<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
STERILE RECOVERIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
STERILE RECOVERIES, INC.
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 19, 1999
Dear Shareholder:
The Annual Meeting of Shareholders of Sterile Recoveries, Inc. (the
"Company") will be held on Wednesday, May 19, 1999, at 10:00 a.m., local time,
at The Coastal Building, Fourth Floor, located at 28100 U.S. Highway 19 North,
Clearwater, Florida 33761, for the following purposes:
1. To elect two directors to serve until the 2002 Annual Meeting
of Shareholders and to hold office until their successors are
duly elected and qualified.
2. To ratify the appointment of independent auditors.
3. To transact other business that properly comes before the
meeting or any adjournment of the meeting.
These items of business are more fully described in the Proxy Statement
accompanying this Notice.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the Annual Meeting, you are
urged to sign and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the Annual Meeting may vote in person even if he or she has returned a proxy.
THE BOARD OF DIRECTORS
Clearwater, Florida
April 7, 1999
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE
REQUESTED TO COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY IN
THE ENVELOPE PROVIDED.
<PAGE> 3
STERILE RECOVERIES, INC.
------------------
PROXY STATEMENT
FOR
1999 ANNUAL MEETING OF SHAREHOLDERS
------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited on behalf of Sterile Recoveries, Inc.
(the "Company") from the Company's Shareholders for use at the Annual Meeting of
Shareholders to be held on Wednesday, May 19, 1999, at 10:00 a.m., local time,
and at any adjournment of the meeting for the purposes set forth in this Proxy
Statement and in the accompanying Notice of Annual Meeting of Shareholders. The
Annual Meeting will be held at The Coastal Building, Fourth Floor, located at
28100 U.S. Highway 19 North, Clearwater, Florida. The Company's principal
executive office is located at 28100 U.S. Highway 19 North, Suite 201,
Clearwater, Florida 33761 and its telephone number at that location is (727)
726-4421.
These proxy solicitation materials were mailed on or about April 7,
1999, together with the Company's 1999 Annual Report to Shareholders, to all
shareholders entitled to vote at the meeting.
VOTING AND SOLICITATION
Only shareholders of record at the close of business on March 30, 1999
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting.
The Company has two classes of outstanding voting securities, its Common Stock
and its Series A Preferred Stock. As of the Record Date, 5,676,794 shares of the
Company's Common Stock and 566,667 shares of the Company's Series A Preferred
Stock were outstanding. For information regarding security ownership by
management and by the beneficial owners of 5% or more of either the Company's
Common Stock or its Series A Preferred Stock, see "Other Information - Share
Ownership by Principal Shareholders and Management."
Each shareholder is entitled to one vote for each share of Common Stock
and one vote for each share of Series A Preferred Stock on all matters presented
at the Annual Meeting. The holders of Common Stock and Series A Preferred Stock
will vote together as one group in the election of directors and other matters
presented at the Annual Meeting. Shareholders do not have the right to cumulate
their votes in the election of directors.
The cost of soliciting proxies will be borne by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses in forwarding
solicitation materials to such beneficial owners. Proxies may also be solicited
by certain of the Company's directors, officers, and regular employees, without
additional compensation, personally or by telephone, telegram, letter or
facsimile.
1
<PAGE> 4
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the Annual Meeting and voting in person.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual
Meeting is a majority of the shares of both Common Stock and Series A Preferred
Stock outstanding on the Record Date. Shares that are voted "FOR," "AGAINST," or
"WITHHELD" from a matter are treated as being present at the meeting for
purposes of establishing a quorum and are also treated as votes eligible to be
cast by the shareholders present in person or represented by proxy at the Annual
Meeting and entitled to vote on the subject matter with respect to such matter.
