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FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Fee Required)
For the fiscal year ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(No Fee Required)
For the transition period from __________________ to _________________
Commission file number 1-11097
3CI COMPLETE COMPLIANCE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 76-0351992
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
910 Pierremont, #312
Shreveport, LA 71106
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (318)869-0440
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Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Voting Stock held by non-affiliates of the
registrant as reported on the OTC Bulletin Board on January 11, 2000 was
approximately $2,811,807 million computed on the basis of the closing sale price
that day. The number of shares of Common Stock outstanding as of the close of
business on January 11, 2000 was 9,197,325.
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3CI COMPLETE COMPLIANCE CORPORATION
TABLE OF CONTENTS *
ANNUAL REPORT ON FORM 10-K
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PAGE
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PART I
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Item 1. Business ............................................................ 3
Item 2. Properties .......................................................... 10
Item 3. Legal Proceedings ................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders ................. 11
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters......................... 11
Item 6. Selected Financial Data ............................................. 13
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................... 14
Item 7a. Quantitative and Qualitative Disclosures about Market Risk .......... 17
Item 8. Financial Statements and Supplementary Data ......................... 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ........................... 18
PART III
Item 10. Directors and Executive Officers of the Registrant .................. 18
Item 11. Executive Compensation .............................................. 20
Item 12. Security Ownership of Certain Beneficial
Owners and Management ......................................... 22
Item 13. Certain Relationships and Related
Transactions .................................................. 23
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K ....................................... 24
Signature Page ................................................................. 26
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* This Table of Contents is inserted for convenience of reference only and is
not a part of this Report as filed.
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PART I
ITEM 1. BUSINESS
GENERAL.
3CI Complete Compliance Corporation ("3CI" or the "Company") was
incorporated in Delaware in 1991. The Company is engaged in the business of
medical waste management services. It services customers in a number of states
in and contiguous to the south and southeastern United States, including
Alabama, Arkansas, Georgia, Florida, Louisiana, Mississippi, 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 medical waste generators. Services to customers include collection,
transportation, bar code identification and destruction by controlled high
temperature incineration, autoclav, microwave and chemical grinding and heating
technologies. The Company also provides training to customers on compliance with
regulations, use of containers, documentation and tracking.
"Medical waste" or "biomedical waste," as used herein, is broadly
defined to mean 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 tend to 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. Also included are out of date or off specification
pharmaceutical wastes. "Medical waste" or "biomedical waste" as used herein,
does not include "hazardous waste," as such term is commonly defined under state
and federal regulations.
The Company believes the key to success in the medical waste management
business is to provide customers a total solution to their medical waste
compliance and disposal needs at competitive prices. To achieve and sustain a
competitive advantage in the medical waste disposal industry, the Company
provides the products and services described below to its customers.
DISPOSAL TECHNOLOGY
INCINERATION. The Company operates two incinerators with a capacity to
treat 36 tons of medical waste per day at its Springhill, Louisiana facility and
one incinerator with a treatment capacity of 12 tons per day at its Birmingham,
Alabama location. 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, which 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(Degree)F to
2000(Degree)F, assuring the destruction of all pathogens. This process produces
exhaust gas that is subsequently passed through scrubbers and bag houses to
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. Ash currently is not considered
hazardous under regulations of the Environmental Protection Agency ("EPA"), but
is regulated at the state level by various state agencies.
AUTOCLAVING. The Company treats a portion of its waste using
autoclaving. A conventional steam autoclave is a large cylindrical chamber with
a vacuum lock door. It uses high temperature steam in a multi-stage process to
sterilize or disinfect waste. In some processing facilities the treated waste is
then transported to a landfill without any shredding, while in others the
treated waste is fed into a shredder/grinder to render the waste unrecognizable
and to reduce volume.
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Although there are a range of other methods used for disposal of
medical waste, such as the use of microwave technology, incineration and
autoclaving are the most widely used technologies in the United States. The
other technologies below are accepted, but are either new or developing.
MICROWAVE. The Company operates one microwave unit with a capacity to
treat 10.8 tons of medical waste per day at its Birmingham, Alabama location.
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.
CHEM-CLAV. The Company operates one Chem-Clav unit with a capacity to
treat 24 tons of medical waste per day at its Springhill, Louisiana facility.
The Chem-Clav is a chemically enhanced steam autoclave that uses sodium
hypocholrite to sanitize the medical waste before its introduction into the
steam autoclave. The Chem-Clave process runs waste through a grinder prior to
treatment to enhance sterilization and to render it unrecognizable. The treated
waste is then transferred to an approved landfill.
ALTERNATIVE TECHNOLOGIES; TECHNOLOGICAL OBSOLESCENCE
The regulated 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
other environmental factors.
DISPOSAL AGREEMENTS
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 the Company provides and transports it in
Company vehicles to treatment facilities the Company owns or for which the
Company has long-term contractual rights. The Company uses a bar code technology
to track and record the movement of medical waste through all phases of its
handling and treatment, in compliance with applicable governmental regulations.
The Company also enters into disposal agreements with other medical
waste transporters and manufacturers and distributors of pharmaceuticals for the
treatment and related documentation of medical waste and out dated
pharmaceuticals. The Company intends to continue to enter into such agreements
to the extent possible in order to maximize utilization of its treatment
capacity without affecting its service to its regular customers.
MEDICAL WASTE CONTAINERS
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
furnishes its customers with multiple containers including, reusable plastic
carts, plastic reusable containers, and 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 that its emphasis on proper containerization results in safer
medical waste disposal and minimizes potential hazards or liabilities to the
Company and its customers.
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Beginning in 1996, the Company began to increase the use of reusable
plastic containers for certain customers. The Company believes the use of
reusable containers has the potential to lower costs to the Company. The rigid,
plastic containers generally are larger than the disposable boxes and can
therefore hold greater volumes of waste.
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 transportation of containerized medical waste.
Drivers are trained in Department of Transportation ("DOT") procedures for the
transportation of medical waste. The Company has in place 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.
INCINERATION CONTRACTS
The Company had exclusive incineration rights, for a capacity of 30
tons per day, at an incinerator operated by the City of Carthage, Texas, which
expired in June 1999. In order to maintain its rights under the agreement, the
Company was required to pay minimum annual fees of approximately $550,000 to
$1,000,000 during the term of the agreement. During the contract period ending
May 31, 1999, 1998, and 1997, the Company paid fees in the aggregate amount of
approximately $492,235, $1,277,033, and $1,401,692 respectively under the
agreement. The Company elected not to pay the minimum fee for the period ended
May 31, 1999 required to retain exclusivity as the sole company to treat medical
waste at the facility.
The Company also had exclusive 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 exclusive rights
under the agreement, the Company was required to pay minimum annual fees of
approximately $300,000 to $900,000 during the term of the agreement. During
fiscal 1997, the Company paid fees in the aggregate amount of approximately
$27,000 under the agreement.
During fiscal year 1996, the Company became aware that the City of
Center was not meeting certain contractual obligations. The most critical
obligation was the City of Center's breach of the exclusivity clause in the
contract. The Company stopped using the City of Center's incinerator and ceased
making payments of burn fees. In 1997, the City of Center filed a lawsuit to
recover $80,000 for the non-payment of burn fees and the Company filed counter
claims against the City of Center for the breach of the exclusivity in the
contract. The lawsuit was settled. The City of Center has foregone its claim of
burn fees as originally demanded and agreed to make installment payments over 24
months to the Company in the aggregate amount of $380,000 for breaking the
exclusivity of the contract. The Company received $200,000 of this settlement in
October 1998, with the remaining balance of $180,000 to be paid over 24 months.
The balance as of September 30, 1999 is $105,000.
DOCUMENTATION AND REPORTING
The bar code 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 stream. 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
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regular basis with medical waste destruction reports that document the
acceptance, transportation, treatment and third party verification of their
medical waste disposal. The Company's detailed documentation provides
information on all waste it accepts and treats, including the individual
container bar code number, point of origin, date and time of pick up, date and
time of treatment, weight at time of treatment 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 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.
CUSTOMERS
The Company's health care customer base is diverse, with about 15,000
accounts in Arkansas, Florida, Georgia, Louisiana, Texas, Alabama, Mississippi,
and Tennessee, including 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
individual customer generates five percent or more of the Company's revenues.
SALES AND MARKETING
The Company divides its market into three categories within each
geographic region: the hospital market, the professional market and 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, laboratories, nursing and convalescent homes,
medical and veterinarians' offices, and 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 seeks to achieve
a mix of both hospital and professional accounts which maximizes its resources
in each given market area.
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
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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 waste generators. The Company's majority shareholder, Waste Systems,
Inc. ("WSI") is owned by Stericycle, Inc. ("Stericycle"), which also operates in
some of the Company's operating markets.
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. The Company carries $3,000,000 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. The Company believes that the types
of insurance it carries and amounts of coverage are customary in the industry
and are sufficient to protect the Company against the covered liabilities. There
can be no assurance, however, the Company's insurance will be adequate under all
circumstances or that the Company will be able to maintain it's current
insurance at existing levels and prices, or at all.
EMPLOYEES
A September 30, 1999, the Company had approximately 176 full-time and 8
part-time employees. Two of the employees are employed in executive capacities,
the remainder are in transportation operations, treatment facility operations,
sales positions and administrative and clerical capacities. None of the
Company's employees are subject to collective bargaining agreements. The Company
has not experienced any strikes or work stoppages and considers its relationship
with its employees to be satisfactory.
GOVERNMENTAL REGULATIONS
GENERAL. 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 and
incineration ash characteristics and disposal are regulated under different but
related laws, rules and ordinances.
The Company's activities are subject to federal laws and regulations
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 which
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.
TREATMENT FACILITIES. The Company is required to obtain permits at
federal, local and state levels for the construction and operation of treatment
facilities. These efforts typically involve the expenditure of substantial
resources without any assurance of success. Such permits may include: (i) air
quality permits relating to the emissions from treatment facilities, (ii) solid
waste permits relating to storage, receipt and treatment of medical waste, the
storage and disposal of residues from the treatment facilities, and ancillary
air pollution control equipment relative to 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 sites 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.
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Companies in the medical waste disposal industry often face resistance
to various permit applications from local and regional organizations, citizens
groups and residents because of the nature of the waste and the perceived threat
to air quality and public health caused by waste processing. The Company often
must conduct a public relations campaign, with an emphasis on education, to
overcome local opposition, which often is highly political and emotional.
Furthermore, once granted, permits often are 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 permit such transfer operations under their solid waste regulatory
authority or their 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.
STATE TRANSPORT PERMITS. Transportation permits currently are 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 Arkansas, Louisiana, Texas, Mississippi, Alabama, Georgia,
Florida, Oklahoma, and Tennessee. There can be no assurance 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 treatment 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 and to train employees in the use of such substances. This may be
found to apply in the case of chemicals that could be present in infectious
medical waste.
OSHA contains rules regarding exposure to blood borne pathogens, which
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 Environmental Protection
Agency ("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:
(a) cause, or significantly contribute to, an increase in
mortality or an increase in serious irreversible or
incapacitating reversible illness; or
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(b) poses 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 being infectious been designated by the EPA as one of the
characteristics of a hazardous waste. Thus, infectious medical wastes, which 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 currently are 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.
Finally, facility ash may constitute hazardous waste depending upon the
composition and characteristics of the waste ash generated by the incineration
technology employed. 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 of 1994. The DOT regulations
contain packaging and labeling requirements, which 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 promulgated by the Public Health Service of the U.S. Department of
Health and Human Services.
A significant portion of the waste the Company handles is "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. The DOT regulations
also prescribe labeling standards for all infectious and regulated waste and
testing protocols for manufacturers and suppliers of packaging.
In addition, the Company generally is 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
Super-fund Amendments and Reauthorization Act of
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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, and related 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 disposition 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. Pursuant to the Federal Clean Water Act,
the EPA has promulgated extensive effluent and water quality standards as well
as permitting requirements for industrial discharges of water. The Company is
required to design, construct and operate its facilities in accordance with the
Federal Clean Air Act and the Federal Clean Water Act and obtain all permits and
approvals required therein.
THE FOOD AND DRUG ADMINISTRATION ("FDA"). The Company is subject to
regulation 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 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.
STATE REGULATION
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. The Company's vehicles,
packaging, facilities and operating procedures are 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.
ITEM 2. PROPERTIES
The Company leases approximately 6,100 square feet of office space in
Shreveport, Louisiana under a lease expiring in December 2000. The Company paid
approximately $77,328 during fiscal 1999 under the lease. A summary description
of the Company's operating properties is set forth below:
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LOCATION TYPE OF FACILITY CAPACITY OWNED/LEASE
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Shreveport, LA Corporate Office N/A Leased
Austin, TX Sales & Transportation N/A Leased
Carthage, TX Sales & Transportation N/A Leased
Grand Prairie, TX Sales & Transportation N/A Leased
Kenner, LA Sales & Transportation N/A Leased
Fresno, TX Sales & Transportation, Transfer Station N/A Owned
Birmingham, AL Sales & Transportation N/A Leased
Jackson, MS Sales & Transportation, Transfer Station N/A Owned Land
Springhill, LA Sales & Transportation N/A Owned
Bismark, AR Sales & Transportation, Transfer Station N/A Leased
Carthage, TX Incinerator 30 tons/day Leased
Springhill, LA Incinerator 36 tons/day Owned
Springhill, LA Chem-Clav 24 tons/day Lease-Purchase
Birmingham, AL Incinerator 12 tons/day Owned
Birmingham, AL Microwave Unit 10.8 tons/day Owned
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The Company believes that its facilities are adequate for its current
and foreseeable needs.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is subject to certain litigation and
claims arising in the ordinary course of business. Management believes the
amounts ultimately payable, if any, as a result of such claims and assessments
will not have a materially adverse effect on the Company's financial position,
results of operations or net cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's stockholders during
the fourth quarter of the fiscal year ended September 30, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded over-the-counter on the OTC
Bulletin Board under the symbol "TCCC." On March 15, 1999, the Company received
notification from the NASDAQ Stock Market, of its failure to meet the minimum
bid price requirement for continued listing of its common stock for trading on
the NASDAQ SmallCap Market. The Company requested and received an oral hearing
that took place on July 29, 1999, before a NASDAQ Listing Qualifications Panel
(the "Panel") to determine the Company's continued listing. On September 14,
1999, the Company was informed that the Panel determined that the Company's
securities would be delisted from the NASDAQ Stock Market effective with the
close of business on September 14, 1999. The securities of the Company were
immediately eligible to be traded on the OTC Bulletin Board. On September 27,
1999, the Company requested that the written record of the panel decision be
reviewed by the NASDAQ Listing and Hearing Review Council ("Review Council").
The Company has been notified that the Review Council will likely issue its
decision in March 2000.
The following table provides the high and low bid quotations for the
NASDAQ small-cap market up to September 14, 1999, and on the OTC Bulletin Board
thereafter for each of the quarterly periods indicated. These quotations reflect
the inter-dealer prices, without retail mark-up, mark-down or commission and may
not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
FISCAL 1998:
------------
<S> <C> <C>
First Quarter $2.688 $0.750
Second Quarter $1.500 $0.719
Third Quarter $2.125 $1.000
Fourth Quarter $1.750 $0.563
FISCAL 1999:
------------
First Quarter $1.375 $0.750
Second Quarter $1.188 $0.469
Third Quarter $0.938 $0.531
Fourth Quarter $0.813 $0.250
</TABLE>
11
<PAGE> 12
As of December 29, 1999, the approximate number of holders of record of
the Company's Common Stock was 425, and the closing sale price of the Common
Stock on January 11, 2000 was $0.687.
The Company did not pay any dividends during fiscal year ended 1999 and
has never paid any dividends on its capital stock. The Company currently expects
that it will retain future earnings for use in the operation and expansion of
its business and does not anticipate paying any cash dividends in the
foreseeable future.
12
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The following information is derived from the Company's audited
financial statements. This data should be read in conjunction with the financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Report.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1999 1998 1997 1996 1995(1)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Selected Statement of Operations Data:
Revenues ............................... $ 18,121,295 $ 19,008,696 $ 18,789,749 $ 17,748,300 $ 16,522,025
Costs and expenses:
Cost of Sales .......................... 12,609,173 14,058,522 14,285,834 13,815,480 11,756,968
Write off of intangibles ............... -- -- -- 11,385,328 --
Write off of assets .................... -- -- -- 1,183,446 --
Selling, general and administrative .... 3,030,843 3,110,671 3,080,398 4,343,246 6,996,575
Depreciation and amortization .......... 1,750,702 1,297,620 1,352,015 2,224,161 1,976,212
------------ ------------ ------------ ------------ ------------
Total operating expenses ................... 17,390,718 18,466,813 18,718,247 32,951,661 20,729,755
------------ ------------ ------------ ------------ ------------
Income (loss) from operations ............... 730,577 541,883 71,502 (15,203,361) (4,207,730)
Other expense, net .......................... (158,935) (529,994) (1,159,690) (1,053,424) (655,080)
Accretion of put option .................... -- -- -- (26,052) (217,075)
------------ ------------ ------------ ------------ ------------
Net income (loss) ........................... $ 571,642 $ 11,889 $ (1,088,188) $(16,282,837) $ (5,079,885)
============ ============ ============ ============ ============
Earnings before interest tax depreciation
and amortization ............................ $ 3,233,785 $ 1,971,224 $ 973,731 $(13,186,766) $ (2,448,593)
Basic net income (loss) per common share .... $ 0.06 $ 0.01 $ (0.12) $ (1.84) $ (0.60)
============ ============ ============ ============ ============
Diluted net income (loss) per share ......... $ 0.03 $ 0.01 $ (0.12) $ (1.84) $ (0.60)
============ ============ ============ ============ ============
SELECTED BALANCE SHEET DATA:
Working capital (deficit) ................... (4,903,722) (6,785,489) (6,135,666) (10,774,499) (2,546,818)
Property, plant and equipment, net .......... 8,819,935 9,897,085 8,449,748 8,462,619 9,388,722
Total assets ................................ 13,065,607 14,618,340 13,157,605 13,374,819 25,518,596
Long-term debt, current maturities .......... 739,401 1,619,889 1,373,617 1,314,290 1,475,622
Long-term debt, net of current maturities ... 1,120,241 986,524 986,467 742,400 5,575,622
Shareholders' equity ........................ 3,347,619 2,759,511 1,964,122 (4,014,035) 11,821,339
</TABLE>
(1) The fiscal 1995 balances include the acquisition of the assets of River
Bay Corporation after the acquisition date.
- -------------------
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is engaged in the business of medical waste management
services in the southwestern and southeastern United States. 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 medical waste generators. Services
include collection, transportation, bar code identification and destruction by
controlled, high temperature incineration and alternative treatment
technologies.
Competition in the medical waste industry has been high for several
years. The Company competes against companies that have access to greater
capital resources. One of those competitors is Stericycle, Inc. which owns 100%
of the capital stock of Waste Systems, Inc. (WSI), the Company's majority
shareholder. During fiscal year 1999, the medical waste industry became more
consolidated. In November 1999, Stericycle, Inc. completed the purchased of the
medical waste assets formerly operated by Browning-Ferris Industries, Inc., its
largest competitor, from Allied Waste.
The Company has substantial indebtedness owed to WSI. This indebtedness
currently consists of an October, 1998 note in the principal amount of
$5,774,165. In 1997 and 1998 through a series of transactions described below,
certain additional debt that the Company owed to WSI previously was converted
into 7,000,000 shares of the Company's Series B Convertible Preferred Stock, par
value $.01 per share (the "Series B Preferred Stock") and 750,000 shares of the
Company's Series C Convertible Preferred Stock, par value $.01 per share (the
"Series C Preferred Stock"). The Series B Preferred Stock and Series C Preferred
Stock have substantially identical terms. (See "--Liquidity and Capital
Resources" and Note 12 to the financial statements.)
YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1998
REVENUES decreased by $887,401, or 4.7%, to $18,121,295 during the fiscal year
ended September 30, 1999, from $19,008,696 for the fiscal year ended September
30, 1998. This decrease is primarily a result of the Company selling off certain
routes in its Oklahoma territory.
COST OF SERVICES decreased $1,449,349, or 10.3%, to $12,609,173 during the year
ended September 30, 1999, compared to $14,058,522 for fiscal 1998. The decrease
is attributable to lower costs at the Company's treatment facilities and a
reduction in transportation cost, as well as the sale of certain routes in the
Company's Oklahoma territory. Cost of revenues as a percentage of revenues
decreased to 69.6% during 1999 from 74.0% during 1998. Gross margin before
depreciation and amortization totaled 30.4% of revenue compared to 26% for the
fiscal year ended.
DEPRECIATION AND AMORTIZATION expense increased $453,082 or 34.9% to $1,750,702
for fiscal 1999 from $1,297,620 for fiscal 1998. This increase is primarily due
to management's decision on September 30, 1998 to revise the useful lives of
certain incinerators, bag houses and other treatment technology based upon a
review of expected remaining useful lives of these assets. This change in
accounting estimate increased depreciation expense by approximately $285,000 for
1999.
SELLING, GENERAL AND ADMINISTRATIVE expenses decreased $79,828, or 2.6% to
$3,030,843 during the year ended September 30, 1999 from $3,110,671 during the
year ended September 30, 1998. The decrease was primarily attributable to the
reduction in salaries and other professional fees. Selling, general and
administrative, as a percentage of revenue increased to 16.7% in fiscal 1999
from 16.4% in fiscal 1998.
INTEREST EXPENSE increased by $249,696, or 37.7%, to $911,411 during the fiscal
year ended September 30, 1999, from $661,715 in fiscal 1998. This increase
resulted from increased borrowings to purchase capital equipment and an increase
in its interest rate from WSI.
14
<PAGE> 15
OTHER INCOME AND EXPENSE increased approximately $620,755 or 471% to $752,476
due primarily to the sale of certain of the Company's routes in Oklahoma.
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO THE YEAR ENDED SEPTEMBER 30, 1997
REVENUES increased by $218,947, or 1.2%, to $19,008,696 during the fiscal year
ended September 30, 1998, from $18,789,749 for the fiscal year ended September
30, 1997. This increase is primarily attributable to the Company focusing on
higher margin generators of medical waste, offset by lower service fees that
resulted from increasing price competition in the industry.
COST OF SERVICES decreased $227,312, or 1.6%, to $14,058,522 during the year
ended September 30, 1998, compared to $14,285,834 for fiscal 1997. The principal
reasons for the decrease were due to the reduction of outside incineration fees
and from lowered transportation costs. Cost of services as a percentage of
revenues decreased to 74.0% during 1998 from 76.0% during 1997. Gross margin as
a percentage of revenues before depreciation and amortization was 26% compared
to 24% for the year ended 1997.
DEPRECIATION AND AMORTIZATION expense decreased to $1,297,620 for fiscal 1998
from $1,352,015 for fiscal 1997. The decrease was attributable to the completed
depreciation of certain assets during 1997.
SELLING, GENERAL AND ADMINISTRATIVE expenses increased to $3,110,671 during the
year ended September 30, 1998 from $3,080,398 during the year ended September
30, 1997. The increase was primarily attributable to legal fees. Selling,
general and administrative as a percentage of revenue remained constant at
16.4%.
