<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K/A
(AMENDMENT NO. 1)
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-11150
----------------
IMAGYN MEDICAL TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 98-0122944
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5 CIVIC PLAZA, SUITE 100, NEWPORT BEACH, CALIFORNIA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 668-5858
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
-------------------
COMMON STOCK
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of June 22, 1998, the aggregate market value of the Common Stock held
by non-affiliates of the Registrant was approximately $16,166,955. The number of
shares outstanding of the Registrant's Common Stock as of June 22, 1998 was
36,303,125.
This Amendment No. 1 is being filed to include Part III information
which was previously incorporated by reference.
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<PAGE> 2
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of all executive
officers, certain key employees and directors of Imagyn as of July 24, 1998. A
summary of the background and experience of each of these individuals is set
forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
---- --- -------------
<S> <C> <C>
Charles A. Laverty(1)....................... 52 Chairman of the Board and Chief Executive Officer
Bruce A. Hazuka............................. 51 Chief Operating Officer
Kevin M. Higgins............................ 56 Senior Vice President and General Counsel
Michael A. Montevideo 44 Senior Vice President and Chief Financial Officer
Randall L. Condie........................... 43 President-- Urology Products
Michael Schuler............................. 48 President-- Surgical Products
M. Cassandra Hoag........................... 42 President-- Gynecology Products
John S. Chamberlin(1)....................... 69 Director
Robert N. Elkins, M.D.(3)................... 52 Director
Lawrence Goelman(1)(2)(3)................... 56 Director
Philip Green................................ 49 Director
Michael S. Gross(1)......................... 35 Director
Richard Newhauser........................... 50 Director
Francis J. Tedesco, M.D.(2)................. 52 Director
- ----------
</TABLE>
(1) Member of Executive Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
The Company's Board of Directors is divided into three classes. One
class of directors of Imagyn is elected at each annual meetings of stockholders
to serve a three-year term or until their successors are elected and officers of
the Company serve at the discretion of the Board of Directors.
CHARLES A. LAVERTY became Chief Executive Officer in September 1994, and
Chairman of the Board of Directors in December 1994. Mr. Laverty has spent the
last 15 years of his 20 years of management and marketing experience in the
healthcare field. Prior to joining the Company, Mr. Laverty was employed as
Senior Executive Vice President and was a director of Coram Healthcare
Corporation, the second largest home infusion therapy company in the U.S., which
was formed by the merger of Curaflex Health Services, Inc., HealthInfusion,
Inc., Medisys, Inc., and T2 Medical, Inc. Mr. Laverty served as the Chairman of
the Board, President and Chief Executive Officer of Curaflex Health Services
from February 1989 to July 1994. Prior to his association with Curaflex, Mr.
Laverty served as President and Chief Executive Officer of InfusionCare, Inc., a
home infusion services company, from October 1988 to February 1989. In addition,
he has held several positions, including Chief Operating Officer, with Foster
Medical Corporation, a durable medical equipment supply company, and worked in
both sales and management for C.R. Bard, a medical device company.
BRUCE A. HAZUKA served as Executive Vice President -- Operations from
September 1995 until March 1997 when he became Chief Operating Officer. Mr.
Hazuka has spent his entire 27 years of general management, marketing and
operations experience in the healthcare field, and was founder, President and
Chief Executive Officer of Healthcare Associates, Inc. which was founded in
January 1990. Prior to joining the Company, Mr. Hazuka served as Chairman of the
Board, President and Chief Executive Officer of Allscrips Pharmaceuticals, Inc.,
a pharmaceutical benefits management company, from September 1990 to June 1994.
Mr. Hazuka is a director of Integrated Medical Resources, Inc., a provider of
disease management services for men suffering from erectile dysfunction.
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<PAGE> 3
MICHAEL A. MONTEVIDEO has served as Senior Vice President and Chief
Financial Officer of the Company since October 1997. From 1985 to 1997, Mr.
Montevideo was employed by FHP International Corporation, most recently serving
as Vice President and Treasurer. Prior to 1985, he held various financial
positions at Fluor Corporation and Hughes Aircraft Company.
KEVIN M. HIGGINS became Senior Vice President and General Counsel of the
Company in November 1995. From 1989 to 1995 Mr. Higgins was Vice President and
General Counsel of Curaflex Health Services, Inc. From 1987 to 1989 he was Vice
President and General Counsel of Foster Medical Corporation. Prior to that, Mr.
Higgins was with Avon Products, Inc.
RANDALL L. CONDIE has served as President -- Urology since December
1997. Prior to that, Mr. Condie served as President --Medical Surgical Products
from February 1997 until December 1997. Prior to that Mr. Condie was Vice
President, National Accounts for the Company, serving in that capacity between
August 1995 and February 1997. Prior to that he held several executive sales
management positions with the Company since October 1994. From March 1993 until
September 1994, Mr. Condie was Regional Vice President of NMC Home Care, Inc., a
Division of W.R. Grace Inc.
MICHAEL SCHULER joined the Company in January 1996 as Senior Vice
President, New Business Development. He became President -- Visualization
Products in August 1996 and President - Surgical Products in December 1997.
Prior to joining the Company, Mr. Schuler was with Advanced Surgical, Inc. from
1992 until 1995. He was appointed Chief Executive Officer of Advanced Surgical
in 1994. Prior to Advanced, Mr. Schuler was with Johnson and Johnson
Interventional Systems as Vice President of Product Management.
M. CASSANDRA HOAG served as Senior Vice President -- Sales and Marketing
from October 1994 through August 1996 at which time she became President --
Gynecological Products. Prior to joining the Company, Ms. Hoag served as a
Division Vice President of Curaflex Health Services, Inc. From April 1989 to
December 1992, Ms. Hoag served as Curaflex's Vice President, Central Operations.
