<PAGE>
SCHEDULE 14A INFORMATION
Proxy Information Pursuant to Section 14(A) of the Securities Exchange Act of
1934
Filed by the Registrant (X)
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
(X) Definitive Proxy Statement Rule 14a-6(e) (2))
( ) Definitive Additional Materials
( ) Soliciting Materials Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
NEUROMEDICAL SYSTEMS, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
___________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a) (2) of Schedule 14A
( ) $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:(1) (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>
Mark R. Rutenberg
Chairman of the Board of Directors, President and
Chief Executive Officer
May 21, 1996
Dear Stockholder:
You are cordially invited to the 1996 Annual Meeting of Stockholders of
Neuromedical Systems, Inc. (the "Company"), which will be held on Thursday, June
20, 1996 at 10:00 A.M. (New York time) at the Sheraton Hotel in Mahwah, N.J.
The Secretary's formal notice of the Annual Meeting and the Company's Proxy
Statement appear on the following pages and describe the matters to be acted
upon at the Annual Meeting. During the Annual Meeting, we will also review the
Company's activities over the past year and items of general interest about the
Company
We hope that you will be able to attend the Annual Meeting. The Annual Meeting
is an excellent opportunity for the Company's management to discuss the
Company's accomplishments with you in person. If you cannot attend, please be
sure to vote your preferences on the enclosed proxy card and return it promptly.
Returning the proxy card will not prevent you from voting in person but will
assure that your vote is counted if you are unable to attend the Annual Meeting.
Whether in person or by proxy, it is important that your shares of Company
common stock be voted.
Sincerely,
Mark R. Rutenberg
Chairman of the Board of Directors, President and
Chief Executive Officer
<PAGE>
NEUROMEDICAL SYSTEMS, INC.
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 20, 1996
Notice is hereby given that the Annual Meeting of the Stockholders of
Neuromedical Systems, Inc., will be held at the Sheraton Hotel in Mahwah, N.J.
on Thursday, June 20, 1996 at 10:00 A.M. (New York time) for the following
purposes:
. TO ELECT 3 CLASS I DIRECTORS TO HOLD OFFICE UNTIL THE 1999 ANNUAL MEETING AND
UNTIL THE ELECTION AND QUALIFICATION OF THEIR SUCCESSORS;
. TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996; AND
. TO TRANSACT SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING
OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
Stockholders of record on the close of business (5:00 P.M., New York time) on
May 20, 1996, which the Board of Directors has designated as the record date,
are entitled to vote at the Annual Meeting or any adjournment or postponement
thereof. A list of these stockholders will be available for inspection for ten
days preceding the Annual Meeting at the office of the Secretary at the
principal executive offices of Neuromedical Systems, Inc., Two Executive
Boulevard, Suffern, New York, 10901-4164, and will also be available for
inspection at the Annual Meeting itself.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT IN THE ACCOMPANYING ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY REVOKE YOUR
PROXY AT ANY TIME BEFORE IT IS VOTED, BY DELIVERY TO NEUROMEDICAL SYSTEMS, INC.
OF A SUBSEQUENTLY EXECUTED PROXY OR A WRITTEN NOTICE OF REVOCATION OR BY VOTING
IN PERSON AT THE ANNUAL MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES OF
COMPANY COMMON STOCK ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND
YOU WISH TO ATTEND AND VOTE AT THE ANNUAL MEETING, YOU MUST OBTAIN FROM SUCH
BROKER, BANK OR OTHER NOMINEE, A PROXY ISSUED IN YOUR NAME.
By order of the Board of Directors,
John B. Henneman, III
Vice President of Corporate Development,
General Counsel and Secretary
May 21, 1996
<PAGE>
NEUROMEDICAL SYSTEMS, INC.
TWO EXECUTIVE BOULEVARD, SUFFERN, NEW YORK 10901-4164
___________________
PROXY STATEMENT
___________________
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Neuromedical Systems, Inc. (the "Company").
These proxies will be voted at the Annual Meeting of Stockholders of the Company
on June 20, 1996 and at any adjournments or postponements thereof. Only holders
of Company common stock (the "Common Stock") of record at the close of business
(5:00 P.M., New York time) on May 20, 1996 (the "Record Date") are entitled to
notice of and to vote at the Annual Meeting. For each matter which comes before
the Annual Meeting, each share is entitled to one vote for each share held. On
the Record Date there were 29,102,688 shares of Common Stock outstanding and
eligible to vote. This Proxy Statement and proxy card are first being sent on
or about May 21, 1996 to each stockholder entitled to vote at the Annual
Meeting. Accompanying this Proxy Statement is the Company's annual report to
stockholders for the year ended December 31, 1995.
VOTING AND REVOCATION OF PROXIES
VOTING
If the enclosed proxy card is executed and returned on or prior to the
Annual Meeting and not revoked, all shares of Common Stock represented thereby
will be voted. Each proxy will be voted as directed by the stockholder. IF NO
SUCH DIRECTION IS SPECIFIED, SIGNED PROXY CARDS WILL BE VOTED FOR PROPOSALS 1
AND 2 IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS.
All votes will be tabulated by the inspector of election appointed for the
Annual Meeting who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes (i.e., shares held by a broker or nominee which
are represented at the Annual Meeting, but with respect to which such broker or
nominee is not empowered to vote on a particular proposal). The holders of a
majority of the shares of Common Stock entitled to vote at the Annual Meeting,
present (in person or by proxy), constitute a quorum. Under Delaware law,
shares represented by proxies that reflect abstentions or broker non-votes will
be counted as shares of Common Stock that are present and entitled to vote for
purposes of determining the presence of a quorum. The affirmative vote of a
plurality of the votes cast at the Annual Meeting will be required for the
election of directors. Accordingly, abstentions, broker non-votes and
withholding of authority to vote will have no affect on the outcome of the
election of directors. The director nominees receiving the highest number of
votes, up to the number of directors to be elected, shall be elected. With
respect to all matters other than the election of directors, the affirmative
vote of a majority of the shares of Common Stock present (in person or by proxy)
and voting thereon will be required. Accordingly, abstentions will have the
effect of a vote "against" the matter and broker non-votes will be excluded from
the number of shares of Common Stock present (in person or by proxy) and voting
and therefore such broker non-votes will have the effect of reducing the number
of affirmative votes required to achieve the majority vote.
- 3 -
<PAGE>
REVOCATION
A stockholder giving a proxy may revoke it at any time before it is voted,
by delivery to the Company of a subsequently executed proxy or a written notice
of revocation or by voting in person at the Annual Meeting. Attendance at the
meeting will not, by itself, revoke a proxy. Returning your completed proxy
will not prevent you from voting in person at the Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors consists of three classes. Directors hold office
for staggered terms of three years and until their successors have been duly
elected and qualified. One of the three classes will be elected each year at
the Annual Meeting of Stockholders to succeed the directors whose terms are
ending. The directors in Class II and Class III are serving terms ending at the
Annual Meeting of Stockholders in 1997 and 1998, respectively.
Class I is currently comprised of three directors. Three directors in
Class I are to be elected at the 1996 Annual Meeting. Mr. John E. Fox and Mr.
Joseph Salamon, who are present directors in Class I, have decided not to stand
for reelection to the Board of Directors. Proxies cannot be voted for more than
three nominees. The Class I directors so elected will hold office as directors
until the 1999 Annual Meeting of Stockholders and until their respective
successors have been duly elected and qualified.
