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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
SCHEDULE 14A INFORMATION
PROXY STATEMENT 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 Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or
Rule 14a-12
INCONTROL, 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] No Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
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PER UNIT PRICE OR OTHER
UNDERLYING VALUE OF PROPOSED
TITLE OF EACH CLASS OF AGGREGATE NUMBER OF TRANSACTION COMPUTED MAXIMUM
SECURITIES TO WHICH SECURITIES TO WHICH PURSUANT TO EXCHANGE AGGREGATE VALUE OF
TRANSACTION APPLIES: TRANSACTION APPLIES: ACT RULE 0-11: TRANSACTION: TOTAL FEE PAID
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
===========================================================================================================================
</TABLE>
[ ] 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:
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(4) Date Filed:
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<PAGE> 2
[INCONTROL LOGO]
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, APRIL 30, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
InControl, Inc., a Delaware corporation (the "Company"), will be held at the
Hyatt Regency Bellevue, 900 Bellevue Way Northeast, Bellevue, Washington, at
8:30 a.m., local time, on Thursday, April 30, 1998, for the following purposes:
(1) To elect two directors of the Company.
(2) To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 13, 1998 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person.
To ensure representation at the Annual Meeting, stockholders are urged to
mark, sign, date and return the enclosed Proxy as promptly as possible, even if
they plan to attend the Annual Meeting. A return envelope, which requires no
postage if mailed in the United States, is enclosed for this purpose. Any
stockholder attending the Annual Meeting may vote in person even if such
stockholder has returned a Proxy if the Proxy is revoked in the manner set forth
in the accompanying Proxy Statement.
By order of the Board of Directors
/s/ DONALD F. SEATON III
Donald F. Seaton III
Vice President, Finance, Chief
Financial Officer
and Secretary
Redmond, Washington
March 27, 1998
<PAGE> 3
INCONTROL, INC.
------------------------
PROXY STATEMENT
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of InControl, Inc. (the "Company" or "InControl") of
proxies for use at the Annual Meeting of Stockholders (the "Annual Meeting") to
be held at the Hyatt Regency Bellevue, 900 Bellevue Way Northeast, Bellevue,
Washington, at 8:30 a.m., local time, on Thursday, April 30, 1998, for the
purposes set forth in the accompanying Notice of Annual Meeting of Stockholders.
The principal executive offices of the Company are located at 6675 185th Avenue
N.E., Redmond, Washington 98052. It is expected that this Proxy Statement and
accompanying form of proxy will be mailed to stockholders on or about March 27,
1998.
RECORD DATE AND OUTSTANDING SHARES
Holders of record of the Company's common stock (the "Common Stock") at the
close of business on March 13, 1998 are entitled to notice of and to vote at the
Annual Meeting. On that date there were 18,814,915 shares of Common Stock
outstanding.
REVOCABILITY OF PROXIES
Shares represented at the Annual Meeting by properly executed proxies in
the accompanying form will be voted at the Annual Meeting and, where the
stockholder giving the proxy specifies a choice, the proxy will be voted in
accordance with the specification so made. A proxy given for use at the Annual
Meeting may be revoked by the stockholder giving the proxy at any time prior to
the exercise of the powers conferred thereby. A proxy may be revoked either by
(i) filing with the Secretary of the Company prior to the Annual Meeting, at the
Company's principal executive offices, either a written revocation or a duly
executed proxy bearing a later date or (ii) attending the Annual Meeting and
voting in person, regardless of whether a proxy has previously been given.
Presence at the Annual Meeting will not revoke the stockholder's proxy unless
such stockholder votes in person.
QUORUM AND VOTING
Holders of Common Stock will be entitled to one vote per share. Holders of
Common Stock are not entitled to cumulative voting rights in the election of
directors. Action may be taken on a matter submitted to stockholders at the
Annual Meeting only if a quorum exists. A majority of the outstanding shares of
Common Stock entitled to vote, present in person or represented by proxy,
constitutes a quorum at a meeting of the stockholders.
The two nominees for election as directors who receive the greatest number
of votes, present in person or by proxy, at the Annual Meeting will be elected
directors. Abstentions from voting on the election of directors will have no
impact on the outcome because no vote has been cast in favor of any nominee.
There can be no broker nonvotes on this matter since brokers who hold shares for
the accounts of their clients have discretionary authority to vote such shares
with respect to the election of a director.
SOLICITATION OF PROXIES
Proxies will be solicited by certain of the Company's directors, officers
and regular employees, without payment of any additional compensation to them.
Proxies will be solicited by personal interview, mail and telephone. Any costs
relating to such solicitation of proxies will be borne by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares of Common Stock for their expenses in
forwarding solicitation materials to such beneficial owners.
<PAGE> 4
ELECTION OF DIRECTORS
At the Annual Meeting, two directors are to be elected to hold office for a
term of three years until 2001, and in each case until his successor shall be
elected and shall qualify. The Board of Directors has no reason to believe that
either of the nominees listed below will be unable to serve as a director. If,
however, either nominee becomes unavailable, the proxies will have discretionary
authority to vote for a substitute nominee.
Unless authority to do so is withheld, the persons named as proxies in the
accompanying proxy will vote FOR the election of the nominees listed below.
