<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
<TABLE>
<C> <S>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-28328
------------------------
UROCOR, INC.
<TABLE>
<S> <C>
A DELAWARE IRS EMPLOYER IDENTIFICATION
CORPORATION NO. 75-2117882
</TABLE>
840 RESEARCH PARKWAY
OKLAHOMA CITY, OKLAHOMA 73104
Telephone Number (405) 290-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
<TABLE>
<S> <C>
Aggregate market value of the voting stock (Common Stock)
held by non-affiliates of registrant as of March 1,
2000...................................................... $48,719,724
Number of shares of registrant's Common Stock outstanding as
of March 1, 2000.......................................... 9,391,754
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's proxy statement relating to the 2000 annual
meeting of stockholders have been incorporated by reference into Part III
hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
DESCRIPTION
<TABLE>
<CAPTION>
ITEM PAGE
- ---- --------
<S> <C> <C> <C>
PART I................................................................................... 1
1. BUSINESS.................................................... 1
2. PROPERTIES.................................................. 23
3. LEGAL PROCEEDINGS........................................... 24
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 24
PART II.................................................................................. 25
5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 25
6. SELECTED FINANCIAL DATA..................................... 27
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 28
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 35
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 35
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 35
PART III................................................................................. 36
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 36
11. EXECUTIVE COMPENSATION...................................... 36
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 36
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 36
PART IV.................................................................................. 37
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.................................................. 37
</TABLE>
<PAGE>
PART I
THIS ANNUAL REPORT ON FORM 10-K CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
UROCOR, INC.'S ACTUAL RESULTS COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE
OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN "BUSINESS", "BUSINESS--CAUTIONARY STATEMENTS", "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K. SEE ALSO "BUSINESS--SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS".
ITEM 1. BUSINESS
OVERVIEW
UroCor, Inc. ("UroCor" or the "Company") markets a comprehensive range of
products and services to assist in detecting, diagnosing, treating and managing
prostate cancer, bladder cancer, kidney stones and other complex urologic
disorders. The Company's primary focus is providing products and services to
help urologists improve patient care and outcomes while reducing the total cost
of managing these diseases.
The Company provides comprehensive diagnostic services to detect major
urologic conditions, enhance the accuracy of prognosis of individual patient's
disease, monitor the patient's therapy and identify recurrence of the disease.
The Company acquires marketing and co-promotion rights to urologic
pharmaceutical products and selected devices. UroCor markets these services and
products directly to urologists and managed care organizations across the United
States through the Company's urology-focused sales force.
UroCor also performs research and development work pursuant to which the
Company develops, evaluates and customizes new diagnostic products and
technologies for use in the Company's diagnostic service offerings and
facilitates the development and utilization of the Company's disease databases
and related information systems. The Company utilizes information systems to
develop proprietary urologic disease databases and disease management models
directed at improving the diagnosis and treatment of patients. These efforts led
to the development of LithoSavant-Registered Trademark-, a proprietary
information system and national database, as well as the capability to deliver
reports to clients via the Internet.
UroCor was incorporated in Delaware in 1988 as the successor to a Texas
corporation that was incorporated in 1985.
UROLOGY MARKET
UroCor serves the segment of the United States urology market consisting of
approximately 7,800 office-based urologists, including those affiliated with
managed care organizations. These urologists diagnose and treat patients for
prostate cancer, bladder cancer, kidney stone disease, incontinence and other
complex urologic diseases. Their patients have generally been referred to them
by primary care and other physicians.
The urologist often serves as the primary diagnostician, oncologist and
surgeon, when surgery is required, for the treatment of prostate cancer, bladder
cancer and many other conditions. Patients with prostate or bladder cancer
generally require management of the disease by the urologist throughout a
disease cycle ranging from three to ten years. The urologist may require
sophisticated diagnostic and information services and a wide range of
therapeutic products and services throughout that period. Despite the
urologist's need for comprehensive services, most urologists are still served
primarily by local hospitals, pathology groups and many other companies that do
not focus on urologic disease or the urologist's practice.
UROCOR--OVERVIEW OF MAJOR PRODUCTS AND SERVICES
The table on the following two pages sets forth the Company's principal
diagnostic, therapeutic and information products and services in terms of
current offerings, expected 2000 offerings and offerings in-process of research
and new product development by UroCor in the urology market. The table is also
segregated by urologic disease to illustrate the Company's strategy of focusing
on urologic disease:
1
<PAGE>
UROCOR--OVERVIEW OF MAJOR PRODUCTS AND SERVICES
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRODUCT CATEGORY PROSTATE
- ------------------------------------------------------------------------------------------------------
DIAGNOSTIC SERVICES
<S> <C>
These services assist urologists in diagnosing, SERUM--TOTAL PSA; COMPLEXED PSA; FREE/TOTAL PSA
selecting appropriate therapies and managing their RATIO
patients with urologic diseases. These measurements of serum PSA levels help
The benefits that UroCor provides are: urologists to detect initial disease and monitor
- - Specialization in detection, diagnosis and disease recurrence. UroCor offers a broad range of
monitoring of urologic diseases. PSA and other serum testing.
- - Specialized uropathology group with significant ANATOMIC PATHOLOGY--PROSTATE BIOPSY
cumulative experience in these diseases. UroCor's board-certified pathologists offer
- - Large prostate database of more than 200,000 clinicians increased confidence in diagnosis,
prostate cases and related disease information having diagnosed 10% of all prostate cancers
resources. diagnosed in both 1998 and 1999. This service is
- - Broad range of advanced technologies and anchored by the Company's SextantPlus(SM) biopsy
capabilities to assist in diagnosis and kit and report.
prognosis. UROSCORE(-REGISTERED TRADEMARK-)--STAGING
- - Advanced pathology products and services ALGORITHM
supported by several medical and scientific This advanced diagnostic algorithm allows
peer-reviewed publications. urologists to better understand the stage of a
patient's disease for selecting appropriate
treatment alternatives.
DNA PLOIDY ANALYSIS
UroCor's capability and experience with cell DNA
content measurements aids in predicting the
aggressiveness of disease.
- ------------------------------------------------------------------------------------------------------
THERAPEUTIC PRODUCTS
These products are targeted to the disease states BRACHYTHERAPY--RADIATION SEED IMPLANTS
for which UroCor has complementary diagnostic Pursuant to an exclusive agreement with the
services and capabilities. manufacturer, UroCor markets
The disease states for these products are ProstaSeed(-Registered Trademark-) Iodine-125
compatible with UroCor's marketing, information implants that are used in the treatment of early,
services and disease management approach. localized prostate cancer.
UroCor expects to market these products with
unique service and convenience enhancements and
information resources.
The Company also expects to develop unique
supplementary patient therapeutic decision tools
in support of the therapeutic strategy in urology.
- ------------------------------------------------------------------------------------------------------
INFORMATION SERVICES
Diagnostic reporting is accessible by clients via HEALTHEON/WEBMD INTERNET REPORTING
the Healtheon/WebMD Internet system. TAILORED PATIENT EDUCATION MATERIAL
UroCor offers advanced information reporting and These patient diagnosis-specific materials are
disease-specific database capabilities. available to the urologist with the diagnostic
The Company also offers disease-specific databases report via the Internet, fax or mail, to help
and disease outcome predictive models to support educate patients regarding their disease.
customer's disease information needs. PROSTATE DISEASE DATABASE
The Company is developing unique practice-specific The Company believes it maintains the most
databases and decision support tools based on its comprehensive diagnostic prostate database with
national disease-specific databases. over 200,000 cases.
UROSAVANT(SM)
This product provides UroCor clients summary and
benchmarking information for improved practice and
patient management.
- ------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
<CAPTION>
- ------------------------------------------------------------------------------------------------
BLADDER KIDNEY AND INCONTINENCE
- ------------------------------------------------------------------------------------------------
<S> <C>
CYTOLOGIC PATHOLOGY UROSTONE(SM) ANALYSIS
UroCor's pathologists have experience in the UroCor uses advanced systems to analyze the
diagnosis of over 21,000 bladder cancers. Such composition of stones, which is used by
expertise is applied to this difficult urologists to direct treatment.
diagnostic area which detects and analyzes UROSTONEMAX24(SM)
cancer cells in a urine specimen. This service provides a comprehensive
HEMATURIA ANALYSIS evaluation of the underlying causes of stone
This product was developed to help urologists formation, which may indicate the likelihood of
determine whether the source of trace of blood a recurrence.
in the urine originated from the kidney or UROSTONE OUTCOMES AND ECONOMIC MODEL
lower urinary tract. The Company is developing and expects to market
DD23 MARKER ANALYSIS in 2000 a comprehensive review of available
This proprietary marker is used in conjunction databases to support the effectiveness and
with cytology which helps in othe detection of efficacy of UroStoneMax24, with the intent to
bladder cancer. gain managed care business and differentiate
DNA PLOIDY ANALYSIS the product with urologists.
This computer-assisted image can be used in GENERAL SERUM CHEMISTRIES
conjunction with cytology to assist in the UroCor's serum testing capabilities are helpful
detection and prognosis of bladder cancer. in understanding the patient's general health
P53 MOLECULAR TESTING or overview of a particular disease and also
This proprietary test was developed by UroCor provides urologists with one-stop shopping
to detect gene mutations, which may predict convenience.
cancers that are more aggressive and are more
likely to progress to a higher stage and grade.
- ------------------------------------------------------------------------------------------------
PACIS(-REGISTERED TRADEMARK-)--BCG PERSIST(-REGISTERED TRADEMARK-) TREATMENT
UroCor has exclusive U.S. marketing rights for SYSTEM
PACIS BCG therapy for certain types of bladder This FDA-approved incontinence treatment system
cancer, which was cleared for marketing by the helps patients manage incontinence; currently
FDA in March 2000. The Company expects to awaiting reimbursement approval by Medicare.
market this product in mid-year 2000.
- ------------------------------------------------------------------------------------------------
HEALTHEON/WEBMD INTERNET REPORTING HEALTHEON/WEBMD INTERNET REPORTING
TAILORED PATIENT EDUCATION MATERIAL PATIENT SPECIFIC TREATMENT PLANS
The Company is developing and expects to market UroCor's specific patient treatment plan is
in 2000 patient diagnosis specific materials to based on the diagnostic workup of the patient
be delivered to the urologist with the delivered in conjunction with the diagnostic
diagnostic report via the Internet, fax or report in kidney stones management.
mail, to help educate patients regarding their LITHOSAVANT(-REGISTERED TRADEMARK-)
disease. This proprietary information system and
BLADDER DISEASE DATA BASE national data base helps direct the treatment
The Company is developing and expects to market and tracking of stone disease and outcomes.
in 2000 a comprehensive patient data base to
assess specific cases in comparison to national
trends and diagnostic outcomes.
- ------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
DISEASE MANAGEMENT BUSINESS
DIAGNOSTIC SERVICES
Branded in the urology market as UroCor Labs-TM-, the Company provides to
office-based urologists the comprehensive diagnostic services listed in the
previous table to detect and diagnose certain major urologic diseases, make a
prognosis of the patient's disease, monitor the patient's therapy and identify
recurrence of the disease. Diagnostic services generated approximately 93% of
the Company's 1999 revenues.
The Company emphasizes enhanced service, including the delivery of a
comprehensive detailed report to the referring physician after completion of
each specimen analysis. The Company's relations with its clients are supported
through its field-based technical sales specialists and field techs and home
office-based regional client relations representatives, who are responsible for
handling inquiries from referring physicians and providing support to the
Company's customer base.
The Company also places emphasis on quality as demonstrated by attainment of
accreditation from the Joint Commission of Healthcare Organizations ("JCAHO") in
April 1999. The JCAHO accreditation survey evaluates a laboratory's performance
of functions and processes aimed at continuously improving outcomes, and such
accreditation increases UroCor's options for participation in managed care and
other contractual arrangements. The Company's laboratory also holds licenses,
certification or accreditation from CLIA, College of American Pathologists and
all required state agencies.
PROSTATE CANCER
Management of prostate cancer requires the urologist to screen, detect,
diagnose, prognose and treat the patient and monitor progression of the disease.
UroCor has developed and markets products and services that assist the urologist
in each of the diagnostic steps in this disease cycle.
UroCor's PSA products are used in detection of the disease to improve the
urologist's ability to identify true positive cancer patients. The Company
offers a Free/Total PSA ratio utilizing Total PSA and Complexed PSA products,
which is used for further accuracy in the presence of a negative first biopsy
and may increase the urologist's ability to differentiate prostate cancer from
benign disease.
The current standard for diagnosis of the disease after the screening stage
is the prostate biopsy. The Company's biopsy product, SextantPlus(SM), is a tool
intended to increase the probability of finding small, localized tumor tissue in
the prostate and to provide increased information from the specimen which can be
used in more accurate prognosis of the disease. The Company's specimen
collection techniques, reporting capabilities and database resources assist the
urologist in identifying the location and severity of the disease.
After detection and diagnosis of prostate cancer, the urologist must
accurately "stage" or classify the disease to determine whether the cancer has
spread beyond the prostate gland. UroCor developed its proprietary, patented
UroScore-Registered Trademark- algorithm to assist the urologist in this step.
After staging the disease, the urologist and patient determine whether to treat
the disease with surgery, radiation or drug therapy or simply to monitor its
progress. UroCor utilizes its expertise and capabilities to provide the
urologist with additional information regarding the aggressiveness of a
patient's cancer. This information is further enhanced by the Company's
pathologists who interpret the prognostic information in conjunction with the
patient's diagnostic pathology report.
After reaching a treatment decision, the urologist can monitor the patient
for evidence of recurrence or eradication of the disease by using the Company's
PSA products.
In December 1999, the Company introduced its new UroSavant Report that is
based upon UroCor's proprietary national prostate database and summarizes
certain biopsy and serum PSA statistics on a
3
<PAGE>
national, regional and individual basis. The report also lists individual
patients' results for biopsies submitted by a particular physician or group over
the past quarter.
BLADDER CANCER
Some of the difficulties that the urologist faces in the diagnosis and
management of bladder cancer include detecting tumors at an early stage,
assessing the aggressiveness of tumors and monitoring for disease recurrence
after treatment. UroCor's bladder cancer products provide the urologist with
analysis and information capabilities in all significant aspects of the
diagnosis and management of the disease. UroCor's bladder cellular analysis
incorporates a multi-modality approach that the Company believes provides
increased levels of analysis and corresponding improvements in specificity and
sensitivity of test results. The Company's complete bladder cancer detection
program combines the information from microscopic examinations of a patient's
specimen combined, when appropriate, with two different techniques, an analysis
of the DNA content in cell nuclei and use of a more specific biomarker to assist
in the pathologist's assessment for the presence of cancer.
UroCor's proprietary DD-23 monoclonal-based biomarker assists the
pathologist in the cytological diagnosis of bladder cancer. The biomarker was
licensed from the University of Michigan and developed using in-house, as well
as academically acquired clinical specimens.
UroCor's proprietary molecular-based test for detecting mutations in the
p-53 gene helps the urologist predict whether the patient has an aggressive
cancer. Presence of such mutations may warrant a more aggressive management
strategy. UroCor can perform its p-53 determination using a urine specimen from
a patient with bladder cancer, while existing methods for determining the status
of a patient's p-53 gene must utilize a bladder biopsy obtained in a hospital
surgical procedure. The UroCor assay may be performed on the same urine specimen
on which it performs its cellular analysis processes for the initial detection
of bladder cancer or for recurrence of the cancer in patients successfully
treated for the disease.
An additional condition that may relate to a number of urinary tract
diseases and infections is microhematuria, or the presence of small amounts of
blood in the urine. The initial challenge faced by the urologist in diagnosing
the underlying cause of the microhematuria is to identify the source of the
bleeding. The UroCor Labs microhematuria diagnostic evaluation combines a
microscopic examination of cells and urine sediment by pathologists with a urine
protein chemistry analysis to provide the urologist with information on the
probable location of the bleeding.
KIDNEY STONES
Kidney stone disease typically requires physical and chemical analysis of
the stone, and, in many cases, analysis of patients' urine and serum specimens
to assess the risk of disease recurrence and treatment options. Traditionally,
the urologist was required to send each of the kidney stone, urine specimen and
serum specimen to different testing service providers. The UroCor Labs kidney
stone management system, UroStone(SM), offers a program in which the urologist
delivers all specimens to UroCor and the Company provides integrated analysis
and reports, as well as patient treatment plan materials specific for each
diagnosis.
UroCor's LithoSavant-Registered Trademark- product is an outcomes management
system for use by lithotripsy centers and urologists managing kidney stones
disease. This product was developed by UroCor in collaboration with the American
Lithotripsy Society and consists of specialized outcomes tracking and reporting
software used in conjunction with UroCor's national database on kidney stones
disease. The Company markets LithoSavant directly to lithotripsy centers
including some of the national and regional chains which operate numerous
centers across the country.
4
<PAGE>
THERAPEUTIC PRODUCTS
The Company seeks to provide therapeutic products and services to urologists
and radiation oncologists for the care of their patients. To achieve this goal,
the Company attempts to identify opportunities within targeted disease states to
license, distribute, acquire from others or co-market urologic pharmaceuticals
and related products and services used or prescribed for the treatment of
urologic diseases. The Company intends to capitalize on its large urology
customer base and the skills of its urology-focused sales force to market such
products and services to its client base. The Company plans to differentiate its
product and service offerings from those of its competitors through ancillary
services, which may include just-in-time inventory management for the
physician's office, procedure trays to accompany selected therapeutic
interventions, data base access and oncologist consultation.
PROSTATE CANCER
In October 1997, the Company entered into a co-promotion agreement with
Zeneca Pharmaceuticals, Inc. ("Zeneca") pursuant to which the Company began
co-promoting Casodex and Zolodex, Zeneca's therapeutic products for advanced
prostate cancer. Effective January 1, 1999, UroCor and Zeneca replaced the
original agreement with a revised three-year co-promotion agreement that was
subject to termination under certain circumstances. UroCor promoted these
therapeutic products principally through its relationships with its urologist
clients. Effective December 31, 1999, the co-promotion agreement was terminated.
The Company now intends to focus on promotion of UroCor branded products and
services.
In January 2000, the Company began marketing
ProstaSeed-Registered Trademark-, a UroCor branded line of Iodine-125 radiation
implants (also referred to as "seeds") used in brachytherapy for early stage
prostate cancer. Brachytherapy is a form of radiation therapy in which up to 80
to 100 seeds may be implanted in the prostate under ultrasound guidance,
increasingly performed as an out-patient procedure requiring no overnight
hospital stay. This treatment is increasingly selected by early stage prostate
cancer patients because it does not dictate removal of the prostate, which can
result in side effects such as impotence and incontinence.
While brachytherapy is an increasingly popular treatment option from the
patient's point of view, there are still many unanswered questions regarding
which therapy is appropriate for a particular patient/ diagnosis. As
brachytherapy may also be used in conjunction with external beam radiation,
hormonal therapy and other drug therapies, the treatment selection decisions may
be further complicated. The Company believes its expertise in advanced
diagnostic and prognostic technologies and its capabilities and extensive
information systems and resources in prostate cancer cases may contribute to
development of more rational processes to help patients and their urologists
determine appropriate therapy.
UroCor acquired worldwide marketing rights for its seeds product pursuant to
an agreement entered into in September 1998 with the seeds manufacturer, Mills
BioPharmaceuticals, Inc. ("Mills"), a private company founded in 1992 to
commercialize its expertise in adapting radioactive elements in a range of
important medical applications. Pursuant to its agreement with Mills, the
Company plans to be the exclusive marketing agent for the Mills' seeds in the
United States and in all other countries in which it secures distribution
contracts with other parties for the product. UroCor also has agreements with
Mallinckrodt, Inc. ("Mallinckrodt") and Prostate Services of America ("PSA")
that will contribute to distribution of ProstaSeed. Mallinckrodt may sell and
distribute ProstaSeed through its 35 nuclear medicine pharmacies and more than
80 independent pharmacies, as well as adding the product to its group-purchasing
contracts with hospital groups. PSA provides hospitals and physician practices
specializing in treating prostate cancer with a variety of services, including
training, on-site proctoring, one-stop equipment purchasing and financing, and
pre- and post-implant dosimetry, and may make ProstaSeed available to their
customers.
5
<PAGE>
BLADDER CANCER
In December 1994, the Company entered into an agreement with BioChem
Vaccines, Inc. ("BioChem"), a subsidiary of BioChem Pharma, Inc., granting the
Company exclusive distribution rights in the United States for
PACIS-Registered Trademark- BCG, a therapeutic product for treating certain
types of superficial bladder cancer. BCG is delivered directly into a patient's
bladder by the urologist using a catheter, generally in an office-based
procedure. The current BCG treatment procedure includes an initial series of six
such doses over a six-week period, and some studies have indicated that
additional maintenance doses of BCG delivered at lengthening intervals may be
effective in delaying or eliminating recurrence of bladder cancer.
The Company expects to launch PACIS in mid-year 2000, as BioChem received
marketing clearance from the FDA in March 2000. The Company's ability to
maintain its exclusive distribution rights is conditioned upon meeting certain
minimum sales requirements. There are two other suppliers of FDA approved BCG
products in the United States and numerous alternative drugs or surgery which
may be used for treating this disease.
INCONTINENCE
Pursuant to an agreement entered into in August 1998 between UroCor and
DesChutes Medical Products, Inc. ("DesChutes"), UroCor markets DesChutes'
Persist Treatment System for incontinence. This treatment system can be used by
urologists and their patients in a program of physical conditioning and
bio-feedback of muscle groups employed to help rebuild and strengthen pelvic
floor muscles. According to a study published in the Journal of the American
Medical Association in January 1999, this type of therapy appears to be more
effective than drugs or surgery alone and is preferred by patients experienced
in alternative treatments. In addition, physical conditioning muscle
rehabilitation therapy of the type in which Persist may be used can also be
combined with drug therapy or surgery to improve their effectiveness.
The National Institutes of Health and the United States Department of Health
and Human Services ("DHHS") have indicated that treatment modalities of the type
offered by Persist should be the first line therapy for treatment of stress
incontinence, urge incontinence and incontinence which may result from radical
prostatectomy surgery. Patients with these conditions reportedly spend over
$13 billion per year as a result of their condition, most of it on dryness
products that do nothing to address the underlying causes. Studies report that
most of the patients who suffer from incontinence have not yet sought proper
medical assistance in controlling this condition. This type of therapy is
currently reimbursed by certain managed care plans and insurance companies but
is not currently reimbursed by Medicare.
Persist's design helps patients concentrate their efforts on the appropriate
muscles and can relate physical progress to improved performance in bladder
control. The Company initiated a pilot marketing of Persist in selected
territories across the United States late in 1998 and continued it through 1999.
Persist is a new product in a relatively new category of therapies for
incontinence, and there remain many unresolved issues related to marketing,
sales and distribution of the product which may affect future sales results.
There also is a broad range of alternative products, drugs and surgery for
treating incontinence and additional competing drugs and devices in development
or awaiting FDA approval. Due to the challenging reimbursement environment,
Persist continues to be a difficult product to sell to physicians.
OTHER PRODUCTS
In addition to the products and agreements noted above, the Company plans to
pursue the license or acquisition of other therapeutic products for distribution
through its sales force.
6
<PAGE>
SALES AND MARKETING
The Company presently markets its diagnostic services and therapeutic
products principally to the segment of the urology market consisting of more
than 7,800 office-based urologists in the United States, many of whom are
providers for one or more managed care organizations. UroCor has developed a
sales force dedicated and trained to market to urologists, including
representatives specialized in marketing to national accounts and managed care
organizations. In addition, the Company has begun deployment of a specialty
sales force to promote ProstaSeed to radiation oncologists.
The Company is primarily focusing its sales and marketing resources on
increasing penetration and utilization of its products in urologists offices,
expanding its client base and adding additional products and services to its
product lines. To assist these efforts, in October 1999, the Company entered
into an agreement with Healtheon/Web MD to provide to its clients Internet-based
reporting and test requisition capabilities.
The Company also focuses on securing managed care contracts to permit UroCor
to provide products and services to patients enrolled in these health care
organizations. The Company intends to increase its penetration of the managed
care market by developing products and services specifically designed to meet
the cost control, quality assurance and other requirements imposed by managed
care organizations.
In addition to its focus on individual urologists and managed care
organizations, the Company is diversifying its managed care selling efforts to
place more emphasis on regional health plans and large, locally-based,
multi-physician practices to increase regional market penetration.
DIAGNOSTIC PRODUCT AND TECHNOLOGY DEVELOPMENT
The Company combines its own internal discovery and development capabilities
with access to external resources at leading academic centers, research
institutes and other companies to create new products. The Company then aligns
and prioritizes the new product development schedule to support the Company's
long term strategic business plan.
UroCor's discovery and development activities led to the introduction of
several proprietary tests that are currently used in the Company's diagnostic
services business. One of the proprietary tests is the DD-23 monoclonal antibody
test for bladder cancer detection, which is supported by a technology license
with the University of Michigan. Another of the proprietary tests is the
molecular-based p-53 gene mutation test for bladder cancer prognosis, which was
developed through a collaboration with Ambion, Inc. under a National Cancer
Institute's SBIR Phase I grant.
The Company is also developing patented, computer-assisted imaging
technology known as quantitative nuclear grading (QNG-TM-), which measures the
degree of disorganization of genetic material within cancer cell nuclei. The QNG
measurement serves as an additional input variable that can be included in the
array of pathology and clinical laboratory variables used in proprietary or
patent-protected algorithms used to predict stage, tumor aggressiveness or
potential response to therapy in prostate cancer patients. The new QNG variable
and algorithms are being evaluated along with other advanced technologies in
collaboration with Johns Hopkins Medical Institutions in a project directed at
utilizing such approaches and even more powerful prognostic tools to manage
prostate cancer patients. The collaboration is partially funded under a 2 1/2
year grant initiated in 1998 from the Department of Defense. The same QNG
technology is also being investigated for potential evaluation of bladder
cytology specimens from bladder cancer patients being monitored for their
disease status.
During the early to mid-1990's, the Company conducted a gene discovery
program in the field of prostate cancer resulting in an intellectual property
position on several novel genes differentially expressed in prostate cancer. A
select few of these discovered genes are now being evaluated by the Company as
potential new tissue- and serum-based biomarkers that may improve the detection,
diagnosis and prognosis of prostate cancer. The Company is also seeking
licensing partners to purchase intellectual property rights
7
<PAGE>
or to assist with the research and development of these novel genes for
diagnostic and therapeutic applications. There can be no assurance that the
Company will be successful in its efforts to out-license or develop these genes.
The Company's research and development resources, with assistance from the
Company's information systems resources have created new, disease-specific
databases from the Company's diagnostic laboratory information system used to
store client's specimen results. Such information databases are being used to
develop knowledge-based products intended to enhance the Company's delivery of
results to its clients. UroCor is working with its client urologists to obtain
additional case information including test results that are entered into the
Company's proprietary patient disease-specific databases. In addition, the
Company establishes new and maintains existing academic and research institution
relationships that provide clinical and surgical pathology specimens as well as
follow-up information to supplement its internal disease databases. The Company
combines its specimen repository, disease databases and range of technical
expertise to evaluate new technologies and products facilitating determination
of the contribution that they may represent to the Company's business strategy.
The databases are also used to develop peer-reviewed publications in support of
UroCor's long-term urology disease management strategy.
The primary purpose of the Company's research and development activities is
to develop additional diagnostic products and technologies for the urology
market and to support existing products and services through enhancement and
quality improvement. Additionally, UroCor believes that some of the technologies
acquired or in development in the Company's research and development programs
may have applications in diagnostic and therapeutic product development outside
the scope of UroCor's service business. The Company is seeking potential
partners for further development of such products, however, there can be no
assurance that these efforts will be successful.
MANAGEMENT INFORMATION SYSTEMS
UroCor believes that useable, relevant information provides one of the most
important components of disease management services. The Company intends to
capitalize on its existing relationships with its urologist clients, academic
centers and managed care organizations and its existing information resources to
help improve the clinical management of patients with urologic disease.
The Company developed in 1997 and subsequently has maintained its own
proprietary Internet-based wide area network providing a communication channel
between UroCor and its physician clients. In October 1999, UroCor signed an
agreement with Healtheon/WebMD to transition clients from its own network to
Healtheon/Web MD's Internet portal. The Company expects this transition to
result in improved operating efficiencies related to electronic data flow with
its customers. Both of these Internet-based services provide clients with
convenient access to the case reports on their patients' current diagnostic
findings. The Company intends to expand the number of clients accessing this
Internet delivery system and increase capabilities to allow clients to send
their test requests plus patient and billing information to the Company in
advance of a specimen and to enhance other electronic communication with
clients.
The Company is assessing the value of further developing prostate, bladder
and kidney stones disease specific databases and certain outcomes tracking and
related information management tools. The Company's LithoSavant system for
kidney stones management is an example of the type of useful information product
that can result from this work. LithoSavant provides standardized data
collection and outcomes reporting and a comprehensive national database for
lithotripsy and kidney stones disease. The long-term goal of such databases is
to provide urologists with further tools to assess the relative effectiveness of
different treatment modalities and the ability to improve the management of
their patients.
8
<PAGE>
COMPETITION
The market for providing urologists and managed care organizations with
disease management systems and services is still emerging. The Company is not
aware of any other company in urology that currently is providing the
comprehensive approach pursued by the Company.
The market for providing urologists with specialized diagnostic services for
detection, diagnosis, prognosis and monitoring is highly competitive and
fragmented. The majority of this market is served by hundreds of local
free-standing or hospital-based pathology services that compete for the cellular
and tissue diagnostic services offered by the Company. Other hospital
laboratories, specialty laboratories and local, regional and national general
reference laboratories all provide some of the serum and other testing provided
by the Company. The main competitive advantage of local and hospital pathology
service providers is long-established local physician referral practices. The
general reference laboratories' competitive strength is attributable primarily
to their service capabilities to provide local couriers for specimen pickup and
broad-based contracting ability with managed care organizations covering all
their diagnostic testing needs in one agreement. In contrast, the Company's sole
focus in urology can limit its access to managed care contracts. Other companies
that already market diagnostic products and medical supplies in other fields
have begun marketing systems and kits for performing certain diagnostic tests in
the urologist's office. The Company believes that it will be able to compete
with these diagnostic product and service providers because of its disease
management approach, its broad range of specialized diagnostic products and
services, its urology-dedicated sales force and its focused product research and
development and information development efforts.
The Company also competes with many biotechnology companies, manufacturers
of diagnostic systems and kits and many pharmaceutical companies as well as
other producers and distributors of medical products for the acquisition of new
technologies and products of potential importance to urologists. The Company
believes its own product, technology and business development capabilities
together with its expertise in urologic diseases and market access provide it
with the ability to compete successfully in this area.
In the therapeutics segment of the urology market, surgery performed by
urologists as well as many other therapeutic products currently compete with or
will compete with the Company's distribution of the Persist Treatment System for
incontinence, the Company's ProstaSeed radiation implants for prostate cancer
and the Company's anticipated PACIS BCG product for bladder cancer. Many major
and other pharmaceuticals companies, which can deploy larger sales organizations
and research and development efforts than the Company, compete for sales of
other urologic drugs and devices. Because of its existing relationships with
urologists and its specialized sales force, the Company believes that it has the
ability to compete in this market.
