-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VH91/sXvFTZem1DzFtCFrxisvb8pw9M3ukZMpta3O8dH/aS09UvsCEugDKddJ9J3 6sknrwKcsG5rYO6DOp6mOg== 0000891618-99-001926.txt : 19990503 0000891618-99-001926.hdr.sgml : 19990503 ACCESSION NUMBER: 0000891618-99-001926 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UROQUEST MEDICAL CORP CENTRAL INDEX KEY: 0000948456 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 593176454 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 333-07277 FILM NUMBER: 99606232 BUSINESS ADDRESS: STREET 1: 173 CONSTITUTION DR CITY: MENLO PARK STATE: CA ZIP: 94025 BUSINESS PHONE: 6504635180 MAIL ADDRESS: STREET 1: 173 CONSTITUTION DR CITY: MENLO PARK STATE: CA ZIP: 94025 10-K405/A 1 FORM 10-K405/A 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (MARK ONE) [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 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO _______ COMMISSION FILE NUMBER: 0-20963 UROQUEST MEDICAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 59-3176454 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification Number) 173 Constitution Drive, Menlo Park, CA 94025 (Address of principal executive offices) (Zip Code) (650) 463-5180 (Registrant's telephone number, including area code) ----------- Securities registered pursuant to section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Common Stock Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days [X] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] As of March 19, 1999, the aggregate market value of the voting stock held by non-affiliates of the registrant is approximately $8,016,000 on the closing sale price as reported on the Nasdaq National Market on such date. Shares of Common Stock held by officers, directors and holders of more than 5% of the outstanding Common Stock have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of shares of Common Stock outstanding on March 19, 1999 was 12,452,522. ================================================================================ 2 EXPLANATORY NOTE On March 31, 1999, UroQuest Medical Corporation (the "Company") filed its Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (the "Annual Report"), with the Securities and Exchange Commission. The purpose of this amendment to the Annual Report is to amend Part III of the Annual Report on Form 10-K to provide the information required by Items 401 to 405 of Regulation S-K with respect to Registrant's directors and executive officers, executive compensation, security ownership of certain beneficial owners and management, and certain relationships and related transactions, pursuant to General Instruction G(3) of Form 10-K. 2 3 PART III - -------------------------------------------------------------------------------- Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS At the Annual Meeting of Shareholders held in June 1998, seven (7) directors of the Company (constituting the entire Board of Directors) were elected to serve until the next annual meeting of shareholders and until their respective successors shall be duly elected and qualified. Maynard Ramsy, III, M.D., Ph.D., who had served as a director of the Company since 1994, resigned from the directorship in November 1998. As of December 31, 1998, the directors of the Registrant are as follows: RICHARD C. DAVIS, M.D., age 45, has been a director and Chairman of the Board since the Company's inception and was its Chief Science Officer from November 1994 to June 1997. Dr. Davis invented the On-Command products and was responsible for all research and development activities of the Company during that period. In 1989, he founded Code Blue Medical Corporation, a marketer of disposable medical devices ("Code Blue") and served as Chairman until April 1992, when Code Blue was sold to Ballard Medical Products, a medical products company. Dr. Davis is named as an inventor in over 40 United States patents. Dr. Davis holds a M.D. from the Medical College of Virginia and a B.S. in Chemistry from Old Dominion University. TERRY E. SPRAKER, Ph.D., age 50, has been a director and President and Chief Executive Officer of the Company since May 1997. Before joining the Company, Dr. Spraker was President and Chief Executive Officer of EP Technologies, Inc., a manufacturer of interventional cardiac electrophysiology products, from October 1992 until August 1996. Prior to joining EP Technologies, Dr. Spraker was President of the Medical Systems Division of Ohmeda, an anesthesia and critical care products company, from July 1992 until October 1992 and V.P./General Manager of Anesthesia Systems from July 1987 through June 1992. Dr. Spraker held various general management and engineering positions with Ohmeda and other medical device and equipment manufacturers from October 1977 to June 1987. Dr. Spraker holds a B.S. in Electrical Engineering from the University of Bridgeport, a M.S. in Electrical Engineering and a Ph.D. in Bioengineering from Pennsylvania State University. THOMAS E. BRANDT, age 45, has been a director and Chief Operating Officer since October 1996. Mr. Brandt has served as President and Chief Executive Officer of Bivona, Inc. ("Bivona"), a subsidiary of the Company which produces and markets medical products, since June 1989. Prior to joining Bivona, Mr. Brandt held various management, marketing and engineering positions with Dow Corning Corporation, a chemical company. Mr. Brandt holds a M.B.A. from Central Michigan University and a B.S. in Engineering from Iowa State University. JACK W. LASERSOHN, age 46, has served as a director of the Company since June 1995. Mr. Lasersohn has been a General Partner of The Vertical Group, a private venture capital and investment management firm, since its formation in 1989 by former principals of F. Eberstadt & Co., Inc. From 1981 to 1989, he was a