Unless otherwise directed, the proxies will be voted FOR the nominees
listed below. If any one or more of the nominees is unable to serve for any
reason or withdraws from nomination, proxies will be voted for the substitute
nominee or nominees, if any, proposed by the Board of Directors. The Board of
Directors has no knowledge that any nominee will or may be unable to serve or
will or may withdraw from nomination. Of the following Class I nominees, Mr.
Genberg is the only present director of the Company. Information concerning the
Class I director nominees for terms ending at the 1999 Annual Meeting of
Stockholders, the directors in Class II and Class III, and the present Class I
directors who are not standing for reelection, is set forth below.
NOMINEES FOR CLASS I DIRECTOR TERMS ENDING AT THE 1999 ANNUAL MEETING OF
STOCKHOLDERS
The affirmative vote of a plurality of the votes cast at the Annual Meeting
by holders of Common Stock is required for the election of each nominee as a
Class I director of the Company. The following three nominees have been
proposed by the Board of Directors for election as Class I directors of the
Company.
Carl Genberg, age 44, has served as a Director of the Company since 1990.
Mr. Genberg is currently President of Cytology West, Inc. ("CWI"). CWI is the
territorial licensee of the PAPNET(R) technology for the states of Nevada and
Arizona and San Diego County, California. Until June 1993, Mr. Genberg was
General Counsel of the Company.
Dr. Arthur L. Herbst, age 64, has served since 1976 as Chairman, OB-GYN
Department and Joseph Bolivar DeLee Distinguished Service Professor, University
of Chicago. Dr. Herbst has served as a director of Dentsply International Inc.
since 1988.
- 4 -
<PAGE>
Uzi Ish-Hurwitz, age 52, is Executive Vice President and Chief of Technical
Operations of the Company and President of Neuromedical Systems Israel Ltd., a
subsidiary of the Company. Mr. Ish-Hurwitz joined the Company in April 1993
and, during the period from November 1992 to April 1993, acted as an independent
consultant. Mr. Ish-Hurwitz was the co-founder of Indigo Graphic Systems, Ltd.
(Rehovot, Israel) and served as its President from 1987 to 1992. From 1973 to
1986, Mr. Ish-Hurwitz served as Vice President-Operations of Scitex Corporation,
Ltd. Mr. Ish-Hurwitz is also a member of the board of directors of Breasy
Medical Equipment (U.S.) Inc.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
CLASS II DIRECTORS WHOSE TERMS END AT THE 1997 ANNUAL MEETING OF STOCKHOLDERS
Stuart M. Essig, age 34, has served as a Director of the Company since
1993. Mr. Essig has been employed by the investment banking firm of Goldman,
Sachs & Co. since 1988 and, since 1992, has served as a Vice President in their
Investment Banking Division, Mergers and Acquisitions Department.
C. Raymond Larkin, Jr., age 47, has served as a Director of the Company
since February 1996. Mr. Larkin has been an officer of Nellcor Puritan Bennett
Inc. ("Nellcor") and its predecessors since 1983, serving as Vice President,
Sales and Marketing and, since 1989, as President and Chief Executive Officer.
Mr. Larkin is a director of Nellcor, Ventritex, Inc. and ArthroCare Corporation.
Stephen K.C. Ng, M.D., age 48, has served as a Director of the Company
since 1994. Since November 1993, Dr. Ng has been the President of Papnet (Far
East) Ltd. ("PFEL"), a distributor of the Company's services, and President of
Compuscreen Medical Diagnostic Centre, a laboratory located in Hong Kong
("Compuscreen"). Prior to establishing PFEL and Compuscreen, Dr. Ng served
Columbia University in various capacities as an epidemiologist. He has also
served as Chief, Division of Epidemiology, of the American Health Foundation.
CLASS III DIRECTORS WHOSE TERMS END AT THE 1998 ANNUAL MEETING OF STOCKHOLDERS
Mark R. Rutenberg, age 44, invented the PAPNET(R) Testing System in 1987
and founded the Company in 1988. He has served as the Company's Chairman,
President and Chief Executive Officer since its inception. From 1980 to 1988,
Mr. Rutenberg was responsible for the management and marketing of several
advanced defense programs. Mr. Rutenberg is an inventor named in patents in the
areas of reliable system design, image analysis and cancer cell detection.
Elizabeth Cogan Fascitelli, age 38, has served as a Director of the Company
since 1993. Ms. Fascitelli has been employed by the investment banking firm of
Goldman, Sachs & Co. since 1984 and, since 1988, has served as a Vice President
in their Investment Banking Division, Principal Investment Area. Ms. Fascitelli
also serves on the boards of directors of Globe Manufacturing Co., Fresh Fields
Markets, Inc. and The Cosmetics Plus Group Ltd.
CLASS I DIRECTORS NOT STANDING FOR REELECTION WHOSE TERMS END AT THE 1996 ANNUAL
MEETING OF STOCKHOLDERS UPON THE ELECTION AND QUALIFICATION OF THEIR RESPECTIVE
SUCCESSORS
John E. Fox, age 67, has served as a Director of the Company since 1992.
He has been a partner of Edelson Technology Partners II, L.P. since 1989.
- 5 -
<PAGE>
Joseph Salamon, age 40, has served as a Director of the Company since 1991.
Mr. Salamon is a private investor.
Messrs. Rutenberg and Genberg are first cousins.
FURTHER INFORMATION CONCERNING THE BOARD
OF DIRECTORS AND COMMITTEES
The Board of Directors of the Company directs the management of the
business and affairs of the Company, as provided by Delaware law. In December
1995, the Board of Directors created an Audit Committee and a Compensation
Committee. From time to time, special committees may be established under the
direction of the Board of Directors when necessary to address specific issues.
The Company has no nominating or similar committee.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held twelve meetings in 1995. Each incumbent
director, other than Mr. Larkin, who became a Class II Board of Directors member
in 1996, participated in 75% or more of the meetings of the Board of Directors
held in 1995 during the period for which such directors served as a director in
1995. There were no committee meetings held in 1995.
The AUDIT COMMITTEE's principal functions are to meet with the Company's
independent accountants to review the Company's internal controls and financial
management practice, review the annual audit of the Company by its independent
auditors, review the annual financial statements of the Company and the related
audit report of the Company as prepared by the independent auditors, recommend
the selection of independent auditors each year and review audit and any non-
audit fees paid to the Company's independent auditors. The Audit Committee
reports its finding and recommendations to the Board of Directors for
appropriate action. Since the Audit Committee was created by the Board of
Directors in December 1995, the Audit Committee held no meetings in 1995. The
Audit Committee is composed of three non-employee directors: Stuart M. Essig,
John E. Fox and Joseph Salamon.
The COMPENSATION COMMITTEE is responsible for executive compensation,
including recommending to the Board of Directors the compensation to be paid to
the Chief Executive Officer and recommending the compensation for all other
executive officers. The Compensation Committee will administer the Neuromedical
Systems, Inc. 1993 Stock Option Plan, as Amended and Restated October 25, 1995
as the Neuromedical Systems, Inc., 1993 Stock Incentive Plan (the "Incentive
Plan"). Since the Compensation Committee was created by the Board of Directors
in December 1995, the Compensation Committee held no meetings in 1995.