Abstentions are counted in determining whether a quorum is present, but are not
counted in determining the number of shares voted for or against any nominee for
director or any proposal. Broker non-votes are not counted for purposes of
determining whether a quorum is present or the number of shares for or against
any nominee for election as a director or any proposal.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be
presented by such shareholders at the Company's 2000 Annual Meeting of
Shareholders must be received by the Company no later than December 9, 1999, to
be considered for inclusion in the proxy statement and form of proxy relating to
that meeting.
FISCAL YEAR END
The Company's fiscal year ends on the Sunday nearest December 31.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AT THE ANNUAL MEETING
The Company's Board of Directors has been divided into three classes of
two or three directors each, with the members of each class serving three-year
terms expiring at the third annual meeting of shareholders after their election.
Two directors are to be elected at the Annual Meeting, each to serve a term of
three years. Unless otherwise instructed, the proxy holders will vote the
proxies received by them for the Company's two nominees named below, both of
whom are presently directors of the Company. In the event that any nominee of
the Company is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the current Board of Directors to fill the vacancy. It is not
expected that any nominee will be unable or will decline to serve as a director.
The term of office of each person elected as a director will continue until a
successor has been elected and qualified.
2
<PAGE> 5
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED
BELOW:
<TABLE>
<CAPTION>
TERM
NAME AGE PRINCIPAL OCCUPATION EXPIRES
---- --- -------------------- -------
<S> <C> <C> <C>
Richard T. Isel...... 55 Chairman and Chief Executive Officer 2002
of the Company
James M. Emanuel..... 49 Consultant 2002
</TABLE>
Richard T. Isel has been the Company's Chairman and Chief Executive
Officer since January 1998 and a director since the Company's inception in 1994.
Mr. Isel was the Company's President and Chief Executive Officer from the
Company's inception through December 1997. Mr. Isel in 1991 co-founded the
Company's predecessor, Amsco Sterile Recoveries, Inc., and served as its
President and a director until November 1993. From November 1993 until August
1994, Mr. Isel engaged in private investment activities and arranged the
Company's acquisition. Before starting Amsco Sterile, Mr. Isel was a founder and
the chief executive officer of Sterile Design, Inc., a manufacturer of sterile
custom procedure trays.
James M. Emanuel has been a director of the Company since May 2, 1996.
Between January 1984 and June 1997, he served as the Chief Financial Officer of
Lincare Inc., a national provider of respiratory therapy services for patients
with pulmonary disorders. He also served as the Chief Financial Officer of
Lincare Holdings, Inc. between November 1990 and June 1997. Mr. Emanuel also
served as a director of Lincare Inc. and Lincare Holdings, Inc. from November
1990 to June 1997. Mr. Emanuel has engaged in private investment activities
since his retirement from Lincare Inc. in June 1997.
DIRECTORS WHOSE TERMS WILL CONTINUE AFTER THE ANNUAL MEETING
The following directors will continue to serve after the Annual
Meeting for terms that expire in 2000 or 2001 as specified:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION TERM EXPIRES
---- --- -------------------- ------------
<S> <C> <C> <C>
James T. Boosales . . . . . . 55 Executive Vice President, Chief Financial 2000
Officer, and Secretary of the Company
Gary L. Heiman . . . . . . . 47 President and Chief Executive Officer of 2001
Standard Textile Co., Inc.
Lee R. Kemberling. . . . . . 73 Owner and President of Kemco Systems, Inc. 2000
Bertram T. Martin, Jr. . . . 49 President and Chief Operating Officer 2001
of the Company
Wayne R. Peterson . . . . . . 48 Executive Vice President of the Company 2001
</TABLE>
3
<PAGE> 6
James T. Boosales has been the Company's Executive Vice President and
principal financial officer and a director since the Company's inception in
1994. He served as President, International, of Fisher-Price, Inc., a $200
million division of this toy and juvenile products company, from 1990 through
1993. Before joining Fisher-Price, Inc., Mr. Boosales served in several senior
executive capacities with General Mills, Inc., including President,
International, for Kenner Parker Toys, Inc./Tonka Corp. from 1985 to 1989,
during and after its spinoff as a public company, and President of Foot-Joy,
Inc. from 1982 to 1985.
