<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1998
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
--------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------------
3CI COMPLETE COMPLIANCE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 4950 76-0351992
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
910 Pierrepoint, Suite 312
Shreveport, Louisiana 71106
Phone: (318) 869-0440
Fax: (318) 869-4002
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Charles D. Crochet, President
3CI Complete Compliance Corporation
910 Pierrepoint, Suite 312
Shreveport, Louisiana 71106
Phone: (318) 869-0440
Fax: (318) 869-4002
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------
With copy to:
Samuel N. Allen
Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002-2764
Phone: (713) 226-0600
Fax: (713) 226-0229
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. (x)
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. ( )
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ( )
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. ( )
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
PROPOSED
MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(1) OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, $.01 par value per
share . . . . . . . . . . . . . . . 1,518,434 1.125 $1,708,238 $504
====================================================================================================================
</TABLE>
--------------------
(1) Estimated solely for the purpose of calculating the registration fee.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
===============================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 23, 1998
PROSPECTUS
1,518,434 SHARES
3CI COMPLETE COMPLIANCE CORPORATION
COMMON STOCK
This Prospectus covers (i) up to 1,002,964 shares of common stock, par
value $.01 per share (the "Common Stock"), of 3CI Complete Compliance
Corporation (the "Company"), issuable upon the exercise of warrants to purchase
Common Stock (the "Warrants") and (ii) up to 515,470 shares of Common Stock
that are being offered for resale by certain selling stockholders of the
Company (the "Selling Stockholders"). The exercise price for the Warrants is
$1.50 per share. Therefore, if all of the Warrants are exercised, the Company
will receive net proceeds of $1,504,446. The Company will not receive any of
the proceeds from the sale of Common Stock being offered by the Selling
Securityholders.
The Common Stock is currently traded on the Nasdaq Small-Cap Market
under the symbol "TCCC." On March 19, 1998, the closing price of the Common
Stock on Nasdaq was $1 1/8 per share.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" WHICH
BEGINS ON PAGE 4.
This Prospectus covers the distribution of shares of Common Stock
issuable upon exercise of the Warrants and the shares of Common Stock being
offered by the Selling Stockholders. The shares issued upon exercise of
Warrants will be freely tradeable in the public markets upon issuance, and
delivery of this Prospectus will not be required in connection with such sales.
The Common Stock being sold by the Selling Stockholders may be offered and sold
from time to time by the Selling Stockholders through underwriters, dealers or
agents or directly to one or more purchasers in fixed price offerings, in
negotiated transactions, at market prices prevailing at the time of sale or at
prices related to such market prices. The terms of the offering and sale of
Common Stock by the Selling Stockholders pursuant to this Prospectus, including
any initial public offering price, any discounts, commissions or concessions
allowed, reallowed or paid to underwriters, dealers or agents, the purchase
price of the Common Stock and the proceeds to the Selling Stockholders, and any
other material terms shall be as set forth in a Prospectus Supplement. See
"Plan of Distribution."
______________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
______________________
THE DATE OF THIS PROSPECTUS IS APRIL , 1998
<PAGE> 3
SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial data
appearing elsewhere in this Prospectus, including the information under "Risk
Factors."
THE COMPANY
The Company was incorporated in Delaware in 1991 and is engaged in the
business of medical waste management services. The Company operates in
Alabama, Arkansas, Florida, Georgia, Kansas, Louisiana, Mississippi, Missouri,
Oklahoma, Tennessee and Texas. The Company's customers include regional
medical centers, major hospitals, clinics, medical and dental offices,
veterinarians, pharmaceutical companies, retirement homes, medical testing
laboratories and other generators of medical waste. Services to customers
include collection, transportation, bar code identification, and destruction by
controlled, high temperature incineration and use of a microwave facility. The
Company also provides training to customers on compliance with regulations, use
of containers, documentation and tracking.
"Medical waste" or "biomedical waste" generally consists of any liquid
or solid waste generated in the diagnosis, treatment or immunization of human
beings or animals or in related research, that may result in an infectious
disease. State and federal regulations focus on regulated and infectious
medical waste, which includes pathological waste, including tissues, organs and
body parts; blood and the products or components of blood; "sharps," including
needles, scalpels, pipettes and other medical instruments; waste from surgery
or autopsy; dialysis wastes, including contaminated disposable equipment and
supplies; cultures and stocks of infectious agents, including cultures from
medical and pathological laboratories; and various other biological wastes and
discarded materials contaminated with or exposed to blood, excretion and
secretions from human beings or animals. Medical waste or biomedical waste
generally is not "hazardous waste" under state and federal environmental laws.
The Company enters into medical waste disposal agreements with customers
for the collection of their medical waste according to a schedule agreed upon
between the parties. The Company accepts medical waste that has been packaged
by customers in containers provided or approved by the Company. The Company
then transports the medical waste in vehicles that are owned or leased by the
Company to destruction facilities, including two incinerators and a microwave
facility that are owned by the Company, and to an incinerator with which the
Company has entered into an exclusive contract. Company employees who handle
medical waste are trained in the proper techniques for the safe handling of
medical waste. The Company also serves its customers by designing specialized
on-site training systems for the identification, segregation, handling and
packaging of medical waste. These systems are designed to assist customers in
reducing their overall medical waste disposal costs, to promote safe handling
and to foster a long-term working relationship between the Company and its
customers. The systems also are designed to facilitate the proper packaging of
medical waste for disposal before handling by Company employees. The Company
uses a sophisticated bar code technology to track and record the movement of
medical waste through all phases of its handling by the Company including
collection, transportation and incineration, in compliance with applicable
governmental regulations.
The Company's executive offices are located at 910 Pierrepoint, #312,
Shreveport, Louisiana 71106 and its telephone number is (318) 869-0440.
<PAGE> 4
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by the Company . . . 1,002,964
Securities Offered by the Selling 515,470
Securityholders . . . . . . . . . . . . 10,714,275
Common Stock outstanding after the
offering(1) . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . All proceeds from the exercise of the
Warrants will be used for general
corporate purposes. The Company will
not receive any proceeds form the sale
of Common Stock by the Selling
Stockholders.
Nasdaq Small-Cap Market Symbol . . . . "TCCC"
</TABLE>
- ----------------
(1) Includes 1,002,964 shares of Common Stock issuable upon the exercise of
the Warrants. Does not include (i) 162,500 shares of Common Stock
issuable upon exercise of outstanding options and warrants and (ii)
7,750,000 shares of Common Stock issuable upon conversion of the
Company's Series B Preferred Stock and Series C Preferred Stock.
2
<PAGE> 5
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
------------------------------------- -----------------------
1995 1996 1997 1996 1997
------------ ------------ ----------- ----------- -----------
OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Total revenue . . . . . . . . . . . . . . 16,522,025 17,748,300 18,789,749 4,673,658 4,600,534
Gross profit . . . . . . . . . . . . . . 4,765,057 3,932,820 4,503,915 1,173,699 1,163,367
Operating income . . . . . . . . . . . . (4,207,730) (15,203,361) 71,502 (21,194) 100,429
Loss before provision for income taxes . (5,079,885) (16,282,837) (1,088,188) (345,576) (122,702)
Net loss . . . . . . . . . . . . . . . . (5,079,885) (16,282,837) (1,088,188) (345,576) (122,702)
Net loss per share . . . . . . . . . . . (0.60) (1.84) (0.12) (0.04) (0.01)
Weighted average shares outstanding . . . 8,530,611 8,872,348 9,064,071 9,153,833 9,034,811
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------
HISTORICAL(1) PRO FORMA(1)
-------------- ------------
BALANCE SHEET DATA:
<S> <C> <C>
Working capital deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,476,395) (6,476,395)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,222,269 12,222,269
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,702,912 8,874,898
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 685,003 685,003
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,834,354 2,662,368
</TABLE>
(1) Gives effect to (i) issuance on March 18, 1998, of 78,014 shares of
Common Stock in connection with the settlement of certain litigation,
(ii) the cancellation of 1,000,000 shares of the Company's Series A
Preferred Stock without par value (the "Series A Preferred Stock") and
concurrent issuance of 7,000,000 shares of the Company's Series B
Preferred Stock (the "Series B Preferred Stock") on March 23, 1998; and
(iii) the cancellation of $750,000 worth of debt owed by the Company to
WSI in exchange for the issuance of 750,000 shares of the Company's
Series C Preferred Stock (the "Series C Preferred Stock") without par
value on March 23, 1998.
3
<PAGE> 6
RISK FACTORS
In evaluating an investment in the Common Stock, prospective investors
should carefully consider all of the information set forth in this Prospectus
and should give particular attention to the following risk factors.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company's operations have not been profitable since the Company was
incorporated in 1991. As of December 31, 1997, the Company had an accumulated
deficit of approximately $25,432,673. For the years ended September 30, 1997
and 1996, the Company had net losses of approximately $1,088,188 and
$16,282,837, respectively. There can be no assurance that the Company will be
able to operate profitably in the future. The Company is subject to the risks
and uncertainties inherent in the growth of a developing business in its
industry, including, among other things, limited access to capital,
difficulties and delays in obtaining necessary government permits and
authorizations, other delays in implementing its business strategy in
particular geographic service areas and significant competition.
POTENTIAL INABILITY TO FUND FUTURE CAPITAL REQUIREMENTS
The Company has historically relied on Waste Systems, Inc. ("WSI"), the
Company's majority stockholder, for funding. Such funding has come primarily
in the form of loans from WSI to the Company. Through the date hereof, WSI has
lent the Company an aggregate of $27,335,872. Of such amount, $22,573,913 has
been converted from debt into equity, leaving an aggregate outstanding
principal amount owed to WSI of $4,761,959. The Company anticipates a working
capital deficit from operations for the remainder of fiscal 1998 and will be
dependent upon third parties to fund its continued operations. However, WSI
has expressed reluctance in continuing to provide funding to the Company. No
assurance can be given that WSI will continue to advance funds to the Company
and to forego demand for payment, or that WSI will be willing to convert
additional amounts of debt owed into equity. In addition, no assurance can be
given that the Company will be able to obtain necessary funding from a third
party. If WSI fails to advance required funds to the Company or demands
payment of current indebtedness, or, if the Company is unable to obtain funding
from a third party, the Company would have limited financing sources and could
be forced to seek bankruptcy protection. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
POTENTIAL REMOVAL FROM TRADING ON NASDAQ
The Common Stock trades on the Nasdaq Small-Cap Market. The
requirements for continued listing on the Nasdaq Small-Cap Market recently were
amended to increase the required minimum stock price and net capital standards.
The Company has failed to comply with certain of these requirements in the
past, and has been able to comply only through the conversion of debt owed to
WSI into equity. Under Nasdaq rules, the Company's Common Stock could be
removed from listing on the Nasdaq Small-Cap Market even if it is in technical
compliance with the continued listing criteria if Nasdaq determines that
continuing to meet those criteria in the future is unlikely. Therefore, there
can be no assurance that the Common Stock will continue to be traded on the
Nasdaq Small-Cap Market. If the Common Stock is removed from trading on that
market, the Common Stock still could be eligible for trading on the Nasdaq
Bulletin Board, the "pink sheets" or other over-the-counter markets, however,
such markets would not afford the liquidity available through the Nasdaq Small-
Cap Market. Removal from listing would have a material adverse effect on the
value of the Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation--Liquidity and Capital Resources."
IMPACT OF GOVERNMENT REGULATION
The medical waste management industry is subject to extensive federal,
state and local laws and regulations. The collection, transportation,
treatment and disposal of medical waste require government permits,
authorizations and approvals, the nature of which may vary from jurisdiction to
jurisdiction, and continuing compliance with required packaging, labeling,
handling, treatment, disposal and documentation procedures, and notice and
reporting obligations. The Company believes that it has obtained all
government permits required to operate its existing business and that it is in
compliance in all material respects with these permits and all applicable laws
and regulations. State and local laws
4
<PAGE> 7
and regulations change with some frequency, however, and the amendment of
existing laws or regulations or the adoption of new laws or regulations could
require the Company to obtain new government permits or to modify its current
methods of operation to comply with these changes. There can be no assurance
that the Company would be able to obtain any such new permits or that the cost
of compliance with any such changes would not have material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Governmental Regulation."
The permits that the Company requires are difficult and time-consuming
to obtain and, if and when issued, may be subject to conditions or restrictions
that limit the Company's ability to operate efficiently in an applicable
jurisdiction. The Company's inability to expand the geographic service areas
in which it operates, either because it is unable to obtain the necessary
permits or because they are issued under conditions or with restrictions that
are not acceptable to the Company, could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's failure to operate in compliance with the requirements and
limitations of any permit, or with the laws and regulations pursuant to which
the permit was issued, could jeopardize the permit. Routine compliance
inspections by the issuing regulatory agency, as well as complaints filed by
others alleging that the Company is not operating in compliance with a
particular permit, could result in administrative proceedings to modify,
suspend or revoke the permit. Any such modification, suspension or revocation
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Some permits must be renewed periodically, and there can be no assurance
that any existing or future permit that is required to be renewed will be
renewed by the issuing regulatory agency. The failure to obtain any such
renewal could have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITION
The Company operates within an intensely competitive industry.
Competition has resulted in substantial price reductions in virtually all
geographic areas. Although prices have stabilized in certain areas, there can
be no assurance that competitive pressures within the medical waste management
industry will not result in continued or accelerated price reductions that
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company faces competition from several national waste management
companies and many regional and local businesses in its present locations, and
will be confronted with such competition in each location where it seeks to
expand. Most of the Company's competitors are larger and have substantially
greater capital resources, regulatory experience, sales and marketing
capabilities and broader product and service offerings than the Company, and
are well established in their respective markets. Competitors could engage in
a variety of actions that may have an adverse effect on the Company's business.
These activities may include aggressive price competition, bundling of
regulated medical waste management services with other services including solid
waste management, offering a higher level of customer service, and efforts to
recruit the Company's customers.
POTENTIAL RISK OF PRODUCT LIABILITY AND POTENTIAL UNAVAILABILITY OF INSURANCE
The medical waste management industry involves potentially significant
risks of statutory, contractual, tort and common law liability. The Company's
failure to comply with applicable laws and regulations or to manage medical
waste in an environmentally safe manner could result in environmental
contamination, personal injury and property damage. The Company maintains
pollution liability, general liability and workers' compensation insurance that
the Company considers adequate to protect its business and employees. An
uninsured or partially insured claim against the Company, however, could have a
material adverse effect on the Company's 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, joint and several liability on current and former owners and operators
of facilities from which releases of hazardous substances have occurred and on
generators and transporters of the
5
<PAGE> 8
hazardous substances that come to be located at such facilities. Certain
medical wastes may be categorized as hazardous asbestos under CERCLA.
Responsible parties may be liable for substantial waste site investigation and
clean-up costs and natural resource damages, regardless of whether they
exercised due care and complied with applicable laws and regulations. If the
Company were found to be a responsible party for a particular site, it could be
required to pay the entire cost of waste site investigation and clean-up, even
though other parties also may be liable. The Company's ability to obtain
contribution from other responsible parties may be limited by the Company's
inability to identify those parties and by their financial inability to
contribute to investigation and clean-up costs. There can be no assurance that
the Company will not face claims under CERCLA or similar state laws, or under
other laws, resulting in a substantial liability for which the Company is
unable to obtain contribution from other responsible parties and for which the
Company is uninsured or only partially insured. The Company's pollution
liability insurance includes liabilities under CERCLA. The Company may
experience difficulty in the future in obtaining adequate insurance coverage on
acceptable terms. A successful claim against the Company for which it is
uninsured or only partially insured, and for which it is unable to obtain
contribution from other responsible parties, could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Governmental Regulation."
ALTERNATIVE TECHNOLOGIES; TECHNOLOGICAL OBSOLESCENCE
The medical waste management industry presents continuing opportunities
for the development of alternative treatment and disposal technologies. These
alternative technologies may emphasize operating cost efficiencies, reductions
in the volume of regulated medical waste generated or environmental factors.
The development and commercialization of alternative treatment or disposal
technologies that are more cost-efficient than the Company's technologies, that
reduce the volume of regulated medical waste generated, or that afford
environmental benefits could place the Company at a competitive disadvantage.
The Company is aware of certain new regulated medical waste management
technologies, including the production of reusable or degradable medical
products, which, if successfully developed and commercialized, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon a limited number of key management,
technical and sales personnel. The Company's future success will depend, in
part, upon its ability to attract and retain highly qualified personnel. The
Company faces competition for such personnel from other companies and
organizations, and there can be no assurance that the Company will be
successful in hiring or retaining qualified personnel. The Company has an
employment agreement with Mr. Charles D. Crochet who serves as president, which
expires in May 1998. The Company does not have written employment agreements
with its other officers, and such officers and other key personnel could leave
the Company's employ with little or no prior notice. The Company's loss of key
personnel, especially if the loss is without advance notice, or the Company's
inability to hire or retain key personnel, could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company does not carry any key man life insurance.
EFFECT OF APPLICABLE ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
The Company has not elected to be excluded from the provisions of
Section 203 of the Delaware General Corporation Law, which imposes certain
restrictions on transactions between a corporation and "interested
stockholders." These restrictions could operate to delay or prevent a change
in control of the Company and to discourage, impede or prevent a merger, tender
offer or proxy contest involving the Company.
LIMITED PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF PRICES
Historically, the Common Stock has experienced low trading volumes.
Factors such as announcements by the Company or its competitors concerning
technological innovations, new commercial products or procedures, proposed
government regulations and developments or disputes relating to patents or
proprietary rights may have a significant effect on the market price of the
Common Stock. Changes in the market price of the Common Stock may bear no
relation to the Company's actual operations or financial results.
6
<PAGE> 9
SHARES ELIGIBLE FOR FUTURE SALE
A substantial number of shares of Common Stock issuable under the terms
of certain agreements of the Company, upon the conversion of outstanding
convertible preferred stock and upon the exercise of outstanding warrants and
options will become eligible for sale in the public market at prescribed times
in the future. Sales of significant amounts of Common Stock in the public
markets could adversely affect prevailing market prices for the Common Stock.
See "Shares Eligible for Future Sale."
AUTHORIZATION OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
preferred stock with designations, rights and preferences determined from time
to time by its Board of Directors. Accordingly, the Company's Board of
Directors is empowered, without stockholder approval, to issue preferred stock
with dividend, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of the holders of Common
Stock. In the event of issuance, the preferred stock could be used, under
certain circumstances, as a method of discouraging, delaying or preventing a
change of control of the Company. See "Description of Capital Stock --
Preferred Stock."
7
<PAGE> 10
DIVIDEND POLICY
The Company has never paid dividends on the Common Stock and does not
anticipate paying any dividends in the foreseeable future. The Company
presently intends to retain future earnings, if any, to support the Company's
operations and growth. Any payment of cash dividends in the future will be
dependent on the amount of funds legally available therefor, the Company's
earnings, financial condition, capital requirements and other factors that the
Board of Directors may deem relevant.
USE OF PROCEEDS
Up to 1,002,964 shares of the Common Stock that are covered by this
Prospectus will be issued upon exercise of the Warrants. The Warrants are
exercisable at a price of $1.50 per share of Common Stock and expire on March
22, 2000. Assuming that all of the Warrants are exercised, the maximum net
proceeds to the Company are $1,504,446. Any net proceeds that are received
upon exercise of the Warrants will be used for general corporate purposes. The
Company will not receive any of the proceeds from the sale of shares of the
Common Stock by the Selling Stockholders.
PRICE RANGE OF THE COMMON STOCK
The Common Stock has traded on Nasdaq Small-Cap Market under the symbol
TCCC. At March 18, 1998, the Company estimates that there were approximately
67 Common stockholders of record and 425 beneficial owners of the Common Stock.
The following table sets forth the high and low bid quotations for the
Common Stock, as reported by Nasdaq for each of the quarterly periods
indicated.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year ended September 30, 1996
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 11/16 3/4
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1 39/64
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 39/64 1 7/16
Year ended September 30, 1997
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5/16 13/16
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 5/16 1/2
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3/8
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5/8 9/16
Year ended September 30, 1998
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 11/16 3/4
Second Quarter (through March 18, 1998) . . . . . . . . . . . . . . . . . . . 1 1/2 23/32
</TABLE>
8
<PAGE> 11
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company at
December 31, 1997 and (ii) pro forma adjustments to the Company's
capitalization as of December 31, 1997 to give effect to the issuance on March
28, 1998, of 78,014 shares of Common Stock in connection with the settlement of
certain litigation, (ii) the cancellation of 1,000,000 shares of the Series A
Preferred Stock and concurrent issuance of 7,000,000 shares of the Series B
Preferred Stock; and the cancellation of $750,000 of debt owed by the Company
to WSI in exchange for the issuance of 750,000 shares of the Series C Preferred
Stock as if such transactions had occurred on December 31, 1997, and (iii) the
pro forma capitalization of the Company giving effect to the foregoing
transactions. This table should be read in conjunction with "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company, including
the Notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
--------------------------------------
HISTORICAL PRO FORMA PRO FORMA
ADJUSTMENTS
----------- ------------ ------------
<S> <C> <C> <C>
Total current liabilities . . . . . . . . . . . . . . . . . . . . $9,702,912 (828,014) 8,874,898
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 685,003 685,003
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 10,387,915 (828,014) 9,559,901
---------- ---------- -----------
Stockholders' equity:
Preferred Stock, no par value; 1,000,000 shares authorized
(16,050,000 pro forma) . . . . . . . . . . . . . . . . . .
Series A Preferred Stock, no par value; 1,000,000 shares
authorized;
1,000,000 shares outstanding (0 shares outstanding
pro forma). . . . . . . . . . . . . . . . . . . . . . . 7,000,000 (7,000,000)
Series B Preferred Stock, no par value; 7,000,000 shares
authorized;
0 shares outstanding (7,000,000 shares pro forma). . 7,000,000 7,000,000
Series C Preferred Stock, no par value; 750,000 shares
authorized;
0 shares outstanding (750,000 shares outstanding pro
forma) . . . . . . . . . . . . . . . . . . . . . . 750,000 750,000
Common Stock:
$.01 par value; 15,000,000 shares authorized
(40,450,000 pro forma 9,154,811 shares outstanding
(9,232,825 shares outstanding pro forma as adjusted) 91,549 780 92,329
Treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . (7,065) (7,065)
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 20,182,543 77,234 20,259,777
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . (25,432,673) (25,432,673)
----------- ---------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . 1,834,354 828,014 2,662,368
----------- ---------- -----------
Total debt and stockholders' equity . . . . . . . . $12,222,269 -- $12,222,269
=========== ========== ===========
</TABLE>
9
<PAGE> 12
SELECTED FINANCIAL DATA
The following historical financial data as of and for each of the years
in the four-year period ended September 30, 1997 and for and at the nine-month
period ended September 30, 1993 are derived from the Company's audited financial
statements. The historical financial data presented as of and for each of the
three-month periods ended December 31, 1997 and December 31, 1996 are derived
from the Company's unaudited financial statements, which have been prepared on
the same basis as the audited financial statements and, in the opinion of
management, include all adjustments (consisting of normal recurring adjustments)
necessary to present fairly all the information set forth herein. The financial
data set forth below includes the historical financial information of American
Medical Transports Corporation ("AMTC") and A/MED, Inc. ("A/MED"); the assets
and certain liabilities of which were acquired by the Company. This data should
be read in conjunction with the financial statements of the Company and the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------------------------------------
1997 1996 1995(1) 1994 (2)
---- ---- ---- -----
<S> <C> <C> <C> <C>
Selected Statement of Operations
Data: Revenues........................ $ 18,789,749 $ 17,748,300 $ 16,522,025 $ 12,422,717
Costs and expenses:
Cost of sales......................... 14,285,834 13,815,480 11,756,968 9,273,011
Write off of intangibles.............. - 11,385,328 - -
Write off of assets................... - 1,183,446 - -
Selling, general and administrative... 3,080,398 4,343,246 6,996,575 2,452,840
Depreciation and amortization......... 1,352,015 2,224,161 1,976,212 1,236,592
Total operating expenses.............. 18,718,247 32,951,661 20,729,755 12,962,443
Gain (loss) from operations........... 71,502 (15,203,361) (4,207,730) (539,726)
Other expense, net.................... (1,159,690) (1,053,424) (655,080) (423,890)
Accretion of put option............... - (26,052) (217,075) -
------------ ------------- ------------ ------------
Net loss.............................. $ (1,088,188) $ (16,282,837) $ (5,079,885) $ (963,616)
Loss per common share................. $ (0.12) $ (1.8$) (0.60) $ (0.17)
Weighted Common Shares
Outstanding........................... 9,064,071 8,872,348 8,530,611 5,636,030
Selected Balance Sheet Data:
Working capital (deficit)............. (6,135,666) $ (10,774,499) $ (2,546,818) $ (191,840)
Property, plant and equipment, net 8,449,748 8,462,619 9,388,722 7,641,402
Total Assets...................... 13,157,605 13,374,817 25,518,596 21,567,824
Long-term debt, net of current
maturities......................... 986,467 742,400 5,575,622 1,403,316
Shareholders, equity (deficit)............ 1,964,122 (4,014,035) 11,821,339 15,892,569
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, DECEMBER 31,
1993 (3) 1996 1997
---- ---- ----
<S> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS
DATA: REVENUES......................... $ 6,069,217 $ 4,673,658 $ 4,600,534
Costs and expenses:
Cost of sales.......................... 5,009,581 3,499,959 3,437,167
Write off of intangibles............... - - -
Write off of assets.................... - - -
Selling, general and administrative.... 750,149 836,970 767,959
Depreciation and amortization.......... 639,996 357,923 294,979
Total operating expenses............... 6,399,726 4,694,852 4,500,105
Gain (Loss) from operations............ (330,509) (21,194) 100,429
Other Expense, net..................... (484,883) (324,382) (223,131)
Accretion of put option................ - - -
--------------
Net Loss............................... $ (815,392) $ (345,576) $ (122,702)
Loss per common share.................. $ (0.41) $ (0.04) $ (0.01)
Weighted Common Shares
Outstanding............................ 1,973,680 9,064,811 9,153,833
SELECTED BALANCE SHEET DATA:
Working Capital (deficit).............. $ (3,222,134) $(11,020,015) $(6,476,395)
Property, Plant and Equipment, net 6,380,926 8,345,891 8,384,132
Total Assets....................... 12,108,410 14,521,048 12,222,269
Long-term Debt, net of current
maturities......................... 5,450,069 700,990 685,003
1,427,962 (4,359,609) 1,834,354
</TABLE>
(1) The fiscal 1995 balances include the acquisition of River Bay after the
acquisition date.
(2) The fiscal 1994 balances include the acquisitions of AMTC and the A/MED
and acquisition of Med-Waste for periods after the acquisition dates.
(3) Operating results are not comparable because the September 30, 1993 income
statement amounts are for nine months.
10
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
"Selected Financial Data" and the Company's Financial Statements and the notes
thereto, included elsewhere in this Prospectus.
GENERAL
The Company has historically relied upon WSI to fund its working capital
deficits. The Company has continued to experience a cash loss from operations
during the three months ended December 31, 1997. The Company anticipates a
working capital deficit from operations for the remainder of fiscal 1998 and
will be dependent upon WSI or third parties to fund its continued operation.
No assurance can be given that WSI will continue to advance funds to the
Company and to forego demand for payment of the current indebtedness of the
Company, or that the Company will be able to obtain necessary funding from
third parties. If WSI fails to advance required funds to the Company or
demands payment of current indebtedness, or if the Company is unable to obtain
funding from a third party, the Company would have limited financing sources
and could be forced to seek bankruptcy protection. See "Risk
Factors--Potential Inability to Fund Future Capital Requirements."
LIQUIDITY AND CAPITAL RESOURCES
Financing Activities. The Company has consistently incurred losses
since its inception. The Company has historically funded its operations,
acquisitions and debt service through cash advances from WSI. During fiscal
1994, advances made by WSI in the amounts of $3,100,000 and $4,671,973 were
converted to 666,670 and 1,557,324 shares of Common Stock. In October 1994,
WSI made a non-interest bearing cash advance of $1,000,000 to the Company,
which was converted into 416,667 shares of Common Stock in April 1995. In the
first half of fiscal 1995, WSI made non-interest bearing cash advances totaling
$4,100,000 to the Company. In June 1995, the Company executed a $6,000,000
revolving promissory note, which was used in part to repay the advances. In
September 1995, this note was renegotiated into a revolving credit facility by
increasing the total amount available to $8,000,000 including interest, with
principal not to exceed $7,400,000 (the "First Revolving Credit Facility").
The promissory note in connection with the First Revolving Credit Facility
accrues interest at the prime rate, with a maturity date of December 31, 1996.
Interest is payable in quarterly installments which is automatically added to
the outstanding principal balance, if not paid.
As of September 30, 1997, 1996, and 1995, the Company had borrowed
$4,844,217, $8,843,000 and $4,100,000, respectively, under the First Revolving
Credit Facility. See note 5 to Notes to Consolidated Financial Statements. A
significant amount of the advances from WSI have historically been non-interest
bearing, some of which were ultimately converted to equity, and interest
expense in 1997 and 1996 increased significantly as a result of the advances
made pursuant to the First Revolving Credit Facility.
During fiscal 1996, the Company received cash advances from WSI totaling
$8,842,969 in excess of the principal amount that could be borrowed under the
First Revolving Credit Facility. Due to such additional cash advances, on
December 20, 1996 the Company entered into a second revolving credit facility
with WSI in the amount of $2,700,000 including interest, with a maturity date
of February 28, 1997 (the "Second Revolving Credit Facility"). WSI and the
Company intended that the Second Revolving Credit Facility include all sums
owed by the Company to WSI in excess of sums borrowed under the First Revolving
Credit Facility.
During the fiscal years ended September 30, 1997, 1996 and 1995 WSI has
made cash advances to the Company of $2,303,000, $4,000,000 and $4,100,000,
respectively. During the first quarter of fiscal 1998, the Company had not
requested nor received any cash advances from WSI. The Company has not been
able to repay its indebtedness to WSI under the First Revolving Credit
Facility, and it has requested and received extensions and waivers on a monthly
basis from WSI, so that the Company and WSI can restructure the First Revolving
Credit Facility.
In February 1997, the Company received a letter from Nasdaq regarding
the Company's failure to meet listing requirements. These requirements include
maintaining a minimum capital and surplus of at least $1,000,000 and a minimum
bid price for its Common Stock of $1.00 per share. While the Company remained
out of compliance with
11
<PAGE> 14
such requirements, Nasdaq allowed the Company to remain listed with an
exception added to its trading symbol. Nasdaq gave the Company until June 25,
1997 to meet the listing requirement. In June 1997, WSI converted $7,000,000
of debt into 1,000,000 shares of preferred stock. The amount owed under the
First Revolving Credit Facility was reduced by approximately $3,900,000 and the
amount owed under the Second Revolving Credit Facility was completely
eliminated. The conversion of debt by WSI allowed the Company to meet the
listing requirements of Nasdaq. On June 26, 1997, Nasdaq informed the Company
that it was in compliance with all requirements necessary for continued listing
on the exchange and that the exception to its trading symbol had been removed.
See "Risk Factors--Potential Removal from Trading on Nasdaq."
During the first quarter of fiscal 1998, the Company repaid
approximately $179,731 of its notes payable and approximately $344,685 of its
long-term debt that became due during the quarter.
During the first quarter of fiscal 1998, the Board of Directors
authorized the repurchase of up to 150,000 shares of Common Stock from time to
time in the open market. As of the date hereof, the Company has repurchased
6,000 shares for $7,107.
During fiscal 1997, the Company repaid approximately $1,012,800 of its
notes payable and approximately $1,444,000 of its long-term debt that became
due during the year with the funds advanced from WSI, including payments
totaling approximately $376,000 to River Bay on debt incurred related to the
1994 acquisition of assets. The Company also reduced the put option from the
collections which were received by the Bank of Raleigh and Smith County Banks
by approximately $463,000, before the settlement agreement of the River Bay
lawsuit.
The nature and level of competition in the medical waste industry has
remained high for several years. This condition has produced aggressive price
competition and results in pressures on profit margins. The Company competes
against companies that have access to greater capital resources. In order to
compete in this industry on a long-term basis and fully realize its business
strategy, the Company will require additional and continued financing and other
assistance from WSI and if available, from outside sources. There is no
assurance that adequate funds for these purposes will be available from WSI or
outside sources when needed or, if available, on terms acceptable to the
Company.
Operating Activities. In fiscal 1996, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed." SFAS No. 121 requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the carrying amount. An evaluation of the long-lived assets
associated with the Company operations resulted in the determination that
certain intangible assets were impaired. In fiscal 1996 the impaired assets
were written down by $11,385,328.
The Company grants credit to local and national customers on a net 30
day basis. These accounts are then monitored as to their payment pattern and
if a consistent pattern develops of slow payment or no payment, the Company
then suspends service. The Company maintains an allowance for doubtful
accounts at a level that management believes is sufficient to cover potential
credit losses. The Company provided for bad debt reserves in the fiscal years
ending September 30, 1995, 1996 and 1997 of $1,283,219, $380,000 and $212,867,
respectively. The reserves taken in fiscal 1995 were substantially high due to
several factors, including high employee turnover, relocation of the Company
headquarters and difficulties in integrating the Company's management
information systems.
In August 1996, an analysis was conducted of the Company's operating
assets and systems. In conjunction with the analysis, the Company reconsidered
the use of certain operating assets as well as a result of recent experiences
and current market conditions. As a result of the analysis, the Company wrote-
off certain operating equipment which would not benefit future operations,
expensed certain leasehold improvements costs for certain closed facilities,
and expensed $420,000 of computer software and hardware that will not be used
in future operations.
Investing Activities. During the first quarter of fiscal 1998, the
Company invested $262,000 for transportation, machinery and equipment, computer
equipment and software, and other fixed assets.
12
<PAGE> 15
During fiscal 1997, the Company invested approximately $1,417,000 for
transportation, machinery and equipment at its incinerator and transportation
locations, and computer equipment and software.
During fiscal 1996, the Company completed the construction of
incineration facilities in Birmingham, Alabama. Expenditures related to the
project during fiscal 1996 totaled $791,851, in addition to the $260,000
incurred during fiscal 1995 and $550,000 incurred before the acquisition of
River Bay. During fiscal 1996, the Company invested an additional $1,180,000
for transportation, machinery and equipment, computer equipment and software,
and other fixed assets.
During the fiscal 1995, the Company acquired substantially all of the
assets and certain liabilities from River Bay in exchange for 865,500 shares of
Common Stock and a $1,000,000 promissory note to River Bay. The Company has
repurchased the shares of Common Stock from River Bay pursuant to the terms of
settlement reached in litigation. See Note 1 to Consolidated Financial
Statements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1996.
Revenues. Revenues for the three month period ended December 31, 1997
decreased to $4,673,658 from revenues for the three month period ended December
31, 1996 of $4,743,054. This decrease in revenue of $73,124, or 1.6%, is
primarily attributable to a reduction of third party incineration revenue.
During the quarter the Company increased its direct collection revenue by 2.4%,
while reducing the dependency of outside third party providers by 3.8%. The
industry continues to experience a downward pressure in pricing caused by
competitors attempting to gain market share through deep discount pricing.
Cost of Services. Cost of services decreased $62,792, or 1.8%, to
$3,437,167 for the three month period ended December 31, 1997 compared to
$3,499,959 for the three month period ended December 31, 1996. The decrease was
a result of lowered transportation costs, the Company's decreasing dependence on
third party incineration facilities and conversion of existing large customers
from once used cardboard containers to multi-use reusable containers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three month period ended December 31, 1997
decreased to $767,959 compared to $836,970 for the three month period ended
December 31, 1996. As a percentage of revenue, the expenses for the three
month period ended December 31, 1997 improved to 16.7% compared to 17.9% for
the three month period ended December 31, 1996.
Depreciation and Amortization. Depreciation and amortization expenses
for the three month period ended December 31, 1997 decreased to $294,979
compared to $357,923 for the three month period ended December 31, 1996.
Interest Expense. Interest expense decreased to $149,624 for the three
month period ended December 31, 1997 from $250,620 for the three month ended
December 31, 1996, primarily due to the debt conversion of WSI's promissory
notes to shares of preferred stock. See "--Liquidity and Capital
Resources--Financing Activities."
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO THE YEAR ENDED SEPTEMBER 30,
1996
Revenues. Revenues increased to $1,041,449, or 5.9%, to $18,789,749
during fiscal 1997, from $17,748,300 for fiscal 1996. This increase is
primarily attributable to the Company focusing on higher margin generators.
The Company has been able to achieve the increase notwithstanding continued
downward pressure on pricing from the high level of competition in the
industry.
Cost of Services. Cost of services increased $470,354, or 3.4%, to
$14,285,834 during fiscal 1997, compared to $13,815,480 for fiscal 1996. The
principal reasons for the increase were increased workers compensation
insurance, and higher fuel and labor costs. Cost of revenues as a percentage
of revenues decreased to 76.0% during 1997 from 77.8% during 1996.
13
<PAGE> 16
Selling, General and Administrative. Selling, general and
administrative expenses decreased to $3,080,398 during fiscal 1997 from
$4,343,246 during fiscal 1996. The decrease was primarily attributable to the
reduction of legal fees that the Company had accrued during fiscal 1996 that
related to a lawsuit brought by its minority stockholders. Selling, general
and administrative expenses as a percentage of revenue decreased to 16.4% in
fiscal 1997 from 24.5% in fiscal 1996.
Depreciation and Amortization. Depreciation and amortization expenses
decreased to $1,352,015 for fiscal 1997 from $2,224,161 for fiscal 1996, due
principally the impairment loss for the intangible assets in fiscal 1996.
Interest Expense. Interest expense increased to $902,229 in fiscal 1997
from $839,089 in fiscal 1996, due primarily to an increase in cash advances
made by WSI.
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO THE YEAR ENDED SEPTEMBER 30,
1995.
Revenues. Revenues increased $1,226,000, or 7%, to $17,748,000, during
fiscal 1996 from $16,522,000 for fiscal 1995, as the Company continued its
strategy of focusing on higher-margin professional account generators. This
strategy has resulted in an increase of $1,400,000, or an 8% increase, of
revenue from professional accounts, while during the same time the Company's
revenue from third party generators decreased approximately $174,000, or a 1%
decrease, in revenue from third party generators.
Cost of Services. Cost of services increased to $13,815,480 for fiscal
1996 compared to $11,756,968 for fiscal 1995. The increased cost of service
resulted from higher transportation costs, incineration costs paid to third
parties, and a substantial increase in costs of supplies. These higher costs
can be partially associated with the River Bay division due to the delay of the
start of an incinerator in Birmingham, Alabama. The incinerator was in full
operation by the start of the third quarter of fiscal 1996, and some of the
projected reductions in outside incinerator costs paid to third parties, and
the elimination of additional transportation and repackaging costs associated
with outside incineration costs are being achieved. In addition, the
installation and the startup costs associated with the microwave unit at
Birmingham, Alabama created an increase in operating costs.
Write-Off of Intangible Assets. Write-off of intangible assets in
fiscal 1996 totaled $11,385,328. The Company prepared an evaluation of the
fair value of the assets associated with the Company's operations resulting in
the determination that certain intangible assets were impaired. The fair value
was based on estimated future cash flows to be generated by the Company's
operations, discounted at a market rate of interest. This write-off of
intangibles was a result of the Company consistently experiencing and further
projecting negative cash flows.
Recognition and Impairment. Because of the above circumstances, the
Company estimated its future cash flows to be generated by its assets less the
future cash outflows expected to be necessary to obtain those cash inflows. In
the preparing the analysis, the expected future cash flows (undiscounted and
without interest charges) was less than the carrying amount of the Company's
intangible assets, and the Company recognized an impairment loss in accordance
with SFAS 121 of its intangible assets of $11,385,328.
In estimating the expected future cash flows for determining whether the
assets were impaired and if expected future cash flows are used in measuring
assets that are impaired, the assets grouped at the lowest level for which
there are identifiable cash flows (as noted above the Company broke down the
assets into divisions). The estimates used for expected future cash flows were
based on the Company's forecast for fiscal 1997. Also, in the fourth quarter
of fiscal 1996, the Company's majority stockholder indicated that it was no
longer willing to commit to fund the Company on a long-term basis. This event,
along with the fiscal 1997 budget of continued losses, indicated that an
impairment should be recognized.
The impaired assets are incineration rights, goodwill and customer lists
as recorded on 3CI and River Bay division accounting records at September 30,
1996. This write-down is a result of the Company suffering historical
operating and cash flow losses with continued forecast operating and cash flow
losses for the current fiscal year.
14
<PAGE> 17
Selling, General and Administrative. Selling, general and
administrative expenses decreased to $4,343,246 in fiscal 1996 from $6,996,575
in fiscal 1995. The decrease results from one time severance costs and
duplicative administration functions that were being incurred by the Company
from previous acquisitions being eliminated. Due to continued litigation the
Company felt it necessary to accrue an additional $1,000,000 for legal costs
for the fourth quarter of fiscal year 1996.
Depreciation and Amortization. Depreciation and amortization expenses
increased to $2,224,161 for fiscal 1996 from $1,976,212 for fiscal 1995, due
principally to the start of the new incinerator located in Birmingham, Alabama.
Interest Expense. Interest expense increased to $839,089 in fiscal 1996
from $655,080 in fiscal 1995, due primarily to the increase in advances made by
WSI.
Write-Off of Fixed Assets in Fiscal 1996 Totaled $1,183,000. A complete
analysis was conducted of the Company's operating assets and systems. In
conjunction with the analysis, the Company reconsidered the use of certain
operating assets as well as a result of recent experiences and current market
conditions. Set forth below is a summary of the write-offs relating to fixed
assets during fiscal 1996:
Buildings $12,700. It was necessary to replace the refractory
in one of the Company's incinerators due to normal wear and tear. There
was a net book value of $12,700 of the previously capitalized refractory
that was written off.
Leasehold Improvements $80,000. The Company updated and
refurbished several of its transportation and incinerator locations to
make the locations more functional and efficiently operational. The
Company also made an operational decision to close its Austin, Texas,
transportation location to reduce operating and personnel costs.
Previous leasehold improvement costs, which were being amortized over
the life of the lease (lease was terminated due to this decision to
close the location), were written-off as they remained a part of the
leased building.
Transportation Equipment $500,982. In February 1994, at the time
of the acquisitions of AMTC and A/MED, the Company had a lease
agreement, which was accounted for as a capitalized lease, and the
equipment leased thereunder was being depreciated over the term of the
lease agreement. During 1996, the Company terminated the lease due to
the high cost of maintenance of the leased transportation equipment.
The Company had also capitalized other costs associated with these
leased assets, and Company wrote off the remaining net book value when
the lease was terminated. As the transportation equipment was returned
it was necessary to write off the remaining capitalized net book value
of $500,982.
Reusable Containers $12,000. The Company moved a portion of its
customer base from disposable cardboard boxes to reusable plastic
containers. A significant investment was then made in reusable plastic
containers, and based upon its prior operating experience with the
reusable containers, the Company estimated that a three year life was
more reflective of the reusable containers than a five year life. In
previous periods, the Company had estimated that the life of reusable
containers was five years. Due to this change in estimate the Company
wrote off previously capitalized reusable containers with a net book
value of $12,000.
Machinery & Equipment $88,000. It was necessary to change the
bags inside the scrubber at an incinerator, as these bags became
excessively worn, and the integrity of the bags were beginning to
deteriorate. These bags had a remaining net book value of $22,200 that
were written-off as they were no longer able to remain in service.
Additionally, during 1996, there was a major improvement completed
in the upper chamber, and the previously capitalized improvement was
written-off at its net book value of $28,405. In the River Bay division,
machinery and equipment with a net book value of $37,395 was written-off.