Decisions with respect to compensation for the 1995 fiscal year were made by the
entire Board of Directors. The Compensation Committee is composed of three non-
employee directors: Elizabeth Cogan Fascitelli, Carl Genberg and Stephen K.C.
Ng, M.D.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions with respect to compensation for the 1995 fiscal year were made
by the entire Board of Directors, on the recommendation of Elizabeth Cogan
Fascitelli, John E. Fox, Mark R. Rutenberg and Joseph Salamon. Mr. Rutenberg is
the Company's Chief Executive Officer. Mr. Rutenberg excused himself from all
deliberations relating to his own compensation. In December 1995, the Board of
Directors created a Compensation Committee, consisting of Elizabeth Cogan
Fascitelli, Carl Genberg and Stephen K.C. Ng, M.D. Members of the Compensation
Committee are outside directors who are not
- 6 -
<PAGE>
officers or employees of the Company or its subsidiaries and are not eligible to
participate in any of the plans or programs that the committee administers. In
the opinion of the Board of Directors, the directors serving on the Compensation
Committee are independent of management and free of any relationship that would
interfere with their exercise of independent judgment as the Compensation
Committee.
COMPENSATION OF DIRECTORS
On June 1, 1995, each non-employee director received fully-vested options
to purchase 1,250 shares of Common Stock, at an exercise price of $6.00 per
share, as compensation for his or her prior service on the Board of Directors.
On October 25, 1995, each non-employee director received options to purchase
1,250 shares of Common Stock, at an exercise price of $7.00 per share, as
compensation for service on the Board of Directors, such options to vest on June
1, 1996. The Incentive Plan also provides for the non-discretionary grant of
options to each of the Company's non-employee directors ("Director Options") of
(i) 2,500 shares of Common Stock to each non-employee director who becomes a
member of the Board of Directors after October 25, 1995 upon election or
appointment and (ii) an additional 2,500 shares of Common Stock, annually on the
first business day following the annual meeting of the stockholders to those
non-employee directors who are members of the Board of Directors at that time.
The members of the Board of Directors receive reimbursement of their expenses
incurred in connection with attendance at Board of Directors and committee
meetings.
Other than as set forth above, compensation to non-employee directors for
future services has not yet been determined. The Company expects, however, that,
in addition to reimbursement of expenses, non-employee directors will be
provided cash compensation for future services that is consistent with that
provided to non-employee directors of similarly situated companies. The Company
anticipates that such compensation will not exceed $25,000 per year for any one
director.
- 7 -
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of April 30, 1996 (unless otherwise
noted), information regarding the beneficial ownership of the Company's Common
Stock and by each person known by the Company to beneficially own 5% or more of
the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
AMOUNT
NAME AND ADDRESS OF BENEFICIALLY
TITLE OF CLASS BENEFICIAL OWNER OWNED/(1)/ % OF CLASS
- -------------- -------------------- --------------- ----------
<S> <C> <C> <C>
Common Stock The Goldman Sachs 7,288,561 25.0%
Group, L.P.
and related
investors/(2)/
85 Broad Street
New York, NY 10004
Common Stock H and S Trust/(3)/ 3,872,068 12.8%
Suite 3C, Centre
Plaza
Horseback Lane
Gibraltar
Common Stock Edelson Technology 1,617,215 5.5%
Partners II,
L.P./(4)/
Whiteweld Centre
Woodcliff Lake, NJ
07675
Common Stock Mark R. Rutenberg/(5)/ 1,541,304 5.2%
c/o Neuromedical
Systems, Inc.
Two Executive Boulevard
Suffern, NY 10901
Common Stock Putnam Investment 1,486,500 5.1%
Management/(6)/
One Post Office Square
Boston, MA 02109
</TABLE>
(1) The words "group" and "beneficial" are as defined in regulations issued by
the Securities and Exchange Commission (the "Commission"). Beneficial
ownership under such definition means possession of sole voting power,
shared voting power, sole dispositive power or shared dispositive power.
Except as indicated in the footnotes to this table, the persons named have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) Includes shares of Common Stock beneficially owned by certain investment
limited partnerships of which affiliates of The Goldman Sachs Group, L.P.
("GS Group") are the general partners or the managing general partners. GS
Group owns 125,000 shares of Common Stock. Also includes 430,275 shares of
Common Stock held in managed accounts ("Managed Accounts") for which
Goldman, Sachs & Co. exercises voting or investment authority, or both.
Also includes options for 5,000 shares of Common Stock in respect of Ms.
Fascitelli's and Mr. Essig's service on the Board of Directors. GS Capital
Partners, L.P. ("GSCP") beneficially owns 5,382,629 shares of Common Stock;
Stone Street Fund 1993, L.P. ("Stone Street") beneficially owns 635,958
shares of Common Stock; and Bridge Street Fund 1993, L.P. ("Bridge Street,"
and together with Stone Street and GSCP, the "Limited Partnerships")
beneficially owns 709,699 shares of Common Stock. The foregoing amounts
reported as beneficially owned by the Limited Partnerships include an
aggregate of 87,328 shares of Common
- 8 -
<PAGE>
Stock which are subject to the exercise of options and warrants. GS Group
disclaims beneficial ownership of shares of Common Stock held (i) by the
Limited Partnerships to the extent partnership interests in such
partnerships are held by persons other than GS Group and its affiliates and
(ii) in Managed Accounts.
(3) Includes an aggregate of 2,246,933 shares of Common Stock and a warrant to
purchase 1,090,535 shares of Common Stock which are owned by Tehila
Holdings A.V.V., Marineland A.V.V. and Leadville A.V.V., each of which is
an Aruba corporation wholly owned by H and S Trust, a Gibraltar trust.
Joseph Salamon, a Class I director of the Company whose term will end at
the 1996 Annual Meeting of Stockholders, and other members of his family
are potential beneficiaries of the H and S Trust. Mr. Salamon disclaims
beneficial ownership of all of such shares of Common Stock.
(4) Includes options for 2,500 shares of Common Stock in respect of Mr. Fox's
service on the Board of Directors. Also includes 861,100 shares of Common
Stock held of record by Edelson Technology Partners III, L.P. ("ETP III"),
a limited partnership under common control with Edelson Technology Partners
II, L.P. ("ETP II").
(5) Includes an option for 500,000 shares of Common Stock. Such amount does
not include the performance-based option (described below under the
Rutenberg Option Agreement) exercisable for 813,273 shares of Common Stock.
(6) Based on Schedule 13-F filed with the Commission by Putnam Investment
Management for the quarter ended March 31, 1996. Of such shares of Common
Stock, Putnam Investment Management reported that it has sole voting
authority for 39,300 shares of Common Stock and does not have voting
authority with respect to any of the other shares of Common Stock.