NOMINEES
ALAN D. FRAZIER (age 46). Mr. Frazier has been a Director of the Company
since 1991 and is founder and managing partner of Frazier & Company, a
healthcare focused venture capital firm. Previously, he was Executive Vice
President, Chief Financial Officer and Treasurer of Immunex Corporation, a
biopharmaceutical company. Mr. Frazier is currently a director of IVI
Publishing, Inc., a health and medical publishing company, Integrated Medical
Resources, Inc., a medical management services company and NeoPath, Inc., a
medical testing device company. He also serves on the board of trustees of the
Fred Hutchinson Cancer Research Center. Mr. Frazier holds a B.A. in Economics
from the University of Washington.
KURT C. WHEELER (age 44). Mr. Wheeler is President, Chief Executive Officer
and Chairman of the Board of the Company. He co-founded the Company in 1990 and
has served as the Company's President and Chief Executive Officer and as a
director since that time. Mr. Wheeler became a full-time employee of the Company
in 1992. From 1989 to 1992, he was a principal with the Mayfield Fund, a venture
capital fund. Mr. Wheeler has been involved in the early-stage development of
four biotechnology companies and previously was employed by Eli Lilly & Company,
a pharmaceutical company. Mr. Wheeler currently is a director of Heartstream,
Inc., a medical device company. Mr. Wheeler holds a B.A. from Brigham Young
University and an M.B.A. from Northwestern University's Kellogg School.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES.
CONTINUING DIRECTORS -- TERM EXPIRES 1999
MARK B. KNUDSON, PH.D. (age 49). Dr. Knudson has been a Director of the
Company since 1991. Since 1989, Dr. Knudson has been a limited partner of
Medical Innovation Fund and Medical Innovation Fund II and general partner of
Medical Innovation Fund II. Dr. Knudson currently is a director of Heartstream,
Inc., Integ Incorporated and Diametrics Medical, Inc., all of which are medical
device companies. Dr. Knudson holds a B.S. from Pacific Lutheran University and
a Ph.D. in Physiology and Pharmacology from Washington State University.
DONALD C. HARRISON, M.D. (age 63). Dr. Harrison has been a Director of the
Company since 1996. He has been Professor of Medicine and Cardiology and Senior
Vice President and Provost for Health Affairs, University of Cincinnati, since
1986. Dr. Harrison is currently a director of Vesta, Inc. He is a past President
of the American Heart Association and was Chief of Cardiology at Stanford
University School of Medicine. Dr. Harrison holds a B.S. in Chemistry from
Birmingham Southern College and an M.D. from the University of Alabama School of
Medicine.
CONTINUING DIRECTOR -- TERM EXPIRES 2000
MICHAEL J. LEVINTHAL (age 43). Mr. Levinthal has been a Director of the
Company since 1990 and a General Partner of several Mayfield Fund partnerships
since 1983. Mr. Levinthal currently is a director of Heartstream, Inc. and
Focal, Inc., a medical supplies company. Mr. Levinthal holds a B.S. and an M.S.
in Engineering and an M.B.A. from Stanford University.
2
<PAGE> 5
COMPENSATION OF DIRECTORS
All directors of the Company hold office for staggered three-year terms or
until their successors have been elected and qualified. Nonemployee directors
receive a quarterly $2,000 retainer. In addition, nonemployee directors receive
$1,000 for each Board meeting and committee meeting attended.
The Company's 1996 Stock Option Plan for Nonemployee Directors (the "1996
Director Plan") was adopted at the Company's 1996 Annual Meeting of Stockholders
and amended and restated by the Board of Directors in September 1996 and on
August 5, 1997. Each nonemployee director serving at the time of approval of the
1996 Director Plan received, upon adoption by the stockholders of the 1996
Director Plan, an option to purchase 20,000 shares of Common Stock. Currently,
the 1996 Director Plan provides that (i) each new nonemployee director will
receive, upon election to the Board of Directors, an initial option grant to
purchase 30,000 shares of Common Stock (an "Initial Grant") and (ii) after each
Annual Meeting of Stockholders, each nonemployee director will receive an option
to purchase 10,000 shares of Common Stock (an "Annual Grant"), with the
exception of nonemployee directors initially elected to the Board of Directors
at such Annual Meeting who shall have received an Initial Grant in connection
with their election. The 1996 Director Plan provides that, in addition to
Initial Grants and Annual Grants, nonemployee directors are eligible to receive,
during any fiscal year, additional options to purchase in the aggregate no more
than 15,000 shares of Common Stock.
All options granted under the 1996 Director Plan vest upon the optionee's
continued service as a director in three equal annual installments, beginning
one year after the date of grant. Each option granted under the 1996 Director
Plan has a 10-year term. Options may be exercised within three months after
termination of a director's service with the Company (but not after the
expiration date of the option) or 12 months after the director's death.
INFORMATION ON COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
The Company's Board of Directors has established a Compensation Committee,
an Audit Committee and a Nominating and Organization Committee.
The Compensation Committee establishes salaries, incentives and other forms
of compensation for directors, officers and other key employees of the Company,
administers the 1990 Option Plan and recommends policies relating to benefit
plans. The Compensation Committee currently consists of Drs. Harrison and
Knudson. There were three Compensation Committee meetings in 1997.
The Audit Committee reviews the Company's accounting practices, internal
accounting controls and financial results and oversees the engagement of the
Company's independent auditors. The Audit Committee currently consists of
Messrs. Frazier and Levinthal. There were three Audit Committee meetings in
1997.
The Nominating and Organization Committee makes recommendations to the
Board of Directors concerning the desired qualifications of prospective
candidates to fill vacancies on the Board of Directors and to serve as officers
of the Company. The Nominating and Organization Committee currently consists of
Mr. Wheeler and Dr. Harrison. There was one Nominating Committee meeting in
1997. Stockholders may nominate candidates for director when such candidate is
nominated in compliance with the rules set forth in the Company's Amended and
Restated Bylaws.