INTEREST EXPENSE decreased by $240,514, or 26.7%, to $661,715 during the fiscal
year ended September 30, 1998, from $902,229 in fiscal 1997. This decrease
resulted from WSI converting $7,750,000 of outstanding indebtedness owed by the
Company to WSI into preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its working capital needs,
capital expenditures, and acquisitions using internally generated funds as well
as borrowings from third parties and advances from WSI. The Company's
indebtedness currently consists of amounts owed to WSI described below,
insurance premiums that are financed over the course of each fiscal year, debt
incurred in connection with the leasing of the Chem-Clav unit, and the
indebtedness incurred in connection with the purchase of rolling stock.
During fiscal 1999, 1998, and 1997, the Company invested approximately
$688,345, $2,789,934, and $1,416,758 respectively, for transportation, machinery
and equipment at its treatment and transportation locations, computer equipment
and software. The 1998 amount includes approximately $810,000 for the
construction of the Chem-Clav unit at the Company's Springhill, Louisiana
treatment facility.
In June 1999, the Company established a master lease agreement in the
amount of $3,000,000 with LaSalle National Leasing Corporation. Of the total,
$2,000,000 is to be utilized for the leasing of transportation equipment, and
$1,000,000 for the financing of equipment, of which $633,583 had been utilized
at September 30, 1999. This agreement is guaranteed by Stericycle, Inc. which
owns 100% of WSI.
In June 1995, the Company executed a $6,000,000 revolving promissory
note with WSI (the 1995 Note"). The 1995 Note was renegotiated in September
1995, to increase the total borrowings available thereunder to $8,000,000
including interest, with the principal not to exceed $7,400,000. The 1995 Note
was due and payable in full on September 30, 1998, at which time the company had
outstanding borrowings of $5,004,403.
15
<PAGE> 16
During fiscal year 1996, the Company received cash advances from WSI in
excess of amounts available under the 1995 Note. As a result, in December 1996,
the Company and WSI entered into a $2.7 million Revolving Credit Facility (the
"1996 Credit Facility"), with a maturity date of February 28, 1997. The maturity
date was subsequently extended to June 30, 1997.
In June 1997, WSI converted $7,000,000 of debt into 1,000,000 shares of
the Company's Series A preferred stock and canceled the 1996 Credit Facility the
Company had with WSI and reduced the outstanding indebtedness of the 1995 Note
owed to WSI by $4,300,000. During February 1998, the Company and WSI converted
an additional $750,000 of debt under the 1995 Note into Series C preferred
stock. In March 1998, the Company exchanged 1,000,000 shares of Series A
preferred stock for 7,000,000 shares of Series B preferred stock.
On October 1, 1998, WSI and the Company, amended and restated a
revolving promissory note which had been extended from its original maturity
date in 1997 (the Note). Amounts due under the Note totaled approximately
$5,770,000 as of September 30, 1999 including approximately $145,000 of accrued
interest. The principal balance of approximately $5,600,000 consisted of
approximately $5,004,000 due under the original note, $483,000 of accounts
payable to WSI added to the note on October 1, 1998, and approximately $144,000
of accrued and unpaid interest, which was capitalized and added to the principal
balance effective January 1, 1999. The Note bears interest at the prime rate,
which is currently 8.5%, plus 2.0%. The Company is required to maintain a
minimum level of net worth and comply with certain performance related
covenants. Interest under the note is due and payable in quarterly installments
on the last business day of each calendar quarter. The outstanding principal of
this note and accrued but unpaid interest was originally due September 30, 1999.
As of September 30, 1999, the Company had exercised its option to extend the
note to March 31, 2000. Under the Note, 3CI may also extend the maturity to a
date not later than September 30, 2000.
The Company is in the process of obtaining proposals from WSI, as well
as, third parties related to the refinancing and extension of the existing note
payable. WSI intends to support the Company through the year 2000.
At September 30, 1999, the Company had net working capital, exclusive
of the note payable to its majority shareholder, of $870,443 compared to a
negative net working capital of ($1,781,086) and ($1,291,449) at September 30,
1998 and 1997, respectively. This increase in net working capital of $2,651,529
was due to higher cash balances, lower current liabilities and an overall
improvement in the Company's financial condition resulting from increased cash
flow from operations.
Net cash provided by operating activities was $1,732,430 during the
year ended September 30, 1999, compared to $1,228,643 for the year ended
September 30, 1998. This increase reflects an improvement in the Company's
income from operations. Net cash provided by operations was $1,228,643 during
the year ended September 30, 1998, compared to cash provided by operations of
$111,180 during the year ended September 30, 1997. The change primarily reflects
the Company's profitability in 1998, which was offset by the decrease in accrued
liabilities.
Net cash provided by investing activities for the year ended September
30, 1999, was $1,545. This increase reflected the proceeds from the sale of
certain routes in the Oklahoma territory and the reduction in the level of
capital expenditures from the year ended September 30, 1998. Capital
expenditures for 1999 were $688,345 compared to capital expenditures of
$2,789,934 for 1998. Capital expenditures in fiscal 1999, were primarily for
transportation equipment and containers. Capital expenditures for 1998 were
$2,789,934, primarily for expansion and improvements of existing treatment
facilities, transportation equipment and containers. Capital expenditures in
1997 were $1,416,758.
Net cash used in financing activities was ($1,497,588) during the year
ended September 30, 1999 compared to net cash provided by financing activities
of $1,346,630 during the year ended September 30, 1998. The difference is
primarily the result of repayment of long term debt and notes payable and
16
<PAGE> 17
reduced borrowings. Net cash provided by financing activities during the year
ended September 30, 1998, was $1,346,630 as compared to net cash provided by
financing activities of $1,056,705 during the year ended September 30, 1997.
Earnings before interest, taxes, depreciation and amortization
increased by $1,262,561 to $3,233,755 for the year ended September 30, 1999 as
compared to $1,971,224 for the same period ended September 30, 1998. This
increase consisted principally of the sale of certain routes described above
totaling approximately $920,000 and an overall improvement in the operations of
the Company.
YEAR 2000 ISSUES
The Company has modified its information technology for the year 2000
and has converted critical data processing systems. The Company has
substantially completed a Year 2000 review at a cost of approximately $50,000,
which is reflected in general and administrative expenses for the year ended
September 30, 1999. The Company has an established plan to address additional
hardware and software issues related to its business. The year 2000 plan
comprised a plan for existing hardware and software, and a larger project to
upgrade the Company's overall business information systems. The Company has
conducted an extensive search for other potential year 2000 issues that could
affect its business.
The Company has developed a contingency plan for certain critical
applications. The contingency plans involve, among other actions, manual
workarounds, increasing parts and supplies inventories, and adjusting staffing
strategies.
While the Company has developed contingency plans, to address possible
failure scenarios, the Company recognizes that there are "worst case" scenarios
which may develop and are largely outside the Company's control. The Company
recognizes the risks associated with extended infrastructure (power, water,
telecommunications, fuels) failure, the interruption of customer and other
payments to the Company and the failure of equipment or software that could
impact customer services despite assurances of third parties. Other potential
worst case scenarios include devices and systems failing to operate properly;
material and unplanned expenditures to correct unanticipated year 2000 failures,
extended payment delays from the Company's payers; or litigation related to any
of the above; and costs associated with extended labor intensive contingency
plans.
Additionally, the Company believes that if any material phase or aspect
of its year 2000 project is not completed timely; or if certain mission critical
suppliers and venders, are not able to deliver goods or services after December
31, 1999; or if its contingency plans do not anticipate and effectively address
actually experienced year 2000 related problems or do not effectively address
unanticipated year 2000 related problems, then the Company's results of
operations and financial condition, as well as its day-to-day business
operations and its ability to provide its services could be materially adversely
affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Company's exposure to market risk includes the possibility of rising
interest rates in connection with the Company's credit facility with WSI, its
majority shareholder, thereby increasing the debt service obligation which could
adversely effect the Company's cash flows. The interest rate for the note is
variable and tied to the prime rate. An increase or decrease in the prime rate
of 1% would have the effect of increasing or decreasing interest expense by
approximately $56,000 over 12 months.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and financial statement schedule listed in
Item 14(a)(1) and 14(a)(2) are annexed to this report as a separate section.
17
<PAGE> 18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On September 10, 1999, Heard, McElroy & Vestal LLP was dismissed from
its role as principal accountants. The decision to engage Ernst & Young, LLP for
the audit of the financial statements for the fiscal year ended September 30,
1999 was recommended by the Company's audit committee of Board of Directors
primarily in an effort to reduce outside accounting fees and to benefit from
Ernst & Young's national reputation.
In connection with the audits of the years ended September 30, 1998 and
1997, and the subsequent interim period through September 10, 1999, there were
no disagreements with Heard, McElroy & Vestal LLP on any matter of accounting
principles or practices, financial disclosure, or auditing scope or procedures,
which disagreements if not resolved to their satisfaction would have caused them
to make reference in connection with their opinion to the subject matter of the
disagreement.
The audit reports of Heard, McElroy & Vestal LLP on the financial
statements of 3CI Complete Compliance Corporation as of and for the years ended
September 30, 1998 and 1997, did not contain any adverse opinion or disclaimer
of opinion; however, the 1998 and 1997 financial statements were prepared
assuming that the Company would continue as a going concern. The auditors'
original reports included an explanatory paragraph that described circumstances
that raised substantial doubt about the Company's ability to continue as a going
concern.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of December 29,
1999, with respect to the directors and executive officers of the Company. 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
- ---- --- --------
<S> <C> <C>
Jack W. Schuler 59 Chairman of the Board
Charles D. Crochet 41 President and Director
Curtis W. Crane 40 Chief Financial Officer, Secretary and Treasurer
Mark C. Miller 43 Director
Frank J.M. ten Brink 43 Director
David J. Schoonmaker 55 Director
Anthony J. Tomasello 53 Director
Robert M. Waller 55 Director
</TABLE>
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. Messrs. Jack Schuler, Mark Miller, Frank J.M. ten
Brink and Anthony Tomasello are senior officers of Stericycle, which
beneficially owns 55.5% of the outstanding shares of the Common Stock and 100%
of the preferred stock of the Company.
The following is a summary of the business background and experience of
each of the persons named above:
18
<PAGE> 19
JACK W. SCHULER has served as a Director of the Company since October 1998. Mr.
Schuler has served as Chairman of the Board of Directors of Stericycle, Inc.
since January 1990. From January 1987 to August 1989, Mr. Schuler served as
President and Chief Operating Officer of Abbott Laboratories, a diversified
health care company, where he served as a director from April 1985 to August
1989. Mr. Schuler serves as a director of Chiron Corporation, Medtronic, Inc.
and Ventana Medical Systems, Inc. He is a co-founder of Crabtree Partners LLC, a
private investment firm in Lake Forest, Illinois, which was formed in June 1995.
Mr. Schuler received a B.S. degree in mechanical engineering from Tufts
University and a M.B.A. degree from the Stanford University Graduate School of
Business Administration.
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. Prior to
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. Mr. Crochet received a B.S./B.A. degree in business management from
University of Louisiana, at Lafayette.
CURTIS W. CRANE has served as Chief Financial Officer of the Company since
September 1995. From 1993 until 1995, he served as Chief Financial Officer for
NDE Environmental Corporation and from 1988 until 1993, he served as Director of
Finance and Tax for Lone Star Steel Company. Mr. Crane received a B.B.A. degree
in accounting from the University of Texas.
MARK C. MILLER has served as a Director of the Company since October 1998. Mr.
Miller has served as Stericycle's President and Chief Executive Officer and a
Director since May 1992. From May 1989 until he joined Stericycle, Mr. Miller
served as Vice President for Pacific Asia and Africa in the International
Division of Abbott Laboratories, which he joined in 1976 and where he held a
number of management and marketing positions. He is a Director of Affiliated
Research Centers, Inc., which provides clinical research for pharmaceutical
companies, and is a Director of Lake Forest Hospital. Mr. Miller received a B.S.
degree in computer science from Purdue University.
FRANK J.M. TEN BRINK has served as a Director since October 1998. Mr. Ten Brink
has served as Stericycle's Vice President, Finance and Chief Financial Officer
since June 1997. From 1991 until 1996, he served as Chief Financial Officer of
Hexacomb Corporation, and from 1996 until joining Stericycle, he served as Chief
Financial Officer of Telular Corporation. Prior to 1991, Mr. ten Brink held
various financial management positions with Interlake Corporation and
Continental Bank of Illinois. He received a B.B.A. degree in international
business and a M.B.A. degree in finance from the University of Oregon.
ANTHONY J. TOMASELLO has served as a Director since October 1998. Mr. Tomasello
has served as Stericycle's Executive Vice President and Chief Technical Officer
since January 1999 and previously had served as Vice President, Operations,
since August 1990. For eight years prior to joining Stericycle, Mr. Tomasello
was President and Chief Operating Officer of Pi Enterprises and Orbital Systems,
companies providing process and automation services. Mr. Tomasello received a
B.S. degree in mechanical engineering from the University of Pittsburgh.
DAVID J. SCHOONMAKER has served as a Director since February 1998. Mr.
Schoonmaker has served as President and Chief Executive Officer of RxThermal,
Inc., a company that permits, designs, builds, and operates medical waste
treatment facilities, since 1989. Mr. Schoonmaker has also been President of
BMWNC, Inc. a commercial incinerator of medical waste, since 1995. Mr.
Schoonmaker received a B.S. degree in chemistry from the University of
California and an M.B.A. from California State College.
ROBERT M. WALLER has served as a Director since April 1999. Mr. Waller has
served as President of RMW Logistics, since 1994. From 1992 until 1994 Mr.
Waller served as Chief Operating Officer of DSC Logistics. Mr. Waller received a
B.S. degree in business administration from Northwestern University and a M.B.A
from Lake Forest Graduate School of Management.
19
<PAGE> 20
DIRECTOR COMPENSATION
During the fiscal year ended September 30, 1999, Directors who are
officers or employees of the Company or associated with WSI received no
additional compensation for their services as members of the Board of Directors.
Directors who are not such officers or employees currently receive $2,000 for
each meeting attended in person, $500 for each telephonic meeting, and $500 for
each committee meeting of the Board of Directors and were awarded options to
purchase shares of Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's Directors, executive officers, and persons who own more than 10% of a
registered class of its equity securities to file reports of ownership and
reports of changes in ownership of such equity securities with the Securities
and Exchange Commission (the "SEC"). Directors, executive officers and greater
than 10% stockholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such forms furnished to the Company and written representations that no other
reports were required, the Company believes that its Directors, executive
officers and greater than 10% stockholders complied with all Section 16(a)
filing requirements.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the cash
compensation awarded to, earned by or paid to the President for the fiscal years
ended September 30, 1997, September 30, 1998 and September 30, 1999. No other
named executive officer received bonus and salary, which exceeded $100,000 in
1997, 1998 and 1999.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS/SARS(#)
- --------------------------- ---- ------ ---------------
<S> <C> <C> <C>
Charles D. Crochet, President 1999 $160,000 --
1998 $160,000 180,000 (1)
84,000 (2)
1997 $145,000
</TABLE>
- ---------------
(1) In July 1998, Mr. Crochet received an option to purchase 180,000 shares of
Common Stock at $1.50 per share that vests in annual increments of 60,000 shares
on July 31 of each year for three years commencing July 31, 1999. All of such
options expire July 31, 2008.
20
<PAGE> 21
(2) Under the terms of Mr. Crochet's current employment agreement, which became
effective June 1, 1998, certain options that Mr. Crochet held for a total of
122,500 shares of Common Stock were converted into new options for 84,000 shares
of Common Stock and repriced. At the time of such repricing, 32,500 options had
an exercise price of $3.00 per share and 90,000 options had an exercise price of
$2.00 per share. The 84,000 new options have an exercise price of $1.50 per
share and expire August 31, 2005.
1999 STOCK OPTION GRANTS
The following table provides certain information regarding stock
options granted to the Company's Chief Financial Officer and its independent
directors during the fiscal year ended September 30, 1999, including the
potential realizable value over the term of the options (i.e., the period from
the date of grant to the date of expiration) based upon assumed rates of stock
appreciation of 5% and 10%, compound annually. These amounts do not represent
the Company's estimate of future appreciation of the price of its Common Stock.
The Company did not grant stock options to any other named executive officer
during the fiscal year ended September 30, 1999.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL EXERCISE MARKET EXPIRATION POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES OPTIONS PRICE PER PRICE OF DATE ANNUAL RATES OF STOCK PRICE
UNDERLYING GRANTED TO SHARE STOCK AT ---------- APPRECIATION FOR
OPTIONS EMPLOYEES IN --------- TIME OF OPTION TERM(2)
---------- FISCAL ISSUANCE -------------------------------------
YEAR(1) --------
NAME ------------
- ----
5% 10% 0%
-------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Curtis W. Crane(3) 90,000(3) 41.9% $ 1.00 0.594 4/27/09 $ 56,610 $143,437 $ 1.00
David J. Schoonmaker(4) 75,000(4) 34.9% $0.594 0.594 4/27/09 $ 29,920 $112,459 $ 0.594
Robert M. Waller(5) 50,000(4) 23.2% $0.594 0.594 4/27/09 $ 18,700 $ 70,300 $ 0.594
</TABLE>
- ----------------
(1) The percentage shown in the table reflects options for a total of 215,000
shares of Common Stock granted to employees during the fiscal year ended
September 30, 1999. All of these options were granted under the Company's 1992
Option Plan.
(2) The potential realizable value was calculated on the basis of the term of
each option on its grant date, assuming that the fair market value of the
underlying stock on the grant date appreciates at the indicated annual rate
compounded annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock price.
(3) The options vest in three annual installments of 30,000 shares each on April
27, 2000, 2001 and 2001.
(4) The Company issued 25,000 stock options, which were immediately vested and
another 50,000 options, which will vest 100% on April 27, 2000.
(5) The Company issued 50,000 options that will vest 100% on April 27, 2000.
1999 OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table provides certain information regarding unexercised
options to purchase shares of Common Stock granted by the Company to the named
executives during the fiscal year ended September 30, 1999. No executives
exercised any Common Stock options during fiscal 1999.
21
<PAGE> 22
<TABLE>
<CAPTION>
NAME NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
- ---- OPTIONS/SARS AT OPTIONS AT
FISCAL YEAR-YEAR (#) FISCAL YEAR-YEAR (#)(1)
-------------------------------- ---------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles D. Crochet 144,000 120,000 -- --
</TABLE>
- ----------------
(1) The exercise price per share exceeded the closing price of a share of
Common Stock on September 30, 1999, and accordingly, none of Mr. Crochet's
stock options were in the money at fiscal year end.
EMPLOYMENT AGREEMENTS
Charles D. Crochet serves as the Company's President pursuant to an
employment agreement that commenced on June 1, 1998 and expires May 31, 2001.
The Board of Directors established Mr. Crochet's salary at $160,000 during the
term of the agreement. Adjustments are to be made annually to reflect any
increases in the Consumer Price Index for Urban Wage Earners and Clerical
Workers as published by the United States Department of Labor, Bureau of Labor
Statistics; provided however, that should there be a decline in the index in any
year of the term of the agreement, there shall be no downward adjustment of the
base salary. As an additional incentive to Mr. Crochet under the new employment
agreement, Mr. Crochet is eligible for an annual bonus ranging from 5% to 15%
based on the Company's earnings before interest, taxes, depreciation and net
operating profit exceeding specified levels.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year 1999, the following persons served on the Board
of Directors and participated in the deliberations concerning executive officer
compensation: Anthony J. Tomasello, David Schoonmaker and Robert Waller.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, to the best of the
Company's' knowledge, as of December 31, 1999, regarding the beneficial
ownership (as defined by Rule 13d-3 of the Securities Exchange Act of 1934) of
the Company's Common Stock by (i) each person who is known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
Director of the Company, (iii) by each executive officer named in the Summary
Compensation Table, and (iv) by all Directors and executive officers of the
Company as a group. Unless otherwise noted, each person has sole voting power
and sole investment power with respect to shares owned.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
----------------- -------------------- ----------------
<S> <C> <C>
Waste Systems, Inc.(1) ......................... 12,854,448 75.8%
910 Pierremont, Suite 312
Shreveport, Louisiana 71106
American Medical Technologies, Inc.(2) ......... 925,828 10.1%
5847 San Felipe, Suite 900
Houston, Texas 77057
Jim Shepherd (3) ............................... 490,189 5.3%
Route 3, Box 264
Bismarck, AR 71929
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C> <C>
Jack W. Schuler ................................ -- --
Charles D. Crochet(4) .......................... 179,653 1.9%
Mark C. Miller ................................. -- --
Frank J.M. ten Brink ........................... -- --
David Schoonmaker .............................. 47,000 0.5%
Anthony Tomasello .............................. -- --
Curtis W. Crane ................................ 1,200 .01%
Robert M. Waller ............................... -- --
All Directors and executive officers as a 224,359 2.4%
group (7 persons)
</TABLE>
- ----------
(1) A Schedule 13D dated October 14, 1998 reflects that WSI is the
beneficial owner of 5,104,448 shares of Common Stock. Such Schedule 13D
reflects that WSI is owned 100% by Stericycle, Inc. Includes the
conversion of 7,750,000 shares of preferred stock owned by WSI into
7,750,000 shares of Common Stock.
(2) Includes the exercise of 260,272 warrants that expire April 2000.
(4) Includes shares issued in the acquisition of the Med-Waste assets and
settlement of a lawsuit.
(5) Includes 10,172 shares held in the name of Mr. Crochet's son. Also
included are 114,000 stock options and 15,237 warrants that expire in
April 2000.
(6) Includes 30,000 stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 18, 1998, WSI and the Company, entered into a Loan
Agreement and Note Amendment (the "New Loan") whereby WSI loaned $750,000 to
3CI. The New Loan bore interest at Prime Rate, which was 7.75%, plus 3.0%. The
outstanding principal balance of the New Loan was due and payable on September
30, 1999. This note was repaid in full as of September 30, 1999.
On September 30, 1998, Stericycle acquired 100% of the common stock of
WSI for $10 million (the "Transaction"). As a result of the Transaction, WSI
became a wholly-owned subsidiary of Stericycle. WSI owns 55.5% or 5,104,448
shares of the Company's Common Stock and 100% of the Company's outstanding
preferred stock, consisting of 7,000,000 shares of Series B preferred stock and
750,000 shares of Series C preferred stock.
On October 1, 1998, WSI and the Company entered into the Amended and
Restated promissory Note (the Note). The Note was in the principal amount of
approximately $5,488,000. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations--Overview."
During 1999, the Company 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, 1999 totaled $70,000.
In June 1999, the Company established a master lease agreement in the
amount of $3,000,000 with LaSalle National Leasing Corporation. Of the total,
$2,000,000 is to be utilized for the leasing of transportation equipment, and
$1,000,000 for the financing of equipment, of which $633,583 had been
23
<PAGE> 24
utilized at September 30, 1999. This agreement is guaranteed by Stericycle, Inc.
which owns 100% of WSI.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT:
1. Financial Statements
The audited financial statements and reports as detailed in the Index
to Financial Statements and Schedules for the year ended September 30, 1999, the
year ended September 30, 1998 and the year ended September 30, 1997, required in
response to Item 8 of Form 10-K are annexed to this report as a separate
section.
2. Financial Statement Schedule
The financial statement schedule for the year ended September 30, 1999,
the year ended September 30, 1998, and the year ended September 30, 1997,
required by Item 8 of Form 10-K, is annexed to this report as a separate
section.
(b) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1999:
The Company filed a Form 8-K in August 1999 to report the dismissal of
the Company's independent auditors Heard, McElroy & Vestal LLP and the
appointment of Ernst & Young LLP as the Company's independent public auditors.
