<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Lifequest Medical, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
LIFEQUEST MEDICAL, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
LifeQuest Medical, Inc. (the "Company") will be held on Tuesday, June 17, 1997,
at 3:00 p.m., E.D.T., at Val-U-Med, Inc.'s executive offices, located at Fulton
400 Corporate Center, Suite 700, Roswell, Georgia, for the following purposes:
(1) a proposal to elect eight (8) directors to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified;
(2) a proposal to amend the Company's 1989 Stock Option Plan, as
amended (the "Option Plan"), to increase the number of shares authorized for
issuance under the Option Plan to 1,500,000.
(3) a proposal to ratify the appointment of Arthur Andersen LLP
as independent public accountants of the Company for the fiscal year ending
December 31, 1997; and
(4) to consider and act upon any other matter which may properly
come before the meeting or any adjournment thereof. The Board of Directors is
presently unaware of any other business to be presented to a vote of the
stockholders at the Annual Meeting.
Information with respect to the above matters is set forth in the Proxy
Statement that accompanies this Notice.
The Board of Directors of the Company has fixed the close of business on
May 12, 1997, as the record date for determining stockholders entitled to
notice of and to vote at the meeting. A complete list of the stockholders
entitled to vote at the meeting will be maintained at the Company's principal
executive offices during ordinary business hours for a period of ten (10) days
prior to the meeting. The list will be open to the examination of any
stockholder for any purpose germane to the meeting during this time. The list
will also be produced at the time and place of the meeting and will be open
during the whole time thereof.
By Order of the Board of Directors,
HERBERT H. SPOON
President and Chief Executive Officer
San Antonio, Texas
May 12, 1997
--------------------
IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. EVEN
IF YOU PLAN TO BE PRESENT, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED
PROXY AT YOUR EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE MEETING, YOU MAY
VOTE EITHER IN PERSON OR BY YOUR PROXY.
<PAGE> 3
LIFEQUEST MEDICAL, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 17, 1997
GENERAL INFORMATION
This Proxy Statement and the accompanying proxy are furnished to the
stockholders of LifeQuest Medical, Inc., a Delaware corporation (the
"Company"), in connection with the solicitation by the Board of Directors of
proxies for use at the Annual Meeting of Stockholders (the "Annual Meeting" or
"Meeting") to be held on Tuesday, June 17, 1997, at 3:00 p.m., E.D.T., at Val-
U-Med, Inc., and at any adjournment or postponement thereof, for the purposes
set forth in the foregoing Notice of Annual Meeting of Stockholders. Properly
executed proxies received in time for the Meeting will be voted.
The securities of the Company entitled to vote at the Annual Meeting
consist of shares of common stock, $.001 par value (the "Common Stock"). At
the close of business on May 12, 1997 (the "Record Date"), there were
outstanding and entitled to vote 5,789,021 shares of Common Stock. The holders
of record of Common Stock on the Record Date will be entitled to one vote per
share. The Company's Certificate of Incorporation does not permit cumulative
voting in the election of directors.
The Annual Report to Stockholders for the year ended December 31, 1996
has been or is being furnished with this Proxy Statement, which is being mailed
on or about May 12, 1997, to the holders of record of Common Stock on the
Record Date. The Annual Report to Stockholders does not constitute a part of
the proxy materials.
VOTING AND PROXY PROCEDURES
Properly executed proxies received in time for the Meeting will be
voted. Stockholders are urged to specify their choices on the proxy, but if no
choice is specified, eligible shares will be voted for the election of the
eight nominees for director named herein, for the proposal to amend the
Company's 1989 Stock Option Plan, as amended (the "Option Plan"), to increase
the number of shares authorized for issuance under the Option Plan to
1,500,000, and for ratification of the appointment of Arthur Anderson LLP as
the Company's independent public accountants for the fiscal year ending
December 31, 1997. At the date of this Proxy Statement, management of the
Company knows of no other matters which are likely to be brought before the
Annual Meeting. However, if any other matters should properly come before the
Annual Meeting, the persons named in the enclosed proxy will have discretionary
authority to vote such proxy in accordance with their best judgment on such
matters.
If the enclosed form of proxy is executed and returned, it may
nevertheless be revoked by a later-dated proxy or by written notice filed with
the Secretary at the Company's executive offices at any time before the
enclosed proxy is exercised. Stockholders attending the Annual Meeting may
revoke their proxies and vote in person. The Company's executive offices are
located at 9601 McAllister Freeway, Suite 1120, San Antonio, Texas 78216.
The holders of a majority of the total shares of Common Stock issued and
outstanding at the close of business on the Record Date, whether present in
person or represented by proxy, will constitute a quorum for the transaction of
business at the Annual Meeting. The affirmative vote of a plurality of the
total shares of Common Stock present in person or represented by proxy and
entitled to vote at the Meeting is required for the election of directors, the
affirmative vote of a majority of the total shares of Common Stock present in
person or represented by proxy and entitled to vote at the Annual Meeting is
required for the approval of the proposal to amend the Option Plan to increase
the number of shares of Common Stock authorized for issuance under the Option
Plan to 1,500,000, for the ratification of the appointment of Arthur Andersen
LLP and any other matters as may properly come before the Annual Meeting or any
adjournment thereof.
