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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-28328
------------------------
UROCOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2117882
(State of incorporation) (IRS Employer Identification No.)
840 RESEARCH PARKWAY, OKLAHOMA CITY, OK 73104
(Address of principal executive offices) (zip code)
(405) 290-4000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
------------------------
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 / /
The number of shares of issuer's Common Stock, $.01 par value, outstanding on
May 14, 1999 was 9,975,994 shares.
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UROCOR, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheets as of March 31, 1999 and December 31, 1998.................................. 3
Statements of Operations for the three months ended March 31, 1999 and 1998................ 4
Statements of Cash Flows for the three months ended March 31, 1999 and 1998................ 5
Notes to Unaudited Interim Financial Statements--March 31, 1999............................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 7-11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS................................ 11
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................................................... 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.................................................. 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................................................ 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 12
ITEM 5. OTHER INFORMATION.......................................................................... 13-20
Cautionary Statements
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................... 20
Signatures............................................................................................... 21
</TABLE>
2
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PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UROCOR, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1998
MARCH 31, --------------
1999
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................................... $ 15,496,787 $ 11,034,123
Short-term marketable investments................................................. 1,014,115 6,057,160
Accounts receivable, net of allowance for doubtful accounts of $6,583,234 in 1999
and $6,029,066 in 1998.......................................................... 14,645,658 15,964,744
Prepaid expenses.................................................................. 699,718 946,403
Laboratory supplies, at average cost.............................................. 429,845 458,569
Inventory......................................................................... 233,288 236,328
Deferred tax asset--current, net.................................................. 2,927,574 3,159,855
Other current assets.............................................................. 584,122 1,065,909
------------- --------------
Total current assets............................................................ 36,031,107 38,923,091
------------- --------------
LONG-TERM MARKETABLE INVESTMENTS.................................................... 3,960,983 2,112,333
PROPERTY AND EQUIPMENT, net......................................................... 10,855,296 9,969,245
NON-CURRENT DEFERRED TAX ASSET, net................................................. 199,263 174,671
INTANGIBLE AND OTHER ASSETS, net.................................................... 2,261,348 2,140,599
------------- --------------
Total assets.................................................................... $ 53,307,997 $ 53,319,939
------------- --------------
------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................................. $ 2,513,060 $ 3,490,381
Accrued compensation.............................................................. 423,761 404,444
Current installments of obligations under capital leases.......................... 145,168 209,092
Other accrued liabilities......................................................... 378,267 372,427
------------- --------------
Total current liabilities....................................................... 3,460,256 4,476,344
DEFERRED COMPENSATION............................................................... 44,816 --
OBLIGATIONS UNDER CAPITAL LEASES, net of current installments....................... -- 8,607
------------- --------------
Total liabilities............................................................... 3,505,072 4,484,951
------------- --------------
CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, authorized 6,000,000 shares at March 31, 1999 and
at December 31, 1998; no shares issued and outstanding at March 31, 1999 or at
December 31, 1998............................................................... -- --
Common stock, $.01 par value, authorized 20,000,000 shares at March 31, 1999 and
at December 31, 1998; 10,498,692 shares issued and outstanding at March 31, 1999
and 10,492,726 shares issued and outstanding at December 31, 1998............... 104,987 104,927
Additional paid-in capital........................................................ 58,967,887 58,945,418
Accumulated deficit............................................................... (9,269,949) (10,215,357)
------------- --------------
Total stockholders' equity...................................................... 49,802,925 48,834,988
------------- --------------
Total liabilities and stockholders' equity...................................... $ 53,307,997 $ 53,319,939
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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UROCOR, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
REVENUE............................................................................ $ 12,277,104 $ 10,613,795
OPERATING EXPENSES:
Direct cost of services and products............................................. 4,314,149 4,047,992
Selling, general and administrative expenses..................................... 6,314,945 5,569,106
Research and development......................................................... 378,152 508,374
------------- -------------
Total operating expenses....................................................... 11,007,246 10,125,472
------------- -------------
OPERATING INCOME................................................................... 1,269,858 488,323
OTHER INCOME:
Interest, net.................................................................... 256,529 336,072
Other............................................................................ -- --
------------- -------------
Total other income............................................................. 256,529 336,072
------------- -------------
Income before income taxes......................................................... 1,526,387 824,395
Income taxes....................................................................... 580,979 313,000
------------- -------------
NET INCOME......................................................................... $ 945,408 $ 511,395
------------- -------------
------------- -------------
NET INCOME PER SHARE:
Basic:
Net Income Per Common Share...................................................... $ .09 $ .05
------------- -------------
------------- -------------
Weighted Average Common and Common Equivalent Shares Outstanding................. 10,497,237 10,350,245
------------- -------------
------------- -------------
Diluted:
Net Income Per Common Share--Assuming Dilution................................... $ .09 $ .05
------------- -------------
------------- -------------
Weighted Average Common and Common Equivalent Shares Outstanding--Assuming
Dilution....................................................................... 11,074,498 11,035,779
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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UROCOR, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................ $ 945,408 $ 511,395
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization................................................... 658,798 601,592
Deferred income tax............................................................. 207,689 50,000
Stock option compensation expense............................................... 2,288 31,527
Gain on disposition of equipment................................................ (1,620) (8,060)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable.................................... 1,319,086 (2,920,472)
Decrease in prepaid expense................................................... 246,685 81,880
Decrease in laboratory supplies............................................... 28,724 20,588
Decrease in inventory......................................................... 3,040 --
Decrease in other current assets.............................................. 481,787 35,569
Increase (decrease) in accounts payable....................................... (977,321) 596,463
Increase (decrease) in accrued compensation................................... 19,317 (205,528)
Increase in accrued liabilities............................................... 5,840 13,938
Increase in deferred compensation............................................. 44,816 --
------------- -------------
Net cash provided by (used in) operating activities......................... 2,984,537 (1,191,108)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of short-term marketable investments, net............................ 5,043,045 5,508,649
Purchases of long-term marketable investments, net.............................. (1,848,650) (1,036,825)
Capital expenditures............................................................ (1,539,735) (1,331,616)
Intangible and other assets..................................................... (124,243) (184,864)
------------- -------------
Net cash provided by investing activities..................................... 1,530,417 2,955,344
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options........................................... 20,241 13,775
Principal payments under capital lease obligations and other
indebtedness.................................................................... (72,531) (145,169)
------------- -------------
Net cash used in financing activities........................................... (52,290) (131,394)
------------- -------------
Net increase in cash and cash equivalents........................................... 4,462,664 1,632,842
CASH AND CASH EQUIVALENTS, beginning of year........................................ 11,034,123 6,896,033
------------- -------------
CASH AND CASH EQUIVALENTS, end of period............................................ $ 15,496,787 $ 8,528,875
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.......................................................... $ 5,158 $ 16,132
Cash paid for income taxes...................................................... -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
UROCOR, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
NOTE 1--BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring items) considered necessary for a fair presentation have been
included. These interim financial statements should be read in conjunction with
the financial statements and notes included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March 31, 1999.
Operating results for the three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 1999.
NOTE 2--INVESTMENTS:
Pursuant to the Company's investment policy, idle and excess funds are
invested in high grade, fixed income securities generally for no more than two
years. These securities are considered available-for-sale as of March 31, 1999.
The Company considers any net unrealized gain or loss on these investments to be
temporary, and reflects such gains or losses as a component of stockholders'
equity. As of March 31, 1999, there was not a material net unrealized gain or
loss on these investments.
NOTE 3--CONTINGENCIES:
On April 14, 1999, a complaint was filed by a physician group against the
Company claiming damages resulting from the Company's performance and
discontinuation of the Company's Urology Support Services business. The asserted
damages claimed total more than $500,000. This matter is in a preliminary stage
and the Company cannot predict its outcome with any certainty.
In July 1998 and March 1999, the Company received Civil Investigative
Demands ("CID") from the Department of Justice ("DOJ"). If the DOJ were to
pursue and prevail on matters that may arise from this investigation, any
significant recoupment of funds or civil or criminal penalty or exclusion from
federal and state health care programs potentially resulting from such
proceedings could have a material adverse effect on the financial condition and
results of operations of the Company.
NOTE 4--STOCK REPURCHASE PROGRAM:
On April 20, 1999, the Company announced that the Board of Directors
authorized the repurchase by the Company of up to $10 million of UroCor common
stock. Management expects that the repurchase program will be conducted from
time to time on the open market or in privately negotiated transactions,
depending upon market conditions, securities regulations and other factors. As
of May 14, 1999, the Company had repurchased approximately $2.7 million (or
approximately 543,000 shares) of its common stock. Management also expects that
depending upon the number of shares purchased, the Company may elect to
supplement its cash position with new debt.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of operations and financial condition of UroCor,
Inc. ("UroCor" or the "Company") should be read in conjunction with the
Financial Statements and Notes thereto included elsewhere in this Quarterly
Report on Form 10-Q. Special Note: Certain statements set forth below constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. See "Special Note Regarding Forward-Looking Statements" and
"Cautionary Statements" included elsewhere in this Report.
OVERVIEW
UroCor markets a comprehensive range of integrated products and services to
assist in detecting, diagnosing, treating and managing prostate cancer, bladder
cancer, kidney stones and other complex urologic disorders directly to
urologists and managed care organizations. The Company's primary focus is
helping urologists improve patient care and outcomes while reducing the total
cost of managing these diseases.
For the three months ended March 31, 1999, the Company derived over 90% of
its revenue from diagnostic products and services that its UroDiagnostics Group,
also known as UroCor Labs-TM-, provided to the urology market to assist in the
diagnosis, prognosis and management of prostate cancer, bladder cancer and
kidney stones disease. The Company recognizes revenue when products are sold or
services are rendered. The Company typically bills various third-party payors
for its products and services, such as private insurance, managed care plans and
governmental programs (e.g., Medicare), as well as individual patients and
physicians. For the three months ended March 31, 1999, approximately 43%, 48%,
5% and 4% of the Company's diagnostic revenue was attributable to Medicare,
private insurance and managed care, individual patients and physicians and
hospitals, respectively.
During the three months ended March 31, 1999, the Company derived
approximately 5% of its revenue from the marketing of two therapeutic products
for advanced prostate cancer pursuant to a co-promotion agreement with a
manufacturer. Under the current agreement, the Company recognizes revenue when
earned based primarily on completed sales calls. The Company also has worldwide
marketing and distribution rights for a UroCor branded line of radiation
implants (also referred to as "seeds") used in brachytherapy for early stage
prostate cancer. This product received clearance for marketing from the United
States Food and Drug Administration (the "FDA") in April 1999 and the
manufacturer is now awaiting approval from the Nuclear Regulatory Commission
before commercial shipment of seeds can begin. Marketing in the United States is
expected to start early in the second half of 1999.
