<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
UroQuest Medical Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as specified In Its charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined.):
- --------------------------------------------------------------------------------
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4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE> 2
UROQUEST MEDICAL CORPORATION
173 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
TELEPHONE (650) 463-5180
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 25, 1998
The Annual Meeting of Shareholders of UroQuest Medical Corporation (the
"Company") will be held Thursday, June 25, 1998, at 9:00 a.m. (Pacific Daylight
Time) at the Company's corporate offices, located at 173 Constitution Drive,
Menlo Park, California 94025 to consider and take action upon the following
matters:
1. To elect seven directors to serve until the next Annual Meeting of
Shareholders and until their successors are duly elected and qualified.
2. To consider and vote upon a proposal to ratify the selection of Ernst &
Young LLP as independent public accountants of the Company for the
fiscal year ending December 31, 1998.
3. To act upon any other business that may properly come before the
meeting and any adjournment thereof.
The Board of Directors has fixed the close of business on April 28, 1998,
as the record date for the determination of the shareholders entitled to vote at
the meeting or any adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ JEFFREY L. KAISER
--------------------------------------
Secretary
May 22, 1998
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. HOWEVER, WHETHER OR NOT
YOU PLAN TO BE PERSONALLY PRESENT AT THE MEETING, PLEASE MARK, DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU LATER
DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS EXERCISED.
<PAGE> 3
UROQUEST MEDICAL CORPORATION
173 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
TELEPHONE (650) 463-5180
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 25, 1998
------------------------
SOLICITATION AND REVOCABILITY OF PROXY
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
UroQuest Medical Corporation (the "Company"), for use at the 1998 Annual Meeting
of Stockholders to be held on June 25, 1998 at 9:00 a.m. (Pacific Daylight Time)
or at any adjournment(s) thereof. The Annual Meeting will be held at the
Company's corporate offices, located at 173 Constitution Drive, Menlo Park,
California 94025. The telephone number at the meeting location is (650)
463-5180.
These proxy solicitation materials and the Annual Report to stockholders
for the fiscal year ended December 31, 1997 (the "Last Fiscal Year"), including
financial statements, were first mailed on or about May 22, 1998, to all
stockholders entitled to vote at the Annual Meeting.
RECORD DATE AND VOTING SECURITIES
The Common Stock of the Company, par value $0.001, is the only authorized
voting security of the Company. Stockholders of record as of April 28, 1998 (the
"Record Date") are entitled to receive notice of, and to vote at, the Annual
Meeting. At the Record Date, 12,033,939 shares of the Company's Common Stock
were outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person. Attending the Annual
Meeting in and of itself may not constitute a revocation of a proxy.
VOTING AND SOLICITATION
Each stockholder is entitled to one vote for each share of stock held as of
the Record Date. Stockholders will not be entitled to cumulate their votes in
the election of directors.
The Company will pay expenses for the solicitation of proxies. The Company
expects to reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation materials to such
beneficial owners. Proxies are being solicited primarily by mail, but, in
addition, directors, officers and regular employees of the Company may solicit
proxies personally, by telephone, facsimile or by special letter.
QUORUM ABSTENTIONS; BROKER NON-VOTES
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's Transfer Agent. The Inspector will also determine whether or not a
quorum is present. Except in certain specific circumstances, the affirmative
vote of a majority
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<PAGE> 4
of shares present in person or represented by proxy at a duly held meeting at
which a quorum is present is required under Delaware law for approval of
proposals presented to stockholders. In general, Delaware law also provides that
a quorum consists of a majority of shares which are entitled to vote and which
are present or represented by proxy at the meeting.
The Inspector will treat shares that are voted "WITHHELD" or "ABSTAIN" as
being present and entitled to vote for purposes of determining the presence of a
quorum but will not be treated as votes in favor of or opposed to any matter
submitted to the stockholders for a vote. Any proxy which is returned using the
form of proxy enclosed and which is not marked as to a particular item will be
voted for the election of the directors and for the confirmation of the
appointment of the designated independent auditors and, as the proxy holders
deem advisable, on other matters that may come before the meeting, as the case
may be, with respect to the items not marked.
If a broker indicates on the enclosed proxy or its substitute that it does
not have discretionary authority as to certain shares to vote on a particular
matter ("Broker Non-Votes"), those shares will not be considered as present with
respect to that matter. The Company believes that the tabulation procedures to
be followed by the Inspector are consistent with the general statutory
requirements in Delaware concerning voting of shares and determination of a
quorum.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS TO BE PRESENTED AT 1999 ANNUAL
MEETING
All shareholder proposals intended to be included in the proxy materials
for consideration at the 1999 Annual Meeting of Stockholders must be received by
the Company no later than January 28, 1999. The Company suggests that all such
proposals be sent to the Company by certified mail-return receipt requested.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons owning ten percent of the
Company's Common Stock (collectively, "Reporting Persons") to file reports of
ownership with the Securities and Exchange Commission (the "SEC"). Reporting
Persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms filed.
