1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT (AMENDED) Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (date of earliest event reported): October 20, 1998 STERICYCLE, INC. (Exact name of registrant as specified in its charter) Delaware 0-21229 36-3640402 (State or other juris- (Commission file (IRS employer diction of incorporation) number) identification number) 1419 Lake Cook Road, Suite 410 Deerfield, Illinois 60015 (Address of principal executive offices) Registrant's telephone number, including area code: (847) 945-6550 1
2 ITEM 2. Acquisition or Disposition of Assets On December 31, 1998, Stericycle, Inc. (the "Company") announced that it had purchased a total of 13,929,860 common shares of Med-Tech Environmental Limited ("Med-Tech"), representing approximately 94% of Med-Tech's issued and outstanding shares, and a total of 3,094,559 warrants, representing approximately 56% of Med-Tech's outstanding warrants. The Company's purchases were pursuant to its amended offers to all holders of Med-Tech shares and to holders of certain series of Med-Tech warrants to purchase Med-Tech shares at the price of Canadian $0.3225 per share, payable in cash or shares of the Company's common stock at the option of the holder, and to purchase eligible Med-Tech warrants at the price of Canadian $.025 per warrant, payable in cash. The Company paid a total of approximately U.S. $2,725,000 in cash and approximately [8,500] shares of the Company's common stock for the Med-Tech shares and warrants that it acquired. The Med-Tech shares that the Company purchased include the shares that the Company previously reported that it had acquired on October 20, 1998. In accordance with a decision of the Ontario Securities Commission on November 25, 1998, requiring, among other things, that the Company and Browning-Ferris Industries, Inc. amend their then-current offers to Med-Tech shareholders in order to comply with the formal take-over bid requirements of Ontario law, the Company granted the sellers of these shares the right to withdraw their shares or to obtain the same terms of payment as other Med-Tech shareholders. On December 31, 1998, the Company also announced that the expiration date for its offers to purchase Med-Tech common shares and eligible warrants had been extended to 5:00 p.m. (Toronto time) on January 11, 1999, in order to allow the remaining securityholders of Med-Tech to tender their shares and eligible warrants pursuant to Stericycle's offers. ITEM 7. Financial Statements and Exhibits (a) Financial Statements of Businesses Acquired Audited financial statements for Med-Tech, as required by Rule 3-05 of Regulation S-X (17 C.F.R. 210.3-05(b)), are filed with this Report. The financial statements for Med-Tech filed with this Report, for its fiscal year ended March 31, 1998, are presented in Canadian dollars. On March 31, 1998, the noon buying rate in New York, New York, for cable transfers payable in Canadian dollars, as certified by the Federal Reserve Bank of New York for customs purposes (the "exchange rate"), was Canadian $1.4180 for U.S. $1.00. During Med-Tech's fiscal year ended March 31, 1998, the average exchange rate was Canadian $1.4018 for U.S. $1.00, the high exchange rate was Canadian $1.4637 for U.S. $1.00, and the low 2
3 exchange rate was Canadian $1.3667 for U.S. $1.00. On December 29, 1998, the exchange rate was Canadian $1.5520 for U.S. $1.00. (b) Pro Forma Financial Information Pro forma financial information, as required by Article 11 of Regulation S-X, is filed with this Report. (c) Exhibits Audited financial statements for Med-Tech are filed as Exhibit 99.1 to this Report. Pro forma financial information is filed as Exhibit 99.2 to this Report. 3
4 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: January 4, 1999. STERICYCLE, INC. By /s/ Frank J.M. ten Brink ------------------------------- Frank J.M. ten Brink Vice President, Finance and Chief Financial Officer 4
5 EXHIBIT INDEX Sequentially Numbered Exhibit Description Page - ------- ----------- -------- 23.1 Consent of Collins Barrow, Chartered Accountants 6 99.1 Med-Tech Environmental Ltd March 31, 1998 and 1997 7 Auditor's Report 8 Consolidated Balance Sheets at March 31, 1998 and 1997 9 Consolidated Statements of Deficit for the Years Ended March 31, 1998 and 1997 10 Consolidated Statements of Income for the Years Ended March 31, 1998 and 1997 11 Consolidated Statements of Changes in Financial Position for the Years Ended March 31, 1998 and 1997 12 Notes to Consolidated Financial Statements 13 99.2 Stericycle, Inc. and Subsidiaries Unaudited Pro Forma Consolidated Financial Statements 22 Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 1997 23 Unaudited Pro Forma Consolidated Statement of Operations for the Nine Months Ended September 30, 1998 25 Unaudited Pro Forma Consolidated Balance Sheet at September 30, 1998 27 5
1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS As independent chartered accountants, we hereby consent to the inclusion in this Form 8-K/A of our report dated May 20, 1998, except as to Notes 11(c) and 11(d), which is as of November 16, 1998, on the consolidated financial statements of Med-Tech Environmental Ltd as at and for the years ended March 31, 1998 and 1997, and to all references to our firm included in the Form 8-K/A. COLLINS BARROW CHARTERED ACCOUNTANTS Toronto, Canada May 20, 1998, except as to Notes 11(c) and 11(d), which is as of November 16, 1998 6
1 EXHIBIT 99.1 MED-TECH ENVIRONMENTAL LIMITED MARCH 31, 1998 AND 1997 7