<PAGE> 4
Abstentions are counted toward the calculation of a quorum, but are not
treated as either a vote for or against a proposal. An abstention has the same
effect as a vote against the proposal. Any unvoted position in a brokerage
account will be considered as not voted and will not be counted toward
fulfillment of quorum requirements.
The cost of solicitation of proxies will be paid by the Company. In
addition to solicitation by mail, proxies may be solicited by the directors,
officers and employees of the Company, without additional compensation (other
than reimbursement of out-of-pocket expenses), by personal interview,
telephone, telegram or otherwise. Arrangements will also be made with
brokerage firms and other custodians, nominees and fiduciaries who hold the
voting securities of record for the forwarding of solicitation materials to the
beneficial owners thereof. The Company will reimburse such brokers,
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in connection therewith.
OWNERSHIP OF COMMON STOCK
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth as of March 15, 1997, certain information
with respect to the Company's Common Stock beneficially owned by each
stockholder known by the Company to be the beneficial owner of more than 5% of
the Company's Common Stock, each of its directors, each executive officer named
in the Summary Compensation Table and by all its directors and executive
officers as a group. Such persons have sole voting power and sole dispositive
power with respect to all shares set forth in the table unless otherwise
specified in the footnotes to the table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP PERCENT(2)
------------------------------------ -------------------- ----------
<S> <C> <C>
Richard H. Klein . . . . . . . . . . . . . . . 600,000 10.50%
Gregory M. Miles . . . . . . . . . . . . . . . 320,008 5.60%
7055 Divot Drive
LaVerne, CA 91750
Herbert H. Spoon . . . . . . . . . . . . . . . 150,419(3) 2.57%
David J. Collette, M.D. . . . . . . . . . . . . 20,900(4) *
Randall K. Boatright, C.P.A. . . . . . . . . . 20,350(5) *
Kalford C. Fadem . . . . . . . . . . . . . . . 180,000 3.15%
Robert L. Evans . . . . . . . . . . . . . . . . 131,250(6) 2.30%
Jeffrey H. Berg, Ph.D. . . . . . . . . . . . . 25,000(7) *
Robert B. Johnson . . . . . . . . . . . . . . . 29,095(8) *
All executive officers and directors as a group
(9 persons, including the executive officers
and directors listed above) . . . . . . . . . . 1,337,014(9)(10) 22.46%
</TABLE>
- ---------------
* Represents less than 1% of the issued and outstanding shares of Common
Stock.
(1) Except as otherwise noted, the street address of the named beneficial
owner is 9601 McAllister Freeway, Suite 1120, San Antonio, Texas 78216.
(2) Based on a total of 5,712,641 shares of Common Stock issued and
outstanding on March 15, 1997.
(3) Includes 148,419 shares which Mr. Spoon has the right to acquire upon
the exercise of stock options.
-2-
<PAGE> 5
(4) Represents shares which Dr. Collette has the right to acquire upon the
exercise of stock options.
(5) Represents shares which Mr. Boatright has the right to acquire upon the
exercise of stock options.
(6) Represents shares which Mr. Evans shares voting and dispositive power.
(7) Represents shares which Dr. Berg has the right to acquire upon the
exercise of stock options.
(8) Includes 25,000 shares which Mr. Johnson has the right to acquire upon
the exercise of stock options.
(9) Includes 239,669 shares which executive officers and directors have the
right to acquire upon the exercise of options.
(10) Includes 131,250 shares which Mr. Evans shares voting and dispositive
power.
MATTERS TO COME BEFORE THE ANNUAL MEETING
PROPOSAL 1: ELECTION OF DIRECTORS
Eight directors (constituting the entire Board) are to be elected at the
Annual Meeting. All of the nominees named below are now directors of the
Company. All nominees have consented to be named and have indicated their
intent to serve if elected.
<TABLE>
<CAPTION>
Served as a
Name Age Positions and Offices with the Company Director Since
---- --- -------------------------------------- --------------
<S> <C> <C> <C>
Herbert H. Spoon 53 President, Chief Executive Officer and 1991
Director
Randall K. Boatright, 48 Vice-President, Chief Financial 1997
C.P.A. Officer,
David J. Collette, M.D. 43 Vice-President Research and 1997
Development and Director
Kalford C. Fadem 39 Vice-President and Director 1997
Richard H. Klein 44 Vice-President and Director 1997
Robert B. Johnson 66 Director 1990
Jeffrey H. Berg, Ph.D. 54 Director 1995
Robert L. Evans 58 Director 1997
</TABLE>
- ---------------
Biographical information on these directors is set forth below under
"Further Information -- Board of Directors and Executive Officers."