Gary L. Heiman has been a director of the Company since September 1,
1998. Mr. Heiman has served as Chief Executive Officer of Standard Textile Co.,
Inc. since 1994, and as President since 1986. Standard Textile is a developer,
manufacturer and distributor of healthcare and medical textiles and apparel.
Lee R. Kemberling, an initial investor in the Company, has been a
director of the Company since its inception. Mr. Kemberling is the founder, and
since 1969 has been sole shareholder and President of, Kemco Systems, Inc., a
developer and manufacturer of commercial and industrial waste water heat
recovery systems, including systems used in the Company's operations.
Bertram T. Martin, Jr. has been President of the Company since December
1997, Chief Operating Officer of the Company since July 18, 1996, and a director
of the Company since May 2, 1996. Mr. Martin served as an Executive Vice
President of the Company from July 1996 to December 1997. Between July 1995 and
his joining the Company, Mr. Martin provided consulting services to the Company
(from October 1995) and other businesses through Corporate Strategic Directions,
Inc. From 1993 until 1995, he was President and Chief Operating Officer of
Pharmacy Management Services, Inc., a nationwide provider of medical cost
containment and managed care services and a Nasdaq-listed company, until its
acquisition by Beverly Enterprises, Inc. in June 1995. He served as a director
during the five years Pharmacy Management was a public company.
Wayne R. Peterson has been the Company's Executive Vice President and a
director since the Company's inception. Mr. Peterson in 1991 co-founded Amsco
Sterile and served as its Vice President until it was acquired by the Company in
1994. Before joining Amsco Sterile, Mr. Peterson was President of Agora
Development, Inc., a real estate development company that from 1987 to 1991
developed projects totaling 2,000,000 square feet in four states (California,
Nevada, Arizona, and Illinois) for a total combined value of $278 million. Mr.
Peterson is the brother-in-law of Richard T. Isel, the Company's Chairman and
Chief Executive Officer.
REQUIRED VOTE
The two nominees receiving the highest number of affirmative votes of
the shares of Common and Series A Preferred Stock present or represented and
entitled to be voted for them shall be elected as directors. Votes withheld from
any director are counted for purposes of determining the presence or absence of
a quorum for the transaction of business, but have no further legal effect under
Florida law.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of four meetings and
took action by written consent five times during the 1998 fiscal year. Each
director who served as such during the fiscal year ended December 31, 1998,
attended all of the meetings of the Board and the committees of the Board on
which he served during that year. The Board of Directors has a Compensation
Committee and an Audit Committee.
The Compensation Committee, which currently consists of Messrs.
Kemberling and Emanuel, reviews specific compensation plans, salaries, bonuses,
and other benefits payable to the Company's executive officers and makes
4
<PAGE> 7
recommendations to the Board of Directors with respect to those matters. During
1998, the Compensation Committee held one meeting.
The Audit Committee, which currently consists of Messrs. Emanuel and
Kemberling, reviews and evaluates the results and scope of the audit and other
services provided by the Company's independent auditors. During 1998, the Audit
Committee held two meetings.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive $1,000 per Board
or committee meeting attended. In addition, for each year of any term to which
he is elected, each outside director receives options to purchase 4,000 shares
of Common Stock under the 1996 Non-Employee Director Stock Option Plan. All
options become exercisable ratably over the director's term and have an exercise
price equal to the fair market value of the Company's Common Stock on the date
of grant.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Company engaged Ernst & Young LLP on April 5, 1999 to audit its
financial statements for the fiscal year ending December 31, 1999. The Company's
selection of Ernst & Young LLP was approved by its Board of Directors and its
Audit Committee. Grant Thornton LLP previously audited the Company's financial
statements. A representative of Ernst & Young LLP is expected to be present at
the meeting, will have the opportunity to make a statement, and is expected to
be available to respond to appropriate questions.