Shares of Common Stock of the Company owned beneficially by the Company's
directors, the Chief Executive Officer, the four most highly compensated
executive officers and directors and all executive officers as a group, as of
April 30, 1996, were as follows:
<TABLE>
<CAPTION>
AMOUNT
NAME OF BENEFICIAL BENEFICIALLY
TITLE OF CLASS OWNER OWNED/(1)/ % OF CLASS
- -------------- ------------------ ------------ ----------
<S> <C> <C> <C>
Common Stock Mark R. Rutenberg/(2)/ 1,541,304 5.2%
Common Stock Uzi Ish-Hurwitz 256,429 *
Common Stock James M. Herriman 105,305 *
Common Stock Laurie J. Mango, M.D. 131,214 *
Common Stock John B. Henneman, III 84,614 *
Common Stock Stephen K.C. Ng, M.D./(3)/ 409,328 1.4%
Common Stock Carl Genberg/(4)/ 43,272 *
Common Stock Stuart M. Essig/(5)/ 2,500 *
Common Stock Elizabeth Cogan Fascitelli/(5)/ 2,500 *
Common Stock John E. Fox/(6)/ 24,250 *
Common Stock C. Raymond Larkin 0 *
</TABLE>
- 9 -
<PAGE>
<TABLE>
<S> <C>
Common Stock Joseph Salamon/(7)/ 2,500 *
Common Stock All directors and
executive officers
as a group (15 persons,
including those listed
above)/(8)/ 2,955,631 9.7%
</TABLE>
- ------
* Less than 1%
(1) Except as indicated in the footnotes to this table, the persons named have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.
(2) Includes an option for 500,000 shares of Common Stock. Such amount does
not include the performance-based option (described below under the
Rutenberg Option Agreement) exercisable for 813,273 shares of Common Stock.
(3) Includes (i) 25,000 shares of Common Stock held directly by Dr. Ng, (ii)
25,000 shares of Common Stock issuable upon exercise of warrants held of
record by Dr. Ng, (iii) 12,500 shares of Common Stock held of record by Dr.
Ng's wife, (iv) 1,562 shares of Common Stock issuable upon exercise of
warrants held of record jointly with Dr. Ng's wife, (v) 337,766 shares of
Common Stock owned of record by PFEL (of which Dr. Ng owns 18.3% and as to
such shares of Common Stock Dr. Ng disclaims beneficial ownership), (vi)
5,000 shares of Common Stock held of record by Bluehill Holdings, Ltd., a
corporation over which Dr. Ng has voting control and (vii) options for
2,500 shares of Common Stock in respect of Mr. Ng's service on the Board of
Directors.
(4) Includes options for 2,500 shares of Common Stock in respect of Mr.
Genberg's service on the Board of Directors.
(5) Mr. Essig and Ms. Fascitelli are officers of Goldman, Sachs & Co. Share
data shown for such individuals excludes shares of Common Stock shown as
held by The Goldman Sachs Group, L.P. and related investors (set forth
above in the table of persons known to beneficially own 5% or more of
outstanding shares of Common Stock), as to which such individuals disclaim
beneficial ownership.
(6) Includes options for 2,500 shares of Common Stock in respect of Mr. Fox's
service on the Board of Directors. Mr. Fox is a Partner of both ETP II and
ETP III. Share data shown for Mr. Fox excludes shares of Common Stock
shown as held by ETP II and ETP III (set forth above under Edelson
Technology Partners II, L.P., in the table of persons known to beneficially
own 5% or more of outstanding shares of Common Stock), as to which Mr. Fox
disclaims beneficial ownership.
(7) Includes options for 2,500 shares of Common Stock granted in respect of Mr.
Salamon's service on the Board of Directors.
(8) All shares of Common Stock shown with respect to directors and officers
include options exercisable within 60 days at exercise prices ranging from
$4.00 to $7.00 per share, all of which shares of Common Stock were deemed
outstanding for purposes of computing the percentage of shares of Common
Stock outstanding and beneficially owned. Directors and officers also hold
options that are not presently exercisable with respect to an additional
885,773 shares of Common Stock which, in accordance with the rules of the
Commission, are not included in the table.
- 10 -
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark R. Rutenberg 44 Chairman of the Board of Directors, President
and Chief Executive Officer; Class III Director
Uzi Ish-Hurwitz 52 Executive Vice President, Chief of Technical
Operations; President, Neuromedical Systems
Israel Ltd.
David Duncan, Jr. 47 Vice President, Finance and Administration,
Chief Financial Officer
Zeev Hadass 62 Vice President, Processing Operations
John B. Henneman, III 34 Vice President of Corporate Development,
General Counsel and Secretary
James M. Herriman 41 Vice President of Product Development
Laurie J. Mango, M.D. 34 Vice President and Medical Director
Andrew C. Panagy 45 Vice President, Marketing and Sales
</TABLE>
Information concerning Mark R. Rutenberg and Uzi Ish-Hurwitz is set forth
above under Election of Directors.
David Duncan, Jr. is Vice President, Finance and Administration, Chief
Financial Officer of the Company. Mr. Duncan joined the Company in November
1994. Prior to joining the Company, Mr. Duncan served as Vice President,
Finance and Chief Financial Officer of Telios Pharmaceuticals (and held other
financial positions) since September 1988. He received his B.S. in 1971 and an
M.B.A. in 1973, both from Indiana University.
Zeev Hadass is Vice President, Processing Operations of the Company. Mr.
Hadass joined the Company in March 1994. From 1991 to 1994, Mr. Hadass was
Executive Project Director of MedLink Europe, BV, a master distribution company
that establishes and manages European distribution networks for medical
companies based in the United States. From 1990 to 1991, Mr. Hadass was
President of Abiomed, Inc., a Danvers, Massachusetts maker of cardiac assist and
periodontal screening devices. Mr. Hadass received his Ph.D. in Aeronautical
Engineering from Stanford University, his M.Sc. in Nuclear Engineering from
INSTN, France, and his B.Sc. in Mechanical Engineering from the Technion-Israeli
Institute of Technology.
John B. Henneman, III is Vice President of Corporate Development, General
Counsel and Secretary of the Company. For more than seven years prior to
joining the Company in February 1994, Mr. Henneman practiced law with the
Chicago office of Latham & Watkins. Mr. Henneman received his A.B. in Politics
from Princeton University and his J.D. from the University of Michigan Law
School.
James M. Herriman is Vice President of Product Development of the Company.
Mr. Herriman joined the Company in November 1992. Mr. Herriman was President of
Aspex Incorporated from 1983, when it was founded, until November 1992. While
at Aspex, Mr. Herriman was the chief designer of the PIPE(R) image processor
used in the first generation PAPNET(R) Scanning Station. Mr. Herriman received
his B.A. from Emory University.
- 11 -
<PAGE>
Laurie J. Mango, M.D. is Vice President and Medical Director of the
Company. Prior to joining the Company in 1990, Dr. Mango was a resident in
anatomic pathology at the University of California, San Francisco. Dr. Mango
graduated from Rice University with a B.S. in electrical engineering and
received her M.D. from Baylor College of Medicine. Dr. Mango served as a
Cytology Fellow at Montefiore Medical Center under Dr. Leopold G. Koss.
Andrew C. Panagy is Vice President, Marketing and Sales of the Company.
Prior to joining the Company in February 1994, Mr. Panagy served as Executive
Vice President and Chief Operating Officer of the MEDED Healthcare Group, a
health care marketing and consulting company. Prior to that, Mr. Panagy held
numerous marketing and sales positions with Ayerst Laboratories, a
pharmaceutical division of American Home Products Corp., including as head of
the female health care marketing group. Mr. Panagy received his B.S. in Biology
from Wagner College, and has participated in post-graduate business programs at
Long Island University in New York.