Information systems companies, disease management companies and others may
provide services and software products that will compete with the Company's
current and proposed products and services. In addition, other companies,
academic institutions and consortia are building regional or national databases
focused on improving clinical and economic outcomes which may compete with the
Company's applications of its urologic disease databases and related resources.
Many of these competitors have considerably greater resources and experience
than the Company in the development of software and information systems. The
Company believes that the principal competitive factors for clinical outcomes
database software are the quality, consistency and depth of the underlying
clinical diagnosis and outcomes data, the usefulness of the data and reports
generated by the software, customer service and support, ease-of-use,
compatibility with the customer's existing information systems, potential for
product enhancements and vendor reputation. The Company believes that it can
provide a service in this area because of its established relationships with
urologists and its expertise in and focus on urologic diseases.
Many of the Company's competitors are significantly larger and have
significantly greater financial, technical and administrative resources than the
Company. Many such competitors may also have
9
<PAGE>
long-established relationships with the Company's current and prospective
customers and with greater numbers of managed care organizations.
GOVERNMENT REGULATION
The Company's business is subject to a variety of governmental regulations
at the federal, state and local levels.
The Company's diagnostic operations currently are not regulated by the FDA.
While the FDA now indicates that it does not plan to regulate assays developed
by laboratories for in-house use, the FDA in the past has considered drafting
guidelines for regulation of such assays. 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 requirements for the Company's in-house
assays. The FDA currently regulates some of the components, tests and systems
purchased by the Company from third parties and used in the Company's
diagnostics business. The manufacturers of such products are responsible for
compliance with the approval and marketing regulations of the FDA. Failure to
comply could result in FDA enforcement action, and in disruption of the
availability of these products. If the Company should decide to market any of
its diagnostic technology as test kits to be used by third parties, such test
kits would require FDA approval. The Company performs appropriate internal
validation procedures and selected external clinical evaluations on new in-house
tests and markers which it intends to market. While no assurances may be given
in such regard, the Company believes that it could adjust to any reasonable
changes in applicable FDA requirements without significant disruption or
financial impact. In the event that any such changes are more extensive than
anticipated, these changes 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.
Promotional claims for the Company's products are regulated by the Federal
Trade Commission ("FTC") and by the states. Failure to comply with applicable
requirements could result in enforcement actions, including the imposition of
civil money penalties.
The FDA regulates the products licensed or otherwise acquired from third
parties and distributed or marketed by the Company's sales force. The
manufacturers of such products are responsible for compliance with the approval
and marketing regulations of the FDA. Failure to comply could result in FDA
enforcement action, and in disruption of the availability of these products. The
Company is responsible for the distribution and marketing of PACIS BCG, which
subjects the Company to FDA and State Board of Pharmacy regulations.
The Company's clinical laboratory is certified under the federal Clinical
Laboratory Improvement Act of 1976, as amended in 1988 ("CLIA"), and
participates in the federal Medicare program and certain state Medicaid
programs. Failure to comply with the applicable CLIA requirements could result
in loss of licensure or other penalties. The Company also is licensed under the
clinical laboratory licensure laws of Oklahoma, where the Company's clinical
laboratory is located. In addition, the laboratory is accredited by the College
of American Pathology. Because the Company provides clinical testing services to
patients nationwide, its laboratory also is licensed under the laws of those
state or local governments which the Company is aware have clinical laboratory
regulation programs applicable to out-of-state laboratories. The Company
believes that it has obtained all such licenses required for its operations and
is in compliance in all material respects with all such applicable regulations.
In addition, certain regulatory authorities require participation in a
proficiency testing program approved by the DHHS for each of the specialties and
subspecialties for which a laboratory seeks approval from Medicare or Medicaid
and licensure under CLIA. Proficiency testing programs involve actual testing of
specimens that have been prepared by an entity running an approved program for
testing by the laboratory. The Company believes it is in compliance in all
material respects with all regulations applicable to such testing programs.
10
<PAGE>
The federal Anti-Fraud and Abuse Amendments to the Social Security Act (the
"Federal Anti-Kickback Law") proscribe the offering, payment, solicitation or
receipt of remuneration (including any kickback, bribe or rebate), directly or
indirectly, overtly or covertly, in cash or in kind, for (i) the referral of
patients or arranging for the referral of patients to receive services for which
payment may be made in whole or in part under a "federal health care program"
(defined generally as "any plan or program that provides health benefits,
whether directly, through insurance, or otherwise, which is funded directly, in
whole or in part, by the United States Government") other than the federal
Employees Health Benefit Program, and any state health care program, or
(ii) the purchase, lease, order or arranging for the purchase, lease or order of
any good, facility, service or item for which payment may be made under a
federal health care program. Limited "safe harbor" regulations define a narrow
scope of practices that will be exempted from federal prosecution or other
enforcement action under the Federal Anti-Kickback Law and fail to exempt a wide
range of activities frequently engaged in among hospitals and physicians and
other third parties. Activities that fall outside the safe harbor rules are not
necessarily illegal, although they may be subject to increased likelihood of
scrutiny, investigation or prosecution. The Federal Anti-Kickback Law contains
both criminal and civil sanctions, which are enforced by the Office of Inspector
General ("OIG") of DHHS and the United States Department of Justice (the "DOJ").
Civil sanctions may include, among others, exclusion from participation in the
Medicare and state health care programs and civil money penalties.
Congress made sweeping changes to various health care fraud provisions in
the "Health Insurance Portability and Accountability Act of 1996" ("HIPAA").
HIPAA called upon the Secretary of DHHS to establish a program aimed at
controlling fraud and abuse. HIPAA also expanded the criminal laws and sanctions
to strengthen the enforcement capabilities of the federal government in
attempting to prevent health care fraud and abuse. HIPAA has increased the risk
of fraud investigations. For example, HIPAA expanded fraud and abuse sanctions
to all "federal health care programs", other than the Federal Employees Health
Benefit Program. HIPAA called for additional potential penalties and sanctions,
including increased monetary penalties and the exclusion of: (i) individuals
with direct or indirect ownership or controlling interest in a sanctioned entity
if the individual knows or should know of the action constituting the basis for
the conviction or exclusion of the entity, and (ii) officers or managing
employees of the entity. HIPAA also created a federal crime of health care
fraud, which applies to anyone who knowingly and willfully executes, or attempts
to execute, a scheme or artifice to defraud any health care benefit program,
including any public or private plan or contract, affecting commerce, under
which any medical benefit, item or service is provided to any individual.
The Balanced Budget Act of 1997 ("BBA") expanded the sanctions under the
Federal Anti-Kickback Law to include civil monetary penalties up to $50,000 for
each prohibited act and up to three times the total amount of remuneration
offered, paid, solicited, or received, without regard to whether a portion of
such remuneration was offered, paid, solicited, or received for a lawful
purpose. The BBA also further expanded anti-fraud funding, revised the
resource-based relative value scale system, and called for the government to
trim the growth of federal spending on Medicare by $115.1 billion and Medicaid
by $13 billion over the subsequent five years. Although the Balanced Budget
Refinement Act of 1999 reformed certain provisions of the BBA, the Company does
not anticipate that its effects will significantly curb the impact of the BBA
provisions on the Company.
Many states have also enacted similar illegal remuneration statutes that
apply to healthcare services reimbursed by private insurance, not just those
reimbursed by a federal or state health care program. In many instances, the
state statutes provide that any arrangement falling in a federal safe harbor
will be immune from scrutiny under the state statutes. This is a matter of state
law and must be reviewed on a state-by-state basis. The Company believes that it
is acting in compliance with all such state laws.
There is ever-increasing scrutiny by federal and state law enforcement
authorities (including OIG and DHHS), the courts and Congress of arrangements
between health care providers and potential referral sources to ensure that the
arrangements are not designed as a mechanism to exchange remuneration for
11
<PAGE>
patient care referrals and opportunities. Law enforcement authorities, the
courts and Congress have demonstrated a willingness to look behind the
formalities of an entity's structure to determine the underlying purpose of
payments between health care providers and potential referral sources.
Enforcement actions have increased, as evidenced by recent federal court
decisions and activities initiated by the OIG, and, generally, courts have taken
a broad interpretation of the scope of the Anti-Fraud and Abuse Amendments. Some
courts have held that the Anti-Fraud and Abuse Amendments may be violated if
merely one purpose of a payment arrangement is to induce future referrals.
Because of such increased scrutiny and such broad interpretations, the
Federal Anti-Kickback Law and similar state laws could limit the manner in which
the Company conducts its business. There can be no assurance that any additional
safe harbor regulations will be promulgated or that they will provide protection
for any of the Company's activities. Although the Company seeks to structure its
practices to comply with the Federal Anti-Kickback Law and similar state laws,
no assurance can be given regarding compliance in any particular factual
situation.
Another federal provision, the physician self-referral and payment
prohibition (commonly referred to as the "Stark law"), generally forbids, absent
qualifying for one of the exceptions, a physician from making referrals for the
furnishing of any "designated health services", for which payment may be made
under the Medicare or Medicaid programs, to any entity with which the physician
(or an immediate family member) has a "financial relationship." A "financial
relationship" under the Stark law includes any direct or indirect "compensation
arrangement" with an entity for payment of any remuneration, and any direct or
indirect "ownership or investment interest" in the entity. The Stark provisions
became effective January 1, 1992 for clinical laboratory services ("Stark I")
and January 1, 1995 for ten other designated health services ("Stark II"). Final
Stark I regulations became effective on August 14, 1995. Stark II proposed
regulations were published on January 9, 1998. Final Stark II regulations remain
in the preparation stages and are expected to be published some time in the year
2000. Penalties for violating the Stark law include denial of payment for any
service rendered by an entity in violation of the prohibition, civil money
penalties and/or exclusion from the Medicare and Medicaid programs.
The Stark law provisions also include specific reporting requirements
providing that each entity furnishing covered items or services must provide the
Secretary of DHHS with certain information concerning its ownership, investment
and compensation arrangements. The information must be provided in such form,
manner and times as the Secretary of DHHS specifies. Reportable information
includes the identification of all physicians who have a financial relationship
with the entity. The Secretary of DHHS has deferred indefinitely these reporting
requirements pending the Secretary's development of implementation procedures
and a streamlined reporting system. Failure to adhere to these reporting, once
effective, requirements may subject the entity to significant civil monetary
penalties.
A number of states, including New York and California, have enacted similar
prohibitions to the Stark law covering referrals of non-Medicare as well as
Medicare business. These state laws are very restrictive, prohibit submission of
claims for payment for prohibited referrals and provide for the imposition of
civil monetary and criminal penalties. The Stark law and similar state
provisions are very broad in scope and the agencies responsible for their
investigation and prosecution have considerable discretion. Although the Company
seeks to structure its practices to comply with applicable provisions of the
Stark law and similar state laws, it is unable to predict how these laws may be
applied or interpreted in the future, or whether the federal government or
states in which the Company operates will enact more restrictive legislation or
restrictions that could affect the Company's operations under certain
circumstances.
The Federal Civil False Claims Act ("Civil False Claims Act") generally
prohibits the knowing filing of a false or fraudulent claim for payment to the
United States, the knowing use of a false record or statement to obtain payment
on a false or fraudulent claim paid by the conspiracy to defraud the United
States by getting a false or fraudulent claim allowed or paid. Penalties under
the False Claims Act include treble damages plus civil money penalties of not
less than $5,000 or more than $10,000 for violations occurring on
12
<PAGE>
or before September 29, 1999 and not less than $5,500 and not more than $11,000
for violations occurring after September 29, 1999, for each such claim filed.
The Civil False Claims Act also authorizes private citizens with knowledge of
the filing of false claims to bring an action under the Act in the name of the
United States. Such actions, commonly known as QUI TAM or "whistleblower"
lawsuits, are filed under seal and are served only upon the United States so
that the government can investigate the allegations and determine whether to
take over the conduct of the litigation itself or to permit the QUI TAM
plaintiff to conduct the litigation on his or her own. In such actions, the
defendant is not notified of the lawsuit until after the government has
determined whether or not it will take over the litigation, or unless the United
States seeks the court's permission to discuss the case with the defendant,
usually for the purposes of settlement discussions. The QUI TAM plaintiff is
entitled to a share of any recovery ultimately received by the United States.
The Civil False Claims Act also contains criminal false claims provisions.
The criminal provisions generally apply to (i) false claims, i.e., knowingly or
willfully making or causing to be made any false statement or representation of
material fact in any claim or application for benefits under Medicare or
Medicaid, (ii) false statements, i.e., knowingly and willfully making or causing
to be made, or inducing or causing to be induced, the making of any false
statements of material facts with regard to an institution's compliance with
conditions of participation for the purposes of certification, and
(iii) failure to refund, knowingly and with fraudulent intent, Medicare and
Medicaid funds that were not properly paid. Criminal violations are punishable
by up to five years in prison and/or fines up to $500,000 for each offense.
In July 1998, the Company received a Civil Investigative Demand ("CID") from
the 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 CIDs required the Company to produce certain documents to the
DOJ. The Company produced documents to the DOJ in response to both CIDs and is
cooperating with the DOJ at this stage in the 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. Although the Company cannot confirm what
prompted the DOJ investigation, such an investigation may or may not have been
prompted by the filing of a QUI TAM or "whistleblower" action under the Civil
False Claims Act. If that were the case, even if the DOJ chose not to pursue any
matters arising from its investigation, the QUI TAM plaintiff or "whistleblower"
would be free to pursue the allegations in such a complaint against the Company.
If any such plaintiff were to prevail, any judgment resulting from such
litigation or administrative penalties, including 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, in February 1999, in connection with the Company's efforts to
structure its practices to comply with applicable laws, the Company approved and
commenced the implementation of a Compliance Program for the detection and
prevention of violations of applicable laws and other standards of conduct and
policies adopted by the Company. The Company's program is based in part on the
model compliance plan for clinical laboratories published by the OIG and on
other model and actual compliance plans
13
<PAGE>
adopted by other companies. Although the Company believes it has implemented and
operates an effective compliance program, no assurances may be given regarding
compliance in any particular factual situation.
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
DHHS or any state or any other regulatory authority, would 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.
The laws of many states prohibit physicians from sharing professional fees
with non-physicians and prohibit non-physician entities, such as the Company,
from practicing medicine (including pathology) and from employing physicians to
practice medicine (including pathology). The laws in most states regarding the
corporate practice of medicine have been subjected to limited judicial and
regulatory interpretation. Although the Company seeks to structure its practices
to comply with these laws, no assurance may be given with regard to such matters
and there can be no assurance that future interpretations of such laws will not
require structural or organizational modifications of the Company's existing
business.
Pursuant to the federal Occupational Safety and Health Act, laboratories
have a general duty to provide a work place for their employees that is safe
from hazard. The United States Occupational Safety and Health Administration
("OSHA") has issued rules relevant to certain hazards that are found in the
laboratory. In addition, OSHA issued a standard in 1992 applicable to protection
of workers from blood-borne pathogens. Failure to comply with this standard
relating to blood-borne pathogens, other applicable OSHA rules or with the
general duty to provide a safe work place could subject an employer, including a
laboratory employer such as the Company, to substantial fines and penalties.
THIRD-PARTY REIMBURSEMENT
In 1997, 1998 and 1999, the Company received approximately 47%, 46% and 46%,
respectively, of its revenue from services performed principally for
beneficiaries of the Medicare program. Under federal law and regulation, for
most of the services performed for Medicare beneficiaries, the Company must
accept reimbursement from Medicare as payment in full, subject to applicable
co-payments and deductibles. From time to time, federal budget legislation has
instituted changes in Medicare's fee schedule relating to reimbursement for
laboratory services, which constitute a significant portion of the services
furnished by the Company. Other legislative proposals have been made that, if
enacted, could have an adverse effect on reimbursement of laboratory services.
In addition, a significant portion of the services furnished by the Company are
characterized for the purposes of the Medicare program as physician pathology
services which are reimbursed by Medicare based on a methodology known as
resource-based relative value scale ("RBRVS"). In 1997, Congress revised the
RBRVS system and changed the manner in which fees are updated. This change and
any future changes to the RBRVS system could have an adverse effect on the
Company's Medicare reimbursement for physician pathology services. Medicare
increased reimbursement rates effective January 1, 2000 for the physician
pathology services that UroCor provides, while Medicare rates for all other
laboratory services provided by UroCor were unchanged. Congress is currently
considering significant changes in Medicare reimbursement for clinical
laboratory services. There can be no assurance as to how such changes, if
enacted, would affect the Company.
14
<PAGE>
Reimbursement rates for some services of the type or similar to the type
performed by the Company have been established by Medicare and some third-party
payors, but have not been established for all services or by all insurance
carriers with respect to any particular service. Although substantially all of
the Company's typical, non-investigational services receive reimbursement at
various rates or on a case-by-case basis, some of the services that the Company
may provide in the future may not be approved by Medicare or some other
third-party payors and reimbursement rates on such services cannot be predicted.
The Company cannot collect from Medicare or any other third-party payor for
services not approved by them for reimbursement. Approval by Medicare or other
federal agencies does not assure approval by other third-party payors. Most
third-party payors, including Medicare, do not reimburse for services that they
determine to be experimental, investigational or otherwise not reasonable and
necessary for diagnosis or treatment of an illness or injury. Formal coverage
determinations are made, however, with respect to relatively few new procedures.
When such determinations do occur for Medicare purposes, they most commonly are
made by the local Medicare carrier which processes claims for reimbursement
within the carrier's geographic jurisdiction. Such determinations are limited in
application to that carrier's geographic jurisdiction, meaning that there are
often multiple rules that the Company must follow pertaining to a single issue.
Medicare may retroactively audit and review its prior payments to the Company,
and may determine that certain of those payments must be returned. The Medicare
carrier also may impose prepayment review on some or all claims for payment
before reimbursing the Company. With respect to other third-party payors, a
positive coverage determination, or reimbursement without such determination, by
one or more third-party payors does not assure reimbursement by other
third-party payors. Significant disapprovals of payment for any of the Company's
services by various carriers, reductions or delays in the establishment of
reimbursement rates and carrier limitations on the coverage of the Company's
services or the use of the Company as a service provider could have a material
adverse effect on the Company's results of operations and financial condition.
INTELLECTUAL PROPERTY
The Company has entered into a variety of license and option agreements with
academic centers and biotechnology companies covering technologies it believes
may be of utility in the future in improving urologic disease management. Most
of these arrangements provide the Company exclusive worldwide commercial rights
in all human diagnostics and several also provide the option for therapeutic
applications.
The Company licenses patents and seeks patents when appropriate on
discoveries and inventions concerning new technologies, products and
improvements as part of its ongoing research, development and marketing efforts.
While the Company believes these technologies and any patent protection which
may become available should help the Company improve its competitive position in
its market, the Company is not dependent on any such patents and does not expect
to become dependent on patents in the future.
The Company attempts to protect its proprietary products by relying on trade
secrets and on non-disclosure and confidentiality agreements. The Company
requires its employees, consultants, outside scientific collaborators and
sponsored researchers and other advisors to execute confidentiality agreements
upon the commencement of employment or consulting or other relationships with
the Company. There can be no assurance that these agreements will provide
meaningful protection for any of the Company's trade secrets in the event of
unauthorized use or disclosure of such information.
The Company intends to seek copyright protection when appropriate for any
information systems products it may develop.
The Company has registered the trade and service marks
UROCOR-Registered Trademark-, THE UROLOGY COMPANY-Registered Trademark-, UROCOR
LABS-TM-, THE UROLOGICAL CHOICE-TM-, PROSTASEED-Registered Trademark-(),
UROSAVANT(SM), LITHOSAVANT-Registered Trademark-, SEXTANTPLUS(SM), UROSTONE(SM)
and UROSCORE-Registered Trademark- with the United States Patent and Trademark
Office.
15
<PAGE>
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
policies governing the use, generation, manufacture, storage, air emission,
effluent discharge, handling and disposal of certain materials, biological
specimens and wastes. Although the Company believes that it has complied in all
material respects with these laws, regulations and policies and has not been
required to take any action to correct any noncompliance, there can be no
assurance that the Company will not be required to incur significant costs to
comply with environmental and health and safety regulations in the future.
The Company's research and development activities involve the controlled use
of hazardous materials, including certain hazardous chemicals and infectious
biological specimens. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standards
prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated. In the event
of such an accident, the Company could be held liable for any damages that
result and any such liability could exceed the resources of the Company.
EMPLOYEES
At December 31, 1999, the Company had 303 full-time and 23 part-time
employees, of which 112 were employed in diagnostic services operations and
support, 116 in sales and marketing, 16 in scientific research and development,
and 82 in general and administrative. At December 31, 1999, the Company
employed, full time, 8 persons with M.D. degrees and 6 persons with Ph.D.
degrees.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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
IN ADDITION TO THE OTHER INFORMATION IN THIS ANNUAL REPORT ON FORM 10-K, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY. SEE
ALSO "--SPECIAL NOTE REGARDING FORWARD-LOOKING 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 intends to develop further and expand its
therapeutic products business and to offer additional information services
products. 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 successfully the operation and expansion of its therapeutics or
information services businesses.
16
<PAGE>
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.
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
Federal Anti-Kickback Law and the Stark law generally prohibit providers and
others from soliciting, offering, receiving or paying, directly or indirectly,
any remuneration in return for either 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/or exclusion from 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 even 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 CID from the 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 CIDs require the Company to
produce certain documents to the DOJ. The Company produced documents to the DOJ
in response to both CIDs and is cooperating with the DOJ at this stage in the
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
17
<PAGE>
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. Although the Company cannot
confirm what prompted the DOJ investigation, such an investigation may or may
not have been prompted by the filing of a QUI TAM or "whistleblower" action
under the Civil False Claims Act. If that were the case, even if the DOJ chose
not to pursue any matters arising from its investigation, the QUI TAM plaintiff
or "whistleblower" would be free to pursue the allegations in such a complaint
against the Company. If any such plaintiff were to prevail, any judgment
resulting from such litigation or administrative penalties, including 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.
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 DHHS or any state or any
other regulatory authority, would 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 that 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 would 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 approval 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. The FDA also regulates the introduction, manufacturing,
labeling and recordkeeping of the Company's therapeutic products currently
marketed or that the Company may market in the future. In addition, most users
of the Company's ProstaSeed product are required to possess licenses issued by
the state in which they reside or by the NRC.
18
<PAGE>
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 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 Company's Persist Treatment
System product currently is not widely accepted for reimbursement within the
healthcare market. The product has been marketed for approximately one year and
remains a relatively new approach to treating incontinence. The Company recently
obtained a Durable Medical Equipment ("DME") supplier number to allow for
billing of Persist if Medicare reimbursement is approved. 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 such products' 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.
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 BBA 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, would 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
Company will be able to identify new products, trends or opportunities, develop
and bring to market new
19
<PAGE>
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 REGULATORY REVIEW OF THERAPEUTIC PRODUCTS. The
Company plans to pursue the license or acquisition of additional therapeutic
products for distribution through its sales force. Any such products or rights
the Company is able to acquire in the future may be subject to regulatory
approvals from the FDA and other regulatory agencies before marketing can begin.
There can be no assurance that the Company or others responsible for obtaining
such approvals will be successful, which could limit the Company's ability to
grow its therapeutics business.
NO ASSURANCE OF SUCCESSFUL MARKETING ARRANGEMENTS FOR THERAPEUTIC
PRODUCTS. The Company conducts marketing activities for therapeutic products.
The Company currently has acquired distribution or co-promotion rights for three
therapeutic products. The Company has entered into marketing and distribution
agreements with other product distributors for sales of the Company's ProstaSeed
product. While the Company has previous experience marketing two other
therapeutic products, there can be no assurance that the Company's future
efforts will be successful or that the other product distributors' 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. 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. Additionally, the Company has not previously marketed to the radiation
oncology and medical oncology markets that are being pursued for sales of the
Company's ProstaSeed product, and there can be no assurance that the Company
will be successful in these marketing and sales efforts.
In addition, the Company is and will be dependent on third party
manufacturers to produce the products that are the subject of the Company's
marketing and distribution agreements. If such manufacturers are unable to
produce the products, produce adequate quantities or produce them in a manner
that is compliant with all regulatory requirements, the Company's marketing and
distribution agreements are subject to termination and potential liabilities
that could have a material and adverse effect on the Company's financial
condition and results of operations. In addition, in the case of the Company's
ProstaSeed product, the manufacturer has not previously produced this
therapeutic product and there can be no assurance of the manufacturer's ability
to produce quantities effectively or in a manner compliant with all regulatory
requirements.
POTENTIAL THERAPEUTICS PRODUCT LIABILITY OR RECALL. UroCor intends to
increase its marketing of therapeutic products; if the Company is successful in
these efforts, it will face 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.
UNCERTAINTIES RELATED TO 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
20
<PAGE>
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-pays, deductibles 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 invoices, the Company has had difficulty in its collection
efforts. During the second quarter of 1999, the Company discontinued certain
managed care and payor related marketing programs and identified significantly
aged segments of its accounts receivable for which the likelihood of
collectibility was doubtful and recorded an additional provision. The Company
has previously taken steps to implement systems and processing changes intended
to improve billing procedures and related collections results and, in response
to the unsent invoices, it has undertaken additional initiatives to further
improve claims efficiencies and collections results, in addition to assessing
the ultimate collectibility of outstanding balances. While the Company's
management believes it has made progress by reorganizing and streamlining its
accounts receivable and billing functions, and 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 ASSOCIATED WITH INVESTMENTS IN 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 considerable regulation by the state and
federal governments. Most state and federal laws and regulations govern both the
disclosure and the use of confidential patient medical record information.
Legislation and regulations governing the dissemination and use of medical
record information are being proposed continually at both the state and federal
levels. For example, pursuant to requirements under HIPAA, the Secretary of the
DHHS recently published proposed regulations governing privacy standards for
individually identifiable health information that is electronically transmitted
or maintained. The final rule will be published later this year. Additional
proposed 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 are also 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, and/or civil and/or criminal 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
21
<PAGE>
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 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. In addition, the
Company is focused on the field of urology, and managed care providers tend to
contract exclusively only with companies that serve a wider breadth of the
healthcare market. There can be no assurance that the Company will be able to
overcome this managed care trend. 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
business from key urologists and their patients could have a material adverse
affect 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 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
22
<PAGE>
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.
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.
POSSIBLE VOLATILITY OF STOCK PRICE OF COMMON STOCK. There has been a
history of significant volatility in the market prices for shares of companies
engaged in the health care and biotechnology fields, and the market price of the
shares of the Common Stock may be highly volatile. Factors such as fluctuations
in the Company's quarterly revenues and operating results, announcements of
technological innovations or new analytical services by the Company and its
competitors and changes in third-party reimbursement and governmental regulation
may have a significant effect on the market price of the Common Stock. In
addition, any regulatory announcements or action with respect to the DOJ
investigation could have a negative impact on the Common Stock market price
pending and regardless of the ultimate outcome of any matter under
investigation.
ITEM 2. PROPERTIES
The Company leases approximately 102,000 square feet of administration,
sales and marketing, operations and research and development space in Oklahoma
City, Oklahoma. The lease term expires in December 2013, subject to early
termination provisions. The Company has rights of first refusal to lease
additional space in the rest of the 122,000 square foot building as well as a
purchase option on the building. The Company believes that its leased facilities
are adequate for its current needs and that suitable, additional space will be
available on acceptable terms for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
23
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET FOR THE COMMON STOCK
The Company's Common Stock is listed on the Nasdaq National Market under the
symbol "UCOR". The table below sets forth the high and low sales prices of the
Common Stock in each quarter of 1998 and 1999, and the first quarter of 2000
through March 1, 2000, as reported by The Nasdaq Stock Market. The quotations
reflect inter-dealer prices, without retail mark-down or commission, and may not
represent actual transactions.
<TABLE>
<CAPTION>
1998 1999 2000
PRICE RANGE PRICE RANGE PRICE RANGE
------------------------ ----------------------- ----------------------
HIGH LOW HIGH LOW HIGH LOW
---------- ----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter(1)................................. 7 3/4 5 11/16 6 1/2 4 5/16 8 5/16 3 3/4
Second Quarter................................... 8 6 3/4 5 7/8 3 -- --
Third Quarter.................................... 7 3/16 4 1/4 5 1/4 3 1/2 -- --
Fourth Quarter................................... 7 4 1/8 4 1/4 2 3/4 -- --
</TABLE>
- ------------------------
(1) Through March 1, 2000.
As of March 1, 2000, the last sales price per share of the Common Stock, as
reported by The Nasdaq Stock Market, was $5 3/16.
As of March 1, 2000, the Company's 9,391,754 shares of Common Stock
outstanding were held by 91 stockholders of record and approximately 1,800
beneficial stockholders.
DIVIDEND POLICY
UroCor has not paid a cash dividend to its holders of Common Stock and does
not anticipate paying cash dividends to the holders of its Common Stock in the
foreseeable future. Under the General Corporation Law of the State of Delaware,
a corporation's board of directors may declare and pay dividends only out of
surplus or current net profits.
25
<PAGE>
USE OF PROCEEDS
The effective date of the registration statement for the Company's initial
public offering of Common Stock and for which the following information
regarding use of proceeds is being disclosed was May 16, 1996, and the
Securities and Exchange Commission file number assigned to the registration
statement was 333-3182.
From the effective date of the registration statement through December 31,
1999, the following table identifies the purposes and amounts of the net
proceeds from the offering 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............................. 2,753,931
Long-term corporate and treasury notes.................. 2,687,292
Cash equivalents........................................ --
OTHER PURPOSES:
Development and expansion of diagnostic product line.... 6,231,192
Development of information products and services and
urologic disease databases............................ 2,689,673
Development of therapeutic product line................. 3,275,692
Development and expansion of clinical and research
laboratories and laboratory 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 other affiliates.