Based solely on its review of the copies of such forms received or written
representations from certain Reporting Persons, the Company believes that, with
respect to fiscal year 1997, all filing requirements applicable to its Reporting
Persons were complied with, except that Jeffrey L. Kaiser, Terry E. Spraker,
Ph.D., and Keith W.L. Ward did not timely file their initial statements of
beneficial ownership of securities on Form 3.
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<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to the Company with
respect to the beneficial ownership of its Common Stock as of March 31, 1998,
for (i) each person who is known by the Company to own beneficially more than 5%
of the Common Stock, (ii) each of the Company's directors, (iii) each of the
Named Executive Officers of the Company (as defined below) and (iv) all
directors and executive officers as a group:
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER OWNED(1) OF TOTAL(2)
------------------------ ------------ -----------
<S> <C> <C>
Warburg, Pincus Investors, L.P.(3).................... 3,188,571 26.5%
466 Lexington Ave., 10th Floor
New York, NY 10017
Elizabeth H. Weatherman(4)............................ 3,188,571 26.5
Warburg, Pincus Investors, L.P.
466 Lexington Ave., 10th Floor
New York, NY 10017
Thomas E. Brandt...................................... 1,605,029 13.3
Richard C. Davis, M.D.(5)............................. 1,097,760 9.1
Stein Roe & Farnham Incorporated...................... 677,800 5.6
One South Wacker Drive
Chicago, IL 60606
Jack W. Lasersohn(6).................................. 354,285 2.9
Terry E. Spraker, Ph.D.(7)............................ 240,000 2.0
Eric B. Hale(8)....................................... 226,376 1.9
Maynard Ramsey, III, M.D., Ph.D.(9)................... 122,381 1.0
Gary E. Nei(10)....................................... 88,592 *
Jeffrey L. Kaiser(11)................................. 30,000 *
Keith W. L. Ward...................................... -- *
Alan Marquardt(12).................................... -- *
All directors and executive officers as a group (10 6,726,618 53.5
persons)(13)........................................
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated in these footnotes, or pursuant to applicable
state community property laws, each stockholder has sole voting and
investment power with respect to the shares beneficially owned.
(2) Percentages are determined based upon 12,033,939 shares of Common Stock
outstanding on March 31, 1998 together with the applicable warrants and
options exercisable within 60 days of March 31, 1998 for such stockholder.
(3) Represents 3,188,571 shares of Common Stock held by Warburg, Pincus
Investors, L.P. ("Warburg"). The sole general partner of Warburg is
Warburg, Pincus & Co., a New York general partnership ("WP"). E.M. Warburg,
Pincus & Co., LLC, a New York limited liability company ("EM Warburg"),
manages Warburg. The members of EM Warburg are substantially the same as
the partners of WP. Lionel I. Pincus is the managing partner of WP and the
managing member of EM Warburg and may be deemed to control both WP and EM
Warburg. WP has a 20% interest in the profits of Warburg as the general
partner. Elizabeth H. Weatherman, a director of the Company, is a Managing
Director and member of EM Warburg, and a general partner of WP. As such,
Ms. Weatherman may be deemed to have an indirect pecuniary interest (within
the meaning of Rule 16a-1 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) in an indeterminate portion of the shares
beneficially owned by Warburg and WP.
(4) All of the shares indicated as owned by Ms. Weatherman are owned directly
by Warburg and are included because of Ms. Weatherman's affiliation with
Warburg. As such, Ms. Weatherman may be deemed to have an indirect
pecuniary interest in an indeterminate portion of the shares beneficially
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<PAGE> 6
owned by Warburg. Ms. Weatherman disclaims beneficial ownership of these
shares within the meaning of Rule 13d-3 under the Exchange Act.
(5) Represents 1,007,618 shares of Common Stock, 1,005,618 shares of which are
held by The Richard C. Davis, Jr. 1993 Revocable Trust, of which Dr. Davis
is a trustee and over which Dr. Davis has investment and voting control.
The remaining 2,000 shares are owned by Mrs. Elizabeth K. Davis, wife of
Dr. Davis. Dr. Davis disclaims beneficial ownership of these shares. Also
includes 90,142 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of March 31, 1998.