REQUIRED VOTE; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has conditioned its appointment of the Company's
independent auditors upon the receipt of the affirmative vote of a majority of
the shares represented, in person or by proxy, and voting at the Annual Meeting,
which shares voting affirmatively also constitute at least a majority of the
required quorum. In the event that the shareholders do not approve the selection
of Ernst & Young LLP, the appointment of the independent auditors will be
reconsidered by the Board of Directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS
PROPOSAL.
OTHER INFORMATION
SHARE OWNERSHIP BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Common Stock and Series A Preferred Stock as of February
26, 1999, with respect to: (i) each of the Company's directors and the executive
officers named in the Summary Compensation Table below, (ii) all directors and
officers of the Company at fiscal year end as a group; and (iii) each person
known by the Company to own beneficially more than 5% of the Common Stock or the
Series A Preferred Stock. Each of the shareholders listed below has sole voting
and investment power over the shares beneficially owned. The number and
percentage of shares beneficially owned is determined under rules of the
Securities and Exchange Commission ("SEC"), and the information is not
necessarily indicative
5
<PAGE> 8
of beneficial ownership for any other purpose. Under these rules, beneficial
ownership includes any shares for which the individual has sole or shared voting
power or investment power and also any shares as to which the individual has the
right to acquire within 60 days of February 26, 1999, through the exercise of
any stock option or other right. A total of 5,676,794 shares of the Company's
Common Stock and 566,667 of the Company's Series A Preferred Stock were issued
and outstanding as of February 26, 1999.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIAL OWNER (1) CLASS OF STOCK BENEFICIALLY OWNED BENEFICIALLY OWNED
- --------------------- -------------- ------------------ ------------------
<S> <C> <C> <C>
Richard T. Isel(2) Common 920,829 16.2%
Wayne R. Peterson(3) Common 897,200 15.8
James T. Boosales(4) Common 828,100 14.6
Bertram T. Martin, Jr.(5) Common 215,126 3.7
Lee R. Kemberling(6) Common 348,012 6.1
James M. Emanuel(7) Common 29,500 *
Gary L. Heiman and
Standard Textile Co., Inc. Common(8) 566,667 9.1
Preferred(9) 566,667 100.0
The Kaufmann Fund, Inc. Common 630,700 11.1
All directors and officers
as a group (7 persons)(10) Common 3,805,434 59.9
Preferred 566,667 100.0%
</TABLE>
- -----------------------
* Indicates less than 1%.
(1) The business address for Richard T. Isel, Wayne R. Peterson, James T.
Boosales, and Bertram T. Martin, Jr. is 28100 U.S. Highway 19 North,
Suite 201, Clearwater, Florida 33761. The business address for Lee R.
Kemberling is 11500 47th Street North, Clearwater, Florida 34622. The
business address for James M. Emanuel is 120 14th Street, Belleair
Beach, Florida 33786. The business address for Gary L. Heiman is One
Knollcrest Drive, Cincinnati, Ohio, 45237. The business address for The
Kaufmann Fund, Inc. is 140 E. 45th Street, 43rd Floor, New York, New
York 10017.
(2) Includes 720,829 shares of Common Stock owned by Isel Family Limited
Partnership, a Colorado limited partnership of which Isel Holdings,
Inc., a Colorado corporation, is the general partner. Mr. Isel and his
wife, Marcy, jointly own all of the issued and outstanding voting stock
of Isel Holdings, Inc.
(3) Includes 75,000 shares of Common Stock owned by the Wayne R. Peterson
Grantor Retained Annuity Trust, as to which Mr. Peterson has sole
voting and dispositive power as trustee, and 75,000 shares of Common
Stock owned by the Theresa A. Peterson Grantor Retained Annuity Trust,
as to which Mrs. Peterson, Mr. Peterson's wife, has sole voting and
dispositive power as trustee. Also includes 747,200 shares of Common
Stock owned by the Peterson Partners, Ltd., a Colorado limited
partnership of which Peterson Holdings, Inc., a Colorado corporation,
is the general partner. Mr. and Mrs. Peterson jointly own all of the
issued and outstanding voting stock of Peterson Holdings, Inc.