(c) EXHIBITS - THE RESPONSE TO THIS PORTION OF ITEM 14 IS SUBMITTED AS A
SEPARATE SECTION OF THIS REPORT.
EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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 3CI's Certificate of Incorporation, as amended
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 3CI's Certificate of Incorporation, as amended
effective March 23, 1998 (incorporated by reference to Exhibit
3.3 of 3CI's registration statement on Form S-1 (No.
333-48499), filed March 24, 1998).
24
<PAGE> 25
3.4 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).
3.5 Amendment of Bylaws effective October 1, 1998.
3.6. Certificate of Designations of 3CI's Series A Preferred Stock
without par value (incorporated by reference to Exhibit 3.6 of
3CI's registration statement on Form S-1 (No. 333-48499),
filed March 24, 1998).
3.7. Certificate of Designations of 3CI's Series B Preferred Stock
without par value (incorporated by reference to Exhibit 3.7 of
3CI's registration statement on Form S-1 (No. 333-48499),
filed March 24, 1998).
3.8. Certificate of Designations of 3CI's Series C Preferred Stock
without par value (incorporated by reference to Exhibit 3.8 of
3CI's registration statement on Form S-1 (No. 333-48499),
filed March 24, 1998).
4.1. Warrant dated September 11, 1998, issued to Klein Bank as
escrow agent with respect to 11,061 shares of Common Stock.
4.2. Escrow Agreement dated March 6, 1998 between 3CI and Klein
Bank as escrow agent (incorporated by reference to Exhibit 4.7
of 3CI's registration statement on Form S-1 (No. 333-48499),
filed March 24, 1998).
10.1 First Amendment to Escrow Agreement dated as of April 22,
1998, between 3CI and Klein Bank.
10.2 Amended and Restated Secured Promissory Note dated October 1,
1998, in the principal amount of $5,487,307.13 between 3CI and
Waste Systems, Inc.
10.3 Loan Agreement and Note Amendment dated December 18, 1998, by
3CI and Waste Systems, Inc.
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 Settlement Agreement dated January 1996 between James
Shepherd, Michael Shepherd and Richard T. McElhannon as
Releassors, and the Company, George Rethmann, Dr. Herrmann
Niehues, Jurgen Thomas, Charles Crochet and Waste Systems,
Inc., as Releasees (incorporated by reference to Exhibit 10.23
of 3CI's report on Form 10-K filed January 14, 1997).
10.6 Exchange Agreement between 3CI and Waste Systems, Inc. dated
as of June 24, 1997 (incorporated by reference to Exhibit
10.12 of 3CI's registration statement on Form S-1 (No.
333-48499), filed March 24, 1998).
10.7 Stock Purchase and Note Modification Agreement between 3CI and
Waste Systems, Inc. dated as of February 19, 1998
(incorporated by reference to Exhibit 10.13 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).
10.8 Employment Agreement dated May 30, 1998, between 3CI and
Charles D. Crochet (incorporated by reference to Exhibit 10.9
of 3CI's registration statement on Form S-1 (No. 333-48499),
filed March 24, 1998).
10.9 Agreement dated September 30, 1998 among 3CI, Waste Systems,
Inc. and Stericycle, Inc. regarding Section 203 of the
Delaware General Corporation Law. (incorporated by reference
to Exhibit 10.14 of 3CI's report on Form 10-K filed January
12, 1999.)
10.10 Form of Indemnification Agreement dated August 26, 1998
entered into between 3CI and Valerie Banner, David
Schoonmaker, Charles Crochet, Juergen Thomas, Dr. Werner Kook
and Dr. Clemens Pues. (incorporated by reference to Exhibit
10.15 of 3CI's report on Form 10-K filed January 12, 1999.)
10.11* Form of Indemnification Agreement dated June 3, 1999 entered
into between 3CI and Robert Waller
10.12* LaSalle National Leasing master lease agreement dated June 18,
1999 between LaSalle National Leasing as lessor and the
Company as lessee.
27.1* Financial Data Schedule
- -------------------
* Filed herewith
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
3CI COMPLETE COMPLIANCE CORPORATION
(Company)
January 12, 2000 /s/ Charles D. Crochet
----------------------
Charles D. Crochet
President (Principal Executive Officer)
January 12, 2000 /s/ Curtis W. Crane
-------------------
Curtis W. Crane
Chief Financial Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Charles D. Crochet President and Director January 12, 2000
- ------------------------
Charles D. Crochet
/s/ Curtis W. Crane Chief Financial Officer January 12, 2000
- ------------------------ Secretary and Treasurer
Curtis W. Crane
/s/ Jack W. Schuler Chairman and Director January 12, 2000
- ------------------------
Jack W. Schuler
/s/ Mark C. Miller Director January 12, 2000
- ------------------------
Mark C. Miller
/s/ Frank J.M. ten Brink
- ------------------------
Frank J.M. ten Brink Director January 12, 2000
/s/ Anthony J. Tomasello
- ------------------------
Anthony J. Tomasello Director January 12, 2000
/s/ David J. Schoonmaker
- ------------------------
David J. Schoonmaker Director January 12, 2000
/s/ Robert M. Waller
- ------------------------
Robert M. Waller Director January 12, 2000
</TABLE>
26
<PAGE> 27
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
- ---------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS OF 3CI COMPLETE COMPLIANCE CORPORATION
<S> <C>
Reports of Independent Auditors 29
Balance Sheets -- September 30, 1999 and 1998 30
Statements of Operations for the years ended September 30, 1999, 31
1998 and 1997
Statements of Shareholders' Equity for the years ended
September 30, 1999, 1998 and 1997 32
Statements of Cash Flows for the years ended September 30, 1999
1998 and 1997 33
Notes to Financial Statements 34
FINANCIAL STATEMENT SCHEDULE
The following schedule is filed as part of this Annual Report on Form
10-K.
Schedule II Valuation and Qualifying Accounts 45
</TABLE>
All other Schedules are omitted because they are not required, are not
applicable or the required information is presented elsewhere herein.
27
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board Directors of
3CI Complete Compliance Corporation:
We have audited the accompanying balance sheet of 3CI Complete Compliance
Corporation as of September 30, 1999 and the related statement of operations,
shareholders' equity and cash flows for the year then ended. Our audit also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule 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 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 3CI Complete Compliance
Corporation as of September 30, 1999 and the results of its operations and cash
flows for the year then ended in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
ERNST & YOUNG LLP
Chicago, Illinois
November 17, 1999
28
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board Directors of
3CI Complete Compliance Corporation:
We have audited the accompanying balance sheet of 3CI Complete Compliance
Corporation as of September 30, 1998 and the related statements of operations,
shareholders' equity (deficit) and cash flows for the years ended September 30,
1998 and 1997. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 3CI Complete Compliance
Corporation as of September 30, 1998 and the results of its operations and cash
flows for the years ended September 30, 1998 and 1997 in conformity with
generally accepted accounting principles.
In our report dated January 11, 1999, we expressed an unqualified opinion on the
subject financial statements and included an explanatory paragraph enumerating
conditions that raised substantial doubt about the company's ability to continue
as a going concern. As explained in Note 1, because of events occurring during
the year ended September 30, 1999, the explanatory paragraph is no longer
considered necessary.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic 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 financial statements taken as a whole.
HEARD, McELROY & VESTAL, LLP
Shreveport, Louisiana
January 11, 1999, except for Note 1,
as to which the date is November 17, 1999
29
<PAGE> 30
3CI COMPLETE COMPLIANCE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 236,387 $ --
Accounts receivable, net allowances of $308,489 and $573,937
at September 30, 1999 and 1998, respectively 2,861,963 3,252,673
Inventory 91,460 96,771
Prepaid expenses 330,193 438,036
Other current assets 174,022 299,336
------------ ------------
Total current assets 3,694,025 4,086,816
------------ ------------
Property, plant and equipment, at cost 14,141,354 13,780,158
Accumulated depreciation (5,321,419) (3,883,073)
------------ ------------
Net property, plant and equipment 8,819,935 9,897,085
------------ ------------
Excess of cost over net assets acquired, net of accumulated amortization of
$140,988 and $99,988 at September 30, 1999 and 1998 respectively 416,243 337,243
Other intangible assets, net of accumulated amortization of $298,209 and
$223,656 at September 30, 1999 and 1998, respectively 74,552 149,104
Other assets 60,852 148,092
------------ ------------
Total assets $ 13,065,607 $ 14,618,340
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdrafts $ -- $ 666,834
Notes payable 120,484 352,388
Current portion of long-term debt, unaffiliated lenders 739,401 1,619,889
Accounts payable 1,056,963 1,646,751
Accounts payable, affiliated companies 2,125 483,406
Accrued liabilities 904,609 1,098,634
Note payable majority shareholder 5,774,165 5,004,403
------------ ------------
Total current liabilities 8,597,747 10,872,305
------------ ------------
Long-term debt unaffiliated lenders, net of current portion 1,120,241 986,524
------------ ------------
Total liabilities 9,717,988 11,858,829
------------ ------------
Shareholders' Equity:
Preferred stock, $0.01 par value, authorized 16,050,000 shares;
Issued and outstanding 7,750,000 at September 30, 1999 and 1998, respectively 77,500 77,500
Additional Paid-in capital - preferred stock 7,672,500 7,672,500
Common stock, $0.01 par value, authorized 40,450,000 shares;
Issued and outstanding 9,232,825 and 9,232,825 at
September 30, 1999 and 1998, respectively 92,329 92,329
Less cost of treasury stock 34,500 shares and 28,500 shares at
September 30, 1999 and 1998, respectively (51,595) (44,516)
Additional Paid-in capital - common stock 20,283,324 20,259,779
Accumulated deficit (24,726,439) (25,298,081)
------------ ------------
Total Shareholders' equity 3,347,619 2,759,511
------------ ------------
Total liabilities and shareholders' equity $ 13,065,607 $ 14,618,340
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 31
3CI COMPLETE COMPLIANCE CORPORATION
STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 18,121,295 $ 19,008,696 $ 18,789,749
Expenses:
Cost of services 12,609,173 14,058,522 14,285,834
Depreciation and amortization 1,750,702 1,297,620 1,352,015
Selling, general and administrative 3,030,843 3,110,671 3,080,398
------------ ------------ ------------
Income from operations 730,577 541,883 71,502
Other income (expense):
Interest expense (911,411) (661,715) (902,229)
Other income (expense) 752,476 131,721 (257,461)
------------ ------------ ------------
Income (loss) before income taxes 571,642 11,889 (1,088,188)
Income taxes -- -- --
------------ ------------ ------------
Net income (loss) $ 571,642 $ 11,889 $ (1,088,188)
============ ============ ============
Basic earnings per share:
Basic net income (loss) per share $ 0.06 $ 0.01 $ (0.12)
============ ============ ============
Diluted earnings per share:
Diluted net income (loss) per share $ 0.03 $ 0.01 $ (0.12)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 32
3CI COMPLETE COMPLIANCE CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED ADDITIONAL COMMON
SHARES PREFERRED PAID-IN SHARES
ISSUED STOCK CAPITAL ISSUED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at September 30, 1996 -- -- -- 9,900,311
Conversion of WSI debt and accrued interest to Series A 1,000,000 7,000,000
Issuance of Grafton lawsuit settlement shares -- 120,000
Remove put option shares from equity -- (865,500)
Net loss
------------ ------------ ------------ ------------
Balance at September 30, 1997 1,000,000 $ 7,000,000 -- 9,154,811
Conversion of Series A to Series B preferred stock (1,000,000) $ (7,000,000)
Issuance of Series B for Series A preferred stock 7,000,000 $ 70,000 $ 6,930,000
Conversion of WSI debt and accrued interest to Series C 750,000 $ 7,500 $ 742,500
Issuance of minority lawsuit settlement shares 78,014
Purchase of treasury stock (28,500)
Net income
------------ ------------ ------------ ------------
Balance at September 30, 1998 7,750,000 $ 77,500 $ 7,672,500 9,204,325
Purchase of treasury stock (6,000)
Issuance of common stock for exercise of options
Net income
------------ ------------ ------------ ------------
Balance at September 30, 1999 7,750,000 $ 77,500 $ 7,672,500 9,198,325
============ ============ ============ ============
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED TREASURY SHAREHOLDERS'
STOCK CAPITAL DEFICIT STOCK EQUITY (DEFICIT)
------------ ------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1996 99,004 20,108,743 (24,221,782) -- (4,014,035)
Conversion of WSI debt and accrued interest to Series A 7,000,000
Issuance of Grafton lawsuit settlement shares 1,200 73,800 75,000
Remove put option shares from equity (8,655) (8,655)
Net loss (1,088,188) (1,088,188)
------------ ------------ ------------ ----------- ------------
Balance at September 30, 1997 $ 91,549 $ 20,182,543 $(25,309,970) 0 $ 1,964,122
Conversion of Series A to Series B preferred stock (7,000,000)
Issuance of Series B for Series A preferred stock 7,000,000
Conversion of WSI debt and accrued interest to Series C 750,000
Issuance of minority lawsuit settlement shares 780 77,236 78,016
Purchase of treasury stock (44,516) (44,516)
Net income 11,889 11,889
------------ ------------ ------------ ----------- ------------
Balance at September 30, 1998 $ 92,329 $ 20,259,779 $(25,298,081) $ (44,516) $ 2,759,511
Purchase of treasury stock (7,079) (7,079)
Issuance of common stock for exercise of options 23,545 23,545
Net income 571,642 571,642
------------ ------------ ------------ ----------- ------------
Balance at September 30, 1999 $ 92,329 $ 20,283,324 $(24,726,439) $ (51,595) $ 3,347,619
============ ============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 33
3CI COMPLETE COMPLIANCE CORPORATION
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 571,642 $ 11,889 $ (1,088,188)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Gain on disposal of fixed and intangible assets (842,711) -- (24,078)
Depreciation and amortization 1,750,702 1,297,620 1,352,015
Compensation expense related to stock options 23,545
(Increase) decrease in restricted cash -- -- 130,000
(Increase) decrease in accounts receivable, net 390,710 306,418 194,330
(Increase) decrease in inventory 5,311 (24,885) (12,841)
(Increase) decrease in prepaid expenses 107,844 (296,999) (207,384)
(Increase) decrease in other current assets 212,553 (90,000) 685
Increase (decrease) in accounts payable (589,788) 611,827 (831,299)
Increase (decrease) in accounts payable, affiliated companies 133,481 92,250 72,000
Increase (decrease) in accrued liabilities (30,859) (679,477) 525,940
------------ ------------ ------------
Total adjustments to net income (loss) 1,160,788 1,216,754 1,199,368
------------ ------------ ------------
Net cash provided by (used in) operating activities 1,732,430 1,228,643 111,180
------------ ------------ ------------
Cash flow from investing activities:
Proceeds from sale of property, plant and equipment 689,890 214,661 248,873
Purchase of property, plant and equipment (688,345) (2,789,934) (1,416,758)
------------ ------------ ------------
Net cash provided by (used in) investing activities 1,545 (2,575,273) (1,167,885)
------------ ------------ ------------
Cash flow from financing activities:
Increase (decrease) in bank overdrafts (666,834) 509,954 122,498
Proceeds from issuance of notes payable 918,533 1,094,266 1,018,404
Principal reduction of notes payable (1,150,437) (959,403) (1,012,807)
Purchase of treasury stock (7,079) (44,516) --
Reduction of put option -- -- (861,421)
Proceeds from issuance of long-term debt, unaffiliated lenders 342,572 1,723,331 931,006
Reduction of long-term debt, unaffiliated lenders (1,089,344) (1,477,002) (1,443,975)
Proceeds from issuance of note payable to majority shareholders 750,000 500,000 2,303,000
Reduction of note payable to majority shareholders (595,000) -- --
------------ ------------ ------------
Net cash (used in) provided by financing activities (1,497,589) 1,346,630 1,056,705
------------ ------------ ------------
Net increase in cash and cash equivalents 236,386 -- --
------------ ------------ ------------
Cash and cash equivalents, beginning of period -- -- --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 236,386 $ -- $ --
============ ============ ============
Supplemental Disclosures:
Cash paid for interest $ 767,442 $ 251,129 $ 203,980
Non-Cash Activities:
Conversion of shareholder debt and accrued interest -- $ 750,000 $ 7,000,000
Common stock issued for lawsuit settlement -- $ 78,014 $ 75,000
Right of first refusal exchanged for reduction in
notes payable to majority shareholder $ 155,000 -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 34
3CI COMPLETE COMPLIANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
ORGANIZATION AND BASIS OF PRESENTATION
3CI Complete Compliance Corporation (the Company or 3CI), a Delaware
Corporation, is engaged in the collection, transportation, treatment and
disposal of biomedical waste in the south and southeastern United States.
Effective October 1, 1998, after approval by the then properly
constituted 3CI Board of Directors, Stericycle Inc., a Delaware corporation
("Stericycle") acquired 100% of the common stock of Waste Systems, Inc. ("WSI")
for $10 million. As a result of the Transaction, WSI became a wholly-owned
subsidiary of Stericycle. WSI owns 55.5% or 5,104,448 shares of the outstanding
common stock and 100% of the outstanding preferred stock of the Company.
BUSINESS CONDITIONS
The Company consistently suffered losses for several of the past fiscal
years, but beginning in fiscal year ended September 30, 1998, the Company has
reported income and has positive cash flows from operations. As of September 30,
1998, the Company had a working capital deficit of $6,785,489 and a positive
shareholders equity of $2,759,511.
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 1998. During the fiscal years ended September 30, 1998 and
1997 WSI made cash advances to the Company of $500,000, $2,303,000. As more
fully described in Note 7, the 1995 Note was amended and restated on October 1,
1998.
As more fully described in Note 7, on December 18, 1998, the Company
completed a Loan Agreement and Note Amendment whereby WSI loaned the Company
$750,000. Such note was due on September 30, 1999. The note was repaid as of
September 30, 1999.
As of September 30, 1998, WSI was under no obligation to provide
additional advances. During 1998, the Company had discussions with third party
lenders to obtain alternative sources of financing apart from WSI. In the event
the Company and WSI did not come to a resolution on the possible additional
restructuring and/or extensions on the above notes and the Company was unable to
obtain alternative financing, there could be no assurance that the Company would
be able to meet its obligations as they became due or realize the recorded value
of its assets and would likely have been forced to seek bankruptcy protection.
The nature and level of competition in this industry was at a high
level for several years. This condition resulted 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 required additional and continued
financing and other assistance from its current shareholders and if available,
from outside sources. There was no assurance that adequate funds for these
purposes would be available when needed or, if available, on terms acceptable to
the Company.
During 1999 the Company addressed the issues related to the concerns
expressed in the preceding paragraphs. As described in note 3 below, the Company
reorganized its operations by selling certain less profitable customer routes in
its Oklahoma territory in January 1999. This created a one-time increase in
liquidity and contributed to an improvement in the overall profit margin of the
Company. In
34
<PAGE> 35
addition, this reduction in the waste stream and the completion of the Chem-Clav
unit at its Springhill, Louisiana plant, allowed the Company to restructure its
use of available treatment capacity which reduced outside treatment cost. Also
during 1999, the Company was able to benefit from its relationship with its
majority shareholder to obtain more favorable rates for property and liability
and workers compensation insurance. These steps led to an improved cash flow
from operations which allowed the Company to fund its operations and to repay
principal and interest to its majority shareholder (see Note 7).
The Company is in the process of obtaining proposals from WSI as well
as third parties related to the refinancing and extension of the existing note
payable. WSI intends to support the Company through the year 2000.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories, 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 and
amortization, which includes the depreciation of assets recorded under capital
leases, are computed using 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.
INTANGIBLE ASSETS
Intangible assets are amortized on a straight-line method as follows:
<TABLE>
<S> <C>
Excess of cost over net assets acquired (goodwill) 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, 1999, 1998 and 1997 was $115,552, $99,552 and $99,552,
respectively. The Company continually evaluates the value and future benefits of
its intangible assets. Under this approach, the carrying value of goodwill would
be reduced if it becomes probable that the Company's best estimate for expected
undiscounted future cash flows of the related business would be less than the
carrying amount of goodwill over its remaining amortization period. For the
three-year period ended September 30, 1999, there were no adjustments to the
carrying amounts of goodwill resulting from these evaluations.
REVENUE RECOGNITION
The Company recognizes revenue when the treatment of the regulated
medical waste is completed on-site or the waste is shipped off-site for
processing and disposal. For waste shipped off-site, all costs are recognized at
time of shipment.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Deferred tax
liabilities and assets are determined based on the differences between the
financial statement and tax base of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
35
<PAGE> 36
FINANCIAL INSTRUMENTS
The Company's primary financial instruments are accounts receivable,
notes payable, accounts payable, and accrued liabilities. The fair values of
these financial instruments were not materially different from their carrying
values. Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. Credit
risk is minimized as a result of the large size of the Company's customer base.
No single customer represents greater than 5% of total accounts receivable. The
Company performs ongoing credit evaluation of its customers and maintains
allowances for potential credit losses. These losses, when incurred, have been
within the range of management's expectations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could vary from the estimates that were used.
STOCK COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123), the Company uses the
intrinsic value method to account for stock options as set forth in Accounting
Principals Board No. 25, Accounting for Stock Issued to Employees (APB 25).
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the classifications used in the current year financial
statements.
NOTE 3 - DIVESTITURES
In January 1999, the Company sold a portion of its Oklahoma customer
routes and a waste transfer permit for a Tulsa, Oklahoma location to a
competitor. The Company received total consideration of $920,000 consisting
primarily of cash, as well as a note receivable and certain customer routes of
the competitor located in Texas. In addition, the Company was granted a right of
first refusal to purchase all or substantially all of the assets of the
competitor which right was then conveyed to its majority shareholder in exchange
for $155,000 in forgiveness of debt. The Company recognized a gain on this
transaction of $910,954, which is included in the 1999 Statement of Operations
as other income (expense).
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at September
30:
<TABLE>
<CAPTION>
1999 1998 USEFUL LIFE
------------ ------------ -----------
<S> <C> <C> <C>
Land $ 584,940 $ 590,600
Buildings and improvements 1,840,610 1,835,973 3-40 years
Transportation equipment 4,904,477 4,701,763 5-10 years
Machinery and equipment 6,464,585 6,336,221 5-20 years
Furniture and fixtures 346,742 315,601 3-10 years
------------ ------------
$ 14,141,354 $ 13,780,158
============ ============
</TABLE>
36
<PAGE> 37
Depreciation expense charged to operations was $1,635,150, $1,198,068,
and $1,252,463 for the years ending September 30, 1999, 1998, and 1997,
respectively. On October 1, 1998 the Company changed the depreciable lives of
certain assets based upon a review of the expected remaining useful lives of
these assets. The effect of these changes in estimates resulted in the decrease
of 1999 operating income and net income of approximately $285,000 ($.02 per
share). Substantially all of the Company's property, plant and equipment has
been pledged as collateral against certain of the Company's liabilities.
NOTE 5 - NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of net income (loss) per
common share:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ 571,642 $ 11,889 $ (1,088,188)
============ ============ ============
Denominator for basic earnings per share--weighted
Average shares 9,197,728 9,160,034 9,064,071
Effect of dilutive securities:
Preferred shares 7,750,000 7,750,000 --
------------ ------------ ------------
Denominator for diluted earnings per share 16,947,728 16,910,034 9,064,071
============ ============ ============
Basic net income (loss) per share $ 0.06 $ 0.01 $ (.12)
------------ ------------ ------------
Diluted net income (loss) per common share $ 0.03 $ 0.01 $ (.12)
------------ ------------ ------------
</TABLE>
For additional information regarding outstanding employee stock options
and outstanding warrants, see note 10.