In 1997, there were seven meetings of the Board of Directors. Each board
member attended at least 75% of the meetings of the Board and each Committee of
which he was a member.
3
<PAGE> 6
EXECUTIVE OFFICERS
The executive officers of the Company, and their ages as of December 31,
1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION OFFICER SINCE
---- --- -------- -------------
<S> <C> <C> <C>
Kurt C. Wheeler................ 44 President, Chief Executive Officer and Chairman of 1990
the Board
John M. Adams.................. 51 Executive Vice President, Engineering and Chief 1990
Technical Officer
Jerry C. Griffin, M.D.......... 53 Executive Vice President, Medical Affairs 1992
Clifton A. Alferness........... 50 Vice President, Research 1990
Gregory M. Ayers,
M.D., Ph.D................... 35 Vice President, Clinical Affairs 1996
John Michael Cleary............ 39 Vice President, Worldwide Marketing and U.S. Sales 1996
Phillip D. Foshee, Jr.......... 41 Vice President, Design Engineering 1997
Robert A. Garee................ 44 Vice President, Worldwide Operations 1996
Richard O. Gray, Jr............ 51 Vice President, Intellectual Property 1994
Michel E.J. Lussier............ 41 Vice President, General Manager of European 1994
Operations
Donald F. Seaton III........... 40 Vice President, Finance, Chief Financial Officer 1994
and Secretary
</TABLE>
For a biographical summary of Mr. Wheeler, see "Election of
Directors -- Nominees."
JOHN M. ADAMS, co-founder, Executive Vice President, Engineering and Chief
Technical Officer, joined InControl in 1990. From 1978 to 1990, Mr. Adams was
Vice President of Research and Development of Physio-Control Corporation, a
medical electronics company and subsidiary of Eli Lilly & Company, a
pharmaceutical company. Mr. Adams holds a B.S. in Electrical Engineering from
the University of Minnesota.
JERRY C. GRIFFIN, M.D., Executive Vice President, Medical Affairs, joined
InControl in 1992. Dr. Griffin heads InControl's Scientific Advisory Board. From
1984 to 1992, Dr. Griffin was employed by the University of California, San
Francisco, where he most recently was Professor of Medicine. Dr. Griffin holds a
B.S. from the University of Southern Mississippi and an M.D. from the University
of Mississippi.
CLIFTON A. ALFERNESS, co-founder and Vice President, Research, joined
InControl in 1990. From 1989 to 1990, Mr. Alferness was a research scientist at
Duke University Medical Center, Basic Arrhythmia Laboratory. From 1975 to 1989,
he served as Director of Research at Physio-Control Corporation. Mr. Alferness
holds a B.S. in Electrical Engineering from South Dakota School of Mines.
GREGORY M. AYERS, M.D., PH.D., Vice President, Clinical Affairs, joined
InControl in 1992, and was appointed to his current position in 1996. From 1989
to 1992, he served as a post-doctorate research assistant at Indiana University.
He holds a B.S. in Engineering and a Ph.D. in Biomedical Engineering from Purdue
University and an M.D. from Indiana University.
JOHN MICHAEL (SEAN) CLEARY, Vice President, Worldwide Marketing and U.S.
Sales, joined InControl in 1996. From 1994 to 1996, he served as Regional
Manager for Cardiac Pacemakers, Inc., a division of Guidant Corporation, a
medical device company. From 1993 to 1994, Mr. Cleary served as Business
Development Manager for the Medical Devices and Diagnostic Division of Eli Lilly
& Company. From 1987 to 1993, he served as Sales Representative, Marketing
Manager, and Financial Analyst for Cardiac Pacemakers, Inc., which was then a
subsidiary of Eli Lilly & Company. Mr. Cleary holds a B.S. in Industrial and
Operations Engineering and an M.B.A. from the University of Michigan.
PHILLIP D. FOSHEE, JR., Vice President, Design Engineering, joined
InControl in 1991. From 1990 until 1991, Mr. Foshee was a Principal Engineer for
Intermedics, Inc., a medical device company. From 1984 until 1990, he served as
manager of Integrated Circuit Development for Integrated Logic Inc., an
integrated circuit technology company. Mr. Foshee holds a B.S. in Electrical
Engineering and an M.S. in Electrical Engineering from Auburn University.
4
<PAGE> 7
ROBERT A. GAREE, Vice President, Worldwide Operations, joined InControl in
1996. From 1990 to 1996, he was employed by Schneider (USA), Inc., a division of
Pfizer Inc., a research-based health care company. From 1990 to 1995, Mr. Garee
served as Director of Operation for the Cardiology and Peripheral Divisions of
Schneider (USA). From 1995 to 1996, he served as New Product Program Director
for its stent graft business. He holds a B.S. in Chemistry from the State
University of New York, Albany.
RICHARD O. GRAY, JR., Vice President, Intellectual Property, joined
InControl in 1994. From 1989 to 1994, Mr. Gray was a partner at the law firm of
Foley & Lardner, Chicago, Illinois, specializing in patent matters. Mr. Gray
holds a B.S. from Purdue University and a J.D. from Loyola University of Chicago
Law School.
MICHEL E.J. LUSSIER Vice President, General Manager of European Operations,
joined InControl in 1994. From 1980 to 1994, Mr. Lussier was employed by
Medtronic, Inc. ("Medtronic"), a medical electronics company. From 1990 to 1994,
he served as Medtronic's European Business Director, Cardiac Pacing. Mr. Lussier
holds a B.S. in Electrical Engineering and an M.S. in Biomedical Engineering
from the University of Montreal and an M.B.A. from the European Institute of
Business Administration -- INSEAD.