- 12 -
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table below provides certain compensation
information for the Chief Executive Officer and the four most highly compensated
executive officers ("Named Executive Officers") serving at the end of the fiscal
year ended December 31, 1995 for services rendered in all capacities during the
fiscal years ended December 31, 1995 and 1994. The table includes the dollar
value of base salary, bonus earned, option awards (shown in number of shares of
Common Stock) and certain other compensation, whether paid or deferred.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
-------------------------------- -------------------
Other Securities
Annual Underlying All other
Name and Compen- Restricted Options/SARs Compen-
Principal Position Year Salary Bonus sation (1) Stock (#) sation
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mark R. Rutenberg....................... 1995 $175,000 $131,000 - - 813,273 $20,467 (2)
Chief Executive Officer 1994 179,583 50,000 - - - 21,473 (2)
Uzi Ish-Hurwitz........................ 1995 150,000 90,000 - - - 5,971 (3)
Executive Vice President 1994 150,000 33,300 - - - 4,800 (3)
Laurie J. Mango, M.D.................... 1995 125,000 80,000 - - - 3,211 (3)
Vice President and Medical Director 1994 129,197 - - - - 3,907 (3)
James M. Herriman....................... 1995 125,000 68,400 - - - 4,482 (3)
Vice President of Product 1994 129,197 - - - - 836 (3)
Development
John B. Henneman, III 1995 125,000 57,600 - - 25,000 5,116 (3)
Vice President of Corporate 1994 104,167 - - - - 4,185 (3)
Development and General Counsel
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
______
(1) Excludes certain perquisites which do not exceed the lesser of $50,000 or
10% of the Named Executive Officer's aggregate salary and bonus.
(2) The amount shown represents $13,066 and $9,607, respectively in Company-
paid life insurance premiums, $4,124 and $6,286, respectively in disability
insurance premiums, $3,175 and $5,580, respectively of imputed value of a
Company-provided automobile and $102 and $0, respectively in group life
insurance benefits.
(3) The amount shown represents the imputed value of a Company-provided
automobile and group life insurance benefits.
- 13 -
<PAGE>
RUTENBERG OPTION AGREEMENT
The Company has granted to Mr. Rutenberg a performance-based option (the
"Performance Based Option") under the Incentive Plan at an exercise price equal
to the Company's initial public offering (the "Offering") price of the Common
Stock of $15.00 per share (the "Offering Price") and covering 813,273 shares of
Common Stock that is designed to produce an option value of $12.5 million if at
any time during the option's ten-year term either of the following events (the
"Performance Goal") occurs: (i) the Company's share price over any 90
consecutive day period reaches $30.37, the "Target Price" or (ii) all or
substantially all of the Company's shares of Common Stock are acquired (an
"Acquisition") at or above the Target Price. If the Performance Goal is
attained, the option will become exercisable as to one-third of the number of
shares of Common Stock subject thereto on the later of (i) the third anniversary
of the Offering or (ii) the date that the Performance Goal is attained (the
"Initial Vesting Date"), and will become exercisable as to an additional one-
third of the shares of Common Stock subject thereto on each of the first two
anniversaries of the Initial Vesting Date; provided, however, that, if Mr.
Rutenberg's employment is terminated by the Company without cause following an
Acquisition that occurs following or simultaneously with the attainment of the
Performance Goal, the option will be fully exercisable. No additional vesting
will occur following Mr. Rutenberg's termination of employment under any other
circumstances or the expiration of the option's ten-year term. Following Mr.
Rutenberg's termination of employment by the Company for any reason other than
for cause, the option, to the extent vested and exercisable at the time of such
termination, may be exercised within six months of the termination of
employment. The option provides for equitable adjustments to the Performance
Goal, the number of shares of Common Stock subject to the option and the
exercise price in the event of a Change in Capitalization (as defined in the
Incentive Plan). The exercisability of the option will not accelerate upon the
occurrence of a Change in Control (as defined in the Incentive Plan), and the
option will terminate in connection with an Acquisition if the Performance Goal
is not attained prior to or in connection with the Acquisition.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth stock options granted to the Named Executive
Officers during the fiscal year ended December 31, 1995. All such options are
for the purchase of Common Stock.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM/(1)/
--------------------------------------------- -----------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN FISCAL OR BASE EXPIRATION
NAME GRANTED YEAR PRICE DATE 5% 10%
- ---- ---------- ---------- -------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Mark R. Rutenberg.......... 813,273 66.7% $15.00 10/01/05 - $19,445,000
Uzi Ish-Hurwitz............ - - - - - -
James M. Herriman.......... - - - - - -
Laurie J. Mango, M.D....... - - - - - -
John B. Henneman, III...... 25,000 2.1% $ 6.00 2/27/05 $94,000 $ 239,000
</TABLE>
(1) These columns show the hypothetical gains or "option spreads" of the
outstanding options granted based on assumed annual compound stock
appreciation rates of 5% and 10% over the options'
- 14 -
<PAGE>
terms. The 5% and 10% assumed rates of appreciation are mandated by the
rules of the Commission and do not represent the Company's estimate or
projections of future prices of the Company's Common Stock. The Rutenberg
option has no potential realizable value under the 5% stock price
appreciation rate since the stock price never achieves the Target Price of
$30.37 (See Rutenberg Option Agreement above).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth the number of shares of Common Stock covered
by both exercisable and unexercisable options on Common Stock held by the Named
Executive Officers as of December 31, 1995. Each of these options was granted at
exercise prices ranging from $4.00 to $15.00 per share. Each is a non-
qualified option with a ten-year term, subject to earlier termination in the
event of the optionee's termination of employment. The unexercisable options
issued to (i) Mark R. Rutenberg are subject to vesting in accordance with the
terms of the Performance Based Option and (ii) John B. Henneman, III vest over a
five-year period.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT OPTIONS AT
FISCAL YEAR-END(1) FISCAL YEAR-END(2)
--------------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark R. Rutenberg...... 500,000 813,273 $8,062,500 $4,168,024
Uzi Ish-Hurwitz........ 250,000 - 4,031,250 -
James M. Herriman...... 100,000 - 1,612,500 -
Laurie J. Mango, M.D... 125,000 - 2,015,625 -
John B. Henneman, III.. 75,000 25,000 1,209,375 353,125
- --------
</TABLE>
(1) As of the date hereof, none of the options granted under the Incentive Plan
has been exercised.
(2) Values for "in-the-money" outstanding options represent the positive spread
between the respective exercise prices of the outstanding options and the
value of the Common Stock as of December 31, 1995, which was $20.125.
EMPLOYMENT AGREEMENTS
Each of the Company's executive officers, including the Named Executive
Officers, has entered into an Employment Agreement with the Company (each, an
"Employment Agreement" and collectively, the "Employment Agreements"). The
Employment Agreement for Mr. Rutenberg commenced in November 1993 and is for a
five-year term. Each of the Employment Agreements for Dr. Mango and Messrs.
Herriman and Ish-Hurwitz commenced in November 1993 and are for a three-year
term. Each of the Employment Agreements for Messrs. Duncan, Hadass, Henneman
and Panagy are for a three-year term and commenced on November 21, 1994, April
1, 1994, March 1, 1994 and February 14, 1994, respectively. The Employment
Agreements provide for annual base salaries of the Named Executive Officers
during the terms of the Employment Agreements, which base salaries in 1996 are
as follows: Mr. Rutenberg, $175,000, Mr. Ish-Hurwitz, $150,000, and Mr.
Herriman, Dr. Mango and Mr. Henneman, $125,000. The base salaries are reviewed
at least annually with a view to the increase
- 15 -
<PAGE>
thereof based on the employees' and the Company's performance, inflation,
industry salary scales and other relevant factors.