Vice President and later a Managing Director of the venture capital division of F. Eberstadt & Co., Inc. Mr. Lasersohn also serves as a director of CardioThoracic Systems, Inc., a medical device company, VitalCom Inc., a health care information systems company, Masimo Inc., a medical device company, and a number of privately-held health care companies. He holds a J.D. from Yale University and a M.A. and B.S. from Tufts University. GARY E. NEI, age 55, has been a director since June 1994. Mr. Nei is currently Chairman of the Board of B&B Publishing, a publishing company, and has served as such since May 1995. He also serves as a consultant. Previously, Mr. Nei was President and Chief Executive Officer of Eon Labs, a pharmaceutical company, from February 1992 until January 1995. From November 1988 until December 1991, he served 3 4 as the President and Chief Executive Officer of Lyphomed, Inc., a pharmaceutical company. From 1985 until 1986, he served as Executive Vice President of Baxter International, a health care company. He is also a director of Brady Corp., an adhesives and graphics technology company and Chairman of the Beverage Testing Institute, a publications company which reviews beverages. He holds a M.B.A. from Northwestern University and a B.A. from Ripon College. ELIZABETH H. WEATHERMAN, age 39, has served as a director of the Company since June 1995. Ms. Weatherman is a Managing Director and member of E.M. Warburg, Pincus & Co., LLC, a private investment firm, and has been with the firm since June 1988. Ms. Weatherman is also a director of Xomed Surgical Products, Inc., a medical device company, and several privately-held health care companies. Ms. Weatherman holds a M.B.A. from Stanford University and a B.A. from Mount Holyoke College. BOARD MEETINGS AND COMMITTEES All directors hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. During the fiscal year ended December 31, 1998, the Board of Directors met on eight occasions. The Board of Directors has a Compensation Committee, which establishes compensation policies and is responsible for determinations regarding salaries, incentive compensation and other forms of compensation for directors, officers and other employees of the Company. The Audit Committee has oversight over the process of auditing the Company's internally prepared financial statements, and is charged with reviewing any potential conflicts of interest. Officers are elected by and serve at the discretion of the Board of Directors or pursuant to individual employment agreements. There are no family relationships among the directors or officers of the Company. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Messrs. Nei and Lasersohn and Ms. Weatherman are members of the Compensation Committee. The Compensation Committee met once in March 1999 with regard to the Company's compensation plans for the 1998 fiscal year and once in December 1998 in regard to stock option repricing. In addition to the functions and responsibilities discussed above, the Compensation Committee also administers the Company's incentive compensation plans. Mr. Nei and Ms. Weatherman are members of the Audit Committee. From April 1997 through January 1998, Messrs. Nei and Lasersohn were members of the Audit Committee. The Audit Committee met once in February 1999 with regard to the Company's 1998 fiscal year financial results and reporting. COMPENSATION OF DIRECTORS Directors of the Company do not receive cash for services they provide as directors, aside from out-of-pocket expenses incurred in connection with attendance at board meetings. EXECUTIVE OFFICERS As of December 31, 1998, the executive officers of the Registrant, who are elected by the Board of Directors, are as follows: TERRY E. SPRAKER, Ph.D., age 50, has been a director and President and Chief Executive Officer of the Company since May 1997. Before joining the Company, Dr. Spraker was President and Chief Executive Officer of EP Technologies, Inc., a manufacturer of interventional cardiac electrophysiology products, from October 1992 until August 1996. Prior to joining EP Technologies, Dr. Spraker was President of the Medical Systems Division of Ohmeda, an anesthesia and critical care products company, from July 1992 until October 1992 and V.P./General Manager of Anesthesia Systems from July 1987 through June 1992. Dr. Spraker held various general management and engineering positions with Ohmeda and other medical device and equipment manufacturers from October 1977 to June 1987. Dr. Spraker holds a B.S. in Electrical Engineering from the University of Bridgeport, a M.S. in Electrical Engineering and a Ph.D. in Bioengineering from Pennsylvania State University. 4 5 THOMAS E. BRANDT, age 45, has been a director and Chief Operating Officer since October 1996. Mr. Brandt has served as President and Chief Executive Officer of Bivona, Inc. ("Bivona"), a subsidiary of the Company which produces and markets medical products, since June 1989. Prior to joining Bivona, Mr. Brandt held various management, marketing and engineering positions with Dow Corning Corporation, a chemical company. Mr. Brandt holds a M.B.A. from Central Michigan University and a B.S. in Engineering from Iowa State University. JEFFREY L. KAISER, age 48, has served as Vice President, Chief Financial Officer, Treasurer, and Secretary since May 1997. From March 1990 until June 1996, Mr. Kaiser was Vice President, Finance and Administration and Chief Financial Officer of EP Technologies, a manufacturer of interventional cardiac electrophysiology products. From October 1988 until February 1990, Mr. Kaiser provided independent financial and business consulting services to various companies. From March 1982 until September 1988, Mr. Kaiser was Chief Financial Officer of various companies that manufactured computer hardware, styrofoam