DONALD (GUY) F. SEATON III, Vice President, Finance, Chief Financial
Officer and Secretary, joined InControl in 1994. From 1993 to 1994, Mr. Seaton
was employed by Interpoint Corporation, a microelectronics company, where he
most recently served as Vice President of Business Development and
Administration. From 1990 to 1992, Mr. Seaton was employed by International
Rectifier Corporation, a semiconductor manufacturer, where he served as Vice
President, Finance and Administration. He holds a B.A. from Stanford University
and an M.B.A. from the University of Chicago.
5
<PAGE> 8
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth certain information as to the Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers during the years ended December 31, 1997, 1996 and 1995 (the
"named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- ------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) OPTIONS(#) ($)
- -------------------------------- ---- --------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Kurt C. Wheeler(1).............. 1997 $355,000 $36,210 $12,000 55,000 $ 16,800(2)
President and Chief 1996 347,500 36,000 4,500 107,255
Executive Officer 1995 302,750 32,000 100,000 21,300
Jerry C. Griffin, M.D........... 1997 290,655 20,655 35,469
Exec. Vice President, 1996 265,000 4,500 86,650
Medical Affairs 1995 236,750 60,000 14,723
John M. Adams................... 1997 250,000 19,125 35,469
Exec. Vice President,
Engineering 1996 233,750 4,500 63,200
and Chief Technical Officer 1995 173,749 60,000
Richard O. Gray, Jr............. 1997 229,327 17,213 22,734
Vice President, 1996 225,077 4,500 62,808
Intellectual Property 1995 206,000 30,000 45,000
Michel E. Lussier............... 1997 209,375 16,731 22,734 34,519(3)
Vice President, General
Manager 1996 240,419 4,500 37,185
of European Operations 1995 250,009 30,000 41,172
</TABLE>
- ---------------
(1) Other Annual Compensation amounts represent compensation paid under an
employment contract. See "-- Employment Agreement; Change in Control
Arrangements -- Employment Agreements."
(2) For Mr. Wheeler, the amount represents a $4,800 automobile expense paid
under his employment contract and a $12,000 housing allowance.
(3) For Mr. Lussier, the 1997 amount represents car lease payments of $12,619,
housing allowances of $14,400 and contributions to a pension plan of $7,500.
6
<PAGE> 9
OPTION GRANTS
The following table sets forth certain information regarding options
granted during the year ended December 31, 1997 to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
- ------------------------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR ($/SH)(1) DATE(2) 5%($) 10%($)
- -------------------------- ---------- ------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kurt C. Wheeler........... 55,000 5.7% $7.625 01/16/07 $243,743 $668,376
Jerry C. Griffin, M.D..... 30,000 3.1% 7.625 01/16/07 143,860 364,569
5,469 * 9.500 08/05/07 32,675 82,804
John M. Adams............. 30,000 3.1% 7.625 01/16/07 143,860 364,569
5,469 * 9.500 08/05/07 32,675 82,804
Richard O. Gray, Jr....... 20,000 2.1% 7.625 01/16/07 95,906 243,046
2,734 * 9.500 08/05/07 16,334 41,394
Michel E. Lussier......... 20,000 2.1% 7.625 01/16/07 95,906 243,046
2,734 * 9.500 08/05/07 16,334 41,394
</TABLE>
- ---------------
* Less than 1%
(1) The option exercise price is equal to the estimated fair market value of the
underlying Common Stock on the date of grant, as determined by the Board of
Directors.
(2) Provided the holder remains employed by the Company, one quarter of the
options vest each year from the date of grant, becoming fully exercisable
four years from the date of grant. The options terminate 10 years from the
date of grant.
(3) Future value of current year grants assuming appreciation of 5% and 10% per
year over the 10-year option period. The actual value realized may be
greater or less than the potential realizable values set forth in the table.
OPTION EXERCISES AND YEAR-END OPTION VALUES
None of the named executive officers exercised options during the year
ended December 31, 1997. The following table sets forth certain information
regarding options held as of the end of such year by each of the named executive
officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kurt C. Wheeler............................... 63,810 95,690 $0 $0
Jerry C. Griffin, M.D......................... 48,394 91,575 $0 $0
John M. Adams................................. 31,728 68,241 $0 $0
Richard O. Gray, Jr........................... 16,520 40,714 $0 $0
Michel E. Lussier............................. 99,853 57,381 $0 $0
</TABLE>
- ---------------
(1) Calculated based on the difference between the option exercise price and the
estimated fair market value of the Common Stock at December 31, 1997.
7
<PAGE> 10
EMPLOYMENT AGREEMENT; CHANGE IN CONTROL ARRANGEMENTS
Employment Agreements. Kurt C. Wheeler, President and Chief Executive
Officer of the Company, is party to an Executive Employment Agreement with the
Company dated as of April 1, 1995, as amended by the First Amendment to
Executive Employment Agreement, dated September 30, 1996, and the Second
Amendment to Executive Employment Agreement, dated September 1, 1997 (as
amended, the "Employment Agreement"). The Employment Agreement provides that Mr.