Preferred stock, stock options and warrants, to purchase shares of
common stock outstanding during 1997, were not included in the computation of
diluted earnings per share in these years because the Company had a net loss in
1997 and the effect would be antidilutive. In 1999 and 1998, stock options and
warrants were not included because they were antidilutive, as the exercise
prices ranging from $3.00 to $1.50 were greater than the average price of the
common stock.
NOTE 6 - NOTES PAYABLE
Notes payable consists of the following at September 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Notes payable to an insurance company, due in monthly and
quarterly installments including interest of 5.9% to 9% through
February 2000, unsecured $120,484 $352,388
======== ========
</TABLE>
NOTE 7 - LONG TERM DEBT
Long-term debt - unaffiliated lenders consists of the following at
September 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Notes payable for purchased vehicles and equipment
held as collateral, due in monthly installments,
including interest, at rates ranging from 8% to 18.0%, maturing
through 2004 $1,226,059 $1,686,082
</TABLE>
37
<PAGE> 38
<TABLE>
<S> <C> <C>
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 -- 219,334
Obligations under capital leases 633,583 701,000
----------- -----------
Total debt 1,859,642 2,606,416
Less-current portion (739,401) (1,619,889)
----------- -----------
Long-term portion $ 1,120,241 $ 986,524
=========== ===========
</TABLE>
Note payable to majority shareholder consists of the following at
September 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Revolving note payable to WSI, bearing interest at the prime rate
plus 2.0%, due March 31, 2000 with interest payable quarterly
beginning in January 1999 $ 5,774,165 $ 5,004,403
=========== ===========
</TABLE>
On October 1, 1998, WSI and the Company, amended and restated a
revolving promissory note which had been extended from its original maturity
date in 1997 (the Note). Amounts due under the Note totaled approximately
$5,774,000 as of September 30, 1999 including approximately $143,000 of accrued
interest. The principal balance of approximately $5,631,000 consisted of
approximately $5,004,000 due under the original note, $483,000 of accounts
payable to WSI added to the note on October 1, 1998, and approximately $144,000
of accrued and unpaid interest, which was capitalized and added to the principal
balance effective January 1, 1999. The Note bears interest at the prime rate,
which is currently 8.5%, plus 2.0%. Interest under the note is due and payable
in quarterly installments on the last business day of each calendar quarter. The
outstanding principal of this note and accrued but unpaid interest was
originally due September 30, 1999. As of September 30, 1999, the Company had
exercised its option to extend the note to March 31, 2000. Under the Note, 3CI
may also extend the maturity to a date not later than September 30, 2000. The
Company is required to maintain a minimum level of net worth and comply with
certain performance related covenants.
The Company is in the process of obtaining proposals from WSI, as well
as, third parties related to the refinancing and extension of the existing note
payable. WSI intends to support the Company through the year 2000.
On December 18, 1998, WSI and the Company entered into a Loan Agreement
and Note Amendment (the "New Loan") whereby WSI loaned $750,000 to 3CI. The New
Loan bore interest at Prime Rate, which was 7.75% plus 3.0%. The outstanding
principal balance of the New Loan was due and payable on September 30, 1999.
This note was repaid in full as of September 30, 1999.
In June 1999, the Company established a master lease agreement in the
amount of $3,000,000 with LaSalle National Leasing Corporation. Of the total,
$2,000,000 is to be utilized for the leasing of transportation equipment, and
$1,000,000 for the financing of equipment, of which $633,583 had been utilized
at September 30, 1999. This agreement is guaranteed by Stericycle, Inc. which
owns 100% of WSI.
Payments due on long-term debt, during each of the five years
subsequent to September 30, 1999 are as follows:
<TABLE>
<S> <C>
2000 ....................................... $6,521,723
2001 ....................................... 419,745
2002 ....................................... 359,036
2003 ....................................... 209,620
2004 ....................................... 123,683
----------
$7,633,807
</TABLE>
38
<PAGE> 39
Total interest expense was $911,411, $661,715 and $902,229 for the
years ended September 30, 1999, 1998 and 1997, respectively.
NOTE 8 - INCINERATION CONTRACTS
The Company was a party to exclusive incineration contracts with the
cities of Carthage and Center, Texas (the "Cities") whereby the Company was
guaranteed a minimum weekly burn capacity subject to meeting certain annual
minimum burn fees. In January 1997, the City of Center, Texas filed suit in City
of Center vs. 3CI Complete Compliance Corporation, Cause No. CV 9:97-CV-125, in
United States District Court Eastern District of Texas. The City filed the
lawsuit to recover damages arising out of a delinquent account of 3CI. 3CI filed
counterclaims seeking damages arising out of the alleged breach of exclusivity
and tortuous interference by the City of Center. The Company and the City of
Center reached a settlement of the disputed claims whereby the City of Center
would give up their claim for the outstanding burn fees of approximately $80,000
and pay to the Company $380,000 in settlement for breaking the exclusivity
agreement in the contract. The Company received $200,000 of this settlement in
October 1998, with the remaining balance of $180,000 to be paid over 24 months.
The balance as of September 30, 1999 is $105,000.
During 1999 the expansion of internal treatment capacity enabled the
Company to reduce outside treatment fees by treating waste internally, which was
formerly treated at the Carthage facility. Consequently, the $1,000,000 in fees
required to retain the exclusivity agreement with the City of Carthage expired.
However, the Company does retain a guaranteed capacity at the City of Carthage,
of approximately 5,000,000 pounds which is based upon the level of treatment
between June 1998 and May 1999.
In order to retain the exclusivity with the City of Carthage, the
Company had a minimum guaranteed payments for incineration fees for the years
ended May 31, 1999, 1998, and 1997, of $1,000,000. In the years ended May 31,
1999, 1998, and 1997 the Company paid incineration fees of $492,235, $1,277,033
and $1,401,692, respectively to the City of Carthage. The Company also had
minimum guaranteed payments to the City of Center, Texas for incineration fees
for the years ended May 31, 1997 of $762,000. In the year ended May 31, 1997
Company paid incineration fees of $27,000 to the City of Center.
Included in cost of sales for the years ended September 30, 1999, 1998
and 1997, is $271,805, $1,199,384 and $1,429,097 respectively, related to
incineration costs at the City of Carthage.
NOTE 9 - INCOME TAXES
The Company's deferred tax liabilities and assets as of September 30,
are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Deferred income tax liabilities -
Property and equipment $ 1,779,369 $ 1,757,197
Other 68,735 68,735
------------ ------------
Total deferred income tax liabilities 1,848,104 1,825,932
Deferred income tax assets -
Net operating loss carryforward 9,147,802 9,246,947
Bad debt reserves 91,958 190,156
Other 985,858 1,318,700
------------ ------------
Total deferred income tax assets 10,225,618 10,755,803
Valuation allowance (8,377,514) (8,929,871)
------------ ------------
Net deferred income tax asset 1,848,104 1,825,932
------------ ------------
Total deferred income tax assets and liabilities $ -- $ --
============ ============
</TABLE>
39
<PAGE> 40
At September 30, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $24,866,551, which will expire
beginning in 2004. The Company also had state net operating losses at September
30, 1999. 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 Company. The Company has established a valuation
allowance for the federal and state net operating losses of $8,377,514, and
$8,929,871 as of September 30, 1999 and 1998 respectively. The change in the
valuation allowance in 1999 was due to 1999 pretax income.
NOTE 10 - STOCK OPTION AND WARRANTS
In 1992, the Company's Board of Directors and shareholders approved a
stock option plan (the Plan), which, provides for the granting of 500,000 shares
of common stock in the form of stock options to employees, officers and
directors. 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".
During 1999, the Company issued 215,000 stock options at exercise
prices ranging from $0.594 to $1.00. During 1998, the Company issued 84,000
stock options issued at a exercise price of $1.50, in exchange for the
cancellation of 32,500 and 90,000 previously issued stock options which were
exercisable at a price of $3.00 per share and $2.00 per share, respectively. The
Company issued 180,000 stock options of the Company's common stock at an
exercise price $1.50 per share during 1998.
As of September 30, 1999 and 1998, the Company had issued 484,000 and
269,000 of the 500,000 options share described above. The outstanding option
shares vest annually over a three year period.
A summary of stock option information follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------ ------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 122,500 $ 2.27 122,500 $ 2.27 274,000 $ 1.50
Granted -- -- 274,000 1.50 215,000 .76
Exercised -- -- -- --
Canceled/Forfeited -- -- (122,500) 2.27 (5,000) 1.50
---------- ---------- ---------- ---------- ---------- ----------
Outstanding at end of year 122,500 $ 2.27 274,000 $ 1.50 484,000 $ 1.17
========== ========== ========== ========== ========== ==========
Exercisable at end of year 122,500 $ 2.27 84,000 $ 1.50 174,000 $ 1.34
Fair value of options added during $ 1.67 $ 1.36 $ 0.33
the period
Available for future grant 377,500 236,000 16,000
</TABLE>
40
<PAGE> 41
The outstanding options at September 30, 1999 have a weighted average remaining
contractual life of 9.02 years.
Utilizing the intrinsic value method of APB 25, the Company recognized $24,000
during the year ended September 30, 1999. Had stock options been accounted for
under the fair value method recommended by SFAS 123, the Company's net income
(loss) as follows would have been on a pro forma basis.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income - as reported $ 571,642 $ 11,889 $(1,088,188)
Net income - pro forma $ 507,834 $ (33,691) $(1,121,944)
Pro forma income (loss) per share $ .03 $ (.01) $ (.12)
</TABLE>
The fair value of stock options used to compute pro forma net income
(loss) is the estimated present value at the grant date using the minimum value
option-pricing model with the following assumptions: dividend yield of 0%;
risk-free interest rates of 5.00% for 1999 and 4.65% for 1998; and a
weighted-average expected option life of five years.
The Company, in connection with the settlement of a lawsuit with a
group of its minority stockholders issued the minority shareholder class
warrants to purchase up to 1,002,964 shares of common stock at $1.50 per share.
At September 30, 1999 all of these warrants were outstanding. They expire in
April 2000.
NOTE 11 - RELATED PARTY TRANSACTION
The Company had notes payable to WSI, its majority shareholder, of
$5,774,165 and $5,004,403, as September 30, 1999 and 1998, respectively. In
addition, the Company owed current accounts payables to WSI of $2,125 and
$483,406 as of September 30, 1999 and 1998, respectively. Related interest
expense in the amount of $590,638, $410,596 and $698,248, was recorded for the
years ended September 30, 1999, 1998, and 1997, respectively. Transactions and
other information relating to the debt owed to WSI are more fully described in
Note 7 above.
The Company treats medical waste at a treatment facility in Terrill,
Texas which is owned by Stericycle, Inc., the parent of WSI, its majority
shareholder. The treatment fees are paid currently in accordance with 30-day
terms. In February 1999, the Company entered into a 36 month operating lease
agreement with Stericycle Inc., to lease medical waste containers. The rental
expense recorded at September 30, 1999, was $12,153.
During the fiscal year ended 1998, the Company shared certain
facilities, personnel and administrative services with WSI.
In June 1999, the Company established a master lease agreement in the
amount of $3,000,000 with LaSalle National Leasing Corporation. Of the total,
$2,000,000 is to be utilized for the leasing of transportation equipment, and
$1,000,000 for the financing of equipment, of which $633,583 had been utilized
at September 30, 1999. This agreement is guaranteed by Stericycle, Inc. which
owns 100% of WSI.
The Company purchased business forms from a company owned by the father
of Curtis W. Crane, the Chief Financial Officer of the Company. The payments
made were $70,000, $72,000, and $62,000, during fiscal years ended September 30,
1999, 1998, and 1997, respectively.
41
<PAGE> 42
NOTE - 12 PREFERRED STOCK
In June 1997, WSI 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, to WSI, the Company's majority
shareholder. The Series A preferred shares were not entitled to receive any
fixed dividends but were entitled to receive such cash dividends as may have
been declared from time to time by the Board of Directors. The Series A
Preferred Stock holders were entitled to receive, if declared by the Company's
Board of Directors, cumulative dividends from the second anniversary of the
original issuance date, at the rate of $0.5775 per share per annum. Had such
dividends been declared by the Board of Directors, they would have been
cumulative from the second anniversary of the original issuance date of the
Series A Preferred Stock. Accruals of dividends would not bear interest. No such
dividends were declared.
In February 1998, Waste Systems, Inc., exchanged the 1,000,000 shares
of the Series A Preferred Stock for 7,000,000 shares of Series B cumulative
convertible preferred stock, with a par value $.01. The Series B preferred stock
holders are entitled to receive, if declared by the Company's Board of
Directors, out of the assets of the Company legally available for such payment,
cumulative dividends from the second anniversary of the original issuance date,
at the rate of $0.0825 per share per annum. These dividends if declared will be
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 preferred stock. Accruals of dividends shall not bear interest. For so
long as any shares of Series B preferred stock are outstanding, the Company
shall not purchase or redeem any shares of its par value $.01 common stock,
("Common Stock") or declare or pay any dividend on its Common Stock without the
written consent of the holders of a majority interest in the Series B preferred
stock.
The shares of Series B preferred stock may be redeemed at any time on
or after the second anniversary of the original issuance date, at the option of
the Company, in whole or in part, at a per share redemption price equal to $1.00
plus accrued dividends if any. In the case of redemption of only a part of the
Series B Preferred stock the shares to be redeemed shall be selected by lot.
Subject to certain adjustments, 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 provided, into common stock. 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 Company with a market price of $7,000,000 based on a conversion
rate determined by (i) dividing $7,000,000 by the market price of the common
stock on the date of the conversion, (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.
During February 1998, the Company and WSI converted an additional
$750,000 of debt under the 1995 Note, into 750,000 shares of Series C
Convertible preferred stock which have cumulative dividends, with a par value
$.01. The Series C preferred stock holders are 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, at the rate of
$0.0825 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, of
dividends accrued from the second anniversary of the original issuance date of
the Series C preferred stock. 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 Company shall not (i)
purchase or redeem any shares of its par value $.01 common stock, or declare or
pay any dividend on its Common Stock.
42
<PAGE> 43
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 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.
Subject to certain adjustments, 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 provided, into common stock. 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, in to full shares of Common
Stock of the Company with a market price of $750,000 based on a conversion rate
determined by (i) dividing $750,000 by the market price of the common stock on
the date of the conversion, (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.
No dividends for Series B or Series C preferred stock were declared by the Board
of Directors as of September 30, 1999. The accumulated undeclared Preferred
Stock dividend totaled $159,844 at September 30, 1999.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
In September 1998, Insurance Company of the State of Pennsylvania filed
suit in Insurance Company of the State of Pennsylvania v. 3CI Complete
Compliance Corporation, No. CV98-1756S, in the United Sates District Court of
Louisiana, Shreveport, Louisiana. The plaintiffs have alleged approximately
$390,000 in unpaid premiums for workers compensation insurance policies
allegedly issued between February 1994 and February 1997. This lawsuit was
settled in February 1999 by the payment of $255,000.
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 claims and
assessments will not have materially adverse effect on the Company's financial
position, result of operations or net cash flows.
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.
43
<PAGE> 44
NOTE 14 - LEASE COMMITMENT
At September 30, 1999, the Company had certain noncancelable leases,
principally for office space and equipment, with various expiration dates.
Future minimum rentals under these leases for the following fiscal years are as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- --------
<S> <C> <C>
2000 $164,037 $254,789
2001 164,037 183,525
2002 164,037 140,413
2003 164,037 114,644
2004 and thereafter 164,037 103,500
-------- --------
820,184 $796,871
========
Less amounts representing interest 186,184
--------
Obligations under capital lease 633,583
Less obligation due within one year 112,168
--------
Long-term obligation under capital lease $521,415
========
</TABLE>
Total rent expense for the fiscal years ended September 30, totaled $263,632,
$252,158, and $262,169 for 1999, 1998 and 1997 respectively.
44
<PAGE> 45
3CI COMPLETE COMPLIANCE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Schedule II
================================================================================
<TABLE>
<CAPTION>
Additions
Balance at charged to Charged to Balance at
beginning costs and other end of
Classification of period expenses accounts period
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the year ended September 30, 1999:
Allowance for doubtful accounts $ 573,937 $ 70,050 $ (335,498) $ 308,489
------------ ------------ ------------ ------------
$ 573,937 $ 70,050 $ (335,498) $ 308,489
============ ============ ============ ============
For the year ended September 30, 1998:
Allowance for doubtful accounts $ 875,144 $ (65,916) $ (235,291) $ 573,937
------------ ------------ ------------ ------------
$ 875,144 $ (65,916) $ (235,291) $ 573,937
============ ============ ============ ============
For the year ended September 30, 1997:
Allowance for doubtful accounts $ 990,994 $ 212,867 $ (328,717) $ 875,144
------------ ------------ ------------ ------------
$ 990,994 $ 212,867 $ (328,717) $ 875,144
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Balance at Balance at
beginning Additions Reductions end of
Classification of period Charged period
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the year ended September 30, 1999:
Income tax valuation allowance $ 8,929,871 $ -- $ (552,357) $ 8,377,514
------------ ------------ ------------ ------------
$ 8,929,871 $ -- $ (552,357) $ 8,377,514
============ ============ ============ ============
For the year ended September 30, 1998:
Income tax valuation allowance $ 8,943,370 $ (13,499) $ 8,929,871
------------ ------------ ------------ ------------
$ 8,943,370 $ -- $ (13,499) $ 8,929,871
============ ============ ============ ============
For the year ended September 30, 1997:
Income tax valuation allowance $ 8,012,066 $ 931,034 $ 8,943,100
------------ ------------ ------------ ------------
$ 8,012,066 $ -- $ 931,034 $ 8,943,100
============ ============ ============ ============
</TABLE>
45
<PAGE> 46
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
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 3CI's Certificate of Incorporation, as amended
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 3CI's Certificate of Incorporation, as amended
effective March 23, 1998 (incorporated by reference to Exhibit
3.3 of 3CI's registration statement on Form S-1 (No.
333-48499), filed March 24, 1998).
3.4 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).
3.5 Amendment of Bylaws effective October 1, 1998.
3.6 Certificate of Designations of 3CI's Series A Preferred Stock
without par value (incorporated by reference to Exhibit 3.6 of
3CI's registration statement on Form S-1 (No. 333-48499),
filed March 24, 1998).
3.7 Certificate of Designations of 3CI's Series B Preferred Stock
without par value (incorporated by reference to Exhibit 3.7 of
3CI's registration statement on Form S-1 (No. 333-48499),
filed March 24, 1998).
3.8 Certificate of Designations of 3CI's Series C Preferred Stock
without par value (incorporated by reference to Exhibit 3.8 of
3CI's registration statement on Form S-1 (No. 333-48499),
filed March 24, 1998).
4.1 Warrant dated September 11, 1998, issued to Klein Bank as
escrow agent with respect to 11,061 shares of Common Stock.
4.2 Escrow Agreement dated March 6, 1998 between 3CI and Klein
Bank as escrow agent (incorporated by reference to Exhibit 4.7
of 3CI's registration statement on Form S-1 (No. 333-48499),
filed March 24, 1998).
10.1 First Amendment to Escrow Agreement dated as of April 22,
1998, between 3CI and Klein Bank.
10.2 Amended and Restated Secured Promissory Note dated October 1,
1998, in the principal amount of $5,487,307.13 between 3CI and
Waste Systems, Inc.
10.3 Loan Agreement and Note Amendment dated December 18, 1998, by
3CI and Waste Systems, Inc.
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 Settlement Agreement dated January 1996 between James
Shepherd, Michael Shepherd and Richard T. McElhannon as
Releassors, and the Company, George Rethmann, Dr. Herrmann
Niehues, Jurgen Thomas, Charles Crochet and Waste Systems,
Inc., as Releasees (incorporated by reference to Exhibit 10.23
of 3CI's report on Form 10-K filed January 14, 1997).
10.6 Exchange Agreement between 3CI and Waste Systems, Inc. dated
as of June 24, 1997 (incorporated by reference to Exhibit
10.12 of 3CI's registration statement on Form S-1 (No.
333-48499), filed March 24, 1998).
10.7 Stock Purchase and Note Modification Agreement between 3CI and
Waste Systems, Inc. dated as of February 19, 1998
(incorporated by reference to Exhibit 10.13 of 3CI's
registration statement on Form S-1 (No. 333-48499), filed
March 24, 1998).
10.8 Employment Agreement dated May 30, 1998, between 3CI and
Charles D. Crochet (incorporated by reference to Exhibit 10.9
of 3CI's registration statement on Form S-1 (No. 333-48499),
filed March 24, 1998).
10.9 Agreement dated September 30, 1998 among 3CI, Waste Systems,
Inc. and Stericycle, Inc. regarding Section 203 of the
Delaware General Corporation Law. (incorporated by reference
to Exhibit 10.14 of 3CI's report on Form 10-K filed January
12, 1999.)
10.10 Form of Indemnification Agreement dated August 26, 1998
entered into between 3CI and Valerie Banner, David
Schoonmaker, Charles Crochet, Juergen Thomas, Dr. Werner Kook
and Dr. Clemens Pues. (incorporated by reference to Exhibit
10.15 of 3CI's report on Form 10-K filed January 12, 1999.)
10.11* Form of Indemnification Agreement dated June 3, 1999 entered
into between 3CI and Robert Waller
10.12* LaSalle National Leasing master lease agreement dated June 18,
1999 between LaSalle National Leasing as lessor and the
Company as lessee.
27.1* Financial Data Schedule
</TABLE>
- -------------------
* Filed herewith
<PAGE> 1
EXHIBIT 10.11
INDEMNIFICATION AGREEMENT
This Agreement is made and entered into as of ____________,
1999, between 3CI Complete Compliance Corporation, a Delaware
corporation ("3CI") and ____________________ (hereinafter called the
"Director").
WHEREAS, Director is a member of the Board of Directors of 3CI
and in that capacity is performing a valuable service for 3CI and
WHEREAS, the by-laws of the Corporation (the "By-laws")
provide for the indemnification of the officers, directors, and
employees of 3CI to the maximum extent authorized under law; and
WHEREAS, the Delaware General Corporation Law (the "State
Statute") specifically provides that it is not exclusive, and
contemplates that contracts may be entered into between 3CI and the
members of its Board of Directors with respect to the indemnification
of the directors; and
SO AS to induce Director to continue to serve as a member of
the Board of Directors of 3CI, 3CI has determined and agreed to enter
into this Agreement with Director.
NOW, THEREFORE, in consideration of Director's continued
service as a Director after the date of this Agreement, 3CI and
Director, each intending to be legally bound, hereby mutually covenant
and agree as follows:
1. Indemnity of Director. 3CI agrees to hold harmless and to
indemnify Director, his or her heirs, successors and estate
to the full extent authorized or permitted by the provisions
of the State Statute, or by any amendment of it or other
statutory provisions authorizing or permitting such
indemnification which is adopted after the date of this
Agreement.