Prior to joining Curaflex, Ms. Hoag held several positions, including Vice
President of Central Operations, with Foster Medical Corporation and Abbey
Healthcare Group from February 1985 to April 1989.
JOHN S. CHAMBERLIN has served as a director of the Company since June
1996. Mr. Chamberlin worked for 22 years in various assignments for General
Electric Company, including sales, product planning, marketing, General Manager
of Radio Receiver Department and Vice President and General Manager of the
Housewares and Audio Business Division. From 1976 to 1985 he was the President
and Chief Executive Officer of Lenox, Inc. and in 1985 joined Avon Products,
Inc. as President and Chief Operating Officer, leaving Avon in 1988. Mr.
Chamberlin is presently Chairman of the Board of Life Fitness Company and WNS,
Inc., and he serves on the Boards of Directors of The Scotts Co., Seasons, Inc.,
the Robbins Company, Healthsouth Corporation and the Sports Holding Company. Mr.
Chamberlin is a Trustee of the Medical Center of Princeton and the Woodrow
Wilson National Fellowship Foundation.
ROBERT N. ELKINS, M.D. has served as a director of the Company since
March 1995. Dr. Elkins is the founder of Integrated Health Services, Inc., a
provider of post acute and subacute care. Dr. Elkins has served as the Chairman
and Chief Executive Officer of Integrated Health Services since 1986. Dr.
Elkins, a graduate of the University of Pennsylvania, received his M.D. degree
from the Upstate Medical Center at the State University of New York and
completed his residency at Harvard University.
LAWRENCE GOELMAN has served as a director of the Company since March
1995. From 1981 until 1995, Mr. Goelman served as the Chairman and Chief
Executive Officer of CostCare, a national healthcare cost management firm. Since
1995, Mr. Goelman has acted as a consultant, and currently is Managing Director
of Tremont Partners.
PHILIP GREEN has served as a director of the Company since October
1997. Mr. Green is, and for more than five years has been, managing partner of
Green Stewart Farber & Anderson, a law firm based in Washington, DC.
MICHAEL S. GROSS has served as a director of the Company since June
1996. Mr. Gross is one of the founding principals of Apollo Advisors, L.P.
which, together with an affiliate, acts as managing general partner of Apollo
Investment Fund, L.P., AIF II, L.P. and Apollo Investment Fund III, L.P.,
private securities investment funds, and of Lion Advisors, L.P., which acts as
financial advisor to and representative for certain institutional investors with
respect to securities investments. Mr. Gross is a director of Allied Waste
Industries, Inc., Converse, Inc., The Florsheim Group, Inc., Furniture Brands
International, Inc. and Proffitts, Inc.
RICHARD NEWHAUSER became a director of the Company in August 1996. Prior
to that he served as Chairman and Chief Executive Officer of Richard-Allan
Medical Industries, Inc. from 1974 until the acquisition of Richard-Allan by the
Company in August 1996.
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FRANCIS J. TEDESCO, M.D. has served as a director of the Company since
December 1995. Dr. Tedesco has served as President of the Medical College of
Georgia since 1988, and prior to that time he held several different positions
at the college, including Professor of Medicine and Chief, Section of
Gastroenterology and Vice President for Clinical Affairs.
Election of Directors
Pursuant to the Employment Agreement between Charles A. Laverty and the
Company, the Company is obligated to use its best efforts to cause Mr. Laverty
to be elected as a voting member of the Company's Board of Directors during the
term of his employment. In connection with the acquisition of Richard-Allan
Medical, the Company agreed to use its best efforts to cause Richard Newhauser
to be elected to the Company's Board of Director until August 1999. Mr. Gross is
one of the two nominees of the holders of the Convertible Debentures, and the
holders of the Company's convertible debentures have elected not to name a
second nominee at this time. There are no other arrangements or understandings
between any director or executive officer and any other person pursuant to which
such director or executive officer was or is to be elected as a director or
executive officer, as applicable.
Directors' Fees
Each director of the Company who is not a salaried officer is entitled
to receive $10,000 per year and $1,000 for each directors and committee meeting
attended. Directors are also entitled to reimbursement of expenses incurred in
connection with business of the Company. Directors also receive annual grants of
options to purchase 7,500 shares of Common Stock of the Company after each
annual stockholders meeting pursuant to the Company's 1996 Directors' Stock
Incentive Plan.
Committees of the Board
The Company currently has three committees of the Board of Directors,
the Executive Committee, the Audit Committee and the Compensation Committee.
The Executive Committee, currently consisting of Messrs. Laverty,
Goelman, Chamberlin and Gross, exercises the power of the Board of Directors
(except for certain powers that may only be exercised by the full Board) in
monitoring the management of the business of the Company between meetings of the
full Board of Directors.
The Audit Committee, currently consists of Messrs. Goelman and Tedesco,
recommends the appointment of the Company's independent public accountants,
reviews and approves the scope of the annual audit and reviews the results
thereof with the Company's independent accountants. The Audit Committee also
assists the Board of Directors in reviewing the Compnay's business ethics and
conflict of interests policies.
The Compensation Committee, consisting of Messrs. Goelman and Elkins,
reviews and establishes the salary, bonus and stock awards received by the
Company's Chief Executive Officer, and, in consultation with the Chief Executive
Officer, reviews the compensation of the other executive officers of the
Company. The Compensation Committee is also responsible for administering the
Company's 1994 Stock Incentive Plan and other stock-based incentive plans. The
Compensation Committee determines the recipients of awards, sets the exercise
price of shares granted and determines the terms, provisions and conditions of
all rights granted.
