<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 10-K/A
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 from to
COMMISSION FILE NUMBER 0-21229
---------------------------
STERICYCLE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-3640402
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
28161 NORTH KEITH DRIVE, LAKE FOREST, ILLINOIS 60045
(Address of principal executive offices)
(847) 367-5910
(Registrant's telephone number, including area code)
<PAGE> 2
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's executive officers is contained under
the caption, "Supplemental Information--Executive Officers of the Registrant,"
in Part I of this Report.
DIRECTORS
The following table provides certain information regarding the Company's
seven directors:
<TABLE>
<CAPTION>
NAME POSITION WITH COMPANY AGE
---- --------------------- ---
<S> <C> <C>
Jack W. Schuler(1)........................ Chairman of the Board of Directors 58
Mark C. Miller............................ President, Chief Executive Officer and a Director 43
Rod F. Dammeyer(2)........................ Director 58
Patrick F. Graham......................... Director 58
John Patience(2).......................... Director 51
Peter Vardy(1), (2)....................... Director 68
L. John Wilkerson, Ph.D.(1) .............. Director 55
</TABLE>
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Jack W. Schuler has served as Chairman of the Board of Directors of the
Company 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 and Medtronic, Inc.
and as Chairman of the Board of Directors of 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.
Mark C. Miller has served as President and Chief Executive Officer and a
director since joining the Company in May 1992. From May 1989 until he joined
the Company, Mr. Miller served as Vice President for the Pacific, Asia and
Africa in the International Division of Abbott Laboratories, which he joined in
1976 and where he held a number of management and marketing positions. He is a
director of Affiliated Research Centers, Inc., which provides clinical research
for pharmaceutical companies and is a director of Lake Forest Hospital. Mr.
Miller received a B.S. degree in computer science from Purdue University, where
he graduated Phi Beta Kappa.
Rod F. Dammeyer has served as a director of the Company since January
1998. He is the Managing Partner of Equity Group Corporate Investments and Vice
Chairman and a director of Anixter International Inc., where he has been
employed since 1985. Mr. Dammeyer is a director of Antec Corporation, CNA Surety
Corporation, Grupo Azucarero Mexico, IMC Global, Inc., Jacor Communications,
Inc., Matria Healthcare, Inc., Metal Management, Inc., TeleTech Holdings, Inc.
and Transmedia Network, Inc., and a trustee of Van Kampen Investments, Inc.
closed-end funds. He received a B.S. degree from Kent State University.
Patrick F. Graham has served as a director of the Company since May 1991.
Mr. Graham is President and Chief Executive Officer and a director of World
Corporation and a director of Intelidata Technologies, Inc. He was a co-founder
of Bain & Company, Inc., a management consulting firm in Boston, Massachusetts,
where he served in a number of positions from 1973 to 1997. He received a B.A.
degree in economics from Knox College and a M.B.A. degree from the Stanford
University Graduate School of Business Administration.
1
<PAGE> 3
John Patience has served as a director of the Company since its
incorporation in March 1989. He is a co-founder and partner of Crabtree Partners
LLC, a private investment firm in Lake Forest, Illinois, which was formed in
June 1995. From January 1988 to March 1995, Mr. Patience was a general partner
of Marquette Venture Partners, L.P., a venture capital fund which he co-founded
and which led the Company's initial capitalization. Mr. Patience is a director
of TRO Learning, Inc. and Ventana Medical Systems, Inc. He received B.A. and
B.L degrees from the University of Sydney in Sydney, Australia, and a M.B.A.
degree from the Wharton School of Business of the University of Pennsylvania.
Peter Vardy has served as a director of the Company since July 1990. He
is the Managing Director of Peter Vardy & Associates, an international
environmental consulting firm in Chicago, Illinois, which he founded in June
1990. From April 1973 to May 1990, Mr. Vardy served at Waste Management, Inc., a
waste management services company, where he was Vice President, Environmental
Management. He is a director of EMCON, which he co-founded in 1971. Mr. Vardy
received a B.S. degree in geological engineering from the University of Nevada.