2. Additional Indemnity. Without limiting the generality of
Section 1 herein, and subject only to the exclusions set
forth in Section 3 herein, 3CI further agrees to hold
harmless and indemnify Director, his or her heirs,
successors and estate:
a) Against any and all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by Director, his or
her heirs, successors and estate in connection with 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 3CI) to which Director is, was or at any time
become, a party, or is threatened to be made a party,
by reason of the fact that Director is, was or at any
time becomes a director, officer, employee or agent of
3CI, or is or
<PAGE> 2
was serving or at any time serves at the request of 3CI
as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not
opposed to the best interests of 3CI, and with respect
to any criminal action or proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The
termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not
act in good faith and in a manner which the person
reasonably believed to be in or not opposed to the best
interests of 3CI, and, with respect to any criminal
action or proceeding, had reasonable cause to believe
that the person's conduct was unlawful; and
b) Against any and all expenses actually and reasonably
incurred (including attorneys' fees) by Director, his
or her heirs, successors and estate in connection with
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
Director is, was or at any time becomes a director,
officer, employee or agent of 3CI, or is or was serving
or at any time serves at the request of 3CI as a
director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not
opposed to the best interests of 3CI, except that no
indemnification shall be made in respect of any claim,
issue or matter as to which the Director, his or her
heirs, successors and estate shall have been adjudged
to be liable to the corporation unless and only to the
extent that the Court of Chancery or 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 of Chancery or such
other court shall deem proper; and
c) Otherwise to the fullest extent as may be provided to
Director by 3CI under the nonexclusivity provisions of
the State Statute.
3. Limitations on Indemnity. No indemnity pursuant to Section 2
herein shall be paid by 3CI:
a) In respect of the amount of such losses for which the
Director is indemnified either pursuant to Section 1
herein or pursuant to any D & O Insurance purchased and
maintained by 3CI;
b) In respect to remuneration paid to Director if it shall
be determined by a
-2-
<PAGE> 3
final judgment or other final adjudication that such
remuneration was in violation of law:
c) On account of any suit in which judgment is rendered
against Director for an accounting of profits made from
the purchase or sale by Director of securities of 3CI
pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and its amendments or
similar provisions of any federal, state or local
statutory law;
d) For any breach of Director's duty of loyalty to 3CI or
its stockholders;
e) For acts or omissions of Director not in good faith or
which involve intentional misconduct or a knowing
violation of law;
f) For any transaction from which Director derived
improper personal benefit;
g) For any unlawful payment of dividends or unlawful stock
purchase or redemption as provided pursuant to the
State Statute;
h) With respect to any claim, issue or matter as to which
Director shall have been adjudged to be liable to
Corporation, unless and to the extent that a court of
competent jurisdiction deems Director to be entitled to
indemnification despite such adjudication of liability;
or
i) If a final decision by a Court having jurisdiction in
the matter shall determine that such indemnification is
not lawful.
4. Continuation of Indemnity. All agreements and obligations of
3CI contained herein shall continue during the period
Director is a director, officer, employee or agent of 3CI
(or is or was serving at the request of 3CI as a director,
officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) and
shall continue thereafter so long as Director shall be
subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the
fact that Director was a director of 3CI or serving in any
other capacity referred to herein.
5. Notification and Defense of Claim. Promptly after receipt by
Director of notice of the commencement of any action, suit
or proceeding, Director will, if a claim in respect thereof
is to be made against 3CI under this Agreement, notify 3CI
of such commencement; but the omission to so notify 3CI will
not relieve 3CI from any liability which it may have to
Director otherwise than under this Agreement. With respect
to any such action, suit or proceeding as to which Director
notifies 3CI of its commencement:
-3-
<PAGE> 4
a) 3CI will be entitled to participate in it at its own
expense:
b) Except as otherwise provided below, to the extent that
it may wish, 3CI jointly with any other indemnifying
party similarly notified will be entitled to assume the
defense of it, with counsel satisfactory to Director.
After notice from 3CI to Director of its election to
assume the defense of it, 3CI will not be liable to
Director under this Agreement for any legal or other
expenses subsequently incurred by Director in
connection with the defense thereof other than
reasonable costs of investigation or as otherwise
provided below. Director shall have the right to employ
its counsel in such action, suit or proceeding but the
fees and expenses of such counsel incurred after notice
from 3CI of its assumption of the defense thereof shall
be at the expense of Director unless (i) the employment
of counsel by Director has been authorized by 3CI; (ii)
Director shall have reasonably concluded that there may
be a conflict of interest between 3CI and Director in
the conduct of the defense of such action; or (iii) 3CI
shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees
and expenses of counsel shall be at the expense of 3CI.
3CI shall not be entitled to assume the defense of any
action, suit or proceeding brought by or on behalf of
3CI or as to which Director shall have made the
conclusion provided in this Section 5(b)(ii);
c) 3CI shall not be liable to indemnify Director under
this Agreement for any amounts paid in settlement of
any action or claim effected without its written
consent. 3CI shall not settle action or claim in any
manner which would impose any penalty or limitation on
Director without Director's written consent. Neither
Corporation nor Director will unreasonably withhold
their consent to any proposed settlement.
d) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other
subsections of this Agreement shall not be deemed
exclusive of any other rights to which the Director,
his or her heirs, successors and estate may be entitled
under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to an
action in the Director's official capacity and as to an
action in another capacity while holding such office.
6. Repayment of Expenses. Director agrees that Director will
reimburse 3CI for all reasonable expenses paid by 3CI in
defending any civil or criminal action, suit, or proceeding
against Director in the event and only to the extent that it
shall be ultimately determined that Director is not entitled
to be indemnified by 3CI for such expenses under the
provisions of the State Statute, the By-laws, this
Agreement, or otherwise.
-4-
<PAGE> 5
7. Enforcement.
a) 3CI expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed
on 3CI hereby in order to induce Director to continue
as a director of 3CI, and acknowledges that Director is
relying on this Agreement in continuing in such
capacity.
b) In the event Director is required to bring any action
to enforce rights or to collect moneys due under this
Agreement and is successful in such an action, 3CI
shall reimburse Director for all of Director's
reasonable fees and expenses in bringing and pursuing
such action, including attorneys' fees.
8. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the
others, so that if any provision shall be held to be invalid
or unenforceable for any reason, such invalidity or
unenforceability shall not affect the validity or
enforceability of the other provisions.
9. Governing Law, Binding Effect: Amendment and Termination.
a) The Agreement shall be interpreted and enforced in
accordance with the laws of the state of Delaware.
b) This Agreement shall be binding on Director and 3CI,
its successors and assigns, and shall inure to the
benefit Director, his or her heirs, personal
representatives and assigns and to the benefit 3CI, its
successors and assigns.
c) No amendment, modification, termination or cancellation
of this Agreement shall be effective unless in writing
signed by both parties hereto.
-5-
<PAGE> 6
In Witness whereof, the parties have executed this Agreement
on and as of the date first written above.
3CI Complete Compliance Corporation
By:
--------------------------------
Title:
----------------------------
Date:
------------------------------
Director:
-----------------------------------
(Name)
Date:
------------------------------
-6-
<PAGE> 1
EXHIBIT 10.12
LASALLE NATIONAL LEASING CORPORATION
EQUIPMENT LEASE GUARANTY
This Equipment Lease Guaranty is executed and delivered in favor of LASALLE
NATIONAL LEASING CORPORATION, its successors and assigns ("Lessor"), in
connection with that certain Master Lease Agreement dated as of June 18, 1999,
together with all Equipment Schedules executed or to be executed pursuant hereto
(the "Lease"), by and between Lessor and 3C1 Complete Compliance Corporation,
its successors and assigns ("Lessee").
In order to induce Lessor to enter into the Lease (execution and delivery
hereof being a condition precedent to Lessor's obligations under the Lease), and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, STERICYCLE, INC. ("Guarantor") hereby UNCONDITIONALLY
GUARANTEES (a) to pay Lessor in lawful money of the United States all rents and
other sums reserved in the Lease, or any substitutions therefor, in the amounts,
at the times and in the manner set forth in the Lease; and (b) to perform, at
the time and in the manner set forth in the Lease, all of the terms, covenants
and conditions therein required to be kept, observed or performed by Lessee
(collectively, the "Obligations").
1. This Guaranty is a continuing one and shall terminate only upon full
payment of all rents and all other sums due under the Lease and the performance
of all of the terms, covenants and conditions therein required to be kept,
observed or performed by Lessee, including such payment and performance under
all schedules made a part of said Lease, whether to be performed before or after
the last rent payment has been made under the Lease. This Guaranty is a guaranty
of prompt payment and performance (and not merely a guaranty of collection).
2. Guarantor authorizes Lessor, with Lessee's consent where required,
without notice or demand, and without affecting its liability hereunder, from
time to time to: (a) receive and hold security for the payment of this Guaranty
or the performance of the Lease, and exchange, enforce, waive and release any
such security; and (b) apply such security and direct the order or manner of
sale thereof as Lessor in its discretion may determine.
3. Guarantor waives any right to require Lessor to: (a) proceed against
Lessee; (b) proceed against or exhaust any security held from Lessee; (c) pursue
any other remedy in Lessor's power whatsoever; or (d) notify Guarantor of any
default by Lessee in the payment of any rent or other sums reserved in the Lease
or in the performance of any term, covenant or condition therein required to be
kept, observed or performed by Lessee. Guarantor waives any defense arising by
reason of any disability or other defense of Lessee (other than payment or
performance by Lessee of the Obligations), any lack of authority of Lessee with
respect to the Lease, the invalidity, illegality or lack of enforceability of
the Lease from any cause whatsoever, the failure of Lessor to acquire title to
the equipment subject to the Lease or to perfect or maintain perfection of any
interest therein or the cessation from any cause whatsoever of the liability of
Lessee; provided, however, that Guarantor does not waive any defense arising
from the due performance by Lessee of the terms and conditions of the Lease.
Upon demand, Guarantor agrees to pay and perform the Obligations regardless of
any existing or future offset or claim which may be asserted by Guarantor. This
Guaranty and Guarantor's payment obligations hereunder shall continue to be
effective or be reinstated, as the case may be, if at any time payment of any of
the Obligations is rescinded or must otherwise be restored or returned by
Lessor, all as though such payment had not been made. Lessor's good faith
determination as to whether a payment must be restored or returned shall be
binding on Guarantor. Until the payment of all rents and all other sums due
under the Lease and the performance of all of the terms, covenants and
conditions therein required to be kept, observed or performed by Lessee,
Guarantor shall have no right of subrogation against Lessee, and waives any
right to enforce any remedy which Lessor now has or hereafter may have against
Lessee, and waives any benefit of, and any right to participate in, any security
now or hereafter held by Lessor. Guarantor waives all presentments, demands for
performance, notices of non performance, protests, notices of dishonor, and
notices of acceptance of this Guaranty.
4. Guarantor represents and warrants to Lessor that:
(a) (1) Guarantor is a corporation duly organized and validly existing
in good standing under the laws of the state of its incorporation. (2) The
execution, delivery and performance hereof: (x) have been duly authorized by all
necessary corporate action on the part of Guarantor; (y) do not require the
approval of any stockholders, trustee or holder of any obligations of Guarantor
except such as have been duly obtained; and (z) do not and will not contravene
any law, governmental rule, regulation or order now binding on Guarantor, or the
charter or by-laws of Guarantor, or contravene the provisions of, or constitute
a default under, or result in the creation of any lien or encumbrance upon the
property of Guarantor under, any indenture, mortgage, contract or other
agreement to which Guarantor is a party or by which it or its property is bound.
(3) The financial statements of Guarantor (copies of which have been furnished
to Lessor) have been prepared in accordance with generally accepted accounting
principles consistently applied ("GAAP"), and fairly present Guarantor's
financial condition and the results of its operations as of the date of and for
the period covered by such statements, and since the date of such statements
there has been no material adverse change in such conditions or operations.
(b) This Guaranty constitutes the legal, valid and binding obligation
of Guarantor, enforceable against Guarantor in accordance with the terms hereof,
except as limited by applicable bankruptcy insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally, and by applicable laws (including any applicable common law and
equity) and judicial decisions which may affect the remedies provided herein.
(c) There are no pending actions or proceedings to which Guarantor is a
party, and there are no other pending or threatened actions or proceedings of
which Guarantor has knowledge, before any court, arbitrator or administrative
agency, which, either individually or in the aggregate, would have a Material
Adverse Effect. As used herein, "Material Adverse Effect" shall mean (1) a
materially adverse effect on the business, condition (financial or otherwise),
operations, performance or properties of Guarantor, or (2) a material impairment
of the ability of Guarantor to perform its obligations under or to remain in
compliance with this Guaranty. Further, Guarantor is not in default under any
material obligation for borrowed money, for the deferred purchase price of
property or any lease agreement which, either individually or in the aggregate,
would have the same such effect.
(d) Guarantor acknowledges and agrees that it will enjoy a substantial
economic benefit by virtue of the extension of credit by Lessor to Lessee
pursuant to the Lease.
<PAGE> 2
(e) Guarantor has reviewed the areas within its business and
operations which could be adversely affected by, and has developed or is
developing a program to address on a timely basis, the "Year 2000 Problem" (that
is, the risk that computer applications used by Guarantor may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date on or after December 31,1999), and have made related
appropriate inquiry of material suppliers and vendors. Based on such review and
program, Guarantor believes that the "Year 2000 Problem" will not have a
Material Adverse Effect. From time to time, at the request of Lessor, Guarantor
shall provide to Lessor such updated information or documentation as is
requested regarding the status of its efforts to address the Year 2000 Problem.
5. Guarantor covenants and agrees that: (a) it will provide to Lessor: (1)
within one hundred twenty (120) days after the end of each fiscal year of
Guarantor, the balance sheet and related statement of income and statement of
cash flows of Guarantor, prepared in accordance with GMP, all in reasonable
detail and certified by independent certified public accountants of recognized
standing selected by Guarantor and reasonably acceptable to Lessor; (2) within
sixty (60) days after the end of each quarter of Guarantor's fiscal year, the
balance sheet and related statement of income and statement of cash flows of
Guarantor for such quarter, prepared in accordance with GAAP; and (3) within
thirty (30) days after the date on which they are filed, all regular periodic
reports, forms and other filings required to be made by Guarantor to the
Securities and Exchange Commission, if any; and (b)it will promptly execute and
deliver to Lessor such further documents, instruments and assurances and take
such further action as Lessor from time to time may reasonably request in order
to carry out the intent and purpose of this Guaranty and to establish and
protect the rights and remedies created or intended to be created in favor of
Lessor hereunder. Notwithstanding the foregoing, so long as Guarantor continues
to be a reporting entity pursuant to the Securities Exchange Act of 1934, as
amended, Guarantor shall not be required to comply with the provisions of
Section 5(a)(1) and (2) hereof.
6. Guarantor shall be deemed to be in default hereunder ("Default") if: (a)
Guarantor shall fail to perform or observe any covenant, condition or agreement
to be performed or observed by it hereunder and such failure shall continue
unremedied for a period of thirty (30) days after the earlier of the actual
knowledge of Guarantor or written notice thereof to Guarantor by Lessor; or (b)
Guarantor shall (1) be generally not paying its debts as they become due, (2)
take action for the purpose of invoking the protection of any bankruptcy or
insolvency law, or any such law is invoked against or with respect to Guarantor
or its property, and such petition filed against Guarantor is not dismissed
within sixty (60) days; or (c) there is an anticipatory repudiation of
Guarantor's obligations pursuant to this Guaranty; or (d) any certificate,
statement, representation, warranty or audit contained herein or heretofore or
hereafter furnished with respect to this Guaranty by or on behalf of Guarantor
proving to have been false in any material respect at the time as of which the
facts therein set forth were stated or certified, or having omitted any
substantial contingent or unliquidated liability or claim against Guarantor; or
(e) Guarantor shall be in default under any material obligation for borrowed
money, for the deferred purchase price of property or any lease agreement, and
the applicable grace period with respect thereto shall have expired; or (f)
Guarantor shall have terminated its corporate existence, consolidated with,
merged into, or conveyed or leased substantially all of its assets as an
entirety to any Person (such actions being referred to as an "Event"), unless
not less than sixty (60) days prior to such Event: (i) such person executes and
delivers to Lessor an agreement satisfactory in form and substance to Lessor, in
its sole discretion, containing such person's effective assumption, and its
agreement to pay, perform, comply with and otherwise be liable for, in a due and
punctual manner, all of Guarantor's obligations having previously arisen, or
then or thereafter arising, under this Guaranty; and (ii) Lessor is satisfied as
to the creditworthiness of such person, and as to such person's conformance to
the other standard criteria then used by Lessor for such purposes; or (g) there
is a material change in the ownership of Guarantor's capital stock, unless
Lessor is satisfied as to the creditworthiness of Guarantor and Guarantor's
conformance to the other standard criteria then used by Lessor for such
purposes, immediately after giving effect to such change in ownership.
Upon a Default hereunder, Lessor may, at its option, declare this Guaranty
to be in default by written notice to Guarantor (without election of remedies),
and at any time thereafter, may do any one or more of the following, all of
which are hereby authorized by Guarantor:
A. declare the Lease to be in default and thereafter sue for and
recover all liquidated damages, accelerated rentals and/or other sums otherwise
recoverable from Lessee thereunder; and/or
B. sue for and recover all damages then or thereafter incurred by
Lessor as a result of such Default; and/or
C. seek specific performance of Guarantor's obligations hereunder.
In addition, Guarantor shall be liable for all reasonable~attorneys' fees
and other costs and expenses incurred by reason of any Default or the exercise
of Lessor's remedies hereunder and/or under the Lease. No right or remedy
referred to in this Section is intended to be exclusive, but each shall be
cumulative, and shall be in addition to any other remedy referred to above or
otherwise available at law or in equity, and may be exercised concurrently or
separately from time to time.
The failure of Lessor to exercise the rights granted hereunder upon any
Default by Guarantor shall not constitute a waiver of any such right upon the
continuation or reoccurrence of any such Default.
The obligations of the undersigned hereunder are independent of the
obligations of Lessee. A separate action or actions may be brought and
prosecuted against Guarantor whether an action is brought against Lessee or
whether Lessee be joined in any such action or actions.
7. GUARANTOR AGREES THAT THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF
LESSOR AND GUARANTOR HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY1 AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF MARYLAND
(WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE). Guarantor
agrees that any action or proceeding arising out of or relating to this Guaranty
may be commenced in any state or Federal court in the State of Maryland, and
agrees that a summons and complaint commencing an action or proceeding in any
such court shall be properly served and shall confer personal jurisdiction if
served personally or by certified mail to it at its address hereinbelow set
forth, or as it may provide in writing from time to time, or as otherwise
provided under the laws of the State of Maryland.
8. GUARANTOR HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH GUARANTOR AND LESSOR MAY BE PARTIES ARISING OUT OF OR IN ANY WAY
PERTAINING TO THIS GUARANTY OR THE LEASE. IT IS HEREBY AGREED AND UNDERSTOOD
THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL
<PAGE> 3
CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS
AGAINST PARTIES WHO ARE NOT PARTIES TO THIS GUARANTY. THIS WAIVER IS KNOWINGLY,
WILLINGLY AND VOLUNTARILY MADE BY GUARANTOR AND GUARANTOR HEREBY ACKNOWLEDGES
THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO
INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS
EFFECT. GUARANTOR FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED IN THE
SIGNING OF THIS GUARANTY AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL
COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO
DISCUSS THIS WAIVER WITH COUNSEL.
9. This Guaranty shall inure to the benefit of Lessor, its successors and
assigns, and shall be binding upon the successors and assigns of Guarantor. The
obligations of Guarantor hereunder may not be assigned or delegated without the
prior written consent of Lessor.
10. All notices hereunder shall be in writing, personally delivered,
delivered by overnight courier service, sent by facsimile transmission (with
confirmation of receipt), or sent by certified mail, return receipt requested,
addressed as follows:
If to Guarantor: Stericycle, Inc.
28161 N. Keith Drive
Lake Forest IL 60045
Facsimile: 847-367-9462
If to Lessor: LaSalle National Leasing Corporation
502 Washington Avenue, Suite 800
Towson, Maryland 21204
Facsimile: 410-769-9313
or to such other address as such party shall from time to time designate in
writing to the other party; and shall be effective from the date of receipt.
11. This Guaranty constitutes the entire agreement between the parties with
respect to the subject matter hereof and shall not be rescinded, amended or
modified in any manner except by a document in writing executed by both parties.
Any provision of this Guaranty which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
IN WITNESS WHEREOF, Guarantor has caused this instrument to be duly
executed, under seal, as of the 18 day of June, 1999.
ATTEST: STERICYCLE, INC.
By: /s/ FRANK J.M. TENBRINK [SEAL]
-----------------------------
Name: Frank J.M. TenBrink
--------------------------------.
Title: CFO
-------------------------------.
<PAGE> 4
LASALLE NATIONAL LEASING CORPORATION
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT (the "Lease") is made as of the 18th day of June,
1999, by and between LASALLE NATIONAL LEASING CORPORATION, its successors and
assigns ("Lessor"), and 3C1 COMPLETE COMPLIANCE CORPORATION, its successors and
permitted assigns ("Lessee").
The parties agree that Lessee shall lease from Lessor the property (the
"Equipment") described In the Equipment Schedule(s) to be executed pursuant
hereto (collectively, the "Equipment Schedule"), subject to the terms set forth
herein, in the Riders annexed hereto and in the Equipment Schedule. Certain
definitions and construction of certain of the terms used herein are provided in
Section 19 hereof. Each Equipment Schedule shall incorporate by reference the
terms and conditions of this Lease. Each Equipment Schedule, incorporating by
reference the terms and conditions of this Lease, shall constitute a separate
instrument of lease.
1. TERM. The term of lease with respect to any item of the Equipment shall
consist of the term set forth in the Equipment Schedule relating thereto;
provided, however, that this Lease shall be effective from and after the date of
execution hereof.
2. RENT. Lessee shall pay Lessor the rental installments in the aggregate
amounts specified in the Equipment Schedule, without prior notice or demand, and
all other amounts payable pursuant to this Lease (such installments and other
amounts, the "rent"). Each Equipment Schedule constitutes a non-cancelable net
lease, and Lessee's obligation to pay rent, and to otherwise perform its
obligations under this Lease, each such Equipment Schedule and all of the other
documents and agreements entered in connection herewith (collectively, the
"Lease Documents"), are and shall be absolute and unconditional and shall not be
affected by any right of setoff, counterclaim, recoupment, deduction, defense or
other right which Lessee may have against Lessor, the manufacturer or vendor of
the Equipment (the "Suppliers"), or anyone else, for any reason whatsoever.
Rental installments are payable as and when specified in the Equipment Schedule
by mailing the same to Lessor at its address specified pursuant to this Lease;
and payments of rent shall be effective upon receipt. Timeliness of Lessee's
payment and its other performance under the Lease Documents is of the essence.
If any rent is not paid within five (5) days after the due date, Lessor may
collect, and Lessee agrees to pay, a charge (the "Late Charge") calculated as
the product of the late charge rate specified in the Equipment Schedule (the
"Late Charge Rate") and the amount in arrears for the period such amount remains
unpaid from and after the original due date.
3. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee represents and warrants
that: (a) Lessee is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation. (b) The execution,
delivery and performance of the Lease Documents: (1) have been duly authorized
by all necessary corporate action on the part of Lessee; (2) do not require the
approval of any stockholder, trustee or holder of any obligations of Lessee
except such as have been duly obtained; and (3) do not and will not contravene
any law, governmental rule, regulation or order now binding on Lessee, or the
charter or by-laws of Lessee, or contravene the provisions of, or constitute a
default under, or result in the creation of any lien or encumbrance upon the
property of Lessee under, any indenture, mortgage, contract or other agreement
to which Lessee is a party or by which it or its property is bound. (c) Each of
the Lease Documents, when entered into, will constitute legal, valid and binding
obligations of Lessee enforceable against Lessee, in accordance with the terms
hereof. (d) There are no pending actions or proceedings to which Lessee is a
party, and there are no other pending or threatened actions or proceedings of
which Lessee has knowledge, before any court, arbitrator or administrative
agency, which, either individually or in the aggregate, would have a Material
Adverse Effect. As used herein, "Material Adverse Effect" shall mean (1) a
materially adverse effect on the business, condition (financial or otherwise),
operations, performance or properties of Lessee, or (2) a material impairment of
the ability of Lessee to perform its obligations under or to remain in
compliance with the Lease Documents. Further, Lessee is not in default under any
obligation for borrowed money, for the deferred purchase price of property or
any lease agreement which, either individually or in the aggregate, would have
the same such effect. (e) Under the laws of the state(s) in which the Equipment
is to be located, the Equipment consists solely of personal property and not
fixtures. (f) The financial statements of Lessee (copies of which have been
furnished to Lessor) have been prepared in accordance with generally accepted
accounting principles consistently applied ("GAAP"), and fairly resent Lessee's
financial condition and the results of its operations as of the date of and for
the period covered by such statements, and since the date of such statements
there has been no material adverse change in such conditions or perations. (g)
The address stated below the signature of Lessee is the chief place of business
and chief executive office of Lessee; and Lessee does not conduct business under
a trade, assumed or fictitious name. (h) Lessee has reviewed the areas within
its business and operations which could be adversely affected by, and has
developed or is developing a program to address on a timely basis, the "Year
2000 Problem" (that is, the risk that computer applications used by Lessee may
be unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date on or after December 1,1999), and have made
related appropriate inquiry of material suppliers and vendors. Based on such
review and program, Lessee believes that the "Year 2000 Problem" will not have a
Material Adverse Effect. From time to time, at the request of Lessor, Lessee
shall provide to Lessor such updated information or documentation as is
reasonably requested regarding the status of its efforts to address the Year
2000 Problem.
4. FINANCIALS, FURTHER ASSURANCES AND NOTICES. Lessee covenants and agrees as
follows: (a) Lessee will furnish Lessor (1) within one hundred twenty (120) days
after the end of each fiscal year of Lessee, a balance sheet of Lessee 5 at the
end of such year, and the related statement of income and statement of cash
flows of Lessee for such fiscal year, prepared in accordance with GAAP, all in
reasonable detail and certified by independent certified public accountants of
recognized standing selected by Lessee; (2) within sixty (60) days after the end
of each quarter, a balance sheet of Lessee S at the end of such quarter, and the
related statement of income and statement of cash flows of Lessee for such
quarter, prepared in accordance with GMP; and (3) within thirty (30) days after
the date on which they are filed, all regular periodic reports, forms and other
filings required to be made by Lessee to the Securities and Exchange Commission,
if any. (b) Lessee ill promptly execute and deliver to Lessor such further
documents, instruments and assurances and take such further action s Lessor from
time to time may reasonably request in order to carry out the intent and purpose
of this Lease and to established protect the rights and remedies created or
intended to be created in favor of Lessor under the Lease Documents. (c) Lessee
shall provide written notice to Lessor: (1) thirty (30) days prior to any
contemplated change in the name or address of the chief executive office of
Lessee; (2) promptly upon the occurrence of any Default (as hereinafter defined)
or event which, with the lapse of time or the giving of notice, or both, would
become a Default (a "default"; except as used in Sections 15 and 16); and (3)
promptly upon Lessee becoming aware of any alleged violation of applicable law
relating to the Equipment or this Lease. Notwithstanding the foregoing, so long
as Lessee continues to be a reporting entity pursuant to the Securities Exchange
Act of 1934, as amended, Lessee shall not be required to comply with Sections
4(a)(1) and (2) hereof.
<PAGE> 5
5. CONDITIONS PRECEDENT. Lessor's obligations under each Equipment Schedule,
including its obligation to purchase and lease any Equipment to be leased
thereunder, are conditioned upon Lessor's determination that all of the
following have been satisfied: (a) Lessor having received the following, in form
and substance satisfactory to Lessor: (1) evidence as to due compliance with the
insurance provisions hereof; (2) Uniform Commercial Code financing statements
and all other filings and recordings as required by Lessor; (3) certificate of
Lessee's Secretary certifying: (i) resolutions of Lessee's Board of Directors
duly authorizing the leasing of the Equipment hereunder and the execution,
delivery and performance of this Lease and the Equipment Schedule and all
related instruments and documents, and (ii) the incumbency and signature of the
officers of Lessee authorized to execute such documents; (4) an opinion of
counsel for Lessee as to each of the matters set forth in sub-parts (a) through
(d) of Section 3 hereof; (5) the only manually executed original of the
Equipment Schedule and all other Lease Documents; (6) all purchase documents
pertaining to the Equipment (collectively, the "Supply Contract"); and (7) such
other documents, agreements, instruments, certificates, opinions, assurances, as
Lessor reasonably may require. (b) All representations and warranties provided
in favor of Lessor in any of the Lease Documents shall be true and correct on
the effective date of such Equipment Schedule with the same effect as though
made as of such date (Lessee's execution and delivery of the Equipment Schedule
shall constitute an acknowledgment of the same). (c) There shall be no default
or Default under he Equipment Schedule or any other Lease Documents. The
Equipment shall have been delivered to and accepted by Lessee, and shall be in
the condition and repair required hereby; and on the effective date of the
Equipment schedule, Lessor shall have received good title to the Equipment to be
leased thereunder, free and clear of any lien, claim or encumbrance of any kind.
6. DELIVERY; INSPECTION AND ACCEPTANCE BY LESSEE. Upon delivery, Lessee shall
inspect and, to the extent the Equipment conforms to the condition required by
the applicable Supply Contract, accept the Equipment and shall execute and
deliver to Lessor an Equipment Schedule containing a complete description of the
item of Equipment accepted; whereupon, as between Lessor and Lessee, the same
shall be deemed to have been finally accepted by Lessee pursuant to this Lease.
All expenses incurred in connection with Lessor's purchase of the Equipment
(including shipment, delivery and installation) shall be the responsibility of
Lessee and shall be paid upon demand. If Lessee shall, for reasonable cause,
refuse to accept delivery of any item of the Equipment, Lessee will be assigned
all rights and shall assume all obligations as purchaser of the Equipment.
7. USE AND MAINTENANCE. (a) Lessee shall: (1) use the Equipment solely in the
Continental United States and in the conduct of its business, for the purpose
for which the Equipment was designed, in a careful and proper manner, and shall
not permanently discontinue use of the Equipment; (2) operate, maintain, service
and repair the Equipment, and maintain all records and other materials relating
thereto, (i) in accordance and consistent with (A) the Supplier's
recommendations and all maintenance and operating manuals or service agreements,
whenever furnished or entered into, including any subsequent amendments or
replacements thereof, issued by the Supplier or service provider, (B) the
requirements of all applicable insurance policies, (C) the Supply Contract, so
as to preserve all of Lessee's and Lessor's rights thereunder, including all
rights to any warranties, indemnities or other rights or remedies, (D) all
applicable laws, and (E) the prudent practice of other similar companies in the
same business as Lessee, but in any event, to no lesser standard than that
employed by Lessee for comparable equipment owned or leased by it; and (ii)
without limiting the foregoing, so as to cause the Equipment to be in good
repair and operating condition and in at least the same condition as when
delivered to Lessee hereunder, except for ordinary wear and tear resulting
despite Lessee's full compliance with the terms hereof; (3) not change the
location of any Equipment (or the location of the principal garage of any
Equipment to the extent that such Equipment is mobile equipment) as specified in
the Equipment Schedule without the prior written consent of Lessor; (4) not
attach or incorporate the Equipment to or in any other item of equipment in such
a manner that the Equipment may be deemed to have become an accession to or a
part of such other item of equipment; and (5) cause each principal item of the
Equipment to be continually marked, in a plain and distinct manner, with the
name of Lessor followed by the words "Owner and Lessor," or other appropriate
words designated by Lessor on labels furnished by Lessor. (b) Within a
reasonable time, Lessee will replace any parts of the Equipment which become
worn out, lost, destroyed, damaged beyond repair or otherwise permanently
rendered unfit for use, by new or reconditioned replacement parts which are free
and clear of all liens, encumbrances or rights of others and have value, utility
and remaining useful life at least equal to the parts replaced. Any modification
or addition to the Equipment which is required by law shall be made by Lessee,
at its expense. Title to all parts, improvements and additions to the equipment
immediately shall vest in Lessor, without cost or expense to Lesser or any
further action by any other person, and such parts, improvements and additions
shall be deemed incorporated in the Equipment and subject to the terms of this
Lease is if originally leased hereunder, if such parts are required by law or
are otherwise essential to the operation of the Equipment or cannot be detached
from the Equipment without materially interfering with the operation of the
Equipment or adversely affecting the value, utility and remaining useful life
which the Equipment would have had without the addition thereof. Lessee shall
not make any material alterations to the Equipment without the prior written
consent of Lessor. (c) Upon forty-eight (48) ours' notice, Lessee shall afford
Lessor access to the premises where the Equipment is located for the purpose of
inspecting such Equipment and all applicable maintenance or other records at any
reasonable time during normal business hours; provided, however, if a default or
Default shall have occurred and then be continuing, no notice of any inspection
by Lessor hall be required.
8. DISCLAIMER OF WARRANTIES. LESSOR IS NOT A SELLER, SUPPLIER OR MANUFACTURER
(AS SUCH TERMS ARE DEFINED OR USED, AS THE CASE MAY BE, IN THE UNIFORM
COMMERCIAL CODE), OR DEALER, NOR A SELLER'S OR A DEALER'S AGENT. THE EQUIPMENT
IS LEASED HEREUNDER "AS IS", AND LESSOR HAS NOT MADE, AND HEREBY DISCLAIMS
LIABILITY FOR, AND LESSEE HEREBY WAIVES ALL RIGHTS AGAINST LESSOR RELATING TO,
ANY AND ALL WARRANTIES, REPRESENTATIONS OR OBLIGATIONS OF ANY KIND WITH RESPECT
TO THE EQUIPMENT, EITHER EXPRESS OR IMPLIED, ARISING BY APPLICABLE LAW OR
OTHERWISE, INCLUDING ANY OF THE SAME RELATING TO OR ARISING IN OR UNDER (a)
MERCHANTABILITY OR FITNESS FOR PARTICULAR USE OR PURPOSE, (b) COURSE OF
PERFORMANCE, COURSE OF DEALING OR USAGE OR TRADE, OR (c) TORT (WHETHER OR NOT
ARISING FROM THE ACTUAL, IMPLIED OR IMPUTED NEGLIGENCE OF LESSOR OR STRICT
LABILITY) OR THE UNIFORM COMMERCIAL CODE (INCLUDING ARTICLE 2A, AS HEREINAFTER
DEFINED) OR OTHER APPLICABLE LAW WITH RESPECT TO THE EQUIPMENT, INCLUDING ITS
TITLE OR FREEDOM FROM LIENS, FREEDOM FROM TRADEMARK, PARENT OR COPYRIGHT
INFRINGEMENT, FREEDOM FROM LATENT DEFECTS WHETHER OR NOT DISCOVERABLE),
CONDITION, MANUFACTURE, DESIGN, SERVICING OR COMPLIANCE WITH APPLICABLE LAW; it
being agreed that all such risks, as between Lessor and Lessee, are to be borne
by Lessee; and Lessor's agreement to enter into this Lease and any Equipment
Schedule is in reliance upon the freedom from and complete negation of liability
or responsibility for the matters waived and disclaimed herein. Lessor is not
responsible for any direct, indirect, incidental or consequential damage to or
losses resulting from the installation, operation or use of the Equipment or any
products manufactured thereby. All assignable warranties made by the Supplier to
Lessor are hereby assigned to Lessee for and during the term of this Lease and
Lessee agrees to resolve all such claims directly with the Supplier. Lessor
fully shall cooperate with Lessee with respect to the resolution of such claims,
in good faith and by appropriate proceedings at Lessee's expense. Any such claim
shall not affect in any manner the unconditional obligation of Lessee to make
rent payments
<PAGE> 6
hereunder. Upon the occurrence of any default or Default hereunder, Lessor shall
have the exclusive right to assert any and all warranty claims with respect to
the Equipment.
9. FEES AND TAXES. (a) To the extent permitted by law, Lessee shall file any
necessary report and return for, shall pay promptly when due, shall otherwise be
liable to reimburse Lessor (on an after-tax basis) for, and agrees to indemnify
and hold Lessor harmless from: (i) all titling, recordation, documentary stamp
and other fees; and (ii) taxes (other than taxes calculated solely on the basis
of net Income), assessments and all other charges or withholdings of any nature
(together with any penalties, fines or interest thereon); arising at any time
upon or relating to the Equipment or this Lease or the delivery, acquisition,
ownership, use, operation or leasing or sale of the Equipment, or upon the rent,
whether the same be assessed to Lessor or Lessee (any of the foregoing, an
"Imposition"). (b) If any report, return or property listing, or any Imposition
is, by law, required to be filed by, assessed or billed to, or paid by, Lessor,
Lessee at its own expense will do all things required to be done by Lessor (to
the extent permitted by law) in connection therewith and is hereby authorized by
Lessor to act on behalf of Lessor in all respects, including the contest or
protest, in good faith and by appropriate proceedings, of the validity of any
Imposition, or the amount thereof. Lessor agrees fully to cooperate with Lessee
in any such contest, and Lessee agrees promptly to indemnify Lessor for all
reasonable expenses incurred by Lessor in the course of such cooperation. An
Imposition or Claim (as hereinafter defined) therefor shall be paid, subject to
refund proceedings, if failure to pay would adversely affect the title or rights
of Lessor. If Lessor obtains a refund of any Imposition which has been paid (by
Lessee, or by Lessor and for which Lessor has been reimbursed by Lessee), Lessor
shall promptly pay to Lessee the amount of such refund to the extent actually
received; provided, however, that if a default or Default has then occurred and
is continuing, in lieu of paying such amount to Lessee, Lessor shall apply the
amount of such refund to the extent actually received to the obligations of
Lessee hereunder. Lessee will cause all billings of such charges to Lessor to be
made to Lessor in care of Lessee and will, in preparing any report or return
required by law, show the ownership of the Equipment in Lessor, and shall send a
copy of any such report or return to Lessor. If Lessee fails to pay any such
charges when due, except any Imposition being contested in good faith and by
appropriate proceedings as above provided for a reasonable period of time,
Lessor at its option may do 30, in which event the amount so paid (including any
penalty or interest incurred as a result of Lessee's failure), plus interest
thereon at the Late Charge Rate, shall be paid by Lessee to Lessor with the next
periodic payment of rent. (c) As used herein, the term "Lessor" shall mean and
include Lessor and the consolidated Federal taxpayer group of which Lessor is a
member.
10. INTENT, TITLE AND LIENS. (a) The parties intend and agree that the Equipment
shall remain personal property, and that Lessor's title thereto not be impaired,
notwithstanding the manner in which it may be affixed to any real property.
Lessee will obtain and deliver to Lessor, from any person having an interest in
the property where the Equipment described on Equipment Schedules designated as
Series C (the "Series C Equipment") is to be located, waivers of any lien,
encumbrance or interest which such person might have or hereafter obtain or
claim with respect to the Equipment. (b) Lessee may not dispose of any of the
Equipment except to the extent expressly provided herein, notwithstanding the
fact that proceeds constitute a part of the Equipment. (c) Lessee further agrees
to maintain the Equipment free from all claims, liens, attachments, rights of
others and legal processes ("Liens") of creditors of Lessee or any other
persons, other than Liens for fees, taxes, levies, duties or other governmental
charges of any kind, Liens of mechanics, materialmen, laborers, employees or
suppliers and similar Liens arising by operation of law incurred by Lessee in
the ordinary course of business for sums that are not yet delinquent or are
being contested in good faith by negotiations or by appropriate proceedings
which suspend the collection thereof (provided, however, that such proceedings
do not involve any substantial danger (as determined in Lessor's sole reasonable
discretion) of the sale, forfeiture or loss of the Equipment or any interest
therein). Lessee will defend, at its own expense, Lessor's title to the
Equipment from such claims, Liens or legal processes. Lessee shall also notify
Lessor promptly upon receipt of notice of any Lien affecting the Equipment in
whole or in part.
11. INSURANCE. Lessee shall obtain and maintain all-risk insurance coverage with
respect to the Equipment insuring against, among other things: casualty
coverage, including loss or damage due to fire and the risks normally included
in extended coverage, malicious mischief and vandalism, for not less than the
greater of the full replacement value or the stipulated Loss Value (as defined
in Section 12 hereof); and general liability coverage, including both bodily
injury and property damage with a combined single limit per occurrence of not
less than the amount specified in the Equipment Schedule, having a deductible
reasonably satisfactory to Lessor. All said insurance shall be in form including
all endorsements required by Lessor) and amount and with companies reasonably
satisfactory to Lessor. All insurance for loss or damage shall provide that
losses, if any, shall be payable to Lessor as loss payee and Lessee shall
utilize its best efforts to have all checks relating to any such losses
delivered promptly to Lessor. Lessor shall be named as an additional insured
with respect to all such liability insurance. Lessee shall pay the premiums
therefor and deliver to Lessor evidence satisfactory to Lessor of such insurance
coverage. Lessee shall cause to be provided to Lessor, not less than fifteen
(15) days prior to the scheduled expiration or lapse of such insurance coverage,
evidence satisfactory to Lessor of renewal or replacement coverage. Each insurer
shall agree, by endorsement upon the policy or policies issued by it or by
independent instrument furnished to Lessor, that (a) it will give Lessor thirty
(30) days' prior written notice of the effective date of any material alteration
or cancellation of such policy; and (b) insurance as to the interest of any
named additional insured or loss payee other than Lessee shall not be
invalidated by any actions, inactions, breach of warranty or conditions or
negligence of Lessee or any person other than Lessor with respect to such policy
or policies. The proceeds of such insurance payable as a result of loss of or
damage to the Equipment shall be applied as required by the provisions of
Section 12 hereof.
12. LOSS AND DAMAGE. Lessee assumes the risk of direct and consequential loss
and damage to the Equipment. Except as provided in this Section for discharge
upon payment of Stipulated Loss Value, no loss or damage to the Equipment or any
part thereof shall release or impair any obligations of Lessee under this Lease.
Lessee agrees that Lessor shall not incur any liability to Lessee for any loss
of business, loss of profits, expenses, or any other Claims resulting to Lessee
by reason of any failure of or delay in delivery or any delay caused by any
non-performance, defective performance, or breakdown of the Equipment, nor shall
Lessor at any time be responsible for personal injury or the .355 or destruction
of any other property resulting from the Equipment. In the event of loss or
damage to any item of Equipment which does not constitute a Total Loss (as
hereinafter defined), Lessee shall, at its sole cost and expense, promptly
repair and restore such item of the Equipment to the condition required by this
Lease. Provided that no default or Default has occurred and is continuing, upon
receipt of evidence reasonably satisfactory to Lessor of completion of such
repairs, Lessor will apply any insurance proceeds received by Lessor on account
of such loss to the cost of repairs. Upon the occurrence of the actual or
constructive total loss of any item of the Equipment, or the loss,
disappearance, theft or destruction of any item of the Equipment or damage to
any item of the Equipment to such extent as shall make repair thereof
uneconomical or shall render any item of the Equipment permanently unfit for
normal use for any reason whatsoever, or the condemnation, confiscation,
requisition, seizure, forfeiture or other taking of title to or taking of use of
any item of the Equipment or the imposition of any Lien thereon by any
governmental authority (as established to the reasonable satisfaction of Lessor;
any such occurrence being herein referred to as a "Total Loss"), during the term
of this Lease, Lessee shall give prompt notice thereof to Lessor. On the next
date for the payment of rent, Lessee shall pay to Lessor the rent due on that
date plus the Stipulated Loss Value of the item or items of the Equipment with
respect to which the Total Loss has occurred and any other
<PAGE> 7
sums due hereunder with respect to that Equipment (less any insurance proceeds
or condemnation award actually paid). Upon making such payment, this Lease and
the obligation to make future rental payments shall terminate solely with
respect to the Equipment or items thereof so paid for and (to the extent
applicable) Lessee shall become entitled thereto as is where is without
warranty, express or implied, with respect to any matter whatsoever. Lessor
shall deliver to Lessee a bill of sale transferring and assigning to Lessee
without recourse or warranty, all of Lessor's right, title and interest in and
to such Equipment. Lessor shall not be required to make and may specifically
disclaim any representation or warranty as to the condition of the Equipment or
any other matters. As used in this Lease, "Stipulated Loss Value" shall mean the
product of the Total Invoice Cost (designated on the appropriate Equipment
Schedule) of the Equipment and the applicable percentage factor set forth on the
Schedule of Stipulated Loss Values attached to the Equipment Schedule.
Stipulated Loss Value shall be determined as of the next date on which a payment
of rent is or would be due after a Total Loss or other termination of an
Equipment Schedule, after payment of any rent due on such date, and the
applicable percentage factor shall be that which is set forth with respect to
such rent payment. After payment of the final payment of rent due under the
original term of this Lease and during any renewal term thereof, Stipulated Loss
Value shall be determined as of the date of termination of such Equipment
Schedule (absent any renewal thereof) or, if during a renewal term, on the next
date on which a payment of rent is or would be due after a Total Loss or other
termination of such renewal term, after payment of any rent due on such date,
and the applicable percentage factor shall be the last percentage factor set
forth on the Schedule of Stipulated Loss Values attached to such Equipment
Schedule.
13. REDELIVERY. Upon the expiration or earlier termination of the term of any
Equipment Schedule (or of any renewal thereof, if applicable), Lessee shall, at
its own expense, return the Equipment to Lessor within ten (10) days (a) in the
same condition as when delivered to Lessee hereunder, ordinary wear and tear
resulting from proper use thereof excepted, (b) in such operating condition as
is capable of performing its originally intended use, (c) having been used,
operated, serviced and repaired in accordance with, and otherwise complying
with, Section 7 hereof, and (d) free and clear of all Liens whatsoever except
Liens resulting from claims against Lessor not relating to the ownership of such
Equipment. Lessee shall return the Equipment by delivering it to such place
within the Continental United States as Lessor shall specify. In addition to
Lessor's other rights and remedies hereunder, if the Equipment is not returned
in a timely fashion, or if repairs are necessary to place any Items of Equipment
in the condition required in this Section, Lessee shall continue to pay to
Lessor per diem rent at the last prevailing lease rate under the applicable
Equipment Schedule with respect to such items of Equipment, for the period of
delay in redelivery, or for the period of time reasonably necessary to
accomplish such repairs together with the cost of such repairs, as applicable.
Lessor's acceptance of such rent on account of such delay or repair does not
constitute a renewal of the term of the related Equipment Schedule or a waiver
of Lessor's right to prompt return of the Equipment in proper condition.