26
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected financial data of UroCor for
each of the years in the five-year period ended December 31, 1999, derived from
the Company's audited financial statements. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and Notes thereto
included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue...................................... $19,758 $26,522 $32,952 $47,606 $45,508
Operating expenses:
Direct cost of services and products......... 7,354 9,966 12,574 17,330 16,817
Selling, general and administrative
expenses................................... 9,423 12,735 16,822 24,932 26,946
Research and development..................... 2,267 2,448 2,225 1,953 1,610
Special Charges.............................. -- -- -- 8,206 7,409
------- ------- ------- ------- -------
Total operating expenses................... 19,044 25,149 31,621 52,421 52,782
------- ------- ------- ------- -------
Income (loss) from operations................ 714 1,373 1,331 (4,815) (7,274)
------- ------- ------- ------- -------
Other income (expense)......................... (181) 990 1,484 821 854
------- ------- ------- ------- -------
Income (loss) before income taxes.............. 533 2,363 2,815 (3,994) (6,420)
------- ------- ------- ------- -------
Income tax benefit............................. -- -- 1,437 1,518 2,311
------- ------- ------- ------- -------
Net income (loss).............................. $ 533 $ 2,363 $ 4,252 $(2,476) $(4,109)
======= ======= ======= ======= =======
Basic net income (loss) per common share(1).... $ .09 $ .27 $ .42 $ (.24) $ (.41)
======= ======= ======= ======= =======
Weighted average common and common equivalent
shares outstanding(1)........................ 6,156 8,731 10,203 10,402 9,903
======= ======= ======= ======= =======
Diluted net income (loss) per common
share(1)..................................... $ .08 $ .24 $ .38 $ (.24) $ (.41)
======= ======= ======= ======= =======
Weighted average common and common equivalent
shares outstanding--assuming dilution(1)..... 6,761 9,832 11,053 10,402 9,903
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
) (IN THOUSANDS
BALANCE SHEET DATA:
Cash and marketable investments............... $ 3,125 $33,475 $25,606 $19,204 $11,054
Working capital............................... 5,904 34,910 37,389 34,447 21,620
Total assets.................................. 12,494 50,270 54,452 53,320 42,162
Long-term debt................................ 1,666 659 218 9 --
Accumulated deficit........................... (14,355) (11,991) (7,739) (10,215) (14,324)
Total stockholders' equity.................... 8,425 45,687 50,755 48,835 37,874
</TABLE>
- ------------------------
(1) Computed on the basis described in Note 2 to the Financial Statements.
27
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Financial Statements and Notes thereto included elsewhere in this Annual Report
on Form 10-K. 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 the Securities Exchange Act of 1934, as amended.
See "Business--Special Note Regarding Forward-Looking Statements".
OVERVIEW
UroCor markets a comprehensive range of products and services directly to
urologist and managed care organizations to assist in detecting, diagnosing,
treating and managing prostate cancer, bladder cancer, and kidney stone and
other complex urologic disorders diseases. The Company's primary focus is
helping urologists improve patient care and outcomes while reducing the total
cost of managing these diseases.
During the year ended December 31, 1999, the Company derived approximately
93% of its revenue from diagnostic products and services that UroCor Labs-TM-
provides 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 year ended December 31, 1999, approximately 46%, 44%, 6% 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 year ended December 31, 1999, the Company derived approximately
6% of its revenue from the marketing of two therapeutic products for advanced
prostate cancer including a one-time termination fee of $500,000 pursuant to a
co-promotion agreement with a manufacturer. Pursuant to a termination notice
received from the manufacturer in September 1999, this agreement terminated on
December 31, 1999.
The Company intends to pursue and acquire new therapeutic products for
marketing to its clients. The Company currently has worldwide marketing and
distribution rights for ProstaSeed-Registered Trademark-, 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
from the Nuclear Regulatory Commission (the "NRC") in January 2000. The Company
began marketing this product in the United States in January 2000.
The Company also has distribution rights to a therapeutic product for use in
treating certain types of bladder cancer. The manufacturer of the product
received clearance from the FDA in March 2000, and the Company expects to begin
marketing this product in mid-year 2000.
At the end of the third quarter of 1998, the Company recognized special
charges related to three actions. First, the Company decided to exit the Urology
Support Services ("USS") business to focus management and other resources on the
Company's core business. Second, the Company accelerated efforts directed at
improving its accounts receivable billing, processing and collection systems
and, accordingly, increased its reserve levels for significantly past due
balances. Third, the Company implemented cost reduction initiatives including
elimination of non-strategic programs and workforce reductions. Special charges
related to these three actions totaled approximately $8.2 million.
28
<PAGE>
During the second quarter of 1999, the Company took additional actions
resulting in additional special charges of approximately $7.4 million. First,
the Company terminated certain managed care related marketing programs and
identified significantly aged segments of its accounts receivable for which the
likelihood of collections was uncertain. Second, the Company launched an
information systems initiative to increase productivity, reduce costs and more
efficiently collect billings. Third, the Company settled claims with two former
clients of the USS business.
RESULTS OF OPERATIONS
The following table sets forth certain operating data expressed as a
percentage of revenue for each period indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenue..................................................... 100.0% 100.0% 100.0%
Operating expenses:
Direct cost of services and products...................... 38.2 36.4 37.0
Selling, general and administrative expenses.............. 51.0 52.4 59.2
Research and development.................................. 6.8 4.1 3.5
Special charges........................................... -- 17.2 16.3
----- ----- -----
Total operating expenses................................ 96.0 110.1 116.0
----- ----- -----
Income (loss) from operations............................... 4.0 (10.1) (16.0)
Other income (expense)...................................... 4.5 1.7 1.9
----- ----- -----
Income (loss) before income taxes........................... 8.5 (8.4) (14.1)
Income taxes................................................ 4.4 3.2 5.1
----- ----- -----
Net income (loss)........................................... 12.9% (5.2)% (9.0)%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUE. Revenue decreased 4.4%, from approximately $47.6 million in 1998
to approximately $45.5 million in 1999.
Diagnostic services revenue increased 4.1% for 1999 resulting from 7.2%
increase in case volume and a 2.9% decrease in overall average unit price. The
main contributor to the decrease in overall average unit price was the higher
volume growth for lower priced products, including stones and microbiology, than
in most of the Company's higher priced products. The diagnostics case volume
rate of increase decreased compared to prior years primarily the result of the
elimination of certain managed care related marketing programs and related
collection efforts that resulted in the loss of some clients and decreased
product usage from other clients. The Company's client base at the end of 1999
was approximately 2,650 urologist of which 47% used two or more products
compared to 2,640 urologists at the end of 1998 of which 51% used two or more
products.
Therapeutics product revenue decreased 57.7% from approximately
$6.0 million for 1998 to approximately $2.5 million for 1999 principally due to
a restructuring effective January 1, 1999, of the compensation terms of the
related co-promotion agreement to which such 1998 and 1999 revenues were
attributable. Therapeutic product co-promotion revenue in 1999 included an early
termination fee of $500,000 which became payable before March 2000 by the
manufacturer pursuant to the terms of the co-promotion agreement. Payment of the
fee was triggered by the manufacturer's delivery of notice in September 1999 of
termination, without cause, of the agreement, effective December 31, 1999.
29
<PAGE>
DIRECT COST OF SERVICES AND PRODUCTS. As a percentage of revenue, direct
cost of products and services increased to 37.0% for 1999 from 36.4% for 1998.
In the aggregate, direct costs of services and products decreased 3.3% from
approximately $17.3 million in 1998 to approximately $16.8 million in 1999.
Direct costs for 1998 included approximately $772,000 for non-recurring direct
costs associated with the USS business that the Company exited in late 1998. As
a percent of revenue, direct costs for 1998 excluding the direct cost associated
with USS would have been 35.5%. The increase in this percentage for 1999
compared to the adjusted 1998 period was the result of the decline in
therapeutics co-promotion revenue under the restructured terms of the
co-promotion agreement.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenue,
selling, general and administrative expenses increased to 59.2% for 1999 from
approximately 52.4% in 1998. In the aggregate, selling, general and
administrative expenses increased 8.1%, from approximately $24.9 million for
1998 to approximately $26.9 million in 1999. Selling, general and administrative
expenses in 1998 included approximately $497,000 for non-recurring costs
associated with the USS business that the Company exited in late 1998. The
increase in selling, general administrative expenses was due principally to
increased management personnel, and depreciation costs related to information
services and billing efforts, increased convention and meeting costs and the
incurrence of over $1.0 million related to personnel, marketing and information
systems in anticipation of the upcoming launch of the Company's ProstaSeed
product.
RESEARCH AND DEVELOPMENT. As a percentage of revenue, research and
development expenses decreased to 3.5% for 1999 from 4.1% for 1998. In the
aggregate, research and development costs decreased 17.6% from approximately
$2.0 million in 1998 to approximately $1.6 million in 1999. The decrease in
expenses was due primarily to elimination of non-strategic projects in the third
quarter 1998 resulting in overall lower base research and development program
costs.
SPECIAL CHARGES. During the second quarter of 1999, the Company recognized
special charges related primarily to two items. First, the Company terminated
certain managed care related marketing programs and identified significantly
aged segments of its accounts receivable for which the likelihood of
collectibility was doubtful. Accordingly, a provision of approximately
$3.9 million was made for these receivable balances. Second, the Company
launched an information systems initiative to increase productivity, decrease
costs and more efficiently collect billings. As a result of this new operation
focus for information systems, the Company restructured its information systems
function and terminated certain existing systems and internal software
development projects, resulting in approximately $2.9 million in asset
write-offs and approximately $226,000 in severance and outplacement costs.
Additionally, the Company settled claims with two former clients of the USS
business, which the Company exited in late 1998. These settlements totaled
approximately $348,000 in excess of amounts that had been accrued in 1998. The
aggregate charges for these three items totaled approximately $7.4 million for
1999. Aggregate special charges for 1998 were approximately $8.2 million,
including $4.7 million in accounts receivable provision, approximately
$2.2 million in exit costs related to USS and approximately $1.3 million in
non-strategic program asset write-offs, severance and other restructuring costs.
The following table sets forth the effects of the special charges and the 1998
operating losses of USS on UroCor's operating income for the 1998 and 1999.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Operating loss, as reported................................. $(4,814,546) $(7,273,684)
Operating income, excluding special charges and USS
operating losses.......................................... 4,520,157 136,093
</TABLE>
OTHER INCOME (EXPENSE). Interest income net of interest expense decreased
28.6%, from approximately $1.2 million in 1998 to approximately $852,000 in
1999. This decline was due principally to
30
<PAGE>
decreased cash, cash equivalents and investments compared to 1998, resulting
from the use of such resources to fund stock repurchases and capital
expenditures. Other expenses of approximately $356,000 (the "1998 Non-recurring
Expense") was primarily due to non-recurring charges for professional fees
related to implementing the Company's stockholders rights plan and review of an
unsolicited purported acquisition offer in the third quarter of 1998. The
following table sets forth the effects of the special charges, the operating
losses of USS in 1998 and the 1998 Non-recurring Expenses on UroCor's net income
and earnings per share for 1998 and 1999.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Net loss, as reported....................................... $(2,476,359) $(4,108,847)
Net income, excluding special charges, USS operating losses
and 1998 Non-recurring Expense............................ 3,531,766 593,822
Diluted loss per share, as reported......................... (.24) (.41)
Diluted earnings per share, excluding special charges, USS
operating losses and 1998 Non-recurring Expense........... .32 .06
</TABLE>
The most significant contributor to the decline in the adjusted operating and
net income figures from 1998 to 1999 set forth in the tables above was the
decrease in therapeutic revenue as further discussed in "Revenue" above.
INCOME TAXES. Income tax benefit recorded in 1998 was approximately
$1.5 million resulting in an effective 38% federal and state income tax rate.
Income tax benefit recorded for 1999 was approximately $2.3 million based upon
an effective 36% federal and state income tax rate.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUE. Revenue increased 44.5%, from approximately $33.0 million in 1997
to approximately $47.6 million in 1998. This increase was due primarily to an
increase in case volume of 35.7% due primarily to expansion of the Company's
client base from 2,150 to 2,640 urologists in December 1997 and 1998,
respectively, and increased utilization of the Company's diagnostic products and
services by existing clients. Revenue also increased as a result of therapeutic
product co-promotion revenue, from approximately $529,000 in 1997 to
approximately $6.0 million for the year ended December 31, 1998.
DIRECT COST OF SERVICES AND PRODUCTS. As a percentage of revenue, direct
expenses decreased to 36.4% for 1998 compared to 38.2% in 1997. In the
aggregate, direct cost of services and products increased 37.8%, from
approximately $12.6 million in 1997 to approximately $17.3 million in 1998. This
increase was due principally to higher personnel costs and supply and
distribution costs, resulting from increased case volume. Incremental costs also
resulted from USS business operations through the third quarter of 1998, and
expanded utilization of the Company's wide area network report delivery system
by the Company's clients. The decrease as a percentage of revenue was due
principally to growth of the Company's therapeutic revenue with negligible
associated direct costs, offset by growth of the Company's serum product, which
has a lower profit margin than those of most of the Company's other products, as
well as incremental USS operations costs and wide area network report delivery
system costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of revenue,
selling, general and administrative expenses increased to 52.4% for 1998
compared to 51.0% in 1997. In the aggregate selling, general and administrative
expenses increased 48.2%, from approximately $16.8 million in 1997 to
approximately $24.9 million in 1998. This increase was due principally to higher
personnel costs related to sales staff, management information services
personnel and accounts receivable personnel and increased provision for doubtful
accounts receivable.
RESEARCH AND DEVELOPMENT. As a percentage of revenue, research and
development expenses decreased to 4.1% for 1998 compared to 6.8% in 1997. In the
aggregate research and development
31
<PAGE>
expenses decreased 12.3%, from approximately $2.2 million in 1997 to
approximately $2.0 million in 1998. This decrease was due primarily to timing of
completed external research activities and elimination of non-strategic projects
in the third quarter of 1998.
SPECIAL CHARGES AND USS OPERATIONS. During the third quarter of 1998, the
Company recognized special charges related to three actions. First, the Company
exited the USS business to focus management and other resources on the Company's
core business. The related exit costs totaled approximately $2.2 million and
included estimated expenses for orderly termination and transition of USS'
service contracts, related asset write-downs and severance and outplacement
costs for USS employees. Second, as part of its ongoing assessment of accounts
receivable and reserve adequacy, the Company determined that collection costs on
specific aged segments of its accounts receivable outweighed the expected
proceeds. Accordingly, a provision of $4.7 million was made for these older
receivable balances. Third, the Company implemented cost reduction initiatives
including elimination of non-strategic programs and workforce reductions,
resulting in approximately $889,000 in asset write-downs, approximately $178,000
in severance and outplacement costs and approximately $218,000 in other
non-recurring costs related to these initiatives. The aggregate charges for
these three actions totaled approximately $8.2 million for the year ended
December 31, 1998, and there were no such charges for the year ended
December 31, 1997.
1998 operating losses for the USS business, exclusive of costs to exit the
business, are reflected as operating expenses in excess of associated revenue
and totaled approximately $1.1 million for the year. The table appearing in
"Special Charges" in the discussion above of 1999 compared to 1998 sets forth
the effects of the special charges and the operating losses of USS on UroCor's
operating income for the year ended December 31, 1998.
OTHER INCOME (EXPENSE). Interest income net of interest expense decreased
from approximately $1.5 million in 1997 to approximately $1.2 million in 1998
due principally to the decrease in cash, cash equivalents and investments
resulting from capital expenditures and an increase in accounts receivable.
Other expenses of approximately $355,000 was primarily due to non-recurring
charges for professional advisor fees related to implementing the Company's
stockholder rights plan and reviewing an unsolicited purported acquisition offer
in the third quarter of 1998. The table above sets forth the effect of the
special charges, the operating losses of USS and the other non-recurring
expenses on UroCor's net income and diluted earnings per share for the year
ended December 31, 1998.
INCOME TAXES. The income tax benefits recorded for 1998 increased from
approximately $1.4 million in 1997 to approximately $1.5 million in 1998
reflecting income tax benefits at a 38% effective rate for 1998. Income tax
benefits of $1.4 million for 1997 reflected a one-time benefit to record the
future tax benefits of loss carryforwards and other deferred tax items.
QUARTERLY RESULTS OF OPERATIONS
The following table presents the Company's results of operations for the
last 12 calendar quarters. This data is unaudited and includes, in the opinion
of the Company's management, all adjustments necessary to present fairly the
data in accordance with generally accepted accounting principles. Such quarterly
results are not necessarily indicative of future results of operations.
The Company's quarterly operating results are affected by a wide variety of
factors, many of which are outside the Company's control, that could materially
and adversely affect revenue, operating expenses and income. These factors
include the volume and timing of cases received, seasonality related to the
timing of patient visits to the urologist's office as affected by weather and
insurance deductible status, competitive pricing pressures, availability and
cost of diagnostic supplies, changes in the mix of products sold, the timing and
results of accounts receivable collections and write-offs, the timing and costs
of new product and technology introductions by the Company or its competitors
and retention and expansion of the Company's sales force.
32
<PAGE>
The Company's results of operations for the fourth quarter of 1997 include a
$1.4 million income tax benefit and a charge of $600,000 to increase the
allowance for doubtful accounts. Results for the third quarter of 1998 includes
special charges of $4.7 million to increase the allowance for doubtful accounts,
$2.2 million related to USS exit costs, and $1.3 million related to
non-strategic program asset write-offs and other restructuring costs including
severance costs for workforce reduction. Results for the second quarter of 1999
includes special charges of $3.9 million to increase the allowance for doubtful
accounts, $2.9 million related to information processing initiatives and
approximately $226,000 severance and outplacement costs and $348,000 related to
settlements with former USS clients.
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS (UNAUDITED)
-------------------------------------------------------------------------------------
1997 1998
----------------------------------------- -----------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue..................... $8,079 $7,795 $7,786 $9,293 $10,614 $11,264 $11,802 $13,926
Operating Expenses:
Direct costs of services
and products............ 2,981 2,924 3,171 3,499 4,048 4,421 4,555 4,307
Selling, general and
administrative
expenses................ 3,690 3,991 3,953 5,188 5,569 5,931 6,048 7,384
Research and
development............. 610 611 498 506 508 499 531 414
Special charges........... -- -- -- -- -- -- 8,206 --
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) from
operations................ 798 269 164 100 489 413 (7,538) 1,821
Other income (expense)...... 403 371 358 352 336 297 (67) 255
------ ------ ------ ------ ------- ------- ------- -------
Income (loss) before income
taxes..................... 1,201 640 522 452 825 710 (7,605) 2,076
Income tax benefit
(expense)................. -- -- -- 1,437 (313) (270) 2,884 783
------ ------ ------ ------ ------- ------- ------- -------
Net income (loss)........... $1,201 $ 640 $ 522 $1,889 $ 512 $ 440 $(4,721) $ 1,293
====== ====== ====== ====== ======= ======= ======= =======
<CAPTION>
DOLLARS IN THOUSANDS (UNAUDITED)
-----------------------------------------
1999
-----------------------------------------
Q1 Q2 Q3 Q4
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue..................... $12,277 $11,295 $11,011 $10,925
Operating Expenses:
Direct costs of services
and products............ 4,314 4,361 4,099 3,985
Selling, general and
administrative
expenses................ 6,315 7,308 6,417 6,906
Research and
development............. 378 430 444 358
Special charges........... -- 7,409 -- --
------- ------- ------- -------
Income (loss) from
operations................ 1,270 (8,213) 51 (324)
Other income (expense)...... 256 187 188 165
------- ------- ------- -------
Income (loss) before income
taxes..................... 1,526 (8,026) 239 (159)
Income tax benefit
(expense)................. (581) 2,831 (85) 146
------- ------- ------- -------
Net income (loss)........... $ 945 $(5,195) $ 154 $ (13)
======= ======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, cash, cash equivalents and marketable investments
totaled approximately $11.1 million and the Company's working capital was
approximately $21.6 million. As of December 31, 1999, the components of cash,
cash equivalents and marketable investments were cash and cash equivalents of
approximately $5.3 million, short-term marketable investments of $3.1 million
and long-term marketable investments of approximately $2.7 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 $11.0 million at December 31, 1999, a decrease of approximately
$4.9 million from December 31, 1998, or 30.1%. This decrease was principally
attributable to improved collections and the special charge for additional bad
debt recorded in the second quarter if 1999. At December 31, 1999, the Company's
average number of days sales in net diagnostics receivables was approximately 90
compared to approximately 110 at December 31, 1998.
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.
The Company monitors the collection quality of its accounts receivable
through analytical review of aging categories by payor group and collections
performance. In the second quarter of 1999, the Company recorded a special
charge of $3.9 million to increase the allowance for doubtful accounts in
respect of terminating certain managed care related marketing programs and
identifying significantly aged segments of its accounts receivable for which the
likelihood of collectibility was doubtful. In 1998, the Company
33
<PAGE>
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.
Also in 1998, the Company determined that it had not sent invoices timely to
certain patients, primarily managed care patients, for 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. Partially in response
to the collection efforts undertaken by the Company for the previously delayed
invoices to patients for co-pays, deductibles and other amounts determined in
1998, some urologist for such patients discontinued or reduced their use of the
Company's diagnostic services. The loss of any additional clients' business
could adversely affect the rate of the Company's growth in revenue and the
Company's results of operations.
While the Company maintains what it believes to be an adequate allowance for
doubtful accounts, there can be no assurances 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.
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 1999, the Company recorded revenue of approximately
$2.5 million including a non-recurring fee of $500,000 as a result of early
termination under the agreement, as compared to approximately $6.0 million
revenue for 1998. In September 1999, the manufacturer sent the Company a notice
of termination without cause of the agreement effective December 31, 1999. The
Company intends to pursue the acquisition of new therapeutic products for
marketing to its clients. The Company currently markets two products, ProstaSeed
and Persist, and has rights to market one other product that received FDA
marketing clearance in March 2000.
Operating activities provided net cash of approximately $4.9 million in 1999
compared to using net cash of approximately $892,000 for 1998. The net cash
provided by operating activities in 1999 was primarily the result of the net
loss of approximately $4.1 million and the related deferred tax benefit of
approximately $2.3 million, offset by a special charge of approximately
$3.2 million for asset write-offs related to restructuring the Company's
information systems function and terminating certain existing systems and
internal software development projects in the second quarter, a decrease in
accounts receivable of approximately $4.9 million resulting from increased
collections and a special charge in the second quarter, depreciation and
amortization of approximately $2.9 million and a decrease in other current
assets of approximately $283,000.
Net cash used in investing activities for 1999 was approximately
$3.6 million and consisted primarily of maturities of short-term marketable
investments of approximately $2.9 million, offset by capital expenditures of
approximately $5.0 million, purchases of long-term marketable investment of
approximately $575,000 and an increase in intangibles and other assets of
approximately $990,000 primarily related to progress payments for marketing
distribution rights.
The Company's capital expenditures of approximately $5.0 million in 1999
were primarily for leasehold improvements, furniture and fixtures and computer
equipment and software associated with the Company's relocation to newly
constructed facilities adjacent to the former facilities. Of the total amount,
approximately $351,000 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 comparable to
current levels as the Company expands to deliver therapeutics and information
services and continues to enhance current diagnostic services and operational
capabilities. The Company intends to finance the majority of these capital
expenditures with existing cash and investment balances and possibly new debt.
In March 2000, a therapeutic product for bladder cancer for which the
Company has distribution rights received clearance from the FDA for marketing in
the United States. The total cost of the
34
<PAGE>
distribution rights for this product is $3.0 million, of which the Company has
paid $1.25 million. With the FDA clearance of this product for marketing, all
milestones have been met. The Company is now obligated to pay the remaining
$1.75 million in three payments during 2000. The first payment of $750,000 is
due in April 2000, the second payment of $500,000 is due in July 2000 and the
final payment of $500,000 is due in October 2000. The Company intends to make
these payments from existing cash and investment balances or possibly new debt.
During 1998, the Company obtained marketing and other rights to two other
therapeutic products, and is obligated to pay 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 marketing
clearance from the FDA. As of December 1999, the Company advanced that
manufacturer $190,000 toward the next milestone and approximately $147,000
towards other costs. The Company also advanced another manufacturer $250,000
toward future inventory purchases during 1999. If inventory purchases are not
made, the manufacturer is obligated to return the advance prior to January 10,
2001. As milestones are achieved, the Company intends to make additional
payments from existing cash and investment balances or possibly new debt.
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 December 31,1999, the
Company had repurchased approximately $7.2 million (or approximately
1.6 million 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 paid current income taxes of approximately $300,000 during 1999.
At December 31, 1999, the Company estimated net operating loss carryforwards of
approximately $10.2 million were available to reduce future taxable income after
considering certain annual limitations.
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 a timely basis or on acceptable terms.
ITEM 7A. 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
December 31, 1999 consisted primarily of debt securities with maturities as long
as 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 December 31, 1999 and 1998, there were no material
net unrealized gains or losses on these investments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information required to
be filed under this Item are presented on pages F-1 through F-19 of this Annual
Report on Form 10-K, and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
35
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item will be set forth in the Registrant's
Proxy Statement relating to the annual meeting of stockholders to be held
June 20, 2000 under the caption "Election of Directors" and "Executive
Officers", which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be set forth in the Registrant's
Proxy Statement relating to the annual meeting of stockholders to be held
June 20, 2000 under the caption "Executive Officers and Compensation", which
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be set forth in the Registrant's
Proxy Statement relating to the annual meeting of stockholders to be held
June 20, 2000 under the caption "Security Ownership of Certain Beneficial Owners
and Management", which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be set forth in the Registrant's
Proxy Statement relating to the annual meeting of stockholders to be held
June 20, 2000 under the caption "Certain Relationships and Related
Transactions", which information is incorporated herein by reference.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS INCLUDED IN THIS REPORT:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. FINANCIAL STATEMENTS
Index to Financial Statements............................... F-1
Report of Independent Public Accountants.................... F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the years ended December 31, F-4
1997, 1998 and 1999.......................................
Statements of Stockholders' Equity for the years ended F-5
December 31, 1997, 1998 and 1999..........................
Statements of Cash Flows for the years ended December 31, F-6
1997, 1998 and 1999.......................................
Notes to Financial Statements............................... F-7
2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants.................... S-1
Schedule II--Valuation and Qualifying Accounts.............. S-2
</TABLE>
(B) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended December 31,
1999.
(C) EXHIBITS:
Exhibits designated by the symbol * are filed with this Annual Report on
Form 10-K. All exhibits not so designated are incorporated by reference
to a prior filing as indicated.
Exhibits designated by the symbol + are management contracts or
compensatory plans or arrangements that are required to be filed with
this report pursuant to this Item 14.
37
<PAGE>
UroCor undertakes to furnish to any stockholder so requesting a copy of any
of the following exhibits upon payment to the Company of the reasonable costs
incurred by Company in furnishing any such exhibit.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
3.1 Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to the Registrant's Form 10-Q for
the quarterly period ended September 30, 1998, filed with
the Commission on November 12, 1998).
3.2 Amended and Restated By-laws (incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on
Form S-1 (Reg. No. 333-3182), filed with the Commission on
April 3, 1996).
4.1 Rights Agreement dated as of August 17, 1998, between the
Company and American Stock Transfer & Trust Company, as
Rights Agent (incorporated by reference to Exhibit 4.1 to
the Registrant's Current Report on Form 8-K, filed with the
Commission on August 21, 1998).
4.2 Form of Rights Certificate (incorporated by reference to
Exhibit 4.3 to the Registrant's Current Report on Form 8-K,
filed with the Commission on August 21, 1998).
10.1+ The UroCor, Inc. Second Amended and Restated 1992 Stock
Option Plan, as amended (incorporated by reference to
Exhibit 4.4 to the Registrant's Registration Statement on
Form S-8 (Reg. No. 333-58015), filed with the Commission on
June 29, 1998).
10.2 Lease Agreement dated April 15, 1994, between Presbyterian
Health Foundation and UroCor, Inc. (incorporated by
reference to the Registrant's Registration Statement on
Form S-1 (Reg. No. 333-3182), filed with the Commission on
April 3, 1996).
10.3 Amendment No. 1 to the Lease Agreement dated April 15, 1994,
between Presbyterian Health Foundation and UroCor, Inc.
(incorporated by reference to the Registrant's Form 10-Q for
the quarterly period ended June 30, 1997, filed with the
Commission on August 11, 1997).
10.4 Amendment No. 2 dated June 16, 1998, amending the Lease
Agreement between Presbyterian Health Foundation, as
Landlord and UroCor, Inc., as Tenant dated April 15, 1994
(incorporated by reference to the Registrant's Form 10-Q for
the quarterly period ended September 30, 1998, filed with
the Commission November 12, 1998).
10.5 Amendment No. 3 dated February 1, 1999, amending the Lease
Agreement between Presbyterian Health Foundation, as
Landlord and UroCor, Inc., as Tenant dated April 15, 1994
(incorporated by reference to the Registrant's Form 10-K for
the period ended December 31, 1998, filed with the
Commission on March 31, 1999).
10.6* Amendment No. 4 dated September 28, 1999, amending the Lease
Agreement between Presbyterian Health Foundation, as
Landlord and UroCor, Inc., as Tenant dated April 15, 1994.
10.7+ Employment Agreement dated September 4, 1990, between Robert
Veltri and UroCor, Inc. (incorporated by reference to the
Registrant's Registration Statement on Form S-1 (Reg.
No. 333-3182), filed with the Commission on April 3, 1996).
10.8+ Employment Agreement dated July 23, 1998, between Michael W.
George and UroCor, Inc. (incorporated by reference to the
Registrant's Form 10-Q for the quarterly period ended
September 30, 1998, filed with the Commission on November
12, 1998).
10.9+ Employment Agreement dated January 29, 1998 between Karl
Nigg and UroCor, Inc. (incorporated by reference to the
Registrant's Form 10-K for the period ended December 31,
1998, filed with the Commission on March 31, 1999).
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
10.10+ Employment Agreement dated March 15, 1999 between Bruce C.
Hayden and UroCor, Inc. (incorporated by reference to the
Registrant's Form 10-Q for the quarterly period ended March
31, 1999, filed with the Commission on May 17, 1999).
10.11+* Employment Agreement dated December 17, 1999 between John L.
Armstrong, Jr. and UroCor, Inc.
10.12+* Form of Indemnity Agreement between UroCor, Inc. and each of
the individuals named in Schedule 10.1 thereto.
10.13+* 1999 Management Incentive Compensation Plan.
10.14* Consulting Agreement dated effective October 26, 1999, and
Addendum to Agreement dated March 1, 2000 between William A.
Hagstrom and UroCor, Inc.
10.15 Registration Rights Agreement dated June 2, 1995, among
UroCor, Inc. and the stockholders named therein
(incorporated by reference to the Registrant's Registration
Statement on Form S-1 (Reg. No. 333-3182), filed with the
Commission on April 3, 1996).
10.16+ The UroCor, Inc. 1997 Non-Employee Director Stock Option
Plan (incorporated by reference to the Registrant's
Form 10-Q for the quarterly period ended June 30, 1997,
filed with the Commission on August 11, 1997).
10.17+ The UroCor, Inc. 1997 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.4 to the
Registrant's Registration Statement on Form S-8 (Reg.
No. 333-58017), filed with the Commission on June 29, 1998).
10.18+ UroCor, Inc. Deferred Compensation Plan (incorporated by
reference to the Registrant's Form 10-Q for the quarterly
period ended March 31, 1999, filed with the Commission on
May 17, 1999).
10.19+* Form of Change In Control Agreement between UroCor, Inc. and
each of the individuals named and with the terms listed on
Schedule 10.1 thereto.
23.1* Consent of Arthur Andersen LLP.