It is the intention of the persons named in the enclosed proxy to vote
such proxy for the election of such nominees. Management of the Company does
not contemplate that any of such nominees will become unavailable for any
reason, but if that should occur before the meeting, proxies that do not
withhold authority to vote for directors will be voted for another nominee, or
other nominees, in accordance with the best judgment of the person or persons
appointed to vote the proxy.
The enclosed form of proxy provides a means for the holders of Common
Stock to vote for each of the nominees listed therein, to withhold authority to
vote for one or more of such nominees or to withhold authority to vote for all
nominees. Each properly executed proxy received in time for the Meeting will
be voted as specified therein, or if a stockholder does not specify in his or
her executed proxy how the shares represented by his or her proxy are to be
voted, such shares shall be voted for the nominees listed therein or for other
nominees as provided above. The director nominees receiving a plurality of the
votes cast at the Annual Meeting will be elected as
-3-
<PAGE> 6
directors. Abstentions and broker non-votes will not be treated as a vote for
or against any particular director nominee and will not affect the outcome of
the election.
COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Company is managed under the direction of its Board
of Directors. The Company's Board of Directors has established two standing
committees: Audit and Compensation.
The Audit Committee recommends the selection of and confers with the
Company's independent accountants regarding the scope and adequacy of annual
audits, reviews reports from the independent accountants and meets with the
independent accountants and with the Company's financial personnel to review
the adequacy of the Company's accounting principles, financial controls and
policies. The Audit Committee consists of two non-employee directors: Jeffrey
H. Berg, Ph.D. and Robert B. Johnson.
The Compensation Committee reviews the Company's compensation philosophy
and programs, exercises authority with respect to the payment of direct
salaries and incentive compensation to directors and officers of the Company
and administers the Option Plan. The Compensation Committee consists of two
non-employee directors: Jeffrey H. Berg, Ph.D. and Robert B. Johnson.
MEETINGS OF THE BOARD OF DIRECTORS
During 1996, the Board of Directors met six times and took action on two
occasions by unanimous written consent. The Compensation Committee and the
Audit Committee each met one time during 1996 and the Compensation Committee
took action on two occasions by unanimous written consent. Each of the
directors of the Company attended at least 75% of the aggregate of the meetings
of the Board of Directors and Committees of which he was a member.
COMPENSATION OF DIRECTORS
During 1996, each non-employee member of the Board of Directors received
an annual stipend of $9,000 as well as $1,000 for attendance at each meeting of
the Board of Directors or Committee of the Board of Directors. The non-
employee members of the Board of Directors are also reimbursed for their travel
expenses to and from the meetings. The Board of Directors adopted a Non-
Employee Director Stock Option Plan (the "NEDSOP") in 1995, pursuant to which
non-employee directors may be granted stock options to purchase Common Stock.
The amount and exercise price of options granted under the NEDSOP are
determined by a committee appointed by the Board of Directors to administer the
NEDSOP. During 1996, no options were granted under the NEDSOP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
INDIVIDUALS NOMINATED FOR ELECTION AS DIRECTORS
PROPOSAL 2: PROPOSAL TO AMEND THE OPTION PLAN TO INCREASE THE NUMBER OF SHARES
AUTHORIZED FOR ISSUANCE UNDER THE OPTION PLAN TO 1,500,000
The Option Plan was originally adopted effective as of December 31,
1989, and amended by stockholder approval in May 1993. The Option Plan
currently entitles employees, directors and consultants of the Company to
receive options to purchase up to an aggregate of 685,000 shares of the
Company's Common Stock (subject to adjustment for changes in capitalization),
which options may be either (i) incentive stock options within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"), or
(ii) non-incentive stock options, subject to the provisions of Section 83 of
the Code and applicable treasury regulations. The Plan is intended to advance
the best interests of the Company by providing such persons with additional
incentive by increasing their proprietary interest in the success of the
Company, thereby encouraging them to remain in the Company's employ.
-4-
<PAGE> 7
The Company proposes to amend the Option Plan to increase the number of
shares of Common Stock available for grant by 815,000 shares. Of the 685,000
shares of Common Stock authorized for grant under the Option Plan, 104,957
shares remain available as of March 15, 1997. If the proposed amendment is
approved, the aggregate number of shares which may be issued or covered by
options pursuant to the Option Plan would be increased from 685,000 to
1,500,000.
The dollar value of benefits or amounts to be received under this
proposed amendment to the Option Plan are not determinable at this time because
the dollar value of any such benefits or amounts to be received is dependent
upon the fair market value of Common Stock increasing from the date of grant of
options under the Option Plan to the date of exercise of such options.