L. John Wilkerson, Ph.D., has served as a director of the Company since
July 1992. He is a consultant to The Wilkerson Group, a health care products
consulting firm in New York, New York. Dr. Wilkerson has served with The
Wilkerson Group since 1980 and prior to its acquisition by IBM Corporation was
its Chairman. Dr. Wilkerson also serves as a general partner of Galen Partners,
L.P. and Galen Partners International, L.P., affiliated health care venture
capital funds. He is a director of British Biotech Plc. and several privately
held health care companies. Dr. Wilkerson received a B.S. degree in biological
sciences from Utah State University and a Ph.D. degree in managerial economics
and marketing research from Cornell University.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires the Company's
directors, executive officers and persons beneficially owning more than 10% of
the Company's outstanding Common Stock to file periodic reports of stock
ownership and stock transactions with the Securities and Exchange Commission. On
the basis solely of a review of copies of these reports, the Company believes
that all filing requirements for 1998 were satisfied in a timely manner.
ITEM 11. EXECUTIVE COMPENSATION
1998 COMPENSATION
The following table provides certain information regarding the
compensation paid to or earned by the Company's President and Chief Executive
Officer and its four other most highly compensated executive officers (the
"named executive officers") for services rendered in 1998, 1997 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
FISCAL ANNUAL COMPENSATION NUMBER OF SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) UNDERLYING OPTIONS(2) Compensation(3)
--------------------------- ---- ---------- -------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
Mark C. Miller(4)........................... 1998 $ 235,000 $ 30,500 51,429 $ 300
President and Chief Executive Officer 1997 235,000 -- 60,000 300
1996 148,481 -- 41,220 300
Anthony J. Tomasello........................ 1998 150,000 1,750 22,000 300
Executive Vice President and 1997 150,000 -- 20,972 300
Chief Technical Officer 1996 136,025 -- 9,946 300
Frank J.M. ten Brink(5)..................... 1998 150,000 16,867 20,429 300
Vice President, Finance and 1997 70,619 -- 55,000 300
Chief Financial Officer 1996 -- -- -- --
Linda D. Lee(6)........................... 1998 130,000 13,400 11,286 300
Vice President, Regulatory Affairs 1997 130,000 -- 16,830 300
and Quality Assurance 1996 120,583 -- 5,086 300
Michael J. Bernert........................ 1998 127,462 21,569 11,000 300
Vice President, Sales and Marketing 1997 123,833 -- 21,174 300
1996 112,615 -- 22,101 300
</TABLE>
2
<PAGE> 4
- ---------------
(1) The bonuses paid during 1998 to Messrs. Miller, Tomasello, ten Brink and
Bernert and Ms. Lee were awarded under the Company's cash bonus program
for executive officers, pursuant to which executive officers may elect,
in advance of any award, to forego some portion or all of any bonus
otherwise payable under the bonus program and receive instead an
immediately vested nonstatutory stock option at an exercise price per
share equal to the closing price of a share of the Company's Common Stock
on the bonus award date (the "closing price"). For the bonuses paid in
1998, the number of shares for which an option was granted was determined
by dividing the product of four times the amount of the cash bonus that a
participating executive officer elected to forego by the closing price.
See "Report of the Compensation Committee on Executive Compensation--Cash
Bonuses." Without giving effect to their prior elections to forego
portions of their cash bonuses, the cash bonuses paid to Messrs. Miller,
Tomasello and ten Brink and Ms. Lee would have been $70,500, $36,750,
$21,867 and $28,400, respectively. Mr. Bernert did not elect to forego
any portion of his cash bonus.
(2) The stock options granted during 1998 to Messrs. Miller, Tomasello and
ten Brink and Ms. Lee include options to purchase 11,429, 10,000, 1,429
and 4,286 shares, respectively, granted to them in lieu of portions of
the cash bonuses otherwise payable to them under the Company's cash bonus
program for executive officers. See Note 1.
(3) These amounts represent the Company's matching contribution under the
Company's 401(k) plan. For 1996, 1997 and 1998, the matching contribution
was 30% of the first $1,000 contributed by each participant.
(4) The salary for 1996 shown for Mr. Miller includes $22,917 paid to him in
February 1997. This amount represented the additional salary that the
Company would have paid to Mr. Miller in 1996 if, like the Company's
other executive officers, he had resumed receiving his full base salary
upon the termination in mid-October 1996 of a voluntary 12-month salary
reduction program for management. The amount in question has been
excluded from the salary for 1997 shown for Mr. Miller.
(5) Mr. ten Brink joined the Company in June 1997.
(6) Ms. Lee resigned as an employee in March 1999.
1998 STOCK OPTION GRANTS
The following table provides certain information regarding stock options
granted to the named executive officers in 1998. In accordance with the rules
of the Securities and Exchange Commission, the following table also provides the
potential realizable value over the term of the options (i.e., the period from
the date of grant to the date of expiration) based upon assumed rates of stock
appreciation of 5% and 10%, compounded annually. These amounts do not represent
the Company's estimate of future appreciation of the price of its Common Stock.