</TABLE>
39
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the years ended December 31,
1997, 1998 and 1999....................................... F-4
Statements of Stockholders' Equity for the years ended
December 31, 1997, 1998 and 1999.......................... F-5
Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999....................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of UroCor, Inc.:
We have audited the accompanying balance sheets of UroCor, Inc. (a Delaware
corporation) as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of UroCor, Inc. as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with generally accepted accounting principles in the United States.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
February 10, 2000
F-2
<PAGE>
UROCOR, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 11,034,123 $ 5,259,218
Short-term marketable investments......................... 6,057,160 3,107,392
Accounts receivable, net of allowance for doubtful
accounts of $6,029,066 in 1998 and $5,510,998 in 1999... 15,964,744 11,032,693
Prepaid expenses.......................................... 946,403 824,164
Laboratory supplies, at average cost...................... 458,569 616,087
Inventory................................................. 236,328 210,013
Deferred tax asset, net................................... 3,159,855 3,817,722
Other current assets...................................... 1,065,909 782,962
------------ ------------
Total current assets.................................... 38,923,091 25,650,251
------------ ------------
LONG-TERM MARKETABLE INVESTMENTS............................ 2,112,333 2,687,292
PROPERTY AND EQUIPMENT, net................................. 9,969,245 8,868,120
NON-CURRENT DEFERRED TAX ASSET, net......................... 174,671 1,842,018
INTANGIBLE AND OTHER ASSETS, net............................ 2,140,599 3,114,094
------------ ------------
Total assets............................................ $ 53,319,939 $ 42,161,775
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 3,490,381 $ 3,457,851
Accrued compensation...................................... 404,444 401,657
Current installments of obligations under capital
leases.................................................. 209,092 8,454
Other accrued liabilities................................. 372,427 162,768
------------ ------------
Total current liabilities............................... 4,476,344 4,030,730
DEFERRED COMPENSATION....................................... -- 256,810
OBLIGATIONS UNDER CAPITAL LEASES, net of current
installments.............................................. 8,607 --
------------ ------------
Total liabilities....................................... 4,484,951 4,287,540
------------ ------------
COMMITMENTS (Notes 5 and 6)
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.01 par value--authorized
6,000,000 shares at December 31, 1998 and 1999; issued
in series; no shares outstanding at December 31, 1998
and 1999................................................ -- --
Common stock, $.01 par value, authorized 20,000,000 shares
at December 31, 1998 and 1999; 10,492,726 shares issued
and outstanding at December 31, 1998 and 10,769,102
shares issued at December 31, 1999...................... 104,927 107,691
Additional paid-in capital................................ 58,945,418 59,265,256
Common stock held in treasury at cost, 1,576,266 shares... -- (7,174,508)
Accumulated deficit....................................... (10,215,357) (14,324,204)
------------ ------------
Total stockholders' equity.............................. 48,834,988 37,874,235
------------ ------------
Total liabilities and stockholders' equity.............. $ 53,319,939 $ 42,161,775
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
UROCOR, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE............................................... $32,951,514 $47,606,143 $45,508,473
OPERATING EXPENSES:
Direct cost of services and products................ 12,574,164 17,330,508 16,816,591
Selling, general and administrative expenses........ 16,821,240 24,932,017 26,946,150
Research and development............................ 2,225,162 1,952,558 1,609,639
Special charges..................................... -- 8,205,606 7,409,777
----------- ----------- -----------
Total operating expenses.......................... 31,620,566 52,420,689 52,782,157
----------- ----------- -----------
OPERATING INCOME (LOSS)............................... 1,330,948 (4,814,546) (7,273,684)
OTHER INCOME (EXPENSE):
Interest, net....................................... 1,484,061 1,176,238 852,149
Other............................................... -- (355,820) 1,462
----------- ----------- -----------
Total other income (expense)...................... 1,484,061 820,418 853,611
----------- ----------- -----------
Income (loss) before income taxes..................... 2,815,009 (3,994,128) (6,420,073)
Income tax benefit.................................... 1,437,172 1,517,769 2,311,226
----------- ----------- -----------
NET INCOME (LOSS)..................................... $ 4,252,181 $(2,476,359) $(4,108,847)
=========== =========== ===========
NET INCOME (LOSS) PER SHARE:
Basic:
Net Income (Loss) Per Common Share.................. $ .42 $ (.24) $ (.41)
=========== =========== ===========
Weighted Average Common and Common Equivalent Shares
Outstanding....................................... 10,203,081 10,402,281 9,902,643
=========== =========== ===========
Diluted:
Net Income (Loss) Per Common Share--Assuming
Dilution $ .38 $ (.24) $ (.41)
=========== =========== ===========
Weighted Average Common and Common Equivalent Shares
Outstanding--Assuming Dilution 11,052,540 10,402,281 9,902,643
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
UROCOR, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK COMMON ADDITIONAL TOTAL
---------------------- STOCKS HELD IN PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES PAR VALUE TREASURY CAPITAL DEFICIT EQUITY
---------- --------- -------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1996.................... 10,101,307 $101,013 $ -- $57,576,724 $(11,991,179) $45,686,558
Stock Issuance--
Exercise of warrants.... 131,361 1,314 -- 516,537 -- 517,851
Exercise of stock
options............... 112,948 1,129 -- 122,437 -- 123,566
Stock Option--
Compensation Expense...... -- -- -- 174,948 -- 174,948
Net income................ -- -- -- -- 4,252,181 4,252,181
---------- -------- ----------- ----------- ------------ -----------
BALANCE AT DECEMBER 31,
1997.................... 10,345,616 $103,456 -- $58,390,646 $ (7,738,998) $50,755,104
Stock Issuance--
Exercise of warrants.... 50,945 509 -- 190,831 -- 191,340
Employee Stock Purchase
Plan.................. 33,658 337 -- 192,955 -- 193,292
Exercise of stock
options............... 62,507 625 -- 66,737 -- 67,362
Stock Option--
Compensation Expense...... -- -- -- 104,249 -- 104,249
Net loss.................. -- -- -- -- (2,476,359) (2,476,359)
---------- -------- ----------- ----------- ------------ -----------
BALANCE AT DECEMBER 31,
1998.................... 10,492,726 $104,927 -- $58,945,418 $(10,215,357) $48,834,988
Stock Issuance--
Employee Stock Purchase
Plan.................. 30,147 302 -- 116,243 -- 116,545
Exercise of stock
options............... 246,229 2,462 -- 180,455 -- 182,917
Stock Option--
Compensation Expense...... -- -- -- 23,140 -- 23,140
Repurchases of Common
Stock................... -- -- (7,174,508) -- -- (7,174,508)
Net loss.................. -- -- -- -- (4,108,847) (4,108,847)
---------- -------- ----------- ----------- ------------ -----------
BALANCE AT DECEMBER 31,
1999.................... 10,769,102 $107,691 $(7,174,508) $59,265,256 $(14,324,204) $37,874,235
========== ======== =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
UROCOR, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $4,252,181 $(2,476,359) $(4,108,847)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 1,597,002 2,604,075 2,870,214
Deferred income tax benefit........................... (1,749,465) (1,505,061) (2,325,214)
Stock option compensation expense..................... 174,948 104,249 23,140
Deferred Compensation................................. -- -- 256,810
Loss on disposition of equipment...................... -- -- 4,539
Loss on asset write downs............................. -- 2,020,204 3,226,846
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable.......... (5,352,701) (2,333,600) 4,932,051
(Increase) decrease in prepaid expense.............. (321,997) 42,256 122,239
(Increase) decrease in laboratory supplies.......... 185,769 39,070 (157,518)
(Increase) decrease in inventory.................... (106,689) (125,232) 26,315
(Increase) decrease in other current assets......... (219,214) (490,034) 282,947
Increase (decrease) in accounts payable............. 303,199 1,226,736 (32,530)
Decrease in accrued compensation.................... (560,159) (261,373) (2,787)
Increases (decrease) in other accrued liabilities... (5,931) 264,006 (209,659)
---------- ----------- -----------
Net cash provided by (used in) operating
activities...................................... (1,803,057) (891,063) 4,908,546
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities (purchases) of short-term marketable
investments, net.................................... (2,999,483) 10,639,907 2,949,768
Maturities (purchases) of long-term marketable
investments, net.................................... 1,968,781 (99,677) (574,959)
Capital expenditures.................................. (5,814,064) (5,258,767) (4,984,080)
Intangible and other assets........................... (270,186) (262,869) (989,889)
---------- ----------- -----------
Net cash provided by (used in) investing
activities...................................... (7,114,952) 5,018,594 (3,599,160)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from employee stock purchase plan............ -- 193,292 116,545
Proceeds from exercise of stock options............... 123,566 67,362 182,917
Proceeds from exercise of warrants.................... 517,851 191,340 --
Repurchases of Common Stock........................... -- -- (7,174,508)
Principal payments under capital lease obligations and
other indebtedness.................................. (623,445) (441,435) (209,245)
---------- ----------- -----------
Net cash provided by (used in) financing
activities...................................... 17,972 10,559 (7,084,291)
---------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.... (8,900,037) 4,138,090 (5,774,905)
CASH AND CASH EQUIVALENTS, beginning of year............ 15,796,070 6,896,033 11,034,123
---------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period................ $6,896,033 $11,034,123 $ 5,259,218
========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................ $ 106,147 $ 47,458 $ 10,477
Cash paid for income taxes............................ 350,000 550,000 300,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. THE COMPANY:
UroCor, Inc. ("the Company"), a Delaware corporation, provides a broad array
of diagnostic services and markets therapeutic products and information services
to urologists and managed care organizations across the U.S. The Company assists
its customers to better manage their patients' outcomes with urologic cancers
and other complex urologic diseases.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) USE OF ESTIMATES. The preparation of these financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
(b) CASH EQUIVALENTS AND MARKETABLE INVESTMENTS. The Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. 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 classified as Available-for-Sale as
of December 31, 1998 and 1999. Marketable securities at December 31, 1999
consist primarily of debt securities with maturities as great as two years. The
aggregate cost of marketable securities at December 31, 1999 was approximately
$5.8 million. 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 December 31, 1998 and 1999, there was not a material
net unrealized gain or loss on these investments.
(c) INVENTORY. Inventories are stated at lower of cost or market using the
first-in, first-out method. Inventory costs consist primarily of products
acquired for resale.
(d) PROPERTY AND EQUIPMENT. Property and equipment are stated at cost.
Equipment under capital leases is stated at the present value of minimum lease
payments at the inception of the lease.
Depreciation on property and equipment is calculated on the straight-line
basis over the estimated useful lives of the assets. Equipment held under
capital leases and leasehold improvements are amortized on the straight-line
basis over the shorter of the remaining lease term or the economic useful life
of the asset. The Company assesses impairment under the Financial Accounting
Standards Board Statement No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of".
(e) SOFTWARE DEVELOPMENT COSTS. Certain internal costs for software
development relating to the Company's information services are capitalized as
property and equipment when incurred. Capitalization begins when the project
reaches technological feasibility and ceases when the product is ready for
release. Amortization of capitalized software development costs is provided over
the estimated economic life of the software, generally two to five years, using
the straight-line method. Capitalized software development costs are reviewed
internally annually for feasibility and impairment. Internal software
development costs which were capitalized to property and equipment during the
years ended December 31, 1997, 1998 and 1999 were $1,122,000, $1,272,000, and
$351,000, respectively.
(f) INTANGIBLE AND OTHER ASSETS. The Company has acquired options,
licenses, and distribution rights and applied for patents for various diagnostic
and therapeutic technologies or products. The costs related to such rights are
capitalized and included in intangible and other assets in the accompanying
balance sheets. Such costs are amortized over the estimated economic life of the
related technologies or products using the straight-line method.
F-7
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(g) RESEARCH AND DEVELOPMENT. The Company conducts research and
development activities internally and also engages scientists and clinicians at
major academic and research institutions to conduct certain product development
and clinical evaluations work for specific diagnostic products and technologies.
Contracts covering external research specify periodic payment terms and the
nature of the work required and, in some cases, may extend for a year or more.
Internal research and development costs are expensed as incurred, and external
research and development contract costs are recognized as such amounts are
payable over the contract period.
(h) INCOME TAXES. Deferred income taxes are recorded, where appropriate,
to reflect the estimated future tax effects of differences between financial
statement and tax bases of assets and liabilities.
(i) REVENUE. Revenue is recognized when products are sold or services are
rendered. Revenue subject to Medicare or third-party reimbursement is recorded
at estimated reimbursable amounts. The Company receives a significant portion of
its revenue from tests performed principally for beneficiaries of the Medicare
program. In 1997, 1998 and 1999, approximately 47%, 46%, and 46%, respectively,
of the Company's revenue was derived from tests performed principally for
beneficiaries of the Medicare program. Under law and regulation, for most of the
tests performed for Medicare beneficiaries, the Company must accept
reimbursement allowed by Medicare as payment in full. The Company receives
reimbursement for substantially all of its current services at various rates or
on a case-by-case basis.
Revenue from LithoSavant software licenses is recognized as license fees are
earned and from maintenance and services over the contractual period or as the
services are performed.
(j) NET INCOME PER COMMON SHARE. The Company discloses earnings per share
figures basic and diluted. Diluted earnings per share reflects the effect of
dilutive securities calculated using the treasury stock method and the average
market price of common stock for each period, unless the result is antidilutive,
in which case such securities are not considered.
(k) ACCRUED COMPENSATION. Accrued compensation consists of quarterly
commissions for sales representatives (usually paid the month following the
quarter's end), bonus accruals for non-sales personnel (usually paid annually
following the end of the year) and recurring monthly accruals.
3. PROPERTY AND EQUIPMENT:
Property and equipment, stated at cost, are summarized as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Laboratory equipment........................................ $ 2,650,797 $ 3,229,423
Computer equipment and software............................. 10,099,014 7,073,889
Office furniture, equipment and improvements................ 3,582,926 6,530,837
----------- -----------
16,332,737 16,834,149
Less--Accumulated depreciation and amortization............. (6,363,492) (7,966,029)
----------- -----------
$ 9,969,245 $ 8,868,120
=========== ===========
The depreciable lives for property and equipment are as
follow:
<CAPTION>
YEARS
-----------
<S> <C> <C>
Laboratory equipment..................................................... 3 to 5
Computer equipment and software.......................................... 2 to 5
Office furniture, equipment and improvements............................. 3 to 10
</TABLE>
F-8
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
4. INTANGIBLE AND OTHER ASSETS:
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Licenses, options, patents and trademarks............ $ 502,583 $ 621,570
Less--Accumulated amortization....................... (6,940) (23,324)
---------- ----------
495,643 598,246
Marketing agreement (Note 6)......................... 250,000 690,000
Advance payment for purchase of inventory............ -- 250,000
Distribution agreement (Note 6)...................... 1,250,000 1,250,000
Investment in corporate owned life insurance......... -- 203,355
Deposits and other................................... 144,956 122,493
---------- ----------
$2,140,599 $3,114,094
========== ==========
</TABLE>
5. LEASES:
The Company has used capital lease financing arrangements to acquire certain
equipment. The agreements provide for the Company to arrange for the equipment
purchase, pay the vendor and receive reimbursement from the lessor. The lease
payments paid by the Company are for three to four years and provide for
repayment of the equipment cost plus an interest charge. The Company accounts
for these arrangements as capital leases with the capital asset amortized over
the lease term. At December 31, 1998 and 1999, the gross amount of property and
equipment and related amortization recorded under capital leases was as follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Laboratory equipment............................... $ 1,617,440 $ 1,609,490
Computer equipment................................. 895,596 874,565
Office furniture and equipment..................... 642,141 574,523
----------- -----------
3,155,177 3,058,578
Less--Accumulated depreciation and amortization.... (2,956,840) (3,024,297)
----------- -----------
$ 198,337 $ 34,281
=========== ===========
</TABLE>
The Company also has noncancelable operating leases for laboratory
facilities, office space and equipment that expire over the next fourteen years,
with certain options for early termination. Rental expense for operating leases
during 1997, 1998 and 1999 approximated $887,000, $1,340,000 and $1,924,000,
respectively.
F-9
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
5. LEASES: (CONTINUED)
Future minimum lease commitments as of December 31, 1999 are:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
<S> <C> <C>
2000............................................ $ 8,570 $ 1,601,400
2001............................................ -- 1,567,497
2002............................................ -- 1,471,950
2003............................................ -- 1,453,201
2004............................................ -- 1,483,954
Thereafter (laboratory and office space to
2013)......................................... -- 13,579,638
------- -----------
Total minimum lease payments.................... 8,570 $21,157,640
===========
Less--Amount representing interest.............. (116)
-------
Total obligations under capital leases.......... 8,454
Less--Current installments of obligations under
capital leases................................ (8,454)
-------
Obligation under capital leases, net of current
installments.................................. $ --
=======
</TABLE>
In April 1999, the Company relocated to a new facility. Future monthly
rentals are included in the operating lease commitments above. The lease expires
by its terms in 2013, subject to early termination provisions.
6. COMMITMENTS AND CONTINGENCIES:
(a) DISTRIBUTION AGREEMENT. On December 30, 1994, the Company entered into
a product distribution agreement which grants the Company exclusive marketing
rights in the United States covering a therapeutic product for bladder cancer
currently undergoing regulatory review by the U.S. Food and Drug Administration
("FDA"). In connection with this agreement, the Company made payments to the
product's manufacturer of $750,000 and $500,000 in 1994 and 1995, respectively.
These payments, totaling $1.25 million, are included in intangible and other
assets in the accompanying balance sheets at December 31, 1998 and 1999. With
FDA approval of this product the Company is obligated to pay the manufacturer an
additional $1.75 million in three payments during 2000. The first payment of
$750,000 is due in April 2000, the second payment of $500,000 is due in July
2000 and the final payment of $500,000 is due in October 2000.
The aggregate payments of $3.0 million to be paid under the agreement, will
be amortized over the shorter of the expected economic life of the product or
the distribution agreement. The Company will be required to conduct specified
sales, marketing and certain other activities with respect to the product and
meet certain minimum unit sales levels. The initial term of the distribution
agreement is for five years, and the Company has an option to renew for an
additional five years, at no cost, if the minimum sales levels are attained.
(b) THERAPEUTICS. In 1998, the Company entered into a marketing agreement
which grants the Company certain marketing rights covering a therapeutic product
for a period of at least 5 years. The
F-10
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
6. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Company will be required to make additional payments totaling $500,000 upon the
achievement of certain milestones.
(c) EMPLOYMENT AGREEMENTS. Certain key employees of the Company have
entered into arrangements regarding their terms of employment. While none of
such arrangements provide for fixed periods of employment, they do provide for
continued payment of salaries for up to twelve months following termination
without cause, aggregating approximately $809,000.
(d) In July 1998 and March 1999, the Company received Civil Investigative
Demands ("CID") from the Department of Justice ("DOJ"). Although the Company
cannot confirm what prompted the DOJ investigation, such an investigation may or
may not have been prompted by the filing of a QUI TAM or "whistleblower" action
under the Civil False Claims Act. If the action was a result of a QUI TAM
filing, and even if the DOJ chose not to pursue any matters arising from a DOJ
investigation, the QUI TAM plaintiff would be free to pursue the allegations in
such a complaint against the Company. If the DOJ or other plantiff 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.
7. RELATED PARTY TRANSACTIONS:
The Company paid fees for consulting services to a member of the Board of
Directors. These fees are included in expenses and total approximately $24,000
in 1997. No such fees were paid in 1998 and 1999. In addition, the Company
recognized rent expense totaling approximately $535,000, $609,000, and
$1,082,000 for 1997, 1998 and 1999, respectively, related to its facilities
which are leased from a shareholder. In management's opinion, these transactions
were conducted on terms no less favorable than those which could have been
obtained from unrelated third parties.
8. STOCKHOLDERS' EQUITY:
(a) WARRANTS. At December 31, 1999, there were warrants outstanding for
the purchase of an aggregate of 124,436 shares of the Company's common stock
exercisable at prices ranging from $1.25 to $5.00 per share and expiring from
June 2000 to May 2001. No value was attributed to these warrants in connection
with their issuances in 1994 through 1995. A summary of the warrants outstanding
is presented below:
<TABLE>
<CAPTION>
1997 1998 1999
--------------------- --------------------- ---------------------
EXERCISE EXERCISE EXERCISE
PRICE PRICE PRICE
WARRANTS PER SHARE WARRANTS PER SHARE WARRANTS PER SHARE
-------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year......... 423,251 $1.25-5.00 291,438 $1.25-5.00 224,436 $1.25-5.00
Granted................................ -- -- --
Expired................................ -- 13,358 $4.30 100,000 $4.30
Exercised.............................. 131,813 $1.25-4.30 53,644 $1.25-5.00 -- --
------- ------- -------
Outstanding, end of year............... 291,438 $1.25-5.00 224,436 $1.25-5.00 124,436 $1.25-5.00
======= ======= =======
</TABLE>
F-11
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
8. STOCKHOLDERS' EQUITY: (CONTINUED)
(b) STOCKHOLDER RIGHTS PLAN. In August 1998, the Board of Directors
adopted a Stockholder Rights Plan that provides the holders of each share of
Common Stock with a Right. This Plan is intended to protect the Company and its
stockholders from coercive or unfair takeover tactics. Each Right will entitle
holders of the Company's common stock to buy one one-thousandth of an interest
in a share of Series I Preferred Stock of the Company at an exercise price of
$35.00, exercisable only if a person or group acquires beneficial ownership of
15% or more of UroCor's common stock or announces a tender or exchange offer
upon consummation of which such person or group would beneficially own 15% or
more of the Company's common stock. If any person becomes the beneficial owner
of 15% or more of UroCor's common stock, each Right not owned by such person or
related parties will enable its holder to purchase, at the Right's then-current
exercise price, shares of common stock of the Company having a value of twice
the Right's exercise price. In addition, if the Company is involved in a merger
or other business combination transaction with another person in which its
common shares are changed or converted, or sells 50% or more of its assets to
another person, each Right that has not previously been exercised will entitle
its holder to purchase, at the Right's then-current exercise price, common
shares of such other person having a value of twice the Right's exercise price.
The Rights have no voting power and will expire on August 27, 2008. The Company
will generally be entitled to redeem the Rights at $.001 per Right at any time
until the tenth business day following public announcement that a 15% position
has been acquired.
(c) TREASURY STOCK. In April 1999, the Board of Directors authorized the
repurchase of up to $10 million of the Company's outstanding common shares.
Under these authorizations the Company has repurchased 1,576,266 shares at a
cost of $7,174,508.
9. STOCK COMPENSATION PLANS:
(a) STOCK OPTION PLANS. The Company has adopted two stock option plans
which provide for the issuance of options to employees, directors and
independent contractors of the Company. These options vest over one to five
years, expire ten years after issuance and have an exercise price equal to or
greater than the stock's fair market value on the date of grant. During 1997,
the shareholders of the Company approved the addition of 300,000 shares to the
1992 Option Plan and the creation of the 1997 Non-Employee Director Stock Option
Plan for which 100,000 shares were allocated. During 1998, the shareholders of
the Company approved an additional 300,000 shares for the 1992 Option Plan.
During 1999, the shareholders of the Company approved an additional 300,000
shares for the 1992 Option Plan and 100,000 for the 1997 Non-Employee Director
Stock Option Plan.
F-12
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
9. STOCK COMPENSATION PLANS: (CONTINUED)
A summary of the status of the plans is presented below:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------------- -------------------------- --------------------------
WTD-AVERAGE WTD-AVERAGE WTD-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year......................... 1,053,544 $ 2.43 1,305,487 $4.36 1,580,328 $4.71
Granted, price equals fair
value........................ 342,750 8.02 465,000 5.80 722,250 4.26
Granted, price greater than
fair value................... 115,000 10.00 -- -- -- --
Exercised...................... (112,748) 1.10 (62,507) 1.08 (246,229) .75
Cancellations.................. (92,859) 6.98 (127,652) 6.78 (290,150) 6.76
--------- --------- ---------
Outstanding, end of year....... 1,305,487 $ 4.36 1,580,328 $4.71 1,766,199 $4.74
========= ========= =========
Exercisable, end of year....... 618,529 $ 1.45 845,884 $2.91 776,911 $4.36
========= ========= =========
</TABLE>
In December 1995, the Company issued options to employees covering 295,000
shares of common stock exercisable at the then estimated fair market value of
$1.75 per share. Considering the Company's anticipated public offering price per
share and other events, in April 1996 the Company estimated that the adjusted
fair value of the common stock at the date of grant of these options exceeded
the exercise price of the options. Accordingly, the Company is recognizing
imputed compensation expense as a non-cash charge to operations, aggregating
approximately $410,000 over the actual vesting period of these options of three
to five years. During 1997, 1998 and 1999 the Company recognized approximately
$127,500, $123,000 and $9,152, respectively, of compensation expense related to
these options.
This table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
NUMBER NUMBER
RANGE OF OUTSTANDING AT WTD-AVERAGE WTD-AVERAGE EXERCISABLE AT WTD-AVERAGE
EXERCISE PRICES DECEMBER 31, 1999 REMAINING LIFE EXERCISE PRICE DECEMBER 31, 1999 EXERCISE PRICE
- --------------- ------------------ -------------- -------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
.3$5- 1.75.... 422,015 5.1 $1.31 415,415 $1.30
3.$38- 4.50... 458,500 7.7 3.83 8,825 4.14
4.$63- 6.25... 454,300 5.9 5.21 72,984 5.38
6.$50-12.63... 431,384 5.9 8.57 279,687 8.64
--------- --- ----- ------- -----
.3$5-12.63.... 1,766,199 6.2 $4.74 776,911 $4.36
========= =======
</TABLE>
(b) EMPLOYEE STOCK PURCHASE PLAN (ESPP). In 1998, the Company's
shareholders approved the ESPP, under which 300,000 shares of the Company's
Common Stock could be sold to employees. Under its terms employees may elect to
withhold up to 10% of earnings each offering period to purchase the Company's
Common Stock. The purchase price is 85% of the lower of the beginning or the
ending market price for each offering period. Under the ESPP, the Company sold
33,658 and 30,147 shares to employees in 1998 and 1999, respectively.
(c) ACCOUNTING FOR STOCK-BASED COMPENSATION. The Company accounts for
these plans under APB Opinion No. 25, under which no compensation cost has been
recognized except for the December 1995
F-13
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
9. STOCK COMPENSATION PLANS: (CONTINUED)
stock option grant described above. Had compensation cost for these plans been
determined consistent with FASB Statement No. 123, the Company's net income
(loss) and earnings (loss) per share would have been adjusted to the following
pro forma amounts:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income (Loss)................ As Reported $4,252,181 $(2,476,359) $(4,108,847)
Proforma 3,815,054 (3,178,395) (4,824,997)
Diluted Net Income (Loss) per As Reported
Share.......................... $ .38 $ (.24) $ (.41)
Proforma .35 (.31) (.52)
Weighted-average fair value of
options granted................ $ 4.90 $ 3.77 $ 2.66
</TABLE>
The option pricing model used to determine an option's fair market value
considers six factors. Options granted prior to May 22, 1996 were valued without
the volatility factor because the Company was not a public company prior to that
time. Because of this pricing convention and because the Statement 123 method of
accounting has not been applied to options granted prior to January 1, 1995, the
resulting proforma compensation cost impact on net income and diluted net income
per share may not be representative of what might be expected in future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997, 1998 and 1999: dividend yield of 0% for all
years; expected volatility of 60% for 1997, 74% for 1998 and 69% for 1999;
risk-free interest rates of 6.2%, 5.5% and 5.8%, respectively; and expected life
of 6 years, 5.5 years and 5.3 years for 1997, 1998 and 1999, respectively.
The fair value of employees' purchase rights under the ESPP, was also
estimated using the Black-Scholes model with the following assumptions for 1998
and 1999: dividend yield of 0% for both years; expected volatility for purchase
rights of 63% for 1998 and 78% for 1999; risk-free interest rates of 5.1% for
1998 and 6.1% for 1999; and expected life of 1 year for both years. The weighted
average fair value of purchase rights was $2.81 for those granted in 1998 was
$2.03 for those granted in 1999.
10. EMPLOYEE BENEFIT PLAN:
a. The Company has established a 401(k) employee benefit plan in which
substantially all employees may participate. The plan is funded through
voluntary employee salary deferrals, and beginning October 1, 1997 the Company
began matching 25% of employee contributions up to a maximum of 12% of
compensation. Beginning January 1, 1999, the Company began matching 50% of
employee contributions up to a maximum of 6% of compensation. The Company's
1997, 1998 and 1999 contributions to this plan were approximately $32,000,
$138,000 and $226,000, respectively.
b. In 1999, the Company established a Deferred Compensation Plan for
directors and key employees. The plan is funded through voluntary deferrals of
director fees or employee salary. The Company does not currently match
contributions. Deferrals are deposited in corporate owned life insurance
contracts. Within each life insurance contract the directors and employees have
the option of selecting a variety of
F-14
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
10. EMPLOYEE BENEFIT PLAN: (CONTINUED)
investments. The return on these underlying investments will determine the
amount of earnings credited to each director or employee's account. Otherwise,
the directors and employees are general creditors of the Company with respect to
benefits from the Plan. The expense associated with the Deferred Compensation
Plan was approximately $53,000 for 1999.
11. SPECIAL CHARGES:
a. During the third quarter of 1998, the Company recognized special charges
consisting of the following:
<TABLE>
<S> <C>
Increased provision for doubtful accounts................... $4,700,000
Exit costs related to Urology Support Services ("USS")...... 2,220,529
Non-strategic program asset write-offs & other restructuring
costs..................................................... 1,106,762
Severance costs for workforce reduction..................... 178,315
----------
Special charges............................................. $8,205,606
==========
</TABLE>
The Company determined that collection costs on certain aged segments of its
accounts receivable outweighed the expected proceeds. Accordingly, a provision
of $4,700,000 was made for the older receivable balances.
At the end of the third quarter, the Company made the decision to exit the
USS business when it determined that a successful spin-off of the unit as an
independent entity could not be completed in a timely manner and notified all
employees affected. The exit costs related to this decision of $2,220,529
include estimated expenses for orderly termination and transition of USS'
service contracts, related asset write-downs and employee severance costs for
USS employees. The costs associated with terminating and transitioning the USS'
service contracts were accrued at $328,747 and the majority of these expenses
were paid in the fourth quarter of 1998. The write-offs for software, start-up
costs and other assets associated with the USS business totaled $1,763,178.
Finally, severance and outplacement costs of $128,604 were recognized for all 14
people employed by the USS business who were terminated after transitioning the
existing service contracts at the end of October 1998. The majority of these
benefits were paid out in the fourth quarter of 1998.
Also at the end of the third quarter, the Company eliminated 23 positions
across all departments of the Company as part of streamlining the organizational
structure of the Company. The severance and outplacement costs associated with
this workforce reduction totaled $178,315 and were paid during the fourth
quarter of 1998. In addition to the workforce reduction, the Company's
restructuring included the elimination of certain non-strategic programs, which
resulted in asset write-downs principally for research and software assets
totaling $888,741. Other non-recurring costs associated with this restructuring
totaled $218,021.