Assuming the presence of a quorum, approval of the proposal to amend the
Option Plan to increase the number of shares authorized for issuance under the
Option Plan to 1,500,000 requires the affirmative vote of a majority of the
votes cast by the holders of shares of Common Stock entitled to vote in person
or by proxy at the Annual Meeting. Abstentions and broker non-votes will not
be considered as a vote for or against the proposal and therefore will have no
effect on the outcome of the proposal. Proxies will be voted for or against
such approval in accordance with specifications marked thereon, and if no
specification is made, the proxies will be voted for such approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO AMEND THE OPTION PLAN TO INCREASE THE NUMBER OF SHARES
AUTHORIZED FOR ISSUANCE UNDER THE OPTION PLAN TO 1,500,000
PROPOSAL 3: PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1997
The Board of Directors, upon recommendation of its Audit Committee, has
appointed the firm of Arthur Andersen LLP to serve as independent public
accountants of the Company for the fiscal year ending December 31, 1997.
Although stockholder ratification is not required, the Board of Directors has
directed that such appointment be submitted to the stockholders of the Company
for ratification at the Annual Meeting. Arthur Andersen LLP has served as
independent public accountants of the Company with respect to the Company's
consolidated financial statements for the past seven years and is considered by
management of the Company to be well qualified. If the stockholders do not
ratify the appointment of Arthur Andersen LLP, the Board of Directors may
reconsider the appointment.
Representatives of Arthur Andersen LLP will be present at the Annual
Meeting. They will have an opportunity to make a statement if they desire to
do so and will be available to respond to appropriate questions from
stockholders.
Assuming the presence of a quorum, ratification of the appointment of
Arthur Andersen LLP requires the affirmative vote of a majority of the votes
cast by the holders of shares of Common Stock entitled to vote in person or by
proxy at the Annual Meeting. Abstentions and broker non-votes will not be
considered as a vote for or against the proposal and therefore will have no
effect on the outcome of the proposal. Proxies will be voted for or against
such approval in accordance with specifications marked thereon, and if no
specification is made, the proxies will be voted for such approval.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO RATIFY
THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS
OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1997
-5-
<PAGE> 8
FURTHER INFORMATION
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is information with respect to each director and
executive officer of the Company as of March 15, 1997. The executive officers
are elected by the Board of Directors and serve at the discretion of the Board.
<TABLE>
<CAPTION>
Name Age Position
---- ----- -------------------------------------
<S> <C> <C>
Herbert H. Spoon . . . . . . . . 53 President, Chief Executive Officer
and Director
Randall K. Boatright, C.P.A. . . 48 Vice President, Chief Financial
Officer, Secretary and Director
David J. Collette, M.D. . . . . . 43 Vice President of Research &
Development, and Director
Richard H. Klein . . . . . . . . 44 Vice President and Director
Kalford C. Fadem . . . . . . . . 39 Vice President and Director
Robert S. Fadem . . . . . . . . . 35 Vice President
Robert L. Evans . . . . . . . . . 58 Director
Jeffrey H. Berg, Ph.D(1)(2) . . . 54 Director
Robert B. Johnson(1)(2) . . . . . 65 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
JEFFREY H. BERG, PH.D. has served as a director of the Company since
March 1995, and has served as the President of Health Care Insights, a
consulting firm specializing in health care companies, since January 1993.
During 1992, Mr. Berg was a financial analyst covering the health care industry
for The Chicago Corp, an investment bank. During 1990 and 1991, Mr. Berg was a
financial analyst covering the health care industry for William K. Woodruff
&Co., a Dallas-based investment bank. From 1987 to January 1990, he was the
Vice President of Research specializing in the health care industry for J. C.
Bradford & Comp. Mr. Berg is currently a director of Bio-Imaging Technologies,
Biologix International, IMX Corporation and Allou Health and Beauty Care, Inc.,
each of which is a publicly-held company.
HERBERT H. SPOON has served as President, Chief Executive Officer and as
a director of the Company since 1991. From 1986 to 1991, he served as
President of Gynopharma, Inc., a developer and marketer of OB-GYN drugs,
devices and diagnostic products. From 1984 to 1986, Mr. Spoon was Vice
President and General Manager of Lederle Laboratories, the pharmaceutical
division of American Cyanamid Company.
ROBERT B. JOHNSON has served as a director of the Company since 1990.
He has been retired since 1988. From 1973 to 1988, he was employed by Lederle
Laboratories, the pharmaceutical division of American Cyanamid Company, in
various capacities, including President from 1984 to 1988, Vice President from
1978 to 1984 and Director of Manufacturing from 1976 to 1978.
RANDALL K. BOATRIGHT, C.P.A. has served as a director of the Company
since February 1997. Mr. Boatright has also served as Vice President, Chief
Financial Officer and Secretary of the Company since 1992. From 1985 to 1992,
Mr. Boatright served as Executive Vice President, Chief Financial Officer and
Director of Abraxas Petroleum Corporation. Prior to that, Mr. Boatright
practiced accounting with the firm of Coopers and Lybrand. Mr. Boatright is a
certified public accountant in Texas and Virginia.