Pursuant to the terms of their respective Employment Agreements, each of
the covered employees has received an option to purchase a designated number of
shares of Common Stock under the Incentive Plan. Each of the Employment
Agreements was amended as of October 25, 1995 to provide that, in the event that
an employee is terminated other than for "Cause" or "Disability" (as those terms
are defined in the applicable Employment Agreement), and, in Mr. Rutenberg's
case, also if he terminates for "Good Reason," (as defined in his Employment
Agreement) a portion of the employee's stock option will become vested and
exercisable to the extent that it would have become vested and exercisable had
the employee remained employed by the Company for a one-year period following
his termination of employment and, subject to the employee's compliance with the
restrictive covenants in his Employment Agreement. Options held by the employee
as of the date of the termination of employment (other than the Performance
Based Option granted to Mr. Rutenberg on October 1, 1995) will remain
exercisable (to the extent those options either are vested on termination of
employment or become vested over the succeeding year) until the earlier of the
date one year following the termination of employment or the expiration of the
option's term. "Good Reason" is defined for purposes of the Rutenberg
Employment Agreement to include (i) any circumstance that has the effect of
significantly reducing Mr. Rutenberg's duties or authority, (ii) a breach by the
Company of its material obligations under the Employment Agreement, (iii) the
relocation of the principal executive offices of the Company in excess of 35
miles from their present location not consented to by Mr. Rutenberg, (iv) the
occurrence of a "Change in Control" as defined in the Incentive Plan in a
transaction to which Mr. Rutenberg does not consent, (v) the disposition by the
Company (whether direct or indirect, by sale of assets or stock, merger,
consolidation or otherwise) of all or substantially all of its business and/or
assets in a transaction to which Mr. Rutenberg does not consent or (vi) any
circumstance whereby, without Mr. Rutenberg's consent, any of the Company's
offices or facilities is caused to operate on the Jewish Sabbath or on any
Jewish holiday, and as a result thereof, Mr. Rutenberg reasonably determines
that he would be prohibited under Jewish law from continuing as the Chief
Executive Officer of the Company, provided that any of the events described in
clauses (i) , (ii) or (vi) will constitute Good Reason only if Mr. Rutenberg has
notified the Board of Directors in writing of the existence and particulars of
such circumstance and the Board of Directors has failed to remedy such
circumstance within thirty days of such notice.
Mr. Rutenberg's Employment Agreement provides that, in addition to his base
salary, Mr. Rutenberg will be entitled to an annual bonus in an amount to be
determined at the discretion of the Board of Directors, subject to performance
objectives established by the Board of Directors, and the use of a Company-
provided car. The Employment Agreement provides that, in the event that Mr.
Rutenberg's employment is terminated by the Company other than for "Cause" or
"Disability" or by Mr. Rutenberg for "Good Reason," the Company will (i) pay Mr.
Rutenberg a lump sum severance amount equal to 2.99 times his annual base salary
in effect as of the date of such termination and (ii) continue the health,
accident and life insurance benefits and other disability plans and programs
provided to him immediately prior to such termination for the shorter of one
year or the balance of the term of his Employment Agreement. If Mr. Rutenberg's
employment is
- 16 -
<PAGE>
terminated by the Company for Cause or by Mr. Rutenberg without Good Reason, Mr.
Rutenberg will be entitled to receive his salary through his date of
termination, and his entitlement to any other compensation or benefits beyond
the term of his employment will be determined in accordance with the Company's
general plans, policies and practices as in effect from time to time. If Mr.
Rutenberg's employment is terminated due to his death, the Company will
continue, for the shorter of one year following his death or the balance of the
term of his Employment Agreement, the health, accident and life insurance
benefits and other disability plans and programs provided to his dependents
immediately prior to his death. If Mr. Rutenberg's employment is terminated due
to Disability (as defined in his Employment Agreement), for the shorter of one
year following his termination or the balance of the term of his Employment
Agreement, the Company will (i) continue to pay his salary, reduced by the
amount of his disability benefits, if any, and (ii) continue the health,
accident and life insurance benefits and other disability plans and programs
provided to Mr. Rutenberg immediately prior to such termination. If necessary,
the payments and benefits provided above will be reduced to the extent required
so that no payment to Mr. Rutenberg will be an "excess parachute payment" under
the Internal Revenue Code of 1986, as amended (the "Code") Section 280G.
Under his Employment Agreement, Mr. Rutenberg has assigned to the Company
all rights to inventions, discoveries, improvements and patentable and
copyrightable works conceived by him in the course of his employment with the
Company and related to the business or activities of the Company. Mr. Rutenberg
has agreed not to disclose to others trade secrets and other confidential
information of the Company during the term of his employment and for a five-year
period thereafter. Mr. Rutenberg has also agreed that, during the term of his
employment under his Employment Agreement and for a period of three years
thereafter, he will not engage in activity which is competitive with the
business of the Company; however, in the event that his employment is terminated
without Cause or he terminates his employment for Good Reason, the non-
competition period is reduced to two years.
OTHER EMPLOYMENT AGREEMENTS
The Employment Agreements covering the other executive officers contain
provisions generally similar to those in Mr. Rutenberg's Employment Agreement,
except that (i) upon a voluntary termination for good reason, the entitlement of
an executive officer to any other compensation or benefits shall be determined
in accordance with the Company's plans, policies and practices as in effect from
time to time, (ii) upon a termination of an executive officer's employment by
the Company without Cause, for a period of one year thereafter the executive
officer will be entitled to continue to receive his or her base salary in effect
at the time of termination and continued coverage under health, accident and
life insurance and other disability plans and programs, (iii) the non-
competition restriction is for a two-year period following their respective
termination of employment and (iv) there is no provision for a reduction under
Code Section 280G, but the severance payments provided under the Employment
Agreements will be reduced by any income received by the executive officer from
other sources during such severance period.
CONSULTING AGREEMENTS
The Company has entered into consulting agreements with various individuals
prominent in the field of cytology, pathology and gynecologic oncology,
including Dr. Arthur Herbst, one of the nominees to serve on the Board of
Directors. These agreements provide the Company with additional intellectual
resources in the areas of product development and clinical studies of the
PAPNET(R) Testing System's performance. In addition, certain of these
consultants are providing services to the Company in connection with its
introduction of the PAPNET(R) Testing System.
- 17 -
<PAGE>
REPORT ON 1995 EXECUTIVE COMPENSATION
The Company's executive compensation programs are designed to attract,
retain and motivate the executive talent required to achieve the Company's
business objectives and increase stockholder value. The 1995 compensation
programs and matters for the Company's executive officers (the "Management")
were administered by the entire Board of Directors, based upon the
recommendations of Elizabeth Cogan Fascitelli, John E. Fox, Mark R. Rutenberg
and Joseph Salamon. Mr. Rutenberg excused himself from all deliberations
relating to his own compensation.
GENERAL
Total compensation for the Company's Management consists of a base salary,
annual cash bonus and long-term incentives, which may consist of stock options,
stock appreciation rights, dividend equivalent rights, restricted and
unrestricted stock, performance units and performance shares. The annual bonus
and long-term incentives introduce risk to the total executive compensation
package. These elements are variable, may fluctuate significantly from year to
year and are directly tied to Company and individual performance.