F-15
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
11. SPECIAL CHARGES: (CONTINUED)
b. During the second quarter of 1999, the Company recognized special
charges consisting of the following:
<TABLE>
<S> <C>
Increased provision for accounts receivable................. $3,941,833
Information systems restructuring costs..................... 2,893,700
Settlement of certain USS claims............................ 348,146
Severance costs for workforce reduction..................... 226,098
----------
Total special charges....................................... $7,409,777
==========
</TABLE>
Subsequent to increasing the provision for accounts receivable in the third
quarter of 1998, the Company continued reorganizing and streamlining its
accounts receivable and billing functions, which has resulted in improved
collections on recent billings. During the second quarter of 1999, however, the
Company discontinued certain managed care and payor related marketing programs
and identified significantly aged segments of its accounts receivable for which
the likelihood of collectibility is doubtful, or the processing cost could
exceed the expected benefit. Accordingly, a provision of $3,941,833 was made for
those receivable balances in the second quarter of 1999.
During the second quarter of 1999, the Company accelerated an information
systems initiative to increase productivity, decrease costs and more efficiently
collect billings. As a result of this new operational focus on information
systems, the Company has restructured its information systems function and
terminated certain existing systems and internal software development projects.
The write-offs for systems and software projects related to this restructuring
totaled $2,893,700. Severance and outplacement costs associated with
restructuring this function and ending certain development projects totaled
$226,098 and $57,781 remains accrued as of December 31, 1999 for two people who
were involved in terminated projects.
During the second quarter of 1999, the Company settled claims by two of the
former clients of the USS business, which together with legal fees incurred by
the Company resulted in costs of $348,146 in excess of amounts that had been
previously accrued.
The Company believes that it has made progress in implementing certain
systems and processing changes intended to improve systems processing and
related collections results. The Company is continuing additional systems and
process changes and is undertaking additional initiatives intended to improve
its claims efficiencies and collection results. As part of the Company's ongoing
assessment of its accounts receivable combined with its efforts to improve
billing systems processes and collections results, additional write-offs may be
necessary that could require additional provisions for doubtful accounts.
F-16
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
12. INCOME TAXES:
The Company has provided for income taxes (benefit) as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal.............................. $ 312,293 $ -- $ --
State................................ -- -- --
----------- ----------- -----------
Total................................ $ 312,293 $ -- $ --
Deferred:
Federal.............................. $(1,749,465) $(1,517,769) $(2,311,226)
State................................ -- -- --
----------- ----------- -----------
Total................................ (1,749,465) (1,517,769) (2,311,226)
----------- ----------- -----------
Total income tax benefit............... $(1,437,172) $(1,517,769) $(2,311,226)
=========== =========== ===========
</TABLE>
The provision for income taxes is different than the amount computed using
the applicable statutory federal income tax rate with the differences being
summarized below:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Tax expense (benefit) at statutory rates.............. 34 % (34)% (34)%
State income taxes, less federal income tax effect.... 1 % (4)% (4)%
Other................................................. 3 % 0 % 2 %
Adjustment due to change in valuation allowance....... (89)% 0 % 0 %
--- --- ---
Benefit for income taxes.............................. (51)% (38)% (36)%
=== === ===
</TABLE>
The Company's income tax provision for 1997 differed from the federal
statutory rate due to the utilization of the Company's tax net operating loss
carryforward. The annual utilization of this carryforward will be limited by
Internal Revenue Code Section 382 due to the fact that a cumulative change in
ownership of more than 50% has previously occurred. Therefore, the future
utilization of this net operating loss carryforward at December 31, 1999 will be
limited to approximately $10.2 million, of which approximately $6.0 million,
$3.5 million and $700,000 will be available in 2000, 2001 and subsequent years,
respectively. The net operating loss carryforward will begin to expire in 2013.
F-17
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
12. INCOME TAXES: (CONTINUED)
The tax effects of the temporary differences which gave rise to deferred tax
assets and liabilities at December 31, 1997 and 1998 were:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Net operating loss carryforward...................... $1,451,382 $3,784,636
Depreciation and amortization........................ (90,633) (79,737)
Deferred compensation................................ -- 92,452
Allowance for doubtful accounts...................... 2,291,045 2,104,541
Other................................................ 7,358 82,474
---------- ----------
Net deferred tax asset............................... $3,659,152 $5,984,366
Valuation allowance.................................. (324,626) (324,626)
---------- ----------
Total net deferred tax asset....................... $3,334,526 $5,659,740
========== ==========
</TABLE>
13. NET INCOME (LOSS) PER SHARE:
A summary of the components of net income (loss) per share and the impact of
dilutive securities is presented below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1997 1998
------------------------------------ -----------------------------------
WEIGHTED WEIGHTED PER
NET AVERAGE PER SHARES NET AVERAGE SHARE
INCOME SHARES AMOUNT LOSS SHARES AMOUNT
---------- ---------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) Per
Share--Basic........ $4,252,181 10,203,081 $0.38 $(2,476,359) 10,402,281 $(0.24)
Effect of Dilutive
Securities:
Stock Options....... -- 692,779 -- -- -- --
Warrants............ -- 156,680 -- -- -- --
---------- ---------- ----- ----------- ---------- ------
Net Income (Loss) Per
Share--Assuming
Dilution............ $4,252,181 11,052,540 $0.38 $(2,476,359) 10,402,281 $(0.24)
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1999
-----------------------------------
WEIGHTED
NET AVERAGE PER SHARE
LOSS SHARES AMOUNT
----------- --------- ---------
<S> <C> <C> <C>
Net Income (Loss) Per
Share--Basic........ $(4,108,847) 9,902,643 $(0.41)
Effect of Dilutive
Securities:
Stock Options....... -- -- --
Warrants............ -- --
----------- --------- ------
Net Income (Loss) Per
Share--Assuming
Dilution............ $(4,108,847) 9,902,643 $(0.41)
</TABLE>
Stock options and warrants to purchase shares of common stock at exercise
prices greater than the average market price of the common stock were
outstanding during each of the periods presented. Such options and warrants were
not included in the computation of Net Income Per Share--Assuming Dilution
because the impact would be antidilutive. Potential shares to be purchased under
such antidilutive stock options totaled 367,000, 592,484 and 966,546 for 1997,
1998 and 1999, respectively. There were no such antidilutive warrants for 1997,
1998 or 1999.
Additionally, for 1998 and 1999, the otherwise dilutive impact of all other
outstanding stock options and warrants is excluded from the computation of Net
Income Per Share--Assuming Dilution because such impact is antidilutive in the
year of a net loss (i.e., consideration of such shares would result in a lower
Net Loss Per Share--Assuming Dilution in comparison to the Net Loss Per
Share--Basic). For 1998, the otherwise dilutive effect of such antidilutive
stock options and warrants would have been an additional
F-18
<PAGE>
UROCOR, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999
13. NET INCOME (LOSS) PER SHARE: (CONTINUED)
600,748 and 55,408 weighted average shares, respectively, resulting in a total
of 11,058,437 weighted average common and common equivalent shares outstanding,
assuming dilution. For 1999, the otherwise dilutive effect of such antidilutive
stock options and warrants would have been an additional 451,561 and 15,760
weighted average shares, respectively, resulting in a total of 10,369,964
weighted average common and common equivalent shares outstanding, assuming
dilution.
F-19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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>
<S> <C> <C>
UROCOR, INC.
(Registrant)
By: /s/ MICHAEL W. GEORGE
-----------------------------------------
Michael W. George, Chief Executive Officer
and President
</TABLE>
Dated: March 10, 2000.
In accordance with the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL W. GEORGE Chief Executive Officer and
------------------------------------------- President (Principal March 10, 2000
(Michael W. George) Executive Officer)
Chief Financial Officer,
/s/ BRUCE C. HAYDEN Secretary and Treasurer
------------------------------------------- (Principal Financial March 10, 2000
(Bruce C. Hayden) Officer)
/s/ AARON BEAM, JR.
------------------------------------------- Director March 10, 2000
(Aaron Beam, Jr.)
/s/ MICHAEL E. HERBERT
------------------------------------------- Director March 10, 2000
(Michael E. Herbert)
/s/ THOMAS C. RAMEY
------------------------------------------- Director March 10, 2000
(Thomas C. Ramey)
/s/ LOUIS M. SHERWOOD, M.D.
------------------------------------------- Director March 10, 2000
(Louis M. Sherwood, M.D.)
/s/ HERBERT J. CONRAD
------------------------------------------- Director March 10, 2000
(Herbert J. Conrad)
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of UroCor, Inc.:
We have audited in accordance with auditing standards generally accepted in
the United States, the financial statements of UroCor, Inc. included in this
1999 Annual Report to Shareholders on Form 10-K and have issued our report
thereon dated February 10, 2000. Our audit was made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The schedule of
valuation and qualifying accounts for each of the three years in the period
ended December 31, 1999, is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
February 10, 2000
S-1
<PAGE>
SCHEDULE II
UROCOR, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------------------
CHARGE
CHARGE TO TO
BEGINNING COST AND OTHER ENDING
DESCRIPTION BALANCE EXPENSE(1) ACCOUNTS DEDUCTION(2) BALANCE
----------- --------- ---------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1997:
Allowance for Doubtful Accounts....... 1,123,562 2,257,666 -- (761,743) 2,619,485
For the Year Ended December 31, 1998:
Allowance for Doubtful Accounts....... 2,619,485 8,409,477 -- (4,999,896) 6,029,066
For the Year Ended December 31, 1999:
Allowance for Doubtful Accounts....... 6,029,066 6,751,950 -- (7,270,018) 5,510,998
</TABLE>
- ------------------------
(1) Includes $4,700,000 recorded as a special charge to valuation allowance in
the third quarter of 1998 and $3,941,833 recorded as special charge to
valuation allowance in the second quarter of 1999 (see Footnote 11 to the
December 31, 1999 audited financial statements).
(2) Represents write-offs of uncollectible accounts receivable against the
allowance for doubtful accounts.
S-2
<PAGE>
EXHIBIT 10.6
AMENDMENT NO. 4
(dated September 28, 1999 for reference purposes only)
To Lease Dated April 15, 1994
Between PRESBYTERIAN HEALTH FOUNDATION as Landlord,
and UROCOR, INC. formerly known as CytoDiagnostics, Inc., as Tenant
WHEREAS, Landlord and Tenant are the parties to the above described Lease
for the Building located at 840 N. Research Parkway; and,
Landlord and Tenant mutually desire to amend the above-described lease,
(amended via Amendment No. 1 dated April 14, 1997, Amendment No. 2 dated
April 14, 1998 and Amendment No. 3 dated February 1, 1999) as follows:
The provisions of this Amendment No. 4 shall supersede and control any
inconsistent provisions contained in the Lease, regardless of whether such
inconsistent provisions are contained in the printed portion of the Lease or
any rider, addendum, amendment or exhibit annexed thereto.
Amended Leased Premises:
The Leased Premises shall increase as indicated by the following schedule:
<TABLE>
<CAPTION>
Square Feet Room Lease Commencement
----------- ------ --------------------
<S> <C> <C>
146 539 10/01/99
146 540 10/01/99
146 541 10/01/99
2615 455 10/01/99
176 next to 270 04/01/00
359 303 04/01/00
354 359 04/01/00
473 358 04/01/00
111 411 04/01/00
278 401 04/01/00
620 East side of 455 04/01/00
140 519 04/01/00
700 171 12/01/00
</TABLE>
See the attached floor plans for room locations.
Commencing October 1, 1999, the Leased Premises increases by 3,053 square
feet = 101,965 gross sq. ft.; then commencing April 1, 2000, the Leased
Premises shall further increase by 2,511 square feet = 104,476 gross sq. ft.;
then commencing December 1, 2000, the Leased Premises shall further increase
by 700 square feet = 105,176 gross sq. ft.
Amended Tenant Improvement
Allowance: Limited to $25.65 per rentable square foot for
the 3,053 rentable square feet (rooms: 455
[2,615 square feet], 539, 540 & 541) and
$24.60 for the 2,511 rentable square feet
(rooms: next to 270, 303, 359, 358, 411, 401,
east side of 455 [620 square feet] & 519) and
$23.55 for 700 rentable square feet (room:
171). Architectural fees are paid from the
Tenant Improvement Allowance. Any excess cost
of Tenant Improvements shall be the
responsibility of the Tenant.
Both parties agree to the terms of the Lease Agreement as amended by Amendment
No. 1, Amendment No. 2, Amendment No. 3 and this Amendment No. 4, and the Lease
Agreement shall continue in full force and effect.
Landlord: Presbyterian Health Foundation
By: /s/ Dennis McGrath Date: 11/24/99
----------------------------- --------------
Dennis McGrath, Vice President
Tenant: UROCOR, INC.
By: /s/ Michael W. George Date: 10/28/99
----------------------------- ---------------
Michael W. George
President/Chief Operating Officer
<PAGE>
EXHIBIT 10.11
[UROCOR, INC. LETTERHEAD]
December 17, 1999
Mr. John L. Armstrong
14365 W. 142nd St.
Olathe, KS 66062
Dear Jack:
This letter will formally outline the details that were discussed concerning
the position of VICE PRESIDENT OF BUSINESS DEVELOPMENT, which reports to Mike
George. The objective of this letter is to outline the offer to you.
START DATE: December 22, 1999
BASE SALARY: $6,153.85 bi-weekly ($160,000 annually)
BONUS: Annual bonus potential of 35% of your annual salary based primarily on
achievement of corporate financial objectives, as well as individual
accomplishments.
BENEFITS:
- - UroCor Employee Benefits consist of the following and may change for the
purpose of increased benefit or lower cost through negotiation with
carriers.
- - Term Life Insurance at two (2) times annual salary (capped at $200,000)
paid for you.
- - Disability Insurance (short and long term) paid for you.
- - 401K Retirement Plan - Begin contributing first month after hire and
company matched upon enrollment up to 50% of first 6% of annual salary.
- - Workers Compensation, Unemployment and Social Security
- - Employee Stock Purchase Program, which is available for enrollment
semi-annually and is designed to allow employees the ability to
purchase UroCor stock at a discount to the market.
PAID TIME OFF: You are given 25 days paid time off per year. You will begin
accruing days upon your hire date but cannot begin utilizing this time until the
completion of your 90 day introductory period.
STOCK OPTIONS: UroCor offers a stock option program. This option requires a five
year vesting period for 90,000 shares of UroCor stock. A price per share will be
set based upon the date the option receives Board approval. Vesting starts on
your employment date.
OTHER PROVISIONS: In the event of termination without "cause", or resignation
for "good reason" the company will provide six (6) months base salary paid on a
bi-weekly basis. For purposes of this entire offer letter: (1) "cause" is
limited to fraud, embezzlement or conviction of a felony involving moral
turpitude, and (2) "good reason" shall be defined as your job title and/or
responsibilities being reduced from Vice President of Business Development. It
is also understood that any severance received under this offer letter shall not
be subject to offset or duty to mitigate.
In the event of a change of control, you shall receive eighteen (18) months
severance, and all of our options will vest immediately. In the event the Board
approves a plan that affords greater benefits to Senior Management than those
stipulated in this offer letter, you will, of course, participate in the Board
approved plan. For purposes of this Offer Letter, "change in control" shall be
defined as change in ownership or control as contemplated in Section 280G of the
Internal Revenue Code.
Every employee is required to sign a Confidentiality and Non-Compete
Agreement with UroCor, Inc. As with all employees, your employment is "at
will", and as such, this agreement does not represent a contract. Your first
90 days of employment are considered an Introductory Period, and during that
period you will accrue benefits as described in the Employee Manual. No
manager or representative of UroCor, Inc., other than the President of
UroCor, Inc., has authority to enter into any employment agreement.
As an employee of UroCor, Inc. you will be provided with a copy of the UroCor,
Inc. Employee Manual and insurance booklets which outline our personnel policies
and benefits program. You will be expected to read these materials thoroughly,
and sign and
<PAGE>
return a copy of the "Receipt and Acknowledgment of UroCor Employee
Manual". Any questions regarding UroCor policy, benefits administration or
eligibility should be directed to Inez Dunn, Benefits Coordinator, (ext. 4121).
Our offer to hire you is contingent upon satisfactory completion of employment
references and your submission of proof of your identity and your legal
authorization to work in the United States. If you fail to submit this proof,
federal law prohibits us from hiring you. It is also contingent upon your safe
driving record through the motor vehicle department, which you are required to
provide. In addition, A negative drug screen is a condition of employment.
Jack, we feel that you could make a great contribution to our department and
company and look forward to your response.
Very truly yours, Accepted by:
/s/ Michael W. George
Mike George /s/ John L. Armstrong 12/22/99
President and Chief Executive Officer -----------------------------------
John L. Armstrong Date
<PAGE>
EXHIBIT 10.12
INDEMNITY AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of the ______ day of
________, ____, between UroCor, Inc., a Delaware corporation (the
"Corporation"), and ___________________________ ("Indemnified Party").
WITNESSETH:
WHEREAS, Indemnified Party is, or is about to become, an officer or a
member of the Board of Directors of the Corporation and in such capacity is
performing a valuable service for Corporation;
WHEREAS, Indemnified Party may from time to time serve as a
director, officer, employee, agent or fiduciary of other corporations,
partnerships, joint ventures, trusts or other enterprises, entities or plans
at the request of the Corporation in order to pursue the Corporation's
interests;
WHEREAS, the Bylaws (the "Bylaws") of Corporation provide for the
mandatory indemnification of the officers, directors, agents and employees of
the Corporation to the maximum extent authorized by Section 145 of the
Delaware General Corporation Statute, as amended hereafter (the "State
Statute");
WHEREAS, such Bylaws and the State Statute specifically provide that
they are not exclusive and thereby contemplate that contracts or other
arrangements not inconsistent with the State Statute may be entered into
between the Corporation and the members of its Board of Directors and its
officers with respect to indemnification of such directors and officers;
WHEREAS, in accordance with the authorization provided by the State
Statute, Corporation has purchased and will maintain a policy of Directors'
and Officers' Liability Insurance ("D&O Insurance"), covering certain
liabilities that may be incurred by its directors and officers in the
performance of their services for Corporation, possibly including certain
liabilities for which indemnification by the Corporation is not authorized or
permitted under the State Statute;
WHEREAS, uncertainties with respect to the terms and availability of
D&O Insurance and with respect to the application, amendment and enforcement
of statutory and by-law indemnification provisions make it desirable to
supplement and enhance the adequacy and reliability of the protection
afforded to directors and officers thereby; and
WHEREAS, to supplement and enhance the protection afforded
Indemnified Party and to induce Indemnified Party to continue to serve as a
member of the Board of Directors or as an officer of the Corporation, the
Corporation has determined and agreed to enter into this Agreement with
Indemnified Party, which has been approved and adopted by the Corporation's
Board of Directors;
<PAGE>
NOW, THEREFORE, in consideration of Indemnified Party's continued service as
a director or an officer of the Corporation after the date hereof the parties
hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
"Litigation Costs" means costs, charges, expenses and obligations,
including, without limitation, all bonds, expenses of investigation, fees and
expenses of experts, accountants or other professionals, travel and lodging
expenses, court costs, transcript costs, duplicating costs, printing and
binding costs, telephone charges, postage, delivery fees and attorneys' fees,
retainers and expenses, reasonably incurred or contracted for in the
investigation, defense or prosecution of or other involvement in any
Proceeding and any appeal therefrom, and all costs of appeal, attachment,
supersedeas and other bonds that may be relevant to any Proceeding.
"Losses" means the total of all amounts which Indemnified Party
becomes, or may become, legally obligated to pay in connection with any
Proceeding, including (without limitation) judgments, penalties, fines, court
or investigative costs, amounts paid in settlement, amounts lost or ordered
forfeited pursuant to injunctive sanctions, and all Litigation Costs.
"Proceeding" means any threatened, pending or completed action,
suit, arbitration, mediation, alternative dispute resolutions mechanism,
proceeding, subpoena compliance, inquiry or investigation, whether civil,
criminal, administrative or investigative (whether external and involving
outside parties or internal to the Corporation, including, but not limited
to, an action by or in the right of the Corporation and any internal
investigation conducted by the Board of Directors or any committee or other
designee thereof or any other person), and whether formal or informal.
2. INDEMNITY OF INDEMNIFIED PARTY. The Corporation hereby
agrees to indemnify Indemnified Party to the fullest extent authorized or
permitted by the provisions of the State Statute, including, but not limited
to, (a) the maximum extent permitted by the provisions of the State Statute
which provide that the State Statute is not the exclusive basis for
indemnification of directors and officers and (b) the maximum extent
authorized or permitted by any amendment thereof or other statutory provision
authorizing or permitting such indemnification which is adopted after the
date hereof.
3. ADDITIONAL INDEMNITY. In addition to and not in
substitution for or diminution of the obligations of indemnification set
forth in Section 2 hereof, the Corporation hereby further agrees to indemnify
Indemnified Party to the fullest extent permitted by law against any and all
Litigation Costs and Losses of Indemnified Party in connection with any
Proceeding to which Indemnified Party is, was or at any time becomes a party,
or is threatened to be made a party or otherwise becomes involved (other than
as plaintiff except where being a plaintiff or intervenor is necessary to
avoid RES JUDICATA or collateral estoppel or other estoppel or other result
as to matters which may adversely impact Indemnified Party) by reason of the
fact that Indemnified Party is, was or at any time becomes a director,
officer, employee, agent or fiduciary of the Corporation, or is or was
serving or at any time serves at the request of the Corporation as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise or any benefit plan
related to the business and affairs of the Corporation, and specifically
including any Proceeding brought pursuant to the provisions of Section 16(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any other provision under the Exchange Act and the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
4. LIMITATIONS ON INDEMNITY. No amounts of Indemnity pursuant
to Section 2 or 3 hereof shall be paid by the Corporation:
(a) except to the extent that the aggregate of Litigation
Costs and Losses in any Proceeding or group of related Proceedings to
be indemnified hereunder exceeds the amount of Litigation Costs and
Losses for which the Indemnified Party actually receives
indemnification payments or on whose behalf indemnification payments
are made pursuant to any D&O Insurance policy or from any other source;
<PAGE>
(b) on account of any payments required to be paid by an
Indemnified Party as a result of any Proceeding in which a final,
non-appealable judgment is rendered against Indemnified Party for an
accounting or disgorgement of profits made from the purchase or sale by
Indemnified Party of securities of the Corporation pursuant to the
provisions of Section 16(b) of the Exchange Act;
(c) on account of Indemnified Party's conduct which is finally
adjudged in any Proceeding to have been knowingly fraudulent,
deliberately dishonest or an act or omission involving willful
misconduct; or
(d) if a final non-appealable decision by a court having
jurisdiction over the parties and the subject matter shall determine
that such indemnification is not lawful.
5. CONTINUATION OF INDEMNITY. All agreements and obligations
of the Corporation contained herein shall continue during the period
Indemnified Party is a director, officer, employee, agent or fiduciary of the
Corporation (or is or was serving at the request of the Corporation as a
director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise or any benefit plan
related to the business and affairs of the Corporation or of any of its
affiliates, subsidiaries, associates or other entities in which it is
interested) and shall continue thereafter so long as Indemnified Party shall
be subject to any possible Litigation Costs or Losses in any Proceeding by
reason of the fact that Indemnified Party was a director, officer, employee,
agent or fiduciary of the Corporation (or is or was serving at the request of
the Corporation as a director, officer, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust or other enterprise or
any such benefit plan).
6. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt
by Indemnified Party of notice of the commencement of any Proceeding,
Indemnified Party shall, if a claim in respect thereof is to be made against
the Corporation under this Agreement, give written notice to the Corporation
of the commencement thereof as promptly as practicable; but the omission so
to notify the Corporation will not relieve the Corporation from any liability
that it may have to Indemnified Party unless the Corporation can demonstrate
by clear and convincing evidence that it was materially prejudiced by the
failure to receive such notice. With respect to any such Proceeding as to
which Indemnified Party becomes involved:
(a) the Corporation will be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, to the extent that it
may wish, the Corporation may, jointly with any other indemnifying
party, assume the defense thereof, with outside counsel that must be
reasonably satisfactory to Indemnified Party. After notice from the
Corporation to Indemnified Party of its election so to assume the
defense thereof (and consent of Indemnified Party as to the
Corporation's choice of outside counsel, which consent will not be
unreasonably withheld), the Corporation will be liable to Indemnified
Party under this Agreement for all Litigation Costs (subject to Section
4 above and other than as provided below with respect to attorneys'
fees) incurred in connection therewith. Indemnified Party shall have
the right to employ personal counsel in such Proceeding, but the fees
and expenses of such counsel incurred after notice from the Corporation
of its assumption of the defense thereof (and consent of Indemnified
Party as to the Corporation's choice of outside counsel) shall be at
the expense of Indemnified Party, unless (i) the employment of counsel
for Indemnified Party has been authorized by the Corporation, (ii)
Indemnified Party shall have concluded in good faith that there may be
a conflict of interest between the Corporation and Indemnified Party in
the conduct of the defense (or part of the defense) of such action, or
(iii) the Corporation in fact shall not have employed counsel to assume
the defense of such action, in each of which cases the fees and
expenses of counsel shall be at the expense of the Corporation. The
Corporation shall not be entitled to assume the defense of any
Proceeding brought by or on behalf of the Corporation or as to which
Indemnified Party shall have made the conclusion provided for in clause
(ii) of this Section 6(b); and
<PAGE>
(c) the Corporation shall not be liable to indemnify
Indemnified Party under this Agreement for any Losses paid in
settlement of any Proceeding or claim effected without its written
consent. The Corporation shall not settle any Proceeding or claim in
any manner that would impose any penalty, sanction or limitation on
Indemnified Party, or otherwise effectively indicate the existence of
any wrongful act by Indemnified Party, without Indemnified Party's
written consent. Neither the Corporation nor Indemnified Party shall
unreasonably withhold its consent to any proposed settlement. Without
intending to limit the circumstances in which it would be unreasonable
for the Corporation to withhold its consent to a settlement, the
parties hereto agree it would be unreasonable for the Corporation to
withhold its consent to a settlement in an amount that did not exceed,
in the business judgment of the Board of Directors of the Corporation,
the estimated amount of Litigation Costs of Indemnified Party to
litigate the Proceeding to conclusion, provided that there is no other
materially adverse consequence to the Corporation from such settlement.
7. NO PRESUMPTIONS. The termination of any Proceeding by
judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or
its equivalent, shall not, of itself, create a presumption that (a)
Indemnified Party did not act in good faith, (b) with respect to any criminal
action or proceeding, Indemnified Party had reasonable cause to believe that
his or her conduct constituted a criminal violation or (c) Indemnified Party
was knowingly fraudulent, deliberately dishonest or committed an act, or made
an omission, involving willful misconduct.
8. MANDATORY ADVANCEMENT OF EXPENSES. At the request of
Indemnified Party, Litigation Costs incurred or contracted for by him or her
in any Proceeding shall be paid by the Corporation on a continuing and
current basis, in advance of the final disposition of such matter, with the
undertaking which Indemnified Party makes hereby that if it shall be
ultimately determined that Indemnified Party was not entitled to be
indemnified therefor, or was not entitled to be fully indemnified therefor,
Indemnified Party shall repay to the Corporation the amount, or appropriate
portion thereof, so advanced. Such advancement and current payment of
Litigation Costs by the Corporation shall be made promptly (but in any event
within 10 days) after receipt by the Corporation of Indemnified Party's
request therefor.
9. REPAYMENT OF EXPENSES. Indemnified Party agrees that
Indemnified Party will reimburse the Corporation for all Litigation Costs
paid by the Corporation in connection with any Proceeding in which
Indemnified Party is involved in the event and only to the extent that it
shall be ultimately determined by final non-appealable judgment of a court of
competent jurisdiction that Indemnified Party is not entitled to be
indemnified by the Corporation for such Litigation Costs under the provisions
of the State Statute, the Bylaws and this Agreement.
10. PROCEDURE.
(a) Indemnification hereunder shall be made promptly and in
any event within 30 days of Indemnified Party's written request
therefor, unless (i) an affirmative determination is made reasonably
and within such 30-day period by the Corporation in the manner provided
in Section 10(b) below that Indemnified Party is not entitled to
indemnity hereunder for any reason other than as contemplated by clause
(ii) of this Section 10(a), or (ii) an affirmative determination is
required by the State Statute or other applicable law that the
Indemnified Party met an applicable standard of conduct, in which case
the Corporation will cause such determination to be made within 60 days
from the date of the written request for indemnity.
(b) The determination to be made by the Corporation under
Section 10(a) above shall be based on the facts known at the time and
shall be made (i) by the Board of Directors of the Corporation, by a
majority vote of a quorum consisting of directors who are not parties
to the Proceeding ("disinterested directors"), or (ii) if such a quorum
is not obtainable, by independent legal counsel in a written opinion,
or (iii) even if such a quorum is obtainable, by independent legal
counsel in a written opinion if the Board of Directors of the
Corporation, by a majority vote of a quorum consisting of disinterested
directors, so directs, or (iv) by the stockholders of the Corporation.
Any such determination may be contested by Indemnified Party as
hereinafter contemplated.
<PAGE>
(c) A failure to make any required determination within the
period of time specified shall be deemed to be a determination
favorable to the Indemnified Party.
11. ENFORCEMENT.
(a) The Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the
Corporation hereby and has obtained the approval of its Board of
Directors to induce Indemnified Party to serve or continue serving as a
director or an officer of Corporation and acknowledges that Indemnified
Party is relying upon this Agreement in agreeing to serve or continue
serving in such capacity.
(b) In the event Indemnified Party is required to bring any
action to enforce rights or to collect moneys due under this Agreement,
the Corporation shall reimburse Indemnified Party, on a continuing and
current basis, for all of Indemnified Party's reasonable fees and
expenses in bringing and pursuing such action and Indemnified Party
shall have no obligation to reimburse the Corporation therefor unless
Indemnified Party is not successful in such action after rendition of a
final, non-appealable judgment by a court of competent jurisdiction.
(c) The right to indemnification hereunder shall be
enforceable by Indemnified Party in any court of competent jurisdiction
if Indemnified Party's claim therefor is denied, in whole or in part,
in the manner provided herein, or if no disposition of such claim is
made within 60 days from the receipt by the Corporation of Indemnified
Party's request for indemnification hereunder.
12. SEVERABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof. To the extent necessary to
give effect to this Agreement, should any provision hereof be held invalid or
unenforceable, this Agreement shall be reformed in such a manner as to
provide the maximum indemnity contemplated hereby to Indemnified Party, it
being the intention of the parties hereto that this Agreement be otherwise
given its maximum effect consistent with the laws and, to the extent
applicable, public policies of the State of Delaware.
13. OBLIGATION TO AMEND. The Corporation agrees to take all
actions necessary to amend this Agreement in the future to increase or
otherwise maximize the indemnity protections intended to be afforded hereby
to the extent then permitted by law.
14. NOTICE. Any notice, request or other communication
hereunder to the Corporation or Indemnified Party shall be in writing and
delivered or sent by postage prepaid first class mail or by hand delivery or
express mail service or by facsimile transmission as follows: (a) if to the
Corporation, addressed to UroCor, Inc., 800 Research Parkway, Oklahoma City,
Oklahoma 73104, facsimile 405/290-4059, and (b) if to Indemnified Party, to
the address shown on the signature page hereof or to such other address as
Indemnified Party shall designate from time to time to the Corporation in
writing.
15. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION.