-6-
<PAGE> 9
DAVID J. COLLETTE, M.D. has served as Director of the Company since
February 1997. Since November 1993, he has served as Vice President of
Research and Development after joining the Company in May 1993 as Director of
Clinical Affairs. His industry background encompasses 14 years combined
experience in clinical medicine, regulatory affairs, and product development.
Dr. Collette also serves as Chief Operating Officer of LifeQuest Endoscopic
Technologies, Inc., a wholly owned subsidiary of the Company.
ROBERT L. EVANS is Manager Western Operations for GE Fanuc Automation
North America, Inc. GE Fanuc specializes in automation technology and is a
global joint venture between GE Company and Fanuc Ltd. of Japan. Mr. Evans has
been employed by GE Company in various marketing, sales, and management
assignments since 1962. He has been associated with Val-U-Med, Inc. since its
inception in 1993.
KALFORD C. FADEM has served as a director of the Company since February
1997. Mr. Fadem has also served as a Vice President of the Company and Chief
Operating Officer of Val-U-Med, Inc., a wholly owned subsidiary of the Company
("Val-U-Med"), since 1996. From 1993 to 1996, Mr. Fadem served as President of
Val-U-Med, Inc. prior to the acquisition of Val-U-Med, Inc. by the Company.
Previous to that, Mr. Fadem was employed as an application developer, support
engineer, and sales manager for several computer aided design and computer
aided engineering (CAD/CAE) software developers.
ROBERT S. FADEM has served as a Vice President of the Company and as
Vice President of Sales for Val-U-Med since 1996. From 1993 to 1996, Mr. Fadem
served as Vice President of Sales for Val-U-Med, Inc. prior to its acquisition
by the Company. Previous to that Mr. Fadem was employed in medical sales.
RICHARD H. KLEIN has served as a director for the Company since February
1997. Mr. Klein has also served as a Vice President of the Company and as
Chief Operating Officer of Klein Medical, Inc., a wholly owned subsidiary of
the Company ("Klein Medical"), since 1996. From 1992 to 1996, Mr. Klein served
as President of Klein Medical, Inc. prior to its acquisition by the Company.
Previous to that, Mr. Klein was employed as a sales representative for Weck
Surgical, Inc.
Robert S. Fadem and Kalford C. Fadem are brothers. Robert L. Evans is
the father-in-law of Robert S. Fadem. There are no other family relationships
among the Board of Directors and executive officers.
All directors of the Company hold office until the next annual meeting
of stockholders and the election and qualification of their successors. Each
officer of the Company was chosen by the Board of Directors and serves at the
pleasure of the Board of Directors until his or her successor is appointed or
until his or her earlier resignation or removal in accordance with applicable
law.
-7-
<PAGE> 10
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for making all compensation
decisions for the named executives including determining base salary, annual
incentive compensation amounts and granting stock options under the Option
Plan.
Overall Objectives of the Executive Compensation Program
The purpose of the Company's compensation plan is to attract, retain and
motivate key management employees. It is the philosophy of the Company to pay
its executives at levels commensurate with both Company and individual
performance. A primary consideration in developing the Company's executive
compensation programs is to link the long-term financial interests of
executives with those of the Company and its stockholders. The Compensation
Committee reviews compensation for comparable organizations in order to
establish the Company's total compensation program and determine awards under
the Option Plan.
In 1996, the total compensation program for the Company's top
executives, approved by the Company's Board of Directors, consisted of a base
salary, bonus and stock option grants for each of such executives.
Base Salary Program
It is the Company's policy to establish salaries at a level
approximating the average of the competitive levels in comparable organizations
and to provide annual salary increases reflective of the executive's
performance, level of responsibility and position with the Company.
Annual Incentive
Each year, the Compensation Committee evaluates the performance of the
Company as a whole, as well as the performance of each individual executive.
Factors considered include revenue growth, net profitability and cost control.
The Compensation Committee does not utilize formalized mathematical formulae,
nor does it assign weightings to these factors. The Compensation Committee, in
its sole discretion, determines the amount, if any, of incentive payments to
each executive. The Compensation Committee believes that the Company's growth
in revenue and profitability requires subjectivity on the part of the Committee
when determining incentive payments. The Compensation Committee believes that
specific formulae restrict flexibility.
1989 Stock Option Plan
The Option Plan permits the Company to make grants of stock options to
employees as part of the Company's overall incentive compensation program. See
"Proposal 2: Proposal to Amend the Option Plan to Increase the Number of Shares
Authorized for Issuance under the Option Plan to 1,500,000." The Option Plan
is intended to attract, retain and motivate key management personnel and to
align the interest of the executives with those of stockholders. The overall
long-term incentive grant levels are established by reviewing the number of
shares reserved for such plans by comparable organizations. Individual long-
term incentive grants are based on the employee's position in the Company and
responsibility level.
Compensation of Chief Executive Officer
In 1996, the Compensation Committee structured the compensation package
of Mr. Herbert H. Spoon, the Chief Executive Officer of the Company, is the
same manner and based upon the same criteria as the Company's other executive
officers. It is the belief of the Compensation Committee that Mr. Spoon's
total compensation package for 1996 properly reflects his importance and
contributions to the Company.