15
<PAGE> 18
Computer & Software $490,000. During 1994 and 1995, the Company,
began capitalizing costs associated with a bar coding system and an
accounting system that would streamline the paperwork from the
transportation locations, the incinerators, and the accounting
department (production/billing/accounting system). This was put into
service in fiscal 1995 and was being amortized. During fiscal 1996, due
to continued problems in the ongoing training of employees on the use of
the software and the prohibitive expense of replacing hardware due to
harsh conditions, management determined the bar coding system was no
longer cost-effective and abandoned the project and wrote-off the
unamortized costs. The write-off of these capitalized costs totaled
$472,000. The Company also wrote-off previously capitalized accounting
software with a remaining net book value of $18,000 that was acquired in
the River Bay acquisition, as this software was abandoned when the River
Bay division was integrated into the Company's accounting system during
the fourth quarter of 1996.
16
<PAGE> 19
BUSINESS
GENERAL
The Company was incorporated in Delaware in 1991 and is engaged in the
business of medical waste management services. The Company operates in
Alabama, Arkansas, Florida, Georgia, Kansas, Louisiana, Mississippi, Missouri,
Oklahoma, Tennessee, and Texas. The Company's customers include regional
medical centers, major hospitals, clinics, medical and dental offices,
veterinarians, pharmaceutical companies, retirement homes, medical testing
laboratories and other generators of medical waste. Services to customers
include collection, transportation, bar code identification, and destruction by
controlled, high temperature incineration, and uses a microwave facility. The
Company also provides training to customers on compliance with regulations, use
of containers, documentation and tracking.
"Medical waste" or "biomedical waste" generally consists of any liquid
or solid waste generated in the diagnosis, treatment or immunization of human
beings or animals or in related research that may result in an infectious
disease. State and federal regulations focus on regulated and infectious
medical waste, which includes pathological wastes, including tissues, organs
and body parts; blood and the products or components of blood; "sharps,"
including needles, scalpels, pipettes and other medical instruments; waste from
surgery or autopsy; dialysis wastes, including contaminated disposable
equipment and supplies; cultures and stocks of infectious agents, including
cultures from medical and pathological laboratories; and various other
biological wastes and discarded materials contaminated with or exposed to
blood, excretion and secretions from human beings or animals. "Medical waste"
or "biomedical waste" generally is not "hazardous waste" under state and
federal environmental laws.
The Company believes the key to success in the medical waste management
business is to provide customers a total solution to their medical compliance
and disposal needs at competitive prices. The Company provides the following
products and services to its customers.
Disposal of Medical Waste. The Company enters into medical waste
disposal agreements with customers for the collection of their medical waste
according to a schedule agreed upon between the parties. The Company accepts
medical waste that has been packaged by customers in containers provided or
approved by the Company. The Company then transports the medical waste in
vehicles that are owned or leased by the Company to incineration facilities
owned by the Company or for which the Company has long-term contractual
rights. Medical waste also is transported to the Company's microwave unit for
treatment.
The Company also enters into disposal agreements with other medical
waste transporters, and manufacturers and distributors of pharmaceuticals for
the incineration and related documentation of medical waste and expired
pharmaceuticals. The Company intends to continue to enter into such agreements
to maximize use of its incineration capacity without affecting its service to
its regular customers.
Medical Waste Containers. The Company furnishes its customers with
rigid, cardboard containers for disposal of medical waste products. These
containers are clearly marked with the "biohazard" symbol to draw attention to
their contents and are lined with specialized plastic bags and sealed to
minimize potential contact with the medical waste products by health care
workers and medical waste handlers. The Company also furnishes its customers
with rigid reusable plastic containers clearly marked as biohazardous and
designed to contain certain types of medical waste, such as hypodermic needles,
scalpels and other so-called "sharps." Each container is specifically designed
for the type of waste it will hold and meets or exceeds governmental
specifications as to construction and strength. The Company believes the use
of reusable containers will ultimately result in lower costs of disposal to the
Company. The rigid, plastic containers are generally larger than the
disposable boxes, and can hold greater volumes of waste. The Company's policy
is to accept medical waste from customers only if it is packaged in containers
provided or approved by the Company. The Company believes that its emphasis on
proper containers results in safer disposal and minimizes potential hazards or
liability to the Company and its customers.
Transportation. An important element of the Company's business strategy
is to maximize the efficiency with which it collects and transports regulated
medical waste. Therefore, the Company operates a specially equipped fleet of
trucks, tractors and trailers (dry and refrigerated) to provide strict control
of transportation services for the acceptance and
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<PAGE> 20
transportation of containerized medical waste. Drivers are trained in
Department of Transportation's ("DOT") procedures for the transportation of
medical waste. The Company has contingency plans to respond immediately to any
type of spill, leakage or other emergency that may occur during transportation
and provides emergency services to customers upon request. Medical waste is
removed from the Company vehicles by trained employees working on location at
the Company's facilities and is loaded onto conveyors that deliver it to the
incinerators and the microwave unit. The medical waste is incinerated or
microwaved soon after delivery.
Disposal and Incineration. The Company owns an incinerator in
Springhill, Louisiana, with a capacity to treat 36 tons of medical waste per
day. The Company also owns an incinerator which has the capacity to treat 12
tons per day and a microwave unit with the capacity to treat 10.8 tons per day
of medical waste, both of which are located in Birmingham, Alabama.
In addition, the Company also has exclusive incineration rights under a
long-term contract, for a capacity of 30 tons per day, at an incinerator
operated by the City of Carthage, Texas. In order to maintain its rights under
the agreement, the Company is required to pay minimum annual fees of
approximately $550,000 to $1,000,000 during the term of the agreement. The
contract expires in June 1, 1998 and is subject to various renewal options.
During fiscal 1997 and fiscal 1996, the Company paid fees in the aggregate
amount of approximately $1,401,692 and $843,958 under the agreement.
The Company has incineration rights at an incinerator operated by the
City of Center, Texas under an agreement expiring in June 1998, subject to
various renewal options. In order to maintain its rights under the agreement,
the Company is required to pay minimum annual fees of approximately $300,000 to
$900,000 during the term. During fiscal 1997 and fiscal 1996, the Company paid
fees in the aggregate amounts of approximately $779,000 and $27,000,
respectively, under the agreement. During fiscal 1996, the Company became
aware that certain contractual obligations were not being met by the City of
Center, including the breach of the exclusivity clause in the agreement. The
Company is presently not using the incinerator at the City of Center.
Documentation and Reporting. The Company uses a sophisticated bar code
technology to track and record the movement of medical waste through all phases
of its handling and incineration, in compliance with applicable governmental
regulations. The bar coded label affixed to each of the Company's medical
waste containers is used in conjunction with computers, laser scanners and
digital scales to document the handling, treatment, disposal and weighing of
the customer's medical waste. Bar coded containers allow proper documentation
and tracking of waste materials and meet all applicable local, state and
federal regulations concerning packaging and labeling of medical waste
materials. The Company provides its customers on a regular basis with medical
waste incineration reports. The Company's detailed documentation provides
information on all waste it accepts and incinerates, including individual
container bar code number, point of origin, date and time of receipt, date and
time of incineration, weight at time of incineration, and certificate of
destruction.
Safety Training and Consultation. The Company designs specialized on-
site training systems for the identification, segregation, handling and
containerizing of waste products. These systems are designed to assist
customers in reducing their waste disposal costs while maintaining regulatory
compliance and to reduce potential exposure to the Company's employees. The
Company also instructs health care workers in the most efficient methods of
handling, recording and documenting their waste streams in compliance with
local, state or federal regulations. The Company will, on request, review a
customer's internal waste collection and control system or assist the customer
in developing an internal system to provide for the efficient management of
medical waste within the customer's facility from its creation to the point of
its acceptance by the Company.
Pricing. The Company has experienced intense competition in pricing.
Profit margins have declined and could deteriorate further if price cutting
within the industry persists. During fiscal 1997, there continued to be
downward pressure in pricing by competitors to maintain and increase market
share. Due to continued deep discounting with hospital accounts, the Company
directed more of its marketing efforts toward the professional market accounts,
such as physicians offices, laboratories, nursing and convalescent homes,
veterinary clinics and mortuaries.
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<PAGE> 21
CUSTOMERS AND MARKETS
Customers. The Company's health care customer base is diverse, with
about 15,000 accounts in Alabama, Arkansas, Florida, Georgia, Kansas,
Louisiana, Mississippi, Missouri, Oklahoma, Tennessee and Texas. These
accounts include regional medical centers, major hospitals, specialty clinics,
individual medical and dental practitioners, dialysis centers, veterinary
clinics, nursing homes and assisted care residences, among others. The Company
is not dependent upon a single customer or a few customers, and no customer
generates ten percent or more of the Company's consolidated revenues.
Markets. The Company divides its market into three categories (i) the
hospital market, (ii) the professional market and (iii) the third party market.
The hospital market consists principally of medical centers, major hospitals,
major teaching institutions involved in medicine and research, and major
medical complexes. The professional market consists principally of physician
and dental offices, medical clinics, laboratories, nursing and convalescent
homes, veterinary clinics and mortuaries. The third party market consists
principally of pharmaceutical manufacturers and distributors and other medical
waste transportation companies.
The Company uses a three-fold strategy to increase its presence and
customer base in a particular geographical market. First, Company
representatives meet personally with a prospective customer to describe the
Company's services and to negotiate a disposal agreement that reflects the
prospective customer's service needs. Second, the Company uses direct mail to
establish potential customer leads, particularly in the professional market.
Third, the Company seeks endorsements or referral relationships with hospitals
and professional associations in the market areas. The Company's sales efforts
are supplemented by several strategic marketing agreements with state
associations under which the Company has received endorsements or marketing
assistance.
DISPOSAL TECHNOLOGY
Incineration. The incineration process is a two-stage process that
ensures the complete destruction of all pathogens. Most medical waste consists
of disposable paper and plastic products that burn readily. In an incinerator,
medical waste is first burned and reduced to ash. The resulting gases are then
heated in the incinerator to a temperature of approximately 1800 F to 2000 F,
assuring the destruction of all pathogens. This process produces exhaust gas,
which is passed through scrubbers and bag houses of incinerator stacks to
ensure compliance with applicable air quality standards. The remaining ash,
which at this stage is sterilized and free of pathogens, is then transported by
truck to licensed landfills. To date, ash is not considered hazardous under
Environmental Protection Agency (the "EPA") regulations, but is regulated at
the state level by various state agencies.
Microwave. The microwave process is an alternative technology that is
compact and designed to shred and treat medical waste in an enclosed
environment. The process uses a combination of steam and microwave heat to
destroy any pathogens that are present. The resultant waste is then classified
as ordinary municipal solid waste and is disposed of in an approved solid waste
landfill.
COMPETITION
The market for regulated medical waste collection and processing
services is highly competitive and requires substantial labor and capital
resources. The Company experiences intense competition from national, regional
and local waste disposal (i.e., collection) companies, as well as national,
regional and local companies providing integrated medical waste services (i.e.,
collection and processing). These companies compete directly with the Company
for business from medical waste generators located in the Company's regional
markets. In addition, the Company faces competition from businesses and other
organizations that are attempting to commercialize alternate treatment
technologies collectively to member groups of regulated medical water
generators. Management believes that Browning Ferris, Inc. is the Company's
main competitor in its operating regions.
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<PAGE> 22
ACQUISITIONS
The Company has relied on acquisitions of other companies for the
expansion of its business. The following is a discussion of the acquisitions
that have been consummated by the Company since its inception.
A/MED, Inc. and American Medical Transports. In February 1994, two
wholly-owned subsidiaries of the Company acquired the assets and assumed
certain liabilities of A/MED, Inc. ("A/MED") and of American Medical Transports
Corporation ("AMTC"), two majority-owned subsidiaries of WSI, in consideration
for 2,640,350 shares of Common Stock. Of such shares, WSI received 1,300,115
shares initially, with the remaining 800,000 shares placed in escrow to secure
certain indemnity obligations. Upon termination of the escrow on April 10,
1995, WSI received an additional 565,160 shares of Common Stock. For
accounting purposes, the acquisitions of A/MED and AMTC were treated as reverse
acquisitions. The acquired companies were engaged in the business of medical
waste management services in Oklahoma, Louisiana, New Mexico and Texas. As a
result of the acquisitions of A/MED and AMTC, and the additional acquisition of
shares of Common Stock by WSI from a third party, WSI beneficially currently
owns a majority of the outstanding shares of Common Stock.
Med-Waste Disposal Service, Inc. In August 1994, the Company acquired
substantially all the assets and assumed certain liabilities of Med-Waste
Disposal Service, Inc., an Arkansas corporation ("Med-Waste"), in consideration
of 525,000 shares of Common Stock and an additional 145,470 shares that were
earned pursuant to an earnout arrangement. Med-Waste was engaged in the
business of medical waste management services in Arkansas.
The acquisition of Med-Waste was the subject of litigation between the
Company and the former stockholders of Med-Waste. This matter has been settled
by the parties and was dismissed in its entirety on July 31, 1997. See
"Business --Legal Proceedings."
River Bay Corporation. In October 1994, the Company acquired
substantially all of the assets and assumed certain liabilities of River Bay
Corporation, a Mississippi corporation ("River Bay"), in consideration for
865,500 shares of Common Stock and a promissory note in the original principal
amount of $1,000,000, which, as amended, provided for monthly principal
payments by the Company ranging from $50,000 to $100,000 through February 1996.
River Bay had been engaged in the business of medical waste management services
in Alabama, Florida, Georgia, Mississippi and Tennessee.
Pursuant to the terms of the purchase agreement entered into between
River Bay and the Company, River Bay was provided a put option whereby the
Company could be required to repurchase 865,500 shares of Common Stock acquired
by River Bay under the purchase agreement. In October 1995, River Bay
exercised its put option and the Company repurchased 300,000 of the shares of
Common Stock in consideration for its promissory note in the original principal
amount of $900,000 ($3.00 per share) and providing for monthly principal
payments ranging from $25,000 to $75,000, plus interest, through January 1997.
On or about February 14, 1997, River Bay exercised its put option for the
Company to repurchase the additional 565,500 shares of Common Stock. After
River Bay exercised its put option for the additional 565,500, the Company
brought an arbitration action against River Bay, whereby, in part, it sought to
have the purchase agreement and the put option set aside. In settlement of the
arbitration, the Company agreed to repurchase the remaining 565,500 shares of
Common Stock in consideration of $861,000, of which, $100,000 was payable
immediately and $761,000 is payable in monthly installments of $63,450, with
the final payment due December 1, 1998. See "--Legal Proceedings."
GOVERNMENTAL REGULATION
All aspects of the Company's business are heavily regulated. The
Company's collection, hauling, processing and disposal activities are governed
by numerous federal, state and local agencies and authorities under laws, rules
and ordinances relating to the definition, generation, segregation, handling
and packaging of medical waste. In addition, facility citing, construction,
operations, occupational training, safety, air, water, incineration ash
characteristics and disposal are regulated under different but related laws,
rules and ordinances.
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<PAGE> 23
The activities of the Company are regulated by federal laws relating to
public health and the environment. In addition to those federal environmental
and public health related laws that apply generally to the Company's
activities, there are a number of federal laws and regulations that directly
pertain to the handling, transport and processing of medical waste. The most
pertinent of these federal environmental and public health laws are discussed
below.
Incineration Facilities. The Company is required to obtain permits at
local, state and federal levels for the construction and operation of
incineration facilities, which have to date and may continue to involve the
expenditure of substantial resources without any assurance of success. Such
permits may include (i) air quality permits, relating to the emissions from
incineration facilities, (ii) solid waste permits, relating to storage, receipt
and treatment of medical waste, the storage and disposal of residues from the
incineration facilities and ancillary air pollution control equipment for
incinerators, (iii) waste-water discharge permits, (iv) storm water discharge
permits, (v) site permits, such as zoning or special use permits, relating to
the appropriateness of the site for a waste processing facility under
applicable zoning regulations, (vi) building permits and (vii) occupancy
permits. Air quality permits and site permits, and in some cases, solid waste
permits, can be difficult to obtain, and may take a year or longer to be
issued.
Companies in the medical waste disposal industry often face resistance
to its various permit applications from local and regional organizations,
citizens groups and residents because of the nature of waste and the perceived
threat to air quality and public health caused by waste processing. It is
often necessary for the Company to conduct a public relations campaign, with an
emphasis on education, to overcome local opposition, which is often highly
political and emotional. Furthermore, once granted, permits are often subject
to continuing review and may be challenged either in court or otherwise even
after construction or operations have commenced. Accordingly, the Company's
operations could be subject to suspension or termination even after substantial
funds have been expended in reliance upon state or local regulatory approvals.
Operating permits generally incorporate performance standards. The
failure to comply with such standards could subject the Company to the
suspension or revocation of its permits or financial penalties for failure to
comply with permit requirements.
Transfer Stations. Transfer of medical waste, generally from a small
local pick-up vehicle to a large transport trailer, is necessary to consolidate
and transport waste in an economical fashion to regional processing centers.
Most states require permits for such transfer operations under their solid
waste regulatory authority or department of health. After receiving local
approvals, such as necessary zoning or special use permits, application may be
made to the appropriate state solid waste authority. Generally, this is a four
to six month process. However, there are some cases where the process is much
longer. The continued right to operating the Company's transfer station in
Fresno, Texas was contingent upon the commencement of the clean-up of a waste
circulating pond from an abandoned medical waste incinerator acquired from
previous owners. The clean-up of the circulating pond was completed in fiscal
1997.
State Transport Permits. Transportation permits are currently required
in a number of states. Some states require permits only if waste is picked up
in that state, while others require permits to transport waste through the
state. These permits generally include driver safety and training, waste
packaging, labeling and tracking requirements. The Company currently holds
necessary hauling permits in Alabama, Arkansas, Florida, Georgia, Kansas,
Louisiana, Mississippi, Missouri, Oklahoma, Tennessee and Texas.
There can be no assurances that any of the Company's current permits
will be renewed or that, if the Company is able to identify and secure
additional locations for incineration or other waste processing facilities or
transfer stations, all necessary permits will be obtained, or that if such
permits are granted that they will be granted in a timely manner or under
conditions that will be acceptable to the Company.
The Occupational Safety and Health Act ("OSHA"). OSHA gives the federal
government the authority to regulate the management of infectious medical
waste. Liability may be imposed under the general duty clause found in Section
654 of OSHA. This section requires employers to provide a place of employment
that is free from recognized and preventable hazards that are likely to cause
serious physical harm to employees. The regulations promulgated under OSHA
require employers to give notice to employees regarding the presence of
hazardous chemicals
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and to train employees in the use of such substances. This may be found to
apply in the case of chemicals that may be present in infectious medical waste.
In May 1989, OSHA promulgated new rules regarding exposure to blood
borne pathogens that increase the cost of providing medical waste management
services. These rules impose, among other things, engineering and work
practice controls, use of personal protective clothing and equipment, training,
medical surveillance, labeling and record keeping requirements with respect to
occupational exposure to blood and other potentially infectious materials.
The Resource Conservation and Recovery Act of 1976 ("RCRA"). RCRA
establishes a regulatory program administered by the EPA covering the
generation, storage, transportation, treatment and disposal of hazardous waste.
RCRA defines "hazardous waste" as any solid waste, or combination of solid
waste, which because of quantity, concentration, physical, chemical, or
infectious characteristics may (i) cause, or significantly contribute to, an
increase in mortality or an increase in serious irreversible or incapacitating
reversible illness; or (ii) pose a substantial present or potential hazard to
human health or the environment when improperly treated, stored, transported or
disposed of, or otherwise managed.
Although this general statutory definition of hazardous waste may
provide the EPA with the authority to regulate at least certain infectious
medical wastes as hazardous wastes, the EPA has not chosen to do so. To date,
infectious medical wastes have not been listed by the EPA as hazardous waste,
nor has infectiousness been designated by the EPA as one of the characteristics
of a hazardous waste. Thus, infectious medical wastes that do not otherwise
qualify as hazardous wastes currently are not subject to regulation under RCRA
as hazardous wastes. Although the EPA has not chosen to regulate infectious
wastes as hazardous wastes, it has developed and issued informal guidance
outlining practical approaches to infectious waste management. Moreover,
although RCRA does not comprehensively address the area of medical waste,
certain wastes common to the medical field are currently listed as hazardous
wastes and, therefore, certain medical wastes may be subject to the
requirements of RCRA. With respect to those solid wastes that are deemed
hazardous, RCRA contains extensive regulatory requirements pertaining to
reporting to the EPA, record keeping, labeling, the use of containers, the
furnishing of information to persons handling the hazardous wastes and the
tracking of hazardous wastes from the point of generation to the point of
disposal involving, among other things, the use of transportation manifests.
Depending upon the composition and characteristics of the waste ash generated
by the incineration technology employed, the facility ash may constitute
hazardous waste. If so, the ash would be subject to the hazardous waste
transportation, disposal and other hazardous waste management requirements of
RCRA discussed above.
U.S. Department of Transportation. The Company's medical waste
transportation activities are subject to federal regulation by the DOT pursuant
to the Hazardous Waste Materials Transportation Act (the "HWTA") and the
Hazardous Materials Regulations promulgated thereunder (as amended by the
Hazardous Materials Uniform Transportation Act of 1990).
The DOT regulations contain packaging and labeling requirements that are
imposed on different waste categories, depending on the perceived hazards of
each category. The regulations impose the most stringent requirements on
packages containing over four liters gross volume of "etiologic agents", which
are defined as "viable microorganism(s) or (their) toxin(s), which cause or may
cause human disease," and are limited to certain agents listed in the Hazardous
Materials Regulations. These standards are intended to prevent the release of
such agents into the environment. The DOT requirements are intended to
supplement etiologic waste regulations by the Public Health Service of the U.S.
Department of Health and Human Services.
Significant portions of the waste handled by the Company will fall under
the category of "Regulated Medical Waste" which, as defined in the DOT
regulations, includes cultures and stocks, pathological waste, human blood and
any blood products, sharps, animal waste, isolation waste, and unused sharps.
These wastes are considered to be of medium danger. To meet the packaging
standards, packages containing these wastes must be rigid, leak resistant and
impervious to moisture, of sufficient strength to prevent tearing or bursting
while under normal conditions of use and handling, sealed to prevent leakage
during transport, puncture resistant for sharps and sharps with residual
fluids, and break resistant and tightly sealed for fluids in quantities greater
than 20 cubic centimeters.
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The DOT Regulations also prescribe labeling standards for all infectious
and regulated waste and testing protocols for manufacturers and suppliers of
packaging. These regulations have not become final and have been postponed a
number of times.
In addition, the Company is generally subject to regulation by the DOT
and may be subject to regulation by the Interstate Commerce Commission pursuant
to a number of other statutes and bodies of regulation, some of which
specifically pertain to the transport of medical waste and which address, among
other things, vehicle operating procedures and the training of persons to
operate commercial vehicles carrying hazardous materials.
CERCLA. Federal regulations are included in the Comprehensive
Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"), which in
general imposes strict liability in the event of a release or threatened
release of hazardous substances from a facility. Certain medical wastes may be
categorized as hazardous substances under CERCLA.
Federal Clean Air Act. The Company's medical waste processing
facilities may be regulated under certain other environmental statutes. The
Federal Clean Air Act, as amended (the "Clean Air Act"), and related
implementing regulations may apply to the air emissions from the Company's
incineration facilities. The Clean Air Act establishes, among other things,
comprehensive air permitting and enforcement programs. These regulatory
programs are based on several types of air quality standards: national air
quality standards, national emissions standards for hazardous air pollutants,
new source performance standards, technology based standards and acid
deposition requirements.
Federal Clean Water Act. Water discharges from the disposal processes,
if any, and storm water discharges may be regulated under the Federal Clean
Water Act and implementing regulations (the "Clean Water Act"). Pursuant to
the Clean Water Act, EPA has promulgated extensive effluent and water quality
standards as well as permitting requirements for industrial discharges of
water. The Company will be required to design, construct and operate its
facilities in accordance with the Clean Air Act and the Clean Water Act and
obtain all permits and approvals required therein.
The Food and Drug Administration ("FDA"). The FDA considers sharps
containers to be "medical devices", as defined under the Federal Food, Drug,
and Cosmetic Act. Most sharps containers, according to the FDA, are class II
accessories to sharps devices. The FDA began actively regulating sharps
containers in 1993. The Company and its products are subject to regulations by
the FDA and the corresponding agencies of the states and foreign countries in
which the Company sells its products. Such regulation, among other things,
relates to the testing, marketing, export and manufacture of medical devices.
The FDA inspects medical device companies on a regular basis to determine
compliance with federal requirements.
State Regulations. The states in which the Company operates generally
have complex regulatory frameworks governing, among other issues, the storage,
treatment, labeling, transport and disposal of medical waste. These
regulations are typically administered by a variety of state regulatory
authorities. The Company's vehicles, packaging, facilities and operating
procedures are, accordingly, subject to detailed and comprehensive regulation
on the state level. The Company's incineration facilities are required to
include controlled air combustion units, air quality control equipment,
pollution control equipment and ancillary control and monitoring equipment.
All facilities are required to provide monitoring equipment. State regulatory
authorities may inspect Company operations on a regular basis and assess fines
and penalties or may halt operations for failures by the Company to follow
specific regulations. In addition, the failure of state regulatory agencies to
issue required permits or renewals, or any delays by such agencies, could have
a material adverse impact on the Company's operations.
PROPERTY
The Company's principal executive offices are located in approximately
6,100 square feet of office space in Shreveport, Louisiana. This office space
is leased pursuant to a lease that expires December 2001. The monthly rental
under such lease is $6,100.
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The Company owns or leases approximately 152 specially equipped trailers
and 74 trucks and tractors used for the transportation of containerized waste.
A summary description of the Company's operating properties is set forth below:
<TABLE>
<CAPTION>
LOCATION TYPE OF FACILITY CAPACITY OWNED/LEASE
-------- ---------------- -------- -----------
<S> <C> <C> <C>
Shreveport, LA Corporate Office Leased
San Marcos, TX Sales Office and Transport Leased
Tulsa, OK Sales, Transportation and Transfer Leased
Carthage, TX Sales and Transportation Leased
Grand Prairie, TX Sales and Transportation Leased
Metairie, LA Sales and Transportation Leased
Fresno, TX Transfer, and Transportation Station, Owned
and Sales Office
Birmingham, AL Transportation and Sales Leased
Jackson, MS Sales, Transfer Station, Owned Land
Transportation
Springhill, LA Transportation and Sales Owned
Bismarck, AR Transfer Station, and Sales Leased
Carthage, TX Incinerator 30 tons/day Operated
Springhill, LA Incinerator 36 tons/day Owned
Birmingham, AL Incinerator 12 tons/day Incinerator Owned
Birmingham, AL Microwave Unit 10.8 tons/day Treatment Unit Owned
</TABLE>
EMPLOYEES
At February 28, 1998, the Company had approximately 200 full-time and
five part-time employees, three of whom were employed in executive capacities
and the remainder of whom were in transportation operations, incinerator
facility operations, sales positions, and administrative and clerical
capacities. None of the Company's employees are subject to collective
bargaining agreements, and the Company has not experienced any strikes or work
stoppages and considers its relationship with its employees to be satisfactory.
INSURANCE COVERAGE
The medical waste disposal industry involves potentially significant
risks of statutory, contractual, tort and common law liability. The Company
carries a range of insurance coverage, including a comprehensive general
liability policy in the amount of $1,000,000 with a combined single limit for
bodily injury and property damage, and a $2,000,000 excess umbrella liability
policy, which the Company considers sufficient to meet regulatory and customer
requirements and to protect the Company's employees, assets and operations.
The Company carries $2,000,000 per occurrence of such coverage for the
incineration facilities used by the Company. The Company also carries
$1,000,000 per occurrence of transportation liability insurance coverage, which
includes coverage for environmental damage caused by waste spillage or other
forms of pollution occurring during transportation.
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<PAGE> 27
LEGAL PROCEEDINGS
James T. Rash, et al. v. Waste Systems, Inc., et al. In May 1995, a
group of minority stockholders of the Company, including Patrick Grafton, the
former Chief Executive Officer of the Company, acting individually and on
behalf of all minority stockholders and the Company, filed suit against the
Company, WSI and various Directors of the Company in the District Court of
Harris County, Texas. The plaintiffs alleged minority stockholder oppression,
breach of fiduciary duty and breach of contract and "thwarting of reasonable
expectations" and demanded an accounting, appointment of a receiver for the
sale of the Company, unspecified actual damages and punitive damages of
$10,000,000, plus attorney's fees. In addition, Mr. Grafton has alleged
unspecified damages as a result of his removal as an officer and Director of
the Company and the Company's failure to renew his employment agreement in
March 1995 and further alleged that such removal was wrongful and ineffective.
The Company's insurer has denied coverage in the lawsuit. The Company denied
all material allegations of the lawsuit. The Company and Mr. Grafton reached a
settlement of Mr. Grafton's individual claims relating to his removal as an
officer and Director of the Company. The terms of the settlement reached
between the Company and Mr. Grafton are confidential to both parties. The
Company also reached an agreement with the plaintiffs to settle this action,
which has been completed and has been approved by the court.
James H. Shepherd, et al. v. 3CI Complete Compliance Corporation. In
June 1995, the former stockholders of Med-Waste filed suit against the Company
and various current and former officers and Directors of the Company in the
Circuit Court of Hot Spring County, Arkansas. Plaintiffs alleged violations of
federal and state securities laws, breach of contract, common law fraud and
negligence in connection with the acquisition of Med-Waste by the Company and
demanded rescission, restitution, unspecified actual damages and punitive
damages of $10,000,000, plus attorney's fees. The parties, other than Patrick
Grafton, agreed to settle the suit in consideration for the issuance by the
Company to the plaintiffs of 250,000 shares of Common Stock and the payment by
the Company to the plaintiffs of 20% to 55% of the pre-tax profits, as defined,
attributable to the assets previously acquired from Med-Waste until such time
as the shares of Common Stock held by the plaintiffs become freely tradable and
the market price of the Common Stock averages at least $2.50 over a period of
42 consecutive days. In addition, the Company and WSI have agreed to
repurchase the shares of Common Stock held by the plaintiffs for $2.50 per
share in certain events, including the bankruptcy of the Company or if WSI
ceases to be the largest beneficial holder of the Common Stock. The
obligations of the Company to the plaintiffs are secured by a security interest
in most of the assets of the Company, and WSI has agreed to subordinate its
loans to the Company, and all related security interests, to the obligations
and the related security interests, of the Company to the plaintiffs. This
matter has been settled and was dismissed in its entirety on July 31, 1997.
During the fiscal years ended September 30, 1996 and 1997, the Company has made
payments totaling approximately $193,000 and $248,000, respectively, to the
plaintiffs, related to this agreement.
River Bay. On or about March 10, 1997, the Company commenced
arbitration proceedings before the American Arbitration Association in Houston,
Texas, against River Bay Corporation and Marlan Baucum seeking to set aside the
Purchase Agreement entered into in connection with the acquisition of the River
Bay assets, together with ancillary agreements. The Company was seeking
damages and/or to set aside the Purchase Agreement and ancillary agreements,
including a Put Option Agreement. If otherwise enforceable, the Put Option
Agreement would have required the payment by the Company of approximately
$1,700,000 for 565,500 shares of Common Stock.
In addition, the Bank of Raleigh and Smith County Bank, assignees of
certain rights under the Purchase Agreement, through an independent legal
action were able to collect approximately $463,000 of the Company's accounts
receivable which were used as collateral under the Purchase Agreement. The
parties have settled the action whereby the Company has agreed to repurchase
the remaining 565,000 shares of Common Stock related to the put option.
25
<PAGE> 28
MANAGEMENT
The following is a list of the executive officers and Directors of the
Company as of March 19, 1998, their ages, positions and offices with the
Company, and periods during which they have served in such positions and
offices. All directors hold office until the next annual meeting of
stockholders of the Company, and until their successors are duly elected and
qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION DIRECTOR SINCE
---- --- -------- --------------
<S> <C> <C> <C>
Dr. Werner Kook . . . . . . 45 Chairman of the Board and Director 1995
Charles D. Crochet . . . . 39 President and Director 1994
Curtis W. Crane . . . . . . 38 Chief Financial Officer, Secretary 1995
and Treasurer
Dr. Clemens Pues . . . . . 33 Vice President and Director 1995
Juergen Thomas 53 Director 1994
Valerie L. Banner 42 Director 1998
David J. Schoonmaker 53 Director 1998
</TABLE>
The following is a summary of the business background and experience of
each of the persons named above:
Dr. Werner Kook has served as Chairman of the Board of the Company since
October 1995. Dr. Kook has served as a senior officer of various waste
management companies controlled by the Rethmann family in Europe for the past
six years and is a member of the board of Rethmann AG & Co..
Charles D. Crochet has served as President and a Director of the Company
since February 1994. Mr. Crochet founded and served as president of a
predecessor of the Company and has worked in the medical waste business since
1988. Before 1988, Mr. Crochet was employed for over ten years in senior
positions with two public, national companies engaged in the business of
hazardous waste management.
Curtis W. Crane has served as Chief Financial Officer of the Company
since September 1995. Before his affiliation with the Company, Mr. Crane held
senior financial positions including Chief Financial Officer for NDE
Environmental Corporation and Director of Finance and Tax for Lone Star Steel
Company.
Juergen Thomas has served as a Director of the Company since February
1994. Mr. Thomas has served for over 15 years as Chief Financial Officer of
certain companies associated with the Edelhoff families, which are leading
waste management companies in Europe, and has served as a Director of WSI since
1996.
Dr. Clemens Pues has served as a Director and Vice President of the
Company since October 1995. Dr. Pues also is President of WSI. Dr. Pues has
been working with the AIR Lippewerk Recycling GmbH, a wholly-owned subsidiary
of the Rethmann Kreislaufwirtschaft GmbH & Co.KG, since September 1994, where
he has been responsible for gypsum recycling. Before 1994, Dr. Pues was
employed at the University of Muenster as assistant professor in international
management for four years.
Valerie L. Banner has served as a Director of the Company since February
1998. Ms. Banner has been a self employed corporate/securities lawyer since
April 1996. From 1993 to 1996 she was Vice President, General Counsel and
Secretary for Team, Inc., a professional full service provider of industrial
services, and from 1990 to 1993 she was General Counsel for Team, Inc. Ms.
Banner served as a securities lawyer with Browning-Ferris Industries, Inc., a
waste management company, from 1984 to 1990. Ms. Banner began her career in
1979 at the Houston, Texas, law firm of Andrews & Kurth L.L.P.
26
<PAGE> 29
David J. Schoonmaker has served as a Director of the Company since
February 1998. Mr. Schoonmaker has served as President and Chief Executive
Officer of RxThermal, Inc., a company that was formed to permit, design, build
and operate medical waste treatment facilities, since 1989 and as President and
Chief Executive Officer of BMWNC, Inc., a commercial incinerator of medical
waste, since 1995.
The executive officers of the Company serve at the pleasure of the Board
and are subject to annual appointment by the Board. There are no arrangements
or understandings with respect to the selection of officers and Directors and
there are no family relationships between any of such persons. Dr. Pues is a
senior officer of WSI, which beneficially owns 52.5% of the outstanding shares
of the Company. Dr. Kook and Dr. Pues are employed by certain waste management
companies controlled by the Rethmann families. Juergen Thomas is employed by a
waste management company controlled by the Edelhoff families. The Rethmann and
Edelhoff families collectively own 100% of WSI.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the all forms
of compensation awarded to, earned by or paid to the Company's Chief Executive
Officer for the fiscal years ended September 30, 1995, September 30, 1996 and
September 30, 1997. No other named executive officer received bonus and
salary which exceeded $100,000 in 1995, 1996 or 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
---------------------------------- ----------------------------------
SECURITIES
UNDER-
OTHER ANNUAL RESTRICTED LYING ALL
NAME AND PRINCIPAL COMPENSA- STOCK OPTIONS/ LTIP OTHER
POSITION YEAR SALARY BONUS TION AWARDS($) SARS(#) PAYOUTS COMPENSATION
-------- ---- ------ ----- ---- --------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles D. Crochet 1997 $145,000 -- -- -- -- -- --
President 1996 $130,000 -- -- -- -- -- --
1995 $115,000 -- -- -- 90,000 (1) -- --
</TABLE>
______________
(1) In February 1994, Mr. Crochet received an option to purchase 90,000
shares of Common Stock at $3.00 per share vesting over a three year
period at 1/36 per month on a cumulative basis. Of these shares, 32,500
have vested and the remaining shares have been terminated pursuant to
the terms of the new employment agreement executed between Mr. Crochet
and the Company in August 1995. Pursuant to the terms of the August
1995 employment agreement, Mr. Crochet was granted an option to purchase
90,000 shares of Common Stock at $2.00 per share, vesting over a three
year period at 1/36 per month on a cumulative basis.
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to executives officers during the fiscal
year ended September 30, 1997.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information regarding unexercised options
to purchase shares of Common Stock granted by the Company to the named
executives. No executives exercised any Common Stock options during fiscal
1997.
27
<PAGE> 30
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY
AT FISCAL YEAR-YEAR(#) AT FISCAL YEAR-YEAR(1)
------------------------------- -----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Charles D. Crochet 95,000 27,500 -- --
</TABLE>
______________
(1) The "value" of any option set forth in the table above is determined by
subtracting the amount which must be paid upon exercise of the options
from the market value of the underlying Common Stock as of September 30,
1997 (based on the closing sales price as reported by the Nasdaq Small-
Cap Market). 32,500 options have an exercise price of $3.00 and 90,000
options have an exercise price of $2.00. The exercise price for all
options exceeded the market value of the underlying Common Stock as of
September 30, 1997. Therefore, no options were in-the-money at fiscal
year-end.
TEN-YEAR OPTION REPRICINGS
The following table sets forth certain information with respect to stock
options canceled and new options granted at the new exercise price during the
last ten years to executive officers of the Company.
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
EXERCISE OPTION
NUMBER OF MARKET PRICE PRICE AT TERM
OPTIONS OF STOCK AT TIME REMAINING
REPRICED OR TIME OF OF REPRICING AT REPRICING
AMENDED REPRICING OR OR NEW EXERCISE OF
NAME DATE (#) AMENDMENT AMENDMENT PRICE AMENDMENT
---- ---- --- --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Charles D. Crochet (1) 8/31/95 57,500 $1.25 $3.00 $2.00 23 months
</TABLE>
______________
(1) In August 1995, Mr. Crochet entered into a new employment agreement with
the Company whereby Mr. Crochet received an option to purchase an
additional 90,000 shares of Common Stock at $2.00 per share vesting over
a three-year period at 1/36 per month on a cumulative basis. Mr.
Crochet retained options to purchase 32,500 shares which were vested
under the terms of his previous employment agreement.
BOARD OF DIRECTORS REPORT ON REPRICING OF OPTIONS
In August 1995, the Board of Directors authorized the exchange and
repricing of certain outstanding stock options (the "Old Options") held by Mr.
Crochet, the President of the Company, whereby Mr. Crochet could voluntarily
surrender certain existing stock options and receive new stock options (the
"New Options") on the terms described below. The Board of Directors noted that
the overall purpose of the Option Plan is to attract and retain the services of
the Company's employees and to provide incentives to such person to exert
maximum efforts for the Company's success. The Board of Directors concluded
that the decline in the market value of the Common Stock had frustrated these
purposes and diminished the value of the Company's stock option program as an
element of the Company's compensation arrangements. Accordingly, the Board of
Directors adopted a repricing program with the elements described below.
In connection with the repricing, Mr. Crochet exchanged an aggregate of
57,500 shares subject to Old Options for 57,500 shares of New Options. Mr.
Crochet also received options to purchase an additional 32,500 shares at $2.00
per share at the time of the repricing. At the time of the repricing, the
exercise price of the Old Options was $3.00 per share. The exercise price of
all New Options is $2.00 per share. The New Options vest at the rate of 1/36
per month
28
<PAGE> 31
over a three-year period. The Old Options exchanged by Mr. Crochet had a
remaining term of eight years and one month.
EMPLOYMENT AGREEMENTS
Charles D. Crochet serves as President of the Company pursuant to an
employment agreement. On August 31, 1995, the Company renewed Mr. Crochet's
employment agreement increasing his salary to $10,833 per month commencing
October 1, 1995 through September 30, 1996, to $12,083 per month from October
1, 1996 through September 30, 1997, and to $13,333 per month from October 1,
1997 through May 31, 1998. As an additional incentive to Mr. Crochet under the
new employment agreement, Mr. Crochet is eligible for an annual bonus based on
fiscal year pre-tax profits as a percentage of revenues. The amount of such
annual bonus is based on a percentage between 6% and 10% of an amount
determined by the Board of Directors from an approved bonus plan, such actual
percentage depending upon the Company's pre-tax profits as a percentage of
revenue.
In addition, in February 1994, Mr. Crochet also received an option to
purchase 90,000 shares of Common Stock at $3.00 per share which vested over a
three year period at 1/36 per month on a cumulative basis. According to the
terms of the renewal of Mr. Crochet's employment agreement, the remaining
unvested options under the former employment agreement were terminated and Mr.
Crochet was granted an option to purchase 90,000 shares of Common Stock at
$2.00 per share, which also vests over a three year period at 1/36 per month on
a cumulative bases. The Board of Directors set Mr. Crochet's compensation
package based on the key role he was to hold within the Company and in view of
competitive compensation packages offered to his peer group in the industry.
The stock option was granted to provide a long-term incentive to Mr. Crochet.
Other than as set forth above, there are no compensatory plans or
arrangement with respect to any individual named in the Summary Compensation
Table above or otherwise which would result from the resignation, retirement or
other termination of such individual's employment with the Company or a change
in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company performs, among other functions,
the functions normally performed by a compensation committee. During the
fiscal 1997, the following persons served on the Board of Directors and
participated in the deliberations concerning executive officer compensation:
Dr. Werner Kook, Charles D. Crochet, Dr. Clemens Pues and Juergen Thomas. Mr.
Crochet also served as the President of the Company and Dr. Pues also served as
Vice President and Assistant Secretary of the Company during the fiscal 1997.
CERTAIN TRANSACTIONS
In June 1997, WSI, the majority stockholder of the Company, and the
Company entered into an agreement pursuant to which WSI converted $7,000,000 of
debt into 1,000,000 shares of Series A Preferred Stock. The $7,000,000 of debt
that was converted into Series A Preferred Stock included (i) approximately
$3,900,000 of the amounts owed under the First Revolving Credit Facility and
(ii) all amounts owed under the Second Revolving Credit Facility.
On July 17, 1997, the Company entered into a Settlement Agreement (the
"Settlement Agreement"), to settle the case of James T. Rash, et al. v. Waste
Systems, Inc., et al. In accordance with the terms of the Settlement
Agreement, the Company and WSI converted 1,000,000 shares of the Series A
Preferred Stock that were owned by WSI into 7,000,000 shares of the Series B
Preferred Stock. The conversion of the Series A Preferred Stock into shares of
Series B Preferred Stock was completed on March 24, 1998.
The Company and WSI entered into a Stock Purchase and Note Modification
Agreement, dated as of February 19, 1998 (the "Stock Purchase and Modification
Agreement"), pursuant to which WSI converted $750,000 of outstanding debt under
the First Revolving Credit Facility into the right to receive 750,000 shares of
Series C Preferred Stock.
29
<PAGE> 32
In 1996 and 1997, the Company shared certain facilities, personnel and
administrative services with WSI, of which the costs to the Company were
neglible.
The Company currently does business with an equipment company owned by
the father of Charles Crochet, the President of the Company. No payments were
made during fiscal years 1996 and 1997. There were outstanding invoices
totaling $20,000 and $7,000 due to Crochet Equipment Company at September 30,
1996 and 1997, respectively.