Wheeler is entitled to receive an annual base salary of $325,000, with increases
to be considered by the Board of Directors annually. Pursuant to the Employment
Agreement, Mr. Wheeler receives a monthly automobile allowance of $400, which
allowance is reviewed annually by the Board of Directors, and received a monthly
housing allowance of $3,000 until April 1, 1997. In addition, pursuant to the
Employment Agreement, Mr. Wheeler is entitled to receive loans not to exceed
$816,041.93, consisting of a lump-sum loan in the amount of $500,000 for
relocation and monthly loans in the amount of $5,000, in the aggregate not to
exceed $316,041.93, for as long as Mr. Wheeler remains an employee. As of
December 31, 1997, an aggregate of $801,402.00 had been loaned to Mr. Wheeler
under these arrangements. Interest on the loans is set at 4.94% per annum, or
the minimum interest necessary to prevent each loan from being classified as a
"below market loan" under Section 7872 of the Internal Revenue Code of 1986, as
amended (the "Code"), but not to exceed 8% per annum. The principal amount and
accrued interest on the loans is due upon the earliest of (i) termination of the
Employment Agreement by the Company for cause or by Mr. Wheeler, (ii) six months
after the aggregate value of all securities of the Company then held by Mr.
Wheeler exceeds $4,000,000 for a period of 90 consecutive calendar days, so long
as Mr. Wheeler is permitted to freely sell his shares of Common Stock under
applicable securities laws, (iii) nine months after a merger, reorganization or
sale of substantially all the assets of the Company (an "Acquisition") in which
Mr. Wheeler receives cash and securities having a value in excess of $4,000,000
and the securities received, if any, are publicly traded, and (iv) upon
termination of the Employment Agreement due to Mr. Wheeler's death or
disability. If any of the events described in clauses (ii) - (iv) do not occur
on or before September 1, 1998, or in any event upon the occurrence of an
Acquisition in which Mr. Wheeler does not receive cash and securities having a
value in excess of $4,000,000, the principal, but not the accrued interest on
the loans, will be forgiven, and the Company will compensate Mr. Wheeler for any
federal income tax associated with such forgiveness. In conjunction with these
loans and $264,875 in loans relating to the acceleration and exercise of options
in connection with the Company's initial public offering, Mr. Wheeler executed
promissory notes in favor of the Company and pledged 88,312 shares of Common
Stock as collateral therefor.
Michel E. Lussier, Vice President, General Manager of European Operations
for the Company, is also party to an employment agreement with the Company dated
as of August 17, 1994. Pursuant to this agreement, Mr. Lussier is entitled to
receive a guaranteed net after-tax annual base salary of $120,000 paid in local
currency. The local currency payments are calculated at a fixed foreign exchange
rate through August 1998. Increases in Mr. Lussier's compensation are considered
by the Board of Directors annually. Changes in the foreign exchange rate will be
considered after four years. In addition, pursuant to this agreement, InControl
provides Mr. Lussier with an automobile and relevant automobile expenses, such
as taxes, licenses and insurance, at a total monthly cost of approximately
$1,052 in 1997 and makes contributions to a pension plan of approximately $7,500
annually. Mr. Lussier also receives a monthly housing allowance of $1,200.
Change in Control Agreements. In May and September 1996, the Company
entered into Senior Management Employment Agreements with each of its executive
officers. These agreements provide that upon a "Change in Control" (as defined
in the agreements) each such executive will be entitled to receive an annual
base salary not less than his salary in effect prior to the Change in Control
and an annual bonus at least equal to the average of his annual bonuses for the
three years prior to the Change in Control. In addition, each such executive
will be entitled to insurance coverage and other employee benefits no less
favorable than the Company's benefits in effect prior to the Change in Control.
If during the two-year period after a Change in Control, the executive officer's
employment is terminated by the Company for any reason other than death,
disability or "cause" or by the executive for "good reason" (as such terms are
defined in the agreements), such executive officer will be entitled to certain
additional benefits, including a lump-sum payment equal to two times the sum of
(i) the executive officer's annual salary prior to the Change in Control (or on
the date of
8
<PAGE> 11
termination, if such executive officer's salary is higher on such date) and (ii)
a percentage of such salary equal to the executive officer's percentage bonus
for the year prior to the Change in Control. If no such bonus was paid, or if
the bonus cannot be determined, such percentage will be 10%. In addition, any
such terminated executive officer will be entitled to payment of an amount
sufficient to compensate him for any excise tax, including interest and
penalties, imposed under Section 4999 of the Code and to continuation of life
insurance, disability, health and dental, and other similar employee benefits
for one year following termination. The Senior Management Employment Agreements
may be terminated on 60 days' written notice prior to a Change in Control or 30
days' prior written notice once a Change in Control has occurred; provided,
however, that the Company will remain liable for any obligations arising prior
to such termination.
Restated 1990 Stock Option Plan. Under the Restated 1990 Stock Option Plan
(the "1990 Option Plan"), upon a "change in control" (as defined in the 1990
Option Plan), each outstanding option becomes 100% vested immediately prior to
the change in control, unless (i) in the opinion of the Company's independent
accountants, such accelerated vesting would render unavailable pooling of
interests accounting treatment for the change in control, (ii) such option is
assumed or replaced with a comparable option by the successor corporation
following the change in control, or (iii) such option is replaced with a cash
incentive program that preserves the spread existing at the time of the change
in control and provides for payouts in accordance with the option's vesting
schedule. Unless assumed by a successor corporation, all options under the 1990
Option Plan terminate upon a change in control. Any options held by an executive
officer or other employee of the Company that are assumed or replaced by the
successor corporation and do not otherwise accelerate upon a change in control
will become 100% vested if, within two years following the change in control,
the optionee's employment is terminated, other than termination by the successor
corporation for "cause" or by the employee without "good reason" (as such terms
are defined in the 1990 Option Plan).