The Company did not grant stock appreciation rights to any named executive
officer in 1998.
3
<PAGE> 5
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO EXERCISE PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN PRICE PER EXPIRATION OPTION TERM(4)
OPTIONS(1) FISCAL YEAR(2) SHARE(3) DATE 5% 10%
---------- -------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark C. Miller................. 8,545 2.90% $ 13.625 3/31/08 $ 73,880 $ 187,610
11,429 3.88% 14.00 3/31/08 101,499 257,726
31,455 10.69% 13.625 3/31/08 271,959 690,610
Anthony J. Tomasello........... 12,000 4.08% 13.625 3/31/08 103,751 263,466
10,000 3.40% 14.00 3/31/08 88,809 225,502
Frank J.M. ten Brink........... 7,725 2.62% 13.625 3/31/08 66,790 169,606
1,429 0.49% 14.00 3/31/08 12,691 32,224
11,275 3.83% 13.625 3/31/08 97,483 247,548
Linda D. Lee................... 7,000 2.38% 13.625 3/31/08 60,522 153,688
4,286 1.46% 14.00 3/31/08 38,063 94,650
Michael J. Bernert............. 11,000 3.74% 13.625 3/31/08 95,106 241,510
</TABLE>
- -----------------
(1) All of the stock options granted to the named executive officers were
granted under the Company's 1997 Stock Option Plan. Each option granted
vests over a four-year period: one-quarter of the option vests at the end
of the first year, and the balance of the option vests in equal monthly
increments over the next 36 months. The options for 11,429, 10,000, 1,429
and 4,286 shares granted to Messrs. Miller, Tomasello and ten Brink and
Ms. Lee, respectively, were granted in lieu of portions of the cash
bonuses otherwise payable to them under the Company's cash bonus program
for executive officers. See "Report of the Compensation Committee on
Executive Compensation--Cash Bonuses."
(2) The percentages shown in the table reflect options for a total of 294,368
shares granted to employees during 1998. All of these options were
granted under the Company's 1997 Stock Option Plan.
(3) The exercise price per share shown in the table is equal to the closing
price of a share of Common Stock on the date of grant.
(4) The potential realizable value was calculated on the basis of the 10-year
term of each option on its grant date, assuming that the fair market
value of the underlying stock on the grant date appreciates at the
indicated annual rate compounded annually for the entire term of the term
of the option and that the option is exercised and sold on the last day
of its term for the appreciated stock price. The potential realizable
value of each option was calculated using the exercise price of the
option as the fair market value of the underlying stock on the grant
date.
1998 OPTION EXERCISES AND YEAR END OPTION VALUES
The following table provides certain information regarding stock option
exercises in 1998 by the named executive officers and the value of the stock
options that they held at December 31, 1998. No named executive officer
exercised any stock appreciation rights during the year or had any stock
appreciation rights outstanding at the end of the year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS OPTIONS AT
ACQUIRED VALUE FISCAL YEAR END FISCAL YEAR END(2)
ON EXERCISE REALIZED(1) VESTED UNVESTED VESTED UNVESTED
----------- ----------- ------ -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mark C. Miller........................ 26,400 $ 300,246 95,904 90,941 $ 1,163,146 $ 579,651
Anthony J. Tomasello.................. 6,000 81,750 20,925 28,121 133,756 173,814
Frank J.M. ten Brink.................. -- -- 17,925 57,504 137,067 360,345
Linda D. Lee.......................... 11,354 159,532 5,658 19,292 21,770 123,791
Michael J. Bernert.................... 2,000 29,940 62,361 31,929 901,741 238,446
</TABLE>
- ---------------
4
<PAGE> 6
(1) The value realized was determined by multiplying the number of option
shares acquired by the closing price of a share of the Company's Common
Stock on the date of exercise, and then subtracting the aggregate
exercise price.
(2) The value of in-the-money stock options was determined by multiplying the
number of vested (exercisable) or unvested (unexercisable) options by
$16.125 per share, which was the closing price of a share of Common Stock
on December 31, 1998, and then subtracting the aggregate exercise price.