During 1996, the Company has made purchases of business forms with a
company owned by the father of Curtis W. Crane, the Chief Financial Officer of
the Company. Payments to such company during fiscal years ended September 30,
1996 and 1997, totaled $22,000 and $62,000, respectively.
30
<PAGE> 33
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth as of March 19, 1998 the number of shares
of the Common Stock owned by (i) each Director of the Company, (ii) each
executive officer named in the Summary Compensation Table above, (iii) all of
the Company's Directors and executive officers as a group, and (iv) each
Selling Securityholder. Unless otherwise indicated, each holder has sole
voting and investment power (or shares such powers with his or her spouse) with
respect to the shares of Common Stock owned by such holder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER THE
OFFERING OFFERING
--------------------- ----------------------
PERCENT SHARES PERCENT
NAME AND ADDRESS -------- BEING --------
OF BENEFICIAL OWNER NUMBER OF CLASS OFFERED NUMBER OF CLASS
-------------------- ------ -------- ------- ------ --------
<S> <C> <C> <C> <C> <C>
Waste Systems, Inc.(1) . . . . . . . . . . . 5,104,448 52.6% -- 5,104,448 52.56%
910 Pierrepoint, Suite 312
Shreveport, Louisiana 71106
River Bay Corporation(2) . . . . . . . . . . 565,500 5.8% -- 565,500 5.82%
P. O. Box 13313
Jackson, Mississippi 39236
American Medical Technologies, Inc. (3) . . . 680,818 7.0% -- 680,818 7.01%
5847 San Felipe, Suite 900
Houston, Texas 77057
Charles D. Crochet(4) . . . . . . . . . . . . 168,209 1.7% -- 168,209 1.73%
910 Pierrepoint, Suite 312
Shreveport, Louisiana 71106
Dr. Werner Kook . . . . . . . . . . . . . . . -- -- -- -- --
910 Pierrepoint, Suite 312
Shreveport, Louisiana 71106
Dr. Clemens Pues . . . . . . . . . . . . . . -- -- -- -- --
910 Pierrepoint, Suite 312
Shreveport, Louisiana 71106
Juergen Thomas(5) . . . . . . . . . . . . . . -- -- -- -- --
910 Pierrepoint, Suite 312
Shreveport, Louisiana 71106
Valerie L. Banner . . . . . . . . . . . . . . -- -- -- -- --
910 Pierrepoint, Suite 312
Shreveport, Louisiana 71106
David J. Schoonmaker . . . . . . . . . . . . -- -- -- -- --
910 Pierrepoint, Suite 312
Shreveport, Louisiana 71106
Wynne & Maney . . . . . . . . . . . . . . . . 120,000 1.2% 120,000 -- 1.24$
2730 Texas Commerce Tower
Houston, Texas 77002-2913
James Shepherd. . . . . . . . . . . . . . . . 477,889 4.9% 177,889 300,000 1.83%
P.O. Box 416
Arkadelphia, AR 71923
Michael Shepherd. . . . . . . . . . . . . . . 239,247 2.5% 134,247 105,000 1.38%
P.O. Box 416
Arkadelphia, AR 71923
</TABLE>
31
<PAGE> 34
<TABLE>
<S> <C> <C> <C> <C> <C>
Richard McElhannon . . . . . . . . . . . 203,334 2.1% 83,334 120,000 0.86%
P.O. Box 416
Arkadelphia, AR 71923
All Executive Officers and Directors as a
Group (7 persons) . . . . . . . . . . 168,209 1.7% -- 168,209 1.73%
</TABLE>
______________
(1) A Schedule 13D dated April 17, 1995, reflects that WSI is the beneficial
owner of 5,104,448 shares. Such Schedule 13D reflects that WSI is owned
50% by Rethmann V & B GmbH & Co., a German corporation controlled by
members of the Rethmann family in Germany, and 50% by Gustav Dieter
Edelhoff, Gustav Edelhoff, Heike Edelhoff-Kirchhoff and Heidemarie
Edelhoff, members of the Edelhoff family in Germany. The Rethmann
family and the Edelhoff family share voting and dispositive power with
respect to the shares beneficially owned by WSI. The Company has been
advised that the interests in WSI owned by the members of the Edelhoff
family have been transferred to Lobbe Holding GmbH & Co., a German
corporation controlled by members of the Edelhoff family.
(2) A Schedule 13D dated October 20, 1994, reflects that River Bay is the
beneficial owner of 865,500 shares and has sole voting and dispositive
power with respect to such shares. The Company repurchased 300,000
shares from River Bay in October 1997.
(3) The information sets forth, to the best of the Company's knowledge,
American Medical Technologies, Inc.'s beneficial ownership.
(4) Includes 6,500 shares held in the name of Mr. Crochet's son, Chase
Crochet. Also included are 112,500 shares which Mr. Crochet has the
right to acquire pursuant to the Option Plan and 10,000 options that
will vest in May 1998.
(5) Does not include 5,104,448 shares of Common Stock that are owned by WSI,
of which Mr. Thomas is a beneficial owner because he is a Director of
WSI.
PLAN OF DISTRIBUTION
This Prospectus relates to the issuance of up to 1,002,964 shares of
Common Stock issuable upon exercise of the Warrants and 515,470 shares of
Common Stock being offered for resale by the Selling Securityholders (the
"Resale Shares"). The exercise price for the Warrants is $1.50 per share.
Therefore, if all of the Warrants are exercised, the Company will receive net
proceeds of $1,504,446. The Company will not receive any of the proceeds from
the sale of the Common Stock being offered by the Selling Securityholders.
The Company has been advised by the Selling Securityholders that the
Resale Shares may be sold or distributed from time to time by the Selling
Securityholders directly to one or more purchasers (including pledgees) or
through brokers, dealers or underwriters who may act solely as agents or may
acquire Resale Shares as principals, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices negotiated prices, or
at fixed prices, which may be changed. The distribution of the Resale Shares
may be effected in one or more of the following methods: (i) ordinary brokers'
transactions, which may include long or short sales; (ii) transactions
involving cross or block trades or otherwise in any market or markets where the
Company's Common Stock is traded; (iii) purchases by brokers, dealers or
underwriters as principal and resale by such purchasers for their own accounts;
(iv) "at the market" to or through market makers or into an existing market for
the Common Stock; (v) in other ways not involving market makers or established
trading markets, including direct sales to purchasers or sales effected through
agents; (vi) through transactions in options, swaps or other derivatives
(whether exchange-listed or otherwise), or (vii) any combination of the
foregoing, or by any other legally available means.
To the extent not described herein and as otherwise required by law, the
Company will file, during any period in which offers or sales are being made, a
supplement to this Prospectus or a post-effective amendment to the
32
<PAGE> 35
Registration Statement of which this Prospectus is a part, which sets forth,
with respect to a particular offering, the specific number of Resale Shares to
be sold, the name of the selling shareholder, the sales price, the name of any
participating broker, dealer, underwriter or agent, any applicable commission
or discount and any other material information with respect to the plan of
distribution.
In order to comply with the securities laws of certain states, if
applicable, the Common Stock offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in
certain states the shares of Common Stock offered hereby may not be sold unless
they have been registered or qualified for sale in the applicable state or an
exemption from the registration or qualification requirement is available and
compliance therewith is effected.
The Selling Securityholders and any brokers, dealers, agents or
underwriters that participate with the Selling Securityholders in the
distribution of the Common Stock offered hereby may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event any
commissions or discounts received by such brokers, dealers, agents or
underwriters and any profit on the resale of the Common Stock offered hereby
and purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
The Common Stock is listed for trading on the Nasdaq Small-Cap Market.
SHARES ELIGIBLE FOR FUTURE SALE
Pursuant to the terms of the Settlement Agreement, the Company is to
issue to members of the settlement class a total of 78,014 shares of Common
Stock and Warrants which are exercisable for a total of 1,002,964 shares of
Common Stock. The 78,014 shares of Common Stock will be freely tradeable by
the holders thereof upon issuance. The Common Stock issuable upon exercise of
the Warrants will be issued pursuant to the Registration Statement of which
this Prospectus forms a part.
The Company currently has outstanding 7,000,000 shares of Series B
Preferred Stock that are convertible into a maximum of 7,000,000 shares of
Common Stock, and 750,000 shares of Series C Preferred Stock that are
convertible into a maximum of 750,000 shares of Common Stock. The Common Stock
issuable upon conversion of the Series B Preferred Stock and Series C Preferred
Stock will be restricted securities upon issuance, and therefore, will be
tradeable only in accordance with Rule 144, as discussed below. The Company
has issued options to purchase an aggregate of 162,500 shares of Common Stock.
As of March 19, 1998, options exercisable for 157,500 shares of Common Stock
were vested. The shares issuable upon exercise of these options may be subject
to immediate resale into the public markets without restriction.
Rule 144 governs resales of "restricted securities" for the account of
any person (other than an issuer), and restricted and unrestricted securities
for the account of an "affiliate" of the issuer. Restricted securities
generally include any securities acquired directly or indirectly from an issuer
or its affiliates which were not issued or sold in connection with a public
offering registered under the Securities Act. An affiliate of the issuer is
any person who directly or indirectly controls, is controlled by, or is under
common control with, the issuer. Affiliates of the Company generally include
its directors, executive officers, and persons directly or indirectly owning
10% or more of the outstanding Common Stock. Under Rule 144, unregistered
sales of restricted Common Stock cannot be made until one year from the later
of its acquisition from the Company or an affiliate of the Company.
Thereafter, restricted Common Stock may be resold without registration subject
to Rule 144's volume limitation, aggregation, broker transactions and notice-
filing requirements, and requirements concerning publicly available information
about the Company (the "Applicable Requirements"). Resales by the Company's
affiliates of restricted and unrestricted Common Stock are subject to the
Applicable Requirements. The volume limitations provide that a person (or
persons who must aggregate their sales) cannot, within any three-month period,
sell more than the greater of one percent of then outstanding shares, or the
average weekly reported trading volume during the four calendar weeks preceding
each such sale. A non-affiliate may resell restricted Common Stock which has
been held for two years free of the Applicable Requirements.
33
<PAGE> 36
Significant stockholders of the Company currently hold 6,389,975 shares
of Common Stock that are eligible for sale into the public market pursuant to
Rule 144, all of which are held by persons who are able to sell under Rule 144
subject to the Applicable Requirements.
DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation provides for authorized
capital stock of 56,500,000 shares, consisting of 40,450,000 shares of Common
Stock, par value $.01 per share, and 16,050,000 shares of preferred stock,
without par value.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the
election of directors and on all other matters on which stockholders are
entitled or permitted to vote. Holders of Common Stock are not entitled to
cumulative voting rights. Therefore, holders of a majority of the shares
voting for the election of directors can elect all the directors. Subject to
the terms of any outstanding series of preferred stock, the holders of Common
Stock are entitled to dividends in such amounts and at such times as may be
declared by the Company's Board of Directors out of funds legally available
therefor. Upon liquidation or dissolution, holders of Common Stock are
entitled to share ratably in all net assets available for distribution to
stockholders after payment of any liquidation preferences to holders of
preferred stock. Holders of Common Stock have no redemption, conversion or
preemptive rights.
PREFERRED STOCK
The Board of Directors has the authority to cause the Company to issue
up to the authorized number of shares of preferred stock in one or more series,
to designate the number of shares constituting any series, and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, voting rights, redemption and conversion rights and liquidation
preferences of such series, without further action by the stockholders. The
issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of the Common Stock.
The Board of Directors has designated 1,000,000 shares of Preferred
Stock as Series A Convertible Preferred Stock ("Series A Preferred Stock"),
7,000,000 shares of Preferred Stock as Series B Convertible Preferred Stock
("Series B Preferred Stock"), and 750,000 shares of Preferred Stock as Series C
Convertible Preferred Stock ("Series C Preferred Stock"). As of March 23,
1998, there are no shares of Series A Preferred Stock issued and outstanding.
As of such date, 7,000,000 shares of Series B Preferred Stock and 750,000
shares of Series C Preferred Stock, were issued and outstanding. A general
description of the rights, preferences, privileges and voting powers of the
Series B and C Preferred Stock are set forth below.
The holders of shares of Series B or C Preferred Stock shall be entitled
to receive, when, and if declared by the Company's Board of Directors,
cumulative dividends from the second anniversary of the original issuance date
of the Series B or C Preferred Stock, at the rate of $.0825 per share per
annum, payable quarterly on the 15th day of July, October, January and April of
each year, commencing with a payment on July 15, 1999. Such dividends shall be
cumulative from the second anniversary of the original issuance date of the
Series B or C Preferred Stock. For so long as any shares of Series B or C
Preferred Stock shall be outstanding, without the written consent of the
holders of a majority in interest of the Series B or C Preferred Stock, the
Company shall not (i) purchase or redeem any shares of its Common Stock, or
(ii) declare, pay or set apart for any payment any dividend on its Common
Stock.
The shares of Series B or C Preferred Stock maybe redeemed at anytime on
or after the second anniversary of the original issuance date of the Series B
or C Preferred Stock at the option of the Company at a per share redemption
price equal to $1.00, plus accrued dividends, if any. All shares of Series B
or C Preferred Stock that have not been redeemed or converted into Common Stock
on or before the fifth anniversary of the original issuance of the Series B
Preferred Stock shall automatically without further action of the Company or
any holder of Series B or C Preferred Stock, be converted into Common Stock
based on the Conversion Rate then in effect.
34
<PAGE> 37
In the event of the dissolution, liquidation or winding up of the
affairs of the Company, whether voluntary or involuntary, or in the event of
its insolvency, there shall be paid to the holders of the Series B or C
Preferred Stock an amount equal to that which would have been payable if the
Series B or C Preferred Stock had been redeemed on the date of such payment
before any distribution of assets or payment shall be made to the holders of
any other class of capital stock of the Company. If the assets of the Company
available for distribution to the holders of Series B or C Preferred Stock
shall be insufficient to permit payment to the holders of the Series B or C
Preferred Stock of the full amount or amounts aforesaid, then the entire assets
of the Company shall be distributed ratably among the holders of the Series B
or C Preferred Stock then outstanding according to the number of shares held by
each. After the amounts provided for above have been paid or distributed, any
assets remaining shall be paid to or distributed among the holders of Common
Stock pro rata on a per share basis.
Except as otherwise required by law or expressly provided for below, the
holders of Series B Preferred Stock shall not have voting rights. Except as
otherwise required by law, the holders of Series C Preferred Stock shall have
no voting rights. If and when the Company shall be in default in the payment
of dividends on the Series B Preferred Stock, and such default continues for a
period of two fiscal quarters, then the holders of the outstanding shares of
Series B Preferred Stock, voting separately as a single class, shall become
entitled to elect two directors of the Company.
The shares of Series B or C Preferred Stock do not have preemptive or
subscription rights.
WARRANTS
Each Warrant entitles the holder to purchase at any time until March 22,
2000 one share of Common Stock at an exercise price of $1.50 per share. The
number of shares issued upon exercise of the Warrants is subject to adjustment
as the result of a stock split, combination of shares or stock dividends
payable with respect to the Common Stock. If the Company shall engage in a
merger, consolidation, reorganization, recapitalization or similar transaction,
each Warrant share becomes exercisable for the stock, securities and other
consideration that the holder of the number of shares of Common Stock subject
to the Warrant would have been entitled to receive in any such merger,
consolidation, reorganization, recapitalization or similar transaction (with
appropriate adjustment, if any, to the exercise price.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Harris Trust &
Savings Bank, Houston, Texas.
LEGAL MATTERS
Certain legal matters in connection with the Common Stock offered hereby
will be passed on for the Company by Porter & Hedges, L.L.P., Houston, Texas.
EXPERTS
The consolidated statements of 3CI Complete Compliance Corporation for
the year ended September 30, 1995 included in this Prospectus and elsewhere in
the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein and elsewhere in the Registration Statement in
reliance upon the authority of said firm as experts in giving said reports.
The consolidated statements of 3CI Complete Compliance Corporation for the
years ended September 30, 1996 and September 30, 1997 included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Heard, McElroy & Vestal, LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein and elsewhere in
the Registration Statement in reliance upon the authority of said firm as
experts in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith, files
reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information may be inspected and copied at the public reference
facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C., at the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and
World Trade Center, 13th Floor, New York, New York 10007; and at the offices of
Nasdaq at 1735
35
<PAGE> 38
K Street, N.W., Washington, D.C. 20006. Copies of such material may also be
obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Such information also may be obtained on the Internet through the Commissions,
EDGAR database at http://www.sec.gov.
36
<PAGE> 39
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS OF 3CI COMPLETE COMPLIANCE CORPORATION
<S> <C>
Report of Independent Public Accountants Heard, McElroy, & Vestal, LLP . . . . . . . . . . F-2
Report of Independent Public Accountants Arthur Andersen LLP . . . . . . . . . . . . . . . . . F-3
Audited Consolidated Balance Sheets -- September 30, 1997 and 1996 . . . . . . . . . . . . . . F-5
Audited Consolidated Statements of Operations for the years ended September 30, 1997, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Audited Consolidated Statements of Shareholders' Equity (Deficit) for the years ended
September 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Audited Consolidated Statements of Cash Flows for the years ended September 30, 1997, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Notes to Audited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . F-10
Unaudited consolidated balance sheets - December 31, 1997 and September 30, 1997. . . . . . . . F-28
Unaudited consolidated statements of operations for the three months ended December 31, 1997
and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-29
Unaudited consolidated statements of cash flows for the three months ended December 31, 1997
and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-30
Notes to Unaudited Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . F-31
</TABLE>
F-1
<PAGE> 40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO 3CI COMPLETE COMPLIANCE CORPORATION:
We have audited the accompanying consolidated balance sheets of 3CI
Complete Compliance Corporation as of September 30, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for the years ended September 30, 1997 and 1996. These
financial statements and schedule referred to below are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
3CI Complete Compliance Corporation as of September 30, 1997 and 1996 and the
results of its consolidated operations and cash flows for the years ended
September 30, 1997 and 1996, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Notes 1 and 13 to the consolidated financial statements, the Company (i) has
suffered recurring losses from operations, (ii) has a negative working capital,
(iii) has suffered recurring negative cash flow from operating activities and
(iv) is involved in legal proceedings, all of which collectively raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Notes 1 and
13. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Our audits were made for the purpose of forming an opinion the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
HEARD, MCELROY & VESTAL, LLP
Shreveport, Louisiana
January 13, 1998, except
for Note 14, as to which
the date is March 20, 1998
F-2
<PAGE> 41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO 3CI COMPLETE COMPLIANCE CORPORATION:
We have audited the accompanying consolidated statement of operations,
shareholders' equity and cash flows of 3CI Complete Compliance Corporation for
the year ended September 30, 1995. These consolidated financial statements and
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
The Company has consistently incurred losses for the past several fiscal
years and losses have continued into fiscal 1996. The Company has historically
relied on WSI funding, and such support was again necessary in fiscal 1995 and
will continue to be necessary in the future. Management and the Company's board
of directors implemented a business plan and long term strategy, the success of
which is dependent upon the Company's ability to substantially reduce operating
expenses and increase the average revenue per pound to levels sufficient to
generate income and cash flow necessary to satisfy its obligations as they
become due and realize the recorded value of its assets. In the absence of the
Company being able to secure third party financing, WSI has provided the Company
with a line of credit of $8 million (Note 5), with a maturity date of December
31, 1996, of which $4.1 million has been drawn down as of September 30, 1995.
The note agreement contains various covenants, which among other things, require
that the Company's net after tax loss before stock accretion for the 3 months
ended December 31, 1995 shall not exceed $600,000, net after-tax income for the
3 months ended March 31, 1996, June 30, 1996 and September 30, 1996 shall exceed
$100,000, $200,000 and $300,000 respectively (excluding any expenses connected
with litigation commenced prior to September 30, 1995). Management believes
this note will be adequate to provide the necessary financial support to meet
working capital and other requirements through December 1996. The ability of
the Company to achieve its long-term business strategy is dependent upon the
Company's ability to meet its business plan and obtain continued financing from
WSI or third party lenders. In the event the Company does not meet its business
plan or WSI does not continue to support the Company prior to and beyond
December 1996 or the Company is unable to obtain alternative financing, there
can be no assurance that the Company will be able to meet its obligations as
they become due or realize the recorded value of its assets and would likely be
forced to seek bankruptcy protection.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of its
operations and its cash flows for the year ended September 30, 1995 in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index of financial statements is presented for purposes of complying with the
Securities and Exchange Commission's, rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
As further discussed in Note 13, a group of minority shareholders filed
suit against the Company alleging minority shareholder suppression, breach of
fiduciary duty and breach of contract, among other allegations, and has
demanded unspecified actual damages and punitive damages of $10 million. The
Company's insurer has denied coverage in the lawsuit. The Company has denied
all material allegations of the lawsuit and believes that the resolution of
this matter will not have a material adverse effect on the Company's financial
condition and results of operations. However, the outcome of this matter
cannot be predicted, and an adverse decision in the lawsuit would likely have a
F-3
<PAGE> 42
material adverse effect on the Company's financial condition and results of
operations. Accordingly, no provisions for any liability that may result upon
adjudication have been made in the accompanying financial statements.
ARTHUR ANDERSEN LLP
Houston, Texas
January 10, 1996
F-4
<PAGE> 43
3CI COMPLETE COMPLIANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
ASSETS 1997 1996
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ - $ -
Restricted cash - 130,000
Accounts receivable, net allowances of $875,144 and $990,994 at
September 30, 1997 and 1996, respectively 3,559,091 3,753,421
Inventory 71,886 59,045
Other current assets 440,373 232,989
------------- -------------
Total current assets 4,071,350 4,175,455
------------- -------------
Property, plant and equipment, at cost 10,927,159 11,396,144
Accumulated depreciation (2,477,411) (2,933,525)
------------- -------------
Net property, plant and equipment 8,449,748 8,462,619
------------- -------------
Excess of cost over net assets acquired, net of accumulated amortization of
$74,988 and $49,988 at September 30, 1997 and 1996 respectively 362,243 387,243
Other Intangible assets, net of accumulated amortization of $149,104 and
$74,552 at September 30, 1997 and 1996, respectively 274,264 349,502
------------- -------------
Total assets $ 13,157,605 $ 13,374,819
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Bank Overdrafts $ 156,880 $ 34,382
Notes payable 217,525 211,928
Current portion of long-term debt, unaffiliated lenders 1,373,617 1,314,290
Accounts payable 1,034,924 1,866,223
Accounts payable, affiliated companies 391,156 319,156
Accrued liabilities 2,188,697 2,361,006
Note payable majority shareholder 4,844,217 8,842,969
------------- -------------
Total current liabilities 10,207,016 14,949,954
------------- -------------
Long-term debt unaffiliated lenders, net of current portion 986,467 742,400
------------- -------------
Total liabilities 11,193,483 15,692,354
------------- -------------
Accrued stock put option (565,500 common stock at $3.00 per share) - 1,696,500
Shareholder's Equity (deficit):
Preferred stock, no par value, authorized 1,000,000 shares;
Issued and outstanding 1,000,000 shares and none at September
Common stock, $0.01 par value, authorized 15,000,000 shares; 7,000,000 -
Issued and outstanding 9,154,811 and 9,900,311 shares at
September 30, 1997 and 1996, respectively 91,549 99,004
Additional Paid-In capital 20,182,543 20,108,743
Accumulated deficit (25,309,970) (24,221,782)
------------- -------------
Total Shareholders' equity (deficit) 1,964,122 (4,014,035)
------------- -------------
Total liabilities and shareholders' equity (deficit) $ 13,157,605 $ 13,374,819
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 44
3CI COMPLETE COMPLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the For the For the
Year Ended Year Ended Year Ended
September 30, September 30, September 30,
1997 1996 1995
--------------- -------------- --------------
<S> <C> <C> <C>
Revenues $ 18,789,749 $ 17,748,300 $ 16,522,025
Expenses:
Cost of Services 14,285,834 13,815,480 11,756,968
Depreciation and Amortization 1,352,015 2,224,161 1,976,212
Write off of intangibles (Note 12) - 11,385,328 -
Write off of fixed assets (Note 3) - 1,183,446 -
Selling, general and administrative 3,080,398 4,343,246 6,996,575
-------------- -------------- --------------
Net income (loss) from Operations $ 71,502 $ (15,203,361) $ (4,207,730)
Other Income (expense):
Interest and other expense (1,159,690) (1,053,424) (655,080)
-------------- -------------- --------------
Loss before income taxes and accretion of stock put (1,088,188) (16,256,785) (4,862,810)
-------------- -------------- --------------
Income taxes - - -
Accretion of stock put (26,052) (217,075)
-------------- -------------- --------------
Net loss $ (1,088,188) $ (16,282,837) $ (5,079,885)
============== ============== ==============
Weighted average shares outstanding 9,064,071 8,872,348 8,530,611
============== ============== ==============
Net loss per common share $ (0.12) $ (1.84) $ (0.60)
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 45
3CI COMPLETE COMPLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SHARES PREFERRED SHARES COMMON ADDITIONAL
ISSUED STOCK ISSUED STOCK PAID-IN CAPITAL
----------- ------------ -------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance at September
30, 1994 - - 8,222,674 $ 82,227 $ 18,669,402
Conversion of WSI debt
and accrued interest to
equity - - 416,667 4,167 995,833
Purchase of River Bay - - 865,500 8,655 -
Net loss - -
----------- ------------ -------------- -------------- -----------------
Balance at September
30, 1995 - - 9,504,841 95,049 19,665,235
Issuance of Med-Waste
earnout shares 145,470 1,455 196,008
Issuance of Med-Waste
settlement shares 250,000 2,500 247,500
Net loss
----------- ------------ -------------- -------------- -----------------
Balance at September
30, 1996 - - 9,900,311 99,004 20,108,743
Conversion of WSI debt
and accrued interest to
equity 1,000,000 7,000,000
Issuance of Grafton
lawsuit settlement shares 120,000 1,200 73,800
Remove put option
shares from equity (865,500) (8,655)
Net loss
----------- ------------ -------------- -------------- -----------------
Balance at September 1,000,000 $ 7,000,000 9,154,811 $ 91,549 $ 20,182,543
30, 1997
</TABLE>
<TABLE>
<CAPTION>
TOTAL
SHAREHOLDERS'
ACCUMULATED EQUITY
DEFICIT (DEFICIT)
----------------- ---------------
<S> <C> <C>
Balance at September
30, 1994 $ (2,859,060) $ 15,892,569
Conversion of WSI debt
and accrued interest to
equity - 1,000,000
Purchase of River Bay - 8,655
Net loss (5,079,885) (5,079,885)
----------------- ---------------
Balance at September
30, 1995 (7,938,945) 11,821,339
Issuance of Med-Waste
earnout shares 197,463
Issuance of Med-Waste
settlement shares 250,000
Net loss (16,282,837) (16,282,837)
----------------- ---------------
Balance at September
30, 1996 (24,221,782) (4,014,035)
Conversion of WSI debt
and accrued interest to
equity 7,000,000
Issuance of Grafton
lawsuit settlement shares 75,000
Remove put option
shares from equity (8,655)
Net loss (1,088,188) (1,088,188)
----------------- ---------------
Balance at September $ (25,309,970) $ 1,964,122
30, 1997
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 46
3C1 COMPLETE COMPLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (1,088,188) $(16,282,837)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
(Gain) loss on disposal of fixed and intangible assets (24,078) --
Depreciation and amortization 1,352,015 2,224,161
Accretion of stock put -- 26,052
Discount on bank note -- --
Write off of impaired intangible assets -- 11,385,328
Write off of fixed assets -- 1,183,446
Change in assets and liabilities, net of effect of purchase of River Bay
(Increase) decrease in restricted cash 130,000 (30,000)
(Increase) decrease in accounts receivable net 194,330 (782,916)
(Increase) decrease in inventory (12,841) 31,339
(Increase) decrease in prepaid expenses (207,384) (5,005)
(Increase) decrease in other current assets 685 (45,098)
Increase (decrease) in accounts payable (831,299) 573,709
Increase (decrease) in accounts payable, affiliated companies 72,000 12,110
Increase (decrease) in accrued liabilities (172,309) (197,628)
------------ ------------
Total adjustments to net loss 501,119 14,375,498
------------ ------------
Net cash provided by (used in) operating activities (587,069) (1,907,339)
------------ ------------
Cash flow from investing activities:
Proceeds from sale of property, plant and equipment 248,873 61,986
Purchase of property, plant and equipment (1,416,758) (1,679,675)
Increase in intangible assets -- --
------------ ------------
Net cash used in investing activities (1,167,885) (1,617,689)
------------ ------------
Cash flow from financing activities:
Increase in bank overdrafts 122,498 34,382
Proceeds from issuance of notes payable 1,018,404 521,542
Principal reduction of notes payable (1,012,807) (536,115)
Reduction of capital lease obligations -- --
Reduction of put option (861,421) --
Proceeds from issuance of long-term debt, unaffiliated lenders 931,006 1,221,411
Reduction of long-term debt, unaffiliated lenders (1,443,975) (2,637,717)
Proceeds from issuance of note payable to majority shareholders 2,303,000 4,000,000
Unpaid interest added to note payable to majority shareholders 698,249 842,969
------------ ------------
1,754,954 3,446,472
------------ ------------
Net decrease in cash and cash equivalents -- (78,556)
------------ ------------
Cash and cash equivalents, beginning of period -- 78,556
------------ ------------
Cash and cash equivalents, end of period $ -- $ --
============ ============
</TABLE>
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
SEPTEMBER 30,
1995
-----------
<S> <C>
Cash flow from operating activities:
Net loss $(5,079,885)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
(Gain) loss on disposal of fixed and intangible assets --
Depreciation and amortization 1,976,212
Accretion of stock put 217,075
Discount on bank note (50,000)
Write off of impaired intangible assets --
Write off of fixed assets --
Change in assets and liabilities, net of effect of purchase of River Bay
(Increase) decrease in restricted cash 5,364
(Increase) decrease in accounts receivable net 785,155
(Increase) decrease in inventory (8,521)
(Increase) decrease in prepaid expenses 9,000
(Increase) decrease in other current assets 5,376
Increase (decrease) in accounts payable (1,330,009)
Increase (decrease) in accounts payable, affiliated companies 304,230
Increase (decrease) in accrued liabilities 722,349
-----------
Total adjustments to net loss 2,636,231
-----------
Net cash provided by (used in) operating activities (2,443,654)
-----------
Cash flow from investing activities:
Proceeds from sale of property, plant and equipment 212,995
Purchase of property, plant and equipment (1,246,893)
Increase in intangible assets (90,000)
-----------
Net cash used in investing activities (1,123,898)
-----------
Cash flow from financing activities:
Increase in bank overdrafts --
Proceeds from issuance of notes payable 584,549
Principal reduction of notes payable (863,844)
Reduction of capital lease obligations (60,089)
Reduction of put option --
Proceeds from issuance of long-term debt, unaffiliated lenders 363,320
Reduction of long-term debt, unaffiliated lenders (1,658,470)
Proceeds from issuance of note payable to majority shareholders 5,100,000
Unpaid interest added to note payable to majority shareholders
-----------
3,465,466
-----------
Net decrease in cash and cash equivalents (102,086)
-----------
Cash and cash equivalents, beginning of period 180,642
-----------
Cash and cash equivalents, end of period $ 78,556
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 47
3CI COMPLETE COMPLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1997 1995
-------------- ------------- -----------
<S> <C> <C> <C>
Supplemental disclosures:
Cash paid for interest $ 203,980 $ 241,294 $ 304,870
============ =========== ===========
Cash paid for taxes $ -- $ -- $ --
============ =========== ===========
Investing and financing activities not affecting cash:
Purchase of net assets (1) $ -- $ 1,679,675 $ 3,691,345
Increase in long-term debt and other liabilities (1) -- (1,679,675) (3,691,345)
------------ ----------- -----------
Cash affect $ -- $ -- $ --
============ =========== ===========
Increase in shareholders' equity $ 7,000,000 $ 443,508 $ 1,000,000
Conversion of debt and accrued interest (7,000,000) (443,508) (1,000,000)
------------ ----------- -----------
Cash effect $ -- $ -- $ --
============ =========== ===========
Increase in shareholders' equity $ 75,000 $ 3,955 $ 8,655
Fair value of common stock issued for acquisition (1) (75,000) (3,955) (8,655)
------------ ----------- -----------
Cash effect $ -- $ -- $ --
============ =========== ===========
</TABLE>
(1) In 1995, the Company purchased substantially all of the net assets of
River Bay Corporation by issuing 865,500 shares of common Stock, and a
note payable for $1,000,000. Seller has the option to require the company
to repurchase the shares at $3.00 per share, a liability, and accrued
stock put option, has been reflected in the company's balance for the
amount the company would be required to pay.
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 48
3CI COMPLETE COMPLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION AND BASIS OF PRESENTATION
3CI Complete Compliance Corporation (the Company or 3CI), a Delaware
Corporation, is engaged in the collection, transportation and incineration of
biomedical waste in the southeastern and southwestern United States. In
February 1994, subsidiaries of 3CI acquired all the assets and business
operations of American Medical Transports Corporation (AMTC), an Oklahoma
corporation, and A/MED, Inc. (A/MED), a Delaware corporation. Both AMTC and
A/MED were engaged in businesses similar to that of 3CI. Waste Systems, Inc.
(WSI), a Delaware corporation, was the majority shareholder of both AMTC and
A/MED (the Companies). Additionally, in February 1994, WSI purchased 1,255,182
shares of 3CI common stock from American Medical Technologies (AMOT).
As a result of the transactions described above, WSI became the majority
shareholder of 3CI immediately following the acquisition of AMTC and A/MED.
For accounting purposes, AMTC and A/MED were considered the acquirer in a
reverse acquisition. The combined financial statements of AMTC and A/MED are
the historical financial statements of the Company for periods prior to the
date of the business acquisition. Historical combined shareholders' equity of
AMTC and A/MED has been retroactively restated for the equivalent number of 3CI
shares received for the assets and business operations of AMTC and A/MED, and
the combined accumulated deficit of AMTC and A/MED has been carried forward.
In October 1992, Medical Environmental Disposal, Inc. (MEDI), a wholly
owned subsidiary of WSI was merged with and into AMTC, with AMTC being the
surviving corporation.
PREDECESSOR TO 3CI
Prior to the merger with AMTC and A/MED, 3CI was a majority owned
subsidiary of AMOT. In September 1991, AMOT purchased the business and assets
and assumed certain liabilities of 3CI and 3CI Transportation Systems
Corporation (the Predecessor Companies), both existing Texas corporations that
had been in the medical waste disposal business since 1989 and 1990,
respectively. 3CI began operations when AMOT contributed substantially all the
net assets and business operations of the Predecessor Companies to 3CI. In
April 1992, the Company completed an initial public offering of common stock
whereby 800,000 shares were sold by the Company and 580,000 shares were sold by
AMOT.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of 3CI and
its divisions and/or subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
For years ended prior to September 30, 1996 the consolidated financial
statements included the Company and its wholly owned subsidiaries, 3CI
Acquisition Corp./AMTC and 3CI Acquisition Corp./A/MED. During the year ended
September 30, 1996, the subsidiaries were merged into 3CI Complete Compliance
Corporation. Accordingly, for the year ended September 30, 1997 and 1996, the
financial statements include the accounts of 3CI and its operating divisions
and do not include any subsidiary entities.
SUBSTANTIAL DOUBT REGARDING ABILITY TO CONTINUE AS A GOING CONCERN
The Company has consistently suffered losses for the past several fiscal
years, and losses have continued in fiscal 1998. As of September 30, 1997, the
Company has a working capital deficit of $6,135,666. The Company has
historically relied on Waste Systems, Inc. ("WSI"), the Company's majority
stockholder, for funding, and such support was again necessary in fiscal 1997.
In the absence of the Company being able to secure third party financing, WSI
agreed to provide the Company with a revolving credit facility of $8 million,
the Promissory Note dated September 30, 1995, including deferred interest with
cash advances
F-10
<PAGE> 49
not to exceed $7.4 million, of which $4.8 million including deferred interest
and $4.9 million including deferred interest has been drawn as of September 30,
1997, and December 31, 1997. During the fiscal year ended September 30, 1996,
WSI made additional cash advances that have were in excess of the principal in
the original promissory note, the Company entered into a second Revolving
Credit Facility of $2.7 million including deferred interest, dated December 20,
1996 with maturity date of February 28, 1997. It is the intent of WSI and 3CI
that this Revolving Promissory Note shall evidence all sums owing by 3CI to WSI
to the extent that such sums represent advances of funds to 3CI in excess of
the maximum limits fixed under that certain $8,000,000 Revolving Promissory
Note dated September 30, 1995. The Promissory Note dated September 30, 1995
had a due date of December 31, 1996 of which the Company has requested from and
received an extension to discuss with WSI on the possibility of restructuring
the terms of the Revolving Promissory Note. In February 1997, the Company
received a letter from the NASDAQ Stock Market, Inc. regarding the Company's
failure to meet listing requirements. These requirements include maintaining a
minimum capital and surplus of at least $1,000,000 and a minimum bid price of
$1.00. While the Company remained out of compliance with this requirement, the
NASDAQ allowed the Company to remain listed with an exception added to it's
trading symbol. The NASDAQ Stock Market gave the Company until June 25, 1997,
to meet the listing requirement. In June 1997, WSI converted $7,000,000 of
debt into 1,000,000 shares of 3CI preferred stock. This conversion allowed the
Company to meet the listing requirement of the NASDAQ Stock Market, Inc. On
June 26, 1997, the NASDAQ Stock Market Inc. informed the Company that it had
been found to be in compliance with all requirements necessary to for continued
listing on the exchange, the exception to it's trading symbol has been removed.
In connection with the conversion of debt to preferred stock, WSI canceled the
Revolving Credit Facility of $2.7 million dated December 20, 1996, with a
maturity date of February 28, 1997, which had been previously extended to June
30, 1997. The conversion has also resulted in the reduction of the outstanding
indebtedness of the Promissory Note dated September 30, 1995. During the
fiscal years ended September 30, 1997, 1996 and 1995 WSI has made cash advances
to the Company of $2,303,000, $4,000,000 and $4,100,000. Since the year ended
September 30, 1997, the Company has not requested nor received any cash
advances from WSI. WSI is under no obligation to provide additional advances
and could demand payment on the debt at any time. During the fiscal year of
1997, the Company had began to have discussions with a third party lender to
obtain an alternative source of financing apart from WSI. In the event the
Company and WSI do not come to a resolution on the restructuring of the note
and the Company is unable to obtain alternative financing, there can be no
assurance that the Company will be able to meet its obligations as they become
due or realize the recorded value of its assets and would likely be forced to
seek bankruptcy protection.
The nature and level of competition in this industry have remained at a high
level for several years. This condition has produced aggressive price
competition and results in pressure on profit margins. The Company competes
against companies which may have access to greater capital resources. In order
to compete in this industry on a long-term basis and fully realize its business
strategy, the Company will require additional and continued financing and other
assistance from its current shareholders and if available, from outside
sources. There is no assurance that adequate funds for these purposes will be
available when needed or, if available, on terms acceptable to the Company.
INVENTORY
Inventory, consisting of containers and supplies, are stated at the
lower of cost (first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of
property, plant and equipment is calculated on the straight-line method over
the estimated useful lives of the assets. Expenditures for major renewals and
betterments are capitalized; expenditures for repairs and maintenance are
charged to expense as incurred.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement 121
in 1996 and, has completed an analysis to determine the impact. Prior to the
adoption of SFAS 121, in the course of preparing its financial statements, the
Company routinely reviewed assets for impairment by reviewing expected future
undiscounted net cash flows.
F-11
<PAGE> 50
In February 1997, the FASB issued Statement No. 128, Earnings Per Share.
This pronouncement will be effective for period ending after December 15, 1997.
This statement requires that the basic earning per share be presented on the
face of the income statement. Further, entities with complex capital
structures must also present diluted earnings per shares on the face of the
income statement. Basic earnings per share excludes dilution and is to be
computed by dividing income available to common stockholders by the weighted
average number of common shares of stock outstanding for the period. Diluted
earnings per share will reflect the potential dilution that could occur if
securities, options, or other contracts to issue common stock were converted
into common stock that then shared in the earnings of the company. No
potential common shares shall be included in the computation of any diluted
per-share amount when a loss from continuing operations exist, even if the
company reports net income. At the present time the ultimate impact of the
adoption of this standard is not known or reasonably estimable.
In February 1997, the FASB issued Statement No. 129, Disclosure of
Information about Capital Structure. This pronouncement will be effective for
period ending after December 15, 1997. This statement establishes standards
for disclosing information for an entity's capital structure. Adoption of this
standard should not have a significant impact on the Company's financial
statements.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income. This pronouncement will be effective for years beginning after
December 15, 1997. This statement establishes standards for reporting and
display of comprehensive income and it's components in a full set of general
purpose financial statements. Because the Company does not presently have any
"items of other comprehensive income", adoption of this standard should not
have a significant impact on the Company's financial statements.
INCINERATION RIGHTS AND PERMITS
The incineration rights represent amounts capitalized pursuant to the
reverse merger of 3CI for incineration contracts with the cities of Carthage
and Center, Texas (the Cities) which own the incineration facilities. The
amortization of the incineration rights commences at the start of the contract
and is amortized on the straight-line method over nine years, which corresponds
to the contract periods. Costs associated with the permits are being amortized
over the life of the contracts. See Note 12 for write-off of incineration
rights and permits.
INTANGIBLE ASSETS
Intangible assets are amortized on a straight-line method as follows:
<TABLE>
<S> <C>
Excess of cost over net assets acquired 17.5 - 40 years
Permits 5 - 7 years
Customer lists 5 - 10 years
</TABLE>
Amortization expense charged to operations for the years ended September
30, 1997, September 30, 1996 and for the year ended September 30, 1995 was
$99,552, $839,089 and $756,893, respectively.
Management evaluates the realization of the intangible assets recorded
for each acquisition based on the prospects for the ongoing operations of each
acquired company.
See Note 12 for write off of intangibles during the fiscal year 1996.
REVENUE RECOGNITION
The Company recognizes revenue from the treatment of medical waste in
the period in which the wastes are treated.
NET LOSS PER SHARE
Net loss per common share was computed by dividing the net loss by the
weighted average number of common shares outstanding. For the years ended
September 30, 1997, 1996 and 1995 the weighted average common shares
outstanding was 9,064,071, 8,872,34, and 8,530,611, respectively. The 865,500
shares issued in connection with the acquisition of River Bay have been
excluded from weighted average shares outstanding. The accretion of the Stock
Put Option (Note 2) is reflected as a reduction of net income in determining
net income to common shareholders.
F-12
<PAGE> 51
SHAREHOLDERS' EQUITY (DEFICIT)
During the fiscal year 1995, the Company increased the number of common
and preferred shares authorized to 15 million and 1 million, respectively.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less to
be cash equivalents.
RESTRICTED CASH
At September 30, 1997, and September 30, 1996, the company had cash of
none and $130,000, respectively, which was restricted pursuant to an
irrevocable standby letter of credit related to Workers Compensation insurance.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes
in accordance with the provisions of Statement of Financial Accounting
Standards No. 109 (SFAS No. 109). SFAS No. 109 requires that deferred income
taxes reflect the tax consequences of differences between the tax bases of
assets and liabilities and their financial reporting amounts.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior financial
statements to conform to the classifications used in the current financial
statements.
MANAGEMENT ESTIMATES
Management has used estimates and assumptions in preparing these
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities,
and the reported revenues and expenses. Actual results could vary from the
estimates that were used.