6
<PAGE> 9
(4) Includes 800,000 shares of Common Stock owned by the Boosales Family
Limited Partnership, a Colorado limited partnership of which Boosales
Holdings, Inc., a Colorado corporation, is the general partner. Mr.
Boosales and his wife, Bonny, jointly own all of the issued and
outstanding voting stock of Boosales Holdings, Inc.
(5) Includes 112,000 shares of Common Stock issuable on the exercise of
outstanding stock options that are currently exercisable or that will
become exercisable within 60 days. Excludes 154,000 shares of Common
Stock issuable on the exercise of stock options that are not
exercisable within 60 days.
(6) Includes 12,000 shares of Common Stock issuable on exercise of stock
options that are currently exercisable or will become exercisable at
the 1999 Annual Meeting. Excludes 4,000 shares of Common Stock issuable
on exercise of stock options that are not exercisable within 60 days.
(7) Includes 19,500 shares of Common Stock issuable pursuant to the
exercise of outstanding stock options that are currently exercisable
or will become exercisable at the 1999 Annual Meeting.
(8) Consists of the Common Stock potentially issuable on conversion of the
Series A Preferred Stock held by Standard Textile Co., Inc. Excludes
12,000 shares of Common Stock issuable on exercise of stock options
that are not exercisable within 60 days.
(9) Consists of the 566,667 shares of Series A Preferred Stock owned by
Standard Textile Co., Inc., of which Mr. Heiman is a principal
shareholder, President and Chief Executive Officer. This preferred
stock is convertible at any time into the same number of shares of
Common Stock.
(10) Includes 112,000 shares of Common Stock issuable upon the exercise of
outstanding stock options held by Bertram T. Martin, Jr., 19,500 shares
of Common Stock issuable upon the exercise of outstanding stock options
held by James M. Emanuel, 12,000 shares of Common Stock issuable upon
the exercise of outstanding stock options held by Lee R. Kemberling,
and 566,667 shares of the Common Stock potentially issuable on
conversion of the Series A Preferred Stock held by Standard Textile
Co., Inc.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act ("Section 16(a)") requires the
Company's officers and directors and persons who own ten percent or more of a
registered class of the Company's equity securities to file reports of ownership
on Form 3 and changes in ownership on Form 4 or Form 5 with the SEC and the
National Association of Securities Dealers, Inc. Such officers, directors and
ten percent or more shareholders are also required by SEC rules to furnish the
Company with copies of all such forms that they file.
Based solely on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons that no Forms
5 were required for such persons, the Company believes that, during the period
from January 1, 1998 until December 31, 1998, all Section 16(a) filing
requirements applicable to its officers, directors, and ten-percent or more
shareholders were satisfied.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee is composed of Messrs. Kemberling
and Emanuel. No member of the Compensation Committee is or was formerly an
officer or an employee of the Company. No interlocking
7
<PAGE> 10
relationship exists between the Company's Board of Directors or Compensation
Committee and the board of directors or compensation committee of any other
company, nor has any such interlocking relationship existed in the past.
Lee R. Kemberling, a director of the Company, is also the director,
President, and sole shareholder of Kemco, Inc., a developer and manufacturer of
commercial and industrial waste water and heat recovery systems that originally
furnished the Company's predecessor with the water and heat reclamation
equipment installed at each of its facilities. The Company paid $24,000 to Kemco
in 1998 to design and supply new components for water reclamation systems. The
Company believes that the terms of its transactions with Kemco approximate those
that would be available from an independent third party.