(6) Represents 354,285 shares of Common Stock held by Vertical Fund Associates,
L.P. ("Vertical"). The sole general partner of Vertical is The Vertical
Group, L.P. ("Vertical Group"). Jack W. Lasersohn, a director of the
Company, is a General Partner of the Vertical Group. As such, Mr. Lasersohn
may be deemed to have an indirect pecuniary interest in an indeterminate
portion of the shares beneficially owned by Vertical Group. Mr. Lasersohn
disclaims beneficial ownership of these shares within the meaning of Rule
13d-3 under the Exchange Act.
(7) Represents 240,000 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of March 31, 1998.
(8) Includes 169,304 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of March 31, 1998.
(9) Includes 89,544 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of March 31, 1998.
(10) Represents 88,592 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of March 31, 1998.
(11) Represents 30,000 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of March 31, 1998.
(12) Effective as of March 2, 1998, UroQuest Medical Corporation Vice President,
Regulatory, Clinical and Quality Affairs.
(13) Includes 538,278 shares of Common Stock issuable upon exercise of stock
options exercisable within 60 days of March 31, 1998 and excludes Eric Hale
who resigned as Chief Executive Officer as of May 1997.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES FOR DIRECTOR
At the Annual Meeting, seven (7) directors of the Company (constituting the
entire Board of Directors) are to be elected to serve until the next annual
meeting of shareholders and until their respective successors shall be duly
elected and qualified.
In the event that any of such persons becomes unavailable or declines to
serve as a director at the time of the Annual Meeting, the proxy holders will
vote the proxies in their discretion for any nominee who is designated by the
current Board of Directors to fill the vacancy. It is not expected that any of
the nominees will be unavailable to serve.
Pursuant to an amended Termination and Modification Agreement, so long as
each of Warburg, Pincus Investors, L.P. ("Warburg") and Vertical Fund
Associates, L.P. ("Vertical") beneficially continues to own 50% of the Common
Stock it owned as of October 30, 1996, (the closing of the Company's Initial
Public Offering), each is entitled to designate three directors to the Board of
Directors. The Company believes that this contractual right in the Termination
Agreement permits each of Warburg and Vertical to nominate three directors whose
election will be supported by the parties to the Agreement. Neither Warburg or
Vertical has chosen to exercise this contractual right with respect to the
Annual Meeting. Each of the nominees for director identified below is currently
a director of the Company. The parties to the Termination Agreement
4
<PAGE> 7
have agreed that the size of the Board of Directors will not be increased to
more than eleven members without the prior written consent of each of Warburg
and Vertical.
The names of the nominees for election to the Board of Directors at the
Annual Meeting, their ages as of the Record Date and certain other information
regarding these nominees are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY DIRECTOR SINCE
---- --- ------------------------- --------------
<S> <C> <C> <C>
Thomas E. Brandt 44 Chief Operating Officer, 1996
Director
Richard C. Davis, M.D. 44 Director, Chairman of the Board 1992
Jack W. Lasersohn(1) 45 Director 1995
Gary E. Nei(1)(2) 54 Director 1994
Maynard Ramsey, III, M.D., 54 Director 1994
Ph.D.
Terry E. Spraker, Ph.D. 49 President, Chief Executive 1997
Officer, Director
Elizabeth H. Weatherman(1),(2) 38 Director 1995
</TABLE>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
There are no family relationships among directors or executive officers of
the Company.
RICHARD C. DAVIS, M.D., age 44, has been a director and Chairman of the
Board since the Company's inception and was its Chief Science Officer from
November 1994 to June 1997. Dr. Davis invented the On-Command products and was
responsible for all research and development activities of the Company during
that period. In 1989, he founded Code Blue Medical Corporation, a marketer of
disposable medical devices ("Code Blue") and served as Chairman until April
1992, when Code Blue was sold to Ballard Medical Products, a medical products
company. Dr. Davis is named as an inventor in over 40 United States patents. Dr.
Davis holds a M.D. from the Medical College of Virginia and a B.S. in Chemistry
from Old Dominion University.
TERRY E. SPRAKER, Ph.D., age 49, has been a director and President and
Chief Executive Officer of the Company since May 1997. Before joining the
Company, Dr. Spraker was President and Chief Executive Officer of EP
Technologies, Inc., a manufacturer of interventional cardiac electrophysiology
products, from October 1992 until August 1996. Prior to joining EP Technologies,
Dr. Spraker was President of the Medical Systems Division of Ohmeda, an
anesthesia and critical care products company, from July 1992 until October 1992
and V.P./General Manager of Anesthesia Systems from July 1987 through June 1992.
Dr. Spraker held various general management and engineering positions with
Ohmeda and other medical device and equipment manufacturers from October 1977 to
June 1987. Dr. Spraker is also a director of Kyphon Corporation, a
privately-held medical device company. Dr. Spraker holds a B.S. in Engineering
from the University of Bridgeport, a M.S. in Electrical Engineering and a Ph.D.
in Bioengineering from Pennsylvania State University.