STOCK OPTION PLANS
The Company has adopted two stock option plans in addition to the
Directors Stock Option Plan (which is described below under the caption,
"Compensation of Directors"): (i) the 1997 Stock Option Plan (the "1997 Plan"),
which was approved by the Company's stockholders at the 1997 Annual Meeting; and
(ii) the Incentive Compensation Plan (the "1995 Plan"), which was adopted in
August 1995. Each plan authorizes a total of 1,500,000 shares of Common Stock to
be issued pursuant to options granted under the plan or, in the case of the 1995
Plan, restricted stock awarded under the plan. If an option granted under either
plan expires unexercised or is surrendered, or, in the case of the 1995 Plan, if
the Company repurchases shares of restricted stock awarded under the plan, the
shares subject to the option or repurchased by the Company once again become
available for option grants or, in the case of the 1995 Plan, restricted stock
awards.
As of December 31, 1998, 924,224 shares were available for future option
grants under the 1997 Plan, and 377,942 shares were available for future option
grants or restricted stock awards under the 1995 Plan. No option grants or
restricted stock awards were made under the 1995 Plan during 1998. Each plan has
a 10-year term, and no option may be granted under the 1997 Plan after its
expiration in January 2007, and no option may be granted or shares of restricted
stock awarded under the 1995 Plan after its expiration in July 2005.
Both plans provide for the grant of incentive stock options intended to
satisfy the requirements of section 422 of the Internal Revenue Code of 1986, as
amended, nonstatutory stock options and, in the case of the 1995 Plan,
restricted stock awards. Incentive stock options may be granted and, in the case
of the 1995 Plan, shares of restricted stock may be awarded only to employees of
the Company. Nonstatutory stock options may be granted under the 1997 Plan to
employees, directors and consultants and may be granted under the 1995 Plan to
employees and consultants. Both plans are administered by the Board of Directors
in respect of all eligible persons other than executive officers and by the
Compensation Committee of the Board of Directors in respect of executive
officers. The Board of Directors or the Compensation Committee, as the case may
be, selects the eligible persons to whom options are granted or, in the case of
the 1995 Plan, restricted stock is awarded and, subject to the provisions of the
particular plan, determines the terms of each option or award, including, in the
case of an option, the number of shares, type of option, exercise price and
vesting schedule, and, in the case of an award of restricted stock under the
1995 Plan, the purchase price, if any, and the restrictions applicable to the
award.
The exercise price per share of options granted under either plan must be
at least equal to the closing price of a share of Common Stock on the date of
grant, with the exception that the exercise price per share of an incentive
stock option granted to an employee of the Company holding more than 10% of the
Company's outstanding Common Stock must be at least 110% of the closing price.
The maximum term of an option granted under either plan may not exceed 10 years.
An option may be exercised only when it is vested and, in the case of an option
granted to an employee, only while the holder of the option remains an employee
of the Company or during the 90-day period following the termination of his or
her employment. In the
5
<PAGE> 7
discretion of the Board of Directors or the Compensation Committee, as the case
may be, this 90-day period may be extended in the case of nonstatutory stock
options to any date ending on or before the expiration date of the option. In
addition, the Board of Directors or the Compensation Committee, as the case may
be, may accelerate the exercisability of an option at any time.
OTHER PLANS
The Company maintains a 401(k) plan in which employees who have completed
one year's employment and attained age 21 are eligible to participate. The plan
permits the Company to make matching contributions of a percentage of
participants' deferrals as determined each year by the Board of Directors. For
1998, the Company made matching contributions of 30% of the first $1,000
contributed by participants. The Company also maintains a nonqualified employee
stock purchase plan under which employees may purchase Common Stock on the open
market through payroll deductions.
EMPLOYMENT AGREEMENTS
The Company has not entered into written employment agreements with any
of its executive officers or employees. All of the Company's executive officers
and employees have signed confidentiality agreements with the Company.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive fees or other cash compensation
for their services as directors.
The Company's Directors Stock Option Plan, which was approved by the
Company's stockholders in July 1996, authorizes nonstatutory stock options to
purchase a total of 285,000 shares of Common Stock to be granted to the
Company's outside directors (i.e., directors who are neither officers nor
employees of the Company). Each option grant is for a formula-determined number
of shares.