RESULTS OF OPERATIONS
REVENUE. Revenue increased 15.7%, from approximately $10.6 million in the
three months ended March 31, 1998 to approximately $12.3 million in the three
months ended March 31, 1999. Diagnostics revenue increased 25.5% resulting
primarily from an increase in case volume of 37.4% for the three month period
due to expansion of the Company's client base from approximately 2,225 to over
2,600 urologists in March 1998 and 1999, respectively, and increased utilization
of the Company's diagnostic products and services by existing clients.
Therapeutics product co-promotion revenue decreased from a total of
approximately $1.2 million for the three months ended March 31, 1998 to
approximately $651,000 for the three months ended March 31, 1999. Included in
therapeutics revenues for the three months ended March 31, 1998 was a one-time
incentive payment of $500,000.
DIRECT COST OF SERVICES AND PRODUCTS. As a percentage of revenue, direct
expenses decreased to 35.1% for the three months ended March 31, 1999 from 38.1%
for the three months ended March 31, 1998. In the aggregate, direct cost of
services and products increased 6.6%, from approximately $4.0 million in the
three months ended March 31, 1998 to approximately $4.3 million in the three
months ended March 31,
7
<PAGE>
1999. The dollar increase in direct costs of services and products was due
principally to higher supply and distribution costs resulting from higher case
volume and additional wide area network report delivery system costs from
increased utilization by the Company's clients. Partially offsetting these
increased costs were decreased personnel costs and elimination of costs
resulting from Urology Support Services ("USS") business operations, which were
discontinued in late 1998. The decrease as a percentage of revenue reflects, in
part, the Company's efforts to decrease costs by identifying process
improvements, the elimination of USS operations cost and lower personnel costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenue,
selling, general and administrative expenses declined to 51.4% for the three
months ended March 31, 1999 from 52.5% for the three months ended March 31,
1998. In the aggregate, selling, general and administrative expenses increased
13.4%, from approximately $5.6 million in the three months ended March 31, 1998
to approximately $6.3 million in the three months ended March 31, 1999. The
dollar increase in selling, general and administrative expenses was due
principally to higher professional fees related to addressing accounts
receivable issues, higher personnel costs related to expansion of management
information services and billing personnel, increased provision for doubtful
accounts receivable and higher convention and meeting costs, partially offset by
decreased costs attributable to marketing and administration of USS which was
discontinued in late 1998.
RESEARCH AND DEVELOPMENT EXPENSES. As a percentage of revenue, research and
development expenses decreased to 3.1% for the three months ended March 31, 1999
from 4.8% for the three months ended March 31, 1998. In the aggregate, research
and development costs decreased 25.6%, from approximately $508,000 in the three
months ended March 31, 1998 to approximately $378,000 in the three months ended
March 31, 1999. The dollar decrease was due primarily to elimination of
non-strategic projects in the third quarter of 1998 resulting in overall lower
base research and development program costs.
OTHER INCOME (EXPENSE). Interest income net of interest expense decreased
23.7%, from approximately $336,000 in the three months ended March 31, 1998 to
approximately $257,000 in the three months ended March 31, 1999. This decline
was due principally to decreased cash, cash equivalents and investments compared
to the three months ended March 31, 1998, which have been used to fund capital
expenditures and operations.
INCOME TAXES. Income tax expense recorded increased 85.6%, from
approximately $313,000 in the three months ended March 31, 1998 to approximately
$581,000 in the three months ended March 31, 1999 based on a 38% effective
federal and state income tax provision on increased net income.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, cash, cash equivalents and marketable investments
totaled approximately $20.5 million and the Company's working capital was
approximately $32.6 million. As of March 31, 1999, the components of cash, cash
equivalents and marketable investments were cash and cash equivalents of
approximately $15.5 million, short-term marketable investments of approximately
$1.0 million and long-term marketable investments of approximately $4.0 million.
Such marketable investments consisted principally of high-grade fixed income
securities, with a maturity of less than two years.
Accounts receivable, net of allowance for doubtful accounts, totaled
approximately $14.6 million at March 31, 1999, a decrease of approximately $1.3
million from December 31, 1998, or 8.3%. This decrease is attributable to a
decrease in accrued therapeutics revenue of $1.7 million and an increase in
allowance for doubtful accounts partially offset by increased diagnostics
receivables. At March 31, 1999 and December 31, 1998, the Company's average
number of days sales in net diagnostics receivables was approximately 110.
Virtually all of the Company's diagnostic services are rendered on a
fee-for-service basis. Accordingly, the Company assumes the financial risk
related to collection, including potential inability to collect
8
<PAGE>
accounts, long collection cycles for accounts receivable, difficulties in
gathering complete and accurate billing information and delays attendant to
reimbursement by third-party payors, such as governmental programs, private
insurance plans and managed care organizations.
The Company monitors the collection quality of its accounts receivable
through analytical review of aging categories by payor group and collections
performance. In the third quarter of 1998, the Company recorded a special charge
of $4.7 million to increase the allowance for doubtful accounts in respect of
certain accounts for which the Company determined that the cost of additional
collection efforts would exceed the expected collections. In addition, in 1998,
the Company determined that it had not sent invoices timely to certain patients,
primarily managed care patients, for certain co-pay, deductible and other
amounts relating principally to services rendered in 1998. In December 1998, the
Company commenced collection efforts for certain of these amounts. The Company
has taken steps to implement systems and processing changes intended to improve
its billing procedures and related collection results, including actions taken
in respect to the unsent invoices. While the Company maintains what it believes
to be an adequate allowance for doubtful accounts, there can be no assurance
that the Company's ongoing assessment of accounts receivable will not result in
the need for additional provision for doubtful accounts. Such additional
provision could have an adverse effect on the Company's financial position and
results of operations. The Company believes that the potential patient and
client reaction as a result of the Company's delay in sending invoices to
patients for the co-pay, deductible and other amounts determined in 1998 could
result in some of the urologists for such patients discontinuing or reducing
their use of the Company's diagnostic services. The loss of any of such clients'
business could adversely affect the rate of the Company's growth in revenues and
the Company's financial position and results of operations.
In October 1997, the Company entered into a co-promotion agreement with the
manufacturer of two therapeutic products. This agreement was revised effective
January 1, 1999, and for the three months ended March 31, 1999, the Company
recorded revenue of approximately $651,000, as compared to $1.2 million for the
three months ended March 31, 1998. Included in revenue for the three months
ended March 31, 1998 was a one-time incentive payment of $500,000. The Company
recognizes revenue under the current agreement when earned based primarily upon
sales calls completed by the Company and has the potential to recognize a bonus
at year end if certain sales goals are attained. The Company does not believe
that results prior to January 1, 1999 will be indicative of future results or
that it will achieve the same level of revenue as in 1998.
Operating activities provided net cash of approximately $3.0 million for the
three months ended March 31, 1999 compared to using net cash of approximately
$1.2 million for the three months ended March 31, 1998. The net cash provided by
operating activities was primarily the result of a decrease in accounts
receivable of approximately $1.3 million, net income of approximately $945,000
and the related deferred tax expense of approximately $208,000, depreciation and
amortization of approximately $659,000, decrease in other current assets of
$482,000 primarily related to a refund of federal income tax estimated payments
and decrease in prepaid expense of $247,000 primarily related to the occurrence
of the national sales meeting for which significant prepayments had been
incurred, offset in part by a decrease in accounts payable of approximately
$977,000.
Net cash provided by investing activities was approximately $1.5 million for
the three months ended March 31, 1999 and consisted primarily of maturities of
short-term marketable investments of approximately $5.0 million, offset by
capital expenditures of approximately $1.5 million, and purchases of long-term
marketable investments of approximately $1.8 million. Net cash used in financing
activities was approximately $52,000 for the first three months of 1999,
consisting primarily of principal payments under capital leases and other
indebtedness of approximately $72,000 offset by proceeds from exercise of stock
options of approximately $20,000.
The Company's capital expenditures of approximately $1.5 million for the
three months ended March 31, 1999, were primarily for leasehold improvements,
furniture and fixtures, and computer
9
<PAGE>
equipment and software associated with the relocation to newly constructed
facilities adjacent to the existing facilities. Of the total amount,
approximately $336,000 was related to internal software development costs for
information services. While future capital expenditures will depend upon a
number of factors, the level of expenditures is expected to be higher than the
historical level of such expenditures as the Company expands to deliver
therapeutics and information services and continues to enhance current
diagnostic services and operational capabilities. The Company has committed to
funding a portion of the building tenant improvements and, in addition to
expenditures made in the first quarter, expects to incur at least an additional
$1.5 million by the end of the second quarter of 1999 for such improvements and
other capital expenditures related to moving to the new building. The Company
intends to fund the majority of these capital expenditures with existing cash
and investment balances.
In December 1994, the Company obtained distribution rights to a therapeutic
product currently awaiting clearance by the FDA prior to marketing in the United
States. The total cost of the distribution rights is $3.0 million, payable in
installments based on achievement of certain milestones by the manufacturer.
Prior to 1998, the Company made aggregate milestone payments of $1.25 million.
The Company is obligated to pay an additional milestone payment of $1.75 million
if and when the product receives clearance by the FDA for marketing in the
United States. If the Company is required to make this payment, it intends to do
so out of existing cash and investment balances. The Company may terminate this
agreement at any time prior to FDA clearance of the product and recoup the
equivalent of payments already made.
During 1998, the Company obtained marketing and other rights to two other
therapeutic products, and is obligated to pay up to an additional $500,000 to
the manufacturers based on achievement of certain milestones. In April 1999, the
Company paid one of such manufacturers $250,000 upon receiving clearance for
marketing from the FDA. As milestones are achieved, the Company intends to make
the additional payments from existing cash and investment balances.
In April 1999, the Company's board of directors authorized the repurchase of
up to $10 million of the Company's common stock. As of May 14, 1999, the Company
had repurchased approximately $2.7 million (or approximately 543,000 shares) of
its common stock. The Company intends to fund any such purchases using available
cash and cash flow from operations, and may elect to supplement its cash
position with new debt.