2 AUDITORS' REPORT To the shareholders of Med-Tech Environmental Ltd: We have audited the consolidated balance sheet of Med-Tech Environmental Ltd as at March 31, 1998 and 1997, and the consolidated statements of income, deficit and changes in financial position for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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. In our opinion, these consolidated financial statements represent fairly, in all material respects, the financial position of the Company as at March 31, 1998 and 1997 and the results of its operations and the changes in its financial position for the years then ended in accordance with generally accepted accounting principles. Without qualifying our opinion, we draw attention to note 1(a) in the financial statements which indicates the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern. COLLINS BARROW, CHARTERED ACCOUNTANTS Toronto, Canada May 20, 1998 Except as to Notes 11(c) and 11(d) which is as of November 16, 1998 8
3 MED-TECH ENVIRONMENTAL LTD CONSOLIDATED BALANCE SHEET MARCH 31, 1998 ============================================================================================ 1998 1997 - -------------------------------------------------------------------------------------------- ASSETS Current assets Cash $ - $ 31,375 Accounts receivable 1,965,398 194,595 Other receivables 46,599 - Subscriptions receivable - 50,000 Inventory 169,649 5,500 Prepaid expenses 45,693 289,771 --------------------------------------------------------------------------------------- 2,227,339 571,241 Capital assets (note 2) 1,400,184 510,070 Other assets (note 3) 8,751,671 955,875 - -------------------------------------------------------------------------------------------- $ 12,379,194 $ 2,037,186 ============================================================================================ LIABILITIES Current liabilities Bank indebtedness (note 4) $ 1,799,618 $ - Accounts payable and accrued liabilities 2,183,460 424,694 Convertib1e debenture (note 5) 210,000 200,000 Current portion of obligations under capital lease 81,315 - Current portion of long-term debt 5,752,364 - --------------------------------------------------------------------------------------- 10,026,757 624,694 Obligations under capital leases (note 6) 290,802 - Long-term debt (note 7) 2,000,000 - - -------------------------------------------------------------------------------------------- 12,317,559 624,694 - -------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Capital stock (note 8) 6,170,429 2,803,389 Deficit (6,108,794) (1,390,897) - -------------------------------------------------------------------------------------------- 61,635 1,412,492 - -------------------------------------------------------------------------------------------- $ 12,379,194 $ 2,037,186 ============================================================================================ 9
4 MED-TECH ENVIRONMENTAL LTD CONSOLIDATED STATEMENT OF DEFICIT YEAR ENDED MARCH 31, 1998 ============================================================================================ 1998 1997 - -------------------------------------------------------------------------------------------- Deficit, beginning $ (l,390,897) $ (891,9l8) Net loss (4,717,897) (498,979) - -------------------------------------------------------------------------------------------- Deficit, ending $ (6,108,794) $ (1,390,897) ============================================================================================ 10
5 MED-TECH ENVIRONMENTAL LTD CONSOLIDATED STATEMENT OF INCOME YEAR ENDED MARCH 31, 1998 ============================================================================== 1998 1997 - ------------------------------------------------------------------------------ Sales $ 10,983,298 $ 392,432 Direct costs 6,920,620 298,397 - ------------------------------------------------------------------------------ Gross margin 4,062,678 94,035 - ------------------------------------------------------------------------------ Operating expenses Amortization 1,068,964 55,925 Bad debts 20,000 - Interest 1,467,476 722 Financing costs - 106,822 Office and general 206,269 7,623 Premises costs 449,527 47,281 Professional fees 122,666 182,523 Telephone 126,806 6,479 Wages and benefits 1,525,864 99,727 ------------------------------------------------------------------------- 4,987,572 507,102 ------------------------------------------------------------------------- Loss before the following (924,894) (413,067) Laidlaw financing and related costs (1,148,634) - SMS financing and related costs (1,448,294) - Loss from discontinued operations (note 9) (1,218,373) - Gain (loss) on disposal of capital assets 22,298 (85,912) - ------------------------------------------------------------------------------ (3,793,003) (85,912) - ------------------------------------------------------------------------------ Net loss $ (4,717,897) $ (498,979) ============================================================================== 11