-8-
<PAGE> 11
Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), currently imposes a $1 million limitation on the deductibility of
certain compensation paid to each of the Company's five highest paid
executives. Excluded from this limitation is compensation that is "performance
based." For compensation to be performance based it must meet certain
criteria, including being based on predetermined objective standards approved
by stockholders. In general, the Company believes that compensation relating
to options granted under the Option Plan will not be excluded from the $1
million limitation calculation. Compensation relating to the Company's
incentive compensation awards do not currently qualify for exclusion from the
limitation, given the discretion that is provided to the Committee in
establishing the performance goals for such awards. The Committee believes
that maintaining the discretion to evaluate the performance of the Company's
management is an important part of its responsibilities and inures to the
benefit of the Company's stockholders. The Committee, however, intends to take
into account the potential application of Section 162(m) with respect to
incentive compensation awards and other compensation decisions made by it in
the future.
Conclusion
The Compensation Committee believes these executive compensation
policies serve the interests of the stockholders and the Company effectively.
The Committee believes that the various pay vehicles offered are appropriately
balanced to provide increased motivation for executives to contribute to the
Company's overall future successes, thereby enhancing the value of the Company
for the stockholders' benefit.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Jeffrey H. Berg, Ph.D.
Robert B. Johnson
-9-
<PAGE> 12
EXECUTIVE COMPENSATION
The following table summarizes all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the years
ended December 31, 1994, 1995 and 1996 by the Company's Chief Executive Officer
and the Company's other executive officers who received in excess of $100,000
in salary and bonus from the Company during 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- -------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (#) COMPENSATION(1)
----------------------------- -------- -------- ------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Herbert H. Spoon . . . . . 1996 $141,600 $6,000 0 31,580 $721
President and Chief 1995 $153,500 0 0 18,840 $720
Executive Officer 1994 $147,125 0 0 8,060 $702
David J. Collette, M.D. . . 1996 $138,625 $5,000 0 9,360 $140
Vice-President of Research 1995 $132,500 0 0 9,300 $288
& Development 1994 $125,821 $7,000 0 27,820 $288
Randall K. Boatright, 1996 $99,909 $4,000 0 8,600 $484
C.P.A. . . . . . . . . . . 1995 $95,400 0 0 8,200 $458
Vice President, Chief 1994 $91,350 $5,000 0 28,200 $438
Financial Officer and
Secretary
</TABLE>
- ---------------
(1) Represents life insurance premiums paid by the Company.
STOCK OPTION GRANTS IN FISCAL 1996
The following table provides certain information related to options
granted by the Company to the named executive officers during fiscal 1996
pursuant to the Option Plan.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL 1996 ($/SHARE) DATE
---- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Herbert H. Spoon . . . . . . . . 11,580 2.64%(1) $2.50 2/13/06
Herbert H. Spoon . . . . . . . . 20,000 4.55%(1) $2.00 8/30/06
David J. Collette, M.D. . . . . . 9,360 2.13% $2.50 2/13/06
Randall K. Boatright, C.P.A. . . 8,600 1.96% $2.50 2/13/06
</TABLE>
- ---------------
(1) Mr. Spoon received two stock option grants in 1996. The aggregate
percentage of Mr. Spoon's two option grants as a percentage of the total
options received by employees in 1996 is 7.19%.
-10-
<PAGE> 13
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR-END OPTION VALUES
The following table provides information related to options exercised by
the named executive officers of the Company during fiscal 1996 and the number
and value of options held at fiscal year end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS AT FY-END (#) FY-END($)(1)
--------------------------- ---------------------------
SHARES
ACQUIRED
UPON OPTION VALUE
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------------------------------- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Herbert H. Spoon . . . . . . . . 0 0 148,419 35,755 $377,686 $15,684
David J. Collette, M.D. . . . . 0 0 20,900 25,580 $6,116 $10,211
Randall K. Boatright, C.P.A. . . 0 0 20,350 24,650 $5,469 $9,231
</TABLE>
- ---------------
(1) Represents the product of (a) the number of shares underlying options
granted multiplied by (b) the difference between (i) the fair market value of
Common Stock on December 31, 1996 ($3.375) and (ii) the exercise price of the
options.
-11-
<PAGE> 14
PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
stockholder return on its Common Stock from August 20, 1992 (the first day
which the Common Stock was publicly traded), through December 31, 1996, to the
NASDAQ Index and to a Peer Group of other public companies over the same
period. The Peer Group is comprised of the following companies: AMBI, Inc.,
Aronex Pharmaceuticals, Collagenloop, CYTRX Corporation, Immunogen, Inc., IUOX
Corporation, Lifecell Corporation, Luther Medical Products, and VasoMedical,
Inc. The graph assumes that the value of the investment in the Company's
Common Stock and each Index was $100 at August 20, 1992, and that all dividends
were reinvested.