THOMAS E. BRANDT, age 44, has been a director and Chief Operating Officer
since October 1996. Mr. Brandt has served as President and Chief Executive
Officer of Bivona, Inc. ("Bivona"), a subsidiary of the Company which produces
and markets medical products, since June 1989. Prior to joining Bivona, Mr.
Brandt held various management, marketing and engineering positions with Dow
Corning Corporation, a chemical company. Mr. Brandt holds a M.B.A. from Central
Michigan University and a B.S. in Engineering from Iowa State University.
JACK W. LASERSOHN, age 45, has served as a director of the Company since
June 1995. Mr. Lasersohn has been a General Partner of The Vertical Group, a
private venture capital and investment management firm, since its formation in
1989 by former principals of F. Eberstadt & Co., Inc. From 1981 to 1989, he was
a Vice President and later a Managing Director of the venture capital division
of F. Eberstadt & Co., Inc. Mr. Lasersohn also serves as a director of
CardioThoracic Systems, Inc., a medical device company, VitalCom Inc., a health
care information systems company, Massimo Inc., a medical device company, and a
5
<PAGE> 8
number of privately-held health care companies. He holds a J.D. from Yale
University and a M.A. and B.S. from Tufts University.
GARY E. NEI, age 54, has been a director since June 1994. Mr. Nei is
currently Chairman of the Board of B&B Publishing, a publishing company, and has
served as such since May 1995. He also serves as a consultant. Previously, Mr.
Nei was President and Chief Executive Officer of Eon Labs, a pharmaceutical
company, from February 1992 until January 1995. From November 1988 until
December 1991, he served as the President and Chief Executive Officer of
Lyphomed, Inc., a pharmaceutical company. From 1985 until 1986, he served as
Executive Vice President of Baxter International, a health care company. He is
also a director of W. H. Brady Co., an adhesives and graphics technology
company, Nei Turner Interactive, a software company, and Hawk Medical Supply
Inc., a physician's office supply distribution business. He holds a M.B.A. from
Northwestern University and a B.A. from Ripon College.
MAYNARD RAMSEY, III, M.D. Ph.D., age 54, has been a director since March
1994. Dr. Ramsey is Chief Executive Officer and Chief Science Officer of ARZCO
Medical Systems, Inc., a medical products company. Dr. Ramsey was the founder of
Applied Medical Research, Inc., a medical products company which was acquired by
Johnson & Johnson Co. in 1979 and became the patient monitoring business of
Critikon, Inc. While at Critikon, Inc., Dr. Ramsey served as Vice President of
Science and Technology and Vice President of Research and Development from 1979
until March 1994. Dr. Ramsey has received numerous awards for his scientific and
research achievements, holds 16 United States patents, has authored 12
publications and presented 21 papers. He holds a M.D. and a Ph.D. from Duke
University and a B.A. in Chemistry from Emory University.
ELIZABETH H. WEATHERMAN, age 38, has served as a director of the Company
since June 1995. Ms. Weatherman is a Managing Director and member of E.M.
Warburg, Pincus & Co., LLC, a private investment firm, and has been with the
firm since June 1988. Ms. Weatherman is also a director of Xomed Surgical
Products, Inc., a medical device company, and several privately-held health care
companies. Ms. Weatherman holds a M.B.A. from Stanford University and a B.A.
from Mount Holyoke College.
BOARD MEETINGS AND COMMITTEES
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. During the fiscal
year ended December 31, 1997, the Board of Directors met on 6 occasions. Maynard
Ramsey, III, M.D. Ph.D. attended fewer than 75% of all board and committee
meetings. The Board of Directors has a Compensation Committee, which establishes
compensation policies and is responsible for determinations regarding salaries,
incentive compensation and other forms of compensation for directors, officers
and other employees of the Company. The Audit Committee has oversight over the
process of auditing the Company's internally prepared financial statements, and
is charged with reviewing any potential conflicts of interest. Officers are
elected by and serve at the discretion of the Board of Directors or pursuant to
individual employment agreements. There are no family relationships among the
directors or officers of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Nei and Lasersohn and Ms. Weatherman are members of the
Compensation Committee. From January through March 1997, Mr. Nei and Ms.
Weatherman were members of the Compensation Committee. The Compensation
Committee met once in March 1998 with regard to the Company's compensation for
the 1997 fiscal year. In addition to the functions and responsibilities
discussed above, the Compensation Committee also administers the Company's
incentive compensation plans.