2. BUSINESS ACQUISITIONS
RIVER BAY CORPORATION
In October 1994 the Company acquired substantially all of the assets and
assumed certain liabilities of River Bay Corporation, a Mississippi Corporation
("River Bay"), in consideration for 865,500 shares of common stock and
additional shares of common stock contingent upon the profits of the operations
attributable to the assets purchased from River Bay through December 31, 1996.
In addition, the Company issued to River Bay a promissory note in the original
principal amount of $1,000,000 bearing an interest rate of 8.75%, which as
amended, provides for monthly principal payments ranging from $50,000 to
$100,000 through February 1996.
Pursuant to a Put Option Agreement with River Bay, as amended ("Put Option"),
the Company, in October 1995, repurchased 300,000 of the shares of common stock
issued in connection with acquisition in consideration for its promissory note
in the original principal amount of $900,000 ($3.00 per share) and providing
for monthly principal payments ranging from $25,000 to $75,000, plus interest,
through January 1997. Pursuant to the Put Option, the Company is obligated to
repurchase the remaining 565,500 shares of 3CI common stock issued in
connection with the acquisition at the option of River Bay, from February 1,
1997 until April 1, 1997 for $3.00 per share. The liability associated with
the Put Option covering the remaining shares is included in Accrued Stock Put
Option on the accompanying balance sheet as of September 30, 1996. The River
Bay Corporation exercised their put option on or about February 14, 1997, for
the Company to repurchase the 565,500 shares of Common Stock. On or about
March 10, 1997, the Company commenced arbitration proceedings before the
American Arbitration Association in Houston, Texas against River Bay
Corporation and Marlan Baucum seeking to set aside a Purchase Agreement entered
into between the Company and those parties on or about October 10, 1994,
together with ancillary agreements pertaining thereto. The Company was seeking
damages and/or to set aside the Purchase Agreement and collateral agreements,
including the Put Option Agreement which, if otherwise enforceable, would have
required the payment by the Company of approximately $1,700,000 for 565,500
shares of 3CI common stock. In response, on April 9, 1997, Bank of Raleigh and
Smith County Bank, assignees of certain rights under the Purchase Agreement,
commenced a complaint for declaratory and monetary relief in the U.S. District
Court for the Southern District of Mississippi, Jackson Division in Civil
Action No. 3:97cv249BN. The Smith County Bank and Bank of Raleigh have prayed
declaratory judgment
F-13
<PAGE> 52
declaring the arbitration provision in the Purchase Agreement to be not binding
upon said banks, declaratory judgement declaring the claims of 3CI against
River Bay to be subordinate to the claims of the banks, for unspecified
compensatory damages and for punitive damages of at least $1,000,000. On or
about May 10, 1997, the Company filed a Petition of Arbitration in Suit No.
422,107 of the First Judicial District Court, Caddo Parish, Louisiana, naming
River Bay Corporation and Marlan Baucum as defendants therein. This lawsuit
sought an injunction and stay of all judicial and extra-judicial proceedings
pursuant to the Put Agreement until such time as the arbitration is completed.
This action was removed by the defendants to the U.S. District Court for the
Western District of Louisiana, Shreveport Division in Civil Action No. 97-0578.
In April 1997, the Bank of Raleigh and Smith County Bank gave notice to certain
customers in the River Bay division that the Company was in default of the put
option obligation and that their payments should be directly made to the Bank
of Raleigh and Smith County Bank. From these efforts the Bank of Raleigh and
Smith County Bank collected $463,000 of the Company's accounts receivables that
were pledged in the initial purchase agreement. On or about October 14, 1997,
the parties settled the lawsuits with the Bank of Raleigh and Smith County
Bank. In the settlement, the Company agreed to repurchase the remaining
565,500 shares of common stock related to the Put Option agreement, at a price
of $816,364, with payments ranging from $100,000 to $63,500. This liability is
recorded in the financial statements at September 30, 1997.
The obligations of the Company under the Put Option and its promissory
notes payable to WSI are secured by a security interest in certain of the
assets purchased from River Bay and future accounts receivable attributable to
the assets acquired from River Bay.
River Bay has been engaged in the business of medical waste management
services in Mississippi, Tennessee, Florida, Georgia and Alabama.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, USEFUL LIFE
1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Land $ 590,600 $ 590,600
Buildings and improvements 1,622,026 1,537,836 3-40 years
Transportation equipment 3,286,537 3,917,390 5-10 years
Machinery and equipment 5,098,484 4,859,445 5-20 years
Furniture and fixtures 329,512 490,873 3-10 years
------------- -------------
$ 10,927,159 $ 11,396,144
------------- -------------
</TABLE>
Depreciation expense charged to operations was $1,252,462, $1,385,072,
and $1,219,319 for years ending September 30, 1997,1996 and 1995, respectively.
During fiscal year ended September 30, 1996, an analysis was done of all the
fixed assets of the Company. In conjunction with the analysis, the Company
reconsidered the appropriate asset lives as well as revising various accounting
estimates as a result of recent operating experiences and current market
conditions. This write down of $1,183,446 appears as "Write off of fixed
assets" on the Consolidated Statement of Operations.
Substantially all of the Company's property, plant and equipment has
been pledged as collateral against certain of the Company's liabilities.
Set forth below is a summary of the write-offs relating to fixed assets
during fiscal 1996:
Buildings $12,700
During 1996, it was necessary to replace the refractory in one of the
Company's incinerator due to the normal wear and tear. There was a net book
value of $12,700 of the previously capitalized refractory that is being written
off.
Leasehold Improvements $80,000
During 1996, the Company updated and refurbished several of its
transportation and incinerator locations. Management believed the updating and
refurbishment was necessary to make the locations more functional and
efficiently operational. Also the Company made an operational decision to
close its Austin, Texas, transportation location. This closure was made in
order to reduce operating costs and personnel costs. Previous leasehold
F-14
<PAGE> 53
improvement costs which were being amortized over the life of the lease (the
lease was terminated due to this decision to close the location) were written-
off as they remained a part of the leased building.
Transportation Equipment $500,982
In February 1994, at the time of the reverse merger of the Company, 3CI
had a lease agreement which were accounted for as a Capitalized Lease and were
being depreciated over the term of the lease agreement. During 1996, the
Company made a decision to terminate the lease agreement early due to the high
cost of maintenance of the leased transportation equipment. The Company had
also, capitalized other costs associated with these leased assets. As the
transportation equipment was returned it was necessary to write the remaining
capitalized net book value off of $500,982.
Reusable Containers $12,000
In 1996, the Company made an operational decision to move a portion of
their customer base from disposable cardboard boxes to reusable plastic
containers. A significant investment was then made in reusable plastic
containers and based upon its prior operating experience with the reusable
containers, the Company estimated that a three (3) year life was more
reflective of the reusable containers than a five (5) year life. In previous
periods the Company had estimated that the life of reusable containers was 5
years. Due to this change in estimate the Company wrote off previously
capitalized reusable containers with a net book value of $12,000.
Machinery & Equipment $88,000
During fiscal 1996, it was necessary to change out the bags inside the
scrubber at the incinerator as these bags became excessively worn and the
integrity of the bags were beginning to deteriorate. These bags had a
remaining net book value of $22,200 that were written-off as they were no
longer able to remain in service. Also, there is a write-off of a previously
capitalized major improvement that was done to the upper chamber of
incinerator. During 1996, there was a major improvement completed in the upper
chamber and the previously capitalized improvement was written-off at its net
book value of $28,405. In the River Bay division, machinery and equipment with
a net book value of $37,395 written-off.
Computer & Software $490,000
During 1994 and 1995, the Company, began capitalizing cost associated
with a proven technology of a bar coding systems and an accounting system that
would streamline the paperwork from the transportation locations to the
incinerators to ultimately the accounting department
(production/billing/accounting system). This was put into service in fiscal
1995 and was being amortized. During fiscal 1996, due to continued problems in
the ongoing training of employees on the use of the software and the
prohibitive expense of replacing hardware due to harsh conditions management
determined the bar coding system was no longer cost effective and abandoned the
project and appropriately wrote-off the unamortized costs. The write-off of
these capitalized costs totaled $472,000. The Company also wrote off
previously capitalized accounting software with a remaining net book value of
$18,000 that was acquired in a previous acquisition (River Bay asset
acquisition) as this software was abandoned when the River Bay division was
integrated in the fourth quarter of 1996 into the 3CI accounting system.
4. NOTES PAYABLE:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Notes payable to an insurance company, due in
monthly installments including interest of 7 to
9% through March 1998, unsecured 217,525 211,928
======= =======
</TABLE>
F-15
<PAGE> 54
5. LONG-TERM DEBT:
Long-term debt - unaffiliated lenders consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Note payable to prior owner of Incendere, at an
annual adjustable interest rate generally
ranging between 7.5% to 9.75, with 34% of
interest being paid quarterly of interest being
paid quarterly and 66% of interest deferred and
added to principal until May 21, 1995.
Thereafter, principal and interest are due in
equal monthly installments until maturity on
May 21, 1998, convertible into common stock at
$3.00 per share, secured by substantially all
of the assets of A/MED $ 240,919 $ 615,166
Notes payable for purchased vehicles and
equipment held as collateral, due in monthly
installments, including interest, at rates
ranging from 7% to 16.75%, maturing through
2002 1,302,802 991,008
Note Payable to Stone Container Corp. due in
monthly payments with interest at 10% through
1997 -- 74,539
Notes Payable to River Bay Corporation due in
monthly payments with interest of 8.75% through
December 1998, secured by accounts receivables,
equipment, and common stock 816,364 375,977
------------- -------------
2,360,085 2,056,690
Less-Current portion (1,373,618) (1,314,290)
------------- -------------
$986,467 $742,400
------------- -------------
Long-term debt - majority shareholder consists of the following:
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
Revolving note payable to WSI, bearing interest $ 4,844,217 $ 8,842,969
at the prime rate, due December 31, 1996 with
interest payable quarterly
Less-current portion (4,844,217) (8,842,969)
------------- -------------
$ - $ -
------------- -------------
</TABLE>
Effective April 1995, WSI purchased an additional 416,667 shares of
common stock of 3CI at $2.40 per share in consideration for the conversion of a
$1,000,000 non-interest bearing cash advance made by WSI to the Company in
November 1994.
In February, March, April, May and July 1995, WSI made non-interest
bearing cash advances totaling $4,100,000 to the Company. In June 1995, the
Company executed a $6,000,000 revolving promissory note, to be funded at the
discretion of WSI, which was utilized to repay the advances not converted to
common stock. This Revolving Promissory Note was renegotiated in September
1995 increasing the total available to $8,000,000 including
F-16
<PAGE> 55
interest with the principal portion not to exceed $7,400,000. The note bears
interest at the prime rate and was payable on December 31, 1996. Interest is
payable in quarterly installments which are automatically added to the
outstanding balance, if not paid. The note agreement contains various covenants
that among other things require the Company's net after tax loss before stock
accretion for the 3 months ended December 31, 1995 shall not exceed $600,000;
the net after-tax income for the 3 months ended March 31, 1996, June 30, 1996
and September 30, 1996 shall be at least $100,000, $200,000 and $300,000,
respectively (excluding any expenses connected with litigation commenced prior
to September 30, 1995). Due to continuing losses the Company was not in
compliance with the loan covenants described above. In each of the quarters
for the fiscal year ending 1997 and 1996 the Company has requested and received
financial waivers and extension of the notes from WSI related to each of the
quarters. Due to the additional cash advances that were made in excess of the
principal in the original promissory note, the Company entered into a second
Revolving Credit Facility of $2.7 million including deferred interest, dated
December 20, 1996 with maturity date of February 28, 1997. In June 1997, Waste
Systems, Inc., converted $7,000,000 of their Promissory Notes with 3CI Complete
Compliance Corporation to Preferred Stock. The Company issued 1,000,000 shares
of Series A cumulative convertible preferred stock, with no par value, at $7.00
per share or $7,000,000 million, to Waste Systems, Inc., the Company's majority
shareholder. The preferred shares have cumulative dividends from the second
anniversary of the original issuance date of the Series A Preferred Stock, at
the rate of $.05775 per share per annum, and no more, payable quarterly on the
15th day of July, October, January and April of each year, commencing with a
payment on July 15, 1999, accrued from the second anniversary of the original
issuance date of the Series A Preferred Stock. Such dividends shall be
cumulative from the second anniversary of the original issuance date of the
Series A Preferred Stock. Accruals of dividends shall not bear interest.
Payments due on long-term debt, during each of the five years subsequent
to September 30, 1997 are as follows:
<TABLE>
<S> <C>
1998 . . . . . . . . . . . . . . . . . $6,217,834
1999 . . . . . . . . . . . . . . . . . 661,864
2000 . . . . . . . . . . . . . . . . . 313,936
2001 . . . . . . . . . . . . . . . . . 7,390
2002 . . . . . . . . . . . . . . . . . 3,277
</TABLE>
The total interest expense was $902,229, $871,910 and $666,157 for the
years ended September 30, 1997, 1996 and 1995, respectively.
6. INCINERATION CONTRACTS:
The Company is a party to exclusive incineration contracts with the
Cities whereby the Company is guaranteed minimum weekly burn capacity and is
required to pay fees to the Cities based on the total pounds incinerated.
These contract rights were obtained in exchange for the Predecessor Companies
purchasing certain equipment for the Cities' incinerators which enabled the
Cities to meet all current federal and state emissions control standards. Due
to problems arising from contractual agreements with the City of Center the
Company is presently not utilizing the incinerator at the City of Center for
the treatment of medical waste. The Company is no longer using the incinerator
in the city of Center and does not believe that discontinuing that use will
have a material effect on the Company's business.
F-17
<PAGE> 56
The City of Carthage requires minimum annual payments under the combined
contracts as follows:
<TABLE>
<CAPTION>
MINIMUM REQUIRED
FOR THE YEAR ENDED SEPTEMBER 30, PAYMENTS
-------------------------------- ----------------
<S> <C>
1998 . . . . . . . . . . . . . . . . . . . . . . . 1,000,000
1999 . . . . . . . . . . . . . . . . . . . . . . . 1,000,000
2000 . . . . . . . . . . . . . . . . . . . . . . . 1,000,000
------------
$ 3,000,000
============
</TABLE>
In the event the Company fails to meet the minimum amounts of annual
guarantees to the respective City of Carthage, after giving effect to amounts
paid above prior years' annual required minimums (on a cumulative basis), the
City of Carthage has the option to terminate the Company's exclusive
incineration rights.
The Company had a minimum guaranteed payment to the City of Carthage,
Texas for incineration fees for the years ended May 31, 1997, 1996, and 1995,
of $1,000,000, $716,000, and $596,250 respectively. In the years ended May 31,
1997, 1996, and 1995 the Company paid incineration fees of $1,401,692,
$843,000, and $750,000, respectively to the City of Carthage. The Company also
had minimum guaranteed payments to the City of Center, Texas of for
incineration fees for the years ended May 31, 1997, 1996, and 1995, of
$762,000, $695,000, and $495,250 respectively. In the years ended May 31,
1996, and 1995 the Company paid incineration fees of $779,000 and $551,000
respectively to the City of Center, in accordance with terms of the contract,
thereby meeting the annual minimum fees required.
In August 1996, the company discontinued use of the City of Center
facility, due to the city of Center breach of the exclusivity portion of the
contract. The original agreement between the Company and the City of Center,
Texas which was executed on August 22, 1990, gave the Company the exclusive and
sole right to dispose of medical waste at the City of Center's resource
Recovery facility. The Company discovered that the City of Center breached
its exclusivity portions of the 1990 agreement, as amended on or about October
27, 1994. Due to this breach of contract, the Company does not believe that
minimum guaranteed payment is due to the City of Center. Despite not having
the ability to treat waste at the City of Center's Resource recovery facility,
the Company has ample treatment capacity to dispose of its medical waste. The
Company believes that the effect of not utilizing this treatment facility has
not and will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
Included in cost of sales for the years ended September 30, 1997, 1996
and 1995, is $1,429,097, $1,542,842 and $1,348,355 respectively, related to
incineration costs at the Cities since the reverse merger.
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<PAGE> 57
7. 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. The
tax rate used was 37 percent for the years ended September 30, 1997, 1996 and
1995 representing the federal rate and an average of state income tax rates.
The components of deferred income tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Deferred income tax liabilities -
Property and equipment 1,461,197 $ 1,115,998 $ 771,017
Other 68,735 67,200 92,513
Total deferred income tax 1,529,932 1,183,198 863,530
liabilities
Deferred income tax assets
Net operating loss carryforward 8,768,841 7,910,438 3,712,934
Bad debt reserves 301,603 344,468 452,610
Other 1,402,858 940,358 523,553
------------- ------------- -------------
Total deferred income tax assets 10,473,302 9,195,264 4,689,097
Valuation allowance (8,943,370) (8,012,066) (3,825,567)
------------- ------------- -------------
Net deferred income tax asset (1,529,932) (1,183,198) (863,530)
------------- ------------- -------------
Total deferred income tax assets and
Liabilities $ - $ - $ -
</TABLE>
At September 30, 1997, the Company had approximately $22,320,384 of net
operating loss carryforwards for federal tax purposes which will expire
beginning in 2004 and continue through the year 2012. The Company also had
state net operating losses at September 30, 1997. The Company has established
a valuation allowance for the federal and state net operating losses of
$8,943,370, $8,012,066 and $3,825,567 as of September 30, 1997, 1996 and 1995,
respectively. Because of separate return limitations, change in ownership
limitations, and the weight of available evidence, it is more likely than not
that some portion or possibly all of the net operating losses will not be
available for use by the consolidated entities.
8. STOCK OPTION PLAN:
In conjunction with the business acquisition described in Note 1, a
stock option plan (the Plan) approved by 3CI's previous shareholders in 1992
totaling 500,000 shares remained in effect. The purpose of the Plan is to
provide additional incentives to officers and employees of the Company who are
primarily responsible for the management and growth of the Company. Each
option granted pursuant to the Plan shall be designated at the time of grant as
either an "incentive stock option" or as a "non-qualified stock option". The
exercise price equals or exceeds the market price as of the grant date. At
September 30, 1995, the Company had 230,000 shares outstanding under option for
two officers and one former officer of the Company, of which all were
exercisable, at option prices of $3.00 to $4.00 per share. During 1995, the
Company reduced the total shares available under the plan to 375,000 shares,
resulting in 145,000 available for future issuance as of September 30, 1997 and
1996.
During the years ended September 30, 1997 and 1996, 140,000 of the
230,000 options share described above were canceled and a net of 47,500 option
shares were issued. As of September 30, 1997, a total of 137,500 option shares
are outstanding and a total of 237,500 option shares are available for issuance
under the plan. The outstanding option shares vest monthly over three year
period.
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9. CONCENTRATION OF CREDIT RISK:
The Company's customers are concentrated in the medical industry and,
therefore, changes in economic, regulatory and other factors which affect the
medical industry may impact the Company's overall credit risk. The Company
monitors the status of its receivables including follow-up directly with
customers on past due balances.
10. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 (Disclosure of Financial Instruments) requires companies to
disclose the fair value of each class of financial instruments for which it is
practical to estimate that value and for which the recorded value significantly
differs from the fair market value. The Company's primary financial
instruments are accounts receivable, notes payable, accounts payable, and
accrued liabilities. The fair value of accounts receivable approximates its
carrying amount. Because of the absence of availability of alternative
financing and the substantial doubt about the Company's ability to continue as
a going concern, it is not practical to estimate the fair values of notes
payable, accounts payable and accrued liabilities.
11. RELATED PARTY TRANSACTIONS:
In April 1995, WSI purchased an additional 416,667 shares of 3CI common
stock in consideration for the conversion by WSI of a $1,000,000 non-interest-
bearing cash advance made by WSI to the Company in November 1994 ($2.40 per
share).
In February, March, May, and July 1995, WSI made additional cash
advances of $4,100,000 to the Company.
In February, March, April, May and July 1995, WSI made non-interest
bearing cash advances totaling $4,100,000 to the Company. In June 1995, the
Company executed a $6,000,000 revolving promissory note, to be funded at the
discretion of WSI, which was utilized to repay the advances not converted to
common stock. This Revolving Promissory Note was renegotiated in September
1995 increasing the total available to $8,000,000 including interest with the
principal portion not to exceed $7,400,000.
Since September 30, 1996, WSI has made additional cash advances to the
Company totaling $960,000 including interest. Due to the additional cash
advances that have been made in excess of the principal in the original
promissory note, the Company entered into a second Revolving Credit Facility of
$2.7 million including deferred interest, dated December 20, 1996 with maturity
date of February 28, 1997. The Promissory Note dated September 30, 1995 has a
due date of December 31, 1996 of which the Company has requested from and
received a 30 day extension until January 31, 1997 to discuss with WSI on the
possibility of restructuring the terms of the Revolving Promissory Note.
In June 1997, Waste Systems, Inc., converted $7,000,000 of their
Promissory Note with 3CI Complete Compliance Corporation to Preferred Stock.
The Company issued 1,000,000 shares of Series A cumulative convertible
preferred stock, with no par value, at $7.00 per share or $7,000,000 million,
to Waste Systems, Inc., the Company's majority shareholder. The preferred
shares have cumulative dividends from the second anniversary of the original
issuance date of the Series A Preferred Stock, at the rate of $.05775 per share
per annum, and no more, payable quarterly on the 15th day of July, October,
January and April of each year, commencing with a payment on July 15, 1999,
accrued from the second anniversary of the original issuance date of the Series
A Preferred Stock. Such dividends shall be cumulative from the second
anniversary of the original issuance date of the Series A Preferred Stock.
Accruals of dividends shall not bear interest.
In April 1995, WSI purchased an additional 416,667 shares of Common
Stock in consideration for the conversion by WSI of a $1,000,000 non-interest-
bearing cash advance made by WSI to the Company in November 1994 ($2.40 per
share).
In February, March, April, May and July 1995, WSI made additional cash
advances of $4,100,000 to the Company.
In February 1995, the Company expensed approximately $310,000 for
certain services provided to the Company and for reimbursement of expenses
incurred on behalf of the Company.
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<PAGE> 59
Through 1996 and 1997, the Company shared certain facilities, personnel
and administrative services with WSI. The related costs allocated to the
Company were based on management's estimates of time expended by personnel on,
or benefit received by, periods.
The Company had loans from WSI, its majority shareholder, outstanding
during 1997, 1996 and 1995. Related interest expense in the amount of
$698,248, $585,468, and $157,500 was recorded for the years ended September 30,
1997, September 30, 1996, and September 30, 1995, respectively.
During 1996, the Company has made purchases of business forms with a
company owned by the father of Curtis W. Crane, the Chief Financial Officer of
the Company. Payments to the business forms company during fiscal year ended
September 30, 1996 and 1997, totaled $22,000 and $62,000, respectively.
12. INTANGIBLE ASSET WRITE-OFF
In fiscal 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No.
121 requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. An evaluation of the fair value of the assets associated with
the Company's operations resulted in the determination that certain intangible
assets were impaired. The impaired assets were written down by $11,385,328.
Fair value was based on the estimated future cash flows to be generated by
these intangible assets. This write down is included in the "Write off of
Intangibles" amount for fiscal 1996 on the Consolidated Statements of
Operations. During the fiscal year of 1995, the Company's majority shareholder
sent an advisor to the company to review ongoing operations of the company and
to make recommendations as to achieve profitability. From this review the
Company developed specific detail plans for it's fiscal year end September
1996. In September 1995, management put together a business plan for the
fiscal year ended September 30, 1996. The Board of Directors reviewed the plan
in detail and after thorough consideration in every aspect, the plan was
approved by the Board of Directors. The Chairman of the Board met with key
operating personnel and officers of the Company to discuss the actions to be
taken. Additionally the board installed a new officer to oversee the
operations and implementation of its plan. The business plan for the fiscal
year ended September 30, 1996, included cost reductions and a small amount of
price increases. As the fiscal year began to develop key operating objectives
of the business plan were not being achieve. In one of the company's key
operating territories (Houston, Texas), a competitor opened a treatment
facility that significantly increased the capacity to treat waste and by the
competitors desire to fill the capacity, the competitor began deep discounting
pricing to fill the capacity of the new treatment facility. Also, the Company
did not bring it's newly constructed incinerator into full operational use
until March 1996, the business plan had projected the incinerator to be fully
operational in January 1996. As the losses continued, the Company prepared a
forecast based on the best available business information. This forecast was
prepared in the fourth quarter of 1996. Because of the forecasted continued
losses it became apparent that an impairment of long-lived assets had occurred.
13. COMMITMENTS AND CONTINGENCIES
In May 1995, a group of minority stockholders of the Company, including
Patrick Grafton, former Chief Executive Officer of the Company, acting
individually and purportedly on behalf of all minority stockholders, and on
behalf of the Company, filed suit in James T. Rash, et al v. Waste Systems,
Inc., et al., No. 95-024912 in the District Court of Harris County, Texas,
129th Judicial District, against the Company, WSI and various directors of the
Company. The plaintiffs have alleged minority stockholder suppression, breach
of fiduciary duty and breach of contract and "thwarting of reasonable
expectations" and have demanded an accounting, appointment of a receiver for
the sale of the Company, unspecified actual damages and punitive damages of $10
million, plus attorney's fees. In addition, Mr. Grafton has alleged
unspecified damages as a result of his removal as an officer and director of
the Company and the Company's failure to renew his employment agreement in
March 1995 and has alleged that such removal was wrongful and ineffective. The
Company's insurer has denied coverage in the lawsuit. The Company has denied
all material allegations of the lawsuit and believes that the resolution of
this matter, including attorneys fees incurred in the Company's defense could
have a material adverse effect on the Company's financial condition. However,
the outcome of this cannot be predicted, and an adverse decision in the lawsuit
would likely have a material adverse effect on the Company's financial
condition and results of operations and cash flows. The Company has reached an
agreement in principle with some, but not all, with the plaintiffs for the
settlement of this action. The execution of the appropriate
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<PAGE> 60
documentation to evidence this settlement has been completed and both parties
are awaiting court approval which is set for late February 1998. The Company
and Mr. Grafton reached a settlement of Mr. Grafton's individual claims
relating to his removal as an officer and director of the Company. The terms
of the settlement reached between the Company and Mr. Grafton are confidential
to both parties. The Company accrued an amount in it's fiscal year ended 1996
and 1995 financial statements which closely approximates the actual settlement.
In June 1995, the former stockholders of Med-Waste filed suit in James
H. Shepherd, et al v. 3CI Complete Compliance Corporation, et al., No. C.V.-95-
1441-1 in the Circuit Court of Hot Springs County, Arkansas, against the
Company and various current and former officers and directors of the Company.
Plaintiffs have alleged violations of federal and state securities laws, breach
of contract, common law fraud and negligence in connection with the acquisition
of Med-Waste by the Company and have demanded rescission, restitution,
unspecified actual damages and punitive damages of $10 million, plus attorney's
fees. The case was transferred to the United States District Court of the
Western District of Arkansas, Hot Springs Division and in November 1996 was
subsequently transferred to the United States District Court for the Western
District of Louisiana. The parties, other than Patrick Grafton, former Chief
Executive Officer of the Company, have agreed to settle the suit in
consideration for the issuance by the Company to the plaintiffs of 250,000
shares of Common Stock and the payment by the Company to the plaintiffs of 20%
to 55% of the pre-tax profits, as defined, attributable to the assets
previously acquired from Med-Waste until such time as the shares of Common
Stock held by the plaintiffs become freely tradable and the market price of the
Common Stock averages at least $2.50 over a period of 42 consecutive days. In
addition, the Company and WSI have agreed to repurchase the shares of Common
Stock held by the plaintiffs for $2.50 per share in certain events, including
the bankruptcy of the Company or in the event WSI ceases to be the largest
beneficial holder of the Common Stock. The obligations of the Company to the
plaintiffs are secured by a security interest in most of the assets of the
Company, and WSI has agreed to subordinate its loans to the Company, and all
related security interests, to the obligations, and the related security
interests, of the Company to the plaintiffs. This matter has been settled by
the parties and was dismissed in its entirety on July 31, 1997, by order of the
court.
The Company accrued $250,000 in expenses, which is reflected in its
September 30, 1995, financial statements, relating to the settlement of the
Med-Waste lawsuit.
In connection with an auto accident in July 1996, two suits have been
filed against the Company. Ryan O'Neil Youmans & Anita Youmans v. American
3CI, et al, No. CV9604899, was filed in the Circuit Court of Jefferson County,
Alabama, in August 1996. Jimmy R. Whitfield & Rhonda Whitfield v. Paul
Bronger, American 3CI, et al., No. CV-96-847, was filed in the Circuit Court of
Shelby County, Alabama in November of 1996. These proceedings have been
settled by the Company's insurance carrier and the related expenditure to the
Company are reflected in the current year financial statements. The resolution
to these lawsuits did not a material effect on the Company's financial
condition, results of operations and cash flows.
On or about March 10, 1997, the Company commenced arbitration
proceedings before the American Arbitration Association in Houston, Texas,
against River Bay Corporation and Marlan Baucum seeking to set aside a Purchase
Agreement entered into between those parties on or about October 10, 1994,
together with ancillary agreements pertaining thereto. The company was seeking
damages and/or to set aside the Purchase Agreement and collateral agreements,
including a Put Option Agreement which, if otherwise enforceable, would require
the payment by the Company of approximately $1,700,000 for 565,500 shares of
3CI common stock. On or about May 10, 1997, the Company filed a Petition of
Arbitration in Suit No. 422,107 of the First Judicial District Court, Caddo
Parish, Louisiana, naming River Bay Corporation and Marlan Baucum as defendants
therein. This lawsuit seeks an injunction and stay of all judicial and extra-
judicial proceedings pursuant to the Put Agreement until such time as the
arbitration is completed. This action was removed by the defendants to the
U.S. District Court for the Western District of Louisiana, Shreveport Division
in Civil Action No. 97-0578.
In response, on April 9, 1997, Bank of Raleigh and Smith County Bank,
assignees of certain rights under the Purchase Agreement, commenced a complaint
for a declaratory and monetary relief in the U.S. District Court for the
Southern District of Mississippi, Jackson, Division in Civil Action No.
3:97cv249BN. The Bank of Raleigh and Smith County Bank have prayed declaratory
judgment declaring the arbitration provision in the Purchase Agreement to be
not binding upon the said banks, declaratory judgment declaring the claims of
3CI against River Bay to be subordinate to the claims of the banks, for
unspecified compensatory damages and for punitive damages for least $1,000,000.
The District Court has stayed this action as well, pending arbitration. In
this action the Bank of Raleigh and Smith County
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<PAGE> 61
Bank proceeded to collect the Company's accounts receivable in the River Bay
division as it was used as collateral in the Purchase Agreement, they collected
approximately $463,000, through October 14, 1997. The parties have agreed to
settle the suit in consideration for the Company to repurchase the remaining
565,500 shares of common stock related to the put option for $816,364. The
outcome of this lawsuit will not have a material adverse effect on the Company's
financial position, result of operations and net cash flows.
The Company is subject to certain other litigation and claims arising in
the ordinary course of business. In the opinion of management of the Company,
the amounts ultimately payable, if any, as a result of such litigation and
claims will not have a materially adverse effect on the Company's financial
position or results of operations.
The Company operates within the regulated medical waste disposal
industry which is subject to intense governmental regulation at the federal,
state and local levels. The Company believes it is currently in compliance in
all material respects with all applicable laws and regulations governing the
medical waste disposal business. However, continuing expenditures may be
required in order for the Company to remain in compliance with existing and
changing regulations. Furthermore, because the medical waste disposal industry
is predicated upon the existence of strict governmental regulation, any
material relaxation of regulatory requirements governing medical waste disposal
or of their enforcement could result in a reduced demand for the Company's
services and have a material adverse effect on the Company's revenues and
financial condition. The scope and duration of existing and future regulations
affecting the medical waste disposal industry cannot be anticipated and are
subject to changing political and economic pressures.
At September 30, 1995, the Company had employment agreements with
certain key employees providing for compensation of $145,000 and $130,000 for
the years ended September 30, 1997 and 1996. These agreements further provide
for a bonus based on the achievement of certain performance objectives. For
the years ended September 30, 1997, 1996 and 1995, these performance objectives
were not achieved.
At September 30, 1997 and 1996, the Company had certain noncancelable
leases, principally for office space and equipment, with various expiration
dates. Future minimum rentals under such leases for the following fiscal years
aggregate $605,000 for 1998, $353,000 for 1999, $106,000 for 2000, $60,000 for
2001 and $135,000 thereafter.
The Company granted River Bay Corporation security interests in certain
of the assets purchased from River Bay and certain accounts receivable
attributable to these purchased assets to secure future debt and the put
option.
The Company has agreed to pay the President of River Bay Corporation
approximately $65,000 over a period of 15 months related to the settlement of
certain issues. This liability is included in accrued liabilities in the
September 30, 1995 and September 30, 1996 balance sheet.
The Company has committed to reimburse WSI approximately $6,000 per
month for services provided and costs incurred by the Company's vice president.
Mr. Charles D. Crochet serves as President of the Company pursuant to an
employment agreement commencing February 1994 and ending September 1995. Mr.
Crochet was entitled to a salary of $6,250 per month in February and March
1994, and then $7,500 per month from April through September 1994, increasing
to $9,583 per month commencing October 1994 through September 1995. This
employment agreement was renegotiated and modified in August 1995, increasing
Mr. Crochet's salary to $10,833 per month commencing October 1, 1995 and
thereafter increases to $13,333 on October 1, 1997, and continues through May
1998. As an additional incentive to Mr. Crochet under the new employment
agreement, Mr. Crochet is eligible for an annual bonus based on Fiscal Year
Pre-Tax Profits as a percentage of Revenues. The amount of such annual bonus
is based on a percentage between 6% and 10% of an amount determined by the
Board of Directors from an approved bonus plan, such actual percentage
depending upon the Company's Pre-Tax Profits as a percentage of Revenue.
14. SUBSEQUENT EVENTS
The James J. Rash, et al v. Waste Systems, Inc., et al suit (see Note
13) has been settled. Court approval of such settlement was received in
February, 1998. Pursuant to the settlement, the Company has agreed to (i)
transfer 78,014 shares of its common stock into escrow for later conveyance to
the Plaintiffs (ii) issue warrants to the Plaintiffs on the basis of one
warrant for every three shares of Common Stock owned (total of 1,002,964
warrants). The warrants entitle
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<PAGE> 62
them to purchase from the Company additional shares of Common Stock (1,002,964
shares) at a price of $1.50 per share. The warrants may be exercised by the
holder thereof at any time with two (2) years from and after the Effective Sale
of the Settlement Agreement. (iii) pay $425,000 into an escrow account to pay
the Plaintiffs' attorney fees. (iv) obtain SEC approval, if necessary, to
convert the 1,000,000 shares of Series A Preferred Stock into 7,000,000 shares
of Series B preferred stock.
As of September 30, 1997, the Company had accrued amounts sufficient to
cover the $425,000 payment described in (iii) above.
The Company, as authorized by the necessary approvals of the board of
directors and the Company's majority stockholder, has approved the adoption of
an amendment (the "Amendment") to the Company's Certificate of Incorporation,
as amended, to (i) increase the authorized preferred stock, without par value
("Preferred Stock"), of the Company from 1,000,000 shares to 16,050,000 shares;
and (ii) increase the authorized common stock, par value $.01 per share
("Common Stock"), of the Company from 15,000,000 shares to 40,450,000 shares.
The Amendment was adopted to facilitate the conversion of $7,000,000 of debt
(the "Debt Conversion") owed by the Company to Waste Systems, Inc. ("WSI"), the
Company's largest stockholder, in exchange for 1,000,000 shares of the
Company's Series A Convertible Preferred Stock (the "Series A Preferred
Stock"), the exchange of the Series A Preferred Stock for 7,000,000 shares of
the Company's Series B Convertible Preferred Stock (the "Series B Preferred
Stock"), and the conversion of an additional $750,000 of debt owed by the
Company to WSI to 750,000 shares of the Company's Series C Convertible
Preferred Stock (the "Series C Preferred Stock").
Series A Preferred Stock:
In June 1997, WSI consummated the Debt Conversion by converting
$7,000,000 of debt owed to it by the Company into 1,000,000 shares of Series A
Preferred Stock, with no par value, at $7.00 per share or $7,000,000, to WSI,
the Company's majority shareholder. The Series A Preferred Stock has
cumulative dividends from the second anniversary of the original issuance date
of the Series A Preferred Stock, at the rate of $.5775 per share per annum, and
no more, payable quarterly on the 15th day of July, October, January and April
of each year, commencing with a payment on July 15, 1999, accrued from the
second anniversary of the original issuance date of the Series A Preferred
Stock. Accruals of dividends shall not bear interest.
The shares of Series A Preferred Stock may be redeemed at any time on or
after the second anniversary of the original issuance date of the Series A
Preferred Stock at the option of the Company in whole or, from time to time, in
part, in any such case at a per share redemption price equal to $7.00, plus
accrued dividends, if any. In case of redemption of only a part of the Series
A Preferred Stock at the time outstanding, the shares to be redeemed shall be
selected by lot.
Subject to certain adjustments, the Series A Preferred Stock may be
converted at any time on or after the second anniversary of the original
issuance thereof into full shares of Common Stock of the Company based on a
Conversion Rate of Series A Preferred Stock to Common Stock equal to $7.00
divided by the Market Price of the Common Stock on the date of the related
Conversion Notice.
Except as otherwise required by law or expressly provided for below, the
holders of Series A Preferred Stock shall have no voting rights. If and when
the Company shall be in default in the payment of dividends on the Series A
Preferred Stock, and such default continues for a period of two fiscal
quarters, then the holders of the outstanding shares of Series A Preferred
Stock, voting separately as a single class, shall become entitled to elect two
directors of the Company, such additional directors to serve in addition to the
directors then in office.
Series B and Series C Preferred Stock:
Upon filing and approval of the Amendment, the Company will designate
7,000,000 shares as Series B Preferred Stock and exchange them for the
1,000,000 shares of Series A Preferred Stock. On February 23, 1998, the Nasdaq
Small-Cap Market capital surplus requirement for continued listing was
increased to $2,000,000 (the "New Capital Surplus Requirement"). To meet the
New Capital Surplus Requirement, on February 19, 1998, the Company and WSI
agreed to convert an additional $750,000 of debt owed to WSI by the Company
into 750,000 shares of Series C Preferred Stock to be designated and issued to
WSI after the Amendment is filed and approved. After the debt
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<PAGE> 63
conversion, the Company would have a capital surplus in excess of $2 million
and, therefore, the Company would be in compliance with the New Capital Surplus
Requirement.
The Series B or Series C Preferred Stock will have cumulative dividends
from the second anniversary of the original issuance date of the Series B or
Series C Preferred Stock, at the rate of $.0825 per share per annum, and no
more, payable quarterly on the 15th day of July, October, January and April of
each year, commencing with a payment on July 15, 1999, accrued from the second
anniversary of the original issuance date of the Series B or Series C Preferred
Stock. Accruals of dividends shall not bear interest. The Series B or Series
C Preferred Stock may be converted at any time on or after the second
anniversary of the original issuance thereof, in whole but not in part, into
full shares of Common Stock of the Company with a Market Price (defined below)
of $7,000,000 for Series B or $750,000 for Series C based on a conversion rate
determined by (i) dividing $7,000,000 for Series B or $750,000 for Series C by
the Market Price of the Common Stock on the date of the related Conversion
Notice (defined below), (ii) plus an amount of cash determined by subtracting
the quotient calculated in (i) and subtracting from $7,000,000 for Series B or
$750,000 for Series C; provided however, that at the option of the holder, the
holder may convert the Series B or Series C Preferred Stock into solely that
number of shares of Common Stock determined as provided in (i), and forego
obtaining the additional Common Stock issuable as calculated in (ii), subject
to certain adjustments of the conversion rate for subdivision or combination of
the Common Stock.
To convert Preferred Stock into Common Stock, a holder of Preferred
Stock shall send to the Secretary of the Company a dated notice (a "Conversion
Notice") setting forth the number of shares of Preferred Stock to be converted,
along with the certificate representing the Preferred Stock to be converted.
Market Price means (i) the closing sale price on the date of a
Conversion Notice of a share of Common Stock as reported on the principal
securities exchange on which the shares of Common Stock are then listed or
admitted to trading or (ii) if not so listed, the average of the closing bid
and ask prices for a share of Common Stock on that date as quoted on the Nasdaq
National Market System or Nasdaq Small-Cap Market or (iii) if not quoted on
Nasdaq, the average of closing bid and ask price for a share of Common Stock as
quoted by the National Quotations Bureau's pink sheets or the National
Association of Securities Dealer's OTC Bulletin Board System. If the price of
a share of Common Stock shall not be so quoted, "Market Price" shall mean the
fair market value of a share of Common Stock as determined by an investment
banking firm, with expertise in the Corporation's area of business, appointed
by the judge of the 269th Judicial District Court, Harris County, Texas.
The shares of Series B or C Preferred Stock may be redeemed at any time
on or after the second anniversary of the original issuance date of the Series
B or C Preferred Stock at the option of the Company in whole or, from time to
time, in part, in any such case at a per share redemption price equal to $1.00,
plus accrued dividends, if any. In case of redemption of only a part of the
Series B or C Preferred Stock at the time outstanding, the shares to be
redeemed shall be selected by lot.
Any shares of the Series B or C Preferred Stock redeemed, purchased or
otherwise acquired by the Company or converted into Common Stock shall be
deemed retired and shall be canceled and may not under any circumstances
thereafter be reissued or otherwise disposed of by the Company.
All shares of Series B or C Preferred Stock that have not been redeemed
or converted into Common Stock on or before the fifth anniversary of the
original issuance of the Series B Preferred Stock shall automatically without
further action of the Company or any holder of Series B or C Preferred Stock,
be converted into Common Stock based on the Conversion Rate then in effect.
Except as otherwise required by law or expressly provided for below, the
holders of Series B Preferred Stock shall have no voting rights. Except as
otherwise required by law, the holders of Series C Preferred Stock shall have
no voting rights. If and when the Company shall be in default in the payment
of dividends on the Series B Preferred Stock, and such default continues for a
period of two fiscal quarters, then the holders of the outstanding shares of
Series B Preferred Stock, voting separately as a single class, shall become
entitled to elect two directors of the Company, such additional directors to
serve in addition to the directors then in office.
The Company has filed the Registration Statement (Form S-1) with the
Securities and Exchange Commission to register 1,518,434 additional shares of
its Common Stock. On about February 27, 1998, an Information Statement
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<PAGE> 64
was mailed to the Company's stockholders informing them of the previous
approval by the board of directors of the company of the corporate actions
referred to above and their subsequent adoption by the majority stockholder of
the Company.