1996 Stock Option Plan for Nonemployee Directors. Upon a merger (other than
a merger of the Company in which the holders of Common Stock immediately prior
to the merger have the same proportionate ownership of common stock in the
surviving corporation immediately after the merger), consolidation, acquisition
of property or stock, separation, reorganization (other than a mere
reincorporation or the creation of a holding company) or liquidation of the
Company, as a result of which the Company's stockholders receive cash, stock or
other property in exchange for or in connection with their shares of Common
Stock, any option granted under the 1996 Director Plan will terminate (with
certain exceptions), but the optionee would have the right immediately prior to
any such merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation to exercise his or her option in whole or in part
whether or not the vesting requirements set forth in the option agreement have
been satisfied.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for establishing the salaries of the Company's executive officers
and making recommendations concerning such salaries to the Board of Directors.
In addition, the Committee determines the number and terms of options granted to
the Company's executive officers and other employees. The Committee is comprised
of two independent nonemployee directors, Drs. Harrison and Knudson. In 1997,
the Committee was comprised of Mr. Frazier and Dr. Knudson.
The medical device industry is highly competitive with respect to
recruitment and retention of qualified personnel. In setting compensation
policy, the Company continually monitors this environment and works to respond
to change and to effect adjustments as required to remain competitive. Within
this context, the underlying objectives of the Company's compensation policy are
to attract, recruit and retain the best possible executive talent, to motivate
those executives to achieve optimum performance for the Company, to link
executive, employee and stockholder interests through equity-based plans and to
provide compensation that recognizes individual contributions as well as overall
progress of the Company toward its goals. The Committee employs independently
published surveys of compensation levels at comparable medical device companies
to ensure that the Company's compensation practices are comparable to those at
such companies.
9
<PAGE> 12
During the latter part of 1996, the Company retained a compensation consultant
to assist the Committee in reviewing and making recommendations to the Company's
Board of Directors for updating the Company's compensation policy. The input of
the consultant and the resulting adjustments in the Company's compensation
policy are reflected in the Committee's decisions with respect to 1997
compensation.
For 1997, there were three components to the Company's executive
compensation: base salary, bonuses tied to performance and the achievement of
Company milestones and long-term incentives in the form of stock options.
Base Salary. The Company, in consultation with the compensation consultant,
substituted base salary increases with the institution of the bonus program
described below. The compensation of two executive officers, however, was
determined to be below industry norms, and, accordingly, their base salaries
were increased approximately 7 - 15% above those established in 1996.
The Company has an employment agreement with Mr. Wheeler, which, among
other things, provides for an annual review of his base salary by the Committee.
In 1997, in conjunction with its review of the compensation of all of the
Company's executives, Mr. Wheeler's base salary was not increased consistent
with the Company's determination to substitute increases in base salaries with
the institution of a bonus program. See "Executive Compensation -- Employment
Agreement; Change in Control Arrangements."
Bonuses. Bonuses for 1997 were tied to the achievement and timing of
Company milestones with discretionary award modifiers based on individual
performance. The milestones were based on revenue targets, obtaining the
conformite europeenne ("CE") mark for the METRIX System, regulatory approval of
TADPOLE in either the United States or Europe and specified engineering
milestones connected with new product development. The bonuses relating to the
non-revenue milestones were also dependent upon the timing of their achievement.
There were three dates specified for each of these milestones, with the earliest
date resulting in the full bonus and the two later dates each resulting in a
reduction of the bonus. Out of these four milestones, the Company obtained the
CE mark on the METRIX System by the middle date and regulatory approval in
Europe of TADPOLE by the earliest date.
Long-Term Incentives. Stock options are granted periodically under the 1990
Option Plan to provide to the Chief Executive Officer and other named executive
officers a long-term incentive opportunity that is directly linked to an
increase in stockholder value. Vesting is used to encourage key employees to
continue in the employ of the Company, to provide further incentives to enhance
stockholder value and to reward key employees for the achievement of certain
goals. Historically, the vesting provisions have varied. Generally, options have
standard four-year vesting schedules. Certain options, however, have been
granted which have vesting schedules providing for acceleration of vesting upon
the achievement of certain milestones, such as the first implant of the METRIX
device. In 1997, no options with performance-based vesting were granted and no
acceleration of vesting occurred with respect to any outstanding options. In
connection with its review of compensation policies in late 1996, and in
consultation with an independent compensation consultant, the Company amended
the 1990 Option Plan to provide that all options granted under the 1990 Option
Plan shall vest in equal, annual installments of 25%, becoming fully vested four
years from the date of grant. In 1997, the Committee granted options to each of
its executives, consistent with the recommendations of an independent
compensation consultant, except for a reduction in the recommended grant to the
Chief Executive Officer.
To qualify compensation for deductibility for federal income tax purposes,
it is the Company's policy to meet the requirements for exclusion from the limit
on deduction imposed by Section 162(m) of the Code by paying performance-based
compensation if possible and, with respect to cases in which it is not possible
to meet the requirements for exclusion from Section 162(m) of the Code, the
Company intends to minimize any award of compensation in excess of the limit.