Compensation Committee Interlocks and Insider Participation
During fiscal 1998, the Compensation Committee consisted of Messrs.
Goelman, Elkins and Estrin. Mr. Estrin resigned from the Board after fiscal year
end. None of these persons is or has been an officer or employee of the Company
or any of its subsidiaries. In addition, there are no Board of Directors or
Compensation Committee interlocks between the Company and other entities
involving the Company's executive officers and Board members who serve as
executive officers of such entities.
Attendance at Board and Committee Meetings
During the fiscal year ended March 31, 1998, the Board of Directors met
11 times. In addition, the Audit Committee met six times and the Compensation
Committee met five times. The Executive Committee did not meet on a formal basis
during the year. Each
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<PAGE> 5
director, except for Dr. Elkins, attended 75% or more of the aggregate number of
meetings held by the Board of Directors and all committees of the Board of
Directors on which such directors served.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors to file reports of beneficial
ownership on Form 3 and changes in beneficial ownership on Forms 4 and 5 with
the SEC. Executive officers and directors are also required by the SEC rules to
furnish the Company with copies of all Section 16(a) reports which they file.
Based solely on its review of the Forms 3, 4 and 5 provided to or filed on
behalf of its executive officers and directors, as well as written
representations from these individuals regarding Forms 5, the Company believes
that, during the fiscal year ended March 31, 1998, all Section 16(a) filing
requirements applicable to its executive officers and directors were complied
with pursuant to the SEC rules, except for Form 4s by Messrs. Chamberlin,
Elkins, Gross and Tedesco relating to options automatically granted under the
Company's 1996 Directors' Stock Incentive Plan after the 1997 Annual Meeting of
Stockholders. Each of the late Form 4s related to an option grant for 7,500
shares and the late forms were filed in April 1998.
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<PAGE> 6
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
AND OTHER INFORMATION
Summary of Executive Compensation
The following table sets forth for each of the Company's last three
completed fiscal years the compensation of the Company's Chief Executive Officer
and other named executive officers of the Company (collectively, "named
executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------
SECURITIES
OTHER ANNUAL UNDERLYING
ANNUAL COMPENSATION COMPENSATION OPTIONS/SARS
---------------------
NAME AND PRINCIPAL POSITION YEAR(1) SALARY($) BONUS($) ($) (#)
- --------------------------- ------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Charles A. Laverty 1998 $ 604,163 -- * 1,500,000(2)
President and 1997 $ 450,000 -- * --
Chief Executive Officer 1996 $ 250,100 $375,900 * 927,667
Bruce A. Hazuka 1998 $ 300,000 $150,000 * 150,000
Executive Vice President 1997 $ 220,833 -- * --
and Chief Operating 1996 $ 104,700 $ 52,000 * 200,000
Officer
Michael Schuler 1998 $ 225,000 $ 75,000 * 100,000
President - Surgical 1997 $ 225,000 -- * --
Products 1996 $ 142,879 -- * 100,000
Kevin M. Higgins 1998 $ 200,000 $ 75,000 * 150,000
Senior Vice President 1997 $ 200,000 -- * --
and General Counsel 1996 $ 32,692 -- * 150,000
M. Cassandra Hoag 1998 $ 200,000 $ 75,000 * 100,000
President - Gynecology 1997 $ 177,332 -- * --
Products 1996 $ 83,926 -- * 100,000
James L. Johnson 1998 $ 328,107 -- * --
Former executive officer 1997 $ 294,733 -- * --
1996 $ 152,000 $ 51,100 * 336,517
Richard Kindberg 1998 $ 278,511 $ 75,000 * 50,000
Former executive officer 1997 $ 181,042 $ 51,866 * 100,000
1996 $ 118,125 $ 28,502 * --
</TABLE>
- ----------
* Other Annual Compensation did not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus.
(1) The information for fiscal 1996 covers a nine month transition period ending
March 31, 1996.
(2) In July 1998, Mr. Laverty was granted an option to purchase 1,000,000 shares
in connection with a personal guarantee of a portion of the Company's
revolving credit facility.
Summary of Option Grants
The following table sets forth the individual grants of stock options
made by the Company during the year ended March 31, 1998 to each of the named
executive officers of the Company.
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OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT
----------------------------------- ASSUMED RATE
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS/SARS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ------------ ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Charles A. Laverty 1,500,000 41.2% $8.50 5/21/2007 $8,018,406 $20,320,216
Bruce A. Hazuka 50,000 1.4% $8.50 5/21/2007 $267,280 $677,341
Bruce A. Hazuka 100,000 2.7% $3.6875 10/30/2007 $231,905 $587,693
Michael Schuler 100,000 2.7% $3.6875 10/30/2007 $231,905 $587,693
Kevin M. Higgins 50,000 1.4% $8.50 5/21/2007 $267,280 $677,341
Kevin M. Higgins 100,000 2.7% $3.6875 10/30/2007 $231,905 $587,693
M. Cassandra Hoag 50,000 1.4% $8.50 5/21/2007 $267,280 $677,341
M. Cassandra Hoag 50,000 1.4% $3.6875 10/30/2007 $115,952 $293,846
James L. Johnson -- -- -- -- -- --
Richard Kindberg 50,000 1.4% $3.6875 10/30/2007 $115,952 $293,846
</TABLE>
Summary of Options Exercised
The following table sets forth information concerning exercise of stock
options during the year ended March 31, 1998 by each of the named executive
officers of the Company and the value of unexercised options at March 31, 1998.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT OPTIONS/SARS AT
ACQUIRED ON VALUE FY-END (#) FY-END ($)
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Charles A. Laverty -- -- 1,525,116/1,613,718 --/--
Bruce A. Hazuka -- -- 194,445/155,555 --/--
Michael Schuler -- -- 94,339/113,889 --/--
Kevin M. Higgins -- -- 136,111/163,889 --/--
M. Cassandra Hoag -- -- 184,722/106,945 --/--
James L. Johnson -- -- 208,739/0 --/--
Richard Kindberg -- -- 150,000/0 --/--
</TABLE>
1996 Directors' Stock Incentive Plan
In July 1996, the Company approved the 1996 Directors' Stock Incentive
Plan (the "Directors' Plan") which authorizes the issuance of up to 300,000
shares of Common Stock in the form of stock options to non-employee directors of
the Company. The Directors' Plan was approved by the Company's stockholders in
August 1996. Under the Directors' Plan, each non-employee director of the
Company automatically receives an option to purchase 7,500 shares of Common
Stock of the Company upon joining the Company's Board of Directors and an
additional 7,500 share option immediately following each annual meeting of
stockholders. Options are granted at fair market value on the date of grant and
have a ten-year term. Options vest on the first anniversary of the date of
grant; provided, that the options become immediately exercisable upon a "change
of control."
