series A Notes") for 12 3/8% Series B Senior
Subordinated Notes due 2009.
This will instruct you to tender the principal amount of Series A Notes
indicated below (or, if no number is indicated below, the entire aggregate
principal amount) which are held by you for the account of the undersigned, upon
the terms and subject to the conditions set forth in the Exchange Offer.
Aggregate Principal Amount of Series A Notes to be Tendered:* $ ___________
Dated: _______________________, 1999
SIGN HERE
Signature(s):
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Please print name(s):
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Address:
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Area Code and Telephone Number:
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Tax Identification or Social Security Number:
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* Unless otherwise indicated, it will be assumed that the entire principal
amount of the Series A Notes held by us for your account are to be tendered
for exchange. The minimum permitted tender is $1,000 principal amount of
Series A Notes, and all tenders must be in integral multiples of $1,000.
EXHIBIT 99.4
OFFER TO EXCHANGE
12 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE NOVEMBER 15, 2009
FOR ANY AND ALL OUTSTANDING
12 3/8% SERIES A SENIOR SUBORDINATED NOTES DUE NOVEMBER 15, 2009
OF
Stericycle, INC.
TO BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
We are enclosing herewith the material listed below relating to the
offer by Stericycle, Inc., a Delaware corporation (the "Company") to exchange
its 12 3/8% Series B Senior Subordinated Notes due November 15, 2009 (the
"Series B Notes"), for a like principal amount of its issued and outstanding 12
3/8% Series A Senior Subordinated Notes due November 15, 2009 (the "Series A
Notes") pursuant to an offering registered under the Securities Act of 1933, as
amended (the "Securities Act"), upon the terms and subject to the conditions set
forth in the Company's Prospectus, dated _____________, and the related Letter
of Transmittal (which together constitute the "Exchange Offer").
The Exchange Offer provides a procedure for holders to tender the
Series A Notes by means of guaranteed delivery.
The Exchange Offer will expire at 5:00 p.m., Eastern Standard time, on
___________, unless extended (the "Expiration Date"). Tendered Series A Notes
may be withdrawn at any time prior to 5:00 p.m. Eastern Standard time on the
Expiration Date, if such Series A Notes have not previously been accepted for
exchange pursuant to the Exchange Offer.
Based on interpretations of the staff of the Securities and Exchange
Commission (the "SEC"), Series B Notes issued pursuant to the Exchange Offer in
exchange for Series A Notes may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 promulgated under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such holder is acquiring the
Series B Notes in its ordinary course of business, such holder has no
arrangement or understanding with any person to participate in a distribution of
the Series B Notes, and neither such holder nor any other such person is
engaging in or intends to engage in a distribution of such Series B Notes.
Holders of Series A Notes wishing to accept the Exchange Offer must represent to
the Company that such conditions have been met.
Each broker-dealer that receives Series B Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. The Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Series B Notes received in exchange for Series A Notes where
such Series A Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities (other than Series A Notes
acquired directly from the Company). The Company has agreed that, for a period
of 180 days after the date of the Prospectus, it will make the Prospectus and
any amendments or supplements thereto required for compliance with the
Securities Act available to any broker-dealer for use in connection with any
such resale.
THE EXCHANGE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SERIES
A NOTES BEING TENDERED.
Notwithstanding any other term of the Exchange Offer, the Company will
not be required to accept for exchange, or exchange Series B Notes for, any
Series A Notes not theretofore accepted for exchange, and may terminate or amend
the Exchange Offer as provided in the Prospectus.
THE COMPANY RESERVES THE RIGHT NOT TO ACCEPT TENDERED SERIES A NOTES
FROM ANY TENDERING HOLDER IF THE COMPANY DETERMINES, IN ITS SOLE AND ABSOLUTE
DISCRETION, THAT SUCH ACCEPTANCE COULD RESULT IN A VIOLATION OF APPLICABLE
SECURITIES LAWS.
For your information and for forwarding to your clients for whom you
hold Series A Notes registered in your name or in the name of your nominee,
enclosed herewith are copies of the following documents:
1. Prospectus dated ___________;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Registered Holder and/or DTC Participant from Beneficial
Owner;
5. Letter which may be sent to your clients for whose account you hold
Series A Notes in your name or in the name of your nominee, to
accompany the instruction form referred to above, for obtaining such
client's instruction with regard to the Exchange Offer; and
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 of the Internal Revenue Service (attached to Letter
of Transmittal).
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE.
The Company will not pay any fee or commission to any broker or dealer
or to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Series A Notes pursuant to the Exchange Offer. The
Company will pay or cause to be paid any transfer taxes payable on the transfer
of Series A Notes to it, except as otherwise provided in Instruction 5 of the
enclosed Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer may be
addressed to, and additional copies of the enclosed materials may be obtained
from the Exchange Agent, State Street Bank and Trust Company, at the telephone
number set forth below:
Telephone: (617) 662-1525
Very truly yours,
Stericycle, Inc.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF STERICYCLE, INC. OR STATE STREET BANK AND TRUST COMPANY OR AUTHORIZE
YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH
THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS
CONTAINED THEREIN.
EXHIBIT 99.5
INSTRUCTION TO REGISTERED HOLDER AND/OR
DTC PARTICIPANT FROM BENEFICIAL OWNER
OF
12 3/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2009
OF
STERICYCLE, INC.
TO REGISTERED HOLDER AND/OR DTC PARTICIPANT:
The undersigned hereby acknowledges receipt of the prospectus dated
___________, _____ (the "Prospectus") of Stericycle, Inc., a Delaware
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer") to exchange 12 3/8% Series B Senior Subordinated Notes due
2009 (the "Series B Notes") for any and all of its outstanding 12 3/8% Series A
Senior Subordinated Notes due 2009 (the "Series A Notes"). Capitalized terms
used but not defined herein have the meanings ascribed to them in the
Prospectus.
This will instruct you, the registered holder and/or DTC participant,
as to the action to be taken by you relating to the Exchange Offer with respect
to the Series A Notes held by you for the account of the undersigned.
The aggregate face amount of the Series A Notes held by you for the
account of the undersigned is (fill in amount):
$
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With respect to the Exchange Offer, the undersigned hereby instructs
you (check appropriate box):
[ ] To TENDER the following Series A Notes held by you for the
account of the undersigned (insert principal amount of Series A Notes
to be tendered, if any:
$
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[ ] NOT to TENDER any Series A Notes held by you for the
account of the undersigned.
If the undersigned instructs you to tender the Series A Notes held by
you for the account of the undersigned, it is understood that you are authorized
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i) the
Series B Notes acquired by the undersigned pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the undersigned, (ii) the
undersigned has no arrangement or understanding with any person to participate
in a distribution of such Series B Notes, (iii) the undersigned is not engaged
in and does not intend to engage in a distribution of such Series B Notes and
(iv) the undersigned is not an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act of 1933, as amended (the "Securities Act"). If
the undersigned is a broker-dealer (whether or not it is also an "affiliate")
that will receive Series B Notes for its account in exchange for Series A Notes,
it represents that such Series A Notes were acquired as a result of
market-making activities or other trading activities, and acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such exchange Notes. By acknowledging that it will
deliver, and by delivering, a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Series B Notes, the
undersigned is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
SIGN HERE
Name of beneficial owner(s):
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Signature(s):
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Name(s) (please print):
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Address:
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Telephone Number:
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Taxpayer identification or Social Security Number:
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Date:
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