EXECUTIVE OFFICER COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation paid to or earned by the Company's Chairman and Chief Executive
Officer and each of the Company's other executive officers (the "Named
Officers") for the years ended December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
------------------- LONG TERM
NAME AND PRINCIPAL POSITIONS YEAR SALARY OTHER ANNUAL COMPENSATION
- ---------------------------- ---- ------ COMPENSATION OPTIONS GRANTED
------------ ---------------
<S> <C> <C> <C> <C>
Richard T. Isel, Chairman and Chief ....... 1998 $220,000 $10,385 --
Executive Officer ......................... 1997 220,000 8,482 --
1996 220,000 6,413 --
Bertram T. Martin, Jr., President ......... 1998 200,000 -- --
and Chief Operating Officer ............... 1997 200,000 -- 90,000
1996 80,000* -- 70,000
Wayne R. Peterson, Executive .............. 1998 200,000 -- --
Vice President ............................ 1997 200,000 -- --
1996 200,000 -- --
James T. Boosales, Executive .............. 1998 200,000 -- --
Vice President ............................ 1997 200,000 -- --
1996 200,000 -- --
</TABLE>
- -----------------
* Mr. Martin was a Company officer for part of 1996.
None of the foregoing officers received any bonus compensation in 1998.
8
<PAGE> 11
EMPLOYMENT AGREEMENTS
The Company has employment agreements with all of the Named Officers
that provide for annual salary as follows:
<TABLE>
<CAPTION>
NAME SALARY
---- ------
<S> <C>
Richard T. Isel......................................$220,000
Bertram T. Martin, Jr................................$200,000
Wayne R. Peterson....................................$200,000
James T. Boosales....................................$200,000
</TABLE>
The agreements can be terminated by either party without cause at any time,
subject to certain notice requirements. Each officer is prohibited from
competing with the Company during the three year period following termination of
the officer's employment. The Company also has severance agreements with each of
its executive officers that provide for a severance compensation benefit equal
to two times the executive officer's annual cash compensation (payable in a lump
sum) for an involuntary or constructive termination of employment following a
"change of control."
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted in 1998 to any Named Officer of the Company.
FISCAL YEAR END OPTION VALUES
The following table sets forth the aggregate value of unexercised
options at December 31, 1998, for each Named Officer. There were no options
exercised during the year ended December 31, 1998 by any Named Officer.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END (1)
-------------------------- ----------------------
NAME UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
- ---- ------------- ----------- ------------- -----------
<S> <C> <C> <C> C>
Richard T. Isel - - - -
Bertram T. Martin, Jr.(2) 114,000 112,000 - $94,500
Wayne R. Peterson - - - -
James T. Boosales - - - -
</TABLE>
(1) Amounts represent the $2,655,500 market value of the underlying
securities relating to "in-the-money" options at December 31, 1998,
minus the exercise price of such options.
(2) Mr. Martin's exercisable options include options to purchase 66,000
shares of the Company's Common Stock at $4.43 per share that he
received in October 1995 as a consultant to the Company before he
9
<PAGE> 12
joined the Company as an officer. These options were not awarded to Mr.
Martin as compensation for his service as a Named Officer.
CERTAIN TRANSACTIONS
The Company engaged in transactions in 1998 with Kemco, Inc., a company
owned by Lee R. Kemberling, a director of the Company. See "Other Information -
Compensation Committee Interlocks and Insider Participation."
Gary L. Heiman, a director of the Company since September 1, 1998, is
also the President, Chief Executive Officer, and a principal shareholder of
Standard Textile Co., Inc., a developer, manufacturer, and distributor of
healthcare and medical textiles and apparel. In August 1998, the Company
acquired all of the stock of RePak Surgical Enterprises, Inc. ("RePak"), a
wholly-owned subsidiary of Standard Textile, in exchange for 566,667 shares of
its Series A Preferred Stock with an independently appraised value of $7.1
million on the date that the transaction closed. RePak provides reusable
surgical products similar to the Company's reprocessing service to the Ohio and
Michigan markets from a reprocessing facility located in the Cincinnati area.