Retirement Savings Plan
In January 1995, the Company adopted the Company's Retirement Savings
Plan (the "401(k) Plan") under Section 401(k) of the Internal Revenue Code. The
401(k) Plan generally covers all full-time employees of the Company who are over
age 21 and have completed one year of service with at least 1,000 hours of
service. Employees may elect to defer, in the form of contributions to the
401(k) Plan, from 1% up to 12% of their annual compensation, subject to the
federal maximum limit. No matching contributions are
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<PAGE> 8
expected to be made by the Company relating to fiscal 1998. Employees are fully
vested in contributions made by them to the 401(k) Plan. Employees become vested
in contributions made by the Company after completion of two years of service.
Employment Agreements
CHARLES A. LAVERTY. The Company and Mr. Laverty are parties to an
Amended and Restated Employment Agreement, dated April 1, 1996, pursuant to
which Mr. Laverty serves as the Company's Chief Executive Officer. The initial
term of the agreement is through April 1, 1999, after which date the agreement
automatically renews for successive three-year terms unless either party
exercises their option to terminate the agreement. Mr. Laverty's salary under
the agreement was $450,000 for fiscal 1997, adjusted annually, plus bonuses. Mr.
Laverty's base salary under the agreement was increased to $750,000 during
fiscal 1998.
The Company may terminate the agreement for "cause" which is defined as
(a) Mr. Laverty's final conviction of a felony related to his duties under the
agreement or (b) Mr. Laverty's willful failure to perform his reasonable
responsibilities and duties under the agreement after 30 days notice from the
Board. In the event that Mr. Laverty terminates the agreement without cause at
any time during the last two quarters of any fiscal year any options scheduled
to vest during such fiscal year shall automatically vest as of the date of
termination. If the Company terminates the agreement for any reason other than
for cause, or if Mr. Laverty terminates the agreement due a material breach by
the Company of its obligations under the agreement, then the Company will be
obligated to (A) pay to Mr. Laverty severance pay equal to three years of his
salary and earned bonus as of the date of such termination and (B) provide and
pay for all benefits to which Mr. Laverty is entitled under the agreement for a
period of three years after termination. In addition, if the Company terminates
the agreement for any reason other than for cause, or if Mr. Laverty terminates
the agreement due to a material breach by the Company, all options then granted
to Mr. Laverty will become immediately vested and exercisable.
Mr. Laverty may terminate the agreement upon 30 days notice upon or
within one year after a "Change of Control" as such term is defined in the
agreement. If Mr. Laverty terminates the agreement for any reason (including
with or without cause) upon or within one year after a Change of Control, the
Company is obligated to (A) pay to Mr. Laverty severance equal to $2,500,000,
and (B) provide and pay for all benefits to which he is entitled under the
agreement for a period of three years after termination. In addition, all
options then held by Mr. Laverty will become immediately vested and exercisable.
If, however, an event giving rise to a Change of Control is initiated by the
Company, then prior to the Company's Board approving the Change of Control, Mr.
Laverty must inform the Board whether he intends to terminate the agreement. If
Mr. Laverty informs the Board that he does not intend to terminate the agreement
as a result of the Change of Control, he will forfeit all termination and
payment rights in the agreement based on that particular Change of Control.
Mr. Laverty agreed that during his employment and for a period of 18
months after he ceases to be employed by the Company, regardless of the manner
of termination and except as limited by the agreement, he will not compete with
the Company.
BRUCE A. HAZUKA. The Company and Mr. Hazuka are parties to an employment
agreement dated November 30, 1995 pursuant to which Mr. Hazuka serves as a
member of senior management of the Company. The agreement provides for an
initial one-year term with two automatic one-year renewals thereafter. Mr.
Hazuka's annual salary under the agreement is $200,000, adjusted annually
(currently at $300,000), plus bonuses. The Company can terminate Mr. Hazuka's
employment for cause (as defined in the agreement). The Company can terminate
Mr. Hazuka's employment without cause upon at least 90 days' prior notice, in
which case all of the options then held by Mr. Hazuka shall become immediately
vested and exercisable, and Mr. Hazuka shall be entitled to severance equal to
the amount of his salary for the remaining term of the agreement (including
extensions thereof).
Following a "change of control" (as defined in the agreement), Mr.
Hazuka may terminate the agreement with or without "good reason" (as defined in
the agreement), upon 30 days' notice given at any time during the one-year
period after the change of control. If Mr. Hazuka terminates his employment
during the one-year period after the change of control for good reason, or if
his employment is terminated without cause during such period, then he shall be
entitled to receive a lump sum severance payment equal to the greater of (i) one
times his salary and bonus for the 12 months preceding the change of control and
(ii) the remaining amount of salary payable for the term of the agreement.