The Company believes that its existing capital resources will be sufficient
to provide the funds necessary to maintain its present level of operations and
implement its currently planned growth strategy. However, there may be
circumstances or new business opportunities that would require additional
resources. In such event, the Company may be required to seek additional
financing and there is no assurance that the Company would be able to obtain
such financing on acceptable terms.
IMPACT OF YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programming being written
using two digits rather than four to define the applicable year. Any of the
Company's systems, as well as those of key vendors, payors and customers, that
have date sensitive logic may interpret a date using "00" as the year 1900
rather than 2000. This may result in inaccurate processing or possible system
failure causing potential disruption of operations, including among other things
a temporary inability to process transactions, send bills for services or engage
in similar normal business activities.
The Company has implemented a Year 2000 program to address its current
information systems, desktop systems, laboratory equipment and infrastructures.
The program also addresses the Year 2000 readiness of key vendors and suppliers,
corporate partners, governmental agencies, banks and key
10
<PAGE>
customers and clients. The program is being administered by an internal task
force and consists of the following phases:
Phase 1 is the compilation of an inventory of systems and relationships
with suppliers, key customers and other business partners. This phase was
completed in the first quarter of 1999.
Phase 2 is the final assessment of each item identified in the inventory
compiled in Phase 1; verification of each item's compliance with Year
2000 requirements and a resulting financial risk analysis. This phase is
under way and scheduled for completion in the second quarter of 1999.
Phase 3 is the resolution of any issues identified in Phase 2 and the
development of a contingency plan, if necessary, to deal with internal
and external risks associated with the Year 2000 issue. It is anticipated
that this phase will be completed by the end of the third quarter of
1999.
In 1998, UroCor's initial assessment of its internal computer systems and
related applications indicated that these systems and applications are prepared
to accommodate date-sensitive information relating to the Year 2000 issue.
UroCor expects that any additional costs related to ensuring such systems to be
Year 2000 compliant will not be material to the financial condition or results
of operations of the Company and that it will fund such costs through existing
working capital and operating cash flows. The Company estimates that the total
future expenditures specifically relating to the Year 2000 project will be less
than $75,000. However, there can be no assurance that the completed review will
not identify additional costs and efforts that will be required and could cause
actual results to differ materially from expectations.
Additionally, the ability of third parties with whom UroCor transacts
business to address their Year 2000 issues adequately is outside the Company's
control. There can be no assurance that the failure of such third parties to
identify and address their respective Year 2000 issues adequately will not have
a material adverse effect on the Company's financial condition or results of
operations. The most significant exposure is to the federal government's
Medicare and Medicaid programs and with major insurance companies. These
customers in aggregate represent a material portion of the Company's revenue and
corresponding cash flow. As to suppliers and vendors, the most significant are
those associated with services and products supply and distribution. To date,
the Company is not aware of any problems that would materially impact results of
operations, liquidity, or capital resources. As the ability of these third
parties to address their Year 2000 issues adequately is outside the Company's
control, there can be no assurance that the failure of third parties to address
their respective Year 2000 issues adequately will not have a material adverse
effect on the Company's results of operations and financial condition.
If completion of the Phase 2 risk analysis indicates that the Company will
be unable to achieve Year 2000 readiness of its critical operations, the Company
will develop a contingency plan. The Company plans to evaluate the status of
completion of its Year 2000 efforts no later than June 30, 1999 and determine
whether a contingency plan is necessary. There can be no assurances that the
Company will be able to develop contingency plans that will adequately address
all Year 2000 issues that may arise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to the Company's investment policy, idle and excess funds are
invested in high grade, fixed income securities generally for no more than two
years and are classified as Available-for-Sale. Marketable securities at March
31, 1999 consisted primarily of high-grade fixed income securities with
maturities of less than two years. The Company considers any net unrealized gain
or loss on these investments to be temporary, and reflects such gains or losses
as a component of stockholders' equity. As of March 31, 1999 and December 31,
1998, there were no material net unrealized gains or losses on these
investments.
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PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 14, 1999, a complaint was filed in the Denver County District Court
in Colorado by Rocky Mountain Lithotripter Limited Partnership and RMKSM General
Partnership against UroCor. The suit relates to UroCor's performance under a
service agreement with the plaintiffs and the termination of such agreement in
connection with the Company's discontinuation of the USS business. The
plaintiffs claim damages in excess of $500,000. This matter is in a preliminary
stage and the Company cannot predict its outcome with any certainty.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
USE OF PROCEEDS:
The effective date of the registration statement for the Company's initial
public offering of Common Stock and for which this use of proceeds information
is being disclosed was May 16, 1996 and the Commission file number assigned to
the registration statement was 333-3182.
From the effective date of the registration statement through March 31,
1999, the following table identifies the purposes and amounts of the net
proceeds paid directly or indirectly to others:
<TABLE>
<S> <C>
Construction of plant, building and facilities.................. $ --
Purchase and installation of machinery and equipment............ 6,953,252
Purchases of real estate........................................ --
Acquisition of other business(es)............................... --
Repayment of indebtedness....................................... 2,375,404
Working Capital................................................. 3,641,287
TEMPORARY INVESTMENTS:
Short-term Commercial Paper................................... 1,014,115
Long-term Corporate and Treasury Notes........................ 3,960,983
Cash Equivalents.............................................. 2,161,664
OTHER PURPOSES:
Development and Expansion of Diagnostic Product Line.......... 6,231,192
Development of Information Products and Services and
Urological Disease Databases................................ 2,689,673
Development of Therapeutic Product Line....................... 1,580,153
Development and Expansion of Clinical and Research
Laboratories and Lab Information System..................... 3,942,136
</TABLE>
None of the net proceeds have been paid directly or indirectly to directors,
officers, general partners or their associates, to persons owning 10% or more of
any class of equity securities or affiliates.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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ITEM 5. OTHER INFORMATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts included in this
Report, including without limitation, statements regarding the Company's
financial position, business strategy, products, products under development,
markets, budgets and plans and objectives of management for future
operations, are forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to
have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations are disclosed in
statements set forth under "Cautionary Statements" and elsewhere in this
Report, including, without limitation, in conjunction with the
forward-looking statements included in this Report. All subsequent written
and oral forward-looking statements attributable to the Company, or persons
on its behalf, are expressly qualified in their entirety by the Cautionary
Statements and such other statements.
CAUTIONARY STATEMENTS
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH. Over the last several years,
the Company has experienced substantial growth and expanded its operational
capabilities. The Company also is planning to offer additional therapeutic
products and information services. This growth and expansion has placed, and
will continue to place, a significant strain on the Company's management,
production, technical, financial and other resources. To date, the Company
primarily has experience in managing a diagnostics service business. There can
be no assurance that the Company will be able to manage expansion into and
operation of therapeutics or information services businesses.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. The Company's quarterly and
annual operating results are affected by a wide variety of factors, many of
which are outside the Company's control, which have in the past and could in the
future materially and adversely affect revenue, operating expenses and income.
These factors include seasonality, the quantities and timing of specimens
received, competitive pricing pressures, reimbursement changes, availability and
cost of diagnostic supplies, availability and cost of logistic and delivery
services, changes in the mix of products sold, timing and costs of new product
and technology introductions by the Company or its competitors, retention and
expansion of the sales force and timing of payments from Medicare and other
third-party payors. The Company relies principally upon Federal Express, UPS and
Airborne Express for inbound and outbound shipping of specimens and kits for its
diagnostics operations; any disruption in the availability of such logistics and
delivery services could have a material adverse effect on the Company's
operating results. The need for continued investment in research and development
and expansion of its product lines could limit the Company's ability to reduce
expenses quickly. As a result of these factors, the Company's operating results
may continue to fluctuate in the future.
COLLECTIBILITY OF ACCOUNTS RECEIVABLE. Virtually all of the Company's
diagnostic services are rendered on a fee-for-service basis. Accordingly, the
Company assumes the financial risk related to collection, including potential
inability to collect accounts, long collection cycles for accounts receivable,
difficulties in gathering complete and accurate billing information and delays
attendant to reimbursement by third-party payors, such as governmental programs,
private insurance plans and managed care organizations. At times, the Company's
accounts receivable have increased at a rate greater than revenue growth and,
therefore, have affected the Company's cash flow from operations. In addition,
in 1998, the Company determined that it had not sent invoices timely to certain
patients, primarily managed care patients, for certain co-pay, deductible and
other amounts relating principally to services rendered in 1998. In December
1998, the Company commenced collection efforts for certain of these amounts. As
a result of delay in sending such
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invoices, the Company may have difficulty in its collection efforts. The Company
has previously taken steps to implement systems and processing changes intended
to improve billing procedures and related collection results, and, in response
to the unsent invoices, it is undertaking additional initiatives to further
improve claims efficiencies and collection results. While the Company maintains
what it believes to be an adequate allowance for doubtful accounts, there can be
no assurance that the Company's ongoing assessment of accounts receivable will
not result in the need for additional provision for doubtful accounts. Such
additional provision could have a material adverse affect on the Company's
results of operations.
RISKS RELATED TO TERMINATION OF UROLOGY SUPPORT SERVICES BUSINESS. During
1998, the Company provided limited business management services, primarily
billing and collection services, to selected urologist clients, through the
Company's USS business. As a result of the Company's exit from this business as
of the end of the third quarter, the Company has incurred severance and other
expenses. The Company believes it accrued the estimable expenses associated with
terminating the existing service contracts and related exit activities. There
can be no assurance that additional expenses related to these activities, costs
due to unforeseen consequences of exiting the USS business or unexpected USS
business expenses will not occur in future periods. Such occurrences could have
a material adverse affect on the Company's results of operations. See "Part
II--Other Information, Item 1" for information regarding a lawsuit filed
recently against the Company regarding damages asserted by a physician group in
respect of the USS business.
UNCERTAINTIES RELATED TO GOVERNMENT REGULATION AND ENFORCEMENT. As a
provider of health care related services, the Company is subject to extensive
and frequently changing federal, state and local laws and regulations governing
licensure, billing, financial relationships, referrals, conduct of operations,
purchase of existing businesses, cost-containment, direct employment of licensed
professionals by business corporations and other aspects of the Company's
business relationships. The various types of regulatory activity affect the
Company's business by controlling its growth, restricting licensure of the
business entity or by controlling the reimbursement for services provided. The
Company cannot predict the timing or impact of any changes in such laws and
regulations or their interpretations by regulatory bodies, and no assurance can
be given that any such changes will not have a material adverse effect on the
Company's financial condition and results of operations.