consumer products, and fermentation equipment. Previously, Mr. Kaiser held various positions, including Senior Audit Manager, with Ernst & Young. Mr. Kaiser holds a B.S. in Business Administration from Miami University, Oxford, Ohio. He is a Certified Public Accountant. ALAN L. MARQUARDT, age 46, has served as Vice President, Regulatory, Clinical, and Quality Affairs since March 1998. From February 1993 to February 1998, Alan Marquardt was Vice President, Regulatory, Clinical and Quality Affairs at Boston Scientific Corporation's San Jose, California operation. From November 1988 to January 1993, Mr. Marquardt was Director of Clinical and Regulatory Affairs at Pfizer, Inc.'s Schneider U.S. Stent Division. From 1986 to November 1988, Mr. Marquardt was Senior Product Regulation Manager at Medtronic, Inc. Prior to this time, Mr. Marquardt held various other positions at Medtronic, Inc. and National Biocentric. Mr. Marquardt holds a Bachelor of Science in Microbiology from the University of Minnesota. KEITH W. L. WARD, age 55, has served as Vice President, International since August 1997. From January 1996 until July 1997, Mr. Ward was Sales and Marketing Director, Europe, for the EP Technologies Division of Boston Scientific Corporation, following its merger with EP Technologies, Inc. From October 1993 until January 1996, Mr. Ward was Vice President, International of EP Technologies, a manufacturer of interventional cardiac electrophysiology products. From February 1986 until September 1993, Mr. Ward held various International Marketing and Business Development positions in Ohmeda, a medical equipment and pharmaceutical manufacturer of anesthesia and critical care products. Prior to this time, Mr. Ward held marketing and general management positions in Sherwood Medical Industries and Abbott Laboratories. Mr. Ward holds a B.Sc. Hons. in Chemical Engineering from the University of Surrey, England. 5 6 Item 11. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth certain compensation paid by the Company to all individuals who acted as Chief Executive Officer of the Company and the four other most highly compensated executive officers of the Company (collectively the "Named Executive Officers") for services rendered during the fiscal years ended December 31, 1996 and 1997, and 1998.
Long-Term Compensation Awards ----------------------- Annual Compensation Restricted Securities ---------------------- Stock Underlying All Other Name and Principal Position Year Salary Bonus Awards Options(1) Compensation - --------------------------- ---- -------- -------- ---------- ----------- ------------ Terry E. Spraker, Ph.D.(2) .... 1998 $240,000 $101,100 -- 595,000(3) $ 1,254(4) President & Chief Executive 1997 148,462 97,000 -- 700,000 155(5) Officer 1996 -- -- -- -- Thomas E. Brandt(6) ........... 1998 176,400 45,289 -- 102,000(7) 9,637(8) Chief Operating Officer 1997 168,000 34,200 -- 120,000 7,566(9) 1996 28,000 -- -- -- 1,325(10) Jeffrey L. Kaiser(11) ......... 1998 144,430 36,546 -- 102,000(12) 889(13) Vice President & Chief 1997 83,372 23,900 -- 120,000 155(14) Financial Officer, 1996 -- -- -- -- -- Secretary & Treasurer Alan L. Marquardt(15) ......... 1998 122,500 36,735 -- 102,000(16) 777(17) Vice President, 1997 -- -- -- -- -- Regulatory & Clinical 1996 -- -- -- -- -- Keith W.L. Ward(18) ........... 1998 120,728 32,695 -- 102,000(19) 18,518(20) Vice President, International 1997 49,085 15,485 -- 120,000 6,016(21) 1996 -- -- -- -- --
- ------------------ (1) In December 1998, the Compensation Committee offered to all current employees and certain consultants holding outstanding options to purchase the Common Stock of the Company with an exercise price in excess of $2.50 per share the opportunity to exchange such options for new options. Each such new option held by the Executive Officers of the Company will be on the same terms as the surrendered option (including vesting and expiration date), except that (i) the new option will be an option to purchase that number of shares equal to 85% of the number of shares underlying the exchanged option, (ii) the exercise price for one-half of the new options will be $2.00 per share; and the exercise price for the remaining half of the new options will be $3.00 per share, and (iii) such new options will not be exercisable, except upon optionee's involuntary termination, death, or disability or upon the occurrence of a merger of the Company or a sale of substantially all of the Company's assets in which such new options are not assumed, for a period of six months ending June 13, 1999. (2) Effective May 1997, UroQuest Medical Corporation President and Chief Executive Officer. (3) Pursuant to the option exchange program described in note (1), the number of options granted to Dr. Spraker in October 1997 was reduced in December 1998 by 105,000 shares from 700,000 shares to 595,000 shares. (4) Consists of life insurance premiums for the benefit of Dr. Spraker in the amount of $1,254 for the fiscal year ended 1998. (5) Consists of life insurance premiums for the benefit of Dr. Spraker in the amount of $155 for the fiscal year ended 1997. (6) Effective October 1996, UroQuest Medical Corporation Chief Operating Officer. (7) Pursuant to the option exchange program described in note (1), the number of options granted to Mr. Brandt in October 1997 was reduced in December 1998 by 18,000 shares from 120,000 shares to 102,000 shares. (8) Consists of life insurance premiums for the benefit of Mr. Brandt in the amount of $1,095 and 401(k) matching contributions in the amount of $8,542 for the fiscal year ended 1998. 