6 MED-TECH ENVIRONMENTAL LTD CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION YEAR ENDED MARCH 31, 1998 ======================================================================================== 1998 1997 - ---------------------------------------------------------------------------------------- CASH PROVIDED BY (USED FOR) Operating activities Net loss $ (4,717,897) $ (498,979) Items not affecting cash Amortization 1,068,964 55,925 (Gain) loss on disposal of capital assets (22,298) 85,912 ------------------------------------------------------------------------------- (3,671,231) (357,142) Changes in non-cash working capital items 71,293 (94,385) - ---------------------------------------------------------------------------------------- (3,599,938) (451,527) - ---------------------------------------------------------------------------------------- Financing activities Issue of common shares 3,367,040 864,499 Obligations under capital leases 372,117 - Increase in long-term debt 8,097,166 - Repayment of long-term debt (500,000) - Convertible debenture 10,000 200,000 ----------------------------------------------------------------------------------- 11,346,323 1,064,499 ----------------------------------------------------------------------------------- Investing activity Purchase of capital assets (1,553,690) (179,658) Proceeds on disposal of capital assets 16,352 - Increase in goodwill (8,040,040) (479,332) ----------------------------------------------------------------------------------- (9,577,378) (658,990) ----------------------------------------------------------------------------------- Decrease in cash (1,830,993) (46,018) Cash, beginning 31,375 77,393 - ---------------------------------------------------------------------------------------- (Bank indebtedness) cash, ending $ (1,799,618) $ 31,375 ======================================================================================== 12
7 MED-TECH ENVIRONMENTAL LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 ================================================================================ 1. Significant accounting policies Basis of presentation These financial statements are prepared in accordance with generally accepted accounting principles in Canada. (a) Going concern assumption These financial statements have been prepared on the basis of accounting principles applicable to a "going concern", which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. Several adverse conditions and events cast substantial assumption upon the validity of this assumption. The Company has incurred significant operating losses in the current year and has a significant working capital deficiency. In addition the Company is in breach of certain financial covenants relating to its bank credit facilities and subordinated debt. The Company is dependent on the continued support of its banker and subordinated debt holders and is currently renegotiating its financing arrangements as well as seeking alternate equity funding and pursuing the possibility of an outright sale. These financial statements do not reflect adjustments that would be necessary if the "going concern" assumption were not appropriate because management believes that the actions already taken or planned, as described above, will mitigate the adverse conditions and events which raise doubts about the validity of the "going concern" assumption used in preparing these financial statements. If the "going concern" assumption were not appropriate for these financial statements, then adjustments would be necessary in the carrying values of assets and liabilities, the reported revenues and expenses, and the balance sheet classifications used. (b) Business combination On April 4, 1997, Med-Tech Environmental Limited ("Med-Tech") acquired all the issued and outstanding capital stock of Laidlaw Medical Services Ltd. ("LMSL") and Med-Tech Environmental Inc., a wholly owned subsidiary of Med-Tech, and acquired all the issued and outstanding capital stock of Laidlaw Medical Services, Inc. (Delaware) ("LMSI"), for $9,200,000. The purchase price was funded by the issue of the Company's capital stock, term and subordinated convertible term debt. The purchase price was allocated equally between LMSL and LMSI. The acquisition was accounted for by the purchase method. 13
8 MED-TECH ENVIRONMENTAL LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 ================================================================================ BASIS OF PRESENTATION, CONTINUED (c) Change of name During the year, the following companies, by way of articles of amendment, changed their names as follows: From To Laidlaw Medical Services Ltd. Med-Tech Environmental (CDA) Ltd. Laidlaw Medical Services, Inc. Med-Tech Environmental (MA) Inc. (d) Principles of consolidation These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Bio-Med Waste Disposal Systems Ltd., Med-Tech Environmental (CDA) Ltd., Med-Tech Environmental Inc., and Med-Tech Environmental (MA) Inc. All significant intercompany accounts and transactions have been eliminated. (e) Capital assets are recorded at cost. Amortization is calculated on the following annual rates and methods: Furniture and fixtures 20% declining balance basis Computers 30% declining balance basis Trucks 30% declining balance basis Equipment Straight-line over 5 years Assets under capital leases 30% declining balance basis Leasehold improvements are amortized on a straight line basis over the term of the lease. (f) Licenses and goodwill are recorded at cost and amortized on a straight-line basis over a period no greater than 25 years. (g) Foreign currency translation Assets and liabilities of integrated foreign subsidiary operations and foreign currency denominated assets and liabilities of Canadian operations are translated into Canadian dollars at exchange rates prevailing at the transaction date for non-monetary items. Revenue and expenses, except amortization, are converted at average exchange rates for the year. Amortization is converted at the same rate as the related assets. Gains or losses on translation are expensed in the year realized or incurred except for the exchange gains or losses on long-term monetary items which are deferred and amortized over the remaining terms of the related items. 14