As of each annual meeting, each incumbent outside director who is
reelected as a director at the annual meeting is automatically granted an option
to purchase a number of shares determined by multiplying 7,000 shares by a
fraction, the numerator of which is $12.00 and the denominator of which is the
closing price of a share of Common Stock (the "closing price") on the date of
the annual meeting; and each outside director who is elected as a director for
the first time is automatically granted an option to purchase a number of shares
determined by multiplying 21,000 shares by a fraction, the numerator of which is
$12.00 and the denominator of which is closing price on the date of the annual
meeting. These option grants are subject to a maximum grant of 9,500 shares and
a minimum grant of 4,500 shares (or a maximum grant of 28,500 shares and a
minimum grant of 13,500 shares in the case an outside director who is elected as
a director for the first time at an annual meeting). In accordance with these
terms, each of the six incumbent outside directors who were reelected as
directors at the 1998 Annual Meeting in April 1998 was granted an option to
purchase 5,895 shares at an exercise price of $14.25 per share. In addition,
with the approval of the full Board (other than Mr. Dammeyer), Mr. Dammeyer, who
was initially elected as a director by the Board in January 1998, was granted an
option to purchase 28,500 shares at an exercise price of $14.00 per share in
February 1998, consistent with the option grant that he would have received if
he had been elected as a director for the first time at the 1998 Annual Meeting.
The exercise price of each option granted under the plan is the closing
price of a share of Common Stock on the date of grant, and the term of each
option is six years from the date of grant. Each option vests in 12 equal
monthly installments and may be exercised only when it is vested and only while
the holder of the option remains a director of the Company or during the 90-day
period following the date that he or she ceases to serve as a director. The
Directors Stock Option Plan has a six-year term, and no option may be granted
under the plan after its expiration in June 2002.
6
<PAGE> 8
Each option granted under the Directors Stock Option Plan is transferable
to (i) a member of the outside director's immediate family, (ii) a trust for the
primary benefit of the outside director or any one or more members of his
immediate family, or (iii) a corporation, partnership or other entity which,
together with its affiliates, owns at the time of transfer at least 2.0% of the
Company's outstanding Common Stock and with which the outside director has a
contractual obligation to assign his "outside" remuneration received by reason
of his relationship with such corporation, partnership or other entity. In
accordance with a contractual obligation, Dr. Wilkerson assigned to Galen
Partners, L.P. the option to purchase 5,895 shares that he was granted under the
plan in respect of his reelection as a director at the 1998 Annual Meeting.
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The compensation of the Company's executive officers is determined
generally by the Compensation Committee of the Company's Board of Directors. The
three members of the Compensation Committee, Messrs. Schuler and Vardy and Dr.
Wilkerson, are outside directors of the Company.
Decisions of the Compensation Committee relating to the executive
officers' base salaries and cash bonuses are subject to the review and approval
of the full Board of Directors; decisions of the Compensation Committee relating
to executive officers' stock options are reviewed by the full Board but are not
subject to the Board's approval.
EXECUTIVE COMPENSATION POLICIES
The Company's executive compensation policies seek to coordinate the
executive officers' compensation with the Company's performance objectives and
business strategy. These policies are intended to attract, motivate and retain
executive officers whose contributions are critical to the Company's long-term
success and to reward executive officers for attaining individual and corporate
objectives that enhance stockholder value.
The Company's compensation program for its executive officers consists of
cash compensation and long-term compensation. Cash compensation is paid in the
form of a base salary and a discretionary cash bonus, and long-term compensation
is paid in the form of stock options. Bonuses are intended to provide executive
officers with an opportunity to earn additional cash compensation through
individual and Company performance. Stock options are intended to focus
executive officers on managing the Company from the perspective of owners with
an equity interest and to align their long-term compensation with the benefits
realized by the Company's stockholders.
Salaries. The Compensation Committee determines the salaries of executive
officers on the basis of (i) the individual officer's salary grade within the
Company, scope of responsibilities and level of experience, (ii) the rate of
inflation, (iii) the range of the Company's salary increases for its employees
generally and (iv) the salaries paid to comparable officers in comparable
companies. The Compensation Committee has not commissioned any formal surveys of
executive officer compensation at comparable companies, but has relied on
published salary surveys for indications of salary trends generally and at small
growth companies in particular.
The Compensation Committee did not recommend any changes in the base
salaries of the Company's executive officers for 1998. The base salaries for
1998 of the Company's executive officers were the same as their base salaries
for 1997.
Cash Bonuses. In March 1998, the Compensation Committee recommended (and
the Board of Directors approved) the adoption of a cash bonus program for
executive officers. Under this program, each of the Company's executive officers
is eligible for a cash bonus of up to 20%, 25% or 30% of his or her base salary
(depending upon salary grade), with the actual amount awarded being determined
by the Compensation Committee on the basis of specific Company and individual
performance goals and criteria. Pursuant to
7
<PAGE> 9
this program and on the Committee's recommendation, in March 1998 the Company
paid cash bonuses to Messrs. Miller, Tomasello, ten Brink and Bernert and Ms.