Mr. Heiman became a director of the Company immediately after closing of this
transaction.
Concurrently with the closing of this acquisition, the Company entered
into a ten (10) year sales and manufacturing agreement with Standard Textile
pursuant to which Standard Textile will manufacture the bulk of the Company's
reusable textile products. Pursuant to this arrangement, the Company paid
$605,000 to Standard Textile in 1998 for purchases of reusable textile products.
The Company believes that the terms of this arrangement with Standard Textile
approximate those that would be available from an independent third party.
All future transactions between the Company and its officers,
directors, principal shareholders and their affiliates will continue to be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors, and
will continue to be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors (the "Committee")
has furnished the following report on the Company's executive compensation
program. The Committee, which consists of the two outside directors listed at
the end of this report, reviews and establishes specific compensation plans,
salaries, option grants, and other benefits payable to the Company's executive
officers. Following review and approval by the Committee, all issues pertaining
to executive compensation are submitted to the entire Board of Directors for its
review and approval.
The Committee's primary objective with respect to executive
compensation is to establish programs that attract and retain executive officers
and align their compensation with the Company's overall business strategies,
values, and performance. For executive officers and key managers other than
Messrs. Isel, Peterson, and Boosales, the Company's founders and largest
shareholders, the Company grants stock options as a component of total
consideration to closely align their interests with the shareholders' long-term
interests. Further, in evaluating annual compensation of executive officers
(other than Messrs. Isel, Peterson, and Boosales) and key managers, the
Committee places a relatively heavy emphasis on stock options as a
10
<PAGE> 13
percentage of total compensation, consistent with its philosophy that stock
incentives more closely align the interests of company managers with the
long-term interests of shareholders.
The two components of the Company's total compensation program for
executive officers have been:
1. Salary: Base salary is intended to be competitive with that paid to
comparable executives and is also intended to reflect consideration of an
officer's experience, business judgment, and role in developing and implementing
overall business strategy for the Company. Base salaries are based on
qualitative and subjective factors, and no specific formula is applied to
determine the weight of each factor.
The Company's executive officers have not historically participated in
its incentive compensation program, and did not in 1998 receive any bonus in
addition to base salary. The Committee believes that the absence of incentive
bonus has been more than offset by the substantial incentives associated with
the executive officers' stock ownership.
2. Long-Term Stock Incentives: The Company's 1995 Stock Option Plan and
1998 Stock Option Plan provide for the grant to employees of incentive or
nonqualified stock options. Grants to executives are designed to align a
significant portion of the executive compensation package with the long-term
interests of the Company's shareholders by providing an incentive that focuses
attention on managing the Company from the perspective of an owner with an
equity stake in the business.
Grants of stock options generally are limited to officers (other than
Messrs. Isel, Peterson, and Boosales) and other key employees and managers of
the Company who are in a position to contribute substantially to the growth and
success of the Company. Incentive stock options and nonqualified stock options
are granted for terms up to ten years, and are designed to reward exceptional
performance with a long-term benefit, facilitate stock ownership, and deter
recruitment of key Company personnel by competitors and others.
Vesting requirements encourage loyalty to the Company.
The Company did not grant stock options in 1998 to Messrs. Isel,
Peterson, and Boosales because as the Company's founders and largest
shareholders, their interests are already closely aligned with those of the
Company's other shareholders. The remaining executive officer, Mr. Martin, was
granted options to purchase 40,000 shares of Common Stock on January 2, 1999 and
beneficially owned or had rights to acquire 369,126 shares on the Record Date.
The Named Officers appearing in the Summary Compensation Table held a total of
3,015,255 shares representing 50.7% of the Company's outstanding Common Stock on
February 26, 1999, assuming exercise of all of Mr. Martin's vested and unvested
stock options.