9 MED-TECH ENVIRONMENTAL LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 ================================================================================ 2. CAPITAL ASSETS 1998 1997 ------------------------------------------------------------------------------- NET NET ACCUMULATED BOOK BOOK COST AMORTIZATION VALUE VALUE ------------------------------------------------------------------------------- Furniture and fixtures $ 538,199 529,805 $ 8,394 $ 11,046 Computers 117,549 34,057 83,492 28,328 Trucks 1,958,503 1,605,938 352,565 29,687 Equipment 1,195,903 814,531 381,372 397,499 Leasehold improvements 189,338 50,407 138,931 13,395 Assets under capital leases 508,899 73,469 435,430 30,115 ------------------------------------------------------------------------------- $4,508,391 3,108,207 $1,400,184 $ 510,070 =============================================================================== 3. OTHER ASSETS 1998 1997 ------------------------------------------------------------------------------- NET NET ACCUMULATED BOOK BOOK COST AMORTIZATION VALUE VALUE ------------------------------------------------------------------------------- Licenses $ 214,610 23,350 $ 191,260 $ 201,906 Goodwill 9,011,290 450,879 8,560,411 753,969 ------------------------------------------------------------------------------- $9,225,900 474,229 $8,751,671 $ 955,875 =============================================================================== 4. BANK INDEBTEDNESS The bank indebtedness is secured by a registered general security agreement covering all assets and bears interest at the bank's prime rate plus 100 basis points. 5. CONVERTIBLE DEBENTURE 1998 1997 ------------------------------------------------------------------------------- 5% convertible debenture to Oriole Point Investment Inc., a shareholder; interest payable on the 31st day of March in each year commencing March 31, 1998, repayable upon the earlier of: (i) a distribution to the public of securities of the Company and (ii) March 31,1999. The Company will make mandatory principal prepayments commencing April 30, 1998 to the lesser of 50% of annual free cash flow or $100,000. $ 210,000 $ 200,000 =============================================================================== 15
10 MED-TECH ENVIRONMENTAL LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 =========================================================================== 6. OBLIGATIONS UNDER CAPITAL LEASES 1998 1997 ----------------------------------------------------------------------------------------- Obligations related to leased trucks repayable in monthly instalments of $5,444 at interest rates ranging from 8%to 12% $ 372,117 $ - Less current portion 81,315 - ----------------------------------------------------------------------------------------- $ 290,802 $ - Total payments due in the next 5 years are as follows: 1999 $ 81,315 2000 88,999 2001 90,355 2002 56,680 2003 and thereafter 54,768 ---------------------------------------------------------------------- $ 372,117 ====================================================================== 7. LONG-TERM DEBT 1998 1997 ----------------------------------------------------------------------------------------- 4.8% monthly (57.6% per annum) promissory note to Oriole Point Investment Inc., a shareholder, due October 6, 1997, interest accrued monthly commencing October 6, 1997. $ 105,000 $ - 25% non-revolving convertible term facility, interest shall be paid monthly at the rate of 12.5% per annum, the balance of 12.5% increases the amount of the debt, due March 31, 1999, secured by a registered general security agreement. 4,647,364 - Term loan, bearing interest at prime plus 200 basis points, interest payable monthly, repayable in quarterly principal payments of $250,000 plus 75% of the free cash flow to a maximum of $1,000,000 prior to March 31, 1998 and $500,000 every year thereafter, secured by a registered general security agreement. 3,000,000 - ----------------------------------------------------------------------------------------- 7,752,364 - Less current portion 5,752,364 - ----------------------------------------------------------------------------------------- $ 2,000,000 $ - ========================================================================================= 16
11 MED-TECH ENVIRONMENTAL LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 =========================================================================== 7. LONG-TERM DEBT, CONTINUED 1998 1997 ----------------------------------------------------------------------- At year end the company was in default of certain bank covenants and certain covenants pertaining to the non-revolving convertible term facility and is currently renegotiating its financing arrangements. Principal payments required in each of tile next three years are as follows: 1999 $ 5,752,364 2000 1,000,000 2001 1,000,000 -------------------------------------------------------- $ 7,752,364 ======================================================== 8. CAPITAL STOCK 1998 1997 ======================================================================= Authorized Unlimited number of Class "A" common shares Issued 14,605,000 (1997 9,725,000) Class "A" common shares $ 6,170,429 $2,803,389 ----------------------------------------------------------------------- During the year the Company entered into the following transactions involving the issuance of capital stock: a) The company issued 2,250,000 Class "A"common shares at $1.00 per share for proceeds of $2,250,000. b) 500,000 First Series Warrants were exercised at $1.00 per share for 500,000 Class "A" common shares for $500,000. c) 2,000,000 Fourth Series Warrants were exercised at $0.40 per share for 2,000,000 Class "A" common shares for $800,000. d) 80,000 corporate share purchase options were exercised at $0.40 each for 80,000 Class "A" common shares for $32,000. e) The Company issued 50,000 Class "A" Common shares at $0.40 per share for proceeds of $20,000. f) The equity portion of the pro rata share of fees paid to TEGS Capital Corporation on the issue of Class "A" common shares in the amount of $234,960 was charged as a reduction to capital stock. 17