6 7 (9) Consists of life insurance premiums for the benefit of Mr. Brandt in the amount of $1,104 and 401(k) matching contributions in the amount of $6,462 for the fiscal year ended 1997. (10) Consists of life insurance premiums for the benefit of Mr. Brandt in the amount of $166 and 401(k) matching contributions in the amount of $1,159 for the fiscal year ended 1996. (11) Effective May 1997, UroQuest Medical Corporation Vice President and Chief Financial Officer, Secretary and Treasurer. (12) Pursuant to the option exchange program described in note (1), the number of options granted to Mr. Kaiser in October 1997 was reduced in December 1998 by 18,000 shares from 120,000 shares to 102,000 shares. (13) Consists of life insurance premiums for the benefit of Mr. Kaiser in the amount of $889 for the fiscal year ended 1998. (14) Consists of life insurance premiums for the benefit of Mr. Kaiser in the amount of $155 for the fiscal year ended 1997. (15) Effective March 1998, UroQuest Medical Corporation Vice President, Regulatory and Clinical. (16) Pursuant to the option exchange program described in note (1), the number of options granted to Mr. Marquardt in April 1998 was reduced in December 1998 by 18,000 shares from 120,000 shares to 102,000 shares. (17) Consists of life insurance premiums for the benefit of Mr. Marquardt in the amount of $777 for the fiscal year ended 1998. (18) Effective August 1997, UroQuest Medical Corporation Vice President, International. (19) Pursuant to the option exchange program described in note (1), the number of options granted to Mr. Ward in October 1997 was reduced in December 1998 by 18,000 shares from 120,000 shares to 102,000 shares. (20) Consists of life insurance premiums for the benefit of Mr. Ward in the amount of $4,024 and pension payments in the amount of $14,494 for the fiscal year ended 1998. (21) Consists of life insurance premiums for the benefit of Mr. Ward in the amount of $1,332 and pension payments in the amount of $4,684 for the fiscal year ended 1997. STOCK OPTION INFORMATION The following table sets forth certain information as to options granted during the fiscal year ended December 31, 1998 to each Named Executive Officer of the Company. In accordance with the rules of the Securities and Exchange Commission, the following table also sets forth the potential realizable value over the term of the options (the period from the grant date to the expiration date) based on assumed rates of stock appreciation of 5% and 10% compounded annually. These amounts do not represent the Company's estimate of future stock prices. Actual realizable values, if any, of stock options will depend on the future performance of the Common Stock. OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1998
Individual Grants Potential Realizable ---------------------------------------------------- Value at Assumed Number of Percent of Annual Rates of Stock Securities Total Price Appreciation Underlying Options Exercise for Option Terms(5) Options Granted in Price Expiration ------------------------- Granted(1)(2) Fiscal 1998(3) ($/Sh)(4) Date 5% 10% ------------- -------------- --------- -------- --------- --------- Terry E. Spraker, Ph.D..... 595,000 33% $ 2.50 10/27/07 $(225,762) $ 419,559 Thomas E. Brandt .......... 102,000 6% $ 2.50 10/27/07 (38,702) 71,924 Jeffrey L. Kaiser ......... 102,000 6% $ 2.50 10/27/07 (38,702) 71,924 Alan L. Marquardt ......... 102,000 6% $ 2.50 4/3/08 (34,056) 85,784 Keith W.L. Ward ........... 102,000 6% $ 2.50 10/27/07 (38,702) 71,924
- ---------- (1) Grants under the 1994 Stock Plan. The options generally have a four-year vesting period. Such options are not transferable other than by will or the laws of descent and distribution. (2) In December 1998, the Compensation Committee offered to all current employees and certain consultants holding outstanding options to purchase the Common Stock of the Company with an exercise price in excess of $2.50 per share the opportunity to exchange such options for new options. Each such new option held by the Executive Officers of the Company will be on the same terms as the surrendered option (including vesting and expiration date), except that (i) the new option will be an option to purchase that number of shares equal to 85% of the number of shares underlying the 7 8 exchanged option, (ii) the exercise price for one-half of the new options will be $2.00 per share; and the exercise price for the remaining half of the new options will be $3.00 per share, and (iii) such new options will not be exercisable, except upon optionee's involuntary termination, death, or disability or upon the occurrence of a merger of the Company or a sale of substantially all of the Company's assets in which such new options are not assumed, for a period of six months ending June 13, 1999. (3) Based on an aggregate of 1,816,648 options (including 1,616,929 shares of exchanged options) granted by the Company in the fiscal year ended December 31, 1998 to employees of and consultants to the Company, including Named Executive Officers. (4) Half of the options exchanged are priced at $2 per share and the other half are priced at $3 per share. The average exercise price of these options exchanged is therefore $2.50 per share. (5) The potential realizable value is calculated based on the term of the option at its time of grant. It is calculated assuming that the fair market value of the Company's Common Stock on the date of repricing appreciates at the indicated rate compounded annually for the entire term of the option and that the option is exercised and sold on the last day of its term for the appreciated stock price. On the date of repricing, the fair market value of the Company's Common Stock was at $1.375 per share; the average exercise price of the repriced options is $2.50 per share. AGGREGATE OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth, for each of the Named Executive Officers, information with respect to each exercise of stock options during the fiscal year ended December 31, 1998 and the value of unexercised stock options held by such individuals at December 31, 1998. AGGREGATE OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 1998 AND FISCAL YEAR-END OPTION VALUES