14. INDEMNITY. Lessee assumes and agrees to indemnify, defend and keep harmless
Lessor, and any assignee of Lessor's rights, obligations, title or interests
under any Equipment Schedule, its agents and employees ("Indemnitees"), from and
against any and all Claims (other than such as may directly and proximately
result from the negligence or willful misconduct of, such Indemnitees), by
paying (on an after-tax basis) or otherwise is charging same, when and as such
Claims shall become due. It is the express intention of both Lessor and Lessee,
that the indemnity provided for in this Section includes the agreement by Lessee
to indemnify the Indemnitees from the consequences of such Indemnitees' own
simple negligence, whether that negligence is the sole or concurring cause of
the Claims, and to further indemnify such Indemnitees with respect to Claims for
which the Indemnitees are strictly liable. Lessor shall give Lessee prompt
notice of any Claim hereby indemnified against and Lessee shall be entitled to
control the defense thereof, so long as no default or Default has occurred and
is then continuing; provided, however, that Lessor shall have the right to
approve defense counsel selected by Lessee. For the purposes of this Lease, the
term "Claims" shall mean all claims, allegations, harms, judgments, good faith
settlements entered into, suits, actions, debts, obligations, damages (whether
incidental, consequential or direct), demands (for compensation,
indemnification, reimbursement or otherwise), losses, penalties, fines,
liabilities (including strict liability), charges that Lessor has incurred or
for which it is responsible, in the nature of interest, Liens, and costs
(including attorneys' fees and disbursements and any other legal or non-legal
expenses of investigation or defense of any Claim, whether or not such Claim is
ultimately defeated or enforcing the rights, remedies or indemnities provided
for hereunder, or otherwise available at law or equity to Lessor), of whatever
kind or nature, contingent or otherwise, matured or unmatured, foreseeable or
unforeseeable, by or against any person, arising on account of (a) any Lease
Document, or (b) the Equipment, or any part thereof, including the ordering,
acquisition, delivery, installation or rejection of the Equipment, the
possession, maintenance, use, condition, ownership or operation of any item of
Equipment, and by whomsoever owned, used or operated, during the term of any
Equipment Schedule with respect to that item of Equipment, the existence of
latent and other defects (whether or not discoverable by Lessor or Lessee) any
claim in tort for negligence or strict liability, and any claim for patent,
trademark or copyright infringement arising out of Lessor's ownership of the
Equipment, or the loss, damage, destruction, removal, return, surrender, sale or
other disposition of the Equipment, or any item thereof.
15. DEFAULT. (a) A default shall be deemed to have occurred hereunder and under
an Equipment Schedule ("Default") if (1) Lessee shall fail to make any payment
of rent hereunder or under an Equipment Schedule within ten (10) days after the
same shall have become due; or (2) Lessee shall fail to obtain and maintain the
insurance required herein; (3) Lessee shall fail to perform or observe any other
covenant, condition or agreement to be performed or observed by it under any
Lease Document and such failure shall continue unremedied for a period of thirty
(30) days after written notice thereof to Lessee by Lessor; or (4) Lessee shall
(i) be generally not paying its debts as they become due; or (ii) take action
for the purpose of invoking the protection of any bankruptcy or insolvency law,
or any such law is invoked against or with respect to Lessee or its property,
and any such petition filed against Lessee is not dismissed within sixty (60)
days; or (5) Lessee shall make or permit any unauthorized Lien against or
Equipment or transfer of, this Lease, an Equipment Schedule, the Equipment, or
any interest therein; or (6) any certificate, statement, representation,
warranty or audit contained herein or furnished with respect hereto by or on
behalf of Lessee proving to have been false in any material respect at the time
as of which the facts therein set forth were stated or certified, or having
omitted any substantial contingent or unliquidated liability or Claim against
Lessee; or (7) Lessee shall be in default under any (i) loan, lease, guaranty,
installment sale or other financing agreement or contract, of which Lessor, or
any of its affiliates, is a party or beneficiary, or (ii) material obligation
for borrowed money, for the deferred purchase price of property or any payment
under any lease agreement, and the applicable grace period with respect thereto
all have expired and such obligation shall have been declared to be in default;
or (8) Lessee shall have terminated its corporate existence, consolidated with,
merged into, or conveyed or leased substantially all of its assets as an
entirety to any person (such actions being referred to as an "Event"), unless
not less than sixty (60) days prior to such Event: (i) such person executes and
delivers to Lessor an agreement satisfactory in form and substance to Lessor, in
its sole discretion, containing such person's effective assumption, and its
agreement to pay, perform, comply with and otherwise be liable for, In a due and
punctual manner, all of Lessee's obligations having previously arisen, or then
or thereafter arising, under any and all of the Lease Documents; and (ii) Lessor
is satisfied as to the creditworthiness of such person, and as to such person's
conformance to the other standard criteria then used by Lessor for such
purposes; or (9) there occurs a default or anticipatory repudiation under any
guaranty executed in connection with this Lease; or (10) if Lessee is a publicly
held corporation and, as a result of or in connection with a material change in
the ownership of Lessee's capital stock, Lessee's Debt to
<PAGE> 8
Tangible Net Worth equals or exceeds twice the ratio of Lessee's Debt to
Tangible Net Worth as of the date of this Lease, without the prior written
consent of Lessor. As used herein, "Debt" shall mean Lessee's total liabilities
which, in accordance with GAAP, would be included in the liability side of a
balance sheet; and "Tangible Net Worth" shall mean Lessee's tangible net worth
including the sum of the par or stated value of all outstanding capital stock,
surplus and undivided profits, less any amounts attributable to goodwill,
patents, copyrights, mailing lists, catalogs, trademarks, bond discount and
underwriting expenses, organization expense and other intangibles. Accounting
terms used herein shall be as defined, and all calculations hereunder shall be
made, in accordance with GAAP. (b) The occurrence of a Default with respect to
any Equipment Schedule shall, at the sole discretion of Lessor, constitute a
Default with respect to any or all Equipment Schedules to which it is then a
party. Notwithstanding anything set forth herein, Lessor may exercise all rights
and remedies hereunder independently with respect to each Equipment Schedule.
16. REMEDIES. Upon the occurrence of any Default under the provisions of Section
15 hereof, Lessor may, at its option, declare this Lease and such Equipment
Schedule to be in default. At any time after cancellation of an Equipment
Schedule or after declaration by Lessor that such Equipment Schedule is in
default, Lessor may, in addition to any other remedies provided herein or by
applicable law, exercise one or more of the remedies specified in the applicable
Equipment Schedule as Lessor in its sole discretion shall elect.
17. ASSIGNMENT. (a) WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR (WHICH SHALL NOT
UNREASONABLY BE WITHHELD), EXCEPT IN ACCORDANCE WITH SECTION 15(a)(8) HEREOF
LESSEE WILL NOT ASSIGN, TRANSFER OR ENCUMBER ANY OF ITS RIGHTS OR OBLIGATIONS
HEREUNDER OR UNDER ANY EQUIPMENT SCHEDULE, OR ITS LEASEHOLD INTEREST, SUBLET THE
EQUIP MENT OR OTHERWISE PERMIT THE EQUIPMENT TO BE OPERATED OR USED BY, OR TO
COME INTO OR REMAIN IN THE POSSESSION OF, ANYONE BUT LESSEE. No assignment or
sublease, whether authorized in this Section or in violation of the terms
hereof, shall relieve Lessee of its obligations, and Lessee shall remain
primarily liable, hereunder and under each Equipment Schedule. Any unpermitted
assignment, transfer, encumbrance, delegation or sublease by Lessee shall be
void ab initio. (b) Lessor may assign any or all of its rights, obligations,
title and interest hereunder, or the right to enter into any Equipment Schedule,
or may resell (through syndication, assignment, participation or placement) an
interest in any or all of the Equipment, this Lease or any Equipment Schedule.
Lessee agrees that it will pay all rent and other amounts payable under each
Equipment Schedule to the "Lessor" named therein; provided, however, if Lessee
receives written notice of an assignment from Lessor, Lessee will pay all rent
and other amounts payable under any assigned Equipment Schedule to such assignee
or as instructed by Lessor and such assignee. Each Equipment Schedule,
incorporating by reference the terms and conditions of this Lease, constitutes a
separate instrument of lease, and the "Lessor" named therein or its assignee
shall have all rights as "Lessor" thereunder separately exercisable by such
named Lessor or assignee as the case may be, exclusively and independently of
Lessor or any assignee with respect to other Equipment Schedules executed
pursuant hereto. Lessee agrees to confirm in writing receipt of any notice of
assignment, syndication, participation or placement, as reasonably may be
requested by Lessor or any such assignee or participant (collectively, the
"Assignee"). Lessee agrees not to assert against any such Assignee any defense,
setoff, recoupment, claim or counterclaim which Lessee has or may at any time
hereafter have against Lessor or any person other than such Assignee, for any
reason whatsoever, unless such Assignee has expressly assumed the obligations of
Lessor hereunder. Lessee will provide reasonable assistance to Lessor in
whatever manner necessary in order to permit Lessor to complete any resale,
syndication, assignment, participation or placement of the transaction
contemplated by this Lease. Lessee agrees that any such assignment shall not
materially change Lessee's duties or obligations under the Lease or any
Equipment Schedule nor materially increase Lessee's risks or burdens. Upon such
assignment and except as may otherwise be provided therein all references in
this Lease to Lessor shall include such assignee. (c) Subject always to the
foregoing, this Lease and each Equipment Schedule inure to the benefit of, and
are binding upon, the successors and assigns of the parties hereto and thereto,
as the case may be.
18. MISCELLANEOUS. (a) This Lease, the Riders annexed hereto, each Equipment
Schedule and any commitment letter between the parties, constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and shall not be rescinded, amended or modified in any manner except by
a document in writing executed by both parties. (b) Any provision of this Lease
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforce able such provision in any other jurisdiction. (c) The
representations, warranties and covenants of Lessee herein shall be deemed to be
continuing and to survive the execution and delivery of this Lease, each
Equipment Schedule and any other Lease Documents. Each execution by Lessee of an
Equipment Schedule shall be deemed a reaffirmation and warranty that there shall
have been no material adverse change in the business or financial condition of
Lessee from the date of execution hereof. With respect to each Equipment
Schedule, the obligations of Lessee under Sections 7, 8, 9,10, 13 and 14 hereof,
together with any of Lessee's obligations under the other provisions of this
Lease (as incorporated therein) which have accrued but not been fully satisfied,
performed or complied with prior to the cancellation or termination of such
Equipment Schedule, shall survive the cancellation or termination thereof to the
extent necessary for the full and complete performance of such obligations. (d)
Lessor represents and covenants to Lessee that Lessor has full authority to
enter into this Lease and any other Lease Documents to which it may become a
party, and so long as no default or Default occurs with respect to an Equipment
Schedule, neither Lessor nor any person authorized by Lessor shall interfere
with Lessee's right to peaceably and quietly possess and use the Equipment
during the term thereof, subject to the terms and provisions hereof. (e)
Expenses incurred by Lessor in connection with (1) the filing or recording of
real property waivers and Uniform Commercial Code statements, and (2) lien
search reports and copies of filings with respect to Lessee and/or the
Equipment, shall be for the account of Lessee and shall be payable by Lessee
upon demand. (f) If Lessee fails to perform any of its obligations hereunder
with respect to an Equipment Schedule, Lessor shall have the right, but shall
not be obligated, to effect such performance, and the amount of any out of
pocket and other reasonable expenses of Lessor incurred in connection with such
performance, together with interest thereon at the Late Charge Rate, shall be
payable by Lessee upon demand. Lessor's effecting such compliance shall not be a
waiver of Lessee's default. (g) Lessee irrevocably appoints Lessor as Lessee's
attorney-in-fact (which power shall be deemed coupled with an interest) to
execute, endorse and deliver any UCC statements and any documents and checks or
drafts relating to or received in payment for any loss or damage under the
policies of insurance required by the provisions of Section 11 hereof, but only
to the extent that the same relates to the Equipment. (h) LESSOR AND LESSEE
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH LESSEE AND/OR
LESSOR MAY BE PARTIES ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS LEASE.
LESSEE AUTHORIZES LESSOR TO FILE THIS PROVISION WITH THE CLERK OR JUDGE OF ANY
COURT HEARING ANY SUCH CLAIM. IT IS HEREBY AGREED AND UNDERSTOOD THAT THIS
WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST PARTIES TO
SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT
PARTIES TO THIS LEASE. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE
BY THE PARTIES AND THE PARTIES HEREBY ACKNOWLEDGE THAT NO REPRESENTATIONS OF
FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL
BY JURY OR IN
<PAGE> 9
ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. LESSOR AND LESSEE FURTHER ACKNOWLEDGE
THAT THEY HAVE BEEN REPRESENTED IN THE SIGNING OF THIS LEASE AND IN THE MAKING
OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF THEIR OWN FREE WILL,
AND THAT THEY HAVE HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. (i)
All notices (excluding billings and communications in the ordinary course of
business) hereunder shall be in writing, personally delivered, delivered by
overnight courier service, sent by facsimile transmission (with confirmation of
receipt), or sent by certified mail, return receipt requested, addressed to the
other party at its respective address stated below the signature of such party
or at such other address as such party shall from time to time designate in
writing to the other party; and shall be effective from the date of receipt. 0)
This Lease and all of the other Lease Documents shall not be effective unless
and until accepted by execution by an officer of Lessor at the address, in the
State of Maryland (the "State"), as set forth below the signature of Lessor.
THIS LEASE AND ALL OF THE OTHER LEASE DOCUMENTS, AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL IN ALL RESPECTS BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE (WITHOUT REGARD
TO THE CONFLICT OF LAWS PRINCIPLES OF THE STATE), INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE
EQUIPMENT. The parties agree that any action or proceeding arising out of or
relating to this Lease maybe commenced in any state or Federal court in the
State, and agree that a summons and complaint commencing an action or proceeding
in any such court shall be properly served and shall confer personal
jurisdiction if served personally or by certified mail to it at its address
herein below set forth, or as it may provide in writing from time to time, or as
otherwise provided under the laws of the State. (k) This Lease and all of the
other Lease Documents may be executed in any number of counterparts and by
different parties hereto or thereto on separate counterparts, each of which,
when so executed and delivered, shall be an original, but all such counterparts
shall together consist of but one and the same instrument; provided, however,
that to the extent that this Lease and/or the Equipment Schedule would
constitute chattel paper, as such term is defined in the Uniform Commercial Code
as in effect in any applicable jurisdiction, no security interest herein or
therein may be created through the transfer or possession of this Lease in and
of itself without the transfer or possession of the original of such Equipment
Schedule and incorporating the Lease by reference; and no security interest in
this Lease and an Equipment Schedule may be created by the transfer or
possession of any counterpart of such Equipment Schedule other than the original
thereof, which shall be identified as the document marked "Original" and all
other counterparts shall be marked "Duplicate".
19. DEFINITIONS AND RULES OF CONSTRUCTION. (a) The following terms when used in
this Lease or in any of the Equipment Schedules have the following meanings: (1)
"applicable law" or "law": any law, rule, regulation, ordinance, order, code,
common law, interpretation, judgment, directive, decree, treaty, injunction,
writ, determination, award, permit or similar norm or decision of any
governmental authority; (2) "business day": any day, other than a Saturday,
Sunday, or legal holiday for commercial banks under the laws of the State; (3)
"UCC" or "Uniform Commercial Code": the Uniform Commercial Code as in effect in
the State or in any other applicable jurisdiction; and any reference to an
article (including Article 2A) or section thereof shall mean the corresponding
article or section (however termed) of any such other applicable version of the
Uniform Commercial Code; (4) "governmental authority": any federal, state,
county, municipal, regional or other governmental authority, agency, board,
body, instrumentality or court, in each case, whether domestic or foreign; and
(5) "person": any individual, corporation, partnership, joint venture, or other
legal entity or a governmental authority, whether employed, hired, affiliated,
owned, contracted with, or otherwise related or unrelated to Lessee or Lessor.
(b) The following terms when used herein or in any of the Equipment Schedules
shall be construed as follows: "herein," "hereof," "hereunder," etc.: in, of,
under, etc. this Lease or such other Lease Document in which such term appears
(and not merely in, of, under, etc. the section or provision where the reference
occurs); "including": containing, embracing or involving all of the enumerated
items, but not limited to such items unless such term is followed by the words
"and limited to," or similar words; and "or": at least one, but not necessarily
only one, of the alternatives enumerated. Any defined term used in the singular
preceded by "any" indicates any number of the members of the relevant class. Any
Lease Document or other agreement or instrument referred to herein means such
agreement or instrument as supplemented and amended from time to time Any
reference to Lessor or Lessee shall include their permitted successors and
assigns. Any reference to a law shall also mean such law as amended, superseded
or replaced from time to time. Unless otherwise expressly provided herein to the
contrary, all actions that Lessee takes or is required to take under any Lease
Document shall be taken at Lessee's sole cost and expense, and all such costs
and expenses shall constitute Claims and be covered by Section 14 hereof. To the
extent Lessor is required to give its consent or approval with respect to any
matter, the reasonableness of Lessor's withholding of such consent shall be
determined based on the then existing circumstances; provided, that Lessor's
withholding of its consent shall be deemed reasonable for all purposes if (i)
the taking of the action that is the subject of such request, might result (in
Lessor's discretion), in (A) an impairment of Lessor's rights, title or
interests hereunder or under any Equipment Schedule or other Lease Document, or
to the Equipment, or (B) expose Lessor to any Claims, or (ii) to the extent
Lessee fails to provide promptly to Lessor any filings, certificates, opinions
or indemnities specified by Lessor to Lessee in writing.
IN WITNESS WHEREOF, the parties hereto have caused this Master Lease Agreement
to be duly executed, under seal, as of the day and year first above set forth.
LASALLE NATIONAL LEASING CORPORATION 3C1 COMPLETE COMPLIANCE CORPORATION
Lessor Lessee
By: /s/ H. DUANE STEELBERG [SEAL] By: /s/ CURTIS W. CRANE
-------------------------- -------------------------[SEAL]
NAME: H. DUANE STEELBERG . NAME: Curtis W. Crane .
------------------------------ -----------------------------
TITLE: SENIOR VICE PRESIDENT . TITLE: CFO, Secretary .
----------------------------- ----------------------------
502 Washington Avenue 910 Pierremont
Suite 800 Shreveport, Louisiana 71106
Towson, Maryland 21204 Facsimile: (318) 869-1944 .
Facsimile: (410) 769-9313 . ------------------------
------------------------- Federal Employer
Identification No.: 76-0351992 .
---------------
<PAGE> 10
LASALLE NATIONAL LEASING CORPORATION
RIDER NO. 1
To and part of Master Lease Agreement dated as of the 18 day of June, 1999 (the
"Lease"), between LASALLE NATIONAL LEASING CORPORATION, its successors and
assigns ("Lessor"), and 3C1 COMPLETE COMPLIANCE CORPORATION, its successors and
permitted assigns ("Lessee").
APPLICABILITY. This Rider shall be applicable solely with respect to items of
the Equipment described on Equipment Schedules designated as Series A (the
"Series A Equipment"); each reference herein to Equipment shall be deemed to
refer only to the Series A Equipment; and each reference herein to Equipment
Schedule shall be deemed to refer only to the Equipment Schedules designated as
Series A.
A. TERMINAL RENTAL ADJUSTMENT. It is presently anticipated that the fair
market value of the Equipment upon the expiration of the original lease term
relating thereto will be an amount equal to 25 percent of the Total Invoice Cost
of the Equipment (the "Estimated Residual Value"). Upon expiration of the
original lease term, Lessor will attempt to sell the Equipment. If the Net
Proceeds of Sale (as hereafter defined) is less than the Estimated Residual
Value, promptly upon demand Lessee shall pay to Lessor the amount of the
difference (not to exceed 12.35 percent of the Total Invoice Cost of the
Equipment). If the Net Proceeds of Sale exceeds the Estimated Residual Value,
the amount of the difference promptly shall be paid by Lessor to Lessee. If the
Equipment has not been sold on the expiration date of the original lease term
relating thereto, then the Net Proceeds of Sale shall be deemed to be zero; and
promptly upon demand Lessee shall pay to Lessor an amount equal to 12.35 percent
of the Total Invoice Cost of the Equipment. If Lessor hereafter shall sell the
Equipment, the Net Proceeds of Sale promptly shall be distributed as follows:
first, an amount equal to 12.65 percent of the Total Invoice Cost of the
Equipment shall be retained by Lessor (in addition to the amount previously paid
by Lessee to Lessor); and second, the balance (if any) promptly shall be paid by
Lessor to Lessee. Any such payment by either Lessee or Lessor shall be deemed to
be a Terminal Rental Adjustment with respect to the Equipment. As used herein,
"Net Proceeds of Sale" shall mean the gross selling price actually received by
Lessor less all (i) selling expenses incurred by Lessor, (ii) amounts which (if
not paid) would constitute a lien on the Equipment for which Lessee is
responsible under the Lease, and (iii) applicable sales or other transfer taxes
paid by Lessor.
As required by Section 7701(h) of the internal Revenue Code of 1986, as now or
hereafter amended, Lessee shall execute and deliver to Lessor the Certification
by Lessee in substantially the form attached hereto as Exhibit No. 1. Lessee
acknowledges that the Truth in Mileage Act of 1986 (and the regulations
promulgated thereunder) requires the lessee of motor vehicles (at the time such
motor vehicles are terminated from the lease) to provide a written disclosure to
the lessor regarding the mileage of such motor vehicles. Under this law, the
"failure to complete or providing false information may result in fines and or
imprisonment". Therefore, Lessee agrees to provide to Lessor (on a form provided
by Lessor) upon termination of a motor vehicle from the Lease the mileage
disclosure information required by the Federal regulations.
B. OPTION TO PURCHASE. Provided that Lessee is not then in Default, Lessee
shall have the option to purchase, upon the expiration of the term of this
Lease, or of any subsequent renewal term, if applicable, all but not less than
all of the Equipment subject to this Lease upon the following terms and
conditions: If Lessee desires to exercise this option it shall, at least two
hundred ten (210) days before expiration of the term of this Lease, give Lessor
written notice of its intention to exercise this option to purchase and shall
engage in negotiations with Lessor to determine the Purchase Price for the
Equipment. Not less than one hundred eighty (180) days before expiration of the
term of this Lease, Lessee shall give Lessor written notice of its election to
purchase on the terms mutually agreed upon during negotiations. Thereupon, at
the expiration of the term of this Lease, Lessee shall pay to Lessor in cash the
Purchase Price for the Equipment so purchased, determined as hereinafter
provided. Lessee's exercise of the purchase option contained herein shall
constitute a sale of the Equipment pursuant to Section A above and Lessee shall
be responsible for the performance of its obligations pursuant to Section A
above.
The Purchase Price of the Equipment shall be an amount equal to its then Fair
Market Value, together with all taxes and charges upon sale. For purposes of
this Section, "Fair Market Value" shall be deemed to be an amount equal to the
sale price obtainable in an arms' length transaction between a willing and
informed buyer and a willing and informed seller under no compulsion to sell
(and assuming that, as of the date of determination, the Equipment is in at
least the condition required by Section 13 of this Lease). If the parties are
unable to agree on the Fair Market Value of the Equipment, then Lessor and
Lessee shall at Lessee's expense obtain appraisal values from three independent
appraisers (one to be selected by Lessor, one by Lessee, and the other by the
two selected by Lessor and Lessee; each of whom must be associated with a
professional organization of equipment or personal property appraisers, such as
the American Society of Appraisers) and the average Fair Market Value as
determined by such appraisers shall be binding on the parties hereto.
Notwithstanding any election of Lessee to purchase, the provisions of this
Lease shall continue in full force and effect until the passage of ownership of
the Equipment upon the date of purchase. On the date of purchase, Lessor shall
deliver to Lessee a bill of sale transferring and assigning to Lessee, without
recourse or warranty, except (with respect to the status of title conveyed) in
respect of Lessor's acts, all of Lessor's right, title and interest in and to
the Equipment. Lessor shall not be required to make and may specifically
disclaim any representation or warranty as to the condition of the Equipment or
any other matters.