(a) This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
(b) This Agreement shall be binding upon Indemnified Party and
upon the Corporation, its successors and assigns, and shall inure to
the benefit of Indemnified Party, his or her heirs, personal
representatives and assigns and to the benefit of the Corporation, its
successors and assigns. The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or any substantial part of the business or assets of
the Corporation, by agreement in form and substance satisfactory to
Indemnified Party, to expressly
<PAGE>
assume and agree to perform this Agreement in the same manner and
to the same extent that the Corporation would be required to
perform it if no such succession had taken place. Failure of the
Corporation to obtain such agreement prior to effectiveness of any
succession shall be a breach of this Agreement and shall entitle
Indemnified Party to appropriate equitable relief or monetary
damages from the Corporation in an amount necessary to provide
Indemnified Party with the protections to which he or she would be
entitled hereunder. As used in this Agreement, the "Corporation"
shall mean the Corporation as hereinbefore defined and any
successor to its business or assets as aforesaid that executes and
delivers the agreement provided for by this Section 15(b) or that
otherwise becomes bound by all of the terms and provisions of this
Agreement by operation of law.
(c) No amendment, modification, termination or cancellation of
this Agreement shall be effective unless in writing signed by both
parties hereto.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties relating to the subject
matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
UroCor, Inc.
By:_________________________________________
Name
Title
[Name of Indemnified Party]
-------------------------------------------
Name of Indemnified
Address: Address
Address
Facsimile: Fax Number
<PAGE>
SCHEDULE 10.1
INDEMNITY AGREEMENTS
CURRENT BOARD MEMBERS
Herbert J. Conrad Louis M. Sherwood, M.D.
Michael E. Herbert Aaron Beam, Jr.
Thomas C. Ramey
CURRENT EMPLOYEES
Michael W. George Bruce C. Hayden
Karl K. Nigg John L. Armstrong, Jr.
Robert W. Veltri, Ph.D. Lou Rye Carmichael
Gerard O'Dowd Larry S. Compton
<PAGE>
EXHIBIT 10.13
UROCOR, INC.
1999 MICP
- - Target parameters to include total revenues at 33.3% weighting, operating
income at 33.3% and performance to strategic parameters (ex. Capital
formation, new products, corporate partnerships, new ventures, etc.) at
33.3%.
- - Provision for over achievement included as additional incentive.
<PAGE>
EXHIBIT 10.14
UroCor, Inc.
William A. Hagstrom
AGREEMENT
This Agreement (this "Agreement") is executed on this 17th day of
December, 1999 (the "Execution Date"), and is made effective for all purposes
and in all respects as of October 26, 1999 (the "Effective Date"), by and
between UroCor, Inc., a Delaware corporation (the "Company"), and William A.
Hagstrom (the "Executive").
WHEREAS, the Executive has served the Company as its chief executive
officer since 1989;
WHEREAS, in connection with executive succession planning in respect of
the executive services rendered by the Executive, the executive resigned as
chief executive officer as of October 26, 1999, and the Board of Directors of
the Company (the "Board") elected Michael W. George as his successor;
WHEREAS, the Executive's knowledge, expertise, experience and skills
are valuable to the Company and will continue to be so after the date hereof;
NOW, THEREFORE, in view of the foregoing, and in recognition of the
Executive's valuable contributions to the success of the Company, the mutual
promises and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and the Executive, intending legally to be bound, agree as follows:
1. TERM. Subject to the specific provisions for termination set forth
herein, the term of this Agreement shall be for the period beginning on the date
hereof and ending on December 31, 2001. This Agreement shall terminate upon the
occurrence of any event specified in Section 8, or upon payment of all amounts
due hereunder after the death of the Executive. The Executive shall be engaged
by the Company in accordance with the provisions hereof during the period
beginning on the date hereof and ending on the date the Agreement terminates
under the preceding provisions of this Section 1 (the "Term"). The Term shall
consist of two periods, the Initial Period and the Subsequent Period (which
shall consist of two phases, the 2000 Phase and the 2001 Phase). The Initial
Period shall commence on the date hereof and terminate on December 31, 1999. The
Subsequent Period shall commence on January 1, 2000, and terminate on the date
of expiration of the Term. The 2000 Phase shall be calendar year 2000. The 2001
Phase shall be calendar year 2001.
2. NATURE OF RELATIONSHIP. During the Initial Period, the Executive
shall be an employee of the Company. During the Subsequent Period, the Executive
shall be an independent contractor of the Company.
3. DUTIES OF EXECUTIVE.
(a) INITIAL PERIOD. During the Initial Period, the Executive
shall continue to serve the Company as Chairman of the Board and shall perform
all the proper duties, functions and authorities of that office.
(b) SUBSEQUENT PERIOD. During the Subsequent Period, the
Executive shall serve as consultant to the Company in such advisory capacities
as reasonably may be designated by the Board or the chief executive officer of
the Company (the "CEO") from time to time during the remainder of the Term, and
shall render such advisory services as are reasonably consistent with such
capacities.
(c) OTHER ACTIVITIES. Notwithstanding the provisions of this
Section 3 or any other provisions hereof, it is understood that during the
Subsequent Period, the Executive may engage in such activities on such terms and
conditions for such other person as the Executive in his sole discretion shall
desire so long as such activities do not interfere materially with or detract
materially from the Executive's performance of his duties hereunder.
Notwithstanding the immediately preceding sentence, during the period commencing
on the Effective
<PAGE>
Date and terminating on December 31, 2001, Employee will not, directly or
indirectly, either as an employee, employer, consultant, agent, principal,
partner, stockholder, corporate officer, director or in any other individual
or representative capacity, engage or participate in any business that is
engaged in diagnostic, therapeutic or information services regarding the
urology industry within the United States of America or in any other
geographic area of the world where the Company engages or proposes to engage
in business during the Term. Notwithstanding the immediately preceding
sentence, it is agreed by the Company that the Executive may acquire an
ownership interest, directly or indirectly, of not more than 1% of the
outstanding securities of any company that is engaged in a business
competitive with the Company and that is listed on any recognized securities
exchange or quotation system in the United States, provided that such
investment is of a totally passive nature and does not involve the Executive
devoting time to the management or operations of such company.
4. COMPENSATION DURING THE INITIAL PERIOD. For all the duties to be
performed by the Executive hereunder during the Initial Period, the Executive
shall receive a base salary at an annual rate of $248,500. Such base salary
shall be payable to the Executive in installments in accordance with the
Company's policy for the payment of executive salaries as in effect from time to
time during the Initial Period.
5. COMPENSATION DURING THE SUBSEQUENT PERIOD. For all the duties to be
performed by the Executive hereunder during the Subsequent Period, the Executive
shall receive consulting fees in an aggregate amount of $300,000, with $150,000
of such fees payable on January 4, 2000, and the remaining $150,000 of such fees
payable in installments during the duration of the 2000 Phase to the Executive
in accordance with the Company's policy for the payment of executive salaries as
in effect from time to time during the Subsequent Period.
6. BENEFITS DURING THE TERM.
(a) DISABILITY COVERAGE. During the Initial Period and the
2000 Phase, the Executive shall continue to participate in any disability
program maintained by the Company in which he is a participant on the date
hereof and shall be eligible to participate in any other disability program
generally offered to executive employees of the Company from time to time
after the date hereof, or, in the event and to the extent such participation
is not permitted pursuant to the terms thereof, the Company shall provide the
Executive with substantially the same benefits thereof, to the extent that
the Executive continues to contribute to the cost thereof to the same extent
that such contribution is required of executive officers of the Company,
until the first to occur of the following: (i) the date on which coverage
ceases under the terms of the program as a result of the Executive's failure
to make timely contributions or premium payments required under the program,
(ii) the date on which the disability program is terminated without the
establishment of a successor disability program, (iii) the Executive's
employment by an employer other than the Company that maintains a disability
program in which the Executive is eligible to participate or (iv) the
expiration of the Term.
(b) GROUP LIFE AND AD&D INSURANCE. During the Initial
Period and the 2000 Phase, the Executive shall continue to participate in any
group life and accidental death and dismemberment insurance program
maintained by the Company in which he is a participant on the date hereof and
shall be eligible to participate in any other group life and dismemberment
insurance program generally offered to executive employees of the Company
from time to time after the date hereof, or, in the event and to the extent
such participation is not permitted pursuant to the terms thereof, the
Company shall provide the Executive with substantially the same benefits
thereof, to the extent that the Executive continues to contribute to the cost
thereof to the same extent that such contribution is required of executive
officers of the Company, until the first to occur of the following: (i) the
date on which coverage ceases under the terms of the program as a result of
the Executive's failure to make timely contributions or premium payments
required under the program, (ii) the date on which the program is terminated
without the establishment of a successor group life insurance program, (iii)
the Executive's employment by an employer other than the Company that
maintains any group life and accidental death and dismemberment insurance
program in which the Executive is eligible to participate or (iv) the
expiration of the Term.
(c) MEDICAL, VISION AND DENTAL BENEFITS. During the Initial
Period and the 2000 Phase, the Executive and his eligible dependents shall
continue to participate in any medical, vision and dental benefit programs
maintained by the Company under which they are covered on the date hereof and
shall be eligible to
<PAGE>
participate in any other medical, vision or dental benefit program generally
offered to executive employees of the Company from time to time after the
date hereof, or, in the event and to the extent such participation is not
permitted pursuant to the terms thereof, the Company shall provide the
Executive with substantially the same benefits thereof, to the extent that
the Executive continues to contribute to the cost thereof to the same extent
that such contribution is required of executive officers of the Company,
until the first to occur of the following: (i) the date on which coverage
ceases under the terms of a program as a result of the Executive's failure to
make timely contributions or premium payments required under the program,
(ii) the date on which a program is terminated without the maintenance of any
successor program, (iii) the Executive's employment by an employee other than
the Company that maintains medical, vision or dental benefit program in which
the Executive is eligible to participate or (iv) the expiration of the Term,
and, in addition, upon the expiration of such coverage under any such
medical, vision or dental benefit program, the Executive and his eligible
dependents will have the right to continue coverage under the program to the
extent required under the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
(d) LIFE INSURANCE. During the Initial Period, the Company
shall, at its own expense, continue in force the Executive's personal life
insurance policies, the expenses of which are currently borne by the Company.
(e) VACATION. During the Initial Period, the Executive shall
continue to accrue vacation benefits in accordance with the terms of the
Company's vacation policy in effect on the date hereof.
(f) SECTION 401(k) PLAN. During the Initial Period, at the
Executive's option, he may continue to participate in the Company's qualified
cash or deferred arrangement described in section 401(k) of the Internal Revenue
Code of 1986, as amended, in accordance with the terms of such plan.
(g) STOCK PURCHASE PLAN. During the Initial Period, the
Executive shall be eligible to participate in the UroCor, Inc. 1997 Employee
Stock Purchase Plan to the extent that he satisfies the eligibility requirements
of that plan.
7. MISCELLANEOUS PROVISIONS REGARDING DUTIES, COMPENSATION AND BENEFITS.
(a) SERVICE ON BOARD OF DIRECTORS. The Company shall take all
efforts reasonably within its control to cause the Executive to remain a member
of the Board and the Chairman of the Board of Directors during the Initial
Period, subject to any actions taken or not taken by any person in respect of
compliance with any applicable fiduciary duties.
(b) EXPENSES. The Executive shall be reimbursed for his
reasonable business and travel expenses in accordance with the general
reimbursement policy of the Company then in effect with respect to its
executives and as such policy may be changed from time to time thereafter by
the Company, until the expiration of the Term, provided that the expenses are
incurred in connection with the performance of services by the Executive that
were specifically requested in advance either by the Board or the CEO, the
Executive has submitted to the Company on a timely basis such documentation
as may be necessary to substantiate such expenses and the business purpose
thereof and the Executive has received the prior approval of the CEO or the
chief financial officer of the Company for the incurrence of any expenses
that either individually or in the aggregate exceed $1,000.
(c) DEDUCTIONS. All compensation of any nature whatsoever
payable to the Executive hereunder shall be subject to deductions by the Company
in accordance with all applicable laws for applicable social security taxes,
federal, state and municipal taxes and other charges as may now be in effect or
that may hereafter be enacted or required with respect to compensation paid to
an employee or a consultant, as the case may be.
(d) LEGAL STATUS. The parties acknowledge that the Company
makes no representation or warranty with respect to the status of the
compensation paid or benefits provided to Executive hereunder under any
applicable tax or other laws or regulations.
<PAGE>
(e) EMPLOYEE COOPERATION. The Executive agrees that he will
cooperate with the Company in connection with any claims or litigation that have
arisen or may arise from activities of the Company that occurred during the
Executive's employment with the Company. The Executive agrees to contact the
Company immediately if the Executive is contacted by any third parties
concerning such litigation or claims. The Company will pay to the Executive
reasonable compensation and reimburse all reasonable expenses in connection with
such activities (other than attorneys fees and related expenses).
(f) PROHIBITION ON RECOVERY. The Executive agrees and
covenants that the Executive shall not share in or receive any monetary benefit
from any monetary recovery or recoveries, whether in the form of a settlement,
judgment or otherwise, if any, arising out of any claim or lawsuit pursuant to
31 USCS Section 3730, et. seq. (otherwise referred to as "qui tam" action)
against the Company.
(g) RELEASE OF EMPLOYMENT CLAIMS. The Executive does hereby
for himself and his representatives, successors, heirs, executors,
administrators, legal representatives, trustees, and assigns remise, release and
forever discharge the Company and its representatives, successors, executors,
administrators, legal representatives, trustees, directors, officers and assigns
(collectively referred to herein as the "Released Parties"), of and from any and
all manner of liability, claims, demands, actions, causes of actions, suits,
debts, dues, sums of money, accounts, reckonings, bonds, bills, specialities,
covenants, contracts, controversies, agreements, promises, variances,
trespasses, damages, judgments, extends, executions, grievances, arbitrations,
administrative proceedings and all other claims of every kind and nature
whatsoever, whether in law or in equity, contract or tort, known or unknown,
arising out of the Executive's employment relationship with the Company, or
arising out of the cessation or termination of the Executive's employment or the
lack of the Company's re-employment of the Executive, including claims for
compensation or benefits, and any other claims for wrongful termination or
discrimination (the "Released Claims") from the beginning of the Executive's
employment through Execution Date. The Executive agrees and covenants that (a),
with respect to Released Claims arising after the Execution Date and on or
before the termination of the Initial Period, he shall execute and deliver to
the Company a release in the form of ANNEX A hereto and (b) he shall not sue the
Released Parties in connection with any of the Released Claims.
(h) CORPORATE ETHICS. The Executive represents and warrants
that he is aware of, has read and has acted and conformed with the Company's
corporate ethics policy including without limitation thereto the obligation (i)
to conduct business in compliance with all applicable laws, rules and
regulations, including full compliance with the requirements for billing
government programs, (ii) to be honest in all public statements, advertising and
publicity, (iii) to avoid misrepresentation in any business dealings recognizing
that permanent business relationships can only be maintained on the basis of
honest and fair dealing, (iv) to respect the Company's obligations and the
individual's obligations, and neither express nor imply a promise or performance
which cannot reasonably be expected to fulfill, (v) to recognize that character
is a personal asset in business and give significant consideration to the
selection of individuals and companies with whom the Company does business, (vi)
to refrain from providing or accepting gifts, entertainment and other
remuneration in the guise of business expense where the intent, effect or
appearance of the gift is to influence a recipient with respect to his or her
business decision, (vii) to refrain from giving or receiving any bribes in the
form of money, favors, gifts or other items or services of value, including
so-called "kick backs" in any transaction, (viii) to avoid any real or potential
conflicts of interest and disclose any proprietary or financial interests in any
organization with which the Company does business or with which it is in
competition, which could adversely, or appear adversely to, influence the
Company's judgment, or preclude the Company from fulfilling its responsibility,
(ix) to insure that information received in confidence for the conduct of
business is not used for personal gain, or to divulge no such information with
the intent of giving or receiving personal gain, or the intent of giving or
receiving unfair advantage in a personal and competitive business situation or
transaction and (x) to recognize the dignity of all people, to be fair and
impartial in all relationships and to pursue in good faith the Company's
responsibility to offer equal opportunity in business to all people. In
connection herewith, the Executive has executed the statement of understanding
of and compliance with the corporate ethics policy and standards of conduct
attached hereto as ANNEX B. The Executive covenants and agrees that he will
continue to act and conform in accordance with the Company's corporate ethics
policy during the Term. The Executive also represents and warrants that he is
not aware of any violation of the Company's corporate ethics policy that has not
previously been reported to the Company's compliance officer for such policy.
<PAGE>
8. TERMINATION FOR CAUSE. Upon an Event of Termination for Cause,
this Agreement shall terminate and the Company will pay to the Executive and
provide to the Executive only the compensation and benefits provided for
herein earned and due but unpaid through the date of such termination. An
"Event of Termination for Cause" shall have occurred if (a) the Executive has
been convicted by a court of competent jurisdiction of a crime involving
moral turpitude, including but not limited to fraud, theft, embezzlement or
any crime that results in or is intended to result in personal enrichment at
the expense of the Company or (b) the Executive has committed acts amounting
to gross negligence or willful misconduct to the material detriment of the
Company. Whether an Event of Termination of Cause has occurred shall be
determined by an independent arbitrator under the rules of the American
Arbitration Association.
9. SEVERABILITY. If any provision of this Agreement shall be held by
a court of competent jurisdiction invalid or unenforceable, the remainder of
this Agreement shall nevertheless remain in full force and effect. If any
provision is held by a court of competent jurisdiction invalid or
unenforceable with respect to particular circumstances, it shall nevertheless
remain in full force and effect in all other circumstances.
10. INUREMENT.
(a) This Agreement shall be binding upon, and shall inure
to the benefit of, the Company and the Executive and their respective heirs,
personal and legal representatives, successors and assigns.
(b) In the event of the death or permanent disability of
the Executive during the Term, the Company shall pay to the Executive's heirs
and personal and legal representatives all amounts that would have become
payable thereafter to the Executive pursuant to Sections 4, 5, 6 and 7(b)
hereof had he died or became permanently disabled prior to the end of the
Term and performed all services required hereunder.
11. GOVERNING LAW. This Agreement and the rights and obligations of
the parties hereunder shall be governed by, and construed and interpreted in
accordance with, the laws of the State of Oklahoma and, to the extent
controlling, applicable federal laws of the United States of America.
12. NOTICES. Any notice required to be given shall be sufficient if
it is in writing, hand delivered or sent by certified or registered mail,
return receipt requested, first-class postage prepaid, in the case of the
Executive, to his residence at the address set forth on the signature page
hereof or such other address of which the Executive may hereafter notify the
Company, and, in the case of the Company, to the office address of the CEO
set forth on the signature page hereof or such other address of which the
Company may hereafter notify the Executive.
13. ENTIRE AGREEMENT. Except as specified herein, this Agreement
contains the entire agreement and understanding by and between the Company
and the Executive with respect to the subject matter hereof, and supersedes
all other representations, promises, agreements, and understandings or
negotiations between the parties regarding the subject matter hereof, whether
written or oral, not contained herein, including without limitation thereto,
that certain Employment Agreement dated as of January 1, 1990, between the
Company and the Executive and, effective as of December 31, 1999, that
certain Change in Control Agreement dated as of October 21, 1998, between the
Company and the Executive. Notwithstanding the foregoing, nothing in this
Agreement shall supersede the Non-Competition and Non-Disclosure Agreement,
dated as of January 1, 1990, between the Company and the Executive, which
agreement the Company and the Executive hereby (a) amend to delete Section
1(c) therefrom and (b), as so amended, acknowledge, confirm and agree is in
full force and effect, a true and complete copy of which is attached hereto
as ANNEX C. In addition, notwithstanding the foregoing, nothing in this
Agreement shall supersede the Indemnity Agreement dated as of February 17,
1998, between the Company and the Executive, which agreement the Company and
the Executive hereby confirm and agree is in full force and effect, a true
and complete copy of which is attached hereto as ANNEX D.
14. AMENDMENTS AND WAIVERS. No change or modification of this
Agreement shall be valid or binding unless it is in writing and signed by the
party to be charged thereby. No valid waiver of any provision of this
Agreement at any time shall be deemed a waiver of any other provision of this
Agreement at such time or at any
<PAGE>
other time.
15. ASSIGNMENTS. This Agreement is a personal services contract. The
rights and obligations of the Executive hereunder may not be sold, transferred,
delegated, assigned, pledged or hypothecated and any attempted assignment,
transfer or sale shall be void.
16. CAPTIONS. The captions of the various sections and subsections of
this Agreement have been inserted only for purposes of convenience and shall not
be deemed in any manner to modify, explain, enlarge or restrict any of the
provisions of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
effective as of the Effective Date.
"COMPANY"
UROCOR, INC.
By /s/ Michael W. George
-------------------------------------------
Michael W. George, President and
Chief Executive Officer
840 Research Parkway
Oklahoma City, OK 73104
Tel: (405) 290-4000
"EXECUTIVE"
/s/ William A. Hagstrom
----------------------------------------------
William A. Hagstrom
2905 Harris Drive
Edmond, OK 73013
Tel: (405) 340-6770
<PAGE>
UroCor, Inc.
William A. Hagstrom
ADDENDUM TO AGREEMENT
This Addendum to Agreement is made as of this 1st day of March, 2000, to that
certain Agreement dated effective October 26, 1999 (the "Agreement"), between
UroCor, Inc. ("Company") and William A. Hagstrom ("Consultant").
W I T N E S S E T H:
Pursuant to Section 3(b) of the Agreement, Company and Consultant wish to
designate certain responsibilities and obligations of the Consultant
thereunder that are consistent with the advisory capacities in which the
Consultant is to serve the Company thereunder.
Now, therefore, in view of the foregoing, it hereby is agreed that Consultant
shall devote such time as may reasonably be designated by the Chief Executive
Officer of Company to represent Company at various functions including trade
shows and seminars and to analyze technical and financial data to assist
executive officers of Company in strategic planning and forecasting. It is
acknowledged that the defining of specific responsibilities is not intended
to limit the activities of Consultant, but is intended to clarify specific
duties that can now be identified as requiring Consultant's efforts.
During the term of the Agreement, Consultant agrees that, on a quarterly
basis, he will provide to management of Company his views on trends in
Company's industry and make himself available to provide information to the
Company about issues that he has gleaned from various sources in Company's
industry.
This Addendum is executed pursuant to Section 14 of the Agreement and shall be
effective as of the date hereof.
UROCOR, INC.
By /s/ Michael W. George
--------------------------------------
Michael W. George, President and
Chief Executive Officer
/s/ William A. Hagstrom
------------------------------------------
William A. Hagstrom
<PAGE>
ANNEX A
RELEASE OF EMPLOYMENT CLAIMS
The Executive does hereby for himself and his representatives,
successors, heirs, executors, administrators, legal representatives, trustees
and assigns remise, release and forever discharge the Released Parties of and
from any and all manner of Released Claims arising after the Execution Date
and on or before the date of termination of the Initial Period.
Defined terms used herein shall have meanings given them in that
certain Agreement made as of December 17, 1999, between UroCor, Inc. and the
undersigned.
IN WITNESS WHEREOF, the undersigned hereunto has executed this
Release of Employment Claims on the 31st day of December, 1999.
/s/ William A. Hagstrom
-----------------------------------------
William A. Hagstrom
<PAGE>
ANNEX B
UROCOR, INC. COMPLIANCE PROGRAM
STATEMENT OF UNDERSTANDING OF AND COMPLIANCE WITH
CORPORATE ETHICS POLICY, STANDARDS OF CONDUCT
AS WELL AS UROCOR'S COMPLIANCE PROGRAM
I CERTIFY THAT I HAVE READ AND UNDERSTAND THE CORPORATE ETHICS POLICY AND AGREE
TO ABIDE BY IT DURING MY EMPLOYMENT AT UROCOR. I ACKNOWLEDGE THAT I HAVE DUTY TO
REPORT ANY ALLEGED OR SUSPECTED VIOLATION OF THE CORPORATE ETHICS POLICY OR
STANDARDS OF CONDUCT TO THE COMPLIANCE OFFICER. UNLESS OTHERWISE NOTED BELOW, I
AM NOT AWARE OF ANY VIOLATION OF THE CORPORATE ETHICS POLICY OR STANDARDS OF
CONDUCT. I UNDERSTAND THAT COMPLIANCE WITH THE STANDARDS OF CONDUCT, ETHICS
POLICY, EMPLOYEE HANDBOOK, AND OTHER UROCOR POLICIES, ALTHOUGH REQUIRED FOR
EMPLOYMENT, DOES NOT IN ANY WAY PROMISE OR IMPLY A CONTRACT OF EMPLOYMENT.
Date ______________________ Session Attended (Time)_______________________
- -------------------------------------------------------------------------------
Signature /s/ William A. Hagstrom 12/30/99
---------------------------------------------------
Print Name William A. Hagstrom
---------------------------------------------------
- --------------------------------------------------------------------------------
Job Title/Position___________________ Supervisor__________________________
- --------------------------------------------------------------------------------
Location: (circle one) Department
Home Office Field Location __________________________________
Any concerns or questions - use back if necessary
<PAGE>
UROCOR, INC. COMPLIANCE PROGRAM
STATEMENT OF CERTIFICATION
CORPORATE ETHICS POLICY, STANDARDS OF CONDUCT, AND COMPLIANCE
I CERTIFY THAT I HAVE READ AND UNDERSTAND THE CORPORATE ETHICS POLICY AND AGREE
TO ABIDE BY IT DURING MY EMPLOYMENT AT UROCOR. I ACKNOWLEDGE THAT I HAVE DUTY TO
REPORT ANY ALLEGED OR SUSPECTED VIOLATION OF THE CORPORATE ETHICS POLICY OR
STANDARDS OF CONDUCT TO THE COMPLIANCE OFFICER. UNLESS OTHERWISE NOTED BELOW, I
CERTIFY THAT I AM UNAWARE OF ANY UNREPORTED COMPLIANCE MATTER IN MY AREA OF
RESPONSIBILITY. I UNDERSTAND THAT COMPLIANCE WITH THE STANDARDS OF CONDUCT,
ETHICS POLICY, EMPLOYEE HANDBOOK, AND OTHER UROCOR POLICIES, ALTHOUGH REQUIRED
FOR EMPLOYMENT, DOES NOT IN ANY WAY PROMISE OR IMPLY A CONTRACT OF EMPLOYMENT.
- -------------------------------------------------------------------------------
Signature /s/ William A.
---------------------------------------
Print Name William A. Hagstrom
---------------------------------------
Title Chairman
---------------------------------------
Date 11-4-99
---------------------------------------
- -------------------------------------------------------------------------------
What to do if you know of an UN-reported concern---Attach In-take form (s)
Use template and print out and send as attachment to this document-do not e-mail
Purpose of Policy
Each Quarter Managers and supervisors are required to complete a certification
that they are UN-aware of any unreported compliance concern in their area of
responsibility. As employees are required to report--manager's are required to
certify. In this way managers and employees work together to make sure that any
are of compliance is surfaced and worked so that the company can move
productively toward resolution and early correction of any error, mistake or
system problem.
DO NOT E-MAIL THIS DOCUMENT--PRINT AND MAIL TO CO
Check One:
X No Attachments Attachments included
- ------------------ -----------------------
<PAGE>
ANNEX C
CYTODIAGNOSTICS, INC.
NON-COMPETITION AND NON-DISCLOSURE AGREEMENT
THIS AGREEMENT ("Agreement"), made and entered into effective as of
the 1st day of January, 1990, by and between CytoDiagnostics, Inc.
("Employer"), a Delaware corporation with its principal office and principal
place of business located at 2925 United Founders Boulevard, Oklahoma City,
OK 73112, and William A. Hagstrom ("Employee"), as resident of Oklahoma City,
Oklahoma.
WITNESSETH:
WHEREAS, Employer desires to employ Employee, and Employee desires to
accept employment with Employer upon and subject to the terms, conditions and
provisions hereinafter set forth; and
WHEREAS, Employer in its line of business has developed valuable
technical information and know-how, which information and know-how are used
in its business and in licensed operations; and
WHEREAS, Employee, by virtue of his assigned responsibilities or
responsibilities to be assigned by Employer and through his activities in the
employ of Employer has become or may become acquainted therewith;
NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual covenants and
agreements hereinafter contained, the parties hereto covenant and agree as
follows:
SECTION 1. As a condition of employment, or continued employment, as
the case may be, of Employee by Employer, and of the disclosure by Employer
to Employee of Employer's confidential and/or proprietary information, which
disclosure may include any one or more of the areas involving trade secrets,
business plans, products manufactured by Employer, processes therefor,
apparatus and maintenance thereof, research, research programs, sales plans
and sales and marketing information of Employer, customer, vendor, supply and
price lists, and lists of key employees or potential key employees, including
similar information with respect to any subsidiary and related companies, it
is agreed by Employer and Employee that:
(a) All such confidential and/or proprietary information including any
information relating to manufacturing techniques, processes, formulas,
developments or experimental work, work in process or business trade
secrets, are the property of Employer and shall be held by Employee in
trust therefor, and shall not be used except for the benefit of
Employer or disclosed by Employee to any person, firm or corporation
either during or after his employment without the express, written
consent of an executive officer of Employer.
(b) Employee shall promptly disclose to Employer or its nominee any and
all inventions, discoveries and improvements conceived or made by
Employee alone or in concert with others during the period of his
employment and related to the then current or contemplated business or
activities of Employer, and Employee assigns and agrees to assign all
his interest therein to Employer or its nominee and whenever requested
to do so, Employee shall execute any and all applications, assignments
or other instruments which Employer shall deem necessary to apply for
and obtain Letters Patent of the United States or any foreign country
or to otherwise protect Employer's interests therein. These
obligations shall continue beyond the termination of employment with
respect to inventions, discoveries and improvements conceived or made
by Employee alone or in concert with others during the period of his
employment, and shall be binding upon Employee, his assigns,
executors, administrators and other legal representatives.
(c) Employee, upon termination of employment, shall not take with him,
without first obtaining the express, written consent of an executive
officer of Employer, any drawings, blueprints, notes, memoranda,
specifications, devices, documents or any other material containing or
disclosing any of the matter referred to herein, whether an original
or reproduction, or any
<PAGE>
tangible evidence of confidential and/or proprietary
information or data belonging to or under the control of Employer.
(d) The covenants and agreements of Employee set forth in this Section 1
shall survive the termination of the Agreement and the termination of
Employee's employment by Employer and inure to the benefit of the
Company and its assigns and successors.
SECTION 2. Employee will strictly adhere to any obligations which he
may have to former employers insofar as the use or disclosure of confidential
and/or proprietary information is concerned.
SECTION 3. In the event that any one or more but not all of the
provisions of this Agreement are declared unlawful and/or unenforceable by a
court of competent jurisdiction, such court determination shall not affect the
legality and/or enforceability of the other provisions hereof.
SECTION 4. No omission of Employer to require performance by Employee
of any of the terms of this Agreement shall in any manner affect Employer's
right to require full performance by Employee of any or all of the obligations
of this Agreement, nor shall any such omission be construed as a waiver of any
of the terms herein.