Shares Acquired Number of Shares Underlying Value of Unexercised on Value Unexercised Options at In-the-Money Options at Exercise Realized December 31, 1998 December 31, 1998(2) -------- -------- ------------------------------ ---------------------------- Exercisable Unexercisable(1) Exercisable Unexercisable ----------- ---------------- ----------- ------------- Terry E. Spraker, Ph.D. -- -- -- 595,000 -- -- Thomas E. Brandt -- -- -- 102,000 -- -- Jeffrey L. Kaiser -- -- -- 102,000 -- -- Alan L. Marquardt -- -- -- 102,000 -- -- Keith W.L. Ward -- -- -- 102,000 -- --
(1) In December 1998, the Compensation Committee offered to all current employees and certain consultants holding outstanding options to purchase the Common Stock of the Company with an exercise price in excess of $2.50 per share the opportunity to exchange such options for new options. Each such new option held by the Executive Officers of the Company will be on the same terms as the surrendered option (including vesting and expiration date), except that (i) the new option will be an option to purchase that number of shares equal to 85% of the number of shares underlying the exchanged option, (ii) the exercise price for one-half of the new options will be $2.00 per share; and the exercise price for the remaining half of the new options will be $3.00 per share, and (iii) such new options will not be exercisable, except upon optionee's involuntary termination, death, or disability or upon the occurrence of a merger of the Company or a sale of substantially all of the Company's assets in which such new options are not assumed, for a period of six months ending June 13, 1999. (2) Value is based on the closing sale price of the Common Stock as of the last business day of the year, December 31, 1998 ($1.00), minus the exercise price. 8 9 TEN-YEAR OPTION REPRICING The following table sets forth information with respect to all repricings of options held by each of the Named Executive Officers during the last ten completed fiscal years. 10-YEAR OPTION REPRICING
Length of Original Number of Market Option Securities Price of Exercise Term Underlying Stock at Price at New Remaining Date of Options Time of Time of Exercise at Date of Repricing Repriced Repricing Repricing Price Repricing -------- ------- ---------- ---------- -------- --------- Terry E. Spraker, Ph.D 12/10/98 297,500 $ 1.375 $ 4.000 $ 2.00 8.9 years 12/10/98 297,500 1.375 4.000 3.00 8.9 Thomas E. Brandt 12/10/98 51,000 1.375 4.000 2.00 8.9 12/10/98 51,000 1.375 4.000 3.00 8.9 Jeffrey L. Kaiser 12/10/98 51,000 1.375 4.000 2.00 8.9 12/10/98 51,000 1.375 4.000 3.00 8.9 Alan L. Marquardt 12/10/98 51,000 1.375 3.125 2.00 9.3 12/10/98 51,000 1.375 3.125 3.00 9.3 Keith W.L. Ward 12/10/98 51,000 1.375 4.000 2.00 8.9 12/10/98 51,000 1.375 4.000 3.00 8.9
COMPENSATION COMMITTEE REPORT ON THE OPTION EXCHANGE PROGRAM After considering various alternatives to address employee retention and motivation, the Compensation Committee approved the Option Exchange Program in December 1998. Pursuant to the Option Exchange Program, all current employees including the Executive Officers and certain consultants holding outstanding options to purchase the Common Stock of the Company with an exercise price in excess of $2.50 per share were offered the opportunity to exchange such options for new non-statutory and/or incentive stock options. The exercise price for one-half of the new options will be $2.00 per share, and the exercise price for the remaining half of the new options will be $3.00 per share, both of which were above the then current market price on the date of regrant of $1.375 per share. All new stock options issued pursuant to the Option Exchange Program were issued under the 1994 Stock Plan. Each such new option will be on the same terms as the surrendered option (including number of shares, vesting and expiration date) except, in the case of Executive Officers, the number of shares underlying the new option is reduced by 15%. All optionees receiving new options in the Option Exchange Program were required to agree not to exercise their new options, except upon optionee's involuntary termination, death, or disability or upon the occurrence of a merger of the Company or a sale of substantially all of the Company's assets in which such new options are not assumed, for a period of six months ending June 13, 1999. A total of 1,616,929 shares of stock options were exchanged in the Option Exchange Program. Stock options are intended to provide incentives to the Company's officers, employees and consultants. The Compensation Committee believes that such equity incentives are a significant factor in the Company's ability to attract, retain and motivate service providers who are critical to the Company's long-term success. The disparity between the original exercise prices of the Company's outstanding stock options and the market price for the Common Stock did not provide, in the judgment of the Compensation Committee, a meaningful incentive or retention device to those holding stock options and, therefore, the Compensation 9 10 Committee determined that offering the Option Exchange Program was in the best interest of the Company and its stockholders. RESPECTFULLY SUBMITTED BY THE COMPENSATION COMMITTEE: Jack W. Lasersohn Gary E. Nei Elizabeth H. Weatherman EMPLOYMENT AGREEMENTS In the first quarter of 1998, the Company has entered into employment agreements with all of its Executive Officers who joined the Company in 1997 and 1998. The Company's employment agreement with Dr. Spraker provides for an annual base compensation of $240,000 as of the date of hire, subject to annual