COMPARISON OF CUMULATIVE TOTAL RETURN
FISCAL YEAR ENDING
[GRAPH]
<TABLE>
<CAPTION>
COMPANY 1992 1992 1993 1994 1995 1996
------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Lifequest Medical, Inc. 100 124.71 95.29 22.35 25.88 31.76
Peer Group 100 99.05 99.05 61.52 86.44 39.06
Broad Market 100 109.87 131.97 138.37 179.48 223.03
</TABLE>
The foregoing graph is based on historical data and is not necessarily
indicative of future performance. This graph shall not be deemed to be
"soliciting material" or to be "filed" with the Commission or subject to
Regulations 14A and 14C under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), or to the liabilities of Section 18 under the
Exchange Act.
-12-
<PAGE> 15
EMPLOYMENT AGREEMENTS AND CHANGE-OF-CONTROL ARRANGEMENTS
Klein Medical, Inc., a wholly-owned subsidiary of the Company ("Klein
Medical"), and Richard H. Klein have entered into an employment agreement
whereby Mr. Klein will receive $125,000 per annum as well as a cash bonus in
the event Klein Medical achieves certain sales performance criteria. The
agreement with Mr. Klein expires December 31, 1999. As an inducement to enter
into such agreement, the Company granted Mr. Klein non-qualified stock options
for up to 60,000 shares of Common Stock, of which 30,000 vest over time and
30,000 vest upon achievement of certain sales performance criteria.
Val-U-Med, Inc., a wholly-owned subsidiary of the Company ("Val-U-Med"),
and Kalford C. Fadem have entered into an employment agreement whereby Kalford
C. Fadem will receive $100,000 per annum as well as bonus based upon the gross
profits of Val-U-Med. The agreement with Kalford C. Fadem expires December 31,
1999. As an inducement to enter into such agreement, the Company granted
Kalford C. Fadem non-qualified stock options for up to 60,000 shares of Common
Stock, of which 30,000 vest over time and 30,000 vest upon achievement of
certain sales performance criteria.
Val-U-Med and Robert S. Fadem have entered into an employment agreement
whereby Robert S. Fadem will receive $100,000 per annum as well as bonus based
upon the gross profits of Val-U-Med. The agreement with Robert S. Fadem
expires December 31, 1999. As an inducement to enter into such agreement, the
Company granted Robert S. Fadem non-qualified stock options for up to 60,000
shares of Common Stock, of which 30,000 vest over time and 30,000 vest upon
achievement of certain sales performance criteria.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following non-employee directors served on the Board of Directors'
Compensation Committee during 1996: Robert B. Johnson and Jeffrey H. Berg,
Ph.D.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that the Company's directors,
executive officers and persons who own more than 10 percent of a registered
class of the Company's equity securities file with the Commission initial
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Directors, executive officers and
greater than 10 percent stockholders are required by Commission regulations to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
the Section 16(a) reports furnished to the Company and written representations
that no other reports were required, during the fiscal year ended December 31,
1996, all Section 16(a) filing requirements applicable to its directors,
executive officers and greater than 10 percent beneficial owners were complied
with.
CERTAIN TRANSACTIONS
In February 1996, the Company completed the merger of GM Engineering,
Inc., a California corporation ("GM Engineering"), with and into LifeQuest
Endoscopic Technologies, Inc. ("LQET"), a wholly owned subsidiary of the
Company (the "GM Merger"). Under the terms of the Plan of Merger and
Acquisition Agreement (the "GM Agreement"), the principal shareholders, being
Gregory M. Miles and Susan G. Miles, received 350,000 shares of the Common
Stock, along with the right to exercise one piggy-back registration following
the expiration of 12 months. In accordance with the terms of the GM Agreement,
Mr. Miles was elected to the Board of the Company. In conjunction with the
Merger, the Company and Gregory M. Miles entered into an employment agreement
and a non-qualified stock option agreement. In 1997, Mr. Miles resigned from
all positions which he held with the Company.
In November 1996, the Company completed the merger (the "Klein Merger")
of Klein Medical, Inc., a Texas corporation, with and into Klein Medical, with
Klein Medical as the surviving corporation. The Klein Merger was consummated
under a Plan of Merger and Acquisition Agreement pursuant to which Richard H.
Klein
-13-
<PAGE> 16
received the right to receive an aggregate of 600,000 shares of Common Stock
and was elected to the Board of Directors. In connection with the Klein
Merger, the Company and Richard H. Klein entered into an employment agreement
and a stock option agreement. See "Employment Agreements and Change-of-Control
Arrangements."
In December 1996, the Company completed the merger (the "Val-U-Med
Merger") of Val-U-Med, Inc. with and into Val-U-Med, with Val-U-Med as the
surviving corporation. The Val-U-Med Merger was consummated under a Plan of
Merger and Acquisition Agreement, pursuant to which Kalford C. Fadem and Robert
S. Fadem each received 180,000 shares of Common Stock, Robert Evans received
131,250 shares of Common Stock, and the shareholders of Val-U-Med, Inc.
received an aggregate of $400,000. In connection with the Val-U-Med Merger,
Kalford C. Fadem and Robert Evans were elected to the Board of Directors, and
the Company entered into employment agreements and stock option agreements with
each of Kalford C. Fadem and Robert S. Fadem. See "Employment Agreements and
Change-of-Control Arrangements."