Existing federal laws governing federal health care programs, including
Medicare, as well as some state laws, regulate certain aspects of the
relationship between health care providers, including the Company, and their
referral sources, including physicians, hospitals and other facilities. The
Anti-Fraud and Abuse Amendment and the Stark law generally prohibit providers
and others from soliciting, offering, receiving or paying, directly or
indirectly, any remuneration in return for making a referral for a service or
item and prohibit physicians, subject to certain exceptions, from making such
referrals to certain entities in which they have an investment interest or with
which they have a compensation arrangement. Violation of these prohibitions is
punishable by disallowance of submitted claims, civil monetary penalties and
criminal penalties and exclusion from the Medicare and other federally funded
programs. The federal government has expanded its investigative and enforcement
activities in these areas. The federal government also has become more
aggressive recently in examining billing by laboratories and other health care
providers, and in seeking repayments and penalties based on how the services
were billed (e.g. the billing codes used), regardless of whether carriers had
furnished clear guidance on this subject.
In July 1998, the Company received a Civil Investigative Demand ("CID") from
the Department of Justice ("DOJ") concerning allegations that the Company may
have submitted false claims in connection with bills for services submitted to
Medicare and other federal insurance programs. The Company received a second CID
from the DOJ in March 1999 concerning allegations that the Company may have
submitted false claims for payments, submitted false statements in support of
false claims, or conspired to submit false claims to government officials in
connection with bills for services submitted to Medicare and other federal
insurance programs by, among other things, bundling tests, billing for medically
unnecessary tests and upcoding. The DOJ has given the Company no further
information regarding the allegations. The
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<PAGE>
CIDs require the Company to produce certain documents to the DOJ. The Company
produced documents to the DOJ in response to the initial CID, intends to produce
documents to the DOJ in response to the second CID and intends to cooperate
fully with the DOJ with respect to this investigation. Although the Company
seeks to structure its practices to comply with all applicable laws, no
assurances may be given regarding the resolution of this matter, and the Company
is unable to predict its impact, if any, on the Company. If the DOJ were to
pursue and prevail on matters that may arise from this investigation, any
significant recoupment of funds or civil or criminal penalty or exclusion from
federal and state health care programs potentially resulting from such
proceedings could have a material adverse effect on the financial condition and
results of operations of the Company. In addition, any related regulatory
announcements or actions with respect to enforcement activities could have a
negative impact on the Company's stock price regardless of the ultimate outcome
of the matters under investigation.
The Company's diagnostic laboratory operations currently are required to be
certified or licensed under the federal Clinical Laboratory Improvement Act of
1976, as amended in 1988, the Medicare and Medicaid programs and various state
and local laws. In some instances, the Company is also subject to licensing or
regulation under federal and state laws relating to the handling and disposal of
medical specimens, infectious and hazardous waste and radioactive materials, as
well as to the safety and health of laboratory employees. The sanctions for
failure to comply with these regulations may include denial of the right to
conduct business, significant fines and criminal penalties. Any exclusion or
suspension from participation in the Medicare program or certain state programs,
any loss of licensure or accreditation or any inability to obtain any required
license or permit, whether arising from any action by the Department of Health
and Human Services ("DHHS") or any state or any other regulatory authority,
could have a material adverse effect on the Company's business. Any significant
civil monetary or criminal penalty resulting from such proceedings could have a
material adverse effect on the Company's financial condition and results of
operations.
While the Company currently knows of no plans that the FDA has to require
FDA approval of assays developed by laboratories for in-house use, the FDA has
in the past considered drafting guidelines for such regulation. If in the future
the FDA were to issue guidelines for the clinical laboratory market sector, such
guidelines might require the Company to meet certain FDA medical device approval
requirements for the Company's in-house assays. Such regulations, if enacted in
a way that affects the Company, would increase the cost of development and
approval of new products, slow their introduction to the market and could have a
material adverse effect on the Company's financial condition and results of
operations. Additionally, in a recent rule, the FDA stated that in some
circumstances involving in-house assays, laboratories will be required, upon
effectiveness of the rule, to indicate that the assay has not been cleared by
the FDA. There can be no assurance that such disclosure will not have an adverse
impact on reimbursement.
The FDA currently regulates a number of the products which the Company
purchases from third parties for use in its diagnostic services. The
manufacturers of such products are responsible for compliance with FDA
regulations relating to such products. There can be no assurance, however, that
action by the manufacturers or by the FDA would not impair the Company's ability
to obtain and offer certain services. The unavailability of certain services and
materials used in the Company's diagnostics business could have a material
adverse effect on the Company's financial condition and results of operations.
The FDA regulates products licensed or otherwise acquired from third parties
and distributed or marketed by the Company. The manufacturers of such products
are responsible for compliance with the clearance and marketing regulations of
the FDA. The ability of such third parties to address their FDA regulatory
issues is outside the Company's control. There can be no assurance that the
failure of such third parties to address their FDA regulatory matters adequately
will not have a material adverse effect on the Company's financial condition and
results of operations.
Although the Company's existing and proposed information services products
currently are not subject to regulation by the FDA, the FDA could determine in
the future that the predictive applications
15
<PAGE>
of these products are deemed to be medical devices subject to FDA regulation. In
that event, the Company could experience delays in developing and marketing new
services and increases in research and development costs.
UNCERTAINTIES RELATED TO THIRD-PARTY REIMBURSEMENT. The Company typically
bills governmental programs such as Medicare and other third-party payors such
as private insurance and managed care plans for its products and services. Such
third-party payors are increasingly negotiating prices with the goal of lowering
reimbursement rates, which may result in lower profit margins for the Company.
Reimbursement rates have been established for most but not all of the services
performed by the Company. The Company cannot collect from Medicare or other
third-party payors for services that those payors have not approved for
reimbursement. The Company routinely bills for direct reimbursement for both
medical services and products. As is common with all suppliers of medical
services and devices, there is a certain amount of variability with respect to
reimbursement among third party payor sources. The Persist Treatment System is a
new product introduction into the health care market. There can be no assurance
that the Persist Treatment System or any other new products the Company
currently has under development will be accepted for reimbursement by Medicare
or other third-party payors. Such uncertainty makes the amount and timing of
Persist reimbursement difficult to predict, which potentially subjects the
Company to reimbursement risks with respect to accounts receivable. Furthermore,
Medicare and other third party payors have, on occasion, ceased reimbursement
when certain tests are ordered for patients with certain diagnoses while
maintaining reimbursement when those tests are ordered for other diagnoses
deemed appropriate by the carrier. This practice has recently become more
prevalent with respect to Medicare. Medicare may retroactively audit and review
its payments to the Company and may determine that certain payments for services
must be returned. In addition, if the Company is unable to become an approved
participating provider under certain managed care programs that cover a number
of patients of any particular physician, that physician, to simplify purchasing
and billing, may elect to use a competitor of UroCor that is approved by such
managed care organizations for all of his or her needs, regardless of whether
other patients are covered by Medicare or other third party payors. The loss of
key urologists and their patients could have a material adverse affect on the
Company's financial condition and results of operations.
POTENTIAL HEALTH CARE REFORM. From time to time, the public and federal
government focus significant attention on reforming the health care system in
the United States. In 1997, Congress enacted the Balanced Budget Act that
effected numerous changes to the Medicare and Medicaid programs that could
affect health care providers, including clinical laboratories. The 1997 act also
revised the resource-based relative value scale system that could affect health
care providers that offer physician pathology services. These 1997 changes and
any future changes in Medicare and other third-party payor reimbursement which
may result from health care reform or deficit reduction legislation will likely
continue the downward pressure on prices. A number of other legislative
proposals have been introduced in Congress and state legislatures in recent
years that would effect major reforms of the health care system and otherwise
reduce health care spending. Because of the uncertainties surrounding the
nature, timing and extent of any such reimbursement changes, audits and reform
initiatives, the Company is unable to predict the effects of any such matters on
the Company.
DEPENDENCE ON CERTAIN PRODUCT LINES. A significant portion of the Company's
revenue has been, and is expected to continue to be, dependent upon the
Company's prostate tissue analysis and bladder cellular analysis product lines.
Any negative event related to these product lines, such as increased
competition, pricing pressures, reimbursement changes and clinical or
technological obsolescence, could have a material and adverse effect on the
Company's financial condition and results of operations.
NO ASSURANCE OF ACCESS TO AND DELIVERY OF NEW DIAGNOSTIC TECHNOLOGY. The
markets for the Company's diagnostic products and services are characterized by
rapidly changing technology, frequent new product introductions and enhancement
and, therefore, rapid product obsolescence. There can be no assurance the
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<PAGE>
Company will be able to identify new products, trends or opportunities, develop
and bring to market new products, respond effectively to new technological
changes or product announcements by others, develop or obtain access to advanced
materials and technologies or receive commercial acceptance for its products.
UNCERTAINTIES RELATED TO THE FDA REVIEW OF THERAPEUTIC PRODUCTS. The
Company has a distribution agreement with BioChem Vaccines, Inc. ("BioChem"), a
subsidiary of BioChem Pharma, Inc., for a therapeutic product for use in
treating certain types of bladder cancer. Pursuant to the distribution
agreement, BioChem is responsible for obtaining clearance from the FDA for
marketing the therapeutic product in the United States. In April 1995, BioChem
filed its initial applications with the FDA. In April 1996, the FDA advised
BioChem that its application was not approvable and requested additional data
regarding certain aspects of manufacturing and testing of the product, which
BioChem filed with the FDA through an amended application in August 1996.
Following a May 1997 site inspection of BioChem's manufacturing facilities and
operations, the FDA issued a report on FDA Form 483 indicating that additional
requirements related to BioChem's facility, process and documentation were
required before these applications could be approved. As a result of an August
1998 FDA site visit and subsequent discussions between BioChem and the FDA,
BioChem has undertaken upgrading certain portions of its manufacturing process
and facility to meet FDA requirements. Although BioChem has advised the Company
that it believes it can satisfy the FDA requirements, there can be no assurance
that FDA clearance will be obtained.
The Company also has a marketing agreement with the manufacturer of a
therapeutic product used for early stage prostate cancer. Pursuant to the
marketing agreement, the manufacturer filed a Form 510(k) with the FDA in
December 1998 for marketing clearance and such clearance was obtained in April
1999. The manufacturer is responsible for obtaining an additional approval from
the Nuclear Regulatory Commission before commercial shipment of the product can
begin. There can be no assurance that such approval will be obtained.
Additionally, as the manufacturer has not previously produced this therapeutic
product, there can be no assurance of the manufacturer's ability to produce
quantities effectively.