F-26
<PAGE> 65
3CI COMPLETE COMPLIANCE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
================================================================================
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
CLASSIFICATION PERIOD EXPENSES ACCOUNTS PERIOD
-------------- ------------ ---------- --------- ----------
<S> <C> <C> <C> <C>
For the year ended September 30, 1997:
Allowance for doubtful accounts $ 990,994 $ 212,867 $(328,717) $ 875,144
============ ========== ========= ==========
For the year ended September 30, 1996:
Allowance for doubtful accounts $ 1,283,269 $ 380,256 $(672,531) $ 990,994
============ ========== ========= ==========
For the year ended September 30, 1995:
Allowance for doubtful accounts $ 573,567 $ 838,209 $(128,507) $1,283,269
============ ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 66
3CI COMPLETE COMPLIANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------- -------------
ASSETS
<S> <C> <C>
Current Assets: $ -- $ --
Cash and cash equivalents
Restricted cash -- --
Accounts receivable, net allowances of $836,272 and $875,144
at December 31, 1997 and September 30, 1997, respectively 2,991,378 3,559,091
Inventory 58,152 71,886
Other current assets 176,987 440,373
------------- -------------
Total current assets 3,226,517 4,071,350
------------- -------------
Property, plant and equipment, at cost 11,096,459 10,927,159
Accumulated depreciation (2,712,327) (2,477,411)
------------- -------------
Net property, plant and equipment 8,384,132 8,449,748
------------- -------------
Excess of cost over net assets acquired, net of accumulated
amortization of $81,238 and $74,988 at December 31, 1997
and September 30, 1997, respectively 355,993 362,243
Other intangible assets, net of accumulated amortization of $167,752
and $149,104 at December 31, 1997 and September 30, 1997, respectively 255,627 274,264
------------- -------------
Total assets $ 12,222,269 $ 13,157,605
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Bank overdrafts $ 24,176 $ 156,880
Notes payable 38,794 217,525
Current portion of long-term debt, unaffiliated lenders 1,330,396 1,373,617
Accounts payable 1,535,526 1,034,924
Accounts payable, affiliated companies 409,156 391,156
Accrued liabilities 1,416,118 2,188,697
Note payable majority shareholder 4,948,746 4,844,217
------------- -------------
Total current liabilities 9,702,912 10,207,016
------------- -------------
Long-term debt unaffiliated lenders, net of current portion 685,003 986,467
------------- -------------
Total liabilities 10,387,915 11,193,483
------------- -------------
Shareholders' Equity (deficit);
Preferred stock, no par value, authorized 1,000,000 shares;
issued and outstanding 1,000,000 at December 31, 1997 and
September 30, 1997, respectively 7,000,000 7,000,000
Treasury Stock (7,065)
Common Stock, $0.01 par value, authorized 15,000,000 shares;
issued and outstanding 9,154,811 at December 31, 1997 and
September 30, 1997, respectively 91,549 91,549
Additional Paid-in capital 20,182,543 20,182,543
Accumulated deficit (25,432,673) (25,309,970)
------------- -------------
Total Shareholders' equity (deficit) 1,834,354 1,964,122
------------- -------------
Total liabilities and shareholders' equity (deficit) $ 12,222,269 $ 13,157,605
============= ==============
</TABLE>
F-28
<PAGE> 67
3CI COMPLETE COMPLIANCE CORPORATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
-------------- -------------
<S> <C> <C>
Revenues $ 4,600,534 $ 4,673,658
Expenses:
Cost of Services 3,437,167 3,499,959
Depreciation and Amortization 294,979 357,923
Selling, general and administrative 767,959 836,970
-------------- -------------
Net income (loss) from Operations $ 100,439 $ (21,194)
Other Income (expense):
Interest and other expense (223,131) (324,382)
-------------- -------------
Loss before income taxes and accretion of stock put (122,702) (345,576)
-------------- -------------
Income taxes -- --
-------------- -------------
Net loss $ (122,702) $ (345,576)
============== =============
Weighted average shares outstanding 9,153,833 9,034,811
============== =============
Net loss per common share $ (0.01) $ (0.04)
============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 68
3CI COMPLETE COMPLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
-------------- --------------
<S> <C> <C>
Cash flow from operating activities:
Net loss (122,702) (345,576)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
(Gain) loss on disposal of fixed and intangible assets 34,888 --
Depreciation and amortization 294,979 357,923
Unpaid interest included in long-term debt
Change in assets and liabilities, net
(Increase) decrease in accounts 567,713 (1,395,304)
receivable, net 13,734 (36,940)
(Increase) decrease in inventory 263,386 144,547
(Increase) decrease in prepaid expenses 500,602 400,364
Increase (decrease) in accounts payable 18,000 18,000
Increase (decrease) in accounts payable,
affiliated companies (772,579) (160,898)
-------------- --------------
Increase (decrease) in accrued liabilities
Total adjustments to net loss 920,723 (672,308)
-------------- --------------
Net cash provided by (used in) operating activities 798,021 (1,017,884)
-------------- --------------
Cash flow from investing activities:
Proceeds from sale of property, plant and equipment 22,325 16,083
Purchase of property, plant and equipment (261,690) (232,536)
-------------- --------------
Net cash used in investing activities (239,365) (216,453)
-------------- --------------
Cash flow from financing activities:
Increase (decrease) in bank overdrafts (132,704) 387,695
Proceeds from issuance of notes payable -- --
Principal reduction of notes payable (178,731) (144,449)
Reduction of long-term debt, unaffiliated lenders (344,685) (300,437)
Repurchase of treasury stock (7,065)
Proceeds from issuance of note payable to majority -- 1,096,000
shareholders
Unpaid interest added to note payable to majority
shareholders 104,529 195,528
-------------- --------------
Net decrease in cash and cash equivalents -- --
============== ==============
Cash and cash equivalents, beginning of period -- --
-------------- --------------
Cash and cash equivalents, end of period $ -- $ --
============== ==============
</TABLE>
F-30
<PAGE> 69
3CI COMPLETE COMPLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
(1) ORGANIZATION AND BASIS OF PRESENTATION
3CI Complete Compliance Corporation (the Company or 3CI), a Delaware
Corporation, is engaged in the collection, transportation and incineration of
biomedical waste in the southeastern and southwestern United States. In
February 1994, subsidiaries of 3CI acquired all the assets and business
operations of American Medical Transports Corporation (AMTC), an Oklahoma
corporation, and A/MED, Inc. (A/MED), a Delaware corporation. Both AMTC and
A/MED were engaged in businesses similar to that of 3CI. Waste Systems, Inc.
(WSI), a Delaware corporation, was the majority shareholder of both AMTC and
A/MED (the Companies). Additionally, in February 1994, WSI purchased 1,255,182
shares of 3CI common stock from American Medical Technologies (AMOT).
As a result of the transactions described above, WSI became the majority
shareholder of 3CI immediately following the acquisition of AMTC and A/MED.
For accounting purposes, AMTC and A/MED were considered the acquirer in a
reverse acquisition. The combined financial statements of AMTC and A/MED are
the historical financial statements of the Company for periods prior to the
date of the business acquisition. Historical combined shareholders' equity of
AMTC and A/MED has been retroactively restated for the equivalent number of
3CI shares received for the assets and business operations of AMTC and A/MED,
and the combined accumulated deficit of AMTC and A/MED has been carried
forward.
THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS HAVE BEEN PREPARED, WITHOUT
AUDIT, BY THE COMPANY PURSUANT TO THE RULES AND REGULATIONS OF THE SECURITIES
AND EXCHANGE COMMISSION. AS APPLICABLE UNDER SUCH REGULATIONS, CERTAIN
INFORMATION AND FOOTNOTE DISCLOSURES NORMALLY INCLUDED IN FINANCIAL STATEMENTS
PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES HAVE BEEN
CONDENSED OR OMITTED. THE COMPANY BELIEVES THAT THE PRESENTATION AND
DISCLOSURES HEREIN ARE ADEQUATE TO MAKE THE INFORMATION NOT MISLEADING AND THE
FINANCIAL STATEMENTS REFLECT ALL ADJUSTMENTS AND ARE OF A NORMAL RECURRING
NATURE WHICH ARE NECESSARY FOR A FAIR PRESENTATION OF THESE FINANCIAL
STATEMENTS. THESE FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED IN THE COMPANY'S ANNUAL REPORT
ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1997, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
(2) NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share was computed by dividing net income
(loss) for each quarterly period by the weighted average number of common
shares outstanding for each period. In October 1994, the Company acquired
substantially all the assets and assumed certain liabilities of River Bay
Corporation. The 565,500 shares that remain issued in connection with the
acquisition of River Bay have been excluded from weighted average shares
outstanding. In conjunction with the business acquisition with respect to AMTC
and A/MED the weighted average shares outstanding have been retroactively
restated for reverse acquisition accounting to reflect the equivalent shares
based on the conversion ratio established in the merger transaction. The
effect of stock options and warrants is antidilutive and is therefore not
considered in the calculation of net loss per common share.
(3) BUSINESS CONDITIONS
The Company has consistently suffered losses for the past several fiscal
years, and losses have continued in fiscal 1998. As of December 31, 1997, the
Company has a working capital deficit of $6,476,395, but a positive
shareholders equity of $1,834,354. The Company has historically relied on
Waste Systems, Inc. ("WSI"), the Company's majority stockholder, for funding,
and such support was again necessary in fiscal 1997. In the absence of the
Company being able to secure third party financing, WSI agreed to provide the
Company with a revolving credit facility of $8 million, the Promissory Note
dated September 30, 1995, including deferred interest with cash advances not to
exceed $7.4 million, of which $4.8 million including deferred interest and $4.9
million including deferred interest has been drawn as of September 30, 1997,
and December 31, 1997. During the fiscal year ended September 30, 1996, WSI
made additional cash advances that have were in excess of the principal in the
original promissory note, the Company entered into a second Revolving Credit
Facility of $2.7 million including deferred interest, dated December 20, 1996
with maturity date of February 28, 1997. It is the intent of WSI and 3CI that
this Revolving Promissory Note shall evidence all sums owing by 3CI to WSI to
the extent that such sums represent advances of funds to 3CI in excess of the
maximum limits fixed under that certain $8,000,000 Revolving Promissory Note
dated September 30, 1995. The Promissory Note dated September 30, 1995 had a
due date of December 31, 1996 of which the Company has requested from and
received an extension to discuss with WSI on the possibility of restructuring
the terms of the Revolving Promissory Note. In February 1997, the Company
received a letter from the NASDAQ Stock Market, Inc. regarding the Company's
failure to meet listing requirements. These requirements include maintaining a
minimum capital and
F-31
<PAGE> 70
surplus of at least $1,000,000 and a minimum bid price of $1.00. While the
Company remained out of compliance with this requirement, the NASDAQ allowed
the Company to remain listed with an exception added to it's trading symbol.
The NASDAQ Stock Market gave the Company until June 25, 1997, to meet the
listing requirement. In June 1997, WSI converted $7,000,000 of debt into
1,000,000 shares of 3CI preferred stock. This conversion allowed the Company
to meet the listing requirement of the NASDAQ Stock Market, Inc. On June 26,
1997, the NASDAQ Stock Market Inc. informed the Company that it had been found
to be in compliance with all requirements necessary to for continued listing on
the exchange, the exception to it's trading symbol has been removed. In
connection with the conversion of debt to preferred stock, WSI canceled the
Revolving Credit Facility of $2.7 million dated December 20, 1996, with a
maturity date of February 28, 1997, which had been previously extended to June
30, 1997. The conversion has also resulted in the reduction of the outstanding
indebtedness of the Promissory Note dated September 30, 1995. During the
fiscal years ended September 30, 1997, 1996 and 1995 WSI has made cash advances
to the Company of $2,303,000, $4,000,000 and $4,100,000. Since the year ended
September 30, 1997, the Company has not requested nor received any cash
advances from WSI. WSI is under no obligation to provide additional advances
and could demand payment on the debt at any time. During the fiscal year of
1997 and continuing into fiscal 1998, the Company has begun to have discussions
with third party lenders to obtain an alternative source of financing apart
from WSI. In the event the Company and WSI do not come to a resolution on the
restructuring of the note and the Company is unable to obtain alternative
financing, there can be no assurance that the Company will be able to meet its
obligations as they become due or realize the recorded value of its assets and
would likely be forced to seek bankruptcy protection.
The nature and level of competition in this industry have remained at a
high level for several years. This condition has produced aggressive price
competition and results in pressure on profit margins. The Company competes
against companies which may have access to greater capital resources. In order
to compete in this industry on a long-term basis and fully realize its business
strategy, the Company will require additional and continued financing and other
assistance from its current shareholders and if available, from outside
sources. There is no assurance that adequate funds for these purposes will be
available when needed or, if available, on terms acceptable to the Company.
(4) COMMITMENTS AND CONTINGENCIES
In May 1995, a group of minority stockholders of the Company, including
Patrick Grafton, former Chief Executive Officer of the Company, acting
individually and purportedly on behalf of all minority stockholders, and on
behalf of the Company, filed suit in James T. Rash, et al v. Waste Systems,
Inc., et al, No. 95-024912 in the District Court of Harris County, Texas, 129th
Judicial District, against the Company, WSI and various directors of the
Company. The plaintiffs have alleged minority stockholder suppression, breach
of fiduciary duty and breach of contract and "thwarting of reasonable
expectations" and have demanded an accounting, appointment of a receiver for
the sale of the Company, unspecified actual damages and punitive damages of $10
million, plus attorney's fees. In addition, Mr. Grafton has alleged
unspecified damages as a result of his removal as an officer and director of
the Company and the Company's failure to renew his employment agreement in
March 1995 and has alleged that such removal was wrongful and ineffective. The
Company's insurer has denied coverage in the lawsuit. The Company has denied
all material allegations of the lawsuit and believes that the resolution of
this matter, including attorneys fees incurred in the Company's defense could
have a material adverse effect on the Company's financial condition. However,
the outcome of this cannot be predicted, and an adverse decision in the lawsuit
would likely have a material adverse effect on the Company's financial
condition and results of operations and cash flows. The Company has reached an
agreement in principle with some, but not all, of the plaintiffs for the
settlement of this action. The execution of the appropriate documentation to
evidence this settlement has been completed and both parties are awaiting court
approval which is set for late February 1998. The Company and Mr. Grafton
reached a settlement of Mr. Grafton's individual claims relating to his removal
as an officer and director of the Company. The terms of the settlement reached
between the Company and Mr. Grafton are confidential to both parties. The
Company accrued an amount in it's fiscal year ended 1996 and 1995 financial
statements which closely approximates the actual settlement.
In June 1995, the former stockholders of Med-Waste filed suit in James
H. Shepherd, et al v. 3CI Complete Compliance Corporation, et al, No. C.V.-95-
1441-1 in the Circuit Court of Hot Springs County, Arkansas, against the
Company and various current and former officers and directors of the Company.
Plaintiffs have alleged violations of federal and state securities laws, breach
of contract, common law fraud and negligence in connection with the acquisition
of Med-Waste by the Company and have demanded rescission, restitution,
unspecified actual damages and punitive damages of $10 million, plus attorney's
fees. The case was transferred to the United States District Court of the
Western District of Arkansas, Hot Springs Division and in November 1996 was
subsequently transferred to the United States District Court for the Western
District of Louisiana. The parties, other than Patrick Grafton, former Chief
F-32
<PAGE> 71
Executive Officer of the Company, have agreed to settle the suit in
consideration for the issuance by the Company to the plaintiffs of 250,000
shares of Common Stock and the payment by the Company to the plaintiffs of 20%
to 55% of the pre-tax profits, as defined, attributable to the assets
previously acquired from Med-Waste until such time as the shares of Common
Stock held by the plaintiffs become freely tradable and the market price of the
Common Stock averages at least $2.50 over a period of 42 consecutive days. In
addition, the Company and WSI have agreed to repurchase the shares of Common
Stock held by the plaintiffs for $2.50 per share in certain events, including
the bankruptcy of the Company or in the event WSI ceases to be the largest
beneficial holder of the Common Stock. The obligations of the Company to the
plaintiffs are secured by a security interest in most of the assets of the
Company, and WSI has agreed to subordinate its loans to the Company, and all
related security interests, to the obligations, and the related security
interests, of the Company to the plaintiffs. This matter has been settled by
the parties and was dismissed in its entirety on July 31, 1997, by order of the
court.
In connection with an auto accident in July 1996, two suits have been
filed against the Company. Ryan O'Neil Youmans & Anita Youmans v. American
3CI, et al, No. CV9604899, was filed in the Circuit Court of Jefferson County,
Alabama, in August 1996. Jimmy R. Whitfield & Rhonda Whitfield v. Paul
Bronger, American 3CI, et al. No. CV-96-847, was filed in the Circuit Court of
Shelby County, Alabama in November of 1996. These proceedings have been
settled by the Company's insurance carrier and the related expenditure to the
Company are reflected in the current year financial statements. The resolution
to these lawsuits did not a material effect on the Company's financial
condition, results of operations and cash flows.
On or about March 10, 1997, the Company commenced arbitration
proceedings before the American Arbitration Association in Houston, Texas,
against River Bay Corporation and Marlan Baucum seeking to set aside a Purchase
Agreement entered into between those parties on or about October 10, 1994,
together with ancillary agreements pertaining thereto. The company was seeking
damages and/or to set aside the Purchase Agreement and collateral agreements,
including a Put Option Agreement which, if otherwise enforceable, would require
the payment by the Company of approximately $1,700,000 for 565,500 shares of
3CI common stock. On or about May 10, 1997, the Company filed a Petition of
Arbitration in Suit No. 422,107 of the First Judicial District Court, Caddo
Parish, Louisiana, naming River Bay Corporation and Marlan Baucum as defendants
therein. This lawsuit seeks an injunction and stay of all judicial and extra-
judicial proceedings pursuant to the Put Agreement until such time as the
arbitration is completed. This action was removed by the defendants to the
U.S. District Court for the Western District of Louisiana, Shreveport Division
in Civil Action No. 97-0578.
In response, on April 9, 1997, Bank of Raleigh and Smith County Bank,
assignees of certain rights under the Purchase Agreement, commenced a complaint
for a declaratory and monetary relief in the U.S. District Court for the
Southern District of Mississippi, Jackson, Division in Civil Action No.
3:97cv249BN. The Bank of Raleigh and Smith County Bank have prayed declaratory
judgment declaring the arbitration provision in the Purchase Agreement to be
not binding upon the said banks, declaratory judgment declaring the claims of
3CI against River Bay to be subordinate to the claims of the banks, for
unspecified compensatory damages and for punitive damages for least $1,000,000.
The District Court has stayed this action as well, pending arbitration. In
this action the Bank of Raleigh and Smith County Bank proceeded to collect the
Company's accounts receivable in the River Bay division as it was used as
collateral in the Purchase Agreement, they collected approximately $463,000,
through October 14, 1997. The parties have agreed to settle the suit in
consideration for the Company to repurchase the remaining 565,500 shares of
common stock related to the put option. The outcome of this lawsuit will not
have a material adverse effect on the Company's financial position, result of
operations and net cash flows.
The Company is subject to certain other litigation and claims arising in
the ordinary course of business. In the opinion of management of the Company,
the amounts ultimately payable, if any, as a result of such litigation and
claims will not have a materially adverse effect on the Company's financial
position or results of operations.
The Company operates within the regulated medical waste disposal
industry which is subject to intense governmental regulation at the federal,
state and local levels. The Company believes it is currently in compliance in
all material respects with all applicable laws and regulations governing the
medical waste disposal business. However, continuing expenditures may be
required in order for the Company to remain in compliance with existing and
changing regulations. Furthermore, because the medical waste disposal industry
is predicated upon the existence of strict governmental regulation, any
material relaxation of regulatory requirements governing medical waste disposal
or of their enforcement could result in a reduced demand for the Company's
services and have a material adverse effect on the
F-33
<PAGE> 72
Company's revenues and financial condition. The scope and duration of existing
and future regulations affecting the medical waste disposal industry cannot be
anticipated and are subject to changing political and economic pressures.
F-34
<PAGE> 73
================================================================================
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OTHER
THAN THE SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, SUCH SECURITIES IN ANY
CIRCUMSTANCE IN WHICH SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary .................................................... 1
Summary Financial Information .............................. 3
Risk Factors ............................................... 4
Dividend Policy ............................................ 8
Use of Proceeds ............................................ 8
Price range of Common Stock ................................ 8
Capitalization ............................................. 9
Selected Financial Data .................................... 10
Management's Discussion and Analysis of
Financial Condition and Results of Operations ............ 11
Business ................................................... 17
Management ................................................. 26
Summary Compensation Table 27
Certain Transactions ....................................... 29
Principal and Selling Stockholders ......................... 31
Plan of Distribution ....................................... 32
Shares Eligible for Future Sale ............................ 33
Description of Capital Stock ............................... 34
Legal Matters .............................................. 35
Experts .................................................... 35
Available Information ...................................... 35
Index to Financial Statements .............................. F-1
</TABLE>
================================================================================
SHARES
3CI COMPLETE COMPLIANCE
CORPORATION
COMMON STOCK
--------------
PROSPECTUS
--------------
APRIL __, 1998
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee ....................................... $ 504
NASDAQ application and listing fees ........................ 7,500
Printing and engraving expenses ............................ 5,000
Legal fees and expenses .................................... 15,000
Blue Sky fees and expenses (including legal expenses) ...... 5,000
Accounting fees and expenses ............................... 10,000
Transfer agent and registrar fees and expenses ............. 500
Miscellaneous .............................................. 1,496
-------
Total ...................................................... $45,000
=======
</TABLE>
ITEM 14.
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law (the "DGCL") grants every corporation the
power to indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees) judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The DGCL also grants every corporation the power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue, or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
The DGCL provides that to the extent that a present or former director or
officer of a corporation has been successful on the merits or otherwise in
defense of any action, suit, or proceeding referred to in the statute, or in
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
The DGCL also provides that expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director
II-1
<PAGE> 75
or officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation as authorized in
this section
Article X of the Company's By-Laws requires the Company to indemnify its
directors, officers, employees and agents in accordance with the DGCL. Article X
of the Company's By-Laws also provides that the Company shall indemnify
directors, officers, employees and agents of the Company that are involved with
actions by or in the right of the Corporation, in accordance with the DGCL.
Expenses incurred in defending a civil or criminal action are to be paid in
advance, as permitted by the DGCL.
The Certificate of Incorporation of the Company, as amended (the "Certificate of
Incorporation"), provides that the personal liability of the Directors of the
Company is eliminated to the fullest extent permitted by the DGCL. The
Certificate of Incorporation also provides that to the fullest extent permitted
by provisions of the DGCL discussed above indemnify any and all persons the
Company has the power to indemnify under such section.
ITEM 15.
RECENT SALES OF UNREGISTERED SECURITIES.
In February 1996, the Company issued 83,334 shares to Richard McElhannon, 83,33
shares to James Shepherd and 83,33 shares to Michael Shepherd in connection with
the settlement of a lawsuit styled James H. Shepherd et al v. 3CI Complete
Compliance Corporation. Such shares were issued in reliance upon the exemption
from registration under Section 4(2) of the Securities Act.
In January 1996, the Company issued 94,556 shares to James Shepherd and 50,914
shares to Michael Shepherd in connection with the earnout provision of the
original settlement agreement. Such shares were issued in reliance upon
exemption from registration under Section 4(2) of the Securities Act.
On July 3, 1997, the Company issued 120,000 shares to Patrick Grafton in
connection with the settlement of Mr. Grafton's employment claims. Such shares
were issued in reliance upon exemption from registration under Section 4(2) of
the Securities Act.
On March 18, 1998, the Company issued 78,014 shares of Common Stock to Klein
Bank as escrow agent in connection with settlement of a lawsuit. Such shares
were issued in reliance upon the exemption from registration under Section
3(a)(10) of the Securities Act.
On March 18, 1998, the Company issued warrants to purchase 1,002,964 shares of
Common Stock in connection with the settlement of a lawsuit. Such warrants were
issued in reliance upon the exemption from registration under Section 3(a)(10)
of the Securities Act.
ITEM 16.
EXHIBITS.
The following is a list of all the exhibits filed as part of the Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER IDENTIFICATION OF EXHIBIT
-------- -------------------------
<S> <C>
2.1 -- Purchase Agreement and Plan of Reorganization dated February 4, 1994, among A/MED, Inc., 3CI Complete Compliance
Corporation and 3CI Acquisition Corp./A/MED (incorporated by reference to Exhibit 1.1 of 3CI's report on Form 8-K
filed February 7, 1994).
2.2 -- Purchase Agreement and Plan of Reorganization dated February 4, 1994, among A/MED, Inc., 3CI Complete Compliance
Corporation and 3CI Acquisition Corp./A/MED (incorporated by reference to Exhibit 1.2 of 3CI's report on Form 8-K
filed February 7, 1994).
2.3 -- Stock Purchase Agreement dated February 4, 1995, between Waste Systems, Inc. and 3CI Complete Compliance Corporation
(incorporated by reference to Exhibit 1.3 of 3CI's report on Form 8-K filed February 7, 1994).
</TABLE>
II-2
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT
NUMBER IDENTIFICATION OF EXHIBIT
-------- -------------------------
<S> <C>
2.4 -- Purchase Agreement dated October 10, 1994, among 3CI Complete Compliance Corporation, River Bay Corporation and
Marlan Baucum (incorporated by reference to Exhibit 1.1 of 3CI's report on Form 8-K filed October 27, 1994).
2.5 -- Addendum to Purchase Agreement dated October 12, 1994, among 3CI Complete Compliance Corporation, River Bay
Corporation and Marlan Baucum (incorporated by reference to Exhibit 1.2 of 3CI's report on Form 8-K filed October
27, 1994).
2.6 -- Assumption of Liabilities dated October 10, 1994, among 3CI Complete Compliance Corporation, 3CI Acquisition
Corp./A/MED, Marlan Baucum and River Bay Corporation. (incorporated by reference to Exhibit 1.11 of 3CI's report on
Form 8-k filed October 27, 1994).
2.7 -- Plan of Reorganization and Acquisition Agreement dated August 9, 1994, among the 3CI, Med-Waste Disposal Service,
Inc., Jim Shepherd, Mike Shepherd and Richard McElhannon (incorporated by reference to Exhibit 2.14 of 3CI's Annual
Report on Form 10-K for the fiscal year ended September 30, 1992).
3.1 -- Certificate of Incorporation as amended (incorporated by reference to Exhibit 3(a) of 3CI's registration statement
on Form S-1 (No. 33-45632) effective April 14, 1992).
3.2 -- Amendment to Certificate of Incorporation effective June 13, 1995 (incorporated by reference to Exhibit 3.1 of 3CI's
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995).
*3.3 -- Amendment to Certificate of Incorporation effective March 23, 1998.
3.4 -- Bylaws, as amended (incorporated by reference to Exhibit 3(b) of 3CI's registration statement on Form S-1 (No.
33-45632) effective April 14, 1992).
3.5 -- Bylaws effective May 14, 1995 (incorporated by reference to Exhibit 3.2 of 3CI's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1995).
*3.6 -- Certificate of Designations of the Company's Series A Preferred Stock without par value.
*3.7 -- Certificate of Designations of the Company's Series B Preferred Stock without par value.
*3.8 -- Certificate of Designations of the Company's Series C Preferred Stock without par value.
4.1 -- Representative Warrant Agreement dated as of April 14, 1992 (incorporated by reference to Exhibit 4(b) of 3CI's
registration statement on Form S-1 (No. 33-45632) effective April 14, 1992).
4.2 -- Put Option Agreement dated October 10, 1994, among 3CI Complete Compliance Corporation, River Bay Corporation and
Marlan Baucum (incorporated by reference to Exhibit 1.3 of 3CI's report on Form 8-K filed October 27, 1994).
4.3 -- Stock Pledge Agreement dated October 10, 1994, between 3CI Complete Compliance Corporation and River Bay Corporation
(incorporated by reference to Exhibit 1.4 of 3CI's report on Form 8-K filed October 27, 1994).
4.4 -- Stock Escrow and Pledge Agreement dated July 1994, among 3CI, Med-Waste Disposal Service, Inc., Jim Shepherd, Mike
Shepherd and Richard McElhannon (incorporated by reference to Exhibit 4.11 of 3CI's Annual Report on Form 10-K for
the fiscal year ended September 30, 1992).
4.5 -- Revolving Promissory Note dated September 30, 1995 in the principal amount of $8,000,000 between 3CI and WSI
(incorporated by reference to Exhibit 4.4 of the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995).
*4.6 -- Warrant dated March 18, 1998 issued to Klein Bank as escrow agent with respect to 1,002,964 shares of Common Stock.
*4.7 -- Escrow Agreement dated March 6, 1998 between the Company and Klein Bank as escrow agent.
*5.1 -- Opinion of Porter & Hedges, L.L.P. with respect to legality of securities.
</TABLE>
II-3
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT
NUMBER IDENTIFICATION OF EXHIBIT
-------- -------------------------
<S> <C>
10.1 -- Contract dated August 22, 1989 between 3CI and the City of Carthage, Texas, related to the incineration of medical
waste (incorporated by reference to Exhibit 10 of 3CI's registration statement on Form S-1 (No. 33-45632) effective
April 14, 1992).
10.2 -- Addendum dated March 30, 1992 to Contract between 3CI and the City of Carthage, Texas (incorporated by reference to
Exhibit 10 (p) of 3CI's registration statement on Form S-1 (No. 33-45632) effective April 14, 1992).
10.3 -- First Amendment dated July, 1993 to Contract between 3CI and City of Carthage, Texas (incorporated by reference to
Exhibit 10.3 of 3CI's Annual Report on Form 10-K for the fiscal year ended September 30, 1993).
10.4 -- 1992 Stock Option Plan of 3CI (incorporated by reference to Exhibit 10(m) of 3CI's registration statement on Form
S-1 (No. 33-45632) effective April 14, 1992).
10.5 -- Security Agreement dated October 10, 1994, among 3CI Complete Compliance Corporation, 3CI Acquisition Corp./A/MED
and River Bay (incorporated by reference to Exhibit 1.7 of 3CI's report on Form 8-K filed October 27, 1994).
10.6 -- Security Agreement dated October 10, 1994, between 3CI Complete Compliance Corporation and River Bay Corporation
(incorporated by reference to Exhibit 1.8 of 3CI's report on Form 8-K filed October 27, 1994).
10.7 -- Mortgage, Security Agreement, Assignment of Leases and Financing Statement dated October 10, 1994, among 3CI
Complete Compliance Corporation, 3CI Acquisition Corp., A/A/MED and River Bay Corporation (incorporated by reference
to Exhibit 1.9 of 3CI's report on Form 8-K filed October 27, 1994).
10.8 -- Debt Subordination Agreement dated October 10, 1994, among 3CI Complete Compliance Corporation, 3CI Acquisition
Corp./A/MED, River Bay Corporation, Marlan Baucum, Zeb Baucum, III, Diedra Baucum, The Smith County Bank and the
Bank of Raleigh (incorporated by reference to Exhibit 1.10 of 3CI's report on Form 8-K filed October 27, 1994).
*10.9 -- Employment Agreement dated August 31, 1995, between 3CI and Charles D. Crochet.
10.10 -- Modification of Purchase Transaction dated January 25, 1995, among 3CI, 3CI Acquisition Corp./A/MED, River Bay
Corporation and Marlan Baucum (incorporated by reference to Exhibit 10.21 of 3CI's Annual Report on Form 10-K for
the fiscal year ended September 30, 1995).
10.11 -- Settlement Agreement dated January 1996 between James Shepherd, Michael Shepherd and Richard T. McElhannon as
Releasors, and the Company, Georg Rethmann, Dr. Herrmann Niehues, Jurgen Thomas, Charles Crochet and Waste Systems,
Inc., as Releasees. Letter Re: Change in Certifying Accountant (incorporated by reference to Exhibit 16.2 of 3CI's
report on Form 8-K/A filed December 28, 1994).
*10.12 -- Exchange Agreement between 3CI Complete Compliance Corporation and Waste Systems, Inc. dated as of June 24, 1997.
*10.13 -- Stock Purchase and Note Modification Agreement between 3CI Complete Compliance Corporation and Waste Systems, Inc.
dated as of February 19, 1998.
23.1 -- Consent of Porter & Hedges, L.L.P. (included in Exhibit 5.1).
23.2 -- Consent of Heard, McElroy & Vestal, L.L.P.
23.3 -- Consent of Arthur Andersen LLP.
</TABLE>
- -----------------
* Filed herewith.
II-4
<PAGE> 78
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act 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 this registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement; provided, however, that subparagraphs (i) and (ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in the periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of
the Securities and Exchange Act of 1934 that are incorporated by
reference in this 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 herein, 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officer and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company 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 Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company 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 Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE> 79
SIGNATURE
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-1 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Shreveport, State of Louisiana on March 19, 1998.
3CI COMPLETE COMPLIANCE CORPORATION
By: /s/ CHARLES D. CROCHET
---------------------------------------
Charles D. Crochet, President
POWER OF ATTORNEY
We, the undersigned directors and officers of 3CI Complete Compliance
Corporation, do hereby constitute and appoint Charles D. Crochet and Curtis W.
Crane, or other of them, our true and lawful attorneys and agents, to do any and
all acts and things in our name and on our behalf in our capacities as directors
and officers, and to execute any and all instruments for us and in our names in
the capacities indicated below, which such attorneys and agents may deem
necessary or advisable to enable the corporation to comply with the Securities
Act of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with the filing of this
Registration Statement, including specifically without limitation power and
authority to sign for us or any of us, in our names in the capacities indicated
below, any and all amendments hereto; and we do hereby ratify and confirm all
that such attorneys and agents shall do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on March 19, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- ------
<S> /s/ DR. WERNER KOOK <C>
- -------------------------------- Chairman of the Board of Directors
Dr. Werner Kook
/s/ CHARLES D. CROCHET
- -------------------------------- President and Director
Charles D. Crochet
/s/ CURTIS W. CRANE
- -------------------------------- Chief Financial Officer, Secretary and
Curtis W. Crane Treasurer
/s/ DR. CLEMENS PUES
- -------------------------------- Vice President and Director
Dr. Clemens Pues
/s/ THOMAS JUERGEN
- -------------------------------- Director
Thomas Juergen
/s/ VALERIE L. BANNER
- -------------------------------- Director
Valerie L. Banner
/s/ DAVID SCHOONMAKER
- -------------------------------- Director
David Schoonmaker
</TABLE>
II-6
<PAGE> 80
INDEX TO EXHIBITS
The following is a list of all the exhibits filed as part of the
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER IDENTIFICATION OF EXHIBIT
-------- -------------------------
<S> <C>
2.1 -- Purchase Agreement and Plan of Reorganization dated February 4, 1994, among A/MED, Inc., 3CI Complete Compliance
Corporation and 3CI Acquisition Corp./A/MED (incorporated by reference to Exhibit 1.1 of 3CI's report on Form 8-K
filed February 7, 1994).
2.2 -- Purchase Agreement and Plan of Reorganization dated February 4, 1994, among A/MED, Inc., 3CI Complete Compliance
Corporation and 3CI Acquisition Corp./A/MED (incorporated by reference to Exhibit 1.2 of 3CI's report on Form 8-K
filed February 7, 1994).
2.3 -- Stock Purchase Agreement dated February 4, 1995, between Waste Systems, Inc. and 3CI Complete Compliance Corporation
(incorporated by reference to Exhibit 1.3 of 3CI's report on Form 8-K filed February 7, 1994).
2.4 -- Purchase Agreement dated October 10, 1994, among 3CI Complete Compliance Corporation, River Bay Corporation and
Marlan Baucum (incorporated by reference to Exhibit 1.1 of 3CI's report on Form 8-K filed October 27, 1994).
2.5 -- Addendum to Purchase Agreement dated October 12, 1994, among 3CI Complete Compliance Corporation, River Bay
Corporation and Marlan Baucum (incorporated by reference to Exhibit 1.2 of 3CI's report on Form 8-K filed October
27, 1994).
2.6 -- Assumption of Liabilities dated October 10, 1994, among 3CI Complete Compliance Corporation, 3CI Acquisition
Corp./A/MED, Marlan Baucum and River Bay Corporation. (incorporated by reference to Exhibit 1.11 of 3CI's report on
Form 8-k filed October 27, 1994).
2.7 -- Plan of Reorganization and Acquisition Agreement dated August 9, 1994, among the 3CI, Med-Waste Disposal Service,
Inc., Jim Shepherd, Mike Shepherd and Richard McElhannon (incorporated by reference to Exhibit 2.14 of 3CI's Annual
Report on Form 10-K for the fiscal year ended September 30, 1992).
3.1 -- Certificate of Incorporation as amended (incorporated by reference to Exhibit 3(a) of 3CI's registration statement
on Form S-1 (No. 33-45632) effective April 14, 1992).
3.2 -- Amendment to Certificate of Incorporation effective June 13, 1995 (incorporated by reference to Exhibit 3.1 of 3CI's
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1995).
*3.3 -- Amendment to Certificate of Incorporation effective March 23, 1998.
3.4 -- Bylaws, as amended (incorporated by reference to Exhibit 3(b) of 3CI's registration statement on Form S-1 (No.
33-45632) effective April 14, 1992).
3.5 -- Bylaws effective May 14, 1995 (incorporated by reference to Exhibit 3.2 of 3CI's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1995).
*3.6 -- Certificate of Designations of the Company's Series A Preferred Stock without par value.
*3.7 -- Certificate of Designations of the Company's Series B Preferred Stock without par value.
*3.8 -- Certificate of Designations of the Company's Series C Preferred Stock without par value.
4.1 -- Representative Warrant Agreement dated as of April 14, 1992 (incorporated by reference to Exhibit 4(b) of 3CI's
registration statement on Form S-1 (No. 33-45632) effective April 14, 1992).
4.2 -- Put Option Agreement dated October 10, 1994, among 3CI Complete Compliance Corporation, River Bay Corporation and
Marlan Baucum (incorporated by reference to Exhibit 1.3 of 3CI's report on Form 8-K filed October 27, 1994).
4.3 -- Stock Pledge Agreement dated October 10, 1994, between 3CI Complete Compliance Corporation and River Bay Corporation
(incorporated by reference to Exhibit 1.4 of 3CI's report on Form 8-K filed October 27, 1994).
</TABLE>
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NUMBER IDENTIFICATION OF EXHIBIT
-------- -------------------------
<S> <C>
4.4 -- Stock Escrow and Pledge Agreement dated July 1994, among 3CI, Med-Waste Disposal Service, Inc., Jim Shepherd, Mike
Shepherd and Richard McElhannon (incorporated by reference to Exhibit 4.11 of 3CI's Annual Report on Form 10-K for
the fiscal year ended September 30, 1992).
4.5 -- Revolving Promissory Note dated September 30, 1995 in the principal amount of $8,000,000 between 3CI and WSI
(incorporated by reference to Exhibit 4.4 of the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995).
*4.6 -- Warrant dated March 18, 1998 issued to Klein Bank as escrow agent with respect to 1,002,964 shares of Common Stock.
*4.7 -- Escrow Agreement dated March 6, 1998 between the Company and Klein Bank as escrow agent.
*5.1 -- Opinion of Porter & Hedges, L.L.P. with respect to legality of securities.
10.1 -- Contract dated August 22, 1989 between 3CI and the City of Carthage, Texas, related to the incineration of medical
waste (incorporated by reference to Exhibit 10 of 3CI's registration statement on Form S-1 (No. 33-45632) effective
April 14, 1992).
10.2 -- Addendum dated March 30, 1992 to Contract between 3CI and the City of Carthage, Texas (incorporated by reference to
Exhibit 10 (p) of 3CI's registration statement on Form S-1 (No. 33-45632) effective April 14, 1992).
10.3 -- First Amendment dated July, 1993 to Contract between 3CI and City of Carthage, Texas (incorporated by reference to
Exhibit 10.3 of 3CI's Annual Report on Form 10-K for the fiscal year ended September 30, 1993).
10.4 -- 1992 Stock Option Plan of 3CI (incorporated by reference to Exhibit 10(m) of 3CI's registration statement on Form
S-1 (No. 33-45632) effective April 14, 1992).
10.5 -- Security Agreement dated October 10, 1994, among 3CI Complete Compliance Corporation, 3CI Acquisition Corp./A/MED
and River Bay (incorporated by reference to Exhibit 1.7 of 3CI's report on Form 8-K filed October 27, 1994).
10.6 -- Security Agreement dated October 10, 1994, between 3CI Complete Compliance Corporation and River Bay Corporation
(incorporated by reference to Exhibit 1.8 of 3CI's report on Form 8-K filed October 27, 1994).
10.7 -- Mortgage, Security Agreement, Assignment of Leases and Financing Statement dated October 10, 1994, among 3CI
Complete Compliance Corporation, 3CI Acquisition Corp., A/A/MED and River Bay Corporation (incorporated by reference
to Exhibit 1.9 of 3CI's report on Form 8-K filed October 27, 1994).
10.8 -- Debt Subordination Agreement dated October 10, 1994, among 3CI Complete Compliance Corporation, 3CI Acquisition
Corp./A/MED, River Bay Corporation, Marlan Baucum, Zeb Baucum, III, Diedra Baucum, The Smith County Bank and the
Bank of Raleigh (incorporated by reference to Exhibit 1.10 of 3CI's report on Form 8-K filed October 27, 1994).
*10.9 -- Employment Agreement dated August 31, 1995, between 3CI and Charles D. Crochet.
10.10 -- Modification of Purchase Transaction dated January 25, 1995, among 3CI, 3CI Acquisition Corp./A/MED, River Bay
Corporation and Marlan Baucum (incorporated by reference to Exhibit 10.21 of 3CI's Annual Report on Form 10-K for
the fiscal year ended September 30, 1995).
10.11 -- Settlement Agreement dated January 1996 between James Shepherd, Michael Shepherd and Richard T. McElhannon as
Releasors, and the Company, Georg Rethmann, Dr. Herrmann Niehues, Jurgen Thomas, Charles Crochet and Waste Systems,
Inc., as Releasees. Letter Re: Change in Certifying Accountant (incorporated by reference to Exhibit 16.2 of 3CI's
report on Form 8-K/A filed December 28, 1994).
*10.12 -- Exchange Agreement between 3CI Complete Compliance Corporation and Waste Systems, Inc. dated as of June 24, 1997.
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER IDENTIFICATION OF EXHIBIT
-------- -------------------------
<S> <C>
*10.13 -- Stock Purchase and Note Modification Agreement between 3CI Complete Compliance Corporation and Waste Systems, Inc.
dated as of February 19, 1998.
23.1 -- Consent of Porter & Hedges, L.L.P. (included in Exhibit 5.1).
23.2 -- Consent of Heard, McElroy & Vestal, L.L.P.
23.3 -- Consent of Arthur Andersen LLP.
</TABLE>
- -----------------
* Filed herewith.
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
T0
CERTIFICATE OF INCORPORATION
OF
3CI COMPLETE COMPLIANCE CORPORATION
3CI Complete Compliance Corporation (the "Corporation"), a corporation
organized and existing under and by virtue of the Delaware General Corporation
Law (the "DGCL"), does hereby certify:
FIRST: That the Board of Directors of the Corporation, by unanimous
written consent pursuant to Section 141(f) of the DGCL, duly adopted
resolutions setting forth a proposed amendment to the Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation"),
declaring such amendment to be advisable and calling a meeting of the
shareholders of the Corporation for consideration thereof. The amendment
adopted provides as follows:
That Article 4 of the Certificate of Incorporation shall be amended to
read in its entirety as follows:
"4. The total number of shares of stock which the corporation shall
have authority to issue is 56,500,000 shares, of which 40,450,000
shares shall be common stock, per value $.01 per share, and 16,050,000
of which shares shall be preferred stock, without par value. The
designations, rights, preferences, privileges and voting powers of the
preferred stock, and any restrictions and qualifications thereof,
shall be determined by the Board of Directors."
SECOND: That such amendment was duly adopted in accordance with the
provisions of Sections 228 and 242 of the Delaware General Corporation Law.
THIRD: This Certificate of Amendment shall become effective upon the
filing hereof in the Office of the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be duly executed by its President and attested to by its Secretary
as of ______________________, 1998.