To ensure that Management's interest in the Company is aligned with those
of its stockholders, a portion of executive compensation is delivered through
equity. Equity compensation is tied to the long-term performance of the Company
and is used to provide an incentive that focuses attention on managing the
Company from an owner's perspective. Compensation tied to equity of the Company
provides a level of risk and upside opportunity that encourages Management
performance in the achievement of the Company's long-term goals and objectives.
In December of 1995 the Board of Directors created a Compensation
Committee, consisting of Elizabeth Cogan Fascitelli, Carl Genberg and Stephen K.
C. Ng, M.D. (the "Committee"). The Committee plans to annually review the
competitiveness of the Company's executive compensation programs.
The Committee plans to review executive compensation arrangements and
employee benefit plans in light of Section 162(m) of the Code ("Section
162(m)"), which establishes a limit on the deductibility of annual compensation
for certain executive officers that exceeds $1,000,000. It is the general
intention of the Committee to attempt to assure that executive compensation will
meet the requirements for deductibility under Section 162(m). However, the
Committee reserves the right to use its judgment, where merited by the
Committee's need for flexibility to respond to changing business conditions or
by an executive's individual performance, to nevertheless authorize compensation
payments which may not, in a specific case, be fully deductible by the Company.
The Committee will re-examine its policy with respect to Section 162(m) on an
on-going basis.
EXECUTIVE OFFICERS' COMPENSATION
In determining 1995 mangement compensation the Board of Directors
considered the development stage of the Company, financial and nonfinancial
indicators, individual performance, the business environment in which the
Company operated and competitive compensation trends.
With respect to 1995 cash bonuses, the amount available for such bonuses
was derived by taking into account the Company's financial position and its
stage of commercial development including, in particular, the clearance by the
FDA of the PAPNET(R) Testing System and the Company's Offering. The
- 18 -
<PAGE>
annual cash bonus actually paid to an individual executive officer was
determined by reviewing the performance of the business area which the executive
officer managed and the executive officer's individual performance and position
level within the Company. During 1995 the Company awarded cash bonuses to the
executive officers and permitted such officers, other than Mr. Rutenberg, to
elect to have up to 50% of such 1995 bonus paid in the form of Common Stock of
the Company, valued at a price of $7.00 per share. Upon such elections, the
Company issued 27,679 shares of Common Stock.
The 1995 stock option awards granted to the Company's executive officers
were based upon the individual's overall job performance as well as specific
contributions to Company performance for the year.
CEO COMPENSATION
Mr. Rutenberg's employment agreement provides for a minimum annual salary
that may be increased annually at the discretion of the Committee. In 1995, Mr.
Rutenberg received his base salary without adjustment, approximately 2.5% less
than his adjusted 1994 salary. Mr. Rutenberg's salary does not affect the other
elements of his compensation. The salary for Mr. Rutenberg reported in the
Summary Compensation Table above reflects the salary actually paid to Mr.
Rutenberg in 1995.
In 1995, Mr. Rutenberg received an annual cash bonus of $131,000, compared
to an annual cash bonus of $50,000 received in 1994.
In considering Mr. Rutenberg's 1995 stock option grants, annual bonus and
base salary, the Board of Directors considered the Company's development stage,
including clearance for commercial development of the PAPNET(R) Testing System
by the FDA and the Company's Offering, as well as Mr. Rutenberg's individual
performance during the year and competitive compensation trends. In determining
Mr. Rutenberg's compensation, the Board of Directors did not attach specific
weights or values to the various factors considered.
The foregoing Report on 1995 Executive Compensation is submitted by the
members of the 1995 Board of Directors:
Mark R. Rutenberg, Chairman of the Board of Directors
Elizabeth Cogan Fascitelli
Stuart M. Essig
John E. Fox
Carl Genberg
Dr. Stephen K. C. Ng
Joseph Salamon
- 19 -
<PAGE>
PERFORMANCE GRAPH
The graph set forth below compares the percentage change in the Company's
cumulative total shareholder return on its Common Stock to the cumulative total
return for the period beginning on December 7, 1995 (the date of the Offering of
the Company's Common Stock at a price of $15.00 per share) and ending December
29, 1995, the last trading day of 1995, of the Standard & Poor's 500 Stock Index
(the "S&P 500") and the Dow Jones Medical and Biotechnology Industry Group Index
(the "Peer Group Index").*
[GRAPHIC APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Date 12/7/95 12/15/95 12/22/95 12/29/95
- ----------------------------------------------------------------------------------------
Neuromedical Systems, Inc. 100.00 127.50 130.82 134.15
- ----------------------------------------------------------------------------------------
S&P 500 100.00 100.03 99.35 99.96
- ----------------------------------------------------------------------------------------
Peer Group Index 100.00 101.34 105.82 106.96
- ----------------------------------------------------------------------------------------
* ASSUMES THAT THE VALUE OF THE INVESTMENT IN NEUROMEDICAL SYSTEMS, INC. COMMON STOCK
and each index was $100 on December 7, 1995 and that all dividends were reinvested.
</TABLE>
- 20 -
<PAGE>
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Ernst & Young LLP as independent
auditors for the fiscal year ending December 31, 1996, upon the recommendation
of its Audit Committee. Ernst & Young LLP has served as auditors for the
Company since 1993. A representative of Ernst & Young LLP will be in attendance
at the Annual Meeting and will have an opportunity to make a statement if the
representative desires to do so and will be available to respond to appropriate
questions.
Audit services of Ernst & Young LLP for 1995 included the examination of
the consolidated balance sheets of the Company and its subsidiaries and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years ended December 31, 1993, 1994 and 1995.
Unless marked to the contrary, proxies received will be voted FOR
ratification of the appointment of Ernst & Young LLP as independent auditors for
the fiscal year ending December 31, 1996.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
COMPLIANCE WITH SECTION 16 OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) promulgated under the Exchange Act requires executive
officers, directors, and persons who beneficially own more than ten percent
(10%) of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership of the Company's securities with the Commission.
Based solely on a review of such information and the copies of the filings
furnished by executive officers and directors to the Company, the Company
believes that with the exception of the late filing, by a period of one month,
of the initial Form 3 of GS Advisors, L.P., an affiliate of Goldman, Sachs &
Co., all Section 16(a) filing requirements applicable to the Company's
executive officers, directors and persons who beneficially own more than ten
percent (10%) of the Company's Common Stock were complied with during fiscal
year 1995. Each other affiliate of Goldman, Sachs & Co. which was required to
file an initial Form 3 filed on time.