MICHAEL SCHULER. The Company and Mr. Schuler are parties to an
employment agreement dated January 2, 1996 pursuant to which Mr. Schuler serves
as a member of senior management of the Company. The agreement provides for an
initial one-year term, with two automatic one-year renewals thereafter. Mr.
Schuler's annual salary under the agreement is $225,000 plus bonuses. The
Company can terminate Mr. Schuler's
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<PAGE> 9
employment for cause (as defined in the agreement). The Company can terminate
Mr. Schuler's employment without cause upon at least 90 days' prior notice, in
which case Mr. Schuler is entitled to severance equal to the amount of his
salary for the remaining term of the agreement (including extensions thereof).
Following a "change of control" (as defined in the agreement), Mr.
Schuler may terminate the agreement with or without "good reason" (as defined in
the agreement), upon 30 days' notice given at any time during the one-year
period after the change of control. If Mr. Schuler terminates his employment
during the one-year period after the change of control for good reason, or if
his employment is terminated by the Company without cause, then he shall be
entitled to receive a severance payment equal to the greater of (i) one times
his salary and bonus for the 12 months preceding the change of control and (ii)
the remaining amount of salary payable for the term of the agreement.
KEVIN M. HIGGINS. The Company and Mr. Higgins are parties to an
employment agreement pursuant to which Mr. Higgins serves as a member of senior
management of the Company. The agreement provides for an initial one-year term,
with automatic two year extensions on each anniversary date thereafter. Mr.
Higgins' annual salary under the agreement is currently $200,000 plus bonuses.
The Company can terminate Mr. Higgins' employment for cause (as defined in the
agreement). The Company can terminate Mr. Higgins' employment without cause upon
at least 90 days' prior notice, in which case Mr. Higgins is entitled to
severance equal to two times the annual amount of his salary and bonus for the
preceding year under the agreement, and all outstanding unvested options shall
vest and be exercisable as of the termination date.
Following a "change of control" (as defined in the agreement), Mr.
Higgins may terminate the agreement with or without "good reason" (as defined in
the agreement), upon 30 days' notice given at any time during the one-year
period after the change of control. If Mr. Higgins terminates his employment
during the one-year period after the change of control for good reason, or if
his employment is terminated by the Company without cause, then he shall be
entitled to receive a severance payment equal to two times his salary and bonus
for the 12 months preceding the change of control.
M. CASSANDRA HOAG The Company and Ms. Hoag are parties to an employment
agreement pursuant to which Ms. Hoag serves as a member of senior management of
the Company. The agreement provides for an initial one-year term, with automatic
two year extensions on each anniversary date thereafter. Ms. Hoag's annual
salary under the agreement is currently $200,000 plus bonuses. The Company can
terminate Ms. Hoag's employment for cause (as defined in the agreement). The
Company can terminate Ms. Hoag's employment without cause upon at least 90 days'
prior notice, in which case Ms. Hoag is entitled to severance equal to two times
the annual amount of his salary and bonus for the preceding year under the
agreement, and all outstanding unvested options shall vest and be exercisable as
of the termination date.
Following a "change of control" (as defined in the agreement), Ms. Hoag
may terminate the agreement with or without "good reason" (as defined in the
agreement), upon 30 days' notice given at any time during the one-year period
after the change of control. If Ms. Hoag terminates her employment during the
one-year period after the change of control for good reason, or if her
employment is terminated by the Company without cause, then she shall be
entitled to receive a severance payment equal to two times her salary and bonus
for the 12 months preceding the change of control.
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<PAGE> 10
Notwithstanding anything to the contrary set forth in the Company's
previous public filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934 that might incorporate future filings, including this
report, in whole or in part, the following report and Stock Performance Graph
which follows shall not be deemed to be incorporated in any such filings.
Report of the Compensation Committee on Executive Compensation
GENERAL
The Company's Board of Directors has a Compensation Committee (the
"Committee"), which during fiscal 1998 consisted of Dr. Elkins, Mr. Estrin, and
Mr. Goelman. In June 1998, Mr. Estrin resigned from the Board of Directors and
the Committee. The Committee is charged by the Board of Directors with
establishing a compensation plan which will enable the Company to compete
effectively for the services of qualified officers and key employees, to give
such employees appropriate incentive to pursue the maximization of long-term
stockholder value and to recognize such employees' success in achieving both
qualitative and quantitative goals for the benefit of the Company. The Committee
establishes appropriate levels of compensation for specific individuals, as well
as compensation and benefit programs for the Company as a whole.
COMPENSATION PHILOSOPHY AND POLICIES FOR EXECUTIVE OFFICERS
As its beginning principle, the Committee believes that executives of
the Company should be rewarded based upon their success in meeting the Company's
operational goals, improving its earnings, maintaining its leadership role in
the markets served, and generating consistent and superior returns for its
stockholders. The Committee is quite aware that fiscal 1998 was a very difficult
year, for both the Company, which faced significant liquidity issues in the
later part of fiscal 1998, as well as for the Company's stockholders.
Notwithstanding the Committee's beginning principles, it is often necessary to
adapt those principles to actual circumstances to best serve the interests of
the Company. For that reason, the Committee, early in fiscal 1998, approved
bonuses for certain employees, including certain senior executive officers.
These bonuses were awarded to these employees in recognition of their efforts
during fiscal 1997 and early fiscal 1998 to integrate and consolidate acquired
operations and achieve other operating efficiencies, and to continue to focus
on introducing new products to market. At the time the bonuses were awarded, the
Company was not facing the liquidity issues that arose later in the year, and
the Committee believed that this was the appropriate course of action. The
bonuses were awarded to certain employees, who in many cases, had not received
any bonuses for the preceding two years.