Compensation Committee
Alan D. Frazier
Donald C. Harrison
Mark B. Knudson
10
<PAGE> 13
PERFORMANCE GRAPH
The following graph compares the cumulative total return on shares of the
Company's Common Stock with the cumulative total return of the Nasdaq US Stock
Market and the Hambrecht & Quist Healthcare Section Excluding Biotechnology
Index for the period beginning on September 9, 1994, the first day of trading,
and ending on December 31, 1997, the end of the Company's last fiscal year.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
INCONTROL, INC., NASDAQ US STOCK MARKET AND
HAMBRECHT & QUIST HEALTHCARE SECTION EXCLUDING BIOTECHNOLOGY INDEX
<TABLE>
<CAPTION>
9/09/94 12/31/94 12/31/95 12/31/96 12/31/97
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
InControl, Inc 100.00 93.18 134.09 72.73 53.41
Nasdaq U.S. Stock Market 100.00 98.87 139.82 171.98 211.04
H & Q Healthcare Section Excluding
Biotechnology Index 100.00 101.32 168.71 187.30 223.21
</TABLE>
Assumes $100 invested in InControl, Inc. Common Stock, the Nasdaq US Stock
Market and the Hambrecht & Quist Healthcare Section Excluding Biotechnology
Index, with all dividends reinvested. Stock price shown above for the Common
Stock is historical and not necessarily indicative of future price performance.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who beneficially own more than
10% of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Officers, directors and greater than 10% stockholders are
required by Commission regulation to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no forms were
required for those persons, the Company believes that during the 1997 fiscal
year all filing requirements applicable to its officers, directors and greater
than 10% beneficial owners were complied with, other than one late filing
relating to one purchase transaction by Donald C. Harrison, a director.
11
<PAGE> 14
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1997, certain information
with respect to the beneficial ownership of the Common Stock by (i) each person
known by the Company to beneficially own more than 5% of the Common Stock, (ii)
each director and director nominee of the Company, (iii) each of the Company's
named executive officers, and (iv) all directors (including director nominees)
and executive officers of the Company as a group. Except as otherwise indicated,
the Company believes that the beneficial owners of the Common Stock listed
below, based on information furnished by such owners, have sole voting and
investment power with respect to such shares.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
-------------------
NAME NUMBER PERCENT
---- --------- -------
<S> <C> <C>
Kurt C. Wheeler(1).......................................... 435,720 2.3%
John M. Adams(2)............................................ 292,531 1.5%
Jerry C. Griffin, M.D.(3)................................... 231,707 1.2%
Richard O. Gray, Jr.(4)..................................... 66,916 *
Michel E. Lussier(5)........................................ 109,416 *
Alan D. Frazier(6).......................................... 551,823 2.9%
Mark B. Knudson(7).......................................... 325,559 1.7%
Michael J. Levinthal(8)..................................... 989,979 5.3%
Donald C. Harrison(9)....................................... 18,833 *
General Electric Pension Trust.............................. 1,572,518 8.4%
303 Summer Street
Stamford, CT 06904
Warburg, Pincus Counsellors, Inc............................ 1,661,909 8.9%
466 Lexington Avenue
New York, NY 10017
Zesiger Capital Group, L.L.C. .............................. 947,276 5.0%
320 Park Avenue
New York, NY 10022
Mayfield Fund(10)........................................... 953,664 5.1%
2800 Sand Hill Road
Menlo Park, CA 94025
All directors and executive officers as a group............. 3,480,169 18.0%
(14 persons)(11)
</TABLE>
- ---------------
* Represents holdings of less than 1%.
(1) Includes 68,165 shares issuable upon exercise of outstanding options
exercisable within 60 days at a weighted average exercise price of $9.50
per share.
(2) Includes 39,833 shares issuable upon exercise of outstanding options
exercisable within 60 days at a weighted average exercise price of $10.86
per share.
(3) Includes 57,333 shares issuable upon exercise of outstanding options
exercisable within 60 days at a weighted average exercise price of $10.21
per share held by Dr. Griffin, together with 4,234 shares held by a trust
over which Dr. Griffin maintains investment discretion.
(4) Includes 21,916 shares issuable upon exercise of outstanding options
exercisable within 60 days at a weighted average exercise price of $10.65
per share. Also includes 6,250 shares subject to repurchase by the Company
upon termination of Mr. Gray's relationship with the Company, which number
declines over time.
(5) Represents 109,416 shares issuable upon exercise of outstanding options
exercisable within 60 days at a weighted average exercise price of $8.73
per share.
(6) Represents 3,780 shares, together with 16,666 shares issuable upon exercise
of outstanding options that are fully vested at an exercise price of $12.70
per share, held by Alan D. Frazier; 230,186 shares together
12
<PAGE> 15
with 66,886 shares issuable upon exercise of an outstanding warrant held by
Frazier & Company L.P.; 215,267 shares held by Frazier Healthcare
Investments, L.P.; and 18,038 shares held by Frazier Management L.L.C.
and 1,000 shares held by Frazier & Company, Inc. The general partner of
Frazier Healthcare Investments, L.P. is Frazier Healthcare Management,
L.P., whose general partner is Frazier & Company, L.P., whose general
partner is Frazier Management L.L.C. The managing member of Frazier
Management L.L.C. is Frazier & Company, Inc. Alan Frazier is the sole
shareholder of Frazier & Company, Inc. Mr. Frazier disclaims beneficial
ownership of all 531,377 shares beneficially owned by Frazier Healthcare
Investments, L.P., Frazier Management L.L.C. and Frazier & Company, L.P.
(7) Includes 143 shares, together with 16,666 shares issuable upon exercise of
outstanding options exercisable within 60 days at an exercise price of
$12.70 per share. Also includes 308,750 shares held by Medical Innovation
Fund, of which Dr. Knudson is a special limited partner. Dr. Knudson
disclaims beneficial ownership of such shares.