NO ASSURANCE OF SUCCESSFUL MARKETING ARRANGEMENTS FOR THERAPEUTIC
PRODUCTS. The Company conducts marketing activities for therapeutic products
through its UroTherapeutics Group. The Company currently has acquired
distribution or co-promotion rights for five therapeutic products. While the
Company has experience marketing two of the therapeutic products, there can be
no assurance that the Company's future efforts will be successful. UroCor's
future therapeutics marketing efforts are dependent, in part, upon acquiring,
licensing and co-promoting additional pharmaceuticals from others. Other
companies, including those with substantially greater resources, are competing
with UroCor for the rights to such products. There can be no assurance that
UroCor will be able to acquire, license or co-promote additional pharmaceuticals
on acceptable terms, if at all. The failure to acquire, license, co-promote or
market commercially successful pharmaceuticals could have a material adverse
effect on the Company's financial condition and results of operations.
Furthermore, there can be no assurance that, once it has obtained rights to a
pharmaceutical product and committed to payment terms, UroCor will be able to
generate sales sufficient to create a profit or otherwise avoid a loss on such
product.
For the three months ended March 31, 1999, the Company recorded revenue of
approximately $651,000 under a co-promotion agreement with Zeneca
Pharmaceuticals, Inc. ("Zeneca"). Effective January 1, 1999, UroCor and Zeneca
replaced the original agreement with a revised three-year co-promotion
agreement. Pursuant to the revised agreement, UroCor recognizes revenue based on
completed sales calls and has the potential to recognize a bonus based on the
attainment of Zeneca's sales goals at year end. Because of changes in the
criteria for determining UroCor's compensation, the Company does not believe
that past results under the original agreement will be indicative of future
results, and the Company currently does not anticipate that it will attain the
same level of revenues under the current agreement that it attained in 1998
under the original agreement. The current agreement is subject to termination by
either party effective after December 31, 1999, subject to certain conditions.
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POTENTIAL THERAPEUTICS PRODUCT LIABILITY OR RECALL. As UroCor increases its
marketing of therapeutic products, it faces increasing exposure to product
liability claims in the event that the use of any of its therapeutic products is
alleged to have resulted in adverse effects. Such risks will exist even with
respect to those products that receive regulatory approval for commercial sale.
While UroCor has taken, and intends to continue to take, what it believes are
appropriate precautions, there can be no assurance that it will avoid
significant product liability exposure or product recalls. UroCor currently has
product liability insurance; however, there can be no assurance that the level
or breadth of any insurance coverage will be sufficient to cover potential
claims. There can be no assurance that adequate insurance coverage will be
available in the future at acceptable costs, if at all, or that a product
liability claim or recall would not have a material adverse effect on the
Company's financial condition and results of operations.
RISKS ASSOCIATED WITH INVESTMENTS IN DISEASE MANAGEMENT INFORMATION
SYSTEMS. The Company has been and expects to continue investing in the
development of information-based capabilities and services which it plans to
introduce or use in the future related to the clinical management of urologists'
patients. The Company has developed and introduced, on a limited basis, disease
outcomes reporting capabilities in one disease state. Further development and
delivery of these new services may require substantial additional investment and
represents an expansion of the type of services the Company presently provides
to urologists. There can be no assurance that any future revenues directly or
indirectly from these services will be sufficient to cover or otherwise justify
the costs of development and introduction.
RISKS ASSOCIATED WITH DEVELOPMENT OF DATABASES. The confidentiality of
patient medical records is subject to substantial regulation by state and
federal governments. State and federal laws and regulations govern both the
disclosure and the use of confidential patient medical record information.
Legislation governing the dissemination and use of medical record information is
being proposed continually at both the state and federal levels. For example,
the Health Insurance Portability and Accountability Act ("HIPAA") requires the
Secretary of the DHHS to recommend legislation or to promulgate regulations
governing privacy standards for individually identifiable health information.
Additional legislation may require that holders or users of confidential patient
medical information implement measures to maintain the security of such
information and may regulate the dissemination of even anonymous patient
information. Physicians and other persons providing patient information to the
Company also are required to comply with these laws and regulations. If a
patient's privacy is violated, or if the Company is found to have violated any
state or federal statute or regulation with regard to the confidentiality,
dissemination or use of patient medical information, the Company could be liable
for damages, or fines or penalties. The Company believes that it complies in all
material respects with all applicable state and federal laws and regulations
governing the confidentiality, dissemination and use of medical record
information. However, there can be no assurance that differing interpretations
of existing laws and regulations or the adoption of new laws and regulations
would not have a material adverse effect on the ability of the Company to obtain
or use patient information which, in turn, could have a material adverse effect
on the Company's plans to develop and market its urology disease information
database and related treatment. The Company intends to continue to monitor and
review the interpretation and enactment of laws and regulations which affect the
Company's plans to develop and market its urology disease information database.
In addition, the American Medical Association (the "AMA") has issued an opinion
to the effect that a physician who does not obtain a patient's consent to the
disclosure of the patient's medical record information violates the AMA's
ethical standards. While the AMA's opinions are not law, they may influence the
willingness of physicians to obtain patient consents or to disclose patient
medical information to the Company and thus could have a material adverse effect
on the Company's plans to develop and market its urology disease information
database.
UNCERTAINTIES RELATED TO MANAGED CARE. Managed care organizations are
gaining increasing control over access to health care and payment for an
increasing number of patients with urologic diseases. There can be no assurance
that the Company will be able to maintain its existing contracts with managed
care organizations or that it will be able to obtain additional contracts with
such organizations in the future,
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which could preclude the Company from serving large groups of patients in
certain markets. The Company has experienced increasing pricing pressure from
managed care organizations, and such pressure is expected to continue. There can
be no assurance that such pricing pressure and any contract restrictions will
not have a material adverse effect on the Company's financial condition and
results of operations.
UNCERTAINTIES RELATED TO PATENTS AND PROPRIETARY RIGHTS. While UroCor's
success does not depend on its ability to obtain patents, there can be no
assurance that it can operate without infringing upon the proprietary rights of
others. UroCor has licenses or license rights to certain United States patent
and patent applications. On UroCor's own patent applications, there can be no
assurance that patents, United States or foreign, will be obtained, or that, if
issued or licensed, they will be enforceable or will provide substantial
protection from competition or be of commercial benefit, or that UroCor will
possess the financial resources necessary to enforce or defend any of its patent
rights. Federal court decisions establishing legal standards for determining the
validity and scope of patents in the field are in transition. There can be no
assurance that the historical legal standards surrounding questions of validity
and scope will continue to be applied or that current defenses as to issued
patents in the field will offer protection in the future. UroCor must also avoid
infringing patents issued to competitors and must maintain technology licenses
upon which certain of its current products are, or any future products under
development might be, based. Litigation, which could result in substantial cost
to the Company, may be necessary to enforce its patent and license rights or to
determine the scope and validity of proprietary rights of third parties. If any
of UroCor's products are found to infringe upon patents or other rights owned by
third parties, it could be required to obtain a license to continue to utilize
or market such products. There can be no assurance that licenses to such patent
rights would be made available to the Company on commercially reasonable terms,
it at all. If UroCor does not obtain such licenses, it could encounter delays in
marketing affected products or be precluded from marketing them at all.
COMPETITIVE PRESSURES. The industry in which the Company's diagnostics
business operates is characterized by intense competition with many different
types of competitors including specialty laboratories, diagnostic kit and
instrumentation manufacturers, local, regional and national pathology services,
hospital laboratories and general reference clinical laboratories. Many of the
Company's competitors are significantly larger and have significantly greater
financial, technical and administrative resources than the Company; many of the
Company's competitors also have long established relationships with the
Company's current and prospective customers and with managed care organizations.
There can be no assurance that the Company will be able to compete successfully
with such entities in the marketing of products and services and in the
acquisition of new technologies.
Many companies, including large pharmaceutical firms with financial and
marketing resources and development capabilities substantially greater than
those of UroCor, are engaged in developing, marketing and selling therapeutic
products that compete with the drugs and devices offered or planned to be
offered by the Company. The selling prices of such products frequently decline
as competition increases. Further, other products now in use or under
development by others may be more effective than UroCor's current or future
products. The industry is characterized by rapid technological change, and new
or presently competing products may prevent the Company's products from gaining
sufficient market share to attain profitability. As a result of increasing
competition in marketing to urologists, the Company's ability to attract and
retain sales representatives and management may also affect its ability to
compete in the marketing of both diagnostic services and therapeutics. There can
be no assurance that the Company will be able to compete successfully in
marketing therapeutic products.
YEAR 2000 RISKS. The Company's initial assessment of its key computerized
information systems and related applications indicated that these systems and
applications are prepared to accommodate date-sensitive information relating to
the Year 2000 issue. There can be no assurance, however, that the complete
assessment, currently being completed by the Company, will not identify Year
2000 related systems problems that could require significant expenditures to
address. Additionally, the ability of third
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parties with whom the Company transacts business to adequately address their
Year 2000 issues is outside the Company's control. The Company has an ongoing
project to communicate with the third parties with which it does business to
coordinate Year 2000 compliance. There can be no assurance that the failure of
the Company or such third parties to adequately address their respective Year
2000 issues will not have a material adverse effect on the Company's financial
condition and results of operations.
ACCESS TO CAPITAL. The Company's growth since 1991 has required, and any
future growth will require, significant amounts of working capital. Although the
Company believes that existing capital resources will be adequate to fund its
present level of operations and implement its currently planned growth strategy,
there may be circumstances or new business opportunities that would require the
Company to seek additional resources. There is no assurance that the Company
would be able to obtain such financing on acceptable terms.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<C> <S>
10.1 UroCor, Inc. Deferred Compensation Plan
10.2 Employment Agreement, dated March 15, 1999 between Bruce C. Hayden and
UroCor, Inc.
</TABLE>
(b) Reports on Form 8-K
None.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<C> <S> <C>
UROCOR, INC.
By: /s/ WILLIAM A. HAGSTROM
-----------------------------------------
William A. Hagstrom
CHAIRMAN OF THE BOARD AND
May 14, 1999 CHIEF EXECUTIVE OFFICER
By: /s/ BRUCE C. HAYDEN
-----------------------------------------
Bruce C. Hayden
SENIOR VICE-PRESIDENT, CHIEF FINANCIAL
OFFICER,
May 14, 1999 TREASURER AND SECRETARY
</TABLE>
21
<PAGE>
EXHIBIT 10.1
UROCOR, INC.
DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. DEFINITIONS, GENDER, AND NUMBER........................................................................1
1.1. Definitions.....................................................................................1
1.2. Gender and Number...............................................................................3
ARTICLE 2. PARTICIPATION.........................................................................................3
2.1. Who May Participate.............................................................................3
2.2. Termination of Participation....................................................................4
2.3. Relationship to Other Plans.....................................................................4
2.4. Missing Persons.................................................................................4
ARTICLE 3. ESTABLISHMENT OF ACCOUNT, CONTRIBUTIONS TO ACCOUNT AND
CREDITING GAINS AND LOSSES TO ACCOUNT....................................................................4
3.1 Establishment of Account........................................................................4
3.2. Deferrals.......................................................................................4
3.3. Crediting Rate..................................................................................5
ARTICLE 4. VESTING OF ACCOUNT....................................................................................5
4.1 Vesting in Account..............................................................................5
ARTICLE 5. DISTRIBUTION OF BENEFITS...............................................................................6
5.1. General.........................................................................................6
5.2. Investment Income During Distribution...........................................................6
5.3 In-Service Distributions........................................................................6
5.4. Acceleration of Distributions...................................................................6
5.5. Hardship Withdrawals............................................................................6
5.6. Death Benefits..................................................................................7
5.7. Claims Procedure................................................................................7
ARTICLE 6. FUNDING...............................................................................................8
6.1. Source of Benefits..............................................................................8
6.2. No Claim on Specific Assets.....................................................................8
ARTICLE 7. ADMINISTRATION........................................................................................9
7.1. Administration..................................................................................9
7.2. Powers of Committee.............................................................................9
7.3. Actions of the Committee........................................................................9
7.4. Delegation......................................................................................9
7.5. Reports and Records.............................................................................9
ARTICLE 8. AMENDMENTS AND TERMINATION...........................................................................10
8.1. Amendments.....................................................................................10
8.2. Termination....................................................................................10
ARTICLE 9. MISCELLANEOUS........................................................................................10
1
<PAGE>
9.1. No Guarantee of Employment or Entitlement to Bonus or Commissions..............................10
9.2. Release........................................................................................10
9.3. Notices........................................................................................11
9.4. Nonalienation..................................................................................11
9.5. Tax Liability..................................................................................11
9.6. Captions.......................................................................................11
9.7. Applicable Law.................................................................................11
2
</TABLE>
<PAGE>
UROCOR, INC.
DEFERRED COMPENSATION PLAN
UroCor, Inc. (the "Company") hereby establishes, effective February
1, 1999, a nonqualified deferred compensation plan for the benefit of certain
of the Company's employees. This plan shall be known as the UroCor, Inc.
Deferred Compensation Plan (the "Plan").
The Plan is intended to be an unfunded plan maintained primarily for
the purpose of providing deferred compensation for a select group of
management or highly compensated employees as described in Sections 201(2),
301(a)(3) and 401(a)(l) of the Employee Retirement Income Security Act of
1974 ("ERISA").
The obligation of the Company to make payments under the Plan
constitutes an unsecured (but legally enforceable) promise of the Company to
make such payments and no person, including any Participant or Beneficiary
under the Plan, shall have any lien, prior claim or other security interest
in any property of the Company as a result of the Plan.
ARTICLE 1. DEFINITIONS, GENDER, AND NUMBER
1.1. Definitions. Whenever used in the Plan, the following words and
phrases shall have the meanings set forth below unless the context plainly
requires a different meaning, and when a defined meaning is intended, the term
is capitalized.
(a) "Account" means the record of amounts credited by the
Company on its books on behalf of a Participant to measure and
determine the amount of deferred compensation to be paid to the
Participant or his or her Beneficiary under the Plan.
(b) "Base Salary" of a Participant for any Plan Year means the
total salary, wages and director's fees paid by the Company to such
individual for such Plan Year. "Base Salary" shall exclude any other
remuneration paid by the Company, such as Bonuses, Commissions,
Incentive Compensation, stock options, distributions of compensation
previously deferred, restricted stock, allowances for expenses
(including moving, travel expenses, and automobile allowances), and
fringe benefits whether payable in cash or in a form other than cash.
In the case of an individual who is a participant in a plan sponsored
by the Company which is described in Section 401(k) or 125 of the Code,
the term "Base Salary" shall include any amount which would be included
in the definition of Base Salary but for the individual's election to
reduce his or her Base Salary and have the amount of the reduction
contributed to or used to purchase benefits under such plan.
(c) "Beneficiary" or "Beneficiaries" means the persons or
trusts designated by a Participant in writing pursuant to Section
5.3(d) of the Plan as being entitled to receive any benefit payable
under the Plan by reason of the death of a Participant, or, in the
absence of such designation, the individuals or entities entitled to
receive such benefits pursuant to Section 5.3(e) of the Plan.
(d) "Board" means the Board of Directors of the Company as
constituted at the relevant time.
(e) "Bonus" of a Participant for any Plan Year means the total
remuneration paid to the Participant in cash in that Plan Year under
the Company's incentive or management bonus programs. A Participant's
"Bonus" shall include any amount which would be included in the
definition thereof but for the individual's election to defer some of
his or her Bonus pursuant to this Plan. In the case of an individual
who is a participant in a plan sponsored by the Company which is
described in Section 401(k) or 125 of the Code, the term "bonus" shall
include any amount which would be included in the definition of Bonus
but for the individual's election to reduce his or her Bonus and have
the amount of the reduction contributed to or used to purchase benefits
under such plan.
<PAGE>
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time and any successor statute. References to a Code
section shall be deemed to be to that section or to any successor to
that section.
(g) "Commissions" of a Participant for any Plan Year means the
total Commissions paid to the Participant in that Plan Year by the
Company. In the case of an individual who is a participant in a plan
sponsored by the Company which is described in Section 401(k) or 125
of the Code, the term "Commissions" shall include any amount which
would be included in the definition of Commissions but for the
individual's election to reduce his or her Commissions and have the
amount of the reduction contributed to or used to purchase benefits
under such plan.
(h) "Company" means UroCor, Inc..
(i) "Disability" means, in the case of a Participant who is
covered by a Company-sponsored disability insurance policy, total
disability, as defined in such policy without regard to any waiting
period. For Participants not covered by such a policy, Disability
means the Participant suffering a sickness, accident or injury which,
in the judgment of a physician satisfactory to the Company, prevents
the Participant from performing substantially all of his or her normal
duties for the Company. As a condition to receiving benefits under the
Plan, the Company may require the Participant to submit to such
physical or mental evaluations and tests as the Board may deem
appropriate.
(j) "Effective Date" means the date on which this Plan becomes
effective, i.e., February 1, 1999.
(k) "Eligible Employee or Director" means an employee or
director who has been designated by the Chief Executive Officer of the
Company, pursuant to Section 2.1, as eligible to make contributions to
the Plan. As of the Effective Date the employees and directors listed
on Exhibit A shall be Eligible Employees or Directors.
(l) "Incentive Compensation" means that compensation payable
to professional employees of the Company pursuant to any standard
incentive compensation plan, program or payroll practice.
(m) "Participant" means an individual who has been designated
by the Board as an Eligible Employee or Director and has elected to
participate in the Plan.
(n) "Plan" means the "UroCor, Inc. Deferred Compensation
Plan," as set forth herein and as may be amended or restated from time
to time.
(o) "Plan Year" means each January 1 through December 31,
commencing January 1, 1999.
(p) "Retirement" means the termination of a Participant's
employment with the Company on or after age 55 with at least ten years
of service.
1.2. Gender and Number. Except as otherwise indicated by context,
masculine terminology used herein also includes the feminine and neuter, and
terms used in the singular may also include the plural.
ARTICLE 2. PARTICIPATION
<PAGE>
2.1. Who May Participate. The Chief Executive Officer of the Company
shall designate from time to time those employees and directors ("Eligible
Employees or Directors") of the Company whom the Plan Administration
Committee has recommended to be eligible to make contributions to the Plan.
The Chief Executive Officer of the Company shall have complete discretion in
making this determination subject only to the requirement that an Eligible
Employee or Director must be a member of a select group of management or
highly compensated employees within the meaning of Sections 201(2), 301(a)(3)
and 401(a)(1) of ERISA, or a director.
An Eligible Employee or Director shall become a Participant in the
Plan by (a) completing and submitting to the Company a deferral election at
the time and in the manner specified by the Board, and (b) complying with
such terms and conditions as the Board may from time to time establish for
the implementation of the Plan, including, but not limited to, any condition
the Board may deem necessary or appropriate for the Company to meet its
obligations under the Plan.
2.2. Termination of Participation. Once an Eligible Employee or
Director has become a Participant in the Plan, participation shall continue
until the first to occur of (a) payment in full of all benefits to which the
Participant or Beneficiary is entitled under the Plan, (b) the occurrence of
an event specified in Section 2.4 which results in loss of benefits, or (c)
termination of the individual's participation pursuant to Section 8.2.
2.3. Relationship to Other Plans. Participation in the Plan shall
not preclude participation of the Participant in any other fringe benefit
program or plan sponsored by the Company for which such Participant would
otherwise be eligible.
2.4. Missing Persons. If the Company is unable to locate the
Participant or his or her Beneficiary for purposes of making a distribution,
the amount of the Participant's benefits under the Plan that would otherwise
be considered as nonforfeitable shall be forfeited effective four years after
(a) the last date a payment of said benefit was made, if at least one such
payment was made, or (b) the first date a payment of said benefit was
directed to be made by the Company pursuant to the terms of the Plan, if no
payments have been made. If such person is located after the date of such
forfeiture, the benefits for such Participant or Beneficiary shall not be
reinstated hereunder.
ARTICLE 3. ESTABLISHMENT OF ACCOUNT, CONTRIBUTIONS TO
ACCOUNT AND CREDITING GAINS AND LOSSES TO ACCOUNT
3.1 Establishment of Account. The Company shall establish an Account
on behalf of each Eligible Employee or Director to which it shall credit the
contributions described in Section 3.2, as adjusted for gains and losses
pursuant to Section 3.3. The Account shall be used solely as a device to
measure and determine the amount of benefits to be paid to a Participant or
Beneficiary under the Plan and all amounts which are credited to the Account
are credited solely for accounting and computation purposes and are at all
times assets and property of the Company and subject to the claims of the
Company's creditors. No Participant or Beneficiary shall have any incidents
of ownership in the Account or in amounts credited to the Account. A
Participant's or Beneficiary's position with respect to payment of benefits
under the Plan is that of a general unsecured creditor of the Company. The
Company may establish any number of sub-accounts on behalf of a Participant
or Beneficiary as the Company considers necessary or advisable for purposes
of maintaining a proper accounting of amounts to be credited under the Plan
on behalf of the Participant or Beneficiary.