Mr. Nei and Ms. Weatherman are members of the Audit Committee. From April
1997 through January 1998, Messrs. Nei and Lasersohn were members of the Audit
Committee. From January through March 1997, Dr. Ramsey and Ms. Weatherman were
members of the Audit Committee. The Audit Committee met once in February 1998
with regard to the Company's 1997 fiscal year financial results and reporting.
6
<PAGE> 9
COMPENSATION OF DIRECTORS
Directors of the Company do not receive cash for services they provide as
directors, aside from out-of-pocket expenses incurred in connection with
attendance at board meetings. On June 6, 1994, Messrs. Davis, Nei and Ramsey
were each granted an option to purchase 107,143 shares of Common Stock at an
exercise price of $.70 per share for their service as directors. The options
vest over a five-year period, although all shares become immediately exercisable
in the event there is a change in control of Company.
VOTE REQUIRED
The nominees receiving the highest number of affirmative votes of the
shares entitled to vote on this matter shall be elected as Directors of the
Company.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
NOMINEES SET FORTH HEREIN.
PROPOSAL NO. 2
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending December 31, 1998 and recommends that the stockholders vote FOR
confirmation of such selection. In the event of a negative vote on such
ratification, the Board of Directors will reconsider its selection. Ernst &
Young LLP has audited the Company's financial statements since September 1997.
Representatives of Ernst & Young LLP are expected to be present at the 1998
Annual Meeting with the opportunity to make a statement if they desire to do so,
and are expected to be available to respond to appropriate questions.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998.
7
<PAGE> 10
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain compensation paid by the Company to
all individuals who acted as Chief Executive Officer of the Company and the four
other most highly compensated executive officers of the Company (collectively
the "Named Executive Officers") for services rendered during the fiscal years
ended December 31, 1995 and 1996, and 1997.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
-------------------------------
ANNUAL COMPENSATION RESTRICTED AWARDS
-------------------- STOCK SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS UNDERLYING OPTIONS COMPENSATION
--------------------------- ---- --------- -------- ---------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Terry E. Spraker, Ph.D. (1).... 1997 $148,462 $97,000 -- 700,000 $ 155(2)
President & Chief Executive 1996 -- -- -- -- --
Officer 1995 -- -- -- -- --
Eric B. Hale (3)............... 1997 73,125 -- -- -- 3,394(4)
President & Chief Executive 1996 195,000 90,000 -- -- 8,864(5)
Officer 1995 190,000 30,000 -- -- 3,600(6)
Thomas E. Brandt............... 1997 168,000 34,200 -- 120,000 7,566(7)
Chief Operating Officer 1996 28,000 -- -- -- 1,325(8)
1995 -- -- -- -- --
Jeffrey L. Kaiser (9).......... 1997 83,372 23,900 -- 120,000 155(10)
Vice President & Chief 1996 -- -- -- -- --
Financial Officer, Secretary 1995 -- -- -- -- --
& Treasurer
Keith W.L. Ward (11)........... 1997 49,085 15,485 -- 120,000 6,016(12)
Vice President, International 1996 -- -- -- -- --
1995 -- -- -- -- --
Richard C. Davis, M.D.(13)..... 1997 59,000 -- -- -- 832(14)
Chief Science Officer 1996 130,000 -- -- -- 1,664(15)
1995 125,585 -- -- -- --
</TABLE>
- ---------------
(1) Effective May 1997, UroQuest Medical Corporation President and Chief
Executive Officer.
(2) Consists of life insurance premiums for the benefit of Dr. Spraker in the
amount of $155 for the fiscal year ended 1997.
(3) Resigned as President and Chief Executive Office as of May 1997.
(4) Consists of life insurance premiums for the benefit of Mr. Hale in the
amount of $694 and an auto allowance of $2,700 for the fiscal year ended
1997.
(5) Consists of life insurance premiums for the benefit of Mr. Hale in the
amount of $1,664 and an auto allowance of $7,200 for the fiscal year ended
1996.
(6) Consists of an auto allowance of $3,600 for the fiscal year ended 1995.
(7) Consists of life insurance premiums for the benefit of Mr. Brandt in the
amount of $1,104 and 401(k) matching contributions in the amount of $6,462
for the fiscal year ended 1997.
(8) Consists of life insurance premiums for the benefit of Mr. Brandt in the
amount of $166 and 401(k) matching contributions in the amount of $1,159
for the fiscal year ended 1996.
(9) Effective May 1997, UroQuest Medical Corporation Vice President and Chief
Financial Officer.
(10) Consists of life insurance premiums for the benefit of Mr. Kaiser in the
amount of $155 for the fiscal year ended 1997.
(11) Effective August 1997, UroQuest Medical Corporation Vice President,
International.