(8) Includes 1,435 shares, together with 16,666 shares issuable upon exercise
of outstanding options exercisable within 60 days at an exercise price of
$12.70 per share, held by Mr. Levinthal, and 18,214 shares held in a trust
over which Mr. Levinthal maintains investment discretion. Also includes
832,874 shares held by Mayfield VI Investment Partners ("Mayfield VI"), of
which Mr. Levinthal is a general partner of the general partner, and
120,790 shares held by Mayfield Medical Partners, of which Mr. Levinthal is
a general partner. Mr. Levinthal disclaims beneficial ownership of all such
shares held by Mayfield VI and Mayfield Medical Partners.
(9) Represents 3,000 shares held by Dr. Harrison, together with 15,833 shares
issuable upon exercise of outstanding options exercisable within 60 days at
a weighted average exercise price of $14.24 per share held by a trust of
which Dr. Harrison is a beneficiary and over which Dr. Harrison maintains
investment discretion.
(10) Represents 832,874 shares held by Mayfield VI and 120,790 shares held by
Mayfield Medical Partners.
(11) Includes an aggregate of 9,531 shares subject to repurchase by the Company
upon termination of the holders' relationship with the Company, which
number declines over time and 595,121 shares issuable upon exercise of
outstanding options exercisable within 60 days at an average weighted
exercise price of $9.64 per share. See also footnotes 1-9 above.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During January and April 1995, the Company made loans to Messrs. Griffin,
Wheeler, Adams and Alferness of $179,000, $167,000, $70,000 and $66,000,
respectively, to pay for the tax liabilities arising from the exercise of stock
options during 1994. These loans accrue interest at rates of 7.19% and 6.8% for
loans made in January and April, respectively. Interest is due on the
anniversary dates of the loans with the balances on these loans originally due
on the second anniversary date, which due date was extended so that the balances
on the loans were and are due on the third anniversary date. These loans are
secured by the pledge of 35,800, 33,400, 14,000 and 13,200 shares of Common
Stock, respectively.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Ernst & Young LLP, certified public
accountants, to act as independent auditor of the Company for the fiscal year
ending December 31, 1998. Ernst & Young LLP has been auditor of the Company
since the Company's inception.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting, with the opportunity to make a statement, if the representative
so desires, and is expected to be available to respond to appropriate questions
from stockholders.
13
<PAGE> 16
OTHER BUSINESS
The Board of Directors does not intend to present any business at the
Annual Meeting other than as set forth in the accompanying Notice of Annual
Meeting of Stockholders, and has no present knowledge that any others intend to
present business at the Annual Meeting. If, however, other matters requiring the
vote of the stockholders properly come before the Annual Meeting or any
adjournment or postponement thereof, the persons named in the accompanying proxy
will have discretionary authority to vote the proxies held by them in accordance
with their judgment as to such matters.
STOCKHOLDER PROPOSALS
Stockholder proposals intended for inclusion in the proxy materials for the
Company's 1999 Annual Meeting of Stockholders must be received by the Company no
later than November 26, 1998.
Such proposals should be directed to the Corporate Secretary, InControl,
Inc., 6675 185th Avenue N.E., Redmond, Washington 98052.
ANNUAL REPORT AND FORM 10-K
A copy of the Company's Annual Report to Stockholders for 1997, including
financial statements, accompanies this Proxy Statement.
------------------------
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as filed with the Commission, will be furnished without
charge to beneficial stockholders or stockholders of record upon request to
Investor Relations at the Company's principal executive offices.
14
<PAGE> 17
PROXY
INCONTROL, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS -- APRIL 30, 1998
The undersigned hereby appoint(s) Kurt C. Wheeler and Donald F. Seaton III
and each of them as proxies, with full power of substitution, to represent and
vote as designated all shares of Common Stock of InControl, Inc. held of record
by the undersigned on March 13, 1998 at the Annual Meeting of Stockholders of
the Company to be held at the Hyatt Regency Bellevue, 900 Bellevue Way
Northeast, Bellevue, Washington, at 8:30 a.m. on Thursday, April 30, 1998, with
authority to vote upon the matters listed on the other side of this proxy card
and with discretionary authority as to any other matters that may properly come
before the meeting or any adjournment or postponement thereof.
IMPORTANT -- PLEASE DATE AND SIGN ON THE OTHER SIDE.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE> 18
<TABLE>
<S> <C>
Please mark [X]
your vote as
indicated in
this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR ALL NOMINEES" IN ITEM 1.
FOR WITHHOLD AUTHORITY
all nominees to vote for all nominees I plan to attend the Annual Meeting [ ]
1. ELECTION OF DIRECTORS [ ] [ ]
Nominees: Alan D. Frazier and Kurt C. Wheeler
WITHHOLD FOR THE FOLLOWING ONLY:
(write the name of the nominee(s)
in the space below)
____________________________________________
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
AS DIRECTED BY THE STOCKHOLDER IN THE SPACE PRO-
VIDED. IF NO DIRECTION IS GIVEN, THIS PROXY WILL
BE VOTED "FOR ALL NOMINEES" IN ITEM 1.
Signature(s) _______________________________________________________________________________________ Date _________________________
Please sign exactly as your name appears hereon. Attorneys, trustees, executors and other fiduciaries acting in a representative
capacity should sign their names and give their titles. An authorized person should sign on behalf of corporations, partnerships,
associations, etc. and give his or her title. If your shares are held by two or more persons, each person must sign. Receipt of the
notice of meeting and proxy statement is hereby acknowledged.
- -----------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
</TABLE>