ATTEST: 3CI COMPLETE COMPLIANCE CORPORATION
BY: /s/ CURTIS W. CRANE BY: /s/ CHARLES D. CROCHET
---------------------------- ---------------------------------
Name: Curtis W. Crane Name: Charles D. Crochet
Secretary President
<PAGE> 1
EXHIBIT 3.6
3CI COMPLETE COMPLIANCE CORPORATION
CERTIFICATE OF DESIGNATIONS
OF
SERIES A PREFERRED STOCK
We, Charles D. Crochet and Curtis W. Crane, the President and
Secretary, respectively, of 3CI Complete Compliance Corporation, a Delaware
corporation (the "Corporation") do hereby certify that the following resolution
of the Board of Directors of the Corporation has been duly adopted in
accordance with authority expressly accorded to the Board of Directors by
Article 4 of the Certificate of Incorporation, as amended, of the Corporation
(the "Certificate of Incorporation"), and in accordance with the provisions of
Section 151 of the Delaware General Corporation Law:
RESOLVED, that the Board of Directors of the Corporation, pursuant to
authority expressly vested in it by the provisions of the Certificate of
Incorporation of the Corporation, hereby establishes a series of preferred
stock of the Corporation, authorizes the issuance thereof, and hereby fixes the
designations, rights, preferences, privileges and voting powers, in addition to
those set forth in the Certificate of Incorporation, as follows:
1. Designation of Series. One million shares of the preferred
stock, without par value, of the Corporation shall constitute a series of
preferred stock designated as Series A Preferred Stock (the "Series A Preferred
Stock") with the designations, rights, preferences, privileges and voting
powers set forth below:
2. Dividends.
(a) The holders of Series A Preferred Stock shall not be
entitled to receive any fixed dividends and shall be entitled to
receive such cash dividends as may be declared from time to time by
the Board of Directors in its discretion, from any assets legally
available for the payment of dividends; however, for so long as any
shares of Series A Preferred Stock shall be outstanding, without the
written consent of the holders of a majority in interest of the Series
A Preferred Stock, the Corporation shall not (i) purchase or redeem
any shares of its common stock, par value $.01 per share ("Common
Stock"), or (ii) declare, pay or set apart for any payment any
dividend on its Common Stock. Notwithstanding the foregoing, the
holders of shares of Series A Preferred Stock shall be entitled to
receive, when, and if declared by the Corporation's Board of Directors
out of assets of the Corporation legally available for such payment,
cumulative dividends from the second anniversary of the original
issuance date of the Series A Preferred Stock, at the rate of $.5775
per share per annum, and no more, payable quarterly on the 15th day of
July, October, January and April of each year, commencing with a
payment on July 15, 1999, accrued from the second anniversary of the
original issuance date of the Series A Preferred Stock. Such dividends
shall be cumulative
<PAGE> 2
from the second anniversary of the original issuance date of the
Series A Preferred Stock. Accruals of dividends shall not bear
interest.
(b) Before any dividends (other than dividends payable in
capital stock ranking junior to the Series A Preferred Stock both as
to dividends and upon liquidation) on, or any distribution in respect
of, any class or classes of stock of the Corporation ranking junior to
the Series A Preferred Stock as to dividends or upon liquidation,
shall be declared or paid or set apart for payment, and before any
purchase or redemption of any such stock, the holders of Series A
Preferred Stock shall have received payment in full of all dividends,
if any, in arrears on the Series A Preferred Stock. No dividend shall
be declared on any series of preferred stock ranking on a parity with
the Series A Preferred Stock as to dividends unless there shall
likewise be or have been declared on the shares of Series A Preferred
Stock at the time outstanding a dividend of like kind for all
dividends periods coinciding with or ending before such dividend
period, ratably in proportion to the respective annual dividend rates
per annum fixed therefor as herein or in the Certificate of
Incorporation provided.
3. Redemption. The Series A Preferred Stock shall be subject to
redemption by the Corporation as follows:
(a) The shares of Series A Preferred Stock may be redeemed
at any time on or after the second anniversary of the original
issuance date of the Series A Preferred Stock at the option of the
Corporation in whole or, from time to time, in part, in any such case
at a per share redemption price equal to $7.00, plus accrued
dividends, if any.
(b) Notice of every redemption of Series A Preferred
Stock shall be given by mailing notice not less than 30 days before
the date fixed for such redemption to each holder of record of shares
of Series A Preferred Stock so to be redeemed, and shall be
sufficiently given if the Corporation shall cause a copy thereof to be
mailed to such holders of record at their respective addresses as the
same shall appear on the books of the Corporation, by first class
mail, postage prepaid; provided, however, that the failure to mail such
notice to one or more of such holders shall not affect the validity of
such redemption as to the other holders.
(c) In case of redemption of only a part of the Series A
Preferred Stock at the time outstanding, the shares to be redeemed
shall be selected by lot.
(d) If any notice of redemption shall have been duly
given or if the Corporation shall have granted to a bank or trust
company irrevocable written authorization promptly to give or complete
such notice, and if, on or before the redemption date specified
therein, all funds necessary for such redemption shall have been
deposited by the Corporation with the bank or trust company designated
in such notice, in trust for the pro rata benefit of the holders of
the shares so called for redemption, then, notwithstanding that any
certificate for shares so called for redemption shall not have been
surrendered for cancellation, from and after the time of such deposit
(or from and after the redemption date if such notice shall fail to
state that the holders of the shares so called for redemption may
receive their redemption price at any time after such deposit) all
shares with respect to which such deposit shall have
2
<PAGE> 3
been made shall no longer be deemed to be outstanding, and all rights
with respect to such shares forthwith shall cease and terminate,
except only the right of the holders of the certificates therefor,
upon surrender thereof, to receive the redemption price thereof out of
the funds so deposited, without interest, and the right to exercise,
on or before the close of business on the date fixed for redemption,
any privileges of conversion applicable to the Series A Preferred
Stock. Any interest accrued on such funds shall be paid to the
Corporation from time to time.
(e) All funds so set aside or deposited, as the case may
be, and unclaimed at the end of one year from such redemption date
shall be released or repaid to the Corporation, after which the
holders of the shares so called for redemption shall look only to the
Corporation for the payment thereof; provided, however, that any funds
set aside or deposited which shall not be required for redemption
because of the exercise of any privilege of conversion after the date
of setting aside or deposit, as the case may be, shall be released or
repaid to the Corporation immediately after such exercise.
(f) Any shares of the Series A Preferred Stock redeemed,
purchased or otherwise acquired by the Corporation or into Common
Stock shall be deemed retired and shall be canceled and may not under
any circumstances thereafter be reissued or otherwise disposed of by
the Corporation, and the Corporation shall from time to time and at
least once each year cause all such shares to be retired in the manner
provided by law.
4. Conversion of Series A Preferred Stock.
(a) The Series A Preferred Stock shall be convertible at
the option of the record holder thereof, at any time after the second
anniversary of the original issuance thereof, in whole, or from time
to time in part, in the manner hereinafter provided, into Common
Stock. Except as otherwise specifically provided herein, no payment or
adjustment shall be made upon such conversion for dividends on any
shares of Series A Preferred Stock which shall be converted or for the
declaration or payment of any dividend on or other distribution in
respect of any shares of Common Stock issuable upon such conversion.
(b) The Series A Preferred Stock may be converted at any
time on or after the second anniversary of the original issuance
thereof into full shares of Common Stock of the Corporation based on a
Conversion Rate (defined below) of Series A Preferred Stock to Common
Stock equal to $7.00 divided by the Market Price (defined below) of
the Common Stock on the date of the related Conversion Notice (defined
below) (the conversion rate from time to time in effect being
hereinafter referred to as the "Conversion Rate"); provided, however,
that the Conversion Rate of Series A Preferred Stock to Common Stock
shall never be greater than 1 to 7 (i.e., all 1,000,000 shares of
Series A Preferred Stock shall be convertible into an aggregate of no
more than 7,000,000 shares of Common Stock); and provided further that
the Conversion Rate of Series A Preferred Stock to Common Stock shall
never be less than 7 to 1 (i.e., all 1,000,000 shares of Series A
Preferred Stock shall be convertible into no fewer than an aggregate
of 1,000,000 shares of Common Stock), subject to such adjustments, if
any, of the Conversion Rate and the securities or other property
3
<PAGE> 4
issuable upon such conversion pursuant to the provisions of
subparagraph (f) hereof. If at any time shares of Series A Preferred
Stock are presented for conversion, the Company does not have
sufficient shares of Common Stock authorized for issuance upon
conversion thereof, then the converting holder shall receive the
maximum number of shares of Common Stock available for issuance by the
Company upon such conversion, and with respect to the remaining shares
of Series A Preferred Stock that the Company is unable to convert to
Common Stock, the converting holder shall receive a note of the
Company (a "Conversion Note") in a principal amount equal to the
number of shares of Series A Preferred Stock that remains unconverted
times $7.00, such Conversion Note to bear interest at the rate of
8.25% per annum, with such interest to be cumulative from the date of
original issuance of the Series A Preferred Stock. If more than one
holder of Series A Preferred Stock presents shares of Series A
Preferred Stock for conversion, and the Company does not have
sufficient shares of Common Stock authorized for issuance upon such
conversion, then the number of shares of Common Stock issuable to each
such converting holder shall be allocated pro rata among all
converting holders based on the number of shares of Series A Preferred
Stock presented for conversion, and each such converting holder shall
receive a Conversion Note in the principal amount determined as
provided in this paragraph (b).
(c) To convert Series A Preferred Stock into Common
Stock, a holder of Series A Preferred Stock shall send to the
Secretary of the Company a dated notice (a "Conversion Notice")
setting for the number of shares of Series A Preferred Stock to be
converted, along with the certificate representing the Series A
Preferred Stock to be converted. Upon receipt of a Conversion Notice
and the surrendered certificate representing the Series A Preferred
Stock to be converted into Common Stock, the Corporation shall cause a
certificate representing the Common Stock issued pursuant to such
conversion (and, if applicable, a Conversion Note, in the principal
amount determined as set forth in paragraph (b) above) to be delivered
to the converting holder, along with a certificate representing any
shares of Series A Preferred Stock that were not converted into Common
Stock.
(d) All shares of Series A Preferred Stock that have not
been redeemed or converted into Common Stock on or before the fifth
anniversary of the original issuance of the Series A Preferred Stock
shall automatically, without further action of the Company or any
holder of Series A Preferred Stock, be converted into Common Stock
based on the Conversion Rate then in effect. Upon such automatic
conversion, the Company shall send a notice to each record holder of
Series A Preferred Stock that such shares of Series A Preferred Stock
have been converted into Common Stock, along with appropriate
instructions for the surrender of certificates representing Series A
Preferred Stock in exchange for certificates representing the Common
Stock into which such Series A Preferred Stock has been converted.
Upon automatic conversion of Series A Preferred Stock pursuant to this
paragraph, the shares of Series A Preferred Stock shall no longer be
considered outstanding, and the certificates representing such Series
A Preferred Stock shall be void for all purposes except for the
purpose of surrender to the Company in exchange for the certificates
representing the Common Stock into which such Series A Preferred Stock
was converted.
4
<PAGE> 5
(e) Market Price means (i) the closing sale price on the
date of a Conversion Notice of a share of Common Stock as reported on
the principal securities exchange on which the shares of Common Stock
are then listed or admitted to trading or (ii) if not so listed, the
average of the closing bid and ask prices for a share of Common Stock
on that date as quoted on the Nasdaq National Market System or Nasdaq
Small-Cap Market or (iii) if not quoted on Nasdaq, the average of
closing bid and ask prices for a share of Common Stock as quoted by
the National Quotations Bureau's pink sheets or the National
Association of Securities Dealer's OTC Bulletin Board System. If the
price of a share of Common Stock shall not be so quoted, "Market
Price" shall mean the fair market value of a share of Common Stock as
the holders of the Series A Preferred Stock of the Corporation shall
mutually agree or, in the absence of such an agreement, as determined
by an investment banking firm, with expertise in the Corporation's
area of business, selected by the holders of the Series A Preferred
Stock and approved by the Corporation, such approval not to be
unreasonably withheld.
(f) The Conversion Rate shall be subject to the following
adjustments:
(i) While any shares of Series A Preferred Stock
are outstanding, in case the Corporation shall subdivide the
outstanding shares of Common Stock into a greater number of
shares of Common Stock or combine the outstanding shares of
Common Stock into a smaller number of shares of Common Stock,
the Conversion Rate in effect immediately before such
subdivision or combination, as the case may be, shall be
proportionately increased or decreased (adjusted to the
nearest, or if there shall be no nearest, then to the next
lower, thousandth of a share of Common Stock), as the case may
require, such increase or decrease, as the case may be, to
become effective at the opening of business on the day
following the day upon which such subdivision or combination
becomes effective.
(ii) No adjustment of the Conversion Rate shall be
made by reason of the issuance of shares of Common Stock in
exchange for cash, property, or services.
(iii) In case of any reclassification or change of
outstanding shares of Common Stock, or in case of any
consolidation or merger of the Corporation with or into
another corporation, or in case of any sale or conveyance to
another corporation of all or substantially all of the
property of the Corporation, each holder of shares of the
Series A Preferred Stock then outstanding shall have the right
thereafter, so long as his conversion right hereunder shall
exist, to convert such shares into the kind and number or
amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation,
merger, sale or conveyance, by a holder of the number of
shares of Common Stock of the Corporation into which such
shares of the Series A Preferred Stock might have been
converted immediately before such reclassification, change,
consolidation, merger, sale, or conveyance, and shall have no
other conversion rights under these provisions; provided, that
effective provision shall be made, in the articles or
certificate of incorporation of the resulting or surviving
corporation or otherwise, so that the
5
<PAGE> 6
provisions set forth herein for the protection of the
conversion rights of the Series A Preferred Stock shall
thereafter be applicable, as nearly as reasonably may be, to
any such other shares of stock and other securities and
property deliverable upon conversion of the Series A Preferred
Stock remaining outstanding or other convertible preferred
stock received by the holders in place thereof; and provided,
further, that any such resulting or surviving corporation
shall expressly assume the obligation to deliver, upon the
exercise of the conversion privilege, such shares, securities
or property as the holders of the Series A Preferred Stock
remaining outstanding, or other convertible preferred stock
received by the holders in place thereof, shall be entitled to
receive pursuant to the provisions hereof, and to make
provisions for the protection of the conversion right as above
provided. The subdivision or combination of shares of Common
Stock at any time outstanding into a greater or lesser number
of shares of Common Stock (whether with or without par value)
shall not be deemed to be a reclassification of the shares of
Common Stock of the Corporation for the purposes of this
subparagraph (iii).
(g) No fraction of a share of Common Stock shall be
issued upon any conversion, but, in lieu thereof, there shall be paid,
to the holder of shares of Series A Preferred Stock surrendered for
conversion as soon as practicable after the date such shares of Series
A Preferred Stock are surrendered for conversion, an amount in cash
equal to the same fraction of the market value of a full share of
Common Stock as shall be determined, in good faith by the board of
directors of the Corporation.
5. Dissolution. In the event of the dissolution, liquidation or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
or in the event of its insolvency, the assets of the Corporation shall be
distributed among the holders of its capital stock in accordance with the
following schedule of priorities and preferences:
(a) There shall be paid to the holders of the Series A
Preferred Stock an amount equal to that which would have been payable
pursuant to Section 3(a) if the Series A Preferred Stock had been
redeemed on the date of such payment before any distribution of assets
or payment shall be made to the holders of any other class of capital
stock of the Corporation. If the assets of the Corporation available
for distribution to the holders of Series A Preferred Stock shall be
insufficient to permit payment to the holders of the Series A
Preferred Stock of the full amount or amounts aforesaid, then the
entire assets of the Corporation shall be distributed ratably among
the holders of the Series A Preferred Stock then outstanding according
to the number of shares held by each.
(b) After the amounts provided by subparagraph (a) above
have been paid or distributed, any assets remaining shall be paid to
or distributed among the holders of Common Stock pro rata on a
per-share basis.
(c) Neither the consolidation, nor merger of the
Corporation into or with another corporation or corporations, nor the
merger or consolidation of another corporation or corporations with or
into the Corporation, nor a reorganization of the Corporation, nor the
6
<PAGE> 7
purchase or redemption of all or part of the outstanding shares of any
class or classes of the stock of the Corporation, nor a sale or
transfer of the property and business of the Corporation as, or
substantially as, an entity, shall be deemed a liquidation,
dissolution, or winding up of the affairs of the Corporation, within
the meaning of any of the provisions of this Section 5.
6. Voting Rights.
(a) Generally. Except as otherwise required by law or
expressly provided for herein, the holders of Series A Preferred Stock shall
have no voting rights.
(i) Defaults on Series A Preferred Stock. If and
when the Corporation shall be in default in the payment of dividends on
the Series A Preferred Stock, and such default continues for a period
of two fiscal quarters, then the holders of the outstanding shares of
Series A Preferred Stock, voting separately as a single class, shall
become entitled to elect two directors of the Corporation, such
additional directors to serve in addition to the directors then in
office. Such right to elect additional directors may be exercised (A)
by action taken by the written consent of the holders of a majority of
the shares of Series A Preferred Stock then outstanding, (B) at any
annual meeting of stockholders or (C) within the limitations
hereinafter provided, at a special meeting of stockholders held for
such purpose. If such default shall occur more than two fiscal quarters
preceding the date of the next annual meeting of stockholders as fixed
by the Bylaws of the Corporation, then a special meeting of
the holders of the Series A Preferred Stock may, and upon the written
request of the holders of not less than one-fourth of the number of
shares of Series A Preferred Stock then outstanding, addressed to the
Secretary of the Corporation, shall, be called by the Secretary of the
Corporation, such meeting to be held within 60 days after such call and
within 60 days after the delivery to the Secretary of such request.
Such additional directors, whether elected by written consent or at an
annual or a special meeting, shall serve until the next annual meeting
and until their successors shall be duly elected and qualified, unless
their term shall sooner terminate pursuant to the provisions of this
subparagraph. At any meeting for the purpose of electing such
additional directors, the holders of a majority of the shares of Series
A Preferred Stock then outstanding shall constitute a quorum, and any
such meeting shall be valid notwithstanding that a quorum of the
outstanding shares of any other class or classes shall be present, the
number of directors constituting the whole board of directors shall be
deemed to be increased by a number sufficient to carry out the
provisions of this subparagraph. If a vacancy shall occur in the board
of directors by reason of the death, resignation, or inability to act
of any such additional director, such vacancy shall be filled only by
vote of the holders of the outstanding shares of Series A Preferred
Stock, voting separately as a single class, acting by written consent
or at any annual meeting or at a special meeting of the holders of
shares of the Series A Preferred Stock requested, called and held in
the same manner as the special meeting hereinabove referred to.
Whenever a default in the Corporation's obligations to pay dividends on
the Series A Preferred Stock has been cured by the Corporation, then
the right of the holders of the Series A Preferred Stock to elect
directors shall thereupon cease, and, if any such additional directors
were elected by the holders of shares of Series A Preferred Stock,
voting separately as a class, the term of
7
<PAGE> 8
such directors shall then terminate, and the number of directors
constituting the whole board of directors shall be reduced by the
number of such terminated directors. The above provisions for the
vesting of such voting rights in the holders of Series A Preferred
Stock shall apply, however, in case of any subsequent default under
this subparagraph.
7. Exclusion of Other Rights. Except as otherwise required by
law, the shares of Series A Preferred Stock shall not have any preferences or
relative participating, optional or other special rights except as specifically
set forth herein. No shares of any class of the corporation's capital stock
shall have more preemptive or subscription rights.
IN WITNESS WHEREOF, this Certificate of Designation has been signed by
Charles D. Crochet and Curtis W. Crane, the President and the Secretary,
respectively, of the Corporation, as of the 24th day of June, 1997.
3CI COMPLETE COMPLIANCE CORPORATION
By: /s/ CHARLES D. CROCHET
-------------------------------------
Charles D. Crochet, President
ATTEST:
/s/ CURTIS W. CRANE
- ------------------------------
Curtis W. Crane, Secretary
8
<PAGE> 1
EXHIBIT 3.7
EXHIBIT 2
3CI COMPLETE COMPLIANCE CORPORATION
CERTIFICATE OF DESIGNATIONS
OF
SERIES B PREFERRED STOCK
We, Charles D. Crochet and Curtis W. Crane, the President and
Secretary, respectively, of 3CI Complete Compliance Corporation, a Delaware
corporation (the "Corporation") do hereby certify that the following resolution
of the Board of Directors of the Corporation has been duly adopted in
accordance with authority expressly accorded to the Board of Directors by
Article 4 of the Certificate of Incorporation, as amended, of the Corporation
(the "Certificate of Incorporation"), and in accordance with the provisions of
Section 151 of the Delaware General Corporation Law:
Resolved that the Board of Directors of the Corporation, pursuant to
authority expressly vested in it by the provisions of the Certificate of
Incorporation of the Corporation, hereby establishes a series of preferred
stock of the Corporation, authorizes the issuance thereof, and hereby fixes the
designations, rights, preferences, privileges and voting powers, in addition to
those set forth in the Certificate of Incorporation, as follows:
1. Designation of Series. Seven million shares of the preferred
stock, without par value, of the Corporation shall constitute a series of
preferred stock designated as Series B Preferred Stock (the "Series B Preferred
Stock") with the designations, rights, preferences, privileges and voting
powers set forth below:
2. Dividends.
(a) The foregoing, the holders of shares of Series B
Preferred Stock shall be entitled to receive, when, and if declared by
the Corporation's Board of Directors out of assets of the Corporation
legally available for such payment, cumulative dividends from the
second anniversary of the original issuance date of the Series B
Preferred Stock, at the rate of $.0825 per share per annum, and no
more, payable quarterly on the 15th day of July, October, January and
April of each year, commencing with a payment on July 15, 1999, of
dividends accrued from the second anniversary of the original issuance
date of the Series B Preferred Stock. Such dividends shall be
cumulative from the second anniversary of the original issuance date
of the Series B Preferred Stock. Accruals of dividends shall not bear
interest. For so long as any shares of Series B Preferred Stock shall
be outstanding, without the written consent of the holders of a
majority in interest of the Series B Preferred Stock, the Corporation
shall not (i) purchase or redeem any shares of its common stock, par
value $.01 per share ("Common Stock"), or (ii) declare, pay or set
apart for any payment any dividend on its Common Stock.
(b) Before any dividends (other than dividends payable in
capital stock ranking junior to the Series B Preferred Stock both as
to dividends and upon liquidation) on, or any distribution in respect
of, any class or classes of stock of the Corporation ranking junior to
the Series B Preferred Stock as to dividends or upon liquidation,
shall be declared or paid or
<PAGE> 2
set apart for payment, and before any purchase or redemption of any
such stock, the holders of Series B Preferred Stock shall have
received payment in full of all dividends, if any, in arrears on the
Series B Preferred Stock. No dividend shall be declared on any series
of preferred stock ranking on a parity with the Series B Preferred
Stock as to dividends unless there shall likewise be or have been
declared on the shares of Series B Preferred Stock at the time
outstanding a dividend of like kind for all dividends periods
coinciding with or ending before such dividend period, ratably in
proportion to the respective annual dividend rates per annum fixed
therefor as herein or in the Certificate of Incorporation provided.
3. Redemption. The Series B Preferred Stock shall be subject to
redemption by the Corporation as follows:
(a) The shares of Series B Preferred Stock may be
redeemed at any time on or after the second anniversary of the
original issuance date of the Series B Preferred Stock at the option
of the Corporation in whole or, from time to time, in part, in any
such case at a per share redemption price equal to $1.00, plus accrued
dividends, if any.
(b) Notice of every redemption of Series B Preferred
Stock shall be given by mailing notice not less than 30 days before
the date fixed for such redemption to each holder of record of shares
of Series B Preferred Stock so to be redeemed, and shall be
sufficiently given if the Corporation shall cause a copy thereof to be
mailed to such holders of record at their respective addresses as the
same shall appear on the books of the Corporation, by first class
mail, postage prepaid; provided, however, that the failure to mail
such notice to one or more such holders shall not affect the validity
of such redemption as to the other holders.
(c) In case of redemption of only a part of the Series B
Preferred Stock at the time outstanding, the shares to be redeemed
shall be selected by lot.
(d) If any notice of redemption shall have been duly
given or if the Corporation shall have granted to a bank or trust
company irrevocable written authorization promptly to give or complete
such notice, and if, on or before the redemption date specified
therein, all funds necessary for such redemption shall have been
deposited by the Corporation with the bank or trust company designated
in such notice, in trust for the pro rata benefit of the holders of
the shares so called for redemption, then, notwithstanding that any
certificate for shares so called for redemption shall not have been
surrendered for cancellation, from and after the time of such deposit
(or from and after the redemption date if such notice shall fail to
state that the holders of the shares so called for redemption may
receive their redemption price at any time after such deposit) all
shares with respect to which such deposit shall have been made shall
no longer be deemed to be outstanding, and all rights with respect to
such shares forthwith shall cease and terminate, except only the right
of the holders of the certificates therefor, upon surrender thereof,
to receive the redemption price thereof out of the funds so deposited,
without interest, and the right to exercise, on or before the close of
business on the date fixed for redemption, any privileges of
conversion applicable to the Series B Preferred Stock. Any interest
accrued on such funds shall be paid to the Corporation from time to
time.
Page 2 of 7
<PAGE> 3
(e) All funds so set aside or deposited, as the case may
be, and unclaimed at the end of one year from such redemption date
shall be released or repaid to the Corporation, after which the
holders of the shares so called for redemption shall look only to the
Corporation for the payment thereof; provided, however, that any funds
set aside or deposited which shall not be required for redemption
because of the exercise of any privilege of conversion after the date
of setting aside or deposit, as the case may be, shall be released or
repaid to the Corporation immediately after such exercise.
(f) Any shares of the Series B Preferred Stock redeemed,
purchased or otherwise acquired by the Corporation or converted into
Common Stock shall be deemed retired and shall be canceled and may not
under any circumstances thereafter be reissued or otherwise disposed
of by the Corporation.
4. Conversion of Series B Preferred Stock.
(a) The Series B Preferred Stock shall be convertible at
the option of the record holder thereof, at any time after the second
anniversary of the original issuance thereof, in whole, or from time
to time in part, in the manner hereinafter provided, into Common Stock.
Except as otherwise specifically provided herein, no payment or
adjustment shall be made upon such conversion for dividends on any
shares of Series B Preferred Stock which shall be converted or for the
declaration or payment of any dividend on or other distribution in
respect of any shares of Common Stock issuable upon such conversion.
(b) The Series B Preferred Stock may be converted at any
time on or after the second anniversary of the original issuance
thereof, in whole but not in part, into full shares of Common Stock of
the Corporation with a Market Price (defined below) of $7,000,000
based on a Conversion Rate (the "Conversion Rate") determined by (i)
dividing $7,000,000 by the Market Price of the Common Stock on the
date of the related Conversion Notice (defined below), (ii) plus an
amount of cash determined by subtracting the quotient calculated in
(i) and subtracting from $7,000,000; provided however, that at the
option of the holder, the holder may convert the Series B Preferred
Stock into solely that number of shares of Common Stock determined as
provided in (i), and forego obtaining the additional Common Stock
issuable as calculated in (ii), subject to such adjustments, if any,
of the Conversion Rate and the securities or other property issuable
upon such conversion pursuant to the provisions of subparagraph (f)
hereof.
(c) To convert Series B Preferred Stock into Common
Stock, a holder of Series B Preferred Stock shall send to the
Secretary of the Company a dated notice (a "Conversion Notice")
setting for the number of shares of Series B Preferred Stock to be
converted, along with the certificate representing the Series B
Preferred Stock to be converted. Upon receipt of a Conversion Notice
and the surrendered certificate representing the Series B Preferred
Stock to be converted into Common Stock, the Corporation shall cause a
certificate representing the Common Stock issued pursuant to such
conversion to be delivered to the
Page 3 of 7
<PAGE> 4
converting holder, along with a certificate representing any shares of
Series B Preferred Stock that were not converted into Common Stock.
(d) All shares of Series B Preferred Stock that have not
been redeemed or converted into Common Stock on or before the fifth
anniversary of the original issuance of the Series B Preferred Stock
shall automatically without further action of the Company or any holder
of Series B Preferred Stock, be converted into Common Stock based on
the Conversion Rate then in effect. Upon such automatic conversion, the
Company shall send a notice to each record holder of Series B Preferred
Stock that such shares of Series B Preferred Stock have been converted
into Common Stock along with appropriate instructions for the surrender
of certificates representing Series B Preferred Stock in exchange for
certificates representing the Common Stock into which such Series B
Preferred Stock has been converted. Upon automatic conversion of Series
B Preferred Stock pursuant to this paragraph, the shares of Series B
Preferred Stock shall no longer be considered outstanding, and the
certificates representing such Series B Preferred Stock shall be void
for all purposes except for the purpose of surrender to the Company in
exchange for the certificates representing the Common Stock into which
such Series B Preferred Stock was converted.
(e) Market Price means (i) the closing sale price on the
date of a Conversion Notice of a share of Common Stock as reported on
the principal securities exchange on which the shares of Common Stock
are then listed or admitted to trading or (ii) if not so listed, the
average of the closing bid and ask prices for a share of Common Stock
on that date as quoted on the Nasdaq National Market System or Nasdaq
Small-Cap Market or (iii) if not quoted on Nasdaq, the average of
closing bid and ask prices for a share of Common Stock as quoted by
the National Quotations Bureau's pink sheets or the National
Association of Securities Dealer's OTC Bulletin Board System. If the
price of a share of Common Stock shall not be so quoted, "Market
Price" shall mean the fair market value of a share of Common Stock as
determined by an investment banking firm, with expertise in the
Corporation's area of business, appointed by the judge of the 269th
Judicial District Court, Harris County, Texas.
(f) The Conversion Rate shall be subject to the following
adjustments:
(i) While any shares of Series B Preferred Stock
are outstanding, in case the Corporation shall subdivide the
outstanding shares of Common Stock into a greater number of
shares of Common Stock or combine the outstanding shares of
Common Stock into a smaller number of shares of Common Stock,
the Conversion Rate in effect immediately before such
subdivision or combination, as the case may be, shall be
proportionately increased or decreased (adjusted to the
nearest, or if there shall be no nearest, then to the next
lower, thousandth of a share of Common Stock), as the case may
require, such increase or decrease, as the case may be, to
become effective at the opening of business on the day
following the day upon which such subdivision or combination
becomes effective.
Page 4 of 7
<PAGE> 5
(ii) No adjustment of the Conversion Rate shall be
made by reason of the issuance of shares of Common Stock in
exchange for cash, property, or services.
(iii) In case of any reclassification or change of
outstanding shares of Common Stock, or in case of any
consolidation or merger of the Corporation with or into
another corporation, or in case of any sale or conveyance to
another corporation of all or substantially all of the
property of the Corporation, each holder of shares of the
Series B Preferred Stock then outstanding shall have the right
thereafter, so long as his conversion right hereunder shall
exist, to convert such shares into the kind and number or
amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation,
merger, sale or conveyance, by a holder of the number of
shares of Common Stock of the Corporation into which such
shares of the Series B Preferred Stock might have been
converted immediately before such reclassification, change,
consolidation, merger, sale, or conveyance, and shall have no
other conversion rights under these provisions; provided, that
effective provision shall be made, in the articles or
certificate of incorporation of the resulting or surviving
corporation or otherwise, so that the provisions set forth
herein for the protection of the conversion rights of the
Series B Preferred Stock shall thereafter be applicable, as
nearly as reasonably may be, to any such other shares of stock
and other securities and property deliverable upon conversion
of the Series B Preferred Stock remaining outstanding or other
convertible preferred stock received by the holders in place
thereof; and provided, further, that any such resulting or
surviving corporation shall expressly assume the obligation to
deliver, upon the exercise of the conversion privilege, such
shares, securities or property as the holders of the Series B
Preferred Stock remaining outstanding, or other convertible
preferred stock received by the holders in place thereof,
shall be entitled to receive pursuant to the provisions
hereof, and to make provisions for the protection of the
conversion right as above provided. The subdivision or
combination of shares of Common Stock at any time outstanding
into a greater or lesser number of shares of Common Stock
(whether with or without par value) shall not be deemed to be
a reclassification of the shares of Common Stock of the
Corporation for the purposes of this subparagraph (iii).
(g) No fraction of a share of Common Stock shall be
issued upon any conversion, but, in lieu thereof, there shall be paid,
to the holder of shares of Series B Preferred Stock surrendered for
conversion as soon as practicable after the date such shares of Series
B Preferred Stock are surrendered for conversion, an amount in cash
equal to the same fraction of the market value of a full share of
Common Stock as shall be determined, in good faith by the board of
directors of the Corporation.
5. Dissolution. In the event of the dissolution, liquidation or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
or in the event of its insolvency, the assets of the Corporation shall be
distributed among the holders of its capital stock in accordance with the
following schedule of priorities and preferences:
Page 5 of 7
<PAGE> 6
(a) There shall be paid to the holders of the Series B
Preferred Stock an amount equal to that which would have been payable
pursuant to Section 3(a) if the Series B Preferred Stock had been
redeemed on the date of such payment before any distribution of assets
or payment shall be made to the holders of any other class of capital
stock of the Corporation. If the assets of the Corporation available
for distribution to the holders of Series B Preferred Stock shall be
insufficient to permit payment to the holders of the Series B
Preferred Stock of the full amount or amounts aforesaid, then the
entire assets of the Corporation shall be distributed ratably among
the holders of the Series B Preferred Stock then outstanding according
to the number of shares held by each.
(b) After the amounts provided by subparagraph (a) above
have been paid or distributed, any assets remaining shall be paid to
or distributed among the holders of Common Stock pro rata on a per
share basis.
(c) Neither the consolidation, nor merger of the
Corporation into or with another corporation or corporations, nor the
merger or consolidation of another corporation or corporations with or
into the Corporation, nor a reorganization of the Corporation, nor the
purchase or redemption of all or part of the outstanding shares of any
class or classes of the stock of the Corporation, nor a sale or
transfer of the property and business of the Corporation as, or
substantially as, an entity, shall be deemed a liquidation,
dissolution, or winding up of the affairs of the Corporation, within
the meaning of any of the provisions of this Section 5.
6. Voting Rights.
(a) Generally. Except as otherwise required by law or
expressly provided for herein, the holders of Series B Preferred Stock
shall have no voting rights.
(i) Defaults on Series B Preferred Stock. If and
when the Corporation shall be in default in the payment of
dividends on the Series B Preferred Stock, and such default
continues for a period of two fiscal quarters, then the
holders of the outstanding shares of Series B Preferred Stock,
voting separately as a single class, shall become entitled to
elect two directors of the Corporation, such additional
directors to serve in addition to the directors then in
office. Such right to elect additional directors may be
exercised (A) by action taken by the written consent of the
holders of a majority of the shares of Series B Preferred
Stock then outstanding, (B) at any annual meeting of
stockholders or (C) within the limitations hereinafter
provided, at a special meeting of stockholders held for such
purpose. If such default shall occur more than two fiscal
quarters preceding the date of the next annual meeting of
stockholders as fixed by the Bylaws of the Corporation, then a
special meeting of the holders of the Series B Preferred Stock
may, and upon the written request of the holders of not less
than one-fourth of the number of shares of Series B Preferred
Stock then outstanding, addressed to the Secretary of the
Corporation, shall, be called by the Secretary of the
Corporation, such meeting to be held within 60 days after such
call and within 60 days after the delivery to the Secretary of
such
Page 6 of 7
<PAGE> 7
request. Such additional directors, whether elected by written
consent or at an annual or a special meeting, shall serve
until the next annual meeting and until their successors shall
be duly elected and qualified, unless their term shall sooner
terminate pursuant to the provisions of this subparagraph. At
any meeting for the purpose of electing such additional
directors, the holders of a majority of the shares of Series B
Preferred Stock then outstanding shall constitute a quorum,
and any such meeting shall be valid notwithstanding that a
quorum of the outstanding shares of any other class or classes
shall be present, the number of directors constituting the
whole board of directors shall be deemed to be increased by a
number sufficient to carry out the provisions of this
subparagraph. If a vacancy shall occur in the board of
directors by reason of the death, resignation, or inability to
act of any such additional director, such vacancy shall be
filled only by vote of the holders of the outstanding shares
of Series B Preferred Stock, voting separately as a single
class, acting by written consent or at any annual meeting or
at a special meeting of the holders of shares of the Series B
Preferred Stock requested, called and held in the same manner
as the special meeting hereinabove referred to. Whenever a
default in the Corporation's obligations to pay dividends on
the Series B Preferred Stock has been cured by the
Corporation, then the right of the holders of the Series B
Preferred Stock to elect directors shall thereupon cease, and,
if any such additional directors were elected by the holders
of shares of Series B Preferred Stock, voting separately as a
class, the term of such directors shall then terminate and the
number of directors constituting the whole board of directors
shall be reduced by the number of such terminated directors.
The above provisions for the vesting of such voting rights in
the holders of Series B Preferred Stock shall apply, however,
in case of any subsequent default under this subparagraph.
7. Exclusion of Other Rights. Except as otherwise required by
law, the shares of Series B Preferred Stock shall not have any preferences or
relative participating, optional or other special rights except as specifically
set forth herein. No shares of any class of the corporation's capital stock
shall have more preemptive or subscription rights.
IN WITNESS WHEREOF, this Certificate of Designation has been signed by
Charles D. Crochet and Curtis W. Crane, the President and the Secretary,
respectively, of the Corporation, as of the _______ day of _________________,
19____.
3CI COMPLETE COMPLIANCE CORPORATION
By:
-------------------------------------
Charles D. Crochet, President
ATTEST:
- ---------------------------------------
Curtis W, Crane, Secretary
Page 7 of 7
<PAGE> 1
EXHIBIT 3.8
3CI COMPLETE COMPLIANCE CORPORATI0N
CERTIFICATE OF DESIGNATION
OF
SERIES C PREFERRED STOCK
We, Charles D. Crochet and Curtis W. Crane, the President and Secretary,
respectively, of 3CI Complete Compliance Corporation, a Delaware corporation
(the "Corporation") do hereby certify that the following resolution of the
Board of Directors of the Corporation has been duly adopted in accordance with
authority expressly accorded to the Board of Directors by Article 4 of the
Certificate of Incorporation, as amended, of the Corporation (the "Certificate
of Incorporation"), and in accordance with the provisions of Section 151 of the
Delaware General Corporation Law:
Resolved that the Board of Directors of the Corporation, pursuant to
authority expressly vested in it by the provisions of the Certificate of
Incorporation of the Corporation, hereby establishes a series of preferred
stock of the Corporation, authorizes the issuance thereof, and hereby fixes the
designations, rights, preferences, privileges and voting powers, in addition to
those set forth in the Certificate of Incorporation, as follows:
1. Designation of Series. Seven hundred fifty thousand shares of the
preferred stock, without par value, of the Corporation shall constitute a
series of preferred stock designated as Series C Preferred Stock (the "Series C
Preferred Stock") with the designations, rights, preferences, privileges and
voting powers set forth below:
2. Dividends.
(a) The foregoing, the holders of shares of Series C Preferred
Stock shall be entitled to receive, when, and if declared by the
Corporation's Board of Directors out of assets of the Corporation legally
available for such payment, cumulative dividends from the second
anniversary of the original issuance date of the Series C Preferred
Stock, at the rate of $.0825 per share per annum, and no more, payable
quarterly on the 15th day of July, October, January and April of each
year, commencing with a payment on July 15, 1999, of dividends accrued
from the second anniversary of the original issuance date of the Series C
Preferred Stock. Such dividends shall be cumulative from the second
anniversary of the original issuance date of the Series C Preferred
Stock. Accruals of dividends shall not bear interest. For so long as any
shares of Series C Preferred Stock shall be outstanding, without the
written consent of the holders of a majority in interest of the Series C
Preferred Stock, the Corporation shall not (i) purchase or redeem any
shares of its common stock, par value $.01 per share ("Common Stock"), or
(ii) declare, pay or set apart for any payment any dividend on its Common
Stock.
(b) Before any dividends (other than dividends payable in capital
stock ranking junior to the Series C Preferred Stock both as to dividends
and upon liquidation) on, or any distribution in respect of, any class or
classes of stock of the Corporation ranking junior to the Series C
Preferred Stock as to dividends or upon liquidation, shall be declared or
paid or set apart for payment, and before any purchase or redemption of
any such stock, the holders of Series C Preferred Stock shall have
received payment in full of all dividends, if any, in
<PAGE> 2
arrears on the Series C Preferred Stock. No dividend shall be declared on
any series of preferred stock ranking on a parity with the Series C
Preferred Stock as to dividends unless there shall likewise be or have
been declared on the shares of Series C Preferred Stock at the time
outstanding a dividend of like kind for all dividends periods coinciding
with or ending before such dividend period, ratably in proportion to the
respective annual dividend rates per annum fixed therefor as herein or in
the Certificate of Incorporation provided.
3. Redemption. The Series C Preferred Stock shall be subject to
redemption by the Corporation as follows:
(a) The shares of Series C Preferred Stock may be redeemed at any
time on or after the second anniversary of the original issuance date of
the Series C Preferred Stock at the option of the Corporation in whole
or, from time to time, in part, in any such case at a per share redemption
price equal to $1.00, plus accrued dividends, if any.
(b) Notice of every redemption of Series C Preferred Stock shall
be given by mailing notice not less than 30 days before the date fixed
for such redemption to each holder of record of shares of Series C
Preferred Stock so to be redeemed, and shall be sufficiently given if the
Corporation shall cause a copy thereof to be mailed to such holders of
record at their respective addresses as the same shall appear on the
books of the Corporation, by first class mail, postage prepaid; provided,
however, that the failure to mail such notice to one or more such holders
shall not affect the validity of such redemption as to the other holders.
(c) In case of redemption of only a part of the Series C Preferred
Stock at the time outstanding, the shares to be redeemed shall be
selected by lot.
(d) If any notice of redemption shall have been duly given or if
the Corporation shall have granted to a bank or trust company irrevocable
written authorization promptly to give or complete such notice, and if, on
or before the redemption date specified therein, all funds necessary for
such redemption shall have been deposited by the Corporation with the bank
or trust company designated in such notice, in trust for the pro rata
benefit of the holders of the shares so called for redemption, then,
notwithstanding that any certificate for shares so called for redemption
shall not have been surrendered for cancellation, from and after the time
of such deposit (or from and after the redemption date if such notice
shall fail to state that the holders of the shares so called for
redemption may receive their redemption price at any time after such
deposit) all shares with respect to which such deposit shall have been
made shall no longer be deemed to be outstanding, and all rights with
respect to such shares forthwith shall cease and terminate, except only
the right of the holders of the certificates therefor, upon surrender
thereof, to receive the redemption price thereof out of the funds so
deposited, without interest, and the right to exercise, on or before the
close of business on the date fixed for redemption, any privileges of
conversion applicable to the Series C Preferred Stock. Any interest
accrued on such funds shall be paid to the Corporation from time to time.
Page 2 of 6
<PAGE> 3
(e) All funds so set aside or deposited, as the case may be, and
unclaimed at the end of one year from such redemption date shall be
released or repaid to the Corporation, after which the holders of the
shares so called for redemption shall look only to the Corporation for
the payment thereof; provided, however, that any funds set aside or
deposited which shall not be required for redemption because of the
exercise of any privilege of conversion after the date of setting aside
or deposit, as the case may be, shall be released or repaid to the
Corporation immediately after such exercise.
(f) Any shares of the Series C Preferred Stock redeemed, purchased
or otherwise acquired by the Corporation or converted into Common Stock
shall be deemed retired and shall be canceled and may not under any
circumstances thereafter be reissued or otherwise disposed of by the
Corporation.
4. Conversion of Series C Preferred Stock.
(a) The Series C Preferred Stock shall be convertible at the
option of the record holder thereof, at any time after the second
anniversary of the original issuance thereof, in whole, or from time to
time in part, in the manner hereinafter provided, into Common Stock.
Except as otherwise specifically provided herein, no payment or
adjustment shall be made upon such conversion for dividends on any shares
of Series C Preferred Stock which shall be converted or for the
declaration or payment of any dividend on or other distribution in
respect of any shares of Common Stock issuable upon such conversion.