Lee of $30,500, $1,750, $16,867, $21,569 and $13,400, respectively, for their
performance during 1997. (Without giving effect to the prior elections of
Messrs. Miller, Tomasello and ten Brink and Ms. Lee to receive stock options in
lieu of cash, pursuant to the program described in the next paragraph, their
bonuses would have been $70,500, $36,750, $21,867, and $28,400, respectively.
Mr. Bernert did not elect to forego any portion of his cash bonus.)
In keeping with the Company's philosophy of encouraging stock ownership
by management, in March 1998, the Compensation Committee recommended (and the
Board of Directors adopted) a program to allow executive officers to elect, in
advance of any award, to forego some portion or all of any bonus otherwise
payable under the cash bonus program and to receive instead an immediately
vested nonstatutory stock option at an exercise price per share equal to the
closing price of a share of the Company's Common Stock on the bonus award date
(the "closing price"). For the bonuses paid in March 1998, the number of shares
for which an option was granted to a participating executive officer was
determined by dividing the product of four times the amount of the cash bonus
that he or she elected to forego by the closing price. Pursuant to this program
and in accordance with the officers' prior elections, in March 1998, the Company
granted Messrs. Miller, Tomasello and ten Brink and Ms. Lee nonstatutory stock
options for 11,429, 10,000, 1,429 and 4,286 shares of Common Stock,
respectively.
Stock Options. The Compensation Committee believes that the grant of
stock options is a desirable method of acknowledging the efforts of the
Company's executive officers and to encouraging their continued high levels of
performance. In deciding on the stock option grants to individual executive
officers in respect of their performance, the Compensation Committee employs a
formula taking into account each officer's salary grade and the Company's
financial performance as measured by a trailing average of the market price of
the Company's Common Stock. The Compensation Committee then adjusts the
formula-determined option grant by a factor reflecting the Committee's
assessment of the individual officer's performance, initiative and contribution
to the Company's success in meeting its performance objectives. In accordance
with this adjusted formula, in March 1998 the Committee granted the Company's
seven executive officers options for a total of 113,000 shares of Common Stock
in respect of their performance during 1997, and in February 1999, the Committee
granted five of the Company's six executive officers options for a total 117,756
shares of Common Stock in respect of their performance during 1998. In addition,
the Company granted Richard T. Kogler, who joined the Company as its Chief
Operating Officer in December 1998, an option for 100,000 shares of Common
Stock.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee determines the compensation of the Company's
President and Chief Executive Officer, Mark C. Miller, on the basis of the same
criteria applicable to the Company's executive officers generally.
As noted earlier, the Compensation Committee recommended (and the Board
of Directors approved) continuing Mr. Miller's base salary of $235,000 through
1998. The Compensation Committee granted Mr. Miller an option for 40,000 shares
of Common Stock in March 1998 in respect of his performance during 1997 and an
option for 38,428 shares in March 1999 in respect of his performance during
1998. Pursuant to the Committee's recommendation, Mr. Miller was paid a cash
bonus of $30,500 in March 1998 in respect of his services in 1997 and, in
accordance with Mr. Miller's prior election to forego a portion of his cash
bonus, he also received a nonstatutory stock option for 11,429 shares. The
factors most influencing the Committee's determination of the amount of Mr.
Miller's cash bonus and stock option grant in March 1998 and his stock option
grant in March 1999 were his significant leadership in identifying and
negotiating the Company's eight acquisitions during 1997 and its 12 acquisitions
during 1998 (including, in particular, the Company's acquisition of Waste
Systems, Inc., the majority shareholder of 3CI Complete Compliance Corporation,
in October 1998 and its acquisition of Med-Tech Environmental Limited in
December 1998), his management of the Company's growth strategy generally and
his oversight of the integration of acquired businesses into the Company's
operations.
8
<PAGE> 10
Compensation Committee
Jack W. Schuler, Chairman
Peter Vardy
L. John Wilkerson, Ph.D
9
<PAGE> 11
PERFORMANCE GRAPH
The following graph compares the cumulative total return (i.e., stock
price appreciation plus dividends) on the Company's Common Stock for the period
from August 23, 1996, when the Common Stock was first traded, through December
31, 1998, with the cumulative total return for the same period on the Nasdaq NMS
Composite Index, the Russell 3000 Index and an index of a peer group of
companies selected by the Company. The graph assumes that $100 was invested on
August 23, 1996 in the Company's Common Stock and in the stock represented by
each of the three indexes, and that all dividends were reinvested. The common
stock of the following companies has been included in the peer group index:
Allied Waste Industries, Inc.; Browning-Ferris Industries, Inc.; Isolyser
Company, Inc.; Isomedix, Inc. (for 1996 only); Safety-Kleen Corporation (for
1996 and 1997 only); Sterigenics International, Inc. (for 1997 and 1998 only);
Sterile Recoveries, Inc.; Steris Corporation; United Waste Systems, Inc. (for
1996 and 1997 only); U.S.A. Waste Services, Inc. (for 1996 and 1997 only); and
Waste Management, Inc. The stock price performance of the Company's Common Stock
reflected in the following graph is not necessarily indicative of future
performance.