LASALLE TIONAL LEASING CORPORATION 3C1 COMPLETE COMPLIANCE Corporation
Lessor Lessee
By: /s/ H. DUANE STEELBERG [SEAL] By: /s/ CURTIS CRANE [SEAL]
------------------------ -------------------------
H. Duane Steelberg Curtis Crane
Senior Vice President CFO, Secretary
<PAGE> 11
LASALLE NATIONAL LEASING CORPORATION
RIDER NO. 2
To and part of Master Lease Agreement dated as of the 18 day of June, 1999 (the
"Lease"), between LASALLE NATIONAL LEASING CORPORATION, its successors and
assigns ("Lessor"), and 3C1 COMPLETE COMPLIANCE CORPORATION, its successors and
permitted assigns ("Lessee").
APPLICABILITY. This Rider shall be applicable solely with respect to items of
the Equipment described on Equipment Schedules designated as Series B (the
"Series B Equipment"); each reference herein to Equipment shall be deemed to
refer only to the Series B Equipment; and each reference herein to Equipment
Schedule shall be deemed to refer only to the Equipment Schedules designated as
Series B.
A. TERMINAL RENTAL ADJUSTMENT. It Is presently anticipated that the fair
market value of the Equipment upon the expiration of the original lease term
relating thereto will be an amount equal to 25 percent of the Total Invoice Cost
of the Equipment (the "Estimated Residual Value"). Upon expiration of the
original lease term, Lessor will attempt to sell the Equipment. If the Net
Proceeds of Sale (as hereafter defined) is less than the Estimated Residual
Value, promptly upon demand Lessee shall pay to Lessor the amount of the
difference (not to exceed 14.9 percent of the Total Invoice Cost of the
Equipment). If the Net Proceeds of Sale exceeds the Estimated Residual Value,
the amount of the difference promptly shall be paid by Lessor to Lessee. If the
Equipment has not been sold on the expiration date of the original lease term
relating thereto, then the Net Proceeds of Sale shall be deemed to be zero; and
promptly upon demand Lessee shall pay to Lessor an amount equal to 14.9 percent
of the Total Invoice Cost of the Equipment. !f Lessor thereafter shall sell the
Equipment, the Net Proceeds of Sale promptly shall be distributed as follows:
first, an amount equal to 10.1 percent of the Total Invoice Cost of the
Equipment shall be retained by Lessor (in addition to the amount previously paid
by Lessee to Lessor); and second, the balance (if any) promptly shall be paid by
Lessor to Lessee. Any such payment by either Lessee or Lessor shall be deemed to
be a Terminal Rental Adjustment with respect to the Equipment. As used herein,
"Net Proceeds of Sale" shall mean the gross selling price actually received by
Lessor less all (i) selling expenses incurred by Lessor, (ii) amounts which (if
not paid) would constitute a lien on the Equipment for which Lessee is
responsible under the Lease, and (iii) applicable sales or other transfer taxes
paid by Lessor.
As required by Section 7701(h) of the Internal Revenue Code of 1986, as now
or hereafter amended, Lessee shall execute and deliver to Lessor the
Certification by Lessee in substantially the form attached hereto as Exhibit No.
1. Lessee acknowledges that the Truth in Mileage Act of 1986 (and the
regulations promulgated thereunder) requires the lessee of motor vehicles (at
the time such motor vehicles are terminated from the lease) to provide a written
disclosure to the lessor regarding the mileage of such motor vehicles. Under
this law, the "failure to complete or providing false information may result in
fines and/or imprisonment". Therefore, Lessee agrees to provide to Lessor (on a
form provided by Lessor) upon termination of a motor vehicle from the Lease the
mileage disclosure information required by the Federal regulations.
B. OPTION TO PURCHASE Provided that Lessee is not then in Default, Lessee
shall have the option to purchase, upon the expiration of the term of this
Lease, or of any subsequent renewal term, if applicable, all but not less than
all of the Equipment subject to this Lease upon the following terms and
conditions: If Lessee desires to exercise this option it shall, at least two
hundred ten (210) days before expiration of the term of this Lease, give Lessor
written notice of its intention to exercise this option to purchase and shall
engage in negotiations with Lessor to determine the Purchase Price for the
Equipment. Not less than one hundred eighty (180) days before expiration of the
term of this Lease, Lessee shall give Lessor written notice of its election to
purchase on the terms mutually agreed upon during negotiations. Thereupon, at
the expiration of the term of this Lease, Lessee shall pay to Lessor in cash the
Purchase Price for the Equipment so purchased, determined as hereinafter
provided. Lessee's exercise of the purchase option contained herein shall
constitute a sale of the Equipment pursuant to Section A above and Lessee shall
be responsible for the performance of its obligations pursuant to Section A
above.
The Purchase Price of the Equipment shall be an amount equal to its then Fair
Market Value, together with all taxes and charges upon sale. For purposes of
this Section, "Fair Market Value" shall be deemed to be an amount equal to the
sale price obtainable in an arms' length transaction between a willing and
informed buyer and a willing and informed seller under no compulsion to sell
(and assuming that, as of the date of determination, the Equipment is in at
least the condition required by Section 13 of this Lease). If the parties are
unable to agree on the Fair Market Value of the Equipment, then Lessor and
Lessee shall at Lessee's expense obtain appraisal values from three independent
appraisers (one to be selected by Lessor, one by Lessee, and the other by the
two selected by Lessor and Lessee; each of whom must be associated with a
professional organization of equipment or personal property appraisers, such as
the American Society of Appraisers) and the average Fair Market Value as
determined by such appraisers shall be binding on the parties hereto.
Notwithstanding any election of Lessee to purchase, the provisions of this
Lease shall continue in full force and effect until the passage of ownership of
the Equipment upon the date of purchase. On the date of purchase, Lessor shall
deliver to Lessee a bill of sale transferring and assigning to Lessee, without
recourse or warranty, except (with respect to the status of title conveyed) in
respect of Lessor's acts, all of Lessor's right, title and interest in and to
the Equipment. Lessor shall not be required to make and may specifically
disclaim any representation or warranty as to the condition of the Equipment or
any other matters.
LASALLE NATIONAL LEASING CORPORATION 3C1 COMPLETE COMPLIANCE CORPORATION
Lessor Lessee
By: /s/ H. DUANE STEELBERG [SEAL] By: /S/ CURTIS W. CRANE [SEAL]
--------------------------- --------------------------
H. DUANE STEELBERG Curtis W. Crane
SENIOR VICE PRESIDENT CFO, Secretary
<PAGE> 12
LASALLE NATIONAL LEASING CORPORATION
RIDER NO. 3
To and part of Master Lease Agreement dated as of the 18th day of June, 1999
(the "Lease"), between LASALLE NATIONAL LEASING CORPORATION, its successors and
assigns ("Lessor"), and 3C1 COMPLETE COMPLIANCE CORPORATION, its Successors and
permitted assigns ( "Lessee").
A. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF LESSEE FOR SALE-LEASEBACK.
Lessee represents and warrants that: (1) The sale of those certain items of
equipment specified on the schedule attached to each Equipment Bill of Sale
(collectively the "Bill of Sale") executed by Lessee, and the execution,
delivery and performance of the Bill of Sale (a) have been duly authorized by
all necessary corporate action on the part of Lessee; (b) do not require the
consent of any stockholder, trustee or holders of any indebtedness of Lessee
except such as have been duly obtained; and (c) do not and will not contravene
any law, governmental rule, regulation or order now binding on Lessee, or the
charter or by-laws of Lessee, or contravene the provisions of, or constitute a
default under, or result in the creation of any lien or encumbrance upon the
property of Lessee under, any indenture, mortgage, contract or other agreement
to which Lessee is a party or by which it or its property is bound. (2) The Bill
of Sale transfers to Lessor valid title to the equipment described on the
schedule attached thereto free and clear of any and all encumbrances, liens,
charges or defects. Except for obtaining certificates of title with respect to
that portion of the Equipment consisting of motor vehicles, no filing or
recordation must be made, no notice must be given, and no other action must be
taken with respect to any state or local jurisdiction, or any person, in order
to preserve to Lessor all the rights transferred by the Bill of Sale.
B. ADDITIONAL AUTHORIZATION. Lessor's obligations under the Lease are further
conditioned upon Lessor having received the Bill of Sale and an opinion of
counsel for Lessee as to the matters set forth in paragraph A above.
LASALLE NATIONAL LEASING CORPORATION 3C1 COMPLETE COMPLIANCE CORPORATION
Lessor Lessee
By: /s/ H. DUANE STEELBERG [SEAL] By: /s/ CURTIS W. CRANE [SEAL]
--------------------------- --------------------------
H. DUANE STEELBERG Curtis W. Crane
SENIOR VICE PRESIDENT CFO, Secretary
<PAGE> 13
LASALLE NATIONAL LEASING CORPORATION
RIDER NO.4
To and part of Master Lease Agreement dated as of the 18 day of June 1999 (the
"Lease"), between LASALLE NATIONAL LEASING CORPORATION, its successors and
assigns ("Lessor"), and 3C1 COMPLETE COMPLIANCE CORPORATION, its successors and
permitted assigns ("Lessee").
GUARANTOR. Lessor's obligations under the Lease are further conditioned upon
Lessor having received the following, in form and substance satisfactory to
Lessor: (1) the Equipment Lease Guaranty (the "Guaranty"), duly executed by
STERICYCLE, INC. (the "Guarantor"); (2) an opinion of counsel for Guarantor as
to each of the matters set forth in sub-parts (a)(1) and (2), (b) and (c) of
Section 4 of the Guaranty; and (3) a certificate of Guarantor's Secretary
certifying: (a) resolutions of Guarantor's Board of Directors duly authorizing
the undertaking to guarantee the performance of the obligations of Lessee under
the Lease, and (b) the incumbency and signature of the officers of Guarantor
authorized to execute the Guaranty.
LASALLE NATIONAL LEASING CORPORATION 3CI COMPLETE COMPLIANCE CORPORATION
Lessor Lessee
By: /s/ H. DUANE STEELBERG [SEAL] By: /s/ CURTIS W. CRANE [SEAL]
--------------------------- --------------------------
H. DUANE STEELBERG Curtis W. Crane
SENIOR VICE PRESIDENT CFO, Secretary
<PAGE> 14
LASALLE NATIONAL LEASING CORPORATION
RIDER NO.6
To and part of Master Lease Agreement dated as of the 18TH day of JUNE, 1999
(the "Lease") between LASALLE NATIONAL LEASING CORPORATION, its successors and
assigns ("Lessor"), and 3C1 COMPLETE COMPLIANCE CORPORATION, its successors and
permitted assigns ("Lessee").
ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS.
1. As used herein, the following terms shall have the following meaning:
(a) "Adverse Environmental Condition": shall mean (i) the existence or the
continuation of the existence, of an Environmental Contamination
(including, without limitation, a sudden or non-sudden accidental or
non-accidental Environmental Contamination), of, or exposure to, any
substance, chemical, material, pollutant, Hazardous Substance, odor or
audible noise or other release or emission in, into or onto the
environment (including without limitation, the air, ground, water or any
surface) at, in, by, from or related to any Equipment, (ii) the
environmental aspect of the transportation, storage, treatment or
disposal of materials in connection with the operation of any Equipment,
or (iii) the violation, or alleged violation, of any Environmental Law,
permits or licenses of, by or from any governmental authority, agency or
court relating to environmental matters connected with any of the
Equipment.
(b) "Affiliate" shall mean, with respect to any given Person, any Person
that directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such
Person.
(c) "Environmental Claim" shall mean any accusation, allegation, notice of
violation, claim, demand, abatement or other order on direction
(conditional or otherwise) by any governmental authority or any Person
for personal injury (including sickness, disease or death), tangible or
intangible property damage, damage to the environment or other adverse
affects on the environment, or for fines, penalties or restrictions,
resulting from or based upon any Adverse Environmental Condition.
(d) "Environmental Contamination" shall mean any actual or threatened
release, spill, emission, leaking, pumping, injection, presence,
deposit, abandonment, disposal, discharge, dispersal, leaching or
migration into the indoor or outdoor environment, or into or out of any
of the Equipment, including, without limitation, the movement of any
Hazardous Substance or other substance through or in the air, soil,
surface water, groundwater or property.
(e) "Environmental Law" shall mean any present or future federal, foreign,
state or local law, ordinance, order, rule or regulation and all
judicial, administrative and regulatory decrees, judgments and orders,
pertaining to health, industrial hygiene, the use, disposal or
transportation of Hazardous Substances, Environmental Contamination, or
pertaining to the protection of the environment, including, but not
limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the Hazardous
Material Transportation Act (49 U.S.C. Section 1801 et seq.), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et
seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. Section 2601 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 1361 et
seq.), the Occupational Safety and Health Act (19 U.S.C. Section 651 et
seq.), the Noise Control Act of 1972 (42 U.S.C. Section 4901 et seq.),
and the Hazardous and Solid Waste Amendments (42 U.S.C. Section 2601 et
seq.), as these laws have been or may be amended or supplemented, and
any successor thereto, and any analogous foreign, state or local
statutes, and the rules, regulations and orders promulgated pursuant
thereto.
(f) "Environmental Loss" shall mean any loss, cost, damage, liability,
deficiency, fine, penalty or expense (including, without limitation,
reasonable attorneys' fees, engineering and other professional or expert
fees), investigation, removal, cleanup and remedial costs (voluntarily
or involuntarily incurred) and damages to, loss of the use of or
decrease in value of the Equipment arising out of or related to any
Adverse Environmental Condition.
(g) "Hazardous Substances" shall mean and include hazardous substances as
defined in CERCLA; oil of any kind, petroleum products and their
by-products, including, but not limited to, sludge or residue; asbestos
containing materials; polychlorinated biphenyls; any and all other
hazardous or toxic substances; hazardous waste, as defined in CERCLA;
medical waste; infectious waste; those substances listed in the United
States Department of Transportation Table (49 C.F.R. 172.101);
explosives; radioactive materials; and all other pollutants,
contaminants and other substances regulated or controlled by the
Environmental Laws and any other substance that requires special
handling in its collection, storage, treatment or disposal under the
Environmental Laws.
(h) "Person" shall mean any individual, partnership, corporation, trust,
unincorporated organization, government or department or agency thereof
and any other entity
2. Lessee hereby represents, warrants and covenants that: (a) it has conducted,
and will continue to conduct its business operations, and throughout the
term of the Lease will use the Equipment, so as to comply with all
Environmental Laws; (b) as of the date hereof, and as of the date of
execution of each Equipment Schedule, except as have been previously
disclosed in writing by Lessee to Lessor, there are no Hazardous Substances
generated, treated, handled, stored, transported, discharged, emitted,
released or otherwise disposed of in connection with Lessee's use of the
Equipment; and (c) Lessee has, and throughout the term of the Lease will
continue to have in full force and effect all federal, state and local
licenses, permits, orders and approvals required to operate the Equipment in
compliance with all Environmental Laws.
<PAGE> 15
3. Lessee agrees that if required to return the Equipment or any item thereof
to Lessor or Lessor's agents, Lessee shall return such Equipment free from
all Hazardous Substances and otherwise fully in compliance with all
Environmental Laws.
4. Lessee shall fully and promptly pay, perform, discharge, defend, indemnify
and hold harmless Lessor and its Affiliates, and their successors and
assigns, directors, officers, employees and agents, from and against any
Environmental Claim or Environmental Loss.
5. The provisions of this Rider shall survive any expiration or termination
of the Lease.
LASALLE NATIONAL LEASING CORPORATION 3CI COMPLETE COMPLIANCE CORPORATION
Lessor Lessee
By: /s/ H. DUANE STEELBERG [SEAL] By: /s/ CURTIS W. CRANE [SEAL]
--------------------------- --------------------------
H. DUANE STEELBERG Curtis W. Crane
SENIOR VICE PRESIDENT CFO, Secretary
<PAGE> 16
LASALLE NATIONAL LEASING CORPORATION
RIDER NO. 7
To and part of Master Lease Agreement dated as of the 18TH day of JUNE, 1999
(the "Lease"), between LASALLE NATIONAL LEASING CORPORATION, its successors and
assigns ("Lessor"), and 3C1 COMPLETE COMPLIANCE CORPORATION, its successors and
permitted assigns ("Lessee").
APPLICABILITY. This Rider shall be applicable solely with respect to items of
the Equipment described on Equipment Schedules designated as Series C (the
"Series C Equipment"); each reference herein to Equipment shall be deemed to
refer only to the Series C Equipment; and each reference herein to Equipment
Schedule shall be deemed to refer only to the Equipment Schedules designated as
Series C.
TERMINATION RENTAL PREMIUM. Upon the expiration of the term or of any renewal
term (if applicable) of this Lease, Lessee promptly shall pay to Lessor without
notice or demand therefor and together with all other amounts then due and
payable hereunder, in cash, a Termination Rental Premium of One Dollar ($1.00).
Upon receipt by Lessor of the Termination Rental Premium, Lessor shall deliver
to Lessee a bill of sale transferring and assigning to Lessee without recourse
or warranty, except (with respect to the status of title conveyed) in respect of
Lessor's acts, all of Lessor's right, title and interest in and to the
Equipment. Lessor shall not be required to make and may specifically disclaim
any representation or warranty as to the condition of the Equipment or any other
matters.
LASALLE NATIONAL LEASING CORPORATION 3CI COMPLETE COMPLIANCE CORPORATION
Lessor Lessee
By: /s/ H. DUANE STEELBERG [SEAL] By: /s/ CURTIS W. CRANE [SEAL]
--------------------------- --------------------------
H. DUANE STEELBERG Curtis W. Crane
SENIOR VICE PRESIDENT CFO, Secretary
<PAGE> 17
LASALLE NATIONAL LEASING CORPORATION
RIDER NO. 8
To and part of Equipment Lease Agreement dated as of the 18th day of June, 1999
(the "Lease"), between LASALLE NATIONAL LEASING CORPORATION, its successors and
assigns ("Lessor"), and 3C1 COMPLETE COMPLIANCE CORPORATION ("Lessee").
RETURN PROVISIONS: In addition to the provisions of Section 13 of this Lease,
and provided that Lessee has not elected to exercise its option to purchase the
Equipment, Lessee shall, at its expense:
(1) ensure all Equipment and equipment operations conform to all applicable
local, state, and Federal laws, health and safety guidelines. Lessee will keep
all licenses and operating certificates required for operation of the Equipment
current during the term of the Lease. Lessee will at all times use the Equipment
in compliance with all applicable laws and regulations of any governmental,
local and regulatory agency;
(2) provide safe, secure storage for the Equipment for ninety (90) days
after expiration or earlier termination of the Lease at not more than two (2)
locations selected by Lessor;
(3) take such action as may be required so that, upon return, each unit of
Equipment must meet its manufacturer's specifications for performance under
full-rated loads, as confirmed through testing using a chassis dynamometer, and
the following conditions:
(a) Tires: All tires shall be of the same type (original size) and
manufacturer (i.e. matched) and have a minimum of fifty (50) percent
remaining tread on original or recapped casings without flat or bald spots,
dry rot, exposed cord or cuts in sidewall. The front tires will not be
recaps;
(b) General Condition: Upon return, there must be no structural or
mechanical damage. All rust or corrosion must be treated in a manner
consistent with standard industry practices. All Equipment must have a good
overall appearance and no material damage. The Equipment shall be cleaned,
de-contaminated (internal and external), with no missing or damaged parts.
Upon return, all commercial logos, advertising, graffiti, insignias and
lettering shall be removed and repaired in a workmanlike manner so as to
not damage the Equipment. Manufacturer's identity plates and markings shall
not be removed. With respect to each unit, the total cost of necessary
repairs for damage or other related costs necessary to place the Equipment
in such condition as to be in compliance with this Lease may not exceed
$150.00;
(c) Documents and Records: Written records of all maintenance and
repair work shall be kept throughout the term of the transaction. A copy
shall be provided to Lessor upon request during the term of the Lease, or
at Lease termination. All maintenance records, maintenance record jackets,
repair jackets, repair orders, license plates, registration certificates
and all other similar documents, in their entirety, must be returned to
Lessor;
(d) Brakes: Brake drums and linings shall not be cracked and shall not
exceed manufacturers' recommended wear limits. Brake linings shall have at
least fifty (50) percent remaining wear;
(e) Maintenance: Lessee shall follow the manufacturer's recommended
maintenance and service schedule, as required to validate any warranty, and
at Lessee's sole cost and expense. Any maintenance or repair work shall
comply with the guidelines and procedures as specified by the manufacturers
of the equipment and in accordance with standards in the industry. Lessee
will use only original manufacturer's or approved replacement parts and
components in the performance or any maintenance and repair of the
Equipment. Lessee will at all times maintain the Equipment in good
operational condition and appearance, and shall not discriminate such
maintenance between owned or leased equipment;
(f) Use: Lessee guarantees that the Equipment will not be or have been
loaded beyond the rated capacity as certified by the manufacturer at any
time during the Lease term. Lessee will not discriminate in the use of the
Equipment from any other similar equipment in its fleet; and
(g) Alterations: Lessee will not modify the Equipment without the
prior written approval of Lessor. In any event, Lessee will not make any
modifications or alterations that would impair the Equipment's use, value,
marketability or manufacturer's warranty and recommendations. Lessee will
not make any alterations to the Equipment that would damage or restrict the
use of the Equipment from its initial use and design and that cannot be
removed without damage to the unit. Changes, modifications or additions to
the Equipment mandated by Federal or state authorities will be completed by
Lessee and become property of Lessor; and
(4) prior to any return of the Equipment, an in-depth physical inspection
will be performed by a manufacturer's service representative(s). Any part,
component or function found not to be within the manufacturer's published or
recommended specifications, including but not limited to transmissions,
clutches, drive trains, and rear axles, will be replaced or repaired to meet
those specifications. Lessee shall obtain written certification from the
manufacturers or their authorized representative that the Equipment has been
returned in accordance with the terms set forth herein.
LASALLE NATIONAL LEASING CORPORATION 3CI COMPLETE COMPLIANCE CORPORATION
Lessor Lessee
By: /s/ H. DUANE STEELBERG [SEAL] By: /s/ CURTIS W. CRANE [SEAL]
--------------------------- --------------------------
H. DUANE STEELBERG Curtis W. Crane
SENIOR VICE PRESIDENT CFO, Secretary
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 236,387
<SECURITIES> 0
<RECEIVABLES> 3,170,452
<ALLOWANCES> (308,489)
<INVENTORY> 91,460
<CURRENT-ASSETS> 3,694,025
<PP&E> 14,141,354
<DEPRECIATION> (5,321,419)
<TOTAL-ASSETS> 13,065,607
<CURRENT-LIABILITIES> (8,597,747)
<BONDS> 0
0
(77,500)
<COMMON> (92,329)
<OTHER-SE> (3,177,790)
<TOTAL-LIABILITY-AND-EQUITY> (13,065,607)
<SALES> 18,121,295
<TOTAL-REVENUES> 18,121,295
<CGS> 12,609,173
<TOTAL-COSTS> (12,609,173)
<OTHER-EXPENSES> 3,959,019
<LOSS-PROVISION> (70,050)
<INTEREST-EXPENSE> (911,411)
<INCOME-PRETAX> 571,642
<INCOME-TAX> 0
<INCOME-CONTINUING> 571,642
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<CHANGES> 0
<NET-INCOME> 571,642
<EPS-BASIC> .06
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