SECTION 5. This Agreement contains the entire Agreement between
Employer and Employee relating to the subject matter hereof and supersedes any
and all prior agreements, if any, between Employer and Employee relating to such
subject matter.
SECTION 6. This Agreement may not be modified or amended except by a
written instrument signed by the parties hereto.
SECTION 7. This Agreement shall be binding upon the Employee and upon
his heirs, executors, administrators and other legal representatives.
IN WITNESS WHEREOF, each of the Employer and Employee has executed this
Agreement as of the date and year first above written.
Employer:
CYTODIAGNOSTICS, INC.
By /s/ Don E. Spyrison
-------------------------------
Don E. Spyrison
Chairman of the Board
Employee:
/s/ William A. Hagstrom
----------------------------------
William A. Hagstrom
<PAGE>
ANNEX D
INDEMNITY AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of the 17th day of
February, 1998, between UroCor, Inc., a Delaware corporation (the
"Corporation"), and William A. Hagstrom ("Indemnified Party").
WITNESSETH:
WHEREAS, Indemnified Party is, or is about to become, an officer or a
member of the Board of Directors of the Corporation and in such capacity is
performing a valuable service for Corporation;
WHEREAS, Indemnified Party may from time to time serve as a director,
officer, employee, agent or fiduciary of other corporations, partnerships, joint
ventures, trusts or other enterprises, entities or plans at the request of the
Corporation in order to pursue the Corporation's interests;
WHEREAS, the Bylaws (the "Bylaws") of Corporation provide for the
mandatory indemnification of the officers, directors, agents and employees of
the Corporation to the maximum extent authorized by Section 145 of the Delaware
General Corporation Statute, as amended hereafter (the "State Statute");
WHEREAS, such Bylaws and the State Statute specifically provide that
they are not exclusive and thereby contemplate that contracts or other
arrangements not inconsistent with the State Statute may be entered into between
the Corporation and the members of its Board of Directors and its officers with
respect to indemnification of such directors and officers;
WHEREAS, in accordance with the authorization provided by the State
Statute, Corporation has purchased and will maintain a policy of Directors' and
Officers' Liability Insurance ("D&O Insurance"), covering certain liabilities
that may be incurred by its directors and officers in the performance of their
services for Corporation, possibly including certain liabilities for which
indemnification by the Corporation is not authorized or permitted under the
State Statute;
WHEREAS, uncertainties with respect to the terms and availability of
D&O Insurance and with respect to the application, amendment and enforcement of
statutory and by-law indemnification provisions make it desirable to supplement
and enhance the adequacy and reliability of the protection afforded to directors
and officers thereby; and
WHEREAS, to supplement and enhance the protection afforded Indemnified
Party and to induce Indemnified Party to continue to serve as a member of the
Board of Directors or as an officer of the Corporation, the Corporation has
determined and agreed to enter into this Agreement with Indemnified Party, which
has been approved and adopted by the Corporation's Board of Directors;
NOW, THEREFORE, in consideration of Indemnified Party's continued service as a
director or an officer of the Corporation after the date hereof the parties
hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
"Litigation Costs" means costs, charges, expenses and obligations,
including, without limitation, all bonds, expenses of investigation, fees and
expenses of experts, accountants or other professionals, travel and lodging
expenses, court costs, transcript costs, duplicating costs, printing and
binding costs, telephone charges, postage, delivery fees and attorneys' fees,
retainers and expenses, reasonably incurred or contracted for in the
investigation, defense or prosecution of or other involvement in any
Proceeding and any appeal therefrom, and all costs of appeal, attachment,
supersedeas and other bonds that may be relevant to any Proceeding.
"Losses" means the total of all amounts which Indemnified Party
becomes, or may become, legally obligated to pay in connection with any
Proceeding, including (without limitation) judgments, penalties, fines, court
or investigative costs, amounts paid in settlement, amounts lost or ordered
forfeited pursuant to injunctive sanctions, and all Litigation Costs.
<PAGE>
"Proceeding" means any threatened, pending or completed action,
suit, arbitration, mediation, alternative dispute resolutions mechanism,
proceeding, subpoena compliance, inquiry or investigation, whether civil,
criminal, administrative or investigative (whether external and involving
outside parties or internal to the Corporation, including, but not limited
to, an action by or in the right of the Corporation and any internal
investigation conducted by the Board of Directors or any committee or other
designee thereof or any other person), and whether formal or informal.
2. INDEMNITY OF INDEMNIFIED PARTY. The Corporation hereby agrees to
indemnify Indemnified Party to the fullest extent authorized or permitted by
the provisions of the State Statute, including, but not limited to, (a) the
maximum extent permitted by the provisions of the State Statute which provide
that the State Statute is not the exclusive basis for indemnification of
directors and officers and (b) the maximum extent authorized or permitted by
any amendment thereof or other statutory provision authorizing or permitting
such indemnification which is adopted after the date hereof.
3. ADDITIONAL INDEMNITY. In addition to and not in substitution for
or diminution of the obligations of indemnification set forth in Section 2
hereof, the Corporation hereby further agrees to indemnify Indemnified Party
to the fullest extent permitted by law against any and all Litigation Costs
and Losses of Indemnified Party in connection with any Proceeding to which
Indemnified Party is, was or at any time becomes a party, or is threatened to
be made a party or otherwise becomes involved (other than as plaintiff except
where being a plaintiff or intervenor is necessary to avoid RES JUDICATA or
collateral estoppel or other estoppel or other result as to matters which may
adversely impact Indemnified Party) by reason of the fact that Indemnified
Party is, was or at any time becomes a director, officer, employee, agent or
fiduciary of the Corporation, or is or was serving or at any time serves at
the request of the Corporation as a director, officer, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust or other
enterprise or any benefit plan related to the business and affairs of the
Corporation, and specifically including any Proceeding brought pursuant to
the provisions of Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any other provision under the Exchange Act
and the Securities Act of 1933, as amended, and the rules and regulations
thereunder.
4. LIMITATIONS ON INDEMNITY. No amounts of Indemnity pursuant to
Section 2 or 3 hereof shall be paid by the Corporation:
(a) except to the extent that the aggregate of Litigation
Costs and Losses in any Proceeding or group of related Proceedings to
be indemnified hereunder exceeds the amount of Litigation Costs and
Losses for which the Indemnified Party actually receives
indemnification payments or on whose behalf indemnification payments
are made pursuant to any D&O Insurance policy or from any other source;
(b) on account of any payments required to be paid by an
Indemnified Party as a result of any Proceeding in which a final,
non-appealable judgment is rendered against Indemnified Party for an
accounting or disgorgement of profits made from the purchase or sale by
Indemnified Party of securities of the Corporation pursuant to the
provisions of Section 16(b) of the Exchange Act;
(c) on account of Indemnified Party's conduct which is finally
adjudged in any Proceeding to have been knowingly fraudulent,
deliberately dishonest or an act or omission involving willful
misconduct; or
(d) if a final non-appealable decision by a court having
jurisdiction over the parties and the subject matter shall determine
that such indemnification is not lawful.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Indemnified
Party is a director, officer, employee, agent or fiduciary of the Corporation
(or is or was serving at the request of the Corporation as a director,
officer, employee, agent or fiduciary of another corporation, partnership,
joint venture, trust or other enterprise or any benefit plan related to the
business and affairs of the Corporation or of any of its affiliates,
subsidiaries, associates or other entities in which it is interested) and
shall continue thereafter so long as Indemnified Party shall be subject to
any possible Litigation Costs or Losses in any Proceeding by reason of the
fact that Indemnified Party was a director, officer, employee, agent or
fiduciary of the Corporation (or is or was serving at the request of the
Corporation as a director, officer, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise or any
such benefit plan).
<PAGE>
6. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by
Indemnified Party of notice of the commencement of any Proceeding,
Indemnified Party shall, if a claim in respect thereof is to be made against
the Corporation under this Agreement, give written notice to the Corporation
of the commencement thereof as promptly as practicable; but the omission so
to notify the Corporation will not relieve the Corporation from any liability
that it may have to Indemnified Party unless the Corporation can demonstrate
by clear and convincing evidence that it was materially prejudiced by the
failure to receive such notice. With respect to any such Proceeding as to
which Indemnified Party becomes involved:
(a) the Corporation will be entitled to participate therein
at its own expense;
(b) except as otherwise provided below, to the extent that it
may wish, the Corporation may, jointly with any other indemnifying
party, assume the defense thereof, with outside counsel that must be
reasonably satisfactory to Indemnified Party. After notice from the
Corporation to Indemnified Party of its election so to assume the
defense thereof (and consent of Indemnified Party as to the
Corporation's choice of outside counsel, which consent will not be
unreasonably withheld), the Corporation will be liable to Indemnified
Party under this Agreement for all Litigation Costs (subject to Section
4 above and other than as provided below with respect to attorneys'
fees) incurred in connection therewith. Indemnified Party shall have
the right to employ personal counsel in such Proceeding, but the fees
and expenses of such counsel incurred after notice from the Corporation
of its assumption of the defense thereof (and consent of Indemnified
Party as to the Corporation's choice of outside counsel) shall be at
the expense of Indemnified Party, unless (i) the employment of counsel
for Indemnified Party has been authorized by the Corporation, (ii)
Indemnified Party shall have concluded in good faith that there may be
a conflict of interest between the Corporation and Indemnified Party in
the conduct of the defense (or part of the defense) of such action, or
(iii) the Corporation in fact shall not have employed counsel to assume
the defense of such action, in each of which cases the fees and
expenses of counsel shall be at the expense of the Corporation. The
Corporation shall not be entitled to assume the defense of any
Proceeding brought by or on behalf of the Corporation or as to which
Indemnified Party shall have made the conclusion provided for in clause
(ii) of this Section 6(b); and
(c) the Corporation shall not be liable to indemnify
Indemnified Party under this Agreement for any Losses paid in
settlement of any Proceeding or claim effected without its written
consent. The Corporation shall not settle any Proceeding or claim in
any manner that would impose any penalty, sanction or limitation on
Indemnified Party, or otherwise effectively indicate the existence of
any wrongful act by Indemnified Party, without Indemnified Party's
written consent. Neither the Corporation nor Indemnified Party shall
unreasonably withhold its consent to any proposed settlement. Without
intending to limit the circumstances in which it would be unreasonable
for the Corporation to withhold its consent to a settlement, the
parties hereto agree it would be unreasonable for the Corporation to
withhold its consent to a settlement in an amount that did not exceed,
in the business judgment of the Board of Directors of the Corporation,
the estimated amount of Litigation Costs of Indemnified Party to
litigate the Proceeding to conclusion, provided that there is no other
materially adverse consequence to the Corporation from such settlement.
7. NO PRESUMPTIONS. The termination of any Proceeding by judgment,
order, settlement, conviction or upon a plea of NOLO CONTENDERE or its
equivalent, shall not, of itself, create a presumption that (a) Indemnified
Party did not act in good faith, (b) with respect to any criminal action or
proceeding, Indemnified Party had reasonable cause to believe that his or her
conduct constituted a criminal violation or (c) Indemnified Party was
knowingly fraudulent, deliberately dishonest or committed an act, or made an
omission, involving willful misconduct.
8. MANDATORY ADVANCEMENT OF EXPENSES. At the request of Indemnified
Party, Litigation Costs incurred or contracted for by him or her in any
Proceeding shall be paid by the Corporation on a continuing and current
basis, in advance of the final disposition of such matter, with the
undertaking which Indemnified Party makes hereby that if it shall be
ultimately determined that Indemnified Party was not entitled to be
indemnified therefor, or was not entitled to be fully indemnified therefor,
Indemnified Party shall repay to the Corporation the amount, or appropriate
portion thereof, so advanced. Such advancement and current payment of
Litigation Costs by the Corporation shall be made promptly (but in any event
within 10 days) after receipt by the Corporation of Indemnified Party's
request therefor.
9. REPAYMENT OF EXPENSES. Indemnified Party agrees that Indemnified
Party will reimburse the Corporation for all Litigation Costs paid by the
Corporation in connection with any Proceeding in which Indemnified
<PAGE>
Party is involved in the event and only to the extent that it shall be
ultimately determined by final non-appealable judgment of a court of
competent jurisdiction that Indemnified Party is not entitled to be
indemnified by the Corporation for such Litigation Costs under the provisions
of the State Statute, the Bylaws and this Agreement.
10. PROCEDURE.
(a) Indemnification hereunder shall be made promptly and in
any event within 30 days of Indemnified Party's written request
therefor, unless (i) an affirmative determination is made reasonably
and within such 30-day period by the Corporation in the manner provided
in Section 10(b) below that Indemnified Party is not entitled to
indemnity hereunder for any reason other than as contemplated by clause
(ii) of this Section 10(a), or (ii) an affirmative determination is
required by the State Statute or other applicable law that the
Indemnified Party met an applicable standard of conduct, in which case
the Corporation will cause such determination to be made within 60 days
from the date of the written request for indemnity.
(b) The determination to be made by the Corporation under
Section 10(a) above shall be based on the facts known at the time and
shall be made (i) by the Board of Directors of the Corporation, by a
majority vote of a quorum consisting of directors who are not parties
to the Proceeding ("disinterested directors"), or (ii) if such a quorum
is not obtainable, by independent legal counsel in a written opinion,
or (iii) even if such a quorum is obtainable, by independent legal
counsel in a written opinion if the Board of Directors of the
Corporation, by a majority vote of a quorum consisting of disinterested
directors, so directs, or (iv) by the stockholders of the Corporation.
Any such determination may be contested by Indemnified Party as
hereinafter contemplated.
(c) A failure to make any required determination within the
period of time specified shall be deemed to be a determination
favorable to the Indemnified Party.
11. ENFORCEMENT.
(a) The Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the
Corporation hereby and has obtained the approval of its Board of
Directors to induce Indemnified Party to serve or continue serving as a
director or an officer of Corporation and acknowledges that Indemnified
Party is relying upon this Agreement in agreeing to serve or continue
serving in such capacity.
(b) In the event Indemnified Party is required to bring any
action to enforce rights or to collect moneys due under this Agreement,
the Corporation shall reimburse Indemnified Party, on a continuing and
current basis, for all of Indemnified Party's reasonable fees and
expenses in bringing and pursuing such action and Indemnified Party
shall have no obligation to reimburse the Corporation therefor unless
Indemnified Party is not successful in such action after rendition of a
final, non-appealable judgment by a court of competent jurisdiction.
(c) The right to indemnification hereunder shall be
enforceable by Indemnified Party in any court of competent jurisdiction
if Indemnified Party's claim therefor is denied, in whole or in part,
in the manner provided herein, or if no disposition of such claim is
made within 60 days from the receipt by the Corporation of Indemnified
Party's request for indemnification hereunder.
12. SEVERABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof. To the extent necessary to
give effect to this Agreement, should any provision hereof be held invalid or
unenforceable, this Agreement shall be reformed in such a manner as to
provide the maximum indemnity contemplated hereby to Indemnified Party, it
being the intention of the parties hereto that this Agreement be otherwise
given its maximum effect consistent with the laws and, to the extent
applicable, public policies of the State of Delaware.
13. OBLIGATION TO AMEND. The Corporation agrees to take all actions
necessary to amend this Agreement in the future to increase or otherwise
maximize the indemnity protections intended to be afforded hereby to the
extent then permitted by law.
<PAGE>
14. NOTICE. Any notice, request or other communication hereunder to
the Corporation or Indemnified Party shall be in writing and delivered or
sent by postage prepaid first class mail or by hand delivery or express mail
service or by facsimile transmission as follows: (a) if to the Corporation,
addressed to UroCor, Inc., 800 Research Parkway, Oklahoma City, Oklahoma
73104, facsimile 405/290-4059, and (b) if to Indemnified Party, to the
address shown on the signature page hereof or to such other address as
Indemnified Party shall designate from time to time to the Corporation in
writing.
15. GOVERNING LAW; BINDING EFFECT; AMENDMENT AND TERMINATION.
(a) This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
(b) This Agreement shall be binding upon Indemnified Party and
upon the Corporation, its successors and assigns, and shall inure to
the benefit of Indemnified Party, his or her heirs, personal
representatives and assigns and to the benefit of the Corporation, its
successors and assigns. The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or any substantial part of the business or assets of
the Corporation, by agreement in form and substance satisfactory to
Indemnified Party, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such succession had
taken place. Failure of the Corporation to obtain such agreement prior
to effectiveness of any succession shall be a breach of this Agreement
and shall entitle Indemnified Party to appropriate equitable relief or
monetary damages from the Corporation in an amount necessary to provide
Indemnified Party with the protections to which he or she would be
entitled hereunder. As used in this Agreement, the "Corporation" shall
mean the Corporation as hereinbefore defined and any successor to its
business or assets as aforesaid that executes and delivers the
agreement provided for by this Section 15(b) or that otherwise becomes
bound by all of the terms and provisions of this Agreement by operation
of law.
(c) No amendment, modification, termination or cancellation of
this Agreement shall be effective unless in writing signed by both
parties hereto.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties relating to the subject
matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
UroCor, Inc.
By: /s/ Michael N. McDonald
-------------------------------------
Michael N. McDonald
Vice President and
Chief Financial Officer
[Name of Indemnified Party]
/s/ William A. Hagstrom
-----------------------------------------
William A. Hagstrom
Address: 800 Research Parkway
Oklahoma City, OK 73104
Facsimile: (405) 290-4059
<PAGE>
EXHIBIT 10.19
CHANGE IN CONTROL AGREEMENT
THIS AGREEMENT between UroCor, Inc., a Delaware corporation (the
"Company"), and _______________________________________ (the "Employee") is
effective as of this ____ day of ______, 19__ (the "Effective Date"). Certain
capitalized terms used herein are defined in Section 21.
W I T N E S S E T H:
WHEREAS, the Company considers it to be in the best interests of its
stockholders to encourage the continued employment of certain key employees
of the Company notwithstanding the possibility, threat or occurrence of a
Change in Control of the Company; and
WHEREAS, the Employee is a key employee of the Company; and
WHEREAS, the Company believes that the possibility of the occurrence
of a Change in Control of the Company may result in the termination by the
Employee of the Employee's employment by the Company or in the distraction of
the Employee from the performance of his duties to the Company, in either
case to the detriment of the Company and its stockholders; and
WHEREAS, the Company recognizes that the Employee could suffer
adverse financial and professional consequences if a Change in Control of the
Company were to occur; and
WHEREAS, the Company wishes to enter into this Agreement to protect
the Employee if a Change in Control of the Company occurs, thereby
encouraging the Employee to remain in the employ of the Company and not to be
distracted from the performance of his duties to the Company by the
possibility of a Change in Control of the Company;
NOW, THEREFORE, the parties agree as follows:
SECTION 1. OTHER EMPLOYMENT ARRANGEMENTS.
(a) This Agreement does not affect the Employee's existing or future
employment arrangements with the Company unless a Change in Control of the
Company shall have occurred before the expiration of the term of this
Agreement. The Employee's employment with the Company shall continue to be
governed by the Employee's existing or future employment agreements with the
Company, if any, or, in the absence of any employment agreement, shall
continue to be at the will of the Board of Directors or, if the Employee is
not an officer of the Company at the time of the termination of the
Employee's employment with the Company, the will of the Chief Executive
Officer of the Company, except that if (i) a Change in Control of the Company
shall have occurred before the expiration of the term of this Agreement and
(ii) the Employee's employment with the Company is terminated (whether by the
Employee or the Company or automatically as provided in Section 3) after the
occurrence of that Change in Control of the Company, then the Employee shall
be entitled to receive certain benefits as provided in this Agreement.
(b) Notwithstanding anything contained in this Agreement to the
contrary, if following the commencement of any discussions with any person
that ultimately results in a Change in Control of the Company, (i) the
Employee's employment with the Company is terminated, (ii) the Employee is
removed from any material duties or position with the Company, (iii) the
Employee's Base Salary is reduced or (iv) the Employee's annual bonus is
reduced to an amount less than the Benchmark Bonus, then for all purposes of
this Agreement, such Change in Control of the Company shall be deemed to have
occurred on the date immediately prior to the date of such termination,
removal or reduction.
(c) Nothing in this Agreement shall prevent or limit the Employee's
continuing or future participation in any plan, program, policy or practice
of or provided by the Company or any of its Affiliates and for which the
Employee may qualify, nor shall anything herein limit or otherwise affect
such rights as the Employee may have under any contract or agreement with the
Company or any of its Affiliates. Amounts which are vested benefits or which
the Employee is otherwise entitled to receive under any plan, program, policy
or practice of or provided by, or any contract or agreement with, the Company
or any of its Affiliates at or subsequent to the date of termination of
<PAGE>
the Employee's employment with the Company shall be payable or otherwise
provided in accordance with such plan, program, policy or practice or
contract or agreement except as explicitly modified by this Agreement.
SECTION 2. CHANGE IN CONTROL OF THE COMPANY. A "Change in Control of
the Company" shall have occurred if, after the Effective Date:
(i) a report on Schedule 13D or Schedule 14D-1 (or any
successor schedule, form or report) shall be filed with the Commission
pursuant to the Exchange Act and that report discloses that any person
(within the meaning of Section 13(d) or Section 14(d)(2) of the
Exchange Act), other than the Company (or one of its subsidiaries) or
any employee benefit plan sponsored by the Company (or one of its
subsidiaries), is the beneficial owner (as that term is defined in Rule
13d-3 or any successor rule or regulation promulgated under the
Exchange Act), directly or indirectly, of 20 percent or more of the
outstanding Voting Stock;
(ii) any person (within the meaning of Section 13(d) or
Section 14(d)(2) of the Exchange Act), other than the Company (or one
of its subsidiaries) or any employee benefit plan sponsored by the
Company (or one of its subsidiaries), shall purchase securities
pursuant to a tender offer or exchange offer to acquire any Voting
Stock (or any securities convertible into Voting Stock) and,
immediately after consummation of that purchase, that person is the
beneficial owner (as that term is defined in Rule 13d-3 or any
successor rule or regulation promulgated under the Exchange Act),
directly or indirectly, of 20 percent or more of the outstanding Voting
Stock (such person's beneficial ownership to be determined, in the case
of rights to acquire Voting Stock, pursuant to paragraph (d) of Rule
13d-3 or any successor rule or regulation promulgated under the
Exchange Act);
(iii) the consummation of:
(x) a merger, stock exchange, consolidation
or reorganization of the Company with or into any
other person if as a result of such merger, stock
exchange, consolidation or reorganization, 50 percent
or less of the combined voting power of the
then-outstanding securities of such other person
immediately after such merger, stock exchange,
consolidation or reorganization are held in the
aggregate by the holders of Voting Stock immediately
prior to such merger, consolidation or
reorganization;
(y) any sale, lease, exchange or other
transfer of all or substantially all the assets of
the Company and its consolidated subsidiaries to any
other person if as a result of such sale, lease,
exchange or other transfer, 50 percent or less of the
combined voting power of the then-outstanding
securities of such other person immediately after
such sale, lease, exchange or other transfer are held
in the aggregate by the holders of Voting Stock
immediately prior to such sale, lease, exchange or
other transfer; or
(z) a transaction immediately after the
consummation of which any person (within the meaning
of Section 13(d) or Section 14(d)(2) of the Exchange
Act) would be the beneficial owner (as that term is
defined in Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act),
directly or indirectly, of more than 50 percent of
the outstanding Voting Stock;
(iv) the stockholders of the Company approve the dissolution
of the Company; or
(v) during any period of 12 consecutive months, the
individuals who at the beginning of that period constituted the Board
of Directors shall cease to constitute a majority of the Board of
Directors, unless the election, or the nomination for election by the
Company's stockholders, of each director of the Company first elected
during such period was approved by a vote of at least a two-thirds of
the directors of the Company then still in office who were directors of
the Company at the beginning of any such period.
SECTION 3. TERM OF THIS AGREEMENT. The term of this Agreement shall
begin on the Effective Date and shall expire on the first to occur of:
<PAGE>
(i) the Employee's death, the Employee's Disability or the
Employee's Retirement, which events shall also be deemed automatically
to terminate the Employee's employment by the Company; or
(ii) the termination by the Employee or the Company of the
Employee's employment by the Company.
The expiration of the term of this Agreement shall not terminate this
Agreement itself or affect the right of the Employee or the Employee's legal
representatives to enforce the payment of any amount or other benefit to
which the Employee was entitled before the expiration of the term of this
Agreement or to which the Employee became entitled as a result of the event
(including the termination, whether by the Employee or the Company or
automatically as provided in this Section 3, of the Employee's employment by
the Company) that caused the term of this Agreement to expire.
SECTION 4. EVENT OF TERMINATION FOR CAUSE. An "Event of
Termination for Cause" shall have occurred if, after a Change in Control of
the Company, the Employee shall have committed:
(i) gross negligence or willful misconduct in connection
with his duties or in the course of his employment with the Company;
(ii) an act of fraud, embezzlement or theft in connection
with his duties or in the course of his employment with the Company;
(iii) intentional wrongful damage to property of the
Company;
(iv) intentional wrongful disclosure of secret processes
or confidential information of the Company; or
(v) an act leading to a conviction of a felony or a
misdemeanor involving moral turpitude.
For purposes of this Agreement, no act, or failure to act, on the part of the
Employee shall be deemed "intentional" if it was due primarily to an error in
judgment or negligence, but shall be deemed "intentional" only if done, or
omitted to be done, by the Employee not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated as a result of an "Event of Termination for Cause" hereunder
unless and until there shall have been delivered to the Employee a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters of the Board of Directors then in office at a meeting of the
Board of Directors called and held for such purpose (after reasonable notice
to the Employee and an opportunity for the Employee, together with his
counsel, to be heard before the Board of Directors), finding that, in the
good faith opinion of the Board of Directors, the Employee had committed an
act set forth above in this Section 4 and specifying the particulars thereof
in detail. Nothing herein shall limit the right of the Employee or his legal
representatives to contest the validity or propriety of any such
determination.
SECTION 5. AN EVENT OF TERMINATION FOR GOOD REASON. An "Event of
Termination for Good Reason" shall have occurred if, after a Change in
Control of the Company, the Company shall:
(i) assign to the Employee any duties inconsistent with the
Employee's position (including offices, titles and reporting
requirements), authority, duties or responsibilities with the Company
in effect immediately before the occurrence of the first Change in
Control of the Company or otherwise make any change in any such
position, authority, duties or responsibilities;
(ii) remove the Employee from, or fail to re-elect or appoint
the Employee to, any duties or position with the Company or any of its
Affiliates that were assigned or held by the Employee immediately
before the occurrence of the first Change in Control of the Company,
except that a nominal change in the Employee's title that is merely
descriptive and does not affect rank or status shall not constitute
such an event;
<PAGE>
(iii) take any other action that results in a material
diminution in such position, authority, duties or responsibilities or
otherwise take any action that materially interferes therewith;
(iv) reduce the Employee's annual base salary as in effect
immediately before the occurrence of the first Change in Control of the
Company or as the Employee's annual base salary may be increased from
time to time after that occurrence (the "Base Salary");
(v) reduce the Employee's annual bonus to an amount less than
___% of the Employee's Base Salary (the "Benchmark Bonus");
(vi) relocate the Employee's principal office outside of the
metropolitan area of Oklahoma City, Oklahoma;
(vii) fail to (x) continue in effect any bonus, incentive,
profit sharing, performance, savings, retirement or pension policy,
plan, program or arrangement (such policies, plans, programs and
arrangements collectively being referred to herein as "Basic Benefit
Plans"), including, but not limited to, any deferred compensation,
supplemental executive retirement or other retirement income, stock
option, stock purchase, stock appreciation, or similar policy, plan,
program or arrangement of the Company, in which the Employee was a
participant immediately before the occurrence of the first Change in
Control of the Company, or any substitute plan adopted by the Board of
Directors and in which the Employee was a participant immediately
before the occurrence of the last Change in Control of the Company,
unless an equitable and reasonably comparable arrangement (embodied in
a substitute or alternative benefit or plan) shall have been made with
respect to such Basic Benefit Plan promptly following the occurrence of
the last Change in Control of the Company, or (y) continue the
Employee's participation in any Basic Benefit Plan (or any substitute
or alternative plan) on substantially the same basis, both in terms of
the amount of benefits provided to the Employee (which are in any event
always subject to the terms of any applicable Basic Benefit Plan) and
the level of the Employee's participation relative to other
participants, as existed immediately before the occurrence of the first
Change in Control of the Company;
(viii) fail to continue to provide the Employee with benefits
substantially similar to those enjoyed by the Employee under any of the
Company's other employee benefit plans, policies, programs and
arrangements (the "Other Benefit Plans"), including, but not limited
to, life insurance, medical, dental, health, hospital, accident or
disability plans, in which the Employee was a participant immediately
before the occurrence of the first Change in Control of the Company;
(ix) take any action that would directly or indirectly
materially reduce any other non-contractual benefits that were provided
to the Employee by the Company immediately before the occurrence of the
first Change in Control of the Company or deprive the Employee of any
material fringe benefit enjoyed by the Employee immediately before the
occurrence of the first Change in Control of the Company;
(x) fail to provide the Employee with the number of paid
vacation days to which the Employee was entitled in accordance with the
Company's vacation policy in effect immediately before the occurrence
of the first Change in Control of the Company;
(xi) fail to continue to provide Employee with office space,
related facilities and support personnel (including, but not limited
to, administrative and secretarial assistance) (y) that are both
commensurate with Employee's responsibilities to and position with the
Company immediately before the occurrence of the first Change in
Control of the Company and not materially dissimilar to the office
space, related facilities and support personnel provided to other
employees of the Company having comparable responsibility to the
Employee, or (z) that are physically located at the Company's principal
executive offices;
(xii) require the Employee to perform a majority of his duties
outside the Company's principal executive offices for a period of more
than 21 consecutive days or for more than 90 days in any calendar year;
<PAGE>
(xiii) fail to honor any provision of any employment agreement
Employee has or may in the future have with the Company or fail to
honor any provision of this Agreement;
(xiv) give effective notice of an election to terminate at the
end of the term or extended the term of any employment agreement
Employee has or may in the future have with the Company in accordance
with the terms of any such agreement; or
(xv) purport to terminate the Employee's employment by the
Company unless notice of that termination shall have been given to the
Employee pursuant to, and that notice shall meet the requirements of,
Section 6.