increases upon Compensation Committee of the Board of Director's approval, as well as participation in the Company's bonus, stock option and fringe benefit programs. In addition, the agreement contains stock option acceleration provisions related to a change of control of the Company. Dr. Spraker's agreement also contains severance provisions that under certain circumstances could entitle Dr. Spraker to receive a lump-sum cash severance payment equal to his then current annual compensation. The Company's employment agreement with Mr. Brandt provides for an annual base compensation of $168,000 in 1997 which is subject to annual increases upon board approval, participation in the Company's bonus, stock option and fringe benefit programs, and severance continuation for up to thirty months (as of March 31, 1999) following termination of employment without cause. The Company's employment agreement with Mr. Kaiser provides for an annual base compensation of $140,000 as of the date of hire, subject to annual increases upon board approval, along with participation in the Company's bonus, stock option and fringe benefit programs. The Company's employment agreement with Mr. Ward provides for an annual base compensation of $112,000 as of the date of hire, subject to annual increases upon board approval, along with participation in the Company's bonus, stock option and fringe benefit programs, including company provided contributions to a United Kingdom pension fund. The Company's employment agreement with Mr. Marquardt provides for an annual base compensation of $147,000 as of the date of hire, subject to annual increases upon board approval, and participation in the Company's bonus, stock option and fringe benefit programs. In addition, the agreements for Messrs. Kaiser, Ward and Marquardt contain stock option acceleration provisions in certain instances in which there is a change of control of the Company. 10 11 BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION COMPENSATION PHILOSOPHY The objectives of the Company's executive compensation program are to align compensation with business objectives and individual performance, and to enable the Company to attract, retain and reward executive officers who contribute to the long-term success of the Company. In seeking to achieve these objectives the Company's executive compensation is based on the following principles. COMPETITIVE AND FAIR COMPENSATION The Company is committed to providing an executive compensation program that helps attract and retain highly qualified executives. To ensure that compensation is competitive, the Company compares its compensation practices with those of comparable medical products and other relevant companies in a similar stage of development. SHORT-TERM CASH COMPENSATION Cash compensation consists of two components: annual salary and cash incentive compensation. The annual salaries and cash incentives of the executive officers are evaluated based upon corporate and individual performance. While industry-wide practices are deemed to be important indicators of appropriate compensations levels, the Compensation Committee believes the most important considerations are individual and corporate performance in setting an executive's base salary and cash incentive compensation. Corporate performance is evaluated by reviewing the extent to which strategic and business planning goals and milestones are met. Individual performance is evaluated by reviewing attainment of specific individual objectives and milestones and the degree to which teamwork and Company values are fostered. Cash incentive compensation is based upon the achievement of functional, divisional and corporate goals as well as individual performance. LONG-TERM INCENTIVE COMPENSATION Because not all short-term management accomplishments are directly related to changes in short-term stockholder value, the Compensation Committee believes that management should also have a long-term compensation component related to increasing stockholder value. To assure that executive officers' goals and accomplishments are linked with increasing stockholder value, the Compensation Committee believes that the grant of options to purchase the Company's Common Stock that become exercisable over an extended period of time should be an integral part of the overall compensation philosophy. COMPENSATION PROGRAM COMPONENTS Annual compensation for the Company's executive officers currently consists of three elements: salary, cash incentive compensation and equity participation. Executive officers are also entitled to participate in the same benefit plans available to other employees. On an annual basis, goals for Company performance and individual goals and objectives for each of the Company's executive officers (including the Chief Executive Officer) are established by the Compensation Committee. Once a year, all executive officers other than the Chief Executive Officer are evaluated by the Chief Executive Officer on their performance with respect to their individual goals and objectives. At that time, revised goals and objectives are established, if appropriate. Based upon their performance relative to their goals and 11 12 objectives, the base salary of executive officers other than the Chief Executive Officer generally is adjusted once per year by the Compensation Committee. On an annual basis, the Compensation Committee evaluates the achievement of the annual goals and objectives established for the Chief Executive Officer and his contribution to the Company. Stock option awards are designed to promote the identity of long-term interests between the Company's employees and its stockholders and assist in the retention of executives. The size of option grants is generally intended by the Compensation Committee to reflect the executive's position with the Company and his or her actual or potential contributions to the Company in relation to his or her overall compensation. The Compensation Committee believes that stock options have been and remain an excellent vehicle for compensating its employees. Because the option exercise price of the employee is generally the fair market value of the stock on the date of grant, employees recognize a gain only if the value of the stock increases. Thus, employees with stock options are rewarded for their efforts to improve the long-term value of the Common Stock. Stock options, moreover, have been used to reward a significant portion of the employees of the Company, not just at the executive officer level. 