12 MED-TECH ENVIRONMENTAL LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 =========================================================================== The Company has the following warrants and options outstanding: a) 3,268,062 First Series Warrants each entitling the holder to subscribe for one Class "A" common share at $100 per share, expiring December 31, 1998. b) 500,000 Fourth Series Warrants each entitling the holder to subscribe for one Class "A" common share at $0.40 per share expiring March 21, 1999. c) 600,000 Fifth Series Warrants each entitling the holder to subscribe for one Class "A" common share at $0.73 per share, expiring March 31, 2000. d) 600,000 Sixth Series Warrants each entitling the holder to subscribe for one Class "A" common share at $1.00 per share, expiring March 31, 2000. e) 1,333,333 Retractable Warrants each entitling the holder to subscribe for one Class "A" common share at $0.40 per share, exercisable from the earlier of March 31, 1999 and the prepayment date until the expiry date, which will be two years from the date the Company becomes a reporting issuer in Ontario and the retractable Warrants and Class "A" common shares issuable on their exercise become freely tradeable for the holder or its nominees. f) 280,000 Corporate Share Purchase Options to purchase 280,000 Class "A" common shares at the exercise price of $0.40 per share, expiring January 23, 2001. g) 480,000 Corporate Share Purchase Options to purchase 480,000 Class "A" common shares at the exercise price of $1.00 per share, expiring November 6, 2002. h) 24,000 Corporate Share Purchase Options to purchase 24,000 Class "A" common shares at the exercise price of $0.40 per share, expiring January 23, 2001. i) 260,000 Corporate Share Purchase Options to purchase 260,000 Class "A" common shares at the exercise price of $1.00 per share, expiring December 31, 2000. j) 300,000 Corporate Share Purchase Options to purchase 300,000 Class "A" common shares at the exercise price of $0.40 per share, expiring March 31, 1999. k) 300,000 Corporate Share Purchase Options to purchase 300,000 Class "A" common shares at the exercise price of $1.00 per share, expiring May 31, 1999. l) During the year the 138,277 second series warrants and 553,110 third series warrants expired March 31, 1998 without being exercised. 18
13 MED-TECH ENVIRONMENTAL LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 =========================================================================== 9. LOSS FROM DISCONTINUED OPERATIONS The Company discontinued its divisions in Etobicoke, Ontario and Gatineau, Quebec. Management has estimated losses related to the discontinued operations and accrued them in these financial statements. Any significant changes to these estimates will be recorded in the period in which they are realized. 10. ACQUISITION Effective April 4 1997, Med-Tech acquired all the issued and outstanding capital stock of Laidlaw Medical Services Ltd. (Canada) and Med-Tech Environmental Inc., a wholly owned subsidiary of "Med-Tech", acquired all the issued and outstanding capital stock of Laidlaw Medical Services, Inc., (Delaware). Both companies operated a medical waste transportation and disposal business. The acquisition has been accounted for by the purchase method and the results of operations have been consolidated from April 4, 1997. Current assets $ 1,744,901 Capital assets 2,121,706 Goodwill 8,057,321 ---------------------------------------------------- $ 11,923,928 ==================================================== Current liabilities $ 1,390,415 Long term debt 7,500,000 Class "A" common shares 3,033,513 ---------------------------------------------------- $ 11,923,928 ==================================================== 11. COMMITMENTS AND CONTINGENCY (a) The Company leases operating premises in Brampton, Ontario, St. Catharines, Quebec, Calgary, Alberta and Haverhill, Massachusetts. The minimum annual rentals for the balance of these leases amounts to $244,057. (b) The Company has provided the Ministry of the Environment of Ontario with bonds for approximately $136,000 as required by provincial statute. (c) The Ministry of the Environment of Ontario and the Massachusetts Department of Environmental Protection have several non-compliance and related charges outstanding. It is not possible at this time to determine the amount, if any, of any fines or damages that may be levied as a result of these non-compliance issues. Any fines or damages incurred as a result of these concerns will be charged to operations in the year they are incurred. Management does not believe that fines levied will be in excess of $15,000 in total. (d) As at May 20, 1998 several of the Company's legal counsels had not yet responded to our audit legal enquiry. As at November 16, 1998 the last of the outstanding legal enquiries was received and note 11(c) was amended accordingly. 19