In May 1994, the Company and Valdor Fiber Optics ("Valdor") of San Jose,
California, formed a corporate venture, ValQuest Medical, Inc. ("ValQuest").
In accordance with the terms of the venture agreement, Valdor transferred to
ValQuest the exclusive worldwide rights to develop, manufacture and market all
medical applications of Valdor's patented fiber optic connector technology.
The Company paid $100,000 to Valdor in connection with the transfer of these
rights and contributed $400,000 to be used as working capital in exchange for a
55% interest in ValQuest. Valdor also transferred to ValQuest all the rights
to future revenues from existing customers related to medical products in
exchange for a 45% interest in ValQuest. Currently, ValQuest operates as a 82%
owned subsidiary of the Company. Herbert H. Spoon, President and Chief
Executive Officer of the Company, Randall K. Boatright, C.P.A., Chief Financial
Officer of the Company and David J. Collette, M.D., Vice President of Research
and Development of the Company, hold corresponding positions with ValQuest. In
1994, Mr. Spoon, Dr. Collette, Robert B. Johnson and Mr. Boatright, members of
the Board of Directors of the Company, each received an option to acquire
12,000 shares of common stock, $.01 par value, of ValQuest under the ValQuest
Medical, Inc. 1994 Stock Option Plan.
PROPOSALS FOR NEXT ANNUAL MEETING
Any proposals of holders of Common Stock intended to be presented at the
Annual Meeting of Stockholders of the Company to be held in 1998 must be
received by the Company, addressed to the Secretary of the Company at 9601
McAllister Freeway, Suite 1120, San Antonio, Texas 78216, no later than January
2, 1998, to be considered for inclusion in the Proxy Statement and form of
proxy relating to that meeting.
OTHER MATTERS
As of the date of this Proxy Statement, management does not intend to
present any other items of business and is not aware of any matters to be
presented for action at the Annual Meeting other than those described above.
However, if any other matters should come before the Annual Meeting, it is the
intention of the persons named as proxies in the accompanying proxy card to
vote in accordance with their best judgment on such matters.
By order of the Board of Directors,
HERBERT H. SPOON
President and Chief Executive Officer
San Antonio, Texas
May 12, 1997
-14-
<PAGE> 17
LIFEQUEST MEDICAL, INC.
PROXY -- ANNUAL MEETING OF STOCKHOLDERS -- JUNE 17, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Please mark, sign, date and return in the enclosed envelope.
P The undersigned stockholder of LifeQuest Medical, Inc. (the
R "Company") hereby appoints Randall K. Boatright and Herbert H. Spoon,
O or each of them, proxies of the undersigned with full power of
X substitution to vote at the Annual Meeting of Stockholders of the
Y Company to be held on Tuesday, June 17, 1997, at 3:00 p.m., Eastern
Daylight Time, at Val-U-Med, Inc.'s offices, Fulton 400 Corporate
Center, Suite 700, Roswell, Georgia, and at any adjournment thereof,
the number of votes which the undersigned would be entitled to cast if
personally present:
(1) ELECTION OF DIRECTORS
[ ] FOR [ ] WITHHOLD AUTHORITY
all nominees listed below to vote for all nominees listed below
(except as marked below)
Herbert H. Spoon Richard H. Klein David J. Collette, M.D.
Randall K. Boatright Robert Evans Jeffrey H. Berg, Ph. D.
Robert B. Johnson Kalford C. Fadem
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE, DRAW A LINE THROUGH OR
STRIKE OUT THAT NOMINEE'S NAME AS SET FORTH
ABOVE.
(2) PROPOSAL TO AMEND THE COMPANY'S 1989 STOCK OPTION PLAN, AS
AMENDED (THE "OPTION PLAN"), TO INCREASE THE NUMBER OF SHARES
AUTHORIZED FOR ISSUANCE UNDER THE OPTION PLAN TO 1,500,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR
ENDING DECEMBER 31, 1997
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) To consider and act upon any other matter which may properly come
before the meeting or any adjournment thereof;
all as more particularly described in the Proxy Statement dated May
19, 1997, relating to such meeting, receipt of which is hereby
acknowledged.
This proxy when properly executed will be voted in the manner
directed herein by the undersigned shareholder. If no direction is
made, this proxy will be voted FOR the nominees listed in Proposal 1,
FOR Proposal 2 and FOR Proposal 3.
-----------------------------------
-----------------------------------
Signature of Stockholder(s)
Please sign your name exactly as
it appears hereon. Joint owners
must each sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
your full title as it appears
hereon.
Dated , 1997.
----------------------