(12) Consists of life insurance premiums for the benefit of Mr. Ward in the
amount of $1,332 and pension payments in the amount of $4,684 for the
fiscal year ended 1997.
(13) Resigned as Chief Science Officer as of June 1997.
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<PAGE> 11
(14) Consists of life insurance premiums for the benefit of Dr. Davis in the
amount of $832 for the fiscal year ended 1997.
(15) Consists of life insurance premiums for the benefit of Dr. Davis in the
amount of $1,664 for the fiscal year ended 1996.
STOCK OPTION INFORMATION
The following table sets forth certain information as to options granted
during the fiscal year ended December 31, 1997 to each Named Executive Officer
of the Company. In accordance with the rules of the Securities and Exchange
Commission, the following table also sets forth the potential realizable value
over the term of the options (the period from the grant date to the expiration
date) based on assumed rates of stock appreciation of 5% and 10% compounded
annually. These amounts do not represent the Company's estimate of future stock
prices. Actual realizable values, if any, of stock options will depend on the
future performance of the Common Stock.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED ANNUAL
SECURITIES PERCENT RATES OF STOCK PRICE
UNDERLYING OF TOTAL APPRECIATION FOR OPTION
OPTIONS OPTIONS EXERCISE TERMS(3)
GRANTED GRANTED IN PRICE EXPIRATION -----------------------
(1) FISCAL 1997(2) ($/SH) DATE 5% 10%
---------- -------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Terry E. Spraker, Ph.D.......... 700,000 42% $4.00 10/27/07 1,760,905 4,462,479
Eric B. Hale.................... -- -- -- -- -- --
Thomas E. Brandt................ 120,000 7 4.00 10/27/07 301,869 764,996
Jeffrey L. Kaiser............... 120,000 7 4.00 10/27/07 301,869 764,996
Keith W.L. Ward................. 120,000 7 4.00 10/27/07 301,869 764,996
Richard C. Davis, M.D........... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Grants under the 1994 Stock Plan. The options generally have a pro-rata
four-year vesting period. Such options are not transferable other than by
will or the laws of descent and distribution.
(2) Based on an aggregate of 1,649,000 options granted by the Company in the
fiscal year ended December 31, 1997 to employees of and consultants to the
Company, including Named Executive Officers.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated assuming that the
fair market value of the Company's Common Stock on the date of grant
appreciates at the indicated annual rate compounded annually for the entire
term of the option and that the option is exercised and sold on the last
day of its term for the appreciated stock price.
9
<PAGE> 12
AGGREGATE OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth, for each of the Named Executive Officers,
information with respect to each exercise of stock options during the fiscal
year ended December 31, 1997 and the value of unexercised stock options held by
such individuals at December 31, 1997.
AGGREGATE OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 1997
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1997 DECEMBER 31, 1997(1)
ACQUIRED VALUE --------------------------- ---------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Terry E. Spraker, Ph.D. ...... -- -- 120,000 580,000 -- --
Eric B. Hale.................. 42,857 171,278 149,148 92,715 287,110 178,476
Thomas E. Brandt.............. -- -- -- 120,000 -- --
Jeffrey L. Kaiser............. -- -- -- 120,000 -- --
Keith W.L. Ward............... -- -- -- 120,000 -- --
Richard C. Davis, M.D. ....... -- -- 83,592 23,551 160,915 45,336
</TABLE>
- ---------------
(1) Value is based on the closing sale price of the Common Stock as of the last
business day of the year, December 31, 1997 ($2.625), minus the exercise
price.
EMPLOYMENT AGREEMENTS
As of January 2, 1998, the Company has entered into employment agreements
with all of its executive officers. The Company's employment agreement with Dr.
Spraker provides for an annual base compensation of $240,000, subject to annual
increases upon board approval, as well as participation in the Company's bonus,
stock option and fringe benefit programs. In addition, the agreement contains
stock option acceleration provisions related to a change of control of the
Company. Dr. Spraker's agreement also contains severance provisions that under
certain circumstances could entitle Dr. Spraker to receive a lump-sum cash
severance payment equal to his then current compensation.
The Company's employment agreement with Mr. Brandt provides for an annual
base compensation of $168,000, subject to annual increases upon board approval,
participation in the Company's bonus, stock option and fringe benefit programs,
and severance continuation for up to forty-two months (as of March 31, 1998)
following termination of employment without cause.
The Company's employment agreements with Messrs. Kaiser and Ward provide
for an annual base compensation of $140,000, subject to annual increases upon
board approval, along with participation in the Company's bonus, stock option
and fringe benefit programs.
The Company's employment agreement with Mr. Marquardt provides for an
annual base compensation of $147,000, subject to annual increases upon board
approval, and participation in the Company's bonus, stock option and fringe
benefit programs.