(b) The Series C Preferred Stock may be converted at any time on
or after the second anniversary of the original issuance thereof, in
whole but not in part, into full shares of Common Stock of the
Corporation with a Market Price (defined below) of $750,000 based on a
Conversion Rate (the "Conversion Rate") determined by (i) dividing
$750,000 by the Market Price of the Common Stock on the date of the
related Conversion Notice (defined below), (ii) plus an amount of cash
determined by subtracting the quotient calculated in (i) and subtracting
from $750,000; provided however, that at the option of the holder, the
holder may convert the Series C Preferred Stock into solely that number
of shares of Common Stock determined as provided in (i), and forego
obtaining the additional Common Stock issuable as calculated in (ii),
subject to such adjustments, if any, of the Conversion Rate and the
securities or other property issuable upon such conversion pursuant to
the provisions of subparagraph (f) hereof.
(c) To convert Series C Preferred Stock into Common Stock, a
holder of Series C Preferred Stock shall send to the Secretary of the
Company a dated notice (a "Conversion Notice") setting for the number of
shares of Series C Preferred Stock to be converted, along with the
certificate representing the Series C Preferred Stock to be converted.
Upon receipt of a Conversion Notice and the surrendered certificate
representing the Series C Preferred Stock to be converted into Common
Stock, the Corporation shall cause a certificate representing the Common
Stock issued pursuant to such conversion to be delivered to the
converting holder, along with a certificate representing any shares of
Series C Preferred Stock that were not converted into Common Stock.
Page 3 of 6
<PAGE> 4
(d) All shares of Series C Preferred Stock that have not been
redeemed or converted into Common Stock on or before the fifth
anniversary of the original issuance of the Series C Preferred Stock
shall automatically without further action of the Company or any holder
of Series C Preferred Stock, be converted into Common Stock based on the
Conversion Rate then in effect. Upon such automatic conversion, the
Company shall send a notice to each record holder of Series C Preferred
Stock that such shares of Series C Preferred Stock have been converted
into Common Stock along with appropriate instructions for the surrender
of certificates representing Series C Preferred Stock in exchange for
certificates representing the Common Stock into which such Series C
Preferred Stock has been converted. Upon automatic conversion of Series C
Preferred Stock pursuant to this paragraph, the shares of Series C
Preferred Stock shall no longer be considered outstanding, and the
certificates representing such Series C Preferred Stock shall be void for
all purposes except for the purpose of surrender to the Company in
exchange for the certificates representing the Common Stock into which
such Series C Preferred Stock was converted.
(e) Market Price means (i) the closing sale price on the date of a
Conversion Notice of a share of Common Stock as reported on the principal
securities exchange on which the shares of Common Stock are then listed
or admitted to trading or (ii) if not so listed, the average of the
closing bid and ask prices for a share of Common Stock on that date as
quoted on the Nasdaq National Market System or Nasdaq Small-Cap Market or
(iii) if not quoted on Nasdaq, the average of closing bid and ask prices
for a share of Common Stock as quoted by the National Quotations Bureau's
pink sheets or the National Association of Securities Dealer's OTC
Bulletin Board System. If the price of a share of Common Stock shall not
be so quoted, "Market Price" shall mean the fair market value of a share
of Common Stock as determined by an investment banking firm, with
expertise in the Corporation's area of business, appointed by the judge of
the 269th Judicial District Court, Harris County, Texas.
(f) The Conversion Rate shall be subject to the following
adjustments:
(i) While any shares of Series C Preferred Stock are
outstanding, in case the Corporation shall subdivide the
outstanding shares of Common Stock into a greater number of
shares of Common Stock or combine the outstanding shares of
Common Stock into a smaller number of shares of Common Stock,
the Conversion Rate in effect immediately before such
subdivision or combination, as the case may be, shall be
proportionately increased or decreased (adjusted to the
nearest, or if there shall be no nearest, then to the next
lower, thousandth of a share of Common Stock), as the case may
require, such increase or decrease, as the case may be, to
become effective at the opening of business on the day
following the day upon which such subdivision or combination
becomes effective.
(ii) No adjustment of the Conversion Rate shall be
made by reason of the issuance of shares of Common Stock in
exchange for cash, property, or services.
Page 4 of 6
<PAGE> 5
(iii) In case of any reclassification or change of
outstanding shares of Common Stock, or in case of any
consolidation or merger of the Corporation with or into
another corporation, or in case of any sale or conveyance to
another corporation of all or substantially all of the
property of the Corporation, each holder of shares of the
Series C Preferred Stock then outstanding shall have the right
thereafter, so long as his conversion right hereunder shall
exist, to convert such shares into the kind and number or
amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation,
merger, sale or conveyance, by a holder of the number of
shares of Common Stock of the Corporation into which such
shares of the Series C Preferred Stock might have been
converted immediately before such reclassification, change,
consolidation, merger, sale, or conveyance, and shall have no
other conversion rights under these provisions; provided, that
effective provision shall be made, in the articles or
certificate of incorporation of the resulting or surviving
corporation or otherwise, so that the provisions set forth
herein for the protection of the conversion rights of the
Series C Preferred Stock shall thereafter be applicable, as
nearly as reasonably may be, to any such other shares of stock
and other securities and property deliverable upon conversion
of the Series C Preferred Stock remaining outstanding or other
convertible preferred stork received by the holders in place
thereof; and provided, further, that any such resulting or
surviving corporation shall expressly assume the will
obligation to deliver, upon the exercise of the conversion
privilege, such shares, securities or property as the holders
of the Series C Preferred Stock remaining outstanding, or
other convertible preferred stock received by the holders in
place thereof, shall be entitled to receive pursuant to the
provisions hereof, and to make provisions for the protection
of the conversion right as above provided. The subdivision or
combination of shares of Common Stock at any time outstanding
into a greater or lesser number of shares of Common Stock
(whether with or without par value) shall not be deemed to be
a reclassification of the shares of Common Stock of the
Corporation for the purposes of this subparagraph (iii).
(g) No fraction of a share of Common Stock shall be issued upon
any conversion, but, in lieu thereof, there shall be paid, to the holder
of shares of Series C Preferred Stock surrendered for conversion as soon
as practicable after the date such shares of Series C Preferred Stock are
surrendered for conversion, an amount in cash equal to the same fraction
of the market value of a full share of Common Stock as shall be
determined, in good faith by the board of directors of the Corporation.
5. Dissolution. In the event of the dissolution, liquidation or winding
up of the affairs of the Corporation, whether voluntary or involuntary, or in
the event of its insolvency, the assets of the Corporation shall be distributed
among the holders of its capital stock in accordance with the following
schedule of priorities and preferences:
(a) There shall be paid to the holders of the Series C Preferred
Stock an amount equal to that which would have been payable pursuant to
Section 3(a) if the Series C
Page 5 of 6
<PAGE> 6
Preferred Stock had been redeemed on the date of such payment before any
distribution of assets or payment shall be made to the holders of any
other class of capital stock of the Corporation. If the assets of the
Corporation available for distribution to the holders of Series C
Preferred Stock shall be insufficient to permit payment to the holders of
the Series C Preferred Stock of the full amount or amounts aforesaid, then
the entire assets of the Corporation shall be distributed ratably among
the holders of the Series C Preferred Stock then outstanding according to
the number of shares held by each.
(b) After the amounts provided by subparagraph (a) above have been
paid or distributed, any assets remaining shall be paid to or distributed
among the holders of Common Stock pro rata on a per share basis.
(c) Neither the consolidation, nor merger of the Corporation into
or with another corporation or corporations, nor the merger or
consolidation of another corporation or corporations with or into the
Corporation, nor a reorganization of the Corporation, nor the purchase or
redemption of all or part of the outstanding shares of any class or
classes of the stock of the Corporation, nor a sale or transfer of the
property and business of the Corporation as, or substantially as, an
entity, shall be deemed a liquidation, dissolution, or winding up of the
affairs of the Corporation, within the meaning of any of the provisions of
this Section 5.
6. Voting Rights. Except as otherwise required by law, the holders of
Series C Preferred Stock shall have no voting rights.
7. Exclusion of Other Rights. Except as otherwise required by law, the
shares of Series C Preferred Stock shall not have any preferences or relative
participating, optional or other special rights except as specifically set
forth herein. No shares of any class of the corporation's capital stock shall
have more preemptive or subscription rights.
IN WITNESS WHEREOF, this Certificate of Designation has been signed by
Charles D. Crochet and Curtis W. Crane, the President and the Secretary,
respectively, of the Corporation, as of the ________ day of _________________,
19____.
3CI COMPLETE COMPLIANCE CORPORATION
By: /s/ CHARLES D. CROCHET
-----------------------------------
Charles D. Crochet, President
ATTEST:
/s/ CURTIS W. CRANE
- -------------------------------------
Curtis W. Crane, Secretary
Page 6 of 6
<PAGE> 1
EXHIBIT 4.6
THE ATTACHED WARRANT IS ISSUED TO KLEIN BANK AS ESCROW AGENT IN ACCORDANCE WITH
THE TERMS OF A SETTLEMENT AGREEMENT (THE "SETTLEMENT AGREEMENT"), DATED JULY
17,1998, BY AND BETWEEN JAMES T. RASH, AMERICAN MEDICAL TECHNOLOGIES, INC., DON
SMITH, GHERE-SMITH INTERESTS, INC. AND PATRICK GRAFTON (COLLECTIVELY,
"PLAINTIFFS"), AND WASTE SYSTEMS, INC., GEORG RETHMANN, HERMANN NIEHUES,
JUERGEN THOMAS, VON FORELL AND 3CI COMPLETE COMPLIANCE CORPORATION (THE
"COMPANY"). NOTWITHSTANDING THE TERMS AND PROVISIONS OF THE ATTACHED WARRANT,
SUCH WARRANT, OR ANY PORTION THEROF, MAY NOT BE RELEASED FROM ESCROW EXCEPT IN
ACCORDANCE WITH THE TERMS OF THE SETTLEMENT AGREEMENT AND ANY AMENDMENTS
THERETO, AND UPON WRITTEN INSTRUCTIONS TO KLEIN BANK OR ANY SUCCESSOR ESCROW
AGENT THAT HAVE BEEN SIGNED BY ALL OF THE PLAINTIFFS, ACTING INDIVIDUALLY AND
ON BEHALF OF THE SETTLEMENT CLASS, AND THE COMPANY.
<PAGE> 2
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE ACT
OR IN COMPLIANCE WITH AN EXEMPTION THEREFROM.
NO. OF SHARES: 1,002,964 WARRANT NO. 3CI-03
WARRANTHOLDER: Klein Bank as Escrow Agent
WARRANT
TO PURCHASE COMMON SHARES OF
3CI COMPLETE COMPLIANCE CORPORATION
EXPIRING MARCH 22, 2000
This certifies that, for value received, Klein Bank as escrow agent,
or registered nominee (the "Holder") is entitled to purchase from 3CI COMPLETE
COMPLIANCE CORPORATION (the "Company"), a Delaware corporation, at any time
after the date hereof until 5:00 P.M., Houston time, on March 22, 2000, the
number of Common Shares, par value of $.01 per share, of the Company set forth
above at a Purchase Price of $1.50 per share in lawful money of the United
States of America.
SECTION 1. Definitions. For all purposes of this Warrant the following
terms shall have the meanings indicated:
"Initial Purchase Price" shall mean the initial purchase price
of U.S. $1.50 per Common Share as hereinbefore set forth.
"Purchase Price" shall mean the Initial Purchase Price or the
Initial Purchase Price as the Initial Purchase Price may hereafter be adjusted
from time to time pursuant to the provisions of Sections 5 and 8 hereof.
"Commission" shall mean the Securities and Exchange
Commission, or any other Federal agency then administering the Securities Act.
<PAGE> 3
"Common Shares" shall mean the "Common Shares" of the Company
as hereinafter defined in Section 6 hereof.
"Company" shall mean 3CI COMPLETE COMPLIANCE CORPORATION, a
Delaware corporation, and any corporation which shall succeed to, or assume,
the obligations of said corporation hereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
or any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effort at the time.
"Securities Act" shall mean the Securities Act of 1933, or any
similar Federal statutes, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Transfer" as used in Section 4 hereof shall include any
disposition of this Warrant or any Warrant Shares, or of any interest in either
thereof which would constitute a sale thereof within the meaning of the
Securities Act.
"Warrantholders" shall mean the registered holder or holders
of this Warrant.
"Warrant Shares" shall mean the Common Shares purchased or
purchasable by the registered holders of this Warrant upon the exercise thereof
pursuant to Section 2 hereof.
"Warrant" shall mean this Warrant (and all Warrants issued in
exchange, transfer or replacement of any thereof), identical as to terms and
conditions and date, except as to the number of Common Shares for which they
may be exercised, evidencing the rights to purchase initially up to an
aggregate of 1,002,964 Common Shares.
"Market Price" means (i) the closing sale price on the date of
issuance of any Common Shares as reported on the principal securities exchange
on which the Common Shares are then listed or admitted to trading or (ii) if
not so listed, the average of the closing bid and ask prices on that date as
reported on the Nasdaq National Market System or Nasdaq Small-Cap Market, or
(iii) if not quoted on Nasdaq, the average of closing bid and ask prices for
Common Shares as quoted by the National Quotations Bureau pink sheets or the
National Association of Securities Dealers OTC Bulletin Board System. If the
price of Common Shares shall not be so quoted, Market Price shall mean the fair
market value of a Common Share as determined by an investment banking firm with
expertise in the Company's area of business appointed by the judge of the 269th
Judicial District Court, Harris County, Texas.
Page 2 of 9
<PAGE> 4
All terms used in this Warrant which are not defined in Section 1
hereof have the meanings respectively set forth therefor elsewhere in this
Warrant.
SECTION 2. Exercise of this Warrant. This Warrant may be exercised at
any time and from time to time prior to expiration. In order to exercise this
Warrant in whole or in part, the registered holder hereof shall complete the
Subscription Form attached hereto, and deliver to the Company this Warrant and
cash in an amount equal to the then aggregate Purchase Price of the Common
Shares being purchased at its office or agency in Shreveport, Louisiana (or
such other office or agency of the Company as the Company may designate by
notice in writing to the holder of this Warrant). Upon receipt thereof, the
Company shall, as promptly as practicable, and in any event within 10 business
days thereafter, execute or cause to be executed and deliver to such holder a
certificate or certificates representing the aggregate number of Common Shares
specified in said Subscription Form. Each stock certificate so delivered shall
be in the denomination of 100 shares or such other denomination as may be
requested by the registered holder hereof and shall be registered in the name
of such holder Or such other name as shall be designated by such holder. The
Company shall pay all expenses, taxes and other charges payable in connection
with the preparation, execution and delivery of stock certificates pursuant to
this Section, except that, in case such stock certificates shall be registered
in a name or names other than the name of the registered holder of this
Warrant, funds sufficient to pay all stock transfer taxes which shall be
payable upon the execution and delivery of such stock certificate or
certificates shall be paid by the registered holder hereof to the Company at
the time of delivering this Warrant to the Company as mentioned above.
SECTION 3. Ownership of this Warrant.
a. Ownership. The Company may deem and treat the person in whose
name this Warrant is registered as the holder and owner hereof (notwithstanding
any notations of ownership or writing hereon made by anyone other than the
Company) for all purposes and shall not be affected by any notice to the
contrary, until presentation of this Warrant for registration of transfer as
provided in this Section 3 hereof.
b. Exchange, Transfer, and Replacement. This Warrant, and any
beneficial interest therein shall not be transferrable except to affiliates or
successors or immediate family members or heirs or beneficiaries under the last
will of the Warrant Holder identified in the first paragraph of this Warrant.
Subject to Section 4 hereof, this Warrant is exchangeable, upon the surrender
hereof by the registered holder to the Company at its office described in
Section 2 hereof, for a new Warrant or Warrants of like tenor and date
representing in the aggregate the right to purchase the number of shares
purchasable hereunder, each such new Warrant or Warrants to represent the right
to purchase such number of shares as shall be designated by said registered
holder at the time of such surrender (not exceeding, in the aggregate, the
unexercised balance of the Warrant Shares originally issuable hereunder
subject, of course, to any prior adjustments pursuant to Section 5 hereof).
This Warrant and all rights hereunder are transferable in whole or in part upon
the books of the Company by the
Page 3 of 9
<PAGE> 5
registered holder hereof in person or by duly authorized attorney, and a new
Warrant shall be made and delivered by the Company of the same tenor and date
as this Warrant but registered in the name of the affiliates or successors or
immediate family members, heirs, or beneficiaries under the last will of the
Warrant Holder, upon surrender of this Warrant duly endorsed, at said office or
agency of the Company. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and, in case of loss, theft or destruction, of an agreement of
indemnity (without security therefor), and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new Warrant of
like tenor, in lieu of this Warrant. This Warrant shall be promptly canceled by
the Company upon the surrender hereof in connection with any exchange, transfer
or replacement. The Company shall pay all expenses, taxes (other than stock
transfer taxes) and other charges payable in connection with the operation,
execution and delivery of this Warrant pursuant to this Section 3 hereof.
SECTION 4. Investment Representation - Transfer Restrictions. The
holder hereof warrants and represents that he, she, or it, as the case may be,
is acquiring this Warrant or Warrant Shares for his, her or its own account for
investment and not with a view to the public distribution thereof. This Warrant
shall not be assigned, sold, hypothecated or transferred except in compliance
with the terms hereof.
SECTION 5. Anti-Dilution Provisions; Adjustments. In the event that
the outstanding Common Shares are at any time increased or decreased solely by
reason of split, combination of shares or stock dividends payable with respect
to such Common Shares, appropriate adjustments in the number and kind of such
securities then subject to this Warrant shall be made effective as of the date
of such occurrence so that the interest of the holder upon exercise will be the
same as it would have been had such holder owned the underlying securities
immediately prior to the occurrence of such events. If the Company shall
engage in a merger, consolidation, reorganization, recapitalization or similar
transaction, this Warrant (or if such transaction involves less than all of the
Company's Common Shares, then a portion of this Warrant proportionate to the
number of such involved Common Shares) shall become exercisable for the stock,
securities and other consideration that a holder of the number of the Company's
Common Shares subject to this Warrant would have been entitled to receive in
any such merger, consolidation, reorganization, recapitalization or similar
transaction (with appropriate adjustment, if any, to the Purchase Price). Such
adjustments shall be made successively whenever any event listed in this
paragraph shall occur.
If and whenever after the date hereof the Company shall issue or sell
any Common Shares for no consideration or for a consideration per share less
than the Market Price then in effect as of the date of such issuance or sale,
or issue, sell or grant any stock or security (including any warrant, option or
right) directly or indirectly convertible into or exercisable for Common Shares
for no consideration or for a consideration less than the Market Price then in
effect as of the date of such issuance, sale or grant, the Market Price shall
be reduced (but not increased, except as otherwise specifically provided
herein) to the price (calculated to the nearest one-tenth of a cent) determined
Page 4 of 9
<PAGE> 6
by dividing (x) an amount equal to the sum of (1) the aggregate number of
Common Shares outstanding immediately prior to such issue, sale or grant
multiplied by then existing Purchase Price plus (2) the consideration received
by the Company upon such issue, sale or grant (or to be received upon exercise
or conversion of stock or securities into Common Shares) by (y) the aggregate
number of Common Shares outstanding immediately after such issue or sale.
Except as provided in the following paragraph, this provision shall not apply
to any additional Common Shares resulting from convertible securities or stock
purchase warrants or options outstanding as of the date hereof, and shall not
apply to convertible securities providing for the issuance of Common Shares at
a conversion price not less than the conversion price in effect for any of the
Company's convertible securities outstanding as of the date hereof.
If (i) the purchase price provided for in any right, warrant or option
shall be decreased, (ii) the additional consideration, if any, payable upon the
conversion or exchange of any convertible securities shall be decreased, or
(iii) the ratio at which any convertible securities are convertible into or
exchangeable for Common Shares shall be increased (other than under or by
reason of provisions designed to protect against dilution), the Purchase Price
then in effect shall be decreased to the Purchase Price that would have been in
effect had such rights, warrants, options or convertible securities provided
for such changed purchase price, additional consideration or conversion rate at
the time initially issued.
The number of shares of Common Shares outstanding at any given time
shall not include shares owned directly by the Company in treasury, and the
disposition of any such shares shall be considered an issuance or sale of
Common Shares.
If any event or condition occurs as to which other provisions of this
Article are not strictly applicable and would not fairly protect the exercise
or purchase rights of the Warrants evidenced hereby in accordance with the
essential intent and principles of such provisions, or that might materially
and adversely affect the exercise or purchase rights of the holder hereof under
any provisions of this Warrant, then the Company shall make such adjustments in
the application of such provisions, in accordance with such exercise and
purchase rights as aforesaid, and any adjustments necessary with respect to the
Initial Purchase Price and the number of Warrant Shares purchasable hereunder
so as to preserve the rights of the holder hereunder. In no event shall any
such adjustment have the effect of increasing the Initial Purchase Price as
otherwise determined pursuant to this Article except in the event of a
combination of shares.
SECTION 6. Definition of Company Shares. As used herein, the term
"Common Shares" shall mean and include the Company's authorized Common Shares,
par value $.01 per share, as constituted at the date hereof.
Page 5 of 9
<PAGE> 7
SECTION 7. Special Agreements of the Company. The Company covenants
and agrees that it:
(a) Will Reserve Shares. The Company will reserve and set apart
and have at all times, free from preemptive rights, the number of shares of
authorized but unissued Common Shares deliverable upon the exercise of this
Warrant, and it will have at all times any other rights or privileges provided
for therein sufficient to enable it at any time to fulfill all of its
obligations hereunder.
(b) Will Avoid Certain Actions. The Company will not, by amendment
of its certificate of incorporation or through any reorganization, transfer of
assets, consolidation, merger, issue or sale of securities or otherwise, avoid
or take any action which would have the effect of avoiding the observance or
performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in carrying out all of the
provisions of this Warrant and in taking all such action as may be necessary or
appropriate in order to protect the rights of the holders of this Warrant
against dilution or other impairment.
(c) Will Secure Governmental Approvals. If any Common Shares
required to be reserved for the purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any Federal
law (other than the Securities Act) or under any state law before such shares
may be issued upon exercise of this Warrant, the Company will, at its expense,
as expeditiously as possible, use its best efforts to cause such shares to be
duly registered or approved, as the case may be.
(d) Will Bind Successors. This Warrant shall be binding upon any
corporation succeeding to the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets.
(e) Will Validly Issue Common Stock. All shares of Common Shares
that may be issued upon exercise of the Warrants will, upon issuance by the
Company, be duly and validly issued, fully paid and non-assessable and free
from all taxes, liens and charges with respect to the issuance thereof.
(f) Settlement Agreement. The Warrants represented hereby are part
of a duly authorized issue and sale of warrants to purchase Common Shares
issued and sold pursuant to that certain Settlement Agreement (the "Agreement")
between the Company and the Named Plaintiffs defined in the Agreement. In the
event of any conflict between the provisions of the Agreement and this Warrant,
the provisions of this Warrant shall control.
SECTION 8. Reduction of Purchase Price. The Company shall have the
right, at any time or from time to time, to voluntarily reduce the Purchase
Price then in effect for such period or
Page 6 of 9
<PAGE> 8
periods of time as the Board of Directors of the Company may determine. In each
such event the Company shall mail to the registered holder or holders of this
Warrant a certificate of an officer of the Company stating (i) the election of
the Company to reduce the Purchase Price in accordance with this Section 8,
(ii) that such election is irrevocable during the period specified in such
certificate, and (iii) the period in which such reduced Purchase Price shall be
in effect, which period shall commence not less than 30 days after such
certificate is mailed to the Warrantholders. Failure to receive such
certificate by mail, or any defect therein, shall not affect the validity of
the reduction of the Purchase Price during such period.
SECTION 9. Notification by the Company. In case at any time:
(i) the Company shall pay any dividend payable in
stock upon Common Shares or make any distribution (other than
cash dividends which are not in a greater amount per share
than the then recent cash dividend) to the holders of the
Common Shares;
(ii) the Company shall make an offer for
subscription pro rata to the holders of its Common Shares of
any additional shares of stock of any class or other rights;
(iii) there shall be any capital reorganization,
reclassification of the capital stock of the Company,
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice
to the registered holder of this Warrant of the date on which (a) the books of
the Company shall close, or a record shall be taken for such dividend,
distribution or subscription rights, or (b) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up shall take place, as the case may be. Such notice shall also specify
the date as of which the dividend, distribution or subscription rights are
payable, or the date as of which the holders shall be entitled to exchange
their Common Shares for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such written notice shall be
given not less than 30 and not more than 90 days prior to the record date or
the date on which the Company's transfer books are closed in respect thereto
and such notice may state that the record date is subject to, the effectiveness
of a registration statement under the Securities Act, or to a favorable vote of
the stockholders, if either is required.
Page 7 of 9
<PAGE> 9
SECTION 10. Notices. Any notice or other document required or permitted
to be given or delivered to Warrantholders shall be delivered at, or sent by
certified or registered mail to each Warrantholder at the last address shown on
the books of the Company maintained for the registry and transfer of this
Warrant. Any notice or other document required or permitted to be given or
delivered to the Company shall be delivered at, or sent by certified or
registered mail to, the principal office of the Company, at 910 Pierremont,
#312, Shreveport, Louisiana 71106, Attn: PRESIDENT (or such other address as
shall have been furnished to the Warrantholders by the Company); provided,
however, that the failure to deliver such copy shall not affect the validity of
any notice or other document given or delivered as above provided.
SECTION 11. No Rights as Shareholders; Limitation of Liability. This
Warrant shall not entitle any holder hereof to any of the rights of a
shareholder of the Company. No provision hereof, in the absence of affirmative
action by the holder hereof to purchase Common Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Purchase Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
SECTION 12. Law Governing. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware.
SECTION 13. Miscellaneous. This Warrant and any provisions hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant are for
purposes of reference only and shall not affect the meaning of construction of
any of the provisions hereof.
Page 8 of 9
<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer, attested by its duly authorized officer, and to
be dated as of the day of March, 1998.
3CI COMPLETE COMPLIANCE
CORPORATION
BY: /s/ CHARLES D. CROCHET
------------------------------------------
Charles D. Crochet, President
Attest:
/s/ CURTIS W. CRANE
- --------------------------------------
Name: Curtis W. Crane
Title: Secretary
Page 9 of 9
<PAGE> 11
3CI COMPLETE COMPLIANCE CORPORATION
SUBSCRIPTION AGREEMENT
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and the purchase thereunder of
_________________ shares of the Company's Common Shares provided for therein
and requests that certificate(s) for such shares be issued in the name(s) of
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print name, address, and social security number)
and, if said number of shares shall not be all the shares purchasable
thereunder, that a new Warrant certificate for the balance remaining of the
shares purchasable under the within Warrant be registered in the name of the
undersigned Warrantholder or his assignee as below indicated and delivered to
the address stated below.
Dated: ______________________, 19___
Name of Warrantholder or Assignee
----------------------------------------
(please print)
Address:
----------------------------------------
Signature:
----------------------------------------
Signature Guaranteed: NOTE: THE ABOVE SIGNATURE MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE WITHIN WARRANT IN EVERY
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER,
UNLESS THE WITHIN WARRANT HAS BEEN
ASSIGNED.
<PAGE> 12
ASSIGNMENT
(To be signed only upon assignment of this Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(name and address of assignee must be printed or typewritten)
the within Warrant, hereby irrevocably constituting and appointing
_________________________, attorney to transfer said Warrant on the books of the
Company with full power of substitution in the premises.
Dated: _________________, 19____
----------------------------------------
SIGNATURE OF REGISTERED HOLDER
Signature Guaranteed: NOTE: THE SIGNATURE OF THIS ASSIGNOR
MUST CORRESPOND WITH THE NAME AS IT
APPEARS UPON THE FACE OF THE WITHIN
WARRANT IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
<PAGE> 1
EXHIBIT 4.7
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Escrow Agreement") made and entered into as of
the 6th day of March, 1998, between 3CI Complete Compliance Corporation, a
Delaware corporation ("3CI"), and Klein Bank, a Texas banking corporation and a
federally insured financial institution in Houston, Harris County, Texas
("Escrow Agent").
RECITALS
James T. Rash, American Medical Technologies, Inc., Don Smith,
Ghere-Smith Interests, Inc. and Patrick Grafton (the "Plaintiffs"), acting
individually and on behalf of members of the Settlement Class, and 3CI have
entered into a Settlement Agreement dated July 17, 1997 (the "Settlement
Agreement"), a copy of which is attached to this Escrow Agreement as Exhibit A,
pursuant to which certain claims and causes of action that have been asserted
by the Plaintiffs are being compromised in exchange for, among other things,
the payment by 3CI to the Settlement Class of (i) an aggregate of 78,014 shares
of 3CI's common stock, par value $.01 per share (the "Common Stock"), (ii) non
transferrable warrants issued to the Settlement Class evidencing the right to
purchase shares of Common Stock on the basis of one warrant for each three
shares of Common Stock owned by each member of the Settlement Class as of
January 9, 1997 (the "Warrants") and (iii) $425,000.
This Escrow Agreement is entered into to create an escrow fund to
secure 3CI's obligations described in Paragraphs VI.B.1, VI.B.2 and VIII.A.1 of
the Settlement Agreement.
In consideration of the mutual promises and covenants herein set
forth, and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged and confessed, the parties agree as follows:
1. Definitions. For purposes of this Escrow Agreement, all
capitalized terms used herein not otherwise defined herein shall have the
meanings given to them in the Settlement Agreement.
2. Deposit of Escrow Funds. 3CI shall deliver to the Escrow
Agent (i) 78,014 shares of Common Stock (the "Escrow Shares"), (ii) the
Warrants (the "Escrow Warrants") and (iii) $425,000 (the "Escrow Cash" and,
collectively with the Escrow Shares and the Escrow Warrants, the "Escrow
Funds").
3. Responsibilities of Escrow Agent. Escrow Agent shall have no
responsibility, except for the custody, safekeeping and delivery of the Escrow
Funds in accordance with this Escrow Agreement and shall not be required to
take any action respecting the Escrow Funds or this Escrow Agreement, other
than as set forth herein.
4. Investment of Escrow Funds.
Escrow Agent is hereby directed to invest the Escrow Cash in Klein
Bank Trust Money Market Account. Escrow Agent shall not be liable or
responsible for any loss resulting from any
<PAGE> 2
investment of the Escrow Funds in accordance with the terms of this Escrow
Agreement in the absence of fraud, gross negligence or willful misconduct on
its part.
5. Disbursement of Escrow Funds. The Escrow Agent shall
disburse the Escrow Funds only in accordance with joint written instructions
signed by all of the Plaintiffs and 3CI, with all signatures having been,
acknowledged by a notary public. All interest and other income earned on the
Escrow Funds at the time of disbursement shall belong to 3CI and be at 3CI's
discretion at all times. 3CI shall provide Escrow Agent with any information it
may require for tax reporting purposes, including the completion of any forms
which may be required by law. On disbursement of all of the Escrow Funds,
including interest and other income earned on it, this Escrow Agreement shall
terminate.
6. Liability of Escrow Agent. Escrow Agent will not be liable for
any action taken or not taken by it under the terms of this Escrow Agreement in
the absence of fraud, gross negligence or willful misconduct on its part.
Escrow Agent is not expected or required to be familiar with the
provisions of the Settlement Agreement or any other writing, understanding or
agreement, and shall not be charged with any responsibility or liability in
connection with the observance or non-observance of the provisions of such other
writing, understanding or agreement, and no implied covenant of any type
whatsoever shall be read into this Escrow Agreement. Escrow Agent may rely and
act upon any instrument received by it pursuant to this Escrow Agreement which
it reasonably believes to be in conformity with the requirements of this Escrow
Agreement. Furthermore, Escrow Agent may rely and shall be protected in acting
upon any writing that may be submitted to it in connection with its duties
hereunder without determining the genuineness, authenticity or due authority of
any such writing or the person signing the same and shall have no liability or
responsibility with respect to the form, content or validity thereof.
Escrow Agent shall have no responsibility or liability for any act or
omission on its part, notwithstanding any demand or notice to the contrary by
3CI or any other person or entity in the absence of fraud, gross negligence or
willful misconduct on its part.
None of the provisions of this Escrow Agreement shall require Escrow
Agent to expend or risk its own funds or otherwise incur financial liability or
expense in the performance of any of its duties hereunder.
Escrow Agent is authorized to comply with and obey all orders,
judgments, decrees or writs entered or issued by any court, and if Escrow Agent
obeys or complies with any such order, judgment, decree or writ of any court, in
whole or in part, it shall not be liable to 3CI or to any other person or
entity, by reason of such compliance, notwithstanding that it shall be
determined that any such order, judgment, decree or writ be entered without
jurisdiction or be invalid for any reason or be subsequently reversed,
modified, annulled, satisfied or vacated.
Escrow Agent shall not be required to institute or defend any action
or legal process involving any matter referred to herein that in any manner
affects it or its duties or liabilities
2
<PAGE> 3
hereunder or take any other action with reference to the Escrow Funds not
specifically agreed to herein.
Should any controversy arise between the Plaintiff and 3CI or between
any other person or entity with respect to this Escrow Agreement, or with
respect to the ownership of or the right to receive any sums from the Escrow
Funds Escrow Agent shall have the right to institute a bill of interpleader in
the 269th Judicial District Court, Harris County, Texas to determine the rights
of the parties.
7. Indemnification. 3CI agrees to indemnify and hold Escrow Agent
harmless from and against any and all claims, losses, liabilities, costs,
damages, fees, charges ad expenses (including reasonable attorneys' fees) which
Escrow Agent may incur or sustain by reason of its acting as Escrow Agent under
this Agreement, unless same shall result from the fraud, gross negligence or
willful misconduct of Escrow Agent. Should a bill of interpleader be
instituted, or should Escrow Agent become involved in litigation in any manner
whatsoever, connected with or pertaining to this Escrow Agreement or the Escrow
Funds, 3CI agrees to pay Escrow Agent, on demand, in addition to any charge
made hereunder for acting as Escrow Agent, on demand, reasonable attorneys'
fees incurred by Escrow Agent, and any other disbursements, expenses, losses,
costs and damages in connection with or resulting from such litigation.
8. Compensation of Escrow Agent. Escrow Agent shall be entitled
to receive compensation for its services hereunder in accordance with its
schedule of fees published from time to time and in effect at the time such
compensation is payable hereunder. Such fees and cost reimbursements payable to
the Escrow Agent (including attorneys' fees) shall be paid by 3CI. If 3CI
refuses to pay fees or expenses due to Escrow Agent, Escrow Agent shall
nevertheless be entitled to charge such fees and expenses against interest
earned on the Escrow Funds after five days' notice to 3CI. Any such charge
shall not, however, discharge any liability 3CI may have to Escrow Agent for
failure or refusal to pay such fees or expenses. A copy of the current fee
schedule is attached hereto as Exhibit B and is incorporated fully herein by
this reference. Escrow Agent also shall be entitled to reimbursement by 3CI
for any and all costs and expenses incurred in performing its services
hereunder, including without limitation, the reasonable fees and expenses of
any counsel retained by it in accordance with the terms of this Escrow
Agreement. The Escrow Agent shall not be entitled to payment of any fees or
reimbursement of all costs and expenses under this Escrow Agreement from the
Escrow Funds.
9. Resignation. Escrow Agent may resign as Escrow Agent at any time by
giving 3CI at least ten days' prior written notice of such resignation. If on
the effective date of such resignation Escrow Agent has not received written
instructions of appointment of a successor escrow agent, Escrow Agent may
thereupon deposit all Escrow Funds and documents into the registry of the 269th
Judicial District Court, Harris County, Texas. The parties hereto intend that a
substitute Escrow Agent will be appointed to fulfill the duties of Escrow Agent
hereunder for the remaining term of this Agreement in the event of Escrow
Agent's resignation and 3CI will use its best efforts to promptly appoint a
substitute escrow agent who shall be bound by the terms and provisions of this
Escrow Agreement.
3
<PAGE> 4
10. Termination and Amendment. This Escrow Agreement shall remain
in effect until all Escrow Funds and any escrow documents are disbursed in
accordance herewith; provided that any escrow agent who resigns in accordance
with the terms hereof shall no longer be bound by this Escrow Agreement but this
Escrow Agreement shall remain in effect notwithstanding such resignation, for
purposes of determining the rights and duties of 3CI and any such successor
escrow agent. No amendment or modification to this Escrow Agreement shall be of
any force or effect unless signed by the parties hereto.
11. No Trusteeship. 3CI agrees that Escrow Agent is acting solely
as an escrowee hereunder and not as a trustee and that Escrow Agent has no
fiduciary duties, obligations or liabilities under this Agreement.
12. Confidentiality. Except as required by applicable law, legal
process or other legal compulsion, Escrow Agent shall hold all information
relating to the transactions contemplated by this Escrow Agreement in strict
confidence and under no circumstance shall any of the terms and conditions or
the participants involved be disclosed, unless such disclosure is mandated by
applicable law.
13. Notices. All notices, requests, instructions and demands which
may be given by any party hereto to any other party shall be given to such
parties in writing and shall be delivered either in hand with acknowledgment of
receipt or by depositing same in the United States mail, certified or
registered mail, return receipt requested, addressed to respective parties as
follows:
(A) 3CI Complete Compliance Corporation
910 Pierremont, Suite 312
Shreveport, Louisiana 71106
Attention: Charles Crochet
with a copy to:
Porter & Hedges, L.L.P.
700 Louisiana
Houston, Texas 77002
Attention: Samuel N. Allen
(B) Escrow Agent:
Klein Bank
13845 Breck Street
Houston, Texas 77066
Attention: Dennis Nelson
or to such other address as may from time to time be specified by the respective
parties to the other party in writing. If any notice is required by law, ten
(10) days' notice shall be deemed reasonable.
4
<PAGE> 5
14. Binding Agreement. This Agreement shall be binding upon and
enforceable and shall inure to the benefit of the respective successors, legal
representatives, heirs, and assigns of the parties hereto.
15. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
16. Counterparts. This Escrow Agreement may be executed in any
number of counterparts, and by facsimile signature, each of which shall be
deemed an original instrument and all which together shall constitute one and
the same instrument.
3CI COMPLETE COMPLIANCE CORPORATION:
By: /s/ CURTIS W. CRANE
------------------------
Curtis W. Crane, Authorized Officer
ESCROW AGENT:
KLEIN BANK
By: /s/ DENNIS W. NELSON
-------------------------------
Name: Dennis W. Nelson
Its: Senior Vice President and Senior
Trust Officer
5
<PAGE> 1
EXHIBIT 5.1
March 23, 1998
Securities and Exchange Commission
450 Fifth Street
Judiciary Plaza
Washington D.C. 20549
Re: 3CI Complete Compliance Corporation: Registration Statement on
Form S-1
Gentlemen:
As counsel for 3CI Complete Compliance Corporation, a Delaware corporation
(the "Company"), we have examined the Company's Certificate of Incorporation
and By-Laws, each as amended, and such other corporate records, documents and
proceedings, and such questions of law, as we have deemed relevant for the
purpose of this opinion, together with the Company's Registration Statement
(the "Registration Statement") on Form S-1, as filed on the date hereof with
the Securities and Exchange Commission, covering the registration under the
Securities Act of 1933, as amended, of 1,518,434 shares (collectively, the
"Shares") of the common stock, par value $.01 per share, of the Company
("Common Stock"). Up to 1,002,964 of the Shares (the "Warrant Shares") are
issuable upon the exercise of outstanding Common Stock purchase warrants (the
"Warrants") and 515,470 of the Shares are being offered by certain selling
securityholders (the "Secondary Shares").
On the basis of such examination, we are of the opinion that the Warrant
Shares have been duly and validly authorized, and when issued in accordance
with the terms of the Warrants, the Warrant Shares will be duly and validly
issued, fully paid and non-assessable. The Secondary Shares have been duly and
validly authorized, and are duly and validly issued, fully paid and
non-assessable.
We hereby consent to the use of our name in the Registration Statement and
the related prospectus wherever contained therein and we also consent to the
filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
PORTER & HEDGES, L.L.P.
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This agreement ("the Agreement") entered into as of this __________
day of July 1995 between the parties 3CI Complete Compliance Corporation, a
Delaware corporation (the "Corporation"), and Charles D. Crochet ("Employee")
of Shreveport, Louisiana;
WITNESSETH
WHEREAS, Employee is a principal founder of predecessor companies of
the Corporation, and has previously represented the Corporation with experience
and expertise; and
WHEREAS, the Corporation seeks the continuity and expertise of
Employee for realizing objectives of prudent long-term growth and profitable
operations of the Corporation.
NOW, THEREFORE, for and in consideration of the compensation to be
paid Employee hereunder contained, Employee and Corporation hereby agrees as
follows:
SECTION 1. TERMS. The initial term of this Agreement shall be for the
period commencing June 1, 1995 and continuing until May 31, 1998, thereafter
renewed annually at the mutual consent of the Employee and the Corporation. In
the event that Employee or Corporation seek not to renew the Agreement, notice
shall be tendered in writing six (6) months prior to the next renewal date.
SECTION 2. PRIMARY DUTIES. Subject to the approval and instructions of
the Board of Directors and the Chief Executive Officer, if any, Employee, as
President, shall have responsibility for day-to-day operations of the
Corporation, and implementation of actions that are intended to result in
profitability and prudent long-term growth of the Corporation, to include but
not necessarily limited to: hiring key employees whose responsibilities shall
include operations, administration, sales and marketing, development of
operating and market strategies, and policies and procedures intended to
increase the efficiency, productivity and profitability of existing, and future
businesses of the Corporation and its subsidiaries. It is also the duty of
Employee to recommend and take action to consolidate the Corporation's business
in order to overcome past problems.
SECTION 3. BENFITS. Employee shall be eligible to participate in all
employee welfare and benefit plans, group health insurance and other fringe
benefits made available to, on the same basis as, and subject to the
restrictions applicable to other employees of the Corporations.
<PAGE> 2
EMPLOYMENT AGREEMENT: CROCHET
Employee shall be entitled to reimbursement of the cost of term life
insurance policy in the face amount of up to Five Hundred Thousand and No/100
Dollars ($500,000.00), the proceeds of which shall be payable on an equally
shared basis to Employee's estate and to the Corporation.
Employee shall be entitled to the non-exclusive use of an automobile
owned by the Corporation, or, at Employee's option, shall be entitled to
reimbursement in an amount of up to Four Hundred and No/l00 Dollars ($400.00)
per month for lease or purchase of an automobile.
SECTION 4. SALARY. Corporation shall pay Employee an annualized salary
in amounts not less than:
<TABLE>
<S> <C> <C>
(1) June 1, 1995 -- September 30, 1995 = $115,000
October 1, 1995 -- September 30, 1996 = 130,000
October 1, 1996 -- September 30, 1997 = 145,000
October 1, 1997 -- May 31, 1998 = 160,000
</TABLE>
SECTION 5. BONUS. As an additional incentive to Employee, Employee
shall be a participant, either individually or with others, in a bonus plan,
and Corporation shall pay Employee an annual bonus, in an amount determined by
the Board of Directors, from an approved bonus plan described below, based on
Fiscal Year Pre-Tax Profits as a percentage of Revenues:
<TABLE>
<CAPTION>
Pre-Tax Profits Aggregate Bonus
as a % of Revenue Pool Percentage of Plan
----------------- -----------------------
<S> <C>
Less than 5.0% No bonus
5.01 to 6.0% 6%
6.01 to 7.0% 7
7.01 to 8.0% 8
8.01 to 9.0% 9
9.01 or greater 10
</TABLE>
SECTION 6. STOCK OPTIONS. Employee shall be entitled to a grant of
stock options, for 90,000 shares of common stock of the Corporation,
exercisable at a price of $2.00 per share. The Corporation and Employee
acknowledge that Employee currently has vested options to purchase 32,500
shares of common stock of the Corporation at a price of $3.00 per share
pursuant to a prior employment agreement, and Employee agrees that all other
options currently held by Employee to purchase shares of capital stock of the
Corporation are hereby terminated.