The Committee recognizes that the demand for executives with expertise
and experience in the areas of medical devices and services within the
healthcare services fields is intense. In order to attract and retain qualified
persons, the Committee believes that the Company must offer current compensation
at levels consistent with those of other publicly-traded healthcare companies.
In addition, the Committee believes that it is in the best interests of the
Company's stockholders to offer its executives meaningful equity participation
in the Company. The Committee feels that the historic mix of cash compensation
and equity participation has proven to be effective in stimulating the Company's
executives to meet both long-term and short-term goals and has been a major
factor in limiting turnover among senior executives. During fiscal 1998, an
important focus of the Committee was on employee turnover issues. The Committee
believes that it is critical to the success of the Company that it maintain its
ability to retain, motivate and incentivize key employees and senior executives.
This objective was more difficult to achieve during fiscal 1998 as the Company
faced a declining stock price, as well as significant liquidity issues later in
the fiscal year, and competition from other healthcare companies for key
personnel.
The Company's compensation program has three distinct elements: base
salary; incentive compensation, including both cash incentive compensation and
equity-based compensation; and retirement compensation. These elements are
discussed below:
Base Salary: While the demand for experienced managers in the healthcare
industry continues to grow, the Company has been successful in attracting and
retaining key executives. The Company believes that its compensation package is
instrumental in such success. The Committee endeavors to establish base salary
levels for those key executives which are consistent with those provided for
similarly situated executives of other publicly-traded healthcare companies,
taking into account each executive's areas and level of responsibility,
historical performance and tenure with the Company. In establishing such levels,
the Company considers compensation for executives of other publicly-traded
providers of healthcare services, as well as other publicly-traded companies of
similar size and with a similar growth rate. Compensation decisions are not
targeted to specific levels in the range of compensation paid by such
10
<PAGE> 11
companies, nor does the Company maintain a record of where its compensation
stands with respect to such other companies. However, the Committee takes such
levels of compensation into account in determining appropriate levels of
compensation for the Company's executives.
Incentive Compensation: In addition to base salary, the Committee
establishes cash incentive compensation for executives of the Company, based
upon each such executive's success in meeting qualitative and quantitative
performance goals on an annual basis. Individual incentive bonuses are
determined on a basis that takes into account each executive's success in
achieving standards of performance, which may or may not be quantitative,
established by the Committee and such executive's superiors. Bonus
determinations are made on a case-by-case basis, taking into account appropriate
quantitative and qualitative factors, and there is no fixed relationship between
any particular performance factor and the amount of a given executive's bonus.
Incentive compensation can be a major component of the Company's executive
compensation, and the Committee believes that placing executives at risk for
such a component is effective in motivating such executives to achieve such
goals.
In addition to cash incentive compensation, the Company utilizes
equity-based compensation, in the form of stock options, as a tool to encourage
its executives to work to meet its operational goals and maximize long-term
stockholder value. Because the value of stock options granted to an executive is
directly related to the Company's success in enhancing its market value over
time, the Committee feels that its stock option program is a very effective tool
in aligning the interests of management and stockholders.
The Committee determines stock option grants under the Company's stock
option plans. Specific grants are determined taking into account an executive's
current responsibilities and historical performance, as well as the executive's
perceived contribution to the Company's results of operations. Options are also
used to give incentive to newly-promoted officers at the time that they are
asked to assume greater responsibilities, and, in some cases, to executives who
have joined the Company through acquisitions and have assumed significant
leadership roles within the Company. In evaluating option grants, the Committee
considers prior grants and shares currently held, as well as the recipient's
success in meeting operational goals and the recipient's level of
responsibility. However, no fixed formula is utilized to determine particular
grants. The Committee believes that the opportunity to acquire a significant
equity interest in the Company has been a strong motivation for the Company's
executives to pursue the long-term interests of the Company and its
stockholders, and has promoted longevity and retention of key executives.
Information relating to stock options granted to the five most
highly-compensated executive officers of the Company is set forth elsewhere
herein.
Retirement Compensation: As described elsewhere herein, in 1995 the
Company adopted a 401(k) retirement plan in order to give all full-time
employees an opportunity to provide for their retirement on a tax-advantaged
basis.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Company is a party to an Employment Agreement with Charles Laverty,
pursuant to which Mr. Laverty is employed as Chairman of the Board, Chief
Executive Officer and President of the Company for a three-year term which ends
April 1, 1999. In addition, the Company has agreed to use its best efforts to
cause Mr. Laverty to be elected as a Director of the Company during the term of
the Agreement. Under the Agreement, Mr. Laverty's base salary was increased to
$750,000 in fiscal 1998, subject to annual review by the Board of Directors, and
he is entitled to participate in any bonus plan approved by the Board of
Directors for the Company's management in an amount equal to 100% of his base
salary. Mr. Laverty was not awarded a cash bonus during fiscal 1998. In early
fiscal 1998, the Committee, did, however, grant Mr. Laverty an additional
1,500,000 stock options vesting over 36 months at the closing price of a share
of the Company's Common Stock on May 21, 1997. Such additional option grant was
based on the Committee's assessment of Mr. Laverty's contribution to the Company
as the builder of the urological, gynecological and minimally invasive surgical
platforms for the Company. Mr. Laverty is also provided with a car allowance and
with life and disability insurance. Under the Agreement, Mr. Laverty's
employment may be terminated for cause or if he should become disabled.
Termination of Mr. Laverty's employment under the Agreement will result in
certain severance pay arrangements. In the event that the Company were to be
acquired, merged or reorganized in such a manner as to result in a change of
control of the Company, Mr. Laverty has the right to terminate his employment
under the Agreement, in which case he will receive a payment of $2.5 million.