1998 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER The amount and means of determining Dr. Spraker's base annual salary for 1998 was fixed by the terms of his employment agreement with the Company. Dr. Spraker was appointed as President and CEO in May 1997. His employment agreement provided for an annual base salary of $240,000, subject to yearly review, and such incentive bonus payments as the Compensation Committee may from time to time determine. In February 1999, the Company paid a cash bonus of $101,100 to its Chief Executive Officer. The Compensation Committee intended for this bonus to represent compensation for such officer's contributions to the development and achievements of the Company through December 31, 1998. The objectives achieved by the Company which the Compensation Committee determined to be significant in determining Dr. Spraker's 1998 salary and cash incentive payment included clinical trial and regulatory progress of the Company's On-Command products, corporate financial performance for fiscal 1998 and certain other items. The Compensation Committee expects that it will continue to review the CEO's salary on an annual basis and will adjust his compensation based upon the achievement of goals and objectives set for the Company. COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m) The Compensation Committee has not yet adopted a policy on the 1993 amendment to the Internal Revenue Code of 1986, as amended (the "Code"), disallowing deduction on compensation in excess of $1 million for certain executives of public companies. The Company believes that options granted under the 1994 Stock Plan are exempt from the limitation, and other compensation expected to be paid during fiscal year 1999 is below the compensation limitation. RESPECTFULLY SUBMITTED BY THE COMPENSATION COMMITTEE: Jack W. Lasersohn Gary E. Nei Elizabeth H. Weatherman 12 13 STOCKHOLDER PERFORMANCE GRAPH The following graph compares the performance of the Company's Common Stock to the Nasdaq Stock Market Total Return Index for U.S. Companies (the "Nasdaq Stock Market - U.S. Index") and the Hambrecht & Quist Growth Index ("H&Q Growth Index") over the period from the time of the Company's initial public offering of Common Stock on October 24, 1996 to December 31, 1998. The graph assumes that the value of an investment in the Company's Common Stock and each index was $100 at October 24, 1996 and that all dividends were reinvested. [PERFORMANCE GRAPH]
TOTAL RETURN ANALYSIS 10/24/96 12/31/96 12/31/97 12/31/98 -------- -------- -------- -------- UROQUEST MEDICAL CORPORATION $100.00 $112.50 $ 43.75 $ 16.67 HAMBRECHT & QUIST GROWTH INDEX $100.00 $ 97.86 $100.20 $145.33 NASDAQ COMPOSITE (US) $100.00 $105.65 $129.04 $180.91
The information contained in the Stock Performance Graph shall not be deemed to be "soliciting material" or to be filed with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent the Company specifically incorporates it by reference into such filing. 13 14 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information known to the Company with respect to the beneficial ownership of its Common Stock as of March 31, 1999, for (i) each person who is known by the Company to own beneficially more than 5% of the Common Stock, (ii) each of the Company's directors, (iii) each of the Named Executive Officers of the Company and (iv) all directors and executive officers as a group:
Approximate Shares Beneficially Percent of Name of Beneficial Owner Owned(1) Total(2) - ------------------------ ------------------- ------------ Warburg, Pincus Investors, L.P.(3).............. 3,188,571 25.6% 466 Lexington Ave., 10th Floor New York, NY 10017 Elizabeth H. Weatherman(4)...................... 3,188,571 25.6% Warburg, Pincus Investors, L.P. 466 Lexington Ave., 10th Floor New York, NY 10017 Thomas E. Brandt................................ 1,605,029 12.9% Richard C. Davis, M.D.(5)....................... 979,153 7.8% Jack W. Lasersohn(6)............................ 354,285 2.8% Terry E. Spraker, Ph.D. ........................ -- * Gary E. Nei(7).................................. 105,716 * Jeffrey L. Kaiser............................... 9,537 * Keith W. L. Ward................................ 9,090 * Alan Marquardt.................................. -- * All directors and executive officers as a group (9 persons)(8)............................ 6,251,381 49.4%