[ A CHART ]
<TABLE>
<CAPTION>
8/23/96 12/31/96 12/31/97 12/31/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stericycle, Inc. $100 $124.32 $151.49 $161
Nasdaq NMS Composite Index $100 $113.04 $136.18 $175
Russell 3000 Index $100 $111.65 $144.29 $167
Peer Group Index $100 $106.53 $138.03 $130
- -----------------------------------------------------------------------------
</TABLE>
10
<PAGE> 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables provides certain information regarding the
beneficial ownership of shares of the Company's Common Stock as of May 31, 1999.
Under the rules of the Securities and Exchange Commission, beneficial ownership
is defined generally as the sole or shared power to vote or to direct the
disposition of a security. Unless otherwise indicated in a footnote, the persons
named in the following tables have sole voting and investment power in respect
of the shares of Common Stock shown as beneficially owned by them.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table provides certain information regarding the beneficial
ownership of Common Stock by each person (other than a director or executive
officer) who was known to the Company to be the beneficial owner as of May 31,
1999 of more than 5% of the Company's outstanding Common Stock:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME AND ADDRESS OWNED PERCENTAGE
---------------- ------------ ----------
<S> <C> <C>
The TCW Group, Inc. (1)........................................................... 785,300 5.42%
865 South Figueroa Street
Los Angeles, California 90017
</TABLE>
- ---------------
(1) The shares shown as beneficially owned by The TCW Group, Inc., are
derived from a Schedule 13G (Amendment No. 1), dated February 12, 1999,
jointly filed and furnished to the Company by The TCW Group, Inc., a
parent holding company, and Robert Day, an individual who may be deemed
to control The TCW Group, Inc., reporting that, for reporting purposes,
each of them holds sole voting and dispositive power over 785,300 shares.
The Schedule 13G indicates that: (i) no shares are held directly by The
TCW Group, Inc.; (ii) The TCW Group, Inc. indirectly holds shares through
its subsidiaries, Trust Company of the West, TCW Asset Management Company
and TCW Funds Management, Inc.; and (iii) aside from the indirect
holdings of The TCW Group, Inc., Robert Day does not directly or
indirectly hold any of these shares.
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table provides certain information regarding the beneficial
ownership of Common Stock as of May 31, 1999 by (i) each of the Company's
directors, (ii) each of the Company's executive officers listed in the Summary
Compensation Table on page 8 and (iii) all of the directors and executive
officers of the Company as a group:
<TABLE>
<CAPTION>
OPTION AND
SHARES WARRANT SHARES
BENEFICIALLY BENEFICIALLY COMBINED
NAME OWNED OWNED(1) PERCENTAGE(2)
---- ------------ ------------- -------------
<S> <C> <C> <C>
Jack W. Schuler(3)................................................... 894,515 51,969 6.48%
Mark C. Miller(4).................................................... 543,932 136,173 4.63%
Rod F. Dammeyer(5)................................................... 11,000 14,801 *
Patrick F. Graham.................................................... 9,783 19,567 *
John Patience........................................................ 211,057 52,439 1.80%
Peter Vardy(6)....................................................... 163,362 43,549 1.42%
L. John Wilkerson, Ph.D.(7).......................................... 29,226 -- *
Anthony J. Tomasello................................................. 129,013 38,937 1.15%
Frank J.M. ten Brink................................................. 53 30,935 *
Linda D. Lee......................................................... 69,333 -- *
Michael J. Bernert(8)................................................ 6,371 82,788 *
All directors and executive officers as a group (12 persons)(9)...... 2,007,656 488,944 16.59%
</TABLE>
11
<PAGE> 13
- ----------------
* Less than 1%.
(1) This column shows shares of Common Stock issuable upon the exercise of
stock options or warrants exercisable as of or within 60 days after May
31, 1999.
(2) Shares of Common Stock issuable upon the exercise of stock options or
warrants exercisable as of or within 60 days after May 31, 1999 are
considered outstanding for purposes of computing the percentage of the
person holding the option or warrant but are not considered outstanding
for purposes of computing the percentage of any other person.