In addition, the agreements for Messrs. Kaiser, Ward and Marquardt contain
stock option acceleration provisions in certain instances in which there is a
change of control of the Company.
10
<PAGE> 13
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The objectives of the Company's executive compensation program are to align
compensation with business objectives and individual performance, and to enable
the Company to attract, retain and reward executive officers who contribute to
the long-term success of the Company. In seeking to achieve these objectives the
Company's executive compensation is based on the following principles.
COMPETITIVE AND FAIR COMPENSATION
The Company is committed to providing an executive compensation program
that helps attract and retain highly qualified executives. To ensure that
compensation is competitive, the Company compares its compensation practices
with those of comparable medical products and other relevant companies in a
similar stage of development.
SHORT-TERM CASH COMPENSATION
Cash compensation consists of two components: annual salary and cash
incentive compensation. The annual salaries and cash incentives of the executive
officers are evaluated based upon corporate and individual performance. While
industry-wide practices are deemed to be important indicators of appropriate
compensations levels, the Compensation Committee believes the most important
considerations are individual and corporate performance in setting an
executive's base salary and cash incentive compensation.
Corporate performance is evaluated by reviewing the extent to which
strategic and business planning goals and milestones are met. Individual
performance is evaluated by reviewing attainment of specific individual
objectives and milestones and the degree to which teamwork and Company values
are fostered. Cash incentive compensation is based upon the achievement of
functional, divisional and corporate goals as well as individual performance.
LONG-TERM INCENTIVE COMPENSATION
Because not all short-term management accomplishments are directly related
to changes in short-term stockholder value, the Compensation Committee believes
that management should also have a long-term compensation component related to
increasing stockholder value. To assure that executive officers' goals and
accomplishments are linked with increasing stockholder value, the Compensation
Committee believes that the grant of options to purchase the Company's Common
Stock that become exercisable over an extended period of time should be an
integral part of the overall compensation philosophy.
COMPENSATION PROGRAM COMPONENTS
Annual compensation for the Company's executive officers currently consists
of three elements: salary, cash incentive compensation and equity participation.
Executive officers are also entitled to participate in the same benefit plans
available to other employees.
On an annual basis, goals for Company performance and individual goals and
objectives for each of the Company's executive officers (including the Chief
Executive Officer) are established by the Compensation Committee. Once a year,
all executive officers other than the Chief Executive Officer are evaluated by
the Chief Executive Officer on their performance with respect to their
individual goals and objectives. At that time, revised goals and objectives are
established, if appropriate. Based upon their performance relative to their
goals and objectives, the base salary of executive officers other than the Chief
Executive Officer generally is adjusted once per year by the Compensation
Committee.
On an annual basis, the Compensation Committee evaluates the achievement of
the annual goals and objectives established for the Chief Executive Officer and
his contribution to the Company.
11
<PAGE> 14
Stock option awards are designed to promote the identity of long-term
interests between the Company's employees and its stockholders and assist in the
retention of executives. The size of option grants is generally intended by the
Compensation Committee to reflect the executive's position with the Company and
his or her actual or potential contributions to the Company in relation to his
or her overall compensation. The Compensation Committee believes that stock
options have been and remain an excellent vehicle for compensating its
employees. Because the option exercise price of the employee is generally the
fair market value of the stock on the date of grant, employees recognize a gain
only if the value of the stock increases. Thus, employees with stock options are
rewarded for their efforts to improve the long-term value of the Common Stock.
Stock options, moreover, have been used to reward substantially all employees of
the Company, not just at the executive officer level.
1997 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The amount and means of determining Dr. Spraker's base annual salary for
1997 was fixed by the terms of his employment agreement with the Company. Dr.
Spraker was appointed as President and CEO in May 1997. His employment agreement
provided for an annual base salary of $240,000, subject to yearly review, and
such incentive bonus payments as the Compensation Committee may from time to
time determine.
In April 1998 the Company paid a cash bonus of $97,000 to its Chief
Executive Officer. The Compensation Committee intended for this bonus to
represent compensation for such officer's contributions to the development and
achievements of the Company through December 31, 1997. For the Company's 1998
fiscal year, the Compensation Committee has set additional goals and objectives
for Company performance, as well as additional individual goals and objectives
with the intention of reviewing the appropriateness of additional incentive cash
compensation for such year.
The objectives achieved by the Company which the Compensation Committee
determined to be significant in determining Dr. Spraker's 1997 salary and cash
incentive payment included clinical trial and regulatory progress of the
Company's On-Command products, corporate financial performance for fiscal 1997
and certain other items. The Compensation Committee expects that it will
continue to review the CEO's salary on an annual basis and will adjust his
compensation based upon the achievement of goals and objectives set for the
Company.