3.2. Deferrals. An Eligible Employee or Director may elect to have a
specific whole integer percentage of Base Pay, Bonus, Commissions or
Incentive Compensation otherwise payable to him or her during each Plan Year
contributed to the Plan on his or her behalf. Separate deferral percentages
may be elected for each such element of a Participant's compensation. The
amount which an Eligible Employee or Director may elect to defer for any Plan
Year may in no event be less than one percent (1%) of either his or her Base
Pay, Bonus, Commissions or Incentive Compensation for the Plan Year.
<PAGE>
The Company shall post to the Account of each Participant the amount
of the Base Pay, Bonus, Commissions and Incentive Compensation deferred on
the Participant's behalf, as designated by the Participant's deferral
election in effect for that Plan Year. The amount deferred from the
Participant's Base Pay, Bonus, Commissions and Incentive Compensation shall
be posted to his or her Account at the time the Base Pay, Bonus, Commissions
and Incentive Compensation would otherwise have been paid to the Participant.
Deferral elections shall be made annually at a date to be determined
by the Board, but no later than December 31st of the calendar year
immediately preceding the Plan Year during which the Eligible Employee or
Director will perform all of the services necessary to obtain a legally
binding right to the Base Pay, Bonus, Commissions or Incentive Compensation
otherwise payable to him or her. When an individual is first designated by
the Board to be an Eligible Employee or Director, the initial deferral
election must be made no later than the last day of the calendar month
immediately preceding the month to which the deferral election applies.
Elections shall be made in writing on a form provided by the Board,
shall be delivered to the Company at the time and in the manner specified by
the Board, and, except as set forth in Section 5.5, shall be irrevocable once
made.
3.3. Crediting Rate. A Participant's Account shall be credited with
gains and losses in accordance with the following rules. The Company shall
from time to time in its discretion designate certain investment funds to be
used as an index for the crediting of gains and losses to a Participant's
Account. A Participant shall be entitled to designate which such fund or
funds shall be used to measure gains and losses to his or her Account in
accordance with rules established by the Company, by completing and filing
with the Company an investment election. The Participant's Account will then
be credited with gains and losses as if invested in such fund or funds in
accordance with the Participant's investment election and the rules
established by the Company. A Participant shall be entitled to change his or
her investment election by entering into a new investment election; however,
the Participant shall not be entitled to change his or her investment
election more frequently than quarterly. The Company shall have no obligation
to actually invest any amounts in any such fund or funds; rather the fund or
funds shall be used solely as an index or measure of investment gains and
losses to be credited to the Participant's Account. Subject to Section 8.1,
the Company may, in its sole discretion, eliminate any fund previously
designated by the Board pursuant to this Section 3.3, substitute a new fund
or funds therefore, or add funds, at any time.
ARTICLE 4. VESTING OF ACCOUNT
4.1 Vesting in Account. A Participant shall be 100% vested in his or
her Account upon his or her termination of employment due to death,
Disability, Retirement or other termination of employment.
ARTICLE 5. DISTRIBUTION OF BENEFITS
5.1. General. Subject to the remaining Sections of this Article 5,
distribution to a Participant of his or her vested Account balance shall be
made in accordance with distribution option elections established by the
Participant in accordance with uniform alternatives designated by the Plan
Administration Committee for distributions. Distributions shall commence in
accordance with such elections for scheduled in-service distributions and
within an administratively reasonable time after termination of employment
for all other distributions.
5.2. Investment Income During Distribution. The Participant's
Account balance shall be credited during the payment period with gains and
losses in accordance with Section 3.3
<PAGE>
5.3 Unscheduled In-Service Distributions. The Plan Administration
Committee, in its sole and unfettered discretion, may approve a request for
an unscheduled in-service distribution by a Participant of all or any portion
of such Participant's Account balance at any time, upon the imposition of a
five percent (5%) forfeiture penalty to the Company from the amount of the
in-service distribution requested by the Participant.
5.4. Acceleration of Distributions. The Plan Administration
Committee may, in its discretion, accelerate the distribution of, or alter
the method of payment of, benefits payable to a Participant. In addition, if
a Participant's total vested Account balance, determined as of the date on
which the Participant terminates employment, is $50,000 or less, or if an
income tax assessment has been levied against Participant with respect to the
Account before distribution, the Participant's Account shall be distributed
in a lump sum as soon as administratively practicable following his or her
termination of employment or the receipt by the Company of evidence of such
income tax assessment.
5.5. Hardship Withdrawals. Upon the application of any Participant,
the Plan Administration Committee, in accordance with its uniform,
nondiscriminatory policy, may permit such Participant to terminate his or her
deferral election or to withdraw some or all of his or her Account. A
Participant must give a written petition for termination of his or her
deferral election at least thirty days (or such shorter period of time as
permitted by the Plan Administration Committee in its discretion) prior to
date on which the Base Pay, Bonus, Commissions or Incentive Compensation
subject to the election would otherwise have been paid to the Participant in
cash. A Participant must give a written petition of the intent to withdraw
amounts from his or her Account at least sixty days (or such shorter period
of time as permitted by the Board in its discretion) prior to the date of
withdrawal. No termination or withdrawal shall be made under the provisions
of this Section except for the purpose of enabling a Participant to meet
immediate needs created by a financial hardship for which the Participant
does not have other reasonably available sources of funds as determined by
the Plan Administration Committee in accordance with uniform rules. The term
"financial hardship" shall include the need for funds to meet uninsured
medical expenses for the Participant or his or her dependents, meet a
significant uninsured casualty loss for the Participant or his or her
dependents, and meet other catastrophes of a "sudden and serious nature."
5.6. Death Benefits
(a) Death After Benefit Commencement. In the event a
Participant dies after benefits have commenced to him or her, the
Participant's remaining vested Account balance, if any, shall be paid to the
Participant's Beneficiary in the same manner such benefits would have been
paid to the Participant had the Participant survived; provided, however, that
the Company may, in its sole discretion, accelerate such payments such that
benefits are paid out over a shorter period, including payment in the form of
a lump sum.
(b) Death Prior to Benefit Commencement. In the event a
Participant dies prior to the date on which benefits commence to him or her,
the Participant's vested Account balance shall be paid to the Participant's
Beneficiary in installments over a fifteen-year period commencing within an
administratively practicable time following the Participant's death;
provided, however, that the Company may, in its sole discretion, accelerate
such payments such that benefits are paid out over a shorter period,
including payment in the form of a lump sum.
(c) Marital Deduction. If any benefits are payable under
the Plan to the surviving spouse of deceased Participant, the estate of the
Participant's spouse shall be entitled to all remaining benefits, if any, at
his or her death, unless specifically directed to the contrary by an
effective beneficiary designation.
(d) Designation by Participant. Each Participant has the
right to designate primary and contingent Beneficiaries for death benefits
payable under the Plan. Such Beneficiaries may be individuals or trusts for
the benefit of individuals. A Beneficiary designation by a Participant shall
be in writing on a form acceptable to the Board and shall only be effective
upon delivery to the Company. A Beneficiary designation may be revoked by a
Participant at any time
<PAGE>
by delivering to the Company either written notice of revocation or a new
Beneficiary designation form. The Beneficiary designation form last delivered
to the Company prior to the death of a Participant shall control.
(e) Failure to Designate Beneficiary. In the event there is
no Beneficiary designation on file with the Company, or all Beneficiaries
designated by a Participant have predeceased the Participant, the benefits
payable by reason of the death of the Participant shall be paid to the
Participant's spouse, if living; if the Participant does not leave a
surviving spouse, to the Participant's issue by right of representation; or,
if there are no such issue then living, to the Participant's estate. In the
event there are benefits remaining unpaid at the death of a sole Beneficiary
and no successor Beneficiary has been designated, the remaining balance of
such benefits shall be paid to the deceased Beneficiary's estate. If there
are benefits remaining unpaid at the death of a Beneficiary who is one of
multiple concurrent Beneficiaries, such remaining benefits shall be paid
proportionally to the surviving Beneficiaries.
5.7. Claims Procedure. The Plan Administration Committee shall
notify a Participant in writing within ninety days of the Participant's
written application for benefits of his or her eligibility or noneligibility
for benefits under the Plan. If the Plan Administration Committee determines
that a Participant is not eligible for benefits or full benefits, the notice
shall set forth (a) the specific reasons for such denial, (b) a specific
reference to the provision of the Plan on which the denial is based, (c) a
description of any additional information or material necessary for the
claimant to perfect his or her claim, and a description of why it is needed,
and (d) an explanation of the Plan's claims review procedure and other
appropriate information as to the steps to be taken if the Participant wishes
to have his or her claim reviewed. If the Plan Administration Committee
determines that there are special circumstances requiring additional time to
make a decision, the Plan Administration Committee shall notify the
Participant of the special circumstances and the date by which a decision is
expected to be made, and may extend the time for up to an additional
ninety-day period. If a Participant is determined by the Plan Administration
Committee to be not eligible for benefits, or if the Participant believes
that he or she is entitled to greater or different benefits, the Participant
shall have the opportunity to have his or her claim reviewed by the Chief
Executive Officer of the Company by filing a petition for review with the
Chief Executive Officer of the Company within sixty days after receipt by the
Participant of the notice issued by the Chief Executive Officer of the
Company. Said petition shall state the specific reasons the Participant
believes he or she is entitled to benefits or greater or different benefits.
Within sixty days after receipt by the Chief Executive Officer of the Company
of said petition, the Chief Executive Officer of the Company shall afford the
Participant (and his or her counsel, if any) an opportunity to present the
Participant's position to the Chief Executive Officer of the Company orally
or in writing, and said Participant (or his or her counsel) shall have the
right to review the pertinent documents, and the Chief Executive Officer of
the Company shall notify the Participant of his or her decision in writing
within said sixty-day period, stating specifically the basis of said decision
written in a manner calculated to be understood by the Participant and the
specific provisions of the Plan on which the decision is based. If, because
of the need for a hearing, the sixty-day period is not sufficient, the
decision may be deferred for up to another sixty-day period at the election
of the Chief Executive Officer of the Company, but notice of this deferral
shall be given to the Participant.