SECTION 6. NOTICE OF TERMINATION. If a Change in Control of the
Company shall have occurred before the expiration of the term of this
Agreement, any subsequent termination by the Employee or the Company of the
Employee's employment by the Company, or any determination of the Employee's
Disability, shall be communicated by notice to the other party that shall
indicate the specific paragraph of Section 7 pursuant to which the Employee
is to receive benefits as a result of the termination. If the notice states
that the Employee's employment by the Company has been automatically
terminated as a result of the Employee's Disability, the notice shall (i)
specifically describe the basis for the determination of the Employee's
Disability, and (ii) state the date of the determination of the Employee's
Disability, which date shall be not more than ten (10) days before the date
such notice is given. If the notice is from the Company and states that the
Employee's employment by the Company is terminated by the Company as a result
of the occurrence of an Event of Termination for Cause, the notice shall
specifically describe the action or inaction of the Employee that the Company
believes constitutes an Event of Termination for Cause and shall be
accompanied by a copy of the resolution satisfying Section 4. If the notice
is from the Employee and states that the Employee's employment by the Company
is terminated by the Employee as a result of the occurrence of an Event of
Termination for Good Reason, the notice shall specifically describe the
action or inaction of the Company that the Employee believes constitutes an
Event of Termination for Good Reason. Each notice given pursuant to this
Section 6 (other than a notice stating that the Employee's employment by the
Company has been automatically terminated as a result of the Employee's
Disability) shall state a date, which shall be not fewer than thirty (30)
days nor more than sixty (60) days after the date such notice is given, on
which the termination of the Employee's employment by the Company is
effective. The date so stated in accordance with this Section 6 shall be the
"Termination Date". If a Change in Control of the Company shall have occurred
before the expiration of the term of this Agreement, any subsequent purported
termination by the Company of the Employee's employment by the Company, or
any subsequent purported determination by the Company of the Employee's
Disability, shall be ineffective unless that termination or determination
shall have been communicated by the Company to the Employee by notice that
meets the requirements of the foregoing provisions of this Section 6 and the
provisions of Section 9.
SECTION 7. BENEFITS PAYABLE ON CHANGE IN CONTROL AND TERMINATION.
(a) If (x) a Change in Control of the Company shall have occurred before the
expiration of the term of this Agreement, and (y) the Employee's employment
by the Company is terminated (whether by the Employee or the Company or
automatically as provided in Section 3) after the occurrence of that Change
in Control of the Company, the Employee shall be entitled to the following
benefits:
(i) If the Employee's employment by the Company is terminated
(x) by the Company as a result of the occurrence of an Event of
Termination for Cause, or (y) by the Employee before the occurrence of
an Event of Termination for Good Reason, then the Company shall pay to
the Employee the Base Salary accrued through the Termination Date but
not previously paid to the Employee, and the Employee shall be entitled
to any other amounts or benefits provided under any plan, policy,
practice, program, contract or arrangement of or with the Company,
including, but not limited to, the Basic Benefit Plans and the Other
Benefit Plans, which shall be governed by the terms thereof (except as
explicitly modified by this Agreement).
(ii) If the Employee's employment by the Company is
automatically terminated as a result of the Employee's death, the
Employee's Disability or the Employee's Retirement, then (x) the
Company shall pay to the Employee the Base Salary accrued through the
date of the occurrence of that event but not previously paid to the
Employee, and (y) the Employee shall be entitled to any other amounts
or benefits provided under any plan, policy, practice, program,
contract or arrangement of or with the Company, including, but not
limited to, the Basic Benefit
<PAGE>
Plans and the Other Benefit Plans, which shall be governed by the terms
thereof (except as explicitly modified by this Agreement).
(iii) If the Employee's employment by the Company is
terminated (x) by the Company otherwise than as a result of the
occurrence of an Event of Termination for Cause, or (y) by the Employee
after the occurrence of an Event of Termination for Good Reason, then
the Employee shall be entitled to the following:
(1) the Company shall pay to the Employee the Base
Salary and compensation for earned but unused vacation time
accrued through the Termination Date but not previously paid
to the Employee;
(2) the Company shall pay to the Employee an amount
equal to the product of (A) the highest aggregate annual
bonus, incentive or other payment of cash compensation in
addition to annual base salary pursuant to any bonus,
incentive, profit-sharing, performance, discretionary pay or
similar policy, plan, program or arrangement of the Company
("Incentive Pay") paid or payable to the Executive (including
any deferred portion thereof) for any fiscal year (or portion
thereof) of the Company ending after the Effective Date (the
"Highest Bonus"), and (B) a fraction, the numerator of which
is the number of days in the current fiscal year of the
Company through the Date of Termination and the denominator of
which is 365;
(3) the Company shall pay to the Employee, as a lump
sum, an amount (the "Severance Payment") equal to one and
one-half (1 1/2) times the sum of:
(A) the amount (including any deferred
portion thereof) of the Base Salary that would have
been paid to the Employee during the fiscal year of
the Company in which the Termination Date occurs
based on the assumption that the Employee's
employment by the Company had continued throughout
that fiscal year at the Base Salary at the highest
rate in effect at any time during the term of this
Agreement; plus
(B) the amount of the Highest Bonus;
(4) the Company (at its sole expense) shall take the
following actions:
(A) throughout the Relevant Period, the
Company shall maintain in effect, and not materially
reduce the benefits provided by, each of the Other
Benefit Plans in which the Employee was a participant
immediately before the Termination Date; and
(B) the Company shall arrange for the
Employee's uninterrupted participation throughout the
Relevant Period in each of such Other Benefit Plans,
PROVIDED that if the Employee's participation after the
Termination Date in any such Other Benefit Plan is not
permitted by the terms of that Other Benefit Plan, then
throughout the Relevant Period, the Company (at its sole
expense) shall provide the Employee with substantially the
same benefits that were provided to the Employee by that Other
Benefit Plan immediately before the Termination Date; and
(5) the Employee shall be entitled to any other
amounts or benefits provided under any plan, policy, practice,
program, contract or
<PAGE>
arrangement of or with the Company, including, but not limited
to, the Basic Benefit Plans and the Other Benefit Plans, which
shall be governed by the terms thereof (except as explicitly
modified by this Agreement).
(b) Each payment required to be made to the Employee pursuant to the
foregoing provisions of this Section 7(a) above (i) shall be made by check
drawn on an account of the Company at a bank located in the United States of
America, and (ii) shall be paid (x) if the Employee's employment by the
Company was terminated as a result of the Employee's death, the Employee's
Disability or the Employee's Retirement, not more than thirty (30) days
immediately following the date of the occurrence of that event, and (y) if
the Employee's employment by the Company was terminated for any other reason,
not more than ten (10) days immediately following the Termination Date.
SECTION 8. SUCCESSORS. If a Change in Control of the Company
shall have occurred before the expiration of the term of this Agreement,
(i) the Company shall not, directly or indirectly, consolidate
with, merge into or sell or otherwise transfer its assets as an
entirety or substantially as an entirety to, any person, or permit any
person to consolidate with or merge into the Company, unless
immediately after such consolidation, merger, sale or transfer, the
Successor shall have assumed in writing the Company's obligations under
this Agreement; and
(ii) not fewer than ten (10) days before the consummation of
any consolidation of the Company with, merger by the Company into, or
sale or other transfer by the Company of its assets as an entirety or
substantially as an entirety to, any person, the Company shall give the
Employee notice of that proposed transaction.
SECTION 9. NOTICE. Notices required or permitted to be given
by either party pursuant to this Agreement shall be in writing and shall be
deemed to have been given when delivered personally to the other party or
when deposited with the United States Postal Service as certified or
registered mail with postage prepaid and addressed:
(i) if to the Employee, at the Employee's address
last shown on the Company's records, and
(ii) if to the Company, at 800 Research Parkway, Oklahoma
City, Oklahoma 73104, directed to the attention of the Company's
President.
or, in either case, to such other address as the party to whom or which such
notice is to be given shall have specified by notice given to the other party.
SECTION 10. WITHHOLDING TAXES. The Company may withhold from
all payments to be paid to the Employee pursuant to this Agreement all taxes
that, by applicable federal or state law, the Company is required to so
withhold.
SECTION 11. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment or distribution by, or
benefit from, the Company or any of its Affiliates to or for the benefit of
the Employee, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (any such payments,
distributions or benefits being individually referred to herein as a
"Payment," and any two or more of such payments, distributions or benefits
being referred to herein as "Payments"), would be subject to the excise tax
imposed by Section 4999 of the Code (such excise tax, together with any
interest thereon, any penalties, additions to tax, or additional amounts with
respect to such excise tax, and any interest in respect of such penalties,
additions to tax or additional amounts, being collectively referred herein to
as the "Excise Tax"), then the Employee shall be entitled to receive an
additional payment or payments (individually referred to herein as a
"Gross-Up Payment" and any two or more of such additional payments being
referred to herein as "Gross-Up Payments") in an amount such that after
payment by the Employee of all taxes (as defined in Section 11(k)) imposed
upon the Gross-Up Payment, the Employee retains an amount of such Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
<PAGE>
(b) Subject to the provisions of Section 11(c) through (i), any
determination (individually, a "Determination") required to be made under
this Section 11(b), including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall initially be made, at the Company's
expense, by nationally recognized tax counsel mutually acceptable to the
Company and the Employee ("Tax Counsel"). Tax Counsel shall provide detailed
supporting legal authorities, calculations, and documentation both to the
Company and the Employee within 15 business days of the termination of the
Employee's employment, if applicable, or such other time or times as is
reasonably requested by the Company or the Employee. If Tax Counsel makes the
initial Determination that no Excise Tax is payable by the Employee with
respect to a Payment or Payments, it shall furnish the Employee with an
opinion reasonably acceptable to the Employee that no Excise Tax will be
imposed with respect to any such Payment or Payments. The Employee shall have
the right to dispute any Determination (a "Dispute") within 15 business days
after delivery of Tax Counsel's opinion with respect to such Determination.
The Gross-Up Payment, if any, as determined pursuant to such Determination
shall, at the Company's expense, be paid by the Company to the Employee
within five business days of the Employee's receipt of such Determination.
The existence of a Dispute shall not in any way affect the Employee's right
to receive the Gross-Up Payment in accordance with such Determination. If
there is no Dispute, such Determination shall be binding, final and
conclusive upon the Company and the Employee, subject in all respects,
however, to the provisions of Section 11(c) through (i) below. As a result of
the uncertainty in the application of Sections 4999 and 280G of the Code, it
is possible that Gross-Up Payments (or portions thereof) which will not have
been made by the Company should have been made ("Underpayment"), and if upon
any reasonable written request from the Employee or the Company to Tax
Counsel, or upon Tax Counsel's own initiative, Tax Counsel, at the Company's
expense, thereafter determines that the Employee is required to make a
payment of any Excise Tax or any additional Excise Tax, as the case may be,
Tax Counsel shall, at the Company's expense, determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to the Employee.
(c) The Company shall defend, hold harmless, and indemnify the
Employee on a fully grossed-up after tax basis from and against any and all
claims, losses, liabilities, obligations, damages, impositions, assessments,
demands, judgements, settlements, costs and expenses (including reasonable
attorneys', accountants', and experts' fees and expenses) with respect to any
tax liability of the Employee resulting from any Final Determination (as
defined in Section 11(j)) that any Payment is subject to the Excise Tax.
(d) If a party hereto receives any written or oral communication
with respect to any question, adjustment, assessment or pending or threatened
audit, examination, investigation or administrative, court or other
proceeding which, if pursued successfully, could result in or give rise to a
claim by the Employee against the Company under this Section 11 ("Claim"),
including, but not limited to, a claim for indemnification of the Employee by
the Company under Section 11(c), then such party shall promptly notify the
other party hereto in writing of such Claim ("Tax Claim Notice").
(e) If a Claim is asserted against the Employee ("Employee Claim"),
the Employee shall take or cause to be taken such action in connection with
contesting such Employee Claim as the Company shall reasonably request in
writing from time to time, including the retention of counsel and experts as
are reasonably designated by the Company (it being understood and agreed by
the parties hereto that the terms of any such retention shall expressly
provide that the Company shall be solely responsible for the payment of any
and all fees and disbursements of such counsel and any experts) and the
execution of powers of attorney, PROVIDED that:
(i) within 30 calendar days after the Company receives or
delivers, as the case may be, the Tax Claim Notice relating to such
Employee Claim (or such earlier date that any payment of the taxes
claimed is due from the Employee, but in no event sooner than five
calendar days after the Company receives or delivers such Tax Claim
Notice), the Company shall have notified the Employee in writing
("Election Notice") that the Company does not dispute its obligations
(including, but not limited to, its indemnity obligations) under this
Agreement and that the Company elects to contest, and to control the
defense or prosecution of, such Employee Claim at the Company's sole
risk and sole cost and expense; and
(ii) the Company shall have advanced to the Employee on an
interest-free basis, the total amount of the tax claimed in order for
the Employee, at the Company's request, to pay or cause to be paid the
tax claimed, file a claim for refund of such tax and, subject to the
provisions of the last sentence of Section 11(g), sue for a refund of
such tax if such claim for refund is disallowed by the appropriate
taxing authority (it being understood and agreed by the parties hereto
that the Company shall only be entitled to sue for a refund and the
Company shall not be entitled to initiate any proceeding in, for
example, United States Tax Court) and shall indemnify
<PAGE>
and hold the Employee harmless, on a fully grossed-up after tax basis,
from any tax imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and
(iii) the Company shall reimburse the Employee for any and all
costs and expenses resulting from any such request by the Company and
shall indemnify and hold the Employee harmless, on fully grossed-up
after-tax basis, from any tax imposed as a result of such
reimbursement.
(f) Subject to the provisions of Section 11(e) hereof, the Company
shall have the right to defend or prosecute, at the sole cost, expense and
risk of the Company, such Employee Claim by all appropriate proceedings,
which proceedings shall be defended or prosecuted diligently by the Company
to a Final Determination; PROVIDED, HOWEVER, that (i) the Company shall not,
without the Employee's prior written consent, enter into any compromise or
settlement of such Employee Claim that would adversely affect the Employee,
(ii) any request from the Company to the Employee regarding any extension of
the statute of limitations relating to assessment, payment, or collection of
taxes for the taxable year of the Employee with respect to which the
contested issues involved in, and amount of, the Employee Claim relate is
limited solely to such contested issues and amount, and (iii) the Company's
control of any contest or proceeding shall be limited to issues with respect
to the Employee Claim and the Employee shall be entitled to settle or
contest, in his sole and absolute discretion, any other issue raised by the
Internal Revenue Service or any other taxing authority. So long as the
Company is diligently defending or prosecuting such Employee Claim, the
Employee shall provide or cause to be provided to the Company any information
reasonably requested by the Company that relates to such Employee Claim, and
shall otherwise cooperate with the Company and its representatives in good
faith in order to contest effectively such Employee Claim. The Company shall
keep the Employee informed of all developments and events relating to any
such Employee Claim (including, without limitation, providing to the Employee
copies of all written materials pertaining to any such Employee Claim), and
the Employee or his authorized representatives shall be entitled, at the
Employee's expense, to participate in all conferences, meetings and
proceedings relating to any such Employee Claim.
(g) If, after actual receipt by the Employee of an amount of a tax
claimed (pursuant to an Employee Claim) that has been advanced by the Company
pursuant to Section 11(e)(ii) hereof, the extent of the liability of the
Company hereunder with respect to such tax claimed has been established by a
Final Determination, the Employee shall promptly pay or cause to be paid to
the Company any refund actually received by, or actually credited to, the
Employee with respect to such tax (together with any interest paid or
credited thereon by the taxing authority and any recovery of legal fees from
such taxing authority related thereto), except to the extent that any amounts
are then due and payable by the Company to the Employee, whether under the
provisions of this Agreement or otherwise. If, after the receipt by the
Employee of an amount advanced by the Company pursuant to Section 11(e)(ii),
a determination is made by the Internal Revenue Service or other appropriate
taxing authority that the Employee shall not be entitled to any refund with
respect to such tax claimed and the Company does not notify the Employee in
writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of any Gross-Up
Payments and other payments required to be paid hereunder.
(h) With respect to any Employee Claim, if the Company fails to
deliver an Election Notice to the Employee within the period provided in
Section 11(e)(i) hereof or, after delivery of such Election Notice, the
Company fails to comply with the provisions of Section 11(e)(ii) and (iii)
and (f) hereof, then the Employee shall at any time thereafter have the right
(but not the obligation), at his election and in his sole and absolute
discretion, to defend or prosecute, at the sole cost, expense and risk of the
Company, such Employee Claim. The Employee shall have full control of such
defense or prosecution and such proceedings, including any settlement or
compromise thereof. If requested by the Employee, the Company shall
cooperate, and shall cause its Affiliates to cooperate, in good faith with
the Employee and his authorized representatives in order to contest
effectively such Employee Claim. The Company may attend, but not participate
in or control, any defense, prosecution, settlement or compromise of any
Employee Claim controlled by the Employee pursuant to this Section 11(h) and
shall bear its own costs and expenses with respect thereto. In the case of
any Employee Claim that is defended or prosecuted by the Employee, the
Employee shall, from time to time, be entitled to current payment, on a fully
grossed-up after tax basis, from the Company with respect to costs and
expenses incurred by the Employee in connection with such defense or
prosecution.
(i) In the case of any Employee Claim that is defended or prosecuted
to a Final Determination pursuant to the terms of this Section 11(i), the
Company shall pay, on a fully grossed-up after tax basis, to the Employee in
immediately available funds the full amount of any taxes arising or resulting
from or incurred in connection with such Employee Claim that have not
theretofore been paid by the Company to the Employee,
<PAGE>
together with the costs and expenses, on a fully grossed-up after tax basis,
incurred in connection therewith that have not theretofore been paid by the
Company to the Employee, within ten calendar days after such Final
Determination. In the case of any Employee Claim not covered by the preceding
sentence, the Company shall pay, on a fully grossed-up after tax basis, to
the Employee in immediately available funds the full amount of any taxes
arising or resulting from or incurred in connection with such Employee Claim
at least ten calendar days before the date payment of such taxes is due from
the Employee, except where payment of such taxes is sooner required under the
provisions of this Section 11(i), in which case payment of such taxes (and
payment, on a fully grossed-up after tax basis, of any costs and expenses
required to be paid under this Section 11(i) shall be made within the time
and in the manner otherwise provided in this Section 11(i).
(j) For purposes of this Agreement, the term "Final Determination"
shall mean (A) a decision, judgment, decree or other order by a court or
other tribunal with appropriate jurisdiction, which has become final and
non-appealable; (B) a final and binding settlement or compromise with an
administrative agency with appropriate jurisdiction, including, but not
limited to, a closing agreement under Section 7121 of the Code; (C) any
disallowance of a claim for refund or credit in respect to an overpayment of
tax unless a suit is filed on a timely basis; or (D) any final disposition by
reason of the expiration of all applicable statutes of limitations.
(k) For purposes of this Agreement, the terms "tax" and "taxes" mean
any and all taxes of any kind whatsoever (including, but not limited to, any
and all Excise Taxes, income taxes, and employment taxes), together with any
interest thereon, any penalties, additions to tax, or additional amounts with
respect to such taxes and any interest in respect of such penalties,
additions to tax, or additional amounts.
SECTION 12. EXPENSES OF ENFORCEMENT. If a Change in Control of
the Company shall have occurred before the expiration of the term of this
Agreement, then, upon demand by the Employee made to the Company, the Company
shall reimburse the Employee for the reasonable expenses (including
attorneys' fees and expenses) incurred by the Employee in enforcing or
seeking to enforce the payment of any amount or other benefit to which the
Employee shall have become entitled pursuant to this Agreement, including
those incurred in connection with any arbitration initiated pursuant to
Section 20. To the extent that any such reimbursement would be subject to the
Excise Tax, then the Employee shall be entitled to receive Gross-Up Payments
in an amount such that after payment by the Employee of all taxes imposed on
such Gross-Up Payments, the Employee retains an amount equal to the Excise
Tax imposed upon the reimbursement, and the other provisions of Section 11
hereof shall also apply to such circumstance unless the context thereof
otherwise indicates.
SECTION 13. EMPLOYMENT BY WHOLLY OWNED ENTITIES. If, at or
after the Effective Date, the Employee is or becomes an employee of one or
more corporations, partnerships, limited liability companies or other
entities that are, directly or indirectly, wholly owned by the Company
("Wholly Owned Entities"), references in this Agreement to the Employee's
employment by the Company shall include the Employee's employment by any such
Wholly Owned Entity.
SECTION 14. NO OBLIGATION TO MITIGATE; NO RIGHTS OF OFFSET.
(a) The Employee shall not be required to mitigate the amount of any
payment or other benefit required to be paid to the Employee pursuant to this
Agreement, whether by seeking other employment or otherwise, nor shall the
amount of any such payment or other benefit be reduced on account of any
compensation earned by the Employee as a result of employment by another
person.
(b) The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Employee or others.
SECTION 15. AMENDMENT AND WAIVER. No provision of this
Agreement may be amended or waived (whether by act or course of conduct or
omission or otherwise) unless that amendment or waiver is by written
instrument signed by the parties hereto. No waiver by either party of any
breach of this Agreement shall be deemed a waiver of any other or subsequent
breach.
SECTION 16. GOVERNING LAW. The validity, interpretation,
construction and enforceability of this Agreement shall be governed by the
laws of the State of Oklahoma.
<PAGE>
SECTION 17. VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect.
SECTION 18. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which
together will constitute the same instrument.
SECTION 19. ASSIGNMENT. This Agreement shall inure to the
benefit of and be enforceable by the Employee's legal representative. The
Company may not assign any of its obligations under this Agreement unless (i)
such assignment is to a Successor and (ii) the requirements of Section 8 are
fulfilled.
SECTION 20. ARBITRATION. Except as otherwise explicitly
provided in Section 11, any dispute between the parties arising out of this
Agreement, whether as to this Agreement's construction, interpretation or
enforceability or as to any party's breach or alleged breach of any provision
of this Agreement, shall be submitted to arbitration in accordance with the
following procedures:
(i) Either party may demand such arbitration by giving notice
of that demand to the other party. The notice shall state (x) the
matter in controversy, and (y) the name of the arbitrator selected by
the party giving the notice.
(ii) Not more than 15 days after such notice is given, the
other party shall give notice to the party who demanded arbitration of
the name of the arbitrator selected by the other party. If the other
party shall fail to timely give such notice, the arbitrator that the
other party was entitled to select shall be named by the Arbitration
Committee of the American Arbitration Association. Not more than 15
days after the second arbitrator is so named, the two arbitrators shall
select a third arbitrator. If the two arbitrators shall fail to timely
select a third arbitrator, the third arbitrator shall be named by the
Arbitration Committee of the American Arbitration Association.
(iii) The dispute shall be arbitrated at a hearing that shall
be concluded within ten days immediately following the date the dispute
is submitted to arbitration unless a majority of the arbitrators shall
elect to extend the period of arbitration. Any award made by a majority
of the arbitrators (x) shall be made within ten days following the
conclusion of the arbitration hearing, (y) shall be conclusive and
binding on the parties, and (z) may be made the subject of a judgment
of any court having jurisdiction.
(iv) All expenses of the arbitration shall be borne by the
Company.
The agreement of the parties contained in the foregoing provisions of this
Section 20 shall be a complete defense to any action, suit or other
proceeding instituted in any court or before any administrative tribunal with
respect to any dispute between the parties arising out of this Agreement.
SECTION 21. INTERPRETATION.
(a) As used in this Agreement, the following terms and phrases have the
indicated meanings:
(i) "Affiliate" and "Affiliates" mean, when used with respect
to any entity, individual, or other person, any other entity,
individual, or other person which, directly or indirectly, through one
or more intermediaries controls, or is controlled by, or is under
common control with such entity, individual or person.
(ii) "Base Salary" has the meaning assigned to that term in
Section 5.
(iii) "Basic Benefit Plans" has the meaning assigned to that
term in Section 5.
(iv) "Benchmark Bonus" has the meaning assigned to that term
in Section 5.
(v) "Board of Directors" means the Board of Directors of the
Company.
<PAGE>
(vi) "Change in Control of the Company" has the meaning
assigned to that phrase in Section 2.
(vii) "Claim" has the meaning assigned to such term in Section
11.
(viii) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(ix) "Commission" means the United States Securities and
Exchange Commission or any successor agency.
(x) "Company" has the meaning assigned to that term in the
preamble to this Agreement. The term "Company" shall also include any
Successor, whether the liability of such Successor under this Agreement
is established by contract or occurs by operation of law.
(xi) "Determination" has the meaning assigned to that term in
Section 11.
(xii) "Dispute" has the meaning assigned to that term in
Section 11.
(xiii) "Effective Date" has the meaning assigned to that term
in the preamble to this Agreement.
(xiv) "Election Notice" has the meaning assigned to such term
in Section 11.
(xv) "Employee" has the meaning assigned to such term in the
preamble to this Agreement.
(xvi) "Employee Claim" has the meaning assigned to such term
in Section 11.
(xvii) "Employee's Disability" means:
(A) if no Change in Control of the Company shall have
occurred before the date of determination, the physical or
mental disability of the Employee determined in accordance
with the disability policy of the Company at the time in
effect and generally applicable to its salaried employees; and
(B) if a Change in Control of the Company shall have
occurred at that date, the physical or mental disability of
the Employee determined in accordance with the disability
policy of the Company in effect immediately before the
occurrence of the first Change in Control of the Company and
generally applicable to its salaried employees.
The Employee's Disability, and the automatic termination of the
Employee's employment by the Company by reason of the Employee's
Disability, shall be deemed to have occurred on the date of
determination, PROVIDED that if (1) a Change in Control of the Company
shall have occurred before the expiration of the term of this
Agreement, (2) the Company shall have subsequently given notice
pursuant to Section 6 of the Company's determination of the Employee's
Disability, and (3) the Employee shall have given notice to the Company
that the Employee disagrees with that determination, then (A) whether
the Employee's Disability shall have occurred shall be submitted to
arbitration pursuant to Section 20, and (B) if a majority of the
arbitrators decide that the Employee's Disability had not occurred, at
the date of determination by the Company, then (I) the Employee's
Disability, and the automatic termination of the Employee's employment
by the Company by reason of the Employee's Disability, shall be deemed
not to have occurred, and (II) on demand by the Employee made to the
Company, the Company shall reimburse the Employee for the reasonable
expenses (including attorneys' fees and expenses) incurred by the
Employee in obtaining that decision.
<PAGE>
(xviii) "Employee's Retirement" means (x) if no Change in
Control of the Company shall have occurred before the date of the
Employee's proposed retirement, the retirement of the Employee in
accordance with the retirement policy of the Company at the time in
effect and generally applicable to its salaried employees, and (y) if a
Change in Control of the Company shall have occurred at that date, the
retirement of the Employee from the employ of the Company in accordance
with the retirement policy of the Company in effect immediately before
the occurrence of the first Change in Control of the Company and
generally applicable to its salaried employees.
(xix) "Event of Termination for Good Reason" has the meaning
assigned to that phrase in Section 5.
(xx) "Event of Termination for Cause" has the meaning
assigned to that phrase in Section 4.
(xxi) "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time.
(xxii) "Excise Tax" has the meaning assigned to that term in
Section 11.
(xxiii) "Expiration Date" has the meaning assigned to that
term in Section 3.
(xxiv) "Final Determination" has the meaning assigned to such
term in Section 11.
(xxv) "Gross-Up Payment" has the meaning assigned to that term
in Section 11.
(xxvi) "Other Benefit Plans" has the meaning assigned to that
term in Section 5.
(xxvii) "Payment" has the meaning assigned to that term in
Section 11.
(xxviii) "person" means any individual, corporation,
partnership, joint venture, association, joint-stock company, limited
partnership, limited liability company, trust, unincorporated
organization, government, or agency or political subdivision of any
government.
(xxix) "Relevant Period" means a period beginning on the
Termination Date and ending on the first to occur of (x) the last day
of the 18th calendar month immediately following the calendar month in
which the Termination Date occurs, (y) the date on which the Employee
becomes a full time employee of another person and (z) the Employee's
normal retirement date, determined in accordance with the retirement
policy of the Company in effect on the Termination Date.
(xxx) "Severance Payment" has the meaning assigned to that
term in Section 7.
(xxxi) "Successor" means a person with or into which the
Company shall have been merged or consolidated or to which the Company
shall have transferred its assets as an entirety or substantially as an
entirety.
(xxxii) "Tax" has the meaning assigned to that term in Section
11.
(xxxiii) "Tax Claim Notice" has the meaning assigned to that
term in Section 11.
(xxxiv) "Tax Counsel" has the meaning assigned to that term in
Section 11.
(xxxv) "Termination Date" has the meaning assigned to that
term in Section 6.
(xxxvi) "this Agreement" means this Change in Control
Agreement as it may be amended from time to time in accordance with
Section 15.
(xxxvii) "Underpayment" has the meaning assigned to that term
in Section 11.
<PAGE>
(xxxviii) "Voting Stock" means shares of capital stock of the
Company the holders of which are entitled to vote for the election of
directors, but excluding shares entitled to so vote only upon the
occurrence of a contingency unless that contingency shall have
occurred.
(xxxix) "Wholly Owned Entities" has the meaning assigned to
that term in Section 13.
(b) In the event of the enactment of any successor provision to any
statute or rule cited in this Agreement, references in this Agreement to such
statute or rule shall be to such successor provision.
(c) The headings of Sections of this Agreement shall not control the
meaning or interpretation of this Agreement.
(d) References in this Agreement to any Section are to the
corresponding Section of this Agreement unless the context otherwise indicates.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement as of the Effective Date.
"COMPANY"
UROCOR, INC.
By_____________________________________
Name:__________________________________
Title:_________________________________
"EMPLOYEE"
-------------------------------------
Name:________________________________
<PAGE>
SCHEDULE 10.1
CHANGE IN CONTROL AGREEMENTS
<TABLE>
<CAPTION>
NAME PERCENT
- ----- -------
<S> <C>
Michael W. George, Chief Executive Officer and President 50%
Bruce C. Hayden, Senior Vice President and Chief Financial Officer 30%
Karl K. Nigg, Senior Vice President and General Manager, Sales, Marketing and Operations 40%
John L. Armstrong, Jr., Vice President for Business Development 35%
Robert W. Veltri, Vice President and General Manager, UroSciences Group 30%
Lou R. Carmichael, Vice President, Chief Compliance Officer 0%
Gerard J. O'Dowd, Medical Director 20%
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports dated February 10, 2000, included on pages F-2
and S-1 of the 1999 Annual Report to Shareholders on Form 10-K of UroCor,
Inc., into the previously filed Registration Statements on Form S-8 (File No.
333-16075, 333-58013, 333-58015 and 333-58017) of UroCor, Inc.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma,
February 10, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET FOR DECEMBER 31, 1999 AND THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,259,218
<SECURITIES> 3,107,392
<RECEIVABLES> 16,543,691
<ALLOWANCES> 5,510,998
<INVENTORY> 826,100
<CURRENT-ASSETS> 25,650,251
<PP&E> 16,834,149
<DEPRECIATION> 7,966,029
<TOTAL-ASSETS> 42,161,775
<CURRENT-LIABILITIES> 4,030,730
<BONDS> 0
0
0
<COMMON> 107,691
<OTHER-SE> 37,766,544
<TOTAL-LIABILITY-AND-EQUITY> 42,161,775
<SALES> 0
<TOTAL-REVENUES> 45,508,473
<CGS> 0
<TOTAL-COSTS> 16,816,591
<OTHER-EXPENSES> 29,213,615
<LOSS-PROVISION> 6,751,951
<INTEREST-EXPENSE> 28,862
<INCOME-PRETAX> (6,420,073)
<INCOME-TAX> (2,311,226)
<INCOME-CONTINUING> (4,108,847)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,108,847)
<EPS-BASIC> (.41)
<EPS-DILUTED> (.41)
</TABLE>