14 MED-TECH ENVIRONMENTAL LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 =========================================================================== 10. COMMITMENTS AND CONTINGENCY, CONTINUED (e) Under the terms of the purchase and sale agreement as described in note 1(b) between Allied Waste Industries Inc. ("Allied"), Med-Tech, LMSL and LMSI, Med-Tech has an obligation to obtain a release of Allied's guarantee on the lease at 139-141 Ferry Road, Haverhill, Massachusetts. To date, this obligation to obtain a release has not yet been fulfilled. (f) The Company agreed to issue to 1176698 Ontario Limited or its nominees Warrants (the "Unrestricted Warrants") entitling the holder to purchase 2,000,000 Class "A" common shares at an exercise price of $1.00 per share, subject to adjustments. The expiry date of the Unrestricted Warrants will be two years from the date the Company became a reporting issuer and the Unrestricted Warrants and Class "A" common shares issuable on their exercise become freely tradeable for 1176698 Ontario Limited or its nominees. 12. TAX BENEFITS AVAILABLE These financial statements do not reflect potential tax benefits available through the application of losses carried forward against future years' earnings otherwise subject to income taxes. These losses expire approximately as follows: 1999 $ 1,347,000 2000 3,319,000 2001 2,198,000 2002 1,247,000 2003 410,000 2004 1,122,000 ----------------------------------------------------- $ 9,643,000 ===================================================== 13. RELATED PARTY TRANSACTIONS During the year the Company incurred the following related party transactions with certain corporate directors, officers and professional firms of these certain directors and officers. Professional services expenses $ 454,035 Commissions 266,000 Management and consulting services expenses 36,598 Interest 39,264 At March 31, 1998, $319,150 remains outstanding and is included in accounts payable. Management is of the opinion that these transactions are in the normal course of operations and are measured at the exchange amount which is the amount of consideration established and agreed to by the related parties. 20
15 MED-TECH ENVIRONMENTAL LTD NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 =========================================================================== 14. RISK MANAGEMENT AND FAIR VALUES Financial risk is the risk to Med-Tech's earnings that arise from fluctuations in interest rates and foreign exchange rates and the degree of volatility of these rates. Med-Tech does not use derivative instruments to reduce its exposure to interest and foreign exchange risk. The book value of Med-Tech's financial assets and liabilities approximate amounts for which instruments could be exchanged in a transaction between knowledgeable and willing parties based on public market information. 21
1 EXHIBIT 99.2 STERICYCLE, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma consolidated financial statements of the Company present the unaudited pro forma consolidated statements of operations for the year ended December 31, 1997 and the nine months ended September 30, 1998 and the unaudited pro forma consolidated balance sheet at September 30, 1998. The unaudited pro forma consolidated statement of operations for the year ended December 31, 1997 gives pro forma effect to the Company's acquisition of the outstanding common stock and junior secured indebtedness of Med-Tech Environmental Limited ("Med-Tech") as if such transactions had occurred on January 1, 1997. The unaudited pro forma consolidated statement of operations for the nine months ended September 30, 1998 gives pro forma effect to the acquisition of the outstanding common stock and junior secured indebtedness of Med-Tech as if such transactions occurred on January 1, 1998. The unaudited pro forma consolidated balance sheet gives pro forma effect to the acquisition of the outstanding common stock and junior secured indebtedness of Med-Tech as if such transactions occurred on September 30, 1998. The unaudited pro forma consolidated financial statements presented herein are based on the assumptions and adjustments described herein and in the accompanying notes. The unaudited pro forma consolidated statements of operations do not purport to represent what the Company's results of operations would have been if the events described above had occurred as of the dates indicated or what such results will be for any future periods. The unaudited pro forma consolidated financial statements are based on assumptions and adjustments that the Company believes are reasonable. The unaudited pro forma consolidated financial statements and the accompanying notes should be read in conjunction with the Company's historical financial statements, including the notes thereto, included in its Annual Report on Form 10-K for the year ended December 31, 1997 and in its Current Report on Form 10-Q for the quarter ended September 30, 1998, as filed with the Securities and Exchange Commission, and Med-Tech's historical financial statements, including the notes thereto, for the years ended March 31, 1998 and 1997, which are included elsewhere in this Report. 22
2 STERICYCLE, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA) HISTORICAL PRO FORMA --------------------------- ADJUST- COMPANY MED-TECH (1) MENTS (2) PRO FORMA ---------- --------- ----------- ----------- Revenues.................................................. $ 46,166 $ 7,835 - $ 54,001 Costs and expenses: Costs of revenues........................................ 34,109 4,937 - 39,046 Selling, general and administrative expenses................................................ 10,671 2,511 121 (2) 13,303 Write-off of financing and related costs................................................... - 1,853 (820) (3) 1,033 Loss from shut-down of operations......................... - 869 - 869 -------- --------- -------- --------- Total costs and expenses................................ 44,780 10,170 (699) 54,251 -------- --------- -------- --------- Income (loss) from operations ............................ 1,386 (2,335) 699 (250) Other income (expense): Interest income.......................................... 