CERTAIN TRANSACTIONS
Territorial Licenses and Related Agreements. From 1989 through 1991, the
Company entered into various long-term territorial license agreements (the
"License Agreements") for the PAPNET(R) Testing System. The Company received
net proceeds of approximately $3,500,000 from the sale of these territorial
licenses. Each license expires on the later of (i) 17 years after its execution
or (ii) the expiration of the initial patent granted for the PAPNET(R) Testing
System, and is renewable for an additional 17-year term at the licensee's
option. Carl Genberg, a director of the Company, is an officer or has
significant direct or indirect ownership interests in four of the licensees (the
"Related Licensees") of such License Agreements and is a director of Cytology
West, Inc., the Related Licensee that holds the License Agreement relating to
Arizona, Nevada and San Diego County. Carl Genberg is the first cousin of Mark
R. Rutenberg, the Chairman of the Board of Directors,
- 21 -
<PAGE>
President and Chief Executive Officer of the Company. In connection with the
sale of the License Agreements, GRK, a now-dissolved Ohio general partnership,
was instrumental in arranging such sales and received warrants exercisable for
93,124 shares of Common Stock. Such warrants were exercised, pursuant to a
Settlement Agreement and a Warrant Exercise Agreement, the effect of which
included the clarification of previously disputed elements of the License
Agreements, simultaneously with the completion of the Offering in a "cashless
exercise." GRK received 80,708 shares of Common Stock pursuant to such
exercise, of which Mr. Genberg received 26,903 shares of Common Stock upon the
dissolution of GRK in 1995. In addition, the Company issued an aggregate of
89,020 shares of Common Stock pursuant to the Settlement Agreement to Carl
Genberg individually and the Related Licensees. Under the License Agreements,
the holders of the License Agreements receive royalties on an annual basis which
the Company estimates will be approximately 10% of its United States revenues
over the term of the License Agreements, but there can be no assurance that the
amount of such royalties will not be more or less than such percentage. In 1995
such royalty expense for the Related Licensees was $86,616.39.
Underwriting Fees. The Goldman Sachs Group, L.P. and certain of its
investment limited partnership affiliates as of April 30, 1996, are the
beneficial owners of 7,288,561 shares of Common Stock representing approximately
25.0% of the Company's outstanding Common Stock. See Security Ownership of
Certain Beneficial Owners and Management. Two of the Company's directors are
officers of Goldman, Sachs & Co., an affiliate of Goldman Sachs Group, L.P.
Goldman, Sachs & Co. acted as one of the representatives of the underwriters in
the Offering, in which the underwriters received aggregate underwriting
discounts and commissions of approximately $7,245,000 from the Company.
PFEL Agreement. The Company has entered into an exclusive representation
agreement with Papnet (Far East) Ltd. ("PFEL") under which the Company incurred
aggregate expenses of $136,295 in 1995. Dr. Stephen Ng, a director of the
Company, is the President and an 18.3% stockholder of PFEL. Dr. Ng is also the
President of Compuscreen Medical Diagnostic Centre ("Compuscreen"), a subsidiary
of PFEL and a customer of the Company. In 1995, the Company recorded
approximately $240,000 in revenue from Compuscreen. In addition, PFEL was the
record holder of 1,351,064 shares of the Company's Convertible Preferred Stock,
all of which automatically converted into 337,766 shares of Common Stock upon
completion of the Offering. PFEL purchased such shares of Convertible Preferred
Stock in May 1994 and January 1995, in each case concurrently with other
unaffiliated investors which paid the same prices per share and received the
same terms and conditions.
Canadian License Rights. Provisions of a promissory note dated October 3,
1990 (which was later converted to Series A Convertible Preferred Stock and
subsequently converted automatically into Common Stock upon completion of the
Offering), granted the holder of the note certain rights to an agreement to be
the Company's sole licensee for distribution of the PAPNET(R) system in Canada
(the "Canadian rights"). Such promissory note provides that such "licensee
shall be entitled to terms which are at least as favorable as those in any
domestic United States of America licenses." Such agreement has not been
negotiated, and as of the date hereof no amounts have been paid by the Company
in respect of such Canadian rights. Joseph Salamon, a Class I director of the
Company whose term ends at the 1996 Annual Meeting, is the agent of the record
holder of the Canadian rights.
Consulting Agreement. Since 1994, Dr. Herbst has served as a consultant to
the Company in the field of gynecological oncology. Dr. Herbst's current
consulting agreement provides for an annual base fee of $20,000 plus expenses
and additional fees for any certain special projects. The term of his
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agreement ends on December 31, 1999. The Company paid Dr. Herbst $27,500 in
1995 plus expenses in consideration of such services.
Finder's Fee. In January 1995, the Company issued 21,276 shares of Series
Convertible Preferred Stock, all of which automatically converted into 5,319
shares of Common Stock upon completion of the Offering, to Frank Ng, the brother
of Dr. Stephen Ng, a director of the Company, in consideration for assisting the
Company in raising approximately $1,000,000 in equity capital.
Graphic Design Services. The Company utilizes the services of Insight
Graphics and Design ("Insight"), the sole proprietor of which is Ellen
Rutenberg, wife of Mark Rutenberg, the President, Chairman and Chief Executive
Officer of the Company. Insight provides graphic design consulting services to
the Company, and has been responsible for the creative design of the Company's
domestic and international marketing materials since 1993. In 1995, the Company
paid Insight $57,700 for such services.
The Company had in 1995 a key-man life insurance policy in the amount of
$2,000,000 on the life of Mark Rutenberg. The Company discontinued this
insurance policy in 1996.
The Company believes that the terms of the transactions described in this
section are no less favorable to the Company than the terms it would have
received if the transactions were entered into with parties unaffiliated with
the Company.
OTHER MATTERS
The cost of solicitation of proxies will be borne by the Company. Proxies
may be solicited by mail, personal interview, telephone or telegraph.
Directors, officers and other employees of the Company may solicit proxies by
such methods without additional compensation. The Company will reimburse banks,
brokerage houses and other institutions, nominees and fiduciaries for their
reasonable expenses incurred in connection with forwarding proxy material to
their principals. Employees of D.F. King & Co., Inc. will solicit proxies at a
fee of approximately $2,000 plus out-of-pocket expenses. American Stock
Transfer & Trust Company will also solicit proxies as one of the services
included within their monthly fee as the transfer agent of the Company.
As of the date of this Proxy Statement, the Company does not intend to
present and has not been informed that any other person intends to present any
business not specified in this Proxy Statement for action at the Annual Meeting.
If any other matters properly come before the Annual Meeting, proxies will be
voted on such matters in accordance with the judgment of the person or persons
authorized to vote the proxies.
COPIES OF THE COMPANY'S ANNUAL REPORT AND FORM 10-K (INCLUDING FINANCIAL
STATEMENTS THEREOF) FOR THE YEAR ENDED DECEMBER 31, 1995 MAY BE OBTAINED WITHOUT
CHARGE BY WRITING TO TRACI HAMMES, MANAGER, INVESTOR RELATIONS DEPARTMENT,
NEUROMEDICAL SYSTEMS, INC., TWO EXECUTIVE BOULEVARD, SUFFERN, NEW YORK 10901-
4164, OR BY TELEPHONE REQUEST TO (914) 369-4146.
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SUBMISSION OF STOCKHOLDER PROPOSALS FOR INCLUSION
IN THE COMPANY'S 1997 PROXY STATEMENT
In accordance with Rule 14a-8 of the Commission under the Exchange Act,
stockholders may present proposals which may be proper subjects for inclusion in
the proxy statement and for consideration at an annual meeting. To be
considered, proposals must be submitted on a timely basis. It is presently
anticipated that the proxy for the 1997 Annual Meeting will be mailed on or
about April 14, 1997. Consequently, proposals for the 1997 Annual Meeting must
be received by the Company no later than December 13, 1996. Proposals, as well
as any questions related thereto, should be submitted in writing to the
Secretary of the Company. Proposals may be included in the proxy statement for
the 1997 Annual Meeting if they comply with certain rules and regulations
promulgated by the Commission.
By order of the Board of Directors,
John B. Henneman, III
Vice President of Corporate Development,
General Counsel and Secretary
Suffern, New York
May 21, 1996
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