Mr. Laverty has agreed not to compete with the Company for an eighteen month
period after any such termination. The Committee approved an amendment to the
Agreement that provides for Mr. Laverty to receive certain payments in the event
that the Company is merged or combined with another corporation in a transaction
in which the Company is not the surviving or continuing entity. The amount of
the fee would be equal to the greater of: (i) 1% of value of such transaction in
excess of $20 per share; and (ii) 1% of the capitalization of the Company in
excess of $640 million.
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<PAGE> 12
During fiscal 1997 and fiscal 1998, the Board of Directors approved
loans to Mr. Laverty aggregating $2,050,000. The loans are payable on November
25, 1999, or earlier in the event Mr. Laverty's employment is terminated.
The Committee reports to the Board of Directors on compensation
arrangements with Mr. Laverty and recommends to the Board of Directors the level
of incentive compensation, both cash and equity-based, which is appropriate for
Mr. Laverty with respect to each fiscal year of the Company. In making such
recommendation, the Committee takes into account the Company's performance in
the marketplace, its success in meeting strategic goals and its success in
meeting budgets. Again, ultimate compensation decisions are not made in a
formulary manner, but in a manner which takes into account the Company's
competitive position, its position in the financial markets, and the significant
contributions made by Mr. Laverty in building the Company.
SECTION 162(m) OF THE INTERNAL REVENUE CODE
The Omnibus Budget Reconciliation Act of 1993 contained a provision
under which a publicly-traded corporation is sometimes precluded from taking a
federal income tax deduction for compensation in excess of $1,000,000 that is
paid to the chief executive officer and the four other most highly-compensated
executives of the corporation during a corporation's tax year. Compensation in
excess of $1,000,000 continues to be deductible if that compensation is
"performance based" within the meaning of that term under Section 162(m) of the
Internal Revenue Code. Certain transition rules apply with respect to stock
option plans which were approved prior to December 20, 1993, pursuant to Rule
16b-3(b) under the Exchange Act.
The Company believes that its employee stock option plans meet the
requirements of Section 162(m) as performance-based plans; however, the
Committee does from time to time grant options outside the employee stock option
plans. The Committee and the Board of Directors have currently made a decision
not to amend the Company's cash compensation programs to meet all requirements
of Section 162(m) because such a decision would not be in the best interests of
the Company's stockholders. The Committee believes that, in establishing bonus
and incentive awards, certain subjective factors must be taken into account in
particular cases, based upon the experienced judgment of the Committee members
as well as on factors which may be objectively quantified. The preservation of
tax deductibility of all compensation is an important consideration. However,
the Committee believes that it is important that the Company retain the
flexibility to reward superior effort and accomplishment even where all cash
compensation may not be fully deductible. The Committee will continue to review
the requirements for deductibility under Section 162(m) and will take such
requirements into account in the future as it deems appropriate and in the best
interests of the Company's stockholders.
CONCLUSIONS
The Committee believes that the levels and mix of compensation provided
to the Company's executives during fiscal 1998 were appropriate. It is the
intent of the Committee to ensure that the Company's compensation programs
continue to motivate its executives and reward them for being responsive to the
long-term interests of the Company and its stockholders.
The foregoing report is submitted by the following Directors of the
Company, constituting all of the members of the Compensation Committee of the
Board of Directors:
Robert Elkins, M.D.
Lawrence Goelman, Chairman
12
<PAGE> 13
Stock Price Performance
The following performance graph assumes an investment of $100 on June 30,
1992 and compares the change to March 31, 1998 in the market price of the Common
Stock of the Company with a broad market index (Dow Jones Equity Market Index)
and industry index (S&P Healthcare (Medical Products and Supplies)). The Company
paid no dividends during the periods shown; the performance of the indices is
shown on a total return (dividend reinvestment) basis. The graph lines merely
connect the prices on the dates indicated and do not reflect fluctuations
between those dates.
COMPARISON OF 69 MONTH CUMULATIVE TOTAL RETURN*
AMONG IMAGYN MEDICAL TECHNOLOGIES, INC., THE DOW JONES EQUITY MARKET INDEX
AND THE S&P HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) INDEX
[GRAPH]
* $100 INVESTED ON 6/30/92 IN STOCK OR INDEX
INCLUDING REINVESTMENT OF DIVIDENDS.
<TABLE>
<CAPTION>
S&P HEALTHCARE*
MEASUREMENT PERIOD (MEDICAL PRODUCTS DOW JONES EQUITY IMAGYN
(FISCAL YEAR COVERED) AND SUPPLIES) MARKET
--------------------- ----------------- ---------------- ------
<S> <C> <C> <C>
6/30/92 100 100 100
6/30/93 82 115 91
6/30/94 79 116 45
6/30/95 121 146 46
3/31/96 161 177 63
3/31/97 177 212 46
3/31/98 256 312 7
</TABLE>
13
<PAGE> 14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of July 20, 1998 of (i)
each person known by the Company to own beneficially 5% or more of the Common
Stock, (ii) each current director of the Company and each person nominated to be
a director of the Company, (iii) each named executive officer, and (iv) all
current directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
-------------------
NAME AND ADDRESS(1) NUMBER PERCENT
------------------- --------- -------
<S> <C> <C>
Avatex Corporation(2).................... 2,964,827 7.1%
Apollo Advisors II, L.P.(3).............. 2,200,906 5.4%
Chase Venture Capital Associates, L.P.(4) 2,196,069 5.4%
Charles A. Laverty(5).................... 2,186,906 5.1%
Robert N. Elkins, M.D.(6)................ 189,167 *
Lawrence Goelman(7)...................... 198,683 *
Francis J. Tedesco(8).................... 22,500 *
Michael S. Gross(9)...................... 2,215,906 5.4%
John Chamberlin(10)...................... 72,500 *
Richard Newhauser........................ 2,040,281 5.0%
Bruce A. Hazuka(11)...................... 252,778 *
Kevin M. Higgins(12)..................... 189,360 *
Michael Schuler(13)...................... 141,779 *
M. Cassandra Hoag(14).................... 218,056 *
James L. Johnson(15)..................... 36,517 *
Richard Kindberg(16)..................... 150,000 *
All current directors and executive
officers as a group (14 persons)(17)... 7,935,233 17.8%
</TABLE>
- ----------
* Less than 1%.