618 - - 618 Interest expense......................................... (428) (1,047) 412 (4) (1,062) Other income (expense)................................... - 16 - 16 -------- --------- -------- --------- Total other income (expense)............................ 190 (1,031) 412 (428) -------- --------- -------- --------- Income (loss) before income taxes......................... 1,576 (3,366) 1,111 (679) Income tax expense........................................ 146 - 146 -------- --------- -------- --------- Net income (loss)......................................... $ 1,430 $ (3,366) $ 1,111 $ (825) ======== ========= ======== ========= Weighted average shares outstanding-basic........................................ 10,580 45 (5) 10,626 ======== ======== ========= Basic net income (loss) per share......................... $ 0.14 $ (0.08) ======== ========= Weighted average number of common shares and common shares and common stock equivalent shares outstanding.............................................. 11,234 45 (5) 11,279 ======== ======== ========= Diluted net income (loss) per share....................... $ 0.13 $ (0.07) ======== ========= - -------------------- (1) The statement of operations data for Med-Tech for the year ended December 31, 1997 represent the historical results of operations of Med-Tech for its fiscal year ended March 31, 1998 and have been converted to U.S. dollars using the average exchange rate of Canadian $1.4018 for U.S. $1.00 for the fiscal year ended March 31, 1998. The acquisition of Med-Tech has been accounted for as a purchase. Accordingly, the results of operations of Med-Tech will be included in the Company's results of operations from the date of acquisition. See the financial statements of Med-Tech appearing elsewhere in this Report. 23
3 (2) The adjustment to selling, general and administrative expenses consists of an increase in amortization of goodwill of $113,000 from the acquisition of Med-Tech over a 25-year period, as if Med-Tech had been acquired on January 1, 1997, and includes the effects of increased amortization of goodwill of $8,000 resulting from differences in accounting principles generally accepted in Canada and the United States, as discussed in Note (3). (3) The historical statement of operations of Med-Tech for the year ended March 31, 1998 include certain legal and financing costs incurred to complete and obtain financing for its acquisition on April 4, 1997 of Laidlaw Medical Services, Ltd. and Laidlaw Medical Services, Inc. (together, "Laidlaw"). Under accounting principles generally accepted in Canada, these costs have been expensed as incurred in the statement of operations for the year ended March 31, 1998. For accounting principles generally accepted in the United States and for purposes of this pro forma consolidated statement of operations, these costs have been deferred and are being amortized on a straight-line basis over 25 years for the legal fees and over the life of the related loan agreement for the financing costs. (4) The adjustment to interest expense reflects the following: (a) additional interest, net of reduced commitment fees, of $442,000 that would have been incurred had the Company borrowed the $5,530,000 required to fund the acquisition of the common stock and junior secured indebtedness of Med-Tech under its credit agreement with LaSalle National Bank, N.A. on January 1, 1997 at an interest rate of 8.25% in effect on the related credit facility; (b) reduced interest expense of $894,000 that would not have been incurred had the Company purchased on January 1, 1997 the junior secured indebtedness of Med-Tech with a face value of $3,576,000 and interest rate of 25%; and (c) increased amortization of deferred financing costs of $39,000 from January 1, 1997 resulting from differences in accounting principles generally accepted in Canada and the United States, as discussed in Note (3). (5) Shares used in the computation of pro forma basic net income (loss) per share and pro forma diluted net income (loss) per share give effect to the issuance of 45,440 shares of Common Stock by the Company as consideration for the purchase of the common stock and the junior secured indebtedness of Med-Tech, assuming that such shares were issued on January 1, 1997. 24
4 STERICYCLE, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA) HISTORICAL PRO FORMA --------------------------- ADJUST- COMPANY MED-TECH (1) MENTS PRO FORMA ---------- --------- ----------- ----------- Revenues ............................................. $ 44,759 $ 5,985 -- $ 50,744 Costs and expenses: Costs of revenues ................................... 30,492 4,283 -- 34,775 Selling, general and administrative expenses ........................................... 10,151 1,799 91 (2) 12,021 --------- ------- ------- -------- Total costs and expenses ........................... 40,643 6,052 91 46,796 --------- ------- ------- -------- Income (loss) from operations ........................ 4,116 (78) (91) 3,947 Other income (expense): Interest income ..................................... 308 -- -- 308 Interest expense .................................... (242) (834) 309 (3) (767) Other income (expense) .............................. 20 (53) -- (33) --------- ------- ------- -------- Total other income (expense) ....................... 86 (888) 309 (492) --------- ------- ------- -------- Income (loss) before income taxes .................... 4,202 (965) 218 3,455 Income tax expense ................................... 781 -- -- 781 --------- ------- ------- -------- Net income ........................................... $ 3,421 $ (965) $ 218 $ 2,674 ========= ======= ======= ======== Weighted average shares outstanding--basic .................................. 