COMPLIANCE WITH INTERNAL REVENUE CODE Section 162(m)
The Compensation Committee has not yet adopted a policy on the 1993
amendment to the Internal Revenue Code of 1986, as amended (the "Code"),
disallowing deduction on compensation in excess of $1 million for certain
executives of public companies. The Company believes that options granted under
the 1994 Stock Plan are exempt from the limitation, and other compensation
expected to be paid during fiscal year 1998 is below the compensation
limitation.
Respectfully Submitted
by the Compensation Committee:
Jack W. Lasersohn
Gary E. Nei
Elizabeth H. Weatherman
12
<PAGE> 15
STOCKHOLDER PERFORMANCE GRAPH
The following graph compares the performance of the Company's Common Stock
to the Nasdaq Stock Market Total Return Index for U.S. Companies (the "Nasdaq
Stock Market -- U.S. Index") and the Hambrecht & Quist Growth Index ("H&Q Growth
Index") over the period from the time of the Company's initial public offering
of Common Stock on October 24, 1996 to December 31, 1997. The graph assumes that
the value of an investment in the Company's Common Stock and each index was $100
at October 24, 1996 and that all dividends were reinvested.
<TABLE>
<CAPTION>
Hambrecht &
Measurement Period UroQuest Medical Quest Growth Nasdaq Compostie
(Fiscal Year Covered) Corporation Index (US)
<S> <C> <C> <C>
10/24/96 100 100 100
12/31/96 112.5 97.86 105.65
6/30/97 108.33 92.22 118.25
12/31/97 43.75 100.2 129.04
</TABLE>
The information contained in the Stock Performance Graph shall not be
deemed to be "soliciting material" or to be filed with the SEC, nor shall such
information be incorporated by reference into any future filing under the
Securities Act or the Exchange Act, except to the extent the Company
specifically incorporates it by reference into such filing.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the shares they
represent as the Board of Directors may recommend.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1997 IS BEING FURNISHED TO EACH SHAREHOLDER WITH THIS PROXY
STATEMENT. IF NECESSARY, THE COMPANY WILL MAIL AN ADDITIONAL COPY, WITHOUT
CHARGE, TO ANY STOCKHOLDER UPON WRITTEN REQUEST OF THE COMPANY'S ANNUAL REPORT
ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND A LIST OF
EXHIBITS. REQUESTS SHOULD BE SENT TO INVESTOR RELATIONS, UROQUEST MEDICAL
CORPORATION, MENLO PARK, CALIFORNIA 94025.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Terry E. Spraker, Ph.D.
President and CEO
Dated: May 22, 1998
13
<PAGE> 16
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
UROQUEST MEDICAL CORPORATION
1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 25, 1998
The undersigned, having duly received the Notice of Annual Meeting and
Proxy Statement dated May 22, 1998, hereby appoints Terry E. Spraker as Proxy
(with the power to act alone and with the power of substitution and revocation)
to represent the undersigned and to vote, as designated below, all Common Shares
of UroQuest Medical Corporation held of record by the undersigned on April 28,
1998, at the meeting of stockholders to be held at the Company's corporate
offices, located at 173 Constitution Drive, Menlo Park, California 94025 on June
25, 1998, at 9:00 a.m. (Pacific Daylight Time), and any adjournment(s) thereof.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to vote for all nominees
to the contrary) listed below
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Richard C. Davis, M.D. Terry E. Spraker, Ph.D. Tom E. Brandt
Jack W. Lasersohn Gary E. Nei Maynard Ramsey, M.D., Ph.D.
Elizabeth H. Weatherman
2. PROPOSAL TO APPROVE ERNST & YOUNG, LLP AS INDEPENDENT AUDITORS OF THE
COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the Proxies are authorized to vote upon other
business of which the Board of Directors is presently unaware and which may
properly come before the meeting, and for the election of any person as a member
of the Board of Directors if a nominee named in the accompanying Proxy Statement
is unable to serve or for good cause will not serve. In their discretion, the
Proxies are authorized to vote upon such other business as may properly come
before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY
SHALL BE VOTED FOR THE ELECTION OF ALL NOMINEES FOR DIRECTOR AND FOR THE
ADOPTION OF PROPOSAL 2.
(over)
<PAGE> 17
PLEASE SIGN exactly as name appears. When shares are held by joint
tenants, both should sign. If signing as attorney, executor, administrator or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by an authorized person.
The undersigned hereby revokes any proxies given prior to the date stated below.
--------------------------------
--------------------------------
Signature(s) of stockholder(s)
DATED: __________________, 1998
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