- ---------- * Less than 1% (1) Unless otherwise indicated in these footnotes, or pursuant to applicable state community property laws, each stockholder has sole voting and investment power with respect to the shares beneficially owned. (2) Percentages are determined based upon 12,452,522 shares of Common Stock outstanding on March 31, 1999 together with the applicable warrants and options exercisable within 60 days of March 31, 1999 for such stockholder. (3) Represents 3,188,571 shares of Common Stock held by Warburg, Pincus Investors, L.P. ("Warburg"). The sole general partner of Warburg is Warburg, Pincus & Co., a New York general partnership ("WP"). E.M. Warburg, Pincus & Co., LLC, a New York limited liability company ("EM Warburg"), manages Warburg. The members of EM Warburg are substantially the same as the partners of WP. Lionel I. Pincus is the managing partner of WP and the managing member of EM Warburg and may be deemed to control both WP and EM Warburg. WP has a 20% interest in the profits of Warburg as the general partner. Elizabeth H. Weatherman, a director of the Company, is a Managing Director and member of EM Warburg, and a general partner of WP. As such, Ms. Weatherman may be deemed to have an indirect pecuniary interest (within the meaning of Rule 16a-1 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) in an indeterminate portion of the shares beneficially owned by Warburg and WP. (4) All of the shares indicated as owned by Ms. Weatherman are owned directly by Warburg and are included because of Ms. Weatherman's affiliation with Warburg. As such, Ms. Weatherman may be deemed to have an indirect pecuniary interest in an indeterminate portion of the shares beneficially owned by Warburg. Ms. Weatherman disclaims beneficial ownership of these shares within the meaning of Rule 13d-3 under the Exchange Act. 14 15 (5) Represents 873,318 shares of Common Stock, 871,318 shares of which are held by The Richard C. Davis, Jr. 1993 Revocable Trust, of which Dr. Davis is a trustee and over which Dr. Davis has investment and voting control. The remaining 2,000 shares are owned by Mrs. Elizabeth K. Davis, wife of Dr. Davis. Dr. Davis disclaims beneficial ownership of these shares. Also includes 105,835 shares of Common Stock issuable upon exercise of stock options exercisable within 60 days of March 31, 1999. (6) Represents 354,285 shares of Common Stock held by Vertical Fund Associates, L.P. ("Vertical"). The sole general partner of Vertical is The Vertical Group, L.P. ("Vertical Group"). Jack W. Lasersohn, a director of the Company, is a General Partner of the Vertical Group. As such, Mr. Lasersohn may be deemed to have an indirect pecuniary interest in an indeterminate portion of the shares beneficially owned by Vertical Group. Mr. Lasersohn disclaims beneficial ownership of these shares within the meaning of Rule 13d-3 under the Exchange Act. (7) Represents 105,716 shares of Common Stock issuable upon exercise of stock options exercisable within 60 days of March 31, 1999. (8) Includes 211,551 shares of Common Stock issuable upon exercise of stock options exercisable within 60 days of March 31, 1999. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors and persons owning ten percent of the Company's Common Stock (collectively, "Reporting Persons") to file reports of ownership with the Securities and Exchange Commission (the "SEC"). Reporting Persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms filed. Based solely on its review of the copies of such forms received or written representations from certain Reporting Persons, the Company believes that, with respect to fiscal year 1998, all filing requirements applicable to its Reporting Persons were complied with. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On January 9, 1998, a Note and a Security Agreement were made between the Company and Richard C. David, M.D., the Director and Chairman of the Board of the Company. Pursuant to the Note and Security Agreement, Dr. Davis borrowed $350,000 from the Company and promised to pay to the Company thirty days after demand the principal amount of the Note and interest on the unpaid principal amount from the date of the Note until paid, at the rate of 5.6% per annum. The repayment of the Note was secured by a pledge of 350,000 shares of the Company's Common Stock owned by Dr. Davis. Dr. Davis repaid the principal amount of the Note and the interest on March 30, 1998. On May 7, 1998, a Note and a Security Agreement were made between the Company and Alan Marquardt, an officer of the Company. Pursuant to the Note and Security Agreement, Mr. Marquardt borrowed $200,000 from the Company and promised to pay to the Company upon the close of business on January 7, 2000 the principal sum of the Note, which sum shall be free from interest for the term of the Note. The repayment of the Note was secured by a pledge of 8,000 shares of Boston Scientific Corporation's Common Stock owned by Mr. Marquardt. 15 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amended Report to be signed on its behalf by the undersigned, thereunto duly authorized in Menlo Park, California, on the 30th day of April 1999. UroQuest Medical Corporation By: /s/ Terry E. Spraker, Ph.D.* ------------------------------------- Terry E. Spraker, Ph.D. President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this amended Report has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE --------- ----- ---- /s/ Terry E. Spraker, Ph.D.* President, Chief Executive Officer April 30, 1999 - ---------------------------------- and Director (Principal Executive Officer) Terry E. Spraker, Ph.D. /s/ Jeffrey L. Kaiser Vice President, Chief Financial Officer, April 30, 1999 - ---------------------------------- Secretary, and Treasurer (Principal Financial Jeffrey L. Kaiser and Accounting Officer) /s/ Tom E. Brandt* Director and Chief Operating Officer April 30, 1999 - ---------------------------------- Tom E. Brandt /s/ Richard C. Davis, Jr., M.D.* Director, Chairman of the Board April 30, 1999 - ---------------------------------- Richard C. Davis, Jr., M.D. /s/ Jack W. Lasersohn* Director April 30, 1999 - ---------------------------------- Jack W. Lasersohn /s/ Gary E. Nei* Director April 30, 1999 - ---------------------------------- Gary E. Nei /s/ Elizabeth H. Weatherman* Director April 30, 1999 - ---------------------------------- Elizabeth H. Weatherman *By: /s/ Jeffrey L. Kaiser - ---------------------------------- Jeffrey L. Kaiser Attorney-in-Fact
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