10,580 45 (4) 10,625 ========= ======= ======== Basic net income per share ........................... $ 0.32 $ 0.25 ========= ======== Weighted average number of common shares and and common stock equivalent shares outstanding .................................. 11,234 45 (4) 11,279 ========= ======= ======== Diluted net income per share ......................... $ 0.30 $ 0.24 ========= ======== - --------------------- (1) The statement of operations data for Med-Tech for the nine months ended September 30, 1998 represent the historical results of operations of Med-Tech from January 1, 1998 through September 30, 1998 and have been converted to U.S. dollars using the average exchange rate of Canadian $1.4692 for U.S. $1.00 for the period from January 1, 1998 to September 30, 1998. The acquisition of Med-Tech has been accounted for as a purchase. Accordingly, the results of operations of Med-Tech will be included in the Company's results of operations from the date of acquisition. (2) The adjustment to selling, general and administrative expenses consists of an increase in amortization of goodwill of $85,000 from the acquisition of Med-Tech over a 25-year period, as if Med-Tech had been acquired on January 1, 1998, and includes the effects of increased amortization of goodwill of $6,000 resulting from differences in accounting principles generally accepted in Canada and the United States, as discussed in Note (3) to the unaudited pro forma consolidated statement of operations for the 25
5 year ended December 31, 1997. (3) The adjustment to interest expense reflects the following: (a) additional interest, net of reduced commitment fees, of $332,000 that would have been incurred had the Company borrowed the $5,530,000 required to fund the acquisition of the common stock and junior secured indebtedness of Med-Tech under its credit agreement with LaSalle National Bank, N.A. on January 1, 1998 at an interest rate of 8.25% on the related credit facility; (b) reduced interest expense of $671,000 that would not have been incurred had the Company purchased on January 1, 1998 the junior secured indebtedness of Med-Tech with a face value of $3,576,000 and interest rate of 25%; and (c) increased amortization of deferred financing costs of $29,000 from January 1, 1997 resulting from differences in accounting principles generally accepted in Canada and the United States, as discussed in Note (3) to the unaudited pro forma consolidated statement of operations for the year ended December 31, 1997. (4) Shares used in the computation of pro forma basic net income (loss) per share and pro forma diluted net income (loss) per share give effect to the issuance of 45,440 shares of Common Stock by the Company as consideration for the purchase of the common stock and the junior secured indebtedness of Med-Tech, assuming that such shares were issued on January 1, 1998. 26
6 STERICYCLE, INC. AND SUBSIDIARIES UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEET September 30, 1998 (in thousands) HISTORICAL PRO FORMA -------------------- ADJUST- COMPANY MED-TECH (1) MENTS PRO FORMA ------- ------------ -------- --------- ASSETS Current assets: Cash and cash equivalents ......... $ 775 $ -- $ (160) $ 615 Short-term investments ............ 2,335 -- -- 2,335 Accounts receivable, net .......... 10,902 1,542 -- 12,444 Parts and supplies ................ 1,037 109 -- 1,146 Prepaid expenses .................. 528 180 -- 708 Other ............................. 2,087 -- -- 2,087 ------- ------ ------ ------- Total current assets ............. 17,664 1,831 (160) 19,355 Property, plant and equipment, net . 12,043 971 -- 13,014 Goodwill, net ...................... 36,796 5,515 2,836 45,147 Other .............................. 1,680 341 -- 2,021 ------- ------ ------ ------- Total assets ................... $68,163 $8,659 $2,676 $79,518 ======= ====== ====== ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt . $ 6,281 $7,167 $1,954 $15,402 Accounts payable and accrued liabilities ...................... 7,422 1,491 -- 8,913 Deferred revenue .................. 663 -- -- 663 ------- ------ ------ ------- Total current liabilities ........ $14,366 $8,659 $1,954 $24,979 Long-term debt ..................... 3,246 -- -- 3,246 Other liabilities .................. 21 -- -- 21 Shareholders' equity (deficit): Common stock ...................... 107 4,043 (3,975) 175 Additional paid-in capital ........ 85,087 -- 722 86,079 Notes receivable .................. (4) -- -- (4) Accumulated deficit ............... (34,640) (4,043) 3,976 (34,707) ------- ------ ------ ------- Total shareholders' equity ....... 50,550 -- 722 51,272 ------- ------ ------ ------- Total liabilities and shareholders' equity ........... $68,183 $8,659 $2,676 $79,518 ======= ====== ====== ======= (1) The historical balance sheet data for Med-Tech has been converted to U.S. dollars using an exchange rate of Canadian $1.5262 for U.S. $1.00 effective as of September 30, 1998. (2) Reflects the allocation of the purchase price of the acquisition of the common stock and junior secured indebtedness of Med-Tech to the underlying fair value of the net assets acquired and the issuance of 45,440 shares of the Company's Common Stock, and incremental borrowings of $5,530,000 under the Company's credit facility with LaSalle National Bank, N.A., to fund the purchase price. The allocation of the purchase price is preliminary. The Company is in the process of determining the fair value of the acquired property, plant and equipment, but does not expect the final adjustments to the purchase price allocation to be material. 27