(1) Unless otherwise indicated in the following footnotes, each person named
in the table has sole voting and investment power with respect to all
shares shown as beneficially owned, subject to applicable community
property law. Unless otherwise noted in the following notes the address of
each person listed is c/o Imagyn Medical Technologies, Inc., 5 Civic
Plaza, Suite 100, Newport Beach, California 92660. The foregoing table
presents voting securities which include Common Stock and the Debentures
which vote with the Common Stock on an "as converted" basis.
(2) Includes 1,914,827 shares of Common Stock and warrants to purchase
1,050,000 shares of Common Stock which are currently exercisable. The
address of Avatex Corporation is 5910 North Central Expressway, Dallas,
Texas 75206. Information provided was obtained from the most recent
Schedule 13D of Avatex Corporation as filed with the Securities and
Exchange Commission.
(3) Represents Debentures which vote on an "as converted" basis representing
2,087,156 shares of Voting Stock and warrants to purchase 113,750 shares
of Common Stock which are currently exercisable. The address for Apollo
Advisors II, L.P. is 1301 Sixth Avenue, New York, New York 10019.
(4) Represents Debentures which vote on an "as converted" basis representing
2,082,569 shares of Voting Stock and warrants to purchase 113,500 shares
of Common Stock which are currently exercisable. The address for Chase
Venture Capital Associates, L.P. is 380 Madison Avenue, New York, New York
10017.
(5) Includes 2,159,366 shares subject to options exercisable on or before
September 30, 1998.
(6) Includes 189,167 shares subject to options exercisable on or before
September 30, 1998.
(7) Includes 174,683 shares subject to options exercisable on or before
September 30, 1998.
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<PAGE> 15
(8) Includes 22,500 shares subject to options exercisable on or before
September 30, 1998.
(9) Includes securities held by Apollo Advisors II, L.P., of which Mr. Gross
is a principal. Mr. Gross disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein. Includes 15,000
shares subject to options exercisable on or before September 30, 1998.
(10) Includes 52,500 shares subject to options exercisable on or before
September 30, 1998.
(11) Includes 252,778 shares subject to options exercisable on or before
September 30, 1998.
(12) Includes 186,111 shares subject to options exercisable on or before
September 30, 1998.
(13) Includes 127,673 shares subject to options exercisable on or before
September 30, 1998.
(14) Includes 218,056 shares subject to options exercisable on or before
September 30, 1998.
(15) Includes 36,517 shares subject to options exercisable on or before
September 30, 1998.
(16) Includes 150,000 shares subject to options exercisable on or before
September 30, 1998.
(17) Includes 3,604,779 shares subject to options exercisable on or before
September 30, 1998 and warrants to purchase 113,750 shares of
Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1996, the Company sold $50 million of its 8.75% Convertible
Subordinated Debentures due May 30, 2006 (the "Convertible Debentures") to a
group of investors in a private placement transaction. The Convertible
Debentures are convertible into Common Stock of the Company at a conversion
price, subject to adjustment, of $10.90 per share, and the holders of the
Convertible Debentures vote with the holders of the Common Stock on an "as
converted" basis. In connection with the placement of the Convertible
Debentures, the Company also issued warrants to purchase a total of 250,000
shares of Common Stock at an exercise price, subject to adjustment, of $10.90.
Entities affiliated with Mr. Gross, a director of the Company, purchased $22.7
million of Convertible Debentures and warrants.
In connection with the acquisition of Richard-Allan by the Company, the
Company entered into a three-year employment agreement with Richard R. Newhauser
for an annual salary of $350,000, and into a consulting agreement pursuant to
which Mr. Newhauser will provide consulting services to the Company for a
five-year period after expiration of the employment agreement for $200,000 per
year. In addition, the Company has agreed to provide Mr. Newhauser health
insurance benefits during the terms of the employment and consulting agreements
and during his retirement thereafter.
In connection with the acquisition of Richard-Allan, the Company
purchased from a partnership of which Mr. Newhauser was a general partner, the
real property on which the Richard-Allan operations were conducted for a
purchase price of $4.5 million, of which $1.5 million was paid in cash at the
closing and the balance of which is represented by a $3.0 million promissory
note which bears interest at 8 1/4% per annum. The interest on the note paid
periodically throughout the term of the note and the principal is due and
payable on the tenth anniversary of the closing.
During fiscal 1997, the Company loaned $550,000 to Charles A. Laverty,
the Company's Chairman and Chief Executive Officer. The loan bears interest at a
rate of 6.02% per annum and all principal and interest under the note is due and
payable on the earlier of (a) November 25, 1999 and (b) 30 days after
termination of Mr. Laverty's employment agreement. During fiscal 1998, the
Company loaned an additional $1,500,000 to Mr. Laverty on the same terms and
conditions as the earlier loan.
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<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 on
Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Newport Beach, State of California on July 29, 1998.
IMAGYN MEDICAL TECHNOLOGIES, INC.
By: /s/ CHARLES A. LAVERTY
-------------------------------------
Charles A. Laverty
Chairman and Chief Executive Officer
16