In conclusion, the Company's executive officers' stock ownership and
stock option awards closely align their interests with the Company's
shareholders' long-term interests, consistent with the compensation philosophies
set forth above. This close alignment has existed since the Company's inception
and has contributed significantly to the Company's growth and profitability.
By the Compensation Committee
Lee R. Kemberling
James M. Emanuel
11
<PAGE> 14
COMPANY STOCK PRICE PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total shareholder
return for the Company, the Nasdaq Stock Market (U.S.) Index, and the Nasdaq
Health Index for the period since the Company's Common Stock began trading on
July 18, 1996. This graph assumes that $100 was invested on July 18, 1996, in
the Company's Common Stock and in the other indices. Note that historic stock
price performance is not necessarily indicative of future stock price
performance.
[GRAPHIC]
<TABLE>
<CAPTION>
7/18/96 9/30/96 12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98 12/31/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sterile Recoveries Inc, $100.00 $152.63 $155.92 $184.21 $186.64 $151.32 $180.26 $178.95 $178.95 $ 93.42 $123.68
Nasdaq Stock Market $100.00 $110.76 $116.21 $109.91 $130.06 $152.06 $140.60 $166.37 $170.99 $154.82 $200.32
(U.S. Index)
Nasdaq Health Index $100.00 $110.15 $ 97.58 $ 97.58 $101.70 $110.65 $ 99.45 $108.72 $ 98.78 $ 74.82 $ 84.99
</TABLE>
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting.
If any other matters properly come before the meeting, it is the intention of
the persons named in the enclosed proxy card to vote the shares they represent
as the Company may recommend.
It is important that your shares be represented at the meeting,
regardless of the number of shares which you hold. You are, therefore, urged to
execute and return at your earliest convenience, the accompanying proxy card in
the envelope which has been enclosed.
THE BOARD OF DIRECTORS
Clearwater, Florida
April 7, 1999
12
<PAGE> 15
1999 ANNUAL MEETING OF SHAREHOLDERS OF STERILE RECOVERIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Bertram T. Martin, Jr. and James T. Boosales, and each
of them, as proxies, each with full power of substitution, to represent and to
vote all shares of voting common stock of STERILE RECOVERIES, INC., a Florida
corporation (the "Company"), at the Annual Meeting of Shareholders of the
Company to be held on Wednesday, May 19, 1999, at 10:00 a.m., EST, and any
adjournment thereof:
1. Election of directors for terms expiring in 2002:
[ ] FOR THE ELECTION OF RICHARD T. ISEL AND JAMES M. EMANUEL (the
"Nominees") for terms expiring in 2002
[ ] WITHHOLD AUTHORITY TO VOTE FOR THE NOMINEES (INSTRUCTION: To withhold
authority to vote for any individual nominee, strike a line through
the nominee's name)
2. Appointment of Ernst & Young LLP as the Company's auditors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(continued, and to be signed on reverse side)
(Continued from other side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE NOMINEES AND FOR THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
COMPANY'S AUDITORS.
The undersigned hereby acknowledges receipt of (i) the Company's 1998 Annual
Report to Shareholders, (ii) the Proxy Statement and (iii) the Notice of Annual
Meeting of shareholders to be held on May 19, 1999.
SIGNED:
---------------------------------
Signature of Shareholder
SIGNED:
---------------------------------
Signature of Shareholder if held jointly
Please sign exactly as your name
appears on this proxy. If shares are
owned by more than one person, all
owners should sign. Persons signing as
executors, administrators, trustees or
in similar capacities should so
indicate. If a corporation, please sign
full corporate name by the president or
other authorized officer. If a
partnership, please sign in partnership
name by authorized person.
DATED: , 1999
---------------------------
DO YOU PLAN TO ATTEND [ ] [ ]
THE ANNUAL MEETING? yes no
PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED POSTAGE PAID ENVELOPE.