(3) The shares shown as beneficially owned by Mr. Schuler include 35,218
shares owned by his wife and trusts for the benefit of his children, as
to which Mr. Schuler disclaims any beneficial ownership, and 30,000
shares owned by a family foundation of which Mr. Schuler is the sole
trustee, as to which Mr. Schuler disclaims beneficial ownership.
(4) The shares shown as beneficially owned by Mr. Miller include 76,346
shares owned by trusts for the benefit of his sons, as to which Mr.
Miller disclaims beneficial ownership.
(5) The shares shown as beneficially owned by Mr. Dammeyer include 1,000
shares owned by his wife, as to which Mr. Dammeyer disclaims beneficial
ownership.
(6) The shares shown as beneficially owned by Mr. Vardy include 67,614 shares
owned by trusts for the benefit of his children, as to which Mr. Vardy
disclaims beneficial ownership.
(7) Dr. Wilkerson is an indirect general partner of Galen Partners, L.P. and
Galen Partners International, L.P., which together own 290,484 shares
(including 16,279 shares issuable upon the exercise of stock options and
warrants exercisable as of or within 60 days after May 31, 1999). Dr.
Wilkerson disclaims any beneficial interest in the shares held by these
two limited partnerships except to the extent of his individual ownership
of limited partnership interests and his pecuniary interest arising from
his indirect general partnership interest.
(8) The shares shown as beneficially owned by Mr. Bernert include 1,000
shares owned by his wife, as to which Mr. Bernert disclaims beneficial
ownership.
(9) The group of directors and executive officers does not include Ms. Lee,
who resigned as an employee in March 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In December 1998, the Company entered into a subordinated loan
agreement with a group of lenders consisting of six of the Company's seven
directors (Mr. Graham being the only director not participating), pursuant to
which the lenders agreed to provide the Company with up to $5,500,000 of
short-term financing upon the Company's request. In December 1998, the Company
borrowed $2,750,000, and in January 1999, the Company borrowed the remaining
balance available under the loan agreement. Each loan bore interest at 6.0% per
annum and was repaid in March 1999 following the completion in February 1999 of
the Company's public offering which was pending when the loans were made. Under
the terms of the subordinated loan agreement, the lenders were granted five-year
warrants to purchase shares of the Company's Common Stock, exercisable at any
time after the first anniversary of the grant date. Upon entering into the loan
agreement, each lender was granted a warrant to purchase a number of shares of
Common Stock equal
12
<PAGE> 14
to the amount of the lender's loan commitment multiplied by 0.05 and then
divided by the closing price of a share of Common Stock on the trading day
immediately prior to the date of the lender's execution of the loan agreement.
This closing price is also the exercise price of the warrant. In addition, at
the time of each loan, each lender was granted a warrant to purchase a number of
shares of Common Stock equal to the amount of the loan multiplied by 0.30 and
then divided by the closing price of a share of Common Stock on the trading day
immediately prior to date of disbursement of the lender's loan. This closing
price is also the exercise price of the warrant. In connection with their loans,
the lenders were granted warrants to purchase, in the aggregate, 18,970 shares
of Common Stock at $14.50 per share, 43,551 shares of Common Stock at $15.50 per
share and 59,092 shares of Common Stock at $16.50 per share.
In May 1996, the Company borrowed $1,000,000 under a short-term loan from
a group of seven lenders consisting of directors (Messrs. Schuler, Miller,
Patience and Vardy), executive officers (Messrs. Tomasello and Bernert and the
Company's former Vice President, Finance) and stockholders (Galen Partners, L.P.
and Galen Partners International, L.P.). The Company's loan was interest-free if
paid when due and was due within 30 days after completion of an initial public
offering or upon the occurrence of certain other events. The Company repaid the
loan following the closing of its initial public offering in August 1996. In
connection with the loan, the Company issued warrants to members of the lending
group to purchase, in the aggregate, 226,036 shares of the Company's Common
Stock at an exercise price of $7.96 per share. These warrants expire in May 2001
and are exercisable at any time prior to their expiration. During 1998, warrants
to purchase 35,940 shares were exercised, and at December 31, 1998, warrants to
purchase 190,096 shares remained outstanding.
13
<PAGE> 15
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, thereunto duly authorized.
Date: June 23, 1999.
STERICYCLE, INC.
By: /s/ MARK C. MILLER
-------------------------------------
Mark C. Miller
President and Chief Executive Officer
14