ARTICLE 6. FUNDING
6.1. Source of Benefits. All benefits under the Plan shall be paid
when due by the Company out of its assets, or if a trust is established by
the Company to hold and distribute Plan benefits, then by the trust to the
extent provided in the trust document.
6.2. No Claim on Specific Assets. No Participant shall be deemed to
have, by virtue of being a Participant in the Plan, any claim on any specific
assets of the Company such that the Participant would be subject to income
taxation on his or her benefits under the Plan prior to distribution and the
rights of a Participant or Beneficiary to benefits to which he or she is
otherwise entitled under the Plan shall be those of an unsecured general
creditor of the Company.
<PAGE>
ARTICLE 7. ADMINISTRATION
7.1. Administration. The Plan shall be administered by a Plan
Administration Committee. The Company shall bear all administrative costs of
the Plan other than those specifically charged to a Participant or
Beneficiary.
7.2. Powers of Committee. In addition to the other powers granted
under the Plan, the Committee shall have all powers necessary to administer
the Plan, including, without limitation, powers:
(a) to interpret the provisions of the Plan;
(b) to establish and revise the method of accounting
for the Plan and to maintain the Accounts; and
(c) to establish rules for the administration of the Plan and
to prescribe any forms required to administer the Plan.
7.3. Actions of the Committee. The Committee (including any person
or entity to whom the Committee has delegated duties, responsibilities or
authority, to the extent of such delegation) has total and complete
discretionary authority to determine conclusively for all parties all
questions arising in the administration of the Plan, to interpret and
construe the terms of the Plan, and to determine all questions of eligibility
and status of employees, Participants and Beneficiaries under the Plan and
their respective interests. Subject to the claims procedures of Section 5.6,
all determinations, interpretations, rules and decisions of the Committee
(including those made or established by any person or entity to whom the
Committee has delegated duties, responsibilities or authority, if made or
established pursuant to such delegation) are conclusive and binding upon all
persons having or claiming to have any interest or right under the Plan.
7.4. Delegation. The Committee, or any officer designated by the
Committee, shall have the power to delegate specific duties and
responsibilities to officers or other employees of the Company or other
individuals or entities. Any delegation may be rescinded by the Committee at
any time. Each person or entity to whom a duty or responsibility has been
delegated shall be responsible for the exercise of such duty or
responsibility and shall not be responsible for any act or failure to act of
any other person or entity.
7.5. Reports and Records. The Committee, and those to whom the
Committee has delegated duties under the Plan, shall keep records of all
their proceedings and actions and shall maintain books of account, records,
and other data as shall be necessary for the proper administration of the
Plan and for compliance with applicable law.
ARTICLE 8. AMENDMENTS AND TERMINATION
8.1. Amendments. The Company, by resolution of the Board, or the
Chief Executive Officer of the Company, to the extent authorized by the
Board, may amend the Plan, in whole or in part, at any time and from time to
time. However, no such amendment shall have the effect of eliminating or
reducing the vested Account balance of any Participant (determined as of the
later of the date on which such amendment is adopted or becomes effective);
nor may the Company amend Section 3.3 with respect to a Participant's Account
balance (determined as of the later of the date on which such amendment is
adopted or becomes effective), except that the Company may substitute funds
of similar nature for those available pursuant to Section 3.3 immediately
before such amendment. Any Plan amendment shall be filed with the Plan
documents.
<PAGE>
8.2. Termination. The Company expects the Plan to be permanent, but
necessarily must, and hereby does, reserve the right to terminate the Plan at
any time by action of the Board. Upon termination of the Plan, all deferrals
will cease and no future deferrals will be made, and the Company may, in its
sole discretion, accelerate distribution of each Participant's then vested
Account balance. However, no such termination shall otherwise have the effect
of eliminating or reducing the vested Account balance of any Participant,
determined as of the date on which such termination becomes effective. The
Company may terminate the participation of any Participant if the Board, in
its sole discretion, determines that the Participant no longer satisfies the
requirements to be an Eligible Employee or Director.
ARTICLE 9. MISCELLANEOUS
9.1. No Guarantee of Employment or Entitlement to Bonus or
Commissions. Neither the adoption and maintenance of the Plan nor the
execution by any employee of a deferral election shall be deemed to be a
contract of employment between the Company and any Participant. Nothing
contained herein shall give any Participant the right to be retained in the
employ of the Company or to interfere with the right of the Company to
discharge any Participant at any time, nor shall it give the Company the
right to require any Participant to remain in its employ or to interfere with
the Participant's right to terminate his or her employment at any time.
Nothing contained herein shall be construed or interpreted as creating a
right or entitlement on the part of an employee to a Bonus or Commissions,
and an employee's entitlement to a Bonus or Commissions shall be determined
solely in accordance with the terms of the Company's Bonus program or
Commission program, as the case may be.
9.2. Release. Any payment of benefits to or for the benefit of a
Participant or a Participant's Beneficiary that is made in good faith by the
Company in accordance with the Company's interpretation of its obligations
hereunder, shall be in full satisfaction of all claims against the Company
for benefits under this Plan to the extent of such payment.
9.3. Notices. Any notice permitted or required under the Plan shall
be in writing and shall be hand delivered or sent, postage prepaid, by
certified mail with return receipt requested, to the principal office of the
Company, if to the Company, or to the address last shown on the records of
the Company, if to a Participant or Beneficiary. Any such notice shall be
effective as of the date of hand delivery or mailing.
9.4. Nonalienation. No benefit payable at any time under this Plan
shall be subject in any manner to alienation, sale, transfer, assignment,
pledge, levy, attachment, or encumbrance of any kind by any Participant or
Beneficiary.
9.5. Tax Liability. The Company may withhold from any payment of
benefits such amounts as the Company determines are reasonably necessary to
pay any taxes (and interest thereon) required to be withheld under applicable
law.
9.6. Captions. Article and section headings and captions are
provided for purposes of reference and convenience only and shall not be
relied upon in any way to construe, define, modify, limit, or extend the
scope of any provision of the Plan.
9.7. Applicable Law. The Plan and all rights hereunder shall be
governed by and construed according to the laws of the State of Oklahoma,
except to the extent such laws are preempted by the laws of the United States
of America.
Dated: February 1, 1999
<PAGE>
UroCor, Inc.,
a Delaware corporation
By: /s/ William A. Hagstrom
-----------------------------------
Its Chief Executive Officer
-----------------------------------
<PAGE>
EXHIBIT A
Eligible Employees and Directors of UroCor, Inc.
William A. Hagstrom Michael W. George
Socrates H. Choumbakos Michael N. McDonald
Mark Dimitroff Lou Rye Carmichael
Robert W. Veltri, PhD. Karl Nigg
Monte Wiltse Robert Hyer
Nancy Tuffin Todd Wauters
James Connors Anthony Maupin
Gerry Clark
Gerard O'Dowd Paul Kirshman
Faruk Aydin Thomas Bassler, Jr.
Maya Sasi Clifford Eng
Edward Poole Usha Vasa
Arja Maberry
Louis M. Sherwood, MD Thomas C. Ramey
Herbert Conrad Aaron Beam
Michael E. Herbert
Dated: February 1, 1999
<PAGE>
EXHIBIT 10.2
March 15, 1999
Mr. Bruce Hayden
3396 Fallen Wood Cove
Collierville, Tennessee 38017
Dear Bruce:
As follow-up to our conversation late last week, UroCor is pleased to extend
you an offer to join the company as Senior Vice President, Chief Financial
Officer, effective April 12, 1999. This position will report both to Mike
George and myself.
Initial annual base salary will be $185,000 paid on a bi-weekly basis. At the
conclusion of 12 months, you will be eligible for a performance and
compensation review. A bonus opportunity of 30% of base salary will be
available based on corporate performance to revenue, operating income and
cash flow objectives. This bonus program is paid based on full year
performance and will be prorated based on number of months in the position.
From an incentive stock option perspective, you will be eligible for 75,000
shares. These shares will vest equally over a 4 year period in 12 month
increments (i.e. 25% per year). The price for these options will be based on
the closing price of UroCor's stock on April 12, 1999. The exercise period
will be 10 years.
From a re-location perspective, as we discussed, UroCor will make available
up to $7,500 for physical moving expenses, up to $25,000 in selling expenses
and up to $5,000 in buying expenses. Additionally, UroCor will make available
up to 3 months of temporary living expenses.
UroCor also has a 401K program which provides for a 50% match up to 6% of an
employees base (available after first 12 months). Further, the Company has a
stock purchase plan which allows employees to acquire stock at 15% below
market price. The company also has a standard medical, dental and life
insurance program. The details of this plan will be provided shortly. We
allow 3 weeks vacation for years 1-5 of employment and 4 weeks vacation after
6 years.
As with all employees, your employment is "at will", and as such, this offer
does not represent a contract. Your first 90 days of employment are
considered an introductory period. As discussed, UroCor has a Change in
Control provision which provides for 18 months protection. In the
unanticipated event of termination without cause, the Company would provide
up to 9 months base salary. Every employee is required to sign a
Confidentiality and Non-Compete Agreement with UroCor at the time of
employment. Last, this offer will need to be ratified by UroCor's Board of
Directors.
Bruce, I am very excited about the prospect of your joining UroCor and
believe you will make a significant impact throughout the organization. If
you have questions, please do not hesitate to contact me at (405) 290-4110.
Sincerely,
/s/ William A. Hagstrom
William A. Hagstrom
Chairman of the Board
and Chief Executive Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET FOR MARCH 31, 1999 AND THE STATEMENT OF OPERATIONS FOR THE THREE MONTH
PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 15,496,787
<SECURITIES> 1,014,115
<RECEIVABLES> 21,228,892
<ALLOWANCES> 6,583,234
<INVENTORY> 663,133
<CURRENT-ASSETS> 36,031,107
<PP&E> 17,868,843
<DEPRECIATION> 7,013,547
<TOTAL-ASSETS> 53,307,997
<CURRENT-LIABILITIES> 3,460,256
<BONDS> 0
0
0
<COMMON> 104,987
<OTHER-SE> 49,697,938
<TOTAL-LIABILITY-AND-EQUITY> 53,307,997
<SALES> 0
<TOTAL-REVENUES> 12,277,104
<CGS> 0
<TOTAL-COSTS> 4,314,149
<OTHER-EXPENSES> 5,861,505
<LOSS-PROVISION> 831,592
<INTEREST-EXPENSE> 10,303
<INCOME-PRETAX> 1,526,387
<INCOME-TAX> 580,979
<INCOME-CONTINUING> 945,408
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 945,408
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