-2-
<PAGE> 3
EMPLOYMENT AGREEMENT: CROCHET
SECTION 7. COVENANT AGAINST COMPETITION. Employee agrees during this
Agreement and at least until May 31, 199B that for so long as this Agreement is
in effect (and for so long as payments are made to employee pursuant to Section
9 hereinafter), and for one year thereafter, Employee (i) will not, directly or
indirectly engage in a principal or agent in any type of business entity or
venture that at the time is directly competitive with the business of the
Corporation in the parishes and counties designated on Exhibit "A" annexed
hereto, and (ii) will not hire, employ, engage, or contract with any employee
of the Corporation during such period, and (iii) will not solicit or entice any
employee of the Corporation to leave the employ of the Corporation.
Nothing in this section shall prohibit Employee from purchasing and
holding as an investment not more than one percent (1.0%) of any class of the
issued and outstanding publicly traded shares of a corporation engaged in
competition with the Corporation.
SECTION 8. CONFIDENTIALITY OF INFORMATION. Except for an act on behalf
of the Corporation with the consent of or as directed by the Board or as may be
required by law, the Employee shall keep confidential and shall not divulge to
any other person or entity, during the term of employment or thereafter, any of
the business secrets or other confidential information regarding the
Corporation and its affiliates, which has not otherwise become public
knowledge; provided, however, that nothing in this Agreement shall preclude the
Employee from disclosing information (i) to parties retained to perform
services for the Corporation or its subsidiaries, or (ii) under any other
circumstances to the extent such disclosure is, in the reasonable judgment of
the Employee, appropriate or necessary to further the best interest of the
Corporation or its affiliates, or (iii) as may be required by law.
SECTION 9. TERMINATION. This Agreement shall terminate immediately in
event of the Employee's death or in the event that, in the reasonable judgment
of the Board of Directors of the Corporation ("Board"), the Employee is disabled
so as to be unable to perform his material duties hereunder. The Board may
discharge the Employee from his employment hereunder for Cause (as hereinafter
defined). Any discharge of the Employee for Cause, and the effective date
thereof, shall be communicated to the Employee in writing. For purposes of this
Agreement, the term "Cause" shall mean any of the following:
(a) the Employee's intentional theft or embezzlement, or attempted
theft or embezzlement, of money or property of the Corporation
or its affiliates; the Employee's intentional perpetration or
attempted perpetration of
-3-
<PAGE> 4
EMPLOYMENT AGREEMENT: CROCHET
fraud, or his participation in a fraud or attempted fraud, on
the Corporation or its affiliates; or the Employee's
intentional, unauthorized appropriation of, or his intentional
attempt to misappropriate, any tangible or intangible assets
or property of the Corporation or its affiliates;
(b) any intentional material act or acts of disloyalty,
misconduct, or moral turpitude by the Employee demonstrably
injurious to the interest, property, operations, business, or
reputation of the Corporation or its affiliates or the
Employee's conviction of a crime the commission of which could
result in material injury to the Corporation or its
affiliates; or
(c) the Employee's material failure to perform his duties under
this Agreement, or his material breach of or material default
in the performance or observance of any of his obligations,
promises, undertakings, representations, or warranties under
this Agreement, provided, however, that an act or omission
under this Section 9(c) shall not be deemed to constitute Cause
if it is of such a nature that all detriment otherwise
resulting to the Corporation or its affiliates therefrom can
be cured and, to the reasonable satisfaction of the Board, is
promptly eliminated by appropriate action, and the Employee
causes such action to be taken within ten (10) days following
written notice from the Board with respect thereto.
The Board may terminate the Employee's employment without Cause, upon 30 days'
prior notice to the Employee. In the event Employee is terminated without
cause, the Employee will cease to be an employee of the Corporation and all
obligations of the Corporation to the Employee shall terminate, except that the
Employee shall be entitled to receive, during the then remaining term of this
agreement, a monthly payment equal to the Employee's monthly base salary in
effect on the date of termination, after appropriate deductions for federal,
state or local withholding or other taxes. In the event the Employee is
required to institute litigation in order to enforce the provisions of this
paragraph and said Employee prevails in such litigation, Employer shall pay
Employee all costs reasonably incurred in connection therewith including
reasonable attorney's fees.
-4-
<PAGE> 5
EMPLOYMENT AGREEMENT CROCHET
SECTION 10. DEATH. If Employee dies during the term of this Agreement,
this Agreement shall automatically terminate, and the Corporation shall have
the obligation to pay to the estate of the Employee only monthly payments equal
to fifty percent (50%) of the monthly salary remaining to be paid under this
Agreement or extension thereof; provided that, in no event shall said
obligation to make monthly payments exceed a period of eighteen months.
SECTION 11. NOTICES. All notices, requests, consents, and other
communication on this Agreement shall be in writing and shall be deemed to have
been delivered on the date personally delivered or on the date mailed, postage
prepaid, by certified mail, return receipt requested, to the respective parties
as follows: 3C1 Complete Compliance Corporation, 910 Pierremont, Suite 312,
Shreveport, Louisiana 71106 with a copy to Phillip M. Renfro, Fulbright &
Jaworski, 300 Covenant Street, Suite 2200, San Antonio, Texas, 78205, (210)
224-5575, Facsimile No. (210) 224-8336; Charles Crochet, 836 Ontario,
Shreveport, Louisiana 71106; with a copy to Jerald R. Harper, Cook, Yancey,
King & Galloway, 333 Texas Street, Suite 1700, Shreveport, Louisiana,
318/227-7728, Facsimile No. 318/227-7850.
SECTION 12. ENTIRE AGREEMENT: AMENDMENT. This Agreement constitutes
the entire agreement between the parties respecting the services of Employee
and there are no representation, warranties, agreement, or commitments between
the parties hereto as set forth herein. This Agreement may be amended only by
an instrument in writing executed by Employee and the Corporation.
SECTION 13. BINDING EFFECT. This Agreement is for the benefit of
Employee and the Corporation and shall be binding and enforceable by and
against their successors, assigns, respective heirs, donees, pledges, devises,
transferees, and representatives.
SECTION 14. ATTORNEY'S FEES. In the event of breach of this Agreement,
the party not in breach shall be entitled to recover its or his reasonable
attorneys' fees and costs incurred in enforcing rights granted hereunder.
SECTION 15. INDEMNIFICATION. The Corporation agrees to indemnify
Employee for any loss, claim, damage, cost, judgment or settlements approved by
the Corporation, including attorney's fees, if Employee is a party or is
threatened to be made a party in any threatened, pending or completed action
brought, in whole or in part, by reason of the fact that employee is or was an
officer, director, employee or agent of the Corporation, to the fullest extent
allowed by applicable law. Corporation further agrees that any expenses
incurred by Employee in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be
-5-
<PAGE> 6
EMPLOYMENT AGREEMENT: CROCHET
paid by the Corporation in advance of the final disposition of such action,
and, upon Employee incurring same, suit or proceeding upon receipt of an
undertaking on behalf of the Employee to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation under applicable law. This right of indemnification shall be deemed
to be in addition to any other rights of indemnification to which Employee
shall be entitled by virtue of the Corporation's articles of incorporation,
by-laws, statue or otherwise and shall be effective for so long as Employee is
or may be made party to any action brought, in whole or in part, by reason of
Employee serving as an officer, director, employee or agent of the Corporation.
Section 16. GOVERNING LAW. This Agreement shall be governed and
construed under and by virtue of the laws of the State of Louisiana.
Section 17. INVENTION. Employee will promptly disclose to the
Corporation
a) all inventions, improvements, discoveries and technical
developments (Inventions) made or conceived by Employee,either
alone or with other during the term of his employment and
b) all Inventions which are based on proprietary information of
the Corporation and are made or conceived by Employee either
alone or with others, within one year of leaving the
Corporation's employment.
Employee herewith assigns to the Corporation the entire right, title and
interest in and to such Inventions which relate in any way to or are useful in
the Corporation's business and he agrees to cooperate with the Corporation in
the procurement and maintenance of patens, copyright, and/or other protection
of the Corporation's rights in such Inventions, at the Corporation's expense.
Employee will keep and maintain adequate and current written records of all
such Inventions, which shall be the property of the Corporation. If a patent
application or copyright is filed by Employee or on his behalf within one year
of leaving the Company's employment, describing and Invention within this scope
of Employee's work for the Corporation or which otherwise relates to a portion
of the Corporation's business of which Employee had knowledge during his
employment, it is to be conclusively presumed that the Invention was conceived
by Employee during the period of such employment.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officers or director, and Employee has executed
this Agreement, in each case as of the date first written above.
3C1/ Complete Compliance
Corporation: Employee:
By: /s/ [ILLEGIBLE] /s/ CHARLES D. CROCHET
-------------------------- -------------------------------
Title: DIRECTOR Charles D. Crochet
----------------------- -------------------------------
Date: August 31, 1995 Date: August 31, 1995
------------------------ --------------------------
-7-
<PAGE> 1
EXHIBIT 10.12
================================================================================
EXCHANGE AGREEMENT
BETWEEN
3CI COMPLETE COMPLIANCE CORPORATION
AND
WASTE SYSTEMS, INC.
DATED AS OF JUNE 24, 1997
================================================================================
<PAGE> 2
CONTENTS
PAGE
ARTICLE 1
THE EXCHANGE
1.1 Exchange............................................................... 1
1.2 Closing................................................................ 1
1.3. Exchange Date................................................... 2
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
2.1. Representations and Warranties of the Company........................... 2
2.1.1. Organization and Standing....................................... 2
2.1.2. Agreement Authorized and its Effect on Other Obligations........ 2
2.1.3. Validity of Stock............................................... 2
2.1.4. Capitalization.................................................. 3
2.1.5. Reports and Financial Statements................................ 3
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF WSI
3.1 Representations and Warranties of WSI................................... 3
3.1.1. Organization and Standing....................................... 3
3.1.2. Agreement Authorized and its Effect on Other Obligations........ 4
3.1.3. Ownership of Notes.............................................. 4
3.1.4. Investment Intent............................................... 4
3.1.5. Investor Sophistication......................................... 4
ARTICLE 4
ADDITIONAL AGREEMENTS OF THE COMPANY
4.1 Further Assurances...................................................... 5
-i-
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1. Conditions Precedent to Obligations of WSI . . . . . . . . . . . . . . . . . . . . . 5
5.1.1. Representations and Warrants True at Closing Date . . . . . . . . . . . . . 5
5.1.2. No Material Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1.3. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.2. Conditions Precedent to Obligations of the Company . . . . . . . . . . . . . . . . . 6
5.2.1. Representations and Warranties of WSI True at Closing Date . . . . . . . . 6
5.2.2. No Material Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.2.3. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 6
MISCELLANEOUS
6.1. Entirety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3. Notices and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.4. Termination of Representations, Warranties, etc. . . . . . . . . . . . . . . . . . . 7
6.5. Table of Contents and Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.6. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.7. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.8. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
-ii-
<PAGE> 4
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT (this "Agreement"), dated as of June 24, 1997, among
3CI Complete Compliance Corporation, a Delaware corporation (the "Company") and
Waste Systems, Inc., a Delaware Corporation ("WSI").
WITNESSETH:
WHEREAS, the Company and certain of its affiliates are the Makers of (i)
a promissory note dated September 30, 1995 in the original principal amount of
$8,000,000 (the "1995 Note"), and a promissory note dated December 20, 1996, in
the original principal amount of $2,700,000 (the "1996 Note"), in each case,
payable to the order of WSI (the 1995 Note and the 1996 Note are collectively
referred to herein as the "Notes"); and
WHEREAS, all interest due under the Notes has, in accordance with the
terms of the Notes, been converted to principal; and
WHEREAS, the Company is authorized to issue up to 1,000,000 shares of its
preferred stock, without par value;
WHEREAS, the Company and WSI have agreed that the Company will issue to
WSI 1,000,000 shares of its Series A Preferred Stock in the form of the
Certificate of Designation of Series A Preferred Stock attached hereto as
Exhibit A (the "Series A Preferred Stock"), in exchange for the cancellation of
the 1996 Note and a reduction in the principal amount of the 1995 Note.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, and to prescribe the terms and
conditions of the exchange contemplated hereby, the parties hereto hereby agree
as follows:
ARTICLE 1
THE EXCHANGE
1.1. Exchange. Upon the terms and subject to the conditions set forth in
this Agreement, the Company agrees to issue and deliver to WSI 1,000,000 shares
of its Series A Preferred Stock, in exchange for the cancellation of the 1996
Note and a reduction of the principal amount of the 1995 Note in an amount equal
to $7,000,000 minus the principal amount of the 1996 Note as of January 1, 1997.
1.2. Closing. The closing of the transactions contemplated hereby (the
"Closing") will occur as soon as practicable after the date hereof (the
"Closing Date"). At the Closing, the Company will deliver to WSI a certificate
representing 1,000,000 shares of the Series A Preferred
<PAGE> 5
Stock. WSI will cancel 1996 Note and reduce the outstanding principal balance
on the 1995 Note in accordance with the provisions of this Agreement.
1.3. Effective Date. The effective date of the cancellation of the 1996
Note and the reduction in the principal amount of the 1995 Note described in
Section 1.1 shall be January 1, 1997 (the "Effective Date").
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
2.1 Representations and Warranties of the Company. The Company hereby
represents and warrants as follows:
2.1.1. Organizations and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
state of Delaware, has full requisite corporate power and authority to
carry on its business as it is currently conducted, and to own and operate
the properties currently owned and operated by it, and is duly qualified or
licensed to do business and is in good standing as a foreign corporation
authorized to do business in all jurisdictions in which the character of
the properties owned or the nature of the business conducted by it would
make such qualification or licensing necessary, except where the failure to
be so qualified or licensed would not have a material adverse effect on its
financial condition, properties or business.
2.1.2. Agreement Authorized and its Effect on Other Obligations. The
execution and delivery of this Agreement has been authorized by the board
of directors of the Company, the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Company, and this Agreement is a valid
and binding obligation of the Company, enforceable against the Company
(subject to normal equitable principles) in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, debtor relief or similar laws affecting the rights of
creditors generally. The consummation of the transactions contemplated by
this Agreement will not conflict with or result in a violation or breach of
any term or provision of, nor constitute a default under (i) the
Certificate of Incorporation or Bylaws of the Company or (ii) any
obligation, indenture, mortgage, deed of trust, lease, contract or other
agreement to which the Company or any of its subsidiaries is a party or by
which any of them or their properties are bound.
2.1.3. Validity of Stock. On the Closing Date, the Series A Preferred
Stock to be issued to WSI hereunder will be in due and proper form, will be
duly authorized by all necessary corporate action on the part of the
Company, and will be validly issued, fully paid and non-assessable shares
of Series A Preferred Stock, free of preemptive rights. Upon delivery of
the shares of Series A Preferred Stock, WSI will acquire valid and
marketable
2
<PAGE> 6
title to such shares of Series A Preferred Stock, free and clear of any
encumbrances. The Common Stock issuable upon conversion of the Series A
Preferred Stock has been duly authorized by all the necessary corporate
acts on the part of the Company and when issued will be validly issued,
fully paid and nonassessable shares of Common stock of the Company free of
preemptive rights. Upon delivery of the shares of Common Stock upon
conversion of the Series A Preferred Stock, WSI will acquire valid
marketable title to such Common Stock free and clear of any encumbrances.
2.1.4. Capitalization. As of the Effective Date and the Closing Date,
the authorized capitalization of the Company will consist of 15,000,000
shares of Common Stock and 1,000,000 shares of preferred stock, without par
value ("Preferred Stock").
2.1.5. Reports and Financial Statements. The Company has furnished to
WSI true and complete copies of its annual report filed with the Commission
pursuant to the Exchange Act for the fiscal year ended September 30, 1996
(the "10-K"), and (ii) the Company's quarterly report filed with the
Commission for the fiscal quarter ended March 31, 1997 (the "10-Q"). The
consolidated financial statements of the Company and its consolidated
subsidiaries included in the 10-K and the 10-Q were prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved and fairly present the consolidated financial
position for the Company and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and changes in
financial position of the periods then ended, and the 10-K and 10-Q did not
contain any untrue statement of a material fact or fail to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they made, not
misleading. Since September 30, 1996, the Company has filed with the
Commission all material reports, registration statements and other material
filings required to be filed with the Commission under the rules and
regulations of the Commission.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF WSI
3.1. Representations and Warranties of WSI. WSI represents and warrants as
follows:
3.1.1. Organization and Standing. WSI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has full requisite corporate power and authority to carry on its
business as it is currently conducted, to own and operate the properties
currently owned and operated by it, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties owned or
the nature of the business conducted by it would make such qualification or
licensing necessary, except
3
<PAGE> 7
where the failure to be so qualified or licensed would not have a material
adverse effect on its financial condition, properties or business.
3.1.2. Agreement Authorized and its Effect on Other Obligations. The
consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of WSI,
and this Agreement is a valid and binding obligation of WSI enforceable
(subject to normal equitable principles) in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, debtor relief or similar laws affecting the rights of
creditors generally. The consummation of the transactions contemplated by
this Agreement will not conflict with or result in a violation or breach of
any term or provision of, or constitute a default under (i) the Certificate
of Incorporation or Bylaws of WSI or (ii) any obligation, indenture,
mortgage, deed of trust, lease, contract or other agreement to which WSI or
any of its subsidiaries is a party or by which any of them or their
properties are bound.
3.1.3. Ownership of Notes. WSI owns the Notes free and clear of any
encumbrances or rights of any third parties and has the full right and
authority to cancel the indebtedness represented thereby as contemplated by
this Agreement. Upon consummation of the transactions contemplated hereby,
the portion of the debt evidenced by the Notes repaid upon issuance of the
Series A Preferred Stock shall no longer be outstanding.
3.1.4. Investment Intent. WSI is acquiring the shares of Series A
Preferred Stock solely for its own account and not with a view to the
public distribution thereof. WSI acknowledges that the shares of Series A
Preferred Stock being issued hereunder will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), and agrees that
it will only re-offer or resell the shares of Series A Preferred Stock in
compliance with the requirements of Rule 144 promulgated under the
Securities Act, in accordance with any other available exemption from the
registration requirements of the Securities Act, or pursuant to a valid
registration statement under the Securities Act. WSI acknowledges that upon
acquisition of the shares of Series A Preferred Stock (other than in
connection with a registered offering thereof), and until such time, if
any, as WSI has received an opinion of counsel to WSI, in form and
substance satisfactory to the Company, that it is not longer necessary or
advisable, the certificate(s) representing such Series A Preferred Stock
shall bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND,
ACCORDINGLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY
OTHER APPLICABLE SECURITIES LAWS."
4
<PAGE> 8
3.1.5 Investor Sophistication. WSI acknowledges and understands that
it must bear the economic risk of this investment for an indefinite period
of time. WSI has experience in analyzing and investing in entities like the
Company, can bear the economic risk of its investment, including the full
loss of its investment, and by reason of its business or financial
experience, has the capacity to evaluate the merits and risks of its
investment and to protect its own interests in connection with the
purchase of Series A Preferred Stock from the Company.
ARTICLE 4
ADDITIONAL AGREEMENTS OF THE COMPANY
4.1 Further Assurances. The Company hereby covenants and agrees to take
all actions within its power after the date hereof to effect the transactions
contemplate by this Agreement, including but not limited to the filing with the
Delaware Secretary of State of a certificate of designations relating to the
Series A Preferred Stock.
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1. Conditions Precedent to Obligations of WSI. The obligation of WSI to
consummate and effect the transactions contemplated hereby shall be subject to
the satisfaction of the following conditions or to the waiver thereof by WSI:
5.1.1. Representations and Warranties True at Closing Date. The
representations and warranties of the Company herein contained shall be,
in all material respects, true as of and at the Closing Date with the same
effect as though made at such date; and the Company shall have performed
and complied, in all material respects, with all covenants required by
this Agreement to be performed or complied with by the Company before the
Closing Date.
5.1.2. No Material Litigation. No suit, action or other proceeding
shall be pending or threatened before any court or governmental agency in
which it will be, or it is, sought to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby.
5.1.3. Opinion of Counsel. WSI shall have received a favorable
opinion, dated as of the Closing Date, from Porter & Hedges, L.L.P.,
counsel for the Company, in form and substance satisfactory to WSI, to
effect that (i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware; (ii) all proceedings required to be taken by or on the part of
the Company to authorize the execution of this Agreement and the
implementation of the transactions contemplated hereby have been taken;
(iii) this Agreement has been duly executed and
5
<PAGE> 9
delivered by, and is the legal, valid and binding obligation of the Company
and is enforceable against the Company in accordance with its terms, except
as enforceability may be limited by (a) equitable principles of general
applicability or (b) bankruptcy, insolvency, reorganization, fraudulent
conveyance or similar laws affecting the rights of creditors generally; and
(iv) the Series A Preferred Stock, when issued, will have been duly
authorized by all necessary corporate action on the part of the Company,
and will be validly issued, fully paid and nonassessable shares of Series A
Preferred Stock, free of preemptive rights. Such opinion also shall cover
such other matters incident to the transactions herein contemplated as WSI
may reasonably request.
5.2. Conditions Precedent to Obligations of the Company. The obligations
of the Company to consummate the transactions contemplated hereby shall be
subject to the satisfaction of the following conditions or to the waiver thereof
by the Company.
5.2.1. Representations and Warranties of WSI True at Closing Date.
The representations and warranties of WSI herein contained shall be, in
all material respects, true as of and at the Closing Date with the same
effect as though made at such date; and WSI shall have performed and
complied in all material respects with all covenants required by this
Agreement to be performed or complied with by it before the Closing Date.
5.2.2. No Material Litigation. No suit, action or other proceeding
shall be pending or threatened before any court or governmental agency in
which it will be, or it is, sought to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby.
5.2.3. Opinion of Counsel. The Company shall received a favorable
opinion, dated the Closing Date, from Blanchard, Walker, O'Quinn &
Roberts, counsel to WSI, in form and substance satisfactory to the
Company, to the effect (i) WSI has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware; (ii) all corporate or other proceedings required to be taken by
or on the part of WSI to authorize the execution of this Agreement and the
implementation of the transactions contemplated hereby have been taken;
(iii) this Agreement has been duly executed and delivered by, and is the
legal, valid and binding obligation of WSI, and is enforceable against WSI
in accordance with its terms, except as enforceability may be limited by
(a) equitable principles of general applicability or (b) bankruptcy,
insolvency, reorganization, fraudulent conveyance or similar laws affecting
the rights of creditors generally. Such opinion shall also cover such
other matters incident to the transactions herein contemplated as the
Company its counsel may reasonably request.
6
<PAGE> 10
ARTICLE 6
MISCELLANEOUS
6.1. Entirety. This Agreement embodies the entire agreement among the
parties with respect to the subject matter hereof, and all prior agreements
between the parties with respect thereto are hereby superseded in their
entirety.
6.2. Counterparts. Any number of counterparts of this Agreement may be
executed and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
instrument.
6.3. Notices and Waivers. Any notice or waiver to be given to any party
hereto shall be in writing and shall be delivered by courier, sent by
facsimile transmission or first class registered or certified mail, postage
prepaid, return receipt requested as follows:
IF TO THE COMPANY
Addressed to: With a copy to:
3CI Complete Compliance Corporation Porter & Hedges, L.L.P.
910 Pierremont, Suite 312 700 Louisiana, 35th Floor
Shreveport, Louisiana 71106 Houston, Texas 77210-4744
Attn: Charles D. Crochet Attention: Samuel N. Allen
Facsimile: (713) 228-1331
IF TO WSI
Waste Systems, Inc. Blanchard, Walker, O'Quinn & Roberts
910 Pierremont, Suite 312 Bank One Tower
Shreveport, Louisiana 77106 P.O. Drawer 1126
Attn: Dr. Clemens Pues Shreveport, Louisiana 71163
Attn: Robert Johnson
Facsimile: (318) 227-2767
Any communication so addressed and mailed by first-class registered or
certified mail, postage prepaid, with return receipt requested, shall be deemed
to be received on the third business day after so mailed, and if delivered by
courier or facsimile to such address, upon delivery during normal business
hours on any business day.
6.4. Termination of Representations, Warranties, etc. The respective
representations and warranties of the Company and WSI contained herein shall
expire on the Closing Date.
7
<PAGE> 11
6.5. Table of Contents and Captions. The table of contents and captions
contained in this Agreement are solely for convenient reference and shall not
be deemed to affect the meaning or interpretation of any article, section, or
paragraph hereof.
6.6 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of and be enforceable by the successors and assigns
of the parties hereto.
6.7. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
6.8. Applicable Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Louisiana.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed in their respective corporate names by their respective duly authorized
representatives, all as of the day and year first above written.
3CI COMPLETE COMPLIANCE CORPORATION
By: /s/ CHARLES D. CROCHET
--------------------------------
Charles D. Crochet, President
WASTE SYSTEMS, INC.
By: /s/ DR. CLEMENS PUES
--------------------------------
Dr. Clemens Pues
8
<PAGE> 1
EXHIBIT 10.13
================================================================================
STOCK PURCHASE AND NOTE MODIFICATION AGREEMENT
BETWEEN
3C1 COMPLETE COMPLIANCE CORPORATION
AND
WASTE SYSTEMS, INC.
DATED AS OF FEBRUARY 19, 1998
================================================================================
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1
THE CONSIDERATION
1.1. Purchase and Sale......................................................... 2
1.2. Modification of 1995 Note................................................. 2
1.3. Reinstatement of 1995 Note Principal Amount............................... 2
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
2.1. Representations and Warranties of the Company............................. 2
2.1.1. Organization and Standing........................................ 3
2.1.2. Agreement Authorized and its Effect on Other Obligations......... 3
2.1.3. Validity of Stock................................................ 3
2.1.4. Capitalization,.................................................. 3
2.1.5. Reports and Financial Statements................................. 4
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF WSI
3.1. Representations and Warranties of WSI..................................... 4
3.1.1. Organization and Standing........................................ 4
3.1.2. Agreement Authorized and its Effect on Other Obligations......... 4
3.1.3. Ownership of 1995 Note........................................... 5
3.1.4. Investment Intent................................................ 5
3.1.5. Investor Sophistication.......................................... 5
ARTICLE 4
ADDITIONAL AGREEMENTS OF THE COMPANY
4.1. Further Assurances........................................................ 6
</TABLE>
-i-
<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1. Conditions Precedent to Obligations of WSI................................... 6
5.1.1. No Material Litigation.............................................. 6
5.1.2. Opinion of Counsel.................................................. 6
5.2. Conditions Precedent to Obligations of the Company........................... 7
5.2.1. No Material Litigation.............................................. 7
5.2.2. Opinion of Counsel.................................................. 7
ARTICLE 6
MISCELLANEOUS
6.1. Entirety..................................................................... 7
6.2. Counterparts................................................................. 7
6.3. Notice and Waivers........................................................... 7
6.4. Termination of Representations, Warranties, etc.............................. 8
6.5. Table of Contents and Captions............................................... 8
6.6. Successors and Assigns....................................................... 8
6.7. Severability................................................................. 8
6.8. Applicable Law............................................................... 8
</TABLE>
-ii-
<PAGE> 4
STOCK PURCHASE AND NOTE MODIFICATION AGREEMENT
STOCK PURCHASE AND NOTE MODIFICATION AGREEMENT (this "Agreement"), dated as
of February 19, 1998, among 3CI Complete Compliance Corporation, a Delaware
corporation (the "Company") and Waste Systems, Inc., a Delaware Corporation
("WSI").
WITNESSETH:
WHEREAS, the Company and certain of its affiliates are the Makers of (i) a
promissory note dated September 30, 1995, in the original principal amount of
$8,000,000 (the "1995 Note"), and a promissory note dated December 20, 1996, in
the original principal amount of $2,700,000 (the "1996 Note"), in each case,
payable to the order of WSI;
WHEREAS, all interest due under the Notes has, in accordance with the terms
of the Notes, been converted to principal;
WHEREAS, the Company is authorized to issue up to 1,000,000 shares of its
preferred stock, without par value;
WHEREAS, the Company issued to WSI 1,000,000 shares of its Series A
Preferred Stock in exchange for the cancellation of the 1996 Note and a
reduction in the principal amount of the 1995 Note in an amount equal to
$7,000,000 minus the principal amount of the 1996 Note as of January 1,1997;
WHEREAS, the Company has issued all authorized shares of preferred stock
and the Company desires to be able to designate additional series of, and to
issue additional shares of, preferred stock;
WHEREAS, the Company has received all stockholder and board of director
approvals necessary to amend the Company's Certificate of Incorporation to
increase the authorized Preferred Stock to 16,050,000 shares and Common Stock to
40,450,000 (the "Amendment"), but is unable to file such Amendment until at
least twenty days after it has distributed an Information Statement listing the
requirements of the Securities Exchange Act of 1934 to its stockholders;
WHEREAS, such Information Statement is currently expected to be distributed
to the Company's stockholders on or about February 24, 1998, and the Amendment
is expected to be filed on or about the twentieth day following the actual date
of distribution;
WHEREAS, the Company desires to sell to WSI, and WSI desires to purchase
from the Company 750,000 shares of Series C Preferred Stock (the "Series C
Preferred Stock") in the form of the Certificate of Designation of Series C
Preferred Stock attached hereto as Exhibit A on the terms and conditions herein
set forth;
<PAGE> 5
WHEREAS, WSI Intends to modify the 1995 Note to reflect a reduction in its
principal amount equal to the $750,000 purchase price of the Series C Preferred
Stock;
WHEREAS, the Company intends to file the Certificate of Designation of
Series C Preferred Stock within seven days after the filing of the Amendment;
NOW, THEREFORE, in consideration the premises and of the mutual covenants
and agreements herein contained, and to prescribe the terms and conditions of
the transactions contemplated hereby, the parties hereto hereby agree as
follows:
ARTICLE 1
THE CONSIDERATION
1.1. Purchase and Sale. Upon the terms and subject to the conditions set
forth in this Agreement, the Company agrees to sell to WSI, and WSI agrees to
purchase and accept from the Company, 750,000 shares of the Company's Series C
Preferred Stock. The purchase price for such shares, due at the date of this
Agreement, shall be $750,000 payable by WSI by reduction of the principal amount
of the 1995 Note by $750,000. The Company agrees to file the Certificate of
Designation of Series C Preferred Stock within seven days following the filing
of the Amendment and to issue to WSI certificates representing 750,000 shares of
the Company's Series C Preferred Stock as soon as practicable after the filing
of the Certificate of Designation of Series C Preferred Stock (the "Issuance
Date").
1.2. Modification of 1995 Note. As consideration for the purchase and sale
in Section 1.1, on the date of this Agreement, WSI agrees to modify the 1995
Note by reducing its principal amount by $750,000 effective as of the date of
this Agreement.
1.3. Reinstatement of 1995 Note Principal Amount. If the 750,000 shares of
the Company's Series C Preferred Stock described in Section 1.1 are not issued
to WSI within ninety days of the date of this Agreement, the $750,000 principal
amount of the 1995 Note shall automatically be reinstated and this Agreement
shall be null and void.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
2.1. Representations and Warranties of the Company. The Company hereby
represents and warrants as follows:
2
<PAGE> 6
2.1.1. Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, has full requisite corporate power and authority to carry on its
business as it is currently conducted, and to own and operate the properties
currently owned and operated by it, and is duly qualified or licensed to do
business and is in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the properties owned or
the nature of the business conducted by it would make much qualification or
licensing necessary, except where the failure to be so qualified or licensed
would not have a material adverse effect on its financial condition, properties
or business.
2.1.2. Agreement Authorized and its Effect on Other Obligations. The
execution and delivery of this Agreement has been authorized by the board of
directors of the Company, the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of the Company, and this Agreement is a valid and binding
obligation of the Company, enforceable against the Company (subject to normal
equitable principles) in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, debtor relief or
similar laws affecting the rights of creditors generally. The consummation of
the transactions contemplated by this Agreement will not conflict with or
result in a violation or breach of any term or provision of, not constitute a
default under (i) the Certificate of Incorporation or Bylaws of the Company or
(ii) any obligation, indenture, mortgage, deed of trust, lease, contract or
other agreement to which the Company or any of its subsidiaries is a party or
by which any of them or their properties are bound.
2.1.3. Validity of Stock. On the Issuance Date, the Series C Preferred
Stock to be issued to WSI hereunder will be in due and proper form, will be
duly authorized by all necessary corporate action on the part of the Company,
and will be validly issued, fully paid and non-assessable shares of Series C
Preferred Stock, free of preemptive rights. Upon delivery of the shares of
Series C Preferred Stock, WSI will acquire valid and marketable title to such
shares of Series C Preferred Stock, free and clear of any encumbrances. The
Common Stock issuable upon conversion of the Series C Preferred Stock has been
duly authorized by all the necessary corporate acts on the part of the Company
and when issued will be validly issued, fully paid and nonassessable shares of
Common Stock of the Company free of preemptive rights. Upon delivery of the
shares of Common Stock upon conversion of the Series C Preferred Stock, WSI
will acquire valid marketable title to such Common Stock free and clear of any
encumbrances.
2.1.4. Capitalization. As of the Effective Date, the authorized
capitalization of the Company will consist of 15,000,000 shares of Common Stock
and 1,000,000 shares of preferred stock, without par value. As of the Issuance
Date, the authorized capitalization of the Company will consist of 40,450,000
shares of Common Stock and 16,050,000 shares of preferred stock, without par
value.
3
<PAGE> 7
2.1.5. Reports and Financial Statements. The Company has furnished to WSI
true and complete copies of its annual report (the "10-K") filed with the
Commission pursuant to the Exchange Act for the fiscal year ended September 30,
1997, and (ii) the Company's quarterly report (the "10-Q") flied with the
Commission for the fiscal quarter ended December 31, 1997 (the 10-K and l0-Q
collectively, the "Disclosure Documents"). The consolidated financial statements
of the Company and its consolidated subsidiaries included in the Disclosure
Documents were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved and fairly
present the consolidated financial position for the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and changes in financial position of the periods then ended, and the
10-K and lO-Q did not contain any untrue statement of a material fact or fail to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Since September 30, 1997, the Company has filed with the
Commission all material reports, registration statements and other material
filings required to be filed with the Commission under the rules and regulations
of the Commission.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF WSI
3.1. Representations and Warranties of WSI. WSI represents and warrants as
follows:
3.1.1. Organization and Standing. WSI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has full requisite corporate power and authority to carry on its business as it
is currently conducted, to own and operate the properties currently owned and
operated by it, and is duly qualified or licensed to do business and is in good
standing as a foreign corporation authorized to do business in all jurisdictions
in which the character of the properties owned or the nature of the business
conducted by it would make such qualification or licensing necessary, except
where the failure to be so qualified or licensed would not have a material
adverse effect on its financial condition, properties or business.
3.1.2. Agreement Authorized and its Effect on Other Obligations. The
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of WSI, and this
Agreement is a valid and binding obligation of WSI enforceable (subject to
normal equitable principles) in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, debtor
relief or similar laws affecting the rights of creditors generally. The
consummation of the transactions contemplated by this Agreement will not
4
<PAGE> 8
conflict with or result in a violation or breach of any term or provision of, or
constitute a default under (i) the Certificate of Incorporation or Bylaws of WSI
or (ii) any obligation, indenture, mortgage, deed of trust, lease, contract, or
other agreements to which WSI or any of its subsidiaries is a party or by which
any of them or their properties are bound.
3.1.3. Ownership of 1995 Note. WSI owns the 1995 Note free and clear of any
encumbrances or rights of any third parties and has the full right and authority
to cancel the indebtedness represented thereby as contemplated by this
Agreement. Upon consummation of the transactions contemplated hereby, the
portion of the debt evidenced by the 1995 Note repaid upon issuance of the
Series C Preferred Stock shall no longer be outstanding.
3.1.4. Investment Intent. WSI is acquiring the shares of Series C Preferred
Stock solely for its own account and not with a view to the public distribution
thereof. WSI acknowledges that the shares of Series C Preferred Stock being
issued hereunder will not be registered under the Securities Act of 1933, as
amended (the "Securities Act"), and agrees that it will only re-offer or resell
the shares of Series C Preferred Stock in compliance with the requirements of
Rule 144 promulgated under the Securities Act, in accordance with any other
available exemption from the registration requirements of the Securities Act, or
pursuant to a valid registration statement under the Securities Act. WSI
acknowledges that upon acquisition of the shares of Series C Preferred Stock
(other than in connection with a registered offering thereof), and until such
time, if any, as WSI has received an opinion of counsel to WSI, in form and
substance satisfactory to the Company, that it is no longer necessary or
advisable, the certificate(s) representing such Series C Preferred Stock shall
bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED By THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
OTHER APPLICABLE SECURITIES LAW AND, ACCORDINGLY, THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE
TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER,
OR IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND
IN ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS."
3.1.5. Investor Sophistication. WSI acknowledges and understands that it
must bear the economic risk of this investment for an indefinite period of time.
WSI has experience in analyzing and investing in entities like the Company, can
bear the economic risk of its investment, including the full loss of its
investment, and by reason of its business or financial experience, has the
capacity to evaluate the merits and risks of its investment and to protect its
own interests in connection with the purchase of Series C Preferred Stock from
the Company.
5
<PAGE> 9
ARTICLE 4
ADDITIONAL AGREEMENTS OF THE COMPANY
4.1. Further Assurances. The Company hereby covenants and agrees to take
all actions within its power after the date hereof to effect the transactions
contemplated by this Agreement, including but not limited to the filing with the
Delaware Secretary of State of the Amendment and the certificate of designation
relating to the Series C Preferred Stock.
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
5.1. Conditions Precedent to Obligations of WSI. The obligation of WSI to
consummate and effect the transactions contemplated hereby shall be subject to
the satisfaction of the following conditions or to the waiver thereof by WSI:
5.1.1. No Material Litigation. No suit, action or other proceeding
shall be pending or threatened before any court or governmental agency in
which it will be, or it is, sought to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the
consummation of the transactions contemplated hereby.
5.1.2. Opinion of counsel. WSI shall have received a favorable
opinion, dated as of the date of this Agreement, from Porter & Hedges,
L.L.P., counsel for the Company, in form and substance satisfactory to WSI,
to the effect that (i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
State of Delaware; (ii) all proceedings required to be taken by or on the
part of the Company to authorize the execution of this Agreement and the
implementation of the transactions contemplated hereby have been taken;
(iii) this Agreement has been duly executed and delivered by, and is the
legal, valid and binding obligation of the Company and is enforceable
against the Company in accordance with its terms, except as enforceability
may be limited by (a) equitable principles of general applicability or (b)
bankruptcy, insolvency, reorganization, fraudulent conveyance or similar
laws affecting the rights of creditors generally; and (iv) the Series C
Preferred Stock, when issued, will have been duly authorized by all
necessary corporate action on the part of the Company, and will be validly
issued, fully paid and nonassessable shares of Series C Preferred Stock,
free of preemptive rights. Such opinion also shall cover such other matters
incident to the transactions herein contemplated as WSI may reasonably
request.
6
<PAGE> 10
5.2. Conditions Precedent to Obligations of the Company. The obligations
of the Company to consummate the transactions contemplated hereby shall be
subject to the satisfaction of the following conditions or to the waiver
thereof by the Company.
5.2.1. No Material Litigation. No suit, action or other
proceeding shall be pending or threatened before any court or
governmental agency in which it will be, or it is, sought to restrain or
prohibit or to obtain damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
5.2.2. Opinion of Counsel. The Company shall have received a
favorable opinion, dated the date of this Agreement, from Blanchard,
Walker, O'Quinn & Roberts, counsel to WSI, in form and substance
satisfactory to the Company, to the effect that (i) WSI has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the State of Delaware; (ii) all corporate or other
proceedings required to be taken by or on the part of WSI to authorize the
execution of this Agreement and the implementation of the transactions
contemplated hereby have been taken; (iii) this Agreement has been duly
executed and delivered by, and is the legal, valid and binding obligation
of WSI, and is enforceable against WSI in accordance with its terms,
except as enforceability may be limited by (a) equitable principles of
general applicability or (b) bankruptcy, insolvency, reorganization,
fraudulent conveyance or similar laws affecting the rights of creditors
generally. Such opinion shall also cover such other matters incident to
the transactions herein contemplated as the Company and its counsel may
reasonably request.
ARTICLE 6
MISCELLANEOUS
6.1. Entirety. This Agreement embodies the entire agreement among the
parties with respect to the subject matter hereof, and all prior agreements
between the parties with respect thereto are hereby superseded in their
entirety.
6.2. Counterparts. Any number of counterparts of this Agreement may be
executed and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
instrument.
6.3. Notices and Waivers. Any notice or waiver to be given to any party
hereto shall be in writing and shall be delivered by courier, sent by facsimile
transmission or first class registered or certified mail, postage prepaid,
return receipt requested as follows:
7
<PAGE> 11
IF TO THE COMPANY
Addressed to: With a copy to:
3CI Complete Compliance Corporation Porter & Hedges, L.L.P.
910 Pierremont, Suite 312 700 Louisiana, 35th Floor
Shreveport, Louisiana 71106 Houston, Texas 77210-4744
Attn: Charles D. Crochet Attention: Samuel N. Allen
Facsimile: (713) 228-1331
IF TO WSI
Waste Systems, Inc. Blanchard, Walker, O'Quinn & Roberts
910 Pierremont, Suite 312 Bank One Tower
Shreveport, Louisiana 77106 P.O. Drawer 1126
Attn: Dr. Clemens Pues Shreveport, Louisiana 71163
Attn: Robert Johnson
Facsimile: (318) 227-2767
Any communication so addressed and mailed by first-class registered or
certified mail, postage prepaid, with return receipt requested, shall be
deemed to be received on the third business day after so mailed, and if
delivered by courier of facsimile to such address, upon delivery during normal
business hours on any business day.
6.4 Termination of Representations, Warranties, etc. The respective
representations and warranties of the Company and WSI contained herein shall
expire on the date of this Agreement.
6.5 Table of Contents and Captions. The table of contents and captions
contained in this Agreement are solely for convenient reference and shall not be
deemed to affect the meaning or interpretation of any article, section, or
paragraph hereof.
6.6 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
6.7 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
6.8 Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Louisiana.
8
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed in their respective corporate names by their respective duly authorized
representatives, all as of the day and year first above written.
3CI COMPLETE COMPLIANCE CORPORATION
By: /s/ CHARLES D. CROCHET
---------------------------------
Charles D. Crochet, President
WASTE SYSTEMS, INC.
By: /s/ DR. CLEMENS PUES
---------------------------------
Dr. Clemens Pues
9
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Public Accountants
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 13, 1998, except for Note 14, as to which
the date in March 20, 1998, in the Registration Statement on Form S-1 and
related Prospectus of 3CI Complete Compliance Corporation for the registration
of 1,518,434 shares of its Common Stock.
HEARD, MCELROY & VESTAL, LLP
Shreveport, Louisana
March 20, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated January 10, 1996 on the consolidated financial statements of 3CI
Complete Compliance Corporation for the year ended September 30, 1995 and all
references to our Firm included in this registration statement on Form S-1
dated March 23, 1998 filed by 3CI Complete Compliance Corporation.
ARTHUR ANDERSEN LLP
Houston, Texas
March 23, 1998
